What’s up with the differences in fines?

What’s up with the differences in fines?Money-tips-scale-of-justice

I just saw that along with the big fine ($1.6 billion) the California PUC levied against PG&E for violations relating to the pipeline failure in San Bruno, they also levied (and a court just upheld) a smaller, but still substantial $14.35 million dollar fine against PG&E for recordkeeping and notification violations relating to a pipeline segment running through San Carlos.

 

Here’s part of the story I saw, as reported by Sarah Smith in SNL:

 

Although the utility lowered the lines’ MAOPs after making the discovery in the field, the company did not notify the commission until roughly eight months later in an errata filing.

 

The CPUC in December 2013 voted to fine PG&E $14.35 million not only because of the lengthy reporting delay but also because PG&E informed the commission in an errata document — a type of filing the CPUC asserted is usually used for noting minor corrections. The CPUC said these actions had misled the commission, in violation of CPUC rules.

 

The fine included $50,000 for each day between when the company discovered its records were wrong and when the utility told the commission, along with $50,000 per day for the time during which PG&E’s misleading records correction document was on file.

 

My question is this: Why is there such a big difference between the size of these fines and the relatively small penalties levied by PHMSA for other big failures, like the Enbridge spill in Michigan, or the ExxonMobil Silvertip spill in Montana?

 

Answer:

There are two answers to this question. The easy one is that California has no maximum amount for a series of continuing or related violations; as long as a violation continues, that $50,000 per day can keep adding up. PHMSA is subject to a $2 million dollar limit for a “related series of violations.” (And the two spills you mention occurred before Congress in 2011 increased PHMSA’s penalty authority from 1 to 2 million dollars for a “related series of violations.”)

 

And that leads to the second answer, which is: PHMSA is anything but transparent about how it calculates penalties, how it chooses to compromise penalties during, or as a result of, closed enforcement hearings, what will be considered a “related series of violations”, and what will not, what kind of violation will result in the full $200,000 for each violation for each day it occurs, and what will not. While PHMSA has a limitation for related violations imposed by statute, it has not adopted a policy or rule defining what “related series of violations” means, nor do its enforcement decisions make it very clear. For example, is a recordkeeping or reporting violation that is discovered in the course of an incident investigation “related” to other violations for an insufficient risk assessment or emergency plan simply because the shortcomings were identified during the investigation of a single incident? Or what about two independent violations discovered during an inspection, for vastly different subject matters? Are they related? Hard to say. Actually, it’s impossible to say, because PHMSA doesn’t tell anyone.

 

What’s more, not even the industry is happy with the cloak of mystery surrounding penalty calculations. In a very enlightening document entitled “STATUS OF EVOLVING PHMSA PENALTY POLICY” prepared by two attorneys from Hunton and Williams for an AOPL Business Conference in 2013, they described their concerns with these same two issues: the difficulty in anticipating how PHMSA will calculate a penalty and how PHMSA will decide whether violations are in a related series.

 

This document also introduced us to the “Pipeline Safety Violation Report (PSVR) used by PHMSA: “PSVRs are prepared as part of the Agency’s enforcement process. They are considered ‘confidential enforcement information’ and protected from disclosure to third parties under FOIA. PSVRs are only provided to an operator in the event an operator challenges an enforcement action by requesting a hearing (and even then only upon an express request for the PSVR by the operator). In our experience, the amount of information included in a PSVR regarding the alleged violations and proposed penalties vary widely, and some do not even contain information regarding penalties at all. The information that is provided rarely (if ever) includes any sort of rationale as to the basis for a proposed penalty.”  Status of Evolving PHMSA Penalty Policy at page 2.

 

Until PHMSA decides to establish a penalty calculation policy and makes it available to the public, all of this will remain completely hidden from public view, just like everything else that happens in enforcement hearings kept closed from the public view.

 

 

 

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