PG&E 2012 Annual Report Download - page 33

The Utility and other parties have submitted a joint stipulation to the CPUC in which the parties agreed to
continue the annual cost of capital adjustment mechanism that had been in effect since 2008, and to file the next full
cost of capital applications in April 2015 for the 2016 test year. Under the mechanism as proposed to be continued,
the Utility’s ROE would be adjusted if the 12-month October-through-September average of the Moody’s Investors
Service long-term Baa utility bond index increases or decreases by more than 1.00% as compared to the applicable
benchmark. If the adjustment mechanism is triggered, the Utility’s authorized ROE, beginning January 1st of the
following year, would be adjusted by one-half of the difference between the index and the benchmark. Additionally,
the Utility’s authorized costs of long-term debt and preferred stock would be updated to reflect actual August
month-end embedded costs and forecasted interest rates for variable long-term debt, as well as new long-term debt
and preferred stock scheduled to be issued. In any year where the 12-month average yield triggers an automatic
ROE adjustment, that average would become the new benchmark.
The CPUC is scheduled to issue a proposed decision by March 15, 2013 with a final decision by April 18, 2013.
2014 General Rate Case
On November 15, 2012, the Utility filed its 2014 GRC application with the CPUC. In the Utility’s 2014 GRC,
the CPUC will determine the annual amount of revenue requirements that the Utility will be authorized to collect
from customers from 2014 through 2016 to recover its anticipated costs for electric and natural gas distribution and
electric generation operations and to provide the Utility an opportunity to earn its authorized rate of return.
The Utility has requested that the CPUC increase the Utility’s authorized base revenues for 2014 by a total of
$1.28 billion over the comparable base revenues for 2013 that were previously authorized by the CPUC. Over the
2014-2016 GRC period, the Utility plans to make annual additional capital investments of nearly $4 billion in electric
and natural gas distribution and electric generation infrastructure. The Utility forecasts that its 2014 weighted
average rate base for the portion of the Utility’s business reviewed in the GRC will be $21.4 billion.
The following table compares the requested 2014 revenue requirement amounts by line of business with the
comparable revenue requirements currently authorized for 2013:
Amounts Increase compared
(in millions) requested in the Amounts currently to currently
Line of Business: GRC application authorized for 2013 authorized amounts
Electric distribution ......... $ 4,355 $ 3,768 $ 587
Gas distribution ............ 1,810 1,324 486
Electric generation .......... 1,946 1,737 209
Total revenue requirements ... $ 8,111 $ 6,829 $ 1,282
The Utility’s 2014 forecast for gas distribution operations includes increased costs to replace 180 miles of
distribution line per year (compared to 30 miles currently), use new leak detection technologies and survey the entire
system more frequently, remotely monitor and control a significant number of valves, implement an asset
management system to provide detailed, readily accessible information about the gas distribution system, and reduce
response times for customer gas odor reports. The Utility’s forecast for electric distribution operations includes
increased costs to upgrade and replace assets to improve safety and reduce outages, use infrared technology to
identify and correct equipment issues, install more automation to limit the impact and duration of outages, mitigate
wildfire risk, increase system capacity to meet new customer demand, and enhance asset records management and
integrate it with key systems. The Utility’s forecast for electric generation includes increased costs to operate the
Utility’s hydroelectric system (including costs related to the Helms pumped storage facility and costs associated with
operating licenses issued by the FERC), comply with new requirements adopted by the NRC applicable to the
Utility’s Diablo Canyon nuclear power plant, and operate and maintain the Utility’s fossil fuel-fired and other
generating facilities. In addition, the Utility’s forecast includes increased costs to improve service at the Utility’s local
offices and customer contact centers and to improve the service provided by field account representatives to small
and mid-sized business customers.
In its application, the Utility has requested that the CPUC establish new balancing accounts to allow the Utility
to recover costs associated with gas leak survey and repair work, major emergencies, and new regulatory
requirements related to nuclear operations and hydroelectric relicensing, because these costs are subject to a high
degree of uncertainty. The Utility also requested that the CPUC establish a ratemaking mechanism that would
increase the Utility’s authorized revenues in 2015 and 2016, primarily to reflect increases in rate base due to capital
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