PG&E lied to federal investigators and provided falsified documents in an effort to mislead authorities and hide the company's culpability in the 2010 San Bruno gas pipeline explosion, according to a new federal indictment filed Tuesday.
The new charges, including obstruction of justice, in the federal case against PG&E could mean fines of more than $1 billion for the publically traded San Francisco-based company, and sends a strong signal that companies interfering with federal investigations will not be tolerated, according to legal experts who disagree over whether anyone will likely be sent to jail.
“It is extremely rare for a U.S. publically held firm to find itself indicted by a federal grand jury,” said Jennifer Arlen, who heads the New York University School of Law's program on corporate compliance and enforcement.
That is because U.S. Attorney General Eric Holder's Department of Justice is lenient with companies that self report and cooperate when they are under investigation. The result, said Arlen, is that the majority of companies that find themselves in hot water seldom lie to investigators. The pay off is usually fines instead of criminal charges.
“The big news here is not just that they are indicted for the obstruction of justice but that they handled the investigatory process in such a way that they get indicted at all,” Arlen said.
In 2010 a natural-gas pipeline in a residential neighborhood of San Bruno exploded killing eight and injuring scores more. After a lengthy investigation, the National Transportation Safety Board found on Aug. 30, 2011, that PG&E's system for monitoring pipeline integrity was “both deficient and ineffective, and was a probable cause of the accident.”
Federal authorities brought their own case against the company for violating federal pipeline laws earlier this year, but no employees or executives have been charged.
Along with a handful of charges of allegedly violating the federal laws governing pipeline safety, PG&E has now been charged with obstructing the NTSB's investigation, which could carry penalties of five years in jail for individuals and huge fines for companies.
But the indictment only names the company, not, say its CEO Anthony F. Earley, or any other corporate officers, so no one can be sentenced to jail time according to the charges filed so far.
According to the filing, when investigators asked PG&E for data in 2011 related to their identification of high-risk pipelines, the company provided internal documents from 2008. Those documents showed that the company had adopted certain rules that dictated when a line was a threat. Those rules did not meet federal standards so the company didn't “prioritize as high-risk, and properly assess many of its oldest transmission lines.”
But later in 2011, the company sent a letter to the NTSB saying the earlier documents had been “unapproved drafts.” The company included with the letter what it said was the actual 2008 rules governing pipeline-safety assessment, rules which did indeed meet federal standards. PG&E claimed that a mix up had caused the discrepancy.
“PG&E did not disclose that, from in or about 2009 through in or about April 2011, its integrity management group followed the practice set forth,” noted the filings in reference to the first document sent to federal authorities. The indictment also says the company knew it had been violating federal rules.
“We have not yet seen the superseding indictment,” PG&E said in a statement Wednesday. "However, based on all of the evidence we have seen to date, we do not believe that the charges are warranted and that, even where mistakes were made, employees were acting in good faith to provide customers with safe and reliable energy.”
The details of the charges aside, experts are mixed in their assessment of what they mean for PG&E.
Obstruction of justice charges, said University of Michigan law professor David Uhlmann, are not uncommon in environmental cases like the Gulf of Mexico oil spill.
“Whether anyone goes to jail will depend upon whether individuals are charged as well, but either way the prosecution of PG&E is significant and sends a message about the importance of meeting pipeline-safety requirements,” he said.
Uhlmann said while there have been a limited number of Pipeline Safety Act violations in the criminal realm, such charges were filed after the Olympic Pipeline explosion in Bellingham, Wash.
NYU's Arlen sees it differently, noting that, the obstruction charges are indicative that individuals could also face criminal charges because it means “someone within the firm would have to have obstructed justice.”
Prosecutors in cases like this, said Arlen, usually go after the firm first in hopes of getting cooperation so they can collect more evidence pointing to specific individuals.
Once investigators start winnowing down, they may discover if the wrong documents were actually sent by accident or whether someone — and which someone — intentionally tried to pass them off as real.
In any event, Arlen said, it is unlikely that those people were at the top of PG&E since the general counsel, for one, works to reduce risk for the company and would not have willingly lied to federal investigators. “If you understand the law, you move heaven and earth to avoid any risk of obstruction,” she said.
As the public awaits the next chapter in the case, at least one local lawmaker thinks someone at PG&E should face justice.
“This didn't happen by accident in the company,” said state Sen. Jerry Hill, who represents San Mateo County. “It's important that someone pay a price, and not just the stockholders. That's too distant and too remote if we want to change behavior and change the culture.”
Clarification: This story was updated July 31 to remove part of a statement from University of Michigan law professor David Uhlmann that mischaracterized his comments about federal obstruction cases, which can result in jail sentences but only when individuals are charged.