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California Proposes $300 Million Fine for PG&E Pipe Blast

California Public Utilities Commission staff recommended PG&E Corp. pay a minimum $300 million fine as part of a proposed $2.25 billion penalty for the 2010 natural gas pipeline explosion that killed eight people in San Bruno.

The fine would be the largest ordered by the California regulator, the commission’s Consumer Protection and Safety Division said today in a filing. “The tragedy in San Bruno, which was directly caused by PG&E’s unreasonable conduct and neglect for decades, was the worst disaster in the history of California electric and/or gas utilities.”

The proposal, subject to review by administrative law judges and a vote by the full commission, amends a prior staff recommendation under which the company would’ve been forced to spend the entire $2.25 billion to improve its pipeline system. The new plan would require the San Francisco-based utility owner to pay $300 million into the state’s general fund. The staff also recommended that as part of the penalty PG&E not be allowed to recover from customers $1.17 billion for gas safety work that the commission previously allowed.

The proposal appeared to be less punitive than expected, Kit Konolige, a New York-based analyst for BGC Financial LP, said today in a research note. The recommendation includes about $200 million to $400 million that could impact earnings, Konolige said.

Pipeline Work

PG&E rose 0.4 percent to $46.37 at the close in New York.

“The latest penalty proposal is a long-awaited step in the right direction for public safety,” said San Bruno Mayor Jim Ruane in an e-mail statement. The filing “significantly strengthens the division’s previous, inadequate penalty recommendation,” Ruane said.

San Bruno has previously called for the state regulator to impose a $3.85 billion penalty. The original proposal “let PG&E off the hook” by allowing the company to claim credit for prior pipeline work, the city said on July 2. PG&E Chairman and Chief Executive Officer Anthony Earley called the original $2.25 billion penalty proposal “excessive” on May 6.

‘Unorthodox Events’

“The newly revised penalty recommendation takes $300 million away from safety improvements and sends that money to the legislature for general fund spending,” Tom Bottorff, senior vice president of regulatory affairs at PG&E, said in an e-mail statement. The proposal, if adopted, would force PG&E shareholders to spend $4 billion and could make it difficult for the utility to attract capital, Bottorff said.

Consumer groups said the revisions would help protect customers from PG&E’s past mistakes.

The revised filing is a “great improvement” over the previous proposal that would have held shareholders harmless, said Mindy Spatt, a spokeswoman for the Utility Reform Network, a San Francisco-based consumer group.

The commission said some of the attorneys working on the case asked to be reassigned last month after the division initially proposed the $2.25 billion penalty. In asking to amend its original proposal, the division cited the “unorthodox events” surrounding staffing changes.

The blast in San Bruno has cost PG&E’s shareholders $1.4 billion in mandated safety work and other expenses, the company said on May 2. It precipitated the retirement of former PG&E Chairman and CEO Peter Darbee and forced the state’s largest utility owner to freeze its dividend. PG&E has set aside at least $200 million for fines, according to a May 2 regulatory filing.

Administrative law judges at the commission still must rule on the recommended penalties. The five-member commission will then vote on the final penalty amount.

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