ML071000410

Decommissioning Funding Status Report - 2006

ML071000410
Person / Time
Site:	Palo Verde
Issue date:	03/30/2007
From:	Mims D Arizona Public Service Co
To:	Document Control Desk, NRC/NRR/ADRO
References
102-05677-DCM/TNW/RJR, RIS-01-007
Download: ML071000410 (233)

Text

50.75(f)(1) z_/ A M* A subsidiaryof PinnacleWest CapitalCorporation Dwight C. Mims Mail Station 7605 Palo Verde Nuclear Vice President Tel. 623-393-5403 P.O. Box 52034 Generating Station Regulatory Affairs and Plant Improvement Fax 623-393-6077 Phoenix, Arizona 85072-2034 102-05677-DCM/TNW/RJR March 30, 2007 Attn: Document Control Desk U. S. Nuclear Regulatory Commission Washington, DC 20555-0001

Subject:

Palo Verde Nuclear Generating Station (PVNGS)

Units 1, 2, and 3 Docket Nos. STN 50-528/5291530 Decommissioning Funding Status Report - 2006 Pursuant to the requirements of 10 CFR 50.75(f)(1) and in accordance with the guidance in NRC Regulatory Issue Summary 2001-07, "10 CFR 50.75(f)(1) Reports on the Status of Decommissioning Funds (Due March 31, 2001)," dated February 23, 2001, Arizona Public Service Company (APS) is submitting the status of the decommissioning funding for PVNGS Units 1, 2, and 3, as of December 31, 2006. APS is relying upon the 2006 Annual Funding Status Report from each Participant Owner as well as the "2004 Decommissioning Cost Study for the Palo Verde Nuclear Generating Station," issued in May 2005, in providing the information in this report.

The report provided in the enclosure to this letter contains the information requested in NRC Regulatory Issue Summary 2001-07 as well as the status of decommissioning funding for each PVNGS unit and for each of the owners.

This letter does not make any commitments to the NRC.

If you have any questions, please contact Thomas N. Weber at (623) 393-5764.

Sincerely, DCM/TNW/RJR/gt A member of the STARS (strategic Teaming and Resource Sharing) Alliance 14 Callaway 0 Comanche Peak 0 Diablo Canyon

• Palo Verde 0 South Texas Project

• Wolf Creek

NRC Document Control Desk Decommissioning Funding Status Report-2006 Page 2 4

Enclosure:

2006 Decommissioning Funding Status Report for Palo Verde Nuclear Generating Station Units 1, 2 & 3 cc: B. S. Mallett NRC Region IV Regional Administrator M. B. Fields NRC NRR Project Manager M. T. Markley NRC NRR Project Manager G. G. Warnick NRC Senior Resident Inspector for PVNGS A. V. Godwin [ARRA]

Enclosure 2006 Decommissioning Funding Status Report for Palo Verde Nuclear Generating Station Units 1, 2 & 3

2006 Decommissioning Funding Status Report The Decommissioning Funding Status Report for the year ending December 31, 2006, is being submitted pursuant to 10 CFR 50.75(f)(1) by Arizona Public Service Company (APS) as the operator of Palo Verde Nuclear Generating Station (PVNGS), Units 1, 2 and 3. The information contained in this report is based on the best available information as provided by the Palo Verde Participants updated to the current revision of NUREG -1307, "Report on Waste Burial Charge, Revision 12, dated February 2007.

Unit 1, APS is authorized to operate the facility at reactor core power levels not in excess of 3876 megawatts thermal (100% power) through operating cycle 12, and 3990 megawatts thermal (100%

power) after operating cycle 12. This license is effective as of the date of issuance and shall expire at midnight on June 01, 2025.

Unit 2, APS is authorized to operate the facility at reactor core power levels not in excess of 3990 megawatts thermal (100% power).

This license is effective as of the date of issuance and shall expire at midnight on April 24, 2026.

Unit 3, APS is authorized to operate the facility at reactor core power levels not in excess of 3876 megawatts thermal (100% power) through operating cycle 13, and 3990 megawatts thermal (100%

power) after operating cycle 13. This license is effective as of the date of issuance and shall expire at midnight on November 25, 2027.

APS is submitting this report on behalf of the seven Palo Verde Participants identified below.

Participant  % Share of Each Unit

1. Arizona Public Service Company (APS) 29.10

2. Salt River Project Agricultural Improvement and Power District (SRP) 17.49

3. El Paso Electric Company (EPE) 15.80

4. Southern California Edison Company (SCE) 15.80

5. Public Service Company of New Mexico (PNM) 10.20

6. Southern California Public Power Authority (SCPPA) 5.91

7. Los Angeles Department of Water and Power (LADWP) 5.70 Attached to this enclosure are the portions from the individual participant reports which contain the information used to provided the responses to the 10 CFR 50.75(f)(1) requested information.

10 CFR 50.75(f)(1) and Regulatory Issue Summary 2001-07 require the following information be provided:

1

20004 Decommissioning Funding Status Report

1. The amount of decommissioning funds estimated to be required pursuant to 10 CFR 50.75 (b) and (c).

2. The amount accumulated to the end of the calendar year preceding the date of the report (This report is for the year ending December 31, 2006).

3. A schedule of the annual amounts remaining to be collected.

4. The assumptions used in determining rates of escalation in decommissioning costs, rates of earnings on decommissioning funds, and rates of other factors used in funding projections.

5. Any contracts upon which the licensee is relying pursuant to 10 CFR 50.75(e)(1 )(v).

6. Any modifications occurring to a licensee's current method of providing financial assurance since the last submitted report.

7. Any material changes to trust agreements.

Item 1 The amount of decommissioning funds estimated to be required pursuant to 10 CFR 50.75 (b) and (c).

APS Response NUREG -1307, "Report on Waste Burial Charge, Revision 12, dated February 2007 provides the following information.

Using the information provided in Example 1, Low-Level Waste Direct Disposal, Scenario Description Reactor Type: PWR Thermal Power Rating: 3400 MWth Location of Plant: Western Region of the U.S.

LLW Disposition Preference: Direct Disposal LLW Burial Location: Washington Base Cost (1986 Dollars) = $105 million [from 10 CFR 50.75(c)(1)]

x L = 2.11 [from Table 3.2]

x E = 2.152 [from Section 3.2]

x B = 6.829 [from Table 2.1]

Decommissioning Cost (2006 dollars)

= ($105 million)*[(0.65)*(2.11)+(0.13)*(2.152)+(0.22)*(6.829)]

= $331 million 2

20004 Decommissioning Funding Status Report APS has reviewed the assumptions in this example as applicable to Palo Verde. APS uses a site-specific estimate of decommissioning costs. A comparison of the two costs is shown below:

10 CFR 50.75 (b) Site Specific Basic Total and (c) Radiological Decommissioning Unit Required Decommissioning1 Costs 2 Unit 1 $331 Million $518,825 $656,910 Unit 2 $331 Million $562,855 $699,750 Unit 3 $331 Million $615,325 $768,047 Each participant is entitled to exercise its own judgment regarding additional contingency factors and scope of work beyond the scope of work assumed in the site specific study. In addition, assumptions regarding decommissioning cost escalation and trust fund earnings may affect funding levels. Therefore, Participants may accumulate funds based upon a Basic Radiological Decommissioning Cost Estimate and Total Decommissioning Cost Estimate that exceed the amounts noted above.

Regardless of such independent judgments, each Participant meets NRC requirements for purposes of estimating the decommissioning funds to be required, because the site specific estimates of costs noted above for the Basic Radiological Decommissioning of each PVNGS unit exceed the NRC minimum formula amount calculated in accordance with 10 CFR 50.75(c), NUREG-1307, Rev. 12, "Report on Waste Burial Charges" and Regulatory Guide 1.159, "Assuring the Availability of Funds for Decommissioning Nuclear Reactors."

Item 2 The amount accumulated to the end of the calendar year preceding the date of the report (This report is for the year ending December 31, 2006).

APS Response The following table shows the actual accumulated funds by participant at the end of the reporting year 2006.

1 Taken from 2004 Decommissioning Cost Study page xviii of xx and includes SG Storage Facility and Evaporation Ponds 2 Taken from 2004 Decommissioning Cost Study page xix of xx and includes Independent Spent Fuel Storage Facility and non-nuclear costs 3

20004 Decommissioning Funding Status Report Actual Accumulations at End of Reporting Period (In Thousands)

Unit 1 Unit 2 Unit 3 Participant Accumulation Accumulation Accumulation APS $104,768 $117,369 $103,443 SRP $62,638 $61,539 $63,771 EPE $38,384 $38,995 $35,077 SCE $215,720 $219,420 $233,546 PNM $41,018 $42,433 $32,758 SCPPA $44,385 $45,381 $49,684 LADWP $34,179 $33,829 $33,964 Total $541,092 $558,966 $552,243 Item 3 A schedule of the annual amounts remaining to be collected.

APS Response Pursuant to the Participation Agreement, as amended and reformed, the Participants agreed that each Participant would commit to minimum levels of accumulation of funds, regardless of fund investment performance, pursuant to a pre-established percentage funded commitment or "Funding Curve" for each year through the end of plant life.

Each Participant's percentage funding commitment was based upon an analysis which incorporated the Participant's individual business judgments (subject to regulatory approvals, as applicable) with respect to expected rates of fund investment earnings and escalation in total decommissioning costs. Every three years a site-specific decommissioning cost estimate is performed, and each participant applies the new cost estimate to its pre-established Funding Curve. The Decommissioning Cost Estimate prepared for 2004 was used. Each Participant is committed to minimum levels of accumulations, which cannot drop below a Funding Floor (which is never less than eighty percent of the Participant's Funding Curve and was established to take into account market fluctuations in the early years of fund accumulation).

The attacheds contain a schedule of annual amounts remaining to be collected.

Item 4 The assumptions used in determining rates of escalation in decommissioning costs, rates of earnings on decommissioning funds, and rates of other factors used in funding projections.

4

20004 Decommissioning Funding Status Report APS Response The attachments contain the assumptions each participant used in determining rates of escalation in decommissioning costs, rates of earnings on decommissioning funds, and rates of other factors used in funding projections.

Item 5 Any contracts upon which the licensee is relying pursuant to 10 CFR 50.75(e)(1)(v).

APS Response No PVNGS Participant is relying upon a contract for purposes of providing decommissioning funding within the meaning of 10 CFR 50.75(e)(1)(v).

Item 6 Any modifications occurring to a licensee's current method of providing financial assurance since the last submitted report.

APS Response There have been no modifications to the licensees' methods of providing financial assurance.

Item 7 Any material changes to trust agreements.

APS Response Material modifications such as changes to trustees; changes to any key provision of the trust, particularly including the investment provisions; changes of the provisions related to withdrawals from the trust; changes related to the beneficiary; changes related to the duration or term of the trust; changes that could affect the ability of the trust agreement to provide reasonable assurance of decommissioning funds; and changes to the terms of providing information to the NRC are identified in Attachments 1 - 7.

Only one material change is reported:

5

20004 Decommissioning Funding Status Report On May 1, 2006, Wells Fargo Bank, N.A. replaced Bank of America, N. A. as Trustee for the El Paso Electric Company.

Attachments Attachments 1 through 7 contain the 2006 decommissioning funding status information for the Palo Verde participants as follows:

1. Arizona Public Service Company

2. Salt River Project Agricultural Improvement and Power District

3. El Paso Electric Company

4. Southern California Edison Company

5. Public Service Company of New Mexico

6. Southern California Public Power Authority

7. Los Angeles Department of Water and Power 6

Attachment I Annual Funding Status Report for the Year Ending December 2006 Arizona Public Service Company

Arizona Public Service Company Annual Funding Status Report For The Year Ending December 31, 2006

ARIZONA PUBLIC SERVICE COMPANY ANNUAL FUNDING STATUS REPORT FOR THE YEAR ENDING DECEMBER 31, 2006 Part 1. General Information 1.1 Description of Funds:

1.1.1 Fund No. I Palo Verde Unit 1 Tax Status:

A. Decommissioning income is taxable for both qualified and non qualified trusts.

B. Assumes stand alone basis for computation of non qualified taxes.

Independent Trustee:

A. Mellon Bank, Pittsburgh Investment Manager:

A. NISA Investment Advisors, St. Louis B. Mellon Capital, San Francisco C. Delaware Investment Advisers, Philadelphia Basic Documents:

A. Trust Agreement with Mellon dated as of 7/1/91. Amendment to Mellon Agreement dated as of 12/1/94.

Amendment to the Mellon Agreement dated as of 12/16/96. Amendment to the Mellon Agreement dated 3/18/02. Amendment to the Mellon Agreement dated 12/19/03.

B. Investment Management Agreement with NISA Investment Advisors dated 4/1/02.

C. Investment Management Agreement with Delaware Investment Advisers dated 6/24/99. Amendment to Delaware Investment Advisers Agreement dated 8/20/04.

Changes since prior AFSR:

A. None 1.1.2 Fund No. 2 Palo Verde Unit 2 Tax and Trustee data are the same as for Unit 1.

Investment Manager:

A. NISA Investment Advisors, St. Louis B. Mellon Capital, San Francisco C. Delaware Investment Advisers, Philadelphia

Basic Documents:

A. Palo Verde Unit 2 Sale Leaseback Participation Agreements dated as of 8/1/86 and 12/15/86.

B. Trust agreement for Palo Verde Unit 2 Sale Leaseback dated as of 1/31/92.

Amendment to Trust Agreement dated 12/1/94. Amendment to Trust Agreement dated 6/2/96.

Amendment to Trust Agreement dated 12/16/96. Amendment to Trust Agreement dated 6/30/00.

Amendment to Trust Agreement dated 3/18/02. Amendment to Trust Agreement dated 12/19/03.

C. Investment Management Agreement with Delaware Investment Advisers dated 3/27/97. Amendment to Delaware Investment Advisers Agreement dated 8/20/04.

D. Investment Management Agreement with NISA Investment Advisors dated 4/1/02.

Changes since prior AFSR:

A. None 1.1.3 Fund No. 3 Palo Verde Unit 3 Tax, Trustee, Investment Manager and Basic Documents data are the same as for Unit 1.

Changes since prior AFSR:

A. Same as for Unit 1.

1.2 Pro-rata Share Generation Entitlement Share 29.10%

Section 23.5.1 Obligations (from Participation Agreement) 0.00 Pro Rata Share 29.10%

1.3 Sale Leaseback Transactions Termination Date Full Funding Lessor Funding Funding Funding Compliance Lessor/Trustee Ownership Required Required Basis Status Unit 1 None n/a n/a n/a n/a n/a Unit 2 US Bank 42.28%

Equity Participants

a. Chase yes end of license decom costs compliance

b. Emerson Finance yes end of lease decom costs compliance

c. BofA Leasing yes end of lease decom costs compliance Unit 3 None n/a n/a n/a n/a n/a

1.4 Summary of Regulatory Requirements Respecting Electric Rates and Termination Funding A. Related Arizona Corporation Commission Decisions:

1. April 1988, No. 55931 & 55939, authorized decommissioning funding, and specified amounts included in rates.

2. July 1988, No. 56047, approved Harris Trust as Trustee.

3. March 1989, No. 56384, approved RCM as Investment Manager.

4. June 1991, No. 57426, approved Mellon as Trustee replacing Harris.

5. December 1991, No. 57649, specified decommissioning funding amounts included in rates.

6. June 1994, No. 58644, specified decommissioning funding amounts included in rates.

7. June 1994, No. 58675, approved Mellon Capital as Investment Manager.

8. March 1997, No. 60098, approves DIA as Investment Manager; approves long-term asset allocation strategy of 60% equities, 40% fixed income; approves Mellon Capital market value limit of $150 million; approved ability to transfer among existing investment managers.

9. January 2002, No. 64393, approves Mellon Capital market value limit of $200 million; approves RCM and Delaware market value limits of $75 million; approval to invest in Mellon Capital Market Completion Fund (Wilshire 4500); approval of reapportionment of the annual decommissioning fund contribution to each of the three Palo Verde units.

10. March 2002, No. 64646, approved NISA as investment manager replacing RCM Capital.

11. April 2005, No. 67744, specified decommissioning funding amounts included in rates.

B. Related Federal Electric Regulatory Commission Decisions:

1. July 1989, Docket No. ER89-265, authorized decommissioning costs in rates.

C. To be included in rates, the Arizona Corporation Commission and/or the Federal Energy Regulatory Commission must approve decommissioning costs (which inherently include assumed inflation rate and assumed earnings rate).

D. Mandatory deposits are those termination amounts approved by the ACC and by the FERC and currently in rates.

1.5 Statement of Investment Policies and Restrictions A. Attached as Exhibit A. [Not Attached]

B. Changes since prior AFSR:

None.

PART 2 Summary of Status of Termination Funds at End of the Reporting Period 2.1 Committed Accumulations at End of Reporting Period:

Unit I Unit 2 Unit 3 Total 2.1.1 Latest Estimated Termination Costs (In Thousands) $656,910 $699,750 $768,047 $2,124,707 (2004 TLG) 2.1.2 Generation Entitlement Share of Estimated Termination Costs (In Thousands) $191,161 $203,627 $223,502 $618,290 2.1.3 Cumulative Escalation Adjustment Factor 1.102500 1.102500 1.102500 1.102500 2.1.4 Adjusted Share of Estimated Termination Costs as of End of Reporting Period (In Thousands) $210,755 $224,499 $246,411 $681,664 (2.1.2) x (2.1.3) 2.1.5 Percent Funding Requirement at End of Reporting Period from Percent Funded Curve 50.12% 48.11% 45.99% 47.97%

2.1.6 Committed Accumulations at End of Reporting Period (In Thousands) $105,630 1 $108,006 1 $113,324 1 $326,961 ]

(2.1.4) x (2.1.5) 2.1.7 Summary of Model Assumptions:

Decommissioning Costs 2004 TLG Study escalated for two years Assumed Rate of Earnings 6.7500%

Assumed Rate of Cost Escalation 5.0000%

Contributions Quarterly

2.2 Actual Accumulations at End of the Reporting Period:

(Calculated pursuant to Section 5.5 of Termination Fundina Manual)

Fund Unit 1 Unit 2 Unit 3 Total (In Thousands)

1. 1 - Qualified $ 98,937 $ 98,937

1. 2 - Non-Qualified 5,831 5,831

1. 3 - Qualified 106,368 106,368

1. 4 - Non-Qualified 11,002 11,002

1. 5 - Qualified 70,908 70,908

1. 6 - Non-Qualified 32,205 32,205 Total 1$ 104,768 $ 117,369 $ 103,113 1$ 325,250 Calculations: Fund #1 Fund #2 Fund #3 Fund #4 Fund #5 Fund #6 Total Sum of (A):

(i) Cash $ 885,718 *$ 4,512 $ 3,695,789 $ 11,755 $ 622,480 $ 25,047 $ 5,245,301 (ii) Fair Market Value 105,323,309 6,229,703 103,693,801 12,363,762 74,020,921 34,583,171 336,214,667 (iii) Accrued Interest 378,817 90,107 973,692 101,997 266,231 500,213 2,311,056

$106,587,844 $ 6,324,322 $108,363,281 $12,477,515 $74,909,633 $35,108,431 $ 343;771,024 Less sum of (B):

(i) Current tax $ 0 $ 9,135 $ 0 $ 14,348 $ 0 $ 50,713 $ 74,196 (ii) Accrued tax on income 0 59,984 0 111,756 0 354,330 526,070 (iii) Taxes associated with unrealized gains 7,650,508 424,410 1,995,481 1,349,780 4,001,632 2,498,821 17,920,632 (iv) Accrued expenses 61,306 6,508 134,111 12,653 43,309 32,714 290,599

$ 7,650,508 $ 493,529 $ 1,995,481 $ 1,475,884 $ 4,001,632 $ 2,903,864 $ 18,520,898 Value $ 98,937,336 $ 5,830,792 $106,367,800 $11,001,630 $70,908,001 $32,204,567 $ 325,250,126 Value (In Thousands) $ 98,937 $ 5,831 $ 106,368 $ 11,002 $ 70,908 $ 32,205 $ 325,250

2.3 Funded Floor Amount at End of Reporting Period:

Unit 1 Unit 2 Unit 3 Total 2.3.1 Percentage of Committed Accumulations 82.00% 81.00% 80.00% 81.00%

2.3.2 Funded Floor Amount (In Thousands) $ 86,617 $ 87,485 $ 90,6591 $ 264,762:]

(2.1.4 x 2.3.1) 2.4 Deposits Made During Reporting Period (All Termination Funds):

Unit 1 Unit 2 Unit 3 Total NRC Required Deposits Normal Annual Deposits $ 5,606,000 $ 8,675,000 $ 6,461,000 $ 20,742,000 Recovery Deposits 0 0 0 0 Correcting Deposits 0 0 0 0 Total $ 5,606,000 $ 8,675,000 $ 6,461,000 $ 20,742,000 2.5 Mandatory Deposits During Reporting Period:

Unit 1 Unit 2 Unit 3 Total Arizona $ 5,505,000 $ 8,583,000 $ 6,364,000 $ 20,452,000 FERC 101,000 92,000 97,000 290,000 Total $ 5,606,000 $ 8,675,000 $ 6,461,000 $ 20,742,000

2.6 Estimated Outstanding Balance of Recovery Deposits and Correction Deposits:

Recovery Deposits Correction Deposits Amount Amount Outstanding Due Date Outstanding Due Date Unit 1 $ 0 N/A $ 0 N/A Unit 2 0 N/A 0 N/A Unit 3 0 N/A 0 N/A Total $ 0 $ 0 2.7 Annual Net Income (Loss) During Reporting Period (Each Funds; All Units):

Fund Amount Rate (Based upon average ending fund balances)

1. 1 $ 10,872,629 11.05%

1. 2 402,533 6.63%

1. 3 6,695,056 6.65%

1. 4 1,165,772 9.84%

1. 5 7,641,252 11.26%

1. 6 2,234,595 6.58%

Total $29,011,837 9.10%

Calculations: Fund #1 Fund #2 Fund #3 Fund #4 Fund #5 Fund #6 Total Sum of (A):

(i) realized income (loss) $ 2,664,677 $ 253,985 $ 12,369,428 $ 377,325 $1,872,728 $ 1,409,955 $ 18,948,097 (ii) unrealized income (loss) 8,954,429 170,339 (4,794,312) 851,127 6,293,147 945,610 12,420,341 Less sum of (B):

(i) taxes paid & accrued 597,840 9,135 651,122 14,348 420,160 50,713 1,743,318 (ii) expenses paid & accrued 148,638 12,656 228,938 48,332 104,463 70,256 613,283

$ 10,872,629 $ 402,533 $ 6,695,056 $1,165,772 $ 7,641,252 $ 2,234,595 $ 29,011,837

2.8 Summary of Market Values of Permitted Investments at End of the Reporting Period:

Categorv Fund #1 Fund #2 Fund #3 Fund #4 Fund #5 Fund #6 Total Cash and Cash Equivalents $ 1,264,535 $ 94,619 $ 4,669,480 $ 113,752 $ 888,711 $ 525,260 $ 7,556,357 Acceptable Debt Securities 28,334,494 4,308,589 91,539,863 4,741,395 19,913,401 23,918,421 172,756,162 Acceptable Equity Securities 76,988,815 1,921,114 12,153,938 7,622,368 54,107,520 10,664,750 163,458,505 Acceptable Life Insurance 0 0 0 0 0 0 0 Acceptable Property Interests 0 0 0 0 0 0 0 Total $106,587,844 $ 6,324,322 $108,363,281 $ 12,477,515 $ 74,909,633 $ 35,108,431 $ 343,771,024 2.9 Inventory and Values of Permitted Investments at End of the Reporting Period:

See Exhibit B [Not Attached]

2.10 Fund Liabilities at End of the Reporting Period:

Other than accrued taxes and administrative expenses, no liabilities exist against the Funds.

2.11 Defaults, If any, Experienced on Investments:

None.

2.12 Summary of Investment Ratinas:

Unit 1 - NISA Qualified Unit 1 - NISA Non-qualified Unit 1 - DIA Qualified S&P Moody's S&P Moody's S&P Moody's AAAIAaa 88.74% 88.74% 88.37% 81.71% 72.11% 72.35%

AA/Aa 4.42% 5.07% 10.08% 17.30% 6.08% 8.73%

A/A 6.84% 6.19% 0.99% 0.99% 15.68% 14.98%

Other 0.57% 6.13% 3.94%

Unit 2 - NISA Qualified Unit 2 - NISA Non-qualified Unit 2 - DIA Qualified S&P Moody's S&P Moody's S&P Moody's AAA/Aaa 87.56% 87.56% 87.41% 80.82% 68.94% 70.54%

AA/Aa 4.85% 5.86% 9.87% 18.28% 5.68% 10.93%

A/A 7.59% 6.39% 0.90% 0.90% 15.64% 15.17%

Other 0.19% 1.81% 9.74% 3.36%

Unit 3 - NISA Qualified Unit 3 - NISA Non-qualified Unit 3 - DIA Qualified S&P Moody's S&P Moody's S&P Mood y's AAA/Aaa 88.74% 88.74% 88.37% 81.71% 72.11% 72.35 AA/Aa 4.42% 5.07% 10.08% 17.30% 6.08% 8.73' A/A 6.84% 6.19% 0.99% 0.99% 15.68% 14.98

Part 3. Tables and Curves 3.1 Table of Estimated Deposits, Income and Committed Accumulations to End of Funding Period for Each Unit Attached as Exhibit C 3.2 Percent Funding Curve and Funding Floor Curve for Each Unit Attached as Exhibit C 3.3 Table of Estimated Deposits, Income and Committed Accumulations to End of Funding Period for All Units Attached as Exhibit C 3.4 Composite Percent Funding Curve and Funding Floor Curve for All Units Attached as Exhibit C

EXHIBIT C Funding Tables and Curves

ARIZONA PUBLIC SERVICE COMPANY NUCLEAR DECOMMISSIONING FUNDING REQUIREMENT UNIT ONE Based on 2004 Cost Study Rate of Return 6.7500% Annual Period Rate of Return 1.6875% Quarter Period Rate of Return 5.0000% Annual Escalation First Quarter Second Quarter Third Quarter Fourth Quarter Contrib Contrib Contrib Contrib Quarter Earnings Quarter Earnings Quarter Earnings Quarter Earnings ANNUAL Year Contrib Earnings to Date Contrib Earnings to Date Contrib Earnings to Date Contrib Eamings to Date CONTRIB 2006 104,768,129 2007 927,609 1,767,962 107,463,700 927,609 1,813,450 110,204,759 927,609 1,859,705 112,992,073 927,609 1,906,741 115,826,424 3,710,436 2008 927,609 1,954,571 118,708,604 927,609 2,003,208 121,639,420 927,609 2,052,665 124,619,695 927,609 2,102,957 127,650,261 3,710,436 2009 927,609 2,154,098 130,731,968 927,609 2,206,102 133,865,679 927,609 2,258,983 137,052,272 927,609 2,312,757 140,292,638 3,710,436 2010 927,609 2,367,438 143,587,685 927,609 2,423,042 146,938,336 927,609 2,479,584 150,345,530 927,609 2,537,081 153,810,220 3,710,436 2011 927,609 2,595,547 157,333,376 927,609 2,655,001 160,915,986 927,609 2,715,457 164.559,052 927,609 2,776,934 168,263,595 3,710,436 2012 927,609 2,839,448 172,030,653 927,609 2,903,017 175,861,279 927,609 2,967,659 179,756,547 927,609 3,033,392 183,717,548 3,710,436 2013 927,609 3,100,234 187,745,391 927,609 3,168,203 191,841,203 927,609 3,237,320 196,006,132 927,609 3,307,603 200,241,345 3,710,436 2014 927,609 3,379,073 204,548,027 927,609 3,451,748 208,927,384 927,609 3,525,650 213,380,642 927,609 3,600,798 217,909,050 3,710,436 2015 927,609 3,677,215 222,513,874 927,609 3,754,922 227,196,405 927,609 3,833,939 231,957,953 927,609 3,914,290 236,799,853 3,710,436 2016 927,609 3,995,998 241,723,459 927,609 4,079,083 246,730,152 927,609 4,163,571 251,821,332 927,609 4,249,485 256,998,426 3,710,436 2017 927,609 4,336,848 262,262,884 927,609 4,425,686 267,616,179 927,609 4,516,023 273,059,811 927,609 4,607,884 278,595,304 3,710,436 2018 927,609 4,701,296 284,224,209 927,609 4,796.284 289,948,102 927,609 4,892,874 295,768,585 927,609 4,991,095 301,687,289 3,710,436 2019 927,609 5,090,973 307,705,871 927,609 5,192,537 313.826,017 927,609 5,295,814 320,049,440 927,609 5,400,834 326,377,883 3,710,436 2020 927,609 5,507,627 332,813,119 927,609 5,616,221 339,356,949 927,609 5,726,649 346,011,207 714,812 5,838,939 352,564,958 3,710,436 2021 927,609 5,949,534 359,442,100 927,609 6,065,585 366,435,295 927,609 6,183,596 373,546,500 546,098 6,303,597 380,396,195 3,710,436 2022 927,609 6,419,186 387,742,990 927,609 6,543,163 395,213,762 927,609 6,669,232 402,810,603 527,022 6,797.429 410,135,054 3,710,436 2023 927,609 6,921,029 417,983,692 927,609 7,053,475 425,964,776 927,609 7,188,156 434,080,541 (12362,983) 7,325.109 440,042,667 3,710,436 2024 927,609 7,425,720 448,395,996 927.609 7,566,682 456,890,288 927,609 7,710,024 465,527,921 (2,873,487) 7,855,784 470,510,218 3,710,436 2025 927,609 7,939,860 479,377,686 927,609 8,089,498 488,394,794 927,609 8,241,662 497,564,065 (23,737,047) 8,396,394 482,223,412 3,710,436 2026 (773783,616) 32,550,080 436,989,876 0 2027 (100,038,874) 29,496,817 366,447,818 0 2028 (85.617,851) 24,735,228 305,565,196 0 2029 (72,078,240) 20,625,651 254,112,607 0 2030 (76,517,845) 17,152,601 194,747,362 0 2031 (63,274,020) 13,145,447 144,618,789 0 2032 (17,756,652) 9,761,768 136,623,905 0 2033 (161007,738) 120,616,167 0 2034 (20,608,430) 100,007,737 0 2035 (29%971,205) 70,036,532 0 2036 (28&844,935) 41,191,597 0 2037 (41,191:596) 0 0 FILENAME:

WEXCEuLECOMMJAFSR02JEXHIBsTE 31/f2007

ARIZONA PUBLIC SERVICE COMPANY NUCLEAR DECOMMISSIONING FUNDING REQUIREMENT UNIT ONE ESTIMATED ANNUAL COSTS T.7270,8 720066,o 0660 72 -o, -27 70 ..

200 01 ..2 .. 2 202 202 202 202 2 I~.

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1111.11-20.1%00 FILENA2E7 W:EXCEUDfECOM7.VAFSRO2JEXHIBITE W70"2007

ARIZONA PUBLIC SERVICE COMPANY NUCLEAR DECOMMISSIONING FUNDING REQUIREMENT UNIT ONE Based on 2004 Cost Study Rate of Return 6. j,50 ý%

Escalation Factoi 5.0000%

Funding Curve Funding Floor Actual Funding FYear Fund $ Est. Cost  % Funded  % Band % Floor $ Floor $ In Fund Est. Cost  % Funded 1991 8,358,799 122,538,465 6.82% 80% 5.46% 6,687,023 8,531,336 122,538,465 6.96%

1992 11,132,220 128,655,388 8.65% 80% 6.92% 8,905,776 11,159,326 128,655,388 8.67%

1993 16,329,125 135,098,658 12.09% 80% 9.67% 13,063,300 14,474,516 135,098,658 10.71%

1994 21,885,801 141,853,590 15.43% 80% 12.34% 17,508,641 17,781,769 141,853,590 12.54%

1995 27,827,153 148,946,270 18.68% 80% 14.94% 22,261,723 24,469,181 148,946,270 16.43%

1996 30,081,526 137,672,886 21.85% 80% 17.48% 24,065,220 30,491,630 137,672,886 22.15%

1997 36.066,854 144,556,530 24.95% 80% 19.96% 28,853,483 39,491,919 144,556,530 27.32%

1998 42,454,084 151,784,356 27.97% 80% 22.38% 33,963,267 49,972,041 151,784,356 32.92%

1999 52,694,980 170,368,508 30.93% 80% 24.74% 42,155,984 60,615.123 170,368,508 35.58%

2000 60,517,449 178,886,933 33.83% 80% 27.06% 48,413,960 62,792,455 178,886,933 35.10%

2001 68,858,947 187,831,280 36.66% 80% 29.33% 55,087,158 64,409,937 187,831,280 34.29%

2002 74.245,928 188,202,606 39.45% 80% 31.56% 59,396,742 63,343,559 188,202,606 33.66%

2003 83,353,052 197,612,736 42.18% 80% 33.74% 66,682,442 74,582,453 197,612,736 37.74%

2004 93,102,276 207,493,373 44.87% 80% 35.90% 74,481,821 82,378,934 207,493,373 39.70%

2005 95,361,526 200.718,851 47.51% 81% 38.48% 77,242,836 89,926,645 200,718,851 44.80%

2006 105,630,302 210,754,793 50.12% 82% 41.10% 86,616,848 104,768,129 210,754,793 49.71%

2007 116.599,035 221,292,533 52.69% 83% 43.73% 96,777,199 2008 128.354,095 232,357,159 55.24% 84% 46.40% 107,817,440 2009 140,895,572 243,975,017 57.75% 85% 49.09% 119,761,237 2010 154,319,078 256,173,768 60.24% 86% 51.81% 132,714,407 2011 168,652.000 268,982,457 62.70% 87% 54.55% 146,727,240 2012 183,975,931 282,431,579 65.14% 88% 57.32% 161,898,819 2013 200,380,969 296,553,158 67.57% 89% 60.14% 178,339,062 2014 217,935,433 311,380,816 69.99% 90% 62.99% 196,141,890 2015 236,679,002 326,949.857 72.39% 91% 65.87% 215,377,891 2016 256,717,758 343.297,350 74.78% 92% 68.80% 236,180,338 2017 278,132,647 360,462,217 77.16% 93% 71.76% 258,663,362 2018 301,085,079 378,485,328 79.55% 94% 74 .78% 283,019,974 2019 325,557,940 397,409,595 81.92% 95% 77.82% 309,280,043 2020 351,767,103 417,280,074 84.30% 96% 80.93% 337,696,419 2021 379,589.611 437,920,641 86.68% 97% 84.08% 368,201,923 2022 409,155,966 459,416,086 89.06% 98% 87.28% 400,972,847 2023 440,758,158 481,966,275 91.45% 99% 90.54% 436,350,577 2024 472,583,678 503,659,467 93.83% 100% 93.83% 472,583,678 2025 500,498,190 524,851,290 95.36% 100% 95.36% 500,498,190 2026 507,601,900 525,195,965 96.65% 100% 96.65% 507,601,900 2027 457,615,588 469,782,967 97.41% 100% 97.41% 457,615,588 2028 381,126.664 388,231,297 98.17% 100% 98.17% 381,126,664 2029 314,217,159 317,744,119 98.89% 100% 98.89% 314,217,159 2030 256,478,863 257,949,173 99.43% 100% 99.43% 256,478,863 2031 190,502,894 190,502,894 100.00% 100% 100.00% 190.502,894 2032 133.590,318 133,590,318 100.00% 100% 100.00% 133,590,318 2033 121,625,349 121,625,349 100.00% 100% 100.00% 121,625,349 2034 110,898,491 110,898,491 100.00% 100% 100.00% 110.898.491 2035 94,804,564 94,804,584 100.00% 100% 100.00% 94.804,564 2036 68,075,027 68,075,027 100.00% 100% 100.00% 68.075.027 2037 41,191,596 41,191,596 100.00% 100% 100.00% 41,191,596 FILENAME:

W EXCELIDECOMWAFSIEO2EXHIBITE 3191W11

ARIZONA PUBLIC SERVICE COMPANY NUCLEAR DECOMMISSIONING FUNDING REQUIREMENT UNIT ONE 120%

100%

80%

U) c 60%

u-40%

20%

0%

1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2 9 9 9 0 0 0 0 0 0 0 0 0 0 0 0 0 9 9 9 0 0 0 0 1 1 1 2 2 2 3 3 3 1 4 7 0 3 6 9 2 5 8 1 4 7 0 3 6 Year I-+- Funding Curve x Funding Floor

• Actual Funding I FILENAME:

W:EXCELtDECOMWMAFSRO02EXHIBITE 3/9207

ARIZONA PUBLIC SERVICE COMPANY NUCLEAR DECOMMISSIONING FUNDING REQUIREMENT UNIT TWO Based on 2004 Cost Study Rate of Return 6.7500% Annual Period Rate of Return 1.6875% Quarter Period Rate of Return 5.0000% Annual Escalation First Quarter Second Quarter Third Quarter Fourth Quarter Contrib Contrib Contrib Contrib Quarter Earnings Quarter Earnings Quarter Earnings Quarter Earnings ANNUAL Year Contrib Earnings to Date Contrib Earnings to Date Contrib Earnings to Date Contrib Earnings to Date CONTRIBS 2006 117,369,430 2007 767,759 1,980,609 120,117,798 767,759 2,026,988 122,912,544 767,759 2,074,149 125,754,452 767,759 2,122,106 128,644,317 3,071,035 2008 767,759 2,170,873 131,582,949 767,759 2,220,462 134,571,170 767,759 2,270,888 137,609,817 767,759 2,322,166 140,699,741 3,071,035 2009 767,759 2,374,308 143,841,808 767,759 2,427,331 147,036,897 767,759 2,481,248 150,285,904 767,759 2,536,075 153,589,737 3,071,035 2010 767,759 2,591,827 156,949,323 767,759 2,648,520 160,365,601 767,759 2,706,170 163,839,529 767.759 2,764,792 167,372,080 3,071,035 2011 767,759 2,824,404 170,964,243 767,759 2,885,022 174,617,023 767,759 2,946,662 178,331,444 767,759 3,009,343 182.108,546 3,071,035 2012 767,759 3,073,082 185,949,386 767,759 3,137,896 189,855,041 767,759 3,203,804 193,826,603 767,759 3,270,824 197,865,186 3,071,035 2013 767,759 3,338,975 201,971,919 767,759 3,408,276 206,147,954 767,759 3,478,747 210,394,460 767,759 3,550,407 214,712,625 3,071,035 2014 767,759 3,623,276 219,103,659 767,759 3,697,374 223,568,792 767,759 3,772,723 228,109,274 767,759 3,849,344 232,726,377 3,071,035 2015 767,759 3,927,258 237,421,393 767,759 4,006,486 242,195,638 767,759 4,087,051 247,050,448 767,759 4,168,976 251,987,183 3,071,035 2016 767.759 4,252,284 257,007,225 767,759 4,336,997 262,111,981 767,759 4,423,140 267,302,879 767,759 4,510,736 272,581,374 3,071,035 2017 767,759 4,599,811 277,948,943 767,759 4.690,388 283,407,090 767,759 4,782,495 288,957,344 767,759 4,876,155 294,601,258 3,071,035 2018 767,759 4,971,396 300,340,412 767,759 5,068,244 306,176,416 767,759 5,166,727 312,110,901 767,759 5,266,871 318,145,531 3,071,035 2019 767,759 5,368,706 324,281,996 767,759 5,472,259 330,522,013 767,759 5,577,559 336,867,331 767,759 5.684,636 343,319,726 3,071,035 2020 767,759 5,793,520 349,881,005 767,759 5.904,242 356,553,006 767,759 6,016,832 363,337,596 767,759 6,131,322 370,236,677 3,071,035 2021 767,759 6,247,744 377,252,179 767,759 6,366,131 384,386,069 767,759 6,486,515 391,640,342 767,759 6,608.931 399,017,032 3,071,035 2022 767,759 6,733,412 406,518,203 767,759 6,859,995 414,145,956 767,759 6,988,713 421,902,428 767,759 7.119.603 429,789,790 3,071,035 2023 767,759 7,252,703 437,810,251 767,759 7,388,048 445,966,058 767,759 7,525,677 454,259,494 767,759 7,665,629 462,692,882 3,071,035 2024 767,759 7,807,942 471,268,583 767,759 7,952,657 479,988,999 767,759 8,099,814 488,856,572 767,759 8,249,455 497,873,785 3,071,035 2025 767,759 8,401,620 507,043,164 767,759 8,556,353 516,367,276 767,759 8,713,698 525,848,733 301,327 8,873,697 535,023,757 3,071,035 2026 767,759 9,028,526 544,820,042 767,759 9,193,838 554,781,639 767,759 9,361,940 564,911,338 (917258,135) 9,532,879 483,186.081 3,071,035 2027 (107,275,188) 32,615,060 408,525,954 0 2028 (108,762.300) 27,575,502 327,339,156 0 2029 (66,600,238) 22,095,393 282,834,310 0 2030 (70,765,944) 19,091,316 231,159,683 0 2031 (72,130,645) 15,603,279 174,632,316 0 2032 (58,462,305) 11,787,681 127,957,693 0 2033 (16.164,649) 8,637,144 120,430,188 0 2034 (20.690,180) 99,740,008 0 2035 -(29.869,521) 69,870,487 0 2036 (28.700,729) 41,169,758 0 2037 (41;169.758) 0 0 FILENAME:W:EcEDEuCOMWMAFSR02/EXHIBITE 3/912007

ARIZONA PUBLIC SERVICE COMPANY NUCLEAR DECOMMISSIONING FUNDING REQUIREMENT UNIT TWO ESTIMATED ANNUAL COSTS 2026 Taget 's PVDeae yYear . FV Dollar Sum PV Uab 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2004 203,627,250 167,422 31,459,040 34.925,723 33,723,699 19,667,235 19,902,266 19,320,072 14,913,362 3.927.142 4,787,241 6,502,032 6.023,312 8.228,704 2005 213.808,613 175,793 33,031,992 36,672,009 35,409.884 20,650,597 20,897,379 20,286,076 15,659,030 4,123.499 5.026,603 6,911,134 62324,478 8,640,139 2006 224.499.0W3 1904.83 34.683.592 38,505,610 37.180.378 21,603,127 21.942.248 21,300,379 16,441,902 4,329,674 5,277,933 7,256,690 6,640.701 9,072,146 2007 235.723.995 193.812 36.417,771 40,430,890 39,039,397 22,787,203 23,039.361 22,365,398 17,264,081 4.546,158 5,541,830 7,619,525 6,972.737 9,525,753 2008 247,510,195 203.502 38,238,660 42,452,435 40,991,367 23,905.647 24,191,329 23A43.688 18,127,285 4,773,466 5,818,921 8,000,501 7,321,373 10,002,041 2009 259,885,705 213.678 40,150,593 44,575.056 43.040,935 25,100.929 25,400,895 24,657.852 19,033,649 5,012,139 6,109,867 8,400,526 7.687,442 10.502.143 2010 272,879.990 224,361 42.158,122 46.803,800 45,192,982 26,355,976 26,670.900 25,890,744 19,985.331 5,262,746 6.415,361 8,820,552 8,071,814 11,027.250 2011 286,523.990 235.580 44.266,028 49,10.,000 47.452,631 27,673.775 28.04,487 27.185,281 20.984,598 5,525,883 6.736,129 9,261,580 8,475,405 11,578,613 2012 300,850.189 247,359 46.479,330 51.881.200 49,825.263 29,057.463 29.404.711 28.544.648 22,033,820 5,802,177 7,072,935 9,724,659 8,899,175 12,157,544 2013 315,892,698 259.726 48,803,290 54.181,260 52,316,526 30,510,337 30,874,947 29,971,773 23,135,519 6,092,280 7,426,5a2 10,210,892 9,344,134 12,785,421 2014 331,687,333 272,713 51,243,461 56,890,323 54,9322352 32,035,853 32,418,694 31,470,351 24,292,295 6.396.901 7,797,911 10.721,437 9,811,341 13,403,692 2015 348.271,700 2686,348 53,805,634 59,734,839 57.678,970 33,637.646 34.039,629 33,043.880 25,506,910 6,716,746 8.187,807 11.257,508 10,301,908 14,073.876 2016 365.605.20 300,666 56,495,916 62.721.581 60,562,918 35,319,528 35.741,610 34,696,074 26,782,255 7,052,5a3 8,597,197 11,820,390 10,817,03 14,777,570 2017 383,969,549 315,699 59.320,712 65,857,6880 63.591,090 37,085,505 37,528.691 36,430,877 28.121,368 7405,212 9,027,057 12,411,403 11,397.853 15,616.449 2010 403,168,027 331,484 62,286,747 69.150,543 66,770.617 38,939,780 39.405.125 38,252,421 29,527,437 7.775,473 9,478,410 13,031,973 11,925,746 16,292,271 2019 423.326,428 348,058 65,401,085 72.508,070 70,109,148 40,886,769 41.375,382 40,165.042 31,003.800 8,164.246 9.952,330 13,683,572 12,522.033 17,106,885 2020 444.492,750 365,461 68,671,139 76,238,473 73,614,606 42,931,108 43,444,151 42,173,294 32,553,999 8.572.458 10,449,947 14.367,750 13,148,135 17,902,229 0 2021 466,717,3M7 3a3.734 72.104,696 80,050,397 77,295,336 45.077,663 45,616,358 44,281,959 34.181.699 9,01,81 10.972,444 15,086,138 13,805,541 18,860.340 2022 490.053.256 402,921 75,709,931 84,052,917 81,160,103 47.331,546 47,897,176 46,496,057 35.89.,784 9,451,135 11,521.066 15,840.445 14,495,819 19,803.357 2023 514.555,919 423.W67 79,495,427 88,255,563 85,218,188 49,698,123 500292.035 48.820,880 37.685,323 9,923,692 12,007,120 16,032,467 15,220,609 20,793,525 2024 540.203.715 444,220 83,470,199 92,668,341 89.479.013 52.1a3,029 52806637 51,261,903 39.569,589 10,419,877 12,701.976 17.4.G4090 15,981,640 21,833,201 497,916 107.422 2025 1 466,431 567,297,901 466.431 87.643.700 97.301,758 93,952,964 34,792,181 55446,969 53,824,998 41,548.069 10,940,871 13,337,074 18.337,295 16.780,722 22,924,862 92,025,894 31.459.040 2026 2 92,025,894 595.173.043 92.025,894 102,166.846 98,650,12 57,531,790 50,219,317 96,516,248 43,625.472 11,487,914 14,003,928 19.254,160 17,619,758 24,071,105 100,491.979 34.925723 2027 3 107275,160 528,304.506 107,275,188 103,583,143 60.408,380 61,130,283 59.342.060 48,806.746 12,062,310 14,704,124 20,216.868 18,509,746 25.274.660 95.442.678 33.723.699 2028 4 190,762,388 442.080,784 108.762,30 63,428,798 64,186,797 62309.103 48,097,03 12,665,429 15,439,331 21,227,711 19.425,783 26,538,393 54,748.488 19,667.235 2029 5 66,600,238 349,984.409 66.600.238 67,390.137 65,424,621 50,501.937 13,298,697 16211297 22.289,097 20,397,072 27,865,312 54.494.512 19,002.266 2030 6 70,765,944 297,553,379 70,785,984 68.695,852 53,027.034 13,963,632 17,021,862 23,403,551 21,416,926 29,2580,578 52.033,183 19,320.072 2031 7 72,130.645 238,126,807 72,130.645 55.678,386 14,661,813 17,872.955 24,573,729 22.487,772 30,721,507 39,06.507 l4.913.362 2032 8 58.462,325 174.295.970 58.462.3W5 15.394.904 18,766.603 25,802.415 23,612.161 32,257,582 10.232.720 3.927,142 2033 9 16,164.649 121.625,349 16.194,690 19,704,933 27,092,536 24,792,769 33,870,481 13.097.520 4.787,241 2034 0 20.690,180 110,733,735 20,690,180 28.447,163 26,032,407 35,563,985 18,908.326 6,582,032 2035 1 29,869.521 94.545.733 29,869,521 27,334,028 37,342,184 18,168.444 6,023,312 2036 2 28,700.729 67,910.022 28,700,729 39.209,293 26,061,723 8.228,734 2037 3 41.169.758 41,169.758 41,169,758 575.709,890 203,627.250 713.083.7a2 29.1%of 699.750.000 FILENAME: W:EXCEUDECOM86AFSR021EXHIBITE 31912007

ARIZONA PUBLIC SERVICE COMPANY NUCLEAR DECOMMISSIONING FUNDING REQUIREMENT UNIT TWO Based on 2004 Cost Study Rate of Return 6.7500%

asltionFactor 5.0000%

Funding Curve Funding Floor Actual Funding Year Fund $ Est. Coat  % Funded  % Band  % Floor $ Floor $ tn Fund Eat. Coat  % Funded 1991 7,589,283 120,570,113 6.29% 80% 5.04% 6,071,426 7,786.931 120,570,113 6.46%

1992 10,494,062 126,598,819 8.29% 80% 6.63% 8,395,249 10,625,997 126,598,619 8.39%

1993 15,402,712 132,928,550 11.59% 80% 9.27% 12,322,170 14,545,580 132,928,550 10.94%

