Tuesday, March 19, 2019

CPUC Expands Probe into PG&E Practices After Deadly Fire

By Robert Mullin

California regulators will open a new phase of an investigation into Pacific Gas and Electric’s troubled safety practices as the utility faces allegations that its equipment was responsible last month for igniting the Camp Fire, by far the deadliest wildfire in the state’s history.

Aftermath of Camp Fire in Butte County, Calif. | California Governor’s Office of Emergency Services

Public Utilities Commission President Michael Picker announced the development Thursday after a turbulent start to what was meant to be a routine voting meeting. A group of raucous protesters briefly shut down proceedings before being removed from the commission’s San Francisco hearing room.

The first phase of the commission’s examination focused on the breakdown of safety practices leading to the September 2010 PG&E natural gas pipeline explosion that killed eight people and destroyed 38 homes in San Bruno. Picker said the next phase will look into the “corporate governance, [and] the structure and operation of PG&E to determine the best path forward for Northern California to receive safe, affordable, reliable electric and gas service.

Michael Picker | RTO Insider

“As I reviewed the [San Bruno] report, I found myself asking, ‘How can we do that better? What’s the role of the CPUC? How can PG&E actually pursue these duties and do it more safely? Is there a different model to ensure that we have safe and reliable gas and electric service?’” Picker said.

While the cause of the Camp Fire remains under investigation, PG&E filed a report with the CPUC on the day the fire started saying it had experienced an outage on a 115-kV line and observed damage to a transmission tower near the fire’s ignition point. At Thursday’s meeting, Picker said, “The details of the fire are still unfolding.”

Picker had signaled the move to expand the safety probe earlier in the month as the Camp Fire raged through Butte County in the northern part of the state. (See Destructive Fire Drives Down PG&E Stock.) Independent reports on prior deadly incidents criticized PG&E’s safety practices as “dysfunctional” or lacking clarity, he noted.

“This is the kind of thing that keeps me awake at night,” Picker said.

PG&E critics packed Thursday’s meeting, which featured an extended public comment period in which more than 30 residents spoke out against the company, urging the CPUC not to orchestrate a bailout. They pointed to Picker’s recent conference call in which he told Wall Street analysts that it would not be good public policy to allow the utility to go bankrupt. (See Camp Fire Prompts Talk of PG&E Bailout of Breakup.) Picker’s comments helped halt a sharp slide in the company’s share price, which had fallen by more than 62% in the course of a week.

Some speakers at the meeting aimed their anger directly at the CPUC — and Picker in particular.

“The commission’s disregard for the welfare of California has never been more blatant than when President Picker made a statement of the commission’s intent to rescue PG&E … while bodies from the Camp Fire were still being counted — and are still being counted,” said Barbara Stebbins of the California Alliance for Community Energy.

Picker defended his efforts to buttress PG&E, saying, “To operate the grid in a safe manner, PG&E has got to be able to sign contracts, borrow money, raise capital and sign contracts.”

A handful of speakers from Bay Area chapters of the Democratic Socialists of America called for PG&E to be converted into a publicly owned utility, blaming the company’s safety failures on its drive for profits.

Other speakers called for the arrest and prosecution of PG&E executives, who they said were ultimately culpable for the Camp Fire, which leveled the town of Paradise. At least 88 people died and nearly 200 area residents remain missing from the fire that began Nov. 8. Speakers also pointed to the 17 fires last year that investigators have already blamed on PG&E.

Janice Murota, a retired physician, told commissioners, “Not only do we not hold PG&E executives responsible personally for the deaths and the destruction, but we’re expected to bail them out financially. … Please don’t hold us on the hook to cover their liability and their costs. It’s just too much money.”

The public comment period concluded with several protesters unfurling a banner and chanting, “This meeting cannot continue until PG&E admits its crimes.” Picker at that point asked for a five-minute recess to allow protesters to chant before being cleared from the room. One protester could be heard yelling, “We’ll be back!” before exiting.

