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Posted on January 11, 2012

PG&E’s Pipeline Safety Enhancement Plan: Setting the Record Straight on Its Costs

Since PG&E proposed its Pipeline Safety Enhancement Plan in August 2011, some have made a claim that needs to be more clearly addressed: Why should customers pay higher gas rates to fix PG&E’s past mistakes?

gas pipeline

PG&E continues its work to improve its gas operations.

The answer is clear. They shouldn’t.

And the fact is, they don’t.

First, any work in PG&E’s plan needed to bring the company’s operations up to existing safety requirements has and will come out of the pockets of PG&E’s shareholders, not from PG&E’s customers.

That is how it should be for any utility. And that is how it has been and will continue to be for PG&E.

PG&E’s past gas operations practices weren’t what they should have been. The company has admitted these shortcomings. Fixing them is PG&E’s responsibility.

If PG&E didn’t do required work in the past, or if it can’t locate records it was required to keep, customers shouldn’t have to pay. Shareholders will swallow costs in the hundreds of millions of dollars this year alone to close those gaps.

Again, PG&E accepts that responsibility.

In fact, as of Sept. 30, 2011, PG&E already had invested $366 million to improve gas operations to where they should have been and incurred additional costs through the end of 2011 . Looking ahead, PG&E is committed to spending millions of dollars more for further improvements.

In addition, PG&E plans on investing another $400 million in 2012 and 2013 for improvements to operations and customer service. A sizeable but as-yet-undetermined portion will be invested in additional upgrades to gas operations practices.

All told, the investments will be more than $1 billion to improve the safe operations of PG&E’s systems, not a penny of which is coming from customers.

These investments reflect the level of PG&E’s commitment to get things to where they need to be.

That said, let’s be just as clear about what PG&E is proposing. The vast majority of the pipeline safety work going forward is not about correcting issues from the past. It’s about meeting entirely new standards being established by the California Public Utilities Commission (CPUC).

There’s a huge difference between charging customers for work that PG&E “should have been doing” and work that is now necessary to meet new and better safety rules.

The funding PG&E seeks in rates is $2.2 billion over multiple years toward investments that will meet new, industry-wide safety standards and a much-needed next generation of infrastructure upgrades — not toward addressing PG&E’s past issues. That is one of the reasons the company’s funding request closely resembles that of the state’s other major gas utility.

In its plan, PG&E proposes that about 90 percent of the $2.2 billion investment will be covered by its customers, a percentage considerably less than standard protocol for funding new standards and requirements. While this will have an impact on rates, the level of impact is reasonable. For example, from 2012 to 2014, it will result in an estimated increase of $1.85 per month for residential customers.

In adopting new requirements, California is making the right move to increase public safety. This is not just an issue specific to California. Given the state of aging infrastructure nationwide, new legislation at state and federal levels is mandating implementation of these types of enhancements.

As a result, states and utilities across the country are in the process of setting new, more stringent safety and performance requirements for natural gas utilities.

As improvements are made to the existing infrastructure, customers will see tangible new value from the investments PG&E and other state utilities are proposing. Utilities should have the opportunity to recover such investments in the years ahead, just as they have in past years when standards increased for safety, clean air, clean water and other priorities.

PG&E has been taking and will continue to take financial and operational responsibility for getting its gas operations practices where they need to be.

PG&E is also looking forward to executing on its proposed plan to upgrade the integrity of our gas transmission pipelines to meet new, rigorous standards – at a fair and reasonable rate – and help California lead the natural gas industry in pipeline safety.

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"PG&E" refers to Pacific Gas and Electric Company, a subsidiary of PG&E Corporation.
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