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PG&E: How does the piper pay?

Uploaded: Apr 22, 2014
Corporations are people, except when they're not. Four years after a natural gas inferno immolated eight people in their San Bruno homes, the Pacific Gas & Electric utility has been charged with twelve felony criminal violations of something called the US Pipeline Safety Act (PSA). If convicted, the company will not face execution for those deaths, or incarceration, or lose its corporate charter birthright. No executives or workers will even be charged with anything. So how do we make sense of such a situation? Incompletely, at best.

Despite PG&E's early, feeble attempts to deflect blame towards a later sewer contractor and even onto the charred remains of the victims, the record here is pretty clear. Over an extended time period, our local utility utterly failed to protect the California citizenry from the always-potentially-catastrophic effects of its gas transmission operations.

Records were shoddy to the point of not knowing that the 30-inch steel high-pressure line was even welded. Maintenance was so deferred that the company would like us to be impressed that it is now spending $2.7 billion in upgrades. Prevention and mitigation were ignored – automatic shut-off valves that would have reduced the carnage after the pipe ruptured were never installed.

And it wasn't that the business was strapped for cash. These operations were quite profitable, due in-part to "cutting back on pipeline-replacement projects and maintenance, laying off workers, [and using cheaper but less effective inspection techniques," according to a later independent audit.

This is not Monday morning quarterbacking – all these safety elements are very well-known to anyone dealing in hazards. The Pipeline Safety Act was first passed in 1968, and has itself been upgraded seven times. It's more like trying to play the Superbowl without bothering to employ a playbook, team practice or defense.

So what's to be done here to bring the wrongdoers to account, and to fail-safe the future?

We can start by acknowledging that utility companies are an odd creature – a bastard amalgam of private and public sector genes. They are monopolies set-up for specialized circumstances – we don't want two-or-more sets of gas lines and wires, after all. They are corporations, replete with charter, shareholders, a CEO, a Board of Directors. Yet, they are also heavily regulated by government – in this case the California Public Utilities Commission (CPUC), as to rates and many other business practices, including whether rate-payers foot the bill for various expenses. Such regulators, engaged to serve the public's interests, have a rich tradition of 'capture' by their subjects. Utilities are thus a necessary evil from the inception, lest this needed function be turned-over to the government to run (horrors).

As to accountability, there are both criminal and civil lawsuit possibilities. The individual and civic victims of this tragedy can sue for their losses, including loss of life. And both the state and federal governments have authority to civilly and criminally prosecute, to the full extent of applicable laws. There are general laws, like fraud and criminally negligent homicide, and statutes specific to the operations in question.

But who do we prosecute? The company, certainly. The state-level prosecutors have allowed the applicable three-year statutes of limitations to pass without charges, and the feds are proceeding under their PSA. But in cases of sustained, abject malfeasance like this, there's a natural cry for retribution against the living, breathing, bonus-winning persons.

There is precedent – corporate CEOs and other officials have been convicted of crimes for specific acts, like dumping that methyl-ethyl-death into the pristine river, or ignoring safety rules to the extent that a worker was killed on the job. And according to Mr. Twain, there's nothing like the prospect of hanging at dawn to focus the brain – a few years upriver for a few corporate scions would focus many more execs' minds on taking fewer risks with other people's well-being.

Reasonably informed speculation here, however, suggests that the very fact that the company's abject malfeasance was sustained over such a long period militates against individual culpability. It is tough to find that one person that a jury would convict. It is terribly unsatisfying to say that if they're all guilty then nobody is accountable, but that's probably the case here. We can, and should, find disturbing the image of corporate cats enjoying fat bonuses bought by the death agonies of innocent San Brunans, but there it is.

Now, PG&E has paid, and will pay much more in those damages settlements (I've heard, but cannot confirm, $500 million), and the fines ($6 million max) and penalties ($many millions more) under the PSA. Assuming that those sums come from the shareholders, and not we rate payers, that may be the best we can do.

