BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                      



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          |SENATE RULES COMMITTEE            |                    AB 56|
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                                 THIRD READING


          Bill No:  AB 56
          Author:   Hill (D)
          Amended:  8/30/11 in Senate
          Vote:     21

           
           SENATE ENERGY, UTILITIES & COMMUNIC. COMM.  :  8-3, 07/05/11
          AYES:  Padilla, Corbett, De León, DeSaulnier, Pavley, 
            Rubio, Simitian, Wright
          NOES:  Fuller, Berryhill, Strickland

           SENATE APPROPRIATIONS COMMITTEE  :  6-3, 08/25/11
          AYES:  Kehoe, Alquist, Lieu, Pavley, Price, Steinberg
          NOES:  Walters, Emmerson, Runner

           ASSEMBLY FLOOR  :  54-21, 06/02/11 - See last page for vote


           SUBJECT  :    Gas corporations:  rate recovery and 
          expenditure:  intrastate
                        pipeline safety

           SOURCE  :     Author


           DIGEST  :    This bill implements numerous safety-related 
          measures regarding the operation of natural gas pipeline 
          facilities regulated by the Public Utilities Commission 
          (PUC).

           ANALYSIS  :    Federal Law and general orders of the PUC 
          requires the PUC to regulate gas transmission, distribution 
          and gathering pipeline facilities which include gas 
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          corporations, master-metered mobile home parks, and propane 
          operators.

          Federal law also requires gas corporations to provide 
          information to the federal Department of Transportation on 
          the location of gas pipelines. While federal law and PUC 
          orders generally give the PUC oversight responsibility for 
          natural gas pipelines, the scope of this oversight is 
          ambiguous.

          This bill:

          1.Requires natural gas corporations to develop and submit 
            to the PUC a plan for the comprehensive testing of the 
            operator's natural gas transmission system.

          2.Requires natural gas corporations to report annually to 
            the PUC on safety issues.

          3.Requires a gas corporation to demonstrate in its rate 
            cases that proposed rates will be sufficient to maintain 
            safe and reliable service in a cost-effective manner and 
            restricts a gas corporation from recovering any fine or 
            penalty in rates.

          4.Requires natural gas corporations to meet annually with 
            local fire departments to review emergency response 
            plans.

          5.Requires the PUC to require natural gas corporations to 
            install automatic or remote-controlled shut off valves on 
            natural gas pipelines in areas of high population density 
            or which cross active seismic faults, provided the PUC 
            determines that those valves are necessary to protect 
            public safety.  Natural gas corporations are authorized 
            under the bill to recover the costs of these upgrades 
            from natural gas ratepayers.

          6.Requires natural gas corporations to use "balancing 
            accounts" to ensure that funds allocated for safety are 
            used properly.

           Background
           

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           San Bruno Tragedy  - On the evening of September 9, 2010 a 
          30-inch natural gas transmission line ruptured in a 
          residential neighborhood in the City of San Bruno.  The 
          rupture caused an explosion and fire which took the lives 
          of eight people and injured dozens more; destroyed 37 homes 
          and damaged dozens more.  Gas service was also disrupted 
          for 300 customers.

          The pipeline in question is owned and operated by Pacific 
          Gas & Electric (PG&E) and originally built in 1948.  In 
          1956 it was relocated and rebuilt to accommodate new 
          housing development.  The National Transportation Safety 
          Board (NTSB), in conjunction with the PUC was on scene 
          within 24 hours to investigate the cause of the explosion.  
          Although preliminary elements of the investigation have 
          been detailed, a final report on causation is not expected 
          until at least the fall.

           Regulatory Action  - The NTSB has principal jurisdiction 
          over the investigation into San Bruno and is expected to 
          release its final report on causation later this summer.  
          Preliminary findings have been released and the NTSB has 
          "identified both the material and the fabrication welds of 
          the section of pipeline that failed did not meet either:  
          (1) the engineering consensus standards applicable to 
          natural gas transmission pipelines at the time, or (2) the 
          PG&E specifications in effect at the time of construction."

          It has also been determined that PG&E has inadequate 
          records and knowledge of its aging gas pipeline 
          infrastructure to allow the utility or the PUC to make 
          informed and sound decisions on the steps necessary to 
          operate a safe and reliable natural gas system.  
          Complacency appears to be a significant factor.  PG&E 
          records had incorrectly characterized fundamental aspects 
          of the line that ruptured but piping engineers for the 
          utility were aware that the segment was double-submerged 
          arc welded rather than seamless.  The inadequacy of records 
          is also the result of a "grandfathering" or exemption under 
          federal law from pressure test requirements for pipelines 
          placed in service before 1970.  Federal regulations allowed 
          pipeline operators to operate a segment at the highest 
          actual operating pressure of the segment during the 
          five-year period between July 1, 1965 and June 30, 1970.  

