2. Background
2.1 Commission Guidance
For the last several years, this Commission has encouraged California's investor-owned energy utilities to increase demand response (DR) and implement dynamic pricing tariffs as a means of reducing energy demand during peak periods. In order to implement dynamic pricing, utilities must deploy advanced meters that can measure energy usage on a time-differentiated basis. In Decision (D.) 01-05-032, the Commission adopted a proposal for implementing real-time energy meters for SDG&E's large customers with peak demand of 100 kilowatts (kW) or more. The Commission stated, "real-time energy meters will provide accurate and meaningful price signals" as opposed to the current system where customers pay an average rate determined for all customers in their rate group. As the decision acknowledges, average pricing-the type of pricing most utility customers are billed under-masks the market conditions that exist on an hourly basis:
Any attempt at demand responsiveness is dampened because customers have a significant lag time before they receive their monthly bill, which is usually well after the high hourly prices and peak usage periods occur. Hourly market prices reflect current market conditions. By implementing real time energy meters, customers can optimize their use of electricity during different hours of the day. (D.01-05-032, p. 7.)
In June 2002, the Commission initiated Rulemaking (R.) 02-06-001, with the goal of increasing the level of DR "as a resource to enhance electric system reliability, reduce power purchase and individual consumer costs, and protect the environment."1 The Rulemaking clarified that the "Commission anticipates that full scale implementation of AMI will provide all customers in all rate classes with the option to choose between dynamic and static rate structures." AMI consists of metering and communications infrastructure as well as the related computerized systems and software. SDG&E filed its AMI application in response to the directives of this rulemaking.
The first Energy Action Plan (EAP I), adopted in 2003 by the Commission, the California Energy Commission (CEC) and the California Power Authority, articulated various action items to promote DR, including implementing a voluntary dynamic pricing system to reduce peak demand by as much as 1,500 to 2,000 megawatts (MW) by 2007.2 In October 2005, the Commission and the CEC jointly issued EAP II. EAP II, states that a first important step for achieving DR is to "issue decisions on the proposal for statewide installation of AMI for small commercial and residential time-of-use (TOU) customers by mid-2006 and expedite adoption of concomitant tariffs for any approved meter deployment."
On July 21, 2004, a joint assigned Commissioner and Administrative Law Judge (ALJ) Ruling was issued in R.02-06-001 that established a business case analysis framework for AMI. The ruling specified that the following parameters should be used consistently for each required scenario analyzed:
1. 2006 to 2021 analysis period.
2. Benefits and costs calculated relative to the Base Case.
3. Costs and benefits presented as 2004 present value dollars, with annualized nominal values in work papers.
4. An extensive literature search to identify data or methods used by other electric or gas utilities to estimate benefits shall be performed. Some combination of the specific methods for gathering benefit and cost information (use of Requests for Proposals (RFP), benchmarks from other utilities, indirect benchmarks, in-house cost analysis and actual in-house costs) should be used to estimate the benefits for all of the categories above.
5. Potential costs and benefits that cannot be easily quantified or for which no dollar value can be derived because of uncertainty or lack of data should be reflected in the analysis by including a qualitative assessment of that value.
6. Discount rate equals utility cost of capital.
7. DR savings estimates based on weighted average of savings under average and hot weather conditions developed using Monte Carlo or other simulation techniques.
8. Avoided peak demand cost = $85/kW-yr; Avoided energy cost = $63/MWh.
This Ruling provided guidance for SDG&E's Application, as well as for PG&E's March 15, 2005 Application (A.) 05-03-016.
In D.06-07-027, the Commission authorized PG&E to deploy a new AMI, including authorization for PG&E's rate proposal for critical peak pricing tariffs. The Commission concluded it was reasonable for PG&E to deploy its AMI system, finding PG&E's proposal had sufficient probable and quantifiable economic operating and DR benefits, including sufficient flexibility to upgrade for enhanced features, over the expected 20-year useful life.3 The decision authorized $1.6846 billion of project costs, with associated ratemaking provisions.
2.2 Procedural History
On March 15, 2005, SDG&E filed this application seeking Commission approval of the company's AMI deployment proposal and associated cost recovery and rate design. SDG&E proposes to replace nearly all 1.4 million electric and gas meters in its territory that are not already equipped with automated metering infrastructure (all large commercial and industrial customers already have this capability). SDG&E's application anticipates a substantial new communications infrastructure as well. SDG&E anticipates new rate structures will be adopted in the future to take advantage of AMI technology.
