PG&E 2012 Annual Report Download - page 18

The Utility’s operating and maintenance expenses (including costs passed through to customers) increased by
$1,027 million, or 23%, from $4,432 million in 2010 to $5,459 million in 2011. Excluding costs passed through to
customers, operating and maintenance expenses increased by $817 million in 2011 compared to 2010, primarily due
to a $456 million increase in costs for natural gas matters. (See table below.) The remaining increase in operating
and maintenance costs was attributable to a number of factors, including $122 million for estimated environmental
remediation costs and other liabilities associated with Hinkley natural gas compressor site and approximately
$82 million for labor and other maintenance-related costs, primarily associated with higher storm costs. Additionally,
legal and regulatory matters increased $32 million, including penalties associated with the Rancho Cordova accident.
Costs that are passed through to customers and do not impact net income increased by $210 million primarily due to
pension expense, public purpose programs, and meter reading.
The following table provides a summary of the Utility’s costs associated with natural gas matters, included in
operating and maintenance expenses:
2012 2011 2010 Total
(in millions)
Pipeline-related expenses .......... $ 477 $ 483 $ 63 $ 1,023
Disallowed capital expenditures ..... 353 ——353
Accrued penalties ............... 17 200 — 217
Third-party claims ............... 80 155 220 455
Insurance recoveries ............. (185) (99) —(284)
Contribution to City of San Bruno . . . 70 ——70
Total natural gas matters ......... $ 812 $ 739 $ 283 $ 1,834
The Utility incurred net costs of $812 million, $739 million, and $283 million during 2012, 2011 and 2010,
respectively, in connection with natural gas matters that are not recoverable through rates. These amounts primarily
include pipeline-related expenses which consist of costs to validate safe operating pressures, conduct strength testing,
and perform other work (including work within the scope of the Utility’s pipeline safety enhancement plan), as well
as associated legal and regulatory costs. In addition, a $353 million charge was recorded in 2012 for disallowed
capital expenditures related to the Utility’s pipeline safety enhancement plan that are forecasted to exceed the
CPUC’s authorized levels or that were specifically disallowed. Also included above are estimated penalties related to
the CPUC’s pending investigations and other potential enforcement matters, accruals for third-party claims related to
the San Bruno accident, and a contribution to the City of San Bruno. These costs were partially offset by insurance
recoveries related to third-party claims. (See ‘‘Natural Gas Matters’’ below.)
The Utility forecasts that it will incur total pipeline-related costs ranging from $400 million to $500 million in
2013 that will not be recoverable through rates. These amounts include costs to perform work under the Utility’s
pipeline safety enhancement plan that were disallowed by the CPUC. These amounts also include emerging work
related to the Utility’s multi-year effort to identify and remove encroachments (such as building structures and
vegetation overgrowth) from transmission pipeline rights-of-way, as well as costs associated with the integrity of
transmission pipelines and other gas-related work. The Utility also expects it will continue to incur legal and
regulatory expenses associated with its natural gas system. The Utility may incur costs to implement any remedial
actions the CPUC may order the Utility to perform. (See ‘‘Natural Gas Matters—Pending CPUC Investigations and
Enforcement Matters’’ below.)
Future operating and maintenance expense will also continue to be affected by other costs associated with
natural gas matters that are not recoverable through rates, including any additional charges for third-party claims
arising from the San Bruno accident that are not recoverable through insurance, additional charges for civil or
criminal penalties, or punitive damages, if any, that may be imposed on the Utility. (See ‘‘Natural Gas Matters’’
below.)
The Utility forecasts that it will incur expenses in 2013 that are approximately $250 million higher than amounts
assumed under the 2011 GRC and GT&S rate case as the Utility works to improve the safety and reliability of its
electric and natural gas operations.
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