Pacific Gas and Electric Co.’s (PG&E) four-year, $2.2 billion plan to boost the safety and maintenance of its natural gas pipeline system is being more aggressively defended by executives, who called Tuesday for California regulators and major gas utility pipeline operators to work more cooperatively to implement a comprehensive upgrade to the intrastate gas pipeline network.

As an outgrowth of the San Bruno, CA, explosion in September 2010, PG&E’s Pipeline Safety Enhancement Plan (PSEP) and a similar $3.2 billion blueprint from Sempra Energy’s two California gas utilities are part of an ongoing proceeding at the California Public Utilities Commission (CPUC).

PG&E officials claim that the major consumer groups and others want all of the safety upgrade work done, but they don’t want utility ratepayers paying for it. PG&E argued that this is inconsistent with the CPUC’s objective of having the ongoing utility ratemaking process “put proper focus on and encourage safety investments.”

“It is time for the CPUC and parties in this proceeding to work with us on a ratemaking framework that aligns safety and ratemaking and gives PG&E the opportunity to build a 21st century gas system for the citizens of California,” said Executive Vice President Nick Stavropoulos, who runs gas operations.

Stavropoulos and Tom Bottorff, senior vice president for regulatory relations, filed joint testimony in which they alleged that state regulators have put all the pressure on PG&E in the pipeline safety planning proceeding, effectively allowing the Sempra utilities wait until the proceeding is finished this year.

“PG&E has spent close to $300 million [for its safety plan] activities in 2011,” the executives stated. “We will spend more than $600 million in 2012.” In contrast, Sempra officials indicated that their utilities would spend much less.

PG&E officials said the utility has begun aggressively updating pre-1970 pipelines, unlike the state’s other gas utilities, whichhave yet to start that work. “[The Sempra utilities] will be permitted to wait until the commission rules on their ratemaking applications” for coverage in utility rates to support multi-billion-dollar plans, they claimed.

Bottorff also said the bulk of the utility’s $2.2 billion has to be supported in utility rates to address new safety rules. He also attempted to explain criticism that the plan actually costs close to $5 billion. The higher amount was estimated using the amortized cost of the pipeline plan, including the long-term interest paid on the financing to be completed by the end of 2014. Those charges are spread over 20- or 30-year periods.

“Our safety plan is forward-looking and tackles new standards adopted by the CPUC, such as the elimination of grandfathering [pre-1970] pipelines and the installation of new automated valves,” Bottorff said. “For that new work, PG&E is seeking recovery of costs in [utility] customers’ gas [rates]. “For PSEP work that was required under [previous] standards our shareholders will take full responsibility. The costs shareholders are shouldering for PSEP work and other utility operating costs will top $1 billion.”

The key for PG&E and the Sempra utilities is authorization from the CPUC to charge at least most of the proposed more than $5 billion in collective costs through 2014 to utility ratepayers.

On a conference call Tuesday to discuss quarterly and 2011 earnings Sempra CEO Debra Reed said she expects the CPUC to decide on part of the pipeline safety plan proceeding before the end of June. “Closing briefs are scheduled for October, so we would expect a [special ] account to be put in place before that time,” said Reed, who noted that the overall proceeding might not be finished before early 2013.

Sempra’s utilities don’t plan to do “a great amount” of the pipeline upgrade work this year (less than $100 million), said Reed. She said 2012 would be “more of a ramp up” and the bulk of the work to begin in 2013.

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