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FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 30, 2020

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.

Assets and liabilities measured at fair value on a recurring basis for PG&E Corporation and the Utility are summarized below. Assets held in rabbi trusts are held by PG&E Corporation and not the Utility.


	Fair Value Measurements
	September 30, 2020
(in millions)	Level 1		Level 2		Level 3		Netting (1)		Total
Assets:
Short-term investments	$	446	$	—	$	—	$	—	$	446
Nuclear decommissioning trusts
Short-term investments	12		—		—		—		12
Global equity securities	2,222		—		—		—		2,222
Fixed-income securities	856		791		—		—		1,647
Assets measured at NAV	—		—		—		—		23
Total nuclear decommissioning trusts (2)	3,090		791		—		—		3,904
Price risk management instruments (Note 8)
Electricity	—		13		142		41		196
Gas	—		14		—		5		19
Total price risk management instruments	—		27		142		46		215
Rabbi trusts
Fixed-income securities	—		105		—		—		105
Life insurance contracts	—		78		—		—		78
Total rabbi trusts	—		183		—		—		183
Long-term disability trust
Short-term investments	5		—		—		—		5
Assets measured at NAV	—		—		—		—		144
Total long-term disability trust	5		—		—		—		149
TOTAL ASSETS	$	3,541	$	1001	$	142	$	46	$	4,897
Liabilities:
Price risk management instruments (Note 8)
Electricity	—		4		239		(3)		240
Gas	—		3		—		(1)		2
TOTAL LIABILITIES	$	—	$	7	$	239	$	(4)	$	242

(1) Includes the effect of the contractual ability to settle contracts under master netting agreements and margin cash collateral.

(2) Represents amount before deducting $586 million, primarily related to deferred taxes on appreciation of investment value.


	Fair Value Measurements
	December 31, 2019
(in millions)	Level 1		Level 2		Level 3		Netting (1)		Total
Assets:
Short-term investments	$	1,323	$	—	$	—	$	—	$	1,323
Nuclear decommissioning trusts
Short-term investments	6		—		—		—		6
Global equity securities	2,086		—		—		—		2,086
Fixed-income securities	862		728		—		—		1,590
Assets measured at NAV	—		—		—		—		21
Total nuclear decommissioning trusts (2)	2,954		728		—		—		3,703
Price risk management instruments (Note 8)
Electricity	—		2		161		(11)		152
Gas	—		3		—		3		6
Total price risk management instruments	—		5		161		(8)		158
Rabbi trusts
Fixed-income securities	—		100		—		—		100
Life insurance contracts	—		73		—		—		73
Total rabbi trusts	—		173		—		—		173
Long-term disability trust
Short-term investments	10		—		—		—		10
Assets measured at NAV	—		—		—		—		156
Total long-term disability trust	10		—		—		—		166
TOTAL ASSETS	$	4,287	$	906	$	161	$	(8)	$	5,523
Liabilities:
Price risk management instruments (Note 8)
Electricity	$	1	$	2	$	156	$	(13)	$	146
Gas	—		2		—		(1)		1
TOTAL LIABILITIES	$	1	$	4	$	156	$	(14)	$	147

(1) Includes the effect of the contractual ability to settle contracts under master netting agreements and margin cash collateral.

(2) Represents amount before deducting $530 million, primarily related to deferred taxes on appreciation of investment value.

Valuation Techniques

The following describes the valuation techniques used to measure the fair value of the assets and liabilities shown in the tables above. There are no restrictions on the terms and conditions upon which the investments may be redeemed. There were no material transfers between any levels for the three and nine months ended September 30, 2020 and 2019.

Trust Assets

Assets Measured at Fair Value

In general, investments held in the trusts are exposed to various risks, such as interest rate, credit, and market volatility risks. Nuclear decommissioning trust assets and other trust assets are composed primarily of equity and fixed-income securities and also include short-term investments that are money market funds valued as Level 1.

Global equity securities primarily include investments in common stock that are valued based on quoted prices in active markets and are classified as Level 1.

Fixed-income securities are primarily composed of U.S. government and agency securities, municipal securities, and other fixed-income securities, including corporate debt securities. U.S. government and agency securities primarily consist of U.S. Treasury securities that are classified as Level 1 because the fair value is determined by observable market prices in active markets. A market approach is generally used to estimate the fair value of fixed-income securities classified as Level 2 using evaluated pricing data such as broker quotes, for similar securities adjusted for observable differences. Significant inputs used in the valuation model generally include benchmark yield curves and issuer spreads. The external credit ratings, coupon rate, and maturity of each security are considered in the valuation model, as applicable.

Assets Measured at NAV Using Practical Expedient

Investments in the nuclear decommissioning trusts and the long-term disability trust that are measured at fair value using the NAV per share practical expedient have not been classified in the fair value hierarchy tables above. The fair value amounts are included in the tables above in order to reconcile to the amounts presented in the Condensed Consolidated Balance Sheets. These investments include commingled funds that are composed of equity securities traded publicly on exchanges as well as fixed-income securities that are composed primarily of U.S. government securities and asset-backed securities.

Price Risk Management Instruments

Price risk management instruments include physical and financial derivative contracts, such as power purchase agreements, forwards, futures, swaps, options, and CRRs that are traded either on an exchange or over-the-counter.

Power purchase agreements, forwards, and swaps are valued using a discounted cash flow model. Exchange-traded futures that are valued using observable market forward prices for the underlying commodity are classified as Level 1. Over-the-counter forwards and swaps that are identical to exchange-traded futures or are valued using forward prices from broker quotes that are corroborated with market data are classified as Level 2. Exchange-traded options are valued using observable market data and market-corroborated data and are classified as Level 2.

