Opening Comments of The Greenlining Institute On The Proposed Decision And The Alternate Proposed Decision

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I. Introduction

In accordance with Rule 14.3(a) of the California Public Utilities Commission’s (“CPUC” or “the Commission”) Rules of Practice and Procedure, the Greenlining Institute (“Greenlining”) submits these Opening Comments on both the Proposed Decision of ALJ Pulsifer Regarding Residential Rate Design (“PD”) and the Alternate Proposed Decision of Commissioner Peevey Regarding Residential Rate Design (“APD”).[1] The Commission should reject the APD completely and modify the PD to minimize the impact of multiple rate increases on California Alternate Rates for Energy (“CARE”) customers.

Greenlining’s main concern throughout this proceeding has been the adverse impact of PG&E’s residential rate design proposals on low-income customers, especially those enrolled in the CARE program, and on basic energy needs customers.[2] Thus, Greenlining’s comments focus on the customer charge proposal, the CARE Tier 3 Rate proposal and the baseline allowance adjustment, all of which would increase the rate burden on already strained CARE customers, hundreds of thousands of whom are teetering on the edge of service disconnections.

As the baseline allowance adjustment does not result in a very large bill increase, this measure by itself may not be objectionable.  However, the Commission should not add to the burden by also introducing the CARE Tier 3 rate.  Alternatively, should the CARE Tier 3 rate increase be approved for 2011, there should be no additional increase approved for 2013.

The Commission should not modify the differential between the non-CARE Tier 3 and 4 rates.  Although this measure does not immediately impact CARE customers, rates for moderate Tier 3 usage should not be increased in order to reduce rates for the most excessive usage.

II. Raising Rates Excessively on Vulnerable CARE Customers is Contrary to Controlling Statute.

California law is clear that energy rates for low-income customers must remain affordable.  Statute establishes the absolute upper threshold for CARE rates as 80% of non-CARE rates.[3] However, independent of this requirement, another statute also provides:

In order to meet legitimate needs of [CARE customers], recognizing that electricity is a basic necessity, and that all residents of the state should be able to afford essential electricity and gas supplies, the commission should ensure that low-income ratepayers are not jeopardized or overburdened by monthly energy expenditures.” (emphasis added).[4]

PG&E admitted that it performed no study or assessment to evaluate whether the CARE rates resulting from its proposals would remain affordable.[5] However, the Commission did receive evidence in testimony that CARE customers are currently overburdened by their energy bills, a situation which would only be exacerbated by bill increases.  Thus, any increase in the rates of CARE customers would be contrary to the statutes that regulate CARE.  This is demonstrated by data on arrearages and disconnections required by the Commission in R.10-02-005.

  1. A. Arrearage and Disconnection Data Demonstrates that Multiple Rate Increases Will Overburden CARE Customers.

PG&E’s CARE customers are increasingly falling into deep arrearages.  The most recent data presented in testimony (from June 2010) showed that about 10% of CARE accounts, more than one hundred thousand customers, were more than 90 days in arrears on their bills.[6] More recent data will likely show the situation getting worse, so that more than one in ten CARE customers will be in deep arrearages.  PG&E’s disconnection rate for CARE has consistently been approximately twice as high as the rate for non-CARE customers, further demonstrating the high level of burden of current CARE rates.[7]

In last year’s interim decision in R.10-02-005 (D.10-07-048), the Commission found that this discrepancy in the disconnection rate between CARE and non-CARE customers was unacceptable and directed PG&E and the other investor-owned utilities (“IOUs”) to implement several measures to minimize this discrepancy.[8] The Commission recognized that the economic crisis in California continues and that there was real danger that high levels of service disconnections would persist into the future if left unaddressed.[9] The Commission cannot now act at cross-purposes with its own precedent by approving multiple rate increases for CARE customers, which would be sure to push them into further arrearages and more disconnections.

The PD/APD barely addresses the arrearage and disconnection evidence and conducts no analysis of the data[10] – this is a factual error.  Instead, the PD/APD proposes multiple rate increases for CARE customers, but claims they “[keep] overall rate levels reasonably affordable.”[11] However, approval of the proposals would push many of the customers over the edge.  While an increase of $10 per month seems manageable to many of us, it would force thousands of low-income households to choose between keeping the lights on or buying groceries, procuring essential healthcare or having enough money to get to work every day, as testimony from Disability Rights Advocates demonstrates.  The PD/APD commits factual error when they state that after approval of multiple rate increases, CARE rates are still affordable.

