Column: How the criminal conviction of PG&E lets the real wrongdoers go free
In the traditional view, a felony conviction is a big deal. Typically it means jail time, maybe a big fine, the loss of voting privileges, a permanent black mark on one’s reputation.
But that applies to human felons. When a corporation is convicted, the consequences often are wholly imaginary. That’s why the federal criminal trial of Pacific Gas & Electric Co., which resulted in a jury verdict finding the company guilty on six counts Tuesday, feels like such a waste of time and effort.
The verdict relates to the 2010 explosion of a PG&E gas pipeline, which leveled a neighborhood in San Bruno and killed eight people. Evidence presented by prosecutors indicated that the utility deliberately misclassified the pipeline, violated safety regulations and misled federal officials about its activities. As a result of the verdict, PG&E faces a maximum fine of $3 million, which is about as much as its parent company collects in revenue every 90 minutes.
[Federal prosecutors are] extremely reluctant to impose any significant criminal penalty on a corporation they regard as ‘legitimate.’
— White-collar crime expert William K. Black
The company obviously can’t be hauled off to jail. Nor can any of its executives, because none was named as a defendant by federal prosecutors. As for the other sentencing options available to a judge in a corporate crime prosecution, they’re probably impractical in this case.
As one survey of corporate criminal prosecutions observed, “corporations can be fined. They can be placed on probation. They can be ordered to pay restitution. Their property can be confiscated. They can be barred from engaging in various types of commercial activity.” Federal guidelines “begin with the premise that a totally corrupt corporation should be fined out of existence, if the statutory maximum permits.”
But some of those costs already have been imposed by state regulators: The company has been socked with $1.6 billion in penalties by the state Public Utilities Commission, and says it has spent $2.7 billion to upgrade its natural gas system. Even the maximum criminal fine will be barely noticeable by the corporation’s bean counters and shareholders, especially since prosecutors voluntarily decided not to pursue a maximum potential fine of $562 million.
That decision, which came after jury deliberations began, has not been explained, although it may have something to do with the stature of California’s largest utility company. “The Department of Justice is extremely reluctant to impose any significant criminal penalty on a corporation they regard as ‘legitimate,’” says William K. Black, a white-collar crime expert at the University of Minnesota law school and former prosecutor of bankers in the savings and loan scandals of the 1980s and ‘90s.
State regulators theoretically could strip PG&E of its franchise — its right to do business in California. As we explained last year, the company might have few defenders in such a case. After all, the San Bruno disaster is only its most spectacular misdeed.
Among other milestones in its sleazy history, PG&E squandered $46 million on an unsuccessful 2010 campaign to write a regional monopoly for itself into the state Constitution, via the ballot measure Proposition 16; engaged in allegedly illegal back-channel contacts with former Public Utilities Commission President Michael Peevey and other PUC officials, compromising the commission’s regulatory work; and diverted some of the $5 million in ratepayer funds earmarked in 2007 for gas infrastructure upgrades into pay raises for top executives instead. The work was never performed, and subsequently, the gas line under San Bruno blew up. Evidence that corporate management really is focused on improving its safety culture remains sketchy and unconvincing.
Certainly the company doesn’t exude much more than a lip-service level of remorse or shame. In a statement issued following the verdict, it spoke as though the San Bruno explosion is now old news and ancient history. “While we are very much focused on the future, we will never forget the lessons of the past,” the statement said. “We want our customers and their families to know that we are committed to re-earning their trust by acting with integrity and working around the clock to provide them with energy that is safe, reliable, affordable and clean.”
The company pointed out that, although it had been found guilty on six counts, it was found not guilty on six others, as though the final score ended up in a tie.
The real lesson of the PG&E case is that criminal prosecution of a corporation is usually a meaningless exercise. “Overwhelmingly, the evidence is that the effect of deterrence comes from holding individuals responsible,” Black says.
That hasn’t happened at PG&E.
Of the executives in command at PG&E at the time of the San Bruno blast, Peter Darbee, the chairman and chief executive of PG&E Corp., the utility’s parent holding company, retired a year later, with a golden handshake of some $35 million. Christopher P. Johns, who was president of Pacific Gas & Electric Co., the utility subsidiary, in 2010, retired as its vice chairman last December with a pension package of $17.8 million, according to a corporate disclosure.
Amazingly, of the 11 directors in place at the parent holding company at the time of the blast, eight still are on the board, collecting a minimum of $239,000 a year in cash and stock. The federal jury has now determined that they were overseeing a criminal enterprise through 2010 and in the aftermath of the blast; is there some reason why they should be permitted to continue as directors of a public corporation?
Even with six criminal convictions on its record, PG&E is almost certain to continue in business as if nothing has changed. That’s the consequence of trying to tie wrongdoing to a faceless corporation rather than to the human beings who make crucial decisions that lead to destruction and death.
When prosecutors take that easy way out, they just end up obfuscating the truth for the jury. Individuals somewhere in the management chain of Pacific Gas & Electric decided to shortchange the safety provisions for its aging gas infrastructure, and then to interfere with the National Transportation Safety Board investigation of the lethal explosion that followed. Whoever those people were, they haven’t been brought to account, and it looks like they never will be. Is obtaining a criminal conviction of a faceless corporation enough in exchange?