San Francisco-based Pacific Gas and Electric Co. (PG&E) said last Thursday it has hired a seasoned senior executive to run a realigned natural gas organization following the announcement that it obtained a decision from state regulators on its settlement in a $1 billion general rate case. In a busy week, the huge combination utility also began closely watched pressure testing of its natural gas transmission pipeline system.

Those developments were bookended by the announcement of a 29% decline in quarterly earnings by the utility holding company, PG&E Corp. The combination utility said the bulk of the decline was due to added costs that it has borne in the wake of the fatal gas transmission pipeline rupture in San Bruno, CA, last September.

The California Public Utilities Commission (CPUC) approval of the all-parties settlement included an increase of $395 million this year, less than 40% of PG&E’s requested more than $1 billion total, and subsequent boosts of $180 million each year in 2012 and 2013, instead of $300 million each year as originally requested by the utility. Last month the CPUC had separately approved expenditure levels for the next four years in the troubled gas pipeline and storage segment of PG&E (see NGI, April 18).

In the midst of all this, PG&E started on what it calls a “rigorous schedule” to test key parts of its transmission pipeline system that have similarities in size, location and operating conditions to the 30-inch diameter welded section in San Bruno that failed, causing an explosion and fire that killed eight people and devastated a residential neighborhood.

PG&E performed hydrostatic pressure tests on sections of pipe in Mountain View in the Silicon Valley and Antioch in the upper East San Francisco Bay in the first days of May, carrying out both pressure tests and camera inspections, a utility spokesperson told NGI. This work requires a lot of advance planning and notification of the local communities, requiring local work permits and coordination with local agencies. Gas is rerouted and continues to flow to homes and businesses throughout the testing.

PG&E last Thursday also announced a major realignment of its natural gas operations, placing everything under Nick Stavropoulos, a 30-year gas pipeline industry veteran who was named executive vice president for gas operations, effective June 13. The move drew an immediate response from CPUC President Michael Peevey who said the naming of the former COO of National Grid’s gas operations was appropriately “elevating the importance of natural gas safety in the company.”

Christopher Johns, president of the PG&E utility, said Stavropoulos will lead a broad-based improvement effort, ranging from upgrading and replacing critical infrastructure to revamping its operating policies and practice. Stavropoulos will report to Johns.

The interim CEO at PG&E Corp. since Peter Darbee’s sudden retirement at the end of April, C. Lee Cox, said Stavropoulos has the clear mandate for “change and a clear mission to overhaul the company’s gas operations and bring them up to world-class safety and performance standards.”

In the midst of the operational and management actions, PG&E Corp. announced last Wednesday that the company suffered financially during the first quarter of 2011 as its utility subsidiary continued to address safety issues over its natural gas pipeline network in the wake of an explosion last September.

San Francisco-based PG&E reported that its net income for 1Q2011 totaled $199 million, or 50 cents/share, a nearly 29% decline from the same quarter a year ago when the company reported earnings of $258 million at 67 cents/share.

“The board and all of our employees deeply understand and feel in every way how the events of the last year have affected the company,” Interim CEO Lee Cox said during Wednesday’s earnings call. “Right now we are all very focused on doing whatever it takes to fix our problems and to regain the public’s trust. A lot of projects are already underway to do that.”

According to PG&E, the company spent $51 million on pipeline safety during 1Q2011 and has spent $114 million overall since a pipeline exploded. PG&E said it has reviewed about 1.3 million documents so far, poring over gas pipeline pressure records spanning several decades. The company has also been going through records over what type of welding was used to join pipeline segments.

As part of the rate settlement approval the CPUC is requiring the utility to pay for an independent audit of its costs related to the transition to smart meters, along with making semi-annual pipeline safety reports on its distribution pipeline system and detailed capital expenditure annual reports with explanations of discrepancies between budget and actual expenditures on gas distribution projects, as well as electric generation and distribution projects.

The principal parties are CPUC staff, The Utility Reform Network (TURN) consumer group, the CPUC’s independent Division of Ratepayer Advocates, along with 14 other parties in the proceeding.

PG&E Senior Vice President Tom Bottorff, who oversees regulatory matters, said the increased funds are needed by the utility to connect new customers, repair and replace aging infrastructure and restore service during storms. The decision will have no immediate impact on the utility electric rates because the difference between the newly approved revenue levels and what PG&E is already collecting in rates is less than a tenth of 1%. The next electric rate change will be held off until Jan. 1 next year.

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