1994 20,651,178 139,574,977 14.80% 80% 11.84% 16,520,943 18,150,013 139,574,977 13 .00%

1995 26,262,984 146,553,726 17.92% 80% 14.34% 21,010,388 25,307,510 146,553,726 17.27%

1996 29,965,846 142,898,646 20.97% 80% 16.78% 23,972,677 31,299,677 142,898,646 21 .90%

1997 35,920,433 150,043,579 23.94% 80% 19.15% 28,736,346 40,007,265 150.043,579 26.66%

1998 42,285,281 157,545,757 26.84% 80% 21.47% 33,828,225 49,309,94 157,545,757 3 1.30%

1999 53,228,685 179,341,931 29.68% 80% 23.74% 42,582,948 57,744,504 179,341,931 32.20%

2000 61,125,110 188,309,027 32.46% 80% 25.97% 48,900,088 63,153,205 188.309,027 33.54%

2001 69,559,472 197,724,479 35.16% 80% 28.14% 55,647,577 67,204,619 197,724,479 33.99%

2002 77,883,429 205,714,287 37.86% 80% 30.29% 62,306,743 70,594,925 205,714,287 34.32%

2003 87,436,801 216,000,002 40.48% 80% 32.38% 69,949,441 81,381,233 216,000,002 37.68%

2004 97,660,081 226,800,002 43.06% 80% 34.45% 78,128,065 89,653,081 226,800,002 39.53%

2005 97,496,727 213,808,613 45.60% 80% 36.48% 77,997,382 99,694,767 213,808,613 46.63%

2006 108,006,490 224,499,043 48.11% 81% 38.97% 87,485,257 117,369,430 224,499,043 52.28%

2007 119,229,197 235,723,995 50.58% 82% 41.48% 97,767,941 2008 131,229,905 247,510,195 53.02% 83% 44.01% 108,920.821 2009 144,054,646 259,885,705 55.43% 84% 46.56% 121,005,903 2010 157.779,210 272,879,990 57.82% 85% 49.15% 134,112,329 2011 172,430,137 286,523,990 60.18% 86% 51.75% 148,289,918 2012 188,121,623 300,850,189 62.53% 67% 54.40% 163,665,812 2013 204,888,004 315,892,698 64.86% 88% 57.08% 180,301,444 2014 222,827,551 331,687,333 67.18% 89% 59.79% 198,316,520 2015 241,979,177 348,271,700 69.48% 90% 62.53% 217,781,259 2016 262,488,898 365,685,285 7 1.78% 91% 65.32% 238,864,897 2017 284,406.245 383,969,549 74.07% 92% 68.14% 261,653,746 2018 307,818,788 403,168,027 76.35% 93% 71.01% 286,271,473 2019 332,903,903 423,326,428 78.64% 94% 73.92% 312,929,669 2020 359,683,533 444,492,750 80.92% 95% 76.87% 341,699,356 2021 388,355,538 466.717,387 83.2 1% 96% 79.88% 372,821,316 2022 418,946,529 490,053,256 85.49% 97% 82.93% 406,378,133 2023 451,728,641 514,555,919 87.79% 98% 86.03% 442,694,069 2024 486,741,599 540,283,715 90.09% 99% 89.19% 481,874,183 2025 524,183,260 567,297,901 92.40% 100% 92.40% 524,183,260 2026 559,046.039 595,173,043 93.93% 100% 93.93% 559,046,039 2027 504,266,651 528,304,506 95.45% 100% 95.45% 504,266,651 2028 427,580,535 442,080,784 96.72% 100% 96.72% 427,580,535 2029 341,234.799 349,984,409 97.50% 100% 97.50% 341,234,799 2030 292,346,195 297,553,379 98.25% 100% 98.25% 292,346,195 2031 235,650.288 238,126,807 98.96% 100% 98.96% 235,650,288 2032 173,319,913 174,295,970 99.44% 100% 99.44% 173,319,913 2033 121,625,349 121.625,349 100 .00% 100% 100.00% 121,625,349 2034 110,733,735 110,733,735 100 .00% 100% 100.00% 110,733,735 2035 94,545,733 94,545,733 100.00% 100% 100.00% 94,545,733 2036 67,910,022 67,910,022 100.00% 100% 100.00% 67,910.022 2037 41,169,758 41,169,758 100.00% 100% 100.00% 41,169,758 FILENAME:

W:EXCELIDECOMM!AFaeOE2/XHBITE M/f2007

ARIZONA PUBLIC SERVICE COMPANY NUCLEAR DECOMMISSIONING FUNDING REQUIREMENT UNIT TWO 120%

100% 2006 Funding Status

$ Amount Percernt 80%

• Actual 117,369 52.30/

Committed 108,006 48.10/

-0 Floor 87,485 39.00/ I 60%

LL 40% i L L IIi1111 20%

1-0%

1 1 1 2 2 2 2 2 2 2 2 2 9 9 9 0 0 0 0 0 0 0 0 0 9 9 9 0 0 1 1 1 2 2 3 3 1 5 9 3 7 1 5 9 3 7 1 5 Year I-+- Funding Curve x Funding Floor

• Actual FundingI W:EXCEUDECOMMWAFSROVEXH-IBITE FILENAME' 319r2007

ARIZONA PUBLIC SERVICE COMPANY NUCLEAR DECOMMISSIONING FUNDING REQUIREMENT UNIT THREE Based on 2004 Cost Study Rate of Return 6.7500% Annual Period Rate of Return 1.6875% Quarter Period Rate of Return 5.0000% Annual Escalation First Quarter Second Quarter Third Quarter Fourth Quarter Contrib Contrib Contrib Contrib Quarter Earnings Quarter Earnings Quarter Earnings Quarter Earnings ANNUAL Year Contrib Earnings to Date Contrib Earnings to Date Contrib Earnings to Date Contrib Earnings to Date CONTRIBS 2006 S103,112,568 2007 1,281,295 1,740,025 106,133,888 1,281,295 1,791,009 109,206,192 1,281,295 1,842,854 112,330,342 1,281,295 1,895,575 115,507,212 5,125,182 2008 1,281,295 1,949,184 118,737,692 1,281,295 2,003,699 122,022,686 1,281,295 2,059,133 125,363,114 1,281,295 2,115,503 128,759,912 5,125,182 2009 1,281,295 2,172,824 132,214,031 1,281,295 2,231,112 135,726,438 1,281,295 2,290,384 139,298,117 1,281,295 2,350,656 142,930,068 5,125,182 2010 1,281,295 2,411,945 146,623,309 1,281,295 2,474,268 150,378,872 1,281,295 2,537,643 154,197,811 1,281,295 2,602,088 158,081,195 5,125,182 2011 1,281,295 2,667,620 162,030,110 1,281,295 2,734,258 166,045,664 1,281,295 2,802,021 170,128,980 1,281,295 2,870,927 174,281,202 5,125,182 2012 1,281,295 2,940,995 178,503,492 1,281,295 3,012,246 182,797,034 1,281,295 3,084,700 187,163,030 1,281,295 3,158,376 191,602,701 5,125,182 2013 1,281,295 3,233,296 196,117,292 1,281,295 3,309,479 200,708,067 1,281,295 3,386,949 205,376,311 1,281,295 3,465,725 210,123,331 5,125,182 2014 1,281,295 3,545,831 214,950,458 1,281,295 3,627,289 219,859,042 1,281,295 3,710,121 224,850,459 1,281,295 3,794,351 229,926,106 5,125,182 2015 1,281,295 3,880,003 235,087,405 1,281,295 3,967,100 240,335,800 1,281,295 4,055,667 245,672,762 1,281,295 4,145,728 251,099,785 5,125,182 2016 1,281,295 4,237,309 256,618,389 1,281,295 4,330,435 262,230,120 1,281,295 4,425,133 267,936,549 1,281,295 4,521,429 273,739,274 5,125,182 2017 1,281,295 4,619,350 279,639,919 1,281,295 4,718,924 285,640,138 1,281,295 4,820,177 291,741,611 1,281,295 4,923,140 297,946,046 5,125,182 2018 1,281,295 5,027,840 304,255,181 1,281,295 5,134,306 310,670,783 1,281,295 5,242,569 317,194,647 1,281,295 5,352,660 323,828,603 5,125,182 2019 1,281,295 5,464,608 330,574,506 1,281,295 5,578,445 337,434,246 1,281,295 5,694,203 344,409,744 1,281,295 5,811,914 351,502,954 5,125,182 2020 1,281,295 5,931,612 358,715,862 1,281,295 6,053,330 366,050,487 1,281,295 6,177,102 373,508,885 1,281,295 6,302,962 381,093,142 5,125,182 2021 1,281,295 6,430,947 388,805,385 1,281,295 6,561,091 396,647,771 1,281,295 6,693,431 404,622,497 1,281,295 6,828,005 412,731,797 5,125,182 2022 1,281,295 6,964,849 420,977,942 1,281,295 7,104,003 429,363,240 1,281,295 7,245,505 437,890,040 1,281,295 7,389,394 446,560,730 5,125,182 2023 1,281,295 7,535,712 455,377,738 1,281,295 7,684,499 464,343,533 1,281,295 7,835,797 473,460,625 1,281,295 7,989,648 482,731,568 5,125,182 2024 1,281,295 8,146,095 492,158,959 1,281,295 8,305,182 501,745,437 1,281,295 8,466,954 511,493,687 1,281,295 8,631,456 521,406,438 5,125,182 2025 1,281,295 8,798,734 531,486,467 1,281,295 8,968,834 541,736,597 1,281,295 9,141,805 552,159,697 814,864 9,317,695 562,292,256 5,125,182 2026 1,281,295 9,488,682 573,062,233 1,281,295 9,670,425 584,013,954 1,281,295 9,855,235 595,150,485 (10,215,415) 10,043,164 594,978,234 5,125,182 2027 1,281,295 10,040,258 606,299,787 1,281,295 10,231,309 617,812,391 1,281,295 10,425,584 629,519,271 (22,521,552) 10,623,138 617,620,857 5,125,182 2028 (116,348,228) 41,689,408 542,962,036 0 2029 (121,625,624) 36,649,937 457,986,349 0 2030 (110,873,014) 30,914,079 378,027,414 0 2031 (88,243,574) 25,516,850 315,300,690 0 2032 (92,098,683) 21,282,797 244,484,804 0 2033 (91,842,564) 16,502,724 169,144,964 0 2034 (52,787,565) 11,417,285 127,774,685 0 2035 (42,136,291) 85,638,394 0 2036 (42,353,173) 43,285,221 0 2037 (43,285,221) 0 0 FILENAME: W:EXCELIDECOMMIAFSRO2/EXHIBITE 319/2007

ARIZONA PUBLIC SERVICE COMPANY NUCLEAR DECOMMISSIONING FUNDING REQUIREMENT UNIT THREE ESTIMATED ANNUAL COSTS 2027 Target $'s PV Dollars Year FV Dollars Sum PV Liab 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2004 0 223.502.841 167,422 3,930,149 7,749,524 36,075,852 35,916,384 31,182,008 23,635,893 23,493,780 22,312,813 12,213,852 9,285,131 8,888,498 8,651,527 2005 1 234.677.983 175,793 4,126,656 8,137,000 37,879,645 37,712,203 32,741,108 24,817,688 24,668,477 23,428,454 12,824,545 9,749,388 9,332,923 9,084,103 2006 2 246.411,882 184,583 4,332,989 86543,850 39,773,627 39,597,813 34,378,164 26.058,572 25,901,901 24,599,876 13,465,772 10,236,857 9,799,569 9,538,309 2007 3 258,732,476 193,812 4,549,639 8,971,843 41,762,308 41,577,704 36.097,072 27,361,501 27,196,996 25,829,870 14,139,060 10,740,700 10,289,547 10,015,224 2008 4 271.669.100 203,502 4,777,121 9,419,595 43,850,424 43,656,589 37,901,926 28,729,576 28,506,846 27,121,364 14,846,013 11,286,135 10,804.025 10,515,985 2009 5 285,252.555 213,678 0,015,977 9,890,570 46,042.945 45,839,419 39.797,022 30,166,054 29,984,688 28,477,432 15,588,314 11,850,442 11,344,226 11,041.784 2010 6 299,515,183 224,361 5,266,776 10,385,103 48,345.092 48,131,390 41.786,873 31,674,357 31,483,923 29,901,303 16,367,730 12,442,964 11,911.437 11,593,874 2011 7 314,490,842 235,580 5,530,114 10,904,358 00,762.347 50,537,959 43,876,217 33.258,075 33,058,119 31,396,369 17,186,116 13,065,112 12,507,009 12,173,067 2012 8 330,210,489 247,359 5,806,620 11,449,576 53,300,464 53.064,857 46,070,027 34,920.979 34,711,025 32,966,187 18,045,422 13,718,367 13,132,360 12,782,246 2013 9 346,726,264 259,726 6,096.951 12,022,055 55.965.487 55,718,100 48,373.529 36.667,028 36,446,576 34.614,496 18,947,693 14,404,286 13,788,978 13,421,358 2014 10 364,062,577 272,713 6,401,799 12,623,158 58.763.761 58,504,005 50,792,205 38,500,379 38,268,905 36,345,221 19,895,078 15,124,500 14,478,427 14,092,426 2015 11 382,265,706 286,348 6,721,889 13,254,316 61.701.950 61,429,205 53,331,816 40,425,398 40,182,350 38,162,482 20,889,832 15,880,725 15.202.348 14,797,047 2016 12 401,378,991 300,666 7,057,983 13.917.032 64,787,047 64,500,665 55,998,406 42,446.668 42,191.468 40,070,606 21,934,323 16,674,761 15.962,465 15,536,899 2017 13 421,447,940 315,699 7.410.882 14,612,883 68,026,399 67.725,699 58,799,327 44,569.001 44,301,041 42,074,137 23,031,040 17,508,499 16,760,589 16,313,744 2018 14 442,520,337 331.484 7.781,426 15,343,527 71,427,719 71.111,984 61,738.243 46.797.451 46,516,093 44,177,844 24,182,592 18,383,924 17.598,618 17,129,432 2019 15 464,646,354 348.058 8.170,498 16,110,704 74.999,105 74,667,583 64,825.155 49.137,324 48,841,898 46.386,736 25,391,721 19,303,120 18,478,549 17,985,903 0 2020 16 487.878,672 365.461 8,579,022 16,916,239 78.749.061 78,400,962 68,066.413 51,594,190 01,283,993 48.706,072 26,661,307 20,268,277 19,402,476 18.885,198 0 2021 17 512,272.606 383.734 9,007,973 17.762.051 82.686,514 82,321,010 71,469.734 54,173,900 53,848.192 51.141,376 27,994,373 21,281,690 20;372.600 19,829,458 0 2022 18 537,886.236 402,921 9,458,372 18.650.154 86,820,839 86,437.061 75,043,220 56,882.595 56,540.602 53,698,445 29,394,091 22,345.775 21T391,230 20,820,931 0 564,780.548 423,067 9,931,291 19,582.661 91,161,881 90,758.914 78,795,381 59,726.724 59,367.632 56,383,367 30.863,796 23,463,064 22,460,792 21,061,978 2023 19 2024 20 593.019.575 444,220 10,427,855 20,561.794 95,719,975 95,296,8659 82,735,150 62,713,061 62,336.014 59.202,536 32,406,985 24,636,217 23.583,831 22,965,077 531,525 167,422 2025 21 466,431 622.670.554 466,431 10,949,248 21.589.884 100,505,974 100,061.702 86,871,908 65,848,714 65,452.814 62.162,662 34,027,335 25.868.028 24,763,023 24,102,931 12.272,738 3,930,149 2026 22 11,496.710 653.314.329 11,496.710 22.669,378 105,531,273 105,064.787 91215,503 69,141,149 68,725,455 65,270,795 35.728,701 27.161,429 26,001,174 25,307,972 23,802,847 7,749.524 2027 23 23,802.847 673.908.499 23.802,847 110,807,836 110,318.027 95,776,278 72,598.207 72,161.728 68,534,330 37,515.137 28,519,500 27,301,233 26,573,371 108,991,315 36,075,852 2028 24 116,348,228 682,610,935 116,348,228 115.33,928 100,565,092 76,228.117 75,769,814 71,961,052 39.390.893 29,945,475 28,666,294 27,902,039 106,730,690 35,916,384 2029 25 121,625,624 594,075,842 121,625.624 105,893,347 80,839,523 79,558,305 75,559,105 41.360.438 31,442,749 30,099,609 29,297,141 91,142,766 31,182.008 2030 26 110,873,014 496,097,728 110.873,014 84,041.499 83,536,220 79,337,060 43.428.460 33,014,987 31,604,590 30,761,998 67,953,457 23,635,893 2031 27 88,243.574 400,010,949 88,243.574 87,713,031 83,303,913 45.599.883 34,665,631 33,184,819 32,300,098 66,437,610 23,493,788 2032 28 92,098,683 332,605,744 92,098,683 87,469.108 47,879,877 36,398,913 34,944,060 33,915,103 2033 29 91,842,564 252,532,414 91,842,564 50,273,871 38,218,858 36,586,263 35,610,858 62,063,562 22,312.813 2034 30 52,787,565 168,724,343 52,787,565 40,129,801 38,415,576 37,391,401 33,416,152 12,213,052 2035 31 42,136,291 121,733,617 42,136,291 40,336,355 39,260,971 26,673,568 9.205.131 2036 32 42,353,173 83,577.192 42.353,173 41.224,020 26,810.861 8,888.498 8,651.527 2037 33 43,285,221 43,285.221 43,285,221 27,400,876 654,227,967 223,502,841 837.359,926 29.1% of 768.051.000 FILENAME: W:EXCEL/DECOMMIAFSRO2/EXHIOITE 3/9/2007

ARIZONA PUBLIC SERVICE COMPANY NUCLEAR DECOMMISSIONING FUNDING REQUIREMENT UNIT THREE Based on 2004 Cost Study Rate of Return 6.7500%

[scaltion Factoi 5.0000%1 Funding Curve Funding Floor Actual Funding Yer Fund $ Est. Cost % Funded  % Band  % Floor $ Floor $ In Fund Est. Cost %Fne 1991 8,006,475 127,342,404 6.29% 80.00% 5.03% 6,405,180 8,425,913 127,342,404 6.62%

1992 10,665,274 133,709,524 7.98% 80.00% 6.38% 8,532,219 10,625,686 133,709,524 7.95%

1993 15,618,562 140,395,000 11.12% 80.00% 8.90% 12,494,850 14,358,300 140,395,000 10.23%

1994 20,914,756 147,414,750 14.19% 80.00% 11.35% 16,731,805 17,548,946 147,414,750 11.90%

1995 26,577,594 154,785,488 17.17% 80.00% 13.74% 21,262,075 23,923,294 154,785,488 15.46%

1996 32,399,151 161,350,352 20.08% 80.00% 16.06% 25,919,321 29,189,706 161,350,352 18.09%

1997 38,830,576 169,417,870 22.92% 80.00% 18.34% 31,064,461 36,502,075 169,417,870 21.55%

1998 45,699,623 177,888,764 25.69% 80.00% 20.55% 36,559,699 44,699,986 177,888,764 25.13%

1999 54,764,199 192,831,688 28.40% 80.00% 22.72% 43,811,360 52,706,435 192,831,688 27.33%

2000 62,867,951 202,473,273 31.05% 80.00% 24.84% 50,294,361 56,260,185 202,473,273 27.79%

2001 71,538,869 212,596,936 33.65% 80.00% 26.92% 57,231,095 59,074,016 212,596,936 27.79%

2002 75,541,923 208,679,345 36.20% 80.00% 28.96% 60,433,538 61,165,704 208,679,345 29.31%

2003 84,818,763 219,113,312 38.71% 80.00% 30.97% 67,855,010 72,048,542 219,113,312 32.88%

2004 94,719,398 230,068,977 41.17% 80.00% 32.94% 75,775,518 80,413,842 230,068,977 34.95%

2005 102,319,601 234,677,983 43.60% 80.00% 34.88% 81,855,680 88,781,344 234,677,983 37.83%

2006 113,324,825 246,411,882 45.99% 80.00% 36.79% 90,659,860 103,112,568 246,411,882 41.85%

2007 125,097,152 258,732,476 48.35% 81 .00% 39.16% 101,328,693 2008 137,681,900 271,669,100 50.68% 82.00% 41.56% 112,899,158 2009 151,126,804 285,252,555 52.98% 83.00% 43.97% 125,435,247 2010 165,512,090 299,515,183 55.26% 84.00% 46.42% 139,030,156 2011 180,895,190 314,490,942 57.52% 85.00% 48.89% 153,760,911 2012 197,336,776 330,215,489 59.76% 86.00% 51 .39% 169,709,628 2013 214,935,611 346,726,264 61.99% 87.00% 53.93% 186,993,981 2014 233,728,174 364,062,577 64.20% 88.00% 56.50% 205,680,793 2015 253,824,429 382,265,706 66.40% 89.00% 59.10% 225,903,741 2016 275,345,988 401,378,991 68.60% 90.00% 61.74% 247,811,389 2017 298,300,852 421,447,940 70.78% 91 .00% 64.41% 271,453,776 2018 322,907,090 442,520,337 72.97% 92.00% 67.13% 297,074,523 2019 349,181,735 464,646,354 75.15% 93.00% 69.89% 324,739,014 2020 377,276,577 487,878,672 77.33% 94.00% 72.69% 354,639,982 2021 407,307,949 512,272,606 79.51% 95.00% 75.53% 386,942,551 2022 439,453,055 537,886,236 81.70% 96.00% 78.43% 421,874,933 2023 473,794,401 564,780,548 83.89% 97.00% 81.37% 459,580,569 2024 510,471,250 593,019,575 86.08% 98.00% 84.36% 500,261,825 2025 549,755,832 622,670,554 88.29% 99.00% 87.41% 544,258,274 2026 591,314,799 653,314,329 90.51% 100.00% 90.51% 591,314,799 2027 620,130,601 673,908,499 92.02% 100.00% 92.02% 620,130,601 2028 638,241,224 682,610,935 93.50% 100.00% 93.50% 638,241,224 2029 564,965,965 594,575,842 95.02% 100.00% 95.02% 564,965,965 2030 478,372,591 496,597,728 96.33% 100.00% 96.33% 478,372,591 2031 393,751,645 405,010,949 97.22% 100.00% 97.22% 393,751,645 2032 325,887,108 332,605,744 97.98% 100.00% 97.98% 325,887,108 2033 249,299,999 252,532,414 98.72% 100.00% 98.72% 249,299,999 2034 167,644,507 168,724,343 99.36% 100.00% 99.36% 167,644,507 2035 121,733,617 121,733,617 100.00% 100.00% 100.00% 121,733,617 2036 83,577,192 83,577,192 100.00% 100.00% 100.00% 83,577,192 2037 43,285,221 43,285,221 100.00% 100.00% 100.00% 43,285,221 FILENAME: W:EXCEL/DECOMMIAFSRO2IXHIBITE 319/2007

ARIZONA PUBLIC SERVICE COMPANY NUCLEAR DECOMMISSIONING FUNDING REQUIREMENT UNIT THREE 120%

100%

80%

"o C 60%

U-40%

20%

0%

1 1 1 2 2 2 2 2 2 2 2 2 9 9 9 0 0 0 0 0 0 0 0 0 9 9 9 0 0 1 1 1 2 2 3 3 1 5 9 3 7 1 5 9 3 7 1 5 Year

-+- Funding Curve -,-- Funding Floor

• Actual Funding FILENAME: W:EXCELJDECOMM/AFSR02IEXHIBITE 3/9/2007

ARIZONA PUBLIC SERVICE COMPANY NUCLEAR DECOMMISSIONING FUNDING REQUIREMENT UNIT THREE Based on 2004 Cost Study Rate of Return 6.7500% Annual Period Rate of Return 1.6875% Quarter Period Rate of Return 5.0000% Annual Escalation First Quarter Second Quarter Third Quarter Fourth Quarter Contrib Contrib Contrib Contrib Quarter Earnings Quarter Earnings Quarter Earnings Quarter Earnings ANNUAL Year Contrib Earnings to Date Contrib Earnings to Date *Contrib Earnings to Date Contrib Earnings to Date CONTRIBS 103,112,568 2006 115,507,212 5,125,182 1,281,295 1,740,025 106,133,888 1,281,295 1,791,009 109,206,192 1,281,295 1,842,854 112,330,342 1,281,295 1,895,575 2007 128,759,912 5,125,182 1,949,184 118,737,692 1,281,295 2,003,699 122,022,686 1,281,295 2,059,133 125,363,114 1,281,295 2,115,503 2008 1,281,295 5,125,182 2,172,824 132,214,031 1,281,295 2,231,112 135,726,438 1,281,295 2,290,384 139,298,117 1,281,295 2,350,656 142,930,068 2009 1,281,295 146,623,309 1,281,295 2,474,268 150,378,872 1,281,295 2,537,643 154,197,811 1,281,295 2,602,088 158,081,195 5,125,182 2010 1,281,295 2,411,945 162,030,110 1,281,295 2,734,258 166,045,664 1,281,295 2,802,021 170,128,980 1,281,295 2,870,927 174,281,202 5,125,182 2011 1,281,295 2,667,620 5,125,182 2,940,995 178,503,492 1,281,295 3,012,246 182,797,034 1,281,295 3,084,700 187,163,030 1,281,295 3,158,376 191,602,701 2012 1,281,295 5,125,182 3,233,296 196,117,292 1,281,295 3,309,479 200,708,067 1,281,295 3,386,949 205,376,311 1,281,295 3,465,725 210,123,331 2013 1,281,295 5,125,182 214,950,458 1,281,295 3,627,289 219,859,042 1,281,295 3,710,121 224,850,459 1,281,295 3,794,351 229,926,106 2014 1,281,295 3,545,831 5,125,182 3,880,003 235,087,405 1,281,295 3,967,100 240,335,800 1,281,295 4,055,667 245,672,762 1,281,295 4,145,728 251,099,785 2015 1,281,295 5,125,182 4,237,309 256,618,389 1,281,295 4,330,435 262,230,120 1,281,295 4,425,133 267,936,549 1,281,295 4,521,429 273,739,274 2016 1,281,295 5,125,182 4,619,350 279,639,919 1,281,295 4,718,924 285,640,138 1,281,295 4,820,177 291,741,611 1,281,295 4,923,140 297,946,046 2017 1,281,295 5,125,182 5,027,840 304,255,181 1,281,295 5,134,306 310,670,783 1,281,295 5,242,569 317,194,647 1,281,295 5,352,660 323,828,603 2018 1,281,295 5,125,182 5,464,608 330,574,506 1,281,295 5,578,445 337,434,246 1,281,295 5,694,203 344,409,744 1,281,295 5,811,914 351,502,954 2019 1,281,295 5,125,182 358,715,862 1,281,295 6,053,330 366,050,487 1,281,295 6,177,102 373,508,885 1,281,295 6,302,962 381,093,142 2020 1,281,295 5,931,612 5,125,182 6,430,947 388,805,385 1,281,295 6,561,091 396,647,771 1,281,295 6,693,431 404,622,497 1,281,295 6,828,005 412,731,797 2021 1,281,295 5,125,182 420,977,942 1,281,295 7,104,003 429,363,240 1,281,295 7,245,505 437,890,040 1,281,295 7,389,394 446,560,730 2022 1,281,295 6,964,849 455,377,738 1,281,295 7,684,499 464,343,533 1,281,295 7,835,797 473,460,625 1,281,295 7,989,648 482,731,568 5,125,182 2023 1,281,295 7,535,712 5,125,182 8,146,095 492,158,959 1,281,295 8,305,182 501,745,437 1,281,295 8,466,954 511,493,687 1,281,295 8,631,456 521,406,438 2024 1,281,295 5,125,182 1,281,295 8,798,734 531,486,467 1,281,295 8,968,834 541,736,597 1,281,295 9,141,805 552,159,697 814,864 9,317,695 562,292,256 2025 594,978,234 5,125,182 1,281,295 9,488,682 573,062,233 1,281,295 9,670,425 584,013,954 1,281,295 9,855,235 595,150,485 (10,215,415) 10,043,164 2026 617,620,857 5,125,182 1,281,295 -10,040,258 606,299,787 1,281,295 10,231,309 617,812,391 1,281,295 10,425,584 629,519,271 (22,521,552) 10,623,138 2027 542,962,036 0 (116,348,228) 41,689,408 2028 457,986,349 0 (121,625,624) 36,649,937 2029 378,027,414 0 (110,873,014) 30,914,079 2030 0 (88,243,574) 25,516,850 315,300,690 2031 21,282,797 244,484,804 0 (92,098,683) 2032 169,144,964 0 (91,842,564) 16,502,724 2033 127,774,685 0 (52,787,565) 11,417,285 2034 85,638,394 0 (42,136,291) 2035 43,285,221 0 (42,353,173) 2036 0 0 (43,285,221) 2037 FILENAME:W:EXcEJDEcOMMIAF5RO2EXHIBITE 3/9/2007

ARIZONA PUBLIC SERVICE COMPANY NUCLEAR DECOMMISSIONING FUNDING REQUIREMENT UNIT THREE ESTIMATED ANNUAL COSTS 2027 Target$'s PV Dollars Year FV Dollars Sum PV Liab 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2004 0 223,502,&41 167,422 3,930,149 7,749,524 36,075,652 35,916,3S4 31,182,008 23,635,893 23.493,788 22,312,813 12,213.852 9,285,131 8,888,498 8,651,527 2005 1 234.677,983 175,793 4,126,656 8,137,000 37,879,645 37,712,203 32,741,108 24,817,688 24.668.477 23,428,454 12,824.545 9,749,388 9,332,923 9,084,103 2006 2 246,411,882 184,583 4,332,989 8,543,850 39,773,627 39.597.813 34,378,164 26,058,572 25,901,901 24,599,876 13,465,772 10,236,857 9,799,569 9,538.309 2007 3 258,732,476 193,812 4,549,639 8,971,043 41,762,308 41,577,704 36,097,072 27,361,501 27,196,996 25,829,870 14,139,060 10,748,700 10,289,547 10,015.224 2008 4 271,669,100 203.502 4,777,121 9,419,595 43,850,424 43,656,589 37,901,926 28,729,576 28,556.846 27,121,364 14,846,013 11,286,130 10,854,025 10,515,985 2009 5 285,252,555 213.678 5,015,977 9,890,575 46,542,945 45,839,419 39,797,022 30,166,054 29,984,668 28,477,432 15,588,314 11,850,442 11,344,226 11,041,784 2010 6 299,515,183 224,361 5,266,776 10,385,103 48,345,092 48,131,390 41,786.873 31,674,357 31.4a3,923 29,901,303 16,367.730 12,442,964 11,911,437 11,593.874 2011 7 314,490,942 235,580 5,530.114 10,904,358 50,762,347 50,537,959 43,876,217 33.258,075 33,058,119 31.396.369 17,186,116 13,065,112 12,507.009 12,173,567 2012 8 330,215,489 247,359 5,806.620 11,449,576 53,300,464 53.064,857 46,070,027 34,920,979 34,711,025 32.966.187 18,045,422 13,718.367 13,132,360 12,782,246 2013 9 346,726,264 259.726 6,096,951 12,022,055 55,965,487 55.718,100 48,373,529 36,667,028 36,446.576 34.614,496 18,947,693 14,454,286 13,788,978 13,421,358 2014 10 364,062,577 272,713 6,401,799 12,623,158 58,763,761 58.504.005 50,792,205 38,500,379 38.268.905 36.345,221 19,895,078 15,124,500 14,478,427 14,092.426 2015 11 362,265,706 286,348 6,721,889 13,254,316 61,701,950 61.429,205 53,331,816 40,425,398 40,182.350 38,162,482 20.889,832 15,880.725 10,202,348 14,797,047 2016 12 401.378,991 300,666 7,057,983 13,917.032 64,787.047 64.500,665 55.998.406 42,446.668 42,191,468 40,070,606 21,934,323 16,674,761 15,962,465 15,536.899 2017 13 421.447,940 315,699 7,410,882 14,612,883 68,026,399 67,725,699 58.798,327 44,569,001 44,301,041 42,074,137 23,031,040 17,508,499 16.760,589 16,313.744 2018 14 442,520,337 331,484 7,781,426 15,343,527 71,427,719 71,111,964 61,738,243 46,797,451 46,516,093 44,177.844 24,192,592 18,383,924 17,598.618 17,129,432 2019 15 464,646,354 348.058 8,170,498 16,110,704 74,999,105 74,667,583 64,825,158 49,137,324 480841,898 46,386.736 25,391,721 19,303,120 18,478,549 17,985,903 2020 16 487,878,672 365.461 8,579,022 16,916,239 78,749,061 78,400.962 68,066,413 51,594,190 51,283,993 48,706,072 26,661,307 20,268,277 19,402,476 18,885,198 0

2021 17 512,272,606 383.734 9,007,973 17,762.051 82,686,014 82.321.010 71,469,734 54,173,900 53,848,192 51,141,376 27,994,373 21.281,690 20,372,600 19,829,458 0 2022 18 537,886,236 402.921 9,458,372 18.650,154 86,820,839 86,437,061 75,043,220 56.882,595 56,540,602 53,698,445 29.394,091 22,345,775 21,391.230 20,820,931 2023 19 564,780,548 423,067 9,931,291 19.582,661 91,161,881 90,758,914 78,795,381 59,726,724 59,367,632 56,383,367 30.863.796 23,463,064 22,460,792 21,861.978 2024 20 593,019,575 444,220 10,427,855 20,561,794 95,719,975 95,296,859 82,735.150 62.713,061 62.336.014 59,202,536 32,406,985 24.636,217 23,583,831 22,955,077 531,525 167,422 2025 21 466.431 622,670,554 466.431 10,949,248 21,569.884 100,505.974 100,061,702 86,871.908 65,848,714 65.452,814 62,162,662 34.027.335 25,968,028 24,763,023 24,102,831 12,272,738 3,930,149 2026 22 11.496,710 653,314,329 11,496,710 22,669.378 105,531.273 155,064,787 91,215,503 69,141,149 68,725,455 65,270,795 35.728.701 27,161,429 26,001,174 25.307,972 23,802,847 7.749,524 2027 23 23,802,a47 673,908.499 23.802.847 110,807.836 110,318,027 95,776.278 72,598,207 72,161,728 68,034,335 37.515,137 28,519,500 27,301,233 26,573,371 108,991.315 36,075,852 2028 24 116,348,228 682,610.935 116.348.228 115,833,928 100,565,092 76,228,117 75,769,814 71,961,052 39.390.893 29,940,475 28,666.294 27.902,039 106,730,690 35,916,384 2029 25 121,625,624 594.575,&42 121,625,624 105,593.347 80,039,523 79,558,305 75,559,105 41.360,438 31,442,749 30,099,609 29.297,141 91,142,766 31,182.008 2030 26 110,873,014 496,597,728 110,873,014 84,541,499 83,536,220 79,337,060 43.428,460 33,014,887 31,604.590 30.761,998 67,953,457 23,635,693 2031 27 08,243,574 405.010,949 88,243,574 87,713,031 83,303,913 45,599,883 34,665,831 33,184,819 32.300,098 66,437,610 23,493,788 2032 28 92,098,683 332.605,744 92,098,683 87.469,108 47,879,877 36,398,913 34,844,060 33.915,103 62,063,562 22.312,813 2033 29 91,842,564 252.532,414 91,842,564 50,273,871 38,218,858 36,586,263 35,610,858 33,416,152 12,213,852 2034 30 52,787,565 168.724,343 52,787,565 40,129,801 38,415,576 37.391,401 26,673,568 9,285.131 2035 31 42,136,291 121,733,617 42,136,291 40,336,355 39.260,971 26.810,861 8.888.498 2036 32 42,353,173 83,577,192 42,353.173 41.224,020 27.400,876 6,651,527 2037 33 43,265,221 43,285,221 43,285,221 654.227,967 223,502,641 837,359,926 29.1% of 768,051,000 FILENAME: W:EXCELJDECOMM/AFSRO2/EXHIBITE 3/912007

ARIZONA PUBLIC SERVICE COMPANY NUCLEAR DECOMMISSIONING FUNDING REQUIREMENT UNIT THREE Based on 2004 Cost Study Rate of Return 6.7500%

Funding Curve Funding Floor Actual Funding Year Fund $ Est. Cost  % Funded  % Band  % Floor $ Floor $ In Fund Eat. Cost  % Funded]

1991 8,006,475 127,342,404 6.29% 80.00% 5.03% 6,405,180 8,425,913 127,342,404 6.62%

1992 10,665,274 133,709,524 7.98% 80.00% 6.38% 8,532,219 10,625,686 133,709,524 7.95%

1993 15,618,562 140,395,000 11.12% 80.00% 8.90% 12,494,850 14,358,300 140,395,000 10.23%

1994 20,914,756 147,414,750 14.19% 80.00% 11.35% 16,731,805 17,548,946 147,414,750 11.90%

1995 26,577,594 154,785,488 17.17% 80.00% 13.74% 21,262,075 23,923,294 154,785,488 15.46%

1996 32,399,151 161,350,352 20.08% 80.00% 16.06% 25,919,321 29,189,706 161,350,352 18.09%

1997 38,830,576 169,417,870 22.92% 80.00% 18.34% 31,064,461 36,502,075 169,417,870 21 .55%

1998 45,699,623 177,888,764 25.69% 80.00% 20.55% 36,559,699 44,699,986 177,888,764 25.13%

1999 54,764,199 192,831,688 28.40% 80.00% 22.72% 43,811,360 52,706,435 192,831,688 27.33%

2000 62,867,951 202,473,273 3 1.05% 80.00% 24.84% 50,294,361 56,260,185 202,473,273 27.79%

2001 71,538,869 212,596,936 33.65% 80.00% 26.92% 57,231,095 59,074,016 212,596,936 27.79%

2002 75,541,923 208,679,345 36.20% 80.00% 28.96% 60,433,538 61,165,704 208,679,345 29.31%

2003 84,818,763 219,113,312 38.71% 80.00% 30.97% 67,855,010 72,048,542 219,113,312 32.88%

2004 94,719,398 230,068,977 41.17% 80.00% 32.94% 75,775,518 80,413,842 230,068,977 34.95%

2005 102,319,601 234,677,983 43.60% 80.00% 34.88% 81,855,680 88,781,344 234,677,983 37.83%

2006 113,324,825 246,411,882 45.99% 80.00% 36.79% 90,659,860 103,112,568 246,411,882 41 .85%

2007 125,097,152 258,732,476 48.35% 81 .00% 39.16% 101,328,693 2008 137,681,900 271,669,100 50.68% 82.00% 41 .56% 112,899,158 2009 151,126,804 285,252,555 52.98% 83.00% 43.97% 125,435,247 2010 165,512,090 299,515,183 55.26% 84.00% 46.42% 139,030,156 2011 180,895,190 314,490,942 57.52% 85.00% 48.89% 153,760,911 2012 197,336,776 330,215,489 59.76% 86.00% 51 .39% 169,709,628 2013 214,935,611 346,726,264 6 1.99% 87.00% 53.93% 186,993,981 2014 233,728,174 364,062,577 64.20% 88.00% 56.50% 205,680,793 2015 253,824,429 382,265,706 66.40% 89.00% 59.10% 225,903,741 2016 275,345,988 401,378,991 68.60% 90.00% 61 .74% 247,811,389 2017 298,300,852 421,447,940 70.78% 91 .00% 64.41% 271,453,776 2018 322,907,090 442,520,337 72.97% 92.00% 67.13% 297,074,523 2019 349,181,735 464,646,354 75.15% 93.00% 69.89% 324,739,014 2020 377,276,577 487,878,672 77.33% 94.00% 72.69% 354,639,982 2021 407,307,949 512,272,606 79.51% 95.00% 75.53% 386,942,551 2022 439,453,055 537,886,236 8 1.70% 96.00% 78.43% 421,874,933 2023 473,794,401 564,780,548 83.89% 97.00% 81 .37% 459,580,569 2024 510,471,250 593,019,575 86.08% 98.00% 84.36% 500,261,825 2025 549,755,832 622,670,554 88.29% 99.00% 87.4 1% 544,258,274 2026 591,314,799 653,314,329 90.51% 100.00% 90.51% 591,314,799 2027 620,130,601 673,908,499 92.02% 100.00% 92.02% 620,130,601 2028 638,241,224 682,610,935 93.50% 100.00% 93.50% 638,241,224 2029 564,965,965 594,575,842 95.02% 100.00% 95.02% 564,965,965 2030 478,372,591 496,597,728 96.33% 100.00% 96.33% 478,372,591 2031 393,751,645 405,010,949 97.22% 100.00% 97122% 393,751,645 2032 325,887,108 332,605,744 97.98% 100.00% 97.98% 325,887,108 2033 249,299,999 252,532,414 98.72% 100.00% 98.72% 249,299,999 2034 167,644,507 168,724,343 99.36% 100.00% 99.36% 167,644,507 2035 121,733,617 121,733,617 100.00% 100.00% 100.00% 121,733,617 2036 83,577,192 83,577,192 100.00% 100.00% 100.00% 83,577,192 2037 43,285,221 43,285,221 100.00% 100.00% 100.00% 43,285,221 FILENAMEi:W:EXCELJDECOMMIAFSRO21EXHIBITE 3/9/2007

ARIZONA PUBLIC SERVICE COMPANY NUCLEAR DECOMMISSIONING FUNDING REQUIREMENT UNIT THREE 120%

100%

80%

U-60%

LL 40%

20%

0%

1 1 1 2 2 2 2 2 2 2 2 2 9 9 9 0 0 0 0 0 0 0 0 0 9 9 9 0 0 1 1 1 2 2 3 3 1 5 9 3 7 1 5 9 3 7 1 5 Year Funding Curve -- Funding Floor

• Actual Funding FILENAME: W:EXCELIDECOMM/AFSRO2/EXHIBITE 3/9/2007

ARIZONA PUBLIC SERVICE COMPAN' NUCLEAR DECOMMISSIONING FUNDING REQUIREMENT ALL UNITS Based on 2004 Cost Study Rate of Return 6.7500% Annual Period Rate of Return 1.6875% Quarter Period Rate of Return 5.0000% Annual Escalation First Quarter Second Quarter Third Quarter Fourth Quarter Contrib Contrib Contrib Contrib Quarter Earnings Quarter Earnings Quarter Earnings Quarter Earnings ANNUAL Year Contrib Earnfngs to Date Contrib Earnings to Date Contrib Earnings to Date Contrnb Earnings to Date CONTRIBS 2006 325,250,126 2007 2,976,663 5,488,596 333,715,385 2,976,663 5,631,447 342,323,496 2,976,663 5,776,709 351,076,868 2,976,663 5,924,422 359,977,953 11,906,653 2008 2,976,663 6,074,628 369,029,244 2,976,663 6,227,368 378,233,276 2,976,663 6,382,687 387,592,626 2,976,663 6,540,626 397,109,914 11,906,653 2009 2,976,663 6,701,230 406,787,807 2,976,663 6,864,544 416,629,015 2,976,663 7,030,615 426,636,293 2,976,663 7,199,487 436,812,443 11,906,653 2010 2,976,663 7,371,210 447,160,316 2,976,663 7.545,830 457,682,810 2,976,663 7,723,397 468,382,870 2,976,663 7,903,961 479,263,494 11,906,653 2011 2,976,663 8,087,571 490,327,729 2,976,663 8,274,280 501,578,673 2,976,663 8,464,140 513,019,476 2,976,663 8,657,204 524,653,343 11,906,653 2012 2,976,663 8,853,525 536,483,531 2,976,663 9,053,160 548,513.354 2,976,663 9,256,163 560,746,180 2,976,663 9,462,592 573,185,435 11,906,653 2013 2,976,663 9,672,504 585,834,602 2,976,663 9,885,959 598,697.224 2,976,663 10,103,016 611,776,903 2,976,663 10,323,735 625,077,301 11,906,653 2014 2,976,663 10,548,179 638,602,144 2,976,663 10,776,411 652,355,218 2,976,663 11,008,494 666,340,376 2,976,663 11,244,494 680,561,533 11,906,653 2015 2,976,663 11,484,476 695,022,672 2,976,663 11,728,508 709,727,842 2,976,663 11,976,657 724,681,163 2,976,663 12,228,995 739,886,821 11,906,653 2016 2,976,663 12,485,590 755,349,074 2,976,663 12,746,516 771,072,253 2,976,663 13,011,844 787,060,760 2,976,663 13,281,650 803,319,074 11,906,653 2017 2,976,663 13,556,009 819,851,746 2,976,663 13,834,998 836,663,407 2,976,663 14,118,695 853,758,766 2,976,663 14,407,179 871,142,608 11,906,653 2018 2,976,663 14,700,532 888,819,803 2,976,663 14,998,834 906,795,300 2,976,663 15,302,171 925,074,134 2,976,663 15,610,626 943,661,423 11,906,653 2019 2,976,663 15,924,287 962,562,373 2,976,663 16,243,240 981,782,276 2,976,663 16,567,576 1,001,326,515 2,976,663 16,897,385 1,021,200,563 11,906,653 2020 2,976,663 17,232,759 1,041,409,986 2,976,663 17,573,794 1,061,960,442 2,976,663 17,920,582 1,082,857,688 2,763,866 18,273,223 1,103,894,777 11,906,653 2021 2,976,663 18,628,224 1,125,499,665 2,976,663 18,992,807 1,147,469,135 2,976,663 19,363,542 1,169,809,339 2,595,152 19,740,533 1,192,145,024 11,906,653 2022 2,976,663 20,117,447 1,215,239,134 2,976,663 20,507,160 1,238,722,958 2,976,663 20,903,450 1,262,603,071 2,576,077 21,306,427 1,286,485,574 11,906,653 2023 2,976,663 21,709,444 1,311,171,682 2,976,663 22,126,022 1,336,274,367 2,976,663 22,549,630 1,361,800,660 686,071 22,980,386 1,385,467,117 11,906,653 2024 2,976,663 23,379,758 1,411,823,538 2,976,663 23,824,522 1,438,624,724 2,976,663 24,276,792 1,465,878,179 (824,433) 24,736,694 1,489,790,441 11,906,653 2025 2,976,663 25,140,214 1,517,907,317 2,976.663 25,614,686 1,546,498,667 2,976,663 26,097,165 1,575,572,495 (22,620,856) 26,587,786 1,579,539,425 11,906,653 2026 2,049,054 18,517,208 1,117,882,275 2,049,054 18,864,263 1,138,795,592 2,049,054 19,217,176 1,160,061,822 (179,257,166) 52,126,124 1,515,154,191 8,196,216 2027 1,281,295 10,040,258 606,299,787 1,281,295 10,231,309 617,812,391 1,281,295 10,425,584 629,519,271 (229,835,614) 72,735,015 1,392,594,629 5,125,182 2028 0 0 0 0 0 0 0 0 0 (310,728,379) 94,000,137 1,175,866,388 0 2029 0 0 0 0 0 0 0 0 0 (260.304,103) 79,370,981 994,933,266 0 2030 0 0 0 0 0 0 0 0 0 (258,156,803) 67,157,995 803,934,459 0 2031 0 0 0 0 0 0 0 0 0 (223,648,240) 54,265,576 634,551,795 0 2032 0 0 0 0 0 0 0 0 0 (168,317,640) 42,832,246 509,066,401 0 2033 0 0 0 0 0 0 0 0 0 (124,014,951) 25,139,869 410,191,319 0 2034 0 0 0 0 0 0 0 0 0 (94,086,174) 11,417,285 327,522,430 0 2035 0 0 0 0 0 0 0 0 0 (101,977,017) 0 225.545,413 0 2036 0 0 0 0 0 0 0 0 0 (99,898,837) 0 125,646,575 0 2037 0 0 0 0 0 0 0 0 0 (125,646,575) 0 1 0 FILENAME:

WEXCEL/DECOMPM/AFSR02,EXHIBITE 3a,2007

ARIZONA PUBLIC SERVICE COMPAN' NUCLEAR DECOMMISSIONING FUNDING REQUIREMENT ALL UNITS ESTIMATED ANNUAL COSTS T-~. 92 --.02 5- 72.0~o 0~ 72.0.3 2020 2021 2022 2020 2022 2020 2028 2021 2028 2020 20 07 2332 2533 04 2325 2732 2037 I.,- 11241- 7..-.- .,12...7. 21.7-11 M5 174.775 .. 01-3 n=72M 101.1- W.71 -9 31.05A25 ... 7,- 23ýý,182 2 1.7.117 I..- ... 2- 82.N7.6W1MM.- ... 7- 1-7.7P .. 217.1. 2-,- N,7.,.1 23.1A.- 27.07,413

-7 112.111 1.2.- 71.749,MS 87.1- 25,2W,824 .,.13,- M.1-751-A. 11..- 202.323 7ý-- 91- 117.1102ý .- 1. ..- ,.70 72.813- 2..-.- 2731-3 .. ý2ý373 121- 212,- 212."0 79,103.= 27.78-

.1. .3.- 2- 1W.MW IMI 1- IM011.173 Q.375-

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FILENAME:W:EXC2LEEOM06AFSRO32EXHIOITE 375/2327

ARIZONA PUBLIC SERVICE COMPAN' NUCLEAR DECOMMISSIONING FUNDING REQUIREMENT ALL UNITS n 2004 Cost Study6;.7500%

Fia-dofReturn saainFactor 5.0000%

Funding Curve Funding Floor Actual Funding Year Fund $ Est. Cost  % Funded  % Band % Floor $ Floor $ In Fund Est. Cost  % Funded 1991 23,954,557 370,450,982 6.47% 80% 5.17% 19,163,629 24,744,180 370,450,982 6.68%

1992 32,291,556 388,963,531 8.30% 80% 6.64% 25.833,244 32,411,009 388,963,531 8.33%

1993 47,350,399 408,422,208 11.59% 80% 9.27% 37,880,319 43,378,396 408,422,208 10.62%

1994 63,451,735 428,843,317 14.80% 80% 11.84% 50,761,389 53,460,728 428,843,317 12.47%

1995 80,667,731 450,285,484 17.91% 80% 14.33% 64,534,186 73,699,985 450,285,484 16.37%

1996 92,446,522 441,921,884 20.92% 80% 16.74% 73,957,218 90,981,013 441,921,884 20.59%

1997 110,817,863 464,017,979 23.88% 80% 19.11% 88,654,290 116,001,259 464,017,979 25.00%

1998 130,438,989 487,218,877 26.77% 80% 21.42% 104,351,191 143,981,975 487,218,877 29.55%

1999 160,687,864 542,642,127 29.62% 80% 23.69% 128,550,291 171,066,062 542,542,127 31.53%

2000 184,510,511 569,669,233 32.39% 80% 25.91% 147,608,409 182,205,845 569,669,233 31.98%

2001 209,957,288 598,152,695 35.10% 80% 28.08% 167,965,830 190,688,572 598,152,695 31.88%

2002 227,671,280 602,596,238 37.78% 80% 30.23% 182,137,024 195,104,188 602,596,238 32.38%

2003 255,608,616 632.726,050 40.40% 80% 32.32% 204,486,893 228,012,228 632,726,050 36.04%

2004 285,481,755 664,362,352 42.97% 80% 34.38% 228,385,404 252,445,857 664,362,352 38.00%

2005 295,177,854 649,205,446 45.47% 80% 36.52% 237,095,898 278,402,755 649,205,446 42.88%

2006 326,961,617 681,665,718 47.97% 81% 38.84% 264,761,964 325,250,126 681,665,718 47.71%

2007 360,925,385 715,749,004 50.43% 82% 41.34% 295,873,834 2008 397,265,900 751,536,454 52.86% 83% 43.86% 329,637,419 2009 436,077,022 789,113,277 55.26% 84% 46.41% 366,202,386 2010 477,610,378 828,568,941 57.64% 85% 48.98% 405,856,891 2011 521,977,327 869,997,388 60.00% 86% 51 .58% 448,778,069 2012 569,434,330 913,497,258 62.34% 87% 54.22% 495,274,259 2013 620,204,584 959,172,120 64.66% 88% 56.89% 545,634,488 2014 674,491,158 1,007,130,726 66.97% 89% 59.59% 600,139,203 2015 732,482,607 1,057,487,263 69.27% 90% 62.32% 659,062,892 2016 794,552,644 1,110,361,626 71.56% 91% 65.10% 722,856,623 2017 860,839,744 1,165,879,707 73.84% 92% 67.91% 791,770,883 2018 931,810,957 1,224,173,693 76.12% 93% 70.77% 866,365.970 2019 1,007,643,578 1,285,382,377 78.39% 94% 73.67% 946,948,726 2020 1,088,727,213 1,349,651,496 80.67% 95% 76.62% 1,034,035,757 2021 1,175,253,098 1,416,910,633 82.94% 96% 79.61% 1,127,965,791 2022 1,267,555,550 1,487,355,579 85.22% 97% 82.65% 1,229,225,913 2023 1,366,281,201 1,561,302,742 87.51% 98% 85.74% 1,338,625,215 2024 1,469,796,527 1,636,962,757 89.79% 99% 88.87% 1,454,719,686 2025 1,574,437,282 1,714,819.744 91.81% 100% 91 .49% -1,568,939,724 2026 1.657,962,738 1,773,683,337 93.48% 100% 93.48% 1,657,962,738 2027 1,582,012,840 1,671,995,972 94.62% 100% 94.62% 1,582,012,840 2028 1,446,948,423 1,512,923,016 95.64% 100% 95.64% 1,446,948,423 2029 1,220,417.923 1,262,304,369 96.68% 100% 96.68% 1,220,417,923 2030 1,027,197,649 1,052,100,280 97.63% 100% 97.63% 1,027,197,649 2031 819,904,828 833,640.651 98.35% 100% 98.35% 819,904,828 2032 632,797,339 640,492,032 98.80% 100% 98.80% 632,797,339 2033 492,550.697 495,783,112 99.35% 100% 99.35% 492,550,697 2034 389.276.733 390,356,569 99.72% 100% 99.72% 389,276,733 2035 311,083,914 311,083,914 100.00% 100% 100.00% 311,083,914 2036 219,562,242 219,562.242 100.00% 100% 100.00% 219,562,242 2037 125,646,575 125,646,575 100.00% 100% 100.00% 125,646,575 FILENAME:

W EXCEfLECOMMIAFSRO2JEX5,BST 3/=207

ARIZONA PUBLIC SERVICE COMPAN' NUCLEAR DECOMMISSIONING FUNDING REQUIREMENT ALL UNITS 120%

100% - -- -- -2006 Funding Status

$ Amount Percent Actual 325,250 47.7%

-0 80%

Committed III 326,962 48.0% IIIIZEL floor 264,762 38.8%~

C-LL.

