3. Justification for the Petition Request

The Petitioners request that the Commission re-examine its entire timetable for implementation of residential dynamic pricing, in light of the following suggested guiding principle: Simpler rate designs should be implemented before more complex rate designs. It is the Petitioners' position that, for residential customers, this principle suggests the following logical order, in order of increasing complexity:

1. Default PTR,

2. Voluntary CPP,

3. Default CPP, and

4. Voluntary RTP.

The Petitioners recommend that each new residential dynamic rate offering be separated from the previous one by a minimum of two years in order to allow time for adequate customer outreach to maximize customer understanding and encourage beneficial changes in patterns of electric usage.

3.1. Voluntary CPP for Residential Customers

In support of its voluntary CPP request, Petitioners state the following:

· PTR and CPP are largely duplicative and the simultaneous release of both will result in customer confusion. The set of eligible customers, the conditions for calling an event, and the objectives of these two programs are expected to be virtually identical. Both programs are complex and will require significant customer outreach, especially to provide customers with sufficient information to make an informed choice between them. Residential customers must consider not only the necessary billing algorithms and additional choice offered by a two-part PTR program, but also the additional costs of bill protection offered to CPP customers. The postponement of the CPP would avoid unnecessary duplication of rate offerings, and customer confusion.

· Postponement of CPP would allow PG&E to concentrate on the successful implementation of the more customer-friendly residential PTR program in 2011, as required by D.09-03-026 in PG&E's SmartMeter Upgrade proceeding. The Commission, in making PTR the default option for residential customers, has recognized that it is the more customer-friendly rate design of the two options.

· The Commission has stated that "if customer outreach and education problems arise, it may be necessary to delay certain aspects of the [CPP] PDP implementation." (D.10-02-032 at 38.) Petitioners submit that such a problem will indeed arise if both CPP and PTR are simultaneously implemented. Thus, the Commission should avoid such problems with a two-year postponement of the introduction of optional CPP for residential customers, who, by 2013, should be generally familiar with PTR and ready to consider whether they could benefit from a new and different dynamic rate designs such as CPP.

· The Commission has found that either CPP or PTR can meet its goals for price responsive demand response. The issue presented by this Petition is whether the Commission's demand response objectives would be furthered by near-simultaneous introduction of both programs, to a residential population with, in most cases, no previous exposure to time-varying rates. The Petitioners believe that such a course would confuse customers, and result in unnecessary expense, with little or no offsetting benefits. The Petitioners submit that the Commission's demand response objectives would be better served with at least a two-year postponement of residential CPP while PG&E works to successfully implement PTR for its 4.5 million residential customers.

· Because all eligible residential customers will be on PTR (by 2012 according to PG&E's A.10-02-028), and voluntary CPP would, at best, add little to overall peak demand reduction, there is relatively little value apparent in adding a voluntary CPP option to default PTR. Thus, residential CPP can be deferred with little or no loss of value to residential ratepayers, PG&E, or the State. There is no evident incremental value to the voluntary residential CPP program relative to the default residential PTR program. On the contrary, the PTR program is likely to provide a larger base of participation than the CPP program to reduce usage on event days.

· Petitioners believe PG&E's ratepayers could save at least $14 million, if not substantially more, if the timetable for implementing voluntary residential CPP is changed in D.08-07-045 and D.10-02-032 and the program is deferred until 2013. According to rebuttal testimony in its 2009 Rate Design Window, approximately $40 million from D.06-07-027 is earmarked for residential customer outreach and as yet unspent. This funding could be redirected toward the PTR program, thus offsetting most if not all of the $14 million requested for customer outreach in A.10-02-028. There are also billing complications from implementing the two programs simultaneously. This is another cost that could be avoided by deferring the residential CPP program. PG&E is required to offer bill protection to residential CPP customers relative to the otherwise applicable rate. If both decisions remain unmodified, the otherwise applicable rate will be the default residential PTR rate. This creates a messy and potentially expensive addition to PG&E's billing software, with very little offsetting customer value.

