VIII. Assignment of Proceeding

Michael R. Peevey is the assigned Commissioner and Bruce DeBerry is the assigned ALJ in this proceeding.

Findings of Fact

1. PG&E, Indicated QF Switchers, DRA and TURN presented the Commission with a Settlement Agreement entered into by participating QF Switchers and PG&E.

2. The Settlement Agreement resolves the Switcher Dispute pertaining to PG&E's claims for a retroactive adjustment of energy payments made to QF Switchers from June 1, 2000 through January 18, 2001.

3. The Settlement Agreement resolves the Remand Dispute pertaining to PG&E's claims for a retroactive adjustment of SRAC payments made to QFs from December 1, 2000 to March 31, 2001 arising from the Court of Appeal's Remand.

4. PG&E will receive $1.50/MWh from Indicated QF Switchers effective for two and one-quarter to six years depending on the date the QF Switcher elected to switch to PX-based energy pricing, and these payments thereby benefit ratepayers.

5. No party opposes approving the Settlement Agreement.

6. The Settlement Agreement is the product of extensive negotiations between the Settling Parties. Settling Parties entered into these negotiations after numerous pleadings.

7. Conducting a further proceeding would unnecessarily consumer valuable resources of the Commission, PG&E, QF Switchers, DRA and TURN, and would delay, and possibly prevent, the realization of the benefits identified above pertaining to QF Switcher payments.

8. The Settlement Agreement is a reasonable resolution of the Switcher and Remand Disputes and should apply to all QF Switchers including those who did not participate in the mediation leading to the Settlement Agreement.

9. No further filings with the Commission are needed to implement this settlement. PG&E shall enact the payment reductions as stated in the Settlement Agreement.

Conclusions of Law

1. The Settlement Agreement meets the requirements of Rule 12.1 of the Commission's Rules and should be adopted by the Commission.

2. The Settlement Agreement's resolution of the QF Switcher and Remand Disputes is within the Commission's authority to resolve.

3. The Settlement Agreement fully resolves and settles all disputed issues among the parties concerning the QF Switcher and Remand Disputes.

4. The Settlement Agreement is a reasonable resolution of the Switcher and Remand Disputes and should apply to all QF Switchers, including those who did not participate in the mediation leading to the Settlement Agreement.

5. The Settlement Agreement should be approved.

6. This decision should be effective today so that the Settlement Agreement may be implemented expeditiously.

ORDER

IT IS ORDERED that:

1. The Settlement Agreement between Pacific Gas and Electric Company (PG&E) and indicated Qualifying Facility (QF) Switchers, attached as Appendix A, shall be approved without change.

2. The terms of the Settlement Agreement shall apply to all QF Switchers which have not previously entered into settlement with PG&E.

3. PG&E is authorized to fully recover in rates all payments made pursuant to the Settlement Agreement adopted herein, subject only to ongoing Commission review regarding the reasonableness of PG&E's administration of the Settlement Agreement.

This order is effective today.

Dated August 23, 2007, at San Francisco, California.

MICHAEL R. PEEVEY

                    President

DIAN M. GRUENEICH

JOHN A. BOHN

RACHELLE B. CHONG

TIMOTHY ALAN SIMON

Commissioners

APPENDIX A

BEFORE THE PUBLIC UTILITIES COMMISSION
OF THE STATE OF CALIFORNIA

Order Instituting Rulemaking Into Implementation of Pub. Util. Code § 390.	Rulemaking 99-11-022 (Filed November 11, 1999)
SETTLEMENT AGREEMENT BETWEEN PACIFIC GAS AND ELECTRIC COMPANY AND INDICATED QUALIFYING FACILITY SWITCHERS

In accordance with Rule 12.1 of the California Public Utilities Commission's Rules of Practice and Procedure, Pacific Gas and Electric Company ("PG&E") and the indicated Qualifying Facility ("QF") switchers (the "Indicated QF Switchers") (collectively referred to as the "Parties" or individually as a "Party"), hereby enter into this Settlement Agreement Between Pacific Gas and Electric Company and Indicated Qualifying Facility Switchers ("Settlement Agreement") to resolve certain issues, as more fully described below, raised in Rulemaking 99-11-022, that are currently pending before the Public Utilities Commission of the State of California ("Commission"). The Indicated QF Switchers include the entities listed in Part I of Appendix A, each of whom is an individual Party for purposes of this settlement. The Commission's Division of Ratepayer Advocates ("DRA") and The Utility Reform Network ("TURN") were active in the mediation leading to this Settlement Agreement and also support its approval by the Commission.

