South San Francisco, CA June 29, 2015 Press Release from Jerry Hill & Kevin Mullin Offices
SB 681 Would Prevent $115 Million From Being Siphoned From General Fund To Cover Deduction
Senator Jerry Hill, D-San Mateo/Santa Clara Counties and Assembly Member Kevin Mullin, D-San Mateo, today introduced legislation that would prohibit Pacific Gas and Electric Co. (PG&E) from taking $1.3 billion in state tax deductions for the $1.6 billion fine that was levied against the utility for the San Bruno gas pipeline explosion.
The deductions, which California Public Utilities Commission President Michael Picker has asked state and federal tax agencies to deny, would cost the state’s general fund $115 million and allow PG&E to skirt the full penalty for the Sept. 9, 2010 explosion that killed eight people and leveled a neighborhood.
In introducing Senate Bill 681, Hill noted a letter (click here) Picker sent to the Internal Revenue Service, Board of Equalization (BOE), and Franchise Tax Board (FTB) that made it clear the commission’s fine was intended to be punitive and should not be deductible.
PG&E, on the other hand, has assumed in its filings to the U.S. Securities and Exchange Commission that these expenses will be deductible.
“It is unclear whether the tax agencies will prohibit PG&E from taking deductions for these penalties,” Hill said. “SB 681 will remove this ambiguity.”
The bill would also prevent a $115 million hit to California’s general fund, which would have to shoulder that cost for the state’s portion of tax deductions.
In April, the CPUC fined PG&E a record $1.6 billion – to be paid by the utility’s shareholders – after an investigation by the National Transportation Safety Board pinned the cause of the explosion on a faulty pipeline weld. PG&E’s inadequate recordkeeping and poor safety culture allowed the utility to ignore the hazard for 54 years.
Rather than steer the entire penalty to the state general fund, the CPUC allocated the bulk of it to improvements to PG&E’s pipeline system to improve safety and reduce the amount customers would have to pay. The ruling called for the fine to be disbursed by sending $300 million to the general fund, $400 million in one-time bill credits to customers, $850 million in pipeline improvement to offset customer costs and $50 million to implement various remedies. Only $300 million of the fine is clearly not deductible.
The CPUC made this decision with the clear intention that it was not to lead to a tax windfall for the utility. In his letter to the state and federal tax agencies, Picker wrote, “We want to express our hope that any attempt by PG&E to deduct any of these costs will be disallowed on the basis of their punitive nature.”
Unlike a fine to the state’s general fund, penalties could be deemed legitimate business expenses and thus deductible. SB 681 clarifies that this portion cannot be deducted as an expense.
Since the explosion, PG&E has been hit with multiple lawsuits, criminal indictments and enhanced regulatory measures because of the company’s inadequate safety testing, maintenance and repair of pipelines. Avoiding those costs enabled the utility to steer more profits to shareholders.
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