PG&E 2008 Annual Report Download - page 143

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On December 18, 2008, the CPUC awarded the Utility
$41.5 million in interim shareholder incentive revenues for
the 2006-2007 interim claim, ruling that 65% of the 2006-2007
incentive claims should be “held back” until completion of
fi nal measurement studies and a fi nal verifi cation report for
the entire three-year program cycle.
As long as the fi nal measured energy savings are at least
65% of each of the CPUC’s individual savings goals over the
2006-2008 program period, the utilities will not be required
to pay back any incentives received on an interim basis.
The CPUC also ruled that the utilities will not be entitled
to any additional incentives for the 2006-2008 program
period beyond the incentives already received if the utility’s
performance falls within a “deadband”; i.e., if a utility achieves
(1) less than 80% of the CPUC’s goal for any individual
savings metric, or (2) less than 85% of the CPUC’s overall
energy savings goal but greater than 65% of the CPUC’s
goal for each individual savings metric. On February 2, 2009,
The Utility Reform Network and the CPUC’s Division of
Ratepayer Advocates fi led an application for rehearing of the
CPUC’s December 18, 2008 award.
On January 29, 2009 the CPUC instituted a new proceed-
ing to modify the existing incentive ratemaking mechanism,
to adopt a new framework to review the utilities’ 2008 energy
effi ciency performance, and to conduct a fi nal review of the
utilities’ performance over the 2006-2008 program period.
The CPUC also plans to develop a long-term incentive mech-
anism for program periods beginning in 2009 and beyond.
Whether the Utility will receive all or a portion of the
remaining $77 million in incentives for the 2006 and 2007
program years, whether the Utility will receive any additional
incentives or incur a reimbursement obligation in 2009
based on the second interim claim, and whether the fi nal
true-up in 2010 will result in a positive or negative adjustment
depends on the new framework and rules to be adopted by
the CPUC.
Nuclear Insurance
The Utility has several types of nuclear insurance for the
two nuclear operating units at its Diablo Canyon nuclear
generating facilities and for its retired nuclear generation
facility at Humboldt Bay Unit 3. The Utility has insurance
coverage for property damages and business interruption
losses as a member of Nuclear Electric Insurance Limited
(“NEIL”). NEIL is a mutual insurer owned by utilities
with nuclear facilities. NEIL provides property damage and
business interruption coverage of up to $3.24 billion per
incident for Diablo Canyon. In addition, NEIL provides
$131 million of property damage insurance for Humboldt
Bay Unit 3. Under this insurance, if any nuclear generating
The DWR has stated publicly in the past that it intends
to transfer full legal title of, and responsibility for, the DWR
power purchase contracts to the California investor-owned
electric utilities as soon as possible. However, the DWR power
purchase contracts cannot be transferred to the Utility with-
out the consent of the CPUC. In addition, the Chapter 11
Settlement Agreement provides that the CPUC will not require
the Utility to accept an assignment of, or to assume legal or
fi nancial responsibility for, the DWR power purchase con-
tracts unless each of the following conditions has been met:
• After assumption, the Utility’s issuer rating by Moody’s
will be no less than A2 and the Utility’s long-term issuer
credit rating by S&P will be no less than A. The Utility’s
current issuer rating by Moody’s is A3 and the Utility’s
long-term issuer credit rating by S&P is BBB+;
• The CPUC fi rst makes a fi nding that the DWR power pur-
chase contracts to be assumed are just and reasonable; and
• The CPUC has acted to ensure that the Utility will receive
full and timely recovery in its retail electricity rates of all
costs associated with the DWR power purchase contracts
to be assumed without further review.
In February 2008, the CPUC opened an investigation of
how the DWR can end its role in purchasing power for the
customers of the California investor-owned utilities through
novation of the DWR contracts or otherwise. In November
2008, the CPUC issued a decision directing the investor-
owned utilities to proceed with efforts to novate or renegoti-
ate the DWR contracts, and set a tentative goal of January 1,
2010 for completing novation or renegotiations. However, the
CPUC recognized that various uncertainties may infl uence
the achievement of this goal, and indicated that it will
continue to monitor the progress of the investor-owned
utilities and make mid-course adjustments as necessary.
Until the DWR’s obligation under its power purchase con-
tracts is terminated, the CPUC is prohibited by state law
from reinstating “direct access.” Direct access is the ability
of retail end-user customers to purchase electricity from
energy providers other than the California investor-owned
electric utilities.
Incentive Ratemaking for Energy Effi ciency Programs
The CPUC has established an incentive ratemaking mecha-
nism applicable to the California investor-owned utilities’
implementation of their energy effi ciency programs funded
for the 2006-2008 and 2009-2011 program cycles. The maxi-
mum amount of revenue that the Utility could earn and
the maximum amount that the Utility could be required
to reimburse customers over the 2006-2008 program cycle
is $180 million.