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STATE OF CALIFORNIA ARNOLD SCHWARZENEGGER, Governor

PUBLIC UTILITIES COMMISSION

505 VAN NESS AVENUE

SAN FRANCISCO, CA 94102-3298

December 4, 2003 Alternate to Agenda ID #2983

TO: PARTIES OF RECORD IN INVESTIGATION 02-04-026

Enclosed is the alternate proposed decision of Commissioner Lynch.

The Commission may act at the regular meeting, or it may postpone action until later. If action is postponed, the Commission will announce whether and when there will be a further prohibition on communications.

When the Commission acts on the proposed decisions, it may adopt all or part of them as written, amend or modify them, or set them aside and prepare its own decision. Only when the Commission acts does the decision become binding on the parties.

Parties to the proceeding may file comments on the proposed decisions as provided in Article 19 of the Commission's "Rules of Practice and Procedure." These rules are accessible on the Commission's Website at http://www.cpuc.ca.gov. Pursuant to Rule 77.3 opening comments shall not exceed 15 pages. Finally, comments must be served separately on the ALJ and the Assigned Commissioner, and for that purpose I suggest hand delivery, overnight mail, or other expeditious method of service.

/s/ ANGELA K. MINKIN  

Angela K. Minkin, Chief

Administrative Law Judge

ANG:epg

COM/LYN/epg ALTERNATE DRAFT Alternate to Agenda ID #2983

Decision PROPOSED ALTERNATE DECISION #1 OF COMMISSIONER LYNCH (Mailed 12/4/2003)

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Order Instituting Investigation into the ratemaking implications for Pacific Gas and Electric Company (PG&E) pursuant to the Commission's Alternative Plan of Reorganization under Chapter 11 of the Bankruptcy Code for PG&E, in the United States Bankruptcy Court, Northern District of California, San Francisco Division, In re Pacific Gas and Electric Company, Case No. 01-30923 DM.

                    (U 39 M)

Investigation 02-04-026

(Filed April 22, 2002)

(See Appendix D for Appearances.)

OPINION REJECTING THE PROPOSED SETTLEMENT
AGREEMENT OF PACIFIC GAS & ELECTRIC COMPANY
AND THE COMMISSION STAFF, AND APPROVING A
SETTLEMENT AGREEMENT AS MODIFIED

TABLE OF CONTENTS

Title Page

OPINION REJECTING THE PROPOSED SETTLEMENT AGREEMENT OF PACIFIC GAS & ELECTRIC COMPANY AND THE COMMISSION STAFF, AND APPROVING MODIFIED SETTLEMENT AGREEMENT 22

Summary 22

I. Background 77

II. Description of the PSA Terms and Conditions 1919

III. Standard of Review 2727

IV. Legal Context for Review of the PSA 3131

V. Necessary Modifications to PSA Provisions 5151

VI. The Modified Settlement Agreement (MSA) Will Allow PG&E to Recover its Undercollection and Emerge from Bankruptcy. 7070

VII. The Environmental Provisions of the MSA are in the Public Interest 7474

VIII. The TURN Dedicated Rate Component Proposal 8282

IX. Rulings of the Administrative Law Judge (ALJ) 8585

X. Comments on the Proposed Decision 8686

XI. Assignment of Proceeding 8686

Findings of Fact 8686

Conclusions of Law 9191

ORDER 9292

Appendix A Proposed Settlement Agreement
Appendix B Approved Settlement Agreement (Redlined)
Appendix C Approved Settlement Agreement
Appendix D List of Appearances

OPINION REJECTING THE PROPOSED SETTLEMENT
AGREEMENT OF PACIFIC GAS & ELECTRIC COMPANY
AND THE COMMISSION STAFF, AND APPROVING
MODIFIED SETTLEMENT AGREEMENT

Summary

This decision rejects the Proposed Settlement Agreement (PSA) offered by Pacific Gas & Electric Company (PG&E), PG&E Corporation, and the Commission staff. We reject this settlement because it:

