BACKGROUND

Energy conservation is an important public policy priority of the Commission.

The 2003 Energy Action Plan (EAP) outlines steps that the Commission and other state energy agencies are to undertake to ensure that Californians will enjoy adequate, reliable and reasonably priced electric and natural gas supplies. A key strategy for achieving this goal is the optimization of energy conservation and efficiency. EAP II, adopted in 2005, reiterates the importance of using energy wisely. The Commission has aggressively worked to implement a variety of programs in support of these objectives including the adoption of PG&E's gas bill rebate program last winter.

The Commission approved PG&E's natural gas conservation and gas bill rebate plan last winter. That program is similar to the proposed 10/20 Plus WGSP.

In Resolution G-3384, the Commission approved PG&E's proposal to offer residential and small commercial customers a 20 percent rebate off their gas bills if they achieved a year-over-year 10 percent reduction in natural gas usage during January through March of 2006. The rebate applied to the cumulative amount of a customer's January, February and March 2006 gas bills. The utility's request was prompted by a steep rise in natural gas prices following the aftermath of Hurricanes Katrina and Rita. The Commission adopted PG&E's WGSP (as last winter's program was referred to) proposal because it found that the program should encourage natural gas conservation and lead to lower consumer gas bills.

PG&E is seeking expedited approval of a gas bill rebate program to encourage the conservation of natural gas by its residential and commercial customers during January and February 2007.

In AL 2753-G, PG&E is requesting authorization of its 10/20 Plus WGSP. Under the proposal, residential and commercial customers would receive a gas bill rebate if they use cumulatively less natural gas during January and February 2007 in comparison to a three year average of past usage over the same two month period.

Customers achieving a 10 percent or more reduction in natural gas usage will receive the maximum gas bill rebate of 20 percent. Customers reducing their natural gas consumption below 10 percent will receive a rebate commensurate with their natural gas savings (e.g., a 9 percent rebate for a 9 percent reduction in natural gas usage).

The rebate amount each qualifying customer would receive is based on the combined total of their January and February 2007 gas bills and would be issued starting with the February 28, 2007 billing period. PG&E estimates that it will issue $61 million in gas bill rebates.

PG&E is also requesting authority to recover $5 million from its residential and commercial customers to market and implement the proposed 10/20 Plus WGSP. With the expected rebates of $61 million, the $66 million total cost of the program would be collected through core procurement (71 percent of the total) and core transportation (29 percent of the total) rates. Cost recovery from both residential and commercial customers would be for a 12 month period beginning January 2007.

The 10/20 Plus WGSP differs from last winter's program in these substantive ways:

1. Large and medium commercial customers are eligible to participate in the program rather than just small commercial customers.

2. Rebates will be issued to customers achieving less than a 10 percent reduction in natural gas usage. Under the prior program, a 10 percent or more reduction in consumption was necessary to earn a rebate.

3. The amount of natural gas conserved will be normalized to account for the effects of weather on usage (e.g., during a relatively warm winter, residential customers typically use less natural gas for heating purposes). For last winter, gas bill rebates were determined on a year-over-year comparison in natural gas usage without adjusting for weather influences.

4. The proposed program applies to natural gas usage during the months of January and February whereas last winter's program also included March. However, under the new program, customers will be informed by PG&E that they should begin to conserve in December and continue into March in order to maximize their opportunity for a gas bill rebate due to meter reading cycles.

PG&E requests expedited Commission approval of its proposal so that it can begin its marketing and implementation efforts with adequate lead time.

PG&E and DRA, with the concurrence of TURN, submitted an agreement regarding the recovery of program rebates and costs from residential customers.

On August 29, 2005, PG&E sent a letter to the Energy Division and the AL

2753-G service list describing an agreement it reached with DRA (and with TURN's concurrence) regarding the recovery period of 10/20 Plus WGSP rebates and costs from residential customers. The letter also addressed an ambiguity found by DRA in the AL.

In AL 2753-G, PG&E proposed to collect program rebates and costs from its residential and commercial customers over a 12-month period beginning in January 2007. DRA requested PG&E to recover these amounts from residential customers during the months of April through October 2007. This would benefit residential customers as their gas bills tend to be lower during that timeframe as compared to winter months and thus more manageable.

PG&E accepted DRA's proposal and, with the concurrence of TURN, requests that its 10/20 Plus WGSP be approved with the agreed to residential cost recovery modification.

DRA also requested PG&E to clarify a statement in AL 2753-G which could be interpreted to exclude customers who did not qualify for a rebate under last winter's program from participation in the 10/20 Plus WGSP. In the letter, the utility said it would file a substitute sheet with the ambiguity removed. ¹

¹ On August 29, 2006, PG&E filed a substitute sheet to AL 2753-G eliminating the ambiguity.