5. Proposed Extension of ClimateSmart Until December 31, 2011
5.1. Parties' Positions - Extension of ClimateSmart
DRA and TURN both argue against any extension of the ClimateSmart Demonstration Program because the program has not succeeded in generating the customer enrollments predicted by PG&E in its original Application and they believe the educational benefits claimed by PG&E are speculative. DRA and TURN believe that ClimateSmart's failure is the result of PG&E's program design and/or execution, rather than a result of customer ignorance or due to the current economic situation as PG&E asserts. DRA and TURN state that there is no reasonable basis to conclude that an extension of ClimateSmart is likely to yield breakthrough results or meaningful incremental benefits. They believe PG&E failed to provide new strategies that would likely yield any breakthrough in enrollments to support PG&E's request for extension of the program.
DRA and TURN believe that the real purpose of extending Climate Smart is to promote PG&E's own corporate brand using ratepayer money. DRA and TURN point to PG&E's own references to ClimateSmart as support for this contention. They argue that PG&E has cited ClimateSmart as evidence of its corporate responsibility, part of its "engagement" effort of "residential segmentation" designed to yield an "enhanced customer experience," and intended to enhance business customer satisfaction.12
DRA and TURN next argue that it is not cost-effective to procure GHG reductions through enrollment of retail customers in ClimateSmart. DRA and TURN point to the fact that the cost of new enrollments is far higher than originally estimated13 and the cost continues to escalate every year.14 More specifically, DRA and TURN contend that the amount of ratepayer funds spent on program administration and marketing to attract retail customer enrollments far exceeds the amount of money being collected from those customers in the form of premiums.15
DRA and TURN argue against authorizing PG&E to spend the approximately $4 million16 in remaining A&M funds on a program that expects to lose almost 3,000 customers and show a net loss of $600,000.17 Ratepayer money, they argue, would be better spent directly purchasing GHG reductions through the competitive solicitation process established by ClimateSmart.
PG&E argues that the ClimateSmart Demonstration Program has a continuing role as a voluntary GHG mitigation option. PG&E contends ClimateSmart is succeeding in its objective of helping to reduce or capture GHG emissions. As evidence of this, PG&E states that it has contracted for 1,166,898 metric tons worth of GHG reductions by the end of 2009.18 PG&E also argues that ClimateSmart has played a national and groundbreaking role in the offset market, since the utility is one of the first and largest buyers of the Climate Action Reserve's verified GHG emission reductions.19 PG&E contends that the ClimateSmart Demonstration Program is producing a body of knowledge about GHG emission reduction projects and offset project protocols that would not otherwise have been available to state and national policy makers, regulated entities, electric service providers, potential offset providers and the general public.
PG&E believes that a two-year extension is both consistent with and complementary to the current state, regional and national climate change policy environment. PG&E reconfirms its commitment that GHG emission reductions procured by ClimateSmart will not be used to satisfy other existing or future mandated emission standard or emission reduction requirement.
PG&E contends the ClimateSmart Demonstration Program should be extended to give enrolled and potential customers the opportunity to balance out their energy usage. PG&E maintains that no changes, above those requested by its Application, should be made to ClimateSmart. PG&E pledges that ClimateSmart will continue to, among other things:
1. Support the continued development of Climate Action Reserve protocols.
2. Invest 100 percent of enrolled customers' premiums in offsets projects in order to reduce GHG emissions.
3. Permanently retire all verified offsets procured by ClimateSmart in order to ensure actual GHG emissions reductions.
4. Operate the ClimateSmart Charity to make participating customers' payments eligible for a tax deduction as a charitable contribution.
5. Convene the EAG to solicit valuable feedback and input into ClimateSmart.
6. Provide information to customers, stakeholders, and interested parties.
7. Continue the formal annual reports as required by the Commission.
Specifically, PG&E asks the Commission to extend the performance standard of contracting for at least 1.5 million short tons20 set by D.06-12-032 until December 31, 2011. PG&E argues that it faces two primary challenges in executing contracts for the full 1.5 million short tons. First, PG&E argues that potential ClimateSmart bidders have little or no experience in the process of developing GHG reduction projects and selling those GHG emission reductions as offsets that meet the Climate Action Reserve protocols. Second, the Climate Action Reserve protocol development process proceeded more slowly than PG&E anticipated due to the complex nature of project accounting and use of the consensus-based Climate Action Reserve's protocol development process. As a result, fewer options were available to PG&E when the ClimateSmart Demonstration Program commenced. PG&E believes that a two-year extension will enable it to contract for the remainder of the 1.5 million short tons required by D.06-12-032.
