PG&E gets all the blame for deadly wildfires. But do California regulators go easy on them?

The tone was flat and bureaucratic, but the investigator’s outrage was unmistakable: Pacific Gas and Electric Co.’s equipment had sparked a fire, even after the utility pocketed millions of dollars earmarked for trimming trees.

Mark Clairmont, a special agent with the California Public Utilities Commission, wrote to his superiors: PG&E had underspent $80 million from its vegetation-clearing budget and diverted those funds to “to other purposes, such as profits.”

That was in 1998.

Despite the critical report from its own investigator, the PUC did not follow through with a stinging punishment for causing a fire that burned 12 homes in Nevada County four years earlier. A jury convicted PG&E of 739 misdemeanor counts of negligence, but the PUC fined the company just $6 million and ordered it to spend another $23 million on trimming trees.

Two decades later, critics say PG&E Corp. remains as dangerous as ever.

It has been blamed for more than a dozen major wildfires in the past three years, including the deadliest in California history: the Camp Fire a year ago Friday. Driven into bankruptcy by wildfire liabilities, it runs an electric grid that’s so shaky that the utility is compelled to turn off power to millions when high winds kick up. Even then, it’s apparently unable to prevent new incidents such as the Kincade Fire in Sonoma County last month. Gov. Gavin Newsom has taken to making public statements almost daily about PG&E’s shortcomings.

Yet some elected officials and other experts believe the state itself — specifically the Public Utilities Commission, which regulates the company — should take some blame for the PG&E crisis.

These critics say the commission hasn’t been aggressive enough about cracking down on PG&E’s safety flaws. They say its financial penalties — the main tool it has at its disposal for disciplining PG&E — haven’t been nearly big enough to bring the utility to heel. They point to a history of chumminess between the PUC and the company it’s supposed to regulate — especially in the aftermath of the fatal 2010 San Bruno pipeline explosion.

And they complained that the PUC reacts far too slowly — months or years after accidents happen or violations are uncovered.

In 2011, the PUC fined the utility $38 million for a natural gas pipeline explosion that killed a man in Rancho Cordova in 2008. In 2015, five years after the eight people died in the San Bruno pipeline disaster, the commission launched a formal investigation of PG&E’s safety culture. And it wasn’t until four months ago that the commission began investigating whether PG&E should be fined for the wine-country fires of October 2017. Cal Fire has blamed PG&E for more than a dozen of those fires.

“It’s a cumbersome, bureaucratic operation — it can’t exist with today’s rapidly changing environment,” said state Sen. Jerry Hill, D-San Mateo, a frequent critic of the PUC.

The PUC began life as the Railroad Commission, the result of a constitutional amendment in 1911. Today, with a staff of 1,100, it has a bewildering array of responsibilities, overseeing investor-owned water companies, freight haulers, telecommunications companies and behemoth utilities like PG&E and Southern California Edison. It plays a role in consumer protection and the state’s green energy efforts.

Its policy decisions are made by a five-person board, appointed by the governor and confirmed by the Senate, for six-year terms.

Last year, at the same time it was dealing with the Camp Fire, it was also wrestling with such diverse matters as the aftermath of the 2015 Aliso Canyon gas leak in Southern California; the new 279 area code “overlay” in Sacramento; and the $26 billion Sprint/T-Mobile merger. The state Legislature recently asked the PUC to certify whether the big utilities have conducted enough safety improvements to qualify for a new $21 billion insurance fund, a monumental task itself.

“The PUC is massively under-resourced for the job they have to do,” said Severin Borenstein, a UC Berkeley energy economist and board member at the Independent System Operator, the nonprofit entity that runs California’s electrical grid.

Among other things, Borenstein said the PUC doesn’t have the staffing to oversee equipment inspections. It has to rely on the utilities to conduct the inspections and certify that they’ve done the necessary work.

Sen. Hill said the California Legislature has given the PUC the money it’s requested to add staff. But he acknowledged that the commission is overburdened, and “and we keep giving them more tasks.”

