PG&E's Gas Explosion Near San Francisco Is Probed by Federal Investigators

Federal investigators and local officials are searching through debris in the California town of San Bruno to determine what caused a PG&E Corp. pipeline explosion that killed four people and destroyed 38 homes in the utility owner’s second deadly natural-gas blast in two years.

The Sept. 9 pipeline rupture started a fire that spread over 15 acres, Kelly Huston, a spokesman for California’s emergency agency, said in an interview on KGO Radio in San Francisco yesterday. The neighborhood is about two miles (3.2 kilometers) west of San Francisco International Airport.

“I thought it was a plane crash,” Karen Yee, who lives seven houses from the explosion, said in an interview yesterday. “I looked at it in disbelief, and said, ‘Is it coming this way?’” Yee and her husband said they didn’t know the condition of their house.

In addition to the four deaths, three people were critically injured with third-degree burns, said Lieutenant Governor Abel Maldonado, who is serving as acting governor of the state while Republican Governor Arnold Schwarzenegger is in Asia. Another 52 fire victims got hospital treatment, and four firefighters were taken to the hospital, he said.

PG&E dropped 8.4 percent to $44.21 as of the 4 p.m. close of New York Stock Exchange composite trading yesterday. The drop, PG&E’s biggest since October 2008, wiped out more than $1.5 billion in market value. The company’s $3 billion of 6.05 percent bonds due in 2034 fell 3.9 cents to 112.1 cents on the dollar, the biggest decline since February 2009, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Accountability Question

The company has $992 million in liability insurance for damages caused by fire, according to a public filing yesterday. Financial results “could be materially adversely affected” if, after the explosion is investigated, insurance is insufficient or unavailable, PG&E said.

“If it is ultimately determined that we were responsible for the cause of the incident, we will take accountability,” PG&E said in an e-mailed statement.

PG&E is looking into reports that neighbors smelled gas and notified the utility in the days before the explosion, Chris Johns, president of PG&E’s Pacific Gas & Electric utility, told reporters yesterday morning.

The National Transportation Safety Board will oversee all probes into the incident. The California Public Utilities Commission said in a statement on Sept. 9 it has investigators on the scene and will “gather all relevant information about the incident and obtain information from PG&E.”

NTSB Probe

The NTSB, which has an eight-member team in San Bruno, will produce a report on its investigation in 14 months to 18 months, Christopher Hart, a member of the board, told reporters at a press conference in San Bruno yesterday evening.

A partial search of homes destroyed turned up no fatalities beyond the four reported earlier yesterday, and no one from the affected neighborhood has been reported missing, San Bruno Fire Chief Dennis Haag said at a press conference yesterday afternoon near the explosion site, 10 miles south of San Francisco.

“It’s very encouraging at this point,” Haag said. Rescue teams will search the balance of the burned-out homes once they are cool enough for rescue dogs to enter, he said.

The site is being treated as a crime scene to secure it for investigators, San Bruno Police Chief Neil Telford said at the press conference.

The damaged section of the 30-inch (76-centimeter) transmission pipeline was shut off within hours of the blast, Johns of Pacific Gas said.

Buried Pipe

The pipe that burst is buried about 3 feet (1 meter) underground, Johns said. The utility had no crews working in the area and is investigating whether someone may have been digging there, he said.

A December 2008 gas leak at a home served by PG&E caused an explosion and fire that killed one person and destroyed a house in Rancho Cordova, California. Government investigators said the cause of that incident was use of the wrong pipe.

PG&E promised faster and more effective response to customer reports of gas odors after that incident, Mark Toney, executive director of The Utility Reform Network, said yesterday in an e-mailed statement.

“The previous explosion in Rancho Cordova should have been a wake-up call, not only to PG&E but to the California Public Utilities Commission,” Toney said.

A gas transmission pipeline owned by El Paso Corp. ruptured in 2000 near Carlsbad, New Mexico, killing 12 campers.

Transmission Lines

Sixteen people have died in gas pipeline explosions in the past two years, according to the Pipeline and Hazardous Materials Safety Administration. There were about 306,000 miles of gas transmission pipelines in the U.S. at the end of 2008, according to the U.S. Energy Information Administration.

Ruptures of gas pipelines are infrequent, said Richard Kuprewicz, president of pipeline safety consulting firm Accufacts Inc. in Redmond, Washington. Transmission pipelines are larger than the distribution lines that carry gas to homes.

Kuprewicz said the ruptures tend to occur in rural areas and can cause significant damage because of the pressure and volume of gas in the lines.

“In microseconds the pipe, if it goes to rupture, shrapnels into many pieces and it’ll just toss out metal fragments all about,” he said. When the gas ignites, the explosion often creates a crater, he said.

In the San Bruno blast, it’s too early to know the extent of damages, culpability for the rupture or costs to PG&E, said Phil Adams, an analyst at Gimme Credit Inc. in Chicago, wrote yesterday in a note to clients. Another unknown is how seamlessly the insurance recovery process will be, he said.

San Bruno had 44,213 residents in 2008, according to estimates provided by the Metropolitan Transportation Commission and the Association of Bay Area Governments. Median family income was $84,978 in the past 12 months, and the median price of an owner-occupied home was $667,400 in the years 2006 to 2008, according to the data.

To contact the reporters on this story: Jim Polson in New York at jpolson@bloomberg.net; Mark Chediak in San Francisco at mchediak@bloomberg.net.

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