A final federal regulatory report including the identification of the cause of the San Bruno, CA, gas pipeline rupture and explosion last year will be completed next month, according to senior officials at PG&E Corp.

Questions and comments about the still-unfolding PG&E pipeline failure that killed eight people and destroyed a quiet, residential neighborhood dominated the company’s second quarter earnings conference call as PG&E executives said the utility and its parent have so far incurred nearly $190 million in pre-tax costs associated with the pipeline failure. The disaster has brought criticism of the combination utility’s handling of the incident from a state regulator-appointed independent review panel (see NGI, June 13), the California Public Utilities Commission (CPUC), and the National Transportation Safety Board (NTSB).

PG&E interim CEO Lee Cox told financial analysts that the board is “very close” to announcing a new CEO who will be brought in from outside the company. Former CEO Peter Darbee retired earlier in the year.

PG&E utility CEO Christopher Johns said the combination utility has “embraced” the CPUC independent review panel’s conclusions and recommendations while he outlined a number of upcoming regulatory milestones, headed by the NTSB releasing its final report of the root causes for the San Bruno explosion “sometime in September.”

“In the meantime, NTSB will continue providing updates of its previously released documents and will hold a meeting regarding the investigation at the end of August,” said Johns. “The findings will likely provide further insight on improving our operations and will inform all of our other [federal and two CPUC] proceedings.”

Regarding the two CPUC proceedings — one aimed at PG&E specifically for its pipeline record keeping and maintenance, and the second one aimed at the industry statewide to establish new rules and standards — Johns speculated that those proceedings would not be concluded until some time in the early part of next year. He said the state proceedings are on parallel but separate tracks.

Johns stressed that PG&E is concentrating on its natural gas system operations under a new executive vice president, Nick Stavropoulos, and reorganized gas utility structure. With other gas unit hirings at the director level, particularly pipeline experts, Johns said PG&E is focused on “turning around” its gas operations. Johns said the utility should finish the hydrostatic testing of pipes in highly populated areas by the end of the year.

The next major milestone is to file an implementation plan in the CPUC rulemaking on standards and rules. Johns said it will be filed later in August and will “embrace the concepts that our original ‘Pipeline 2020’ program that the CPUC has asked us to include.” The plan will include how the utility intends to pursue pipeline testing and replacement standards, retrofitting pipes to accommodate more inline inspection tools, and for automatic and remote shutoff valves.

PG&E intends to address the question of costs, on which it received several questions from analysts. “The proposal will recognize the significant costs [pre-tax $189 million] that the shareholders have already funded,” Johns said.

PG&E second quarter net income was $362 million, or 91 cents/share, compared with $333 million, or 86 cents/share, for the same period in 2010. The latest results were bolstered by two rate case settlements approved by the CPUC in the second quarter and achieved despite a charge for third-party liabilities associated with the San Bruno explosion of $59 million, or 9 cents/share, for the second quarter. This is part of a larger aggregate provision for the liabilities totaling $279 million.

Separately, San Francisco’s city attorney has informed the CPUC and the federal Pipeline and Hazardous Materials Safety Administration (PHMSA) that it plans to sue both of them for alleged failure to “reasonably enforce” the federal pipe law regarding last year’s fatal natural gas transmission pipeline rupture and explosion. The city is using a citizen lawsuit provision in the Pipeline Safety Act.

Under the federal pipeline law’s citizen provision, San Francisco City Attorney Dennis Herrera was required to notify his alleged targets and has until Sept. 12 to actually file the threatened lawsuit. The notification was a 13-page letter that outlines the proposed lawsuit. It was directed to the CPUC and PHMSA, along with Gov. Jerry Brown and Transportation Secretary Ray LaHood.

Herrera alleges that the CPUC did not adequately monitor the pipeline owner/operator Pacific Gas and Electric Co.’s (PG&E) compliance with integrity management requirements and that PHMSA failed to ensure adequate enforcement of those requirements directly or by the CPUC’s oversight, according to a recent pipeline safety update by the law firm Van Ness Feldman.

Although PG&E had no immediate reaction, this is another in a continuing series of legal and regulatory actions tarnishing the image of the giant San Francisco-based combination utility. Other actions include threats of fines and penalties against the utility and a criminal investigation (see NGI, June 27).

Herrera said the notices were a “legally required precursor” to filing civil litigation for the city, which he said will seek a federal court order “compelling” the CPUC and the U.S. Transportation Department’s PHMSA to enforce federal pipeline safety standards in an “effective manner.” The San Bruno explosion has shown that “blame must be shared by regulators who were either asleep at the switch or too cozy with the industry they’re supposed to regulate. While PG&E was flouting federal law, regulators did little to hold the company accountable.”

Among the points that are outlined by Herrerra is an allegation that PG&E’s gas transmission pipelines in San Francisco “are at risk of failure.” The three pipelines are the same as the ones running up the peninsula south of San Francisco that go through or near San Bruno (Lines 101, 109 and 132). It was a segment of the 30-inch diameter Line 132 that ruptured last September, causing the deadly explosion in a quiet San Bruno neighborhood.

The proposed lawsuit apparently builds a case for the strong links between the federal pipe law and PHMSA and CPUC responsibilities. It then proceeds to allege that in many different instances both the federal and state regulatory agencies “failed to enforce” the federal law.

Herrera used the independent review panel convened by the CPUC that strongly criticized the state regulatory unit in its final report in June as the basis for suing them, and similarly he contends that PHMSA was accused of “failing to perform its legal duty” by the House Committee on Transportation and Infrastructure a full year before the San Bruno explosion on Sept. 9.

“As evidenced by the San Bruno explosion, natural gas pipelines that are not adequately maintained pursuant to an effective integrity management program pose a serious threat to those who live, work and gather near them,” said Herrera, while concluding his notification with the invitation to discuss alternatives to litigation during the 60-day notice period that is now in effect under the federal pipe law.

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