10-Q 1 form10-q.htm FORM 10-Q form10-q.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 September 30, 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 October 20, 2014:
 
PG&E Corporation:
475,088,027
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 SEPTEMBER 30, 2014

TABLE OF CONTENTS


 
 

 

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
 
11
 
15
 
17
 
18
 
18
 
19
 
22
 
29
 
30
 
 
 
38
 
40
 
45
 
49
 
54
 
57
 
57
 
57
 
58
 
58
  Accounting Standards Issued but not yet Adopted 58
 
59
 
60
60
 
 
61
63
65
65
66
     
67
 



 
 
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
CCSF
City and County of San Francisco
CPUC
California Public Utilities Commission
CRRs
congestion revenue rights
EPA
Environmental Protection Agency
EPS
earnings per common share
FERC
Federal Energy Regulatory Commission
GAAP
U.S. 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
NTSB
National Transportation Safety Board
ORA
Office of Ratepayer Advocates
PD
proposed decision
PSEP
pipeline safety enhancement plan
ROE
return on equity
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

 


PG&E CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME

   
(Unaudited)
 
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
(in millions, except per share amounts)
 
2014
   
2013
   
2014
   
2013
 
Operating Revenues
                       
Electric
  $ 4,012     $ 3,517     $ 10,246     $ 9,375  
Natural gas
    927       658       2,536       2,248  
Total operating revenues
    4,939       4,175       12,782       11,623  
Operating Expenses
                               
Cost of electricity
    1,782       1,645       4,341       3,817  
Cost of natural gas
    134       131       694       656  
Operating and maintenance
    1,287       1,585       3,914       4,179  
Depreciation, amortization, and decommissioning
    671       523       1,766       1,542  
Total operating expenses
    3,874       3,884       10,715       10,194  
Operating Income
    1,065       291       2,067       1,429  
Interest income
    2       2       7       6  
Interest expense
    (174 )     (179 )     (547 )     (532 )
Other income, net
    36       26       98       78  
Income Before Income Taxes
    929       140       1,625       981  
Income tax provision (benefit)
    115       (24 )     310       243  
Net Income
    814       164       1,315       738  
Preferred stock dividend requirement of subsidiary
    3       3       10       10  
Income Available for Common Shareholders
  $ 811     $ 161     $ 1,305     $ 728  
Weighted Average Common Shares Outstanding, Basic
    472       446       466       441  
Weighted Average Common Shares Outstanding, Diluted
    474       447       468       442  
Net Earnings Per Common Share, Basic
  $ 1.72     $ 0.36     $ 2.80     $ 1.65  
Net Earnings Per Common Share, Diluted
  $ 1.71     $ 0.36     $ 2.79     $ 1.65  
Dividends Declared Per Common Share
  $ 0.46     $ 0.46     $ 1.37     $ 1.37  
                                 
See accompanying Notes to the Condensed Consolidated Financial Statements.
 


 
1

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


   
(Unaudited)
 
   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
(in millions)
 
2014
   
2013
   
2014
   
2013
 
Net Income
  $ 814     $ 164     $ 1,315     $ 738  
Other Comprehensive Income
                               
Pension and other postretirement benefit plans obligations
                               
(net of taxes of $0, $3, $0 and $10, at respective dates)
    -       4       -       12  
Net change in investments
                               
(net of taxes of $13, $2, $16, $13, at respective dates)
    (18 )     (3 )     (24 )     19  
Total other comprehensive income (loss)
    (18 )     1       (24 )     31  
Comprehensive Income
    796       165       1,291       769  
Preferred stock dividend requirement of subsidiary
    3       3       10       10  
Comprehensive Income Attributable to Common Shareholders
  $ 793     $ 162     $ 1,281     $ 759  
                                 
See accompanying Notes to the Condensed Consolidated Financial Statements.
 




