Home > 1 > FIRE FRAUD – April 23, 1997

FIRE FRAUD – April 23, 1997

San Francisco Bay Guardian – April 23, 1997

FIRE FRAUD

PG&E bilks ratepayers out of $80 million in fire-prevention funds – while acres and acres burn.

By Savannah Blackwell

Nevada City – It wasn’t the most exciting stuff: charts and graphs, explanations of inflation, number-crunching. But the bottom line was a shocker.

From 1987 to 1994 Pacific Gas and Electric Co. took hundreds of millions of dollars from customers, supposedly to trim trees away from power lines and poles, to prevent electrical fires. But $80 million of the money earmarked for fire safety wound up being diverted – apparently to things like executive salaries and stock dividends.

Each year PG&E spent significantly less on preventing fires by tree trimming than what it told the California Public Utilities Commission (CPUC) was necessary to do an adequate job. During most of those years, the company boasted record profits of more than $1 billion annually – more than the CPUC had authorized.

The reason? During most of those years, PG&E was under pressure to cut costs to prepare for competition. At the same time, it felt the need to fatten profits. Guess what was sacrificed? The public’s safety.

Those startling revelations recently emerged during the trial of The People v. PG&E in Nevada City, Nevada County. Between April 16 and April 21 economists Gayatri Schilberg and William Marcus, expert witnesses from JBS Energy of Sacramento, a consulting firm that handles utility-related matters, added more evidence to Nevada County’s allegation that PG&E demonstrated widespread and chronic negligence.

700 violations

In the largest criminal case ever filed against the utility, Nevada County prosecutors charged PG&E with more than 700 counts of breaking state laws requiring tree limbs and branches to be safely cleared from power lines and poles. The charges stemmed from violations found by state forestry officials shortly after a 1994 wildfire in the town of Rough and Ready, a 10-minute drive from the Nevada County courthouse.

The Rough and Ready fire was hardly an isolated incident. Officials from the California Department of Forestry (CDF) told the Bay Guardian that between 1989 and 1994 trees touching PG&E lines and poles caused 760 fires. Millions of dollars in damage resulted and, in at least a few cases, court records show, people who touched lines downed by trees were killed or seriously injured. No one was hurt in the 1994 Rough and Ready fire, which burned 500 acres (see “The People vs. PG&E,” 4/2/97, and “Burning Secrets” 3/12/97).

On April 16 Schilberg, a senior economist at JBS, carefully explained the graphs and charts she had prepared to show the jury that PG&E underspent its tree-trimming budget by $80 million from 1987 to 1994. The testimony by Schilberg and Marcus suggested that the money PG&E failed to spend on tree trimming was shifted into profits.

The multimillion-dollar money grab happened like this: Every three years PG&E tells the CPUC what its anticipated expenses will be annually. The CPUC then generally authorizes the expenditures, and consumer rates rise to meet the utility’s stated needs.

In 1985 PG&E requested roughly $65 million for tree trimming, a 12 percent increase over what it had spent in 1984. The utility told the CPUC it needed the money to comply with state tree-trimming laws. But in 1987, while it was collecting the $65 million from customers, it spent only about $55 million on trimming trees. The gap between money collected for tree trimming and money spent on it was at its widest in 1989, when PG&E collected close to $65 million from ratepayers but spent approximately $42 million. In 1994 spending on tree trimming reached a low of approximately $43 million (despite the fact that the CDF had cited PG&E for 1,400 violations in 1993 in Placer County alone) when the Rough and Ready blaze broke out. But in the second half of 1995, immediately after the Nevada County case was filed, PG&E drastically raised its tree-trimming spending to nearly $65 million.

Joseph Russoniello, PG&E’s lead counsel and former U.S. Attorney for northern California, tried to show that Schilberg was biased against PG&E because the prosecution paid her to formulate her evidence. But he did not refute Schilberg’s calculations.

‘Kind of scary’

Overall, things haven’t been going PG&E’s way in Nevada City. On the fifth day of testimony the lights went out in the makeshift courtroom, held in the Boozy Rouge restaurant. It seems a biased tree limb had struck a PG&E line. (The jury wasn’t told the reason for the outage.)

The utility’s efforts at establishing its defense – that PG&E had a tacit agreement with the CDF exempting it from strict compliance with state tree-trimming laws – have not been fruitful.

On April 1 Judge Carlos Baker granted Deputy District Attorney Jenny Ross’s motion to strike Russoniello’s cross-examination of David LeMay, the forestry department’s deputy chief of law enforcement. For two and a half hours, Russoniello had probed LeMay, inquiring about any agreements between the forestry department and PG&E. LeMay said Baker ordered the jury to disregard that testimony.

LeMay told the Bay Guardian that no such agreement had existed; rather, the department had been “trying to get PG&E’s attention for years, since 1981.” Over the past decade the forestry department has cited PG&E for thousands of tree-trimming violations.

“The situation was getting worse [from 1991 to 1994],” LeMay said.

April 15 was a particularly bad day for Russoniello. Baker granted the forestry department’s motion to quash a PG&E subpoena asking the department to produce thousands of pages of tree-trimming-related documents. Russoniello had told the court that the department must comply because in those documents may lie evidence supporting PG&E’s claim that an agreement existed between the two. CDF officials called it a “fishing expedition.” Russoniello lost that battle.

During a court recess, a Bay Guardian reporter asked Russoniello what he thought of the judge’s decision. He replied with his usual charm, “You have a lot of nerve talking to me after that piece of shit you wrote.” (See “The People vs. PG&E,” 4/2/97.) Pressed again, he replied, “No comment.”

On the same day Ross showed the jury documents from as early as 1987 revealing that PG&E knew for years that it was placing the public in danger of fires but did nothing about it. Indeed, according to Ross’s opening statement, she plans to call witnesses from PG&E’s tree-trimming contractors who will say PG&E officials told them it was cheaper to pay claims than to spend the appropriate amount of money on tree trimming.

Here’s a sampling of some of the documents admitted by Baker:

In an interoffice E-mail dated Aug. 17, 1995, from PG&E employee Ed Magrini to Senior Utility Arborist Robert Novembri, Magrini noted, “We still need to patrol about 85 percent of the circuits for TLCs [tree line contracts] (that means we now [sic] what work we have to do on only 15 percent of the circuits – kind of scary.”

A Nov. 15, 1990, memo from Vice President A. Dale Johnson, of the PG&E division covering the area from Nevada County to the Sacramento Valley Region, stated, “Fire claims have become a major problem in 1990.” Another document from the same division noted that a 1987 study had recommended a $3.94 million annual budget for the division, but that the budget had remained for years at $2.68 million.

The most damning evidence may be the documents showing that PG&E officials started doing something about complying with the law only after the Nevada County case was filed. On Aug. 9, 1995, five days after the case was filed, PG&E officials formulated a “tree line contact action plan.”

The problem, according to the action plan, was that PG&E was not in compliance with state regulations. “Recommendation: to acquire resources necessary to mitigate tree line contact,” the plan stated. “Payoff: no fires.” ?

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