NOTE 9: CONTINGENCIES AND COMMITMENTS

PG&E Corporation and the Utility have significant contingencies arising from their operations, including contingencies related to enforcement and litigation matters and environmental remediation. 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. A gain contingency is recorded in the period in which all uncertainties have been resolved. The Utility also has substantial financial commitments in connection with agreements entered into to support its operating activities. For more information, see Note 13 “Contingencies and Commitments” of the Notes to the Consolidated Financial Statements in the 2016 Form 10-K. PG&E Corporation’s and the Utility’s financial condition, results of operations, and cash flows may be materially affected by the outcome of the following matters.

Enforcement and Litigation Matters

Litigation and Regulatory Citations in Connection with the Butte Fire

In September 2015, a wildfire (known as the “Butte fire”) ignited and spread in Amador and Calaveras Counties in Northern California. On April 28, 2016, Cal Fire released its report of the investigation of the origin and cause of the wildfire. According to Cal Fire’s report, the fire burned 70,868 acres, resulted in two fatalities, destroyed 549 homes, 368 outbuildings and four commercial properties, and damaged 44 structures. Cal Fire’s report concluded that the wildfire was caused when a gray pine tree contacted the Utility’s electric line which ignited portions of the tree, and determined that the failure by the Utility and/or its vegetation management contractors, ACRT Inc. and Trees, Inc., to identify certain potential hazards during its vegetation management program ultimately led to the failure of the tree.

Third-Party Claims

On May 23, 2016, individual plaintiffs filed a master complaint against the Utility and its two vegetation management contractors in the Superior Court of California for Sacramento County. Subrogation insurers also filed a separate master complaint on the same date. The California Judicial Council had previously authorized the coordination of all cases in Sacramento County. As of September 30, 2017, 77 known complaints have been filed against the Utility and its two vegetation management contractors in the Superior Court of California in the Counties of Calaveras, San Francisco, Sacramento, and Amador. The complaints involve approximately 3,770 individual plaintiffs representing approximately 2,080 households and their insurance companies. These complaints are part of or are in the process of being added to the two master complaints. Plaintiffs seek to recover damages and other costs, principally based on inverse condemnation and negligence theories of liability. Plaintiffs also seek punitive damages. The number of individual complaints and plaintiffs may increase in the future. The Utility continues mediating and settling cases .

In addition, on April 13, 2017, Cal Fire filed a complaint with the Superior Court of the State of California, County of Calaveras, seeking to recover $87 million for its costs incurred on the theory that the Utility and its vegetation management contractors were negligent, among other claims.

Also, in May 2017, the OES indicated that it intends to bring a claim against the Utility that it estimates in the approximate amount of $190 million. This claim would include costs incurred by the OES for tree and debris removal, infrastructure damage, erosion control, and other claims related to the Butte fire. Also, in June 2017, the County of Calaveras indicated that it intends to bring a claim against the Utility that it estimates in the approximate amount of $85 million. This claim would include costs that the County of Calaveras incurred or expects to incur for infrastructure damage, erosion control, and other costs related to the Butte fire.

On April 28, 2017, the Utility moved for summary adjudication on plaintiffs’ claims for punitive damages. On August 10, 2017, the Court denied the Utility’s motion on the grounds that plaintiffs might be able to show conscious disregard for public safety based on the fact that the Utility relied on contractors to fulfill their contractual obligation to hire and train qualified employees. On August 16, 2017, the Utility filed a writ with the Court of Appeals challenging this novel theory of punitive damages liability. The Court of Appeals accepted the writ on September 15, 2017 and ordered the trial court and plaintiffs to show cause why the relief requested by the Utility should not be granted. Briefing on the writ should be completed by early 2018.

In the third quarter of 2017, the Utility reached settlements with plaintiffs in the “preference” trial involving six households and with the plaintiffs in the representative trial that had been scheduled for August 2017 and October 2017, respectively. While there are no trials related to the Butte fire currently scheduled, one plaintiff has moved for a preference trial involving one household. The motion is set for hearing on December 1, 2017.

On October 25, 2017, the Utility filed a motion to stay the trial court proceedings pending a decision by the Court of Appeals on the pending writ of mandate regarding punitive damages. A hearing on the stay motion is calendared for December 1, 2017.

