Document 6wa9M5j3d7j5VDBdNLn9Kbg51

To: Pruitt, Scott[Pruitt.Scott@epa.gov]; Wampler, David[Wampler.David@epa.gov]; OIG Hotline[OIG_Hotline@epa.gov] Cc: Eric T. Schneiderman[nysag@ag.ny.gov]; Tips At The New York Times[tips@nytimes.com]; tips@nypost.com[tips@nypost.com]; editorial@thedailybeast.com[editorial@thedailybeast.com]; Steve Miller[smiller@appealdemocrat.com]; Harold Kruger[hkruger@appealdemocrat.com]; Christine Hall[christine.hail@cei.org]; mebell@cei.org[mebell@cei.org]; Amanda Hopper[ahopper@co.sutter.ca.us]; Chuck and Pat Miller[chucknpat@comcast.net]; Sutter Buttes Tea Party[sbtp@syix.com]; Lou Binninger[loubinninger@g mail.com]; gavalos@bayareanewsgroup.com[gavalos@bayareanewsgroup.com]; Assemblymember Gallagher[assemblymember.gallagher@assembly.ca.gov]; laura.nicholson@sen.ca.gov[laura.nicholson@sen.ca.gov]; Judicial Watch[jw@pr.judicialwatch.org]; cfedeli@judicialwatch.org[cfedeli@judicialwatch.org]; sectyrodriquez@calepa.ca.gov[sectyrodriquez@calepa. ca.gov]; pamela. creedon@waterboards.ca.gov[pamela.creedon@waterboards.ca.gov]; andrew.altevogt@waterboards.ca.gov[andrew.altevogt@waterboards.ca.gov]; Bryan@Waterboards Elderfbryan.elder@waterboards.ca.gov]; mathew.buffleben@waterboards.ca.gov[mathew.buffleben@waterboards.ca.gov]; Estrada, Fabiola[Estrada.Fabiola@epa.gov]; Rodriguez, Roberto[Rodriguez.Roberto@epa.gov]; Bowles, Jack[Bowles.Jack@epa.gov]; Minoli, Kevin[Minoli.Kevin@epa.gov]; Davis, Patrickfdavis.patrick@epa.gov]; Hope, Brian[Hope.Brian@epa.gov]; Richardson, RobinHfRichardson.RobinH@epa.gov]; Wagner, Kenneth[wagner.kenneth@epa.gov]; Jackson, Ryan[jackson.ryan@epa.gov]; nathan@nasda.org[nathan@nasda.org]; britt@nasda.org[britt@nasda.org]; amanda@nasda.org[amanda@nasda.org]; Martinez Michael C. (ENRD)[michael.c.martinez@usdoj.gov]; piu@doj.ca.gov[piu@doj.ca.gov]; Erica Zilioli[Erica.Zilioli@usdoj.gov]; secretary@resources.ca.gov[secretary@resources.ca.gov]; editor@thehill.com[editor@thehill.com]; Rick Libby[liveoakrick@gmail.com]; Jerry Hood[jerryhood@live.com]; Donald J. Trump[contact@gopteam.gop]; tehcrd@cand.uscourts.gov[tehcrd@cand.uscourts.gov]; tehpo@cand.uscourts.gov[tehpo@cand.uscourts.gov]; Ron Sullenger[rsullenger@co.sutter.ca.us]; Contact[contact@aclj.org]; State of California[senator.nielsen@outreach.senate.ca.gov] From: will rogers Sent: Sun 10/8/2017 4:49:30 AM Subject: Fw: Response to Your Message business-letter-white-hOLise-paris-aqreement-final-04-26-2017.pdf JW-v-EPA-Clean-Power-win-01217.pdf William Yeatman - Ending the EPA%27s Billion-Dollar Green Energy Rip-Off.pdf Dear Assistant US Attorney Hallie Hoffman.docx Dear Secretary Pruitt, A while back EPA Region 9 David Wampler sent me a email basically claiming in your name that I provided no evidence of fraud between The State of California and PG&E. Will you please research Gov. Brown's, the State's including the Regional Water Board I SWRCB and PG&E statements and actions regarding Global Warming I Climate Change I Paris Climate Conference & Agreement and Clean Power Act including the premature death being caused by C02 emissions and other false / misleading statements regarding climate change which came from NCAA which they used to help get the Paris Climate Agreement signed into effect. Then research President Trump's Administrations including your statements and actions on Global Warming I Climate Change / Paris Climate Agreement and the Clean Power Act because they contradict Gov. Brown's, The State and PG&E's which also would indicated that there is fraud taking place between Gov. Brown, the State and PG&E regarding Global Warming I Climate Change I Paris Climate Conference & Agreement, Clean Power Act and energy related actions and activities. 17cv1906 Sierra Club v. EPA ED_O01523_00002232-00001 Or unless the fraud is taking place between the Trump Administration, the EPA/ Scott Pruitt and big energy who don't agree with Global Warming I Climate Change I Paris Climate Conference & Agreement and the Clean Power Act which I hope is not the case but I am not a expert. Will you please read the attached letter from President Trump because it greatly contradicts what Pres. Obama, Gov. Brown, The State including the Regional Water Board / SWRCB and PG&E activities , actions and statements regarding Global Warming I Climate Change I Paris Climate Conference & Agreement and Clean Power Act and would be evidence that they are participating in fraud at a local , state, national and international level. Unless you think President Trump is incorrect which then would mean the President is basically participating in fraud which I hope is not the case. Point- Both sides can't be right so one has to be participating in fraud so if the EPA I Scott Pruitt states that there is no evidence of fraud between the State of California , Gov. Brown and PG&E then it is basically an admission that it the EPA I Scott Pruitt taking part in fraud with big energy. So which is it Secretary Pruitt ? Is there evidence or not that Pres. Obama, Gov. Brown , State of California and PG&E are participating in Global Warming I Climate Change I Paris Climate Agreement I Green Climate Fund I Clean Power Act fraud which your actions, activities and statements would strongly suggest ? Or is it the EPA I Scott Pruitt and big energy participating in fraud ? Basically if you don't investigation, charge and prosecute Pres. Obama, Gov. Brown, State of California and especially PG&E then you are admitting that its the EPA I Scott Pruitt and big energy participating in fraud because again you both can't be right. If its Pres. Obama, Gov. Brown, State of California including the Regional Water Board I SWRCB and and especially PG&E then it would also basically mean that Global Warming / Climate Change / Paris Climate Agreement I Green Climate Fund and Clean Power Act are basically scams / frauds designed to defraud the US Government, US Taxpayers and US Energy Consumers which are crimes they should be investigated, charged and prosecuted for but will the EPA / Scott Pruitt and DOJ do their jobs or ignore it ? If they are all basically frauds I scams then the Clean Power Act shouldn't even need a review I comment process and should be scrapped I repealed for other legal reasons. Its pretty obvious from our incident I experience with PG&E , Regional Water Board and SWRCB that they are dishonest and ignore crimes such as obstruction of justice by removing evidence before it was inspected and while there was a ongoing investigation. So is this going to be ignored by the EPA I Scott Pruitt ? EPA I Scott Pruitt's statements, actions and activities would also strongly suggest that he believes PG&E is dishonest and may be involved in crimes I scams I fraud. Sincerely- Will Rogers -- Forwarded Message -- From: The White House <noreplv@whitehouse.gov> To:i Ex. 6 - Personal Privacy SentrFriday, Juiy2'1720'17 4:03 AM Subject: Response to Your Message 17cv1906 Sierra Club v. EPA ED_001523_00002232-00002 ii||igilg|giga||Otli!^ g|S|gBlg||g|l|igi|ir|||| |gg||g|||ll||||l|||i|ii|ili|^^ l|||lllilllil|ll|||ll||B^ Privacy Policy | Contact the White House | Unsubscribe from White House Emails 17cv1906 Sierra Club v. EPA ED_001523_00002232-00003 17cv1906 Sierra Club v. EPA ED_001523_00002232-00004 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 1 of 148 1 Bottini & Bottini, INC. Francis A. Bottini, Jr. ( 2 Albert Y. 065) 3 i " aiilioe Avenue, f i La Jolla, California 92037 4 Telephone: (853 2001 5 Facsimile: E-mail: (853 2002 fbottini@bottinilaw.com 6 acliaiifofoMittm 7 Attorneys for Plaintiff Andrew S. Bushkin 8 o ' )Sr s 4. 7111 ` c 9 1 WRIC ' ' IO SAN FRANCISC 11 12 SHKIN, derivatively on ) Case No. behalf of PG&E CORPORATION ) 13 & ELECTRIC ) COMPANY, ) "VE 14 Plaintiff) ) DERIVATIVE ( P FOR 15 16 A - - m: 7WIS CHEW, C. LEE COX, PETER A. DARBEE, ) . Li ~ A ]S, ) WASTE OF CORPORATE ASSETS, ) UNJUST ENRICHMENT, BREACH OF 17 IRLEY, JR., FRED J. FOWLER, KENT M. HARVEY, ) THE DUTY OF HONEST SERVICES, ) CONSPIRACY TO BREACH FIDUCIARY 18 MARYELLEN C. HERRINGER. ) DUTIES, AND AIDING AND ABETTING CHRIS'i . h ' - [ ) BREACHES OF FIDUCIARY DUTIES 19 Il HAYES, GEIF MS. ) NICK STAVROPOULOS, RICHARD C. ) 20 KELLY, ROGER EI. Ml LAWRENCE. RICHARD A. ) 21 MESERVE, FORREST E. , ) TRY. ROSENDO ) DEMAND FOR JURY TRIAL 22 , ANNE SHEN SMITH, and ) 23 BARRY LAW! S, ) ) 24 and Defendants, ) 25 PG&E 26 corp< ELECT 27 corporation, 28 >rnia & Nominal Defendants. ) VERIFIED SHARE1 17cv1906 Sierra Club v. EPA NATIVE COMPLAINT ED 001523 00002233-00001 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Pagi 1 NTS 2L ............................................................................... 1 3 II. 4 III. 5 IV. 6 7 8 9 IO V. 11 12 13 14 15 mi ' ' - M .............................................................................8 T ASSIGNMENT.8 HES............................ 9 A. Plaintiff...................................................................................................... 9 Nominal Defendants.................................................... 9 C. Individ idants............................................................................. 10 ........................................... 30 A. The Individual Defendants Are Responsible For Ensuring PG&E's Compliance with California and Federal Safety Regulations ...............30 The Individual Defendants Also Owed Duties to the Company With Respect to Pipeline Safety Due to Their Membership on Various Board Committees .................................................................................. 31 C. Management and the Board's Duties to the Company.......................... 34 16 VI. - V - - 11 , ' ' A( ' , ...35 17 VII. 18 1 . 1 C / - PT, FR ' - 'o ' - - ' r1 m - .......................................,, 36 19 VIII. SUBST ..................................................................... 37 20 A. The Individual Defendants Instil ture of Putting Profits Before Safety........................................................................................... 37 21 22 1. PG&E misappropriated millions from customers and consistently cut its budget for maintenance of transmission 23 and distribution lines ................................................................... 37 24 2. PG&E employees were incentivized not to report or fix leaks ... 40 25 3. PG&E retaliated against and ignored allegations from, a 26 whistleblower warning of PG&E's low prioritization of safety ...41 27 4. The Individual Defendants' culture of profits over safety have left ticking "time bombs" across Northern California ........ 43 28 VERI i VMTIVE OEMPMINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00002 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 3 of 148 1 2 C. 3 4 5 6 E. 7 F. 8 9 G. 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 VERI The San Bruno Incident......................................................................... 46 The Individual Defendants C I to Violate California and Federal Safety Regulations, Subject Company to Billions of Dollars mages and Fines ............................................................... 47 The Individual Defendants . ~ - The NTSB's Investigation ........................................................................................... 67 PG&E Is Indicted Due To dants' Wrongdoing ....71 Defendants Breach The i i dor And Loyalty By Causing The Comp; le A False Proxy Statement................................... 73 The Individual Defendants Were Aware of Numerous "Red Flag" Warnings of Safety-Relate dems at PG&E But Consciously Failed to Take Action to Resolve Safety Problems................................. 74 1. The Individual Defendants ignored warnings of Line 132's unacceptably high risk of failure and knowingly created a high risk of catastrophic harm ..................................................... 74 2. The Boards of Directors were aware of the serious safety, operational, maintenance and cultural problems at PG&E.......83 3. PG&E has been plagued by safety problems .............................. 84 4. The Individual Defendants ignored red flag warnings about inadequate recordkeeping at PG&E ............................................ 87 5. The Individual Defendants ignored serious red flag problems at PG&E that were identified in PG&E audits........................... 91 6. PG&E's executive leadership was warned of catastrophic risk if PG&E continued to ignore and fail to prioritize operational safety at PG&E ......................................................... 93 7. The Individual Defendants were av adverse regulatory findings......................................................................................... 95 a. ent Review Panel reviewed the San Bruno explosion and PG&E's conduct and found that t mpany focused solely on financial performance at the expense of operational safety ................................. 96 ii VATIVE OEMPmiNT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00003 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 4 of 148 1 b. CPIJC and Overland Consulting found that PG&E chronically dedicated insufficient resources to 2 operational safety despite having more than, sufficient 3 money to do so .................................................................... 98 4 (i) The 2011 *t....................................... 99 5 (ii) The port.................................... 104 6 7 8 9 IO IX. 11 12 X. 8. California Administrative Judges reprimanded PG&E for intentionally concealing inadequate recordkeeping .................. 9. The to shut down its pipeline in San Carlos because of continuing concerns that the pipeline is unsafe.......................................................................................... 118 -m/- A sE AND PG&E r . cSEl ' ' E S................................................ ....................... 120 " "" V , A- i - ,i - Ai 1 A, r ........................ 122 13 A. Deman sedIfocaiiseaMajorityoftheCiirrer.it Board 14 Faces a Substain kelihood of Liability for Causing the Company to Obstruct the NT tigation................................... 122 15 16 17 XL 18 ~ A Majority of the Board Faces a Substant i I 1 d of Liability for Causing the Company to Violate Federal and State Pipeline Safety Regulations................................................................... 125 o , , ................................................................................ 133 19 XII. ' FOR RELIEF................................................................................... in 20 XIII. .............................................................................................. 143 21 22 23 24 25 26 27 28 VERIFIED SHARE! ili VATIVE COMPLAINT 17cv1906 Sierra Club v. EPA ED 001523 00002233-00004 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 5 of 148 1 Plaintiff .Andrew Bushkin ("Plaintiff"), derivatively on behalf of Pacific Gas & 2 Electric Corporation and Pacific Gas & Electric Company (hereafter "PG&E" or the 3 "Company"), submits this Verified Shareholder Derivative Complaint against the 4 members of the companies' Board of Directors (the "Board") (collectively, the 5 "Individual Defendants") for breaches of their fiduciary duties, gross mismanagement, 6 abuse of control, unjust enrichment, and violation of the federal proxy laws. Plaintiff 7 makes the follovcing allegations, except as to allegations pertaining to Plaintiff (which 8 are based on personal knowledge), based on his investigation and the investigation of 9 his counsel, including a review of legal and regulatory filings, press releases, analyst 10 and media reports about PG&E, the indictment dated April 1, 2 id superseding 11 indictment dated July 30, 2014 filed against Pacific Gas & Electric Company by a 12 grand jury in San Francisco, the court records and filings in U.S.A. v. Pacific Gas & 13 Electric Co., Case No. CR 14-1 (N.I). Cal.), and other public statements 14 issued by the Company. Plaintiff believes that substantial additional evidentiary 15 support will exist for the allegations set forth herein after a reasonable opportunity for 16 discovery. 17 Lipport of these derivative claims, Plaintiff alleges as follows: 18 I. NATURE . I ............I! 19 1. This is a "double derivative" shareholder derivative action to remedy over 20 $2 billion in damages the Company has suffered due to the wrongdoing committed by 21 PG&E's directors and officers between January 1, 2003 and the present (the "Relevant 22 Period"). 23 2......... Pacific Gas & Electric Corporation operates as the holding company for 24 Pacific Gas & Electric Company, a provider of electricity and natural gas in Northern 25 a itral California. Both companies have their own board of directors, "but the 26 boards are comprised of the same individuals, except for Defendant Christopher P. 27 Johns, who is a director of Pacific Gas & Electric Company but not Pacific Gas & 28 Electric Corp. ............. ....... ......... ... ____ __________________________________ VER1...................................................... NATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00005 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 6 of 148 1 3. Both companies are California corporations and thus California law 2 applies to the claims asserted in this lawsuit. 3 4. During the Relevant Time Period, the Board of Directors and other 4 executive officers of the companies breached their fiduciary duties of candor, loyalty, 5 good faith and care to the companies and their shareholders, resulting in "billions of 6 dollars of damages to the companies. The damages continue to mount since penalties 7 imposed on the Company restrict PG&E's ability to effectuate rate hikes related to the 8 wrongdoing. 9 5. On July 30, 2 perseding Indictment was returned against Pacific 10 Gas & Electric Company related to violations of law related to a deadly 2 is 11 explosion in S. . ano, California (the "S c a.no Explosion") that killed eight 12 people, injured 58 more, and caused over $500 mill) to property owners. 13 6. On April 9, 2( approved final decisions in three separate 14 investigations that had been brought against PG&E relat r&E's safety 15 record-keeping for its natr s transmission system, (2) PG&E's operation of its 16 natural gas transmission pipeline system in or near locations of higher population 17 density, and (3) PG&E's pipeline installation, integrity management, record-keeping 18 and other operational practices, and other events or courses of conduct, that could 19 have led to or contributed to the natural gas explosion that occurred in the City of San 20 Bruno, California on September 9, f ecision was issued in each investigative 21 proceeding to determine the violations that the Utility committed. The CPUC also 22 approved a fourth decision (the "Penalty Decision") which imposed penalties on PG&E 23 totaling $1.6 billion comprised of: (1) a $300 million fine paid to the State General 24 Finn mtime $400 million bill credit to the Utility's natural gas customers, (3) 25 $850 million to fund future pipeline safety projects and programs, and (4) remedial 26 measures that th estimates will cost the Utility at least $50 million. The 27 Penalty Decision requires that at least $689 million of the $850 million "be allocated to 28 capital expenditures and that the Utility be precluded from including these capital -2 -__________________________________ V.............................................................[VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00006 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 7 of 148 1 costs in rate base. The remainder v icated to safety-related expenses. 2 7. The Individual Defendants caused unpany to engage in unlawful 3 and criminal conduct which lias already damaged the Company by over $2.2 billion in 4 damages and fines relating to the San Bruno Explosion, as follows: 5 $1.6 billici ?s - as indicated supra, these fines are comprised of $300 6 million paid to California's State General Fund, a one-time $400 million 7 credit to the Company's natu s customers, $850 million to fund 8 future pipeline safety projects, and remec insures that the PUC 9 estimates will cost PG&E at least $50 million; 10 $621 iii.peiisati.on paid to settle damages claims relating to the 11 explosion, comprised of approximately $500 million to the victims and 12 families of the San Bruno accident, $50 million to the City of Si .no 13 for costs related to recovery, and $70 million to support the city's and 14 community's recovery efforts.1 15 8. ! Edition, as the Company has admitted in filings with tin ! 16 Securities and Exchange Commission ("SEC"), PG&E faces a potential maximum 17 alternative minimum fine of anoth for the criminal charges in the 18 Supers i' - ictment.2 The criminal trial is scheduled to begin on March 8,: i 19 San Francisco. 20 9. After the f " runo Explosion, the Individual Defendants cam - :&E 21 to obstruct the National Transportation & Safety Board's investigation of the 22 explosion and PG&E's role in the explosion. As a result, the Superseding Indictment 23 1 See July 29, 201.4 PG&E press release entitled "As Government Recasts Case, 24 PG&E Reiterates Com.mitm.ent to Safety and Underscores Its Position That Federal Charges Are Not Mlerited," available at http://PG&E.coiii/about/new'sroom/ 25 newsreleases / 20140729/ as_ government jwcastsmasefoG&Ej-eiterates.^. 26 commitm.entAnmafety_ anfounderscores_ itsjpositionfoJiatfoederalmfoa^ jnerited.shtml, last visited February 27 2016. Z 28 2 See PG&E's Q3 1 : with the SEC on (October 28, at p. 42. ................. -3 -_ ____________________________________________ V.............................................................[VA.TIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00007 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 8 of 148 1 added another criminal charge to the indictment for violation of 5 - 2 Obstruction of the NTS n. 3 10. After the San Bruno Explosion," dividual Defendants also caused 4 PG&E to engage in improper ex parte communications with the California Public 5 ") in an effort to improperly influence various proceedings 6 involving the Company. This misconduct has resulted in two separate investigations 7 of the Company by the U.S. Attorneys' Office in San Francisco and difornia 8 Attorney Gent ce. 9 11. The Company is also being investigated by the U.S. Attorney ice with 10 respect to a 2014 explosion in Carmel, CA. 11 12. The Individual Defendants have also willfully refused dify the 12 Company's corporate governance principles to protect the Company from further 13 harm. After the Company was indicted by the grand jury in 2014, a shareholder 14 submitted a proposal in the Company's 20 xy which asked shareholders to vote 15 in favor of separating the roles of Chairman and CEO at t npany. The proposal 16 specifically noted that e apendent Chairman of the Board was necessary to ensure 17 the Company's compliance with safety laws and regulations.3 The Defendants4 18 opposed this proposal in the proxy, falsely stating that the proposal was allegedly 19 unnecessary because PG&E's corporate governance policies were already sufficiently 20 21 3 The shareholder proxy proposal stated that "PG&E was charged with 12 pipeline safety violations by the U.S. government for a 2< itural gas explosion that killed 8 22 people and left a crater the size of a house. The grand jury indictment charged PG&E 23 with knowingly and willfully violating the Natural Gas Pipeline Safety Act by failing to test and assess unstable pipelines to determine whether they could fail. PG&E was also 24 charged with keeping incomplete and inaccurate records about the pipeline that exploded. PG&E was also flagged for its failure to utilize an environmental management system or 25 to se< smatio l > . i .ition for Standardization 14001 Certification for some or all 26 of its operations." 27 4 On March 25, 2015, Defendants Chew, Fowler, Kelly, Meserve, Parra, Smith, Johns, Earley, Eferringer, Kimmel, Rambo and Williams approved the filing of PG&E's 28 and PG&E Corp.'s joint proxy statement with the SEC. ................ -4-_ ____________________________________________ VERI....................................................... VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00008 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 9 of 148 1 robust and adequate to address the wrongdoing that had occurred. The Defendants 2 caused the following false statement to be included in the 2(1 xy: 3 It is in the "best interests of the Corporation and its shareholders to have a flexible rule regarding which directors 4 may serve as Chairman. 5 PG&E Corporation's strong corporate governance practices - 6 including the requirement of an independent lead director with 7 specified duties - address the proponent's concern that the Board cannot properly oversee the CEO if the CI ) serves 8 as Chairman. 9 13. This statement was false and misleading, as PG&E's corporate 10 governance principles were not "strong" or sufficient to oversee the CEO and ensure 11 the Company's compliance with applicable laws and regulations. Specifically, the 12 Individi fendants knew that the Company's corporate governance principles were 13 under scrutiny by federal and state regulators for material deficiencies eed, just 14 ten months later, PG&E disclosed in its Q3 2< that: "On August 27, 15 2015, the CPUC began a formal investigation into whether the organizational culture 16 and governance of PG&E Corporation and the Utility prioritize safety and adequately 17 direct resources to promote accountability and achieve safety goals and standards. The 18 CPUC directed the SED to evaluate the Utility's and PG&E Corporation's 19 organizational culture, governance, policies, practices, and accountability metrics in 20 relation to the Utility's record of operations, including its record of safety incidents. 21 T rized the SEI) to engage a consultant to assist in the SED's 22 investigation and the preparation of a report containing the SED's assessment." 23 14. Thus, in an effort to protect their own jobs and avoid election of an 24 independent Board Chairman, the Individ violated their fiduciary 25 duties of candor and loyalty by causing the Company to file a false and misleading 26 proxy statement. 27 15.......The Individual Defendants also caused the Company to violate applicable 28 record-keeping requirements with respect to its gas lines, subjecting the Company to .................... ......... ... -5-_ __________________________________ VERI....................................................... VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00009 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 10 of 148 1 further potential, liability. 2 16. Indeed, former PG&E employees have testified that PG&E Management 3 instructed them to destroy documents pertaining to the S mo explosior ' > ts 4 ference Statement filed on February 22, 2016, the government indicated 5 that it will call former PG&E employee Leslie McNiece as a witness at the criminal 6 trial set to commence on March 22, 2016. McNiece has testified at deposition that 7 management ordered her to destroy documents and that she found a tell-tale pre-blast 8 analysis of the relevant pipeline in the garbage at PG&E. McNiece reported to 9 Defendant Christopher P. Johns, President of Si > & Electric Company and 10 - >er of its Board of Directors. - > rg other things, McNiece was hired after the 11 S explosion to help clean up PG&E's deficient record-keeping system. She 12 prepared a neve recordkeeping policy and presented it to management, but was told "by 13 Defendant Johns that PG&E would not approve that policy. McNiece was thereafter 14 laid off inf 15 17. The billions of dollars in damages to PG&E were caused by the Individual 16 Defendants' breaches of fiduciary duties and self-dealing. Instead of spending 17 necessary money on pipeline safety improvements, the Individual Defendants caused 18 the Company to pay themselves lavish compensation and bonuses. The CPUC found 19 that PG&E diverted more tha. illion in gas safety and operations 20 money to other uses. From 1999 to 2( dit determined that PG&E 21 regularly failed to use all t ney collected to fix and maintain small gas distribution 22 lines that deliver natural gas to homes and businesses. The CPIJC audit found that 23 ineffective executive management caused the company to take money that was 24 specifically earmarked for safety and to spend it elsewhere. 25 18. Despite the fact that PG&E is a public utility, t ividual Defendants 26 paid themselves lavishly during the Relevant Period. Defendant Johns, who served as 27 snt of Pacific Gas & Electric Company while the Company obstructed the 28 NTSB investigation and was indicted, earned over . lion in 2014 alone. ................. .................................. .... -6-_ ____________________________________________ V.............................................................[VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00010 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 11 of 148 1 Defendant Earley, the CEO of PG&E Corp., earned almost twice as much in 2014 - 2 $11.6 million. Defendant Darbee, who will be called by the United States of America 3 as a witness at the criminal trial, earned $10.5 million as the &E Corp, in 4 2009, the year "before the San Bruno explosion. In short, the Individual Defendants 5u somely rewarded despite their fe.ithl.ess stewardship of PG&E, which to- 6 date has cost the Company over $2.2 "billion in damages. 7 19. Defendants' conduct has also caused severe reputatioi nage to the 8 Company and has had a severe negative effect on the Company's operations, 9 profitability, and earnings per share. From September 30, 2! September 30, 10 2 le Company's net income plummeted from $ i i h Ilion to $ I .... 11 20. The Department of Justice's criminal trial against the Company is set to 12 begin March 22, 13 21. On February 18, 20 art on Form 10-K with 14 the SEC il Report, PG&E outlined the severe additional damage to the 15 Company which may occur as a result of the criminal trial: 16 22. "[PG&E] is facing federal criminal charges alleging that the Utility 17 knowingly and willfully violated minimum safety standards under the Natii s 18 Pipeline Safety Act and alleging that the Utility illegally obstructed the N'TSB's 19 investigation, into the cause of the S uno accident that occurred on September 9, 20 2 maximum statutory fine for each felony count is $500,000, for potential 21 total fines of $6.5 million. The federal prosecutor also seeks to impose an alternative 22 fine which could total approximately $562 million, "based on allegations that the 23 Utility derived gross gains of approximately $281 million. The trial currently is 24 scheduled to begin on March 22, 2016. 25 23. "PG&E Corporation and t lity have not recorded any charges for 26 potential criminal fines in their consolidated financial statements at December 31, 27 2^ is convicted and a fine is imposed, PG&E Corporation and the 28 Utility will record charges when required in accordance with Utility also ................. .................................. .... - 7 -_ ___________________________________________ V.............................................................[VA.TIFE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00011 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 12 of 148 1 could incur material costs, not recoverable through rates, to implement remedial 2 measures that may be imposed by the court, such as a requirement that the Utility's 3 natural gas operations be supervised by a third-party monitor. The Utility could, also be 4 suspended or debarred from entering into federal procurement and non-procurement 5 contracts and programs d 6 II. JURISDICTION AND VENUE 7 24. Jurisdiction is conferred by 2 . Complete diversity among 8 the parties exists and the amount in controversy exceeds )0, exclusive of interest 9 and costs. In addition, Plaintiff asserts a claim under 14(a) of the Exchange Ac 10 n(a), a , C regulation 14a-9 promulgated thereunder. Jurisdiction is 11 conferred by the Exchange Act. 12 25. This Court has jurisdiction over each defendant named herein because 13 each defendant is either a corporation that conducts business in and maintains 14 operations in this District, or is an individual who has sufficient minimum contacts 15 with this District to render the exercise ofjurisdiction by the District courts 16 permissible under traditio tions of fair play and substantial justice. 17 26. Venue is proper in this Court in accordance with 28 ! , ' U i . 18 because: (i) PG&E maintains its princi : I I ice of bus) s t . ` < t . strict; (ii) one or 19 more of idants either resides in or maintains executive offices in the District; 20 (iii) a substantial portion of the transactions and wrongs complained of herein, 21 including the defendant's primary participation in the wrongful acts detailed herein, 22 and aiding and abetting and conspiracy in violation of fiduciary duties owed to PG&E, 23 occurred in this District; and (iv) defendants have received substantial compensation 24 in th trict by doing business here and engaging in numerous activities that had 25 an effect in th ;rict. 26 27 27. 28 Court. ASSIGNMENT This action is properly assigned to the San Francisco division of this ................. .................................. .... -8--_ ____________________________________________ V.............................................................iVATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00012 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 13 of 148 1 IV. THE PARTIES 2 A. Plaintiff 3 28. I, t f i i r S. , 1 . i, i it V t&E and has 4 continuously been a shareholder of PG&E at all relevant times. Plaintiff acquired 5 stock in Pacific Gas & Electric Company in approximately 1984, which stock was then 6 converted into common stock of PG&E Corporation in approximately 1997, when 7 PG&E Corporation became the holding company for Pacif Electric Company. 8 Plaintiff is a Trustee of the .Andrew S. and Patri 9 4/12/95, in whose name the stock has been held since 199; intiff is a citizen of 10 Washington. 11 fendaiits 29. Nominal Defendant PG&E Corporation is a California corporation with 12 principal executive offices located at 77 Beale Stree 13 xx 770000, San Francisco, California. PG&E is a holding company that conducts its business through Pacific Gas 14 and Electric Company ("PG&E Corp."). PG&E Corp, is 15 lifbrnia corporation with principal executive offices located at 77 Beale Stree 16 >x 770000, San Francisco, California. PG&E Corp, is regulated by the California Public Utilities Commission 17 ("CPUC") and the 18 partment of Transportation's Pipeline and Hazardous Materials Safety .Administration ("PHMS.A"). PG&E Corp, is the holding company for 19 Pacific Gas and Electric Company and its subsidiaries. PG&E Corp, is a citizen of 20 California. 21 30. Nominal Defendant Pacific Gas & Electric Com 22 lifornia corporation with princi I scutive offices located at 77 Beale Street, 23 770000, San Francisco, California. PG&E is the operating subsidiary of PG&E Corp, 24 and is regulated "by the CPUC. PG&E provides power and energy services throughout 25 the State of California and is the primary provider of power and energy in northern 26 and central California. PG&E and PG&E Corp, share all the same directors except for 27 Defendant Johns, who is not a director of PG&E Co 28 47, when PG&E Corp, was ................. .................................. .... UM_ ____________________________________________ V.............................................................iVATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00013 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 14 of 1 incorporated and became the parent company of PG&E, all the common stock of PG&E 2 was acquired "by PG&E Corp., and all of the shareholders of PG&E became 3 shareholders of PG&E Corp." 4 endaiits 5 31. Defendant Christopher P. Johns ("Johns") has worked at PG&E since 6 1996. and has been a director of PG&E since February 2010, as well as the Company's 7 President since August 201 2015, PG&E announced that Johns would retire 8 effective Decembo t ; i , > ntofS. ogo Gas & Electric Company. 9 Defendant Johns was also PG&E's Senior "Vice President, Financial Services from. May 10 2009 to July 2009; Senior Vice President and Treasurer fr :tober 2005 to April 11 2009; (thief Financial Officer ("CFO") from October 2005 to May 2007; and Vice 12 President and Controller from June 1996 to December 19! it Johns was 13 PG&E's CFO from January 2005 to July 2009; a Se: 14 September 2001 to July 2009; Treasurer from October 2005 to April 2009; Controller 15 fr 7 to October 2005; and a Vice President from July 1997 to September 16 2( )r to joining PG&E, Johns was a partner at accounting firm KPMG Peat 17 Marwick. Due to the Company's extensive gas distribution and transmission line 18 operations, defendant Johns knew that PG&E was subject to regulation from the 19 CPUC and Pipeline and hazardous Materials Safety Administration ("PHMSA") and 20 guidelines 'for operators of natural gas pipelines in areas that could affect human 21 safety. Defendant Johns also knew that, under t d PHMSA regulations, 22 PG&E is required to implement an internal control system to ensure the 23 implementation of an integrity management program. ("IMP") to ensure the 24 identification and remediation of risks to t mpany's pipelines in areas that could 25 affect human safi pacity as a director, defendant Johns was specifically 26 charged with overseeing the Com.pa iiagement practices, including 27 " PG&E Corp, currently owns 96.24% of PG&E's stock. See PG&E Corp, i 28 Statement, at p. ' ....................................... ... - 10 -___________________________________ VERI....................................................... VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00014 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 15 of 148 1 ensuring compliance with an IMP. Defendant Johns knowingly or recklessly allowed 2 PG&E to violate the CPUC ai WS.A regulations by failing to implement and/or 3 maintain adequate internal controls with respect to the Company's compliance with 4 CPUC and PHMS.A regulations. Johns also approved and supported the underfunding 5 of PG&E's pipeline and operations. 6 32. Between 2004 and 2014, Johns received the following compensation: 7 Salary Stock Awards Option Awards Incentive Plan Compensation i/ft Pension Value 8 2014 $772,333 $2,799,993 $704,831 01 i Payouts All Others $6,037,123 9 2013 2012 $723,138 $2,261,914 $2,510,110 - 3,579 5,725 $340,133 - $84,591 $4,190,495 - $5,117,768 IO 2011 $701,250 2 - 2010 $672,500 $1,932,429 - $319,245 - $629,560 - $79,366 $5,132,726 - $3,311,185 11 2009 $593,866 $1,880,357 - $541,457 $893,206 - $684,431 $350,809 $268,077 $193,500 - $3,497,730 - $89,819 $2,068,791 12 2007 $523,640 2006 $832,935 $931,415 $221,802 $343,010 $414,071 $156,155 - $88,486 $1,944,226 - $94,638 $2,313,911 13 2005 ) - - - - $39,542 $746,012 2004 $316,860 i - - - $114,323 $16,817 14 33. Johns received substantial financial benefits from serving in his role as 15 Orient and as a director of PG&E. These substantial financial benefits were 16 obtained by Johns at the same time that PG&E Corp, and PG&E were underfunding 17 and ignoring their natural gas safety obligations in breach of the Boards' fiduciary 18 duties. Defendant Johns is a citizen of California. 19 34. Defendant .Anthony F. Earley, Jr. ("Earley") is PG&E's Chairman, Chief 20 ' 21 * . tcer, ai - sident and has been since September i i te to the Company's extensive gas distribution and transmission line operations, defendant 22 Earley knew that PG&E was subject to regulation from the CPUC and the PHMS.A 23 guidelines for operators of natural gas pipelines in areas that could affect human 24 safety. 25 35. Earley is also the Chair of the PG&E Corp. 26 Committees. He is neither independent nor disinterested in the wrongdoing alleged, 27 nor capable of evaluating a demand to bring suit. Earley made representations to the 28 ................ .................................. ........................... VERI VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00015 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 16 of 1 public after he became the President, CEO and Chairman of the Board of PG&E Corp, 2 that he would steer PG&E in a. different direction, would rectify the years of 3 mismanagement at PG&E, and change the PG&E corporate culture. However, Earley 4 has not done so and has, instead, continued to le I in the same maim , 5 predecessors, which therefore subjects PG&E to the risk of further fines, penalties and 6 lawsuits. 7 36. Indeed, Earley's representations that PG&E has changed from its past 8 ways, when in fact PG&E has not, increases the potential liability fared by PG&E due 9 to Earley's misconduct. As the President, CEO a airman of the Board of PG&E 10 Corp., Earley directed PG&E's policies in July of 2013, when PG&E attempted to 11 snea closure about serious problems with one of PG&E's major transmission 12 lines past the CPUC as a "routine correction." Earley, therefore, faces substantial 13 personal exposure, and has allowed PG&E to face increased exposure, not only for 14 continuing the misconduct of the earlier PG&E Board of Directors but also for 15 misrepresenting to the public that PG&E is changing its operations and priorities. 16 37. Ast- i' aident, 1 ; . 1 m i &E Corp., 17 Earley was in charge of overseeing and implementing an internal control system to 18 ensure that PG&E identified, corrected and mitigated any potential risks of the 19 company's pipelines causing harm in areas that could affect human safety. Earley was 20 also specifically charged with overseeing PG&E's rl riagement practices and 21 policies. Earley has not only failed to change PG&E's policies, procedures and 22 practices regarding safety, but he has also misrepresented PG&E's and his efforts to 23 change those policies, procedures and practices. Earley also approved and supported 24 the underfunding of PG&E's pipeline and operations. Earley is unable to adequately 25 and appropriately evaluate any demand on the Board of Directors since this complaint 26 alleges acts of wrongdoing for which. Earley is directly liable for. 27 PG&E paid defendant Earley the following compensation as an executive: 28 ....................................... ... - 12 -___________________________________ VERI....................................................... VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00016 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 17 of 148 1 Year Salary Bonus Stock Awards Option Non-Equity Change in All Other Total Awards Incentive Pension Compensation 2 Plan Value 2014 $1,250,000 - $7,500,007 - $1,825,200 $955,849 $96,160 $11,627,216 3 2013 $1,250,000 - $6,499,960 - $1,743,750 $634,517 $94,718 $10,222,945 4 2012 $1,250,000 - $6,525,721 - $1,715 $299,995 $158,918 $9,949,634 2011 $378,788 $1,500,000 $7,406,267 - - $71,423 $184,909 $9,541,387 5 6 Defendant Earley is a citizen of California. 7 38. Defendant Kent M. Harvey ("Harvey") served as PG&E's Senior Vice 8 f and CFO and PG&E Corp.'s Senior Vi -i sident, Financial Services from 9 August 2009 to January 1. 