California in tussle over record utility fine

September 5, 2014
San Francisco Chronicle

The biggest beneficiary of the record $1.4 billion fine levied against Pacific Gas & Electric Co. for a gas line explosion that killed eight people and destroyed dozens of homes in suburban San Francisco is the state of California, which stands to gain $950 million to spend any way it wants.

That reality has set up a tussle over how the state punishes corporate wrongdoing and who should benefit from fines like the one Public Utilities Commission judges imposed on PG&E earlier this week for the 2010 blast. The judges wrote that "a fine of this magnitude is necessary to deter future violations" and said they were following established policy by earmarking the large fine for the state treasury.

The proposed judgment is the largest safety-related penalty ever imposed against a public utility in California. PG&E, which plans to appeal, has argued that the penalty should be "reasonable" and directed to benefit public safety.

The concern with pipeline safety was echoed by city officials in San Bruno, where the blast occurred, and consumer groups that want to see miles of aging gas lines tested, replaced or repaired.

State Sen. Jerry Hill, a Democrat whose district includes San Bruno, said Friday he will introduce legislation to slash the state's share by nearly 70 percent, to $300 million. According to his office, he'd shift $570 million from the fine to offset rate increases expected from PG&E pipeline improvements, and another $80 million would be devoted to pipeline safety programs.

"The Legislature can always find a need for an extra $950 million," he said in an interview earlier this week. "It should go to the people who were affected by it."

Industry consultant Brigham McCown, a former acting administrator for the federalPipeline and Hazardous Materials Safety Administration, said it seems incongruous that the ruling faults the company for failing to spend enough on pipeline improvements and safety yet diverts most of the money to state coffers, with no strings attached.

"The money needs to go back into the system, versus the black hole of Sacramento," he said.

It's routine for the state treasury to collect PUC fines. Agency records from 1999 until early 2012 show the state was designated to receive $228 million from violations in dozens of cases. In some cases the agency orders a fine for the state, sometimes restitution for customers or other steps, and sometimes a combination of those penalties, the records showed.

According to the judges' decision, PG&E disagreed with agency staff that fines "must" be paid to the state's general fund, its main checkbook. The company, in an argument that could figure in its appeal, said the agency had the authority to designate those funds for pipeline safety.

But the judges concluded the company's argument was in conflict with the PUC's longstanding policy, as well as court rulings, and "flies in the face of the purpose of the penalties and fines."

"PG&E's proposal that all penalties be ... invested in pipeline safety, while creating a windfall for ratepayers, would not effectively deter it from committing further violations," the judges wrote. "Such an outcome would not even be considered an appropriate penalty, since PG&E has always been required to invest in pipeline safety."

According to the PUC, the judgment was based on nearly 3,800 violations of state and federal law, regulations and standards by PG&E in the operation of its gas pipelines. The $1.4 billion penalty also includes $400 million for pipeline improvements, and about $50 million to enhance pipeline safety... (To read the entire article, please click HERE)