10-Q 1 form10q.htm FORM 10-Q

 

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 31,2016

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

 

PG&E Corporation
77 Beale Street
P.O. Box 770000
San Francisco, California 94177
________________________________________

Pacific Gas and Electric Company
77 Beale Street
P.O. Box 770000
San Francisco, California 94177

______________________________________

Address of principal executive offices, including zip code

 

PG&E Corporation
(415) 973-1000
________________________________________

Pacific Gas and Electric Company
(415) 973-7000
______________________________________

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 19,2016:

 

PG&E Corporation:

496,042,305

Pacific Gas and Electric Company:

264,374,809


 


PG&E CORPORATION AND
PACIFIC GAS AND ELECTRIC COMPANY
FORM 10-Q

FOR THE QUARTERLY PERIOD ENDEDMARCH 31,2016

 

TABLE OF CONTENTS

 

GLOSSARY

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

PG&E CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONDENSED CONSOLIDATED BALANCE SHEETS

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

PACIFIC GAS AND ELECTRIC COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONDENSED CONSOLIDATED BALANCE SHEETS

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 1: ORGANIZATION AND BASIS OF PRESENTATION

NOTE 2: SIGNIFICANT ACCOUNTING POLICIES

NOTE 3: REGULATORY ASSETS, LIABILITIES, AND BALANCING ACCOUNTS

NOTE 4: DEBT

NOTE 5: EQUITY

NOTE 6: EARNINGS PER SHARE

NOTE 7: DERIVATIVES

NOTE 8: FAIR VALUE MEASUREMENTS

NOTE 9: CONTINGENCIES AND COMMITMENTS

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

OVERVIEW

RESULTS OF OPERATIONS

LIQUIDITY AND FINANCIAL RESOURCES

ENFORCEMENT AND LITIGATION MATTERS

REGULATORY MATTERS

OTHER MATTERS

LEGISLATIVE AND REGULATORY INITIATIVES

ENVIRONMENTAL MATTERS

CONTRACTUAL COMMITMENTS

RISK MANAGEMENT ACTIVITIES

CRITICAL ACCOUNTING POLICIES

ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED

CAUTIONARY LANGUAGE REGARDING FORWARD-LOOKING STATEMENTS

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 4. CONTROLS AND PROCEDURES

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

ITEM 1A. RISK FACTORS

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

ITEM 5. OTHER INFORMATION

ITEM 6. EXHIBITS

SIGNATURES


 


GLOSSARY

 

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

 

2015 Form 10-K

PG&E Corporation's and Pacific Gas and Electric Company's combined Annual Report on Form 10-K for the year ended December 31, 2015

AFUDC

allowance for funds used during construction

ALJ

Administrative Law Judge

ARO(s)

asset retirement obligation(s)

ASU

Accounting Standards Update issued by the FASB (see below)

Cal Fire

California Department of Forestry and Fire Protection

CAISO

California Independent System Operator Corporation

CPUC

California Public Utilities Commission

CRRs

congestion revenue rights

DOI

U.S. Department of the Interior

DTSC

California Department of Toxic Substances Control

EMANI

European Mutual Association for Nuclear Insurance

EPS

earnings per common share

EV

electric vehicle

FASB

Financial Accounting Standards Board

FERC

Federal Energy Regulatory Commission

GAAP

U.S. Generally Accepted Accounting Principles

GRC

general rate case

GT&S

gas transmission and storage

IOU(s)

investor-owned utility(ies)

IRS

Internal Revenue Service

NAV

net asset value

NDCTP

Nuclear Decommissioning Cost Triennial Proceedings

NEIL

Nuclear Electric Insurance Limited

NEM

Net Energy Metering

NRC

Nuclear Regulatory Commission

NTSB

National Transportation Safety Board

OII

order instituting investigation

ORA

Office of Ratepayer Advocates

PSEP

pipeline safety enhancement plan

Regional Board

California Regional Water Control Board, Lahontan Region

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

TO

transmission owner

TURN

The Utility Reform Network

Utility

Pacific Gas and Electric Company

VIE(s)

variable interest entity(ies)


 


PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

PG&E CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

 

 

(Unaudited)

 

Three Months Ended

 

March 31,

(in millions, except per share amounts)

2016

 

2015

Operating Revenues

 

 

 

 

 

Electric

$

3,131 

 

$

3,013 

Natural gas

 

843 

 

 

886 

Total operating revenues

 

3,974 

 

 

3,899 

Operating Expenses

 

 

 

 

 

Cost of electricity

 

950 

 

 

1,000 

Cost of natural gas

 

222 

 

 

274 

Operating and maintenance

 

2,010 

 

 

1,923 

Depreciation, amortization, and decommissioning

 

697 

 

 

631 

Total operating expenses

 

3,879 

 

 

3,828 

Operating Income

 

95 

 

 

71 

Interest income

 

4 

 

 

1 

Interest expense

 

(203)

 

 

(189)

Other income, net

 

27 

 

 

58 

Loss Before Income Taxes

 

(77)

 

 

(59)

Income tax benefit

 

(187)

 

 

(93)

Net Income

 

110 

 

 

34 

Preferred stock dividend requirement of subsidiary

 

3 

 

 

3 

Income Available for Common Shareholders

$

107 

 

$

31 

Weighted Average Common Shares Outstanding, Basic

 

493 

 

 

477 

Weighted Average Common Shares Outstanding, Diluted

 

495 

 

 

481 

Net Earnings Per Common Share, Basic

$

0.22 

 

$

0.06 

Net Earnings Per Common Share, Diluted

$

0.22 

 

$

0.06 

Dividends Declared Per Common Share

$

0.46 

 

$

0.46 

 

 

 

 

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements.


