Spreadsheet: jeff_dasovich__14105__Response to 10-12 Workshop Questions
Sheet: Q9

QUESTION 9
[NAME] provide the detailed cost of service analysis to support the cumulative annual cost of
investing in increased Local Transmission reliability (as discussed in the September 27
and October 12 workshops).
A. The detailed cost of service for the low and high cases of the local transmission
 | reliability investments follow:
 | Note:
 |  | The cost of service for reliability investments was developed on a simplified,
 |  | incremental basis.  Capital costs do not include AFUDC or Section 263a interest.
 |  | Cost of Service does not reflect an allocation of utility common costs or overhead.
 | Assumptions:
 |  |  |  |  | Weight | Rate
 |  | ROE |  |  | 0.48 | 0.124
 |  | Debt |  |  | 0.462 | 0.0726
 |  | Preferred |  |  | 0.058 | 0.066
 |  | Return
 |  | Federal Income Tax Rate |  |  |  |  | 0.35
 |  | State Income Tax |  |  |  |  | 0.0884
 |  | Combined |  |  |  |  | 0.4074599999999999
 |  | O&M  (assumed % of initial plant) |  |  |  |  | 0.03
 |  | Inflation rate |  |  |  |  | 0.025
 |  | Depreciation Rate (30 Yr Life)
 |  | Property Tax Rate (on net plant) |  |  |  |  | 0.02
 |  | Assumes full year rather than mid-year convention for book and tax
Pacific Gas & Electric Company
LOW CASE - Option 1 & 2 - Local Transmission Reliability Investments
Illustrative Cost of Service
($Thousands)
 |  |  |  |  | 2003 | 2004 | 2005 | 2006 | 2007
COST OF SERVICE
 | O & M Expenses |  |  |  | 240 | 246 | 252.15 | 258.45375 | 264.9150937499999
 | Depreciation |  |  |  | 266.6666666666667 | 533.3333333333334 | 800 | 1066.666666666667 | 1333.333333333333
 | Property Taxes |  |  |  | 160 | 158.5333333333333 | 151.29 | 310.1445 | 470.9601666666665
 | Debt & Equity Return |  |  |  | 751.6664135999999 | 1072.078998 | 1742.1647052 | 2379.2111952 | 2987.578482
 | Federal Income Tax |  |  |  | 264.6289606153846 | 377.4322569230769 | 613.340208923077 | 837.6164935384614 | 1051.796081538462
 | State Income Tax |  |  |  | 73.31912530057042 | 104.5728437033787 | 169.9344150592365 | 232.0732715752523 | 291.4146982009653
 | Total Cost of Service |  |  |  | 1756.281166182622 | 2491.950765293122 | 3728.879329182314 | 5084.16587698038 | 6399.997855489426
[NAME]
 | Gas Plant in Service |  |  |  | 8000 | 8000 | 16000 | 24000 | 32000
 | Additions to Plant in Service |  |  |  | 0 | 8000 | 8000 | 8000 | 8000
 | Total |  |  |  | 8000 | 16000 | 24000 | 32000 | 40000
 | Accumulated Depreciation |  |  |  | -266.6666666666667 | -800 | -1600 | -2666.666666666667 | -4000
 | Working Capital |  |  |  | 0.45 | 0.45 | 0.45 | 0.45 | 0.45
 | Accumulated Deferred Taxes |  |  |  | -217.3119999999999 | -586.7423999999999 | -1052.87664 | -1568.775328 | -2094.833352
 | Net Asset Balance (rate base) |  |  |  | 7516.471333333333 | 14613.7076 | 21347.57336 | 27765.00800533333 | 33905.616648
 | Avg. Asset Balance |  |  |  | 7758 | 11065 | 17981 | 24556 | 30835
