III. ORDER TO SHOW CAUSE; PENALTIES

Based on the public reports issued by both PG&E and CPSD, there is good cause to find that PG&E violated Public Utilities Code section 451 by failing to maintain its system in a safe and reliable manner. A dangerous condition existed at PG&E's Mission substation because of the lack of adequate fire prevention, lack of fire coordination with the SFFD, lack of appropriate fire alarm response, flammable insulation, and an auxiliary bus that did not have to be energized - of which PG&E was fully aware since 1996. This Order to Show Cause orders PG&E to appear and show cause why the Commission should not make a finding that PG&E violated Public Utilities Code section 451 by allowing an unsafe condition to exist at the Mission Substation, which led to an electrical fire and catastrophic power outage. Section 451 requires a public utility to maintain its equipment and facilities in a safe and reliable manner. We hereby place PG&E on notice and provide an opportunity for PG&E to be heard on the issue of whether it violated section 451, and whether penalties should be imposed.

This order also includes an Order Instituting Investigation, so that a forum exists in which to enter the two above-mentioned reports and exhibits as evidence, and to consider any further information or documents that may come to light.

Pursuant to Public Utilities Code sections 2107 and 2108, the Commission may impose penalties in the amount of $500 to $20,000 per day per offense for violations of the Public Utilities Code. We place PG&E on notice that it must demonstrate why it should not be held liable for allowing an unsafe condition to exist during the time period after the 1996 fire when PG&E was warned of the danger at the Mission substation by its own engineers. PG&E is also placed on notice that the Commission may consider a penalty for each customer that lost power, or for each day that the outage was ongoing. Pursuant to the guidelines we set forth in D.98-12-075, we may consider fines and penalties in order to deter future misconduct and to serve as a punitive measure against PG&E for failing to maintain a safe and reliable system for a period of several years, resulting in a catastrophic outage that endangered the public and caused substantial economic harm.

Pursuant to Public Utilities Code section 761, if the Commission finds that PG&E's maintenance and/or operations practices are unsafe, unreasonable, improper, or insufficient, we may consider ordering PG&E to change or improve its maintenance, operations, or construction standards for substations, to ensure system-wide safety and reliability. We place PG&E on notice that the Commission may consider ordering PG&E to implement the recommendations made in PG&E's own event report, or to implement CPSD's recommendations contained in its investigative report, and whether those recommendations should be implemented in PG&E's other indoor substations as well in order to improve and ensure system-wide safety and reliability. In order to evaluate safety and reliability in PG&E's substations system-wide, we will require PG&E to provide a status report on the safety enhancements made at PG&E's other indoor substations since 1996.

Therefore, IT IS ORDERED that:

1. An investigation on the Commission's own motion is instituted into the operations and practices of Respondent Pacific Gas & Electric Company, regarding the December 20, 2003 Mission Substation Fire and Outage. A redacted copy of PG&E's Mission Substation December 20, 2003 Event Report (August 20, 2004), and CPSD's Investigation Report on PG&E Mission Substation Fire and Outage, December 20, 2003 (October 20, 2004) will be placed in the docket designated for this proceeding.

2. Respondent PG&E is directed to appear at a time and place to be determined by an Administrative Law Judge (ALJ) and show cause why the Commission should not make a finding that PG&E violated Public Utilities Code section 451 by allowing an unsafe condition to exist at the Mission Substation, which led to an electrical fire and catastrophic power outage on December 20, 2003. Section 451 requires a public utility to maintain its equipment and facilities in a safe and reliable manner. Pursuant to sections 2107 and 2108, the Commission may impose penalties in the amount of $500 to $20,000 per day per offense for violations of the Public Utilities Code. PG&E is put on notice that it must demonstrate why it should not be held liable for knowingly allowing an unsafe condition to exist. PG&E is also placed on notice that the Commission may consider a penalty for each customer that lost power during the outage, or for each day that the outage was ongoing.

3. Respondent PG&E is placed on notice that, pursuant to Public Utilities Code section 761, the Commission may consider ordering PG&E to implement the recommendations made by PG&E's own event report or by CPSD's investigative report or any other changes called for by the investigations stemming from the December 20, 2003 fire and outage, and whether those changes to PG&E's maintenance, operations, or construction standards should be implemented in other indoor substations, in order to improve and ensure system-wide safety and reliability. In order to evaluate the safety and reliability of PG&E's indoor substations, PG&E is ordered to provide Commission Staff with a status report on the condition of its other indoor substations, including whether the changes and enhancements made at the Mission Substation have been made at other indoor substations, and further providing the following data for each indoor substation: a) the number, date, time and duration of fires that occurred in each indoor substation since 1996; b) the number, date, time and duration of any unplanned outages caused by equipment and cable failures in each indoor substation since 1996; c) a list of indoor substation equipment and cables that have been identified by PG&E since 1996 for replacement based on age and wear criteria established by PG&E; d) what improvements have been made in SCADA monitoring at all indoor substations and control centers since the December 20, 2003, Mission Substation fire, including an explanation of how the improvements will prevent similar outages; e) what improvements in written procedures have been made for each indoor substation for coordinating with local fire departments for fire response at indoor substations since the December 20, 2003, Mission Substation fire; f) any other important measures taken or data collected regarding indoor substation safety and reliability. PG&E shall provide CPSD staff with its status report within 60 days of the effective date of this order.

4. After an Administrative Law Judge (ALJ) is assigned, a Prehearing Conference pursuant to Rule 49 will be convened, and the ALJ will calendar a date, time, and location for a hearing on the Order to Show Cause in a subsequent ruling or order. The subsequent ruling will set a schedule for the issuance of prepared testimony and any additional discovery matters. Respondent shall serve prepared testimony responding to the issues stated above and any other allegations presented in this OII/OSC.

5. This ordering paragraph suffices for the "preliminary scoping memo" required by Commission Rule 6(c) of the Commission's Rules of Practice and Procedure (Rule). This proceeding is categorized as an adjudicatory proceeding and will be set for evidentiary hearing. The issues of this proceeding are framed in the above order. A prehearing conference shall be scheduled for the purpose of setting a schedule for this proceeding, including dates for the exchange of written testimony, determining which witnesses will need to testify, and addressing discovery issues. As to categorization of this proceeding, this order is appealable pursuant to Rule 6.4. Any person filing a response to this Order Instituting Investigation, Notice with Opportunity to be Heard, and Order to Show Cause must state in any response any objections to such orders and notice regarding the need for hearings, issues to be considered, or proposed schedule. However, objections may not address factual allegations that an evidentiary hearing will decide.

6. The Executive Director of the Commission is directed to cause a certified copy of this ORDER INSTITUTING INVESTIGATION, NOTICE OF OPPORTUNITY FOR HEARING, AND ORDER TO SHOW CAUSE to the Respondent's offices
at 77 Beale Street, San Francisco CA 94105.

This order is effective as of the date shown below.

Dated March 17, 2005, at San Francisco, California.

MICHAEL R. PEEVEY

President

GEOFFREY F. BROWN

SUSAN P. KENNEDY

DIAN M. GRUENEICH

Commissioners