10-Q 1 form10q.htm FORM 10-Q form10q.htm
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
FORM 10-Q
(Mark One)
 
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2014
OR
   
[  ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
   
For the transition period from ___________ to __________
   
Commission
File
Number
_______________
Exact Name of
Registrant
as Specified
in its Charter
_______________
State or Other
Jurisdiction of
Incorporation
______________
IRS Employer
Identification
Number
___________
       
1-12609
PG&E Corporation
California
94-3234914
1-2348
Pacific Gas and Electric Company
California
94-0742640
 
Pacific Gas and Electric Company
77 Beale Street
P.O. Box 770000
San Francisco, California 94177
________________________________________
PG&E Corporation
77 Beale Street
P.O. Box 770000
San Francisco, California 94177
______________________________________
Address of principal executive offices, including zip code
 
Pacific Gas and Electric Company
(415) 973-7000
________________________________________
PG&E Corporation
(415) 973-1000
______________________________________
Registrant's telephone number, including area code
 
Indicate by check mark whether each registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.  [X] Yes     [  ] No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
PG&E Corporation:
[X] Yes [  ] No
Pacific Gas and Electric Company:
[X] Yes [  ] No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
PG&E Corporation:
[X] Large accelerated filer
[  ] Accelerated filer
 
[  ] Non-accelerated filer
[  ] Smaller reporting company
Pacific Gas and Electric Company:
[  ] Large accelerated filer
[  ] Accelerated filer
 
[X] Non-accelerated filer
[  ] Smaller reporting company
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
PG&E Corporation:
[  ] Yes [X] No
Pacific Gas and Electric Company:
[  ] Yes [X] No
 
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Common stock outstanding as of April 22, 2014:
 
PG&E Corporation:
464,756,373
Pacific Gas and Electric Company:
264,374,809


 
 

 

 
PG&E CORPORATION AND
PACIFIC GAS AND ELECTRIC COMPANY
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2014
TABLE OF CONTENTS
 
   
PAGE
 GLOSSARY   ii
     
 
1
 
PG&E Corporation
 
   
1
   
2
   
3
   
5
 
Pacific Gas and Electric Company
 
   
6
   
7
   
8
   
10
 
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 
11
 
12
 
14
 
15
 
16
 
16
 
17
 
20
 
25
 
26
 
 
 
30
 
32
 
35
 
39
 
42
 
43
  Contractual Commitments 43
 
43
 
43
 
43
  Cautionary Language Regarding Forward-Looking Statements 44
 
46
46
 
 
47
49
50
50
51
     
52
 

 

 
i

 

GLOSSARY

The following terms and abbreviations appearing in the text of this report have the meanings indicated below.

2013 Annual Report
PG&E Corporation's and Pacific Gas and Electric Company's combined Annual Report on Form 10-K for the year ended December 31, 2013
AFUDC
allowance for funds used during construction
ALJ
administrative law judge
CAISO
California Independent System Operator
CPUC
California Public Utilities Commission
CRRs
congestion revenue rights
EPS
earnings per common share
FERC
Federal Energy Regulatory Commission
GAAP
generally accepted accounting principles
GHG
greenhouse gas
GRC
general rate case
GT&S
gas transmission and storage
IRS
Internal Revenue Service
NEIL
Nuclear Electric Insurance Limited
NRC
Nuclear Regulatory Commission
ORA
Office of Ratepayer Advocates
PSEP
pipeline safety enhancement plan
SEC
U.S. Securities and Exchange Commission
SED
Safety and Enforcement Division of the CPUC, formerly known as the Consumer Protection and Safety Division or the CPSD
TURN
The Utility Reform Network
Utility
Pacific Gas and Electric Company
VIE(s)
variable interest entity(ies)


 
ii

 
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

PG&E CORPORATION

   
(Unaudited)
 
   
Three Months Ended
 
   
March 31,
 
(in millions, except per share amounts)
 
2014
   
2013
 
Operating Revenues
           
Electric
  $ 3,001     $ 2,799  
Natural gas
    890       873  
Total operating revenues
    3,891       3,672  
Operating Expenses
               
