PG&E 2009 Annual Report Download - page 23

The Utility’s depreciation expense for future periods is
expected to increase as a result of an overall increase in
capital expenditures and implementation of depreciation
rates authorized by the CPUC. Depreciation expenses in
subsequent years will be determined based on rates set by
the CPUC in the 2011 GRC and the 2011 Gas
Transmission and Storage rate case, and by the FERC in
future TO rate cases.
Interest Income
The Utility’s interest income decreased by $58 million, or
64%, in 2009 compared to 2008, primarily due to lower
interest rates affecting various regulatory balancing
accounts and regulatory assets and lower balances in those
accounts. In addition, interest income decreased due to
lower interest rates earned on funds held in escrow pending
the disposition of disputed claims that had been made in
the Utility’s proceeding under Chapter 11 of the U.S.
Bankruptcy Code (“Chapter 11”). (See Note 14 of the
Notes to the Consolidated Financial Statements for
information about the Chapter 11 disputed claims.) These
decreases were partially offset by an increase in interest
income for the recovery of interest on previously incurred
costs related to the Utility’s hydroelectric generation
facilities.
The Utility’s interest income decreased by $59 million,
or 39%, in 2008 as compared to 2007, when the Utility
received $16 million in interest income on a federal tax
refund. In addition, decreases in interest income were due
to lower interest rates earned on funds held in escrow
related to Chapter 11 disputed claims and a lower escrow
balance reflecting settlements of Chapter 11 disputed
claims.
The Utility’s interest income in future periods will be
primarily affected by changes in the balance of funds held
in escrow pending resolution of the Chapter 11 disputed
claims, changes in regulatory balancing accounts, and
changes in interest rates.
Interest Expense
The Utility’s interest expense decreased by $36 million, or
5%, in 2009 as compared to 2008. This was primarily
attributable to lower interest rates and outstanding balances
on liabilities that the Utility incurs interest expense on
(such as the liability for Chapter 11 disputed claims and
various regulatory balancing accounts). This decrease was
partially offset by higher outstanding balances for long-
term debt due to timing of senior note issuances. (See Note
4 of the Notes to the Consolidated Financial Statements
for further discussion.)
The Utility’s interest expense decreased by $34 million,
or 5%, in 2008 as compared to 2007, primarily due to a
decrease in interest expense accrued on the liability for
Chapter 11 disputed claims as the FERC-mandated interest
rates declined. Additionally, interest expense decreased due
to the reduction in the outstanding balance of Energy
Recovery Bonds (“ERB”) and the maturity of the RRBs in
December 2007. These decreases were partially offset by
additional interest expense primarily related to $1.8 billion
in senior notes that were issued in March, October, and
November 2008.
The Utility’s interest expense in future periods will be
impacted by changes in interest rates, changes in the
balance of the liability for Chapter 11 disputed claims,
changes in regulatory balancing accounts, and changes in
the amount of debt outstanding as long-term debt matures
and additional long-term debt is issued. (See “Liquidity and
Financial Resources” below.)
Other Income, Net
The Utility’s other income, net increased by $31 million,
or 111%, in 2009 compared to 2008, when the Utility
incurred costs to oppose the statewide initiative related to
renewable energy (Proposition 7) and the City of San
Francisco’s municipalization efforts. These costs also
caused the Utility’s other income, net to decrease by $24
million, or 46%, in 2008 compared to 2007.
The Utility estimates it will incur approximately $25
million to $35 million in 2010 to support a California ballot
initiative that proposes to require local governments to gain
voter support before using taxpayer money to establish
electric service. These costs will not be recoverable in rates.
Income Tax Provision
The Utility’s income tax provision decreased by $6 million,
or 1%, in 2009 compared to 2008. The effective tax rates
were 27.8% and 28.9% for 2009 and 2008, respectively.
The lower effective tax rate for 2009 was primarily due to
the recognition of California tax and related interest
benefits attributable to the settlement of various federal tax
issues. (See Note 9 of the Notes to the Consolidated
Financial Statements for further discussion.)
The Utility’s income tax provision decreased by $83
million, or 15%, in 2008 compared to 2007. The effective
tax rates were 28.9% and 35.8% for 2008 and 2007,
respectively. The decrease in the effective tax rate for 2008
was primarily due to a settlement of federal tax audits for
the tax years 2001 through 2004 and approval by the
Internal Revenue Service of the Utility’s change in
accounting method for the capitalization of indirect service
costs for tax years 2001 through 2004.
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