XII. Sanctions

C. Summary

We fine Edison $656,000 based on a penalty of $20,000 for each of the 30 accidents where Edison either knew or should have known of the violation and failed to cure it in a timely fashion, and $1,000 for each of the 56 violations of GO 165 for the failure to identify unsafe conditions. We do not fine Edison for the other GO violations.

One of the reasons we do not fine Edison the maximum penalties for each violation, as advocated by CPSD, is because CPSD failed to put its request in any kind of context or to demonstrate that the number of GO violations compromised the safety or reliability of Edison's system. Edison and CPSD agreed, and we find, that the utility cannot maintain its distribution system so that there are no GO 95 and 128 violations at a given time. For instance, a typical pole on Edison's system has over 100 items that must conform to GO 95, and a typical underground or pad-mount facility has as many as 40 items that must conform to GO 128. Based on this record, we cannot determine whether the 4,812 GO violations compromise the integrity or safety of Edison's system, or place them in any other kind of context. We cannot determine whether these violations serve as the canary in the coal mine, warning us of safety problems on Edison's system, or whether they are at an appropriate level for a utility the size of Edison (provided that they are repaired within a reasonable time.) We therefore weigh this lack of context, as well as the factors set forth below, in setting the appropriate level of penalties.

D. CPSD's Recommendations

CPSD recommends the maximum penalty of $20,000 for each of its alleged 4,854 violations of the GOs or Rule 1 for a total fine of $97,080,000. Because the exact period of noncompliance is difficult to determine, CPSD would forgo seeking penalties pursuant to Pub. Util. Code § 2108, for continuing violations.

CPSD recommends the maximum penalty per incident because of (1) the severity of the offense, in that some of the violations caused death and dismemberment, and all are safety hazards with the potential to cause fatalities and bodily injury; (2) the number of violations, considering that CPSD has few resources to invest in inspection; (3) no mitigating circumstances; (4) Edison's conduct, first, in taking no responsibility for any of the 37 accidents and, second, in setting up its maintenance program; (5) Edison's financial resources as one of the largest utilities in the country; and (6) the high degree of wrongdoing inherent in a threat to general public health and safety.

C. Edison's Response

Edison argues that there is no basis for imposing any penalty. Edison believes that CPSD's proposed penalty conflicts with all of the criteria articulated by the Commission. According to Edison, (1) the proposed penalty is out of proportion to the severity of the offenses; (2) Edison's conduct was understandable and did not result in any financial benefit to the utility; (3) there is no demonstrated need for deterrence; (4) the totality of the circumstances call for no fine; and (5) a fine in this context would be wholly unprecedented.

D. Discussion

Section 2107 sets a range of penalties for a utility that violates or fails to comply with an order, decision, rule, demand, or requirement of the Commission in cases such as this, where there is no other statutory penalty. Under § 2107, a utility is subject to a penalty of not less than $500 nor more than $20,000 for each offense. Section 2108 states that, in the event of a continuing violation, each day's continuance represents a separate and distinct offense.

In determining the amount of the penalty, we look to the criteria we established in D.98-12-075, Appendix A, 84 CPUC2d at 188-190 (Penalty Guidelines) which have provided guidance in all subsequent cases in which such issues arise. We stated that the purpose of fines is to effectively deter further violations by the perpetrator or others. We now discuss the relevant criteria in D.98-12-075 to explain how we arrive at today's penalty.

1. Severity of the Offense

The Commission assesses the physical, economic, and regulatory harm surrounding the violations in determining the severity of the offense. According to D.98-12-075, the most severe violations are those that cause physical harm to people or property, with violations that threaten such harm closely following. Economic harm reflects the level of costs imposed upon the victims of the violation and the unlawful benefits gained by the utility. The fact that the economic harm may be difficult to quantify does not itself diminish the need for sanctions. The Commission also considers the harm to the integrity of the regulatory process in setting penalties, because such compliance is necessary to the proper functioning of the regulatory process. D.98-12-075 states that disregarding a statutory or Commission directive, regardless of its effect on the public, will be accorded a high level of severity.

