8. Ratemaking and Other Incentives for Prudent Utility Operations
This rulemaking will consider how we can align ratemaking policies, practices, and incentives to better reflect safety concerns and ensure ongoing commitments to public safety. For instance, how do we maintain public and utility management attention to the "nuts and bolts" details of prudent utility operations? How do we foster a culture of commitment to safe utility operations with changing and increasingly competitive energy markets?
The unique circumstances of PG&E's pipeline records and pipeline strength testing program for its pre-1970 pipeline may require extraordinary safety investments. Our ratemaking authority empowers this Commission to impose such ratemaking consequences as the public interest may require. See e.g., Cal. Const. Art. 12; Pub. Utils. Code §§ 701, 451 ("every public utility shall...maintain such...equipment and facilities...as are necessary to promote the safety, health, comfort, and convenience of its patrons, employees, and the public.") The extraordinary safety investments required for PG&E's gas pipeline system and the unique circumstances of the costs of replacing the San Bruno line are situations where this Commission may use its ratemaking authority to, for example, reduce PG&E's rate of return on specific plant investments or impose a cost sharing requirement on shareholders. We will consider these, and other ratemaking mechanisms, in this proceeding.6
Given the economic challenges confronting California's families and businesses, we must be certain that each investment in safety that we order provides value to customers. We also need to be certain that authorized expenditures on needed maintenance and capital projects are implemented. This proceeding will consider whether to adopt a special ratemaking "feedback loop" for safety-justified expenditures to ensure that such expenditures are made or only higher priority safety projects are substituted, and any other ratemaking mechanisms that may be useful in promoting prudent utility operations.
In general, it is likely that in California, as in the rest of the nation, we are facing a situation of aging infrastructure and the need for investment in upgrading and replacement of portions of that infrastructure. In the case of PG&E, when the utility reports to us on March 15, we will have a better idea of the state of the records and inspections performed on the oldest parts of their pipeline system (in general, pipelines that were installed prior to 1970). Once we receive that information, we will need to begin a process to prioritize the need for additional testing on segments for which records are not adequate or where previous testing was not sufficient or conclusive about the appropriate pressures to be maintained on those pipelines. Depending on the types of tests required, expenses associated will likely be non-trivial.
In addition, once additional tests are performed, some segments of pipeline may become more urgent for upgrading or replacement. These expenses are also likely to be non-trivial. Not only for PG&E, but also for the rest of California's gas pipeline infrastructure, the Commission will be looking at the need for a more comprehensive infrastructure upgrade and replacement policy and program that is likely to take place over at least the next decade. In considering this, the Commission will need to balance the potential cost against the likelihood of danger to public safety.
PG&E has already proposed, and it has been covered in press reports and generally summarized in an advice letter filing for a memorandum account, a program called the "Pipeline 2020 Program." This rulemaking will be the venue for evaluating that proposal and potentially others like it from the other natural gas utilities in the state.
6 We will take official notice of the record in other proceedings, including the investigation of PG&E's gas system record-keeping, in our ratemaking determination.