 


 

PG&E CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

 

(Unaudited)

 

Three Months Ended March 31,

(in millions)

2016

 

2015

Net Income

$

110 

 

 

34 

Other Comprehensive Income

 

 

 

 

 

Pension and other postretirement benefit plans obligations

 

 

 

 

 

(net of taxes of $0 and $0, at respective dates)

 

- 

 

 

- 

Net change in investments

 

 

 

 

 

(net of taxes of $0 and $12, at respective dates)

 

- 

 

 

(17)

Total other comprehensive income (loss)

 

- 

 

 

(17)

Comprehensive Income

 

110 

 

 

17 

Preferred stock dividend requirement of subsidiary

 

3 

 

 

3 

Comprehensive Income Attributable to Common Shareholders

$

107 

 

 

14 

 

 

 

 

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements.


 


PG&E CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

(Unaudited)

 

Balance At

 

March 31,

 

December 31,

(in millions)

2016

 

2015

ASSETS

 

 

 

 

 

Current Assets

 

 

 

 

 

Cash and cash equivalents

$

142 

 

$

123 

Restricted cash

 

234 

 

 

234 

Accounts receivable:

 

 

 

 

 

Customers (net of allowance for doubtful accounts of $55 and $54

 

 

 

 

 

   at respective dates)

 

1,010 

 

 

1,106 

Accrued unbilled revenue

 

685 

 

 

855 

Regulatory balancing accounts

 

1,721 

 

 

1,760 

Other

 

328 

 

 

286 

Regulatory assets

 

504 

 

 

517 

Inventories:

 

 

 

 

 

Gas stored underground and fuel oil

 

109 

 

 

126 

Materials and supplies

 

344 

 

 

313 

Income taxes receivable

 

230 

 

 

155 

Other

 

327 

 

 

338 

Total current assets

 

5,634 

 

 

5,813 

Property, Plant, and Equipment

 

 

 

 

 

Electric

 

49,974 

 

 

48,532 

Gas

 

16,982 

 

 

16,749 

Construction work in progress

 

2,148 

 

 

2,059 

Other

 

2 

 

 

2 

Total property, plant, and equipment

 

69,106 

 

 

67,342 

Accumulated depreciation

 

(21,062)

 

 

(20,619)

Net property, plant, and equipment

 

48,044 

 

 

46,723 

Other Noncurrent Assets

 

 

 

 

 

Regulatory assets

 

7,130 

 

 

7,029 

Nuclear decommissioning trusts

 

2,516 

 

 

2,470 

Income taxes receivable

 

153 

 

 

135 

Other

 

1,173 

 

 

1,064 

Total other noncurrent assets

 

10,972 

 

 

10,698 

TOTAL ASSETS

$

64,650 

 

$

63,234 

 

 

 

 

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements.


 


PG&E CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

(Unaudited)

 

Balance At

 

March 31,

 

December 31,

(in millions, except share amounts)

2016

 

2015

LIABILITIES AND EQUITY

 

 

 

 

 

Current Liabilities

 

 

 

 

 

Short-term borrowings

$

693 

 

$

1,019 

Long-term debt, classified as current

 

160 

 

 

160 

Accounts payable:

 

 

 

 

 

Trade creditors

 

1,062 

 

 

1,414 

Regulatory balancing accounts

 

704 

 

 

715 

Other

 

598 

 

 

398 

Disputed claims and customer refunds

 

457 

 

 

454 

Interest payable

 

145 

 

 

206 

Other

 

2,155 

 

 

1,997 

Total current liabilities

 

5,974 

 

 

6,363 

Noncurrent Liabilities

 

 

 

 

 

Long-term debt

 

16,522 

 

 

15,925 

Regulatory liabilities

 

6,486 

 

 

6,321 

Pension and other postretirement benefits

 

2,629 

 

 

2,622 

Asset retirement obligations

 

4,480 

 

 

3,643 

Deferred income taxes

 

9,323 

 

 

9,206 

Other

 

2,372 

 

 

2,326 

Total noncurrent liabilities

 

41,812 

 

 

40,043 

Commitments and Contingencies (Note 9)

 

 

 

 

 

Equity

 

 

 

 

 

Shareholders' Equity

 

 

 

 

 

Common stock, no par value, authorized 800,000,000 shares;

 

 

 

 

 

495,606,702 and 492,025,443 shares outstanding at respective dates

 

11,440 

 

 

11,282 

Reinvested earnings

 

5,179 

 

 

5,301 

Accumulated other comprehensive loss

 

(7)

 

 

(7)

Total shareholders' equity

 

16,612 

 

 

16,576 

Noncontrolling Interest - Preferred Stock of Subsidiary

 

252 

 

 

252 

Total equity

 

16,864 

 

 

16,828 

TOTAL LIABILITIES AND EQUITY

$

64,650 

 

$

63,234 

 

 

 

 

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements.


