6. Contested Issues

A. Use of Bond Proceeds

i. Position of the Parties

PG&E states that it may use up to $154 million of Bond proceeds to fund capital expenditures. Modesto asserts that it is illegal for PG&E to impose Bond Charges on municipal departing load (MDL) consumers if PG&E uses Bond proceeds for capital expenditures.

ii. Discussion

Decision 03-12-035, Ordering Paragraph 9, provides the following guidance for how PG&E should use the proceeds from the Bond transaction:

[A]fter . . . exiting from Chapter 11, PG&E will seek as expeditiously as practical to refinance the unamortized portion of the Regulatory Asset and associated federal and state incomes and franchise taxes using a securitized financing supported by a dedicated rate component . . . PG&E will use the securitization proceeds to rebalance its capital structure to maintain the capital structure provided for under the Settlement Agreement. (Emphasis added.)

We do not interpret D.03-12-035 as prohibiting PG&E from using some of the proceeds to fund capital expenditures, as long as PG&E maintains the capital structure required by D.03-12-035. PG&E states that it will do so.⁶⁵ Moreover, the purpose of the Bonds is to refinance the unamortized portion of the Regulatory Asset and associated taxes. Therefore, even if PG&E uses some of the proceeds from the Bond transaction to fund capital expenditures, all of the Bonds are being issued to refinance the unamortized Regulatory Asset (and associated taxes). Hence, it is proper for all of the Bonds to be repaid from the statutory DRC and by those who are obligated to pay the DRC.⁶⁶

Refinancing the Regulatory Asset (and associated taxes) will result in a large cash inflow to PG&E. PG&E proposes to use this cash primarily to retire debt and equity, but it also to fund capital expenditures. PG&E might instead have used all of the proceeds to retire debt and equity; but then it would have had to fund these capital expenditures by issuing more debt and equity, thus incurring additional transaction costs. We see no point in requiring PG&E to do that. Accordingly, it is appropriate for PG&E to use some of the proceeds for capital expenditures (expected to be incurred in early 2006), as long as the capital structure provided for under the Settlement Agreement is maintained.

Finally, we note that the Bonds will be repaid with DRC revenues. SB 772 requires all consumers in PG&E's service territory to pay the DRC, with certain exemptions.⁶⁷ The statute does not provide an exemption for MDL consumers in the event that PG&E uses some of the proceeds from the Bond transaction to fund capital expenditures. Therefore, the Legislature has already decided that MDL consumers can be required to pay the DRC, subject to certain exemptions set forth in SB 772, even if the some of the Bond proceeds are used to fund capital expenditures.

B. Timing of Energy Recovery Bonds

i. Position of the Parties

TURN supports PG&E's application for authority to refinance its bankruptcy Regulatory Asset by issuing two series of Energy Recovery Bonds through a legally separate SPE. TURN hopes the Bonds will be issued quickly so that consumers can realize the Bond-related savings as soon as possible.

ORA opposes PG&E's proposal to have the SPE issue two series of Bonds up to one year apart. ORA recommends that the Commission require the SPE to issue all of the Bonds at once or, alternatively, issue the second series no later than May 2005. ORA asserts that waiting one year to issue the second series would cost ratepayers as much as $100 million because (1) PG&E projects that interest rates will be higher in one year, and (2) the proceeds from the second series will not be available to provide a Carrying Cost Credit to ratepayers.

ORA argues that delaying the issuance of the second series of Bonds is inconsistent with SB 772, which was passed as an emergency statute because any delay in issuing the Bonds would reduce ratepayer benefits.⁶⁸ SB 772 states in relevant part, "The amount of ratepayer savings will be reduced if the securitized financing is delayed.⁶⁹" SB 772 also states, "PG&E has agreed that, after emerging from bankruptcy, it will seek to implement, as expeditiously as practical, a securitized financing using a dedicated rate component to refinance the unamortized amount of the regulatory asset and associated taxes, provided several conditions are met.⁷⁰" ORA reads SB 772 as requiring the SPE to issue all the Bonds as soon as practical, not when it is convenient for PG&E or the SPE.

