PG&E 2008 Annual Report Download - page 54

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Future operating cash fl ow will be impacted by the timing
of cash collateral payments and receipts related to price risk
management activity, among other factors. The Utility’s
cash collateral activity will fl uctuate based on changes in the
Utility’s net credit exposure, which is primarily dependent
on electricity and gas price movement.
In addition, PG&E Corporation’s and the Utility’s future
operating cash fl ow in 2009 is expected to be impacted by the
receipt of tax refunds. (See “Tax Matters” below and Note 10
of the Notes to the Consolidated Financial Statements.)
The Utility’s operating cash fl ows also will be impacted
by electricity procurement costs and the timing of rate
adjustments authorized to recover these costs. The CPUC
has established a balancing account mechanism to adjust the
Utility’s electric rates whenever the forecasted aggregate over-
collections or under-collections of the Utility’s electric pro-
curement costs for the current year exceed 5% of the Utility’s
prior year generation revenues, excluding generation revenues
for DWR contracts. In accordance with this mechanism, on
August 21, 2008, the CPUC approved the Utility’s request to
collect from customers the forecasted 2008 end-of-year under-
collection of procurement costs, due mainly to rising natural
gas costs and lower than forecasted hydroelectric generation.
Effective October 1, 2008, customer rates were adjusted to
allow the Utility to collect $645 million in procurement
costs through December 2009. On December 30, 2008, the
Utility requested that its electric rates be adjusted, effective
January 1, 2009, to refl ect the revised forecast of electricity
prices, which are expected to be lower than originally fore-
casted as a result of lower natural gas prices. The January 1,
2009 rate changes refl ect a net decrease of $101 million in
electric revenues versus revenues based on rates effective
October 1, 2008. On January 23, 2009, the Utility fi led
a notice with the CPUC indicating that customer electric
rates are expected to increase effective on March 1, 2009
by approximately $640 million as a result of the CPUC’s
approval of a $528 million increase in the remittance rate
paid to the DWR and the FERC’s approval of a $112 million
increase in electric transmission rates.
The following changes in operating assets and liabilities
negatively impacted cash fl ows during the period:
• Regulatory balancing accounts, net over-collection decreased
by approximately $567 million in 2007, primarily due to
CPUC-authorized rate reductions designed to reduce the
over-collection.
• Accounts payable decreased by approximately $196 million,
primarily due to differences in the timing of purchases and
payments of operating expenses.
During 2006, net cash provided by operating activities
was approximately $2,577 million, refl ecting net income of
$985 million, adjusted for noncash depreciation, amortiza-
tion, and decommissioning and allowance for equity funds
used during construction of $1,802 million and $47 mil-
lion, respectively (see “Results of Operations” above). The
follow ing change in operating assets and liabilities positively
impacted cash fl ows during the period:
• Regulatory balancing accounts, net under-collection
decreased by approximately $329 million in 2006, pri-
marily due to lower than forecasted costs associated with
certain power purchase agreements and a decrease related
to customer energy effi ciency incentives due to a CPUC
decision in October 2005 to set rates to recover shareholder
incentive revenue. These decreases were offset by a decrease
in electricity procurement costs due to the receipt of cash
relating to the Mirant settlement.
The following changes in operating assets and liabilities
negatively impacted cash fl ows during the period:
• Liabilities for deferred income taxes and tax credits
decreased by approximately $287 million in 2006, primarily
due to an increased California franchise tax deduction,
lower taxable supplier settlement income received, and a
deduction related to the payment of previously accrued
litigation costs.
• Other current assets increased by approximately $273 mil-
lion, primarily due to an increase in the cash collateral
deposited by counterparties as a result of changes in the
Utility’s exposure to counterparties’ credit risk, generally
refl ecting increasing natural gas prices.
• Other current liabilities decreased by approximately
$235 million, primarily due to the settlement of claims
related to the alleged exposure to chromium at the Utility’s
natural gas compressor stations.