20 irvey currently serves as PG&E Corp.'s Senior Vice 10 ident, Finance.6 Defendant Harvey was also PG&E's Senior Vice President and 11 Chief Risk and Audit Officer from October 2005 to July 2009 and PG&EC's Senior Vice 12 President, CFO, and Treasurer from January 2000 to September 2005. Due to the 13 Company's extensive gas distribution and transmission line operations, defendant 14 Harvey knew that PG&E was subject to regulation from the CPUC and tJ A 15 guidelines for operators of natural gas pipelines in areas that could affect human 16 safety. Defendant Harvey also knew that, under the (MSA regulations, 17 PG&E is required to implement an internal control system to ensure the 18 implem.entation of an IMP to ensure the identification and remediation of risks to the 19 Company's pipelines in areas that could affect human safety. In his capacity as a 20 director, defendant Harvey was specifically charged with overseeing the Company's 21 risk management practices, including ensuring compliance with an IMP. Defendant 22 Harvey knowingly, recklessly, or with gross negligence allow &E to violate the 23 CPUC and PHMSA regulations by failing to implement and/or maintain adequate 24 internal controls with respect to the Company's compliance with 1 ! . " [MSA 25 regulations. Harvey also approved and supported the underfunding of PG&E's pipeline 26 27 6 On November 6, &E Corp, announced that Harvey would be replaced as CFO by Jason P. Wells effective January 1,2 at would continue to serve as PG&E 28 Corp.'s Senior i i i ant, Finance, until approximately June 30,1 ............. .......................... ... 13 _ __________________________________ V.............................................................[VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00017 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 18 of 148 1 and operations. PG&E paid defendant Harvey the following compensation as an 2 executive: 3 Year Salary Stock Awards Option Awards Non-Equity Changes in All Other Total Incentive Plan Pension Compensation 4 2014 $624,172 $1,499,950 - 2013 $1,356,996 - 5 2012 $583,417 $1,757,077 - 6 2011 2010 $537,500 $1,407,059 $1,011,982 - 7 2009 $454,106 64,322 - 2006 $352, 65,087 $182,526 $518,01 $507,969 $603,744 $235,661 $428,529 $268,290 $2,246,668 $ 715,856 $1,495,540 $ 842,919 '8 '7 $ 116,713 $63,318 9 $59,115 $63,376 $62,876 $50,507 $44,919 $4,952,120 $3,273,025 $4,498,893 $3,103,640 $2,622,036 $1,929,571 $1,529,620 8 Defendant Harvey is a citizen of California. 9 39. Deft ("Mistry") has worked at PG&E since 1994. 10 He is currently PG&E's CFO and has been since October i l&E and PG&E 11 Corp.'s Vice -1 i nt and Controller and has "been since March 20 i' ' i dant 12 Mistry was also PG&E's Vice President and Chief Risk and Audit Officer from August 13 2009 to March 2010; PG&EC's Vice President and Chief Risk and Audit Officer from 14 September 2009 to March Compliance 15 and Ethics from January 2009 to July 2009, and PG&EC's Vice President, Regulation 16 and Rates from November 2005 to December 2008. Mistry holds a Bachelor of 17 Commerce in accounting and financial management fr mbay University, a 18 Master of Pusiness Administration from Texas Christi rsity and a Master of 19 Science in taxation from Gold z. He is also registered as a Certified 20 Public Accountant in the state of California. Due to the Company's extensive gas 21 distribution and transmission line operations, defendant Mistry knew that PG&E was 22 subject to regulation from the CPUC ai MSA guidelines for operators of natural 23 gas pipelines in areas that could affect human safety. Defendant Mistry also knew 24 that, under the CPUC and PHMSA regulations, PG&E is required to implement an 25 internal control system to ensure the implementation of an I ensure the 26 identification and remediation of risks to the Company's pipelines in areas that could 27 affect human safety. In his capacity as a director, defendant Mistry was specifically 28 ................. .................................. .......................... V [VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00018 Case 3:16-cv-00973 Documenti Filed 02/27/16 Page 19 of 148 1 charged with overseeing the Company's risk, management practices, including 2 ensuring compliance wi P. Defendant Mistry knowingly, recklessly, or with 3 gross negligence allowed PG&E to violate the CPUC a: MSA regulations by 4 failing to implement and/or maintain adequate internal controls with respect to the 5 Company's compliance with SA regulations. Mistry also approved 6 and supported the underfunding of PG&E's pipeline and operations. PG&E paid 7 defendant Mistry the following compensation as an executive: 8 Year Salary Stock. Non-Equity Change in All Other Total Awards Incentive Pension Compensation 9 Plan 2014 $373,046 $350,074 Value 1 9 $1,649,688 13 $376,779 $316,645 5,109 7 $951,222 10 12 ),938 1,164 > 9 $30,713 $1,389,069 $327,825 ; $264,919 3 >7 11 Defendant Mistry is a citizen of California. 12 40. Defendant WiO' i , is Vic -r .dent, Gas Maintenance and 13 Construction, for PG&E. He is responsible for distribution maintenance and 14 construction for the southern portion of PG&E's service area. Hayes has worked for 15 PG&E 1 i' i1 > re than forty (40) years. ' i 1 f> I' nference Statement filed by 16 the government in the criminal case on February 22, 2016, the U.S. Attorne; ice 17 identified Hayes as an expected witness to be called at trial and described Hayes' April 18 6, 2C i i I ter to the NTSB as being "at the heart of the obstruction count " f xr to 19 being named to his current post in 2007, Hayes served as senior director of customer 20 field services. Together with other defendants, Hayes submitted a false and 21 misleading submission to the NTSB that resulte xpartment of Justice 22 indicting the Company for obstruction ofjustice. Hayes also approved and supported 23 the underfunding of PG&E's pipeline and operations. Hayes is a citizen of California. 24 41. Defendant Geisha. J. Williams is President, Electric, at Pacific Gas and 25 Electric Company and a member of PG&E's board of directors. Williams joined PG&E 26 in 2007 and was named Executive Vice President for Electric Operations in ' Ms. 27 Williams supervised Defendant Wil during the Relevant Time Period, 28 ............. .......................... ... 15 _ __________________________________ V.............................................................iVATIME COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00019 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 20 of 148 1 including in 2 i I > Hayes signed submissions to the NT. t yarding the 2 Company's responses to the NTSB investigation of the San Bruno explosi to 3 the Company's extensive gas distribution and transmission line operations, defendant 4 Williams knew that PG&E was subject to regulation '.'from the CPUC and PHMSA 5 guidelines for operators of natural gas pipelines in areas that could affect human 6 safety. Defendant Williams also knew that, under t d PHMSA regulations, 7 PG&E is required to implement an internal control system to ensure the 8 implementation of an IMP to ensure the identification and remediation of risks to the 9 Company's pipelines in areas that could affect human safety. In her capacity as a 10 director, defendant Williams was specifically charged with oversee: cany's 11 risk management practices, including ensuring compliance with an IMP. Defendant 12 Williams knowingly, recklessly, or with gross negligence allowed PG&E to violate the 13 CPUC and PHMSA regulations by failing to implement and/or maintain adequate 14 internal controls with respect to the Company's compliance with > ~ [MSA 15 regulations. Williams also approved and supported the underfunding of PG&E's 16 pipeline and operations. Williams is a citizen of California. 17 42. Defendant Nick Stavropoulos is President, Gas, at Pacific Gas and 18 Electric Company and a member of the utility's board of directors. He is responsible 19 for the end-to-end delivery of safe, reliable, affordable and clean gas service * 20 million people across PG&E's - Ost r i h Ie service area in northern and central 21 California. Additionally, Stavropoulos oversees PG&E's enterprise IT and Safety & 22 Shared Services organizations. Mr. Stavropoulos joined PG&E in 1 > the? 23 Company's extensive gas distribution and transmission line operations, defendant 24 Stavropoulos also knew that PG&E was subject to regulation from the CPUC and 25 PHMSA guidelines for operators of natural gas pipelines in areas that could affect 26 human safety. Defendant Stavropoulos also knew that, under the CPUC and PHMSA 27 regulations, PG&E was required to implement an internal control system to ensure 28 the implementation of IMP to ensure the identification and remediation of risks to the ............. .......................... ... - 16 -__________________________________ V.............................................................[VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00020 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 21 of 148 1 Company's pipelines in areas that could affect human safety. apacity as a 2 director of PG&E, defendant Stavropoulos was specifically charged with overseeing 3 the Company's risk management practices, including ensuring compliance with an 4 IMP. Defendant Stavropoulos knowingly or recklessly allowed PG&E to violate the 5 CPUC and PHMSA regulations by failing to implement and/or maintain adequate 6 internal controls with respect to the Company's compliance with > - MSA 7 regulations. Stavropoulos also approved and supported the underfunding of PG&E's 8 pipeline and operations. Mr. Stavropoulos is a citizen of California. 9 43. Defendant C. Lee Cox ("Cox") is PG&E and PG&E Corp.'s Lead Director 10 and PG&E Corp.'s non-executive Chairman of the Board and has been since 11 September 2011 and a director of PG&E and PG&E Corp, and has been since 1996. 12 Defendant Cox was also PG&E's interim Chairman, ("CEO"), 13 a: -1 sident from May 2^ i September 1 I n IE Corp.'s nomexecutive 14 Chairman of the Board from January 2008 to April 2011; and lead director of PG&E 15 and PG&E Corp, from April 2004 to April 2011. Defendant Cox is Chairman of 16 PG&E's Compensation Committee and a member of PG&E's Finance Committee and 17 has "been since Septeml Cendant Cox was also Chairman of PG&E's 18 Compensation Committee from at least March 2005 to May 1 ber of that 19 committee from, at least March 2003 to May 2011, and a member of PG&E's Finance 20 Committee from at least March 2004 to May fendant Cox served as 21 Chairman of the Audit Committees of PG&E and PG&E Corp, until at least March 22 2004. Due to the Company's extensive gas distribution and transmission line 23 operations, defendant Cox also knew that PG&E was subject to regulation ft 24 fra- ,, ; ' IM* ii s for operators of natu I s pipelines in areas that 25 could affect human safety. Defendant Cox also knew that, under the CPUC and 26 PHMSA regulations, PG&E is required to implement an internal control system to 27 ensure the implementation of IMP to ensure the identification and remediation of 28 risks to the Compan, . -i. M.es in areas that could aflMt human M` ' < ................. .................................. .... 17 __ __________________________________________ V.............................................................[VA.TIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00021 Case 3:16-cv-00973 Documenti Filed 02/27/16 Page 22 of 148 1 capacity as a director, defendant Cox was specifically charged with overseeing the 2 Company's risk management practices, including ensuring compliance with an IMP. 3 Defendant Cox knowingly or recklessly allowed PG&E to violate the 4 PHMSA regulations by failing to implem.ent and/or maintain adequate internal 5 controls with respect to the Company's compliance wifi PHMSA 6 regulations. Cox also approved and supported the underfunding of PG&E's pipeline 7 and operations. PG&E paid defendant Cox the following compensation as an executive: 8 Year Salary Stock. All Other Total Awards Compensation 9 2011 $660,000 $89,970 $125,259 $875,229 IO and as a director: 11 Fiscal Year 12 2014 2013 13 2012 2011 14 2010 2009 15 2008 2007 16 2006 Fees Paid in Cash $160,000 $155,250 $114,603 $161,500 $145,750 $140,750 $138,500 $126,500 Stock. Awards $104,986 $89,967 $89,970 $90,586 $89,981 $68,667 $64,000 000 Other C/ompensation $96 $96 $95 $670,656 ; ; $95 $95 Total $65,020 $265,082 $245,312 $875,229 $252,181 $235,826 9,512 $202,595 5 17 Defendant Cox is a citizen of California. 18 44. Defendant Barry Lawson Williams ("Williams") is a PG&E director and 19 has been since 1996 an< WEC director and has been since 1990. Defendant 20 Williams is also Chairman of the Audit Committees of PG&E and. PG&E Corp, and 21 has been since at least March 2005 and a member of those committees and has been 22 since March 2003. Defendant Williams is a member of PG&E's Compensation 23 Committee and has been since at least March 2005 and a member of PG&E's Finance 24 Committee and has been since at least March 2004. Due to the Company's extensive 25 gas distribution and transmission line operations, defendant Williams knew that 26 PG&E was subject to regulation from t d PHMSA guidelines for operators 27 of natural gas pipelines in areas that could affect human safety. Defendant Williams 28 ................ .................................. .... ...................... VERI VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00022 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 23 of 148 1 also knew that, under t d PHMSA regulations, PG&E is required to 2 implement an internal control system to ensure the iinplem.eiita.tion of an IMP to 3 ensure the identification and remediation of risks to the Company's pipelines in areas 4 that could affect human safet; capacity as a director, defendant Williams was 5 specifically charged with overseeing the Company's risk management practices, 6 including ensuring compliance with an IMP. Defendant Williams knowingly or 7 recklessly allowed PG&E to violate ' WS.A regulations by failing to 8 implement and/or maintain adequate internal controls with respect to ampany's 9 compliance wi d PHMSA regulations. Williams also approved and 10 supported the underfunding of PG&E's pipeline and operations. PG&E paid defendant 11 Williams the following compensation as a director: 12 Fiscal Year Fees Paid In Stock Option Other Total Cash. Awards Awards Compensation 13 2014 2013 ?0,189 $104,984 - 55,500 $104 - $2,596 2012 $153,000 $89,967 - $893 14 2011 08,500 $89,970 - 1,095 $300,565 2010 $170,500 $90,856 - $263,681 15 2009 19,250 $89,981 - $241,826 108 $171,750 $68,667 $25,106 $268,118 16 >07 19,500 $64,000 0 $95 $251,846 $209,944 17 Defendant Williams is a citizen of California. 18 45. Defendant Barbara L. Rambo ("Rambo") rp. 19 director and has been since January 2005. Defendant Rambo is also Chairman of 20 PG&E's Finar ninittee and has been since May 2008 and a member of that 21 committee and has been since January 2005. Defendant Rambo is a member of 22 PG&E's Compensate mmittee and has been since January 2005 and was 23 Chairman of that committee from May 2011 to September 2011. Due to the 24 Company's extensive gas distribution and transmission line operations, defendant 25 Rambo knew that PG&E was subject to regulation from, the CPUC and PHMSA 26 guidelines for operators of natural gas pipelines in areas that could affect human 27 safety. Defendant Rambo also knew that, under the CPUC ai MSA regulations, 28 - 19 -_________________________________ VERI....................................................... VA.TIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00023 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 24 of 148 1 PG&E is required to implement an internal control system to ensure the 2 implementation of an IMP to ensure the identification and remediation of risks to the 3 Company's pipelines r . . $as that could affect human safety. *r capacity as a 4 director, defendant Rambo was specifically charged with overseeing the Company's 5 risk management practices, including ensuring compliance w dant 6 Rambo knowingly or recklessly allowed PG&E to violate t d PHMSA 7 regulations by failing to implement and/or maintain adequate internal controls with 8 respect to t - mpany's compliance with CPUC ar, ' MSA regulations. Rambo also 9 approved and supported the underfunding of PG&E's pipeline and operations. PG&E 10 paid defendant Rambo the following compensation as a director: 11 Fiscal Year Fees Paid In Stock Other Total Cash Awards Compensation 12 2014 15,500 $104,984 $96 $220,580 2013 $103,250 $104,986 $210,832 2012 $105,250 $89,967 $3,393 $198,610 13 2011 $164,939 $89,970 $95 $255,004 2010 0 $90,586 $95 14 2009 0 $89,981 $95 ,076 08 $95,750 $73,500 $95 15 07 $88,500 $39,333 $95 $127,928 ) $30,000 $106,595 16 Defendant Rambo is a citizen of Massachusetts. 17 46. Defendant Maryellen C. Herringer ("Herringer'') is a PG&E and PG&E 18 Corp, director and has been since October 20( fendant Herringer was also PG&E 19 and PG&E Corp.'s intei or and PG&E Corp.'s interim nomexecutive 20 Chairman of the Board from May 2011 to September 2011. Defendant Herringer is a 21 member of the Audit Committees of PG&E and PG&E Corp, and has been since 22 January 2006 and was also a member of PG&E's Public Policy Committee from 23 January 2006 to at least March 2007. Due to the Company's extensive gas distribution 24 and transmission line operations, defendant Herringer knew that PG&E was subject 25 to regulation from tl 1 PHMSA guidelines for operators of natural gas 26 pipelines in areas that could affect human safety. Defendant Herringer also knew 27 that, under the CPUC and PHMSA regulations, PG&E is required to implement an 28 ....................................... ... -20-___________________________________ VERI....................................................... VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00024 Case 3:16-cv-00973 Documenti Filed 02/27/16 Page 25 of 148 1 internai control system to ensure the implementation of an IMP to ensure the 2 identification and remediation of risks to t mpany's pipelines in areas that could 3 affect human i r capacity as a director, defendant Herringer was 4 specifically charged with overseeing the Company's risk management practices, 5 including ensuring compliance with an IM hndant Herringer knowingly or 6 recklessly allowed PG&E to violate ' A regulations by failing to 7 implement and/or maintain adequate internal controls wi t to the Company's 8 compliance with CPUC and PHMSA regulations. Herringer also approved and 9 supported the underfunding of PG&E's pipeline and operations. PG&E paid defendant IO Herringer the following compensation as a director: 11 Fiscal Year Fees Paid In Stock Option Other Total Cash Awards Awards Compensation 12 2014 2013 0 $104,984 - 0 $104,986 - $228,080 2012 $107,750 $9,967 - 13 2011 $169,434 $89,970 - $200,312 $261,999 2010 15,750 $90,856 - $208,931 14 2009 ) $89,981 - 08 $114,250 $47,000 $188,826 $168,191 15 107 ) $26,250 $3,617 $88,422 16 Defendant Herringer is a citizen of California. 17 47. Defendant Richard A. Mleserve ("Meserve") is a PG&E and PG&E Corp, 18 director and has been since December 2006. Defendant Meserve is also a member of 19 PG&E's Public Policy Committee and has been since February 2007. Due to the 20 Company's extensive gas distribution and transmission line operations, defendant 21 Meserve knew that PG&E was subject to regulation from the CPUC ai MSA 22 guidelines for operators of natural gas pipelines in areas that could affect human 23 safety. Defendant Meserve also knew that, under the CPUC and PHMSA regulations, 24 PG&E is required to implement an internal control system to ensure the 25 implementation of an IMP to ens ,e identification and remediation of risks to the 26 Company's pipelines in areas that could affect human safety. In his capacity as a 27 director, defendant Meserve was specifically charged with overseeing the Company's 28 ....................................... ... - 21 -__________________________________ VERI....................................................... VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00025 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 26 of 148 1 risk management practices, including ensuring compliance with an IMP. Defendant 2 Meserve knowingly or recklessly allowed PG&E to violate the IMSA 3 regulations by failing to implement and/or maintain adequate internal controls with 4 respect to the Company's compliance with CPUC ai MSA regulations. Meserve 5 also approved and supported the underfunding of PG&E's pipeline and operations. 6 PG&E paid defendant Meserve the following compensation as a director: 7 Fiscal Year Fees Paid In Stock Other Total Cash Awards Condensation 8 2014 $117,250 $104,984 $224,830 2013 )5,000 $104,986 $2,596 ,582 2012 13,500 $89,967 $196,062 9 2011 )4,707 $89,970 $195,772 2010 ) $90,586 $1,595 $176,931 10 2009 $81,250 $89,981 ,326 2008 $79,750 $32,667 $1,095 $113,512 11 2007 ) $16,000 $95 $83,595 - 12 Defendant Meserve is a citizen of Virginia. 13 48. Defendant Roger H". Kimmel ("Kimmel") is a PG&E and PG&E Corp, 14 director and has been since January 2009. Defendant Kimmel is also a member of 15 PG&E's Public Policy Committee and has "been since April 2009 and a member of 16 PG&E's Finance Committee and has been since May 2009. Due to Company's 17 extensive gas distribution and transmission line operations, defendant Kimmel knew 18 that PG&E was subject to regulation PHMSA guidelines for 19 operators of n s pipelines in areas that could affect human safety. Defendant 20 Kimmel also knew that, under the CPUC and PHMSA regulations, PG&E is required 21 to implement an internal control system to ensure the implementation of an IMP to 22 ensure the identification and remediation of risks to the Company's pipelines in areas 23 that could affect human se capacity as a director, defendant Kimmel was 24 specifically charged with overseeing the Company's risk management practices, 25 including ensuring compliance with an IMP. Defendant Kimmel knowingly or 26 recklessly allowed PG&E to violate the CPUC ai MSA regulations "by failing to 27 implement and/or maintain adequate internal controls with respect to the Company's 28 ................. .................................. .......................... 2. _ V [VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00026 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 27 of 148 1 compliance <1 PHMS.A regulations. Kimmel also approved and supported 2 the underfunding of PG&E's pipeline and operations. PG&E paid defendant Kimmel 3 the following compensation as a director: 4 Fiscal Year Fees Paid In Stock Option. Other Total Cash Awards Awards Compensation 5 2014 $107,250 2013 ) ,984 - ,986 - $96 $212,330 $96 $196,582 2012 ) $89,967 - $95 6 2011 $102,250 $89,970 - $95 $192,315 2010 ) $90,856 - 1 $185,931 7 ) $67,481 $95 $180,162 8 Defendant Kimmel is a citizen of Connecticut. 9 49. Defendant Lewis Chew ("Chew") is a PG&E and PG&E Corp, director 10 and has been since September 2009. Defendant Chew is also a m.ember of the Audit 11 Committees of PG&E a irp. and a member of PG&E's Public Policy 12 Committee and has been since September 20 ie to the Company's extensive gas 13 distribution and transmission line operations, defendant Chew knew that PG&E was 14 subject to regulation from the CPUC ai MSA guidelines for operators of natural 15 gas pipelines in areas that could affect human safety. Defendant Chew also knew that, 16 under t d PHMSA regulations, PG&E is required to implement an internal 17 control system, to ensure the iinplementation of an IMP to ensure the identification 18 and remediation of risks to the Company's pipelines in areas that could affect human 19 safet ' , capacity as a direct fendant Chew was specifically charged with 20 overseeing the Company's risk management practices, including ensuring compliance 21 with an IM i' dant Chew knowingly or recklessly allow - to violate the 22 CPUC and PHMSA regulations by failing to implement and/or maintain adequate 23 internal controls with respect to the Company's compliance with . 'MSA 24 regulations. Chew also approved and supported the underfunding of PG&E's pipeline 25 and operations. PG&E paid defendant Chew the following compensation as a director: 26 Fiscal Year Fees Paid In Cash Stock Other- Awards Compensation Total 2014 1.0,000 ,984 c.-. $217,580 27 2013 $112,612 $104,986 $2,596 2012 $92,500 $89,967 $2,595 $185,062 28 0 $89,970 $209,065 ................. .................................. .... ......................2......................_ V [VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00027 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 28 of 148 1 2010 )l,250 $90,586 $95 1 - 1 2 Defendant Chew is a citizen of California. $191,931 $27,516 3 50. Defendant Peter rbee ("Darbee") was PG&E's CEO from. January 4 2005 to .April: sident from. January 2005 to June 2007 and from. September 5 2007 to .April: 2006 to .April 2011; and a 6 director from. January 2005 to April 20 fendant Darbee was also PG&E Corp.'s 7 President and. CEO from. September 2008 to July 2009; 8 January 2006 to May 2007; and a director from January 2005 to April 20 fendant 9 Darbee was PG&E's Senior Vice President and CFO from. September 1999 to 10 December 20C the Company's extensive gas distribution and transmission 11 line operations, defendant Darbee knew that PG&E was subject to regulation fi e 12 CPUC and PHMi - Ones for operators of natu I s pipelines in areas that 13 could affect human safety. Defendant Darbee also knew that, under the CPUC and 14 PHMSA regulations, PG&E was required to implement an internal control system, to 15 ensure the implem.entation of an IMP to ensure the identification and remediation of 16 risks to the Company's pipelines in areas that could affect human safety. In his 17 capacity as a director, defendant Darbee was specifically charged with overseeing the 18 Company's risk management practices, including ensuring compliance wi P. 19 Defendant Darbee knowingly or recklessly allow -&E to violate tt I 20 PHMSA regulations by failing to implement and/or maintain adequate internal 21 controls with respect to the Company's compliance vcith SA 22 regulations. Darbee was listed as one of the government's expected witnesses for the 23 criminal trial set to commence on March 22,! e also approved and 24 supported the underfunding of PG&E's pipeline and operations. PG&E paid defendant 25 Darbee the following compensation as an executive: 26 Year Salary Bonus Stock; Option Ch ange in LTIP All Other Total Awards Awards Incentive Plan Pension Payouts Compensation 27 201.1. $488,896 - $4,435,855 Compensation Value - - > - $9,091,904 2010 $1,182,160 $4,966,124 - - $2,137,343 - $107,759 $8,393,385 28 2009 $1,135,633 2008 $1,090,833 - $6,285,392 $5,733,999 - $1,871,524 $1,131,494 - $1,285,002 I - $135,385 $10,559,428 $9,721,233 ................. .................................. .......................... V iVATIWE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00028 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 29 of 148 1 2007 $1,050,000 - 2006 $975,000 - $5,283,601 $1,250,550 $1,295,034 - $3,666,389 $60,092 $1,486,900 $1,028,440 - $174,364 $9,053,549 $7,990,058 2005 $850,000 $1,239,300 $827,481 - - 2 2004 $525,000 $585,926 $372,506 - - - $3,472 $217,385 $3,137,638 - $366,928 $1,878,550 3 Defendant Darbee is a citizen of California. 4 Defendant David M. Lawrence ("Lawrence") was a PG&E director from 5 1996 to .April 2005 and a PG&E Corp, director from 1995 to April 2005. Defendant 6 Lawrence was also a member of PG&E's Compensation Committee and Public Policy 7 Committee from at least March 2003 to April 20 ic to Company's extensive gas 8 distribution and transmission line operations, defendant Lawrence knew that PG&E 9 was subject to regulation from the CPUC and PHMSA guidelines for operators of 10 natu s pipelines in areas that could affect human safety . Defendant Lawrence 11 also knew that, under t id PHMSA regulations, PG&E is required to 12 implement an internal control system to ensure the implementation of an IMP to 13 ensure the identification and remediation of risks to the Company's pipelines in areas 14 that could affect human safet capacity as a director, defendant Lawrence was 15 specifically charged with overseeing the Company's risk management practices, 16 including ensuring compliance with . Ml ' . fondant Lawrence knowingly or 17 recklessly allowed PG&E to violate the CPUC ai MSA regulations by failing to 18 implement and/or maintain adequate internal controls with respect to the Company's 19 compliance with CPUC and PHMSA regulations. Lawrence also approved and 20 supported the underfunding of PG&E's pipeline and operations. Defendant Lawrence 21 is a citizen of California. 22 52. Defendant Fred J. Fowler ("Fowler") has been a director since March 1, 23 2012. Fowler is the retired President a O of Spectra Energy Corp., formerly Duke 24 Energy Gas. He is currently Chairman of the Board of Spectra Energy Partners, which 25 owns extensive natu s assets. Since his election to the Board, Fowler has served 26 on the Company's Nuclear, Operations, and Safety Committee and the Company's 27 Finance Committee. Due to Company's extensive gas distribution and transmission 28 line operations, defendant Fowler knew that PG&E was subject to regulation from the .............. ....... .......... ... ........... l2M______________________________________ V.............................................................[VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00029 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 30 of 1 CPUC and PHMS.A guidelines for operators of natural gas pipelines in areas that 2 could affect human safety. Defendant Fowler also knew that, under the 3 PHMSA regulations, PG&E is required to implement an internal control system to 4 ensure the implementation of an IMP to ensure the identification and remediation of 5 risks to the Company's pipelines in areas that could affect human s 6 capacity as a director, defendant Fowler was specifically charged with overseeing the 7 Company's risk management practices, including ensuring compliance with an IMP. 8 Defendant Fowler knowingly or recklessly allowed PG&E to violate the CPUC and 9 PHMSA regulations by failing to implement and/or maintain adequate internal 10 controls with respect to the Company's compliance wit PHMSA 11 regulations. Fowler also approved and supported the underfunding of PG&E's 12 pipeline and operations. PG&E paid defendant Fowler the following compensation as 13 an executive: 14 Fiscal Year Fees Paid In Stock Other Total Cash Awards C 15 2014 ) ,984 $96 $198,330 2013 ) $104,986 $96 $191,332 1 ' 5 $89,967 $156,973 16 17 Defendant Fowler is a citizen of North Carolina. 53. Defendant Richa Kelly ("Kelly") has been a director since June 2013. 18 19 Since his election to the Board, Kelly has served on the Company's Audit Committee 20 and Nudes nations, and Safety Committee. He previously served as Chairman 21 and Chief Executive Officer of Xcel Energy Inc. from 2005 to to that, Mr. 22 Kelly held various executive positions at Xcel, including President, Chief Operating Officer, and Chief Finana 23 1er. Before the merger forming Xcel Energy Inc. in 24 2000, he held a variety of finance-related positions at predecessor companies New Century Energies and Public Service of Colorado; Canadian Pacific Railway 25 (transcontinental railway in Canada and t a ited Staff. 26 06 to 2 i 1 and Xcel Energy Inc. (2004 to 2011). M,r. Kelly is former Chairman of the Edison Electric 27 Institute, a former board member of the Electric Power Research Institute and the 28 ....................................... ... -26-__________________________________ VERI....................................................... VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00030 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 31 of 1 Nucl M > ' , iitute, and a former member of the Natio: I- : I- Council 2 and the National Advisory Council of the National Renewable Energy Laboratory. Mr. 3 Kelly also was a director of BrightSource Energy, Inc. (solar thermal technology 4 company) from 2011 to e to Company's extensive gas distribution and 5 transmission line operations, defendant Kelly knew that PG&E was subject to 6 regulation from t ISA guidelines for operators of natural gas 7 pipelines in areas that could affect human safety. Defendant Kelly also knew that, 8 under tl 1 PHMSA regulations, PG&E is required to implement an internal 9 control system to ensure the implementation of an IMP to ensure the identification IO and remediation of risks to the Company's pipelines in areas that could affect human 11 safet capacity as a director, defendant Kelly was specifically charged with 12 overseeing the Company's risk management practices, including ensuring compliance 13 with an IMP. Defendant Kelly knowingly or recklessly allowed PG&E to violate the 14 CPUC and PHMSA regulations by failing to implement and/or maintain adequate 15 internal controls with respect to the Company's compliance with CPUC and PHMSA 16 regulations. Kelly also approved and supported the underfunding of PG&E's pipeline 17 and operations. PG&E paid defendant Kelly the following compensation as an 18 executive: 19 Fiscal Year Fees Paid In Stoch Other Total Cash Awards Compensation 20 2014 11,750 $104,984 $96 $206,830 - $63,527 21 Upon information and belief, Defendant Kelly is a citizen of" Minnesota. 22 54. Defendant Rosendo Parra ("Parra") has been a director since 2009. Due to 23 Company's extensive gas distribution and transmission line operations, defendant 24 Parra knew that PG&E was subject to regulation fr ....... a ; ' (MSA 25 guidelines for operators of natural gas pipelines in areas that could affect human 26 safety. Defendant Parra also knew that, under the CPUC and PHMSA regulations, 27 PG&E is required to implement an internal control system to ensure the 28 ....................................... ... - 27 -___________________________________ VERI....................................................... VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00031 Case 3:16-cv-00973 Documenti Filed 02/27/16 Page 32 of 148 1 iniplemeiitation of an IMP to ensure the identification and remediation of risks to the 2 Company's pipelines in areas that could affect human safi s capacity as a 3 director, defendant Parra was specifically charged with overseeing the Company's risk 4 management practices, including ensuring compliance with an IMP. Defendant Parra 5 knowingly or recklessly allowed PG&E to violate the CPUC and PHMSA regulations 6 by failing to implement anchor maintain adequate internal controls vrith respect to the 7 Company's compliance wit and PHMSA regulations. Parra also approved and 8 supported the underfunding of PG&E's pipeline and operations. PG&E paid defendant 9 Parra the following compensation as an executive: IO Fiscal Year Fees Paid In Stock. Other Total Cash Awards Compensation 11 2014 0 ,984 $96 $212,330 2013 ) $104,986 $202,582 2012 ) $89,967 12 2011 0 $89,970 $2,595 2010 ) $90,586 $95 $182,431 13 1 - - $28,266 14 Defendant Parra is a citizen of Texas. 15 55. Defendant Shen Smith ("Smith") has been a director of PG&E and 16 PG&E Corp, since February 2 Is. Smith served as Chairman and Chief Executive 17 Officer of Southern California Gas Company (SoCalGas) (natural gas utility), a 18 subsidiary of Sempra Energy, from. 2012 until her retirement in March 2014. She also 19 has held various other executive positions at SoG I' . s, ir I' - * rident, Chief 20 Operati - - leer, Senior Vice President - Customer Services, and Vice ' i , ident of 21 Environment and Safety. Ms. Smith also served as Senior Vi sident - Customer 22 Services of San Diego Gas & Electric Company, an energy utility that is also owned by 23 Sempra Energy. Since February 2015, Ms. Smith has served on the Company's 24 Nuclear, Operations, and Safety Committee, and the Company's Public Policy 25 Committee. Due to the Company's extensive gas distribution and transmission line 26 operations, defendant Smith knew that PG&E was subject to regulation from the 27 CPUC and PHMSA guidelines for operators of natural gas pipelines in areas that 28 could affect human safety. Defendant Smith also knew that, uik and -28-___________________________________ VERI....................................................... VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00032 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 33 of 148 1 PHMSA regulations, PG&E is required to implement an internal control system to 2 ensure the implementation of an IMP to ensure the identification and remediation of 3 risks to the Company's pipelines in areas that could affect human f * 4 capacity as a director, defendant Smith was specifically charged with overseeing the 5 Company's risk management practices, including ensuring compliance w: P. 6 Defendant Smith knowingly or recklessly allowed PG&E to violate the CPIJC and 7 PHMSA regulations by failing to implement and/or maintain adequate internal 8 controls with respect to the Company's compliance wit . PHMSA 9 regulations. Smith also approved and supported the underfunding of PG&E's pipeline 10 and operations. Defendant Smith is a citizen of California. 11 56. Defendant Forrest E. Miller ("Miller") has been a director of PG&E and 12 PG&E Corp, since December 30, 2008. At all relevant times, Miller has served on the 13 Company's Audit, Compensation, and Executive Committees. r to serving as 14 ^Corporate Strategy and Development of AT&T Inc. (2007 to 2012), 15 Mr. Miller served as Groii] ident of AT&T Corp., the Global Enterprise division of 16 ;T Inc., and held a variety of executive positions at SBC Communications 17 (communications holding company) and its predecessor Pacific Telesis Group. Due to 18 the Company's extensive gas distribution and transmission line operations, defendant 19 Miller knew that PG&E was subject to regulation from the CPIJC and PHMSA 20 guidelines for operators of natural gas pipelines in areas that could affect human 21 safety. Defendant Miller also knew that, under the MSA regulations, 22 PG&E is required to implement an internal control system to ensure the 23 implementation of an IMP to ensure the identification and remediation of risks to the 24 Company's pipelines in areas that could affect human safety. In his capacity as a 25 director, defendant Miller was specifically charged with overseeing the Company's risk 26 management practices, including ensuring compliance with an IMP. Defendant Miller 27 knowingly or recklessly allowed PG&E to violate the CPIJC and PHMSA regulations 28 by failing to implement and/or maintain adequate internal controls with respect to the ............. .......................... ... -29-___________________________________ V.............................................................[VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00033 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 34 of 148 1 Company's compliance SA regulations. Miller also approved and 2 supported the underfunding of PG&E's pipeline and operations. PG&E paid defendant 3 Miller the following compensation as an executive: 4 Fiscal Year Fees Paid In Stock. Other Total Cash Awards Compensation 5 2014 $133,618 ,984 $96 $238,698 2013 0 $104,986 $96 $211,832 2012 ) $89,967 $95 $182,562 6 2011 15,250 $89,970 $95 $215,315 2010 ) $90,586 $95 $185,681 7 ) $67,481 $95 $157,162 8 Defendant Miller is a citiz. as. 9 The defendants identified in H 31, 34, 38-42 are referred to herein as the 10 "Officer Defendants." The defendants identified in H 43-56 are referred to herein as 11 the "Director Defendants." Collectively, the Officer Defendants and the Director 12 Defendants are referred to herein as the "Individual Defendants." 13 V. - i II .1 3 il ! - I!1 4 , Il < i ' 1 I - II a 14 A. lual Defendants Are Responsible For Ensuring Il &E mpliance with California and Feder- .-vfety 15 [illations 16 58. PG&E is a public utility and thus subject to extensive state and federal 17 regulation. Jifornia, rules promulgated by the California Public Utility 18 Commission ("CPUC") govern the operation of gas pipelines. The rules are codified in 19 General Order I i 2, State of California Rule. crning Design, Construction, 20 Testing, Operation, and Maintenance of Gas Gathering, Transmission, and 21 Distribution Piping Systems, dated September 11, 1995. 22 59. Federal law dictates how gas pipelines should be built and operated, 23 while allowing states to adopt additional requirements. The federal government 24 delegates significant enforcement responsibilities to the states. In California, 25 regulatory and enforcement authority rests with th 26 60. ;ency within the Department of Transportation ("DOT") 27 that is responsible for ensuring that pipeline operators, such as PG&E, operate safely. 28 Pub. L. 108-426, 118 Stat. 2423 (Nov. 30, 2004). PHMSA is responsible for pipeline ............. .......................... ... - 30 -___________________________________ V.............................................................[VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00034 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 35 of 1 safety regulations and enforcement. lifornia, the CPUC is primarily responsible 2 for enforcement of safety regulations. 3 61. PHMS.A regulations make operators of gas transmission pipelines 4 affecting a "high consequence area" ("HCA"), e.g. densely populated areas, responsible 5 for assessing and ensuring the integrity of their pipelines. The regulations are 6 designed to prevent the type of catastrophic incidents that oc mcho 7 Cordova in 2008 and Se '" no in 1 I " mators are required to develop and 8 adopt a written integrity management program ("IMP") that addresses the risks 9 on each segment of the pipeline. IO 62. As a result of their status as officers and directors of the Company, the 11 Iiidividi fendants owed fiduciary duties to ensure that the Company complied 12 with the federal and state laws regulating its business. Indeed, the business judgment 13 rule requires officers and directors to fully inform themselves serial facts 14 before taking action on behalf of any. 15 - The Indiv Tendaiiti ..... . i es to the Company With Respect to Pipeline Safi te to Their Membership on 16 Variou : minittees 17 63. As set '.forth herein, many of the Individual Defendants served as 18 members of the Company's Board Committees during the Relevant Period. Each 19 committee had specific duties, as set forth in impany's Proxy Statement, as 20 described below.' For each of these committees, the applicable com] ard has 21 adopted a formal charter that sets forth the committee's duties and responsibilities; 22 the charters are available on the companies' websites. 23 COMMITTEE COMPANY PRI ........................ 1 : > I ......... . ..... 