(*This story was updated at 11:37 a.m. to remove a misattribution to PSERS Spokesman Steve Esack.)

When Pennsylvania fined the natural gas pipeline owner Energy Transfer Partners a record $30 million last month, the penalty didn’t just hit the company’s bottom line.

The financial impact also dings Dallas-based Energy Transfer Partners’ investors, who include tens of thousands of retired public employees.

According to an annual report released last November by the Pennsylvania School Employees Retirement System, the teachers’ pension fund has $336 million dollars worth of stock invested in the controversial pipeline company. That’s the pensions’ third biggest holding of a single U.S.-based publicly traded asset.

Pension officials defend the investments as part of a balanced portfolio to safeguard retirees’ future. But in the face of sagging stock prices and regulatory run-ins, lawmakers and environmental activists aren’t so sure.

Energy Transfer Partners, or ETP, is the company building the Mariner East 2 pipeline, which will bring fracked natural gas from western Pennsylvania to its export facility in Delaware County, south of Philadelphia.

Regulators have fined and halted Mariner East’s construction multiple times because of sinkholes and water contamination linked to the project.

Pennsylvania’s continued financial ties to a company that’s flouted state regulations raised questions for lawmakers whose constituents live near the pipeline’s path.

“Pennsylvania residents have lost their homes and their water due to irresponsible corporate practices,” Rep. Leanne Krueger, D-Delaware, said in a statement to the Capital-Star. “I can think of no good reason why our pension funds should remain a shareholder in this public company, especially when the value of the stock has fallen over the course of this project.”

This isn’t the first time Krueger has criticized PSERS’ investments in Energy Transfer Partners. In 2016, she called for the pension fund to divest from the pipeline company because of its treatment of Native American protesters during protests at the Standing Rock reservation.

When Krueger put out her initial call, the stock price was $16.16 a share. The price is now $12.62 a share.

ETP has at least three separate pipelines in Pennsylvania. That includes the Revolution pipeline in western Pennsylvania. It exploded in Beaver County in September 2018.

No one was hurt. But the blast epitomized concerns for suburbanites who fear a similar explosion of Mariner East 2, which winds through Philadelphia’s collar counties, could injure — or worse — scores of people.

In response to the Revolution explosion, state regulators halted all permitting for ETP projects for almost a year before issuing January’s record fine.

January’s $30 million fine was not the first against the company. It’s paid at least $45 million in penalties to Pennsylvania since 2018.

Steve Esack, a spokesperson for PSERS, added that “there are no plans at this time to disinvest” from ETP.

He added that the pension fund “understands and respects the feelings of Pennsylvania citizens who do not like seeing pipelines being installed in their communities. Pipeline opponents have spoken at our public meetings and written to our Twitter page. We welcome their comments.”

“However, we also understand and respect how the gas industry has provided much-needed income and jobs to other parts of the Commonwealth,” Esack added. “We’ve welcomed their comments, too.”

PSERS owns $59 billion in assets, and cuts the retirement checks for roughly 237,000 retired teachers and other school employees.

Pennsylvania’s other pension fund, the smaller State Employees’ Retirement System, also has investments in Energy Transfer Partners. They total a little more than $3 million in stock.

But the investments are not among their top ten U.S. equities. Instead, SERS’ top stocks are blue chippers, such as Microsoft, Facebook and JP Morgan, according to a report prepared by the pension system for the Capital-Star.

‘Insensitive’ and ‘foolish’

PSERS’ investments in pipelines don’t end with Energy Transfer Partners.

In fact, according to their annual report, eight of PSERS’ largest U.S. stock holdings — $1.4 billion worth — are in the natural gas industry.

Seven are pipeline companies, while an eighth holding is in Cheniere Energy, a Houston-based company that exports liquified natural gas to foreign countries.

On top of the $336 million in Energy Transfer Partners, other pipeline investments include:

$340.6 million in Enterprise Products Partners

$184.9 million in Williams Partners

$175.6 million in Plains All American Pipeline

$100.2 million in MPLX

$95.6 million in Targa Resources Corp.

$77.8 million in Magellan Midstream Partners

Three of the top companies in which PSERS is invested — Houston-based Enterprise and Plains as well as Tulsa-based Williams — operate in Pennsylvania.

The idea of the state both banking on a company’s stock for employees’ retirement while regulating it troubled some activists, such as Karen Feridun, who co-founded the statewide climate action-focused Better Path Coalition.

“I don’t think they should be investing in any fossil fuels, [and] certainly not ones investing in Pennsylvania,” Feridun, told the Capital-Star.

Esack said that any accusation of a conflict between pension investments and permitting was “absurd.”

“We are not under the jurisdiction of the governor’s office … or any other governmental body that may regulate pipelines or another industry or business in which PSERS invests,” Esack said. “PSERS, like every other investor, has no insight or control over state, federal or international inspections and regulations of an industry or business.”

The pension fund owns billions of dollars in natural gas stocks because some natural gas companies organize under a special set of rules that set them apart from a run-of-the-mill stock on the S&P 500.

Only companies that process natural resources, such as oil and gas, can use this special legal structure, known as a master limited partnership. It lets them sell stock while not paying income taxes, like normal corporations.

Chasing returns for retirees, PSERS invests $2.2 billion into these companies alone, “due to their attractive current yields, reasonable growth potential, and ability to diversify [our] total portfolio risk,” according to its annual report.

The pipeline industry is expanding to accommodate rising demand for gas both in the United States and overseas.

But PSERS dollars in these natural gas companies grew by just 1.6 percent last year. The annual report listed the sluggish returns as one “significant detractor” from meeting its financial goals.

Regardless of Energy Transfer Partners’ regulatory issues, Feridun argued, the poor returns should convince Pennsylvania to dump its natural gas stocks.

“It’s an industry that’s not doing well. it’s not just an insensitive investment, but a foolish one,” Feridun said.