Pacific Gas and Electric (PG&E; NYSE:PCG) on Oct. 30 reported a drop in earnings, with net income after dividends on preferred stock of $161m during 3Q13, compared with $361m for 3Q12, due almost entirely to legal charges, settlements and other costs stemming from the 2010 natural gas pipeline explosion and fire in San Bruno, Calif.
Revisions to the company’s pipeline safety enhancement plan have resulted in higher unit cost when compared to the plan filed with the California Public Utilities Commission (CPUC) previously, according to company officials. As a result, the company will take a pre-tax charge of $196m for the additional costs that will not be recovered from its customers.
“We’re disappointed to have to do this, but it reflects the complexity and the challenges of this important gas safety work,” Tony Early, PG&E chairman, CEO and president, said during the company’s 3Q13 earnings call on Oct. 30.
The company has also increased the amount accrued for third-party liability claims by $110m to settle claims by victims of the events of 2010. During 3Q13, the company resolved substantially all of the remaining San Bruno-related third-party claims, an accomplishment Early called noteworthy.
“From the beginning, our focus has been on bringing closure as quickly as possible through settlements that treat people fairly,” he said. “The judge overseeing the case expressed how pleased he was that we were able to work with the plaintiffs to resolve these significant cases without going to trial.”
Early noted that, while some aspects of the investigation have been settled, others are still pending.
“The San Mateo County District Attorney’s office has publicly indicated they will not be pursuing criminal charges under state law; however, the federal investigation under the Pipeline Safety Act is ongoing, and we continue to cooperate with the U.S. Attorney’s office on that,” he said.
In addition, the company faces the potential of significant fines that could be levied by the CPUC after it concludes the ongoing gas penalty proceedings. Early said those proceedings are taking much longer than the company had ever expected. However, he noted, the record is now complete in three investigations and PG&E is awaiting the administrative law judge’s (ALJ) rulings, including a recommended amount for fines.
“We think it’s vital that the commission’s final decision recognize the improvements we’ve made, the large sums that we’ve already spent without recovery from customers, and that the victims have been fairly compensated in the civil proceedings,” Early said, adding that he expects final action on the ALJ’s rulings by the CPUC during 1Q14.
The total cost to shareholders for natural gas pipeline safety-related work incurred since the San Bruno accident or committed over the next several years exceeds $2.4bn, he noted.
Apart from the costs and charges associated with the 2010 incident, Early said he was satisfied with the company’s solid operational performance overall.
On a non-GAAP basis, excluding items that management does not consider part of normal, ongoing operations, 3Q13 earning were $395m compared to $399m for 3Q12. Negative factors cited by the company for the quarter-over-quarter difference included a lower regulated return on equity (ROE) and debt compared to last year. Those negative factors were only partially offset by higher rate base earnings and other smaller items.