24 NAME Executive PG&E Exercises powers and performs duties of the applicable 25 Corporation Board, subject to limits imposed by state law. lity 26 27 7 Where a Committee exists at PG&E Corporation only, that committee's responsibilities include assisting and advising the Utility Board on matters within the 28 Committee's scope of responsibility. .................... VERI - 31 -___________________________________ VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00035 Case 3:16-cv-00973 Documenti Filed 02/27/16 Page 36 of 148 1 AlMlit1" 2 3 4 5 6 PG&E Corporation a lity Oversees: Integrity of the company financial statements, and financial and accounting practices Internal controls, and external and internal auditing programs Selection and oversight of the companies' independent registered public accounting firm ("independent auditor") siness ethics and compliance Related party transactions With the assistance of other board committees, risk 7 Compensation. PG&E Oversees matters relating to compensation and benefits, Corporation including: 8 Compensation for nonmmployee directors Development, selection, and compensation of policy 9 making officers Management evaluation and officer succession 10 Employment, compensation, and benefits policies and. practices 11 Potential risks arising from compensation policies and practices 12 Retention and oversight of the Committee's independent compensation consultants, legal counsel, or other advisors 13 Fin.an.ee 14 15 16 17 18 19 tiiiiatiiig 20 and 21 Govern.an.ee 22 23 24 25 PG&E Corporation PG&E Corporation Oversees matters relating to financial planning, policies, and risk, including: Strategic plans and initiatives Financial and investment plans and strategies12' Dividend policy Proposed capital projects and divestitures Financing plans Use of derivative instruments Major commercial banking, investment banking, financial consulting, insurance, and other financial relationships Major financial risk exposures Oversees matters relating to selection of directors and corporate governance, including: Recommending Board candidates, including reviewing skills and characteristics required of Board members Selection of the chairmanship and membership of Board committees, and the nomination of a lead director of each company's Board, if necessary Corporate governance matters, including the companies' governance principles and practices, and the review of shareholder proposals Evaluation of the Boards' performance and effectiveness 26 Nuclear, rations, 27 and Safety 28 PG&E Corporation Oversees matters relating to safety, operational performance, and compliance issues related to the Utility's nuclear, generation, gas and electric transmission, and gas and electric distribution operations and facilities ("Operations and Facilities"), ................. .................................. .... ................................................... V VATIME COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00036 Case 3:16-cv-00973 Documenti Filed 02/27/16 Page 37 of 148 1 including: Principal risks arising out of t rations and 2 Facilities, the process used by management to analyze and identify these risks, and the effectiveness of 3 programs to manage or mitigate these risks Utility's goals, programs, policies, and practices with 4 respect to promoting a strong safety culture Periodically visiting the Utility's nuclear and other 5 operating facilities 6 die Policy PG&E Oversees public policy, sustainability, and corporate Corporation responsibility issues that could affect customers, 7 shareholders, or employees, including: Environmental protection, quality, and compliance 8 Community investment programs, activities, and contributions 9 Political contributions and political activities Workforce diversity, inclusion, and development IO pplier diversity 11 (2) bach year, the Finance Committee presents for the PG&E Corporation a ' Boards' review and concurrence (1) a multi-year outlook for PG&E Corporation 12 and its subsidiaries that, among other things, summarizes projected financial 13 performance and establishes the basis for the annual budget, and (2) an annual financial performance plan that establishes financial objectives and sets operating 14 expense and capital spending budgets that reflect the? first year of the approved multi-year outlook. Members of the Boards receive a monthly report that compares 15 actual to budgeted financial performance and provides other information about 16 financial performance. 17 64. The current membership of PG&E Corporation's and the Utility's 18 standing Board committees is shown in the table below.8 19 20 21 Indeperulent Non - Employee Directors: 22 23 F. J. Fowler M. C. Herringer 24 R. C. Kelly111 25 R. H. Kimmel R. A. Meserve 26 F. E. Miller111 27 Executive (Jnmttees Audit Committees Condensation Committee Finance Committee Nominating And Governance (Jonrmittee Nuclear, Operations, and Safety Committee Public Policy Committee X X X X X X X X X* X X* X X* X X X X X* X 28 8 See PG&E Proxy Statement f 15, at p. 15. .................... VERI - 33 -______________ NATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00037 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 38 of 148 1 R. G, Parra B. L. Rambo X X 2 A. S. Smith 3 VilliamsllxM X X X* Employee Directors'. 4 A. F. Earley, Jr. 5 Fohns'3' Num ber of Meetings in 6 2014 (PG&E Corporation/Utility 0/0 5/5 5 7 where applicable) X X X 5 7 X X X 5 4 8 * Committee Chair 9 (1) independent audit committee financial expert, as defined by the Securities and 10 Exchange Commission ("SEC") and applicable stock exchanges, and as determined by the Boards. Background information on each audit committee financial expert 11 can be found in the director biographies beginning on page 4. 12 (2) independent lead director of PG&E Corporation and independent non-executive Chairman of the Board of the Utility. 13 (3) Mfember of the Utility Executive Committee only. 14 C. Management and the Board's Duties to the Company 15 65. Moreover, all Individual Defendants, by reason of their positions as 16 officers, directors, and/or fiduciaries of the Company and because of their ability to 17 control the business and corporate affairs of PG&E, ov &E and its shareholders 18 fiduciary obligations of good faith, loyalty, candor, and care and were and are required 19 to use their utmost ability to control and manage PG&E in a fair, just, honest, and 20 equitable manner. T lividual Defendants were and are required to act in 21 furtherance of the best interests of the Company and its shareholders so as to "benefit 22 all shareholders equally and not in furtherance of their personal interests or benefits. 23 Each director and officer of the Company owes to PG&E and its shareholders the 24 fiduciary duty to exercise good faith and diligence in the administration of the affairs 25 of the Company and in the use and preservation of its property and assets, and the 26 highest obligations of fair dealing. 27 66. The Individual Defendants, because of their positions of control and 28 ................ .................................. .... ...................... VERI VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00038 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 39 of 148 1 authority as directors and/or officers of the Company, were able to and did, directly 2 and/or indirectly, exercise control over the wrongful acts complained of herein. 3 67. To discharge their duties, the officers and directors of the Company were 4 required to exercise reasonable and prudent supervision over the management, 5 policies, practices, and controls of the Company. By virtue of such duties, the officers 6 and directors of Company were required to, among other things: 7 - exercise good faith to ensure that the affairs of the Company were conducted 8 in an efficient, business-li nner so as to make it possible to provide 9 t ;t quality performance of their business; 10 - exercise good faith to ensure that the Company was operated in a diligent, 11 honest, and prudent manner and complied with all applicable federal and 12 state laws, rules, regulations, and requirements, and all contractual 13 obligations, including acting only within the scope of its legal authority; 14 and 15 - when put on notice of problems with the Company's business practices and 16 operations, exercise good faith in taking appropriate action to correct the 17 misconduct and prevent its recurrence. 18 68. ddition, certain Individual Defendants assumed enhanced duties and 19 responsibilities through their membership on the Audit Committee. The 20 responsibilities of members of that committee includes: reviewing the adequacy of 21 internal controls, external and internal auditing programs, business ethics, and 22 compliance with laws, regulations, and policies that may have a material impact on 23 the consolidated financial statements. 24 ' > : "i - 1 'o ! i: ' - - IERTI I! ' ' 25 69. ommittiiig the wrongful acts alleged herein, the Individual 26 Defendants have pursued, or joined in the pursuit of, a common course of conduct, and 27 have acted in concert with and conspired with one another in furtherance of their 28 common plan or design. In addition to the wrongful conduct herein alleged as giving ............. .......................... ... 35 _ _________________________________ V.............................................................iVATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00039 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 40 of 148 1 rise to primary liability, the Individ idants further aided and abetted and/or 2 assisted each other in breaching their respective duties. 3 70. During all times relevant hereto, the Individual Defendants, collectively 4 and individually, initiated a course of conduct that was designed to and did enhance 5 ividual Defendants' executive and directorial positions at the Company and the 6 profits, power, and prestige that the Individual Defendants enjoyed as a result of 7 holding these positions. In furtherance of this plan, conspiracy, and course of conduct, 8 ividual Defendants, collectively and individually, took the actions set forth 9 herein. 10 71. Each of the Individi dants aided and abetted and rendered 11 substantial assistance in the wrongs complained of herein. iking such actions to 12 substantially assist the commission of the wrongdoing complained of herein, each 13 Individi dant acted with knowledge of the primary wrongdoing, substantially 14 assisted the accomplishment of that wrongdoing, and was aware of his or her overall 15 contribution to and furtherance of the wrongdoing. 16 DI / II T I . 5 ' w I I I 1 ENT 17 CONCEAL 72. During the Relevant Period, Defendants engaged in a continuing course 18 of conduct which continues to the present. During the entire Relevant Period, and 19 current! ts have engaged in a continuous course of conduct designed to 20 breach their fiduciary duties, ha: -&E, and benefit themselves at the expense of 21 PG&E. That continuing course of conduct has included all the acts and omissions 22 alleg *ein, including causing PG&E to underspend on pipeline safety and 23 maintenance, consciously ignore urgent needs for pipeline maintenance, engage in 24 misleading conduct with respect to investigations of the S explosion and 25 other safety violations, destroy documents, retaliate against employees who 26 recommended conduct designed to bring PG&E into compliance with the law, make 27 misrepresentations to shareholders of the Company regarding the effectiveness of 28 ............. .......................... ... 36 _ _________________________________ V.............................................................DATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00040 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 41 of 1 Board oversight of management and the appropriateness of shareholder proposals, 2 and obstruct the NTSB investigation. Plaintiff did not discover and could not have 3 discovered, through the exercise of due diligence, Defendants' breaches of their 4 fiduciary duties or their violations of California law be fendants did not 5 disclose, and actively concealed, the full extent of their wrongdoing. 6 73. Plaintiff was unaware of and had no knowledge of Defendants' 7 obstruction of the NTSB investigation. Similarly, Plaintiff was unaware of and had no 8 knowledge of Defendants' conduct in causing PG&E to order employees to destroy 9 documents relevant to the San Bruno explosion. This misconduct was not capable of 10 discovery until at least July 1, 2014, when the government filed a Superseding 11 Indictment against PG&E which asserted a new criminal charge of obstruction of 12 justice. Moreover, even then, the documents publicly available were not sufficient to 13 adequately appri intiff of the specific role of each defendant named herein in the 14 wrongdoing. 15 74. Plaintiff could not have discover fendants' breaches of fiduciary 16 duties and violations of law prior to filing suit because Defendants made absolutely no 17 disclosure of their wrongdoing in the Company's public filings. 18 75. Moreover, Defendants not only failed to disclose any information 19 whatsoever that would have allowed Plaintiff, exercising due diligence, to disco" 20 unlawful conduct, but Defendants also intentionally concealed and attempted to 21 disguise the unlawful conduct to avoid detection. Such conduct included, among other 22 things, destroying documents and instructing employees to obstruct investigations 23 into the wrongdoing. 24 /I!ill - f "I : '"II II 'I . ` . 25 A. The Individual Defendants Instilled a Culture of Putting s Before Safety 26 1. &E misappropriated millions from customers and 27 consistently cut its budget for maiiiteiiance of transm.issi.oii and distribution lines 28 ....................................... ... ..........................-37-___________________________________ v.................................................................... plaint' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00041 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 42 of 148 1 During the Relevant Period, PG&E collected hundredsmfmiillions of 2 dollars from customers for pipeline and infra.stru.ctu intenance and safety. 3 Instead of spending such money on pipeline safety improvements, however, the 4 Individi fondants caused PG&E to funnel the money to PG&E Corp. At the same 5 time, PG&E Corp, maintained quarterly cash, dividends for common stock and cash 6 dividends from retained earnings, repurchased stock, and/or provided bonuses or 7 "incentives" to management and employee ther words, instead of ensuring that 8 PG&E had. a. solid and well-maintained infrastructure that would be safe and 9 dependable for years to come, PG&E left itself vulnerable to an increased risk of a 10 catastrophic event at the same time the Individual Defendants approved lavish 11 executive bonuses and put the funds that were allocated to infrastructure maintenance 12 and safety to other i cular, PG&E purportedly charged its customers $5 13 million to fix the San Bruno pipeline in 2009, but delayed the repair, citing other 14 priorities. That same year, PG&E spent $5 million on executive bonuses. 15 77. PG&E consistently cut its budget for maintenance of transmission and 16 distribution lines and other key infrastructure. Transmission pipelines jor 17 pipelines that traverse the State of California. These are high, pressure steel pipes that 18 carry gas from power stations. 19 78. Distribution pipelines are the smaller steel pipes that connect to the 20 transmission pipelines and cany gas to individual locations, such as homes and 21 businesses. This network of pipelines has been in operation for decades and requires 22 constant maintenance to ensure that they are safe. 23 79. PG&E has internal departments that are specifically responsible for 24 handling these pipelines. For example, one department would have experts, 25 employees, and staff who were focused on proper recordkeeping, assessments, and 26 maintenance of the transmission pipelines, and another department would be 27 responsible for the distribution pipelines. 28 80....... Each year, these departments would determine how much money was ............. ....... ......... ... AEG___________________________________ V...............................................iVATIME COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00042 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 43 of 148 1 needed for evaluation, testing, maintenance and/or repairs of transmission and 2 distribution lines. These internal departmental budgets would go up t nagement 3 chain all the way to the Defendant directors and officers who were responsible for 4 formulating a central budget. These Defendants routinely cut the budgets of these 5 departments without any legitimate engineering basis for believing that the budgets 6 u o high and were not necessary to maintain the pipelines. Rather, these 7 Defendants routinely cut these budgets simply to increase PG&E's reported profils. 8 This was done to benefit the Individ Tendants and ensure that they remained in 9 their positions at PG&E and continued to reap substantial personal gain from their 10 positions. 11 81. Furthermore, year after year, PG&E misrepresented to the CPITC the 12 amount of funds necessary to maintain PG&E's infrastructure. PG&E is required to 13 make presentations to 1 tout its needs in order to obtain monetary and other 14 assistance from, the CPUC in order to ensure that PG&E has the financial resources to 15 maintain its pipeline network and infrastructure. For example, PG&E's presentations 16 to the CPUC affect the rates that PG&E can charge its customers. However, for years, 17 PG&E misrepresented the amount of money it would allot to operational and 18 maintenance needs. 19 82. Budgeting decisions ! ! ding requests w r ne through the 20 executive management committee with the oversight and final authority of the PG&E 21 Corp, and PG&E Boards of'Directors. The Individual Defendants in this case were the 22 top officers of PG&E Corp, and PG&E, members of the executive management 23 committee (which included both board members and officers) and the members of the 24 PG&E Corp, and PG&E Boar ctors. All of them knew of and approved 25 PG&E's budgeting for safety and maintenance, and that PG&E was diverting resources 26 purportedly pledged to safety, operations and maintenance to other corporate purposes. 27 T lividual Defendants consistently spent less and less money on operations and 28 maintenance, fully aware of the dangerous risks they were creating and the probable L3ffi___________________________________ V.............................................................[VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00043 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 44 of 148 1 dangerous consequences of their failure to address the risk of a catastrophic loss 2 caused by PG&E's deficient transmission and distribution pipeline system,. 3 2. JPG&E eniployees were incentivized not to report or fix leaks 4 83. PG&E implemented an incentive program, in which PG&E employees 5 were given finam centives not to report or fix leaks, or otherwise report any 6 dangerous conditions that would cost PG&E money to E had a. program, in 7 place in which supervisors and employees received bonuses for not reporting or fixing 8 gas leaks that they found, and for keeping repair costs down. In other words, PG&E 9 supervisors and employees had every incentive to pretend that leaks did not exist or 10 perform, the least amount of work to fix any leaks that were detected. This backwards 11 incentive program, is an example of the Defendants' "profits over safety" policies. 12 84. This program, resulted in the failure to detect a significant number of 13 leaks, many of which were considered "serious" leaks. This incentive program, was not 14 halted until the end of 2008, after the Rancho Cordova explosion. 108, PG&E 15 began rushing inspections of its gas pipeline network. These surveys found many more 16 leaks th d been detected in earlier surveys. 17 85. According to the CPUC, virtually every leak survey that PG&E had 18 conducted since 2004 was "not effective." The CPUC found that because of PG&E's 19 misconduct, the public woi re to endure a "reduced level of safety" until the 20 inspections were complete. 21 86. Richard Kuprewicz, an independent pipeline safety expert, described 22 PG&E's incentive system, as "a big, big deal." and "major, major problem." Kuprewicz 23 added that PG&E's bonus program was "training and rewarding people to do the wrong 24 thing" and was emblematic of "a seriously broken process." He went on to state that 25 this "explains many of the systemic problems in this operation that contributed to the 26 tragedy." 27 87. This bonus program was created and approved by the PG&E and PG&E 28 ............. .......................... ... 40 _ __________________________________ V.............................................................[VA.TIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00044 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 45 of 148 1 Corp. Boards > jctors in order to further the goal of cost reduction and short-term 2 profit maximization without concern about the long-term ramifications of this decision. 3 T lividual Defendants had intentionally and knovcingly created a program in 4 which the risk of a catastrophic incident would increase dramatically. Therefore, the 5 Individi fendants breached and violated the fiduciary duties they owed to PG&E 6 and PG&E Corp. 7 3. PG&E retaliated against and ignoi - : ati ' i 8 a whistleblower warning of safety &E's low prioritization 9 88. argust 2010, Mike Wiseman, a PG&E gas mechanic working on the 10 company's gas pipelines, filed a lawsuit against PG&E for retaliating against him for, 11 among other things, making a protected disclosure under Labor Co L5(c). 12 According to the lawsuit, Wiseman claims to have reported, and refused to participate 13 in, the many unsafe practices he observed while working on the company's gas 14 distribution system. 15 89. larch 2009, Wiseman reported that PG&E workers at the Panoche 16 Road site were made to work in a ditch almost six feet deep, despite the fact that 17 PG&E failed to provide the workers with the required training manual, suitable 18 training, or proper equipment for the job. Wiseman also reported an incident in which a 19 supervisor forged a deficient root cause analysis, in an attempt to make it appear as if 20 it had been written by a qualified employee. Wiseman also complained about the 21 falsification of safety records and other safety violations which are consistent with 22 PG&E's 2007 internal audit and the 20 7 audit. 23 90. Wiseman complained to PG&E's Director of California Gas Transmission, 24 who purportedly referred the complaint to PG&E's Equal Employment Opportunity 25 office, which took no action. On November 5, 2009, Wiseman notified PG&E's Senior 26 Vice President ai icral Counsel of" his legal claims against the company. After 27 General Counsel learned of the complaints, which included serious allegations of safety 28 problems at PG&E, this should have been investigated pursuant to the company's Code - 41 -___________________________________ V.............................................................iVATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00045 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 46 of 148 1 of Business Conduct and Ethics. It apparently was not. 2 91. Instead of treating Wiseman's concerns seriously, PG&E excluded him 3 from the weekly safety leader's conference calls, even though he was a safety leader. 4 This is another example of PG&E putting profits "before safety, in line with the 5 expectations of the Individual Defendants and the policies they implemented 6 addition, Wiseman was threatened with employee discipline, various forms of 7 retaliations, and ordered to submit to drug tests and psychiatric evaluations. 8 92. ch 2012, PG&E Senior Gas Engineer Todd .Arnett testified in a 9 deposition that gas syst .gers routinely ignored the concerns expressed by 10 PG&E employees that the company relied on incomplete and inaccurate records 11 contained in its geographic information system. .Arnett testified that, over the course 12 of several years, he raised the issue of poor data integrity supervisors, but his 13 concerns were ignored. The presence of six "pups"9 from an unknovm source welded 14 together on the pipe segment which, failed in San Bruno on September 9, i wild 15 have been noted on accurate geographic information system reports. This would have 16 prevented the tragedy that occur t . ptember2i -iccording to experts, six pups 17 of unknown source welded together would have raised immediate red flags with 18 engineers. However, because of PG&E's notoriously incomplete and inaccurate 19 recordkeeping, the defect went unreported. 20 93. Internal company e-mails indicate the existence of flawed records for the 21 S mo pipeline. A March 2009 e-mail from PG&E engineer Drew Kelly indicates 22 that there were "tons of errors" in the geographic information system for transmission 23 Lt I' I I a i !. Those inaccurate records were relied upon, to research long 24 term management plans for Line i its August 2C i i f f ., the NTSB expressed 25 concern that PG&E's geographic information system still contained a large percentage 26 of assumed, unknown or erroneous information. That lack of complete or accurate 27 9 "Pups" are short sections of pipe 28 circumference of a larger pipe. or less in length welded onto the ................. - 42 -____________________________________________ V.............................................................[VA.TIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00046 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 47 of 148 1 information prevented PG&E m being effective in preventing the San Bruno 2 disaster and continues to hamper the ability of PG&E to appropriately identify and 3 correct potential future disasters. 4 94. The allegations of Wiseman, Arnett and Kelly about poor and inaccurate 5 record keeping at PG&E are consistent with the internal and external audits which 6 found falsification of records, poor record keeping, and failure to properly train and 7 equip workers. Each of these incidents and reports were warnings that PG&E should 8 have paid attention GE had taken appropriate action in response to these 9 warnings, it could have prevented the San Bruno explosion. The Individual 10 Defendants, through their mismanagement of PG&E, ignored serious red flags and 11 continue to operate PG&E in a dangerous and unsafe manner. 12 4. The Individ efeiidauts' culture of profits over safety have left ticking "time bombs" across Northern 13 California 14 95. PG&E's Senior 'Vice President of Engineering and Operations, who 15 oversaw PG&E's ERM program., confirmed that the RM program fell under 16 the Chief Risk and 2 cer but the operational ERM program (meaning day-to 17 day risk management in the field) was under his purview. He revealed that PG&E 18 already realized by the Spring of 2007 that it needed to "shift culture," develop greater 19 "operational discipline" and "build an integrity from top to bottom of the organization." 20 When that same official reviewed PG&E's Enterprise Risk Management Program for 21 Energy Delivery and Engineering and Operations shortly after joining PG&E in May of 22 2007, he concluded: the program seemed "unactionable because almost everything is 23 broken . . . need to triage." Presciently, he concluded that: -ks a weft- 24 defined document* k policy/standard at the enterprise level. One that 25 explaii &E's overall risk assessment methodology; defines the lines of 26 business roles and responsibility; specifies the requirements for performing 27 and documenting risks; links risk assessments to controls, self-assessment, 28 reviews and audits; and specifies the requirements for metrics to track the ............. .......................... ... - 43 -___________________________________ V.............................................................iVATIME COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00047 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Pag< 148 1 risks" When the Senior 'Vic r . ddent of Engineering and (Operations join &E 2 in 2007, Defendants Darbee and Johns, on behalf of the PG&E Corp, a ards 3 of Directors, informed him that PG&E's risk management protocols were woefully 4 deficient. 5 96. Following the deadly gas pipeline explosion on September 9, San 6 Bruno, PG&E has faced increasing demands to release internal company information 7 about any other dangerous sections of gas pipeline in northern and central California. 8 On September 20, 2010, PG&E reluctantly released a "top 100" list showing that 9 Northern Californians are sitting on a number of gas explosion "time bombs." PG&E 10 refused repeated requests for the list of risky sites for days, invoking "security" 11 concerns. PG&E changed its mind three days after state energy regulators ordered 12 PG&E to hand it over with the intent of making it public. 13 97. The list shows high-priority pipeline segments clustered between 14 Livermore and Fremont, where significant ground movement during earthquakes is 15 likely. Isolated segments also appear throughout the Bay Area, in or near highly 16 populated areas such as San Rafael, Novato, Napa, San Pablo, S 5, Menlo Park, 17 Stan mrsity, Milpitas, and San Jose. However, only two of the sites on the list 18 have repairs or replacements underway. 19 98. CPUC commissioner Paul Clarion acknowledged that the list contains a 20 collection of "high-risk" sites. South San Francisco City Manager Barry Nagel told the 21 media that PG&E never told him about the risky sections of pipe sitting under the city: 22 "We found out about it in the newspaper." The PG&E list was prepared based on data 23 from the end of 2009 and includes limited information about each of the dangerous 24 sections of gas pipeline, but it paints a frightening picture. 25 99. Included in the list is a section of gas pipeline stretching several dozen 26 miles fr acy in the San Joaquin Valley to South Fremont in the San Francisco Bay 27 Area that has "been deemed the "highest risk" section. This decrepit pipeline was 28 originally installed in 1930 and passes through several major population centers. ................. .................................. .... - 44 -_____________________________________________ V.............................................................[VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00048 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 49 of 148 1 PG&E said in a prior funding request that 10 segments of the Tracy-Fremont line (Line 2 107) have a "high likelihood of design materials initiated failure." 3 100. On Line 107, there is an especially hazardous secti< ss long 4 between Livermore and Sunol. Company reports say the pipeline in this area is at risk 5 because of corrosion, aging materials and ground movement, according to the Bay 6 Citizen. Doug Burkhart, who runs Livermore's Smith Denison Construct) mpany, 7 'which works with gas pipes, told the Bay Citizen that such old pipes do not have 8 "cathodic protection" to resist corrosion like most pipes made since the late 1960s, 9 when regulators began to require such protection. 10 101. r 111 * stretch of gas pipeline between Salinas and Hollister is 11 included in PG&E's "top 100." PG&E cites "poor quality welds and outdated, low 12 quality main line valves" - eerily similar to the issues associated with the San Bruno 13 explosion - as the reason for the section's inclush is line was also installed 80 14 years ago and crosses the San Andreas Fault. PG&E told the CPUC that the cost of 15 rerouting the line would be no more than $8.5 million. This job, howev s been put 16 off until 2015. 17 102. Among the most disturbing sections on the list are a length of 4.3 miles in 18 Fremont - classified by PG&E as the second-highest risk line in iy Area - and 19 another 8-mile long section between Ripon and Stockton, which the company calls "the 20 highest risk pipeline in the San Joaquin Valley." Of this section, PG&E says, "the 21 consequence of failure makes the risks unacceptably high." xeptably high risks, 22 however, have not, as a general rule "been a strong motivator for PG&E to act. 23 103. As evidence of PG&E's ingrained lack of concern about safety, the 24 individual who was tasked with evaluating tl u.no explosion and determining 25 what steps could be taken to prevent future tragedies of this nature, Kirk Johnson, 26 admitted that he did not even read the entire NTSB post-explosion investigatory report 27 regarding the San Bruno explosion. After the NTSB hearing, PG&E said it would "take 28 to heart" the findings of the NTSB "thorough and independent investigation" n ............. .......................... ... - 45 -___________________________________ V.............................................................[VATIME COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00049 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 50 of 1 Bruno explosion. However, not only did Johnson fail to read the entire NTSB report, 2 he was not sure vrhat PG&E had done specifically in response to the NTSB report to 3 prevent a future catastrophic incident. 4 The Sail Ilriino Incident 5 104. PG&E is a pipeline operator that provides natural gas to customers 6 through the use of over 6,000 miles of natural gas transmission pipelines and over 7 40,000 miles of distribution pipeline . transmission pipelines are highly- 8 pressurized, large-diameter lines that carry natural gas to smaller, less pressurized 9 distribution pipelines that bri sural gas into homes, commercial buildings, and 10 other facilities. 11 105. The Relevant Period begins in 2003 because that was the year, as 12 demonstrated below in detail, that PG&E began to intentionally take steps to 13 circumvent and violate federal safety rules and record-keeping requirements 14 applicable to its gas transmission lines and pipelines. 15 106. Line 132 was a high-pressure gas transmission pipeline owned and 16 operated by PG&E in the Northe strict of California. Line 132 ran underground 17 from Milpitas, California, to San Francisco, California, passing through the City of 18 S, mo, California. 19 107. Line 132 was originally installed in or about and between 1944 and 1948 20 and consisted of hundreds of individual segments, the majority of which were in 21 suburban or urban areas. 22 108. On September 4.0, at approximately 6:11 p.m., a portion of Line 132 23 (Seg: ) ruptured in a residential neighborhood of the City of San Bruno (the 24 "San Bruno explosion"). Gas escaping from the rupt id, causing a fire that 25 killed eight people and injured 58 others. The fire also damaged 108 homes, 38 of 26 which were completely destroyed. 27 /// 28 /// - 46 -__________________________________ V,,............................................................. NATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00050 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 51 of 1 C. it ' ..... - .......ifeiidants Cau ;E 1.- late 2 California a: - dei > fety Regulations, Subjecting the Company to Billions of Dollars in Damages and Fines 3 109. PG&E is a public utility and thus subject to extensive state and federal 4 regulati ' lifomia, rules promulgated by t lifornia Public Utility 5 Commission ("CPUC") govern the operation of gas pipelines. The rules are codified in 6 General Order 112E, State of"California Rules Governing Design., Construction, 7 Testing, Operation, and Maintenance of Gas Gathering, Transmission, and 8 Distribution Piping Systems, dated September 11, 1995. 9 Federal law dictates how gas pipelines should be built and operated, 10 while allowing states to adopt additional requirements. The federal government 11 delegates significant enforcement responsibilities to the states. In California, 12 regulatory and enforcement authority rests with 13 111. The > Pipeline Safety .Act of 1968 ("PSA") established 14 minimum safety standards for pipeline transportation and for pipeline facilities. The 15 purpose of the PSA was to protect against risks to life or property posed by pipeline 16 transportation and pipeline facilities by improving the regulatory and enforcement 17 authority of the Secretary of Transportation. 18 it to Chapter 601 of the PSA, the Secretary of 19 Transportation issued regulations o ction 192 of Title 49 of the Code of 20 Federal Regulations, Subparts A through M ("Section 192"). 21 i i ' ongress amended t . ) add criminal penalties for 22 knowing and willful violations of any regulation or order issued pursuant to Chapter 23 601 of the PSA. 49 U.S.C. 60123. 24 114. PHMSA is an agency within partment of Transportation ("DOT") 25 that is responsible for ensuring that pipeline operators, such as PG&E, operate safely. 26 27 28 ................ .................................. ........................... VERI VOTIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00051 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 52 of 1 Pub. L. 108-426, 118 Stat. 2423 (Nov. 30, 2004).10 PHMSA is responsible for pipeline 2 safety regulations and enforcement. lifomia, the CPUC is primarily responsible 3 for enforcement of safety regulations. 4 115. PHMSA regulations make operators of gas transmission pipelines 5 affecting a. "high consequence area" ("HCA"), e.g. densely populated areas, responsible 6 for assessing and ensuring the integrity of their pipelines. The regulations are 7 designed to prevent the type of catastrophic incidents that oc mcho 8 Cordova in 2008 and Sc f no in 1 i mators are required to develop and 9 adopt a written integrity management program ("IMP") that addresses the risks IO on each segment of the pipeline. 11 An IMP is required to include, among other things: 12 A Baseline Assessment Plan that: identifies potential threats to each 13 covered segment; identifies methods to assess integrity based on the 14 threats identified for each covered segment (e.g., internal inspection, 15 pressure testing, direct assessment, or other technology); identifies a 16 schedule for completing the assessments including the risk factors 17 used in determining schedule priorities; contains a direct assessment 18 plan, if applicable (including the gathering and integration of risk 19 factor data, indirect examination or analysis to identify areas of 20 suspected corrosion, direct examination of the pipeline in these areas, 21 and post assessment evaluation) appropriate for the threats identified 22 for the covered segments; and includes a procedure for ensuring that 23 the baselines assessments are conducted in a manner that minimizes 24 environmental and safety risks; 25 26 10 Congress amended the PSA "by enacting the Pipeline Safety Improvement Act of 27 2002 ("PSIA"). The Pipeline and Hazardous Materials Safety Administration ("PHMSA") issued t i, . f a mi egrity Management regulations ("IM regulations"), 49 28 C.F.R. Part 192, referred to as Subpart 0, to implement the requirements of the PSIA. ....................................... ... -48-___________________________________ VERI....................................................... VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00052 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 53 of 1 Identification of threats to each covered segment, including by the use 2 of data integration and risk assessment; 3 visions for remediating conditions found during integrity 4 assessments; 5 A process for continual evaluation and assessment; 6 A confirmatory direct assessment plan, if applicable; 7 A process to identify and implement additional preventive and 8 mitigative measures; 9 A performance plan including the use of specific performance 10 measures; 11 Recordkeeping provisions; 12 Quality Assurance process; 13 A Communication Plan; and 14 jedures for providing to regulatory agencies copies of the risk 15 analysis or integrity management program. 16 117. A pipeline operai ist document minimum qualification 17 requirements for the following people: (i) supervisory personnel; (ii) persons who carry 18 out integrity assessments and evaluate assessment results; and (iii) persons 19 responsible for additional preventive ai igative actions. A pipeline operator's IMP 20 must also identify and evaluate all potential threats to the covered segment. The 21 operator must collect and integrate data from the entire pipeline that could be 22 relevant to the covered segment and conduct a risk assessment. If an operator 23 identifies any of the following threats, it must take specific actions to address the 24 threats: 25 Third Party Damage - Operators must use data integration from the 26 assessment of other threats to identify potential third party damage 27 and take additional preventive and mitigative actions; 28 Cyclic Fatigue - Operators must use cyclic fatigue analysis to - 49 -___________________________________ VERI....................................................... VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00053 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 54 of 1 prioritize baseline assessments and reassessments; 2 Manufacturing and Construction Defects - Operators must prioritize 3 a segment containing manufacturing or construction defects as high 4 risk segments unless it shows by analysis that the defect is stable and 5 that the risk of failure is love; 6 ERM7' [Electric Resistance Welded] Pipe - Covered segments 7 containing low frequency electric resistance welded pipe or lap welded 8 pipe must be prioritized as a high risk segment for the baseline 9 assessment or reassessment, and assessed using technologies proved 10 to be capable of assessing seam integrity and of detecting seam 11 corrosion anomalies; and 12 Corrosi irrosion is identified, all similar pipeline segments 13 (both covered and non-covered) with similar coating and 14 environmental characteristics must be evaluated and remediated, as 15 necessary. 16 118. With respect to t seline .Assessment Plan, the IM regulations 17 required pipeline operators to prepare, no later than December 17, 2004, a Baseline 18 Assessment Plan ("BAP") that identified all the pipeline operator's covered segments, 19 the known or potential threats to each covered segment, 1; thods selected to 20 assess the integrity of the pipeline for each covered segment, and deadlines for 21 conducting an initial assessment and re-assessment. 49 C.F.R. 192.919. 22 Thereafter, pipeline operators like PG&E were required to complete the 23 baseline assessment of 50% of their covered segments beginning with the highest risk 24 segments, by December 17, 2007 and 100% of their covered segments by December 17, 25 2012. High pressure gas pipelines (pipelines operating at above 30% SMYS ("Specified 26 Minimum Yield Strength")) must be reassessed pursuant to an allowable 27 reassessment method at least every seven years. 49 C.F.R. 192.939(a). 28 120. Once the known and potential threats were identified on a covered -50-___________________________________ VERI....................................................... VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00054 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 55 of 1 segment, the IM regulations required pipeline operators to assess the integrity of the 2 pipeline in each covered segment by using an assessment method that was capable of 3 addressing the specific identified threats. 49 C.F.R. 192. r assessment 4 methods available to assess whether a covered segment was susceptible to the 5 identified threats were: 6 (1) Subpart J pressure testing: a method of testing the strength of a pipeline 7 by pressurizing a portion of the pipeline to a specified test pressure and 8 monitoring that portion of the pipeline for leaks or ruptures. The test 9 had to comply with the requirements of Subpart J of Section 192. When 10 the test was performed with a liquid, this method was also known as a 11 "hydrotest" or a "Subpart J hydrotest." 