PG&E CORP, 10-Q filed on 10/30/2013
Quarterly Report
Document and Entity Information
9 Months Ended
Sep. 30, 2013
Oct. 22, 2013
Entity Information [Line Items]
 
 
Document Type
10-Q 
 
Amendment Flag
false 
 
Document Period End Date
Sep. 30, 2013 
 
Document Fiscal Year Focus
2013 
 
Document Fiscal Period Focus
Q3 
 
Trading Symbol
PCG 
 
Entity Registrant Name
PG&E CORP 
 
Entity Central Index Key
0001004980 
 
Current Fiscal Year End Date
--12-31 
 
Entity Filer Category
Large Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
449,295,292 
Pacific Gas And Electric Company [Member]
 
 
Entity Information [Line Items]
 
 
Document Type
10-Q 
 
Amendment Flag
false 
 
Document Period End Date
Sep. 30, 2013 
 
Document Fiscal Year Focus
2013 
 
Document Fiscal Period Focus
Q3 
 
Trading Symbol
PCG 
 
Entity Registrant Name
PACIFIC GAS & ELECTRIC CO 
 
Entity Central Index Key
0000075488 
 
Current Fiscal Year End Date
--12-31 
 
Entity Filer Category
Non-accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
264,374,809 
Condensed Consolidated Statements Of Income (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Sep. 30, 2013
Sep. 30, 2012
Operating Revenues
 
 
 
 
Electric
$ 3,517 
$ 3,323 
$ 9,375 
$ 9,026 
Natural gas
658 
653 
2,248 
2,184 
Total operating revenues
4,175 
3,976 
11,623 
11,210 
Operating Expenses
 
 
 
 
Cost of electricity
1,645 
1,283 
3,817 
3,104 
Cost of natural gas
131 
118 
656 
593 
Operating and maintenance
1,585 
1,344 
4,179 
4,138 
Depreciation, amortization, and decommissioning
523 
617 
1,542 
1,807 
Total operating expenses
3,884 
3,362 
10,194 
9,642 
Operating Income
291 
614 
1,429 
1,568 
Interest income
Interest expense
(179)
(178)
(532)
(528)
Other income, net
26 
26 
78 
84 
Income Before Income Taxes
140 
464 
981 
1,130 
Income tax (benefit) provision
(24)
100 
243 
291 
Net Income
164 
364 
738 
839 
Preferred stock dividend requirement of subsidiary
10 
10 
Income Available for Common Shareholders
161 
361 
728 
829 
Weighted average common shares outstanding, basic
446 
428 
441 
422 
Weighted Average Common Shares Outstanding, Diluted
447 
429 
442 
423 
Net Earnings Per Common Share, Basic
$ 0.36 
$ 0.84 
$ 1.65 
$ 1.96 
Net Earnings Per Common Share, Diluted
$ 0.36 
$ 0.84 
$ 1.65 
$ 1.96 
Dividends Declared Per Common Share
$ 0.46 
$ 0.46 
$ 1.37 
$ 1.37 
Pacific Gas And Electric Company [Member]
 
 
 
 
Operating Revenues
 
 
 
 
Electric
3,517 
3,321 
9,372 
9,022 
Natural gas
657 
653 
2,248 
2,184 
Total operating revenues
4,174 
3,974 
11,620 
11,206 
Operating Expenses
 
 
 
 
Cost of electricity
1,645 
1,283 
3,817 
3,104 
Cost of natural gas
131 
118 
656 
593 
Operating and maintenance
1,583 
1,343 
4,175 
4,134 
Depreciation, amortization, and decommissioning
523 
617 
1,542 
1,807 
Total operating expenses
3,882 
3,361 
10,190 
9,638 
Operating Income
292 
613 
1,430 
1,568 
Interest income
Interest expense
(172)
(172)
(513)
(511)
Other income, net
20 
19 
66 
64 
Income Before Income Taxes
142 
462 
989 
1,126 
Income tax (benefit) provision
(20)
122 
261 
328 
Net Income
162 
340 
728 
798 
Preferred stock dividend requirement
10 
10 
Income Available for Common Shareholders
$ 159 
$ 337 
$ 718 
$ 788 
Condensed Consolidated Statements Of Comprehensive Income (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Sep. 30, 2013
Sep. 30, 2012
Net income
$ 164 
$ 364 
$ 738 
$ 839 
Other Comprehensive Income
 
 
 
 
Amortization of prior service cost (net of taxes of $5, $5, $14, and $15, at respective dates)
18 
19 
Amortization of actuarial loss (net of taxes of $11, $12, $35, and $38 for PG&E Corporation, at respective dates, and net of taxes of $11, $12, $34, and $38 for the Utility, at respective dates)
18 
18 
52 
58 
Amortization of transition obligation (net of taxes of $0, $2, $0, and $6, at respective dates)
12 
Transfer to regulatory account (net of taxes of $13, $14, $39, and $44, at repsective dates)
(20)
(21)
(58)
(63)
Gain (loss) on investments (net of taxes of $2, $0, $13, and $0, at respective dates)
(3)
19 
Total other comprehensive income
31 
26 
Comprehensive Income
165 
372 
769 
865 
Preferred stock dividend requirement of subsidiary
10 
10 
Comprehensive Income Attributable to Common Shareholders
162 
369 
759 
855 
Pacific Gas And Electric Company [Member]
 
 
 
 
Net income
162 
340 
728 
798 
Other Comprehensive Income
 
 
 
 
Amortization of prior service cost (net of taxes of $5, $5, $14, and $15, at respective dates)
18 
19 
Amortization of actuarial loss (net of taxes of $11, $12, $35, and $38 for PG&E Corporation, at respective dates, and net of taxes of $11, $12, $34, and $38 for the Utility, at respective dates)
18 
18 
53 
58 
Amortization of transition obligation (net of taxes of $0, $2, $0, and $6, at respective dates)
12 
Transfer to regulatory account (net of taxes of $13, $14, $39, and $44, at repsective dates)
(20)
(21)
(58)
(63)
Total other comprehensive income
13 
26 
Comprehensive Income
$ 166 
$ 348 
$ 741 
$ 824 
Condensed Consolidated Statements Of Comprehensive Income (Parenthetical) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Sep. 30, 2013
Sep. 30, 2012
Amortization of prior service cost, tax
$ 5 
$ 5 
$ 14 
$ 15 
Amortization of actuarial loss, tax
11 
12 
35 
38 
Amortizaiton of transition obligation, tax
Transfer to regulatory account, tax
13 
14 
39 
44 
Gain (loss) on investments, tax
13 
Pacific Gas And Electric Company [Member]
 
 
 
 
Amortization of prior service cost, tax
14 
15 
Amortization of actuarial loss, tax
11 
12 
34 
38 
Amortizaiton of transition obligation, tax
Transfer to regulatory account, tax
$ 13 
$ 14 
$ 39 
$ 44 
Condensed Consolidated Balance Sheets (USD $)
In Millions, unless otherwise specified
Sep. 30, 2013
Dec. 31, 2012
Current Assets
 
 
Cash and cash equivalents
$ 281 
$ 401 
Restricted cash
301 
330 
Accounts receivable
 
 
Customers (net of allowance for doubtful accounts of $81 and $87 at respective dates)
1,099 
937 
Accrued unbilled revenue
809 
761 
Regulatory balancing accounts
1,004 
936 
Other
286 
365 
Regulatory assets
483 
564 
Inventories
 
 
Gas stored underground and fuel oil
184 
135 
Materials and supplies
316 
309 
Income taxes receivable
377 
211 
Other
382 
172 
Total current assets
5,522 
5,121 
Property, Plant, and Equipment
 
