As it filed an appeal to a $16.8 million regulatory fine assessed last month, Pacific Gas and Electric Co. (PG&E) found itself Wednesday in the cross-hairs of a state legislator’s criticism and facing skeptical reactions from consumers and regulators alike regarding its $2.2 billion long-term plan to upgrade its natural gas pipeline system.

The appeal was in response to a Jan. 27 fine levied by the California Public Utilities Commission’s (CPUC) consumer safety unit (see Daily GPI, Jan. 31). PG&E was given 10 days to pay the fine with shareholder dollars or file a notice of appeal, following the action by the newly empowered Consumer Protection and Safety Division (CPSD) regarding the utility’s self-reported missing leak surveys.

PG&E said it briefed the CPSD staff on the issue, which was first reported at the end of last year, and the fact that it has located 46 additional maps that had not been included in the leak surveys previously.

State Assemblyman Jerry Hill, who represents an area that includes the San Bruno transmission pipeline rupture and explosion, showed up at the CPUC business meeting Wednesday to challenge PG&E’s proposed multi-billion-dollar Pipeline Safety Enhancement Plan and to urge CPUC President Michael Peevey to give up his lead role in the ongoing penalty proceeding because he is “too close” to the utility.

By Hill’s estimates, the true cost of the PG&E pipeline plan pending at the CPUC is more than $5 billion over 50 years. The lawmaker also alleged that the combination utility’s plan tries to push most of the cost of the program — all but $200 million in 2011 costs — onto its customers, rather than having shareholders eat the costs of the utility’s mistakes leading up to the San Bruno explosion.

PG&E vehemently denies that ratepayers are slated to pay for most of the costs, saying that any pipeline work needed to bring gas operations up to existing safety requirements has been, and will continue to be, paid by utility shareholders. “PG&E’s past gas operations practices weren’t what they should have been [and] the company has admitted these shortcomings,” a PG&E spokesperson said.

But PG&E also maintains that “the vast majority of the pipeline work going forward” will be aimed at meeting entirely new standards — not correcting past mistakes — so it contends that those expenditures should properly be included in rates. “[The upgrade plan] is about meeting entirely new standards being established by the CPUC,” the utility said.

Hill, however, calculated the amount of the proposed $2.2 billion plan that would be for capital expenditures on which PG&E is entitled to earn a profit and/or recover the interest costs in rates. The legislator said this amounts to $1.4 billion, and when debt charges of 6% and a return on equity of 11.35% on all of the capital items is factored in, the total cost exceeds $5 billion. He said this did not include the costs of a second phase for which the utility has not made any cost estimates.

“I ask that the commission consider the true cost of PG&E’s plan, as well as the return shareholders can expect to receive under it, when considering what constitutes a fair sharing of costs between ratepayers and the utility,” Hill said in a letter to CPUC Commissioner Mike Florio, who shares the lead commissioner role with Peevey on the pipeline cases.

PG&E counters that as improvements are made in existing infrastructure to meet more stringent safety and performance standards, customers will “see tangible new value” from the added investment, and the utility should have the chance to recover such investments in the years ahead.

In the penalty appeal PG&E argues for no fine, or at most a penalty of $420,000, since the utility itself brought the errors to the CPUC’s attention. The $16.8 million fine is way out of proportion, was based on “erroneous calculations” of “violations” and undermines the regulators’ desire to encourage more self-reporting of violations, PG&E said.

The fine is excessive because the CPSD staff simply “overcounted” the number of violations that PG&E brought to the regulatory commission’s attention, the utility said. “The commission should reduce the penalty to an appropriate amount.”

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