9. Comments on Draft Decision

The draft decision of the Administrative Law Judge (ALJ) was mailed to PG&E and ORA pursuant to Pub. Util. Code § 311(g)(1) and Rule 77.7(b).

In comments filed on November 17, 2003, PG&E supports the draft decision inasmuch as it prospectively approves the 255 lease and license transactions under Section 851 and determines that one of the 256 transactions (installation and use of floating boat docks) qualifies as a GO 69-C limited-use transaction not subject to Section 851.

PG&E however urges the Commission to reconsider the conclusion that "the transactions are void under Section 851 for the period of time prior to the effective date of this decision" (draft decision, p. 52) and that "PG&E is at risk for any adverse consequences that may result from its having entered into the contracts without prior Commission authority." (Draft decision, p. 53.)

According to PG&E, the practical effect of the void language is to (1) expose the utility to claims for reimbursement of all rent previously collected under the negotiated terms of the agreements, and (2) potentially invalidate the indemnity provisions of the agreements that require tenants to pay for contamination or personal injury on leased property. Moreover, PG&E states, a tenant in the future may challenge the enforceability of a lease and its indemnity obligations on grounds that the contract has been deemed void for a period of time and cannot automatically become enforceable without the affirmative consent of both parties to the contract.

PG&E's concerns have merit. The sheer number of Section 851 transactions (255) and the fact that many of them go back 10, 20 and 30 years make it all the more likely that at least some confusion will emerge if the transactions are declared void until the date of this decision. Our research suggests that no previous Commission decision has ever applied Section 851 standards to so large a number of transactions in a single application.

PG&E asks that we give retroactive approval to the transactions. Until recent years, we have granted retroactive approval under Section 851 "where the failure to obtain approval has been deemed inadvertent and where....the transfer revealed no prejudice to ratepayers." (Application of PG&E (1999) D.99-04-047.) We have found that some of the 255 agreements at issue here were not submitted to the Commission for prior 851 approval due to inadvertence, and the others were not submitted due to a good faith belief that Section 851 approval was not required by Commission precedent at the time. Our decision also recognizes that PG&E did not willfully violate Section 851 and ratepayers have not been harmed.

Recent Commission policy, however, is to grant Section 851 approval on a prospective basis only. As an alternative, therefore, PG&E asks that for the period of time prior to this decision, the Commission exempt the 255 transactions from Section 851 pursuant to Section 853(b). Section 853(b) provides, in part, that "[t]he Commission may from time to time...exempt any public utility...from...[Section 851] if it finds that the application thereof with respect to the public utility or class of public utility is not necessary in the public interest."

In Re PG&E (2002) D.02-01-055, we applied an 853(b) exemption to six transactions on grounds that PG&E had shown extraordinary circumstances that made voiding of the contracts impractical. In that case, PG&E had sold electric distribution facilities to individual customers during an 11-year period ending in 1996 under the mistaken belief that the facilities were no longer necessary or useful in utility service and, therefore, not subject to Section 851. Voiding of the contracts would have required negotiation and execution of new contracts for equipment now many years older. Noting that as a general rule the Commission does not grant exemptions under Section 853(b) except in extraordinary situations, we stated:

We find that the...circumstances...constitute an extraordinary situation that warrants our granting an exemption.... [The] sales were reasonable and in the public interest for the previously stated reasons. Consequently, it "is not necessary in the public interest" to deem the sales void. Second, the customers who purchased the assets from PG&E did so in good faith and for value. It would be unfair to force these customers or their successors in interest to now relinquish the assets. Finally, the sales occurred 12 years ago. Due to the passage of time, it is probably not possible, as a practical matter, to unwind the sales. For example, some of the assets may no longer exist. In addition, PG&E may not be able to locate the purchasers to unwind the sales, since the customers who purchased the assets have vacated their service locations. (D.02-01-055, 2002 Cal. PUC LEXIS 3, at p. 4; footnotes omitted.)

Our review of the record in this case persuades us that similar extraordinary circumstances justify our granting an exemption under Section 853 to PG&E for the 255 transactions for the period of time they were in effect prior to our approval under Section 851. First, we have found that the leases and licenses were reasonable, serve the public interest and do not impair PG&E's ability to serve its customers. Many of the licenses provide valuable recreational opportunities to the public. Second, the organizations and individuals acquiring use of these properties did so in good faith and for value, and it would be unfair to them and to PG&E to now declare that the leases and licenses were void for a period of years or decades. Third, many of the transactions at the time of execution arguably could have been deemed "not necessary or useful" in utility service and thus exempt from Section 851 approval as that statute was then interpreted. Finally, the number of transactions is so large that an order voiding them is likely to invite unnecessary confusion and controversy.

Accordingly, we have revised the draft decision to prospectively approve the transactions in question and to grant Section 853 exemption for these transactions for the periods of time that the transactions were in effect prior to our approval under Section 851.