PG&E 2009 Annual Report Download - page 51

The NRC has issued operating licenses for Diablo
Canyon that expire in 2024 for Unit 1 and 2025 for Unit 2.
In November 2009, the Utility requested that the NRC
renew each of these licenses for an additional 20 years. The
Utility expects the license renewal process to take many
years, as the NRC conducts detailed environmental,
seismic, and safety-related studies and holds public
hearings. The NRC has broad authority to impose licensing
and safety-related requirements that could require the
Utility to incur significant capital expenditures in
connection with the re-licensing process.
The NRC also has issued a license for the Utility to
construct a dry cask storage facility to store spent nuclear
fuel on site at Diablo Canyon. Although the dry cask storage
facility is complete and the initial movement of spent fuel
has occurred, an appeal of the NRC license is still pending.
If one or both units at Diablo Canyon were shut down
pursuant to an NRC order; to comply with NRC licensing,
safety, or security requirements; or due to other safety or
operational issues, the Utility’s operating and maintenance
costs would increase. Further, such events may cause the
Utility to be in a short position and the Utility would need
to purchase electricity from more expensive sources. In
addition, the Utility’s nuclear power operations are subject
to the availability of adequate nuclear fuel supplies on
terms that the CPUC will find reasonable.
Furthermore, certain aspects of the Utility’s nuclear
operations are subject to other federal, state, and local
regulatory requirements that are overseen by other federal,
state, or local agencies. For example, as discussed above
under “Environmental Matters,” there is substantial
uncertainty concerning the final form of federal and state
regulations to implement Section 316(b) of the Clean
Water Act. Depending on the nature of the final
regulations that may ultimately be adopted by the EPA, the
Water Board, or the California Legislature, the Utility may
incur significant capital expense to comply with the final
regulations, which the Utility would seek to recover
through rates. If either the federal or state final regulations
require the installation of cooling towers at Diablo
Canyon, and if installation of such cooling towers is not
technically or economically feasible, the Utility may be
forced to cease operations at Diablo Canyon.
If the CPUC prohibits the Utility from recovering a
material amount of its capital expenditures, nuclear fuel
costs, operating and maintenance costs, or additional
procurement costs due to a determination that the costs were
not reasonably or prudently incurred, PG&E Corporation’s
and the Utility’s financial condition, results of operations,
and cash flow would be materially adversely affected.
The Utility is subject to penalties for failure to comply with
federal, state, or local statutes and regulations. Changes in the
political and regulatory environment could cause federal and
state statutes, regulations, rules, and orders to become more
stringent and difficult to comply with, and required permits,
authorizations, and licenses may be more difficult to obtain,
increasing the Utility’s expenses or making it more difficult for
the Utility to execute its business strategy.
The Utility must comply in good faith with all applicable
statutes, regulations, rules, tariffs, and orders of the CPUC,
the FERC, the NRC, and other regulatory agencies relating
to the aspects of its electricity and natural gas utility
operations that fall within the jurisdictional authority of
such agencies. These include customer billing, customer
service, affiliate transactions, vegetation management,
operating and maintenance practices, and safety and
inspection practices. The Utility is subject to fines,
penalties, and sanctions for failure to comply with
applicable statutes, regulations, rules, tariffs, and orders.
For example, under the Energy Policy Act of 2005, the
FERC can impose penalties (up to $1 million per day per
violation) for failure to comply with mandatory electric
reliability standards, including standards to protect the
nation’s bulk power system against potential disruptions
from cyber and physical security breaches. As part of the
continuing development of new and modified reliability
standards, the FERC has approved changes to its Critical
Infrastructure Protection reliability standards (effective
April 1, 2010) that will establish a compliance schedule for
assets that a utility has identified as “critical cyber assets.”
As these and other standards and rules evolve, and as the
wholesale electricity markets become more complex, the
Utility’s risk of noncompliance may increase.
In addition, there is risk that these statutes, regulations,
rules, tariffs, and orders may become more stringent and
difficult to comply with in the future, or that their
interpretation and application may change over time and
that the Utility will be determined to have not complied
with such new interpretations. If this occurs, the Utility
could be exposed to increased costs to comply with the
more stringent requirements or new interpretations and to
potential liability for customer refunds, penalties, or other
amounts. If it is determined that the Utility did not comply
with applicable statutes, regulations, rules, tariffs, or orders,
and the Utility is ordered to pay a material amount in
customer refunds, penalties, or other amounts, PG&E
Corporation’s and the Utility’s financial condition, results
of operations, and cash flow would be materially adversely
affected.
The Utility also must comply with the terms of various
permits, authorizations, and licenses. These permits,
authorizations, and licenses may be revoked or modified by
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