AmericAn GAs august/september 2013 22

PG&E’s recovery from San Bruno holds lessons

for utilities nationwide

By Jennifer PillA TAylor

a mattEr ofc

rediT

m any residents of San Bruno, Calif., thought there

had been a plane crash or an earthquake when

they heard a rumbling, followed by a huge ex-

plosion, on the evening of Sept. 9, 2010.

Soon, however, they learned that something even more unexpected

had occurred: a 30-inch Pacific Gas & Electric transmission line had

ruptured, releasing millions of cubic feet of gas that ignited into a giant

fireball in their suburban San Francisco community.

Eight people died and many more were injured in the blast and

resulting fire. In an area of approximately 15 acres, 38 houses were de-

stroyed and 70 were damaged.

By 4:24 a.m. on Sept. 10, firefighters had the blaze largely contained.

As the sun rose, it revealed a crater 72 feet long and 26 feet wide at the

blast site. About 100 feet to the south lay a 28-foot-long, 3,000-pound

charred section of transmission pipe.

truSt

Rebuilding at the blast site, one year later.

august/september 2013 AmericAn GAs 23

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An incident such as the San Bruno pipeline failure clearly shakes the public’s confidence in natural gas to its founda-tion, especially among customers in the immediate vicinity. But recent research has shown that public trust is an issue for the whole energy sector.

The 13th annual Edelman Trust Barom-eter, released by the public relations firm in January, pegged trust in natural gas compa-nies among the general public at 54 percent and in utilities in general at 53 percent. That’s just above banks and business at large (both are 50 percent), but well below telecommunications (66 percent). Among the “informed public,” which Edelman de-fines as college-educated respondents who report “significant media consumption and engagement in business news and public policy,” trust in energy rises to 59 percent, but trails general business, which hit 62 percent this year.

Edelman sets the “trust threshold” at 50 percent; a company at a trust level below this is in “a danger zone,” says Edel-man Senior Vice President Amy Malerba Hemingway. Utilities have not reached that level, but they’re close enough to have reason for concern. “They need to view this as an opportunity to do better,” Hemingway says.

In the three years since the San Bruno explosion, PG&E has sought to do better, launching a series of bold and extensive efforts to win back the public’s trust. Though the company’s internal research shows that it’s made great strides, execu-tives there say they’re not done yet. Crisis management experts say much of what PG&E is doing holds lessons for other natural gas utilities.

Crisis: ResponseIt’s a central tenet of crisis management that how a company reacts in the first few days after a catastrophe is crucial to how it fares long term. And yet, too many energy companies have inadequate crisis response plans, says Mark Farley, a workplace safety and environmental lawyer for Katten Muchin Rosenman in Houston.

Most companies focus on tactical operational issues without looking at how they will immediately begin to address broader reputational issues that inevita-bly will strike the company. Natural gas companies need to establish relation-

2008 2009 2010 2011 2012 2013

20%

30%

40%

50%

60%

70%

NGOs

Business

Government

Has ethical business practices

Listens to customer needs and feedback

Places customers ahead of profits

Takes responsible actions to address an issue or a crisis

Treats employees well

Communicates frequently and honestlyon the state of its business

Offers high-quality products or services

Has transparent and open business practices

Addresses society’s needs in its everyday business

Creates programs that positively impact the localcommunity in which the company operates

Has highly regarded and widely admired top leadership

Delivers consistent financial returns to investors

Works to protect and improve the environment

Ranks on a global list of top companies, such as “bestcompanies to work for” or “most admired companies”

Is an innovator of new products, services or ideas

Partners with NGOs, government, and third partiesto address societal issues

For “informed publics,” trust in energy, government, NGOs, and business at large has continued to grow, hitting heights not seen in years. For the general public, however, trust levels are lower, with energy coming in at 53% and business at large at only 50%.

TRUST IN INSTITUTIONS RISES PAST 2010 HIGHS

Measured against the general public’s expectations regarding engagement, integrity, products, purpose, and operations, one energy company that Edelman studied (blinded here) came up short in almost every category. Says Edelman‘s Amy Hemingway, the exercise “serves as an example for how a company might use these metrics to understand where they fall compared to people's expectations.”