49 C.F.R. 192.921(a)(2). 12 i. Starting in 1970, all new gas transmission pipelines had to be 13 pressure tested or hydrotested before being placed into service in 14 order to ensure the pipeline's integrity. Pursuant to Section 192.619 15 of Title 49 of the Code of Federal Regulations, gas transmission 16 pipelines installed "befc h.at were found to be in "satisfactory 17 condition" were grandfathered in and did not have to be pressure 18 tested or hydrotested unless otherwise required by law. 19 ii. A pressure test or hydrotest was the only assessment method that 20 could test the strength of a pipeline. Performing a pressure test or 21 hydrotest on a gas transmission pipeline necessitated the expense 22 and inconvenience of taking the pipeline out of service temporarily. 23 iii. mure testing or hydrotesting assessed the integrity of a. pipeline 24 for such potential threats as external damage, external corrosion, 25 internal corrosion, stress corrosion cracking, and manufacturing and 26 construction threats, such as seam defects and seam corrosion. 27 (2) In-line inspection ("ILI): a method of examining the internal 28 characteristics of a pipeline by sending a computerized inspection tool, ................ .................................. .... - 51 -_____________________________________________ VERI....................................................... VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00055 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 56 of 148 1 often called a "pig," through the inside of 49 C.F.R. 2 192.921(a)(1). 3 i. Like pressure testing or hydrotesting, ILI assessed the integrity of 4 the pipeline for such potential threats as external damage, external 5 corrosion, internal corrosion, stress corrosion cracking, and 6 manufa.ctu.ring and construction threat wever, could not test 7 the actual strength of a pipeline. 8 (3) 11 . .oi ' - . a process used to detect the presence of 9 corrosion and assess the potential threat to the integrity of the pipeline. 10 49 C.F.R. 192.921(a)(3). The three methods of D.A were: 11 i. External corrosi net assessment or "ECDA," which tested the 12 outside of pipelines for external, corrosion and third party damage 13 using an electrical or magnetic technology abo iimd and then 14 following up with interspersed excavations to uncover the portions of 15 the pipelines most likely to have external corrosion. Because 16 only assessed the outside of pipelines, it could not assess the integrity 17 of pipelines for potential internal threats such as manufacturing or 18 construction defects; 19 ii. jrnal corrosion direct assessment ("ICD.A"), which tested for 20 corrosion inside the pipeline; and 21 iii. Stress crack corrosion direct assessment ("SCCDA"), which was only 22 applicable to pipelines operating over 60% of SMYS and thus not 23 applies >st HCAs. 24 (4) nology: any technology that a pipeline operator demonstrated 25 could provide an understanding of a pipe's condition that was equivalent 26 to the understanding that could be gained using press sts or 27 hydrotests or rs could only us w technology if 28 approved its use. 49 C.F.R. 192.921(a)(4). ............. .......................... ... -52-___________________________________ V.............................................................iVATIYE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00056 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 57 of 148 1 Regulations Related to itization of Manufacturing Threats 2 IM regulations required operators to prioritize the risk level of 3 covered segments in the BAP. 49 C.F.R. 192.917(e)(3)(i)4iii). Operators were 4 required to prioritize covered segments with uns wring threats as "high 5 risk." Covered segments with manufacturing threats were considered unstable if the 6 operating pressure of the pipeline containing that segment increased above the 7 maximum operat ure experienced by that segment in the five years before the 8 segment was identified as being in an HCA (the "5-year MOP"), the maximum 9 allowable operating pressure ("A ) increased, or the stresses leading to cyclic 10 fatigue increased. 49 C.F.R. 19 MiMiii). 11 122. Pipeline operators also had to prioritize as high risk and select an 12 assessment method capable of assessing seam integrity and seam corrosion anomalies 13 for covered pipeline segments that contained: 14 a) low-frequency electric resistance welded ("ERW") pipe; b) lap welded pipe; or 15 c) other pipe that satisfies the conditions specified in ASME/ANSI B31.8S, 16 Appxs. A4.3 & A4.4; and had experienced either: d) a seam failure; or 17 e) an increase in operating pressure over the 5-year 1 18 49 C.F.R. 192.917(e)(4). 19 123. For pipelines with unstable manufacturing threats, operators had to use 20 an assessment method that was capable of evaluating manufacturing threats, such as 21 a hydrotest. 49 C.F.R. 1 ' - . , I (4). ECDA could not be used bece . " - 22 does not assess manufacturing threats. 49 C.F.R. 192.923(a). 23 Regulations.Related.to.Continuous.Evaluation.of Covered.Pipeline Segments 24 124. Pipeline operators like PG&E were required to periodically evaluate the 25 integrity of each covered segment. The periodic evaluation included considering and 26 integrating past and present integrity assessment results, integrating data and 27 assessii : of the entire pipeline, and reviewing decisions regarding remediation, 28 .............. ....... .......... ... ........... l5M______________________________________ V.............................................................[VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00057 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 58 of 148 1 additional prevention, and mitigation actions. Operators were required to use the 2 results from these periodic evaluations to identify the threats specific to each covered 3 segment and the risk represented by these threats. 49 C.F.R. 192.937. 4 125. .After an initial assessment, pipeline operators had to re-assess their lines 5 using an assessment method capable of assessing a particular threat or combination of 6 threats including new threats, and within a certain time period depending on the 7 results the periodic evaluations, but not to 7 exceed seven years. 49 C.F.R. 192.937 8 and 192.939. 9 Regulation. I ` > c o ' n ' ' ords 10 126. Pipeline operators were required to pressure test the strength of certain 11 pipelines newly installed or returned to service after 1970. 49 C.F.R. 192.503. 12 Specifically, pressure tests were required for (a) segments of steel pipelines that 13 operated at a hoop stress of 30 percent SMYS (49 C.F.R. 192.505), and 14 (b) segments of steel pipelines that operated below 30 percent of SMYS, but at a 15 pressure greater than 100 psi (49 C.F.R. 192.507). 16 127. Pipeline operators were also required to keep records of the pressure tests 17 conducted pursuant to Sections 192.505 and 192.507 for the useful life of the pipeline. 18 49 C.F.R. re test records were required to contain at least the following 19 information: 20 the test medium used; the test pressure; 21 the test duration; 22 pressure recording charts; elevation variations, if significant; 23 leaks and failures noted and their disposition, and 24 the name of the employee performing the test. 25 PG&Efs Practices Relai ion Pipelines 26 General Reeordkeepiiig 27 128. Starting at a time unknown to Plaintiff, and continuing until the San 28 Bruno explosion, ' I Is learned that PG&E did not have complete - 54-___________________________________ V.............................................................[VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00058 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 59 of 1 data for its gas transmission pipelines due to missing records and errors and 2 omissions in existing records. 3 129. The Individual Defendants received notice of PG&E's recordkeeping 4 problems through employees, through regulatory agencies including the National 5 Transportation Safety Board ("NTSB") and the California Public Utilities Commission, 6 and from third party auditors and consultants. 7 130. Despite knowledge of these deficiencies ividual Defendants failed 8 to cause PG&E to create a recordkeeping s r gas operations that would ensure 9 that pipeline records vrere accessible, traceable, verifiable, accurate, and complete. 10 PG&E's recordkeeping deficiencies included: 11 PG&E did not maintain accurate and complete leak records for its gas 12 transmission pipelines. 13 PG&E did not maintain accurate and complete records regarding 14 encroachment of population along gas transmission pipelines. 15 PG&E did not maintain repair records for its gas transmission pipelines 16 in a traceable and accessil nner. 17 PG&E did not retain or maintain weld maps and weld inspection records 18 for its gas transmission pipelines. 19 PG&E did not maintain complete records of the manufacturer of its gas 20 transmission pipelines in service. 21 PG&E did not retain or maintain Subpart J pressure test records for the 22 life of all of its gas transmission pipelines. 23 PG&E did not maintain accurate, complete, or accessible "job files," that 24 contained, among other things, pipe specifications, construction records, 25 pressure test records, and purchasing records. 26 Integrity Management Program 27 i i re late 1990s, in advance of the enactment of tl h alations, 28 PG&E created a computer database called the Geographic Information Sj -55-___________________________________ VERI....................................................... VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00059 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 60 of 1 "GIS database"). PG&E intended that the GIS database would contain information 2 about each natural gas transmission pipeline segment, such as pipe specifications and 3 pressure test data, and would be used to make integrity management decisions. 4 132. To create the GIS database, PG&E relied on pipeline survey sheets that 5 contained erroneous and incomplete information. 1 real tabase, PG&E 6 undertook no quality control or quality assurance to ensure the data taken from the 7 pipeline survey sheets was accurate. From GIS's inception, PG&E was aware that the 8 database contained erroneous and incomplete information. 9 133. PG&E relied on informal! 5 database to make integrity 10 management decisions, including the identification of threats to each covered segment 11 contained in the init 12 Threat Identification 13 134. lentifying and evaluating threats as required by Sections I I . 14 and (b), PG&E failed to gather and integrate all relevant data for many of its older 15 transmission lines, including, but not limited to: 16 past incident history for both covered and non-covered segments, including leaks with unknown causes ("unknown" because PG&E either 17 had no records, or could not or did not locate such records); 18 pipeline history for covered and non-covered segments that were greater 19 than one mile away from the covered segments being analyzed for 20 manufacturing and construction threats; 21 maintenance history, includii y 22 accurate and complete pipeline data, including wall thickness, diameter, 23 seam type, manufacturer, and date of manufacture; 24 pressure fluctuations; 25 validated normal, maximum, and minimum, operating pressures; 26 threats created by cyclic fatigue; and 27 threats created by internal corrosion. 28 ....................................... ... - 56-___________________________________ VERI....................................................... VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00060 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 61 of 1 Assessment Method Selection 2 135. PG&E relied on. inaccurate and incomplete records to select assessment 3 methods to assess the integrity of covered segments for known or potential threats as 4 required by Section 192.921(a). 5 136. 004, PG&E created a written policy on compliance with the IM 6 regulations regarding data gathering that instructed PG&E employees to rely on 7 available, verifiable information or "information that c [onld] be obtained in a timely 8 manner." 9 137. ' 004, PG& t > created a written policy that proscribed, with certain 10 limited exceptions, the use of hydrotesting or pressure testing as an assessment 11 method for assessing the integrity of covered segments. Pursuant to this policy, the 12 only two options (other than a PHMSA-approved new technology) for assessing threats 13 on covered segments id ECDA. PG&E instituted this policy having 14 determined that, due to economic considerations and the physical attributes of its 15 transmissl s not a feasible assessment method for approximately 80% 16 of its transmission lines that were subject to the IM regulations. 17 138. For the approximately 80% of the gas transmission pipelines where 18 PG&E determined that as not economically or physically feasible, PG&E selected 19 ECDA to assess threats on those pipelines. PG&E chose ILI as an assessment method 20 for the approximately 20% of its remaining natu ansmission pipelines. 21 139. The Individual Defendants who contributed to the wrongdoing during 22 this time period include: 23 (a) Defendant Harvey, who has worked for PG&E a l&E Corp, at all 24 relevant times, including for the past 33 years. Harvey served as PG&E Corp.'s Senior 25 Vice President, CFO, and Treasurer from January 2000 to September 2005, and also 26 served as PG&E's Senior Vice President and Chief Risk and Audit Officer from October 27 2005 to July 2009. Harvey also later served as PG&E Corp.'s CFO until January 1, i 28 ....................................... ... -57 -___________________________________ VERI....................................................... VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00061 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 62 of 148 1 and continues to sei . l&E Corp.'s Senior Vi sident, Finance.11 Defendair 2 Harvey knowingly, recklessly, or with gross negligence allowed PG&E to violate the 3 1 PHMSA regulations by failing to implement and/or maintain adequate 4 internal controls with respect to the Company's compliance with CPUC ar MSA 5 regulations. 6 (b) Defendant Christopher P. Johns ("Johns"), vrho is and has been a director of 7 PG&E since February 2010, as well as the Comp; sident since .August 2009. 8 Defendant Johns was also PG&E's Senior Vi* mt, Financial Services from May 9 2009 to July 2009; Senior Vice President and ober 2005 to April 2009; 10 Chief F ("CFO") from October 2005 to May 2007; and Vice President and 11 Controller from. June 1996 to December 1999. Defendant Johns was PG&E's CFO from. 12 January 2005 to July 2009; a Senior Vi m1 fr' i September 2 I July 2009; 13 Treasurer from. October 2005 to .April 2009; Controller from. July 1997 to October 2005; 14 and a V ent from. July 1997 to September 2001. Due to the Company's extensive 15 gas distribution and transmission line operations, defendant Johns knew that PG&E was 16 subject to regulation * * 1 < ' * 11 le and hazardous Materials Safety 17 Administration ("PHMSA") and guidelines for operators ofnatural gas pipelines in areas 18 that could affect human safety. Defendant Johns also knew that, under t i.d 19 PHMSA regulations, PG&E was required to implement an internal control system, to 20 ensure the implementation of an integrity management program. ("IMP") to ensure the 21 identification and rem.edia.tion of risks to the Company's pipelines in areas that could 22 affect human, safety. capacity as a director, defendant Johns was specifically 23 charged with overseeing the Company's risk management practices, including ensuring 24 compliance with an IMP. Defendant Johns knowingly or recklessly allowed PG&E to 25 violate the CPUC and PHMSA regulations by failing to implement and/or maintain 26 27 11 On November 6, CFO by Jason IT n Corp, announced that Harvey vrould be replaced as ive January 1, P but will continue to serve as PG&E 28 Corp.'s Senior t i i ant, Finance, until approximately June 30,1 ............. - 58-___________________________________ V............................................................. iVATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00062 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 63 of 148 1 adequate internal controls with respect to the Company's compliance with CPUC and 2 PHMSA regulations. 3 (c) Defendant Dinyar B. Mistry ("Mistry"), who was PG&E Corp.'s Vice 4 ident, Regulation and Rates from November 2005 to December 2008, and who is 5 PG&E Corp's CFO and has been sin ;ober 2 i i id PG&E and PG&E Corp.'s Vice 6 i a nt and Controller and has been since March 2 i mdant Mistry was also 7 PG&E's Vice -i , r - u' I, c ai 0 > r from August 2009 to March 8 2010; PG&E Corp.'s Vice l and Audit (Officer from September 9 2009 to March I - ,1 ( i- , i- ! i I - > 'Compliance and Ethics 10 from January 2009 to July 2009. Due to Company's extensive gas distribution and 11 transmission line operations, defendant Mistry knew that PG&E was subject to 12 regulation from t d PHMSA guidelines for operators of natural gas pipelines 13 in areas that could affect human safel "endant Mistry also knew that, under the 14 CPUC and PHMSA regulations, PG&E was required to implement an internal control 15 system to ensure the iniplementatioii of an IMP to ensure the identification and 16 remediation of risks to the Company's pipelines in areas that could affect human safety. 17 apacity as a director, defendant Mistry was specifically charged with overseeing 18 the Company's ;ement practices, including ensuring compliance with an IMP. 19 Defendant Mistry knowingly, recklessly, or with gross negliger >wed PG&E to violate 20 the CPUC and PHMSA regulations by failing to implement and/or maintain adequate 21 internal controls with respect to the Company's compliance with CPUC ar MSA 22 regulations. 23 (d) Defendant C. Lee Cox, who has been a director of PG&E and PG&E Corp, at 24 all relevant times, and at least since 1996, and who has served as PG&E and PG&E 25 Corp.'s Le tor and PG&EC's non-executive Chairman of the Board since 26 September 20 nt Cox was also PG&E's interim Chairman, Chief Executive 27 Officer ("CEO"), anc i , ident from M ' I to September 2011; PG&E Corp.'s non 28 executive Chairman of the Board from January 2008 to April 2011; and lead director of ............. .......................... ... - 59-___________________________________ V.............................................................iVATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00063 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 64 of 148 1 PG&E and PG&E Corp, from April 2004 to April 2011. Defendant Cox is Chairman of 2 PG&E's Compensati nmittee and a member of PG&E's Finance Committee and lias 3 been since September 2011. Defendant Cox was also Chairman ofPG&E's Compensation 4 Committee from at least March 2005 to May a member of that committee from at 5 least March 2003 to May 2011, and a member of PG&E's Finance Committe least 6 March 2004 to May f endant Cox served as Chairman of the Audit Committees of 7 PG&E and PG&E Corp, until at least March 2004. Due to the Company's extensive gas 8 distribution and transmission line operations, defendant Cox also knew that PG&E was 9 subject to regulation from the CPUC and PHMSA guidelines for operators of natural gas 10 pipelines in areas that could affect human safety. Defendant Cox also knew that, under 11 i PHMSA regulations, PG&E is required to implement an internal control 12 system to ensure the implementation of IMP to ensure the identification and remediation 13 of risks to the Company's pipelines in areas that could affect human safety. 14 capacity as a director, defendant Cox was specifically charged with overseeing the 15 Company's risk management practices, including ensuring compliance with an IMP. 16 Defendant Cox knowingly or recklessly allowed PG&E to violate the CPUC ai 17 regulations by failing to implement and/or maintain adequate internal controls with 18 respect to the Company's compliance with regulations. 19 (e)...... Defendant Barry Lawson Williams ("Williams"), who has been a PG&E 20 director at all relevant times, including since at least 1996, and a PG&E Corp, director 21 since 1990. Defendant Williams is also Chairman of the Audit Committees of PG&E and 22 PG&E Corp, and has been since at least March 2005 and a member of those committees 23 and has been since March 2003. Defendant Williams is a member of PG&E's 24 Compensation Committee and has been since at least March 2005 and a member of 25 PG&E's Finance Committee and has "been since at least March 2004. Due to Company's 26 extensive gas distribution and transmission line operations, defendant Williams knew 27 that PG&E was subject to regulation from, the CPUC and PHMSA guidelines for 28 operators of natural gas pipelines in areas that could affect human safety. Defendant ............. ....... ......... ... W0^___________________________________ V.............................................................iVATIME COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00064 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 65 of 1 'Williams also knew that, under tl IPHMSA regulations, PG&E is required to 2 implement an internal control system to ensure the implementation of an IMP to ensure 3 the identification and remediation ofrisks to the Company's pipelines in areas that could 4 affect human safety. city as a director, defendant Williams was specifically 5 charged with overseeing the Company's risk management practices, including ensuring 6 compliance with an IMP. Defendant Williams knowingly or recklessly allowed PG&E to 7 violate the CPUC a IMS.A regulations by failing to implement and/or maintain 8 adequate internal controls with respect to the Company's compliance d 9 PHMSA regulations. 10 (f) Defendant Barbara L. Rambo ("Rambo"), who is a PG&E and PG&E Corp, 11 director and has been since January 2005. Defendant Rambo has also been a member of 12 PG&E's Finance Committee since January 2005 and Chairman of such committee since 13 May 2008. Defendant Rambo is a member of PG&E's Compensation Committee and has 14 been since January 2005 and was Chairman of that committee from May ! ;o 15 September 2011. Due to the Company's extensive gas distribution and transmission line 16 operations, defendant Rambo knew that PG&E was subject to regulation from the 17 and PHMSA guidelines for operators of natural gas pipelines in areas that could affect 18 human safety. Defendant Rambo also knew that, under the 19 regulations, PG&E was required to impleinent an internal control system, to ensure the 20 implementation of an IMP to ensure the identification and remediation of risks to the 21 Company's pipelines in areas that could affect human safety. ier capacity as a 22 director, defendant Rambo was specifically charged with overseeing the Company's risk 23 management practices, including ensuring compliance with an IMP. Defendant Rambo 24 knowingly or recklessly allowed PG&E to violate the " ME illations by 25 failing to implement and/or maintain adequate internal controls with respect to the 26 Company's compliance with SA regulations. 27 /// 28 /// ....................................... ... - 61 -___________________________________ V:............................................... NATIVE complaint' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00065 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 66 of 148 1 Assessing'. .A j ..... . s - ! ' .. ...... . ion Lines 2 PlaiiiM .`ssi creases 3 140. When t regulations went into effect, the Individual Defendants 4 knew that thousands of miles of PG&E's gas transmission pipelines had never been 5 subjected to a Subpart J pressure test, because the pipelines were installed before 6 id were grandfathered in or "because PG&E had not maintained a record of such 7 a pressure test. As PG&E knew, many of these pipelines had a known or potential 8 nianufacturing threat due to their age, manufacturer, anchor history. 9 rder to maintain the then-current operating pressures of these 10 pipelines without having to subject the pipelines to a Subpart J pressure test, PG&E 11 adopted a practice in 2003 called planned pressure increases ("PPIs"). To conduct a 12 l&E intentionally raised the pressure in several old highly-pressurized gas 13 transmission pipelines located in HCAs to the pipelines' maxim' owable operating 14 pressures' (KL- ' > for two hours. < doing, PG&E at times exceeded the lines' 5- 15 year MOPs and/or h . PG&E failed to review the history of the pipelines or 16 verify the accuracy of its data prior to executing the PPIs to determine whether 17 intentionally increasing the pressure on these older pipelines would affect the 18 integrity of the pipeline. PG&E periodically conduc from 2003 until the San 19 Bruno explosion. 20 142. PG&E execuf: on a number of its high, pressure gas transmission 21 pipelines, including lini I " , I I I ' I , all of which had covered segments 22 with manufacturing threats that had never been subject to a Subpart J pressure test 23 or for which records of such a test were not available. From 2002 until the f ) 24 explosion, PG&E assessed these pipelines with ECDA. 25 sure Increases 26 143..... PG&E was aware that hundreds of covered segments totaling over 80 27 miles of gas transmission pipelines had never been subject to a Subpart J pressure 28 test and hi lufacturing threats that could be considered unstable due to planned ............. ....... ......... ... -62-___________________________________ VER1...................................................... [VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00066 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 67 of 148 1 and/or unplanned pressure increases that exceeded the pipelines' respective 5-year 2 MOPs. These covered segments were found on numerous gas transmission pipelines 3 operated by PG&E, including, but not limited to, segments on Lines 132, 153, 109, 4 I - i i , A/ A I i i i 5 144. Section sired PG&E to prioritize the covered segments 6 with unstable manufacturing threats as high, risk and assess them using an 7 assessment method that evaluated the integrity of the covered segment to determine 8 the risk of failure from the unstable manufacturing threats, such as a Subpart J 9 pressure test. For all of these covered segments, despite knowledge of the 10 requirements of Section l&E chose not to reprioritize these pipelines as 11 k and/or properly assess the integrity of each segment to determine the risk of 12 failure. Instead, PG&E continued to choose ECDA to assess the integrity of these 13 pipelines even though PG&E knew ECDA did not assess unstable manufacturing 14 threats. 15 145. To avoid having to prioritize these pipelines as "high risk" and properly 16 assess the pipelines for the known threats, PG&E chose only to consider a 17 manufacturing threat unstable if the pressure on the pipeline exceeded the 5-year 18 f 10% or more. This practice was documented in PG&E's Integrity 19 Management program as Risk Management Instruction-06, and was known to 20 m.embers of Integrity Management as RML06. PG&E adopted and implemented this 21 approach despite knowing that it was in direct contravention of Section 1 d 22 guidance is A in or about 2004 and 2005 in the form of frequently asked 23 questions and answers ("FAQs"). In FAQ 221, PHMSA made clear that "any pressure 24 increase, regardless of amount," destabilized a manufa.ctu.ring threat and required 25 PG&E to prioritize the pipeline as high risk and to properly assess f&E 26 maintained this practice until April 2011. 27 Line 132 28 146. When identifying threats on Line 132, and when determining the -63-___________________________________ V.............................................................[VA.TIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00067 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 68 of 1 appropriate assessment teclmology to use in evaluating those threats, PG&E did not 2 know the thickness of the pipeline walls for approximately 42% of Line 132, either 3 because PG&E did not have records describing wall thickness or it could not or did not 4 access records with this information. 5 PG&E did not know the manufacturer for approximately 80% of the 6 hundreds of segments on Line 132 either because PG&E did not have such records, or 7 could not or did not access such records with this information. 8 148. PG&E did not know the depth of cover for approximately 80% of Line 132 9 because PG&E did not have such records, or could not or did not access such records 10 with this information. 11 149. PG&E used improper yield strength or SMYS values for several segments 12 of pipe on Line 132 with unknown yield strengths. 13 Segment 180 14 150. Segment 180, the portion of Line 132 that ruptured, was located in an 15 HCA and ran through a densely populated suburban development in the City of San 16 Bruno. Segment 180 consisted of six short lengths or "pups" of 30-inch diameter pipe 17 along with normal lengths of pipe. The date of manufacture of these pups is unknown, 18 but the manufacture date was prior >6. The pups were welded together and 19 installed in approximately 1956 in a manner that violated industry standards 20 concerning fabrication of gas transmission pipelines in effect at the time. One or more 21 of the pups had a defective seam weld. The segment, in part due to the defective pup 22 or pups, had a yield strength ; cantly less than the yield strength that PG&E 23 recorded and relied upon for integrity management purposes. 24 PG&E's records reflected the following for Segment 180: 25 The pipe was seamless. The SMYS was 42,000 psi. 26 The depth of cover was unknown. 27 The manufacturer of the pipe was unknown. The manufacture date of the pipe was 1956. 28 A pressure test had been performed in 1961. ....................................... ... -64-___________________________________ VERI....................................................... VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00068 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 69 of 1 The Mu 'as 400 psi. 2 152. the pipe in Segment 180 was seamed, not seamless. The SMYS 3 was unknown, but measured after the San Bruno explosion at significantly less than 4 42,000 psi for four of the six pups. The pipe manufacturer date was unknown, but 5 occurred well before 1956. No records of a pressure test existed showing that any 6 pressure test, let alone a Subpart J pressure test, had been performed on Segment 7 180. Other records in PG&E's files also showed the ML ir Line 132 as 375 and 8 390 psi. 9 153. .At no time "between installation of the defective pup or pups and the San 10 Bruno explosion did PG&E check or confirm whether its records accurately reflected 11 the data relevant to assessing the integrity of Segment 180, even though PG&E knew 12 that GIS contained incomplete and inaccurate data. 13 Integrity Management For Line 132 14 154. PG&E identified segments of Line 132 as being in an HC.A in 2002 and 15 began conduct IDA on Line 132 in 2002. PG&E also conducted ECDA on Line 16 132 in 2003, 2004, 2006, 2007, 2009, and 1 17 155. ' lentifying the threats that existed ie 132 and choosing an 18 assessment method to assess those identified threats, the Individual Defendants 19 caused PG&E to knowingly rely on erroneous and incomplete information from the 20 G abase and to fail to gather and integrate, among other things, the following 21 data and information: 22 s. data, including the cause of over 30 prior leaks on segments of Line 23 132; instead PG&E adopted a practice that it would not consider leaks with "unknown" causes when deciding if ECDA was a proper assessment 24 method; 25 Industry and PG&E data that showed that double submerged arc weld "DSAW" pipe manufactured 'by Western Consolidated Steel, which was 26 found on segments of Line 132, including Segment 181, had pipe body 27 and longitudinal seam defect issues; 28 ....................................... ... -65-__________________________________ VERI....................................................... VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00069 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 70 of 148 1 A seam weld defect in DSAW pipe that was discovered on a different segment of Line 132, and was similar to pipe on both Segment 180 and 2 Segment 181, and was repaired in 1988; 3 Multiple longitudinal seam cracks found during radiography of girth 4 welds on portions of Line 132 that were constructed in 1948; A longitudinal seam weld defect AW pipe discovered on a different 5 segment of Line 132 in 1992 when a tie-in girth weld was radiographed; 6 A defective weld found ^ment 186 of Line 132 in 2009. The segment was originally fabricated by Consolidated Western using pipe similar to 7 Segment 180 and Segment installed in 1948, at or near the time 8 when Segment 180 was originally installed; 9 A field girth weld defect found on Segment 189 in 2009. Segment 189 was also originally fabricated by Consolidated Western using DSAW pipe 10 installed in 1948; 11 Whether any salvaged or re-used pipe, for which. PG&E did not keep records, including manufacturer, dates of use, and history of the pipe, had 12 been used t.e 132; 13 Documents related to the design, manufacturer, construction, or testing of Segment 180 when it was relocat 6, including whether any 14 salvaged pipe was used; 15 rmation from the 1956 construction file related to the six pups installed on Segment 180 by PG&E; 16 The potential impact of cyclic fatigue or other loading conditions on Line 17 132 from planned or unplanned pressure fluctuations; and 18 Additional construction defects on Line 132. 19 Integrity Manage r her Transmissic f es 20 156. The Individual Defendants also caused PG&E to knowingly fe.il to gather 21 and integrate the following relevant data from similar gas transmission pipeline 22 segments as required by 49 C.F.R. 19 23 A se ik in DSAW pipe found on Line 3008 in 1958; 24 A root cause analysis for an explosion 09 in 1963; 25 A 1977 report concerning a leak on the long seam, of Line 109; A characterization, evaluation of nearby Line 109 girth welds in 1994; 26 A Subpart J pressure test failure am weld with lack of 27 penetration on DSAW pipe found on Line 3008, and which was similar to DSAW pipe found on Segment 180 and Segm 28 ................... VERI -66-___________________________________ VA.TIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00070 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 71 of 1 Laboratory test reports from 1975 relating to Li rth welds; and 2 Cracking of a seam weld in DSAW pipe in 1996 re 109 which paralleled Lir . 3 Relying on inaccurate and incomplete information regarding the pipeline 4 attributes and history of Lines 132 and 109, t lividual Defendants caused PG&E 5 to knowingly choose ECDA as the assessment method to assess the integrity of 6 covered segments on Line 132, including Segmei ng in 2002 and for Line 7 109 starting in 2003, and continuing until the San Bruno explosion. 8 158. 003 and again in 2008, as part of PG&E's PPIs, PG&E intentionally 9 raised for a two-hour period the pressure of Line 132 at least 25 psi above the normal 10 operating pressure the pipeline had experienced for decades in order to maintain a 11 current MOP for Line 132 without having to conduc bpart J pressure test. PG&E 12 undertook this practice without conducting any review of the pipeline's history, 13 including past leaks and the cause of such leaks, or verification of the pipeline's 14 specifications in order to assess whether intentionally increasing the pressure on Line 15 132 more than 25 pounds higher than the line had experienced in decades would affect 16 the integrity of the pipeline. 17 159. On July 23, 2009, Line 132, at a point north of Segmei , experienced 18 an unplanned pressure increase that exceeded that segment's 5-year 1 That 19 segment d a known manufacturing threat that was destabilized when 20 the pipeline experienced this pressure increai ;e knowledge of this pressure 21 excursion and the requirement to properly assess unstable manufacturing threats, 22 PG&E chose to assess that segment of Line 132 in 2009 using ECDA even though 23 PG&E knew that ECDA could not assess unstable manufacturing threats. 24 The Iiidii `' rfendaiits Cair1 li1 ' 1 To Obstruct The 25 stigation 26 160. The N'TSB is an independent federal agency dedicated to promoting 27 aviation, railroad, highway, marine, pipeline, and hazardous materials safety. 28 Established in 1967, the agency is mandated by Congress through the Independent ....................................... ... -67-___________________________________ VERI....................................................... VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00071 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 72 of 148 1 Safety Board of 1974 to investigate transportation accidents, determine the probable 2 cause of accidents, issue safety recommendations, study transportation issues, and 3 evaluate the safety of government agencies involved in transportation. The NTSB 4 makes public its actions and decisions through accident reports, safety studies, special 5 investigation reports, safety recommendations, and statistical reviews. 6 The NTSB began an investigation immediately after the San Bruno 7 explosion on September 9, 2010. NTSB investigators were on-site for approximately 8 two weeks after the explosion. Idition, NTSB investigators issued numerous 9 requests for information and documents, interviewed witnesses, examined the 10 ruptured pipe and the events leading to the explosion, and held three days of public 11 hearings. The NTSB issued a public report on or about August 30, and 12 concluded, among other things, that PG&I .egrity Management program was both 13 deficient and ineffective, and was a probable cause of the accident. 14 162. The NTSB's investigation revealed that among other deficiencies, PG&E's 15 records related to the establishment and calculation of the N ae 16 132 were incomplete and inaccurate. As a result, on January 11, the NTSB 17 issued three safety recommendations, two of which were designated "urgent." The 18 first urgent recommendation directed PG&E to "[alggressively and diligently search" 19 for records related to pipelines in HCAs that did not have the established 20 through prior hydrostatic testing. The second directed PG&E to calculate (based on 21 the records found in response to the first urgent recommendation) the valid I r 22 pipelines that did not have the > established through hydrostatic testing. 23 163. Additionally, in or about September 2010, through in or about December 24 2^ le NTSB sent PG&E a series of data requests concerning instances where 25 PG&E's planned and unplanned pressure increases exceeded the 5-year and/or 26 : of pipelines in HCAs. 27 164..... On February 22, 2011, as part of its response to the NTSB's data 28 requests, PG&E attached a version of RMI-06 that provided that PG&E would only ............. ....... ......... ... -68-___________________________________ V.............................................................iVATIME COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00072 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 73 of 1 consider a manufa.ctu.ring threat as unstable if the pressure on the line exceeded the 2 5-yearM y I" I r r '). The cover sheet to the 10% r i i ated 3 that it was prepared in February 2008, and approved in March 2008. 4 165. As set forth above, beginning in or about 2009, PG&E adopted the 5 practice documented in the 10% 'Version, which was in direct contravention of Section 6 192.917(e) and guidance issued by PHMSA. The consequence of this practice was that 7 PG&E did not prioritize as high-risk, and properly assess, many of its oldest 8 transmission lines in HCAs, including Line 132, that had never been hydro tested 9 because of the grandfather clause. 10 166. On April 6, 2011, PG&E sent a letter to the NTSB, signed by Defendant 11 "Belli in , .3, withdrawing the 1(F cion sent in February ! M daiming it 12 was an unapproved draft. The letter attached the original version of RML06 approved 13 in 2008, and a version of RML06 approved on April 5, 2011, neither of which included 14 i I tiguagt he ) ' f i-&E claimed it had recently discovered that the 15 10% Version submitted to the NTSB included the cover sheet for the original version 16 of RML06 approved in 2008, and that PG&E had no indication that the version with 17 was ever approved. 18 167. Defendant Hayes, who signed the letter, reported at the time directly to 19 Geisha Williams, who is on the Board of Directors of PG&E. Geisha reported directly 20 at the time to Pet n - e, who was PG&E Corp.'s CI lent, and Chairman of 21 the Board. Both Hayes and Darbee were identified by the Attorney as expected 22 trial witnesses at the criminal trial set to commence March 22,1 te 23 gove: nference Statement, filed February 22, 2016.12 Upon 24 information and belief, given the gravity of the NTSB investigation and the fact that 25 eight people died in the Sa no explosion, Hayes cleared his submissions to the 26 NTSB, including the February 22, 2 id April 6, 2011 submissions, with both 27 12 The government's February 22,2( nference Statement indicates that 28 Hayes' April 6, 2011 letter is "at the heart of' the obstruction ofjustice charge. ............. -69-___________________________________ VERI....................................................... VATIME COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00073 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 74 of 1 Williams, Darby, and the PG&E Coi ird h ectors before finalizing and 2 submitting them to the NTSB. Defendants and current Board Members Chew, 3 Derringer, Kimmel, Meserve, Miller, Parra, Williams, and Rambo, therefore, all of 4 whom were directors of PG&E Corp, at the time and responsible for the Company's 5 conduct with respect to the NTSB investigation, knew and approved of the misleading 6 submissions to the NTSB. 7 168. Moreover, the government has also deposed a former PG&E employee, 8 Leslie McNiece, who was hired after the 2f no explosion to clean up the 9 Company's records. McNiece reported to Defendant Christopher P. Johns, vcho was 10 President of Pacific Gas & Electric Company at the time and also a member of its 11 Board of Directors.13 McNiece testified that PG&E Management instructed her to 12 destroy reco ' w lating to the San Bruno explosion, and that. > .Iso found a 13 tell-tale pre-blast analysis of the relevant pipeline in the garbage at PG&E. The 14 government has listed McNiece as a witness expected to be called at the criminal trial 15 commencing March 22, 2016 in San Francisco. 16 169. Specifically, the U.S. Attorney has indicated in court filings in the 17 criminal case pending in San Francisco that, in order to attempt to fill r job 18 responsibilities of rectifying PG&E's highly deficient recordkeeping system after the 19 f mo explosion, she was hired to start a new department call ' rrmation 20 Management Compliance. The purpose of this neve department was to address the 21 highly deficient recordkeeping issues identified in t Iler-North Report. 