HomeMy WebLinkAboutStaff Report Item 3.H 10/7/2013 A e mkt/Itww#3;.1f
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DATE: October 7, 2013
TO: Honorable Mayor and Members of the City Council
FROM: Scott Brodhun, Assistant City Manager
SUBJECT`. Resolution Urging theCalifornia Public Utilities Commission to Set a Reasonable
Fine for the San Bruno.Disaster So As Not To'Disrupt Work Important To
Communities,Throughout PG&E's Service Territory, Including Petaluma, With
All Funds Directed'to Energy Infrastructure Upgrades'and Related Purposes
RECOMMENDATION.
It is recommended that the;CitylCouncil adopt the Resolution Urgingthe California.Public Utilities
Commission to Set a Reasonable Fine for the San Bruno Disaster So As Not-To Disrupt Work Important
To Communities Throughout PG&Es'Service Territory, Including Petaluma, With All Funds Directed to
Energy Infrastructure Upgrades and Related Purposes
BACKGROUND/DISCUSSION
On September 9, 2010, a 30 inch natural l.gas.line explosion occurred in the.Cresunoor neighborhood in
the City of San Bruno, California,;'resulting in 8 deaths and the loss of-38 homes plus damage to many
more To,date, it is estimated by=news:accounts thatPG&E has,Spent$9.83 billion in costs related to the
rupture-and has settled $565`million in`lawsuits from victims.
In response to the disaster and a subsequent decision by the California Public Utilities Commission
(CPUC), PG&E unveiled a plan in-Augusf20P1.to modernize and,enhance`the`safetyiof its:gas
transmission operations over several years, including automation of over 200.valves, strength testing over
700 miles of pipe,replacing 185 miles, and upgrading another miles or!so to allow in-line inspection.
The plan was divided into two phases, with the first phase scheduled to end in 2014 which targeted
pipeline segments in urban areas;,those not,built to modern=standards, and those;which had not been
strength tested. Project4funding of$769 million'was the,subject'of a PG&E application for a three-year
increase in gas rates,starting;Jaiivary`20l2.1
PG&E faces,up to $2 25 billion infines from the CPUC. Councilmember Healy has'brought forward the
attached Resolution urging the,CPUC to consider a reasonable fine'that:will not bankrupt PG&E or
cripple PG&Gas ability,;to'access.the capital markets, thereby jeopardizing important system upgrades and
planned projects.
ATTACHMENTS,
1. Resolution.
2. Piess.Democrat editorial
Agenda Revi
City Auorriey V ^ Finance Director City Manager-
ATTACHMENT 1
RESOLUTION OF THE CITY COUNCIL OF THE.CITY OF PETALUMA URGING THE CALIFORNIA
PUBLIC UTILITIES'COMMISSION,TO SETA REASONABLE-FINE FOR THE.SANBRUNO DISASTER
SO As NOT TO DISRUPT`WORK INII'ORTANT'To COMMUNITIES THROUGHOUT PG&E's
SERVICE TERRITORY; INCLUDING.PETALUMA,WITH-ALL FUNDS DIRECTED:TO ENERGY
INFRASTRUCTURE UPGRADES AND RELATED"PURPOSES
WHEREAS'„Pacific Gas & Electric Company has supplied the City of Petaluma,.
together with its residents and businesses,with electricity^and natural gas service for over a
century; and
WHEREAS, the City of Petaluma has long enjoyed a positive working relationship with
PG&E; and
WHEREAS, in recent-years.PG&E.has,funded the undergrounding of overhead power
lines in two visually importan •.corridors inthe City of Petaluma;.and
WHEREAS, currently PG&E is providing the City of Petaluma with low interest loans to
finance the replacement of the original heating system and pumps in.the City's 1966 swim
center, which will creatersubstantial energy.and maintenance savings and also allow the City to
extend the swim center's seasoninto-the early spring and late-fall; and
WHEREAS,.PG&E' ias recently provided grant funding to allow the City of Petaluma to
begin converting its street light system to energy efficient LED technology; and
WHEREAS, PG&E is facing•the ongoing need,to maintain and.upgrade its extensive, and
aging, natural gas and electricity infrastructure both within•the'Cityof Petaluma and throughout
its service territory, including-naturabgas transmission lines iii thek,Cityof Petaluma; and
WHEREAS, upgrading this often hidden infrastructure;"together with'.adequate:operation
and maintenance funding, is'essential'to allow PG&E to continue to provide reliable electricity
and natural gas-service •and
WHEREAS, in order to,continue;itsprojects in cooperation with the City of Petaluma
and its system-wide=infrastructure upgrades, it is critical that PG&E continue to have sufficient
financial strength so that-itcanaccess the capital markets; and •
WHEREAS, the California Public Utilities Commission is currently considering what
level-of ftneiitoinipose-as a result of PG&E's negligence in the 2010 San Bruno natural gas
transmission,line explosion and
WHEREAS, a•substantialfine is warranted to send the unmistakable signal that the
negligent conduct that resulted in the San Brunoidisaster must change; and
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WHEREAS,-at the same time it would not be in thebest interests of PG&E's customers,
including those in the City of Petaluma„to,set a fine,afa level that would,risk crippling.PG&E's
ability to access the capital markets orpossiblyTorce it.back:into bankruptcy, thereby
jeopardizing important system'upgradesand other projects;
NOW, THEREFORE,,BE IT RESOLVED that the City Council of the City of Petaluma
hereby urges;the California Public Utilities'Commission to set a fine for the San Bruno.disaster
that-substantially punishes PG&E for its misconduct but,that,.at the same time, does not threaten
to disrupt workimportant.to communities throughout PG&E's service territory;
AND BE IT FURTHER RESOLVED that there is no justification for any portion of the
fine imposed`ag"ainst PG&E.to be paid to the State of California's general fund, and instead all
funds should be directed to energyinfrastructure upgrades,and related purposes.
