PG&E; has nearly $1 billion in insurance
PG&E; Corp. told federal regulators Friday that its utility has nearly $1 billion in fire insurance to cover liabilities from the deadly natural gas pipeline blast in San Bruno, but added that its financial condition “could be materially adversely affected” if the insurance coverage falls short or isn’t available.
Skittish investors fled PG&E;'s stock, wiping out about $1 billion in the San Francisco company’s market value. PG&E; shares plunged $4.03, or 8.4%, to $44.21 in heavy trading.
Pacific Gas & Electric Co., PG&E;'s main subsidiary, has said it would “take accountability” if found to be responsible for Thursday’s pipeline explosion.
“We are committed to do what’s right and what’s appropriate to help all of the families and others that have been impacted by this tragedy,” utility President Chris Johns said during a news conference Friday.
The unusual nature of the incident, which occurred in a residential area, could ratchet up costs well beyond pipeline incidents of the recent past, analysts said, but several expressed confidence that PG&E; had sufficient insurance and financial resources to handle damages, potential fines and lawsuits as well as repairs.
Other pipeline accidents ultimately have resulted in damages of about $100 million to $200 million, analysts said. But they stressed that most of those incidents occurred in relatively isolated areas, far away from neighborhoods.
“It’s especially rare for this to happen in a residential area. They usually occur in construction sites and involve digging in places without authorization,” said Shelby Tucker, managing director of electric utilities for Oppenheimer & Co. “It’s really hard to say whether their insurance will cover this, and now we are talking about lost lives, which takes it to an entirely different level.”
Houston-based El Paso Corp. reached a series of out-of-court settlements with relatives of two families wiped out by an August 2000 natural gas pipeline explosion near Carlsbad, N.M. Terms were disclosed in only one of the agreements: a $14-million payment for one of the 12 victims. To settle federal allegations, the firm agreed to pay $101.5 million, which included at least $86 million to modify its pipeline system.
In 1999, a gasoline pipeline ruptured and caught fire in Bellingham, Wash., killing three people. Olympic Pipe Line Co. paid $112 million in civil penalties, criminal fines and safety improvements, and two former managers were jailed for contributing to the leak.
In a filing with the Securities and Exchange Commission, PG&E; Corp. said it maintained liability insurance for damages caused by fire “in the approximate amount of $992 million in excess of a $10 million deductible.” Analysts said that only a finding of negligence might prevent the utility from using its insurance.
“They have done a very good job with their operations in the past,” Tucker said. “This definitely comes as a surprise. There have been some problems, but nothing of this magnitude.”
But longtime utility critics from the Utility Reform Network, or TURN, suggested that PG&E; might have been slow to pursue complaints from residents about natural gas fumes. TURN spokeswoman Mindy Spatt said PG&E; had promised to improve its response to such warnings after a 2007 gas leak killed one person in Rancho Cordova, Calif.
“In San Bruno, once again customers did the right thing and called PG&E; when they smelled gas. Had PG&E; done the right thing in response, the explosion might not have occurred,” Spatt said.
Johns said that federal, state and utility investigators were looking into the reports.
Some Wall Street analysts said it was too early to determine the financial consequences for PG&E;, while others thought investor panic over the incident was an overreaction.