PG&E strongly opposes ORA's proposals. PG&E states that it has relied on the Commission's determination in D.03-12-035, Ordering Paragraph 9, that the SPE may issue two series of Bonds up to one year apart.

ii. Discussion

We decline to adopt ORA's recommendations. We agree with PG&E that D.03-12-035 authorizes the SPE to issue two series of Energy Recovery Bonds up to one year apart. Ordering Paragraph 9 states, in relevant part, as follows:

PG&E may [issue Energy Recovery Bonds] in up to two [series] up to one year apart. . . . The first [series] will be no less than the full unamortized balance of the Regulatory Asset. The second [series] will be for the associated federal and State income taxes and franchise taxes. (D.03-12-035, Ordering Paragraph 9.)

In addition, Ordering Paragraph 11 of D.03-12-035 states:

Upon PG&E's and PG&E Corporation's written consent to the conditions precedent in Ordering Paragraphs 9 and 10, the Commission authorizes the Executive Director to sign the Modified Settlement Agreement [that settles PG&E's bankruptcy proceeding] on behalf of the Commission.

PG&E provided its written consent to Ordering Paragraphs 9 and 10, and the Executive Director thereafter signed the MSA on behalf of the Commission. The Commission is bound by the MSA and the Bankruptcy Court order approving the settlement, and the Commission cannot unilaterally alter the terms of the settlement.⁷¹

We disagree with ORA that it is inconsistent with SB 772 to allow the SPE to issue the Bonds up to one year apart. The statute provides the Commission with express authority to authorize the SPE to issue one or more series of Energy Recovery Bonds on or before December 31, 2006.⁷²

Although we decline to adopt ORA's proposal, we agree with ORA that ratepayers could save millions of dollars if the SPE issues all the Energy Recovery Bonds by May 2005. PG&E does not dispute this assessment. Therefore, we expect the SPE to issue the second series of Bonds by May 31, 2005, in order to maximize the Carrying Cost Credit provided to ratepayers. If the second series is not issued by May 31, 2005, we will require PG&E to file and serve a compliance filing by June 10, 2005, that (i) explains in detail why it was necessary to delay the issuance of the second series of Bonds, (ii) states when the second series will be issued, and (iii) identifies the amount of Carrying Cost Credit forgone due to the delayed issuance of the second series of Bonds. Parties may file and serve comments on PG&E's compliance filing. Opening comments will be due on June 17, 2005, and reply comments on June 24, 2005.

C. Energy Supplier Refunds

i. Position of the Parties

PG&E proposes in A.04-07-032 that consumers benefit from energy supplier refunds by using the refunds to reduce the amount of the Energy Recovery Bonds issued or, if received after the Bonds are issued, to offset any Bond-related costs recorded in the ERBBA. Modesto claims, however, that PG&E does not propose any protections to ensure that energy supplier refunds will be flowed through to the appropriate beneficiaries. Thus, Modesto believes the financing order should include an ordering paragraph that requires PG&E to return to consumers the full value of any energy supplier refunds.

PG&E agrees with Modesto that consumers should receive the full benefit of any energy supplier refunds. PG&E states that it has presented a detailed proposal for doing exactly that.

ii. Discussion

This Financing Order adopts PG&E's detailed proposal for ensuring that consumers receive the full benefit of any energy supplier refunds. Consistent with Modesto's recommendation, this Financing Order contains ordering

paragraphs that require PG&E to return the full value of all energy supplier refunds to consumers.

D. Public Notice and Comment on Bond-Related Advice Letters

i. Position of the Parties

Modesto recommends that the public have an opportunity to review and comment on PG&E's Bond-related advice letters. With one exception, PG&E opposes Modesto's request, stating that the Commission must act swiftly on Bond-related advice letters to ensure that the Bonds receive the highest possible credit ratings. PG&E notes that it has proposed that it be allowed to file Non-Routine True-Up Mechanism Advice Letters in the event that it is necessary to modify the cash flow model used to determine the DRC. These advice letters would be on a 90-day schedule. PG&E does not object to the public having an opportunity to comment on these advice letters, so long as the 90-day timeline is incorporated into the Financing Order.

