STATE OF CALIFORNIA GRAY DAVIS, Governor

PUBLIC UTILITIES COMMISSION

505 VAN NESS AVENUE

SAN FRANCISCO, CA 94102-3298

July 15, 2003 Agenda ID #2476

Ratesetting

TO: PARTIES OF RECORD IN APPLICATION 02-03-020

This is the proposed decision of Administrative Law Judge (ALJ) O'Donnell, previously designated as the principal hearing officer in this proceeding. It will not appear on the Commission's agenda for at least 30 days after the date it is mailed. This matter was categorized as ratesetting and is subject to Pub. Util. Code § 1701.3(c). Pursuant to Resolution ALJ-180 a Ratesetting Deliberative Meeting to consider this matter may be held upon the request of any Commissioner. If that occurs, the Commission will prepare and mail an agenda for the Ratesetting Deliberative Meeting 10 days before hand, and will advise the parties of this fact, and of the related ex parte communications prohibition period.

The Commission may act at the regular meeting, or it may postpone action until later. If action is postponed, the Commission will announce whether and when there will be a further prohibition on communications.

When the Commission acts on the proposed decision, it may adopt all or part of it as written, amend or modify it, or set it aside and prepare its own decision. Only when the Commission acts does the decision become binding on the parties.

Parties to the proceeding may file comments on the proposed decision as provided in Article 19 of the Commission's "Rules of Practice and Procedure." These rules are accessible on the Commission's website at http://www.cpuc.ca.gov. Pursuant to Rule 77.3 opening comments shall not exceed 15 pages. Finally, comments must be served separately on the ALJ and the assigned Commissioner, and for that purpose I suggest hand delivery, overnight mail, or other expeditious method of service.

/s/ ANGELA K. MINKIN

Angela K. Minkin, Chief

Administrative Law Judge

ANG:sid

ALJ/JPO/sid DRAFT Agenda ID #2476

Ratesetting

Decision PROPOSED DECISION OF ALJ O'DONNELL (Mailed 7/15/2003)

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Application of Pacific Gas and Electric Company in its 2002 Nuclear Decommissioning Cost Triennial Proceeding. (U 39 E)

Application 02-03-020 (Filed March 15, 2002)

Robert B. Mc Lennan, Attorney at Law, for Pacific
Gas and Electric Company, applicant.

Gregory Heiden, Attorney at Law, for the Office
of Ratepayer Advocates; Scott L. Fielder,
Attorney at Law, for the Surfrider Foundation;
and Bob Finkelstein, Attorney at Law; and
Bill Marcus for The Utility Reform Network;
interested parties.

TABLE OF CONTENTS

Title Page

O P I N I O N 2

I. Summary 2

II. Background 3

III. Overview 4

IV. Utility-Specific Issues 5

A. Diablo Canyon Decommissioning Cost Estimate 5

B. Humboldt Decommissioning Costs and O&M Expenses 6

C. Early and Partial Decommissioning of Humboldt 7

D. Equity Turnover Assumption 8

V. Common Issues 10

A. Rate of Return 10

B. Escalation Rate 14

C. LLRW Burial Costs 20

D. Contingency Factors 22

VI. Conclusion 26

VII. Rate Proposal 27

VIII. Procedural Matters 28

IX. Comments on Proposed Decision 28

X. Assignment of Proceeding 28

Findings of Fact 28

Conclusions of Law 33

ORDER 36

O P I N I O N

I. Summary

The purpose of this nuclear decommissioning cost triennial proceeding (NDCTP) is to set the annual revenue requirements for the decommissioning trusts for nuclear power plants owned by Pacific Gas and Electric Company (PG&E).

For 2003, PG&E requests an annual revenue requirement of $24.034 million for decommissioning Diablo Canyon Power Plant Units 1 and 2 (Diablo Canyon). PG&E also requests an annual revenue requirement of $17.511 million for decommissioning Humboldt Bay Power Plant Unit 3 (Humboldt). In addition, PG&E requests $8.254 million for Humboldt SAFESTOR O&M.¹ The resulting annual revenue requirement is $49.799 million.

By this decision, we find that the trust funds for Diablo Canyon are sufficient to pay for its eventual decommissioning. In addition, we set the annual revenue requirement for Humboldt at $18.450 million. The primary reasons for the differences between the requested and adopted numbers are different adopted rates of return for the trusts, cost escalation rates, contingency factors, and low level radioactive waste (LLRW) burial costs. We also grant PG&E's request for a revenue requirement of $8.254 million for Humboldt SAFESTOR O&M. The total adopted annual revenue requirement of $26.704 million is a $4.48 million decrease from the currently adopted revenue requirement of $31.2 million.

In addition to the above revenue requirement, we find that the $0.95 million expenditure for Humboldt decommissioning costs incurred above the $15.7 million authorized in Resolution E-3503 was reasonable, and authorize PG&E to recover the costs from the Humboldt decommissioning cost trusts. We also order the $3.5 million and $3.85 million Humboldt decommissioning projects authorized in Resolution E-3737 to be reviewed for reasonableness in the next NDCTP, after they have been completed.