PG&E 2012 Annual Report Download - page 50

The Utility’s ability to measure customer energy usage and generate bills depends on the successful functioning
of the advanced metering system. The Utility relies on third party contractors and vendors to service, support, and
maintain certain proprietary functional components of the advanced metering system. If such a vendor or contractor
ceased operations, if there was a contractual dispute or a failure to renew or negotiate the terms of a contract so
that the Utility becomes unable to continue relying on such a third-party vendor or contractor, then the Utility could
experience costs associated with disruption of billing and measurement operations and would incur costs as it seeks
to find other replacement contractors or vendors or hire and train personnel to perform such services.
Despite implementation of security and mitigation measures, all of the Utility’s technology systems are
vulnerable to disability or failures due to cyber-attacks, viruses, human errors, acts of war or terrorism, and other
events. If the Utility’s information technology systems or network infrastructure were to fail, the Utility might be
unable to fulfill critical business functions and serve its customers, which could have a material effect on PG&E
Corporation’s and the Utility’s financial conditions, results of operations, and cash flows.
In addition, in the ordinary course of its business, the Utility collects and retains sensitive information including
personal identification information about customers and employees, customer energy usage, and other confidential
information. The theft, damage, or improper disclosure of sensitive electronic data can subject the Utility to penalties
for violation of applicable privacy laws, subject the Utility to claims from third parties, and harm the Utility’s
reputation.
The Utility’s success depends on the availability of the services of a qualified workforce and its ability to maintain
satisfactory collective bargaining agreements which cover a substantial number of employees. PG&E Corporation’s and the
Utility’s results may suffer if the Utility is unable to attract and retain qualified personnel and senior management talent, or
if prolonged labor disruptions occur.
The Utility’s workforce is aging and many employees will become eligible to retire within the next few years.
Although the Utility has undertaken efforts to recruit and train new field service personnel, the Utility may not be
successful. The Utility may be faced with a shortage of experienced and qualified personnel. The majority of the
Utility’s employees are covered by collective bargaining agreements with three unions. The terms of these agreements
affect the Utility’s labor costs. It is possible that labor disruptions could occur. In addition, it is possible that some of
the remaining non-represented Utility employees will join one of these unions in the future. It is also possible that
PG&E Corporation and the Utility may face challenges in attracting and retaining senior management talent
especially if they are unable to restore the reputational harm generated by the negative publicity stemming from the
San Bruno accident. Any such occurrences could negatively impact PG&E Corporation’s and the Utility’s financial
condition and results of operations.
The operation and decommissioning of the Utility’s nuclear power plants expose it to potentially significant liabilities that it
may not be able to recover from its insurance or other sources, and the Utility may incur significant capital expenditures
and compliance costs that it may be unable to fully recover, adversely affecting PG&E Corporation’s and the Utility’s s
financial conditions, results of operations, and cash flows.
The operation of the Utility’s nuclear generation facilities expose it to potentially significant liabilities from
environmental, health and financial risks, such as risks relating to the storage, handling and disposal of spent nuclear
fuel, the release of radioactive materials caused by a nuclear accident, seismic activity, natural disaster, or terrorist
act. There are also significant uncertainties related to the regulatory, technological, and financial aspects of
decommissioning nuclear generation plants when their licenses expire. To reduce the Utility’s financial exposure to
these risks, the Utility maintains insurance and manages decommissioning trusts that hold nuclear decommissioning
charges collected through customer rates. However, the costs or damages the Utility may incur in connection with
the operation and decommissioning of its nuclear power plants could exceed the amount of the Utility’s insurance
coverage and nuclear decommissioning trust assets. The Utility has insurance coverage for property damages and
business interruption losses, as well as coverage for acts of terrorism at its nuclear power plants as a member of
Nuclear Electric Insurance Limited (‘‘NEIL’’), a mutual insurer owned by utilities with nuclear facilities. NEIL
provides coverage for both nuclear (meaning that nuclear material is released) and non-nuclear losses. Due to
multiple large non-nuclear losses in the industry, NEIL has notified the Utility and the other NEIL members that it
will be significantly reducing its coverage for non-nuclear losses. This change will affect the Utility beginning in April
2013. While the Utility is seeking alternative insurance options, efforts to obtain additional coverage may not be
successful. Even if the Utility is able to obtain additional coverage, this future insurance coverage is not likely to be
available at rates and on terms as favorable as the rates and terms of the Utility’s current NEIL insurance coverage.
If the Utility incurs losses that are either not covered by insurance or exceed the amount of insurance available, such
losses could have a material effect on PG&E Corporation’s and the Utility’s financial condition, results of operations,
and cash flows.
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