 


PG&E CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(Unaudited)

 

Three Months Ended March 31,

(in millions)

2016

 

2015

Cash Flows from Operating Activities

 

 

 

 

 

Net income

$

110 

 

$

34 

Adjustments to reconcile net income to net cash provided by

 

 

 

 

 

operating activities:

 

 

 

 

 

Depreciation, amortization, and decommissioning

 

697 

 

 

631 

Allowance for equity funds used during construction

 

(27)

 

 

(28)

Deferred income taxes and tax credits, net

 

117 

 

 

113 

Disallowed capital expenditures

 

87 

 

 

53 

Other

 

73 

 

 

52 

Effect of changes in operating assets and liabilities:

 

 

 

 

 

     Accounts receivable

 

210 

 

 

236 

     Inventories

 

(14)

 

 

58 

     Accounts payable

 

(65)

 

 

(46)

     Income taxes receivable/payable

 

(75)

 

 

3 

     Other current assets and liabilities

 

146 

 

 

(114)

     Regulatory assets, liabilities, and balancing accounts, net

 

(87)

 

 

195 

Other noncurrent assets and liabilities

 

(117)

 

 

(107)

Net cash provided by operating activities

 

1,055 

 

 

1,080 

Cash Flows from Investing Activities

 

 

 

 

 

Capital expenditures

 

(1,229)

 

 

(1,191)

Proceeds from sales and maturities of nuclear decommissioning

 

 

 

 

 

trust investments

 

439 

 

 

417 

Purchases of nuclear decommissioning trust investments

 

(463)

 

 

(505)

Other

 

3 

 

 

7 

Net cash used in investing activities

 

(1,250)

 

 

(1,272)

Cash Flows from Financing Activities

 

 

 

 

 

Net issuances (repayments) of commercial paper, net of discount of $1 in 2016

 

(577)

 

 

223 

Short-term debt financing

 

250 

 

 

- 

Proceeds from issuance of long-term debt, net of discount and

 

 

 

 

 

     issuance costs of $6 in 2016

 

594 

 

 

- 

Common stock issued

 

146 

 

 

151 

Common stock dividends paid

 

(219)

 

 

(211)

Other

 

20 

 

 

23 

Net cash provided by financing activities

 

214 

 

 

186 

Net change in cash and cash equivalents

 

19 

 

 

(6)

Cash and cash equivalents at January 1

 

123 

 

 

151 

Cash and cash equivalents at March 31

$

142 

 

$

145 

 


 


 

Supplemental disclosures of cash flow information

 

 

 

 

 

Cash received (paid) for:

 

 

 

 

 

Interest, net of amounts capitalized

$

(242)

 

$

(216)

Supplemental disclosures of noncash investing and financing activities

 

 

 

 

 

Common stock dividends declared but not yet paid

$

226 

 

$

218 

Capital expenditures financed through accounts payable

 

373 

 

 

217 

Noncash common stock issuances

 

6 

 

 

5 

 

 

 

 

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements.


 


PACIFIC GAS AND ELECTRIC COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

 

 

(Unaudited)

 

Three Months Ended

 

March 31,

(in millions)

2016

 

2015

Operating Revenues

 

 

 

 

 

Electric

$

3,132 

 

$

3,014 

Natural gas

 

843 

 

 

886 

Total operating revenues

 

3,975 

 

 

3,900 

Operating Expenses

 

 

 

 

 

Cost of electricity

 

950 

 

 

1,000 

Cost of natural gas

 

222 

 

 

274 

Operating and maintenance

 

2,011 

 

 

1,923 

Depreciation, amortization, and decommissioning

 

696 

 

 

631 

Total operating expenses

 

3,879 

 

 

3,828 

Operating Income

 

96 

 

 

72 

Interest income

 

4 

 

 

1 

Interest expense

 

(201)

 

 

(187)

Other income, net

 

24 

 

 

26 

Loss Before Income Taxes

 

(77)

 

 

(88)

Income tax benefit

 

(185)

 

 

(92)

Net Income

 

108 

 

 

4 

Preferred stock dividend requirement

 

3 

 

 

3 

Income Available for Common Stock

$

105 

 

$

1 

 

 

 

 

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements.


 


 

PACIFIC GAS AND ELECTRIC COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

 

(Unaudited)

 

Three Months Ended March 31,

(in millions)

2016

 

2015

Net Income

$

108 

 

 

4 

Other Comprehensive Income

 

 

 

 

 

Pension and other postretirement benefit plans obligations

 

 

 

 

 

(net of taxes of $0 and $0, at respective dates )

 

- 

 

 

- 

Total other comprehensive income (loss)

 

- 

 

 

- 

Comprehensive Income

$

108 

 

 

4 

 

 

 

 

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements.


 


PACIFIC GAS AND ELECTRIC COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

(Unaudited)

 

Balance At

 

March 31,

 

December 31,

(in millions)

2016

 

2015

ASSETS

 

 

 

 

 

Current Assets

 

 

 

 

 

Cash and cash equivalents

$

44 

 

$

59 

Restricted cash

 

234 

 

 

234 

Accounts receivable:

 

 

 

 

 

Customers (net of allowance for doubtful accounts of $55 and $54

 

 

 

 

 

  at respective dates)

 

1,010 

 

 

1,106 

Accrued unbilled revenue

 

685 

 

 

855 

Regulatory balancing accounts

 

1,721 

 

 

1,760 

Other

 

353 

 

 

284 

Regulatory assets

 

504 

 

 

517 

Inventories:

 

 

 

 

 

Gas stored underground and fuel oil

 

109 

 

 

126 

Materials and supplies

 

344 

 

 

313 

Income taxes receivable

 

204 

 

 

130 

Other

 

327 

 

 

