PG&E 2007 Annual Report Download - page 61

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Spent Nuclear Fuel Storage Proceedings
As part of the Nuclear Waste Policy Act of 1982, Congress
authorized the U.S. Department of Energy (“DOE”) and elec-
tric utilities with commercial nuclear power plants to enter
into contracts under which the DOE would be required to
dispose of the utilities’ spent nuclear fuel and high-level
radioactive waste no later than January 31, 1998, in exchange
for fees paid by the utilities. In 1983, the DOE entered into
a contract with the Utility to dispose of nuclear waste from
the Utility’s two nuclear generating units at Diablo Canyon
and its retired nuclear facility at Humboldt Bay (“Humboldt
Bay Unit 3”). The DOE failed to develop a permanent stor-
age site by January 31, 1998. The Utility believes that the
existing spent fuel pools at Diablo Canyon (which include
newly constructed temporary storage racks) have suffi cient
capacity to enable the Utility to operate Diablo Canyon
until approximately 2010 for Unit 1 and 2011 for Unit 2.
Because the DOE failed to develop a permanent storage
site, the Utility obtained a permit from the NRC to build
an on-site dry cask storage facility to store spent fuel through
at least 2024. After various parties appealed the NRC’s
issuance of the permit, the U.S. Court of Appeals for the
Ninth Circuit issued a decision in 2006 requiring the NRC
to issue a supplemental environmental assessment report on
the potential environmental consequences in the event of a
terrorist attack at Diablo Canyon, as well as to review other
contentions raised by the appealing parties related to poten-
tial terrorism threats. In August 2007, the NRC staff issued
a fi nal supplemental environmental assessment report con-
cluding there would be no signifi cant environmental impacts
from potential terrorist acts directed at the Diablo Canyon
storage facility. On January 15, 2008, the NRC decided to
hold hearings on whether it provided a complete list of the
references upon which it relied to fi nd that there would not
be a signifi cant environmental impact and whether it suffi -
ciently addressed the impacts on land and the local economy
of a potential terrorist attack. It is expected that the NRC
will issue a fi nal decision in the third quarter of 2008.
The Utility expects to complete the dry cask storage
facility and begin loading spent fuel in 2008. If the Utility is
unable to complete the dry cask storage facility, if operation
of the facility is delayed beyond 2010, or if the Utility
is otherwise unable to increase its on-site storage capacity,
it is possible that the operation of Diablo Canyon may
have to be curtailed or halted as early as 2010 with respect
to Unit 1 and 2011 with respect to Unit 2 until such time
as additional safe storage for spent fuel is made available.
The Utility and other nuclear power plant owners have
sued the DOE for breach of contract. The Utility seeks to
recover its costs to develop on-site storage at Diablo Canyon
and Humboldt Bay Unit 3. In October 2006, the U.S. Court
of Federal Claims found that the DOE had breached its con-
tract and awarded the Utility approximately $42.8 million of
the $92 million incurred by the Utility through 2004. The
Utility appealed to the U.S. Court of Appeals for the Federal
Circuit seeking to increase the amount of the award and
challenged the U.S. Court of Federal Claims’ fi nding that
the Utility would have incurred some of the costs for the
on-site storage facilities even if the DOE had complied with
the contract. A decision on the appeal is expected by the
end of 2008. The Utility will seek to recover costs incurred
after 2004 in future lawsuits against the DOE. Any amounts
recovered from the DOE will be credited to customers
through rates.
PG&E Corporation and the Utility are unable to predict
the outcome of this appeal or the amount of any additional
awards that the Utility may receive. If the U.S. Court of
Federal Claims’ decision is not overturned or modifi ed on
appeal, it is likely that the Utility will be unable to recover
all of its future costs for on-site storage facilities from the
DOE. However, reasonably incurred costs related to the
on-site storage facilities are, in the case of Diablo Canyon,
recoverable through rates and, in the case of Humboldt Bay
Unit 3, recoverable through its decommissioning trust fund.
RISK MANAGEMENT ACTIVITIES
The Utility and PG&E Corporation, mainly through its
ownership of the Utility, are exposed to market risk, which
is the risk that changes in market conditions will adversely
affect net income or cash fl ows. PG&E Corporation and
the Utility face market risk associated with their operations,
fi nancing arrangements, the marketplace for electricity,
natural gas, electricity transmission, natural gas transporta-
tion and storage, other goods and services, and other aspects
of their businesses. PG&E Corporation and the Utility
categorize market risks as price risk and interest rate risk.