Allocation of Sale Proceeds

In D.05-04-007, we stated:

To provide the proper safeguards and incentives for the negotiations, in any sale of the property at issue, ratepayers will receive at least the $100,000 originally recommended by SDG&E, and any incremental amount received for the property as a result of further negotiations will be shared equally by ratepayers and SDG&E. (Id., p. 6.)

Accordingly, if the sale price is revised to $1,249,195, the sale proceeds shall be allocated as follows: the first $100,000 goes to ratepayers, and the incremental amount of $1,149,195 will be divided equally, with ratepayers and shareholders getting $574,597.50 each. The total proceeds would be $674,597.50 for ratepayers and $574,597.50 for shareholders.

In its Motion of September 2, 2005, and based on a sale price of $287,967, SDG&E proposed an allocation of $120,033.50 to ratepayers. SDG&E explains that it reached this number by taking the basis of the property of $73,950, and subtracting that number from the original $100,000 sale price, resulting in a gain of $26,050. SDG&E would then flow through the $26,050 plus $93,983.50 (50% of the remaining gain of $187,967) for a total flow through to ratepayers of $120,033.50. (SDG&E Motion, p. 3, fn. 2.)

SDG&E's proposed method is inconsistent with D.05-04-007, as it uses net gain, rather than sale price, as the basis for its calculations. Even at a sale price of $287,967, the correct approach under D.05-04-007 would be to allocate the first $100,000 to ratepayers, and the incremental amount of $187,967 is divided equally, with ratepayers and shareholders each getting $93,983.50, going to ratepayers and $93,983.50 going to shareholders, for a total of $193,983.50 for ratepayers and $93,983.50 for shareholders. This approach is also supported by ORA. (ORA Response to SDG&E Motion, p. 3.)