California Court of Appeals, First District, Second Division
Cal. PUC Decision Nos. 13-12-053 & 14-05-034
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Thomas John Long for Real Party in Interest The Utility Reform Network.
Jones Day: Charles Churchill Read and Haley Melisse McIntosh Attorneys for Real Parties in Interest, American Gas Association et al.
Pursuant to its statutory authority to adopt rules of practice and procedure (Pub. Util. Code, § 1701, subd. (a)), the Public Utilities Commission (PUC or Commission) promulgated Rule 1.1, which provides in pertinent part: Any person who. . . transacts business with the Commission. . . agrees. . . never to mislead the Commission or its staff by an artifice or false statement of fact or law. (Cal. Code Regs., tit. 20, § 1.1 (Rule 1.1).)
In the aftermath of a massive 2010 explosion of an underground gas pipeline owned and operated by Pacific Gas and Electric Company (PG&E), the PUC imposed a series of reforms to be instituted by PG&E. One of those reforms was that PG&E improve its recordkeeping and information technology capabilities. PG&E was directed to keep the PUC informed of any reported pipeline leaks and any discovered information regarding the safety of continuing pipeline operations. Thereafter, following discovery of a pipeline leak, PG&E also discovered that some information it had provided to the PUC concerning the internal pressure at which certain pipelines could be safely operated might not be correct. Approximately seven months after discovery of this mistake was internally verified by PG&E, it was communicated to the PUC via a written Errata to a previous filing. Following extensive hearings, the PUC deemed this filing both a substantive and a procedural violation of Rule 1.1, which the Commission determined had the effect of misleading the Commission. For this dual violation of Rule 1.1, the Commission imposed civil penalties totaling $14.35 million.
We granted PG&Es petition for a writ of review to consider: (1) whether the penalties were validly imposed in the belief that Rule 1.1 does not invariably demand a scienter requirement; (2) whether the Commission correctly treated PG&Es act and omission as continuing violations; (3) whether the PUCs order to show cause provided sufficient notice of the grounds for which PG&E might be penalized; and (4) whether the penalties authorized by sections 2107 and 2108 are constitutionally excessive. With appropriate consideration for the unique powers of the PUC, we conclude that none of PG&Es contentions has merit. We therefore affirm the decisions of the PUC imposing the penalties and denying PG&Es request for rehearing.
The Nature, Duties, and Powers of the PUC
Our Supreme Court has described the PUC as a state agency of constitutional origin with far-reaching duties, functions and powers. (Cal. Const., art. XII, §§ 16.) The Constitution confers broad authority on the commission to regulate utilities, including the power to fix rates, establish rules, hold various types of hearings, award reparation, and establish its own procedures. (Id., §§ 2, 4, 6.) The commissions powers, however, are not restricted to those expressly mentioned in the Constitution: The Legislature has plenary power, unlimited by the other provisions of this constitution but consistent with this article, to confer additional authority and jurisdiction upon the commission. . . . (Cal. Const., art. XII, § 5.)
Pursuant to this grant of power the Legislature enacted Public Utilities Code section 701, conferring on the commission expansive authority to Do all things, whether specifically designated in [the Public Utilities Act] or addition thereto, which are necessary and convenient in the supervision and regulation of every public utility in California. (Italics added.) The commissions authority has been liberally construed. (Consumers Lobby Against Monopolies v. Public Utilities Com. (1979) 25 Cal.3d 891, 905 [160 Cal.Rptr. 124, 603 P.2d 41].) That authority amounts to comprehensive jurisdiction over questions of public health and safety arising from utility operations, and includes not only administrative but also legislative and judicial powers. (San Diego Gas & Electric Co. v. Superior Court (1996) 13 Cal.4th 893, 915, 924 [55 Cal.Rptr.2d 724, 920 P.2d 669].)
