Sewer Work May Have Triggered PG&E Pipe Blast, Panel Says

June 9 (Bloomberg) -- PG&E Corp.’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.