10-Q 1 pge-093018x10q.htm Document


 
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, 2018
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 the 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) has been subject to such filing requirements for the past 90 days. 
PG&E Corporation:
 
 
[X] Yes [  ] No
Pacific Gas and Electric Company:
 
 
[X] Yes [  ] No
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 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, smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
PG&E Corporation:
[X] Large accelerated filer
[  ] Accelerated filer
 
 
[  ] Non-accelerated filer  
 
 
 
 
 
[  ] Smaller reporting company
[  ] Emerging growth company
Pacific Gas and Electric Company:
[  ] Large accelerated filer
[  ] Accelerated filer
 
 
[X] Non-accelerated filer
 
 
 
 
 
[  ] Smaller reporting company
[  ] Emerging growth company
 
 
 
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
PG&E Corporation:
 
[  ]
 
 
Pacific Gas and Electric 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 25, 2018:
 
 
PG&E Corporation:
 
518,674,276

Pacific Gas and Electric Company:
 
264,374,809

 
 
 
 
 
 
 
 
 

1



PG&E CORPORATION AND
PACIFIC GAS AND ELECTRIC COMPANY
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2018

TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2



GLOSSARY

The following terms and abbreviations appearing in the text of this report have the meanings indicated below.
2017 Form 10-K
PG&E Corporation and Pacific Gas and Electric Company's combined Annual Report on Form 10-K for the year ended December 31, 2017
ALJ
administrative law judge
ARO
asset retirement obligation
ASU
accounting standard update issued by the FASB (see below)
CAISO
California Independent System Operator
Cal Fire
California Department of Forestry and Fire Protection
Cal PA
Public Advocates Office of the California Public Utilities Commission (formerly known as Office of Ratepayer Advocates or ORA)
CCA
Community Choice Aggregator
CEC
California Energy Resources Conservation and Development Commission
CEMA
Catastrophic Event Memorandum Account
CPUC
California Public Utilities Commission
CRRs
congestion revenue rights
DER
distributed energy resources
Diablo Canyon
Diablo Canyon nuclear power plant
DOGGR
Division of Oil, Gas, and Geothermal Resources of the California Department of Conservation
DTSC
Department of Toxic Substances Control
EPS
earnings per common share
EV
electric vehicle
FASB
Financial Accounting Standards Board
FERC
Federal Energy Regulatory Commission
FHPMA
fire hazard prevention memorandum account
GAAP
U.S. Generally Accepted Accounting Principles
GHG
greenhouse gas
GRC
general rate case
GT&S
gas transmission and storage
HSM
hazardous substance memorandum account
IOU(s)
investor-owned utility(ies)
MD&A
Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in Item 2 of this Form 10-Q
MGP(s)
manufactured gas plants
NAV
net asset value
NDCTP
Nuclear Decommissioning Cost Triennial Proceedings
NEIL
Nuclear Electric Insurance Limited
NRC
Nuclear Regulatory Commission
OES
State of California Office of Emergency Services
OII
order instituting investigation
OIR
order instituting rulemaking
PCIA
Power Charge Indifference Adjustment
PD
proposed decision
PFM
petition for modification
RAMP
Risk Assessment Mitigation Phase
ROE
return on equity
SB
Senate Bill

3



SEC
U.S. Securities and Exchange Commission
SED
Safety and Enforcement Division of the CPUC
Tax Act
Tax Cuts and Jobs Act of 2017
TE
transportation electrification
TO
transmission owner
TURN
The Utility Reform Network
Utility
Pacific Gas and Electric Company
VIE(s)
variable interest entity(ies)
WEMA
Wildfire Expense Memorandum Account


4



PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

PG&E CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME

 
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended
September 30,
(in millions, except per share amounts)
2018
 
2017
 
2018
 
2017
Operating Revenues
 
 
 
 
 
 
 
Electric
$
3,466

 
$
3,648

 
$
9,729

 
$
10,036

Natural gas
915

 
869

 
2,942

 
2,999

Total operating revenues
4,381

 
4,517

 
12,671

 
13,035

Operating Expenses
 
 
 
 
 
 
 
Cost of electricity
1,256

 
1,466

 
3,038

 
3,436

Cost of natural gas
69

 
78

 
437

 
524

Operating and maintenance
1,611

 
1,324

 
5,001

 
4,453

Wildfire-related claims, net of insurance recoveries
(10
)
 
53

 
2,108

 

Depreciation, amortization, and decommissioning
759

 
710

 
2,257

 
2,134

Total operating expenses
3,685

 
3,631

 
12,841

 
10,547

Operating Income (Loss)
696

 
886

 
(170
)
 
2,488

Interest income
14

 
9

 
35

 
22

Interest expense
(232
)
 
(220
)
 
(678
)
 
(663
)
Other income, net
104

 
38

 
318

 
98

Income (Loss) Before Income Taxes
582

 
713

 
(495
)
 
1,945

Income tax provision (benefit)
15

 
160

 
(527
)
 
403

Net Income
567

 
553

 
32

 
1,542

Preferred stock dividend requirement of subsidiary
3

 
3

 
10

 
10

Income Available for Common Shareholders
$
564

 
$
550

 
$
22

 
$
1,532

Weighted Average Common Shares Outstanding, Basic
517

 
513

 
516

 
511

Weighted Average Common Shares Outstanding, Diluted
517

 
516

 
517

 
514

Net Earnings Per Common Share, Basic
$
1.09

 
$
1.07

 
$
0.04

 
$
3.00

Net Earnings Per Common Share, Diluted
$
1.09

 
$
1.07

 
$
0.04

 
$
2.98

 
 
 
 
 
 
 
 
See accompanying Notes to the Condensed Consolidated Financial Statements.



