PG&E 2009 Annual Report Download - page 95

NOTE 12: NUCLEAR
DECOMMISSIONING
The Utility’s nuclear power facilities consist of two units at
Diablo Canyon and the retired facility at Humboldt Bay.
Nuclear decommissioning requires the safe removal of
nuclear facilities from service and the reduction of residual
radioactivity to a level that permits termination of the
Nuclear Regulatory Commission (“NRC”) license and
release of the property for unrestricted use. The Utility
makes contributions to trust funds (described below) to
provide for the eventual decommissioning of each nuclear
unit. The CPUC conducts a NDCTP every three years to
review the Utility’s updated nuclear decommissioning cost
study and to determine the level of Utility trust
contributions and related revenue requirements.
In April 2009, the Utility filed its 2009 NDCTP with
new decommissioning cost estimates and other funding
assumptions, such as projected cost escalation factors and
projected earnings of the funds for 2010, 2011, and 2012.
Hearings were completed in October 2009 and a CPUC
decision is expected in the second quarter of 2010. The
Utility filed a partial settlement in the 2009 NDCTP with
The Utility Reform Network, Southern California Edison,
and San Diego Gas & Electric on December 18, 2009.
In the Utility’s 2009 NDCTP, the CPUC assumed that
the eventual decommissioning of Diablo Canyon Unit 1
would be scheduled to begin in 2024 and be completed in
2052; that decommissioning of Diablo Canyon Unit 2
would be scheduled to begin in 2025 and be completed in
2052; and that decommissioning of Humboldt Bay Unit 3
would be scheduled to begin in 2010 and be completed in
2020. As presented in the Utility’s 2009 NDCTP, the
estimated nuclear decommissioning cost for Diablo
Canyon Units 1 and 2 and Humboldt Bay Unit 3 is
approximately $2.26 billion in 2009 dollars (or
approximately $4.56 billion in future dollars). These
estimates are based on the 2009 decommissioning cost
studies, prepared in accordance with CPUC requirements.
The Utility’s revenue requirements for nuclear
decommissioning costs (i.e., the revenue requirements used
by the Utility to make contributions to the
decommissioning trust funds) are recovered from
customers through a non-bypassable charge that the Utility
expects will continue until those costs are fully recovered.
The decommissioning cost estimates are based on the plant
location and cost characteristics for the Utility’s nuclear
power plants. Actual decommissioning costs may vary from
these estimates as a result of changes in assumptions such
as decommissioning dates; regulatory requirements;
technology; and costs of labor, materials, and equipment.
The estimated nuclear decommissioning cost described
above is used for regulatory purposes. However, for GAAP
purposes, the Utility adjusts its nuclear decommissioning
obligation to reflect the fair value of decommissioning its
nuclear power facilities and records this as an ARO on its
Consolidated Balance Sheets. The total nuclear
decommissioning obligation accrued in accordance with
GAAP was $1.4 billion at December 31, 2009 and
December 31, 2008. Differences between amounts
collected in rates for decommissioning the Utility’s nuclear
power facilities and the decommissioning obligation
recorded in accordance with GAAP are reflected as a
regulatory liability. (See Note 3 of the Notes to the
Consolidated Financial Statements.)
NUCLEAR DECOMMISSIONING TRUSTS
Decommissioning costs recovered in rates are placed in
nuclear decommissioning trusts. The Utility has three
decommissioning trusts for its two Diablo Canyon and
Humboldt Bay nuclear facilities. The Utility has elected
that two of these trusts be treated under the Internal
Revenue Code as qualified trusts. If certain conditions are
met, the Utility is allowed a deduction for the payments
made to the qualified trusts. The qualified trusts are subject
to a lower tax rate on income and capital gains, thereby
increasing the trusts’ after-tax returns. Among other
requirements, in order to maintain the qualified trust
status, the IRS must approve the amount to be contributed
to the qualified trusts for any taxable year. The remaining
non-qualified trust is exclusively for decommissioning the
facility at Humboldt Bay. The Utility cannot deduct
amounts contributed to the non-qualified trust until such
decommissioning costs are actually incurred.
The funds in the decommissioning trusts, along with
accumulated earnings, will be used exclusively for
decommissioning and dismantling the Utility’s nuclear
facilities. The trusts maintain substantially all of their
investments in debt and equity securities. The CPUC has
authorized the qualified and non-qualified trusts to invest a
maximum of 60% of its funds in publicly traded equity
securities, of which up to 20% may be invested in publicly
traded non-U.S. equity securities. The allocation of the
trust funds is monitored monthly. To the extent that
market movements cause the asset allocation to move
outside these ranges, the investments are rebalanced toward
the target allocation.
Trust earnings are included in the nuclear
decommissioning trust assets and the corresponding
regulatory liability for asset retirement costs. There is no
impact on the Utility’s earnings. Annual returns decrease in
later years as higher portions of the trusts are dedicated to
91