PG&E ratepayers to pay less than expected for pipeline upgrades

by George Avalos, Oakland Tribune

PG&E ratepayers can anticipate paying less in their power bills to help finance the utility’s sweeping upgrade of its natural gas pipeline system, even though PG&E has encountered cost overruns for the $2.35 billion program, state officials and PG&E said Thursday.

That’s because PG&E now expects it will replace 145 miles of natural gas pipelines rather than 185 miles by the end of 2014, or 22 percent less. The state Public Utilities Commission has ordered the ratepayer costs to be based on the number of miles of pipes replaced. “Because the total scope of the work has decreased, we can claim less from ratepayers,” said Jonathan Marshall, a spokeswoman for San Francisco-based Pacific Gas & Electric.

The replacement and upgrades of pipelines and valves in the PG&E system are being undertaken in response to the gas pipeline explosion in San Bruno in 2010 that killed eight and injured 58.

Initially, PG&E had estimated that ratepayers would have to pay $1.1 billion for the pipeline replacement. Now, with fewer miles being replaced, those costs are expected to total roughly $900 million, Marshall said.

At the same time, though, PG&E shareholders must pay more for each mile of pipeline replaced. “There was more difficult terrain involved in the replacement,” Marshall said. “We also found more complicated third-party infrastructure underground — things like water and sewer pipes that required more careful trenching.”

Shareholders now are expected to cover $1.45 billion for the total replacement costs, compared with a prior estimate of $1.25 billion, said Brittany Chord, a PG&E spokeswoman.

“We’ll be taking a charge for the additional costs that won’t be recovered from customers,” PG&E CEO Anthony Earley told analysts during a conference call Wednesday to discuss quarterly earnings. “We’re disappointed to have to do this but it reflects the complexity and the challenges of this important gas safety work.” The additional cost is expected to be $196 million.

PG&E critics were skeptical about the utility’s estimates. They noted that the company is facing potentially huge fines from the PUC for negligence and poor record-keeping in connection with the San Bruno explosion.

Karen Paull, chief counsel for the Office of Ratepayer Advocates at the PUC, said PG&E is attempting to present itself in as favorable a light as possible with a decision pending on its punishment for the disaster. “PG&E is trying to impress on regulators how much shareholders are already spending,” Paull said.

A consumer group, The Utility Reform Network, says it will press the PUC to reduce further the ratepayer share of the pipeline upgrades. “We are looking for a significant reduction in what ratepayers should pay,” said Thomas Long, the group’s legal director. “It should be at least 25 percent less.”