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 2014 Form 10-K.

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 June 30, 2015, 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 June 30, 2015, it did not consolidate any of them.

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 and six months ended June 30, 2015 and 2014 were as follows:

	Pension Benefits				Other Benefits
	Three Months Ended June 30,
(in millions)	2015		2014		2015			2014
Service cost for benefits earned	$	118	$	96		$	14		$	11
Interest cost		169		173			18			19
Expected return on plan assets		(218)		(201)			(28)			(26)
Amortization of prior service cost		3		5			5			5
Amortization of net actuarial loss		3		1			1			1
Net periodic benefit cost		75		74			10			10
Regulatory account transfer (1)		9		9			-			-
Total	$	84	$	83		$	10		$	10

(1) The Utility recorded these amounts to a regulatory account since they are probable of recovery from, or refund to, customers in future rates.

	Pension Benefits				Other Benefits
	Six Months Ended June 30,
(in millions)	2015		2014		2015		2014
Service cost for benefits earned	$	237	$	195	$	27	$	22
Interest cost		337		346		36		38
Expected return on plan assets		(436)		(403)		(56)		(52)
Amortization of prior service cost		7		10		10		11
Amortization of net actuarial loss		6		1		2		1
Net periodic benefit cost		151		149		19		20
Regulatory account transfer (1)		18		19		-		-
Total	$	169	$	168	$	19	$	20

(1) The Utility recorded these amounts to a regulatory account since they are probable of recovery from, or refund to, customers in future rates.

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 June 30, 2015
Beginning balance	$	(21)	$		15	$		(6)
Amounts reclassified from other comprehensive income: (1)
Amortization of prior service cost
(net of taxes of $1 and $2, respectively)		2			3			5
Amortization of net actuarial loss
(net of taxes of $2 and $1, respectively)		1			1			2
Regulatory account transfer
(net of taxes of $3 and $3, respectively)		(3)			(4)			(7)
Net current period other comprehensive loss		-			-			-
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.)

	Pension		Other		Other
	Benefits		Benefits		Investments		Total
(in millions, net of income tax)	Three Months Ended June 30, 2014
Beginning balance	$	(7)	$	15	$	47	$	55
Other comprehensive income before reclassifications:
Change in investments
(net of taxes of $0, $0, and $3, respectively)		-		-		5		5
Amounts reclassified from other comprehensive income:
Amortization of prior service cost
(net of taxes of $2, $2, and $0, respectively) (1)		3		3		-		6
Amortization of net actuarial loss
(net of taxes of $0, $0, and $0, respectively) (1)		1		1		-		2
Regulatory account transfer
(net of taxes of $2, $2, and $0, respectively) (1)		(4)		(4)		-		(8)
Change in investments
(net of taxes of $0, $0, and $10, respectively)		-		-		(16)		(16)
Net current period other comprehensive loss		-		-		(11)		(11)
Ending balance	$	(7)	$	15	$	36	$	44

	Pension		Other		Other
	Benefits		Benefits		Investments		Total
(in millions, net of income tax)	Six Months Ended June 30, 2015
Beginning balance	$	(21)	$	15	$	17	$	11
Amounts reclassified from other comprehensive income:
Amortization of prior service cost
(net of taxes of $3, $4, and $0, respectively) (1)		4		6		-		10
Amortization of net actuarial loss
(net of taxes of $3, $1, and $0, respectively) (1)		3		1		-		4
Regulatory account transfer
(net of taxes of $6, $5, and $0, respectively) (1)		(7)		(7)		-		(14)
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)

	Pension		Other		Other
	Benefits		Benefits		Investments		Total
(in millions, net of income tax)	Six Months Ended June 30, 2014
Beginning balance	$	(7)	$	15	$	42	$	50
Other comprehensive income before reclassifications:
Change in investments
(net of taxes of $0, $0, and $7, respectively)		-		-		10		10
Amounts reclassified from other comprehensive income:
Amortization of prior service cost
(net of taxes of $4, $4, and $0, respectively) (1)		6		7		-		13
Amortization of net actuarial loss
(net of taxes of $0, $0, and $0, respectively) (1)		1		1		-		2
Regulatory account transfer
(net of taxes of $4, $4, and $0, respectively) (1)		(7)		(8)		-		(15)
Change in investments
(net of taxes of $0, $0, and $10, respectively)		-		-		(16)		(16)
Net current period other comprehensive loss		-		-		(6)		(6)
Ending balance	$	(7)	$	15	$	36	$	44

There was no material difference between PG&E Corporation and the Utility for the information disclosed above, with the exception of other investments which are held by PG&E Corporation.

Accounting Standards Issued But Not Yet Adopted

Fair Value Measurement

In May 2015, the FASB issued ASU No. 2015-07, 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. The accounting standards update will be effective for fiscal years beginning after December 15, 2015. PG&E Corporation and the Utility are currently evaluating the impact the guidance will have on their disclosures and will adopt this standard starting in the first quarter of 2016.

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. The accounting standards update will be effective on January 1, 2016. PG&E Corporation and the Utility are currently evaluating the impact the guidance will have on their consolidated financial statements and related disclosures and will adopt this standard starting in the first quarter of 2016.

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 existing presentation of debt issuance costs. PG&E Corporation and the Utility currently disclose debt issuance costs in current assets – other and noncurrent assets – other. The amendments in this Accounting Standard Update, effective on January 1, 2016, 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 do not expect this reclassification to have a material impact on their consolidated financial statements. PG&E Corporation and the Utility will adopt this standard starting in the first quarter of 2016.

Revenue Recognition Standard

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which amends existing revenue recognition guidance. In July 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. PG&E Corporation and the Utility are currently evaluating the impact the guidance will have on their consolidated financial statements and related disclosures.