The cost to Pacific Gas and Electric Co. (PG&E) shareholders to deal with the aftermath of the deadly San Bruno natural gas pipeline rupture and explosion in September 2010 is approaching $1.5 billion, senior executives at the utility said Thursday, during a week in which city officials lashed out at the utility and the city of San Francisco sued federal pipeline regulators.

Noting the added costs for its gas system last year were $1 billion above the previous year’s level, PG&E said 4Q2011 profits were down by 67%, dropping to $83 million (20 cents/share), compared with $250 million (63 cents) for the same period in 2010. A 4Q2011 loss of $283 million for gas matters was recorded, compared with a $27 million loss for the same reason in 4Q2010.

The total cost of San Bruno to PG&E shareholders includes $550 million spent to date, and “our guidance indicates we could spend nearly that same amount in 2012,” PG&E CFO Kent Harvey said during a conference call with financial analysts Thursday. PG&E also faces a $200 million penalty from state regulators, and a commitment to spend to $200 this year and next for all operations. “That pushes our total shareholder costs to $1.6-1.7 billion, which is a very significant price tag. In fact, that total is approaching the total net investment in our pipelines over the past decade.”

The total bill does not include any of PG&E’s $2 billion, four-year pipeline safety enhancement plan, which may not be acted on by state regulators until the end of this year.

California Public Utilities Commission (CPUC) regulatory staff claim that PG&E has not spent the ratepayer funds allocated for gas pipeline maintenance and safety programs and staff has asked why ratepayers should have to pay again for an added level of safety. PG&E executives said they will make their case in the upcoming proceedings. The utility is proposing to spend nearly $2 billion of ratepayer-supported programs in its pipeline enhancement plan now awaiting a CPUC decision.

CEO Tony Earley said the definitions and expectations of a “safe and reliable gas pipeline system” have changed considerably since the San Bruno explosion. “You have to look at what were the standard practices, and we have acknowledged there were some places where we weren’t following standards, and to the extent that was the case, then we ought to absorb those added costs.

“But to the extent that the standards are being changed and being increased, those new requirements ought to be recoverable from our customers through our [retail] rates. I think you are going to see this issue come up across the country with new national standards. Other states are going to look at what has happened in California, and they’ll say the same thing. While people are following accepted practices from the past, technology has changed; the understanding of the risks has changed, and therefore the costs of adhering to these new standards should be recoverable as a normal course of business.”

After confidential negotiations broke down, San Bruno officials asked state regulators to help them reach a “global settlement” with PG&E over the pipeline explosion. The stalemate centers on reimbursements the city thinks the utility should pay in addition to commitments of up to $170 million, which include a $100 million “Rebuild San Bruno” fund for those affected by the incident, plus a $70 million trust fund to cover municipal costs directly related to recovery efforts.

San Bruno Mayor Jim Ruane last week accused PG&E of trying to shirk its responsibilities. “They simply want to walk away after doing the minimum required by law,” Ruane said. “We will not let that happen.”

Pruett said the tragedy in San Bruno is “relived every day” at PG&E. “We are committed to doing everything we can, every day, to making sure that we give value and meaning to the people that lost their lives and the ones whose lives forever have been irreparably changed by the tragedy,” he said.

Meanwhile, San Francisco officials filed a lawsuit last Tuesday against the Pipeline Hazardous Materials and Safety Administration (PHMSA), accusing the U.S. Department of Transportation unit of having “abjectly failed” to enforce pipeline safety regulations prior to the San Bruno incident. The lawsuit, filed in U.S. District Court for the Northern District of California, is seeking injunctions against federal officials to enforce pipeline safety regulations, ensure proper oversight over California regulators, and prevent those officials “from improperly delegating their authority to do so to gas pipeline operators.”

City Attorney Dennis Herrera alleges that PHMSA was “still asleep at the switch” in the aftermath of the San Bruno tragedy. The lawsuit claims that unless the PHMSA begins fulfilling its regulatory responsibilities there will be more pipeline failures. The federal agency also is accused of ignoring recommendations by San Francisco that were issued last year and of “flouting” recommendations from its oversight board, the National Transportation Safety Board.

Finally, the CPUC also is investigating allegations that there are flaws in the welds and corrosion repairs that PG&E completed last year as part of its testing, repair and replacement of more than 160 miles of natural gas transmission and distribution pipeline running through high consequence areas (HCA).

Individuals working for two units of the Plumbers, Pipe Fitters and Steamfitters Local Union Nos. 246 and 342 filed charges with the CPUC related to the hydrostatic testing of transmission pipe segments last year in the wake of the San Bruno, CA, pipeline rupture and explosion in September 2010 (see NGI, Feb. 10). In response, the CPUC directed its Consumer Protection and Safety Division (CPSD) to speak with the workers making the charges, and conduct field work in the areas identified and in some other sample areas. The distribution allegations involved leak surveys on both high-risk Grade 1 lines and nonhazardous lower-risk lines categorized as Grade 2+, 2 and 3.

Interim CPSD Director Michelle Cooke said the regulatory panel takes “all allegations of unsafe actions by a utility very seriously.” He said the utility is “cooperating fully” with the CPSD as it works its way through the union allegations.

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