The California Public Utilities Commission (CPUC) voted unanimously on Thursday, April 9th to issue the largest fine for a utility company in state history, and the largest fine in U.S. history for a natural gas utility. The $1.6 billion fine against PG&E was issued in response to a 2010 pipeline explosion in the San Francisco suburb of San Bruno that leveled 38 homes and killed 8 people, including a member of the CPUC staff and her 13 year-old daughter. The fine includes at least $850 million allocated for pipeline repairs as well as $400 million in customer refunds. Also per the agreement, payment of the fine must come from shareholders, and not via customers or taxpayers, although there is some discussion on tax-deductibility of the fine. Citing faulty welding dating back from the 1950’s as the root cause of the explosion, PG&E may also face up to $1.13 billion in federal criminal penalties as well. The company also pledged up to $2.8 billion in long-term safety improvements. Despite the eye-popping amount levied against the company, PG&E representatives have agreed to the penalties, and have decided not to appeal the ruling.
The record fine and additional expenses may only be the beginning of PG&E’s problems. The San-Francisco-based utility is standing on shaky ground-literally and figuratively. In the decades preceding the explosion, PG&E has racked up 2,425 safety violations, and CPUC President, Michael Picker believes that additional violations since the explosion are evidence that the company is simply too big to manage itself safely. He has called for a probe into the company’s safety procedures. For its part, PG&E has already sent 3,500 employees through safety training, decommissioned 800 miles of pipeline, and opened a separate natural gas monitoring center. These measures, however, have not stopped the CPUC from considering breaking up the company as a remedy for its lack of safety enforcement. “I’m asking the question. We’ll have to answer it,” Picker told the AP.
Despite issuing one of the largest fines in history, the CPUC is actually under-fire as well for lax oversight of PG&E, both leading up to and dealing with the aftermath of the explosion. Former CPUC President, Michael Peevey, had been accused of conducting back-channel negotiations with PG&E executives over judge selection regarding a separate hearing regarding rate changes. Due to the hint of cronyism, the city of San Bruno sued the commission in order to release e-mails and other correspondence between the executives. Results of the investigation are pending, but Peevy, whose term ended earlier this year, and Commissioner Michael Florio, both recused themselves from the unanimous vote. Many in the San Bruno community consider the CPUC an accomplice to the tragedy. Citing the thousands of violations, Mayor Jim Ruane called the explosion, “gross misconduct by PG&E and lax oversight by this commission,” and Sue Billis, a San Bruno resident who lost 3 family members in the blast said, “I blame PG&E for the deaths of my family. I have no confidence in the infrastructure underground, those who operate it and, I have to say, the CPUC which has acted with indifference over the past five years.”
Bloomberg Business – Mark Chediak
Marketwatch – Cassandra Sweet & Rebecca Smith
U.S. News & World Report/AP – Ellen Knickmeyer