PG&E 2007 Annual Report Download - page 38

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• The Ability of the Utility to Control Costs and Achieve
Operational Effi ciencies and Improved Reliability — The
forecasted operating costs and capital expenditures used
to set the revenue requirements authorized in the GRC
refl ected assumptions about future cost savings that were
expected to be achieved through implementation of vari-
ous initiatives intended to increase cost effi ciencies, achieve
operational excellence, and improve customer service. The
cost of many of these initiatives is substantial, with savings
expected to be realized in later years. If the actual cost sav-
ings exceed the contemplated savings, such benefi ts would
accrue to shareholders. Conversely, to the extent that con-
templated cost savings are not realized, earnings available
for shareholders would be reduced. One major initiative
involving new work processes, information systems, and
technology has resulted in signifi cant delays and increased
costs to respond to customer requests for new service,
although the Utility is attempting to remedy the prob-
lems. The Utility also is undertaking a thorough review
of its operating practices and procedures and, depending
on the results of this review, may increase spending to
address any identifi ed issues associated with the reliability
and safety of the electric and natural gas distribution
systems. (See “Results of Operations — Operating and
Maintenance” and “Risk Factors” below.) In addition to
capital expen ditures authorized to be recovered through
GRC-authorized rates and FERC-authorized TO rates,
the CPUC has authorized the Utility to make substantial
capital expen ditures to install an advanced metering
infrastructure, to invest in new generation resources, and
to improve existing generation facilities, as described below
under “Capital Expenditures.” The Utility will incur depre-
ciation, property tax, and interest expense associated with
these capital expenditures. The Utility’s fi nancial condition
and results of operations will be impacted by its ability to
manage its operating costs and capital expenditures within
authorized revenues.
• The Amount and Timing of Debt and Equity Financing
Needs — During 2007, the Utility issued $1.2 billion
of long-term debt to fi nance capital expenditures and
for working capital. (See Note 4 of the Notes to the
Consolidated Financial Statements.) The Utility’s needs
for additional fi nancing in 2008 and future years will be
affected by the amount and timing of capital expenditures
as well as by the amount and timing of interest payments
related to the remaining disputed claims made by electricity
suppliers in the Utility’s proceeding under Chapter 11
of the U.S. Bankruptcy Code (“Disputed Claims”). (See
Note 15 of the Notes to the Consolidated Financial
Statements.) PG&E Corporation’s and the Utility’s fi nancial
condition and results of operations will be affected by the
interest rates, timing, and terms and conditions of any such
fi nancing. PG&E Corporation plans to contribute equity
to the Utility to maintain the Utility’s authorized capital
structure. The timing and amount of these equity contribu-
tions will affect the timing and amount of any new PG&E
Corporation equity issuances and/or debt issuances which,
in turn, will affect PG&E Corporation’s results of opera-
tions and fi nancial condition. (See “Liquidity and Financial
Resources” below.)
In addition to the key factors discussed above, PG&E
Corporation’s and the Utility’s future results of operation
and fi nancial condition are subject to the risk factors
discussed in detail in “Risk Factors” below.
FORWARD-LOOKING STATEMENTS
This combined annual report and the letter to sharehold-
ers that accompanies it contain forward-looking statements
that are necessarily subject to various risks and uncertainties.
These statements are based on current estimates, expectations,
and projections about future events, and assumptions regard-
ing these events and management’s knowledge of facts as
of the date of this report. These forward-looking statements
relate to, among other matters, anticipated costs and savings
associated with the Utility’s efforts to implement changes to
its business processes and systems, estimated capital expen-
ditures, estimated Utility rate base, estimated environmental
remediation liabilities, estimated tax liabilities, the antici-
pated outcome of various regulatory and legal proceedings,
future cash fl ows, and the level of future equity or debt
issuances, and are also identifi ed by words such as “assume,”
“expect,” “intend,” “plan,” “project,” “believe,” “estimate,”
“predict,” “anticipate,” “aim,” “may,” “might,” “should,”