Issue with printer installation using GPP and printer separator file "pcl.sep"

We have a Kyocera CS 5551 ci printer that is shared on a server. The shared printer is configured to use the standard pcl.sep separator file and it has always worked. About 4 or 5 months ago if not earlier (possibly before my time in this environment) the printer no longer gets installed on client computers when "group policy preferences" is applied because the separator file is considered to be invalid.

Below are the details:

Point and Print Restrictions is Disabled.

The pc.sep file is inside the following directory on the server:
C:\Windows\System32\spool\SepFiles\XXXXXXXX-XXXX-XXXX-XXXX-XXXXXXXXXXXX


pcl.sep file contains the following, and it is on a Server 2016 system where the shared printer resides.

\

\H1B\L%-12345X@PJL ENTER LANGUAGE=PCL

\H1B\L&l1T\0

\M\B\S\N\U

\U\LJob : \I

\U\LDate: \D

\U\LTime: \T

\E

When group policy runs, the printer should get installed on Win 7 Pro x64 clients but it doesn't.

It fails to install the printer and the following error in the Application log shows up on the client PC:

Source: Group Policy Printers

Event ID: 8192

Level: Error

User: SYSTEM
Task Category: (2)

The user 'xxx.xxx.xx.xxx' preference item in the Group Policy object did not apply because it failed with error code '0x80070707 The specified separator file is invalid.' See trace file for more details.

I enabled trace logs and the same error shows up on the client PC:

2019-04-09 16:07:58.440 [pid=0x1b8,tid=0xc08] Error creating TCP/IP printer connection [ hr = 0x80070707 "The specified separator file is invalid." ]

2019-04-09 16:07:58.440 [pid=0x1b8,tid=0xc08] Properties handled. [ hr = 0x80070707 "The specified separator file is invalid." ]

2019-04-09 16:07:58.445 [pid=0x1b8,tid=0xc08] Completed class <PortPrinter> - xxx.xxx.xx.xxx. [ hr = 0x80070707 "The specified separator file is invalid." ]

2019-04-09 16:07:58.445 [pid=0x1b8,tid=0xc08] Error suppressed. [ hr = 0x80070707 "The specified separator file is invalid." ]

When I manually install the printer on the Win 7 client, it installs without any issue. This is while the sep file is still included with the shared printer.

If I remove the sep page file from the shared printer then group policy is able to install the printer on the client.

I am not sure why it is considering the file to be invalid. Replacing the file has made no difference.

I know a few years ago security update KB3170455 was causing issues with printers and group policy, but this is not the issue in our environment.