Prosecutors in PG&E case abruptly reduce potential fines

A Daly City firefighter stands atop an engine to survey the fire on Claremont Drive in San Bruno, where a suspected explosion in a gas line ignited the area.A Daly City firefighter stands atop an engine to survey the carnage of the gas pipeline explosion. less A Daly City firefighter stands atop an engine to survey the fire on Claremont Drive in San Bruno, where a suspected explosion in a gas line ignited the area.A Daly City firefighter stands atop an engine to ... more Photo: Brant Ward / The Chronicle 2010 Photo: Brant Ward / The Chronicle 2010 Image 1 of / 3 Caption Close Prosecutors in PG&E case abruptly reduce potential fines 1 / 3 Back to Gallery

Abruptly and without explanation, federal prosecutors slashed potential criminal penalties for Pacific Gas and Electric Co. from $562 million to $6 million Tuesday while a jury was considering whether the company violated safety laws both before and after the lethal 2010 gas pipeline explosion in San Bruno.

The decision was made public in a court filing as both sides awaited the jury’s verdict in federal court in San Francisco.

Prosecutors had maintained, in filings before and during the trial, that California’s largest utility could be punished for any convictions with penalties equal to twice the amount it saved by shortcutting safety laws. They said those savings could be measured by the $281 million that PG&E estimated it would cost to comply with safety standards after the San Bruno explosion — leading to a potential fine of $562 million if the federal jury in San Francisco returned guilty verdicts.

Jurors would have considered the penalties in a second phase of the trial. But during the fourth day of jury deliberations, the U.S. attorney’s office, in a one-sentence court filing, withdrew its request for penalties based on the company’s financial gains. The office declined to comment on the reason for the filing.

As a result, the maximum fine would be $500,000 per conviction, or $6 million for all 12 counts. U.S. District Judge Thelton Henderson, who signed off on the prosecution’s decision later in the day, will determine the fines for any convictions.

PG&E had argued that a post-conviction penalty phase would be needlessly time-consuming and pointless, and prosecutors apparently conceded the point by offering no written rebuttal with Tuesday’s filing.

Henderson had issued rulings, most recently last week, that would have limited the evidence prosecutors could have used in a penalty phase to tie PG&E’s profits to safety violations charged in the case. One ruling upheld the company’s argument that safety standards set by state regulators shouldn’t be used to measure PG&E’s allegedly improper cost-cutting. But it wasn’t clear why prosecutors had maintained their intention to seek the higher penalties throughout the trial, only to back off during jury deliberations.

“The timing is odd,” said David Levine, a professor of criminal law at UC Hastings in San Francisco. When prosecutors reduce the punishment they have sought in a case, he said, they usually demand something in return, like guilty pleas to some of the charges.

“If it was so obvious that the government would just acquiesce, why in the world would they have gone down that path as part of their theory of the case?” Levine asked.

PG&E did not comment directly on its legal victory, issuing only a statement similar to those it has made earlier in the case: “Regardless of this action or the next legal steps, we want our customers and their families to know that we are committed to re-earning their trust by acting with integrity and working around the clock to provide them with energy that is safe, reliable, affordable and clean.”

The state Public Utilities Commission has already fined PG&E a record $1.6 billion for the September 2010 explosion and fire caused by a defective pipeline seam that killed eight people and destroyed 38 homes in San Bruno. The fines, and any penalties in the criminal case, are charged to the utility’s shareholders rather than its ratepayers.

In the criminal prosecution, PG&E is accused of 11 felony violations of laws that require gas pipeline operators to inspect their lines closely for potential risks, and to test or replace lines that show signs of hazards and maintain accurate records.

The company is also charged with obstructing the federal investigation of the explosion by falsely denying, in an April 2011 letter to investigators, that it had a policy of propelling gas through the San Bruno pipeline and other aging lines at pressures up to 10 percent above the legal limits. PG&E denies ever implementing such a policy.

During a 5½-week trial, numerous prosecution witnesses, most of them former or current PG&E employees, testified that the company had cut costs by using less-expensive inspection methods that could not detect internal welding flaws like the one that caused the San Bruno explosion.

Federal law allows prosecutors to seek fines of up to twice the amount of a company’s gain from pipeline-safety violations, unless such an inquiry would “unduly complicate or prolong” the sentencing. In court filings, PG&E argued that it would be virtually impossible for a jury to calculate its savings as the result of any alleged criminal violation and urged Henderson to rule out the additional penalties.

While prosecutors contended PG&E’s unsafe practices affected its entire pipeline system, the company said the charges, and potential convictions, were limited to specific pipeline segments that allegedly were improperly inspected or tested.

To produce a reliable assessment of ill-gotten gains, prosecutors “would have to devise a method of isolating cost savings that allegedly resulted from the particular knowing and willful violations on which PG&E is convicted,” the company’s lawyers said in a court filing Monday.

The prosecution’s claim of $281 million in illicit profits is based on a “blunderbuss approach” that covers the entire pipeline system and is unconnected to the specific charges, the lawyers argued. They said a penalty phase would be lengthy and complicated, with dueling financial experts, and would most likely end in fines lower than $500,000 per count, the maximum a judge could impose based solely on the convictions.

Bob Egelko is a San Francisco Chronicle staff writer. Email: begelko@sfchronicle.com