 
2

 

CONDENSED CONSOLIDATED BALANCE SHEETS

   
(Unaudited)
 
   
Balance At
 
   
September 30,
   
December 31,
 
(in millions)
 
2014
   
2013
 
ASSETS
           
Current Assets
           
Cash and cash equivalents
  $ 139     $ 296  
Restricted cash
    299       301  
Accounts receivable:
               
Customers (net of allowance for doubtful accounts of $68 and $80
               
   at respective dates)
    1,121       1,091  
Accrued unbilled revenue
    865       766  
Regulatory balancing accounts
    1,955       1,124  
Other
    328       312  
Regulatory assets
    391       448  
Inventories:
               
Gas stored underground and fuel oil
    189       137  
Materials and supplies
    308       317  
Income taxes receivable
    177       574  
Other
    299       611  
Total current assets
    6,071       5,977  
Property, Plant, and Equipment
               
Electric
    44,297       42,881  
Gas
    15,285       14,379  
Construction work in progress
    2,305       1,834  
Other
    2       2  
Total property, plant, and equipment
    61,889       59,096  
Accumulated depreciation
    (18,717 )     (17,844 )
Net property, plant, and equipment
    43,172       41,252  
Other Noncurrent Assets
               
Regulatory assets
    5,217       4,913  
Nuclear decommissioning trusts
    2,399       2,342  
Income taxes receivable
    93       85  
Other
    932       1,036  
Total other noncurrent assets
    8,641       8,376  
TOTAL ASSETS
  $ 57,884     $ 55,605  
                 
See accompanying Notes to the Condensed Consolidated Financial Statements.
 


 
3

 

PG&E CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS

   
(Unaudited)
 
   
Balance At
 
   
September 30,
   
December 31,
 
(in millions, except share amounts)
 
2014
   
2013
 
LIABILITIES AND EQUITY
           
Current Liabilities
           
Short-term borrowings
  $ 426     $ 1,174  
Long-term debt, classified as current
    -       889  
Accounts payable:
               
Trade creditors
    1,192       1,293  
Regulatory balancing accounts
    1,223       1,008  
Other
    425       471  
Disputed claims and customer refunds
    437       154  
Interest payable
    149       892  
Other
    1,874       1,612  
Total current liabilities
    5,726       7,493  
Noncurrent Liabilities
               
Long-term debt
    14,555       12,717  
Regulatory liabilities
    6,133       5,660  
Pension and other postretirement benefits
    1,559       1,601  
Asset retirement obligations
    3,570       3,539  
Deferred income taxes
    8,032       7,823  
Other
    2,278       2,178  
Total noncurrent liabilities
    36,127       33,518  
Commitments and Contingencies (Note 10)
               
Equity
               
Shareholders' Equity
               
Common stock, no par value, authorized 800,000,000 shares;
               
474,534,357 and 456,670,424 shares outstanding at respective dates
    10,350       9,550  
Reinvested earnings
    5,403       4,742  
Accumulated other comprehensive income
    26       50  
Total shareholders' equity
    15,779       14,342  
Noncontrolling Interest - Preferred Stock of Subsidiary
    252       252  
Total equity
    16,031       14,594  
TOTAL LIABILITIES AND EQUITY
  $ 57,884     $ 55,605  
                 
See accompanying Notes to the Condensed Consolidated Financial Statements.
 


 
4

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


   
(Unaudited)
 
   
Nine Months Ended September 30,
 
(in millions)
 
2014
   
2013
 
Cash Flows from Operating Activities
           
Net income
  $ 1,315     $ 738  
Adjustments to reconcile net income to net cash provided by
               
operating activities:
               
Depreciation, amortization, and decommissioning
    1,766       1,542  
Allowance for equity funds used during construction
    (72 )     (78 )
Deferred income taxes and tax credits, net
    209       527  
PSEP disallowed capital expenditures
    -       196  
Other
    258       274  
Effect of changes in operating assets and liabilities:
               
     Accounts receivable
    (177 )     (160 )
     Inventories
    (43 )     (56 )
     Accounts payable
    (57 )     84  
     Income taxes receivable/payable
    397       (133 )
     Other current assets and liabilities
    358       (269 )
     Regulatory assets, liabilities, and balancing accounts, net
    (994 )     12  
Other noncurrent assets and liabilities
    (3 )     156  
Net cash provided by operating activities
    2,957       2,833  
Cash Flows from Investing Activities
               
Capital expenditures
    (3,564 )     (3,881 )
Decrease in restricted cash
    2       29  
Proceeds from sales and maturities of nuclear decommissioning
               
trust investments
    1,059       1,152  
Purchases of nuclear decommissioning trust investments
    (1,065 )     (1,150 )
Other
    107       37  
Net cash used in investing activities
    (3,461 )     (3,813 )
Cash Flows from Financing Activities
               
