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California's Chief Regulator Says PG&E Lacks 'Safety Culture'

Pacific Gas and Electric Co. (PG&E) lacks a sufficient safety culture and a new investigation of the utility's natural gas system safety and maintenance programs will be launched in the coming weeks, according to Michael Picker, president of the California Public Utilities Commission (CPUC).

Picker and fellow Commissioner Catherine Sandoval said they want PG&E to be held accountable going forward and a new investigation will be one of the ways the CPUC attempts to do that. Both regulators said the regulatory commission also must be held more accountable for its oversight of PG&E and the state's other major utilities.

After the CPUC assessed a record-setting $1.6 billion fine against PG&E for its alleged malfeasance before and after the 2010 San Bruno transmission pipeline rupture, Picker said he intends to launch a probe to determine if "PG&E has established a safety culture that is effective throughout its organization."

Picker delivered a 30-minute speech following the CPUC action Thursday (see Daily GPI, April 9) in which he raised serious doubts about the utility, whose senior management -- all new since the San Bruno explosion -- continues to argue that it has changed its approach to safety throughout the organization.

"PG&E has certainly made some very large expenditures on replacement of aging pipelines, and those efforts have added safety to the utility's gas transmission pipelines," Picker said. "But that is separate from the smaller, low-pressure distribution pipeline system. At the same time, I see a lot of unevenness in the company."

Picker cited safety lapses involving the PG&E gas distribution system that have occurred following San Bruno, and the fact that the CPUC is now investigating the utility's distribution pipeline recordkeeping practices. Regarding the latter, he said the CPUC may impose further penalties on PG&E for shortcomings.

Calling out a long list of examples of safety violations at PG&E in the past four-plus years since San Bruno, Picker said "it is not clear PG&E is really responding." He questioned whether the fines, even the current one exceeding $1 billion, are a real deterrent given the financial community's reaction to them.

Noting that PG&E's share value increased by 3% when the proposed $1.6 billion fine was first made public last month (see Daily GPI, March 16), Picker questioned whether the extent to which shareholders or Wall Street more generally "are really concerned about these penalties and violations."

Following Thursday's CPUC action, Moody's said it viewed the long-awaited action as "a credit positive," substantially reducing the uncertainty surrounding the size of the impact on PG&E from San Bruno. Its credit rating, “A3,” is based on "the expectation that PG&E would have the ability and willingness to fully fund the unrecoverable costs," Moody's said.

"The capital markets are saying that these fines and penalties [such as PG&E's] are a cost of doing business and its acceptable, they can live with that," Picker said.

Having raised a number of questions about the effectiveness of PG&E's safety programs, Picker acknowledged that the CPUC "really doesn't have a factual basis" to conclude that is true. He said the CPUC may have to update its own policies to ensure that it can adequately monitor utility safety efforts throughout the state.

Standard & Poor's Ratings Services (S&P) on Friday revised its rating outlook on PG&E Corp. and its regulated subsidiary, PG&E, to “stable” from “negative.” At the same time, it affirmed its ratings, including the “BBB” issuer credit ratings, on PG&E Corp. and its subsidiary. Despite the "record high utility penalty of about $1.6 billion," S&P said the company has demonstrated a consistent commitment to credit quality through the issuance of sufficient common equity to maintain its regulated capital structure.

The company has issued about $2.6 billion of common equity over the past three years, and S&P expects that incremental sufficient equity will be issued as necessary. Because of management's continued and consistent commitment to credit quality, the credit rating agency expects that the financial measures will be maintained within the "significant" financial risk profile category, despite the record penalty.

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