Pension Plan and Postretirement Benefits Other than Pensions (“PBOP”)

PG&E Corporation and the Utility sponsor a non-contributory defined benefit pension plan for eligible employees hired before December 31, 2012 and a cash balance plan for those eligible employees hired after this date or who made a one-time election to participate (“Pension Plan”). The trusts underlying certain of these plans are qualified trusts under the Internal Revenue Code of 1986, as amended. If certain conditions are met, PG&E Corporation and the Utility can deduct payments made to the qualified trusts, subject to certain limitations. PG&E Corporation’s and the Utility’s funding policy is to contribute tax-deductible amounts, consistent with applicable regulatory decisions and federal minimum funding requirements. Based upon current assumptions and available information, the Utility’s minimum funding requirements related to its pension plans is zero.

PG&E Corporation and the Utility also sponsor contributory postretirement medical plans for retirees and their eligible dependents, and non-contributory postretirement life insurance plans for eligible employees and retirees. PG&E Corporation and the Utility use a fiscal year-end measurement date for all plans.

Change in Plan Assets, Benefit Obligations, and Funded Status

The following tables show the reconciliation of changes in plan assets, benefit obligations, and the plans’ aggregate funded status for pension benefits and other benefits for PG&E Corporation during 2015 and 2014:

Pension Plan

(in millions)	2015		2014
Change in plan assets:
Fair value of plan assets at beginning of year	$	14,216		$	12,527
Actual return on plan assets		(176)			1,946
Company contributions		334			332
Benefits and expenses paid		(629)			(589)
Fair value of plan assets at end of year	$	13,745		$	14,216

Change in benefit obligation:
Benefit obligation at beginning of year	$	16,696		$	14,077
Service cost for benefits earned		479			383
Interest cost		673			695
Actuarial (gain) loss		(922)			2,131
Plan amendments		1			(1)
Transitional costs		1			-
Benefits and expenses paid		(629)			(589)
Benefit obligation at end of year (1)	$	16,299		$	16,696

Funded Status:
Current liability	$	(6)		$	(6)
Noncurrent liability		(2,547)			(2,474)
Net liability at end of year	$	(2,553)		$	(2,480)

(1) PG&E Corporation’s accumulated benefit obligation was $14.7 billion and $14.9 billion at December 31, 2015 and 2014, respectively.

Postretirement Benefits Other than Pensions

(in millions)	2015		2014
Change in plan assets:
Fair value of plan assets at beginning of year	$	2,092		$	1,892
Actual return on plan assets		(26)			241
Company contributions		61			57
Plan participant contribution		68			63
Benefits and expenses paid		(160)			(161)
Fair value of plan assets at end of year	$	2,035		$	2,092

Change in benefit obligation:
Benefit obligation at beginning of year	$	1,811		$	1,597
Service cost for benefits earned		55			45
Interest cost		71			76
Actuarial (gain) loss		(98)			166
Transitional costs		1			-
Benefits and expenses paid		(146)			(140)
Federal subsidy on benefits paid		4			4
Plan participant contributions		68			63
Benefit obligation at end of year	$	1,766		$	1,811

Funded Status: (1)
Noncurrent asset	$	344		$	368
Noncurrent liability		(75)			(87)
Net asset at end of year	$	269		$	281

(1) At December 31, 2015 and 2014, the postretirement medical plan was in an overfunded position and the postretirement life insurance plan was in an underfunded position.

