PG&E 2007 Annual Report Download - page 47

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45
The above increases were offset by the following factors:
• Pension expense decreased by approximately $57 million
consistent with the annual pension contribution, as
approved by the CPUC in June 2006.
• Severance costs in 2007 were approximately $30 million
lower than in 2006.
• In 2006, the Utility increased its environmental remedia-
tion accrual by approximately $30 million due to changes
in the California Regional Water Quality Control Board’s
imposed remediation levels, but there was no similar
adjustment in 2007.
During 2006, the Utility’s operating and maintenance
expenses increased by approximately $298 million, or 9%,
compared to 2005, mainly due to the following factors:
• Pension expense increased approximately $176 million as
a result of a CPUC-approved settlement to recover pension
contributions.
• Expenses for customer assistance and public purpose
programs increased approximately $125 million.
• Compensation expense increased approximately $54 million
refl ecting increased base salaries and incentives.
• Costs, including outside consulting fees, related to the
Utility’s continued efforts to achieve operating effi ciencies
increased approximately $50 million.
• The Utility accrued approximately $35 million for sever-
ance costs in connection with the Utility’s continued
efforts to eliminate and consolidate various employee
positions in numerous Utility locations. (See Note 17 of
the Notes to the Consolidated Financial Statements.)
• Franchise fee expense and property taxes increased by
approximately $21 million. The increase in franchise fee
expense was due to higher revenues and franchise fee rates.
The increase in property taxes was due to electric plant
growth, tax rate increases, and increases in assessed values
in 2006.
The above increases were offset by a decrease of $154 mil-
lion related to an additional reserve made in 2005 to settle
the majority of claims related to alleged exposure to chro-
mium at the Utility’s natural gas compressor stations. No
similar adjustment was recorded in 2006.
Operating and maintenance expenses are infl uenced by
wage infl ation, benefi ts, property taxes, the timing and length
of Diablo Canyon refueling outages, environmental reme-
diation costs, legal costs, material costs, and various other
administrative and general expenses. The Utility anticipates
that it will incur higher material, permitting, and labor costs
(including potential wage increase of newly union organized
classifi cations resulting from collective bargaining) in the
future as well as higher costs to operate and maintain its
aging infrastructure. The Utility also expects that employee
severance costs will increase as the Utility continues its
efforts to achieve cost and operating effi ciencies. The Utility
anticipates that it will make additional payments to employ-
ees for missed or delayed meals to comply with California
labor law as the Utility’s investigation into this matter
continues. (See Note 17 of the Notes to the Consolidated
Financial Statements for a discussion of severance costs and
California labor code issues.) In addition, the Utility may
incur costs, not included in forecasts used to set rates in the
GRC, to address safety and reliability issues in the Utility’s
electric and natural gas distribution system depending on
the outcome of its review of its operating practices and
procedures following recent electric transformer failures and
the discovery that some natural gas maintenance records
did not accurately refl ect fi eld conditions. (See “Risk Factors”
below.) The Utility also expects that it will incur higher
expenses in subsequent periods to comply with the require-
ments of renewed hydroelectric generation licenses and to
complete the construction of the dry cask storage facility at
Diablo Canyon. The Utility’s operating and maintenance
expenses will also increase in the fi rst quarter of 2008 due
to the planned refueling outage at Diablo Canyon Unit 2.
The Utility anticipates that the refueling outage will last
approximately 76 days, which is longer than the average
outage duration, in order for the Utility to replace the
steam generators in Unit 2.