Why PG&E Was Fined $2.25 Billion For The San Bruno Explosion
Northern California's largest utility may have to pay a total of $2.25 billion in penalties over a deadly September 2010 pipeline explosion that killed eight people and destroyed 38 homes in the San Francisco suburb of San Bruno. If the California Public Utilities Commission (CPUC) accepts a recommendation its Safety and Enforcement Division made Monday, Pacific Gas & Electric (PG&E) will be hit with the highest fine levied by a state regulator in U.S. history.
In a press release announcing the staff recommendation, Jack Hagan, Director of the CPUC's Safety and Enforcement Division said, "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."
PG&E isn't going down without a fight. The utility will be filing a counterproposal with the CPUC this month. CEO Tony Earley, in a statement released Monday, said the proposed penalties "far exceed anything that I have seen in my 30 years in the industry and fail to appropriately account for the actions taken by the company."
The September 2010 explosion was the worst gas utility-related accident in California history. Gas continued to flow from the ruptured pipeline for more than an hour and a half after the explosion: flames leapt 1,000 feet into the sky, and a 30-foot deep crater marked the explosion site. In addition to the loss of life, 58 people were injured -- some of them badly burned. (The declarations of affected residents quoted in the CPUC staff's recommendations are quite difficult to read.) A total of 108 homes sustained damage from the explosion.
In the aftermath of the explosion, PG&E stated in formal proceedings that it bore both moral and legal responsibility for the disaster. The CPUC staff report cites faulty recordkeeping over decades at PG&E, and says:
The Commission should consider that the public's faith and trust has been badly shaken by the revelation that PG&E had literally no idea that the flawed pipe sections that ruptured were there. Given PG&E's lack of essential knowledge and accurate and complete gas system data, PG&E cannot even assure the Commission or the public that there are not more buried mistakes in its system. The records containing that information are lost, or hopelessly inaccurate. There is a strong public interest in a large penalty that effectively sends the signal that ignorance of the flawed pipe sections and missing records will not be tolerated. [Emphasis in original]
According to the CPUC staff, the fines for which PG&E is technically potentially liable are well in excess of the $2.25 billion recommended:
CPSD [CPUC's Consumer Protection and Safety Division] has proven... more than one hundred violations that continued for years, some as long as 54 years. Imposing a fine for each violation for each ongoing day would result in tens of billions of dollars of fines, which is more than PG&E's net worth. Consequently, CPSD recognizes that there is a limit on how much PG&E can afford to pay, because PG&E needs to retain its creditworthiness in order to be able to pay for its improvements in the safety of its facilities, as well as to procure natural gas and electric power.
The CPUC would require that the penalty be paid by PG&E's shareholders rather than its ratepayers. An independent audit of the utility in 2011 suggested the company could absorb the amount without affecting ratepayers.
