PG&E 2007 Annual Report Download - page 104

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In general, the Utility does not earn a return on regula-
tory assets where the related costs do not accrue interest.
Accordingly, the Utility earns a return only on the Utility’s
retained generation regulatory assets, unamortized loss, net
of gain on reacquired debt, and regulatory assets associated
with the plan of reorganization.
Current Regulatory Assets
As of December 31, 2007, the Utility had current regulatory
assets of approximately $131 million, consisting primar-
ily of price risk management regulatory assets with terms
of less than one year. Price risk management regulatory
assets consist of contracts to procure electricity and natu-
ral gas designed to reduce commodity price risks that are
accounted for as derivatives under SFAS No. 133. The costs
and proceeds of these derivative instruments are recovered
or refunded through regulated rates. At December 31, 2006,
the amount of current regulatory assets was approximately
$434 million, consisting primarily of the current portion of
the rate reduction bond (“RRB”) regulatory asset and price
risk management regulatory assets. The RRB regulatory asset
represents electric industry restructuring costs, which the
Utility fully recovered in 2007. Current regulatory assets are
included in Prepaid Expenses and Other in the Consolidated
Balance Sheets.
REGULATORY LIABILITIES
Long-term regulatory liabilities are comprised of the following:
Balance at December 31,
(in millions) 2007 2006
Cost of removal obligation $2,568 $2,340
Asset retirement costs 573 608
Public purpose programs 264 169
California Solar Initiative 159 —
Price risk management 124 37
Employee benefi t plans 578 23
Other 182 215
Total regulatory liabilities $4,448 $3,392
Cost of removal liabilities represent revenues collected
for asset removal costs that the Utility expects to incur in
the future.
Asset retirement costs represent timing differences between
the recognition of ARO in accordance with GAAP and the
amounts recognized for ratemaking purposes.
Public purpose program liabilities represent revenues
designated for public purpose program costs that are
expected to be incurred in the future.
California Solar Initiative liabilities represent revenues
designated for public purpose program costs that are
expected to be incurred in the future. These revenues will
be used by the Utility to promote the use of solar energy in
residential homes and commercial, industrial, and agricul-
tural properties.
Price risk management liabilities consist of contracts to
procure electricity and natural gas with terms in excess of
one year designed to reduce commodity price risks that
are accounted for as derivative instruments under SFAS
No. 133. Changes in the fair value of derivative instruments
are deferred and recorded in regulatory accounts because
they are recovered or refunded through regulated rates.
Employee benefi t plan expenses represent the cumulative
differences between amounts recognized in accordance with
GAAP and amounts recognized for ratemaking purposes,
which also includes amounts that otherwise would be
recorded to accumulated other comprehensive income in
accordance with SFAS No. 158, “Employers’ Accounting for
Defi ned Benefi t Pension and Other Postretirement Plans.”
These balances will be charged against expense to the extent
that future expenses exceed amounts recoverable for regula-
tory purposes.
Finally, as of December 31, 2007, “Other” regulatory
liabilities are primarily related to amounts received from
insurance companies to pay for hazardous substance reme-
diation costs and future customer benefi ts associated with
the Gateway Generating Station (“Gateway”). The liability for
hazardous substance insurance recoveries is refunded to cus-
tomers as a reduction to rates until they are fully reimbursed
for total covered hazardous substance costs that they have
paid to date. Gateway was acquired as part of a settlement
with Mirant Corporation and the associated liability will be
amortized over 30 years beginning in March 2009.
Current Regulatory Liabilities
As of December 31, 2007, the Utility had current regulatory
liabilities of approximately $280 million, primarily consisting
of the current portion of electric transmission wheeling rev-
enue refunds and amounts that the Utility expects to refund
to customers for over-collected electric transmission rates.
At December 31, 2006, the Utility had current regulatory
liabilities of $309 million, primarily comprised of electric
transmission wheeling revenue refunds and the RRB regula-
tory liability. The RRB regulatory liability represents over-
collections associated with the RRB fi nancing that the Utility
will return to customers in the future. Current regulatory
liabilities are included in Current Liabilities — Other in the
Consolidated Balance Sheets.