Estimated Losses from Third-Party Claims

In connection with this matter, the Utility may be liable for property damages, interest, and attorneys’ fees without having been found negligent, through the theory of inverse condemnation. On June 22, 2017, the Superior Court for the County of Sacramento ruled on a motion of several plaintiffs and found that the Utility is liable for inverse condemnation. While the ruling is binding only between the Utility and the plaintiffs in the coordination proceeding, others could file lawsuits and make similar claims. In addition, the Utility may be liable for fire suppression costs, personal injury damages, and other damages if the Utility were found to have been negligent. While the Utility believes it was not negligent, there can be no assurance that a court or jury would agree with the Utility.

The Utility currently believes that it is probable that it will incur a loss of at least $1.1 billion, increased from the $750 million previously estimated as of December 31, 2016, in connection with the Butte fire. The Utility’s updated estimate resulted primarily from an increase in the number of claims filed against the Utility and experience to date in resolving claims. This amount is based on updated assumptions about the number, size, and type of structures damaged or destroyed, the contents of such structures, the number and types of trees damaged or destroyed, as well as assumptions about personal injury damages, attorneys’ fees, fire suppression costs, and certain other damages, but does not include punitive damages for which the Utility could be liable. In addition, while this amount includes the Utility’s early assumptions about fire suppression costs (including its assessment of the Cal Fire loss), it does not include any significant portion of the estimated claims from the OES and the County of Calaveras. The Utility still does not have sufficient information to reasonably estimate any liability it may have for these additional claims.

The Utility currently is unable to reasonably estimate the upper end of the range of losses because it has insufficient information on the claims of over 1,000 households, including all of the recently filed claims, as well as the claims from the OES and the County of Calaveras. The process for estimating costs associated with claims relating to the Butte fire requires management to exercise significant judgment based on a number of assumptions and subjective factors. As more information becomes known, including additional discovery from the plaintiffs, results from the ongoing mediation and settlement process, review of potential claims from the OES and the County of Calaveras, outcomes of future court or jury decisions, and information about damages, including punitive damages, that the Utility could be liable for, management estimates and assumptions regarding the financial impact of the Butte fire may result in material increases to the loss accrued.

The following table presents changes in the third-party claims liability since December 31, 2015. The balance for the third-party claims liability is included in Other current liabilities in PG&E Corporation’s and the Utility’s Condensed Consolidated Balance Sheets:

Loss Accrual (in millions)
Balance at December 31, 2015	$	-
Accrued losses		750
Payments(1)		(60)
Balance at December 31, 2016	$	690
Accrued losses		350
Payments(1)		(338)
Balance at September 30, 2017	$	702

(1) As of September 30, 2017 the Utility entered into settlement agreements in connection with the Butte fire corresponding to approximately $515 million of which $398 million has been paid by the Utility.

In addition to the amounts reflected in the table above, the Utility has incurred cumulative legal expenses of $72 million in connection with the Butte fire. For the three and nine months ended September 30, 2017, the Utility has incurred legal expenses in connection with the Butte fire of $18 million and $45 million, respectively.

Loss Recoveries

The Utility has liability insurance from various insurers, which provides coverage for third-party liability attributable to the Butte fire in an aggregate amount of $922 million. The Utility records insurance recoveries when it is deemed probable that a recovery will occur and the Utility can reasonably estimate the amount or its range. Through September 30, 2017, the Utility recorded $922 million for probable insurance recoveries in connection with losses related to the Butte fire. While the Utility plans to seek recovery of all insured losses, it is unable to predict the ultimate amount and timing of such insurance recoveries. In addition, in the three and nine months ended September 30, 2017, the Utility received $21 million and $53 million, respectively, of reimbursements from the insurance policies of one of its vegetation management contractors (excluded from the table below). Recoveries of additional amounts under the insurance policies of the Utility’s vegetation management contractors, including policies where the Utility is listed as an additional insured, are uncertain.

The following table presents changes in the insurance receivable since December 31, 2015. The balance for the insurance receivable is included in Other accounts receivable in PG&E Corporation’s and the Utility’s Condensed Consolidated Balance Sheets:

Insurance Receivable (in millions)
Balance at December 31, 2015	$	-
Accrued insurance recoveries		625
Reimbursements		(50)
Balance at December 31, 2016	$	575
Accrued insurance recoveries		297
Reimbursements		(131)
Balance at September 30, 2017	$	741

If the Utility records losses in connection with claims relating to the Butte fire that materially exceed the amount the Utility accrued for these liabilities, PG&E Corporation’s and the Utility’s financial condition, results of operations, or cash flows could be materially affected in the reporting periods during which additional charges are recorded, depending on whether the Utility is able to record or collect insurance recoveries in amounts sufficient to offset such additional accruals.

