I.     Introduction

This testimony is presented by Jeffrey A. Nahigian, Senior Economist for JBS Energy, Inc., on behalf of the Utility Consumers’ Action Network (UCAN). Mr. Nahigian has over 19 years experience working on energy related issues and has appeared before this Commission on numerous occasions. His qualifications are included in Attachment A.

This testimony responds to San Diego Gas and Electric’s (SDG&E) request for pre-deployment funding for its advanced metering infrastructure (AMI) business case deployment. Although SDG&E’s current request has been significantly reduced from its original March 15^th request, it is still problematic and should be rejected, as currently structured, by the Commission.

SDG&E’s request clashes with the Commission’s long-standing policy not to fund utility projects until they are found to be a) beneficial to ratepayers, b) reasonable, and c) used and useful.  SDG&E’s application pre-supposes that the Commission will find its AMI business case study cost effective before that case has been litigated before the Commission.   Finally, its application ignores the benefits that might result from a more measured and statewide approach to AMI deployment and reports only a limited ability to integrate future technologies such as Broadband over Power Line (BPL) into its AMI deployment plans. Therefore, UCAN cannot support SDG&E’s pre-deployment funding request.   

II.     The Commission Should Only Fund SDG&E’s AMI Deployment If, and When, It Finds AMI Business Case Meets the CPUC’s Cost Effectiveness Requirements

This proceeding’s recent Assigned Commissioner Ruling (ACR) discusses the trouble with SDG&E’s pre-deployment funding request:

“Under this two-phase approach, upon authorization of pre-deployment costs, SDG&E would move forward with its start-up and design work, in anticipation of a positive outcome on the cost-effectiveness part of the proceeding. The trouble with this approach is that if the Commission were to ultimately decide that the cost-effectiveness of the proposed investment is insufficient to warrant the investment, significant ratepayer funds could already be invested” (Ruling of Assigned Commissioner Grueneich in A. 05-03-015, May 9, 2005, p. 2). 

           To its credit, SDG&E has paired back its fund request as a result of the ACR from $50.3 million to $9.2 million. While this does reduce the amount of money at risk, it does not reduce the risk itself.  The risk is still the same, because SDG&E is requesting funding before the Commission can evaluate whether the project is cost-effective and in the best interests of ratepayers.  

A.      The Commission’s Draft Resolution E-3937 Pre-Judges the Outcome of this Proceeding, Allows SDG&E to Book More to a Memorandum Account Than it is Requesting, and Fails to Adequately Interpret the May 9th ACR in this Proceeding

On April 27, 2005 SDG&E filed Advice Letter 1689-E/1524-G requesting that the Commission approve a new Advanced Metering Infrastructure Memorandum Account (AMIMA). The CPUC’s Energy Division (ED) recently issued a draft resolution approving SDG&E’s request (Draft Resolution E-3937). The ED’s draft resolution conflicts with the Assigned Commissioner’s ruling in this proceeding and should be rejected by the Commission.

First, the draft resolution pre-judges the outcome of this proceeding by allowing SDG&E to record pre-deployment costs before the Commission has even heard evidence in this phase of the proceeding, let alone issued a final decision. There is no justification for this, especially given that this proceeding is already being held on an expedited basis.

Second, while it attempts take into account all updated circumstance by taking the May 9^th ACR into account, the draft resolution fails to take SDG&E’s Supplemental May 25^th Testimony into account—and authorizes SDG&E to record over $40 million in AMI costs, when SDG&E currently requests only $9.2 million in total pre-deployment funding.  In addition, the draft resolution allows SDG&E to recover pre-deployment funds if the AMI system meets the functional criteria included in Attachment A of the May 9^th ACR.  However, the ACR also required an evaluation of the ability of SDG&E’s AMI system to accommodate Broadband over Power Line (BPL) and net metering technology, and whether including BPL technology could strand portions of SDG&E’s AMI investment. The draft resolution makes no mention of these additional criteria.

The draft resolution also does not adequately scrutinize SDG&E’s proposed accounting of recorded AMI pre-deployment costs. For instance, SDG&E categorizes meter installation as an O&M expense, while this Commission has traditionally capitalized utility meter installation costs.

