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SDG&E ASKS STATE FOR PERFORMANCE-BASED INCENTIVES

 SDG&E ASKS STATE FOR PERFORMANCE-BASED INCENTIVES
 SAN DIEGO, Oct. 16 /PRNewswire/ -- In an effort to boost savings


for customers by providing greater incentives for efficient utility operations, San Diego Gas & Electric (NYSE: SDO) today filed with the Public Utilities Commission (PUC) a "Performance-Based Ratemaking" proposal.
 Under the company's three-part proposal, SDG&E customers and shareholders would share the benefits realized if the utility is able to purchase natural gas below prevailing market prices; if it can reduce its costs of electric generation and dispatch; and if it is successful in acquiring the lowest-cost, most environmentally sensitive new electric sources for its customers.
 On the other hand, if SDG&E fails to achieve least-cost energy strategies, shareholders will be held accountable.
 Performance-based ratemaking is not new in California, according to Bill Reed, SDG&E's director of regulatory affairs. Today's proposal to adopt shareholder rewards and penalties follows the developing policy of the PUC to base utility earnings on its performance in the increasingly competitive energy industry.
 "Starting in 1990," Reed explained, "California utilities were rewarded for aggressive implementation of Demand Side Management (DSM) programs. These rewards were based on a share of the savings achieved for customers.
 "By providing utilities with incentives to develop and implement DSM conservation programs, the PUC provided a tremendous stimulus for energy efficiency in the state of California.
 "This worked so well," Reed said, "we'd like to see the same incentive approach made to stimulate more efficient natural gas purchasing; more efficient electric generation and dispatch; and the development of efficient, environmentally sensitive future electric generation resources."
 For the past 18 months, SDG&E has actively discussed performance- based ratemaking with the PUC's Division of Ratepayer Advocates. The three-part proposal attempts to incorporate insights and suggestions provided by the DRA during those discussions.
 Under the utility's proposal, a set of rewards -- or penalties -- would be established to encourage efficient utility operations and decisions.
 For example, SDG&E's recommendation for natural gas procurement is simple and market-driven, Reed said. If the company can beat the prevailing market price for gas, SDG&E's customers would see lower costs and its shareholders would be authorized to receive higher earnings.
 However, if the company fails to beat the market, shareholder earnings would drop as customer costs rise.
 Just as with gas purchases, today's proposal would judge SDG&E's electric generation and dispatch performance against a market-driven benchmark. If the utility is able to produce and distribute electricity more efficiently to its various customers, customer electric costs would drop and shareholder earnings would rise. If the utility falls short of meeting its performance targets, shareholders and customers would share in these losses.
 Reed said the goal of the third part of today's proposal is to produce the lowest-cost, most environmentally sensitive electric generating resources possible and to streamline the process of resource procurement.
 Reed noted that this third part of the proposal would establish a bidding system under which the company would procure new electric generating resources to serve its growing demand for electricity or to replace aging, existing power plants. All comers -- including other utilities -- would be invited to bid their projects and bid winners would be submitted to the PUC for review and approval.
 "These proposed ratemaking mechanisms would require SDG&E to perform well in competitive markets in order to make money for its shareholders," Reed added. "Our proposal also aligns customer interest with shareholder interest. The lower our customer costs, the higher the shareholder profits. What we're proposing is to tie rewards to good utility performance."
 The utility is asking the PUC to begin hearings on its gas procurement and electric generation and dispatch proposals later this year, with a final commission decision by next spring. SDG&E would like hearings to begin on its competitive energy procurement proposal in early 1993, with a final decision to be handed down by the summer of 1993.
 -0- 10/16/92
 /CONTACT: Dave Smith of San Diego Gas & Electric, 619-696-4285/
 (SDO) CO: San Diego Gas & Electric ST: California IN: UTI SU:


JL-ML -- SD004 -- 0983 10/16/92 13:15 EDT
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Date:Oct 16, 1992
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