Testimony of Jane Yura

Vice President, Regulation & Rates
Pacific Gas and Electric Company
Before the California Senate Energy, Utilities, and Communications Committee

Legislative Hearing on:
The San Bruno Explosion: Pipeline Safety in California
October 19, 2010

Panel IV. Maintenance, Inspection and Financing of Gas Transmission Pipelines

Chairman Padilla, Chairman Leno, and members of the Committee. My name is Jane Yura and I am Vice President of Regulation and Rates for Pacific Gas and Electric Company. I am here today to discuss the regulatory recovery process for the investment, maintenance and operations of our pipeline facilities. Thank you for this opportunity.

Before I discuss these matters, I also extend my sincere condolences to the San Bruno community and people affected by this event, which include some of my own extended family

Rate Cases

PG&E’s Gas Transmission operations and maintenance and capital expenditures are approved by the California Public Utilities Commission through a rate case, which generally approves expenditures for a period of 3 to 4 years. Rate case proposals are prepared by project managers who are knowledgeable of the conditions of PG&E’s facilities and equipment, and responsible for the continued safe, reliable operation of PG&E’s gas transmission systems. These project managers forecast the work that needs to be performed, and the cost to perform the work over the years covered by the rate case proposal.

PG&E needs the flexibility to manage its business

PG&E forecasts its expenditures about 2 years prior to the beginning of the effective date of the rate case. Since the rate case covers a period of 3 to 4 years, we in fact look five to six years into the future at the time we file our rate case. Inevitably, our forecasts this far in advance will not be perfect and may be altered based on intervening events. Just as with any business, unexpected needs arise, and the company sometimes must reprioritize work and adjust its budgets to address emerging issues, including unexpected customer growth, or infrastructure disruptions from emergencies or extreme weather.

PG&E uses the best judgment and the experience of its employees to respond to evolving conditions and reprioritize work and spending as necessary. It is critical to maintain this operational flexibility in order to guarantee safe, reliable and responsive service to our customers. In all cases, safety is our first priority, and the Company will reschedule work and spend the necessary funds to appropriately address an unsafe situation.

It is in the public interest that the California Public Utilities Commission holds PG&E, and all utilities, accountable to be good stewards of the revenues received from our customers. Because the request for funds from the CPUC is based on a forecast, the Company must apply its discretion to best fulfill its obligation to serve and to address events not included in the forecasts. This means that some unanticipated projects will need to replace other projects that were forecast.

For gas transmission, PG&E spent $698 million -- $23 million more than adopted by the Commission -- for the period 2003 through 2009 for work specific to pipeline safety and replacement in work categories for Integrity Management, Pipeline Reliability, System Maintenance, and Mark and Locate.

Why PG&E Settles Rate Cases

The majority of PG&E’s Gas Transmission rate cases in the last several years have been covered by settlements. The CPUC has a well-established policy of supporting the resolution of disputed matters in a rate case through settlements. Settlements must be reasonable in light of the record, consistent with law, and in the public interest.

During rate case settlement discussions, PG&E and Intervenors evaluate the assumptions used to prepare their respective positions. This includes reviewing PG&E’s prior period spending and work performed, previous rate case forecasts, assumptions of future growth/escalation, and evaluation of newly proposed programs. Through these detailed discussions, an agreed-upon expenditure forecast often emerges. And since a settlement is a compromise of multiple issues, not everything in PG&E’s forecast will be funded. When PG&E and the intervening parties reach settlement in a rate case, PG&E always ensures that any settlement adequately covers the costs to safely maintain and operate its facilities.

In the current 2011 Gas Transmission rate case, the proposed settlement will provide funding for pipeline safety and reliability work. PG&E commits to spending the funds necessary to support safety and reliability – its highest priority.

Thank you for allowing me this time, and I welcome your questions.