The May decision of state Senate Appropriations Chairman Anthony Portantino, D-La Cañada Flintridge, to kill a sweeping bill making it far easier for developers to build four- or five-story condominium and rental projects near mass transit led many disappointed pundits to complain that the Legislature still hadn’t done enough to spur housing construction. Senate Bill 50, by Sen. Scott Wiener, D-San Francisco, was seen as crucial to getting local communities to meet housing needs.

But officials and residents of the San Francisco suburb of San Bruno don’t want to hear that the state hasn’t done enough to pressure local governments. Thanks to a 2017 housing law – also crafted by Wiener – and another bill recently signed by Gov. Gavin Newsom, the city of 43,000 residents could eventually face fines of as much as $600,000 a month for failing to meet housing mandates, according to a report in the San Francisco Chronicle.

At issue is the San Bruno City Council’s July 10 decision to reject a 425-unit housing project proposed by the Signature Development Group. Zachary Olmstead, a deputy director at the state Department of Housing and Community Development, warned city officials in a letter last week that under the 2017 law, they were legally compelled to approve the project since it met all planning and zoning requirements without imperiling public safety or health. Olmstead noted that state law compels San Bruno to approve construction of 1,155 new housing units by 2023, but so far it had approved just 118 units – with none for low-income families.

Gov. Newsom sees lawsuits as way to fight local NIMBYs

The formal notice from the state clears the way for the Newsom administration to eventually sue San Bruno if it doesn’t reverse its decision on the project or otherwise approve new housing. The governor already made it clear he considers such lawsuits as a powerful tool to force housing construction, suing Huntington Beach in January because the Orange County city had made little progress toward the requirement that it add 533 low-income housing units by the end of 2021.

Huntington Beach officials, who believe that their state constitutional protections as a charter city are being violated, are suing the state over its housing edict.

San Bruno officials have reacted with much less defiance. That may be partly because as a general law city, San Bruno can’t claim constitutional cover. It’s also because there is far more support for the 425-unit project in San Bruno than there is for low-income housing in Huntington Beach.

According to the Chronicle, the Signature Development Group worked to firm up support for its project by accepting city officials’ request that its plan add 64 more low-income units and include a grocery store, among other concessions. But while four of the five council members backed the project, two of those members recused themselves because of perceived conflicts of interests, since they live within 1,000 feet of the proposed project site. That meant there weren’t the necessary three votes for approval.

Unlike Huntington Beach, San Bruno is conciliatory

Even before the state’s warning arrived, San Bruno City Manager Jovan Grogan posted a statement on the city’s website about the controversy late last month that acknowledged the City Council’s decision might not stand. 

Grogan’s conciliatory remarks presented a sharp contrast with Huntington Beach officials’ reaction to the state’s pressure. There, City Attorney Michael Gates blasted Newsom and suggested that Huntington Beach’s history as a Republican stronghold was why it was singled out first instead of the 50-plus other cities in California that also failed to meet state housing mandates.

Meanwhile, there were reports this week that the San Bruno City Council would meet soon to review its limited options. An opinion from the city’s legal advisers saying the two council members who recused themselves from conflicts could vote because of the unusual circumstances could be a tidy way out of the problem.

That could wipe out half the $30 billion in liabilities that the state’s largest power utility feared it faces because of brutal wildfires linked to its power lines and transmission facilities over the past three years.

PG&E’s stock went up 75 percent after the Cal Fire report on Thursday before slipping 16 percent on Friday.

Former CPUC leader: Bankruptcy a ploy to win bailout

The ruling was cited in a Los Angeles Times analysis that questioned whether PG&E really needed to go into bankruptcy on Tuesday, as it had previously announced it would. Former California Public Utilities Commission President Loretta Lynch told the newspaper that the utility had “created this crisis” as part of a corporate strategy to scare the state Legislature into approving a sweeping bailout to minimize disruptions for its 16 million customers.

