PG&E 2011 Annual Report Download - page 30

more in revenues than needed to earn its authorized ROE. Among other recommendations, the CPSD recommended
that the Utility should use such amounts to fund future gas transmission expenditures and operations.
In the OII, the CPUC stated that it may consider ordering the Utility to implement the recommendations made
in the CPSD’s report, in order to improve and ensure system-wide safety and reliability. In addition, the CPUC
stated that it will decide in a separate proceeding whether the Utility’s ratepayers or shareholders, or both, will pay
for the Utility’s cost of testing, pipe replacement, or other costs, noting that some costs may stem from the San
Bruno pipe rupture or from recordkeeping deficiencies, both of which could be significant.
At a prehearing conference held on February 14, 2012, the ALJ set a procedural schedule for the parties to
conduct discovery and submit testimony before evidentiary hearings begin on September 17, 2012. See ‘‘Penalties
Conclusion’’ below.
Other Natural Gas Compliance Matters
Finally, in December 2011, the CPUC delegated authority to its staff to enforce compliance with certain state
and federal regulations related to the safety of natural gas facilities and utilities’ natural gas operating practices,
including the authority to issue citations and impose penalties.
The Utility has filed several self-reports to inform the CPUC that the Utility failed to comply with various
regulations and orders applicable to its natural gas operating practices. Recently, the CPSD issued a citation to the
Utility that included a penalty of approximately $17 million for certain self-reported violations for failing to conduct
periodic leak surveys due to plat maps being misplaced. The Utility has appealed the penalty, in part, on the basis
that the penalty amount is inappropriate in the circumstances and that the CPSD over-counted the number of
violations. The CPSD may issue additional citations and impose penalties on the Utility for other violations the
Utility has reported to the CPUC. See ‘‘Penalties Conclusion’’ below.
Penalties Conclusion
If the CPUC determines that the Utility violated applicable law, rules or orders, in connection with the above
matters, the CPUC can impose penalties of up to $20,000 per day, per violation. (For violations that are considered
to have occurred on or after January 1, 2012, the statutory penalty has increased to a maximum of $50,000 per day,
per violation.) The CPUC has wide discretion to determine the amount of penalties based on the totality of the
circumstances, including such factors as the number of violations; the length of time the violations existed; the
severity of the violations, including the type of harm caused by the violations and the number of persons affected;
conduct taken to prevent, detect, disclose or rectify the violations; and the financial resources of the regulated entity.
The CPUC has historically exercised this discretion in determining penalties. The CPUC has stated that it is
prepared to impose very significant penalties if the evidence adduced at hearing establishes that the Utility’s policies
and practices contributed to the loss of life, injuries, or loss of property resulting from the San Bruno accident.
PG&E Corporation and the Utility believe it is probable that the CPUC will impose penalties of at least
$200 million on the Utility as a result of these investigations and the Utility’s self-reported violations and have
accrued this amount as of December 31, 2011. In reaching this conclusion, management has considered, among other
factors, the findings and allegations contained in the report recently issued by the CPSD; the Utility’s self-reports to
the CPUC that some of the Utility’s past natural gas operating practices did not comply with applicable laws and
regulations for a significant period of time; and the outcome of prior CPUC investigations of other matters. PG&E
Corporation and the Utility are unable to estimate the reasonably possible amount of penalties in excess of the
amount accrued, and such amounts could be material. Among other factors, PG&E Corporation and the Utility are
uncertain whether additional citations or violations will be identified; how the CPUC will exercise its discretion in
calculating the ultimate amount of penalties; whether the ultimate amount of penalties will be determined separately
for each matter above or in the aggregate; and whether and how the CPUC will consider the broader impacts of the
San Bruno accident on the Utility’s results of operations, financial condition, and cash flows.
The Utility’s estimates and assumptions are subject to change as the CPUC investigations progress and more
information becomes known, and such changes are likely to have a material impact on PG&E Corporation’s and the
Utility’s financial condition, results of operations, and cash flows. (See Note 15 to the Consolidated Financial
Statements.)
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