In reporting its third quarter earnings, PG&E Corp. last Thursday said it took a $238 million (36 cents/share) charge on a pre-tax basis tied to the Sept. 9 natural gas transmission pipeline rupture and fire in a residential neighborhood in suburban San Bruno, 10 miles south of San Francisco.

In the aftermath of the explosion, which killed eight people, destroyed 37 homes and badly damaging 18 other homes, PG&E said the one-time charge included $220 million for property damage, personal injury and other legal claims arising from the accident, including the cost of its $100 million Rebuild San Bruno Fund.

Separately, CEO Peter Darbee said the utility recently completed an aerial leak survey of its entire 6,700-mile transmission pipeline system, and a ground leakage survey will be completed by the end of this year.

Eventual costs tied to the tragedy could run from $220 million to $400 million, and this is before factoring in insurance coverage, according to the San Francisco-based holding company for Pacific Gas and Electric Co., the combination utility. These are contingencies for liability, and separately there are also direct costs and the utility and its holding company face.

“The ultimate level of direct costs for these and other related activities could range from $100 million to $150 million through 2011,” PG&E said.

“Consistent with accounting practice, the low end of the range was accrued in the third quarter,” said PG&E in announcing earnings that were up quarter over quarter when not including the charges but down when the charges are applied.

Including charges, PG&E said net income in the third quarter was $258 million, or 66 cents/share, compared with $318 million, or 83 cents/share, for the same period last year. On a non generally accepted accounting principles (non-GAAP) basis, excluding the San Bruno charges, earnings from operations were $398 million, or $1.02/share, in the third quarter, compared to $358 million, or 93 cents/share, on a non-GAAP basis for the same 2009 period.

An additional $18 million as part of the one-time charge is related to costs associated with the accident resulting from the re-inspection of the utility’s gas transmission pipelines, providing immediate support to San Bruno and other activities, PG&E said.

Late in October, a utility pipeline executive told NGI that the Sept. 9 San Bruno natural gas transmission pipeline blast shouldn’t have happened and should not be repeated anywhere in the future. He underscored that many questions remain in addition to the cause that is being investigated by federal authorities. There is still no estimate on the added cost to PG&E utility operations and the full implications for the gas industry are yet to be articulated.

“Everyone in the industry is aware there was a rupture of a pipeline in San Bruno, and that should not have happened, and that should not happen anywhere in our industry,” said Kirk Johnson, vice president of gas engineering and operations. PG&E is now focused more than ever on “strengthening” its gas pipeline system. The company is working with the industry experts and regulators, according to Johnson, who said that the failed pipeline (Line 132) is patrolled weekly.

In regard to the second-guessing and conjecture that the aftermath of any pipeline failure of such magnitude generates, Johnson said PG&E did a “thorough review” of all of its records following the incident regarding leak orders and reports of gas odors in the San Bruno area from July 1 to the date of the explosion. In the general impact area, only two telephone calls to the utility were uncovered. Both occurred prior to Aug. 1 and in one case a leak at a residential gas meter was found and repaired. The second call was from a neighbor who had no leak.

Regarding criticism that the utility could have been doing more prior to the incident, Johnson would only say that the current effort is “a significant step forward from the processes we had in place prior to the incident for efforts to modernize and use more automatic shutoff valves. This is a significant step up for us in terms of strengthening our natural gas system.”

As part of that effort PG&E has committed $10 million to a national effort to jump start advanced technology for “smart pigs” that survey the internal integrity of pipe sections. “That will benefit all gas transmission pipeline operators long term,” Johnson said.

In the aftermath of a tragedy that has changed a part of San Bruno and PG&E’s natural gas operations, Johnson said the utility’s focus now is on modernization of its 6,700-mile transmission backbone pipeline system, the use of more automatic valves and what he called “the next generation of inspection technology.” PG&E last month included those initiatives in its 2020 Pipeline Program (see NGI, Oct. 18).

PG&E intends to help the industry and its own operations to advance inspection approaches and improve industry and individual utility best practices, Johnson said.

Acknowledging that the cause of the San Bruno rupture is still unknown and it may be a year or more before it is pinned down by the National Transportation Safety Board (NTSB), Johnson said as soon as NTSB’s final determination is made, PG&E intends to “roll it into our other programs, but until then we are taking our first steps through the 2020 program,” which he referred to as a “dialogue” with the industry, regulators and communities.

PG&E has no involvement in analysis of segments of the pipe that were in the immediate impact area; all of them were taken by the NTSB for analysis as part of its ongoing investigation. “And I understand they have requested some additional samples in our system, which we are working on,” Johnson said.

How long will the ongoing transmission pipeline operations be routed around the impact area? “We’re looking at our options right now,” Johnson said. “Our concern is this winter, when natural gas demand begins to increase significantly, so we’re doing everything possible to prepare our system for the winter.” He would not say if the utility will continue to operate the three pipelines at reduced pressures through the winter.

“We’re continuing to look at our system to maximize our deliveries for safe and reliable service,” Johnson said. “We are continuing to have discussions with regulators on our next steps.” One option is to raise pressures in one or both of the pipelines not directly involved in the incident (Lines 101 and 109).

“We’re looking at our options to separate the three pipelines and operate them independently, depending on what our overall analysis concludes, and we’re doing a great deal of construction right now to maximize the system’s flexibility and capabilities with that segment of pipe out of service,” Johnson said. “We’ll have a lot more to say in another two weeks.”

The focus of a lot of PG&E’s and the industry’s work has centered on what are designated as “high-consequence areas” (HCA), or Class 3 and 4 areas. PG&E late last month completed its analysis of its entire backbone transmission system and reported the results to the California Public Utilities Commission (see NGI, Nov. 1).

Generally, the Class 3 and 4 and HCA-designated areas are in more densely populated urban areas or near schools, nursing homes, hospitals, etc. Pipelines in those areas must be inspected more frequently than rural areas under federal law. All three have been used by PG&E as its top-priority areas to resurvey its entire pipeline system, Johnson said.

“HCA-designated pipelines are the type that fall under what federal code calls the integrity management program,” Johnson said.

PG&E’s actions in the immediate aftermath of the incident was to lower the operating pressure on the three transmission pipelines feeding the peninsula area — Lines 101, 109, and the failed Line 132. “They operate as a single unit, all at the same pressure, and so we had to reduce the pressure initially 10%, and after being in discussion with our regulators we lowered that to 20% on all three pipelines,” said Johnson. The the next day the utility started what he called a “complete leak survey of the pipelines” from their origin at Milpitas, CA, in the southeast corner of the San Francisco Bay, to their northern termination point in San Francisco.

©Copyright 2010Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.