Local Blogs

By Tom Cushing

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.