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CPUC Judges Recommend Largest Fine Ever for PG&E

In four decisions that could go through a still-lengthy review process, two California regulatory commission judges on Tuesday recommended $1.4 billion in penalties against Pacific Gas and Electric Co. (PG&E) for the fatal San Bruno natural gas transmission pipeline rupture and explosion four years ago (see Daily GPISept. 13, 2010).

In contrast to the normal process for judge's recommended decisions, Tuesday's actions are by presiding officers, and as such, they will become final in 30 days unless there is an appeal and/or review requests are made by stakeholders or regulators.

Aside from more recent federal criminal charges (see Daily GPI, July 31), for more than a year PG&E has faced proposed penalties totaling more than $2 billion based on recommendations from the California Public Utilities Commission's (CPUC) Safety and Enforcement Division (see Daily GPIJune 10, 2013).

The decisions by CPUC Administrative Law Judge (ALJ) Mark Wetzell and ALJ Yip-Kikugawa require that PG&E's payments come from shareholders -- not utility consumers -- and consist of a $950 million penalty to be paid to the state's general fund, $400 million in pipeline improvements, and another $50 million to be used to implement more than 75 remedies identified to enhance pipeline safety.

The latter payments would include $30 million to allow the CPUC's safety division to hire independent auditors to audit PG&E's pressure validation project, another mariner implementation project, training for the City San Bruno's emergency responders, a centralized database to track location and use of salvaged pipe in the PG&E gas transmission system, and to pay reasonably incurred legal expenses of intervenors in the four-year-old proceeding.

A former federal pipeline safety official, Brigham McCown, the first administrator at the U.S. Department of Transportation's Pipeline and Hazardous Materials Safety Administration (PHMSA), criticized the proposed payment to the state's general coffers, saying all of the penalty should be invested in the state's pipeline infrastructure. San Francisco-based utility consumer watchdog group The Utility Reform Network also called for directing more of the penalty funds at upgrading pipeline safety.

Tuesday's proposed ALJ decision is in addition to $635 million of expenditures by PG&E that have been disallowed (for inclusion in utility rates) as part of its ongoing pipeline modernization program. Thus, the ALJ's consider more than $2 billion as the total penalty PG&E will incur for San Bruno based on their decisions.

While not indicating whether it will appeal, PG&E said it has "respectfully asked that the CPUC ensure that the penalty is reasonable and proportionate and takes into consideration the company's investments and actions to promote safety [since the September 2010 San Bruno explosion]. Moreover, we believe any penalty should directly benefit public safety."

Since the safety division's initial proposal of fines of more than $2 billion, PG&E senior executives have maintained that the proposed penalties were excessive (see Daily GPI, June 3, 2013). The evidence does not confirm that the utility "could have known or should have detected" that a defective segment of large-diameter, high-pressure pipe had been erroneously installed in 1956, the PG&E leaders have contended.

They continue to cite a long list of upgrades and improvements that have been made to hundreds of miles of transmission pipelines, including strength testing (566 miles), validation of prior strength records (158 miles), pipe replacements (108 miles), new or upgraded automatic valves (157), and upgraded pipelines for in-line inspections (201 miles).

Nevertheless, in arriving at their presiding officer decisions (POD), Wetzell and Yip-Kikugawa said the combination utility committed 3,798 violations of state and federal laws, rules, standards or regulations in connection with its transmission pipeline system operations, many of which continued for several years (totaling more than 18.4 million days in violations).

Unlike typical ALJ proposed decisions, the PODs will become final in 30 days without an appeal from PG&E or one of the parties to the proceedings, or a review required by one of the five CPUC commissioners. There was no indication on Tuesday from the utility or CPUC whether there will be an appeal or review, in which case the five regulators would have to vote on the proposed penalties.

 “The decisions issued today are called presiding officers decisions and are the decisions of two ALJs who presided over the cases,” CPUC spokesperson Terrie Prosper told NGI. “If there are no appeals to the PODs and no commissioner requests a review, the PODs automatically become the decisions of the CPUC without a vote." 

Following an appeal or request for review, the ALJs would consider whether to change or not change their PODs, Prosper said. The changed or unchanged PODs would then come before the commissioners for a vote.

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