Preliminary Analysis of AMI Business Case - SmartGrid.gov

490 Pages·2005·2.43 MB·English

Proceeding No.: R.02-06-001
Document No.: SCE-1

(U 338-E)

Advanced Metering Infrastructure
Business Case Preliminary Analysis

Volume 1 – Vision Statement, Summary
of Preliminary Analysis, and Policy
Considerations

Before the
Public Utilities Commission of the State of California

Rosemead, California
October 22, 2004
SOUTHERN CALIFORNIA EDISON COMPANY'S (U 338-E) PRELIMINARY
ANALYSIS OF ADVANCED METERING INFRASTRUCTURE BUSINESS CASE
Table of Contents

Section Page

I. INTRODUCTION ..........................................................................................................1
II. SCE’S MANAGEMENT PHILOSOPHY AND BUSINESS VISION
CONCERNING THE ROLE OF ADVANCED METERING
INFRASTRUCTURE.....................................................................................................3
A. SCE Pursues Investments When They Are Cost Effective And
Deliver Benefits To Our Customers...................................................................4
1. SCE Pursues New Technology and Processes that Provide
Increased Operational Efficiency.............................................................5
2. Demand Response Resources Must Be Cost Effective in
Relation to Other Resources.....................................................................7
B. Dynamic Pricing Rates Must Be Cost or Market-Based ...................................9
C. Customers Should Be Informed and Allowed To Make Choices
Among Tariffs....................................................................................................11
D. Summary of SCE’s Management Philosophy and Business
Vision.................................................................................................................13
III. SUMMARY OF AMI BUSINESS CASE PRELIMINARY ANALYSIS .....................14
A. Summary of Preliminary Results of Business Case Scenarios .......................14
B. Summary of SCE’s Preliminary Position on AMI............................................21
IV. OVERARCHING POLICY CONSIDERATIONS........................................................23
A. Appropriate Rates Must Be Mandated for AMI to Be Successful...................23
B. The Legislative Constraints Imposed by AB1-X Must Be
Removed for AMI to Be Successful...................................................................24
C. Challenges and Uncertainties Regarding AMI and Dynamic
Pricing Demand Response Must Be Resolved for AMI to Be
Successful ..........................................................................................................26
V. CONCLUSION.............................................................................................................27
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I.
INTRODUCTION
The purpose of Volume 1 is to describe our underlying management
philosophy and business vision, plus overarching policy considerations that will
guide any deployment of Advanced Metering Infrastructure (AMI), as required by
the Administrative Law Judge and Assigned Commissioner’s Ruling Adopting a
Business Case Framework for Advanced Metering Infrastructure issued on July 21,
2004 (Ruling). In Section II of this volume, we describe the business vision that
helped shape our analysis of the costs and benefits associated with a full or partial
deployment of AMI. Consistent with the Ruling, we also address our view of
expected regulatory decisions and expectations of the future business and financial
environment, as well as the potential large scale deployment risks that will have a
fundamental bearing on the costs and benefits of AMI. Equally important as those
items identified in the Ruling, we discuss in our business vision the expected
operational and financial impacts that a wide-scale deployment of AMI will have on
our customers during the Ruling’s sixteen-year analysis period.
In Section III, we set forth the preliminary results of our analysis to date. In
this section, we summarize the total costs, total benefits, and net present value of
each of the twenty-three unique business case scenarios that we have preliminarily
analyzed and described in detail in Volumes 3 (full deployment) and 4 (partial
deployment). This section also provides our observations on the results of the cost-
benefit analysis as related to the potential for the deployment of AMI.
Section IV of this volume sets forth our overarching policy considerations
regarding the deployment of AMI. Specifically, this section discusses what events
need to occur for AMI to be successful, including necessary policies to ensure that
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PRELIMINARY ANALYSIS – VOLUME 1
reliable demand response benefits materialize and that significant constraints and
uncertainties are resolved.
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PRELIMINARY ANALYSIS – VOLUME 1
II.
SCE’S MANAGEMENT PHILOSOPHY AND BUSINESS VISION
CONCERNING THE ROLE OF ADVANCED METERING
INFRASTRUCTURE
In the Ruling, the Commission ordered each utility to describe its underlying
management philosophy or business vision used to develop its AMI specifications
and approach, including a discussion of how key market factors, regulatory
constraints, or internal business constraints shaped or affected the development of
its AMI business case.1
The underlying management philosophy that has helped shape our analysis
of AMI is consistent with the management philosophy and vision that guide our
investment decisions in other areas of the business, namely, we will pursue
investments that are demonstrated to enhance value for our customers, given the
likely costs and benefits of the project and in relation to other investment
opportunities. This overarching philosophy and vision also drives our decisions to
adopt new technology or processes when it makes economic sense to do so and is
beneficial to customers. Thus, the decision of when to invest in AMI technology
necessarily involves assessing the impact on our customers and determining
whether investing in AMI at this time is in our customers’ best interest or whether
an AMI investment in the future or on a different scale may be more beneficial to
them. This management philosophy and business vision has shaped our

1 Ruling, p. 3 (“The analysis the utilities will perform is crucial to the Commission’s understanding
of the tradeoffs made by the 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 benefits estimates. ”).
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PRELIMINARY ANALYSIS – VOLUME 1