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New And Significant Accounting Policies
 3 Months Ended
Mar. 31, 2012
New And Significant Accounting Policies

NOTE 2: NEW AND 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 2011 Annual Report.

 

Pension and Other Postretirement Benefits

PG&E Corporation and the Utility provide a non-contributory defined benefit pension plan for eligible employees and retirees (referred to collectively as "pension benefits") and contributory postretirement medical plans for eligible employees and retirees and their eligible dependents and non-contributory postretirement life insurance plans for eligible employees and retirees (referred to collectively as "other benefits"). PG&E Corporation and the Utility have elected that certain of the trusts underlying these plans be treated under the Internal Revenue Code ("Code") as qualified trusts. If certain conditions are met, PG&E Corporation and the Utility can deduct payments made to the qualified trusts, subject to certain Code limitations. PG&E Corporation and the Utility use a December 31 measurement date for all plans.

 

Net periodic benefit cost as reflected in PG&E Corporation's Condensed Consolidated Statements of Income for the three months ended March 31, 2012 and 2011 is as follows:

 

                                 
     Pension Benefits     Other Benefits  
     Three Months Ended
March 31,		     Three Months Ended
March 31,		  
(in millions)    2012     2011     2012     2011  

Service cost for benefits earned

    $ 99     $ 82     $ 12     $ 11  

Interest cost

      164       164       21       23  

Expected return on plan assets

      (149 )      (167 )      (19 )      (20 ) 

Amortization of transition obligation

      -        -        6       6  

Amortization of prior service cost

      5       9       6       6  

Amortization of unrecognized loss

      31       12       1       1  
    

 

 

    

 

 

    

 

 

    

 

 

  

Net periodic benefit cost

      150       100       27       27  

Less: transfer to regulatory account (1)

     (75 )      (36 )      -        -   
    

 

 

    

 

 

    

 

 

    

 

 

  

Total

    $  75     $  64     $  27     $  27  
    

 

 

    

 

 

    

 

 

    

 

 

  

  (1) 

The Utility recorded $75 million and $36 million for the three months ended March 31, 2012 and 2011, respectively, to a regulatory account as the amounts are probable of recovery from customers in future rates.

 

 

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

 

.

 

Variable Interest Entities

PG&E Corporation and the Utility evaluate whether any entity is a variable interest entity ("VIE") that could require consolidation. PG&E Corporation and the Utility use a qualitative approach to determine who has a controlling financial interest in a VIE and perform ongoing assessments of whether an entity is the primary beneficiary of a VIE.

PG&E Corporation and the Utility are required to consolidate any entities that they control. In most cases, control can be determined based on majority ownership or voting interests. However, for certain entities, control is difficult to discern based on ownership or voting interests alone. These entities are referred to as VIEs. 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 has a controlling financial interest if it has the obligation to absorb expected losses or receive expected gains that could potentially be significant to a VIE and the power to direct the activities that are most significant to a VIE's economic performance. An enterprise that has a controlling financial interest is known as the VIE's primary beneficiary and is required to consolidate the VIE.

Some of the counterparties to the Utility's power purchase agreements are considered VIEs. In determining whether the Utility has a controlling financial interest in a VIE, the Utility assesses whether it absorbs any of the VIE's expected losses or receives any portion of the VIE's expected residual returns, as a result of the power purchase agreement. This assessment includes an evaluation of how the risks and rewards associated with the power plant's activities are absorbed by variable interest holders, as well as an analysis of the variability in the VIE's gross margin and the impact of the power purchase agreement on the gross margin. For each variable interest, the Utility assesses whether it has the power to direct the activities of the power plant that most directly impact the VIE's economic performance.

The Utility can hold a variable interest in entities that own power plants that generate electricity for sale to the Utility under power purchase agreements. Each of these VIEs was designed to own a power plant that would generate electricity for sale to the Utility utilizing various technologies such as natural gas, wind, solar photovoltaic, solar thermal, and hydroelectric. Under each of these power purchase agreements, the Utility is obligated to purchase electricity or capacity, or both, from the VIE. The Utility does not provide any other support to these VIEs, and the Utility's financial exposure is limited to the amount it pays for delivered electricity and capacity. (See Note 10 below.) The Utility does not have the power to direct the activities that are most significant to these VIE's economic performance. This assessment considers any decision-making rights associated with designing the VIE, dispatch rights, operating and maintenance activities, and re-marketing activities of the power plant after the end of the power purchase agreement with the Utility. As a result, the Utility does not have a controlling financial interest in any of these VIEs. Therefore, at March 31, 2012, the Utility was not the primary beneficiary of, and did not consolidate, any of these VIEs.