5



PG&E CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended
September 30,
(in millions)
2018
 
2017
 
2018
 
2017
Net Income
$
567

 
$
553

 
$
32

 
$
1,542

Other Comprehensive Income
 
 
 
 
 
 
 
Pension and other post-retirement benefit plans obligations (net of taxes of $0, $0, $0, and $0, at respective dates)
1

 

 
1

 
1

Total other comprehensive income
1

 

 
1

 
1

Comprehensive Income
568

 
553

 
33

 
1,543

Preferred stock dividend requirement of subsidiary
3

 
3

 
10

 
10

Comprehensive Income Attributable to
Common Shareholders
$
565

 
$
550

 
$
23

 
$
1,533

 
 
 
 
 
 
 
 
See accompanying Notes to the Condensed Consolidated Financial Statements.


6



PG&E CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
 
(Unaudited)
 
Balance At
(in millions)
September 30,
2018
 
December 31,
2017
ASSETS
 

 
 

Current Assets
 

 
 
Cash and cash equivalents
$
430

 
$
449

Accounts receivable:
 
 
 
Customers (net of allowance for doubtful accounts of $58 and $64
at respective dates)
1,297

 
1,243

Accrued unbilled revenue
962

 
946

Regulatory balancing accounts
1,326

 
1,222

Other
902

 
861

Regulatory assets
229

 
615

Inventories:
 
 
 
Gas stored underground and fuel oil
116

 
115

Materials and supplies
389

 
366

Other
698

 
464

Total current assets
6,349

 
6,281

Property, Plant, and Equipment
 
 
 
Electric
56,860

 
55,133

Gas
20,798

 
19,641

Construction work in progress
2,855

 
2,471

Other
2

 
3

Total property, plant, and equipment
80,515

 
77,248

Accumulated depreciation
(24,310
)
 
(23,459
)
Net property, plant, and equipment
56,205

 
53,789

Other Noncurrent Assets
 
 
 
Regulatory assets
4,429

 
3,793

Nuclear decommissioning trusts
2,917

 
2,863

Income taxes receivable
67

 
65

Other
1,418

 
1,221

Total other noncurrent assets
8,831

 
7,942

TOTAL ASSETS
$
71,385

 
$
68,012

 
 
 
 
See accompanying Notes to the Condensed Consolidated Financial Statements.

7



PG&E CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
 
 
(Unaudited)
 
Balance At
(in millions, except share amounts)
September 30,
2018
 
December 31,
2017
LIABILITIES AND EQUITY
 

 
 

Current Liabilities
 

 
 

Short-term borrowings
$
750

 
$
931

Long-term debt, classified as current
193

 
445

Accounts payable:
 
 
 
Trade creditors
1,699

 
1,646

Regulatory balancing accounts
1,230

 
1,120

Other
556

 
517

Disputed claims and customer refunds
217

 
243

Interest payable
151

 
217

Wildfire-related claims
2,794

 
561

Other
1,899

 
1,449

Total current liabilities
9,489

 
7,129

Noncurrent Liabilities
 
 
 
Long-term debt
18,407

 
17,753

Regulatory liabilities
8,607

 
8,679

Pension and other post-retirement benefits
2,014

 
2,128

Asset retirement obligations
4,999

 
4,899

Deferred income taxes
5,822

 
5,822

Other
2,351

 
2,130

Total noncurrent liabilities
42,200

 
41,411

Contingencies and Commitments (Note 9)


 


Equity
 
 
 
Shareholders' Equity
 
 
 
Common stock, no par value, authorized 800,000,000 shares;
517,102,983 and 514,755,845 shares outstanding at respective dates
12,833

 
12,632

Reinvested earnings
6,623

 
6,596

Accumulated other comprehensive loss
(12
)
 
(8
)
Total shareholders' equity
19,444

 
19,220

Noncontrolling Interest - Preferred Stock of Subsidiary
252

 
252

Total equity
19,696

 
19,472

TOTAL LIABILITIES AND EQUITY
$
71,385

 
$
68,012

 
 
 
 
See accompanying Notes to the Condensed Consolidated Financial Statements.


8



PG&E CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(Unaudited)
 
Nine Months Ended September 30,
(in millions)
2018
 
2017
Cash Flows from Operating Activities
 
 
 
Net income
$
32

 
$
1,542

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation, amortization, and decommissioning
2,257

 
2,134

Allowance for equity funds used during construction
(97
)
 
(63
)
Deferred income taxes and tax credits, net
10

 
848

Disallowed capital expenditures
(38
)

47

Other
231

 
204

Effect of changes in operating assets and liabilities:
 
 
 
Accounts receivable
(201
)
 
(58
)
Wildfire-related insurance receivable
64

 
(166
)
Inventories
(24
)
 
(35
)
Accounts payable
245

 
76

Wildfire-related claims
2,233

 
12

Income taxes receivable/payable


135

Other current assets and liabilities
(154
)
 
23

Regulatory assets, liabilities, and balancing accounts, net
(128
)
 
(30
)
Other noncurrent assets and liabilities
(194
)
 
68

Net cash provided by operating activities
4,236

 
4,737

Cash Flows from Investing Activities
 

 
 

Capital expenditures
(4,592
)
 
(3,938
)
Proceeds from sales and maturities of nuclear decommissioning trust investments
1,121

 
1,043

Purchases of nuclear decommissioning trust investments
(1,165
)
 
(1,071
)
Other
19

 
16

Net cash used in investing activities
(4,617
)
 
(3,950
)
Cash Flows from Financing Activities
 

 
 

Borrowings under revolving credit facilities
775

 

Repayments under revolving credit facilities
(775
)
 

Net issuances (repayments) of commercial paper, net of discount of $1 and $4 at respective dates
(182
)
 
(652
)
Short-term debt financing
250

 
250

Short-term debt matured
(250
)
 
(250
)
Proceeds from issuance of long-term debt, net of discount and issuance costs of $7 and $11 at respective dates
1,143

 
734

Long-term debt matured or repurchased
(750
)
 
(345
)
Common stock issued
137

 
345

Common stock dividends paid

 
(754
)
Other
14

 
(101
)
Net cash provided by (used in) financing activities
362

 
(773
)
Net change in cash and cash equivalents
(19
)
 
14

Cash and cash equivalents at January 1
449

 
177

Cash and cash equivalents at September 30
$
430

 
$
191


9



Supplemental disclosures of cash flow information
 

 
 

Cash received (paid) for:
 

 
 

Interest, net of amounts capitalized
$
(650
)
 
$
(644
)
Income taxes, net
(49
)
 
158

Supplemental disclosures of noncash investing and financing activities
 
 
 
Common stock dividends declared but not yet paid
$

 
$
272

Capital expenditures financed through accounts payable
348

 
301

Noncash common stock issuances

 
16

Terminated capital leases
161

 

 
 
 
 
See accompanying Notes to the Condensed Consolidated Financial Statements.



