Multi-billion dollar fine for pipeline blast too high says PG&E

The CPUC's safety and enforcement division recommended the penalty on May 6 for three cases related to the explosion that killed eight people and leveled dozens of houses on Sept. 9, 2010. Investigators have attributed the blast to flaws in the section of pipe that failed in the blast.

If the commission approves the recommendation in a decision expected late this summer, it would be the largest fine ever levied by a state regulator in the U.S., CPUC officials said.

In a response filed Friday, PG&E said that while a penalty is justified, the proposed fine was unjustifiably high because the accident was "not the result of willful or knowing violations of state law, federal standard, or Commission orders, policies or directives.

"The evidence does not show that PG&E could have known or should have detected that defective pipe had been erroneously installed in 1956," the filing said. "The evidence does not show that any integrity management program, even one that was perfectly implemented based on federal and state regulations, would have discovered the defective pipe or prevented the accident."

In addition, PG&E officials argue that shareholders have already paid around $900 million for gas transmission safety work since the San Bruno blast and made extensive changes to the management and structure of the company.

PG&E also expects to spend another $1.3 billion in gas transmission costs that cannot be recovered from consumers in 2013 and after, and those costs should be applied toward any penalty that is imposed, company officials argued.

CPUC officials have recommended that the money from any penalty be used solely for safety purposes to improve the utility's infrastructure and would include costs of safety work already done since 2010. The money would come out of shareholder funds rather than from ratepayers.

San Bruno city officials had also called for the $2.25 billion number, while the watchdog group Utility Reform Network had recommended a smaller fine of $1.7 billion.

The largest safety-related fine ever issued by the CPUC was a $38 million penalty against PG&E for a deadly explosion in Rancho Cordova on Dec. 24, 2008.

The largest penalty under national pipeline laws was $101.5 million for an explosion on the El Paso Natural Gas pipeline in New Mexico, CPUC officials said.

Commission staff is expected to file any replies to PG&E on June 5 before the commission makes its decision late this summer.

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