Long-dated power purchase agreements that are valued using significant unobservable data are classified as Level 3. These Level 3 contracts are valued using either estimated basis adjustments from liquid trading points or techniques, including extrapolation from observable prices, when a contract term extends beyond a period for which market data is available. Market and credit risk management utilizes models to derive pricing inputs for the valuation of the Utility’s Level 3 instruments using pricing inputs from brokers and historical data.

The Utility holds CRRs to hedge the financial risk of CAISO-imposed congestion charges in the day-ahead market. Limited market data is available in the CAISO auction and between auction dates; therefore, the Utility utilizes historical prices to forecast forward prices. CRRs are classified as Level 3.

Level 3 Measurements and Uncertainty Analysis

Inputs used and the fair value of Level 3 instruments are reviewed period-over-period and compared with market conditions to determine reasonableness.

Significant increases or decreases in any of those inputs would result in a significantly higher or lower fair value, respectively. All reasonable costs related to Level 3 instruments are expected to be recoverable through customer rates; therefore, there is no impact to net income resulting from changes in the fair value of these instruments. (See Note 8 above.)

Fair Value at

(in millions)

September 30, 2020

Fair Value Measurement

Assets

Liabilities

Valuation
Technique

Unobservable
Input

Range(1) /Weighted-Average Price (2)

Congestion revenue rights

131

Market approach

CRR auction prices

$(20.20) - $20.20 / 0.27

Power purchase agreements

182

Discounted cash flow

Forward prices

$11.92 - $97.45 / 33.25

(1) Represents price per megawatt-hour.

(2) Unobservable inputs were weighted by the relative fair value of the instruments.

Fair Value at

(in millions)

December 31, 2019

Fair Value Measurement

Assets

Liabilities

Valuation Technique

Unobservable Input

Range (1)/Weighted-Average Price (2)

Congestion revenue rights

140

Market approach

CRR auction prices

$(20.20) - $20.20 / 0.28

Power purchase agreements

112

Discounted cash flow

Forward prices

$11.77 - $59.38 / 33.62

(1) Represents price per megawatt-hour.

(2) Unobservable inputs were weighted by the relative fair value of the instruments.

Level 3 Reconciliation

The following table presents the reconciliation for Level 3 instruments for the three and nine months ended September 30, 2020 and 2019:


	Price Risk Management Instruments
(in millions)	2020		2019
Asset (liability) balance as of July 1	$	(66)	$	109
Net realized and unrealized losses:
Included in regulatory assets and liabilities or balancing accounts (1)	(31)		(75)
Asset (liability) balance as of September 30	$	(97)	$	34

(1) The costs related to price risk management activities are fully passed through to customers in rates. Accordingly, unrealized gains and losses are deferred in regulatory liabilities and assets and net income is not impacted.


	Price Risk Management Instruments
(in millions)	2020		2019
Asset balance as of January 1	$	5	$	95
Net realized and unrealized gains (losses):
Included in regulatory assets and liabilities or balancing accounts (1)	(102)		(61)
Asset (liability) balance as of September 30	$	(97)	$	34

Financial Instruments

PG&E Corporation and the Utility use the following methods and assumptions in estimating fair value for financial instruments: the fair values of cash, net accounts receivable; short-term borrowings; accounts payable; and customer deposits approximate their carrying values at September 30, 2020 and December 31, 2019, as they are short-term in nature.

The carrying amount and fair value of PG&E Corporation’s and the Utility’s long-term debt instruments were as follows (the table below excludes financial instruments with carrying values that approximate their fair values):


	At September 30, 2020				At December 31, 2019
(in millions)	Carrying Amount		Level 2 Fair Value		Carrying Amount(1)		Level 2 Fair Value(1)(2)
Debt (Note 5)
PG&E Corporation	$	1,904	$	1,942	$	—	$	—
Utility	29,657		30,637		1,500		1,500

(1) On January 29, 2019 PG&E Corporation and the Utility filed for Chapter 11 protection. Debt held by PG&E Corporation and the Utility became debt subject to compromise and is valued at the allowed claim amount. For more information, see Note 2 and Note 5.

(2) The fair value of the Utility pre-petition debt was $17.9 billion at December 31, 2019. For more information, see Note 2 and Note 5.

Nuclear Decommissioning Trust Investments

The following table provides a summary of equity securities and available-for-sale debt securities:


(in millions)
As of September 30, 2020	Amortized Cost		Total Unrealized Gains		Total Unrealized Losses		Total Fair Value
Nuclear decommissioning trusts
Short-term investments	$	12	$	—	$	—	$	12
Global equity securities	584		1,670		(9)		2,245
Fixed-income securities	1,486		164		(3)		1,647
Total (1)	$	2,082	$	1,834	$	(12)	$	3,904
As of December 31, 2019
Nuclear decommissioning trusts
Short-term investments	$	6	$	—	$	—	$	6
Global equity securities	500		1,609		(2)		2,107
Fixed-income securities	1,505		89		(4)		1,590
Total (1)	$	2,011	$	1,698	$	(6)	$	3,703

(1) Represents amounts before deducting $586 million and $530 million for the periods ended September 30, 2020 and December 31, 2019, respectively, primarily related to deferred taxes on appreciation of investment value.

The fair value of fixed-income securities by contractual maturity is as follows:


	As of
(in millions)	September 30, 2020
Less than 1 year	$	23
1–5 years	452
5–10 years	402
More than 10 years	770
Total maturities of fixed-income securities	$	1,647

The following table provides a summary of activity for fixed income and equity securities:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2020		2019		2020		2019
Proceeds from sales and maturities of nuclear decommissioning trust investments	$	890	$	346	$	1,144	$	808
Gross realized gains on securities	51		45		59		67
Gross realized losses on securities	(22)		(5)		(34)		(12)

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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