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BAKER 

&

HOSTETLER LLP

ATTORNEYS AT LAW SAN FRANCISCO 

EXHIBIT E

Case: 19-30088 Doc# 2028-8 Filed: 05/15/19 Entered: 05/15/19 16:58:06 Page 1

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MP6/eg3 12/21/2018 

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA 

Order Instituting Investigation on the 

Commission’s Own Motion to Determine 

Whether Pacific Gas and Electric Company 

and PG&E Corporation’s Organizational 

Culture and Governance Prioritize Safety. 

Investigation 15-08-019 

ASSIGNED COMMISSIONER’S SCOPING MEMO AND RULING

Summary 

This Scoping Memo and Ruling (Ruling) sets forth the scope to be 

addressed and the schedule for the next phase of this proceeding, consistent 

with the Order Instituting Investigation and the prior Scoping Memo in this 

proceeding. This Ruling builds on this Commission’s Decision (D.) 18-11-050 

adopting the recommendations of the NorthStar Report and directing 

Pacific Gas and Electric Company (PG&E) to implement the recommendations 

as adopted in the decision. 

1. Principles 

Continuous, safe, and reliable gas and electric service at just and 

reasonable rates must be provided to Northern California in order to protect 

human life and sustain prosperity. The Commission’s examination of PG&E’s 

FILED

12/21/18

03:51 PM

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safety culture accordingly continues in this proceeding. The Commission will 

examine PG&E’s and PG&E Corporation’s (PG&E Corp.) current corporate 

governance, structure, and operations to determine if the utility is positioned to 

provide safe electrical and gas service, and will review alternatives to the current 

management and operational structures of providing electric and gas service in 

Northern California. 

As the Commission evaluates proposed alternatives, it will consider a 

range of factors, including: 

• the safety and reliability of utility service; 

• the operational integrity and technical unity of components 

within PG&E’s gas and electric transmission and 

distribution systems; 

• the stability and adequacy of the utility workforce; 

• the utility’s relationships with and role in local 

communities; 

• the ability of the state to implement its energy policies, 

including the need to reduce greenhouse gas (GHG) 

emissions and local criteria pollutants in both the utility 

sector and the economy as a whole; 

• the ability of the utility to meet financial challenges posed 

by large catastrophic events such as earthquakes and 

wildfires; 

• the utility’s ability to raise capital and purchase gas, 

electricity, equipment and services; and 

• the cost of utility service. 

Careful consideration is also necessary to determine whether there is a 

viable transition process from the status quo to any preferred alternative. If there 

is not a clear path forward to implement an alternative (including consideration 

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of legal, financial, and technical grid issues), then the alternative will not be 

considered a viable option in this proceeding. 

The future of PG&E may also be impacted by other actors beyond the 

Commission. The Legislature, the court appointed Federal Monitor, the various 

courts considering claims against PG&E, the Federal Energy Regulatory 

Commission, and the communities served by PG&E all have a role in 

determining PG&E’s future. As a publicly traded company, PG&E must also 

respond to the financial markets, and to the requirements of the vendors and 

other parties with which it conducts business. 

The Commission has not drawn any conclusions about the outcome of this 

proceeding and recognizes these other actors may be the origin of proposals for 

consideration. The Commission undertakes this next phase of this proceeding in 

a thoughtful and deliberate manner, consistent with the importance of the issues 

being addressed. 

2. Background 

PG&E has had serious safety problems with both its gas and electric 

operations for many years. The following examples illustrate both the types of 

safety incidents PG&E has experienced and the remedial consequences imposed 

by this Commission and several courts. 

On September 9, 2010, a PG&E natural gas transmission pipeline ruptured 

in San Bruno. The event is well detailed in a Commission decision: 

At 6:11 p.m. on September 9, 2010, Segment 180 of Line 132, a 

30-inch diameter natural gas transmission pipeline owned and 

operated by PG&E, ruptured in the Crestmoor neighborhood 

of San Bruno, California. Gas escaping from the rupture 

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ignited. There was an explosion of such tremendous force 

that a crater approximately 72 feet long by 26 feet wide was 

created. A 28-foot long section of pipe weighing about 

3,000 pounds was blown approximately 100 feet from the 

crater. The conflagration continued for over an hour and a 

half, releasing 47.6 million cubic feet of flammable natural gas 

before the flow was stopped. It required the response of 

600 firefighting (including emergency medical service) 

personnel and 325 law enforcement personnel. 