Borrowings under revolving credit facilities
    -       140  
Repayments under revolving credit facilities
    (260 )     -  
Net issuances (repayments) of commercial paper, net of discount of $1
               
at respective dates
    (789 )     322  
Proceeds from issuance of short-term debt, net of issuance costs
    300       -  
Proceeds from issuance of long-term debt, net of premium, discount, and issuance
               
costs of $6 and $9 at respective dates
    1,819       741  
Repayments of long-term debt
    (889 )     (461 )
Common stock issued
    743       724  
Common stock dividends paid
    (617 )     (583 )
Other
    40       (23 )
Net cash provided by financing activities
    347       860  
Net change in cash and cash equivalents
    (157 )     (120 )
Cash and cash equivalents at January 1
    296       401  
Cash and cash equivalents at September 30
  $ 139     $ 281  
Supplemental disclosures of cash flow information
               
Cash received (paid) for:
               
Interest, net of amounts capitalized
  $ (516 )   $ (499 )
Income taxes, net
    409       (65 )
Supplemental disclosures of noncash investing and financing activities
               
Common stock dividends declared but not yet paid
  $ 216     $ 204  
Capital expenditures financed through accounts payable
    232       277  
Noncash common stock issuances
    16       17  
Terminated capital leases
    71       -  
                 
See accompanying Notes to the Condensed Consolidated Financial Statements.
 


 
5

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

   
(Unaudited)
 
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
(in millions)
 
2014
   
2013
   
2014
   
2013
 
Operating Revenues
                       
Electric
  $ 4,012     $ 3,517     $ 10,244     $ 9,372  
Natural gas
    927       657       2,536       2,248  
Total operating revenues
    4,939       4,174       12,780       11,620  
Operating Expenses
                               
Cost of electricity
    1,782       1,645       4,341       3,817  
Cost of natural gas
    134       131       694       656  
Operating and maintenance
    1,293       1,583       3,911       4,175  
Depreciation, amortization, and decommissioning
    671       523       1,765       1,542  
Total operating expenses
    3,880       3,882       10,711       10,190  
Operating Income
    1,059       292       2,069       1,430  
Interest income
    1       2       6       6  
Interest expense
    (171 )     (172 )     (535 )     (513 )
Other income, net
    19       20       56       66  
Income Before Income Taxes
    908       142       1,596       989  
Income tax provision (benefit)
    115       (20 )     325       261  
Net Income
    793       162       1,271       728  
Preferred stock dividend requirement
    3       3       10       10  
Income Available for Common Stock
  $ 790     $ 159     $ 1,261     $ 718  
                                 
See accompanying Notes to the Condensed Consolidated Financial Statements.
 









 
6

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


 
(Unaudited)
 
 
Three Months Ended
September 30,
 
Nine Months Ended September 30,
 
(in millions)
2014
 
2013
 
2014
 
2013
 
Net Income
  $ 793     $ 162     $ 1,271     $ 728  
Other Comprehensive Income
                               
Pension and other postretirement benefit plans obligations
                               
 (net of taxes of $0, $3, $0 and $9, at respective dates)
    -       4       -       13  
Total other comprehensive income
    -       4       -       13  
Comprehensive Income
  $ 793     $ 166     $ 1,271     $ 741  
                                 
See accompanying Notes to the Condensed Consolidated Financial Statements.
 


 
7

 

CONDENSED CONSOLIDATED BALANCE SHEETS

   
(Unaudited)
 
   
Balance At
 
   
September 30,
   
December 31,
 
(in millions)
 
2014
   
2013
 
ASSETS
           
Current Assets
           
Cash and cash equivalents
  $ 85     $ 65  
Restricted cash
    299       301  
Accounts receivable:
               
Customers (net of allowance for doubtful accounts of $68 and $80
               
  at respective dates)
    1,121       1,091  
Accrued unbilled revenue
    865       766  
Regulatory balancing accounts
    1,955       1,124  
Other
    326       313  
Regulatory assets
    391       448  
Inventories:
               
Gas stored underground and fuel oil
    189       137  
Materials and supplies
    308       317  
Income taxes receivable
    156       563  
Other
    260       523  
Total current assets
    5,955       5,648  
Property, Plant, and Equipment
               
Electric
    44,297       42,881  
Gas
    15,285       14,379  
Construction work in progress
    2,305       1,834  
Total property, plant, and equipment
    61,887       59,094  
Accumulated depreciation
    (18,715 )     (17,843 )
Net property, plant, and equipment
    43,172       41,251  
Other Noncurrent Assets
               
Regulatory assets
    5,217       4,913  
Nuclear decommissioning trusts
    2,399       2,342  
Income taxes receivable
    88       81  
Other
    834       814  
Total other noncurrent assets
    8,538       8,150  
TOTAL ASSETS
  $ 57,665     $ 55,049  
                 
See accompanying Notes to the Condensed Consolidated Financial Statements.
 


