ALJ/TJS/k47 DRAFT Item 3

2/7/02

Decision PROPOSED DECISION OF ALJ SULLIVAN (Mailed 1/23/2002)

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 22

Summary 22

Procedural Background 33

Background - The Current PBR Mechanism 44

Issues To Be Resolved 66

Issue 1: How should the Commission modify Edison's PBR to comply
with § 739.10? 88

Positions of Parties 88

Discussion: Adopting a revenue requirement for 2001 and 2002 ensures compliance with § 739.10. 1010

Issue 2: How should the Commission set revenue requirements? 1010

Position of Parties 1111

Discussion: Edison's proposal for 2001 requires adjustments to recognize reduced expenditures; Edison's proposal for 2002 is reasonable. 1212

Issue 3: Should the Commission alter the "trigger mechanism"
and/or earnings benchmark contained in the PBR? 1818

Positions of Parties 1818

Discussion: No basis for change 2020

Issue 4: Should the Commission alter the "incentive mechanisms"
contained in the PBR? 2121

Position of Parties 2121

Discussion: The Commission should suspend the safety incentive
pending I.01-08-029 and should adjust the customer satisfaction
and outage frequency incentive mechanisms. 2323

Issue 5: Should the Commission increase the revenue requirement in this proceeding to produce more conservation activities by Edison? 2525

Position of Parties 2525

Discussion: The Commission will consider the level of DSM
expenditures in R.01-08-028. 2626

Comments and Replies on Proposed Decision 2626

Findings of Fact 2727

Conclusions of Law 2929

ORDER 2929

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 calendar year 2002 and for the period from June 14, 2001 to December 31, 2001. 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). We suspend the incentive program concerning worker safety because it is not needed to promote worker safety. In addition, we update the performance benchmark for the customer satisfaction 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.