PG&E 2008 Annual Report Download - page 61

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The construction of the dry cask storage facility is
complete and the initial movement of spent nuclear fuel
to dry cask storage is expected to begin in June 2009. If
the Utility is unable to begin loading spent nuclear fuel
by October 2010 for Unit 1 or May 2011 for Unit 2 and if
the Utility is otherwise unable to increase its on-site storage
capacity, the Utility would have to curtail or halt operations
until such time as additional safe storage for spent fuel is
made available.
On August 7, 2008, the U.S. Court of Appeals for the
Federal Circuit issued an appellate order in the litigation
pending against the DOE in which the Utility and other
nuclear power plant owners seek to recover costs they
incurred to build on-site spent nuclear fuel storage facilities
due to the DOE’s delay in constructing a national repository
for nuclear waste. In October 2006, the U.S. Court of Federal
Claims found that the DOE had breached its contract with
the Utility but awarded the Utility approximately $43 mil-
lion of the $92 million incurred by the Utility through 2004.
In ruling on the Utility’s appeal, the U.S. Court of Appeals
for the Federal Circuit reversed the lower court on issues
relating to the calculation of damages and ordered the lower
court to re-calculate the award. Although various motions by
the DOE for reconsideration are still pending, the judge in
the lower court conducted a status conference on January 15,
2009 and has scheduled another conference for July 9, 2009.
The Utility expects the fi nal award will be approximately
$91 million for costs incurred through 2004 and that the
Utility will recover all of its costs incurred after 2004 to
build on-site storage facilities. Amounts recovered from the
DOE will be credited to customers through rates.
PG&E Corporation and the Utility are unable to predict
the outcome of any rehearing petition.
ENERGY EFFICIENCY PROGRAMS
AND INCENTIVE RATEMAKING
In 2007, the CPUC established an incentive ratemaking
mechanism applicable to the California investor-owned
utilities’ implementation of their energy effi ciency programs
funded for the 2006-2008 and 2009-2011 program cycles.
To earn incentives the utilities must (1) achieve at least 85%
of the CPUC’s overall energy savings goal over the three-year
program cycle and (2) achieve at least 80% of the CPUC’s
individual kilowatt-hour (kWh), kilowatt (kW), and gas
therm savings goals over the three-year program cycle. If the
utilities achieve between 85% and 99% of the CPUC’s over-
all savings goal, 9% of the verifi ed net benefi ts (i.e., energy
resource savings minus total energy effi ciency program
costs) will accrue to shareholders and 91% of the verifi ed
net benefi ts will accrue to customers. If the utilities achieve
100% or more of the CPUC’s overall savings goal, then 12%
of the total verifi ed net benefi ts will accrue to shareholders
REGULATORY MATTERS
The Utility is subject to substantial regulation. Set forth
below are matters pending before the CPUC, the FERC,
and the Nuclear Regulatory Commission (“NRC”), the
resolutions of which may affect the Utility’s and PG&E
Corporation’s results of operations or fi nancial condition.
SPENT NUCLEAR FUEL
STORAGE PROCEEDINGS
As part of the Nuclear Waste Policy Act of 1982, Congress
authorized the U.S. Department of Energy (“DOE”) and
electric utilities with commercial nuclear power plants to
enter into contracts under which the DOE would be required
to dispose of the utilities’ spent nuclear fuel and high-level
radioactive waste no later than January 31, 1998, in exchange
for fees paid by the utilities. In 1983, the DOE entered into
a contract with the Utility to dispose of nuclear waste from
the Utility’s two nuclear generating units at Diablo Canyon
and its retired nuclear facility at Humboldt Bay (“Humboldt
Bay Unit 3”). The DOE failed to develop a permanent stor-
age site by January 31, 1998. The Utility believes that the
existing spent fuel pools at Diablo Canyon (which include
newly constructed temporary storage racks) have suffi cient
capacity to enable the Utility to operate Diablo Canyon
until approximately 2010 for Unit 1 and 2011 for Unit 2.
Because the DOE failed to develop a permanent storage
site, the Utility obtained a permit from the NRC to build
an on-site dry cask storage facility to store spent fuel through
at least 2024. After various parties appealed the NRC’s issu-
ance of the permit, the U.S. Court of Appeals for the Ninth
Circuit (“Ninth Circuit”) issued a decision in 2006 requir-
ing the NRC to issue a supplemental environmental assess-
ment report on the potential environmental consequences
in the event of terrorist attack at Diablo Canyon, as well as
to review other contentions raised by the appealing parties
related to potential terrorism threats. In August 2007,
the NRC staff issued a fi nal supplemental environmental
assessment report concluding there would be no signifi cant
environmental impacts from potential terrorist acts directed
at the Diablo Canyon storage facility.
In October 2008, the NRC rejected the fi nal contention
that had been made during the appeal. The appellant
has fi led a petition for review of the NRC’s order in the
Ninth Circuit. Although the appellant did not seek to
obtain an order prohibiting the Utility from loading spent
fuel, the petition stated that they may seek a stay of fuel
loading at the facility. On December 31, 2008, the appellate
court granted the Utility’s request to intervene in the pro-
ceeding. All briefs by all parties are scheduled to be fi led
by April 8, 2009.