The Legislature has also provided the PUC with extensive enforcement powers, including the imposition of monetary civil penalties: Any public utility that violates or fails to comply with any provision of the Constitution of this state or of this part, or that fails or neglects to comply with any part or provision of any order, decision, decree, rule, direction, demand, or requirement of the commission, in a case in which a penalty has not otherwise been provided, is subject to a penalty of not less than five hundred dollars ($500), nor more than fifty thousand dollars ($50,000) for each offense. (§ 2107.) In determining the amount of such penalty, ... the appropriateness of such penalty to the size of the business charged, the gravity of the violation, and the good faith of the person charged... shall be considered. (§ 2104.5.) Every violation... is a separate and distinct offense, and in case of a continuing violation each days continuance thereof shall be a separate and distinct offense. (§ 2108.)
Among the Commissions duties is administering the regulatory authority over the intrastate production, generation, transmission, delivery, underground storage, or furnishing of gas, natural or manufactured, except propane, for light, heat, or power. (§ 221; see §§ 216, 222, 328.2, 27712775.6.) It is also authorized to exercise a measure of federal interstate power under the Pipeline Safety Act. (49 U.S.C. §§ 60104(c), 60105(b)(2), 60106(b); Olympic Pipe Line Co. v. City of Seattle (9th Cir. 2006) 437 F.3d 872, 878 [a state authority may enter into a pipeline safety agreement with the DOT [Department of Transportation], through which the DOT authorizes the state authority to participate in the oversight of interstate pipeline facilities].) The Commission in this capacity applies the federal pipeline safety regulations contained in 49 Code of Federal Regulations (CFR) Part 192, et seq. The Commission adopted General Order (GO) 112-C in 1971, which adopted in their entirety the federal pipeline safety rules in 49 C.F.R. Part 192, also adopted in 1971. (Order Instituting Investigation on the Commission's own Motion into the Operations and Practices of Pacific Gas and Electric Company (Jan. 12, 2012) Cal.P.U.C. Dec. No.
I.12-01-007 [2012 Cal.P.U.C. Lexis 39, p. *13].)
The San Bruno Pipeline Explosion
This proceeding traces back to what is commonly known as the San Bruno pipeline explosion, the salient details of which were described in a PUC report as follows:
On September 9, 2010, at approximately 6:11 pm, a 30-inch diameter natural gas transmission pipeline owned and operated by PG&E ruptured in San Bruno, California. Gas escaping from the rupture ignited resulting in the loss of eight lives, injuries to 58 people, destruction of 38 homes, moderate to severe damage to 17 homes and minor damage to 53 homes.
The section of pipeline involved was Segment 180, ... located at the intersection of Earl Avenue and Glenview Drive... [¶]... [¶] Energy released from the rupture created a crater about 72 feet long by 26 feet wide. A 28-foot long section of pipe weighing approximately 3, 000 pounds was ejected from the crater and landed approximately 100 feet from the crater in the middle of Glenview Drive." (Incident Investigation Report: September 9, 2010 PG&E Pipeline Rupture in San Bruno, California (Cal.P.U.C, Jan. 12, 2012) pp. 7-8 (Investigation Report).)
During the 50 hours following the incident, about 600 firefighting (including emergency medical service) personnel and 325 law enforcement personnel responded. Fire crews and police officers conducted evacuations and door-to-door searches of houses throughout the response. In total, about 300
homes were evacuated. (Investigation Rep., supra, at p. 13.) The rupture released about 47.6 million standard cubic feet of natural gas." (Order Instituting Investigation on the Commission's Own Motion into the Operations and Practices of Pacific Gas and Electric Co. (Feb. 24, 2011) Cal.P.U.C. Dec. No. I.11-02-016 [2011 Cal.P.U.C. Lexis 69, p. *51].)
At the time of the explosion, the pipeline had been authorized to maintain a maximum allowable operating pressure (MAOP) of 400 psig, but it had an effective MAOP of 375 psig. (Investigation Report, supra [Slip Opn., pp. 7, 22].) Four days after the explosion, the Commissions Executive Director directed PG&E to reduce the operating pressure of the affected pipeline by 20 percent until such time as the Commission allows PG&E to return to. . . normal operating pressure, and also to Conduct an accelerated leak survey of all transmission lines in PG&Es service territory... and take corrective action as required and report the results... on or before October 12, 2010. (Cal.P.U.C. Res. No. L-403 (Sept. 23, 2010) p. 3.) And the PUC issued a press release that it would direct PG&E to Report immediately... and provide specific data on all leak reports. (Cal. Pub. Util. Com., Press Release, CPUC Orders PG&E to Take Specific Action Related to San Bruno Explosion, Including Inspection of Natural Gas System (Sept. 12, 2010) <http://docs.cpuc.ca.gov/PUBLISHED/NEWS_RELEASE/123315.htm> [as of June 16, 2015].)