The Parties believe that this Settlement Agreement is in the public interest and represents a fair and equitable resolution of the issues in the proceeding and request that the Commission approve it without modification. The Administrative Law Judge ("ALJ") invited all QFs potentially affected by the mediation to participate therein and gave written notice to all such QFs that those who declined to participate may be subject to and bound by any settlement reached in the mediation and approved by the Commission. See, "ALJ's Ruling Providing Opportunity for Participation in an Alternative Dispute Resolution Process," issued October 23, 2006, in R.99-11-022 ("ALJ Ruling") at 4. The remaining Qualifying Facility switchers that did not participate in the meditation (the "Remaining QF Switchers") are listed in Part II of Appendix A. PG&E requests that the Commission apply the terms of the Settlement Agreement to the Remaining QF Switchers as contemplated in the ALJ Ruling. The Indicated QF Switchers have no objection to this request. Together, the Indicated QF Switchers and the Remaining QF Switchers are referred to herein as the "QF Switchers."

RECITALS

A. On November 4, 1999, in Decision 99-11-025, the Commission permitted eligible QFs to switch to the California Power Exchange Corporation's ("PX") zonal day-ahead market clearing price for the energy portion of their QF payments, instead of using the otherwise applicable Short-Run Avoided Cost ("SRAC") energy pricing methodology, subject to the potential for a later true-up by the Commission. QFs were permitted to switch on or after June 1, 2000 until January 18, 2001, when the PX day-ahead market terminated (the "QF Switcher Period"). Starting January 19, 2001, the Commission returned the QF Switchers to the otherwise applicable SRAC energy pricing methodology. The true-up for QFs who switched to PX pricing during the QF Switcher Period is a contested issue in R.99-11-022 (the "QF Switcher Issue").

B. As a result of the California Court of Appeal decision in Southern California Edison v. Public Utilities Commission, 101 Cal. App. 4^th 982 (2002), regarding SRAC pricing between December 1, 2000 and March 31, 2001 (the "Remand Period"), there are disputed issues regarding the SRAC prices paid for energy to QF Switchers during the portion of the Remand Period (January 19, 2001 through March 31, 2001) for which such QF Switchers received the SRAC price then in effect. SRAC pricing during the Remand Period is a contested issue in R.99-11-022 (the "Remand Issue").

C. On April 18, 2006, PG&E and the Independent Energy Producers Association ("IEP") filed a joint motion seeking Commission approval of a settlement that, inter alia, resolved the QF Switcher Issue and Remand Issue for those QFs that elected to execute a contract amendment PG&E and IEP developed to implement the settlement. The Commission adopted the settlement without change or modification in Decision 06-07-032.

D. In the ALJ Ruling, Judge DeBerry issued a notice and opportunity for QF Switchers that had not already settled the QF Switcher Issue to participate in Alternative Dispute Resolution ("ADR"). The ALJ Ruling specifically noted that "QFs which do not participate in ADR may be subject to any negotiated settlement agreement reached as a result of ADR" and that ruling was mailed to all QFs PG&E identified as being potentially affected by the outcome of the mediation on the QF Switcher Issue. ALJ Ruling at 1.

E. Mediation of the QF Switcher Issue was conducted with the assistance of Administrative Law Judge Yacknin on November 29-30 and December 5-7, 2006. As a result of this mediation, the Parties reached this Settlement Agreement to resolve, as to PG&E and the QF Switchers, the QF Switcher Issue and the Remand Issue.

