Pacific Gas & Electric, a subsidiary of PG&E Corp (NYSE:PCG) got a rude awakening in 2010 when one of its gas mains exploded in San Bruno, California. The final bill for that disaster could exceed $2 billion. As a result, the utility decided to embark on a course to recovery, working with the country's top minds to develop high-tech systems, including 3D technology, lasers, and robots, to help prevent another San Bruno-like event. And these advances may just help the utility get its dividend growing again, since its been stuck in neutral since the explosion.
This country's infrastructure is falling apart. Don't take my word for it, look around yourself. Then check in with the American Society of Civil Engineers, which in 2013 gave U.S. infrastructure an inauspicious grade of D+. The energy industry, which includes pipelines like the one that blew up in San Bruno, got the same grade. That's somewhere between poor and mediocre. And while it's much better than failing, if we don't start working on the problem soon, time and neglect will take their toll.
Some gas pipelines, for example, are made of 100-year-old iron. One of those blew up in New York City in early 2014. The San Bruno pipe was installed over 50 years ago. While companies are working to replace those old pipes, Pacific Gas & Electric has decided to go further. It has been working with innovative companies and agencies, including NASA (yes, the U.S. space agency), to bring high-tech know-how to natural gas pipeline safety.
What Pacific Gas & Electric and its partners have come up with is nothing short of amazing. For example, it worked with NASA to create a lightweight and easy-to-use device to find gas leaks. This technology, which incorporates lasers, was originally designed to find methane on Mars in the search for life on other planets. It's 1,000 times more sensitive than the traditional tools used today. Nick Stavropoulos, PG&E's executive vice president of gas operations, summed this new device up well: "We are using out-of-this-world technology to find and fix even the smallest leaks in our system."
Another innovation is the 3D Toolbox, a camera that allows Pacific Gas & Electric to get a 3D image of the outside of its pipelines. The photos can be strung together to get a continuous image. Computer programs that read the data provide immediate feedback on the integrity of the pipes. While that's all kind of neat, the real benefit is more basic: it provides the company with a comparative history of a pipeline. The next time it looks, it will know what has changed.
Then there's the "smart pig." This is a robot of sorts that can be put into a gas pipeline. It works its way through the pipeline, using the natural gas to push it along, and provides what Sumeet Singh, Pacific Gas & Electric's vice president of assets and risk management in gas operations, basically described as an MRI for pipelines -- essentially, a comprehensive look inside these giant snake-like systems. These robots can also be outfitted with cleaning tools. The "pig" is pretty big, as the name suggests. The company is also working on a mini robot that can provide inspections in tighter spaces.
A better tomorrow
Pacific Gas & Electric is working smart, and hard, to ensure this country's aging natural gas infrastructure, particularly its own, doesn't turn into a ticking time bomb. While on some level it has no choice, it has clearly learned from its own history. Efforts like this can only improve the company, and the industry.
But it's no coincidence that the company's dividend has been flat since 2010. The price tag for San Bruno could be big, once all the dust settles, and preserving as much cash as possible is just good business. Longer-term, however, using these new techniques should not only help the utility avoid a repeat of San Bruno, but they will improve its business. For example, it should be able to target its repair spending to where it will do the most good, delaying repairs on pipes that simply don't need it. And some of these efforts, notably the robot "pig", help reduce costs because they eliminate the need, and cost, to dig up pipes -- previously the only reliable way to access and assess them.
In fact, Pacific Gas & Electric has just eliminated cast iron piping from its distribution system. Which means it's got a clean slate of pipes and a robust new collection of tools to keep customers safe. The utility offers investors a decent 3.1% yield. And the changes it's been making should improve safety and reduce costs, which, in turn, will help it continue to pay investors well and get it one step closer to raising dividends again.