22 i The ` attorney has stated that McNiece is expected to testify at the 23 criminal trial commencing March 22, 2 after drafting a new recordkeeping' 24 policy and presenting it to PG&E management, Defendant Christopher P. Johns told 25 26 27 13 Johns continued to serve as President of PG&E until Decemb ( ` I when he 28 retired. ................... VERI -70-___________________________________ VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00074 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 75 of 148 1 her that PG&E would not approve the policy.14 Johns stated to McNiece that if the 2 policy had been approved, PG&E would immediately be out of compliance. McNiece is 3 also expected to testify at trial about the pushback she received throughout her tenure 4 at PG&E from management, who did not want her to improve PG&E's recordkeeping 5 system. 6 171. Th ;ed States has also indicated that McNiece is also expected to 7 testify at the criminal trial about specific instances when she received specific 8 instructions to destroy documents, such as fr l&E V.P. of Gas Operations Sumeet 9 Singh, and the financially-motivated pushback she received when she attempted to 10 organize PG&E records or move them from an Iron Mountain storage facility. This 11 "pushback" is direct evidence of the Individual Defendants' violations of recordkeeping 12 deficiencies, including the specific conduct of the President of the Company, Defendant 13 Johns. 14 172. McNiece has also indicated that, among the PG&E documents she found 15 discarded in a dumpster, she found a Line 132 survey sheet wit tation on it 16 'which stated "leak info not in GIS." The notation was dated 12/8/2003. This note is 17 probative of the fact that PG&E's GIS system was deficient, that the Individual 18 Defendants were aware of the deficiencies, and that by discarding this origii 19 PG&E was failing to maintain records, as required, for the life of a pipeline. 20 173. Because of her efforts to do the right thing and bring PG&E into 21 compliance with the law, MIcNiece was laid off in 2014, while Defendant Johns was 22 still her supervisor and President of PG&E and a member of its Board. 23 E. 1' ir. i! dieted Due To The Individual Defendants' 24 Wrongdoing 174. On .April 1, 2014, Pack d Electric Co. was indicted on 12 federal 25 criminal counts related to the 2010 San Bruno gas pipeline explosion. The indictment 26 27 14 P See United States of .America Motions in Limine filed January 11, ii v. feet No.' 236, at p. 28 ............. - 71 -___________________________________ VER]...................................................... NATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00075 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 76 of 148 1 charged PG&E with failing to conduct required inspections that could have prevented 2 the disaster. 3 175. The indictment alleges that PG&E repeatedly violated the federal 4 Pipeline Safety Act. which mandates that operators maintain accurate records about 5 their gas pipes, identify risks to lines, and inspect or test when pipe pressures exceed 6 the legal maximum,. 7 176. The indictment alleges that, rather than follow the law, PG&E 8 "knowingly relied on erroneous and incomplete information" in avoiding the type of 9 inspections that could have exposed a badly manufactured seam weld on the gas 10 transmission line and saved San Bruno aster. 11 177. The indictment also alleges that, in the 54 years that the vreld leaked in 12 the ground beneath the City of S imo, PG&E never conducted an inspection that 13 could have detected it. In part, that was because it lost records that showed the most 14 basic characteristics of the pipe, including whether it had seams. 15 178. On July 30, 2 I 1 ae grand jury filed a Supersedii ' ictment that 16 greatly expanded the list of alleged crimef ddition to adding additional violations 17 of federal pipeline safety laws, the Supersedi ictment charges PG&E with 18 obstruction of the NTSB investigation. 19 179.....Defendant Hayes, who signed the letter, reported at the time directly to 20 Geisha 'Williams, who is on the Board of Directors of Pacific Gas & Electric Company. 21 Geisha reported directly at the time to Peter Darbee, who was PG&E Corp.'s CEO, 22 ident, and Chairman of the Board. Upon information and belief, given the gravity 23 of the NTSB investigation and the fact that eight people died in the Si mo 24 explosion, Hayes cleared his submissions to the NT eluding the February 22, 25 2^ id April 6, 2011 submissions, with both Williams, Darby, and the PG&E Corp. 26 Board of'Directors before finalizing and submitting them to the NTSB. Defendants 27 and current Board Members Chew, Cox, Herringer, Kimmel, Meserve, Miller, Parra, 28 'Williams, and Rambo, therefore, all of whom were directors of PG&E Corp, at the ............. ....... ......... ... 72 _ __________________________________ V.............................................................iVATIPE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00076 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 77 of 148 1 time, knew and approved oft leading submissions to the NTSB. 2 F. endaiits Breach The ` nd . alty By Causing The Company To Fil e r itement 3 180. On March nts Chew, Fowler, Kelly, Meserve, Parra, 4 Smith, Johns, Earley, Herringer, Kimmel, Rambo and Williams issued, caused to be 5 issued, and participated in the issuance of materially false and misleading written 6 statements and material omissions to shareholders that were contained in the i 7 Itatement (the "Proxy Statement") filed jointly by PG&E and PG&E Corp. The 8 :y soliciting materials included a proposal submitted by a shareholder calling for 9 the establishment of an Independent Board Chairman at the Company. Defendants 10 Chew, Fowler, Kelly, Meserve, Parra, Smith, Johns, Earley, Herringer, Kimmel, 11 Rambo and Williams caused the Company to include materials in t ixy 12 recommending AGAINST the proposal. 13 181. The Proxy Statement was false and misleading. The shareholder 14 proposal specifically stated that the proposal was necessary in order to strengthen 15 Board oversight of the CEO and other employees, in light of the fact that "PGiTE was 16 charged with 12 pipeline safety violations by the government for a 2 i itural 17 gas explosion that killed 8 people and left a crater the size of a house. The grand jury 18 indictment charg &E with knowingly and willfully violating the Natural Gas 19 Pipeline Safety Act by foiling to test and assess unstable pipelines to determine 20 whether they could fail. PG&E was also charged with keeping incomplete and 21 inaccurate records about the pipeline that exploded. PG&E was also flagged for its 22 failure to utilize an environment 'ement system, or to seek International 23 Organization for Standardization 14001 Certification for some or all of its operations." 24 182.....Defendants opposed this proposal in the proxy, falsely stating that the 25 proposal was allegedly unnecessary because PG&E's corporate governance policies 26 were already sufficiently robust and adequate to address the wrongdoing that had 27 occurred. The Defendants caused the following false statement to be included in the 28 ............. ....... ......... ... 73 _ _________________________________ V.............................................................iVATIME COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00077 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 78 of 148 1 oxy: 2 " It is in the best interests of the Corporation and its shareholders to have 3 a flexible rule regarding which directors may serve as Chairman. 4 PG&E Corporation's strong corporate governance practices - 5 including the requirement of an independent lead director with 6 specified duties - address the proponent's concern that the Board 7 cannot properly oversee the CEO if the Cl o serves as Chairman." 8 183. Defendant Johns signed the ! on "behalf of Pacific Gas & 9 Electric Company, and Defendants Chew, Fowler, Kelly, Meserve, Parra, Smith, 10 Earley, Herringer, Kimmel, Rambo and Williams approved t ixy on behalf of 11 PG&E Corp. 12 184. By causing the Company to issue false and misleading material 13 statements in the joint xy Statement, Defendants Chew, Fowler, Kelly, 14 Meserve, Parra, Smith, Johns, Earley, Herringer, Kimmel, Rambo and Williams 15 breached their duties of candor and loyalty. As a direct and proximate result of these 16 Defendants' wrongful conduct, the Company misled and/or deceived its shareholders 17 by falsely portraying the corporate governance principles of the Company as being 18 adequate and sufficient and "already addressing" the concerns of the shareholder 19 proposal regarding the need f aident Chairman in order to monitor the 20 CEO and address highly material safety and other violations by the Company. 21 G. The Inclivid" s - actants Were Aw? , merous "Red 22 Flag" Warnings of Safety-Relate >bl< Coiisciotisly Failed to Take Action 1 fety 23 24 1. The Iwlivicliial Defeiidan ed warnings of Line 132's imaceeptably risk of failure and kiiowiugly 25 created a high risk of catastrophic harm. 26 185. PG&E is one of the largest public utilities in the country, with over 15 27 million customers and after-tax net income of over $1 billion and assets of over $46 28 billion. Its vast northern and central California service territory requires an extensive ............. .......................... ... - 74-__________________________________ V.............................................................[VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00078 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 79 of 1 underground pipeline infrastruct if not maintained properly, threatens lives 2 everywhere. Yet, for decades, PG&E's corporate culture has emphasized financial 3 performance over customer safety, consciously disregarding industry pipeline safety 4 practices and willfully circumventing pipeline safety laws and regulations. While 5 PG&E's profi.t-fi.rst emphasis has no doubt served the financial interests of its highly- 6 paid executives, the deadly, devastating Si no explosion and fire of September 9, 7 2010, was a. predictable, preventable and reprehensible consequence. 8 186. Despite the fact that the 8 u.no pipeline that exploded had been in 9 operations for decades, PG&E spent little to no resources on required risk management 10 practices to ensure that it would not ring the rapid post-World War II 11 population expansion, PG&E constructed new gas lines, including Line 132, which 12 runs from Milpitas to San Francisco. In 1956, PG&E relocated Segment 180, a 1,851- 13 foot, 30-inch diameter gas transmission pipeline. `The pipe was made of flat steel that 14 was rolled and then welded together. The section of pipe also included an. otherwise 15 unknown. configuration of six pups manufactured from an unknown source.16 16 187. >, PG&E knowingly buried its pipeline in a subdivision intended 17 for development into a residential neighborhood. Government standards at the time 18 required the longitudinal seams to be welded from both the exterior and the? interior of 19 the joint, penetrating the entire depth of the pipe and overlapping one another. 20 Contrary to these legal requirements, Segment 180's pups contained seams with only 21 an exterior weld, a defect visible to the eye. PG&E engineers knew or should have 22 known that such incomplete seams were vulnerable to rupture from pressure 23 fluctuations. 24 188. Despite this knowledge, PG&E failed to keep accurate records required 25 26 27 16 PG&E engineers cannot identify any other project that incorporated such a 28 configuration of six short pieces of pipe. ....................................... ... ..........................-75-___________________________________ VERI VA.TIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00079 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 80 of 1 by federal regulations concerning the installation.16 Moreover, even though. PG&E 2 knew that records regarding its pipeline system were incomplete and inaccurate, it 3 relied on these records to make risk assessments that resulted in unwarranted 4 conclusions about pipeline safety. Rather than follow federally mandated integrity 5 verification measures mandated by its lack of records, PG&E managers simply ignored 6 the Company's lack of information and assumed the pipeline was safe. 7 189. Egregiously, the IndividualDefendants caused PG&E to repeatedly fail to 8 perft 11- drostatic tests or to inspect f ' of Line 132 as industry practice, 9 and later, f yulations, required. Beginning at its installation and continuing 10 throughout its nearly fifty-five year life, PG&E repeatedly avoided required hydrostatic 11 testing of Line ing in a culture in which safety was optional, these decisions 12 were made in order to protect PG&E's bottom line, despite the risk to human life and 13 health. As such, PG&E consciously circumvented these safety regulations and the 14 expensive hydrostatic tests they required by artificially spiking pipeline pressure to 15 create the illusion of pipeline integrity.17 Had PG&E conducted the required tests and 16 inspections, the defect would have been discovered and the damage avoided. 17 190. The NTSB determined that the immediate cause of the rupture was a 18 two-hour increase in the pipeline pressure above its m.aximum. actual operating 19 pressure. During the course of maintenance at PG&E's Milpitas terminal, backup 20 systems lost power. This power loss caused valves to move to a wide open position, 21 resulting in dangerously-increased pipeline pressures. High pressure alarm.s were 22 triggered for lines in and out of Milpitas, including Line 132. Around 6:00 p.m., the 23 pressure on Line 132 near the rupture site hit a maximum, of 386 pounds per square 24 inch, significantly in excess of the maximum actual operating pressure. 25 16 For example, this pipe was incorrectly des ne risk management 26 records as seamless 30-inch diameter steel, despite PG&E engineers' knowledge that 27 30diich-seamless pipe did not exist in t 17 No other pipeline operator artificially spiked its pipelines in such a manner as 28 PG&E. ' ' ' " ' ' ....................................... ... - 76-___________________________________ VERI....................................................... VA.TIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00080 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Pag- A M G 1 191. Minutes later, one of Line 180's defective pups ruptured, creating a 72 foot 2 by 26 foot crater and igniting the resident! uno neighborhood. PG&E took 3 o'' ir and a half to shut off the gas. Had PG&E installed automatic shut-off 4 valves on Line 132, the gas could have been quickly shut off, reducing fire damage. 5 Due to the lack of these shut off valves, PG&E responders faced delays dispatching 6 and driving through congested streets to collect necessary shut-off tools th I&E in 7 order to activate the manual shut-off valves. 8 192. "Natural gas pipeline engineering design employs, at its core, the goal of 9 zero significant incidents. That is, if a pipeline is constructed, operated, and 10 maintained according to its design, then it should operate without safety risk to the 11 public - notwithstanding it transports a combustible product because the pipeline is 12 buried, it is not susceptible to direct inspection on an ongoing basis." Tier words, 13 average or pretty good isn't good enough. This standard is also state lave. See Public 14 Utilities Code section 451.18 Yet rather than adhere to this standard, PG&E placed 15 profits over safety. For decades, PG&E has failed to do what was necessary and legally 16 required to protect the safety of its customers, either because of expense or perceived 17 trouble. 18 193. The Individual Defendants knew but consciouslydisregardedthe "probable 19 dangerous consequences" of these failures - a pipeline explosion with loss of life and 20 catastrophic damage. During the Relevant Period, PG&E's officers and its Board of 21 Directors have known of the need to test and replace Line 132 yet consciously failed to 22 do so, as demonstrated by the following: 23 As far back as 1984, PG&E managing agents, including the head of Gas 8 24 the PG&E Management Committee, were told that 25 26 18 The section reads in part: "Every public utility shall furnish and maintain such adequate, efficient, just, ai sonable service, instrumentalities, equipment, and 27 facilities, including telephone facilities, as defined in Section 54.1 of the Civil Code, as are necessary to promote the safety, health, comfort, and convenience of its patrons, 28 employees, and the public." ............. - 77 -__________________________________ U............................................... NATIVE complaint' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00081 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 82 of 148 1 PG&E failed to allocate adequate funds to "assure" system integrity, and that the risk of failure escalated as these facilities age. 2 1 1987, Bechtel warned the head of - , . I r grity that a project 3 for the collection of data for PG&E's gas transmission lines had identified 4 various pipeline segments without records to validate information regarding the characteristics of PG&E's pipelines; Bechtel proposed 5 digging up these pipeline sections to obtain missing information; however PG&E refused to spend the money to dig up the lines. 6 1 i >out 2000, PG&E's managing agents transfe u 1 I r 7 transmission lines into its Risk Management Program, which PG&E alleged was to prioritize a: nage risks "but was in effect to avoid 8 necessary compliance expenditures for line replacement and pressure 9 testing. 10 PG&E officers as well as its Board of Directors were aware of the need to test and/or replace its aging pipelines, include n i , more than two 11 decades "before this incident. 12 PG&E's head of Gas System Design proposed hydrostatically testing Line 1 re than 30 years "before this explosion. 13 14 PG&E managing agents were warned that there were over 1.7 million feet of transmission lines in populated areas that had no hydrostatic test 15 records, including Line 132. 16 PG&E's Management Committee was informed that it had deferred over 17 $ ion in pipeline projects involving safety, code compliance and systems reliability. 18 PG&E's head of Gas System Design alerted PG&E's officers and Board in 19 the late 1970s and early 1980s of the need to replace PG&E's aging gas pipelines and proposed instituting the Gas Pipeline Replacement 20 Program ("GPRP") to facilitate the replacement. 21 PG&E managing agents including PG&E's Management Committee and 22 Officers were warned that pipelines installed prior to 1950 (PG&E pipe for Segment 180 had "been identified with pipe held as sal" pe 23 acquired as early as 19 18), were "suspect" and "required attention." 24 984-1985, PG&E Officers and its Board of Directors were advised that Line 132 needed to "be replaced along with two other gas 25 transmission lines serving the San Francisco Bay Region. 26 PG&E Officers and the Board understood the most immediate priority for replacement of pipelines was in areas where the lines were 30 to 100 feet 27 from residences, and that the lines in these areas should "be replaced in 5 7 years. 28 - 78-___________________________________ VERI....................................................... VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00082 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 83 of 148 1 The head of Gas System Integrity warned the PG&E Management Committee that the foreseeable risk of failing to commit to the 2 replacement of aging pipelines was death, injury and property damage to those living near the pipeline. 3 PG&E's officers and managing agents were warned of the dangerous 4 consequences of injury, death and/or property damage that would occur to 5 heavily populated areas if pipelines like line 132 were not replaced. PG&E misrepresented to the terminating their "GPRP" to 6 replace it with their Risk Management Program ("RMP") would not result 7 in significant cuts to pipeline safety and reliability. 8 Secretly, in the Spring of 1999, t ' " l&E GT&S Capi I " ign < > "tv indicated that use of the Risk M gram vcould save PG&E 9 $60 million over the life of the GPRP. 10 ict, the Risk Management Program, became a cost reduction measure, resulting in PG&E replacing only miles of pipeline, as opposed 1 11 miles of pipeline that would have been required had the Replacement Program, instituted in 19 rained in place. 12 'ii ing of 2001, PG&E's California Gas Transmissi v )gram 13 indicated that its Risk Management Program would save PG&E over 14 $200 million over twenty years by avoiding regulatory and safety required pipeline verifications and/or risk management analysis of all gas 15 pipelines, utilizing smart pigging or hydrotesting in high consequence areas to comply with federal, law. 16 From 2008 to &E placed excessive emphasis on financial goals 17 set by executi nagement in its "budgeting process. At the same time, PG&E reduced compliance and other Integrity Management expenses by 18 consciously deciding to defer projects, in particular by del vn 19 grading assessment methods to inadequate and less costly techniques; moreover, PG&E ceased preparing metrics, goals or annual reports for its 20 gas transmission pipeline Risk Management Program. T1 rland 21 CPUC review concluded that risk management continued to be a. separate program "in name only after 2004." 22 The approved budgets for Integrity Management were slashed nearly 23 50% from, what was requested in 2008 for its compliance and integrity activities, and PG& ew noted that "expected flat 24 funding in 2009 and 2010 wdll drive the program into non-compliance in 2012." 25 Budget cuts for safety programs continued in 2008, 2009 and 2010. 26 Actual 2008 for compliance and safety funding was 35% below the initial 27 request and 16% below "minimum, funding to achieve 2012 compliance." PG&E's maintenance budget wa tow the initial, request and 25% 28 below the "recommendt um level." .................... VERI - 79-___________________________________ VA.TIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00083 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 84 of 1 Integrity Management budget cuts for 2009 resulted in deferring or eliminating replacement of over 44 miles of gas transmission pipelines in 2 UCAs. PG&E also deferred 41 miles of integrity management 3 assessments of gas transmission pipelines. 4 The PG&E 2010 budget was reduced, for the third straight year. The 2 idget was set at $6.7 million below already constrained 2009 5 actual expense levels. 6 194. According to documents released by The Utility Reform Network 7 ("TURN"), PG&E contemplated replaci ot segment of Line 132 north of San 8 Bruno in 2f wever, alleges that PG&E deferred maintenance on a wide 9 variety of its pipelines and equipment in recent years. At the time of the 2007 request, 10 PG&E had already identified that section of Line 132 as one of the 100 riskiest 11 pipelines in PG&E's system. PG&E was awarded $5 million of ratepayer money to 12 replace the line. The replacement was scheduled to be completed by October 2009. 13 This work was included in a list of projects that PG&E submitted to the o 14 justify a rate-hike request related to natural gas transmission and storage. Rather 15 than conduct the repairs, PG&E repurposed t ney and left the old segment in 16 place. Especially troubling is that, according to TURN, in 2009 PG&E spent nearly $5 17 million on bonuses for six of its top executives, nearly the same amount that PG&E was 18 awarded to replace an extremely risky segment of Line 13! his case, PG&E did not 19 just put profit before safety; it put personal benefit before safety. 20 195. Even worse, that same project appeared again in 2009 on a list of projects 21 that PG&E submitted to "Capital Project Summary." PG&E again 22 sought i. lion for the same project. PG&E justified the project and second request 23 for $5 million in funding by characterizing the risk of failure to replace Line 132 as 24 follows: 25 e replacement of this pipe does not occur, risk associated with this 26 segment will not be reduced. Coupled with the consequences of failure of this action of pipeline, the likelihood of a failure makes the risk of a 27 failure at this location unacceptably high. 28 196.....One PG&E document noted in an apparent reference to an explosion that .................... ......... ... ..........................-80-___________________________________ v.................................................................... plaint' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00084 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 85 of 148 1 it "has a potential impact radius of i st and is loca i . teavily urbanized 2 area 009, the $ i > r I lion was awarded again to PG&E and again the project was 3 deferred. Line 132 has been a concern for years, PG&E knew that the risk was 4 "unacceptably high" and could result in a deadly explosion. The Individual Defendants 5 knew of the risk, and w ing that risk to obtain more money from ratepayers, yet 6 they continued to delay necessary repairs that they knew about. 7 197. ' arly 2009, PG&E became aw i - ' "significant amounts" of 8 compressor oil and water was accumulating in Line 132 and three other transmission 9 lines in the Peninsula area south of San Francisco connected to the Milpitas terminal. 10 The liquids were, according to Pacific Gas & Electric Company, "an ongoing concern for 11 internal corrosion." The liquids were appearing in filters in distribution stations 12 served by the pipelines, and originated at the Milpitas terminal. The likely cause was a 13 mechanical failure. 14 198. Pooling liquids within a gas transmission pipeline c a 15 microbiologically induced corrosion, which can rapidly corrode a pipeline and degrade 16 its integrity, leading to catastrophic failure. 17 199. PG&E did not use a special internal probe called a pipeline inspection 18 gauge, or "pig," that can measure pipe thickness and detect internal corrosion and 19 cracking using ultrasound vibrations or magnetic field waves, to cle or 20 check for internal corrosion because the pipeline had too many bends, which 21 themselves can be a location for liquid pooling and corrosion. Nor did PG&E use 22 hydrostatic testing with water pressure, which would have required shutting down the 23 line. PG&E instead relied on direct assessments to inspect for internal corrosion, to 24 the extent it conducted such inspections. "Direct assessment" means testing for 25 corrosion by running an electric current between two measuring devices inserted into 26 the ground. If corrosion is present in the pipe, a weaker than normal signature should 27 register. The test is not completely effective for detecting corrosion, and it is it not 28 effective in finding metal fatigue, stress corrosion, cracking, excessive gas line ............. .......................... ... 81 _ __________________________________ V.............................................................[VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00085 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 86 of 148 1 pressure, and other dangers. Most experts consider it an outdated technology. 2 2 ' ember 20< &E installed separators at its Milpitas terminal to 3 stop the flow of compressor oil into its transmission pipelines. ersity of California 4 - Berkeley Professor Robert Bea said the pictures of the ruptured S mo pipeline 5 "clearly show internal corrosion." 6 201. PG&E did not conduct mandatory risk assessment on Line 132 or did so 7 inadequately, because none of the PHMSA-identified "additional measures" (such as 8 installing ASV, RCV, or a computerized monitoring and leak detection system, or 9 replacing segments with heavier wall pipe) were implemented despite the obvious need 10 to take steps to prevent or mitigate a catastrophic leak in PG&E's aging metal pipes 11 carrying extremely flammable natural gas at high pressure through, densely populated 12 S mo, a risk that PG&E knew veas "unacceptably high." 13 202. Especially troub -&E's failure to determine "based on a risk 14 analysis, that an ASV or RCV would be an efficient means of adding protection to [San 15 Bruno] in the event of a gas release." All the factors that must be considered - 16 swiftness of leak detection and pipe shutdown capabilities, the type of gas being 17 transported, operating pressure, the rate of potential release, pipeline profile, the 18 potential for ignition, and location of nearest responsible personnel. shot re led 19 PG&E to conclude that ASV or RCV were required on Line 132. Moreover, PG&E 20 completely ignored the lesson it should have learned from, the l. a Francisco gas 21 pipeline rupture about the need for fast pipeline shut-off capability. 22 203. The enforcement action taken by the reports from the NTSB, and 23 the publicly-known concerns about PG&E likely represent a small percentage of 24 noncompliance issues of which PG&E and the Individual Defendants were aware or 25 should have been aware of, because pipeline operators, such as PG&E, have primary 26 responsibility for safety management within HCAs. 27 204. As of 2010, considerably less than 10% of PG&E's HCA natural gas 28 transmission pipelines were inspected by use of pigs. ............. .......................... ... -82-___________________________________ V.............................................................iVATIME COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00086 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 87 of 148 1 205. PG&E's safety budget cuts, project safety deferrals, adoption of ineffective 2 and less costly assessment methods and decisions to dodge compliance with regulations 3 and pipeline industry standards, guides, and recommended practices were not the 4 result of profitability constraints. PG&E revenues exceeded the amount needed to earn 5 the authorized rate of return 'by $430 million. The low priority PG&E gave safety and 6 reliability requirements in the 2008-2010 "budget process was well outside standard 7 industry practice. 8 206. Rather, PG&E budget cuts for safety related projects were motivated by 9 financial performance. Relatedly, PG&E executive officer compensation for the period 10 200C eriod vrhen PG&E terminated its GPRP and adopted the RMP) was 11 over $281 million. By comparison, the cost to hydrotest the one-third mile Segment 12 180 of Line 132 would have been approximately $125,000. Public filings also show 13 that in early 1 cE chose to spend $45 million of ratepayer dollars in a failed bid 14 to block public power. This money could have 'been used and should have been used to 15 repair pipelines in the San Francisco peninsula that PG&E knew could explode and 16 'where the risks were "unacceptably high." 17 2. The ' ' ' a actors were a . the serious 18 safety, operational, maintenance and cu] &E oblems 19 207. 11 >r to the 2 a : no explosion, the Boards > n ectors of both 20 PG&E Corp, and PG&E were fully aware of the serious safety, operational, 21 maintenance and cultu fblems at PG&E. The Boards ofDirectors of PG&E Corp, 22 and PG&E sponsored investigations and reviews revealing that PG&E was in a "crisis" 23 mode due to lack of" process focus, quality control, operatic scipline, planning and 24 resource allocation. Between at least 2007 and 2< le Boards at PG&E Corp and 25 PG&E were specifically infbriiied of and knew about the following: 26 Assertions of management improprieties in PG&E's gas operations by 27 employees at the 2007 Annual Shareholders' Meeting; 28 ............. .......................... ... -83-___________________________________ V.............................................................[VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00087 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 88 of 148 1 The explosion and failure of network transformers in July 2007 and the subsequent discovery of maintenance and engineering breakdowns. 2 3 A business transformation failure in October of 2007 that impacted primarily vrork flow processing in T&D. 4 5 System-wide problems in the recordkeeping relating to gas matters, such as leak surveys, maintenance process records, and emergency valve and 6 regulation station records. 7 Repeat etings with the City and County of San Francisco due to 8 explosions and significant service outages. 9 Multiple Direct Current ("DC") system failures in 1 ancisco, which culminated in the Polk and O'Farrell event and which led to PG&E's 10 retirement of its extremely old DC system. 11 ' 008 and 2009, t > " I myon electric yard events relating to high 12 voltage bushing explosions and transformer issues. 13 The Rancho Cordova explosion on December 24, 2008 and the subsequent 14 NTSB investigation. 15 The accelerated leak survey from late 2008 through early 2010, which resulted in record levels of work being executed in a compressed 16 timeframe. 17 Findings and records problems relating to Transfer Ground Rocker Arm. 18 Main ("TGRAM"), 1 i- . i i- - 4 < - n > > ` MRAL") oil 19 filled switches. 20 3. &E has been plagued by safety problems 21 208. The Individual Defendants have been well aware of PG&E's long history 22 of incidents with its pipeline networks, beginning with problems in 1980s and 1990s 23 that accelerated throughout the first decade of the 2000s. Much of this history has 24 been documented by regulatory authorities. 25 209. As early as 1981, for example, a 16-inch natu s main operated by 26 PG&E in downto . n Francisco ruptured. This caused the > I , s that 27 contained highly toxic PCBs. It took workers nine hours to stop w of gas because 28 ................. .................................. .... ................................................... V [VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00088 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 89 of 148 1 of difficulties in closing the manual shut off valves. 2 1984, the Manager of Gas Systems Design for PG&E made a request 3 directly to PG&E's Board of Directors to spend $ ' Ilion on pipeline replacement 4 year that PG&E had made over $1.8 billion. The Manager warned the PG&E Board of 5 the severe negative consequences of failing to adopt the GPRP. PG&E's Manager also 6 warned the PG&E Board that the foreseeable risk of failing to commit to the 7 replacement of aging pipelines was death, injury and property damage to those living 8 near the pipeline. He concluded by providing the PG&E Board with several 9 alternatives to evaluate. st alternative was to do nothing; however, PG&E's 10 Manager warned that this alternative "will eventually result in a reduction in safety 11 and reliability of gas service to customers. If a program to replace this aging piping is 12 not adopted, only a small portion will "be replaced on an unplanned basis as this piping 13 deteriorates in the future. Doing this work on an unplanned basis will be at least 25% 14 more costly." The second option was a thirty-year program with an estimated total cost 15 of $1.52 billion or a twenty-year program with a higher cost in the initial years. The 16 PG&E Board chose the least burdensome approach and approved the program for three 17 years because "no exception to the budgetary process seems warranted." After three 18 years, the PG&E Board was to reevaluate the usefulness of the program. 19 87 letter to PG&E, the outside company contracted to collect the 20 pipeline data for the GPRP advised that, because of inadequate recordkeeping 21 practices, information on t urer, type of soil and condition of pipe would be 22 hard to obtain unless the pipe is uncovered. However, PG&E chose not to uncover the 23 pipe because of cost considerations. 24 pproximately 2000, the pipeline replacement program was shifted 25 under the Risk Management Program ("RMP"). The RI suited in replacing only 26 twenty-five miles, as opposed to the one hundred sixty-five miles of pipeline that would 27 have been required under the 19 01, PG&E's California Gas 28 Transmission Program indicated that its RMP would save PG&E more than $200 ............. .......................... ... -85-___________________________________ V.............................................................iVATIME COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00089 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 90 of 148 1 million over twenty years by avoiding regulatory and safety required pipeline 2 verifications and/or risk management analysis of all gas pipelines and avoiding smart 3 pigging and hydrotesting in high consequence areas as necessary to comply with 4 federal law. 5 213. Christopher Hart, the 'Vice Chairman of the NTSB, said that the agency 6 had put PG&E on notice regarding issues with manual shut off valves. Nevertheless, 7 documents show that PG&E, for at least 20 years, has failed to spend the funds 8 required to replace aging gas pipelines or install modem equipment such as automatic 9 shut-offvalves, which would have significantly reduced the fire damage following the 10 S f mo explosion. `The Individual Defendants were aware of ;ed for repairs 11 and chose not to pay for those repairs. 12 214. ' I >, tl admonished PG&E for collecting more funds from 13 ratepayers to replace gas transmissions than it actually spent for those tasks. A utility 14 commission i- t i- t . i 15 vrrote the following in f - f ! : vision on 15 PG&E's requested gas and electric rates: "Despite consistent under spending in 16 previous years, we granted PG&E's full funding request. . . on the basis that PG&E 17 should continue replacing old pipelines ickly as possible' in the interest of safety." 18 The commission member also explained, "We stated our expectation that PG&E should 19 use the authorized funds for their intended purpose and even accelerate the pace of the 20 program.," adding "[b]etween the time we issued the last general rate case decision and 21 the filing of this one, PG&E has fallen short of our stated expectations." 22 215.....PG&E had requested and been granted the right to continue to charge 23 ratepayers high rates purportedly for repairs even though PG&E had a history of 24 underfunding its pipeline operations and safety. This state of affairs continued as 25 PG&E persistently failed to spend the money it had been approved on pipeline 26 operations, maintenance, and safety. This happened despite the repeated notices and 27 warnings to PG&E to increase and improve its spending on pipeline operations, 28 maintenance and safety. The Individual Defendants were aware of these warnings. ............. ....... ......... ... ______________________________________ V.............................................................[VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00090 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Pag< 148 1 1998, the CPUC reported that PG&E had a history of collecting funds 2 for repairs and diverting those monies for other purposes. In that 1998 report, the 3 CPUC found that PG&E had collected $77.6 million that was supposed to "be spent 4 trimming trees near power lines, which is important for safety purposes, and used 5 those monies for other reasons. 6 217. From 2004 through 201 lifornia. gas utilities tallied nearly 700 7 "probable violations" of federal or California state pipeline safety rules, from shoddy 8 maintenance records to worker erim ' ' ridi I dants were aware of these 9 serial violations. 10 218. From 2004 through. 20l cited 410 times for unsafe practices 11 in its gas operations, whereas all the other utilities in California, combined were cited 12 only 287 tim.es. During that time period, although. PG&E operated only 41% of the gas 13 pipelines in California, it was responsible for 59% of the probable violations. The 14 Individi dants were aware of these violations. 15 219. According to federal safety data, between 2004 and 16 .reportable incidents than any other gas delivery company in the United States. A 17 reportable incident, according to the PHMSA, is an incident that results in more than 18 $50,000 of property damage, injury requiring hospitalization, or des ividual 19 Defendants were aw this embarrassing track record. 20 2 - I 05, a residen * , I os was destroyed b sural gas 21 explosion that was caused by corrosion in a PG&E pipe installed in 19* 22 incident resulted in property damage and personal injury to the occupants of the 23 residence, resulting in $46 lages. The subsequent investigation identified 24 pipe corrosion as the cause of the explosion. The Individual Defendants were aware of 25 this explosion and its cause. 26 4. The Individual Defendant. truings 27 about iiiadequate recordkeeping s bE 221. PG&E internal corporate memos reveal that idants knew, no 28 -87-__________________________________ V.............................................................[VA.TIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00091 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 92 of 148 1 later than 1993, that PG&E was losing track of documents for its gas-transmission 2 system and that a catastrophe was not only possible, but likely, which would result in 3 serious financial and reputational harm to PG&E, not to mention potential property 4 damage and loss of life. 5 222. These internal memos came from Larry Medina, PG&E's then-head of 6 information and records management. 7 2 ember 1992 memo, Medina warned PG&E's senior executives that 8 PG'&E was creating potentially "incomplete or inaccurate" records. Medina urged the 9 company to devote more money and staffing to the problem,. Medina went to PG&E 10 first to warn of his concerns, but he was ignored. The following is an excerpt from the 11 Deceml >2 Medina memo: 12 One thing that will become apparent when reviewing this document is that many of the functions that were transferred to the :h 13 headcount and funds) have not been performed or kept current for some 14 time now. Prime examples would be; tl eline History files for Stre 1 : ar < ssiire Reports for r ismission lines, the 15 regular issuance of Gas Standards, the Estimator's manual and a 16 decision made jointly by the formal transfer of responsibilities for the Mapping function to no longer update or keep 17 current the Pipeline Plat Sheets, due to the extensive backlog and the perceived lack of importance of the data reflected on the drawings. 18 The failure to maintain the data formally on Sheets and the 19 decision not to generate Plat Sheets for new work may be costly to PG&E in the future and it may be difficult to defend the non-existence of the 20 data. Recent changes placed the responsibility for maintaining the data 21 on tl isions and/or Regions, by continuing to "pencil post" any changes to the last versions of the Plat Sheets issued to them. 22 23 2 March 1993 internal PG&E company memo, Medina further warned 24 PG&E executives about the "ripple effects" of a company reorganization that was going 25 on at PG&E in that time period. .As part of that reorganization, PG&E eliminated a 26 unit in the company that was responsible for tracking pipeline records. .As Medina 27 warned in his March 1993 memo, some critical reco: idy been lost. .As the 28 memo goes on to state, PG&E's recordkeeping functions "have not been performed or -88-___________________________________ V.............................................................