Draft
Draft
#_____21493
4/27/2023 Item
#27
Resolution ALJ-439
Administrative Law Judge Division
[Date]
RESOLUTION
SUMMARY
RESOLUTION ALJ-439 grants the Joint Motion of Pacific Gas and Electric Company
and the Safety and Enforcement Division for Approval of Settlement Agreement which
resolves all issues in the scope of this proceeding. A copy of the Joint Motion is
attached as Appendix A to this Resolution.
BACKGROUND
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Proposed Order sets forth two alleged violations of General Order (GO) 95 Rule 31.1,
one alleged violation of GO 165 Section III-B, and one alleged violation of Pub. Util.
Code § 451. In addition to proposing certain corrective actions, the Proposed Order
directs PG&E to pay penalties totaling $155,400,000 for the alleged violations, as
summarized in the chart below:
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Violation Alleged Violation Start and End Daily Fine Total Fine
No. Dates
1 GO 95, Rule 31.1: 10/31/19 – – $100,000 $33,300,000
Failure to perform 9/27/20
Catastrophic
Expense
Memorandum
Account patrol in
2019
2 GO 165, Section III- 3/31/07 – – $50,000 $81,850,000
B: Failure to 9/22/11
perform intrusive
inspection
3 GO 95, Rule 31.1: 3/27/19 – – $50,000 $50,000
Failure to retain 3/27/19
hard copy
vegetation control
map
4 Pub. Util. Code § 8/23/19 – – $100,000 $40,200,000
451: Failure to 9/27/20
remove trees due to
poor recordkeeping
Total $155,400,000
On November 21, 2022, PG&E submitted a timely Request for Hearing on the Proposed
Order on the grounds that the Proposed Order does not identify facts sufficient to
support the alleged violations and imposes penalties that are excessive even if the
violations could be proven. As a result, the Parties agreed to engage in confidential
settlement discussions pursuant to Rule 12.6 of the Commission’s Rules of Practice and
Procedure. The Parties filed a Motion Requesting a Stay of the proceeding until
January 31, 2023, to allow the Parties the opportunity to seek a mutually agreed
settlement of the proceeding that would be in customers’ interests and consistent with
the policies of the Commission promoting settlement of disputed issues when
appropriate. The assigned Administrative Law Judge (Robert M. Mason III) granted
that Motion, and a subsequent Motion to extend the stay to February 28, 2023.
On February 23, 2023, the Parties filed their Joint Motion for Approval of Settlement
Agreement. The terms of the Settlement Agreement are as follows:
Monetary Penalty
PG&E shall pay a monetary penalty of $10,000,000.00 to the California State General
Fund within thirty (30) days of the Effective Date of this Settlement Agreement.
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PG&E will implement the following system(s) by February 28, 2024, for overhead
electric distribution routine and tree mortality vegetation management (VM) work
within High Fire Risk Areas (HFRAs), which is inclusive of High Fire Threat
Districts (HFTDs). Nothing in this Settlement Agreement precludes PG&E from
seeking rate recovery for costs incurred implementing these VM enhancements.
Shareholder-Funded Initiatives
PG&E will invest shareholder funds for each initiative described in the chart below
(“Initiatives”) in an amount within the range identified for each initiative. PG&E and
SED agree on the estimates of duration and ranges for funding for each of the
Initiatives. The actual duration and funding level for each of the Initiatives may be
modified upon agreement by PG&E and SED, as long as shareholder-provided
settlement funds for the Initiatives total $140 million. PG&E shall submit reports to
SED annually regarding progress and spending for each of the Initiatives, until PG&E
has incurred the total $140 million in connection with this work. SED understands that
the estimates provided by PG&E for each of the Initiatives are high-level estimates
only, subject to revision, and do not constitute a promise by PG&E to complete any
Initiative
within the estimated range or time period provided. If PG&E becomes aware that it
will not expend the total $140 million in shareholder settlement funds or funds within
the estimated range for any specific initiative, it shall inform SED as part of its annual
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report, and PG&E and SED shall make a good faith effort to reach agreement on the
method and timing of expending any remaining funds. Nothing in this Settlement
Agreement precludes PG&E from seeking rate recovery for costs incurred in excess of
$140 million for the combined initiatives.
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Enhancements: Deploy
new VM technology
product and process
enhancements supporting
operational and constraint
management
improvements
Wildfire Risk Community 5 $15
Investments: (i) Support
and fund scholarships
with California
community colleges
relating to VM work; (ii)
Invest in Fire Safety
councils, educational
institutions, and industry
associations
General Order 95 Update: 3 $3
Fund SED procurement
of consultant to review
and update General
Order 95
DISCUSSION
(D.) 22-04-058, 4, the Commission affirmed that consideration of the Penalty Assessment
Methodology provides a basis for the Commission to determine that a negotiated
settlement under the Commission’s Enforcement Policy is reasonable and in the public
interest. (See discussion in D.22-04-058, at 4 and 6.) As this Resolution explains, the Joint
Motion satisfies all five of the foregoing criteria.