  1. B. There Is No Statutory Support for Moving Rates towards the Cost of Service.

As the main support for the need to impose the customer charge, the CARE Tier 3 rate and the reduction in differential between the non-CARE Tiers 3 and 4, both the PD and the APD assert the principle that rates should more closely reflect the cost of service.[12] However, neither proposed decision cites any statutory support for this assertion.  In fact, there is none.  Thus, the PD/APD’s reliance on the cost of service principle to overrule controlling statutory law is an error of law.

The PD/APD’s excessive reliance on cost of service principles is yet more troubling given that they seem to accept unquestioningly PG&E’s unsupported assertion that the Commission’s highest priority in this ratemaking proceeding – taking precedent over “public policy goals” – should be to adopt rates that reflect the cost of service.[13] The Commission should take its ratemaking guidance from controlling statute, not from PG&E’s self-interested and wholly unsupported assertions.

In discussing one party’s proposal, the PD/APD seems to recognize that the reliance on cost of service principles is not based on any laws, but rather derives its authority only from the Commission itself:

The Solar Alliance proposal would reverse the direction that [the] Commission       has been pursuing in attempting to bring high-usage tiers more into line with cost             of service.”[14]

However, neither the PD nor the APD cite any Commission precedent to support the cost of service principle.  Greenlining recognizes that a utility’s total revenue allocation (but not necessarily its rate design) should be based only on the reasonable “cost of service.”[15] Greenlining also recognizes that recent Commission decisions have structured dynamic rates to be based on the cost of service.  However, the cost of service principle cannot be applied outside of these situations in a manner that violates long established ratemaking statutory authority.  Controlling statutes clearly establish rate structures – such as the CARE discount and tiered rates – that are deliberately not based on the cost of service.[16]

The PD/APD suggests that the statutorily-mandated tiered rate structure must be counteracted to bring “high-usage tiers more into line with cost of service” based not on any law, but simply on “the direction the Commission has been pursuing.”  The Commission cannot so significantly revise residential ratemaking principles without a more full analysis and especially not when such drastic change is based only on PG&E’s unsupported assertion that cost of service should be the paramount ratemaking principle.

The Commission must recognize that rates are not merely numbers punched into a theoretical cost of service rate analysis.  These numbers have profound effect on hundreds of thousands of customers who are struggling to pay their bills and are on the brink of disconnections.  The Commission should not reject evidence – even anecdotal evidence – that actually demonstrates the human toll of these customers.[17] Further, if the Commission fails to adequately take into account quantitative data on arrearages and disconnections – data that it ordered to be produced – then this constitutes factual error.

Removal of the unsubstantiated cost of service principle leaves little support for the proposed changes.  Thus, the Commission must reject them.  However, the PD/APD also seems to justify the changes as a means to provide rate relief to upper tier customers.

III. The Commission Proposes to Provide Yet More Rate Reductions for Customers         Who Use Energy Excessively.

The PD/APD notes that in the past decade, upper tier rates have increased greatly, such that they could “produce very high bills when combined with high usage due to extreme temperatures.”[18] Presumably then, the PD/APD asserts that these high usage customers require rate relief.  The APD cites an example, provided by PG&E, of a high summer bill, suggesting this type of customer needs relief.[19] However, this illustration involves a customer who used 2,331 kWh in a summer month.[20] At that level of usage, almost half of the customer’s usage would be in the highest tier currently in place.[21] Thus, this customer has excessive high end usage.  During the proceeding, The Utility Reform Network (“TURN”) presented empirical evidence demonstrating that usage above 300% of baseline, such as in the above example, was related to the maintenance of large homes, and the saturation of energy consuming appliances such as swimming pools and other luxuries.[22] Such usage goes well beyond statutorily protected essential usage.  This customer should be seeking to conserve energy and eliminate the excessive high end usage.  Instead, the PD/APD proposes to reduce rates for this customer, thus removing the conservation incentive for PG&E’s most excessive energy users.