 

The Utility continued to consolidate PG&E Energy Recovery Funding LLC ("PERF") at March 31, 2012, as the Utility is the primary beneficiary of PERF. In 2005, PERF was formed as a wholly owned subsidiary of the Utility to issue energy recovery bonds ("ERB"s) in connection with the settlement agreement entered into between PG&E Corporation, the Utility, and the CPUC in 2003 to resolve the remaining disputed claims made by electricity suppliers in the Utility's proceeding under Chapter 11 of the U.S. Bankruptcy Code ("Chapter 11 Settlement Agreement"). The Utility has a controlling financial interest in PERF since the Utility is exposed to PERF's losses and returns through the Utility's 100% equity investment in PERF and the Utility was involved in the design of PERF, which was an activity that was significant to PERF's economic performance. The assets of PERF were $382 million at March 31, 2012 and primarily consisted of assets related to ERBs, which are included in other current assets – regulatory assets in the Condensed Consolidated Balance Sheets. The liabilities of PERF were $321 million at March 31, 2012 and consisted of ERBs, which are included in current liabilities in the Condensed Consolidated Balance Sheets. (See Note 4 below.)

As of March 31, 2012, PG&E Corporation affiliates had entered into four tax equity agreements with two privately held companies to fund residential and commercial retail solar energy installations. Under these agreements, PG&E Corporation has agreed to provide lease payments and investment contributions of up to $396 million to these companies in exchange for the right to receive benefits from local rebates, federal grants, and a share of the customer payments made to these companies. The majority of these amounts are recorded in other noncurrent assets – other in PG&E Corporation's Condensed Consolidated Balance Sheets. As of March 31, 2012, PG&E Corporation had made total payments of $360 million under these agreements and received $160 million in benefits and customer payments. PG&E Corporation holds a variable interest in these companies as a result of these agreements. PG&E Corporation was not the primary beneficiary of and did not consolidate any of these companies at March 31, 2012. In making this determination, PG&E Corporation evaluated which party has control over these companies' significant economic activities such as designing the companies, vendor selection, construction, customer selection, and re-marketing activities at the end of customer leases, and determined that these activities are under the control of these companies. PG&E Corporation's financial exposure from these agreements is generally limited to its lease payments and investment contributions to these companies.

 

Adoption of New Accounting Standards

Amendments to Fair Value Measurement Requirements

On January 1, 2012, PG&E Corporation and the Utility adopted an accounting standards update ("ASU") that requires additional fair value measurement disclosures. For fair value measurements that use significant unobservable inputs, quantitative disclosures of the inputs and qualitative disclosures of the valuation processes are required. For items not measured at fair value in the balance sheet but whose fair value is disclosed, disclosures of the fair value hierarchy level, the fair value measurement techniques used, and the inputs used in the fair value measurements are required. In addition, the ASU permits an entity to measure the fair value of a portfolio of financial instruments based on the portfolio's net position, provided that the portfolio has met certain criteria. Furthermore, the ASU refines when an entity should, and should not, apply certain premiums and discounts to a fair value measurement. The adoption of the ASU is reflected in Note 8 below and did not have a material impact on PG&E Corporation's or the Utility's Condensed Consolidated Financial Statements.

Presentation of Comprehensive Income

On January 1, 2012, PG&E Corporation and the Utility adopted ASUs that require an entity to present either (1) a single statement of comprehensive income or loss or (2) a separate statement of comprehensive income or loss that follows a statement of income or loss. A single statement of comprehensive income or loss is comprised of a statement of income or loss with other comprehensive income and losses, total other comprehensive income or loss, and total comprehensive income or loss appended. A separate statement of comprehensive income or loss immediately follows a statement of income or loss and is comprised of net income or loss, other comprehensive income and losses, total other comprehensive income or loss, and total comprehensive income or loss. Furthermore, the ASUs prohibit an entity from presenting other comprehensive income and losses in a statement of equity only. The adoption of the ASUs resulted in the addition of the Condensed Consolidated Statements of Comprehensive Income to PG&E Corporation's and the Utility's Condensed Consolidated Financial Statements.