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In D.20-05-019, 20, the Commission stated that the severity of the offense includes
several considerations, including economic harm, physical harm, and harm to the
regulatory process. Violations that caused actual physical harm to people or property
are considered particularly severe. A high level of severity is also accorded to the
disregard of a statutory or Commission directive, regardless of the effect on the
public, since such compliance is absolutely necessary to the proper functioning of the
regulatory process.
The Resolution finds thatParties dispute both the existence and the severity of PG&E’s
alleged offense was indeed severe considering the level and scope of the damage
caused by the Zogg Fire. In the Proposed Order, SED asserts that two of the alleged
violations, the alleged failure to perform a separate Catastrophic Expense
Memorandum Account (CEMA) patrol in 2019 and the alleged failure to remove trees
identified for removal due to poor recordkeeping, were related to the cause of the fire.
SED states the other two alleged violations, while unrelated to the cause of the Zogg
Fire, were violations of GO 95 discovered during its investigation. Even though PG&E
disputes the alleged violations and proposed penalties set forth in the Proposed Order,
and disputes that there is evidence sufficient to support a finding that any of the
alleged violations directly contributed to ignition of the Zogg Fire, the Settlement
Agreement nonetheless acknowledges and reflects the significant physical and
economic harm arising from the Zogg Fire.
The Commission Enforcement Policy1 requires the Commission to consider the utility’s
conduct in (1) preventing the violation; (2) detecting the violation; and (3) disclosing
and rectifying the violation. Utilities are expected to take reasonable steps to ensure
compliance with applicable laws and regulations. Additionally, in evaluating a utility’s
actions to prevent a violation, “the Commission will consider the utility’s past record
of compliance with Commission directives.” (Decision 98-12-075, 37.)
There is sufficient evidence for the Commission to concludeThe Parties disagreed about
PG&E’s conduct. As set forth in the Proposed Order, SED alleges that PG&E’s conduct
was egregious and warrants the imposition of athe maximum daily penalty as reflected
in the Settlement Agreement. First, as set forth in the Proposed Order, there is evidence
ofSED alleges that PG&E’s failure failed to take action to prevent and rectify a
violation. SED alleges that PG&E failed to remove two trees previously flagged for
removal due to a combination of poor recordkeeping, poor communication, and lack of
caution. According to an inspection performed by McNeil Arboriculture Consultants,
LLC after the Zogg Fire, which SED cites, the author claims that the tree that fell and
struck the power lines had obvious flaws (e.g. lack of evidence of root support to
prevent a downhill failure and a large cavity where the root support should have been
located). Second, SED alleges that PG&E has a history of non-compliance with
Commission directives. In its investigations of fires related to PG&E facilities since
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Accordingly,The details of this Resolution finds that PG&E’s failure to take reasonable
action to correct or prevent the violations contributing to the Zogg Fire, as well as
PG&E’s prior history of similar violations, warrants the maximum daily penaltyfactor,
as well as the Parties’ evaluation of their respective litigation risks, were part of the
negotiation process. While such negotiations are confidential, PG&E’s claimed
conduct in preventing the violation, detecting the violation, and disclosing and
rectifying the violation were necessarily considered as part of the negotiating and
resolving of the Proposed Order. While PG&E disputes the alleged violations and
proposed penalties set forth in the Proposed Order, with this Settlement Agreement,
PG&E agrees to implement the specified VM enhancements and Shareholder-Funded
Initiatives that will further strengthen PG&E’s VM program and enhance the safety of
PG&E’s electric system.
The guidance adopted by the Enforcement Policy is consistent with that provided in
prior Commission precedent. (D.98-12-075, 39.)
While PG&E is the largest electric utility in the state of California in terms of customers
and revenue, it asserts that its current financial condition limits its capacity to pay
additional penalties. PG&E claims that its current financial situation is characterized by
its sub-investment grade corporate credit ratings, weak credit metrics, and a restriction
on the ability of its parent company to pay dividends to its common shareholders. In
determining the reasonableness of the settlement, this Resolution finds that it is
appropriate to take PG&E's current financial circumstances into consideration and
concludes that the proposed settlement totaling $150 million is appropriate when we
balance PG&E’s present ability to weather a penalty against the importance of
2 Id at 19.
2 Id at 19.
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2 Id at 19.
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Setting a penalty at a level that effectively deters further unlawful conduct by the
regulated entity and others requires that staff specifically tailor the package of
sanctions, including any penalty, to the unique facts of the case. Staff will review
facts that tend to mitigate the degree of wrongdoing as well as any facts that
exacerbate the wrongdoing. In all cases, the harm will be evaluated from the
perspective of the public interest.
The Commission must evaluate penalties in the totality of the circumstances, with an
emphasis on protecting the public interest.
