Audit: Utility failed to spend $50M for gas pipeline safety before fatal California blast

SAN FRANCISCO – Pacific Gas & Electric Co. did not use more than $50 million it collected from ratepayers that was meant to improve its gas pipeline network in the decade leading up to a deadly explosion in a San Francisco Bay Area suburb, an audit shows.

From 1999 to 2010, the utility regularly failed to use all the money to fix and maintain small gas distribution lines that deliver natural gas to homes and businesses, according to the audit by Leawood, Kan.-based Overland Consulting for the California Public Utilities Commission.

Overland could not say exactly how PG&E spent the money, but it blamed ineffective executive management.

“Executive leadership, process controls, internal communication, staffing, training, supervision, record keeping, auditing, information systems, asset knowledge, metrics reporting, and data analysis were all deficient. The result was substandard work quality and widespread non-compliance with PG&E’s own standards,” the report said. “At the same time, the profits made by the gas distribution operations exceeded the levels authorized by the Commission.”

Overall, the audit found that PG&E’s gas distribution operations earned an average return-on-equity of 12.7 per cent from 2003 to 2010, the same period in which the company’s authorized rate averaged 11.3 per cent.

The audit also mentioned that the utility has not done enough since the 2010 San Bruno gas line blast to make up for shortchanging safety efforts earlier. The findings were first reported Tuesday by The San Francisco Chronicle.

PG&E disputes some of the findings and has spent more than it received from customers in recent years for system improvements, PG&E spokeswoman Brittany Chord said.

The blast in San Bruno sparked a fireball that killed eight people, injured dozens and destroyed 38 homes in a quiet neighbourhood overlooking the San Francisco Bay. A larger, gas transmission line exploded in that case, not the distribution lines cited in the audit.

But distribution lines can also explode, as they did in Cupertino in 2011 and in Rancho Cordova in 2008, killing a homeowner.

A previous report by Overland found that PG&E had diverted tens of millions of dollars from maintenance of its gas transmission pipes as well.

CPUC judges are expected to decide later this year how much the company should be fined for safety violations that led to the explosion.

California regulators have recommended that the utility pay a record $2.25 billion fine for decades of negligence that led up to the explosion. The utility has said the $2.25 billion is illegally excessive, but has not offered a specific dollar figure PG&E considers reasonable.