PG&E Is Appealing $1.4 Billion San Bruno Fine

Update, Thursday Sept. 4: Pacific Gas and Electric says it will appeal the $1.4 billion state penalty announced earlier this week for safety, maintenance and record-keeping violations uncovered in the wake of the September 2010 San Bruno pipeline disaster. Here's the Associated Press summary of PG&E's appeal plans:

The utility said [in a federal filing Wednesday] it plans to appeal to the California Public Utilities Commission within 30 days. Wednesday's filing with the U.S. Securities and Exchange Commission did not list a reason for the appeal, but PG&E spokesman Greg Snapper said the utility wants the commission to take into consideration the $2.7 billion it will or already has spent on gas pipeline safety improvements.

"We're planning to ask the commission to review yesterday's recommendation to make sure that a final penalty counts all of the company's safety investments and actions to make the gas system the best in the country," Snapper said.

He said any penalty should also directly go toward public safety. By far the largest share of the $1.4 billion penalty recommended by two administrative law judges Tuesday would go directly to the state with no strings attached.

Original post: California regulatory judges have issued a $1.4 billion penalty against PG&E, the state's largest utility, for violations related to the 2010 San Bruno pipeline explosion that killed eight people, destroyed 38 homes and prompted national alerts about aging pipelines.

The California Public Utilities Commission on Tuesday announced the figure, reached by two administrative law judges. The CPUC said the fine was the largest safety-related penalty it had ever imposed. The commission ordered that the penalties be paid by PG&E shareholders rather than ratepayers.The Utility Reform Network, a ratepayer advocacy group, maintained PG&E could raise rates in other cases to indirectly offset the penalty.

The penalty consists of $950 million to be paid to California’s general fund, $400 million in pipeline improvements and about $50 million to be used to implement more than 75 remedies to enhance pipeline safety.

PG&E can appeal the fine. If it doesn't, or if a CPUC commissioner does not request a review, the decision will take effect in 30 days. Michael Asimow, a visiting professor of law at Stanford and an expert on administrative law, told KQED that PG&E will almost certainly appeal, and that the commission would then have to vote on the penalty before it became final. Beyond that, PG&E could request judicial review by the courts.

The commission previously ordered PG&E to pay $635 million for pipeline modernization in the wake of the Sept. 9, 2010, blast, which was California's deadliest utility disaster in decades. That puts the total penalty for San Bruno, if it is finalized, at more than $2 billion.

Included in the findings by the CPUC are PG&E's failure to maintain its gas transmission pipeline records. The CPUC also found that PG&E provided incorrect and misleading information to commission staff.

More from the CPUC's press release, on the number of violations the commission found:

The Administrative Law Judges found that in total, PG&E committed 3,798 violations of state and federal laws, rules, standards, or regulations in connection with the operations and practices of its gas transmission system pipeline.  Many of these violations continued for several years, resulting in a total of 18,447,803 days in violation.

In a statement, PG&E did not say whether it would appeal the decision, but it did say it had asked the commission to "ensure that the penalty is reasonable and proportionate and takes into consideration the company’s investments and actions to promote safety. Moreover, we believe any penalty should directly benefit public safety."

The San Francisco Chronicle's Jaxon Van Derbeken writes that the commission found two main areas of PG&E violations:

(Administrative Judge) Yip-Kikugawa found that PG&E had routinely made flawed assumptions about its pipelines and had known its records were in disarray. She also found the utility had consistently failed to lower pipeline pressures around newly developed areas, as required by law.

Retired Administrative Law Judge Mark Wetzell oversaw the allegations stemming from the blast itself. He found PG&E had failed to properly test many of its at-risk pipelines, including the one that ruptured in San Bruno. The company relied on an inspection method for most pipelines that was incapable of detecting flawed welds, Wetzell found.

Working off incorrect records, PG&E had concluded that the pipeline installed in San Bruno's Crestmoor neighborhood in the 1950s had no seam welds. The line finally ruptured at a cobbled-together assortment of short pipes, many with flawed seam welds.