Yet Lynn’s view was at odds with several recent developments. Credit rating agencies only continued to see PG&E as in near-deathbed condition and last week, S&P Global Ratings downgraded the state’s other two investor-owned utilities – Southern California Edison Co. and San Diego Gas & Electric Co.

S&P said PG&E’s travails showed the risks that California utilities face because of “inverse condemnation” – a state law which says utilities are financially liable for damages from fires caused by their equipment even if the utilities had not been found negligent.

Meanwhile, PG&E’s contentious relationship with the federal judge overseeing its probation stemming from its six felony convictions in the 2010 natural gas pipeline disaster that killed eight people in San Bruno (pictured) took a sharp turn for the worse. There is relatively little precedent for federal judges to play such oversight roles in complex cases. This had led to speculation that San Francisco-based U.S. District Judge William Alsup might be cautious in drawing conclusions after announcing in late November that he was reviewing PG&E’s role in recent wildfires in Northern California. Alsup was seen as lacking the background and experience of agencies like the CPUC and Cal Fire to evaluate the utility’s claims and evidence from wildfire sites.

Instead, the judge has already issued a preliminary ruling directly asserting that PG&E’s failure to properly insulate power conductors contributed to fire disasters in Northern California over the last two years, including the November blaze in Butte County that killed at least 85 people. A hearing is scheduled in Alsup’s courtroom Wednesday on his ruling, which could lead to the judge ordering PG&E to broadly upgrade its transmission equipment.

PG&E: Rates could go up five-fold

The San Francisco Chronicle reported last week that PG&E officials believed that compliance with a far-reaching Alsup order “could cost between $75 billion and $150 billion, requiring a one-year rate hike – at the low end of the spectrum – of more than five times current rates in typical bills.”

In its formal response to Alsup’s tentative ruling, PG&E indirectly questioned his expertise. The utility wrote that it is “committed to working aggressively and expeditiously with state and federal officials on system maintenance and upgrades and on wildfire mitigation efforts.”

“But the path forward to mitigating wildfire risk is best designed not through probation conditions, but rather through careful coordination with state and federal regulators, after appropriate consultation with other interested parties, based on the best science and engineering advice, with policy analysis that accounts for the full range of important but often conflicting social goals,” PG&E concluded.

State Sen. Jerry Hill, D-San Mateo, told the Bay Area News Group that he welcomed Alsup’s actions.

“A federal judge is actually saying things and hopefully will do something about the lack of maintenance at PG&E,” he said. “No one else has required that.”

Hill, whose district includes San Bruno, has long ripped the state Public Utilities Commission for what he sees as lax oversight of PG&E.

Pacific Gas & Electric – the giant investor-owned utility that serves 16 million Californians – appears to be facing its gravest crisis since its founding in 1905.

The initial indications that PG&E’s equipment may have sparked the Camp Fire that killed at least 88 people in Butte County – the deadliest blaze in state history – initially led at least some state lawmakers to consider new legislation to try to insulate PG&E from potentially devastating liabilities. Earlier this year, the Legislature passed and Gov. Jerry Brown signed into law a measure that lets PG&E spread out the costs from 17 Northern California wildfires in 2017 and have its customers pay some of its bills.

The Bloomberg news service reported that Assemblyman Chris Holden, D-Pasadena, may introduce legislation to help PG&E in coming days.

But a federal judge and the president of the California Public Utilities Commission have shaken PG&E’s hopes that it can avoid crushing new blows.

Judge demands answers on PG&E, Camp Fire

U.S. District Judge William Alsup has ordered PG&E to provide evidence proving its negligence didn’t cause the Camp Fire – raising the prospect that the utility could be found guilty of violating the terms of its five-year criminal probation that began in January 2017.

The probation was imposed then by U.S. District Judge Thelton Henderson – along with the maximum possible fine of $3 million – after PG&E was convicted of six felonies related to the 2010 San Bruno disaster (pictured above). A PG&E natural gas pipeline that was found to have been poorly maintained exploded, killing eight, injuring more than 50 and wiping out 38 homes. The utility was convicted of five felonies for failing to keep the pipeline safe and a sixth felony for impeding investigators.

