How the San Bruno trial could help PG&E

No company wants to stand trial for alleged misdeeds. No company’s investors want that, either.

But in PG&E’s case, the criminal trial that opened last week in San Francisco could benefit the utility and its shareholders alike.

The deadly Sept. 9, 2010, explosion of a Pacific Gas and Electric Co. pipeline beneath San Bruno cast a pall over the company that has yet to lift. PG&E, California’s largest utility, has seen its reputation destroyed, its political clout in Sacramento gutted and its profits sapped.

The trial, over charges of violating pipeline safety rules and obstructing justice, could result in the company being hit with a $562 million fine, on top of the $1.6 billion penalty already imposed by California utility regulators.

And, yet, even a guilty verdict could help PG&E — by finally putting San Bruno behind it.

The question of whether the company will have to pay another huge fine has dogged PG&E and its investors for years. This trial will end that uncertainty — one way or the other.

While evidence and testimony presented at the trial could prove embarrassing to PG&E, it will eventually conclude. And no major proceedings directly related to the San Bruno explosion remain at the state Public Utilities Commission.

Impact on customers

The trial’s outcome should have little direct impact on PG&E’s 5.4 million customers.

Any new penalty would have to be paid by the company and its investors, rather than by the people PG&E serves, according to a spokeswoman for the state Public Utilities Commission. The commission has final say on the expenses that PG&E can and can’t include in its rates.

“Fines and penalties are not borne by ratepayers but by shareholders,” said PUC spokeswoman Terrie Prosper.

Customers will, however, bear some costs that are at least influenced by the San Bruno explosion.

The PUC commissioners, for example, will soon vote on two proposals that would increase PG&E’s spending on upgrades to its natural gas pipeline and storage system. The amount of money PG&E collects from its customers each year to fund that work could jump 83 percent by the end of 2017 as a result. The commission’s vote is scheduled for Thursday.

“We don’t want PG&E to continue to view pipeline safety as an excuse for continuing to ask for more money,” said Mark Toney, director of The Utility Reform Network. “I think there’s a lot of opportunism happening. That because of the concern about safety, they’re using it to get as much money as they can.”

Cost to shareholders

By PG&E’s count, the company’s shareholders paid about $2.2 billion through 2015 for gas-safety work triggered by the blast, money they otherwise would have received as dividends. That figure does not include any of the $1.6 billion penalty imposed by the utilities commission last year, according to the company.

“The company has already suffered substantial shareholder value destruction as a result of San Bruno, so it’s difficult to conceive of another leg down here,” said Travis Miller, director of utilities research at the Morningstar analysis firm. “Any resolution of the outstanding gas pipeline issues should give shareholders comfort going forward.”

PG&E announced last month that it would raise its dividend for the first time since the explosion. The annual dividend will increase to $1.96 per share, up from $1.82 per share.

PG&E remains profitable, making $888 million in 2015. And its stock price has increased since the explosion, rising 31 percent. But other utilities have fared better. The stock price for Edison International, parent company of California’s second-largest utility, has more than doubled during the same period.

“In some ways it’s unfair to hold the shareholders responsible when it was really the CEO and the board of directors,” Toney said.

Former CEO Peter Darbee is expected to testify in the trial but has not been charged.

Toney, whose consumer group has long criticized PG&E, hopes the trial forces PG&E to rethink its internal culture and its corporate governance. He wants to see the board of PG&E Corp., the utility’s holding company, include a consumer advocate and a member from the labor community.

Calls for reforms

“We’ve said for a long time that the board structure of PG&E has really shown itself not to be responsible,” Toney said. “We need someone who can hold this insiders’ club accountable.”

PG&E insists it has already instituted major reforms. Those include splitting the company’s electricity and natural gas operations into separate business units, each with its own leadership.

“Regardless of the next legal steps, we want our customers to know we are focused on the future and on re-earning their trust by leading in safety, reliability, affordability and clean energy,” the company said in an emailed statement. “We’ve made unprecedented progress, and we’re committed to maintaining this focus.”