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New And Significant Accounting Policies (Policies)
9 Months Ended
Sep. 30, 2016
Variable Interest Entities

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 has a controlling interest or was the primary beneficiary of any of these VIEs at September 30, 2016, 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, 2016, it did not consolidate any of them.

Asset Retirement Obligations

Asset Retirement Obligations

 

Detailed studies of the cost to decommission the Utility’s nuclear generation facilities are conducted every three years in conjunction with the Nuclear Decommissioning Cost Triennial Proceedings.  In the first quarter of 2016, the Utility submitted its updated decommissioning cost estimate with the CPUC, which reflects an increase of approximately $1.4 billion in the estimated undiscounted cost to decommission the Utility’s nuclear power plants.  The change in total estimated cost resulted in an $818 million adjustment to the ARO recognized on the Condensed Consolidated Balance Sheets.  The adjustment relates to spent fuel storage, staffing, and out-of-state waste disposal costs.  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.

 

On June 20, 2016, the Utility entered into a joint proposal with certain parties to retire Diablo Canyon nuclear power plant at the expiration of its current operating licenses in 2024 (Unit 1) and 2025 (Unit 2), subject to certain approvals, resulting in an additional $115 million increase to the ARO recognized on the Condensed Consolidated Balance Sheets in the second quarter of 2016. 

 

The estimated total nuclear decommissioning cost of $4.8 billion 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 $3.5 billion at September 30, 2016 and $2.5 billion at December 31, 2015.  Changes in these estimates could materially affect the amount of the recorded ARO for these assets.

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 effective January 1, 2016 and applied the requirements retrospectively for all periods presented.  The 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.