ii. Discussion

We agree with both parties. Elsewhere in this Financing Order, we adopt PG&E's proposal to automatically establish Recovery Property via Issuance Advice Letters and to implement and adjust the DRC via Issuance Advice Letters and True-Up Mechanism Advice Letters. As required by GO 96-A, PG&E shall serve a copy of these advice letters on any party that requests service. To satisfy Modesto's concern, these advice letters shall be subject to (1) post-filing review by the Energy Division, and (2) post-filing protests in accordance General Order 96-A, Section III.H. If the Energy Division finds mathematical errors in PG&E's advice letters, the Energy Division may prepare for the Commission's consideration a resolution that adjusts the DRC.⁷³ We place no time limits on the Energy Division's ability to find and correct mathematical errors. The Energy Division may also determine as a result of its own review of PG&E's advice letters, or after reviewing any protests, that it is necessary to adjust Bond-related costs or revenues. The Energy Division may seek to implement such adjustments via a proposed resolution. Any such adjustment shall comply with Section 848.1(g) and be implemented via the ERBBA.⁷⁴ We place no time limit the Energy Division's ability to propose such adjustments.

With respect to the Non-Routine True-Up Mechanism Advice Letters, the public will have an opportunity to review and protest these advice letters in accordance with standard Commission procedures. These Advice Letters shall become effective automatically after 90 days unless the Commission first issues a resolution that adopts, modifies, or rejects one of these Advice Letter.

E. Recovery of Bond Charges from New Municipal Load and BART

i. Position of the Parties

Section 848.1(c) requires that:

[T]he commission shall determine the extent to which [FRAs and FRTAs] are recoverable from new municipal load, consistent with the commission's determination in the limited rehearing granted in Decision 03-08-076. The determination of the commission shall be made on the earlier of the date it adopts a financing order or December 31, 2004." (Emphasis added.)

TURN notes that the Commission is currently considering in Rulemaking (R.) 02-01-011 whether, and to what extent, the Cost Responsibility Surcharge (CRS) will apply to new municipal load. As TURN understands Section 848.1(c), the Commission's holding in R.02-01-011 will automatically apply to the DRC.

Merced observes that Section 848.1(c) requires the Commission to resolve the issue of whether, and to what extent, the DRC applies to new municipal load by the earlier of December 31, 2004, or the date it issues a Financing Order in the instant proceeding. Merced states that because A.04-07-032 depends, in part, on the outcome of the CRS issue being addressed in R.02-01-011, the two proceedings have to be closely coordinated.

Modesto argues that PG&E disregards Section 848.1(c) by requesting in A.04-07-032 that the Commission allow the SPE to issue Energy Recovery Bonds regardless of whether the Commission has made a final determination regarding the applicability of the DRC to new municipal load. Modesto recommends that PG&E's proposed Conclusion of Law 35 and Ordering Paragraph 37 be revised as follows to comply with Section 848.1(c):

Conclusion of Law 35: This Financing Order should be severable from and should not be impacted by the actions or inactions of the Commission or other bodies with respect to other matters, including, but not limited to,; provided, however, that the Commission's determination of the extent to which the DRC charges and FRTAs shall be recoverable from new municipal load shall be final prior to the effective date of this Financing Order as provided Public Utilities Code Section 848.1(c).

Ordering Paragraph 37: The Commission intends that this Financing Order shall be severable from and shall not be impacted by the actions or inactions of the Commission or other bodies with respect to other matters, including, but not limited to,; provided, however, that the Commission's determination of the extent to which the DRC charges and FRTAs shall be recoverable from new municipal load shall be final prior to the effective date of this Financing Order as provided Public Utilities Code Section 848.1(c).

Modesto contends that if the Commission adopts a financing order that becomes effective before a Commission decision in R.02-01-011 regarding the limited rehearing granted in D.03-08-076, the financing order should clarify that no Bond Charges will accrue on new municipal load prior to the effective date of the Commission's decision in R.02-01-011.

PG&E opposes Modesto's request to defer the effective date of the financing order until the Commission has issued a final decision in R.02-01-011 regarding whether, and to what extent, the CRS should apply to new municipal load. PG&E states that if it is determined that Bond Charges cannot be imposed on new municipal load until the Commission has issued a decision regarding the CRS in R.02-01-011, the Bond transaction can still move forward by setting the Bond Charges on new municipal load at zero until CRS-related issues are resolved in R.02-10-011.

