4. Settlement Agreement

Appendix A is the Settlement Agreement, in redacted form.¹⁰ In summary, the Settlement recommends:

· SDG&E's proposal for full AMI deployment and cost recovery as described in its application and testimony should be adopted, with certain specified modifications.

· The total project costs are $572 million through 2011.

· The total project costs of $572 million include the additional functionality and extended warranty provisions as described in the settlement. Additional functionality requirements are:

o A Home Area Network (HAN) communications system, based on an open standard capability for residential and commercial and industrial customers, which should be compatible with the HAN choice of other major California utilities

o Remote connect/disconnect functionalities

· The Settling Parties agree that it is prudent for SDG&E to obtain pricing for an extended warranty for the AMI equipment.

· SDG&E will issue an addendum to its RFP in order to:

o Ascertain the current status and viability of advancements in AMI technology and may, at its discretion, accept bids from technologies excluded from the original RFP;

o Determine whether project costs are significantly increased by certain functional requirements;

o Seek proposals to install additional functionality; and

o Seek proposals for an extended warranty of the AMI equipment.

· The Settling Parties agree to the risk contingency and symmetrical risk and reward-sharing proposal as described in the Settlement, including:

o Expenditures up to $572 million are deemed reasonable and will be recovered in rates without any after-the-fact reasonableness review;

o 90% of up to the first $50 million in Project costs exceeding $572 million will be recovered in rates without any after-the-fact reasonableness review, and 10% will be borne by SDG&E shareholders;

o Project costs above $622 million may be recoverable in rates following a reasonableness review by the Commission;

o 10% of the first $50 million in Project costs below $572 will be awarded to SDG&E shareholders;

o Any shareholder rewards or costs will be recorded and recovered through SDG&E's Reward and Penalties Balancing Account; and

o Total Project costs may be adjusted downward as a result of revisions to SDG&E's RFPs. If total Project costs are reduced, the risk sharing mechanism would apply to the revised total Project cost.

· The Settling Parties agree that 100% of the AMI revenue requirement will be allocated among customers utilizing the SDG&E distribution allocation in place when AMI costs are recovered in rates.

· The Settling Parties agree that the Peak Time Rebate (PTR), Critical Peak Pricing (CPP) and AMI related dynamic rates should be determined in SDG&E's January 31, 2007, General Rate Case Phase 2 proceeding (A.07-01-047).

· SDG&E will establish an AMI Technology Advisory Panel (TAP) and will invite staff from the CEC, the Commission's Energy Division, UCAN, DRA, and other technical experts to serve on this panel.¹¹

o The TAP will work with SDG&E so that SDG&E's AMI design and deployment considers the "best available practices" and "best available technologies" and encourages customer acceptance of the new services enabled by AMI deployment.

o The TAP will provide written feedback and recommendations in the form of an annual report to SDG&E on SDG&E's progress in deploying AMI and the industry status of AMI-related technologies. This report will be submitted to the Commission's Energy Division.

o TAP meetings will be open to the public.

· The Settling Parties agree that SDG&E may recover in rates costs that exceed the $572 million due to events beyond SDG&E's control, including:

o Force majeure events that materially affect SDG&E's ability to implement the Project as planned, such as acts of nature, transportation accidents, civil disturbances or changes in law;

o Material changes in the scope or functionality of the Project due to governmental or regulatory actions;

o Material changes in the costs of the AMI Project caused by a delay in Commission approval of the Project beyond April 12, 2007,¹² and

o Significant delays before or during Project deployment caused by regulatory of governmental action or inaction, including delays caused by cities and local governments or permit delays.

The Settlement provides that its provisions are to be effective on the date the Commission issues its final decision, or as soon after approval as is reasonably feasible. The Settlement Agreement provides a resolution of all issues raised in conjunction with the Application.

¹⁰ The redacted version of the Settlement Agreement is Exhibit 63R. The unredacted version (Exhibit 63) contains certain confidential information.

¹¹ The TAP responsibilities are detailed in Attachment A of the settlement agreement.

¹² The Settlement Agreement used the date of April 5, 2007. This date was modified at the February 27, 2007 Evidentiary Hearing to account for a change in the Commission's meeting schedule. 8 RT 947-8.