3. The Agreements

A. The License and Lease Agreement

This agreement is structured as a license under General Order (GO) 69-C,8 which will automatically convert to a lease upon Commission approval of the agreement. PG&E has retained the right to revoke the license at any time, upon Commission order or on PG&E's own motion whenever PG&E believes that use of the facilities by PG&E would be in the best interests of its customers.

The lease will terminate either:

If the lease will expire on December 31, 2007 and MOD notifies PG&E that it still needs to use the facilities to serve customers in the Mountain House Area, the parties must meet and confer regarding a possible extension. However, PG&E is not obligated to agree to the extension, and any extension of the lease is subject to Commission approval.

PG&E has agreed to license or lease the electric distribution facilities in the Mountain House Area, with certain exclusions,9 to MOD, for use only to provide electric distribution service to retail customers in the Mountain House Area.

PG&E has retained the right to use its main line to serve PG&E customers outside the Mountain House Area. Therefore, under the agreement, MOD cannot use more than one megawatt of capacity on the mainline. PG&E may use other facilities not being utilized by MOD as needed to serve PG&E customers.

PG&E shall have ongoing access to the facilities and the surrounding areas as necessary to carry out its contractual obligations or to meet legal requirements.

MOD agreed to pay PG&E a monthly rent of $4,682.47 beginning on the effective date of the license/lease. Effective January 1, 2003, the monthly rate is reduced to $4,172.00. The parties have agreed that if the Commission approves the sale agreement (discussed below), the monthly rent will be reduced to $3,874.00 because MOD will be purchasing, rather than renting, certain facilities.

PG&E does not warrant that its land rights are sufficiently broad to permit MOD access to or use of the facilities. MOD is responsible for obtaining all rights, licenses, permits, and approvals necessary to utilize the facilities.

MOD is also responsible for all tasks necessary to act as an electric distribution provider in the Mountain House Area, including securing sufficient electricity to serve customers, performing revenue cycle services, and customer service. MOD will obtain transmission service under separate agreements and tariffs.

MOD will acquire and install the necessary bi-directional metering equipment at all delivery points at its own expense. MOD will also construct, maintain, control and operate lines and associated equipment connected to the facilities and may establish service connections from PG&E lines to serve customers in the Mountain House Area. PG&E will perform all tie-in work at MOD's expense. PG&E and MOD will coordinate switching operations.

MOD will perform routine and emergency service from lines connected to the facilities. PG&E will maintain voltage standards at the connection points. MOD will notify PG&E of any outage or any service or emergency request, and PG&E will respond according to its normal service or emergency procedures.

PG&E shall make reasonable efforts to provide service to MOD under the agreement. However, PG&E shall not be liable for delays resulting from causes beyond its control. If PG&E does not have sufficient material or labor resources to accommodate all of its service requirements, PG&E may allocate its resources to best serve PG&E customers, as determined in PG&E's sole discretion.

MOD has agreed to accept the facilities on an "as is" basis, and has acknowledged that there may be hazardous wastes, asbestos, PCBs, lead paint, electromagnetic fields or other environmental hazards in or about the facilities. PG&E has disclaimed any representations or warranties regarding the facilities, including their fitness for a particular purpose.

Under the agreement, PG&E shall not be liable to MOD or MOD customers for any special, consequential, or indirect damages, including loss of use, loss of profits or revenue, loss of capital or increased operating costs, arising out of this transaction or from breach of this agreement. PG&E's total liability to MOD under any cause or action related to the use of PG&E facilities or the license/lease may not exceed the fees received by PG&E under the license/lease, except for actions based on PG&E's willful misconduct.

Disputes arising between PG&E and MOD shall be resolved through arbitration using the Commercial Arbitration Rules of the American Arbitration Association. The prevailing party may enter the arbitrator's judgment in any court having jurisdiction over the dispute.