Unfortunately, the list of legal and financial infirmities above may not constitute all the legal and financial problems arising from the proposed settlement. Many procedural factors have combined to present this Commission with severely inadequate time and resources to consider sufficiently the historic costs, regulatory and legal consequences of this settlement. As a threshold issue, four of the five commissioners and the vast majority of the PUC staff was and still are precluded pursuant to an unprecedented gag order issued by the bankruptcy settlement judge from participating in or learning the basis of the proposed settlement and its components. This lack of information, understanding and ability to analyze the proposed settlement's components or legal meaning has impaired and continues to impair the ability of commissioners to perform their statutory and constitutional duties to determine if this proposal is in the public interest, much less whether it is in the best interest of the ratepayers.

The process entered into at the Commission to consider the proposed settlement unfortunately has also been rife with procedural infirmities. First, the scoping memo of the assigned commissioner unnecessarily crimped the evidentiary record developed and thereby limits the ability of the Commission to properly consider otherwise worthwhile programs and components, such as the Urban Youth Experience shoehorned into one of the alternate decisions without the benefit of development on the record. Comprehensive proposals that could have strengthened ratepayer benefits while ensuring financial creditworthiness of the utility have been precluded from consideration. Second, the limited time for hearings has jammed parties who raise concerns to this complex proposed settlement and crammed testimony and cross examination into a scope of time comparable that we take for small rate cases rather than the most monumental proceeding faced by this Commission in recent years. Third, the expedited timeframe for consideration of the proposed decision and multiple alternates by the end of the year affords no time for thorough comment, consideration and revisions as necessary. The proposed settlement agreement is an extraordinarily complex legal document with layers and layers of regulatory, financial and legal consequences that are still to be discovered. In fact, this alternate is a work in progress given the extremely short time frame within which to evaluate the proposed decision and two alternates that were first public on November 18th. The limitations adhering to this rushed process are exacerbated by the use of Commission staff as proponents of the proposed settlement. The unique posture of the staff with the most knowledge, expertise and history of this settlement and indeed this legal proceeding has imposed barriers to communication with the staff who are best positioned to advise the Commission and individual Commissioners in the performance of their statutory and Constitutional duties. Finally, the imposition of an artificial drop dead date of December 31, 2003 for this Commission to act on the most important and far reaching matter to come before this Commission in years aggravates the lack of adequate consideration and analysis. No legal or financial reason exists to rush to judgment on this settlement this year. No rates will be reduced on January 1st, even if the proposed settlement is approved as is. Rather, PG&E's emergence from bankruptcy still faces many months of actions by this Commission and the bankruptcy court under any circumstance. Given that the resolution of the PG&E bankruptcy has enormous and far reaching consequences for years to come, this Commission should choose to get it right, rather than to get it quick.

Nonetheless, in an abundant of caution that this Commission will continue to barrel ahead, this alternate decision is offered on the timeframe that has been imposed.

This decision approves a Modified Settlement Agreement which deletes the rejected conditions and approves an alternate plan to allow PG&E to recover its energy crisis undercollection by applying all excess revenues (headroom) collected through the surcharges imposed by ratepayers by this commission on January 4, 2001, and March 27, 2001, and maintaining those surcharges until PG&E's net undercollection1 is reduced to zero. Additionally, PG&E would contribute its earnings towards paying down the undercollection while the surcharges remain in effect. The mechanism of the Modified Settlement Agreement, given current projections, would allow PG&E to eliminate its net undercollection, reinstate its lapsed debts, and emerge from bankruptcy by first quarter of 2005.

The Modified Proposed Settlement provides the simplest, least expensive mechanism to ensure PG&E's investment-grade creditworthiness without undue and excessive profits locked in for PG&E shareholders. It pays creditors in full and completely refinances the debt in the same manner as the PSA and the PUC plan. It provides a clear, simple and tested path to financial feasibility. It eliminates all the legal infirmities of the PSA and maintains this Commission's adherence to its statutory and Constitutional mandates. It protects the energy bonds sold by DWR and prevents the creation of new legal liabilities relating to inconsistencies with the Rate Agreement that are contained in the PSA.