On May 9, 2005, the assigned ALJ issued a ruling (May 9, 2005 Ruling), directing SDG&E to provide supplemental testimony describing its pre-deployment plan along with a month by month description of all required tasks and costs. The ruling stated:
We have reached the conclusion that there are three primary issues that we must decide before pre-approving any utility's proposed deployment of AMI. First, we must be able to make an affirmative finding that the proposed systems meet the functionality criteria set forth in the Joint Assigned Commissioner and Administrative Law Judge's Ruling Providing Guidance for the AMI Business Case Analysis issued February 19, 2004 in Rulemaking (R.) 02-06-001. Second, we must be able to make an affirmative finding that the proposed investment provides sufficient operational benefits to ratepayers to move forward with implementation. This finding may not require that 100% of the costs of AMI deployment be covered by operational savings, but that some sufficient threshold is met for us to be confident that future DR benefits would result in a cost effective investment. Third, we must make an affirmative finding that SDG&E has a serious plan for accomplishing the task of integrating the AMI investment into its operating systems to ensure that the expected benefits in the areas of customer service, billing, outage management, and operations and maintenance accrue. (May 9, 2005 Ruling, p. 3.)
On May 25, 2005, SDG&E served supplemental testimony presenting a revised plan reducing pre-deployment expenditures from $50.3 million to $9.3 million. SDG&E entered into a settlement agreement with other parties regarding the scope of pre-deployment activities. The settlement (approved in D.05-08-028) authorized SDG&E to spend $3.4 million for activities during a pre-deployment period extending from September 2005 through March 2006, and an additional $5.9 million in bridge funding to be spent from March 2006 through the end of that year.4
SDG&E issued five RFPs on October 20, 2005 to implement aspects of its AMI project. SDG&E filed a motion on October 20, 2005, requesting an extension of the procedural schedule that would allow SDG&E to submit testimony reflecting the RFP results. The motion was approved by ALJ Cooke on November 18, 2005.
Accordingly, SDG&E served its updated testimony on March 28, 2006. On July 14, 2006, SDG&E served amendments to its testimony. DRA and UCAN served testimony August 14, 2006 and SDG&E served its rebuttal on September 7, 2006.
Evidentiary hearings were held September 25, 2006 through October 5, 2006. The case was submitted November 14, 2006 with the filing of reply briefs. ALJ Gamson issued a ruling on December 15, 2006 reopening the record to obtain further information. This ruling and subsequent filings are discussed below in Section 8.
SDG&E convened a properly noticed Settlement Conference on February 1, 2007. Representatives from all parties sponsoring testimony attended, either in person or by telephone. Following that Settlement Conference, the parties reached an agreement in principle to settle all outstanding issues. On February 9, 2007, in accordance with Rule 12.1(a) of the Commission's Rules of Practice and Procedure (Rules), SDG&E, DRA and UCAN (Settling Parties) filed a Joint Motion for Adoption of Settlement. As required by Rule 12.1(d), the Settling Parties contend that the Settlement Agreement is reasonable in light of the whole record, consistent with the law, and in the public interest. The Settling Parties seek Commission approval of the Settlement Agreement as presented and without revision. The Settlement is an uncontested, or "all active party," settlement. All parties who sponsored prepared testimony are signatories to the Settlement Agreement. Silicon Valley Leadership Group and eMeter Corporation jointly filed comments supporting the Settlement Agreement.
On February 16, 2007, ALJ Gamson issued a Ruling seeking further information about, and setting an evidentiary hearing on the Settlement Agreement. The Settling Parties provided their response to the ruling on February 23, 2007. The evidentiary hearing was held February 27, 2007, and the case was re-submitted that day.
The record is composed of all documents that were filed and served on parties. It also includes all testimony and exhibits received at hearing. Also, the ALJ sealed as confidential various exhibits and filings. We affirm all assigned Commissioner and ALJ rulings in this proceeding. All Motions not heretofore ruled upon are denied.
1 D.02-06-001, p. 1.
2 EAP I, section entitled, "Optimize Energy Conservation and Resource Efficiency."
3 D.06-07-027, p. 9.
4 On September 1, 2006, SDG&E filed a Petition to Modify D.05-08-018. The Commission addressed this Petition in D.06-12-016.
