Calling it dangerous and potentially harmful to its ability to finance future natural gas pipeline safety upgrades, Pacific Gas and Electric Co. (PG&E) last Friday filed a formal reply to state regulators, strongly rejecting a safety staff recommendation of a $2.25 billion for PG&E’s part in the Sept. 9, 2010 pipeline rupture and explosion in San Bruno, CA.

The San Francisco-based combination utility argued that its shareholders already have paid $900 million to make PG&E’s gas distribution and transmission pipeline system among the safest in the nation, and it projects spending another $1.3 billion that won’t be recovered in retail utility rates.

Asserting that it has accepted its moral and legal responsibility for the explosion that killed eight and devastated a residential neighborhood about 10 miles south of San Francisco, PG&E said the proposed penalty by the California Public Utilities Commission (CPUC) “ignores the fundamental truth of this tragedy — this accident was not the result of willful or knowing violations of state law, federal standards or commission orders, policies or directives.”

PG&E argued that evidence does not confirm that it “could have known or should have detected” that a defective segment of large-diameter, high-pressure pipe had been erroneously installed in 1956. It further claims that no integrity management program, “even one that was perfectly implemented based on federal and state regulations,” would have discovered the defect or prevented the tragedy.

The CPUC’s Safety and Enforcement Division early in May recommended that regulators impose the $2.25 billion penalty, saying the deaths, along with 66 injuries and 38 destroyed homes, were “unsurpassed” in severity and PG&E’s failures were “long and reprehensible” (see Daily GPI, May 7). If the recommendation is adopted, it would be the largest ever levied by a state 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 CPUC safety unit. The recommended penalty is to be used “solely for safety purposes.”

In its filing Friday, PG&E countered that the parties in the regulatory penalty proceeding have “offered no rationale for the disproportionate and excessive size of the recommended penalties based on evidence of culpability.”

As an alternative, the utility said the state regulators should apply unrecovered amounts that its shareholders have spent and plan to spend on the gas system safety to any penalty imposed. It argued that the utility’s actions since the accident “should be acknowledged, not punished.”

PG&E said that since San Bruno it has “made unprecedented investments” in implementing “far-reaching changes” in its gas system with the goal of making it the nation’s safest. If the $2.25 billion penalty is imposed, the utility could lose its ability to continue this level of investment, the CPUC filing said. There is no precedent for a penalty of this magnitude, PG&E said.

The largest CPUC safety-related penalty previously imposed was a $38 million penalty against PG&E as a result of a natural gas distribution pipeline 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. interstate transmission pipeline.

“Those who argue that the CPUC should impose the most extreme penalty possible, or add additional fines on top of shareholder penalties, should be required to demonstrate how this approach will not harm the very customers the commission is sworn to protect,” the company said.

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