 
8

 

PACIFIC GAS AND ELECTRIC COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS

   
(Unaudited)
 
   
Balance At
 
   
September 30,
   
December 31,
 
(in millions, except share amounts)
 
2014
   
2013
 
LIABILITIES AND SHAREHOLDERS' EQUITY
           
Current Liabilities
           
Short-term borrowings
  $ 426     $ 914  
Long-term debt, classified as current
    -       539  
Accounts payable:
               
Trade creditors
    1,192       1,293  
Regulatory balancing accounts
    1,223       1,008  
Other
    440       432  
Disputed claims and customer refunds
    437       154  
Interest payable
    148       887  
Other
    1,686       1,382  
Total current liabilities
    5,552       6,609  
Noncurrent Liabilities
               
Long-term debt
    14,205       12,717  
Regulatory liabilities
    6,133       5,660  
Pension and other postretirement benefits
    1,485       1,530  
Asset retirement obligations
    3,570       3,539  
Deferred income taxes
    8,215       8,042  
Other
    2,240       2,111  
Total noncurrent liabilities
    35,848       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
    6,521       5,821  
Reinvested earnings
    8,151       7,427  
Accumulated other comprehensive income
    13       13  
Total shareholders' equity
    16,265       14,841  
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
  $ 57,665     $ 55,049  
                 
See accompanying Notes to the Condensed Consolidated Financial Statements.
 


 
9

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


   
(Unaudited)
 
   
Nine Months Ended September 30,
 
(in millions)
 
2014
   
2013
 
Cash Flows from Operating Activities
           
Net income
  $ 1,271     $ 728  
Adjustments to reconcile net income to net cash provided by
               
operating activities:
               
Depreciation, amortization, and decommissioning
    1,765       1,542  
Allowance for equity funds used during construction
    (72 )     (78 )
Deferred income taxes and tax credits, net
    173       545  
    PSEP disallowed capital expenditures
    -       196  
    Other
    212       231  
Effect of changes in operating assets and liabilities:
               
Accounts receivable
    (174 )     (162 )
Inventories
    (43 )     (56 )
Accounts payable
    (3 )     125  
Income taxes receivable/payable
    407       (154 )
Other current assets and liabilities
    366       (250 )
Regulatory assets, liabilities, and balancing accounts, net
    (994 )     12  
    Other noncurrent assets and liabilities
    6       147  
Net cash provided by operating activities
    2,914       2,826  
Cash Flows from Investing Activities
               
Capital expenditures
    (3,564 )     (3,881 )
Decrease in restricted cash
    2       29  
Proceeds from sales and maturities of nuclear decommissioning
               
trust investments
    1,059       1,152  
Purchases of nuclear decommissioning trust investments
    (1,065 )     (1,150 )
Other
    22       14  
Net cash used in investing activities
    (3,546 )     (3,836 )
Cash Flows from Financing Activities
               
Net issuances (repayments) of commercial paper, net of discount of $1
               
at respective dates
    (789 )     322  
Proceeds from issuance of short-term debt, net of issuance costs
    300       -  
Proceeds from issuance of long-term debt, net of premium, discount, and issuance
               
costs of $3 and $9 at respective dates
    1,472       741  
Repayments of long-term debt
    (539 )     (461 )
Preferred stock dividends paid
    (10 )     (10 )
Common stock dividends paid
    (537 )     (537 )
Equity contribution
    705       835  
Other
    50       (14 )
Net cash provided by financing activities
    652       876  
Net change in cash and cash equivalents
    20       (134 )
Cash and cash equivalents at January 1
    65       194  
Cash and cash equivalents at September 30
  $ 85     $ 60  
Supplemental disclosures of cash flow information
               
Cash received (paid) for:
               
Interest, net of amounts capitalized
  $ (500 )   $ (487 )
Income taxes, net
    408       (86 )
Supplemental disclosures of noncash investing and financing activities
               
Capital expenditures financed through accounts payable
  $ 232     $ 277  
Terminated capital leases
    71       -  
                 
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 balances and transactions have been eliminated.  The Notes to the Condensed Consolidated Financial Statements apply to both PG&E Corporation and the Utility unless described otherwise.  PG&E Corporation and the Utility operate in one segment.

