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State may ‘profit’ $300M from eight San Bruno pipeline explosion deaths

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POSTED September 20, 2013 1:55 a.m.

PG&E isn’t without sin when it comes to not following the rules.

There are numerous documented cases of the utility asking for rate increases to do specific things such as replace aging power poles or repairing and upgrading natural gas lines and then failing to do so.

It happened because the supposed public watchdog — the California Public Utilities Commission — was either asleep or too cozy with PG&E.

PG&E’s seemingly cavalier attitude toward natural pipeline maintenance changed drastically after the deadly San Bruno explosion.

To PG&E’s credit, they stepped up. They have spent upwards of $900 million in infrastructure improvements to the natural gas distribution system. That is on top of $565 million to compensate victims and $170 million to help rebuild the San Bruno neighborhood.

The CPUC is also seeking another $1.95 billion on PG&E shareholders’ dime to further upgrade the utility’s natural gas distribution system. Usually ratepayers are on the hook for such costs. But given PG&E’s sleight of hand with funds to do similar work in the past and lax oversight of its ongoing pipeline inspection effort the $1.95 billion can be justified.

What can’t be justified is an additional $300 million penalty being proposed. That money would all flow into the state’s general fund.

If anyone should be paying a $300 million fine it should be the State of California. The CPUC issued rate decisions that PG&E did not comply with. It happened because the CPUC never bothered to effectively monitor or enforce their orders. They obviously were not effectively monitoring PG&E for compliance with pipeline maintenance and operation regulations despite making public noise for years to the contrary.

At the very least the CPUC was incompetent. At worst, the state agency deliberately deceived the public and ratepayers.

A case could be made that the CPUC’s consistent failure to adequately monitor PG&E and enforce rate cases as far as how money collected is spent emboldened corporate management at PG&E.

Much ado has been made about how the overall $2.25 billion proposed fine would pose a “safety risk” for utility investors. The CPUC has to take that into account because part of their marching orders include making sure the utility is able to stand financially. It is why under CPUC rules utilities like PG&E are guaranteed a return or profit of 11.35 percent on every $1 they invest. That guarantee is paid for by ratepayers, not shareholders.

In exchange for being a protected monopoly, PG&E and other utilities are expected to do certain things. This wasn’t the case prior to 2010. As such it created an obvious safety risk to ratepayers so that investors could benefit.

The $1.95 billion goes directly to addressing customer safety and that of the general public. A CPUC commissioned study done by Overland Consulting shows that PG&E can raise $2.25 million in additional equity without hurting its credit rating. That means they could do the $1.95 billion work and still get a nice and healthy 11.35 percent return. While that margin may not be big enough for greedy types on Wall Street, it is more than a decent return given the rate of inflation and interest rates.

After setting aside $1.95 billion for natural gas infrastructure that leaves $300 million.

How convenient. That amount — $300 million — would go to the state’s general fund in the form of pure punishment. It is essentially rewarding the state for failing to do its job. Had the state done its job and held PG&E to orders issued by the CPUC, the chances are San Bruno would never have happened.

The State of California should not “profit” from a disaster that they played a supporting role in creating.

Punishing PG&E for killing 8 people and destroying 38 homes in 2010 is being accomplished through the $735 million it must pay to compensate victims and rebuild parts of San Bruno.

The additional punitive damage requiring $1.95 billion on the shareholder’s dime to upgrade natural gas pipelines is a punishment that fits the crime. Not only does it make up for years of neglect but it does so while reducing shareholders from future liability from explosions similar to San Bruno.

The state government should not use a disaster that they indirectly helped create so Sacramento politicians have another $300 million to squander.





This column is the opinion of executive editor, Dennis Wyatt, and does not necessarily represent the opinion of The Bulletin or Morris Newspaper Corp. of CA.  He can be contacted at dwyatt@mantecabulletin.com or 209-249-3519.

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