PG&E 2015 Annual Report Download - page 60

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PART II
ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
why the Utility should not be sanctioned $163 million for
intentional misrepresentations regarding its compliance
with gas safety regulations regarding maximum allowable
operating pressure for its gas transmission lines. On
December 30, 2015, the Utility filed a response to this
motion stating that it does not believe there is merit to
the allegations. ORA filed a reply on January 11, 2016,
reiterating its allegations.
The Utility also has proposed changes to the revenue
sharing mechanism authorized in the last GT&S rate
case (covering 2011-2014) that subjected a portion of the
Utility’s transportation and storage revenue requirement
to market risk. The Utility proposed full balancing account
treatment that allows for recovery of the Utility’s authorized
transportation and storage revenue requirements (except
for the revenue requirement associated with the Utility’s
25% interest in the Gill Ranch storage field).
Based on the scoping ruling and procedural schedule that
was issued on June 11, 2015, the CPUC plans to issue an
initial decision to authorize revenue requirements followed
by a second decision to reduce the authorized revenue
requirements by the costs of designated safety-related
projects and programs up to the $850 million maximum
cost disallowance imposed by the Penalty Decision. (See
Note 13 in the Consolidated Financial Statements in Item 8
for more information about the CPUC’s Penalty Decision.)
In accordance with an earlier CPUC decision regarding the
Utility’s violation of the CPUC’s ex parte communication
rules made in the GT&S rate case, the first decision could
disallow the Utility from recovering up to a five-month
portion of the revenue increase that may otherwise have
been authorized. It is uncertain how much of the Utility’s
costs to perform the safety-related projects and programs
the CPUC will identify as counting toward the $850 million
shareholder-funded obligation. If the Utility’s actual costs
exceed costs that the CPUC counts towards the $850
million maximum, the Utility would record additional
charges if such costs are not otherwise authorized by
the CPUC. Additionally, the Utility may record additional
charges if the CPUC does not authorize capital spending
from the prior rate case period. The authorized revenue
requirements in the GT&S rate case would be retroactive
to January 1, 2015. The ruling states that the case would
be completed within 18 months of the date of the ruling,
or by December 2016.
FERC TO Rate Cases
On September 30, 2015, the FERC approved a settlement
that sets the Utility’s 2015 retail electric transmission
revenue requirement at $1.201 billion, a $161 million increase
over the currently authorized revenue requirement of
$1.040 billion.
On July 29, 2015, the Utility requested that the FERC
approve a 2016 retail electric transmission revenue
requirement of $1.515 billion. The proposed amount
reflects a $314 million increase over the settled revenue
requirement of $1.201 billion. The Utility forecasts that it
will make investments of $1.246 billion in 2016 in various
capital projects. The Utility’s forecasted rate base for
2016 is $5.85 billion, compared to forecasted rate base of
$5.12billion in 2015. The Utility has requested that the FERC
approve a 10.96% return on equity. On September 30, 2015,
the FERC accepted the proposed revenue requirement,
subject to hearing and refund, and established March 1,
2016 as the eective date for rate changes. Hearings are
being held in abeyance pending settlement discussions
among the parties.
CPUC Investigation of the Utility’s Safety Culture
On August 27, 2015, the CPUC began a formal investigation
into whether the organizational culture and governance
of PG&E Corporation and the Utility prioritize safety and
adequately direct resources to promote accountability and
achieve safety goals and standards. The CPUC directed
the SED to evaluate the Utility’s and PG&E Corporation’s
organizational culture, governance, policies, practices, and
accountability metrics in relation to the Utility’s record of
operations, including its record of safety incidents. The
CPUC authorized the SED to engage a consultant to assist
in the SED’s investigation and the preparation of a report
containing the SED’s assessment.
The CPUC stated that the initial phase of the proceeding
was categorized as rate setting because it will consider
issues both of fact and policy and because the Utility
and PG&E Corporation do not face the prospect of fines,
penalties, or remedies in this phase. Upon completion of
the consultant’s report, the assigned Commissioner will
determine the scope of and next actions in the proceeding.
The timing scope and potential outcome of the investigation
are uncertain.
Diablo Canyon Nuclear Power Plant
The NRC operating licenses for the two nuclear generation
units at Diablo Canyon expire in 2024 and 2025. In
November 2009, the Utility filed an application with the
NRC to seek the renewal of the operating licenses, a
process which can take several years. After the March 2011
earthquake in Japan that damaged nuclear facilities, the