2019.12.09; Monday December 9th, 2019: ‘Safety Is Not a Glamorous Thing’: How PG&E Regulators Failed to Stop Wildfire Crisis
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‘Safety Is Not a Glamorous Thing’: How PG&E Regulators Failed to Stop Wildfire Crisis
California’s public utilities commission prioritized rates, green power; wildfires exposed shortcomings
By
Katherine Blunt and
Russell Gold
Dec. 8, 2019 2:46 pm ET
In 2015, the California regulator overseeing PG&E Corp. opened an inquiry into whether the state’s largest utility put enough priority on safety.
Since then, a federal jury has found PG&E guilty of violating safety regulations for natural-gas pipelines and a federal judge later placed it on criminal probation. Its electrical equipment has sparked more than a fire a day on average since 2014—more than 400 last year—including wildfires that killed more than 100 people. It filed for bankruptcy protection this year, citing $30 billion in fire-related liabilities, and started blacking out millions of customers to try to avoid sparking blazes during strong winds. On Friday, it agreed to pay $13.5 billion to wildfire victims in a settlement deal.
The regulator, meanwhile, is still investigating.
PG&E’s collapse has exposed the California Public Utilities Commission’s failure to hold the utility accountable on safety. The CPUC for years focused attention elsewhere, on setting rates and pushing for cleaner power.
Now, the agency tasked with regulating utility safety is struggling to refocus on the issue while also grappling with its failure to prevent the state’s second electricity crisis in two decades.
"The PUC is reactive," says Janice Grau, a retired administrative law judge for the commission. Of the weather patterns that led to deadly power-line failures and blackouts, she says: "There wasn’t anyone at the PUC who had the idea to look at the Diablo Winds and say that maybe this is going to get worse."
Behind the CPUC’s failure to ensure a safe PG&E lie a number of political mandates from California’s leadership, skimpy financial and personnel resources for safety, and an internal culture that ceded much safety oversight to the utilities themselves, say former commissioners, academics and industry experts.
The commission’s detractors say it has been excessively cozy with PG&E and the other companies it is supposed to regulate, with a revolving door of staffers shuttling between the regulator and utilities. The companies, meanwhile, have long been among the biggest political players in Sacramento, showering money on Democrats and Republicans alike and helping write the state laws that are meant to govern their behavior.
Utility commissioners, appointed by California’s governors, have focused much of the past two decades on implementing politicians’ increasingly ambitious goals to reduce the state’s carbon footprint by requiring utilities to buy more wind and solar power.
Those efforts were largely successful in pushing the utilities toward renewable power, turning California into a green-energy leader. But now, as state fire officials link outdated PG&E and Southern California Edison equipment to an increasing number of destructive fires, the CPUC faces criticism it should also have prepared the state for the rising wildfire threat.
In 2013, a consultant interviewed CPUC staff about the agency’s safety-enforcement efforts and issued a report concluding the safety division received less money and staffing than others focused on delivering green energy and setting rates.
The Camp Fire in November 2018. Photo: Noah Berger/Associated Press The report stated: "There has been little attention and limited resources directed toward reliability, and even fewer toward safety, by the Legislature and the Commissioners."
Several of its safety auditors and other staffers have moved into roles at PG&E and other utilities in recent years to oversee the functions they were once charged with regulating.
Earlier this year, U.S. District Judge William Alsup, who is overseeing PG&E’s federal probation stemming from the 2010 natural-gas-pipeline explosion that killed eight people in San Bruno, Calif., criticized the commission’s staff as they testified before him on the company’s safety practices. "It’s a revolving door with PG&E over there," he said. He later apologized to the staffers.
"Criticism of the CPUC being too close to the utilities it regulates is not reflective of current CPUC leadership," a commission spokeswoman said, adding that "the CPUC overhauled how all investor-owned utilities identify, prioritize, and mitigate safety risks." PG&E declined to comment.
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California Gov. Gavin Newsom recently appointed a new commission president, Marybel Batjer, a former casino executive and veteran California bureaucrat who held top jobs with the state’s prior Democratic and Republican governors, and gave her the task of overhauling the regulator. He has threatened a state takeover of the utility. Ms. Batjer has criticized PG&E for its handling of recent blackouts, telling Chief Executive Bill Johnson it was "an unacceptable situation that should never be repeated," and she has signaled the need for better safety regulation.
Ms. Batjer says the CPUC, as part of the continuing safety probe, is considering going beyond fines in sanctioning PG&E, perhaps by targeting executive compensation or the board’s makeup. She notes that safety problems have persisted within the company, even after the agency fined it $1.6 billion for the San Bruno explosion, which destroyed a neighborhood near San Francisco.
"I’m not sure that changed their behavior," she says, "or their corporate culture."
Green focus
The 1,200-employee CPUC, whose roots trace to 19th-century efforts to check railroad tycoons’ power, is the nation’s largest state-utility commission. The next largest, Virginia’s, has about 625 employees to regulate utilities and other industries, according to the National Association of Regulatory Utility Commissioners. California’s commission oversees a range of industries, including telecommunications and ride-sharing companies like Uber Technologies Inc.
