PG&E Expects Criminal Charges Against Utility Unit
PG&E Corp. (PCG), owner of California’s largest utility, said it expects to face criminal charges for the 2010 explosion of one of its natural gas pipelines that killed eight people in San Bruno, California.
The U.S. Attorney’s Office is expected to accuse the company of violating federal regulations on record keeping, pipeline integrity management and identifying threats, leading to the explosion and deaths, according to a company statement released yesterday. San Francisco-based PG&E said the charges are without merit. It didn’t say when it expects the charges to be filed.
The announcement underscores the rising scrutiny on pipeline and utility companies over the safety risks of aging pipes running beneath U.S. cities. The potential criminal charges come as federal investigators study whether a leaking gas main operated by Consolidated Edison Inc. contributed to an explosion in New York City this month that claimed eight lives.
“Our biggest concern is not the direct financial exposure, but the implication we see in these criminal charges that San Bruno remains a political ‘piling on’ situation for many parties,” Kit Konolige, a BGC Partners LP analyst in New York, wrote in a note to clients today.
PG&E fell 4 percent to $41.89 at the close in New York, the biggest decline since August 2011. Before today, the shares had dropped 1 percent in the past 12 months.
The charges are expected after discussions with the U.S. Attorney’s Office about a settlement broke down, the owner of Pacific Gas & Electric said.
“It is very rare for a company to be charged criminally,” said Brigham McCown, an industry consultant and former acting administrator of the Pipeline and Hazardous Materials Safety Administration.
A series of high-profile leaks and fatal explosions in the past four years has focused attention on how companies are maintaining and replacing their networks of old pipelines. Last week federal investigators discovered a leak on an 8-inch (20-centimeter) main pipeline -- parts of which are 120 years old -- that ran next to one of the buildings destroyed in the New York City blast.
In 2011, the Transportation Department began a study of failures in old pipelines and the adequacy of industry tests to detect problems. The study followed the San Bruno explosion, and an Enbridge Inc. pipeline rupture that same year that spilled 20,000 barrels of crude into a creek that feeds the Kalamazoo River outside Marshall, Michigan. Both involved pipes older than 40 years.
Last year, a pipeline owned by Exxon Mobil Corp., built in the 1940s, split apart and spilled 5,000 barrels of oil in Mayflower, Arkansas.
“The industry has been trying to distance themselves from these major incidents, saying they are anomalies,” said Carl Weimer, executive director of the Pipeline Safety Trust, an advocacy group. “If this case is going criminal, it is going to taint the whole industry again and they will have to redouble their efforts to show that they are doing business unlike a company that ends up with a criminal proceeding against them.”
PG&E has committed to spending more than $2.7 billion to upgrade pipelines and make other improvements since the explosion, and it’s settled legal claims worth almost $500 million.
Since the San Bruno accident, PG&E has replaced 127 miles (204 kilometers) of pipeline in its system, retrofitted 268 miles more to allow for in-line inspections and opened a “state-of-the-art” gas control center, the company said. The system has 6,750 miles of gas transmission pipe.
“San Bruno was a tragic accident that caused a great deal of pain for many people,” PG&E Chief Executive Officer Tony Earley, who was appointed in 2011, said in the statement. “We’re accountable for that and make no excuses. Most of all, we are deeply sorry.”
PG&E employees didn’t intentionally violate the federal Pipeline Safety Act, the utility said in its statement.
A spokeswoman for U.S. Attorney Melinda Haag in San Francisco didn’t return a voicemail message yesterday seeking comment about a criminal case.
PG&E said in September that it will settle “substantially all” remaining personal injury and property damage claims from the explosion. The utility said it expected to record a charge of about $110 million in addition to cumulative charges of $455 million to pay for the settlements reached in September. PG&E previously disclosed that it faced about 160 lawsuits filed on behalf of 500 people and a total possible loss of $600 million.
The company also faces a proposed $2.25 billion penalty from state regulators for the San Bruno explosion. The company has said a fine that large may push it into bankruptcy.
The timing of potential criminal charges, coming before the state commission has reached a final decision on fines, may give California regulators “added reason to recommend a draconian penalty,” Hugh Wynne, a Sanford C. Bernstein & Co. analyst in New York, said in a note to clients yesterday.
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