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

Components of Net Periodic Benefit Cost

Net periodic benefit cost as reflected in PG&E Corporation’s Consolidated Statements of Income was as follows:

Pension Plan

(in millions)	2015		2014			2013
Service cost	$	479		$	383		$	468
Interest cost		673			695			627
Expected return on plan assets		(873)			(807)			(650)
Amortization of prior service cost		15			20			20
Amortization of net actuarial loss		10			2			111
Net periodic benefit cost		304			293			576
Less: transfer to regulatory account (1)		34			42			(238)
Total expense recognized	$	338		$	335		$	338

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

Postretirement Benefits Other than Pensions

(in millions)	2015		2014			2013
Service cost	$	55		$	45		$	53
Interest cost		71			76			74
Expected return on plan assets		(112)			(103)			(79)
Amortization of prior service cost		19			23			23
Amortization of net actuarial loss		4			2			6
Net periodic benefit cost	$	37		$	43		$	77

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

Components of Accumulated Other Comprehensive Income

PG&E Corporation and the Utility record unrecognized prior service costs and unrecognized gains and losses related to pension and post-retirement benefits other than pension as components of accumulated other comprehensive income, net of tax. In addition, regulatory adjustments are recorded in the Consolidated Statements of Income and Consolidated Balance Sheets to reflect the difference between expense or income calculated in accordance with GAAP for accounting purposes and expense or income for ratemaking purposes, which is based on authorized plan contributions. For pension benefits, a regulatory asset or liability is recorded for amounts that would otherwise be recorded to accumulated other comprehensive income. For post-retirement benefits other than pension, the Utility generally records a regulatory liability for amounts that would otherwise be recorded to accumulated other comprehensive income. As the Utility is unable to record a regulatory asset for these other benefits, the charge remains in accumulated other comprehensive income (loss).

The estimated amounts that will be amortized into net periodic benefit costs for PG&E Corporation in 2016 are as follows:


(in millions)	Pension Plan		PBOP Plans
Unrecognized prior service cost	$	8	$	15
Unrecognized net loss		24		4
Total	$	32	$	19

There were no material differences between the estimated amounts that will be amortized into net periodic benefit costs for PG&E Corporation and the Utility.

Valuation Assumptions

The following actuarial assumptions were used in determining the projected benefit obligations and the net periodic benefit costs. The following weighted average year-end assumptions were used in determining the plans’ projected benefit obligations and net benefit cost.

	Pension Plan						PBOP Plans
	December 31,						December 31,
	2015		2014		2013		2015		2014		2013
Discount rate	4.37	%	4.00	%	4.89	%	4.27 - 4.48	%	3.89 - 4.09	%	4.70 - 5.00	%
Rate of future compensation
increases	4.00	%	4.00	%	4.00	%	-		-		-
Expected return on plan
assets	6.10	%	6.20	%	6.50	%	3.20 - 6.60	%	3.30 - 6.70	%	3.50 - 6.70	%

The assumed health care cost trend rate as of December 31, 2015 was 7.2%, decreasing gradually to an ultimate trend rate in 2024 and beyond of approximately 4%. A one-percentage-point change in assumed health care cost trend rate would have the following effects:

	One-Percentage-Point		One-Percentage-Point
(in millions)	Increase		Decrease
Effect on postretirement benefit obligation	$	113	$	(114)
Effect on service and interest cost		9		(9)

Expected rates of return on plan assets were developed by determining projected stock and bond returns and then applying these returns to the target asset allocations of the employee benefit plan trusts, resulting in a weighted average rate of return on plan assets. Returns on fixed-income debt investments were projected based on real maturity and credit spreads added to a long-term inflation rate. Returns on equity investments were estimated based on estimates of dividend yield and real earnings growth added to a long-term inflation rate. For the pension plan, the assumed return of 6.1% compares to a ten-year actual return of 7.8%. The rate used to discount pension benefits and other benefits was based on a yield curve developed from market data of over approximately 688 Aa-grade non-callable bonds at December 31, 2015. This yield curve has discount rates that vary based on the duration of the obligations. The estimated future cash flows for the pension benefits and other benefit obligations were matched to the corresponding rates on the yield curve to derive a weighted average discount rate.

Investment Policies and Strategies

The financial position of PG&E Corporation’s and the Utility’s funded status is the difference between the fair value of plan assets and projected benefit obligations. Volatility in funded status occurs when asset values change differently from liability values and can result in fluctuations in costs in financial reporting, as well as the amount of minimum contributions required under the Employee Retirement Income Security Act of 1974, as amended. PG&E Corporation’s and the Utility’s investment policies and strategies are designed to increase the ratio of trust assets to plan liabilities at an acceptable level of funded status volatility.