The PUC Begins to Investigate
Two weeks after the explosion, on September 23, 2010, the Commission ordered an investigation into the causes of "[t]he San Bruno explosion, which may be the largest transmission pipeline explosion in an urban/suburban setting in U.S. history, certainly the most catastrophic in California history. (Cal.P.U.C. Res. No. L-403, supra, at p. 2.) The Commission adopted certain mandates to PG&E ordered by the Commissions Executive Director, thus ratifying the 20 percent reduction of pipeline operating pressure, and reiterating that PG&E had to, among other things: 7) Preserve all records related to the incident, including work at the Milpitas Terminal during the month of September 2010; [¶] 8) Preserve all records related to the maintenance or modification of Line 132 by PG&E and/or its contractors performed within the City of San Bruno over the past ten (10) years; [and] [¶] 9) Review the classification of natural gas transmission lines
and determine if the classification has changed since the initial designation and report the results to the Executive Director. (Id. at pp. 3-4.)
After conducting an extensive investigation into the pipeline explosion, the Commissions Consumer Protection and Safety Division concluded: [T]he San Bruno incident was caused by a combination of multiple contributing factors: [¶] 1. PG&Es failure to follow accepted industry practices when it constructed Segment 180 in 1956; [¶] 2. PG&Es failure to comply with the integrity management requirements; [¶] 3. PG&Es inadequate record keeping practices; [¶] 4. Deficiencies in PG&Es SCADA system and inadequate procedures related to the work at the Milpitas Terminal and PG&Es failure to comply with its own procedures; [¶] 5. PG&Es deficient emergency response after the incident; and [¶] 6. PG&Es corporate culture emphasizing profits over safety. (Investigation Report, supra, at p. 3.) Some of the supporting details were as follows:
In 1956, when PG&E constructed the section of pipe that failed in San Bruno, it did not follow accepted good industry practice existing at the time. PG&Es failure to identify deficiencies in pipe manufacturing through inspection and testing at the time of construction resulted in the installation of defective pipe in the ground." (Investigation Rep., supra, at p. 15.) "PG&E was unable to produce records demonstrating that a strength test was performed on Segment 180 at the conclusion of its construction, and before the Segment was placed in operation." (Id. at p. 22.)
The investigation found that PG&E did not comply with certain integrity management requirements in the federal pipeline safety regulations. Significant deficiencies were found in data gathering and integration, threat identification, risk assessment, and assessment. (Investigation Rep., supra, at p. 25.)
The investigation found that, at the time of the incident, PG&E transmission pipeline records were not accurate, complete, or verifiable. PG&Es records showed inaccurate information for Segment 180 .. . and PG&E could not identify the manufacturer of Segment 180 or locate its as-built drawings, alignment sheets, specifications and other design, material, construction, inspection, and testing records.... [¶] PG&E failed to follow the record keeping standards... which were applicable at the time Segment 180 was constructed and, in turn, violated the Public Utilities Code, Section 451 by operating its system unsafely by lacking accurate and locatable records essential for safe pipeline operation." (Investigation Rep., supra, at p. 62.) ". . . PG&E's transfer of data from hard copies to electronic format was not performed adequately. Some data was not transferred accurately or was completely missed due to human error or varying software versions and file format incompatibilities." (Id. at p. 64.)