Judge Alsup was assigned to monitor PG&E’s probation. In a statement, Alsup said his goal was determining what “federal, state or local crimes might be implicated were any wildfire started by reckless operation or abandonment of PG&E power lines” or “inaccurate, slow or failed reporting of information about any wildfire.” If Alsup concludes that PG&E violated its probation, the utility could face unprecedented punishment from the judge.

Two days after Alsup’s announcement, CPUC President Michael Picker said he had concerns about whether PG&E’s “culture” had enough of a commitment to public safety. At a CPUC board meeting in San Francisco, the utility was ordered to implement 60 safety recommendations from a commission consultant.

Picker’s critique came less than two weeks after he stuck up for PG&E, challenging the idea that the Camp fire could or should put the utility into bankruptcy. “It’s just not good policy,” Picker told the San Francisco Chronicle. “It doesn’t work out.” This stabilized PG&E’s stock price.

The new tone from Picker was a departure from the normally close relationship between the CPUC and PG&E.

Those who have called for the CPUC to be reformed and to be much tougher with the utilities it oversees often cite the $1.6 billion “fine” the utility commission levied in 2016 on PG&E for the San Bruno disaster. More than half of the fine – $850 million – was actually a requirement that the utility upgrade its natural gas pipeline system.

Critics said this amounted to likening the improvements that PG&E had to make to a penalty.

Picker joined in the 4-0 CPUC board vote for the “fine.”

This price system, critics say, results in unforeseen consequences. A recent investigative report found that California’s utility companies have been involved in a power-plant building spree, even though Californians have significantly cut their electricity usage over the same time period. In three years, the state is projected to be producing 21 percent more electricity than it needs, without counting the growth in rooftop-solar applications, reported the Los Angeles Times.

Last year, the California Independent System Operator had 24 percent in actual reserves – far above the targeted 15 percent goal. Even that 15 percent goal is 50 percent higher than what’s necessary to protect the system from disaster and blackouts, according to some experts.

As the Times’ report put it, “California has a big – and growing – glut of power.” It’s a matter of incentives. Because utilities are guaranteed a 10.5 percent rate of return on each new plant they build, regardless of whether customers actually need it, they can make more money building new plants than they could buying power from existing competing plants.

In an open marketplace, gluts of products or services lead firms to slash their prices dramatically. If, say, car manufacturers produce too many vehicles, they will provide rebates or be stuck with lots full of unsold inventory. With California’s regulated utility system, by contrast, gluts in electricity actually raise prices for consumers because of the way utilities are paid for their investments. They need only get the approval from the Public Utilities Commission to build new plants and pass on costs to ratepayers.

The regulated utility model, which dates back to the 19^th century, puts government regulators in charge of looking after consumers’ best interests. But a fairly recent California utility scandal has illustrated the dangers of what Nobel Prize laureate George Stigler refers to as “regulatory capture,” when the oversight agencies are dominated by the industries they regulate.

As the Mercury News reported in 2015 regarding the investigation of a deadly 2010 explosion of a PG&E natural-gas pipeline in San Bruno:

“Additional evidence of the close relationship between PG&E officials and leaders of the agency that regulates the utility emerged late Friday in a new batch of emails long sought by the city of San Bruno … .”

Some say the current system also crushes the emergence of a functioning electricity market. The Times article tells the story of an energy company that built a $300 million privately funded facility in Sutter County:

“Independents like Calpine don’t have a captive audience of residential customers like regulated utilities do. Instead, they sell their electricity under contract or into the electricity market, and make money only if they can find customers for their power.”

But soon after the construction of that plant, the California Public Utilities Commission approved PG&E’s application to build its own power plant. PG&E gets paid no matter the consumer demand, so it was hard for a true private enterprise to compete with that subsidized model. Calpine shuttered its facility halfway into its useful life.

