ALJ/TOM/tcg * REVISED DRAFT Agenda ID # 1788

Ratesetting

Decision REVISED DRAFT DECISION OF ALJ PRESTIDGE
(Mailed 3/21/2003)

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Application of Pacific Gas and Electric Company for Authorization to Sell Electric Distribution and Certain Transmission Facilities Serving the City of Patterson, the Community of Crows Landing and Certain Adjacent Rural Areas to the Turlock Irrigation District Pursuant to Public Utilities Code Section 851 and for Approval of Service Area Agreement Under Public Utilities Code Section 8101. (U 39 M)

Application 02-01-012 (Filed January 4, 2002)

DECISION GRANTING APPROVAL FOR CONVEYANCE OF FACILITIES BY PACIFIC GAS AND ELECTRIC COMPANY (PG&E) TO TURLOCK IRRIGATION DISTRICT (TID), NEW SERVICE AREA AGREEMENT BETWEEN PG&E AND TID, AND RELATED TRANSACTIONS

TABLE OF CONTENTS

Title Page

DECISION GRANTING APPROVAL FOR CONVEYANCE
OF FACILITIES BY PACIFIC GAS AND ELECTRIC COMPANY
(PG&E) TO TURLOCK IRRIGATION DISTRICT (TID), NEW
SERVICE AREA AGREEMENT BETWEEN PG&E AND TID,
AND RELATED TRANSACTIONS 1

1. Summary 2

2. Background 4

3. The Proposed Agreements 6

A. New Service Area Agreement 6

B. The Tolling and Mutual Release Agreement 10

C. The Asset Sale Agreement 10

D. The Installment Sales Agreement 14

E. The Private Electrical Lines Assignment and Assumption
Agreement 16

F. The Patterson and Salado Substation Leases 16

G. The Closing Agreement 17

4. Environmental Review 19

5. Ratemaking Considerations 21

6. Discussion 29

A. The Service Area Agreement and Tolling and Mutual Release Agreement 29

B. Approval of Asset Sale Agreement, Leases, and Related Agreements 38

7. Conclusion 42

8. Final Categorization and Review and Comment Period 42

9. Assignment of Proceeding 47

Findings of Fact 47

Conclusions of Law 51

ORDER 53

DECISION GRANTING APPROVAL FOR CONVEYANCE OF FACILITIES BY PACIFIC GAS AND ELECTRIC COMPANY (PG&E) TO TURLOCK IRRIGATION DISTRICT (TID), NEW SERVICE AREA AGREEMENT BETWEEN PG&E AND TID, AND RELATED TRANSACTIONS

1. Summary

This decision grants the application¹ of Pacific Gas and Electric Company (PG&E) for Commission authorization pursuant to Pub. Util. Code § 851² to sell certain electric distribution and a few related transmission facilities in a portion of western Stanislaus County, including the City of Patterson, the Community of Crows Landing, and adjacent rural areas (the Westside Zone) to Turlock Irrigation District (TID), and approves other related transactions, including leases of PG&E property at the Patterson and Salado substations, an installment sales agreement for the sale of a 60 kV tap line to Patterson Frozen Foods and related easements to TID, a private electric lines assignment and assumption agreement, and a closing agreement.

In addition, we find that there is a strong legislative policy in California in favor of service area agreements and against duplication of electric distribution facilities and services and the resulting economic waste. We therefore approve a new service area agreement between PG&E and TID, and require PG&E to obtain our advance approval of any amendments, including changes to its service area, and of any superseding agreements. We decline to adjudicate future disputes between PG&E and TID under the service area agreement, because the California courts may properly resolve contractual disputes between the parties.

We also require PG&E and TID to amend language in the service area agreement and asset sale agreement related to direct access to conform to Assembly Bill IX, as codified at Water Code Section 80110, and recent Commission decisions regarding suspension of the right to enter into new direct access contracts, effective September 20, 2001.

As a result of this decision, PG&E will no longer provide electric distribution service to customers in the Westside Zone and the Don Pedro South Shore Zone.³ TID will operate the electric distribution system for the Westside Zone, and the Westside Power Authority (WPA), a joint powers authority consisting of TID and Patterson Irrigation District (PID), will serve customers in this area. TID will also serve the Don Pedro South Shore Zone.

We allocate PG&E's gain resulting from the sale of its distribution assets to TID to PG&E shareholders, pursuant to established Commission precedent, Redding II.⁴ PG&E's gain resulting from the sale of transmission assets shall be allocated according to the applicable FERC authority. We decline to adopt ORA's proposed mitigation measures, including requiring PG&E to deposit part of its gain on sale into holding accounts to be utilized if TID defaults on its contractual obligations to pay NBCs established as of the closing date for this transaction on behalf of PG&E customers being transferred into TID's service area (departing customers) and to compensate remaining ratepayers for PG&E's waiver of amounts owed under energy efficiency contracts by departing customers, because these measures are not necessary to avoid financial detriment to remaining PG&E ratepayers.

In addition, we deny PG&E's request for authorization to waive amounts owed by departing customers under energy efficiency contracts, in order to avoid shifting these costs to remaining PG&E ratepayers.

We further deny the request of PG&E and TID for a determination that TID's agreement to pay NBCs in effect before the closing date for this transaction on behalf of departing customers fully satisfies the obligations of PG&E, its ratepayers, or departing customers for payment of NBCs. If the Commission were to adopt new NBCs or cost recovery surcharges (CRS) applicable to departing customers after the closing date, it would be unfair to exempt departing customers here from paying their fair share of applicable charges. Moreover, waiver of payments for NBCs imposed after the closing date could result in the shifting of these costs to remaining ratepayers and thereby create an inequitable financial burden for them. We also require PG&E to submit revised methodology and calculations for NBCs to be paid by TID and departing customers by advice letter.