Cost of electricity
    1,210       983  
Cost of natural gas
    360       346  
Operating and maintenance
    1,299       1,338  
Depreciation, amortization, and decommissioning
    538       503  
Total operating expenses
    3,407       3,170  
Operating Income
    484       502  
Interest income
    3       2  
Interest expense
    (185 )     (176 )
Other income, net
    19       28  
Income Before Income Taxes
    321       356  
Income tax provision
    91       114  
Net Income
    230       242  
Preferred stock dividend requirement of subsidiary
    3       3  
Income Available for Common Shareholders
  $ 227     $ 239  
Weighted Average Common Shares Outstanding, Basic
    459       434  
Weighted Average Common Shares Outstanding, Diluted
    460       435  
Net Earnings Per Common Share, Basic
  $ 0.49     $ 0.55  
Net Earnings Per Common Share, Diluted
  $ 0.49     $ 0.55  
Dividends Declared Per Common Share
  $ 0.46     $ 0.46  
                 
See accompanying Notes to the Condensed Consolidated Financial Statements.
 


                                                                                                                                                  
 
1

 
 
PG&E CORPORATION


   
(Unaudited)
 
   
Three Months Ended March 31,
 
(in millions)
 
2014
   
2013
 
Net Income
  $ 230     $ 242  
Other Comprehensive Income
               
Pension and other postretirement benefit plans obligations (net of taxes of
               
$0 and $3, at respective dates)
    -       4  
Gain on investments (net of taxes of $4, at respective dates)
    5       6  
Total other comprehensive income
    5       10  
Comprehensive Income
    235       252  
Preferred stock dividend requirement of subsidiary
    3       3  
Comprehensive Income Attributable to Common Shareholders
  $ 232     $ 249  
                 
See accompanying Notes to the Condensed Consolidated Financial Statements.
 

 
2

 
PG&E CORPORATION

   
(Unaudited)
 
   
Balance At
 
   
March 31,
   
December 31,
 
(in millions)
 
2014
   
2013
 
ASSETS
           
Current Assets
           
Cash and cash equivalents
  $ 108     $ 296  
Restricted cash
    299       301  
Accounts receivable:
               
Customers (net of allowance for doubtful accounts of $76 and $80
               
   at respective dates)
    877       1,091  
Accrued unbilled revenue
    638       766  
Regulatory balancing accounts
    1,707       1,124  
Other
    323       312  
Regulatory assets
    418       448  
Inventories:
               
Gas stored underground and fuel oil
    78       137  
Materials and supplies
    314       317  
Income taxes receivable
    602       574  
Other
    528       611  
Total current assets
    5,892       5,977  
Property, Plant, and Equipment
               
Electric
    43,402       42,881  
Gas
    14,734       14,379  
Construction work in progress
    1,888       1,834  
Other
    2       2  
Total property, plant, and equipment
    60,026       59,096  
Accumulated depreciation
    (18,209 )     (17,844 )
Net property, plant, and equipment
    41,817       41,252  
Other Noncurrent Assets
               
Regulatory assets
    4,823       4,913  
Nuclear decommissioning trusts
    2,351       2,342  
Income taxes receivable
    87       85  
Other
    1,017       1,036  
Total other noncurrent assets
    8,278       8,376  
TOTAL ASSETS
  $ 55,987     $ 55,605  
                 
See accompanying Notes to the Condensed Consolidated Financial Statements.
 


                                                                                                                                                
 
3

 
 

PG&E CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS

   
(Unaudited)
 
   
Balance At
 
   
March 31,
   
December 31,
 
(in millions, except share amounts)
 
2014
   
2013
 
LIABILITIES AND EQUITY
           
Current Liabilities
           
Short-term borrowings
  $ 930     $ 1,174  
Long-term debt, classified as current
    -       889  
Accounts payable:
               
Trade creditors
    1,072       1,293  
Disputed claims and customer refunds
    154       154  
Regulatory balancing accounts
    1,031       1,008  
Other
    572       471  
Interest payable
    862       892  
Other
    1,526       1,612  
Total current liabilities
    6,147       7,493  
Noncurrent Liabilities
               
Long-term debt
    13,965       12,717  
Regulatory liabilities
    5,804       5,660  
Pension and other postretirement benefits
    1,592       1,601  
Asset retirement obligations
    3,540       3,539  
Deferred income taxes
    7,838       7,823  
Other
    2,169       2,178  
Total noncurrent liabilities
    34,908       33,518  
Commitments and Contingencies (Note 10)
               
Equity
               
Shareholders' Equity
               
Common stock, no par value, authorized 800,000,000 shares,
               
464,263,173 and 456,670,424 shares outstanding at respective dates
    9,869       9,550  
Reinvested earnings
    4,756       4,742  
Accumulated other comprehensive income
    55       50  
Total shareholders' equity
    14,680       14,342  
Noncontrolling Interest - Preferred Stock of Subsidiary
    252       252  
Total equity
    14,932       14,594  
TOTAL LIABILITIES AND EQUITY
  $ 55,987     $ 55,605  
                 
See accompanying Notes to the Condensed Consolidated Financial Statements.
 


