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

Position of Parties

Edison argues that the Commission should maintain the incentive mechanisms for employee safety, consumer satisfaction, outage frequency, and outage duration as they currently exist. In particular, Edison argues that achieving the current service quality benchmarks remains a significant challenge to Edison.²³ Edison believes that ratcheting up the standards in response to improved performance undercuts the incentive mechanisms. Edison also argues that changes to service quality standards should not be considered without simultaneously considering the costs of achieving even more improved performance.

Taking another approach, Edison argues that ORA's proposed use of new standards using data only from 1999 and 2000 is inconsistent with the methodology previously adopted by the Commission. D.96-09-062 considered data covering many years in developing performance benchmarks. Edison notes, for example, that the proposal to create a safety index, which was adopted by the Commission, was based on seven years of data. Similarly, Edison points out that for reliability standards, the parties to this proceeding, including ORA's predecessor, the Division of Ratepayer Advocates, used ten years of data.

ORA opposes the continued use of the current worker safety standards, characterizing them as "lenient" and "no real challenge to Edison." ORA asks that the Commission take notice of I.01-08-029, in which the Commission is investigating Edison's safety practices. ORA recommends the Commission move the performance benchmark from 13 injuries per 2000 hours worked to 5.8. Alternatively, ORA also states that "If the Commission is uncomfortable with establishing a new benchmark for a one-year period, the performance measure should simply be eliminated."²⁴

ORA similarly argues that Edison's customer satisfaction benchmark should be changed. Currently the benchmark standard of 64% means that when customer responses to a survey on four aspects of customer service are averaged, 64% of responses indicated that customers are "completely satisfied" or "delighted" with service. ORA notes that recently Edison's performance has far exceeded the benchmark standard. ORA therefore recommends that the Commission use Edison's performance over the last two years and set a benchmark at 74%.²⁵ ORA concludes by stating that "It is time to either revise or eliminate Edison's customer satisfaction performance measures for 2002."²⁶

ORA further recommends that the Commission should revise the outage frequency benchmark, reducing it from 10,900 to 9112, the average of the last two years data. ORA proposes this revision to give Edison "a strong incentive to improve its performance."²⁷

TURN provides no specific comments concerning ORA's proposed modifications, but expresses general support for ORA's positions.

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

There are four performance incentive mechanisms in Edison's current PBR: a worker safety incentive, a customer satisfaction incentive, an outage frequency incentive, and an outage duration incentive. We discuss each mechanism in turn.

Concerning the worker safety incentive program, ORA has made a convincing case that the current standards are set at levels that Edison readily exceeds. Thus, we are not confident that this program continues to provide a real incentive to improve safety performance. In addition, we note that even without a safety incentive program it remains the policy of the state that utilities operate in a safe manner.²⁸ Finally, we note that various state and federal laws continue to promote worker safety. Thus, we do not find a basis for continuing the safety incentive program at this time.

Concerning the consumer satisfaction incentive program, we believe that it is reasonable to extend this program for one year because it sends the signal to the company and to the public that this Commission remains critically interested in the satisfaction of utility customers. ORA has made a persuasive case that the Commission should modify the current benchmark standard to reflect trends in Edison's performance. We also agree with Edison that a benchmark should not reflect just two years data and that a dramatic ratcheting of performance criteria can discourage utility efforts to improve performance. Edison reminds us that in our 1996 decision the Commission decided that the best policy was to use ten years data. We therefore find that is more reasonable approach to replace the current benchmark with one based on an average of recorded satisfaction levels for 1991-2000.

We also plan to extend the incentive program to reduce Edison's frequency of outages for another year to signal our continuing interest in the reliability of electrical service. Once again, however, ORA has made a persuasive case that the Commission should modify the current benchmark standard. On the other hand, we agree with Edison that a benchmark should not reflect data from just two years and that a dramatic ratcheting of a performance benchmark, particularly when performance is heavily influence by weather, is inappropriate. Edison further notes that the methodology for setting this performance benchmark used ten years of historic data. For this reason, we find that it is reasonable to update this benchmark to reflect more recent performance, but to include data for more than two years. We therefore set the outage frequency benchmark based on the average for the performance recorded for the years 1991-2000.

Edison has recommended that the benchmark for the outage duration standard remain unchanged. ORA does not oppose retention of this standard, and notes that it has been revised over the course of the PBR. We find no reason for changing this benchmark. It is therefore reasonable to retain this incentive program without change.