Corporations really are creatures of financial fiction, so wounding the wallet may be fairly effective in securing retribution for these sins. If, however, any of those reparations are paid by all of us customers, that would add insult to incendiary. I have not intended to pay for fatal, unforgivable sloppiness, nor would I seek a discount for it. These failures and their risks must be borne by the company's owners. (I also hope we aren't all paying for their misty, water-colored TV spots meant to humanize the 'new' PG&E. I'm with the zen master: we'll see.) All-in-all, incomplete, at best.

And what about fail-safe-ing the future? I just have to note here that the company continues to call this a tragic 'accident,' phraseology that just has to cast some doubt on their resolve. Their statements remind of the Exxon employees with whom I spoke after the Valdez tanker incident. They didn't really 'get it,' either. But here are a few thoughts, anyway.

Let's start by acknowledging that this era of limited government will not permit a public take-over of the gas supply function – a tactic that, by itself, is no panacea anyway.
The first line of our defense simply must come from within the utility. There is surely some sober learning sinking into the PG&E culture (isn't there?). Let's hope the Board has required that those lessons appear, prominently, in the employment incentives (+ and - ) of workers as well – top to bottom. It's not easy to change culture, but it's done by setting and reinforcing the message, every day, by everyone – including/especially that guy in their commercials.

PG&E also needs to have the right people in charge of safety and compliance – normally staff functions. The financial wizardry talents of MBAs might be wasted in those jobs, but you can hire for proficiency skills -- fearless, methodical, skeptical, activist and detail-oriented individuals – and you can give them a hot-line to the top if they need it.

There are two external legal approaches that deserve mention. First, CPUC oversight: if it must be strengthened to give regulators routine access to the utility's most intimate undergarments, will there ever be a better time, or reason why? So armed, those staffers must operate exclusively, transparently, and again fearlessly, in the public's interest. The public must demand it, not assume it – because after all, it's the public who pays the price. Just ask San Bruno.

Finally, I can't help returning to Twain's gallows at first light. Perhaps we can't determine who's to blame for the last thirty years' negligence, but we can control the next thirty – and beyond. The Sarbanes Oxley law, for example, recognized this by ending the charlie-foxtrot 'out-of-the-loop' defense in favor of assigning personal accountability to the CEO for the accuracy of financial reporting. And that was only money at stake. Why not do that here, imposing accountability for 'tragically accidental' organizational lapses on a going-forward basis? There has to be some non-self-serving reason for CEO pay to exceed average workers' wages by over 354 times.

This would be a good way to earn some of those big bucks. I'll guess with you that the San Bruno Eight would tend to agree. Completely.

Comments

Posted by Peter Kluget, a resident of Danville,
on Apr 23, 2014 at 9:20 am

"I just have to note here that the company continues to call this a tragic 'accident,' phraseology that just has to cast some doubt on their resolve." What phraseology would you prefer? I don't think you mean to suggest that the event itself was intentional. "Accidents" are the result of negligence or recklessness, which I believe would be the area we're in here. I think it's foolish to project some sinister significance on terminology which is simply accurate.

As to your premise, I am in agreement that the proper penalty should be to punish the executives who made the decisions over the years which led to the event. Yes - the people who made the decisions. We live in a gilded era for corporate executives: princely pay, golden parachutes and no accountability.

Corporate fines simply punish the current shareholders - people who had no knowledge or control over the actions of the people who authorized the installation of the pipes in the 1950's and the haphazard record keeping and testing ever since. PG&E is one of the most widely held corporate stocks in California - a classic "widows and orphans" (or at least 401(k)) stock. Fining the shareholders may feel good, but is it really punishing the people responsible?

The actual CEOs and COOs of the company from the day the pipe was installed until the day of the explosion all share personal responsibility. I wouldn't necessarily throw them in jail - the responsibility of each individual may not warrant that - but why aren't ***they*** paying the fines? They got plenty of pay for being in charge (each of the four top executives of PG&E are paid over $1MM per year) Shouldn't they have to pay a financial price for screwing up? Or does being a member of the corporate nobility mean never having to take responsibility for your bad judgment in any meaningful way?


