BILL ANALYSIS Ó SB 879 Page 1 SENATE THIRD READING SB 879 (Padilla) As Amended September 1, 2011 Majority vote SENATE VOTE :38-0 UTILITIES & COMMERCE 13-0 APPROPRIATIONS 17-0 ----------------------------------------------------------------- |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 SB 879 Page 2 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 SB 879 Page 3 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 SB 879 Page 4 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 FN: 0002542