Warnings about PG&E safety woes

It’s not as if the PUC hasn’t been warned about PG&E’s chronic safety problems. In a 2013 investigation into the San Bruno case, the PUC’s staff said PG&E had diverted money from safety in part to “fulfill shareholders’ earnings expectations.”

As part of that same investigation, a firm hired by the commission named Overland Consulting testified that “the low priority that PG&E gave to safety and reliability ... was well outside of standard industry practice.”

NorthStar Consulting, a firm that the commission hired to study PG&E’s culture, reported in 2017 that the company had “moved quickly to address the issues with its gas system” but still lacked a “comprehensive enterprise-wide approach to addressing safety.” A followup report by NorthStar earlier this year acknowledged “significant improvements” but said PG&E “continues to have a reactive rather than proactive approach” to safety.

And just last month another consultant, AzP Consulting, said the company had failed to spend $123 million in ratepayer dollars earmarked for planting power lines undergrounds.

Even as the evidence piles up, however, regulatory expert Ed Howard questions whether the PUC is doing enough to assert its authority over PG&E.

“Here we are, a decade after San Bruno, and we’re still looking at high-quality reports that the corporate culture at PG&E has to change,” said Howard, a former legislative staffer who is a public interest law expert at the University of San Diego.

Newsom acknowledged last week that the PUC at times had been “too cozy with the utilities” but he said that’s all changing with Marybel Batjer, who replaced Michael Picker as commission president in August. Batjer is a government veteran who was Newsom’s point person on overhauling the troubled Department of Motor Vehicles.

“I feel very confident in Marybel,” Newsom said last week. “She’s not in bed with these guys, and if she is, she’s gone.” The PUC just announced an investigation into PG&E’s handling of the wildly unpopular string of precautionary blackouts imposed in late October.

Still, the governor’s focus has been on PG&E, not its regulators. He has blamed the company repeatedly for not maintaining its electric grid. Last week he called for a radical restructuring of the utility and said a state takeover isn’t out of the question.

The PUC declined The Bee’s request to interview Elizaveta Malashenko, its deputy executive director for safety and enforcement, and Christopher Parkes, who runs its Office of Safety Advocates.

In a written statement, spokeswoman Julie Hall said the PUC has made significant strides in recent years on making sure all utilities prioritize safety. Its investigation into PG&E’s safety culture has yielded dozens of improvements as recommended by the PUC’s consultants, from hiring board members with safety expertise to accelerated training of crew foremen.

“Overall, we now exercise tighter control over how utilities address safety risks than we ever have,” Hall wrote.

San Bruno blast roils regulator

The low point in the commission’s 108-year history might well have come after the pipeline explosion in San Bruno.

Federal pipeline investigators at the National Transportation Safety Board faulted the PUC for a “failure to recognize PG&E’s corporate failures.” An independent review panel convened by PUC had harsh words for company and regulatory alike, concluding in 2011 that “both of these institutions must confront and change elements of their respective cultures to assure the citizens of California that public safety is the foremost priority.”

Then a rash of emails and other documents revealed a slew of back-channel communications between PG&E executives and Michael Peevey, the PUC’s president at the time, about the San Bruno investigation, the company’s rate-hike requests and other matters. In one email, Peevey scolded PG&E executive Brian Cherry for issuing two press releases about its indictment on criminal charges in the San Bruno case.

“I think this was inept,” Peevey wrote.

Peevey left the PUC when his term ended in 2014 and the commission later fined the company $97 million for the improper communications. Cherry was one of three PG&E executives fired in late 2014. PG&E was convicted in 2016 of felony charges for the San Bruno explosion and remains on probation.

“Historically, if you look at the Public Utilities Commission and the cozy ... relationship they had with PG&E and the other utilities in California, PG&E capitalized on that relationship and basically, for the last 20 years, has been able to call the shots,” Hill said.

It was left to Peevey’s, successor, Michael Picker, a former SMUD board member, to clean up the mess. Picker increased the financial penalties imposed on the company for the explosion to a total of $1.6 billion, including $850 million in shareholder-funded improvements to the pipeline network.

