PG&E 2007 Annual Report Download - page 95

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93
ALLOWANCE FOR
DOUBTFUL ACCOUNTS RECEIVABLE
PG&E Corporation and the Utility recognize an allowance
for doubtful accounts to record accounts receivable at
estimated net realizable value. The allowance is determined
based upon a variety of factors, including historical write-off
experience, delinquency rates, current economic conditions,
and assessment of customer collectibility. If circumstances
require changes in the Utility’s assumptions, allowance
estimates are adjusted accordingly.
INVENTORIES
Inventories are carried at average cost and are valued at
the lower of average cost or market. Inventories include
materials, supplies, and gas stored underground. Materials
and supplies are charged to inventory when purchased and
then expensed or capitalized to plant, as appropriate, when
installed. Gas stored underground represents purchases that
are injected into inventory and then expensed at average
cost when withdrawn and distributed to customers.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are reported at their original
cost. Original cost includes:
• Labor and materials;
• Construction overhead; and
• Allowance for funds used during construction (“AFUDC”).
AFUDC
Allowance for funds used during construction (“AFUDC”)
represents a method used to compensate the Utility for the
estimated cost of debt and equity used to fi nance regulated
plant additions and is recorded as part of the cost of con-
struction projects. AFUDC is recoverable from customers
through rates over the life of the related property once the
property is placed in service. PG&E Corporation and the
Utility recorded AFUDC of approximately $64 million and
$32 million related to equity and debt, respectively, during
2007; $47 million and $20 million related to equity and
debt, respectively, during 2006; and $37 million and $14 mil-
lion related to equity and debt, respectively, during 2005.
Depreciation
The Utility’s composite depreciation rate was 3.28% in 2007,
3.09% in 2006, and 3.28% in 2005.
Gross Plant
as of Estimated
(in millions) December 31, 2007 Useful Lives
Electricity generating facilities $ 2,198 4 to 37 years
Electricity distribution facilities 16,116 16 to 58 years
Electricity transmission 4,675 40 to 70 years
Natural gas distribution facilities 5,218 24 to 52 years
Natural gas transportation 3,141 25 to 45 years
Natural gas storage 47 25 to 48 years
Other 3,824 5 to 43 years
Total $35,219
The useful lives of the Utility’s property, plant, and
equipment are authorized by the CPUC and the FERC
and depreciation expense is included in rates charged to
customers. Depreciation expense includes a component for
the original cost of assets and a component for estimated
future removal and remediation costs, net of any salvage
value at retirement.
PG&E Corporation and the Utility charge the original
cost of retired plant less salvage value to accumulated depre-
ciation upon retirement of plant in service in accordance
with SFAS No. 71 “Accounting for the Effects of Certain
Types of Regulation” as amended (“SFAS No. 71”). PG&E
Corporation and the Utility expense repair and maintenance
costs as incurred.
Nuclear Fuel
Property, plant, and equipment also includes nuclear fuel
inventories. Stored nuclear fuel inventory is stated at
weighted average cost. Nuclear fuel in the reactor is expensed
as used based on the amount of energy output.
Capitalized Software Costs
PG&E Corporation and the Utility account for internal soft-
ware in accordance with Statement of Position, “Accounting
for the Costs of Computer Software Developed or Obtained
for Internal Use” (“SOP 98-1”).
Under SOP 98-1, PG&E Corporation and the Utility
capitalize costs incurred during the application development
stage of internal use software projects to property, plant, and
equipment. Capitalized software costs totaled $533 million at
December 31, 2007 and $237 million at December 31, 2006,
net of accumulated amortization of approximately $207 mil-
lion at December 31, 2007 and $197 million at December 31,
2006. The increase in capitalized software costs from 2006
to 2007 was primarily due to expenses related to software
development for the SmartMeter™ program, as well as infor-
mation system upgrades of several processes and tools used