Last week, when Pacific Gas & Electric (PG&E) announced its profits had more than quadrupled, Goldman Sachs upgraded the California utility from “sell” to “neutral” and the rating team at TheStreet said, “Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook.”
Goldman Sachs’ outlook and TheStreet’s vision were unobstructed by fallout from the 2010 San Bruno natural gas pipeline explosion that revealed years of inadequate record keeping and system safety maintenance by PG&E, as well as legal challenges to its Diablo Canyon Nuclear Power Plant in San Luis Obispo and an incipient scandal over e-mails detailing an overly cozy relationship with its regulator, California’s Public Utilities Commission (PUC).
The company cleared $814 million on revenue of $4.94 billion in the third quarter ending September 30. That’s 396% better than a year ago. Revenues were also up 18.3%, compared to the 7.4% industry average.
How did the utility do it during a tumultuous period that included a ton of bad publicity and billion-dollar payout after a defective pipeline exploded, leveling a neighborhood and killing eight people?
The Oakland Tribune gave credit to a rate increase granted by the PUC and lower-than-expected charges for its mandated pipeline repair work. The rate increase was granted in August but made retroactive to the beginning of the year.
The San Francisco Chronicle reported on Halloween that PG&E had told the PUC last month that it had used lower-grade pipes on eight lines in urban communities that are only allowed in less populous rural areas. PG&E embarked upon a review of all 6,750 miles of transmission lines after the San Bruno blast after finding inaccurate, haphazard record-keeping.
The utility was reportedly done in July 2013. PG&E said pressure is being reduced in the lines while the components are replaced.
PG&E and the PUC have both been under fire for months since the release of e-mails during San Bruno court proceedings confirmed that critics were right about an unprofessional, if not illegal, relationship between the two. Three PG&E executives were forced to step down and two PUC board members, including President Michael Peevey, have recused themselves from certain deliberations. Peevey’s chief of staff also resigned.
Last Tuesday, Friends of the Earth petitioned the U.S. Court of Appeals for the District of Columbia to close the 40-year-old Diablo Canyon, the state’s last nuclear power plant, over concerns about seismic safety.
The environmental group claims the Nuclear Regulatory Commission (NRC) underestimated faults running near the plant—the Shoreline Fault, in particular— and let the utility make changes to the Diablo Canyon safety report without holding mandatory public hearings.
“This plant is arguably the most at-risk plant in America,” Damon Moglen, senior strategic advisor for Friends of the Earth, told Courthouse News Service. The group asked the court to shut down Diablo until proper reports were prepared and hearings conducted.
Not all analysts are bullish on PG&E. The Tribune cited a warning from Jim von Riesemann, managing director with CRT Capital, who said in a research note:
“We have limited comfort in our earnings estimates given the growing risk for change emanating from the PUC's San Bruno review, the state and federal attorney general investigations and the potential for fines and penalties to be increased. The recent disclosure the state and federal (attorneys general) are investigating multiple areas of the company including a criminal indictment with a $1.13 billion potential penalty cannot be overlooked.”
Well, yes it can. JPMorgan and Citigroup also restated “neutral” ratings for PG&E. The stock was trading at a five-year high of 50.32 on Friday and has soared 11.7% in the past month.