PG&E 2007 Annual Report Download - page 58

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New Generation Facilities
During 2007, the Utility was engaged in the development of
the following generation facilities to be owned and operated
by the Utility:
• Gateway Generating Station — In November 2006, the
Utility acquired the equipment, permits, and contracts
related to a partially completed 530-megawatt (“MW”),
power plant in Antioch, California, referred to as the
Gateway Generating Station (“Gateway”). The CPUC has
authorized the Utility to recover estimated capital costs of
approximately $370 million to complete the construction
of the facility. During 2007, the Utility incurred approxi-
mately $119 million related to the Gateway project. The
Utility estimates that it will complete construction of the
Gateway facility and commence operations in 2009.
• Colusa Power Plant — In November 2006, the CPUC
approved the purchase and sale agreement between the
Utility and E&L Westcoast, LLC (“E&L Westcoast”) under
which E&L Westcoast had agreed to construct a 657-
MW power plant in Colusa County, California (“Colusa
Project”) and, upon successful completion, transfer owner-
ship to the Utility. The CPUC adopted an initial capital
cost for the Colusa Project that equals the sum of the fi xed
contract costs, the Utility’s estimated owner’s costs, and
a contingency amount to account for the risk and uncer-
tainty in the estimation of owner’s costs. (Owner’s costs
include the Utility’s expenses for legal, engineering, and
consulting services, as well as the costs for internal person-
nel and overhead related to the project.) The Utility esti-
mates that the cost to complete the Colusa Project will be
approximately $673 million, including owner’s costs. The
CPUC authorized the Utility to adjust the initial capital
costs for the Colusa Project to refl ect any actual incentive
payments made to, or liquidated damages received from,
the contractors through notifi cation to the CPUC but with-
out a reasonableness review. The forecasted initial capital
cost of the Colusa Project will be trued up in the Utility’s
next GRC following the commencement of operations to
refl ect actual initial capital costs. The CPUC authorized the
Utility to seek recovery of additional capital costs attribut-
able to operational enhancements, but otherwise limited
cost recovery to the initial capital cost estimate. The CPUC
also ruled that in the event the fi nal capital costs are
lower than the initial estimate, half of the savings must
be returned to customers. If actual costs exceed the cost
limits (except for additional capital costs attributable to
operational enhancements), the Utility would be unable to
recover such excess costs. During 2007, the Utility incurred
approximately $12 million related to the Colusa Project.
In January 2008, the Utility acquired the assets related to
the Colusa Project from E&L Westcoast after E&L Westcoast
notifi ed the Utility in November 2007 that it intended to
terminate the purchase and sale agreement. On January 29,
2008, a proposed decision was issued that recommends that
the CPUC issue a Certifi cate of Public Convenience and
Necessity (“CPCN”) to allow the Utility to begin the con-
struction of the Colusa Project subject to the initial capital
cost limits and operations and maintenance ratemaking
as described above. Permitting or construction delays and
project development or materials cost overruns could cause
the project costs to exceed the CPUC-adopted cost limits.
The Utility has signed a contract with a major equipment
supplier and has given a limited notice to proceed to a
contractor to begin engineering and procurement activities.
Subject to the timely issuance of a CPCN, the issuance of
other required permits, operational performance require-
ments, and other conditions, it is anticipated that the Colusa
Project will commence operations in 2010.
• Humboldt Bay Power Plant — In November 2006, the
CPUC also approved an agreement for the construction
of a 163-MW power plant to re-power the Utility’s existing
power plant at Humboldt Bay, which is at the end of its
useful life. The CPUC adopted an initial capital cost of
the Humboldt Bay project equal to the sum of the fi xed
contract costs plus the Utility’s estimated owner’s costs,
but limited the contingency amount for owner’s costs
to 5% of the fi xed contract costs and estimated owner’s
costs. The CPUC authorized the Utility to adjust the
initial capital costs to refl ect any actual incentive pay-
ments made to, or liquidated damages received from, the
contractors through notifi cation to the CPUC but without
a reasonableness review. The forecasted initial capital costs
will be trued up in the Utility’s next GRC following the
commencement of operations of the plant to refl ect actual
initial capital costs and all cost savings, if any. The Utility
is authorized to seek recovery of additional capital costs
that are attributable to operational enhancements, but the
request will be subject to the CPUC’s review. The Utility
also is permitted to seek recovery of additional capital
costs subject to a reasonableness review. Subject to obtaining
required permits, meeting construction schedules, opera-
tional performance requirements, and other conditions, it is
anticipated that the Humboldt Bay project will commence
operations in 2010 at an estimated cost of approximately
$239 million, of which approximately $4 million has been
incurred since 2007.