PG&E Penalties Will Benefit Ratepayers

by  Joseph P. Como and Thomas Long
Published in the San Francisco Chronicle, Wednesday, February 5, 2014

As ratepayer advocates in the San Bruno investigations at the California Public Utilities Commission, we are troubled by PG&E’s attempts to influence public opinion through highly placed political guns like Spencer Abraham, a former U.S. secretary of energy and now a Washington, D.C., political consultant, who recently argued in Open Forum against meaningful penalties for the San Bruno explosion.

The PUC cannot bow to this type of pressure. Its mandate is to protect the public from the type of utility mismanagement that led to the fatal San Bruno pipeline explosion.

PG&E will spend nearly $10 billion in the coming years to test and replace its gas lines because the company failed, for decades, to track and maintain those lines. Despite safety regulations requiring PG&E to maintain its pipeline records, and millions in ratepayer dollars received to pay for record-keeping systems, PG&E does not know what it has in the ground. Thus, the San Bruno explosion.

The question before the PUC is: “Who will pay for this work, PG&E shareholders or ratepayers?” In reality, ratepayers will pay for most of it, no matter the penalty imposed. To ease the ratepayer burden, we have recommended that a significant portion of the penalty be applied toward this work. The more than $2 billion proposed may cover roughly 20 percent of the portion ratepayers will ultimately fund.

PG&E has violated so many safety requirements for so long that it is theoretically subject to penalties totaling hundreds of billions of dollars. A fine that large, while justified by the number of violations, could ruin PG&E. Thus, the commission is appropriately considering how much PG&E can absorb and remain financially healthy. The PUC-sponsored study shows that PG&E can withstand a fine of more than $2.45 billion in after-tax dollars. PG&E disputes this finding – but not on the evidentiary record. Instead PG&E has waged a campaign in the press, and within the financial industry, hinting at bankruptcy and other hardships that it failed to raise during hearings.

The facts before the commission do not support PG&E’s claims. Instead, they show that PG&E deferred work on its gas system for years while collecting more than $430 million over its authorized level of profit. And PG&E vastly overstates its expenditures correcting its self-inflicted problems, including trying to take credit for work unrelated to testing and replacing its pipelines. For example, PG&E seeks a $500 million credit for new safety work involving its rights of way, but this is work that PG&E already was paid to do right the first time.

Insurance covers most of PG&E’s payments to explosion victims, so it is misleading for PG&E to suggest that shareholders are bearing these costs. Finally, the evidence shows that the financial sector anticipates a penalty of more than $2 billion. Thus, warnings about how the financial industry will react to a large penalty are disingenuous.

Penalties are necessary to deter negligent practices that endanger the public. The evidence shows that PG&E can absorb the proposed penalties, and that it will ultimately make money on a system rebuilt at ratepayer expense.

Joseph P. Como is the acting director of the Office of Ratepayer Advocates, an independent office of the PUC that advocates for consumers. Thomas Long is the legal director of The Utility Reform Network, an independent, statewide nonprofit that advocates for fair rates, reliable essential services and utility company accountability.