TRUST-BUILDING ATTRIBUTES: WHERE PERFORMANCE LAGS EXPECTATIONS

Source: Edelman Trust Barometer 2008-2013

IMPORTANCEPERFORMANCE

Engagement Integrity Products, Services Purpose Operations

-45

-34

-40

-48

-21

-42

-28

-38

-22

-14

-18

-15

-21

-16

-17

+2

GAP76%

31%

74%40%

73%33%

71%23%

70%49%

69%27%

66%38%

65%27%

57%35%

55%41%

54%36%

54%39%

46%25%

45%29%

44%27%

38%40%

70%

62%

59%

53%

63%

59%

54%

43%

200816 point gap

between business& government

trust

Energy2013

Business, energy& government trust

are all within9 points

ships with crisis management experts in advance of a crisis, Farley says, and those experts need to be included in regular crisis management drills. Farley himself participates in such drills with his trans-mission company clients.

PG&E President Chris Johns says that, like most companies, PG&E had an emergency operations plan in place, and, from an operations standpoint, he believes the team did a good job in the wake of the San Bruno disaster. Still, he notes, “I don’t think there is a road map for a tragedy as big as this one.”

It can be difficult to communicate with the public as an “alphabet soup” of government agencies descends on the scene, all demanding information, says Farley. For natural gas companies, it can be even more complicated because the NTSB places strict limits on what parties to an investigation can say to the media.

Regardless, says Farley, “it’s your responsibility to immediately and clearly convey the message that you ‘get it’—that you understand you have fallen short and you are committed to making things right. If you don’t handle this moment properly, you can very quickly find yourself pres-sured to exit the business.”

For PG&E, the first “we get it” mo-ment came when Johns himself arrived on the scene in San Bruno as the fire raged, personally answering questions from tele-vision news reporters. (For more on this see Profile, page 28).

Within three days, the company had created a $100 million disaster aid fund to help residents and the city of San Bruno rebuild. In response to a torrent of calls from worried customers wanting to know how close they lived to a pipeline, PG&E created a way for them to plug their addresses into online transmission pipeline maps.

UGI took some similar steps in the wake of a cast-iron gas main failure five months later in Allentown, Pa. UGI spokesman Keith Dorman, an indus-try veteran who at the time of the Feb. 9, 2011, incident was a consultant for UGI from public relations firm Burson-Marsteller, said the company quickly re-sponded to concerned customers inquiring about the presence of cast-iron main near their properties.

“In a situation like this, you must meet

a t Pacific Gas & electric, and throughout the natural gas industry, it’s uniformly accepted that safety is, far

and away, the top priority. But establishing and maintaining a relationship of trust with its customers is important, too, says PG&e President chris Johns.

not only does the regulatory and leg-islative process become more complicated in an environment of suspicion and doubt, but so do everyday customer contacts. “All your customer interactions—getting bills out and having them paid, hooking up new customers, reacting to gas odor calls—become much more difficult,” he says. “All that creates an atmosphere in which you’re not able to focus on just do-ing the job every day.”

safety is not the only area in which utilities are at risk of a trust gap. in a recent report by Accenture, a consulting firm, less than a quarter of respondents said they trust their utility to inform them of

actions they can take to optimize energy consumption. seventy-three percent said that if given a choice, they would consider alternative providers for energy-related products and services.

Though the utility sector has been less competitive in the past, competition has and will continue to grow, says Greg Guthridge, Accenture energy consumer services managing director. more players are getting into energy services, including cable and security companies offering home energy management services, and hardware stores offering solar or wind-generation products. These are “credible challengers to the traditional utility model” in which “the utility potentially loses its value-added relationship and traditional role as ‘trusted advisor’ to the consumer,” according to Accenture’s “The new energy consumer handbook.”

As Guthridge says, “When there’s not trust, eventually people will vote with their pocketbooks.”

trust: going beyond safety

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the avalanche of questions with an ava-lanche of responses,” says Dorman. “It’s essential that you replace speculation and fear with accurate information.”

Phase II and Beyond Digging out from catastrophe is a long-term project, however. As they moved past the initial crisis stage, PG&E leaders realized that to truly recover, they would have to make major organizational and operational changes. First, they split the company’s electric and natural gas opera-tions into two separate divisions, and in May 2011, they brought in natural gas industry veteran Nick Stavropoulos to lead the new natural gas side of the business.

