EDITORIAL: Penalty must be heavy

PG&E's role in the 2010 San Bruno gas pipeline explosion deserves the strongest possible penalty. Eight people died; 58 people were injured and 38 homes were destroyed.

Investigations have found that the utility failed to spend ratepayer funds on tests and replacement of pipelines. All the time, corporate shareholders -- including PG&E executives -- profited from the company's failure to invest in pipeline safety.

Although PG&E says it accepts responsibility for the blast, it has refused to acknowledge that the explosion resulted from any violation on its part. And though company executives say a penalty from the California Public Utilities Commission is appropriate, they are protesting the $2.25 billion penalty the PUC staff has proposed.

On May 21, we endorsed that proposed penalty. On reflection, we think it should be stronger, and should ensure that shareholders -- not ratepayers -- pay a steep price for the safety upgrades the company should have invested in previously.

One big problem is that the PUC's proposed penalty is tax-deductible. That means the real after-tax impact to PG&E would be $1.3 billion, and even that is misleading. The proposal allows PG&E to get credit for safety improvements since 2010, even though some of those upgrades were ordered by the National Transportation Safety Board and other regulators. That could further reduce the PUC's penalty by as much as $1 billion.

As this proposed penalty is being debated, PG&E seeks a rate increase that would average $12 a household per month. PG&E says the rate increase would finance a number of upgrades, including "increasing by a factor of six the miles of gas pipe that have traditionally been replaced annually in order to improve system safety."

The net effect? The company's shareholders will mostly escape liability, shifting costs for safety upgrades to ratepayers.

No one wants to see PG&E forced back into bankruptcy. But the company is hardly in dire straits. In 2012, it had operating revenue of more than $15 billion and earnings of $1.3 billion.

When it makes a final decision later this summer, the PUC should consider imposing a fine on PG&E on top of its proposed penalty, and limiting the credit the utility receives for safety upgrades since 2010.

That combination would ensure that shareholders share in the costs of making California safer. It also would send a strong message that reckless disregard for public safety will result in punitive action from the state of California.