10



PACIFIC GAS AND ELECTRIC COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME

 
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended
September 30,
(in millions)
2018
 
2017
 
2018
 
2017
Operating Revenues
 

 
 

 
 
 
 
Electric
$
3,467

 
$
3,647

 
$
9,730

 
$
10,038

Natural gas
915

 
869

 
2,942

 
2,999

Total operating revenues
4,382

 
4,516

 
12,672

 
13,037

Operating Expenses
 
 
 
 
 
 
 
Cost of electricity
1,256

 
1,466

 
3,038

 
3,436

Cost of natural gas
69

 
78

 
437

 
524

Operating and maintenance
1,611

 
1,389

 
5,002

 
4,518

Wildfire-related claims, net of insurance recoveries
(10
)
 
53

 
2,108

 

Depreciation, amortization, and decommissioning
759

 
710

 
2,257

 
2,134

Total operating expenses
3,685

 
3,696

 
12,842

 
10,612

Operating Income (Loss)
697

 
820

 
(170
)
 
2,425

Interest income
14

 
10

 
34

 
22

Interest expense
(229
)
 
(217
)
 
(668
)
 
(655
)
Other income, net
103

 
38

 
321

 
93

Income (Loss) Before Income Taxes
585

 
651

 
(483
)
 
1,885

Income tax provision (benefit)
14

 
138

 
(530
)
 
394

Net Income
571

 
513

 
47

 
1,491

Preferred stock dividend requirement
3

 
3

 
10

 
10

Income Available for Common Stock
$
568

 
$
510

 
$
37

 
$
1,481

 
 
 
 
 
 
 
 
See accompanying Notes to the Condensed Consolidated Financial Statements.


11



PACIFIC GAS AND ELECTRIC COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended
September 30,
(in millions)
2018
 
2017
 
2018
 
2017
Net Income
$
571

 
$
513

 
$
47

 
$
1,491

Other Comprehensive Income
 
 
 
 
 
 
 
Pension and other post-retirement benefit plans obligations (net of taxes of $0, $0, $0, and $0, at respective dates )

 

 
1

 
1

Total other comprehensive income

 

 
1

 
1

Comprehensive Income
$
571

 
$
513

 
$
48

 
$
1,492

 
 
 
 
 
 
 
 
See accompanying Notes to the Condensed Consolidated Financial Statements.


12



PACIFIC GAS AND ELECTRIC COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
 
(Unaudited)
 
Balance At
 
September 30,
2018
 
December 31, 2017
(in millions)
 
ASSETS
 

 
 

Current Assets
 

 
 

Cash and cash equivalents
$
371

 
$
447

Accounts receivable:
 
 
 
Customers (net of allowance for doubtful accounts of $58 and $64
at respective dates)
1,297

 
1,243

Accrued unbilled revenue
962

 
946

Regulatory balancing accounts
1,326

 
1,222

Other
902

 
862

Regulatory assets
229

 
615

Inventories:
 
 
 
Gas stored underground and fuel oil
116

 
115

Materials and supplies
389

 
366

Other
698

 
465

Total current assets
6,290

 
6,281

Property, Plant, and Equipment
 
 
 
Electric
56,860

 
55,133

Gas
20,798

 
19,641

Construction work in progress
2,855

 
2,471

Total property, plant, and equipment
80,513

 
77,245

Accumulated depreciation
(24,308
)
 
(23,456
)
Net property, plant, and equipment
56,205

 
53,789

Other Noncurrent Assets
 
 
 
Regulatory assets
4,429

 
3,793

Nuclear decommissioning trusts
2,917

 
2,863

Income taxes receivable
66

 
64

Other
1,289

 
1,094

Total other noncurrent assets
8,701

 
7,814

TOTAL ASSETS
$
71,196

 
$
67,884

 
 
 
 
See accompanying Notes to the Condensed Consolidated Financial Statements.

13



PACIFIC GAS AND ELECTRIC COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
 
(Unaudited)
 
Balance At
 
September 30,
2018
 
December 31, 2017
(in millions. except share amounts)
 
LIABILITIES AND EQUITY
 
 
 
Current Liabilities
 

 
 

Short-term borrowings
$
750

 
$
799

Long-term debt, classified as current
193

 
445

Accounts payable:
 
 
 
Trade creditors
1,699

 
1,644

Regulatory balancing accounts
1,230

 
1,120

Other
575

 
538

Disputed claims and customer refunds
217

 
243

Interest payable
149

 
214

Wildfire-related claims
2,794

 
561

Other
1,904

 
1,457

Total current liabilities
9,511

 
7,021

Noncurrent Liabilities
 
 
 
Long-term debt
18,057

 
17,403

Regulatory liabilities
8,607

 
8,679

Pension and other post-retirement benefits
1,910

 
2,026

Asset retirement obligations
4,999

 
4,899

Deferred income taxes
5,960

 
5,963

Other
2,367

 
2,146

Total noncurrent liabilities
41,900

 
41,116

Contingencies and Commitments (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
8,505

 
8,505

Reinvested earnings
9,695

 
9,656

Accumulated other comprehensive income
5

 
6

Total shareholders' equity
19,785

 
19,747

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
71,196

 
$
67,884

 
 
 
 
See accompanying Notes to the Condensed Consolidated Financial Statements.


