BILL ANALYSIS � 1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
AB 56 - Hill Hearing Date:
July 5, 2011 A
As Amended: June 29, 2011 FISCAL B
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DESCRIPTION
Federal Law and general orders of the California Public
Utilities Commission (CPUC) require the commission to regulate
gas transmission, distribution and gathering pipeline facilities
which include gas corporations, master-metered mobile home
parks, and propane operators.
This bill defines a commission-regulated gas pipeline facility
to include intrastate transmission, distribution and gathering
pipeline facilities which include gas corporations,
master-metered mobile home parks, and propane operators.
Federal Law and general orders of the CPUC set forth
requirements for the design, construction, testing, maintenance
and operation of gas gathering, transmission and distribution
piping systems.
This bill requires gas corporations to submit a plan to the CPUC
for the testing or replacement of all transmission pipelines as
soon as practicable along with interim safety enhancement
measures that will enhance public safety during the
implementation of the plan.
This bill requires gas corporations to file semi-annual reports
with the Consumer Protection Safety Division (CPSD) to track the
testing, repair and maintenance of gas pipelines.
Federal Law and general orders of the CPUC require that each gas
pipeline owner and operator to have an emergency plan in place
with specified components including written procedures to
minimize hazards resulting from pipeline emergencies, methods of
receiving notifications of emergencies, and communicating with
emergency responders.
Federal Law requires gas transmission pipeline owners and
operators to provide geospatial data the Secretary of
Transportation (Secretary) for its transmission pipelines and to
update that data as required by the Secretary. The Secretary is
also permitted to provide technical assistance to state and
local officials to improve local response by adapting
information available through the National Pipeline Mapping
System to software used by emergency response personnel
responding to pipeline emergencies.
This bill requires the CPUC to establish emergency response
standards, which include emergency response plans, to be
followed by owners or operators of distribution and transmission
pipelines, in consultation with the California Emergency
Management Agency, and first responders including the California
Fire Chiefs Association.
This bill requires the emergency response plans to include a
requirement that pipeline owners and operators provide the State
Fire Marshal and fire chiefs in the pipeline operator's
territory with instructions on how to access and utilize the
National Pipeline Mapping System.
Federal Law and general orders of the CPUC require that each
transmission line have sectionalized block valves placed at
specified intervals and in specified locations ranging from
every 2 miles to every 10 miles and classifies pipelines based
on the types of facilities that are within 220 yards of its
location.
Federal Law defines a High Consequence Area as an area including
all class 3 and class 4 locations and some class 1 and class 2
locations with unique circumstances related to surrounding
populated facilities.
This bill requires the CPUC to develop, and gas corporations to
meet, minimum criteria and standards for the installation of
sectionalized block valves and automated and remote shutoff
valves for all newly installed pipelines, pipelines that
traverse an earthquake fault zone, and pipelines located in high
consequence areas and class 3 and 4 locations.
Current law grants the CPUC the power and obligation to
determine not only that any rate or increase in a rate, is just
and reasonable, but also the authority to supervise and regulate
every public utility in the state.
This bill requires a gas corporation to demonstrate in its rate
cases that proposed rates will be sufficient to maintain safe
and reliable service in a cost-effective manner, restricts a gas
corporation from recovering any fine or penalty in rates, that
the safety record of the gas corporation be considered in
determining a reasonable rate of return and that a balancing
account be used to track expenditures related to public safety.
BACKGROUND
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 Pacific Gas &
Electric (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 CPUC 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.
Regulatory Action - The NTSB has principal jurisdiction over the
investigation into San Bruno and is expected to release its
final report on causation later this summer. Preliminary
findings have been released and the NTSB has "identified both
the material and the fabrication welds of the section of
pipeline that failed did not meet either: (1) the engineering
consensus standards applicable to natural gas transmission
pipelines at the time, or (2) the PG&E specifications in effect
at the time of construction."<1>
It has also been determined that PG&E has inadequate records and
knowledge of its aging gas pipeline infrastructure to allow the
utility or the CPUC to make informed and sound decisions on the
steps necessary to operate a safe and reliable natural gas
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<1> Report of the Independent Review Panel (hereafter Report),
Executive Summary, p. 5.
system. Complacency appears to be a significant factor. PG&E
records had incorrectly characterized fundamental aspects of the
line that ruptured but piping engineers for the utility were
aware that the segment was double-submerged arc welded rather
than seamless. The inadequacy of records is also the result of
a "grandfathering" or exemption under federal law from pressure
test requirements for pipelines placed in service before 1970.
Federal regulations allowed pipeline operators to operate a
segment at the highest actual operating pressure of the segment
during the five-year period between July 1, 1965 and June 30,
1970.
