8. Conclusion

With each major storm event and subsequent investigation, it is a challenge to balance the desire to respond immediately and specifically to the unique circumstances that arise against the need to carefully review each event and avoid a crisis management response. We firmly believe that it is of little value to adopt standards that apply to situations of limited duration or that are unlikely to repeat themselves. This proceeding is no exception. Our primary objective in PG&E's TY 2003 GRC is to ensure that PG&E continues to provide utility service at the lowest reasonable rates, maintaining a high level of customer service and satisfaction, and a safe working environmental for its employees. In this phase of the GRC, we are reviewing PG&E's overall reliability performance and storm response to determine whether PG&E has met this level of service and whether additional standards or metrics are necessary to ensure that PG&E continues to provide this level of service. Our detailed review was focused mainly on controversies which arose between PG&E and other parties and a comparison of PG&E's performance to previously-established performing standards.

The December 2002 storms consisted of a series of four severe storms that occurred within a period of nine days. These storms severely tested PG&E's facilities and staff and highlighted many weaknesses in PG&E's organization. While PG&E maintains that its overall reliability performance was reasonable, it admits that its performance during the December 2002 storms requires improvement, especially in the area of outage communications, and has identified several initiatives designed to prevent similar situations from occurring in the future. Other parties also proposed various measures designed to improve PG&E's performance.

While we approve the majority of the PG&E/ORA Agreements, we adopt the PG&E/CUE proposal for a performance incentive mechanism only with main provisions modified. Based on the record in this case, the PG&E/CUE Joint Proposal as presented is not in the ratepayer's interest. We find that the incentive proposal is not likely to result in achieving our basic regulatory objective of maintaining the lowest reasonable rates consistent with safe, reliable, and environmentally sensitive utility service because it would place ratepayers at a significant risk of paying for the same level of reliability two or three times. However, we do find some elements of the mechanism to provide value to encourage improvements in system reliability.

Under cost of service ratemaking, our objective is to adopt a revenue requirement that allows the utility to provide high quality service at just and reasonable rates. Adopting a revenue requirement necessarily includes a presumption of a certain service level. While we support PBR-style incentives in concept, the incentives must be consistent with and not jeopardize our other regulatory goals. We must also avoid using incentives as a substitute for the utilities' statutory obligation to provide high quality service, especially in monopolistic utility markets. In this case, we find that the combination of traditional cost of service regulation and the proposed PG&E/CUE incentive mechanism is likely to result in ratepayers paying twice for the same level of reliability.

As stated above, we direct PG&E to prepare a value of service study prior to its next GRC. The updated value of service information will inform the Commission regarding PG&E's customers' desire for and willingness to pay for increased reliability.

Although we find that PG&E has provided adequate service during normal conditions, based on the record in this proceeding, we also find that PG&E's outage communications during the December 2002 storms do not reflect a reasonable level of service. PG&E has admitted that its storm response needs improvement, but maintains that, on an overall basis, its response to the December 2002 storms was reasonable. We disagree. We believe that while the record demonstrates that the outages and damages caused by the storms were reasonable considering the severity and the back-to-back nature of the storms, given the many outage communication and call center problems that occurred during the storms, we cannot find that PG&E's storm response was reasonable. In particular, PG&E concedes that its method for addressing single customer outages failed, resulting in single customer outages being unrecorded and unresolved. PG&E also admits that calls from emergency personnel were handled in a manner that resulted in police and fire personnel standing by hazardous conditions for excessive periods of time during the storms. Given this evidence, we cannot find that PG&E's overall storm response was reasonable. However, based on the fact that PG&E has admitted its deficiencies and begun implementing remedial measures, we do not find that any sanctions or penalties are necessary. We also note that none of the parties requested sanctions or penalties related to PG&E's storm response.