  1. A. Excessive Energy Usage in the Upper Tier Is Avoidable.

Many customers in the hot Central Valley avoid upper tier energy usage.  In fact, the Central Valley is home to PG&E’s most conservationist class of customers.  An examination of customer usage conducted by TURN, with customers divided by income group and region, demonstrated that the lowest income customers (less than $30,000 household income) in mid and hot climate zones had by far the lowest level of Tier 5 (above 300% of baseline) energy usage of any group of customers, 1.0% and 1.6% respectively.[23]

This empirical evidence comports perfectly with PG&E customer usage data broken down by climate zone, which demonstrated that CARE customers in Central Valley climate zones had the lowest Tier 5 energy usage, especially in relation to the Tier 5 usage of non-CARE customers.[24] Thus, low-income customers in the Central Valley are the most conservationist in their energy usage.  Thus, the excessive upper tier energy usage highlighted by the APD could be avoided by customers, even in the hot Central Valley.  Instead the PD/APD proposes rate changes to aid excessive energy usage, by raising rates on the most conservationist energy usage.  This is bad public policy, and should not be pursued.

  1. B. Excessive Energy Users Have Already Received Drastic Rate Reductions.

Customers with excessive usage in the upper tier have already enjoyed numerous rate reductions.  In the summer of 2010 as a result of D.10-05-051, these customers received a rate reduction of almost 10 cents per kWh for their excessive usage above 300% of the baseline, as well as a rate reduction of approximately 2.5 cents per kWh for usage between 200% and 300% of baseline.[25] Thus, for the customer in the example provided by the APD, the July bill would be reduced by $64.00 just from the rate reductions ordered by D.10-05-051.  This customer received additional rate reductions (and can receive further rate reductions annually in the future) as a result of the increase in non-CARE Tier 1 and 2 rates and the potential increase in CARE rates allowed by SB 695.[26] However, the PD/APD posits that all this is still not enough rate relief.

The rate for usage above 300% of baseline has already been reduced from $0.49778 to $0.38978.  The APD would have this rate further slashed to $0.30337[27], the PD to $0.32547 (neither take into account the proposed 2013 CARE rate increase, which would further reduce the upper tier rate).[28] However, the PD/APD provides absolutely no evidence that further rate reductions are necessary for customers with excessive energy usage.  Rather, the PD/APD relies mainly on the unsubstantiated principle that rates should be brought closer to the cost of service.  The PD/APD commits factual error in failing to adequately support the need for the rate changes.

The Commission should not burden already vulnerable CARE and basic energy needs customers with multiple rate increases, if there is not an urgent need for rate relief elsewhere.  If the PD/APD proposes that rate relief for customers with excessive usage is a justification for the rate changes, then the proposed decisions must substantiate the need for such rate relief.

IV. The Customer Charge Would Be a Regressive Rate Change Disproportionately Impacting CARE and Basic Energy Needs Customers.

The Commission should reject the APD and adopt, for the most part, the PD’s treatment of the customer charge.  The customer charge approved by the APD would violate a number of controlling statutes and Commission decisions, as authoritatively demonstrated by TURN its Motion to Strike the Portion of the Application Proposing a Residential Customer Charge (filed on June 16, 2010) and its Reply to Responses to the Motion to Strike (filed on July 23, 2010).  Rather than duplicating these legal arguments, Greenlining notes its full agreement.  Greenlining will instead focus on substantive arguments against the customer charge.

The APD commits factual error when it states that the proposed customer charge is substantively sound.[29] The APD cites little to support the substantive need for this rate change, other than “providing some progress toward a more equitable cost-based rate structure.”[30] This is not a valid basis for instituting a rate change.  This is especially true for a rate change that negatively impacts all CARE and basic energy needs customers, despite their best efforts to avoid the increase by adjusting their energy usage.

The APD states that the “magnitude of PG&E’s proposed customer charge is modest” but measures this modesty in relation to the total fixed costs incurred in servicing a customer account.[31] However, a $3.00 or $2.40 monthly charge is not modest in its impact on vulnerable customers who seek the lowest energy bills by limiting their energy usage.  For a CARE customer in climate zone T using 100% of the baseline amount, the $2.40 charge would represent an increase greater than 10% of their monthly bill.[32] For a non-CARE customer in climate zone T using 100% of the baseline amount, the $3.00 charge would be almost a 10% increase in their monthly bill.[33]

These are significant rate increases, especially considering that they will be imposed on all CARE customers and all basic energy needs customers.  As demonstrated above, roughly one in ten CARE customers is in deep arrearage on their bills.  Piling on an additional charge will only exacerbate the situation.  Thus, the APD commits factual error when it states that the magnitude of the proposed customer charge is modest.