 
Electric
41,939 
39,701 
Gas
13,381 
12,571 
Construction work in progress
1,996 
1,894 
Other
Total property, plant, and equipment
57,317 
54,167 
Accumulated depreciation
(17,560)
(16,644)
Net property, plant, and equipment
39,757 
37,523 
Other Noncurrent Assets
 
 
Regulatory assets
6,827 
6,809 
Nuclear decommissioning trusts
2,272 
2,161 
Income taxes receivable
163 
176 
Other
673 
659 
Total other noncurrent assets
9,935 
9,805 
TOTAL ASSETS
55,214 
52,449 
Current Liabilities
 
 
Short-term borrowings
953 
492 
Long-term debt, classified as current
1,288 
400 
Accounts payable
 
 
Trade creditors
1,303 
1,241 
Disputed claims and customer refunds
156 
157 
Regulatory balancing accounts
1,002 
634 
Other
388 
444 
Interest payable
852 
870 
Income taxes payable
39 
Deferred income taxes
1,663 
2,012 
Other
7,644 
6,256 
Total current liabilities
   
   
Noncurrent Liabilities
 
 
Long-term debt
11,918 
12,517 
Regulatory liabilities
5,343 
5,088 
Pension and other postretirement benefits
3,711 
3,575 
Asset retirement obligations
2,946 
2,919 
Deferred income taxes
7,275 
6,748 
Other
2,117 
2,020 
Total noncurrent liabilities
33,310 
32,867 
Commitments and Contingencies (Note 10)
   
   
Shareholders' Equity
 
 
Preferred stock
Common stock
9,212 
8,428 
Reinvested earnings
4,866 
4,747 
Accumulated other comprehensive loss
(70)
(101)
Total shareholders' equity
14,008 
13,074 
Noncontrolling Interest - Preferred Stock of Subsidiary
252 
252 
Total equity
14,260 
13,326 
TOTAL LIABILITIES AND EQUITY
55,214 
52,449 
Pacific Gas And Electric Company [Member]
 
 
Current Assets
 
 
Cash and cash equivalents
60 
194 
Restricted cash
301 
330 
Accounts receivable
 
 
Customers (net of allowance for doubtful accounts of $81 and $87 at respective dates)
1,099 
937 
Accrued unbilled revenue
809 
761 
Regulatory balancing accounts
1,004 
936 
Other
289 
366 
Regulatory assets
483 
564 
Inventories
 
 
Gas stored underground and fuel oil
184 
135 
Materials and supplies
316 
309 
Income taxes receivable
377 
186 
Other
344 
160 
Total current assets
5,266 
4,878 
Property, Plant, and Equipment
 
 
Electric
41,939 
39,701 
Gas
13,381 
12,571 
Construction work in progress
1,996 
1,894 
Total property, plant, and equipment
57,316 
54,166 
Accumulated depreciation
(17,559)
(16,643)
Net property, plant, and equipment
39,757 
37,523 
Other Noncurrent Assets
 
 
Regulatory assets
6,827 
6,809 
Nuclear decommissioning trusts
2,272 
2,161 
Income taxes receivable
158 
171 
Other
411 
381 
Total other noncurrent assets
9,668 
9,522 
TOTAL ASSETS
54,691 
51,923 
Current Liabilities
 
 
Short-term borrowings
693 
372 
Long-term debt, classified as current
938 
400 
Accounts payable
 
 
Trade creditors
1,303 
1,241 
Disputed claims and customer refunds
156 
157 
Regulatory balancing accounts
1,002 
634 
Other
404 
419 
Interest payable
841 
865 
Income taxes payable
49 
12 
Deferred income taxes
1,443 
1,794 
Other
6,829 
5,894 
Total current liabilities
   
   
Noncurrent Liabilities
 
 
Long-term debt
11,918 
12,167 
Regulatory liabilities
5,343 
5,088 
Pension and other postretirement benefits
3,628 
3,497 
Asset retirement obligations
2,946 
2,919 
Deferred income taxes
7,484 
6,939 
Other
2,055 
1,959 
Total noncurrent liabilities
33,374 
32,569 
Commitments and Contingencies (Note 10)
   
   
Shareholders' Equity
 
 
Preferred stock
258 
258 
Common stock
1,322 
1,322 
Additional paid-in capital
5,516 
4,682 
Reinvested earnings
7,472 
7,291 
Accumulated other comprehensive loss
(80)
(93)
Total shareholders' equity
14,488 
13,460 
TOTAL LIABILITIES AND EQUITY
$ 54,691 
$ 51,923 
Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
In Millions, except Share data, unless otherwise specified
Sep. 30, 2013
Dec. 31, 2012
Allowance for doubtful accounts
$ 81 
$ 87 
Common stock, par value
$ 0 
$ 0 
Common stock, shares authorized
800,000,000 
800,000,000 
Common stock, shares outstanding
448,590,070 
430,718,293 
Pacific Gas And Electric Company [Member]
 
 
Allowance for doubtful accounts
$ 81 
$ 87 
Common stock, par value
$ 5 
$ 5 
Common stock, shares authorized
800,000,000 
800,000,000 
Common stock, shares outstanding
264,374,809 
264,374,809 
Condensed Consolidated Statements Of Cash Flows (USD $)
In Millions, unless otherwise specified
9 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Cash Flows from Operating Activities
 
 
Net income
$ 738 
$ 839 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation, amortization, and decommissioning
1,542 
1,807 
Allowance for equity funds used during construction
(78)
(79)
Deferred income taxes and tax credits, net
527 
624 
Disallowed capital expenditures
196 
Other
274 
230 
Effect of changes in operating assets and liabilities:
 
 
Accounts receivable
(160)
(326)
Inventories
(56)
(34)
Accounts payable
84 
(55)
Income taxes receivable/payable
(133)
69 
Other current assets and liabilities
(269)
16 
Regulatory assets, liabilities, and balancing accounts, net
12 
66 
Other noncurrent assets and liabilities
156 
295 
Net cash provided by operating activities
2,833 
3,452 
Cash Flows from Investing Activities
 
 
Capital expenditures
(3,881)
(3,361)
Decrease (Increase) in restricted cash
29 
(38)
Proceeds from sales and maturities of nuclear decommissioning trust investments
1,152 
903 
Purchases of nuclear decommissioning trust investments
(1,150)
(964)
Other
37 
101 
Net cash used in investing activities
(3,813)
(3,359)
Cash Flows from Financing Activities
 
 
Borrowings under revolving credit facilities
140 
Net issuances (repayments) of commercial paper, net of discount of $1 and $3 at respective dates
322 
(1,247)
Proceeds from issuance of long-term debt, net of premium, discount, and issuance costs of $9 and $10 at respective dates
741 
1,140 
Long-term debt matured or repurchased
(461)
(50)
Energy recovery bonds matured
(313)
Common stock issued
724 
702 
Common stock dividends paid
(583)
(556)
Other
(23)
14 
Net cash provided by (used in) financing activities
860 
(310)
Net change in cash and cash equivalents
(120)
(217)
Cash and cash equivalents at January 1
401 
513 
Cash and cash equivalents at September 30
281 
296 
Cash received (paid) for:
 
 
Interest, net of amounts capitalized
(499)
(486)
Income taxes, net
(65)
114 
Supplemental disclosures of noncash investing and financing activities
 
 
Common stock dividends declared but not yet paid
204 
195 
Capital expenditures financed through accounts payable
277 
228 
Noncash common stock issuances
17 
18 
Terminated capital leases
136 
Pacific Gas And Electric Company [Member]
 
