BILL ANALYSIS � 1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
AB 578 - Hill Hearing Date: May 15, 2012
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As Amended: May 8, 2012 FISCAL B
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DESCRIPTION
Current law requires the California Public Utilities Commission
(CPUC) to regulate gas transmission, distribution and gathering
pipeline facilities which include gas corporations,
master-metered mobile home parks, and propane operators.
Current federal law and general orders of the CPUC 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.
Current federal law requires the Secretary of the U.S.
Department of Transportation (DOT) to respond to safety
recommendations of the National Transportation Safety Board
(NTSB) within 90 days of receipt and indicate the Secretary's
intended actions as a result of the recommendations.
This bill directs the CPUC to review all safety recommendations,
accident reports and briefs, and safety studies made by the
NTSB. After review the commission would be required to vote to
reject the recommendation if compliance is determined to be
inappropriate or, if compliance is accepted, immediately issue
orders or adopt rules to implement those recommendations. All
actions would be reported in the commission's annual report.
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 and determine whether costs
incurred are reasonable and prudent.
This bill would require the commission to determine whether the
costs for compliance with NTSB recommendations are reasonable
and prudent and authorize rate recovery for gas corporations.
The commission would be prohibited from authorizing recovery if
it determined that the costs could have been avoided had the
utility been in compliance with existing law.
BACKGROUND
The U.S. Department of Transportation's Pipeline and Hazardous
Material Safety Administration (PHMSA), acting through the
Office of Pipeline Safety (OPS), administers the national
regulatory program to assure safe transportation of natural gas,
petroleum, and other hazardous materials by pipeline. The
statutes under which OPS operates provide for state assumption
of all or part of the intrastate regulatory and enforcement
responsibility through annual certifications and agreements.
This cooperative, collaborative relationship between the federal
and state government - the Federal/State Partnership - forms the
cornerstone of the pipeline safety program for which the CPUC
has assumed most of the responsibility. The CPUC does not
exercise jurisdiction over municipal operators which are under
the direct authority of the OPS. State pipeline safety programs
adopt the federal regulations and may issue more stringent
regulations for intrastate pipeline operators under state law.
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 70. Gas
service was also disrupted for 300 customers.
The NTSB, which has primary jurisdiction for investigating
pipeline accidents in which there is a fatality, substantial
property damage, or significant environmental impacts, issued
its Pipeline Accident Report on the San Bruno tragedy in August,
2011 and determined that:
1) The probable cause of the accident was the PG&E's (1)
inadequate quality assurance and quality control in 1956
during its Line 132 relocation project, which allowed the
installation of a substandard and poorly welded pipe
section with a visible seam weld flaw that, over time grew
to a critical size, causing the pipeline to rupture during
a pressure increase stemming from poorly planned electrical
work at the Milpitas Terminal; and (2) inadequate pipeline
integrity management program, which failed to detect and
repair or remove the defective pipe section;
2) Contributing to the accident were the CPUC's and the
DOT's exemptions of existing pipelines from the regulatory
requirement for pressure testing, which likely would have
detected the installation defects. Also contributing to the
accident was the CPUC's failure to detect the inadequacies
of PG&E's pipeline integrity management program; and
3) Contributing to the severity of the accident were the
lack of either automatic shutoff valves or remote control
valves on the line and PG&E's flawed emergency response
procedures and delay in isolating the rupture to stop the
flow of gas.
NTSB Safety Recommendations - In an accident investigation, the
NTSB will often make recommendations to the parties involved in
the accident, such as the gas utility operator, local first
responders, and regulatory agencies such as the PHMSA and the
PHMSA-certified state entity responsible for enforcement such as
the CPUC. Recommendations usually identify a specific problem
uncovered during an investigation and specify how to correct the
situation. Letters containing the recommendations are directed
to the organization best able to act on the problem, whether it
is public or private. The NTSB does not, however, make
recommendations to pipeline safety regulators in other states.
Regulators in other states are therefore only compelled to
consider NTSB recommendations if they result in a PHMSA
rulemaking or a change in the certification process. More than
13,000 recommendations have been issued by the NTSB since 1967.
In response to San Bruno, in 2010 and 2011 the NTSB issued 39
safety recommendations in 11 letters directed to the DOT, PHMSA,
PG&E, CPUC, Governor Brown and the American Gas Association.