14



PACIFIC GAS AND ELECTRIC COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(Unaudited)
 
Nine Months Ended September 30,
(in millions)
2018
 
2017
Cash Flows from Operating Activities
 

 
 

Net income
$
47

 
$
1,491

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation, amortization, and decommissioning
2,257

 
2,134

Allowance for equity funds used during construction
(97
)
 
(63
)
Deferred income taxes and tax credits, net
5

 
848

Disallowed capital expenditures
(38
)

47

Other
170

 
196

Effect of changes in operating assets and liabilities:
 
 
 
Accounts receivable
(200
)
 
(58
)
Wildfire-related insurance receivable
64

 
(166
)
Inventories
(24
)
 
(35
)
Accounts payable
245

 
76

Wildfire-related claims
2,233

 
12

Income taxes receivable/payable


135

Other current assets and liabilities
(156
)
 
36

Regulatory assets, liabilities, and balancing accounts, net
(128
)
 
(30
)
Other noncurrent assets and liabilities
(194
)
 
69

Net cash provided by operating activities
4,184

 
4,692

Cash Flows from Investing Activities
 
 
 
Capital expenditures
(4,592
)
 
(3,938
)
Proceeds from sales and maturities of nuclear decommissioning trust investments
1,121

 
1,043

Purchases of nuclear decommissioning trust investments
(1,165
)
 
(1,071
)
Other
19

 
16

Net cash used in investing activities
(4,617
)
 
(3,950
)
Cash Flows from Financing Activities
 
 
 
Borrowings under revolving credit facilities
650



Repayments under revolving credit facilities
(650
)
 

Net issuances (repayments) of commercial paper, net of discount of $0 and $4 at respective dates
(50
)
 
(652
)
Short-term debt financing
250

 
250

Short-term debt matured
(250
)
 
(250
)
Proceeds from issuance of long-term debt, net of discount and issuance costs of $7 and $11 at respective dates
793

 
734

Long-term debt matured or repurchased
(400
)
 
(345
)
Preferred stock dividends paid

 
(10
)
Common stock dividends paid

 
(784
)
Equity contribution from PG&E Corporation

 
405

Other
14

 
(91
)
Net cash provided by (used in) financing activities
357

 
(743
)
Net change in cash and cash equivalents
(76
)
 
(1
)
Cash and cash equivalents at January 1
447

 
71

Cash and cash equivalents at September 30
$
371

 
$
70


15



Supplemental disclosures of cash flow information
 
 
 
Cash received (paid) for:
 
 
 
Interest, net of amounts capitalized
$
(640
)
 
$
(636
)
Income taxes, net
(59
)

158

Supplemental disclosures of noncash investing and financing activities
 
 
 
Capital expenditures financed through accounts payable
$
348

 
$
301

Terminated capital leases
161

 

 
 
 
 
See accompanying Notes to the Condensed Consolidated Financial Statements.


16



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 serving 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 assess financial performance and allocate resources on a consolidated basis (i.e., the companies 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’s and the Utility’s financial condition, results of operations, and cash flows for the periods presented.  The information at December 31, 2017 in the Condensed Consolidated Balance Sheets included in this quarterly report was derived from the audited Consolidated Balance Sheets in Item 8 of the 2017 Form 10-K.  This quarterly report should be read in conjunction with the 2017 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, insurance recoveries, environmental remediation liabilities, AROs, and pension and other post-retirement benefit plans obligations.  Management believes that its estimates and assumptions reflected in the Condensed Consolidated Financial Statements are appropriate and reasonable.  A change in management’s estimates or assumptions could result in an adjustment that would have a material impact on PG&E Corporation’s and the Utility’s financial condition and results of operations during the period in which such change occurred.

Beginning on October 8, 2017, multiple wildfires spread through Northern California, including Napa, Sonoma, Butte, Humboldt, Mendocino, Lake, Nevada, and Yuba Counties, as well as in the area surrounding Yuba City (the “Northern California wildfires”).  According to the Cal Fire California Statewide Fire Summary dated October 30, 2017, at the peak of the wildfires, there were 21 major wildfires in Northern California that, in total, burned over 245,000 acres and destroyed an estimated 8,900 structures. The wildfires resulted in 44 fatalities.

Cal Fire issued its determination on the causes of 17 of the Northern California wildfires, and alleged that each of these fires involved the Utility's equipment. The remaining wildfires remain under Cal Fire’s investigation, including the possible role of the Utility’s power lines and other facilities. Additionally, the Northern California wildfires are under investigation by the CPUC’s SED. See “Northern California Wildfires” in Note 9 below.

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

For a summary of the significant accounting policies used by PG&E Corporation and the Utility, see Note 2 of the Notes to the Consolidated Financial Statements in Item 8 of the 2017 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. 


17



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 has a controlling interest or was the primary beneficiary of any of these VIEs at September 30, 2018, the Utility 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, 2018, it did not consolidate any of them.

