CPUC Investigations into San Bruno Explosion and
Gas Pipeline Safety Violations: Fines and Remedies
On September 9, 2010, a 30-inch gas transmission pipeline owned and operated by PG&E ruptured and caused an enormous fire that killed eight people, injured 58 others, and destroyed or damaged over a hundred homes in a San Bruno, CA neighborhood. In the wake of the San Bruno explosion, the CPUC opened three separate investigations into PG&E’s failure to comply with pipeline safety requirements:
- San Bruno Investigation: In January 2012, the CPUC opened an Investigation to determine whether PG&E violated state safety laws and whether its actions and practices contributed to the San Bruno pipeline explosion.
- Recordkeeping: In February 2011, the CPUC opened an Investigation to determine whether PG&E violated state law by failing to maintain pipeline records necessary for safe operation its transmission gas system. The CPUC defined gas safety recordkeeping to mean “PG&E’s acquisition, maintenance, organization, safekeeping, and efficient retrieval of data that the Commission finds is necessary and appropriate under the circumstances for PG&E to make good and safe gas engineering decisions, and thus to promote safety as required by Section 451 of the California Public Utilities Code.”
- Pipeline Safety in High Density Areas: In November 2011, the CPUC opened an Investigation to determine whether PG&E violated state and federal regulations by failing to survey population changes in its service territory and to meet safety requirements applicable to high density areas. More stringent safety requirements apply to densely populated areas. Federal and state laws require gas utilities to monitor changes in population density in their service territories and to reduce gas pressure or strengthen pipe to mitigate potential dangers in highly populated areas.
The CPUC will determine whether fines and other forms of penalties are appropriate and the magnitude of those fines.
CPUC Safety Enforcement Division Recommendations
In May 2013, the CPUC’s Safety and Enforcement Division (SED), formerly the Consumer Protection and Safety Division (CPSD), filed its Opening Brief recommending the fines and other remedies that should be imposed on PG&E for its violations of state and federal law and regulations, and industry standards. On July 16, 2013, SED filed an Amendment to its Reply Brief, recommending the CPUC impose a $2.25 billion “penalty” on PG&E for thousands of safety violations revealed in the CPUC’s three Investigations, broken down as follows:
- $300 million minimum fine, to be paid immediately to the California state general fund.
- $1.95 billion to pay costs that would otherwise be paid by ratepayers for PG&E’s first phase of pipeline safety upgrades.
- Any remaining money from the penalty, after paying for the first phase of the PSEP, would be used to relieve ratepayers from future costs of pipeline safety upgrades after the first phase of replacements and repairs are completed.
CPUC Presiding Officer Decisions
On September 2, 2014, the CPUC issued four Presiding Officer Decisions (PODs) recommending fines, penalties, and other remedies to account for the 3,798 violations of federal and state laws and regulations and industry standards in the operation of its natural gas transmission system, which were calculated to have occurred over a total of 18,447,803 days:
Finds PG&E committed 32 violations related to the San Bruno explosion, with many continuing over multiple decades for a total of 59,255 separate offenses. The 32 violations included PG&E’s failure to conduct a post-installation hydrotest on the segment responsible for the explosion (Segment 180 of Line 132), which commenced in 1956 when the segment was installed and continued until the explosion on September 9, 2010. Other violations include PG&E’s failure to visually inspect the segment prior to putting it into service as the faults in the segment were visible to the naked eye, and PG&E’s failure to perform various tests and inspections over the years to determine the condition of Segment 180.
Finds PG&E committed 33 violations related to gas transmission recordkeeping, with many continuing over multiple decades for a total of 350,189 separate offenses. The 33 violations included PG&E’s failure to have accurate and sufficient records to identify the use of salvaged pipe in its system, failure to retain necessary design and construction records for many segments in its system, and failure to retain pressure test records for many segments in its system.
Finds PG&E committed 3,643 violations related to properly identifying the class location (which is related to the population of the area around a gas line) of the gas transmission system, with many violations continuing over many decades for a total of more than 18 million separate offenses. The 3,643 violations were segment-specific and include PG&E’s failure to follow its own rules to identify segments with increasing population density, to identify changes in population density around segments, and misclassification of 224 segments. In many cases, PG&E has been operating pipelines at higher stresses and lower safety margins than allowed under state and federal safety regulations.
