Worrying about what's underground

It is interesting what it costs to operator and maintain assets that corporations, shareholders, customers, and the public never see.  They never see them - - until either a lack of maintenance or violations of safety rules produces a disaster.

One such disaster was the San Bruno, CA natural gas pipeline explosion that killed eight and injured another 58 in September 2010.  The pipeline explosion (the pipeline is owned by San Fransisco based PG&E) basically destroyed a neighborhood.

The Wall Street Journal provided a summary of the costs of the explosion - - PG&E Blast Costs May Top $1.7 Billion by Cassamdra Sweet on February 17, 2012.  The key points:

• Total costs for the disaster are projected to be $1.7 billion through 2013.
• This includes $200 million in safety fines and penalties.  Roughly 12% of the total bill.
• In 2011 the company spent nearly $840 million on pipeline testing and other activities.  Insurance covered about $100 million.
• 2012 inspection estimates are in the $450 to $550 million range.
• Pipeline inspection ran $1.6 million per mile in 2011 - - over $300 per foot (I wonder what the initial installation costs were and what the current value is?).
• The pipelines are hydrostratically tested as required by state regulators.  The nexus between water and energy shows up all the time - - energy needs water and water needs energy.  It shows up in places even like the inspection of energy pipelines.
• Earnings over the previous decade or more have been in the $100 million per year range (for the pipeline system).  The disaster wipes out this profitability.  It would be interesting to take the current pipeline inspection costs and annualize those over the previous 20-years.
• The company plans to issue $600 million in stock this year  on top of the $686 million from last year to cover the inspection costs.
• The company wants customers to pay for most of the $2.2 billion pipeline-safety overhaul.
• Finally, the company faces dozens of lawsuits filed by victims of the explosion.