The Settlement

The two active parties entered into settlement discussions to try to resolve their differences. This settlement is the result of those discussions. The settlement consists of the following agreements by the Settling Parties:

1. The reasonable total cost recoverable from this CEMA application is $15.5 million, consisting of $11.3 million in capital costs and $4.2 million in expenses. The revenue requirement resulting from these costs is $12.138 million in electric revenue requirements, including interest through December 31, 2010, franchise fees, and uncollectibles, to be collected in rates beginning January 1, 2008, with $9.333 million collected in rates in 2008, $1.431 million in 2009, and $1.374 million in 2010.¹⁰ Upon approval of this settlement by the Commission, PG&E will record the CEMA revenue requirement into the Distribution Revenue Adjustment Mechanism ($11.46 million) and to the Utility Generation Balancing Account ($503,000¹¹) for rate recovery through the Annual Electric True-up advice letter.

2. The Settling Parties agree that the Commission should find that it is reasonable for PG&E to recover $12.138 million as PG&E's total authorized revenue requirement in this application. It is difficult to tie the final settlement amount to specific outcomes for individual issues; however, the final settlement amount does reflect litigation uncertainty assessed by one or both parties.  This uncertainty includes, among other issues, the ability of either party to prove whether or not PG&E's requested costs were incremental to the costs approved in PG&E's 2003 test year general rate case settlement.  The GRC rate case settlement was not fully disaggregated, and thus did not specify costs in terms germane to a CEMA analysis.  This also includes the likely inability of PG&E to prove whether its requested costs properly include those costs incurred in counties without a disaster declaration.

3. PG&E agrees that it shall not pursue any appellate relief, in any court of law, regarding the underlying facts and issues raised in this proceeding. PG&E further agrees that it will not pursue or support an application for rehearing of Decision 07-07-041, the decision denying the portion of PG&E's application requesting recovery for costs associated with the July 2006 heat storm. PG&E also agrees to not pursue or support a petition for modification of Decision 07-07-041, or to pursue or support any collateral attack upon Decision 07-07-041, as it relates to the July 2006 heat storm.

4. The parties further agree that in future CEMA applications, PG&E will not include an allocation of capitalized Administrative and General (A&G) costs in the costs booked to the CEMA. In the future, PG&E will allocate its capitalized A&G costs to non-CEMA capital costs.

¹⁰ The revenue requirement numbers include interest calculated at the actual 90-day commercial paper rate through August 2007, and at the August 2007 90-day commercial paper rate thereafter on the unamortized balance through 2010. The numbers will change slightly over time as the forecasted 90-day commercial paper rate is replaced by the actual 90-day commercial paper rate in each month following August 2007.

¹¹ These numbers only total $11.963 million because they assume interest only through December 31, 2007, when the revenue requirement numbers are assumed to be transferred to the DRAM and UGBA, using the same assumptions as footnote 1.