 
Cash Flows from Operating Activities
 
 
Net income
728 
798 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation, amortization, and decommissioning
1,542 
1,807 
Allowance for equity funds used during construction
(78)
(79)
Deferred income taxes and tax credits, net
545 
633 
Disallowed capital expenditures
196 
Other
231 
189 
Effect of changes in operating assets and liabilities:
 
 
Accounts receivable
(162)
(327)
Inventories
(56)
(34)
Accounts payable
125 
(31)
Income taxes receivable/payable
(154)
153 
Other current assets and liabilities
(250)
15 
Regulatory assets, liabilities, and balancing accounts, net
12 
66 
Other noncurrent assets and liabilities
147 
315 
Net cash provided by operating activities
2,826 
3,505 
Cash Flows from Investing Activities
 
 
Capital expenditures
(3,881)
(3,361)
Decrease (Increase) in restricted cash
29 
(38)
Proceeds from sales and maturities of nuclear decommissioning trust investments
1,152 
903 
Purchases of nuclear decommissioning trust investments
(1,150)
(964)
Other
14 
14 
Net cash used in investing activities
(3,836)
(3,446)
Cash Flows from Financing Activities
 
 
Net issuances (repayments) of commercial paper, net of discount of $1 and $3 at respective dates
322 
(1,247)
Proceeds from issuance of long-term debt, net of premium, discount, and issuance costs of $9 and $10 at respective dates
741 
1,140 
Long-term debt matured or repurchased
(461)
(50)
Energy recovery bonds matured
(313)
Preferred stock dividends paid
(10)
(10)
Common stock dividends paid
(537)
(537)
Equity contribution
835 
715 
Other
(14)
25 
Net cash provided by (used in) financing activities
876 
(277)
Net change in cash and cash equivalents
(134)
(218)
Cash and cash equivalents at January 1
194 
304 
Cash and cash equivalents at September 30
60 
86 
Cash received (paid) for:
 
 
Interest, net of amounts capitalized
(487)
(476)
Income taxes, net
(86)
174 
Supplemental disclosures of noncash investing and financing activities
 
 
Capital expenditures financed through accounts payable
277 
228 
Terminated capital leases
$ 0 
$ 136 
Condensed Consolidated Statements Of Cash Flows (Parenthetical) (USD $)
In Millions, unless otherwise specified
9 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Net issuances of commercial paper, discount
$ 1 
$ 3 
Proceeds from issuance of long-term debt, net of premium, discount, and issuance costs
10 
Pacific Gas And Electric Company [Member]
 
 
Net issuances of commercial paper, discount
Proceeds from issuance of long-term debt, net of premium, discount, and issuance costs
$ 9 
$ 10 
Organization And Basis Of Presentation
Organization And Basis Of Presentation
 
NOTE 1: ORGANIZATION AND BASIS OF PRESENTATION
 
PG&E Corporation is a holding company that conducts its business through Pacific Gas and Electric Company, a public utility operating in northern and central California.  The Utility generates revenues mainly through the sale and delivery of electricity and natural gas to customers.  The Utility is primarily regulated by the CPUC and the FERC.  In addition, the NRC oversees the licensing, construction, operation, and decommissioning of the Utility's nuclear generation facilities.  The Utility's accounts for electric and gas operations are maintained in accordance with the Uniform System of Accounts prescribed by the FERC.
 
This quarterly report on Form 10-Q is a combined report of PG&E Corporation and the Utility that includes separate Condensed Consolidated Financial Statements for each company.  The Notes to the Condensed Consolidated Financial Statements apply to both PG&E Corporation and the Utility.  PG&E Corporation's Condensed Consolidated Financial Statements include the accounts of PG&E Corporation, the Utility, and other wholly owned and controlled subsidiaries.  The Utility's Condensed Consolidated Financial Statements include the accounts of the Utility and its wholly owned and controlled subsidiaries.  All intercompany transactions have been eliminated.  PG&E Corporation and the Utility operate in one segment.
 
The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with GAAP for interim financial statements and in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X promulgated by the U.S. Securities and Exchange Commission and therefore do not contain all of the information and footnotes required by GAAP and the SEC for annual financial statements.  PG&E Corporation's and the Utility's Condensed Consolidated Financial Statements reflect all adjustments (consisting only of normal recurring adjustments) that management believes are necessary for the fair presentation of their financial condition, results of operations, and cash flows for the periods presented.  The information at December 31, 2012 in the Condensed Consolidated Balance Sheets included in this quarterly report was derived from the audited Consolidated Balance Sheets in the 2012 Annual Report.  This quarterly report should be read in conjunction with the 2012 Annual Report.  
 
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions based on a wide range of factors, including future regulatory decisions and economic conditions, that are difficult to predict.  Some of the more critical estimates and assumptions relate to the Utility's regulatory assets and liabilities, legal and regulatory contingencies, environmental remediation liabilities, asset retirement obligations, and pension and other postretirement benefit plans obligations.  Management believes that its estimates and assumptions reflected in the Condensed Consolidated Financial Statements are appropriate and reasonable.  Actual results could differ materially from those estimates.
 
 
New And Significant Accounting Policies
New And Significant Accounting Policies
 
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
 
The significant accounting policies used by PG&E Corporation and the Utility are discussed in Note 2 of the Notes to the Consolidated Financial Statements in the 2012 Annual Report.
 
Variable Interest Entities
 
A VIE is an entity that does not have sufficient equity at risk to finance its activities without additional subordinated financial support from other parties, or whose equity investors lack any characteristics of a controlling financial interest.  An enterprise that has a controlling financial interest in a VIE is known as the VIE's primary beneficiary and is required to consolidate the VIE.  In determining whether consolidation of a particular entity is required, PG&E Corporation and the Utility first evaluate whether the entity is a VIE.  If the entity is a VIE, PG&E Corporation and the Utility use a qualitative approach to determine if either is the primary beneficiary of the VIE.
 
Some of the counterparties to the Utility's power purchase agreements are considered VIEs.  Each of these VIEs was designed to own a power plant that would generate electricity for sale to the Utility.  To determine whether the Utility was the primary beneficiary of any of these VIEs at September 30, 2013, it assessed whether it absorbs any of the VIE's expected losses or receives any portion of the VIE's expected residual returns under the terms of the power purchase agreement, analyzed the variability in the VIE's gross margin, and considered whether it had any decision-making rights associated with the activities that are most significant to the VIE's performance, such as dispatch rights and operating and maintenance activities.  The Utility's financial exposure is limited to the amount the Utility pays for delivered electricity and capacity.  The Utility did not have any decision-making rights associated with any of the activities that are most significant to the economic performance of any of these VIEs.  Since the Utility was not the primary beneficiary of any of these VIEs at September 30, 2013, it did not consolidate any of them.
 
PG&E Corporation affiliates have entered into four tax equity agreements to fund residential and commercial retail solar energy installations with four separate privately held funds that are considered VIEs.  Under these agreements, PG&E Corporation has made cumulative lease payments and investment contributions of $363 million to these companies in exchange for the right to receive benefits from local rebates, federal grants, and a share of the customer payments made to these companies.  At September 30, 2013 and December 31, 2012, the carrying amount of PG&E Corporation's investment in these agreements was $138 million and $166 million, respectively.  PG&E Corporation determined that it does not have control over the companies' significant economic activities, such as the design of the companies, vendor selection, construction, and the ongoing operations of the companies.  PG&E Corporation has no material remaining commitment to fund these agreements.  Since PG&E Corporation was not the primary beneficiary of any of these VIEs at September 30, 2013, it did not consolidate any of them.  
 
