5. Analytical Approach and Conclusion

PG&E proposes its incentive program as a solution to a problem. It identifies the problem as an increase in future rates, over what they would otherwise be, caused by new customers being acquired by POU's rather than PG&E. PG&E alleges that the increase in future rates will be due to the loss of CTM that such new customers would provide. In order for us to evaluate PG&E's proposal, we need to consider whether it makes sense from a policy perspective. It also must be practical to implement since the proposal would have no value as a solution to the alleged problem if it can't be implemented.

In the following sections, we first address the policy issues of whether there is a need for the incentives and the effect of PG&E's proposal on new customers. As discussed later in this decision, we find:

· There is no significant need for the incentive proposal. (See Section 6.2 of this decision.)

· The incentives would likely disadvantage some new customers and PG&E has not demonstrated why it would be good public policy to do so. (See Section 7.2 of this decision.)

Thus we find it would not be good public policy to grant PG&E's proposal.

In subsequent sections we examine the practical aspects of the incentive proposal including the CTM calculation, implementation and the proposed reasonableness review process. We find:

· PG&E's CTM calculation contains flaws that make it unreasonable. (See Section 8.2 of this decision.)

· A minimum amount of CTM (threshold CTM) would be necessary in order to provide some assurance that the incentives will result in a positive CTM. However, PG&E has not proposed one and the record is insufficient to determine what it should be. (See Section 9.2 of this decision.)

· One way to assure a positive CTM, in addition to or instead of a threshold CTM, would be to have shareholders bear some of the costs. However, the record does not provide sufficient information for us to consider such a requirement. (See Section 10.2 of this decision.)

· PG&E proposes that the applicant not be required to obtain a written offer from the POU or include a copy of it with the affidavit. PG&E's proposal would make it difficult, at best, to verify in the reasonableness review that a bona fide offer was made and that the applicant accurately represented the POU offer. Since this would make the reasonableness review more controversial, complex and expensive, it would reduce the resulting CTM and make the proposal less practical to implement. Requiring the applicant to obtain a written offer from the POU and include a copy of it with the affidavit would attract fewer developers and provide less CTM. (See Section 11.1.2 of this decision.)

· PG&E has not explained how the extended compliance period and the absence of deficiency billing by the POU could be analyzed to ascertain the reasonableness of PG&E's offer. (See Section 11.2.2 of this decision.)

· PG&E's proposal to increase the compliance period increases the risk that the development will not provide a positive CTM and supports the need for a threshold CTM and/or a contribution by shareholders to the cost of the incentives. (See Section 11.2.2 of this decision.)

· PG&E does not propose to offer the incentive as a standard tariff offering to qualified applicants. Instead it requests authority to use its discretion regarding the compliance period. PG&E also requests authority to use its discretion as to whether to offer the incentive when it has reason to believe the offer should not be made, even though the customer otherwise meets the eligibility criteria. Since PG&E has not explained in any detail what criteria it would use in exercising its discretion, we cannot determine whether its proposal would lead to unreasonable discrimination. (See Section 11.3.2 of this decision.)

· There may be some applicants who would qualify for the incentive, but would take service from PG&E without the incentive or should not be offered the incentive or extended compliance period for other reasons. Offering the incentive in such instances would incur costs with diminished or no corresponding benefits thus reducing the overall CTM provided by the proposal. PG&E has not addressed these possibilities in its CTM calculation and it is unclear whether its request for discretion could eliminate these possibilities without unreasonable discrimination. (See Section 11.3.2 of this decision.)

· PG&E's proposal, to conduct the reasonableness reviews as part of the Energy Resource Recovery Account (ERRA) proceeding, is unreasonable because the ERRA proceeding already has a significant number of issues and a limited time frame. Since there is no other available proceeding, the reasonableness review would have to be conducted in a separate proceeding. However, the record does not demonstrate that initiation of such proceedings would be the best use of the parties' or the Commission's resources. (See Section 12.1.2 of this decision.)

· PG&E's proposal regarding the consequences of a finding of unreasonableness does not address the range of possible outcomes and could leave ratepayers worse off due to an error by PG&E. (See Section 12.2.2 of this decision.)

· PG&E has not demonstrated that its proposal for provision of incentives for backbone-only services is reasonable. (See Section 13.1 of this decision.)

Because of the above flaws in PG&E's proposal, we find it impractical to implement. Because PG&E's proposal would not be good public policy and would not be practical to implement, we deny the application.

In the course of this proceeding, the parties addressed a number of issues that would require resolution if we were to grant this application. Since we do not grant the application, these issues are moot and we do not address them herein. Our exclusion of such issues from this decision does not mean that we would approve PG&E's position regarding those issues if we were to grant the application. We also note that PG&E's incentive proposal does not fall within the exceptional case provisions of Rules 15 and 16. If we were to grant PG&E's application, it would require a change to PG&E's rules, triggering § 783. (See Section 14.2 of this decision.)