SAN FRANCISCO — State regulators slapped PG&E with a record-setting $1.6 billion penalty Thursday for causing the fatal gas-pipeline explosion in San Bruno more than four years ago, after a hearing marked by emotional statements from victims of the blast and sharp words about continued flaws in the utility’s safety record.
“PG&E is safer. But I just don’t believe PG&E is safe enough,” Michael Picker, president of the state Public Utilities Commission, told this newspaper in an interview after the PUC voted 4-0 to levy the penalty. Citing numerous lapses involving PG&E’s sprawling natural gas pipeline system since the 2010 San Bruno explosion, Picker said he was ordering the PUC to conduct a wide-ranging probe into PG&E’s safety culture.
Thursday’s hearing and the contentious process that led up to it brought almost as much scrutiny and criticism of the PUC as it did of PG&E. Federal regulators sharply criticized how the PUC monitored the utility before the blast, and thousands of emails released after the explosion painted a picture of a regulatory agency disturbingly close to a utility that it was supposed to oversee.
Those disclosures unleashed criticism of Michael Peevey, who stepped down at the end of 2014 as PUC president and was replaced by Picker.
Thursday’s decision appears to auger a new environment for the PUC and PG&E.
“Let this decision and our vote herald a new era of safety,” Commissioner Catherine Sandoval said.
The agency will be under close scrutiny as it attempts to respond to the criticism of its past actions. “Customers are looking to the PUC to rein in PG&E and be a watchdog, rather than a lap dog,” said Mark Toney, executive director of The Utility Reform Network, a consumer group often critical of both.
The $1.6 billion fine — which exceeds the $1.45 billion the utility reported in profit in 2014 — is not the last of PG&E’s legal and regulatory troubles. It has already been hit with multiple fines and penalties, still must confront a 28-count criminal indictment on federal charges and is under investigation by state prosecutors who are probing the email controversy. Search warrants served by the state attorney general at the residences of Peevey and former PG&E regulatory executive Brian Cherry show that criminal investigators were seeking evidence of improper communications, judge shopping, bribery and obstruction of justice involving the utility and the state agency.
Investigators believe that a combination of PG&E’s flawed record keeping and shoddy maintenance, coupled with the PUC’s lax oversight, were the key factors that caused the explosion that killed eight and wrecked a quiet San Bruno neighborhood.
The $1.6 billion penalty is the largest ever against a utility in the United States. The largest previous penalty was a $101 million punishment against El Paso Natural Gas for a fatal explosion in New Mexico in 2000.
Picker questioned whether PG&E is too big to provide safe utility services.
“Is the organization simply too large, being spread across a sizable portion of a large state, and encompassing diverse functions such as gas transmission and gas distribution, as well as electric service, to succeed at safety?” Picker said.
Picker pointed to safety breaches at the Metcalf electricity substation in South San Jose and gas system incidents in Kern County, Carmel, Morgan Hill, Castro Valley, Cupertino and Milpitas — all of which occurred since the September 2010 explosion — as examples of PG&E’s ongoing safety flaws.
Yet the PUC also stumbled in its oversight of PG&E, Picker acknowledged.
“We failed,” Picker said. “PG&E violated its public trust. But we weren’t vigilant enough.”
The new ruling requires that PG&E shareholders pay $850 million for gas system safety improvements, that the company refund $400 million to gas customers, and that PG&E pay a $300 million fine to the state.
“Since the 2010 explosion of our natural gas transmission pipeline in San Bruno, we have worked hard to do the right thing for the victims, their families and the community of San Bruno,” PG&E spokesman Keith Stephens said. PG&E said it won’t appeal the PUC penalty.
San Francisco-based PG&E has already spent or committed to spend $2.8 billion on shareholder-funded safety improvements to its pipeline system, replaced more than 800 miles of cast-iron pipes of the type that failed in San Bruno with modern pipes, and installed more than 200 gas valves that can operate automatically or be controlled remotely. The utility also has opened a state-of-the-art control center in San Ramon that is the nerve center of PG&E’s gas system.
Before voting, the PUC took the unprecedented step of allowing survivors of the disaster to address the panel.
Sue Bullis told the PUC that three members of her family were killed in the explosion, including her son Will. She recounted that she dropped off her son at school that day, told him she loved him and said she would see him that night.
“It’s as if a game of Russian roulette was being played. My family was on the wrong end of that game,” Bullis told the PUC. “I blame PG&E for the deaths of my family. I blame the CPUC, which was supposed to be the watchdog agency. I’m going to remember this my whole life.”