Pacific Gas and Electric Co. (PG&E) has found itself in the cross-hairs for statewide criticism regarding a $2.2 billion long-term plan to upgrade its natural gas pipeline system in California.
State Assemblyman Jerry Hill, who represents an area that includes San Bruno, CA, 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 absorb the costs of the utility’s mistakes leading up to the deadly San Bruno explosion.
PG&E vehemently denied that ratepayers are slated to pay for most of the costs. It said any pipeline work needed to bring gas operations up to existing safety requirements had been and would 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 maintained that “the vast majority of the pipeline work going forward” would be aimed at meeting entirely new standards — not correcting past mistakes — so 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% 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.
PG&E countered that as improvements are made in existing infrastructure to meet more stringent safety and performance standards, customers would “see tangible new value” from the added investment, and the utility should have the chance to recover such investments in the years ahead.
Two CPUC members last week said they were forming a partnership approach to oversee two remaining gas pipeline safety proceedings regarding the aftermath of the pipeline explosion in San Bruno. At issue is the state’s Bagley-Keene Open Meeting law, which forbids discussions among a majority of the five-member CPUC when major proceedings are ongoing, as is the case for PG&E. The same restriction applies to discussions with any of the parties in the case.
However, Peevey and Commissioner Mike Florio said they could avoid issues with the open meeting law by creating a “partnership” on given proceedings — in this case the proceeding to set new pipeline safety/reliability rules and a second proceeding dealing with penalty considerations for PG&E’s pipeline system. “This means they can confer freely [with one another] without running afoul of the Bagley-Keene law,” said a CPUC spokesperson. Florio is the assigned commissioner on one of the cases, and Peevey is overseeing the second case.
In related news, PG&E last week filed an appeal to the $16.8 million regulatory fine assessed late last month by CPUC’s Consumer Protection and Safety Division (CPSD). PG&E argued 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 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 CPSD staff simply “overcounted” the number of violations that PG&E brought to the commission’s attention, the utility said. “The commission should reduce the penalty to an appropriate amount.”
“To receive a penalty this extreme for being open, transparent and accountable is disappointing,” said PG&E Executive Vice President for Gas Operations Nick Stavropoulos. PG&E had taken “immediate and comprehensive action” following its reporting of the violations. “We were surprised by the action taken by the CPSD as we have demonstrated repeatedly our commitment to safety, and that commitment is unwavering.”
The precedent-setting fine was the second levied against PG&E in the past two months. California regulators in December handed out the biggest penalty ever for a gas utility, increasing an earlier penalty to $38 million for a fatal distribution pipeline failure and explosion in Rancho Cordova, CA, on Christmas Eve 2008.
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