California utility won't appeal record penalty for deadly pipeline blast

SAN FRANCISCO – On the heels of a record $1.6 billion penalty against Pacific Gas & Electric Co., California Public Utilities Commission President Michael Picker said he will study whether the state’s biggest power utility should be broken up to improve safety.

The penalty, and the warning that even tougher action might be coming, occurred Thursday, as the commission meted out the utility’s punishment in a fiery 2010 gas pipeline explosion that killed eight people in a San Francisco suburb.

PG&E, the state’s largest utility, said it would accept the penalty without appeal and pledged to make its operations safer. PG&E CEO Tony Earley released a statement saying the utility was “deeply sorry” for the explosion. “The lessons of this tragic event will not be forgotten,” he said.

Federal investigators blamed both safety failings by the utility and lax oversight by state regulators for the disaster.

The penalty was the largest against a utility in state history. Commission members said the utility has continued to rack up safety citations since the San Bruno blast. Picker said he would ask commission staff to evaluate splitting up PG&E’s operations, which currently combine gas and electricity, and serve 9.7 million customers across Northern California and the Central Valley.

“I’m asking the question. We’ll have to answer it,” Picker told The Associated Press.

The state utilities commission will also investigate whether to go after bonuses and stock options that PG&E gives executives, and it will launch a formal investigation into the utility’s “culture of safety.”

The penalty, which was adopted unanimously after one of the five commissioners recused himself from the vote, requires PG&E shareholders to pay $850 million toward gas transmission safety improvements. It also orders PG&E to pay a $300 million penalty that goes into the state’s general fund.

It mandates the utility pay $400 million in bill credits, and it directs approximately $50 million toward other remedies.

The fine, and potential tax liabilities, were bigger than investors had hoped, and PG&E share prices closed down 1.6 per cent Thursday.

Investors overall would be likely to welcome a splitting off of the utility’s gas operations, which carry most of the financial risks for the company and only 20 per cent of its earnings power.

The explosion has led to state and federal investigations into alleged back-channel dealings between PG&E executives and the utility commission’s former head, Michael Peevey, whose term expired earlier this year. No results of the investigations have been announced. Peevey has never commented publicly on the probe.

Since the disaster, PG&E said, it has put 3,500 PG&E employees through safety training, decommissioned more than 800 miles of old pipeline, and set up a new operations centre to monitor its gas systems, among other measures.

Commissioners opened Thursday’s meeting by reading aloud the names of the men, women and children who died in the blast.

Sue Bullis, whose husband, mother-in-law and 17-year-old son were among those killed, told the commission that she struggles, five years later, for the will to go on.

“I blame PG&E for the destruction of my family,” she said, adding, “I blame the” California Public Utilities Commission for lax safety enforcement.


Associated Press energy writer Jon Fahey contributed to this report.