Commitments And Contingencies | 12 Months Ended |
Dec. 31, 2014 |
Commitments And Contingencies | |
NOTE 14: CONTINGENCIES AND COMMITMENTS |
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PG&E Corporation and the Utility have significant contingencies arising from their operations, including contingencies related to enforcement and litigation matters and environmental remediation. The Utility also has substantial financial commitments in connection with agreements entered into to support its operating activities. See “Purchase Commitments” below. PG&E Corporation has financial commitments described in “Other Commitments” below. |
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Enforcement and Litigation Matters |
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On September 9, 2010, a natural gas transmission pipeline owned and operated by the Utility ruptured in San Bruno, California. The ensuing explosion and fire resulted in the deaths of eight people, numerous personal injuries, and extensive property damage. PG&E Corporation's and the Utility's financial condition, results of operations, and cash flows have been materially affected by the costs the Utility has incurred related to shareholder funded safety work, the ongoing regulatory investigations, and civil lawsuits that commenced following the San Bruno accident. |
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CPUC Investigations Regarding the Utility's Gas Transmission System and the San Bruno Accident |
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There are three CPUC investigative enforcement proceedings pending against the Utility. These investigations relate to (1) the Utility's safety recordkeeping for its natural gas transmission system, (2) the Utility's operation of its natural gas transmission pipeline system in or near locations of higher population density, and (3) the Utility's pipeline installation, integrity management, recordkeeping and other operational practices, and other events or courses of conduct, that could have led to or contributed to the San Bruno accident. |
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On September 2, 2014, the assigned CPUC ALJs issued their presiding officer decisions in the three investigative enforcement proceedings pending against the Utility related to the Utility's natural gas transmission operations and practices and the San Bruno accident. The ALJs determined that the Utility committed approximately 3,700 violations of law, rules and regulations. The ALJs jointly issued a decision calling for total fines and disallowances of $1.4 billion on the Utility to address all violations, allocated as follows: (1) $950 million fine to be paid to the State General Fund, (2) $400 million refund to ratepayers of previously authorized revenues, and (3) remedial measures that the ALJs estimate will cost the Utility at least $50 million. The ALJs' decisions are not the final decisions of the CPUC. Three CPUC Commissioners have requested that the CPUC review the decisions. It is possible that one or more Commissioners will issue an alternate penalty decision for consideration by the CPUC. In addition, the Utility and other parties, including the SED, TURN, the ORA, the City and County of San Francisco, and the City of San Bruno have appealed the presiding officer decisions. |
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In its appeals, the Utility argued that the penalties imposed and the findings and conclusions on which they are based do not meet applicable legal standards, are based on the misapplication of California law and regulations, and are unconstitutional. The Utility has asked the CPUC to order the Utility to pay a significantly reduced penalty that is reasonable and proportionate in light of the nature of the violations and that takes into account the substantial unrecovered amounts the Utility has already spent and forecasts that it will spend on gas system safety. The Utility requested that it be allowed 180 days to raise the funds it may be ordered to pay to the State General Fund rather than the 40 days specified in the decision. The Utility also argued that the entire penalty should go toward funding investments in the Utility's gas transmission system. TURN, the ORA, and the City and County of San Francisco jointly filed an appeal urging the CPUC to disallow the Utility's recovery of remaining PSEP costs of $877 million and to require the Utility to pay $473 million to the State General Fund. These parties also argue that the record in the investigative proceedings would support an even larger penalty than stated in the decision. The City of San Bruno appealed the rejection of its proposals for the appointment of an independent monitor to oversee the Utility's natural gas operations and for the establishment of a pipeline safety trust. It is uncertain when the final outcome of the investigations will be determined. |
