Fraud

Allegations of criminal fraud and other wrongdoing

How a power company defied two regulators to avoid responsibility for MGP contamination, and then coopted one regulator to cover it up.

In July 2019, a request was made to the Departments of Justice at the Federal, State, and local level.  The request was for an inquiry into alleged wrongdoing connected to MGP investigations in the Marina district of San Francisco.  The Attorney General of California sent an acknowledgment and the other two did not reply.  The request consisted of a cover letter and report with links to supporting documentation.  The complete report, cover letter, and acknowledgment can be downloaded here: report , letter , acknowledgment.  A short version of the report, one that does not contain links to the supporting documentation, is provided below. 

Introduction

This is a report of wrongdoing which began decades ago and continues today. It is part of the long story of Manufactured Gas Plant (MGP) contamination in the Marina and Fisherman’s Wharf neighborhoods of San Francisco. The part described in this report starts with three investigations conducted on two neighboring properties in the Marina in the 1990s. The wrongdoing and alleged criminal acts include negligence, fraud, misrepresentations, collusion, cover-ups, and other misdeeds which are continuing into 2019. The central actor is PG&E Corporation. In addition, two California state regulators and a commercial company may be accused of inappropriate or deliberately wrongful conduct.
One offence was the way PG&E conducted and reported the third investigation. In that investigation, PG&E crossed the line from merely unethical conduct to criminal fraud. It is alleged that the company orchestrated events deliberately in a misleading and deceptive manner to circumvent the specific direction it had been given by two California state regulators during an earlier investigation. The regulators’ direction, based on finding contamination on one part of a former MGP site, was to conduct additional investigations in the surrounding area … a requirement obvious to a layperson. PG&E did not conduct the additional investigations. Instead, the company got away with its inexcusable behavior partly through simply refusing to act, partly through the regulators’ weakness, and partly through fraudulent acts described in this report. There are other offenses as well. A few of PG&E’s actions were done in the name of a third-party commercial company, unrelated to PG&E, and that company may be willingly or unwillingly complicit. PG&E has been misleading the public about its past investigations for years. One state regulator, probably due to embarrassment, apparently colluded and covered up PG&E’s misrepresentation while trying to excuse its own failure to hold PG&E accountable. The other regulator, which similarly failed to hold PG&E accountable, was simply duped by PG&E. Both regulators continue to hide from what happened and shield PG&E from being held accountable for its actions.
Consequences are felt today. Residents, workers, property owners, and others struggle with unresolved contamination issues where they live and work. Almost thirty years of impact to the environment – impact which could have been avoided had PG&E not acted criminally – have accrued. As of this writing, after decades of limited and compartmentalized investigations, MGP contamination continues to seep, observably bubbling up at times, into San Francisco bay at least in one known location. No one knows if there are other locations. Most importantly, PG&E, despite the recent bankruptcy proceedings, remains the fox in the henhouse controlling every aspect of MGP contamination in the area. The company acts for its own good rather than the good of the people.

Notes about the organization of this report: While the misdeeds are all interconnected and events associated with the three investigations occur at overlapping times, the synopsis and main sections describe each investigation and its follow-on events separately with minimal cross referencing. After the background, the main sections of the report are footnoted with explanations and links to related documents. [Note: The main sections have been removed from this shortened  website version.] The last sections attempt to answer basic questions the reader might have.

