PG&E 2009 Annual Report Download - page 66

ASSET RETIREMENT OBLIGATIONS
PG&E Corporation and the Utility record an ARO at fair
value in the period in which the obligation is incurred if
the fair value can be reasonably estimated. 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. PG&E
Corporation and the Utility also record a liability if a legal
obligation to perform an asset retirement exists and can be
reasonably estimated, but performance is conditional upon
a future event. The Utility recognizes regulatory assets or
liabilities as a result of timing differences between the
recognition of costs and the costs recovered through the
ratemaking process.
The Utility has an ARO for its nuclear generation and
certain fossil fueled generation facilities. The Utility has
also identified AROs 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 AROs related to gas distribution,
gas transmission, electric distribution, and electric
transmission system assets.
Detailed studies of the cost to decommission the
Utility’s nuclear power plants are conducted every three
years in conjunction with the Nuclear Decommissioning
Cost Triennial Proceedings (“NDCTP”) conducted by the
CPUC. Estimated cash flows were revised as a result of the
studies completed in the first quarter of 2009. (See Note 12
of the Notes to the Consolidated Financial Statements for
further discussion.)
A reconciliation of the changes in the ARO liability is as
follows:
(in millions)
ARO liability at December 31, 2007 $1,579
Revision in estimated cash flows 50
Accretion 106
Liabilities settled (51)
ARO liability at December 31, 2008 1,684
Revision in estimated cash flows (129)
Accretion 98
Liabilities settled (60)
ARO liability at December 31, 2009 $1,593
The Utility has identified 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 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 sufficient 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 specifies 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
PG&E Corporation and the Utility evaluate the carrying
amounts of long-lived assets for impairment, based on
projections of undiscounted future cash flows, whenever
events occur or circumstances change that may affect the
recoverability or the estimated life of long-lived assets. If
this evaluation indicates that such cash flows are not
expected to fully recover the assets, the assets are written
down to their estimated fair value. No significant
impairments were recorded in 2009, 2008, and 2007.
GAINS AND LOSSES ON DEBT
EXTINGUISHMENTS
Gains and losses on debt extinguishments associated with
regulated operations are deferred and amortized over the
remaining original amortization period of the debt
reacquired, consistent with recovery of costs through
regulated rates. Unamortized loss on debt extinguishments,
net of gain, was $227 million and $251 million at
December 31, 2009 and 2008, respectively. The Utility’s
amortization expense related to this loss was $25 million in
2009 and $26 million in 2008 and 2007. Deferred gains
and losses on debt extinguishments are recorded to Prepaid
expenses and other and 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.
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