Finally, UCAN was originally concerned that the draft resolution would allow SDG&E to book construction work in progress (CWIP) into rate base before those investments were found to meet the Commission’s “used and useful” standards. Had SDG&E not revised its pre-deployment funding request in Supplemental Testimony, this was likely to occur.  However, SDG&E’s revised pre-deployment funding does not include capital spending and is mainly requested for SDG&E and contract labor (UCAN-DR #2-4). Thus, it is only by happenchance, and not by design, that the draft resolution does not conflict with the Commission’s long-standing policy not to allow CWIP in rate base.

B.     The Commission Should Be Extremely Cautious Authorizing Pre-Deployment Funds

It is clear at this point in time, that there are no commercially available “off-the-shelf” AMI technologies that satisfy SDG&E’s operational and demand response requirements. SDG&E’s application is filled with discussions reporting the need to study, test, demonstrate, and develop AMI technology.

Most telling is SDG&E’s admission in responses to two UCAN data requests (See Attachment B).   In its responses, SDG&E states that by year-end 2005, it expects that several vendors will have new products to evaluate and assess that may have a “better fit with California AMI environment”.  Therefore, SDG&E plans to conduct a “Technology Pilot” beginning in March 2006 aimed at testing, evaluating and assess their communication system (front and back haul LAN and WAN) and network software.   This means that the core of SDG&E’s communication system remains in development stage and will not have been fully tested or evaluated until late 2006.    Yet, the company is proposing to spend well over $3.4 million on assorted labor costs (out of its proposed $9.2 million) before this essential pilot project even begins.

The very preliminary nature of AMI deployment is further evidenced from the following citations taken directly from SDG&E’s May 25^th Supplemental Testimony and demonstrate why the Commission needs to take a measured and cautious approach to AMI development:

·        “No assurances can ever be provided that ever more cost effective technologies will not emerge during the lifecycle of AMI.” (p. EF-6)

·        “SDG&E has not yet determined the best and most cost effective communications network(s) for AMI”. (p. EF-4)

·        “SDG&E assumes significant systems development efforts would be required for AMI systems to be integrated with new AMI applications, and with SDG&E’s legacy customer information, billing and service order dispatch systems.” (p. EF-3)

·        SDG&E will continue to evaluate and test solid state interval meters…”. (p. EF-6)

·        In summary, SDG&E will continue to evaluate, assess and test AMI technology components that are consistent with and support the six functional requirements…(EF-4).

·        “Moreover if, during SDG&E’s phased implementation of AMI, an emerging WAN communications method appears to be more cost effective, then the new communications method can be installed in the second phase of the AMI deployment.” (p. EF-5)

·        “SDG&E has not included the cost estimates for customized interfaces with all possible load control technologies.” (p. EF-3)

The most disturbing aspect of this uncertainty is the fact that SDG&E does not appear to have identified any low-cost AMI meter that can currently be deployed in SDG&E’s service territory (SDG&E Supplemental Testimony, p. PKC3-5).  While SDG&E has finalized its specifications for a low cost residential AMI meter, this is a far cry from having a meter that exists and satisfies SDG&E’s requirements at a reasonable (and defined) cost.

The Commission should understand at this point in AMI (and BPL) development that not only is there considerable uncertainty over the costs of the technology but there is also considerable uncertainty over the technology itself and its ability to provide the functionality that’s been required on such a scale.   It is not clear as to why SDG&E should push the Commission into committing to pre-deployment expenditures in October 2005 when the core technologies behind AMI are not even going to begin testing until March 2006.

In addition, it appears that SDG&E’s revised pre-deployment funding request already pushes back its schedule on meter deployment because it does not contain any capital expenditures associated with meter installations. SDG&E’s March 30^th testimony shows SDG&E installing 10,000 advanced meters for beta testing beginning in the first quarter of 2006 (SDG&E Testimony; March 30, 2005; Chapter 3; pp. PKC3-8 and PKC3-9). However, SDG&E’s revised pre-deployment budget includes no capital expenditures (UCAN-DR #2-4), implying meter installations for Beta Testing purposes will not occur as originally planned.