  1. A. The Customer Charge Removes Incentive to Conserve Energy, Especially for Excessive Energy Users.

The APD claims that adopting the customer charge “will not dampen the incentive for customers to be energy efficient.”[34] However, there is no evidence to support this view and this statement is factual error.  Even PG&E’s testimony disagrees with the APD’s statement: “For example, the customer charge, by reducing rates for non-CARE upper-tier consumption, would provide an incentive for those households to consume more.”[35]

Thus, the proposed customer charge is undesirable in light of the incentive it would provide for customers to use excessive amounts of energy.  Customers with usage equal to 400% of baseline would see a monthly bill decrease of $13.00 to $23.00, depending on climate zone.[36] Those customers with the most excessive energy usage would derive the greatest benefit from this proposal.  For example, within Kern County, almost 14% of the bill reductions would accrue to only 0.8 % of residential customers.[37]

These savings would only be possible by the unavoidable increase in the bills of low-end energy users.  While it may be true that customers with excessive energy use currently pay extremely high bills, they at least have a measure of choice in addressing these high bills.  If they were to reduce their usage through energy efficiency or other behavior changes, they could achieve the same or better savings as those that would result from the customer charge proposal, without a drastic adverse impact on low-end users.  Because it burdens a large number of conservationist users in order to benefit a small number of excessive users, the APD’s approval of the customer charge is bad public policy and the Commission must reject it.

V.  California Law Requires that CARE Rates Remain Affordable; Multiple Bill Increases on CARE Moderate Energy Users Is Contrary to Law.

As discussed in Section II above, the legislature has charged the Commission with the responsibility to ensure that CARE customers are not overburdened by monthly energy supplies.[38] While an 80% discount from non-CARE rates is the upper threshold, the legislature further charges the Commission with “ensur[ing] that “the level of [CARE] discount correctly reflects the level of need.”[39] Thus, the mere fact that even with the proposed CARE Tier 3 rate, CARE rates remain comfortably below 80% of non-CARE rates is not conclusive as to whether the CARE discount meets the level of need.[40]

With hundreds of thousands of PG&E CARE customers in arrears and thousands being disconnected every month, the current CARE discount may very well be inadequate to address the level of need.  While the PD/APD recognizes the importance of minimizing service disconnections, it does nothing to address the elevated levels of arrearages and disconnections which were clearly demonstrated in testimony.[41] The PD/APD’s failure to properly consider the evidence on arrearages and disconnections is factual error.

The legislature also provides that a low income needs assessment should be conducted periodically, in order to guide the Commission in designing low-income programs, including the CARE program.[42] However, the PD/APD completely ignores the most recent low-income needs assessment in discussing the proposals.  This is an error of law.

  1. A. PG&E’s Low-Income Customers Have the Highest Levels of Energy Insecurity of all the California Large IOUs.

Aside from the cost of service principle, the only support the PD/APD cite to justify the CARE Tier 3 rate increase is the fact that PG&E’s Tier 3 rate will still be below the comparable rates of SCE and SDG&E.[43] However, nominal rate levels are not a relevant comparison – thus the PD/APD commits factual error.  Rather, the total bill and the burden it places on low-income customers is a more appropriate comparison.  The most recent low-income needs assessment commissioned by the Commission (“the KEMA Report”) – which the legislature charges the Commission to reference as guidance – makes such a total bill comparison.

The KEMA Report surveyed low-income customers to determine a measure of “energy insecurity.” [44] Of the four large IOUs, PG&E had the highest percentage of low-income customers determined to be either “Vulnerable” or “In Crisis” in regards to energy insecurity. [45] The results from the KEMA Report are reproduced in Table 1 below.[46]

Table 1: Energy Insecurity Results by Utility

Percent of Low-Income Households Insecure (“Vulnerable” or “In Crisis”)

76% 57% 63% 53% 68%

The KEMA Report was published in 2007, based on data gathered the previous year.  Since that time, the economy in California has fallen into economic crisis, making matters much worse for low-income populations.  Thus the energy insecurity results from the KEMA report are reflected in even starker terms by the more recent disconnection data.