“A monopoly franchise removes the incentive to innovate to increase market share,” explains my R Street Institute colleague Devin Hartman, in an August study of the nation’s electricity markets. “Guaranteed cost recovery for ‘prudently incurred’ expenses diminishes the incentive to control costs. The regulated model also insulates utilities from market risks and most policy risks, such as changes in fuel prices or government subsidies.” This provides a safe place for investors, he added, but gives them little incentive to manage risks or control costs.

These analyses also highlight a point that might seem counterintuitive to many environmentalists: competitive markets often lead to better air-quality outcomes. Here, we see utilities overbuilding natural-gas-fired power plants even as consumer demand suggests the plants aren’t necessary. Because of the utilities’ rate-of-return-based payment, they can stick with older technologies and avoid looking at alternative-energy models that might trim their costs.

The current distorted market is, to some degree, a reaction to the botched energy deregulation plan former Gov. Pete Wilson signed into law in 1996, which provoked a statewide crisis in 2000. The state deregulated the price of wholesale energy, but capped its retail price. The population had been growing and regulators had not approved the construction of new power plants for years. After a hot summer and market manipulations by energy companies gaming the new system, the state’s wholesale prices soared above those retail caps.

The end result: Rolling electricity blackouts, a statewide crisis that led to the bankruptcy of PG&E, and the recall of Gov. Gray Davis. Though Wilson signed the legislation, Davis was blamed for indecision as parts of the state went dark. Since then, state officials have avoided anything smacking of deregulation or market competition and have been cranking up supply even if it’s not necessary. Other states, such as Texas, deregulated their electricity markets and have watched electricity prices go down as California’s have increased.

The Times only touches on another issue of long-term importance: solar energy and the utility companies’ fear of a “death spiral.” California law allows for net energy metering. “Customers who install small solar, wind, biogas and fuel cell generation facilities … to serve all or a portion of onsite electricity needs are eligible for the state’s net metering program,” explains the Public Utilities Commission. “NEM allows a customer-generator to receive a financial credit for power generated by their onsite system and fed back to the utility.”

Utilities must buy back the electricity at market rates, but they still have this vast – and growing – infrastructure of power plants and utility lines to finance and maintain. The more the utilities raise their rates to pay for these “stranded costs,” the more consumers opt out and install solar panels. That raises the per-capita costs of maintaining that infrastructure, which raises electricity prices – and leads to more people opting out of the system. Advances in battery storage could further diminish the need for power plants that are financed 30 or 40 years into the future.

Steven Greenhut is Western region director for the R Street Institute. Write to him at sgreenhut@rstreet.org.     

Californians approve of Brown, Obama and state — country, not so much

Good morning! 

A majority of Californians approve of the job Gov. Jerry Brown is doing and think the state is on the right track, according to several Field Polls released this week. 

But the same correlation doesn’t extend to the perception of President Barack Obama, who received high marks, and the direction of the country, which a 54-percent majority sees headed down the wrong path. 

Brown and Obama polled nearly the same — 56 and 57 percent approval, respectively — with Democrats largely in support of both executives and Republicans largely disapproving.

Brown hasn’t dipped below 50 percent in the Field Poll since October 2012, when the state was still dealing with a budget crisis. For his part, Obama has consistently polled higher than Brown over the years. 

CalWatchdog has more. 

In other news: 

• “A San Diego-area businessman who filed papers seeking referenda to overturn six gun control laws said Saturday that he is part of a group of up to 100 activists who feel the measures were rushed through without considering public opinion,” writes the Los Angeles Times.
• After months of inquiries about questionable spending from his campaign account, Rep. Duncan Hunter, R-Alpine, is lawyering up. The San Diego Union-Tribune has more.  
• “A newly released document summarizing possible connections between Saudi officials and 9/11 hijackers places Los Angeles in a central role,” reports LA Weekly. 
• “In a formal audit just months before the deadly San Bruno blast, PG&E failed to tell state regulators about manufacturing defects affecting more than 80 miles of gas pipelines, according to evidence presented Friday in the utility’s federal criminal trial,” reports The San Jose Mercury News.
• Will voters get to weigh in on revising Prop. 13 in 2018? CalWatchdog has more.  

