The Settlement Agreement is Reasonable
in Light of the Record as a Whole

The Settlement Agreement was reached after opposing parties were able to assess the strengths and weaknesses of their respective cases. If SCWC were to prevail in its arguments, the increase over present revenues would be $7.853 million per year. By comparison, the Settlement Agreement reduces this increase to $6.003 million per year, a reduction of approximately $1.85 million per year. This negotiated reduction is a result of capping the cost of average annual energy purchases at $77.00 per MWh, or $10.41 per MWh less than the average annual cost of energy through SCWC's energy purchase contracts ($87.41 per MWh), and a reduction in the annual Power System Delivery Charge. The Settlement Agreement also provides that the reduction in annual energy purchase costs from $87.41 per MWh to $77.00 per MWh shall be applied to past energy purchases from April 1, 2001 forward. This provision will reduce the under-collection in the balancing account and shorten the time that the balancing account surcharge rate is in effect. Under the Settlement Agreement, the surcharge rate will remain fixed until August 31, 2011 or when the PPAC Balancing Account is reduced to $100,000, thus minimizing rate increases from this rate component.

SCWC's affirmation in the Settlement Agreement that it will pursue its action against Mirant at the FERC may provide future ratepayer benefits. Although the outcome of this complaint is uncertain, if SCWC is successful and purchased power costs are lowered below $77.00 per MWh, these lowered purchased power costs will accrue to customers. We direct SCWC to vigorously pursue its action against Mirant and report back to us on the results of this complaint.

The immediate impact of our approval of the Settlement Agreement is to reduce the PPAC Balancing Account and to cap the purchased cost of energy at $77.00 per MWh. As demonstrated by the testimony of parties and the rebuttal testimony of SCWC, there is a significant contestable discrepancy between ORA, Bear Mountain, and SCWC as to the extent and the reasonableness of purchased energy costs as a result of the Mirant and Pinnacle contracts. We must evaluate the Settlement Agreement in light of the risk, expense, complexity and duration of continuing litigation in deciding whether the Settlement Agreement is reasonable in light of the whole record. While SCWC through its testimony and rebuttal testimony believes that it presented a strong case that its energy purchase contracts are reasonable and prudent, ORA and Bear Mountain believe just as strongly that they have convincing arguments that SCWC was not prudent in entering into its energy purchase contracts and therefore these costs should be subject to disallowance. After evaluating the testimony, we concur that the settlement is reasonable in light of the record.