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While the various appeals and requests for review of the presiding officer decisions are unresolved there continues to be significant uncertainty about the ultimate forms and amounts of penalties (including fines) that will be imposed on the Utility. At December 31, 2014, the Consolidated Balance Sheets included an accrual of $200 million in other current liabilities for the minimum amount of fines deemed probable. The impact on PG&E Corporation's and the Utility's Consolidated Financial Statements will depend on the amounts and forms of penalties that are ultimately adopted by the CPUC. Fines payable to the State General Fund or refunds of revenues would be charged to net income when it is probable that such fines or refunds will be imposed and the amounts can be reasonably estimated. A disallowance of previously authorized and incurred capital costs would be charged to net income when the disallowance is probable and the amount can be reasonably estimated. Penalties in the form of future disallowed costs would be charged to net income in the period during which the actual costs are incurred. Although PG&E Corporation and the Utility believe it is probable that the CPUC will impose total penalties materially in excess of the $200 million previously accrued, they are unable to make a better estimate due to the variety of potential combinations of amounts and forms of penalties that could ultimately be imposed on the Utility and uncertainty about the timing of recognition. PG&E Corporation and the Utility believe the final outcome of the investigations will have a material impact on their financial condition, results of operations, and cash flows. |
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Federal Criminal Indictment |
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On July 29, 2014, a federal grand jury in the Northern District of California returned a 28-count superseding criminal indictment against the Utility in federal district court replacing the indictment that had been returned on April 1, 2014. The superseding indictment charges 27 felony counts (increased from 12 counts charged in the original indictment) alleging that the Utility knowingly and willfully violated minimum safety standards under the Natural Gas Pipeline Safety Act relating to record keeping, pipeline integrity management, and identification of pipeline threats. The superseding indictment also includes one felony count charging that the Utility illegally obstructed the NTSB's investigation into the cause of the San Bruno accident. The maximum statutory fine for each felony count is $500,000, for total fines of $14 million. The superseding indictment also alleges an alternative fine under the Alternative Fines Act which states, in part: “If any person derives pecuniary gain from the offense, or if the offense results in pecuniary loss to a person other than the defendant, the defendant may be fined not more than the greater of twice the gross gain or twice the gross loss.” Based on the superseding indictment's allegations that the Utility derived gross gains of approximately $281 million and that the victims suffered losses of approximately $565 million, the maximum alternate fine would be approximately $1.13 billion. |
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The Utility entered a plea of not guilty. The Utility believes that criminal charges and the alternate fine allegations are not merited and that it did not knowingly and willfully violate minimum safety standards under the Natural Gas Pipeline Safety Act or obstruct the NTSB's investigation, as alleged in the superseding indictment. A status conference is scheduled to be held in court on March 9, 2015. PG&E Corporation and the Utility have not accrued any charges for criminal fines in their consolidated financial statements as such amounts are not considered to be probable. |
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Other Enforcement Matters |
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PG&E Corporation's and the Utility's financial condition, results of operations, and cash flows also may be affected by the outcome of the following matters. |
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Improper CPUC Communications |
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On September 15, 2014, the Utility notified the CPUC and the ALJ overseeing the 2015 GT&S rate case that it believes certain communications between the Utility and CPUC personnel relating to the 2015 GT&S rate case violated the CPUC's rules regarding ex parte communications. Ex parte communications include any communication between a decision maker and an interested person concerning substantive issues in certain identified categories of formal proceedings before the CPUC. (The Utility discovered the communications as part of an internal review of communications between the Utility and the CPUC undertaken after the City of San Bruno filed a motion at the CPUC in late July 2014 alleging that various email communications between the Utility's employees and CPUC personnel violated the ex parte communication rules with respect to the pending CPUC investigative enforcement proceedings against the Utility. The Utility believes that the communications cited by San Bruno in its July 2014 motion are not prohibited ex parte communications. The CPUC has not yet addressed San Bruno's motion and its request that the CPUC penalize the Utility.) |