Under the agreement, PG&E will not collect nonbypassible charges (NBCs)10 from customers whose service was transferred to MOD pursuant to § 9610. Instead, MOD will pay NBCs on behalf of customers that departed PG&E's electric system before January 1, 2001, pursuant to § 9610 to PG&E annually. The amount paid will be determined according to PG&E tariffs, plus interest at the three-month commercial paper rate. PG&E will provide MOD with its calculations of the NBCs owed thirty days in advance. If the parties disagree on the amount owed, they shall invoke the dispute resolution process under the agreement. MOD's failure to timely pay these charges to PG&E is a material breach of the agreement. MOD's obligation to pay these NBCs will continue even after termination of the agreement.

MOD shall not assign the agreement or sublet the facilities without PG&E's consent. The agreement is binding on the successors and assigns of the parties. However, assignment of the agreement will not relieve MOD of its obligations under the agreement.

B. The Purchase and Sale Agreement

PG&E has agreed to sell certain distribution facilities described in the agreement to MOD for $136,207. This price is based on the Replacement Cost Less New Depreciation. The purchase price may be adjusted if PG&E adds or retires facilities before the closing date.

This sale of facilities does not include:

PG&E will also retain all rectifiers on the poles in the Mountain House Area. PG&E has also reserved an easement to maintain, use and operate these rectifiers as necessary for the operation, use and maintenance of gas pipelines in the area and may use electricity from the facilities sold to MOD for this purpose. PG&E will pay for this service according to MOD's rate schedule GS-1 for non-metered accounts.

Under the agreement, PG&E has no duty to transfer any land right related to the facilities to MOD, if the transfer would violate any contractual obligation, the law, or any equitable obligation owed to a third party. PG&E has specifically disclaimed any representation or warranty that it possesses, or can transfer to MOD, land rights that will provide adequate or appropriate access to the facilities. MOD has assumed any risks and liabilities connected with the absence of these land rights.11

MOD will reimburse PG&E for the cost of physically separating the facilities sold from the rest of PG&E's distribution facilities.

MOD is generally responsible for taxes resulting from this transaction.

MOD agrees that it has had adequate opportunity to inspect and has inspected the facilities before entering into this agreement. PG&E has disclosed that hazardous substances, including PCBs, may be present at, in, on, under, about, contained in, or incorporated in the facilities or the land. However, except as disclosed in the agreement, to PG&E's current knowledge: (1) There has been no release of hazardous substances from or affecting any of the facilities that requires remediation, (2) PG&E is undertaking no remediation activities at the facilities, and (3) No governmental authority has notified PG&E of a pending hazardous substances investigation, proceeding, clean-up, abatement, or similar order related to the facilities. PG&E will confirm or modify these representations based on its then current knowledge on the closing date.

MOD is purchasing the facilities on an "as is" basis, in their existing condition on the closing date. PG&E has made no representations or warranties regarding the condition, value or quality of the facilities, the suitability of the facilities for the distribution of electricity, or the absence of hazardous materials or compliance with environmental laws.

With certain exceptions, MOD releases, discharges, and covenants not to sue PG&E for any or all losses (including reductions in the value of the land), costs, claims, actions, orders, debts, expenses, judgments or liability related to the facilities or the land rights transferred to MOD. MOD has also agreed to indemnify, protect, defend and hold PG&E harmless from any claims or liability resulting from any inspection of the facilities or any activities conducted on the site (except when such claims result from the sole negligence or willful misconduct of PG&E), or which are related to MOD's ownership or use of the facilities or the land rights after the closing date. This indemnification includes claims or liability based on the presence or release of hazardous substances or PCBs at the facilities or on the land and the payment of response costs under CERCLA or other environmental laws. Since MOD has waived the protections of Civil Code Section 1542, the release and indemnification provisions also apply to claims of which MOD had no knowledge or did not suspect to exist at the time of executing the agreement.12

MOD has agreed that it is purchasing the facilities for its own use, not for resale, and will continue to use the facilities for electric distribution purposes. If MOD sells all or part of the facilities or land rights, MOD shall give the purchaser advance written notice of the potential presence of hazardous substances, including PCBs, in, on, under, about, contained in, or incorporated in the facilities or the land.

