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PG&E Corporation : California Orders PG&E to Share $2.2 Billion Pipeline-Safety Costs With Customers

12/20/2012 | 03:29pm US/Eastern
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--California regulators order pipeline safety improvements from PG&E

--PG&E would roughly split $2.2 billion in estimated costs with its customers

--Customers would pay PG&E nearly $300 million over the next two years, then nearly $1 billion spread over several decades

(Adds comment from PG&E in the 9th paragraph)

By Cassandra Sweet

SAN FRANCISCO--California regulators ordered PG&E Corp. (PCG) Thursday to share with its customers about $2.2 billion in estimated costs to improve the safety of the company's natural gas pipeline system, following a fatal pipeline explosion.

PG&E's natural-gas pipeline in San Bruno, Calif., exploded in September 2010, causing a massive fire that killed eight people, injured 58 others, and damaged or destroyed more than 100 homes. Following the explosion, federal and state investigations found that PG&E had lost critical pipeline records and hadn't adequately maintained and upgraded many of its aging gas pipelines over several decades.

The California Public Utilities Commission then ordered PG&E to overhaul the safety of its pipeline system. Thursday's decision, approved unanimously by the commission's five members, spells out what actions the utility must take and who will pay for it, with customers paying more than half, while PG&E will have to shoulder more than it had proposed spending.

Under the CPUC's decision, PG&E can collect from customers nearly $300 million over the next two years, then collect nearly $1 billion more, spread over several decades, to pay for the mandated pipeline system improvements.

The decision allows PG&E to collect its normal rate of return on investment for pipeline safety work, which has been roughly 11.3%. San Bruno officials and consumer advocates opposed allowing the company to earn a profit on work that they said PG&E should have completed years earlier.

"It is difficult for us to understand why PG&E and its shareholders should ever profit from the utility's failure to invest in necessary safety upgrades," San Bruno Mayor Jim Ruane said before the commissioners voted on the decision.

Two survivors of the pipeline blast asked the commission Thursday not to allow PG&E to earn a profit on work ordered after the explosion.

"The victims shouldn't have to suffer because PG&E is making a profit from this explosion," said San Bruno resident Rene Morales, whose 20-year-old daughter Jessica was killed in the pipeline blast. "My daughter is not here," she said.

PG&E said it in a statement that the company was satisfied with much of the decision, although "disappointed" that it wouldn't be able to collect more from customers to cover costs of the safety work.

CPUC commissioners said they were concerned that if they limited the company's ability to earn a profit from pipeline safety work--as the commission earlier had proposed--it might send the wrong message, that pipeline safety work isn't as important as other utility projects.

"We want to make sure PG&E is not rewarded for past imprudent management practices; on the other hand, we want to make sure PG&E has the necessary resources to provide the safe, reliable service that we want," said CPUC member Mike Florio.

CPUC commissioners said the commission plans to punish PG&E with fines and possibly other penalties, in cases that are still pending.

Survivors of the pipeline blast have sued PG&E for damages to cover the costs of replacing lost property, rebuilding their homes and for pain and suffering they say they endured as a result of losing loved ones and surviving the disaster. Some of those lawsuits have been settled, but most were still pending in state Superior Court.

Federal and state investigators blamed PG&E for the pipeline explosion and pointed to defects in the aging San Bruno pipeline that ruptured. Investigators also alleged that PG&E didn't pay adequate attention to safety over several years, which they said contributed to the explosion.

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

PG&E, investigators, San Bruno officials and other parties to those cases have engaged in negotiations, but those talks haven't resulted in any type of settlement to date.

In Thursday's decision, the commission ordered PG&E to ensure that it is meeting federal and state pipeline-safety requirements, by finding missing pipeline records, testing aging pipelines for which the utility has lost records, and replacing aging sections of pipe that could be weak or have other problems. The commission also ordered PG&E to install automatic shutoff valves for sections of pipe that traverse populated areas, so that the flow of gas can be stopped quickly in the event of another rupture.

"Today's decision must be only the beginning of a permanent change in operations, attitude and perspective for both PG&E and the commission," the CPUC said in its decision.

The CPUC ordered PG&E to rigorously test 783 miles of pipeline, replace 186 miles of pipeline and install 228 automated pipeline valves. The commission also ordered PG&E to modify nearly 200 miles of pipeline so that it could test those pipes for defects and other problems.

PG&E had initially proposed that customers pay most of the estimated $2.2 billion pipeline safety project costs, including an initial $769 million through 2014.

Write to Cassandra Sweet at cassandra.sweet@dowjones.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

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