PG&E acknowledges that the ClimateSmart Demonstration Program failed to achieve the level of customer participation of 3.3 percent that the Commission assumed in setting the performance standard. PG&E now believes that the enrollment target of 3.3 percent of its customers (both residential and commercial) does not fit the demonstration program as it was designed. PG&E explains that enrollment of customers has been difficult due to deep educational challenges associated with describing the effects of climate change, the impact of customer energy use on climate change and linking that to how the ClimateSmart Demonstration Program would make customers' energy use "carbon neutral." Finally, PG&E states that the economic decline and uncertainty had devastating impacts on all aspects of the "green" sector. PG&E argues the negative impact and uncertainty of the current economic recession on ClimateSmart enrollment cannot be underestimated and is a factor outside of its control. Although PG&E acknowledges these challenges remain, PG&E pledges that it will seek to increase customer enrollment if it is authorized to extend the ClimateSmart Demonstration Program until December 31, 2011.
5.2. Discussion
The Commission, in authorizing PG&E to proceed with ClimateSmart as a demonstration program, found that the program would benefit ratepayers in several ways above and beyond direct GHG reduction including: associated co-benefits derived from the offset projects themselves; educational benefits associated with informing customers of the dangers of global warming and what actions will be necessary in a carbon constrained world; and developing a body of knowledge and experience in understanding the market for offsets and the costs and benefits of using offsets as a risk mitigation tool.
While customer response and enrollment in the ClimateSmart Demonstration Program has been far less than anticipated and PG&E has fallen far short of achieving its GHG offset procurement goals, the program has achieved certain goals and benefits anticipated by D.06-12-032. The Commission, in authorizing the ClimateSmart Demonstration Program, sought to achieve goals beyond customer enrollment in the program. Among these goals was the ability to determine availability of forestry and other offset contracts, the ability to determine customer willingness to pay for climate neutrality, and customer education.
The ClimateSmart Demonstration Program assisted in the development of the nascent Climate Action Reserve offset program because it created a large buyer demanding a high quality product. PG&E closely participated in the Climate Action Reserve process to develop offset protocols in forestry and dairy methane gas, both of which will benefit ratepayers and society generally upon implementation of Assembly Bill (AB) 32, Stats. 2006, ch. 488. Extension of the program will continue further development of the body of knowledge related to GHG emission reduction projects and protocols. This knowledge of offset procurement can benefit all ratepayers as PG&E evaluates the role offsets will play once AB 32 goes into effect in 2012. In addition, this additional body of knowledge will benefit state policy makers, regulated entities, service providers, and the general public. Therefore, we find it reasonable to extend the program through December 31, 2011 subject to the following discussion and conditions.
The ClimateSmart Demonstration Program, through its advertising and marketing efforts, also contributes to customer education, both specifically about ClimateSmart and more generally regarding the dangers of global warming and possible mechanisms to reduce customer's carbon footprint. A two-year extension of the ClimateSmart Demonstration Program would allow PG&E to continue to expand public knowledge and awareness of the dangers of global warming and introduce possible mitigation strategies, like the ClimateSmart Demonstration Program, which would be a benefit to both ratepayers and the public, especially during this period of renewed focus on climate change at both the state and federal levels.
Although the ClimateSmart Demonstration Program has been disappointing in terms of the direct GHG offsets procured, the goals and benefits associated with the ClimateSmart Demonstration Program remain consistent with Commission policy. PG&E was specifically asked to explore and present new marketing and advertising strategies designed to lead to significant improvement during the PHC.21 PG&E proposed some changes to its marketing and education strategies, including for example, partnering with leading environmental organizations as well as commercial, non-profit and municipal customers, development of a merchandising program, use of social networking sites to spread awareness of the program, and targeted direct mailings to customers most likely to enroll. PG&E maintains it will "seek out innovative, successful approaches for this program and to find a sustainable marketing, education and outreach formula that expands the enrollment and benefits of the program and provides benefits to ratepayers as a whole . . . ."22 PG&E seeks to obtain the benefit of the experiences of its enrolled customers for data and new ideas for future customer-driven sustainability programs.
After reviewing the marketing strategies proposed by PG&E, they appear to be very similar to what PG&E has done in the past and, while they may lead to some improvement in the program, they likely will not result in the dramatic shift in customer enrollment needed to achieve the performance standard. In order to obtain significant improvement in the program, PG&E needs to get the benefit of its customers' knowledge and experience of the ClimateSmart Demonstration Program, both from subscribers and customers who chose not to enroll in ClimateSmart. Therefore, we direct PG&E to engage the EAG as well as in-house and Commission staff experts on customer decision-making including resources from Energy Efficiency, Demand Response, and Distributed Generation in the marketing plan development process. PG&E should use these resources to ascertain why customers chose to enroll, or not, in the program, what advertising and marketing strategies positively influenced enrollment, and any other information that may help PG&E to further develop its marketing strategy.