Posted by Tom Cushing, a resident of Alamo,
on Apr 23, 2014 at 10:32 am

Hi PK: The phraseology I would prefer would remove any inkling of deflection, counselor, especially given their history. In lay terms, I believe that 'accident' connotes a no-fault, act-of-god, freakish occurrence. As in: "Hey -- it was an Accident!" -- so I would not use that word outside a court of law, especially when everyone Expects you to try to minimize.

Examples might be to replace "accident" with a more neutral "incident," or strengthen it with a term like "catastrophe."

Further, I am not imputing a "sinister motive" when I suggest that they don't 'get it.' For instance, an unreconstructed male chauvinist may not be sinister -- but he doesn't 'get it', which is where this popular usage of the term originated, I think. I am implying instead that they fail to appreciate the foreseeability, Mrs. Palsgraf. This is not a case of bad luck or a lightning strike -- San Bruno happened because many people failed, utterly and over time, to discharge their responsibilities.

Those Exxon folks I referred-to left me with the lasting impression that they thought the Valdez catastrophe could have happened to anybody -- like that reef just grew there overnight. I think that's a dangerously easy thing to occur inside a corporate womb, where they're all Good People and they talk to each other all day. I also saw it in my own prior Fortune 10 experience with group think. So to hear the PG&E spokes-flack use similar-sounding language set me off. Perhaps your mileage varies.

That said, I'm with you the rest of the way, except that shareholders at least have the opportunity to effect change as 'owners.' Much better that they bear the loss than ratepayers. I guessing you'd agree with that choice.


Posted by American, a resident of Danville,
on Apr 23, 2014 at 11:49 am

Tom: I like you a lot better when you talk about the A's, instead of regurgitating the playbook of ambulance chasing lawyers. Yes, prayers go out to all the people injured in this horrible accident(it was an accident, not an intentional act) and the civil system will compensate these people and loved ones for their horrible losses. But "villainizing" PG&E and implying that they are some evil entity that has no concern about public safety is not accurate and unfair.

Dealing with electricity and gas is a dangerous business, and unfortunately it is impossible to prevent some accidents from occurring. The national news is constantly reporting stories about other energy providers in other states where explosions and other deadly blast occur, and yet despite the fact that PG & E is one of the oldest and largest providers in the country, they appear to have a pretty good overall safety record compared to other, much smaller providers in other states. The more people you service, the more likely opportunities for accidents to occur, similar to Dominoes Pizza delivery drivers being in more accidents than Garlix Pizza drivers.

Is PG & E perfect, absolutely not! They made a horrible mistake in San Bruno, and have paid huge fines and financial settlements. They are improving their record keeping, and working on improving their maintenance of pipes, which is really needed.

But Tom, no need to argue during your Voire Dire that they are some evil, uncaring, unscrupulous entity that needs their corporate leaders tarred and feathered. Put your pitch fork and torches away(until the Yankees come to town), and realize the shareholders are aware of the need for improved maintenance of pipe records, aware of need for more preventative work, and those injured by the negligence of PG&E will be compensated fairly for their damages.

Tom, I am also going to guess that you probably own in one of your 401K plans some PG & E stock, like most people, and you should feel free to show up at shareholders meeting and voice your concern. But, try to remember that when you turn on your computer to write your blog, that energy and power is coming from PG & E, a decent company with decent, hard working people, and leave the ambulance chasing to John Edwards and the plaintiff's bar.


Posted by Peter Kluget, a resident of Danville,
on Apr 23, 2014 at 12:45 pm

American, I find it interesting that in the course of taking Tom to task for being judgmental about PG&E you feel comfortable in lambasting "ambulance chasing lawyers." Plaintiff's lawyers are all the average person has on his side if he is injured or cheated out of his money by someone else, particularly if that "someone else" is a large corporation or - heaven forfend - the government. By disparaging that entire profession you seem to believe that corporations should have the right to get away with anything they want without concern for anyone bringing them to justice. Might makes right?