Any disputes between the parties shall be settled by binding arbitration according to the same procedures stated in the license/lease agreement.

MOD is responsible for obtaining any governmental approvals, permits, or licenses necessary to implement the agreement and operate the facilities, except that PG&E will remove the mortgage on the facilities.

The agreement is binding on the successors and assigns of the parties. Although MOD may not assign the agreement, PG&E may assign all or part of the agreement to any company formed pursuant to PG&E's plan of reorganization confirmed by the Bankruptcy Court, without MOD's prior approval.

C. The Wood Pole Lease Agreement

This agreement permits MOD to lease space on certain wooden transmission poles in the Mountain House Area to use as the site for electric distribution facilities and equipment.

During the first year of the agreement, PG&E will charge MOD a monthly rent of $75 per pole. In subsequent years, the rent will increase to 103.5 percent of the pole rent in effect during the prior year.

This agreement grants MOD the right to use corresponding space on any replacement pole if a particular pole is removed. Except in an emergency, PG&E will give MOD 90 days' notice of the relocation of any pole. Unless MOD objects, PG&E may move the MOD asset to the new pole without MOD's specific consent.

Under certain circumstances, PG&E may require MOD to remove its assets from the poles if PG&E needs the space for its own use, to accommodate preexisting third party rights, or to comply with legal requirements, or if the pole is taken by eminent domain.

MOD must identify all of its assets on PG&E poles with weatherproof and corrosive-resistant tags.

MOD is responsible for ensuring that it has the land rights needed to place and maintain assets on the poles, that the assets are in good working order, and that it complies with all permit and legal requirements. PG&E must maintain the poles in good working order.

The term of the agreement is ten years, unless one of the parties defaults. However, MOD may terminate the agreement upon giving 90 days' advance notice to PG&E.

The parties have agreed to mutual indemnification and limitations on liability. If disputes between PG&E and MOD arise, the parties will first attempt to resolve the issue through mediation. If mediation is unsuccessful, the dispute is subject to binding arbitration under the American Arbitration Association Rules of Commercial Arbitration.

With certain exceptions, neither party may assign or delegate the agreement without the prior written consent of the other.13

8 GO 69-C provides in pertinent part "...public utilities covered by the provisions of Section 851...are hereby authorized to grant easements, licenses, or permits for use or occupancy on, over or under any portion of the operative property of said utilities for rights of way, private roads, agricultural purposes or other limited uses of their several properties without further special authorization by the Commission whenever it shall appear that the exercise of such easement, license, or permit will not interfere with the operations, practices, and service of such public utilities to and for their several patrons or customers." In order to grant an interest in property pursuant to GO 69-C, the public utility must retain the right to resume or continue use of the property when necessary or desirable to do so in the interest of its patrons or consumers or upon Commission order. 9 The license/lease specifically excludes the following facilities in the Mountain House Area: any gas or electric transmission facilities and associated equipment; the 12kV distribution facilities and associated equipment located along Wicklund Road, any gas distribution facilities, any land rights, any construction equipment, any materials or supplies in inventory, any business records, and any maps or diagrams. 10 The agreement defines "NBCs" to mean "nonbypassible charges PG&E is authorized to recover pursuant to its tariffs, including without limitation the competition transition charge, nuclear decommission charge, and trust transfer amount charge but excluding the public purpose charge." 11 Schedule 2.1 of the sale agreement lists land rights related to operation, maintenance, and replacement of the facilities and ingress and egress to the facilities. Under the sale agreement, the purchase price will be reduced if the parties determine that any of these land rights cannot be assigned or transferred to MOD or have been abandoned by PG&E. 12 Civil Code Section 1542 states:
A general release does not extend to claims which a creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.
13 However, PG&E may assign the agreement to any corporation formed under PG&E's plan of reorganization confirmed by the Bankruptcy Court, without MOD's prior written consent.

Previous PageTop Of PageNext PageGo To First Page