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California OKs PG&E Pipe Plan

California regulators last week approved a three-year natural gas pipeline enhanced safety plan for Pacific Gas and Electric Co. (PG&E), but they denied ratepayer support for most of the cost of the utility's proposal. Separately, the California Public Utility Commission (CPUC) adopted new protections for safety-related whistleblowers as directed by a new state law (AB 705).

Last week PG&E senior executives reiterated that the utility's natural gas pipeline system is safer than it was in September 2010 following the explosion in San Bruno, CA, which killed eight people and injured scores. PG&E has spent more than $1 billion in pipeline testing, upgrades and maintenance works since then, said Jesus Soto, senior vice president for transmission operations. It has proposed to spend $2.2 billion through 2014 to upgrade the pipe system's integrity.

"Everything we are doing, everyday is quantitatively reducing risk on the system," said Soto. PG&E is "laser-focused on enhancing the overall safety."

Last Thursday, executives said the CPUC's unanimous action confirmed that PG&E "is on the right path forward," but they regretted that more of the massive utility pipeline costs could not be supported by utility customers. Utility consumer group The Utility Reform Network (TURN) praised the small rate increases but said PG&E ultimately "will profit" from San Bruno.

Three pending penalty phase proceedings continue at the CPUC that could result in hundreds of millions of dollars in penalties for the utility (see NGI, June 4). The CPUC granted $299 million in increased rates through 2014 to pay for some of the plan, compared with the $768 million sought by PG&E. The utility has said it needed "reasonable cost recovery" for the requirements in place, but commissioners didn't agree (see NGI, Dec. 17).

PG&E Executive Vice President Nick Stavropoulos said there is "no doubt that we have much greater confidence in our ability to operate our pipelines safely. They have been inspected by what is call the 'gold standard' [by federal regulators] of pipeline testing -- hydrostatic tests. That is what all pipeline operators are being asked to do, and we're going back and doing that. All the pipe we're replacing, we're doing the same thing to."

All of the work is aimed at preventing another tragedy, Stavropoulos said. "And what we have gone after this year is all the pipe that was next in the pecking order [of risk]. So we feel absolutely confident that we have reduced the risk profile of our pipeline system, although you can never guarantee it 100% because there are so many potential risks that you're guarding against."

CPUC approved 39% of what PG&E had requested, resulting in about a 1.5% rate increase for its residential customers. PG&E shareholders bear the risk of cost overruns "because past management decisions led to the need to undertake this massive project on an expedited schedule," said a CPUC spokesperson. "Additionally, PG&E shareholders will bear the costs of pressure testing pipelines for which pressure test records are missing. PG&E is required to continue its record management improvement project; however, due to past deficiencies in document management, the costs of this project and its computer database may not be recovered from ratepayers."

PG&E utility President Chris Johns said the utility "has made and will continue to make significant investments to fund critically important infrastructure upgrades to its network of gas transmission pipelines." Johns said the utility will continue to forge ahead with its overall plan, which originally carried a $2.2 billion price tag through 2014.

However, TURN criticized a "last-minute, back-room deal" between the utility and regulators. "The decision does not resolve all the pipeline safety issues exposed by the San Bruno explosion and resultant investigations," a spokesperson said. "PG&E is expected back at the trough in the near future."

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