Regulatory Citations

On April 25, 2017, the SED issued two citations to the Utility in connection with the Butte fire, totaling $8.3 million. The SED’s investigation found that neither the Utility nor its vegetation management contractors took appropriate steps to prevent the gray pine from leaning and contacting the Utility’s electric line, which created an unsafe and dangerous condition that resulted in that tree leaning and making contact with the electric line, thus causing a fire. The Utility paid the citations in June 2017.

“Ghost Ship” Fire

On December 2, 2016, 36 people died in a fire that occurred in the “Ghost Ship” warehouse in Oakland, California, during a music event. The families of 34 people who died in the fire have filed lawsuits against the property owner, the master tenant and neighboring tenants, and others, alleging defective electrical wiring and violations of fire safety codes.

On May 16, 2017, a master complaint was filed, and added both PG&E Corporation and the Utility as defendants. The master complaint alleges that the Utility violated the California Labor Code and various electric rules in that it (1) should have inspected the premises to evaluate potential workplace hazards to Utility employees installing/maintaining its meters there, (2) should not have permitted sub-meters in the building or should have inspected those sub-meters, and (3) should have known that the building’s sub-meters and electrical system as a whole were dangerous and should have terminated service. The Utility filed a demurrer to the master complaint on June 30, 2017, on multiple grounds, including that the Utility has no duty to inspect its customers’ electrical equipment. On September 12, 2017, Alameda County Superior Court (the “court”) denied the Utility’s demurrer and on October 6, 2017, the Utility filed its answer with the court. The governmental entities (City of Oakland, County of Alameda and State of California) filed demurrers on September 12, 2017. On October 9, 2017, the plaintiffs dismissed, without prejudice, the State of California as a party to the case. On October 13, 2017, the plaintiffs filed opposition briefs to the demurrers filed by the City of Oakland and the County of Alameda. A hearing is scheduled for November 7, 2017.

Several investigations regarding the origin and cause of the fire were conducted, including by the City of Oakland and the County of Alameda, the CPUC, and a third-party consulting and engineering firm. In June 2017, the City of Oakland released Oakland Fire Department’s report of the investigation stating that the cause of the fire was undetermined. The other investigations remain underway.

PG&E Corporation and the Utility are uncertain when and how the Ghost Ship Fire lawsuit will be resolved and believe there is a remote possibility a material loss will occur.

Valero Refinery Outage

On June 30, 2017, Valero Energy Corp. filed a lawsuit against the Utility after an electric outage occurred in its Benicia refinery in May 2017. Valero’s complaint alleges causes of action for breach of contract, breach of implied contract, breach of implied warranty, breach of covenant of good faith and fair dealing, negligence and gross negligence and seeks $75 million in damages from the Utility, resulting from refinery equipment damage, lost revenue and punitive damages. The Utility retained a third-party consulting and engineering firm to perform a causal evaluation of this outage. On September 11, 2017, Valero filed a first amended complaint removing its gross negligence and punitive damage claims. On October 23, 2017, the Utility filed with the court its response to Valero’s amended complaint. On October 27, 2017, Valero served the Utility with initial disclosures stating Valero’s total claim is $114 million in damages associated with equipment damage and lost profits.

PG&E Corporation and the Utility believe it is reasonably possible that they will incur a material loss as a result of this lawsuit, but is unable to reasonably estimate the amount or range because it is in early stages of litigation.

Federal Investigations

In 2014, both the U.S. Attorney's Office in San Francisco and the California Attorney General's office opened investigations into matters related to allegedly improper communication between the Utility and CPUC personnel. The Utility has cooperated with those investigations. In addition, in October 2016, the Utility received a grand jury subpoena and letter from the U.S. Attorney for the Northern District of California advising that the Utility is a target of a federal investigation regarding possible criminal violations of the Migratory Bird Treaty Act and conspiracy to violate the act. The investigation involves a removal by the Utility of a hazardous tree that contained an osprey nest and egg in Inverness, California, on March 18, 2016. The Utility is cooperating with this investigation. It is uncertain whether any charges will be brought against the Utility as a result of these investigations.

