The California Public Utilities Commission unanimously approved a settlement Thursday with Pacific Gas and Electric that imposes record penalties of more than $1.9 billion on the bankrupt utility for safety and maintenance lapses that led to massive wildfires in 2017 and 2018.

But the unusual structure of the agreement left some dissatisfied — including the commissioner who authored it.

Instead of levying fines, the commission agreed to a package that denies PG&E recovery from ratepayers of approximately $1.82 billion in wildfire-related expenses, meaning shareholders will pay the costs. But half that amount probably would have been denied by the CPUC during ratemaking proceedings anyway because of PG&E’s failure to operate its grid safely, said Commissioner Clifford Rechtschaffen, who led the effort to penalize PG&E.

The company also agreed to $114 million in system enhancements and corrective actions, to be paid by shareholders, and to return to ratepayers the hundreds of millions of dollars in tax savings it expects to recoup from operational expenses not covered by rate increases. The company will still benefit from tax savings from capital expenditures in keeping with Internal Revenue Service rules, Rechtschaffen said.

The only fine that’s part of the agreement — $200 million that would otherwise go to the state’s general fund — will be “permanently suspended,” according to the terms of the settlement.

“I recognize that a permanent suspension of the fine is deeply unsatisfying to many,” Rechtschaffen said. “Several intervenors strongly opposed this provision. I share this frustration. I think it’s important to keep in mind, however, that this penalty action is only one of many aggressive steps that the commission’s taking to hold PG&E accountable for its actions and to prevent future misconduct.”

The commission has demanded enhanced oversight of PG&E and greater enforcement authority as part of its proposed approval of the utility’s bankruptcy reorganization plan, which it intends to hear on May 21. (See PG&E Deal with Gov. Allows for Utility’s Sale.)

Even so, Rechtschaffen said, “A fine is clearly appropriate here given the unprecedented scale and scope of harm from the wildfires that PG&E caused and because fines convey unique societal opprobrium.”

The massive wildfires fires of 2017 and 2018 ignited by PG&E equipment included the Camp Fire, which leveled much of the town of Paradise and killed 85 residents, and the Northern California wine country fires of October 2017. A CPUC investigation found numerous lapses in equipment maintenance, line inspections and vegetation management that were the basis for the penalties.

The fires were a “grim chapter in PG&E’s history that had devastating consequences,” Rechtschaffen said. “Our investigation found that PG&E’s misconduct caused 15 of the wildfires resulting in unprecedented damage — over 100 people killed, 25,000 structures destroyed, hundreds of thousands of acres burned and the destruction of an entire community in Paradise.”

The fires also led to bankruptcy, “an extraordinarily disruptive process for a company that provides essential utility services,” he said.

PG&E said in a statement Thursday that it accepted the CPUC’s decision and “will work to implement the shareholder-funded system enhancements and corrective actions called for in the settlement.”

“We remain deeply sorry about the role our equipment had in tragic wildfires in recent years,” the utility said.

PG&E’s Past Penalties

Thursday’s settlement topped the CPUC’s previous record of $1.6 billion in penalties imposed on PG&E in April 2015 for the San Bruno gas pipeline explosion in 2010, which killed eight and destroyed part of a suburban San Francisco neighborhood. PG&E was convicted in federal court of six felonies related to that disaster and remains on probation. (See Judge Orders PG&E to Improve Line Inspections.)

The settlement replaced an agreement reached in December between PG&E and the CPUC’s Safety and Enforcement Division, among others, that would have penalized PG&E a total of $1.625 billion in disallowed costs and system enhancements, including $900 million in wildfire costs that the company may not have been entitled to recover from ratepayers in the first place, the commission said.

An administrative law judge recommended changes to that settlement in February, including $198 million in additional disallowed costs and the $200 million fine.

PG&E appealed, denying its potential liability for fires even as it was negotiating a guilty plea deal to 84 counts of involuntary manslaughter connected to the Camp Fire, Rechtschaffen said.

“The stridency of PG&E’s appeal was highly unfortunate and deeply disappointing,” he said, given the utility’s “strongly professed recognition of the need to dramatically transform its culture, its approach to safety and its professed commitment to working collaboratively in the future with its regulators.”

PG&E told the commission it would have to pay the $200 million fine out of the $13.5 billion trust for wildfire victims it plans to fund in its bankruptcy case. Otherwise the fine might upset the billions of dollars in financing agreements it needs to emerge from bankruptcy, PG&E contended.

The commission ultimately decided to adopt the judge’s recommendations but to suspend the $200 million fine and allow PG&E to keep its tax write-offs for capital expenditures but not operational expenses. (The tax savings for all PG&E’s disallowed wildfire costs is estimated to be about $500 million.)

PG&E’s financial circumstances, and its need to emerge from bankruptcy by June 30 to participate in a state wildfire liability fund, made the concessions necessary, Rechtschaffen said.

The San Bruno fines included a $300 million state fine, a $400 million refund to gas customers and $850 million for gas system safety improvements.

PG&E was flush with cash then. Today, it is set to emerge from bankruptcy heavily indebted with its share price about $11 at the close of trading Thursday versus $52 when the CPUC levied the San Bruno fines.

“It is an extremely rare set of circumstances that justify a departure from our normal penalty rules as we’ve done here,” Rechtschaffen said of the agreement.