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On November 20, 2014, the CPUC issued a decision imposing a fine of $1.05 million on the Utility and disallowing up to the entire amount of the revenue increase that would have been collected from ratepayers over the five-month period between March 2015 and August 2015. The exact amount of the revenue disallowance will be determined in the CPUC's final decision in the GT&S rate case expected to be issued in August 2015. In addition, the decision prohibits the Utility from engaging in any oral or written ex parte communications, as well as procedural communications, with Commissioners or their advisors in any rate-setting proceeding and requires the Utility to report communications with senior CPUC staff, in any rate-setting or adjudicatory proceeding before the CPUC, for one year from the effective date of the decision. With respect to the GT&S rate case, the ban will be in effect until the resolution of the GT&S rate case or one year from the effective date of the decision, whichever is later. The Utility and other parties have requested that the CPUC reconsider its decision. The ORA, TURN, and the City of San Bruno argue that the applicable law supports the imposition of a fine ranging from $2.5 million to $250 million. It is uncertain when the CPUC will address these applications for rehearing. |
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In October and December 2014, the Utility notified the CPUC of additional email communications between the Utility and CPUC personnel regarding various matters (not limited to the GT&S rate case), that the Utility believes may constitute or describe ex parte communications. As of January 30, 2015, the Utility had provided copies of approximately 65,000 email communications between the CPUC and the Utility to the CPUC and the City of San Bruno. It is uncertain whether any of these email communications will be challenged as prohibited ex parte communications or as improper or illegal. |
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The Utility believes it is probable that CPUC enforcement actions will be taken in connection with these additional ex parte communications but is unable to reasonably estimate the amount or range of future charges that could be incurred given the CPUC's wide discretion and the number of factors that can be considered in determining the final penalties. It is also possible that other parties may request that the CPUC rescind decisions or take other action in open or closed proceedings to address ex parte communications that they may allege occurred regarding substantive issues in those proceedings. For example, TURN and the ORA have filed petitions to request that the CPUC rescind a $29 million shareholder incentive awarded to the Utility in 2010 for the successful implementation of the Utility's 2006-2008 energy efficiency programs based on their allegation that prohibited ex parte communications tainted the decision. It is uncertain whether the CPUC will grant these petitions or whether parties will request the CPUC to take action in other proceedings. It is also uncertain whether the ex parte communication issues will affect the outcome of other pending legal matters, ratemaking or regulatory proceedings, investigations and enforcement matters. |
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Finally, the U.S. Attorney's Office in San Francisco and the California Attorney General's office have begun investigations in connection with these communications. The Utility is cooperating with the federal and state investigators. It is uncertain whether any charges will be brought against the Utility. |
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Gas Safety Citation Program |
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The SED, the division of the CPUC primarily responsible for overseeing the safety of electric and natural gas utility operations in California, conducts periodic audits of the Utility's operating practices and investigates potential violations. In December 2011 the CPUC adopted a gas safety citation program and delegated authority to the SED to issue citations and impose fines on California gas corporations, such as the Utility, for violations of certain state and federal regulations that relate to the safety of natural gas facilities and operating practices. The California gas corporations are required to inform the SED of self-identified or self-corrected violations. The SED can consider various factors in determining whether to impose fines and the amount of fines, including the severity of the safety risk associated with each violation, the number and duration of the violations, whether the violation was self-reported, and whether corrective actions were taken. |
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Since the gas safety program became effective, the Utility has filed approximately 84 self-reports and the SED has imposed fines ranging from $50,000 to $16.8 million (including the $10.85 million fine related to an explosion in Carmel, California that is discussed below) for violations identified through self-reports, SED investigations and audits. The SED recently has stated that it will not conduct further investigations into 65 self-reports the Utility had filed through December 31, 2014. The Utility believes it is probable that the SED will impose fines or take other enforcement action with respect to some of the Utility's remaining self-reports or other self-reports that the Utility has filed since January 1, 2015. The Utility believes it is reasonably possible that the SED will impose fines on the Utility based on allegations of noncompliance that are contained in some of the SED's audits. The Utility is unable to reasonably estimate the amount or range of future charges that could be incurred for fines imposed by the SED given the wide discretion the SED has in determining whether to bring enforcement action and the number of factors that can be considered in determining the amount of fines. |