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          As a consequence, the NTSB recommended that PG&E obtain 
          "traceable, verifiable, and complete" records and, with 
          reliably accurate data, calculate a dependable pressure 
          level for pipe operation.  PG&E has been unable to meet 
          that recommendation for hundreds of miles of its 
          transmission pipelines most of which were laid prior to 
          1970.  Southern California Gas and San Diego Gas & Electric 
          are under the same orders and have also been unable to 
          produce records for a significant portion of its pipelines 
          as well, especially for the older vintage pipelines. 

          In response the PUC has ordered all California gas 
          transmission operators to develop and file for PUC 
          consideration a Natural Gas Transmission Pipeline 
          Comprehensive Pressure Testing Implementation Plan to 
          achieve the goal of orderly and cost effectively replacing 
          or testing all natural gas transmission pipeline that have 
          not been pressure tested.

          The PUC has also started a penalty consideration phase into 
          whether PG&E's gas transmission pipeline recordkeeping was 
          unsafe, whether it violated the law, and if so whether 
          deficient PG&E recordkeeping caused or contributed to the 
          pipeline rupture in San Bruno. 

           Independent Review Panel  - On September 23, 2010, the PUC 
          created an Independent Review Panel of experts to conduct a 
          comprehensive study and investigation of the September 9, 
          2010, explosion and fire.  The PUC directed the panel to 
          make a technical assessment of the events, determine the 
          root causes, and offer recommendations for action by the 
          PUC to best ensure such an accident is not repeated 
          elsewhere.  The PUC encouraged the panel to make such 
          recommendations as necessary.  Such recommendations could 
          include changes to design, construction, operation, 
          maintenance, and replacement of natural gas facilities, 
          management practices at PG&E in the areas of pipeline 
          integrity and public safety, regulatory changes by the PUC 
          itself, and statutory changes to be recommended by the PUC.

          The panel released its findings on June 9 and concluded 
          that the pipeline rupture was "a consequence of multiple 
          weaknesses in PG&E's management and oversight of the safety 

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          of its gas transmission system," and that the PUC "did not 
          have the resources to monitor PG&E's performance in 
          pipeline integrity management adequately or the 
          organizational focus that would have elevated concerns 
          about PG&E's performance in a meaningful way."

           Comments
           
          According to the author's office, the purpose of this bill 
          is to ensure that California develops new regulations and 
          standards for the safe and reliable operation of natural 
          gas pipelines in the state.  The author represents the 
          community of San Bruno and has witnessed first-hand the 
          life-changing tragedy of the San Bruno explosion.  The 
          author believes that the Legislature has the opportunity 
          and the obligation to take every step possible to ensure 
          that the lessons of this tragedy are well learned and that 
          the circumstances are not repeated.

          The author further reports that federal and state hearings 
          and investigations have revealed serious flaws in existing 
          regulations and in how the state oversees the owner and 
          operators of natural gas pipelines in California.  This 
          bill seeks to address some of the deficiencies in the 
          regulation of natural gas transmission pipelines that have 
          been discovered in community meetings, and NTSB and PUC 
          investigations.  The bill seeks to ensure that the PUC is 
          regulating the industry adequately; that utilities 
          companies are operating safely and that there is increased 
          accountability and transparency in how California manages 
          its pipeline infrastructure.

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes   
          Local:  Yes

          According to the Senate Appropriations Committee:

                          Fiscal Impact (in thousands)

           Major Provisions                2011-12     2012-13    
           2013-14   Fund
           PUC oversight                 $390      $780      $780 
          Special*
          Ratepayer impacts to stateunknown costs, likely in the low 

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          millions                 Various
            agencies

          *  PUC Utilities Reimbursement Account

           SUPPORT  :   (Unable to verify at time of writing)

          Pacific Gas and Electric Company (if amended)

           OPPOSITION  :    (Unable to verify at time of writing)

          San Diego Gas and Electric (unless amended)
          Southern California Gas Company (unless amended)


           ASSEMBLY FLOOR  :  54-21, 06/02/11
          AYES:  Achadjian, Alejo, Allen, Ammiano, Atkins, Beall, 
            Bill Berryhill, Block, Blumenfield, Bonilla, Bradford, 
            Brownley, Buchanan, Butler, Charles Calderon, Campos, 
            Carter, Cedillo, Chesbro, Davis, Dickinson, Eng, Feuer, 
            Fong, Fuentes, Furutani, Galgiani, Gatto, Gordon, Harkey, 
            Hayashi, Roger Hernández, Hill, Huber, Hueso, Huffman, 
            Lara, Bonnie Lowenthal, Ma, Mendoza, Mitchell, Monning, 
            Pan, Perea, V. Manuel Pérez, Portantino, Skinner, 
            Solorio, Swanson, Torres, Wieckowski, Williams, Yamada, 
            John A. Pérez
          NOES:  Conway, Cook, Donnelly, Garrick, Grove, Hagman, 
            Halderman, Jeffries, Jones, Knight, Logue, Mansoor, 
            Miller, Morrell, Nielsen, Norby, Olsen, Silva, Smyth, 
            Valadao, Wagner
          NO VOTE RECORDED:  Fletcher, Beth Gaines, Gorell, Hall, 
            Nestande


          RM:nl  8/30/11   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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