California urges record $2.5 billion fine for natural gas blast

One of the country's largest utility companies could face a record $2.5 billion fine for its role in a 2010 natural gas pipeline explosion that killed eight people, injured 66, and destroyed 38 houses. If adopted, it would be the largest penalty ever levied by a state regulatory body in the US.

“There is no amount of money that will bring back the eight people who tragically lost their lives in the pipeline blast or heal the lasting wounds to the people of San Bruno," Jack Hagan, director of the California Public Utilities Commission’s Safety and Enforcement Division, said in a statement prepared for the release of the Commission's report Monday. "All we can do is make sure such a tragedy does not happen again."

How effective such a fine would be in preventing another explosion is another question. Pacific Gas and Electric Co., the target of the proposed penalty, says they've already made significant improvements in operational safety and any additional financial burden would have the opposite effect.

There is a broader question about the country's infrastructure. Is the vast distribution network of underground pipelines keeping pace with a population that relies increasingly on natural gas? 

“I am deeply concerned that an excessive penalty, such as those proposed, could dramatically set back our efforts to do the right thing by making it harder and more costly to finance the remaining improvements that are needed in our gas system," PG&E Corporation Chairman and CEO Tony Earley said in a statement Monday. "To avoid this, it is essential that the Commission take a more balanced approach in rendering its final decision."

The CPUC report brands PG&E "morally and ethically reprehensible" for failing to detect and prevent the pipeline explosion, which sent a ball of fire into the sky above San Bruno, Calif., and caused what the company estimates to be over $220 million in property damage. 

The company did not visual inspect pipelines before installing them, ignored its own engineers warnings about aging pipelines, and is still missing thousands of strength-test records required by law, according to the report.

Under the recommendation, the penalty amount must be raised by shareholders – not ratepayers – and be used solely for future safety improvements.

The largest penalty under federal pipeline safety laws was $101.5 million for an August 2000 explosion on the El Paso Natural Gas pipeline in New Mexico.

"The Commission should consider that the public’s faith and trust has been badly shaken by the revelation that PG&E had literally no idea that the flawed pipe sections that ruptured were there," the report reads (original emphasis). "Given PG&E’s lack of essential knowledge and accurate and complete gas system data, PG&E cannot even assure the Commission or the public that there are not more buried mistakes in its system."

PG&E says it has accepted full responsibility for the incident and is working to transform the company into the safest gas provider in the country. It has spent $1.4 billion in shareholder money, according to the company, to adopt seven of the 12 recommendations made by the National Transportation Safety Board (NTSB) after the disaster. It expects to complete three more by the end of 2013.

A pipeline explosion last month heaped added scrutiny on the company. A pavement company struck a pipeline in Bakersfield, Calif., even after receiving tacit clearance from PG&E, according to The Bakersfield Californian. The workers escaped unharmed, but the explosion destroyed machinery that can cost as much as $1 million.

There are 2.4 million miles of pipelines that deliver natural gas to more than 177 million Americans in the US, according to the American Gas Association, which represents natural gas energy companies. The industry spends billions of dollars each year to maintain pipelines that are subject to state and federal regulations, according to AGA, making natural gas pipelines the safest form of energy delivery in the country.

With natural gas use on the rise, some question whether the investment is enough to ensure continued safe delivery.

"If that's going to be our energy future, then we need to have a comprehensive infrastructure rehabilitation effort to go along with it,"  said Frank Gallagher, editor and publisher of NaturalGasWatch.org, which compiles news reports of natural gas incidents. 

"The industry is in such a rush to get this shale gas to market, there’s no guarantee that even new pipelines are going to be safe," he added.