PG&E, CPUC air concerns behind closed doors

Scrutiny of PG&E's finances has increasingly been conducted under the blanket of confidentiality agreements.

In the last two instances that PG&E has asked for rate increases to help pay for improvements to its aging gas infrastructure, negotiations over those increases have been conducted behind closed doors, in confidential settlement hearings, rather than in litigation hearings open to the public.

In effect, this keeps the public from knowing what, if any, concerns the regulators paid to watch over PG&E have about how the company spends its money.

In the weeks after a 30-inch natural-gas transmission pipe obliterated a neighborhood in San Bruno and killed eight people Sept. 9, the California Public Utilities Commission has fielded a host of criticism about its cozy relationship with PG&E. On Tuesday, state lawmakers grilled PG&E executives about the incident and what might have been done to prevent it, and also CPUC leaders for failing to pay closer attention to the safety of the company's pipelines.

Late in the six-hour hearing, the director of CPUC's energy division, Julie Fitch, admitted the agency has not been examining PG&E's finances as carefully as it should have been - largely because the rate cases have been settled behind closed doors, rather than going through a litigation process.

"I would say in general the level of scrutiny ... that's been afforded to these cases is less than it will be going forward, just because there was sort of a history of cases being settled and not really scrutinized in a detailed way," Fitch said.

When PG&E applies for permission to increase its rates, individuals or groups can protest this application, and they become parties to the rate case. As soon as the application is made, CPUC's independent Division of Ratepayer Advocates begins to investigate the company's finances, including what it has asked for in the past, what it actually spent that money on, and whether there has been inappropriate deferred maintenance. This analysis, including the concerns about the company's expenditures on its aging system, is written into a report and presented as testimony as the CPUC considers the rate increase, explained Ratepayer Advocate program manager Mark Pocta.

However, the last two gas transmission and storage rate cases have not gone through a public hearing process, and instead have very quickly turned into settlement agreements, and the ratepayer advocate has not produced a report about their concerns, said Pocta. Though he said the agency's analysts still look into PG&E's finances and express concerns - in confidential discussions - those concerns never become public.

As for why confidential settlements are entered into to begin with, The Utility Reform Network - a common intervener in the cases - and other parties often decide they may get more concessions out of PG&E through those negotiations than through litigation, said TURN spokeswoman Mindy Spatt.

"From TURN's perspective, the goal is to get the best possible deal for the customer, and we don't always get that by litigating. Sometimes we get the better deal through settlement," she said.

CPUC's Fitch told lawmakers that because the protesting parties agree on a compromised rate increase, the agency simply doesn't dissect the case as much as it should.

"It's really just an assumption ... that if all of the parties in the case have settled on a number, then it's the number," she said. "[There's not] additional scrutiny from the staff, or at least not as much as we'd like to see."

But that's already beginning to change. The number has already been arrived at in the most recent rate case, and was sent to the commission's administrative law judge for approval. But Friday, the judge declined to approve the settlement and instead ruled that a new "safety phase" of the rate-increase approval process was necessary "in light of the September 9, 2010 gas explosion."