Legislature:

• Gone ’til August.

Gov. Brown:

• On vacation. 

Tips: matt@calwatchdog.com

Follow us: @calwatchdog @mflemingterp

New followers: @RepDonBeyer @RadioFreeCalif

In San Francisco, federal prosecutors are laying the groundwork for a criminal trial of Pacific Gas & Electric that will begin in March. In preliminary filings, prosecutors paint a scathing picture of PG&E negligence leading to the 2010 explosion of natural gas pipelines in San Bruno, which killed eight and wiped out a neighborhood.

How is that bad for the PUC? Because implicit in the federal allegations that 28 felonies were committed by PG&E is that the utility was not facing serious regulation before the catastrophe in San Bruno, a suburb south of San Francisco. Here is part of the San Jose Mercury News’s recent coverage:

“The government intends to offer proof that PG&E’s willful decisions not to maintain records, conduct proper pipeline assessments, and otherwise comply with federal pipeline safety regulations were part of a corporate culture of prioritizing profits over safety,” federal prosecutors wrote in papers filed on Nov. 2 with the U.S. District Court in San Francisco.

 

“The prosecutors in the trial are being very aggressive,” said Peter Henning, a professor of law with Wayne State University in Detroit. …

 

“They are trying to frame this case for a jury, and the government is attempting to frame this around a single word: greed,” Henning said.

 

PG&E faces a fine of up to $1.13 billion if convicted on the federal criminal charges.

‘Edison was driving the bus’

Meanwhile, in Southern California, politicians and consumer advocates have grown increasingly critical of the PUC-orchestrated, already-approved plan to have ratepayers cover 70 percent of the $4.7 billion cost to close the San Onofre nuclear plant and safely shutter its two reactors, whose 2011 malfunctions led to the release of small amounts of radiation.

Since the plan was approved in fall 2014, it’s been revealed that Peevey had never-disclosed meetings with Southern California Edison executives over how to apportion San Onofre closing costs, including a 2013 meeting in a Warsaw hotel room between Peevey and an Edison official. Edison owns 80 percent of San Onofre and San Diego Gas & Electric owns 20 percent.

But other questions have emerged about the PUC’s stewardship that go beyond the propriety of these undisclosed meetings.

The Los Angeles Times delved into the expert testimony that the PUC reviewed before approving the settlement and reported that one expert blamed Edison’s poor management for the problems with leaking steam generators which are used to cool the nuclear reactors and keep them safe to operate. The expert questioned the utility’s insistence on blaming Mitsubishi Heavy Industries, the branch of the Japanese conglomerate that made and installed the generators.

Arnie Gundersen, a nuclear engineer who served as an expert witness regarding the handling of San Onofre’s generators, said at a minimum both Edison and Mitsubishi are at fault.

 

“When I reviewed all the data it was clear to me that Southern California Edison was the one driving the bus,” Gundersen said.

 

“Mitsubishi wanted the contract and agreed to some very onerous terms in order to get it.”

 

Gundersen said the San Onofre case is similar to two incidents in Florida, where an agreement was reached over the closed Crystal River nuclear plant that led to billions in costs to consumers. In addition, he said, the St. Lucie nuclear plant had similar steam generator problems as San Onofre.

A KPBS report also alleged that Edison acted deceptively in its 2006 meeting with the Nuclear Regulatory Commission, never telling NRC officials of concerns about the steam generators that let Edison to complain to Mitsubishi in both 2004 and 2005. It appears the PUC was unaware that the utility’s concerns about steam generator problems dated to 2004.

‘The same people always get paid’ by PUC

A San Diego Union-Tribune analysis also raised questions about the PUC negotiations that led to the agreement assigning most of the shutdown costs to ratepayers.