60%

40%

20%

0%

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1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2 9 9 9 0 0 0 0 0 0 0 0 0 0 0 0 0 9 9 9 0 0 0 0 1 1 1 2 2 2 3 3 3 1 4 7 0 3 6 9 2 5 8 1 4 7 0 3 6 Year

-+- Funding Curve x Funding Floor e Actual Funding]

FILENANE:

W~EXCEL/ECOMNVAFSnW2EXHISITE

Attachment 2 Annual Funding Status Report for the Year Ending December 2006 Salt River Project Agricultural Improvement and Power District

SALT RIVER PROJECT AGRICULTURAL IMPROVEMENT AND POWER DISTRICT ANNUAL FUNDING STATUS REPORT FOR THE YEAR ENDING DECEMBER 31, 2006 PART 1 GENERAL INFORMATION 1.1 Description of Funds 1.1.1 Fund #1 - Salt River Project Agricultural Improvement and Power District Decommissioning Trust Units: Palo Verde Units 1, 2 and 3 Tax Status: Tax Exempt Trustee: Marshall & Ilsley Trust Company of Arizona Investment Managers: PIMCO Capital Management, hired January 1993 Russell Investments, hired December 2005 Hotchkis & Wiley, hired December 2005 Smith Asset, hired December 2005 Julius Baer, hired December 2005 Western Asset, hired December 2005 INTECH, hired May 2006 Basic Document: Salt River Project Agricultural Improvement and Power District Decommissioning Trust Fund Agreement, last amended 11/19/03.

IMA's with managers hired in December 2005 are available upon request.

Change since Prior AFSR: Russell Investments, terminated May 2006 INTECH, hired May 2006 1.2 Pro Rata Share (for each unit)

Generation Entitlement Share 17.49%

Section 23.5.1 Obligations 0.00%

17.49%

Page 1

1.3 Sale and Leaseback Transactions None 1.4 Summary of Regulatory Requirements Respecting Electric Rates and Terminating Funding Salt River Project Agricultural Improvement and Power District (SRP) is a political subdivision and agricultural improvement district formed by the Arizona Legislature in 1937 to supply power to SRP customers. As a political subdivision, SRP is not required to pay federal and state income tax. SRP's electric prices are set by a publicly elected Board [of Directors], much like a city council.

The Board approves amounts deposited to the Decommissioning Trust.

SRP electric price plans are designed to cover SRP revenue requirements as outlined in our projected budgets. The nuclear decommissioning fund is a component of the revenue requirements in the Plan and as such is provided for in the electric price plan projections. Specifically, revenues associated with the nuclear decommissioning fund are collected through the System Benefits Charge which is levied on the energy consumption of all retail customers. The Board retains an independent consultant to review SRP's pricing philosophy, design and revenue requirements prior to and during each price plan adjustment process.

SRP's mandatory deposits, as defined in Section 5.12.3 of the Manual of the Termination Funding Committee, are determined through the use of a model which calculates the annual contribution and earnings on the fund balance.

The Arizona Corporation Commission has regulatory oversight over three areas of SRP operations: approval to issue electric system revenue bonds; siting of high-voltage transmission lines; and siting of larger generating stations.

1.5 Statement of Investment Policies and Restrictions The objective of the Trust Fund is to provide for sufficient funds to decommission the SRP's ownership interest in Palo Verde Units 1, 2 and 3. This objective is to be accomplished with'a 60%/40% asset allocation among equities and fixed income securities and a real rate of return commensurate with the historical rates of these classes. The policy statement has been updated to reflect the addition of the new managers outlined in section 1.1.1.

Investment policy restrictions mirror those outlined in Section 5.4 of the TFC Manual.

Page 2

SALT RIVER PROJECT AGRICULTURAL IMPROVEMENT AND POWER DISTRICT PART 2 STATUS OF TERMINATION FUNDS AS OF 12/31/06 2.1 Committed Accumulations at the End of Reporting Period 2.1.1 Latest Estimated Termination Costs ($000) 2004 Study Unit #1 Unit #2 Unit #3 Total or Composite

$656,910 $699,750 $768,051 $2,124,711 2.1.2 Generation Entitlement Share of Estimated Termination Costs ($000) (2.1.1 Amount) x (.1749)

Unit #1 Unit #2 Unit #3 Total or Composite

$114,894 $122,386 $134,332 $371,612 2.1.3 Escalation Adjustment Factor Unit #1 Unit #2 Unit #3 Total or Composite 1.1219 1.1219 1.1219 1.1219 2.1.4 Adjusted Share of Estimated Termination ($000) Costs (2.1.2 Amount) x (2.1.3 %)

Unit #1 Unit #2 Unit #3 Total or Composite

$128,900 $137,306 $150,708 $416,913 2.1.5 Percent Funding Requirement at End of Reporting Period from Percent Funded Curve Unit #1 Unit #2 Unit #3 Total or Composite 41.19% 39.58% 38.50% 39.69%

2.1.6 Committed Accumulations at End of Reporting ($000) Period (2.1.4 Amount) x (2.1.5 %)

Unit #1 Unit #2 Unit #3 Total or Composite

$53,094 $54,346 $58,023 $165,462 2.1.7 Summary of Assumptions Investment Return Assumption: 7.65%

Inflation/Escalation Assumption: 5.92%

2004 Cost Study Page 3

2.2 Actual Accumulation at end of Reporting Period ($000) 2.2.1 Actual accumulations include accrued income and expenses and contributions receivable ($000)

Unit #1 Unit #2 Unit #3 Total or Composite

$62,638 $61,539 $63,771 $187,948 2.2.2 Computation of Actual Accumulations:

Calculations Unit #1 Unit #2 Unit #3 Total (i) Cash (ii) Market Value 62,638,030 61,539,018 63,770,979 187,948,027 (iii) Accrued Interest (iv) Cont. Receivable

$62,638,030 $61,539,018 $63,770,979 $187,948,027 Less:

(i) Current Tax N/A N/A N/A N/A (ii) Accrued Tax N/A N/A N/A N/A (iii) Taxes Associated - Unrealized Gains N/A N/A N/A N/A (iv) Accrued Expenses 0 0 0 VALUE $62,638,030 $61,539,018 $63,770,979 $187,948,027 in ($000) $62,638 $61,539 $63,771 $187,948 2.3 Funded Floor Amount at End of Reporting Period 2.3.1 Percentage of committed Accumulations Unit #1 Unit #2 Unit #3 Total or Composite 33.77% 32.06% 30.80% 31.75%

2.3.2 Funded Floor Amount ($000)

Unit #1 Unit #2 Unit #3 Total or Composite

$43,532 $44,025 $46,422 $132,374 Page 4

2.4 Deposits made during Reporting Period Unit #1 Unit #2 Unit #3 Total Normal Annual Deposits 1,997,820 1,997,820 2,058,360 6,054,000 NRC Required Deposits Recovery Deposits Correcting Deposits Total $1,997,820 $1,997,820 $2,058,360 $6,054,000 Explanation of Deposits Made During Reporting Period:

Section 5.12.3 of the Manual of the Termination Funding Committee requires each Participant to make Mandatory Deposits each year equal to the amount that has been authorized in its cost of service, revenue requirements or operating budget analyses. SRP's practice has been to budget for both annual contributions to its decommissioning trust and earnings on the fund balance. Absent any changes in SRP's budgeting practice, SRP's future annual contributions to the decommissioning trust will consist of a contribution component and an earnings component. The actual fund balance exceeded the NRC minimum required funding levels so no NRC deposits were required.

No recovery or correcting deposits were required.

2.5 Mandatory Deposits During Reporting Unit #1 Unit #2 Unit #3 Total

$1,997,820 $1,997,820 $2,058,360 $6,054,000 2.6 Estimated Outstanding Balance of Recovery Deposits and Correction Deposits Outstanding at End of Reporting Period None 2.7 Annual Net Income (Loss) During Reporting Period Unit #1 Unit #2 Unit #3 Total Income (received & accrued) + contributions 3,073,026 3,053,716 3,152,704 9,279,446 Realized Gains/Losses 577,813 566,086 587,155 1,731,055 Unrealized Gains/Losses 4,041,377 3,969,647 4,113,904 12,124,928 Taxes Paid and Accrued N/A N/A N/A N/A Expenses Paid and Accrued (141,940) (141,778) (146,128) (429,845)

Net Income $7,550,276 $7,447,672 $7,707,636 $22,705,584 Average Net Asset Value $53,213,463 $52,234,521 $54,008,498 $159,456,481 Rate 14.19% 14.26% 14.27% 14.24%

Average Net Asset Value = (Net Assets, beginning of period + Net Assets, end of period) / 2 Page 5

2.8 Summary of Market Values of Permitted Investments at End of Reporting Period Unit #1 Unit #2 Unit #3 Total Cash & Cash Equivalent Acceptable Debt Securities 25,240,802 24,797,940 25,697,337 75,736,079 Acceptable Equity Securities 37,397,199 36,741,048 38,073,610 112,211,857 Total $62,638,000 $61,538,988 $63,770,948 $187,947,936 2.9 Inventory and Values of Permitted Investments at End of Reporting Period See Appendix A for Marshall & lisley Schedule A-Assets and Liabilities. [Not Attached]

Explanation of Basis for Determining Market Values:

The Trustee's pricing service, which includes mutual funds, is Muller Invest Data Services.

2.10 Fund Liabilities at End of Reporting Period None 2.11 Defaults, If Any, Experienced on Investments None 2.12 Summary of Investment Ratings The fixed income portion of trust assets are currently invested in mutual or commingled funds. The following are the ratings applicable to those portions invested in the fund as of 12/31/05:

Average Credit Quality PIMCO Total Return Institutional Fund AAA Western Asset Core Plus LLC AA /Aa2 M&I Money Market Fund Al / P1 Page 6

SALT RIVER PROJECT AGRICULTURAL IMPROVEMENT AND POWER DISTRICT PART 3 TABLES AND CURVES 3.1 Table of Estimated Deposits, Income, and Committed Accumulations to End of Funding Period for Each Unit:

See Attached.

3.2 Percent Funding Curve and Funding Floor Curve For Each Unit:

See Attached.

3.3 Composite Percent Funding Curve and Funding Floor Curve for All Units:

See Attached.

Page 7

Funding Percentages UNIT 1 2004 Decommissioning Cost Study 110 .00% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

100.007 ----------------------------------------------------------------------------------------------------

90 .00% .. .. .. . .. .. .. .. . ... ... . .. ... .. .. .. .. . .. .. . ... .. .. .. .. .. .. .. .. .. . . ... .. .. .. .. .

80.00%

7 0 .0 0%- ---- - -- -- -- - -- -- -- -- --- -- -- -- -- - -- -- -- -- - -- --- - -- -- -- --- -- - -- - --, . . .- .- .-. -. .- . .- -. .-. -. . .

60.00% ----------------------- ------ ----------....................................

40.00% -----.(.(N.N.(N -- -- - -- - -- -- - ----- --- - -- -- - - -- - - - -- - - - - - --------------------------------------------.. (N.(.(N.N.(')

)) ===="=- 92 Required % 1 30.00% - --------------- -------- - -- -------- -------------- ... ------------------------------- . .. ... . .. .. .

SRP -..... Funding Floor

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0 o 0 oD N'

0 0 04 0 a

4 ,IC 0 0 4

SRP 3/22/2007

SALT RIVER PROJECT NUCLEAR DECOMMISSIONING TRUST UNIT 1 All Participants Decom Costs in 2004$ $656,910 SRP Share 17.49%

SRP Share in 2004$ $114,894 Projected return on investments 7.65%

Plan Balance as of 12/31/04 in 2004$ $51,338 Projected Inflation 5.92%

Years To Start of Decom (Funding Yrs Left) 18 FV of Total Decom. Charges Discounted to 2024 $362,738 FV of 12/31/04 Plan Balance in 18 years $144558 FV of Balance Owed to be Funded by Contributions and Earnings 1218,18 Current Balance Calender Annual Before Decom Termination Year End Payment Earnings Decom Charges Ending Costs Funded 31 -Dec (InflatAdi.l (InflatAdi.1 Charaes (lnflat Adi.1 Balance flntiat Adm.) Ratio 1987 721 26 747 0.00 747 1988 960 31 1,738 0.00 1,738 1989 805 135 2,678 0.00 2,678 43,630 6.14%

1990 841 499 4,018 0.00 4,018 44,983 8.93%

1991 1,746 280 6,044 0.00 6,044 47,646 12.68%

1992 1,107 462 7,617 0.00 7,617 79,718 9.56%

1993 1842 313 9,772 0.00 9,772 84,438 11.57%

1994 2,360 69 12,201 0.00 12,201 89,436 13.64%

A 1995 1,775 3,317 17,292 0.00 17,292 94,731 18.25%

C T

1996 1,292 2,752 21,336 0.00 21,336 100,339 21.26%

U A 1997 1,369 4,881 27,586 0.00 27,586 106,279 25.96%

L 1998 1,450 5,318 34,354 0.00 34,354 112,571 30.52%

1999 1,267 4,915 40,536 0.00 40,536 119,235 34.00%

2000 1,223 (1,019) 40,740 0.00 40,740 126,294 32.26%

2001 1,517 (1,633) 40,624 0.00 40,624 133,770 30.37%

2002 309 (3,759) 37,174 0.00 37,174 141,690 26.24%

2003 2,163 6,551 45,888 0.00 45,888 150,078 30.58%

2004 2,069 3,381 51,338 0.00 51,338 114,894 44.68%

2005 1,602 2,147 55,087 0.00 55,087 121,695 45.27%

2006 1,998 5,553 62,638 0.00 62,638 128,900 48.59%

2007 1,814 4,792 69,244 0.00 69,244 136,530 50.72%

2008 1,921 5,297 76,462 0.00 76,462 144,613 52.87%

2009 2,035 5,849 84,346 0.00 84,346 153,174 55.07%

2010 2,155 6,452 92,954 0.00 92,954 162,242 57.29%

2011 2,283 7,111 102,348 0.00 102,348 171,847 59.56%

2012 2,418 7,830 112,596 0.00 112,596 182,020 61.86%

2013 2,561 8,614 123,771 0.00 123,771 192,796 64.20%

2014 2,713 9,468 135,952 0.00 135,952 204,209 66.57%

2015 2,874 10,400 149,226 0.00 149,226 216,298 68.99%

2016 3,044 11,416 163,685 0.00 163,685 229,103 71.45%

2017 3,224 12,522 179,431 0.00 179,431 242,666 73.94%

2018 3,415 13,726 196,572 0.00 196,572 257,032 76.48%

F 2019 3,617 15,038 215,226 0 215,226 272,248 79.06%

0 2020 3,831 16,465 235,522 147 235,375 288,365 81.62%

R 2021 4,058 18,006 257,586 266 257,320 305,437 84.25%

E 2022 4,298 19,685 281,569 282 281,287 323,519 86.95%

C A 2023 4,552 21,518 307,640 1,625 306,015 342,671 89.30%

S 2024 4,822 23,410 334,247 2,720 331,527 360,237 92.03%

T 2025 0.00 25,362 356,889 17,805 339,084 363,758 93.22%

2026 0.00 25,940 365,024 56,642 308,382 328,651 93.83%

2027 0.00 23,591 331,973 73,486 258,487 274,621 94.13%

2028 0.00 19,774 278,262 63,444 214,818 227,435 94.45%

2029 0.00 16,434 231,251 53,879 177,373 187,020 94.84%

2030 0.00 13,569 190,942 57,699 133,243 140,393 94.91%

2031 0.00 10,193 143,436 48,130 95,306 100,575 94.76%

2032 0.00 7,291 102,597 13,625 88,972 92,903 95.77%

2033 0.00 6,806 95,778 12,391 83,387 86,013 96.95%

2034 0.00 6,379 89,767 16,092 73,675 75,013 98.22%

2035 0.00 5,636 79,311 23,607 55,703 55,846 99.74%

2036 0.00 4,261 59,965 22,919 37,045 36,233 102.24%

2037 0.00 2,834 39,879 38,378 0.00 0.00 100.00%

84,049 419,890 503,939 500,812 QMo oM

Funding Percentages UNIT 2 2004 Decommissioning Cost Study 1107o ------------------------ .- --------------------------------------------------------------------------------------------

100% ----------------------------------------------------------------------------------------------------------

o 70% -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - --. . . . . . . . . . . . . . . . . - - -

807--------------------------------------------------------------- --------------------------------------------- Fudn~a 92ua Feunded%

0' 0' 0'---------------0-0-0-0-0-0-0-0-0-0--- ---------------------------------------------------------- C') C' 14 M 'q LO-0 P, 00 0- 0 -s C1 M -T V, -0 r. 00 o. -O N ,N

• o o0 - * *M* 'I* LO,. * -o* r,0 0' 0 ,

oM C1 M 'q V) - r,m 0 0 0' 0 0 C 0 0 0 0 0 0 0 0 0 0° 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 SRPN C4 C7 (N (N N (N 04 (N . . . N 0N 0N ( N N N (N ( (N (N01 "N 0 (N (N (N "3N 2N 0( (N4 0N 0N SRP 3/22/2007

SALT RIVER PROJECT NUCLEAR DECOMMISSIONING TRUST UNIT 2 All Participants Decom Costs in 2004$ $699,750.0 SRP Share 17.49%

SRP Share in 2004$ $122,386.3 Projected return on investments 7.65%

Plan Balance as of 12/31/04 in 2004$ $50,377.0 Projected Inflation 5.92%

Years To Start of Decom (Funding Yrs Left) 19 FV of Total Decom. Charges Discounted to 2025 $409,515.3 FV of 12/31/04 Plan Balance in 19 years $150,249.8 FV of Balance Owed to be Funded by Contributions and Earnings 2 Current Balance Calender Annual Before Decom Termination Year End Payment Earnings Decom Charges Ending Costs Funded 31-Dec (lntiat Adi.) lntlat Adi.) Charges flnflat Adi.) Balance (Inflat Adm.) Ratio 1988 960 0.00 960 0.00 960 1989 805 74 1,839 0.00 1,839 43,256 4.25%

1990 841 343 3,023 0.00 3,023 44,597 6.78%

1991 1,909 218 5,150 0.00 5,150 47,237 10.90%

1992 1,292 394 6,839 0.00 6,839 78,467 8.72%

1993 1,761 281 8,881 0.00 8,881 83,112 10.69%

1994 2,241 63 11,185 0.00 11,185 88,032 12.71%

1995 1,714 3,042 15,940 0.00 15,940 93,244 17.10%

A C

T 1996 1,379 2,537 19,856 0.00 19,856 98,764 20.10%

U 1997 1,460 4,545 25,860 0.00 25,860 104,611 24.72%

A 1998 1,546 4,991 32,398 0.00 32,398 110,804 29.24%

L 1999 1,452 4,635 38,485 0.00 38,485 117,363 32.79%

2000 1,430 (966) 38,949 0.00 38,949 124,311 31.33%

2001 1,717 (1,561) 39,105 0.00 39,105 131,670 29.70%

2002 350 (3,620) 35,835 0.00 35,835 139,465 25.69%

2003 2,487 6,329 44,651 0.00 44,651 147,722 30.23%

2004 2,427 3,299 50,377 0.00 50,377 122,386 41.16%

2005 1,607 2,107 54,091 0.00 54,091 129,632 41.73%

2006 1,998 5,450 61,539 0.00 61,539 137,306 44.82%

2007 2,134 4,708 68,380 0.00 68,380 145,434 47.02%

2008 2,260 5,231 75,872 0.00 75,872 154,044 49.25%

2009 2,394 5,804 84,070 0.00 84,070 163,163 51.52%

2010 2,536 6,431 93,037 0.00 93,037 172,823 53.83%

2011 2,686 7,117 102,840 0.00 102,840 183,054 56.18%

2012 2,845 7,867 113,551 0.00 113,551 193,890 58.56%

2013 3,013 8,687 125,251 0.00 125,251 205,369 60.99%

2014 3,191 9,582 138,024 0.00 138,024 217,527 63.45%

2015 3,380 10,559 151,964 0.00 151,964 230,404 65.96%

2016 3,580 11,625 167,169 0.00 167,169 244,044 68.50%

2017 3,792 12,788 183,750 0.00 183,750 258,492 71.09%

2018 4,017 14,057 201,824 0.00 201,824 273,794 73.71%

F 2019 4,255 15,440 221,518 0.00 221,518 290,003 76.38%

0 2020 4,507 16,946 242,971 0.00 242,971 307,171 79.10%

R 2021 4,773 18,587 266,332 0.00 266,332 325,356 81.86%

E 2022 5,056 20,374 291,762 0.00 291,762 344,617 84.66%

C A 2023 5,355 22,320 319,438 0.00 319,438 365,018 87.51%

S 2024 5,672 24,437 349,547 0 349,547 386,627 90.41%

T 2025 6,008 26,740 382,295 337 381,959 409,179 93.35%

2026 0.00 29,220 411,179 67,013 344,166 366,389 93.93%

2027 0.00 26,329 370,494 78,802 291,693 309,278 94.31%

2028 0.00 22,314 314,007 80,594 233,413 246,993 94.50%

2029 0.00 17,856 251,269 49,784 201,485 211,831 95.12%

2030 0.00 15,414 216,899 53,361 163,538 171,010 95.63%

2031 0.00 12,511 176,048 54,867 121,181 126,267 95.97%

2032 0.00 9,270 130,452 44,860 85,592 88,882 96.30%

2033 0.00 6,548 92,140 12,512 79,628 81,632 97.54%

2034 0.00 6,092 85,719 16,156 69,564 70,309 98.94%

2035 0.00 5,322 74,885 23,527 51,358 50,944 100.81%

2036 0.00 3,929 55,287 22,805 32,482 31,155 104.26%

2037 0.00 2,485 34,967 32,999 0.00 0.00 100.00%

100,831 438,75 53958 537.61000

Funding Percentages UNIT 3 2004 Decommissioning 110% Cost Study 100%

90%

80%

ý*92 Required %

70% ------ Funding Floor

ýActual Funded

/"

60%

/

I" 50%

40% I 30%

20%

10%

0%

- 0' 01'(M0'

• 1N a0 00' r, I'.

0' a W

0 O 0o 0' 00 -0 C 0 0 0LO 0'0

'Q 0 0 W 0-------20o - * '0----- 02 0 CN0 - 0 (0 0 M 'I L '0D (4N 0 r04 0 M)

(4 0 0, 0 00 -00N (N M)

) IT LO 0 M 0 0N0M0 r,

0' 0' 0'0'0'0'0'0'0 0 0 0 0 0 0 0 0D 0 0 0 0 0 0 0 0 0D 0 0 0D 0 0 0 0) 0 0D 0D 0 0 0 0 0 0 0

- - -( N ( (N N 0(N N " N (N

" (N ("

N (4

" 04 N N N (N (N4(N N (N0 0 N 0N(N ( N 0 0N 04 (N N IN (N4 (N (4 (N SRP 3/22/2007

SALT RIVER PROJECT NUCLEAR DECOMMISSIONING TRUST UNIT 3 All Participants Decom Costs in 2004$ $768,051.0 SRP Share 17.49%

SRP Share in 2004$ $134,332.1 Projected return on investments 7.65%

Plan Balance as of 12/31/04 in 2004$ $51,953.0 Projected Inflation 5.92%

Years To Start of Decom (Funding Yrs Left) 21 FV of Total Decom. Charges Discounted to 2027 $503,745.1 FV of 12/31/04 Plan Balance in 21 years $173839.3

V of Balance Owed to be Funded by Contributions and Earnings $

Current Balance Calender Annual Before Decom Termination Year End Payment Earnings Decom Charges Ending Costs Funded 31-Dec lintlot Adi.l flnflat Ad'.) Charaes (Inflat Ad'.) Balance (Inflat Adi.1 Ratio 1988 960 0.00 960 0.00 960 1989 805 74 1,839 0.00 1,839 45,998 4.00%

1990 841 343 3,023 0.00 3,023 47,424 6.37%

1991 2,154 218 5,395 0.00 5,395 50,232 10.74%

1992 1,590 413 7,401 0.00 7,401 82,736 8.95%

1993 1,787 304 9,493 0.00 9,493 87,634 10.83%

1994 2,290 67 11,849 0.00 11,849 92,822 12.77%

A 1995 1,721 3,221 16,791 0.00 16,791 98,317 17.08%

C T 1996 1,517 2,672 20,980 0.00 20,980 104,138 20.15%

U 1997 1,606 4,802 27,388 0.00 27,388 110,303 24.83%

A 1998 1,702 5,289 34,380 0.00 34,380 116,833 29.43%

L 1999 1,416 4,918 40,714 0.00 40,714 123,749 32.90%

2000 1,391 (1,022) 41,083 0.00 41,083 131,075 31.34%

2001 1,675 (1,647) 41,111 0.00 41,111 138,835 29.61%

2002 341 (3,805) 37,647 0.00 37,647 147,054 25.60%

2003 2,162 6,634 46,443 0.00 46,443 155,759 29.82%

2004 2,088 3,422 51,953 0.00 51,953 134,332 38.68%

2005 1,935 2,175 56,063 0.00 56,063 142,285 39.40%

2006 2,058 5,649 63,771 0.00 63,771 150,708 42.31%

2007 2,205 4,878 70,855 0.00 70,855 159,630 44.39%

2008 2,336 5,420 78,611 0.00 78,611 169,080 46.49%

2009 2,474 6,014 87,099 0.00 87,099 179,089 48.63%

2010 2,620 6,663 96,382 0.00 96,382 189,691 50.81%

2011 2,776 7,373 106,531 0.00 106,531 200,921 53.02%

2012 2,940 8,150 117,621 0.00 117,621 212,816 55.27%

2013 3,114 8,998 129,733 0.00 129,733 225,414 57.55%

2014 3,298 9,925 142,955 0.00 142,955 238,759 59.87%

2015 3,494 10,936 157,385 0.00 157,385 252,893 62.23%

2016 3,700 12,040 173,126 0.00 173,126 267,865 64.63%

2017 3,919 13,244 190,289 0.00 190,289 283,722 67.07%

2018 4,152 14,557 208,998 0.00 208,998 300,519 69.55%

F 2019 4,397 15,988 229,383 0.00 229,383 318,309 72.06%

0 2020 4,658 17,548 251,589 0.00 251,589 337,153 74.62%

R 2021 4,933 19,247 275,769 0.00 275,769 357,113 77.22%

E 2022 5,225 21,096 302,090 0.00 302,090 378,254 79.86%

C 2023 5,535 23,110 330,735 0.00 330,735 400,646 82.55%

A S 2024 5,862 25,301 361,899 0.00 361,899 424,365 85.28%

T 2025 6,209 27,685 395,793 0.00 395,793 449,487 88.05%

2026 6,577 30,278 432,649 0.00 432,649 476,097 90.87%

2027 6,966 33,098 472,713 17,485 455,228 486,797 93.51%

2028 0.00 34,825 490,053 86,215 403,837 429,400 94.05%

2029 0.00 30,894 434,731 90,916 343,815 363,905 94.48%

2030 0.00 26,302 370,117 83,604 286,513 301,843 94.92%

2031 0.00 21,918 308,431 67,123 241,308 252,589 95.53%

2032 0.00 18,460 259,768 70,670 189,098 196,873 96.05%

2033 0.00 14,466 203,564 71,091 132,473 137,437 96.39%

2034 0.00 10,134 142,608 41,218 101,389 104,355 97.16%

2035 0.00 7,756 109,146 33,190 75,956 77,343 98.21%

2036 0.00 5,811 81,767 33,653 48,114 48,269 99.68%

2037 0.00 3,681 51 795 51,127 0.00 0.00 100.00%

117,431 S29,523 646,954 646,288

Funding Percentages ALL UNITS COMBINED 2004 Decommissioning Cost Study 100%

90%

80%

70%

60%

o/

/

50%

/o I

40% I 30% +---

92 Required %

---

Funding Floor Actual Funded 20%

10%

0%

C-4 ( MN t LO 40 r 00'0 0 - "N M~ 'I LQ ',0 , 0' 011 -2 (N 0' 0CN N) CM "t L0 lo0 r, N ) 0 0 - (N M' v LO) '0 N.

00 0' 0' 0l 0' 0' 0' 0' 0 0 0 0 0 0 0 0 a 0-- N 4 N N N (NN C1 M) M M c0 C') M 00 0 0 0C 03 0 0 0 0 0 0 0 0 0 C0 0 0 0 0 0 a 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

---

( N ( N N (N 0N "N ("N N N 0( (N N " 04 N (N 04 N (N (N 4 "N (

04 N N " 0N N "N N ( (N (N (N (N SRP 3/22/2007

SALT RIVER PROJECT NUCLEAR DECOMMISSIONING TRUST (000's)

Aggregate Decom Costs in 2004$ $2,124,711 SRP Share 17.49%

SRP Share in 2004$ $371,612 Projected return on investments 7.65%

Ending Balance as of 12/31/04 in 2004$ $153,668 Projected Inflation 5.92%

FV of Total Decom. Charges Discounted to Start of Decom $1,275,999 Years To Start of Decom (Funding Yrs Left FV of 12/31/04 Fund Balance value at Start of Decom $468,647 Unit I Unit 2 Unit 3

V of Balance Owed to be Funded by Contributions and Earnings 1807,351 18 19 21 Current Balance Calender Annual Before Decom Termination Year End Payment Earnings Decom Charges Ending Costs Funded 31-Dec lntlat Adi.1 flntlatAdi.) Charges (Intlat Adi.l Balance Intlat Adi.) Ratio 1987 721 26 747 0.00 747 1988 2,880 31 3,658 0.00 3,658 1989 2,415 283 6,356 0.00 6,356 132,884 4.78%

1990 2,523 1,185 10,064 0.00 10,064 137,004 7.35%

1991 5,809 716 16,589 0.00 16,589 145,115 11.43%

1992 3,989 1,269 21,857 0.00 21,857 240,921 9.07%

1993 5,390 899 28,147 0.00 28,147 255,184 11.03%

1994 6,890 198 35,234 0.00 35,234 270,291 13.04%

A C 1995 5,210 9,579 50,024 0.00 50,024 286,292 17.47%

C T

u 1996 4,188 7,961 62,172 0.00 62,172 303,241 20.50%

A 1997 4,435 14,228 80,834 0.00 80,834 321,193 25.17%

L 1998 4,698 15,598 101,132 0.00 101,132 340,207 29.73%

1999 4,135 14,468 119,735 0.00 119,735 360,347 33.23%

2000 4,044 (3,007) 120,772 0.00 120,772 381,680 31.64%

2001 4,909 (4,841) 120,840 0.00 120,840 404,275 29.89%

2002 1,000 -11,184 110,656 0.00 110,656 428,208 25.84%

2003 6,812 19,514 136,982 0.00 136,982 453,558 30.20%

2004 6,584 10,102 153,668 0.00 153,668 371,612 41.35%

2005 5,144 6,429 165,241 0.00 165,241 393,611 41.98%

2006 6,054 16,652 187,948 0.00 187,948 416,913 45.08%

2007 6,153 14,378 208,479 0.00 208,479 441,594 47.21%

2008 6,517 15,949 230,944 0.00 230,944 467,737 49.37%

2009 6,903 17,667 255,514 0.00 255,514 495,427 51.57%

2010 7,311 19,547 282,373 0.00 282,373 524,756 53.81%

2011 7,744 21,602 311,718 0.00 311,718 555,822 56.08%

2012 8,203 23,846 343,768 0.00 343,768 588,726 58.39%

2013 8,688 26,298 378,754 0.00 378,754 623,579 60.74%

2014 9,203 28,975 416,932 0.00 416,932 660,495 63.12%

2015 9,747 31,895 458,574 0.00 458,574 699,596 65.55%

2016 10,325 35,081 503,980 0.00 503,980 741,012 68.01%

2017 10,936 38,554 553,470 0.00 553,470 784,880 70.52%

2018 11,583 42,340 607,394 0.00 607,394 831,345 73.06%

F 2019 12,269 46,466 666,128 0.00 666.128 880,561 75.65%

0 2020 12,995 50,959 730,082 147.06 729,935 932,690 78.26%

R 2021 13,764 55,840 799,687 265.96 799,421 987,905 80.92%

E C 2022 14,579 61,156 875,422 281.70 875,140 1,046,389 83.63%

A 2023 15,442 66,948 957,812 1,624.91 956,187 1,108,335 86.27%

S 2024 16,357 73,148 1,045,692 2,720 1,042,972 1,171,229 89.05%

T 2025 12,218 79,787 1,134,977 18,141 1,116,836 1,222,424 91.36%

2026 6,577 85,438 1,208,851 123,654 1,085,197 1,171,137 92.66%

2027 6,966 83,018 1,175,181 169,773 1,005,408 1,070,696 93.90%

2028 0.00 76,914 1,082,322 230,253 852,068 903,827 94.27%

2029 0.00 65,183 917,251 194,578 722,673 762,756 94.75%

2030 0.00 55,284 777,957 194,664 583,293 613,247 95.12%

2031 0.00 44,622 627,915 170,120 457,795 479,430 95.49%

2032 0.00 35,021 492,816 129,154 363,662 378,658 96.04%

2033 0.00 27,820 391,482 95,994 295,488 305,081 96.86%

2034 0.00 22,605 318,093 73,465 244,628 249,677 97.98%

2035 0.00 18,714 263,342 80,324 183,017 184,133 99.39%

2036 0.00 14,001 197,018 79,377 117,641 115,657 101.72%

2037 0.00 9,000 126,641 122,504 0 0 100.00%

302.31 1 1 6 1,69ooo 1 8

Attachment 3 Annual Funding Status Report for the Year Ending December 2006 El Paso Electric Company

EL PASO ELECTRIC COMPANY Annual Funding Status Report For the Year Ended December 31, 2006 Part 1.

General Information 1.1 Description of Funds:

El Paso Electric Company ("the Company") has established six external trust funds ("Funds") for the accumulation of assets to meet its share of future decommissioning and termination cost expenditures. The Funds are irrevocable in that payments out of the Funds are limited to actual decommissioning expenditures or payments related to the operation of the fund - - i.e., trustee fees, Internal Revenue Service ("IRS") payments.

For each unit of the Palo Verde Nuclear Generating Station ("Palo Verde"), two funds have been established. One fund receives IRS approved contributions, therefore it is referred to as tax "qualified". The other fund receives all other contributions and is referred to as "non qualified". At December 31, 2006, the funds were governed by three trust agreements, one for each unit.

Pursuant to an order of the Public Utility Commission of Texas ("Texas Commission"), the Company funds future decommissioning costs with an inflation adjusted payment stream rather than with a straight line payment stream. The philosophy behind an inflation adjusted payment stream is to ensure that each year's customer contribution is the economic equivalent of the previous year. Therefore, the model of future contributions produces a gradually increasing payment stream.

1

EL PASO ELECTRIC COMPANY Annual Funding Status Report For the Year Ended December 31, 2006 1.1.1 Fund #1:

• Unit for which accumulation Unit 1 occurs:

• Tax Status: Established and maintained to qualify as a "Nuclear Decommissioning Reserve Fund" under applicable tax law ("Qualified"). Private Ruling Letter dated September 10, 1996, June 22, 1999, February 8, 2001, February 13, 2003 and April 21, 2005.

• Independent Trustee(s): Wells Fargo Bank, N. A., Trustee

• Investment Manager(s): Duff & Phelps Investment Management Co.

• Basic Document(s): (1) Decommissioning Trust Agreement, dated April 1, 2006, between the Company and Wells Fargo Bank, N.A. as Decommissioning Trustee for Palo Verde Unit 1; (2) Investment Management Contract with Duff & Phelps Investment Management Co., dated March 19, 1998, amended June 30, 2004.

• Changes Since Prior AFSR: On May 01, 2006, Wells Fargo Bank, N.A. replaced Bank of America, N.A. as Trustee.

2

EL PASO ELECTRIC COMPANY Annual Funding Status Report For the Year Ended December 31, 2006 1.1.2 Fund #2:

• Unit for which accumulation Unit 1 occurs:

• Tax Status: Established and maintained not to qualify as a "Nuclear Decommissioning Reserve Fund" under applicable tax law ("Non-Qualified").

• Independent Trustee(s): Wells Fargo Bank, N. A., Trustee

• Investment Manager(s): Duff & Phelps Investment Management Co.

Vanguard.

• Basic Document(s): (1) Decommissioning Trust Agreement, dated April 1, 2006, between the Company and Wells Fargo Bank, N.A. as Decommissioning Trustee for Palo Verde Unit 1; (2) Investment Management Contract with Duff & Phelps Investment Management Co., dated March 19, 1998, amended June 30, 2004.

• Changes Since Prior AFSR: On May 01, 2006, Wells Fargo Bank, N.A. replaced Bank of America, N.A. as Trustee.

3

EL PASO ELECTRIC COMPANY Annual Funding Status Report For the Year Ended December 31, 2006 1.1.3 Fund #3:

• Unit for which accumulation Unit 2 occurs:

• Tax Status: Established and maintained to qualify as a "Nuclear Decommissioning Reserve Fund" under applicable tax law ("Qualified"). Private Ruling Letter dated September 9, 1996, June 22, 1999, February 8, 2001, February 13, 2003 and April 21, 2005.

• Independent Trustee(s): Wells Fargo Bank, N. A., Trustee

• Investment Manager(s): Duff & Phelps Investment Management Co.

• Basic Document(s): (1) Decommissioning Trust Agreement, dated April 1, 2006, between the Company and Wells Fargo Bank, N.A. as Decommissioning Trustee for Palo Verde Unit 2; (2) Investment Management Contract with Duff & Phelps Investment Management Co., dated March 19, 1998, amended June 30, 2004.

• Changes Since Prior AFSR: On May 01, 2006, Wells Fargo Bank, N.A. replaced Bank of America, N.A. as Trustee.

4

EL PASO ELECTRIC COMPANY Annual Funding Status Report For the Year Ended December 31, 2006 1.1.4 Fund #4:

• Unit for which accumulation Unit 2 occurs:

• Tax Status: Established and maintained not to qualify as a "Nuclear Decommissioning Reserve Fund" under applicable tax law ("Non-Qualified").

• Independent Trustee(s): Wells Fargo Bank, N. A., Trustee

• Investment Manager(s): Duff & Phelps Investment Management Co.

Vanguard.

• Basic Document(s): (1) Decommissioning Trust Agreement, dated April 1, 2006, between the Company and Wells Fargo Bank, N.A. as Decommissioning Trustee for Palo Verde Unit 2; (2) Investment Management Contract with Duff & Phelps Investment Management Co., dated March 19, 1998, amended June 30, 2004.

• Changes Since Prior AFSR: On May 01, 2006, Wells Fargo Bank, N.A. replaced Bank of America, N.A. as Trustee.

5

EL PASO ELECTRIC COMPANY Annual Funding Status Report For the Year Ended December 31, 2006 1.1.5 Fund #5:

• Unit for which accumulation Unit 3 occurs:

• Tax Status Established and maintained to qualify as a "Nuclear Decommissioning Reserve Fund" under applicable tax law ("Qualified"). Private Ruling Letter dated September 11, 1996, February 8, 2001 and February 13, 2003.

• Independent Trustee(s): Wells Fargo Bank, N. A., Trustee

• Investment Manager(s): Duff & Phelps Investment Management Co.

• Basic Document(s): (1) Decommissioning Trust Agreement, dated April 1,2006, between the Company and Wells Fargo Bank, N.A. as Decommissioning Trustee for Palo Verde Unit 3; (2) Investment Management Contract with Duff & Phelps Investment Management Co., dated March 19, 1998, amended June 30, 2004.

• Changes Since Prior AFSR: On May 01, 2006, Wells Fargo Bank, N.A. replaced Bank of America, N.A. as Trustee.

6

EL PASO ELECTRIC COMPANY Annual Funding Status Report For the Year Ended December 31, 2006 1.1.6 Fund #6:

• Unit for which accumulation Unit 3 occurs:

• Tax Status Established and maintained not to qualify as a "Nuclear Decommissioning Reserve Fund" under applicable tax law ("Non-Qualified").

• Independent Trustee(s): Wells Fargo Bank, N. A., Trustee

• Investment Manager(s): Duff & Phelps Investment Management Co.

Vanguard.

• Basic Document(s): (1) Decommissioning Trust Agreement, dated April 1, 2006, between the Company and Wells Fargo Bank, N.A. as Decommissioning Trustee for Palo Verde Unit 3; (2) Investment Management Contract with Duff & Phelps Investment Management Co., dated March 19, 1998, amended June 30, 2004.

• Changes Since Prior AFSR: On May 01, 2006, Wells Fargo Bank, N.A. replaced Bank of America, N.A. as Trustee.

7

EL PASO ELECTRIC COMPANY Annual Funding Status Report For the Year Ended December 31, 2006 1.2 Pro Rata Share:

• Generation Entitlement Share 15.8%

Section 23.5.1 Obligations 0.0%

Pro Rata Share 15.8%

1.3 Sale and Leaseback Transactions:

The Company has no Palo Verde sale and leaseback transactions in effect.

1.4 Summary of Regulatory Requirements Respecting Electric Rates and Termination Funding:

Citations of applicable laws:

The Company is regulated by the Federal Energy Regulatory Commission (the "FERC"), the Public Utility Commission of Texas (the 'Texas Commission") and the New Mexico Public Regulation Commission (the "New Mexico Commission"). The three commissions have issued the following orders and rules related to decommissioning funding, investment criteria, and/or fund operations:

FERC: Texas: New Mexico:

Order No. ER86-368 Order Docket No. 7460 Order Case No. 1833 Order No. ER86-638 Order Docket No. 8363 Order Case No. 2092 Order No. ER86-709 Order Docket No. 9165 Order Case No. 2162 Order No. ER88-246 Order Docket No. 9945 Order Case No. 2279 Order Docket No. 12700 Order Case No. 2722 Substantive Rules 25.231 &25.301 Order Case No. 03-00302-UT 8

EL PASO ELECTRIC COMPANY Annual Funding Status Report For the Year Ended December 31, 2006

• Summary explanation of ratemaking process:

In the Texas jurisdiction, the ratemaking process as it relates to decommissioning is established in Substantive Rule 25.231 (b)(1)(F), "The level of the annual cost of decommissioning for ratemaking purposes will be determined in each rate case based on an allowance for contingencies of 10 percent of the cost of decommissioning, the most current information reasonably available regarding the cost of decommissioning, the balance of funds in the decommissioning trust, the anticipated escalation rate, the anticipated return on the funds in the decommissioning trust, and other relevant factors. The annual amount for the cost of decommissioning determined pursuant to the preceding sentence shall be expressly included in the cost of service established by the Commission's order." In the New Mexico and FERC jurisdictions, the ratemaking process relies on a similar procedure, but no guidelines have been formalized in substantive rules.

• Explanation of Mandatory Deposit determination:

In the Texas jurisdiction, Mandatory Deposits are determined by calculating an inflation adjusted payment stream designed to earn sufficient income to accumulate, over the license term or lease term, the estimated future amount of decommissioning expenditures. Current deposits are authorized by the Texas Commission in the Final Order of Docket No. 12700. The New Mexico jurisdiction employs a straight line methodology to determine the annual decommissioning collections. Current collections are authorized in the Final Order of Case No. 03-00302 UT. Previous collections in the FERC jurisdiction were established by the Settlement Agreements of the Company's cost of service requests in various dockets.

9

EL PASO ELECTRIC COMPANY Annual Funding Status Report For the Year Ended December 31, 2006 1.5 Statement of Investment Policies and Restrictions:

The Company oversees the investment of decommissioning fund assets in a prudent manner in accordance with the criteria established in Section 5.3 and 5.4 of the Termination Funding Manual, as well as with the criteria established by the following:

1.5.1 Nuclear Regulatory Commission Regulatory Guide 1.159 Section 2.2.4:

Any trust investments complying with IRS Code Section 468A or with approval of or guidance from a utility's state PUC, or other state agency, or from FERC would be acceptable to the NRC staff. Licensees not eligible or willing to use decommissioning trusts established under IRS Code Section 468A or not subject to PUC or FERC jurisdiction should limit trust investments to "investment grade" securities. Investment grade bonds and preferred stocks are those rated at least "BBB" or equivalent by a national rating service. Speculative issues of common stock should be avoided.

