The Public Utilities Commission on Tuesday proposed a $1.4 billion penalty to punish PG&E for its role in the fatal natural gas explosion in San Bruno, the largest fine in its history but far below the $2.25 billion recommended by its staff and consumer groups.

The decision, coming days before the fourth anniversary of the explosion that killed eight and devastated a quiet residential neighborhood, caused an uproar with critics who have questioned the PUC's regulatory approach to Northern California's largest utility.

"This decision is shocking and outrageous," state Sen. Jerry Hill said in an interview with this newspaper. "When you have eight people killed, 38 homes destroyed and so many violations, you expect a serious penalty. Instead this is a windfall for PG&E. This is business as usual at the PUC."

Firefighters battle a fire resulting from a high-pressure gas line explosion in San Bruno, Calif., Thursday, Sept. 9, 2010.
Firefighters battle a fire resulting from a high-pressure gas line explosion in San Bruno, Calif., Thursday, Sept. 9, 2010. (Karl Mondon/Staff)

Others expressed concern about how the proposed fine -- which still needs to be approved by the full PUC -- would be divided up. Of the $1.4 billion, $950 million would go to the state's general fund, $400 million would finance pipeline improvements -- with the stipulation that PG&E shareholders and not ratepayers foot the bill -- and $50 million would go to other pipeline safety remedies.

"This reflects, if you will, a 'payday' for Gov. Jerry Brown," said San Bruno Mayor Jim Ruane about the money going to the state. "I call on the governor to see that these funds are reinvested for pipeline safety."

San Francisco-based PG&E did not object to the fine, and its shares soared 3.5 percent soon after word spread of the proposed decision. PG&E closed at $47.29 on Tuesday, up 1.7 percent.


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Reflecting the massive scope of its operations and the decades of problems discovered in the wake of the explosion, state regulators found PG&E committed about 3,800 violations of state and federal laws and regulations in connection with its natural gas operations. Because the infractions stretched back for decades and the utility was penalized for every transgression every day it occurred, the utility was in violation for an astonishing total of 18.4 million days, the proposal stated.

Special Counsel Steven Meyers, left, and San Bruno Mayor Jim Ruane praised the record setting penalty and fine against Pacific Gas & Electric Company for
Special Counsel Steven Meyers, left, and San Bruno Mayor Jim Ruane praised the record setting penalty and fine against Pacific Gas & Electric Company for causing the devasting 2010 explosion and fire during a press conference at San Bruno City Hall in San Bruno, Calif., on Tuesday, Sept. 2, 2014. The decision by the California Public Utilities Commission comes just before the fourth anniversary of the fatal tragedy that killed eight people. (John Green/ Bay Area News Group) ( JOHN GREEN )
To calculate the $1.4 billion penalty, the judges used a complex formula that factored in the number of violations and the number of days on which the violations occurred.

"The penalties adopted in today's decision send a strong message to PG&E and all other pipeline operators that they must comply with mandated federal and state pipeline safety requirements or face severe consequences," PUC administrative law judges Mark Wetzell and Amy Yip-Kikugawa wrote in their proposed decision.

In their decision, the two also defended the amount of money going to pipeline safety from the penalty, arguing that PG&E had already spent $635 million to upgrade its natural gas system.

But San Bruno officials argued that the message was not strong enough. As part of the $2.25 billion penalty they had sought, they wanted the PUC to force PG&E to spend $1.9 billion to upgrade the utility's gas pipeline system, City Manager Connie Jackson said.

A consumer group, The Utility Reform Network, said the PUC should require that shareholders finance $800 million in pipeline improvements and guarantee that ratepayers are shielded from those higher costs.

"These pipelines have had 18 million days of neglect, and the question is who should pay to improve them," said Mindy Spatt, TURN spokeswoman. "The answer is not ratepayers."

"We are accountable and fully accept that a penalty is appropriate," PG&E spokesman Greg Snapper said in a prepared release. "We are deeply sorry" for the San Bruno tragedy. "Any penalty should directly benefit public safety," Snapper added.

The full PUC must issue a final decision, which is expected this year. PUC President Michael Peevey, under fire for having a cozy relationship with PG&E and other major power utilities in California, is the commissioner who is presiding over the PG&E penalty case at the PUC.

Separately, federal prosecutors have filed criminal felony charges against PG&E, including an accusation of obstruction of justice. The criminal case could result in a fine of up to $1.13 billion.

San Bruno Mayor Jim Ruane praised the record setting penalty and fine against Pacific Gas & Electric Company for causing the devasting 2010 explosion and
San Bruno Mayor Jim Ruane praised the record setting penalty and fine against Pacific Gas & Electric Company for causing the devasting 2010 explosion and fire during a press conference at San Bruno City Hall in San Bruno, Calif., on Tuesday, Sept. 2, 2014. The decision by the California Public Utilities Commission comes just before the fourth anniversary of the fatal tragedy that killed eight people. (John Green/ Bay Area News Group) ( JOHN GREEN )

"The resulting deaths, injuries and damage to property were especially severe," the PUC judges wrote. "Several survivors endured months of hospitalization and rehabilitation and still face long and difficult recoveries. The Crestmoor neighborhood was effectively wiped off the map. An entire community was displaced."

Staff writer Aaron Kinney contributed to this story. Contact George Avalos at 408-859-5167. Follow him at Twitter.com/georgeavalos.