6. Should Ratepayers Fund Any AMI Pre-Deployment Activities?
The Commission encouraged utilities to initiate research into the AMI technology, and repeatedly has expressed an interest in supporting research into its development, in the belief that it may further state policy goals.8 Nevertheless, the Commission has not committed to approving any particular AMI technology, and has stressed that approval of deployment is dependent on research showing that the AMI technology is cost-effective. In fact, the quote that SCE uses in support of its assertion that the Commission is likely to approve some form of AMI also states that any future approval ultimately will be determined "on the basis of a further cost-effectiveness analysis."9
To the extent that the proposed activities inform the business case and assist the Commission in evaluating the ultimate application, however, the proposed expenditures have value to the Commission and to the state of California, whether or not AMI deployment is ultimately approved. DRA testimony describes this as "option value," that research and report writing can be a "prudent investment" if they assist in making an informed decision on whether to proceed with the final project.10 We agree that funding for certain research and testing-related activities may be a prudent investment rather than a sunk cost, and approving such funding and activities does not prejudge the outcome of the expected deployment application.
We conclude that it is reasonable to authorize ratepayer funding for a set of activities designed to 1) test meter functionality, communications technology and equipment, or 2) develop and refine estimates of costs and benefits associated with its AMI project prior to committing to full scale deployment. These costs are reasonable for ratepayers to fund, given the Commission's past directives to explore the cost-effectiveness of installing AMI. In addition, we find it reasonable to authorize ratepayer funding for activities that will result in a product that will be useful to SCE and provide value to its ratepayers regardless of the Commission's ultimate decision on SCE's not-yet filed application for its AMI deployment.
This is not to say that the activities SCE has proposed within its definition of pre-deployment are unreasonable per se. SCE argues that it would be reasonable to fund these activities given its perception that there is a high probability that the Commission will ultimately adopt some form of AMI in its territory, and therefore there is a low risk of stranded costs from beginning early deployment activities. This may be a sufficient justification for SCE to spend shareholder funds completing these activities. However, it would be unreasonable for the Commission to commit ratepayer funding to these activities at this time without having a record on the full project. We note that SCE already has authorization to record costs associated with all of these activities in a memorandum account approved on January 5, 2007, in SCE Advice Letter (AL) 2063-E, which preserves the company's ability to seek future cost recovery.
We find that there is no legal impediment to authorizing funding for pre-deployment activities and we will consider the scope of the proposed activities on the merits. Having made this finding, the rest of DRA's and TURN's arguments go to the proper definition and scope of pre-deployment activities to be funded.
8 For example, see D.03-06-032 Appendix A: California Demand Response: A Vision for the Future (2002-2007) and July 21, 2004, ACR in R.02-06-001.
9 D.05-09-044, p. 13.
10 Exhibit 100, p. 1-9.