The trusts’ asset allocations are meant to manage volatility, reduce costs, and diversify its holdings. Interest rate, credit, and equity risk are the key determinants of PG&E Corporation’s and the Utility’s funded status volatility. In addition to affecting the trusts’ fixed income portfolio market values, interest rate changes also influence liability valuations as discount rates move with current bond yields. To manage volatility, PG&E Corporation’s and the Utility’s trusts hold significant allocations in long maturity fixed-income investments. Although they contribute to funded status volatility, equity investments are held to reduce long-term funding costs due to their higher expected return. Real assets and absolute return investments are held to diversify the trust’s holdings in equity and fixed-income investments by exhibiting returns with low correlation to the direction of these markets. Real assets include commodities futures, REITS, global listed infrastructure equities, and private real estate funds. Absolute return investments include hedge fund portfolios.

Target allocations for equity investments have generally declined in favor of longer-maturity fixed-income investments and real assets as a means of dampening future funded status volatility. Derivative instruments such as equity index futures are used to meet target equity exposure. In addition, derivative instruments such as equity index futures and U.S. treasury futures are used to rebalance the fixed income/equity allocation of the pension’s portfolio. Foreign currency exchange contracts are also used to hedge a portion of the non U.S. dollar exposure of global equity investments.

The target asset allocation percentages for major categories of trust assets for pension and other benefit plans are as follows:

	Pension Plan								PBOP Plans
	2016		2015			2014			2016			2015			2014
Global equity	25	%		25	%		25	%		32	%		31	%		30	%
Absolute return	5	%		5	%		5	%		3	%		3	%		3	%
Real assets	10	%		10	%		10	%		7	%		8	%		8	%
Fixed income	60	%		60	%		60	%		58	%		58	%		59	%
Total	100	%		100	%		100	%		100	%		100	%		100	%

PG&E Corporation and the Utility apply a risk management framework for managing the risks associated with employee benefit plan trust assets. The guiding principles of this risk management framework are the clear articulation of roles and responsibilities, appropriate delegation of authority, and proper accountability and documentation. Trust investment policies and investment manager guidelines include provisions designed to ensure prudent diversification, manage risk through appropriate use of physical direct asset holdings and derivative securities, and identify permitted and prohibited investments.

Fair Value Measurements

The following tables present the fair value of plan assets for pension and other benefits plans by major asset category at December 31, 2015 and 2014.

	Fair Value Measurements
	At December 31,
	2015												2014
(in millions)	Level 1			Level 2			Level 3			Total				Level 1			Level 2			Level 3			Total
Pension Plan:
Short-term investments	$	247	$		369	$		-	$		616	$			352	$		311	$		-	$		663
Global equity		903			2,243			-			3,146				918			2,311			-			3,229
Absolute return		-			-			660			660				-			-			577			577
Real assets		581			-			753			1,334				620			-			675			1,295
Fixed-income		1,841			5,516			640			7,997				2,068			5,718			638			8,424
Total	$	3,572	$		8,128	$		2,053	$		13,753	$			3,958	$		8,340	$		1,890	$		14,188
PBOP Plans:
Short-term investments	$	20	$		-	$		-	$		20	$			28	$		-	$		-	$		28
Global equity		104			545			-			649				124			549			-			673
Absolute return		-			-			65			65				-			-			55			55
Real assets		69			-			77			146				72			-			49			121
Fixed-income		150			1,010			-			1,160				163			1,055			1			1,219
Total	$	343	$		1,555	$		142	$		2,040	$			387	$		1,604	$		105	$		2,096
Total plan assets at fair value									$		15,793											$		16,284

In addition to the total plan assets disclosed at fair value in the table above, the trusts had other net assets of $13 million and $24 million at December 31, 2015 and 2014, respectively, comprised primarily of cash, accounts receivable, deferred taxes, and accounts payable.

