State regulators recommended rejecting PG&E's proposal to bill customers for 90 percent of its $2.2 billion pipeline renovation plan that followed the devastating 2010 San Bruno disaster.

But consumer advocates complained the recommendation still leaves ratepayers on the hook for at least half the costs.

The tentative decision, which must be approved by the California Public Utilities Commission, is the latest development in the donnybrook set off when PG&E proposed asking for its customers to shoulder most of the burden for the vast amount of work needed to fix its aging pipeline system, whose many flaws were exposed in the wake of the explosion in a quiet San Bruno neighborhood that killed 8 and destroyed dozens of homes.

"It's terrible," said Assemblyman Jerry Hill, D-San Mateo, of the ruling by the PUC administrative law judge. "This is just another example of the PUC carrying the water for PG&E."

Nonetheless, Tom Bottorf, PG&E's senior vice president of regulatory affairs, expressed disappointment.

"The proposed decision by the ALJ is wholly inadequate and fails to recognize the magnitude of the work that's required to create a modern gas transmission system that reaches new safety standards and serves the people of California," he said in a prepared statement.


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Friday's decision by Judge Maribeth Bushey, which requires full commission approval to go into effect, took issue with major parts of PG&E's plans to improve its pipeline system, including the company's proposal to bill its customers for the vast majority of the work. She rejected the company's request to bill 90 percent of the cost to ratepayers, arguing that PG&E's "shareholders should not be shielded'' from the costs because the company's "poor management decisions" allowed its natural gas system to deteriorate.

However, the decision only deals with about $769 million of PG&E's proposed renovation costs through 2014. Although PG&E has put the expense at $2.2 billion, the ultimate cost is expected to be $5 billion or more because of the interest that will be paid on the money the utility borrows to perform the work. The commission would have to decide in the future how much of those additional costs would be passed on to consumers.

The potential impact on a typical PG&E customer's bill isn't clear. PG&E said it was unable to provide a breakdown of that. When the company first proposed having ratepayers pay 90 percent of the cost, it estimated it would bill its customers $769 million through 2014, boosting a typical residential gas customer's monthly bill by $1.93 to $47.16. It said the rest of the expense would be billed to customers over 40 years, but it declined to estimate how much that might add to an average bill.

Consumer advocates fear the ruling Friday would let the utility avoid paying its fair share.

"In the end, PG&E will reap windfall profits from this tragedy," added a statement issued by Mark Toney, executive director of the San Francisco consumer group The Utility Reform Network. While a commission news release said ratepayers would only pay 36 percent of the initial renovation costs, Toney's group estimated they would pay more than 50 percent of the long-term costs.

Linda Serizawa, a deputy director of the commission's Division of Ratepayer Advocates, which represents consumer interests at the agency, said she was pleased the ruling placed limits on some of the things PG&E was hoping to pass onto consumers. But she added "we continue to have grave concerns" about the plan.

The work PG&E has proposed through 2014 includes pressure testing 783 miles of gas lines, replacing 186 miles of pipe, installing 228 automated valves and upgrading 199 miles of pipe so inspection devices can run inside them.

Aside from the costs associated with its pipeline plan, the utility faces other potential expenses associated with the San Bruno explosion.

The company also could incur hundreds of millions of dollars in penalties as a result of an investigation by the commission's safety division, which concluded in a January report that the Sept. 9, 2010 San Bruno disaster resulted from PG&E's violation of a host of pipeline-related laws and industry standards.

Among other problems, the report criticized the utility for deficiencies in its gas-line record keeping, inadequate emergency response procedures and a "corporate culture that emphasized profits over safety."

In regulatory filings, PG&E has said "it is probable that the utility will incur total penalties of at least $200 million" in commission fines over the San Bruno blast.

PG&E also has acknowledged that it is being investigated for possible civil and criminal violations associated with the explosion by the U.S. Justice Department, California Attorney General and San Mateo County District Attorney. Officials with those agencies have refused to discuss their probe.

In addition, the company is defending itself in San Mateo County Superior Court against more than 100 lawsuits filed on behalf of about 400 people who were killed, injured or otherwise harmed by the catastrophe.

Contact Steve Johnson at sjohnson@mercurynews.com or 408-920-5043. Follow him at Twitter.com/steveatmercnews