Background
PG&E's Request
PG&E seeks Commission approval under Public Utilities Code Section 851 to sell and convey approximately 115.5 acres of land located in an isolated area of the Mayacamas mountains in northeast Sonoma County to Santa Rosa. PG&E proposes that the net-of-tax proceeds be recorded as a gain to shareholders. In addition, PG&E requests that the Commission ratify easements previously granted to Santa Rosa over a portion of that same property.
Santa Rosa's Project
Santa Rosa is purchasing the property for a pipeline and a pump station facility that are part of the Geysers Recharge Project, a large wastewater reclamation project in which reclaimed water will be injected into the Geysers Known Geothermal Resources Area to produce steam for electric generation.
The Sale
The property to be sold consists of five parcels originally acquired in 1971, 1972 and 1975 for construction of a new switching station as part of an expansion of PG&E's Geysers Power Plant. When the expansion project was abandoned, the switching station and the property were no longer needed. Four electric transmission lines traverse the property, but PG&E makes no other use of it and does not foresee that it will ever be useful for public utility purposes. PG&E will continue to enjoy easements across the property sufficient for all present and future public utility needs, including the right to expand or construct new facilities. Accordingly, PG&E agrees that any future easement expansion costs which are not funded by new customers pursuant to the tariffs will be borne by the company and will not be reflected in rates.
The total original cost of the property was $112,015. The purchase price as set forth in the Purchase and Sale Agreement is $250,000, the property's appraised value. The after-tax gain on sale will be approximately $63,379.
Until 1990, PG&E classified the property as part of utility operations in its accounting records, and all associated taxes, maintenance costs and other revenue requirements were borne by ratepayers. Because land is not depreciable, PG&E has not recovered the initial cost of the property from ratepayers through depreciation expense. PG&E ratepayers do pay shareholders a return on their investment in utility property in rate base, including land, but PG&E does not maintain figures reflecting the revenue requirement of specific assets, including this property. PG&E reclassified the property as non-utility in 1990, and all costs since then have been borne by shareholders.
As part of the Purchase and Sales Agreement, PG&E disclosed to Santa Rosa that, at some time during PG&E's ownership, it may have handled, treated, stored or disposed of hazardous substances on the property. PG&E has advised Santa Rosa to investigate the property, and Santa Rosa has agreed to execute prior to the close of escrow a Release and Indemnity Agreement in which it forever releases PG&E from any and all losses arising from past, present and future hazardous substances or electromagnetic fields affecting the property. The Release and Indemnity Agreement includes a general release in which Santa Rosa waives and relinquishes any and all rights it may have under California Civil Code Section 1542.1
According to the Purchase and Sale Agreement, escrow was to close by March 31, 2002, a date subsequently extended for one year as permitted in the Agreement because Commission approval is needed. Commission approval was not sought before the anticipated closing date as extended. The Commission recognizes that extension or modification of this provision, and possibly other minor modifications, may now be needed to complete the transaction.
PG&E foresees significant benefits from the sale. The easements it retains will allow it complete access for maintenance purposes with none of the attendant obligations. Specifically, it would no longer be responsible for maintenance costs or property taxes associated with the property, would have no liability for injury to trespassers or others entering onto the property, and has received a full release from Santa Rosa for any environmental hazards on the property. Moreover, Santa Rosa's completion of the Geysers Recharge Project will also provide significant benefits to the public, as the courts have noted in a case not directly related to this application.2 In any case, Santa Rosa has repeatedly expressed its intention to acquire all parcels necessary for construction of the 40-mile pipeline project, and has indicated it would use its power of eminent domain if necessary to acquire them.
The Easements
At the time the application was filed, Santa Rosa had already begun constructing its pump station and underground pipeline on the property pursuant to permanent and temporary easements PG&E previously granted to it in 2001. The Easement Agreement, entered into on August 8, 2001, is Exhibit A to the application. Thus, in addition to authorization to sell the property, PG&E also requests the Commission ratify the permanent easements it granted previously.
When PG&E granted the easements, it believed that the Easement Agreement met each of the requirements for such grants under General Order (GO) 69-C.3 Specifically, the easements did not affect utility operations and were entirely compatible with PG&E's continued use of the property; the grant was for limited uses expressly enumerated in the Easement Agreement; and the grant was to the City of Santa Rosa, which has the power of eminent domain, for a public project. Moreover, PG&E maintains, the Commission had historically approved of agreements between utilities and third parties that permitted third-party use of utility property pursuant to GO 69-C, even if the third-party use included physical changes to the property. However, in the same month that the Easement Agreement was executed, the Commission decided two PG&E applications by making explicit a narrow interpretation of the term "limited uses" for purposes of GO 69-C.4 In those decisions, the Commission held that significant physical construction on utility land resulting in permanent changes to utility property falls outside the scope of GO 69-C. PG&E says it has since taken a more conservative approach to the type of activity permitted under GO 69-C to ensure it complies with the Commission's interpretation of "limited uses." PG&E no longer allows public agencies to commence construction resulting in permanent changes on its property without prior Commission approval. In today's application PG&E seeks Commission ratification of the permanent easements granted to Santa Rosa.
The easements at issue lie entirely within the property to be sold and would be superseded by the sale. Because we have decided to approve the sale and transfer, our decision today renders moot PG&E's request that we ratify those easements, and we decline to do so.
1 Civil Code Section 1542 provides, "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." 2 See Johnson v. Sonoma County Agricultural Preservation and Open Space District, 100 Cal. App. 4th at 978 (2002). 3 GO 69-C: "It is hereby ordered, that all public utilities covered by the provisions of Section 851 of the Public Utilities Code of this State be, and they 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 this 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 consumers; "Provided, however, that each such grant, other than a grant by a public utility to the State of California or a political subdivision thereof for a governmental use superior to the use by the public utility under the provisions of Section 1240.610 of the Code of Civil Procedure, or a grant to the United States Government or any agency thereof for a governmental use, shall be made conditional upon the right of the grantor, either upon order of this Commission or upon its own motion to commence or resume the use of the property in question whenever, in the interest of its service to its patrons or consumers, it shall appear necessary or desirable to do so...." 4 Decision (D.) 01-08-069 and D.01-08-070.
