Poor Natural Gas Pipeline Recordkeeping After Explosion Results in $14.4M Fine

Industrial pipe with gas and oil

A California appeals court recently upheld a $14.4 million fine issued against Pacific Gas and Electric Co. (“PG&E”) by the California Public Utilities Commission (“CPUC”) for improper reporting of the pressure in a natural gas pipeline that had previously exploded in 2010, killing eight and destroying 38 homes.

After the pipeline explosion in San Bruno, the CPUC fined PG&E $1.6 billion. CPUC’s investigation found that PG&E’s recordkeeping on its transmission pipeline records was substantially insufficient. They ordered PG&E to reduce pipeline operating pressure by 20 percent. The CPUC also required PG&E to review the classification of natural gas transmission lines, determine if the classification has changed since the initial designation, and report the results to the CPUC. The CPUC also warned PG&E that they were prepared to levy significant fines if they found evidence of continued poor recordkeeping practices like those uncovered in their investigation of the San Bruno explosion.

PG&E conducted pressure tests of the pipeline. PG&E reported to the CPUC that the maximum allowable operating pressure (“MAOP”) was 365 pounds per square inch gauge (“psig”). A subsequent inspection found a particular portion of the pipeline was incorrectly identified as to type. The MAOP for this section of the pipeline should have been 330 psig. Additionally, PG&E found that certain federal regulations were incorrectly applied to another section of pipeline. This caused PG&E to use different tests to determine the MAOP. Applying the correct testing information, PG&E found that the MAOP for this section of pipe was also 330 psig. Because the pipeline was already operating at 330 psig, PG&E did not take any corrective action.

PG&E filed a pleading with the CPUC correcting the MAOP for these pipeline sections approximately 8 months later. PG&E characterized the modification of the MAOP s a routine and non-substantive correction. The CPUC ruled that PG&E violated the Rules of Practice and Procedure by not promptly correcting a material misstatement of fact in a pleading filed with the CPUC and for mischaracterizing the correction when filed as a routine and non-substantive correction. The CPUC fined PG&E $50,000 for each day they failed to accurately report these facts, the maximum allowed by law. PG&E appealed the fine, arguing in part that the imposed fines of millions of dollars were for unintentional reporting and filing errors that caused no harm and were not accompanied by any improper intent or misconduct.

The California Court of Appeals sided with the CPUC. The court held that the CPUC had broad authority to impose civil penalties, and that there would be “virtually no deterrent impact if the utility were penalized only upon the actual occurrence of the substantive harm the CPUC was trying to avoid… The idea that the CPUC could not employ that authority to prevent a recurrence of the [San Bruno] explosion is too preposterous to be entertained.”

These events show that a company’s liability for its products can go beyond the actual failure of the products themselves. In this particular case, poor recordkeeping played a part in the events that led to the fatal explosion. Even after the regulatory agency put the company on notice that proper recordkeeping was of the highest priority, the company failed to be diligent in its duties to timely keep complete and accurate records. Because the company failed to fully embrace this concept, they were forced to pay a multi-million dollar penalty. Had the company promptly and swiftly made corrections to their recordkeeping, not only could they have avoided this fine, but also could avoided the public perception of a negligent attitude toward safety of their products.

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