The biggest beneficiary of a state program aimed at leveling the playing field between utilities and their customers is a Bay Area consumer group that privately negotiated the deal assigning customers 70 percent of the costs for the failure of the San Onofre nuclear plant.

 

The Utility Reform Network, or TURN, collects millions of dollars a year in so-called intervenor compensation – almost half of all the money handed out by the California Public Utilities Commission since 2013. …

 

TURN receives as much as 90 percent of its operating income from commission awards, so it’s highly dependent on regulators for its livelihood. Whether consciously or not, the group might allow that dependency to shape its advocacy, critics say.

 

“The public really doesn’t have anyone at the commission looking out for them,” said San Diego lawyer Michael Aguirre, who is suing to overturn the San Onofre settlement as an undue burden on utility customers. “They are being charged for advocacy that really is not being performed. The same people always get paid.”

Peevey is facing criminal investigations by both the state and federal government. His home in La Cañada Flintridge, a Los Angeles suburb, was searched by investigators in January.

At last week’s PUC meeting and in recent interviews, Mike Florio depicted the proposal developed by PUC staff, endorsed by PUC President Michael Picker and praised by the state’s electrical utilities as a scheme with hidden motives. Instead of being about fairness for heavy users in hotter inland areas, Florio says its real intent is to discourage homeowners from installing solar panels, which help keep them in the cheapest tier of energy pricing. The PUC will again consider Picker’s plan and Florio’s alternative at a meeting later this summer.

CalWatchdog has covered the maze of politics related to solar power’s growth in the Golden State and reported on utilities’ efforts in some states to actively discourage solar installation.

But Florio’s history of secretly working with Pacific Gas & Electric is sure to hang over any attempt to depict himself as an outside force for change on the state’s utility regulator. A lawyer from Oakland, who once was a senior attorney at The Utility Reform Network, said Florio was deeply embarrassed earlier this year by the release of emails showing his chummy, surreptitious relationship with the giant Northern California electricity supplier.

A “$130 million Christmas gift” to PG&E

Here are key details from the San Francisco Chronicle’s analysis of 65,000 emails involving Florio and PG&E, with some relating to the fallout from a 2010 pipeline explosion that killed eight and wiped out a San Bruno neighborhood. When the PUC deliberated on what punishment to assess over the San Bruno disaster …

… Florio proposed last-minute language that dropped the idea of slashing PG&E’s 2012 profit, arguing that a profit cut would “send the wrong signal that somehow investing in safety is less important than investments in other aspects of the utility’s business.”

 

The commission approved the measure, which critics called a “$130 million Christmas gift” to PG&E. …

 

By January 2014, Florio saw another opportunity to help the company. With a key decision on [a] $1.3 billion rate case looming, [PG&E Vice President Brian] Cherry asked for Florio’s help in getting a particular administrative law judge assigned to hear the case.

 

Florio called the judge who had been named to the matter “horrible,” and told Cherry in an email, “I’ll do what I can on this end.”

 

A judge PG&E wanted was ultimately assigned, but when the emails were released, the utilities commission gave the case to a third judge. It has not been resolved.

 

Florio apologized when his promise became public, saying he had made “some very serious mistakes … in the content and the excessive candor of my email exchanges with PG&E.” He recused himself from voting both on the $1.3 billion rate case and the larger cases related to the San Bruno blast.

PG&E penalty still in the news, still under fire

But the $1.6 billion fine that was ultimately ordered by the PUC in April over the San Bruno tragedy remains controversial. Some of the penalty apparently can be deducted from state taxes that PG&E must pay, prompting attempts at a legislative fix in recent days by two Bay Area state lawmakers.

That’s not the only concern. The $1.6 billion fine is calculated by depicting the $850 million cost of forthcoming PG&E upgrades to its natural gas transmission system as a penalty. Yet the utility had previously acknowledged it was planning to improve the system. This has prompted grumbling in activists’ circles that the PUC was once again coming to PG&E’s aid while portraying itself as coming down hard on the utility.

