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An independent panel of experts concluded Thursday that PG&E Corp.'s (PCG) utility had a "dysfunctional culture" that gave little heed to public safety or the high level of technical expertise needed to safely operate a gas pipeline system.

The California Public Utilities Commission convened the panel of five experts last fall to probe PG&E's practices following the fatal Sept. 9 explosion of the company's natural gas transmission pipeline in San Bruno, Calif.

"We met many capable people at PG&E, but somehow cultural issues ... have not created an atmosphere where inquiry, that thinking, that curiosity meshes together in a way that the process is fulsome," said panel member Paula Reynolds, speaking before the commission.

The panel found that PG&E had "excessive levels of management," an "elevated concern about the company's image [that] may get in the way of concentrating resources to the most important things" and "an insular mindset," all of which contribute to a "dysfunctional culture," according to the panel's final report.

The National Transportation Safety Administration has been investigating the cause of the explosion, which killed eight people, injured many others and destroyed 38 homes.

While the agency's final report is still pending, it has suggested in interim reports that poor record-keeping and a lack of safety tests by PG&E had masked manufacturing defects in the 55-year-old pipeline.

On Wednesday, the NTSB said the San Bruno fire department had been unaware of the large size of PG&E's transmission pipeline and suggested that the lack of information may have "put emergency responders at greater risk and reduce the effectiveness of the response."

While the review panel was focused on PG&E's practices leading up to the explosion, it also hired a consultant to review the circumstances of the pipeline using public records compiled by the NTSB. The consultant suggested that a 2008 sewer replacement project by the city of San Bruno might have increased stress on one of the pipeline's seams, which may have triggered the rupture. However, the panel found fault with PG&E, which provided "no ongoing field supervision.

"The individual who was responsible for the supervision had other priorities that day and was not present throughout as the pipeline was exposed and reburied," the panel found.

The panel also revealed that although PG&E submitted records to NTSB investigators that incorrectly characterized the pipeline that ruptured as being made of one, seamless piece of pipe, the company's pipeline engineers knew that the pipe was made up of different pieces of pipe that had been welded together. The panel concluded that poor data management, ineffective procedures for gathering information about its pipeline system and "inchoate" or disorganized efforts were to blame.

"All these things are extremely deep and disturbing," said CPUC President Michael Peevey. He added that the report is "damning for PG&E across the board."

Peevey said the CPUC would take all the panel's recommendations for improving the way it regulates pipeline operators "to heart" and implement them as quickly as possible. He added that he hoped PG&E management also would take the report "deeply to heart" as the company searches for a new chief executive and works on a complete overhaul of the utility and its operation of its natural gas pipeline system.

PG&E's interim chairman and chief executive, Lee Cox, said PG&E is "deeply sorry for the tragic accident in San Bruno" and will "do whatever is necessary to bring our performance up to industry-leading standards and see that an accident like the one in San Bruno never happens again."

The review panel concluded that PG&E's utility had inadequate pipeline maintenance and integrity management practices in place, and that the company did not have any engineers with pipeline training at the top levels of management.

"At PG&E, the pipeline integrity management was fairly far down in the company," said panel member Jan Schori, a former chief executive of the Sacramento Public Utility District who now works as an attorney.

Schori added that even safety directives from top management aren't enough. "It only has meaning if the top executive has enough of an engagement to be genuinely aware and knowledgably certifying that these safety standards are being met."

"Only one of the senior people [at PG&E] was an engineer and that person did not have a lot of gas experience," said panel member Karl Pister, an engineer and chancellor emeritus at the University of California in Santa Cruz.

Among other findings, the panel concluded that PG&E's so-called "Pipeline 2020" plan, announced after the explosion as a way to improve pipeline safety, lacks sufficient analysis, depth and weight. The panel also concluded that PG&E's emergency response program was insufficient and that the company emphasized financial performance while paying little attention to required technical expertise.

The panel's report can be found on the CPUC website at www.cpuc.ca.gov/PUC/events/110609_sbpanel.htm.

-By Cassandra Sweet, Dow Jones Newswires; 415-439-6468; cassandra.sweet@dowjones.com

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