October 16, 2002

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PG&E, corporate criminal
The utility likes to pretend it's a good corporate citizen – but the record shows otherwise.

By Savannah Blackwell

WHEN IRISH IMMIGRANTS arrived on San Francisco's shores during the first few decades of the past century, it wasn't easy for them to find decent, stable jobs. John Hanley, the president of the local firefighters union, likes to say that for many the only options were the police department, the fire department and Pacific Gas and Electric Co.

PG&E has played hard on its reputation from those days, using stories like Hanley's to push blue-collar workers to oppose public power. The company has spent millions on other public relations efforts: for years, PG&E representatives talked about all the widows and orphans who were living off company stock, and hyped the money the company gave to local charities.

But the image of PG&E as a fine, benevolent, and upstanding corporate citizen is long gone.

Today, with PG&E's stock in free fall, the small shareholders who had hoped to use the utility's stock as part of their retirement income are in trouble – while the same executives who drove the company into bankruptcy are earning multimillion-dollar bonuses.

The charitable contributions that once helped buy PG&E political protection have dried up.

And over the past few years, PG&E's most lasting legacy has become that of a corporate criminal.

Consider:

In 1997 PG&E was tried and convicted in criminal court for endangering the lives and property of gold country residents by failing to trim tree branches near electrical wires frequently enough to prevent major fires. Evidence showed that PG&E executives had diverted tree-trimming money to fatten profits and salaries of top corporate executives.

The story of the company's poisoning of community water supplies in Hinkley became a major Hollywood movie called Erin Brockovich, and a similar environmental disaster is still underway just south of San Francisco. Meanwhile, residents of the Bayview-Hunters Point district in San Francisco are suffering from alarmingly high rates of asthma and other illnesses that they link to PG&E's dirty power plant in the neighborhood (see "Poison Power," 1/28/98). In addition, the nearby Potrero power plant, which PG&E sold to Mirant Corp. in 1998, is scheduled for expansion.

PG&E stole nearly $200,000 from San Francisco by illegally running its power lines to the Presidio, according to a 1995 lawsuit the city filed against the company. Indeed, PG&E's service to San Francisco residents is illegal, according to the terms of the 1913 Raker Act, which requires the city to operate a public power system. The company's monopoly has led to decades of structural corruption at City Hall (see "How PG&E Wires the City," page 26).

In 1998 a major blackout hit the city – leaving nearly half a million San Francisco residents without electricity (see "Still in the Dark," 12/16/98). Officials determined that a failure to make a key backup safety check at a San Mateo substation caused the outage. For several years the company had been cutting back on maintenance staff to fatten profits.

In 2001, after lobbying for the 1996 bill that deregulated part of the state's electricity industry, PG&E shuffled off more than $600 million in profits to its holding company, gave its top brass $50 million in bonuses and raises, and declared bankruptcy. Since spring 2001, rates have soared 40 percent and customer service for everything from hook-ups to billing problems has worsened (see "Feeling the Crunch," 9/4/02).

Under its proposed plan to get out of bankruptcy, PG&E wants to free itself of the last vestiges of state regulation while at the same time making a very anti-free market demand: ratepayers must protect its shareholders and CEOs from any potential future losses (see "Competing Energy Visions," page 30).

PG&E has a long record of harassing internal whistle-blowers and reporters who dare to take on the giant company.

When former presidential candidate Ralph Nader talked to reporters at an Oct. 8 forum at the Commonwealth Club of California, he slammed the company's business practices: "PG&E was caught up in the whole deregulation scam, which it helped frame and get through the [California] legislature unanimously. [It] promised that rates would be reduced by 2000. Instead, PG&E has been caught up in a wild gyration of transforming the electricity industry into a speculative commodity marked by secret deals and collusion, which is just now being exposed by government investigators and newspaper reporters. Nader was at the club to support fellow Green party candidate Peter Camejo in his bid for governor.

"I think on the philosophy of 'Three Strikes, You're Out,' there have been more than three strikes. [The company] should be subject to eminent domain and takeover by a public power entity to establish lower rates, cleaner energy, and the more focused efficiency we've learned to expect from the better-run public power districts in California."