Pension and Other Post-Retirement 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 and nine months ended September 30, 2018 and 2017 were as follows:
 
Pension Benefits
 
Other Benefits
 
Three Months Ended September 30,
(in millions)
2018
 
2017
 
2018
 
2017
Service cost for benefits earned (1)
$
128

 
$
118

 
$
16

 
$
14

Interest cost
171

 
178

 
17

 
20

Expected return on plan assets
(255
)
 
(193
)
 
(33
)
 
(24
)
Amortization of prior service cost
(1
)
 
(1
)
 
4

 
4

Amortization of net actuarial loss
1

 
6

 
(1
)
 
1

Net periodic benefit cost
44

 
108

 
3

 
15

Regulatory account transfer (2)
41

 
(23
)
 

 

Total
$
85

 
$
85

 
$
3

 
$
15

 
 
 
 
 
 
 
 
(1) A portion of service costs are capitalized pursuant to ASU 2017-07.
(2) 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)
2018
 
2017
 
2018
 
2017
Service cost for benefits earned (1)
$
385

 
$
354

 
$
49

 
$
44

Interest cost
515

 
535

 
52

 
58

Expected return on plan assets
(766
)
 
(578
)
 
(98
)
 
(73
)
Amortization of prior service cost
(4
)
 
(5
)
 
11

 
12

Amortization of net actuarial loss
4

 
17

 
(4
)
 
3

Net periodic benefit cost
134

 
323

 
10

 
44

Regulatory account transfer (2)
118

 
(69
)
 

 

Total
$
252

 
$
254

 
$
10

 
$
44

 
 
 
 
 
 
 
 
(1) A portion of service costs are capitalized pursuant to ASU 2017-07.
(2) The Utility recorded these amounts to a regulatory account since they are probable of recovery from, or refund to, customers in future rates

Non-service costs are reflected in Other income, net on the Condensed Consolidated Statements of Income. Service costs are reflected in Operating and maintenance on the Condensed Consolidated Statements of Income.

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

18




Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (Loss)

The changes, net of income tax, in PG&E Corporation’s accumulated other comprehensive income (loss) are summarized below:
 
Pension
Benefits
 
Other
Benefits
 
Total
(in millions, net of income tax)
Three Months Ended September 30, 2018
Beginning balance
$
(30
)
 
$
17

 
$
(13
)
Amounts reclassified from other comprehensive income:
 
 
 
 
 
Amortization of prior service cost (net of taxes of $0 and $1, respectively) (1)
(1
)
 
3

 
2

Amortization of net actuarial loss (net of taxes of $0 and $0, respectively) (1)
1

 
(1
)
 

Regulatory account transfer (net of taxes of $0 and $1, respectively) (1)
1

 
(2
)
 
(1
)
Net current period other comprehensive gain (loss)
1

 

 
1

Ending balance
$
(29
)
 
$
17

 
$
(12
)
 
 
 
 
 
 
(1) These components are included in the computation of net periodic pension and other post-retirement benefit costs.  (See the “Pension and Other Post-Retirement Benefits” table above for additional details.)

 
Pension Benefits
 
Other
Benefits
 
Total
(in millions, net of income tax)
Three Months Ended September 30, 2017
Beginning balance
$
(25
)
 
$
17

 
$
(8
)
Amounts reclassified from other comprehensive income: (1)
 
 
 
 
 
Amortization of prior service cost (net of taxes of $0 and $2, respectively)
(1
)
 
2

 
1

Amortization of net actuarial loss (net of taxes of $2 and $0, respectively)
4

 
1

 
5

Regulatory account transfer (net of taxes of $2 and $2, respectively)
(3
)
 
(3
)
 
(6
)
Net current period other comprehensive gain (loss)

 

 

Ending balance
$
(25
)
 
$
17

 
$
(8
)
 
 
 
 
 
 
(1) These components are included in the computation of net periodic pension and other post-retirement benefit costs.  (See the “Pension and Other Post-Retirement Benefits” table above for additional details.)

 
Pension Benefits
 
Other Benefits
 
Total
(in millions, net of income tax)
Nine Months Ended September 30, 2018
Beginning balance
$
(25
)
 
$
17

 
$
(8
)
Amounts reclassified from other comprehensive income: 
 
 
 
 
 
Amortization of prior service cost (net of taxes of $1 and $3, respectively) (1)
(3
)
 
8

 
5

Amortization of net actuarial loss (net of taxes of $1 and $1, respectively) (1)
3

 
(3
)
 

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

 
(5
)
 
(4
)
Reclassification of stranded income tax to retained earnings
(5
)
 

 
(5
)
Net current period other comprehensive gain (loss)
$
(4
)
 
$

 
$
(4
)
Ending balance
(29
)
 
17

 
(12
)
 
 
 
 
 
 
(1) These components are included in the computation of net periodic pension and other post-retirement benefit costs.  (See the “Pension and Other Post-Retirement Benefits” table above for additional details.)

19



 
Pension Benefits
 
Other Benefits
 
Total
(in millions, net of income tax)
Nine Months Ended September 30, 2017
Beginning balance
$
(25
)
 
$
16

 
$
(9
)
Amounts reclassified from other comprehensive income: (1)
 
 
 
 
 
Amortization of prior service cost (net of taxes of $2 and $5, respectively)
(3
)
 
7

 
4

Amortization of net actuarial loss (net of taxes of $7 and $1, respectively)
10

 
2

 
12

Regulatory account transfer (net of taxes of $5 and $6, respectively)
(7
)
 
(8
)
 
(15
)
Net current period other comprehensive gain (loss)
$

 
$
1

 
$
1

Ending balance
(25
)
 
17

 
(8
)
 
 
 
 
 
 
(1) These components are included in the computation of net periodic pension and other post-retirement benefit costs.  (See the “Pension and Other Post-Retirement Benefits” table above for additional details.)

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

Recently Adopted Accounting Standards

Revenue Recognition Standard

In May 2014, the FASB issued ASU No. 2014-9, Revenue from Contracts with Customers (Topic 606), which amends the previous revenue recognition guidance.  The objective of the new standard is to provide a single, comprehensive revenue recognition model for all contracts with customers to improve comparability across entities, industries, jurisdictions, and capital markets and to provide more useful information to users of financial statements through improved and expanded disclosure requirements.  PG&E Corporation and the Utility applied the requirements using the modified retrospective method when the ASU became effective on January 1, 2018. The adoption of this guidance did not have a material impact on the Condensed Consolidated Financial Statements as of the adoption date or for the three and nine months ended September 30, 2018. A majority of the Utility’s revenue from contracts with customers continues to be recognized on a monthly basis based on applicable tariffs and customers' monthly consumption. Such revenue is recognized using the invoice practical expedient which allows an entity to recognize revenue in the amount that directly corresponds to the value transferred to the customer.