1.5.2 New Mexico Commission Case No. 2722, Stipulation and Settlement Agreement Section 14:

With respect to investment limitations, the decommissioning funds' investment manager must exercise the standard of care, whether in investing or otherwise, that a prudent investor would use in the same circumstances. The term "prudent investor" means a prudent investor as described in Restatement (Third) of Trusts, Section 227 (1992).

10

EL PASO ELECTRIC COMPANY Annual Funding Status Report For the Year Ended December 31, 2006 1.5.3 Texas Commission Substantive Rule 25.301 (c) (3) (A)-(C) (effective as of December 10, 1997):

A. Fixed-income investments.

A decommissioning trust shall not invest trust funds in corporate or municipal debt securities that have a bond rating below investment grade (below "BBB-" by Standard and Poor's Corporation or "Baa3" by Moody's Investor's Service) at the time that the securities are purchased and shall reexamine the appropriateness of continuing to hold a particular debt security ifthe debt rating of the company in question falls below investment grade at some time after the debt security has been purchased. Commingled funds may contain some below investment grade bonds; however, the overall portfolio of debt instruments shall have a quality level, measured quarterly, not below a "AA" grade by Standard and Poor's Corporation or "Aa2" by Moody's Investor's Service. In calculating the quality of the overall portfolio, debt securities issued by the Federal government shall be considered as having a "AAA" rating.

B. Equity investments.

(W At least 70% of the aggregate market value of the equity portfolio, including the individual securities in commingled funds, shall have a quality ranking from a major rating service such as the earnings and dividend ranking for common stock by Standard and Poor's Corporation or the quality rating of Ford Investor Services. Further, the overall portfolio of ranked equities shall -have a weighted average quality rating equivalent to the composite rating of the Standard and Poor's Corporation 500 Index assuming equal weighting of each ranked security in the Index. If the quality rating, measured quarterly, falls below the minimum quality standard, the utility shall as soon as practicable and prudent to do so, increase the quality level of the equity portfolio to the required level.

(ii) A decommissioning trust shall not invest in equity securities where the issuer has a capitalization of less than

$100 million.

11

EL PASO ELECTRIC COMPANY Annual Funding Status Report For the Year Ended December 31, 2006 C. Commingled funds.

The following guidelines shall apply to the investments made through commingled funds. Examples of commingled funds appropriate for investment by nuclear decommissioning trust funds include United States equity-indexed funds, actively managed United States equity funds, balanced funds, bond funds, real estate investment trusts, and international funds.

(i) The commingled funds should be selected consistent with the goals specified in paragraph (1) and the requirements in paragraph (2) of this subsection.

(ii) In evaluating the appropriateness of a particular commingled fund, the utility has the following duties, which shall be of a continuing nature:

1. A duty to determine whether the fund manager's fee schedule for managing the fund is reasonable, when compared to fee schedules of other such managers; II. A duty to investigate and determine whether the past performance of the investment manager in managing the commingled fund has been reasonable relative to prudent investment and utility decommissioning trust practices and standards; and Ill. A duty to investigate the reasonableness of the net after-tax return and risk of the fund relative to similar funds, and the appropriateness of the fund within the entire decommissioning trust investment portfolio.

(iii) The payment of load fees shall be avoided.

(iv) Commingled funds focused on specific market sectors or concentrated in a few holdings shall be used only as necessary to balance the trust's overall investment portfolio mix.

12

EL PASO ELECTRIC COMPANY Annual Funding Status Report For the Year Ended December 31, 2006 1.5.4 Trust Agreements:

Each of the three trust agreements requires that any Decommissioning Trustee or Fiduciary Investment Manager shall comply with the following:

A. it shall add all income, including interest, earned on the corpus of each Fund to such corpus as a part thereof, and shall owe the same duties with regard to such income as it owes with regard to such corpus; B. it shall have a continuing duty to review the assets of each Fund to determine the appropriateness of the investments consistent with all terms, provisions and limitations of the Decommissioning Trust Agreement, including without limitation to ensure compliance with the provisions of the investment guidelines of Section 7, and any order of a state or regulatory agency limiting investments that the Company has delivered and certified to Decommissioning Trustee as provided in the Decommissioning Trust Agreement, and any other applicable governing regulations; C. it shall not lend all or any part of either Fund to itself or to any of its officers or directors or permit any act of "self-dealing" prohibited by Applicable Tax Law; D. it shall not invest or reinvest amounts in either Fund with, or in any instrument or security issued by, itself or any of its officers, directors, except that, ifthe Company directs it to do so in writing, it may invest or reinvest amounts in the Funds in time deposits, demand deposits or money market accounts of Decommissioning Trustee, and except that, if the Company directs it to do so in writing, it may invest amounts in the Funds in mutual funds that contain securities issued by Decommissioning Trustee provided such securities constitute no more than five percent of the fair market value of the assets of such mutual funds at the time of the investment; and 13

EL PASO ELECTRIC COMPANY Annual Funding Status Report For the Year Ended December 31, 2006 E. it shall not invest or reinvest amounts in either Fund with, or in any instrument or security issued by the Company, its subsidiaries or affiliates, or their successors or assigns, except that, if the Company approves so in writing, it may invest or reinvest amounts in the Funds in mutual funds that contain securities issued by the Company provided such securities constitute no more than five percent of the fair market value of the assets of such mutual funds at the time of the investment.

2. Each of the three trust agreements requires that any Decommissioning Trustee or Fiduciary Investment Manager shall comply with the following provisions:

A. The Funds should be invested with a goal of earning a reasonable return commensurate with the need to preserve the value of the assets of the Funds; B.

A decommissioning trust shall not invest trust funds in corporate or municipal debt securities that have a bond rating below investment grade ("BBB-" by Standard & Poor's Corporation or "Baa3" by Moody's Investor's Service) at the time that the securities are purchased. If the debt rating of a company or municipality issuing the particular debt security falls below investment grade at sometime after the security was purchased, the appropriateness of continuing to hold such security shall be reexamined. The overall portfolio of debt instruments shall have a quality level, measured quarterly, not below a "AA" grade by Standard & Poor's Corporation or "Aa2" by Moody's Investor's Service. In calculating the quality of the overall portfolio, debt securities issued by the Federal Government shall be considered as having a "AAA" rating; C. At least 70% of the aggregate market value of the equity assets of the Funds, including the individual securities in commingled funds, shall have a quality ranking from a major rating service such as the earnings and dividend ranking for common stock by Standard & Poor's Corporation or the quality rating of Ford Investor Services. Further, the overall portfolio of ranked equities shall have a weighted average quality rating equivalent to the composite rating of the Standard and Poor's Corporation 500 Index assuming equal weighting of each ranked security in the Index. If the quality rating, measured quarterly, falls below the minimum quality standard, the quality level of the equity assets of the Funds shall be increased to the required level as soon as is practicable and prudent. The assets of the Funds shall not be invested in equity securities if the issuer has a capitalization of less than $100 million; 14

EL PASO ELECTRIC COMPANY Annual Funding Status Report For the Year Ended December 31, 2006 D. A decommissioning trust shall not invest in securities issued by the electric utility collecting the funds or any of its affiliates; provided, however, that investments of a decommissioning trust may include mutual funds that contain securities issued by the electric utility if the securities of the utility constitute no more than five percent of the fair market value of the assets of such mutual funds at the time of the investment; E. In keeping with prudent investment practices, the portfolio of securities held in the decommissioning trust shall be diversified to the extent reasonably feasible given the size of the trust. No more than 60% of the trust's fair market value shall be invested in equity securities; municipal securities and real estate investments shall be diversified as to geographic region. Where a utility has multiple trusts for a single generating unit, the restrictions contained in this subsection apply to all trusts in the aggregate for that generating unit. The portfolio of securities held in the decommissioning trust(s) that contain securities with an aggregate value in excess of $20 million shall be diversified in accordance with the following additional restrictions: no more than five percent of the securities held may be issued by one entity, with the exception of the Federal government, its agencies and instrumentalities; and there shall be at least 20 different issues of securities in the portfolio.

15

EL PASO ELECTRIC COMPANY Annual Funding Status Report For the Year Ended December 31, 2006 Part 2. Summary of Status of Termination Funds at End of the Reporting Period 2.1 Committed Accumulations at End of Reporting Period:

Unit I Unit 2 Unit 3 Total Latest Estimated Termination Costs (In 2.1.1 Thousands) (2004) TLG) $ 656,910 $ 699,750 $ 768,047 $ 2,124,707 Generation Entitlement Share of Estimated 2.1.2 Termination Costs (In Thousands) 103,792 110,561 121,351 335,704 2.1.3 Cumulative Escalation Adjustment Factor 1.108651 1.108651 1.108651 1.108651 Adjusted Share of Estimated Termination Costs as of End of Reporting Period (In Thousands) 2.1.4 (2.1.2) x (2.1.3) 115,069 122,573 134,536 372,178 Percent Funding Requirement at End of 2.1.5 Reporting Period from Percent Funded Curve 35.72% 34.41% 29.84% 33.16%

Committed Accumulations at End of Reporting 2.1.6 Period (In Thousands) (2.1.4) x (2.1.5) $ 41,103 $ 42,177 $ 40,146 $ 123,426 2.1.7 Summary of Model Assumptions:

Assumed Rate of Earnings 7.3310%

Assumed Rate of Cost Escalation 5.2925%

Assumed Rate of Inflation 3.9031%

Treatment of Water Reclamation Facility Included Contingency Factor 25.0000%

16

EL PASO ELECTRIC COMPANY Annual Funding Status Report For the Year Ended December 31, 2006 2.2 Actual Accumulations at End of the Reporting Period (In Thousands):

(Calculated pursuant to Section 5.5 of Termination Funding Manual)

Fund Unit 1 Unit 2 Unit 3 Total

1. 1 $ 32,587 $ 32,587

1. 2 5,797 5,797

1. 3 $ 30,411 30,411

1. 4 8,584 8,584

1. 5 $ 23,510 23,510

1. 6 11,567 11,567 Total $ 38,3841 [$ 38, 35,077 11 $ 112,456]

Calculations: Fund #1 Fund #2 Fund #3 Fund #4 Fund #5 Fund #6 Sum of (A):

(i) Cash $ 276,208 $ 853,332 $ 263,552 $ 1,473,549 $ 182,896 $ 2,336,444 (ii) Surrender Value 0 0 0 0 0 0 (iii) Fair Market Value 32,975,853 5,003,070 30,810,367 7,205,805 23,887,543 9,364,379 (iv) Accrued Interest 159,447 47,739 126,537 80,105 76,522 115,330

$ 33,411,508 $ 5,904,141 $ 31,200,456 $ 8,759,459 $ 24,146,961 $ 11,816,153 Less sum of (B):

(i) Current tax $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 (ii) Accrued tax on income (1) 33,000 0 35,000 0 32,000 0 (iii) Taxes associated unrealized gains 786,421 0 750,279 0 600,944 0 (iv) Accrued expenses 4,717 107,142 4,677 175,205 4,277 248,629

$ 824,138 $ 107,142 $ 789,956 $ 175,205 $ 637,221 $ 248,629 Value $ 32,587,370 $ 5,796,999 $ 30,410,500 $ 8,584,254 $ 23,509,740 $ 11,567,524 Value (In Thousands) $ 32,587 $ 5,797 $ 30,411 $ 8,584 $ 23,510 $ 11,567 (1) For non-qualified funds, the trust income is taxable to the grantor, El Paso Electric. No taxes are paid from these funds.

17

EL PASO ELECTRIC COMPANY Annual Funding Status Report For the Year Ended December 31, 2006 2.3 Funded Floor Amount at End of Reporting Period:

Unit I Unit 2 Unit 3 Total 2.3.1 Percentage of Committed Accumulations 29.29% 27.87% 23.87% 26.86%

2.3.2 Funded Floor Amount (In Thousands) 1$ 33,704 1$ 34,16El1 $ 32,114-1 $ 99,9791 (2.1.4 x 2.3.1) 2.4 Deposits Made During Reporting Period (All Termination Funds):

Unit I Unit 2 Unit 3 Total NRC Required Deposits $ $ $ $

Normal Annual Deposits 2,321,329 2,070,670 2,293,851 6,685,850 Recovery Deposits Correcting Deposits Total $ 2,321,329 $ 2,070,670 $ 2,293,851 $ 6,685,850 2.5 Mandatory Deposits During Reporting Period:

Unit 1 Unit 2 Unit 3 Total Texas $ 1,589,695 $ 1,407,969 $ 1,665,867 $ 4,663,531 New Mexico 761,186 836,527 - 1,597,713 FERC Total $ 2,350,881 $ 2,244,496 $ 1,665,867 $ 6,261,244 18

EL PASO ELECTRIC COMPANY Annual Funding Status Report For the Year Ended December 31, 2006 2.6 Estimated Outstanding Balance of Recovery Deposits and Correction Deposits:

None 2.7 Annual Net Income During Reportina Period (Each Funds: All Units):

Fund Amount Rate (Based upon average ending fund balances)

1. 1 $ 3,450,724 11.32%

1. 2 688,759 12.59%

1. 3 3,176,220 11.16%

1. 4 975,577 11.92%

1. 5 2,428,686 11.00%

1. 6 1,200,246 11.26%

Total $ 11,920,213 11.31%

Fund #1 Fund #2 Fund #3 Fund #4 Fund #5 Fund #6 Calculations:

Sum of (A):

(i) realized income $ 734,247 $ 218,052 $ 689,484 $ 295,542 $ 577,621 $ 450,915 (ii) unrealized income 2,986,940 492,477 2,754,790 706,185 2,075,618 781,046 Less sum of (B):

(i) taxes paid & accrued 174,000 174,000 145,000 expenses paid &

(ii) accrued 96,463 21,770 94,054 26,150 79,553 31,715

$ 3,450,724 $ 688,759 $ 3,176,220 $ 975,577 $ 2,428,686 $ 1,200,246 19

EL PASO ELECTRIC COMPANY Annual Funding Status Report For the Year Ended December 31, 2006 2.8 Summary of Market Values of Permitted Investments at End of the Reporting Period:

Category Fund #1 Fund #2 Fund #3 Fund #4 Fund #5 Fund #6 Cash and Cash Equivalents $ 435,655 $ 796,532 $ 390,089 $ 1,381,164 $ 259,418 $ 2,206,107 Acceptable Debt Securities 11,107,790 3,164,601 8,624,073 5,337,165 4,209,537 7,695,375 Acceptable Equity Securities 21,868,063 1,838,469 22,186,294 1,868,640 19,678,006 1,669,004 Acceptable Life Insurance Acceptable Property Interests Total $ 33,411,508 $ 5,799,602 $ 31,200,456 $ 8,586,969 $ 24,146,961 $ 11,570,486 20

EL PASO ELECTRIC COMPANY Annual Funding Status Report For the Year Ended December 31, 2006 2.9 Inventory and Values of Permitted Investments at End of the Reporting Period:

See Exhibit 1. [Not Attached]

2.10 Fund Liabilities at End of the Reporting Period:

Other than accrued administrative expenses and potential taxes on unrealized gains, no liabilities exist against the Funds.

2.11 Defaults, If any, Experienced on Investments:

None 2.12 Summary of Investment Ratings:

See Exhibit 1 for current rating on each municipal bond held.

21

EL PASO ELECTRIC COMPANY Annual Funding Status Report For the Year Ended December 31, 2006 Part 3.

Tables and Curves 3.1 Table of Estimated Deposits. Income And Committed Accumulations to End of Funding Period for Each Unit:

(Curves presented are those most recently approved by the Termination Funding Committee) 3.1.1 Table For Unit I (In Thousands)

Estimated Estimated Estimated Estimated Percent Funding Year Deposits Income Accumulation Costs Funded Floor 1991 3,065.044 43,696.922 7.01% 5.61%

1992 1,274.596 266.134 4,605.774 72,015.436 6.40% 5.12%

1993 1,284.594 327.887 6,135.622 73,556.865 8.34% 6.67%

1994 1,335.472 499.183 7,970.276 77,449.852 10.29% 8.23%

1995 1,388.364 638.884 9,997.525 81,548.874 12.26% 9.81%

1996 1,443.352 793.156 12,234.033 85,864.837 14.25% 11.40%

1997 1,500.517 963.255 14,697.806 90,409.222 16.26% 13.01%

1998 1,559.947 1,150.542 17,408.294 95,194.117 18.29% 14.63%

1999 1,621.730 1,356.483 20,386.507 100,232.252 20.34% 16.27%

2000 1,685.960 1,582.665 23,655.133 105,537.030 22.41% 17.93%

2001 1,752.734 1,830.800 27,238.667 111,122.563 24.51% 19.61%

2002 1,822.153 2,102.737 31,163.557 117,003.709 26.63% 21.31%

2003 1,971.475 2,402.600 35,537.632 123,196.114 28.85% 23.08%

2004 2,049.557 2,734.343 40,321.532 129,716.251 31.08% 24.87%

2005 2,130.732 3:097.052 45,549.315 136,581.465 33.35% 27.01%

2006 2,321.329 3,496.227 51,366.871 143,810.020 35.72% 29.29%

2007 2,413.268 3,937.120 57,717.259 151,421.146 38.12% 31.64%

2008 2,508.848 4,418.261 64,644.367 159,435.089 40.55% 34.06%

2009 2,758.042 4,947.099 72,349.508 167,873.168 43.10% 36.63%

2010 2,867.277 5,530.699 80,747.484 176,757.832 45.68% 39.29%

22

EL PASO ELECTRIC COMPANY Annual Funding Status Report For the Year Ended December 31, 2006 Table For Unit 1 (In Thousands) - continued:

Estimated Estimated Estimated Estimated Percent Funding Year Deposits Income Accumulation Costs Funded Floor 2011 2,980.838 6,166.623 89,894.946 186,112.716 48.30% 42.02%

2012 3,317.760 6,865.187 100,077.893 195,962.705 51.07% 44.94%

2013 3,449.163 7,636.102 111,163.158 206,334.004 53.88% 47.95%

2014 3,585.771 8,475.150 123,224.079 217,254.202 56.72% 51.05%

2015 4,065.222 9,397.178 136,686.478 228,752.350 59.75% 54.38%

2016 4,226.229 10,416.018 151,328.725 240,859.036 62.83% 57.80%

2017 4,393.613 11,523.935 167,246.272 253,606.467 65.95% 61.33%

2018 5,138.776 12,743.895 185,128.943 267,028.554 69.33% 65.17%

2019 5,342.302 14,096.977 204,568.222 281,161.003 72.76% 69.12%

2020 5,553.889 15,567.572 225,689.683 296,041.410 76.24% 73.19%

2021 6,957.220 17,197.815 249,844.719 311,709.360 80.15% 77.75%

2022 7,232.768 19,025.510 276,102.996 328,206.534 84.12% 82.44%

2023 7,519.229 21,011.985 304,634.210 345,576.819 88.15% 87.27%

2024 7,817.036 23,106.171 334,709.788 362,973.935 92.21% 92.21%

2025 25,087.342 358,030.257 380,323.895 94.14% 94.14%

2026 25,233.305 360,113.346 376,077.046 95.76% 95.76%

2027 21,501.537 306,855.984 317,265.368 96.72% 96.72%

2028 17,190.449 245,330.930 251,175.083 97.67% 97.67%

2029 12,240.609 174,690.029 177,200.486 98.58% 98.58%

2030 6,587.274 94,009.301 94,692.148 99.28% 99.28%

2031 2,415.824 34,477.067 34,477.067 100.00% 100.00%

23

EL PASO ELECTRIC COMPANY Annual Funding Status Report For the Year Ended December 31, 2006 M..2 Table For Unit 2 (in Thousands)

Estimated Estimated Estimated Estimated Percent Funding Year Deposits Income Accumulation Costs Funded Floor 1991 3,619.007 43,321.662 8.35% 6.68%

1992 1,148.211 304.386 5,071.604 70,884.836 7.15% 5.72%

1993 1,156.671 403.387 6,489.839 72,375.311 8.97% 7.17%

1994 1,202.482 522.202 8,214.523 76,205.765 10.78% 8.62%

1995 1,250.107 653.472 10,118.102 80,238.944 12.61% 10.09%

1996 1,299.619 798.274 12,215.996 84,485.579 14.46% 11.57%

1997 1,351.092 957.772 14,524.859 88,956.966 16.33% 13.06%

1998 1,404.603 1,133.222 17,062.684 93,665.001 18.22% 14.57%

1999 1,460.234 1,325.984 19,848.902 98,622.208 20.13% 16.10%

2000 1,518.068 1,537.522 22,904.492 103,841.775 22.06% 17.65%

2001 1,578.192 1,769.421 26,252.106 109,337.586 24.01% 19.2 1%

2002 1,640.698 2,023.390 29,916.194 115,124.263 25.99% 20.79%

2003 1,767.574 2,302.983 33,986.751 121,217.198 28.04% 22.43%

2004 1,837.581 2,611.632 38,435.964 127,632.602 30.11% 24.09%

2005 1,910.360 2,948.891 43,295.215 134,387.539 32.22% 25.77%

2006 2,070.670 3,319.462 48,685.347 141,499.981 34.41% 27.87%

2007 2,152.681 3,727.873 54,565.901 148,988.848 36.62% 30.03%

2008 2,237.940 4,173.328 60,977.170 156,874.061 38.87% 32.26%

2009 2,444.911 4,662.132 68,084.212 165,176.599 41.22% 34.62%

2010 2,541 .744 5,200.322 75,826.278 173,918.548 43.60% 37.06%

2011 2,642.412 5,786.468 84,255.157 183,123.162 46.01% 39.57%

2012 2,917.665 6,429.184 93,602.006 192,814.930 48.54% 42.23%

2013 3,033.222 7,136.661 103,771.890 203,019.633 51.11% 44.98%

2014 3,153.356 7,906.280 114,831.526 213,764.419 53.72% 47.81%

24

EL PASO ELECTRIC COMPANY Annual Funding Status Report For the Year Ended December 31, 2006 3.1.2 Table For Unit 2 (In Thousands) - continued:

Estimated Estimated Estimated Estimated Percent Funding Year Deposits Income Accumulation Costs Funded Floor 2015 3,535.811 8,750.184 127,117.521 225,077.871 56.48% 50.83%

2016 3,675.850 9,679-802 140,473.173 236,990.086 59.27% 53.94%

2017 3,821.436 10,690.173 154,984.782 249,532.753 62.11% 57. 14%

2018 4,392.538 11,799.390 171,176.710 262,739.239 65.15% 60.59%

2019 4,566.509 13,024.259 188,767.478 276,644.676 68.23% 64. 14%

2020 4,747.370 14,354.720 207,869.568 291,286.057 71.36% 67.79%

2021 5,730.719 15,821.210 229,421.497 306,702.331 74.80% 71 .81%

2022 5,957.690 17,451.4 19 252,830.607 322,934.509 78.29% 75.94%

2023 6,193.650 19,22 1.8 15 278,246.072 340,025.772 81 .83% 80.19%

2024 8,791.549 21,208.585 308,246.207 358,021.589 86. 10% 85.24%

2025 9,139.748 23,478.715 340,864.670 376,969.831 90.42% 90.42%

2026 25,671.399 366,365.540 396,741.353 92.34% 92.34%

2027 27,381.115 390,765.507 414,599.909 94.25% 94.25%

2028 27,376.844 390,704.542 407,652.600 95.84% 95.84%

2029 23,348-142 333,209.534 344,105.794 96.83% 96.83%

2030 18,467.306 263,553.410 269,530.194 97.78% 97.78%

2031 12,867.270 183,633.329 186,096.933 98.68% 98.68%

2032 6,475.243 92,410.462 93,077.319 99.28% 99.28%

2033 2,359.251 33,669.696 33,669.696 100.00% 100.00%

25

EL PASO ELECTRIC COMPANY Annual Funding Status Report For the Year Ended December 31, 2006 3.1.3 Table for Unit 3 (in Thousands):

Estimated Estimated Estimated Estimated Percent Funding Year Deposits Income Accumulation Costs Funded Floor 1991 652.302 46,068.418 1.42% 1.13%

1992 1,282.171 84.542 2,019.015 74,741.789 2.70% 2.16%

1993 1,294.243 183.753 3,442.544 76,440.553 4.50% 3.60%

1994 1,345.503 296.535 5,084.582 80,486.159 6.32% 5.05%

1995 1,398.793 421.734 6,905.110 84,745.877 8.15% 6.52%

1996 1,454.194 560.441 8,919.745 89,231.041 10.00% 8.00%

1997 1,511.789 71 3.834 11,145.367 93,953.581 11.86% 9.49%

1998 1,571.665 883.188 13,600.220 98,926.061 13.75% 11.00%

1999 1,633.912 1,069.880 16,304.012 104,161 .709 15.65% 12.52%

2000 1,698.625 1,275.398 19,278.034 109,674.453 17.58% 14.06%

2001 1,765.900 1,501.348 22,545.282 115,478.958 19.52% 15.62%

2002 1,835.841 1,749.467 26,130.589 121,590.666 21.49% 17.19%

2003 1,968.776 2,023.290 30,122.655 128,025.835 23.53% 18.82%

2004 2,046.751 2,326.245 34,495.652 134,801.584 25.59% 20.47%

2005 2,127.815 2,657.989 39,281.456 141,935.939 27.68% 22.14%

2006 2,293.851 3,023.184 44,598.491 149,447.879 29.84% 23.87%

2007 2,384.702 3,426.332 50,409.524 157,357.387 32.04% 25.63%

2008 2,479.150 3,866.802 56,755.476 165,685.505 34.25% 27.75%

2009 2,690.503 4,350.805 63,796.785 174,454.387 36.57% 29.99%

2010 2,797.064 4,884.311 7 1,478.159 183,687.361 38-91% 32.30%

2011 2,907.844 5,466.162 79,852.165 193,408.989 4 1.29% 34.68%

2012 3,183.853 6,104.764 89, 140.783 203,645.132 43.77% 37.21%

2013 3,309.953 6,808.145 99,258.881 214,423.023 46.29% 39.81%

2014 3,441.047 7,574.165 110,274.093 225,771.331 48.84% 42.49%

26

EL PASO ELECTRIC COMPANY Annual Funding Status Report For the Year Ended December 31, 2006 3.1.3 Table for Unit 3 (In Thousands) - continued:

Estimated Estimated Estimated Estimated Percent Funding Year Deposits Income Accumulation Costs Funded Floor 2015 3,814.940 8,414.484 122,503.517 237,720.247 51.53% 45.35%

2016 3,966.035 9,340.145 135,809.697 250,301.558 54.26% 48.29%

2017 4,123.113 10,347.106 150,279.916 263,548.733 57.02% 51.32%

2018 4,659.502 11,452.246 166,391.665 277,497.013 59.96% 54.57%

2019 4,844.046 12,671.365 183,907.075 292,183.503 62.94% 57.91%

2020 5,035.900 13,996.451 202,939.426 307,647.274 65.96% 61.35%

2021 5,889.479 15,454.105 224,283.010 323,929.463 69.24% 65.08%

2022 6,122.738 17,068.788 247,474.536 341,073.385 72.56% 68.93%

2023 6,365.235 18,822.970 272,662.741 359,124.646 75.92% 72.89%

2024 8,106.273 20,768.965 301,537.978 378,131.267 79.74% 77.35%

2025 8,427.330 22,953.584 332,918.891 398,143.812 83.62% 81.95%

2026 8,761.103 25,327.357 367,007.351 419,215.517 87.55% 86.67%

2027 2,243.965 27,779.761 397,031.077 441,402.440 89.95% 89.95%

2028 29,734.433 424,350.531 462,220.811 91.81% 91.81%

2029 31,725.894 452,771.373 483,203.810 93.70% 93.70%

2030 32,272.786 460,576.256 483,014.441 95.35% 95.35%

2031 28,835.010 411,514.545 426,558.518 96.47% 96.47%

2032 23,533.147 335,849.805 344,686.147 97.44% 97.44%

2033 17,436.197 248,838.081 252,952.800 98.37% 98.37%

2034 10,463.311 149,325.578 150,544.024 99.19% 99.19%

2035 4,310.701 61,519.522 61,519.522 100.00% 100.00%

27

EL PASO ELECTRIC COMPANY Annual Funding Status Report For the Year Ended December 31, 2006 3.2.1 Unit 1 Curve:

100% - - - - - - - -

Funding 90%---- Floor 80%- Committed >

0'Accumulation 70% - - - - - - -

6 Actual //'/ -

Accumulation /

50% - - - - -

40% -.......

30%-- -

20% Actual 0Commit _

10% ---

1% 2009 2012 2015 2018 1991 1994 1997 2000 2003 2006 2021 2024 2027 2030 2033 28

EL PASO ELECTRIC COMPANY Annual Funding Status Report For the Year Ended December 31, 2006 3.2.2 Unit 2 Curve 100% 1 80% Floor-----__

80%

60%-Committed 70% - -l-- Accumulation--

50% -QAcc~umulattion 40%-

7

• 40%/ "- ..--.....-.

30% - __ 2006 Funding Status 20%.- - -- - Atual $ Amount Percent 2°% Actual 38,995 31.81 I Committed 42,177 34.41 0i%

Floor 34,161 27.87 10%

1991 1994 1997 2000 2003 2006 2009 2012 2015 2018 2021 2024 2027 2030 2033 29

EL PASO ELECTRIC COMPANY Annual Funding Status Report For the Year Ended December 31, 2006 3.2.3 Unit 3 Curve 100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

o% r, 2003 2006 2009 2012 2015 2018 2021 2024 2027 2030 2033 1991 1994 1997 2000 30

Attachment 4 Annual Funding Status Report for the Year Ending December 2006 Southern California Edison Company

SOUTHERN CALIFORNIA EDISON 2006 ANNUAL FUNDING STATUS REPORT FOR THE YEAR ENDED DECEMBER 31, 2006 Southern California Edison Company ANPP Termination Funding Committee 2006 Annual Funding Status Report March-07

SOUTHERN CALIFORNIA EDISON 2006 ANNUAL FUNDING STATUS REPORT FOR THE YEAR ENDED DECEMBER 31, 2006 PART 1 GENERAL INFORMATION 1.1 Description of Funds Units: Palo Verde Units 1, 2 and 3 Tax Status: IRS Qualified Trusts (tax deductible contributions, earnings taxed at rates of 20% Federal, 8.84% California.

Trustee: Mellon Financial Investment Managers:

STW Fixed Income Management ("STW"), Santa Barbara, CA PanAgora Asset Management, Boston, MA BlackRock Financial Management, Inc., New York, NY Alliance Bernstein (Sanford Bernstein), New York, NY PIMCO, Newport Beach, CA State Street Global Advisors (SSgA), Boston, MA Basic Documents:

Southern California Edison Company Nuclear Facilities Qualified CPUC Decommissioning Master Trust Agreement For San Onofre and Palo Verde Nuclear Generating Stations ("Trust Agreement")

Investment Management Agreement Between STW Fixed Income Management and the Nuclear Facilities Decommissioning Master Trust Committee for the CPUC Qualified Master Trust

SOUTHERN CALIFORNIA EDISON 2006 ANNUAL FUNDING STATUS REPORT FOR THE YEAR ENDED DECEMBER 31, 2006 Investment Management Agreement Between PanAgora Asset Management and the Nuclear Facilities Decommissioning Master Trust Committee for the CPUC Qualified Master Trust Investment Management Agreement Between BlackRock Financial Management, Inc.

and the Nuclear Facilities Decommissioning Master Trust Committee for the CPUC Qualified Master Trust Investment Management Agreement Between Sanford C. Bernstein & Co., Inc. and the Nuclear Facilities Decommissioning Master Trust Committee for the CPUC Qualified Master Trust Investment Management Agreement Between Pacific Investment Management Co (PIMCO) and the Nuclear Facilities Decommissioning Master Trust Committee for the CPUC Qualified Master Trust Investment Management Agreement Between Alliance Capital Management and the Nuclear Facilities Decommissioning Master Trust Committee for the CPUC Qualified Master Trust Investment Management Agreement Between State Street Global Advisors (SSgA) and the Nuclear Facilities Decommissioning Master Trust Committee for the CPUC Qualified Master Trust Changes Since Prior AFSR:

No changes 3

SOUTHERN CALIFORNIA EDISON 2006 ANNUAL FUNDING STATUS REPORT FOR THE YEAR ENDED DECEMBER 31, 2006 1.2 Pro Rata Share (each Palo Verde Unit):

Generation Entitlement Share 15.80%

Section 23.5.1 Obligation 0%

Pro Rata Share 15.80%

1.3 Sale and Leaseback Transactions:

None 1.4 Summary of Regulatory Requirements:

The CPUC regulates almost all (over 99%) of Edison's decommissioning rate recovery. In the 1980's, the CPUC conducted an investigation into decommissioning funding mechanisms and determined that external funding was appropriate. In 1987, the CPUC authorized the information necessary for Edison to file for Schedule of Ruling Amounts ("SRA's") with the Internal Revenue Service so that Qualified Trusts could be established and funded.

The CPUC also authorized rate recovery for decommissioning. The IRS approved Edison's SRA's in December 1987, and the Trusts were funded initially on February 2, 1988.

Edison's current rate recovery for the Palo Verde Units was authorized by the CPUC in Decision 03-10-015, October 2, 2003. It is based on the 2001 TLG Study for Palo Verde (using a 35% contingency factor).

The annual contributions are: 2006 Unit 1 $ 3,851,159.04 Unit 2 $ 4,390,209.72 Unit 3 $ 3,315,294.12 Total $ 11,556,662.88 Decommissioning rate recovery is evaluated every three years by the CPUC.

SOUTHERN CALIFORNIA EDISON 2006 ANNUAL FUNDING STATUS REPORT FOR THE YEAR ENDED DECEMBER 31, 2006 2006 amounts reflect a full year of contributions authorized in D. 03-10-015 5

SOUTHERN CALIFORNIA EDISON 2006 ANNUAL FUNDING STATUS REPORT FOR THE YEAR ENDED DECEMBER 31,2006 Beginning in 2007, contributions will be made in accordance with CPUC D. 07-01-003 (January 11, 2007)

The annual contributions will be: 2007 Unit 1 $ 5,066,719.80 Unit 2 $ 5,662,665.00 Unit 3 $ 3,728,388.96 Total $ 14,457,773.76 The Tax Reform Act of 1992 removed the Black Lung investment restrictions for Qualified Trusts. In October 1993, the CPUC authorized (in D.93-10-076) the California utilities to invest up to 30% of decommissioning fund market values in equity securities and up to 100% of the funds in investment-grade fixed income securities. In November 1994, the Commission authorized (in D.94-11-038) investment in equity securities of up to 50% of the trust fund balance of which 40% (of the 50%)

could be invested in international equity securities. In July 1995, the Commission (in D. 95-07-055) authorized (1) investment of up to 50% of Qualified Trust assets and up to 60% of Nonqualified Trust assets in equity securities; (2) use of international equities up to a maximum of 20% of Trust assets; (3) use of passive management for at least 50%

of equity investments; and (4) investment of up to 100% of trust assets in investment grade fixed income securities.

In January 11, 2007, CPUC D. 07-01-003 authorized investment of up to 60% equities in the Qualified Trust.

SOUTHERN CALIFORNIA EDISON 2006 ANNUAL FUNDING STATUS REPORT FOR THE YEAR ENDED DECEMBER 31,2006 1.5 Statement of Investment Policies and Restrictions Under the terms of the Trust Agreement, the Southern California Edison Company Nuclear Facilities Decommissioning Trust Committee entered into investment management agreements with STW, Bankers Trust, PanAgora Asset Management, Sanford C. Bernstein & Co., BlackRock Financial Management, Pacific Investment Management Company, Alliance Capital and State Street Global Advisors. The Committee also established Investment Guidelines for these accounts. The STW investment management agreements are included in Appendix A to the 1991 AFSR. (The revised investment management guidelines, which were adopted at Edison's December 10, 1993 Decommissioning Trust Committee meeting, are included in Appendix A to the 1993 AFSR). Bankers Trust Company's investment management agreement, approved by the CPUC in June, 1994, is located in Appendix A to the 1994 AFSR.

The PanAgora investment management agreement is located in Appendix A to the 1995 AFSR.

The Sanford Bernstein & Co. and the BlackRock Financial Management agreements and investment guidelines are located in Appendix A to the 1997 AFSR. The PIMCO management agreement and investment guidelines for the Qualified Trust are located in Appendix A of the 2001 report. The Master Trust Agreement for the Qualified Trust as amended and restated November 1, 2002 (hiring Mellon Bank as the new Trustee) was located in Appendix A of the 2002 report.

The Alliance Capital and State Street Global Advisors agreements and investment guidelines are located in Appendix A of the 2003 report.

SOUTHERN CALIFORNIA EDISON 2006 ANNUAL FUNDING STATUS REPORT FOR THE YEAR ENDED DECEMBER 31, 2006 PART 2

SUMMARY

OF STATUS OF TERMINATION FUNDS AT END OF THE REPORTING PERIOD 2.1 Committed Accumulations at End of Reporting Period ($ Thousands):

Unit 1 Unit 2 Unit 3 Total 2.1.1 Latest Estimated Termination Costs $656,910 $699,750 $768,047 $2,124,707 (2004 TLG Study + ISFSl+Other Facilities) 2.1.2 Generation Entitlement Share $103,792 $110,561 $121,351 $335,704 of Estimated Termination Costs 2.1.3 Escalation Adjustment Factor 1.1496 1.1496 1.1496 1.1496 2.1.4 Adjusted share of Estimated Termination Costs (2.1.2 Amount x (2.1.3%) $119,324 $127,105 $139,511 $385,940 2.1.5 Percent Funding Requirement at End of Reporting Period from Percent Funded Curve 107% 107% 116% 110%

2.1.6 Committed Accumulations at end of Reporting Period (2.1.4 amount x (2.1.5%)

Note: 2.1.5% is rounded $127,363 $136,587 $161,933 $424,880

SOUTHERN CALIFORNIA EDISON 2006 ANNUAL FUNDING STATUS REPORT FOR THE YEAR ENDED DECEMBER 31,2006 2.1.7 Assumptions Used in Developing Committed Accumulations:

Cost Study: 2004 TLG study, see Appendix M Contingency Factors: 2004 TLG Study Annual Escalation Assumption: Approximately 7.2% over the funding period.

Rate of Return Assumption: 5.25% per year (after tax) 2.2.1 Actual Accumulations at End of Reporting Period (in $ Thousands):*

Unit 1 Unit 2 Unit 3 Total

$215,720 $219,420 $233,546 $668,686

• Excludes securities rated below Single A-

SOUTHERN CALIFORNIA EDISON 2006 ANNUAL FUNDING STATUS REPORT FOR THE YEAR ENDED DECEMBER 31, 2006 2.2.2 Computation of Actual Accumulations (in $ Thousands):

Unit 1 Unit 2 Unit 3 Total (i) Cash and Cash Equivalents $3,096 $3,145 $3,353 $9,594 (ii) Life Insurance Policies $0 $0 $0 $0 (iii) Market Value of Investments $230,047 $233,701 $249,150 $712,898 (iv) Accrued Income Total $233,143 $236,846 $252,503 $722,492 LESS:

(I) Current Taxes $0 $0 $0 $0 (ii) Taxes payable $0 $0 $0 $0 (iii) Deferred Taxes Associated $17,423 $17,426 $18,957 $53,806 with Unrealized Gains (estimated)

(iv) Accrued Expenses $0 $0 $0 $0 Total $17,423 $17,426 $18,957 $53,806 Value of Actual Accumulations $215,720 $219,420 $233,546 $668,686 10

SOUTHERN CALIFORNIA EDISON 2006 ANNUAL FUNDING STATUS REPORT FOR THE YEAR ENDED DECEMBER 31, 2006 2.3 Funded Floor Amount at End of Reporting Period (in $ Thousands):

Unit 1 Unit 2 Unit 3 Total 2.3.1 Percentage of Committed Accumulations 82% 81% 80% 81%

2.3.2 Funded Floor Amount $104,438 $110,636 $129,546 $344,619 2.4 Deposits made During Reporting period (in $ Thousands):

Unit 1 Unit 2 Unit 3 Total NRC Required Deposits None None None None Normal Annual Deposits $3,851 $4,390 $3,315 $11,557 Recovery Deposits None None None None Correcting Deposits None None None None Total $3,851 $4,390 $3,315 $11,557 2.5 Mandatory Deposits During Reporting Period: Unit 1 Unit 2 Unit 3 Total

$3,851 $4,390 $3,315 $11,557 11

SOUTHERN CALIFORNIA EDISON 2006 ANNUAL FUNDING STATUS REPORT FOR THE YEAR ENDED DECEMBER 31, 2006 2.6 Estimated Outstanding Balance of Recovery Deposits and Correction Deposits Outstanding at End of the Reporting Period Recovery Deposits Correction Deposits Amt. Outstanding Due Date Amt. Outstanding Due Date Unit #1 Unit #2 NONE NONE Unit #3 2.7 Annual Net Income (Loss) During Reporting Period (in $ Thousands):

Unit 1 Unit 2 Unit 3 Total Income (received and accrued) $7,255 $7,362 $7,872 $22,489 Realized Gains 5,455 5,535 5,921 16,911 Change in Unrealized Gains 10,150 10,304 11,004 31,458 Total Additions 22,860 23,201 24,796 70,857 Less: Expenses (including accrued) (360) (365) (390) (1,115) and Taxes (current and deferred*) (5,178) (5,253) (5,613) (16,044)

Net Income 17,322 17,583 18,793 53,698 Average Net Asset Value $205,054 $208,355 $222,403 $635,811 Rate 8.45% 8.44% 8.45% 8.45%

Average Net Asset Value = (Net Assets (Liquidation value), beginning of period

+ Net Assets (Liquidation Value), end of period)/2

• Equals Change in Unrealized Gains times combined tax rate 12

SOUTHERN CALIFORNIA EDISON 2006 ANNUAL FUNDING STATUS REPORT FOR THE YEAR ENDED DECEMBER 31, 2006 2.8 Summary of Values of Permitted Investments at End of the Reporting Period (market value excluding accrued income):

Category Unit 1 Unit 2 Unit 3 Total Cash and Cash Equivalents $3,096 $3,145 $3,353 $9,594 Acceptable Debt Securities U.S. Treasuries/Agencies $56,151 $57,043 $60,814 $174,007 Municipal Bonds $49,076 $49,855 $53,151 $152,083 Corporate Bonds/Misc. $6,453 $6,555 $6,989 $19,997 Total Debt Securities $114,776 $116,599 $124,307 $355,681 Acceptable Equity Securities $117,618 $119,486 $127,385 $364,489 Acceptable Life Ins. Contracts Acceptable Property Interests Grand Total $232,394 $236,085 $251,692 $720,170

• Asset Backed 2.9 Inventory and Values of Permitted Investments at End of the Reporting Period:

See Appendix B. For U. S. equity investments (40% of market value), the securities held have the Russell 3000 Index as a benchmark. For international equities, which comprise 10% of market value, the securities held have an index of 90% MSCI EAFE Index, 10% MSCI Emerging Markets Index as a benchmark.

The amounts allocated to the Palo Verde units are based on the Trustee's calculations at December 31, 2006. The allocation percentages were 7.71% for Unit 1, 7.84% for Unit 2, 8.35% for Unit 3, and 23.90% for all units.

13

SOUTHERN CALIFORNIA EDISON 2006 ANNUAL FUNDING STATUS REPORT FOR THE YEAR ENDED DECEMBER 31,2006 Basis of Valuation:

Investments are stated at fair market value, as determined by the Trustee.

Please see the attached list of sources used by Mellon Bank for pricing information.

2.10 Fund Liabilities at End of the Reporting Period None 2.11 Defaults, If Any, Experienced on investments None 2.12 Summary of Investment Ratings Rating Total Percent AAA 94%

AA 4%

A 1%

BBB* 1%

Total 100%

• These assets have been excluded from the Acceptable Debt Securities summarized on page 11 Edison's investment guidelines with the investment managers specify that securities shall be rated BBB-or higher by Standard and Poor's, Moody's or a widely recognized rating service.

14

SOUTHERN CALIFORNIA EDISON 2006 ANNUAL FUNDING STATUS REPORT FOR THE YEAR ENDED DECEMBER 31, 2006 PART 3 TABLES AND CURVES 3.1 Table of Estimated Deposits, Income and Committed Accumulations to End of Funding Period for Each Unit See Attached Tables 3.2 Percent Funding Curve and Funding Floor Curve for Each Unit See Attached Tables and Graphs. The calculations for the Tables are described below:

Columns (1)-(3) contain forecasts of Committed Accumulations (year end fund balance), estimated cost, and the resulting percent funded curve (Column (1)/(2)) reported in Section 2.1.5.

Columns (4)-(6) contain funding floor curve information:

Column (4) shows the TFC's funding floor criteria contained in Section 5.9.3 of the TFC Manual.

Column (5) shows the floor percent funding based on the criteria (Column (3) X Column (4)).

Column (6) shows the dollar value of the floor funding based on the criteria (Section 2.1.4 amount X Column (5)).

Columns (7)-(9) present actual funding information for comparison with the forecast and floor information:

Column (7) contains the market value of the fund (Section 2.2.1 amount).

Column (8) has the actual estimated cost (Section 2.1.4 amount).

Column (9) shows the resulting actual percentage funding (Column (7)/(8)).

15

SOUTHERN CALIFORNIA EDISON 2006 ANNUAL FUNDING STATUS REPORT FOR THE YEAR ENDED DECEMBER 31, 2006 3.3 Table of Estimated Deposits, Income and Committed Accumulations to End of Funding Period for All Units See Attached Table. The calculations for the Table are described in section 3.2 above 3.4 Composite Percent Funding Curve and Funding Floor Curve for All Units See Attached Graph.

