PG&E 2014 Annual Report Download - page 63

55
SED’s audits. The Utility is unable to reasonably estimate the amount or range of future charges that could be incurred for fines
imposed by the SED given the wide discretion the SED has in determining whether to bring enforcement action and the number of
factors that can be considered in determining the amount of fines.
Carmel Incident
On March 3, 2014, a vacant house in Carmel, California was severely damaged due to a natural gas explosion while
the Utility’s employees were performing work to upgrade the main natural gas distribution pipeline in the area. There were no
injuries or fatalities. The SED conducted an investigation of the incident and alleged that the Utility committed two violations of
certain natural gas safety regulations by failing to follow procedures to update records, to provide its welding crew with accurate
information, and to take steps to make safe any actual or potential hazard to life or property. On November 20, 2014, the SED
issued a citation to the Utility that included a fine of $10.85 million for these alleged violations. The Utility recorded this amount
as an expense for 2014. The Utility has appealed the citation to the CPUC. The SED has requested that the CPUC dismiss the
Utility’s appeal as untimely. The CPUC has not yet addressed the SED’s request. In addition, the Utility was informed that the U.S.
Attorney’s Office was investigating the Carmel incident. It is uncertain whether any charges will be brought against the Utility.
CPUC Investigation Regarding Natural Gas Distribution Facilities Record-Keeping
On November 20, 2014, the CPUC issued an order instituting a new investigation into whether the Utility violated
applicable laws pertaining to record-keeping practices for its natural gas distribution service and facilities. The order also requires
the Utility to show cause why (1) the CPUC should not find that the Utility violated provisions of the California Public Utilities
Code, CPUC general orders or decisions, other rules, or requirements, and/or engaged in unreasonable and/or imprudent practices
related to these matters, and (2) the CPUC should not impose penalties, and/or any other forms of relief, if any violations are
found.
In particular, the order cites the SED’s investigative reports alleging that the Utility violated rules regarding safety
record-keeping in connection with six natural gas distribution incidents, including the natural gas explosion that occurred in
Carmel, California on March 3, 2014. (See “Carmel Incident” above.) On December 22, 2014, as directed by the CPUC, the Utility
submitted a report that explained why the Utility believes the SED’s investigative findings do not constitute violations of law and
also outlined the various programs, measures and actions the Utility has undertaken to continuously improve its distribution record
keeping practices.
PG&E Corporation and the Utility believe it is reasonably possible that the CPUC will impose fines on the Utility or take
other enforcement action in connection with this matter, but are unable to reasonably estimate the amount or range of future loss
contingencies.
Natural Gas Transmission Pipeline Rights-of-Way
In 2012, the Utility notified the CPUC and the SED that the Utility planned to complete a system-wide survey of its
transmission pipelines in an effort to identify encroachments (such as building structures and vegetation overgrowth) on the
Utility’s pipeline rights-of-way. The Utility also submitted a proposed compliance plan that set forth the scope and timing of
remedial work to remove identified encroachments over a multi-year period and to pay penalties if the proposed milestones were
not met. In March 2014, the Utility informed the SED that the survey has been completed and that remediation work, including
removal of the encroachments, is expected to continue for several years. The SED has not addressed the Utility’s proposed
compliance plan, and it is reasonably possible that the SED will impose fines on the Utility or take other enforcement action in the
future based on the Utility’s failure to continuously survey its system and remove encroachments.
Other Pending Lawsuits and Claims
At December 31, 2014, there were also five purported shareholder derivative lawsuits outstanding against PG&E
Corporation and the Utility seeking recovery on behalf of PG&E Corporation and the Utility for alleged breaches of fiduciary
duty by officers and directors, among other claims. The plaintiffs for three of these lawsuits filed a consolidated complaint with
the San Mateo County Superior Court in November 2013, which has been amended to add a fourth shareholder plaintiff and to
discuss recent events, including the federal criminal indictment discussed above. In August 2014, the judge lifted the stay on the
consolidated complaint for the limited purpose of allowing briefing and hearing on demurrers (state court motions to dismiss).
On September 15, 2014, PG&E Corporation, the Utility and the individual defendants asked the court to dismiss the consolidated
complaint because the plaintiffs (1) failed to demand that the Boards of Directors pursue claims against the defendant directors and
officers and (2) have not adequately pled why such demand should be excused. The court has since clarified that the appropriate
board on whom the plaintiffs should have demanded with respect to the claims in the operative complaint is the 2013 PG&E