ALJ/TIM/jva Mailed 11/19/2004

Decision 04-11-015 November 19, 2004

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

In the Matter of the Application of Pacific Gas and Electric Company for: (1) Authority to Sell or Assign Recovery Property to One or More Financing Entities; (2) Authority to Service Recovery Bonds on Behalf of Financing Entities; (3) Authority to Establish Charges Sufficient to Recover Fixed Recovery Amounts and Fixed Recovery Tax Amounts; and (4) Such Further Authority Necessary for PG&E to Carry Out the Transactions Described in this Application. (U 39 M)

Application 04-07-032

(Filed July 22, 2004)

FINANCING ORDER AUTHORIZING THE ISSUANCE OF ENERGY RECOVERY BONDS PURSUANT TO SENATE BILL 772

1. Summary 2

2. Background and Procedural History 3

3. Approval of PG&E's Application to Issue Energy Recovery Bonds 7

A. Satisfactory Legislation 8

B. Ratepayer Benefits 9

C. Effect of the Bonds on PG&E's Credit Ratings 13

D. Compliance with Sections 701.5 and 816, et seq. 14

E. IRS Private Letter Ruling 16

F. Approval of the Energy Recovery Bonds 17

4. Description of the Approved Energy Recovery Bonds 18

A. No Recourse to the State 18

B. Two Series of Energy Recovery Bonds 18

C. Authorized Amount of Energy Recovery Bonds 20

D. The Bond Transaction 22

E. Credit Rating Issues 24

F. Bond Issuance Costs 26

G. Tax Issues 27

H. Use of Bond Proceeds 28

I. Exemption from the Competitive Bidding Rule 31

5. Description of the Approved Bond Charges 32

A. Summary of the DRC 33

B. Summary of the ERBBA 38

C. Termination of the RARAM 42

D. Customer Responsibility for Bond Charges 42

E. Bill Presentation 44

F. Revenue Accounting 44

G. Billing, Collecting, and Remitting the DRC 45

6. Contested Issues 49

A. Use of Bond Proceeds 49

i. Position of the Parties 49

ii. Discussion 49

B. Timing of Energy Recovery Bonds 51

i. Position of the Parties 51

ii. Discussion 52

C. Energy Supplier Refunds 54

i. Position of the Parties 54

ii. Discussion 54

D. Public Notice and Comment on Bond-Related Advice Letters 54

i. Position of the Parties 54

ii. Discussion 56

E. Recovery of Bond Charges from New Municipal Load and BART 57

i. Position of the Parties 57

ii. Discussion 59

F. Recovery of Bond Charges from Departing Load 61

i. Position of the Parties 61

ii. Discussion 62

G. Rate Decrease for CARE and Residential Consumers 64

i. Position of the Parties 64

ii. Discussion 66

7. General Order 24-B 67

8. Fees 67

9. California Environmental Quality Act 69

10. Irrevocable Financing Order 70

11. PG&E's Written Consent to Be Bound by the Financing Order 71

12. Category and Need for Hearings 71

13. Comments on the Draft Financing Order 72

14. Assignment of Proceeding 72

15. Rehearing and Judicial Review 72

Findings of Fact 73

Conclusions of Law 79

FINANCING ORDER 99

Appendix A: Projected Ratepayer Savings

FINANCING ORDER

1. Summary

This Financing Order grants Application (A.) 04-07-032 filed by Pacific Gas and Electric Company (PG&E) for authority under Senate Bill (SB) 772¹ and Decision (D.) 03-12-035 to issue up to $3.0 billion of Energy Recovery Bonds (Bonds) to refinance PG&E's bankruptcy Regulatory Asset. The Bonds will be issued by a legally separate Special Purpose Entity (SPE), which will transfer the Bond proceeds to PG&E in exchange for the right to receive revenues to repay Bond principal, interest, and related costs. The refinancing will save PG&E's ratepayers an estimated amount of between $447 million and $624 million on a net present value basis.² The actual savings will depend on several factors that are not known at this time, such as the interest rate on the Bonds and the resolution of certain tax issues.

The Bond principal, interest, and related costs will be recovered via two new surcharges called the Dedicated Rate Component (DRC) and the Energy Recovery Bond Balancing Account charge. All consumers of electricity in PG&E's service territory will be required to pay these new surcharges, except for those consumers that are exempt from the new surcharges pursuant to SB 772 or other Commission decisions.

Pursuant to Public Utilities Code Section 848.1(g),³ which was enacted by SB 772, the provisions in this Financing Order authorizing the issuance of the Energy Recovery Bonds and the recovery of Bond principal, interest, and certain other Bond-related costs from consumers are irrevocable.

¹ 2004 Stats., ch. 46.

² These estimated savings assume the Bonds will receive favorable tax treatment.

³ All statutory references are to the Public Utilities Code unless otherwise indicated.