Consumer Federation of California

Under pressure to punish Pacific Gas & Electric Co. for the deadly San Bruno pipeline explosion, the California Public Utilities Commission’s safety division has dropped a proposal that would have limited the utility’s penalty to the money it was already spending to upgrade its gas system.

Lawyers for the PUC’s Safety and Enforcement Division, who had protested the previous proposal by their director, Jack Hagan, asked the commission’s hearing officers Monday to withdraw the plan and allow them to submit a new proposal by next Monday.

The safety division “needs to correct certain inaccuracies,” said attorney Harvey Morris, head of a legal team that was removed from the case and then reinstated in an unusually visible episode of staff dissent on the regulatory agency.

The lawyers offered no details of their substitute plan. But the city of San Bruno and a consumer advocacy group, who had called for tougher treatment of PG&E, said Tuesday that they are encouraged.

“This is a step in the right direction for the people of San Bruno and for consumer safety advocates who, for almost three years, have waited for some measure of justice,” Mayor Jim Ruane said.

Mindy Spatt, spokeswoman for The Utility Reform Network, said the proposal by Hagan was “based on a PG&E wish list.”

Hagan had proposed $2.25 billion in financial penalties, which would consist entirely of the money the utility has spent or promised to spend on pipeline system improvements ordered by the PUC.

PG&E spokeswoman Brittany Chord, responding to the withdrawal of that proposal, said Tuesday the utility still considers $2.25 billion to be an excessive penalty. “We believe that any penalty should go back into the safety of our system,” she said.

Eight people were killed and 38 homes were destroyed when a PG&E natural gas transmission line exploded in a residential San Bruno neighborhood in September 2010.

Since then, state and federal investigations have found numerous deficiencies in safety and maintenance of PG&E’s pipeline system. The PUC, appointed by the governor, will determine the financial consequences to PG&E based on recommendations by the commission’s administrative law judges.

Hagan’s proposal to limit PG&E’s payments to the amount it spent on system upgrades brought protests from other lawyers in the safety division, which he still heads, and from advocates for additional penalties and safety measures.

The PUC’s general counsel, Frank Lindh, a onetime PG&E attorney who had removed Morris’ team of lawyers from the case after they opposed Hagan’s plan, withdrew from San Bruno deliberations last month, while the other attorneys were reinstated.

San Bruno officials have proposed a $3.8 billion penalty, including a $900 million fine to offset PG&E’s federal and state tax deductions the utility would receive for the money it spent on upgrades. The city has also called for the establishment of an independent pipeline safety monitor.