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PG&E: 'On Right Path' to Improve Pipelines

Pacific Gas and Electric Co. (PG&E) has made an impassioned plea to California state regulators that it is "on the right path" to improve pipeline safety and that its four-year upgrade and safety-strengthening plan should be supported for the most part by gas utility ratepayers.

In mid-October, a California Public Utilities Commission (CPUC) proposed decision called for authorizing the San Francisco-based combination utility's pipeline safety enhancement plan while requiring its shareholders to absorb about two-thirds of the cost (see NGI, Oct. 15). PG&E had requested $768.7 million in rate increases through 2014 to cover the initial costs. The proposed decision would allow only $277.8 million, or 36%, of the requested amount over that period due to "PG&E's past imprudent management," the CPUC administrative law judge concluded.

PG&E stressed that it strongly disagreed with "significant disallowances" when the proposed decision appears to strongly support the utility's plan for modernizing its extensive transmission and distribution pipeline network. In submitting its pipeline safety enhancement plan to the CPUC, PG&E believed that "every dollar of cost recovery requested was reasonable and that we had proposed a fair and equitable sharing of these costs by our shareholders," the utility told regulators. The latest filing also conceded nearly $180 million in disallowances in the proposed decision, and noted that it would accept some modification of another $930.6 million in the plan.

"Reductions in future returns on investments for needed safety investments will send the wrong message to investors and impact PG&E's ability to attract capital," PG&E stated. "Having found the automated valve, strength testing and pipeline replacement programs reasonable, the proposed decision denies cost recovery for these programs in 2012."

The plan includes pressure testing 783 miles of pipeline, replacing 186 miles of pipeline, installing 228 automated valves and upgrading 199 miles of pipeline. Shareholders would bear the costs of pressure testing pipeline for which pressure test records are missing. The utility must continue its gas pipeline record management improvement project; however, "due to past deficiencies in document management, the costs of the project and the proposed new computer database may not be recovered from ratepayers," the CPUC proposed decision said.

One area the proposed decision came down hard on was "contingency costs," but PG&E argued that they are essential and misunderstood in the proposed decision. "The proposed decision understanding of the purpose and intent of an estimate contingency is contrary to accepted industry estimating practices; all parties addressing the issue recognized the validity of including a contingency in estimates; and it incorrectly assumes PG&E's base cost estimates are 'generous.'"

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