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Lindsey, et al:

Attached is PG&E's revised OFO Settlement Agreement based on our discussion
and agreements at yesterday's Settlement Conference.  Before getting into
the details, I want to thank Lindsey and the other active parties for their
diligence and willingness to negotiate constructively in order to reach
consensus.

The following highlights the changes, which are shown as revision-marks
against our September 24 proposal. We've added a couple of "clean-up"
changes not specifically addressed yesterday.  I don't believe these should
cause any problem.
* "Significantly" is added under A. and B.1.
* In section B.1, we have inserted the term "Gas OFO Forum" so when we
talk about this forum outside the settlement, it has a specific name we all
recognize and agree to.  We have made changes elsewhere in the document to
include this more formal title.  We also included "or customer" as being
able to join the Forum.
* In B.2, we used the words provided yesterday by the parties with two
exceptions:
 * First, the language was revised to make a six-month
comparison of OFO reductions, rather than a quarterly comparison as we
agreed, and
 * Second, we added the word "other" to modify "members" in two
places so it is clear that PG&E is also a member of the Forum.
* In B.3, we changed the term "Settlement Parties" to "Gas OFO Forum"
to reflect the intent of the agreement.
* In B.4, we added the sentence at the end as requested, but, per our
discussion, did not remove our last sentence.  We added more specific
language on the balancing account to be clearer, and noted that this issue
is not fully resolved pending feedback from a couple parties.
* In C.1.g, we used the language provided, removing the one sentence
as agreed, and we added a comma and an "a" in the last sentence.
* We did not include the proposed change from the parties for
C.1.f.(3) for more data, since per yesterday's discussion we already agreed
to provide that data elsewhere.
* In C.3.b.(7), we modified the language to reflect our discussion
that we would use a 100% Performance Factor for the first customer-specific
OFO, and then an average of the actual performance for subsequent
customer-specific OFOs, but not less than 50%.  We also agree to post the
performance data and revised factor within 14 days of each customer-specific
OFO, and if another customer-specific OFO is needed in that period, to use
the prior factor.  We also changed "Settlement Parties" to the "Gas OFO
Forum."  Lastly, we changed the "next session" to "an ongoing basis" which
better fits the continuous nature of the data and adjustments.
* In C.4.a, although not discussed the group at the Settlement
Conference, Ron Oechsler, on behalf of Palo Alto, pointed out that our
description of the three days when cashouts were driven by market economics
was not quite correct.  We have reviewed his comment and concur, and have
corrected the wording accordingly.  This does not change this provision to
modify the cash-out prices.
* In C.5.e.(4), we added the monthly election option.
* In D.3.c, we added the suggested language, but changed "Settlement
Parties" to the "Gas OFO Forum."
* On Appendix A, Revised Tariffs, we added the new balancing account
which would be part of the Preliminary Statement in PG&E's gas tariffs.  We
will send you a draft of this tariff sheet with the full package next week.

With the one loose end regarding the balancing account language, we believe
that this document reflects our agreement with the parties.  We will follow
up with the motion, tariffs, and final settlement agreement after confirming
with Lindsey that we have captured yesterday's discussion accurately.

Again, thanks for all your active participation and support for getting this
Settlement completed.

Sincerely,


Patrick Golden

 <<ofoOctober 6 Settlement Response.doc>>


 - ofoOctober 6 Settlement Response.doc