PG&E Defies CEO’s Doomsaying as U.S. Backs Off Criminal Fine

  • Fine sought by U.S. shrinks to $6 million from $1.13 billion
  • Case stems from 2010 fatal explosion in San Bruno, California

PG&E Corp. just dodged another bullet.

California’s largest utility learned Tuesday it will face a maximum criminal fine of $6 million -- down from the $1.13 billion prosecutors originally sought -- for alleged safety violations stemming from a pipeline explosion that killed eight people in 2010. That’s on top of the break the company caught last year when state regulators lopped $650 million off the $2.25 billion civil fine they’d threatened to impose.

Three years ago, before either development was in the cards, PG&E Chief Executive Officer Tony Earley worried aloud that the mounting fallout from a disaster that blew up a neighborhood 12 miles (19.3 kilometers) south of San Francisco might push the company to the brink of bankruptcy for the second time in a dozen years.

As a jury in San Francisco deliberates whether to convict or acquit PG&E after a six-week trial, federal prosecutors reversed course Tuesday and abandoned a method of calculating fines that could have resulted in a heftier penalty if the company is found guilty. The U.S. offered no explanation in its court filing for the abrupt change so late in the case and a spokesman for the San Francisco U.S. attorney’s office declined to comment on Tuesday.

The government’s retreat on the fine comes less than two months after the same office pulled the plug on its prosecution of FedEx Corp. in the middle of a trial, dropping charges that the delivery service intentionally shipped illegal online prescriptions in a case that carried as much as $1.6 billion in fines.

‘Rather Remarkable’

"It seems a rather remarkable development at this point in the criminal case," Paul Patterson, an analyst at Glenrock Associates LLC, said of the government’s decision to reduce the fine sought against PG&E. "It would appear to be a substantial reduction in the financial risk associated with potentially a much higher fine.”

A $6 million fine would be less than half a percent of the $1.5 billion profit PG&E recorded last year.

"PG&E still faces some headwinds, but a major overhang on shares has been lifted," Guggenheim Securities analyst Shahriar Pourreza wrote in a research note late Tuesday about the prosecutors’ decision.

State Investigation

Even as it seeks to avoid a federal criminal conviction, the company is still under state investigation of its safety practices following the blast in San Bruno, which left a crater the size of a house, destroying 38 homes and damaging 70 others as well as injuring 66 people.

Since the explosion, PG&E tapped Earley to replace its previous CEO and froze its dividend for six years. It also separated its gas division from its electricity business, provided safety training to managers and tested and replaced pipelines. The company also paid more than $550 million to settle personal injury and property damage claims stemming from the blast.

PG&E was charged in 2014 with violating the Natural Gas Pipeline Safety Act by failing to test and assess unstable pipelines to determine whether they could fail. The company was also accused of keeping incomplete and inaccurate records about the pipeline that exploded.

"Regardless of this action or the next legal steps, we want our customers and their families to know that we are committed to re-earning their trust by acting with integrity and working around the clock to provide them with energy that is safe, reliable, affordable and clean,” said Greg Snapper, a spokesman for PG&E.

The case is U.S. v. Pacific Gas and Electric Co., 14-cr-00175, U.S. District Court, Northern District of California (San Francisco).

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