Pacific Gas & Electric (PCG)

Diablo Canyon Steam Generator Replacement Projects

               On November 18, 2005, the California Public Utilities Commission (CPUC) voted to approve Pacific Gas and Electric Company's (Utility) application to replace the turbines, steam generators and other equipment at the two nuclear operating units at the Utility's Diablo Canyon nuclear power plant, referred to as the Steam Generator Replacement Project (SGRP).  The CPUC also certified the environmental impact report (EIR) with respect to the SGRP as final.  The EIR found that, for the SGRP as a whole, there are no environmental impacts that are significant, provided certain mitigation measures are implemented.

               In voting to approve its final decision, the CPUC adopted the findings it made in its February 24, 2005 interim decision that the SGRP is cost-effective, that the Utility’s projected cost of $706 million (as adjusted for actual inflation and cost of capital) is a reasonable estimate of the SGRP cost, and that the Utility cannot recover costs in excess of $815 million (as adjusted for actual inflation and cost of capital).  The CPUC also adopted its earlier findings that (i) if the costs did not exceed $706 million, the CPUC did not intend to conduct an after-the-fact reasonableness review of the SGRP costs but that such a review was not precluded, and (ii) if the cost exceeds $706 million (as adjusted for actual inflation and cost of capital) or the CPUC later finds that it has reason to believe the costs may be unreasonable regardless of the amount, the entire SGRP cost will be subject to a reasonableness review. 

               The majority of the projected capital costs for the SGRP will be expended over the 2007-2009 period as the Utility plans to replace the steam generators in Unit 2 in 2008 and in Unit 1 in 2009.

Dated:  November 18, 2005

Diablo Canyon Steam Generator Replacement Projects

The Utility established a steam generated replacement project to replace turbines and steam generators and other equipment at the two nuclear operating units at the Diablo Canyon nuclear power plant. The Utility plans to replace Unit 2’s steam generators in 2008 and replace Unit 1’s steam generators in 2009. Because the fabrication of new steam generators requires a long lead-time, in August 2004 the Utility entered into contracts with Westinghouse Electric Company LLC, or Westinghouse, for the design, fabrication and delivery of eight steam generators. Under the contracts, the Utility must pay Westinghouse for all work done and pro-rated profit up to the time the contracts are completed or cancelled. The contracts require progress payments in line with actual expenditures for materials and work completed over the life of the contracts. The Utility is currently in negotiation for an installation contract for the new steam generators. The negotiation is expected to be completed by the end of February 2005. On January 25, 2005, a CPUC administrative law judge issued a proposed decision that would find the steam generator replacement project to be cost-effective and would authorize the Utility to recover the projected $706 million capital cost of the project in rates with no after-the-fact reasonableness review if the total costs do not exceed $706 million, and established a maximum project cost of $815 million. If the project costs exceed $706 million, or if the CPUC has reason to believe that the costs may be unreasonable regardless of the amount, the CPUC may conduct a reasonableness review of all costs. The proposed decision recommends that the Utility would be allowed to recover the revenue requirements related to the project in rates beginning on January 1 of the year following the commencement of commercial operations of each unit. The CPUC may act on the proposed decision at its meeting to be held on February 25, 2005. Assuming the CPUC approves the proposed decision, the Utility would make the capital expenditures required to maintain a 2008/2009 implementation schedule. It is expected that the CPUC will issue a final decision on whether to approve the project in September 2005, after considering the environmental impact review for the project. Expenditures on the project of approximately $25 million are expected to be incurred through February 2005 when the CPUC’s decision on cost effectiveness is expected and these are expected to grow to approximately $70 million in September 2005 when the CPUC’s final decision approving the project is expected. If the CPUC approves the project, the Utility estimates it would spend an additional $10 million in the last quarter of 2005. If the CPUC does not approve the projects, then the Utility will terminate the contracts and seek to recover the project costs that it incurred before termination from customers through the abandoned project process.

Diablo Canyon Steam Generator Replacement Projects

On February 24, 2005 the CPUC issued an interim decision on the Utility’s Diablo Canyon Steam Generator Replacement Project, or SGRP, application.  The interim decision concluded that the SGRP is cost-effective and $706

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Diablo Canyon Steam Generator Replacement Projects

        The Utility established a steam generated replacement project to replace turbines and steam generators and other equipment at the two nuclear operating units at the Diablo Canyon nuclear power plant. The Utility plans to replace Unit 2's steam generators in 2008 and replace Unit 1's steam generators in 2009. Because the fabrication of new steam generators requires a long lead-time, in August 2004 the Utility entered into contracts with Westinghouse Electric Company LLC, or Westinghouse, for the design, fabrication and delivery of eight steam generators. Under the contracts, the Utility must pay Westinghouse for all work done and pro-rated profit up to the time the contracts are completed or cancelled. The contracts require progress payments in line with actual expenditures for materials and work completed over the life of the contracts. The Utility is currently in negotiation for an installation contract for the new steam generators. The negotiation is expected to be completed by the end of February 2005. On January 25, 2005, a CPUC administrative law judge issued a proposed decision that would find the steam generator replacement project to be cost-effective and would authorize the Utility to recover the projected $706 million capital cost of the project in rates with no after-the-fact reasonableness review if the total costs do not exceed $706 million, and established a maximum project cost of $815 million. If the project costs exceed $706 million, or if the CPUC has reason to believe that the costs may be unreasonable regardless of the amount, the CPUC may conduct a reasonableness review of all costs. The proposed decision recommends that the Utility would be allowed to recover the revenue requirements related to the project in rates beginning on January 1 of the year following the commencement of commercial operations of each unit. The CPUC may act on the proposed decision at its meeting to be held on February 25, 2005. Assuming the CPUC approves the proposed decision, the Utility would make the capital expenditures required to maintain a 2008/2009 implementation schedule. It is expected that the CPUC will issue a final decision on whether to approve the project in September 2005, after considering the environmental impact review for the project. Expenditures on the project of approximately $25 million are expected to be incurred through February 2005 when the CPUC's decision on cost effectiveness is expected and these are expected to grow to approximately $70 million in September 2005 when the CPUC's final decision approving the project is expected. If the CPUC approves the project, the Utility estimates it would spend an additional $10 million in the last quarter of 2005. If the CPUC does not approve the projects, then the Utility will terminate the contracts and seek to recover the project costs that it incurred before termination from customers through the abandoned project process.