The California Public Utilities Commission (CPUC) September 2 levied $1.4 billion in penalties against Pacific Gas and Electric Company’s (PG&E) for thousands of violations leading up to a September 9, 2010 pipeline explosion in San Bruno, Calif.that killed eight people and destroyed 38 homes, according to a press release from the CPUC. It is the largest safety related penalty ever levied by the CPUC.

Pacific Gas and Electric Co. will appeal the penalty in a filing with the Securities and Exchange Commission. PG&E officials said most of any penalty should be spent on improving the company's gas-transmission system.

Customers left holding the bag

“Today’s proposal for the biggest penalties in CPUC history proves just how much strong consumer advocacy and a huge public outcry can accomplish,” said Mark Toney, executive director of The Utility Reform Network (TURN), in a press statement. Toney said TURN had recommended larger penalties, and that more of the penalties be applied toward pipeline safety. “We don’t want customers left holding the bag for PG&E’s neglect,” he added.

Toney said TURN would advocate for much more of the penalty to be applied to pipeline safety. “We want more of the money redirected toward repairing PG&E’s broken system and alleviating ratepayer costs,” he said. “Even while proposing this penalty the CPUC has allowed P&GE to pass the costs of needed pipeline safety improvements on to customers in other cases. The Commission should be protecting consumers from these unfair costs, that are more appropriately borne by shareholders than ratepayers.”

From the CPUC news release:

“Two Administrative Law Judges issued three decisions establishing the number of violations in connection with CPUC investigations. In the fourth decision, the Administrative Law Judges impose a penalty based on the total number of violations.  The Administrative Law Judges found that in total, PG&E committed 3,798 violations of state and federal laws, rules, standards, or regulations in connection with the operations and practices of its gas transmission system pipeline. Many of these violations continued for several years, resulting in a total of 18,447,803 days in violation.

Penalty must come from shareholders

“The $1.4 billion penalty, when combined with the amount that the CPUC previously ruled must come from shareholders for expenditures to improve the safe operation of natural gas pipelines (R.11-02-019), exceeds $2 billion. The penalty consists of $950 million to be paid to California’s General Fund, $400 million in pipeline improvements that cannot be recovered from customers (called a disallowance), and approximately $50 million to be used to implement more than 75 remedies to enhance pipeline safety, including $30 million for the CPUC’s Safety and Enforcement Division to hire independent auditors to audit PG&E’s Pressure Validation project and Project Mariner implementation, training for emergencies (City of San Bruno), establishing a centralized database to track location and use of salvaged pipe in PG&E’s gas transmission pipeline system, and to pay reasonably incurred litigation expenses of intervenors.

“The penalty breakdown is as follows:

• Fine to the California General Fund:                                                                                        $950 million
• Shareholder amount toward PG&E’s Pipeline Safety Implementation Plan: $400 million
• Shareholder amount toward more than 75 remedies proposed by parties:           $50 million (est.)
• Total penalty from these investigations:                                                                $1.4 billion
• Shareholder amount toward PG&E’s Pipeline Modernization Program
• (disallowance previously approved in Decision 12-12-030):                           $635 million

Total from these investigations and D.12-12-030:                                              $2.035 billion

“These penalties must be paid by PG&E’s shareholders and are not recoverable from PG&E’s customers. Within 60 days PG&E must submit a report to the CPUC providing the status of the progress and the timeframe for completion of each remedy ordered in the decisions.

“The decisions of the two Administrative Law Judges are the culmination of the CPUC’s investigations into PG&E’s pipeline rupture in San Bruno (I.12-01-007), its pipeline recordkeeping (I.11-02-016), and its pipeline classification (I.11-11-009).

“The CPUC’s Commissioners did not provide input or comment into the decisions, nor did they have an opportunity to review the decisions before their release today. This is standard process in these types of investigations.

“The decisions of the Administrative Law Judges will become the decisions of the CPUC after 30 calendar days from September, unless a party to the proceeding files an appeal or a Commissioner requests a review. Should a party file an appeal of the decisions or a Commissioner requests review, the Administrative Law Judges will review the appeal and either make changes to their decisions or keep them the same. The decisions would then come before the Commissioners to consider at a Voting Meeting (although the Commissioners may discuss the decisions of the Administrative Law Judges in a publicly noticed closed session, they can only vote on the decisions in open session). Commissioners also have the option of writing Alternate decisions for consideration.

Largest safety penalty ever

“The penalties announced amount to the largest safety related penalty ever levied by the CPUC. The next largest CPUC safety related penalty imposed in the recent past was a $38 million penalty against PG&E as a result of a natural gas explosion on December 24, 2008, in Rancho Cordova, Calif. “