Late on a September afternoon in 2010, the big orange California sun was dropping toward Sweeney Ridge just east of the blue-collar town of San Bruno on the San Francisco Peninsula. Families were preparing dinner and catching up on the day’s activities when, at 6:11 p.m., a section of pipe in a 30-inch-diameter intrastate natural gas pipeline owned by Pacific Gas & Electric ruptured near the corner of Glenview Drive and Earl Avenue.

A half-million cubic feet of natural gas gushed out of the pipeline in the first minute after the rupture, and for 94 minutes thereafter, until PG&E finally was able to shut down the flow of natural gas.  Almost instantly after the first highly explosive molecules escaped the pipeline’s confines, something ignited it — quite possibly a gas stove heating up dinner in one of the nearby homes.

The resulting explosion and inferno obliterated that home and 37 others and killed eight people.  It created a crater, long since filled in, that was big enough to swallow any of the houses destroyed in the explosion.  The twisted remains of the ruptured section of pipe, weighing 3,000 pounds and about as long as three elephants lined up nose-to-tail, lay smoking where the explosion hurled it, 100 feet away.

Worse news

The tragic San Bruno pipeline explosion on September 9, 2010 was hardly the worst man-made disaster in California — that dubious honor goes to the failure of the St. Francis Dam in 1928, which killed about 600 people — but it stands as a monument to the longstanding ineptitude of California’s bureaucracies and state Legislature. And last week, two and a half years after explosion, the story of San Bruno’s catastrophe and California’s ineptitude got even worse.

On Tuesday, staffers at the California Public Utilities Commission unveiled their proposed punishment for PG&E: a $2.25 billion fine, the largest ever imposed by the PUC. It includes $300 million that will go directly to the California treasury to be spent on who knows what, and $1.95 billion of required safety upgrades to PG&E’s natural gas distribution system.

The five appointed — not elected — board members of the PUC will decide on the staff proposal this fall, possibly coinciding with the explosion’s third anniversary. They are expected to approve the recommendation, or something close to it. But they are not expected to do anything about who’s just as much at blame as PG&E, because missing from the recommendation is a similarly sized fine for the state of California.

The actions of the state and the PUC are in fact the root cause of the catastrophe, according to the National Transportation Safety Board, which, as the federal regulator of pipelines, investigated the incident. Its accident report found 28 contributing factors to the explosion, two of which stand out.

The first is that the section of pipe that ruptured had defects so pronounced they should have been visible to the PG&E work crews and state inspectors when the pipe was installed in 1954.  The second is that, when the PUC adopted new pipeline inspection standards in 1961, it decided against all logic not to apply them to pipelines that were in place prior to that year. All pre-1961 natural gas pipelines in the state, including the one laid seven years earlier under San Bruno, would be grandfathered.

PUC decision

If not for this half-century-old PUC decision, PG&E’s pipeline would have undergone hydrostatic pressure tests that very likely would have revealed the defect under San Bruno. Obviously, industry lobbying, not safety concerns, were behind that decision, because the NTSB report states: “There is no safety justification for the grandfather clause exempting … pipelines from the requirement for post-construction hydrostatic pressure testing.”

The grandfathering happened long before most current legislators and regulators were born, but they’re still not off the hook, because they got a wake-up call less than two years before the San Bruno catastrophe. On Christmas Eve 2008, another PG&E gas pipeline exploded in the Sacramento suburb of Rancho Cordova and killed one person, injured five others and caused severe damage to two homes. Even after that, neither the legislature nor the PUC thought to revisit the grandfathering of the state’s natural gas pipelines.

Clearly, California is culpable for much of the blame for this great tragedy, but it has let itself off the hook — just as it always lets itself off the hook for all the mistakes, missteps and crazily expensive, profoundly useless regulatory crusades it routinely subjects its citizens to.

What a shame.

