PG&E tab for San Bruno blast may hit $1 billion

by Steve Johnson, San Jose Mercury News

PG&E’s costs related to the San Bruno gas-line explosion could hit more than $1 billion, according to data the utility made public Thursday, fueling fears over how much of the tab its customers may end up paying.

PG&E revealed in a regulatory filing that the cost of repairing the devastated neighborhood, compensating victims, reinspecting its natural gas pipes and other related expenses could total $550 million. That’s on top of the $450 million it may need to spend to replace valves on those pipelines. Then there is the as-yet-unspecified amount required for major renovations to its gas network that it recently proposed in a vague plan dubbed "pipeline 2020."

Consumer advocates worry there’s a big incentive for PG&E to push these improvements because it typically makes more money on such upgrades than it does providing gas and electricity, and can pass the costs on to customers.

”’Pipeline 2020′ is an attempt to profit off of a tragedy," said Mark Toney, executive director of the consumer group The Utility Reform Network, also known as TURN. Besides, he added, "why give PG&E more money when they have demonstrated an inability to manage a safe system?"

PG&E spokesman Jonathan Marshall said "it would be irresponsible to start speculating" on how much money the company might seek from the California Public Utilities Commission for improvements, noting that the total could depend on a variety of factors, ncluding how accessible the pipes needing repairs are. He added that "we are engaging third-party experts to help us decide what kind of modernization program is appropriate."

Expensive retrofit

One major upgrade under consideration is replacing about 300 manual gas shut-off valves with automatic or remotely controlled valves that can be closed more quickly. That stems from criticism that it took nearly an hour and a half to shut two manual valves feeding gas to the San Bruno fire.

Depending on how easily those valves can be installed and other considerations, the company has said the retrofit could cost from $30 million to $450 million. Assuming the upper end of that range, one industry analyst estimated the work could add a little less than $1 to the average gas customer’s $44 monthly bill.

That monthly charge could more than double if ratepayers get hit with all the other San Bruno-related expenses that are beginning to pile up for PG&E.

For example, bowing to residents’ concerns, the company has agreed to move the San Bruno pipe section that ruptured Sept. 9, killing eight people and destroying 35 homes, to another location. In addition, its "2020" plan calls for upgrading key gas-transmission pipeline segments in heavily populated areas, in part so those segments can accommodate state-of-the-art inspection devices known as pipeline inspection gauges, or pigs.

Although PG&E declined to estimate what those improvements might cost, it stands to profit by making them, consumer advocates note.

To promote energy efficiency, utilities generally are limited on how much money they can make from the electricity or gas their customers use. But the companies often get to bill their customers extra for system improvements, similar to the way banks charge interest on a homeowner’s mortgage.

The price of repairs

PG&E typically gets to add 8.79 percent on top of the cost of such improvements and pass the total bill on to its customers, said Dave Ashuckian, deputy director for energy with the PUC’s Division of Ratepayer Advocates. And while that arrangement always has given PG&E an incentive to make upgrades, he said, "now they have an excuse" because of the San Bruno disaster.

Part of the expense that could total $550 million includes extensive safety inspections PG&E needs to conduct of its gas lines in the aftermath of the San Bruno blast. That eventually could total $100 million to $150 million, the company said Thursday. In addition, the utility estimated its liability for the deaths, injuries, property damage and other legal claims arising from the accident could range from $220 million to $400 million.

PG&E officials said they believe their insurance should cover most of that liability, even if the blast ultimately is blamed on the firm’s negligence. But some analysts have questioned that assumption. Although the PUC might make PG&E bear the cost alone if its insurance doesn’t cover those expenses, some consumer advocates fear PG&E will try to shunt the bill onto customers.

How PG&E’s customers might react to their bills rising as a result of the San Bruno catastrophe isn’t clear.

Californians are used to paying some of the highest utility rates in the nation and "it would be unlikely you would get people parading up and down Van Ness Avenue with placards over a dollar-a-month rate increase," said James Weil, director of Aglet Consumer Alliance, which lobbies to keep utility rates low.

But Richard Holober, executive director of the Consumer Federation of California, called any increase "intolerable at a time when we have high unemployment, declining incomes and declining values in retirement funds. People are at the breaking point and are no longer able to say, ‘We’ll just suck it up and pay what PG&E demands.’ "