SETTLEMENT AGREEMENT

As a compromise among their respective litigation positions, and subject to the recitals, reservations, and releases set forth in this Settlement Agreement, the Parties hereby agree to resolve the QF Switcher Issue and Remand Issue by: (1) a reduction in the net energy payment that PG&E would otherwise pay to the QF Switcher, subject to this Settlement Agreement, pursuant to its respective power purchase agreement; and (2) by a one-time payment in the case certain QFs that have ceased operations, as described in paragraph 2, below.

1. Effective Date. This Settlement Agreement shall become effective on the first business day after the date on which a Commission decision approving this Settlement Agreement becomes final and no longer subject to judicial review (the "Effective Date"). The Commission's decision must: (1) adopt this Settlement Agreement unconditionally and without modification; (2) find that PG&E acted reasonably in entering into it; and (3) order that PG&E may recover in rates all payments made pursuant to this Settlement Agreement. The Parties agree that if the Commission decision fails to: (1) approve this Settlement Agreement as reasonable; (2) adopt it unconditionally and without modification (except as it may relate to any Remaining QF Switcher); and (3) include the findings relevant to PG&E set forth in the preceding sentence, any Party may, in its sole discretion, elect to terminate this Settlement Agreement upon notice to the other Parties given no later than 15 calendar days after the Effective Date of the Commission's decision. Unless the Parties otherwise agree, this Settlement Agreement shall terminate if the Commission has not issued a final decision that is no longer subject to judicial review approving this Settlement Agreement by September 7, 2007.

2. Settlement Payment and Period. For the QF Switchers to which this Settlement Agreement applies, there shall be a reduction in the net energy price payment equal to $1.50/MWh, calculated monthly. Such payment reduction shall apply for a period of time ranging from two and one-fourth years to six years, depending upon the month that each of the QF Switchers switched to PX-based SRAC pricing. The energy price reductions shall commence on the first day of the month following the Effective Date of this Settlement Agreement and shall continue for the period specified in the following table:

Attachment B details the month that each QF Switcher that is a Party to this Settlement Agreement, or to which this Settlement Agreement may apply, switched to market-based pricing during the QF Switcher Period. This Settlement Agreement shall apply to any contract that expires and is renewed or renegotiated. If the contract under which payments otherwise due under this Settlement Agreement has expired, or expires prior to the end of the repayment period, and such contract is not otherwise renewed or renegotiated, such QF and PG&E shall in good faith negotiate a payment amount and schedule to resolve any amounts that remain unpaid as the result of such contract expiration.

Wheelabrator Hudson and Covanta Power Pacific, Inc. (Santa Clara) have ceased operations, therefore the Parties agree that the QF Switcher Issue and the Remand Issue shall be resolved as to these entities by a one-time payment to PG&E of $35,200 in the case of Wheelabrator Hudson and $16,800 in the case of Covanta Power Pacific, Inc. (Santa Clara). Such payments shall be made by a cashier's check for the full amount delivered to PG&E no later than noon, Pacific Time, on the thirtieth day after the Effective Date, unless such date is a weekend or legal holiday in which case delivery shall be made by noon Pacific Time on the next business day. PG&E shall provide notice to Wheelabrator Hudson and Covanta Power Pacific, Inc. (Santa Clara) of the Commission's order adopting this Agreement within five business days of such Commission order, specifying the date on which payment is due to PG&E.

3. Releases and Waiver.

Mutual Releases. The Indicated QFs separately and each for itself and for each of its current and former successors, assigns, agents, owners, officers, directors, partners, shareholders, employees, predecessors, affiliated entities, transferees, attorneys, and representatives (collectively, the "QF Releasors") hereby release and forever discharge PG&E and its current and former successors, assigns, agents, owners, officers, directors, partners, shareholders, employees, predecessors, affiliated entities, transferees, attorneys and representatives, from any and all claims, demands, causes of action, controversies, liens, agreements, contracts, covenants, fees, debts, costs, expenses, amounts payable, invoices, damages, judgments, orders and liabilities of whatever kind or nature, both in law and equity, including but not limited to claims for attorneys' fees or costs, whether now known or unknown, vested or contingent, matured or unmatured, liquidated or unliquidated, suspected or unsuspected, and whether or not concealed or hidden, that have existed, may have existed, or that do exist as of the Effective Date, or that could or do later accrue as a direct result (in whole or in part) of transactions, occurrences, acts or omissions that have occurred as of the Effective Date, which they now have or ever may have arising out of the QF Switcher Issue and/or the Remand Issue, whether pursuant to contract, general law, tort law, or statute, including any claims related to or arising out of, directly or indirectly, the QF Switcher Issue and/or the Remand Issue (the "Released Claims"). This release also extinguishes all remedies that might be available to the QF Releasors or any of them on any Released Claims, including without limitation damages (general, specific, consequential and punitive), restitution, penalties, interest and attorneys' fees.

