PG&E 2008 Annual Report Download - page 47

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Depreciation, Amortization, and Decommissioning
The Utility’s depreciation, amortization, and decommission-
ing expenses decreased by approximately $119 million, or
7%, in 2008 compared to 2007, mainly due to decreases in
amortization expense of approximately $261 million related
to the RRB regulatory asset. The RRB regulatory asset was
fully recovered through rates when the RRBs matured in
December 2007; therefore, no amortization has been recorded
in 2008. These decreases were partially offset by increases
to depreciation expense of approximately $142 million, pri-
marily due to capital additions and depreciation rate changes
as authorized in the 2007 GRC and the current TO rate case.
The Utility’s depreciation, amortization, and decommis-
sioning expenses increased by approximately $61 million, or
4%, in 2007 compared to 2006, mainly due to an approxi-
mately $121 million increase in depreciation expense as
a result of depreciation rate changes and capital additions
in 2007 authorized by the 2007 GRC decision. This was
partially offset by the following factors:
• The Utility recorded lower decommissioning expense of
approximately $53 million as a result of the 2007 GRC
decision to refund over-collections of decommissioning
expense to customers.
• Other depreciation, amortization, and decommissioning
expenses, including amortization of the ERB regulatory
asset, decreased by $7 million.
The Utility’s depreciation, amortization, and decommis-
sioning expenses in subsequent years are expected to increase
as a result of an overall increase in capital expenditures and
implementation of depreciation rates authorized by the 2007
GRC decision and future TO rate cases.
Interest Income
The Utility’s interest income decreased by approximately
$59 million, or 39%, in 2008 as compared to 2007 when the
Utility received approximately $16 million in interest income
on a federal tax refund. In addition, there was a decrease of
$37 million in interest income, primarily due to lower interest
rates earned on funds held in escrow related to disputed
claims and a lower escrow balance refl ecting settlements of
disputed claims. (See Note 15 of the Notes to the Consoli-
dated Financial Statements.) There was an additional decrease
of approximately $6 million in other interest income.
The Utility’s interest income decreased by approximately
$25 million, or 14%, in 2007 compared to 2006. In 2006,
the FERC approved the Utility’s recovery of scheduling
coordinator costs it had previously incurred, including
interest of approximately $47 million. No similar amount
was recognized in 2007. This decrease was partially offset by
the receipt of approximately $16 million in 2007 related to
• Property taxes increased by approximately $12 million, due
to electric plant growth, tax rate increases, and increases
in assessed values in 2007.
• In 2006, the Utility reduced its accrual for long-term
disability benefi ts by approximately $11 million, refl ecting
changes in sick leave eligibility rules, but there was no
similar adjustment in 2007.
These increases were offset by the following factors:
• Pension expense decreased by approximately $57 million,
consistent with the annual pension contribution as
approved by the CPUC in June 2006.
• Severance costs in 2007 were approximately $30 million
lower than in 2006.
• In 2006, the Utility increased its environmental remediation
accrual by approximately $30 million, due to changes
in the California Regional Water Quality Control Board’s
imposed remediation levels, but there was no similar
adjustment in 2007.
Operating and maintenance expenses are infl uenced
by wage infl ation; benefi ts; property taxes; the timing and
length of Diablo Canyon refueling outages; storms, wild
land fi res, and other events causing outages and damages
in the Utility’s service territory; environmental remediation
costs; legal costs; material costs; and various other adminis-
trative and general expenses. In addition, the Utility expects
to incur higher labor costs under its recently renegotiated
collective bargaining agreements. The Utility anticipates
that it will incur higher costs in the future to operate and
maintain its aging infrastructure and to improve operating
and maintenance processes used in its natural gas system.
(See “Risk Factors” below.) In particular, the Utility intends
to accelerate the work associated with system-wide gas leak
surveys and targets completing this work in little more than
a year. In general, the Utility completes a survey of its entire
gas distribution system every fi ve years by surveying 20%
of its system each year. The Utility forecasts it will spend
up to $100 million more in 2009 to perform the gas leak
surveys and associated remedial work on an accelerated
schedule. The Utility also expects that it will incur higher
expenses in future periods to obtain or comply with permit-
ting requirements, including costs associated with renewed
FERC licenses for the Utility’s hydroelectric generation
facilities. To help offset these increased costs, the Utility
intends to continue its efforts to identify and implement
initiatives to achieve operational effi ciencies and to create
future sustainable cost savings.