Of critical importance, the MSA adopted here doubles the rate decrease provided by the PSA within one year of the PSA's projected but not promised rate decrease projections. It eliminates the debt overhang created by the PSA and eliminates and potentials conflicts of interest arising from the issuance of that projected debt. And it provides enhanced environmental stewardship of all environmentally sensitive lands within PG&E's purview while maintaining the tax bases of the counties in which those lands are located.

I. Background

A. Background - PG&E Chose to Seek Chapter 11 Bankruptcy Protection

On April 6, 2001, PG&E filed a voluntary case under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Northern District of California.

Numerous creditors and other parties, including the Commission, intervened. On September 20, 2001, PG&E and PG&E Corporation, as co-proponents, filed a plan of reorganization (PG&E Plan). The PG&E Plan provided for the disaggregation of PG&E's businesses into four companies, three of which would be regulated by the Federal Energy Regulatory Commission (FERC). The Commission opposed the PG&E Plan. The PG&E Plan was amended and modified a number of times.

PG&E asserts that it was compelled to seek relief in the Bankruptcy Court because, as a result of the energy crisis beginning in May 2000 and because its retail electric rates were frozen, it was unable to recover approximately $8.9 billion of claimed electricity procurement costs from its customers, resulting in billions of dollars of defaulted debt and the downgrading of its credit ratings by all of the major credit rating agencies.

PG&E and its parent, PG&E Corporation, filed a plan of reorganization for PG&E (as amended and modified, the PG&E Plan) in September 2001. This Commission filed an alternate plan of reorganization for PG&E by express permission of the bankruptcy court on April 15, 2001, which the Commission modified during the summer and 2002.

Among other things, the Original CPUC Plan would have raised funds to pay PG&E's creditors through "headroom" revenues2 and issuance of new debt and equity securities, while at the same time maintaining PG&E as an integrated utility subject to regulation by the Commission. Subsequently, the Commission and the OCC filed an amended plan of reorganization for PG&E, dated August 30, 2002 (Joint Amended Plan) (later supplemented by a "Reorganization Agreement" entered into by the Commission and PG&E).

Subsequently, the Commission and the Official Committee of Unsecured Creditors (the OCC) filed their Third Amended Plan of Reorganization for Pacific Gas and Electric Company (the Commission Plan). On November 18, 2002, the Bankruptcy Court commenced a hearing on confirmation of the competing plans.

On November 21, 2002, during the trial on the Commission's Joint Amended Plan, PG&E made a motion for judgment against the Joint Amended Plan, on the grounds, inter alia, that the Reorganization Agreement proposed by the Commission would violate California law because it would bind future Commissions contrary to the Public Utilities Code and decisions and regulations of the Commission. On November 25, 2002, the Bankruptcy Court denied PG&E's motion, finding that the Commission did have the authority to enter into the Reorganization Agreement and to be bound by it under California and federal law. (Ex. 122, CPUC Staff/Clanon, Exhibit C.)

During the confirmation hearing, the Bankruptcy Court, on March 4, 2003, ordered a judicial settlement conference and, on March 11, 2003, stayed all proceedings with respect to confirmation of the competing plans to facilitate the settlement process. Pursuant to orders by the bankruptcy judge, parties to the settlement discussions are prohibited from disclosing information regarding or relating to the discussions.. As a result of that process, in which President Peevey participated as the sole commissioner privy to the settlement, a Proposed Settlement Agreement (PSA, the subject of this proceeding) was reached, the terms of which are incorporated by reference into a plan of reorganization dated July 31, 2003. The stay has been continued indefinitely pending further order of the Bankruptcy Court.

It is important to understand that although this Commission filed a plan of reorganization for PG&E and subsequent amendments by unanimous votes, the Commission did not participate in the settlement discussions that culminated in the PSA. The settlement discussions were conducted by a small number of the Commission staff and President Peevey, who were not authorized to bind the Commission. The PSA is before this Commission for approval. (Appendix A.)