The accompanying Condensed Consolidated Financial Statements have been prepared in conformity with GAAP and in accordance with the interim period reporting requirements of Form 10-Q and reflect all adjustments (consisting only of normal recurring adjustments) that management believes are necessary for the fair presentation of PG&E Corporation and the Utility’s 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.


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 a primary beneficiary and is required to consolidate 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, 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 September 30, 2014, it did not consolidate any of them.

PG&E Corporation affiliates previously entered into four tax equity agreements to fund residential and commercial retail solar energy installations with four separate privately held funds that were considered VIEs.  On July 2, 2014, PG&E Corporation disposed of its interest in the tax equity agreements and has no remaining commitment to fund these agreements.



 
11

 

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, 2014 and 2013 were as follows:

   
Pension Benefits
 
Other Benefits
 
   
Three Months Ended September 30,
 
(in millions)
 
2014
   
2013
   
2014
   
2013
 
Service cost for benefits earned
  $ 92     $ 121     $ 12     $ 14  
Interest cost
    175       158       19       19  
Expected return on plan assets
    (202 )     (162 )     (25 )     (20 )
Amortization of prior service cost
    5       5       6       6  
Amortization of net actuarial loss
    1       28       1       1  
Net periodic benefit cost
    71       150       13       20  
Transfer from (to) regulatory account (1)
    13       (66 )     -       -  
Total
  $ 84     $ 84     $ 13     $ 20  
                                 
 (1) The Utility recorded these amounts to a regulatory account since they are probable of recovery from, or refund to, customers in future rates.

   
Pension Benefits
   
Other Benefits
 
   
Nine Months Ended September 30,
 
(in millions)
 
2014
   
2013
   
2014
   
2013
 
Service cost for benefits earned
  $ 287     $ 351     $ 34     $ 40  
Interest cost
    521       470       57       56  
Expected return on plan assets
    (605 )     (487 )     (77 )     (60 )
Amortization of prior service cost
    15       15       17       17  
Amortization of net actuarial loss
    2       83       2       4  
Net periodic benefit cost
    220       432       33       57  
Transfer from (to) regulatory account (1)
    31       (179 )     -       -  
Total
  $ 251     $ 253     $ 33     $ 57  
                                 
(1) The Utility recorded these amounts to a regulatory account since they are probable of recovery from, or refund to, customers in future rates.

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


 
12

 
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 September 30, 2014
 
Beginning balance
  $ (7 )   $ 15     $ 36     $ 44  
Other comprehensive income before reclassifications:
                               
      Loss on investments (net of taxes of $0, $0, and $3,
                               
      respectively)
    -       -       (4 )     (4 )
Amounts reclassified from other comprehensive income:
                               
      Amortization of prior service cost (net of taxes of
                               
      $2, $3, and $0, respectively) (1)
    3       3       -       6  
     Transfer to regulatory account (net of taxes of
                               
     $3, $4, and $0, respectively) (1)
    (3 )     (3 )     -       (6 )
     Realized gain on investments (net of taxes of
                               
     $0, $0, and $10, respectively)
    -       -       (14 )     (14 )
Net current period other comprehensive loss
    -       -       (18 )     (18 )
Ending balance
  $ (7 )   $ 15     $ 18     $ 26  
                                 
 (1) These components are included in the computation of net periodic pension and other postretirement benefit 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)
 
Three Months Ended September 30, 2013
 
Beginning balance
  $ (28 )   $ (69 )   $ 26     $ (71 )
Other comprehensive income before reclassifications:
                               
      Loss on investments (net of taxes of $0, $0, and $2,
                               
      respectively)
    -       -       (3 )     (3 )
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)
    17       1       -       18  
     Transfer to regulatory account (net of taxes of
                               
     $13, $0, and $0, respectively)
    (20 )     -       -       (20 )
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 benefit 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)
 
Nine Months Ended September 30, 2014
 
Beginning balance
  $ (7 )   $ 15     $ 42     $ 50  
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:
                               
      Amortization of prior service cost (net of taxes of
                               
      $6, $7, and $0, respectively) (1)
    9       10       -       19  
      Amortization of net actuarial loss (net of taxes of
                               
