2. Factual Background

PG&E and the other named applicants to these consolidated applications propose two separate but partially related transfers of land and other property located in Shasta County. The proposals all include provisions by which PG&E explicitly retains all water rights in the transferred land, as well as rights to enter the land for maintenance and operation of existing transmission and distribution facilities. A summary of the proposed transactions follows.

Application (A.) 00-05-029 concerns the proposed transfer to the California Waterfowl Association (CWA), under a conservation easement, of approximately 7,400 acres of land commonly known as McArthur Swamp, as well as 5½-acre strip of land about one mile west referred to as the Glenburn Dredge Site and the dredge used for maintenance of nearby levees. About 2000 acres in the McArthur Swamp parcel fall within the boundaries of License No. 2687, the Federal Energy Regulatory Commission (FERC) license PG&E holds to operate Pit 1, one of several hydroelectric generation facilities on the Pit River. At the time PG&E filed A.00-05-029, its Pit 1 license renewal application was pending before FERC and sought removal of these 2,000 acres from the Pit 1 license.

A.00-05-030 concerns a two-part land transaction. First, PG&E proposes to exchange lands known as Bowman Ditch (four acres) and Burney Falls (182 acres) with the California Department of Parks and Recreation (DPR) in return for two things: (1) 544 acres of state-owned, flooded property in Shasta County that is part of the area commonly known as Ahjumawi Lava Springs State Park and (2) a release of any potential claims against PG&E for failure to maintain certain failed levees. Second, PG&E then proposes to transfer the Ahjumawi property to CWA subject to a conservation easement, deed restrictions that limit use of the property, and a document entitled the McArthur Swamp Management Plan; thereafter, CWA would enter into a Grazing Lease Agreement with the McArthur Resource Management Association, a consortium of ranchers who currently have grazing rights on portions of McArthur Swamp.

PG&E describes the exchange of Burney Falls and Bowman Ditch for the Ahjumawi property as an "in-kind" transfer that results in a non-taxable event. At the present time, approximately 112 acres of Burney Falls are located within FERC License No. 233, which authorizes PG&E to operate the hydroelectric project known as Pit 3, 4 and 5. FERC has already approved transfer of Burney Falls to DPR in fee subject to the license and PG&E has asked FERC to remove it from the project boundaries.

Notably, while the first part of the proposed A.00-05-030 transaction (the DPR exchange) is independent of approval of A.00-05-029, the second part (transfer of the Ahjumawi land to CWA) is contingent upon approval of A.00-05-029, since CWA will not accept the Ahjumawi land unless it also receives Burney Falls and the Glenburn Dredge Site.

The applications propose similar ratemaking proposals. Key aspects include: deducting the book value of the transferred properties, together with associated transaction costs, from the market value of Pit 1 before this value is entered into the Transition Cost Balancing Account (TCBA),¹ removing the costs associated with the transferred properties from the PG&E revenue requirement; and adjusting the rate base for Pit 1 to reflect retirement of assets associated with the transferred properties.

After a draft decision disposing of this proceeding was mailed for comment on February 28, 2003, FERC issued a draft and then a final license in PG&E's Pit 1 license renewal application. FERC's order denies PG&E's request that the specified lands be deleted from the Pit 1 project boundary. The order states, in relevant part, "In summary, because the lands and facilities ... are either part of the unit of hydroelectric development or serve licensed project purposes, they must remain under license." (FERC Order Issuing New License in Project No. 2687-014, March 19, 2003, mimeo at pp. 7-8, ¶ 22.)

We note that no party opposes the land transfers. The Commission's Office of Ratepayer Advocates (ORA) has expressed enthusiasm for the environmental ramifications of the exchanges and urges that the Commission find that the transfer is in the public interest. ORA also urges that the Commission find that the transfers will benefit PG&E's ratepayers because they will "lower maintenance costs of PG&E's generating system on the Pit River." (Opening Brief on AB 6X Issues, p. 7.) However, ORA also states that "[i]n light of the regulatory changes that have occurred since these applications were filed, it is not clear to ORA whether PG&E's proposed ratemaking still is feasible." (Id. at p. 3.) ORA states that it has had discussions with PG&E about revising the ratemaking proposals and accordingly "ORA takes no position at this time on the ratemaking aspects of these applications." (Id. at p. 4.) As we relate in the procedural discussion below, PG&E ultimately determined not to revise its ratemaking proposal. ORA has not commented on PG&E's determination nor clarified it's own position on the ratemaking proposal.