13. Revenue Requirement

PG&E uses a results of operations model to compile all capital-related costs, operating expenses and benefits into an income statement format to estimate the additional amount of revenue needed to recover the cost of the Upgrade. PG&E has presented these forecasted revenues, or revenue requirement, for the following reasons:

· PG&E requests that initial rates for project deployment, to be effective January 1, 2009, be set based on the revenue requirements presented in its testimony, although ultimately PG&E proposes to recover actual costs of the project;

· PG&E also requests that SmartMeter Program Upgrade rates be changed on January 1 of 2010, based on the revenue requirement presented in its testimony, plus balancing account balances calculated at the time the rate change is requested;

· PG&E asks that the RO model assumptions and methods used to calculate the capital revenue requirements discussed in its testimony be approved for calculating monthly capital revenue requirements based on recorded SmartMeter Program Upgrade plant;

· To show how the incremental costs presented in Exhibit 3 translate into revenue increases; and

· To provide forecasted revenue requirements for the calculation and evaluation of rate impacts.

PG&E's cost recovery proposal seeks to recover the entire costs of the SmartMeter Program Upgrade from customers. PG&E requests that the Commission approve the use of the revenue requirements set forth in its showing to establish rates.

No party has disputed the use of PG&E's results of operations model for the purposes of calculating the revenue requirements associated with the Upgrade. The use of the model for this purpose is reasonable, and it should be used to calculate the Upgrade revenue requirements, using the costs adopted by our decision today.