PG&E, our indifferent regulators, and the 8 dead of San Bruno

If you’re curious about how Pacific Gas & Electric managed to flout gas line safety rules for years, and why there’s reason to doubt that the California Public Utilities Commission will hold the company fully responsible for the explosion that destroyed a California neighborhood in 2010, here’s the answer.

It comes from emails seeming to show the company and PUC regulators conniving and commiserating over the company’s travails after the explosion in San Bruno, south of San Francisco.

Any way you cut it, the documents -- released by the city of San Bruno after a lengthy public records battle -- make for disgraceful and disgusting reading.

They depict a major California utility and its chief regulator sharing an “us vs. them� attitude in which the “them� is the public; and all this during a period when the regulator was investigating a disaster in which eight citizens died, a neighborhood was leveled, and the utility’s responsibility was absolutely manifest.

The exchanges point to a regulatory agency that is utterly ineffective. Newspapers in Northern California have called for the resignation or removal of PUC President Michael Peevey, who is overseeing some of the proceedings on San Bruno and is one of the email participants.

They’re right. The exchanges show Peevey and his staff to be improperly close to PG&E. He should step down from the PUC.

PG&E has accepted responsibility for the San Bruno blast, as well it must: It installed the gas line, did so carelessly and incompetently, failed to keep it maintained, and failed to shut off the gas for more than an hour and a half after the blast. (This is all documented in a 2011 report by the National Transportation Safety Board.)

Since then the utility has been dickering over how much it should pay.

For the record, PG&E says it will review the emails. If they fall short of the company’s commitment “to conducting ourselves in an ethical manner at all times,� it says, “we will take appropriate action.� Peevey’s office didn’t reply to my request for comment, but the PUC this week stated that it will evaluate and take seriously the city’s “allegations of bias and rule violations.�

On Tuesday, federal prosecutors revised their original April indictment of the company for San Bruno. PG&E is now charged with obstructing the NTSB and with 27 other violations of federal law. The utility could be on the hook for more than $1 billion in fines.

But larger ripples could come from the emails published by San Bruno. Communications between PUC commissioners such as Peevey and interested parties in a regulatory proceeding are subject to an “absolute ban,� says Britt K. Strottman, San Bruno’s lawyer in the case. (She says the city has no evidence that any other commissioner engaged in such banned backchat.)

Whatever legal technicalities govern communications between regulators and regulated companies in California, it’s hard to see how PUC officials overlooked the necessity of erecting an electrified fence between themselves and PG&E.

They treated PG&E officials as pals; under the circumstances it might have been more appropriate to treat them as pariahs. The very first time Peevey’s office got an email from a PG&E executive passing along figures about how regulatory enforcement might affect the utility’s bottom line, a stern and unmistakable message should have gone out: Do not communicate with us privately; make all your representations in public as part of the San Bruno docket.

Instead, Peevey commiserated with the beleaguered utility. On March 16, 2011, a PG&E executive for regulatory affairs named Brian K. Cherry sent Peevey, “FYI,� word of a negative credit report on PG&E from Standard & Poor’s, resulting from its San Bruno exposure. The only reasonable explanation for this message was that PG&E was trying to influence Peevey’s thinking about a financial penalty.

What Peevey should have said was: “Don’t write to me.� Instead, what he sent back was a companionable, “Yep. No surprise.�

Last April, after federal prosecutors first released their indictment of the company, Peevey gave PG&E some unwarranted advice about PR -- specifically its release of a statement disclosing the coming indictment in advance.

“One comment,� Peevey wrote Cherry: “PG&E’s decision to issue a press release last week anticipating all this only meant that the public got to read two big stories more than one. I think this was inept.�

One comment: Who exactly does Michael Peevey work for?

Even worse was the apparent willingness of PUC officials to entertain PG&E’s complaints about the commission staff’s aggressive fact-finding. In December 2011, another PG&E regulatory affairs executive, Laura Doll, complained to PUC executive director Paul Clanon about PUC attorneys’ requests for data.

“I can’t get over the unchecked appetite for global data requests from legal,� she wrote. “Its [sic] unmanageable....Is there any procedural opportunity to have other eyes on the scope and nature of these requests?� In a follow-up a half-hour later, she added: “I think this is out of control. Thanks!�

Doll’s plea was unmistakable: Clanon should put a leash on PUC lawyers. If there’s a more inappropriate private contact than this between a regulated utility and one of the PUC’s most senior officials, it’s hard to imagine what that could be.

It’s unclear whether the message resulted in constraints on the staff, but unless the PUC immediately produces evidence that Clanon explicitly told the company to take a hike and makes its complaints via a public motion, then he and his own staff must be disqualified from any further work on San Bruno, and their previous involvement must be investigated.

The PUC is one of the state’s most important consumer protection agencies, but as the NTSB pointed out, it failed to properly oversee PG&E’s pipeline operations. The agency also has considerable jurisdiction over Southern California Edison and PG&E as owners of the San Onofre and Diablo Canyon nuclear plants, respectively, which should make state residents nervous.

The time has come to reconsider whether an appointed PUC can adequately serve the state, and whether an elected utility regulator might do better. The PUC we have now needs to be cleaned up, and the job should start at the top.

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