BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Christine Kehoe, Chair AB 1456 (Hill) - Gas corporations: safety performance standards: rate incentive program. Amended: May 25, 2012 Policy Vote: E,U&C 9-0 Urgency: No Mandate: No Hearing Date: August 16, 2012 Consultant: Bob Franzoia SUSPENSE FILE. AS PROPOSED TO BE AMENDED. Bill Summary: AB 1456 would require the Public Utilities Commission (commission) to perform an analysis of benchmark data and adopt safety performance standards for pipeline safety and reliability and require the commission to evaluate a gas corporation's safety performance based on those standards. This bill would authorize the commission to implement a rate incentive program that could contain penalties based on safety performance. Fiscal Impact: Up to $418,000 in 2013-14 from the Public Utilities Reimbursement Account for a rulemaking to revise the utilities' rate case plan. Up to $267,000 annually from the Public Utilities Reimbursement Account to conduct an initial analysis and then subsequent updating of benchmark data, define performance metrics and performance standards, and develop rates based on safety. Background: The National Transportation Safety Board, which has primary jurisdiction for investigating pipeline failures, issued its Pipeline Accident Report on the San Bruno tragedy in August, 2011 and found that: Because PG&E, as the operator of its pipeline system, and the CPUC, as the pipeline safety regulator within the state of California, have not incorporated the use of effective and meaningful metrics as part of their performance-based pipeline safety management programs, neither PG&E nor the CPUC is able to effectively evaluate or assess the integrity of PG&E's pipeline system. AB 1456 (Hill) Page 1 The commission has created incentive programs for energy efficiency, system reliability, customer service and worker safety. Proposed Law: This bill adds Public Utilities Code 960, to read: 960. (a) The commission shall perform an analysis of benchmark data and adopt safety performance standards for pipeline safety and reliability. (b) The commission shall evaluate a gas corporation's safety performance based on the safety performance standards adopted pursuant to subdivision (a) and may implement a rate incentive program. The rate incentive program may contain penalties based on safety performance. Related Legislation: AB 56 (Hill) Chapter 519/20011 implements safety related measures relating to the operation of natural gas pipeline facilities regulated by the commission. SB 705 (Leno) Chapter 522/2011 requires gas corporations to develop a safety plan for the safe and reliable operation of gas pipeline facilities. Staff Comments: It is estimated the commission would require one senior utilities engineer specialist ($156,335) and one public utilities regulatory analyst ($110,392) permanently and one administrative law judge ($151,281) for a limited term to implement the provisions of this bill. In July 2011, the commission established a Risk Assessment Unit to research, develop, and propose tools to improve pipeline safety and oversight in the state and announced it was augmenting its pipeline inspector team by five staff (this would result in a total of nine new staff positions; four in the unit, and five pipeline inspectors). The unit is to focus on performance in natural gas safety. Some of the work of this unit may assist the commission in implementing the provisions of this bill resulting in a reduction in non-proceeding related costs. The proposed amendments would revise Section 2, as follows: Section960965 is added to the Public Utilities Code, to read: AB 1456 (Hill) Page 2 965. (a) The commission shall perform an analysis of benchmark data and adopt safety performancestandardsmetrics for pipeline safety and reliability. (b) The commission shall consider the following principles when adopting safety performance metrics: (1) Each safety performance metric shall be designed to be an indicator of safety performance. (2) Each safety performance metric shall be designed so that it may be re-evaluated within a useful timeframe. (3) Each safety performance metric shall be designed so that the data inputs to the metric are verifiable. (4) The adopted set of safety performance metrics shall be robust enough to serve as a useful indicator of pipeline safety and reliability.(b)(c) The commission shall evaluate a gas corporation's safety performancebased onusing the safety performancestandardsmetrics adopted pursuant to subdivision (a) and may implement a rate incentive program. The rate incentive program may contain penalties based on safety performance.