11. Cost Effectiveness of the Settlement Agreement Business Case

As discussed in Sections 9 and 10 above, the settlement terms are within the range of reasonable outcome if the matters were fully litigated on the existing record, and we adopt the final calculation of operational benefits and costs contained in the settlement agreement.

The settlement terms provide for a cost-effective business case in which approximately 59% of project costs are covered by expected operational savings, with additional costs expected to be covered by DR, conservation, and load control benefits. SCE's AMI business case, by its nature, depends on a very long-term forecast of operational savings and demand response benefits forecast for the next 20 years. We must act with the best information that is available now even though we know no forecast is ever fully accurate. In performing its cost effectiveness analysis, the business case analysis appropriately applies an analytical framework similar to that set forth in R.02-06-001 for evaluating AMI deployment proposals. Based on the best information currently available, the settlement business case is cost effective with at least $9 million of documented benefits. Though this margin of benefits appears slim, the settlement agreement also documents approximately $295 million in additional societal benefits from the AMI system, providing some margin of benefits to ensure a reasonable value to ratepayers from this investment.

While there is always some uncertainty in the cost and benefit projections, the SCE/DRA settlement is cost effective based on an appropriate analysis of the best existing information.