Sewer Work May Have Set Off PG&E Pipe Blast

PG&E Corp. (PCG)’s natural-gas pipeline explosion in San Bruno last year may have been triggered by a sewer replacement project done by the city, an independent panel found.

“The panel believes third-party construction activity could have played a key role in transforming a fabrication flaw in the pipeline from a ‘stable’ to an ‘unstable’ threat, ultimately triggering the incident,” according to a statement today from the California Public Utilities Commission, which formed the panel. The sewer work was done in 2008.

The five-member panel didn’t make a finding on the root cause of the September explosion, which killed eight people and destroyed 38 homes. A National Transportation Safety Board final report on what caused the blast will likely be available by September, agency Chairman Deborah Hersman said yesterday at a press event in San Bruno.

PG&E froze its dividend this year because of costs associated with the explosion. The utility, which distributes gas to 4.3 million customers, said it may spend as much as $1.1 billion this year and next on gas-pipeline inspections, improvements and other safety work.

The company, based in San Francisco, said on May 4 that it had so far incurred pretax costs of $114 million related to the blast and had set aside $220 million for estimated third-party liabilities associated with the incident.

‘Dysfunctional Company Culture’

The panel said its conclusions were based on analysis by its technical consultant, a review of the NTSB investigation and a report by the Interstate Natural Gas Association of America, an industry group.

NTSB investigators have said that PG&E’s pipe had faulty welds. Keith Holloway, a spokesman for the agency, declined to comment on the status of the investigation or the California state panel’s report.

The pipeline rupture was a consequence of weaknesses in PG&E management, the panel found. PG&E has a “dysfunctional company culture” with excessive levels of management and an overemphasis on financial performance, according to the panel. It recommended “some form of separation” of PG&E’s gas and electricity businesses to allow for more focus.

“This is damning of PG&E across the board,” Michael Peevey, president of the commission, said at a public meeting today in San Francisco.

The panel also found that state regulators didn’t have the resources to monitor the company’s pipeline management system adequately.

CEO Resignation

Former PG&E Chief Executive Officer Peter Darbee announced his resignation on April 21 after a “challenging year.” The company last month named Nick Stavropoulos to lead its gas business.

PG&E “will move quickly to review the report’s detailed findings and take further action to improve the safety, quality and performance of our gas system,” interim CEO Lee Cox said in a statement.

PG&E rose 4 cents to $41.96 at 4:15 p.m. in New York Stock Exchange composite trading. The company’s shares have fallen 12 percent this year, making it the worst performing member of the Standard and Poor’s 500 Multi-Utilities Index.

To contact the reporter on this story: Mark Chediak in San Francisco at mchediak@bloomberg.net.

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.