ALJ/TJS/k47/eap Mailed 4/25/2002

Decision 02-04-055 April 22, 2002

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Application of Southern California Edison Company to Adopt a Performance Based Ratemaking Mechanism Effective January 1, 1995.	Application 93-12-029 (Filed December 23, 1993)
Order Instituting Investigation into Changing the Method, Timing and Process for Periodically Deriving a Reasonable Revenue Requirement for the Southern California Edison Company.	Investigation 94-04-003 (Filed April 6, 1994)

See Appendix A for List of Appearances

Table of Contents

Title Page

DECISION GRANTING PETITION TO MODIFY SOUTHERN
CALIFORNIA EDISON COMPANY'S PERFORMANCE BASED
RATEMAKING MECHANISM 2

Summary 2

Procedural Background 3

Background - The Current PBR Mechanism 4

Issues To Be Resolved 6

Issue 1: How should the Commission modify Edison's PBR to comply
with § 739.10? 8

Positions of Parties 8

Discussion: Adopting a revenue requirement for 2001 and 2002 ensures compliance with § 739.10. 10

Issue 2: How should the Commission set revenue requirements? 10

Position of Parties 11

Discussion: Edison's proposal for 2001 requires adjustments to recognize reduced expenditures; Edison's proposal for 2002 is reasonable. 12

Issue 3: Should the Commission alter the "trigger mechanism"
and/or earnings benchmark contained in the PBR? 20

Positions of Parties 20

Discussion: No basis for change. 21

Issue 4: Should the Commission alter the "incentive mechanisms"
contained in the PBR? 22

Position of Parties 22

Discussion: The Commission should adjust the safety incentive, the
customer satisfaction and the outage frequency incentive mechanisms. 24

Issue 5: Should the Commission increase the revenue requirement in this proceeding to produce more conservation activities by Edison? 26

Position of Parties 26

Discussion: The Commission will consider the level of DSM
expenditures in R.01-08-028. 28

Comments and Replies on Proposed Decision 28

Findings of Fact 29

Conclusions of Law 31

ORDER 32

DECISION GRANTING PETITION TO MODIFY

SOUTHERN CALIFORNIA EDISON COMPANY'S

PERFORMANCE BASED RATEMAKING MECHANISM

Summary

We grant in part the Expedited Petition for Modification of Decision (D.) 96-09-092 (Petition) filed by Southern California Edison Company (Edison) that seeks to extend and modify Edison's Performance Based Ratemaking (PBR) mechanism until superseded by its 2003 General Rate Case (GRC).¹ In particular, we adopt a methodology for setting a revenue requirement for the period from June 14, 2001 to December 31, 2001 and for subsequent calendar years. The adopted methodology increases Edison's distribution revenue requirement by the change in the Consumer Price Index (CPI) minus a productivity factor, X. In addition, the methodology increases Edison's revenue requirement to account for the additional costs produced by expanding the distribution network to connect new customers. Further, pursuant to Pub. Util. Code § 739.10,² we establish a balancing account to ensure that errors in estimates of electricity sales do not result in material over- or under-collections of the revenues authorized by the adopted methodology.

In addition, we examine other aspects of the PBR to determine if modifications are required. We do not change the financial "trigger mechanism," a process for changing Edison's authorized Return on Equity

(ROE). In addition, we update the performance benchmark for the customer satisfaction, worker safety, and outage frequency programs to reflect recent trends in Edison's performance. We leave unchanged the incentive program concerning the duration of outages. Finally, we decline to supplement the revenues earmarked for conservation programs in this proceeding.