                                                                                                                                               
 
4

 
 
PG&E CORPORATION

   
(Unaudited)
 
   
Three Months Ended March 31,
 
(in millions)
 
2014
   
2013
 
Cash Flows from Operating Activities
           
Net income
  $ 230     $ 242  
Adjustments to reconcile net income to net cash provided by
               
operating activities:
               
Depreciation, amortization, and decommissioning
    538       503  
Allowance for equity funds used during construction
    (22 )     (26 )
Deferred income taxes and tax credits, net
    15       166  
Other
    56       57  
Effect of changes in operating assets and liabilities:
               
Accounts receivable
    321       209  
Inventories
    62       55  
Accounts payable
    31       (56 )
Income taxes receivable/payable
    (28 )     49  
Other current assets and liabilities
    (37 )     (242 )
Regulatory assets, liabilities, and balancing accounts, net
    (376 )     (133 )
Other noncurrent assets and liabilities
    (19 )     45  
Net cash provided by operating activities
    771       869  
Cash Flows from Investing Activities
               
Capital expenditures
    (1,197 )     (1,249 )
Decrease in restricted cash
    2       26  
Proceeds from sales and maturities of nuclear decommissioning
               
trust investments
    530       363  
Purchases of nuclear decommissioning trust investments
    (536 )     (364 )
Other
    12       17  
Net cash used in investing activities
    (1,189 )     (1,207 )
Cash Flows from Financing Activities
               
Repayments under revolving credit facilities
    (260 )     -  
Net issuances (repayments) of commercial paper, net of discount of $1 in 2014
    15       (2 )
Proceeds from issuance of long-term debt, net of premium, discount, and issuance
               
costs of $13 in 2014
    1,237       -  
Repayments of long-term debt
    (889 )     -  
Common stock issued
    302       426  
Common stock dividends paid
    (202 )     (191 )
Other
    27       (18 )
Net cash provided by financing activities
    230       215  
Net change in cash and cash equivalents
    (188 )     (123 )
Cash and cash equivalents at January 1
    296       401  
Cash and cash equivalents at March 31
  $ 108     $ 278  
Supplemental disclosures of cash flow information
               
Cash received (paid) for:
               
Interest, net of amounts capitalized
  $ (199 )   $ (197 )
Income taxes, net
    1       36  
Supplemental disclosures of noncash investing and financing activities
               
Common stock dividends declared but not yet paid
  $ 213     $ 201  
Capital expenditures financed through accounts payable
    171       257  
Noncash common stock issuances
    5       6  
See accompanying Notes to the Condensed Consolidated Financial Statements.
 


                                                                                                                                                  
 
5

 
 
PACIFIC GAS AND ELECTRIC COMPANY

   
(Unaudited)
 
   
Three Months Ended
 
   
March 31,
 
(in millions)
 
2014
   
2013
 
Operating Revenues
           
Electric
  $ 3,000     $ 2,798  
Natural gas
    890       873  
Total operating revenues
    3,890       3,671  
Operating Expenses
               
Cost of electricity
    1,210       983  
Cost of natural gas
    360       346  
Operating and maintenance
    1,297       1,336  
Depreciation, amortization, and decommissioning
    538       503  
Total operating expenses
    3,405       3,168  
Operating Income
    485       503  
Interest income
    2       1  
Interest expense
    (179 )     (170 )
Other income, net
    20       24  
Income Before Income Taxes
    328       358  
Income tax provision
    100       121  
Net Income
    228       237  
Preferred stock dividend requirement
    3       3  
Income Available for Common Stock
  $ 225     $ 234  
                 
See accompanying Notes to the Condensed Consolidated Financial Statements.
 