PG&E for itself and for each of its current and former successors, assigns, agents, owners, officers, directors, partners, shareholders, employees, predecessors, affiliated entities, transferees, attorneys, and representatives (collectively, the "PG&E Releasors") hereby release and forever discharge the Indicated QF Switchers, and any Remaining QF Switchers to which the Commission determines this Settlement Agreement applies, and each of them and each of their respective, current and former successors, assigns, agents, owners, officers, directors, partners, shareholders, employees, predecessors, affiliated entities, transferees, attorneys and representatives, from any and all Released Claims. This release also extinguishes all remedies that might be available to the PG&E Releasors or any of them on any Released Claims, including without limitation damages (general, specific, consequential and punitive), restitution, penalties, interest and attorneys' fees.

Waiver. The Released Claims fall within a limited and defined scope. It is the intention of the Parties in executing this Settlement Agreement that the releases set forth above shall be effective as a bar to each and every Released Claim specified above, whether known or unknown to the releasing party. In furtherance of this intention, the Parties hereby expressly waive all rights and benefits, if any, conferred upon them by the provisions of Section 1542 of the California Civil Code ("Section 1542") (to the extent this provision may be applicable to the releases granted in this Settlement Agreement) and expressly consent that this Settlement Agreement shall be given full force and effect according to each and all of its express terms and provisions, including those relating to unknown and unsuspected claims. Section 1542 provides:

A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.

Without conceding the applicability of Section 1542 to this Agreement or to any of the releases given hereunder, each Party expressly consents that, notwithstanding Section 1542 or any other statute or rule of law of similar import, whether enacted or in force in California or elsewhere, the releases hereinabove shall be given full force and effect according to each and all of their respective, express terms and provisions, including those terms and provisions relating to unknown or unsuspected claims that exist as of the Effective Date as well as those terms and provisions relating to any other claims related to the QF Switcher Issue and the Remand Issue, each as specified above (including but not limited to any claims related thereto that may or will accrue in the future based on transactions, occurrences, acts or omissions that have occurred as of the Effective Date). Each Party acknowledges and agrees that this waiver is an essential and material term of this Settlement Agreement and the releases and settlement contained herein, and without such waiver this Settlement Agreement would not have been entered into. Each Party has been advised by its respective legal counsel with respect to this waiver, and understands and acknowledges the significance and consequences of the foregoing releases and of this express waiver of Section 1542 and other similar statutes or rules of law wherever enacted or in force.

Exceptions. The foregoing releases do not extend to, and nothing in this Settlement Agreement will be construed to extinguish or limit, the rights or claims of any Party hereto to enforce this Settlement Agreement according to its terms.

The foregoing releases do not extend to, and nothing in this Settlement Agreement will be construed to extinguish or limit, the rights or claims of any Party hereto concerning any matter not arising out of the Released Claims.

