3. Discussion

Pursuant to Public Utilities Code Section 451 each public utility in California must:

Furnish and maintain such adequate, efficient, just and reasonable service, instrumentalities, equipment and facilities,...as are necessary to promote the safety, health, comfort, and convenience of its patrons, employees, and the public.

The duty to furnish and maintain safe equipment and facilities is paramount for all California public utilities.

This Commission is currently confronting the most deadly tragedy in California history from public utility operations. We are resolute in our commitment to improve the safety of natural gas transmission pipelines. In this context, it is absolutely essential that our regulated utilities display the highest level of candor and honesty. We understand that the issues at hand implicate substantial expenses and capital investments, and that the optimum means to address these safety issues may be subject to reasonable debate. To perform our Constitutional and statutory duties, we must have forthright and timely explanations of the issues, as well as comprehensive analysis of the advantages and disadvantages of potential actions. Attempts at legal exculpation have no place in our proceedings to address these urgent issues.

PG&E needs to rebuild the Commission's and the public's trust in the safety of its operations. The directives in today's decision are necessary steps to ensure safe operations and to restore public trust.

As the detailed history set out above shows, this project to validate MAOP was set in motion by the NTSB's justifiable alarm at PG&E's records being inconsistent with the actual pipeline found in the ground in Line 132. The pipeline features data for Line 132 were not missing; the recorded data were factually inaccurate. Records containing inaccurate pipeline features are fundamentally different from simply missing records. Curing PG&E's unreliable natural gas pipeline records was the obvious goal of the NTSB's recommendation to obtain "traceable, verifiable, and complete" records and, with reliably accurate data, calculate a dependable MAOP.

PG&E and SoCalGas/SDG&E state that such records are not available, especially for the older vintage pipelines. Notwithstanding the utilities' record-keeping challenges, these missing records are particularly needed because the older pipelines were exempted from pressure testing requirements and many have not been pressure tested.

Consequently, the untested pipelines are also some of the oldest in the natural gas transmission system and the more likely to lack a complete set of documents allowing pipeline feature documents to be established without the use of assumptions. We find that this circumstance is not consistent with this Commission's obligations to promote the safety, health, comfort, and convenience of utility patrons, employees, and the public. We conclude, therefore, that all natural gas transmission pipelines in service in California must be brought into compliance with modern standards for safety. Historic exemptions must come to an end with an orderly and cost-conscience implementation plan.

3.1. Interim Requirements

As TURN and CPSD note, remedial document management has benefits beyond calculating MAOP. As PG&E's engineer testified, knowing what is in the ground is a necessary prerequisite to a pressure test that does not have "unintended consequences." Therefore, we find that PG&E must continue its efforts to determine MAOP by component calculation.²² Such efforts alone are not enough, however, to validate the safe operating pressure for its natural gas transmission pipeline.

As set forth below, we require California natural gas transmission pipeline operators to prepare and file a comprehensive Implementation Plan to replace or pressure test all natural gas transmission pipeline in California that has not been tested or for which reliable records are not available. We anticipate that these plans will provide for a multi-year implementation schedule.

Because these will be multi-year plans, the plans must include interim safety enhancement measures, including increased patrols and leak surveys, pressure reductions, prioritization of pressure testing for critical pipelines that must run at or near MAOP values which result in hoop stress levels at or above 30% Specified Minimum Yield Stress (SMYS), and other such measures that will enhance public safety during the implementation period. These California operators must abide by any pressure reductions that have been or may be ordered by this Commission or PHMSA. For instance, in its decision initiating this rulemaking, the Commission proposed adding new Rule 145 to General Order 112. That proposed rule, if adopted by the Commission, would require additional pressure reductions.

In addition, the California operators must continue work on their respective responses to the NTSB recommendations. PG&E's pipeline features analysis will be useful in determining a MAOP calculated based on the weakest component. PG&E must conform its authorized MAOP to the lower of any calculated MAOP and currently established MAOP.

As noted in their filings, PG&E is preparing to begin hydrostatic testing of 152 miles of pipeline to be completed in 2011. PG&E should continue these efforts.

3.2. Replace or Pressure Test Implementation Plan

We order all California natural gas transmission pipeline operators to prepare Implementation Plans to either pressure test or replace all segments of natural gas pipelines which were not pressure tested or lack sufficient details related to performance of any such test. These plans should provide for testing or replacing all such pipeline as soon as practicable. At the completion of the implementation period, all California natural gas transmission pipeline segments must be (1) pressure tested, (2) have traceable, verifiable, and complete records readily available, and (3) where warranted, be capable of accommodating in-line inspection devices.²³

Specifically, no later than August 26, 2011, respondents SDG&E, SoCalGas, Southwest Gas Corporation and PG&E shall file and serve their respective proposed Natural Gas Transmission Pipeline Comprehensive Pressure Testing Implementation Plan (Implementation Plan) to comply with the requirement that all in-service natural gas transmission pipeline in California has been pressure tested in accord with 49 CFR 192.619, excluding subsection 49 CFR 192.619 (c).

