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PG&E CEO: San Bruno Fines May Hit $2B

When the payouts and penalties are totaled for the Pacific Gas and Electric Co. (PG&E) transmission pipeline rupture and explosion in San Bruno, CA, almost two years ago, the utility may pay as much as $2 billion, CEO Tony Earley said last week in San Francisco.

Earley was asked during a press conference about the national pipeline capacity situation and PG&E's efforts to resolve issues lingering in the wake of the September 2010 pipeline rupture and explosion that killed eight people.

"We have been saying that people could expect something in the $1.5 billion range, although it certainly could go as high as $2 billion," he said.

The U.S. shale gas boom has put pressure on the natural gas industry nationally to upgrade and build new pipeline capacity to service what are anticipated to be growing markets for gas-fired electric generation and use of gas as a transportation fuel, Earley said in advance of the PG&E annual shareholders meeting in San Francisco.

"Nationally we are seeing a great increase in gas reserves related to shale gas finds across the country," Earley said. "And one of the challenges is building the pipeline infrastructure to hook up those new resources with the markets that can use those resources."

He said the good news for the United States is that it suddenly has a "great energy resource," but at the same time the industry has to be focused on building more pipelines. "We need to rebuild our existing pipeline infrastructure. PG&E is not alone in having to go back and look at investing more in its pipeline infrastructure. Virtually every large pipeline-related company whether a utility or pipeline-only, is having to do this."

He cited the example of NiSource Transmission and Storage announcing plans for a $4 billion, multi-year modernization program to upgrade its entire Columbia transmission pipeline system during the next 10-15 years.

"This is just the tip of the iceberg, we're going to see lots more of this," Earley said. "I think the dual challenge of new pipelines and enhancing existing pipeline systems will be on the agenda for the next decade or more."

Separately last week utility consumer watchdog The Utility Reform Network (TURN) filed a scathing rebuke of PG&E's proposal to charge utility customers up to $2.2 billion for a pipeline safety enhancement plan mandated since the San Bruno tragedy. There is already $1 billion that the utility has acknowledged -- $500-600 million in out-of-pocket costs and it has said it would spend close to $400 million during the next two years correcting flaws in its overall pipeline operations.

This total doesn't take into account additional fines and costs that PG&E faces in the three outstanding state regulatory proceedings at the California Public Utilities Commission (CPUC) or the outcome of pending litigation. As a baseline "technical" estimate by the utility, Earley said, it has projected that the smallest fine the utility is likely to incur would be $200 million. "That is just a very rough number," he said.

TURN Executive Director Mark Toney wants PG&E "held accountable for playing with people's lives" in what it admitted prior to San Bruno was a poorly managed gas pipeline system. "While the damage from the San Bruno explosion can never be undone, PG&E must pay for its failures in both customers safety and record-keeping, failures that violated basic standards as well as industry ones," Toney said.

PG&E's Earley acknowledged that regulators essentially can come up with just about any number for a fine. However, he thinks the CPUC will work toward a "balance" and how much of a message it wants to send the company. "I think the company already has gotten the 'message', and I wouldn't be here [as a new CEO] if that was not the case."

"If you disable the company financially, where are you going to get the money to pay the fines and to make all the investments we want and need? So the [state regulators] will have to make a judgement on what is the right fine number and how much of a split there should be between ratepayer and shareholder costs."

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