From the early 2000s, the commission’s focus was on setting rates and implementing Sacramento’s renewable-energy goals. Starting in 2002, three consecutive governors, two Democrats and a Republican, signed bills ratcheting up the percentage of wind and solar power utilities had to buy.
These mandates required investor-owned utilities such as PG&E to change their mix of generation, effectively phasing out burning coal and lowering reliance on natural gas while signing contracts to buy electricity from new solar and wind farms. The CPUC oversaw these deals, as well as figuring out how to integrate thousands of new rooftop solar installations.
"Was there a considerable amount of resources placed on policy? Yeah, there was," says Timothy Alan Simon, a commissioner between 2007 and 2012 and now a utilities consultant. "It’s a challenge to balance between the safety aspects and the need for policy deliberation."
Michael Peevey, a former Southern California Edison president, and CPUC president between 2002 and 2014, was a vocal champion of renewable-energy policies. Now retired, he says the regulator was large enough to focus on safety and renewables simultaneously but that it was tough to get Sacramento lawmakers excited about funding safety.
When compared with eliminating coal and adding solar energy, he says, "Safety is not a glamorous thing." -Michael Peevey
PG&E was among nine corporations that made the maximum $58,400 contribution to Democratic Gov. Newsom’s 2018 campaign. It was a major contributor to the gubernatorial campaigns of Democrat Jerry Brown and Republican Arnold Schwarzenegger before him.
‘Safety is not a glamorous thing’ compared with green energy, says former CPUC President Michael Peevey, here in 2006, left.
The company reported in a federal court filing earlier this year that it made $5.3 million in contributions to candidates, political parties and political-action committees in 2017 and 2018. The top recipients were the state’s Republican and Democratic parties, which each received more than $400,000, according to campaign-finance records.
While PG&E remains among the state’s top political donors, its role in the wildfires has eroded that clout despite its support of the governor and other key lawmakers.
Struggle for resources
The commission’s budget for regulating utilities was roughly $200 million in the 2018-19 fiscal year, up from $98.5 million in the 2015-16 year, a budget that funds all activities related to the oversight of utility companies, including inspections, rate-setting, auditing, writing reports, doing investigations and other bureaucratic tasks—but that budget doesn’t fund its regulation of other industries. The CPUC has historically struggled to find sufficient resources to conduct safety inspections and investigations, despite a long string of California utility disasters that have suggested the need for closer oversight.
Long Time Coming
California regulators have launched multiple investigations into PG&E, some continuing for years.
2015
Does PG&E's Culture Prioritize Safety?
Safe Pipeline Location Operations
Source: California Public Utilities Commission
"There ought to be a team of safety experts living in an office in PG&E’s headquarters with access to all employees and records, looking at what they are doing and asking hard questions," says Steve Weissman, who spent 30 years at the commission as an administrative law judge and a top adviser to commissioners, and is now a lecturer at the University of California, Berkeley’s public-policy school. "But that has not been the approach that they have taken."
The CPUC began probing its own safety culture after the 2010 San Bruno explosion. At the time, its safety and enforcement division had about 30 employees, less than a third of the number today. They focused on conducting record audits and did little to determine whether the utilities had adequate maintenance and inspection procedures.
After the explosion, the division created a new seven-person team to assess risk and push the utilities to be more forthcoming when they discovered problems. Arthur O’Donnell, who began supervising the team in 2015, says it was down to three engineers when he took over and lacked the money to ramp back up quickly. By the time he retired late last year, he says, it had added six positions and become more sophisticated in its approach.
The commission has for years labored to fill vacancies. Mr. Peevey, the former commission president, says agency jobs often pay less than similar jobs elsewhere in the industry. "We’d attract very bright people," he says, "and they work three or four years and then leave to make more money and have less bureaucracy."
Inside the CPUC was a culture that felt it had to pick its battles, says Mark Ferron, a commissioner between 2011 and 2014. Not long after the San Bruno explosion, the PG&E waited months to tell the regulator about potentially similar problems with another pipeline.
A burned home near the center of the San Bruno, Calif., gas-line explosion in 2010. Photo: Justin Sullivan/Getty Images
Mr. Ferron, now retired, says he wanted to launch an investigation to obtain company emails but was told by staff that PG&E would fight the effort in court for years, taxing agency resources. He relented, he says, and agreed to support fining PG&E $14.4 million for "delay and obfuscation."
Lawyers for San Bruno, who were suing PG&E following the explosion, uncovered evidence commissioners had engaged in back-channel communications with PG&E executives, which was supposed to be banned under the commission’s rules. Thousands of emails were made public that raised questions about whether the CPUC was too cozy with PG&E.
After an investigation, the commission last year fined PG&E, which admitted wrongdoing, $97.5 million for improper communications with its own officials.
Among those involved was Mr. Peevey. Four months before San Bruno, the commission’s then-president had invited a PG&E executive to his house for dinner. "No matter the menu," he wrote, "we have some great bottles of Pinot to drink."
