An executive appointed by the Australian government to run the national broadband network is named in a legal action connected to his management of an American gas company subsequently responsible for one of the largest utility disasters in California’s history.
Bill Morrow, appointed as chief executive of NBNCo in December 2013 by the newly elected Abbott government, has run a number of major infrastructure companies including San Francisco's Pacific Gas and Electric (PG&E).
PG&E stands accused of putting profits and bonuses before safety.
Morrow joined PG&E in 2006 as chief operating officer, and became chief executive a year later. He was paid $3.8m in 2007 and another $4.48m in 2008 in wages, benefits and stock, according to regulatory filings. Morrow left PG&E in September 2008.
On 24 December 2008 a man was killed in Rancho Cordova, California, after a teenage girl lit a cigarette, triggering a massive pipeline explosion that injured five others.
The state gas industry regulator, the California Public Utilities Commission (CPUC), ordered PG&E to pay a $38m fine in 2011 following an investigation that found the pipeline was weaker than allowed by safety regulations, and had not been pressure tested.
In 2010, another pipeline explosion in San Bruno killed eight people and destroyed or damaged more than 100 homes.
Investigators found many of the same problems in the Rancho Cordova explosion had triggered the 2010 disaster. The San Bruno explosion is characterised in numerous reports as one of the largest and most deadly utility disasters in California history.
An investigation of the San Bruno event by the National Transport Safety Board blamed PG&E’s “inadequate pipeline integrity management program”, which failed to find or fix a faulty pipe section that had been laid originally in the mid-1950s.
The NTSB findings also pointed the finger at CPUC for failing to detect the inadequacies of PG&E’s pipeline management program; and the transport department’s “exemptions of existing pipelines from the regulatory requirement for pressure testing, which likely would have detected the installation defects”.
For its part, the CPUC has roundly criticised PG&E for inadequate safety practices, internal cost-cutting practices outside industry norms, and the alleged diversion of maintenance funds to executive bonuses and shareholder returns.
The two explosions occurred after Morrow had left PG&E.
But various detailed investigations are critical of the company’s priorities, practices and decision-making over a period spanning more than a decade, including the two years when Morrow was in key executive positions.
A CPUC report has alleged $100m was diverted by PG&E from safety and pipeline maintenance over 15 years. It suggests maintenance spending was under significant pressure in 2008, and in the two years immediately after Morrow’s departure.
“Gas safety funding was heavily constrained in the 2008, 2009 and 2010 budget process,” says an audit undertaken by Overland Consulting for the CPUC.
“Integrity management and maintenance project budgets were viewed as discretionary funding that could be reduced to meet the overall budget targets set by executive management,” it says.
Morrow has been named along with 21 other PG&E executives in a consolidated shareholder derivative lawsuit which has been launched against the company, its directors and management.
The suit filed in the San Mateo county court alleges that Morrow, as president and chief operating officer, was in a leadership role at a time when the company was “grossly under-spending on operational and process safety creating a situation where a catastrophic incident was not only possible, but highly likely”.
It alleges Morrow was responsible for implementing a risk management system for critical infrastructure but, with the “support and approval” of other PG&E executives, allowed the company to “make safety a low priority in comparison to profits”.
The suit, which is also critical of the CPUC, alleges that from 2004 to 2009 the company was cited 410 times for unsafe practices in its gas operations. It cites federal safety data to allege that between 2004 and 2010 the company had more “reportable incidents” than any other gas company in the United States.
The plaintiffs, Hind Bou-Salman, Gary Sender and Martha Potiriades, who are all shareholders of PG&E, are seeking the return of “lucrative executive compensation packages allegedly approved by senior management at the same time safety budgets were being slashed”, according to a statement from their lawyers at Cotchett, Pitre & McCarthy.
A spokesman for NBNCo said Morrow was aware the legal proceedings were under way.
“It relates to civil proceedings for shareholder compensation directed against both PG&E and a large number of former officers and directors of the company,” the NBNCo spokesman told Guardian Australia on Friday.
Of the San Bruno incident, the spokesman said: “This was a tragic accident which caused a great deal of pain to many people. The safety of workers and communities has always been Mr Morrow’s paramount concern.”
Asked why Morrow chose to leave PG&E in 2008, the spokesman said: “Mr Morrow left PG&E to return to the telecommunications industry.”
The company’s reputation in the US has taken a battering from these incidents. In a swingeing legal brief last year the CPUC’s office of ratepayer advocates compared PG&E to Charles Manson, and accused it of destroying evidence. “It is not an overstatement to say that PG&E has the contrition of Charlie Manson – that is to say, it has none.”
The NBNCo spokesman said any questions relating to PG&E “should be referred to PG&E”.
In April 2014, a federal grand jury for the northern district of California also returned an indictment charging PG&E with 12 violations of the gas pipeline safety act. According to a statement from the FBI: “The indictment alleges that PG&E knowingly and willfully violated the PSA and its regulations between 2003 and 2010.
“According to the indictment, the charges stem from PG&E’s record keeping and pipeline integrity management practices. The indictment alleges that PG&E failed to address recordkeeping deficiencies concerning its larger natural gas pipelines, knowing that their records were inaccurate or incomplete.”
The NBNCo spokesman said Morrow had not been called to give evidence in the grand jury proceedings, and “whether or not this occurs is a matter for the US courts”.
Morrow’s appointment continues something of a tradition of past controversy by heads of the NBNCo. Labor’s appointee to the NBNCo, Mike Quigley, had to answer questions about his actions and responsibilities as a senior executive at Alcatel Lucent when it was revealed there had been corruption in Costa Rica. Quigley repeatedly denied any wrongdoing.
A spokesman for the communications minister, Malcolm Turnbull, said on Friday the government had been made fully aware of the various allegations surrounding Morrow’s period at PG&E.
Government sources have told Guardian Australia the cabinet was entirely aware of the history at the time of Morrow’s appointment to NBNCo.
NBNCo said the same thing when Guardian Australia asked whether there had been full disclosure to the government. “Mr Morrow openly canvassed these matters with both the NBNCo board and the government during the recruitment process for the role at NBNCo.”
Immediately before joining NBNCo, Morrow was the chief executive of Vodafone Hutchison Australia.