The resulting deaths, injuries, and damage to property were 

especially severe [...]. 

The Crestmoor neighborhood was effectively wiped off the 

map. An entire community was displaced.1 

PG&E faced historically significant administrative penalties and fines and 

criminal punishment as a result of the San Bruno explosion. This Commission 

imposed a fine and other penalties on PG&E totaling $1.6 billion.2

 PG&E was 

also found guilty by a federal jury of federal criminal conduct, specifically 

multiple willful violations of the Natural Gas Pipeline Safety Act of 1968 and of 

obstructing an agency proceeding.3 As part of PG&E’s sentence in the federal 

criminal proceeding, it was required to submit to a federal monitor for 

compliance and ethics.4 In November 2018, Judge William Alsup, who was 

 

1

 D.15-04-023 at 3-4. 

2

 D.15-04-024 at 2. 

3

 Case No. CR-14-00175-THE; see also Press Release, Department of Justice, U.S. Attorney’s 

Office, Northern District of California, dated August 9, 2016, available at: 

https://www.justice.gov/usao-ndca/pr/pge-found-guilty-obstruction-agency-proceeding-andmultiple-violations-natural-gas. 

4

 Case No. CR-14-00175-THE, Order dated January 26, 2017. In February 2017, Mark Filip was 

selected as the Compliance and Ethics Monitor of PG&E for a period of five years. 

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assigned the PG&E federal criminal manner, directed PG&E to respond by 

December 31, 2018, to questions regarding the Camp Fire, which occurred in 

November 2018. 

On June 19, 2012, a PG&E subcontractor was killed during demolition of 

PG&E’s decommissioned Kern Power Plant. As part of a settlement of the 

subsequent Commission Order Instituting Investigation (OII), PG&E was 

required to implement, on a company-wide basis, a Corrective Action Plan that 

included a Contractor Safety Program and an Enterprise Causal Evaluation 

Standard, and pay penalties totaling $5,569,313.5 

On August 18, 2016, the Commission imposed penalties on PG&E of 

$25,626,000 in response to six incidents from 2010 through 2014 that called into 

question the safety of PG&E’s natural gas distribution system.6 In response to 

the Commission’s OII in that proceeding, “PG&E also set forth its efforts to 

enhance gas distribution system recordkeeping accuracy, accessibility, and 

controls, as well as operational safety improvements.”7

 

On August 27, 2015, the istant OII was opened by the Commission, to 

examine PG&E’s and PG&E Corp.’s safety culture. This Commission was, and 

remains, concerned that the safety problems being experienced by PG&E were 

not just one-off situations or bad luck, but indicated a deeper and more systemic 

 

5

 These penalties consist of $3,269,313 in ratemaking offsets that benefit customers and 

$2,300,000 in fines payable to the state’s General Fund. (D.15-07-014 at 2.) 

6

 D.16-08-020 at 2-4. An additional penalty of $10.8 million was imposed for the Carmel 

incident. (Id. at 10, 51.) 

7

 Id. at 4. 

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problem. The fact that imposing penalties on PG&E (the Commission’s standard 

tool for addressing safety problems) did not seem to change the situation 

reinforced this concern. 

As the Commission stated: “[t]his investigation will...determine whether 

PG&E’s organizational culture and governance are related to PG&E’s safety 

incidents and performance record, and if so, to what extent; and if so, how can or 

should the Commission order or encourage PG&E to develop, implement, and 

update as necessary a safety culture of the highest order.”8 In D.18-11-050, the 

Commission adopted the findings of the consultant to the Safety and 

Enforcement Division, the Northstar Consulting Group. The report concluded 

that “[w]hile PG&E is committed to safety and efforts have been made to reduce 

incidents and increase the organizational focus on safety, these efforts have been 

somewhat reactionary – driven by immediate needs and an understandable 

sense of urgency, rather than a comprehensive enterprise-wide approach to 

addressing safety.”9 The failure of PG&E to develop a comprehensive 

enterprise -wide approach to address safety, eight years after the 2010 San Bruno 

pipeline explosion, is of vital concern to this Commission. 

