ALJ/KK3/jyc Date of Issuance 1/22/2010

Decision 10-01-025 January 21, 2010

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Application of Pacific Gas and Electric Company for Authority to Increase Electric Rates and Charges to Recover Smart Grid Costs Relating to Compressed Air Energy Storage Demonstration Project under American Recovery and Reinvestment Act of 2009 (U39E).

Application 09-09-019 (Filed September 29, 2009)

DECISION APPROVING APPLICATION OF PACIFIC GAS AND ELECTRIC COMPANY TO RECOVER SMART GRID COSTS RELATING TO A COMPRESSED AIR ENERGY STORAGE DEMONSTRATION PROJECT

1. Summary

This decision approves the application of Pacific Gas and Electric Company to recover up to $24.9 million in costs necessary to provide matching funds to support an award of $24.9 million in federal funds for Phase 1 of a Smart Grid Compressed Air Energy Storage demonstration project from the United States Department of Energy under the American Recovery and Reinvestment Act. This decision finds that it is reasonable for Pacific Gas and Electric Company to commit up to $24.9 million to Phase 1 of the three phase compressed air energy storage project which includes all permitting, transmission interconnection and plant design leading up to construction. Information obtained during Phase 1 will demonstrate whether Pacific Gas and Electric Company should proceed to subsequent phases.

This decision finds that the costs associated with Phase 1 are reasonable. The Compressed Air Energy Storage Demonstration project will provide Pacific Gas and Electric Company and its ratepayers with substantial unquantifiable benefits that justify this project. Phase 1 will provide Pacific Gas and Electric Company with a better understanding of a promising technology, which has the potential to improve grid reliability, flexibility, security and interoperability; lower electric power systems costs and enhance cost effectiveness; and reduce greenhouse gases. These benefits are especially beneficial to Pacific Gas and Electric Company ratepayers because California policy seeks to reduce greenhouse gases.¹

For these reasons, it is reasonable to authorize Pacific Gas and Electric Company to recover up to $24.9 million in rates to provide the required matching funds for Phase 1 of the Smart Grid Compressed Air Energy Storage demonstration project.

This decision approves the requirement for Pacific Gas and Electric Company to provide a final report to the Commission at the conclusion of
Phase 1.

Application 09-09-019 is closed.

¹ See Pub. Util. Code § 743.1, § 748(a), § 2842, § 2843, § 8341 and Executive Orders S-7-04 and S-3-05. All statutory references are to the Pub. Util. Code unless otherwise stated.