A year after the gas transmission pipeline explosion in San Bruno, CA, Pacific Gas and Electric Co. (PG&E) operations are “still not where they need to be,” and another $200 million for operating expenses next year is needed to help right the ship, PG&E Corp. CEO Tony Earley told financial analysts Thursday.

With hundreds of millions of dollars of incremental gas system costs and up to $600 million set aside to handle third-party liability claims from the San Bruno, CA, pipeline rupture, PG&E reported decreased profits for the third quarter ($203 million, or 50 cents/share, compared to $258 million, or 66 cents/share, for the same period last year).

Earley said the San Francisco-based combination utility has to be “brutally honest” about its operational shortcomings and set its sights on becoming “one of the best-operated utilities in the country.” To internally shift the focus entirely on utility operations, Earley said one of his early decisions in the six weeks he has been on the job was to eliminate the parent company’s corporate strategy group.

“The tragedy of San Bruno made it clear to us that our operations are not where they need to be,” he said.

Zeroing in on natural gas system issues, Earley said resolving all the major pipeline issues will be challenging for a company, which has struggled to regain the confidence of regulators and consumers. Regaining the trust and confidence is a major goal, which was reiterated by Christopher Johns, the utility president.

“We have determined that we will have to spend a lot more on our gas and electric infrastructure to reach our goal of operational excellence,” said Earley, noting that the added $200 million in expenses will have a negative impact on 2012 and 2013 earnings. “It is our objective to earn our authorized [rate of] return in 2014.”

In answering questions, Earley and Johns made it clear that the bulk of the added expenditures will be in the gas system, which is now headed by an executive vice president with long-term gas industry experience, Nick Stavropoulos.

Johns said the added $200 million in upgrading operations/maintenance next year will likely have to be continued in 2013. “The necessity of spending these extra amounts will cause us to underachieve on our authorized rates of return,” he said. About one-third of the work will involve accelerating work that has been planned for a number of years; the other two-thirds will be used to “elevate” the utility’s ongoing performance.

Gas system leak detection and repair and the pipeline system control center will be upgraded and expanded, Johns said.

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