Laer Pearce, a veteran of three decades of California public affairs, is the author of “Crazifornia: Tales from the Tarnished State.”

Editor’s Note: This is Part 2 of two. Part 1 is here. 

Nov. 27, 2012

By Katy Grimes

PG&E has openly misled about rate increases. In February 2011, PG&E announced the utility expected its electric rate to remain steady into 2011. Then it was revealed that PG&E’s 2011-2013 General Rate Case would bring more rate increases.

As I wrote in February, “The game was clever: While decreasing the rates by 0.8 percent on January 1, 2011, and increasing rates again by 1.5 percent on March 1, the net result was an increase of 0.7 percent. PG&E got its rate increase.”

Every three years, General Rate Cases provide the California Public Utilities Commission a chance to perform an exhaustive review of utility company revenues, expenses, and investments into utility infrastructure.

And every three years, PG&E requests rate increases, and the CPUC approves them.

Remember that PG&E charged its customers $5 million to fix a gas pipeline under San Bruno, Calif. in 2009, but delayed the work, citing other priorities. The company then spent $5 million on executive bonuses. The subsequent 2010 San Bruno gas pipeline explosion killed eight, injured more than 100 and destroyed 38 homes.

High rates

PG&E’s rates are already among the highest in the United States and are higher than almost all municipal providers. In General Rate Cases, PG&E has repeatedly double-dipped, and tried to charge customers millions in deferred maintenance, on which repairs may or may not be done.

The CPUC has failed miserably at any oversight of the utility giant, as well as at the enforcement of necessary maintenance to gas lines.

According to the Independent Review Panel report following the deadly San Bruno gas pipeline explosion, PG&E management had focused primarily on compensation and investments, instead of leading pipeline safety and integrity in the industry, despite warnings.

The damning report also identified several factors contributing to a dysfunctional culture at PG&E: excessive levels of management, lack of expertise within management, appearance-led strategy setting, insularity and overemphasis on financial performance.

It would appear to anyone that the CPUC has allowed PG&E to operate with little accountability, and perhaps only cursory oversight. State government has not applied its own laws, rules and regulations evenly, and appears to have allowed the largest utilities to get away with gross negligence.

Whose charity?

PG&E not only pays counties hefty property taxes. The utility also makes charitable contributions to local food banks, chambers of commerce, health programs, and “underserved communities.”

In 2011, PG&E made more than $23 million in charitable contributions. According to PG&E, “More than 75 percent of PG&E’s community investments provided assistance to underserved communities in 2010. This funding supported projects and organizations assisting people with low incomes, communities of color, women, veterans, senior citizens, people with disabilities, and members of the lesbian, gay, bisexual and transgender community.”

“[PG&E] officers sit on the boards of a diverse group of nonprofits, such as California State Parks Foundation, United Negro College Fund and Leadership California.”

Also, “We worked with the Association of Bay Area Governments, Association of Monterey Bay Area Governments, Great Valley Center and Sierra Business Council to help compile greenhouse gas inventories for more than 60 local governments. These are expected to be completed in 2011 and we plan to get started on roughly 60 more.”

The counties become news when agencies spoke out in favor of PG&E’s corporate interests. But ratepayers shouldn’t have to fund any of PG&E’s charitable or political spending. Ratepayers can choose to make such contributions on their own.

Ratepayers pay

PG&E has argued that the shareholders pay for these expenditures. But all of PG&E’s revenues first come from ratepayers. Shareholders make their money off of the ratepayers.

The CPUC looked at PG&E’s last rate hike request and apparently had a difficult time with the justification, according to one utility expert who asked to remain anonymous. He said the dividends paid to shareholders should be closer to 5 to 7 percent, as for most utilities, not more than 11 percent.

“Going back five years, PG&E never reduced the dividends, even as rates were increased,” said the utility expert.

The CPUC has historically allowed utility companies continually to increase rates, resulting in California becoming the most expensive state in the entire country for utility rates.