The California Public Utilities Commission (CPUC) has issued a proposed decision that would authorize a pipeline safety enhancement plan proposed by Pacific Gas and Electric Co. (PG&E) and require PG&E to absorb about two-thirds of the cost.

PG&E had requested $768.7 million in rate increases through 2014 to cover the initial costs of the plan. The proposed decision allows only $277.8 million, or 36%, of the requested amount over that period due to “PG&E’s past imprudent management,” the CPUC said.

“…[T]he record shows evidence that, at one time, PG&E had the corporate ability and focus to go beyond nominal regulatory compliance to propose and create a long-term engineering-based safety program for the commission’s consideration,” the proposed decision reads. “The current challenge to PG&E, and this commission, is that attaining the goal of future decades of safe operations will require detailed, repetitive, and often seemingly unnecessary actions, which are likely to be expensive, with the overall goal of no significant incidents.

“Ensuring public safety requires that PG&E meet this commitment, and today’s decision lays the groundwork for this commission to oversee and supervise PG&E’s safety operations.”

This past summer, PG&E criticized a CPUC staff assessment of its pipeline safety practices, although it did not dispute its liability for the rupture and explosion of a pipeline in San Bruno, CA (see Daily GPI, July 2).

The plan includes pressure testing of 783 miles of pipeline; replacement of 186 miles of pipeline; installation of 228 automated valves; and upgrades to 199 miles of pipeline to allow for in-line inspections.

PG&E 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.

PG&E shareholders must bear the risk of cost overruns because PG&E’s past management decisions led to the need to undertake the project on an expedited schedule, the commission said. Shareholder return on equity for all safety enhancement capital expenditures would be reduced from 11.35% to 6.05% for five years if the proposed decision is adopted.

The proposed decision, authored by Administrative Law Judge Maribeth Bushey and titled “Decision Mandating Pipeline Safety Implementation Plan, Disallowing Costs, Imposing Earnings Limitations, Allocating Risk of Inefficient Construction Management to Shareholders, and Requiring On-Going Improvement in Safety Engineering,” is part of the CPUC proceeding to set new rules for the operation of natural gas pipelines in California.

“The proposed decision recognizes that this is only the beginning of a permanent change in operations, attitude, and perspective, for both PG&E and the CPUC. Institutionalizing the needed change will require permanent operational and functional changes,” the CPUC said.

The comment period on the proposed decision has been extended until Nov. 13. Reply comments are due by Nov. 26. The first opportunity commissioners will have to vote on the proposed decision is Dec. 20.

©Copyright 2012Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.