4. Representations and Warranties

Authority to Settle. PG&E and the Indicated QF Switchers each represents and warrants to the other that it has the right, power and authority to execute this Settlement Agreement. PG&E and the Indicated QF Switchers each further represents and warrants to the other that: (1) it has the exclusive right to prosecute and compromise the claims released by this Settlement Agreement; (2) it has neither made nor suffered to be made any sale, assignment, transfer, conveyance, pledge, hypothecation, or encumbrance of any kind whatsoever of any right, claim, demand, obligation, cost, expense, sanction, grievance, action, cause of action, controversy, debt, damage, arbitration, liability, duty, penalty, attorneys' fee, charge, suit, punitive damage, injury, loss, agreement, contract, promise, or lien released, canceled, rescinded or discharged hereby and accordingly that no other party or entity possesses any rights which would otherwise prevent any release and discharge granted in this Settlement Agreement from being less than a full, final and complete release and discharge; (3) it is the sole and absolute legal and equitable owner of the Released Claims, free and clear of any interest of any other person or entity; and (4) upon the execution date of this Settlement Agreement, there is no other court or regulatory approval required for the effectiveness and implementation of this Settlement Agreement that has not been fully and finally obtained. PG&E and each of the QF Switchers subject to this Settlement Agreement, on its own behalf in relation to PG&E, represents and warrants to the other that, except as may be expressly set forth in this Settlement Agreement, no representations of any kind or character, written or oral, have been made to or by it or any of its agents, employees, or representatives, relating in any way to this Settlement Agreement.

Notice and Consent. PG&E and each of the QF Switchers subject to this Settlement Agreement, on its own behalf and in relation to PG&E, represents and warrants to the other that it has given any and all notices, and obtained any and all consents, powers and authorities, necessary to permit them and the persons executing this Settlement Agreement for them to enter into this Settlement Agreement, settle, compromise, and release the claims settled, compromised, and released herein, to do, undertake, or forebear from any act called for herein, and to make this Settlement Agreement, and all the provisions hereof, fully binding on and enforceable against them in accordance with its terms, including, without limitation thereto, any necessary notice to or consent or approval from their shareholders, creditors, Board of Directors, partners, limited partners, members, managers, officers, or any other person, entity, group or body, and that it is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization.

5. Miscellaneous Provisions

Amendments. The Settlement Agreement may be amended or changed only by a written agreement signed by the Parties.

Integration. The Parties have bargained earnestly and in good faith to achieve this Settlement Agreement. The Parties intend the Settlement Agreement to be interpreted and treated as a unified, interrelated agreement. This Settlement Agreement embodies the entire understanding and agreement of the Parties with respect to the matters described herein, and, except as described herein, supersedes and cancels any and all prior oral or written agreements, principles, negotiations, statements, representations or understandings among the Parties.

Neutral Construction. Each of the Parties hereto and its respective counsel and advocates have contributed to the preparation of this Settlement Agreement. Accordingly, the Parties agree that no provision of this Settlement Agreement or ambiguity shall be construed against any Party because that Party or its counsel drafted the provision.

Governing Law. This Settlement Agreement shall be governed by and construed in accordance with the laws of the State of California, excluding any choice of law rules that may specify the laws of another jurisdiction.

Compromise Not Binding Precedent. This Settlement Agreement represents a compromise of respective litigation positions and is not intended to establish binding precedent for any future proceeding. The Parties have assented to the terms of this Settlement Agreement only for the purpose of arriving at the compromise embodied herein. The Parties further agree that this Settlement Agreement reflects a compromise, not an agreement or endorsement of disputed facts and law presented by the Parties.

Execution. This document may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute the same instrument.

In witness whereof, intending to be legally bound, the signatories hereto have duly executed this Settlement Agreement on behalf of the Party(ies) each signatory represents.

PACIFIC GAS AND ELECTRIC COMPANY

By: _____________________________

Name/Title: Thomas E. Bottorff, Senior Vice-President, Regulatory Relations

Date: ____________________________

INDICATED QUALIFYING FACILITIES

COVANTA (SALINAS) COVANTA (SANTA CLARA) COVANTA (STOCKTON) By: ____________________________ Name/Title: Seth Myones, Vice-President    Date: ___________________________

WHEELABRATOR HUDSON ENERGY COMPANY, INC. By: ____________________________ Name/Title: David M. Beavens, Vice President Finance Date: ___________________________

ALTAMONT COGENERATION CORP. By: ____________________________ Name/Title: Daniel V. Gulino, Vice-President and General Counsel Date: ___________________________

DG FAIRHAVEN POWER LLC By: ____________________________ Name/Title: Steven Jay Mueller, President    Date: ___________________________

HL POWER COMPANY By: ____________________________ Name/Title: _________________________ Date: ___________________________