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Carmel Incident |
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On March 3, 2014, a vacant house in Carmel, California was severely damaged due to a natural gas explosion while the Utility's employees were performing work to upgrade the main natural gas distribution pipeline in the area. There were no injuries or fatalities. The SED conducted an investigation of the incident and alleged that the Utility committed two violations of certain natural gas safety regulations by failing to follow procedures to update records, to provide its welding crew with accurate information, and to take steps to make safe any actual or potential hazard to life or property. On November 20, 2014, the SED issued a citation to the Utility that included a fine of $10.85 million for these alleged violations. The Utility recorded this amount as an expense for 2014. The Utility has appealed the citation to the CPUC. The SED has requested that the CPUC dismiss the Utility's appeal as untimely. The CPUC has not yet addressed the SED's request. In addition, the Utility was informed that the U.S. Attorney's Office was investigating the Carmel incident. It is uncertain whether any charges will be brought against the Utility. |
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CPUC Investigation Regarding Natural Gas Distribution Facilities Record-Keeping |
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On November 20, 2014, the CPUC issued an order instituting a new investigation into whether the Utility violated applicable laws pertaining to record-keeping practices for its natural gas distribution service and facilities. The order also requires the Utility to show cause why (1) the CPUC should not find that the Utility violated provisions of the California Public Utilities Code, CPUC general orders or decisions, other rules, or requirements, and/or engaged in unreasonable and/or imprudent practices related to these matters, and (2) the CPUC should not impose penalties, and/or any other forms of relief, if any violations are found. |
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In particular, the order cites the SED's investigative reports alleging that the Utility violated rules regarding safety record-keeping in connection with six natural gas distribution incidents, including the natural gas explosion that occurred in Carmel, California on March 3, 2014. (See “Carmel Incident” above.) On December 22, 2014, as directed by the CPUC, the Utility submitted a report that explained why the Utility believes the SED's investigative findings do not constitute violations of law and also outlined the various programs, measures and actions the Utility has undertaken to continuously improve its distribution record keeping practices. |
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PG&E Corporation and the Utility believe it is reasonably possible that the CPUC will impose fines on the Utility or take other enforcement action in connection with this matter, but are unable to reasonably estimate the amount or range of future loss contingencies. |
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Natural Gas Transmission Pipeline Rights-of-Way |
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In 2012, the Utility notified the CPUC and the SED that the Utility planned to complete a system-wide survey of its transmission pipelines in an effort to identify encroachments (such as building structures and vegetation overgrowth) on the Utility's pipeline rights-of-way. The Utility also submitted a proposed compliance plan that set forth the scope and timing of remedial work to remove identified encroachments over a multi-year period and to pay penalties if the proposed milestones were not met. In March 2014, the Utility informed the SED that the survey has been completed and that remediation work, including removal of the encroachments, is expected to continue for several years. The SED has not addressed the Utility's proposed compliance plan, and it is reasonably possible that the SED will impose fines on the Utility or take other enforcement action in the future based on the Utility's failure to continuously survey its system and remove encroachments. |
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Pipeline Safety Enhancement Plan |
