Resolution of proposed penalties of up to $2.25 billion for San Francisco-based Pacific Gas and Electric Co. (PG&E) may not come this year after a state regulatory administrative law judge (ALJ) asked for additional data on how any eventual penalties might affect finances. In addition, the specter of a criminal case has emerged.

An ALJ’s recommended decision may not be issued until late this year, meaning a final determination could linger into next year, but PG&E’s management team vowed last Wednesday to aggressively defend the utility and seek what they consider fairer treatment.

The complex legal and regulatory conundrum on the nearly three-year-old natural gas transmission pipeline rupture in San Bruno, CA, (see NGI, Sept. 20, 2010) dominated the remarks of senior executives, who discussed earnings and operations for 2Q2013 during a conference call. PG&E reported substantially increased quarterly earnings of $328 million (74 cents/share) in 2Q2013, compared with $235 million (55 cents) for the same period last year.

CEO Tony Earley expressed disappointment that the ALJ in the California Public Utilities Commission (CPUC) penalty cases last Tuesday issued a ruling calling for more information on the potential impact penalties might have on the utility’s ability to raise capital. PG&E and other parties are to provide their separate additional details by Aug. 14 and Sept. 13, respectively. Moody’s Investor Services and Standard & Poor’s Ratings Services have raised the possibility that PG&E’s credit ratings could be lowered because of the penalties.

“We’re disappointed in seeing the judge’s ruling, which results in significant delays in this already protracted proceeding,” said Earley, who said there also has been a lot of activity in recent weeks on a pending criminal action against PG&E concerning San Bruno. “Since the San Bruno incident, PG&E has made significant pipeline safety improvements and has committed substantial resources and shareholders dollars.”

Earley said instead of recognizing what PG&E has done and committed, the CPUC staff and parties in the case “want to identify how much additional pain the company can bear and resulting recommendations have lost all perspective (see NGI, July 22).” CPUC staff has recommended a $2.25 billion penalty and a $300 million payment to the state’s general fund. Ultimately, if the proposed penalty recommendations are enacted by CPUC, total unrecovered costs for PG&E would exceed $4 billion, he said. “This is obviously excessive.”

Along with the penalties looming, a criminal considerations also are being reviewed, according to Earley, who addressed the situation in some detail, noting that the utility has been providing information requested by federal, state and county attorneys.

“Although it is uncertain whether criminal charges will be brought against the company, [the threat] has been pending now for about two years, and we would like to have it resolved [as would the financial community].” In civil litigation, most of the serious cases already have been settled.

As the civil lawsuits and the CPUC proceedings have moved closer to conclusion, the various prosecutors in the San Bruno criminal case have “become more active,” the CEO told analysts. “We’ve had a number of meetings with them and provided information…It is just a matter of time and eventually they will have to decide whether or not they will file charges.” What are the major financial implications from a criminal case? Earley said they aren’t clear, but it could include additional monetary fines.

Current proposals by the CPUC safety staff are attempting to determine “what the utility can afford” in the way of penalties, and that is the wrong approach, he said. Earley thinks that more appropriately the regulators should be looking at what the utility has done to improve the safety of its gas pipeline system (see NGI, Sept. 5, 2011).

“The focus ought to be on whether we are committed to safety and are we spending money on safety, rather than how much can we afford,” Earley said. “I don’t know of any proceeding that focuses [on the latter] in the regulatory arena.”