Burning down the houses

In 1994 a disastrous wildfire struck the community of Rough and Ready in Nevada County, scorching 500 acres, destroying a dozen homes, burning a historic schoolhouse down to the ground, and running up $2 million in damages. Residents, some of whom lost everything they owned, literally had to run for their lives.

The local district attorney was livid: the fire was started by tree branches brushing against high-voltage PG&E lines – and for years California forestry officials had been telling the company to cut back those tree limbs. In 1997, D.A. Michael Ferguson, in an unusual move, took the corporation to criminal court, charging it with 746 counts of violating the state law requiring the utility to maintain safe clearance around power lines. Ferguson accused PG&E of a chronic and widespread pattern of negligence that resulted in the 1994 fire (see "Burning Secrets," 3/12/97, and "The People v. PG&E," 4/2/97).

PG&E brought in the big guns. The company hired former U.S. prosecutor Joseph Russoniello to defend its actions. But a quiet, determined assistant D.A. named Jenny Ross, who had practiced in San Francisco with Pillsbury Madison and Sutro, prevailed with the jury. The company was found guilty of 739 counts of criminal negligence and fined $2 million.

The evidence brought forward by the prosecutor was overwhelming. With the help of utility analyst Bill Marcus of Sacramento, Ross showed how PG&E had taken $80 million from ratepayers between 1987 to 1994 that was supposed to pay for tree trimming. Instead, the company used it to pad profits and ensure hefty salaries for CEOs at a time when it was trying to make up for losses incurred from the screwed-up construction of the Diablo Canyon nuclear power plant. PG&E had raked in more than $1 billion in profits the year prior to the fire.

Ross presented loads of documents (which PG&E fought fiercely to keep confidential) – including personal e-mails between staffers – in which it was clear PG&E's brass had made a fatal decision to save money by drastically cutting back on tree-trimming staff. PG&E's managers even mocked the forestry officials for their constant warnings of danger.

The California Public Utilities Commission, whose officials were angry PG&E had hoodwinked them during rate cases involving the tree-trimming money, took up the matter and fined the company $29 million in 1999.

Nevada County wasn't the only site of major fires caused by PG&E. In fact, California Department of Forestry officials told us in 1997 that PG&E's failure to trim overgrown trees had caused some 760 fires.

In 1997 a devastating fire in Los Gatos was caused by molten aluminum particles spewing from a PG&E power pole. Although PG&E was never charged with a crime, the company agreed to pay the full cost – $2.5 million – of the fire.

Poisoning the water

Not many utility companies have been the subject of major Hollywood films. But in 2000, director Steven Soderbergh released a blockbuster about the illnesses and deaths in Hinkley, a Mojave Desert town of 3,500, and how a rough-and-tumble law-firm clerk named Erin Brockovich forced the company into what was the largest class-action settlement of its time: $333 million.

The rampant sickness in the community was tied to exposure to chromium 6 prevalent in the groundwater. PG&E, which owned a natural-gas pumping station on about 20 acres near the town, never acknowledged direct responsibility for the illnesses. Runoff from the station, which also contained chromium 6, was stored in unlined wastewater ponds. The corporation knew the ponds were leaking into the water supply.

In Daly City, residents living in Midway Village, a 150-unit federally subsidized housing development, have for years suffered unexplained headaches and high rates of cancer, as well as skin disorders and neurological problems. They found out they were living amid toxic waste from lampblack (a kind of carbon) and coal tar in their yards and under the property directly next door, which PG&E owns as part of its Martin Service Center. The stuff had been there for at least 100 years – left behind by a gas manufacturing plant. Residents charged that PG&E had known for more than 15 years that residents were being exposed to dangerous carcinogens such as benzoapyrene and other petroleum-based cancer-causing toxins yet did nothing to warn residents or sufficiently clean up the mess. In 1980, state records showed, PG&E workers even complained to the U.S. Environmental Protection Agency about the problem, and some of the waste was removed.

Ten years later, the first set of residents sued PG&E. Eventually, 180 plaintiffs accused the company of endangering their health. In 1997, San Mateo County Superior Court Judge Joseph Bergeron dismissed the case, saying that residents hadn't proved a direct link between their illnesses and the chemicals in the soil. The residents appealed. In 2000 the state Court of Appeals upheld the superior court judge's findings and threw out the residents' suit. Now residents are focusing on trying to force state officials, who removed more contaminated soil in 2001, to compensate them for the costs of treating their illnesses and to pay to relocate them.