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On November 20, 2014, the CPUC approved the settlement agreement (submitted in July 2014) among the Utility, ORA, and TURN to resolve the Utility's PSEP Update application. The CPUC decision approved total PSEP-related revenue requirements (2012-2014) of $223 million, subject to refund, that reflect a $23 million reduction to expense funding, as compared to the amount requested in the Utility's application. (PG&E Corporation's and the Utility's 2014 consolidated financial statements reflect this reduction.) In accordance with the settlement agreement, the CPUC decision did not adopt any reduction to the Utility's request for authorization of total PSEP capital costs of $766 million. The Utility previously recorded cumulative charges of $549 million for PSEP-related capital costs that are expected to exceed the authorized amount. During the quarter ended December 31, 2014, the Utility recorded an additional charge for $116 million for PSEP capital costs that are expected to exceed the authorized amounts, bringing the total cumulative charge to $665 million. $209 million is expected to be incurred in 2015 and beyond. At December 31, 2014, approximately $549 million of PSEP-related capital costs is recorded in property, plant, and equipment on the Consolidated Balance Sheets. The Utility would be required to record charges in future periods to the extent PSEP-related capital costs are higher than currently expected or if the Utility was required to refund previously authorized PSEP-related capital and expense amounts and/or revenue requirements. |
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Other Legal and Regulatory Contingencies |
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PG&E Corporation and the Utility are subject to various laws and regulations and, in the normal course of business, are named as parties in a number of claims and lawsuits. In addition, penalties may be incurred for failure to comply with federal, state, or local laws and regulations. A provision for a loss contingency is recorded when it is both probable that a loss has been incurred and the amount of the loss can be reasonably estimated. PG&E Corporation and the Utility evaluate the range of reasonably estimated losses and record a provision based on the lower end of the range, unless an amount within the range is a better estimate than any other amount. The assessment of whether a loss is probable or reasonable possibility, and whether the loss or a range of loss is estimable, often involves a series of complex judgments about future events. Loss contingencies are reviewed quarterly and estimates are adjusted to reflect the impact of all known information, such as negotiations, discovery, settlements and payments, rulings, advice of legal counsel, and other information and events pertaining to a particular matter. PG&E Corporation's and the Utility's policy is to exclude anticipated legal costs from the provision for loss and expense these costs as incurred. |
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Accruals for other legal and regulatory contingencies (excluding amounts related to natural gas matters above) totaled $55 million at December 31, 2014 and $43 million at December 31, 2013. These amounts are included in other current liabilities in the Consolidated Balance Sheets. The estimated reasonably possible range of loss for these matters in excess of the recorded accrual is not material. The resolution of these matters is not expected to have a material impact on PG&E Corporation's and the Utility's financial condition, results of operations, or cash flows. |
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Environmental Remediation Contingencies |
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Given the complexities of the legal and regulatory environment and the inherent uncertainties involved in the early stages of a remediation project, the process for estimating remediation liabilities is subjective and requires significant judgment. The Utility records an environmental remediation liability when the site assessments indicate that remediation is probable and the Utility can reasonably estimate the loss or a range of probable amounts. The Utility records an environmental remediation liability based on the lower end of the range of estimated probable costs, unless an amount within the range is a better estimate than any other amount. Amounts recorded are not discounted to their present value. The Utility's environmental remediation liability is primarily included in non-current liabilities on the Consolidated Balance Sheets and is composed of the following: |
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| Balance at | | | | | | | | | | | | |
(in millions) | 31-Dec-14 | | 31-Dec-13 | | | | | | | | | | | | |
Topock natural gas compressor station (1) | $ | 291 | | $ | 264 | | | | | | | | | | | | |
Hinkley natural gas compressor station (1) | | 158 | | | 190 | | | | | | | | | | | | |
Former manufactured gas plant sites owned by the Utility or third parties | | 257 | | | 184 | | | | | | | | | | | | |
Utility-owned generation facilities (other than fossil fuel-fired), | | 150 | | | 160 | | | | | | | | | | | | |
other facilities, and third-party disposal sites | | | | | | | | | | | | |
Fossil fuel-fired generation facilities and sites | | 98 | | | 102 | | | | | | | | | | | | |
Total environmental remediation liability | $ | 954 | | $ | 900 | | | | | | | | | | | | |
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(1) See “Natural Gas Compressor Station Sites” below. |
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At December 31, 2014 the Utility expected to recover $663 million of its environmental remediation liability through various ratemaking mechanisms authorized by the CPUC. One of these mechanisms allows the Utility rate recovery for 90% of its hazardous substance remediation costs for certain approved sites (including the Topock site) without a reasonableness review. The Utility may incur environmental remediation costs that it does not seek to recover in rates, such as the costs associated with the Hinkley site. |