Mr. Peevey says he extended the invitation upon running into the executive at a grocery store near his home. They discussed the company’s politically unpopular effort to push a failed ballot initiative that would have made it harder for local governments to form electricity-buying authorities, he says, calling the meeting "pretty innocent."
At the end of 2014, then Gov. Brown appointed Michael Picker to succeed Mr. Peevey as president. Shortly thereafter, the commission fined PG&E $1.6 billion for negligence in record-keeping and other problems that led to San Bruno, the largest penalty ever levied against a utility in the state.
Mr. Picker pressed the agency to consider going beyond imposing fines to hold utility executives accountable for operating safely. He opened the 2015 investigation into PG&E’s safety culture and pushed to strengthen the commission’s approach to safety regulation. He declined to comment.
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Last month, Mr. Picker expressed frustration that the CPUC was tasked with enforcing safety in addition to overseeing rates, which he saw as the regulator’s main mandate. "Utility commissions across the country were designed for one purpose, but now are expected [to] tackle everything," he wrote on Twitter.
Diablo Winds
Even as the CPUC tried to increase oversight of PG&E, wildfire risk was spreading from Southern to Northern California. That heightened the chance PG&E equipment could spark fires when warm gusts known as Diablo Winds swept across its 70,000-square-mile service territory.
In 2012, the regulator had launched an effort to map high-threat fire areas throughout the state, but the maps weren’t completed until the end of 2017. By that time, a wave of wildfires in the state’s wine country had killed 44 people and burned more than 6,600 homes. State fire investigators later determined that 18 of the fires, responsible for half the deaths, were started by PG&E equipment; the company concurred.
Numerous problems have beset PG&E since state regulators began probing the company's safety practices in 2015
- September 2015PG&E equipment starts Butte Fire, which burns 549 homes and kills two people.
- August 2016Federal jury finds PG&E guilty of multiple counts related to the 2010 San Bruno pipeline explosion, which killed eight people.
- October 2017PG&E equipment starts a series of fires, destroying 1,745 homes and killing 22 people.
- November 2018PG&E equipment starts Camp Fire, which burns nearly 14,000 homes and kills 85 people.
- January 2019PG&E files for Chapter 11 bankruptcy, citing liabilities from fires.
- October 2019PG&E shuts off a large portion of its grid to prevent fires, turning out the lights on an estimated 2.5 million people in northern California.
As part of the 2015 probe into PG&E’s safety culture, a consultant produced a report in May 2017 that spelled out the utility’s failings and made recommendations that involved increasing field training and supervision, hiring leaders with stronger safety qualifications and improving risk analyses.
The commission spent more than a year evaluating the report, and it didn’t vote to adopt the recommendations until last November, after the Camp Fire killed 85 people and destroyed the town of Paradise in the Sierra Nevada foothills. State fire investigators later linked the fire to PG&E equipment, a conclusion with which PG&E concurred.
In December, Mr. Picker formally opened a new phase of the investigation. The commission is now considering a number of proposals to restructure the company, including separating its gas and electric businesses, making it a publicly owned utility or tying shareholder returns to safety performance.
Elizaveta Malashenko, head of the CPUC’s safety division, says the agency has expanded its ability to investigate and litigate utility failures. This month, her division released a report citing PG&E for regulatory violations related to the transmission-line maintenance, including the one that ignited the Camp Fire.
The agency remains constrained in its ability to inspect the vast expanse of utility infrastructure throughout the state due to the size of its workforce and budget, she says. This year, lawmakers gave Ms. Malashenko approval to hire more electric inspectors. She says it has been a challenge to find qualified inspectors, most of whom have been hired by PG&E and other utilities.
Mirrors that track the sun at a solar electric generating facility near the California-Nevada border in 2014. Photo: Steve Marcus/REUTERS
She says she hopes to be able to use technology, including drones, to expand the agency’s inspection capabilities. "We need to be looking at this a little more creatively than just sending out people to duplicate the workforce of the utilities," she says.
State lawmakers voted in July to create a Wildfire Safety Division in the CPUC, where it will begin examining investor-owned utilities. In 2021, it will be moved to the state’s Natural Resources Agency to ensure it has oversight over municipal utilities as well.
The CPUC earlier last month opened a new investigation, its seventh, into PG&E. This one will examine whether PG&E and other utilities put enough priority on safety during large-scale blackouts.
Gov. Newsom and regulators criticized PG&E for the shut-offs in October, but the company was operating within the rules. After a deadly fire near San Diego in 2007 involving a different utility, the commission approved plans to let utilities pre-emptively turn off power during windy and dry periods to reduce the risk that equipment would spark fires.
Only last year, however, did it opened a proceeding to look at how and when utilities decided to shut off power. That proceeding is continuing.
Ms. Batjer, the new commission president, says the CPUC is examining ways to make its investigation and rule-making procedures faster and more efficient. "We do and should, at all times, apply due process," she says. "Due process takes time."