BILL ANALYSIS Ó ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 879| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ 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 CONTINUED SB 879 Page 2 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. CONTINUED SB 879 Page 3 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 CONTINUED SB 879 Page 4 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 CONTINUED SB 879 Page 5 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. CONTINUED SB 879 Page 6 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 CONTINUED SB 879 Page 7 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 **** END **** CONTINUED