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Natural Gas Compressor Station Sites |
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The Utility is legally responsible for remediating groundwater contamination caused by hexavalent chromium used in the past at the Utility's natural gas compressor stations. One of these stations is located near Hinkley, California and is referred to below as the “Hinkley site.” Another station is located near Needles, California and is referred to below as the “Topock site.” The Utility is also required to take measures to abate the effects of the contamination on the environment. |
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Hinkley Site |
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The Utility has been implementing interim remediation measures at the Hinkley site to reduce the mass of the chromium plume and to monitor and control movement of the plume. The Utility's remediation and abatement efforts at the Hinkley site are subject to the regulatory authority of the Regional Board. In 2013, the Regional Board certified a final environmental report evaluating the Utility's proposed remedial methods to contain and remediate the underground plume of hexavalent chromium and the potential environmental impacts. On January 22, 2015, the Regional Board issued a preliminary draft clean-up and abatement order that proposes that the Utility continue and improve its remedial treatment methods evaluated in the environmental report, along with a proposed monitoring and reporting program and proposed deadlines in 2021 and 2026 to meet specified interim clean-up targets. Comments by the Utility and the public are due on March 13, 2015. The Regional Board is tentatively scheduled to consider final adoption of the clean-up and abatement order at its September 2015 meeting. |
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The Utility's environmental remediation liability at December 31, 2014 reflects the Utility's best estimate of probable future costs associated with its final remediation plan and interim remediation measures. Future costs will depend on many factors, including the levels of hexavalent chromium the Utility is required to use as the standard for remediation, the required time period by which those standards must be met, and the nature and extent of the chromium contamination. As the comment process continues and the final order and permits are issued, the Utility expects to obtain additional information about the total costs associated with implementing the final remedy and performing related activities and the best estimate of future costs may be subject to further changes. Future changes in cost estimates and the assumptions on which they are based may have a material impact on future financial condition, results of operations, and cash flows. |
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Topock Site |
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The Utility's remediation and abatement efforts at the Topock site are subject to the regulatory authority of the California Department of Toxic Substances Control and the U.S. Department of the Interior. In September 2014, the Utility submitted its 90% remedial design plan to regulatory authorities and expects to submit its final remedial design plan in mid-2015, which would seek approval to begin construction of an in-situ groundwater treatment system that will convert hexavalent chromium into a non-toxic and non-soluble form of chromium. The Utility has implemented interim remediation measures, including a system of extraction wells and a treatment plant designed to prevent movement of the chromium plume toward the Colorado River. The Utility's environmental remediation liability at December 31, 2014 reflects its best estimate of probable future costs associated with its final remediation plan. Future costs will depend on many factors, including the extent of work to be performed to implement the final groundwater remedy and the Utility's required time frame for remediation. Future changes in cost estimates and the assumptions on which they are based may have a material impact on future financial condition and cash flows. |
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Reasonably Possible Environmental Contingencies |
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Although the Utility has provided for known environmental obligations that are probable and reasonably estimable, the Utility's undiscounted future costs could increase to as much as $1.8 billion (including amounts related to the Hinkley and Topock sites described above) if the extent of contamination or necessary remediation is greater than anticipated or if the other potentially responsible parties are not financially able to contribute to these costs. The Utility may incur actual costs in the future that are materially different than this estimate and such costs could have a material impact on results of operations during the period in which they are recorded. |
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Nuclear Insurance |
