California fatal pipeline explosion brings more scandal for PG&E

Firemen are seen outside burning homes after an explosion in  San   Bruno , Calif., Thursday, Sept. 9, 2010. Several homes were destroyed as a massive fire roared through a mostly residential neighbourhood in  San   Bruno .
Firemen are seen outside burning homes after an explosion in San Bruno , Calif., Thursday, Sept. 9, 2010. Several homes were destroyed as a massive fire roared through a mostly residential neighbourhood in San Bruno .

A deadly pipeline explosion that shattered a California town four years ago continues to rip through the state agency weighing a record penalty for the disaster.

The president of the California Public Utilities Commission asked his chief of staff to resign and stepped down himself from the case after “inappropriate e-mail exchanges” with utility PG&E Corp. raised questions about the agency’s bias, according to a statement from the commission yesterday. The CPUC may decide within weeks whether to levy a proposed $1.4billion penalty — the biggest safety fine in the state’s history — against PG&E for the 2010 explosion of its natural gas pipeline that killed eight people in San Bruno, California.

Commission President Michael Peevey, who has been accused by San Bruno officials and consumer advocates of being too close to the utility, said in the statement he was recusing himself from the probe to eliminate any appearance of impropriety. The move is a step toward regaining credibility for the CPUC after two years of political infighting has created an ongoing climate of scandal.

“It’s led to the complete violation of the public’s trust of this administrative agency,” said Loretta Lynch, a former president of the CPUC. “It’s unprecedented — which is saying something in the history of the commission.”

The utility reported the January e-mails after an internal review of nearly five years of communication between the company and CPUC officials, according to the San Francisco-based company’s statement. The exchanges were related to another case before the commission, not the San Bruno investigation, the agency and the company said in a statement yesterday.

Peevey’s chief of staff, Carol Brown, reassured a PG&E executive in January after he wrote to her to complain that a judge tapped to review the utility’s rate case was “a major problem.”

“Take a deep breath, I am working on it,” Brown responded, according to documents filed yesterday by PG&E with the commission. Brown couldn’t immediately be reached for comment through the CPUC.

Peevey said in an interview yesterday that accusations he is biased toward PG&E are “totally spurious” and that he volunteered to step down “for reasons of public confidence.”

The CPUC is considering possible penalties against PG&E for violating the rules, it said in its statement.

PG&E, owner of the state’s largest utility, said yesterday that three executives in its regulatory division “will no longer be employed” by the company after its internal review, and its compliance practices will be strengthened.

“As a company, we must be committed to complying with both the letter and the spirit of the law,” Chairman and Chief Executive Officer Tony Earley said in the statement. “No excuses.”

Even before yesterday’s announcement, the San Bruno investigation “has been like a reality TV show,” said Kit Konolige, a New York-based analyst for investment bank BGC Partners LP.

Two key commission executives left earlier this year after being caught in controversies related to the investigation, a prominent former statesman and mediator was appointed and then withdrew because of protests, and four staff lawyers were dropped from the case after disagreements with their boss, then reinstated a few weeks later, according to statements from the CPUC.

“I hope we’ve cleaned out the closet and all the skeletons are out,” said Commissioner Michael Florio after yesterday’s moves.

At the centre of the spectacle has been the question of how much PG&E should be punished for the accident that federal investigators concluded was caused by the utility’s poor management, maintenance and record-keeping.

PG&E has tagged $2.7billion for upgrading its ageing pipeline network, settled claims of more than $500million with the victims and families and given $120million to the city of San Bruno. Shouldering an additional $1.4billion in fines as currently proposed would bring the total cost to PG&E shareholders to about $4.7billion, the company said.

San Bruno officials and consumer advocates want PG&E’s shareholders to pay still more for the company’s past mismanagement, bearing the main cost of fixing its pipes.

It’s been a personal matter for some employees at the CPUC. Jacqueline Greig, a two-decade veteran of the agency, was killed in the San Bruno blast along with her 13-year-old daughter.

From the start, consumer advocates have accused Peevey, who worked more than a decade for another California utility, of being too sympathetic to PG&E. When commissioners brought in George Mitchell, the former Senator who’d helped broker peace in Northern Island, to help mediate a settlement, San Bruno officials protested Mitchell’s law firm had a conflict of interest, and so he withdrew.

In 2012, the commission hired Jack Hagan, a former US Marine Corps Infantry officer, to head its beleaguered safety division. He printed his motto on his new business cards: “No one dies on my watch.”

Tensions erupted in June 2013 when some of the CPUC staff attorneys objected to Hagan’s $2.25billion proposed penalty because they wanted a stiffer fine, Hagan said in an interview. The attorneys were reassigned after the dispute, according to the CPUC. Hagan said that his results-oriented style clashed with the commission’s process-driven culture.

By the end of the month, the staff attorneys were back on the job, working with Hagan to forge a new proposal for a $2.25billion penalty that included a $300million fine to be paid to the state and about $1.95billion of shareholder funds spent on planned pipeline work.

The commission’s general counsel, Frank Lindh, a former attorney with PG&E, backed Hagan in the internal dispute, Hagan said. Lindh recused himself from the investigation and then left the agency for a job in a local law office, according to the CPUC. Lindh declined to comment through a spokeswoman for his new employer, Crowell & Morning LLP. Hagan retired from the Commission in January.

While two state administrative judges reviewed the case for a final recommendation, CPUC critics refocused their attention on Peevey. San Bruno’s own digging turned up e-mails between the agency and PG&E, including one from Peevey critiquing the utility’s public relations effort, according to documents provided by the city and the CPUC. San Bruno demanded Peevey’s resignation, but in their review of the case, the two administrative judges ruled earlier this month that there was no proof Peevey was biased or needed to recuse himself.

In a separate ruling, the judges recommended the $1.4 billion penalty after taking all the previous fine proposals into consideration. It was nearly a billion less than the CPUC staff proposal, but included a higher fine that wouldn’t be tax deductible for the company. The new penalty, like all the others, has come under criticism from several directions, including PG&E’s protest that it’s too harsh.

With Peevey recused, four CPUC commissioners will now make the final decision on the penalty.

“Hopefully we will come out with a decision that people perceive as fair, but I think chances of that are pretty slim at this point,” Commissioner Florio said. “People are so polarized.”