Pension and Other Postretirement Benefits
 
PG&E Corporation and the Utility provide a non-contributory defined benefit pension plan for eligible employees, as well as contributory postretirement medical plans for retirees and their eligible dependents, and non-contributory postretirement life insurance plans for eligible employees and retirees.
 
The net periodic benefit costs reflected in PG&E Corporation's Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2013 and 2012 were as follows:
 
 
Pension Benefits
 
Other Benefits
 
Three Months Ended September 30,
(in millions)
2013
 
2012
 
2013
 
2012
Service cost for benefits earned
$
121
 
$
100
 
$
14
 
$
14
Interest cost
 
158
 
 
165
 
 
19
 
 
21
Expected return on plan assets
 
(162
 
(150
 
(20
 
(19
)
Amortization of transition obligation
 
-
 
 
-
 
 
-
 
 
6
Amortization of prior service cost
 
5
 
 
5
 
 
6
 
 
7
Amortization of net actuarial loss
 
28
 
 
29
 
 
1
 
 
1
Net periodic benefit cost
 
150
 
 
149
 
 
20
 
 
30
Less: transfer to regulatory account (1)
 
(66
 
(75
 
-
 
 
-
Total
$
84
 
$
74
 
$
20
 
$
30
 
 
 
 
 
 
 
 
 
 
 
 
 (1) The Utility recorded these amounts to a regulatory account since they are probable of recovery from customers in futures rates.
 
 
Pension Benefits
 
Other Benefits
 
Nine Months Ended September 30,
(in millions)
2013
 
2012
 
2013
 
2012
Service cost for benefits earned
$
351
 
$
297
 
$
40
 
$
37
Interest cost
 
470
 
 
494
 
 
56
 
 
63
Expected return on plan assets
 
(487
 
(449
 
(60
 
(58
)
Amortization of transition obligation
 
-
 
 
-
 
 
-
 
 
18
Amortization of prior service cost
 
15
 
 
15
 
 
17
 
 
19
Amortization of net actuarial loss
 
83
 
 
92
 
 
4
 
 
4
Net periodic benefit cost
 
432
 
 
449
 
 
57
 
 
83
Less: transfer to regulatory account (1)
 
(179
 
(225
 
-
 
 
-
Total
$
253
 
$
224
 
$
57
 
$
83
 
 
 
 
 
 
 
 
 
 
 
 
 (1) The Utility recorded these amounts to a regulatory account since they are probable of recovery from customers in future rates.
 
There was no material difference between PG&E Corporation and the Utility for the information disclosed above.
 
Adoption of New Accounting Pronouncements
 
Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income
 
In February 2013, the Financial Accounting Standards Board issued an ASU that requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income.  The ASU became effective for PG&E Corporation and the Utility on January 1, 2013. 
 
The changes, net of income tax, in PG&E Corporation's accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2013 consist of the following:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pension
 
Other
 
Other
 
 
 
 
Benefits
 
Benefits
 
Investments
 
Total
(in millions, net of income tax)
Three Months Ended September 30, 2013
Beginning balance
$
(28
$
(69
$
26
 
$
(71
)
Other comprehensive income before reclassifications
 
(20
 
-
 
 
(3
 
(23
)
Amounts reclassified from other comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
      Amortization of prior service cost (1)
 
3
 
 
3
 
 
-
 
 
6
      Amortization of net actuarial loss (1)
 
17
 
 
1
 
 
-
 
 
18
Net current period other comprehensive income (loss)
 
-
 
 
4
 
 
(3)
 
 
1
Ending balance
$
(28)
 
$
(65)
 
$
23
 
$
(70)
 
 
 
 
 
 
 
 
 
 
 
 
 (1) These components are included in the computation of net periodic pension and other postretirement costs.  (See the “Pension and Other Postretirement Benefits” table above for additional details.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pension
 
Other
 
Other
 
 
 
 
Benefits
 
Benefits
 
Investments
 
Total
(in millions, net of income tax)
Nine Months Ended September 30, 2013
Beginning balance
$
(28
$
(77
$
4
 
$
(101
)
Other comprehensive income before reclassifications
 
(58
 
-
 
 
19
 
 
(39
)
Amounts reclassified from other comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
      Amortization of prior service cost (1)
 
9
 
 
9
 
 
-
 
 
18
      Amortization of net actuarial loss (1)
 
49
 
 
3
 
 
-
 
 
52
Net current period other comprehensive income (loss)
 
-
 
 
12
 
 
19
 
 
31
Ending balance
$
(28)
 
$
(65)
 
$
23
 
$
(70)
 
 
 
 
 
 
 
 
 
 
 
 
 (1) These components are included in the computation of net periodic pension and other postretirement costs.  (See the “Pension and Other Postretirement Benefits” table above for additional details.)
 
There was no material difference between PG&E Corporation and the Utility for the information disclosed above, with the exception of other investments which are held by PG&E Corporation.
 
Disclosures about Offsetting Assets and Liabilities
 
In January 2013, the Financial Accounting Standards Board issued an ASU that clarifies the scope of disclosures about offsetting assets and liabilities.  The guidance requires an entity to disclose gross and net information about derivatives that are offset in the balance sheet or subject to an enforceable master-netting arrangement or similar agreement.  The ASU became effective for PG&E Corporation and the Utility on January 1, 2013.  (See Note 7 below.)
 
Regulatory Assets, Liabilities, And Balancing Accounts
Regulatory Assets, Liabilities, And Balancing Accounts
 
NOTE 3: REGULATORY ASSETS, LIABILITIES, AND BALANCING ACCOUNTS
 
Regulatory Assets
 
Long-Term Regulatory Assets
 
Long-term regulatory assets are composed of the following:
 
 
 
Balance at
 
September 30,
 
December 31,
(in millions)
2013
 
2012
Pension benefits
$
3,356
 
$
3,275
Deferred income taxes
 
1,772
 
 
1,627
Utility retained generation
 
515
 
 
552
Environmental compliance costs
 
609
 
 
604
Price risk management
 
144
 
 
210
Electromechanical meters
 
150
 
 
194
Unamortized loss, net of gain, on reacquired debt
 
140
 
 
141
Other
 
141
 
 
206
Total long-term regulatory assets
$
6,827
 
$
6,809
 
 
Regulatory Liabilities
 
Long-Term Regulatory Liabilities
 
Long-term regulatory liabilities are composed of the following:
 
 
 
Balance at
 
September 30,
 
December 31,
(in millions)
2013
 
2012
Cost of removal obligations
$
3,805
 
$
3,625
Recoveries in excess of asset retirement obligations
 
674
 
 
620
Public purpose programs
 
594
 
 
590
Other
 
270
 
 
253
Total long-term regulatory liabilities
$
5,343
 
$
5,088
 
Regulatory Balancing Accounts
 
                                                The Utility's recovery of a significant portion of revenue requirements and costs is decoupled from the volume of sales.  The Utility records (1) differences between actual customer billings and the Utility's authorized revenue requirement, and (2) differences between incurred costs and customer billings.  To the extent these differences are probable of recovery or refund, the Utility records a regulatory balancing account receivable or payable.  Regulatory balancing accounts receivable and payable will fluctuate during the year based on seasonal electric and gas usage and the timing of when costs are incurred and customer revenues are collected.
Current Regulatory Balancing Accounts, Net
 
 
Receivable (Payable)
 
Balance at
 
September 30,
 
December 31,
(in millions)
2013
 
2012
Distribution revenue adjustment mechanism
$
(3
$
219
Utility generation
 
(22
 
117
Hazardous substance
 
75
 
 
56
Public purpose programs
 
(100
 
(83
)
Gas fixed cost
 
179
 
 
44
Energy recovery bonds
 
(170
 
(43
)
Energy procurement
 
281
 
 
77
U.S. Department of Energy Settlement
 
(279
 
(250
)
GHG allowance auction proceeds (1)
 
(250
 
-
Other
 
291
 
 
165
Total regulatory balancing accounts, net
$
2
 
$
302
 
 
 
 
 
 
 
      (1) The CARB has adopted regulations that established a state-wide, “cap-and-trade” program (effective January 1, 2013) that sets a
      gradually declining limit on the amount of GHGs that may be emitted each year. This balancing account is used to record proceeds
      collected by the Utility for GHG emission allowances associated with the cap-and-trade program.  These amounts will be refunded
      to customers in future periods.  
 