Valuation Techniques

The following describes the valuation techniques used to measure the fair value of the assets and liabilities shown in the table above. All investments that are valued using a net asset value per share can be redeemed quarterly with a notice not to exceed 90 days.

Short-Term Investments

Short-term investments consist primarily of commingled funds across government, credit, and asset-backed sectors. These securities are categorized as Level 1 and Level 2 assets.

Global Equity

The global equity category includes investments in common stock, equity-index futures, and commingled funds comprised of equity securities spread across multiple industries and regions of the world. Equity investments in common stock are actively traded on public exchanges and are therefore considered Level 1 assets. These equity investments are generally valued based on unadjusted prices in active markets for identical securities. Equity-index futures are valued based on unadjusted prices in active markets and are Level 1 assets. Commingled equity funds are valued using a net asset value per share and are maintained by investment companies for large institutional investors and are not publicly traded. Commingled equity funds are comprised primarily of underlying equity securities that are publicly traded on exchanges, and price quotes for the assets held by these funds are readily observable and available. Commingled equity funds are categorized as Level 1 and Level 2 assets.

Absolute Return

The absolute return category includes portfolios of hedge funds that are valued using a net asset value per share based on a variety of proprietary and non-proprietary valuation methods, including unadjusted prices for publicly-traded securities in active markets. Hedge funds are considered Level 3 assets.

Real Assets

The real asset category includes portfolios of commodity futures, global REITS, global listed infrastructure equities, and private real estate funds. The commodity futures, global REITS, and global listed infrastructure equities are actively traded on a public exchange and are therefore considered Level 1 assets. Private real estate funds are valued using a net asset value per share derived using appraisals, pricing models, and valuation inputs that are unobservable and are considered Level 3 assets.

Fixed-Income

The fixed-income category includes U.S. government securities, corporate securities, and other fixed-income securities.

U.S. government fixed-income primarily consists of U.S. Treasury notes and U.S. government bonds that are valued based on quoted market prices or evaluated pricing data for similar securities adjusted for observable differences. These securities are categorized as Level 1 or Level 2 assets.

Corporate fixed-income primarily includes investment grade bonds of U.S. issuers across multiple industries that are valued based on a compilation of primarily observable information or broker quotes in non-active markets. The fair value of corporate bonds is determined using recently executed transactions, market price quotations (where observable), bond spreads or credit default swap spreads obtained from independent external parties such as vendors and brokers adjusted for any basis difference between cash and derivative instruments. These securities are classified as Level 2 assets. Corporate fixed-income also includes commingled funds that are valued using a net asset value per share and are comprised of corporate debt instruments. Commingled funds are considered Level 2 assets. Corporate fixed-income also includes privately placed debt portfolios which are valued using a net asset value per share using pricing models and valuation inputs that are unobservable and are considered Level 3 assets.

Other fixed-income primarily includes pass-through and asset-backed securities. Pass-through securities are valued based on observable market inputs and are Level 2 assets. Asset-backed securities are primarily valued based on broker quotes and are considered Level 2 assets. Other fixed-income also includes municipal bonds and Treasury futures. Municipal bonds are valued based on a compilation of primarily observable information or broker quotes in non-active markets and are considered Level 2 assets. Futures are valued based on unadjusted prices in active markets and are Level 1 assets.

Transfers Between Levels

Any transfers between levels in the fair value hierarchy are recognized as of the end of the reporting period. No material transfers between levels occurred in the years ended December 31, 2015 and 2014.

