The Pennsylvania Ballet is retiring its popular but frayed two-decade-old production of

The Nutcracker

, and will roll out a fresh

Nutcracker

in December.

The concept of the new production, with a moderate budget of $750,000, is still evolving, but the ballet will likely be set in the 1820s or 1830s - possibly in Philadelphia.

Two veteran Nutcracker artists have been commissioned to envision a new aesthetic: set designer Peter Horne, renowned art director for the Maurice Sendak film of the ballet; and costume designer Judanna Lynn, who has worked extensively with the Pennsylvania Ballet and other companies.

The new ballet will keep a number of aspects of the old one: the George Balanchine choreography; Balanchine's restructuring of the story; his inclusion of one stretch of non-Nutcracker music, a violin solo from The Sleeping Beauty; and the mechanical inner workings of the growing Christmas tree.

Artistic director Roy Kaiser said the Balanchine version is "the best out there. It is the closest production I've seen that really addresses the spirit of the story."

The design team is seeking a production that is substantially different from the current one, said Kaiser, and discussions had centered on setting the story in Germany. But when Kaiser met with the designers Saturday, the talk took a different turn.

"We threw a lot away on Saturday, so we're in a sense starting over," said Kaiser.

He said Horne showed up at the meeting with a lithograph of the Philadelphia Waterworks.

"He was quite taken with it," said Kaiser. "We had some interesting conversations I didn't anticipate but find exciting, and so we're going to look at the possibility of incorporating Philadelphia into the set design."

Horne and Lynn previously set a Nutcracker for the Washington Ballet that put the action in Victorian-era Georgetown, turning the ballet into what the Washington Post called "an A-list party on the Potomac."

In this instance, however, it is unlikely that literal representations of Philadelphia buildings would be used; instead, the sets probably would suggest a Philadelphia vernacular.

Saturday's meeting ended with a decision to place the ballet in the Edwardian era, but after Lynn spoke with costume builders, it was decided that the frills and trains were too cumbersome, said Kaiser. "So we're going back to the 1820s or 1830s," he said. "Simple elegance is perhaps one way to describe it."

The Pennsylvania Ballet's current Nutcracker, designed by Steve Rubin, is set in Victorian-era Europe. It cost $1 million to mount when it opened in 1987 ($1.7 million in today's dollars), and has sold nearly $38 million worth of tickets in its 20 years. It is by far the company's most generous cash cow, currently bringing in 20 percent of the annual budget during its two-week run.

Little changed in those two decades, except for a new, less labor-intensive growing Christmas tree added to the production in 2001.

But the sets and costumes have reached the end of their natural lives, said Kaiser. "You can only refurbish and patch and mend so much."

Why is the new Nutcracker costing half what the old one cost?

"We're building a lot of costumes overseas in Britain, which even given the exchange rate will cost us a lot less than New York," said executive director Michael Scolamiero. Another savings: The mechanics of the current tree will be saved, though its dressing "may give it a somewhat different look."

December is a long way off, but the timeline calls for a concept to be finalized in the next month or two, so that building costumes - 185 of them - can begin in June. Fittings will be taken in August, and the show opens Dec. 14. (Prices for tickets, which go on sale June 26, will go up an average of 5 percent. Information: 215-893- 1999.)

The sets will be constructed in this country, in about four weeks' time, said Kaiser.

Funding for the new production is not yet in place. A $350,000 grant from the William Penn Foundation gets the ballet started on covering the $750,000 budget. "We're working to raise the balance of the funds," said Scolamiero.

As for the handling of Tchaikovsky's score, no adjustments in the orchestra pit are planned, says Kaiser. Changes in orchestra personnel are possible only through a complex process outlined in the ballet's labor agreement with the musicians' union. And the new production keeps the boychoir, whose appearance, though brief, casts a sweet icing-on-the-cake moment in the dancing-snowflakes scene.

The Pennsylvania Ballet mounted its first Nutcracker in 1968, five years after the company was founded, setting the story in Victorian-era Germany. It quickly became as popular here - and as integral to ballet finances - as it did in other U.S. cities in the decades after coming ashore in San Francisco for its first complete production, in 1944.

"There is nothing else that generates that kind of revenue," said Kaiser. "There is no spring version of The Nutcracker. Even in a slow year nothing else comes close to it."

Contact culture writer Peter Dobrin at 215-854-5611 or pdobrin@phillynews.com. Read his recent work at http://go.philly.com/peterdobrin.