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Background

The following may be useful for background, context, terminology, etc. The points are presented without backup because they are generally accepted facts.
  • Manufactured Gas Plants (MGPs) were places where gas used for lighting, heating, and cooking was produced mostly from coal and sometimes from other hydrocarbons before the advent of natural gas.
  • The EPA has designated Polynuclear Aromatic Hydrocarbons (PAHs), in addition to other chemicals associated with MGP sites, including lead, as potentially hazardous to human health and the environment. High concentrations of PAHs are toxic, roughly half of the EPA’s priority PAHs are carcinogens.
  • It is generally known in the environmental industry that former MGP sites are potentially contaminated from PAHs and other chemicals associated with the gas making processes.
  • PG&E, or its direct predecessor, SFG&E, owned and operated four MGPs along San Francisco’s northern waterfront in the late 1880s and early 1900s. Two of the MGPs located in the Marina, the North Beach (NOB) MGP and the Fillmore (FIL) MGP, had contamination plumes that overlapped because of their proximity and the area’s geography. The two properties central to this report are located on the footprint of the NOB MGP.
  • In 1977, the ground under a section of Marina Boulevard was found to be “extensively contaminated” with creosote. It is probable that PG&E was informed of this finding at the time. Creosote is a derivative of coal tar, a highly concentrated byproduct of MGPs rich with PAHs. The terms coal tar, creosote, and Non-Aqueous Phase Liquid (NAPL) are often used interchangeably. A report written by geologists in 1977 said the contamination was “probably” due to the former gas plant in the area. There is little doubt about the source today.
  • The contamination found in 1977 is particularly worrisome. The contaminated section of Marina Boulevard overlays a former lagoon which fronted both the NOB and FIL MGPs when they were in operation and before the Marina was filled. The fill area is roughly 50 acres of dry land today. The former lagoon is separated from San Francisco bay by the narrow seawall that supports the Marina Green. Groundwater and tidal forces are known to cause chemicals to migrate underground. If the former lagoon is contaminated, the bay is threatened.
  • In 1984, the United States Environmental Protection Agency (EPA) launched a program to evaluate the risk of contamination from MGPs. The initiative stemmed from laws commonly called Superfund which were enacted by Congress in 1980. The EPA started with a list of all MGPs in the country and instructed each regional utility to gather information needed to evaluate the MGPs located in its service area. The information obtained from the utilities was then used to decide which MGPs to elevate to the National Priorities List (NPL). MGPs on the NPL received immediate attention and were eligible for government funds for clean-up. The evaluation process was a simple triage that did not involve extensive testing. MGPs not elevated to the NPL remained in the Superfund’s information system as lower priorities. The lower priority MGPs would, presumably, receive a more comprehensive evaluation sometime in the future. The four MGPs along San Francisco’s northern waterfront were evaluated under the Superfund’s triage system. They were not elevated to the NPL.
  • In early 1986, PG&E met with the EPA and outlined its response to the EPA’s initiative. In late 1986 and 1987, the company tested surface soil on at least 25 properties in the Marina and Fisherman’s Wharf. PG&E did not test subsurface soil nor did it test groundwater. The test results, together with background information, were given to property owners and to the EPA.
  • In addition to superficially testing at least 25 properties, PG&E also did a records search and determined there were no drinking wells in the vicinity. The company then prepared a report with historical information about each MGP and submitted it to the EPA. Those actions, together with the fact that a responsible party, PG&E, was stepping forward, were evidently sufficient to convince the EPA that there was no immediate threat to humans. By the end of 1987, PG&E had received a pass, called a “no further action” (NFA) in regulatory parlance, from the EPA for all four MGPs. It was through these actions that PG&E avoided having the four MGPs along San Francisco’s northern waterfront elevated to the NPL in the mid-1980s.
  • From a human health perspective, the reliability of the surface soil testing on the 25 properties is questionable. Thirty years later, nine of the 25 properties originally tested in the 1980s were retested. Of those nine retested, only two have received an NFA. Seven of the nine require soil removal and deed restrictions, aka land use covenants, to render the properties completely safe. Such odds are not favorable.
  • From an environmental perspective, the threat to San Francisco bay was not considered as part of the triage during the 1980s. The four MGPs are close to the bay but groundwater was not tested. It is now known that MGP contamination is seeping into San Francisco bay, and can be seen bubbling up during some low tides, at one specific location. Other locations, some highly suspect, remain unexamined.
  • The situation regarding full disclosure of the contamination discovered in 1977 is unclear. Nothing in the record indicates that the EPA, in granting NFAs in the 1980s, considered the fact that extensive contamination was discovered in a former lagoon bordering the bay. Nothing in the record indicates that the EPA was informed of that discovery by any party. Similarly, there is nothing in the record indicating that any California state regulator was informed prior to 2010.
  • In the 1980s, the lead regulatory agency was part of the federal government, the EPA. The lead agency changed in the early 1990s because the EPA has a long-standing policy of deferring to the states whenever possible. Triage in the 1980s indicated (erroneously, as has since been established) that there was no immediate threat from the four MGPs. A viable entity, PG&E, stepped forward as the responsible party. For these reasons, the EPA relinquished to California the authority to determine what further actions would be necessary at the four MGPs along the northern waterfront. It was understood that triage considered only immediate threats and a different evaluation would be needed for longer term issues.
  • The first state agency to get involved was the California Public Utilities Commission (CPUC). The CPUC regulates most utilities’ operations including, importantly, the rates charged to customers. In theory, the CPUC has the power to compel a public utility to take action. The CPUC apparently took on the role of pressuring PG&E to complete comprehensive investigations of all MGPs in its service area. PG&E’s commitment to act and the specific actions the company would take were stated in a letter to the EPA in the 1980s. The commitment was markedly different for MGPs where PG&E still owned the property than for MGPs where third parties owned the property. The difference was essentially “commit” versus “endeavor.” The CPUC pointedly made no such distinction and demanded a comprehensive investigation for all MGPs regardless of ownership. The difference between company owned and third party owned became a point of contention in the 1990s and is still problematic today.
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Synopsis