The background of the energy crisis in California has been recounted many times in the decisions of this Commission and the courts. An excellent exposition of the events leading up to the energy crisis and PG&E's bankruptcy is found in the recent California Supreme Court decision Southern California Edison Company v. Peevey ((2003) 31 Cal. 4th 781). That exposition of events is equally applicable to PG&E. We repeat the Court's exposition here, with minor modifications to denote effects on PG&E.

The essential background of this case lies in California's attempt, beginning in 1996, to move the system for provision of electrical power from a regulated to a competitive market, the crisis caused in mid-2000 to early 2001 by soaring prices for electricity on the wholesale market, and the urgency legislation enacted in January 2001 in response to that crisis.

1. AB 1890 and California Energy Deregulation

Assembly Bill No. 1890 (Brulte, 1996) (hereafter Assembly Bill 1890), which became law in 1996 (Stats. 1996, ch. 854), was intended to provide the legislative foundation for "California's transition to a more competitive electricity market structure." (Assembly Bill 1890, § 1, subd. (a).) The new market structure included the creation of the California Power Exchange (CalPX), which was to run an "efficient, competitive auction" among electricity producers, and the Independent System Operator, which would control the statewide transmission grid. (Id., § 1, subd. (c).) The state's main investor-owned electric utility companies (Southern California Edison Company (SCE), PG&E, and San Diego Gas & Electric Company (SDG&E) (hereafter the utilities) were expected to divest themselves of substantial parts of their generating assets, while retaining others at least during the period of transition. (Id., § 10, adding Pub. Util. Code, former § 377.) Under the Assembly Bill 1890 scheme as implemented, all generators, including the utilities, sold their power through the CalPX; the utilities also bought, through that exchange, the electricity they needed to supply their retail customers. (Cal. Exchange Corp. v. FERC (In re Cal. Power Exchange Corp.) (9th Cir. 2001) 245 F.3d 1110, 1114-1115.)

Because this competition among producers was expected to bring down wholesale prices, the utilities believed that some of their generating assets, which they had built or improved with California Public Utilities Commission (PUC) approval, would become "uneconomic," in that the costs of generation (and of certain long-term contracts between the utilities and other generators) would be higher than prevailing wholesale rates would support. The costs associated with these potentially uneconomic assets are also known as "stranded costs" or "transition costs." The Legislature, in Assembly Bill 1890, intended to allow for "[a]ccelerated, equitable, nonbypassable recovery of transition costs" (Stats. 1996, ch. 854, § 1, subd. (b)(1)) and thereby to "provide the investors in these electrical corporations with a fair opportunity to fully recover the costs associated with commission approved generation-related assets and obligations" (Pub. Util. Code, § 330, subd. (t)). The legislative scheme for doing so without subjecting consumers to increased rates was complex, but consisted in its essentials of the following:

Under Pub. Util. Code § 367,3 the PUC was to identify and quantify potentially uneconomic costs (i.e., the PUC-approved costs that "may become uneconomic as a result of a competitive generating market"). The identified costs were to be recoverable through rates that would not exceed "the levels in effect on June 10, 1996," and the recovery was not to "extend beyond December 31, 2001." (§ 367, subd. (a).) The component of rates dedicated to recovery of transition costs was nonbypassable, i.e., it had to be paid to the utility whether the consumer bought power from the utility, from a generator in a single direct transaction, or from a generator in an aggregated direct transaction with other consumers. (§§ 365, subd. (b), 366, 370.)

Section 368 required each utility to propose, and the PUC to approve, a "cost recovery plan" for the costs identified in § 367 that would set rates at June 10, 1996, levels, with a 10 percent reduction for residential and small commercial customers. Section 368, subdivision (a) continues: "These rate levels . . . shall remain in effect until the earlier of March 31, 2002, or the date on which the commission-authorized costs for utility generation-related assets and obligations have been fully recovered. The electrical corporation shall be at risk for those costs not recovered during that time period."

