12. SDG&E Customer Service Incentives

SDG&E requests incentive mechanisms for Customer Satisfaction that are similar to previously authorized incentives for (1) phone/office contact satisfaction, (2) field visit satisfaction, (3) Call Center Responsiveness, and (4) field service order appointment timeliness.

In the prior proceedings for SDG&E and SoCalGas the Commission granted the companies substantial reward/penalty incentives over the objections of several intervenors, and stated "...we already adopt just and reasonable rates [in the GRC] that are sufficient to fund safe and reliable service; therefore any reward or penalty is solely an incentive to improve (or not backslide)." (D.05-03-023, p. 53.) In the same order, the Commission concluded: "The four Customer Service incentives for both SoCalGas and SDG&E should be adopted because they provide an incentive to improve service." (Ibid., Conclusion of Law 18.)

We find nothing has changed: the rates adopted for Test Year 2008 are reasonable to provide SDG&E and SoCalGas an opportunity to earn a fair return in the course of providing safe and reliable service. Therefore, when we set reasonable targets for incentives, and a sufficient reward or penalty allowance, we expect service (or safety) to improve because the companies wish to avoid penalties and achieve financial rewards as well as less tangible rewards from improved (or safer) service.

DRA proposed an "equalizing factor" to achieve what it described as neutrality - where long-term gains and penalties would offset. This proposal is discussed in several exhibits including Ex. DRA-24:

DRA proposes, as a general approach ... , that the relative size of rewards and penalties be adjusted by an equalizing factor which retroactively balances their average over the historical period. This general approach is based on the expectation that such an adjustment should have the same balancing effect over the long run in the future. In this proceeding, DRA recommends that this adjustment be modified slightly in favor of the utilities to ensure that the utilities still have an incentive to improve. Specifically, DRA recommends that the adjustment be made by simply using an equalization factor of 0.2 throughout. (p. 24-6.)

The rewards for good performance proposed by DRA are much smaller than the proposed penalties for each increment of change from the target. DRA contends that over time a few (large) penalties would offset the more frequent (small) rewards for a neutral outcome. We believe this proposal is unreasonable - it implies random chance to meeting or failing to meet goals or unfairly to offer the illusion of rewards which are then offset by disproportionate penalties based on the historical trends where SDG&E and SoCalGas having achieved rewards more often than having suffered penalties. (Ex. DRA 24, p. 24-6.)

We did not find that DRA presented any compelling analysis in support of the proposal for an "equalizing factor" for any of the proposed incentive or sharing mechanisms. (DRA does derive specific equalizing factors for each individual incentive but the object is the same for each incentive.) If the outcome were truly random there is no need for any incentive - events happen. If the outcome is dependent on, or strongly influenced by, utility actions, then an incentive to encourage the right kind of action with a reward should not be offset by penalties in the long run. We expect the rewards to be sufficient to induce improvements and the penalties to be a comparable inducement to avoid back-sliding or declining performance. We do not agree that over time all rewards in some timeframes should be offset by penalties in others.

We believe that the company's actions tend to determine whether it generally warrants a reward or a penalty. In other words, the deliberate actions and choices of management, in response to either financial incentives or, doing the right thing in the best way possible, should result in improved performance.

12.1. SDG&E Customer Service Incentives

The Phone/Office Contact and the Field Visit Satisfaction targets measure the percentage of customers who are satisfied with the service during the contact, based on a survey of customers. The Call Center Response target measures the percentage of calls answered within 60 seconds, and the final measure, the Field Service Order Appointment target measures the percentage of on-time appointments. In Ex. DRA-39, (pp. 39-12 forward) DRA proposes several separate targets for Field Service Order Appointments. We are not convinced that this incentive needs to be segmented and will consider the single measure proposed by SDG&E in order to simplify the mechanism. The targets are separately determined for SDG&E and SoCalGas.

SDG&E Customer Service Incentives35

UCAN supports DRA's 84% target for phone/office contact and 95% target for field visit satisfaction. On the other hand, it supports SDG&E's proposed 80% target for call center response, rescinds its original recommendation on field service order appointments and now supports SDG&E's proposal. UCAN is opposed to rewards, but supports penalties. (UCAN Opening Brief, pp. 348-349.)

DRA points out that SDG&E has received customer service performance incentive awards from 1999 to 2006, and recommends using a three-year not five-year average. (DRA Opening Brief, p. 527.) DRA believes the three-year averages are more indicative of recent performance than five-year averages and are consistent with the previous adopted methodology for service quality targets. (Ibid., citing Ex. DRA-24, p. 24-29.)

We continue to believe we were on the right path in our last decision, D.05-03-023 when we found that incentives, with reasonable targets, benefit ratepayers by improving service. We agree with DRA that when SDG&E has been successfully achieving rewards - by improving its performance - we should use the most recent 3-year average instead of the five-year average: the longer average dilutes the target, which is to "stretch" to achieve a reward for performance beyond base expectations at base funding.36 We suggest that parties study historical trends, including, for example, regression analysis, rather than arithmetic averages, as a measure of the correct target for the next GRC. As noted, lower levels of past performance dilute averages and could understate the likely target.

We also agree with DRA to continue to include field office visits in the phone/office contact measurements. DRA points out that if we exclude office visits from this incentive then there is no measurement of branch office performance. (DRA Opening Brief, p. 528.) As noted already, we reject unbalanced incentives or limiting the mechanisms only to penalties: without rewards for marked improvement there is a lesser likelihood that the company will strive to exceed the target and only minimize the risk of penalty. We will adopt SDG&E's (and SoCalGas') single measure, not DRA's multiple measures, for field service appointments. DRA proposes a different dead band coupled with its unbalanced penalty/reward. We will not attempt to partially adopt DRA's proposal.

An Annual Improvement adjustment for each of these incentives is useful to ensure continued improvement and to ensure that rewards or penalties are not assessed for several years over a static target. We will modestly adjust the annual customer service incentives' targets by moving the target by one-half of the dead-band. For the phone/office contact satisfaction, field visit satisfaction, and field service order appointment timeliness incentives the annual target change is 0.5% and for the call center response incentive this is a 1.0% increase to the targets. We note the range of initial targets as proposed by SDG&E and DRA (shown above in the table) had much larger gaps than these relative small adjustments. In the next GRC, parties should address in greater detail appropriate annual improvements to targets as well as the question of continuing the incentives and the various features of the incentive.

35 DRA Opening Brief, p. 527. DRA's recommendations are in Ex. DRA-39, and the historical equalizer in the above table is discussed and derived at Ex. DRA-39, pp. 39-2 - 39-6.

36 In D.05-03-023, we discussed a `stretch" factor in relation to productivity and attrition (mimeo., pp. 19-20.) The principle still applies: any incentive based on averages can be weakened when any poor performance in included in deriving the average.

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