 
 
Debt
Debt
NOTE 4: DEBT
 
Senior Notes
 
In June 2013, the Utility issued $375 million principal amount of 3.25% Senior Notes due June 15, 2023 and $375 million principal amount of 4.60% Senior Notes due June 15, 2043.  The proceeds were used to repurchase $461 million principal amount, net of $15 million of premiums and $6 million of accrued interest, of the Utility's $1.0 billion outstanding 4.80% Senior Notes due March 1, 2014, to repay a portion of outstanding commercial paper, and for general corporate purposes.
 
Revolving Credit Facilities
 
                                    In April 2013, PG&E Corporation and the Utility amended and restated their revolving credit facilities to extend their termination dates from May 31, 2016 to April 1, 2018.  These agreements contain substantially similar terms as their original 2011 credit agreements.  
 
At September 30,  2013, PG&E Corporation had $260 million of cash borrowings and no letters of credit outstanding under its $300 million revolving credit facility.
 
At September 30,  2013, the Utility had no cash borrowings and $91 million of letters of credit outstanding under its $3.0 billion revolving credit facility.
 
Pollution Control Bonds
 
At September 30, 2013, the interest rates on the $614 million principal amount of pollution control bonds Series 1996 C, E, F, and 1997 B and the related loan agreements ranged from 0.05% to 0.07%.  At September 30, 2013, the interest rates on the $309 million principal amount of pollution control bonds Series 2009 A-D and the related loan agreements ranged from 0.01% to 0.04%.
      
Commercial Paper Program
 
At September 30, 2013, the Utility had $693 million of commercial paper outstanding supported by available capacity under its revolving credit facility.
Equity
Equity
NOTE 5: EQUITY
 
PG&E Corporation's and the Utility's changes in equity for the nine months ended September 30, 2013 were as follows:
 
 
 
 
 
 
PG&E Corporation
 
Utility
 
Total
 
Total
(in millions)
Equity
 
Shareholders' Equity
Balance at December 31, 2012
$
13,326
 
$
13,460
Comprehensive income
 
769
 
 
741
Equity contributions
 
-
 
 
835
Common stock issued
 
741
 
 
-
Share-based compensation expense
 
43
 
 
(1
)
Common stock dividends declared
 
(609
 
(537
)
Preferred stock dividend requirement
 
-
 
 
(10
)
Preferred stock dividend requirement of subsidiary
 
(10
 
-
Balance at September 30, 2013
$
14,260
 
$
14,488
 
 
 
 
 
 
In May 2013, PG&E Corporation entered into a new equity distribution agreement providing for the sale of PG&E Corporation common stock having an aggregate gross sales price of up to $400 million.  As of September 30, 2013, PG&E Corporation sold common stock having an aggregate gross sales price of $150 million under this agreement.  During the three and nine months ended September 30, 2013, PG&E Corporation paid commissions of $1 million, respectively, under this agreement.
 
During the nine months ended September 30, 2013, PG&E Corporation issued 18 million shares of its common stock for aggregate net cash proceeds of $724 million in the following transactions:
  • 7 million shares were sold in an underwritten public offering for cash proceeds of $300 million, net of fees and commissions;
  • 6 million shares were issued for cash proceeds of $212 million under the PG&E Corporation 401(k) plan, the Dividend Reinvestment and Stock Purchase Plan, and share-based compensation plans; and
  • 5 million shares were sold for cash proceeds of $212 million, net of commissions paid of $2 million, under equity distribution agreements.    
Earnings Per Share
Earnings Per Share
NOTE 6: EARNINGS PER SHARE
 
PG&E Corporation's basic EPS is calculated by dividing the income available for common shareholders by the weighted average number of common shares outstanding.  PG&E Corporation applies the treasury stock method of reflecting the dilutive effect of outstanding share-based compensation in the calculation of diluted EPS.  The following is a reconciliation of PG&E Corporation's income available for common shareholders and weighted average common shares outstanding for calculating diluted EPS:
 
 
Three Months Ended
 
Nine Months Ended
 
 September 30,
 
 September 30,
(in millions, except per share amounts)
2013
 
2012
 
2013
 
2012
Income available for common shareholders
$
161
 
$
361
 
$
728
 
$
829
Weighted average common shares outstanding, basic
 
446
 
 
428
 
 
441
 
 
422
Add incremental shares from assumed conversions:
 
 
 
 
 
 
 
 
 
 
 
Employee share-based compensation
 
1
 
 
1
 
 
1
 
 
1
Weighted average common share outstanding, diluted
 
447
 
 
429
 
 
442
 
 
423
Total earnings per common share, diluted
$
0.36
 
$
0.84
 
$
1.65
 
$
1.96
 
For each of the periods presented above, the calculation of weighted average common shares outstanding on a diluted basis excluded an insignificant amount of options and securities that were antidilutive.
Derivatives
Derivatives
 
NOTE 7: DERIVATIVES
 
                                                The Utility uses both derivative and non-derivative contracts in managing its exposure to commodity-related price risk, including forward contracts, swap agreements, futures contracts, and option contracts.
 
These instruments are not held for speculative purposes and are subject to certain regulatory requirements.  Customer rates are designed to recover the Utility's reasonable costs of providing services, including the costs related to price risk management activities.
 
Price risk management activities that meet the definition of derivatives are recorded at fair value on the Condensed Consolidated Balance Sheets.  As long as the current ratemaking mechanism remains in place and the Utility's price risk management activities are carried out in accordance with CPUC directives, the Utility expects to recover fully, in rates, all costs related to derivatives.  Therefore, all unrealized gains and losses associated with the change in fair value of these derivatives are deferred and recorded within the Utility's regulatory assets and liabilities.  (See Note 3 above.)  Net realized gains or losses on commodity derivatives are recorded in the cost of electricity or the cost of natural gas with corresponding increases or decreases to regulatory balancing accounts for recovery from or refund to customers.
 
The Utility elects the normal purchase and sale exception for eligible derivatives.  Derivatives that require physical delivery in quantities that are expected to be used by the Utility over a reasonable period in the normal course of business, and do not contain pricing provisions unrelated to the commodity delivered, are eligible for the normal purchase and sale exception.  The fair value of derivatives that are eligible for the normal purchase and sales exception are not reflected in the Condensed Consolidated Balance Sheets.
 
Presentation of Derivative Instruments in the Financial Statements
 
In the Condensed Consolidated Balance Sheets, derivatives are presented on a net basis by counterparty where the right and the intention to offset exists under a master netting agreement.  All derivatives that are subject to a master netting arrangement have been netted.  The net balances include outstanding cash collateral associated with derivative positions.
 
