BACKGROUND

The Commission has previously authorized PG&E to consolidate revenue requirements and amortize balances in regulatory accounts through the AET advice letter process.

In AL 3115-E dated August 31, 2007, PG&E filed its 2007 AET advice letter for rates effective January 1, 2008. In AL 3115-E, PG&E proposed to consolidate revenue requirements authorized by the Commission and the FERC prior to the end of 2007, and recover balances in regulatory accounts previously considered in Resolution E-4032 (November 30, 2006), which addressed PG&E's 2006 AET advice letter. PG&E also requested in AL 3115-E authority to recover balances in the British Columbia Renewable Study Balancing Account (BCRSBA), for rates effective January 1, 2007.

PG&E included tables in AL 3115-E showing account balances requested for recovery as recorded through July 31, 2007. PG&E proposed that it submit a supplement to AL 3115-E in December 2007 to amortize balances recorded through October 2007, and forecasted December 2007 balances, and to consolidate all Commission and FERC-authorized revenue requirements for new rates effective January 1, 2008. Resolution E-4121 approved PG&E's request.

On August 15, 2008 PG&E requested a 30-day extension of time to file its 2009 AET advice letter. The Commission's Executive Director granted PG&E's request by a letter dated August 20, 2008. PG&E filed AL 3349-E on October 1, 2008.

On October 1, 2008, PG&E filed AL 3349-E, its fifth annual AET advice letter addressing electric revenues and rates effective January 1, 2009. In addition to requesting recovery of revenue requirements authorized by the Commission and the FERC by December 18, 2008, PG&E requested recovery of balances in the Procurement Transactions Auditing Account (PTAA) and the Non-Tariffed Balancing Account (NTBA) through the AET process.

PG&E forecasts a net Commission-authorized revenue requirement increase of $332.9 million.

In its October 1, 2008 AET advice letter, PG&E estimated that there will be a net Commission-authorized increase in electric revenue requirements of approximately $332.9 million. This resulted from a combined increase of $703.5 million in revenues for Electric Procurement i.e., costs recovered through the Energy Resources Recovery Account (ERRA), and Ongoing Competitive Transition Charges (CTC), the Distribution Revenue Adjustment Mechanism (DRAM), the Utility Generation Balancing Account (UGBA), the Department of Water Resources (DWR) Power and Bond Charges and associated Power Charge Collection Balancing Account (PCCBA), and Nuclear Decommissioning Adjustment Mechanism (NDAM) Account. This forecasted increase was offset by $380.6 million in decreases to the Public Purpose Program Revenue Adjustment Mechanism (PPPRAM), California Alternate Rates for Energy Account (CAREA), and Procurement Energy Efficiency Revenue Adjustment Mechanism (PEERAM), and Energy Recovery Bonds Balancing Account (ERBBA) and Rate Reduction Bond Memorandum Account (RRBMA) and small adjustments to miscellaneous accounts.

PG&E forecasts a consolidated net revenue requirement increase of $281.1 million on January 1, 2009.

The net revenue requirement of $281.1 million represents the combined impact of a Commission-authorized revenue increase of $332.9 million and a FERC-authorized revenue decrease of $41.8 million.

In AL 3349-E, PG&E provided illustrative rates effective January 1, 2009, based on forecasted December 31, 2008 balancing account balances which included July 31, 2008 recorded balances, and revenue requirement requests filed in the applications and advice letters pending before the Commission. The total annual revenue requirement increase reflecting these illustrative rates was $281.1 million. The breakdown of the components of the annual revenue requirement increase estimated in AL 3349-E is shown below.

CPUC-authorized	Amount in million $
Energy Resource Recovery Account (ERRA) and Ongoing CTC	$200.1
Public Purpose Program Revenue Adjustment Mechanism (PPPRAM), California Alternative Rates for Energy Account (CAREA), and Procurement Energy Efficiency Revenue Adjustment Mechanism (PEERAM)	-$331.9
Energy Recovery Bonds Balancing Account (ERBBA) and RRBMA	-$48.7
Nuclear Decommissioning Adjustment Mechanism (NDAM)	$0.6
Distribution Revenue Adjustment Mechanism (DRAM), less CARE Discount	$152.4
DWR Power and Bond Charges, and Power Charge Collection Balancing Account (PCCBA)	$231.0
Utility Generation Balancing Account (UGBA), including FERABA	$119.4
Total CPUC-authorized net increase:	$322.9

FERC-authorized	Amount in million $
Reliability Services (RS)	$94.4
Transmission Revenue Balancing Account Adjustment (TRBAA)	-$11.4
Transmission Owner (TO) 10/TO 10 Settlement	-$44.2
End-Use Customer Refund Adjustment	-$80.6
Total FERC-authorized net decrease	-$41.8

The CPUC-authorized increase measured against the FERC-authorized decrease resulted in a forecast net increase of $281.1 million, equal to a 2.6% increase in PG&E's average bundled electric rates:

Net Change in Revenue Requirement	Amount in million $
CPUC-authorized rates:	$322.9
FERC-authorized rates:	-$41.8
Total AET net increase:	$281.1

Components of the CPUC-authorized increase include several significant "cost drivers":

The largest cost driver is the increase of $231.0 million in DWR related costs as shown in the table above. The Ongoing CTC and ERRA increase of $200.1 million is the result of procurement cost increases primarily due to higher natural gas prices coupled with lower than normal hydro conditions in 2008. The Utility Generation component increase of $119.4 is primarily due to completion of installation of new steam generators at the Diablo Canyon Power Plant. The distribution component increase of $152.4 is primarily due to requested CPUC approval of the SmartMeter upgrade application. The forecasted increases were offset by a decrease of $331.9 million in the PPPRAM, CAREA, and PEERAM, largely due to a reduction in authorized funding for renewable energy programs administered by the California Energy Commission. The additional offsetting factor was the Energy Recovery Bonds of $48.7 million.

There is a forecast net decrease of $41.8 million in FERC authorized revenue requirement:

The increase in the Reliability Service Balancing Account was $94.4 million. This increase was offset by the End-Use Customer Refund Adjustment of $80.6 million related to the TO7, TO8, and TO9 rate case proceedings, now decided by the DC Circuit Court of Appeals. There was also a $44.2 million refund related to the TO10 rate case. Finally PG&E forecasted that the revenue requirement for the base TRBA will decrease by $11.4 million in 2009.

PG&E proposes to supplement AL 3349-E prior to January 1, 2009 to consolidate updated balancing account balances and revenue requirement changes approved by the Commission and FERC.

PG&E proposed to supplement AL 3349-E prior to the end of 2008 to incorporate the sum of (1) December forecast balances updated to reflect recorded data as of October 31, 2008, and (2) revenue requirement changes authorized by the Commission and FERC by end of the year. The supplemental AL would include the new rates and revised tariffs to become effective on January 1, 2009.