Stavropoulos says the split revealed that the company had a shortage of natural gas leadership talent, so he set out to recruit top employees from around the country. Once those new hires were in place, they pooled their knowledge to start putting the industry’s best practices to work at PG&E.

For example, since the San Bruno incident, the company has held more than 500 workshops for community first responders, such as firefighters, law enforcement officers, and EMTs, on the company’s emergency response plans.

Most important, this served to improve safety. But it also helped build confidence on the part of the public that they are, in fact, safe. Hemingway says partnering with trusted authorities—such as first responders—creates a “halo effect.”

Stavropoulos agrees. “We really had a lot of skepticism to overcome,” he says. “Gaining back the confidence of first responders is independent, relevant proof for everyone that we’re making a sincere effort to do better.”

In the same spirit, the company re-tained Jim Hall, a highly respected former NTSB chairman, to serve as an outside safety advisor. Hall and members of his firm, Hall & Associates, visit the company about once a month and are given unfet-

tered access to check on the company’s progress in implementing its extensive safety improvement initiatives. They are given free rein to share their findings with government regulators and employee union leaders.

“They give me straight talk,” says Stav-ropoulos, who has spent 30 years in the natural gas industry, including seven as the top executive in charge of gas operations at National Grid. “They don’t have a dog in the fight.”

The company has also sought to frequently and clearly reassure its own em-ployees that company leaders are focused on safety. That’s an important audience that companies often overlook in a crisis, Hemingway says, because—now more than ever—employees share their feel-ings about work with friends, family, and acquaintances through multiple channels, including social media. “There’s no such thing as ‘keeping it in the family’ any-more,” she says.

PG&E also began partnering with technology companies to develop more advanced safety technology—another smart move, says Hemingway, because technology is the most trusted industry, with a score of 80 percent, in the Trust Barometer.

Last year, PG&E showcased for the public the SmartScan technology (also known as “smart pig”) developed by PII Pipeline Solutions that it was using to inspect the inside of its largest pipelines. It also announced a five-year, $150 million partnership with Lawrence Livermore Na-tional Laboratory and two other utilities, Southern California Edison and San Diego Gas & Electric. With the Lab’s supercom-puting capabilities, they hope to create the tools needed to achieve California’s greenhouse gas goals and create a more safe, secure, and reliable energy system.

Assessing—and Revealing—RiskJohns and Stavropoulus believe the com-pany is also doing a much better job of as-

sessing its safety risk, something that Farley, of Katten, says is an important practice for crisis avoidance that more energy compa-nies should consider. PG&E has taken the additional—and perhaps unprecedented—step of sharing some of its safety perfor-mance metrics with the public.

The “safety dashboard,” which is published in PG&E’s quarterly filings, includes data on leak repair performance and gas emergency response for the natu-ral gas division. For example, it tracks the percentage of times that utility personnel were on site within 30 minutes and within one hour of receiving an immediate re-sponse gas emergency order. Last year, the company exceeded its response targets of 75 percent and 99 percent, respectively.

For top PG&E executives, 40 percent of their incentive compensation is tied to meeting their safety targets.

“We want to really communicate to everyone that safety is first and foremost, front and center, of everything we do as a company,” says Johns.

Building—and Rebuilding—Trust Johns says that the company’s surveys on customer satisfaction show that PG&E bottomed out shortly after the San Bruno incident but, as of the end of 2012, had recovered to pre-incident lev-els. That’s an indicator that public trust is increasing, but he thinks the company still has a way to go.

Regulatory and legal proceedings related to San Bruno are still ongoing and are regularly highlighted in the media. Also, it will take several more years to complete all the hydrostatic testing, pipe-line replacement, valve installation, and MAOP validation projects that PG&E has planned.

Ultimately, the work of building and rebuilding—earning and re-earning—the public’s trust will never really be finished, Johns says. “Every day, it’s our goal to be the safest gas operator in the country, and that will never change.” u

building confidence in response plans:SincE thE incidEnt, PG&E haS hEld morE than 500 workShoPS for firSt rESPondErS.

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