338 

Total current assets

 

5,535 

 

 

5,722 

Property, Plant, and Equipment

 

 

 

 

 

Electric

 

49,974 

 

 

48,532 

Gas

 

16,982 

 

 

16,749 

Construction work in progress

 

2,148 

 

 

2,059 

Total property, plant, and equipment

 

69,104 

 

 

67,340 

Accumulated depreciation

 

(21,060)

 

 

(20,617)

Net property, plant, and equipment

 

48,044 

 

 

46,723 

Other Noncurrent Assets

 

 

 

 

 

Regulatory assets

 

7,130 

 

 

7,029 

Nuclear decommissioning trusts

 

2,516 

 

 

2,470 

Income taxes receivable

 

153 

 

 

135 

Other

 

1,061 

 

 

958 

Total other noncurrent assets

 

10,860 

 

 

10,592 

TOTAL ASSETS

$

64,439 

 

$

63,037 

 

 

 

 

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements.


 


PACIFIC GAS AND ELECTRIC COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

(Unaudited)

 

Balance At

 

March 31,

 

December 31,

(in millions, except share amounts)

2016

 

2015

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

Current Liabilities

 

 

 

 

 

Short-term borrowings

$

693 

 

$

1,019 

Long-term debt, classified as current

 

160 

 

 

160 

Accounts payable:

 

 

 

 

 

Trade creditors

 

1,062 

 

 

1,414 

Regulatory balancing accounts

 

704 

 

 

715 

Other

 

646 

 

 

418 

Disputed claims and customer refunds

 

457 

 

 

454 

Interest payable

 

144 

 

 

203 

Other

 

1,906 

 

 

1,750 

Total current liabilities

 

5,772 

 

 

6,133 

Noncurrent Liabilities

 

 

 

 

 

Long-term debt

 

16,174 

 

 

15,577 

Regulatory liabilities

 

6,486 

 

 

6,321 

Pension and other postretirement benefits

 

2,540 

 

 

2,534 

Asset retirement obligations

 

4,480 

 

 

3,643 

Deferred income taxes

 

9,605 

 

 

9,487 

Other

 

2,331 

 

 

2,282 

Total noncurrent liabilities

 

41,616 

 

 

39,844 

Commitments and Contingencies (Note 9)

 

 

 

 

 

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

 

7,280 

 

 

7,215 

Reinvested earnings

 

8,188 

 

 

8,262 

Accumulated other comprehensive income

 

3 

 

 

3 

Total shareholders' equity

 

17,051 

 

 

17,060 

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$

64,439 

 

$

63,037 

 

 

 

 

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements.


 


PACIFIC GAS AND ELECTRIC COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(Unaudited)

 

Three Months Ended March 31,

(in millions)

2016

 

2015

Cash Flows from Operating Activities

 

 

 

 

 

Net income

$

108 

 

$

4 

Adjustments to reconcile net income to net cash provided by

 

 

 

 

 

operating activities:

 

 

 

 

 

Depreciation, amortization, and decommissioning

 

696 

 

 

631 

Allowance for equity funds used during construction

 

(27)

 

 

(28)

Deferred income taxes and tax credits, net

 

118 

 

 

112 

    Disallowed capital expenditures

 

87 

 

 

53 

    Other

 

68 

 

 

45 

Effect of changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

183 

 

 

215 

Inventories

 

(14)

 

 

58 

Accounts payable

 

(37)

 

 

26 

Income taxes receivable/payable

 

(74)

 

 

2 

Other current assets and liabilities

 

151 

 

 

(123)

Regulatory assets, liabilities, and balancing accounts, net

 

(87)

 

 

195 

    Other noncurrent assets and liabilities

 

(109)

 

 

(89)

Net cash provided by operating activities

 

1,063 

 

 

1,101 

Cash Flows from Investing Activities

 

 

 

 

 

Capital expenditures

 

(1,229)

 

 

(1,191)

Proceeds from sales and maturities of nuclear decommissioning

 

 

 

 

 

trust investments

 

439 

 

 

417 

Purchases of nuclear decommissioning trust investments

 

(463)

 

 

(505)

Other

 

3 

 

 

7 

Net cash used in investing activities

 

(1,250)

 

 

(1,272)

Cash Flows from Financing Activities

 

 

 

 

 

Net issuances (repayments) of commercial paper, net of discount of $1 in 2016

 

(577)

 

 

223 

Short-term debt financing

 

250 

 

 

- 

Proceeds from issuance of long-term debt, net of discount and

 

 

 

 

 

     issuance costs of $6 in 2016

 

594 

 

 

- 

Preferred stock dividends paid

 

(3)

 

 

(3)

Common stock dividends paid

 

(179)

 

 

(179)

Equity contribution from PG&E Corporation

 

65 

 

 

100 

Other

 

22 

 

 

25 

Net cash provided by financing activities

 

172 

 

 

166 

Net change in cash and cash equivalents

 

(15)

 

 

(5)

Cash and cash equivalents at January 1

 

59 

 

 

55 

Cash and cash equivalents at March 31

$

44 

 

$

50 

 


 


 

Supplemental disclosures of cash flow information

 

 

 

 

 

Cash received (paid) for:

 

 

 

 

 

Interest, net of amounts capitalized

$

(237)

 

$

(211)

Supplemental disclosures of noncash investing and financing activities

 

 

 

 

 

Capital expenditures financed through accounts payable

$

373 

 

$

217 

 

 

 

 

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements.


