Burgeoning Corporate Irresponsibility

On January 29th of this year, the mega utility Pacific Gas and Electric Company (PG&E) filed for bankruptcy, citing billions of dollars in liabilities stemming from wildfires in the 2018 California Camp Fire that destroyed the town of Paradise, California, and killed 86 people. PG&E has acknowledged likely responsibility for triggering the Camp Fire.

Although PG&E has assets estimated at around $70 billion and liabilities of approximately $50 billion, the tort claims are estimated to amount to around $35 billion, and PG&E filed what is termed a defensive bankruptcy to protect its assets, and to cap the amount it may have to pay in claims against it. And, in addition, PG&E canceled the planned distribution of $130 million in bonuses to rank and file employees.

Some have stated that PG&E is the first major corporate “victim” of global warming, but while global warming was certainly a factor in exacerbating the damage caused by the fire, what tends to get overlooked is that PG&E has a half-century long history of environmental irresponsibility.

Not only had PG&E not built and insulated its power distribution system all that well, which led to the Camp Fire disaster, but way back in 1952, PG&E began dumping chromium-tainted wastewater into unlined wastewater spreading ponds around the town of Hinkley, California, located in the Mojave Desert (about 120 miles north-northeast of Los Angeles). From 1952 through 1966, PG&E dumped some about 370 million gallons. To date, PG&E has spent over one billion dollars for damage claims and remediation. The movie Erin Brockovich told the story of the damage claims and how PG&E denied and tried to cover up what it had done. Today, Hinkley is almost a ghost town.

Then PG&E filed for bankruptcy in 2001 because it was caught in a cash-flow squeeze when the wholesale price of the power the company purchased on the open market rose above the rates the company was allowed to charge by the California Public Utilities Commission. Prior to the 2001 filing, PG&E could see in advance what was happening, and, as part of its “bankruptcy estate planning” process, “pushed” extensive cash holdings into subsidiaries for distribution to shareholders, effectively “ring-fencing” those profits to “protect” them from creditors. As a result, the 2001 PG&E bankruptcy resulted in a settlement that would ultimately cost its ratepayers approximately $7 billion.

During none of these disasters were any PG&E executives ever held criminally liable or negligent, and the costs of dealing with the problems never fell on them, while they collected hefty compensation and foisted the costs of on the rate-payers, rather than on either stock-holders or corporate executives.

The original idea of limited corporate liability was to limit liability claims to the corporate body, and not to those who ran the corporation, on the grounds that no one would undertake building massive steel mills, factories, or the like when a single disaster could destroy them personally. That rationale, unhappily, still makes sense, but the evolution of law and the corporate structure means that even when corporate actions, as in the case of PG&E, kill people and destroy entire towns in violation of laws and standards, no individual is ever held responsible, and the corporation shifts the costs of those violations onto its customers, rather than to the stockholders or executives.

Until executives are personally held responsible for such violations, nothing will change, and interestingly enough, right after PG&E declared bankruptcy, the stock price went up almost twenty percent.

5 thoughts on “Burgeoning Corporate Irresponsibility”

  1. Tim says:

    Has the company done anything actually illegal or is it just not acting ethically?

    1. If you Google PG&E and “illegal actions,” you’ll find a whole list of illegalities, including actions around a massive natural gas fire and explosion. The record would indicate that PG&E has done more than a few things that are illegal, not to mention those that are unethical.

  2. R. Hamilton says:

    One would think that a regulated monopoly like a utility, esp. in a state that’s heavy-handed with regulation would do better than that…if regulations actually solved problems rather than simply going hand-in-hand with a corrupt relationship with the regulators, so that the well-off among either regulator or regulated remain well-off, no matter what goes wrong.

    No, zero regulation isn’t the answer either; but the premise that more is better is demonstrably wrong. Less, enforced consistently and prioritized according consequences of failure, would be better than more enforced only at mutual convenience.

  3. Chris says:

    It would be nice if corporate officers were directly accountable, including jail time, for the wrongdoing of the company. The only exception should be proving the intent of a subordinate to put the officers in jeopardy.

  4. Wine Guy says:

    I live about 20 miles from where Paradise used to be. PG&E isn’t held in high regard. Between fires here and in Santa Rosa, gas explosions in Sun Bruno (2010) and San Francisco (2019), and numerous other fires that never made the news because of quick containment, PG&Es record is poor. Routine maintenance was and remains a myth.

    The Public Utilities’ Commission has been in the back pocket of large utilities for decades and the ‘oversight’ has been little to none until the explosions and fires of the last decade ended up in court and not merely the PUC.

    Because corporations are considered entities in and of themselves, corporate executives and officers are exceedingly hard to prosecute, much less indict.

    PG&E withdrew the $130 million bonuses, only to double down a few weeks later to $235 million. The biggest difference is that none of the senior execs would partake in the largess of the $235m. That being said… why would it be acceptable to pay people for doing their jobs in 2018 when they manifestly neglected things in the preceding decades AND $235m would be a good start to helping Paradise rebuild and Oroville, Chico, Gridley, Thermalito, and Palermo manage the sudden influx of >20k people that the infrastructure was never meant to handle?

    But then again, what do I know? I’m just a small town guy who certainly can’t understand all the ins and outs of business and its interactions with government and politics… oh wait, I work in health care. My industry is even more heavily regulated than utilities.

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