 
6

 

PACIFIC GAS AND ELECTRIC COMPANY


 
(Unaudited)
 
 
Three Months Ended March 31,
 
(in millions)
2014
 
2013
 
Net Income
  $ 228     $ 237  
Other Comprehensive Income
               
Pension and other postretirement benefit plans obligations (net of taxes of
               
$0, and $2, at respective dates)
    -       5  
Total other comprehensive income
    -       5  
Comprehensive Income
  $ 228     $ 242  
                 
See accompanying Notes to the Condensed Consolidated Financial Statements.
 


                                                                                                                                                   
 
7

 
 

PACIFIC GAS AND ELECTRIC COMPANY

   
(Unaudited)
 
   
Balance At
 
   
March 31,
   
December 31,
 
(in millions)
 
2014
   
2013
 
ASSETS
           
Current Assets
           
Cash and cash equivalents
  $ 68     $ 65  
Restricted cash
    299       301  
Accounts receivable:
               
Customers (net of allowance for doubtful accounts of $76 and $80
               
  at respective dates)
    877       1,091  
Accrued unbilled revenue
    638       766  
Regulatory balancing accounts
    1,707       1,124  
Other
    333       313  
Regulatory assets
    418       448  
Inventories:
               
Gas stored underground and fuel oil
    78       137  
Materials and supplies
    314       317  
Income taxes receivable
    588       563  
Other
    363       523  
Total current assets
    5,683       5,648  
Property, Plant, and Equipment
               
Electric
    43,402       42,881  
Gas
    14,734       14,379  
Construction work in progress
    1,888       1,834  
Total property, plant, and equipment
    60,024       59,094  
Accumulated depreciation
    (18,208 )     (17,843 )
Net property, plant, and equipment
    41,816       41,251  
Other Noncurrent Assets
               
Regulatory assets
    4,823       4,913  
Nuclear decommissioning trusts
    2,351       2,342  
Income taxes receivable
    82       81  
Other
    831       814  
Total other noncurrent assets
    8,087       8,150  
TOTAL ASSETS
  $ 55,586     $ 55,049  
                 
See accompanying Notes to the Condensed Consolidated Financial Statements.
 


                                                                                                                                                  
 
8

 
 

PACIFIC GAS AND ELECTRIC COMPANY

   
(Unaudited)
 
   
Balance At
 
   
March 31,
   
December 31,
 
(in millions, except share amounts)
 
2014
   
2013
 
LIABILITIES AND SHAREHOLDERS' EQUITY
           
Current Liabilities
           
Short-term borrowings
  $ 882     $ 914  
Long-term debt, classified as current
    -       539  
Accounts payable:
               
Trade creditors
    1,072       1,293  
Disputed claims and customer refunds
    154       154  
Regulatory balancing accounts
    1,031       1,008  
Other
    555       432  
Interest payable
    861       887  
Other
    1,272       1,382  
Total current liabilities
    5,827       6,609  
Noncurrent Liabilities
               
Long-term debt
    13,616       12,717  
Regulatory liabilities
    5,804       5,660  
Pension and other postretirement benefits
    1,520       1,530  
Asset retirement obligations
    3,540       3,539  
Deferred income taxes
    8,023       8,042  
Other
    2,124       2,111  
Total noncurrent liabilities
    34,627       33,599  
Commitments and Contingencies (Note 10)
               
Shareholders' Equity
               
Preferred stock
    258       258  
Common stock, $5 par value, authorized 800,000,000 shares, 264,374,809
               
shares outstanding at respective dates
    1,322       1,322  
Additional paid-in capital
    6,066       5,821  
Reinvested earnings
    7,473       7,427  
Accumulated other comprehensive income
    13       13  
Total shareholders' equity
    15,132       14,841  
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
  $ 55,586     $ 55,049  
                 
See accompanying Notes to the Condensed Consolidated Financial Statements.
 