Because both advanced metering and BPL technologies are emerging technologies, it is important that the Commission take a measured and reasoned approach to evaluating utility AMI business case analysis.  It should not be swayed by the claims of urgency that are driving the utilities’ pre-deployment funding requests. AMI business development is such a large, complicated, and important undertaking it cannot be adequately evaluated under unsupported claims of urgency.

C.     At Most The Commission Should Only Authorize Pre-Deployment Funding After March, 2006

As discussed in this testimony, SDG&E’s showing doesn’t adequately justify pre-deployment funding.  Funding a project before the Commission has a chance to evaluate whether it is a reasonable and/or useful investment of ratepayer funds is poor public policy and sets a bad regulatory precedent.

UCAN suggests that if the Commission is to authorize incremental funding for AMI deployment,  that additional funding should not begin until March 2006, at the earliest.   That additional funding should be focused upon the proposed Technology Pilot.     After the conclusion of that process,  SDG&E would be permitted to begin other incremental expenditures.

This proposal does not tie SDG&E’s hands from pursuing AMI.  It currently has a large number of positions that are working, either part or full-time on AMI deployment.   Those efforts can and should continue.    However, the incremental funding that SDG&E seeks should not be authorized until after the Technology Pilot has commenced, with one exception.  The one exception to this recommendation is that UCAN proposes that pre-deployment funds be made available to the BPL pilot scheduled to commence in late 2005.  (See discussion in Section D below)

D.     Inclusion of Broadband Over Power Lines

The May 9^th ACR directs SDG&E to report whether its AMI system can accommodate Broadband over Power Line (BPL) technology and whether deployment of BPL in SDG&E’s AMI system will result in stranded investment.

First, UCAN notes that SDG&E’s AMI proposal already results in stranded investment in existing meters and it proposes to delay, defer, or reevaluate full AMI deployment if it is not allowed to recover this stranded investment in rates (SDG&E March 15^th Testimony, Chapter 2, p. EF2-16).

With regard to the two issues of a) whether deployment of BPL can be accommodated by SDG&E’s system and b) would that deployment cause stranded investment, SDG&E’s response is less clear. It states that its AMI system might accommodate BPL for its wide area network (WAN) communication system in the second phase of its planned deployment (SDG&E Supplemental Testimony, p. EF-5), if that technology is adequately developed by that time.

However, SDG&E’s initial AMI deployment will not accommodate BPL as a home gateway system.

 “SDG&E will continue to evaluate and test solid state interval meters that are BPL compatible as they become available. However, such meters have not been installed in any of the BPL pilot sites SD&GE has visited.” (SDG&E Supplemental Testimony, EF-6)

SDG&E further states that its AMI investment in meters will not be stranded by BPL because BPL will no be used as a home gateway during the first phase of AMI deployment.

“No costs will be stranded with the initial installation of meters (that may not use BPL, WiFi, etc.) since the communications between the initial AMI meters and data collectors/communication servers will continue as is. Clearly, changing out hundred of thousands of meters will not make economic sense for a communications system that is already established and used and useful.” (Ibid)

In sum, SDG&E reports that it does not envision stranding AMI investment by deploying BPL as a home gateway system.  The bad news is that SDG&E will not strand any AMI from deploying BPL as a home gateway, because it claims it has found no evidence that the technology either exists or is cost-effective, and therefore has no intention of installing BPL at the meter (SDG&E Supplemental Testimony, p. EF-6). 

The Commission should not accept SDG&E’s position that BPL might be accommodated in its second deployment phase for upstream and backhaul communication systems (WAN), if it becomes cost effective but that BPL will not be deployed on SDG&E’s AMI system as a home gateway system because SDG&E has yet to find the technology sufficiently developed to do so.  In response to a UCAN data request, SDG&E asserts that BLP is separate and apart from AMI.   (SDG&E Response to UCAN-DR #2-8; see Attachment B)  We disagree.   Instead of treating BPL as a separate technology with a separate development track the Commission should direct SDG&E to research and study possible integration of this technology with its AMI deployment plans.

