5. Ratemaking Considerations

A. Gain on Sale

PG&E and ORA both state that under PG&E's gain on sale from this transaction should generally be allocated according to D.89-07-016 (Redding II).

In Redding II, we held that a utility's gain on the sale of all or part of a distribution system should be allocated to utility shareholders as non-utility income under the following four circumstances, provided that ratepayers did not contribute capital to the distribution system:

· The distribution system is sold to a public entity, such as a municipality or a special utility district;

· The distribution system consists of part or all of the utility's operating system located within a geographically defined area;

· Components of the system are or have been included in the utility's ratebase; and

· The sale of the distribution system is concurrent with the utility's being relieved of its obligation to serve customers in the area served by the distribution system, and the public entity that purchased the distribution system assuming this obligation.

However, Redding II also provides that if a transfer of a utility distribution system will adversely impact the cost or quality of service for remaining utility ratepayers, the gain on sale should be allocated to ratepayers to the extent necessary to mitigate the adverse impacts.

We agree with PG&E and ORA that this transaction falls within the four corners of Redding II. However, ORA argues that under Redding II, the Commission should adopt certain mitigation measures to avoid adverse financial effects on remaining PG&E ratepayers. For example, under Section 4.3 of the asset sale agreement, PG&E has agreed to waive its right to collect non-bypassable chares (NBCs)²⁴ from departing customers in return for a promise by TID to pay PG&E for these charges monthly for the period of time that these charges are authorized.²⁵ ORA argues that if TID were to default on this obligation, PG&E would place an unfair financial burden on its remaining ratepayers by recovering the lost revenue from them. ORA therefore asks the Commission to require PG&E to place funds from its gain on sale in an amount equal to these NBCs in a holding account, to be utilized if TID defaults on its obligation to pay the NBCs. ORA also requests that PG&E shareholders be held jointly and severally liable with TID for the NBCs, as additional security.

PG&E and TID argue that ORA has not presented any evidence that TID is likely to default, and that if a default occurs, PG&E may address the issue through the dispute resolution process specified in the closing agreement.

ORA also argues that the Commission should condition its approval of PG&E's request to waive collection of the amounts owed by departing customers under PG&E's Energy Efficiency Program²⁶ by requiring PG&E to place an amount of $427,946 in a holding account. ORA claims that unless the Commission requires this measure, PG&E's remaining ratepayers will be required to make up the difference through increased rates.

PG&E also requests authorization to waive the amounts owed by departing customers under its Energy Efficiency Program because these customers have no responsibility for the transfer of their electric service from PG&E to TID. PG&E states that if the Commission does not permit this waiver, the asset sale agreement requires TID to pay PG&E amounts that would otherwise be owed by the departing customers up to $500,000.

Although the Commission has deferred determination of the allocation of gain on sale between ratepayers and shareholders to a subsequent Commission ratemaking in numerous proceedings, we find it reasonable in this case to decide the ratemaking issues expeditiously, in order to facilitate business planning by the parties. We, therefore, will not defer this issue to a subsequent gain on sale rulemaking.²⁷ However, in order to expedite approval of this transaction and to permit additional public review and comment on these issues, we defer our determination regarding allocation of the gain on sale, including the mitigation measures proposed by ORA and PG&E's proposed waiver of the amounts that would otherwise be owed by departing customers under energy efficiency program contracts, to a subsequent decision in this proceeding.

In the meantime, PG&E shall track the revenues received from the sale in its Real Property Gain/Loss on Sale Memorandum Account or other applicable memorandum accounts. In addition, since lease revenues fall within an existing category of non-tariffed products and services under PG&E Advice Letter 2603-G/1741-E, Category T.C. 4, PG&E shall treat revenues from the Patterson and Salado substation leases as Other Operating Revenue (OOR) and track these funds in an appropriate memorandum account.

B. Payment of NBCs or Cost Responsibility Surcharges Established After Closing Date

PG&E further asks the Commission to find that TID's agreement to pay NBCs established before the closing date on behalf of departing customers fully satisfies any responsibility of PG&E or its customers for the payment of NBCs. However, the asset sale agreement does not provide for the payment of new charges established after the closing date by PG&E, TID, or departing customers.²⁸ Although the Commission cannot require TID, as an irrigation district, to assume financial obligations not assumed in the transaction agreements or required by law, we cannot properly exempt departing customers from any legal obligation to pay NBCs or cost responsibility surcharges established after the closing date. Further, if departing customers do not pay their fair share of these charges, these costs may be shifted to remaining ratepayers and create an unfair financial burden for them.^{29 30} We therefore require departing customers in this case to be responsible for new NBCs or cost responsibility surcharges applicable to them, which are established after the closing date, as a condition of approval of this transaction.³¹

C. PG&E's Methodology for Calculating the Amounts Owed for NBCs

PG&E also requests that the Commission approve its methodology for the calculation of NBCs to be paid by TID on behalf of departing customers. ORA has not challenged PG&E's methodology or calculations, and there is no evidence in the record to contradict PG&E's testimony on this issue. PG&E's methodology is based on its tariffs and advice letters, Commission decisions, and applicable statutes and appears to be reasonable on an overall basis, so long as it is consistent with this authority. However, we note that the figures contained in Table 2-2³² are illustrative examples only, and that the discussion of accounting treatment in PG&E's testimony is based on these illustrative examples, rather than actual calculations.³³ We therefore do not approve these specific calculations as representative of the amounts that would be owed for NBCs established prior to the closing date. We also deny PG&E's request to find that the calculations and methodology contained in PG&E's testimony represent the total amount owed for NBC's, because departing customers may be subject to new NBCs or CRS established after the closing date, as discussed above.