BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  SB 879
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          SENATE THIRD READING
          SB 879 (Padilla)
          As Amended  September 1, 2011
          Majority vote

           SENATE VOTE  :38-0  
          
           UTILITIES & COMMERCE             13-0               
          APPROPRIATIONS      17-0        
           
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          |Ayes:|Bradford, Fletcher,       |Ayes:|Fuentes, Harkey,          |
          |     |Buchanan, Fong, Fuentes,  |     |Blumenfield, Bradford,    |
          |     |Furutani, Beth Gaines,    |     |Charles Calderon, Campos, |
          |     |Roger Hernández, Huffman, |     |Davis, Donnelly, Gatto,   |
          |     |Knight, Nestande,         |     |Hall, Hill, Lara,         |
          |     |Skinner, Valadao          |     |Mitchell, Nielsen, Norby, |
          |     |                          |     |Solorio, Wagner           |
          |     |                          |     |                          |
           ----------------------------------------------------------------- 
           SUMMARY  :  This bill directs the California Public Utilities 
          Commission (PUC), in any ratemaking proceeding in which the 
          commission authorizes a gas corporation to recover expenses for 
          the inspection, maintenance, or repair of natural gas 
          transmission pipelines, to establish and maintain a one-way 
          balancing account for the recovery of those expenses.  This bill 
          also increases the penalty per violation from $20,000 to $50,000 
          for violation of statute, commission rules, orders, or other 
          directives.

           EXISTING LAW  :

          1)Requires PUC to regulate gas transmission, distribution and 
            gathering pipeline facilities which include investor-owned 
            utilities, master-metered mobile home parks, storage 
            facilities, and propane operators. 
           
           2)Establish safety requirements pertaining to the design, 
            construction, testing, operation, and maintenance of utility 
            gas gathering, transmission, and distribution piping systems, 
            and for the safe operation of such lines and equipment.
           
           3)Vests regulatory authority over gas corporations to PUC and 
            authorizes it to fix the rates and charges for service as well 








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            as standards and practices for services to be furnished. 

           FISCAL EFFECT  :  According to the Assembly Appropriations 
          Committee, any costs to PUC would be minor and absorbable.

           COMMENTS  :  According to the author this bill is intended to 
          increase the transparency of funding of the maintenance, repair 
          and safety of gas transmission pipelines by requiring that funds 
          authorized for that use stay in one account and can only be used 
          for that purpose going forward without further PUC review.

           Background  .  PUC regulates natural gas utility service for 
          approximately 10.7 million natural gas customers Pacific Gas and 
          Electric (PG&E), Southern California Gas, San Diego Gas & 
          Electric (SDG&E), Southwest Gas, and several smaller natural gas 
          utilities.  PUC also regulates independent storage operators 
          Lodi Gas Storage and Wild Goose Storage and mobile home park 
          operators with natural gas service. 

          The vast majority of California's natural gas customers are 
          residential and small commercial customers, referred to as 
          "core" customers, who accounted for approximately 40% of the 
          natural gas delivered by California utilities in 2008.  Large 
          consumers, like electric generators and industrial customers, 
          referred to as "noncore" customers, accounted for approximately 
          60% of the natural gas delivered by California utilities in 
          2008.  PUC regulates the California utilities' natural gas rates 
          and natural gas services, including in-state transportation over 
          the utilities' transmission and distribution pipeline systems, 
          storage, procurement, metering and billing.

          Other pipelines are owned and operated by the oil refining 
          industry and several publicly owned utilities (Los Angeles 
          Department of Water and Power, the Sacramento Municipal Utility 
          District, Long Beach Oil and Gas Department, and several 
          others).  These pipelines are not within the jurisdiction of 
          PUC.

           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 PG&E and originally built 








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          in 1948.  Although preliminary elements of the investigation 
          have been detailed, a final report on causation is not expected 
          until at least the fall.  One of the elements of the 
          investigation has focused on the operating pressure capabilities 
          of this particular pipeline.  The National Transportation Safety 
          Board (NTSB), investigating the San Bruno tragedy has expressed 
          concerns about discrepancies between installed pipe and as-built 
          drawings in PG&E's records of its gas transmission system.  It 
          is critical to know all the characteristics of a pipeline in 
          order to establish a valid operating pressure below which the 
          pipeline can be safely operated.  NTSB is concerned that these 
          inaccurate records may lead to incorrect operating pressures.

           Budgeting for maintenance  . Through PUC's ratemaking process a 
          gas corporation's budget for a specified period (usually three 
          or four years) is submitted, subject to public hearings, 
          modified, and approved.  That budget includes funding for 
          maintenance and repair but the gas corporations have always had 
          the latitude to use the funding for the repairs deemed most 
          necessary during the funding cycle and have not been required to 
          justify the change in spending or needed repairs to PUC.  

          PUC recently approved PG&E's natural gas transmission and 
          storage application for 2011 through 2014 (referred to as Gas 
          Accord V) and includes revenue requirement and rates.  As part 
          of this proceeding and in response to San Bruno, PUC will now 
          require PG&E to provide a semi-annual "Gas Transmission and 
          Storage Safety Report" beginning October 1, 2011, to the 
          directors of the Energy Division and the Consumer Protection and 
          Safety Division.  That report will provide details about the 
          pipeline-related and storage safety, reliability, and integrity 
          capital projects and maintenance activities that are being 
          undertaken by PG&E and to track the amounts spent on such 
          projects and activities.  In addition, the Safety Report will 
          provide PUC staff with details of whether the gas transmission 
          pipeline projects that PG&E has identified as "high risk" by 
          PG&E are being carried out, whether other replacement projects 
          have been undertaken instead, and to determine PG&E's rationale 
          for the reprioritization of these projects

          Gas Accord V also requires a one-way balancing account to be 
          established to ensure that PG&E spends all of the designated 
          operation and maintenance funds for pipeline integrity 
          management activities.  The purpose of a "one-way" balancing 
          account is to track the difference between the customer portion 








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          of the total revenue over- or undercollections and track 
          expenditures for designated activities.  In the case of Gas 
          Accord V, the one-way balancing account will serve to track 
          expenditures for pipeline integrity management activities.


           Analysis Prepared by  :    Susan Kateley / U. & C. / (916) 
          319-2083 


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