UCAN also disagrees that no AMI funding should be allocated to BPL pilot efforts.  We support allocation of some funding to the “separate BPL pilot program that should commence later this year”.    Given that SDG&E declined to identify the cost of that pilot in its response to UCAN’s inquiry, the Commission will need to review the size and cost of the BPL pilot prior to adopting this recommendation.

E.     SDG&E’s Incremental Costs Need to Be Assessed in Relation to its Cost of Service Funding.

In the very brief discovery period afforded UCAN,  it sought to determine why SDG&E’s incremental labor costs were so high.    The short window to review SDG&E’s responses did not permit UCAN to determine this.  Thus, we recommend that any authorized amounts should be made subject to refund if the Commission later determines that these costs are already recovered in existing rates.  The Commission should direct SDG&E to file additional testimony for Phase 2 of this proceeding describing why none of these pre-deployment costs are not currently included in the rates the Commission approved less than a year ago in SDG&E’s Cost of Service application.    SDG&E’s data responses indicate that most of the incremental funding pays for existing positions – there appear to be few new FTE’s created. 

F.     The Commission’s Demand Response and AMI Goals May Be Better Met Through More Statewide Coordination

By evaluating AMI only on a utility-specific basis the Commission might be creating a barrier to achieving its goals for installing advanced metering systems that provide sufficient operational and demand response benefits to justify deployment. As the utilities report, both AMI and BPL technology are at an infancy stage of development.    UCAN recommends that, in regards to meter technology, the state’s three investor-owned utilities should be required to investigate whether coordinating their activities will  best leverage the state’s purchasing power and the utilities’ technical expertise.

UCAN appreciates that there might be individual circumstance for each of the electric utilities that require unique solutions.  This is particularly true in regards to information technologies and customer information systems that often require customization.    However, the design and deployment of meters is something that may benefit from utility coordination.    The Commission has established a uniform and single set of criteria for establishing AMI functionality (i.e. May 9^th ACR, Appendix A) for all three utilities.  Given this uniformity, it would seem logical for the Commission to explore whether a statewide approach to developing technology that can use greater leverage from all three electric utilities might be a superior approach to that currently being pursued.

The Commission has taken a statewide approach to a multitude of issues ranging from deregulation to energy efficiency.  For energy efficiency, the Commission decided that statewide programs would form the backbone of its energy efficiency policies.  It has found that without a statewide approach customers would be faced with multiple and sometimes overlapping programs, and overall, the program synergies and leveraging necessary to optimize savings from energy efficiency would not be achieved (Dec. 05-01-055, p. 7).

While the Commission provided a uniform set of criteria for its proposed AMI functionality, each of the utilities is developing its own unique method of satisfying those criteria.  SDG&E’s advanced metering system is a separate and completely different system than PG&E’s proposed system.  On the other end of the spectrum, Edison concludes that there is no AMI technology available that can satisfy its operational and demand response needs and proposes to use ratepayer funds to actually develop its own advanced meter.  Thus, the three electric utilities have three different and unique methods of attempting to comply with the Commission’s uniform AMI criteria and the Commission can be assured that without further guidance it will have three unique and different (and most likely non-compatible) AMI systems.   The question that the Commission must confront is whether there is some coordination that could capture economies of scale or better utilize utility staff resources.   We believe that, at a minimum, meter development and procurement could benefit from this coordination.   We recommend that as a condition of pre-deployment funding, SDG&E should be required to work with PG&E and SCE in developing a design and joint bidding process for advanced meters that will be used in California and report to the Commission on the benefits and disadvantages of such a state-wide coordinated approach.

ATTACHMENT “A”

Qualifications of Jeffrey Nahigian
Senior Economist, JBS Energy, Inc.

Jeffrey Nahigian, a Senior Economist, has over 19 years experience analyzing utility operations and rate design issues.

He received a B.S. in Environmental Policy Analysis and Planning from the University of California, Davis, in 1986. He also holds a B.Mus. degree from the San Francisco Conservatory of Music.

In 1986, Mr. Nahigian joined JBS Energy.

Mr. Nahigian has analyzed and testified on cost-of-service and rate design issues in California, including review of marginal and embedded electric and gas distribution and customer costs, residential baseline rates, customer charges and time-of-use rates, and interruptible electric rate design. He was a member of the rate unbundling working group for California utility industry restructuring.

