PG&E 2009 Annual Report Download - page 38

periods when the costs are expected to be recovered. If
costs expected to be incurred in the future are currently
being recovered through rates, the Utility records those
expected future costs as regulatory liabilities. In addition,
amounts that are probable of being credited or refunded to
customers in the future are recorded as regulatory
liabilities.
Determining probability requires significant judgment
on the part of management and includes, but is not limited
to, consideration of testimony presented in regulatory
hearings, proposed regulatory decisions, final regulatory
orders, and the strength or status of applications for
rehearing or state court appeals. For some of the Utility’s
regulatory assets, including the regulatory assets for ERBs
and utility retained generation, the Utility has determined
that the costs are recoverable based on specific approval
from the CPUC. The Utility also records a regulatory asset
when a mechanism is in place to recover current
expenditures and historical experience indicates that
recovery of incurred costs is probable, such as the
regulatory assets for pension benefits; deferred income tax;
price risk management; and unamortized loss, net of gain,
on reacquired debt. The CPUC has not denied the
recovery of any material costs previously recognized by the
Utility as a regulatory asset during the periods ended
December 31, 2009, 2008, or 2007.
The Utility records regulatory liabilities when the CPUC
or the FERC requires a refund to be made to customers,
authorizes the collection of rates intended to recover costs
that are expected to be incurred in the future, or a regulator
has required that a gain or other reduction of net allowable
costs be given to customers over future periods.
If the Utility determined that it is no longer probable
that revenues or costs would be recovered or reflected in
future rates, or if the Utility ceased to be subject to rate
regulation, the revenues or costs would be charged to
income in the period in which they were incurred. At
December 31, 2009, PG&E Corporation and the Utility
reported regulatory assets (including current regulatory
balancing accounts receivable) of $6.6 billion and
regulatory liabilities (including current balancing accounts
payable) of $4.4 billion.
ENVIRONMENTAL REMEDIATION LIABILITIES
The Utility is subject to loss contingencies pursuant to
federal and California environmental laws and regulations
that in the future may require the Utility to pay for
environmental remediation at sites where it has been, or
may be, a potentially responsible party. Such contingencies
may exist for the remediation of hazardous substances at
various potential sites, including, but not limited to, former
MGP sites, power plant sites, and sites used by the Utility
for the storage, recycling, or disposal of potentially
hazardous materials, even if the Utility did not deposit
those substances on the site.
The Utility generally commences the environmental
remediation assessment process upon notification from
federal or state agencies, or other parties, of a potential site
requiring remedial action. (In some instances, the Utility
may voluntarily initiate action to determine its remediation
liability for sites that it no longer owns in cooperation with
regulatory agencies. For example, the Utility has begun a
voluntary program related to certain former MGP sites.)
Based on such notification, the Utility completes an
assessment of the potential site and evaluates whether it is
probable that a remediation liability has been incurred. The
Utility records an environmental remediation liability
when site assessments indicate remediation is probable and
it can reasonably estimate the loss within a range of
possible amounts. Given the complexities of the legal and
regulatory environment and the inherent uncertainties
involved in the early stages of a remediation project, the
process for estimating remediation liabilities is subjective
and requires significant judgment. Key factors evaluated in
developing cost estimates include the extent and types of
hazardous substances at a potential site, the range of
technologies that can be used for remediation, the
determination of the Utility’s liability in proportion to
other responsible parties, and the extent to which such
costs are recoverable from third parties.
When possible, the Utility estimates costs using site-
specific information, but also considers historical
experience for costs incurred at similar sites depending on
the level of information available. Estimated costs are
composed of the direct costs of the remediation effort and
the costs of compensation for employees who are expected
to devote a significant amount of time directly to the
remediation effort. These estimated costs include remedial
site investigations, remediation actions, operations and
maintenance activities, post remediation monitoring, and
the costs of technologies that are expected to be approved
to remediate the site. Remediation efforts for a particular
site generally extend over a period of several years. During
this period, the laws governing the remediation process
may change, thereby possibly affecting the cost of the
remediation effort.
The Utility evaluates the possible range of estimated
costs and records an environmental remediation liability
based on the lower end of the range of estimated costs,
unless a more objective estimate can be achieved. Amounts
recorded are not discounted to their present value. When
the Utility is one of several potentially responsible parties,
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