A.05-03-026 ALJ/MLC/eap

ALJ/MLC/eap Mailed 12/2/2005

Decision 05-12-001 December 1, 2005

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Southern California Edison Company’s (U 338-E) Application for Approval of Advanced Metering Infrastructure Deployment Strategy and Cost Recovery Mechanism. / Application 05-03-026
(Filed March 30, 2005)

DECISION ADOPTING SETTLEMENT FOR FUNDING OF
SOUTHERN CALIFORNIA EDISON COMPANY’S
ADVANCED INTEGRATED METER PROJECT

1.  Summary

This decision grants the Motion to accept a Settlement Agreement between Southern California Edison Company (SCE) and several parties to this proceeding, finding it to be reasonable in light of the whole record, consistent with law, and in the public interest. The Settlement Agreement establishes a funding level of $12 million for the proposed Advanced Integrated Meter (AIM) Project over 18 months as reasonable and establishes the manner by which the costs will be recovered by adopting specific ratemaking and cost recovery treatment for the authorized funds.

2.  Background

On March 30, 2005, SCE filed the instant application, seeking authorization to spend up to $31 million over 36 months for costs to develop and deploy its proposed AIM Project. SCE proposed a two phase effort, the first focused on defining the requirements of an AIM system and meter and performing due diligence to determine whether such a product is available in the market. The second phase was to focus on development of the AIM Project only if the first phase demonstrated that products meeting the necessary specifications were not already available in the market. The application also requested approval of specific ratemaking and cost recovery treatment for authorized expenditures.

On July 1, 2005, the assigned Administrative Law Judge (ALJ) issued a ruling laying out a preliminary scope for the case. A prehearing conference was held on July 13, 2005 at which the scope and schedule was discussed. On July21,2005, following the prehearing conference, Assigned Commissioner Peevey issued a ruling establishing the scope and schedule, which included a bifurcation of SCE’s Phase 1. The ruling directed SCE to serve supplemental testimony on whether the expected benefits of AIM outweigh the costs and so improve SCE’s business case cost-effectiveness showing that ratepayers should fund the project, whether SCE has a unique advantage to develop AIM compared to a private interest, and how future benefits of an AIM project should be allocated. In response to a subsequent motion, the ALJ modified the schedule to address only the Phase 1 issues.

On October 3, 2005, SCE and the Office of Ratepayer Advocates (ORA), on their behalf and on behalf of The Utility Reform Network (TURN), the Coalition of California Utility Employees (CCUE), and Hunt Technologies, Inc. (Hunt), filed a motion for adoption of a Settlement Agreement. ORA served testimony on October 3, 2005, noting that with the filing of the Settlement Agreement, their concerns with the case were addressed. Responses to the motion were due, under a shortened schedule, on October 14, 2005. No responses were filed.

The ALJ sought clarification of procedural aspects of the settlement and in response, SCE, on behalf of the settling parties, filed clarifications on October19,2005.

3.  Outstanding Procedural Matters

Prior to the settlement being received, no exhibits had been marked for identification. At the request of the parties, the ALJ marked the following proffered testimony for identification:

Proceeding No. / ALJ
A.05-03-026 / Cooke
EXHIBIT INDEX
Exh.
No. / Date / Sponsor/Witness / Description
Ident. / Recd.
1 / 10/17/05 / 10/19/05 / SCE/various / Volume 1
1A / 10/17/05 / 10/19/05 / SCE / Errata, volume 1
2 / 10/17/05 / 10/19/05 / SCE/various / Volume 2
3 / 10/17/05 / 10/19/05 / SCE/various / Volume 3
3A / 10/17/05 / 10/19/05 / SCE/various / Errata, volume 3
4 / 10/17/05 / 10/19/05 / SCE/various / Volume 4
4A / 10/17/05 / 10/19/05 / SCE/various / Errata, volume 4
5 / 10/17/05 / 10/19/05 / SCE/various / Volume 5
100 / 10/17/05 / 10/19/05 / ORA/Kinosian / ORA Testimony

As identified above, all exhibits are received into evidence as of October19, 2005, the date that replies to the motion for adoption of the Settlement Agreement were due.

We affirm all rulings made by the ALJ up to this point in the proceeding. To the extent that any motions remain outstanding, all such motions are denied.

