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California Order: Test or Replace Gas Transmission Pipelines

California regulators Thursday with a 5-0 vote ordered operators of intrastate pipelines to test or replace all pipe segments that have not been pressure tested. The action came the same day an independent panel set up to review the San Bruno pipeline explosion issued a scathing report criticizing "numerous shortcomings" in pipe integrity management and operations at Pacific Gas and Electric Co. (PG&E).

Implementation plans for testing will be required from each major operator, including PG&E and Sempra Energy's two utilities in the southern half of the state. The five-member California Public Utilities Commission (CPUC) followed the recommendation of a regulatory judge. The judge's proposed decision was released in May (see Daily GPI, May 13).

Meanwhile, the independent review panel's examination of the San Bruno disaster, concludes that the pipeline rupture was "a consequence of multiple weaknesses in PG&E's management and oversight of the safety of its gas transmission system," and that the CPUC "did not have the resources to monitor PG&E's performance in pipeline integrity management adequately or the organizational focus that would have elevated concerns about PG&E's performance in a meaningful way."

The report of the panel, set up by the CPUC within weeks of the explosion last fall (see Daily GPI, Sept. 27, 2010), said it believes third-party construction activity could have played a key role in transforming a fabrication flaw in the pipeline from a "stable" to an "unstable" threat, ultimately triggering the incident. Thursday's report follows the panel's interim report last February (see Daily GPI, Feb. 11).

The report cited "numerous shortcomings in PG&E's pipeline integrity management program, including a lack of management focus on how system integrity would be managed; the lack of an overarching effort to centralize diffuse sources of data; not taking programmatic actions to prevent or mitigate threats; not embracing the spirit of pipeline integrity regulations; lack of organizational effectiveness, including no clear divisions of responsibility between gas transmission and gas distribution functions; poor resource allocation; lack of a quality assurance program; and lack of a strategic plan to improve the integrity of its gas transmission system," the CPUC said.

The panel said it believes some form of separation of PG&E's gas business from its electric business is needed in order to sharpen the company's focus on the gas business, and it said it would have recommended that PG&E create a top leadership position for its gas business had the company not announced such an action during the period of the investigation. The panel also reviewed PG&E's Pipeline 2020 program, which the company announced following the pipeline rupture, and "did not find it to be well reasoned or based on a thoughtful examination of alternatives."

The report discusses issues that it says contribute to a dysfunctional company culture at PG&E, including excessive levels of management, inconsistent presence of subject matter expertise in the management ranks, appearance-led strategy-setting, an insular mindset and an overemphasis on financial performance.

Turning to the CPUC, the report notes several operational challenges within the CPUC's safety program, including a need for more engineers with U.S. Department of Transportation Pipeline and Hazardous Materials Safety Administration integrity management training; a need for staff work to be supported by a core set of highly qualified independent consultants with specialized expertise in gas integrity management; the challenges in ability to hire; an enforcement regime that lacks staff authority to fine large operators; and California laws mandating that extensive staff resources be devoted to inspections of mobile home parks and propane systems.

The report also notes areas where the CPUC's culture serves as an impediment to effective regulation, including challenges to keeping up with changing technology and regulations and moving to a regulatory model based on performance and effectiveness; the need for a renewal of commitment to the CPUC's mission and a re-examination of agency priorities; and specializations and silos that limit creative thinking.

During the presentation of the San Bruno report to the CPUC, review panelists cautioned against relying exclusively on hydrostatic testing of pipelines and emphasized the importance of ongoing record-keeping for pipeline assets. Hydrostatic or pressure testing by itself only reveals insight into the integrity of the line portion tested, said panelist Karl S. Pister, chair of the California Council on Science and Technology. However, testing results reviewed in concert with data on pipeline history, including metallurgy, reveals much more: information from which inferences can be drawn, he said.

Panelist Paula Rosput Reynolds, CEO of PreferWest LLC and former CEO of AGL Resources, began her presentation to the CPUC with a discussion of the history of pipelines and how early pipeliners knew that they had to know what they were putting in the ground and where.

"From the very beginning, pipeliners understood this is a lifecycle management process and that over time you have to be keeping track of all of the information that's associated with these lines because that's the way you ensure that the margin of safety you put into the line in the first place is maintained over time," she said.

Under the CPUC order hammered out by Administrative Law Judge Maribeth Bushey, PG&E, Las Vegas-based Southwest Gas Corp., and Sempra utilities Southern California Gas Co. (SoCalGas) and San Diego Gas and Electric Co. (SDG&E) are allowed to file rate proposals for recovering the estimated costs of the testing programs and to outline timelines for completing the work, which could take years.

In the interim, the CPUC order called for PG&E to continue work to determine maximum allowable operating pressure (MAOP) through pipeline features analysis. It is expected to use the results from that work to impose further pressure reductions as necessary pending pipe replacement or testing. Pressure reductions on a number of existing PG&E pipelines have been a point of contention for months.

Within the state's gas utility sector there has been significant anticipation attached to Thursday's proceeding as part of the CPUC's and federal government's response to the San Bruno rupture and explosion. In particular, PG&E has been scrambling all year to address federal, state and local community concerns, and the effort eroded the company's first quarter earnings results (see Daily GPI, May 5). In addition, the utility is still facing fines from the CPUC.

Thursday's action drew heavily on federal recommendations that came in the form of a preliminary assessment from the National Transportation Safety Board (NTSB) on Jan. 3. Although it has not made a final determination on the San Bruno explosion's causes, NTSB made two specific recommendations aimed at PG&E with the CPUC and federal Pipeline and Hazardous Materials Safety Administration (PHMSA) overseeing the utility's compliance:

The implementation plans are to ensure that all in-service gas transmission pipelines operating in the state have been pressure tested to meet state standards. "[These] implementation plans shall be completed as soon as practicable due to significant public safety concerns and must include interim safety enhancement measures as described," the CPUC said.

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