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ATTACHMENT 2
PD Editorial:, How much of,a penalty .
. should PG&E pay?
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The California Public Utilities Commission recommended a 52:25.billion fine For PG&E because of the
Sept(9 2010 natural eas line explosion in San Brno %Associated Press)
September 23, 2013, 6:00 AM.
When a high-pressure natural gas transmission line erupted in iSan Bruno three-years ago, the damage from the
explosion and fire was horrific. Eight people were killed, 38 homes`were•reduced to ashes and hundreds of lives
were ruptured forever.
This catastrophic event-also exposed something else—a culture,:within Pacific Gas and Electric Co. that, as
state investigators later concluded, "emphasized profits over safety."
Federal inve_stigatorsislammed.PG&Eufor everything_from.shoddywelding to incomplete record-keeping to lax
supervision of pipetinspections.-Meanwhile, state auditors concluded that the company°had diverted funds
intended for pipeline safety and used them for such things as,eiceeutive`bonuses.
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At the same time one can hardly accuse,the utility of being unresponsive in the aftermath of this catastrophe.
Since the explosion and fire, PG&E haspaid roughly $565 million torcompensate victims and their families;
$170,million to the City of San-.Bruno for'rebuilding; and funded—through'shareholders — more than $1
billion in infrastrticttlre improvements.
Moreover, the company has acknowledged its mistakes and undergone a corporate shake-up, demonstrating its
commitment to change. ,
Last week, the utility announced that it is nearing settlement on the last of its remaining claims. The big
uncertainty at this point is what the penalty,from the state will he.
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Given:the utility's willful disregard for public safety, it certainly needs to be substantial,.But this summer, the
staff of the state Public Utilities Commissioncame out with itstrecommendation—a breathtaking $2.25 billion
penalty. This does not mclude'thefunds listed above in repairs,;settlements and improvements. This would
include an additional.$1.95''billion for shareholder-funded Modernization projects and a $300 million fine paid
directly to the state of California.
PG&E and many in financial cicles,call the penalty excessive. They have a!good argument
In 2007,the El Paso Natural Gas Company received.the llargest;penalty on record'for-a pipeline explosion that
claimed the lives of 12 New Mexico campers. The judgment was.for roughly $100 million, including $86
million;in'-system upgrades and a $15-million'penalty. This would be 22 times the size of that record fine.
While we have made no bones about the need_to°penalizePG&E, it makes little sense to punish a company—
particularly a public utility—"to the point of damaging its ability'to borrow money and operate competitively.
Andpthatis;arisk. In light of this potential judgment, Standard and Poor s recently revised PG&E's outlook from
stable to negative.Meanwhile, Moody's has,hinted that the fine could damage the company's credit rating,
noting the penalty, "does not bod'e well for the regulatory environment in California, which is being adversely
affected by political considerations.
We don't know what the right amount is. But it's fair to say that exacting a fine so heavy as to threaten the
company'slong,term viability does little:to improve public safety or'.improve_an economy still emerging from a
historic downturn.
We encourage the PUC to ratchet down:-the rfihe and make dear thatany'penalty to be paid to the state be
designated for public safety improvements, parks or some other clear"public benefit—and not be allowed to
simply be absorbed into the general fund. This penalty needs to foster change, not hobble a company's ability to
improve.
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