 


NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

NOTE 1: ORGANIZATION AND BASIS OF PRESENTATION

 

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 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 in consolidation.  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, as the companies assess financial performance and allocate resources on a consolidated basis.

 

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, 2015 in the Condensed Consolidated Balance Sheets included in this quarterly report was derived from the audited Consolidated Balance Sheets in the 2015 Form 10-K.  This quarterly report should be read in conjunction with the 2015 Form 10-K. 

 

The preparation of financial statements in conformity with GAAP requires the use of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities.  Some of the more significant 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.

 

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 2015 Form 10-K.

 

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 March 31,2016, 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 31,2016, it did not consolidate any of them.

 

 


Asset Retirement Obligations

 

Detailed studies of the cost to decommission the Utility’s nuclear generation facilities are conducted every three yearsin conjunction with the Nuclear Decommissioning Cost Triennial ProceedingsOn March 1, 2016, the Utility submitted its updated decommissioning cost estimate with the CPUC.  The estimated undiscounted cost to decommission the Utility’s nuclear power plants increased by approximately $1.4 billion, for a total estimated cost of $4.8 billion, due to increased estimated costs related to spent fuel storage, staffing, and out-of-state waste disposal.  Actual decommissioning costs may vary from these estimates as a result of changes in assumptions such as decommissioning dates; regulatory requirements; technology; and costs of labor, materials, and equipment.  The Utility recovers its revenue requirements for decommissioning costs from customers through a non-bypassable charge that the Utility expects will continue until those costs are fully recovered.  The Utility requested that the CPUC authorize the collection of increased annual revenue requirements beginning on January 1, 2017 based on these updated cost estimates.

 

The estimated nuclear decommissioning cost is discounted for GAAP purposes and recognized as an ARO on the Condensed Consolidated Balance Sheets.  The total nuclear decommissioning obligation accrued in accordance with GAAP was $3.3 billion at March 31, 2016, which includes an $818 million adjustment to reflect the increased cost estimates described above, and $2.5 billion at December 31, 2015.  These estimates are based on the 2016 decommissioning cost studies, prepared in accordance with the CPUC requirements.  Changes in these estimates could materially affect the amount of the recorded ARO for these assets.

 

Pension and Other Postretirement Benefits

 

PG&E Corporation and the Utility sponsor a non-contributory defined benefit pension plan and cash balance plan.  Both plans are included in “Pension Benefits” below.  Post-retirement medical and life insurance plans are included in “Other Benefits” below.

 

The net periodic benefit costs reflected in PG&E Corporation’s Condensed Consolidated Financial Statements for the three months ended March 31, 2016 and 2015 were as follows:

 

 

Pension Benefits

 

Other Benefits

 

Three Months Ended March 31,

(in millions)

2016

 

2015

 

2016

 

2015

Service cost for benefits earned

$

113 

 

$ 

119 

 

$ 

13 

 

$ 

13 

Interest cost

 

179 

 

 

168 

 

 

19 

 

 

18 

Expected return on plan assets

 

(207)

 

 

(218)

 

 

(27)

 

 

(28)

Amortization of prior service cost

 

2 

 

 

4 

 

 

4 

 

 

5 

Amortization of net actuarial loss

 

6 

 

 

3 

 

 

1 

 

 

1 

Net periodic benefit cost

 

93 

 

 

76 

 

 

10 

 

 

9 

Regulatory account transfer (1)

 

(8)

 

 

9 

 

 

- 

 

 

- 

Total

$ 

85 

 

$ 

85 

 

$ 

10 

 

$ 

9 

 

 

 

 

 

 

 

 

 

 

 

 

(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.

 


 

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

 

 

 

 

Benefits

 

Benefits

 

Total

(in millions, net of income tax)

Three Months Ended March 31, 2016

Beginning balance

$

(23)

 

$

16 

 

$

(7)

Amounts reclassified from other comprehensive income: (1)

 

 

 

 

 

 

 

 

Amortization of prior service cost

 

 

 

 

 

 

 

 

(net of taxes of $1 and $2, respectively)

 

1 

 

 

2 

 

 

3 

Amortization of net actuarial loss

 

 

 

 

 

 

 

 

(net of taxes of $2 and $0, respectively)

 

4 

 

 

1 

 

 

5 

Regulatory account transfer

 

 

 

 

 

 

 

 

(net of taxes of $3 and $2, respectively)

 

(5)

 

 

(3)

 

 

(8)

Net current period other comprehensive loss

 

- 

 

 

- 

 

 

- 

Ending balance

$ 

(23)

 

$ 

16 

 

$ 

(7)

 

 

 

 

 

 

 

 

 

(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 March 31, 2015

Beginning balance

$

(21)

 

 

15 

 

 

17 

 

 

11 

Amounts reclassified from other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

Amortization of prior service cost

 

 

 

 

 

 

 

 

 

 

 

(net of taxes of $2, $2, and $0, respectively) (1)

 

2 

 

 

3 

 

 

- 

 

 

5 

Amortization of net actuarial loss

 

 

 

 

 

 

 

 

 

 

 

(net of taxes of $1, $0, and $0, respectively) (1)

 

2 

 

 

- 

 

 

- 

 

 

2 

Regulatory account transfer

 

 

 

 

 

 

 

 

 

 

 

(net of taxes of $3, $2, and $0, respectively) (1)

 

(4)

 

 

(3)

 

 

- 

 

 

(7)

Change in investments

 

 

 

 

 

 

 

 

 

 

 

(net of taxes of $0, $0, and $12, respectively)

 

- 

 

 

- 

 

 

(17)

 

 

(17)

Net current period other comprehensive loss

 

- 

 

 

- 

 

 

(17)

 

 

(17)

Ending balance

$

(21)

 

$ 

15 

 

$ 

- 

 

$ 

(6)

 

 

 

 

 

 

 

 

 

 

 

 

(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.