CPUC Matters

Order Instituting an Investigation into Compliance with Ex Parte Communication Rules

On September 1, 2017, the assigned ALJ issued a PD in this proceeding adopting, with one modification, the settlement agreement jointly submitted to the CPUC on March 28, 2017, by the Utility, the Cities of San Bruno and San Carlos, the ORA, the SED, and TURN.

If adopted, the PD would increase the payment to the California General Fund from $1 million to $12 million resulting in a total penalty of $97.5 million comprised of: (1) a $12 million payment to the California General Fund, (2) forgoing collection of $63.5 million of GT&S revenue requirements for the years 2018 ($31.75 million) and 2019 ($31.75 million), (3) a $10 million one-time revenue requirement adjustment to be amortized in equivalent annual amounts over the Utility’s next GRC cycle (i.e., the GRC following the 2017 GRC), and (4) compensation payments to the Cities of San Bruno and San Carlos in a total amount of $12 million ($6 million to each city). In addition, the settlement agreement provides for certain non-financial remedies, including enhanced noticing obligations between the Utility and CPUC decision-makers, as well as certification of employee training on the CPUC ex parte communication rules. Under the terms of the settlement agreement, customers will bear no costs associated with the financial remedies set forth above.

On September 21, 2017, the Utility submitted a motion to the CPUC accepting the proposed modification of the settlement agreement to increase the Utility’s payment to the California General Fund from $1 million to $12 million. Further, the Utility also reported that it has identified several communications that appear to raise issues similar to other communications that are part of this proceeding.

On November 1, 2017, the Utility filed a status report advising the CPUC that the Utility and the parties to the settlement agreement were unable to reach an agreement with respect to how to proceed regarding communications that the Utility reported to the CPUC on September 21, 2017. Also on November 1, 2017, the non-Utility parties to the settlement requested that the CPUC approve the settlement, as modified by the PD, and open a second phase of the OII to investigate and consider appropriate sanctions for the new communications reported by the Utility on September 21, 2017, and others that may be discovered.

The statutory deadline for this proceeding previously was extended to December 29, 2017. The Utility is unable to predict the outcome of this proceeding.

At September 30, 2017, PG&E Corporation’s and the Utility’s Condensed Consolidated Balance Sheets include a $24 million accrual for the amounts payable to the California General Fund and the Cities of San Bruno and San Carlos. In accordance with accounting rules, adjustments related to revenue requirements would be recorded in the periods in which they are incurred.

For more information about the proceeding, see Note 13 “Contingencies and Commitments” of the Notes to the Consolidated Financial Statements in the 2016 Form 10-K.

Order Instituting an Investigation into the Utility’s Safety Culture

On August 27, 2015, the CPUC began a formal investigation into whether the organizational culture and governance of PG&E Corporation and the Utility prioritize safety and adequately direct resources to promote accountability and achieve safety goals and standards. The CPUC directed the SED to evaluate the Utility’s and PG&E Corporation’s organizational culture, governance, policies, practices, and accountability metrics in relation to the Utility’s record of operations, including its record of safety incidents. The CPUC authorized the SED to engage a consultant to assist in the SED’s investigation and the preparation of a report containing the SED’s assessment.

On May 8, 2017, the CPUC President released the consultant’s report, accompanied by a scoping memo and ruling. The scoping memo establishes a second phase in this OII in which the CPUC will evaluate the safety recommendations of the consultant that may lead to the CPUC’s adoption of the recommendations in the report, in whole or in part. This phase of the proceeding will also consider all necessary measures, including, but not limited to, a reduction of the Utility’s return on equity until any recommendations adopted by the CPUC are implemented. The Utility plans to adopt and implement the vast majority of the consultant’s recommendations by the middle of 2018. A workshop took place in September 2017 at which the consultant presented its report and answered stakeholders’ questions. The Utility’s testimony is expected to be filed with the CPUC in the fourth quarter of 2017 with other parties’ testimony and evidentiary hearings expected in the first quarter of 2018.

PG&E Corporation and the Utility are unable to predict the outcome of this proceeding, including whether additional fines, penalties, or other ratemaking tools will ultimately be adopted by the CPUC, and whether the CPUC will require that a portion of return on equity for the Utility be dependent on making safety progress as the CPUC may define in this proceeding.

