PG&E 2010 Annual Report Download - page 71

$386 million at December 31, 2010 and $315 million at
December 31, 2009. Amortization expense for capitalized
software was $94 million in 2010, $37 million in 2009, and
$73 million in 2008. Amortization expense is estimated to
be approximately $120 million annually for 2011 through
2015.
REGULATION AND REGULATED OPERATIONS
As a regulated entity, the Utility’s rates are designed to
recover the costs of providing service. The Utility
capitalizes and records, as a regulatory asset, costs that
would otherwise be charged to expense if it is probable that
the incurred costs will be recovered in future rates.
Regulatory assets are amortized over the future periods that
the costs are recovered. If costs expected to be incurred in
the future are currently being recovered through rates, the
Utility records those expected future costs as regulatory
liabilities. In addition, amounts that are probable of being
credited or refunded to customers in the future are
recorded as regulatory liabilities.
The Utility uses regulatory balancing accounts to
accumulate differences between actual billed and unbilled
revenues and the Utility’s authorized revenue requirements
for the period. The Utility also uses regulatory balancing
accounts to accumulate differences between incurred costs
and actual billed and unbilled revenues, as well as
differences between incurred costs and authorized revenue
meant to recover those costs. Under-collections that are
probable of recovery through regulated rates are recorded
as regulatory balancing account assets. Over-collections
that are probable of being refunded to customers are
recorded as regulatory balancing account liabilities. For
further discussion please see “Revenue Recognition” below.
To the extent that portions of the Utility’s operations
cease to be subject to cost-of-service rate regulation, or
recovery is no longer probable as a result of changes in
regulation or other reasons, the related regulatory assets
and liabilities are written off.
INTANGIBLE ASSETS
Intangible assets primarily consist of hydroelectric facility
licenses with lives ranging from 19 to 40 years. The gross
carrying amount of the hydroelectric facility licenses and
other agreements was $112 million at December 31, 2010
and $110 million at December 31, 2009. The accumulated
amortization was $44 million at December 31, 2010 and
$40 million at December 31, 2009.
The Utility’s amortization expense related to intangible
assets was $4 million in 2010, 2009, and 2008. The
estimated annual amortization expense for 2011 through
2015 based on the December 31, 2010 intangible assets
balance is $3 million. Intangible assets are recorded to
other noncurrent assets – other in the Consolidated
Balance Sheets.
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. 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. Estimated cash flows were revised as a
result of the studies completed in the first quarter of 2009.
For GAAP purposes, the Utility adjusts its nuclear
decommissioning obligation to reflect changes in the
estimate of decommissioning its nuclear power facilities
and records this as an adjustment to ARO on its
Consolidated Balance Sheets. The total nuclear
decommissioning obligation accrued in accordance with
GAAP was $1.2 billion at December 31, 2010 and $1.4
billion at December 31, 2009. For regulatory purposes, the
estimated undiscounted nuclear decommissioning cost for
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