PG&E 2011 Annual Report Download - page 115

NOTE 15: COMMITMENTS AND CONTINGENCIES (Continued)
Hinkley Natural Gas Compressor Site
The Utility is legally responsible for remediating groundwater contamination caused by hexavalent chromium
used in the past at the Utility’s natural gas compressor site located near Hinkley, California. The Utility is also
required to take measures to abate the effects of the contamination on the environment. The Utility’s remediation
and abatement efforts are subject to the regulatory authority of the California Regional Water Quality Control
Board, Lahontan Region (‘‘Regional Board’’). The Regional Board has issued several orders directing the Utility to
implement interim remedial measures to both reduce the mass of the underground plume of hexavalent chromium
and to monitor and control movement of the plume.
In August 2010, the Utility filed a comprehensive feasibility study with the Regional Board that included an
evaluation of possible alternatives for a final groundwater remediation plan. The Utility filed several addendums to
its feasibility study based on additional analyses of remediation alternatives and further information from the
Regional Board. In September 2011, the Utility submitted a final remediation plan to the Regional Board that
recommends a combination of remedial methods, including using pumped groundwater from extraction wells to
irrigate agricultural land and in-situ treatment of the contaminated water. The Regional Board stated that it
anticipates releasing a draft environmental impact report (‘‘EIR’’) in the second half of 2012 and that it will consider
certification of the final EIR, which will include the final approved remediation plan, by the end of 2012.
On October 11, 2011, the Regional Board issued an amended cleanup and abatement order to require the
Utility to provide an interim and permanent replacement water system for certain properties with domestic wells
containing hexavalent chromium concentrations above the 3.1 parts per billion (‘‘ppb’’) background level and to
propose a method to evaluate individual wells with hexavalent chromium concentrations below 3.1 ppb in the
affected area to determine if they have been impacted by the Utility’s past operations. The order requires the Utility
to provide evidence to prove that the provided water meets primary and secondary drinking water standards and
contains hexavalent chromium in concentrations no greater than 0.02 ppb. The order notes that for purposes of this
standard, drinking water must test below the reporting limit of 0.06 ppb due to the limitation of laboratory analysis
of low levels of chromium. On October 25, 2011, the Utility filed a stay request and petition with the California State
Water Resources Control Board (‘‘State Board’’) and requested that the State Board determine that the Utility is not
required to comply with these provisions of the order, in part, because the Utility believes that it is not feasible to
implement the ordered actions and that the ordered actions are not supported by California law. The Regional
Board’s response to the petition is due by February 20, 2012.
As of December 31, 2011 and December 31, 2010, $149 million and $45 million, respectively, were accrued in
PG&E Corporation’s and the Utility’s Consolidated Balance Sheets for estimated undiscounted future remediation
costs associated with the Hinkley site. During 2011, the Utility increased its provision for environmental remediation
liabilities by $140 million due to changes in cost estimates and assumptions associated with the developments
described above. During 2011, the Utility spent $36 million for remediation costs at Hinkley. Future costs will
depend on many factors, including when and whether the Regional Board certifies the final remediation plan, the
extent of the groundwater chromium plume, the levels of hexavalent chromium the Utility is required to use as the
standard for remediation, and the scope of requirements to provide a permanent water replacement system to
affected residents. As more information becomes known regarding these factors, estimates and assumptions regarding
the amount of liability incurred may be subject to further changes. Future changes in estimates may have a material
impact on PG&E Corporation’s and the Utility’s financial condition, results of operations, and cash flows.
The Utility is unable to recover remediation costs for the Hinkley site through customer rates. As a result,
future increases to the Utility’s provision for its remediation liability will impact PG&E Corporation’s and the
Utility’s financial results.
Reasonably Possible Environmental Contingencies
Although the Utility has provided for known environmental obligations that are probable and reasonably
estimable, estimated costs may vary significantly from actual costs, and the amount of additional future costs may be
material to results of operations in the period in which they are recognized. The Utility’s undiscounted future costs
could increase to as much as $1.5 billion (including amounts related to the Hinkley natural gas compressor site) if
the extent of contamination or necessary remediation is greater than anticipated or if the other potentially
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