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This article was published on the Calwatchdog web site

CPUC Admits 'Culture of Complacency'

AUG. 18, 2011

By KATY GRIMES

The president of California's utilities commission, Michael Peevey, was grilled on Tuesday by Legislators — and without the usual softball questions. At two legislative hearings this week, Peevey's admission of a culture of complacency within the utility regulatory agency, even after serious pipeline explosions, has many asking if anything at the California Public Utilities Commission will ever really change.

Peevey made an appearance Tuesday at the Senate Committee on Energy, Utilities and Communications. On Wednesday, the Executive Director of the CPUC, Paul Clanon, managed a similar grilling in the Assembly Accountability and Administrative Review Committee.

Peevey presented the Senate committee with an overview of the commission, including updates about the PG&E pipeline explosion in San Bruno last September.

After the December 2008 gas explosion in Rancho Cordova, and then the 2010 San Bruno pipeline explosion, Peevey said the CPUC had to take "a very hard look at PG&E as well as ourselves." Peevey sounded uncharacteristically self-deprecating, and admitted that the CPUC had fallen into a "culture of complacency" and a pattern of just "checking the boxes." However, much of the same language he used was also in the report from the Independent Review Panel of industry experts, as well as in Clanon report to the Assembly on Wednesday.

Created to investigate the explosion in San Bruno, the Independent Review Panel produced a final report which charged the PG&E and the CPUC with being more concerned about filling out reports and "checking boxes" than actual consumer safety. The same day that the IRP report was released, Peevey said the report highlighted a "culture of complacency" at the CPUC, and was "damning of PG&E across the board."

Peevey walked the Senate committee through 18 pages of a 62-page color handout, which included background on the CPUC and its 1,000 employees, information about customer care and supplier diversity, the natural gas industry, the San Bruno explosion and the electricity, communications, and water industries.

Clanon took over the presentation and said that the CPUC was recruiting for a risk assessment unit and a safety manager. "Instead of just checking the boxes, we will be out there looking at where the risks are." And he added, "People in California should feel more secure."

And Clanon agreed that the CPUC had been complacent. "San Bruno was a game changer for us." But Clanon also indicated that it was the Department of Finance which had prevented the CPUC from hiring necessary staff over the years.

The committee chairman, Sen. Alex Padilla, D-Pacoima, asked how inadequate staffing at the CPUC could be the fault of the state's finance department, when the CPUC appeared regularly before the Legislature asking for funding increases. "That's unfortunately the culture of complacency. And no one demanding it," Peevey said. Peevey even blamed The Utility Reform Network with looking the other way on CPUC safety.

More Funding

Both Clanon and Peevey blamed low pay standards within the state government as the reason the CPUC has not been able to hire adequate or experienced staff. "We can't get the very best because we don't pay well enough," Peevey said.

Clanon echoed this theme in the Assembly hearing the following day, making it appear that the CPUC would be appealing soon to the Legislature for more money. And it appeared that both Peevey and Clanon hoped that the new attitude at the CPUC would assure that the regulatory agency would not be denied the increased funding.

Expressing his displeasure at Peevey's absence from his hearing, committee Chairman Assemblyman Roger Dickinson, D-Sacramento, on Wednesday asked everyone present to note that, despite a formal invitation to attend, Peevey declined. And Dickinson said he knew Peevey had attended the Senate committee hearing the day before.

Dickinson said that even after the Rancho Cordova explosion in 2008, nothing changed at the CPUC. It wasn't until after the 2010 San Bruno explosion which killed eight people and leveled a neighborhood that the CPUC began to make changes.

"Safety has been only an incidental consideration in implementation," Dickinson said. He reiterated that the independent review panel found that not only has the CPUC been woefully understaffed, but safety inspectors needing additional training.

"In light of this history, the public rightfully questions safety. At least we owe it to the victims of these tragedies, and all Californians," Dickinson said.

Theresa Mueller, an attorney with the Office of the San Francisco Attorney, said that the city has a reason to be concerned with pipeline safety. Mueller was introduced as the lead expert in the city's push for pipeline and gas safety. "We have three major gas lines running through the city of San Francisco," Mueller explained. "And we are concerned that PG&E may not be operating pipelines safely."

Mueller said that her office has been charged with addressing three issues:

1) CPUC implementation of federal pipeline safety act;

2) Improvements by the CPUC should have been made after the 2008 Rancho Cordova explosion;

3) What changes going forward should be made.

There were also three components to the Independent Review Panel report: The first was to find underlying reasons for the incident. The second was to delve into the complexities of pipeline integrity management and regulatory oversight. The third was to offer recommendations to diminish the likelihood of future incidents.

Despite the commission failing over many years in pipeline safety, "the CPUC must reform its regulation of pipeline safety," Mueller said. "And they need to provide trained inspectors as well as establish compelling incentives."

Mueller stressed that the CPUC has had adequate funding and resources, and always had the ability to request more funding if necessary.

"PG&E demonstrated that it did not feel bound to follow the letter of the law," Mueller said. "PG&E failed to keep accurate records, or to identify high consequences areas — essential to adequate safety, where there will be significant impacts of failure of gas lines." And Mueller said that, despite these significant problems with PG&E, the CPUC never forced PG&E to correct significant flaws.

Mueller said that PG&E had inadequate emergency response, lacked appropriate materials and training, and PG&E needed "to come clean about what it knew after the explosions."

Mueller said that the explosion timeline didn't show any urgency by PG&E or the commission, which might have reduced damage as well as the impact of the explosion. And most damning, the CPUC "has not changed enforcement procedure since the Rancho Cordova explosion."

Ray of Hope

Despite her damning testimony, Mueller did offer a ray of hope. Even though it took them quite a while to do anything, she said the CPUC is "saying the right things."  Mueller said that the CPUC is paying attention to PG&E's filings, and specifically what PG&E says it will and won't do. "It needs to change its own processes — we are not there. But there is a lot of good faith interest in making the changes," Mueller said.

As for penalties, Mueller said that the CPUC has discretion to issue penalties and fines, which go to the state's general fund, "but the commission does not even use the discretion it currently has." Mueller said that another way to penalize utilities is in the rate of return.

One of the most important issues addressed by Mueller was when she asked if changes had been made all along as needed, would the Rancho Cordova and San Bruno explosions even happened?

"Poor practices with recordkeeping, improper materials and training — if you don't fix them, going to have a problem at some point," said Mueller.

And despite the claim from Peevey and Clanon that Californians can feel safe now, Mueller disagreed.  "We can't say we feel better now — we are still concerned."

Despite assurances from the CPUC that changes are being made, Mueller said the CPUC needs to come up with a short-term plan immediately, while working on a long-term plan. "Over time, PG&E will have different employees and priorities. We need regulations in place," said Mueller.

The final change Mueller recommended is to make CPUC records available to public.

After Mueller spoke, Clanon agreed "with just about everything" said the "CPUC was slow to react to gas safety after Rancho Cordova."

"Since San Bruno, the commission has reformed much further than the nation. We changed rules, enforcement, brought a hammer in, doubled staff, and inspectors. Want to assure the commission that it is getting attention," Clanon said.

However, Clanon said that the primary pipeline inspection needs to be done by the pipeline owner. "We can assess risks, but we can't have a rule to eliminate every risk;" a comment made in Tuesday's hearing as well.

Clanon said that the "biggest hammer" against utilities is penalties. "We have to use it more, and it needs to be higher; $26 million is a great start. But the hammer needs to be so strong, no one wants to get there." Clanon admitted that the CPUC fining authority against utility violations "has been used not at all or sparingly."

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