2. Terms of the Proposed Second Amendment

The first phase of the engineering study contemplated by the First Amendment has now been completed. Although the results of this study were not as definitive as PG&E and CWS had hoped, they give reason to believe that significant revenues can be raised from sales of surplus water that is now being wasted. Based on the possibility that revenues can be raised from sales or transfers of this surplus water - which the Second Amendment refers to as Conservation Water - PG&E has agreed to bear the expense of repairing and restoring to operation the Coal Canyon penstock. For its part, CWS has agreed to pay the costs of repairing the Powers Canal (which is nine miles long), and to take reasonable steps to ensure that the amount of Conservation Water along the entire length of the Powers Canal can be determined. All of the repairs are to be completed by December 31, 2010, subject to a mutually agreed-upon extension of time.

PG&E and CWS have also agreed upon a formula for splitting the proceeds from any sales or transfers of Conservation Water. Under the formula set forth in the Second Amendment, PG&E would receive 70% of the first $100,000 obtained each year from sales or transfers of such water, and CWS would receive 30%. To the extent Conservation Water revenues in a particular year exceeded $100,000, PG&E and CWS would split the revenues over $100,000 evenly.

The parties have also agreed that the new base price for the water PG&E delivers to CWS should be the same price provided for in the First Amendment approved in 2008; viz., $152,400 per year. In order to avoid the necessity of returning to the Commission for further price adjustments, the parties have also agreed that the $152,400 price - which the Second Amendment refers to as the First Amendment Price - shall be adjusted on March 31 of each year using the All Items Consumer Price Index for All Urban Consumers U.S. Macro - 30 Year Baseline, which is commonly known as the CPI-U index. The CPI-U index is published regularly by the United States Bureau of Labor Statistics.

As far as rate treatment is concerned, the March 20, 2009 joint motion for approval of the Second Amendment requests a Commission determination that "amounts paid under the Second Amendment are appropriately passed to [CWS's] Oroville customers through the Oroville Purchased Water Balancing Account, and appropriately reflected in PG&E's customer rates, net of amounts assumed in PG&E's 2007 General Rate Case (`GRC'), through its Utility Generating Balancing Account (`UGBA')." (Joint Motion, pp. 1-2; footnote omitted.)

As explained below, we conclude that the settlement terms in the Second Amendment - which is Attachment A to the parties' March 20, 2009 joint motion - satisfy the requirements for settlements set forth in Rule 12.1(d) of our Rules of Practice and Procedure (Rules). Accordingly, we will approve the Second Amendment.