Out of ashes

Out of ashes: Becoming the safest gas utility in the US 

Three years ago, residents of San Bruno, California were rocked by a natural gas explosion that resulted in the deaths of eight people and the destruction of 38 buildings. Since that time, Pacific Gas & Electric (PG&E) has placed a single-minded focus on improving the safety of their assets and rebuilding trust with their customers, communities and stakeholders.

Shortly following the incident, PG&E hired Nick Stavropoulos, a seasoned gas executive with deep experience enhancing safety, to lead their gas operations and drive their new focus on putting safety first. Geno Armstrong, KPMG’s Global Leader of Major Projects Advisory, recently sat down with Nick Stavropoulos to find out how PG&E is changing the way utilities manage risk and improve safety.

Geno Armstrong (GA): Nick, tell me about the situation that PG&E was facing when you joined the organization.

Nick Stavropoulos (NS): PG&E had been actively responding to the incident for a few months before I parachuted in, so the company had already gained a lot of knowledge from the immediate aftermath. I think it was important that there was already an understanding among the board and senior management that – while there were many elements that contributed to this incident – we had to recognize that it was our pipe, that we were ultimately responsible and therefore we had to do whatever was necessary to minimize the risk that anything like this could happen again.

This led us to take on a rather audacious goal to become the safest gas business in the country. I’ll admit that – at the time – we didn’t really know what that meant. But it’s encouraged us to really strive to identify things that we can achieve and measure, both from an asset standpoint and from a cultural and organizational standpoint, that would drive us to become a safer organization.

GA: That’s a big goal to achieve. What was the first thing you did when you arrived at PG&E?

NS: To start, we immediately split apart the gas business from the electricity business. This allowed us to really focus on ensuring that we did what was best for our gas infrastructure, business and customers.

We then began the process of putting together a plan for the specific actions we would take to improve the infrastructure. Two months after I arrived, we had put together a pipeline safety enhancement plan that launched a multi-year effort to strengthen and test our pipes, replace them where necessary and install remote or automatically-controlled valves. We also rebuilt our asset knowledge database so that we could validate – with traceable and verifiable records – what the maximum operating pressure of our pipelines should be.

GA: I assume that the asset knowledge database has allowed you to constantly monitor safety measures on all of your assets and then make intelligent investment decisions based on real and verifiable information?

NS: Right. Infrastructure operators – no matter what sector they work in – must really have a good understanding of what assets they have and what they are responsible for. You then break those assets out into homogeneous asset groups, understand their condition and then put in place mitigation strategies to address all of the risks that those assets face.

To put it simply, it’s OK to have an old roof, but you’ll need to make sure you are inspecting it more frequently and taking a look underneath to see if you have water leakage or other structural problems. The bottom line is that you can’t just ignore problems; you have to find them and fix them before they find you.

GA: What role has culture played in making PG&E a safer organization?

NS: Changing our culture is actually where I spend a large part of my effort. We firmly believe that a safety-first culture is essential to our long-term success. What we realized was that replacing the physical assets was only treating the symptom. We had to make sure we were focused on the underlying cause if we really wanted to become the safest gas company in the country.

One of our historical problems was that we had developed a discipline-oriented culture; when things went wrong, somebody was blamed. What we learned from examining other companies that had emerged from similar safety issues was that we needed to adopt an open, transparent culture where people are encouraged to step up and tell us if they see something wrong. Today, our employees know that if we don’t know about it, we can’t fix it and so they are encouraged to tell us if anything falls outside of the standard.

We had our annual employee engagement survey recently and noticed that our engagement numbers had gone up by 600 basis points – which is a dramatic improvement in just one year – and I believe that it’s because we are working to make sure our people are involved in our safety culture.

GA: How have you worked with your stakeholders to create a safer and more resilient utility?

NS: One of the first things we did was reach out to our two unions – the International Brotherhood of Electrical Workers (IBEW) and the Engineers and Scientists of California (ESC) – to ask for their help. We explained what we needed to do and committed to involve them in issues identification and brainstorming exercises to come up with the suggestions and changes that would ultimately be incorporated into our plan. They have been fantastic partners and – by bringing them in as a collaborative party to all of this – we’ve been able to enact change must faster than we would have done otherwise.

We also worked closely with – and received great support from – the National Transportation Safety Board (NTSB) and the independent review panel that was engaged by the California Public Utility Commission to investigate the incident. The NTSB had twelve recommendations that were made on the back of that investigation and – to date – we’ve managed to put seven to rest and are actively working towards implementing the remainder.

GA: What advice would you give infrastructure operators in other sectors and geographies?

NS: You really have to remember that when you take on this job – and want to do it right – you have to always be asking yourself if you are doing the right thing. You need to be able to look your board, your employees, your regulators and your customers in the eye and say that you are doing the right thing; not the minimally compliant thing, not the most cost effective thing, but the right thing for customers, the community and the business.

You also need to remember how fickle trust is in today’s society. Once something happens, it’s just amazing, the trust evaporates. And once broken, it is one of the hardest things to get back.

GA: What are you most proud of since joining PG&E?

NS: One of my key metrics for success is what I call our ‘say vs. do ratio’. And I’m proud to say that our ratio is currently at one. In other words, we have done everything we said we would do. We said we would hydrotest 152 miles of pipe, and we did it. We said we’d validate all 6,750 miles of transmission network, and we did. Every single target we have set to improve safety, we have achieved and that is something the entire organization – all 20,000 PG&E employees – can be really proud of.

I also can’t say enough about the support we have received from our unions, industry regulators, competitors and service providers who have helped us every step of the way to fundamentally turn our safety record and approach around.

By Geno Armstrong, KPMG in the United States of America

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