CONTACT: Armando Rendón May 21, 1997 CPUC-061
415-703-1366

CPUC ADOPTS PLAN TO ALLOW PG&E TO RECOVER

DIABLO CANYON NUCLEAR PLANT COSTS

The California Public Utilities Commission (CPUC) today approved a plan to let Pacific Gas & Electric (PG&E) recover over a five-year period about $3.3 billion in remaining or "sunk" costs spent in building the Diablo Canyon Nuclear Power Plant.

Today's order is focused on enabling Diablo Canyon to be able to compete in a deregulated industry by being able to offer electricity service at competitive industry rates by the start of 2002.

In 1988, the CPUC adopted a settlement allowing PG&E to recoup costs through a performance-based mechanism which put the risk on PG&E to recover its costs and return on investment in Diablo Canyon. The Commission today stated that the 1988 settlement with PG&E has been preempted by AB 1890, other CPUC decisions and today's order.

However, the Diablo Canyon Independent Safety Committee, established by the 1988 settlement, will remain in effect until further review by the Commission.

As an interim measure, under a settlement reached in 1995, the Commission set a goal for PG&E to reduce Diablo Canyon electricity prices from 10.5 cents per kilowatt hour to 9 cents by 1998, still higher than the market price nationwide. Also, PG&E would have recouped its sunk cost over 15 years.

The method adopted today will allow PG&E to recover its sunk construction costs at a more rapid amortization rate, over five years. Whether or not PG&E fully recovers its sunk costs by then, Diablo Canyon electricity rates will become subject to market-based levels. Ideally, for PG&E shareholders, the actual revenues taken in over the next five years will equal $3.3 billion dollars. Revenues below that, or stranded costs, will have to be absorbed by the company and its investors.

The recovery will consist of fixed revenues plus what's called the incremental -more-

cost incentive price (ICIP). The ICIP is designed so that PG&E can recover its

operational costs as they occur as long as the plant runs at a projected 83.6 percent capacity. The capacity factor takes into account the age of the equipment, risk of future forced outages, and performance of comparable nuclear plants around the country.

Finally, the Commission ordered a thorough audit of PG&E's sunk costs to ensure that net book values are independently determined. The audit, to be paid out of PG&E revenues, must be completed within six months.

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