The San Francisco Bay Area Rapid Transit District (BART) submitted late-filed comments on the draft Financing Order in which BART argues that SB 1201, enacted in September 2004, exempts BART from the Bond Charges.⁷⁵

ii. Discussion

Section 848.1(c) directs the Commission to determine the extent to which FRAs and FRTAs are recoverable from new municipal load, "consistent with the [C]omission's determination of the limited rehearing granted in [D.03-08-076]." The Commission is addressing the limited rehearing in R.02-01-011. We interpret Section 848.1(c) as exempting new municipal load from Bond Charges to the same extent, if any, that it is determined in R.02-01-011 that new municipal load is exempt from the CRS. Thus, the application of Bond Charges to new municipal load should mirror the application of the CRS to new municipal load as decided by the Commission in R.02-01-011. In a companion decision issued today in R.02-01-011, we resolve the limited rehearing granted by D.03-08-076, and we address the question of the responsibility of new municipal load for portions of the CRS. The principles adopted there relative to new municipal load apply to responsibility of new municipal load under Section 848.1(c) for the Bond Charges adopted in this Financing Order.

In D.03-08-076, which is cited in Section 848.1(c), the Commission granted limited rehearing on the issue of whether, and to what extent, the CRS should apply to new municipal departing load. The Decision also determined that pending the outcome of the limited rehearing, the CRS would apply to all new municipal load. In addition, D.03-08-076 directed PG&E to implement a memorandum account to track the CRS applicable to new municipal load and made the tracked amounts subject to refund.⁷⁶ We conclude that it would be consistent with Section 848.1(c) to adopt a similar approach for the Bond Charges. Accordingly, pending the final outcome of the CRS issues in R.02-01-011, all new municipal load shall be responsible for paying the Bond Charges. PG&E shall implement a memorandum account to track the Bond Charges applicable to new municipal load. The tracked amounts shall be subject to true-up and recovery or refund. The disposition of the tracked amounts shall be decided in R.02-01-011 or a successor proceeding.

Section 848.1(c) requires the Commission to determine the extent to which new municipal load is exempt from Bond Charges "on the earlier of the date it adopts a financing order or December 31, 2004." This Financing Order establishes that the principles adopted in the companion decision issued today in R.02-01-011 relative to the new municipal load apply to the responsibilities of new municipal load under Section 848.1(c) for the Bond Charges adopted in this Financing Order. Our actions today in R.02-01-011 and this Financing Order are sufficient to meet the deadline established by Section 848.1(c).

In its late-filed comments on the draft Financing Order, BART raised a new issue, after the record was closed, regarding whether BART is exempt from the Bond Charges pursuant to SB 1201. We decline to address this issue here. There is no mention of the Energy Recovery Bonds or the Bond Charges in SB 1201, so it is not readily apparent whether, and to what extent, SB 1201 exempts BART from the Bond Charges. The only information we have concerning the applicability of SB 1201 to the Bond Charges is BART's late-filed comments on the draft Financing Order and PG&E's associated reply comments. We do not find these comments, which are unsupported by any record evidence, to be a sufficient basis for deciding whether, and to what extent, SB 1201 exempts BART from the Bond Charges. BART may raise this issue in Phase II of PG&E's GRC proceeding in A.04-06-024.

F. Recovery of Bond Charges from Departing Load

i. Position of the Parties

PG&E proposes to calculate the Bond Charges paid by departing load (DL) consumers using an approach that is consistent with the method currently used to calculate the Rate Reduction Bond (RRB) charge for DL consumers. Under this approach, DL consumers will pay Bond Charges based on recorded pre-departure use or current actual use. If information regarding historic or current use is unavailable, PG&E proposes to determine use in accordance with the methods proposed by PG&E in several pending advice letters.⁷⁷

Modesto is concerned that PG&E's proposed methods for collecting Bond Charges from municipal DL consumers relies on advice letters that have not yet been approved by the Commission. Modesto submits that the Commission should not prejudge the outcome of these advice letters by adopting in this proceeding the methodologies proposed in the advice letters.

PG&E states that if the necessary advice letters are not acted on by the time the Bond Charges go into effect, then the same approach currently in use for billing DL consumers for the RRBs should be used until that approach is superseded by Commission action on the advice letters.