Calculation of Return
 | [NAME] |  |  |  | 0.0726 | 0.0726 | 0.0726 | 0.0726 | 0.0726
 | [NAME] |  |  |  | 0.462 | 0.462 | 0.462 | 0.462 | 0.462
 |  |  |  |  | 0.0335412 | 0.0335412 | 0.0335412 | 0.0335412 | 0.0335412
 | Preferred Return |  |  |  | 0.066 | 0.066 | 0.066 | 0.066 | 0.066
 | Preferred Ratio |  |  |  | 0.058 | 0.058 | 0.058 | 0.058 | 0.058
 |  |  |  |  | 0.003828 | 0.003828 | 0.003828 | 0.003828 | 0.003828
 | Equity Return |  |  |  | 0.124 | 0.124 | 0.124 | 0.124 | 0.124
 | Equity Ratio |  |  |  | 0.48 | 0.48 | 0.48 | 0.48 | 0.48
 |  |  |  |  | 0.05952 | 0.05952 | 0.05952 | 0.05952 | 0.05952
 | Overall Return |  |  |  | 0.09688920000000001 | 0.09688920000000001 | 0.09688920000000001 | 0.09688920000000001 | 0.09688920000000001
 | Return on Debt |  |  |  | 260.2126296 | 371.133378 | 603.1043172 | 823.6377072 | 1034.242902
 | Return on Equity and Preferred |  |  |  | 491.453784 | 700.94562 | 1139.060388 | 1555.573488 | 1953.33558
 | Total Return |  |  |  | 751.6664135999999 | 1072.078998 | 1742.1647052 | 2379.2111952 | 2987.578482
LOW CASE - Option 1 & 2 - Local Transmission Reliability Investments
 |  |  |  |  | 2003 | 2004 | 2005 | 2006 | 2007
Depreciation
 | Gas Plant |  |  |  | 8000 | 16000 | 24000 | 32000 | 40000
 | Depreciation Expense (30 Yr) |  |  |  | 266.6666666666667 | 533.3333333333334 | 800 | 1066.666666666667 | 1333.333333333333
 | Accumulated Depreciation |  |  |  | 266.6666666666667 | 800 | 1600 | 2666.666666666667 | 4000
Deferred Taxes
 | Tax Depreciation |  |  |  | -800 | -1440 | -1944 | -2332.8 | -2624.4
 | Book Depreciation |  |  |  | 266.6666666666667 | 533.3333333333334 | 800 | 1066.666666666667 | 1333.333333333333
 | Total Differences |  |  |  | -533.3333333333333 | -906.6666666666666 | -1144 | -1266.133333333333 | -1291.066666666667
 | Income Tax Rate |  |  |  | 0.4074599999999999 | 0.4074599999999999 | 0.4074599999999999 | 0.4074599999999999 | 0.4074599999999999
 | Deferred Taxes |  |  |  | -217.3119999999999 | -369.4303999999999 | -466.1342399999999 | -515.898688 | -526.0580239999999
 | Accumulated Deferred Taxes |  |  |  | -217.3119999999999 | -586.7423999999999 | -1052.87664 | -1568.775328 | -2094.833352
Income Taxes
 | Return on rate base |  |  |  | 751.6664135999999 | 1072.078998 | 1742.1647052 | 2379.2111952 | 2987.578482
 | Less:   Debt return |  |  |  | -260.2126296 | -371.133378 | -603.1043172 | -823.6377072 | -1034.242902
 | Adjusted Taxable Equity return |  |  |  | 491.4537839999999 | 700.94562 | 1139.060388 | 1555.573488 | 1953.33558
 | Federal Tax Rate/(1-Fed. [NAME]) |  |  |  | 0.5384615384615384 | 0.5384615384615384 | 0.5384615384615384 | 0.5384615384615384 | 0.5384615384615384
 | Federal Income Tax |  |  |  | 264.6289606153846 | 377.4322569230769 | 613.340208923077 | 837.6164935384614 | 1051.796081538462
 | State Tax. Inc.(Eq.Ret.+Fed. Inc.Tax) |  |  |  | 756.0827446153845 | 1078.377876923077 | 1752.400596923077 | 2393.189981538461 | 3005.131661538461