Revenue from Contracts with Customers

The Utility recognizes revenues when electricity and natural gas services are delivered.  The Utility records unbilled revenues for the estimated amount of energy delivered to customers but not yet billed at the end of the period.  Unbilled revenues are included in accounts receivable on the Condensed Consolidated Balance Sheets.  Rates charged to customers are based on CPUC and FERC authorized revenue requirements. Revenues can vary significantly from period to period because of seasonality, weather, and customer usage patterns.

The FERC authorizes the Utility’s revenue requirements in periodic TO rate cases.  The Utility’s ability to recover revenue requirements authorized by the FERC is dependent on the volume of the Utility’s electricity sales, and revenue is recognized only for amounts billed and unbilled, net of revenues subject to refund.


20



Regulatory Balancing Account Revenue

The CPUC authorizes most of the Utility’s revenues in the Utility’s GRC and its GT&S rate cases, which generally occur every three or four years.  The Utility’s ability to recover revenue requirements authorized by the CPUC in these rate cases is independent, or “decoupled,” from the volume of the Utility’s sales of electricity and natural gas services.  The Utility recognizes revenues that have been authorized for rate recovery, are objectively determinable and probable of recovery, and are expected to be collected within 24 months.  Generally, electric and natural gas operating revenue is recognized ratably over the year.  The Utility records a balancing account asset or liability for differences between customer billings and authorized revenue requirements that are probable of recovery or refund. 

The CPUC also has authorized the Utility to collect additional revenue requirements to recover costs that the Utility has been authorized to pass on to customers, including costs to purchase electricity and natural gas, and to fund public purpose, demand response, and customer energy efficiency programs.  In general, the revenue recognition criteria for pass-through costs billed to customers are met at the time the costs are incurred. The Utility records a regulatory balancing account asset or liability for differences between incurred costs and customer billings or authorized revenue meant to recover those costs, to the extent that these differences are probable of recovery or refund. As a result, these differences have no impact on net income.

The following table presents the Utility’s revenues disaggregated by type of customer:
(in millions)
Three Months Ended September 30, 2018
 
Nine Months Ended September 30, 2018
Electric
 
 
 
Revenue from contracts with customers
 
 
 
   Residential
$
1,649

 
$
4,023

   Commercial
1,430

 
3,737

   Industrial
448

 
1,126

   Agricultural
523

 
966

   Public street and highway lighting
18

 
55

   Other (1)
(273
)
 
(388
)
      Total revenue from contracts with customers - electric
3,795

 
9,519

Regulatory balancing accounts (2)
(328
)
 
211

Total electric operating revenue
$
3,467

 
$
9,730

 
 
 
 
Natural gas
 
 
 
Revenue from contracts with customers
 
 
 
   Residential
$
242

 
$
1,652

   Commercial
87

 
402

   Transportation service only
287

 
847

   Other (1)
30

 
(149
)
      Total revenue from contracts with customers - gas
646

 
2,752

Regulatory balancing accounts (2)
269

 
190

Total natural gas operating revenue
915

 
2,942

Total operating revenues
$
4,382

 
$
12,672

 
 
 
 
(1) This activity is primarily related to the change in unbilled revenue, partially offset by other miscellaneous revenue items.
(2) These amounts represent revenues authorized to be billed or refunded to customers.

Presentation of Net Periodic Pension and Post-Retirement Benefit Costs

In March 2017, the FASB issued ASU 2017-07, Compensation – Retirement Benefits (Topic 715), which amends the guidance relating to the presentation of net periodic pension cost and net periodic other post-retirement benefit costs.  PG&E Corporation and the Utility applied the requirements when the ASU became effective on January 1, 2018.


21



On a retrospective basis, the amendment requires an employer to separate the service cost component from the other components of net benefit cost and provides explicit guidance on how to present the service cost component and other components in the income statement.  As a result, the Condensed Consolidated Statements of Income for PG&E Corporation and the Utility were restated. This change resulted in increases to Operating and maintenance expenses and Other income, net, of $13 million and $14 million for PG&E Corporation and the Utility, respectively, for the three months ended September 30, 2017 and $39 million and $41 million for PG&E Corporation and the Utility, respectively, for the nine months ended September 30, 2017.

On a prospective basis, the ASU limits the component of net benefit cost eligible to be capitalized to service costs. The FERC has allowed and the Utility has made a one-time election to adopt the new FASB guidance for regulatory filing purposes.  In January 2018, the CPUC approved modifications to the Utility’s calculation for pension-related revenue requirements to allow for capitalization of only the service cost component determined by a plan’s actuary. The capitalization of service costs only results in higher rate base and a reduction in the Utility’s 2018 revenues.  The changes in capitalization of retirement benefits did not have a material impact on PG&E Corporation’s and the Utility’s Condensed Consolidated Financial Statements.

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 guidance relating to the recognition, measurement, presentation, and disclosure of financial instruments.  The amendments require equity investments (excluding those accounted for under the equity method or those that result in consolidation) to be measured at fair value, with changes in fair value recognized in net income.  The majority of PG&E Corporation’s and the Utility’s investments are held in the nuclear decommissioning trusts and gains or losses are refundable or recoverable, respectively, from customers through rates, therefore gains and losses are deferred and recognized as regulatory assets or liabilities.  The ASU became effective for PG&E Corporation and the Utility on January 1, 2018 and did not have a material impact on the Condensed Consolidated Financial Statements and related disclosures.

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

In February 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Act. When amounts are reclassified from accumulated other comprehensive income to the Condensed Consolidated Statement of Income, PG&E Corporation and the Utility recognize the related income tax expense at the tax rate in effect at that time. The ASU is effective for PG&E Corporation and the Utility on January 1, 2019, and early adoption is permitted. PG&E Corporation and the Utility early adopted this ASU on January 1, 2018, resulting in an immaterial reclassification.

