PG&E and San Bruno: Who should pay?

The California Public Utilities Commission has been asked by consumers across the Pacific Gas and Electric service territory to make PG&E pay for the cost of the San Bruno gas pipeline explosion out of "profits" rather than making utility customers pay for this fiasco out of rates.

The problem is, even if the appointed members of the CPUC were inclined to hold someone other than ratepayers liable for the costs of the explosion (and that isn't likely), the way the commission structures the funding sources pretty much assures that we ratepayers are going to foot the entire bill.

Some people, including market analysts, have suggested the costs will likely be paid out of insurance coverage that PG&E has in place for such liabilities. However, in the event that the NTSB investigation finds that PG&E was negligent in how it operated and maintained this pipeline, the insurance companies are not on the hook for the costs.

So, if there is any truth to the rumors that several customers spoke with PG&E days ahead of this explosion about the smell of gas (which was the case in Rancho Cordova in 2008), or if it is proved that PG&E was operating the San Ramon gas line at a higher pressure than it was rated to handle (which is a rumor at this point), or if the litigation filed last month by an ex-PG&E employee charging that PG&E failed to provide training for gas-leak detection equipment is successful, then the insurance companies get a free pass.

Even if the costs are paid out of insurance, ratepayers will have to pay any deductibles. Ratepayers will also shoulder the cost of future assessments against PG&E's liability insurance premiums.

After a citizen was killed on Dec. 24, 2008, in Rancho Cordova as a result of a gas pipeline explosion, PG&E settled the matter by writing a huge check to the family. That settlement was paid from a "litigation settlement balancing account" that is funded with electric and gas rates. The CPUC lets PG&E hide these settlement figures from the public, but the source of money in the account comes out of your electric and gas rates.

The fact is, PG&E is authorized to collect 11.35 percent return on equity or "profit" in rates (even though treasury bonds and investment returns in any other sector of the economy is somewhere south of 3 percent). The CPUC-approved ROE is one of the highest in the United States. And while the CPUC has this maximum 11.35 percent "authorized return on equity," the company has actually exceeded that in each of the past five years, and the CPUC has never forced PG&E to return the excess profits to the customers.

The CPUC sets rates every three years for PG&E and makes periodic adjustments within that three-year window. But the projects that PG&E gets approved in the rate case frequently are never carried out and the money is diverted to other uses, including CEO compensation. PG&E then comes back to the CPUC and asks for more money to make the same system repairs for which it has already received money, and the CPUC routinely authorizes the funds.

So, if by some remote chance the CPUC does look to hold someone other than ratepayers accountable, it is most likely that you will see the costs show up in higher insurance premiums, higher litigation settlement balancing account reserves or higher future shareholder returns -- all which will come out of your pocket.

Ken Mettler is the president of Californians for Fair Utility Rates and immediate past president of the California Republican Assembly.