3. Summary of Authority Sought

Sierra proposes to transfer to CalPeco ownership and operation of Sierra's California service territory and all distribution assets, as well as the King's Beach Generating Station (King's Beach facility), a 12-MW diesel-fired generator located in King's Beach near Lake Tahoe (collectively, the California Utility).

The transfer application describes the transaction as "functionally the sale of Sierra's entire Commission-jurisdictional utility."¹⁰ The sales price, to be calculated more precisely based upon various factors including outstanding accounts payables and accounts receivables at closing, is estimated to range between approximately $132 and $137 million. CalPeco commits not to seek to recover in rates either the premium paid for the assets of the California Utility or any transactions costs. CalPeco commits to ask, in a future 2012 CalPeco general rate case, that the Commission establish the revenue requirement according to the dollar value of CalPeco's rate base, not the purchase price, and that those subsequent ratemaking computations include any cost savings CalPeco may have realized, compared to the pre-savings baseline in Sierra's last general rate case. Appendix 3 of today's decision lists these and all other Regulatory Commitments by CalPeco and its owners. The transfer application also incorporates seven agreements, referred to collectively as the Operating Agreements, and asks the Commission to make certain findings about them concurrent with approval of the transfer.

We have consolidated the transfer application with A.10-04-032, which seeks approval of two ancillary agreements resulting from Joint Applicants' settlement with TDPUD. The ancillary agreements, termed the Fringe Agreement and the Reliability Support Agreement, are structured to ensure the continuation of existing, cooperative arrangements that benefit the contiguous service territories of both, small electric utilities.

Today's decision reviews the transfer application first because the ancillary agreements are dependent upon it in substantial part. Our discussion of the transfer application begins in Section 5. Our discussion of the ancillary agreements begins in Section 6.

¹⁰ Transfer Application at 19.