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PG&E says Calif. regulators made costly mistakes in gas transmission rate case

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Essential Energy Insights - February 2021

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PG&E says Calif. regulators made costly mistakes in gas transmission rate case

Pacific Gas and Electric Co., or PG&E, asked California regulators to reconsider several aspects of their decision in the company's 2019 gas transmission and storage rate case, saying they made factual and legal errors in determining cost recovery for some of PG&E's safety programs.

PG&E took issue with how the California Public Utilities Commission, or CPUC, treated the company's pipe replacement program costs and expenses tied to its pipeline safety assessments. The San Francisco-based utility requested a rehearing on the issues in an Oct. 23 filing.

The CPUC voted in September to adopt a $1.33 billion revenue requirement for PG&E to deliver gas transmission and storage services, a 2% increase over the current amount and 10% less than the company requested.

PG&E disputes disallowance for pipe replacement costs

In that decision, commissioners directed PG&E to remove $304 million for pipe replacement expenditures from its capital expenditures, disallowing the company from recouping those costs. The CPUC based its decision on an argument — presented by consumer advocate The Utility Reform Network, or TURN — that PG&E's pipeline replacement costs in recent years outstripped expense forecasts for the work without good reason.

But the CPUC can only disallow those costs when a utility does not perform work properly, fails to comply with regulatory requirements or accrues costs due to failures and errors, PG&E said. The company said the CPUC failed to apply that standard and made factual and legal errors in its decision.

"TURN presented no evidence or argument that the assets are not, or would not be, used and useful and presented no evidence of any failure, error, omission or otherwise unreasonable or imprudent act on the part of PG&E," the company said.

PG&E also said the CPUC has long held that it does not expect actual costs to align with forecasts. Nor does the commission typically hold utilities to cost forecasts for specific projects, but instead uses those forecasts as a guide in setting overall rates.

The company put forward several potential remedies, including eliminating the entire $304 million disallowance and three smaller adjustments.

Company says CPUC got pipeline reassessment requirements wrong

The CPUC also adopted a recommendation from TURN and the commission's public advocates office to cut PG&E's cost forecast for pipeline inspections. The commission said the 33% reduction in projected expenses is justified because the CPUC reduced the company's workload from 18 to 12 projects per year.

However, the CPUC did not distinguish between first-time assessments and reassessments of previously tested pipelines. PG&E said the commissioners based their decision in part on a factual error: that the reassessments are not legally mandated.

In fact, federal code requires all of the reassessments during the rate case period, PG&E said. The company recommended applying the 33% reduction only to first-time assessments, which would increase the forecast for in-line inspections by $104.8 million.

PG&E's final complaint was over the CPUC's directive to recover costs for assessment of corrosion in pipelines through a memorandum account. The company said state code directs companies to recover expenses for this type of work through a balancing account.

PG&E asked the CPUC to adopt a "reasonable forecast" for its internal corrosion direct assessment program, which could be recovered in a balancing account, with amounts exceeding the forecast going into a memorandum account.