· D.10-02-032 authorized $124 million for residential and nonresidential CPP programs requested by PG&E in its 2009 Rate Design Window. Additionally, PG&E in A.10-02-028 is requesting $32.7 million for its residential PTR program. Of the latter amount, $14 million is for "outreach and notification" and $8.5 million is for customer inquiry. To some extent, these expenses could overlap with, and potentially duplicate, PG&E's funding request in its original SmartMeter application for similar functions.

· The environment for implementing residential dynamic pricing has changed significantly since D.08-07-045 was issued. There now exists the critical need for adequate outreach to residential customers in regard to both metering and rate design. Not only will the "ratepayer rebellion" in Bakersfield⁴ require PG&E to improve its customer outreach efforts, but DRA found in late 2009 that certain shortcomings of PG&E's customer outreach program could have contributed to the Bakersfield rebellion. In particular, discovery responses, not received until November and December 2009, led DRA to conclude that PG&E's customer outreach needs improvement, and is unlikely to be adequate for the simultaneous rollouts of residential CPP and PTR. Due to the fact that PTR was not in the scope of A.09-02-022, parties did not focus on the wisdom of near-simultaneous launching of both CPP and PTR for residential customers. Now, given the circumstances, the Petitioners respectfully request that the PTR and CPP programs should not be rolled out simultaneously.

3.2. Transition from PG&E's SmartRate Program

In support of its request for transitioning SmartRate Program customers to voluntary PDP, Petitioners state the following:

· D.10-02-032 states: "The current SmartRate option available to residential customers will remain in effect until 2011 at which time SmartRate customers will either transition to residential Peak Day Pricing rates or revert to non-time differentiated residential tiered rates." (At 2.) To avoid disruption to current SmartRate customers and facilitate transition of those customers to PG&E's new voluntary CPP (PDP) rate, the Petitioners recommend that this provision be extended until 2013. SmartRate would continue to be available until February 2013, but closed to new entrants beginning February 1, 2011.

3.3. Default CPP for Residential Customers

In support of its default CPP request, Petitioners state the following:

· D.08-07-045 directs PG&E to implement default residential CPP one year after it is legally permitted. Under Senate Bill 695, default CPP would be allowed beginning in 2013. Thus, per D.08-07-045, default residential CPP would be implemented in 2014. However, the Petitioners believe that it would be beneficial for the Commission to wait at least until 2016 before making CPP the default rate for residential customers. This would allow PG&E to gain more experience with the voluntary CPP program, and to refine its customer outreach prior to a mass residential rollout.

· The magnitude of the transition from voluntary CPP to default CPP cannot be overemphasized. As long as CPP is voluntary, customers are free to ignore it in favor of either doing nothing, or reducing usage attempting to gain PTR rebates. Once default CPP is implemented, doing nothing can be very costly to customers. Customers will be strongly incentivized to act. However, this places an enormous burden on PG&E for customer outreach to educate customers on their options and how best to manage their bills under the new rates. This transition should not be rushed. The Petitioners' preferred schedule would provide three summers (2013-2015) of experience with voluntary CPP before transitioning to default CPP.

3.4. Voluntary RTP for Residential Customers

In support of its voluntary RTP request, Petitioners state the following:

· RTP, involving prices that vary hourly, is by far the most complex dynamic rate alternative. Therefore it is not reasonable to present this alternative to residential customers, even as an option, until simpler dynamic rate designs have been introduced and tested. To avoid unnecessary customer confusion, and to promote an orderly process of introducing dynamic rates to residential customers, RTP should be the last element introduced. Petitioners recommend 2018, two years after default residential CPP.

⁴ According to DRA, (1) PG&E Data Response DRA-04-15 dated November 10, 2009 stated that, unlike San Diego Gas & Electric Company (SDG&E), PG&E did not proactively send letters to customers in the upper tiers warning them of rate increases that occurred earlier in the year before those rate increases became effective; (2) PG&E Data Response DRA-04-4 indicated that a disproportionate number of the customers in Bakersfield and Fresno who lodged formal complaints about their SmartMeters have usage in tiers 4 and 5; and (3) PG&E Data Response ED-05-09 states that PG&E had spoken with newspapers and radio stations about the impact of the tiered rate design on bills during the summer, and it intensified this effort in the fall as the ratepayer rebellion began taking hold, but these efforts were not targeted to individual customers, as was the SDG&E outreach.