New And Significant Accounting Policies

9 Months Ended

Sep. 30, 2013

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 2012 Annual Report.

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 known as the VIE's primary beneficiary and is required to consolidate the VIE. In determining whether consolidation of a particular entity is required, PG&E Corporation and the Utility first evaluate whether the entity is a VIE. If the entity is a VIE, PG&E Corporation and the Utility use a qualitative approach to determine if either is the primary beneficiary of 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 September 30, 2013, 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 exposure 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, 2013, it did not consolidate any of them.

PG&E Corporation affiliates have entered into four tax equity agreements to fund residential and commercial retail solar energy installations with four separate privately held funds that are considered VIEs. Under these agreements, PG&E Corporation has made cumulative lease payments and investment contributions of $363 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. At September 30, 2013 and December 31, 2012, the carrying amount of PG&E Corporation's investment in these agreements was $138 million and $166 million, respectively. PG&E Corporation determined that it does not have control over the companies' significant economic activities, such as the design of the companies, vendor selection, construction, and the ongoing operations of the companies. PG&E Corporation has no material remaining commitment to fund these agreements. Since PG&E Corporation was not the primary beneficiary of any of these VIEs at September 30, 2013, it did not consolidate any of them.

Pension and Other Postretirement Benefits

PG&E Corporation and the Utility provide a non-contributory defined benefit pension plan for eligible employees, as well as contributory postretirement medical plans for retirees and their eligible dependents, and non-contributory postretirement life insurance plans for eligible employees and retirees.

The net periodic benefit costs reflected in PG&E Corporation's Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2013 and 2012 were as follows:

	Pension Benefits						Other Benefits
	Three Months Ended September 30,
(in millions)	2013			2012			2013			2012
Service cost for benefits earned	$	121		$	100		$	14		$	14
Interest cost		158			165			19			21
Expected return on plan assets		(162	)		(150	)		(20	)		(19	)
Amortization of transition obligation		-			-			-			6
Amortization of prior service cost		5			5			6			7
Amortization of net actuarial loss		28			29			1			1
Net periodic benefit cost		150			149			20			30
Less: transfer to regulatory account ⁽¹⁾		(66	)		(75	)		-			-
Total	$	84		$	74		$	20		$	30

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

	Pension Benefits						Other Benefits
	Nine Months Ended September 30,
(in millions)	2013			2012			2013			2012
Service cost for benefits earned	$	351		$	297		$	40		$	37
Interest cost		470			494			56			63
Expected return on plan assets		(487	)		(449	)		(60	)		(58	)
Amortization of transition obligation		-			-			-			18
Amortization of prior service cost		15			15			17			19
Amortization of net actuarial loss		83			92			4			4
Net periodic benefit cost		432			449			57			83
Less: transfer to regulatory account ⁽¹⁾		(179	)		(225	)		-			-
Total	$	253		$	224		$	57		$	83

⁽¹⁾ The Utility recorded these amounts to a regulatory account since they 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.

Adoption of New Accounting Pronouncements

Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income

In February 2013, the Financial Accounting Standards Board issued an ASU that requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income. The ASU became effective for PG&E Corporation and the Utility on January 1, 2013.

The changes, net of income tax, in PG&E Corporation's accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2013 consist of the following:



	Pension			Other			Other
	Benefits			Benefits			Investments			Total
(in millions, net of income tax)	Three Months Ended September 30, 2013
Beginning balance	$	(28	)	$	(69	)	$	26		$	(71	)
Other comprehensive income before reclassifications		(20	)		-			(3	)		(23	)
Amounts reclassified from other comprehensive income:
Amortization of prior service cost ⁽¹⁾		3			3			-			6
Amortization of net actuarial loss⁽¹⁾		17			1			-			18
Net current period other comprehensive income (loss)		-			4			(3)			1
Ending balance	$	(28)		$	(65)		$	23		$	(70)

⁽¹⁾ These components are included in the computation of net periodic pension and other postretirement 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)	Nine Months Ended September 30, 2013
Beginning balance	$	(28	)	$	(77	)	$	4	$	(101	)
Other comprehensive income before reclassifications		(58	)		-			19		(39	)
Amounts reclassified from other comprehensive income:
Amortization of prior service cost ⁽¹⁾		9			9			-		18
Amortization of net actuarial loss ⁽¹⁾		49			3			-		52
Net current period other comprehensive income (loss)		-			12			19		31
Ending balance	$	(28)		$	(65)		$	23	$	(70)

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.

Disclosures about Offsetting Assets and Liabilities

In January 2013, the Financial Accounting Standards Board issued an ASU that clarifies the scope of disclosures about offsetting assets and liabilities. The guidance requires an entity to disclose gross and net information about derivatives that are offset in the balance sheet or subject to an enforceable master-netting arrangement or similar agreement. The ASU became effective for PG&E Corporation and the Utility on January 1, 2013. (See Note 7 below.)

- Definition

The entire disclosure for all significant accounting policies of the reporting entity.

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