January 31, 2006 ADVICE 1960-E (U 338-E) PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA ENERGY DIVISION

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2 Akbar Jazayeri Director of Revenue and Tariffs January 31, 2006 ADVICE 1960-E (U 338-E) PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA ENERGY DIVISION SUBJECT: Statewide Pricing Pilot Advanced Metering and Demand Response Memorandum Account (AMDRMA) annual balance transfer to the Energy Resource Recovery Account in compliance with Decision No PURPOSE In compliance with Decision (D.) and the language in Southern California Edison Company s (SCE) Preliminary Statement, Part N.12, this advice filing sets forth a summary of SCE s incremental costs 1, both Operations and Maintenance (O&M) and capital-related expenditures from January 1, 2005 through December 31, 2005, associated with (1) the Statewide Pricing Pilot (SPP) for residential and small commercial customers, and (2) development costs associated with SCE s advanced metering infrastructure (AMI) business case analysis and preferred strategy, filed March 30, 2005 pursuant to directives in Phase 2 of the Commission s Advanced Metering, Demand Response, and Dynamic Pricing Rulemaking (R ). In addition, this filing sets forth the Operation and Maintenance (O&M) and capital-related revenue requirement to be transferred to the Energy Resource Recovery Account (ERRA) from the Advanced Metering, Demand Response and Dynamic Pricing Proceeding Subaccount for the year ending December 31, Demand Response amounts approved in D will be reviewed in SCE s April 2006 ERRA. SCE filed Advice Letter 1862-E on February 7, 2005 to comply with Ordering Paragraph 10 of D to revise the AMDRMA to consist of two components: the Advanced Metering, Demand Response, and Dynamic Pricing Proceeding Sub-account and the Demand Response Programs Sub-account. The Energy Division approved Advice Letter 1862-E on April 29, 2005 with an effective date of March 21, SCE s Preliminary Statement, Part N.12 states that by January 31st of each year, SCE will file an Advice Letter which shall include a summary of the entries made to the Advanced Metering, Demand Response and Dynamic Pricing Proceeding Sub-account during the prior calendar year and that support the year-end transfer to the ERRA. P.O. Box Walnut Grove Ave. Rosemead, California (626) Fax (626)

3 ADVICE 1960-E (U 338-E) January 31, 2006 BACKGROUND Pursuant to Ordering Paragraph 8 of California Public Utilities Commission (Commission) D , the AMDRMA is designed for the purpose of recording and recovering the incremental, one-time set up and on-going O&M and Administrative and General (A&G) expenses incurred to develop and implement, or in reasonable anticipation of implementing, the demand response programs adopted in Phase 1 of the Advanced Metering, Demand Response, and Dynamic Pricing Rulemaking. 3 In addition, consistent with Ordering Paragraph 9 of D , the capital-related costs associated with the programs, including depreciation, taxes and return on investment will be recorded in the AMDRMA. Finally, through two directives, an Assigned Commissioner and Administrative Law Judge s Ruling on the Budget for the Statewide Pricing Pilot, Advanced Demand Response System (ADRS), and Information Display Pilot, issued on April 18, 2005 (the April 18, 2005 Ruling ), and D issued on July 25, 2005, the Commission approved a Joint Utilities budget of $3.687 million for the continuation of the SPP and related activities of which SCE s portion was $1.952 million ADVANCED METERING AND DEMAND RESPONSE PROGRAM EXPENDITURES SCE s 2005 Advanced Metering and Demand Response expenditures are discussed under the following three categories: (1) the 2005 SPP programs and tariffs for residential and small commercial customers; and (2) the incremental O&M and A&G expenses incurred for developing SCE s AMI business case analysis and preferred strategy filed March 30, 2005 pursuant to the Commission s directives in Phase 2 of R , which were authorized to be recorded in AMDRMA. Table 1 provides a summary of demand response program costs recorded in AMDRMA in 2005 that SCE is requesting to transfer to the ERRA balancing account to be recovered in rate levels. Details for each program follows Table 1. Table 1 Recorded 2005 Advanced Metering and Demand Response Program O&M and Capital Related Revenue Requirement - $ Millions Demand Response Program Amount Tracked in AMDRMA SPP $1.500 Phase 2-AMI $0.759 Capital Revenue Requirement $0.223 Interest $0.038 Total $ Incentive payments and revenue shortfall are included in the operation of the ERRA balancing account pursuant to D