COMMENTS
1. Author's Purpose . The author asserts that AB 578
addresses a deficiency in the regulatory oversight of
natural gas pipeline operations in California wherein the
CPUC frequently ignores and fails to act upon pipeline
safety recommendations issued by the NTSB. AB 578
requires the CPUC to determine, upon the adoption of a
natural gas pipeline safety recommendation by NTSB, whether
that recommendation is appropriate for California. If so,
the CPUC must implement that recommendation in a
cost-effective manner. If not, the CPUC must detail in
writing the reason for not doing so.
2. California Response to NTSB Lacking . After its August,
2011 report on San Bruno, the NTSB issued safety
recommendation letters to the DOT, PHMSA, Governor Brown,
the CPUC and PG&E. The NTSB reported to this committee
that it is customary for the recipient of a safety
recommendation letter to reply and acknowledge its receipt.
Even if the recipient has not been able to fully analyze
all recommendations, it is standard practice for the
recipient to outline a course of action. The federal
agencies (PHMSA and DOT) and PG&E responded to the NTSB
several months ago. The CPUC did not respond to the NTSB
until just last week - Monday, May 7, 2012. Governor Brown
has yet to respond. Consequently, the NTSB was not aware
of what, if any, action California was taking in response
to its safety recommendations for over seven months.
Consequently, the committee may wish to consider amending
the bill to replicate the mandated DOT response to NTSB
safety recommendations and require the CPUC to respond to
any safety recommendation letters it receives from NTSB
within 90 days and include its planned course of action.
3. Casts a Wide Net . This bill inadvertently requires the
CPUC to consider every recommendation made by the NTSB to
every gas pipeline operator in every state the result of
which would likely be of little import to California. As
an example, the NTSB recommended to PG&E that it undertake
specific activities to locate pipeline records related to
its system. That recommendation, if applied to another gas
utility in another state, would not be necessary. Safety
recommendation letters also go to trade associations and
local governments. The bill further directs the commission
to vote on whether recommendations in pipeline accident
briefs and reports and safety studies are necessary for
California's gas corporations. These documents are not
official direction from the agency but reports and reviews.
However, there do appear to be gaps between substantive and
pertinent recommendations at the federal level and
consideration by the CPUC. The author notes that the NTSB
does not share its recommendations with regulators or gas
corporations across the states and instead will direct
letters to the DOT and/or PHMSA suggesting regulatory
review or action with the expectation that they will take
appropriate action and direct the states accordingly. The
author opines that "PHMSA has not, however, proven to be
diligent in pursuing new rules. As one finding in a 1995
NTSB report stated that PHMSA 'has repeatedly failed to
address pipeline safety concerns in a timely manner.'"
Although the PHMSA may not take regulatory action, it does
use "advisory bulletins" to state regulators which this
bill does not capture. The committee may wish to consider
amendments which would narrow the commission's action to
NTSB safety recommendations which are directed to the DOT,
PHMSA, and California's gas corporations or directly to the
commission itself, and PHMSA advisory bulletins.
4. Legislative Ratemaking . The CPUC has broad ratemaking
authority and is required to determine whether costs and
rates are "just and reasonable." It is also common
practice and mandated in statute that the commission use
the standard of "reasonable and prudent" in reviewing the
costs. This bill requires the CPUC to determine whether
the costs of a gas corporation incurred to implement any
action taken by the CPUC in response to NTSB actions is
reasonable and prudent and to authorize recovery in rates.
It further restricts the CPUC from authorizing rate
recovery for any expenses that "would have been avoided if
the utility had been in compliance with then-existing state
or federal requirements." Legislative mandates or
restrictions on the ratemaking process of the CPUC is not
considered necessary and can also unnecessarily bind the
commission's deliberative process. Moreover, the specific
restriction on cost recovery in this bill blurs the
distinction between the ratemaking process and the
enforcement process. Consequently, the committee may wish
to consider striking this provision.
ASSEMBLY VOTES
Assembly Floor (57-19)
Assembly Appropriations Committee (12-5)
Assembly Utilities and Commerce Committee
(11-2)
POSITIONS
Sponsor:
Author
Support:
California Professional Firefighters
San Mateo Board of Supervisors
Oppose:
None on file
Kellie Smith
AB 578 Analysis
Hearing Date: May 15, 2012