II. Background
A. The Property
PG&E currently uses the Property as an off-site meeting facility. The Property contains a residential structure, baseball diamond, picnic area, volleyball court, barbecues and horseshoe pits. PG&E purchased the Property in 1921 and originally used it as housing and support facilities for construction personnel working on utility projects in the area. The original cost of the property was $60,965, with a book value of $209 for the land and $60,756 for the improvements. PG&E declared the improvements surplus in 1996 and retired them from its rate base. The remaining net book value of the Property as of December 31, 1998 is the land value of $209.1
Ministries proposes to use the Property as a retreat facility for its congregants. It does not propose any construction on or other changes to the Property or its improvements. Therefore, PG&E alleges that the sale of the Property is exempt from the requirements of the California Environmental Quality Act (CEQA).2
However, the Property surrounds a PG&E substation, and several PG&E transmission and distribution lines cross the Property. PG&E will retain utility easements for these lines, as well as a right of access to the substation for maintenance purposes.3
B. The Contract
The purchase and sale contract (Contract) between PG&E and Ministries contains several clauses related to environmental issues affecting the Property. PG&E discloses that the Property is in "as is" condition and advises Ministries
to investigate the condition and suitability of all aspects of the property and all matters affecting the value or desirability of the property, including, but not limited to, potential environmental hazards arising from the presence on or about the property of asbestos, formaldehyde, radon gas, lead-based paint, other lead contamination, fuel or chemical storage tanks, electromagnetic fields, nuclear sources or polychlorinated biphenyls. 4
PG&E expressly disclaims any warranties as to "the condition of the soils or ground waters of the property; the presence or absence of electromagnetic fields, toxic materials or hazardous substances on or under the property; or any other matter bearing on the use, value or condition of the property." 5 PG&E grants Ministries the right to inspect the Property and to terminate the Contract if dissatisfied with the results of the inspection. 6 PG&E also discloses its use of hazardous substances on the Property and obtains Ministries' release from liability for such use:
Seller [PG&E], at some time during ownership or use of the Property, may have handled, treated, stored and/or disposed of Hazardous Substances (as defined in the Release Agreement) on the Property. Some of these Hazardous Substances may contain chemicals known to the State of California to cause cancer or reproductive toxicity. Buyer [Ministries] acknowledges that Seller has made no investigation with respect to Hazardous Substances affecting the Property and that no Hazardous Substances report has been provided or will be provided to Buyer by Seller. Buyer has been strongly advised to investigate the existence of Hazardous Substances in, on, under, about or otherwise affecting the Property. Buyer further acknowledges that Seller shall not in any manner be responsible to Buyer for the presence of any electromagnetic field or Hazardous Substances in, on, under, about or otherwise affecting the Property, and further, as a material inducement to Seller for the sale of the Property to Buyer, Buyer agrees to execute and deliver the Release Agreement to Seller at or prior to close of escrow. 7
The Release and Indemnity Agreement that Ministries agrees to execute at the close of escrow contains broad release and indemnity language. The release extends to claims for exposure to electromagnetic fields and hazardous substances, and to liability for clean up. However, the broad indemnity language is qualified by the following provision:
4.2 Nothing contained in Section 4.1 above [the general indemnity provision] shall require Buyer [Ministries] to indemnify, protect, defend or hold a Released Party [including PG&E] harmless, from or against any claims which are brought by independent third parties (which, for purposes of this Agreement, means all persons or entities other than Buyer and any future owners of the Property or any portion thereof), to the extent arising from (a) the negligence or willful misconduct of such Released Party, or (b) violations of Environmental Requirements caused by such Released Party.8
This paragraph appears to limit (and perhaps even eliminate) the protection afforded PG&E in other provisions of the Release and Indemnity Agreement. On February 16, 2000, the assigned Administrative Law Judge directed PG&E to clarify the effect of Paragraph 4.2 of the Release and Indemnity Agreement to demonstrate why that limitation did not render ineffective the other indemnity provisions. PG&E responded on March 7, 2000 that the rationale underlying Paragraph 4.2 is that Ministries should not have to assume liability for PG&E's past negligence, willful misconduct, or environmental violations. Rather, the intent is for Ministries to release and indemnify PG&E only for conduct other than that of PG&E.
1 Application at 4. 2 Id. at 3, 5. 3 According to the Application, the closing date of the transaction was December 31, 1999. PG&E has not notified the Commission of any extension of the closing date. However, PG&E did not file its Application until November 16, 1999, making it impossible for the Commission to issue a decision on the Application in time to meet the closing date. We therefore only allow PG&E to sell the Property to Ministries if the closing date is extended to a date beyond the effective date of this decision. 4 Contract (Exh. A to Application), ¶ 5.1. 5 Id. 6 Id., ¶¶ 5.2(a), 5.4. 7 Id., ¶ 5.5 (emphasis added). 8 Release and Indemnity Agreement (Exh. E. to Exh. A to the Application), ¶ 4.2 (emphasis added).
