The Safety and Enforcement Division of the California Public Utilities Commission (CPUC) on Monday recommended that regulators impose a total $2.25 billion penalty against Pacific Gas and Electric Co. (PG&E) for three penalty 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 regulator. Last week PG&E Corp. CEO Tony Early said settlement talks of outstanding regulatory cases relating to the pipeline explosion had broken down, and he said the issues would be litigated at the CPUC (see Daily GPI, May 6; May 3).

"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 people were injured and 38 homes were destroyed when the utility gas pipeline ruptured and exploded. The recommended penalty is to be used "solely for safety purposes. The Safety and Enforcement Division says that 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, "There is no amount of money that 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 Safety and Enforcement Division believes is the maximum financial penalty that can be imposed on PG&E shareholders without compromising safety."

The recommended penalty payment would include monies that the PG&E Corp. utility unit 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, the safety division recommended. "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 officials have said they 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.

The safety division cautioned that responsibility for the tragedy in San Bruno does not start and stop with PG&E.

"The CPUC itself must recognize its contribution to the lax safety culture that directly led to the unsafe conditions resulting in the explosion," said Hagan. "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 Monday's recommendation was a $38 million penalty against PG&E as a result of a natural gas explosion on Dec. 24, 2008, in Rancho Cordova, CA. The largest penalty under federal pipeline safety laws to date is a $101.5 million penalty for an explosion in New Mexico in August 2000 on an El Paso Corp. pipeline.

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.

The recommendations came the same day that officials with the City of San Bruno recommended to CPUC that PG&E pay $2.25 billion in fines and penalties for the explosion.

The filing recommended that PG&E shareholders "be fined at least $1.25 billion, which would go to California's general fund. Shareholders should foot the bill for another $1 billion in 'disallowed costs' for PG&E's going-forward safety plan, and for 'remedies' related to the disaster, such as payment for a pipeline safety trust, an independent monitor to make sure PG&E is making its pipelines safer, an emergency response fund and automatic shut-off valves."

San Bruno leaders have been critical of CPUC and PG&E since the incident. In April they called for CPUC to postpone or change a utility safety symposium because of concerns that members of the commission and PG&E executives were to share a panel at the event (see Daily GPI, April 29).

"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."

San Bruno officials said the proposed penalties are "reasonable and necessary to ensure an event like this never occurs again given the immense volume of PG&E's documented safety violations uncovered during the course of three separate investigations. These investigations allege tens of millions of daily violations spanning, in many instances, more than 50 years." The mayor noted that even with three separate independent investigations, PG&E "has not paid one dime in fines...If there is any case for punishing a utility for unprecedented bad behavior, it is this one."

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