The PUC implemented this cost-recovery scheme in part by creating, for each electric utility, a transition cost balancing account (sometimes herein referred to as a TCBA), in which the PUC-identified stranded costs were tracked. Transition costs were not to be forecast, but rather entered in the transition cost balancing account as the PUC determined them. Costs associated with utility-retained generating assets were to be determined by comparing the book value of the assets with their market valuations, a process to be completed by the end of 2001. These uneconomic generating costs were to be netted against the benefits of any economic generating assets (those having higher market than book value). The difference between rate revenue and the utility's other (nongeneration-related) costs was designated the utility's "headroom" and was to be credited against the stranded costs in the transition cost balancing account. The portion of each rate serving as headroom was designated the competition transition charge. (In re Pacific Gas & Electric Co. (1997) 76 Cal. P.U.C.2d 627, 646-653, 740-744.)

In the first few years of the transition period, the utilities recovered much of their stranded costs. SDG&E was found to have recovered all its transition costs, ending the rate freeze for that utility under § 368. SCE and PG&E, however, were still subject to the rate freeze when, in the summer of 2000, power procurement prices, and particularly prices on the CalPX spot market, rose drastically. They incurred huge debts buying electricity through the CalPX. (Cal. Exchange Corp. v. FERC (In re Cal. Power Exchange Corp.), supra, 245 F.3d at p. 1115.)

2. The California Energy Crisis and Resulting Electric Rate Increases

In November 2000, as the wholesale price and supply problems continued, PG&E and Edison brought federal actions against PUC. In essence, those utilities claimed that the rate freeze imposed by Assembly Bill 1890 was now depriving the utilities of their right, under federal law, to recover the costs of purchasing electricity for its customers. More particularly, Edison and PG&E claimed the freeze rates had become unconstitutionally confiscatory and violated the federal "filed rate" rule, which assertedly allows a utility to recover in state-regulated retail rates the costs of purchases made under federally approved tariffs.

The PUC granted Edison and PG&E emergency rate relief on January 4, 2001. Deeming the crisis one "that involves not only utility solvency but the very liquidity of the system," the PUC in authorized a temporary surcharge of one cent per kilowatt-hour. (Application of Southern California Edison Co. (2001) Cal. P.U.C. Dec. No. 01-01-018, pp. 1-4.) Two months later, on March 27, 2001, still finding that "SCE's and PG&E's continued financial viability and ability to serve their customers has been seriously compromised by the dramatic escalation in wholesale prices," the PUC made the January increase permanent and authorized an additional three cents per kilowatt-hour increase. (Application of Southern California Edison Co. (2001) Cal. P.U.C. Dec. No. 01-03-082, pp. 2-4.) The PUC refers to these increases collectively as the "four cent surcharge." (The surcharge amounted to an average increase of 40 percent in retail rates.) In fact, the PUC authorized a four and a half cent surcharge in the March 27, 2001, because it authorized an extra half-cent to be charged in recognition that, due to the necessary lag in billing and collections, the four cent surcharge would not fully flow until later in 2001. However, despite repeated requests to discontinue the half-cent "catch up" surcharge, this Commission never removed or reduced the additional half-cent. PG&E has continued to collect four-and-a-half cents as a surcharge since the second quarter of 2001. PUC's March 2001 decision, while authorizing an increase to pay for ongoing power purchases, did "not address recovery of past power purchase costs and other costs claimed by the utilities." (Id., at p. 2.)

