20732943_SamuelMoreno_BLAW1002 Legal Case Study

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BLAW1002 Markets and Legal Frameworks Assignment Cover Sheet When submitting your assignment, it must be accompanied by this Assignment Cover Sheet. Please make sure that you complete all the details correctly.  Provide ALL details requested on this form.  Use one form for each assignment. Given name: Samuel Surname: Moreno Student number: 20732943 Email: Samuel.moreno@student.curtin.edu.au Unit name: Markets and Legal Frameworks Markets and Legal Frameworks Unit code: BLAW1002 BLAW1002 Assignment title: Legal Case study Date submitted: 25 th May 2022 Tutor: Karli Grzyb Word Count: 2169 Student’s comment to marker: N/A Marker’s comments Recorded mark Marker Comments 1

1. With reference to the facts in the case study, describe how three (3) of these areas would apply to bring justice to those who have been wronged by the conduct of PG&E? The Company, Pacific Gas and Electric (PG&E) are a Californian company who are responsible for a large amount of the power lines put up and around California. For the power lines PG&E put up their safe and useable life is around 65 years whilst the average life PG&E’s equipment has been around is 68 years. Since PG&E know that their equipment becomes unstable around 65 years they should have been required to arrange for the renewal of these powerlines and transmission towers to ensure the safety of the residents of California and the protections of the ecosystems surrounding this equipment. Since PG&E decided, they weren’t going to do what was right and necessary in replacing their equipment even though they knew they were a huge fire risk, millions of acres of ecosystems over the span of decades were torched leaving behind dry floor debris. PG&E did this as it would have been a huge cost to them, so they neglected it. In this situation, the area of Environmental law would be able to bring justice to those who were behind the neglections of these maintenance repairs. Environmental is a very large law without precise boundaries which contains the categories of environmental protection and environmental impact assessment, the neglection of maintenance falls under both categories. Now there isn’t a certain person who has been wronged by these actions of PG&E but the population of California as they have been put in a circumstance where their lives at now at risk from these neglections. This law gives the people of California justice to force PG&E into renewing their outdated equipment to protect the environment and their lives from bushfires. (Yuen Teen, 2020, 271) At PG&E for employees they are said to have quite high and unrealistic expectations from their workers with a target of zero late tickets coming from their employees. Since this was such an unrealistic target for the employees to achieve with PG&E reducing their spending of company money of maintenance, large number of employees would falsify their records so it would be seen as their had achieved the company’s goal of zero late tickets. From this PG&E started to dismiss their mid- levels managers, employment law would allow these employees who were dismissed off the wrongs of their other employees to allow for them to receive compensations or keep their jobs as these falsifying of the work tickets was not coming from them but from PG&E applying such immense pressure to their employees to have zero late tickets. (Yuen Teen, 2020, 271) Living in an area like California where they have a history of droughts dating back decades which have caused thousands of acres of damage to land due to bushfires, having another element such as outdated electrical machines is just common knowledge to not have. Since PG&E knew their equipment was outdated and a threat to the people of California’s lives and property, they are liable for any damages. In 2018 a wildfire killed 44 residents of California due to outdated electrical equipment from PG&E (Yuen Teen, 2020, 271). from 2003 California have had their worst wildfires yet which have not all been due to outdated PG&E equipment but help play apart. Californian residents have lost their homes, family, and property due to these fires all from the negligence of PG&E. this Negligence falls under tort law 2