At September 30, 2013, PG&E Corporation's and the Utility's outstanding derivative balances were as follows:
 
 
 
Commodity Risk
 
Gross Derivative
 
 
 
 
 
Total Derivative
(in millions)
Balance
 
Netting
 
Cash Collateral
 
Balance
Current assets - other
$
31
 
$
(12
$
19
 
$
38
Other noncurrent assets - other
 
66
 
 
(5
 
-
 
 
61
Current liabilities - other
 
(162
 
12
 
 
106
 
 
(44
)
Noncurrent liabilities - other
 
(149
 
5
 
 
23
 
 
(121
)
Total commodity risk
$
(214)
 
$
-
 
$
148
 
$
(66)
 
 
At December 31, 2012, PG&E Corporation's and the Utility's outstanding derivative balances were as follows:
 
 
 
Commodity Risk
 
Gross Derivative
 
 
 
 
 
Total Derivative
(in millions)
Balance
 
Netting
 
Cash Collateral
 
Balance
Current assets - other
$
48
 
$
(25
$
36
 
$
59
Other noncurrent assets - other
 
99
 
 
(11
 
-
 
 
88
Current liabilities - other
 
(255
 
25
 
 
115
 
 
(115
)
Noncurrent liabilities - other
 
(221
 
11
 
 
14
 
 
(196
)
Total commodity risk
$
(329)
 
$
-
 
$
165
 
$
(164)
 
 
                        Gains and losses associated with price risk management activities were recorded as follows:
 
 
Commodity Risk
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(in millions)
2013
 
2012
 
2013
 
2012
Unrealized gain - regulatory assets and liabilities (1)
$
40
 
$
162
 
$
115
 
$
327
Realized loss - cost of electricity (2)
 
(57
 
(108
 
(136
 
(383
)
Realized loss - cost of natural gas (2)
 
(2
 
(5
 
(14
 
(32
)
Total commodity risk
$
(19)
 
$
49
 
$
(35)
 
$
(88)
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Unrealized gains and losses on commodity risk-related derivative instruments are recorded to regulatory assets or liabilities, rather than being recorded to the  Condensed Consolidated Statements of Income.  These amounts exclude the impact of cash collateral postings.
(2) These amounts are fully passed through to customers in rates.  Accordingly, net income was not impacted by realized amounts on these instruments.
 
 
Volume of Derivative Activity
 
At September 30, 2013, the volumes of PG&E Corporation's and the Utility's outstanding derivatives were as follows:
 
 
 
 
 
Contract Volume (1)
 
 
 
 
 
 
1 Year or
 
3 Years or
 
 
 
 
 
 
 
 
Greater but
 
Greater but
 
 
 
 
 
 
Less Than 1
 
Less Than 3
 
Less Than 5
 
5 Years or
Underlying Product
 
Instruments
 
Year
 
Years
 
 Years
 
Greater (2)
Natural Gas (3)
 
Forwards and
 
 
 
 
 
 
 
 
(MMBtus (4))
 
Swaps
 
282,212,809
 
84,938,674
 
4,907,500
 
-
 
 
Options
 
206,604,635
 
115,753,835
 
1,500,000
 
-
Electricity
 
Forwards and
 
 
 
 
 
 
 
 
(Megawatt-hours)
 
Swaps
 
2,537,023
 
2,396,080
 
2,008,046
 
1,685,781
 
 
Options
 
95,158
 
239,233
 
239,015
 
24,350
 
 
Congestion
 
 
 
 
 
 
 
 
 
 
Revenue Rights
 
57,166,228
 
78,318,934
 
60,465,135
 
11,609,557
 
 
 
 
 
 
 
 
 
 
 
 
(1) Amounts shown reflect the total gross derivative volumes by commodity type that are expected to settle in each period.
      (2) Derivatives in this category expire between 2018 and 2022.
      (3) Amounts shown are for the combined positions of the electric fuels and core gas portfolios.
(4) Million British Thermal Units.
 
At December 31, 2012, the volumes of PG&E Corporation's and the Utility's outstanding derivatives were as follows:
 
 
 
 
 
Contract Volume (1)
 
 
 
 
 
 
1 Year or
 
3 Years or
 
 
 
 
 
 
 
 
Greater but
 
Greater but
 
 
 
 
 
 
Less Than 1
 
Less Than 3
 
Less Than 5
 
5 Years or
Underlying Product
 
Instruments
 
Year
 
Years
 
 Years
 
Greater (2)
Natural Gas (3)
 
Forwards and
 
 
 
 
 
 
 
 
(MMBtus (4))
 
Swaps
 
329,466,510
 
98,628,398
 
5,490,000
 
-
 
 
Options
 
221,587,431
 
216,279,767
 
10,050,000
 
-
Electricity
 
Forwards and
 
 
 
 
 
 
 
 
(Megawatt-hours)
 
Swaps
 
2,537,023
 
3,541,046
 
2,009,505
 
2,538,718
 
 
Options
 
-
 
239,015
 
239,233
 
119,508
 
 
Congestion
 
 
 
 
 
 
 
 
 
 
Revenue Rights
 
74,198,690
 
74,187,803
 
74,240,147
 
25,699,804
 
 
 
 
 
 
 
 
 
 
 
 
(1) Amounts shown reflect the total gross derivative volumes by commodity type that are expected to settle in each period.
(2) Derivatives in this category expire between 2018 and 2022.
(3) Amounts shown are for the combined positions of the electric fuels and core gas portfolios.
(4) Million British Thermal Units.
 
The majority of the Utility's derivatives contain collateral posting provisions tied to the Utility's credit rating from each of the major credit rating agencies.  If the Utility's credit rating was to fall below investment grade, the Utility would be required to post additional cash immediately to fully collateralize some of its net liability derivative positions.  At September 30, 2013, the Utility's credit rating was investment grade.  
 
The additional cash collateral that the Utility would be required to post if the credit risk-related contingency features were triggered was as follows:
 
 
 
Balance at
 
September 30,
 
December 31,
(in millions)
2013
 
2012
Derivatives in a liability position with credit risk-related
 
 
 
 
 
 contingencies that are not fully collateralized
$
(133
$
(266
)
Related derivatives in an asset position
 
29
 
 
59
Collateral posting in the normal course of business related to
 
 
 
 
 
these derivatives
 
112
 
 
103
Net position of derivative contracts/additional collateral
 
 
 
 
 
posting requirements (1)
$
8
 
$
(104)
 
 
 
 
 
 
 (1) This calculation excludes the impact of closed but unpaid positions, as their settlement is not impacted by any of the
Utility's credit risk-related contingencies.
 
Fair Value Measurements
Fair Value Measurements
 
NOTE 8: FAIR VALUE MEASUREMENTS
 
PG&E Corporation and the Utility measure their cash equivalents, trust assets, price risk management instruments, and other investments at fair value.  Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.  As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.  A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:
  • Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
  • Level 2 - Other inputs that are directly or indirectly observable in the marketplace.
  • Level 3 - Unobservable inputs which are supported by little or no market activities.
 