Natural Gas Transmission Pipeline Rights-of-Way

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 address a self-reported violation whereby the Utility did not properly 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 had been completed and that remediation work, including removal of the encroachments, was 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 in the future based on the Utility’s failure to continuously survey its system and remove encroachments. The Utility is unable to reasonably estimate the amount or range of future charges that could be incurred given the SED’s wide discretion and the number of factors that can be considered in determining penalties.

Potential Safety Citations

The CPUC has delegated authority to the SED to issue citations and impose penalties for violations identified through audits, investigations, or self-reports. There are a number of audit findings, as well as other potential violations identified through various investigations and the Utility’s self-reported non-compliance with laws and regulations, on which the SED has yet to act. This includes the Utility’s February 2017 self-report related to customer service representatives who handle gas emergency calls that was not timely submitted to the CPUC. The Utility believes it is probable that the SED will impose penalties or take other enforcement action with respect to some or all of these violations. The Utility is unable to reasonably estimate the amount or range of future charges that could be incurred for fines imposed by the SED with respect to these matters given the wide discretion the SED and other CPUC staff have in determining whether to bring enforcement action and the number of factors that can be considered in determining the amount of fines.

The SED has discretion whether to issue a penalty for each violation, but if it assesses a penalty for a violation, it is required to impose the maximum statutory penalty of $50,000, with an administrative limit of $8 million per citation issued. The SED may, at its discretion, impose penalties on a daily basis, or on less than a daily basis, for violations that continued for more than one day. The SED also has wide discretion to determine the amount of penalties based on the totality of the circumstances, including such factors as the gravity of the violations; the type of harm caused by the violations and the number of persons affected; and the good faith of the entity charged in attempting to achieve compliance, after notification of a violation. The SED also is required to consider the appropriateness of the amount of the penalty to the size of the entity charged. The SED historically has exercised broad discretion in determining whether violations are continuing and the amount of penalties to be imposed. The CPUC can also issue an OII and possible additional fines even after the SED has issued a citation. The SED has imposed fines on the Utility ranging from $50,000 to $16.8 million for violations of electric and natural gas laws and regulations.

On January 12, 2017, a residential structure fire occurred in Yuba City, California resulting in the collapse of the house and injuries to two persons inside the house. The CPUC, a third-party engineering firm engaged by the Utility, and local fire and police officials have investigated the incident. Following SED’s investigation which included a review of the third-party engineering firm’s report, on October 20, 2017, the SED issued a notice of probable violations against the Utility. The SED found two violations, for which the SED could issue a penalty of up to $8 million per violation. The Utility may incur material costs, including as a result of these investigations or any proceedings that could be commenced in connection with this incident.

Other Matters

PG&E Corporation and the Utility are subject to various claims, lawsuits, and regulatory proceedings that separately are not considered material. Accruals for contingencies related to such matters (excluding amounts related to the contingencies discussed above under “Enforcement and Litigation Matters”) totaled $39 million at September 30, 2017, and $45 million at December 31, 2016. These amounts are included in Other current liabilities in the Condensed Consolidated Balance Sheets. 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.

Disallowance of Plant Costs

In May 2017, the Utility filed a settlement agreement with the CPUC related to the recovery of license renewal costs and cancelled project costs within its pending application to retire Diablo Canyon Power Plant. The settlement agreement allows for recovery from customers of $18.6 million of the total license renewal project cost of $53 million evenly over an 8-year period beginning January 1, 2018. Related to cancelled project costs, the settlement allows for recovery from customers of 100% of the direct costs incurred prior to June 30, 2016 and 25% recovery of direct costs incurred after June 30, 2016. During the nine months ended September 30, 2017, the Utility incurred charges of $47 million related to settlement agreement, of which $24 million is for cancelled projects and $23 million is for disallowed license renewal costs.

In addition, the Utility is subject to various cost caps within its rate cases that increase the risk of overspend throughout the rate case cycles. Charges may be required in the future based on the Utility’s ability to manage its capital spending and on the outcome of the CPUC’s audit of 2011 through 2014 capital spending related to its 2015 GT&S rate case. PG&E Corporation and the Utility would record a charge when it is both probable that costs incurred or projected to be incurred for recently completed plant will not be recoverable through rates and the amount of disallowance can be reasonably estimated. Capital disallowances are reflected in operating and maintenance expenses in the Condensed Consolidated Statements of Income. For more information, see Note 13 “Contingencies and Commitments” of the Notes to the Consolidated Financial Statements in the 2016 Form 10-K.