4.  Settlement Agreement Provisions

The primary feature of the settlement is that a funding level of $12 million for an 18 month period be adopted, found reasonable and recovered by the ratemaking accounts described in the Settlement Agreement. The Settlement Agreement describes the activities that make up the $12 million in funding, the deliverables expected out of this project, and how the project will be staffed. Although no implementing tariffs were submitted, the Settlement Agreement describes in sufficient detail the necessary ratemaking account to enable prompt implementation, the types of costs that may be recorded in the account and the timing by which the balances in the account will be recovered annually.

As part of the settlement, SCE commits to hold quarterly meetings to brief ORA and other parties on various aspects of its activities, like meter and system requirements, and technology assessment, and to allow for and consider input from ORA and other parties on such aspects. The Settlement Agreement also allows for more frequent meeting and access to confidential information for ORA. SCE commits to promptly file an Advice Letter to modify the scope and timing of the approved activities if it determines that certain activities are no longer necessary. SCE’s proposed allocation of any future benefits of its AIM Project to ratepayers is also affirmed in the settlement.

5.  Issues Identified by Protestants

Because the parties reached a settlement before testimony was filed, the record we have before us is limited to the testimony served by SCE and ORA, the filed protests and responses to the application, and the Settlement Agreement. SCE’s testimony, as described in Exhibits 1-5, addresses all of the issues identified in the scoping ruling as part of this case. Because no testimony was filed by parties other than SCE and ORA, we turn to their protests and responses to the application to describe the issues initially identified.

Protests were filed by ORA and TURN and a response was filed by CCUE. TURN’s position in its protest was that “the Commission should not authorize SCE to design, develop, and implement AIM technology, nor should it authorize SCE’s proposed cost recovery mechanism.” (TURN Protest, p. 3.) Essentially, TURN opposed authorizing funding for the AIM project without additional evidence of cost-effectiveness and rationale for SCE entering a new business venture to develop the AIM technology. As a fallback position, TURN suggests that “the Commission authorize implementation and cost recovery only for Phase I design activities, and order SCE to submit a progress report prior to any authorization of Phase II testing activities.” (TURN Protest, p. 1.) TURN also recommended that, to the extent that the Commission authorizes SCE to become a meter developer, all such future profits should be the property of SCE ratepayers and not treated under the Other Operating Revenues profit sharing mechanism.

In its protest, ORA generally supported SCE’s “application as a reasonable and prudent approach to evaluation and deployment of advanced metering technology.” (ORA Protest, p. 1.) ORA focused its protest on coordination with other advanced metering infrastructure (AMI) applications, allocation of risks and benefits of AIM development to ratepayers, the appropriateness of ratepayer funding for meter development efforts, and the lack of deliverables identified in the application. Much of ORA’s protest focuses on broader issues regarding the need for consistency between utilities assumptions about demand response for purposes of evaluating AMI deployment decisions, which are important, but are not per se directed to SCE’s application which does not propose a deployment approach at this time.

CCUE supports approval of SCE’s Phase I proposal as reasonable. CCUE suggests that if “design and development of a new meter prove successful, the Commission should then consider approval of Phase II.” (CCUE Response, p. 2.) CCUE distinguishes SCE’s application for funding for its AIM Project from the predeployment applications of San Diego Gas & Electric Company and Pacific Gas Electric Company by pointing out that “SCE is asking for recovery of costs to develop an AIM system that may make AMI cost effective. Only if the development process is successful will SCE submit a business case application for actual deployment of the new meters.” (CCUE Response, p. 8.) CCUE’s response also focuses on impacts of advanced metering deployment on employees, privacy, and reduction in energy usage generally, not just load shifting.

6.  Evaluation of the Settlement Agreement

The proposed Settlement Agreement is an uncontested “allparty” settlement. The Commission applies two complementary standards to evaluate such agreements. The first standard, set forth in Rule 51.1(e) of the Commission's Rules of Practice and Procedure and applicable to both contested and uncontested agreements, requires that the "settlement is reasonable in light of the whole record, consistent with law, and in the public interest." The second standard applies to all-party settlements, and requiresthat all active parties support the proposed settlement, the parties fairly represent all affected interests, no settlement term contravenes statutory provisions or prior Commission decisions, and settlement documentation provides the Commission with sufficient information to permit it to discharge its future regulatory obligations. San Diego Gas & Electric, 46 CPUC 2d 538 (1992).