The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
 
 
Assets and liabilities measured at fair value on a recurring basis for PG&E Corporation and the Utility are summarized below (assets held in rabbi trusts and other investments are held by PG&E Corporation and not the Utility):
 
 
Fair Value Measurements
 
At  September 30, 2013
(in millions)
Level 1
 
Level 2
 
Level 3
 
Netting (1)
 
Total
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market investments
$
214
 
$
-
 
$
-
 
$
-
 
$
214
Nuclear decommissioning trusts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Money market investments
 
26
 
 
-
 
 
-
 
 
-
 
 
26
  U.S. equity securities
 
1,009
 
 
10
 
 
-
 
 
-
 
 
1,019
  Non-U.S. equity securities
 
435
 
 
-
 
 
-
 
 
-
 
 
435
  U.S. government and agency securities
 
782
 
 
148
 
 
-
 
 
-
 
 
930
  Municipal securities
 
-
 
 
26
 
 
-
 
 
-
 
 
26
  Other fixed-income securities
 
-
 
 
128
 
 
-
 
 
-
 
 
128
Total nuclear decommissioning trusts (2)
 
2,252
 
 
312
 
 
-
 
 
-
 
 
2,564
Price risk management instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Note 7)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Electricity
 
1
 
 
27
 
 
65
 
 
2
 
 
95
  Gas
 
-
 
 
4
 
 
-
 
 
-
 
 
4
Total price risk management instruments
 
1
 
 
31
 
 
65
 
 
2
 
 
99
Rabbi trusts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Fixed-income securities
 
-
 
 
30
 
 
-
 
 
-
 
 
30
  Life insurance contracts
 
-
 
 
70
 
 
-
 
 
-
 
 
70
Total rabbi trusts
 
-
 
 
100
 
 
-
 
 
-
 
 
100
Long-term disability trust
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Money market investments
 
5
 
 
-
 
 
-
 
 
-
 
 
5
  U.S. equity securities
 
-
 
 
11
 
 
-
 
 
-
 
 
11
  Non-U.S. equity securities
 
-
 
 
10
 
 
-
 
 
-
 
 
10
  Fixed-income securities
 
-
 
 
116
 
 
-
 
 
-
 
 
116
Total long-term disability trust
 
5
 
 
137
 
 
-
 
 
-
 
 
142
Other investments
 
51
 
 
-
 
 
-
 
 
-
 
 
51
Total assets
$
2,523
 
$
580
 
$
65
 
$
2
 
$
3,170
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Price risk management instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Note 7)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Electricity
$
53
 
$
100
 
$
147
 
$
(140
$
160
  Gas
 
6
 
 
5
 
 
-
 
 
(6
 
5
Total liabilities
$
59
 
$
105
 
$
147
 
$
(146)
 
$
165
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Includes the effect of the contractual ability to settle contracts under master netting agreements and margin cash collateral.
(2) Represents amount before deducting $292 million of deferred taxes primarily related to appreciation of investment value.
 
 
 
Fair Value Measurements
 
At December 31, 2012
(in millions)
Level 1
 
Level 2
 
Level 3
 
Netting (1)
 
Total
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market investments
$
209
 
$
-
 
$
-
 
$
-
 
$
209
Nuclear decommissioning trusts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Money market investments
 
21
 
 
-
 
 
-
 
 
-
 
 
21
  U.S. equity securities
 
940
 
 
9
 
 
-
 
 
-
 
 
949
  Non-U.S. equity securities
 
379
 
 
-
 
 
-
 
 
-
 
 
379
  U.S. government and agency securities
 
681
 
 
139
 
 
-
 
 
-
 
 
820
  Municipal securities
 
-
 
 
59
 
 
-
 
 
-
 
 
59
  Other fixed-income securities
 
-
 
 
173
 
 
-
 
 
-
 
 
173
Total nuclear decommissioning trusts (2)
 
2,021
 
 
380
 
 
-
 
 
-
 
 
2,401
Price risk management instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Note 7)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Electricity
 
1
 
 
60
 
 
80
 
 
6
 
 
147
  Gas
 
-
 
 
5
 
 
1
 
 
(6
 
-
Total price risk management instruments
 
1
 
 
65
 
 
81
 
 
-
 
 
147
Rabbi trusts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Fixed-income securities
 
-
 
 
30
 
 
-
 
 
-
 
 
30
  Life insurance contracts
 
-
 
 
72
 
 
-
 
 
-
 
 
72
Total rabbi trusts
 
-
 
 
102
 
 
-
 
 
-
 
 
102
Long-term disability trust
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Money market investments
 
10
 
 
-
 
 
-
 
 
-
 
 
10
  U.S. equity securities
 
-
 
 
14
 
 
-
 
 
-
 
 
14
  Non-U.S. equity securities
 
-
 
 
11
 
 
-
 
 
-
 
 
11
  Fixed-income securities
 
-
 
 
136
 
 
-
 
 
-
 
 
136
Total long-term disability trust
 
10
 
 
161
 
 
-
 
 
-
 
 
171
Total assets
$
2,241
 
$
708
 
$
81
 
$
-
 
$
3,030
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Price risk management instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Note 7)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Electricity
$
155
 
$
144
 
$
160
 
$
(156
$
303
  Gas
 
8
 
 
9
 
 
-
 
 
(9
 
8
Total liabilities
$
163
 
$
153
 
$
160
 
$
(165)
 
$
311
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Includes the effect of the contractual ability to settle contracts under master netting agreements and margin cash collateral.
(2) Represents amount before deducting $240 million of deferred taxes primarily related to appreciation of investment value.
 
Valuation Techniques
 
The following describes the valuation techniques used to measure the fair value of the assets and liabilities shown in the tables above.  All investments that are valued using a net asset value per share can be redeemed quarterly with notice not to exceed 90 days.
 
Money Market Investments
 
PG&E Corporation and the Utility invest in money market funds that seek to maintain a stable net asset value.  These funds invest in high quality, short-term, diversified money market instruments, such as U.S. Treasury bills, U.S. agency securities, certificates of deposit, and commercial paper with a maximum weighted average maturity of 60 days or less.  PG&E Corporation's and the Utility's investments in these money market funds are valued using unadjusted prices for identical assets in an active market and are thus classified as Level 1.  Money market funds are recorded as cash and cash equivalents in the Condensed Consolidated Balance Sheets.
 
Trust Assets
 
The assets held by the nuclear decommissioning trusts, the rabbi trusts related to the non-qualified deferred compensation plans, and the long-term disability trust are composed primarily of equity securities, debt securities, and life insurance policies.  In general, investments held in the trusts are exposed to various risks, such as interest rate, credit, and market volatility risks.
 
Equity securities primarily include investments in common stock, which are valued based on unadjusted prices for identical securities in active markets and are classified as Level 1.  Equity securities also include commingled funds, that are valued using a net asset value per share and are composed of equity securities traded publicly on exchanges across multiple industry sectors in the U.S. and other regions of the world and are classified as Level 2.  Price quotes for the assets held by these funds are readily observable and available.
 
Debt securities are primarily composed of U.S. government and agency securities, municipal securities, and other fixed-income securities, including corporate debt securities.  U.S. government and agency securities primarily consist of U.S. Treasury securities that are classified as Level 1 because the fair value is determined by observable market prices in active markets.  A market approach is generally used to estimate the fair value of debt securities classified as Level 2.  Under a market approach, fair values are determined based on evaluated pricing data, such as broker quotes, for similar securities adjusted for observable differences.  Significant inputs used in the valuation model generally include benchmark yield curves and issuer spreads.  The external credit ratings, coupon rate, and maturity of each security are considered in the valuation model, as applicable.
 
Price Risk Management Instruments
 
Price risk management instruments include physical and financial derivative contracts, such as power purchase agreements, forwards, swaps, options, and CRRs that are traded either on an exchange or over-the-counter.  
 
Power purchase agreements, forwards, and swaps are valued using a discounted cash flow model.  Exchange-traded forwards and swaps that are valued using observable market forward prices for the underlying commodity are classified as Level 1.  Over-the-counter forwards and swaps that are identical to exchange-traded forwards and swaps or are valued using forward prices from broker quotes that are corroborated with market data are classified as Level 2.  Exchange-traded options are valued using observable market data and market-corroborated data and are classified as Level 2.  Long-dated power purchase agreements that are valued using significant unobservable data are classified as Level 3.  These Level 3 contracts are valued using either estimated basis adjustments from liquid trading points or techniques, including extrapolation from observable prices, when a contract term extends beyond a period for which market data is available.    
 