Environmental Remediation Contingencies

The Utility’s environmental remediation liability is primarily included in non-current liabilities on the Condensed Consolidated Balance Sheets and is composed of the following:

	Balance at
	September 30,		December 31,
(in millions)	2017		2016
Topock natural gas compressor station (1)	$	310	$	299
Hinkley natural gas compressor station (1)		147		135
Former manufactured gas plant sites owned by the Utility or third parties		306		285
Utility-owned generation facilities (other than fossil fuel-fired), other facilities, and third-party disposal sites		124		131
Fossil fuel-fired generation facilities and sites		131		108
Total environmental remediation liability	$	1,018	$	958

(1) See “Natural Gas Compressor Station Sites” below.

The Utility’s gas compressor stations, former manufactured gas plant sites, power plant sites, gas gathering sites, and sites used by the Utility for the storage, recycling, and disposal of potentially hazardous substances are subject to requirements issued by the Environmental Protection Agency under the federal Resource Conservation and Recovery Act and/or other state hazardous waste laws. The Utility has a comprehensive program in place designed to comply with federal, state, and local laws and regulations related to hazardous materials, waste, remediation activities, and other environmental requirements. The Utility assesses and monitors, on an ongoing basis, measures that may be necessary to comply with these laws and regulations and implements changes to its program as deemed appropriate. The Utility’s remediation activities are overseen by the DTSC, several California regional water quality control boards, and various other federal, state, and local agencies.

The Utility records an environmental remediation liability when site assessments indicate remediation is probable and the Utility can reasonably estimate the loss or a range of possible losses. Key factors in estimated costs include site feasibility studies and investigations, applicable remediation actions, operations and maintenance activities, post remediation monitoring, and the cost of technologies that are expected to be approved to remediate the site. The Utility’s environmental remediation liability at September 30, 2017 reflects its best estimate of probable future costs associated with its remediation plans. Future costs will depend on many factors, including the extent of work necessary to implement final remediation plans and the time frame for remediation. Future changes in cost estimates and the assumptions on which they are based may have a material impact on the Utility’s future financial condition and cash flows.

At September 30, 2017, the Utility expected to recover $698 million of its environmental remediation liability for certain sites through various ratemaking mechanisms authorized by the CPUC. Some of the Utility’s environmental remediation costs, such as the remediation costs associated with the Hinkley natural gas compressor site, fossil fuel-fired generation sites, and certain facilities formerly owned by the Utility, are not recoverable through rates.

For more information, see Note 13 of the Notes to the Consolidated Financial Statements in Item 8 of the 2016 Form 10-K.

Natural Gas Compressor Station Sites

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 Needles, California and is referred to below as the “Topock site.” Another station is located near Hinkley, California and is referred to below as the “Hinkley site.” The Utility is also required to take measures to abate the effects of the contamination on the environment.

Topock Site

The Utility’s remediation and abatement efforts at the Topock site are subject to the regulatory authority of the DTSC and the DOI. In November 2015, the Utility submitted its final remediation design to the agencies for approval. The Utility’s design proposes that the Utility construct an in-situ groundwater treatment system to convert hexavalent chromium into a non-toxic and non-soluble form of chromium. The DTSC conducted an additional environmental review of the proposed design and issued a draft environmental impact report for public comment in January 2017. After the DTSC considers public comments that may be made, the DTSC is expected to issue a final environmental impact report by the end of 2017. After the Utility modifies its design in response to the final report, the Utility will seek approval to begin construction of the new in-situ treatment system in 2018.

Hinkley Site

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 California Regional Water Quality Control Board, Lahontan Region. In November 2015, the California Regional Water Quality Control Board, Lahontan Region adopted a final clean-up and abatement order to contain and remediate the underground plume of hexavalent chromium and the potential environmental impacts. The final order states that the Utility must continue and improve its remediation efforts, define the boundaries of the chromium plume, and take other action. Additionally, the final order requires setting plume capture requirements, requires establishing a monitoring and reporting program, and finalizes deadlines for the Utility to meet interim cleanup targets.

Reasonably Possible Environmental Contingencies

Although the Utility has provided for known environmental obligations that are probable and reasonably estimable, the Utility’s undiscounted future costs could increase by as much as $1.0 billion (including amounts related to the Topock and Hinkley 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, financial condition, and cash flows during the period in which they are recorded.