Accounting Standards Issued But Not Yet Adopted

Recognition of Lease Assets and Liabilities

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which amends the guidance relating to the definition of a lease, recognition of lease assets and lease liabilities on the balance sheet, and the disclosure of key information about leasing arrangements. Under the new standard, all lessees must recognize an asset and liability on the balance sheet. Operating leases were previously not recognized on the balance sheet.  The ASU will be effective for PG&E Corporation and the Utility on January 1, 2019, with early adoption permitted.

PG&E Corporation and the Utility intend to elect certain practical expedients and will carry forward historical conclusions related to (1) contracts that contain leases, (2) existing lease and easement classification, and (3) initial direct costs. Additionally, PG&E Corporation and the Utility do not intend to restate comparative periods upon adoption.

22




PG&E Corporation and the Utility plan to adopt this guidance in the first quarter of 2019. PG&E Corporation and the Utility expect this standard to increase lease assets and lease liabilities on the Condensed Consolidated Balance Sheets and do not expect the guidance will have a material impact on the Condensed Consolidated Statements of Income, Statements of Cash Flows and related disclosures.

Fair Value Measurement

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurements, which amends the existing guidance relating to the disclosure requirements for fair value measurements. The ASU will be effective for PG&E Corporation and the Utility on January 1, 2020 with early adoption permitted. PG&E Corporation and the Utility are currently evaluating the impact the guidance will have on their Consolidated Financial Statements and related disclosures.

Intangibles-Goodwill and Other

In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. This ASU will be effective for PG&E Corporation and the Utility on January 1, 2020 with early adoption permitted. PG&E Corporation and the Utility are currently evaluating the impact the guidance will have on their Consolidated Financial Statements and related disclosures.

23



NOTE 3: REGULATORY ASSETS, LIABILITIES, AND BALANCING ACCOUNTS

Regulatory Assets and Liabilities

Long-Term Regulatory Assets

Long-term regulatory assets are comprised of the following:
 
Asset Balance at
(in millions)
September 30, 2018
 
December 31, 2017
Pension benefits
$
1,837

 
$
1,954

Environmental compliance costs
851

 
837

Utility retained generation
285

 
319

Price risk management
67

 
65

Unamortized loss, net of gain, on reacquired debt
80

 
79

Catastrophic event memorandum account (1)
760

 
274

Wildfire expense memorandum account (2)
77

 

Fire hazard prevention memorandum account (3)
65

 
1

Other
407

 
264

Total long-term regulatory assets
$
4,429

 
$
3,793

 
 
 
 
(1) Represents costs related to certain catastrophic events that the Utility believes are probable of recovery. For more information, see Note 9 below.
(2) Represents costs related to insurance premiums that the Utility believes are probable of recovery. For more information, see Note 9 below.
(3) Represents costs related to wildfire prevention vegetation management work that the Utility believes are probable of recovery.

Long-Term Regulatory Liabilities

Long-term regulatory liabilities are comprised of the following:
 
Liability Balance at
(in millions)
September 30, 2018
 
December 31, 2017
Cost of removal obligations
$
5,888

 
$
5,547

Deferred income taxes
437

 
1,021

Recoveries in excess of AROs
489

 
624

Public purpose programs
660

 
590

Other
1,133

 
897

Total long-term regulatory liabilities
$
8,607

 
$
8,679


For more information, see Note 3 of the Notes to the Consolidated Financial Statements in Item 8 of the 2017 Form 10-K.



24



Regulatory Balancing Accounts

Current regulatory balancing accounts receivable and payable are comprised of the following:
 
Receivable Balance at
(in millions)
September 30, 2018
 
December 31, 2017
Electric distribution
$
31

 
$

Electric transmission
109

 
139

Gas distribution and transmission
624

 
486

Energy procurement
131

 
71

Public purpose programs
120

 
103

Other
311

 
423

Total regulatory balancing accounts receivable
$
1,326

 
$
1,222


 
Payable Balance at
(in millions)
September 30, 2018
 
December 31, 2017
Electric distribution
$

 
$
72

Electric transmission
132

 
120

Utility generation
70

 
14

Gas distribution and transmission
9

 

Energy procurement
69

 
149

Public purpose programs
588

 
452

Other
362

 
313

Total regulatory balancing accounts payable
$
1,230

 
$
1,120


For more information, see Note 3 of the Notes to the Consolidated Financial Statements in Item 8 of the 2017 Form 10-K.

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 September 30, 2018:
(in millions)
Termination Date
 
Facility
Limit
 
Letters of
Credit
Outstanding
 
Borrowings
 
Facility
Availability
PG&E Corporation
April 2022
 
$
300

(1) 
$

 
$

 
$
300

Utility
April 2022
 
3,000

(2) 
87

 

 
2,913

Total revolving credit facilities
 
 
$
3,300

 
$
87

 
$

 
$
3,213

 
 
 
 
 
 
 
 
 
 
(1) Includes a $50 million lender commitment to the letter of credit sublimit 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 sublimit and a $75 million commitment for swingline loans.

Other Short-term Borrowings

In February 2018, the Utility’s $250 million floating rate unsecured term loan, issued in February 2017, matured and was repaid. Additionally, in February 2018, the Utility entered into a $250 million floating rate unsecured term loan that will mature on February 22, 2019.  The proceeds were used for general corporate purposes, including the repayment of a portion of the Utility’s outstanding commercial paper.


25



Long-term Debt Issuances and Redemptions

During the first quarter of 2018, the Utility satisfied and discharged its remaining obligation of $400 million aggregate principal amount of the 8.25% Senior Notes due October 15, 2018.

In April 2018, PG&E Corporation entered into a $350 million floating rate unsecured term loan. The term loan will mature on April 16, 2020, unless extended by PG&E Corporation pursuant to the terms of the term loan agreement. The proceeds were used for general corporate purposes, including the early redemption of PG&E Corporation’s outstanding $350 million principal amount of 2.40% Senior Notes due March 1, 2019. On April 26, 2018, PG&E Corporation completed the early redemption of these bonds, which satisfied and discharged its remaining obligation of $350 million.

