PG&E 2012 Annual Report Download - page 30

enhancement plan to modernize and upgrade its natural gas transmission system, but disallowed the Utility’s request
for rate recovery of a significant portion of plan-related costs the Utility forecasted it would incur over the first
phase of the plan (2011 through 2014).
In its application filed in August 2011, the Utility forecasted that it would incur total plan-related costs of
approximately $2.2 billion, composed of $1.4 billion in capital expenditures and $750 million in expenses. The CPUC
decision prohibited the Utility from recovering any expenses incurred before December 20, 2012, the effective date
of the decision, and from recovering certain categories of expenses that the Utility forecasts it will incur in 2013 and
2014. The CPUC decision also limits the Utility’s recovery of capital expenditures to $1 billion. The Utility will be
unable to recover any costs in excess of the adopted capital and expense amounts and the adopted amounts will be
reduced by the cost of any plan project not completed and not replaced with a higher priority project. The CPUC
also determined that the Utility should not recover in rates the costs of pressure testing pipeline placed into service
after January 1, 1956 for which the Utility is unable to produce pressure test records. The CPUC may disallow
additional costs based on the final results of the Utility’s pipeline records search and pipeline pressure validation
work, which the Utility expects to complete by May 2013. The Utility is required to update its plan and file an
application within 30 days after this work is completed.
The following table compares the Utility’s requested expense and capital amounts (based on forecasts included
in the August 2011 application) with the amounts authorized by the CPUC:
2011 2012 2013 2014 Total
(in millions)
Expense
Requested ....... $ 221
(1) $ 231 $ 155 $ 144 $ 751
Authorized ...... —37389165
Difference ....... $ 221
(1) $ 228 $ 82 $ 55 $ 586
Capital
Requested ....... $ 69 $ 384 $ 480 $ 500 $ 1,433
Authorized ...... 47 260 348 348 1,003
Difference ....... $ 22 $ 124 $ 132 $ 152 $ 430
(1) The Utility’s August 2011 application did not request recovery of forecast 2011 plan-related expenses of $221 million.
For the year ended December 31, 2012, the Utility incurred total pipeline-related expenses of $477 million,
including plan-related expenses of $271 million. As a result of the decision, the Utility also recorded a charge of
$353 million for capital expenditures that are forecast to exceed the CPUC’s authorized levels or that were
specifically disallowed. All plan-related costs for 2013 and 2014 will be charged to net income in the period incurred.
Unrecoverable plan-related costs are expected to range from approximately $150 million to $200 million in 2013 and
a comparable amount in 2014. The CPUC stated that the Utility’s recovery of the amounts authorized in the decision
will be subject to refund, noting the possibility that further ratemaking adjustments may be made in the pending
CPUC investigations in which the CPUC will address potential penalties to be imposed on the Utility. (See ‘‘Pending
CPUC Investigations and Enforcement Matters’’ above.)
The CPUC delegated authority to the SED to oversee all of the Utility’s work performed pursuant to the
pipeline safety enhancement plan, including the authority to participate in all plan-related activities and review and
modify all changes proposed by the Utility. The Utility must submit quarterly compliance reports to the CPUC that
will include information about actual cost compared to authorized cost for each work project; the construction status
of projects; and changes in scope and prioritization of projects. As a result of the compliance reporting process, the
Utility could incur additional non-recoverable costs. The CPUC also ordered the SED to engage consultants to
conduct management and financial audits to address safety-related corporate culture and historical spending. (As
discussed below, the financial audit of the Utility’s natural gas distribution spending will be considered in the 2014
GRC, but the scope and timing of the management audit is still uncertain.) (See ‘‘2014 GRC’’ below.)
On January 28, 2013, several parties filed applications for rehearing of the CPUC’s decision. The applications
for rehearing state, among other arguments, that the CPUC should have disallowed more of the Utility’s costs and
that the CPUC should have approved a reduced ROE for capital expenditures made under the plan. Several parties
also have filed petitions for modification of the decision. It is uncertain whether or when the CPUC will grant these
requests.
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