More Troubles for Criminally Indicted PG&E

An aerial photo shows the destruction wreaked on the Crestmoor residential neighborhood in the City of San Bruno following a PG&E gas pipeline explosion on September 9, 2010. Eight people were killed as a result of the blast and ensuing inferno. Photo via FEMA.

By Ralph E. Stone

April 6, 2014

Pacific Gas & Electric Company (PG&E) was recently criminally indicted for twelve violations of the federal Pipeline Safety Act. No executives of PG&E were indicted.

The federal indictment follows PG&E’s alleged negligence in safely maintaining its natural gas pipeline infrastructure which resulted in a massive explosion in the Crestmoor residential neighborhood of San Bruno on September 9, 2010. The resulting inferno killed eight people, injured 64, leveled 35 homes and damaged many more.

The California Public Utilities Commission (CPUC), which regulates PG&E, may fine the utility as much as $2 billion.

PG&E enjoys a near monopoly over much of Northern and Central California with 5.1 electric customers and 4.3 million natural gas customers. The California Public Utilities Commission (CPUC), which has been accused of being too cozy with the utilities it’s mandated to regulate, allows PG&E to charge 30 percent higher rates than the national average. As a regulated utility, the publicly traded company’s shareholders benefit from a guaranteed 11.35 percent return on equity, 10.5 percent above the national average.

Regulators had approved PG&E’s request for $4.9 million to repair the South San Francisco segment of the pipeline, but PG&E spent the money elsewhere, and then in 2009 requested an additional $5 million from ratepayers to do the job.

On September 20, 2010, PG&E released a list of its top 100 aging pipeline “projects” in need of replacement or repair. The San Bruno pipeline segment was not included on the list.

Remember the 2003 record bankruptcy bailout that put ratepayers on the hook to pay PG&E’s creditors and resuscitate the corporation? It was in addition to the $8 billion in previous bailout funds already paid to PG&E by ratepayers since 1998, bringing the bailout total to over $16 billion. The bailout plan was approved by the CPUC and the Bankruptcy Judge despite accusations that PG&E’s officers siphoned $4 billion to its unregulated holding company, PGE Corporation, from the $8 billion in “Competition Transition Surcharge” funds already paid to PG&E by its ratepayers between 1998 and 2000.

To add insult to injury, just weeks after handing out $50 million in bonuses while on the verge of financial collapse, PG&E received judicial permission to award $17.5 million for a “management retention program” intended to prevent over 200 top executives from departing the company during the bankruptcy process.

PG&E should have let these executives depart and then hired a more competent management team, possibly saving the lives and homes in the San Bruno explosion.

If found guilty of the federal criminal charges, PG&E will be on the hook for a maximum penalty of $6 million, chump change for PG&E and its holding company.

Of course, there is the possibility the Court will appoint a monitor for PG&E’s natural gas operations. Perhaps the monitor will fire PG&E’s executives. But, then again, any fired executives will likely receive hefty golden parachutes, courtesy of ratepayers.

Ralph E. Stone

I was born in Massachusetts; graduated from Middlebury College and Suffolk Law School; served as an officer in the Vietnam war; retired from the Federal Trade Commission (consumer and antitrust law); travel extensively with my wife Judi; and since retirement involved in domestic violence prevention and consumer issues.

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