Because if you take away those "ambulance chasers" that's exactly what you're left with. Exploding Pintos. Drug addicted doctors operating on people and paralyzing them. Corporations promising their employees commissions and bonuses and then deciding to just not pay them. Bogus charges and fees hidden in the fine print of contracts. Using substandard materials hidden in the walls of homes which malfunction and injure the homeowners.

Every single one of those things happened in real life, and the people who actually did something about it were "ambulance chasers." Not the AMA. Not the contractors board. Not the NHTSA. Not the Labor Commissioner. Plaintiff's lawyers. Because of the "ambulance chasers" there's an actual downside to killing, maiming, or cheating people out of money (although recent court decisions banning class actions and upholding mandatory arbitration are eroding that downside risk.)

I'm not a plaintiff's lawyer but I am very much aware that my family and I are safer and our assets more secure because there are trial lawyers out there ready to chase that ambulance if one of us were to be at risk of being injured in a house that was near a gas pipeline that burst.

In my opinion a little less sanctimony and a lot more gratitude is in order for the segment of our legal system whose job it is to sue people who cheat, maim and kill.


Posted by Tom Cushing, a resident of Alamo,
on Apr 23, 2014 at 3:35 pm

Am: I don't need to villainize PG&E -- the record is very clear about establishing the Facts of what they did and didn't do. And if you will show me where I wrote that they ruptured that pipeline intentionally, I will recant the statement. They were, however, negligent to the point of recklessness -- ultimately taking chances with Other People's Lives, without doing everything they could to prevent incidents like San Bruno. That is institutionally despicable -- and.it's.preventable!

Having worked for fifteen years for the hands-down safest company in the world, I know better than your easy tolerance about the inevitability of disasters. You have to start, not with a shrug and a call to your insurance carrier, but with two bedrock principles: EVery accident is preventable, and the only proper goal is Zero. Anything else is a failure. And then you work it, top to bottom, every day, forever. You celebrate milestones and make folks accountable for failures. And what the government requires is your Minimum, a starting point. These guys didn't even do the minimum.

Indeed, the very fact that any failure in gas transmission spells disaster for somebody should make you Less Tolerant of it -- not more so. As I wrote, nothing in the history of this catastrophe was novel, or beyond the state-of-the-art. They didn't do what was reasonable, even if they'd been transporting water. The fact that it was methane makes that failure far, far worse.

Using your approach, I fear that many more victims will have prayers said over their graves. A more effective entreaty to the All Mighty might be an appeal for wisdom, resolve and energy to guide the new PG&E's efforts. I hope they succeed, but that will only happen if there's a sea change in priority and approach.


Posted by Formerly Dan from BC, a resident of Bridle Creek,
on Apr 23, 2014 at 4:31 pm

Formerly Dan from BC is a registered user.

Who is responsible?

1. Any and all government regulators who signed off on the quality of the pipeline.
2. PGE corporate entity.
3. Any and all PGE employees proven to have known about or contributed to any quality issues.
4. Any and all PGE contractors proven to have known about or contributed to any quality issues.

Who will be punished?

1. PGE corporate entity
2. PGE employees
3. PGE contractors

And rightfully so.

Notice who won't get punished? (Hint: The GOV!) And they are as equally at fault as all the rest.

Funny how that works, huh?

Sincerely,

Dan


Posted by Tom Cushing, a resident of Alamo,
on Apr 24, 2014 at 8:00 am

Hey Dan: I understand your comment in general terms, but do you actually know that no heads rolled within the CPUC safety oversight squad? I can't find a record of it in their exhaustive investigative report, Web Link so you may be right.

But who among PG&E contractors has been punished? These were mostly many sins of omission, and any work on that line was long ago. Who among their vendors was implicated, if anyone?

