PG&E Tumbles After Natural-Gas Pipeline Explosion in San Francisco Suburb

PG&E Corp., California’s largest utility owner, fell as much as 8.3 percent in New York trading after one of its natural-gas pipelines exploded in the San Francisco suburb of San Bruno.

The blast yesterday resulted in the death of at least four people and destroyed 38 homes, Lieutenant Governor Abel Maldonado said during a press conference today in San Bruno.

The company may face costs in the “hundreds of millions” if it is found to be at fault, Greg Gordon, an analyst at Morgan Stanley said today in a research note to investors. The company could also face a “challenging regulatory environment” for its general rate increase request for 2012, said Gordon, who downgraded the stock to “equal-weight” and doesn’t own the shares.

PG&E fell $3.20, or 6.6 percent, to $45.05 at 1:56 p.m. in New York Stock Exchange composite trading.

“At this point, it is impossible to know whether PG&E will be found at fault or if other factors contributed to this disaster,” Gordon said. The financial impact could be small if PG&E is “exonerated,” the note said.

The blast came from a 30-inch (76-centimeter) gas transmission pipeline owned by PG&E, Jeff Smith, a company spokesman, said. The line was built in 1956, Ted Lopatkiewicz, a spokesman for the U.S. National Transportation Safety Board, said in a telephone interview.

The California Public Utilities Commission, which regulates PG&E, is also investigating, Terrie Prosper, a spokeswoman, said in an e-mail.

Shareholder Impact

PG&E’s Pacific Gas and Electric utility, which operates in northern and central California, has 4.3 million natural-gas customers and 5.2 million electricity customers, according to an Aug. 4 regulatory filing.

The San Francisco-based company said Aug. 4 that second- quarter 2010 net income fell 14 percent to $337 million, or 86 cents a share, from the same period a year ago. Its shares had risen 8 percent so far this year before today.

The company said in August it expects per-share earnings from operations to be in the range of $3.35 to $3.50 for 2010. That compares with $3.40, the average of 18 analyst estimates compiled by Bloomberg.

“The impact on shareholders is ultimately going to come down to how California regulators treat this issue,” Travis Miller, an analyst for Morningstar Inc. in Chicago, said in a telephone interview.

“If regulators do hold PG&E accountable and do not pass on the extra costs to customers, shareholders will definitely suffer,” said Miller, who rates the company three stars out of five and doesn’t own any of its shares. “If regulators allow costs to remedy the situation, then shareholders could see very little impact,” he said.

Insurance Coverage

PG&E has about $992 million in insurance coverage for damages caused by fire, the company said today in a public filing. PG&E said it had a $10 million deductible.

The company’s financial condition could be “materially adversely affected” if, based on the outcome of the investigation, insurance recoveries are unavailable or insufficient to cover losses, according to the filing.

It will take a long time for the company to sort through all of the costs it could potentially face as a result of yesterday’s incident, Daniele Seitz, a consultant at Dudcak Research Group in New York, said in a telephone interview.

It’s “very hard to tell” whether the insurance will be enough to handle all damages and everything that arises from lawsuits filed against the company, she said.

The company’s insurance premium may also rise, Seitz said.

To contact the reporters on this story: Mark Chediak in San Francisco at mchediak@bloomberg.net. David Wethe in Dallas at dwethe@bloomberg.net;

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