A more subtle but very serious concern is the effect such a disproportionately large penalty would have on Wall Street investors’ assessments not just of PG&E but Southern California Edison, Sempra and California utilities in general. Given the seriousness of the accident, few might be shedding tears for the 12 percent loss in value PG&E sustained in the past three years (as it invested heavily in pipeline safety upgrades and maintenance) or the higher cost of funds the company will face if its bond rating is downgraded. But, if the CPUC creates a hostile regulatory environment by the imposition of this mammoth fine, it’s a safe bet that many Wall Street investors will be looking for other places to put their money.
This could put other California utilities and possibly other regulated companies at a disadvantage in raising capital. That means less money available for investment in upgrades to the grid, infrastructure and renewable energy programs. And it could mean fewer jobs at a time when our unemployment rate is substantially above the national average.
Curiously, the CPUC is proposing the mother of all penalties against a company that has very publicly taken responsibility for the San Bruno accident and shown clear signs that it is mending its ways. Since San Bruno, several senior officers, including PG&E’s chairman and chief executive, have been replaced, and it appears the changes are having a substantially positive impact on the corporate culture. More tangibly, PG&E reports that it spent $900 million in 2012 on pipeline safety improvements and plans to spend an additional $1 billion during 2013 and beyond.
Vengeance does not make good public or economic policy. The CPUC should take a balanced approach to imposing a penalty that results in what is truly needed: a safer pipeline system and a more accountable company.
Bradford Cornell, Ph.D., is visiting professor of financial
economics at Caltech.