III. The Application

PG&E asks the Commission to adopt the CPT, a voluntary program available initially over a three-year period to interested PG&E customers. Participating customers will pay a premium which will be charged volumetrically ($0.00254 per kWh and $0.06528 per therm exclusive of A&M cost). For the typical participating residential customer the increase on their monthly energy bill will be approximately $4.31 a month ($51.72 per year). PG&E will use the funds it collects in CPT premiums to contract for new California-based projects that, over their life, will yield sufficient emissions reductions or sequester enough GHGs to offset participating customers' gas and electricity footprint. The program will not mitigate GHG emissions associated with other activities in an average customer's life, such as driving or flying.

At first, PG&E intends to use customer premiums to fund contracts for projects in the forestry sector. This is because CCAR, established by California statute as a non-profit voluntary registry for GHG emissions, has already developed a "protocol" - essentially, rules of the game - for certifying forestry offset projects intended to reduce GHG emissions. The CCAR forestry protocol, available at http://www.climateregistry.org/PROTOCOLS/, explains how forests can have an impact on global warming:

Forests have the capacity to both emit and sequester carbon dioxide, a lead [GHG] that contributes to climate change. Trees, through the process of photosynthesis, naturally absorb CO2 [carbon dioxide] from the atmosphere and store the gas as carbon in its biomass, i.e., trunk (bole), leaves, branches, and roots. Carbon is also stored in the soils that support the forest . . ., as well as the understory plants and litter on the forest floor. When trees are disturbed, through events like fire, disease or harvest, they emit their stored carbon as CO2 into the atmosphere.¹

Forests absorb carbon dioxide (CO2) from the air, a process referred to as "forest sequestration."

In an attempt to conserve and increase forest cover, and reduce GHG emissions, CCAR's forest protocol facilitates three types of projects:

· Conservation-based Forest Management Projects: Forest projects that are based on the commercial or noncommercial harvest and regeneration of native trees and that employ natural forest management practices,

· Reforestation Projects: Forest projects that are based on the restoration of native tree cover on lands that were previously forested, but have been out of tree cover for a minimum of ten years, and

· Conservation Projects: Forest projects that are based on specific actions to prevent the conversion of native forests to a non-forest use, such as agriculture or other commercial development.

Under PG&E's proposal, it will use the premiums it collects to pay for forest management, reforestation and/or forest conservation projects certified by CCAR. All contracts PG&E will enter into will be for new, California-based projects. In the future, PG&E may diversify its program to fund additional (non-forest-based) projects that reduce GHG emissions, as CCAR develops protocols for such projects.

PG&E plans to use 100 percent of the CPT premiums to invest in GHG reduction projects, and to purchase enough GHG reductions to make enrolled customers' electricity and gas consumption "climate neutral" or better. PG&E also plans to permanently retire all certified GHG emission reductions procured by the CPT. Thus, no retired reduction could be sold or used by PG&E to meet an existing or future mandated emission standard or emission reduction requirement. PG&E expects the CPT program will cumulatively result in commitments to GHG reductions of about 2 million tons of CO2 by the end of the three-year pilot, which is equivalent to taking about 350,000 cars off the road for one year.

In order to invest 100 percent of the CPT premiums in GHG reductions, PG&E proposes to allocate the program's Administrative & Marketing (A&M) costs - $16.4 million over four years (the first year start-up in 2006, plus three years of program operation for 2007-2009) - across all PG&E customers (and not only those who sign up for the voluntary CPT program). PG&E estimates that this will raise each typical residential customer's bill by 2 to 4 cents a month.

A portion of these administrative costs will fund a $900,000 payment by PG&E to CCAR, to cover costs associated with its assistance with the CPT program and help support the development of additional GHG reduction protocols. According to PG&E, the Registry has committed to developing a total of four new protocols over the next three years. Future CPT projects could include: manure management projects to reduce methane emissions, port and truck-stop electrification projects, cement production process improvement projects, landfill methane capture projects, aggregation of small projects in low-income communities (e.g., replacing school buses or boilers), municipal projects such as urban forestry, and possibly an alternative fuels protocol. As new protocols are developed, PG&E plans to invest some of the CPT premiums it collects in projects outside the forestry sector.

PG&E proposes to form an EAG that includes representatives from various stakeholder communities. The EAG will advise PG&E on the criteria for selecting forestry projects and marketing of the program. PG&E envisions the EAG's membership to include such representatives as: residential customers, large businesses, small businesses, non-profits, environmental groups, environmental justice groups, local governments and state environmental agencies. During the hearings, PG&E was asked to add seats for representatives of agriculture and the Commission, and PG&E agreed.

¹ CCAR's Forest Sector Protocol is Exhibit 7 in the hearing record of this proceeding.