[VA.TIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00092 Case 3:16-cv-00973 Documenti Filed 02/27/16 Page 93 of 148 1 kept current for some time now." Amongst the records that were not maintained were 2 results for tests of pipeline strength, obviously critical information to preventing 3 pipeline explosions and ensuring public safety. 4 225. The memo from Medina also warned that system maps with crucial 5 information about pipelines were not being updated because of "the perceived lack of 6 importance of the data." This directive came from the top leadership of PG&E. As 7 Medina went on to say, the failure to keep such information may be "costly to PG&E in 8 the future, and it may be difficult to defend the nonexistence of this data." 9 226. When Medina's memos were provided to PG&E's executives, they were 10 ignored, and Medina's position in the company was eliminated. 11 227. The two memos from. Medina wa "&E's top management of the 12 serious recordkeeping problema were publically released by the CPUC in the aftermath 13 of the S mo pipeline explosion. 14 228. Years later, PG&E Senior Gas Engineer Todd Arnett admitted in a 15 deposition that PG&E's recordkeeping was notoriously incomplete and inaccurate and 16 that this issue was raised to t t levels of the company. Arnett also testified 17 that PG&E's incomplete and inaccurate records affected the quality of the decisions 18 engineers were making in conducting risk assessments. Arnett admitted that it was 19 well known at PG&E prior to the 2010 San Bruno explosion that the Geographic 20 rmation System ("GIS"), a recordkeeping database used to keep track of the aging 21 and quality of the pipes, was incomplete and inaccurate. 22 229. As set forth above, the 2010 San Bruno explosion was suit of an 23 incomplete seam weld in a pipe that PG&E claimed it did not know was part of the 24 line "because its database listed the pipe as "seamless." The importance of accurate 25 recordkeeping is critical to ensuring the safety of the public and to ensure that PG&E's 26 gas transmission network is safe and secure. Because of the inaccurate recordkeeping, 27 PG&E never investigated the seam weld on the pipe because its records indicated 28 there was no seam. The fact that the Ind dants knew that recordkeeping ............. .......................... ... -89-___________________________________ V.............................................................VATIME COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00093 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 94 of 1 was incomplete and inaccurate is, therefore, directly linked to the gas pipeline 2 explosions that have caused PG&E significant harm. The fact that such, deficiencies 3 were widely known throughout the Company for over a decade prior to the S mo 4 explosion, while Defendants refused to act to remedy this error, is also directly linked 5 to the gas pipeline explosions that have caused PG&E significant harm. PG&E's own 6 senior gas engineers, as Arnett admitted, knew that they were making difficult 7 decisions based on incomplete and inaccurate information, a situation that the 8 Defendants knew about and condoned. Arnett's testimony confirms what Medina had 9 identified in memos as early as 1992. 10 230. i . re aftermath of the 201 . . f o explosion, PG&E has publicly 11 admitted that it still does not have complete records vouching for the safety of about 12 500 miles of gas transmission pipeline running in and near urban areas. 13 231. Federal and California state investigators have found that PG&E had 14 inaccurate or nonexistent records for much of its more than 1,000 miles of urban gas 15 transmission lines. 16 232. sspon.se to the release of the Medina memos, PG&E spokeswoman 17 Brittany Chord said only 1; ate's decision to make the memos public "speaks 18 for itself," and did not directly address their contents. 19 233. Representative Jacl (D-San Mateo), in describing Mr. Medina's 20 memos, stated, "[ y Medina] was alerting the leadership that if they pursued 21 the route they were heading down, it would be very detrimental, that [PG&E] had to 22 take safeguards to make sure the system vcas safe." 23 234. Representative Speier went on to say that "[i]t underscores what we have 24 already come to find out: safety was not in the lexicon at PG&E before the explosion. It 25 was a second thought or a third thought, and the recordkeeping was and is in 26 shambles." 27 /// 28 /// -90-__________________________________ A............................................... NATIVE complaint' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00094 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 95 of 1 5. The Individual DefeudaE. . 'ed serie g 2 problems at PG&E that were ident feE audits 235. 007, PG&E conducted an internal safety audit of its Sonoma County 3 resident s distribution system. The audit report revealed major issues with hour 4 PG&E reported gas leaks, including falsification of records and inadequate training of 5 inspectors. The problems were of su everity that PG&E followed up with 6 another survey, which found gas leaks in 28 of the 32 residential areas that were 7 tested, including all four of the resident fribution lines in the Peninsula area 8 south of San Francisco. The underreporting of gas leaks was a known problem at 9 PG&E for years and the entire PG&E Board of'Directors knew of this problem no later 10 than May 2007. 11 236. William Marcus, a principal economist for JBS Energy Inc. testified before 12 that "[w]hat happened is that Pacific Gas and Electric Company's gas leak 13 detection and repair program fell apart." 14 237. 2008, regulators notified PG&E that .it was not properly tracking 15 external corrosion problems on pipelines and were not ensuring that the individuals 16 performing this work were properly qualified. 17 238. )8 audit of PG&E's Sacramento division, regulators noted that 18 PG&E failed to meet its deadlines for fixing leaks or inspecting repairs in 23 instances 19 over two years. That audit also revealed that PG&E could not prove they were doing 20 annual drills on shutting down gas during emergencies. 21 239. ! - - . 2008," - < nducted an audit of PG&E's Fresno division 22 and concluded that PG&E did not have sufficient training and/or appropriate 23 equipment for its workers to deal with outdoor pipeline leaks. That safety audit, 24 conducted under the authority 5, included a review of the Fresno division's 25 records and involved a field inspection of various segments of its gas distribution 26 systems. The audit found a number of major violations of safety regulations 27 established by PHMSA. 28 - 91 -_____________________________________________ VERI....................................................... VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00095 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 96 of 148 1 240. The audit also found that PG&E's procedures did not define what 2 constituted a "hazardous" leak, meaning that there were no standards for PG&E field 3 service representatives to determine the severity of outdoor leaks in response to 4 customer calls about the smell of iddition, the procedures did not provide for or 5 require field service representatives to be qualified in the use of'gas detection 6 equipment or to possess knowledge needed to properly grade an outdoor leak. 7 Consequently, field service representatives were left on their own to make subjective 8 decisions, without being able to rely on any standards, regarding to severity of outside 9 leaks and whether or not to notify on-call construction personnel. 10 241. The audit revealed issues with PG&E's corrosion control record keeping. 11 CPUC's inspector expressed frustration w &E, noting that the company had 12 promised nearly two years earlier to fix the corrosion problems, but failed to do so. 13 2 n response, three months after being cited for these violations, PG&E 14 promised to update its protocols before the end of 2008 to "better define "hazardous" 15 leaks, and stated it would negotiate with the labor union representing field service 16 representatives and would add grading outdoor leaks to their job classification and, if 17 successful, to train, qualify, and provide them cessary equipment. 18 243. PG&E also promised to conduct a "special survey" to detect gas leaks as a 19 result of a 2007 internal survey and the 2008 CPUC audit. Under this survey, it would 20 acceleiv 11; i- . ndatory surveys that were due in 2011 and ` , o that they would all 21 be completed by the end of 2010. After the CPUC had determined that PG&E had 22 conducted inadequate surveys of gas leaks for decades, PG&E finally decided to rush 23 through surveys. 24 244. According to PG&E's 2009 Annual Report, it had incurred "approximately 25 $100 million of costs to perform accelerated natu ak surveys and associated 26 remedial work" which according to the 20( 4, was expected to be completed in 27 April 2( owever, information discovered years after the San Bruno explosion in 28 2^ .owed that PG&E did not meet its obligations. PG&E again began downgrading ............. .......................... ... -92-___________________________________ V.............................................................[VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00096 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 97 of 148 1 the amount of money it would spend on gas leak surveys in the months leading up to 2 the tragic San Bruno incident. Moreover, the required gas leak surveys did not occur 3 by d promised. 4 October 2008, CPUC engineer Dennis Lee stated publicly that PG&E 5 was not keeping proper logs of pressure problems in the gas distribution system. 6 246. The Individual Defendants were aware of regoing audits and 7 findings. 8 6. :'s executive leadership was warned of catastrophic; risk. ] continued to ignore and fail 9 to prioritize operational safety at PG&E 10 247. PG&E was well aware of serious problems with the risk management 11 policies at PG&E. 2007, an internal PG&E report identified the fact that 12 PG&E "lacks a well-defined, documented risk policy/standard at the enterprise level 13 that 1) explains PG&E's overall risk assessment methodo] es the lines of 14 business roles and responsibilities, 3) specifies the requirements for performing and 15 documenting risks, 4) links risk assessments to controls, selfiassessment, reviews and 16 audits, and 5) specifies the requirements for metrics to track the risks." The internal 17 PG&E report also found that "Energy Delivery and Engineering & Operations do not 18 have an integrated, documented, consistent approach with clear organizational roles 19 and responsibilities for dealing with th c and associated corrective actions." 20 ' rnal PG&E documentation from as early as 2006 identifi 1 ........ d 21 Electric Distribution System Safety Conditions" as a medi ability risk 22 that had medium to high consequences for PG&l >ther words, a dangerous and 23 catastrophic explosion was a well-known risk at PG&E. PG&E also knew that such an 24 incident would dramatically affect PG&E. PG&E ev ;ed that imprudent decision 25 making in this area could create medium, to high, cost exposure to PG& jpite 26 knowledge of this risk as early as 2006, the Individi fondants continued to operate 27 PG&E in a lax and imprudent manner in violation of their fiduciary duties to the 28 company. ............. .......................... ... -93-___________________________________ V.............................................................[VA.TIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00097 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 98 of 148 1 249. According to Bill Manegold, a PG&E gas system official, PG&E's integrity 2 management system was not complied with. The Ri A Management Program) 3 was supposed to be reviewed annually. Defendant Johns, however, testified that he 4 was not aware that it had not been reviewed for five years. Defendant Johns, as the 5 President of PG&E, the operating subsidiary of PG&E Corp., certainly should have 6 reviewed the RMP-1 or ensured that it was reviewed annually. The failure of 7 Defendant Johns to ensure that basic risk management procedures were followed 8 demonstrates that risk management and safety was not a priority at PG&E. 9 2 007, PG&E, at the direction of Defendants Darbee and Johns, brought 10 in a neve Senior Vice President of Engineering ai rations to manage the 11 Enterprise Risk Management ("ERMI") program, even though he had no experience at 12 an energy company and his experience was in telecommunications. De 13 inexperience, the new Vice President determined immediately, in 2007, that PG&E's 14 risk management problems were "unactionable" because almost everything at PG&E in 15 regards to safety was "broken act, soon after he took the job, the new Vice 16 President was personally told by Defendants Darbee and Johns that PG&E had a long 17 history of" safety and operational problems that were deeply ingrained into the 18 corporate culture and management style. 19 251. Moreover, by at least 2009 and 1 he executive management 20 committee at PG&E (which included senior officers and directors such .ts 21 Darbee and Johns) was well aware that the company faced a significant risk of a single 22 major catastrophic event. In a document entitled "Enterprise Risk Management Risk 23 Review," it was identified to PG&E's executive management that one of the "top" 24 enterprise risks was the risk of a "system safety" event. However, although PG&E's 25 executive leadership was well aware that a gas pipeline explosion, or a "system safety" 26 event as PG&E called it, was a possibility, no effort was made to determine if a 27 manufacturing defect could be the cause of a gas pipeline explosion. Despite this being 28 a commonsense possibility of what could cause a pipeline to explode, PG&E did not -94-___________________________________ V.............................................................[VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00098 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 99 of 1 make any effort to analyze that possibility and therefore had no plan in place to 2 mitigate that risk. 3 252. The executive iiianagement committee, in putting together this 4 "Enterprise Risk Management Risk Review," determined that the financial impact of 5 risk mitigation was $100 to $500 million. The executive management committee 6 considered the reputational and environmental impact of risk mitigation, but 7 dismissed the impact on human lives that would happen if there was a failure to 8 mitigate the risk of a catastrophic "system safety" even he work performed by 9 PG&E, they referred to a catastrophic event that could cost human lives as a 10 "sign.ifi.cant ev nsity area," which is a euphemism for an explosion in a 11 place where people live and work. 12 7. 'Ilie Indi.vi.diia endants were aware of adverse regulatory findings 13 253. On January 12,i leased to the public its Incident 14 Investigation Report on the PG&E Pipeline Rupture in San Bruno, California. It 15 concluded that the incident was caused by PG&E's failure to follow accepted industry 16 practice when constructing the section of the pipe that failed, PG&E's failure to 17 comply with integrity management requirements, deficiencies in PG&E's systems and 18 emergency response actions, and "a systemic failure of PG&E's corporate culture to 19 emphasize safety over profits." 20 254. .As t 21 d Overland noted in their respective reports (as discussed below), PG&E treated safety as a "low priority" and chose to use surplus revenues 22 for "general corporate purposes" rather than improved gas safety. By cutting back on 23 pipeline-replacement projects and maintenance, laying off workers, using cheaper but 24 less effective inspection techniques and trimming other pipeline costs, PG&E saved 25 upward of 6% oft ney designated for pipeline safety, maintenance and operations 26 program. PG&E diverted customers' fees from safety and long-term sustainable 27 growth to short-t( z 28 ....................................... ... -95-__________________________________ VERI....................................................... VOTIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00099 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 100 of 148 1 a. i! depend:. i- . - j tel reviewed the San 2 .... > explosi I. ' ... li . ' s eond'iict and found that t] mpany fbeiised solely on financial 3 4 2 performance at the expense of operational safety ependent Review Panel (the "Panel") was created soon after the 5 2^ no explosion to investigate the causes of the explosion and the role of 6 PG&E in that explosion. The chairman of the Panel was Larry N. Vanderhoef, 7 Chancellor Emeritus of the University of California - Davis. The other members of the 8 Panel were Patrick Lavin of t ernational Brotherhood of Electrical Workers 7th 9 District International Executive Council; Karl S. Pister, Chair of tf erning Board 10 of the California Council on Science and Technology and Chancellor Emeritus of the 11 University of California - Santa Cruz; Paula Rosput Reynolds of PreferWest, LLC; and 12 Jan Schori from Downey Brai Panel was assisted by several experts, 13 including Jacobs Consultancy, Inc. The task of the Panel was to investigate the San 14 Bruno pipeline explosion and the culture of PG&E and its operational policies. 15 256. The central conclusion of the Panel was that PG&E's corporate culture 16 needed to be thoroughly changed because the top leaders of PG&E, including the 17 Individi its in this case, lacked the expertise and knowledge to properly 18 handle operational and process safety at PG&E and had demonstrated no desire to 19 learn. The top leaders of PG&E were focused solely on financial performance and 20 consistently sacrificed safety for profit. This mismanagement is reflected in an 21 anecdote that is contained in the Panel's report. When a. top executive was asked how 22 safety could be improved at PG&E, the top executive stated that if PG&E could recover 23 the costs of safety improvements that would improve safety. This perhaps best 24 illustrates the massive cultural cancer at PG&E that t ividual Defendants 25 created and fb :her vrords, PG&E's basic position is, "Sure, we'll improve 26 safety, as long as someone else pays for it." 27 257. The Panel also found that PG&E lacked core technical expertise and that 28 ............. .......................... ... -96-__________________________________ V.............................................................IVATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00100 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 101 of 148 1 the expertise it did have was being lost. Tl ividual Defendants had allowed that 2 knowledge base to be lost while increasing layers of management, in which 3 businessmen and lawyers were essentially running one of the nation's largest utilities. 4T ividual Defendants themselves came largely from financial and legal 5 backgrounds and had no understanding or knowledge of process or system-wide safety 6 at PG&E. Despite being informed that more money was needed for overall safety, the 7 Individt dants consistently rejected those recommendations in order to cut 8 costs. The Individual Defendants were well aware that the company lacked the 9 te il expertise needed to ensure process and operational safety. However, since 10 the Individ dbndants were ignoring PG&E's own experts in setting budgets, it did 11 not matter to the Individual Defendants that the company lacked the expertise needed 12 to operate a utility ofthe size and scope of PG&E. 13 258. The Panel identified several key problems with PG&E's corporate culture: 14 Excessive levels : artain silos, there were as many as nine levels between the O d the front-line employee. 15 As a result, the management that is setting the direction is distant 16 from those who know the business the best. 17 Inconsistent presence of subject r expertise in the management ranks - Repeated reorganizations, the interchange of 18 gas and electric supervisors and managers, the homogenization of 19 gas transmission and distribution personnel, the large presence of telecommunications, legal and finance executives in top leadership 20 positions, and the under representation of engineers and professionals with significant operating experience in the natural 21 gas utility industry have impaired ectiveness of the 22 organization. 23 Appearance-led strategy sett siness with the complexity of PG&Es, there is no substitute for long-term planning 24 and careful execution, but there appears to be an elevated concern 25 about the company's image that may get in the way of concentrating resources on the most important things. For 26 example, PG&E announced Pipeline 2020 a few weeks after the San Bruno Incident, but the plan is grossly underdeveloped. We 27 realize PG&E has to manage its relations with the media. 28 However, putting forth a major initiative without having done the ....................................... ... -97-___________________________________ VERI....................................................... VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00101 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 102 of 148 1 necessary work underneath ultimately undermines the company's credibility with its employees as well as the public. 2 3 Insularity - y instances over its long and storied history, PG&E has been an industry innovator and leader, but no company 4 c ain its edge without a certain degree of humility and an outward focus, both of which enable it to learn from, and be 5 influenced by others. As a large company with many different 6 disciplines represented, it is a challenge to be sure one is listening to outside colleagues as attentively as it does to internal voices. 7 Beginning in 2000, when PG&E went through its bankruptcy, much of the outside interaction - participation in industry 8 conferences, committees, testing programs and colloquia - was 9 curtailed. One consequence of" this lapse is there appears to "be an insular mindset of the individuals we interviewed. The 10 mindset, if not addressed, can breed a corporate myopia that 11 stands in the way of an honest assessment of the company's strength, weaknesses, and performance relative to others. Absent a 12 realistic view of a company's performance, the drive for continuous improvement is diminished. 13 Q financial performance - While the company has 14 multiple stated goals, top management may be overly focused on 15 financial performance. Certainly the compari t be financially healthy to fulfill its mission, but when top management focuses on 16 financial performance and does not appear to be engaged in operational safety and performance, leadership may dampen the 17 willingness of the organization to challenge the priorities or 18 resources put ice by upper management. 19 259. As tl tel found and documented in its report, the Individual 20 Defendants had mismanag 1 for almost a decade. Despite knowing that they 21 lacked the experience and expertise to manage a public utility, tl ividual 22 Defendants continued to overemphasize financial performance (profits) over 23 operational and process safety (safety). 24 b. ! 1 ........ erlaiid Consult ......rime! that I chronically dedicated iiisufficierit 25 resources to operational safety despite having 26 more than sufficient money to do so 260. The CPUC initiated its own investigation and retained an independent 27 28 firm, Overland Consult: ("Overland"), to review PG&E's gas transmission -98-___________________________________ VERI....................................................... VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00102 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 103 of 148 1 safety-related activities from a financial and regulatory audit perspective. While the 2 S. mo pipeline explosion itself was a key part of the investigation, Overland also 3 reviewed and audited PG&E's regulatory and financial compliari I 4 Overland examined PG&E's natural gas transmission and storage expenditures over 5 the prio jars to determine whether the amounts that the CPUC had authorized 6 for gas pipeline safety investm.ents were actually spent on safety investments. 7 Authorized revenue was compared with actual costs for operations and maintenance 8 expenses, capital expenditures, and rate-base expenditures. Overland's audit also 9 compared authorized revenue requirements to actual revenue and actual return-on 10 equity to authorized levels. 11 261. Overland issued two separate reports, 11 and the other in 2013. 12 (i) The 2( zerlancl Report 13 262. 1 . ;mber I ' jrland issued its first report to the CPIJC (the 14 "2011 Overland Report"). Among other things, Overland found that actual revenues 15 collected from customers exceeded adopted revenues by $224 million over the twelve 16 year study period. The audit also showed, that P&E was provided rate recovery for 17 pipeline transmission operations and maintenance, but that every year since 1996, 18 PG&E spent $39 million less than tl rized over the period 1997 to 2010. 19 In other words, for over a decade, PG&E intentionally spe s money on 20 maintenance and operations than it represented was necessary to ensure that 21 PG&E's pipelines and infrastructure were safe. 22 263. Chapter 2 of the h il : titled "Backgrotu......... 1 23 Approach" described the scope of the audit: 24 The catalyst for the audit was the gas transmission pipeline rupture that occurred in a residential area of San Bruno, California, on Septemb 25 2 he natural gas released by the rupture ignited and caused a fire 26 that destroyed 38 homes and damaj ght people wore killed and many more were injured. The audit focused on PG&E's gas transmission 27 safety-related activities from a financial and ratemaking perspective. The audit is intended to complement, rather than duplicate, the engineering 28 and operations analysis conducted by the CPSI) Staff) the Independent ....................................... ... -99-__________________________________ M............................................... NATIVE complaint' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00103 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 104 of 148 1 Review Panel and the National Transportation Safi ird. A review of the gas distribution system was outside the scope of the audit. 2 264. The work performed during Overland's focused audit included: 3 4 Comparing actual gas transmission safety-related O&M [operations and maintenance] expenses and ( ures to 5 the levels included in rates. 6 Investigating the reasons for variances between the actual and adopted amounts. 7 Reviewing PG&E's planning documents for evidence that gas 8 transmission safety resources were constrained for financial reasons. 9 Reviewing gas transmission staffing levels and operational metrics 10 for evidence of resource constraints impacting gas safety. 11 Reviewing the financial performance of PG&E's gas transmission business to determine if earnings were sufficient to support 12 investments in gas safety. 13 265. Chapter 3 of the Iverland Report titled O&M Expenses concluded 14 that: 15 During the period 1997 to I total GT&S functio: I f . . were 3.8% lower than adopted. PG&E's pipeline safety costs are included 16 in the transmission function. Transmission O&M expenses were 5.0% 17 lower than adopted.19 18 Actual transmission O&M was $39 million lower than adopted over the fourteen-year study period. Actual transmission O&M was lower than 19 adopted in all but one of the years in the study period. The average annual difference was $2.8 million. The consistent underspending on 20 traiisiiiissioii O&M had negative implieatioiis for gas pipeline 21 safety. PG&E's transmission maintenance costs (MTVC BX.) increased at an 22 average annual rate of 1.2% between 1997 and 2009.20 Pipeline 23 maintenance requirements increase as facilities age, system throughput 24 19 Actu I M expenses were adjusted to eliminate costs that are exclud* 0 * > GT&S base rate cases, including the San Bruno incident costs incurred by PG&E in 2 25 20 PG&E incurred $21.8 mill > *&M expenses related to the S . identin 26 2( i >1 d excluded those costs from 2< i tual costs. Overland excluded 2010 from, 27 the transmission O&M trend analysis because it may have been distorted by the diversion of" resources to San Bruno related work. Actual I ;ransmissioii O&M expenses, 28 excluding San Bruno related costs, were 7.9 percent lower 17 costs. ....................................... ... - 100 -__________________________________ VERI....................................................... VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00104 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 105 of 148 1 increases and the system grows. The low rate of escalation in transmission maintenance costs is an indication of resource constraints in 2 pipeline maintenance. 3 266. Chapter 5 of the rland Report titled Return on Equity found 4 that: 5 The GT&S operations have been highly profitable since the Gas Acc 6 Structure was implemented in March. 1998. The actual return on equity (ROE) earned by GT&S operations averaged 14.2% during 1999 through 7 2! ;E's authorized ROE averaged 11.2% over that same period. 8 PG&E's GT&S revenues were $430 million higher than the amounts needed to earn the authorized return during the twelve-year study period. 9 The surplus revenues averaged $36 million a year. I could have used the surplus revenues, at least rt, to improve gas safety. 10 Insteat cE chose to use the surplus revenues for general 11 corporate purposes. 12 267. Chapter 6 of the Iverland Report titled Staffing and Metrics 13 concluded that: 14 The total headcount in PG&E's GT&S organizations decre in December 1996 to % 1 > mber 1 i the union headcount 15 decreased from 284 to 220. The union headcount in GT&S District Operations and Centralized Maintenance (DCM) organizations decreased 16 b Mi, 5 in 1996 to 146 in I The large reductions in DCM 17 headcount imply resource constraints in pipeline maintenance. PG&E's local transmission lines are maintained by its gas distribution 18 divisions. The to idcount in PG&E's gas distribution divisions fell by 19 28% between 1996 and &E discovered serious safety related deficiencies in its gas distribution operations in 2007, 2008 and 2009. The 20 large distribution headcount reductions and safety-related 21 deficiencies have negative implications for local transmission pipeline safety. 22 PG&E significantly reduced the use of In-Line Inspections [("ILI")] in 23 2009 and 2' i " 'in . 05 to 2001 runted for 53% of the total miles assesse ' 1)09 and 2 r ' only accounted for 13% of the miles 24 assessed. 25 PG&E no longer prepares metrics, goals or annual reports for its gas transmission pipeline risk management program. PG&E does not prepare 26 separate risk management plans or track risk management projects. Risk 27 continues to be a factor in prioritizing project vever, the evidence suggests risk iii.aiiagein.eiit continued to 'be a separate program in 28 name only at some point after 2004. ................ .................................. .... - 101 -_________________________________________ VERI....................................................... LATITE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00105 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 106 of 148 1 PG&E does not monitor the miles of pipeline it leak surveys on a centralized basis. PG&E cannot provide actual leak survey mileage 2 statistics for its backbone and local transmission systems. The inability to 3 monitor leak survey miles on a centralized "basis is an indication of" a weakness in policies and procedures and safety-related resource 4 constraints. 5 PG&E reported a large inc ?r of transmission pipeline leaks in 2009 and 2010. Those leaks were discovered in special leak 6 surveys implemented in response to the discovery of serious systematic 7 deficiencies in PG&E's leak survey program and the San Bruno Incident. The large number of leaks discovered in the spec ak surveys indicates 8 that leak survey resources were inadequate prior to 2009. 9 The corrective work order backlog in PG&E's GT&S operations districts increased significantly in 2008 through 20 increase in the backlog 10 indicates significant resource constraints in those years. 11 268. Chapter 7 of the i i 11 f < I i 96-200 onrce 12 Coiistraiiits reported that: 13 The planning documentation review srland does not contain many references to significant budget constraints prior to 20( ie 1999 14 through 2001 doeiimeiitati ows that the gas traiisinissioii 15 pipeline Risk Maiiageiiieiit Program, was view^ rnally as a cost recliictioii initiative. 16 PG&E discovered serious safety-related deficiencies in its gas distribution 17 operations in 2007, 2008 and 2009. Those deficiencies adversely impacted local transmission s: itive of safety-related resource 18 constraints. 19 GT&S was under significant pressure to reduce expenses in 2008, 2009 and. ; budget documentation for those years shows significant 20 resource constraints directly impacting pipeline safety funding. 21 Actual 2008 Integrity Management spending was 35% below the initial budget request that GT&S submitted to the Finance Department. Actual 22 2008 maintenance spending was 21% below the init st. 23 PG&E reduced 2008 Integrity Management expenses in two basic ways. 24 It changed the assessment method for some projects from ILI to ECDA and it deferred some projects from 2008 to 20 f&E's internal 25 documentation clearly shows that resource constraints were driving the deferrals and assessment method changes. 26 Maintenance spending was reduced by cutting the 2008 budget for 27 maintenance projects. The budget request for maintenance projects was $25.2 million. The approved project budget was 28 i. The 2008 - 102 -_____________________________ VERI....................................................... VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00106 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 107 of 148 1 approved mairiteiiauee project budget was 47% below the initial 2 request and 25% percent below the recommended minimum level. 269. Chapter 09 Resource 3 Constraints determined that: 4 GT&S was under significant pressure to reduce expenses for the second 5 straight year in 2009. PG&E's 2009 budget documentation shows 6 significant resource constraints directly impacting pipeline safety funding. The Integrity Management expense budget was set 32 percent belovr the 7 initial budget request. The integrity management "budget was reduced by 8 an additioi 'cent in May 2009 to offset unplanned maintenance costs. Actual 2009 integrity management expense was only 2.4 percent 9 higher than the already constrained 2008 actual spending level. 10 270. PG&E reduced integrity management spending in two basic ways in 2009. 11 It changed the assessment method for some projects fn i Inspections ("ILI") to 12 External Corrosi. ect Assessments ("ECDA"), and it deferred some projects to 13 2* 1 he February 2009 Expen, gram Review indicates integrity management 14 "altered inspection methods to significantly reduce costs from $23 million to $17 15 million in 2009." PG&E also deferred 41 miles of HCA assessments from 2009 to 2010. 16 Those miles w ferred to "help manage 2009 GT expense spend ' ither words, 17 PG&E chose not to conduct assessments on 41 miles of pipelines in High Consequence 18 Areas, such as densely populated urban and suburban areas, in order to boost short 19 term. profits. 20 271. Chapter 9 of the n H. it ,i 4 T1' urce 21 Constraints reported that: 22 GT&S was under significant pressure to reduce expenses for a third straight year in 1 Phe 2010 budget was set $6.7 million below the 23 already constrained 2009 actual expense level. 24 The ntenance budget was set 24% "below the amount requested initially by GT&S. The Integrity Management budget was se ow 25 the initial request. 26 PG&E cut the 20 egrity Management budget in two basic ways. It deferred projects to future years and it reduced the scope of the program 27 28 ................. .................................. .... ................................................... V VATIME COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00107 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 108 of 148 1 by changing the definition of the covered pipelines.21 2 GT&S developed 21 formal cost reduction initiatives to bridge the gap between its budget request and the budget target set by management. 3 PG&E adopted a cost reduction initiative to change Integrity 4 Management assessment methoc . o E* - 1 ; assessment method change initiative created "headroo nd 2012 that 5 allowed PG&E to defer Integrity Management projects from 1 j those years. The assessment method changes and project deferrals were clearly 6 driven by resource constraints. Preparing for the May i audit of 7 PG&E's Integrity Management program consumed about two thirds of the Integrity Management organization's time for six months. The amount of 8 effort required to prepare for the audit is an indication of a large backlog of incomplete work - apparently due to significant staffing shortages. 9 The cost reduction initiatives developed to meet management's budget 10 target included several initiatives to reduce maintenance spending. One 11 of the initiatives adopted by PG&E deferred all maintenance project work that was not required by code or contractual obligation. The 12 maintenance project budget was set at lion, which equaled the heavily constrained 2009 project "budget. PG&E also reduced maintenance 13 spending by deferring corrective maintenance. 14 GT&S expenses were heavily constrained in 1 rid those constraints directly impacted pipeline safety 'funding. 15 (ii) The 2013 Overland Report 16 272. On May 31, 2013, Overland issued a second report. The 2 17 Report found that there were serious deficiencies r&E's pipeline and 18 infrastructure network that had existed for almost a decade. The 2013 Overland 19 Report found that PG&E consistently spent less on operations ai Intenance than it 20 should have. PG&E adopt tr amount for O&M expenditures, meaning it told 21 that it would sp^ < amount of money for O&M than what it 22 actually spent. This was a consistent trend for PG&E. According to the 2< .and 23 Report, " [t]he pervasiveness of the deficiencies [at PG&E] demonstrates that their 24 ultimate root cause was ineffective or unresponsive executive management." For 25 almost a decade, ineffective and unresponsive executive management, for which the 26 27 21 After the budget was adopted, PG&E decided not to change the definition. The 28 budget was not increased to reflect that decision. .................... VERI - 104 -__________________________________ VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00108 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 109 of 148 1 Individi fondants must take responsibility, explains why there have been 2 consistent deficiencies in PG&E's operations. 3 273. The aland Report was focused on auditing the financials of 4 PG&E, specifically in regards to how monies earmarked for safety were actually spent. 5 274. The work performed during this second audit by Overland included: 6 Comparing actual gas distribution O&M expenses and capital 7 expenditures for the years 1999 to 1 the amounts adopted in 8 PG&E's G< te Cases and documenting the reasons for significant 9 differences between the actual and adopted amounts; 10 Comparing the actual retum-on-equity earned by PG&E's gas 11 distribution to its authorized return-on-equity ft 03 to 2010; 12 Review s distribution staffing levels and operational metrics for 13 evidence of resource constraints from 2003 through 2010; 14 Reviewing PG&E's budget process and internal planni mments for 15 evidence that gas distribution resources were constrained for financial 16 reasons from 2003 through 2010; 17 and 18 Reviewing PG&E's internal documents for indications of gas distribution 19 mana.gem.ent deficiencies and estimating the impact of such deficiencies 20 on actual spending from 2003 through 21 275. One of the key findings of t was that PG&E's 22 "[e]xecutive leadership, process controls, internal communication, staffing, training, 23 supervision, record keeping, auditing, information systems, asset knowledge, metrics 24 reporting, and data, analysis were all deficient. The result vras substandard work 25 quality and widespread non-compliance -&E's own standards." 26 276. The viand Report added that "PG&E significantly underfunded 27 its gas distribution operations prior to 2008. Resource constraints were a significant 28 root cause of the deficiencies. At the same time, the profits made by the gas ....................................... ... - 105 -_________________________________ VERI....................................................... VA.TIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00109 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 110 of 148 1 distribution operations exceeded the levels authorized by the Commission." ther 2 words, the Individual Defendants were knowingly and intentionally 3 iind* fcE's critical gas distribution operations, even though the 4 company was n - . , er profits than what was authoriz- the ' 5 As such, Defendants cannot claim they lacked the resources to maintain PG&E's 6 transmission and distribution pipelines. Defendants simply chose not to do so, in 7 violation of their fiduciary duties and obligations to PG&E. 8 277. The key findings port were: 9 bE identified serious deficiencies in. its gas distribution 10 operatior 007 and 2008. The evidence suggests the deficiencies date back to the mid-1990s. Management failed to detect, 11 or chose to ignore, these deficiencies until employees publicly raised issues at PG&E's annual shareholders meeting in April 2007. 12 feE uiiderfiiiided and understaffed its gas distribution 13 operatior n the inid-to-lc I 90s through 201,11" ^source constraints were a significant contributing factor to the deficiencies in 14 management, policies and procedures. 15 PG&E began corrective actions s itober 2007. However, these 16 corrective actions produced mixed results, as demonstrated by PG&E's own internal reviews. 17 PG&E's actual O&M expenses were 13% lower than adopted from 1999 to 18 2007. The underspending averaged $18 million a year during that period. Spending increased in 2008 and again in 2009 as PG&E implemented 19 corrective actions. 20 From 2008 through i . I cM was 25% higher than adopted. 21 Actual capital expenditures were 6.5% lower than adopted fr 99 to 2 jE spent $168 million less than adopted during that twelve 22 year period. The underspending was concentrated in safety- related eattigori.es. Safety-related capital expenditures were 23 13.3% lower than adopted. 24 PG&E's gas distribution operations earned an average actual retum-on- 25 equity (ROE) of 12.7% from 2f stated on a regulatory basis. PG&E's authorized ROE averag r the same period. PG&E's 26 gas distribution, revenues were $202 million higher than the amount needed to earn its authorized ROE over the? eight-year 27 study period. 