In February 2011, the PUC, noting that the NTSB had already publicly expressed concern about the safety implications of the PG&E record-keeping deficiencies the NTSB [had] uncovered in the San Bruno investigation, decided to commence an expansive investigation of PG&Es recordkeeping practices, not limited to the immediate time before the explosionindeed, not limited to the San Bruno pipeline. (Cal.P.U.C, Dec. No. I.11-02-016, supra, 2011 Cal.P.U.C. Lexis 69 at p. *12].) PG&E was warned that The Commission is prepared to impose very significant fines
[and statutory penalties pursuant to Section 2107] if the evidence adduced at the hearing establishes that PG&Es recordkeeping policies and practices contributed to the loss of life and injuries that occurred at San Bruno. (Id. at pp. *21-*22].) PG&E is therefore directed to... provide a report... to identify all reasons of law and fact currently known to PG&E to establish that the company has committed no violation of law with respect to its recordkeeping of data needed and appropriate for safety engineering." (Id. at pp. *27-*28; see id. at pp. *35-*36.)
In September 2011, the PUC denied PG&Es motion... to delegate authority to the Executive Director to approve requests to lift operating pressure limitations, but instead adopt[ed] an expedited hearing process for Commission consideration of such requests. (Cal.P.U.C. Proposed Dec. No. 11-09-006, supra, at p. 1.) The Commission reasoned that the process proposed by PG&E is inadequate to discharge our Constitutional and statutory duties. The public interest in PG&Es natural gas operations is intense. Restoring MAOP in PG&Es transmission pipelines has significant implications for public safety. The public deserves to be informed about PG&Es proposed MAOP restoration and to have an opportunity to assess PG&Es evidence in support of the request. Moreover, PG&Es proposed delegation, particularly in light of the unspecified supporting analysis, goes well beyond the scope of ministerial matters for which the Commission may properly delegate its authority. The Commission ordered the operating pressure reductions... and the Commission should consider whether these ordered reductions should be lifted. (Id. at p. 7].) And, PG&E was cautioned, it must be fully accountable for the pressure test and the assertion that the line can be safely operated at the restored MAOP. (Id. at p. 11.)
In December 2011, after PG&E had conducted the pressure test, the PUC authorized PG&E to operate Lines 101, 132A, and 147 at a pressure no higher than 365 pounds per square inch gauge. (Order Instituting Rulemaking on the Commission's Own Motion (Dec. 15, 2011) Cal.P.U.C. Dec. No. 11-12-048 [2011 Cal.P.U.C. Lexis 570, p. *7.) Doing so, the Commission made two findings of fact that are significant:
PG&Es Vice President of Gas Transmission, Maintenance, and Construction, verified that PG&E has validated the engineering and construction of,
and performed pressure tests in accordance with 49 CFR 192 Subpart J or the pressure test requirements then in effect, on all segments of Lines 101, 132A, and 147 that will be operating at or above 20% of specified minimum yield strength [see fn. 2, ante], and concluded that these pipelines could be safely operated at the increased maximum operating pressure of 365 psig.
CPSD [the Commissions Consumer Protection and Safety Division] reviewed PG&Es supporting information and concluded that the information presented was adequate to support the conclusion that pressure on the lines could be safely increased to 365 psig. (Cal.P.U.C. Dec. No. 11-12-048, supra [2011 Cal.P.U.C. Lexis 570 at p. *13.)
Again, PG&E was cautioned that it must be fully accountable for... the assertion that the line can be safe[l]y operated at the restored [MAOP]. (Cal.P.U.C. Dec. No. 11-12-048, supra, 2011 Cal.PU.C. Lexis 570 at pp. *8-*9.)
Meanwhile, the previous month, November 2011, the PUCnoting that PG&E appears to have failed to comply with federal regulations concerning the protection of persons and property in areas with higher concentrations of human occupancy and activityformally opened an investigation into the San Bruno explosion. (Order Instituting Investigation on the Commission's Own Motion (Nov. 10, 2011) Cal.P.U.C. Dec. No. I.11-11-009 [2011 Cal.P.U.C. Lexis 506, pp. *8-*9].) It began on January 12, 2012, when the PUC commenced a new, separate, and wide-ranging investigation: This investigation will not be solely limited to the events that took place on September 9, 2010, but shall include all past operations, practices, and other events or courses of conduct that could have led to or contributed to the San Bruno explosion and fire. We will specifically consider what monetary fines and other remedies are appropriate to ensure that a catastrophe of this type does not occur again. (Cal.P.U.C. Dec. No. I.12-01-001, supra, 2012 Cal.P.U.C. Lexis 39 at p. *4.)
