The Public Utilities Commission's proposed penalty to punish PG&E for its role in the San Bruno gas pipeline explosion is woefully lacking.
Sure, the $1.4 billion penalty given by two administrative law judges is by far the largest ever given to a utility by a regulatory agency. But let's not lose sight that PG&E's negligence reached historic levels that scream out for a significantly higher judgment. The real tragedy of the PUC proposal is that PG&E ratepayers -- not shareholders -- will pay the biggest price for the utility's fatal errors.
The city of San Bruno and consumer groups should appeal this outrage, although it's unlikely that PUC President Michael Peevey and the full PUC board will overturn the judgment. Peevey's cozy relationship with the utility is so well documented that if he had an ounce of integrity he would recuse himself from the proceedings.
The PUC's staff and consumer groups had recommended a reasonable, $2.25 billion penalty. They made a compelling argument that shareholders should bear the burden of paying for the gas pipeline upgrades that PG&E neglected to make. Independent auditors had confirmed that PG&E, which routinely turns a profit in excess of $1 billion, could absorb the hit without doing long-term damage.
Investigators proved beyond doubt that PG&E took hundreds of millions of dollars that was collected from ratepayers for gas pipeline maintenance and instead used it for shareholder dividends and executive bonuses. If the money had been spent as it was intended, it might have prevented the San Bruno blast, which killed eight people and destroyed 38 homes.
PG&E has repeatedly argued that ratepayers should pay 90 percent of the utility's pipeline renovation plan, which is ludicrous, since they have already paid once for the repairs that were never made.
The PUC judges propose that shareholders should foot the bill for only $400 million of the necessary $2.2 billion in pipeline improvements. Ratepayers will pay the remainder, and it's worth noting that PG&E is already calling for rate increases.
The PUC judges also ruled that $950 million of the fine would go to the state's general fund. The state can certainly put the money to good use, but applying it toward required gas pipeline improvements would lessen the burden on ratepayers.
Wall Street's reaction to the PUC's penalty proposal should tell Californians everything they need to know about how lenient the penalty is for PG&E and its shareholders. The utility's stock price soared 3.5 percent after the PUC announcement, and it closed Tuesday up 1.7 percent.
In the days after the San Bruno tragedy, the PUC said it would make sure PG&E took full responsibility for its role in the blast. Sadly, Bay Area residents are still waiting for that to happen.