PG&E tries to manage the heat from San Bruno explosion…

Since September 9, when one of Pacific Gas and Electric Company’s (PG&E) natural gas transmission pipes ruptured and resulted in the San Bruno fire, the company filed four SEC filings that mention the explosion. PG&E – which has about 20,000 employees and delivers electricity and natural gas to about 15 million people in northern and central California – is a subsidiary of PG&E Corporation (PCG).

The fire hadn’t even been extinguished before PG&E issued a press release and an emotional public statement promising that if it were “ultimately determined” to be responsible for whatever caused the explosion, it would be accountable for the damages. As might be expected, though, its first 8-K stuck to the facts. Among those was the statement, “Although the exact cause of the explosion has not been determined, a 30-inch steel gas transmission pipeline owned and operated by the Utility in this area was ruptured.” It disclosed that the company had liability for damage caused by fire up to about $992 million over the company’s deductible of $10 million. And – although the company gave no reason for investors to believe that there will be a problem with insurance coverage – it added:

“Depending on the final outcome of the investigation, and if insurance recoveries are unavailable or insufficient to cover the losses, PG&E Corporation’s and the Utility’s financial condition or results of operations could be materially adversely affected.”

In an 8-K filed three days later, the company announced that PG&E’s board and parent corporation had approved the establishment of a relief fund of up to $100 million to assist San Bruno and its residents. Besides paying for expenses and property damage if there isn’t insurance or its proceeds aren’t yet available, the fund will help rebuild community parks, schools, and trees and pay for costs incurred by emergency responders and others who provided government services. The filing also noted that personal injury and wrongful death claims will be paid separately. Then it cautioned shareholders:

“…it is expected that the estimated costs associated with the San Bruno event, including costs associated with the relief fund, will negatively affect PG&E Corporation’s consolidated income available for common shareholders for the three and nine months ending September 30, 2010 and for the year ending December 31, 2010….”

On September 24, PG&E filed this 8-K to disclose that the California Public Utilities Commission (CPUC) had opened an investigation into the cause of the explosion and the safety of the company’s natural gas transmission pipelines – an understandable concern, given the area’s volatile seismic activity. PG&E also reported that CPUC had ordered it “…to conduct an accelerated gas leak survey of all natural gas transmission lines and take certain other actions,” adding that it had started working on the tasks “immediately after receiving the CPUC Executive Director’s letter.”

And on September 28, it presented a slideshow to investors at the Bank of America Merrill Lynch Power & Gas Leaders Conference. In the presentation, PG&E notes that it surveys its 6,400 miles of transmission lines each year to detect leaks, and that it also conducts “regular integrity assessments.” The company disclosed on slide 6 that it had surveyed the San Bruno segment for integrity in November, 2009, and it inspected it for leaks in March, 2010.

Just based on the filings, one might conclude that PG&E is fulfilling its regulatory obligations and handling its public relations affairs as well as a company can in the wake of a disaster like this. However, there are articles such as this one from the L. A. Times, and this one from the San Francisco Chronicle, which reveal issues not mentioned in the SEC filings that could be problematic for PG&E. Granted, the investigation is still underway and the cause of the explosion has yet to be determined. But shareholders need accurate information in order to make sound investment decisions. And to that end, the company would be better off in the long run to give investors more information, rather than less.

Image source: Smi23le via flickr


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