Prosecutors urge strict probation conditions on PG&E

Federal prosecutors have urged a U.S. judge in San Francisco to impose a strict series of five-year probation conditions on PG&E when he sentences the utility on Jan. 23 for criminal pipeline safety violations.

The proposed conditions include rewarding executives for safety rather than profits, requiring 10,000 hours of community service by managers and other employees, and appointing a monitor to oversee natural gas safety.

Prosecutors argued in a brief filed with U.S. District Judge Thelton Monday evening:

“PG&E’s pattern of deliberate and methodical violations of safety regulations, motivated by profit and resulting in mass death and destruction, warrants the most serious sentence this court can impose.”

In a case that grew out of investigations of a fatal pipeline explosion in San Bruno in 2010, a jury in Henderson’s court convicted the utility in August of six felony counts.

The convictions included one count of obstructing a National Transportation Safety Board probe of the San Bruno explosion and five counts of violating a federal pipeline safety law’s requirements for identifying, evaluating, recording and prioritizing risks in its high-pressure natural gas transmission lines.

The San Bruno explosion of a transmission line and resulting fire on Sept. 9, 2010, killed eight people, injured 66 others and destroyed or damaged dozens of houses.

The NTSB concluded the cause was the rupture of a defective seam weld in a pipe segment that was installed in 1956, incorrectly listed in PG&E records as seamless, and not properly tested or repaired.

Any probation conditions imposed by Henderson at the Jan. 23 sentencing would be in addition to a potential fine of $3 million, the maximum allowed by law.

Prosecutors wrote that they are concerned the $3 million fine “will be a ‘drop in the bucket’ for PG&E and will do little to deter it from continuing to prioritize profits over complying with safety regulations.”

Because the fine is limited to $3 million and a corporation can’t be sent to prison, the only route to “the most serous sentence” sought by prosecutors would be probation conditions.

San Francisco-based PG&E said in its own sentencing brief, also submitted to Henderson Monday, that the San Bruno explosion was a “terrible, tragic event.”

But it said it has undertaken a massive program to update its pipeline system and records, change its leadership and improve its safety program, in addition to having already paid millions of dollars to settle civil lawsuits filed by San Bruno victims and relatives.

The company said it has revamped its employee incentive program to base bonuses 50 percent on public and employee safety achievements, 25 percent on customer satisfaction, including electric power reliability, and 25 percent on earnings from operations.

It contended some earnings incentive is needed to enable the utility to attract and retain good managers and maintain responsible financial management.

But prosecutors argued in their brief:

“When employees are rewarded based on meeting budgets or earnings-per-share goals, it is inevitable that such factors will affect decision-making.”

During last year’s trial, prosecutors presented documents that appeared to suggest that until 2010, PG&E placed a high priority on earnings and a lower priority on safety.

One document, prepared for a strategy planning discussion among PG&E staff in 2008, listed earnings per share, or EPS, as “not up for debate” in the planning session, while safety and reliability were listed as an item “up for debate.”

Another document listed “Deliver on EPS goals” as the top corporate business priority for 2008 to 2011. In performance measuring, it assigned a 40 percent share to achievement of earnings goals and 10 percent to safety and reliability.

In the briefs filed Monday, both prosecutors and PG&E said they are nearing an agreement on a court-appointed monitor and will report on their proposal to Henderson before the sentencing.

Prosecutors urged that the recommended 10,000 hours of community service should include 2,000 hours to be performed by high-level executives.

Prosecutors argued:

“That condition would deter PG&E “from making choices simply based on the cost — PG&E cannot simply pay its way out but actually has to spend its time and energy repairing the communities it harmed and put at risk by its criminal conduct.”

In other proceedings, PG&E has paid $70 million in compensation to San Bruno; settled survivors’ civil cases in San Mateo County Superior Court for about $565 million; and paid a record $1.6 billion penalty in three cases before the California Public Utilities Commission concerning the San Bruno explosion, pipeline record-keeping, and pipeline maintenance in high-population areas.

Prosecutors from the U.S. Attorney’s Office initially sought a potential fine of up to $1.13 billion in the criminal case under an alternative sentencing mechanism that allows a fine of double the loss or gain caused by the offender’s crimes, if the calculation is not too complex.

A $1.13 billion fine would have been double the amount of the San Mateo County Superior Court settlements. But in 2015, Henderson vetoed such a fine, saying that it would be too complicated to determine the actual financial loss of each of the numerous victims who reached a settlement.

Prosecutors then planned to seek an alternative fine, in the event of a conviction, of up to $562 million, which they said was double the $281 million profit the utility allegedly gained by violating the pipeline safety law.

But in the middle of last year’s trial, prosecutors suddenly dropped that bid without explanation. PG&E had argued that it would be impossible to isolate and quantify the profit it gained from specific alleged violations.

The prosecution action left the maximum possible fine at $500,000 per conviction, or a total of $3 million.

Prosecutors also asked for a probation condition requiring PG&E to conduct a television and newspaper advertising campaign to inform the public of its conviction and its safety and ethics improvements.

PG&E argued:

“This condition is unnecessary, however, because these events and issues have been well publicized by the local and national media — indeed, by media around the world — and by PG&E itself.”

The utility said in its brief:

“No further publicity is required to alert the public to the circumstances of this case.”