The Butte Fire, which began on September 9, 2015, burned approximately 

70,000 acres of land and destroyed 921 structures, and left two civilians dead.10

 

 

8

 Investigation 15-08-019, OII at 15. 

9

 Northstar Report at I-1. 

10 Cal Fire Report, last modified October 15, 2015, available at 

http://cdfdata.fire.ca.gov/incidents/incidents_details_info?incident_id=1221. 

Footnote continued on next page

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The Commission’s Safety and Enforcement Division (SED) issued PG&E a 

citation for $8 million for violation of the CPUC’s General Order 95, Rule 31.1, for 

failing to maintain its 12 kilovolt (kV) overhead conductors safely and properly.11 

SED also cited PG&E $300,000 for failure to timely report to the CPUC that 

PG&E’s facilities may have been linked to the ignition of the Butte Fire and for 

failing to maintain the minimum required clearance between a 12 kV conductor 

and a tree.12

In the fall of both 2017 and 2018, historically large wildfires burned in 

PG&E’s service territory. The scale of these fires set new records on almost every 

metric which exists to measure wildfires. Because the Commission’s 

investigations into these fires are ongoing, the specific causes of the fires, 

potential enforcement actions, and PG&E’s prudency related to the fires will not 

be addressed in this proceeding. However, the Commission will consider the 

fact that PG&E’s service territory includes fire prone land according to the 

Commission’s fire threat maps,13 which is a critical safety challenge for PG&E. 

On December 14, 2018, the Commission opened an OII proceeding to 

consider penalties and ordered immediate action against PG&E for what 

 

11 Citation Issued Pursuant to D.16-09-055. Available here: 

http://www.cpuc.ca.gov/uploadedFiles/CPUC_Public_Website/Content/News_Room/E1704001

E2015091601Citation20170425.pdf. 

12 Citation Issued Pursuant to D.16-09-055. Available here: 

http://www.cpuc.ca.gov/uploadedFiles/CPUC_Public_Website/Content/News_Room/E1704002

E20150916_01Citation20170425.pdf. 

13 D.17-01-009, revised by D.17-06-024. 

Footnote continued on next page

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Commission staff says are systemic violations of rules to prevent damage to 

natural gas pipelines during excavation activities.14 The Commission directed 

PG&E to take immediate corrective measures and to attest under penalty of 

perjury that it is conducting natural gas pipeline locate and mark efforts and 

programs in a safe manner consistent with all applicable laws. The Commission 

has not prejudged the outcome of that proceeding; however, the fact that these 

allegations have been made are noted to provide context for the type of 

challenges we expect PG&E to address by adopting and maintaining a safety 

culture. 

This Commission is tasked with regulating PG&E’s safe operation of its 

natural gas pipeline and electricity infrastructure. Given PG&E’s record and the 

dangers inherent in PG&E’s service territory, the Commission must evaluate 

whether there is a better way to serve Northern California with safe and reliable 

electric and gas service at just and reasonable rates. This ruling identifies the 

scope of issues considered in the next phase of this proceeding. 

3. Scope of Issues 

The safe operation of PG&E’s gas and electric systems and the threat of 

personal harm to PG&E employees and members of the public are of critical 

concern to the Commission and California. To address that concern and mitigate 

future risk, the next phase of this proceeding will consider a broad range of 

alternatives to current management and operational structures for providing 

electric and natural gas in Northern California. Accordingly, the following list of 

 

14 I.18-12-007. 

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proposals is illustrative rather than exclusive and is intended to show the range 

of possible alternatives under consideration. This list does not limit the 

Commission’s potential actions or directives. The outcome of this investigation 

may include recommendations to other entities that have a role in ensuring safe 

electrical and gas service in Northern California, if a desired outcome requires 

action by someone other than this Commission. Parties may present other 

options than the ones listed below. The Commission may revise the scope of 

alternatives to be considered after receiving comments from parties. 

This is not a punitive exercise. Indeed, the keystone question is, compared 

to PG&E and PG&E Corp. as presently constituted, would any of the following 

proposals provide Northern Californians safer gas and electric service at just and 

reasonable rates? 

Corporate Governance – Board of Directors 

• Should PG&E and PG&E Corp. be subject to a 

utility-specific business judgment rule (BJR) to require the 

Board of Directors to account for safety beyond the current 

fiduciary duties?15 If so, should such a utility-specific 

business judgment rule apply to corporate officers as well? 

