2. Procedural History

PG&E's last general rate increase was authorized in D.00-02-046. D.00-02-046 ordered PG&E to file a TY 2002 GRC in accordance with the Rate Case Plan. The Rate Case Plan schedule called for PG&E to file a Notice of Intent (NOI) for the TY 2002 GRC in summer 2000, and its GRC application in the fall of 2000. D.00-07-050 subsequently modified D.00-02-046 to delay the scheduled filing date of the TY 2002 GRC by nine months and directed PG&E to tender its NOI on May 1, 2001.

In response to a request from PG&E, in D.01-03-052 dated March 27, 2001, the Commission extended the date for tendering the NOI on a day-to-day basis while it considered possible further modifications to the plan for processing PG&E's TY 2002 GRC. The Commission observed that there was a need to ensure that its resources and those of PG&E and the other parties were not diverted from more critical efforts to respond to the California energy crisis. In D.01-10-059, dated October 25, 2001, the Commission changed the test year for PG&E's next GRC from 2002 to 2003 and directed PG&E to tender its NOI by November 14, 2001. PG&E failed to do so, leading to D.02-04-018, in which the Commission ordered PG&E to tender its NOI for the TY 2003 GRC no later than April 15, 2002. Applicant tendered its NOI in accordance with D.02-04-018.

On June 7, 2002, the Commission issued D.02-06-003, modifying the schedule for processing PG&E's TY 2003 GRC and adopting a goal of having new rates in place by June 1, 2003. Consistent with its determination in D.98-12-078, issued in connection with PG&E's TY 1999 GRC, the Commission then issued D.02-12-073, dated December 23, 2002, directing that any revisions to PG&E's revenue requirements resulting from the TY 2003 GRC may be made effective January 1, 2003.

PG&E filed its formal application for its TY 2003 GRC, Application (A.) 02-11-017, on November 8, 2002. On January 16, 2003, the Commission instituted Investigation (I.) 03-01-012 into the rates, charges and practices of PG&E and consolidated the investigation with the GRC application for purposes of considering recommendations beyond the scope of PG&E's application. Prehearing conferences were held on January 28, 2003, and May 21, 2003 to address procedural matters and schedule hearing dates. On February 13, 2003, Assigned Commissioner Peevey issued an "Assigned Commissioner's Ruling Establishing Scope, Schedule, and Procedures for Proceeding" (ACR) establishing the procedural schedule and calling for hearings to begin on May 28, 2003.

The ACR directed PG&E to file supplemental testimony to address several issues, including, but not limited to: (1) storm response and reliability performance issues;⁵ (2) workforce diversity; and (3) compliance with Pub. Util. Code § 739.10. PG&E filed and served supplemental testimony on these issues on March 17, 2003. In addition, on April 7, 2003, pursuant to the ACR, PG&E filed testimony regarding integrated resource planning, in which PG&E was advised to "assume that it will remain a vertically integrated utility responsible for procuring and providing resources to its customers and should identify the costs of staffing and supporting this responsibility."

PG&E initially requested a revenue requirement of $3.042 billion for retained generation, including forecast costs for fuel and purchased power. Pursuant to D.02-10-062, which directed that fuel and purchased power costs would be reviewed as part of each utility's ERRA proceeding, PG&E served revised testimony on February 20, 2003, removing fuel costs ($286 million) and purchased power costs ($1.735 billion) from its forecast 2003 retained generation request requirement.

On April 11, 2003, ORA served testimony in response to PG&E's November 8, 2002 Application. TURN, Aglet and other intervenors served their testimony on May 2, 2003. Rebuttal testimony was served on May 22, 2003.

Evidentiary hearings began on May 28, 2003, and continued through July 29.⁶ 24 parties filed appearances in this proceeding. Of those, eight participated in the evidentiary hearings, filed briefs, or both. Testimony was presented by PG&E, the Office of Ratepayer Advocates (ORA), The Utility Reform Network (TURN), Aglet Consumer Alliance (Aglet), the California Coalition of Utility Employees (CUE), Modesto Irrigation District (MID), The Greenlining Institute/Latino Issues Forum (Greenlining), the San Luis Obispo Mothers For Peace (Mothers for Peace), the City and County of San Francisco (CCSF), the Natural Resources Defense Council (NRDC), and William Adams (Adams).

