EDITORIAL: Big penalty for San Bruno blast is appropriate

May 21, 2013 

If it wins final approval, the eye-popping $2.25 billion penalty that the California Public Utility Commission's Safety and Enforcement Division has recommended against Pacific Gas & Electric Co. will be the largest imposed against a utility in the United States.

PG&E officials complained that it is excessive. The penalty is a whopper, but given the egregious violations alleged and depending on how it is finally structured, it is not excessive.

The penalty is meant to punish the utility for safety violations that resulted in a 2010 gas pipeline explosion in San Bruno. The explosion and fire incinerated eight people and destroyed 37 homes.

The commission's safety division investigators concluded that the accident was entirely "foreseeable and preventable," especially after a similar explosion in Rancho Cordova two years earlier killed a man and destroyed five homes. PG&E's failure to detect and prevent the San Bruno explosion, investigators rightly said, was "morally and ethically reprehensible."

Besides, the recommended penalty is a fraction of the tens of billions of dollars that could be assessed against the utility for hundreds of serious safety violations, some of which lasted more than five decades.

The $2.25 billion recommended penalty has been carefully calculated to keep PG&E in business while sending a message to its executives and other regulated entities that cutting costs by neglecting safety will not pay.

PG&E officials disagree. They say the size of the recommended fine -- 22 times larger than any fine imposed against a utility in the country -- potentially puts PG&E's credit rating at risk. They say the fine will make it more expensive to finance capital investments and will result in higher costs for ratepayers.

But that won't happen if PG&E is given credit for approximately $1 billion in safety fixes it already has made at shareholder expense and if all of the money assessed is used to pay for additional pipeline replacement and upgrades.

A complicated recommendation by ratepayer advocates that would require PG&E to pay a portion of the fine into the state's general fund makes little sense. A payment to the state would be intended to offset any tax benefit PG&E would receive for writing off its safety investments as a business expense. But safety investments are a legitimate business expense.

Moreover, while PG&E is most responsible for the San Bruno tragedy, the California Public Utility Commission is hardly blameless.

PG&E neglected the safety of its pipelines for decades, but do-nothing regulators at the CPUC let it happen. The utility faces a record fine, but who holds regulators accountable? The state doesn't deserve a tax windfall for its inaction.

The five CPUC commissioners are expected to make a final decision on PG&E's penalty late this summer.

They would be wise to carefully consider the counsel of their revamped and re-energized safety division.

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