I'd also note that PG&E contractors are the ones doing those $2.7 Beellion in formerly-deferred maintenance and system upgrades. If only I could receive a similar punishment!


Posted by Roz Rogoff, a resident of San Ramon,
on Apr 24, 2014 at 12:41 pm

"American" (aren't we all here) wrote,"(PG&E) made a horrible mistake in San Bruno, and have paid huge fines and financial settlements." Well that isn't going to help the 8 people who died, the families that lost loved ones, and others who were seriously burned and will suffer for the rest of their lives.

The stock market controls corporate behavior now. Not safety, not employees, not government, not even customers.

CEOs are rewarded with stock, and when the stock goes up they make even more. The stock goes up when profits go up, and profits go up when costs are kept down. So why invest in maintenance, when that's an easy place to save money.

American claims, "the shareholders are aware of the need for improved maintenance of pipe records, aware of need for more preventative work, and those injured by the negligence of PG&E will be compensated fairly for their damages." What is "fair compensation" for losing a loved one or suffering with crippling burns for the rest of your life?

If it was your neighborhood that blew up, American, if it was your family that was killed or maimed, would you be so forgiving of PG&E executives and management? No you are a shareholder, a corporate owner, you would make sure it doesn't happen again. It shouldn't have happened at all.

Roz


Posted by American, a resident of Danville,
on Apr 24, 2014 at 1:46 pm

Roz: "Stock market controls corporate behavior now. Not Safety"...Much of an overstatement? Based on your own personal experiences working for a corporation? Attended many board meetings recently? Ever attended board meeting? Speaking about every corporation? Speaking about corporations in San Ramon? Or just ranting, raving, with subjective, uninformed, ignorant, vague, ambiguous, and unintelligible comments?

I have absolutely empathy for those killed and injured, and hope to God that PG & E, So.Cal Edison, and every other utility and gas company in the world does everything possible to prevent any other accidents. However, your ridiculous allegation that PG & E executives only care about corporate stock prices and have no concern about public safety is unfair, ungrounded, and ignorant. I have never worked for PG & E and have no dog in this fight. But I get my Irish up when I hear people like you make unfounded allegations about what "you think" is going thru the minds of executives, managers, and employees of a company. My father in law worked for P G & E for 40 years, right out of high school, started as a lineman, worked his way up to manager of one of their little offices outside of Sacramento, and he was the ultimate Atticus Finch, who put public safety and helping their customers first over every thing. I met many PG & E employees at his retirement party, and was impressed at the dedication these people had to public service and public safety.

Roz, you owe these good people an apology.


Posted by Formerly Dan from BC, a resident of Bridle Creek,
on Apr 24, 2014 at 4:51 pm

Formerly Dan from BC is a registered user.

Hi Tom,

I was using future tense.

It will happen because good lawyers and investigators will find out if contractors were negligent. Just a guess.

I found the web link interesting. I didn't read the whole thing (too long), but I did note that there wasn't a single reference in the Table of Contents to the regulators responsibilities.

Par for the course.

Dan


Posted by BF, a resident of San Ramon,
on Apr 24, 2014 at 9:48 pm

@Kluget: Plaintiff's lawyers are all that the average person has on their side? Oh, so now the overpaid representative (Lawyer) is a friend at $350 per hour? It's a RACKET, not a profession, that this country has allowed to survive based on pure greed by these so-called professionals. There are more "over-paid representatives" in this country then any place on earth.

At least Europe has it right, only when it comes to civil law though. If you sue someone in Europe, you better win. If you don't win, you pay the defendants legal fees straight up; which is why you don't have as many lawsuits in Europe compared to the United States.


