MP1/MLC/hkr 7/21/2004

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Order Instituting Rulemaking on policies and practices for advanced metering, demand response, and dynamic pricing.

Rulemaking 02-06-001 (Filed June 6, 2002)

ADMINISTRATIVE LAW JUDGE AND
ASSIGNED COMMISSIONER'S RULING
ADOPTING A BUSINESS CASE ANALYSIS FRAMEWORK
FOR ADVANCED METERING INFRASTRUCTURE

On April 14, 2004,¹ staff from the Commission's Energy Division and the California Energy Commission (CEC) circulated a report (Staff Report) setting forth a proposed analysis framework for implementation of advanced metering infrastructure. Parties had the opportunity to comment on the proposed framework and comments were filed by Pacific Gas and Electric Company, San Diego Gas & Electric Company, Southern California Edison Company (SCE), The Utility Reform Network, and California Coalition of Utility Employees.

Because installing an advanced metering infrastructure requires substantial utility investment and impacts all aspects of utility operations, the decision of whether, and if so, how, to proceed requires a detailed cost/benefit analysis. The costs of developing and deploying an advanced metering infrastructure are affected by (1) the performance characteristics and applications that utilities, regulators, and customers want supported (functional capability) and (2) the hardware and engineering choices integrate the meters and communication systems of an advanced metering infrastructure into utility system network management functions.

Because the analysis framework we adopt today is designed to provide for numerous scenarios to be analyzed prior to determining whether to direct a particular AMI deployment approach, we have concluded that it is not necessary to issue a decision to adopt an analysis framework. The point to adopting the framework is to facilitate comparisons of cost and benefit estimates between utilities and scenarios, not to decide at this point, which scenario is best or should be adopted. This procedural approach is consistent with the November 24, 2003 Scoping Ruling which stated that "[a]t the conclusion of the working group process, the Commission should be in a position to issue a template that will result in the respondent utilities filing applications for authority to implement AMI and recover its costs."

Adopted Framework

The Staff Report is highly detailed and lays out a number of scenarios, different assumptions to be analyzed and considered within scenarios, and the rationale behind the various recommendations. After reviewing the report and the comments thereto, we have prepared a revised document (attached) that lays out the requirements for the utility AMI applications. In their applications, the utilities shall perform the analysis described in the attached document and propose a particular AMI deployment strategy (none, partial, full) and associated justification, timing, costs, and cost recovery based on the results of their analysis. Unless otherwise indicated in the attached document, the utilities shall explain how the various assumptions, tradeoffs, and staff recommendations described in the Staff Report were taken into consideration in reaching their recommendation regarding specific values to use in the analysis of the costs and benefits of deploying AMI. The Attachment identifies several different tariff structures to analyze but we wish to emphasize that in the near term (given legislative constraints on rate design modifications for some customer classes), we see the most potential benefits deriving from the operational cases and it is our expectation that the utilities will spend a considerable portion of their analytical time on the operations only cases.

The analysis the utilities will perform is crucial to the Commission's understanding of the tradeoffs made by utilities in developing their functional AMI specifications that underlie the benefit cost analysis. In order to enhance this understanding, the utilities should describe the underlying management philosophy or business vision used to develop its functional specifications and approach. Specifically we are interested in a discussion from each utility of how key market factors, regulatory constraints, or internal business constraints shaped or affected the development of its AMI specifications and cost benefit estimates.² Accordingly, we direct each utility to include a discussion in its filings that identifies key market factors, anticipated or current regulatory decisions, and forecasts of the future business and financing environment that have affected the development of cost and benefit estimates in this filing.

The utilities should file a preliminary analysis in this (or its successor) docket no later than October 15, 2004. The purpose of this preliminary filing is to allow parties to review and discuss the findings, recommendations, and underlying assumptions prior to the applications being finalized. The utilities should file applications containing their final analysis no later than December 15, 2004. The applications should build on the draft analysis and any updates stemming from the 2004 Statewide Pricing Pilot results that modify the analytical findings in the preliminary analysis.

The utilities may choose to forgo filing a preliminary analysis and move straight to the application if so desired, or make its filing earlier than the dates reflected herein. Filing and review of these applications moves the Commission closer to being able to fulfill the objectives of the Energy Action Plan and we encourage the utilities to expedite their development and work on these applications.

Therefore, IT IS RULED that:

1. No later than October 15, 2004, the utilities shall file their preliminary analysis in this, or its successor, docket, consistent with this ruling.

2. The utilities shall file applications no later than December 15, 2004 that finalize their analysis described in the attachment and propose a particular AMI deployment strategy (none, partial, full) and associated justification, timing, costs, and cost recovery based on the results of their analysis.

Dated July 21, 2004, at San Francisco, California.

/s/ MICHAEL R. PEEVEY		/s/ MICHELLE COOKE
Michael R. Peevey Assigned Commissioner		Michelle Cooke Administrative Law Judge

¹ The report was not formally filed with the Docket Office until April 20, 2004.

² For example, SCE mentions in its comments its need to consider how new direct access rules, potential changes in the wholesale market structure and the state's renewable energy policies may have an impact on the costs and benefits of AMI systems. Staff mentions the need for the utilities to consider the industry wide trend toward outsourcing of certain billing and data collection functions to both improve customer service and reduce financing costs for AMI deployment.