"From Bayview-Hunters Point to Midway Village and other communities, you see a pattern of PG&E putting corporate greed above the health of people impacted by their operations," Bradley Angel, director of Greenaction, an environmental justice group based in San Francisco, told us. Angel said it was only in the past few weeks that environmental and Native American activists, with the help of a bill authored by state assembly member Fred Keeley and signed by Gov. Gray Davis, succeeded in stopping PG&E's plans to send radioactive waste to Ward Valley. "We see a pattern of threats to community health as well as a pattern of environmental racism and injustice."

These are just a few examples of PG&E's blatant disregard for public health and safety. There are numerous others: For example, in 1997 Sonoma County settled a case against PG&E in which the district attorney alleged that the company's Geysers geothermal plant emitted hydrogen sulfide at levels higher than the law allowed (see "Another Step Forward," 3/19/97). That same year a Santa Clara jury awarded $30 million to the family of seven-year-old Cole Behr. The family claimed that Behr, who can barely walk and cannot speak, was born with brain damage because his mother, Cynthia, was exposed to carbon monoxide related to PG&E's gas service when the dangerous chemical infiltrated the heating system of a San Jose office building where she worked when she was pregnant.

Cheating the city

PG&E never should have delivered power to San Francisco. But even the terms under which it breaks the federal Raker Act are unfair. Since 1939, PG&E has paid San Francisco a pittance – 0.5 percent of its annual gross receipts on electricity sales – for the right to run its gas and electric lines across city property. San Francisco granted PG&E that deal under an agreement that supposedly lasts "in perpetuity" – a clause city attorneys, including Louise Renne, have used to staunch efforts to take the utility to court and get a better deal. The national average for so-called franchise fees is 4 percent.

But low fees weren't enough for the company – it tried to get away with paying nothing for a key part of its system. The Bay Guardian reported in 1994 that PG&E had illegally run its lines into the Presidio and never paid the city a dime in franchise fees for those lines (see "The Presidio Power Grab," 1/12/94).

After the story came out, Controller Ed Harrington undertook the first audit of the franchise fees and determined that PG&E owed $114,000 for delivering power to the Presidio over the years 1991 to 1993 and $18,218 for 1994 and 1995.

Former supervisor Angela Alioto forced then-city attorney Louise Renne to take PG&E to both state and federal court over the issue. In 1997, at the behest of Renne, the city settled the state case for a mere $132,494 (see "Settling for Less," 5/7/97, and "City Hall's Gift to PG&E," 7/16/97). The city had originally asked that all of the money the utility made while engaged in the unlawful business of using city property without the right to do so be returned to city coffers and that PG&E be fined $2,500 for each day broke the law. That would have been $53 million.

The federal case was decided in PG&E's favor in part due to mistakes Renne made in the case in 1996 (see "Presidio Power Outage," 1/1/97).

In addition PG&E successfully fought off the city's efforts to get the Presidio electricity contract, which would have brought in needed revenue and allowed for a significant expansion of the city's public system, which currently serves city agencies.

Thanks, PG&E

If you like higher electric rates, and you enjoyed the rolling blackouts of 2000, you can thank PG&E, which played a major role in bringing deregulation to California.

PG&E and the state's two other major private electric companies, Southern California Edison and San Diego Gas and Electric, were not the initial instigators of the push to deregulate the industry. That came from large commercial users and former Republican governor Pete Wilson. But soon the utilities became boosters and saw a way to rid themselves of the historic limits on their profits.

With San Diego state senator Steve Peace at the helm, PG&E and the other utilities succeeded in getting a sweetheart deal from the legislature. Spending some $4 million in lobbying efforts and $1 million on campaign contributions, the three companies got a bill that protected their profits and forced customers to foot the bill for more than $28 billion in money they lost building nuclear power plants – even though PG&E customers had already paid inflated rates to make up for Diablo Canyon for years (see "You Lose," 8/13/97).

PG&E was particularly effective at pushing the deregulation bill. Midway through the bill-making process, the company brought on Dan Richard, who had been representing independent power producers, to lobby for its interests instead. Richard didn't even tell former assemblymember Diane Martinez, who was in charge of the legislation in the assembly, that he had changed jobs and had become a flack for PG&E, she told us in 1997.

