California seeks $2.25 billion fine against PG&E for gas pipeline explosion

By CASSANDRA SWEET

SAN FRANCISCO -- PG&E should pay $2.25 billion in penalties for a 2010 natural gas pipeline explosion in San Bruno, California, that killed eight people and damaged more than 100 homes, state investigators and San Bruno officials said.

In their recommendations to California's utility regulator, the state and the city differed on the details, but both argued that PG&E violated federal and state safety rules.

PG&E, based in San Francisco, has admitted liability for the blast but said proposed penalties were out of line.

Both the state and the San Bruno proposals to the California Public Utilities Commission (CPUC) include $1 billion that the commission already has ordered PG&E to spend on overhauling its pipelines.

State investigators recommended that on top of that, PG&E pay $1.25 billion in penalties to cover much of the cost of safety improvements to its pipelines ordered by the utility regulator in December, that otherwise would be covered mainly by PG&E customers through fees.

A fine of that size would "send a message that safety is a top priority and that gross negligence and recklessness will not be tolerated," San Bruno Mayor Jim Ruane said at a news conference. "We believe if there's any case for punishing a utility for unprecedented bad behavior, it is this one."

San Bruno officials argued the fine is commensurate with the scale of the disaster and alleged missteps by PG&E that led to the explosion. Federal and state investigators have blamed PG&E for the blast, saying the company mismanaged its aging pipeline system for decades.

"I understand the desire to punish PG&E," CEO Anthony Earley said in a news release. "However, the penalties proposed, far exceed anything that I have seen in my 30 years in the industry and fail to appropriately account for the actions taken by the company."

PG&E has admitted liability for the blast in public statements and in radio and TV ads. But in legal documents filed with the state utilities commission, it denied most of the state's allegations that it violated safety rules.

The utilities commission isn't required to act on recommendations and can make its own decision about what, if any, fines it will impose on PG&E. The company has set aside $200 million to pay for potential penalties.

Mr. Earley, speaking at a news conference after PG&E's annual shareholder meeting, said the company has spent more than $1.5 billion on pipeline related costs since the blast. He added he hopes the state commission takes that into account when it decides penalties. "The company has already paid a very heavy price," Mr. Earley said, adding that the fine sought by San Bruno was "unrealistic."

Mr. Earley, who was hired after the blast, has said in interviews and in an ad campaign that PG&E had "lost its way" before the accident and now was focused on beefing up safety.

But company attorneys and representatives sounded a different note in testimony and documents filed with the state utilities commission in January, arguing that the PG&E did nearly everything it was supposed to and followed most safety rules.

"PG&E deeply regrets the accident of September 9, 2010, and acknowledges practices could have been better but, at the time, its gas operations were in line with common practice and regulatory requirements," the utility said in January.

Some blast victims say they are still struggling to lead normal lives. On the day of the explosion, Bill Magoolaghan's wife, Betty, and the couple's three children ran for their lives as a fire sparked by the blast raced toward their San Bruno home.

Mr. Magoolaghan said in an interview that the children, now 8, 6 and 4 years old, still have daily nightmares and are easily frightened by images of fire. He agreed with San Bruno officials that PG&E should pay a large fine, hoping it would serve to prevent future disasters.

"It's critical to have harsh penalties when you've killed eight people and destroyed a neighborhood," he said.

Dow Jones Newswires