Proposal: PG&E Customers Covering Much of Pipeline-Overhaul Cost

Will PG&E turn tragedy into profits?

California regulators proposed Friday that PG&E Corp.’s (PCG) customers make a $278 million down-payment on pipeline safety improvements for which they ultimately could pay more than $1 billion.

The proposal, issued by a judge at the California Public Utilities Commission, would have customers pay about half the total cost of a pipeline system overhaul that PG&E has estimated will cost $2.2 billion.

The CPUC ordered the safety overhaul after a PG&E natural-gas pipeline in San Bruno, Calif., exploded in September 2010. The explosion caused a fire that killed eight people, injured 58 others, and damaged or destroyed more than 100 homes.

Federal and state investigators blamed PG&E for the pipeline explosion, pointing to defects in the aging pipeline that ruptured and to inadequate attention paid by the utility to safety as contributing factors.

State investigators have accused PG&E of violating numerous federal and state-pipeline safety rules in the years before the explosion. The CPUC launched three cases in connection with the alleged violations that officials said would result in fines and possibly other penalties for the company.

PG&E, investigators and other parties to those cases started a fresh round of negotiations Friday in hopes of reaching a settlement on the allegations, according to PG&E and an attorney for the investigators.

In a separate case, the commission required PG&E to ensure it is meeting federal and state pipeline safety requirements, by locating missing pipeline records, testing aging pipelines for which the utility has lost records, and replacing sections of pipe that are not sound. The commission also has ordered PG&E to install automatic shutoff valves for sections of pipe, so the flow of gas can be stopped quickly in the event of another rupture.

Under Friday’s proposed decision, PG&E could collect $278 million from customers over the next two years, then collect nearly $1 billion more over several decades to help pay for pipeline system improvements.

The proposal would cut the rate of return that PG&E could collect on its pipeline safety work, from the 11.35% rate the company usually collects for utility projects, to 6.05% for five years. After five years, the higher rate would kick in.

PG&E had proposed that customers pay 90% of the $2.2 billion project costs, including an initial $769 million through 2014.

PG&E was “disappointed” that the proposal would “partially fund the critical work needed,” Tom Bottorff, a PG&E senior vice president, said in a statement.

Consumer advocates, who had argued that PG&E should pay the entire cost of the project, also expressed disappointment.

“This proposed decision fails to hold PG&E accountable for the huge costs to fix a system that the company fundamentally mismanaged,” said Thomas Long, an attorney with the Utility Reform Network.

San Bruno City Manager Connie Jackson said PG&E customers shouldn’t have to pay any costs associated with the San Bruno disaster.

“Customers should not have to pay for anything that is remedial,” Ms. Jackson said.

PG&E asked that customers pay the utility’s costs of hunting down pipeline testing records and other documentation it had lost and government officials have said are crucial for safely operating a gas pipeline system. But the judge proposed the utility pay the costs of locating records it should have retained and for testing sections of pipe the company may have tested in the past but for which it does not have records.

The proposal would allow PG&E to bill customers for testing and replacing aging pipeline, and installing automatic shut-off valves.