The final bill was supposed to allow customers choice in the electricity market. But it required all customers in PG&E's service territory, whether they wanted to buy power from PG&E or not, to pay for PG&E's nuclear power plant costs. That prevented potential rivals from being able to offer cheaper deals and made a mockery of Peace's promise that ratepayers would get a choice (see "Guilty Parties," 2/14/01).

In 1998 consumer advocates Nader, Harvey Rosenfield, the Consumers Union, and the Utility Reform Network tried to overturn the part of A.B. 1890 that required customers to pay for the nukes. But PG&E and the other two utilities poured some $30 million – with PG&E accounting for more than half – into a rash of misleading ads, bought the support of key environmental and consumer groups, and defeated the measure at the November ballot (see "Buying the Bailout," 10/14/98).

Then, in 2001, reeling from the implosion of the deregulated energy market and the high cost of power from out-of-state utilities, PG&E demanded that someone else bail the company out of its troubles. PG&E declared its utility company bankrupt – after shipping over the previous nine months more than $600 million to its parent company and shielding other revenues from creditors (see "Missing in Action," 4/11/01)

PG&E's top executives, who had started this whole debacle, got raises and bonuses totaling $50 million.

Silencing critics

Although PG&E likes to insist it is a tolerant and responsible company, it has a long history of retaliating against any employee who blows the whistle on its irresponsible practices.

In the 1997 Nevada County fire case, one of the prosecution's star witnesses was Jim Sprecher, a PG&E engineer who had written a report concluding that the company was letting trees go untrimmed for too long and jeopardizing public safety. Instead of heeding Sprecher's concerns, the company demoted him, relegating him to an unimportant job and ostracizing him socially, he testified.

He also testified that the report mysteriously disappeared from his unlocked filing cabinet at work at some point between 1993 and late 1996, when he was contacted by Nevada County prosecutors (see "Vanishing Report," 5/21/97). The report's recommendation to increase spending on tree trimming was ignored by PG&E higher-ups.

At PG&E's April 1998 shareholders meeting, Neil Aiken, a shift foreperson at the Diablo Canyon nuclear power plant, stood up and told shareholders about safety problems that came from cost cutting at the plant. He told the audience he came forward only in desperation, because he had exhausted all possible routes of solving the problem within the company. He also released a report detailing the safety issues called "Going Critical" (see "Nuclear Leak," 4/22/98).

That year PG&E executives forced Aiken to undergo psychiatric evaluation. He was locked out of the plant and forced off his job after 24 years (see "Plugging the Leak," 11/18/98). The Project on Liberty and the Workplace took up his case, and the U.S. Department of Labor found PG&E guilty of retaliation in November 1999 (see "PG&E Fires Whistleblower," 4/5/00).

PG&E also has a history of blackballing reporters who challenge the utility. Energy writer J.A. Savage sued PG&E in 1988, charging that the company had gotten her fired from two jobs because she had once worked for an antinuclear group and had written for the Bay Guardian. She settled the suit for an undisclosed sum in 1995 after the state Court of Appeals found that her allegations had enough merit to go to trial (see "Reporter Beats PG&E," 11/8/95).

"PG&E wields considerable power over the press covering its activities," Judge Williams Newsom wrote in a 1993 appeals court opinion dealing with the question of whether PG&E should be able to blacklist reporters who work for the Bay Guardian. "In the case of a public utility enjoying such extensive monopolistic authority ... there is an important public interest in assuring the freedom of the press in reporting on matters lying within the exercise of its franchise."

PG&E has used its formidable power to undermine that constitutionally protected freedom. The haze of P.R. the company generates regarding its operations has proved effective in protecting the utility's empire – at the direct expense of the public's financial interests, safety, and health.

P.S. Sup. Chris Daly will hold a hearing at the Board of Supervisors' Public Works and Public Protection Committee about the impact of PG&E's 40 percent rate increase on the local economy and small businesses and the deterioration of the company's customer service Oct. 16, 10 a.m., City Hall, Legislative Chamber, 1 Dr. Carlton B. Goodlett Place, S.F. (415) 554-7970. E-mail Savannah Blackwell at savannah@sfbg.com.