PG&E 2009 Annual Report Download - page 72

expenses are recognized. The Utility expects to fully
recover this asset by the end of 2012 when the ERBs
mature.
The regulatory assets for deferred income taxes represent
deferred income tax benefits previously passed through to
customers offset by deferred income tax liabilities. The
CPUC requires the Utility to pass through certain tax
benefits to customers, ignoring the effect of deferred taxes
on rates. Based on current regulatory ratemaking and
income tax laws, the Utility expects to recover deferred
income taxes related to regulatory assets over periods
ranging from 1 to 45 years. (See Note 9 of the Notes to the
Consolidated Financial Statements for a discussion of
income taxes.)
In connection with the Chapter 11 Settlement
Agreement, the CPUC authorized the Utility to recover
$1.2 billion of costs related to the Utility’s retained
generation assets. The individual components of these
regulatory assets are amortized over the respective lives of
the underlying generation facilities, consistent with the
period over which the related revenues are recognized. The
weighted average remaining life of the assets is 16 years.
The regulatory assets for environmental compliance
costs represent the portion of estimated environmental
remediation expense that the Utility expects to recover in
future rates as actual remediation costs are incurred. The
Utility expects to recover these costs over the next 30 years.
(See Note 16 of the Notes to the Consolidated Financial
Statements.)
Price risk management regulatory assets represent the
deferral of unrealized losses related to price risk
management derivative instruments with terms in excess of
one year.
The regulatory assets for unamortized loss, net of gain,
on reacquired debt represent costs related to debt
reacquired or redeemed prior to maturity with associated
discount and debt issuance costs. These costs are expected
to be recovered over the remaining original amortization
period of the reacquired debt over the next 17 years, and
these costs will be fully recovered by 2026.
At December 31, 2009, “Other” consisted of regulatory
assets relating to ARO expenses recorded in accordance
with GAAP, which are probable of future recovery through
the ratemaking process, and removal costs associated with
the replacement of the steam generators in the Utility’s two
nuclear generating units at the Diablo Canyon Power Plant
(“Diablo Canyon”), as approved by the CPUC for future
recovery. At December 31, 2009 and 2008, “Other” also
consisted of costs that the Utility incurred in terminating a
30-year power purchase agreement, which are being
amortized and collected in rates through September 2014,
as well as costs incurred in relation to the Utility’s plan of
reorganization under Chapter 11 that became effective in
April 2004.
In general, the Utility does not earn a return on
regulatory assets in which the related costs do not accrue
interest. Accordingly, the Utility earns a return only on the
Utility’s retained generation regulatory assets; unamortized
loss, net of gain, on reacquired debt; and regulatory assets
associated with the plan of reorganization.
REGULATORY LIABILITIES
Current Regulatory Liabilities
At December 31, 2009 and 2008, the Utility had current
regulatory liabilities of $163 million and $313 million,
respectively, primarily consisting of the current portion of
price risk management regulatory liabilities. Current
regulatory liabilities are included in Current Liabilities —
Other in the Consolidated Balance Sheets.
Long-Term Regulatory Liabilities
Long-term regulatory liabilities are composed of the
following:
Balance at December 31,
(in millions) 2009 2008
Cost of removal obligation $2,933 $2,735
Public purpose programs 508 442
Recoveries in excess of ARO 488 226
Other 196 254
Total long-term regulatory liabilities $4,125 $3,657
The regulatory liability for the Utility’s cost of removal
obligations represents differences between amounts
collected in rates for asset removal costs and the asset
removal costs recorded in accordance with GAAP.
The regulatory liability for public purpose programs
represents amounts received from customers designated for
public purpose program costs that are expected to be
incurred in the future. For example, these regulatory
liabilities include revenues collected from customers to pay
for costs that the Utility expects to incur in the future
under the California Solar Initiative to promote the use of
solar energy in residential homes and commercial,
industrial, and agricultural properties.
The regulatory liability for recoveries in excess of ARO
represents differences between amounts collected in rates
for decommissioning the Utility’s nuclear power facilities
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