PG&E 2010 Annual Report Download - page 32

CONTINGENCIES
PG&E Corporation and the Utility have significant
contingencies, including Chapter 11 disputed claims,
claims arising from the San Bruno accident, tax matters,
legal matters, and environmental matters, which are
discussed in Notes 9, 13, and 15 of the Notes to the
Consolidated Financial Statements.
CAPITAL EXPENDITURES
UTILITY
The Utility’s capital expenditures for property, plant, and
equipment totaled $3.9 billion in 2010, $3.9 billion in
2009, and $3.7 billion in 2008. The Utility expects that
capital expenditures will total approximately $3.7 billion in
2011. The amount of capital expenditures differs from the
amount of rate base additions used for regulatory purposes
primarily because capital expenditures are not added to rate
base until the assets are placed in service.
The Utility makes various capital investments in its
electric generation and electric and natural gas transmission
and distribution infrastructure to maintain and improve
system reliability, safety, and customer service; to extend the
life of or replace existing infrastructure; and to add new
infrastructure to meet already authorized growth. The CPUC
authorizes most of the Utility’s revenue requirements to
recover forecasted capital expenditures in multi-year GRCs
and gas transmission and storage rate cases. The FERC
authorizes revenue requirements to recover forecasted capital
expenditures related to electric transmission operations in
TO rate cases. (See “Regulatory Matters” below.)
In addition, from time to time, the CPUC authorizes the
Utility to collect additional revenue requirements to recover
capital expenditures related to specific projects. During 2010,
the Utility incurred capital expenditures relating to specific
CPUC-authorized projects, including the continuing
installation of advanced electric and gas meters using
SmartMeter™technology, electric and gas distribution
reliability improvements, and the construction of the new
Colusa Generation Station, which commenced operations in
December 2010. The CPUC also has authorized the Utility
to develop renewable generation facilities using photovoltaic
technology. Other projects are discussed below.
The Utility’s ability to invest in its electric and natural
gas systems and develop new generation facilities is subject
to many risks, including risks related to securing adequate
and reasonably priced financing, obtaining and complying
with terms of permits, meeting construction budgets and
schedules, and satisfying operating and environmental
performance standards. (See “Risk Factors” below.)
PROPOSED OAKLEY GENERATION FACILITY
On December 16, 2010, the CPUC voted to permit the
Utility to enter into an amended purchase and sale
agreement with Contra Costa Generating Station LLC for
the development and construction of the 586-megawatt
(“MW”) Oakley Generating Station, a natural gas-fired,
combined-cycle generation facility proposed to be located
in Oakley, California. Under the amended agreement, the
guaranteed commercial availability date has been shifted
from June 1, 2014 to June 1, 2016. Under the CPUC
decision, if the Utility acquires the facility before January 1,
2016, the Utility’s associated costs cannot be recovered
through rates until after January 1, 2016. Instead, the
Utility’s ability to recover its costs before January 1, 2016
would depend on the amount of electric generation
revenues produced by the facility. If the Utility acquires the
facility after January 1, 2016, the Utility’s associated costs
would be recoverable through rates. The Utility and the
developer are currently negotiating an additional
amendment to the purchase and sale agreement to reflect
the CPUC’s decision. The Utility is uncertain whether and
when the proposed amendment will be executed.
During January 2011, several parties filed applications
for rehearing of the CPUC decision. PG&E Corporation
and the Utility are unable to predict whether the CPUC
will modify its decision based on these applications.
PROPOSED MANZANA WIND FACILITY
On December 21, 2010, a proposed decision was issued in
the CPUC proceeding to consider the Utility’s December
2009 application for approval of a purchase and sales
agreement for the proposed 246 MW Manzana wind
project and for authority to recover the estimated capital
costs of $911 million in rates. On January 14, 2011, the
counterparty to the agreement gave the Utility notice that
it was exercising its right to terminate the agreement. On
January 19, 2011, the Utility requested that the CPUC
permit the Utility to withdraw the original application. It is
uncertain whether or when the CPUC will grant the
Utility’s request to withdraw the application.
OFF-BALANCE SHEET
ARRANGEMENTS
PG&E Corporation and the Utility do not have any
off-balance sheet arrangements that have had, or are
reasonably likely to have, a current or future material effect
on their financial condition, changes in financial
condition, revenues or expenses, results of operations,
liquidity, capital expenditures, or capital resources, other
than those discussed in Note 2 (PG&E Corporation’s tax
equity financing agreements) and Note 15 of the Notes to
the Consolidated Financial Statements (the Utility’s
commodity purchase agreements).
28