In its petition, PG&E provides its explanation of what happened next:
On October 18, 2012, a PG&E employee discovered that a portion of the pipe on Line 147 appeared to be of a different specification than that described in PG&E reports. Whereas the records indicated that the particular portion of the pipeline was of a type known as a Double Submerged Arc Weld, the employee believed based on his visual field inspection that the pipe was instead of a type known as A.O. Smith. The employee shared the
apparent discrepancy with others at PG&E for further investigation and confirmation. Over the next several months, PG&E employees confirmed the Line 147 included A.O. Smith pipe.
PG&E employees determined, based on the newly-discovered specification information, that the proper MAOP of Line 147 should be 330 psig rather than 365 psig. However, . . . Line 147 was already operating at a reduced pressure of 330 psig or less, no further reduction in operating pressure was necessary . . . .
Over the next several months, PG&E investigated how some of the Line 147 pipe had been incorrectly identified in the records, reviewed all other specifications, re-reviewed the information obtained from construction activities on the entire Line 147, performed field examinations on the pipe, performed what is known as destructive testing on a portion of the pipe, and reviewed the records pertaining to the other pipelines affected by the Commissions [Decision] 11-02-048.
Over the same period, PG&E employees found that certain federal pipeline regulations had been incorrectly applied to a portion of Line 101, another pipeline whose pressure had been restored by D.11-02-048. Whereas PG&E had previously relied on tests conducted in 1989 to determine the MAOP for that pipeline, employees concluded that under the regulations an earlier test conducted prior to 1974 should have been used for this purpose.
PG&E employees determined, based on the change in regulatory classification, that the proper MAOP of that portion of Line 101 should be 330 psig rather than 365 psig. However, ... [as] Line 101 was already operating at a reduced pressure of 330 psig or less, no further reduction in operating pressure was necessary....
On February 22, 2013, PG&E contacted the Commissions staff to arrange a meeting or teleconference to repeat these findings. A teleconference was held on March 20, 2013, during which PG&E employees discussed with the Commissions staff the corrected information relating to Lines 101 and 147. In response to requests by Commission staff during that teleconference, on May 2 and May 8, 2013, PG&E provided the staff with validation reports and other materials concerning Lines 101 and 147, and further advised that PG&E was continuing its review of records relating to these and other lines.
PG&E Files the Errata and the PUC Response
On July 3, 2013, PG&E submitted for filing a document entitled Errata to Pacific Gas and Electric Companys Supporting Information for Lifting
Operating Pressure Restrictions on Lines 101 and 147. The document represented to the Commission that After receiving Decision 11-02-048, PG&E identified errors in some of the supporting information for Lines 147 and 101. [¶] The errors do not raise a safety issue, as each affected segment has been successfully hydro tested to a pressure that supports the MAOP. However, after correcting these errors the affected segments will have a lower MAOP than approved in Decision11-02-048. Both segments are currently operating below the new, lower MAOP. The Errata concluded with this: [T]he operating pressure of Line 101 has been limited to 300 psig since April 2013 and PG&E is revising the MAOP of this segment of Line 101 from 365 psig to 330 psig.... In addition to revising the MAOP of this segment, PG&E has accelerated plans to replace it. PG&E is currently planning to replace the affected portion of Line 101 in 20142015.
PUC staff refused to accept this document for filing. On August 19, the PUC issued an order for PG&E to show cause (OSC) why it should not be sanctioned for violating Rule 1.1. The OSC recited that the Errata was rejected... as untimely to the extent that it sought to make a substantive change to issues previously resolved by the Commission. And under the heading Issues Revealed in PG&Es July Document, the OSC read as follows:
PG&Es July document raises procedural and substantive issues. Procedurally, parties are not allowed to file pleadings for the purpose of correcting minor typographical or computational errors in previously filed applications. Parties are allowed to file pleadings for the purpose of making substantive changes to a previously filed application, and such filing triggers the opportunity for other parties to file a responsive pleading (unless limited or prohibited...). Here, PG&E appears to be revealing a substantial error in an application upon which the Commission has relied in issuing a decision. Attempting to correct an application eighteen months after the Commission issued a decision appears to be an unreasonable procedural choice and could be interpreted as attempting to create an inaccurate impression of a routine correction. The timing of the attempted filing, the day before a summer holiday weekend, also raise questions.