He has 10 years’ experience with the analysis of line extension rules and allowances in California, Nevada and the Canadian Province of Alberta in the analysis of energy and water utility issues affecting mobilehome park tenants. 

He has reviewed conservation programs of utilities in Georgia, Texas, and the District of Columbia for prudence in implementation and cost-effectiveness. He wrote a white paper analyzing conservation strategies for targeting large industrial users of natural gas. He has also reviewed the energy efficiency programs of California’s four major gas and electric investor owned utilities.

He has reviewed avoided cost methodology and policies for several clients, calculated emissions and emissions values from utility power plants, and reviewed nuclear power plant performance and costs. Mr. Nahigian was the lead analyst for a comparative study of the costs of San Diego Gas and Electric (SDG&E) and other California utilities. He served on an advisory committee to the California Energy Commission on transmission policy under Senate Bill 2431.

Mr. Nahigian was manager of two projects analyzing the Rancho Seco nuclear plant and alternatives to it.   He was an alternate member of the SMUD Rate Advisory Committee in 1990-91.

Mr. Nahigian has testified in three CEC Electricity Reports on conservation policy and technical issues, nuclear plant performance, forecasts of future Qualifying Facility (QF) projects, municipal utility demand conformance, and the economics of returning mothballed fossil plants to service. He has filed testimony and formal comments at the California Public Utilities Commission on electric and gas cost of service and rate design, line extension issues, energy efficiency load adjustments in Performance-Based Ratemaking, forecasts of utility distribution capital spending, water rates for mobilehome parks, and SDG&E's fuel budget.  He was also a witness before the Los Angeles County Superior Court on electric rates for mobilehome parks and before the Alberta Energy and Utilities Board on line extension policies for industrial customers.

Before joining JBS, Mr. Nahigian was a staff analyst for the Independent Energy Producers Association in 1986. In this position, he researched the development status of the independent hydroelectric industry in California for submission to the Ninth Circuit Court of Appeals, compiled a history of the alternative energy industry in California, and tracked QF status reports.

ATTACHMENT B

SELECTED SDG&E DATA RESPONSES

UCAN’S SECOND DATA REQUEST TO
SAN DIEGO GAS AND ELECTRIC COMPANY

5.     Please indicate the specific technology to be subject to the “Technology Pilot Planning and Execution” listed in Row 1 of Table PKC-2

Response

The intent “Technology Pilot” is to select the top RFP respondents and evaluate and assess their communication system (front and back haulLAN and WAN) and network software.  Based on SDG&E’s review of the current market, SDG&E believes by year end 2005 several vendors will have new products for us to evaluate and assess that may have a better fit with California AMI environment.  SDG&E does not intend to test any “back office” systems. 

8.     Please indicate whether any of the pre-deployment costs listed in Table PKC-2 will be spent on evaluating and testing BPL technologies.    If so, please specify the amount to be spent and the nature of the expenditures.

Response

SDG&E has not allocated specific dollars for BPL evaluation in the AMI pre-deployment activities.  However, consistent with our response to question #5, if any an AMI vendor has a viable product that is BPL enabled, SDG&E will have an opportunity to pilot evaluate and assess the technology.  The Technology Pilot is set to start in March of 2006.  Note: , SDG&E is funding a separate BPL pilot program that should commence later this year.  This is a separate activity from AMI.  

[1] There are other costs included as O&M expenses that may potentially be capitalized such as facilities, load control technology, and communication systems. However, the draft resolution also makes no mention of the need to address accounting procedures for these types of investments.

[2] Edison echoes these concerns in its application (A. 05-03-026) seeking ratepayer funds not to deploy advanced meters but to develop them. 

[3] Dec. 01-11-066, p. 8. 

[4] The Commission is also in jeopardy of missing an opportunity to leverage enhanced operational efficiencies for the state’s single gas-only IOU—Southern California Gas Company. While SDG&E and PG&E have recognized the synergies of linking their electric AMI systems with their gas meters to increase meter reading benefits for both their electric and gas divisions, Edison is under no such obligation.