XI. Assignment of Proceeding

Commissioner Michael R. Peevey is the Assigned Commissioner and Robert Barnett is the assigned ALJ in this proceeding.

Findings of Fact

1. The PSA is not in the public interest; it is rejected.

2. On November 8, 2000, PG&E filed suit in the U.S. District Court for the Northern District of California against the five commissioners in their official capacity (the Filed Rate Case). The Filed Rate Case alleged that the Commission violated federal law by not allowing PG&E to collect in rates its costs of procuring wholesale energy. The Commission denied all allegations in the Filed Rate Case.

3. On April 6, 2001, PG&E filed for protection under Chapter 11 of the U.S. Bankruptcy Code, and has been operating under Bankruptcy Court supervision and protection since that date.

4. On September 20, 2001, PG&E and PG&E Corporation, as co-proponents, proposed a plan of reorganization for PG&E in its Chapter 11 proceeding. That plan provided for the disaggregation of PG&E's historic businesses into four companies, three of which would be regulated by the FERC rather than this Commission, as a means of raising the money necessary to pay all valid creditor claims in full and exit Chapter 11.

5. On August 30, 2002, the Commission filed an amended plan of reorganization for PG&E.

6. PG&E and the Commission have vigorously opposed and litigated against the plans proposed by each other.

7. Bankruptcy confirmation hearings on the competing plans of reorganization started on November 18, 2002, and were ongoing on March 11, 2003, when the Bankruptcy Court entered an order staying further confirmation and related proceedings for sixty days to facilitate a mandatory settlement process under the supervision of Bankruptcy Court Judge Randall Newsome. The stay was later extended to June 20, 2003.

8. On July 25, 2002 in the Filed Rate Case, U.S. District Judge Vaughan Walker denied the Commission's motion to dismiss and denied PG&E's motion for summary judgment. In the course of his ruling denying the motions, Judge Walker held that the federal filed rate doctrine applies to purchases of energy at market based rates and that, notwithstanding the Commission's TURN accounting decision (D.01-03-082), he would hold a trial to determine what costs PG&E incurred in purchasing wholesale energy and what funds were available to it to pay for those purchases.

9. In the Filed Rate Case and other proceedings, PG&E claims to be entitled to recover from ratepayers $11.8 billion of unrecovered costs of utility service. The Commission disputes this claim.

10. PG&E also claims to be entitled to retain $2.5 billion in wholesale power generation revenues collected from retail ratepayers for September 2000 through January 2001. The Commission staff dispute these claims.

11. In the ATCP, ORA claims that $434 million of costs of procuring power through the California Power Exchange should be disallowed as imprudently incurred. PG&E disputes ORA's claim.

12. On June 19, 2003, certain of the Commission's staff and PG&E announced that they had reached agreement on a proposed settlement that would resolve the competing plans of reorganization in the Bankruptcy Court, the filed rate doctrine litigation in the U.S. District Court, and various pending Commission proceedings, all as set forth in the PSA.

13. There are substantial litigation risks to PG&E, the Commission, and ORA, and corresponding risks to ratepayers, in going to hearings on all issues and it is reasonable to approve a settlement that appropriately balances those risks.

14. PG&E's total claims are approximately $2.1 billion.

15. It is in the public interest that PG&E emerge from bankruptcy promptly.

16. To emerge from bankruptcy PG&E should pay its creditors. All allowed claims should be paid in full. The modified settlement will achieve that result by maintaining current rates until PG&E's undercollection is reduced to zero.

17. Once the undercollection is eliminated, we anticipate rates would be reduced by approximately 1.6 cents per kilowatt-hour.

18. Paragraph 6 of the PSA is unacceptable and not in the public interest as it impairs our ability to protect ratepayers. It requires the Commission to not restrict PG&E from paying dividends or repurchasing common stock. We interpret this to mean that for nine years we must set rates so that PG&E shall be able to pay dividends. Not only there is no amount specified, but also there is no limit to the amount of dividends PG&E might declare.