4 ADVICE 1960-E (U 338-E) January 31, 2006 As set forth in Appendix A to this advice filing, on January 1, 2006 SCE transferred $2.521 million from the AMDRMA to the ERRA balancing account for recovery in rates. SPP Working Group 3 (WG3) As mentioned previously, SCE s portion of the Commission authorized expenditures in 2005 for the SPP and other WG3 adopted programs was $1.952 million. This authorized amount would cover costs incurred for O&M expense, incentive payments to customers and capital expenditures. The breakdown of SCE s 2005 expenditures for the SPP of $1.564 million is shown in Table 2. Table SCE Authorized and Recorded Phase 1 SPP Expenditures - $ Millions SPP SCE Authorized Budget SCE Recorded O&M Expense SCE Recorded Capital Expenditure s SCE Recorded Incentives (ERRA) SCE Total SPP Expenditures Total $1.952 $1.500 $0.000 $0.064 $1.564 Table 2 shows that, for 2005, SCE s recorded incremental expenditures of $1.500 million to implement, maintain and operate the SPP program and activities approved for 2005 in the April 18, 2005 Ruling and D The SPP program costs include such items as project management, customer enrollment, support and marketing, technology treatments and maintenance, billing, data collection and data framing, enabling technology program management, ADRS program management, and pilot/program analysis. Accordingly, the $1.500 million in expense was incurred for these types of activities. In 2005, SCE expended no money for capital projects in the SPP program. Finally, SCE recorded $0.064 million in incentives associated with customer participation in the program. In accordance with Ordering Paragraph 10 of D , which established the AMDRMA, incentive costs are to be recorded in each utility s ERRA. Thus, while customer incentive costs comprise a portion of SCE s overall 2005 SPP expenditures and count as expenditures against the authorized $1.952 million, they are not reflected in the 2005 AMDRMA recorded amounts. AMI Business Case Analysis Development The November 24, 2003 Assigned Commissioner s Ruling and Scoping Memo (Phase 2) issued in R confirmed that the primary focus of Phase 2 of the Advanced Metering, Demand Response, and Dynamic Pricing Rulemaking was building upon the foundation of Phase 1 with the development of an AMI business case methodology. In addition, the ACR confirmed that other issues will also be within the scope of Phase 2, namely: development of proposals for technologies such as AC Cycling that will interface with AMI; development of a plan by each of the utilities as to how it could achieve the Commission s previously established demand response target of 5 percent

5 ADVICE 1960-E (U 338-E) January 31, 2006 by 2007; development of a two-part Real Time Pricing tariff; development of uniform policies with respect to so-called ABX 29 metering; and analysis of advanced metering options for agricultural customers. On May 25, 2004, SCE filed Advice Letter 1800-E, Preliminary Statement Tariff Revisions Necessary to Include the Advanced Metering Infrastructure Proceeding O&M and A&G Expenses in the Advanced Metering and Demand Response Memorandum Account. The Commission approved Advice Letter 1800-E with an effective date of May 25, In 2005, SCE incurred expenses of $0.759 million related to developing the AMI business case analysis and preferred strategy filed on March 30, 2005 (Application ). SCE is requesting approval to transfer this amount from the AMDRMA to ERRA. EFFECTIVE DATE This advice filing is effective upon filing, subject to the review and approval of the Energy Division. NOTICE Anyone wishing to protest this advice filing may do so by letter via U.S. Mail, facsimile, or electronically, any of which must be received by the Energy Division and SCE no later than 20 days after the date of this advice filing. Protests should be mailed to: CPUC, Energy Division Attention: Tariff Unit 505 Van Ness Avenue San Francisco, California jjr@cpuc.ca.gov and jnj@cpuc.ca.gov Copies should also be mailed to the attention of the Director, Energy Division, Room 4004 (same address above). In addition, protests and all other correspondence regarding this advice letter should also be sent by letter and transmitted via facsimile or electronically to the attention of: Akbar Jazayeri Director of Revenue and Tariffs 2244 Walnut Grove Avenue Rosemead, California Facsimile: (626) AdviceTariffManager@sce.com

