News Column

PG&E Could Be Fined $300 Million for Deadly Blast

July 17, 2013

David R. Baker

san bruno pg&e blast
Devastation following the San Bruno pipeline explosion in 2010 (photo: Brocken Inaglory, Creative Commons)

California regulators have proposed fining Pacific Gas and Electric Co. at least $300 million for the deadly San Bruno pipeline explosion, after an earlier proposal for a more lenient penalty provoked weeks of infighting among state officials.

The fine would be the largest ever levied for a pipeline accident in the United States. In addition, PG&E would have to spend $1.95 billion upgrading its natural gas system, with none of those costs passed on to customers.

The proposal, issued Tuesday by the California Public Utilities Commission's safety division, follows a heated disagreement within the commission over how best to penalize PG&E for the Sept. 9, 2010, explosion that killed eight people and destroyed 38 homes.

The head of the safety division, Jack Hagan, initially called for a $2.25 billion penalty that did not include a fine. All of the money would have gone toward pipeline repairs, with PG&E receiving credit for work it had already performed or had agreed to do. In addition, the company would have been able to deduct $900 million of the penalty from its taxes.

Hagan's proposal outraged San Bruno officials. It also touched off a revolt among commission lawyers who had spent years building a case for fining PG&E.

The new recommendation keeps the $2.25 billion size of Hagan's original proposal but includes a fine. It also would force PG&E to absorb about $1.17 billion in pipeline repair costs that are currently being passed on to the utility's customers. It was unclear Tuesday whether the new recommendation would give PG&E any credit for shareholder money the company has already spent on pipeline work.

San Bruno pleased

San Bruno officials on Tuesday welcomed the changes.

"We're pleased that the city's voice, we believe, had an effect in bringing about a strengthened proposal," said City Manager Connie Jackson. "More importantly, I think it shined a spotlight on the internal turmoil within the (safety division) itself."

PG&E, based in San Francisco, called the revised penalty excessive.

The company says it has already spent roughly $2 billion in shareholder money responding to the San Bruno blast. Tacking on additional penalties would threaten PG&E's ability to raise the capital needed to fund pipeline repairs, said Tom Bottorff, PG&E's senior vice president of regulatory affairs.

"In its zeal to punish PG&E, the staff of the California Public Utilities Commission has lost sight of our important shared goal of making PG&E's natural gas operation the safest in the country as quickly as we possibly can," he said.

While the safety division's recommendation is just a proposal, all sides expect it to carry considerable weight with the five-member utilities commission, which will make the final decision on PG&E's penalty. To date, the nation's largest pipeline-related penalty was $101.5 million, imposed on the El Paso Natural Gas company after a 2000 explosion in New Mexico killed 12 people.

Hagan initially argued that slapping PG&E with a fine for San Bruno made little sense. Fines go straight to the state's general fund, and Hagan said he wanted every dollar of PG&E's penalty devoted to improving the safety of the company's natural gas network. He set the penalty at $2.25 billion after a consultant hired by the commission said the company could absorb that big a blow without suffering serious financial harm.

But the lack of a fine, as well as Hagan's decision to give PG&E credit for money already spent on pipeline repairs, infuriated public officials. And within the commission itself, lawyers who had been carefully building a case against PG&E objected to Hagan's approach.

Angry lawyers

After a May 31 confrontation with Hagan, the lawyers were removed from the case by the commission's general counsel, who used to work for PG&E. The general counsel, Frank Lindh, initially said the lawyers had asked to be reassigned. But in an angry e-mail leaked to the media, the legal team's lead attorney, Harvey Morris, contradicted Lindh, telling him to stop making "defamatory representations that I and the other attorneys in the San Bruno (matter) voluntarily left the case."

Once the dispute became public, the lawyers were reinstated, and Lindh recused himself from further involvement in San Bruno-related proceedings. The safety division formally withdrew Hagan's recommendation last week.

Both Hagan and Morris signed Tuesday's revised proposal. It argues that a fine is appropriate and necessary, given the scope of the San Bruno disaster and the years of shoddy maintenance practices that led to the explosion.

"The tragedy in San Bruno, which was directly caused by PG&E's unreasonable conduct and neglect for decades, was the worst disaster in the history of California electric and/or gas utilities," the proposal reads. "Therefore, (the safety division) is recommending a minimum fine of $300 million that PG&E must pay to the General Fund."

Neither Hagan nor Morris responded to a request for comment Tuesday.

The proposal also calls for PG&E and its shareholders to cover all the costs of the utility's Pipeline Safety Enhancement Plan. The utilities commission voted in December to let PG&E pass on to its customers about $1.17 billion of the program's $1.8 billion cost.

David R. Baker is a San Francisco Chronicle staff writer. E-mail: dbaker@sfchronicle.com. Twitter: @DavidBakerSF

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(c)2013 the San Francisco Chronicle

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