Peninsula Lawmakers Want To Bar PG&E From Taking Tax Deductions On Fine For 2009 San Bruno Blast

SAN MATEO (CBS SF) -- Two Peninsula lawmakers introduced a bill in the California Legislature Friday that would bar PG&E from taking state tax deductions on up to $1.3 billion of a $1.6 billion penalty levied on the utility in connection with a fatal pipeline explosion in San Bruno.

The record $1.6 billion package of fines and penalties was imposed by the California Public Utilities Commission in San Francisco on April 9 in three investigations stemming from the 2010 pipeline explosion and fire, in which eight people died and 66 were injured.

PG&E has said it will not appeal the penalty.

The bill, SB 681, was proposed by state Sen. Jerry Hill, D-San Mateo/Santa Clara counties, and Assemblymember Kevin Mullin, D-San Mateo, in the wake of a letter sent by Commission President Michael Picker to federal and state tax agencies.

In that letter, sent on April 30, Picker told the agencies that the entire package of $1.6 billion in fines and penalties was "intended to be punitive" and not tax-deductible.

"It is unclear whether the tax agencies will prohibit PG&E from taking deductions for these penalties," Hill said in a news release announcing the proposed state law.

"SB 681 will remove this ambiguity" in regard to state deductions, Hill said.

The penalty package includes a $300 million fine payable to the state's general fund, $850 million for pipeline safety improvements, a $400 million one-time credit to customers and $50 million for previously identified improvements.

Hill said in the announcement that the $300 million fine was clearly not deductible but the status of the other $1.3 billion was unclear.

If the bill is made law, it would block PG&E from obtaining up to $115 million in state tax deductions on the $1.3 billion.

PG&E spokesman Nick Stimmel said Friday the company believes that part of the penalty is tax-deductible.

"Respectfully, we acknowledge the views expressed in the draft legislation as well as those of the commission. While we are not appealing the CPUC decision, we continue to believe that costs outlined in the decision are deductible under tax laws," Stimmel said in a statement.

"Our focus moving forward is on becoming the safest, most reliable utility in the nation for our customers and their families," Stimmel said.

Picker, who took office as PUC president on Jan. 1, sent the letter to the U.S. Internal Revenue Service, state Board of Equalization and state Franchise Tax Board.

In the letter, he noted that two administrative law judges had originally proposed a non-deductible fine of $950 million, but the commission chose to divert a large part of that amount to an investment in pipeline safety, while at the same time increasing the total penalty from a proposed $1.4 billion to the $1.6 billion.

"It is critical that you understand the commission's intention with this order -- to penalize PG&E for its longstanding and egregious violations of law," Picker told the tax agencies.

"We fully intended and hope that any effort by PG&E to deduct any of the costs of complying with the commission's decision be clearly and decisively disallowed on the basis of their punitive nature," Picker wrote.

The penalties were imposed in three proceedings that investigated the San Bruno explosion, PG&E record-keeping practices and its pipeline operations in locations with high population density. The commissioners concluded that PG&E committed 2,425 violations of regulations in the three areas over a number of years.

The explosion and resulting fire occurred when a high-pressure PG&E natural gas transmission pipeline segment ruptured in San Bruno on Sept. 9, 2010. The pipeline segment, installed in approximately 1956, had a defective seam weld and was incorrectly listed in PG&E records as being seamless.

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