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Does $3 million settlement deal with PG&E reflect a culture change?

By Samuel S. Kang

On Monday, the California Public Utilities Commission will consider whether to accept a deal the commission’s staff negotiated with Pacific Gas and Electric over the utility giant’s failure to maintain and provide adequate pipeline safety records. The CPUC’s request for the record stems from last September’s gas pipeline explosion in San Bruno that killed eight people and incinerated 38 homes.

Prior to the settlement, CPUC Executive Director Paul Clanon stated that the commission’s goal was “for PG&E to change its internal culture.” Clanon told the San Jose Mercury News that “San Bruno was the game changer” that necessitated this culture change.

The deal that the commission negotiated calls for a $3 million fine now and another $3 million fine this summer if PG&E still doesn’t manage to come up with the records. Will $6 million (and perhaps as little as $3 million) motivate PG&E to undertake a “culture change”?

Let’s put this in perspective.

San Francisco City Attorney Dennis Herrera has noted that $3 million is about what PG&E makes in two hours. It’s about 7 percent of what the company spent on its unsuccessful and ill-conceived campaign to pass Proposition 16 last year.

Here’s another way to look at this: The company is still paying quarterly dividends of 45 cents a share. With about 392 million shares outstanding, the proposed fine is less than 2 percent of what the company is paying its shareholders each quarter.

Based simply on the numbers, it is difficult to see how a $3 million or even a $6 million settlement lives up to Clanon’s goal of a “culture change.” However, Clanon did tell the media that the commission staff agreed to the deal because “we don’t want to spend months in litigation.”

PG&E could indeed choose to fight rather than pay a larger fine, but under the circumstances, would PG&E want to risk further damage to its reputation by fighting? If PG&E chooses to drag this out, it is hard to see how it would win, regardless of the outcome. PG&E could lose in litigation and have to pay the fine anyway, or suffer perhaps irreparable damage to its already badly bruised public image from “winning” a reduced judgment.

PG&E should focus on winning back public trust and restrain itself from engaging in another fight. No one would win that fight, most certainly not PG&E.

As for the commission, it should be responsive to public criticisms that the proposed settlement does not reflect the commission’s promises. Clanon promised “culture change.” Now the commission must deliver. While it is difficult for an observer to say what the exact penalties should be, the commission’s sanctions should be tough enough and carefully structured to motivate PG&E to permanently alter its operations and record-keeping so that customers feel safe and secure. That’s culture change.

Just as importantly, the commission must help the public understand how this will happen.

Even though this is only the start of what are expected to be comprehensive investigations, falling short of culture change on the front end might invite other enforcement entities to take a stronger stance. For example, the San Francisco City Attorney and the state Attorney General’s Office have made it clear that they are watching this issue very closely. Not doing enough may risk having the commission’s leadership usurped. That would not be beneficial for PG&E or PG&E’s customers.

Although the interest shown by other enforcement agencies is laudable, their ability to comprehensively advocate for the needs of utility ratepayers is much more limited than the commission’s. The commission must continue to lead on this issue because it is the agency that is best positioned to protect ratepayers and maintain accountability in the long term. In fact, that’s one of the commission’s core tasks.

The public’s trust in the CPUC is at stake here. PG&E’s customers, especially the residents of San Bruno, deserve a just and comprehensive resolution. There is no reason why the CPUC and PG&E can’t achieve both.


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