Discussion

SDG&E recommends a "new and innovative approach" to PBR and incentive regulation. While several PBR mechanisms are in place, we have not developed consistent and rigorous evaluative criteria. Thus, we do not yet have measurable results delineating how incentive ratemaking motivates utility management. We are always open to consideration of a "new and innovative approach" to PBR ratemaking that will serve the public interest and achieve our broadly stated goals related to PBR regulation. However, we are not convinced that the SDG&E proposal is the best approach to meeting our goals.

Rather, we are persuaded that the most reasonable and prudent approach is to model SDG&E's distribution PBR mechanism after that adopted for SoCalGas where applicable, and for Edison where applicable. ORA, UCAN, and NRDC support the SoCalGas approach as a matter of general principle, as does the City of San Diego. SDG&E's approach is different from both the SoCalGas or Edison approaches, but has elements of both. While we have often stated that "one size does not fit all" in terms of applying PBR mechanisms to California's utilities, the record demonstrates that adopting a mechanism incorporating elements of both PBRs (although not as proposed by SDG&E) allows both the shareholders and the customers to benefit.

The term of the adopted PBR is 1999 through 2002. D.98-12-038 adopted a cost of service settlement, in which parties have agreed that SDG&E must file a 2003 cost of service study no later than December 21, 2001. We affirm that recommendation here. We also make provisions for a comprehensive review, as discussed below. There is no dispute regarding the escalation methodology proposed by SDG&E; therefore, we adopt this methodology. (See Attachment 1.)

While we agree with UCAN that a PBR mechanism must distinguish between monopoly and competitive services, we will not adopt the proposal to establish separate PBR mechanisms for electric wires, electric metering and billing, gas pipes, and gas metering and billing. Although we are exploring the competitive nature of metering and billing services, UCAN's proposal is premature. In addition, this approach would add needless complexity to the PBR mechanism.

However, we recognize it is possible that SDG&E could subsidize efficiency losses in competitive services with gains in monopoly services. Therefore, we will consider this issue during the comprehensive review and will require parties to develop monitoring and evaluative criteria to track such possibilities, as discussed below. Similarly, we are not convinced that a performance indicator for distributed generation should be established at this time. NRDC's proposal is premature. Such performance indicators should be established if we develop a particular approach for distributed generation, as determined in R.98-12-015.