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PG&E Faces Highest Penalties Ever in San Bruno Explosion
The Safety and Enforcement Division of the California Public Utilities Commission (CPUC) last week recommended $2.25 billion in penalties against Pacific Gas and Electric Co. (PG&E) for three cases arising from the Sept. 9, 2010, pipeline rupture in San Bruno, CA. If the recommendation is adopted, it would the largest ever levied by a state or federal regulator.
“I am recommending the highest penalty possible against PG&E, without compromising safety, and I want every penny of it to go toward making PG&E’s system safer,” said CPUC’s Jack Hagan, who directs the safety and enforcement division.
Eight people were killed, 66 were injured and 38 homes were destroyed in the tragedy. The recommended penalty is to be used “solely for safety purposes.” The division said “the death toll, physical injuries, and extensive damage to homes by the pipeline blast is unsurpassed in its severity and PG&E’s failures is long and reprehensible.”
Hagan said “no amount of money…will bring back the eight people who tragically lost their lives in the pipeline blast or heal the lasting wounds to the people of San Bruno. All we can do is make sure such a tragedy does not happen again. I listened to legislators and the public and determined that every single dollar available from PG&E should go straight to efforts that will ensure safety. The recommendation is what the…division believes is the maximum financial penalty that can be imposed on PG&E shareholders without compromising safety.”
The penalty payment would include monies that the PG&E Corp. utility already has been ordered to spend on safety enhancements, as well as future safety investments. The penalty should be directed toward Phase I and Phase II of PG&E’s Pipeline Safety Enhancement Plan, recommendation stated. “The money would come out of shareholder funds and would not be paid by ratepayers. Likewise, any capital investments by PG&E would be excluded from the utility’s rate base, for ratemaking purposes.”
Since the pipeline tragedy, PG&E claims to have invested “upwards of $1 billion in safety activities, such as pipeline test or replacement, installation of safety values, verification audits and inspections, and development of safety management systems. The recommended penalty amount would include these expenditures plus future safety expenses, up to a total of $2.25 billion.”
PG&E also would be subject to audits to ensure the company does not under-spend in any other areas of their operations that effect safety to off-set any of these expenditures, according to the recommendation. An independent third-party would oversee the funds to ensure they are spent wholly and appropriately, the recommendation stated.
Responsibility for the tragedy in San Bruno does not start and stop with PG&E, Hagan said. “The CPUC itself must recognize its contribution to the lax safety culture that directly led to the unsafe conditions resulting in the explosion,” he said. “PG&E was not operating safely, and we at the CPUC did not do enough to spot this. PG&E failed to know, failed to test, failed to prioritize safety in its gas system integrity management program. But the CPUC, its staff, and all intervening parties failed as well to do their job to ensure safety of the natural gas system. This is the harsh lesson of the pipeline rupture. We must never fail to keep it foremost in our minds.”
The largest CPUC safety-related penalty imposed prior to last week’s recommendation was a $38 million penalty, also against PG&E, as a result of a gas explosion on Dec. 24, 2008, in Rancho Cordova, CA (see NGI, Dec. 5, 2011). The largest penalty under federal pipeline safety laws to date is a $101.5 million penalty against El Paso Corp. for a gas pipeline explosion in August 2000 in New Mexico (see NGI, July 30, 2007).
PG&E may reply to the recommendations by May 24; the safety division and intervenors then would have the right to reply to PG&E by June 5. A decision by CPUC is expected in late summer.
Officials with the City of San Bruno last week also recommended to CPUC that PG&E pay $2.25 billion in fines and penalties for the explosion.
“The eyes of the nation are watching the CPUC to see whether it will provide leadership and levy appropriate fines against PG&E adequate enough to ensure they fulfill the public trust placed in them — or whether its cozy relationship with the utility company will interfere with the independent role it should play in safeguarding the public,” said San Bruno Mayor Jim Ruane. “PG&E has said that it ‘lost its way’ and that it is taking the necessary steps to correct the deficiencies that resulted in the death of eight persons and the leveling of 38 homes in San Bruno. But make no mistake, through its lawyers and its filings, PG&E has admitted not a single substantive violation of law in the face of thousands of charges of violations of state and federal law.”
The proposed penalties “far exceed anything that I have seen in my 30 years in the industry and fail to appropriately account for the actions taken by the company,” said PG&E Corp. CEO Tony Early. “I understand the desire to punish PG&E,” however he is “deeply concerned that an excessive penalty, such as those proposed, could dramatically set back our efforts to do the right thing by making it harder and more costly to finance the remaining improvements that are needed in our gas system. To avoid this, it is essential that the commission take a more balanced approach in rendering its final decision.
“Since this tragic event occurred, PG&E has been clear in its commitment to take full accountability, to address the needs of victims and, most importantly, to transform this company into the safest gas provider in the country.” In a little more than two years, “we have completed seven of the 12 recommendations made by the National Transportation Safety Board. PG&E’s shareholders have funded $1.4 billion of these improvements. No other gas utility has completed safety work on this scale.” However, there is “much more work to do.”
PG&E in December said it had, since Sept. 2010, spent more than $1 billion on pipeline testing, upgrades and maintenance. This year it plans to strength-test or validate 189 transmission miles; replace 59 miles of pipeline; automate 67 valves; retrofit 121 miles of pipeline for in-line inspections; and perform in-line inspections of 78 miles of pipeline.
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