which is a civil wrong that causes loss or harm to someone. This law would help bring justice to PG&E for their negligence and allow for the people who have lost property or people to these bushfires to receive compensation. 2. Discuss the role of regulators in this incident and evaluate whether the actions taken by the California Public Utilities Commission (CPUC) are sufficient in preventing future wildfire incidents. When talking about how the regulators should be held accountable for the wildfire incidents of California, I believe they should not be held accountable for all the wildfires but must take part accountability for some of them. In these instances, the regulators have the role of making sure that the Company, Pacific Gas and Electric (PG&E) had to comply with legislative requirements such as tree trimming away from their power lines and transmissions towers and to respond to instances of non- compliance such as when PG&E employees falsified their tickets or the blackouts that were caused due to their negligence. Regulators are constantly monitoring and supervising these companies to make sure they abide by these laws and don’t drift off into neglecting their roles. In PG&E’s case from their negligence they had the explosion caused in 2010 due to the fact they reduced their spending on maintenance in order to increase their overall profit. This negligence in maintenance then caused the maintenance teams to falsify their tickets as PG&E still had their unrealistic pressure on the teams. The regulators had found over 50,000 falsified tickets from 2009 leading up to this explosion which led them to fine PG&E but again these punishments weren’t enough for PG&E to stop their negligence and do their maintenance the right way. Then in October of 2017 California had a bushfire that killed 44 people due to faulty electrical powerlines. This came just after a dividend payout in May of 2017 as PG&E decided to pay out their investors instead of putting the money towards their maintenance repairs. After the 2017 fire PG&E started to do safety power shutoffs which transferred the responsibility over to the people of California so that the next Bushfire, they would be able to avoid the hefty fines given to them by the regulators. (Yuen Teen, 2020, 276) Before the deadly campfire the California Public Utilities Commission (CPUC) conducted an investigation which led to the discovery of PG&E failing to adhere to their internal controls. Even though CPUC’s investigation was successful in finding out what was going to wrong at PG&E later the deadly campfire still took place killing 44 people and destroying vital ecosystems. In the wake of the 2018 campfire a bonus program was bout in for PG&E which asked for them to clear tree and branches within 4 feet of their powerlines, the CPUC were being sufficient here and requested that PG&E cleared the trees and branches but within 12 feet just to be safe. CPUC have tried many times to avoid future wildfires by increasing the fine PG&E receive for their negligence or removing the parties that are responsible for their negligence, but it has continued. The CPUC were then later criticised for failing to ensure PG&E kept to safety protocols and ensuring the safety on the Californian citizens. The CPUC were apparently being too cosy with PG&E and whilst the CPUC did admit that they company was falling behind on the negligence of PG&E they also stated PG&E pushed the limits. CPUC have tried to prevent further disasters before 3

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in the past but recently have lacked in applying pressure to PG&E. (Yuen Teen, 2020, 278) 3. How does the principle of separate legal existence apply to prevent the directors, employees, and shareholders of PG&E from being personally liable to the victims of the wildfires? The company, Pacific Gas and Electric (PG&E) have utilised the public company business structure. They haven’t picked private as being a public company allows them to be listed on the stock market to obtain funds from the public in exchange for shares in their company. The main benefits for starting up a company instead of a sole trader or partnership are that the employees have limited liability and increased asset protection, this means any lawsuit or fine goes against the company. A person’s own property cannot be taken from these lawsuits and if the company were to not be able to afford these fines the employees such as the shareholders would not have to give up any of their finance to help. The other benefits of having a public company are the ease oof transfer of ownership by selling shares from one person to another, whilst the company has an unlimited lifespan. As a public company, the company must act under the corporation’s act 2001. This act allows a company to enter contracts, sue or be sued on its own behalf leaving the directors, employees, and shareholders out of them. As the company is a separate legal entity directors’ employees and shareholders cannot be personally sued but in some cases such as insolvent trading or personal guarantees this can change. In the case of the wildfires that were caused by PG&E’s negligence to their maintenance, the directors cannot be personally sued as they did not give anyone personal guarantees and they did not breach the directors’ duties. All the actions that can occur due to the maintenance teams not performing what they need to, are the company can be sued for its money which has happened before multiple times when the CPUC found out the employees were falsifying their tickets. This chosen business structure of a public company allows for the directors, shareholders, and employees to keep their personal life and assets safe while the victims and the government sue PG&E for their company assets. This principle of separate legal entity can also be abused though allowing the directors of companies to continue trading and incurring debt or fines with their negligence despite the threat of insolvency and the possible setbacks it can have on the company and shareholders. (Yuen Teen, 2020, 276-278) If the company were to not be able to afford fines or lawsuits the company would have to file for bankruptcy or put more shares on the market for more shareholders to buy into their company. In PG&E’s case adding more shares to the market would not work as they have been fined multiple times for their negligence which is well known making their company seem off putting to future investors. PG&E have been drove into bankruptcy before from these fines but came back. This legal separate entity existence has given PG&E multiple lives in keeping their company afloat and allowed the directors of the company to run amuck doing what they like to increase their profits and dividends profiting them and the company with no consequences. 4. How the corporate culture at PG&E could have contributed to the Camp Fire tragedy. 4