      $1, $1, and $0, respectively) (1)
    1       1       -       2  
     Transfer to regulatory account (net of taxes of
                               
     $7, $8, and $0, respectively) (1)
    (10 )     (11 )     -       (21 )
     Realized gain on investments (net of taxes of
                               
     $0, $0, and $20, respectively)
    -       -       (30 )     (30 )
Net current period other comprehensive loss
    -       -       (24 )     (24 )
Ending balance
  $ (7 )   $ 15     $ 18     $ 26  
                                 
 (1) These components are included in the computation of net periodic pension and other postretirement benefit 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:
                               
      Gain on investments (net of taxes of $0, $0, and $13,
                               
      respectively)
    -       -       19       19  
Amounts reclassified from other comprehensive income: (1)
                               
      Amortization of prior service cost (net of taxes of
                               
      $6, $8, and $0, respectively)
    9       9       -       18  
      Amortization of net actuarial loss (net of taxes of
                               
      $34, $1, and $0, respectively)
    49       3       -       52  
     Transfer to regulatory account (net of taxes of
                               
     $39, $0, and $0, respectively)
    (58 )     -       -       (58 )
Net current period other comprehensive income
    -       12       19       31  
Ending balance
  $ (28 )   $ (65 )   $ 23     $ (70 )
                                 
 (1) These components are included in the computation of net periodic pension and other postretirement benefit 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.

Accounting Standards Issued But Not Yet Adopted

Revenue Recognition Standard

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers, which amends existing revenue recognition guidance.  The accounting standards update will be effective on January 1, 2017.  PG&E Corporation and the Utility are currently evaluating the impact the guidance will have on their consolidated financial statements and related disclosures.


 
14

 

Regulatory Assets

Long-term regulatory assets are composed of the following:

   
Balance at
 
   
September 30,
   
December 31,
 
(in millions)
 
2014
   
2013
 
Pension benefits
  $ 1,397     $ 1,444  
Deferred income taxes
    2,269       1,835  
Utility retained generation
    468       503  
Environmental compliance costs
    714       628  
Price risk management
    83       106  
Electromechanical meters
    87       135  
Unamortized loss, net of gain, on reacquired debt
    118       135  
Other
    81       127  
Total long-term regulatory assets
  $ 5,217     $ 4,913  

Regulatory Liabilities

Long-term regulatory liabilities are composed of the following:

 
Balance at
 
 
September 30,
 
December 31,
 
(in millions)
2014
 
2013
 
Cost of removal obligations
  $ 4,144     $ 3,844  
Recoveries in excess of asset retirement obligations
    687       748  
Public purpose programs
    705       587  
Other
    597       481  
Total long-term regulatory liabilities
  $ 6,133     $ 5,660  


 
15

 


Regulatory Balancing Accounts

The Utility’s recovery of revenue requirements and costs is generally decoupled from the volume of sales.  The Utility tracks (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 expects to collect or refund over a period exceeding 12 months are recorded as 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.  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.

The balancing accounts reflect the impacts of the final decision in the Utility’s 2014 GRC that was issued by the CPUC on August 14, 2014.

Current regulatory balancing accounts receivable and payable are composed of the following:

 
Receivable
 
 
Balance at
 
 
September 30,
 
December 31,
 
(in millions)
2014
 
2013
 
Electric distribution
  $ 173     $ 102  
Utility generation
    162       57  
Gas distribution
    549       70  
Energy procurement
    633       410  
Public purpose programs
    106       56  
Other
    332       429  
Total regulatory balancing accounts receivable
  $ 1,955     $ 1,124  

 
Payable
 
 
Balance at
 
 
September 30,
 
December 31,
 
(in millions)
2014
 
2013
 
Energy procurement
  $ 286     $ 298  
Public purpose programs
    157       171  
Other (1)
    780       539  
Total regulatory balancing accounts payable
  $ 1,223     $ 1,008  
                       
 (1) At September 30, 2014, Other regulatory balancing accounts payable mostly includes energy supplier settlements.  (See Note 9 Resolution of Remaining Chapter 11 Disputed Claims for additional details.)
 
 
16

 

Senior Notes

The following senior notes were issued during 2014:

 
Issuance
 
Principal
 
Maturity
(in millions)
Date
 
Amount
 
Date
PG&E Corporation
             
     2.40% Senior Notes
February 2014
 
$
350
 (1)
 
March 1, 2019
Utility
             
     Floating Rate Senior Notes
May 2014