III. The Value of the Property

The property that SDG&E proposes to sell is a 150-foot-wide transmission corridor, totaling approximately 14 acres. In its application, SDG&E provided an appraisal of the property. While the appraisal was performed in 2001, and was prepared for Whispering Hills, rather than SDG&E, there were no readily apparent flaws with the appraisal. However, the initial letters from the local residents pointed out two potential problems with the appraisal, resulting in the appraisal being far too low, according to the residents.

First, the residents pointed out that appraisal assumed that the land was zoned "Growth Management," rather than its actual current zoning of "Planned Community." Planned Community is a significantly less restrictive zoning than Growth Management, and allows for much greater development density. Second, the residents argued that the appraisal did not consider the most recent comparable land sale in the area, which is the sale of land to the local high school. According to the letters, the value of land reflected by that sale is approximately $1 million per acre, implying that the property SDG&E proposes to sell could be worth approximately $14 million, rather than the $100,000 that SDG&E argues is the fair market value of the property.

SDG&E and Whispering Hills responded to these claims, and argued that Whispering Hills would obtain only a minimal net gain of unencumbered property, for while SDG&E was proposing to sell 13.8 acres of land, SDG&E would receive 13.5 acres of easements in return.⁵ In other words, Whispering Hills is not really getting 14 acres of developable land, but only highly encumbered property.

Whispering Hills argues that there are other encumbrances that reduce the value of the property, and that the various encumbrances render the change in zoning largely irrelevant. Whispering Hills also pointed out that it has spent (and will spend) considerable sums of money in grading, site preparation, development applications, and environmental mitigation for the property in the area, including the site of the high school. This argument has two implications-first, the price of the land sold to the high school was for significantly improved land, and accordingly it is not really comparable to the land at issue here, which has not received the same improvements; and second, to the extent that encumbrances have been reduced or removed from the property at issue, Whispering Hills has paid the cost of minimizing or eliminating those encumbrances.⁶ Finally, SDG&E states that it required a 21% increase in the purchase price from that reflected in the appraisal to account for any increase in value occurring since the date of the appraisal.

However, in his comments, local resident Mathewson submitted documentation that Whispering Hills has entered into an agreement to resell 0.95 acres of the land that it will acquire from SDG&E for a price of $965,000. Whispering Hills responded to Mr. Mathewson, and notes that: "The 0.95 acre parcel is part of the high school site, improved consistently with the rest of that property."⁷ (Reply Comments of Whispering Hills, p. 3.) According to Whispering Hills, for the high school site Whispering Hills is spending "[O]ver $62 million to grade the project area and to provide necessary infrastructure and access, and some $10 million more for entitlement and mitigation purposes." (Id.)

Nevertheless, based on the record before us, we cannot say that $100,000 is a reasonable price for the property that SDG&E proposes to sell. The information presented by the local residents casts significant doubt upon the adequacy of that price. While we understand the counterbalancing factors presented by SDG&E and Whispering Hills, we do not find them adequately persuasive to completely rebut the argument of the local residents that the proposed sale price is inadequate.

Rather than attempting to set a price based on the conflicting information before us, we direct SDG&E to enter into further negotiations with Whispering Hills regarding the price to be paid for the property. In its negotiations, SDG&E (and Whispering Hills) should take into consideration the information provided by the local residents regarding the potential value of the property. We expect the result of these further negotiations to be that SDG&E will receive a higher price for the property at issue. To provide the proper safeguards and incentives for the negotiations, in any sale of the property at issue, ratepayers will receive at least the $100,000 originally recommended by SDG&E, and any incremental amount received for the property as a result of further negotiations will be shared equally by ratepayers and SDG&E.