8. SDG&E's AMI Application is Not Cost-Effective

The total adopted costs for SDG&E's AMI Project are $583.5 million, as per Section 7.3. We derive the total benefits starting from SDG&E's January 16, 2007 Comments on the December 15, 2006 Ruling of ALJ Gamson. In SDG&E's Comments, Table 1, Column 3 shows the projected costs and benefits of SDG&E's proposal, including most of the assumptions used in this decision (these assumptions were included in the ALJ's Ruling). SDG&E shows total benefits of $508 million. This figure should be adjusted downward by $6 million to reflect reduced large customer DRA benefits, as discussed in Section 7.5.3; (this assumption was not included in the ALJ Ruling). The total adopted benefits to ratepayers over 17 years are $502 million¹¹² -- $81.5 million less than ratepayer benefits.

We must also consider if there could be sufficient additional societal benefits to overcome the lack of cost-effectiveness of SDG&E's AMI proposal from the ratepayer's perspective. Although the additional benefits discussed in Section 6.9 do not necessarily impact ratepayers directly, it is appropriate to consider the societal impacts of SDG&E's proposal as well. We have found reasonable about $32 million to $43 million in newly-quantified societal benefits. Now that SDG&E has quantified virtually every category of benefits previously considered non-quantifiable, there are few, if any, non-quantified benefits which could assist in consideration of the cost-effectiveness of the SDG&E AMI proposal. Thus, even including all the newly quantified benefits, the costs of SDG&E's AMI proposal still exceed the benefits by at least $37.5 million, and up to $48.5 million.

We conclude that SDG&E's Project as discussed in its application is not cost-effective. Combined with our finding that SDG&E has not yet met the Commission's functionality criteria, we could not approve SDG&E's application as originally submitted, absent the settlement.

¹¹² SDG&E in its comments to the proposed decision points out that the $52/kW-year avoided capacity value used in Section 7.6 is a real value, but Table 1, Column 3 calculated benefits based on a $52/kW-year nominal value. SDG&E argues that the figures in Table 1, Column 3 should be adjusted to reflect the $52/K2-year real value, which SDG&E argues would increase overall benefits. SDG&E is correct that the proposed decision used a real value as compared to the nominal value in Table 1, Column 3. While there is no record basis to make an adjustment for this change, SDG&E suggests in its comments that this modification would increase benefits by $30 million. DRA and UCAN challenge this assertion in reply comments. DRA argues that changing from nominal to real values in Table 1, Column 3 would affect other calculations in the model as well, in unknown ways. We note that if SDG&E's asserted $30 million adjustment was incorporated into our cost-effectiveness analysis, SDG&E's proposal would fall short of being cost-effective by $51.5 million, and would still not be cost-effective after including newly-quantified benefits discussed herein.