Substantively, as the record shows in this proceeding and others, the accuracy of PG&Es natural gas transmission pipeline records has been and remains an extraordinarily controversial issue in which the public has an intense interest. The facts stated in PG&Es July filing appear to directly implicate this issue, particularly the continuing inaccuracy of PG&Es records and the happenstance means by which this most recent instance of erroneous records was discovered. Submitting this provocative information in a routine-appearing document could be seen as an attempt to mislead the Commission and the public on the significance of this new information.
On August 30, 2013, PG&E filed a Verified Statement by M. Kirk Johnson, its Vice-President for Gas Transmission, Maintenance and Construction, explaining how the discrepancies in Lines 101 and 147 were discovered and how PG&E responded.
The OSC Hearing
The OSC was the subject of a hearing held on September 6, 2013 before three PUC Commissioners (Ferron, Florio, and Sandoval) and two administrative law judges (ALJ), including the chief judge. The sole witness was Joseph M. Malkin, PG&Es lead counsel, who had practiced before the Commission for 28 years, the last three years of which were devoted exclusively to representing PG&E before the Commission. In addition to questioning by the Commissioners and ALJs, Lead Counsel was questioned by counsel for the City of San Bruno, the Commissions Safety and Enforcement Division (SED), and The Utility Reform Network (TURN). The gist of Lead Counsels testimony was that the Errata was filed on his responsibility, with no intent to mislead, but only to correct erroneous information previously provided to the PUC in good faith, in a completely unique situation
that unquestionably had to be brought to the Commissions attention. As for the matter of the timing of submission of the Errata for filing, Lead Counsel explained that the submission before the start of a long Fourth of July weekend was not done to escape attention, but was motivated by nothing other than his belief we should file as quickly as we could once we had everything nailed down. Directly asked by another attorney for PG&E did you at any time in connection with the preparation, the titling, or the filing of the errata intend to mislead the Commission, the parties, or the public?, Lead Counsel replied, Absolutely not.
Counsel for TURN asked Can you tell us why this pleading [i.e., the Errata] does not include the fact that this discovery was made eight to nine months prior to the date of the pleading? Lead Counsel answered, For purposes of this pleading, which was to provide notice to the Commission and the parties that there were errors and how they were corrected, that seems to me like way too much information. And responding to a question from a commissioner, Lead Counsel testified that PG&E was not trying... to sneak something below the radar.
Thereafter the Commission received written submissions. PG&E filed comments, which for the first time raised the issue of whether a violation of Rule 1.1 required a mental state related to misleading the Commission, and arguing that PG&E had not acted with any intent to mislead in connection with the submission of [the Errata], nor with recklessness or gross negligence. PG&E further argued that [n]o evidence supports a Rule 1.1 violation based on the July 3rd service date.
The City of San Bruno argued that the Errata was submitted to the Commission as [a] mere artifice to mislead all parties in order to minimize PG&Es responsibility for past and ongoing deficiencies in its records. In its words: PG&E obscured the significance of its Line 101 and 147 errors via the artifice of an errata filing precisely because the circumstances surrounding the faulty records for and operation of Lines 101 and 147 are identical to those that precipitated the disaster in San Bruno. After spending hundreds of millions of dollars. . . PG&Es records are still dead wrong. Those inaccuracies, along with the fact that PG&E tried to camouflage its ongoing problems with an obscure regulatory filing rather than be forthcoming ought to scare this Commission, Commission staff, and every customer in PG&E territory because PG&Es behavior is still dangerous. [¶]. . . [¶] Not only does bad data for Lines 147 and 101 demonstrate that ...