Ahead of a California Superior Court hearing last week, Pacific Gas and Electric Co. (PG&E) publicly acknowledged liability for the natural gas transmission pipeline explosion in San Bruno, CA, last year and said it would compensate all of the victims.

PG&E said it made this statement last Tuesday in response to a San Mateo County judge’s request for PG&E’s official position, which came ahead of Friday’s court hearing to discuss various issues regarding the case. The San Francisco-based combination utility said it is taking on financial responsibility to compensate all of the victims for the injuries they suffered as a result of the Sept. 9, 2010 accident.

In making its formal announcement, PG&E said it wanted to “make clear” that none of the plaintiffs, San Bruno residents or the city itself is at fault. “We would never consider holding the residents accountable for this accident,” said utility President Christopher Johns. “Since the accident, PG&E has stood by the community of San Bruno, and we will bear the cost to make things right for the city and its people.”

Johns said PG&E has been working for the past 14 months with those impacted by the accident. Its goal has been to resolve all claims fairly and promptly, he said. “The utility remains committed to helping the city of San Bruno and the victims of the accident and their families recover and rebuild.”

PG&E also released a letter by Johns sent to utility employees, which emphasized the need “to take accountability” not only for the tragic pipeline failure but for the cleanup and restoration, the healing and the financial responsibility for the rebuilding. He told employees the utility took another important step by accepting the liability.

“As we’ve said all along, our pledge is to do the right thing in every area of our response to this tragedy,” Johns said. “The [Superior Court] judge presiding over [the utility’s] cases asked PG&E to provide our official position. The judge is hopeful that this will make the legal proceedings move faster and more efficiently. PG&E is hopeful that this will allow the people injured to receive compensation sooner without unnecessary legal proceedings.”

Johns also said PG&E still faces a long process in “turning around” its natural gas business. Legal claims against the giant utility “are far from over,” but he pledged to customers that as the company moves forward it will do so with what he called “integrity and accountability.”

Also last week, PG&E’s new CEO Anthony Early said the combination utility faces longer-term costs in excess of $1 billion related to the pipeline rupture. Earley told reporters that with new pipeline safety regulations moving through Congress, two proceedings continuing at the California Public Utilities Commission (CPUC) and the utility’s proposed $2.2 billion pipeline enhancement program before the CPUC, it was impossible at this point to identify all the direct and indirect costs resulting from the explosion, but PG&E at some point will have to sell added equity to pay for the charges that cannot covered by higher utility rates.

At the beginning of this year PG&E reported taking an initial one-time charge against earnings of $283 million to cover the initial added costs of the incident, but added that it was projecting up to $760 million in costs, including some $400 of potential third-party liability costs by the end of this year (see NGI, Feb. 21). At that time, the utility’s senior management said the bulk of the liability costs were expected to be covered by the $992 million of insurance coverage PG&E has in place.

Early admitted that the utility’s natural gas operations were “under-resourced” compared to the electric side of the business in the past and said that reestablishing the gas system is going to “come at a cost to our bottom line.” PG&E faces “a tremendous number of challenges,” he said, noting that he has spent a lot of his time the first three months at the utility talking with employees, regulators, customers, elected officials and community leaders. “Everyone understands that the confidence in the company is at an unacceptably low level…

“Traditionally when you combine gas and electric companies, the electric side dominates the business,” said Earley citing his 25-plus years in the industry, mostly with combination utilities. “Electric operations tend to be larger, with more resources and more visibility, and gas businesses get under-resourced, and anyone in this business will tell you that has been the experience. Based on the NTSB [National Transportation Safety Board] report it is absolutely clear that is what happened at this company.”

Given the depth to which the utility has fallen, PG&E can’t just be average in the years ahead; it will need to be extraordinary, he said.

Earley said PG&E supports the current proposed new pipeline safety bill being debated in Congress (see related story). New requirements such as automatic shutoff valves will be proposed for new retail rate support, but other upgrades tied to shortcomings from the past will not be covered in rates.

In terms of longer-term financial impacts, Earley said there will be “fines levied and they will be large fines,” by the California Public Utilities Commission (CPUC) but he has no idea now how large that will be.

“We also know that the CPUC realizes that the utility has to have sufficient financial resources in order to be able to invest in new infrastructure [to upgrade safety],” he said. “Obviously, a balance has to take place.”

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