PG&E 2011 Annual Report Download - page 107

NOTE 15: COMMITMENTS AND CONTINGENCIES (Continued)
agreements are contingent on the third parties’ development of new generation facilities to provide the power to be
purchased by the Utility under the agreements. The Utility also has agreements with various irrigation districts and
water agencies to purchase hydroelectric power that require the Utility to make semi-annual fixed minimum
payments. In addition, these agreements require the Utility to make variable payments based on the operating and
maintenance costs incurred by the irrigation districts and water agencies.
At December 31, 2011, the undiscounted future expected payment obligations under power purchase agreements
that have been approved by the CPUC and have completed major milestones for construction were as follows:
Qualifying Renewable Total
Facility (Other than QF) Other Payments
(in millions)
2012 ............ $ 736 $ 831 $ 656 $ 2,223
2013 ............ 781 1,058 807 2,646
2014 ............ 807 1,269 646 2,722
2015 ............ 725 1,352 614 2,691
2016 ............ 690 1,370 601 2,661
Thereafter ....... 3,341 18,058 3,726 25,125
Total ........... $7,080 $23,938 $7,050 $38,068
The table above excludes $34 billion of future expected payments that were previously included in prior periods
related to agreements ranging from 10 to 25 years in length that are cancellable if the construction of a new
generation facility have not met certain contractual milestones with respect to construction. Based on the Utility’s
experience with these types of facilities, the Utility has determined that there is more than a remote chance that
contracts could be cancelled until the generation facilities have commenced construction.
Some of the power purchase agreements that the Utility entered into with independent power producers that are
QFs are treated as capital leases. The following table shows the future fixed capacity payments due under the QF
contracts that are treated as capital leases. (These amounts are also included in the table above.) The fixed capacity
payments are discounted to their present value in the table below using the Utility’s incremental borrowing rate at
the inception of the leases. The amount of this discount is shown in the table below as the amount representing
interest.
(in millions)
2012 .................................................. $ 50
2013 .................................................. 50
2014 .................................................. 42
2015 .................................................. 38
2016 .................................................. 36
Thereafter .............................................. 89
Total fixed capacity payments ................................ 305
Less: amount representing interest ............................. 57
Present value of fixed capacity payments ........................ $248
Minimum lease payments associated with the lease obligations are included in cost of electricity on PG&E
Corporation’s and the Utility’s Consolidated Statements of Income. The timing of the recognition of the lease
expense conforms to the ratemaking treatment for the Utility’s recovery of the cost of electricity. The QF contracts
that are treated as capital leases expire between April 2014 and September 2021.
The present value of the fixed capacity payments due under these contracts is recorded on PG&E Corporation’s
and the Utility’s Consolidated Balance Sheets. At December 31, 2011 and 2010, current liabilities—other included
$36 million and $34 million, respectively, and noncurrent liabilities—other included $212 million and $248 million,
respectively. The corresponding assets at December 31, 2011 and 2010 of $248 million and $282 million including
accumulated amortization of $160 million and $126 million, respectively are included in property, plant, and
equipment on PG&E Corporation’s and the Utility’s Consolidated Balance Sheets.
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