Thus, even though other IOUs in California already have a CARE Tier 3 rate, PG&E’s rates for low-income customers are currently more burdensome, as demonstrated by the most recent low-income needs assessment.  Multiple rate increases on these customers, as proposed by the PD/APD, would push PG&E CARE customers to even higher levels of energy insecurity, with higher rates of arrearages and disconnections.

  1. B. CARE Customers Do Not Need Added Incentive to Conserve Energy.

The PD/APD states that the CARE Tier 3 rate “provides a useful incentive to encourage more efficient energy usage among CARE customers.”[47] This statement is factually incorrect and unsound support for the proposed measure.  The PD/APD makes this conclusion even though it recognizes that the data on CARE usage provided by PG&E was likely to be invalid because a small group of outlier CARE customers skew the data, such that only 0.45% of the CARE population accounted for more than one third of the Tier 5 CARE usage.[48]

In fact, if the excessive energy users – many of whom are likely not even eligible for the CARE program[49] – are removed as in Table 2 below, CARE customers are extremely conservationist, as demonstrated by their sparse usage in the upper tiers.[50]

Table 2: Average annual usage in 2009 in Tier 5; when CARE outliers are removed;

CARE customers Non-CARE customers CARE usage/ Non-CARE usage
Usage including outliers 255 kWh 336 kWh 47.9%
CARE outliers removed 60 kWh 336 kWh 17.9%

Thus, legitimate CARE usage in Tier 5 is less than one-fifth that of non-CARE customers.  CARE customers do not need additional incentives to conserve, especially if the incentive comes from severe rate increases as those proposed here.  CARE customers already avoid upper tier usage, despite the fact that they typically have larger households (3.5 members for CARE households, compared to 2.92 members for non-CARE households).[51]

The PD/APD cites evidence from PG&E allegedly demonstrating that CARE customers could save, on average 160 kWh per year through energy efficiency.[52] However, this data is likely to be invalid if, as the PD/APD points out immediately above, it does not account for the outlier CARE customers who severely skew the data.  In any case, Greenlining supports efforts to provide energy efficiency measures to CARE customers.  Such measures would have greater conservation effects than increases in CARE rates, as energy usage by CARE customers (once the illegitimate usage by CARE outliers is removed) is largely essential, unavoidable usage.

As usage data shows, CARE customers are very conservationist by nature, especially in terms of avoiding the highest levels of usage, Tiers 4 and 5.  However, many CARE customers find it difficult to avoid usage between 130% and 200% of baseline, which we will define as “moderate energy usage”.[53] For example, CARE customers with large households and energy-inefficient homes might unavoidably consume energy up to 200% of the baseline amount.  Such a customer would see their 2013 monthly bills increase ranging from $8.00 to $18.50, depending on their climate zone.  Such drastic bill increases for CARE households struggling to pay their bills are untenable, especially if they are combined with additional bill increases from the baseline quantity reduction (and the $2.40 bill increase from the proposed customer charge).

  1. C. CARE Customers in the Central Valley, the Least Able to Absorb Bill Increases, Would See the Biggest Increases from the CARE Tier 3 Rate.

If the Commission approves the CARE Tier 3 rate proposal, all CARE customers in PG&E’s service territory with moderate energy usage would see a bill increase.  However, the bill impact would be greatest on CARE customers in the hot climate zones in the Central Valley, especially during the summer months.

For example, a CARE customer in the coastal climate zone T who used 200% of the baseline quantity in a 30 day summer month would see their 2013 monthly bill increase by $7.92 as a direct result of the multiple CARE Tier 3 increases.[54] By comparison, a CARE customer in the Central Valley climate zone W who used 200% of the baseline quantity in a 31 day summer month would see their 2013 monthly bill increase of $18.52 as a direct result of this proposal.[55] Thus, the summer bill impact for the CARE moderate energy user would be more than twice as much in the Central Valley climate zone W as in climate zone T.[56]

Unfortunately, Central Valley low-income customers are among the least able to absorb bill increases, as they already suffer from a very high level of energy insecurity, much higher than the California average.  The KEMA Report demonstrated that “low income households living in the North Coast and Central Valley [] climate regions are among the most energy insecure.”[57] The data on energy security by climate region from the KEMA Report is reproduced in Table 3 below.[58]

