State regulators said Monday that they are investigating allegations that PG&E ignored warnings it had failed to fix serious gas leaks, schemed to bill its customers nearly $2 million in unwarranted costs, let its CEO fly alone on a 25-seat private jet at a cost of $60,000 and engaged in other misconduct — all charges the agency first heard about from the San Jose Mercury News.
The previously undisclosed accusations are detailed in a 2008 lawsuit by James Redeker, PG&E’s former manager of investigations, who said he was laid off by Kent Harvey, now the company’s chief financial officer, after Redeker reported the misconduct to his superiors.
Without denying the accusations, PG&E quietly settled Redeker’s suit just four months after it was filed, under a confidentiality agreement that prohibited the parties from talking publicly about it. This newspaper discovered the suit while researching a story about utility whistle-blowers and disclosed it to officials with the California Public Utilities Commission.
"They were just really disturbed when they read it," said Michelle Cooke, interim director of the PUC’s consumer protection and safety division, noting that the agency was starting an informal investigation to determine if a formal probe was warranted. While no determination has been made about the suit’s merit, she stressed, "it does certainly call into question PG&E’s corporate culture. The allegations imply a pattern of cover-up and disregard for safety."
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Cooke also said the PUC is troubled that the agency’s officials hadn’t previously been informed of the allegations, which raise serious questions about the conduct of a company it is supposed to be regulating.
"One of the things that this points out is that we don’t currently have a process in place for the PUC to be notified of these types of lawsuits," she said. Consequently, the commission might want to consider requiring "the utilities to report these types of lawsuits to us."
PG&E spokesman David Eisenhauer said the U.S. Department of Labor "did not pursue" a wrongful termination complaint Redeker filed with it, but Eisenhauer didn’t know if the agency had investigated Redeker’s specific allegations against the company.
Eisenhauer declined to comment on PG&E’s own assessment of Redeker’s claims. But he noted, "any time an employee brings up concerns like this, we investigate it thoroughly and if that investigation reveals that there is any truth to those concerns we notify our regulators and any other appropriate agencies."
Redeker, whose suit said he’d been PG&E’s manager of investigations for six years before losing his job in 2006, could not be reached for comment, and his attorney, Kathryn Burkett Dickson, said she couldn’t talk about the case because of the confidentiality provision. However, his allegations are spelled out in detail in the complaint he filed in San Francisco County Superior Court, seeking damages for wrongful termination.
One of his charges — that PG&E failed to fix "potentially explosive gas leaks" and falsified internal company reports about leaks — were first reported by this newspaper Sunday. But the suit also makes other troubling claims. Among them:
—PG&E allegedly conspired to bill ratepayers nearly $2 million after it mistakenly overpaid that amount to another company to clean up groundwater from a natural-gas facility. Instead of having its shareholders pay the bill, PG&E tried to pass it on to the public in a "disguised" form, the suit said. It added that "management believed CPUC auditors were unlikely to find the mistake if they ever audited the project, so PG&E likely could get away with leaving it charged to the customers." A year later, while looking into a separate matter, the commission made PG&E shareholders, not ratepayers, bear the cost, the suit said.
—PG&E allegedly misled the PUC about a requirement that the utility do business with suppliers owned by women, disabled veterans or members of minority groups. "PG&E regularly credited itself with, and publicized, tens of millions of dollars in diversity spending for payments it made to diverse contractors who PG&E knew performed much of their work assignments through non-diverse subcontractors," the suit claimed.
—In 2006, PG&E’s former CEO, Peter Darbee, flew alone to Florida and back in a 25-seat private jet for a routine business meeting at a cost of $60,000, which was charged "primarily" to the company’s investors, rather than to customers, the suit said. Believing the expense "was exorbitant and thus violated company standards," Redeker said he reported the incident to Harvey. The next day, his suit said, Redeker was laid off.
Redeker also claimed his bosses barred him from investigating a vice president suspected of providing confidential pricing information to a company bidding on PG&E contracts, a nuclear fuel-storage facility supervisor accused of embezzlement, and computer security violations that could result in "safety breakdowns" of gas and electric operations.
No industrywide rules
Robert Thormeyer, spokesman for the National Association of Regulatory Utility Commissioners, said he is unaware of any industrywide standard that governs when utilities are obligated to report misconduct to public regulatory agencies, adding that such reporting probably depends on a range of factors, including the severity of the alleged impropriety.
However, he added, if a utility fails to report a significant problem, "there could be dramatic consequences."
That the PUC had known nothing about Redeker’s lawsuit and only now is looking into his allegations outraged Mindy Spatt, a spokeswoman for the consumer group The Utility Reform Network, which has long been at odds with PG&E.
"It’s utterly shocking," she said, particularly given the Sept. 9 gas-line explosion in San Bruno, which killed eight people and destroyed 38 homes. "It just shows so clearly the need for independent oversight of this company and, thus far, we don’t really have that. Unfortunately, we’ve learned from what’s happened in San Bruno that the cost of not overseeing these companies are enormous."