The Property

The property consists of an approximately 0.8 acre of parcel of land located in Gilroy. It is designated as Santa Clara County Assessor Parcel Number 841-06-25. The property includes a service center building and a control building. The service center building was occupied until 1988, when PG&E's Gilroy Service Center operations were consolidated with PG&E's Edenale Service Center in South San Jose. The control building has not been used for many years.

According to PG&E, from 1988 to 1993, it attempted to sell the property but received no interest from potential purchasers. In 1993, PG&E was approached by the City with a proposal that PG&E lease the property to the City for use as a youth recreation center. PG&E and the City then entered into a lease agreement for the property. In 1996, PG&E approached the City about purchasing the property in lieu of continuing with the lease.

There are two underground vaults located on the property, along with two gas lines and gas pressure monitoring telemetry equipment. One of the underground vaults contains a pressure safety valve and the other contains a pressure regulator. PG&E concluded that with an adequate easement for maintenance of the existing utility facilities, the fee interest in the property could be declared surplus. PG&E also concluded that, by exchanging the unused fee interest for an easement and by removing the book value of the fee interest from rate base, PG&E would be able to maintain customer service at a reduced cost.

The City currently leases the property for use as a youth center, and the Buyer wishes to purchase the property for that same purpose.

PG&E states that any future cost associated with the expansion of the easement will either be funded by new customers pursuant to applicable tariffs or will be borne by PG&E shareholders and will not be reflected in rates.

The original cost of the property was $29,970. The sale price of $171,000 was established through an appraisal process that yielded prices ranging from $171,000 "as is" to $380,000 with seismic upgrades. PG&E accepted a sale price of $171,000 because its management felt that they could not find anyone willing to pay more for the property.

The service center building is constructed of unreinforced masonry and requires seismic upgrades estimated to cost approximately $126,080. Rather than incur the cost of upgrading the building for potential sale in the open market, PG&E decided to accept the City's offer to purchase the property "as is" for $171,000. PG&E believes it is acting in the best interest of its ratepayers by (1) not incurring the cost of seismic upgrades; (2) eliminating the risk of not being able to find a purchaser for the property at the full "as improved" appraised value; and (3) expediting the removal of the property from rate base and saving ratepayers the cost of continuing to own and maintain the property.

As part of the Purchase and Sale Agreement, PG&E disclosed that, at some time during its ownership of the property, PG&E may have handled, treated, stored or disposed of hazardous substances on the property. No report regarding hazardous materials was provided by PG&E to Buyer and Buyer acknowledges that it has the right to investigate the property. However, Buyer did perform environmental testing on the property and, as a result of the testing, the parties do not expect any claim for environmental damage which may affect PG&E or its ratepayers after the close of escrow.