We turn first to the Rule 51.1(e) standards. The Settlement Agreement is reasonable in light of the whole record because it commits SCE to a due diligence process whereby its AIM meter and system requirements will be defined before additional ratepayer funding is authorized. The activities that will occur are necessary to determine whether there are commercially available products that can meet the specifications and price requirements to make pursuit of the project cost-effective. SCE has demonstrated, and the parties are satisfied, that it is uniquely positioned to establish the AIM meter and system specifications and that the reasonably expected benefits of SCE’s proposal will sufficiently improve the cost-effectiveness of SCE’s advanced metering infrastructure deployment business case to support ratepayer funding of the activities funding under the settlement. The $12 million in funding that would be approved under the Settlement Agreement represents an increase of only 0.4% of SCE’s 2005 distribution revenue requirement, and would be limited only to funds actually expended on the AIM design activities. The Settlement Agreement provides for effective ongoing participation from ORA and other interested parties during the design process and, to the extent that any future benefits accrue from the AIM Project they would be allocated to ratepayers. In order to determine whether the settlement is reasonable in light of the whole record, we must assess whether the Settlement Agreement adequately addresses the issues raised by protestants to the application. Most of the issues identified by protestants have been addressed through the terms of the settlement, and the parties have concluded that the activities, and funding, identified therein represent a reasonable resolution to the issues. We concur.

Similarly, the Settlement Agreement is consistent with law because it establishes a framework to evaluate investment in advanced metering infrastructure that is consistent with the direction provided in Rulemaking0206001 and recent federal legislation (Energy Policy Act of 2005). The Settlement Agreement is in the public interest because it will allow SCE to assess the reasonableness of ratepayer investment in a meter development project after it establishes its AIM meter and system specifications rather than prejudging that such ratepayer investment is necessary. Consequently, we conclude that the Settlement Agreement meets the Rule 51.1 standards.

The standards for all-party settlements are also met. SCE, ORA, TURN, CCUE, and Hunt are the only parties to this proceeding. ORA and TURN representthe interests of ratepayers, CCUE represents the interests of utility employees, and Hunt represents a meter developer who might seek to supply metering technology to SCE, while SCE represents its own interests. As noted above, the Settlement Agreement is consistent with the law, and the regulatory accounts that it requires provide the Commission with sufficient information to permit it to discharge its future regulatory obligations. No settlement term contravenes statutory provisions or prior Commission decisions.

Therefore, the Settlement Agreement satisfies the Commission's requirements for settlements under Rule 51.1 and the all-party settlement standards. Accordingly, we will approve it.

The ALJ sought clarification from the settling parties about whether this proceeding should remain open to address the activities identified as Phase 2 issues, given that the anticipated schedule for the activities approved as part of the Settlement Agreement are anticipated to take 18 months to complete. ORA and CCUE supported closure of the application, SCE preferred that the proceeding remain open, but acknowledged that, should it decide to pursue Phase 2 of the development of its AIM Project, it will need to submit additional testimony for the Phase 2 activities, regardless of whether this proceeding remains open. For this reason, and to comply with the statutory requirement that cases be disposed of within 18 months of the scoping memo, this proceeding should be closed upon adoption of the Settlement Agreement.

7.  Categorization and Need for Hearings

In Resolution ALJ 176-3151, dated April 21, 2005, the Commission preliminarily categorized this proceeding as ratesetting, and preliminarily determined that hearings were necessary. On July 21, 2005, the Assigned Commissioner issued a scoping memo confirming the preliminary categorization of the proceeding as ratesetting and that hearings were necessary.

On October 3, 2005, SCE and ORA filed a motion for adoption of the Settlement Agreement. The parties seek expeditious approval of the Settlement Agreement, including a shortened comment period on the settlement. The record of the proceeding provides sufficient information for us to evaluate whether the Settlement Agreement meets our standards for approval. No hearing is necessary.

8.  Comments on Draft Decision

The draft decision of the assigned administrative law judge (ALJ) was mailed to the parties in accordance with Pub. Util. Code § 311(g)(1) and Rule 77.7 of the Rules of Practice and Procedure. Comments were filed by SCE on behalf of the settling parties. Minor corrections are made in response.