                                                                                                                                       
 
9

 
 
PACIFIC GAS AND ELECTRIC COMPANY


   
(Unaudited)
 
   
Three Months Ended March 31,
 
(in millions)
 
2014
   
2013
 
Cash Flows from Operating Activities
           
Net income
  $ 228     $ 237  
Adjustments to reconcile net income to net cash provided by
               
operating activities:
               
Depreciation, amortization, and decommissioning
    538       503  
Allowance for equity funds used during construction
    (22 )     (26 )
Deferred income taxes and tax credits, net
    (19 )     163  
    Other
    39       37  
Effect of changes in operating assets and liabilities:
               
Accounts receivable
    312       203  
Inventories
    62       55  
Accounts payable
    53       2  
Income taxes receivable/payable
    (25 )     51  
Other current assets and liabilities
    26       (230 )
Regulatory assets, liabilities, and balancing accounts, net
    (376 )     (133 )
Other noncurrent assets and liabilities
    (37 )     45  
Net cash provided by operating activities
    779       907  
Cash Flows from Investing Activities
               
Capital expenditures
    (1,197 )     (1,249 )
Decrease in restricted cash
    2       26  
Proceeds from sales and maturities of nuclear decommissioning
               
trust investments
    530       363  
Purchases of nuclear decommissioning trust investments
    (536 )     (364 )
Other
    9       5  
Net cash used in investing activities
    (1,192 )     (1,219 )
Cash Flows from Financing Activities
               
Net repayments of commercial paper, net of discount of $1 in 2014
    (33 )     (2 )
Proceeds from issuance of long-term debt, net of premium, discount, and issuance
               
costs of $10 in 2014
    890       -  
Repayments of long-term debt
    (539 )     -  
Preferred stock dividends paid
    (3 )     (3 )
Common stock dividends paid
    (179 )     (179 )
Equity contribution
    250       370  
Other
    30       (15 )
Net cash provided by financing activities
    416       171  
Net change in cash and cash equivalents
    3       (141 )
Cash and cash equivalents at January 1
    65       194  
Cash and cash equivalents at March 31
  $ 68     $ 53  
Supplemental disclosures of cash flow information
               
Cash received (paid) for:
               
Interest, net of amounts capitalized
  $ (188 )   $ (197 )
Income taxes, net
    1       36  
Supplemental disclosures of noncash investing and financing activities
               
Capital expenditures financed through accounts payable
  $ 171     $ 257  
                 
See accompanying Notes to the Condensed Consolidated Financial Statements.
 


 
10

 
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


PG&E Corporation is a holding company whose primary operating subsidiary is 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.

This quarterly report on Form 10-Q is a combined report of PG&E Corporation and the Utility.  PG&E Corporation’s Condensed Consolidated Financial Statements include the accounts of PG&E Corporation, the Utility, and subsidiaries.  The Utility’s Condensed Consolidated Financial Statements include the accounts of the Utility and its subsidiaries.  All intercompany transactions have been eliminated from the Condensed Consolidated Financial Statements.  The Notes to the Condensed Consolidated Financial Statements apply to both PG&E Corporation and the Utility.  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 SEC 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, 2013 in the Condensed Consolidated Balance Sheets included in this quarterly report was derived from the audited Consolidated Balance Sheets in the 2013 Annual Report.  This quarterly report should be read in conjunction with the 2013 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.


                                                                                                                                                 
 
11

 
 


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 2013 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 March 31, 2014, 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 obligation 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 March 31, 2014, 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 from 2010 to 2014 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 March 31, 2014 and December 31, 2013, the carrying amount of PG&E Corporation’s investment in these agreements was $93 million and $98 million, respectively.  PG&E Corporation has no material remaining commitment to fund these agreements.  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.  Since PG&E Corporation was not the primary beneficiary of any of these VIEs at March 31, 2014, 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.


 
12

 

The net periodic benefit costs reflected in PG&E Corporation’s Condensed Consolidated Financial Statements for the three months ended March 31, 2014 and 2013 were as follows:

   
Pension Benefits
   
Other Benefits
 
   
Three Months Ended March 31,
 
(in millions)
 
2014
   
2013
   
2014
   
2013
 
Service cost for benefits earned
  $ 99     $ 115     $ 11     $ 13  
Interest cost
    173       156       19       19  
Expected return on plan assets
    (202 )     (162 )     (26 )     (20 )
Amortization of prior service cost
    5       5       6       6  
Amortization of net actuarial loss
    -       27       -       1  
Net periodic benefit cost
    75       141       10       19  
Less: transfer to regulatory account (1)
    9       (57 )     -       -  
Total
  $ 84     $ 84     $ 10     $ 19  
                                 
 (1) The Utility recorded these amounts to a regulatory account since they are probable of recovery from customers in futures rates.

There was no material difference between PG&E Corporation and the Utility for the information disclosed above.

Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income

The changes, net of income tax, in PG&E Corporation’s accumulated other comprehensive income (loss) are summarized below:

   
Pension
   
Other
   
Other
       
   
Benefits
   
Benefits
   
Investments
   
Total
 
(in millions, net of income tax)
 
Three Months Ended March 31, 2014
 
Beginning balance
  $ (7 )   $ 15     $ 42     $ 50  
Other comprehensive income before reclassifications:
                               
      Gain on investments (net of taxes of $0, $0, and $4,
                               
      respectively)
    -       -       5       5  
Amounts reclassified from other comprehensive income: (1)
                               
      Amortization of prior service cost (net of taxes of
                               
      $2, $2, and $0, respectively)
    3       4       -       7  
     Transfer to regulatory account (net of taxes of
                               
     $2, $2, and $0, respectively)
    (3 )     (4 )     -       (7 )
Net current period other comprehensive income
    -       -       5       5  
Ending balance
  $ (7 )   $ 15     $ 47     $ 55  
                                 
 (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.)


 
 
13

 

   
Pension
   
Other
   
Other
       
   
Benefits
   
Benefits
   
Investments
   
Total
 
(in millions, net of income tax)
 
Three Months Ended March 31, 2013
 
Beginning balance
  $ (28 )   $ (77 )   $ 4     $ (101 )
Other comprehensive income before reclassifications:
                               
      Gain on investments (net of taxes of $0, $0, and $4,
                               
      respectively)
    -       -       6       6  
Amounts reclassified from other comprehensive income: (1)
                               
      Amortization of prior service cost (net of taxes of
                               
      $2, $3, and $0, respectively)
    3       3       -       6  
      Amortization of net actuarial loss (net of taxes of
                               
      $11, $0, and $0, respectively)
    16       1       -       17  
     Transfer to regulatory account (net of taxes of
                               
     $13, $0, and $0, respectively)
    (19 )     -       -       (19 )
Net current period other comprehensive income
    -       4       6       10  
Ending balance
  $ (28 )   $ (73 )   $ 10     $ (91 )
                                 
 (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.
 

Regulatory Assets

Long-term regulatory assets are composed of the following:
 
   
Balance at
 
   
March 31,
   
December 31,
 
(in millions)
 
2014
   
2013
 
Pension benefits
  $ 1,429     $ 1,444  
Deferred income taxes
    1,883       1,835  
Utility retained generation
    491       503  
Environmental compliance costs
    582       628  
Price risk management
    96       106  
Electromechanical meters
    119       135  
Unamortized loss, net of gain, on reacquired debt
    129       135  
Other
    94       127  
Total long-term regulatory assets
  $ 4,823     $ 4,913  
 
Regulatory Liabilities

Long-term regulatory liabilities are composed of the following:
 
 
Balance at
 
 
March 31,
 
December 31,
 
(in millions)
2014
 
2013
 
Cost of removal obligations
  $ 3,920     $ 3,844  
Recoveries in excess of AROs
    717       748  
Public purpose programs
    648       587  
Other
    519       481  
Total long-term regulatory liabilities
  $ 5,804     $ 5,660  

 
14

 
Regulatory Balancing Accounts

The Utility’s recovery of revenue requirements and costs is generally decoupled from the volume of sales.  The Utility records (1) differences between the Utility’s authorized revenue requirement and actual customer billings, and (2) differences between incurred costs and customer billings.  To the extent these differences are probable of recovery or refund over the next 12 months, the Utility records a current regulatory balancing account receivable or payable.  Regulatory balancing accounts that the Utility does not expect to collect or refund over the next 12 months are included in other noncurrent assets – regulatory assets or noncurrent liabilities – regulatory liabilities, respectively, in the Condensed Consolidated Balance Sheets.

