PG&E 2011 Annual Report Download - page 31

Criminal Investigation
On June 9, 2011, the Utility was notified that representatives from the U.S. Department of Justice, the
California Attorney General’s Office, and the San Mateo County District Attorney’s Office are conducting an
investigation of the San Bruno accident. The Utility is cooperating with the investigation.
PG&E Corporation and the Utility are unable to estimate the amount (or range of amounts) of reasonably
possible losses associated with any civil or criminal penalties that could be imposed on the Utility.
Pending Lawsuits and Other Claims
In addition to the investigations and proceedings discussed above, approximately 100 lawsuits involving third-
party claims for personal injury and property damage, including two class action lawsuits, have been filed against
PG&E Corporation and the Utility in connection with the San Bruno accident on behalf of approximately 370
plaintiffs. The lawsuits seek compensation for personal injury and property damage, and other relief, including
punitive damages. These cases have been coordinated and assigned to one judge in the San Mateo County Superior
Court, and a trial date of July 23, 2012 has been set for the first of these cases. The Utility stated publicly that it is
liable for the San Bruno accident and will take financial responsibility to compensate all of the victims for the
injuries they suffered as a result of the accident.
The Utility has recorded a cumulative charge of $375 million ($220 million in 2010 and $155 million in 2011) for
estimated third-party claims, and made payments of $98 million as of December 31, 2011. The Utility estimates it is
reasonably possible that it may incur as much as an additional $225 million for third-party claims, for a total loss of
$600 million. (See Note 15 to the Consolidated Financial Statements.)
The Utility has liability insurance from various insurers who provide coverage at different policy limits that are
triggered in sequential order or ‘‘layers.’’ Generally, as the policy limit for a layer is exhausted, the next layer of
insurance becomes available. The aggregate amount of this insurance coverage is approximately $992 million in
excess of a $10 million deductible. The Utility submitted insurance claims to certain insurers for the lower layers and
recognized $99 million for insurance recoveries during 2011. Although the Utility believes that a significant portion
of costs incurred for third-party claims relating to the San Bruno accident will ultimately be recovered through its
insurance, it is unable to predict the amount and timing of additional insurance recoveries. (See Note 15 to the
Consolidated Financial Statements.)
Additionally, a purported shareholder derivative lawsuit was filed following the San Bruno accident to seek
recovery on behalf of PG&E Corporation and the Utility for alleged breaches of fiduciary duty by officers and
directors, among other claims. The judge has ordered that proceedings in the derivative lawsuit be delayed until
further order of the court.
In February 2011, the Board authorized PG&E Corporation to reject a shareholder demand that the Board
(1) institute an independent investigation of the San Bruno accident and related alleged safety issues; (2) seek
recovery of all costs associated with such issues through legal proceedings against those determined to be responsible,
including Board members, officers, other employees, and third parties; and (3) adopt corporate governance initiatives
and safety programs. The Board also reserved the right to commence further investigation or litigation regarding the
San Bruno accident if the Board deems such investigation or litigation appropriate.
CPUC Rulemaking Proceeding
On February 24, 2011, the CPUC began a rulemaking proceeding to develop and adopt safety-related changes to
the regulation of natural gas transmission pipelines in California. As directed by the CPUC, on August 26, 2011, the
Utility filed its proposed pipeline safety enhancement plan to conduct pressure tests, replace certain natural gas
pipeline segments, install automatic or remote control shut-off valves, and perform other activities to improve its
natural gas pipeline system. The Utility forecasted that its total expenditures over a four-year period (2011 through
2014) would be approximately $2.2 billion, which included an estimated $1.4 billion in capital expenditures and
$750 million in expenses. The Utility had proposed that most plan-related costs incurred from January 1, 2012
through 2014 be recovered through rates. Since the CPUC is not expected to issue a decision on the proposed plan
until mid-2012 or later, the Utility had requested that the CPUC authorize the Utility to track costs incurred under
the plan after January 1, 2012 so that the CPUC can consider whether such costs will be recoverable through rates
after a final decision is issued. The CPUC has not yet taken any action on this request.
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