In August 2018, the Utility issued $500 million principal amount of 4.25% Senior Notes due August 1, 2023 and $300 million principal amount of 4.65% Senior Notes due August 1, 2028. The proceeds will be used to repay $500 million floating rate Senior Notes due November 28, 2018, to repay a $250 million term loan maturing on February 22, 2019 and for general corporate purposes.

Variable Rate Interest

At September 30, 2018, 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 1.55% to 1.68%.  At September 30, 2018, the interest rates on the $149 million principal amount of pollution control bonds Series 2009 A and B, and the related loan agreements, were 1.60%.

NOTE 5: EQUITY

PG&E Corporation’s and the Utility’s changes in equity for the nine months ended September 30, 2018 were as follows:
 
PG&E Corporation
 
Utility
(in millions)
Total
Equity
 
Total
Shareholders' Equity
Balance at December 31, 2017
$
19,472

 
$
19,747

Comprehensive income
33

 
48

Common stock issued
137

 

Share-based compensation
64

 

Preferred stock dividend requirement

 
(10
)
Preferred stock dividend requirement of subsidiary
(10
)
 

Balance at September 30, 2018
$
19,696

 
$
19,785


There were no issuances under the PG&E Corporation February 2017 equity distribution agreement for the nine months ended September 30, 2018.  As of September 30, 2018, the remaining amount available under this agreement was $246.3 million.

PG&E Corporation issued common stock under the PG&E Corporation 401(k) plan and share-based compensation plans.  During the nine months ended September 30, 2018, 3.6 million shares were issued for cash proceeds of $136.7 million under these plans.

Dividends

On December 20, 2017, the Boards of Directors of PG&E Corporation and the Utility suspended quarterly cash dividends on both PG&E Corporation’s and the Utility’s common stock, beginning the fourth quarter of 2017, as well as the Utility’s preferred stock, beginning the three-month period ending January 31, 2018, due to the uncertainty related to the causes of and potential liabilities associated with the Northern California wildfires.

The dividends declared per share on PG&E Corporation's common stock were $0 and $0.53, for the three months ended September 30, 2018 and 2017, respectively, and $0 and $1.55 for the nine months ended September 30, 2018 and 2017, respectively.


26



NOTE 6: EARNINGS PER SHARE

PG&E Corporation’s basic EPS are 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 September 30,
 
Nine Months Ended September 30,
(in millions, except per share amounts)
2018
 
2017
 
2018
 
2017
Income available for common shareholders
$
564

 
$
550

 
$
22

 
$
1,532

Weighted average common shares outstanding, basic
517

 
513

 
516

 
511

Add incremental shares from assumed conversions:
 
 
 
 
 
 
 
Employee share-based compensation

 
3

 
1

 
3

Weighted average common shares outstanding, diluted
517

 
516

 
517

 
514

Total earnings per common share, diluted
$
1.09

 
$
1.07

 
$
0.04

 
$
2.98


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 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 presented in the Utility’s Condensed Consolidated Balance Sheets recorded at fair value and on a net basis in accordance with master netting arrangements for each counter-party.  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.  

Price risk management activities that meet the definition of derivatives are recorded at fair value on the Condensed Consolidated Balance Sheets. 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 under the applicable ratemaking mechanism in place as long as 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.

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Volume of Derivative Activity

The volumes of the Utility’s outstanding derivatives were as follows:
 
 
 
 
Contract Volume at
Underlying Product
 
Instruments
 
September 30,
2018
 
December 31,
2017
Natural Gas (1) (MMBtus (2))
 
Forwards, Futures and Swaps
 
250,021,802

 
228,768,745

 
 
Options
 
29,534,224

 
60,736,806

Electricity (Megawatt-hours)
 
Forwards, Futures and Swaps
 
3,939,691

 
2,872,013

 
 
Congestion Revenue Rights (3)
 
316,451,690

 
312,272,177

 
 
 
 
 
 
 
(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 September 30, 2018, the Utility’s outstanding derivative balances were as follows:
 
Commodity Risk
(in millions)
Gross Derivative
Balance
 
Netting
 
Cash Collateral
 
Total Derivative
Balance
Current assets – other
$
34

 
$
(2
)
 
$
5

 
$
37

Other noncurrent assets – other
88

 

 

 
88

Current liabilities – other
(39
)
 
2

 
12

 
(25
)
Noncurrent liabilities – other
(67
)
 

 
4

 
(63
)
Total commodity risk
$
16

 
$

 
$
21

 
$
37


At December 31, 2017, the Utility’s outstanding derivative balances were as follows:
 
Commodity Risk
(in millions)
Gross Derivative
Balance
 
Netting
 
Cash Collateral
 
Total Derivative
Balance
Current assets – other
$
30

 
$
(3
)
 
$
10

 
$
37

Other noncurrent assets – other
103

 
(1
)
 

 
102

Current liabilities – other
(47
)
 
3

 
13

 
(31
)
Noncurrent liabilities – other
(66
)
 
1

 
8

 
(57
)
Total commodity risk
$
20

 
$

 
$
31

 
$
51


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 instruments, including certain power purchase agreements, contain collateral posting provisions tied to the Utility’s credit rating from each of the major credit rating agencies, also known as a credit-risk-related contingent feature. The Utility’s credit rating remains investment grade. If the Utility 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 Utility held derivatives with a net liability fair value of $44 million and $1 million at September 30, 2018 and December 31, 2017, respectively, offset by an immaterial amount from related derivatives in an asset position. If the credit-risk-related contingency feature were triggered, at September 30, 2018, the Utility would be required to post additional collateral immediately in the amount of $12 million.


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NOTE 8: FAIR VALUE MEASUREMENTS

PG&E Corporation and the Utility measure their cash equivalents, trust assets, and price risk management instruments 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.


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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.