16

SOUTHERN CALIFORNIA EDISON 2006 ANNUAL FUNDING STATUS REPORT FOR THE YEAR ENDED DECEMBER 31, 2006 Appendix A 2006 EIX 10-K Report (EIX Annual Report not yet available)

Note: Please use the following weblink http:llwww.edison.comrinvestors/sec filinqs.asp 17

SOUTHERN CALIFORNIA EDISON 2006 ANNUAL FUNDING STATUS REPORT FOR THE YEAR ENDED DECEMBER 31, 2006 Appendix B Inventory and Values of Permitted Investments at December 31, 2005 Mellon Trust Market Values for Qualified Trust by Investment Manager Palo Verde percentages are 7.63% for Unit 1, 7.74% for Unit 2, 8.30% for Unit 3, and 23.67% for all units 18

SOUTHERN CALIFORNIA EDISON COMPANY 2006 PALO VERDE UNIT 1 FUNDING STATUS

($ THOUSANDS) 0 (1) (2) (3) (4) (5) (6) (7) (8) (9)

FUNDING PLAN FUNDING FLOOR CURVE ACTUAL FUNDING YEAR FUND $ EST. COST  % FUNDED CRITERIA PERCENT $ AMOUNT FUND $ EST. COST .%FUNDED 1991 25,499 44,219 58% 80% 46% 20,399 27,001 44,219 61%

11992 32,402 69,860 46% 80% 37% 25,922 33,787 69,860 48%

1993 38,797 74,905 52% 80% 41% 31,038 41,611 74,905 56%

1994 45,527 80,314 57% 80% 45% 36,422 45,930 80,314 57%

1995 54,963 86,114 64% 80% 51% 36,351 64,177 71,191 90%

1996 64,895 92,333 70% 80% 56% 42,746 79,273 76,331 104%

1997 75,348 99,000 76% 80% 61% 49,760 99,810 81,842 122%

1998 86,350 106,150 81% 80% 65% 56,862 122,110 87,751 139%

1999 97,930 113,815 86% 80% 69% 64,987 136,263 94,458 144%

2000 110,118 122,034 90% 80% 72% 72,920 141,277 101,278 139%

2001 122,945 130,847 94% 80% 75% 81,660 136,837 108,590 126%

2002 136,446 140,296 97% 80% 78% 80,958 136,336 104,328 131%

2003 150,656 150,427 100% 80% 80% 89,488 160,956 111,860 144%

2004 1165,611 161,290 103% 80% 82% 98,828 181,062 119,937 151%

2005 181,352 172,937 105% 81% 85% 94,529 194,388 111,287 175%

2006 197,919 185,426 107% 82% 88% 104,438 215,720 119,324 181%

2007 215,356 198,816 108% 83% 90%

2008 233,709 213,174 110% 84% 92%

2009 253,025 228,568 111% 85% 94%

2010 273,355 245,074 112% 86% 96%

2011 294,752 262,772 112% 87% 98%

2012 317,273 281,747 113% 88% 99%

2013 340,976 302,094 113% 89% 100%

2014 365,923 323,909 113% 90% 102%

2015 392,180 347,300 113% 91% 103%

2016 419,816 372,380 113% 92% 104%

2017 448,903 399,271 112% 93% 105%

2018 479,516 428,104 112% 94% 105%

2019 511,737 459,019 111% 95% 106%

2020 545,650 492,167 111% 96% 106%

2021 581,343 527,709 110% 97% 107%

2022 618,909 565,817 109% 98% 107%

2023 658,448 606,677 109% 99% 107%

2024 700,063 650,487 108% 100% 108%

2025 696,219 656,864 106% 100% 106%

2026 594,779 566,305 105% 100% 105%

2027 477,988 459,182 104% 100% 104%

2028 344,308 333,566 103% 100% 103%

2029 192,070 187,340 103% 100% 103%

2030 69,900 68,615 102% 100% 102%

2031 0 0 100% 100% 100%

2032 2033 2034 2035

SOUTHERN CALIFORNIA EDISON COMPANY 2006 PALO VERDE UNIT 2 FUNDING STATUS

($THOUSANDS)

(1) (2) (3) (4) (5) (6) (7) (8) (9)

FUNDING PLAN FUNDING FLOOR CURVE ACTUAL FUNDING YEAR FUND $ EST. COST % FUNDED CRITERIA PERCENT $ AMOUNT FUND $ EST. COST  % FUNDED 1991 24,496 43,826 56% 80% 45% 19,597 25,943 43,826 59%

1992 31,537 68,737 46% 80% 37% 25,230 32,869 68,737 48%

1993 38,092 74,905 51% 80% 41% 30,474 40,791 74,905 54%

1994 44,991 80,314 56% 80% 45% 35,993 45,358 80,314 56%

1995 54,543 86,114 63% 80% 51% 37,442 63,426 73,893 86%

1996 64,597 92,333 70% 80% 56% 44,368 78,392 79,228 99%

1997 75,179 99,000 76% 80% 61% 51,648 98,759 84,948 116%

1998 86,317 106,150 81% 80% 65% 59,021 120,878 91,082 133%

1999 98,039 113,815 86% 80% 69% 68,410 135,329 99,433 136%

2000 110,376 122,034 90% 80% 72% 76,761 140,883 106,613 132%

2001 123,362 130,847 94% 80% 75% 85,961 137,075 114,310 120%

2002 137,029 140,296 98% 80% 78% 89,426 137,161 114064 120%

2003 151,413 150,427 101% 80% 81% 98,818 162,492 122,300 133%

2004 166,553 161,290 103% 80% 83% 108,051 183,316 131,130 140%

2005 182,487 172,937 106% 80% 84% 100,073 197,289 118,545 166%

2006 199,259 185,42-6 107%l 81% 87% 110,636 219,420 127105 173W~

2007 216,910 198,816 109% 82% 89%

2008 235,488 213,174 110% 83% 92%

2009 255,042 228,568 112% 84% 94%

2010 275,622 245,074 112% 85% 96%

2011 297,283 262,772 113% 86% 97%

2012 320,081 281,747 114%/ 87% 99%

2013 344,076 302,094 114% 88% 100%

2014 369,330 323,909 114% 89% 101%

2015 395,910 347,300 114% 90% 103%

2016 423,886 372,380 114% 91% 104%

2017 453,331 399,271 114% 92% 104%

2018 484,321 428,104 113% 93% 105%

2019 516,939 459,019 113% 94% 106%

2020 551,268 492,167 112% 95% 106%

2021 587,400 527,709 111% 96% 107%

2022 625,430 565,817 111% 97% 107%

2023 665,455 606,677 110% 98% 107%

2024 707,582 650,487 109% 99% 108%

2025 751,921 695,716 108% 100% 108%

2026 790,166 742,858 106% 100% 106%

2027 776,927 739,787 105% 100% 105%

2028 657,874 631,382 104% 100% 104%

2029 520,952 503,822 103% 100% 103%

2030 364,378 354,929 103% 100% 103%

2031 186,212 182,311 102% 100% 102%

2032 62,940 61,939 102% 100% 102%

2033 0 0 100% 100% 100%

2034 2035

SOUTHERN CALIFORNIA EDISON COMPANY 2006 PALO VERDE UNIT 3 FUNDING STATUS

($ THOUSANDS)

(1) (2) (3) (4) (5) (6) (7) (8) (9)

FUNDING PLAN FUNDING FLOOR CURVE ACTUAL FUNDING YEAR FUNDS$ EST. COST  % FUNDED CRITERIA PERCENT $ AMOUNT FUND $ EST. COST % FUNDED 1991 26,087 48,798 53% 80% 43% 20,870 27,730 48,798 57%

1992 34,110 73,450 46% 80% 37% 27,288 35,578 73,450 48%

1993 41,562 74,905 55% 80% 44% 33,250 44,473 74,905 59%

1994 49,405 80,314 62% 80% 49% 39,524 49,825 80,314 62%

1995 59,673 86,114 69% 80% 55% 46,253 69,421 83,434 83%

1996 70,480 92,333 76% 80% 61% 54,390 85,640 89,458 96%

1997 81,854 99,000 83% 80% 66% 58,318 107,775 95,917 112%

1998 93,826 106,150 88% 80% 71% 72,401 131,789 1102,842 128%

1999 106,426 113,815 94% 80% 75% 80,398 147,469 106,913 138%

2000 119,688 122,034 98% 80% 78% 89,871 153,445 114,632 134%

2001 133,646 130,847 102% 80% 82% 100,293 149,226 122,908 121%

2002 148,336 140,296 106% 80% 85% 98,120 149,306 115,708 129%

2003 163,798 150,427 109% 80% 87% 108,182 176,507 124,062 142%

2004 180,072 161,290 112% 80% 89% 119,185 197,625 133,019 149%

2005 197,200 172,937 114% 80% 91% 118,696 211,259 130,115 162%

2006 215,227 185,426 116% 80% 93% 129,546 233,546 1395111 167%

2007 234,201 198,816 118% 81% 95%

2008 254,171 213,174 119% 82% 98%

2009 275,189 228,568 120% 83% 100%

2010 297,311 245,074 121% 84% 102%

2011 320,594 262,772 122% 85% 104%

2012 345,099 281,747 122% 86% 105%

20113 370,891 302,094 123% 87% 107%

20114 398,037 323,909 123% 88% 108%

2015 426,609 347,300 123% 89% 1109%

2016 456,680 372,380 123% 90% 110%

2017 488,330 399,271 122% 91% 111%

2018 521,641 428,104 122% 92% 112%

2019 556,702 459,019 121% 93% 113%

2020 593,603 492,167 121% 94% 113%

2021 632,442 527,709 120% 95% 114%

2022 673,319 565,817 119% 96% 114%

2023 716,343 606,677 118% 97% 115%

2024 761,625 650,487 1170/ 98% 115%

2025 809,284 700,291 116% 99% 114%

2026 859,446 753,907 114% 100% 114%

2027 912,241 811,628 112% 100% 112%

2028 960,134 873,769 110% 100% 110%

2029 951,127 881,253 108% 100% 108%

2030 845,825 793,489 107% 1100% 107%

2031 700,015 664,025 105% 100% 105%

2032 532,660 510,759 104% 100% 104%

2033 341,615 330,855 103% 100% 103%

2034 150,456 147,093 102% 100% 102%

2035 0 (0) 100% 100% 100%

SOUTHERN CALIFORNIA EDISON COMPANY 2006 ANPP FUNDING PLAN--ALL UNITS

($ THOUSANDS)

(1) (2) (3) (4) (5) (6) (7) (8) (9)

FUNDING PLAN FUNDING FLOOR CURVE ACTUAL FUNDING YEAR FUND $ EST. COST  % FUNDED CRITERIA PERCENT $ AMOUNT FUND $ EST. COST  % FUNDED 1991 76,082 136,843 56% 80% 44% 60,866 80,674 136,843 59%

1992 98,049 212,047 46% 80% 37% 78,439 102,234 212,047 48%

1993 118,451 224,715 53% 80% 42% 94,761 126,875 224,715 56%

1994 139,923 240,942 58% 80% 46% 111,938 141,1`13 240,942 59%

1995 169,179 258,342 65% 80% 52% 120,045 197,024 228,518 86%

1996 199,972 276,998 72% 80% 58% 141,504 243,378 245,017 99%

1997 232,381 297,001 78% 80% 63% 159,726 306,343 262,707 117%

1998 266,493 318,449 84% 80% 67% 188,284 374,776 281,675 133%

1999 302,395 341,445 89% 80% 71% 214,173 419,061 300,804 139%

2000 340,182 366,102 93% 80% 74% 239,957 435,605 322,522 135%

2001 379,953 392,540 97% 80% 77% 268,347 423,138 345,808 122%

2002 421,811 420,887 100% 80% 80% 268,504 422,803 334,100 127%

2003 465,867 451,281 103% 80% 83% 296,488 499,955 358,222 140%

2004 512,236 483,870 106% 80% 85% 326,064 562,003 384,086 146%

2005 561,039 518,812 108% 80% 87% 313,297 602,936 359,947 168%

2006 612,405 556,278 110% 81% 89% 344,619 668,686 385,940 173%.

2007 666,467 596,449 112% 82% 92% 0 2008 723,368 639,521 113% 83% 94% 0 2009 783,256 685,704 114% 84% 96% 0 2010 846,288 735,221 115% 85% 98% 0 2011 912,629 788,315 116% 86% 100% 0 2012 982,453 845,242 116% 87% 101% 0 2013 1,055,943 906,281 117% 88% 103% 0 2014 1,133,290 971,727 117% 89% 104% 0 2015 1,214,699 1,041,900 117% 90% 105% 0 2016 1,300,382 1,117,140 116% 91% 106% 0 2017 1.390,564 1,197,813 116% 92% 107% 0 2018 1,485,478 1,284,312 116% 93% 108% 0 2019 1,585,378 1,377,058 115% 94% 108% 0 2020 1,690,521 1,476,501 114% 95% 109% 0 2021 1,801,185 1,583,126 114% 96% 109% 0 2022 1,917,658 1,697,450 113% 97% 110% 0 2023 2,040,246 1,820,030 112% 98% 110% 0 2024 2,169,270 1,951,462 111% 99% 110% 0 2025 2,257,424 2,052,870 110% 100% 110% 0 2026 2,244,391 2,063,070 109% 100% 109% 0 2027 2,167,156 2,010,597 108% 100% 108% 0 2028 1,962,316 1,838,717 107% 100% 107% 0 2029 1,664,149 1,572,415 106% 100% 106% 0 2030 1,280,103 1,217,033 105% 100% 105% 0 2031 8866227 846,336 105% 100% 105% 0 2032 595,600 572,698 104% 100% 104% 0 2033 341,615 330,855 103% 100% 103% 0 2034 150,456 147,093 102% 100% 102% 0 2035 0 (0) 0% 100% 0% 0

ALJ/DUG/hkr Mailed 1/12/07 Decision 07-01-003 January 11, 2007 BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA Joint Application of Southern California Edison Company and San Diego Gas & Electric Company for the 2005 Nuclear Decommissioning Cost Triennial Proceeding to Set Contribution Application 05-11-008 Levels for the Companies' Nuclear (Filed November 10, 2005)

Decommissioning Trust Funds and Address Other Related Decommissioning Issues.

Application of Pacific Gas and Electric Company in Its 2005 Nuclear Decommissioning Cost Application 05-11-009 Triennial Proceeding. (Filed November 10, 2005)

(See Appendix A (Service List) for Appearances.)

FINAL OPINION ON THE TRIENNIAL REVIEW OF NUCLEAR DECOMMISSIONING TRUSTS AND RELATED DECOMMISSIONING ACTIVITIES FOR SOUTHERN CALIFORNIA EDISON COMPANY, SAN DIEGO GAS & ELECTRIC COMPANY, AND PACIFIC GAS AND ELECTRIC COMPANY 262958 A.05-11-008, A.05-11-009 ALJ/DUG/hkr TABLE OF CONTENTS Title Page FINAL OPINION ON THE TRIENNIAL REVIEW OF NUCLEAR DECOMMISSIONING TRUSTS AND RELATED DECOMMISSIONING ACTIVITIES FOR SOUTHERN CALIFORNIA EDISON COMPANY, SAN DIEGO GAS & ELECTRIC COMPANY, AND PACIFIC GAS AND ELECTRIC COMPANY ............................................................................................... 2 I. Sum m ary ....................................................................................................... 2 II. R equ ests ......................................................................................................... 2 A. Edison and SDG&E .................................................................................... 2 B . PG &E .......................................................................................................... 5 III. Procedural H istory .......................................................................................... 5 IV . Scope and Issues ............................................................................................... 6 V . Standard of R eview ........................................................................................... 7 VI. Discussion of Settlements ............................................................................... 8 A. Standard for Approval of a Settlement .................................................... 8 B. Reasonable in Light of the Whole Record ............................................... 9 C. Consistent With Law ............................................................................... 10 D . In the Public Interest .................................................................................. 10 E. Uncontested Settlement .......................................................................... 10 VII. Settlement Provisions .................................................................................... 11 A. Edison and SDG&E .................................................................................... 11 B . PG &E ................................................................................................................ 17 VIII. Independent Board of Consultants ............................................................. 19 A . PG &E's Position ........................................................................................ 20 B . Fielder's Position ...................................................................................... 21 C . D iscussion ................................................................................................ 21 D . C onclu sion ................................................................................................. 25 IX. Waste Storage Facilities and Cost ............................................................... 26 A . D iscu ssion ................................................................................................. 26 X . C ontin gency ................................................................................................... 28 XI. PG&E's Settlement is Reasonable ................................................................. 29 XII. Comments on Proposed Decision ............................................................... 29 XIII. Assignment of the Proceedings .................................................................... 29 Fin din g s of F act ............................................................................................................... 30 C onclusions of Law .................................................................................................... 30 FIN A L O R D E R ................................................................................................................ 32 APPENDIX A: SERVICE LIST

-i-

APPENDIX B: SETTLEMENTS FOR NUCLEAR DECOMMISSIONING A.05-11-008, A.05-11-009 ALJ/DUG/hkr FINAL OPINION ON THE TRIENNIAL REVIEW OF NUCLEAR DECOMMISSIONING TRUSTS AND RELATED DECOMMISSIONING ACTIVITIES FOR SOUTHERN CALIFORNIA EDISON COMPANY, SAN DIEGO GAS & ELECTRIC COMPANY, AND PACIFIC GAS AND ELECTRIC COMPANY I. Summary This decision adopts an all-party settlement for Southern California Edison Company (Edison) and San Diego Gas & Electric Company (SDG&E) which resolves all issues in a Joint Application (A.) 05-11-008. We also adopt a separate settlement for Pacific Gas and Electric Company (PG&E) in A.05-11-009 which resolves all ratemaking issues exclusive of the issues litigated by PG&E and a customer-intervenor, Scott Fielder. We decline to create an Independent Board of Consultants to oversee or advise on the decommissioning of Humboldt Unit 3.

We do, however, provide guidelines applicable to all three applicants concerning the necessity to ensure that the utilities employ sufficient well-trained and experienced personnel to plan and direct the complex task of decommissioning a retired nuclear generating facility. We do not adopt Fielder's proposals concerning the storage costs of radioactive waste materials or contingency factors. We do, however, direct the parties to perform in-depth analyses of storage costs and contingencies for the next triennial proceedings for all three utilities.

II. Requests A. Edison and SDG&E In A.05-11-008, Edison & SDG&E request the Commission:

(1) find the $298 million (100% share, 2004$) cost of San Onofre Nuclear Generating Station (SONGS) Unit 1 decommissioning work completed between January 1, 2002 and June 30, 2005 is reasonable; A.05-11-008, A.05-11-009 ALJ/DUG/hkr (2) find the updated $309 million (100% share, 2004$) SONGS Unit 1 decommissioning cost estimate for the remaining work is reasonable; (3) find the updated $3,131 million (100% share, 2004$) SONGS Units 2 & 3 decommissioning cost estimate is reasonable; (4) raise the Qualified Trust maximum equity percentage to 60%;

(5) raise the cap on investment management fees to 30 basis points; (6) raise annual compensation retainer for non-company members of the Nuclear Decommissioning Trust Committee to $12,000; and (7) allow a maximum 20% allocation of the total fixed income portfolio in the Qualified Trust to high yield bonds rated B or higher by Standard and Poors or B2 or higher by Moodys.

In addition, Edison requests the Commission:

(1) find the updated $739 million (Edison's share, 2004$) Palo Verde decommissioning cost estimate is reasonable; (2) authorize rate recovery of its increased contribution of

$57.8 million to its Nuclear Decommissioning Trust Funds for SONGS Units 2 & 3 and for Palo Verde Nuclear Generating Station Units 1, 2, & 3 (Palo Verde) through the Nuclear Decommissioning Cost Charge; (3) authorize Edison to amend its Decommissioning Trust Agreements (Trust Agreements) to clarify that transfers of nonqualified nuclear decommissioning trust (Nonqualified Trust) assets to the qualified nuclear decommissioning trust (Qualified Trust), pursuant to Internal Revenue Code Section 468A(f), as amended by the Energy Policy Act of 2005, are permissible under the Trust Agreements, and to submit such amendments as may be required for Commission approval via advice letter filing; (4) approve the transfer of funds from Edison's SONGS and Palo Verde Nonqualified Trusts to the corresponding SONGS and Palo Verde Qualified Trusts, pursuant to Internal Revenue 3-

A.05-11-008, A.05-11-009 ALJ/DUG/hkr Code Section 468A(f), as amended by the Energy Policy Act of 2005; and (5) authorize Edison to continue to use the tax benefits associated with deducting SONGS Unit 1 Nonqualified Trust amounts consistent with Ordering Paragraph 9 of Decision (D.) 03-10-015, including the tax benefits that may arise in connection with any transfer of funds from Edison's SONGS Unit 1 Nonqualified Trust to Edison's SONGS Unit 1 Qualified Trust as provided for in Internal Revenue Code Section 468A(f), to continue SONGS Unit 1 decommissioning work.

SDG&E requests the Commission authorize or approve:

(1) rate recovery of SDG&E's increased contributions of

$12.05 million, excluding franchise fees and uncollectibles, to its nuclear decommissioning trust funds for SONGS Units 2 & 3; (2) the use of $5.523 million of the over collection in SDG&E's Nuclear Decommissioning Adjustment Mechanism as a 12-month amortization to the nuclear decommissioning rate effective January 1, 2007; (3) amending SDG&E's Trust Agreements to clarify that transfers of Nonqualified Trust assets to the Qualified Trusts pursuant to Internal Revenue Code Section 468A(f), as amended by the Energy Policy Act of 2005, are permissible under the Trust Agreements, and to submit such amendments as may be required for Commission approval via advice letter filing; (4) transferring funds from SDG&E's SONGS Nonqualified Trust to the corresponding SONGS Qualified Trust; and (5) SDG&E to continue to use the tax benefits associated with deducting SONGS Unit 1 Nonqualified Trust amounts consistent with Ordering Paragraph 9 of Commission D.03-10-015, including any tax benefits that may arise in connection with any transfer of funds from SDG&E's SONGS Unit 1 Nonqualified Trust to SDG&E's SONGS Unit 1 Qualified Trust as provided for in Internal Revenue A.05-11-008, A.05-11-009 ALJ/DUG/hkr Code Section 468A(f) to continue SONGS Unit 1 decommissioning work.

B. PG&E In a separate application, A.05-11-009, PG&E requests the Commission to authorize the collection, through Commission-jurisdictional electric rates, of the following amounts in 2007 through 2009 for decommissioning of Diablo Canyon and Humboldt Unit 3:

(1) $9.491 million and $0 for the Diablo Canyon Nuclear Decommissioning Trusts for Units 1 and 2, respectively (the 2005 revenue requirement is $0);

(2) $14.621 million for the Humboldt Unit 3 Nuclear Decommissioning Trust (the 2005 revenue requirement is

$18.443 million);

(3) increase revenue requirements to cover the costs of operating and maintaining (O&M) the Humboldt Unit 3 site in a safe condition (SAFSTOR). Specifically, PG&E is requesting SAFSTOR revenue requirements of $13.232 million in 2007 from the authorized amounts of $10.836 million for 2005.

PG&E is also requesting attrition for SAFSTOR expenses for 2008 and 2009; (4) continue overall decommissioning revenue requirement levels currently in effect for 2005 through 2006, but to apply

$12.376 million as revenue requirements attributable to SAFSTOR expenses, while contributing the remainder (after any applicable taxes) to the decommissioning trusts; and (5) find that PG&F's activities with respect to two completed decommissioning projects -involving asbestos removal and plant systems and structures radiological characterization-were reasonable and prudent.

III. Procedural History Notice of these two applications appeared in the Commission's Daily Calendar on November 16, 2005. The Commission preliminarily categorized A.05-11-008, A.05-11-009 ALJ/DUG/hkr them as ratesetting in Resolution ALJ 176-3162, dated November 18, 2005. The January 18, 2006 scoping ruling confirmed the categorization as ratesetting, and the need for hearings. The scoping ruling also consolidated the applications.

Testimony was served by the Division of Ratepayer Advocates (DRA), the Federal Executive Agency (FEA), The Utility Reform Network (TURN), and Scott Fielder, a customer-intervenor, (Fielder). All parties served timely rebuttal and other supplemental testimony as allowed or required by the assigned Administrative Law Judge (ALJ). The two settlements were admitted as Exhibits 18 and 19 at evidentiary hearings.1 These settlements resolved all issues for Edison and SDG&E in A.05-11-008 and resolved all issues except those litigated by PG&E and Fielder in A.05-11-009. This decision adopts the proposed transcript corrections requested in PG&E's June 5, 2006 Motion to Propose Transcript Corrections. Parties filed Opening Briefs or Comments on the Settlements on June 23, 2006, and Replies on July 14, 2006. The record is composed of all documents that were filed and served on parties. It also includes all testimony and exhibits 2 received at hearing.

IV. Scope and Issues The first purpose of these proceedings is to establish just and reasonable rates to adequately fund the nuclear decommissioning trusts in place for the 1 Exs. 18 and 19 have been updated and replaced in the formal files to include signature attachments and other minor edits or corrections. As no party objected to these changes, the exhibits are received in the record as modified. Edison filed a further correction and clarification on August 31, 2006 which we used in this decision.

2 There were 110 exhibits received into evidence- many were large multi-chaptered documents sponsored by several witnesses.

A.05-11-008, A.05-11-009 ALJ/DUG/hkr benefit and protection of ratepayers. Secondly, we verify that Edison, SDG&E, and PG&E are in compliance with all prior decisions applicable to decommissioning. Finally, these proceedings determine whether the costs expended to-date to decommission SONGS Unit 1 and Humboldt Unit 3 were reasonable and prudent. To the extent necessary, these proceedings examined all underlying forecasts and assumptions to estimate the future costs of decommissioning the various nuclear generating stations; the costs and earnings associated with the decommissioning trust funds; the rate impacts of the Energy Policy Act of 2005, including all relevant changes to Internal Revenue Code Section 468A; and other relevant data, policies or laws and regulations. These proceedings included the standard reasonableness review of managerial decisions and actions by PG&E, Edison, and SDG&E as they have pursued decommissioning either Humboldt Unit 3 or SONGS Unit 1. PG&E supplemented its application and explicitly addressed consideration of an Independent Board of Consultants to oversee the decommissioning of Humboldt Unit 3. Finally, we considered whether or not to grant the request by Edison and SDG&E to pre-approve the cost forecast for the remaining work to decommission SONGS Unit 1.

V. Standard of Review The applicants alone bear the burden of proof to show that the rates they request are just and reasonable and the related ratemaking mechanisms are fair.

For the purposes of these proceedings and as used in the scope above, we define reasonableness for decommissioning expenditures consistent with prior Commission findings, i.e., that the reasonableness of a particular management A.05-11-008, A.05-11-009 ALJ/DUG/hkr action depends on what the utility knew or should have known at the time that the managerial decision was made. 3 However, with respect to Phase 1 SONGS 1 decommissioning work, the Commission in D.99-06-007 adopted a ratemaking settlement that included a presumption that the utilities' conduct is reasonable in performing Phase 1 SONGS 1 decommissioning work if the scope of the work completed and the most recently approved SONGS 1 decommissioning cost estimate bound the costs incurred. (Settlement § 4.2.2.2.c., at 86 CPUC2d 604, 620.)

In order for the Commission to consider the proposed settlements in these proceedings as being in the public interest, the Commission must be convinced that the parties had a sound and thorough understanding of the applications and all of the underlying assumptions and data included in the record. This level of understanding of the applications and development of an adequate record is necessary to meet our requirements for considering any settlement, as discussed below. The disputed issues for PG&E are resolved in this decision based on the evidence in the record.

VI. Discussion of Settlements A. Standard for Approval of a Settlement Rule 51.1(a) 4 provides:

Parties to a Commission proceeding may stipulate to the resolution of any issue of law or fact material to the proceeding, or may settle 3 See for example, D.02-08-064, dated August 22, 2002, mimeo., pp. 5-8.

4 The Commission adopted a revised Rule 51, as Rule 12, effective September 13, 2006, which does not materially differ from the substance of the old rule. Parties settled under then-applicable Rule 51, which we cite herein.

A.05-11-008, A.05-11-009 ALJ/DUG/hkr on a mutually acceptable outcome to the proceeding, with or without resolving material issues. Resolution shall be limited to the issues in that proceeding and shall not extend to substantive issues which may come before the Commission in other or future proceedings.

Rule 51.1(e) has, as a further requirement:

The Commission will not approve stipulations or settlements, whether contested or uncontested, unless the stipulation or settlement is reasonable in light of the whole record, consistent with law, and in the public interest. (Emphasis added.)

In short, we must find the settlement comports with Rule 51.1(e) which requires a settlement to be "reasonable in light of the whole record, consistent with law, and in the public interest." We address below whether the settlements meet these three requirements.

B. Reasonable in Light of the Whole Record We have reviewed the evidence in the record, considered the scope and thoroughness of the review by all active parties, especially DRA, TURN, and FEA (for SDG&E's interests). In particular, DRA, TURN, and FEA conducted detailed examinations. Having reviewed the prepared testimony of all parties, we find that the proposed settlements are both within the range of reasonable findings if the applications had been fully litigated. Therefore we can find the settlements to be reasonable in light of the whole record. The items contested between PG&E and Fielder are considered separately in this decision: however, absent Fielder's objections, the settlement by PG&E with DRA and TURN is otherwise reasonable in light of the whole record.

A.05-11-008, A.05-11-009 ALJ/DUG/hkr C. Consistent With Law Nothing in either settlement is inconsistent with the law, and the settlement process was consistent with Rules 51 et seq. Therefore we can find the settlements to be consistent with applicable law.

D. In the Public Interest There was no guarantee that litigation of the issues raised by the parties would have resulted in any adjustment to the decommissioning revenue requirements as significant as proposed in the two settlements which are acceptable to all parties. The settlements saved time and resources, and achieved results within the range of reasonable litigation outcomes. The need for decommissioning funding was not at issue in this proceeding -that was determined when the funds were established in compliance with state and federal requirements. Therefore, since there is an uncontested need for funding future decommissioning costs and the funding in the settlements is consistent with the record, we find the settlements for decommissioning funding to be in the public interest. Similarly, the need for actual decommissioning activities for SONGS Unit 1 and Humboldt Unit 3 were uncontested. The settlements on the reasonableness of actual costs are consistent with the record; therefore we find the settlements for decommissioning funding to be in the public interest.

E. Uncontested Settlement A further standard is articulated in San Diego Gas & Electric 46 CPUC 2d 538 (1992), and applies to all-party settlements. As a precondition to approving such a settlement, the Commission must be satisfied that:

1. The proposed all-party settlement commands the unanimous sponsorship of all active parties to the proceeding.

A.05-11-008, A.05-11-009 ALJ/DUG/hkr

2. The sponsoring parties are fairly representative of the affected interests.

3. No settlement term contravenes statutory provisions or prior Commission decisions.

4. Settlement documentation provides the Commission with sufficient information to permit it to discharge its future regulatory obligations with respect to the parties and their interests.

We can answer all four requirements in the affirmative for Edison and SDG&E's ratemaking settlement. Questions 2 through 4 are true for PG&E's contested settlement.

VII. Settlement Provisions A. Edison and SDG&E Pursuant to the proposed Settlement Agreement, Appendix B and Appendix C, Edison and SDG&E filed on July 14, 2006 an update to the settlement contributions and the overall revenue requirements, using May 31, 2006, Decommissioning Trust Fund liquidation values (rather than March 31, 2006), because the May 31, 2006 values were not yet available when the parties entered into the Settlement. The settling parties had an opportunity to review this update and have made no objection. We will therefore rely on this and later updates in evaluating the proposed settlement. In the July 14, 2006 update, Edison and SDG&E provided new contributions and revenue requirements. 5 Edison subsequently discovered certain errors in its July 14, 2006 calculations of the settlement amounts. First, the settling parties agreed to a 21% contingency 5 The contribution is the amount placed into the trust fund. The revenue acquirement includes other related costs as well as the contribution.

A.05-11-008, A.05-11-009 ALJ/DUG/hkr factor, in lieu of the requested 35% contingency factor, which was not used in the calculation of the settlement amounts. Second, the settlement amounts needed to correctly reflect the pro-ration of the 2006 contribution for Palo Verde Nuclear Generating Station Unit 3 at May 31, 2006, rather than March 31, 2006, as a result of updating the Decommissioning Trust Fund liquidation values. Third, the settlement amounts need to correctly reflect the correct SONGS escalation factors, which were not updated to the escalation factor update agreed to in the settlement. We commend the settling parties for diligently reviewing the settlements and for recognizing the need for corrections. On August 31, 2006, Edison and SDG&E filed a motion requesting the Commission accept further corrections and clarifications to the settlements. We grant the motion and receive the corrections. The other settling parties have agreed with the following corrections to the settlement:

Edison's Qualified Nuclear DecommissioningTrust Funds Allocation of Contributionsand Revenue Requirement Updated Appendix B ($000)

SONGS 2 SONGS 3 Palo Verde 1 Palo Verde 2 Palo Verde 3 Total Contribution $16,984 $10,797 $5,067 $5,663 $3,728 $42,239 Revenue Requirement $17,185 $10,925 $5,127 $5,773 $3,773 $42,739 SDG&E's Qualified NuclearDecommissioningTrust Funds Allocation of Contributionsand Revenue Requirement Updated Appendix C ($000)

SONGS 26 SONGS 3 Total Contribution $5,290 $4,060 $9,350 Revenue Requirement $5,364 $4,117 $9,481 6 This includes qualified and non-qualified trust amounts.

A.05-11-008, A.05-11-009 ALJ/DUG/hkr The key terms of the Settlement Agreement were summarized in the June 23, 2006 Joint Statement for Edison and SDG&E7 as follows:

(A) the March 2006 25-year Global Insight forecast for projected pre-tax rate of returns for the years 2007 through 2029 to be assumed for the equity and bond portions of the decommissioning trust assets, (B) the March 2006 25-year Global Insight forecast to be assumed for escalation rates, (C) May 31, 2006, Decommissioning Trust Fund liquidation values, (D) a 60% holding in equities in the Qualified Trusts as of the presumed date of January 1, 2007, provided that the Commission approves a maximum allocation of 60% equities, and [Edison] SCE's/SDG&E's Nuclear Decommissioning Trust Investment Committee approves an allocation of 60% equities, for the Qualified Trusts, and (E) for SCE, a 21 % contingency factor on all components of the Palo Verde decommissioning cost estimate, except estimated low-level radioactive waste ("LLRW") burial costs, to which no contingency factor is applied.

Appendix B and C of the Settlement Agreement contain an exemplar table identifying the allocation of the Revenue Requirement and trust contribution for SCE and SDG&E for SONGS 2&3, and, for SCE, Palo Verde with the modifications described in subsections (A),

(B), (D) and (E) above, ... SCE and SDG&E agreed in the Settlement Agreement to file an update of Appendix B and C with their reply brief on July 14, 2006 in this docket that reflects the May 31, 2006 Decommissioning Trust Fund liquidation values (and a reduced percentage of equities for the Qualified Trusts if the 60% allocation is 7 Joint Statement of Southern California Edison Company (U 338-E), San Diego Gas &

Electric Company (U 902-E), Division of Ratepayer Advocates, Federal Executive Agencies and The Utility Reform Network in support of Settlement (Joint Statement for Edison and SDG&E).

A.05-11-008, A.05-11-009 ALJ/DUG/hkr not approved by the Nuclear Decommissioning Trust Committee).

The Settlement Agreement requests that the Commission find the allocations exemplified in Appendices B and C and the corresponding update to be submitted on July 14, 2006 to reflect May 31, 2006 Decommissioning Trust Fund liquidation values (and a reduced percentage of equities for the Qualified Trusts if the 60%

allocation is not approved by the Nuclear Decommissioning Trust Committee), to be reasonable.

" SCE and SDG&E should be authorized to:

o Raise the Qualified Trust's maximum equity percentage to 60%,

o Raise the cap on investment management fees to 30 basis points, and o Raise the annual compensation retainer for non-company members of the Nuclear Decommissioning Trust Committee to $12,000.

" SCE and SDG&E should be authorized to amend their respective Decommissioning Trust Agreements to clarify that transfers of assets to the Qualified Trusts (including transfers from the Nonqualified Trusts), pursuant to Internal Revenue Code Section 468A(f), as amended by the Energy Policy Act of 2005, are permissible under the Trust Agreements, and to submit such amendments as may be required for Commission approval via advice letter filing.

• The Commission should approve the transfer of funds to the corresponding SONGS and Palo Verde Qualified Trusts (including transfers from the Nonqualified Trusts), as may be permitted pursuant to Internal Revenue Code Section 468A(f), as amended by the Energy Policy Act of 2005, as authorized by the Internal Revenue Service.

• SCE and SDG&E should be authorized to continue to use the tax benefits associated with deducting SONGS 1 Nonqualified Trust amounts consistent with Ordering Paragraph No. 9 of D.03-10-015, including the tax benefits that may arise in connection with any transfer of funds from SCE's/SDG&E's SONGS 1 Nonqualified A.05-11-008, A.05-11-009 ALJ/DUG/hkr Trusts to SCE's/SDG&E's SONGS 1 Qualified Trusts as provided for in Internal Revenue Code Section 468A(f), to continue SONGS 1 decommissioning work.

• SDG&E should be authorized to apply $2.79 million of the overcollection in its Nuclear Decommissioning Adjustment Mechanism as a 12-month amortization to the nuclear decommissioning rate effective January 1, 2007, to offset the impact of the increase in the Nuclear Decommissioning revenue requirement in 2007.

• As part of the next NDCTP, SCE and SDG&E will evaluate and address in their application and opening testimony: (1) whether any SONGS 1 decommissioning trust funds are not anticipated to be needed at that time for remaining SONGS 1 Decommissioning Work; and (2) whether any such funds can and should be transferred to SONGS 2&3 Decommissioning Trusts for use to fund SONGS 2&3 decommissioning, contingent upon a favorable ruling from the IRS allowing the transfer, if necessary, and any necessary approvals by the Nuclear Regulatory Commission or other agencies.

- SCE and SDG&E agree that if SCE and SDG&E, respectively, receive money from the DOE in settlement of their DOE spent fuel litigation within three years of the effective date of this Agreement, SCE and SDG&E will seek a favorable ruling from the IRS to deposit certain monies received from the DOE into their respective decommissioning trust accounts. After receiving a favorable ruling from the IRS, SCE and SDG&E will deposit the money received from the DOE (less external litigation costs) that is associated with funds required for work included in the decommissioning cost estimates (but not money associated with current SONGS 2&3 operations or off-site storage of SONGS 1 used fuel at Morris, Illinois) into their respective appropriate decommissioning trust accounts. SCE and SDG&E will each file an Advice Letter within 120 days of the date of deposit of the funds into the decommissioning trusts to update their respective annual contributions accordingly.

• The Commission should adopt as reasonable: (i) the $298 million (100% share, 2004$) cost of SONGS 1 Decommissioning Work completed between January 1, 2002 and June 30, 2005, and (ii) the A.05-11-008, A.05-11-009 ALJ/DUG/hkr updated $309 million (100% share, 2004$) SONGS 1 decommissioning cost estimate for Remaining Work.

• The Commission should adopt as reasonable the updated decommissioning cost estimates for SONGS 2&3 and Palo Verde set forth by SCE and SDG&E in the Joint Application (other than the revision to the Palo Verde decommissioning cost estimate, reflecting a reduction in the contingency factor for non-LLRW burial components of the cost estimate from 35% to 21%).

- SCE will provide, as part of its tax testimony in the next NDCTP, a memorandum account that would track the time value of money associated with any net overpayment of estimated income tax payments of its Nuclear Decommissioning Trusts. This memorandum account will compare the estimated tax payments actually made with the amounts required to be paid in each quarterly period based upon the tax returns as filed. An interest rate equal to the assumed after-tax rate-of-return underlying the annual contribution authorized for each trust account will be applied to this difference for the period outstanding. These interest amounts will be cumulated and constitute the balance in this memorandum account. It will be subject to review and reduce the revenue requirement to be authorized in the next proceeding. (June 23, 2006 Joint Statement, pp. 4-8, footnotes omitted.)

The parties assert that in reaching this settlement, they "compromised strongly held views"; and that in all other respects, the settlement comports with the Commission's requirements for adoption of a settlement.

Key Comparisons of Settlement with Applications Application Settlement Difference Edison's Trust $57.8 million $42.2 million $15.6 million Contributions -27%

SDG&E's Trust $12.05 million $9.35 million $2.7 million Contribution -22.4%

SONGS 1 Costs $298 million (100%) $298 million (100%) 0 SONGS 1 Forecast $309 million (100%) $309 million (100%) 0 Palo Verde Forecast $738.852 million $696,003 million $42.849 million

-5.8%

A.05-11-008, A.05-11-009 ALJ/DUG/hkr Qualified Trust 60% max. 60% max. 0 Equity Percentage Investment 30 Basis points max. 30 Basis points max. 0 management Fee Committee Retainer $12,000 p.a. $12,000 p.a. 0 The Commission does not unravel a settlement unless there is significant problem with the outcome as a whole - in which case the settlement would fail the public interest test discussed elsewhere. This settled outcome is within the range of plausible litigation outcomes. Except for SONGS Unit 1, these plants are not in active decommissioning: in fact, they are operational and are even subject to proceedings which may extend the service life by replacing the steam generators. (See D.05-12-040.) We are therefore less concerned now about under-funding than we will be as these plants approach retirement. Our overriding concern with decommissioning is to ensure that the trust funds are sufficient to retire the plants pursuant to a reasonable plan and that the funds are recovered equitably from customers throughout the plants' service lives. We find the settlement applicable to Edison and SDG&E to be reasonable.

B. PG&E The key terms of PG&E's Settlement Agreement were summarized as follows:

a. $13.234 million in 2007 for Humboldt Unit 3 SAFSTOR, an additional amount for attrition of $155,000 beginning January 1, 2008 and, an additional $16,000 beginning January 1, 2009.

b. Beginning in 2007, for a 3-year period, $1.827 million for Diablo Unit 1 trust fund and $0 for the Diablo Unit 2, annually.

c. Beginning in 2007, for a 3-year period, $11.915 million for Humboldt Unit 3 trust fund.

d. Requests that the CPUC approve a transfer of funds from the Diablo Unit 2 Trust to the Diablo Unit 1 Trust. The transfer will A.05-11-008, A.05-11-009 ALJ/DUG/hkr be calculated based on and/or subject to a) the authorized trust contribution revenue for Diablo Unit 1; b) PG&E's 2007 Ruling Amount Update; c) the amount of excess funds in the Diablo Unit 2 Trust; and d) the approval of the CPUC, Nuclear Regulatory Commission and the Internal Revenue Service.

e. Additional safeguards for the decommissioning trusts (Settlement, para. 12).

f. Additionally, the following modeling assumptions were used in the settlement:

1. Low level radioactive waste Class A Burial Rate: $248 per cubic foot (In 2004 dollars)

2. Diablo Unit 2 Decommissioning Start Date: 2024

3. Humboldt Unit 3 Decommissioning Start Date: 2009

4. Diablo Contingency Factor: 35%

5. Humboldt Unit 3 Contingency Factor: 25%

6. Burial Escalation: 7.5%

7. Non-Burial Escalation: As presented in PG&E's A.05-11-009 Prepared Testimony filed November 10, 2005, including calculation methodology

8. Trust fund balance: Update as of December 31, 2005

9. Equity Turnover Rate (Qualified): 23.65%

10. Equity Turnover Rate (Non-Qualified): 24.49%

11. Pre-Tax, Before Fees Return on Equity: 8.5%

12. Pre-Tax, Before Fees Return on Fixed Assets: 5.8%

13. DCPP Equity/Bond Allocation: 57%/43% (Subject to Commission approval)

14. DCPP Equity Ramp Down: 1-Year Delay, Begin in 2020

15. Transfer of Humboldt Non-Qualified trust balance and associated tax benefits to Humboldt Qualified I Key Comparisons of Settlement with Applications I A.05-11-008, A.05-11-009 ALJ/DUG/hkr Application Settlement Difference PG&E's Diablo 1 & 2 $9.491 million $1.827 million $7.664 million Trust Contributions -80.75 %

Humboldt 3 Trust $14.621 million $11.915 million $2.706 million Contribution -18.5%

Humboldt 3 forecast $13.232 million $13.234 million $0.002 million SAFSTOR 2007 1 1 VIII. Independent Board of Consultants The scoping ruling required PG&E to supplement its application to address Ordering Paragraph 7 in D.00-02-046,8 for the consideration of an "Independent Board of Consultants" to oversee the decommissioning of Humboldt Unit 3:

At least six months before the date that full scale decommissioning of Humboldt Bay Unit 3 begins, and no later than 30 days after any order of the Nuclear Regulatory Commission authorizing an on-site dry cask storage plan, PG&E shall file an application before this Commission to initiate consideration of the establishment of an Independent Board of Consultants to oversee the decommissioning of Humboldt Bay Unit 3. Until such time as an Independent Board of Consultants is established, PG&E shall continue outreach efforts to ensure that the Redwood Alliance and the Eureka community are kept informed about the status of the plant and decommissioning of it." (Mimeo., D.00-02-046, p. 543.)

The issue was in the scoping ruling and PG&E was required to supplement its prepared testimony, as a result of Fielder's timely protest. PG&E proposed in its supplemental testimony that no committee was necessary.

Fielder formerly represented the Redwood Alliance, which he asserts is 8 D.00-02-046 in PG&E's test year 1999 general rate case, A.97-12-020.

A.05-11-008, A.05-11-009 ALJ/DUG/hkr essentially defunct at this time. He pursued the issue of an Independent Board of Consultants as an interested customer.

A. PG&E's Position PG&E opposes an Independent Board of Consultants. PG&E argues first that it plans to contract for the decommissioning of Humboldt Unit 3 with established firms that have appropriate experience in decommissioning work.

Second, PG&E asserts that subsequent decommissioning activities for Humboldt Unit 3 are "rather straight forward.., with little room for deviation." 9 PG&E suggests that the Nuclear Regulatory Commission determines all requirements for radioactive material disposal and site release for other use. Therefore, there is only limited discretion for PG&E and its contractors.

PG&E argues it applies economical and efficient methods to ensure prudent decisionmaking and oversight of decommissioning expenditures.

PG&E's current practice is to maintain separate accounting orders to record the costs of the dry cask storage activities and related transactions with the decommissioning trusts. This separate accounting facilitates monitoring by the Commission staff. PG&E also proposes community outreach on the decommissioning effort.

PG&E points out that it must submit an updated decommissioning cost estimate for any remaining decommissioning activities in subsequent triennial reviews. In addition, PG&E must submit a comparison of the most recently completed Humboldt Unit 3 decommissioning work, and the costs incurred, to the previous forecast of Humboldt Unit 3 decommissioning cost estimate. PG&E 9 Ex. 6, p. 7-3.

A.05-11-008, A.05-11-009 ALJ/DUG/hkr must persuasively demonstrate that material variances are reasonable. PG&E is therefore opposed to an Independent Board of Consultants that it believes would not be cost effective and would add to decommissioning expenses payable by the trusts. (See Ex. 6, pp. 7 7-4.)

B. Fielder's Position Fielder cites to Pub. Util. Code §§ 1091 - 1102 which provides for a construction project board of consultants and argues that decommissioning is very similar to large-scale construction in that decommissioning is also a complex project. (Fielder Reply Brief, p. 2, and footnote 1.) Fielder suggests the Diablo Canyon Independent Safety Committee (Diablo Safety Committee) also serves as a model, at least for budgetary purposes. 10 Fielder argues that PG&E's estimates for Humboldt's decommissioning are inflated and that without an independent board, PG&E will be deemed prudent while spending too much.

Additionally, Fielder argues that intervenors, including DRA, lack the expertise to effectively challenge PG&E's cost estimates or actual decommissioning costs in the triennial reviews.

C. Discussion We agree in principle with Fielder on the necessity to ensure that PG&E uses sufficient well-trained and experienced personnel to plan and direct the complex task of decommissioning a retired nuclear generating facility. PG&E is primarily an operating gas and electric distribution utility and not primarily an architect-engineer continuously engaged in complex construction and removal 10 Created as part of the ratemaking settlement for Diablo Canyon in D.88-12-083.

(30 CPUC 2d, 189.)

A.05-11-008, A.05-11-009 ALJ/DUG/hkr projects. This is also true for Edison and SDG&E; therefore our findings, below, are applicable to them as well, on the need for engaging and using sufficient well-trained and experienced personnel suitable to decommissioning a retired nuclear generating facility.

The Diablo Safety Committee is not an appropriate model: it is an after-the-fact investigative body that may be an incentive for safe operations (or deterrent to unsafe operations) but it does not immediately affect or control operating decisions.

The Diablo Canyon Independent Safety Committee ("DCISC") was established as a part of a settlement agreement entered into in June 1988 between the Division of Ratepayer Advocates of the California Public Utilities Commission ("PUC"), the Attorney General for the State of California, and Pacific Gas and Electric Company ("PG&E") concerning the operation of the two units of PG&E's Diablo Canyon Nuclear Power Plant ("Diablo Canyon").

The agreement provided that:

An Independent Safety Committee shall be established consisting of three members, one each appointed by the Governor of the State of California, the Attorney General and the Chairperson of the California Energy Commission, respectively, serving staggered three-year terms. The Committee shall review Diablo Canyon operations for the purpose of assessing the safety of operations and suggesting any recommendations for safe operations. Neither the Committee nor its members shall have any responsibility or authority for plant operations, and they shall have no authority to direct PG&E personnel. The Committee shall conform in all respects to applicable federal laws, regulations and Nuclear Regulatory Commission ("NRC") policies.

(http://www.dcisc.org/general-information/generalinformation.

html - the Diablo Safety Committee's website, emphasis added.)

There is an inherent conflict between the roles of consultants authorized by a regulator and managers who must account for their actions to a regulator. A A.05-11-008, A.05-11-009 ALJ/DUG/hkr consultant is "a person who provides expert advice professionally" whereas, a manager is "a person who manages an organization, group of staff."" A manager may get conflicting advice from various sources and must make a decision on which advice is best for the circumstances.

If the Commission were to authorize an Independent Board of Consultants, we would have to very clearly delineate: the selection criteria; role and obligations of the board; the mechanical operations of the board; the process to quickly resolve disagreements between PG&E and the board; and, no doubt, numerous other details. Fielder does not provide us with any of these details, and under cross-examination, the sponsoring witness could not suggest any of the details for a viable Independent Board of Consultants framework for us to consider.12 We do not consider §§ 1091 et seq. to be sufficient detailed operating guidelines to integrate a board with PG&E's management. Section 1098, for example, describes an after-the-fact review, including quarterly reports comparing actual to forecast results. These provisions suggest that such a board advises the Commission and does not control or advise PG&E prior to actual activities (for either new construction or dismantling major structures).

In order to satisfy the Commission, the utility must demonstrate that its actions can be deemed "reasonable and prudent." The Commission has found:

The term 'reasonable and prudent' means that at a particular time any of the practices, methods, and acts engaged in by a utility follows the exercise of reasonable judgment in light of facts known 11 Compact Oxford English Dictionary, online, http://www.askoxford.com/?view=uk.

12 The Reply Brief however relies extensively on the analogy of a construction project board as cited to §§ 1091 et seq.

A.05-11-008, A.05-11-009 ALJ/DUG/hkr or which should have been known at the time the decision was made. The act or decision is expected by the utility to accomplish the desired result at the lowest reasonable cost consistent with good utility practices. Good utility practices are based upon cost effectiveness, reliability, safety, and expedition.

A 'reasonable and prudent' act is not limited to the optimum practice, method, or act to the exclusion of all others, but rather encompasses a spectrum of possible practices, methods, or acts consistent with the utility system needs, the interest of the ratepayers and the requirements of governmental agencies of competent jurisdiction. (24 CPUC 2d, 486.) (Emphasis added.)

Defining reasonable and prudent as good utility practices is a tautology.

To properly manage the decommissioning process, to be reasonable and prudent, by using good utility practices, as required by this Commission, a utility must show (in this narrow instance) that it sought and used personnel who possessed the available and necessary skills, experience and knowledge to perform the task.

So to reasonably undertake decommissioning a nuclear generating plant, PG&E (as well as Edison and SDG&E) must employ properly trained experts who have experience relevant to decommissioning a nuclear plant to plan and perform the decommissioning. People with this skill set and experience may or may not be on the typical electric utility's staff. Therefore we expect PG&E to demonstrate in all subsequent decommissioning-related proceedings that throughout the decommissioning of Humboldt (and later for Diablo) it sought out and acquired the services of well-trained and experienced personnel appropriate to the tasks.