The Utility sells and delivers electricity and natural gas, which includes procuring and generating electricity.  The Utility also administers public purpose programs, primarily related to customer energy efficiency programs.  The balancing accounts associated with these items 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 receivable and payable are composed of the following:

 
Receivable
 
 
Balance at
 
 
March 31,
 
December 31,
 
(in millions)
2014
 
2013
 
Electric distribution
  $ 415     $ 102  
Utility generation
    312       57  
Gas distribution
    41       70  
Energy procurement
    491       410  
Public purpose programs
    88       56  
Other
    360       429  
Total regulatory balancing accounts receivable
  $ 1,707     $ 1,124  

 
Payable
 
 
Balance at
 
 
March 31,
 
December 31,
 
(in millions)
2014
 
2013
 
Energy procurement
  $ 371     $ 298  
Public purpose programs
    173       171  
Other
    487       539  
Total regulatory balancing accounts payable
  $ 1,031     $ 1,008  
 

Senior Notes

In February 2014, the Utility issued $450 million principal amount of 3.75% Senior Notes due February 15, 2024 and $450 million principal amount of 4.75% Senior Notes due February 15, 2044.  The proceeds were used to repay the 4.80% Senior Notes, in the principal outstanding amount of $539 million, to fund capital expenditures, and for general corporate purposes.

In February 2014, PG&E Corporation issued $350 million principal amount of 2.40% Senior Notes due March 1, 2019.  The proceeds were used to repay the 5.75% Senior Notes, in the principal outstanding amount of $350 million.

Revolving Credit Facilities and Commercial Paper Program

In April 2014, PG&E Corporation and the Utility each extended the termination dates of their existing revolving credit facilities by one year from April 1, 2018 to April 1, 2019.

The following table summarizes PG&E Corporation’s and the Utility’s outstanding borrowings at March 31, 2014 :

         
Letters of
           
 
Termination
 
Facility
 
 Credit
     
Commercial
 
Facility
(in millions)
Date
 
Limit
 
Outstanding
 
Borrowings
 
Paper
 
Availability
PG&E Corporation
April 2019
 
$
300
(1)
 
$
-
 
$
-
 
$
48
(3)
 
$
252
(3)
Utility
April 2019
   
3,000
(2)
   
79
   
-
   
882
(3)
   
2,039
(3)
Total revolving
                                     
credit facilities
   
$
3,300
   
$
79
 
$
-
 
$
930
   
$
2,291
 
                                       
(1) Includes a $100 million sublimit for letters of credit and a $100 million commitment for loans that are made available on a same-day basis and are repayable in full within 7 days.
(2) Includes a $1.0 billion sublimit for letters of credit and a $300 million commitment for loans that are made available on a same-day basis and are repayable in full within 7 days.
(3) PG&E Corporation and the Utility treat the amount of outstanding commercial paper as a reduction to the amount available under their respective revolving credit facilities.

Pollution Control Bonds

At March 31, 2014, 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 0.06% to 0.10%.  At March 31, 2014, the interest rates on the $309 million principal amount of pollution control bonds Series 2009 A-D and the related loan agreements ranged from 0.05% to 0.07%.

 
 
15

 

PG&E Corporation’s and the Utility’s changes in equity for the three months ended March 31, 2014 were as follows:
             
   
PG&E Corporation
   
Utility
 
   
Total
   
Total
 
(in millions)
 
Equity
   
Shareholders' Equity
 
Balance at December 31, 2013
  $ 14,594     $ 14,841  
Comprehensive income
    235       228  
Equity contributions
    -       250  
Common stock issued
    307       -  
Share-based compensation
    12       (5 )
Common stock dividends declared
    (213 )     (179 )
Preferred stock dividend requirement
    -       (3 )
Preferred stock dividend requirement of subsidiary
    (3 )     -  
Balance at March 31, 2014
  $ 14,932     $ 15,132  
                 
In February 2014, 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 $500 million.

During the three months ended March 31, 2014, PG&E Corporation issued 8 million shares of its common stock for aggregate net cash proceeds of $302 million in the following transactions:

·  
3 million shares were issued for cash proceeds of $79 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 $223 million, net of commissions paid of $2 million, under the February 2014 equity distribution agreement.


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 March 31,
 
(in millions, except per share amounts)
 
2014
   
2013
 
Income available for common shareholders
  $ 227     $ 239  
Weighted average common shares outstanding, basic
    459       434  
Add incremental shares from assumed conversions:
               
Employee share-based compensation
    1       1  
Weighted average common shares outstanding, diluted
    460       435  
Total earnings per common share, diluted
  $ 0.49     $ 0.55  

For each of the periods presented above, the calculation of outstanding common shares on a diluted basis excluded an insignificant amount of options and securities that were antidilutive.

                                                                                                                                                   
 
16

 
 



The Utility uses both derivative and non-derivative contracts in managing its customers’ 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.  The Utility expects to fully recover in rates all costs related to derivatives 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.  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.

