PG&E Corp to Spend Up to $2.6B On Pipeline Safety

SAN FRANCISCO (Dow Jones Newswires), Nov. 4, 2011

PG&E executives said Thursday the company's utility plans to spend an additional $400 million to improve the safety of its natural gas pipeline system, boosting total predicted safety costs to $2.6 billion, following a fatal pipeline explosion in 2010.

"Work to improve our operations is vital to restoring the confidence and trust of customers and regulators," Anthony Earley, PG&E's new chief executive, said during a conference call with analysts.

Shares of PG&E were recently down 3.2% at about $41. The stock is down 16.8% this year.

On Sept. 9, 2010, PG&E's natural gas pipeline in San Bruno, Calif., exploded, igniting a fireball that killed eight people, injured 58, destroyed 38 homes and damaged 70 others.

In August, PG&E said it plans to spend $2.2 billion through 2014 on pipeline safety costs. On Thursday, Earley said the utility now expects to spend an additional $200 million in 2012 and 2013 on top of that amount, to accelerate pipeline safety activities and invest in technology to improve operations.

Shareholders are likely to shoulder most of those costs, Early said. The utility would seek to recover increased costs of improved operations when it files its next general rate case in 2014, he said.

In addition to the pipeline safety costs, the utility increased its estimate for damage claims that those affected by the pipeline explosion are likely to seek from the utility, to as much as $600 million, up $200 million from the utility's earlier estimate. PG&E Chief Financial Officer Kent Harvey said the utility is likely to recover a "significant portion" of those costs from insurance, although he did not provide additional details.

After a yearlong investigation, the National Transportation Safety Board concluded last August that welding defects that weakened the pipeline over time caused the pipeline rupture, after the utility lost control of pressure on the pipeline while crews were doing electrical work. The board also blamed widespread flaws in PG&E's pipeline operations and poor government oversight.

Earley said Thursday the company is in the midst of a complete organizational overhaul and has hired new managers from utilities across the U.S. and Canada to drive the effort.

PG&E posted lower third-quarter earnings, which included costs that the gas-and-electricity utility incurred in testing its gas pipeline system, which offset higher-than-expected revenue.

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