Agreed Modifications to Application

With the following three modifications, the Parties agree that the Commission should approve the application. The three modifications are:

1) On page 7 of his testimony, SDG&E witness Mr. Calabreze states that SDG&E will recover the costs for its investment in the Palomar Energy Center based on a constant return on equity (ROE) of 10.90%. TURN and ORA contested this ROE because it does not reflect the currently applicable SDG&E ROE (10.37%). The Parties agreed for purpose of conciliation that the ROE that should be applied to recover SDG&E's investment in the Palomar Energy Center should be the then currently applicable ROE. The Parties recognize that SDG&E is required to file a cost of capital application on May 9, 2005, which will likely change SDG&E's currently authorized ROE effective January 1, 2006. When SDG&E files its update advice letter prior to the Palomar Energy Center entering commercial operation, SDG&E will update in that advice letter the fixed monthly revenue requirement to reflect the ROE then in effect.

2) On page 6 of his testimony, SDG&E witness Mr. Yost states that the incentive compensation loader for non-union employees should be 23.3%. Because the 23.3% includes executive incentive compensation, and in an effort to reach a conciliatory outcome, the Parties agree that the incentive compensation loader for non-union employees should be a rate of 18.0%, which represents the non-union non-executive average. When SDG&E files its update advice letter prior to the Palomar Energy Center entering commercial operation, SDG&E will update in that advice letter the fixed monthly revenue requirement to reflect an 18.0% loader for non-union employees.

3) On page 3 of his testimony, SDG&E witness Mr. Larsen states that the appropriate net salvage rate for the Palomar Energy Center steam generation unit is negative 8%. TURN disagrees and believes that an appropriate net salvage rate for the steam turbine is negative 1%, matching that of the combustion turbines. For the purpose of reaching a conciliatory result in this proceeding and avoiding the litigation of a fairly minor issue, the Parties agree that a negative 3.5% net salvage rate should be applied to the Palomar Energy Center steam generation unit. When SDG&E files its update advice letter prior to the Palomar Energy Center entering commercial operation, SDG&E will update in that advice letter the fixed monthly revenue requirement to reflect a negative 3.5% net salvage rate for the steam generator.

The Parties assert that the agreements reached on the issues addressed above are for the purpose of reaching a mutually agreeable outcome in this proceeding that is fair, reasonable, and in the public interest given all the factors and facts specific to this proceeding. The agreements reached on the disputed issues, and the Commission's adoption of those agreements, are not intended, nor should they be interpreted, as setting a precedent on the issues should they arise in the future. For example, if any of the issues are addressed in SDG&E's next GRC/COS proceeding, the Parties are free to advocate different results or positions, and the fact that any of them agreed to the specific outcome in this application should not be cited as a reason for impeachment or otherwise as a reason to preclude any of the Parties from arguing an inconsistent position.