Overview Of Presentation

• PG&E's July 15, 1996 Unbundling Proposal

- Key elements
- Reaction from market participants

• Next Steps: November 15 Application
• Conclusions

PG&E's 7/96 Unbundling Proposal

• Main Theme: 5 easy pieces
• Track 1/Track 2
• PG&E's Accounting System
• 6 Steps of Unbundling
• Cost Mapping/Refunctionalization
• Revenue Allocation/Rate Design/Billing Info.

Main Themes

• First Stage of Unbundling Needs to Focus on What is Necessary to Implement Direct Access by January 1, 1998
• "Five Easy Pieces" - G, CTC, T, D, PPP
• Allocation of Shared Costs Pending Efforts Study

Track 1 versus Track 2 Items

Track 1

Generation (including ancillary services)
Transmission
Distribution
Public Goods
CTC

Track 2

Billing and Metering
Customer Service
Complaint Resolution
Line Extensions
New Hookups
Credit & Collection

Costing Principals for Track 2 Unbundling

• No Cost Shifting
• Stranded Cost Recovery
• LRIC Methodology Used in Telecommunications

- Incremental costs: changes in costs due to a specific action
- Forward-looking
- Costs include variable and fixed costs
- Can apply to an entire product or service

Unbundling Mechanics

1. Identify Direct Plant by Function
2. Identify Direct O&M Expenses by Function
3. Direct Assignment of Common Plant
4. Direct Assignment of A&G
5. Allocate Remaining Common Plant
6. Allocate Remaining A&G

Information Needed For Unbundling

• FERC Accounting Data - Doesn't Do It

- Functionalization in FERC not the same as Unbundling

• PG&E's New Accounting System (SAP)

- Provides more disaggregated data, flexibility
- Still not sufficient for functional unbundling

Asset Information In SAP

For Each Location
Original cost, depreciation expense and depreciation reserve by:

- Asset Class (Account)
- Asset Record
- County
- Vintage Year

Mapping

• Common Plant
• Employee Benefits

Refunctionalization

• Gen-ties
• Step-up Transformers
• 200 Direct Connects
• O&M for G, T, D

Revenue Allocation/Rate Design

• Rates Frozen Through 2001
• CTCs Allocated Residually
• DA Customers Pay Bundled Prices Less PX, Ancillary Services, Transmission

Revenue Allocation

Cost/Service: Allocation Method

Energy: Power Exchange
Transmission/ISO: FERC Method
Distribution: EPMC
Public Benefits: SAPC

CTCs:
- Current Share of CTC Rev
- Generation EPMC
- Residual
- Others

Next: How To Reflect Cost Of Unbundled Components On Customer Bills

Options:
1. Break out charges for each component on tariff
2. Express cost of each component as a percent of total bill

Next Steps: November 15 Application

• Allocate All Shared Costs Based on the Results of an Efforts Study
• Unbundle the Cost of Capital
• Explain How to Coordinate the Various Traditional and Restructuring Rate Cases
• Describe How to Unbundle the Existing Balancing Accounts and Assign their 12-31-97 Balances
• Describe the Creation/Elimination of New/Obsolete Balancing Accounts

Next Steps: November 15 Application (cont'd)

• Define the Starting Points for the Generation and Distribution Performance-based Ratemaking Mechanisms
• Unbundle Ancillary Services and UDC Procurement by January 1, 1998
• Describe How Various Rate Design Issues Will be Resolved
• Discuss the Detail to be Provided on Customers' Bills

Conclusions

• PG&E Committed to Participating in the Restructured Industry
• Need for All to Remain Focused on the Key Elements of the Restructuring

- Competition in generation services
- Customer choice for generation by 1/198
- Stranded cost recovery