DEDICATED RATE COMPONENT

As I have indicated, I have some concern about whether the DRC can be implemented in a way that meets the cash flow and financial metrics required by the rating agencies. However, I embrace the concept and if it really saves ratepayers money it is a tool we should use. I supported the TURN legislation when it was introduced last August and am happy that the rest of the Commission now sees fit to support it. The legislature should act and we should see what we can do.

We need to be very clear about what the Majority Decision does and does not do about a DRC. Although much has been made of the "TURN-PG&E Deal," about saving ratepayers money through implementation of a DRC, the Majority Decision does not contain a DRC. The Majority Decision does not - DOES NOT -- save anyone any money. It contains only vague promises about future actions that may or may not ever occur. It is all optics and no substance at this point.

Specifically, the Majority Decision promises that the CPUC will sponsor legislation to authorize the substitution of a DRC for part or all of the regulatory asset that will be created by this decision. But the mechanics entail the creation of the Regulatory Asset now, and the issuance of securities now. The enactment of DRC legislation does not by itself assure that the DRC mechanism

The Majority Decision approves the most expensive PG&E deal from a ratepayer's economic standpoint -- $5.3 billion over 9 years. The DRC would reduce this ratepayer cost somewhat because it would lower the required earnings and taxes, by as much as a billion dollars over the nine years. But this occurs only if the DRC is actually implemented. As proposed, the DRC will be implemented through a second bond issue - a bonanza for lawyers, consultants, banks and underwriters - some years down the road. It will not reduce the amount that ratepayers have pay.

There is a significant benefit from the use of a DRC that we should make use of, if it goes forward. The DRC concept depends on a "true sale" of the stream of revenue to a remote "special purpose entity." The result of the sale is that PG&E has cash to pay off its regulatory asset. Once this occurs, there is no reason to maintain bankruptcy court supervision of PG&E, and the bankruptcy case can be dismissed. This is a way to address the legal infirmity of a too lengthy restraint on the Commission.

Some may argue that there are non-economic, non-bankruptcy issues for PG&E, particularly the nine years of federal supervision of the CPUC's ratemaking process. We should never assent to this infringement of our regulatory authority. As shown above, it is illegal. Any DRC legislation that we support should require dismissal of the bankruptcy court case in full, once the DRC has been implemented and PG&E has its cash.