MARTINEZ COGEN PARTNERSHIP By: ____________________________ Name/Title: John Crider, Vice-President Date: ___________________________

CARDINAL COGEN, INC. By: ____________________________ Name/Title: Ronald S. Dahlin, Plant Manager   Date: ___________________________

OGDEN - BURNEY OGDEN - MT. LASSEN By: ____________________________ Name/Title: _________________________ Date: ___________________________

SAN JOAQUIN POWER CO. By: ____________________________ Name/Title: Daniel V. Gulino, Vice-President and General Counsel Date: ___________________________

UNITED COGEN, INC. By: ____________________________ Name/Title:                                    , Vice President, Operations Date: ___________________________

SRI INTERNATIONAL COGENERATION PROJECT By: ___________________________ Name/Title: _________________________ Date: ___________________________

We agree that the terms of the Settlement Agreement are a reasonable compromise of the Settled Issues and should be approved without modification:

THE DIVISION OF RATEPAYER ADVOCATES

By: ______________________________

Name/Title: Dana S. Appling, Director         

Date: ______________________________

THE UTILITY REFORM NETWORK

By: ___________________________

Name/Title: Michael Florio              

Date: __________________________

APPENDIX A

PART I -- Indicated QF Switchers

ALTAMONT COGENERATION CORP.

CARDINAL COGEN

COVANTA POWER PACIFIC, INC. (SALINAS)

COVANTA POWER PACIFIC, INC. (SANTA CLARA)

COVANTA POWER PACIFIC, INC. (STOCKTON)

FAIRHAVEN POWER CO.

HL POWER CO.

MARTINEZ COGEN PARTNERSHIP

BURNEY MOUNTAIN POWER

MT. LASSEN POWER

SAN JOAQUIN POWER CO.

SRI INTERNATIONAL COGENERATION PROJECT

UNITED COGEN INC.

WHEELABRATOR HUDSON ENERGY COMPANY, INC.

PART II -- Remaining QF Switchers (not Parties to the Mediation)

AMERICAN ENERGY-WOLFSEN

FAR WEST POWER CORPORATION

GEORGIA PACIFIC CORP.

MONTEREY POWER COMPANY

PALO ALTO LANDFILL

SAN JOSE COGEN

SONOMA COUNTY WATER AGENCY

AMERICAN ENERGY-SAN LUIS

ATTACHMENT B

Name Switch Month²⁰

FAIRHAVEN POWER CO. Jul-00

WHEELABRATOR HUDSON Jul-00

HL POWER CO. Aug-00

MT. LASSEN POWER Aug-00

BURNEY MOUNTAIN POWER Aug-00

UNITED AIRLINES (COGEN) Aug-00

ALTAMONT COGENERATION CORP. Sep-00

MONTEREY POWER COMPANY* Sep-00

SAN JOAQUIN POWER CO. Sep-00

MARTINEZ COGEN Oct-00

PALO ALTO LANDFILL* Nov-00

SAN JOSE COGEN* Nov-00

CARDINAL COGEN Dec-00

COVANTA POWER PACIFIC, INC. (SALINAS) Dec-00

COVANTA POWER PACIFIC, INC. (SANTA CLARA) Dec-00

COVANTA POWER PACIFIC, INC. (STOCKTON) Dec-00

GEORGIA PACIFIC CORP.* Dec-00

SRI INTERNATIONAL COGENERATION PROJECT** Dec-00

AMERICAN ENERGY-SAN LUIS* Jan-01

AMERICAN ENERGY-WOLFSEN * Jan-01

FAR WEST POWER CORPORATION* Jan-01

SONOMA COUNTY WATER AGENCY* Jan-01

* Companies identified with an asterisk are "Remaining QF Switchers."

** SRI International switched in Nov-00. However, it made no power sales in Dec-00 or Jan-01, and, therefore, for purposes of this settlement is treated as if it switched in Dec-00.

(END OF APPENDIX A)

¹⁹ There are no QF Switchers that switched effective in June 2000 to which this Settlement Agreement applies.

²⁰ Under the terms of the Settlement Agreement, the QFs that switched to PX market pricing in January 2001 would have no repayment liability.