PG&E 2010 Annual Report Download - page 23

capital costs that are forecasted to exceed the CPUC-
authorized amount for recovery. (See “Regulatory Matters
– Deployment of SmartMeter™Technology” below.) These
increases were partially offset by decreases of approximately
$139 million in labor costs and other costs as compared to
2009, when costs were incurred in connection with an
additional scheduled refueling outage at Diablo Canyon
and accelerated natural gas leak surveys (and associated
remedial work); $67 million in severance costs as compared
to the same period in 2009, when charges were incurred
related to the reduction of approximately 2% of the
Utility’s workforce; and $21 million in uncollectible
customer accounts, as a result of customer outreach and
increased collection efforts.
The Utility’s operating and maintenance expenses
(including costs passed through to customers) increased by
$146 million, or 3%, in 2009 compared to 2008. During
2009, the pass-through costs of public purpose programs
decreased by $111 million as compared to the level of
program spending in 2008. Excluding costs passed through
to customers, operating and maintenance expenses
increased by $257 million, primarily due to approximately
$100 million of costs to perform accelerated natural gas
leak surveys and associated remedial work, $67 million of
employee severance costs incurred due to the reduction of
approximately 2% of the Utility’s workforce, $42 million of
costs related to the SmartMeter™advanced metering
project, and $35 million of costs for the second refueling
outage at Diablo Canyon. The remaining increase consists
primarily of employee wage and benefit costs that were
partially offset by lower storm-related costs as compared to
2008, when costs were incurred in connection with the
January 2008 winter storm.
The Utility currently estimates that it may incur as
much as $180 million for third-party claims related to the
San Bruno accident in future years, in addition to the $220
million provision recorded in 2010. (See Note 15 of the
Notes to the Consolidated Financial Statements.) The
Utility also expects to continue to incur other costs related
to the San Bruno accident, including costs to comply with
CPUC orders and NTSB recommendations that have been
issued in connection with the investigation of the San
Bruno accident, such as costs to perform an exhaustive
review of records related to the Utility’s natural gas
transmission system and to perform pressure tests on
portions of its natural gas transmission system. The Utility
currently estimates that these costs could range from
approximately $200 million to $300 million for 2011.
These estimates could change depending on a number of
factors, including the outcome of the NTSB and CPUC
investigations; the outcome of the “safety phase” of the
Utility’s 2011 Gas Transmission and Storage Rate Case;
and the outcome of future rule-making, ratemaking, or
investigatory proceedings at the CPUC. (See “Regulatory
Matters” and “Pending Investigations” below.) In addition,
current estimates could be affected by state and federal
legislative requirements that may be adopted to establish
operating practice standards for natural gas transmission
operations and safety, to require the use of certain types of
inspection methods and equipment, and to require the
installations of certain types of valves. If this or similar
legislation is enacted, the Utility may incur unforecasted
costs to comply with new statutory requirements. PG&E
Corporation and the Utility are uncertain whether all or a
portion of the costs the Utility may incur to respond to
orders, recommendations, or new legislative requirements
would be recoverable through rates and the timing of any
such recovery. Finally, if the CPUC institutes one or more
formal investigations related to the San Bruno accident or
the Utility’s natural gas operating and maintenance
practices in addition to the formal investigation of the
Rancho Cordova accident, the CPUC may impose fines or
penalties, which may be material, on the Utility if the
CPUC determines that the Utility violated laws, rules,
regulations, or orders.
Depreciation, Amortization,and Decommissioning
The Utility’s depreciation and amortization expense
consists of depreciation and amortization on plant and
regulatory assets, and decommissioning expenses associated
with fossil and nuclear decommissioning. The Utility’s
depreciation, amortization, and decommissioning expenses
increased by $153 million, or 9%, in 2010 compared to
2009, primarily due to an increase in authorized capital
additions.
The Utility’s depreciation, amortization, and
decommissioning expenses increased by $102 million, or
6%, in 2009 compared to 2008, primarily due to an
increase in authorized capital additions and depreciation
rate changes.
The Utility’s depreciation expense for future periods is
expected to increase as a result of an overall increase in
capital expenditures and implementation of depreciation
rates authorized by the CPUC. Depreciation expenses in
subsequent years will be determined based on rates set by
the CPUC in the 2011 GRC and the 2011 Gas
Transmission and Storage rate case, and by the FERC in
future TO rate cases.
Interest Income
The Utility’s interest income decreased by $24 million, or
73%, in 2010 as compared to 2009, primarily due to lower
interest rates affecting various regulatory balancing
accounts and fluctuations in those accounts. In addition,
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