State regulator says PG&E may be too big to operate safely

At a meeting California Public Utilities Commissioner Michael Picker asked “Is [PG&E] simply too large — spread across a sizable portion of a large state, and encompassing diverse functions such as both gas transmission and gas distribution, as well as electric service — to succeed at safety?” less At a meeting California Public Utilities Commissioner Michael Picker asked “Is [PG&E] simply too large — spread across a sizable portion of a large state, and encompassing diverse functions such as ... more Photo: Jeff Chiu / Associated Press Photo: Jeff Chiu / Associated Press Image 1 of / 93 Caption Close State regulator says PG&E may be too big to operate safely 1 / 93 Back to Gallery

Minutes after the California Public Utilities Commission levied a record $1.6 billion penalty against Pacific Gas and Electric Co. on Thursday for the deadly San Bruno pipeline explosion, the state’s top regulator said the utility is still plagued by gas-system problems, shrugs off even the harshest sanctions and may be too big to operate safely.

Despite promising to make reforms after the September 2010 blast that killed eight people and leveled 38 homes, PG&E has been cited repeatedly in recent years for violating natural-gas safety regulations, commission President Michael Picker noted at the panel’s meeting in San Francisco.

“If PG&E is failing to establish a safety culture, and we continue to see more accidents and violations, what are our tools?” Picker said, pointing to a chart showing that safety citations skyrocketed in 2013.

“Is the organization simply too large — spread across a sizable portion of a large state, and encompassing diverse functions such as both gas transmission and gas distribution, as well as electric service — to succeed at safety?” Picker said.

Picker said the state’s lawyers would look into the question, and gave no details about what steps the commission might take. But he suggested that PG&E’s profitability made it immune, even to hefty penalties such as the one the utilities commission approved Thursday on a 4-0 vote.

Pipeline upgrades

The $1.6 billion sanction — the largest penalty against a pipeline operator in U.S. history — forces shareholders to pay for $850 million in pipeline upgrades. The company must also issue $400 million in rebates to customers and pay a $300 million fine to the state’s general fund.

PG&E said it would not appeal the penalty, which also requires it to set aside $50 million for safety measures and to pay for more rigorous auditing of its pipeline system.

Picker noted that after he announced the proposed penalty last month, PG&E’s stock rose 3 percent.

PG&E shareholders “simply may be abdicating their responsibility to hold their board of directors accountable to state laws and rules, knowing that we have an interest in limiting our sanctions to levels that they, as owners, can live with, so as to avoid impacts on ratepayers as well,” Picker said. “Capital markets, then, are treating fines and penalties as a cost of doing business.”

No accountability

He asked whether PG&E’s board of directors or executive officers “feel CPUC sanctions directly. Is there anyone there in the company who is accountable for the impact of our fines and penalties?”

Picker noted that Peter Darbee, “the CEO who held that position at the time of the San Bruno incident, and during cuts in funding for pipeline replacement and inspection programs, retired with a reported $38 million bonus. The president of PG&E at the time of the San Bruno incident (Chris Johns) is still the president. Who’s accountable?”

Picker said he wants to know what can be done to penalize PG&E executives for safety failures rather than just fining the company. He also said he would seek an investigation of “the safety culture and practice of PG&E.”

Picker, a former renewable-energy adviser to Gov. Jerry Brown, was appointed to the utilities commission in January 2014, well after the agency came under fire from federal safety investigators who found it had done little before the San Bruno disaster to ensure PG&E was running a safe system.

Brown named Picker as the utilities commission president in December after Michael Peevey decided not to seek a third six-year term at the agency’s helm. In Peevey’s final months, e-mails made public revealed that top agency officials had worked to help satisfy PG&E executives’ requests in rate-setting cases, and suggested that Peevey had offered favorable treatment in exchange for the utility’s cooperation on his pet projects.

Federal and state prosecutors have opened investigations into whether utilities commission officials violated laws.

In a statement responding to Picker’s remarks, PG&E said it welcomed “an ongoing discussion focused on safety.”

“We want our customers and their families to know that all of us at PG&E have committed ourselves to a goal of transforming this company into the safest and most reliable energy provider in America,” the statement said.

State senator weighs in

“We’ve hired some of the best experts in the country to help guide this effort and we’ve supported it with billions of dollars in shareholder funded investments in gas safety. We’ve made tremendous progress but we have more to do, and we are committed to doing it right.”

A longtime critic of the commission, state Sen. Jerry Hill, D-San Mateo, welcomed Picker’s comments.

“He sees a problem with PG&E’s structure and their lack of safety, and he wants to explore possible ways to solve the problem, whether it’s breaking up the company or clawing back salaries,” Hill said. “He’s obviously concerned that what they have done is not good enough.”

In levying the $1.6 billion penalty for the San Bruno explosion, commissioners cited PG&E’s shoddy records, reckless practices and numerous safety violations leading up to the disaster.

The 30-inch pipeline exploded when an incomplete seam weld that PG&E didn’t even know existed ruptured. Company records showed that the 1950s-era pipe had no seams, so PG&E never conducted the type of inspection that could have caught a flawed weld.

Regulators found that PG&E had cut pipeline-safety spending during years when it was making record profits, and had violated federal regulations by manipulating the pressure on the San Bruno line and other pipelines to avoid inspections that could have prevented the disaster.

Since the explosion, the utilities commission has issued a number of citations against PG&E for gas-safety violations. In November, it fined the utility $10.8 million for a 2013 explosion that leveled an unoccupied cottage in Carmel. The blast was caused by a work crew that had relied on inaccurate pipeline records.

In 2012, the commission levied a $20 million fine against PG&E for failing to conduct federally mandated checks for gas-line leaks in seven East Bay communities and for missing a deadline to turn over pipeline safety records.

Criminal case

The San Bruno penalty is not the only one the company faces stemming from the 2010 blast. Last year, a federal grand jury indicted PG&E on charges of violating pipeline-safety regulations and obstructing justice. The case could result in PG&E being fined more than $1 billion.

Prosecutors say the company intentionally misled federal investigators probing the explosion. The company lied, prosecutors contend, when it denied having a policy to skirt inspections that federal law requires when pressures surge above authorized levels on older, at-risk lines.

The city of San Bruno has sought an independent monitor for PG&E’s operations, and says the punishment agreed to by the commission does not compensate the city for more than $200,000 it spent on regulatory battles over safety.

22 homes rebuilt

Only 22 of the 38 homes destroyed in the explosion have been rebuilt. One of those who have moved back in, retired San Bruno fire Battalion Chief Robert Hensel, said he is glad the regulatory fight is finally over but skeptical the utilities commission will hold PG&E accountable in the future.

“They didn’t do it before,” Hensel said. “I do not know if they will now. It was their job all along.”

Before the vote Thursday, the commissioners heard from Sue Bullis, whose husband, teenage son and mother-in-law were killed in the explosion. Their deaths were the result of “criminal negligence and indifference,” Bullis said.

She said she has no confidence that PG&E will run a safe system, and endorsed San Bruno’s call for an independent monitor.

“I blame PG&E; I blame the CPUC,” she said. “This must not happen again.”

Jaxon Van Derbeken is a San Francisco Chronicle staff writer. E-mail: jvanderbeken@sfchronicle.com