The San Bruno gas pipeline explosion was a tragedy – that cannot be denied.
However, PG&E has changed. The company has demonstrated through its actions, and not just words, that it is committed to the safety of its gas system as a result of the San Bruno accident. PG&E has spent nearly $3 billion of shareholder dollars in critical infrastructure upgrades to improve the safety of its system. As the former chief federal regulator, this is the initiative for change we seek.
Yet, the California Public Utilities Commission is now considering a staff recommendation to impose an additional $2.25 billion in penalties against PG&E, bringing total sanctions against the company to well over $4 billion. A penalty should be designed to be constructive punishment to achieve a desired result, in this case enhanced safety, which is the fundamental problem with the proposed penalty for PG&E. The additional $2.25 billion fine would do anything but prevent a future tragedy.
For one thing, the fine as proposed is not directly tied to improving the safety of PG&E’s gas pipeline system. It is imperative that no matter how large the penalty, a large proportion is dedicated to ensuring prevention of future accidents. That is the ultimate goal of constructive and useful regulatory oversight.
Second, an overly punitive fine stands to discourage PG&E – and other utilities for that matter – from taking the initiative and spending the dollars needed to make progress before it is mandated or the numbers are resolved.
Finally, the amount of the fine would not only hurt the company and its shareholders, but it would also hurt the people it serves – the ratepayers. An excessive penalty will likely slow progress so it will take longer for PG&E’s customers to receive the gas system they deserve. And, in all likelihood, in the end, it will be the ratepayers who will bear the monetary burden.
I am not simply defending PG&E. In the aftermath of the explosion – as former head of the federal Pipeline and Hazardous Materials Safety Administration – I was extremely vocal in my criticism of the company and its practices. I have no doubt that proper administration of the system could have at least ameliorated – if not wholly prevented – the accident. PG&E, however, has rightly settled with those who fell victim to the explosion to the tune of hundreds of millions of dollars and has spent billions upgrading its system with plans to continue.
Good regulatory practice and fairness suggests that the imposition of any financial sanctions take into consideration what the utility has already spent on safety upgrades and preventing future problems. Regulatory agencies are in place to ensure the safety and proper administration of crucial infrastructure systems in the service of the people, and their decisions should reflect this mission.