Posted by American, a resident of Danville,
on Apr 25, 2014 at 10:08 am

BF: In California, the "prevailing party" in civil litigation is entitled to certain costs of litigation, i.e. filing fees, jury fees, deposition transcript fees, etc but not attorney fees, unless provided for by contract, or other statute. The attorney fees are often much larger than the other costs of litigation. What the ambulance chasing lawyers do not tell you on their t.v. ads when they say "no fee if no recovery", is the plaintiff does not owe their own attorney anything, but the plaintiff is on the hook for the costs of litigation to the defendant, not the plaintiff's attorney. Hence, it is not uncommon for plaintiffs themselves to have their wages garnished, or have to come up with paying the defense back for the defense costs thru trial, while the plaintiff's attorney is not on the hook for anything.

I think we would have a lot less frivolous lawsuits if the plaintiff's attorney was on the hook for the defense costs, not the plaintiff. Just my two cents.


Posted by Dave, a resident of Danville,
on Apr 25, 2014 at 4:07 pm

As Tom notes, the larger issue is how to ensure quality safety management and thorough regulatory oversight going forward. PG&E apparently asked for and received hundreds of millions of dollars from ratepayers over the years for pipeline upgrades, much of which went unspent on that purpose. (Sounds like fraud to me.). And now they are back, seeking more money from the ratepayers for the same work for which they earlier were granted rate increases. How do we ensure that those funds would be spent for the designated purposes THIS time. In my view, THIS time, it should come out of the shareholders' and executives' pockets. Why should we ratepayers pay TWICE???


Posted by BF, a resident of San Ramon,
on Apr 25, 2014 at 11:08 pm

@American: Sir, while I do agree with you to a very small point, the "Racket" years ago wrote in a tidy little tidbit to their use of the Law called "Safe Harbor." This protects the plaintiff from having to pay the full amount off attorney fees back to the defendant should the defendant win in a malicious claims case suit against the plaintiff. Basically, it protects the plaintiff instead of the other way around. It's unfair; which is what, in my opinion, the practice of American Civil Law is all about. Look no farther than the O.J. case. O.J. defended himself in criminal court, but loses in civil court. Look, LOL, I'm no fan of Mr. Simpson, but he walked out of criminal court a free man, only to be convicted in a civil court. Regardless of how I feel about O.J., the civil process was and is a joke.

Now, I know some of you over-paid representatives are going to try and school me about the civil process. But before you do, read Fred Rodell's book called "Woe Unto Ye Lawyers." Rodell despised the way the Law was practiced in this country. In fact, to better understand the Law, he taught it at one of the Ivy League schools for over 30 years! The book is dry, just like a lawyer, but it tells the truth about what we know, or don't know, about the Law.


Posted by Formerly Dan from BC, a resident of Bridle Creek,
on Apr 26, 2014 at 10:04 am

Formerly Dan from BC is a registered user.

Since this topic has devolved into discussing "the Racket" I'll add in my 2c.

I was involved in a civil suit a few years back that I initiated. I was in the right, had the evidence (and law) on my side, and engaged with a reputable attorney to litigate the issue.

The attorney charged me $2500 to cover filings, court appearance...etc. It was an easy case, or so I thought.

What had eventually happened was my lawyer began to take calls from the defendants lawyer to "negotiate". Now remember, I had said the evidence and law were on my side. In effect, my lawyers billable hours began to increase, and my $2500 lawyer turned into $5000 in less than a few weeks time. No doubt, the defendants lawyer charged about the same.

All because of "negotiation".

I never budged on any offers made by the defense.

In the end, the judge ruled in my favor (of course). It wasn't until later that I realized that what was happening was that my lawyer was trying to pad his billable's by acting as if he was doing something to help me.

Lesson learned.

Dan


Posted by Not all Lawyers are crooks, a resident of Another Pleasanton neighborhood,
on Apr 29, 2014 at 9:13 am

But 99% of them
give the rest of them a bad name.


Posted by Tom Cushing, a resident of Alamo,
on Apr 29, 2014 at 10:04 am

Ahhhh ... turns out it Really IS good to be a 1%-er (even if it is also awfully far afield of the blog topic).


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