The Utility holds CRRs to hedge the financial risk of CAISO-imposed congestion charges in the day-ahead market.  CRRs are valued based on prices observed in the CAISO auction, which are discounted at the risk-free rate.  Limited market data is available in the CAISO auction and between auction dates; therefore, the Utility uses models to forecast CRR prices for those periods not covered in the auctions.  CRRs are classified as Level 3.
 
Other Investments
 
Other investments in common stock are valued based on unadjusted prices for the investments and are actively traded on public exchanges.  These investments are therefore considered Level 1 assets.
 
Transfers between Levels
 
PG&E Corporation and the Utility recognize transfers between levels in the fair value hierarchy as of the end of the reporting period. There were no transfers between levels for the three and nine months ended September 30, 2013.
 
 
 
 
Level 3 Measurements and Sensitivity Analysis
 
The Utility's market and credit risk management function is responsible for determining the fair value of the Utility's price risk management derivatives.  Market and credit risk management reports to the Chief Risk Officer of the Utility.  Market and credit risk management utilizes models to derive pricing inputs for the valuation of the Utility's Level 3 instruments.  These models use pricing inputs from brokers and historical data.  The market and credit risk management function and the Utility's finance function collaborate to determine the appropriate fair value methodologies and classification for each derivative.  Inputs used and the fair value of Level 3 instruments are reviewed period-over-period and compared with market conditions to determine reasonableness.  Valuation models and techniques are reviewed periodically.
 
CRRs and power purchase agreements are valued using historical prices or significant unobservable inputs derived from internally developed models.  Historical prices include CRR auction prices.  Unobservable inputs include forward electricity prices.  Significant increases or decreases in any of those inputs would result in a significantly higher or lower fair value, respectively.  All reasonable costs related to Level 3 instruments are expected to be recoverable through customer rates; therefore, there is no impact to net income resulting from changes in the fair value of these instruments.  (See Note 7 above.)
 
 
 
 
Fair Value at
 
 
 
 
 
 
 
(in millions)
 
September 30, 2013
 
 
 
 
 
 
 
Fair Value Measurement
 
Assets
 
Liabilities
 
Valuation Technique
 
Unobservable Input
 
Range (1)
Congestion revenue rights
 
$
65
 
$
13
 
Market approach
 
CRR auction prices
 
$
(7.58) - 7.93
Power purchase agreements
 
$
-
 
$
134
 
Discounted cash flow
 
Forward prices
 
$
10.36 - 54.86
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 (1) Represents price per megawatt-hour
 
 
 
Fair Value at
 
 
 
 
 
 
 
(in millions)
 
December 31, 2012
 
 
 
 
 
 
 
Fair Value Measurement
 
Assets
 
Liabilities
 
Valuation Technique
 
Unobservable Input
 
Range (1)
Congestion revenue rights
 
$
80
 
$
16
 
Market approach
 
CRR auction prices
 
$
(9.04) - 55.15
Power purchase agreements
 
$
-
 
$
145
 
Discounted cash flow
 
Forward prices
 
$
8.59 - 62.90
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 (1) Represents price per megawatt-hour
 
Level 3 Reconciliation
 
The following tables present the reconciliation for Level 3 price risk management instruments for the three and nine months ended September 30, 2013 and 2012:
 
 
Price Risk Management Instruments
(in millions)
2013
 
2012
Liability balance as of July 1
$
(76)
 
$
(80)
Realized and unrealized gains (losses):
 
 
 
 
 
Included in regulatory assets and liabilities or balancing accounts (1)
 
(6
 
(4
)
Liability balance as of September 30
$
(82)
 
$
(84)
 
 
 
 
 
 
 (1) The costs related to price risk management activities are recoverable through customer rates, therefore, balancing account revenue is recorded for amounts settled and purchased and there is no impact to net income. Unrealized gains and losses are deferred in regulatory liabilities and assets.
 
 
Price Risk Management Instruments
(in millions)
2013
 
2012
Liability balance as of January 1
$
(79)
 
$
(74)
Realized and unrealized gains (losses):
 
 
 
 
 
Included in regulatory assets and liabilities or balancing accounts (1)
 
(3
 
(10
)
Liability balance as of September 30
$
(82)
 
$
(84)
 
 
 
 
 
 
                   (1) The costs related to price risk management activities are recoverable through customer rates, therefore, balancing account revenue is recorded for amounts settled and purchased and there is no impact to net income. Unrealized gains and losses are deferred in regulatory liabilities and assets.
Financial Instruments
 
PG&E Corporation and the Utility use the following methods and assumptions in estimating fair value for financial instruments:
  • The fair values of cash, restricted cash, net accounts receivable, short-term borrowings, accounts payable, customer deposits, and the Utility's variable rate pollution control bond loan agreements approximate their carrying values at September 30, 2013 and December 31, 2012, as they are short-term in nature or have interest rates that reset daily.  
  • The fair values of the Utility's fixed-rate senior notes and fixed-rate pollution control bonds and PG&E Corporation's fixed-rate senior notes were based on quoted market prices at September 30, 2013 and December 31, 2012.  
 
The carrying amount and fair value of PG&E Corporation's and the Utility's debt instruments were as follows (the table below excludes financial instruments with carrying values that approximate their fair values):
 
 
September 30, 2013
 
December 31, 2012
(in millions)
Carrying Amount
 
Level 2 Fair Value
 
Carrying Amount
 
Level 2 Fair Value
Debt (Note 4)
 
 
 
 
 
 
 
 
 
 
 
PG&E Corporation
$
350
 
$
359
 
$
349
 
$
371
Utility
 
11,934
 
 
12,750
 
 
11,645
 
 
13,946
 
 
Available for Sale Investments
 
The following table provides a summary of available-for-sale investments:
 
 
 
 
 
Total
 
 
Total
 
 
 
 
Amortized
 
 
Unrealized
 
 
Unrealized
 
 
Total Fair
(in millions)
Cost
 
 
Gains
 
 
Losses
 
 
Value
As of September 30, 2013
 
 
 
 
 
 
 
 
 
 
 
Nuclear decommissioning trusts
 
 
 
 
 
 
 
 
 
 
 
  Money market investments
$
26
 
$
-
 
$
-
 
$
26
  Equity securities
 
 
 
 
 
 
 
 
 
 
 
    U.S.
 
267
 
 
753
 
 
(1
 
1,019
    Non-U.S.
 
205
 
 
230
 
 
-
 
 
435
  Debt securities
 
 
 
 
 
 
 
 
 
 
 
    U.S. government and agency securities
 
870
 
 
63
 
 
(3
 
930
    Municipal securities
 
24
 
 
2
 
 
-
 
 
26
    Other fixed-income securities
 
128
 
 
1
 
 
(1
 
128
Total nuclear decommissioning trusts (1)
 
1,520
 
 
1,049
 
 
(5
 
2,564
Other investments
 
13
 
 
38
 
 
-
 
 
51
Total
$
1,533
 
$
1,087
 
$
(5)
 
$
2,615
As of December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
Nuclear decommissioning trusts
 
 
 
 
 
 
 
 
 
 
 
Money market investments
$
21
 
$
-
 
$
-
 
$
21
Equity securities
 
 
 
 
 
 
 
 
 
 
 
  U.S.
 
331
 
 
618
 
 
-
 
 
949