PG&E 2007 Annual Report Download - page 48

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Depreciation, Amortization, and Decommissioning
The Utility’s depreciation, amortization, and decommission-
ing expenses increased by approximately $61 million, or 4%,
in 2007 compared to 2006, mainly due to an approximately
$121 million increase in depreciation expense as a result
of depreciation rate changes and plant additions in 2007
authorized by the 2007 GRC decision. This was partially
offset by:
• The Utility recorded lower decommissioning expense of
approximately $53 million as a result of the 2007 GRC
decision to refund over-collections of decommissioning
expense to customers.
• Other depreciation, amortization, and decommissioning
expenses, including amortization of the ERB regulatory
asset, decreased by $7 million.
The Utility’s depreciation, amortization, and decommission-
ing expenses decreased by approximately $26 million, or 1%,
in 2006 compared to 2005, refl ecting the following factors:
• The Utility recorded approximately $141 million in 2005
for amortization of the settlement regulatory asset. The
settlement regulatory asset was refi nanced with the issu-
ance of the fi rst series of ERBs on February 10, 2005. The
Utility recorded approximately $137 million in 2006 related
to the amortization of the ERB regulatory asset. During
2005, the Utility amortized only the ERB regulatory asset
for the fi rst series of ERBs that were issued on February 10,
2005. During 2006, the Utility amortized the ERB regula-
tory asset for the second series of ERBs that were issued
on November 9, 2005 in addition to the fi rst series. The
Utility did not have a similar expense related to the settle-
ment regulatory asset in 2006.
• In 2005, the Utility recorded depreciation expense of
approximately $30 million related to recovery of capital
plant costs associated with electric industry restructuring
costs that a December 2004 settlement agreement allowed
the Utility to collect through rates in 2005. There was no
similar depreciation expense in 2006.
• Amortization of the regulatory asset related to Rate
Reduction Bonds (“RRBs”), decreased by approximately
$19 million in 2006, compared to 2005, due to the
declining balance of the RRBs.
These were partially offset by the following:
• Depreciation expense increased by approximately $35 mil-
lion as a result of plant additions in 2006.
The Utility’s depreciation, amortization, and decommis-
sioning expenses in subsequent years are expected to increase
as a result of an overall increase in capital expenditures and
implementation of depreciation rates authorized by the 2007
GRC decision.
Interest Income
The Utility’s interest income decreased by approximately
$25 million, or 14%, in 2007 compared to 2006. In 2006,
the FERC approved the Utility’s recovery of SC costs it had
previously incurred, including interest of approximately
$47 million. No similar amount was recognized in 2007. This
decrease was partially offset by the receipt of approximately
$16 million in 2007 related to the settlement of Internal
Revenue Service refund claims. In addition, other interest
income, including interest income associated with certain
balancing accounts, increased by approximately $6 million.
The Utility’s interest income increased by approximately
$99 million, or 130%, in 2006 compared to 2005, primarily
due to an increase in interest earned on escrow related to
Disputed Claims, the FERC’s approval of the Utility’s recov-
ery of SC costs, including interest, and an increase in interest
rates associated with certain regulatory balancing accounts.
These increases were partially offset by a decrease in interest
earned in 2006, as compared to 2005, on short-term invest-
ments as a result of lower short-term investment balances.
The Utility’s interest income in 2008 will be primarily
affected by changes in the amount of escrowed funds related
to Disputed Claims and interest rate levels.
Interest Expense
The Utility’s interest expense increased by approximately
$22 million, or 3%, in 2007 compared to 2006, primarily
due to an approximately $19 million increase in interest
expense related to Disputed Claims primarily due to an
increase in the interest rate. (See Note 15 of the Notes to
the Consolidated Financial Statements.) In addition, interest
expense related to $1.2 billion in long-term debt issued
in 2007 and variable rate pollution control bond loan
agreements increased by approximately $40 million. These
increases were partially offset by a reduction of approxi-
mately $34 million in the interest expense related to the
ERBs and RRBs as their balances decline. In addition, other
interest expense, including lower interest expense on balances
in certain regulatory balancing accounts, decreased approxi-
mately $3 million.