The Legislature also took action in January 2001, in an extraordinary session called to address the power crisis. In that session's Assembly Bill No. 1 (Stats. 2001, 1st Ex. Sess., ch. 4; hereafter Assembly Bill 1X), the Legislature authorized the state Department of Water Resources to begin buying power for customers of SCE and PG&E. (Id., § 4, adding Wat. Code, §§ 80100-80122.) In Assembly Bill No. 6 of that Session (Stats. 2001, 1st Ex. Sess., ch. 2; hereafter Assembly Bill 6X), the Legislature amended several provisions of Assembly Bill 1890, halting at least temporarily the transition to a competitive electricity market. In particular, Pub. Util. Code § 377, as first enacted by Assembly Bill 1890, had provided that PUC would continue regulating the utilities' retained non-nuclear generating assets "until those assets have been subject to market valuation," after which they would be sold off unless the utility convinced the PUC their retention was in the public interest. (Stats. 1996, ch. 854, § 10.) As amended by Assembly Bill 6X, passed and signed as an urgency measure with immediate effect in January 2001, § 377 provides that all the remaining generating assets are subject to PUC regulation and may not be sold until January 1, 2006, at the earliest. (Assembly Bill 6X, § 3.) Similarly, as enacted by Assembly Bill 1890, Pub. Util. Code § 330, subdivision (l)(2) had provided that the generating assets "should be transitioned from regulated status to unregulated status through means of commission-approved market valuation mechanisms." (Stats. 1996, ch. 854, § 10.) Assembly Bill 6X deleted this language, leaving only the general statement that "[g]eneration of electricity should be open to competition." (Id., § 2.) PUC subsequently issued decisions, based on Assembly Bill 6X, reestablishing cost-based rate regulation of SCE's (and PG&E's) retained generating assets and modifying restrictions on the use of the four-cent surcharge. (E.g., Application of Southern California Edison Co. (2002) Cal. P.U.C. Dec. No. 02-04-016, p. 2; Application of Southern California Edison Co. (2002) Cal. P.U.C. Dec. No. 02-11-026, pp. 11-16.) (End of Court's exposition, 31 Cal 4th 781, 787 to 791.)

B. Background - SCE Chose to Work with California

We do not undertake our consideration of the PSA against a blank slate. In conducting their settlement negotiations, President Peevey, select PUC staff and PG&E were clearly aware of the settlement we entered into with SCE to restore that utility's financial viability and end its litigation against the Commission, as well as our proposed plan of reorganization for PG&E.

Under the terms of the Edison settlement, the Commission committed to keeping in effect the elevated rates first approved in March 2001 until Edison's energy crisis-related debts have been paid. Edison committed to applying all cash above cost of service (operating expenses and after tax return on rate base) to payment of its debts, which were collected in the Procurement Related Obligations Account (PROACT). The settlement placed significant limits on Edison's approved capital spending and suspended common and preferred dividends until the PROACT was paid. The settlement made no other changes to Edison's corporate or capital structure. Edison paid off the PROACT in July 2003 (after 21 months) and has received investment grade credit ratings from Fitch, Moody's, and Standard & Poors. The Edison settlement was entered into as a settlement of federal court litigation between Edison and the Commission. A stipulated judgment was entered by the federal district court and no continuing district court oversight of the Commission's regulatory authority was ever agreed to. Contempt proceedings existed as the sole enforcement mechanism. The authority of the Commission to enter into the settlement under state law was confirmed by the California Supreme Court on August 26, 2003, following approval of the settlement under federal law by the U.S. Ninth Circuit Court of Appeals in November 2003.

The Edison settlement applied a rigorous cost of service methodology to Edison's operations and utilized all of the revenue generated by rates in excess of cost of service to pay Edison's energy crisis-related debts and restore its credit. Through a mutual regime of economic and financial discipline on the part of Edison, a commitment to maintain rates at the level needed to pay off Edison's debt, the Commission and Edison cooperatively restored Edison's creditworthiness and financial metrics in less than two years. This included financing Edison's capital program through revenues from current rates without resort to the capital markets and provided sufficient earnings to enable Edison to significantly exceed the targeted equity ratio for cost of service ratemaking. At the end of July 2003, Edison reduced its rates by an average 13% across its entire system and will reduce them further as it recovers refunds from merchant generators and other malefactors and as DWR and other utility costs and energy crisis financial overhangs decline.

PG&E has had the benefit of the same high rates as Edison. By voluntarily resorting to bankruptcy, PG&E has erected additional obstacles to restoration of its credit over and above those faced by Edison. Nevertheless, PG&E has managed to finance its entire capital program and to retire more than a billion dollars in mortgage debt while amassing a significant cash reserve, as it defrayed a half billion dollars in litigation cost and operated its business on an ongoing basis as a debtor in possession with significant interruption or stress. The high rates approved by the Commission in March 2001 have done their job for both Edison and PG&E. The question now is how to bring PG&E along the final steps to emerge from bankruptcy, restore its credit and reduce its rates, while the Commission does its job for Northern California ratepayers and ensures just and reasonable rates in the future.