 
Pacific Gas And Electric Company [Member]
  
New And Significant Accounting Policies

NOTE 2: NEW AND 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 2011 Annual Report.

Pension and Other Postretirement Benefits

PG&E Corporation and the Utility provide a non-contributory defined benefit pension plan for eligible employees and retirees (referred to collectively as "pension benefits") and contributory postretirement medical plans for eligible employees and retirees and their eligible dependents and non-contributory postretirement life insurance plans for eligible employees and retirees (referred to collectively as "other benefits"). PG&E Corporation and the Utility have elected that certain of the trusts underlying these plans be treated under the Internal Revenue Code ("Code") as qualified trusts. If certain conditions are met, PG&E Corporation and the Utility can deduct payments made to the qualified trusts, subject to certain Code limitations. PG&E Corporation and the Utility use a December 31 measurement date for all plans.

 

Net periodic benefit cost as reflected in PG&E Corporation's Condensed Consolidated Statements of Income for the three months ended March 31, 2012 and 2011 is as follows:

 

     Pension Benefits     Other Benefits  
     Three Months Ended
March 31,		     Three Months Ended
March 31,		  
(in millions)    2012     2011     2012     2011  

Service cost for benefits earned

    $ 99     $ 82     $ 12     $ 11  

Interest cost

      164       164       21       23  

Expected return on plan assets

      (149 )      (167 )      (19 )      (20 ) 

Amortization of transition obligation

      -        -        6       6  

Amortization of prior service cost

      5       9       6       6  

Amortization of unrecognized loss

      31       12       1       1  
  

 

 

    

 

 

    

 

 

    

 

 

  

Net periodic benefit cost

      150       100       27       27  

Less: transfer to regulatory account (1)

     (75 )      (36 )      -        -   
  

 

 

    

 

 

    

 

 

    

 

 

  

Total

    $  75     $  64     $  27     $  27  
  

 

 

    

 

 

    

 

 

    

 

 

  

  (1) 

The Utility recorded $75 million and $36 million for the three months ended March 31, 2012 and 2011, respectively, to a regulatory account

  as the amounts are probable of recovery from customers in future rates.

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

.

Variable Interest Entities

PG&E Corporation and the Utility evaluate whether any entity is a variable interest entity ("VIE") that could require consolidation. PG&E Corporation and the Utility use a qualitative approach to determine who has a controlling financial interest in a VIE and perform ongoing assessments of whether an entity is the primary beneficiary of a VIE.

PG&E Corporation and the Utility are required to consolidate any entities that they control. In most cases, control can be determined based on majority ownership or voting interests. However, for certain entities, control is difficult to discern based on ownership or voting interests alone. These entities are referred to as VIEs. 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 has a controlling financial interest if it has the obligation to absorb expected losses or receive expected gains that could potentially be significant to a VIE and the power to direct the activities that are most significant to a VIE's economic performance. An enterprise that has a controlling financial interest is known as the VIE's primary beneficiary and is required to consolidate the VIE.

Some of the counterparties to the Utility's power purchase agreements are considered VIEs. In determining whether the Utility has a controlling financial interest in a VIE, the Utility assesses whether it absorbs any of the VIE's expected losses or receives any portion of the VIE's expected residual returns, as a result of the power purchase agreement. This assessment includes an evaluation of how the risks and rewards associated with the power plant's activities are absorbed by variable interest holders, as well as an analysis of the variability in the VIE's gross margin and the impact of the power purchase agreement on the gross margin. For each variable interest, the Utility assesses whether it has the power to direct the activities of the power plant that most directly impact the VIE's economic performance.

The Utility can hold a variable interest in entities that own power plants that generate electricity for sale to the Utility under power purchase agreements. Each of these VIEs was designed to own a power plant that would generate electricity for sale to the Utility utilizing various technologies such as natural gas, wind, solar photovoltaic, solar thermal, and hydroelectric. Under each of these power purchase agreements, the Utility is obligated to purchase electricity or capacity, or both, from the VIE. The Utility does not provide any other support to these VIEs, and the Utility's financial exposure is limited to the amount it pays for delivered electricity and capacity. (See Note 10 below.) The Utility does not have the power to direct the activities that are most significant to these VIE's economic performance. This assessment considers any decision-making rights associated with designing the VIE, dispatch rights, operating and maintenance activities, and re-marketing activities of the power plant after the end of the power purchase agreement with the Utility. As a result, the Utility does not have a controlling financial interest in any of these VIEs. Therefore, at March 31, 2012, the Utility was not the primary beneficiary of, and did not consolidate, any of these VIEs.

