III. Procedural Background

On January 20, 2004, PG&E filed a Motion for Approval of the Rate Design Settlement. A number of parties, representing a wide spectrum of interests, have entered into this settlement, and these settling parties join in and support the motion for the settlement's approval. They include PG&E, the California Manufacturers and Technology Association, the California Large Energy Consumers Association, the California Farm Bureau Federation, the Silicon Valley Manufacturing Group, the Energy Users and Producers Coalition, the Agricultural Energy Consumers Association, the California City-County Street Light Association, the Building Owners and Managers Association of California, the California Retailers Association, Federal Executive Agencies, The Utility Reform Network (TURN), Aglet Consumer Alliance, and the Office of Ratepayer Advocates.

In response to PG&E's motion for an order shortening time to respond to the motion for approval of the settlement, the Administrative Law Judge (ALJ) shortened the time for parties to file comments contesting all or part of the Rate Design Settlement (see Rule 51.4) until January 29, 2004 because the settlement was among a diverse spectrum of parties and concerned a rate decrease for PG&E customers, which the Commission desired to consider expeditiously. If any parties filed comments, the time to file replies to those comments was shortened to February 3, 2004. This ruling also required the motion for approval of the settlement, comments and replies in response thereto, as well as PG&E's advice letter implementing the settlement to be served on the service lists for this investigation, as well as on PG&E's 2003 general rate case (Application
(A.) 02-11-017 et al.) and the direct access rulemaking (R.02-01-011.) This ruling also provided that after this comment period, all further activity concerning this settlement will take place in the instant docket, with any further pleadings, rulings, decisions, etc. filed and served in the instant docket only.

On January 29, 2004, the Alliance for Retail Energy Markets (AReM) filed comments on the Rate Design Settlement protesting two elements of it, and the Modesto Irrigation District (Modesto) filed comments supporting the settlement agreement. On February 3, 2004, PG&E, on behalf of the settling parties, filed a reply to the comments. Neither AReM nor Modesto request hearings or designate a disputed issue of material fact. The issues raised by AReM and Modesto are well briefed by the parties and we address them today.

On January 26, 2004, PG&E filed an advice letter (Advice 2465-E) with revised electric rates in order to implement the Rate Design Settlement. The protest period was also reduced, and on February 4, 2004, AReM, TURN, and Utility Cost Management (UCM) submitted a protest, and DWR submitted a memorandum commenting on the advice letter. PG&E filed a reply on February 6, 2004.

The most recent Scoping Memo, issued on July 14, 2003, excluded rate allocation and rate design issues from the proceeding's scope. However, an August 19, 2003 ALJ ruling encouraged settlement of rate allocation and rate design issues, and welcomed a Rule 51 settlement sponsored by the major parties filed after the hearings regarding the bankruptcy settlement agreement. Those hearings have been held and the Commission issued a decision on this issue. (See the PG&E Bankruptcy Decision.) We now modify the scope of this proceeding to consider this Rate Design Settlement. The Order Instituting Investigation (OII) originally stated that the Commission may hold hearings. Hearings were held in earlier phases of this investigation, but have not been held on the settlement. We therefore change the determination that hearings are required for this phase of the investigation.