Corporate culture is defined as the way a company handles its business with outside transactions with other businesses through their beliefs and behaviours. The culture at Pacific Gas and Electric (PG&E) is shown to be unaccountable, unorganised, negligent, and selfish. These types of behaviours come from the board members, who after the 2010 lethal San Bruno gas pipe explosion were mostly let go other than a small 6 were able to retain their position at PG&E. A good corporate culture consists of transparent communication, trust, and accountability from which the 6 board members who were able to secure their jobs did not take accountability. We know this as even after this 2010 lethal explosion there were still bushfires and explosions happening in California due to PG&Es negligence which in a large company like this is all set into motion with the highest employees. (Yuen Teen, 2020, 274) PG&E tried to have a code of conduct which for employees to speak up against anything that was wrong or unsafe in the company like a ‘speak up culture’. This type of culture was quickly shut down by the higher up employees though as anytime an employee spoke up, they would be punished for it. As the company had a zero late ticket tolerance for their employees many of them would falsify them to keep up this term within their work. PG&E even brought in a rewards program for the people that did, but for the people that spoke up because the PG&E culture was a ‘speak up culture’ they were let go. These employees have sued PG&E for wrongful termination and won because these elate tickets have been exposed to the public. Corporate wants to show the public that their culture is easy going to speak up but instead the employees know the culture at PG&E is intimidating, anytime someone would speak up for anything unsafe or unregulated they would be terminated, and the subject be dismissed as if they don’t know. (Yuen Teen, 2020, 271) The biggest contribution to these negligence problems at PG&E is the risk governance and management problems. PG&E knew about the problems with their pipelines and powerlines but did not put in the proper considerations to get them maintained or replaced as they had expired past, they safety date. Instead, the board decided to replace that money needed for maintenance and replacement and put it into dividends for their investors and to line their pockets with more money. Since the board had decreased the money they gave to fix these problems, employees had to falsify their tickets in order to keep up with the intimidating culture at PG&E. which later on internal audits had found this out and let board know who then brushed it off with the paying of a fine. While the CPUC did try to investigate the neglections to PG&E’s problems it was halted by the company as they weren’t not able to keep up company standards, this shows the risk management and governance has been one of the contributing factors to the continuous problems occurring at PG&E and will continue unless the board changes how they have been operating. (Yuen Teen, 2020, 271-278) 5

References: Yuen Teen, Mak. 2020. “PG&E: Fire In Paradise” Corporate Governance Case Studies 9:270-285. https://www.cpaaustralia.com.au/-/media/project/cpa/corporate/documents/tools-and- resources/ethics/cg-vol-9.pdf?rev=4c0465f421a04d9c9e25ed892db4f694 "Companies | Business.Gov.Au". 2022. Business.Gov.Au . https://business.gov.au/planning/business-structures-and-types/business- structures/company . "Personal Liability For Company Directors". 2022. Lawbase . https://www.lawbase.com.au/personal-liability-company-directors/ . Tarver, Evan. 2022. "What Is Corporate Culture?". Investopedia . https://www.investopedia.com/terms/c/corporate-culture.asp#:~:text=Corporate %20culture%20refers%20to%20the,the%20people%20the%20company%20hires . 6

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