5. Settlement Agreement

A copy of the proposed Settlement Agreement is attached hereto as Appendix B. The key terms of the Settlement Agreement are as follows:

· SCE and SDG&E's decommissioning costs for SONGS Unit 1 (Phase 1) for the period July 1, 2005 through December 31, 2008 are reasonable.

· SCE and SDG&E's decommissioning cost estimates for SONGS Unit 1 (Phases 2 and 3) and SONGS Units 2 and 3; SCE's decommissioning cost estimates for Palo Verde Units 1, 2, and 3; and PG&E's decommissioning cost estimates for Diablo Canyon Units 1 and 2 and HB3 are reasonable for purposes of settling the authorized revenue requirement in this NDCTP and for future review of SONGS Unit 1 (Phase 2) and HB3 decommissioning expenditures in the next NDCTP application.

· Trust fund contributions for units owned by SCE or SDG&E would be based, among other things, on the following assumptions:

o 8.75% pre-tax equity returns.

o 4.2% post tax debt returns.

o 6.93% burial escalation rate.

· Trust fund contributions for units owned by SCE and SDG&E would be based on the December 31, 2009 trust fund balances.

· PG&E funding for Diablo Canyon would be established as a fixed amount at $9 million per year, commencing January 1, 2010, with rate of return and fixed income assumptions to be adjusted to reach this funding requirement.

· HB3 funding would be generally determined in accordance with PG&E's application, based on updated after-tax fund balances as of December 31, 2009, reflecting unrealized capital losses.

· PG&E's completed activities and decommissioning expenditures at Humboldt as set forth in its application were reasonable in amount and prudently incurred.

· As required by Ordering Paragraph 6 of D.07-01-003, PG&E, SCE, and SDG&E have demonstrated that they have made all reasonable efforts to retain and utilize sufficiently qualified and experienced personnel to effectively, safely, and efficiently pursue any decommissioning activities at the Humboldt, Diablo Canyon, SONGS, and Palo Verde facilities.

· PG&E's request for SAFSTOR O&M expense plus attrition as presented in its application is reasonable.

· An independent panel will be created to review certain decommissioning-related issues and prepare a report that the Utilities will address in their cost estimates for the next NDCTP. Among other things, the independent panel will:

o Identify, compare, and explain the key cost and financial assumptions driving differences in the cost estimates.

o Identify, compare, and explain similarities and differences in decommissioning costs, challenges, and approaches for California nuclear units and plants of similar design and configuration in other states.

o Identify and explain cost and financial assumptions that could be applied on a common basis to the estimates for Diablo Canyon, SONGS, and Palo Verde sites.

o Identify and suggest steps that could be taken to minimize decommissioning costs in the future.

o Evaluate whether emerging radiological contamination issues could increase decommissioning costs.

o Suggest a common format for preparation of decommissioning cost estimates that would permit greater transparency and comparability.

· In the next NDCTP application, the applicants will provide contribution estimates that would assume successful completion of license renewal, for informational purposes only.

· In the next NDCTP application, the applicants will provide contribution estimates that assume some equity investment by the trust funds after unit shutdown.

· The Settling Parties request that the Commission and other state agencies formally ask the United States Department of the Navy (i.e., the lessor of the SONGS site) to clarify the site restoration and remediation standards that would be required to terminate the SONGS site lease contract. Consistent with this effort, SCE and SDG&E agree to propose a partial termination of the Nuclear Regulatory Commission (NRC) license(s) for the SONGS site that would exclude the ISFSI.

· The reasonableness review method adopted in D.99-06-007 for decommissioning activities and expenditures from Phase 1 at SONGS Unit 1 would be continued for all other phases at SONGS Unit 1 and applied to all post-2008 decommissioning activities and expenditures for HB3.