PG&E 2007 Annual Report Download - page 60

58
The following table summarizes the Utility’s net credit risk exposure to its wholesale customers and counterparties, as well
as the Utility’s credit risk exposure to its wholesale customers or counterparties with a greater than 10% net credit exposure,
at December 31, 2007 and December 31, 2006:
Net
Number of Exposure to
Gross Credit Wholesale Wholesale
Exposure Customers or Customers or
Before Credit Credit Net Credit Counterparties Counterparties
(in millions) Collateral(1) Collateral Exposure(2) >10% >10%
December 31, 2007 $311 $91 $220 2 $111
December 31, 2006 $255 $87 $168 2 $113
(1) Gross credit exposure equals mark-to-market value on fi nancially settled contracts, notes receivable, and net receivables (payables) where netting is
contractually allowed. Gross and net credit exposure amounts reported above do not include adjustments for time value or liquidity.
(2) Net credit exposure is the gross credit exposure minus credit collateral (cash deposits and letters of credit). For purposes of this table, parental guarantees
are not included as part of the calculation.
CONTINGENCIES
PG&E Corporation and the Utility have signifi cant contingencies that are discussed in Note 17 of the Notes to the
Consolidated Financial Statements.
REGULATORY MATTERS
The Utility is subject to substantial regulation. Set forth below are matters pending before the CPUC, the FERC, and the
Nuclear Regulatory Commission (“NRC”), the resolutions of which may affect the Utility’s and PG&E Corporation’s results
of operations or fi nancial condition.
2008 Cost of Capital Proceeding
On December 20, 2007, the CPUC issued a decision in its proceeding to set the 2008 capital structure and ROEs of the three
California investor-owned electric utilities. The CPUC maintained the Utility’s authorized ROE at 11.35%, comparable to the
ROEs approved for the other utilities, and maintained the Utility’s common equity component at 52%. The following table
compares the authorized amounts for 2007 with the authorized amounts for 2008:
2007 Authorized 2008 Authorized
Capital Weighted Capital Weighted
Cost Structure Cost Cost Structure Cost
Long-term debt 6.02% 46.00% 2.77% 6.05% 46.00% 2.78%
Preferred stock 5.87% 2.00% 0.12% 5.68% 2.00% 0.11%
Common equity 11.35% 52.00% 5.90% 11.35% 52.00% 5.90%
Return on rate base 8.79% 8.79%
In a second phase of the proceeding, the Utility has also
proposed to replace the annual cost of capital proceeding
with an annual cost of capital adjustment mechanism for
the fi ve-year period from 2009 through 2013. The mechanism
would utilize an interest rate benchmark to trigger changes
in the authorized cost of equity. If the change is more than
75 basis points, the cost of equity would be adjusted by one-
half the change in the benchmark interest rate. The costs of
debt and preferred stock would be trued up to their recorded
values in each year. Other parties, including The Utility
Reform Network (“TURN”), Utility Consumers’ Action
Network, Southern California Edison, and the CPUC’s
Division of Ratepayer Advocates (“DRA”) have submitted
proposals to continue the annual proceeding or adopt a
biennial proceeding.
A fi nal decision in the second phase is scheduled to
be issued by April 24, 2008. PG&E Corporation and the
Utility are unable to predict the outcome of this phase of
the proceeding.