PG&E Hammered Over San Bruno Pipeline Safety

“WHATEVER WAS left of PG&E‘s credibility evaporated with a stunning revelation by federal safety inspectors on Tuesday (12/14/10). They raised serious questions about welds that held together the utility’s pipeline that exploded in San Bruno on Sept. 9, killing eight people and destroying 35 homes.

Amazingly, PG&E’s records indicated that the section of pipe that failed did not even have welds. According to the National Transportation Safety Board, which is leading the probe of the explosion, “PG&E survey sheets and charts for the rupture location indicate that the pipeline was constructed of 30-inch diameter seamless steel pipe.”

However, at least part of the pipe was welded together and that some of the seams were welded only on the outside. Jean-Pierre Bardet, chairman of the civil and environmental engineering department at the University of Southern California, said internal and external welds are both required to seal a pipe.

If PG&E doesn’t even know what kind of pipe it has in the ground, and improperly welded pipes, how can it accurately monitor its network of gas pipelines?”—editorial Contra Costa Times.

It has been three months since the September 9th natural gas pipeline explosion killed 8 people and burned 35 homes to the ground.  The nightly newscasts in the Bay Area still carry regular stories of how the victims of the explosion are coping with their loss.  For PG&E this is both a public relations nightmare and a regulatory firestorm of its own.

Trust is a Key to Regulatory Effectiveness

A core competency of every successful utility is the ability to manage its regulatory relationships.  Fail in that essential skill and you put the entire company at risk.  Regulatory relations are built upon facts, evidentiary records, expert testimony and trust.  When it works, the process fairly balances the interests of the public as ratepayers and shareholders as investors.  When trust breaks down, the blame always falls on the company.

PG&E is in the dock today because it is failing to maintain that regulatory trust.  The drip, drip, drip of new facts in the San Bruno investigation combined with other issues piling up forces regulators to question their confidence in the company’s judgment and the facts they have been told.  This is bad karma for any regulated utility.

Earlier in my career I spent seven years as a state public utility regulator including five years as chief of staff at the Illinois Commerce Commission and two at Minnesota’s Deputy State Public Service Director.  One of the programs I supervised was the natural gas pipeline safety program.  While pipeline safety in the United States is very good things can go wrong.  And when they do it is almost always caused by one of three things: (1) faulty construction primarily welds which can weaken the pipe; (2) maintenance failures usually corrosion which eats away at the strength of the pipeline if not properly maintained; or (3) pressure regulation problems which cause surges that burst pipes.

The questions raised by the San Bruno pipeline explosion raise questions about all three of these common risk factors.  The discrepancies between the pipe in the ground and PG&E’s construction and maintenance records reported by the National Transportation Safety Board investigators compound the concerns because they raise questions about whether other gas pipelines in the PG&E system are safety hazards.

When Trust is Lost Changes at the Top are often Required

The San Bruno Pipeline problem is just one of a series of misfortunes that have befallen PG&E this year.  Separately, each would be seen as problems to be fixed.  Taken together they look like a pattern of behavior regulators find hard to forgive and forget.  For PG&E this piling on of problems includes:

  • The Bakersfield Effect of raising customer ire over the implementation of smart meters and the lack of effective communications especially at a time of rising rates which combined two problems into one firestorm.
  • Battles in Marin County and elsewhere over smart meter deployment and customer choice which gained PG&E the reputation as insensitive to customer concerns and ignoring laws it dislikes.
  • Online Tracking of Opponents in the smart meter and electromagnetic fields issues raised caused an outrage and forced the resignation of several PG&E staff.
  • Erin Brokovich reruns as issues over the groundwater contamination that gave rise to the movie again surfaced in the press.
  • PG&E sponsorship of Proposition 16 in the Spring 2010 primary election seeking to repeal community choice aggregation and spending $46 million in the failing effort.

You see where this is going?

This piling on of problems for PG&E and its management team are eroding public and regulatory confidence in the management leadership of the company.  This is a tragic outcome because Pete Darbee has done an admirable job of bringing PG&E back from bankruptcy to industry leadership with its embrace of California’s renewable energy and emissions reduction goals.  But the sum of these issues is becoming the issue.

We have all seen this play out before in other places.  Turning around this trust problem becomes increasingly more difficult as the issues keep piling on.  Eventually the business problems get solved because both the State, customers, the utility and its shareholders all need a solution but they often require “human sacrifice” in the form of resignations from the top before the “reset” button can be pushed.

The question is—are we there yet?