6 ADVICE 1960-E (U 338-E) January 31, 2006 Bruce Foster Vice President of Regulatory Operations c/o Karyn Gansecki 601 Van Ness Avenue, Suite 2040 San Francisco, California Facsimile: (415) Karyn.Gansecki@sce.com There are no restrictions on who may file a protest, but the protest shall set forth specifically the grounds upon which it is based and shall be submitted expeditiously. In accordance with Section III, Paragraph G, of General Order No. 96-A, SCE is serving copies of this advice filing to the interested parties shown on the attached R and R Service Lists. Address change requests to the attached GO 96-A Service List should be directed to AdviceTariffManager@sce.com or (626) For changes to any other Service List, please contact the Commission s Process Office at (415) or Process Office@cpuc.ca.gov. Further, in accordance with Public Utilities Code Section 491, notice to the public is hereby given by filing and keeping the advice filing open for public inspection at SCE s corporate headquarters. To view other SCE advice letters filed with the Commission, log on to SCE s web site at For questions, please contact Michael Parise at (626) or by electronic mail at Michael.Parise@sce.com. Akbar Jazayeri AJ:mp/mm Enclosures

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8 CALIFORNIA PUBLIC UTILITIES COMMISSION ADVICE LETTER FILING SUMMARY ENERGY UTILITY MUST BE COMPLETED BY UTILITY (Attach additional pages as needed) Company name/cpuc Utility No.: (U 338-E) Utility type: Contact Person: James Yee! ELC " GAS Phone #: (626) " PLC " HEAT " WATER EXPLANATION OF UTILITY TYPE ELC = Electric GAS = Gas PLC = Pipeline HEAT = Heat WATER = Water (Date Filed/ Received Stamp by CPUC) Advice Letter (AL) #: 1960-E Subject of AL: Statewide Pricing Pilot Advanced Metering and Demand Response Memorandum Account (AMDRMA) annual balance transfer to the Energy Resource Recovery Account in compliance with Decision No Keywords (choose from CPUC listing): Compliance, Memorandum Account AL filing type: " Monthly " Quarterly " Annual! One-Time " Other If AL filed in compliance with a Commission order, indicate relevant Decision/Resolution #: D and D Does AL replace a withdrawn or rejected AL? If so, identify the prior AL: Summarize differences between the AL and the prior withdrawn or rejected AL 1 : Resolution Required? " Yes! No Requested effective date: No. of tariff sheets: -0- Estimated system annual revenue effect: (%): Estimated system average rate effect (%): When rates are affected by AL, include attachment in AL showing average rate effects on customer classes (residential, small commercial, large C/I, agricultural, lighting). Tariff schedules affected: None Service affected and changes proposed 1 : Pending advice letters that revise the same tariff sheets: 1 Discuss in AL if more space is needed.

9 Protests and all other correspondence regarding this AL are due no later than 20 days after the date of this filing, unless otherwise authorized by the Commission, and shall be sent to: CPUC, Energy Division Attention: Tariff Unit 505 Van Ness Ave., San Francisco, CA and Akbar Jazayeri Director of Revenue and Tariffs 2244 Walnut Grove Avenue Rosemead, California Facsimile: (626) Bruce Foster Vice President of Regulatory Operations c/o Karyn Gansecki 601 Van Ness Avenue, Suite 2040 San Francisco, California Facsimile: (415)