A refinery explosion earlier this year made Texas an easy target for regulatory mockery, but while many Californians have pointed wagging fingers due east, Texans could rightly wag right back at our own dyspeptic regulatory model of the fox watching the henhouse, the California Public Utilities Commission.
Last week, the agency endured a series of self-induced embarrassments:
The four attorneys who spent two years probing the San Bruno gas pipeline explosion that killed eight, injured dozens and flattened 38 homes, abruptly quit their investigation and were reassigned because they refused in good conscience to sign off on the commission's recommended punishment for PG&E's negligence.
That negligence, an independent audit found, was PG&E's refusal to use more than $50 million it collected from ratepayers between 1999 and 2010 specifically to improve its gas pipeline and transmission networks, a lapse likely contributing to the 2010 San Bruno explosion, the 2008 gas line explosion in Rancho Cordova, destroying a home and killing the occupant, and a pipeline explosion at a Cupertino condominium in 2011.
The auditor, Kansas-based Overland Consulting, also found that from 2003 to 2010 PG&E's gas distribution operations earned an average return-on-equity of 12.7 percent while, in the same period, the company's authorized rate increase averaged 11.3 percent.
In dispute is whether PG&E should be "fined" or "penalized" the recommended $2.25 billion. The difference is significant. A fine comes out of PG&E's pocket and shareholder profits, and can be arranged to prohibit the utility from increasing rates to pay for it.
A penalty, however, is tax deductible, meaning PG&E cashes in twice: pawning the payment off on taxpayers who do you think pays for tax deductions? while also allowing the utility to request rate increases, meaning customers paying the freight for PG&E's neglect.
The dissenting lawyers want the fine, which would go to the state's general fund while the utility then spends additional dollars toward infrastructural repairs. The commission's lead attorney, Frank Lindh, who reassigned the legal team, and California PUC safety division leader Jack Hagan want the payment declared a penalty. Surprise! This is also PG&E's position. Of equal coincidence: Lindh is a former lawyer for PG&E.
Hagan, who joined PUC last year promising to levy fines as an enforcement tool, told the two administrative law judges handling the case that fining PG&E "makes no sense" and insisted the payment be spent on safety improvements. Really? The utility that spent a decade not spending $50 million on its infrastructure will now spend $2.25 billion to do so?
Wrong. Rate payments support infrastructural maintenance. When a utility doesn't do upkeep and PG&E didn't that's negligence, for which heavy fines must be imperative and entirely separate from any and all repair costs. Such companies might think twice about diverting funds collected for repairs and maintenance to other "projects" if a serious hammer blow awaited their negligent, perhaps even criminal, behavior.
This massaging attitude comes atop a contentious week of meetings last April between lawmakers and PUC officials after a scathing, leaked report by Folsom-based Business Advantage Consulting found the agency unwilling to make safety a priority. PUC staffers detailed multiple instances of an "anti-safety" attitude among commission executives, including "resistance to challenging utilities" and "resistance to leveling fines."
Indeed, Michael Peevey, president of the PUC since 2002, who acknowledged the agency's "culture of complacency" after San Bruno, was called to appear before lawmakers and refused, choosing instead to attend an exclusive Napa Valley conference and reception whose guests included representatives of California's utilities. Peevey himself is a former president of Southern California Edison.
When a KRON-TV investigative reporter asked Peevey why he chose lavish Napa over legislative committee hearings, Peevey accused the reporter of being antagonistic.
The anemic excuse for the agency's "safety malaise," we were told by PUC executive director and Peevey lapdog Paul Scanlon was, "Well, gee, we're a 100-year-old institution. Making changes takes time."
I have a modest suggestion: You're fired. Every commissioner and corporate officer. Fired. Peevey is no leader. He's a lackey for his old friends in the utility industry. A true corporate leader desiring change issues the memo: "We're changing course. Today. Anyone who'd rather make excuses than make good is out."
I'd call upon the governor to fire Peevey, but I'm told the two are old friends going back to the 1970s.
With a two-thirds vote, lawmakers could remove PUC board members for incompetence, negligence or corruption, but too many benefit too greatly from PG&E and other utility campaign contributions for that to happen. Incidentally, Peevey's wife is Democratic state Sen. Carol Liu of La Cañada Flintridge.
The PUC is a regulatory artifact, crudely disguised as a champion of public safety. Its leadership and corporate lemmings should be dispatched without haste to send the message that, for once, Californians could express confidence with something somewhere in its government. Perhaps even Texas might take notice.
Bruce Maiman is an ex-radio host who lives in Rocklin. Reach him at firstname.lastname@example.org.