3. Discussion

The Settlement Agreement provides for a payment by PG&E to Rio Bravo to settle all claims related to the complaint and is contingent upon: 1) the issuance of a final and non-appealable Commission decision that approves the Settlement Agreement as reasonable in light of the whole record, consistent with the law, and in the public interest; 2) adoption of the Settlement Agreement without modification; 3) authorization for PG&E to obtain recovery of the full settlement amount in its Energy Resource Recovery Account (ERRA) proceeding (or such other appropriate ratemaking mechanism determined by the Commission); and 4) dismissal of the Complaint with prejudice.

DRA expressed conditional opposition to the settlement in its August 31, 2011, comments (DRA Comments). Specifically, DRA opposes the settlement unless language authorizing PG&E to "obtain" recovery of the settlement costs through the ERRA is modified so as to only authorize PG&E to "seek" such recovery.5 According to DRA, in its current form the settlement authorizes PG&E to obtain recovery from ratepayers through the ERRA process but precludes DRA from examining the reasonableness of the settlement expense in the ERRA.

DRA argues that in prior reviews of QF Settlement Agreements, the Commission has issued a decision that approves the settlement but defers review of the reasonableness of the settlement amount to a future ERRA proceeding.6 According to DRA, "[i]n the past approvals of QF Settlement Agreements the Commission has directed the affected IOU [investor owned utility] to present its recommendation for cost recovery in its annual ERRA Compliance Proceeding."7 Citing Decision (D.) 07-11-027 and D.09-12-002, DRA asserts that in order for this settlement to follow the process previously used by the Commission to approve QF settlements, the language in the Settlement Agreement authorizing PG&E to obtain recovery of the settlement costs in the ERRA must be modified so that PG&E is only authorized to seek recovery of the settlement costs in the ERRA.

We disagree. While D.07-11-027 and D.09-12-002 addressed the reasonableness and prudence of PG&E's ERRA, neither decision makes mention of any type of settlement agreement. In contrast, other Commission decisions have approved a utility's settlement of claims and concurrently authorized rate recovery of the settlement payment. For example, in D.00-11-041 we approved a settlement agreement which arose from an Interim SO4. After determining that the settlement at issue met the test of reasonableness and deeming the payments called for in the settlement reasonable, in D.00-11-041 we determined that the "payments should be recoverable by Edison through rates, subject only to Edison's prudent administration of those contracts and the Settlement." (D.00-11-041 at 8.) Moreover, in their joint reply to DRA's comments, PG&E and Rio Bravo note that "the approval sought in the Joint Motion would not pre-approve PG&E's administration of the Rio Bravo contract or preclude DRA from reviewing PG&E's contract administration in [the] ERRA." (Joint Reply at 3.) According to PG&E and Rio Bravo, once Commission approval of the Settlement Agreement's resolution of the underlying contract dispute, including the settlement payment, has become final, there can be no further review of whether the payment is in the public interest. We agree that, if approved, the Settlement Agreement will not preclude a review of the contract administration in the ERRA proceeding. Therefore, consistent with D.00-11-041 we will determine whether or not the settlement is reasonable in this proceeding.

Finally, absent the modification it requests (and which we decline to make), DRA asks that the proceeding be reopened to allow it to participate in settlement discussions to determine whether PG&E's decision to settle the complaint is reasonable and in the public interest. Notably absent from DRA's request is any assertion that it sought and did not receive information that would allow it to ascertain the reasonableness of the Settlement Agreement, that it did not have the opportunity to participate in the proceeding at the outset, or that it was unable to engage the other parties in discussion prior to filing its response. We decline to reopen the proceeding under these circumstances as it would unnecessarily protract the proceeding and delay resolution of the issues presented.

PG&E and Rio Bravo compiled a comprehensive record of the facts underlying this dispute through the exchange of pleadings and testimony.8 Following the exchange of testimony, the parties actively engaged in substantial discovery, evaluated their positions, and engaged in negotiations to resolve the disputed issues. An examination of the facts and arguments asserted in the pleadings demonstrates conclusively that PG&E and Rio Bravo each made significant concessions to resolve the issues in this proceeding. In light of the record as a whole, the Settlement Agreement resolves the matters at issue in a reasonable manner and provides benefits to PG&E's customers by mitigating the potential risk of litigation.

As discussed more fully in Section 3.2 above, nothing in the Settlement Agreement contravenes any statue, Commission decision or rule. The Settlement Agreement is therefore consistent with the applicable law.

The Settlement Agreement is consistent with the Commission's well established policy of supporting the resolution of disputed matters through settlement, reflects a reasonable compromise between the Settling Parties' positions, and will avoid the time, expense, and uncertainty of evidentiary hearings and further litigation. Accordingly, the Settlement Agreement is in the public interest.

In our view, the Settlement Agreement reflects the relative risks and costs of continued litigation of the disputed issues. The Settlement Agreement's terms lie within the range of possible outcomes had the matter gone to trial. We further believe that the ratepayer benefits are substantial. Without disclosing key details of the Settlement Agreement, we observe that it allows the parties to put their dispute behind them. There is no evidence of collusion and there is every indication that counsel on each side adequately analyzed the risks and benefits of their clients' respective positions, and advised their clients competently. Thus, the Settlement Agreement should be adopted in full, without modification.

By motion filed concurrently with the Settlement Agreement, PG&E and Rio Bravo seek confidential treatment of information reflecting the terms of the Settlement Agreement. PG&E and Rio Bravo argue that "the Settlement Agreement is confidential because of the market-sensitive nature of its terms and the risk of harm to them from the disclosure of such information." (Joint Motion for Approval of Settlement Agreement, at 1.)

We conclude that disclosure of the Settlement Agreement terms might jeopardize ratepayers' interests with respect to other litigation or potential litigation. Therefore, we grant the motion for protective order as set forth in the ordering paragraphs below.

5 DRA Comments at 1.

6 DRA Comments at 3, citing D.07-11-027, D.07-12-027, and D.09-12-002.

7 DRA Comments at 3.

8 In December 2010, Rio Bravo and PG&E prepared and served direct and reply testimony, with supporting exhibits that set forth their litigation positions.

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