A deal between consumer advocates and Pacific Gas & Electric cut in half the utility's proposed revenue increase in its triennial rate case at the California Public Utilities Commission. Although consumer groups said the negotiations weren't smooth sailing by any means, it was far easier dealing with the utility on this issue than working with it to find a consensus on a bankruptcy settlement. "It's the difference in dealing with grownups and children," said Matt Freedman, The Utility Reform Network attorney. "They were highly motivated to settle," he added. There is no estimate on how the settlement will affect rates. A decision on how the rate increase will be divvied up among the different ratepayer classes is expected later this year. During that rate allocation proceeding, groups representing consumers of all stripes?residential, agricultural, commercial, and manufacturing?will battle it out over who bears what portion of the rate hike. This week' settlement is in the distribution phase of the rate case. It is signed by TURN, the Office of Ratepayer Advocates, the Aglet Consumer Alliance, the Modesto Irrigation District, the Natural Resources Defense Council, and the Agricultural Energy Consumers Association. Major points include: <b>Inflation:<\/b> The deal overhauls the traditional formula used for calculating inflation rates, known as "attrition" in CPUC proceedings. "If the consumer price index goes up, PG&E gets the same percentage except there's a floor and a ceiling," James Weil, Aglet attorney, explained. In the settlement, PG&E for next year has a minimum inflation adjustment of 2 percent and a maximum of 3 percent. The forecast for 2004, however, is only 1.5 percent inflation, according to Weil. The difference is due to the cost of adding new customers. <b>Distribution, operations, and maintenance:<\/b> Stakeholders settled on $391.5 million for electric expenses and $118 million for gas costs. PG&E wanted $400 million for its electric and $120 million for its gas tabs. <b>Customer accounts:<\/b> PG&E agreed to $200 million for electric expenses and $155 million for gas. Originally, the utility sought $206 million for the former and $159 million to cover gas expenses. The biggest controversy has been over whether ratepayers should subsidize PG&E's efforts to retain and lure new customers in the face of competitors such as irrigation districts. <b>Administration and overhead:<\/b> The utility requested $736 million for this but settled on $585 million. These costs include payroll services and employee medical plans. Left unresolved in this phase of the settlement were the pension fund contributions. That could add up to $75 million to the utility's revenue requirement. <b>Integrated resource planning:<\/b> Planning costs are back in rates because of the collapse of competition, and utilities now must project supply and demand. PG&E wanted $11 million for this budget. No specific numbers were included in the settlement; they will be taken up in another proceeding (<i>R01-10-024<\/i>). In all, PG&E will get an increase in revenues of $326 million, if approved by the commission. The utility originally sought $701 million. The deal is the second of three settlements in the rate case. The generation phase was settled July 31. That set a 2003 generation requirement of $955 million. However, several investment issues related to Diablo Canyon were put over to a new case. In the new proceeding, the commission will examine the ongoing economics of running the nuclear plant?including investments in new turbine rotors and steam generators. Those investments are expected to be in the hundreds of millions of dollars. Still to be settled is the reliability and storm phase of the rate case. The legislature spotlighted PG&E's storm response early this year in fits of oversight, but it never created a bill that would set the utility in a particular direction?with rules either for customer response during storm-induced blackouts or for maintenance. Parts of the issues have been settled with some parties, such as utility union workers and the Office of Ratepayer Advocates, but it is not an all-party settlement.