DRA and TURN argue that it would be more cost effective to simply use the remaining ratepayer funds to procure GHG offsets directly. While in the strictest sense this may be true, this argument ignores the benefits of continued customer education and development of a body of knowledge related to customer behavior of the ClimateSmart Demonstration Program identified by the Commission that only inure to ratepayers through continuing the program.
Although DRA and TURN argue that PG&E may be trying to avoid its obligation to procure the minimum GHG reductions guaranteed by D.06-12-032, extension of the ClimateSmart Demonstration Program would not alter PG&E's obligations to meet the minimum performance standards set by that decision. Shareholders will be obligated to make up the difference between the GHG reductions supported through customer contributions and the minimum guarantee of 1.5 million short tons set by D.06-12-032 regardless of program extension.23 PG&E has contracted for slightly over 1.1 million short tons as of December 31, 2009, but will pay for the reductions as the GHG emissions are retired. PG&E estimates that the total reductions supported by customer enrollments, with the extension, will be 850,000 short tons resulting in shareholder responsibility to procure an additional 650,000 short tons upon program completion.24
If the ClimateSmart Demonstration Program is extended two years, PG&E has forecasted total customer revenues will be approximately $6.5 million dollars (over the entire four years of the program). The estimated cost to fully cover the 1.5 million short tons is around $15 million dollars. Thus, the shortfall is estimated to be around $8.5 million dollars even if the program is extended. 25 PG&E's shareholders will be responsible to pay for these reductions with shareholder funds.
Terminating the program as DRA & TURN recommend does not definitively reduce PG&E's shareholder obligation to meet the performance guarantee. As of July 2009, customer enrollments supported approximately 400,000 short tons of GHG reductions. If no extension is granted and PG&E uses the remaining A&M funds to directly procure offsets, PG&E would then need to fund approximately 1.1 million short tons in GHG reductions. As of the same time period, customer billings yielded approximately $3.8 million dollars in revenues. Using the same estimated $15 million cost for retirement of 1.5 million short tons, PG&E shareholders would be responsible for an estimated $7.1 million in reduction costs upon program termination.26 Thus, PG&E shareholders will face a significant responsibility regardless of an extension and may even be worse off as a result of such an extension. Therefore, the concern that PG&E is trying to avoid its shareholder responsibility through a program extension is not supported by the data. For this reason, it is reasonable to extend the program term through December 31, 2011, as set forth in this decision.
12 Post-Workshop Brief of The Division of Ratepayer Advocates and The Utility Reform Network on Pacific Gas and Electric Company's Request for a Two-Year Extension of the ClimateSmart Program at 9.
13 PG&E originally estimated it would cost $60 per customer in the first year of the program declining to $48 per customer by year three of the program. (PG&E testimony, A.06-01-012 at 3-21.)
14 Post-Workshop Brief of The Division of Ratepayer Advocates and The Utility Reform Network on Pacific Gas and Electric Company's Request for a Two-Year Extension of the ClimateSmart Program at 3.
15 Actual customer acquisition costs have consistently exceeded original estimates; the cost of customer enrollment was $164 in 2007 and has increased every year to $648 per customer in 2009. (Post-Workshop Brief of The Division of Ratepayer Advocates and The Utility Reform Network on Pacific Gas and Electric Company's Request for a Two-Year Extension of the ClimateSmart Program at 3.)
16 This is the approximate amount of A&M Funds remaining at the time the Application was filed.
17 Post-Workshop Brief of The Division of Ratepayer Advocates and The Utility Reform Network on Pacific Gas and Electric Company's Request for a Two-Year Extension of the ClimateSmart Program at 7.
18 ClimateSmart 2009 Customer Annual Report at 29.
19 PG&E Application at 4.
20 PG&E made its request using short tons, a measurement disputed by parties. As stated above, subsequent to filing this Application, the Commission determined that the performance guarantee is indeed measured in short tons (Resolution G-3425). The metric ton equivalent is 1.36 metric tones.
21 PHC Transcript at 10, lines 15-19.
22 Pre-workshop Statement of PG&E at 4.
23 PG&E predicted it would be able to achieve 2 million tons of CO2 equivalent reductions through ClimateSmart. D.06-12-032 determined that PG&E had to guarantee reductions of at least 75 percent of that amount, or 1.5 million tons. Resolution G-3425 clarified that the performance guarantee is 1.5 million short tons.
24 Pre-Workshop Statement of Pacific Gas and Electric Company, Attachment A.
25 Based on the prior rate of expenditures, it is not anticipated that there will be any A&M funds remaining.
26 ($15 million - $3.8 million in customer revenues -$4.1 million in remaining Administration and Marketing funds = $7.1 million)