While Picker generally earned high marks as PUC president before retiring earlier this year, the commission was still occasionally accused of going easy on PG&E. Last year the commission decided not to fine PG&E for a power outage that caused a potentially dangerous gas leak at Valero’s refinery in Benicia.

“The PUC apparently never interviewed us, never called us, never came out here,” said Benicia Mayor Elizabeth Patterson. “It was a lack of interest.”

A year ago the PUC enforcement staff accused PG&E of falsifying tens of thousands of records related to the “Call Before you Dig” program, in which construction crews and homeowners contact PG&E to find the location of underground pipes. Last month the penalty came down: $65 million, almost all of it to be sent on improving PG&E’s paperwork and controls systems.

“This should be a fine in the hundreds of millions of dollars, a billion maybe, not this tiny slap on the hands,” said Mark Toney, executive director of The Utility Reform Network, a ratepayer advocate.

Picker couldn’t be reached for comment. He is now a senior advisor on climate change issues at the state Department of Finance.

PG&E: Rates not high enough

PG&E customers pay an average of $173 a month for electric and gas service. The rates are the second-highest in the nation among the largest U.S. utilities.

Nevertheless, PG&E argues that the commission has not approved enough funding to fully modernize its system. Since 2010, the PUC has turned aside $8 billion worth of proposed rate increases, or 12 percent of the total sought by the company, said PG&E spokeswoman Lynsey Paulo.

“It’s all safety and reliability related,” Paulo said of the rate hike dollars rejected by the PUC. “Safety and reliability go hand in hand.”

Nine years ago, for example, PG&E asked the PUC for permission to begin a wide-ranging electrical system upgrade called the “cornerstone improvement project,” to cost $1.99 billion. The commission slashed the funding to $357 million.

More recently, the PUC protested when PG&E asked the Federal Energy Regulatory Commission for a $387 million rate hike to upgrade its transmission system.

“It is appropriate to ask whether the work is truly needed, or whether it unjustly and unreasonably burdens ratepayers with unnecessary costs,” the PUC’s lawyers wrote in a 2018 filing.

FERC, not the state, oversees PG&E’s transmission equipment, which delivers power in bulk over long distances. The rate hike request is still pending before the federal agency.

PG&E’s critics say it’s perfectly legitimate to push back on the utility’s spending plans, saying the company often asks for higher rates for system improvements without specifying where the money will go.

“A blank check approach doesn’t solve the problem,” said Toney, the consumer advocate.

Rate cases consist of dozens of issues. When the PUC rules on a request from PG&E for more money, it decides everything from how much it can charge customers for new power poles to the contours of the bonus plan for rank-and-file employees (Executive bonuses are funded by shareholders). It also assigns the company a maximum allowable profit.

For all its avowed focus on safety, the commission is clearly under some pressure to keep costs in line. This was evident in the most recent PG&E general rate case, decided by the PUC in May 2017. Granting PG&E $1.5 billion in higher rates over three years, the PUC noted in its written decision that it had held 19 hearings to give the public a chance to speak up about the rate hike request.

The prevailing sentiment: The public wanted the PUC “to do all it could to limit higher spending by PG&E,” according to the decision.

The 274-page summation mentions the word “fire” just four times, even though PG&E was already wrestling with hundreds of millions of dollars in damages from the 2015 Butte Fire in Calaveras and Amador counties.

Howard, the expert from the University of San Diego, questions whether “even a well-intentioned government” agency can keep up with a $17 billion-a-year company with an army of lawyers and consultants and a 70,000-square-mile service territory.

“The PUC can’t put a staffer at every cubicle of PG&E,” said Howard, who’s testified before the Legislature on regulatory issues. “The regulatory status quo, whether PG&E is too big or the PUC is too small, is inadequate to assure the safety of Californians. There really can’t be any debate about that after San Bruno and now the Camp Fire.” Cal Fire has said a faulty transmission tower caused the Camp Fire, which killed 85 people and destroyed much of Paradise a year ago.

A coalition of mayors has called for a public takeover of PG&E. Howard suggested the Legislature consider something equally dramatic: Passing a law to “embed regulators within the structure of PG&E.”

This story was originally published November 6, 2019 at 5:20 AM.