We find that in 30 of the accidents, a GO violation occurred and Edison either knew or should have known of the violations, and failed to cure them in a timely fashion. The violations of GO 165 for failing to identify GO violations during the detailed inspections, and exceeding GO 165's maximum inspection intervals have a strong potential for causing harm, because Edison had the opportunity to find and correct such violations during its inspection program and did not do so. The other violations also have the potential to cause harm, because they are violations of safety requirements.

Failing to comply with Commission GOs is harmful to the regulatory process. However, Edison met with Commission staff to determine staff's opinion of Edison's maintenance and safety program and received mixed messages from staff as to whether Edison had violated a GO before it had a chance to remedy the violation. When CPSD brought numerous violations to Edison's attention, Edison remedied the problems. These factors mitigate the severity of the offense.

2. The Utility's Actions to Prevent, Detect, and Disclose and Remedy a Violation

According to D.98-12-075, the utility is expected to take reasonable steps to ensure compliance with Commission directives, including regularly reviewing its own operations to ensure full compliance. In evaluating the utility's efforts to ensure compliance, the Commission will consider the utility's past record of compliance with Commission directives.

A utility should also diligently monitor its activities. Deliberate, as opposed to inadvertent, wrongdoing, will be considered an aggravating factor. The level and extent of management's involvement in, or tolerance of, the offense will be considered in determining the amount of the penalty.

Edison instituted a maintenance priority system in order to comply with the GOs. Edison admits that this system is not perfect and is constantly undergoing modification and improvement. As stated above, although we do not approve or disapprove this program in this decision, Edison can improve on this program further, by improving its inspections and improving the speed by which it remedies GO violations.

Edison's meetings with Commission staff on GO compliance, and its willingness to promptly repair the GO violations which CPSD found, also serve as mitigating factors.

3. Need for Deterrence

Fines should be set at a level that deters future violations. Effective deterrence requires that the Commission recognize the financial resources of the utility in setting a fine.

Edison is a very large utility with extensive financial resources. Therefore, a large fine for GO violations when Edison knew or should have known of the violation but failed to cure it is appropriate, as is a more moderate fine where Edison failed to detect GO violations during detailed inspections. This is intended to ensure that Edison conducts thorough detailed inspections of its distribution system.

4. Totality of the Circumstances in Furtherance of the Public Interest

According to D.98-12-075, setting a fine at a level that effectively deters further unlawful conduct by the utility and others requires us to specifically tailor the package of sanctions, including any fine, to the facts of the case. The Commission will review the facts which tend to mitigate the degree of wrongdoing as well as any facts which exacerbate the wrongdoing. In all cases, the harm will be evaluated from the perspective of the public interest.

a) Mitigating Facts:

· No actual physical harm resulting from 4,787 violations of the GOs;

· Ongoing discussions with Commission staff about the appropriate means of complying with the GOs;

· Mixed messages from Commission staff as to whether Edison has violated a safety GO before the utility had an opportunity to remedy the violation;

· Edison repaired or remedied the 4,721 violations CPSD brought to its attention as required by CPSD;

· Edison made changes to its operations to prevent reoccurrence of some of the accidents (i.e., better communications with its contractors, better training of its employees, etc.)

b) Exacerbating Facts:

· 2530 instances where Edison knew or should have known of the violation but failed to cure it;

· Failure to discover and therefore repair 56 GO safety violations during its detailed inspection program;

· Edison is a very large utility with extensive financial resources.

5. The Role of Precedent

The Commission will consider (1) previous decisions that involve reasonably comparable factual circumstances, and (2) any substantial differences in outcome.

Neither party identified prior decisions with reasonably comparable facts. Edison argues that because the Commission has never penalized a utility for the kind of behavior at issue in this proceeding, it cannot do so here before the Commission warns the utility that it might do so.

As discussed above, Edison and all Commission-regulated utilities are on notice that they must comply with all applicable statues and Commission orders, including general orders. The Commission does not need to issue a warning before it enforces the law.

6. Constitutional Limitations on Excessive Fines

Under D.98-12-075, the Commission will adjust the size of fines to achieve the objective of deterrence, without becoming excessive, based on each utility's financial resources. We have set the penalty with this principle in mind.

7. Penalty

In sum, based on the factors set forth above, we fine Edison $20,000 for each of the 30 violations involving accidents where Edison failed to correct a serious violation in a timely fashion, and $1,000 for each of 56 violations of GO 165, for failing to identify unsafe conditions for a total fine of $656,000.