7. How to Proceed

Since Cornerstone, as proposed, will not be adopted, we must at this point determine how to proceed. PG&E indicates that its recently filed 2011 GRC will include base reliability work essentially aimed at maintaining the current levels of electric distribution reliability. If Cornerstone is rejected in total, we would not be addressing measures to improve overall electric distribution reliability until the 2014 GRC or until PG&E makes another separate filing such as for Cornerstone.

In considering Cornerstone separately now rather than deferring it to the 2011 GRC, we indicated our overall concern with respect to electric distribution reliability. Since Cornerstone was designed to significantly improve that reliability, we determined it was preferable to address the request sooner rather than later. We have done that and determined that Cornerstone, as proposed, is not necessary. However, electric distribution reliability is still important and we support necessary and optimal programs or projects that will increase such reliability. In that vein, there are some elements of Cornerstone that we feel are attractive in that they address particular reliability needs in a more focused and cost-effective manner than the total Cornerstone proposal. We address those aspects of Cornerstone in the remainder of this decision rather than deferring such consideration to a later proceeding.

With respect to future proceedings, PG&E should address all electric distribution reliability matters in an integrated fashion through the GRC process. This will allow consideration and prioritization of all types of reliability programs and projects (existing, expanded or new), not only in the context of reliability but in the context of the overall base revenue requirement. PG&E should implement a process to determine an appropriate path to take with respect providing an appropriate level of reliability to customers. That includes determining whether it would be necessary and appropriate to propose a large scale project such as Cornerstone, something more moderate, or nothing at all. In any case, PG&E should be ready to justify the path it chooses.

Basic to that justification process is a VOS study. We left it up to PG&E as to whether it should conduct a new VOS study as part of the process for justifying the need for Cornerstone,9 and PG&E chose not to conduct one. Therefore, the latest information with respect to VOS for PG&E's customers is the 2005 study. This study is inadequate for going forward for the years 2014 and beyond. As part of its next GRC (at this point scheduled for test year 2014) PG&E should conduct a new VOS study for use, at least in part, in determining and justifying its electric distribution reliability needs. We will leave it up to PG&E to determine what other information is necessary to support its position with respect to such needs.

For any proposed reliability programs or projects, PG&E should, as part of its processes, consider all reasonable alternatives, including the types of solutions proposed by other parties in this proceeding. In determining what is optimal, we expect PG&E to conduct appropriate levels of cost-effectiveness analyses.10 This does not mean that a project that does not have a benefit to cost ratio greater than 1.0 should necessarily be rejected from consideration. Knowing the extent of how cost-ineffective a project may be will aid in the process of determining whether it is reasonable to proceed with the project, or how the project should be prioritized, when considering other factors such as the severity of the problem being addressed and non-quantifiable benefits.

9 See February 12, 2009 assigned Commissioner Ruling and Scoping Memo, at 11-12. The ruling left how to best justify Cornerstone up to PG&E, indicating that "[i]n the end whether the request stands or falls depends on whether or not PG&E demonstrates that the request is just and reasonable in light of concerns expressed by other parties as well as by the Commission." It was left to PG&E to decide whether a new VOS study or cost/benefit analyses were necessary for such purposes. In not including either in its updated testimony, PG&E apparently decided they were not necessary.

10 As CCSF indicates in its opening brief, at 15-16, the type of cost effectiveness analysis, whether it is at a micro or macro level, depends on the scope of the proposal. In the case of Cornerstone, CCSF states PG&E should have used a macro-level analysis. In the case of KEMA and Quanta studies those studies were focused on a particular geographic area and they were able to drill down to the more micro levels.

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