PG&E 2011 Annual Report Download - page 43

Bruno accident and it will take financial responsibility to compensate all of the victims for the injuries they suffered
as a result of the accident. PG&E Corporation and the Utility have concluded that it is probable that the Utility will
incur a loss in connection with these lawsuits and have accrued an amount in their financial statements for the
reasonably estimable minimum amount of loss. Although PG&E Corporation and the Utility believe that a significant
portion of the third-party liabilities the Utility incurs will be recoverable through insurance, the insurers could deny
coverage for claims under the terms of the policies, deem settlement amounts excessive and not payable, or be
financially unable to pay the Utility’s claims. PG&E Corporation and the Utility also are unable to estimate the
amount (or range of amounts) of reasonably possible losses associated with any punitive damages that could be
awarded to plaintiffs in the civil litigation. (See Note 15 of the Notes to the Consolidated Financial Statements.)
Further, as discussed above under the section of MD&A entitled ‘‘Natural Gas Matters,’’ there are several
investigations pending at the CPUC. If the CPUC determines that the Utility violated applicable law, rules or orders,
the CPUC can impose significant 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, depending on
the facts and circumstances of each case. The CPUC can consider many factors, such as whether to count a violation
as a single violation that occurred only one day or a continuing violation that can be penalized each day. The CPUC
has stated that it is prepared to impose substantial penalties on the Utility. The CPSD has already issued a citation
and imposed penalties of approximately $17 million on the Utility. The CPSD may impose additional penalties on
the Utility for other violations the Utility reports to the CPUC.
PG&E Corporation and the Utility have concluded that it is probable that the Utility will be required to pay
penalties as a result of the CPUC investigations and the self-reported violations and have accrued an amount in their
financial statements that reflects the reasonably estimable minimum amount of penalties they believe it is probable
that the Utility will incur. After considering the many variables that could affect the ultimate amount of penalties the
Utility may be required to pay, PG&E Corporation and the Utility are unable to estimate the reasonably possible
amount of penalties that the Utility could incur in excess of the amount accrued. PG&E Corporation and the Utility
also are unable to estimate the amount (or range of amounts) of reasonably possible losses associated with any civil
or criminal penalties that may be imposed. Any civil or criminal penalties imposed on the Utility will not be
recoverable from customers. (See Note 15 of the Notes to the Consolidated Financial Statements.)
The Utility’s estimates and assumptions underlying the accrued amounts and the ultimate amount of third-party
losses and penalties are subject to change based on many factors, including developments that occur as the San
Bruno accident litigation and the investigations continue, as more information becomes known, and if the CPSD
issues additional citations. Future changes to estimates and assumptions could result in additional accruals in future
periods which could have a material impact on PG&E Corporation’s and the Utility’s financial condition and results
of operations in the period in which they are recognized.
PG&E Corporation’s and the Utility’s financial condition, results of operations, and cash flows will be affected by the
amount of costs the Utility incurs to improve the safety and reliability of its natural gas transmission operations and in
connection with the related investigations, regulatory proceedings and litigation, and the amount of such costs that the Utility
is allowed to recover through rates.
The Utility has requested that the CPUC allow the Utility to recover costs it incurs in 2012 through 2014 under
the first phase of the Utility’s proposed natural gas transmission pipeline safety enhancement plan (with limited
exceptions), but it is uncertain what portion of the costs will ultimately be recovered through rates. In its January 12,
2012 report on the San Bruno accident, the CPSD cited the findings of an audit of the Utility’s spending for its
natural gas transmission operations since 1996 to support the CPSD’s recommendations that the CPUC order the
Utility to use funds alleged to have been underspent since 1996 on natural gas transmission business, as well
revenues collected since 1996 that allegedly exceeded the amount the Utility needed to earn its authorized ROE, to
fund future gas transmission expenditures and operations. In addition, on January 31, 2012, the CPUC’s Division of
Ratepayer Advocates, The Utility Reform Network, and other parties proposed that the Utility be prohibited from
recovering all or a portion of plan-related costs through rates and that the Utility’s rate of return on authorized
capital expenditures be reduced or limited to the costs of debt.
The ultimate amount of unrecoverable costs that shareholders may bear will depend on various factors, including
when and whether the CPUC takes action on the Utility’s recovery request, the scope and timing of the work to be
performed under the plan as approved by the CPUC, the amount of costs to perform work under the plan that the
CPUC determines the Utility may not recover through rates, and whether additional costs are incurred to comply
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