Van Derbeken also wrote the fine against PG&E would represent the largest ever against a U.S. utility for a gas explosion, dwarfing the $101.5 million fine against El Paso Natural Gas for an August 2000 incident in which a dozen people were killed in New Mexico.

Higher Fine Was Expected

As hefty as the fine is, it's still not as high as CPUC staff recommended. That figure was $2.25 billion.

The original proposal by the PUC's safety division was so controversial that PUC lawyers who worked on the case asked to be reassigned. One said that "he could not personally continue working on the San Bruno penalty briefs because I concluded that the [safety division's] recommendations that were to be made in the briefs were unlawful and contrary to what our team had worked to accomplish in the last 2½ years." After an outcry from, among others, the mayor of San Bruno, the PUC's general counsel, a former attorney for PG&E, recused himself from the case and the original lawyers returned to working on it.

State Sen. Jerry Hill, whose district includes San Bruno and has been a fervent critic of PG&E, told KQED today that the lower amount proposed by the judges is "shocking and outrageous."

"The fine is not high enough, it’s not substantial enough, it’s not what was expected by PG&E to pay …. $2.25 billion was what was expected," he said. "Certainly the PG&E stockholders felt this was a good penalty, their stock shot up immediately after it was released. The city of San Bruno, the staff of the PUC, (advocacy group) TURN, the Office of Ratepayer Advocates all felt that the 2.25 was the number that we would see and here the administrative law judge comes in with $1.4  billion ...

(The PUC) mentioned it was the largest safety-related penalty ever levied by the PUC. Well of course it was. How often does a utility kill eight people or destroy 38 homes and then damage 50 additional homes and cause such devastation to the lives of the community? That doesn't happen fortunately every day."

But Asimow said the fine was the "biggest civil penalty I’ve ever seen an administrative agency, either state or federal, actually charge. ... This is a huge deterrent. The PUC makes clear these penalties have to be paid by the shareholders, they’re not going to be reflected in the rate base. This represents quite a hit to the value of PG&E."

Meanwhile, San Bruno, which has long argued that the CPUC was failing in its oversight duty of PG&E, wants a court-appointed overseer for the utility.

"We have no faith in the [California Public Utilities Commission] to ensure safety improvements will be made," Mayor Jim Ruane wrote in a statement last month. "An Independent Monitor is critical to ensure public safety and restore public confidence.”

San Bruno sent a letter to Melinda Haag, the U.S. attorney for Northern California, asking that federal prosecutors seek appointment of an independent monitor if PG&E is convicted under a revised criminal indictment stemming from federal criminal charges related to the San Bruno blast. Federal prosecutors indicted PG&E on 27 counts alleging the utility violated pipeline safety requirements. Another federal count alleges PG&E lied to the National Transportation Safety Board in that agency's investigation of the San Bruno blast. The company faces another $1 billion in fines if convicted of the federal charges.

PG&E, CPUC Faulted by Federal Government

A 2011 investigation by the National Transportation Safety Board concluded that the San Bruno disaster was caused by a rupture in a weak weld in a pipeline that PG&E records had shown as unwelded. PG&E neglected to shut off natural gas feeding the fire until 95 minutes after the blast, an amount of time the NTSB characterized as "excessive."

The NTSB also found thats CPUC exemptions of existing pipelines from a regulatory requirement for pressure testing contributed to the accident. The NTSB  said such testing likely would have detected the defective weld.

And PG&E "lacked detailed and comprehensive procedures for responding to a large-scale emergency such as a transmission line break," the investigation found.

In another probe, an independent panel formed by the CPUC found  "the explosion of the pipeline at San Bruno was a consequence of multiple weaknesses in PG&E's management and oversight of the safety of its gas transmission system." It also found regulators "did not have the resources to monitor PG&E's performance" of its gas pipeline.

PG&E said today it had "made tremendous progress" in fixing safety problems at the company.

"(A)ll of us at PG&E have committed ourselves to a goal to transform this company into the safest and most reliable energy provider in America. We’ve hired some of the best gas experts in the country to help guide this effort and supported it with billions of dollars in shareholder funding."

CPUC decision on failed record-keeping by PG&E:

Associated Press contributed to this report.