We expect PG&E to identify, and aggressively pursue employing, the right people for the job. We need not care whether these people are employees of PG&E or contractors: that is an operating decision best resolved by the utility.

Edison and SDG&E are also obliged as an integral part of good utility practices A.05-11-008, A.05-11-009 ALJ/DUG/hkr to demonstrate that in decommissioning SONGS Unit 1 that they engaged the 3

right people for the job.1 D. Conclusion An Independent Board of Consultants would obscure PG&E's overriding obligation to properly manage its decommissioning obligations. We are not competent, nor are our processes timely, to referee complex technical disagreements between PG&E's staff and an outside board on decommissioning issues. By contradistinction, the Nuclear Decommissioning Trust Funds' management committees are composed of utility officers and Commission-approved outside experts that explicitly have the responsibility to manage the trust funds' investments. Further, The Diablo Safety Committee does not operate the plant or consult on its management and therefore it is not a good model to justify the Independent Board of Consultants.

The proposed Board of Independent Consultants would not supplant and assume PG&E's responsibilities for decommissioning Humboldt Unit 3.

Therefore, it is far preferable that PG&E must demonstrate in subsequent triennial reviews that it engaged as either employees, contractors, or consultants, people trained to plan and perform a decommissioning, and who have experience applicable to decommissioning a nuclear plant. We also find that this obligation applies to Edison and SDG&E in subsequent triennial reviews of decommissioning activities.

13 This discussion focuses narrowly on the desired skills and experience of certain necessary decommissioning personnel and is not an all-encompassing discussion of the total obligations that comprise reasonable and prudent managerial actions for decommissioning a nuclear power plant.

A.05-11-008, A.05-11-009 ALJ/DUG/hkr IX. Waste Storage Facilities and Cost PG&E forecast its decommissioning costs for low level radioactive waste disposal and storage relying on facilities currently in use, but which may be closed to it when PG&E requires actual storage service. Fielder proposes that costs are likely to be much higher for any new storage facility. For low level radioactive waste, PG&E projected the cost of burial disposal at $248 per cubic foot (c.f.) but Fielder argued it should be set at $509 per c.f. as previously approved by the Commission (D.00-02-046 at p. 379, and cited in Fielder's Opening Brief, p. 1). Fielder estimates this would increase overall decommissioning cost for each plant by approximately $50,000,000 to

$1,000,000,000. (Opening Brief, p. 1, and pp. 5-7.)

A. Discussion There is little certainty about low level waste disposal, except we know in July 2008 the Barnwell facility will no longer accept waste from Non-Atlantic Compact states, which excludes the California utilities. (Ex. 11, pp. 24-27; and Ex. 21, pp. 14-18.) PG&E proposes $248 per c.f., escalated based on prior triennial reviews. Fielder argues that it is much more likely in the future the waste storage rates will be higher than Barnwell's cost, rather than lower, therefore the allowance should at least be set at $509 per c.f. Fielder believes that a potential Southwestern Compact facility would have costs even higher than $509 per c.f.

(Opening Brief, p. 5.)

The settling parties, PG&E, DRA, and TURN, offer no compelling counter-argument in their joint reply brief, except to point out firstly that DRA proposed a composite rate of $140 per c.f., which we find, the settlement notwithstanding, to be without merit considering the closure of Barnwell and the uncertainty of the future. The settling parties' second reason to oppose Fielder's A.05-11-008, A.05-11-009 ALJ/DUG/hkr recommendation is the uncertainty of his estimate. This argument is two-edged and the perhaps sharper edge cuts against PG&E's proposed use of the unavailable but lower Barnwell costs: PG&E's proposal is lower than previous Southwestern Compact facility estimates for a now more uncertain future.

We know DRA's rate is too low. We know PG&E's rate is for a service that will not be available. Fielder's proposed rates are also speculative. Our obligation is to equitably collect sufficient money over the plants' service lives to adequately fund competently managed trust funds for reasonably managed and a well-planned decommissioning of nuclear generating plants when they are retired from service.

One option would be to split the difference: modify the settlement and substitute a mid-point of $378.50 between PG&E's estimate of $248 and Fielder's

$509 proposal. A second more conservative approach would be to adopt Fielder's estimate for the most assurance that we do not under-fund the trusts.

The ratepayers are ill served by any expedient but inaccurate estimate. We cannot isolate a storage cost component within the settlement- and if we try, we would thereby abrogate the parties' other trade-offs within the settlement. We can, however, accept the settlement for now, and look to the future to impress on PG&E, DRA, and all parties, including Edison and SDG&E, that no one's forecast was very persuasive. We have the benefit of some time before we need the trusts' proceeds for most of the plants and therefore we can rely on the current settlements until the next triennial review. For the next proceeding, we direct all parties to conduct a thorough and complete research and analysis, and then err on the conservative (high estimate) side, when forecasting waste storage costs.

This finding is applicable to all three utilities. If there is no more certainty regarding western utilities' storage options during the next triennial review, then A.05-11-008, A.05-11-009 ALJ/DUG/hkr we expect parties to conservatively estimate low level waste storage costs. The parties may also make any additional recommendations on the appropriate allowance for waste storage costs.

X. Contingency The proposed settlement incorporates a 35% contingency factor for Diablo Canyon and 25% for Humboldt Unit 3.14 Fielder proposes that we should modify the settlement and use a 40% factor relying primarily on two issues: (1) the adopted contingency has been declining from a high of 50% in 1987 (24 CPUC 2d 15, 20) to 40% in 1995 (63 CPUC 2d 571, 613-614) and now the settling parties propose 35%; and (2) because of the Barnwell closure, waste storage costs are much more uncertain. (It is not clear whether Fielder would trade-off his storage estimate for his increased contingency, but there is a "belt and suspenders" element to the cautious recommendation of both.) A declining contingency, if properly determined, could reflect the improved accuracy of the decommissioning estimates based on more industry experience and being closer to the need for decommissioning. A contingency has an effect in early years of acting like an accelerated funding by over-accruing contributions in addition to its intended purpose of protecting against errors and unforeseen costs in the decommissioning estimate.

Again we are faced with a choice of whether or not to piecemeal the settlement. We will accept the settlement but in the next proceeding we direct all parties to conduct a thorough and complete research and analysis, and then err 14 Contingency: (1) A future event or circumstance which is possible but cannot be predicted with certainty. (2) A provision for such an event or circumstance. (3) The absence of certainty in events. (Compact Oxford English Dictionary, online.)

A.05-11-008, A.05-11-009 ALJ/DUG/hkr on the conservative (high estimate) side, when forecasting a contingency factor.

The parties may also make any additional recommendations on the appropriate allowance for contingencies. This finding is applicable to all three utilities.

Xl. PG&E's Settlement is Reasonable The Commission does not unravel a settlement unless there is significant problem with the outcome as a whole - in which case the settlement would fail the public interest test discussed elsewhere. This settled outcome is within the range of plausible litigation outcomes. Except for Humboldt Unit 3, these plants are not in active decommissioning. We are therefore less concerned now about under-funding than we will be as Diablo Units 1 and 2 approach retirement. Our overriding concern with decommissioning is to ensure the trust funds are sufficient to retire the plants pursuant to a reasonable plan and that the funds are recovered equitably from customers throughout the plants' service lives. We find the settlement applicable to PG&E to be reasonable.

XII. Comments on Proposed Decision The proposed decision of the ALJ in this matter was mailed to the parties in accordance with Pub. Util. Code § 311 and Rule 14.2(a) of the Commission's Rules of Practice and Procedure (Rules). Comments were filed on November 20, 2006, by Edison and SDG&E, and separately by SDG&E, PG&E, DRA, and Fielder. Replies were filed by Edison and SDG&E, PG&E, and DRA on November 27, 2006. We have reviewed the comments and have made changes to the decision as appropriate.

XIII. Assignment of the Proceedings Michael R. Peevey is the assigned Commissioner and Douglas M. Long is the assigned ALJ in these proceedings.

A.05-11-008, A.05-11-009 ALJ/DUG/hkr Findings of Fact

1. The Edison and SDG&E settlement is uncontested and resolves all disputed issues.

2. The PG&E settlement is uncontested except for the issues litigated by PG&E and Fielder.

3. The settlements resolve all of the disputed issues among the settling parties.

4. The active parties in the proceeding are representative of the stakeholders, and each has ably and vigorously pursued the interests of its constituency.

5. The proposed settlements' results are within the range of reasonable findings if the applications had been fully litigated on the parties' testimony.

6. An Independent Board of Consultants would interfere with PG&E exercising its obligations to efficiently and reasonably manage the decommissioning process.

7. Good utility practices would require a utility to engage a sufficient staff with appropriate expert training and experience to decommission a nuclear generation plant. This expert staff could be permanent staff, contractors or consultant staff.

8. Further detailed analysis and study is needed before the Commission can adopt reasonable future estimates for low level radiation waste storage.

9. Further detailed analysis and study is needed before the Commission can adopt reasonable future estimates for contingency factors in the decommissioning cost forecasts.

Conclusions of Law

1. Rules 51 et seq., applicable during the pendency of this proceeding, should be used to review the settlement agreement.

A.05-11-008, A.05-11-009 ALJ/DUG/hkr

2. The settlements for Edison and SDG&E meet the criteria of an uncontested settlement under Rule 51(f) and San Diego Gas & Electric46 CPUC 2d 538 (1992).

3. The settlement for PG&E met the criteria for settlements under Rules 51 et seq. Rule 51.6 was satisfied by conducting an evidentiary hearing and the filing of briefs on the contested issues.

4. The settlements are reasonable in light of the whole record.

5. The settlements are in the public interest.

6. The costs incurred by Edison and SDG&E towards the decommissioning of SONGS Unit 1 were reasonable.

7. The costs incurred by PG&E towards the decommissioning of Humboldt Unit 3 were reasonable.

8. Under Rule 51.8, the adoption of the proposed settlements creates no precedent for subsequent triennial reviews of the nuclear decommissioning trust funds or the decommissioning activities of Edison, SDG&E, or PG&E.

9. The Settlements do not contravene or compromise any statutory provision or Commission decision, and are consistent with law.

10. It is reasonable to direct the parties to conduct and include detailed studies in subsequent triennial decommissioning review proceedings.

11. A.05-11-008 and A.05-11-009 should be closed.

A.05-11-008, A.05-11-009 ALJ/DUG/hkr FINAL ORDER IT IS ORDERED that:

1. The attached settlement in Appendix B for Application (A.) 05-11-008 is adopted.

2. The attached settlement with updates in Appendix B for A.05-11-009 is adopted.

3. Southern California Edison Company (Edison) shall file a compliance advice letter with the Commission's Energy Division within 10 days of the effective date of this decision. It shall be served on the service list for this proceeding. The advice letter shall describe how Edison will implement the settlement as adopted in this decision, subject to Energy Division determining that the filing is in compliance with this order. Edison may consolidate the rate changes authorized in this decision with its Energy Resource Recovery Account forecast compliance filing in early 2007.

4. San Diego Gas & Electric Company (SDG&E) shall file a compliance advice letter with the Commission's Energy Division within 10 days of the effective date of this decision. It shall be served on the service list for this proceeding. The advice letter shall describe how SDG&E will implement the settlement as adopted in this decision and the tariffs will be effective on January 1, 2007, or the first day of the month following the effective date of this order, subject to Energy Division determining that the revised tariffs are in compliance with this order.

SDG&E is authorized to apply $2.79 million of the overcollection in its Nuclear Decommissioning Adjustment Mechanism as a 12-month amortization to the nuclear decommissioning rate effective January 1, 2007, to offset the impact of the increase in the Nuclear Decommissioning revenue requirement in 2007.

A.05-11-008, A.05-11-009 ALJ/DUG/hkr

5. Within 10 days of the effective date of this Decision, Pacific Gas and Electric Company (PG&E) shall file a separate compliance advice letter with the Commission's Energy Division, which shall include the revenue requirement described in the Settlement Agreement. Any resulting rate change shall be incorporated with the next available consolidated rate change following the effective date of this order, subject to Energy Division determining that the revised tariffs are in compliance with this order. The compliance advice letter shall be served on the service list for this proceeding. The compliance advice letter shall describe how PG&E will implement the settlement as adopted in this decision. In accordance with Item 6 of the Settlement Agreement, PG&E shall file a second compliance advice letter in the first quarter of 2007 to update the 2007-2009 revenue requirements that incorporate the December 31, 2006 nuclear decommissioning trust fund balances. The update will serve as the basis for the required IRS Schedule of Ruling Amounts for years 2007-2009. An adjustment to the Nuclear Decommissioning Adjustment Mechanism (NDAM) balancing account shall be made to address any difference in the revenue collected in rates and the annual revenue requirements, as described and updated in the compliance advice letters.

6. Edison, SDG&E, and PG&E shall serve testimony in their next triennial review of nuclear decommissioning trusts and related decommissioning activities that demonstrates they have made all reasonable efforts to retain and utilize sufficient qualified and experienced personnel to effectively, safely, and efficiently pursue any physical decommissioning related activities for the nuclear generation facilities under their control.

7. Edison, SDG&E, and PG&E shall serve testimony in their next triennial review of nuclear decommissioning trusts and related decommissioning A.05-11-008, A.05-11-009 ALJ/DUG/hkr activities that demonstrates they have made all reasonable efforts to conservatively forecast the costs of low level radioactive waste storage.

8. Edison, SDG&E, and PG&E shall serve testimony in their next triennial review of nuclear decommissioning trusts and related decommissioning activities that demonstrates they have made all reasonable efforts to conservatively establish an appropriate contingency factor for inclusion in the decommissioning revenue requirements.

9. A.05-11-008 and A.05-11-009 are closed.

This order is effective today.

Dated January 11, 2007, at San Francisco, California.

MICHAEL R. PEEVEY President DIAN M. GRUENEICH JOHN A. BOHN RACHELLE B. CHONG Commissioners A.05-11-008, A.05-11-009 ALJ/DUG/hkr APPENDIX A: SERVICE LIST

• • • • • • • • • • • • APPEARANCES ************ Carol A. Schmid-Frazee Attorney At Law Norman J. Furuta SOUTHERN CALIFORNIA EDISON COMPANY FEDERAL EXECUTIVE AGENCIES PO BOX 800 333 MARKET STREET, 10TH FLOOR, MS 1021A ROSEMEAD CA 91770 SAN FRANCISCO CA 94105-2195 (626) 302-1337 (415) 977-8808 carol.schmidfrazee@sce.com nonnan.furuta@navy.mil For: Southern California Edison Company For: Federal Executive Agencies Jennifer Shigekawa Scott L. Fielder Attorney At Law Attorney At Law SOUTHERN CALIFORNIA EDISON COMPANY FIELDER, FIELDER & FIELDER 2244 WALNUT GROVE AVENUE 419 SPRING STREET, SUITE A ROSEMEAD CA 91770 NEVADA CITY CA 95959 (626) 302-6819 (530) 478-1600 Jennifer. Shigekawa@sce.com fieldersl@theunion.net For: Self Matthew Freedman Attorney At Law Joy A. Warren THE UTILITY REFORM NETWORK Attorney At Law 711 VAN NESS AVENUE, SUITE 350 MODESTO IRRIGATION DISTRICT SAN FRANCISCO CA 94102 PO BOX 4060 (415) 929-8876 MODESTO CA 95352 freedman@tum.org (209) 526-7389 For: TURN joyw@mid.org For: Modesto Irrigation District Bernardo R. Garcia Region 5 Director Craig M. Buchsbaum UTILITY WORKERS UNION OF AMERICA Attorney At Law 215 AVENIDA DEL MAR, SUITE M PACIFIC GAS AND ELECTRIC COMPANY SAN CLEMENTE CA 92674-0037 77 BEALE STREET, B30A (949) 369-9936 SAN FRANCISCO CA 94105 uwua@redhabanero.com (415) 973-4844 cmb3@pge.com ********** STATE EMPLOYEE ***********

For: Pacific Gas and Electric Truman L. Bums Rashid A. Rashid Division of Ratepayer Advocates Legal Division RM. 4102 RM. 4107 505 VAN NESS AVE 505 VAN NESS AVE San Francisco CA 94102 3298 San Francisco CA 94102 3298 (415) 703-2932 (415) 703-2705 txb@cpuc.ca.gov rhd@cpuc.ca.gov For: DRA For: DRA Sandra Fromm James F. Walsh Energy Specialist Attorney At Law CALIFORNIA ENERGY COMMISSION SAN DIEGO GAS & ELECTRIC COMPANY 1516 9TH STREET 101 ASH STREET, HQ12C SACRAMENTO CA 95814 SAN DIEGO CA 92101-3017 (916) 654-4651 (619) 696-5022 sfromm@energy.state.ca.us jwalsh@sempra.com For: San Diego Gas & Electric A.05-11-008, A.05-11-009 ALJ/DUG/hkr Douglas M. Long Bill Marcus Administrative Law Judge Division JBS ENERGY RM. 5023 311 D STREET 505 VAN NESS AVE WEST SACRAMENTO CA 95605 San Francisco CA 94102 3298 (916) 372-0534 (415) 703-3200 bill@jbsenergy.com dug@cpuc.ca.gov Donna Deronne Mark R. Loy LARKIN & ASSOCIATES, INC.

Division of Ratepayer Advocates 15728 FARMINGTON ROAD RM. 4205 LIVONIA MI 48154 505 VAN NESS AVE (734) 522-3420 San Francisco CA 94102 3298 DDeRonne@aol.com (415) 703-2268 mrl@cpuc.ca.gov Lynne Mackey For: DRA LS POWER DEVELOPMENT 400 CHESTERFIELD CTR., SUITE 110 Anne W. Premo ST. LOUIS MO 63017 Energy Division lmackey@lspower.com 770 L STREET, SUITE 1050 Sacramento CA 95814 Audra Hartmann (916) 324-8683 LS POWER GENERATION awp@cpuc.ca.gov 980 NINTH STREET, SUITE 1420 SACRAMENTO CA 95814

• • • • • • • • • INFORMATION ONLY ********** (916) 441-6242 ahartmann@lspower.com James S. Adams 9394 MIRA DEL RIO DRIVE Christopher J. Mayer SACRAMENTO CA 95827 MODESTO IRRIGATION DISTRICT (916) 361-0606 PO BOX 4060 jsadams49@sbcglobal.net MODESTO CA 95352-4060 (209) 526-7430 Sean Anderson chrism@mid.org 915 25ST., NO.I SAN DIEGO CA 92102-2744 (619) 236-1079 MRW & ASSOCIATES, INC.

sda219@nyu.edu 1999 HARRISON STREET, SUITE 1440 OAKLAND CA 94612 J.A. Savage (510) 834-1999 CALIFORNIA ENERGY CIRCUIT mrw@mrwassoc.com 3006 SHEFFIELD AVE OAKLAND CA 94602 Bonnie W. Tam (510) 534-9109 PACIFIC GAS AND ELECTRIC COMPANY editorial@califomiaenergycircuit.net 77 BEALE STREET, B8R For: CALIFORNIA ENERGY CIRCUIT SAN FRANCISCO CA 94105 (415) 972-5509 Melanie Gillette bwt4@pge.com DUKE ENERGY NORTH AMERICA 980 NINTH STREET, SUITE 1420 Chenoa Thomas SACRAMENTO CA 95814 PACIFIC GAS AND ELECTRIC COMPANY (916) 441-6233 77 BEALE STREET, BIOA mlgillette@duke-energy.com SAN FRANCISCO CA 94105 (415) 973-5965 cath@pge.com A.05-11-008, A.05-11-009 ALJ/DUG/hkr Maybelline Dizon Michael Shames PACIFIC GAS AND ELECTRIC COMPANY Attorney At Law 77 BEALE STREET, MC B 10A UTILITY CONSUMERS' ACTION NETWORK SAN FRANCISCO CA 94105 3100 FIFTH AVENUE, SUITE B (415) 973-1670 SAN DIEGO CA 92103 M IDI @pge.com (619) 696-6966 mshames@ucan.org Lisa Browy For: UTILITY CONSUMERS' ACTION NETWORK Regulatory Case Administrator SAN DIEGO GAS & ELECTRIC COMPANY 101 ASH STREET, CP32D SAN DIEGO CA 92123 (858) 654-1566 lbrowy@semprautilities. corn Case Administration SOUTHERN CALIFORNIA EDISON COMPANY ROOM 370 2244 WALNUT GROVE AVENUE ROSEMEAD CA 91770 (626) 302-4875 case.admin@sce.com Walker A. Matthews, Iii Attorney At Law SOUTHERN CALIFORNIA EDISON COMPANY 2244 WALNUT GROVE AVENUE ROSEMEAD CA 91770 (626) 302-6879 walker.matthews@sce.com For: Southern California Edison Chris Vaeth Attorney At Law THE GREENLINING INSTITUTE 1918 UNIVERSITY AVE., 2ND FLOOR BERKELEY CA 94704 (510) 926-4026 chrisv@greenlining.org For: THE GREENLINING INSTITUTE Robert Gnaizda Policy Director/General Counsel THE GREENLINING INSTITUTE 1918 UNIVERSITY AVENUE, SECOND FLOOR BERKELEY CA 94704 (510) 926-4006 robertg@greenlining.org For: THE GREENLINING INSTITUTE (END OF APPENDIX A)

Attachment 5 Annual Funding Status Report for the Year Ending December 2006 Public Service Company of New Mexico

Vo

/ </A' PUBLIC SERVICE COMPANY OF NEW MEXICO TERMINATION FUNDING COMMITTEE 2006 ANNUAL FUNDING STATUS REPORT For The Year Ending December 31, 2006 February 2007

Public Service Company of New Mexico Annual Funding Status Report For Year Ending December 31, 2006 Table of Contents PART 1 - GENERAL INFORMATION 1.1 Description of Funds 1.2 Pro Rata Share 1.3 Sale and Leaseback Transactions IA Summary of Regulatory Requirements Respecting Electric Rates and Termination Funding 1.5 Statement of Investment Policies and Restrictions 1.6 PVNGS Unit 3 Financial Assurance PART 2 -

SUMMARY

OF STATUS OF TERMINATION FUNDS 2.1 Committed Accumulations at 12/31/06 2.2.1 Market Value of Actual Accumulations at 12/31/06 2.2.2 Computation of Actual Accumulations 2.3 Funded Floor Amount at 12131/06 2.4 Deposits Made During 2006 2.5 Mandatory Deposits During 2006 2.6 Estimated Outstanding Balance of Recovery Deposits and Correction Deposits Outstanding at 12/31/06 2.7 Annual Net Income (Loss) During 2006 2.8 Summary of Market Values of Permitted Investments at 12/31/06 2.9 Inventory and Values of Permitted Investments at 12/31/06 2.10 Fund Liabilities at 12/31/06 2.11 Defaults, If Any, Experienced on Investments 2.12 Summary of Investment Ratings PART 3 - EXHIBITS 3.1 Inventory and Value of Permitted Investments at 12/31/06 3,2 Summary of Investment Ratings 3.3 Table of Estimated Deposits 3.4 Committed Accumulations to End of Funding Period for each Unit and Percent Funding Curve and Funding Floor Curve for Each Unit Page I

Public Service Company of New Mexico Annual Funding Status Report For Year EndingDecember 31, 2006 Part 1 - GeneralInformation 1.1 Description of Funds 1.!. 1 Fund: Master Trust - Non-Qualified Equity Funds A. Units Funded: PVNGS Units 1,2, and 3 B. Tax Status: Non-qualified external trust established March 15, 1996 C. Independent Trustee: Mellon Bank, N. A.

D. Investment Manager: Wells Capital Management, First Quadrant, LP E. Basic Documents: a. Master Decommissioning Trust Agreement for Palo Verde Nuclear Generating Station

b. Amendment Number One to the Master Decommissioning Trust Agreement for Palo Verde Nuclear Generating Station

c. Amendment Number Two to the Master Decommissioning Trust Agreement for Palo Verde Nuclear Generating Station

d. Investment Advisory Agreement Between Public Service Company of New Mexico and Wells Capital Management, Inc.

e. Investment Advisory Agreement Between Public Service Company of New Mexico and First Quadrant, LP

f. Investment Advisory Agreement Between Public Service Company of New Mexico and Philadelphia International Advisors.

F. Changes since last report: None 1.1.2 Fund: Master Trust - Qualified Equity Funds A. Units Funded: PVNGS Units 1 and 2 B. Tax Status: Qualified external trust established March 15, 1996 C. Independent Trustee: Mellon Bank, N. A.

D. Investment Manager: Wells Capital Management. First Quadrant, LP, Philadelphia International Advisors E. Basic Documents: a. Master Decommissioning Trust Agreement for Palo Verde Nuclear Generating Station

b. Amendment Number One to the Master Decommissioning Trust Agreement for Palo Verde Nuclear Generating Station

c. Amendment Number Two to the Master Decommissioning Trust Agreement for Palo Verde Nuclear Generating Station

d. Investment Advisory Agreement Between Public Service Company of New Mexico and Wells Capital Management. Inc.

e. Investment Advisory Agreement Between Public Service Company of New Mexico and First Quadrant, LP

f. Investment Advisory Agreement Between Public Service Company of New Mexico and Philadelphia International Advisors.

F. Changes since last report: Addition of Wells Capital Management as an Investment for the Qualified Trust.

PublicService Company of New Mexico Page 2

Annual Funding Status Report For Year Ending December 31, 2006 Part I - GeneralInformation 1.1.3 Fund: Master Trust - Non-Qualified Fixed Income Funds A. Units Funded: PVNGS Units 1, 2, and 3 B. Tax Status: Non-qualified external trust established March 15. 1996 C. Independent Trustee: Mellon Bank, N, A.

D. Investment Manager: T. Rowe Price Associates, Inc.

E. Basic Documents: a. Master Decommissioning Trust Agreement for Palo Verde Nuclear Generating Station

b. Amendment Number One to the Master Decommissioning Trust Agreement for Palo Verde Nuclear Generating Station

c. Amendment Number Two to the Master Decommissioning Trust Agreement for Palo Verde Nuclear Generating Station

d. Investment Advisory Agreement Between Public Service Company of New Mexico and T. Rowe Price Associates, Inc.

F. Changes since last report: None I. 1.4 Fund: Master Trust - Qualified Fixed Income Funds A. Units Funded: PVNGS Units I and 2 B. Tax Status: Qualified external trust established March 15, 1996 C. Independent Trustee: Mellon Bank, N. A.

D. Investment Manager: T. Rowe Price Associates, Inc.

E. Basic Documents: a. Master Decommissioning Trust Agreement for Palo Verde Nuclear Generating Station

b. Amendment Number One to the Master Decommissioning Trust Agreement for Palo Verde Nuclear Generating Station

c. Amendment Number Two to the Master Decommissioning Trust Agreement for Palo Verde Nuclear Generating Station

d. Investment Advisory Agreement Between Public Service Company of New Mexico and T. Rowe Price Associates, Inc.

F. Changes since last report: None Page 3

Public Service Company of New Mexico Annual Funding Status Report For Year Ending December31, 2006 Part I - GeneralInformation 1.2 Pro Rata Share Generation Entitlement Share 10.20%

Section 23.5 Obligation 0%

Total Pro Rata Share 10.20%

13 Sale and Leaseback Transactions Unit LessorlTrustee Lessor Decommissioning Funding Basis Date Funding is Reguired Funding Compliance Ownership Fund Required Status I U. S.Bank, N.A. 78%

• Yes ** **

2 U. S.Bank, N.A. 78%

• Yes ** **

3 NIA 0% N/A N/A N/A N/A

• PNM purchased beneficial interests in 22% of the leases, and the relevant leases were subsequently collapsed so that PNM now owns those interests directly.

• The Sale and Leaseback agreements between PNM and the various Lessors are silent to these requirements other than to require compliance with applicable law.

1.4 Summary of Regulatory Requirements Respecting Electric Rates and Termination Funding 1.4.1 The New Mexico Public Regulation Commission ("NMPRC") regulates the recovery of decommissioning costs through rates and other matters related to decommissioning for Units I and 2 of PVNGS.

1.4.2 The NMPRC, in Case No. 2004, approved the use of an external non-qualified investment plan known as the Cost of Money Reduction Plan ("COMReP")

for Units I and 2 and permitted, but did not require, the use of the same plan for Unit 3.

1.4.3 The NMPRC approved the use of external qualified trust in Case No. 2674.

1.4.4 On September 16, 1997, the NMPRC determined in Case No. 2742 that PNM, as required, had presented and explained its proposed method to remain fully funded whenever a revised decommissioning cost study shows that PNM needs to increase the contribution to remain fully funded.

1.4.5 In July 1998, in Case No. 2830 the NMPRC issued a final order relieving PNM of the obligation of investing in COMReP.

Page 4

Public Service Company of New Mexico Annual FundingStatus Report For Year Ending December 31, 2006 Part 1 - General Information 1.4.6 In 1998, PNM and the Trustee of the Master Nuclear Decommissioning Trust filed a civil complaint and an amended complaint, respectively, against several companies and individuals for the under-performance of COMReP. The parties reached a settlement agreement on September 5. 2000 under which all complaints were dismissed. After deducting expenses and taxes from the settlement, the net proceeds were contributed to the decommissioning trust.

1.4.7 There are no decommissioning costs included in FERC jurisdictional rates being collected for any of the PVNGS units. Therefore, PNM's decommissioning trust funds are not currently subject to FERC regulation.

1.4.8 In January 2003, an electric Stipulated Agreement was approved by the NMPRC in Case No. 3137. The Stipulated Agreement provides for a fixed rate path, which is effective for services rendered September 1,2003 through December 31, 2007. In addition, the signatories to the Stipulated Agreement have acknowledged that the stipulated rates shall be deemed to provide for full recovery of nuclear decommissioning costs accrued in accordance with the estimates in the most current decommissioning cost study prepared by TLG Services, Inc.

during the period the rates are in effect for PNM's interests in PVNGS Units I and 2. Annual decommissioning expenses approved by the NMPRC in Case No. 3137 for PVNGS Units I and 2 are shown below. Unit 3 is excluded from NMPRC rates. The decommissioning expense for PVNGS Unit 3 is is also shown below:

Unit 1 $ 2,404,373 Unit 2 $ 2,491,835 Unit 3 $ 2,756,346

$ 7,652,554 1.5 Statement of Investment Policies and Restrictions 1.5,1 Trust Agreement restrictions: Same as Chapter 5.4 of the Manual of the TFC.

1.6 PVNGS Unit 3 Financial Assurance 1.6,1 As reflected in this report, PNM continues to rely on the external sinking fund mechanism for financial assurance for its decommissioning obligations with respect to its interest in PVNGS Unit 3. Costs associated with PNM's interest in Unit 3 have never been in retail rates and such costs were permanently excluded from New Mexico retail rates by an NMPRC order issued in 1989. Excluding revenues from power-marketing operations (a substantial portion of which involved the purchase and sale of wholesale power), PNM in the year 2006 collected about 94% of its gas and electric utility revenues from cost of service based rates. PNM is continuing to collect the vast majority of its Unit 3 decommissioning costs through cost of service based revenues within the meaning of 10 CFR 50.75(e)(1Xii)(A). PNM's electric revenues from its interest in Unit 3 represented less than 5% of PNM's electric revenues in the year 2006, It should be noted that the total revenues recovered by PNM through traditional cost of service rates are greatly in excess of its decommissioning funding requirements for Unit 3. For 2006, PNM had retail electric cost of service revenues of $592.1 million, as contrasted with the approximately $2.3 million annual required contribution to PNM's Unit 3 decommissioning trust fund. Notably, at the end of 2006, PNM had accumulated $35.3 million (market value) in its Unit 3 decommissioning trust fund.

Page 5

Public Service Company of New Mexico Annual Funding Status Report For Year Ending December31, 2006 Part2 -Status of TerminationFund at 12/31/06 2.1 Committed Accumulations at 12131106 (000's)

Unit I Unit 2 Unit 3 Total 2.13 Latest Estimated Termination Costs (2004) 656,912 699,755 768,049 2.1.24,716 2.1.2 Generation Entitlement Share of Estimated 67,005 71,375 78,341 216,721 Termination Costs 2.1.3 Escalation Adjustment Factor 1.1025 1.1025 1.1025 1.1025 21.4 Adjusted Share of Estimated Termination 73,873 78,691 86,371 238,935 Costs (2.1 2 amount) X (2.1.3) 2,1.5 Percent Funding Requirement at End of 39.89% 40.24% 37.84% 39.26%

Reporting Period from Percent Funded 2.1.6 Committed Accumulations at End of Reporting 29,468 31,665 32,683 93.816 Period (2,1.4 amount) X (2.1.5) 2.1.7 Summary of Major Assumptions in Developing Accumulations Curves Portfolio Yield 9.50%

Mortality 1983 Group Annuity Mortality Policy Loan Interest Rate 8.50%

Inflation Rate 5.00%

Side Fund Interest Rate 5% After Tax 2.1.8 Decommissioning Cost Assumptions Used in the Annual Funding Status Report Cost Study 2004TLG Water Reclamation Facility Included Water Reclamation Supply System Pipeline & Structures Included Make-up Water Reservoir Included ISFSI Included Stored Steam Generators & Storage Facility Included Page 6

Public Service Company of New Mexico Annual Funding Status Report For Year Ending December 31, 2006 Part2 -Status of TerminationFund at 12/31/06 2.2.1 Market Value of Actual Accumulations at 12/31/06 Unit I Unit 2 Unit 3 Total 43,238,911 44,776,769 35,127,560 123,143,240 2.2.2. Computation of Actual Accumulations: Unit 1 Unit 2 Unit 3 Total 2.2.2.a. Master Decommissioning Trust - Qualified Funds Account Balances as of 12/31/06 30,869,804 29,952,969 60,822,773 2,2.2.b. Master Decommissioning Trust - Non Qualified Funds Account Balances as of 12/31/06 12,369,107 14,823,800 35,127,560 62,320,467 2.2.2.c Total All Trusts 43,238,911 44,776,769 35,127,560 1 123,143,240 (A) Market Value 2.2.2.d Estimated Taxes and Fees Trustee 36,409 36,409 36,409 109,227 Non-Qualified Taxes 849,640 1,009,626 2,333,069 4,192,335 Qualified Taxes 1.335,235 1,298,156 2,633,391 Total Estimated Taxes and Fees (B) Estimated Taxes &

2,221,284 2,344,191 2,369,478 6,934,953 Expenses Total Liquidated After-Tax value 41,017,627 42,432,578 32.758.082 1 116,208,287 (A)-(B)

Page 7

Public Service Company of New Mexico Annual Funding Status Report For Year Ending December 31, 2006 Part2 -Status of TerminationFund at 12/31/06 2.3 Funded Floor Amount at 12/31/06 (000's)

Unita Unit 2 Unit_3 Total 2.3.1 Percentage of Committed Accumulations 81% 81% 81% 81%

2.3.2 Funded Floor Amount 23,869 25,649 26,473 75,991 2.4 Deposits Made During 2006 (All Termination Funds)

Unit 1 Unit 2 Unit 3 Total NRC Required Deposit 0 0 0 0 Normal Annual Deposit 750,000 0 Mandatory Deposit 1,823,708 1,751,777 0 3,575,485 Recovery Deposits 0 0 0 0 Correcting Deposits 0 0 0 0 Total Deposits 1,823,708 1,751,777 750,000 4,325,485 2I Mandatory Deposits During 2006 The mandatory deposit amount was equal to the following: Unit I Unit 2 Unit.3 Total 1,823,708 1,751,777 0 3,575,485 2,6 Estimated Outstanding Balance of Recovery Deposits and Correcting Deposits Outstanding at 12/31/06 Recovery Deposits: Correcting Deposits:

Amount Outstanding Amount Outstanding All Units 0 0 Page 8

Public Service Company of New Mexico Annual Funding Status Report For Year Ending December 31, 2006 Part2 -Status of Termination Fund at 12/31/06 2.7 Annual Net Income (Loss) During 2006 (All Funds: All Units) 2.7.1 Qualified Funds Unit 1 Unit 2 Income 676,393 657,177 Realized Gains/Losses 2,303,422 2,335,302 Other Income 845 821 Transfer unto Account 1,823,708 1,751,777 Expenses (Includes Taxes) (572,602) (580,322)

Change In Unrealized Appreciation 1,431,323 1,385,086 Or Depreciation of Assets Beginning Market Value 25,206,716 24,503,128 Ending Net Asset Market Value 30,869,804 29,952,969 2.7.2 Non-Oualified Funds Unit I Unit 2 Unit 3 Income 300,293 359,886 836,154 Realized Gains/Losses 391,198 468,830 1,087,706 Other Income 46 55 127 Transfer unto Account 0 0 0 Expenses (Includes Taxes) (72,893) (87,259 (202,349)

Change In Unrealized Appreciation 506,090 606,254 1,403,390 Or Depreciation of Assets Beginning Market Value 11,244,374 13,475,765 31,252,533 Ending Net Asset Market Value 12,369,107 14,823,800 35.127,560 Page 9

Public Service Company of New Mexico Annual FundingStatus Report For Year Ending December 31, 2006 Part2 -Status of Termination Fund at 12/31/06 2.8 Summary of Market Values of Permitted Investments at 12/31/2006 Oualified Non-Oualified Total 2,8.1 Cash and Cash equivalents 7,493.130 937,016 8,430,147 2.8.2 Acceptable Debt Securities 9,505,133 24,466,021 33,971,154 2.8.3 Acceptable Equity Securities 43,824,499 36,917,429 80,741,928 2.8.4 Acceptable Life Insurance 0 0 0 2.8.5 Acceptable Property Interests 0 0 0 60,822,762 62,320,466 123,143,228 2.9 Inventory and Values of Permitted Investments at 12/31/2006 Attached as Exhibit 3.1 [Not Attached]

2.10 Fund Liabilities at 12/31/2006 None, except those estimated taxes and accrued expenses listed in 2.2.2.d

"*t11 rl¥ollI If" An 11V- ~a

---a All n m1-4

21 ju. A ý None 2.12 Summary of Investments Ratings Attached as Exhibit 3.2 Page 10

Public Service Company of New Mexico Annual Funding Status Report For Year Ending December31, 2006 Part3-Exhibits 3.1 Inventory and Values of PermittedInvestments at 12/31/2006 [Not Attached]

3.2 Summary of Investments Ratings 3.3 Table of Estimated Deposits 3.4 Committed Accumulations to End of FundingPeriodfor Each Unit and Percent FundingCurve and FundingFloor Curvefor Each Unit Page II

Exhibit 3.2 Summary of Investments Ratings

Exhibit 3.2 Summary of Investment Ratings Public Service of New Mexico Oualified Taxable Fixed Income Portfolio as of 12/31/06 Moody's S&P DIotn Di"na, 01- _f k4.,L,.* V.1- Raitinii Range V/. -f %4.IraLtVouIUv raltl &I-3 i Ottk.fltVa.t Ratinp anap Aaa 73A1 AAA 73.51 Aal-3 11.93 AA+, AA, AA- 6.79 AI-A3 14.08 A+, A, A- 19.38 Nonrated 0.26 Nonrated 0.00 Cash 0.32 Cash 0.32 100.00 100.00 Note. All bonds that are nonratedby one of the nationally recognized statisticalratings organizations(NRSRO) are ratedA or higher by eithera different NRSRO or by T. Rowe Price'sinternal rating system.

Public Service of New Mexico Non-Qualified Taxable Fixed Income Portfolio as of 12/31/06 Moody's S&P D ot;n flaf.&~

D.-n ana--

41- w)F X4.,a Un

-L- # Vr_ 1 Uwt Ratine Ranme  % of Market Value Aaa. 50.07 AAA 51.19 Aal-3 30.15 AA+, AA, AA- 29.69 Al -A3 14.56 A+, A, A- 9.66 Baa 0.00 BBB 1.06 Nonrated 2.99 Nonrated 6.17 Cash 2.23 Cash 2.23 100.00 100.00

Exhibit 3.3 Table of EstimatedDeposits

Estimated Decommissioning Contributions PVNGS Units 1, 2, and 3

($000)

TOTAL UNIT I UNIT 2 UNIT 3 TOTAL CONTRIBUTIONS 2006 1,842 1,842 2,284 5,968 2007 1,842 1,842 2,284 5,968 2008 1,842 1,842 2,284 5,968 2009 1,842 1,842 2,284 5,968 2010 1,842 1,842 2,284 5,968 2011 1,842 1,842 2,284 5,968 2012 1,842 1,842 2,284 5,968 2013 1,842 1,842 2,284 5,968 2014 1,842 1,842 2,284 5,968 2015 1,842 1,842 2,284 5,968 2016 1,842 1,842 2,284 5,968 2017 1,842 1,842 2,284 5,968 2018 1,842 1,842 2,284 5,968 2019 1,842 1,842 2,284 5,968 2020 1,842 1,842 2,284 5,968 2021 1,842 1,842 5,305 8,988 2022 1,842 1,842 5,305 8,988 2023 1,842 1,842 5,305 8,988 2024 1,842 1,842 5,305 8,988 2025 - 1,842 2,284 4,126 2026 - 2,284 2,284

Exhibit3.4 Committed Accumulations to End of Funding Periodfor Each Unit and Percent Funding Curve and FundingFloor Curvefor Each Unit

PUBLIC SERVICE COMPANY OF NEW MEXICO PALO VERDE UNIT 1

($000)

Funding Plan Funding Floor Curve Actual Funding Year Fund $ Est. Costs % Funded Criteria Percent $ Amount Fund $ Est. Cost % Funded 1991 1,095 28,746 3.81% 80% 3.05% 876 1,096 28,746 3.81%

1992 3,450 45,099 7.65% 80% 6.12% 2,760 2,334 45,099 5.18%

1993 5,981 47,354 12.63% 80% 10.10% 4,785 3,691 47,354 7.79%

1994 6U807 49,722 13.69% 80% 10.95% 5,446 4,117 49,722 8.28%

1995 7,018 45,959 15.27% 80% 12.22% 5,614 4,235 45.959 9.21%

1996 8,107 48,257 16.80% 80% 13.44% 6,486 8,094 48,257 16.77%

1997 9,212 50,670 18.18% 80% 14.54% 7.369 9,999 50,670 19.73%

1998 11,170 56,873 19.64% 80% 15.71% 8,936 14,095 56,873 24.78%

1999 12,953 59.717 21.69% 809/6 17.35% 10,362 16,354 59,717 27.39%

2000 15,193 62,703 24.23% 80% 19,38% 12,154 17,447 62,703 27.82%

2001 16,828 62,816 26.79% 80% 21,43% 13,463 17,673 62,816 28.13%

2002 19,371 65,956 29.37% 80% 23.50% 15,497 20,057 65,956 30.41%

2003 22,147 69,254 31.98% 80% 25.58% 17,718 24,991 69,254 36.09%

2004 23,177 67.005 34.59% 80% 27.67% 18.542 29,313 67,005 43.75%

2005 26.193 70.355 37.23% 80% 29.78% 20,955 34,723 70,355 49.35%

12006 29,468 73,873 39.89% 81% 32.31% 23,869 41,018 73,873 55.53%ll 2007 33X005 77,566 42.55% 82% 34.89% 27,064 2008 36,821 81,445 45.21% 83% 37.52% 30,562 2009 41,040 85,517 47.99% 84% 40.31% 34,473 2010 45.516 89,793 50.69% 85% 43.09% 38,689 2011 50,300 94,283 53.35% 86% 45.88% 43,258 2012 55,646 98,997 56.21% 87% 48.90% 48.412 2013 61,370 103,947 59.04% 88% 51.96% 54,006 2014 67,505 109,144 61,85% 89% 55.05% 60,080 2015 74,067 114.601 64.63% 90% 58.17% 66,660 2016 81,079 120,331 67.38% 91% 61.32% 73,782 2017 88,911 126,348 70.37% 92% 64.74% 81,798 2018 97,270 132,665 73.32% 93% 68.19% 90,461 2019 106,187 139,298 76-23% 94% 71.66% 99,816 2020 115,694 146,263 79.10% 95% 75.15% 109,909 2021 125,761 153,498 81.93% 96% 78.65% 120,731 2022 136,668 161,033 84.87% 97% 82.32% 132,568 2023 148,631 168,937 87.98% 98% 86.22% 145,658 2024 161,129 176,541 91.27% 99% 90.36% 159,517 2025 170.208 183,969 92.52% 100% 92.52% 170,208 2026 172,713 184,208 93.76% 100% 93.76% 172,713 2027 158,159 166,466 95.01% 100% 95.01% 158,159 2028 134,512 139,738 9%.26% 100% 96.26% 134,512 2029 114,887 117,820 97,51% 100% 97.51% 114,887 2030 99,811 101,074 98.75% 100% 98.75% 99,811 2031 82,052 82,052 100.00% 100% 100,00% 82,052 2032 67,156 67,156 100.00% 100% 100.00% 67,156 2033 68,495 68,495 100.00% 100% 100.00% 68,495 2034 70,352 70,352 100.00% 100% 100.00% 70,352 2035 68,212 68,212 100.00% 100% 100.00% 68,212 2036 62.161 62,161 100.00% 100% 100.00% 62,161 2037 55.688 55,688 100.00% 100% 100.00% 55,688 Exhibit 3.4

Public Service Company Of New Mexico Palo Verde Unit 1 120.00% -.- ,:-.-------

2006 Funding Statu..........

$($000) Percent 100.00%- Committed 2 $29,468 39,89%a Actual $41u08 55.53%

Floor , $23,869 32.31%/

80.00% --

Cmmited.

Accumulation...' 4.,

40.00% - "'q-." -

20M%

~ ~ 9 4 9.*

ooo.*undin ....

4

.,-~4:~. '~C p~

0.00%4 I b > N-b '

Exhibit 3.4

PUBLIC SERVICE COMPANY OF NEW MEXICO PALO VERDE UNIT 2

($000)

Funding Plan Funding Floor Curve Actual Funding Year Fund $ Est. Costs % Funded Criteria Percent $ Amount FundS Est. Cost % Funded 1991 1,096 28,499 3.85% 80% 3.08% 877 1,096 28,499 3.85%

1992 3.426 44,375 7.72% 80% 6.18% 2,741 2,334 44,375 5.26%

1993 5,936 46,594 12.74% 80% 10.19% 4,749 3,691 46,594 7.92%

1994 6,756 48.923 13.81% 80% 11.05% 5,405 4,117 48,923 8.42%

1995 7,346 47,703 15.40% 80% 12.32% 5,877 4,235 47,703 8.88%

1996 8,485 50,088 16.94% 80% 13.55% 6,788 8,479 50,088 16.93%

1997 9,645 52,593 18.34% 80% 14.67% 7,716 10,368 52,593 19.71%

1998 11,860 59.869 19.81% 80% 15.85% 9,488 14,528 59,869 24.27%

1999 13,754 62,862 21.88% 80% 17.50% 11,003 16,931 62,862 26.93%

2000 16,132 66,005 24.44% 80% 19.55% 12,905 18,040 66,005 27.33%

2001 18,557 68,678 27.02% 80% 21.62% 14,845 18,765 68,678 27.32%

2002 21,359 72,112 29.62% 80% 23.70% 17,088 21,329 72,112 29.58%

2003 24,419 75,717 32.25% 80% 25.80% 19,535 26,333 75,717 34.78%

2004 24,903 71,375 34.89% 80% 27.91% 19,922 30,794 71.375 43.14%

2005 28,141 74,943 37.55% 80% 30.04% 22,513 36,159 74,943 48.25%

12006 31,665 78,690 4.4 81% 32.59% 25,649 42,433 7/8,690 S3.92%[

2007 35,463 82,625 42.92% 82% 35.19% 29,079 2008 39,561 86.756 45.60% 83% 37.85% 32,835 2009 44,089 91,094 48.40% 84% 40.66% 37,035 2010 48,905 95,649 51.13% 85% 43.46% 41,569 2011 54,042 100,431 53.81% 86% 46.28% 46,476 2012 59,781 105,453 56.69% 87% 49.32% 52,010 2013 65,937 110,725 59.55% 88% 52.40% 58,025 2014 72,524 116,262 62.38% 89% 55.52% 64,546 2015 79,580 122,075 65.19% 90% 58.67% 71,622 2016 87,123 128,178 67.97% 91% 61.85% 79,282 2017 95,530 134,587 70.98% 92% 65.30% 87,888 2018 104,518 141,317 73.96% 93% 68.78% 97,202 2019 114,091 148,383 76.89% 94% 72.28% 107,246 2020 124,299 155,802 79.78% 95% 75.79% 118,084 2021 135,192 163,592 82.64% 96% 79.33% 129,785 2022 147,036 171,771 85.60% 97% 83.03% 142,625 2023 159,456 180.360 88.41% 98% 86.64% 156,267 2024 172,391 189,378 91.03% 99% 90.12% 170,667 2025 182,541 198,847 91.80% 100% 91.80% 182,541 2026 193,748 208,736 92.82% 100% 92.82% 193,748 2027 175,479 186,978 93.85% 100% 93.85% 175,479 2028 150,476 158,613 94.87% 100% 94.87% 150,476 2029 123,827 129,121 95.90% 100% 95.90% 123,827 2030 111,416 114,956 96.92% 100% 96.92% 111,416 2031 96,720 98,745 97.95% 100% 97.95% 96,720 2032 80,586 81,424 98.97% 100% 98.97% 80,586 2033 68,495 68,495 100.00% 100% 100.00% 68,495 2034 70,294 70,294 100.00% 100% 100.00% 70,294 2035 68,121 68,121 100.00% 100% 100,00% 68,121 2036 62,103 62,103 100.00% 100% 100.00% 62,103 2037 55,680 55,680 100.00% 100% 100.00% 55,680 Exhibit 3.,4

Public Service Comany of New Mexico Palo Verde Unit 2 120.00%

$($OOO)..': Percent 100.00%- SCommitted $165 40,24% I IActual $243 53.92%

IFloor $549 32.59%

80.00%

m -o itted . . . . . . . . . . . .* 4 4 '" .

omr~

60.00%

Actual Accumulations

,~K 4 ~ ~ 4 40.00%,

-' ' Funding Floor 20.00%

0.00%1 t- I

• 44

ýb 0 10 (b eOI A

-IOj IIq 65N e Z)b Exhibit 3.4

PUBLIC SERVICE COMPANY OF NEW MEXICO PALO VERDE UNIT 3

($000)

Funding Plan Funding Floor Curve Actual Funding Year Fund$ Est. Costs  % Funded Ctiteria Percen Amoun Fund $ Est. Cost % Funded 1991 1,097 30,306 3.62% 80% 2.90% 878 1,097 30,306 3.62%

1992 3,403 46,867 7.62% 80% 6.10% 2,722 2,335 46,867 4.98%

1993 5,895 49,211 11.98% 80% 9.58% 4,716 3,692 49,213 7.50%

1994 6,712 51,671 12.99% 80% 10.39% 5,370 4,117 51,671 7.97%

1995 7,799 53,863 14.48% 80% 11.58% 6,239 4,235 53,863 7.86%

1996 9,009 56,556 15.93% 80% 12.74% 7,208 9,007 56,556 15.93%

1997 10,238 59,384 17.24% 80% 13.79% 8,190 10,228 59,384 17.22%

1998 11,992 64,372 18.63% 80% 14.90% 9,594 11,689 64,372 18.16%

1999 13,903 67,590 20.57% 80% 16.46% 11,123 16,377 67,590 24.23%

2000 16,309 70,970 22.98% 80% 18.38% 13,047 18,332 70,970 25.83%

2001 17,703 69,668 25.41% 80% 20.33% 14,162 18,985 69.668 27.25%

2002 20,380 73,151 27.86% 80% 22.29% 16,304 20,579 73,151 28.13%

2003 23,296 76,808 30.33% 80% 24.26% 18,637 23,094 76,808 30.07%

2004 25,704 78,341 32.81% 80% 26.25% 20,563 27,665 78,341 3531%

2005 29.053 82,258 35.32% 80% 28.26% 23,243 29,446 82,258 35.80%

12006 32,683 86,371 37.84% 81% 30.65% 26,473 32,758 86.371 37.93%1!