Public Participation Hearings were held in San Mateo, San Francisco, Santa Rosa, Fresno, and San Luis Obispo during the month of August, 2003. Altogether, the Commission held two prehearing conferences, 36 days of evidentiary hearings, and five public participation hearings in this proceeding. The Assigned Commissioner was in attendance at the first prehearing conference and at two of the public participation hearings.

On July 31, 2003, PG&E, ORA, TURN, Aglet, and CCSF filed a joint motion for approval of a settlement of the contested issues raised in connection with PG&E's forecast 2003 electric generation revenue requirement and electric generation attrition request. As required by Rule 51 of the Commission's Rules of Practice and Procedure (Rules), PG&E convened a noticed settlement conference on July 14, 2003.⁷ Pursuant to Rule 51.4, comments on the Generation Settlement were to be filed within 30 days from the date of mailing of the settlement. No party filed comments on the Generation Settlement.

On August 18, 2003, TURN and ORA requested and were granted a two-week extension of the briefing schedule. On September 2, 2003, PG&E, TURN, ORA and Aglet requested an additional extension of the briefing schedule to allow parties to discuss possible settlement of the remaining issues. In compliance with Rule 51, PG&E convened a second noticed settlement conference on September 9, 2003.

On September 15, 2003, PG&E, ORA, TURN, Aglet, MID, NRDC, and AECA, collectively, the "Settling Parties," filed a Motion for Approval of a Settlement Agreement (hereinafter referred to as the Distribution Settlement) and a Request to Shorten Time to file comments on the Distribution Settlement. The Settling Parties also requested that the Commission extend or waive the deadline in Rule 51.2.⁸ No objections were raised to the motion to extend or waive Rule 51.2. Good cause having been shown, we will waive Rule 51.2.

On September 16, 2003, the Administrative Law Judge (ALJ) directed interested parties to file responses to the Request to Shorten Time by September 19, 2003. No party filed a response. The ALJ then directed that comments on the Motion for Approval of Settlement Agreement were to be filed by October 1, 2003 with reply comments to be filed by October 7, 2003. On October 1, 2003, the California Department of Water Resources (DWR) submitted a memorandum commenting on the Distribution Settlement. The Settling Parties filed a joint response to DWR's memorandum on October 7, 2003.⁹ No other party commented on the Distribution Settlement.

Opening Briefs were filed by PG&E, ORA, Aglet, Greenlining, and the Mothers for Peace on September 17, 2003. Reply Briefs were filed by PG&E, ORA, Greenlining, CUE and Mothers for Peace on October 8, 2003. Phase 1 was submitted on October 8, 2003, upon receipt of the Reply Briefs.

At the Commission's January 8, 2004 meeting, two Commissioners commented on applicant's recent award of over $80 million in retention bonuses to its topmost executives. On January 15, 2004, Latino Issues Forum wrote the Commission urging an investigation into PG&E's "excessive" retention bonuses. On January 15, 2004, Greenlining filed a motion asking the Commission to take official notice of a recent newspaper article regarding PG&E's executive bonuses and to reopen the record. On January 30, 2004, Greenlining filed a notice of withdrawal of the motion.

On February 3, 2004, the assigned ALJs issued a Ruling setting aside submission and taking further evidence regarding executive compensation and bonuses. Among other things, the Ruling asked applicant to file a report by February 10, 2004 addressing 11 issues. On February 6, 2004, applicant filed a motion seeking to revise the Ruling to narrow the scope of the inquiry to two issues, but committed to comply with the original ruling absent a grant its motion. No Ruling was issued on the February 6, 2004 motion.

As a result, in compliance with the February 3, 2004 Ruling, applicant filed a report on February 10, 2004. On February 13, 2004, applicant filed an errata to the February 10 report. On February 18, 2004, Greenlining filed comments on the February 10, 2004 report. On February 20, 2004, applicant filed reply comments.

By Ruling dated February 23, 2004, the ALJs asked applicant to provide limited additional information. On February 27, 2004, applicant filed a supplemental report, and the matter was resubmitted for Commission decision.

This GRC is being processed in two phases; Phase 1, which considers revenue requirement issues and Phase 2, which considers rate design and revenue allocation issues. Today's decision resolves the issues litigated in Phase 1.