 

The Utility continued to consolidate PG&E Energy Recovery Funding LLC ("PERF") at March 31, 2012, as the Utility is the primary beneficiary of PERF. In 2005, PERF was formed as a wholly owned subsidiary of the Utility to issue energy recovery bonds ("ERB"s) in connection with the settlement agreement entered into between PG&E Corporation, the Utility, and the CPUC in 2003 to resolve the remaining disputed claims made by electricity suppliers in the Utility's proceeding under Chapter 11 of the U.S. Bankruptcy Code ("Chapter 11 Settlement Agreement"). The Utility has a controlling financial interest in PERF since the Utility is exposed to PERF's losses and returns through the Utility's 100% equity investment in PERF and the Utility was involved in the design of PERF, which was an activity that was significant to PERF's economic performance. The assets of PERF were $382 million at March 31, 2012 and primarily consisted of assets related to ERBs, which are included in other current assets regulatory assets in the Condensed Consolidated Balance Sheets. The liabilities of PERF were $321 million at March 31, 2012 and consisted of ERBs, which are included in current liabilities in the Condensed Consolidated Balance Sheets. (See Note 4 below.)

As of March 31, 2012, PG&E Corporation affiliates had entered into four tax equity agreements with two privately held companies to fund residential and commercial retail solar energy installations. Under these agreements, PG&E Corporation has agreed to provide lease payments and investment contributions of up to $396 million to these companies in exchange for the right to receive benefits from local rebates, federal grants, and a share of the customer payments made to these companies. The majority of these amounts are recorded in other noncurrent assets other in PG&E Corporation's Condensed Consolidated Balance Sheets. As of March 31, 2012, PG&E Corporation had made total payments of $360 million under these agreements and received $160 million in benefits and customer payments. PG&E Corporation holds a variable interest in these companies as a result of these agreements. PG&E Corporation was not the primary beneficiary of and did not consolidate any of these companies at March 31, 2012. In making this determination, PG&E Corporation evaluated which party has control over these companies' significant economic activities such as designing the companies, vendor selection, construction, customer selection, and re-marketing activities at the end of customer leases, and determined that these activities are under the control of these companies. PG&E Corporation's financial exposure from these agreements is generally limited to its lease payments and investment contributions to these companies.

 

Adoption of New Accounting Standards

Amendments to Fair Value Measurement Requirements

On January 1, 2012, PG&E Corporation and the Utility adopted an accounting standards update ("ASU") that requires additional fair value measurement disclosures. For fair value measurements that use significant unobservable inputs, quantitative disclosures of the inputs and qualitative disclosures of the valuation processes are required. For items not measured at fair value in the balance sheet but whose fair value is disclosed, disclosures of the fair value hierarchy level, the fair value measurement techniques used, and the inputs used in the fair value measurements are required. In addition, the ASU permits an entity to measure the fair value of a portfolio of financial instruments based on the portfolio's net position, provided that the portfolio has met certain criteria. Furthermore, the ASU refines when an entity should, and should not, apply certain premiums and discounts to a fair value measurement. The adoption of the ASU is reflected in Note 8 below and did not have a material impact on PG&E Corporation's or the Utility's Condensed Consolidated Financial Statements.

Presentation of Comprehensive Income

On January 1, 2012, PG&E Corporation and the Utility adopted ASUs that require an entity to present either (1) a single statement of comprehensive income or loss or (2) a separate statement of comprehensive income or loss that follows a statement of income or loss. A single statement of comprehensive income or loss is comprised of a statement of income or loss with other comprehensive income and losses, total other comprehensive income or loss, and total comprehensive income or loss appended. A separate statement of comprehensive income or loss immediately follows a statement of income or loss and is comprised of net income or loss, other comprehensive income and losses, total other comprehensive income or loss, and total comprehensive income or loss. Furthermore, the ASUs prohibit an entity from presenting other comprehensive income and losses in a statement of equity only. The adoption of the ASUs resulted in the addition of the Condensed Consolidated Statements of Comprehensive Income to PG&E Corporation's and the Utility's Condensed Consolidated Financial Statements.