 


 

Recently Adopted Accounting Guidance

 

Fair Value Measurement

 

In May 2015, the FASB issued ASU No. 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent), which standardizes reporting practices related to the fair value hierarchy for all investments for which fair value is measured using the net asset value per share.  PG&E Corporation and the Utility adopted this guidance effectiveJanuary 1, 2016 and applied the requirements retrospectively for all periods presentedThe adoption of this standard did not impact their Condensed Consolidated Financial Statements. All prior periods presented in these Condensed Consolidated financial statements reflect the retrospective adoption of this guidance (See Note 8 below.) 

 

Accounting for Fees Paid in a Cloud Computing Arrangement

 

In April 2015, the FASB issued ASU No. 2015-05, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement, which adds guidance to help entities evaluate the accounting treatment for cloud computing arrangements.  PG&E Corporation and the Utility adopted this guidance effective January 1, 2016.  The adoption of this guidance did not have a material impact on their Condensed Consolidated Financial Statements. 

 

Presentation of Debt Issuance Costs

 

In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which amends the existing guidance relating to the presentation of debt issuance costs.  The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts.  PG&E Corporation and the Utility adopted this guidance effective January 1, 2016 and applied the requirements retrospectively for all periods presented.  The adoption of this guidance did not have a material impact on their Condensed Consolidated Financial Statements.  PG&E Corporation and the Utility reclassified $105 million and $103 million, respectively, of debt issuance costs as of December 31, 2015 with no impact to net income or total shareholders’ equity previously reported.  All prior periods presented in these Condensed Consolidated financial statements reflect the retrospective adoption of this guidance.  

 

Accounting Standards Issued But Not Yet Adopted

 

Share-based Payment Accounting

 

In March 2016, the FASB issued ASU No. 2016-09, CompensationStock Compensation (Topic 718), which amends the existing guidance relating to the accounting for share-based payment awards issued to employees, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.  The ASU will be effective for PG&E Corporation and the Utility 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.

 

Recognition of Lease Assets and Liabilities

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which amends the existing guidance relating to the recognition of lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements.  The ASU will be effective for PG&E Corporation and the Utility on January 1, 2019 with retrospective application.  PG&E Corporation and the Utility are currently evaluating the impact the guidance will have on their consolidated financial statements and related disclosures.

 

Recognition and Measurement of Financial Assets and Financial Liabilities

 

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which amends the existing guidance relating to the recognition and measurement of financial instruments.  The ASU will be effective for PG&E Corporation and the Utility on January 1, 2018.  PG&E Corporation and the Utility are currently evaluating the impact the guidance will have on their consolidated financial statements and related disclosures.

 

 


Revenue Recognition Standard

 

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which amends the existing revenue recognition guidance. In August 2015, the FASB deferred the effective date of this amendment for public companies by one year to January 1, 2018, with early adoption permitted as of the original effective date of January 1, 2017. (See ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date.)  PG&E Corporation and the Utility are currently evaluating the impact the guidance will have on their consolidated financial statements and related disclosures.

 

NOTE 3: REGULATORY ASSETS, LIABILITIES, AND BALANCING ACCOUNTS

 

Regulatory Assets

 

Long-term regulatory assets are composed of the following:

 

 

Balance at

 

March 31,

 

December 31,

(in millions)

2016

 

2015

Pension benefits

$

2,414 

 

$ 

2,414 

Deferred income taxes

 

3,265 

 

 

3,054 

Utility retained generation

 

399 

 

 

411 

Environmental Compliance Costs

 

683 

 

 

748 

Price risk management

 

134 

 

 

138 

Unamortized loss, net of gain, on reacquired debt

 

90 

 

 

94 

Other

 

145 

 

 

170 

Total long-term regulatory assets

$

7,130 

 

$ 

7,029 

 

For more information, see Note 3 of the Notes to the Consolidated Financial Statements in Item 8 of the 2015 Form 10-K.

 

Regulatory Liabilities

 

Long-term regulatory liabilities are composed of the following:

 

 

Balance at

 

March 31,

 

December 31,

(in millions)

2016

 

2015

Cost of removal obligations

$

4,717 

 

$

4,605 

Recoveries in excess of asset retirement obligations

 

645 

 

 

631 

Public purpose programs

 

620 

 

 

600 

Other

 

504 

 

 

485 

Total long-term regulatory liabilities

$

6,486 

 

$

6,321 

 

For more information, see Note 3 of the Notes to the Consolidated Financial Statements in Item 8 of the 2015 Form 10-K.