• Should the PG&E Board of Directors regularly file with the 

Commission a report of how the Board met its duties 

under the BJR to account for safety? Should this include a 

summary of the oversight exercised by the Board including 

information reviewed, when deliberations occurred, and 

the depth of the review? Should the report include the 

Board review of the corporate officers’ leadership as it 

pertains to safety? Should compensation to the Board 

 

15

 See, e.g. California Corporations Code § 309 and Gaillard v. Natomas Co., 

208 Cal. App. 3d 1250 (1989). 

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Members be dependent on a Commission finding that the 

Board members discharged their safety duties 

appropriately? 

• Should PG&E form an independent nominating committee

to identify and select candidates for the Board of Directors? 

• Should PG&E identify specific criteria for potential Board 

of Directors members? For example, should PG&E have

one or more Board of Directors members be experts in 

organizational safety, gas safety, and/or electrical safety? If 

so, should the appointment of safety experts be made

subject to Commission or Governor approval? 

• Should PG&E form an audit committee constituted of 

independent directors possessing financial and safety 

competence, as defined by the Commission, to evaluate the 

Board of Directors’ discharge of their duties and make 

recommendations for qualifications of future members of 

PG&E’s Board of Directors? 

• The Securities and Exchange Commission requires publicly 

traded companies to file an 8-K Form when a material 

event occurs. Generally, an event is material if there is a 

substantial likelihood that a reasonable investor would 

consider the information important in making an 

investment decision. Should PG&E file an analogous 

safety report with the Commission when PG&E makes a

significant decision regarding capital expenditures 

pertaining to safety, a change in management as it pertains 

to safety, or any other decision that may impact safety? 

• Should PG&E file a public annual report of all Directors 

and Officers insurance policies obtained by PG&E and

identify the risk PG&E identified to obtain the insurance? 

If PG&E amends its Directors and Officers insurance,

should it notify the Commission of the risk identified and 

the terms of the amended policy? 

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• Should part or all of the existing Board of Directors resign 

and be replaced by directors with a stronger background 

and focus on safety? 

Corporate Management – Officers and Senior Leadership 

• Should PG&E retain new corporate management in all or 

in part? 

• Should the questions posed above for Corporate 

Governance be similarly considered for corporate 

management? 

• Should compensation for non-officer executives be 

modified? Does the current incentive structure properly 

incent PG&E decision-makers?16

Corporate Structure 

• Should PG&E’s gas and electric distribution and 

transmission divisions be separated into separate 

companies? If so, should the separate companies be 

controlled by a holding company? Should the holding

company be a regulated utility? 

• Should PG&E’s corporate structure be reorganized with 

regional subsidiaries based on regional distinctions? For 

example, PG&E could be divided into multiple smaller

utilities operating under a single parent company. If so, 

should such a reorganization apply to both gas and electric 

services? Do the physical characteristics of the gas and 

electric systems lend themselves to the same regional 

structure, or do the physical characteristics of the 

respective systems lend themselves to different regional 

structures? 

 

16 Senate Bill 901 (Dodd) prohibits an electrical or gas corporation from recovering any annual 

salary, bonus, benefits, or other consideration of any value, paid to an officer of the corporation, 

from ratepayers. 

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• Should the Commission revoke holding company 

authorization, so PG&E is exclusively a regulated utility? 

Should all affiliates and subsidiaries be spun off or

incorporated into the regulated utility?

• Should the Commission form a standing working group 

with the union leadership of PG&E to identify the safety 

concerns of PG&E staff?

Publicly Owned Utility, Cooperative, Community Choice 

Aggregation or other Models 

• Should some or all of PG&E be reconstituted as a publicly 

owned utility or utilities? 

• Should PG&E be a “wires-only company” that only 

provides electric distribution and transmission services 

with other entities providing generation services? If so, 

what entities should provide generation services? 

Return On Equity 

• Should the Commission condition PG&E’s return on equity 

on safety performance? 

• What are the safety considerations for the utility if its 

financial status is downgraded by the investment 

community? 

Other Proposals 

• What other measures should be taken to ensure PG&E 

satisfies its obligation to provide safe service? 

