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PG&E system worth $41M?

CPUC bases figure on book value & taxing

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POSTED December 19, 2009 3:28 a.m.

PG&E representatives at public forums have repeatedly put the value of the electrical distribution system in Manteca, Ripon and Escalon at more than $300 million.

South San Joaquin Irrigation District – that ultimately would like to be able to purchase the system – hired an appraiser that put the free market value at $61 million.
Now the California Public Utilities Commission has weighed in with a number that is even lower - $41 million.

The $41 million figure was used in an unanimous decision the CPUC reached Wednesday that SSJID’s plan to purchase the electrical distribution system will not significantly impact the remaining PG&E electric ratepayers.

The CPUC resolution was a result of a request made by SSJID that the oversight agency looks into the question of the impact on PG&E ratepayers elsewhere if the distribution system serving 72,000 acres within SSJID’s jurisdiction was sold. The resolution was required by the San Joaquin Local Agency Formation Commission as part of a review that is expected to lead to a decision next spring as to whether SSJID will be allowed to enter the retail power business.

The $41 million represents the value of the PG&E system based on PG&E’s own reporting that was done for depreciation and tax purposes.   Fair market value – which is what a court may have to ultimately establish if SSJID gets the green light from LAFCO and they don’t reach a price agreement with PG&E  - is different than replacement value.

SSJID contends it has an exhaustive analysis that indicates it can reduce rates across the board by at least 15 percent while at the same time upgrading the system and paying for separation costs from the PG&E grid. They also have the cash on hand to do so from the sale of Tri-Dam Power over the years to PG&E and other energy companies.

“This resolution determines that SSJID’s proposed service could raise rates for PG&E’s remaining ratepayers but the magnitude of the estimated increase is small relative to PG&E’s current system average rates, and thus does not substantially impair PG&E’s ability to provide adequate service at reasonable rates,” the CPUC resolution summary noted.  The resolution states that possible higher rates of $0.00032 per kilowatt-hour could result, and that the estimated costs and/or offsetting benefits that would affect remaining PG&E customers varies greatly depending on the assumptions used in the analysis.

The CPUC used the worst possible case for the purchase price in their analysis, assuming that SSJID would only pay $41 million and even with that low price, the Commission found the effect on rates was insignificant.  

 “It is reasonable to use the highest quantifiable estimate, based on the facts before the CPUC, when determining whether there is the possibility that the proposed service will substantially impair PG&E’s ability to provide adequate service at reasonable rates within the remainder of its service territory,” stated the CPUC in the resolution they adopted.

R.W. Beck – the firm that SSJID hired to provide an appraisal of the PG&E system  - set the fair market value at $61 million The SSJID several years ago make a formal good faith offer to pay PG&E $79.5 million.  

“If the CPUC utilized either of these higher purchase values (the SSJID fair market appraisal or the good faith offer), PG&E’s remaining customers could actually see a slight reduction in their rates,” Shields noted.

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