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Utilities Regulator OKs Record $2 Billion Fine Against PG&E

California’s utilities regulator approved a record $1.94 billion fine against Pacific Gas and Electric on Thursday for its role in sparking a series of destructive wildfires over the last three years, including the deadliest fire in state history.

SAN FRANCISCO (CN) — California’s utilities regulator approved a record $1.94 billion fine against Pacific Gas and Electric on Thursday for its role in sparking a series of destructive wildfires over the last three years, including the deadliest fire in state history.

The California Public Utilities Commission agreed to shave $200 million off a proposed $2.14 billion penalty after PG&E insisted the higher fine could jeopardize its plan to exit bankruptcy by June 30 and gain access to a state-backed insurance fund for future wildfires. PG&E said unless it could pay the $200 million with money reserved for wildfire victims, its debt load would rise above $25.5 billion and give financial backers the option to pull out of a deal to fund its exit from bankruptcy.

“I rejected PG&E’s proposal to pay the fine out of the victims’ trust because it would be entirely inappropriate to pit the CPUC fine against the claims of wildfire victims,” Commissioner Clifford Rechtschaffen said during the body's vote Thursday.

Investigating PG&E’s role in 15 fires, the commission’s Safety and Enforcement Division found the utility likely violated at least 50 regulations. The alleged violations include failures to properly inspect and maintain equipment, prune and clear trees near power lines, prioritize safety hazards, keep records, and preserve evidence.

PG&E had negotiated to settle the matter for $1.67 billion, but the commission’s chief administrative law judge instead proposed a $2.14 billion penalty, citing the “unprecedented” nature of “physical and economic harm” resulting from the fires.

After PG&E appealed the decision to impose a higher penalty, Rechtschaffen recommended permanently suspending a $200 million portion of the fine. He said that was the best option to ensure PG&E could meet its deadline for exiting bankruptcy and start compensating fire victims for billions in losses.

“I recognize that a permanent suspension of the fine is deeply unsatisfying to many,” Rechtschaffen said. “It’s important to keep in mind that this penalty action is only one of many aggressive steps that the commission is taking to hold PG&E accountable for its actions and to help prevent future misconduct.”

Mark Toney, executive director of The Utility Reform Network, a ratepayer advocacy group, denounced the decision to lower the penalty in a statement earlier this week.

“Customers want to see PG&E held accountable for its flagrant and lethal violations of safety rules,” Toney said. “The amount of the fine is supposed to reflect the seriousness of the conduct not the whims of the wrongdoer.”

The commission also modified the penalty so that operational cost-related tax savings from the settlement benefit ratepayers instead of shareholders. PG&E estimated those tax benefits could amount to $425 million. Capital cost-related tax savings must go to PG&E shareholders to comply with Internal Revenue Service rules, Rechtschaffen said.

Even with a $200 million reduction, the $1.94 billion fine is the largest penalty ever imposed by California’s utility regulator. It surpasses the record-breaking $1.6 billion fine levied against PG&E for the 2010 San Bruno pipeline explosion that killed eight people and injured dozens more.

PG&E shareholders will be required to pay the entire $1.94 billion fine, meaning the company will not be permitted to seek reimbursement from ratepayers. The fine will cover $1.8 billion in wildfire-related costs that could have been passed on to customers. Another $114 million will pay for system enhancements and corrective actions, including a study to determine the root causes of PG&E-sparked wildfires, fire safety and prevention programs and aid to vulnerable customers impacted by PG&E’s public safety power shutoffs.

In an emailed statement Thursday, PG&E spokesman James Noonan said the company’s main goal since it filed for Chapter 11 bankruptcy in January 2019 has been ensuring victims get paid in fair and timely manner.

“We remain deeply sorry about the role our equipment had in tragic wildfires in recent years,” Noonan said. “We recognize our fundamental obligation to operate our system safely. We share the same objectives as the commission and other state leaders — namely in reducing the risk of wildfire in our communities, even in a rapidly changing environment.

“While we have taken unprecedented actions to do so, we recognize that more must be done and remain committed to change. PG&E accepts the Commission’s Decision Different and will work to implement the shareholder-funded system enhancements and corrective actions called for in the settlement.”

In March, PG&E agreed to plead guilty to 84 counts of manslaughter and one count of recklessly starting the 2018 Camp Fire, the most destructive wildfire in California history.

Last week, a federal judge overseeing PG&E’s criminal probation for felony convictions related to the 2010 San Bruno gas line explosion imposed stricter fire-prevention probation terms on PG&E, including requirements that it hire its own tree inspectors and video tape every inspection of transmission line equipment.

Some 70,000 wildfire victims are currently voting on whether to accept PG&E’s proposed bankruptcy plan, which includes a $13.5 billion wildfire victims’ trust half funded by PG&E stock. The voting period ends May 15. Some wildfire victims and their lawyers have argued the actual amount will be far less than $13.5 billion due to Covid-19 pandemic-related stock price declines.

A hearing on confirmation of PG&E’s restructuring plan is scheduled for May 27 in San Francisco.

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