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New CPUC President Proposes Tougher Penalty on PG&E

Pacific Gas and Electric Co. (PG&E) shareholders would be on the hook for $850 million worth of safety upgrades to the utility's natural gas system under a new settlement proposal from California Public Utility Commission (CPUC) President Michael Picker. It addresses gas system mismanagement discovered after a 2010 pipeline rupture and explosion in San Bruno.

On Friday Picker's office released his proposal, which would add $200 million to a $1.4 billion fine approved by administrative law judges (ALJ) last year and slightly modified on Friday. Picker's proposal would direct $300 million of the $1.6 billion fine to the state's general fund, whereas the ALJ proposal would send $950 million to state coffers. The difference between those amounts plus the additional $200 million would make up the $850 million in shareholder dollars to fund gas safety improvements. The ALJ proposal does not prescribe any shareholder payment for safety enhancements.

Like the ALJ proposal, Picker's also calls for $400 million in customer bill credits and an estimated $50 million to enhance pipeline safety. Before it was modified Friday, the ALJ proposal said the $400 million amount should be imposed as a cost recovery disallowance.

The $1.6 billion in Picker's proposal plus disallowances already adopted in a prior CPUC decision would result in penalties and remedies of more than $2.2 billion, his office said. Penalties and remedies assessed against PG&E must be paid by shareholders and are not recoverable from PG&E customers.

PG&E released a statement in response to the proposal. “We continue to believe that it is vital that the commission resolve these gas pipeline investigations in a timely manner,” the company said. “We have respectfully asked that the commission ensure that the penalty is reasonable and proportionate and takes into consideration the company’s investments and actions to promote safety. Moreover, we continue believe any penalty should directly benefit public safety.”

Picker's proposal is being called "Decision Different." PG&E critics, particularly utility watchdog The Utility Reform Network (TURN), hailed the tougher sanctions on PG&E.

"This is a victory for TURN, the cities of San Bruno and San Francisco, ORA [California Office of Ratepayer Advocates] and all of PG&E's customers," said TURN Executive Director Mark Toney. "TURN had urged the Commission not only to penalize PG&E $1.4 billion but also to apply much of that money to pipeline safety. President Picker's proposal does just that, crediting customers with $400 million and demanding that shareholders bear the costs of $850 million in pipeline safety improvements."

The proposed Decision Different recognizes that PG&E's violations breached the trust that the company would maintain and operate a safe gas transmission system for its customers and the public, Picker said. Comments are being taken until April 1. Decision Different and the ALJ proposal are to come before the CPUC commissioners for a vote no sooner than the commission's April 9 voting meeting.

Toney said TURN will be keeping the heat on PG&E and the CPUC and noted upcoming gas transmission rate cases. "The commission must not give with one hand and take away with the other," he said. "If this proposal passes, the commission must be vigilant in making sure that it doesn't allow PG&E to make up the difference by being overly generous to PG&E on other pending requests."

The original ALJ proposal was issued last September. It established the number of violations in connection with each investigation of the San Bruno explosion and recommended a $1.4 billion penalty based on the total number of violations. PG&E said then that it would appeal (see Daily GPISept. 4, 2014).

Picker took the top job at the CPUC at the start of the year and was seen as a reformer (see Daily GPIJan. 16). Previous president Michael Peevey and some CPUC staffers have been mired in a controversy over inappropriate communications between the regulator and PG&E executives (see Daily GPIMarch 12).

In a Securities and Exchange Commission filing, PG&E said that 60 days after a decision in the settlement case is finalized, the CPUC is expected to begin a new investigation into allegations of improper communications between PG&E and the CPUC made by the city of San Bruno.

The San Bruno explosion happened in September 2010, killing eight and devastating the neighborhood (see Daily GPISept. 13, 2010).

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