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The Utility is a member of NEIL, which is a mutual insurer owned by utilities with nuclear facilities. NEIL provides insurance coverage for property damages and business interruption losses incurred by the Utility if a nuclear event were to occur at the Utility's two nuclear generating units at Diablo Canyon and the retired Humboldt Bay Unit 3. NEIL provides property damage and business interruption coverage of up to $3.2 billion per nuclear incident and $2.6 billion per non-nuclear incident for Diablo Canyon. Humboldt Bay Unit 3 has up to $131 million of coverage for nuclear and non-nuclear property damages. If NEIL losses in any policy year exceed accumulated funds, the Utility could be subject to a retrospective assessment. If NEIL were to exercise this assessment, as of December 31, 2014, the current maximum aggregate annual retrospective premium obligation for the Utility is approximately $51 million. |
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NEIL also provides coverage for damages caused by acts of terrorism at nuclear power plants. Certain acts of terrorism may be “certified” by the Secretary of the Treasury. If damages are caused by certified acts of terrorism, NEIL can obtain compensation from the federal government and will provide up to its full policy limit of $3.2 billion for each insured loss. In contrast, NEIL would treat all non-certified terrorist acts occurring within a 12-month period against one or more commercial nuclear power plants insured by NEIL as one event and the owners of the affected plants would share the $3.2 billion policy limit amount. |
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Under the Price-Anderson Act, public liability claims that arise from nuclear incidents that occur at Diablo Canyon, and that occur during the transportation of material to and from Diablo Canyon are limited to $13.6 billion. The Utility purchased the maximum available public liability insurance of $375 million for Diablo Canyon. The balance of the $13.6 billion of liability protection is provided under a loss-sharing program among utilities owning nuclear reactors. The Utility may be assessed up to $255 million per nuclear incident under this program, with payments in each year limited to a maximum of $38 million per incident. Both the maximum assessment and the maximum yearly assessment are adjusted for inflation at least every five years. The next scheduled adjustment is due on or before September 10, 2018. |
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The Price-Anderson Act does not apply to claims that arise from nuclear incidents that occur during shipping of nuclear material from the nuclear fuel enricher to a fuel fabricator or that occur at the fuel fabricator's facility. The Utility has a separate policy that provides coverage for claims arising from some of these incidents up to a maximum of $375 million per incident. In addition, the Utility has $53 million of liability insurance for Humboldt Bay Unit 3 and has a $500 million indemnification from the NRC for public liability arising from nuclear incidents, covering liabilities in excess of the liability insurance. |
Purchase Commitments |
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The following table shows the undiscounted future expected obligations under power purchase agreements that have been approved by the CPUC and have met specified construction milestones as well as undiscounted future expected payment obligations for natural gas supplies, natural gas transportation, natural gas storage, and nuclear fuel as of December 31, 2014: |
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| Power Purchase Agreements | | | | | | | |
| Renewable | | Qualifying | | | | Natural | | Nuclear | | | |
(in millions) | Energy | | Facility | | Other | | Gas | | Fuel | | Total |
2015 | $ | 2,145 | | $ | 601 | | $ | 820 | | $ | 544 | | $ | 138 | | $ | 4,248 |
2016 | | 2,185 | | | 525 | | | 766 | | | 164 | | | 129 | | | 3,769 |
2017 | | 2,187 | | | 418 | | | 758 | | | 107 | | | 131 | | | 3,601 |
2018 | | 2,063 | | | 382 | | | 731 | | | 107 | | | 115 | | | 3,398 |
2019 | | 2,053 | | | 304 | | | 706 | | | 107 | | | 109 | | | 3,279 |
Thereafter | | 30,289 | | | 1,217 | | | 2,390 | | | 648 | | | 429 | | | 34,973 |
Total purchase commitments | $ | 40,922 | | $ | 3,447 | | $ | 6,171 | | $ | 1,677 | | $ | 1,051 | | $ | 53,268 |
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Third-Party Power Purchase Agreements |
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In the ordinary course of business, the Utility enters into various agreements, including renewable energy agreements, QF agreements, and other power purchase agreements to purchase power and electric capacity. The price of purchased power may be fixed or variable. Variable pricing is generally based on the current market price of either natural gas or electricity at the date of delivery. |
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Renewable Energy Power Purchase Agreements - In order to comply with California's RPS requirements, the Utility is required to deliver renewable energy to its customers at a gradually increasing rate. The Utility has entered into various agreements to purchase renewable energy to help meet California's requirement. The Utility's obligations under a significant portion of these agreements are contingent on the third party's construction of new generation facilities, which are expected to grow significantly. As of December 31, 2014, renewable energy contracts expire at various dates between 2016 and 2043. |