Modesto opposes PG&E's suggestion. Modesto proposes to recover the Bond Charges under the CRS cap of $0.027/kWh. According to Modesto, D.04-02-062 determined that the cost of PG&E's Regulatory Asset should be recovered under this overall cap.⁷⁸ Modesto argues that because the Energy Recovery Bonds refinance the Regulatory Asset, the Bond Charges should likewise be recovered under the cap.

ii. Discussion

SB 772 provides that the Bond Charges may apply to all consumers in PG&E's service territory, except for those consumers that are exempt from the Bond Charges pursuant to SB 772.⁷⁹ Decision 04-02-062 provides guidance regarding the rate design for the recovery of Bond Charges from non-exempted DL consumers, including MDL consumers. In that Decision, the Commission held that the revenue requirement associated with the Regulatory Asset or a successor component such as the DRC will be allocated to consumers on an equal cents per kWh basis. However, the Commission in other decisions has granted certain exemptions from the cost responsibility for the Regulatory Asset. Based on this guidance, we conclude that the Bond Charges adopted by this Financing Order are applicable to all DL consumers except those that have been exempted from the Bond charges by the Commission or SB 772.

Consistent with D.04-02-062, we conclude that the same method ultimately adopted by the Commission to determine the amount of DL that is subject to the Regulatory Asset charge shall also be used to determine the amount of DL that is subject to the Bond Charges. PG&E proposes to use the methods contained in pending advice letters for determining the amount of DL that is subject to the Regulatory Asset charge. We agree with Modesto that it is inappropriate to adopt these methods in this Financing Order, as doing so would prejudge the pending advice letters. Instead, once the Commission adopts procedures for determining the amount of DL that is subject to the Regulatory Asset charge, whether in response to PG&E's pending advice letters or in another proceeding, PG&E shall file an advice letter to apply the adopted procedure to Bond Charges. PG&E's advice letter shall comply with the notice and protest procedures set forth in GO 96-A, Section III.H.

We decline to adopt PG&E's recommendation to adopt an interim methodology for determining the amount of DL subject to the Bond Charges. PG&E should establish a memorandum account to track the amount of Bond Charges applicable to DL consumers. The tracked amounts shall be subject to true-up and recovery. PG&E should flow through the appropriate tracked amounts to DL consumers after the Commission has adopted a procedure for determining the amount of DL that is subject to the Bond Charges. In addition, the tracked amounts should not be remitted to the SPE until they are actually billed and collected from DL consumers. If for any reason the DRC actually collected from DL consumers is subject to refund, those amounts should be held by PG&E and remitted to the SPE only after there is a final determination that such amounts are not subject to adjustment or refund.

On an interim basis, we will place the recovery of Bond Charges from non-exempt DL consumers under the CRS cap of $0.027/kWh. The procedure and priority for recovering Bond Charges under the CRS cap shall mirror the recovery of the Regulatory Asset from non-exempt DL consumers under the cap as set forth in D.03-07-028 and D.04-02-062. Parties may raise this matter again in Phase II of PG&E's GRC in A.04-06-024 or other such proceeding as may be subsequently determined.

G. Rate Decrease for CARE and Residential Consumers

i. Position of the Parties

Refinancing the Regulatory Asset with the Energy Recovery Bonds will reduce PG&E's revenue requirement, all else being equal. PG&E states that none of the reduced revenue requirement should be allocated to (1) the California Alternative Rates for Energy (CARE) program,⁸⁰ (2) medical baseline, and (3) residential Tier 1 and Tier 2 consumers.⁸¹ Instead, PG&E recommends that the entire Bond-related reduction in PG&E's revenue requirement allocable to residential consumers be used to reduce residential Tier 3 and Tier 4 rates.

PG&E opposes Bond-related reductions for CARE, medical baseline, and residential Tier 1 and Tier 2 consumers because these consumers did not pay higher overall rates for the Regulatory Asset. PG&E explains that a rate component for the Regulatory Asset was incorporated into all consumers' rates. However, due to the constraints in Water Code Section 80110, overall rates for CARE, medical baseline, and Residential Tiers 1 and Tier 2 were not increased.⁸² For these consumers, the generation rate component was decreased to offset exactly the Regulatory Asset component, so that overall rates for these consumers remained the same. The generation component in other consumers' bills was

increased to make up for the reduction in generation revenues from CARE, medical baseline, and residential Tiers 1 and Tier 2. PG&E submits that because these consumers did not experience an overall increase for the Regulatory Asset, these consumers should not benefit from the refinancing of the Regulatory Asset.