Level 3 Reconciliation

The following table is a reconciliation of changes in the fair value of instruments for pension and other benefit plans that have been classified as Level 3 for the years ended December 31, 2015 and 2014:

	Pension Plan
(in millions)	Absolute		Fixed-
For the year ended December 31, 2015	Return		Income		Real Assets		Total
Balance at beginning of year	$	577	$	638	$	675	$	1,890
Actual return on plan assets:
Relating to assets still held at the reporting date		(7)		9		63		65
Relating to assets sold during the period		-		1		-		1
Purchases, issuances, sales, and settlements:
Purchases		90		2		17		109
Settlements		-		(10)		(2)		(12)
Balance at end of year	$	660	$	640	$	753	$	2,053

	Pension Plan
(in millions)	Absolute		Fixed-
For the year ended December 31, 2014	Return		Income		Real Assets		Total
Balance at beginning of year	$	554	$	625	$	544	$	1,723
Actual return on plan assets:
Relating to assets still held at the reporting date		23		24		54		101
Relating to assets sold during the period		-		4		-		4
Purchases, issuances, sales, and settlements:
Purchases		-		1		78		79
Settlements		-		(16)		(1)		(17)
Balance at end of year	$	577	$	638	$	675	$	1,890

	PBOP Plans
(in millions)	Absolute			Fixed-
For the year ended December 31, 2015	Return			Income			Real Assets			Total
Balance at beginning of year	$	55	$		1	$		49	$		105
Actual return on plan assets:
Relating to assets still held at the reporting date		(1)			-			5			4
Relating to assets sold during the period		-			-			-			-
Purchases, issuances, sales, and settlements:
Purchases		11			-			23			34
Settlements		-			(1)			-			(1)
Balance at end of year	$	65	$		-	$		77	$		142

	PBOP Plans
(in millions)	Absolute			Fixed-
For the year ended December 31, 2014	Return			Income			Real Assets			Total
Balance at beginning of year	$	53	$		2	$		38	$		93
Actual return on plan assets:
Relating to assets still held at the reporting date		2			-			4			6
Relating to assets sold during the period		-			-			-			-
Purchases, issuances, sales, and settlements:
Purchases		-			-			7			7
Settlements		-			(1)			-			(1)
Balance at end of year	$	55	$		1	$		49	$		105

There were no material transfers out of Level 3 in 2015 and 2014.

Cash Flow Information

Employer Contributions

PG&E Corporation and the Utility contributed $334 million to the pension benefit plans and $61 million to the other benefit plans in 2015. These contributions are consistent with PG&E Corporation’s and the Utility’s funding policy, which is to contribute amounts that are tax-deductible and consistent with applicable regulatory decisions and federal minimum funding requirements. None of these pension or other benefits were subject to a minimum funding requirement requiring a cash contribution in 2015. The Utility’s pension benefits met all the funding requirements under ERISA. PG&E Corporation and the Utility expect to make total contributions of approximately $327 million and $61 million to the pension plan and other postretirement benefit plans, respectively, for 2016.

Benefits Payments and Receipts

As of December 31, 2015, the estimated benefits expected to be paid and the estimated federal subsidies expected to be received in each of the next five fiscal years, and in aggregate for the five fiscal years thereafter, are as follows:

	Pension		PBOP			Federal
(in millions)	Plan		Plans			Subsidy
2016	$	695		$	89		$	(6)
2017		739			95			(7)
2018		780			101			(7)
2019		818			107			(8)
2020		854			113			(8)
Thereafter in the succeeding five years		4,728			593			(17)

There were no material differences between the estimated benefits expected to be paid by PG&E Corporation and paid by the Utility for the years presented above. There were also no material differences between the estimated subsidies expected to be received by PG&E Corporation and received by the Utility for the years presented above.

Retirement Savings Plan

PG&E Corporation sponsors a retirement savings plan, which qualifies as a 401(k) defined contribution benefit plan under the Internal Revenue Code 1986, as amended. This plan permits eligible employees to make pre-tax and after-tax contributions into the plan, and provide for employer contributions to be made to eligible participants. Total expenses recognized for defined contribution benefit plans reflected in PG&E Corporation’s Consolidated Statements of Income were $89 million, $80 million, and $71 million in 2015, 2014, and 2013, respectively.

There were no material differences between the employer contribution expense for PG&E Corporation and the Utility for the years presented above.