 

Regulatory Balancing Accounts

 

The Utility tracks (1) differences between the Utility’s authorized revenue requirement and 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.  These differences do not have an impact on net incomeBalancing accounts 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 comprised of the following:

 

 

Receivable

 

Balance at

 

March 31,

 

December 31,

(in millions)

2016

 

2015

Electric distribution

$

515 

 

$

380 

Utility generation

 

225 

 

 

122 

Gas distribution

 

280 

 

 

493 

Energy procurement

 

87 

 

 

262 

Public purpose programs

 

149 

 

 

155 

Other

 

465 

 

 

348 

Total regulatory balancing accounts receivable

$

1,721 

 

$

1,760 

 

 

Payable

 

Balance at

 

March 31,

 

December 31,

(in millions)

2016

 

2015

Energy procurement

$

184 

 

$

112 

Public purpose programs

 

212 

 

 

244 

Other

 

308 

 

 

359 

Total regulatory balancing accounts payable

$

704 

 

$

715 

 

 

 

 

 

 

 

The electric distribution, utility generation, and gas distribution balancing accounts track the collection of revenue requirements approved in the GRC.  Energy procurement balancing accounts track recovery of costs related to the procurement of electricity, including any environmental compliance-related activities.  Public purpose programs balancing accounts are primarily used to record and recover authorized revenue requirements for commission-mandated programs such as energy efficiency and low income energy efficiency.

 

NOTE 4: DEBT

 

Revolving Credit Facilities and Commercial Paper Program

 

The following table summarizes PG&E Corporation’s and the Utility’s outstanding borrowings under their revolving credit facilities and commercial paper programs at March 31,2016:

 

 

 

 

 

 

Letters of

 

 

 

 

 

Termination

 

Facility

 

Credit

 

Commercial

 

Facility

(in millions)

Date

 

Limit

 

Outstanding

 

Paper

 

Availability

PG&E Corporation

April 2020

 

$

300 

(1)

$

- 

 

$

- 

 

$

300 

Utility

April 2020

 

 

3,000 

(2)

 

33 

 

 

443 

 

 

2,524 

Total revolving credit facilities

 

 

$

3,300 

 

$

33 

 

$

443 

 

$

2,824  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)Includes a $50 million lender commitment to the letter of credit sublimits and a $100 million commitment for “swingline” loans defined as loans that are made available on a same-day basis and are repayable in full within 7 days.

(2) Includes a $500 million lender commitment to the letter of credit sublimits and a $75 million commitment for swingline loans.

 

 


Other Short-term Borrowings

 

In March 2016, the Utility entered into a $250 million floating rate unsecured term loan that matures on February 2, 2017.  The proceeds were used for general corporate purposes, including the repayment of a portion of the Utility’s outstanding commercial paper.

 

Senior Notes Issuances

 

In March 2016, the Utility issued $600 million principal amount of 2.95% Senior Notes due March 1, 2026. The proceeds were used for general corporate purposes, including the repayment of a portion of the Utility’s outstanding commercial paper.

 

Variable Rate Interest

 

At March 31,2016, 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 0.37% to 0.45%.  At March 31, 2016, the interest rates on the $309 million principal amount of pollution control bonds Series 2009 A-D and the related loan agreements ranged from 0.34% to 0.38%.  Pollution control bonds Series 2009 C and D will mature on December 1, 2016.

 

NOTE 5: EQUITY

 

PG&E Corporation’s and the Utility’s changes in equity for the three months ended March 31,2016were as follows:

 

 

PG&E Corporation

 

Utility

 

Total

 

Total

(in millions)

Equity

 

Shareholders' Equity

Balance at December 31, 2015

$

16,828 

 

$

17,060 

Comprehensive income

 

110 

 

 

108 

Equity contributions

 

- 

 

 

65 

Common stock issued

 

152 

 

 

- 

Share-based compensation

 

6 

 

 

- 

Common stock dividends declared

 

(229)

 

 

(179)

Preferred stock dividend requirement

 

- 

 

 

(3)

Preferred stock dividend requirement of subsidiary

 

(3)

 

 

- 

Balance at March 31, 2016

$

16,864 

 

$

17,051 

 

 

During the three months ended March 31, 2016, PG&E Corporation sold 1.3 million shares under the February 2015 equity distribution agreement for cash proceeds of $74 million, net of commissions paid of $1 million. As of March 31, 2016, the remaining gross sales available under this agreement were $350 million.

 

PG&E Corporation also issued common stock under the PG&E Corporation 401(k) plan, the Dividend Reinvestment and Stock Purchase Plan, and share-based compensation plans.  During the threemonths ended March 31,2016, 2.3 million shares were issued for cash proceeds of $72 million under these plans.

 

 


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 March 31,

(in millions, except per share amounts)

2016

 

2015

Income available for common shareholders

$

107 

 

$

31 

Weighted average common shares outstanding, basic

 

493 

 

 

477 

Add incremental shares from assumed conversions:

 

 

 

 

 

Employee share-based compensation

 

2 

 

 

4 

Weighted average common shares outstanding, diluted

 

495 

 

 

481 

Total earnings per common share, diluted

$

0.22 

 

$

0.06 

 

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.

 

NOTE 7: DERIVATIVES

 

Use of Derivative Instruments

 

The Utility is exposed to commodity price risk as a result of its electricity and natural gas procurement activities.  Procurement costs are recovered through customer rates.  The Utility uses both derivative and non-derivative contracts to manage volatility in customer rates due to fluctuating commodity prices.  Derivatives include physical and financial derivative contracts, such as power purchase agreements, forwards, futures, swaps, options, and CRRs that are traded either on an exchange or over-the-counter. 

 

Derivatives are recorded at fair value and are presented in the Utility’sCondensed Consolidated Balance Sheets on a net basis in accordance with master netting arrangements for each counterparty.  The fair value of derivative instruments is further offset by cash collateral paid or received where the right of offset and the intention to offset exist.  

