Pacific Gas & Electric (PCG)

2007 General Rate Case  

               On December 2, 2005, the Utility filed its 2007 General Rate Case (GRC) application with the California Public Utilities Commission (CPUC).  In the 2007 GRC, the CPUC will determine the amount of authorized base revenues to be collected from customers to recover the Utility's basic business and operational costs for its gas and electric distribution and existing electric generation operations for the period 2007 through 2009.  These revenue requirements are determined based on a forecast of costs for 2007 (the "test year").  

               In its application, the Utility has requested:

• an increase in electric and gas distribution revenue requirements of $481 million and $114 million, respectively, over the authorized 2006 revenue requirements to maintain current service levels to support increased investment in distribution infrastructure as plant in service is upgraded and replaced, and to adjust for wages and inflation. 
• an increase of $87 million, over the authorized 2006 revenue requirement, to cover increases in operational costs for the Utility's fossil, hydro, and nuclear generation facilities and administrative costs associated with electric procurement activities.
• attrition increases of $186 million for 2008 and $242 million for 2009 designed to avoid a reduction in earnings in years between GRCs that would otherwise occur because of increases in rate base and expenses. 

The authorized 2006 revenue requirements referred to above consist of the 2005 authorized revenue requirements plus authorized attrition revenue increases of $131 million for electric and gas distribution, and $35 million for electric generation.  The 2006 authorized revenue requirement will be included in the Utility’s annual electricity rate true-up filing supplement to be filed with the CPUC in late December 2005 and will be reflected in rates beginning January 1, 2006.

               Unlike the Utility’s August 1, 2005 Notice of Intent (NOI), the final GRC application includes a request for approval of pension contributions of $344 million per year in 2007, 2008 and 2009, and seeks an annual revenue requirement of $216 million to fund the portion of each year's pension contribution attributable to the Utility’s distribution and generation businesses.  The Utility included this request because the CPUC has not yet issued a final decision on the Utility’s July 2005 petition for permission to file a separate application to resume pension contributions beginning in 2006.  The petition estimated that the associated revenue requirement would be approximately $185 million per year over the 2006-2009 period.  The ultimate amount of the pension contribution request is subject to the CPUC’s final decision on the Utility’s July 2005 petition.  Aside from the added pension contribution request, the GRC application's revenue requirement request is $21 million lower than the NOI's as a net result of numerous minor revisions and corrections to forecasts.

               In the GRC application, the Utility also has proposed to reduce the 2008 and 2009 total gas and electric revenue requirements that it has otherwise requested by $41 million in 2008 and $97 million in 2009 to capture an estimate of net savings that the Utility anticipates may be realized from the operating and cost efficiencies achieved through implementation of specific initiatives identified by the Utility to provide better, faster and more cost-effective service to its customers.  Due to uncertainty about savings to be realized from these initiatives, the Utility has proposed a sharing mechanism in its GRC application by which shareholders and customers would share equally in any earnings over the amount needed to achieve a return on equity (ROE) equal to the then-authorized ROE plus 50 basis points.  The Utility’s customers would receive 100% of the earnings over the amount needed to achieve an ROE equal to the then-authorized ROE plus 3.00%.  If the Utility's actual ROE were less than an amount equal to the then-authorized ROE minus 50 basis points, shareholders and customers would share the shortfall equally.  The following table summarizes the proposed sharing mechanism based on the Utility's currently authorized ROE of 11.22%:

                In addition, the Utility’s GRC application includes a proposal to replace the current incentive mechanism for reliability performance for the 2007-2009 period with a new customer service performance incentive mechanism.  Under the proposal, the Utility would be rewarded or penalized up to $60 million per year (increased from the current maximum of $24 million per year) to the extent that the Utility’s actual performance exceeds or falls short of pre-set annual performance improvement targets over the 2007-2009 period.   The Utility has proposed to expand the areas of performance to be measured to include the following: generation availability (the amount of generating capacity capable of generating power over time, with reduction due to both planned and unplanned outages), timeliness of bills, telephone service level, average outage time over a one-year period (known as the system average interruption duration index, or SAIDI), average number of sustained outages over a one-year period (known as the system average interruption frequency index, and SAIFI), and how accurately the Utility provides outage information and estimates of power restoration.  

              It is anticipated that the administrative law judge overseeing the 2007 GRC will set a schedule to determine the expected dates for hearings, the issuance of a proposed decision, the issuance of a final decision, and other procedural events.  A final decision is expected from the CPUC by the end of 2006.

               PG&E Corporation and the Utility are unable to predict what amount of revenue requirements the CPUC will authorize for the 2007 through 2009 period, when a final decision in the GRC will be received, or what the impact of a final GRC decision will be on their financial condition or results of operations. 

2007 General Rate Case

The Utility’s next GRC will be the 2007 GRC. The 2007 GRC will set the base revenue requirements for the years 2007 through 2009. The Utility plans to file its application for the 2007 GRC with the CPUC during the fourth quarter of 2005 with a final decision expected from the CPUC by the end of 2006. PG&E Corporation and the Utility are unable to predict what amount of revenue requirements the CPUC will authorize for the 2007 through 2009 period, when a final decision in this proceeding will be received, or the impact it will have on their financial condition or results of operations.

2007 General Rate Case

        The Utility's next GRC will be the 2007 GRC. The 2007 GRC will set the base revenue requirements for the years 2007 through 2009. The Utility plans to file its application for the 2007 GRC with the CPUC during the fourth quarter of 2005 with a final decision expected from the CPUC by the end of 2006. PG&E Corporation and the Utility are unable to predict what amount of revenue requirements the CPUC will authorize for the 2007 through 2009 period, when a final decision in this proceeding will be received, or the impact it will have on their financial condition or results of operations.