1991 Investigation:
In 1991, PG&E discovered contamination on part of an MGP during a state mandated investigation and reported it to a regulator. The location was the Marina Substation, a PG&E owned 0.25-acre parcel within the 9.5-acre former the North Beach (NOB) MGP. Two California state regulators, the Department of Toxic Substances Control (DTSC) and the Water Board, demanded that PG&E investigate the full 9.5-acre MGP. PG&E did not do so. DTSC, the lead regulator, had the authority to compel PG&E to act but DTSC did not do so. DTSC claimed, later, that it approved the report and referred the case to the Water Board but has produced no documentation to corroborate that claim and it appears that DTSC simply did nothing. The Water Board it appears similarly did nothing, not in response to a referral from DTSC (if a referral was indeed made) and not of its own accord.
Beginning in 2010, PG&E deceived and misled the public about the 1991 investigation. It did this in representations it made and in collateral it used to recruit residents to allow testing for MGP contamination on their properties. An issue arose in 2010 over the fact that PG&E had not conducted a wider investigation in 1991 as demanded by the regulators. PG&E arranged a private call with DTSC to discuss the matter in 2010. After the call, PG&E reported up its chain of command that DTSC was now “on the same page.” It was in 2010 that DTSC claimed it approved the report and referred the case to the Water Board. At the same time, PG&E, in anticipation of public meetings, prepared talking points to address its refusal to investigate the full MGP back in 1991. The talking points sidestepped the issue saying: “The point is that we are here now and ready to get to work.” PG&E gave those talking points to DTSC presumably so DTSC would support PG&E in avoiding the issue. Less than two weeks later, DTSC echoed PG&E’s talking points in an email to a neighbor. And still later in 2010, DTSC produced its own collateral which glossed-over PG&E’s deception and sidestepped the issue. It is alleged that by these actions, DTSC covered-up the issue and joined PG&E in the deceit, losing all credibility in the process.
In 2019, DTSC continues to obscure the issue of the 1991 Marina Substation investigation. It does this by designating records it wishes to withhold as privileged. DTSC refuses even to provide a log of the withheld documents. The obstruction has reached the absurd. It is not possible to be certain if DTSC did or did not approve PG&E’s 1991 Marina Substation investigation, or if DTSC did or did not refer the case to the Water Board, or why DTSC appears to have simply done nothing. It is believed that DTSC is clouding the matter because it is embarrassed by its failure to compel PG&E to investigate the full MGP. Unfortunately, while trying to protect itself from criticism, DTSC is shielding PG&E and allowing it to avoid its legal obligations and continue to deceive the public.

….

1994 Investigation:

In 1994, contamination was discovered during an investigation at a location adjacent to the Marina Substation. The location was a private property known as the Gas Light Building. (Another investigation at the same location a few years later, summarized in the next section, would play a central role in an alleged criminal fraud.) Little is known about the 1994 investigation because this investigation is reportedly “not in the public domain,” a questionable designation given that contamination was found at the site. It appears that the 1994 investigation was initiated by the property’s owner and PG&E got involved later in a role that is cloudy. During the 1994 investigation, the property owner was warned by a contractor of possible “close scrutiny by public agencies in the environmental and banking fields” because the site was part of the 9.5-acre NOB MGP. The warning came a few days after the contractor received background information from PG&E. Work on the 1994 investigation was concluded shortly thereafter. The contamination was not reported to any regulator at the time.
It is alleged, here, that the desire to avoid “close scrutiny” is the motive for the criminal fraud described in the next section.
Two technical reports were written, in 1994, about the Gas Light Building investigation. Sixteen years later, in 2010, the two technical reports were “redacted” from a set of documents that PG&E turned over to the San Francisco school board. The two 1994 reports have never been given to any regulator. On the one hand, withholding technical reports from government agencies is highly unusual. On the other hand, information in the public domain suggests there is nothing sensitive in the 1994 reports. Redacting these reports has only served to emphasize the unusual nature of both the 1994 and 1997 investigations at the Gas Light Building.

….