28 278. The reference to "adopted" is essentially what PG&E stated was the - 106 -__________________________________ VERI....................................................... VATIEE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00110 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 111 of 148 1 amount of money it would need to properly operate and maintain its pipeline network. 2 This is what the CPUC understood1 e amount of money needed to properly 3 operate and maintain PG&E's pipeline network. When PG&E spends less than 4 adopted, that means it is spending less money than what it represented was necessary 5 for the company. For almost a decade, PG&E consistently spent less in actual dollars 6 for safety than wTiat it represented was necessary. This was all approved by the 7 Defendants who had created and endorsed practices that fostered a high likelihood of a 8 catastrophic incident in its operations. 9 279. The 20 wland Report continued by stating that "[t]he pervasiveness 10 of the deficiencies demonstrates that their ultimate root cause was ineffective or 11 unresponsive executive management. The executives in charge of PG&E's gas 12 distribution operations placed excessive emphasis on cost containment and inadequate 13 emphasis on work quality and public safety prior to 2008." In other words, profits over 14 safety v ; just an aspirational goal for PG&E under the leadership of the 15 Individi dants but a policy implemented by the Individual Defendants. 16 280. With regard to O&M (operations and maintenance) expenses, the 2013 17 Overland Report found that "[dinting the period 1999 to 2007, actual spending was 18 12.9% lower than adopted. The underspending averaged $17.7 million per year during 19 that period. Resource constraints impc igement were a significant 20 contributing factor to the underspending during those years." Simply put, the reason 21 that PG&E was spending less money on safety was because management, particularly 22 the Defendants, were making an active and conscious decision to sacrifice safety for the 23 sake of short-term financial performance. 24 2 i egards to capital expenditures, the i " wland Report found that 25 "actual gas distribution functional capital expenditures were 6.5% lower than adopted. 26 PG&E spent $168 milli > than adopted over the entire study period." In other 27 words, PG&E was routinely spending significantly less in capital expenditures for its 28 gas distribution network than what it was representing was necessary. - 107 -__________________________________ V.............................................................iVATIME COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00111 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 112 of 148 1 282. The wland Report found that the underspending on capital 2 expenditures was concentrt safety-related categories. According the 3 Overland Report, "[a]ctual safety-related ( penditures were 13.3% lower than 4 adopted. Safety-related capital expenditures were $159 million lower than adopted 5 during 1999 to 2010." 6 283. The nd Report found that "[slafety related capital 7 expenditures were lower than adopted in every year from 1999 to 2006, except for 2003. 8 Safety-related capital expenditures were $274 million lower than a< to 9 2006." 10 284. 1 i al1 ,rt also found that PG&E made long-term gas 11 safety a low priority. "PG&E assigned a low funding priority to long-term, gas safety 12 programs during the audit period. PG&E generally viewed long-term gas safety 13 programs as discretionary spending that could be deferred to meet its overall budget 14 targets. line Replacement Program], MPP [Meter Protection 15 Program] and ISf . ed Steel Services Program] were poorly funded throughout 16 the audit period." Only the CSRP (Copper Services Replacement Program), which 17 began in 2006, was funded. 18 2 regards to return on equity, the 2013 Overland Report found that 19 "PG&E's total gas operations earned an average actual ROE of 12.8% during the 20 period 2003 to 2C . tated , 1 r I > basis. PG&E's authorized ROE 21 averaged 11.3% over the same period." PG&E therefore routinely earr i.er 22 return on equity than was authorized by t mey could have been 23 earmarked for safety but was not. Simply put, PG&E had the resources to ensure that 24 its gas pipeline network and other infrastructure were safe but chose to divert the 25 money somewhere else. 26 286. According to 1 nd Report, "PG&E reduced its gas 27 distribution staffing by 29% between December 1996 a .1 member 2( iring the 28 same period, the number of gas distribution customers grew by 15.5%. The large - 108 -__________________________________ V.............................................................iVATIME COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00112 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 113 of 148 1 headcount reductions are a primary indication of resource constraints in gas 2 distribution." The Indis dants intentionally reduced and cut PG&E's gas 3 distribution headcount at a time when the company was adding more customers. The 4 Individi fendants therefore knew that they were creating a high risk of a 5 catastrophic incident such as the explosions in Rancho Cordova and San Bruno. Even 6 after those incidents, Defendants continue to limit what the company spends on safety 7 in order to protect its profits. 8 287. The 2013 Overland Report found that PG&E's budget documentation 9 process was woefully inadequate, and that that "[t]he available documentation for the 10 2008 to mdget years demonstrates that PG&E gave a relatively low priority 11 to gas safety spending in those years: 12 The budget process started with initial budgets set by senior management. The basis for the initial budget targets was poorly 13 documented. The next major step in the process was the submission of 14 initial budget requests by the various organizations included in the budget. PG&E did not retain the gas distribution initial budget requests 15 for the 2003 through 2008 budget years. PG&E cannot show how the 16 "budget requests in those years were prioritized. The gas distribution budget requests for 2009 and were poorly documented. 17 The initial budget requests were reviewed and adjusted by a central 18 "budget committee and senior management. Those processes were completely undoeiimeiited. PG&E did not retain the initial approved 19 budgets for most of the years in the study period. PG&E cannot provide the initial approved gas distribution expense budgets by M'WC [Major 20 Work Categories] for 2003, 2004, 2005, 2007 or 2008. 21 288. These process failures are the responsibility ( ividual Defendants 22 - who have the ultimate responsibility for ensuring that operational and process safety 23 is a priority at PG&E, as reflected in the budget, and that there is adequate 24 documentation to show that those safety objectives are being met. Instead, PG&E 25 made safety a very low budget priority. Furthermore, PG&E's poor documentation 26 makes it impossible to assess the methodology behind PG&E's budgeting for 27 operational and process safety. 28 289. The viand Report also discussed PG&E's planning documents, ....................................... ... - 109 -_________________________________ VERI....................................................... VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00113 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 114 of 148 1 which, were used to determine PG&E's future plans for operating and maintaining its 2 gas pipeline network. T aland Report stated: 3 The 2003 to 2010 planning documents demonstrate a heavy emphasis on cost redaction a , limit: , ending to budgeted 4 amounts. The 2003 to 2010 planning dociiiiieiits contain very little 5 discussion of public safety. The 2003 to 2005 planning documents contained benchmarking tables 6 that compared PG&E to other gas distribution utilities. The comparisons 7 demonstrated that PG&E was spending significantly less on gas distribution O&M expenses than its peers. zE was also repairing 8 far fewer leaks than its peers. 9 The 2003 to 2006 planning documents contained tables listing key gas distribution initiatives. The initiatives demonstrate mvy emphasis 10 on cost reduction. Cost reduction was a primary goal o 11 initiatives. 12 The key metrics report Mining documents emphasized cost reducti< her than public safety or work quality. 13 290. The nd Report also demonstrated that the Individual 14 Defendants were well aware of" the deficiencies at PG&E and chose to ignore them. 15 PG&E commissioned two consultant reviews of its preventative 16 maintenance programs in 1995. `The consultant reports contain findings that were echoed repeatedly in internal and external reviews prepared in 17 2007 and later years. The 1995 consiiltaiit reports, s 1997 internal compliance reviews, demonstrate the long history of 18 s gas distribution iii.auageiii.eiit deficiencies. 19 PG&E implemented significant workforce reductions in 1993 and 1994. 20 PG&E continued to reduce its gas distribution workforce through 2010. The workforce reductions contributed to significant work quality 21 issues identified b &E in 2007 and subsequent years. 22 Employee complaints about work practices and staffing levels prompted two significant internal audits in 20 ie first was an internal audit of 23 leak detection in the North Bay and North Coast Divisions. The second was an internal audit of regulator station and valve maintenance i n Marin 24 Conn 'I ie internal audits discovered critii fi.cienci.es in leak 25 survey and maintenance practices. PG&E's follow-up investigations demonstrated the deficiencies were pervasive 26 throughout its system,. 27 The internal audit of leak detection in the North Coast Divisi smpted PG&E to repeat its prior leak surveys in Sonoma County. The resurvey 28 ................ .................................. .... - 110 -__________________________________________ VERI....................................................... VA.TIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00114 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 115 of 148 1 process led to the discovery of systematic leak survey training and operator qualification deficiencies. 2 PG&E conducted a study of its leak grading proc tober 2007. The 3 study conclusively demonstrated that PG&E's leak grading standards 4 were not being applied consistently in the field. 291. The 20 i " f1 port confirmed that the Individu I fondants were 5 aware, for over a decade, that PG&E's operational and process safety procedures were 6 grossly inadequate and not being applied consistently. The Indi" 7 fendants Were well aware that PG&E was understaffed and that the budget was insufficient to 8 ensure that PG&E's gas pipeline network was safe and secure. Nevertheless, the 9 Individi 10 fendants continued to push PG&E towards greater cost cutting at the expense of safety, with full knowledge that they were creating a foreseeable increased 11 risk of a deadly explosion, such as those that occurred in Rancho Cordova and San 12 Bruno. 13 292. The 14 wland Report also found that PG&E had determined that its prior leak survey process was ineffective. Ace 15 the 2C erland Report, "PG&E identified a number of root causes for the leak survey deficiencies, including 16 inadequate planning, supervision and staffing. During the period 1999 to 2006, the 17 number of Grade 1 leaks discovered by leak surveys decreased by 68 percent. That 18 should have triggered a critical review of the leak survey process, but did not because 19 PG&E failed to analyze its leak survey results." In other words, the PG&E 20 commissioned a critical survey of leaks in PG&E's gas pipeline network and then never 21 analyzed the survey. PG&E therefore wasted all of the efforts of the individuals who 22 conducted the leak survey and recklessly and knowingly permitted the risk of a 23 catastrophic incident to continue to exist. 24 2 25 008, PG&E already knew, based on a report from consulting firm Exponent, that there were "pervasive system-wide deficiencies in PG&E's maintenance 26 practices." According to Exponent, "PG&E's written standards were not widely 27 understood or followed. Maintenance practices were not consistent across divisions. 28 ............. .......................... ... - 111 -__________________________________ V.............................................................[VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00115 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 116 of 148 1 Employees were performing activities based on. their own personal determination of the 2 proper work methods. PG&E did not have an accurate gas distribution asset registry. 3 The asset lists maintained by the divisions were incomplete and inaccurate." The 2 4 Overland Report amplified: 5 The records prepared to document iiiaiiiteiiaiiee activities were inadequate. The records cl t provide much information about 6 the work that was done. The lack of information recorded on the 7 rect ed doubts about the quality of the work. The lack of objective relial ta to verify work completion was an 8 important control weakness. 9 Supervision of regulator station and valve maintenance was inadequate. The supervisors did not have enough time to adequately supervise all of 10 the activities within their work scope. Some supervisors were not 11 qualified. The poor quality of the maintenance records demonstrated that supervisor records reviews were not effective. Prior Quality Assurance 12 audits had failed to identify the systematic and recurring non-compliance with PG&E standards documented by Exponent. 13 Exponent concluded that a lack of accountability at multiple 14 levels < &E's organization contributed to the deficiencies. 15 PG&E did not have adequate communication channels for employees to raise concerns. Field personnel felt they had little influence on 16 management about their immediate supervisor. 17 294. The 20 wland Report also found that a 2009 report, issued prior to 18 . , o explosion, had already warned the Defendants that li iE's 19 safety procedures and policies were inadequate. According to the 2 d 20 Report, "PG&E discovered critical deficiencies in its record keeping for service lines 21 installed by residential subdivision developers. Many of the records that the 22 developers were required to provide were missing. The problem was pervasive 23 system-wide. The root causes included wide-spread non-compliance with PG&E's 24 standards, inadequate rec< gement controls, inadequate auditing and poor 25 communication "between departments." The 1 verland Report concluded with a 26 "Root Cause Analysis" that states: 27 Several recurring themes emerged from the review of past management deficiencies that explain, at least partially, the pervasiveness and root 28 causes of the deficiencies. Overland developed the themes into root cause - 112 -____________________________________________ V.............................................................iVATIME COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00116 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 117 of 148 1 fi.ndin.gs to provide insight into audit period spending patterns. This Chapter presents those findings. 2 The evidence of serious deficiencies in the management of PG&E's gas 3 distribution operations during the audit period is overwhelming. 4 Management largely failed to detect, or chose to ignore, the deficiencies until employees publically raised their concerns about operating practices 5 at PG&E's annual shareholders' meeting in April 2007. 6 PG&E "began corrective actions in October 20 e corrective actions h ied results, as demonstrated by PG&E's internal reviews. After 7 the f uno Incident (SBI), PG&E replaced most of its distribution exee lagement and is currently in the process of reforming its gas 8 distribution operations. 9 Several key safety-related functions were inadequate duri st of the 10 audit period. PG&E's leak survey program was ineffective prior to 2008, as demonstrated by survey results. PG&E's leak grading practices were 11 inconsistent. PG&E's process for responding to customer leak complaints was inadequate. 12 PG&E's maintenance processes were critically deficient as demonstrated 13 by Exponent's system-wide audit of regulator station and valve maintenance. PG&E's damage prevention program, was inadequate as 14 demonstrated by PG&E's dig-in rates and internal reviews. The 15 Company's mapping processes were critically deficient as demonstrated by PWC's review and PG&E's internal audits. 16 PG&E's processes for collecting and organizing information about its gas 17 distribution facilities were inadequate. PG&E did not have an accurate Asset Register or GIS at any point during the audit period. Much, of 18 PG&E's asset knowledge was trapped in records that could not be 19 electronically searched. As a result, integrity management risk assessments required labor intensive manual record searches. Record 20 keeping practices were inadequate throughout the audit period. PG&E's maintenance and leak survey records were incomplete and inaccurate. 21 PG&E's leak survey data base lacked effective data quality controls. 22 Records wc quently missing and PG&E did not have controls to assure that its records were complete. 23 With one exception, PG&E's long-term gas safety programs were poorly- 24 finided throughout the audit period. Wfana.gem.ent viewed long-term gas safety programs as discretionary spending that could be deferred to meet 25 budget targets. 26 295. The viand Report identified eight root causes for the pervasive 27 deficiencies in PG&E's gas distribution management: 28 ................ .................................. .... ...................... VERI VOTIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00117 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 118 of 148 1 Insufficient nianagenient focus on work quality ancl public 2 safety; 3 Ineffective communications between management and the field and among departments; 4 5 Inadequate direction of the work methods used by field employees; 6 Inadequate staffing and other resources; 7 Ineffective supervision and quality control; 8 Inadequate quality assurance; 9 10 Failure to collect and organize critical operating data; and 11 Failure to analyze tl a that was available. 12 296. The nd Report noted that the "metrics used by management 13 were focused on reducing unit costs instead of improving work quality." The report also 14 noted that "[elmployees had the impression that quality was not iority for 15 management." 16 297. .According to the rland Report, which is consistent with the 17 reports of individual employees was that " [t]he metrics emphasized by management 18 was focused on production over quality. Field supervisors did not understand the 19 metrics and viewed them as punitive. The leak reps :ric encouraged employees to 20 find fewer leaks. One cost reduction initiative inclu ithly report to encourage 21 supervisors to downgrade leaks. The on-time appointment metric for Gas Service 22 Representatives encouraged them to minimize the time spent on leak investigations. 23 'Work quality metrics were generally not tracked." 24 298. The viand Report noted that "|l]eak surveys are a critical 25 component of a gas safety program. Leak survey was treated as low priority work. 26 Leak surveyors w ly diverted to other work and were then pressured to 27 complete their scheduled surveys by end of month to meet compliance deadlines." 28 299. flier words, PG&E had created a broken incentive system in which ................ .................................. .... - 114 -____________________________________________ VERI....................................................... VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00118 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 119 of 148 1 PG&E employees were finaricially incentivized to find "no leak" or to "dovnigra.de 2 leaks." These incentives were not designed to incentive employees to actually fix or 3 repair leaks "but simply to categorize dangerous existing leaks as "non-leaks" or "low- 4 level leaks." This helped PG&E in protecting its short-term finances. However, from a 5 long-term view, this significantly harmed PG&E since it made a dangerous and 6 catastrophic incident inevitable. .As the explosions in Rancho Cordova and San Bruno 7 show, those risks became realities. The Individual Defendants, however, knew that 8 those risks were likely but still chose to ignore them. 9 300. .According to the 2013 Overland Report, "[t]h.e pervasiveness of the 10 defi.ci.eiiei.es demonstrates that their 'iilti.in.ate cause was iiieffective executive 11 maiiagenieiit. The executives in charge of PG&E's gas distribution operations placed 12 excessive emphasis on cost containment and. failed to properly manage the operations." 13 These failures are ultimately the responsibility of the Individual Defendants who are 14 top executives and directors of PG&E and PG&E Corp, and therefore owe fiduciary 15 duties of care and loyalty to PG&E, PG&E Corp., and their shareholders. The 16 Individi fendants owed PG&E and PG&E Corp, the duty to exercise the utmost 17 care and diligence in the management, supervision and direction, both in terms of 18 direct leadership but also in setting policies and procedures and in developing 19 corporate culture. Through. Individi dants' misconduct, they failed to exercise 20 leadership, established policies and procedures that create c of a 21 catastrophic incident (which would significantly harm PG&E Corp, PG&E and their 22 shareholders), encouraged a corporate culture in which short-term profits superseded 23 safety, and ignored clear red flag warnings of safety problems. The Individual 24 Defendants knew or reckless! red reports for over a decade showing that safety 25 was a low priority at PG&E due to budget reductions for safety concerns, reduced 26 headcount and loss of technical expertise. The Individi fendants made no effort to 27 rectify these errors and instead exacerbated them by implementing and maintaining 28 policies and procedures designed to cut costs, regardless of the impact such cuts would ............. .......................... ... ................................................................................. V.............................................................[VA.TIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00119 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 120 of 148 1 have on. safety. Profits over safety became the driver of policy-making at PG&E 2 because of the Individual Defendants. 3 301. .As the 2013 Overland Report concludes, "concerns about PG&E's 4 corporate culture remain." 5 8. California Administrative Judges re E 6 3 for iiiteiitioiially concealing inadequate recordkeeping he aftermath of the 201.0 San Bruno pipeline explosion, PG&E 7 continues to conceal its deficient recordkeeping. .As a result, in. addition, to the 8 proposed $2.25 billion penalty for years of lax regulation compliance that resulted in 9 the catastrophes such as the San Bruno and Rancho Cordova explosions, PG&E 10 remains subject to fines for incomplete records, demonstrating that PG&E has failed to 11 learn its lesson, even after deadly pipeline explosions. 12 3 2013, PG&E disclosed what it claimed were "newly discovered" 13 problems with major transmission lines between San Carlos and Millbrae. That 14 information, however, was withheld at least '.for several months, .if not longer. 15 According to state regulators, PG&E used flawed documentation to support its claim 16 that two Peninsula natural gas pipelines were safe. Wi -&E's history of shoddy 17 recordkeeping, PG&E should never have continued to rely on inaccurate 18 documentation, especially to validate its pipelines to be safe. The very same reliance 19 on inadequate recordkeeping played a major role in the 20 a Bruno disaster, with 20 PG&E failing to properly assess or test the integrity of its pipeline because it did not 21 think, based on its notoriously incomplete and inaccurate documentation, that there 22 was a seam in the pipeline and that a section had been cobbled together from scrap 23 pipe from an unknown source. PG&E's continuing problems reveals that PG&E has 24 not changed its corporate philosophy and policies in a manner that will prevent 25 another disaster, despite representations by PG&E's leadership that it had changed its 26 ways. 27 304. According to a pair of administrative law judges for the &E 28 ................. .................................. .... .......................................................................................................... V.............................................................[VA.TIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00120 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 121 of 148 1 sought to surreptitiously s or corrections to their pipelines as a routine filing 2 with the ! filing occurred one day before the Fourth of July holiday. 3 305. CPUC Administrative Judges Karen Cloptoii and Maribe' / wrote 4 that "PG&E appears to be revealing a substantial error" and masking it as a "routine 5 correction." They further explained that PG&E's conduct "could be seen as an attempt 6 to mislead the coiiiinissioii and the public on the significance o w 7 information." Clopton ai / are threatening to levy substantial fines against 8 PG&E for violating CPUC rules. 9 306. One of the changes that PG&E made in the aftermath of the 2010 San 10 Bruno pipeline explosion was lowering the pressure on nearby Peninsula lines while it 11 verified the accuracy of their records. Those lines included a backbone line that runs 12 from Milpitas to San Francisco, called Lin 1 a connector line between that pipe 13 and the line that blew up in S mo. 14 307. Oil. PG&E publicly declared the records for both lines were accurate 15 and sought to boost the pressure back to pimdisaster levels. 16 308. A year later, in fall of 2012, PG&E dug up the connector line in San Carlos 17 to repair a minor leak and found that the pipe was of significantly lesser quality than 18 the company records indicate ther words, PG&E had represented to the ' 19 that their records were accurate, that the pipeline was safe, and that it should be 20 allowed to increase pressure in the pipeline. However, all of this was untrue, once again 21 putting PG&E in a position of operating its transmission lines in an unsafe manner. 22 309. The records said that the connector line, known as Lin d robust 23 welded seams or no seams at all. This means that there was little to no risk of a pipe 24 failure which could result in another catastrophic explosion. workers, 25 however, fotiud that there were several stretches of pipe that had a 26 problematic type of welded seam,. 27 m ' i- , ii }&E claims it "belatedly" realized in 2012 that it 28 had improperly relied on a 1989 water-pressure test to establish the line's strength in ............. .......................... ... 117 ___________________________________ V...............................................[VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00121 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 122 of 148 1 Millbrae. This meant that PG&E had been running the line in an urban area with 2 dangerously high pressure levels. 3 -ill " IE acknowledged both errors in aI ' I h I with th ` > 4 long after it discovered the problem. No explanation was provided for this delay in 5 reporting these problems. PG&E described these problems as data "errata." 6 312. This alarmed both CPUC administrative judges, who wrote that "ftjhe 7 continuing inaccuracy of PG&E's re ippenstan.ee means by which this 8 most recent instance of erroneous records was discovered" are troubling. The judges 9 ordered that PG&E appear to explain its conduct before California state regulators. 10 ' ' ' the timing of the filing (one day bel .> e Fourth of July holiday) and the 11 flippant manner in which PG&E described dangerous pipeline problems as "errata" 12 raised serious questions about PG&E's continued misconduct because PG&E's 13 recordkeeping practices continue to be "an extraordinarily controversial issue" and the 14 subject of intense public interest. PG&E's admission that it continues to make highly 15 dangerous decisions based on documents that it knows are flawed and inaccurate is 16 indefensible. PG&E also continues to delay disclosing problems to the regulators and, 17 when it does make disclosures, it does not do so with complete transparency. 18 i 1 Clopton ai . 1 f ordered PG&E officials to appear at a hearing on 19 September 6, 2013, and as a result of that hearing, they could recommend fines against 20 PG<& ly as five different rules violations governing submissions to the 21 commission. 22 9. The CPUC fore 5 to shut down its pipeline in San Carlos because of continuing concerns that the pipeline 23 is unsafe 24 further evidence that PG&E has not changed its ways, PG&E was 25 forced to shut down a gas pipeline (Line I1' S- . trios while CPUC investigators 26 determine whether or not the gas pipeline was safe. The line runs the length of San 27 Carlos beneath Brittan Avenue. 28 ober 4, 2013, a San Mateo County judge ordered the potentially ............. .......................... ... .................................................................................. V.............................................................[VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00122 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 123 of 148 1 dangerous gas pipeline shut cloven, despite protests from PG&E that the gas pipeline 2 was safe. With PG&E's notoriously unreliable recordkeeping, PG&E's protests were 3 not credible. Four days later, tober 8, 2013, the CPUC issued a decision 4 upholding the decision to keep the gas pipeline shut. 5 317. The decision to shut down the gas pipeline "began after San Carlos officials 6 learned that a PG&E engineer had asked 2012 whether the 7 company was "sitting on another San Bruno situation" in regards to the S rlos 8 pipeline. The PG&E inten Is that were received by the City of San Mateo 9 contain information about Line 147 after a leak was repaired in November of 2012. 10 cials said that investigators will begin examining the pipeline to 11 "determine whether any immediate safety concerns are posed." PG&E officials 12 acknowledged that portions of the 3.8 mile pipe were salvaged from another nearby 13 pipeline, a fact that was not reflected in PG&E's "official" records. 14 : to the justifiable lack of faith in PG&E's records, the City of San 15 Carlos is considering whether or not to spend $250,000 in order to hire experts to verify 16 that the pipeline under the city is safe. "We don't want to overreact, but we don't want 17 to underreact either," S 5 City Manager Jeff Maltbie said. "We want to make 18 sure that the information that's been provided ... is accurate." The City of San Carlos 19 wants to hire legal and engineering experts to audit records, reports and information 20 PG&E has been ordered to submit to the California Public Utilities Commission as part 21 of the ongoing investigation of Pipeline 147. 22 320.....The fact that local public entities are being forced, even now, to spend 23 public monies to ensure that the gas pipelines near them are safe, demonstrates that 24 PG&E has not changed. PG&E continues to maintain that its recordkeeping is 25 adequate, even though it was well knovm and is still known within the company that 26 its recordkeeping is riddled with serious gaps and inaccuracies. Public entities and 27 California residents have little faith in statements by PG&E that pipelines are "safe" 28 because PG&E has proven that such statements are not reliable. ............. ....... ......... ... .................................................................................. V.............................................................[VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00123 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 124 of 148 1 . ' S ? ' I . ' < lr E / - .( 'I : Hi, : 9! . 8 ..... .. '= I I : : II 2 321. The Individual Defendants' wrongdoing has already damaged the 3 Company by over $2.2 billion in damages and fines relating to the San Bruno 4 Explosion, as follovcs: 5 (a) a ! - ..... . *s - these fines are comprised of $300 million paid to 6 California's State Gene m.d, a one-time $400 million credit to the 7 Company's natural gas customers, $850 million to fund future pipeline 8 safety projects, and remedial measures that the PUC estimates will cost 9 PG&E at least $50 million; 10 (b) $621 mpensation paid to settle damages claims relating to 11 the San Bruno explosion, comprised of approximately $500 million to the 12 victims and families of the Ss no accident, $50 million to the City of 13 8. G uno for costs related to recovery, and I / ill m to support the 14 city's and community's recovery efforts.22 15 322. I ddition, as the Company has admitted in filings with the 1 ; 16 Securities and Exchange Commission ("SEC"), PG&E faces a potential m.axim.um 17 alternative minimum fine of another $1.13 billion for the criminal charges in the 18 Superseding Indictment.23 The criminal trial is scheduled to begin on March 22, 2 19 in San Francisco. 20 323. The Company's goodwill and reputation have been severely damaged by 21 defendants' wrongdc 'orm 10-Q filed with the SEC regarding the 22 Company's Q3 2015 financial results, the Company specifically admitted "the harm to 23 24 22 See July 29, 2 tse entitled ".As Government Recasts Case, PG&E Reiterates Commitment to Safety and Underscores Its Position That Federal 25 Charges Are Not Merited," available at http://PG&E.com/about/newsroom/ 26 newsreleases/20140729/as,,government_recasts_case,,PG&E_reiterates,,commitment,,t o^safety^and underscoresjtsjpositionMhatUbderalmhargesmiMnotjnerited.shtm.1, 27 last visited February 28 23 See Q3 rorm 10-Q filed with the SEC on October 28, 2015, at p. 42. ............. - 120 -__________________________________ VERI....................................................... VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00124 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 125 of 148 1 [PG&E and PG&E Coiq is caused by the criminal prosecution of the 2 Utility, the state and federal investigations of natural gas incidents, [and] improper 3 communications between the CPUC and the Utility." 4 324. The Company also faces the? risk that the Court orders a third party 5 monitor to oversee its operations and that the Company could be debarred from 6 entering into federal procurement and non-procurement contracts and programs. As 7 admitted by the Company in its Annual Report filed February 18, 2016: "[Due to the 8 criminal indictment], The Utility also could incur material costs, not recoverable 9 through rates, to implement remedial measures that may be imposed by the court, 10 such as a requirement that the Utility's natural gas operations be supervised by a 11 third-party monitor. The Utility ) be suspended or debarred from entering 12 into federal procurement and non-procurement contracts and programs."24 13 325. Other risks, as admitted by the Company, are: 14 "The trial and the Utility's conviction could harm the Utility's relationships with regulators, legislators, communities, business 15 partners, or other constituencies and make it more difficult to recruit 16 qualified personnel and senior management. Further, they could negatively affect the outcome of future ratemaking and regulatory 17 proceedings; '.for example, by enabling parties to challenge the Utility's 18 request to recover costs that the parties allege are somehow related to the criminal ch arges. 19 i idition, tl - >' 19 mviction could result in increased regulatory or 20 legislative pressure to require the separation of the Utility's electric and natu s businesses, restructure the corporate relationship between 21 PG&E Corporation and the Utility, or undergo some other fundamental corporate restructuring. As discussed under the heading "Regulatory 22 Matters" in MD&A, the SEI) will evaluate PG&E Corporation's and the 23 Utility's organizational structure in the pending investigation to examine tl ity's safety culture."2" 24 326. As a result of the Individual Defendants' breaches of fiduciary duty, 25 PG&E has expended millions of dollars on attorneys' fees and expenses relating to the 26 27 24 28 24 See 1 I See 1 - I port on Form 10-K, filed with the SEC Feb. 18,: I . at p. 24. I 11 on Form 10-K, filed with the SEC Feb. 18,: atp. 24. .................... VERI - 121 -__________________________________ VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00125 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 126 of 148 1 lawsuits, Cfongressional hearings, state and federal investigations, and grand jury 2 proceedings mentioned herein. 3 X. . s s ' . . ' I a 1 ' -.. I! Il = .L 4 327. Plaintiff brings this action derivatively in the right of and for the "benefit 5 of PG&E to redress injuries suffered and to be suffered by PG&E. This is not a 6 collusive action to confer jurisdiction on this Court that it would not of e. 7 328. Plaintiff will adequately and fairly represent the interests of PG&E in 8 enforcing and prosecuting its rights. 9 329. Plaintiff was a shareholder of PG&E at the time of the wrongdoing 10 complained of and has continuously been a shareholder and is a current PG&E 11 shareholder. 12 330. Plaintiffincorporates by reference all preceding and subsequent 13 paragraphs as fully set forth herein. 14 331. At the time of this filing, PG&E's IBoard consists of twelve members: 15 defendants Smith, Chew, Herringer, Kimmel, Meserve, Ra.rn.bo, Williams, Miller, 16 Parra, Kelly, Fowler, and Earley. Plaintiff has not made any demand on. the present 17 Board to institute this action because such a demand would be a. futile, wasteful, and 18 useless act, as set forth below. 19 A. Demai Exciw j . au.se a Majority of the Current ird Faces a Substantial Likelihood of Liability for 20 Causing the Company to Obstruct the NTSB 21 Investigation 332. 22 tile because a majority of the current Board caused PG&E to obstruct the NTSB investigation into the f 23 "uno gas explosion, causing the Company to be indicted for federal obstruction of justice charges and subjecting the 24 Company to potential criminal, fines, severe reputational damage, imposition of a third 25 party monitor over the Company's gas operations, being debarred from entering into 26 federal procu.rem.ent and nomprocurement contracts and programs, and other 27 substantial damages. 28 ................ .................................. .... - 122 -____________________________________________ VERI....................................................... VA.TIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00126 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 127 of 148 1 333. The NTSB began an investigation immediately after the San Bruno 2 explosion on September 9, 2010. NTSB investigators were on-site for approximately 3 two weeks after the explosion. Ildition, NTSB investigators issued numerous 4 requests for information and documents, interviewed witnesses, examined the 5 ruptured pipe and the events leading to the explosion, and held three days of public 6 hearings. The NTSB issued a public report on or about August 30, and 7 concluded, among other things, that PG&I .egrity Management program was both 8 deficient and ineffective, and was a probable cause of the accident. 9 334. The NTSB's investigation revealed that among other deficiencies, PG&E's 10 records related to the establishment and calculation of the M A J i - . it me 11 132 were incomplete and inaccurate. As a result, on January 11, the NTSB 12 issued three safety recommendations, two of which were designated "urgent." The 13 first urgent recommendation directed PG&E to "[a]ggressively and diligently search" 14 for records related to pipelines in HCAs that did not have the established 15 through prior hydrostatic testing. The second directed PG&E to calculate (based on 16 the records found in response to the first urgent recommendation) the valid I r 17 pipelines that did not have the > through hydrostatic testing. 18 335. Additionally, in or about September 2010, through in or about December 19 2^ le NTSB sent PG&E a series of data requests concerning instances where 20 PG&E's planned and unplanned press > creases exceeded the 5-year " and/or 21 > of pipelines in HCAs. 22 336. On February 22, 2011, as part of its response to the NTSB's data 23 requests, PG&E attached a version of RME06 that provided that PG&E would only 24 consider a manufacturing threat as unstable if the pressure on the line exceeded the 5- 25 year MOP by 10% ("the 10% Version"). The cover sheet to the 10% Version indicated 26 that it was prepared in February 2008, and approved in March 2008. 27 337. On April 6, 2011, PG&E sent a letter to the by Defendant 28 V- ON s, withdrawing the 10% Version sent in February hi claiming it 123 __________________________________ V.............................................................[VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00127 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 128 of 148 1 was an unapproved draft. The letter attached the original version of RMI-06 approved 2 in 2008, and a version of RMI-06 approved on April 5, 2011, neither of which included 3 tl. i' nguage. In the left f 3 claimed it had recently discovered that the 4 10% Version submitted to the NTSB included the cover sheet for the original version 5 of RMI-06 approved in 2008, and that PG&E had no indication that the version with 6 nguage was ever approved. 7 338. Defendant Hayes, who signed the letter, reported at the time directly to 8 Defendant Geisha Williams, who is on the Board of Directors of PG&E. Geisha 9 reported directly at the time to Peter Darbee, who was PG&E Corp.'s CE1 ent, 10 a: ' the Board. Upon information and belief, given the gravity of the 11 NTSB investigation and the fact that eight people died in the Si mo explosion, 12 Hayes c ibmissions to the NTSB, including the February 22, 2011 and 13 April 6, 2011 submissions, with both Williams, Darby, and the PG&E ird of 14 Directors before finalizing and submitting them to the NTSB. Defendants and current 15 Board Members Chew, Herringer, Kimmel, Meserve, Miller, Parra, Williams, and 16 Rambo, therefore, all of whom were directors of PG&E Corp, at the time and 17 responsible for the Company's conduct with respect to the NTSB investigation, knew 18 of and approved the misleading submissions to t e such directors 19 constitute a majority of the current Board, demand is excused since a majority of the 20 current Board acted in bad faith and breached their duties of loyalty and candor with 21 respect to the Company's response to the NTI ustigation, therefore causing the 22 Company to be indicted for obstruction ofjustice. 