 | State Tax Rate/(1-State Tax Rate) |  |  |  | 0.09697235629662133 | 0.09697235629662133 | 0.09697235629662133 | 0.09697235629662133 | 0.09697235629662133
 | State Income Tax |  |  |  | 73.31912530057042 | 104.5728437033787 | 169.9344150592365 | 232.0732715752523 | 291.4146982009653
 | Total Income Taxes |  |  |  | 337.948085915955 | 482.0051006264555 | 783.2746239823134 | 1069.689765113714 | 1343.210779739427
Tax Depreciation
 | Tax Basis |  |  |  | 8000 | 16000 | 24000 | 32000 | 40000
 | [NAME]. Rate 15 yr 200% DDB |  |  |  | 0.1 | 0.09 | 0.081 | 0.0729 | 0.06561
 | Tax Depreciation |  |  |  | 800 | 1440 | 1944 | 2332.8 | 2624.4
HIGH CASE - Option 1 & 2 - Local Transmission Reliability Investments
 |  |  |  |  | 2003 | 2004 | 2005 | 2006 | 2007
COST OF SERVICE
 | O & M Expenses |  |  |  | 690 | 707.25 | 724.9312499999999 | 743.0545312499997 | 761.6308945312496
 | Depreciation |  |  |  | 766.6666666666666 | 1533.333333333333 | 2300 | 3066.666666666667 | 3866.666666666667
 | Property Taxes |  |  |  | 460 | 455.7833333333332 | 434.95875 | 891.6654374999999 | 1354.010479166667
 | Debt & Equity Return |  |  |  | 2161.113606 | 3082.1423412 | 5008.4934156 | 6840.1837416 | 8635.4437284
 | Federal Income Tax |  |  |  | 760.8338446153846 | 1085.087892 | 1763.272088307692 | 2408.130363692308 | 3040.163105538461
 | State Income Tax |  |  |  | 210.7995733216323 | 300.6386562176394 | 488.5389977007461 | 667.2059303905222 | 842.3193710574814
 | Total Cost of Service |  |  |  | 5049.413690603683 | 7164.235556084307 | 10720.19450160844 | 14616.9066710995 | 18500.23424536052
[NAME]
 | Gas Plant in Service |  |  |  | 23000 | 23000 | 46000 | 69000 | 92000
 | Additions to Plant in Service |  |  |  | 0 | 23000 | 23000 | 23000 | 24000
 | Total |  |  |  | 23000 | 46000 | 69000 | 92000 | 116000
 | Accumulated Depreciation |  |  |  | -766.6666666666666 | -2300 | -4600 | -7666.666666666666 | -11533.33333333333
 | Working Capital |  |  |  | 0.45 | 0.45 | 0.45 | 0.45 | 0.45
 | Accumulated Deferred Taxes |  |  |  | -624.7719999999999 | -1686.8844 | -3027.02034 | -4510.229068 | -6035.797337599999
 | Net Asset Balance (rate base) |  |  |  | 21609.01133333333 | 42013.56559999999 | 61373.42965999999 | 79823.55426533333 | 98431.31932906667
 | Avg. Asset Balance |  |  |  | 22305 | 31811 | 51693 | 70598 | 89127
Calculation of Return
 | [NAME] |  |  |  | 0.0726 | 0.0726 | 0.0726 | 0.0726 | 0.0726
 | [NAME] |  |  |  | 0.462 | 0.462 | 0.462 | 0.462 | 0.462
 |  |  |  |  | 0.0335412 | 0.0335412 | 0.0335412 | 0.0335412 | 0.0335412
 | Preferred Return |  |  |  | 0.066 | 0.066 | 0.066 | 0.066 | 0.066
 | Preferred Ratio |  |  |  | 0.058 | 0.058 | 0.058 | 0.058 | 0.058
 |  |  |  |  | 0.003828 | 0.003828 | 0.003828 | 0.003828 | 0.003828
 | Equity Return |  |  |  | 0.124 | 0.124 | 0.124 | 0.124 | 0.124
 | Equity Ratio |  |  |  | 0.48 | 0.48 | 0.48 | 0.48 | 0.48
 |  |  |  |  | 0.05952 | 0.05952 | 0.05952 | 0.05952 | 0.05952