Nuclear Insurance

The Utility maintains multiple insurance policies through NEIL and the European Mutual Association for Nuclear Insurance, covering nuclear or non- nuclear events at the Utility’s two nuclear generating units at Diablo Canyon and the retired Humboldt Bay Unit 3. If NEIL losses in any policy year exceed accumulated funds, the Utility could be subject to a maximum aggregate annual retrospective premium obligation of approximately $58 million. The European Mutual Association for Nuclear Insurance provides $200 million for any one accident and in the annual aggregate the excess of the combined amount recoverable under the Utility’s NEIL policies. For more information about the Utility’s nuclear insurance coverage, see Note 13 of the Notes to the Consolidated Financial Statements in Item 8 of the 2016 Form 10-K.

Resolution of Remaining Chapter 11 Disputed Claims

Various electricity suppliers filed claims in the Utility’s proceeding filed under Chapter 11 of the U.S. Bankruptcy Code seeking payment for energy supplied to the Utility’s customers between May 2000 and June 2001. While the FERC and judicial proceedings are pending, the Utility has pursued, and continues to pursue, settlements with electricity suppliers. The Utility has entered into a number of settlement agreements with various electricity suppliers to resolve some of these disputed claims and to resolve the Utility’s refund claims against these electricity suppliers. Under these settlement agreements, amounts payable by the parties are, in some instances, subject to adjustment based on the outcome of the various refund offset and interest issues being considered by the FERC. Generally, any net refunds, claim offsets, or other credits that the Utility receives from electricity suppliers either through settlement or through the conclusion of the various FERC and judicial proceedings are refunded to customers through rates in future periods.

At December 31, 2016, the Consolidated Balance Sheets reflected $236 million in net claims within Disputed claims and customer refunds. There were no significant changes to this balance during the nine months ended September 30, 2017. The Utility is uncertain when or how the remaining net disputed claims liability will be resolved.

Tax Matters

PG&E Corporation’s and the Utility’s unrecognized tax benefits may change significantly within the next 12 months due to the resolution of audits. As of September 30, 2017, it is reasonably possible that unrecognized tax benefits will decrease by approximately $70 million within the next 12 months. PG&E Corporation and the Utility believe that the majority of the decrease will not impact net income.

Gain Contingencies

San Bruno Derivative Litigation

On July 18, 2017, the Superior Court of California, County of San Mateo (the “Court”) approved the settlement agreement reached by the parties in the San Bruno Fire Derivative Cases to resolve the consolidated shareholder derivative lawsuit and certain additional claims against certain current and former officers and directors (the “Individual Defendants”). Also, as of July 19, 2017, the three cases, Tellardin v. Anthony F. Earley, Jr., et al., Iron Workers Mid-South Pension Fund v. Johns, et al., and Bushkin v. Rambo, et al (the “Additional Derivative Cases”) were dismissed. The settlement will become effective when all procedural conditions specified in the settlement stipulation are satisfied. PG&E Corporation recorded $65 million in proceeds from insurance, net of plaintiff costs to its Condensed Consolidated Income Statement for the three and nine months ended September 30, 2017.

PG&E Corporation and the Utility also agreed, under their indemnification obligations to the Individual Defendants, to pay $18.3 million of the Individual Defendants’ costs, fees, and expenses incurred in connection with responding to, defending and settling the San Bruno Fire Derivative Cases and the Additional Derivative Cases, including certain fees and expenses for investigating these claims. The $18.3 million has been paid, with the majority reflected in PG&E Corporation’s and the Utility’s financial statements through December 31, 2016.

In addition, pursuant to the settlement agreement, PG&E Corporation and the Utility will implement certain corporate governance therapeutics for five years, and the Utility will implement certain gas operations therapeutics and maintain certain of them for three years, at an estimated cost of up to approximately $32 million. The Court also directed PG&E Corporation to provide at least quarterly reports to the Court and to the City of San Bruno summarizing the progress of the implementation of the corporate governance and gas operations therapeutics.

Purchase Commitments

In the ordinary course of business, the Utility enters into various agreements to purchase power and electric capacity; natural gas supply, transportation, and storage; nuclear fuel supply and services; and various other commitments. At December 31, 2016, the Utility had undiscounted future expected obligations of approximately $47 billion. (See Note 13 of the Notes to the Consolidated Financial Statements in Item 8 of the 2016 Form 10-K.) The Utility has not entered into any new material commitments during the nine months ended September 30, 2017.