The right course for PG&E’S ‘penalty’

It seems rather odd to even call it a “penalty.” The Consumer Protection and Safety Division of the California Public Utilities Commission is recommending that the “punishment” for Pacific Gas and Electric Co.’s decades of insufficient attention to safety should be to spend $2.25 billion to do what it should have been doing all along.

Still, this is the right course of action. The dollars are significant, and they will be directed exactly at where they are needed: toward safety enhancements that should greatly reduce the chances of a repetition of the September 2010 pipeline disaster in San Bruno that left eight people dead, dozens injured and 38 homes destroyed.

This “penalty,” immediately cited as the largest against a utility in U.S. history, will ensure that PG&E will continue investing heavily in making its system the state of the art in pipeline safety. It will allow the utility to receive credit for the more than $1 billion it has spent or committed for safety upgrades, which is reasonable.

Most important, the PUC is recommending that the money come out from shareholders, not ratepayers — in that sense, the order does amount to a penalty.

The scale of the forced commitment also is appropriate. It matches the figure an independent consultant calculated that PG&E shareholders could absorb without putting the utility in danger of bankruptcy.

As much as some PG&E critics might want to punish the utility by hitting it with a fine — in which the money would go into the state general fund, where it could be spent on schools, prisons, social programs and other everyday government expenses — the public interest and the memory of the San Bruno victims are better served by dedicating the money to pipeline safety.

Also, it’s important to note that PG&E’s financial exposure from the pipeline disaster does not begin or end here. It still could be liable for civil penalties that easily could run into the hundreds of millions.

The recommendation involves serious money for serious breaches of the public trust. PG&E’s transgressions include maintaining an unsafe pipeline system, keeping incomplete records and responding inadequately on the night of the blast. It took PG&E 95 minutes to shut off the gas that was spewing from the broken pipeline.

Two administrative law judges overseeing the PG&E case are now expected to review the recommendation and make their own finding on how much the utility should be penalized. The final decision will be made by the five appointees on the state Public Utilities Commission.

Tony Earley, PG&E’s chief executive officer, said he agreed with the recommendation to direct the penalty money to safety, but “the numbers are just too big” in comparison to fines for other utility disasters. His concern: The liability might make it hard for PG&E to attract investors.

But if PG&E truly is committed to safety, this major investment should be considered an essential cost of doing business. State regulators should insist on it.