PG&E Corp. to Face Higher Penalties for San Bruno Incident? - Analyst Blog

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PG&E CorporationPCG faces the threat of increased penalty related to the 2010 San Bruno incident as California Public Utilities Commission ("CPUC") President Michael Picker solicited a penalty of $1.6 billion to be imposed on the utility instead of the $1.4 billion recommended in Sep 2014.

In Sep 2010, a PG&E natural gas pipeline exploded in the San Francisco suburb of San Bruno, resulting in eight fatalities and numerous damaged residences.

After nearly four years of the incident, the latest proposal of the CPUC is believed to be the highest safety-related penalty in the history of the commission. The five-member CPUC is yet to approve the proposal. It is expected to be voted upon in April.

Per the proposal, cost of the penalties would be borne solely by the utility and its shareholders. The ratepayers, however, can heave a sigh of relief as the costs would not pass on to them. On the contrary, they would receive a one-time $400 million credit, which has been proposed for the utility's customers.

The proposed penalties comprise a shareholder penalty worth $850 million to pay for gas transmission pipeline safety infrastructure, a fine of $300 million, a one-time bill credit of $400 million that would be distributed among the company's gas customers and $50 million for measures related to the compliance of pipeline safety.

In addition to the penalties already adopted by the CPUC, the total amount could exceed a staggering $2.2 billion.

PG&E is reviewing the latest proposal. On its fourth-quarter earnings release call, the company stated that it was expecting the total cost borne by shareholders to amount to about $2.8 billion as a result of the pipeline safety-related work since the San Bruno incident including the company's commitment over the next few years.

Apart from the San Bruno penalties, the company is facing various fines related to other incidents. In Nov 2014, the utility was charged with a fine of $10.85 million for the Carmel natural gas explosion that occurred in Mar 2014 (Read more: PG&E Corp. Faces Fine worth $10.85M over Carmel Explosion ).

Despite these charges, PG&E reported a 26.2% year-over-year upside in its operating earnings in the fourth quarter of 2014.

PG&E currently has a Zacks Rank #2 (Buy). Other favorably-placed stocks in the same sector are DTE Energy Company DTE , Public Service Enterprise Group Inc. PEG and Korea Electric Power Corp. KEP , each carrying the same Zacks Rank as PG&E.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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