As a consequence, the NTSB recommended that PG&E obtain
"traceable, verifiable, and complete" records and, with reliably
accurate data, calculate a dependable pressure level for pipe
operation. PG&E has been unable to meet that recommendation for
hundreds of miles of its transmission pipelines most of which
were laid prior to 1970. Southern California Gas and San Diego
Gas & Electric are under the same orders and have also been
unable to produce records for a significant portion of its
pipelines as well, especially for the older vintage pipelines.
In response the CPUC has ordered all California gas transmission
operators to develop and file for CPUC consideration a Natural
Gas Transmission Pipeline Comprehensive Pressure Testing
Implementation Plan to achieve the goal of orderly and cost
effectively replacing or testing all natural gas transmission
pipeline that have not been pressure tested.
The CPUC has also started a penalty consideration phase into
whether PG&E's gas transmission pipeline recordkeeping was
unsafe, whether it violated the law, and if so whether deficient
PG&E recordkeeping caused or contributed to the pipeline rupture
in San Bruno.
Independent Review Panel - On September 23, 2010, the CPUC
created an Independent Review Panel of experts to conduct a
comprehensive study and investigation of the September 9, 2010,
explosion and fire. The CPUC directed the panel to make a
technical assessment of the events, determine the root causes,
and offer recommendations for action by the CPUC to best ensure
such an accident is not repeated elsewhere. The CPUC encouraged
the panel to make such recommendations as necessary. Such
recommendations could include changes to design, construction,
operation, maintenance, and replacement of natural gas
facilities, management practices at PG&E in the areas of
pipeline integrity and public safety, regulatory changes by the
CPUC itself, and statutory changes to be recommended by the
CPUC.
The panel released its findings on June 9th and concluded that
the pipeline rupture was "a consequence of multiple weaknesses
in PG&E's management and oversight of the safety of its gas
transmission system," and that the CPUC "did not have the
resources to monitor PG&E's performance in pipeline integrity
management adequately or the organizational focus that would
have elevated concerns about PG&E's performance in a meaningful
way."
COMMENTS
1. Author's Purpose . According to the author, the purpose
of this bill is to ensure that California develops new
regulations and standards for the safe and reliable
operation of natural gas pipelines in the state. The
author represents the community of San Bruno and has
witnessed first-hand the life-changing tragedy of the San
Bruno explosion. He believes that the Legislature has the
opportunity and the obligation to take every step possible
to ensure that the lessons of this tragedy are well learned
and that the circumstances are not repeated.
He further reports that federal and state hearings and
investigations have revealed serious flaws in existing
regulations and in how the state oversees the owner and
operators of natural gas pipelines in California. This bill
seeks to address some of the deficiencies in the regulation
of natural gas transmission pipelines that have been
discovered in community meetings, and NTSB and CPUC
investigations. The bill seeks to ensure that the CPUC is
regulating the industry adequately; that utilities
companies are operating safely and that there is increased
accountability and transparency in how California manages
its pipeline infrastructure.
2. Pipeline Testing . Records searches by the three major
gas corporations to verify operating pressures and pipe
configurations for more than 10,000 miles of transmission
pipelines have resulted in critical data gaps particularly
for older vintage pipelines which were exempted from
pressure testing requirements. PG&E has stated that it is
not able to provide specific records for critical
components in its natural gas transmission pipelines.
SoCalGas and SDG&E have stated that it is very difficult,
if not infeasible, to locate records for all pipeline
materials in the specified areas.
This bill addresses those deficiencies by requiring that
all natural gas transmission pipelines in service in
California be brought into compliance with modern standards
for safety and that every transmission pipeline that has
not been pressure tested, or which lacks reliable records,
be replaced or pressure tested. This bill tracks a June
9th decision by the CPUC.
3. Gas Safety Report . During informational hearings of
this committee it became apparent that the rate cases of
the gas corporations were based on compromise and
settlements with very little regard to whether the budgets
were based on safety. There appeared to be little or no
question of the gas corporations as to whether the
requested level of capital outlay funding was sufficient to
ensure a safe and reliable transmission system. Whatever
budget was put forth by the gas corporation was then
subject to negotiation, primarily based on ratepayer
impacts, and there was no review by or consultation with
the CPUC's Consumer Protection Safety Division. As the
utility changed priorities for pipeline maintenance and
repair and shifted funds between projects, there was no
again no oversight or review by the CPUC This issue was
highlighted by the Independent Panel as well which found
"PG&E did spend capital at or above the amounts it
requested in its rate cases over the last several years,
but we did not observe a coherent planning process to
assure the system was being maintained and modernized with
any urgency."<2>
The CPUC has addressed this issue in PG&E's rate case
(commonly referred to as Gas Accord V) for 2011 to 2014 by
requiring the CPSD staff to track PG&E's capital
expenditure projects for PG&E's gas transmission pipelines
and gas storage services over the four year rate cycle
period. This bill codifies that reporting requirement
which will ensure its continued use and its applicability
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<2> Report at p. 10.
to all rate cases and gas corporations. As to its
efficacy, there was concern expressed by the Independent
Review Panel as to whether the CPSD has adequate resources
to analyze the new reports. The committee chair has been
successful in working with the administration to add four
positions to the division last winter and securing an
additional 5.5 positions in the 2011 Budget Act.