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Qualifying Facility Power Purchase Agreement - The Utility has entered into agreements to purchase energy and capacity with independent power producers that own generation facilities that meet the definition of a QF under federal law. Several of these agreements are treated as capital leases. At December 31, 2014 and 2013, net capital leases reflected in property, plant, and equipment on the Consolidated Balance Sheets were $74 million and $97 million including accumulated amortization of $128 million and $176 million. The present value of the future minimum lease payments due under these agreements included $20 million and $23 million in Current Liabilities and $54 million and $74 million in Noncurrent Liabilities on the Consolidated Balance Sheet, respectively. As of December 31, 2014, QF contracts in operation expire at various dates between 2015 and 2028 . |
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Other Power Purchase Agreements - The Utility has entered into many power purchase agreements for conventional generation resources, which include tolling agreements and resource adequacy agreements. The Utility's obligation under a portion of these agreements is contingent on the third parties' development of new generation facilities to provide capacity and energy products to the Utility. In addition, the Utility has agreements with various irrigation districts and water agencies to purchase hydroelectric power. As of December 31, 2014, other power purchase agreements expire at various dates between 2015 and 2033. |
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The costs incurred for all power purchases and electric capacity amounted to $3.6 billion in 2014, $3.0 billion in 2013, and $2.3 billion in 2012. |
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Natural Gas Supply, Transportation, and Storage Commitments |
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The Utility purchases natural gas directly from producers and marketers in both Canada and the United States to serve its core customers and to fuel its owned-generation facilities. These purchase agreements expire at various dates between 2015 and 2026. The Utility also contracts for natural gas transportation from the points at which the Utility takes delivery (typically in Canada, the US Rocky Mountain supply area, and the southwestern United States) to the points at which the Utility's natural gas transportation system begins. In addition, the Utility has contracted for natural gas storage services in northern California in order to more reliably meet customers' loads. |
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Costs incurred for natural gas purchases, natural gas transportation services, and natural gas storage, which include contracts with terms of less than 1 year, amounted to $1.4 billion in 2014, $1.6 billion in 2013, and $1.3 billion in 2012. |
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Nuclear Fuel Agreements |
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The Utility has entered into several purchase agreements for nuclear fuel. These agreements expire at various dates between 2015 and 2025 and are intended to ensure long-term nuclear fuel supply. The Utility relies on a number of international producers of nuclear fuel in order to diversify its sources and provide security of supply. Pricing terms are also diversified, ranging from market-based prices to base prices that are escalated using published indices. |
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Payments for nuclear fuel amounted to $105 million in 2014, $162 million in 2013, and $118 million in 2012. |
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Other Commitments |
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PG&E Corporation and the Utility have other commitments related to operating leases (primarily office facilities and land), which expire at various dates between 2015 and 2052. At December 31, 2014, the future minimum payments related to these commitments were as follows: |
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(in millions) | Operating Leases | | | | | | | | | | | | | | | |
2015 | $ | 44 | | | | | | | | | | | | | | | |
2016 | | 43 | | | | | | | | | | | | | | | |
2017 | | 33 | | | | | | | | | | | | | | | |
2018 | | 30 | | | | | | | | | | | | | | | |
2019 | | 27 | | | | | | | | | | | | | | | |
Thereafter | | 183 | | | | | | | | | | | | | | | |
Total minimum lease payments | $ | 360 | | | | | | | | | | | | | | | |
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Payments for other commitments related to operating leases amounted to $42 million in 2014, $40 million in 2013, and $32 million in 2012. Certain leases on office facilities contain escalation clauses requiring annual increases in rent. The rentals payable under these leases may increase by a fixed amount each year, a percentage of increase over base year, or the consumer price index. Most leases contain extension operations ranging between one and five years. |
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