The California Public Utilities Commission appears to be gearing up to levy penalties against the Pacific Gas and Electric Co. in connection with a pipeline accident in Northern California that are a whopping 30 times more than any ever imposed involving similar accidents anywhere in the country. Such a draconian fine against PG&E might make for good political theater, but it would be neither fair nor wise public policy. And it ultimately could affect utilities in Southern California and have a broadly chilling effect on the state’s fragile economy.

As both a Californian and an economist, I have watched with great interest the simmering controversy over the CPUC’s proposed action against PG&E related to the pipeline accident in San Bruno. As did others, I saw images of the tragedy and read stories about how it happened. Clearly, PG&E must be penalized for its actions. Imposing civil penalties on companies that do the wrong thing is not only legitimate, but necessary.

At the same time, as a matter of sound public and economic policy, penalties should be fair and proportionate as well as properly structured to bring about desired behavior and prevent future transgressions by the offending party – not exact revenge. If the CPUC approves its staff recommendation to boost combined penalties against PG&E to more than $4 billion, it will fail to meet those criteria. Even more troubling is the possibility, if not the likelihood, that such an excessive penalty would inflict financial damage on many who are not at fault and ultimately undermine the state’s anemic economic recovery. Moreover, bloated and poorly targeted sanctions also could have the unintended consequence of diverting resources that might otherwise be used by PG&E for additional safety enhancements and renewable energy and sustainability initiatives.

Even though the CPUC does not intend to penalize PG&E customers, they will ultimately pay – along with the company’s current and future employees, and PG&E stockholders, who include many individuals and our pension funds. The California Public Employees Retirement System, for example, owns more than 1.25 million PG&E shares, and it surely was not in any way responsible for the accident.

But even if we don’t particularly care about our neighbors to the north, PG&E’s employees or its stockholders, we all should be concerned about the effects of such an extraordinary fine on the state’s economy. Such a fine would impede PG&E’s ability to make investments in much needed infrastructure and other areas. This has the potential to threaten jobs at PG&E as well as at vendors and suppliers throughout the state.

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