PG&E 2008 Annual Report Download - page 98

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communications equipment from leased property, and
retirement activities associated with substation and certain
hydroelectric facilities. The Utility was not able to reasonably
estimate the ARO associated with these assets because the
settlement date of the obligation was indeterminate and
information suffi cient to reasonably estimate the settlement
date or range of settlement dates does not exist. Land rights,
communications equipment leases, and substation facilities
will be maintained for the foreseeable future, and the Utility
cannot reasonably estimate the settlement date or range of
settlement dates for the obligations associated with these
assets. The Utility does not have information available
that specifi es which facilities contain lead-based paint and,
therefore, cannot reasonably estimate the settlement date(s)
associated with the obligation. The Utility will maintain and
continue to operate its hydroelectric facilities until operation
of a facility becomes uneconomic. The operation of the
majority of the Utility’s hydroelectric facilities is currently,
and for the foreseeable future, economic and the settlement
date cannot be determined at this time.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets” (“SFAS
No. 144”), PG&E Corporation and the Utility evaluate the
carrying amounts of long-lived assets for impairment, based
on projections of undiscounted future cash fl ows, whenever
events occur or circumstances change that may affect the
recoverability or the estimated life of long-lived assets.
In the event this evaluation indicates that such cash fl ows
are not expected to fully recover the assets, the assets are
written down to their estimated fair value. No signifi cant
impairments were recorded in 2008, 2007, and 2006.
GAINS AND LOSSES ON
DEBT EXTINGUISHMENTS
Gains and losses on debt extinguishments associated with
regulated operations that are subject to the provisions of
SFAS No. 71 are deferred and amortized over the remain-
ing original amortization period of the debt reacquired,
consistent with recovery of costs through regulated rates.
Unamortized loss on debt extinguishments, net of gain,
was approximately $251 million and $269 million at
December 31, 2008 and 2007, respectively. The Utility’s
amortization expense related to this loss was approximately
$26 million in 2008 and 2007, and $27 million in 2006.
Deferred gains and losses on debt extinguishments are
recorded to Other Noncurrent Assets — Regulatory assets
in the Consolidated Balance Sheets.
Gains and losses on debt extinguishments associated
with unregulated operations are fully recognized at the time
such debt is reacquired and are reported as a component of
interest expense.
ASSET RETIREMENT OBLIGATIONS
PG&E Corporation and the Utility account for ARO
in accordance with SFAS No. 143, “Accounting for Asset
Retirement Obligations” (“SFAS No. 143”) and FASB
Interpretation No. 47, “Accounting for Conditional Asset
Retirement Obligations — an Interpretation of FASB
Statement No. 143” (“FIN 47”). SFAS No. 143 requires that
an asset retirement obligation be recorded at fair value in
the period in which it is incurred if a reasonable estimate
of fair value can be made. In the same period, the associated
asset retirement costs are capitalized as part of the carrying
amount of the related long-lived asset. In each subsequent
period, the liability is accreted to its present value, and the
capitalized cost is depreciated over the useful life of the long-
lived asset. Rate-regulated entities may recognize regulatory
assets or liabilities as a result of timing differences between
the recognition of costs as recorded in accordance with
SFAS No. 143 and costs recovered through the ratemaking
process. FIN 47 clarifi es that if a legal obligation to perform
an asset retirement obligation exists but performance is
con ditional upon a future event, and the obligation can be
reasonably estimated, then a liability should be recognized
in accordance with SFAS No. 143.
The Utility has ARO for its nuclear generation and
certain fossil fuel generation facilities. The Utility has
also identifi ed ARO related to asbestos contamination in
buildings, potential site restoration at certain hydroelectric
facilities, fuel storage tanks, and contractual obligations to
restore leased property to pre-lease condition. Additionally,
the Utility has recorded ARO related to the California Gas
Transmission pipeline, gas distribution, electric distribution,
and electric transmission system assets.
A reconciliation of the changes in the ARO liability is
as follows:
(in millions)
ARO liability at December 31, 2006 $1,466
Revision in estimated cash fl ows 48
Accretion 95
Liabilities settled (30)
ARO liability at December 31, 2007 1,579
Revision in estimated cash fl ows 50
Accretion 106
Liabilities settled (51)
ARO liability at December 31, 2008 $1,684
The Utility has identifi ed additional ARO for which
a reasonable estimate of fair value could not be made.
The Utility has not recognized a liability related to these
additional obligations, which include obligations to restore
land to its pre-use condition under the terms of certain land
rights agreements, removal and proper disposal of lead-based
paint contained in some Utility facilities, removal of certain