 | Overall Return |  |  |  | 0.09688920000000001 | 0.09688920000000001 | 0.09688920000000001 | 0.09688920000000001 | 0.09688920000000001
 | Return on Debt |  |  |  | 748.136466 | 1066.9791132 | 1733.8452516 | 2367.9416376 | 2989.4265324
 | Return on Equity and Preferred |  |  |  | 1412.97714 | 2015.163228 | 3274.648164 | 4472.242104 | 5646.017196
 | Total Return |  |  |  | 2161.113606 | 3082.1423412 | 5008.4934156 | 6840.1837416 | 8635.4437284
HIGH CASE - Option 1 & 2 - Local Transmission Reliability Investments
 |  |  |  |  | 2003 | 2004 | 2005 | 2006 | 2007
Depreciation
 | Gas Plant |  |  |  | 23000 | 46000 | 69000 | 92000 | 116000
 | Depreciation Expense (30 Yr SL) |  |  |  | 766.6666666666666 | 1533.333333333333 | 2300 | 3066.666666666667 | 3866.666666666667
 | Accumulated Depreciation |  |  |  | 766.6666666666666 | 2300 | 4600 | 7666.666666666666 | 11533.33333333333
Deferred Taxes
 | Tax Depreciation |  |  |  | -2300 | -4140 | -5589 | -6706.8 | -7610.76
 | Book Depreciation |  |  |  | 766.6666666666666 | 1533.333333333333 | 2300 | 3066.666666666667 | 3866.666666666667
 | Total Differences |  |  |  | -1533.333333333333 | -2606.666666666667 | -3289 | -3640.133333333334 | -3744.093333333334
 | Income Tax Rate |  |  |  | 0.4074599999999999 | 0.4074599999999999 | 0.4074599999999999 | 0.4074599999999999 | 0.4074599999999999
 | Deferred Taxes |  |  |  | -624.7719999999999 | -1062.1124 | -1340.13594 | -1483.208728 | -1525.5682696
 | Accumulated Deferred Taxes |  |  |  | -624.7719999999999 | -1686.8844 | -3027.02034 | -4510.229068 | -6035.797337599999
Income Taxes
 | Return on rate base |  |  |  | 2161.113606 | 3082.1423412 | 5008.4934156 | 6840.1837416 | 8635.4437284
 | Less:   Debt return |  |  |  | -748.136466 | -1066.9791132 | -1733.8452516 | -2367.9416376 | -2989.4265324
 | Adjusted Taxable Equity return |  |  |  | 1412.97714 | 2015.163228 | 3274.648164 | 4472.242104 | 5646.017196
 | Federal Tax Rate/(1-Fed. [NAME]) |  |  |  | 0.5384615384615384 | 0.5384615384615384 | 0.5384615384615384 | 0.5384615384615384 | 0.5384615384615384
 | Federal Income Tax |  |  |  | 760.8338446153846 | 1085.087892 | 1763.272088307692 | 2408.130363692308 | 3040.163105538461
 | State Tax. Inc.(Eq.Ret.+Fed. Inc.Tax) |  |  |  | 2173.810984615385 | 3100.251120000001 | 5037.920252307693 | 6880.372467692308 | 8686.180301538461
 | State Tax Rate/(1-State Tax Rate) |  |  |  | 0.09697235629662133 | 0.09697235629662133 | 0.09697235629662133 | 0.09697235629662133 | 0.09697235629662133
 | State Income Tax |  |  |  | 210.7995733216323 | 300.6386562176394 | 488.5389977007461 | 667.2059303905222 | 842.3193710574814
 | Total Income Taxes |  |  |  | 971.6334179370169 | 1385.72654821764 | 2251.811086008438 | 3075.33629408283 | 3882.482476595943
Tax Depreciation
 | Tax Basis |  |  |  | 23000 | 46000 | 69000 | 92000 | 116000
 | [NAME]. Rate 15 yr 200% DDB |  |  |  | 0.1 | 0.09 | 0.081 | 0.0729 | 0.06561
 | Tax Depreciation |  |  |  | 2300 | 4140 | 5589 | 6706.8 | 7610.76