No ‘Firm Conclusions’

Once the dust settled, the CPUC voted to approve a decision requiring PG&E to adopt 60 safety recommendations laid out in an independent assessment of the utility’s “safety culture.” The CPUC commissioned the assessment by NorthStar Consulting Group in response to the San Bruno disaster.

In 2011, an independent review panel cited a “dysfunctional culture” at PG&E as the main factor contributing to the explosion. NorthStar noted that before the San Bruno incident, “the goals of [PG&E’s] enterprise risk management process were disconnected from the reality, decisions and actions throughout the company.”

While NorthStar credits PG&E for increasing its focus on safety, Picker noted the firm’s report found the company does not have a “clear vision” for its safety program.

Among the report’s “critical” recommendations to PG&E and the CPUC were:

Development of a comprehensive safety strategy, with associated timelines and deliverables, resource requirements and budgets, personnel qualifications, clear delineation of roles and responsibilities, action plans, assignment of responsibility for initiatives, and associated metrics to assess effectiveness.

Greater coordination among PG&E’s lines of business and its corporate safety department to increase consistency, improve efficiencies, minimize operational gaps and facilitate sharing of best practices.

A non-punitive system for reporting actual and potential safety incidents to the CPUC to encourage transparency and sharing of lessons learned among all California utilities.

Adding a performance-based ratemaking mechanism with a safety element to the PG&E general rate ruling approved last year, which runs through 2019.

Development of an implementation plan for NorthStar’s recommendations, to be submitted to the CPUC.

Picker acknowledged that the NorthStar report did not address the 2017/18 fires being attributed to PG&E.

“I don’t have any firm conclusions [about the fires]. That’s why we’re opening the next phase” of the investigation, Picker said.

He likened the CPUC’s response to PG&E’s situation — including efforts to maintain investor support — to remodeling an airplane in mid-flight: “We can’t just crash the plane to make it safer. We have to keep flying at the same time.

“I recognize the public’s growing interest in the future of PG&E, and while everything’s on the table, I want the public to understand that this is going to be a deliberative process and it involves actors other than the CPUC,” Picker said, noting the involvement of the California legislature, capital markets and a federal monitor appointed last year to oversee PG&E’s progress on safety measures.

“The NorthStar report had very specific recommendations but also raised some key fundamental questions,” Commissioner Liane Randolph said. “The fact that they were seeing differences in the effectiveness of the safety based on different parts of the company … just raises some key questions about the management of the company and how the safety culture is handled throughout the enterprise and whether it’s even possible to have all the enterprises have an equal amount of safety.”

Commissioner Clifford Rechtschaffen said it was important to reiterate the ambitions of a safety culture.

“It’s about promoting a mindset, practices and institutionalizing processes that promote and prioritize continuing, ongoing safety improvement. There’s no such thing as being good enough … [but] always looking for how can we do better, how can we make our processes safer — not just [by] meeting compliance but going beyond compliance.”

TO Rate Request Goes to Settlement

In its 2020 transmission owner rate case filed with FERC earlier this year, PG&E cited the financial challenges stemming from the “new normal” of California wildfires when it asked to raise its base return on equity to 12%. The increase would translate into a base transmission revenue requirement of $1.96 billion, compared with $1.79 billion for 2019, pushing up retail transmission rates by an average 9.5%.

In asking for the rate increase, PG&E contended that the wildfires and California’s doctrine of “inverse condemnation” pose financial risks “substantially different” from those faced by utilities in other states. As evidence, pointed to the downgrading of its credit rating as well as the $11.9 billion in losses for the company’s shareholders last year.

Several protesters opposed PG&E’s filing, arguing the utility improperly increased its ROE based on a misrepresentation of the wildfire risks. The protesters also noted that the legislature had introduced legislation (which later passed) to reduce PG&E’s wildfire liability.

FERC on Friday accepted PG&E’s proposed rates but suspended them for five months, ordering the issue to settlement judge procedures after finding the rates “may yield substantially excessive revenues” (ER19-13).