PG&E UNDER-SPENT ON PIPELINE REPLACEMENT

This story by Eric Nalder was published May 17, 2011 in the San Francisco Chronicle.

SAN BRUNO — Pacific Gas and Electric Co. under-spent its state-authorized budget for replacing aging natural gas pipelines by $183 million from 1987 to 1999, and the California Public Utilities Commission doesn’t know what happened to the extra money, a member of Congress said Monday.

Rep. Jackie Speier, D-Hillsborough, received a vague response when she asked the state agency to account for how PG&E had spent the money, said her district director, Richard Steffen.

The commission told Speier that based on its policy and experience, PG&E probably used it for “other operational needs or kept (it) for retained earnings” – money that is kept in corporate coffers rather than paid out to stockholders.

Steffen said Speier’s office plans to pursue a more detailed accounting.

“The story is not over. It is far from over,” Steffen said.

Pipeline replacement has become a hot issue since a 54-year-old PG&E gas transmission line exploded in San Bruno on Sept. 9, killing eight people and destroying 38 homes. A preliminary metallurgy report from the National Transportation Safety Board showed that the pipeline ruptured at a defective weld.

A Chronicle investigation pointed out in October that two-thirds of PG&E’s pipelines were built before 1970. That was a key year, in which regulations requiring better welding techniques were enacted.

Also, the vast majority of PG&E’s old pipelines can’t be inspected with the most modern technique – a device called a smart pig, which is bristling with sensors and is run through the interior of a pipe. PG&E has also been unable to find complete documentation confirming the safety of maximum pressure levels for about one-fourth of its transmission pipelines in and around urban areas.

Customers’ money

The Public Utilities Commission told Speier’s office that PG&E developed an effort known as the Gas Pipeline Replacement program in 1984, and that the agency approved it in 1987. That meant PG&E could collect money from customers to finance it.

PG&E envisioned the replacement effort “as a major program to replace all old lines constructed prior to the enactment of state and federal regulations” governing safe construction of pipelines 30 years ago, the commission told Speier.

At Speier’s request, the agency recently reviewed its records and found that from 1987 to 1999, it “granted PG&E $183 million more in funds … than was actually spent” on the replacement program.

The commission went on to say that after 2000, PG&E spent more “on its transmission pipeline safety-related work” than was authorized. However, said Steffen, that doesn’t mean the money was spent on transmission pipeline replacement.

A Chronicle investigation found it wasn’t. A story published in March showed that PG&E sharply curtailed its replacement of large, high-pressure transmission lines – like the one that exploded in San Bruno – after 2000.

It apparently spent the money on other parts of its safety program, including an inspection regimen known as direct assessment that failed to detect the faulty weld on the San Bruno line.

The utilities commission said the vast majority of PG&E’s under-spending on its replacement program occurred before 1995.

A missed chance

That could have had significance for the San Bruno line. Records show that from 1985 to 2000, PG&E replaced 65 segments totaling 2.8 miles on the pipeline that runs through San Bruno – from Milpitas to San Francisco – but in 1995 stopped just yards short of replacing the defective pipe that exploded in September.

Christopher Chow, a spokesman for the Public Utilities Commission, said the agency instituted new requirements and mechanisms after the San Bruno disaster “to ensure that the funds authorized for certain budget categories are spent on those categories.”

PG&E spokeswoman Brittany Chord said the company’s goal in its pipeline replacement program has always been “to enhance the safety of our natural gas pipeline system.”