The Resolution concludes that when all the circumstances are considered, the public
interest will be furthered by the adoption of this Settlement Agreement. First, the
Settlement Agreement resolves the issues identified in the Proposed Order. The
Proposed Order includes penalties totaling approximately $155 million. Pursuant to the
Settlement Agreement, PG&E agrees to pay a total of $150 million, consisting of a $10
million penalty to the State’s General Fund and $140 million in permanent
disallowances. By reaching a settlement, the Settling Parties have implicitly agreed that
a total shareholder cost of $150 million is not constitutionally excessive. The allocation
of the total amount between penalty and disallowance is discretionary and is
appropriate here: the Shareholder-Funded Initiatives specified in the Settlement
Agreement are targeted to PG&E’s VM program to help mitigate the risk of similar
incidents or harm to the public in the future. SED will monitor PG&E’s implementation
of the Initiatives to ensure that their benefits are realized. Moreover, without waiving
the protections of Rule 12.6, the Parties represent that they considered, among other
things, the efforts PG&E has undertaken in recent years to evolve and enhance its VM
program and to reduce the risk of ignitions associated with its infrastructure.
Finally, it is in the public interest to resolve this proceeding now. Approving the
Settlement Agreement will obviate the need for the Commission to hold evidentiary
hearings to adjudicate the disputed facts, alleged violations, and appropriate penalty
3 Ibid.
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amounts related to the Zogg Fire. Approval of the Settlement Agreement will
promote administrative efficiency, and prevent the further expenditure of substantial
time and resources on litigation of a matter that the Parties have satisfactorily and
reasonably resolved.
Penalties are assessed in a wide range of cases. The penalties assessed in cases
are not usually directly comparable. Nevertheless, when a case involves
reasonably comparable factual circumstances to another case where penalties
were assessed, the similarities and differences between the two cases should be
considered in setting the penalty amount.
While not binding precedent, prior settlements can be useful for comparison, with the
acknowledgement that settlements involve compromise positions.
4 Id at 21.
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These precedents reflect outcomes, which included a mix of fines, shareholder funding
of programs, and/or remedial action plans, are similar to those in the instant Settlement
Agreement. As described above, the settlement package, including the $10 million
monetary penalty, the $140 million of Shareholder-Funded Initiatives, and
implementation of the specified VM enhancements, was tailored to the unique facts of
the case. PG&E acknowledges that there are areas in which it can work with the
Commission to further enhance the safety and reliability of its electric facilities and
mitigate the risks of wildfire in its service territory. Accordingly, like the Commission
found in these previous incidents, the Resolution finds that the Settlement Agreement
results in a reasonable outcome when the totality of the circumstances are considered.
COMMENTS
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No public review and comment is required for this Resolution because public review
and comment are waived pursuant to Rule 14.6( c)(2) of the Commission’s Rules of
Practice and Procedure.
FINDINGS
1. The Zogg Fire was a wildfire that began on September 27, 2020 in the Shasta
and Tehama Counties in California that burned more than 56,000 acres, resulted
in four deaths, destroyed 204 structures, damaged 27 structures, and caused
damages in excess of $50 million.
2. On October 25, 2022, the Safety and Enforcement Division (SED) issued a
proposed Administrative Enforcement Order (Proposed Order) to Pacific Gas
and Electric Company (PG&E) regarding its misconduct that contributed to
the Zogg Fire.
4. SED and PG&E filed a Motion Requesting a Stay of the proceeding until
January 31, 2023, to allow the Parties the opportunity to seek a mutually
agreed settlement of the proceeding.
5. On February 23, 2023, SED and PG&E filed their Joint Motion for Approval
of Settlement Agreement.
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1. The Joint Motion for Approval of the Settlement Agreement of the Safety and
Enforcement Division and Pacific Gas and Electric Company is granted and
the Settlement Agreement approved herein.
2. Pacific Gas and Electric Company (PG&E) shall pay a $10 million fine into the
General Fund of the State of California as follows: PG&E shall make one
lump sum payment of $10 million by check, money order, or other form of
payment acceptable to the Commission, payable to the California Public
Utilities
Commission (Commission), and mailed or delivered to the Commission’s Fiscal
Office at 505 Van Ness Avenue, Room 3000, San Francisco, CA 94102, within 30
days of the effective date of this Resolution. PG&E shall write on the face of the
check or money order “For deposit to the General Fund pursuant to Resolution
ALJ-439.”
3. Pacific Gas and Electric Company shall pay for and implement the shareholder-
funded initiatives totaling $140 million, as specified in the Settlement
Agreement.
4. Pacific Gas and Electric Company shall implement the enhancements to its
vegetation management processes, as specified in the Settlement
Agreement.
today.
I certify that the foregoing resolution was duly introduced, passed, and adopted at
a conference of the Public Utilities Commission of the State of California held on
_______________ , the following Commissioners voting favorably thereon:
Rachel Peterson
Executive
Director
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