ALJ/MCK/oma Date of Issuance 6/22/2009

Decision 09-06-036 June 18, 2009

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Application of Pacific Gas and Electric Company for Authority to Increase the Annual Charge for Water Supplied to California Water Service Company from the Miocene Canal, (U39M)

Application 07-04-022 (Filed April 27, 2007)

DECISION GRANTING JOINT MOTION TO APPROVE SECOND AMENDMENT TO CONTRACT AND SUPPLEMENTAL AGREEMENT FOR WATER SUPPLIED FROM THE MIOCENE CANAL

In this decision, we approve an agreement recently entered into between Pacific Gas and Electric Company (PG&E) and the California Water Service Company (CWS). The agreement would amend a long-standing contractual arrangement under which PG&E delivers water from its Miocene Canal in Butte County to the Powers Canal owned by CWS, which in turn uses the water to provide service to CWS's water customers in the City of Oroville. By approving the amendment - which is attached to this decision as Appendix A, and which is the second formal amendment to a water delivery agreement that dates back to 1927 - we bring to a close a dispute between PG&E and CWS that has lasted for more than a decade.

1. Background

As we explained in Decision (D.) 08-09-004, which approved the First Amendment to the water delivery agreement between PG&E and CWS, PG&E has been supplying CWS with water from the Miocene Canal since the parties entered into their first contract in 1927. However, the price for that water had not changed from 1954 (when the Commission approved a 1953 Supplemental Agreement negotiated by the two companies)¹ until 2008, when the First Amendment to the 1927 contract and 1953 Supplemental Agreement was approved in D.08-09-004. Under the First Amendment, PG&E and CWS agreed that for a period of one year, the annual price for the water supplied by PG&E would increase from $32,400 - the price established in 1953 - to $152,400. PG&E and CWS also agreed that during the one-year period, PG&E would finance an engineering study to determine whether sales of surplus water from the Powers Canal, the CWS facility into which PG&E's water is delivered, would be sufficient to finance repairs to the Coal Canyon penstock.

The Coal Canyon penstock is owned by PG&E, and in addition to generating hydroelectric power, it had once been the point at which PG&E delivered the Miocene Canal water to CWS. However, the penstock has been out of service since a rupture in 2002. PG&E and CWS hoped that in addition to demonstrating the feasibility of paying for the penstock repairs through sales of surplus water, the engineering study would indicate whether sales of surplus water could also help defray the costs of maintaining the Miocene Canal.

¹ The 1953 Supplemental Agreement was approved in D.50839, 53 CPUC 666 (1954).