C. The March 30, 2005 Joint Settlement

Under the schedule set forth in the Scoping Memo, the utilities' rebuttal testimony was due on March 25, 2005, and hearings were scheduled to begin on April 5. On March 15, however, PG&E served notice on all parties of a settlement conference to be held on March 23, 2005, and at the same time requested an extension of time until March 30 for serving rebuttal testimony. In a conversation with the ALJ concerning the extension request, PG&E's attorney observed that with luck, the settlement conference might obviate the need for rebuttal testimony. This turned out to be the case, and on March 30, 2005, all of the active parties filed, along with a motion for its adoption, the settlement agreement called the Joint Settlement that is appended to this decision as Attachment A.¹⁰

Although the Joint Settlement itself is fairly short, it contains extensive references to the utility testimony that was filed on November 9, 2004 and March 4, 2005, and many of its provisions are best understood with reference to the positions taken by the parties in the testimony summarized above.

On the issue of rates, the first paragraph of the Joint Settlement states that the "initial average rate" for both PG&E and Edison customers shall be "approximately 7.5 cents per kWh," i.e., $0.07539/kWh. The first paragraph also states that based on a review of information furnished by the utilities concerning their ability to serve new load, the parties "are satisfied that there is adequate electric supply to serve the anticipated load." The parties also agree that "in order to encourage the new load served under the [PG&E conversion program] to use power during off-peak periods," PG&E's incentive rates will be modified to increase rates for on-peak and partial-peak usage. PG&E's tariff for the program is attached to the Joint Settlement as Appendix A, and Edison's tariff as Appendix B.

The second paragraph of the Joint Settlement is concerned mainly with changes to the proposed incentive rate. The agreement provides that the rate will increase by 1.5% annually, beginning on January 1, 2006, over the 10-year life of the conversion program. However, the agreement also provides that "although unbundled rate components may change throughout the year, the total [conversion] rates will change only on January 1 of each year," as set forth in Chapter 2 of both PG&E's and Edison's March 4, 2005 updated testimony. Paragraph 2 of the Joint Settlement also states that the rates "are not exempt from collection of CPUC approved non-bypassable charges, including the Nuclear Decommissioning Charge, the Public Purpose Program Charge, and the DWR Bond Charge," and that this treatment is reflected in the attached tariffs. Finally, the parties agree that during the 10-year life of the engine conversion program, "it is not necessary for the Commission to revisit the contribution to margin or marginal costs of serving customers participating in the . . . Program, and no party shall advocate for such a revisitation." (Joint Settlement, ¶ 2.)

The third paragraph provides that while the agreed-upon rate and line extension incentives are appropriate for encouraging agricultural customers to convert their diesel pumping engines to electric service, "agreement to the Joint Settlement shall not be cited by any party as precedent for any purpose."

The fourth paragraph of the agreement deals with how the line extension adders should be calculated. In place of the flat adder for all customers proposed by PG&E and Edison, "the maximum `adder' . . . shall be modified to reflect the kilowatt (kW) rating of each electric motor connected to replace a qualifying internal combustion engine," as set forth in the following table:

kW Rating of Replacement Electric Motor	Maximum Adder
up to 124 kW	$ 7,500
125 kW to 224 kW	$15,000
225 and above kW	$32,395

Paragraph 5 of the Joint Settlement provides that the conversion program will commence on the effective date of Commission approval of the settlement, will remain open for two years from this effective date, and that the incentive rates will remain in effect until December 31, 2015.

The stipulated line extension adders set forth in paragraph 4 are linked to paragraph 6 of the Joint Settlement, which provides that "the total capital investment (including both standard allowances and line extension adders) shall be limited to $27.5 million for PG&E and $9.17 million for [Edison] over the two-year enrollment period." These limits are to be enforced as follows:

"Program participation will be granted on a first-come, first-serve basis. When either utility forecasts that it will reach its designated limit on total capital expenditures, no further adders or incentive rates shall be allowed by that utility, and the Program will be closed to any additional customers." (Id., ¶6.)

Paragraph 7 provides that both utilities "shall be permitted to record costs of connecting electric services under the [engine conversion] Program to a balancing account for recovery" as set forth in Chapter 2(D) of PG&E's March 4, 2005 testimony and Chapter 2 of Edison's November 9, 2004 testimony.

Paragraph 8 is concerned with the possibility of stranded investment in the event a municipal utility or irrigation district takes over a service area that includes a customer who has signed up for the program. To deal with this possibility, the parties agree that the service extension agreements of PG&E and Edison (which are attached to the settlement as Appendices C and D, respectively) shall be revised as follows: ¹¹

"If the customer departs from the utility system within ten years from the date of the agreement to take distribution service from another provider, the customer will be required to reimburse the utility for the amount of the adder and the difference between rates paid under the [engine conversion] tariff and rates under the otherwise applicable tariff."

Paragraphs 10 and 11 of the Joint Settlement deal with a competitive issue raised by TURN, as well as the concern of TURN and ORA that all emission reductions resulting from the program and not turned over to CARB or an air pollution control district should be treated as ratepayer property. On these questions, paragraph 10 states that "no more than 100 program participants will be permitted within the boundaries of the South San Joaquin Irrigation District in southern San Joaquin County," and paragraph 11 states that all "air emission reductions acquired by the utilities through the [engine conversion] Program" that are not donated to CARB or the applicable air district "shall be held for the benefit of ratepayers."

The text of the Joint Settlement closes with standard provisions found in most Commission settlement agreements; viz., a statement that the settlement resolves "all disagreements" among the parties relating to these applications, that all parties agree to support the settlement, and that this support "is expressly conditioned upon CPUC approval without modification or condition that is unacceptable to any Settlement Party." (Id., ¶ 12.)

On April 1, 2005, the ALJ informed the parties that a short hearing would be held concerning the Joint Settlement. The hearing took place on April 7, 2005, one of the days that had been set aside for hearings in the Scoping Memo. At the hearing, the parties' testimony was received into evidence, and the ALJ asked questions about the meaning of various provisions in the Joint Settlement. Relevant passages from the April 7 hearing transcript are set forth in the next section of this decision.