California Regulators Want to Make Safety Key to Setting Utility Rates

Should safety come before rate hikes?

Acknowledging they haven’t done enough to ensure companies such as PG&E operate safely, state regulators are considering major changes in the way they approve utility rate increases to reduce the chance of another catastrophe like the San Bruno natural gas explosion.

The ideas, which include having the California Public Utilities Commission’s safety experts involved in rate-setting proceedings, are due to be hashed out at a commission workshop Wednesday. The changes could wind up boosting customer bills, some consumer advocates fear, adding that just because a utility asks for more money to make safety improvements doesn’t mean the commission should automatically approve the request.

Advocates are particularly alarmed about PG&E’s recent plan to have its customers shoulder 90 percent of the $2.2 billion cost to improve its pipelines after the Sept. 9, 2010, San Bruno disaster, which killed eight people and destroyed 38 homes.

Billing ratepayers 90 percent “is way too high,” said Joe Como, acting director of the state PUC’s division of ratepayer advocates, which argues at the commission on behalf of utility customers to keep gas and electric rates low. “That has no basis in reality.”

In the past, whenever proposed rate increases were debated by the commission and other concerned groups, the potential dangers lurking in utility company gas pipes and electrical gear tended to get little attention.

A report in June by an expert panel that examined the San Bruno explosion concluded that those involved in setting rates “were only casually familiar with PG&E’s safety programs” and “none had devoted resources to determining whether PG&E’s proposed programs were appropriate.” Commission officials also acknowledged in a regulatory filing last month that their own safety staff “has not traditionally participated in rate-making processes.”

Moreover, a week after the San Bruno accident, PG&E came under fire over revelations that it had put off making pipeline repairs for which it already had received millions of dollars in rate money. PG&E said it had decided after getting the money that the fixes weren’t urgent. Critics claimed the disclosure showed regulators needed to keep closer tabs on PG&E.

“I’m frankly quite shocked” at how little auditing the commission does, Como said. Noting that he might have to quadruple his auditing staff to systematically monitor how well companies spend ratepayer money—particularly on safety—Como added, “we probably need upward of a dozen people. I think we have three.”

Under the new rules the state agency is considering for reviewing proposed rate hikes, utility companies would have to detail potential dangers in their operations, explain how safety fits into their goals and provide independent audits of their system weaknesses. Commission safety experts also would be involved in rate-making decisions, and the commission would emphasize tracking how utilities spend ratepayer money.

In response, PG&E spokesman Jonathan Marshall said his company looks forward to discussing the proposal and strongly believes safety should be “a major consideration when the CPUC looks at rates.”

Others question how well the public would be served by the changes.

“We agree that the CPUC should be tracking whether or not customer money awarded for claimed safety improvements is used for that purpose,” said Mindy Spatt, a spokeswoman for The Utility Reform Network, a consumer group based in San Francisco. “However, the success of the effort will depend not just on putting new regulations in place but also on the CPUC’s ability to enforce those regulations.”

That’s also of concern to Assemblyman Jerry Hill, D-San Mateo, who on Monday said he is reintroducing legislation that failed to pass last year that would require the commission to consider utility safety performance when setting rates.

“Until recently PG&E leadership was solely focused on profits, and safety took a back seat to the bottom line,” Hill said. “Until we tie rate of return to safety there is no encouragement, there is no carrot or stick to make a difference in safety.”

Hill, whose district includes the site of the San Bruno explosion, said the agency will need more staff members to adequately monitor companies like PG&E. In addition, he said, a common standard should be established for how utility safety is measured. Otherwise, he said, “every utility is going to find their own metric and that’s going to be so darn confusing it creates a problem for the CPUC.”

James Weil of the Aglet Consumer Alliance, which seeks to keep utility rates low, also suspects the proposed rule changes may simply prompt utilities to characterize every new spending project they want as safety-related, assuming the commission then will automatically approve rate hikes for the projects.

Others share the same concern.

“All of us want to make sure the system is safe,” said Stephanie Chen, senior legal counsel of the Greenlining Institute, a Berkeley group that advocates on behalf of the poor. “We just want to make sure it’s done at an appropriate cost.”