C. Procedural History of this Commission Proceeding4

On June 19, 2003, as a result of the settlement process, PG&E and the CPUC staff announced agreement on a Proposed Settlement Agreement under which PG&E and the Commission agree to jointly support a new plan of reorganization in the Bankruptcy Court that embodies the terms and conditions contained in the PSA (the Settlement Plan).5 PG&E, PG&E Corporation, and the OCC as co-proponents filed the Settlement Plan and disclosure statement for the plan with the Bankruptcy Court. The PSA constitutes an integral part of the Settlement Plan and is incorporated in the plan by reference. The Bankruptcy Court has stayed all proceedings related to the Commission's Joint Amended Plan and the PG&E Plan, until a confirmation hearing on the Settlement Plan.

On July 1, 2003, PG&E filed and served the PSA, the Settlement Plan, and a disclosure statement in this proceeding. On July 9, 2003, a prehearing conference (PHC) was held to determine the scope of proceedings for the Commission to consider the PSA. After the PHC, the Commissioner Peevey issued his "Scoping Memo and Ruling of Assigned Commissioner" (Scoping Memo) establishing the scope and schedule for this proceeding. The Scoping Memo, as amended, provided that the proceeding was limited to determining whether the PSA should be approved by the Commission, including whether the settlement is fair, reasonable, and in the public interest, using the criteria encompassed in various Commission, state, and federal court decisions.6 Excluded from the proceeding were alternative plans, rate allocation and rate design, and direct access issues. Proposed modifications to the PSA were permitted to be offered, but were required to be limited.

Despite the limitations on the development of the evidentiary record in this proceeding, numerous parties did submit suggestions and proposed amendments. We must, however, evaluate the parties' positions within the confines set by the Assigned Commissioner's Scoping order which precluded parties from submitting for the Commission's evaluation alternate plans or frameworks to pay PG&E's undercollections. This limited record was made all the more limited by the refusal of PG&E and Commission staff to set for the or explain the basis for the numbers and language underlying or contained in the settlement documents.

Eight days of hearings on the limited scope of evidence were held on September 10, 11, 12, 22, 23, 24, 25, and 26. On September 25, 2003, PG&E, the Office of Ratepayer Advocates (ORA), and certain other parties and non-parties submitted a stipulation resolving issues regarding the land conservation commitment in the PSA. Concurrent opening briefs were filed on October 10, 2003, and reply briefs on October 20, 2003, when the matter was submitted.

1 Estimated to be $2.95 billion, not counting anticipated headroom for 2003. Calculation of undercollection based on PG&E/ORA joint filed comparison exhibit, Exhibit No. 184. The determination of the $2.95 billion undercollection shall be discussed in later sections. 2 "Headroom" is defined below. 3 All further statutory references are to the Public Utilities Code unless otherwise specified. 4 This material is taken from the record in this proceeding as well as the record in PG&E's bankruptcy proceeding, documents, and pleadings of which the Commission may take official notice. The record in PG&E's Chapter 11 proceeding is available on the website of the U.S. Bankruptcy Court, Northern District of California, http://www.canb.uscourts.gov. In addition, documents relating to the Commission's various plans and filings in the bankruptcy proceeding can be found in the record of this proceeding as well as on the CPUC website at http://www.cpuc.ca.gov/static/industry/electric/pge+bankruptcy. 5 The PSA and the Settlement Plan are two different documents. 6 San Diego Gas & Electric Co., Decision (D.) 92-12-019, 46 CPUC 2d 538 (1992); Dunk v. Ford Motor Co. (1996) 48 CA4th 1794, 56 Cal. Rptr. 483; Officers for Justice v. Civil Service Commission, (9th Cir. 1982) 688 F.2d 615; Diablo Canyon, D. 88-12-083, (1988) 30 CPUC 2d 189; Amchem Products v. Windsor, (1997) 521 U.S. 591.

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