2. Background

2.1. ClimateSmart Demonstration Program

On December 14, 2006, the Commission issued Decision (D.) 06-12-032, which authorized Pacific Gas and Electric Company (PG&E) to establish the ClimateSmart Demonstration Program and Tariff Option, called the Climate Protection Tariff. The ClimateSmart Demonstration Program is a voluntary program, which allows PG&E customers the option to pay a monthly premium to offset the greenhouse gas (GHG) emissions associated with their electricity usage. The monthly premium is charged volumetrically ($0.00254 per kilowatt-hour and $0.06528 per therm exclusive of program administration and marketing (A&M) costs). Thus, the more energy a customer uses, the higher the monthly premium.

Both residential and commercial customers may participate in the ClimateSmart Demonstration Program. PG&E invests 100 percent of customers' monthly premiums solely in independently verified GHG emission reducing offset projects in California. Examples of offset projects used in the ClimateSmart Demonstration Program include forestry, dairy, and landfill methane capture. Regardless of the type of project, the offset reduces or absorbs GHGs, such as carbon dioxide and methane. PG&E is not permitted to use any of the GHG reductions attained through the ClimateSmart Demonstration Program to meet other GHG emissions reduction obligations or commitments, be they mandatory or voluntary.¹

In D.06-12-032, the Commission authorized PG&E to allocate $16.4 million in administration and marketing costs for the ClimateSmart Demonstration Program to all PG&E ratepayers because the Commission determined that the program benefits all customers. Customer benefits include education about climate change and its connection to the use of electricity and natural gas, benefits associated with emissions reductions funded by the program, as well as the development of elements of the "carbon infrastructure" necessary to mitigate climate change.

D.06-12-032 set a budget for the use of these funds and required PG&E to spend a certain amount per year for program administration and marketing.² As part of the budget set by the Commission for use of A&M funds, the Commission authorized PG&E to allocate $900,000 to the California Climate Action Registry³ to support development of new emissions reduction protocols.

In establishing the ClimateSmart Demonstration Program, the Commission reasoned that because ratepayers were being asked to provide funding for a portion of the program, PG&E should guarantee at least some minimum amount of GHG reductions. PG&E originally estimated that between 4-5 percent of its customers would enroll in the ClimateSmart Demonstration Program, thereby resulting in GHG emission reductions of 2 million tons of Carbon Dioxide (CO₂) by the end of the three-year pilot.⁴ The performance guarantee set by the Commission requires PG&E to contract for 75 percent of the 2 million tons in GHG reductions PG&E predicted it would achieve as a result of the three-year demonstration project.⁵ The offset projects the ClimateSmart Demonstration Program invests in will create GHG emission reductions from 2007-2021, with the majority of reductions achieved by 2012.⁶ Thus, while a customer pays to make its electricity usage carbon neutral during the three years of the demonstration program by having PG&E invest in carbon offsets, and PG&E purchases a commitment for those offsets, the reductions are not immediately achieved. The GHG reductions achieved by the ClimateSmart Demonstration Program are exclusive to the customers participating, and subsequently the offsets may not be used by PG&E to meet any other obligation to reduce GHG emissions.

An External Advisory Group (EAG) was created to provide outside expertise and guidance in implementing D.06-12-032. The EAG is comprised of diverse stakeholders and provides feedback on the marketing and selection of emission reduction projects for investment by the ClimateSmart demonstration program.

Finally, D.06-12-032 set a sunset date for the demonstration program of December 31, 2009, but permitted PG&E to file an application seeking continuation of the program past that date.⁷ PG&E by this Application requests authorization to continue the ClimateSmart Demonstration Program through December 31, 2011.

2.2. The Application

PG&E asks the Commission to extend the ClimateSmart Demonstration Program, including authorizing extension of the performance standard⁸ adopted in D.06-12-032, until December 21, 2011. PG&E proposes to continue the program in its current form and requests:

1. Authorization to carry forward unspent A&M funds recorded in the gas and electric subaccounts of the ClimateSmart Balancing Accounts as well as any additional unspent A&M funds, including interest, at the end of 2009.

2. Authorization to use the A&M funds carried forward without restriction to transfers among budget categories, or, consistent with D.06-12-032, authorization to allocate the remaining A&M funds to purchase offsets directly under PG&E's performance standard. Any residual balance in the A&M subaccounts would be transferred to the electric Distribution Revenue Adjustment Mechanism (DRAM) and the gas Noncore Distribution at the end of the extension period.

¹ D.06-12-032 at 3.

² In order to transfer funds among budget categories or spend budgeted funds in different years, PG&E was required to file an advice letter with the Commission seeking such a change.

³ The Climate Action Reserve was formerly known (and referred to in D.06-12-032) as the California Climate Action Registry.

⁴ D.06-12-032 at 6, 10.

⁵ Thus, PG&E must contract for a minimum of 1.5 million tons of CO₂ equivalent reductions by the end of the program.

⁶ ClimateSmart Report 2009 at 29.

⁷ D.06-12-032 at 52 [Ordering Paragraph 13].

⁸ PG&E uses the term "performance standard" to refer to the performance guarantee set by the Commission in D.06-12-032. They are equivalent terms.