San Bruno Penalty could Force PG&E into Bankruptcy

In July the California Public Utilities Commission changed a previous decision to allow Pacific Gas & Electric to pay their $2.25 billion fine for the natural gas explosion in San Bruno in the form of energy infrastructure improvements, to one that would require at least $300 million be paid in the form of a one off fine to the state.

Tony Earley, the Chairman and Chief Executive Officer of PG&E, warned that the $2.25 billion penalty, added to the money already spent on the clean-up and pipeline and safety upgrades, would increase the total paid by PG&E for the accident to nearly $4 billion. He has asked the Californian regulators to credit the $2.25 billion against money already spent on the system upgrades, stating to Bloomberg that “if the purpose was to get the company’s attention, you have the company’s attention.”

The California regulators must now decide whether the 2010 explosion is worth the current penalty, which would likely send PG&E, one of the state’s largest utilities, into bankruptcy for the second time in 12 years if it cannot sell enough shares to raise the cash.

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Back in 2001 PG&E’s utility company entered bankruptcy after accruing $9 billion in debt when the deregulation of the state’s power market saw electricity costs triple, and regulators were not quick enough to raise customer prices, causing energy companies to sell electricity at a loss.

The utilities commission is expected to make its decision regarding the fate of the penalty, and therefore the fate of PG&E, before the end of the year.

Terrie Prosper, a spokeswoman for the commission, explained that “staff made a recommendation regarding a penalty and parties and PG&E provided comments. The matter is now in the hands of administrative law judges.”

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The California commission is trying to tackle a problem that the whole of the US faces; forcing utilities to make much needed infrastructural upgrades whilst at the same time keeping energy rates low. In the case of PG&E, the state commission is trying to get billions in system upgrades, and punish the utility, all whilst keeping the company healthy enough to survive, and continue to offer low rates. The US will need to spend an estimated $1.5 trillion in total to make the improvements necessary.

Earley explained that “we are at a real turning point that will determine whether the company will continue to make the progress we made or will it end up being a company that is just struggling along because we are financially hobbled.”

By. James Burgess of Oilprice.com