WHO WILL PAY FOR PIPELINE FIXES?

CALIFORNIA FOCUS 
FOR RELEASE: TUESDAY, MAY 15, 2012, OR THEREAFTER

BY THOMAS D. ELIAS

       “WHO WILL PAY FOR PIPELINE FIXES?”

          Pacific Gas & Electric Co. now estimates the cost of upgrading its decrepit pipeline system, the one whose failure blew up part of the San Francisco suburb of San Bruno in 2010, at $2.2 billion over 10 years. Figure the price for updating the systems owned by Southern California Gas Co. and San Diego Gas & Electric Co. will be proportionate – about $2.6 billion for SoCal Gas and $600 million for SDG&E.

          The question now is who will pay for all that work? In its current proposal for handling this self-inflicted problem, PG&E asks that its customers pay the lion’s share of the bill. The giant utility, in a filing with the state Public Utilities Commission, says the company and its shareholders should pay $360 million, leaving customers to pay the rest – about $1.84 billion.

          If past history means anything, whatever the commission decides in PG&E’s case will also apply to the other big gas utilities.

          Of course, for consumers to pay any of the cost would be rank injustice and absurdity. For the astonishing aspect of all this is that gas customers have made payments to assure safety and reliability of pipelines for decades through their regular monthly bills.

          So customers have already paid their share. Why

should they have to pay anything more? Another question: What did the utilities do with all the money customers have long paid in for the very same purpose as the fee now proposed? While the companies say it was spent properly, the National Transportation Safety Board concluded last year that – at least for PG&E – inspections and repairs have long been inadequate. So the money plainly wasn't used for that.

          The real issue motivation here for the utilities is an esoteric concept called the “rate base.” They are allowed a “reasonable rate of return” for every cent they spend in capital improvements like new equipment or construction of new facilities. Right now that’s about 11.35 percent, collected annually over 20 years.

So if the PG&E request for customer payments gets PUC approval, Californians can expect all the big gas companies to pull in 11.35 cents of profit for every dollar they spend on repairs. The formula doesn’t care whether those dollars come from customers or not. Because the customer dollars would be routed through the companies, it would all go on the books as a corporate expense.

          In short, the gas companies hope to profit for decades to come from a need highlighted by one of their biggest failures ever, one that proved lethal in San Bruno.

          What’s more, the utilities commission – headed by former Southern California Edison Co. chief Michael Peevey – has essentially acted as a utility company rubber-stamp since the 1970s, when it briefly adopted a slightly different stance.

          So even if PG&E doesn’t get approval for consumers to pay the full 84 percent of the safety repair and update tab that it has requested, it would be most unusual if the company didn’t get at least 60 percent of the fixup expense from its customers.

          That would be more billions from consumers beyond the billions they’ve already paid. Plus at least $300 million a year in new profits to the companies because they’re expanding their rate bases.

          If it all seems unfair, that’s because it is. The U.S. Department of Energy reports Californians paid an average of $9.90 per thousand cubic feet of natural gas used last year, compared with $8.03 in Colorado, $8.44 in Utah, $9.50 in Illinois and $9.17 in New Mexico. California rates were not among the very highest overall, but were among the highest charged in gas-producing states, of which this is one.

          So far, nothing critical that state lawmakers or anyone else says about the gas companies attempting to dun customers for their own neglect has made any perceptible dent in the utilities’ proposals. Perhaps that’s because they figure the PUC always tilts their way.

          “We knew this day was coming, when PG&E would expect the ratepayers to pick up the cost of its repairs,” griped Democratic Assemblyman Jerry Hill of San Mateo County, who represents San Bruno. “They absolutely should not be allowed to profit from this.”

          But it’s almost certain they will profit from their longstanding dereliction. And right now it appears nothing will be done about it, if only because there is no mechanism for getting rid of utility commissioners when their decisions are unfair and illogical.

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Email Thomas Elias at tdelias@aol.com. His book, "The Burzynski Breakthrough: The Most Promising Cancer Treatment and the Government’s Campaign to Squelch It," is now available in a soft cover fourth edition. For more Elias columns, visit www.californiafocus.net.