PG&E 2008 Annual Report Download - page 141

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Capacity payments, which allow QFs to recover
investment costs, are based on the QF’s total available
capacity and contractual capacity commitment. Capacity
payments may be adjusted if the QF exceeds or fails to
meet performance requirements specifi ed in the applicable
power purchase agreement.
Natural Gas Supply and Transportation Commitments
The Utility purchases natural gas directly from producers
and marketers in both Canada and the United States to
serve its core customers. The contract lengths and natural
gas sources of the Utility’s portfolio of natural gas procure-
ment contracts have fl uctuated generally based on market
conditions. At December 31, 2008, the Utility’s undiscounted
obligations for natural gas purchases and gas transportation
services were as follows:
(in millions)
2009 $ 898
2010 183
2011 115
2012 49
2013 42
Thereafter 157
Total $1,444
Payments for natural gas purchases and gas transportation
services amounted to approximately $2.7 billion in 2008,
$2.2 billion in 2007, and $2.2 billion in 2006.
Nuclear Fuel Agreements
The Utility has entered into several purchase agreements
for nuclear fuel. These agreements have terms ranging from
1 to 16 years and are intended to ensure long-term fuel sup-
ply. The contracts for uranium, conversion, and enrichment
services provide for 100% coverage of reactor requirements
through 2010, while contracts for fuel fabrication services
provide for 100% coverage of reactor requirements through
2011. The Utility relies on a number of international pro-
ducers of nuclear fuel in order to diversify its sources and
The following table shows the future fi xed capacity
payments due under the QF contracts that are accounted
for as capital leases. These amounts are also included in the
table above. The fi xed capacity payments are discounted to
the present value shown in the table below using the Utility’s
incremental borrowing rate at the inception of the leases.
The amount of this discount is shown in the table below
as the amount representing interest:
(in millions)
2009 $ 50
2010 50
2011 50
2012 50
2013 50
Thereafter 204
Total fi xed capacity payments 454
Amount representing interest 110
Present value of fi xed capacity payments $344
Minimum lease payments associated with the lease
obligation are included in Cost of electricity on PG&E
Corporation’s and the Utility’s Consolidated Statements
of Income. In accordance with SFAS No. 71, the timing of
the Utility’s recognition of the lease expense conforms to the
ratemaking treatment for the Utility’s recovery of the cost of
electricity. The QF contracts that are accounted for as capital
leases expire between April 2014 and September 2021.
At December 31, 2008, the Utility had approximately
$30 million included in Current Liabilities — Other
and $314 million included in Noncurrent Liabilities — Other
representing the present value of the fi xed capacity payments
due under these contracts recorded on the Utility’s Consoli-
dated Balance Sheets. The corresponding assets of $344 mil-
lion, including amortization of $64 million, are included in
Property, Plant, and Equipment on the Utility’s Consolidated
Balance Sheets at December 31, 2008.
At December 31, 2008, the undiscounted future expected power purchase agreement payments were as follows:
Irrigation District &
Qualifying Facility Water Agency Renewable Other
Operations & Debt Total
(in millions) Energy Capacity Maintenance Service Energy Capacity Energy Capacity Payments
2009 $ 949 $ 412 $ 38 $ 26 $ 427 $12 $ 5 $ 270 $ 2,139
2010 960 378 45 23 460 7 6 281 2,160
2011 947 364 46 21 602 7 7 164 2,158
2012 808 334 32 21 688 7 7 86 1,983
2013 755 324 21 15 583 — 7 71 1,776
Thereafter 4,882 1,866 46 38 6,986 — 3 1,038 14,859
Total $9,301 $3,678 $228 $144 $9,746 $33 $35 $1,910 $25,075