BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                      



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          |SENATE RULES COMMITTEE            |                   SB 879|
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                              UNFINISHED BUSINESS


          Bill No:  SB 879
          Author:   Padilla (D), et al.
          Amended:  9/1/11
          Vote:     21

           
           SENATE ENERGY, UTILITIES & COMM. COMMITTEE  :  10-0, 5/3/11
          AYES:  Padilla, Fuller, Berryhill, Corbett, DeSaulnier, 
            Pavley, Rubio, Simitian, Strickland, Wright
          NO VOTE RECORDED:  De León
           
          SENATE APPROPRIATIONS COMMITTEE  :  Senate Rule 28.8

           SENATE FLOOR  :  38-0, 5/31/11
          AYES:  Alquist, Anderson, Blakeslee, Calderon, Cannella, 
            Corbett, Correa, De León, DeSaulnier, Dutton, Evans, 
            Fuller, Gaines, Hancock, Harman, Hernandez, Huff, Kehoe, 
            La Malfa, Leno, Lieu, Liu, Lowenthal, Negrete McLeod, 
            Padilla, Pavley, Price, Rubio, Runner, Simitian, 
            Steinberg, Strickland, Vargas, Walters, Wolk, Wright, 
            Wyland, Yee
          NO VOTE RECORDED:  Berryhill, Emmerson

           ASSEMBLY FLOOR  :  78-0, 9/7/11 - See last page for vote


           SUBJECT  :    Natural gas pipelines: safety

           SOURCE  :     Author


           DIGEST  :    This bill directs the California Public 
          Utilities Commission (PUC), in any ratemaking proceeding in 
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          which PUC 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.

           Assembly Amendments  (1) exempt the State Fire Marshal from 
          exclusively exercising safety regulatory and enforcement 
          authority over intrastate hazardous liquid pipelines 
          pursuant to the Elder California Pipeline Act of 1981, (2) 
          require any unspent moneys in the balancing account in the 
          form of an accumulated account balance at the end of each 
          rate case cycle, plus interest, shall be returned to 
          ratepayers through a true-up filing, (3) no longer 
          designate the PUC as the state authority responsible for 
          regulating and enforcing intrastate gas pipeline 
          transportation and pipeline facilities pursuant to federal 
          law, including the development, submission, and 
          administration of a state pipeline safety program 
          certification for natural gas pipelines, (4) increase the 
          penalty per violation from $20,000 to $50,000 for violation 
          of statute, commission rules, orders, or other directives, 
          and (5) make other clarifying changes.   

           ANALYSIS  :    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 as standards and practices for services 
             to be furnished.


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           Background  



           Natural Gas Regulation   

          The PUC regulates natural gas utility service for 
          approximately 10.7 million customers that receive natural 
          gas from Pacific Gas and Electric (PG&E), Southern 
          California Gas, San Diego Gas and Electric, Southwest Gas, 
          and several smaller natural gas utilities.  The PUC also 
          regulates independent storage operators Lodi Gas Storage 
          and Wild Goose Storage. 

          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 
          percent 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 percent 
          of the natural gas delivered by California utilities in 
          2008. 

          The 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. 

          Most of the natural gas used in California comes from 
          out-of-state natural gas basins.  In 2008, California 
          customers received 46 percent of their natural gas supply 
          from basins located in the Southwest, 19 percent from 
          Canada, 22 percent from the Rocky Mountains, and 13 percent 
          from basins located within California.  Natural gas from 
          out-of-state production basins is delivered into California 
          via the interstate natural gas pipeline system

           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 

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          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 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.

          The NTSB's examination of the ruptured pipe segment and 
          review of PG&E records revealed that although those records 
          marked the pipe as seamless the pipeline in the area of the 
          rupture was constructed with longitudinal seam-welded pipe 
          and was constructed of five sections of pipe, some of which 
          were short pieces measuring about four feet long.  These 
          short pieces of pipe contained different seam welds of 
          various types, including single- and double-sided welds 
          that may not have been as strong as the seamless pipe 
          listed in PG&E's records.  The NTSB has not concluded that 
          the faulty records or welds were the proximate cause of the 
          rupture.

          However, the NTSB is concerned that there are other 
          discrepancies between installed pipe and as-built drawings 
          in PG&E's 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. The 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 

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          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 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.


           Related Legislation  

          The following measures have been introduced in this session 
          in response to the San Bruno tragedy: 

          SB 44 (Corbett) requires the PUC to commence a proceeding 
          to establish emergency response standards, which include 
          emergency response plans, to be followed by owners or 
          operators of commission-regulated gas pipeline facilities.  

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          SB 216 (Yee) directs the PUC to adopt standards that 
          require the installation of automatic shut-off or remote 
          controlled sectionalized block valves on all 
          commission-regulated pipelines that are located in a high 
          consequence area or that traverse an active seismic 
          earthquake fault unless the commission determines it is 
          prohibited under federal law.  

          SB 705 (Leno) requires gas corporations to develop, adopt 
          and implement a service and safety plan that places safety 
          of the public and gas corporation employees as the top 
          priority.  

          AB 56 (Hill) implements a number of public safety measures 
          with regard to natural gas pipeline facilities, including 
          requiring the owner or operator of a gas pipeline to 
          develop a public safety program and a facilities 
          modernization program, and requiring the PUC to track 
          proposed repairs to gas facilities to determine if the 
          repairs were made.  

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

           SUPPORT  :   (Verified  9/7/11)

          California Public Utilities District 

           ARGUMENTS IN SUPPORT  :    According to the author's office, 
          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.


           ASSEMBLY FLOOR  :  78-0, 9/7/11
          AYES:  Achadjian, Alejo, Allen, Ammiano, Atkins, Beall, 
            Bill Berryhill, Block, Blumenfield, Bonilla, Bradford, 
            Brownley, Buchanan, Butler, Charles Calderon, Campos, 
            Carter, Cedillo, Chesbro, Conway, Cook, Davis, Dickinson, 
            Donnelly, Eng, Feuer, Fletcher, Fong, Fuentes, Beth 

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            Gaines, Galgiani, Garrick, Gatto, Gordon, Grove, Hagman, 
            Halderman, Hall, Harkey, Hayashi, Roger Hernández, Hill, 
            Huber, Hueso, Huffman, Jeffries, Jones, Knight, Lara, 
            Logue, Bonnie Lowenthal, Ma, Mansoor, Mendoza, Miller, 
            Mitchell, Monning, Morrell, Nestande, Nielsen, Norby, 
            Olsen, Pan, Perea, V. Manuel Pérez, Portantino, Silva, 
            Skinner, Smyth, Solorio, Swanson, Torres, Valadao, 
            Wagner, Wieckowski, Williams, Yamada, John A. Pérez
          NO VOTE RECORDED:  Furutani, Gorell


          RM:kc  9/8/11   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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