Such Implementation Plans shall be completed as soon as practicable, due to significant public safety concerns, and must include interim safety enhancement measures, as described above.

The analytical nucleus of the Implementation Plan will be a list of all transmission pipeline segments that have not been previously pressure tested, with prioritized designations for replacement or pressure testing. The Implementation Plan should start with pipeline segments located in Class 3 and Class 4 locations and Class 1 and Class 2 high consequence areas, with pipeline segments in other locations given lower priority for pressure testing. All natural gas transmission pipeline must be included in the Plan, even low priority segments. The Implementation Plan must set forth the criteria on which pipeline segments were identified for replacement instead of pressure testing. Replacements should be prioritized and the prioritization criteria explained.

The Implementation Plan may have limited information available for testing lower priority pipeline segments, which are expected to be performed on a longer term schedule. Cost information may be similarly limited.

The Implementation Plan shall also contain a priority-ranked schedule for pressure testing pipeline not previously so tested, and may provide for MAOP reductions to the lowest of the following: (1) a level no greater than 80% of the reliably recorded maximum operating pressure (MOP) from January 1, 2006 to January 1, 2011, (2) the lowest MOP of any High Consequence Area (HCA) segment (defined per 49 CFR, Part 192) on a pipeline for the five-year period preceding the date of the identification of the HCA segment or the level to which the segment was lowered after September 9, 2010. The Implementation Plan must also address retrofitting pipeline to allow for in-line inspection tools and, where appropriate, automated or remote controlled shut off valves.

We grant SoCalGas and SDG&E's request for technical workshops to develop implementation details, including criteria for prioritization of work, prior to filing the Implementation Plans. These workshops are vital to developing a sound engineering approach, with supporting analysis, to address the issue of aging natural gas transmission pipeline that has not been pressure tested. We encourage participants in these workshops to be innovative and explore alternatives, but the guiding principle must be maintaining the highest level of public safety.

Due to the complex issues and limited timeframe to address them, the Commission's Chief Administrative Law Judge shall designate a facilitator for the workshops. The purpose of the workshops shall be to discuss and provide recommendations for California's natural gas transmission system operators on prioritizing pipeline segments for replacement or testing in their Implementation Plans. The workshop participants may survey best practices in other states for addressing pre-1970 natural gas pipeline that has not been pressure-tested, seek advice from industry experts or federal authorities, and take such actions as are necessary to inform themselves as to the optimum means of addressing the technical issues in this proceeding. The workshops will consider this information in developing the best practices for use in California. Written reports may be prepared and circulated.

The Commission's CPSD shall participate in the workshops and may submit periodic reports to the Commission or otherwise bring forward any urgent issues.

A key question regarding the Implementation Plans is how the costs, which are expected to be significant, will be funded. We, therefore, direct that the plans as set forth above must include cost estimates and rate impacts to enable the Commission to fully consider the impacts of the final adopted plan. Obtaining the greatest amount of safety value, i.e., reducing safety risk, for ratepayer expenditures will be an overarching Commission goal in reviewing the plans presented by the gas transmission system operators. Specific capital and expense amount for each component of the plans shall be separately stated with rate base amortization specified as well.

PG&E's plan must include a cost-sharing proposal between ratepayers and shareholders. As we noted when initiating this proceeding:

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.²⁴

As we indicated in that decision, we intend to take official notice of the record in other proceedings, including the investigation of PG&E's gas system record-keeping (R.11-02-016), in our ratemaking determination.

Therefore, each natural gas transmission operator in California must include in its implementation plan a ratemaking proposal with the following:

a. For PG&E only, proposed cost allocation between shareholders and ratepayers;

b. Specific rate base and expense amounts for each year proposed to be included in regulated revenue requirement;

c. Proposed rate impacts for each year and each customer class; and

d. Other such facts and demonstrations necessary to understand the comprehensive rate impact of the Implementation Plan.

We anticipate that extensive hearings will be necessary to fully vet the plans and to evaluate the rate impacts. Customer notice will also be required, and the utilities should work with the Commission's Public Advisor in developing these notices. Additional public participation hearings may be required when the ratemaking issues become more clear. As we consider these important but costly safety improvements and the rate impacts on California's working families and businesses, we encourage the public to provide comment through our Public Advisors Office, the Commission's web site, and in writing.

²² PG&E explained that it intends to use the lower of the calculated MAOP or historical operating pressure. We approve using the calculated MAOP to lower operating pressure as an interim measure pending replacement or testing.

²³ As part of the workshop process ordered below, we will also direct these operators to develop standards for identifying transmission pipeline segment where retrofitting for in-line inspection techniques would be reasonable and feasible.

²⁴ Order Instituting Rulemaking 11-02-019 at 11-1 2.