Table 3: Energy Insecurity Results by Climate Region

Percent of Low Income Households Insecure (“Vulnerable” or “In Crisis”)

California Central Valley Desert Mountain North Coast South Coast South Inland
66% 76% 74% 62% 78% 53% 60%

Thus, despite the fact that Central Valley CARE customers are the most conservationist customers, they are also the customers who are least able to absorb multiple rate increases and are precisely those who would suffer the largest bill impacts from PG&E’s rate proposals.  This amplified punishment of the most conservationist and most vulnerable customers is just another undesirable result of the PD/APD’s multiple rate increases on CARE customers.

VI. Multiple Rate Increases Will Overburden Vulnerable CARE Customers.

As demonstrated above, CARE customers, especially in the Central Valley, are already overburdened by their rates.  However, the PD proposes multiple increases – including 1) the baseline allowance adjustment; 2) the 2011 CARE Tier 3 introduction; and 3) the 2013 CARE Tier 3 rate increase – that will only add to CARE customers’ burden.

The baseline allowance adjustment constitutes a rate increase on the majority of CARE customers, but it does not have a large impact, so that this change by itself might not overburden CARE customers beyond what is precluded by law.  However, when multiple rate increases are added onto CARE customers, they will clearly be overburdened.

The Commission should reject the APD and modify the PD to eliminate the introduction of the CARE Tier 3 rate.  Alternatively, the Commission should find that the cumulative impact of the baseline allowance adjustment, the 2011 CARE Tier 3 rate increase and the 2013 CARE Tier 3 rate increase is excessive, and eliminate approval of the 2013 CARE Tier 3 rate increase.[59] There are better means of achieving great reductions in the CARE subsidy without overburdening legitimate CARE customers.

  1. Great Reductions in the CARE Subsidy Could Be Achieved By Focusing on Excessive CARE Energy Users.

PG&E supported the need for CARE rate increases by pointing out that a sub-group of exceptionally high energy users, who represent just over one percent of total CARE customers, received $92 million (14%) of the total annual CARE subsidy of $660 million.[60] As it is likely that many if not most of these exceptionally high energy users are not legitimately CARE eligible and are misusing the CARE discount for commercial activities,[61] Greenlining recommends, and most parties in this proceeding would likely agree, that great reductions to the CARE subsidy (and thus reductions to non-CARE rates) could be achieved by directly addressing these customers.  Addressing these illegitimate customers is especially important considering that their energy usage has been rapidly increasing in recent years, as shown by PG&E usage data.[62]

Greenlining urges modification of the PD to eliminate the 2013 CARE Tier 3 rate increase.  Rather than punishing hundreds of thousands of CARE households with moderate energy usage, the Commission and PG&E could use the intervening two years to affect even greater reductions in the CARE subsidy by eliminating customers with illegitimate, excessive usage from the CARE program.  Rather than overburdening CARE customers with an additional increase in 2013, after the multiple increases in 2011, the Commission should take this route.

VII. Conclusion

Roughly one in ten of PG&E’s CARE customers are deeply in arrears.  The disconnection rate for PG&E’s CARE customers is twice that for non-CARE customers.  In response to this, the PD/APD proposes multiple rate increases disproportionately impacting CARE customers.  This will counteract the Commission’s earlier orders to address the high disconnection rate of PG&E’s CARE customers as well as statutes requiring that the CARE discount reflect the level of need.

The PD/APD’s main support for the proposed rate increases is “the direction that [the] Commission has been pursuing in attempting to bring high-usage tiers more into line with cost of service.”  There is no statutory support for this principle, and it becomes even more ill-conceived when paired with evidence of the human impact of these changes.

It would be incredibly poor public policy to order multiple rate increases on vulnerable customers in order to bring rate reductions for excessive usage related to large homes, swimming pools, and other luxuries.  The Commission cannot approve multiple rate increases that would so deeply impact low income customers and so significantly compromise statewide conservation, efficiency, and renewable energy efforts.

Respectfully submitted,                                              Dated:  April 25, 2011

/s/ Stephanie C. Chen /s/ Enrique Gallardo

Stephanie C. Chen                                                      Enrique Gallardo

Senior Legal Counsel                                                  Legal Counsel

The Greenlining Institute                                            The Greenlining Institute