4. Comments 

Parties should make preliminary comments on the desirability of these 

alternatives with discussion of how each proposal impacts the following 

considerations: 

• the safety and reliability of utility service; 

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• the operational integrity and technical unity of components 

within PG&E’s gas and electric transmission and 

distribution systems; 

• the stability and adequacy of the utility workforce; 

• the utility’s relationships with and role in local 

communities; 

• the ability of the state to implement its energy policies, 

including the need to reduce GHG emissions and local 

criteria pollutants in both the utility sector and the 

economy as a whole; 

• the ability of the utility to meet financial challenges posed 

by large catastrophic events such as earthquakes and 

wildfires; 

• the utility’s ability to raise capital and purchase gas, 

electricity, equipment and services; and 

• the cost of utility service. 

In addition, the parties shall make initial observations on the legal, technical, and 

financial feasibility of these proposals and include observations on the feasibility 

of transitioning from the current utility structure to proposed alternatives. 

Parties may also offer additional proposals with consideration given to the same 

factors and feasibility concerns. Parties may also comment on scope and process 

recommendations. 

For ease of reference, parties’ comments shall follow the same format 

provided in this ruling. Specifically, parties shall comment on proposals in the 

following sequence: Corporate Governance, Corporate Management, Corporate 

Structure, Public Utility or Cooperative, Return on Equity, and Other Proposals. 

Opening comments are limited to 40 pages. Reply comments are limited to 

20 pages. 

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To better inform this proceeding, on or before January 16, 2019, PG&E is 

also directed to file a summary of: 

• PG&E’s and PG&E Corp.’s corporate structures, including 

organizational charts for the respective Board of Directors, 

executives, and other senior leadership as of 

September 1, 2010, and as of December 31, 2018. The 

summary should also explain the different lines of business 

of PG&E and PG&E Corp. 

• The senior positions in PG&E and PG&E Corp. responsible 

for management of safety, and how the different roles 

interact. 

After review of comments filed by parties, the Commission will identify the best 

process to consider proposals and identify concerns that require additional 

filings from parties. 

5. Schedule 

The next step for this Commission is to obtain input on the various 

possible approaches to address the underlying issue of PG&E’s safety culture. 

The Commission needs to have more information and analysis from a range of 

perspectives before it can consider implementation of any particular approach, or 

even select any approach to consider in more detail. Accordingly, the schedule 

set forth below is limited to the filing and service of party comments on the 

issues identified above. 

The following schedule is adopted: 

PG&E and PG&E Corp. Background Filing January 16, 2019 

Concurrent Opening Comments filed and served January 30, 2019 

Concurrent Reply Comments filed and served February 13, 2019 

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This schedule may be modified by the assigned Commissioner or 

Administrative Law Judge (ALJ) as necessary. Once comments are received, the 

assigned Commissioner and ALJ will determine the next procedural steps to 

take. 

6. Presiding Officer 

In the interest of judicial efficiency, ALJ Peter V. Allen is designated as the 

Presiding Officer in this phase of the proceeding. 

7. Public Category of Proceeding/Ex Parte Restrictions 

As stated in the original scoping memo issued on May 8, 2017, this 

proceeding is categorized as ratesetting. With the change in presiding officer, the 

voluntary ex parte prohibition previously imposed by the assigned Commissioner 

is lifted, and will not apply to this phase of the proceeding. The Commission’s 

rules regarding ex parte communications in ratesetting proceedings remain in

place. Accordingly, ex parte communications are restricted and must be reported 

pursuant to Article 8 of the Commission’s Rules of Practice and Procedure. 

8. Advisor 

Any person interested in participating in this proceeding who is 

unfamiliar with the Commission’s procedures or has questions about the 

electronic filing procedures is encouraged to obtain more information at 

http://consumers.cpuc.ca.gov/pao/ or contact the Commission’s Public Advisor at 

866-849-8390 or 415-703-2074 or 866-836-7825 (TYY), or send an e-mail to 

public.advisor@cpuc.ca.gov. 

IT IS RULED that: 

1. The scope of this proceeding is described above. 

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2. The schedule of this proceeding is as set forth above. 

3. Administrative Law Judge Peter V. Allen is designated as the presiding 

officer for this phase of the proceeding. 

4. Page limitations for opening and reply comments are as set forth above. 

Dated December 21, 2018, at San Francisco, California. 

 /s/ MICHAEL PICKER 

 Michael Picker 

Assigned Commissioner 

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