VII. Proposed Settlement

On August 2, 2006, SDG&E, SCE and DRA filed a motion to adopt a settlement agreement (settlement). The settlement, included as Attachment A to this decision, provides that SDG&E will defer its request for an increased ROE on its investment in SONGS to the next Cost of Capital Proceeding. In addition, the settlement proposes that:

· SDG&E be authorized to participate in the SGRP at its current ownership level.

· SDG&E be authorized a two-way balancing account applicable to all SONGS O&M costs, including refueling outage O&M and SCE's contractual overheads, billed to SDG&E under the SONGS operating agreement so that SDG&E will recover in rates no more and no less than the actual amount billed by SCE.

· The two-way balancing account will remain in effect until SDG&E's next rate case cycle that will commence on January 1, 2008. SDG&E will be allowed to file an application to continue the two-way balancing account after January 1, 2008.

· The remainder of SDG&E's requests in the application be authorized.

Rule 51.1(e) of the Commission's Rules of Practice and Procedure provides that the Commission will not approve a settlement unless it is reasonable in light of the whole record, consistent with law and in the public interest. The settlement is a compromise between SDG&E, SCE and DRA, nothing in the record indicates that it should not be adopted, and no party opposes the settlement. In addition, our cost-effectiveness evaluation, including our review of the calculation methodology and individual inputs to the calculation, supports the reasonableness of the settlement. Therefore, it is reasonable in light of the whole record. Nothing in the settlement contravenes any statute or Commission decision. Therefore, it is consistent with law. The settlement provides only for recovery of reasonably incurred SGRP costs. It also provides for recovery of incurred SONGS O&M costs, but prohibits recovery in excess of that amount. Thus, the settlement helps ensure that SDG&E will be able to provide adequate reliable power to its customers at a reasonable cost and is in the public interest.

DRA represents the interests of ratepayers, and SDG&E and SCE represent their interests. Therefore, the affected parties are fairly represented. The settlement provides sufficient information to enable the Commission to implement it and understand the consequences of implementation, thus enabling the Commission to discharge its future regulatory obligations with respect to the parties and their interests. For all of the above reasons, we approve the settlement. This decision should be effective immediately so that the ratemaking treatment authorized herein can be implemented as soon as possible.