ORA opposes PG&E's proposal to exclude CARE, medical baseline, and residential Tier 1 and Tier 2 consumers from sharing in the benefits of the Energy Recovery Bonds. ORA argues that PG&E's proposal is not supported by SB 772, which states that the Commission cannot authorize PG&E to issue the Energy Recovery Bonds unless the Commission finds that consumers' rates will be reduced on a present value basis. ORA asserts that PG&E's proposal, if adopted, would result in more than half of PG&E's consumers not receiving any rate decrease from the Energy Recovery Bonds.

ORA states that there are many subsidies and inequities in existing rates, and these issues are being addressed in PG&E's GRC. ORA posits that it is inappropriate to take one particular issue out of the GRC and attempt to address it here, as PG&E recommends.

ORA notes that there are other consumers besides CARE, medical baseline, and Residential Tiers 1 and 2 that have not borne the full brunt of excessive electricity costs incurred during the electricity crisis. These other consumers include direct access consumers, consumers that have added distributed generation or self generation facilities, and agricultural consumers. ORA observes that PG&E does not propose to preclude those consumers from receiving a share of the Bonds savings. In light of this, ORA believes that PG&E's proposal to deny CARE, medical baseline, and Tier 1 and 2 consumers their share of Bond savings is discriminatory and must be rejected.

ii. Discussion

In this Financing Order, we are asked to address the narrow issue of whether the refinancing of the Regulatory Asset with the Energy Recovery Bonds should result in a rate reduction for CARE, medical baseline, and residential Tier 1 and Tier 2 consumers. To resolve this issue, we will rely on the same rate design adopted in D.04-02-062 for the Regulatory Asset. There, the Commission offset a rate increase for the Regulatory Asset with a rate decrease for generation, so that overall rates for CARE, medical baseline, and residential Tier 1 and Tier 2 consumers did not change. Using this approach, the Bond-related rate decrease for these consumers will be offset with an increase to generation, so that overall rates for these consumers do not change.⁸³ ORA may raise this issue again in Phase II of PG&E's GRC proceeding.

⁶⁵ PG&E Supplement filed on September 8, 2004.

⁶⁶ Sections 848(d), 848(g)(i), and 848.1(a).

⁶⁷ Sections 848(d), 848(e), and 848.1(a) - (d).

⁶⁸ SB 772, § 11.

⁶⁹ SB 772, § 11(f).

⁷⁰ SB 772, § 11(c), emphasis added.

⁷¹ D.03-12-035, mimeo., p. 26.

⁷² Section 848.1(e).

⁷³ Once Recovery Property is established pursuant to an Issuance Advice Letter, it shall not be adjusted in response to protests to the Advice Letter because the existence of Recovery Property must be firmly established prior to the issuance of the associated Energy Recovery Bonds. Any errors or irregularities regarding the amount of established Recovery Property may be corrected through the DRC, the ERBBA charge, or other appropriate mechanism.

⁷⁴ Section 848.1(g) limits the scope of the adjustments that the Commission can make to PG&E's Bond Charges.

⁷⁵ SB 1201, 2004, Stats., ch. 613, was signed by the Governor on September 21, 2004, which was more than three months after SB 772 was signed. SB 1201 allows BART to receive power from local publicly owned electric utilities on the same terms as federal preference power authorized by Chapter 206 of the Statutes of 1998.

⁷⁶ D.03-08-076, mimeo., pp. 1 , 18, and 32.

⁷⁷ For Customer Generation DL, see Advice Letter 2375-E. For Municipal DL, see Advice Letter 2433-E. For New Municipal DL, see Advice Letter 2483-E. These Advice Letters address the determination of the DL that will be subject to the bankruptcy Regulatory Asset.

⁷⁸ D.04-02-062, p. 6 and pp. 14-15, Conclusions of Law 5 and 8.

⁷⁹ Sections 848.1(b) - (d).

⁸⁰ The CARE program provides subsidized electric service to low income households.

⁸¹ Residential Tier 1 and Tier 2 rates encompass usage up to 130% of baseline.

⁸² Water Code Section 80110 prohibits increases in the total charges for residential usage up to 130 percent of baseline.

⁸³ A.04-06-024. In D.04-02-062, the overall rate increase for the residential class was determined first, and that full amount was then applied exclusively to Tiers 3 and 4. Therefore, consistent with D.04-02-062, the full amount of the Bond-related decrease for the residential class will be applied exclusively to Tiers 3 and 4 (the same does not apply with respect to CARE and medical baseline usage).