PG&E Corporation and the Utility offset cash collateral paid or cash collateral received against the fair value amounts recognized for derivative instruments executed with the same counterparty under a master netting arrangement where the right of offset and the intention to offset exist.

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 at fair value, but are accounted for under the accrual method of accounting.  Therefore, expenses are recognized as incurred.
 
Volume of Derivative Activity

At March 31, 2014, 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
    243,602,622       76,235,312       7,640,000       -  
 
Options
    140,209,906       62,803,770       2,550,000       -  
Electricity
Forwards and
                               
(Megawatt-hours)
Swaps
    2,132,784       1,956,498       1,871,208       1,394,250  
 
Congestion
                               
 
Revenue Rights
    65,730,617       83,761,019       57,617,664       27,407,793  
                                   
  (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 2019 and 2023.
(3) Amounts shown are for the combined positions of the electric fuels and core gas portfolios.
 (4) Million British Thermal Units.

 
 
17

 
At December 31, 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
    243,213,288       79,735,000       8,892,500       -  
 
Options
    169,123,208       87,689,708       3,450,000       -  
Electricity
Forwards and
                               
(Megawatt-hours)
Swaps
    2,537,023       2,009,505       2,008,046       1,534,695  
 
Congestion
                               
 
Revenue Rights
    73,510,440       83,747,782       63,718,517       29,945,852  
                                   
(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 2019 and 2022.
(3) Amounts shown are for the combined positions of the electric fuels and core gas portfolios.
(4) Million British Thermal Units.

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 intent to offset exists under a master netting agreement.  All derivatives that are subject to a master netting agreement have been netted.  The net balances include outstanding cash collateral associated with derivative positions.

At March 31, 2014, 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
  $ 65     $ (11 )   $ 10     $ 64  
Other noncurrent assets – other
    92       (4 )     -       88  
Current liabilities – other
    (90 )     11       34       (45 )
Noncurrent liabilities – other
    (100 )     4       -       (96 )
Total commodity risk
  $ (33 )   $ -     $ 44     $ 11  
 
At December 31, 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
  $ 42     $ (10 )   $ 16     $ 48  
Other noncurrent assets – other
    99       (4 )     -       95  
Current liabilities – other
    (122 )     10       69       (43 )
Noncurrent liabilities – other
    (110 )     4       2       (104 )
Total commodity risk
  $ (91 )   $ -     $ 87     $ (4 )

 
18

 

Gains and losses associated with price risk management activities were recorded as follows:

 
Commodity Risk
 
 
Three Months Ended March 31,
 
(in millions)
2014
 
2013
 
Net unrealized gain - regulatory assets and liabilities (1)
  $ 58     $ 98  
Realized loss - cost of electricity (2)
    (18 )     (48 )
Realized loss - cost of natural gas (2)
    -       (8 )
Total commodity risk
  $ 40     $ 42  
                 
(1) Unrealized gains and losses on commodity risk-related derivative instruments are recorded to regulatory liabilities or assets, respectively, 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.

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 were 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 March 31, 2014, 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
 
   
March 31,
   
December 31,
 
(in millions)
 
2014
   
2013
 
Derivatives in a liability position with credit risk-related
           
 contingencies that are not fully collateralized
  $ (63 )   $ (79 )
Related derivatives in an asset position
    6       4  
Collateral posting in the normal course of business related to
               
these derivatives
    44       65  
Net position of derivative contracts/additional collateral
               
posting requirements (1)
  $ (13 )   $ (10 )
                 
 (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.

 
19

 


PG&E Corporation and the Utility measure their cash equivalents, trust assets, price risk management instruments, and other investments at fair value.  A three-tier fair value hierarchy is established that prioritizes the inputs to valuation methodologies used to measure 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 March 31, 2014
 
(in millions)
 
Level 1
   
Level 2
   
Level 3
   
Netting (1)
   
Total
 
Assets:
                             
Money market investments
  $ 46     $ -     $ -     $ -     $ 46  
Nuclear decommissioning trusts
                                       
  Money market investments
    31       -       -       -       31  
  U.S. equity securities
    1,087       12       -       -       1,099  
  Non-U.S. equity securities
    439       1       -       -       440  
  U.S. government and agency securities
    741       166       -       -       907  
  Municipal securities
    -       40       -