19. Paragraph 2g. is unacceptable and not in the public interest. A commitment to PG&E that we would take action to maintain its investment grate credit ratings for nine years, would cause other public utilities under our jurisdiction to request similar guarantees. The Commission does not operate in a vacuum.

20. It is not in the public interest to tilt the ratemaking balance so heavily in PG&E's favor and against the ratepayers' interest or to set a precedent by guaranteeing PG&E that regardless of circumstances we would effectively insulate PG&E from financial risks for the next nine years.

21. The proposed settlement would settle PG&E's claims at 150% of value.

22. The Modified Settlement Agreement will result in a feasible plan to permit PG&E to emerge from bankruptcy.

23. The Modified Settlement Agreement adopts ORA's proposal to maintain rates at their current levels until PG&E's undercollection is reduced to zero. In addition, the Modified Settlement Agreement offers the State significant environmental benefits.

24. On September 9, 2003, the ALJ encouraged the parties to resolve their differences with respect to the Land Conservation Commitment in Paragraph 17 and Appendix E to the PSA.

25. On September 25, 2003, PG&E, California Resources Agency, ORA, Association of California Water Agencies, California Farm Bureau Federation, California Hydropower Reform Coalition, Regional Council of Rural Counties, State Water Resources Control Board, Tuolumne Utility District, U.S. Department of Agriculture-Forest Service and non-parties California Forestry Association, California Wilderness Coalition, Central Valley Regional Water Control Board, Mountain Meadows Conservancy, Natural Resources Defense Council, Northern California Council Federation of Fly Fishers, The Pacific Forest Trust, Inc., Planning and Conservation League, Sierra Club California, Sierra Foothills Audubon Society, Sierra Nevada Alliance, Trust for Public Land and U.S. Department of Interior-Bureau of Land Management presented to the Commission a Stipulation Resolving Issues Regarding The Land Conservation Commitment (the "Land Commitment Stipulation") that implements Paragraph 17 and Appendix E of the PSA and constitutes an enforceable contract among those parties.

26. The Land Conservation Commitment Stipulation as modified herein is reasonable in light of the whole record, consistent with law, and in the public interest.

27. Under the LCC, no lands will be transferred or encumbered unless PG&E first applies for and obtains approval from the Commission pursuant to § 851.

28. TURN's proposal to use a securitized financing supported by a dedicated rate component cannot feasibly be done without express enabling legislation. To wait for legislation would entail unreasonable delay in resolving PG&E's Chapter 11 proceeding. Most of the savings claimed by TURN result from requiring PG&E to pay the taxes due on collections from ratepayers in violation of normal ratemaking principles.

29. PG&E representatives gave conflicting testimony regarding the nature of its bankruptcy-related costs in this proceeding and A.02-11-017.

Conclusions of Law

1. The PSA offered by PG&E and the Commission staff is rejected.

2. The Settlement Agreement in Appendix C of this order should be approved and adopted.

3. The rulings of the presiding Administrative Law Judge are affirmed.

4. The Commission has inherent authority under the California Constitution and Public Utilities Code §§ 451 and 701 to enter into and execute a settlement agreement.

5. The Commission has authority under Public Utilities Code § 701 and Rule 51 to approve the Land Commitment Stipulation.

6. Under LCC, the Commission retains its existing authority under § 851 to approve or disapprove of any proposed disposition or encumbrance of PG&E's property.

7. This Commission cannot bind future Commission in fixing just and reasonable rates for PG&E.

8. Paragraph 10 unduly releases PG&E Corporation from claims. The Commission currently has no pending proceedings against PG&E Corporation, nor has PG&E any claims against the Commission.

ORDER

IT IS ORDERED that:

1. The Proposed Settlement Agreement offered by PG&E, PG&E Corporation, and the Commission staff is rejected.

2. The Settlement Agreement in Appendix C is approved and adopted by the Commission.

3. The rulings of the Presiding Administrative Law Judge are affirmed.

4. The Land Conservation Commitment Stipulation in Exhibit 181 is approved and adopted.

This order is effective today.

Dated , at San Francisco, California.

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