In this decision, we address the Phase 1 transition cost issues, which include the ratemaking issues associated with establishing the Transition Cost Balancing Accounts for Pacific Gas and Electric Company (PG&E), Southern California Edison Company (Edison), and San Diego Gas & Electric Company (SDG&E). In addition, we review a stipulation presented by all parties on market price proxies, and address consensus and nonconsensus recommendations regarding tariff issues related to terms and conditions for exemptions and departing load. Most importantly, we determine that it is not appropriate to allow complete utility discretion in applying revenues to transition costs and discuss how such discretion impacts the risks of transition cost recovery. We make these determinations according to the mandates provided by the new Public Utilities (PU) Code Sections added by Assembly Bill (AB) 1890 (Ch. 854, Stats. 1996), and using the guidance provided by our Preferred Policy Decision [ Decision (D.) 95-12-063, as modified by D.96-01-009.] in the Electric Restructuring Rulemaking and Investigation (R.94-04-031/I.94-04-032). In this phase, we adopt general guidelines to be applied to the order of acceleration for recovery of transition costs. Specific findings regarding eligibility of costs for transition costs, and appropriate application of rate of return will be addressed in Phase 2.