1997 Investigation:

Three years later, in 1997, PG&E investigated the Gas Light Building for MGP contamination in a manner that can only be described as suspicious. There was no interaction with any regulator before testing, which is rare for investigating contamination as significant as that from an MGP. After testing, PG&E sent a report to a regulator requesting approval of the investigation and approval for a remediation plan for some of the contamination found at the site. The report was sent to the Water Board and not to DTSC, the agency with jurisdiction on land and the lead agency for similar contamination recently found on the adjacent property. Within the Water Board, the report was not sent to those who had been involved with the contamination on the adjacent property. Instead, it was sent to a junior employee assigned to reviewing the routine task of removing underground storage tanks. The cover letter even misspelled that employee’s name.
In 2010, PG&E portrayed the 1997 Gas Light Building investigation and remediation as work done under the “oversight” of the Water Board, a claim that is disputed here. A puzzling material had been found at the Gas Light Building in 1997. The 1997 investigators thought the material might be a source of the contamination they were finding and mistakenly labeled it lampblack. In 2010, the lampblack-like material was confirmed to be the same or similar to a material readily found at the author’s home and other locations in the Marina. The material found at the author’s home was confirmed to be MGP contamination. An attempt to get more information about the lampblack-like material led to shocking discoveries a few years later.
In the summer of 2014, while seeking information the Water Board might have on the lampblack-like material, it was discovered that the Water Board had no records pertaining to the Gas Light Building. The first shock was learning that the Water Board had no documentation or information of any kind about an investigation and remediation of MGP contamination that PG&E claimed the Water Board had overseen. An employee whose name is associated with the 1997 project had no recollection of the investigation and said it sounded like a “scoop and run,” a phrase used to designate work done without proper oversight. A second shock occurred in December of 2014 when an approval letter from the Water Board was found in the files of the San Francisco school board. The signature and other aspects of the letter are questionable so it cannot be certain if the letter is an official Water Board determination. The letter was evidently drafted by someone employed at the Water Board in 1997. That employee could not have been aware of the agency’s determination for the same set of circumstances in 1991 because if they were aware, they would be causing the Water Board to have two diametrically opposed positions for the same conditions. Also, if they were aware, they would be neglecting the regulator’s core responsibility to protect people and the environment from a known threat. It is alleged in this report that there was no oversight at the Gas Light Building in 1997. Instead, it is alleged that a Water Board employee was duped into drafting an approval letter for what the employee considered an insignificant project.
The Water Board is not taking responsibility for the role it played in enabling PG&E to skirt investigating the wider area and in PG&E’s continuing deception claiming oversight. The agency has been repeatedly asked to clarify its conflicting determinations. In 2019, in response to a Public Records Act request with pointed questions, it delivered documents in its possession but did not address the inconsistencies of its, or its employee’s, actions. The Water Board did tentatively identify the person who signed the questionable letter as an employee who retired a few years ago. That person declined to speak to the author saying that he didn’t think he could help given that the events happened long ago.

….

Tying it all together, the allegations in shorthand, 1991 was the initial wrongdoing and deepening of PG&E’s culpability. It had certain knowledge, knew what it needed to do, was told what it should do, but choose not to do it. The offences of 1994, not reporting contamination, were comparatively minor; the real importance of 1994 is what it reveals about motivation: “close scrutiny.” The well-orchestrated 1997 was the most outrageous of PG&E’s misconduct. The company could pull it off and did pull it off but in doing so dug its culpability hole incredibly deep. The deceptive and misleading portrayals, in 2010, were fraud of a different nature. The collusion, “on the same page,” and DTSC’s cover-up flowed from those earlier misdeeds, agency familiarity and a very high degree of cooperation, and relative weakness. Relative weakness is also to blame for the Water Board’s failure to take responsibility.
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What are the alleged crimes?

The story of these investigations paints an unflattering picture of all involved. It is evident there was defiant, scheming, and deceitful behavior on the part of PG&E. It is up to the government, of course, to itemize and charge specific crimes, but here’s a list to begin:
  • It is alleged that PG&E is criminally negligent because it knowingly and deliberately failed to conduct an investigation of the entire NOB MGP beginning in 1991. The company reaffirmed its negligence by its actions in 1994 and, especially, in 1997. People have been threatened and the environment has been harmed by this negligence.
  • It is alleged that PG&E committed criminal fraud by knowingly and deliberately:
  • Concealing knowledge and failing to immediately report the 1994 contamination.
  • Concealing knowledge and failing to report the 1997 contamination to DTSC.
  • Concealing knowledge and failing to report the 1997 contamination to the appropriate department and personnel in the Water Board.
  • Reporting the 1997 contamination to an inappropriate department in the Water Board in a manner which caused the agency to (possibly) grant approval for a small-area project without due consideration of the wider implications.
  • Portraying the 1991 investigation in a deceptive and misleading manner.
  • Portraying oversight of the 1997 investigation in a deceptive and misleading manner.
While PG&E is the prime mover, other parties may be implicated in the wrongdoing. It is not certain if DTSC can be charged with a crime for covering up PG&E’s negligence and colluding on the story, however unprincipled those acts may be. It may not be possible simply because DTSC is a government agency. The Water Board, with its two opposing positions and belief that it’s tougher than DTSC and can hold PG&E in line, does not appear to be intentionally criminal, just clueless. And the third-party commercial company that owned the Gas Light Building at the time? That company may or may not be complicit. In the bigger picture, what is important is what the company knows about these events and that should be part of the inquiry.
On the other hand, PG&E’s willful and deliberate subterfuge has put the utility, including its corporate officers, in jeopardy of criminal liability for negligent violations of the Clean Water Act.
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How was it possible?