Finds PG&E shareholders should face combined fines and penalties totaling $1.4 billion.
- $950 million fine paid to the state’s general fund.
- $400 million disallowance for Phase 1 of PG&E’s Pipeline Safety Enhancement Plan (covering 2011-2014).
- $50 million paid to implement more than 75 remedies to enhance pipeline safety.
- Includes $30 million for the CPUC to hire independent auditors, emergency training, and to establish a centralized database to track the location and use of salvaged pipe in PG&E’s system.
CPUC Modified Presiding Officer Decision and Decision Different
On March 13, 2015, the CPUC issued a modified Presiding Officer Decisions (Mod POD) as well as Commissioner Picker’s Decision Different.
Modified Presiding Officer Decisions
Clarified and corrected some errors but retained the same fines and remedies as the original PODs.
- Increased the fines and remedies to $1.6 billion to be funded by PG&E shareholders.
- $300 million fine payable to the state’s General Fund (as compared to the Mod POD $950 million fine).
- $400 million rate reduction or refund to PG&E ratepayers for the costs of remedial work PG&E performed at ratepayer expense.
- $850 million (up to $161.5 million to be spent on expense projects, with the rest on capital projects) of shareholder funding for future gas safety improvements.
- $50 million for PG&E to implement over 75 remedies proposed by the CPUC’s safety division (CPSD, now known as SED).
The Decision Different also provides for:
- An independent auditor, paid for by PG&E shareholders but directed by the CPUC’s Safety and Enforcement Division.
- Review of projects covered under the $850 million of shareholder funding.
- Only provides legal fee compensation to TURN, but not other parties.
- All future reviews of PG&E spending will occur either through the PG&E General Rate Case (GRC) or Gas Transmission and Storage case (GT&S).
Comments on the CPUC's proposals are due on April 1, 2015.
ORA supports the findings in the CPUC’s Presiding Officer Decisions (PODs) that PG&E should pay the costs of pipeline safety upgrades, that PG&E should reimburse certain parties’ legal costs, and that PG&E should be significantly fined as an important incentive to keep its pipelines safe in the future.
However, ORA finds that PG&E customers would not benefit from such a large fine going to the general fund, which would result in PG&E customers paying more for future pipeline improvements required by PG&E’s poor management of its natural gas system. Instead it would be more beneficial if PG&E shareholders were required to invest a larger portion of the proposed fines back into pipeline upgrades. In response to the CPUC’s POD on Fines and Remedies, ORA jointly appealed with TURN and the City and County of San Francisco recommending the CPUC:
- Reduce the $950 fine paid to the General Fund to $473 million.
- Increase the disallowance to PG&E for its Pipeline Safety Enhancement Plan to $877 million.
- Clarify that ratepayers will not pay for PG&E’s legal expenses or reimbursement of the intervenors’ litigation costs related to the San Bruno explosion.
See ORA’s October 2, 2014 Appeal of the Presiding Officer’s Decisions, jointly filed with The Utility Reform Network and the City and County of San Francisco.
See ORA’s October 27, 2014 Response to Appeals and Requests for Review, jointly filed with The Utility Reform Network and the City and County of San Francisco.
The CPUC’s PODs are otherwise generally consistent with ORA’s earlier recommendations that the CPUC should impose a pre-tax $2.5 billion penalty with a $550 million fine going to the state’s general fund.
See ORA’s May 6, 2013 Opening Brief on the San Bruno Investigation.
See ORA’s July 23, 2013 Reply Brief on the San Bruno Investigation.
See ORA’s March 25, 2013 Opening Brief on the Recordkeeping Investigation.
See ORA’s April 24, 2013 Reply Brief on the Recordkeeping Investigation.
See the Proceeding docket on the San Bruno Investigation.
See the Proceeding docket on Recordkeeping Investigation.
See the Proceeding docket on Pipeline Classification Investigation on High Population Density Areas.
ORA PG&E Pipeline Safety Plan Webpage
ORA / TURN Op Ed, "PG&E Penalties are Reasonable and Will Benefit Ratepayers," San Francisco Chronicle, February 5, 2014.
CPUC Press Release on its Safety Enforcement Decision penalties, May 6, 2013.