SAN BRUNO -- Taking a tougher stand against PG&E, a revamped state regulatory body on Tuesday recommended that the utility be fined at least $300 million -- the largest ever imposed by the Public Utilities Commission -- as part of a $2.25 billion penalty for the company's role in the deadly San Bruno natural gas explosion.

While the total dollar amount of the proposed penalty is unchanged, the new recommendation differs starkly from a prior one by the PUC's Safety and Enforcement Division, and would remove much of the burden from ratepayers to finance needed improvements and upgrades to the utility's vast system of natural gas pipelines. In fact, PG&E's natural gas customers could eventually see lower monthly bills for gas service, according to The Utility Reform Network, or TURN.

Workers continue to clear lots in the blast area in San Bruno, Calif. on Friday, Oct. 8, 2010. Lots are being cleared one by one and work is nearing
Workers continue to clear lots in the blast area in San Bruno, Calif. on Friday, Oct. 8, 2010. Lots are being cleared one by one and work is nearing completion. (Dan Honda/Staff)

"The differences between the two proposals are night and day," said TURN's legal director, Thomas Long. "The first proposal was smoke and mirrors. This is a real proposal that holds PG&E accountable for serious and unprecedented violations of the law that led to the explosion."

The earlier recommendation by the PUC safety unit, which was openly criticized as too mild by some of the unit's own attorneys, unleashed a rare public furor among PUC staffers that led to a shake-up of the unit.

"It really is amazing to see the differences in the proposals," said state Sen. Jerry Hill, whose district includes San Bruno. "When you take some integrity, mix it with credibility, and add some good people, you wind up with a solution that is reasonable, fair and serves the interests of the public."


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But Tom Bottorff, PG&E's senior vice president of regulatory affairs, complained in a prepared release that, "In its zeal to punish PG&E, the staff of the CPUC has lost sight of our important shared goal of making PG&E's natural gas operation the safest in the country as quickly as we possibly can."

Bottorff said it "is difficult to understand how the CPUC expects PG&E to attract the capital necessary to maintain the extraordinary investment in safety currently underway, or raise billions of dollars more for safety improvements mandated by the CPUC."

Under the new recommendation, the $300 million fine would be paid to the state government's general fund; the original recommendation included no fine. Most of the remaining $1.95 billion, approximately $1.5 billion according to estimates provided by TURN and in the regulatory filing, would be used to reduce the amount that PG&E ratepayers would otherwise have to pay to finance the utility's gas pipeline upgrades.

The PUC safety unit's attorneys, who were put back on the case after being reassigned when they objected to a milder penalty recommendation offered by their supervisors, said the harsher penalties were justified by "PG&E's extensive violations of its safety obligations under California law and regulations." The PUC's five commissioners are expected to vote on the recommendation before the end of the year.

The proposed $300 million fine would not be tax deductible. In addition, the staff proposal curtails PG&E's ability to deduct the costs of repairs it had already undertaken following the September 2010 explosion that killed eight people and destroyed 38 homes.

Critics of the original proposal complained that tax deductions, tax credits and other benefits for PG&E would have virtually eliminated the impact of the $2.25 billion penalty.

San Bruno city officials, who have been among the harshest critics of PG&E and the PUC in the wake of the lethal explosion, said Tuesday they "wholeheartedly support" the new penalty and fine proposals.

"The city of San Bruno will continue to fight for additional and ongoing safeguards to protect the public and help us ensure that what happened in San Bruno never happens again, anywhere," Mayor Jim Ruane said in a news release.

But the latest penalty recommendation was criticized by one of PG&E's principal unions, the International Brotherhood of Electrical Workers Local 1245, which represents nearly 12,000 PG&E employees, including gas and electric line workers, program managers and bookkeepers.

"Taking hundreds of millions of dollars out of system safety and giving it to the Legislature will reduce safety, hurt ratepayers and cost jobs," Tom Dalzell, IBEW Local 1245 business manager, said in a prepared release.

However, the PUC safety division said in its regulatory filing Tuesday that PG&E had earned the harsh penalty.

"The tragedy in San Bruno, which was directly caused by PG&E's unreasonable conduct and neglect for decades, was the worst disaster in the history of California electric and gas utilities," the safety division said.

Contact George Avalos at 408-373-3556 or 925-977-8477. Follow him at twitter.com/george_avalos.