2007 36,602 90,689 40.36% 82% 33.10% 30,014 2008 40,832 95,224 42.88% 83% 35.59% 33,891 2009 45,513 99,985 45.52% 84% 38.24% 38,231 2010 50,476 104,984 48.08% 85% 40.87% 42,905 2011 55,778 110,233 50.60% 86% 43.52% 47,969 2012 61,704 115,745 53.31% 87% 46.38% 53,682 2013 68,058 121,532 56.00% 88% 49.28% 59,891 2014 74.855 127,609 58.66% 89% 52,2 1% 66,621 2015 82,136 133,989 61.30% 90% 55.17% 73,922 2016 89,914 140,689 63.91% 91% 58.16% 81,822 2017 98,605 147,723 66.75% 92% 61.41% 90,717 2018 107,879 155,109 69.55% 93% 64.68% 100,327 2019 117,768 162,865 72.31% 94% 67.97% 110,702 2020 128,307 171.008 75.03% 95% 71.28% 121,892 2021 139,535 179,559 77.71% 96% 74.60% 133,954 2022 151,772 188,537 80.50% 97% 78.09% 147,219 2023 164,567 197,963 83.13% 98% 81.47% 161,276 2024 177,950 207,862 85.61% 99% 84.75% 176,171 2025 188,288 218.255 86.27% 100% 86.27% 188,288 2026 200,795 229,114 87.64% 100% 87.64% 200,795 2027 211,856 238,014 89.01% 100% 89.01% 211,856 2028 219,577 242,922 90.39% 100% 90.39% 219,577 2029 197,149 214,853 91.76% 100% 91.76% 197,149 2030 172,032 184,723 93.13% 100% 93.13% 172,032 2031 148,606 157,239 94.5 1% 100% 94.51% 148,606 2032 131,272 136,913 95.88% 100% 95.88% 131,272 2033 111,233 114,379 97.25% 100% 97.25% 111,233 2034 89,377 90,619 98.63% 100% 98.63% 89,377 2035 77,649 77,649 100.00% 100% 100.00% 77,649 2036 67,592 67,592 100.00% 100% 100.00% 67,592 2037 56,420 56,420 100.00% 100% 100.00% 56,420 Exhibit 3A

Public Service Company of New Mexico Palo Verde Unit 3 120.00% p .__ ........ ;.:.:LI-;-:.I:................:..:....................................,Ž K 26006 Fundin s,!'-n.Statu

$($000) .. Percent 2-ý,'

100.00% Committed: ý$32,683. 37.-840/.

Actual $32,758 37.93%-2 Floor $26,473.30--5....

80.00%

AJccumnulations4 L4"4 44 4~~4 4 44444 44.444 60.00% .44i  ? 44..4, 4:

F ;4*d ;:.  :.Fx- .4p:4--2Ž4, 20.00% ...-  :,!:*!:*i 0,00%44..44 44

• 444~4.444~

~ ~ ~

4b 4~4 44 Ž44 44 XP4 p

T4,4.444 44444 4.4

~ 44 .~44 4 4 44.44~4444 4> .

4 4 4 4 4 44 4 44447~4 4 Exhibit 3.4

PUBLIC SERVICE COMPANY OF NEW MEXICO PALO VERDE UNITS 1, 2,3

($Thousands) 2004 TLG Cost study Funging Plan Funding Floor Curve Actual Funding Year Fund$ Est, Costs  % Funded Criteria Percent $ Amount Fund$ Est. Cost % Funded 1991 3,288 87,551 3.76% 80% 3.00% 2,630 3,289 87,551 3.76%

1992 10,279 136,341 7.54% 80% 6.03% 8,223 7,003 136,341 5.14%

1993 17,812 143,159 12.44% 80% 9.95% 14,250 11,074 143,159 7.74%

1994 20,275 150,316 13.49% 80% 10.79% 16,220 12,351 150,316 8.22%

1995 22,164 147.525 15.02% 80% 12.02% 17,731 12,705 147,525 8.61%

1996 25,601 154,901 16.53% 80% 13.22% 20,481 25,581 154,901 16.51%

1997 29,095 162,646 17.89% 80% 14.31% 23,276 30,594 162,646 18.81%

1998 .- 35,022 181,114 1934% 80% : 15.47% 28,018 .40*12: 181,114 22.26%

1999 40,610 190,169 21.35% 80% 17.08% 32,488 51,773 190,169 27.22%

2000 47,633 199,678 23.86% 80% 19.08% 38,107 55,901 199,678 28.001%

2001 .53,08:8:  :"201,161*: 2639%  :.80% 21.11%

1 42,470 57,294. 201,161 28.48%

2002 61,111 211.219 28,93% 80% 23.15% 48,889 61.965 211.2.19 29.34%

2003 69,862 221,780 31.50% 80% 25.20% 55,890 74.418 221,780 33.55%

'204* .216720 273.783 34.05% . 80%,;27.24%::59,27 5 8772 :216,720*. 40.50%

2005 83,388 227,556 36.64% 80% 29.32% 66,710 100,328 227,556 44,09%

12006 93,816 238,934 39.26% 81% 31.80% 75.991 116,209 238,934 48.64%

2007 105,069 250,881 41.88% 82% 34.34% 86,157 0 2008 117,214 263,425 44,50% 83% 36.93% 97,288 0 2009 130,642 276,596 47.23% 84% 39.68% 109,740 0 2010 144,898 290,426 49.89% 85% 42.41% 123,163 0 2011 160,120 304,947 52.51% 86% 45.16% 137,703 0 2012 177,131 320,194 55.32% 87% 48.13% 154,104 0 2013 195,365 336,204 58.11% 88% 51.14% 171,921 0 2014 214,885 353,014 60.87% 89% 54,18% 191,248 0 2015 235.783 370,665 63.61% 90% 57.25% 212,204 0 2016 258,116 389,198 66.32% 91% 60.35% 234,886 0 2017 283,046 408,658 69.26% 92% 63.72% 260.403 0 2018 309,666 429,091 72.17% 93% 67J12% 287,990 0 2019 338.046 450,546 75-03% 94% 70.53% 317,763 0 2020 368,300 473,073 77.85% 95% 73.96% 349,885 0 2021 400.488 496,648 80.64% 96% 77.41% 384,469 0 2022 435,476 521,340 83.53% 97% 81.02% 422,412 0 2023 472,654 547,260 86.37% 98% 84.64% 463,201 0 2024 511,469 573.780 89.14% 99% 88,25% 506,355 0 2025 541,037 601,070 90.01% 100% 90.01% 541,037 0 2026 567,257 622.057 91.19% 100% 91J19% 567,257 0 2027 545,494 591,458 92.23% 100% 92.23% 545,494 0 2028 504,565 541,273 93.22% 100% 93.22% 504.565 0 2029 435.862 461,794 94.38% 100% 94,38% 435,862 0 2030 383,259 400,753 95.63% 100% 95.63% 383,259 0 2031 327,378 338,035 96.85% 100% 96.85% 327,378 0 2032 279,014 285,494 97.73% 100% 97.73% 279,014 0 2033 248,224 251,370 98.75% 100% 98,75% 248,224 0 2034 230,023 231,265 99.46% 100% 99.46% 230,023 0 2035 213,982 213.982 100.00% 100% 100.00% 213,982 0 2036 191,856 191,856 100.00% 100% 100.00% 191,856 0 2037 167.788 167,788 100.00% 100% 100.00% 167,788 0 Exhibit 3A

a) 'a a ~ ~

Public Service Company of New Mexico Palo Verde Units 1, 2, and 3 120.00% -

2006. Funding Status.,:.i.. >1

-'. 'a

-a-a-

$($000) Percent 100.00% - Committed .. $93816 39.26%0 I Actual $116,209 48.64%

Floor $75,991 31.~80%

a-) a , ~

80.00%-

a -.

Committed Accumulations 'a 'a

.~ii.iiil*'.

. .*:*..*)..: ./ 'a,!:**

60.00%- . !:

"  :/**i *-i*; -a a aa.aaa aP Va ~ y'aa

~ a-,

a',

'a<a *a 'a 'a a

'7 7a Actual Accumulations - -~-a ~a' a a a 40.00% -+-

.Fub .:i-g F".loor!

'a aj

: ..ii::::: a'

-a-an

~a-aa ~.

a

20.00% 4 .

a a a-,

a-.,

V a' a- a-,~'a a a.'

a) 0.00% -4 I~~ ~a a Exhibit 3.4

Exhibit 3.5 Amendment to the Investment Advisory Agreement between PNM and Wells CapitalManagement,Inc.

(

AM[ENDMENT This AMENDMENT to the Investment Advisory Agreement between Public Service Company of New Mexico ("Client") and Wells Capital Management Incorporated

[formerly known as Strong Capital Management] ("Advisor"), dated December 30, 1996 (the "Agreement"), with respect to the Non-Qualified separate account, is effective as of December 7, 2006.

WHEREAS, the Client and the Adviser desire to clarify in the Agreement an additional assignment to act as investment manager of the assets specified in writing by the Client (and attached hereto as Amended Exhibit A) that are currently or subsequently placed in the account of the Client (the "Account #2). Attached hereto and made a part hereof as Exhibit B is a statement of the investment objectives and guidelines of the Client, together with a statement of any and all specific investment restrictions applicable to the management of the Account #2. Adviser will be paid fees for the advisory services provided by this Agreement for the Account #2 according to the Valuation Procedures attached hereto as Exhibit C and Fee Schedule attached hereto as Exhibit D.

NOW, THEREFORE, the Client and the Adviser agree that Amended Exhibit A, Exhibit B, Exhibit C, and Exhibit D to the Agreement are stated in their entirety to read as the Amended Exhibit A, Exhibit B, Exhibit C, and Exhibit D attached hereto which are hereby made a part of the Agreement.

PUBLIC SERVICE COMPANY OF WELLS CAPITAL MANAGEMENT NEW MEXICO INC.

BY: BY:

NAME: NAME: 6'iE -k TITLE: /-_TITLE: ~ 4 * -. ,c DATE: ///f4.4'ý DATE: / Z, Z/.0 4 DAE

(.. (.

INVESTMENT ADVISORY AGREEMENT Betweau WELLS CAPITAL MANAGEMENT INCORPORATED PUBLIC SERVICE COMPANY OF NEW MEXICO AMENED EXHIBIT A SCHEDULE OF ASSETS Mellon Bank, N.A, Account #1 Non-Qualified- #PSMF0926082 Account #2 Qualified. #PSMF0925932

( (

INVEST'MENT ADVISORY AGREEMENT Between STRONG CAPITAL MANAGEMENT, INC.

and PUBLIC SERVICE COMPANY OF NEW MEXICO EXHIBIT B INVESTMENT OBJECTIVE AND CRITERION InvesMen Obiggive PNM's primary investment objeative is to achieve a long term after-tax rate of retum on invested assets that is greater than that available from a portfolio of government and high quality corporate bonds. To achieve this objecti'e a dlversifed portfolio of investments whickh, in aggregate, contains an acceptable level of risk will be created. Inlvetmetts should be made by the Advisor which consider the Interests of PNM, its shareholders and customers, the N*PUC, and the overall goal of the Client which Is to provide for adequate funding of the nuclear demisioni liability.

Equity Portfolio Guidelines - The account shall consist of the following portiblio: Non-Qualified for Palo Verde Nuclear Generating Station ("PVNOS") Unit 3. The equity portiolio will be broadly diversified so *hAt aSggret risk of alt equity luvetmnents, when considered as a portiblio, shall geeally have a variance no greater than 100 basis points from the benchmark Russell 3000 Growth Index (fth"Benchmark"). The Advisor will select stock in accordance with its Capital Appreciation Equity A stylt The portfolio shall be castructd to resemble the sector breakdown repmwntativa ofths investment style. The portfolio will be managed to mnaximie after-tax return consistent with the tax chacterist*cs of a non-qualifled nuclear deommssioning trust. The risk level of the portfolio relative to the Benchmark as measured in terms of standard deviation returns and other appropriate measures shall be continually monitored by the Advisor and reported on a reqular basis to the Client. The market value of the agregaem amount invested in the securities of any Ot isWuer sha not exceed five percent of the mart value of the account's toa assets at the tbm ofpudmbase.

Permittd knygqtmet The Account shall be maintained and invested only in Permitted Invesmtts Penrittad investments for equity portfolios are those invastments that ame permitted by applicable law, including any of the Wollowing, Cash ard Cash Equivalents. Cash and Cash Equivalents shall include (I) legal tender of the United States of America and (i1)deposits in Federally insured national or state banks that are payable on

demand,

I,...

Acceptable Equit Securities. Acceptable Equity Securities arm highquality equity securities (iýL.,

common, prem rd. or prfbr sOak or American Depository Recipts for such securities) listed on a major U.S. stock wtcang to traded on a nationally rtcogmned US, trading n4twork, Acceptable Pooled Funds&Acceptable Pooled Funds am funds that am invested in what am otherwise considered Permitted Iavestments ad that are bank commirvied fnda Other Acceptable Investents. Ote Acceptable Invastments a those investamn ts not included in the foregoing ctos. which shall have been approved by the Tamination Funding Committee or the NMPUC.

Investments in the following securities shl be excluded from allowable investments by the

Advisor,

1) Securities of any nature issued by any PVNGS participant and any parent or affiliated company ofmnyparticipant as lited in Amchmnt to Eis xhibit A to theAgment as th amended by the Client in writing from time to ime, or any parent or affiliated company of any participant;

2) Securities i-sued by New Mexico utilities or utilities operating in Now Mexico as listed In Attachment 2 to this Exhibit A to the Agreement as amended by ft Client in writing from time to time,

3) Margin purchases;

4) Commodity speculation;

5) Fixed income somrltifcs;

6) Commercial paper;

7) Debt securities of any nature Issued by any governnmt agency or public or private corpormtion;

8) Securities ofany nature issued by any government Mgecy or public or private corporadon, which has been declared bankrupt or which Isthe subject of a petition for bankruptcy pending in court;

9) Private placements;

10) LAetee stock;

11) Loans of portfolio securities;

12) Short sales;

13) Stock options;

14) UorqgitwW~ at rmsoided mutgitla. wnid

15) Rota or poronal praparty,

C. (

INVESTMENT ADVISORY AGREEMENT Between STRONG CAPTrAL MANAGEMENT, INC.

and PUBLIC SERVICE COMPANY OF NEW MEXICO ATTACHMENT I TO EXRWIT B PVNGS PARTICIPANTS Arizona Public Service Company Salt iver Project Aricultural Improvement and Power District Southern California Edison Company Public Servict Company of Now Mexico Southern Califbrnia Public Power Authority El Paso Electric Company Department of Water and Power of the City of Los Angeles

(ii .

INVESTMNENT ADVISORY AG1.MENT BetweM STRONG CAPITAL MANAGEMENT, INC.

and PUBLIC SERVICE COMPANY OF NEW M.EXICO ATTACHMENT 2 TO EXHIBIT B NEW MEXICO ELECTRIC UTLITITS OR ELECTRIC UTILITIES OPERATING IN NEW MEXICO Public Service Company of Now Mexico Southwestern Public Service Company T*xa*New Mexico Power Company El Paso Electric Company Plains Electric Generation and Transmnission Cooperative, Inc, Socorro Electric Cooperative, Inc, Centrl New Mexlco Electric Cooperative, Inc Continental Divide Electric Cooperative, Inc.

remez Mountai Electric Cooperative, In Mom-San Miguel Electric Cooperative, Inc.

Norhem Rio Arriba Electric Cooperative, Inck.

Columbus Electric Cooperative, Inc.

Springer Electric Cooperative. Inc.

Southwesern Electric Cooperative, Inc.

Otero Electric Cooperative, Inc.

Sierra Electric Cooperative, Inc.,

Navopache Electric Cooperative, Inc=

Kit Carson Electric Cooperative, Inc.

Duncan Valley Electric Cooperative, Inc.

Farme Electric Cooperative, In.

Lea County Electric Cooperative, Inc.

Rio Grande Electric Cooperative, Inc, Roosevelt Electric Cooperative, Inc.

Central Valley Electric Cooperative. Inc.

Q (

O"VESIMMNT ADVISORY AGREEMENT STRONG CAPITAL MANAGMENT aud PUBLIC SERVICE COMPANY OF NEW MEXICO EXHwIIT C VALUATION PROCEDURES T71 assets held in the Account sMU be valued as detw *ied in the absolute and sole d4crton of the Trustee for purp.c o(calculating compenslon. For general mccounting brnnatdor, the Adviser may value any investment in a manmer deterined Ingood faith by the Adviser to rmelecd It's t muticet vaklu

(

INVESTMENT ADVISOR AGREEMENT Between WELLS CAPITAL MANAGEMENT INCORPORATED and PUBLIC SERVICE COMPANY OF NEW MEXICO EXHIBIT D SCHEDULE OF FEES Advisory fees will be calculated at the end of each billing period on the basis of the total market value of Account assets at the close of busine on the date precedlg th Effctive Date and each Billing Date. The Billing Date shall by January I, April 1, July 1, and October I for each year this agreement is In effect Fees will be calculated at the following annual rafts, and the appropriate portion thereof will be payable as of each Billing Date:

Mid& .a It of Amsts A V Up to $5 million .85%

Next $5 million .80%

Next $10 million .75%

Next $15 million .70%

Next $15 million ,60%

Next $25 million .50%

Next $2S million ,40%

$100 million or more .30%

Attachment 6 Annual Funding Status Report for the Year Ending December 2006 Southern California Public Power Authority

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY SCFMý PALO VERDE PROJECT TERMINATION FUNDING COMMITTEE 2006 ANNUAL FUNDING STATUS REPORT

Page No.

SECTION I 2006 STATUS REPORT INFORMATION 1-9 SECTION II FUNDING TABLES AND CURVES 10-19 SECTION III CERTIFICATE 20

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY ANNUAL FUNDING STATUS REPORT FOR THE YEAR ENDING DECEMBER 31, 2006 PART 1. GENERAL INFORMATION 1.1 Description of Funds 1.1.1 FUND #1- DECOMMISSIONING TRUST FUND I

" Units 1, 2 and 3

" Tax Status: Exempt from Federal and State Taxes

• Independent Trustee: U.S. Bank Trust, National Association 633 W. Fifth Street, 24th Floor Los Angeles, California 90071

• Investment Manager: None

• Basic Documents:

- Decommissioning Trust Fund Agreement I, dated July 13, 1990, by and between the Southern California Public Power Authority (SCPPA) and U.S. Bank Trust, National Association (Trustee).

- Amendment No. 1 to the Decommissioning Trust Fund Agreement 1, dated October 27, 1992.

- Amendment No. 2 to the Decommissioning Trust Fund Agreement 1, dated November 20, 2003.

• Changes since prior AFSR: None Page 1

1.1.2 FUND #2- DECOMMISSIONING TRUST FUND II

• Units 1,2 and 3

• Tax Status: Exempt from State and Federal Taxes

• Independent Trustee: U.S. Bank Trust, National Association 633 W. Fifth Street, 24th Floor Los Angeles, California 90071

• Investment Manager: None

• Basic Documents:

- Decommissioning Trust Fund Agreement I, dated July 13, 1990, by and between the Southern California Public Power Authority (SCPPA) and U.S. Bank Trust, National Association (Trustee).

- Amendment No. 1 to the Decommissioning Trust Fund Agreement 1, dated October 27, 1992.

- Amendment No. 2 to the Decommissioning Trust Fund Agreement 1, dated November 20, 2003.

• Changes since prior AFSR: None 1.2 Pro Rata Share

• Generation Entitlement Share 5.91%

• Section 23.5.1 Obligations 0%

• Pro Rata Share 5.91%

Palo Verde Project SCPPA Participants Participation %

City of Los Angeles 67.0%

City of Riverside 5.4 Page 2

Imperial Irrigation District 6.5 City of Vernon 4.9 City of Azusa 1.0 City of Banning 1.0 City of Colton 1.0 City of Burbank 4.4 City of Glendale 4.4 City of Pasadena 4.4 Total 100.0%

1.3 Sale and Leaseback Transactions Termination Date Full Funding Lessor/ Lessor Funding Funding Funding Compliance Unit Trustee Ownership Required Required Basis Status 1

2 3 NONE 1.4 Summary of Regulatory Requirements with Respects -to Electric Rates and Termination Funding

• SCPPA is a joint agency and public entity organized under the laws of the State of California and a Joint Powers Sales Agreement.

• As a public entity, SCPPA's revenues from participants' billings and investment earnings are exempt from federal and state taxes.

• SCPPA issues tax-exempt and taxable debt that is secured by project participants' take-or-pay contracts to accomplish its purpose.

Page 3

1.5 Statement of Investment Policies and Restrictions Investment Policies Objectives

- Safety of Principal

- Achievement of Maximum Allowable (6.83%) Yield

- Diversification of Risk Restrictions SCPPA's investments are governed by the State of California Government Code, Section 53601 et seq., and are limited to:

- United States Treasury Obligations

- Federal Agencies Obligations & Government Sponsored Enterprises

- State and Local Government Securities (SLGS)

- Repurchase Agreements

- Commercial Paper

- Bankers Acceptances

- Medium Term Notes

- Money Market Funds

- Negotiable Certificate of Deposits

- Tax-exempt and/or taxable debt of the State of California or any of its political subdivisions.

Page 4

PART 2.

SUMMARY

OF STATUS OF TERMINATION FUNDS AT THE END OF THE REPORTING PERIOD 2.1 Committed Accumulations at End of Reporting Period Unit 1 Unit 2 Unit 3 Total 2.1.1 Latest Estimated Termination Costs (2004TLG) $656,910,000 $699,750,000 $768,047,000 $2,124,707,000 2.1.2 Generation Entitlement Share of Estimated $38,823,000 $41,355,000 $45,392,000 $125,570,000 Termination Costs 2.1.3 Cumulative Adjustment Factor (1.06) 112% 112% 112% 112%

2.1.4 Adjusted Share of Estimated Termination $43,622,000 $46,467,000 $51,002,000 $141,091,000 Costs (2.1.2 amount) x (2.1.3) 2.1.5 Percent Funding Requirement at End of 66% 68% 64% 66%

Reporting Period from Percent Funded Curve 2.1.6 Committed Accumulations at End of $28,791,000 $31,597,000 $32,641,000 $93,029,000.

Reporting Period (2.1.4 amount) x (2.1.5) 2.1.7 Summary of Major Assumptions Escalation Factor 6.00%

Rate ofReturn 6.83%

Participation Ratio 5.91%

Funding Period 35 years for each unit Funding Level Includes Independent Spent Fuel Storage Installation and Non-Nuclear Demolition Costs.

Page 5

2.2.1 Actual Accumulations at End of the Reporting Period Unit 1 Unit 2 Unit 3 Total Fund I $18,323,683 $17,764,374 $17,290,802 $53,378,859 Fund II 26,061,452 27,616,852 32,393,354 86,071,658 Total $44,385,135 $45,381,226 $49,684,156 $139,450,517]

2.2.2 Computation of Actual Accumulations:

Fund Unit 1 Unit 2 Unit 3 Total Cash $147,934 $113,586 $134,677 $396,197 Market Value 43,819,053 44,961,401 49,257,261 138,037,716 Accrued Interest 418,148 306,239 292,217 1,016,604 Total $44,385,135 $45,381,226 $49,684,156 $139,450,517 2.3 Funded Floor Amount at End of Reporting Period Unit 1 Unit 2 Unit 3 Total Percentage of Committed 54% 55% 52% 54%

Accumulations Funded Floor Amount $2.3,608,000 $25,594,000 $26,113,000 $75,315,000 2.4 Deposits Made During Reporting Period (A 11Termination Funds)

Unit 1 Unit 2 Unit 3 Total NRC Required Deposits $0 $0 $0 $0 Normal Annual Deposits 0 0 0 0 Recovery Deposits 0 0 0 0 Correcting Deposits 0 0 0 0 Total $o $o $o $0o Page 6

2.5 Mandatory Deposits During Unit I Unit 2 Unit 3 Total Unit 1 Unit 2 Unit 3 Total Reporting Period $0 $0 $o $o 2.6 Estimated Outstanding Balance of Recovery Deposits and Correction Deposits Outstanding at End of Reporting Period Recovery Deposits Correction Deposits Amt Outstanding Due Date Amt Outstanding Due Date Unit 1 $0 $0 Unit 2 $0 $0 Unit 3 $0 $0 Total $0 $0 2.7 Annual Net Income (Loss) During Reporting Period (All Funds, All Units)

Amount Rate Fund I - Unit 1 652,340 4.07%

Fund I - Unit 2 412,578 2.65%

Fund I - Unit 3 591,716 3.91%

Fund II - Unit 1 1,054,489 3.91%

Fund 1I - Unit 2 1,375,627 4.84%

Fund II - Unit 3 902,485 2.72%

Total $4,989,235 3.69%

Page 7

Calculations: Fund 1 Fund 2 Unit 1 Unit 2 Unit 3 Unit 1 Unit 2 Unit 3 TOTAL Realized Income 652,340.15 412,577.78 591,716.06 1,054,488.73 1,375,627.38 902,485.39 $4,989,235 Unrealized Income (Loss) (307,243) (176,996) (291,053) (559,355) (422,764) (362,292) (2,119,701)

$345,098 $235,582 $300,663 $495,134 $952,864 $540,194 $2,869,534 Less:

Taxes Paid & Accrued 0 0 0 0 0 0 0 Expenses Paid & Accrd 0 0 0 0 0 0 0 Net Income $345,098 $235,582 $300,663 $495,134 $952,864 $540,194 $2,869,534 2.8 Summary of Values of Permitted Investments at End of the Reporting Period Category Fund I Fund I Total Cash & Cash Equivalents $102,338 $295,279 $397,617 Acceptable Debt Securities 53,276,521 85,776,378 139,052,900 Acceptable Equity Securities Acceptable Life Insurance Acceptable Property Interest Total $53,378,859 $86,071,658 1 $139,450,517 2.9 Inventory and Values of Permitted Investments at End of the Reporting Period Permitted Investments Value Basis of Valuation U.S. Federal Agencies $139,052,900 Market value provided by Trustee Bank U.S. Treasury Bills 0 Market value provided by Trustee Bank U.S. Treasury Notes 0 Market value provided by Trustee Bank Medium Term Notes 0 Market value provided by Trustee Bank U.S. Money Market Fund 397,617 Market value provided by Trustee Bank Total $139,450,517 Page 8

2.10 Fund Liabilities at End of Reporting Period NONE 2.11 Defaults, If Any, Experienced on Investments NONE 2.12 Summary of Investment Ratings U.S. Federal Agencies AAA U.S. Treasury Bills AAA U.S. Treasury Notes AAA PART 3. TABLES AND CURVES 3.1 Table of Estimated Deposits, Income and Committed Accumulations to End of Funding Period for Each Unit (See Attached Schedules) 3.2 Percent Funding Curve and Fund Floor Curve for Each Unit (See Attached Graphs)

Page 9

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY Palo Verde Project - Termination Cost Funding UNIT 1 UNIT 2 UNIT 3 GRAND TOTAL PERIO CONIRIBUTION INTEREST BALANCE ERIO CONTRIBION INIERST BALANCE PERIOD CONTRiBUTIO INTEREST BALANCE CONTRIBUION INTERES TOT~i DEC 31, 1990 10 14,237,604 8 14,387,900 15,396,791 44,022,295 JUN30, 1991 11 0 625,326 14,862,930 9 0 1,117,240 15,505,140 0 1,440,621 16,837,412 0 3,183,187 47,205,482 DEC 31, 1991 12 0 363,880 15,226,810 10 0 443,094 15,948,234 0 385,474 17,222,886 0 1,192,448 48,397,930 JUN 30, 1992 13 0 12901391 15,197,771 II 0 147,301 16,095,535 0 297,481 17,520,367 0 415,743 48,813,673 DEC 31, 1992 14 0 563,854 15,761,625 12 0 623,452 16,718,987 0 933,298 18,453,665 0 2,120,604 50,934,277 JUN 30, 1993 15 0 791,974 16,553,599 13 0 711,934 17,430,921 0 1,081,178 19,534,843 0 2,585,086 53,519,363 DEC 31, 1993 16 0 264,949 7,103,347 14 0 593,006 7,962,403 0 168,679 7,830,305 0 1,026,634 22,896,055 JUN30, 1994 17 0 229,682 7,333,029 15 0 (345,413) 7,616,990 0 1153,556) 7,676,749 0 (269.287) 22,626,768 DEC 31, 1994 18 0 16,871 7,349,900 16 0 9,010 7,626,000 0 112.449) 7,664,300 0 13,432 22,640,200 JUN30, 1995 19 0 486,265 7,836,165 17 0 609,810 8,235,810 0 578,102 8,242,402 0 1,674,177 24,314,377 DEC 31, 1995 20 1,240,620 302,795 9,379,580 18 1,280,640 233,314 9,749,764 1,480,740 261,846 9,984,988 4,002,000 797,955 29,114,332 JUN30, 1996 21 1,240,620 244,149 10,864,349 19 1,280,640 132,669 11,163,073 1,480,740 (19,451) 11,446,277 4,002,000 357,367 33,473,699 DEC 31, 1996 22 1,239,380 440,971 12,544,700 20 1,279,360 453,967 12,896,400 1,479,260 411,663 13,337,200 3,998,000 1,306,601 38,778,300 JUN30, 1997 23 1,240,620 670,975 14,456,295 21 1,276,640 686,710 14,859,750 1,480,740 682,114 15,500,054 3,998,000 2,039,799 44,816,099 DEC 31, 1997 24 1,654,160 206,445 16,316,900 22 1,703,520 191,930 16,755,200 1,974,320 142,126 17,616,500 5,332,000 540,501 50,688,600 JUN30, 1998 25 827,080 587,713 17,731,693 23 853,760 540,181 18,149,141 987,160 726,204 19,329,864 2,668,000 1,854,098 55,210,698 DEC 31, 1998 26 1,240,620 657,875 19,630,188 24 1,276,640 594,163 20,019,944 1,480,740 593,888 21,404,492 3,998,000 1,845,926 61,054,624 JUN30, 1999 27 1,239,380 216,183 21,085,751 25 1,283,360 390,702 21,694,006 1,479,260 366,650 23,250,402 4,002,000 973,535 66,030,159 DEC 31, 1999 28 1,239,380 475,616 22,800,747 26 1,319,340 264,784 23,278,130 1,439,280 471,854 25,161,536 3,998,000 1,212,254 71,240,413 JUN 30, 2000 29 1,241,860 663,212 24,705,819 27 1,321,980 689,334 25,289,444 1,442,160 731,960 27,335,656 4,006,000 2,084,506 77,330,919 DEC 31, 2000 30 1,240,620 1,274,719 27,221,158 28 1,320,660 1,173,453 27,783,557 1,440,720 1,340,511 30,116,887 4,002,000 3,788,683 85,121,602 JUN 30, 2001 31 1,240,620 693,350 29,155,128 29 1,320,660 872,649 29,976,866 1,440,720 800,274 32,357,881 4,002,000 2,366,273 91,489,875 DEC 31, 2001 32 1,240,620 1,156,378 31,552,126 30 1,320,660 1,103,203 32,400,729 1,440,720 1,419,469 35,218,070 4,002,000 3,679,051 99,170,925 JUN 30, 2002 33 1,240,620 713,427 33,506,173 31 1,320,660 580,967 34,302,356 1,440,720 821,429 37,480,219 4,002,000 2,115,822 105,288,748 DEC 31, 2002 34 1,240,620 1,006,809 35,753,602 32 1,320,660 892,072 36,515,088 1,440,720 1,110,978 40,031,917 4,002,000 3,009,859 112,300,607 JUN 30, 2003 35 1,240,620 520,171 37,514,393 33 1,320,660 539,457 38,375,205 1,440,720 656,148 42,128,785 4,002,000 1,715,776 118,018,383 DEC 31, 2003 36 1,240,620 524,746 39,279,759 34 1,320,660 514,822 40,210,687 1,440,720 602,307 44,171,813 4,002,000 1,641,876 123,662,258 JUN 30, 2004 37 1,240,620 184,493 40,704,872 35 1,320,660 96,351 41,627,698 1,440,720 199,394 45,811,926 4,002,000 480,238 128,144,497 DEC 31, 2004 38 0 1,126,700 41,831,572 36 0 970,310 42,598,008 0 1,172,874 46,984,800 0 3,269,884 131,414,381 JUN 30, 2005 39 0 581,134 42,412,706 37 0 481,193 43,079,201 0 648,089 47,632,889 0 1,710,416 133,124,796 DEC 31, 2005 40 0 87,100 42,499,806 38 0 132,554 43,211,755 0 104,493 47,737,382 0 324,147 133,448,943 JUN30, 2006 41 0 351,626 42,851,432 39 0 406,412 43,618,167 0 436,978 48,174,360 0 1,195,016 134,643,959 DEC 31, 2006 42 0 1,533,703 44,385,135 40 0 1,763,059 45,381,226 0 1,509,795 49,684,155 0 4,806,557 139,450,517 JUN 30, 2007 43 1328,851) 1,515,752 45,572,037 41 (253.700) 1,549,769 46,677,295 t282.332) 1,696,714 51,098,537 (X64.882) 4,762,235 143,347,870 DEC 31, 2007 44 (328.851) 1,556,285 46,799,471 42 1253,7310) 1,594,030 48,017,626 (282.332) 1,745,015 52,561,220 (864,882) 4,895,330 147,378,317 JUN 30, 2008 45 1328,851) 1,598,202 48,068,823 43 (253.700) 1,639,802 49,403,728 (282.332) 1,794,966 54,073,854 1864.882) 5,032,970 151,546,405 DEC 31, 2008 46 (328,851) 1,641,550 49,381,523 44 1253,7 I) 1,687,137 50,837,166 (282,332) 1,846,622 55,638,144 (864,882) 5,175,310 155,856,832 JUN 30, 2009 47 1328,851) 1,686,379 50,739,051 45 (253,700) 1,736,089 52,319,555 t282.332) 1,900,043 57,255,855 /1644,82) 5,322,511 160,314,461 DEC 31, 2009 48 (328,851) 1,732,739 52,142,939 46 (253.700) 1,786,713 53,852,568 (282.332) 1,955,287 58,928,810 (864,882) 5,474,739 164,924,318 Page 10

Palo Verde Project - Termination Cost Funding UNIT I UNIT2 UNIT 3 GRAND TOTAL PERIOD CONTRIBUTION INTERES BALANCE PERIOD CONTRIBUTION INTEREST BALANC PERIOD CNR NUTIO INTEREST BALANCE CONTRIBUTIO INTEREST TOTAL JUN 30, 2010 49 (328,851) 1,780,681 53,594,770 47 (253.700) 1,839,065 55,437,934 45 (282,332) 2,012,419 60,658,897 (864,882) 5,632,165 169,691,601 2010 50 (328.851) 1,830,261 55,096,180 48 (253,700) 1,893,205 57,077,440 46 (282.332) 2,071,501 62,448,067 1864.882) 5,794,968 174,621,687 DEC 31, 2011 51 (328.851) 1,881,535 56,648,864 49 (253.7'1 ) 1,949,195 58,772,935 47 (282.3325 2,132,601 64,298,336 (864,8825 5,963,331 179,720,136

JUN30, 58,254,573 50 (253,700) 2,007,096 60,526,331 48 (282,332) 2,195,788 66,211,793 8(564.882) 6,137,443 184,992,696 DEC 31, 2011 52 (32885 1) 1,934,559 (328.85)1) 1,989,394 59,915,116 51 (253.7(R1) 2,066,974 62,339,605 49 (282,332) 2,261,133 68,190,594 (864,8825 6,317,501 190,445,315 JUN 30, 2012 53 2,046,101 61,632,366 52 (253,700) 2,128,898 64,214,803 50 1282.332) 2,328,709 70,236,970 (X64.*82) 6,503,707 196,084,140 DEC31, 2012 54 (328.851) 125~3,70)1 2,398,593 72,353,231 (864.882) 6,696,273 201,915,531 JUN 30, 2013 55 2,104,745 63,408,261 53 2,192,936 66,154,039 51 (282,332)

(328,8511 2,470,863 74,541,762 (8*64.882) 6,895,415 207,946,065 DEC 31, 2013 56 2,165,392 65,244,802 54 (253,700) 2,259,160 68,159,500 52 (282.3321 (328.851) 2,545,601 76,805,031 (864.882) 7,101,358 214,182,541 JUN 30, 2014 57 2,228,110 67,144,062 55 125371010i 2,327,647 70,233,448 53 (282,332)

(328,851) (282,332) 2,622,892 79,145,591 DEC 31, 2014 58 2,292,970 69,108,181 56 (253,700) 2,398,472 72,378,220 54 8(,884A2) 7,314,334 220,631,992 (328.8515 2,360,044 71,139,375 57 1253.71( 51 2,471,716 74,596,237 55 (282,332) 2,702,822 81,566,081 (864,8825 7,534,583 227,301,693 JUN 30, 2015 59 (328,851)

(325.t851) 2,429,410 73,239,934 58 (253.700) 2,547,461 76,889,999 56 (282,332) 2,785,482 84,069,231 (864,882) 7,762,353 234,199,163 DEC 31, 2015 60 (328.,55 I) 2,501,144 75,412,227 59 (253,700) 2,625,793 79,262,093 57 (282.332) 2,870,964 86,657,863 (S'64.882) 7,997,901 241,332,183 JUN 30, 2016 61 (328.851) 2,575,328 77,658,704 60 (253.700) 2,706,800 81,715,193 58 (282,332) 2,959,366 89,334,898 (864,882) 8,241,494 248,708,795 DEC 31, 2016 62 2017 63 1328.8551I 2,652,045 79,981,898 61 (253,700) 2,790,574 84,252,068 59 (282.332) 3,050,787 92,103,352 (864,8825 8,493,405 256,337,318 JUN 30, 2017 64 (3280,85)) 2,731,382 82,384,429 62 (253.700) 2,877,208 86,875,576 60 (282,332) 3,145,329 94,966,350 (864,882) 8,753,919 264,226,355 DEC 31, (328.851) 2,813,428 84,869,007 63 (253,700) 2,966,801 89,588,677 61 (282.332) 3,243,101 97,927,119 (864.5825 9,023,330 272,384,803 JUN 30, 2018 65 66 (328,0851 2,898,277 87,438,433 64 (253.700) 3,059,453 92,394,431 62 (282,332) 3,344,211 100,988,998 (804,882) 9,301,941 280,821,862 DEC 31, 2018 67 (328.851) 2,986,022 90,095,605 65 (253.700) 3,155,270 95,296,001 63 (282.332) 3,448,774 104,155,441 (S64,882) 9,590,067 289,547,047 JUN 30, 2019 3,076,765 92,843,519 66 (253.7001 3,254,358 98,296,660 64 (282,332) 3,556,908 107,430,017 (864,882) 9,888,032 298,570,196 DEC 31, 2019 68 (328.8511 1328.851) 3,170,606 95,685,275 67 (253,700) 3,356,831 101,399,792 65 (282.332) 3,668,735 110,816,420 (864.882) 10,196,172 307,901,486 JUN 30, 2020 69 (3 28.855) 3,267,652 98,624,072 68 (253.7001 3,462,803 104,608,895 66 (282,332) 3,784,381 114,318,469 (864,886) 10,514,836 317,551,436 DEC 31, 2020 70 JUN 30, 2021 69 (253,700) 3,572,394 107,927,589 67 (282.332) 3,903,976 117,940,113 (536.032) 7,476,369 225,867,702 70 (253.698) 3,685,727 111,359,619 68 (282,332) 4,027,655 121,685,436 (536,030) 7,713,382 233,045,054 DEC 31, 2021 69 (282.332) 4,155,558 125,558,661 (282.332) 4,155,558 125,558,661 JUN 30, 2022 70 (282,328) 4,287,828 129,564,162 (282,328) 4,287,828 129,564,162 DEC 31, 2022 Page II

SCPPA PALO VERDE UNIT 1 FUNDING PLAN 100%

90%

80% ATA4 70%

AA' $4T,350AL00 1 w 60%

0 z

U-i-50% JF, z

w Ile FLOOR w 40% ,jr..m,'2006 FUNDING STATUS

• )= .* '*"AMOUNT PERCENT _

30%

,,e"COMMITTED $28,791,000 66%-

20% J- ACTUAL $44,385,000 102%

FLOOR $23,608,000 54% -

10%

0%

1991 1994 1997 2000 2003 2006 2009 2012 2015 2018 2021 2024 YEAR Page 12

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY 2006 PALO VERDE UNIT - I FUNDING STATUS TERMINATION COST FUNDING

($ THOUSAND)

(1) = (2 x 3) (2) (3) (4) (5) = (3 x 4) (6) = (1 x 4) (7) (8) = (2) (9) = (7 / 8)

AUTHORIZED FUNDING PLAN FUNDING FLOOR CURVE ACTUAL FUNDING YEAR FUND EST. COST %FUNDED CRITERIA PERCENT AMOUNT FUND EST. COST %FUNDED DEC 1991 $4,225 $16,565 26% 80% 20% $3,380 $15,227 $16,565 92%

DEC 1992 5,176 26,915 19% 80% 15% 4,141 15,762 26,915 59%

DEC 1993 6,782 28,530 24% 80% 19% 5,426 7,103 28,530 25%

DEC 1994 7,597 30,242 25% 80% 20% 6,078 7,350 30,242 24%

DEC 1995 7,190 26,629 27% 80% 21% 5,752 9,380 26,629 35%

DEC 1996 9,033 28,227 32% 80% 25% 7,226 12,545 28,227 44%

DEC 1997 10,771 29,920 36% 80% 29% 8,617 16,317 29,920 55%

DEC 1998 13,181 32,953 40% 80% 32% 10,545 19,630 32,953 60%

DEC 1999 15,369 34,930 44% 80% 35% 12,295 22,801 34,930 65%

DEC 2000 17,032 37,026 46% 80% 37% 13,626 27,221 37,026 74%

DEC 2001 18,562 36,396 51% 80% 40% 14,850 31,552 36,396 87%

DEC 2002 20,833 38,580 54% 80% 43% 16,666 35,754 38,580 93%

DEC 2003 23,310 40,895 57% 80% 46% 18,648 39,280 40,895 96%

DEC 2004 26,009 43,348 60% 80% 48% 20,807 41,832 43,348 97%

DEC 2005 25,926 41,153 63% 81% 51% 21,000 42,500 41,153 103%

DEC 2006 28,791 43,622 66% 82% 54% 23,608 44.385 43.622 102%

DEC 2007 31,905 46,239 69% 83% 57% 26,481 DEC 2008 34,800 49,014 71% 84% 60% 29,232 DEC 2009 38,446 51,954 74% 85% 63% 32,679 DEC 2010 41,855 55,072 76% 86% 65% 35,995 DEC 2011 46,117 58,376 79% 87% 68% 40,122 DEC 2012 50,122 61,879 81% 88% 71% 44,107 DEC 2013 54,441 65,591 83% 89% 74% 48,452 DEC 2014 59,098 69,527 85% 90% 77% 53,188 DEC 2015 64,118 73,698 87% 91% 80% 58,347 DEC 2016 69,527 78,120 89% 92% 82% 63,965 DEC 2017 80,431 82,808 91% 93% 85% 74,801 DEC 2018 86,826 87,776 93% 94% 88% 81,616 DEC 2019 93,665 93,043 95% 95% 91% 88,982 DEC 2020 114,288 98,625 100% 100% 100% 114,288 DEC 2021 120,002 103,556 100% 100% 100% 120,002 DEC 2022 126,003 108,734 100% 100% 100% 126,003 DEC 2023 132,303 114,171 100% 100% 100% 132,303 DEC 2024 138,918 119,879 100% 100% 100% 138,918 DEC 2025 145,864 125,873 100% 100% 100% 145,864 Page 13

SCPPA PALO VERDE UNIT 2 FUNDING PLAN 100%

A T AL ""

90%

80%

C $3,57,C0M0ITTED 70%

0 60%

z U-I--

z 50% Ar FI.OC R C-,

w.L 40%

a.