PG&E is a highly regulated utility. Even if one believes that a company might not want to do something that needed to be done, how could the company not do what it was told to do by two state authorities? Why wouldn’t those authorities use the power they possess to make the company do it? And how could one of those authorities hold two opposite positions for the same situation?
Those questions were put to former Water Board employee who spent his career in the environmental field. The individual was on staff at the Water Board during all three investigations and directly involved in the 1991 investigation. However, he could add nothing to what was already known about 1991 and he had no knowledge of the 1994 or 1997 investigations. To address those questions, he told this story:

“When I was at the Water Board there was this one case I remember. There was sludge coming out of valve from a tank. It was going into drains and a culvert and making its way into San Francisco bay. This was at a place you would call a tank farm. It belonged to an oil company, one of the big oil companies. The sludge contained prohibited chemicals and this was a clear violation. It was so obvious you could see it. I got my management involved and we told the oil company they had to fix it. We wrote a report about it.

“Many years later, I met a man who was also in the environmental field. This was at a social function I was attending because our wives knew each other. This man told me about the oil company, the tank farm, and the sludge going into drains and culverts down to the bay. Then he said to me: ‘You’d think you guys down at the Water Board would have taken care of this problem.’ I said back to him: ‘We did take care of it. We told the oil company they had to fix it. If you don’t believe me you can read the report. It’s on a shelf down at the Water Board.’”

And, as if that wasn’t clear enough, the former Water Board employee added: “The little guy, we have some control over, but the big companies all know this. They do what they want and get away with it.”

Other factors contribute. PG&E is very familiar with the rules, it helped write the regulations when they were first formulated. The company has the resources to hire experts who can argue and create delays until the opposition gives way. The regulators, on the other hand, are managing multiple projects simultaneously and classically overworked. Regulators act as gatekeepers approving or holding up projects that have been submitted for review. They are not proactive. They are not investigative agents looking for wrongdoing. Also, PG&E and the regulators interact on so many projects that some degree of familiarity and cooperation is inevitable. It is believed that an overwhelming degree of familiarity and cooperativeness is what led DTSC to become complicit and cover up PG&E’s deception.
So, how is it possible? It would be a gross understatement to say that regulation was ineffective. Relative to PG&E, the two agencies tasked with overseeing contamination are weak. Neither agency is standing up and taking responsibility for its role in these disgraceful events. At the end of the day, the idea of effective regulation is a myth.
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Why does this matter?

Why should anyone care? PG&E is the same disreputable company with the same unworthy motives doing the same shameful things it has done for decades. It is hiding from contamination. It is hiding the contamination from the public. It does not want to deal with the contamination, it wants to keep as much of it as possible buried and forgotten. Today, contamination is seeping into San Francisco bay. Today, PG&E has workers and residents in the Marina over a barrel. People are threatened by MGP contamination and have no one to turn to but PG&E. In response, PG&E shifts its liability to private citizens through land use covenants which it says are required by DTSC but, in reality, are there to benefit PG&E. The company’s pursuit of its goal has been egregious and there is no effective regulation. There has never been a thorough and honest investigation of the contamination and there is not one taking place now. Fundamentally, this is a case of the fox guarding the henhouse. PG&E has proven itself to be unscrupulous and unless it is called on its actions it will continue its abuse.
It should also be noted that the petition for bankruptcy does not affect what PG&E does in the environmental field. When PG&E filed its petition for protection under bankruptcy laws in January 2019, it made same-day motions to allow the company to proceed with certain business activities. One of those activities was its environmental programs. PG&E argued these programs were necessary and a secure funding source was in place meaning it would not affect fire victims. The bankruptcy judge ruled in favor. Similar to gas and electric service, PG&E’s activities in the environmental field are continuing independent of bankruptcy proceedings.
Without an inquiry, an unethical company will be allowed to act with no one challenging its misbehavior. The allegations in this report are backed-up with evidence. An inquiry is warranted.
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