PG&E shorted gas-system safety, audit finds

by Jaxon Van Derbeken, San Francisco Chronicle

Pacific Gas and Electric Co. failed to spend more than $50 million intended to improve the natural-gas lines that run through residential neighborhoods in the decade leading up to the San Bruno explosion, and the company has not done enough since the 2010 disaster to make up for shortchanging safety efforts, a state-ordered audit says.

From 1999 to 2010, the audit found, PG&E routinely failed to spend all the money it received from customers to fix and maintain distribution pipes – the small lines, usually no more than a couple of inches in diameter, that deliver natural gas directly to homes and businesses.

During a shorter period – from 2003 to 2010 – PG&E collected $202 million more from customers for its distribution system than it was entitled to earn as profit as a regulated utility, the audit said.

That total included not just the shortchanged safety efforts but also money that PG&E received from customers for bill collection and administrative costs but didn’t spend, according to the audit, which Overland Consulting of Leawood, Kan., performed for the California Public Utilities Commission.

Overland said it could not account for precisely how PG&E spent the money.

Echoes earlier report

The company delivered the audit to the utilities commission Friday, more than a year after the firm found in a similar report that PG&E had diverted tens of millions of dollars from maintenance of its gas transmission pipes – the major lines, some of which run for hundreds of miles, that deliver gas to the distribution system.

It was a gas transmission pipe that exploded in San Bruno on Sept. 9, 2010, killing eight people and destroying 38 homes.

Although they are smaller, distribution lines can also cause deadly explosions. A blast on a leaking distribution pipe destroyed an empty condominium in Cupertino in August 2011, and a homeowner was killed in Rancho Cordova (Sacramento County) in 2008 when an explosion from a leaking distribution line incinerated his home.

The Overland audit attributed the shortchanged safety efforts to ineffective executive management. The executives in charge of PG&E’s gas distribution operations "placed excessive emphasis on cost containment and failed to properly manage the operations," the report said.

The company is still dealing with the consequences, the report said.

"As of the time of this audit report, some of the identified conditions" remain, and are the subject of "ongoing remediation efforts."

‘Culture’ concerns

The Overland report said that although some of the executives who were to blame for diverting the money have left the company, "concerns about PG&E’s corporate culture remain."

PG&E spokeswoman Brittany Chord said the company disputed some of the audit’s findings. She said that in recent years the utility has spent more than it received from customers for system improvements.

Chord said PG&E was "committed to requesting and spending the resources needed to achieve our goal of becoming the safest and most reliable gas and electric utility in the country."

Officials of the Public Utilities Commission had no immediate comment on the report.

The Overland audit noted that PG&E made more than $100 million in emergency fixes to its distribution system in the years immediately before and after the San Bruno blast but that spending still came up short of what the state utilities commission had authorized the company to spend from 1999 through 2010.

The Chronicle has reported that PG&E managers received bonuses until 2007 if their crews reported fewer leaks in the gas-distribution system. After the bonus system ended, the company was forced to reinspect the entire system. The average number of high-priority leaks that company crews reported annually increased by nearly tenfold.

Even since the San Bruno disaster, PG&E has told state regulators it is finding an "unacceptable" number of safety problems with its distribution system, the audit said. The company’s internal audits, the Overland review found, show the "pervasiveness of the gas distribution management deficiencies."

One 2011 internal audit found that PG&E wasn’t tracking post-repair tests on 10 percent of reported gas-line leaks and had no record at all of repairs on 5 percent of leak reports, Overland said.

Many flaws cited

A January 2012 consultant’s audit of the company’s gas-line mapping found "numerous critical deficiencies" in training, supervision and record keeping, according to the report.

Overland, citing the 2012 consultant’s audit, concluded that PG&E mappers and other employees "had the impression that quality was not a high priority" for management.

PG&E executives, in turn, lacked a "serious commitment to gas safety excellence," the audit said.

"There was very little focus on public safety," Overland found, with minimum compliance with federal rules the governing standard, and not the "minimum starting point for public safety."