Consumer Federation of California

Despite its recent efforts to be more customer-focused, Pacific Gas & Electric continued to insist Tuesday that ratepayers pick up the bulk of the tab for upgrading its aging gas pipelines, though it did make a small concession by agreeing to pay for tests on some of its pipelines.

In the latest filing leading up to what is going to be a high-stakes struggle between the company and consumer groups, PG&E maintained its customers should pay the lion’s share of its $2.2 billion pipeline upgrade plan because the safety standards the plan will meet are new.

But consumer groups say the company misspent ratepayers’ money and should have paid more attention to safety all along — and that the company and its shareholders should foot the bill to make up for neglecting safety standards and ignoring industry standards in place since the 1930s.

"There was industry guidance," said Tom Bottorff, PG&E senior vice president for regulatory affairs, drawing a distinction between requirements and what he said were voluntary standards that were not widely followed. "It certainly wasn’t commonplace. And it wasn’t (a requirement) to have those records on hand."

The first phase of the upgrade is expected to cost $2.2 billion over the next three years.

A second phase is expected to cost several billion dollars more, according to company estimates.

Before Tuesday, the utility said shareholders would pay only $320 million toward the $2.2 billion tab.

Bottorff said Tuesday that shareholders will pay slightly more, up to $360 million, which still leaves customers on the hook for the rest.

A hearing on the pipeline modernization plan and who should pay for it is scheduled to begin March 12 before an administrative law judge at the California Public Utilities Commission, but a decision is not expected until later in the year.

The case is sure to be hotly argued.

Consumer advocates say the utility should have better maintained its pipelines before the deadly San Bruno blast, and they have cited a recent audit as evidence the company overcharged customers in the past and should not come back to them again to pay for work that should have been done previously.

"PG&E has a self-serving, minimalist and incorrect view of what it should have been doing to operate its pipelines safely, which is why it mismanaged its system so tragically," Tom Long, legal director at The Utility Reform Network, said in an emailed statement.

A lawmaker who represents the area of the blast said the utility had an obligation to operate its pipelines more safely.

"They’re under the impression that if an industry standard is not explicitly stated in law, that is something they don’t have to do," said Assemblyman Jerry Hill, D-San Mateo.

Worse, Hill said, the company has a financial incentive to replace the aging pipes because when it increases the value of its infrastructure, the company is then allowed to collect more from customers under the regulated rates it charges.

"They’re trying to profit, as I see it, off the events of the last year and a half," Hill said.

Last summer, PG&E asked regulators to place about 90 percent of the cost of the initial phase on ratepayers. Separately, the utility says, shareholders have already been committed to pay for more than $1 billion to address mistakes that came to light after the San Bruno explosion.

The work is expected to make the utility’s pipeline system one of the safest in the world, according to PG&E.

The company said shareholders would pay up to $48 million more to test pipelines installed between 1961 and 1970 for which there are no records.

"Prior to 1970, there was no requirement to have records or pressure testing for pipelines placed into service prior to that date," Bottorff said.