The California Public Utilities Commission is on the verge of letting Pacific Gas and Electric Co. off the hook again. Far from penalizing PG&E for the gross negligence and diversion of safety funds that caused the largest natural gas disaster in our nation's history, the PUC safety division's $2.25 billion "penalty" instead rewards PG&E with a generous credit for work that the utility should have been doing for decades. In reality, the commission's "penalty" is a myth.
The PUC will soon determine the penalty PG&E will be forced to pay and identify actions the utility must take as a result of decades of underinvestment and systematic safety failures that caused the 2010 explosion and fire on PG&E's Line 132, which took eight lives, injured countless others, destroyed 38 homes, damaged scores more, and left a hole in the heart of San Bruno.
The $2.25 billion penalty recommended with much fanfare by the safety division of the PUC has been touted by the agency as the largest fine against a utility in our nation's history. The Bee and others have endorsed the recommendation as "eye-popping" under the belief that the mechanism proposed will actually penalize the utility.
Unfortunately, the PUC proposal is not all it seems.
A closer examination of the proposed "penalty" reveals it will cost PG&E shareholders little more than has been spent to date on long-deferred pipeline testing and repair and will also allow for significant tax breaks that largely offset shareholder cost. San Bruno is also concerned that this so-called penalty may not even be legally supportable. Interestingly, not a single attorney within the commission joined Jack Hagan, director of the PUC's safety division, in signing the division's recommendation and now all have resigned from the case this week.
Not surprisingly, investors and stockholders have met this reprieve for the utility with buoyant optimism: Moody's Investors Service declared the PUC proposal as "credit positive" for PG&E.
By law, and just like a traffic ticket, a "fine" is paid to the state of California. It is not tax deductible. But the PUC's sleight of hand is different. Unlike a fine or a traffic ticket, the PUC's proposed $2.25 billion "penalty" is 100 percent tax- deductible. The after-tax effect is really $1.3 billion, and state taxpayers will lose not gain tax revenues as a result.
As if taxpayer subsidization was not generous enough, the penalty includes an ill-defined credit mechanism allowing PG&E to reduce the penalty by amounts already spent. For instance, the PUC would reduce PG&E's overall penalty by the $900 million it has spent to date on safety improvements since 2010 in response to emergency orders and directives from state and federal regulators as well as for past expenditures previously deemed "imprudent" by state regulators.
Given the scope and magnitude of PG&E's illegal conduct, San Bruno firmly believes the utility must absorb the maximum financial consequences that PUC safety division experts determined it can bear: $2.45 billion. San Bruno urges the PUC to do the right thing by penalizing PG&E $2.45 billion in after-tax dollars ($3.8 billion in pre-tax dollars) for new systemwide safety investments with no credits for past expenses.
And, because the commission itself is not without blame, having neglected to adequately regulate PG&E for decades, San Bruno also asks the PUC to direct PG&E to adopt and fund a series of remedial measures to ensure systemic regulatory change in the future. San Bruno's proposals for long-term improvements include $5 million per year for a California Pipeline Safety Trust, an independent monitor to make sure PG&E follows its own safety plan in the face of possible lax enforcement, and the installation of lifesaving automated shutoff valves.
Now, nearly three years after this devastating tragedy, the only way to prevent future accidents is by fining PG&E to the maximum. This tragic man-made disaster could have been avoided if, over the years, PG&E had tested, improved, repaired or kept records of its system, as it was required to do by law and if the PUC had enforced its mandate to protect public safety.
PG&E and its shareholders must bear the burden of financial loss to guarantee the future link between safe operations and PG&E's own preoccupation with the bottom line. The fines and remedies San Bruno proposes achieve that objective. The PUC's proposal, which amounts to no more than a myth, does not.
Jim Ruane is the mayor of the city of San Bruno.