PG&E Gas Pipe Safety Plan, Cost Approved

By Published On: December 21, 2012

More than two years after the deadly gas blast in San Bruno, state regulators unanimously approved spending $299 million of ratepayer funds on Pacific Gas & Electric’s 2012-14 plan to pressure test, inspect, and replace or upgrade nearly 1,200 miles of natural gas pipeline, plus install automatic shutoff valves. The spending authorized by the California Public Utilities Commission Dec. 20 cuts by 72 percent PG&E’s requested rate revenue of $1.9 billion. The decision creates “central steps on a permanent safety journey for PG&E,” said commission member Mike Florio. “We at the commission also must make safety a part of our journey going forward,” he added. PG&E was disappointed. The approved revenue increase “fails to provide reasonable cost recovery for the new standards and requirements that were designed to deliver a much higher level of public safety for decades to come,” stated Chris Johns, utility president. An earlier version of the decision by administrative law judge Marianne Bushey would have cut nearly in half PG&E’s rate of return on equity for the safety investments for five years. The adopted decision does not touch the rate of return. Maintaining the return on equity “sends a clear signal to invest here in California,” said commission member Mark Ferron. He asserted the state is “perceived as investor unfriendly,” and that cutting the return would “increase costs to all ratepayers in the long run.” Consumer advocate The Utility Reform Network lamented that rate concessions it negotiated were tossed out in the final decision. The process was undermined by “a last-minute, back-room deal” allowing PG&E to “ultimately profit from the San Bruno explosion at customers’ expense,” according to the consumer group. Florio and other commissioners noted that PG&E still faces significant penalties for the September 2010 gas explosion in San Bruno that left eight people dead, injured many more, and destroyed more than three dozen homes. The decision notes the dangerous nature of natural gas transmission and distribution. “The dimensions of the threat to public safety from natural gas pipeline systems, including the pace at which death and life-altering injuries can occur, are far more extreme than other public utility systems,” according to the decision. An independent review panel cited in the decision criticized the utility for “perpetual organizational instability” and pipeline safety deficiencies. The utility also lost points for holding onto approved ratepayer funds and not spending “its full authorized budget for gas pipeline improvements.” Shareholders and ratepayers are set to fund pressure testing of 783 miles of pipeline, replacing 186 miles of pipe, upgrading and inspecting another 199 miles, and installing 228 automated valves. The costs are allocated as follows: -PG&E shareholders are to bear the costs of pressure testing pipeline for which pressure test records are missing; -The utility is to continue its record management improvement project but cannot use ratepayer funds; and, -Shareholders are to bear the costs of re-testing pipeline installed between 1955 and 1961. The decision also does the following: -Includes a 1.25 percent escalation rate, in place of the 3.21 escalation rate sought by PG&E; -Directs PG&E to keep the Consumer Public Safety Division informed of all changes it proposes to make to its gas safety program and to obtain CPSD’s concurrence in any proposed change; -Allows revision of the 199 miles of gas pipeline set for inspection after maximum operating pressure testing; and -Sets a 65 year life for new pipelines. Also adopted by the commission were protections for gas safety whistleblowers as directed by state law AB 705. Gas utilities are to prominently post on and offline where employees can find information about whistleblower protections. In another safety related action, regulators decided against a San Diego Gas & Electric and SoCal Gas request to set up balancing accounts out of which costs incurred as a result of wildfires can be paid out and the money recovered from ratepayers. The commission’s decision on wildfire balancing accounts comes after a number of brush fires in Southern California--including major blazes in San Diego County in 2007 sparked by utility poles. Regulators unanimously turned down the plan due to concern that costs stemming from the 2007 fire could wind up being recovered from ratepayers without any reasonableness review. Instead of approving utilities’ plans, the commission essentially “kicked the can down the road,” as Florio described it, by keeping alive a memorandum account for those expenses that requires commission review before any cost recovery.

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