 

These instruments are not held for speculative purposes and are subject to certain regulatory requirements.  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 on the Condensed Consolidated Balance Sheets.  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.  Eligible derivatives are those 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.  These items are not reflected in the Condensed Consolidated Balance Sheets at fair value.  Eligible derivatives are accounted for under the accrual method of accounting.

 

 


Volume of Derivative Activity

 

The volumes of the Utility’s outstanding derivatives were as follows:

 

 

 

 

Contract Volume at

 

 

 

 

March 31,

 

December 31,

Underlying Product

 

Instruments

 

2016

 

2015

Natural Gas (1) (MMBtus (2))

 

Forwards and Swaps

 

341,884,852

 

333,091,813

 

 

Options

 

92,426,200

 

111,550,004

Electricity (Megawatt-hours)

 

Forwards and Swaps

 

3,580,205

 

3,663,512

 

 

Congestion Revenue Rights (3)

 

198,499,963

 

216,383,389

 

 

 

 

 

 

 

(1)Amounts shown are for the combined positions of the electric fuels and core gas supply portfolios.

(2) Million British Thermal Units.

(3) CRRs are financial instruments that enable the holders to manage variability in electric energy congestion charges due to transmission grid limitations.

 

Presentation of Derivative Instruments in the Financial Statements

 

At March 31,2016, 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

$

91 

 

$

(5)

 

$

12 

 

$

98 

Other noncurrent assets – other

 

173 

 

 

(5)

 

 

- 

 

 

168 

Current liabilities – other

 

(105)

 

 

5 

 

 

46 

 

 

(54)

Noncurrent liabilities – other

 

(139)

 

 

5 

 

 

16 

 

 

(118)

Net commodity risk

$

20 

 

$

- 

 

$

74 

 

$

94 

 

At December 31, 2015, 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

$

97 

 

 

(4)

 

 

25 

 

$

118 

Other noncurrent assets – other

 

172 

 

 

(2)

 

 

- 

 

 

170 

Current liabilities – other

 

(102)

 

 

4 

 

 

44 

 

 

(54)

Noncurrent liabilities – other

 

(140)

 

 

2 

 

 

21 

 

 

(117)

Net commodity risk

$

27 

 

$

- 

 

$

90 

 

$

117 

 

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

 

 

Commodity Risk

 

Three Months Ended March 31,

(in millions)

2016

 

2015

Net unrealized gain (loss) - regulatory assets and liabilities (1)

$

(7)

 

$ 

(52)

Realized loss - cost of electricity (2)

 

(29)

 

 

(7)

Realized loss - cost of natural gas (2)

 

(1)

 

 

(1)

Total commodity risk

$

(37)

 

$ 

(60)

 

 

 

 

 

 

(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.

 

Cash inflows and outflows associated with derivatives are included in operating cash flows on the Utility’s Condensed Consolidated Statements of Cash Flows.

 

 


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.  At March 31,2016, the Utility’s credit rating was investment grade.  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.

 

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)

2016

 

2015

Derivatives in a liability position with credit risk-related

 

 

 

 

 

contingencies that are not fully collateralized

$

(9)

 

$

(2)

Collateral posting in the normal course of business related to

 

 

 

 

 

these derivatives

 

7 

 

 

- 

Net position of derivative contracts/additional collateral

 

 

 

 

 

posting requirements (1)

$

(2)

 

$

(2)

 

 

 

 

 

 

(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.

 

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.  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 are held by PG&E Corporation and not the Utility.

 

 

Fair Value Measurements

 

At March 31, 2016

(in millions)

Level 1

 

Level 2

 

Level 3

 

Netting (1)

 

Total

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term investments

$

97 

 

$

- 

 

$

- 

 

$

- 

 

$

97 

Nuclear decommissioning trusts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term investments

 

25 

 

 

- 

 

 

- 

 

 

- 

 

 

25 

Global equity securities

 

1,619 

 

 

- 

 

 

- 

 

 

- 

 

 

1,619 

Fixed-income securities

 

682 

 

 

508 

 

 

- 

 

 

- 

 

 

1,190 

Assets measured at NAV

 

- 

 

 

- 

 

 

- 

 

 

- 

 

 

13 

Total nuclear decommissioning trusts (2)

 

2,326 

 

 

508 

 

 

- 

 

 

- 

 

 

2,847 

Price risk management instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Note 7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Electricity

 

1 

 

 

12 

 

 

246 

 

 

3 

 

 

262 

Gas

 

2 

 

 

3 

 

 

- 

 

 

(1)

 

 

4 

Total price risk management instruments

 

3 

 

 

15 

 

 

246 

 

 

2 

 

 

266 

Rabbi trusts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed-income securities

 

- 

 

 

58 

 

 

- 

 

 

- 

 

 

58 

Life insurance contracts

 

- 

 

 

72 

 

 

- 

 

 

- 

 

 

72 

Total rabbi trusts

 

- 

 

 

130 

 

 

- 

 

 

- 

 

 

130 

Long-term disability trust

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term investments

 

8 

 

 

- 

 

 

- 

 

 

- 

 

 

8 

Assets measured at NAV

 

- 

 

 

- 

 

 

- 

 

 

- 

 

 

147 

Total long-term disability trust

 

8 

 

 

- 

 

 

- 

 

 

- 

 

 

155 

Total assets

$

2,434 

 

$

653 

 

$

246 

 

$

2 

 

$

3,495