Sending a message to the natural gas industry, California regulators on Thursday handed out the biggest penalty ever for a gas utility, increasing a penalty to $38 million against Pacific Gas and Electric Co. (PG&E) for a fatal distribution pipeline failure and explosion on Christmas Eve in 2008 in a Sacramento suburb.

Each of the five members of the California Public Utilities Commission (CPUC) took time to criticize PG&E and to insist that the utility and state do a better job in assuring the safety of the natural gas pipeline system. The CPUC rejected the penalty portion of a $26 million settlement that had been reached between the regulatory commission’s Consumer Protection and Safety Division (CPSD) and PG&E.

The unanimous final decision rejected the settlement hammered out by CPSD and the utility totaling $26 million in fines for the residential gas pipeline leak and explosion in Rancho Cordova, CA, which resulted in one death and five injuries. That proposed decision would have constituted the largest safety-related fine ever assessed by the regulatory body (see Daily GPI, June 22).

The conclusion of the incident of nearly three years ago follows the larger PG&E gas transmission pipeline rupture and explosion Sept. 9, 2010, in San Bruno, CA, which prompted an independent review panel’s report that was highly critical of both PG&E and the CPUC (see Daily GPI, June 10).

Separately, the CPUC also established a gas safety program under which its staff can assess fines to utilities found to be violating state and federal safety rules. Staff now can issue citations as part of their ongoing inspections and levy penalties of up to $50,000/occurrence. This implements part of one of the five new gas pipeline safety laws signed by Gov. Jerry Brown in September.

Since the settlement on the Rancho Cordova incident in June, the CPSD, PG&E and a consumer group, The Utility Reform Network (TURN), agreed to the $38 million penalty, which cannot be paid with any utility ratepayer funds. The three parties filed a joint motion accepting the larger penalty last month.

“The explosion occurred after a leak from a gas distribution pipeline that PG&E had earlier repaired using substandard pipe,” said CPUC Commissioner Timothy Alan Simon. The incident destroyed a nearby home and killed its owner, a 72-year-old grandfather, and severely injured his daughter and granddaughter, according to Simon.

In accepting the settlement PG&E agreed that it had failed to “follow its own safety protocols,” according to Simon, who focuses on natural gas cases at the CPUC and currently chairs the natural gas committee at the National Association of Regulatory Utility Commissioners. Federal investigators concluded that the cause of the explosion was most likely the use by PG&E of a section of “unmarked, out-of-specification polyethylene pipe with substandard wall thickness, allowing the leak,” Simon said.

Simon called for the utilities and CPUC to remain vigilant when it comes to federally mandated pipeline integrity management programs to “create a greater comfort zone of safety in reducing all possible risk.”

Other commissioners echoed Simon’s words, calling the penalty appropriate and noting it “sends the right message” to the industry. Commissioner Mark Ferron referred to “a long sequence of errors” on the utility’s part that caused the pipeline rupture, which “was not responded to properly.”

CPUC President Michael Peevey said he agreed with the decision that greatly increased the penalty from what was originally negotiated by the commission’s CPSD, but he did not want the safety staff to be “discouraged” or feel that its work was “repudiated” by the move to impose a stiffer penalty.

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