4. Just and Reasonable Rates . As heard in testimony before
the committee at last fall's informational hearing on the
San Bruno tragedy, there is a clear disconnect between the
ratemaking proceedings for gas corporations and the safety
of the gas pipeline system. The Independent Review Panel
echoed this sentiment in its report by noting that there
has been "very little colloquy in the rate cases about
safety. Hence, the rate case was not serving as an
objective process by which PG&E's integrity management
budgets were being scrutinized."<3> Additionally "?there
was, in no case, a critical assessment of whether PG&E's
efforts were calibrated to the actual risk to pipeline
safety."<4>
The author has addressed this issue in four ways. First he
restricts a gas corporation from recovering any fines and
penalties through rates, and second, gas corporations would
be required to demonstrate that rates will be sufficient
for safe and reliable services. These are generally not
problematic. He has also however put forward similar but
different requirements for a gas corporation to track
"revenue requirements for public safety and actual
expenditures made by the utility." This provision is
somewhat similar to SB 879 and should be reconciled as
indicated in the next comment # 5.
Finally, the author has gone further to require the CPUC to
consider a gas corporation's safety record in determining a
reasonable rate of return. This provision blurs the
distinction between the ratemaking process and the
enforcement process by using rates, or suggesting that rate
of return be restricted, if a gas corporation demonstrates
a poor safety record. The author and committee should
consider striking this provision.
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<3> Report at p. 23.
<4> Report at p. 23.
The CPUC has begun to address the relationship of safety
and rates in a different manner but has demonstrated an
awareness that these costs should not be solely born by
ratepayers. In its pipeline record proceeding concerning
the deficiencies of PG&E's pipeline records and the costs
likely to be incurred to bring those records up to modern
standards PG&E will be required to submit a plan to the
CPUC which would share the costs of this work between
ratepayers and shareholders.
5. Conflicts with Senate Bills . This bill proposes that
the CPUC: (1) establish compatible emergency response
standards that owners or operators of intrastate
transmission and distribution would be required to follow
(see also SB 44, Corbett); (2) establish a plan for the
installation of automatic or remote shut-off valves (see
also SB 216, Yee); and (3) require gas corporations to
establish and maintain a balancing account for the recovery
of expenses for inspection, maintenance, or repair of
transmission pipelines (SB 879, Padilla).
To ensure consistent committee actions and prevent conflicts
between the bills the author and committee should consider
conforming the provisions of those bills to AB 56 or
striking the conflicting provisions from this bill
entirely.
6. Ratepayer Impact . Aftermath of San Bruno will cost
hundreds of millions. This bill is consistent with actions
of the CPUC as it relates to the safety report and pipeline
replacement and testing.
7. Related State Legislation . There are four other bills
which have been introduced in response to the San Bruno
tragedy:
SB 44 (Corbett) requires gas corporations to
establish emergency response plans for responding to
pipeline disasters or malfunctions and to facilitate
access to pipeline maps for emergency service personnel.
Status: Pending hearing in the Assembly Appropriations
Committee.
SB 216 (Yee) requires the CPUC to determine and
develop a plan for automatic shut off or remote
controlled valves on certain natural gas facilities.
Status: Pending hearing in the Assembly Appropriations
Committee.
SB 705 (Leno) requires gas corporations to develop a
safety plan for develop a service and safety plan for the
safe and reliable operation of gas pipeline facilities.
Status: Pending hearing in the Assembly Appropriations
Committee.
SB 879 (Padilla) requires gas corporations to use a
balancing account to track capital expenditures. Status:
Set for hearing in Assembly Utilities & Commerce
Committee July 5, 2011.
ASSEMBLY VOTES
Assembly Floor (54-21)
Assembly Appropriations Committee (17-0)
Assembly Utilities and Commerce Committee
(9-0)
POSITIONS
Sponsor:
Author
Support:
AARP
San Mateo County Board of Supervisors
Santa Clara County Board of Supervisors
Oppose:
Pacific Gas and Electric Company
Sempra Energy utilities (unless amended)
Southern California Edison (unless amended)
Kellie Smith
AB 56 Analysis
Hearing Date: July 5, 2011