PG&E 2014 Annual Report Download - page 35

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Risks Related to Operations and Information Technology
The operations of the Utility’s electricity and natural gas generation, transmission, and distribution facilities is inherently
dangerous and involves significant risks which, if they materialize, can adversely affect PG&E Corporation’s and the Utility’s
financial results, and the Utility’s insurance may not be sufficient to cover losses caused by an operating failure or catastrophic
event.
The Utility owns and operates extensive electricity and natural gas facilities, including two nuclear generation units
and an extensive hydroelectric generating system. (See “Utility Operations” in Item 1. Business.) The Utility’s ability to earn its
authorized ROE depends on its ability to efficiently maintain, operate, and protect its facilities, and provide electricity and natural
gas services safely and reliably. The Utility undertakes substantial capital investment projects to construct, replace, and improve
its electricity and natural gas facilities. In addition, the Utility is obligated to decommission its electricity generation facilities at
the end of their useful operating lives. The Utility’s ability to safely and reliably operate, maintain, construct and decommission its
facilities is subject to numerous risks, many of which are beyond the Utility’s control, including those that arise from:
the breakdown or failure of equipment, electric transmission or distribution lines, or natural gas transmission and
distribution pipelines, that can cause explosions, res, or other catastrophic events (such as the San Bruno accident
discussed in Item 7. MD&A.);
the release of radioactive materials caused by a nuclear accident, seismic activity, natural disaster, or terrorist act;
the failure of a large dam or other major hydroelectric facility, or the failure of one or more levees that protect land on
which the Utility’s assets are built;
the failure to take expeditious or sufcient action to mitigate operating conditions, facilities, or equipment, that the Utility
has identied, or reasonably should have identied, as unsafe, which failure then leads to a catastrophic event (such as a
wild land re or natural gas explosion), and the failure to respond effectively to a catastrophic event;
severe weather events such as storms, tornadoes, oods, drought, earthquakes, tsunamis, wild land and other res,
pandemics, solar events, electromagnetic events, or other natural disasters;
operator or other human error;
construction performed by third parties, such as ground excavation or “dig-ins” that damage the Utility’s underground
facilities;
the release of hazardous or toxic substances into the air, water, or soil; and
attacks by third parties, including cyber-attacks, acts of terrorism, vandalism, or war.
The occurrence of any of these events could interrupt fuel supplies; affect demand for electricity or natural gas; cause
unplanned outages or reduce generating output; damage the Utility’s assets or operations; damage the assets or operations of third
parties on which the Utility relies; damage property owned by customers or others; and cause personal injury or death. As a result,
the Utility could incur costs to purchase replacement power, to repair assets and restore service, to compensate third parties, or to
pay penalties or implement remedial measures. These costs may not be recoverable through rates or insurance and could have a
material impact of PG&E Corporation’s financial results and reputation. As an example, see the discussion in Item 7. MD&A. of
the Utility’s unrecovered pipeline-related costs incurred since the San Bruno accident.
Further, although the Utility often enters into agreements for third-party contractors to perform work, such as patrolling
and inspection of facilities or the construction or demolition or facilities, the Utility may retain liability for the quality and
completion of the contractor’s work and can be subject to penalties or other enforcement action if the contractor violates applicable
laws, rules, regulations, or orders. Insurance, equipment warranties, or other contractual indemnification requirements may not be
sufficient or effective to provide full or even partial recovery under all circumstances or against all hazards or liabilities to which
the Utility may become subject. An uninsured loss could have a material effect on PG&E Corporation’s and the Utility’s financial
results. Future insurance coverage may not be available at rates and on terms as favorable as the Utility’s current insurance
coverage or may not be available at all.