J Jr"2006 FUNDING STATUS 30% &- *; 1,,-"f"AMOUNT PERCENT

,,rCOMMITTED $31,597,000 68%

20%

ACTUAL $45,381,000 98%

10% FLOOR $25,594,000 55%

0%

1991 1994 1997 2000 2003 2006 2009 2012 2015 2018 2021 2024 YEAR Page 14

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY 2006 PALO VERDE UNIT - 2 FUNDING STATUS TERMINATION COST FUNDING

($ THOUSAND)

(1)= (2x3) (2) (3) (4) (5) =(3 x4) (6) =(I x 4) (7) (8) =(2) (9) =(7 /8)

AUTHORIZED FUNDING PLAN FUNDING FLOOR CURVE ACTUAL FUNDING YEAR FUND EST. COST %FUNDED CRITERIA PERCENT AMOUNT FUND EST. COST %FUNDED DEC 1991 $3,966 $16,423 24% .80% 19% $3,173 $15,948 $16,423 97%

DEC 1992 4,932 26,483 19% 80% 15% 3,946 16,719 26,483 63%

DEC 1993 6,548 28,072 23% 80% 19% 5,238 7,962 28,072 28%

DEC 1994 8,515 29,756 29% 80% 23% 6,812 7,626 29,756 26%

DEC 1995 8,568 27,640 31% 80% 25% 6,855 9,750 27,640 35%

DEC 1996 10,254 29,298 35% 80% 28% 8,204 12,896 29,298 44%

DEC 1997 12,112 31,056 39% 80% 31% 9,690 16,755 31,056 54%

DEC 1998 14,916 34,689 43% 80% 34% 11,933 20,020 34,689 58%

DEC 1999 17,282 36,770 47% 80% 37% 13,825 23,278 36,770 63%

DEC 2000 19,488 38,976 50% 80% 40% 15,590 27,784 38,976 71%

DEC 2001 21,090 39,793 53% 80% 43% 16,872 32,401 39,793 81%

DEC 2002 24,043 42,180 57% 80% 45% 19,234 36,515 42,180 87%

DEC 2003 26,827 44,711 60% 80% 48% 21,461 40,211 44,711 90%

DEC 2004 29,858 47,394 63% 80% 50% 23,886 42,598 47,394 90%

DEC 2005 28,932 43,837 66% 80% 53% 23,146 43,212 43,837 99%

DEC 2006 31,597 46,467 68% 81% 55% 25,594 45 .38 1 46.467 98%

DEC 2007 34,971 49,255 71% 82% 28,676 DEC 2008 38,635 52,210 74% 83% 61% 32,067 DEC 2009 42,060 55,343 76% 84% 64% 35,331 DEC 2010 46,344 58,663 79% 85% 67% 39,392 DEC 2011 50,368 62,183 81% 86% 70% 43,317 DEC 2012 54,709 65,914 83% 87% 72% 47,596 DEC 2013 59,388 69,869 85% 88% 75% 52,262 DEC 2014 64,433 74,061 87% 89% 78% 57,345 DEC 2015 70,654 78,505 90% 90% 81% 63,589 DEC 2016 76,558 83,215 92% 91% 83% 69,667 DEC 2017 82,915 88,208 94% 92% 86% 76,282 DEC 2018 88,825 93,500 95% 93% 89% 82,607 DEC 2019 96,137 99,110 97% 94% 91% 90,369 DEC 2020 104,006 105,057 99% 95% 94% 98,806 DEC 2021 111,360 111,360 100% 100% 100% 111,360 DEC 2022 116,928 116,928 100% 100% 100% 116,928 DEC 2023 122,775 122,775 100% 100% 100% 122,775 DEC 2024 128,913 128,913 100% 100% 100% 128,913 DEC 2025 135,359 135,359 100% 100% 100% 135,359 DEC 2026 142,127 142,127 100% 100% 100% 142,127 Page 15

SCPPA PALO VERDE UNIT 3 FUNDING PLAN 100%

90%

80%

CC M mI'I7ED * ., Ar 70%

a C-,-

0 60%

z u- *y,41 I- 50% .1IFFLO z

w 0,.

w. 40%

2006 FUNDING STATUS 30% AMOUNT PERCENT COMMITTED $32,641,000 64%

20%

ACTUAL $49,684,000 97%

10% FLOOR $26,113,000 52%

I I I I 0%

1991 1994 1997 2000 2003 2006 2009 2012 2015 2018 2021 2024 2027 YEAR Page 16

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY 2006 PALO VERDE UNIT - 3 FUNDING STATUS TERMIN~ATION COST FUNDING

($THOUSAND)

(1)=(2 x3) (2) (3) (4) (5)=(3 x4) (6)=(Ix4) (7) (8)=(2) (9)=(7 /8)

AUTHORIZED FUNDING PLAN FUNDING FLOOR CURVE ACTUAL FUNDING YEAR FUND EST. COST %FUNDED CRITERIA PERCENT AMOUNT FUND EST. COST %FUNDED DEC 1991 $3,098 $18,225 17% 80% 14% $2,478 $17,223 $18,225 95%

DEC 1992 4,125 28,298 15% 80% 12% 3,300 18,454 28,298 65%

DEC 1993 5,769 29,996 19% 80% 15% 4,615 7,830 29,996 26%

DEC 1994 8,375 31,796 26% 80% 21% 6,700 7,664 31,796 24%

DEC 1995 9,051 31,209 29% 80% 23% 7,240 9,985 31,209 32%

DEC 1996 10,917 33,082 33% 80% 26% 8,734 13,337 33,082 40%

DEC 1997 12,624 35,066 36% 80% 29% 10,099 17,617 35,066 50%

DEC 1998 14,919 37,298 40% 80% 32% 11,935 21,404 37,298 57%

DEC 1999 17,396 39,536 44% 80% 35% 13,917 25,162 39,536 64%

DEC 2000 19,697 41,908 47% 80% 38% 15,757 30,117 41,908 72%

DEC 2001 20,183 40,366 50% 80% 40% 16,146 35,218 40,366 87%

DEC 2002 22,678 42,788 53% 80% 43% 18,142 40,032 42,788 94%

DEC 2003 25,399 45,355 56% 80% 45% 20,319 44,172 45,355 97%

DEC 2004 28,365 48,077 59% 80% 47% 22,692 46,985 48,077 98%

DEC 2005 29,831 48,115 62% 80% 49% 23,865 47,737 48,115 99%

DEC 2006 32,641 51,002 64% 80% 52% 26,113 49,684 51,002 97%

DEC 2007 36,222 54,062 67% 80% 54% 28,977 DEC 2008 39,541 57,306 69% 81% 56% 32,028 DEC 2009 43,736 60,744 72% 82% 59% 35,863 DEC 2010 47,648 64,389 74% 83% 62% 39,548 DEC 2011 51,872 68,252 76% 84% 64% 43,572 DEC 2012 57,154 72,347 79% 85% 67% 48,581 DEC 2013 62,117 76,688 81% 86% 69% 53,421 DEC 2014 67,470 81,289 83% 87% 72% 58,699 DEC 2015 73,242 86,167 85% 88% 74% 64,453 DEC 2016 79,463 91,337 87% 89% 77% 70,722 DEC 2017 85,199 96,817 88% 90% 80% 76,679 DEC 2018 92,363 102,626 90% 91% 82% 84,051 DEC 2019 100,081 108,784 92% 92% 85% 92,074 DEC 2020 108,392 115,311 94% 93% 87% 100,805 DEC 2021 116,118 122,229 95% 94% 90% 109,151 DEC 2022 129,563 129,563 100% 100% 100% 129,563 DEC 2023 136,041 136,041 100% 100% 100% 136,041 DEC 2024 142,843 142,843 100% 100% 100% 142,843 DEC 2025 149,985 149,985 100% 100% 100% 149,985 DEC 2026 157,485 157,485 100% 100% 100% 157,485 DEC 2027 165,359 165,359 100% 100% 100% 165,359 Page 17

SCPPA PALO VERDE ALL UNITS FUNDING PLAN 100%

90%

80%

ACTU AL CO MI"FTED 70%

w 60%

0 z

u- *-50%

zw w 40% 2005 FUNDING STATUS AMOUNT PERCENT 30%

COMMITTED $93,029,000 66%

20% ------ ACTUAL $139,450,000 99%

'Ile FLOOR $75,315,000 54%

10%

0%

1991 1994 1997 2000 2003 2006 2009 2012 2015 2018 2021 2024 2027 YEAR Page 18

SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY 2006 PALO VERDE ALL UNITS FUNDING STATUS TERMINATION COST FUNDING (IN THOUSANDS)

(1) = (2 x 3) (2) (3) (4) (5) = (3 x 4) (6) = (I x 4) (7) (8) = (2) (9) = (7 / 8)

AUTHORIZED FUNDING PLAN FUNDING FLOOR CURVE ACTUAL FUNDING YEAR FUND EST. COST %FUNDED CRITERIA PERCENT AMOUNT FUND EST. COST %FUNDED DEC 1991 $11,289 $51,213 22% 80% 18% $9,031 $48,398 $51,213 95%

DEC 1992 14,233 81,696 17% 80% 14% 11,386 50,935 81,696 62%

DEC 1993 19,099 86,598 22% 80% 18% 15,279 22,895 86,598 26%

DEC 1994 24,487 91,794 27% 80% 21% 19,590 22,640 91,794 25%

DEC 1995 24,809 85,478 29% 80% 23% 19,847 29,115 85,478 34%

DEC 1996 30,204 90,607 33% 80% 26% 24,163 38,778 90,607 43%

DEC 1997 35,507 96,043 37% 80% 30% 28,406 50,689 96,043 53%

DEC 1998 43,016 104,939 41% 80% 33% 34,413 61,054 104,939 58%

DEC 1999 50,047 111,236 45% 80% 36% 40,037 71,240 111,236 64%

DEC 2000 56,217 117,910 48% 80% 38% 44,973 85,122 117,910 72%

DEC 2001 59,835 116,555 51% 80% 41% 47,868 99,171 116,555 85%

DEC 2002 67,554 123,548 55% 80% 44% 54,043 112,301 123,548 91%

DEC 2003 75,536 130,961 58% 80% 46% 60,429 123,663 130,961 94%

DEC 2004 84,232 138,819 61% 80% 48% 67,386 131,414 138,819 95%

DEC 2005 84,689 133,105 64% 81% 51% 68,011 133,449 133,105 100%

DEC 2006 93,029 141,091 66% 82% 54% 75,315 139,450 141,091 99%

DEC 2007 103,098 149,556 69% 83% 57% 84,135 DEC 2008 112,976 158,530 71% 84% 60% 93,327 DEC 2009 124,243 168,041 74% 85% 63% 103,873 DEC 2010 135,846 178,124 76% 86% 66% 114,935 DEC 2011 148,357 188,811 79% 87% 68% 127,011 DEC 2012 161,985 200,140 81% 88% 71% 140,285 DEC 2013 175,947 212,148 83% 89% 74% 154,135 DEC 2014 191,001 224,877 85% 90% 77% 169,232 DEC 2015 208,014 238,370 87% 91% 79% 186,389 DEC 2016 225,548 252,672 89% 92% 82% 204,354 DEC 2017 248,545 267,832 93% 93% 85% 227,762 DEC 2018 268,015 283,902 94% 94% 87% 248,275 DEC 2019 289,883 300,936 96% 95% 90% 271,425 DEC 2020 326,686 318,993 102% 96% 94% 313,899 DEC 2021 347,480 337,146 103% 97% 95% 340,513 DEC 2022 372,494 355,225 105% 100% 100% 372,494 DEC 2023 391,119 372,987 105% 100% 100% 391,119 DEC 2024 410,674 391,636 105% 100% 100% 410,674 DEC 2025 431,208 411,218 105% 100% 100% 431,208 DEC 2026 299,612 299,612 100% 100% 100% 299,612 DEC 2027 165,359 165,359 100% 100% 100% 165,359 Page 19

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-awwo"mg SOUTHE, I N CAL1F ORNIJA P ..BbIC- PO\VER" AUTHORITY C ,RTl ICATI FOR ANN.UAL F'IUNNDING STATUS REPORMI

OR 11 1i-PERIOD END!NG DEC-.UILR 31. 2006 Bill ID. C".nim=rilmni. l-xccucfVLe Directcor oF Southern CAlilbrMi& Piblic Power ANphoriq Crtifels on. behalf of Southern C'alirniW Public Po!\v Auihih it !h t I1 oahcr illmurcrlllelt$ pirvid isg, fi vestment manaigemn'tewc of dlie "Tertinidaltiof FIUinds (W S(-lhCl

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aed, I e.cti [ i l ish Ž~I.r LIuIt 1,,flEl,,t(f1r, such+agruemqnts an~d int:lt'lkiitiS- a1nd ,,lII LLIi~t* ueS!Ii.>.,

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Attachment 7 Annual Funding Status Report for the Year Ending December 2006 Los Angeles Department of Water and Power

DEPARTMENT OF WATER & POWER CITY OF LOS ANGELES PALO VERDE PROJECT TERMINATION FUNDING COMMITTEE 2006 ANNUAL FUNDING STATUS REPORT

TABLE OF CONTENTS PART 1. GENERAL INFORMATION 1 PART 2.

SUMMARY

OF STATUS OF TERMINATION FUNDS AT END OF REPORTING PERIOD 5 PART 3. TABLES & CURVES 9 CERTIFICATION 20

LOS ANGELES DEPARTMENT OF WATER & POWER Annual Funding Status Report For the Year Ending December 31, 2006 PART 1. GENERAL INFORMATION 1.1 Description of Funds 1.1.1 FUND #1 - DECOMMISSIONING TRUST FUND I

• Units 1, 2 and 3

• Tax Status: Exempt from Federal and State Taxes

• Independent Trustee: U.S. Bank Trust, National Association 633 W. Fifth Street, 24th Floor Los Angeles, California 90071

• Investment Manager: None

• Basic Documents:

- Decommissioning Trust Fund Agreement I, dated July 17, 1990, by and between the Los Angeles Department of Water & Power (LA DWP) and U.S. Bank Trust, National Association (Trustee)

- Amendment No. 1 to the Decommissioning Trust Fund Agreement I, dated February 20, 1991.

Amendment No. 2 to the Decommissioning Trust Fund Agreement I, dated December 2, 2003.

• Changes since prior AFSR: None Page 1

1.1.2 FUND #2 - DECOMMISSIONING TRUST FUND II

• Units 1, 2 and 3

• Tax Status: Exempt from Federal and State taxes

• Independent Trustee: U.S. Bank Trust, National Association 633 W. Fifth Street, 24th Floor Los Angeles, California 90071

• Investment Manager: None

• Basic Documents:

- Decommissioning Trust Fund Agreement II, dated July 17, 1990 by and between the Los Angeles Department of Water & Power (LA DWP) and U.S. Bank Trust, National Association (Trustee)

- Amendment No. 1 to the Decommissioning Trust Fund Agreement II, dated February 20, 1991.

- Amendment No. 2 to the Decommissioning Trust Fund Agreement II, dated December 2, 2003.

• Changes since prior AFSR: None 1.2 Pro Rata Share

• Generation Entitlement Share 5.7%

• Section 23.5.1 Obligations 0.0%

• Pro Rata Share 5.7%

Page 2

1.3 Sales & Leaseback Transactions Termination Date Full Lessor/ Lessor Funding Funding Funding Unit Trustee Ownership Required Required Basis Status 1

2 NONE 3

1.4 Summary of Regulatory Requirements with Respect to Electricity Rates and Termination Funding

• The LA DWP is a municipally owned utility whose rates are subject to the approval of the Los Angeles City Council by ordinance

• The LA DWP is not regulated by the California Public Utilities Commission (CPUC) or any other state agency.

• Decommissioning Trust Fund I was established to meet the funding guidelines of the Nuclear Regulatory Commission (NRC)

• Decommissioning Trust Fund II was established to meet the difference in funding requirements between the NRC and the Arizona Nuclear Power Project Participation Agreement.

1.5 Statement of Investment Policies and Restrictions Investment Policies Objectives Safety of Principal Achieve Target Rate of Return Diversification of Risk Page 3

• Restrictions Investments are governed by the California Government Code Sections 53601 et seq and are restricted to securities that are indicated in the Department's Investment Policy, as listed below.

- United States Treasury Obligations

- Federal Agencies Obligations & Government Sponsored Enterprises

- Commercial Paper

- Bankers Acceptances

- Negotiable Certificate of Deposits

- Repurchase & Reverse Repurchase Agreements

- Medium Term Corporate Notes

- Mortgage and Asset Backed Obligations

- Money Market Funds

- Tax-exempt and/or taxable debt of the State of California or any of its political subdivisions.

Page 4

PART 2.

SUMMARY

OF STATUS OF TERMINATION FUNDS AT END OF THE REPORTING PERIOD 2.1 Committed Accumulations at End of Reporting Period Unit 1 Unit 2 Unit 3 Total 2.1.1 Latest Estimated Termination Costs $656,910,000 $699,750,000 $768,047,000 $2,124,707,000 (2004 TLG) 2.1.2 Generation Entitlement Share of Estimated Termination Costs $37,444,000 $39,886,000 $43,779,000 $121,109,000 2.1.3 Cumulative Adjustment Factor 110% 110% 110% 110%

2.1.4 Adjusted Share of Estimated Termination Costs (2.1.2 X 2.1.3) $41,282,000 $43,974,000 $48,266,000 $133,522,000 2.1.5 Percent Funding Requirement at End of Reporting Period from Percent Funded Curve 61% 59% 56% 59%

2.1.6 Committed Accumulations at End of Reporting Period (2.1.4 X 2.1.5) $25,182,000 $25,945,000 $27,029,000 $78,156,000 2.1.7 Summary of Major Assumptions Escalation Factor 5.0%

Rate of Return 7.0%

Participation Ratio 5.7%

Funding Period 35 years for each unit Funding Level Includes Independent Spent Fuel Storage Installation and Other Facilities.

Page 5

2.2.1 Actual Accumulations at End of Reporting Period Fund Unit 1 Unit 2 Unit 3 Total 1 $17,759,600 $17,265,400 $16,643,800 $51,668,800 2 $16,419,400 $16,563,100 $17,320,300 $50,302,800 Total $34,179,000 $33,828,500 $33,964,100 $101,971,600 2.2.2 Computation of Actual Accumulations Fund Unit 1 Unit 2 Unit 3 Total Cash $131,100 $54,656 $61,965 $247,721 Market Value $33,643,600 $33,275,144 $33,449,735 $100,368,479 Accrued Interest $404,300 $498,700 $452,300 $1,355,300 Total $34,179,000 $33,828,500 $33,964,100 $101,971,600 2.3 Funded Floor Amount at End of Reporting Period 2.3.1 Percentage of Committed 50% 48% 45% 47%

Accumulations 2.3.2 Funded Floor Amount $20,649,000 $21,015,000 $21,623,000 $63,306,000 2.4 Deposits Made During the Reporting Period (All Termination Funds)

Unit 1 Unit 2 Unit 3 Total NRC Required Deposits $0 $0 $0 $0 Normal Annual Deposits $0 $0 $0 $0 Recovery Deposits $0 $0 $0 $0 Correcting Deposits $0 $0 $0 $0 Total so so so$ $

Page 6

Unit 1 Unit 2 Unit 3 Total 2.5 Mandatory Deposits During Reporting Period $0 $0 $0 $0 2.6 Estimated Outstanding Balance of Recovery Deposits and Correction Deposits Outstanding at End of Reporting Period Recovery Deposits Correction Deposits Amt. Outst. Due Date Amt. Outst. Due Date Unit 1 $ $

Unit 2 $ $

Unit 3 $ $

2.7 Annual Net Income (Loss) During Reporting Period (All Funds, All Units)

FUND AMOUNT RATE (based on ave.

Fund I - Unit I $945,293 5.98% market values)

Fund I - Unit 2 $748,153 4.87%

Fund I - Unit 3 $714,665 4.83%

Fund I1 - Unit 1 $1,063,684 6.18%

Fund II - Unit 2 $975,154 5.65%

Fund II - Unit 3 $745,888 4.15%

[5.28%1o TOTAL $5,192,837 CALCULATIONS: Fund 1 Fund 2 Sum of (A) Unit 1 Unit 2 Unit 3 Unit 1 Unit 2 Unit 3 Totals (i) Realized Income $945,293 $748,153 $714,665 $1,063,684 $975,154 $745,888 $5,192,837 (ii) Unrealized Income (Loss) ($397,448) ($260,143) ($316,517) ($278,390) ($245,323) ($454,765) ($1,952,586)

Less: Sum of (B)

(i) Taxes Paid & Accrued $0 (ii) Expenses Paid & Accrued $0

$547,8441 $488,0101 $398,147 $785,295 $729,831 $291,1241 $3,240,2501 Page 7

2.8 Summary of Values of Permitted Investments at End of Reporting Period Category Fund 1 Fund 2 Total Cash & Cash Equivalents $3,753,347 $603,548 $4,356,895 Acceptable Debt Securities $47,915,453 $49,699,252 $97,614,705 Acceptable Equity Securities $0 $0 $0 Acceptable Life Insurance $0 $0 $0 Acceptable Property Interests $0 $0 $0 Total F $51,668,800 $50,302,8001 $101,971,600 2.9 Inventory and Values of Permitted Investments at End of Reporting Period Permitted Investments Value Basis of Valuation Medium Term Corporate Notes $21,498,621 Trustee Bank Commercial Paper $0 Trustee Bank US Treasuries/Agencies $80,225,258 Trustee Bank Negotiable Certificate of Deposits $0 Trustee Bank US Money Market Fund $247,721 Trustee Bank Total $101,971,600]

2.10 Fund Liabilities at End of Reporting Period NONE 2.11 Defaults, if any, Experienced on Investments NONE 2.12 Summary of Investment Ratings Medium Term Corporate Notes "A" Commercial Paper "Al/P1" Page 8

LOS ANGELES DEPARTMENT OF WATER & POWER Annual Funding Status Report For the Year Ending December 31, 2006 PART 3. TABLES AND CURVES 3.1 Table of Estimated Deposits, Income and Committed Accumulations to End of Funding Period for each Unit (See Attached Schedules) 3.2 Percent Funding Curve and Funding Floor Curve for Each Unit (See Attached Graphs)

Page 9

Department of Water & Power Palo Verde Project Termination Cost Funding I Unit 1 I Unit 2 F - Unit 3 I Grand Total I Date Period Contribution Interest Balance Period Contribution Interest Balance Period Contribution Interest Balance Contribution Interest Totals 12/31/1990 10 2,444,200 8 2,159,244 6 1,493,407 0 0 6,096,851 6/30/1991 11 223,326 106,706 2,774,232 9 232,478 105,780 2,497,502 7 270,890 71,900 1,836,197 726,694 284,386 7,107,931 12/31/1991 12 223,326 428,941 3,426,499 10 232,478 490,438 3,220,418 8 270,890 432,437 2,539,524 726,694 1,351,816 9,186,441 6/30/1992 13 223,326 116,869 3,766,694 11 232,478 111,934 3,564,830 9 270,890 77,462 2,887,876 726,694 306,265 10,219,400 12/31/1992 14 434,027 104,872 4,305,593 12 423,694 129,716 4,118,240 10 464,724 84,937 3,437,537 1,322,445 319,525 11,861,370 6/30/1993 15 445,545 90,854 4,841,992 13 421,072 173,551 4,712,863 11 477,502 111,010 4,026,049 1,344,119 375,415 13,580,904 12/31/1993 16 431,919 87,753 5,361,664 14 414,884 93,888 5,221,635 12 462,987 52,475 4,541,511 1,309,790 234,116 15,124,810 6/30/1994 17 431,919 111,532 5,905,115 15 414,884 10,343 5,646,862 13 462,987 47,978 5,052,476 1,309,790 169,853 16,604,453 12/31/1994 18 431,919 (131,3-34) 6,205,700 16 414,884 '12-0,146) 5,941,600 14 462,987 ('159,863) 5,355,600 1,309,790 (411,343) 17,502,900 6/30/1995 19 431,919 404,898 7,042,517 17 414,884 339,916 6,696,400 15 462,987 295,915 6,114,502 1,309,790 1,040,729 19,853,419 12/31/1995 20 1,755,562 262,538 9,060,617 18 1,669,739 235,585 8,601,724 16 1,884,499 181,886 8,180,887 5,309,800 680,009 25,843,228 6/30/1996 21 1,755,562 260,302 11,076,481 19 1,669,739 197,615 10,469,078 17 1,884,499 152,131 10,217,517 5,309,800 610,048 31,763,076 12/31/1996 22 1,593,396 258,223 12,928,100 20 1,753,112 211,610 12,433,800 18 1,963,492 150,991 12,332,000 5,310,000 620,824 37,693,900 6/30/1997 23 1,593,396 247,064 14,768,560 21 1,753,112 238,202 14,425,114 19 1,963,492 184,812 14,480,304 5,310,000 670,078 43,673,978 12/31/1997 24 1,593,396 565,873 16,927,829 22 1,753,112 583,850 16,762,076 20 1,963,492 399,527 16,843,323 5,310,000 1,549,250 50,533,228 6/30/1998 25 1,593,396 738,933 19,260,158 23 1,753,112 794,564 19,309,752 21 1,963,492 549,326 19,356,141 5,310,000 2,082,823 57,926,051 12/31/1998 26 1,593,396 996,208 21,849,762 24 1,753,112 653,84-4 21,716,708 22 1,963,492 511,371 21,831,004 5,310,000 2,161,423 65,397,474 6/30/1999 27 1,629,218 (2141470) 23,264,510 25 1,750,953 113,871 23,581,532 23 1,929,829 (145>20) 23,515,553 5,310,000 (34-5,879) 70,361,595 12/31/1999 28 0 211,345 23,475,855 26 0 346,764 23,928,296 24 0 316,063 23,831,616 0 874,172 71,235,767 6/30/2000 29 0 852,897 24,328,752 27 0 804,598 24,732,894 25 0 778,362 24,609,978 0 2,435,856 73,671,623 12/31/2000 30 0 1,765,642 26,094,394 28 0 1,536,294 26,269,187 26 0 1,623,514 26,233,492 0 4,925,450 78,597,074 6/30/2001 31 0 1,044,753 27,139,147 29 0 951,085 27,220,272 27 0 1,117,369 27,350,861 0 3,113,207 81,710,280 12/31/2001 32 0 875,812 28,014,959 30 0 971,149 28,191,422 28 0 1,069,950 28,420,811 0 2,916,911 84,627,192 6/30/2002 33 0 766,833 28,781,792 31 0 764,694 28,956,116 29 0 687,677 29,108,488 0 2,219,205 86,846,396 12/31/2002 34 0 1,140,274 29,922,067 32 0 1,152,070 30,108,186 30 0 832,779 29,941,267 0 3,125,123 89,971,520 6/30/2003 35 0 538,487 30,460,554 33 0 697,317 30,805,503 31 0 600,265 30,541,532 0 1,836,069 91,807,589 12/31/2003 36 0 300,726 30,761,280 34 0 133,416 30,938,919 32 0 159,788 30,701,320 0 593,930 92,401,519 6/30/2004 37 0 64,765 30,826,045 35 0 44,503 30,983,422 33 0 69,003 30,770,323 0 178,271 92,579,789 12/31/2004 38 0 941,281 31,767,326 36 0 696,407 31,679,829 34 0 963,229 31,733,552 0 2,600,917 95,180,707 6/30/2005 39 0 660,528 32,427,854 37 0 384,407 32,064,236 35 0 620,956 32,354,508 0 1,665,891 96,846,598 12/31/2005 40 0 169,685 32,597,539 38 0 202,378 32,266,614 36 0 104,808 32,459,316 0 476,871 97,323,469 6/30/2006 41 0 196,457 32,793,995 39 0 390,900 32,657,514 37 0 210,581 32,669,897 0 797,937 98,121,406 12/31/2006 42 0 1,385,014 34,179,009 40 0 1,170,993 33,828,507 38 0 1,294,138 33,964,035 0 3,850,145 101,971,551 6/30/2007 43 (.168,918) 1,196,265 35,206,357 41 (.68,385) 1,183,998 34,944,120 39 56,500 1,188,741 35,209,276 11801,803) 3,569,004 105,359,753 12/31/2007 44 (168.918) 1,232,222 36,269,662 42 (68,385) 1,223,044 36,098,779 40 56,500 1,232,325 36,498,101 (180,803,) 3,687,591 108,866,542 6/30/2008 45 (168,918) 1,269,438 37,370,183 43 (65.385) 1,263,457 37,293,851 41 56,500 1,277,434 37,832,034 (180,803) 3,810,329 112,496,068 Page 10

Department of Water & Power Palo Verde Project Termination Cost Funding I Unit 1 II Unit 2 Unit 3 I Grand Total Date Period Contribution Interest Balance Period Contribution Interest Balance Period Contribution Interest Balance Contribution Interest Totals 12/31/2008 46 (168,9 18 1,307,956 38,509,222 44 '68,385) 1,305,285 38,530,751 42 56,500 1,324,121 39,212,655 (1810,803) 3,937,362 116,252,628 6/30/2009 47 (168,91S) 1,347,823 39,688,127 45 868,93 1,348,576 39,810,942 43 56,500 1,372,443 40,641,598 N180,803) 4,068,842 120,140,668 12/31/2009 48 16,918 1,389,084 40,908,294 46 63,35) 1,393,383 41,135,940 44 56,500 1,422,456 42,120,554 (1805,803) 4,204,923 124,164,789 6/30/2010 49 (168,9M1 1,431,790 42,171,167 47 868'385) 1,439,758 42,507,313 45 56,500 1,474,219 43,651,274 -180,803) 4,345,768 128,329,754 12/31/2010 50 168,9181 1,475,991 43,478,240 48 68,385 1,487,756 43,926,684 46 56,500 1,527,795 45,235,568 '10,I 803) 4,491,541 132,640,493 6/30/2011 51 (168,918) 1,521,738 44,831,061 49 '68,385) 1,537,434 45,395,733 47 56,500 1,583,245 46,875,313 180,8 13) 4,642,417 137,102,107 12/31/2011 52 (1,918 1,569,087 46,231,230 50 ý658,385) 1,588,851 46,916,199 48 56,500 1,640,636 48,572,449 10,803) 4,798,574 141,719,879 6/30/2012 53 (168,918) 1,618,093 47,680,406 51 -68,385) 1,642,067 48,489,881 49 56,500 1,700,036 50,328,985 ,180,813) 4,960,196 146,499,272 (18(,803) 5,127,475 151,445,944 12/31/2012 54 (168,918) 1,668,814 49,180,303 52 (68, 38' 1,697,146 50,118,642 50 56,500 1,761,514 52,146,999 6/30/2013 55 (168,918' 1,721,311 50,732,696 53 3683) 1,754,152 51,804,409 51 56,500 1,825,145 54,028,644 (180,803) 5,300,608 156,565,749 12/31/2013 56 1168,918 1,775,644 52,339,423 54 '68,385) 1,813,154 53,549,178 52 56,500 1,891,003 55,976,147 (180,803) 5,479,801 161,864,748 6/30/2014 57 (168.918' 1,831,880 54,002,385 55 168,185) 1,874,221 55,355,015 53 56,500 1,959,165 57,991,812 (180,803) 5,665,266 167,349,212 12/31/2014 58 (168,918) 1,890,083 55,723,551 56 '(68,385) 1,937,426 57,224,055 54 56,500 2,029,713 60,078,025 (180,803) 5,857,222 173,025,632 6/30/2015 59 (168,918) 1,950,324 57,504,958 57 (68,385) 2,002,842 59,158,512 55 56,500 2,102,731 62,237,256 18080,*3) 6,055,897 178,900,726 12/31/2015 60 (1689118) 2,012,674 59,348,714 58 '68,385, 2,070,548 61,160,675 56 56,500 2,178,304 64,472,060 '180,803) 6,261,525 184,981,449 6/30/2016 61 (168,918i 2,077,205 61,257,001 59 '68,3855 2,140,624 63,232,914 57 56,500 2,256,522 66,785,082 80,803) 6,474,351 191,274,997 12/31/2016 62 16.9~18 2,143,995 63,232,079 60 ,68.385) 2,213,152 65,377,681 58 56,500 2,337,478 69,179,060 5180,803) 6,694,625 197,788,820 6/30/2017 63 (168.918) 2,213,123 65,276,284 61 68,385)' 2,288,219 67,597,515 59 56,500 2,421,267 71,656,827 ,180,803) 6,922,609 204,530,626 12/31/2017 64 (168,918) 2,284,670 67,392,036 62 '(68. 385 2,365,913 69,895,043 60 56,500 2,507,989 74,221,316 180803) 7,158,572 211,508,395 6/30/2018 65 (168,918 2,358,721 69,581,840 63 6'08,385 2,446,326 72,272,984 61 56,500 2,597,746 76,875,562 180,8103) 7,402,794 218,730,387 12/31/2018 66 (168,918) 2,435,364 71,848,287 64 (68.385i 2,529,554 74,734,153 62 56,500 2,690,645 79,622,707 (180,803) 7,655,564 226,205,148 6/30/2019 67 (168,918) 2,514,690 74,194,060 65 68,385) 2,615,695 77,281,464 63 56,500 2,786,795 82,466,002 1180,803) 7,917,180 233,941,525 12/31/2019 68 (168,918) 2,596,792 76,621,934 66 (68,3851 2,704,851 79,917,930 64 56,500 2,886,310 85,408,812 (180,803) 8,187,953 241,948,676 6/30/2020 69 (1,68,918) 2,681,768 79,134,785 67 (681,385 2,797,128 82,646,673 65 56,500 2,989,308 88,454,620 (180,803) 8,468,204 250,236,078 12/31/2020 70 (168,918) 2,769,717 81,735,556 68 168,385) 2,892,634 85,470,921 66 56,500 3,095,912 91,607,032 (180,803) 8,758,263 258,813,509 6/30/2021 69 .6S,385) 2,991,482 88,394,018 67 56,500 3,206,246 94,869,778 (11,885) 6,197,728 183,263,797 12/31/2021 70 (68,385) 3,093,791 91,419,443 68 56,500 3,320,442 98,246,720 (14,885) 6,414,233 189,666,163 6/30/2022 69 56,500 3,438,635 101,741,856 56,500 3,438,635 101,741,856 12/31/2022 70 56,500 3,560,965 105,359,383 56,500 3,560,965 105,359,383 Page 11

DWP PALO VERDE UNIT 1 FUNDING PLAN

-- COMMITTD -- FLOOR -ACFUAL 100%

90%

80%

70% -

60% , -*

U/

40%

0% ., 2006 FUNDING

$Amounl 20% , . r j Committed 25,182 Actual 34,179 10% Foor 20,649 0%! I I ! ! !

1991 1994 1997 2000 2003 2006 2009 2012 2015 2018 2021 2024 Year Page 12

DEPARTMENT OF WATER & POWER 2006 PALO VERDE UNIT 1 FUNDING STATUS TERMINATION COST FUNDING (In Thousand $)

(1) (2) (3) (4) (5) (6) (7) (8) (9)

Authorized Funding Plan Funding Floor Curve Actual Funding Month Year Fund Est. Cost % Funded Criteria Percent S Amount Fund Est. Cost % Funded (2) X (3) (3) X(4) (1) X(4) (7)/(8)

DEC 1991 3,261 15,677 21% 80% 170/ 2,609 3,426 15,677 22%/

DEC 1992 4,330 25,832 17% 80% 130/ 3,464 4,306 25,832 17%

DEC 1993 5,513 27,124 20% 80% 16% 4,410 5,362 27,124 20%

DEC 1994 6,780 28,480 24%/ 80%/ 19% 5,424 6,206 28,480 22%/

DEC 1995 6,934 25,682 27%/ 80% 22% 5,547 9,061 25,682 350/

DEC 1996 8,359 26,966 31% 80% 25% 6,688 12,928 26,966 48%

DEC 1997 9,627 28,314 34% 80%/ 270/ 7,702 16,928 28,314 60%

DEC 1998 11,759 31,782 370/ 80% 300/ 9,407 21,850 31,782 69%

DEC 1999 13,348 33,371 40% 80% 320/ 10,679 23,476 33,371 70%

DEC 2000 15,067 35,040 43% 80% 340/ 12,054 26,094 35,040 74%

DEC 2001 16,924 36,792 46% 80%/ 37% 13,539 28,015 36,792 76%

DEC 2002 18,060 36,858 49% 800/ 39% 14,448 29,922 36,858 810/

DEC 2003 20,124 38,701 52% 800/ 42% 16,100 30,761 38,701 79%

DEC 2004 22,350 40,636 55%/ 80% 44% 17,880 31,767 40,636 78%

DEC 2005 22,803 39,316 58% 81% 470/ 18,471 32,598 39,316 83%/

LDEi 2006 2T5,182 41,282 61% 82% 50%/ 20,649 23,025 34,179 41,282 DEC 2007 27,741 43,346 64% 83% 530/

DEC 2008 30,494 45,513 67%/ 84% 56%/ 25,615 DEC 2009 32,974 47,789 69% 85%/ 59% 28,028 DEC 2010 36,128 50,178 72% 860/ 62% 31,070 DEC 2011 39,515 52,687 75%/ 870/ 65%/ 34,378 DEC 2012 43,151 55,322 78% 88% 690/ 37,973 DEC 2013 47,051 58,088 810/ 89% 72% 41,875 DEC 2014 50,623 60,992 83%/ 90% 75% 45,561 DEC 2015 55,076 64,042 860/ 91% 78% 50,119 DEC 2016 59,847 67,244 89% 92% 820/ 55,059 DEC 2017 64,957 70,606 92% 93%/ 86%/ 60,410 DEC 2018 69,688 74,136 94%/ 94%/ 880/ 65,507 DEC 2019 75,508 77,843 97% 95% 92% 71,732 DEC 2020 81,735 81,735 100% 960/ 96%/ 78,466 DEC 2021 85,822 85,822 100%/ 97% 97% 83,247 DEC 2022 90,113 90,113 100%/ 98% 980/ 88,311 DEC 2023 94,619 94,619 100%/ 99% 99%/ 93,672 DEC 2024 99,350 99,350 100%/ 100% 100% 99,350 DEC 2025 104,317 104,317 100%/ 100%/ 100%/ 104,317 Page 13

DWP PALO VERDE UNIT 2 FUNDING PLAN 100% I I I I I I I I I I L COMMITTED - FLOOR - -- ACUAL 90%

p.4, AU 60%

-j 50% 1"_A 40%

30% 2006 FUNDINGS 2$Amount Committed 25,945 Actual 33,829 10% Floor 21,015 0% ,

1991 1994 1997 2000 2003 2006 2009 2012 2015 2018 2021 2024 Year Page 14

DEPARTMENT OF WATER & POWER 2006 PALO VERDE UNIT 2 FUNDING STATUS TERMINATION COST FUNDING (In Thousand $)

(1) (2) (3) (4) (5) (6) (7) (8) (9)

Authorized Funding Plan Funding Floor Curve Actual Funding Mot YQ Ewi Est. Cost % Fuinded Criteria Pere~nt S Amount Eullnd Est. Cost % Funded (2) X (3) (3) X(4) (1) X(4) (7)/(8)

DEC 1991 3,055 15,542 200/ 800/ 16% 2,444 3,220 15,542 21%

DEC 1992 4,104 25,418 1 6%/ 80% 13% 3,283 4,118 25,418 160/

DEC 1993 5,237 26,689 20% 80% 16% 4,190 5,222 26,689 20%

DEC 1994 6,449 28,023 230/ 80% 18% 5,159 5,942 28,023 21%

DEC 1995 6,931 26,658 26%/ 80% 21% 5,545 8,602 26,658 32%

DEC 1996 8,397 27,991 30% 80% 24% 6,718 12,434 27,991 44%

DEC 1997 9,699 29,390 33% 80% 26% 7,759 16,762 29,390 57%

DEC 1998 12,044 33,456 36% 80% 29%/ 9,635 21,717 33,456 65%

DEC 1999 13,700 35,129 39% 80% 310/ 10,960 23,928 35,129 68%

DEC 2000 15,492 36,885 42% 80% 340/ 12,393 26,269 36,885 71%

DEC 2001 17,428 38,730 45% 800/ 36%/ 13,943 28,191 38,730 73%

DEC 2002 19,343 40,298 48%/ 800/ 380/ 15,474 30,108 40,298 75%

DEC 2003 21,580 42,313 510/ 800/ 41% 17,264 30,939 42,313 73%

DEC 2004 23,991 44,429 54%/ 800/ 43%/ 19,193 31,680 44,429 71%

DEC 2005 23,453 41,880 56%/ 800/ 450/ 18,762 32,267 41,880 77%/

2006 25,945 43,974 590/ 810/ 48% 21,015 33.829 43.974 77%/1 DEC 2007 28,627 46,173 62%/ 82% 51% 23,474 DEC 2008 31,513 48,481 65%/ 83% 54% 26,156 DEC 2009 34,107 50,905 67%/ 84% 560/ 28,650 DEC 2010 37,415 53,451 70%/ 85% 60% 31,803 DEC 2011 40,970 56,123 730/ 86% 63%/ 35,234 DEC 2012 44,786 58,929 76%/ 87%/ 660/ 38,964 DEC 2013 48,263 61,876 78% 88% 69%/ 42,472 DEC 2014 52,625 64,970 81% 89% 720/ 46,837 DEC 2015 57,303 68,218 84% 900/ 76% 51,573 DEC 2016 61,601 71,629 86% 91% 780/ 56,057 DEC 2017 66,937 75,210 89% 92%/ 820/ 61,582 DEC 2018 72,653 78,971 92% 930/ 860/ 67,568 DEC 2019 78,774 82,920 95% 940/ 89% 74,047 DEC 2020 83,583 87,066 96% 950/ 91% 79,404 DEC 2021 91,419 91,419 100%/ 960/ 96%/ 87,762 DEC 2022 95,990 95,990 100% 97% 97% 93,110 DEC 2023 100,789 100,789 100%/ 980/ 98%/ 98,773 DEC 2024 105,829 105,829 100%/ 99%/ 990/ 104,770 DEC 2025 111,120 111,120 100% 100% 100%/ 111,120 DEC 2026 116,676 116,676 100%/ 100% 100% 116,676 Page 15

DWP PALO VERDE UNIT 3 FUNDING PLAN 100% I I I I I I I I I

[ COMMITTED -. FLOOR --- A CTUAL I !O,.

90% -

80% - - - - - -- -- - -

70% - --- - --

60% - - - -- - - - -

50%-

40% -j 0%/

r 2006 FUNDING 20% $Amount Committed 27,029 10% - - - - - - - - - - - - - - - - Actual 33,964 Floor 21,623 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018 2021 2024 2027 Year Page 16

DEPARTMENT OF WATER & POWER 2006 PALO VERDE UNIT 3 FUNDING STATUS TERMINATION COST FUNDING (In Thousand $)

(1) (2) (3) (4) (5) (6) (7) (8) (9)

Authorized Funding Plan Funding Floor Curve Actual Funding Month YS& Fund Est, Cost %1Funded Critera Pecn SAmount Fund EsCs  % Funded (2) X(3) (3) X(4) (1) X(4) (7)/(8)

DEC 1991 2,452 17,248 14% 800/ 11%/ 1,962 2,540 17,248 15%

DEC 1992 3,452 27,160 13% 800/ 100/ 2,762 3,438 27,160 13%/

DEC 1993 4,636 28,518 16% 80% 13%/ 3,709 4,542 28,518 160/

DEC 1994 5,905 29,944 20% 80% 16% 4,724 5,356 29,944 180/

DEC 1995 6,923 30,100 23% 80% 18% 5,538 8,181 30,100 270%

DEC 1996 8,217 31,605 26%/ 80% 21% 6,574 12,332 31,605 390/

DEC 1997 9,956 33,185 30% 80% 24% 7,964 16,843 33,185 51%/

DEC 1998 11,871 35,973 33% 80% 26% 9,497 21,831 35,973 610/

DEC 1999 13,598 37,772 36% 80% 29% 10,878 23,832 37,772 63%/

DE C 2000 15,467 39,660 39%/ 80% 31% 12,374 26,233 39,660 66%/

DEC 2001 17,490 41,643 42%/ 80% 34% 13,992 28,421 41,643 680/

DEC 2002 18,396 40,879 450/ 80% 36% 14,716 29,941 40,879 73%

DEC 2003 20,603 42,923 480/ 80% 38% 16,482 30,701 42,923 72%

DEC 2004 22,985 45,069 51%0/ 800/ 41% 18,388 31,734 45,069 70%

DEC 2005 24,823 45,968 54% 80%/ 43%/ 19,858 32,459 45,968 71%

FDEC 2006 27,029 48,266 56%/ 80%/ 450/ 21,623 33,964 48,266 70%I DEC 2007 29,901 50,680 59% 80%/ 47%/ 23,921 DEC 2008 32,992 53,214 .62%/ 810/ 500/ 26,724 DEC 2009 36,318 55,874 65% 820/ 53% 29,781 DEC 2010 39,308 58,668 67% 83%/ 560/ 32,625 DEC 2011 43,121 61,602 70% 84% 59% 36,222 DEC 2012 47,218 64,682 73% 85% 62% 40,135 DEC 2013 51,616 67,916 76% 86% 65% 4-4,390 DE7C 2014 55,623 71,311 78% 87% 68% 48,392 DEC 2015 60,650 74,877 81% 88% 71% 53,372 DEC 2016 66,042 78,621 84%/ 89% 75% 58,777 DEC 2017 70,995 82,552 860/ 90% 77% 63,895 DEC 2018 77,145 86,680 89% 91% 81% 70,202 DEC 2019 83,732 91,013 920/ 92% 85% 77,034 DEC 2020 90,786 95,564 95% 93% 88% 84,431 DEC 2021 98,336 100,342 98%/ 94% 92% 92,435 DEC 2022 105,359 105,359 100% 95% 95% 100,092 DEC 2023 110,627 110,627 100%/ 96% 96% 106,202 DEC 2024 116,159 116,159 100% 97% 97% 112,674 DEC 2025 121,967 121,967 100% 98% 98% 119,527 DEC 2026 128,065 128,065 100% 99% 99% 126,784 DEC 2027 134,468 134,468 100% 1000/ 100% 134,468 Page 17

DWP PALO VERDE ALL UNITS FUNDING PLAN 100% 1 1 11 11

-- COMM=TED Mu-FLOOR ACFUAI 90%

70% -,

• 60%

340% - -

30 ,A 2006 FUNDING S1

$Amount 20% -- - - - --- Committed 78,156 Actual 101,972 10% f Floor 63,306 0% 4. -T-1 1 - T T1 1 1 1 1 1 1 1 T ] I .

1991 1994 1997 2000 2003 2006 2009 2012 2015 2018 2021 2024 2027 Year Page 18

DEPARTMENT OF WATER & POWER 2006 PALO VERDE ALL UNITS FUNDING STATUS TERMINATION COST FUNDING (In Thousand $)

(1) (2) (3) (4) (5) (6) (7) (8) (9)

Authorized Funding Plan Funding Floor Curve Actual Funding Month XSaz Fund Est, CostY% Funded Criteria Percen S Amount Fund Est, Cost % Funded (2) X (3) (3) X (4) (1) X (4) (7)/(8)

DEC 1991 8,768 48,467 18%/ 800/ 14% 7,014 9,186 48,467 19%

DEC 1992 11,886 78,410 15% 800/ 12% 9,509 11,862 78,410 15%

DEC 1993 15,386 82,331 19%/ 800/ 15% 12,309 15,126 82,331 18%

DEC 1994 19,134 86,447 22% 800/ 18% 15,307 17,504 86,447 20%

DEC 1995 20,788 82,440 250/ 80% 20% 16,631 25,844 82,440 31%

DEC 1996 24,974 86,562 290/ 80%/ 23% 19,979 37,694 86,562 44%

DEC 1997 29,281 90,890 32% 80%/ 26% 23,425 50,533 90,890 56%

DEC 1998 35,675 101,211 350/ 800/ 28% 28,540 65,398 101,211 65%

DEC 1999 40,646 106,272 38% 800/ 31% 32,517 71,236 106,272 67%

DEC 2000 46,026 111,585 41% 800/ 330/ 36,821 78,596 111,585 70%

DEC 2001 51,843 117,164 44% 800/ 35%/ 41,474 84,627 117,164 72%

DEC 2002 55,799 118,035 47% 800/ 38% 44,639 89,971 118,035 76%

DEC 2003 62,307 123,937 500/ 800/ 40% 49,846 92,401 123,937 75%

DEC 2004 69,326 130,134 53%/ 800/ 43% 55,461 95,181 130,134 730/

DEC 2005 71,079 127,164 56% 80%/ 45% 56,863 97,324 127,164 77%

DEC 2006 78,156 133,522 59% 810/ 470/ 63,306 101972 x 133522 76%1a DEC 2007 86,269 140,198 62% 820/ 50% 70,741 DEC 2008 94,999 147,208 650/ 830/ 54% 78,849 DEC 2009 103,399 154,569 670/ 840/ 56% 86,855 DEC 2010 112,851 162,297 700/ 85%/ 59% 95,924 DEC 2011 123,606 170,412 73% 860/ 62% 106,302 DEC 2012 135,155 178,933 76% 87%/ 660/ 117,585 DEC 2013 146,930 187,879 78% 880/ 690/ 129,298 DEC 2014 158,872 197,273 81% 89%/ 72% 141,396 DEC 2015 173,029 207,137 84% 90% 75% 155,726 DEC 2016 187,489 217,494 86% 910/ 78% 170,615 DEC 2017 202,889 228,368 89% 920/ 820/ 186,658 DEC 2018 219,486 239,787 92% 930/ 850/ 204,122 DEC 2019 238,014 251,776 95% 94% 890/ 223,733 DEC 2020 256,104 264,365 97% 95% 920/ 243,299 DEC 2021 275,576 277,583 99% 96% 950/ 264,553 DEC 2022 291,462 291,462 1000/ 97% 970/ 282,718 DEC 2023 306,035 306,035 100%/ 98% 980/ 299,915 DEC 2024 321,337 321,337 100% 99% 990/ 318,124 DEC 2025 337,404 337,404 100% 100%/ 100% 337,404 DEC 2026 244,741 244,741 100% 1000/ 1000/ 244,741 DEC 2027 134,468 134,468 100% 100% 1000/ 134,468 Page 19

7 I.L a &e Uty (A J10. g ANTONIO R. VILLARAIGOSA Commission RONALD F. DEATON, Gen.1,Wa-ger Nbvm 14. DAVID NAHAI, twside EDITH RAMIREZ. ai,,e, MARY D. NICHOLS NICK PATSAOLTRAS FORESCEE HOGAN-ROWLES BARBARA E. MOSCHOS, secmo')

LOS ANGELES DEPARTMENT OF WATER & POWER CERTIFICATE FOR ANNUAL FUNDING STATUS REPORT FOR THE PERIOD ENDING DECEMBER 31, 2006 Ronald 0. Vazquez, Chief Financial Officer of Los Angeles Department of Water and Power certifies on behalf of Los Angeles Department of Water and Power that all other instruments providing for investment management of the Termination Funds of Los Angeles Department of Water and Power, taken together, comply with Section 8A.7.2.2 and all other provisions of the Arizona Nuclear Project Participants agreement, dated August 23, 1973, as amended by Amendments Nos. 1 through 13, establishing requirements for such 'agreements dnd instruments; and further certifies that, to the best of his knowledge; the information contained in the report to which this certificate is attached is true and correct and accurately sets forth the status of the Termination Funds of Los Angeles Department of Water and Power as of the date stated.

Dated: February 26, 2007 Fýnald 0. Vazqueiý Chief Financial Officer Water and Power Conservation... a way of life III North Hope Street, Los Angeles, California 90012-2607 Mailing address: Box 51111, Los Angeles 90051-5700 Telephone: (213) 367-4211 Cable address: DEWAPOLA