23 3 ' I hose 2f h H,, t s to the NTSB, PG&E did not disclose that, from 24 in or about 2009 through, in or about April 2011, its Integrity Management group 25 followed the practice set forth in the 10% Version by only considering manufacturing 26 threats active and high-risk if the pressure exceeded by 10%. The letter also 27 failed to disclose that PG&E knew t I Version was in violation of Section 28 1 i. , , Mance issued by PHMSA with respect to f i i. ................. .................................. .... - 124 -____________________________________________ V.............................................................iVATIME COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00128 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 129 of 148 1 340. The Board's knowledge of the NTSB submissions and their direct 2 supervision over Hayes and Williams is also demonstrated by the feet that the Board 3 itself hired and supervised both Hayes and Williams. Hayes and Williams were hired 4 at the same time. When they were hired, PG&E Corp, put out a press release dated 5 November 1, 2007 which stated that the Board itself hired them: "PG&E Corporation 6 today announced that its board of directors has elected Gi to senior vice 7 president, Corporate Relation .ddition, the board of directors of PG&E 8 Corporation's utility unit, Pacific Gas and Electric Company, has elected Patricia M. 9 Lawicki as senior vice president and chief information officer for the utility; Geisha J. 10 Williams as senior vice president, Energy Delivery; Wi res as vice 11 president, Maintenance and Construction; and Mark S. Johnson, vice president, 12 Electric Operations and Engineering. `Today's announcement reinforces the fact that 13 we have incredible talent within our current team and that we also can enhance our 14 management team from the outside as well,' said Peter A. Darbee, PG&E Corporation 15 Chairman, CEO and President."26 16 - Majority of tl arcl Faces a Substantial Likelihood of 17 Liability for Cans npany to Violate Federal and Sta1 line Safety Regiilatioiis 18 341. Defendants Chew, Herringer, Kimmel, Meserve, Parra, Rambo, and 19 Williams cannot consider a demand because their decision to operate the Company in 20 violation of the law is not a protected business decision and they all face a substantial 21 likelihood of liability for breaching their fiduciary duties of loyalty, candor, and good 22 faith. These defendants abdicated their fiduciary duties to PG&E. They were either 23 24 26 See https://wwwopge.com/en/about/newsroom/newsdetails/index.page? title=20 6jpgemrerporationmpppointAJason _ chieffenaiiciaL officer 25 last visited Fe I .016. As noted supra, the Bo. , t &E Corp, 'were at all times comprised of the same exact individuals, with the sole exception of 26 Defendant Johns, who currently only serves on ire : PG&E. Thus, current 27 Board members and Defendants Chew, Herringer, Kimmel, Mleserve, Miller, Parra, Williams, and Rambo, all of whom were directors of both PG&E and PG&E Corp, at 28 the time, directly hired and supervised Defendants Hayes an sha Williams. ....................................... ... - 125 -__________________________________ VERI....................................................... VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00129 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 130 of 148 1 informed of the Company's numerous safety violations or consciously or recklessly 2 violated their duty to stay informed about the core business of the Company. From 3 2004 to 20( ' ' is responsible for 59% of the 1 i sable violations" of federal 4 or state pipeline-safety rules and regulatic gulators identified during that 5 period, despite the fact that it operated only 41% of the state's pipelines. Also during 6 this period, PG&E was responsible for more "reportable incidents" than any other 7 company in the country. Included in that total are nine explosions that together 8 injured or killed at least sixteen people. Further, PG&E's own survey conducted in 9 2007 identified leaks and other problems in twenty-eight of thirty-two residential 10 areas that it sampled. Included in those areas is the Peninsula area, where San Bruno 11 is located. All four of the residential distribution lines PG&E examined on the 12 Peninsula had leaks. PG&E's November 2009 report failed to identify the cause of 13 leaks that mpany's own records identified as a defective longitudinal seam weld. 14 The San Bruno Incident was ultimately found to have "been caused by the failure of a 15 longitudinal seam weld. As shown above, the failure to follow safety regulations 16 imposed by the PHMSA ar en sustained and systematic at PG&E. 17 Despite this knowledge, defendants Chew, Cox, Herringer, Parra, Kimmel, Meserve, 18 Rambo, and Williams failed to act to correct the Company's numerous safety issues, 19 resulting in the Company being forced to pay well over $2.2 billion in damages and 20 fines to-date, being indicted, and exposed to hundreds of millions of additional fines 21 and penalties in the pending criminal case set to commence March 22, 2106. Such a 22 decision could not have been an action taken in good faith and is accordingly not 23 protected by the business judgment rule. Furthermore, defendants Chew, Herringer, 24 Kimmel, Meserve, Rambo, Parra, and "Williams's conscious failure to act in the face of 25 the overwhelming number of warnings is a breach of" their duties of loyalty, candor, 26 and good faith, which is non-indemnifiable and thus subjects them to a substantial 27 /// 28 /// - 126 -__________________________________ %............................................................. NATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00130 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 131 of 148 1 likelihood of liability.27 Therefore, demand is excused. 2 342. Moreover, Defendants Cox, Herringer, Meserve, and Rambo all served on 3 the Board prior to the S uno explosion, and were made aware between 2006 and 4 2010 of major maintenance problems with PG&E's gas distribution network, including 5 a very high volume of gas leaks, massive recordkeeping deficiencies, employees who 6 were frustrated that their safety concerns were unaddressed, and insufficient funding 7 for inspections and maintenance. The Enterprise Risk Managemer yam 8 provided regular communications to such directors identifying potentially catastrophic 9 risks. stigations and reviews were pn i ard packages. Nevertheless, 10 such directors made constant budget cuts at PG&E for maintaining pipeline 11 infrastructure, even though sufficient funds existed to fix these problems. The routine 12 reduction of budgets for maintenance of gas transmission and distribution lines at a 13 time when the Company was facing an aging infrastructure constituted bad faith. 14 343. Moreover, in 2009, PG&E charged its customers $5 million to fix the San 15 Bruno pipeline. The Board of Directors, however, acquiesced in the Company's 16 decision to delay the repairs, citing other priorities. The same year, however, the 17 Board approved $5 million in executive bonuses. This constituted disloyal and selfi 18 dealing conduct by the Board, as well as bad faith. 19 344. ' ddition, from 2008 to 1 ard of Directors approved decisions 20 at PG&E to reduce compliance and other Integrity Management expenses by 21 consciously deciding to defer projects, in particular by deferring or downgrading 22 assessment methods to inadequate and less costly techniques. Moreover, the Board 23 24 21 Both PG&E and PG&E Corp, are California corporations. California has many more restrictions on indemnification and exculpation of officers and directors of California 25 corporations than does Delaware. California prohibits exculpation ofdirectors and officers for acts or omissions that involve the absence of good faith, for acts or omissions that 26 demonstrate a reckless disregard of duty to the corporation or its shareholders in 27 circumstances in which the officer or director was aware, or should have been aware, of a risk of serious injury to the corporation or its shareholders, and for acts or omissions that 28 constitute an unexcused pattern of inattention that amounts to abdication of duty. ....................................... ... - 127 -__________________________________ VERI....................................................... VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00131 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 132 of 148 1 cans "&E to cease preparing metrics, goals, or annual reports for its gas 2 transmission pipeline Risk Management Program. The dew 3 concluded that risk management continued to be a separate program only 4 after 2004," 5 5008, the Board approved the slashing of approved budgets for 6 Integrity Management by nearly 50% from what was requested in 2008 for compliance 7 and integrity activities, and a review provided to the Company's Directors at the time 8 (Darbee, Andrews, Cox, Herringer, Kimmel, Meserve, Johns, Miller, Rambo and 9 Williams) noted that "expected flat funding in 2009 and 2010 will drive the 10 program into non-compliance in 2012." Despite having actual knowledge of these 11 facts, such Defendants took no action to improve PG& rernance and compliance, 12 thus abdicating their duties. 13 346. The Board continued to approve budget cuts in 2009 and 2010. The 14 Board was advised that actual fund 08 for compliance and safety was 35% 15 below the initial request and 16% below "minimum funding to achieve 2012 16 compliance." PG&E's maintenance budget was 47% below the initial request and 25% 17 below the recommended minimum level. 18 347. The Board was advised in 2009 that Integrity Management "budget cuts 19 for that year resulted in deferring or eliminating repla.cem.ent of over 44 miles of gas 20 transmission pipelines in high consequence areas. PG&E also deferred 41 miles of 21 integrity management assessments of gas transmission pipelines. 22 1 ' 5 i he Board approved a budget that was reduced for the third 23 straight year and set $6.7 million below already-constrained 2009 levels. 24 ! Ms ' he Board was aware that PG&E had consistently spent less on 25 safety and maintenance that what it represented to the CPUC was necessary. A 26 CPUC report found that, for each 7 to 2007, PG&E spent $39 million less 27 than the . authorized for pipeline safety and repairs (and thus more than 28 PG&E had been authorized by CPUC to collect from its customers in rate hikes). 128 __________________________________ VERJ...................................................... IVA.TIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00132 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 133 of 148 1 Thus, as of2007, the Board was aware that PG&E had intentionally spent less money 2 for the last ten years on maintenance and, operations than it represented to ms 3 necessary to ensure that PG&E's pipelines and infrastructure were safe. 4 350. Moreover, in 2007 t ird was advised that two significant internal 5 audits were peribrmed in response to pervasive employee complaints about work 6 practices and staffing levels, and the Board was also advised of the results of the 7 audits. One audit was performed in the North Bay and North Coai .sions, and the 8 second in Marin County. The internal audits discovered critical deficiencies in leak 9 survey and maintenance practices. PG&E's follow-up investigations demonstrated the 10 deficiencies w .give throughout its system. 11 351. The Audit Committee of the Board is responsible by its Charter for, 12 among other things: reviewing the adequacy of internal controls, external and internal 13 auditing programs, "business ethics, and compliance with laws, regulations, and 14 policies that may have a material impact on the consolidated financial statements. The 15 Audit Committees of PG&E is composed of defendants Andrews, Chew, Herringer, and 16 Williams. Defendant Andrews has served as a member of the Audit Committee since 17 2003. Defendant Chew has served as a member of the Audit Committee since 2009. 18 Defendant Herringer has served as a member of the Audit Committee since 2006. 19 Defendant Williams is also Chairman of the Audit Committee and has been since at 20 least March 2005 and a member of the committee since March 2003. These defendants 21 were responsible as members of the Audit Committee for ensuring that PG&E's 22 internal controls were adequate and that' any was in compliance with CPUC 23 rules and regulations. The significant safety violations alleged herein were so 24 pervasive that they could not have been the result of an isolated failure of oversight. 25 Indeed, the wrongdoing in question is strongly suggestive of a corporate culture that 26 regularly, consciously ignores sustained and systematic red flag t of the 27 number, duration, and severity of the violations, as well as the responsibilities 28 outlined in the Audit Committee Charter, the facts compel the conclusion that the - 129 -__________________________________ V.............................................................iVATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00133 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 134 of 148 1 Audit Committee members had to have known about the frequency and extent of the 2 safety violations in question. Notwithstanding this knowledge, the .Audit Committee 3 members have failed to take steps to assure and/or improve PG&E's compliance 4 record. Furthermore, the .Audit Committee members' conscious failure to act in the 5 face of the overwhelming number of warnings is a breach of their duty of loyalty, 6 which subjects them to a substantial likelihood of liability. Therefore, demand is 7 excused. 8 352. The Compensation Committee28 under its Charter is responsible for 9 reviewing and recommending to the independent members of the Board the salary and 10 other compensation of the CEO. Specifically, the 2007 Compensation Committee 11 Charter provides that it is the responsibility of the Compensation Coniniittee to review 12 and, as applicable, approve: (i) executive compensation and benefits plans and 13 arrangements; (ii) short-term incentive plans that include officers; (iii) tax-qualified 14 pension plans; and (iv) equity-based plans for employees. The Compensation 15 Committee is currently comprised of defendants Cox, Rambo, and Williams. 16 Defendant Rambo has served on the Compensation Committee since 2005. Defendant 17 Williams has served on the Compensation Co e since 2005. Defendant Cox is 18 also Chairman of the Compensations Committee and has been since at least 2005 and 19 a member of the committee since at least 2003.29 .As members of the Compensation 20 Committee, these defendants sponsible for reviewing and recommending the 21 compensation of the; Company's CEO. Non-defendant Earley is PG&E's CEO, 22 President, Chairman of the Board, and director and has been since September 2011. 23 24 28 This committee is formerly known as the Nominating, Compensation, and Governance Committee. Prior to January 1,2008, that committee performed the duties of 25 the current Compensation Committee and the current Nominating am srnance 26 Committee. 27 29 Cox did not serve as Chairman o from May 1. 2011 to September 12,1 mber of the Compensation Committee dien he served as interim Chairman of the 28 Board, CEO, and President of PG&E. ....................................... ... .........................- 130 -__________________________________ VERI VA.TIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00134 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 135 of 148 1 Pursuant to his employment with PG&E, he has received and continues to receive 2 substantial monetary compensation and other benefits as alleged above. .Accordingly, 3 Earley lacks independence from defendants Cox, Rambo, and Williams, members of 4 PG&E's Compensation Committee, all of which face a substantial likelihood of 5 liability. This lack of independence renders non-defendant Earley incapable of 6 impartially considering a demand to commence and vigorously prosecute this action. 7 Therefore, demand is excused. 8 353. The Finance Committee, under its Charter, is responsible for advising 9 and assisting the Board with respect to strategic plans and initiatives. Specifically, the 10 Charter provides that the Finance Committee is responsible for presenting for the 11 Board's review and concurrence: (i) a multi-year outlook for PG&E and its subsidiaries 12 that incorporates, among other things, key current and emerging issues, strategic 13 initiatives, risk factors, and projected financial results; and (ii) an annual financial 14 performance plan for operating expense and capital spending budgets that reflect the 15 first year of the approv Iti-year outlook. The Finance Committee is currently 16 composed of defendants Cox, Kimmel, Williains, and Rambo. Defendant Cox has 17 served on the Finance Committee since 2004. Defendant Kimmel has served on the 18 Finance Committee since 2009. Defendant Williams has served on the Finance 19 Committee since at least 2003. Defendant Rambo is also Chairman of the Finance 20 Committee and has "been since 2008 and a member of the committee since 2004. As 21 members of the Finance Committee, defendants Cox, Kimmel, Rambo, and Williams 22 were responsible for reviewing and approving the Company's operating expense and 23 capital spending budgets which severely curtailed spending on safety and IMP 24 implementation. Defendants Cox, Rambo, and Williams were also members of the 25 Compensation Committee. As members of the Compensation Committee, defendants 26 Cox, Rambo, and Williams were responsible for reviewing and recomm.ending the 27 compensation of the Company's executive officers. Due to their memberships on the 28 Finance and Compensation Committees, defendants Cox, Rambo, and Williams knew - 131 -__________________________________ V.............................................................[VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00135 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 136 of 148 1 that they were approving lavish compensation for the Company's executives at the 2 same time that they were approving "budgets that curtailed spending on safety issues, 3 even though rate increases were specifically approved for that purpose. Such a 4 decision could not have been an action taken in good faith and is accordingly not 5 protected by the business judgment rule. Therefore, demand is excused. 6 354. member 2007, a report was provided to the Finance Committee 7 advising the directors that PG&E had inadequate gas and electric system safety 8 controls, and that these deficiencies had let to accidents. The report also warned the 9 directors that "PG&E continues to experience potentially catastrophic equipment 10 failures where the inability to analyze and trend historical patterns or to review the 11 inaintenance history of equipment has been identified as a contributing factor." 12 3 rder to address these risks, new initiatives were being considered, 13 including the establishment of an "asset registry to capture information about the 14 design, inaintenance, and failure of gas and electric T&D equipment," improvements 15 in program implementation; improvements in collecting and maintaining operational 16 data in an accessible manner; and the implementation of a gas distribution system 17 integrity program to "assess threats to the distribution system, providing a basis for 18 appropriate system-wide inspection and mitigation measures to be taken in order to 19 address those threats." Yet the Finance Committee members never ensured that 20 these new measures were effectively implemented, thus breaching their duties of 21 good faith and loyalty. 22 356. Despite the Individ' fendants having knowledge of" the claims and 23 causes of action raised by the plaintiff, the current Boi fled and refused to 24 seek recover for PG&E for any of the wrongdoing alleged by plaintiff herein. 25 357.....PG&E has been and will continue to be exposed to significant losses due 26 to the wrongdoing complained of herein, yet the Individual Defendants and current 27 Board have not filed any lawsuits against themselves or others who were responsible 28 for that wrongful conduct to attempt to recover for PG&E any part of the damages ............. ....... ......... ... - 132 -_________________________________ V.............................................................[VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00136 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 137 of 148 1 PG&E suffered and will suffer thereby. 2 i. CAUS1 l "Il I! < 3 Breach of the Fiduciary Duty of Loyalty - Self Dealing 4 (Against the endants) 5 358. Plaintiff incorporates by reference and realleges each and every 6 allegation set forth above, as though fully set fbi ein. 7 359. This cause of action is brought against the Indr fendants 'for 8 breach of the fiduciary duty of loyalty based on (a) breaching their duty of candor; and 9 (b) self-dealing transactions. 10 360. The Individual Defendants owed the Company the fiduciary obligation of 11 loyalty, which mandates that ;st interests of the corporation and its shareholders 12 take precedence over any interest possessed by a director, officer, or controlling 13 shareholder and not shared "by the stockholders generally. A breach of the duty of 14 candor constitutes a breach of the duty of loyalty since fiduciaries are not acting 15 loyally to the company when they fail to tell the truth. 16 361. The duty of loyalty encompasses an obligation to act in good faith. A 17 director, officer, or other corporate fiduciary cannot act loyally toward the Company 18 unless he or she believes in good faith that his or her actions are in the Company's 19 best interests. 20 362. A breach of the duty of loyalty can arise from either (a) a "breach of the 21 duty of candor or (b) self-dealing transactions, in which a fiduciary is involved in 22 procuring for himself or herself a corporate benefit not available to the stockholders 23 generally. 24 363. The Individual Defendants violated and breached their fiduciary duty of 25 loyalty by breaching their duty of candor and/or by engaging in acts of self-dealing on 26 terms that were not entirely fair to the Company. 27 364. As described in detail above, the Individual Defendants failed to disclose 28 all truthful and material information about the Company's pipeline safety to the ............. .......................... ... - 133 -__________________________________ V.............................................................[VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00137 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 138 of 148 1 public, i IC, and federal and state regulators; caused the Company to file a false 2 and misleading 2 y that urged shareholders to vote against a shareholder 3 proposal calling for the separation of the roles of Chairman and CEO, while making 4 false statements about the alleged lack of need for such proposal due to the Company's 5 allegedly strong corporate governance practices; caused the Company to pay 6 themselves substantial compensation and bonuses at the same time they caused the 7 Company to underspend on pipeline safety; caused the Company to engage in 8 improper ex parte communications with the CPUC; and caused the Company to fail to 9 cooperate with and actually obstruct the NTS estigation into the San Bruno 10 explosion, as a result of which PG&E was forced to pay a $1.6 billion fine, was 11 criminally indicted, and faces hundreds of millions of dollars in additional potential 12 fines and damages. 13 365. As a direct and proximate result of the Individual Defendants' actions 14 and breaches of their fiduciary obligations, the Company has suffered significant 15 damages, as detailed above. 16 3 virtue of the foregoing, the Individi . I' dants are liable to the 17 Company for breaching their fiduciary duty of loyalty. 18 367. Plaintiff, on behalf of PG&E, has no adequate remedy at law. 19 COUNT II Breach of the Fiduciary Duty of Loyalty - Lack of Good Faith 20 (Against jiidants) 21 368. Plaintiff realleges and incorporates by reference the allegations contained 22 above as though -fully set forth herein. 23 369. This cause of action is brought against the Indu fendants for 24 breach of the fiduciary duty of loyalty based on a failure to act in good faith. 25 370. Defendants owed the Company the fiduciary duty of loyalty, which 26 required them at all times to act in good faith and in the Company's best interests. 27 371. These Defendants could not have acted in good faith if, for example, they 28 intentionally acted with a purpose other than that of advanc pany's best ............. .......................... ... 134 ___________________________________ V.............................................................iVATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00138 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 139 of 148 1 interests, acted with, an intent to violate applicable law, or demonstrated a conscious 2 disregard for their duties. 3 372. Defendants breached their fiduciary duty of loyalty and their obligation 4 to act at all times in good faith. 5 373. Defendants knowingly participated in improper activities relating to the 6 Company's pipeline safety issues and federal and state investigations as described in 7 detail above. 8 374. Alternatively, the Individ' fendants acted with conscious disregard 9 for whether their conduct in connection with these activities and with the other 10 activities described in this Complaint was in the Company's best interests and was 11 appropriate under positive law and the Company's policies. 12 375. As a direct and proximate result of the fendants' actions and 13 breaches of their fiduciary obligations, )any has suffered significant damages, 14 as detailed above. 15 376. By virtue of the foregoing, Defendants are liable to the Company for 16 breaching their fiduciary duty of loyalty and for failing to act at all times in good faith 17 and in the Company's best interests. 18 COUNT III 19 Breach, of the Fiduciary Duty of Care (Against All Individual Defendants) 20 377. Plaintiff realleges and incorporates by reference the allegations contained 21 above as though fully set forth herein. 22 378. This cause of action is brought against the Individi dants for 23 breach of the fiduciary duty of care. 24 379. The Individual Defendants owed the Company the fiduciary obligation to 25 act at all times with due care for the Company's best interests in exercising their 26 responsibilities on behalf of the Company. 27 380. The Individual Defendants violated and breached their fiduciary duty of 28 ............. .......................... ... 135 ___________________________________ V.............................................................[VA.TIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00139 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 140 of 148 1 care through conduct that amounts to at least gross negligence. 2 381. act, the Defendants' conduct fell so far below the requirements of the 3 duty of care as to constitute a lack of good faith. 4 382. As described in detail above, the Individual Defendants failed to disclose 5 all truthful and material information about the Company's pipeline safety to the 6 public, the SEC, and federal and state regulators; caused the Company to underspend 7 on pipeline safety; caused the Company to engage in improper ex parte 8 communications with the CPUC; and caused the Company to fail to cooperate with 9 and actually obstruct the NTSB investigation into the San Bruno explosion. 10 383. These Defendants knew, or were grossly negligent in not knowing, that 11 the conduct described throughout this Complaint was unlawful. 12 384. These Defendants' actions were outside the bounds of reason and 13 demonstrated a reckless indifference to the whole body of stockholders. 14 385. As a direct and proximate result of the its' actions and their 15 failure to fulfill their fiduciary duty of care, the Company has suffered significant 16 damages, as detailed above. 17 386. By virtue of the foregoing, the Individi dants are liable to the 18 Company for breaching their fiduciary duty of care. 19 387. Plaintiff, on behalf of the Company, has no adequate remedy at law. 20 COUNT IV 21 ' ainst all Individi " .fondants for Waste of Corporate Assets 22 388. Plaintiff" incorporates by reference and realleges each and every 23 allegation contained above, as though fully set forth herein. 24 389. As a result of the India iants' wrongdoing, the Individual 25 Defendants have caused PG&E to waste corporate assets: (i) by paying undeserved 26 incentive compensation to certain of its executive officers; (ii) by in, ms of 27 dollars in fines due to the safety violations; and (ii) by incurring billions of dollars of 28 legal liability and/or legal costs to defend defendants' unlawful actions. 136 _________________________________ V.............................................................[VATIPE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00140 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 141 of 148 1 390. As a result of the waste of corporate assets, the Individual Defendants 2 are liable to the Company. 3 391. Plaintiff, on behalf of PG&E, has no adequate remedy at law. 4 COUNTV 5 Against the Individual Defendant t Eiiri.ohin.eiit 6 392. Plaintiff incorporates by reference and realleges each and every 7 allegation contained above, as though fully set forth herein. 8 393. By their wrongful acts and omissions, the Individual Defendants were 9 unjustly enriched at the expense of and to the detriment of PG&E. The Individual 10 Defendants were unjustly enriched as a result of the compensation and director 11 remuneration they received while breaching fiduciary duties owed to PG&E. 12 394. Plaintiff, as a shareholder and representative of PG&E, seeks restitution 13 fi defendants, and each of them, and seeks an order of this Court disgorging 14 all profits, benefits and other compensation obtained by these defendants, and each of 15 them, from their wrongful, conduct and fiduciary breaches. 16 395. Plaintiff, on behalf of PG&E, has no adequate remedy at law. 17 COUNT VI For Breach, of of Honest Services 18 (Against Defendants Geisha 1. Williams, William. " es, Peter mrbee, 19 ' i . hony F. Earley, Jr., Kent 1 rw m toplie .. '... : - Mis x, and Nick Stavropoiilos) 20 396. Plaintiff incorporates by reference and realleges each and every 21 allegation contained above, as though fully set forth herein. 22 397. This cl; brought derivatively on behalf of the Company against 23 Defendants Geisha J. Williams, Wil 24 es, Peter A. Darbee, Anthony F. Earley, Jr., Kent M. Harvey, Christopher P. Johns, Dinyar 25 ry, C. Lee Cox, and Nick Stavroponlos for breach of their undivided duty of loyalty to their employer. 26 398. During at least a portion of the Relevant Period, all Defendants were 27 employees of the Company. 28 ............. .......................... ... 137 ___________________________________ V.............................................................[VA.TIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00141 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 142 of 148 1 399. Defendants breached their duty of loyalty to the Company "by not acting 2 solely in the Company's interests in performing their employment duties. 3 400. Those breaches of duty consisted of the conduct alleged in this complaint 4 including, without limitation, their conduct in causing the Company to (i) conceal the 5 fact that Company was not spending necessary and available funds on required 6 pipeline safety efforts; (ii) conceal the fact that the Company was not recording and 7 maintaining adequate books and records regarding pipeline operation and safety, as 8 required by federal and state laws and regulations; (iii) deceive the shareholders of the 9 Company regarding the Company's compliance with federal and state laws and 10 regulations regarding pipeline safety; and (iv) take actions to deceive the NTSB and 11 obstruct its investigation into the 21 n Bruno explosion which killed eight people. 12 Defendants benefitted from their wrongdoing because they were allowed to retain 13 their jobs in exchange for their unlawful conduct and because they received 14 compensation that was directly tied to the Company's financial performance, which 15 was greater than it wot re been absent the Defendants' wrongful conduct. 16 401. The Company was harmed by these Defendants' breaches of the 17 undivided duty of loyalty. 18 402. By reason of the foregoing, the Company was harmed and will continue to 19 suffer harm as described in greater detail above. 20 COUNT VII `eiidauts for Conspiracy to Breach Fiduciary Duties 21 22 403. Plaintiffincorporates by reference and realleges each and every 23 allegation set forth above, as though fully set forth herein. 24 4 ommitting the wrongful acts alleged herein, the Individual 25 Defendants have pursued, or joined in the pursuit of, a common course of conduct, and 26 have acted in concert with and conspired with one another in furtherance of their 27 c< 1 i plan or design. ' Idition to the wrongful conduct herein alleged as giving 28 rise to primary liability, the Individ nts further aided and abetted and/or ............. .......................... ... 138 ___________________________________ V.............................................................[VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00142 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 143 of 148 1 assisted each other in "breach of their respective duties. 2 405. During all times relevant hereto, the Individ idants collectively 3 and individually initiated a course of conduct that was designed to and did: (i) conceal 4 the fact that Company was not spending necessary and available funds on required 5 pipeline safety efforts; (ii) conceal the fact that the Company was not recording and 6 maintaining adequate books and records regarding pipeline operation and safety, as 7 required by federal and state laws and regulations; (iii) maintain ti ividual 8 Defendants' executive and directorial positions at the Company and the profits, power 9 and prestige that the Individi fendants enjoyed as a result of these positions; (iv) 10 deceive the shareholders of the Company regarding the Company's compliance with 11 federal and state laws and regulations regarding pipeline safety; (v) take actions to 12 deceive the; NTSB and obstruct its investigation into the 1 mo explosion 13 which killed eight people; and (vi) breach their duty of candor, good faith, and loyalty 14 in communications to shareholders, including the 2 effort to defeat a 15 shareholder proposal calling for the separation of the roles of Chairman and CEO in 16 order to provide independent oversight of management regarding safety issues, 17 furtherance of this plan, conspiracy and course of conduct, the Individ tits 18 collectively and individually took the actions set forth herein. 19 406. The Individual Defendants engaged in a conspiracy, common enterprise 20 and/or common course of conduct. During this time the Individi dants caused 21 the Company to conceal the true facts, as alleged herein. 22 407. The purpose and effect of the conspiracy, common enterprise, and/or 23 common course of conduct by and among the Individual Defendants was, among other 24 things, to benefit themselves at the expense of the Company by granting themselves 25 excessive and inequitable compensation, derived by causing the Company to 26 underspend on pipeline safety issues. 27 408. The Individual Defendants accomplished their conspiracy, common 28 enterprise and/or common course of conduct by causing the Company to violate federal 139 __________________________________ V.............................................................iVATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00143 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 144 of 148 1 and state laws and regulations governing the Company's operations. Because the 2 actions described herein occurred under the authority of the Board, each of the 3 Individi dants was a direct, necessary and substantial participant in the 4 conspiracy, common enterprise and/or common course of conduct complained of herein. 5 409. Each of the Indi1 fendants aided and abetted and rendered 6 substantial assistance in the wrongs complained of hereir aking such actions to 7 substantially assist the commission of the wrongdoing complained of herein, each 8 Individual Defendant acted with knowledge of the primary wrongdoing, substantially 9 assisted the accomplishment of that wrongdoing, and was aware of his or her overall 10 contribution to and furtherance of the wrongdoing. 11 410. As a direct and proximate result of the conspiracy, common enterprise 12 and/or common course of conduct by and among the Individual Defendants, the 13 Company has sustained significant damages. As a result of the misconduct alleged 14 herein, the Individual Defendants are liable to the Company. 15 411. Plaintiff on behalf of the Company has no adequate remedy at law. 16 COUNT VIII 17 ,....... ittii I, eaches of Fiduciary Duties (Against All Individual Defendants) 18 412. Plaintiff realleges and incorporates by reference the allegations contained 19 above as though fully set forth herein. 20 413. This cause of action is brought against all Individu lants for 21 aiding and abetting breaches of fiduciary duty. 22 414. As alleged above, dants are current or former officers 23 and/or directors of PG&E and/or PG&E Corp. As such, all Individi fendants owed 24 fiduciary duties of good faith, loyalty, candor and care to the Company. Through the 25 conduct alleged herein, Defendants breached their fiduciary duties to the Company. 26 In the alternative, the conduct of all Defendants, whether or not it constituted an 27 independent violation of fiduciary duty, constituted aiding and abetting the breach of 28 ............. .......................... ... 140 ___________________________________ V.............................................................iVATIME COMPLAINT' 17cv1906 Sierra Club v. EPA ED_001523_00002233-00144 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 145 of 148 1 fiduciary duties. 2 415. All Defendants knew tliat th.e other Defendants' conduct violated those 3 Defendants' fiduciary duties to the Company. 4 As alleged above, Defendants substantially aided or encouraged the other 5 Defendants to breach their fiduciary duties to PG&E. Such aid and encouragement 6 included, without limitation, these Defendants' participation in knowing or reckless 7 violation of federal and state pipeline safety rules and regulations, knowing or reckless 8 disregard of the duties of candor, good faith, loyalty, and care, their participation in 9 falsifying Company records relating to pipeline safety and the NTSB investigation, 10 and/or active participation in the obstruction of the NTSB investigation. 11 As alleged above, the Company was harmed by the other Defendants' 12 breaches of their fiduciary duties. 13 418. By reason of the foregoing, the Company has sustained and will continue 14 to sustain damages as described in greater detail above. 15 XII. PRAYER FOR RELIEF 16 WHEREFORE, plaintiff demands judgment against defendants as follows: 17 A. Against all of the Individual Defendants and in favor of the Company for 18 the amount of damages sustained by the Company as a result of the Individual 19 Defendants' breaches of fiduciary duties, waste of corporate assets, and unjust 20 enrichment; 21 Directing the Company to take all necessary actions to reform and 22 improve its corporate governance principles and internal policies to comply with 23 applicable laws and to protect the Company and its shareholders from a repeat of the 24 damaging events described herein, including, but not limited to, putting forward for 25 shareholder vote, resolutions for amendments to the Compar tws or Articles of 26 Incorporation and taking such other action as may "be necessary to place before 27 shareholders for a vote the following Corpora romance Policies: 28 - 141 -__________________________________ VERI....................................................... VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00145 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 146 of 148 1 1. a proposal to require the Company to elect an independent 2 Chairman ird and/or separate the roles of Chairman and CEO; 3 2. a proposal to strengthen t mpany's policies and procedures 4 regarding cooperation with federal and state investigations, specifically including any 5 investigation "by the NTSB and *e that the Company does not impede 6 or obstruct in any way any governmental investigations regarding the Company's 7 operations; 8 3. a proposal to strengthen PG&E's internal controls over regulatory 9 compliance and specifically with respect to its required pipeline inspection and 10 remediation practices; 11 4. a proposal to strengthen t ird's supervision of operations and 12 develop and implement procedures for greater shareholder input into the policies and 13 guidelines of t ird; and 14 5. a provision to permit the shareholders of the Company to nominate 15 at least three candidates for election to the Board; 16 C. Extraordinary equitable and/or injunctive relief as permitted by law, 17 equity and state statutory provisions sued hereunder, including attaching, 18 impounding, imposing a constructive trust on or otherwise restricting defendants' 19 assets so as to assure that plaintiff on behalf of the Company has an effective remedy; 20 Awarding to the Company restitution from the defendants, and each of 21 them, and ordering disgorgement of all profits, benefits, and other compensation 22 unjustly earned by the defendants; 23 E. .Awarding to plaintiff reasonable attorneys' fees, consultant and expert 24 fees, costs and expenses; and 25 F. Granting such other and further relief as the Court deems just and 26 proper. 27 /// 28 /// ................................................... .... - 142 -____________________________________________ V;............................................................. NATIVE complaint' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00146 Case 3:16-cv-00973 Document 1 Filed 02/27/16 Page 147 of 148 1 XIII. JURY DEMAND 2 Plaintiff demands a trial by jury. 3 DATED: February 27, 4 5 6 Respectfully submitted, Bottini & Bottini, INC. Francis A. Bottini, Jr. Albert Y. Chang Yury A. Kolesnikov 7 _____ s/ Francis ittini, Jr._______ Francis A. Bottini, Jr. 8 e Avenue, Suite 102 9 La Jolla, California 92037 10 Telephone: (85 Facsimile: (85 )02 11 E-mail: fbottini@bottinilaw.com 12 achang@bottinilaw. com ykolesniko'v@bottinilaw.com 13 Attorneys for Plaintiff 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ................ .................................. .... ...................... VERI VATIVE COMPLAINT' 17cv1906 Sierra Club v. EPA ED 001523 00002233-00147 Case 3:16-cv-00973 Document! Filed 02/27/16 Page 148 of 148 VERIFICATION I, Andrew S. Bushkin, verify that I am a shareholder of Nominal Defendant PG&E Corporation ("PG&E Corp."), and that I have continuously owned PG&E Corp, stock at all relevant times. I have reviewed the allegations in this Verified Shareholder Derivative Complaint (the "Complaint"). As to those allegations of which I have personal knowledge, I believe them to be true; as to those allegations of which I lack personal knowledge, I rely upon my counsel and counsel's investigation, and believe them to be true. Haring received a copy of the Complaint and reviewed it with counsel, 1 authorize its filing. I declare under penalty of perjury under the laws of the United States that the foregoing is true ami correct. Executed on February ^3, 2016. .. . Andrew S. Bushkin 17cv1906 Sierra Club v. EPA ED_001523_00002233-00148