THE PROTESTS

TURN. In its "Protest of PG&E A.L. 2937-G/3294-E" (TURN Protest), TURN argues that the advice letter is "inadequately supported and unduly vague." (TURN Protest, p. 1) The Commission cannot "meaningfully assess" the proposal as a result. (Id, p. 2) The TURN Protest points out that the proposal says that the relevant market for this proposed service "is mainly the home warranties market." (Id., p. 2) However, some of the services listed as examples of what will be offered under the HSP may not be warranties, such as "home and small business electric and gas line protection plans..." TURN recommends that the Commission "limit its consideration of PG&E's advice letter to the proposal to offer home equipment warranties." (Id., p. 3) Additional non-warranty services should be dealt with through subsequent advice letters.

TURN also refers to a recision of authority for Southern California Gas Company to offer newspaper subscription services to new and transferring customers in Resolution G-3349 in 2003 (the authority was granted in 2000). (Id., p. 3) The Commission lists several reasons for this recision action, such as the lack of connection between the selling of newspaper subscriptions and the core mission of the utility, and the possible threat to the privacy of PG&E's utility customers. TURN argues that PG&E should explain why the reasons advanced by the Commission to discontinue the SoCalGas program do not apply in the HSP case.

Finally, TURN brings up two consumer protection issues regarding this proposed program. First, warranty service should not be sold to tenants where the landlord is responsible for appliance upkeep. Second, if the Commission allows third party billing for the HSP, it should ensure that there would be no danger that customers would have their utility service terminated because they are delinquent on the HSP portion of the bill.

Division of Ratepayer Advocates. The DRA, in a letter to Ken Lewis, Acting Director - Energy Division, August 13, 2008 (DRA Protest), supports the TURN protest "in whole" and provides two additional reasons the HSP should be rejected. First, DRA argues that Affiliate Transaction Rule VII.C.4 requires that a new NTP&S "must use existing IOU resources, without adding liability or risk, or diverting management attention from the core utility business." (p. 1) DRA points out that the advice letter simply makes pronouncements that the utility will comply with this rule, without providing details or data to support these claims. It argues further that the use of a third-party vendor to provide the HSP requires the utility to obtain additional resources, in violation of Rule VII.C.4.

Second, DRA argues that the warranties offered under the HSP are likely to affect the consumption of energy in these households. These potential impacts, either positive or negative, are not currently accounted for in the Commission's Energy Efficiency Strategic Plan in Rulemaking 08-07-011. DRA points to goals5 specified in the draft of this plan that suggest that changes in markets and businesses that affect efficiencies or loads should be coordinated in this Rulemaking, and therefore the authority for the HSP should be sought in PG&E's A.08-07-031, not in this advice letter.6

Response to Protests. The utility filed a "Response to Protests from TURN and DRA" (Response) on August 20, 2008. The utility clarified some of the aspects of the HSP program that were questioned by the protestants. Regarding TURN's point, supported by DRA, that the description of potential services to be offered under the HSP is too vague, PG&E argues that its filing asks for a new category of NTP&S, and thus by design does not provide an exhaustive list of new products and services. In response to this protest, the utility provides an Attachment A that lists "products and services that may be offered to customers" under the HSP. Appendix A lists several "service repair plans" including those that address home appliances, interior electrical wiring, interior gas lines, heating and cooling systems, external water service lines, interior water service lines, interior plumbing and drainage, water heaters, sewer and septic lines, pool equipment, compressed natural gas vehicle or electric vehicle charging home equipment, home electronics surge repair (not otherwise covered by PG&E's tariff rules), and interior phone lines.

To clarify its use of the excess capacity of utility assets as required by Rule VII.C, PG&E says that the HSP "will not rely on AMI (SmartMeterTM ) metering technology." (Id., p. 7) The Response continues that "many tasks" will be handled by the vendor, and that PG&E "resources will be involved in portions" of the proposed service, including review of the advertising, billing for the service on its utility bills, review of customer satisfaction, and "other program management activities." (Id., p. 7)

The Response makes the point that its use of a third-party vendor is not prohibited by Rule VII.C.4, alleged by DRA (DRA Protest, pp. 1-2), and that the use of the vendor does not require PG&E to make additional investment.

In its response PG&E also addressed TURN's protest that it was unable to find the service PG&E claims is offered by the Southern California Gas Company (SoCal Gas) which is similar to services to be offered under the HSP, PG&E argues that the concerns raised in Resolution G-3349, and noted in TURN's Protest, are not applicable to PG&E's proposed HSP. The HSP "is at its core a customer service enhancement offering to improve customer satisfaction by providing customers with convenient and time-saving assistance in managing home needs. PG&E believes that quality service for its customers and an overall enhanced customer experience is integral to the utility's mission and values." (Response, p. 9)

The utility further argues that privacy of the customer is not an issue with HSP, as the utility plans to comply with Affiliate Transaction Rule IV.A.7 PG&E states that it will not give customer lists and phone numbers to the vendor. (Response, p. 9) These issues are addressed in our discussion, below.

Rule VII.E.1(c) requires the advice letter "address the potential impact of the new product or service on competition in the relevant market, including but not limited to the degree in which the relevant market is already competitive in nature and the degree to which the new category of products or services is projected to affect that market." PG&E presents an analysis of market competitiveness in its Response through the application of a model that measures five variables influencing market competition.8 These measures use traditional economic treatments of competition, including ease of entry for competitors and substitutes as well as market power of suppliers and customers. It also adds a fifth "force" that attempts to measure the "intensity" or level of aggressiveness of competition within the industry. PG&E states that the Home Protection Industry in California is the relevant industry for this analysis. The utility concludes through the application of this model that the market is competitive and it is unlikely that the entry into the market by the utility will affect "competition in the relevant home protection market" and that the HSP "complies with the Commission's policies regarding anticompetitive behavior." (Response, p. 3)

It says that this industry is growing and covers nine out of ten houses sold in the state, selling over 265,000 new policies in 2007 while renewing 335,000 existing plans. (Response, p. 3) The Response argues that capital requirements for entry into this market are not high - $40,000 for the first 1000 contracts and $20,000 for each 500 contracts thereafter. The entrant must also seek a license from the CDI. PG&E argues that it has no special advantage through its brand not held by many other incumbents and potential entrants.

The Response argues that, as the HSP will offer unbundled services that cover one system at a time, such as the interior gas line, at an average cost of about $75 per year, with no deductible, this will provide customers with additional options and thus more bargaining power.

PG&E states that substitutes for this insurance service are plentiful. The homeowner can do it himself, hire it done with cash on hand, or hire it done through debt. Information regarding contractors, both through state licensing procedures and through private rating services, exists and is plentiful. The entry of the utility into this market does not diminish the competitive benefits of available substitutes, according to the utility.

5 The goals listed by DRA are: "[t]ransform home improvement markets to apply whole-house energy solutions to existing homes. . . ," "quality installation and maintenance [of HVAC systems] becomes the industry and market norm. . . ," and that all IOUs were instructed to ensure their EE porfolios reflect "state energy policies and strategic plan."

6 DRA cites the Commission's General Rule 7.2.4.2 as grounds for this protest: "The relief requested in the advice letter is pending before the Commission in a formal proceeding."

7 Rule IV.A states: "A utility shall provide customer information to its affiliates and unaffiliated entities on a strictly non-discriminatory basis, and only with prior affirmative customer written consent."

8 Michael Porter, "Competitive Strategy, Techniques for Analyzing Industries and Competitors," Free Press, 1980, Chapter 1.

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