PG&E 2007 Annual Report Download - page 135

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Under the Price-Anderson Act, public liability claims from
a nuclear incident are limited to $10.8 billion. As required
by the Price-Anderson Act, the Utility purchased the maxi-
mum available public liability insurance of $300 million for
Diablo Canyon. The balance of the $10.8 billion of liability
protection is covered by a loss-sharing program among utili-
ties owning nuclear reactors. Under the Price-Anderson Act,
owner participation in this loss-sharing program is required
for all owners of nuclear reactors that are licensed to operate,
designed for the production of electrical energy, and have a
rated capacity of 100 MW or higher. If a nuclear incident
results in costs in excess of $300 million, then the Utility
may be responsible for up to $100.6 million per reactor, with
payments in each year limited to a maximum of $15 mil-
lion per incident until the Utility has fully paid its share of
the liability. Since Diablo Canyon has two nuclear reactors,
each with a rated capacity of over 100 MW, the Utility may
be assessed up to $201.2 million per incident, with payments
in each year limited to a maximum of $30 million per inci-
dent. Both the maximum assessment per reactor and the
maximum yearly assessment are adjusted for infl ation at least
every fi ve years. The next scheduled adjustment is due on or
before August 31, 2008.
In addition, the Utility has $53.3 million of liability
insurance for Humboldt Bay Unit 3 and has a $500 million
indemnifi cation from the NRC for public liability arising
from nuclear incidents covering liabilities in excess of the
$53.3 million of liability insurance.
California Department of Water Resources Contracts
Electricity purchased under the DWR allocated contracts
with various generators provided approximately 25% of
the electricity delivered to the Utility’s customers for the
year ended December 31, 2007. The DWR remains legally
and fi nancially responsible for its electricity procurement
contracts. The Utility acts as a billing and collection agent
of the DWR’s revenue requirements from the Utility’s
customers.
The DWR has stated publicly in the past that it intends
to transfer full legal title of, and responsibility for, the
DWR power purchase contracts to the California investor-
owned electric utilities as soon as possible. However, the
DWR power purchase contracts cannot be transferred to
the Utility without the consent of the CPUC. The Chapter 11
Settlement Agreement provides that the CPUC will not require
the Utility to accept an assignment of, or to assume legal or
fi nancial responsibility for, the DWR power purchase con-
tracts unless each of the following conditions has been met:
• After assumption, the Utility’s issuer rating by Moody’s
will be no less than A2 and the Utility’s long-term issuer
credit rating by S&P will be no less than A. The Utility’s
current issuer rating by Moody’s is A3 and the Utility’s
long-term issuer credit rating by S&P is BBB+;
• The CPUC fi rst makes a fi nding that the DWR power
purchase contracts to be assumed are just and reasonable;
• The CPUC has acted to ensure that the Utility will receive
full and timely recovery in its retail electricity rates of all
costs associated with the DWR power purchase contracts to
be assumed without further review.
On February 28, 2008, the CPUC is scheduled to vote on
a proposed decision that states the CPUC would proactively
investigate how the DWR can terminate its obligations under
the power contracts, by assignment or otherwise, in order to
hasten the reinstatement of direct access.
SEVERANCE IN CONNECTION
WITH EFFORTS TO ACHIEVE COST
AND OPERATING EFFICIENCIES
In connection with the Utility’s initiatives to streamline
processes and achieve cost and operating effi ciencies, the
Utility is eliminating and consolidating various employee
positions. As a result, the Utility has incurred severance costs
and expects that it will incur additional severance costs. The
amount of future severance costs will depend on many vari-
ables, including whether affected employees elect to receive
severance benefi ts or reassignment, the number of available
vacant positions for those seeking reassignment and, for
those employees who elect severance benefi ts, their years of
service and annual salaries. At December 31, 2007, the Utility
estimated future severance costs will range from $30 mil-
lion to $74 million, given the uncertainty of each of these
variables. The Utility has recorded a liability of $30 million
as of December 31, 2007. The following table presents the
changes in the liability from December 31, 2006:
(in millions)
Balance at December 31, 2006 $ 34
Additional severance accrued 8
Less: Payments (12)
Balance at December 31, 2007 $ 30