New And Significant Accounting Policies

6 Months Ended

Jun. 30, 2014

New And Significant Accounting Policies

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 2013 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 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 was the primary beneficiary of any of these VIEs at June 30, 2014, 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 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 June 30, 2014, 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 since 2010 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 June 30, 2014 and December 31, 2013, the carrying amount of PG&E Corporation's investment in these VIEs was $87 million and $98 million, respectively.  PG&E Corporation does not have decision-making rights associated with any of the activities that are most significant to the economic performance of any of these VIEs, such as the design of the companies, vendor selection, construction, and the ongoing operations of the companies.  Since PG&E Corporation was not the primary beneficiary of any of these VIEs at June 30, 2014, it did not consolidate any of them.  On July 2, 2014, PG&E Corporation disposed of its interest in the tax equity agreements.  PG&E Corporation has no remaining commitment to fund these agreements.   

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 six months ended June 30, 2014 and 2013 were as follows:

	Pension Benefits						Other Benefits
	Three Months Ended June 30,
(in millions)	2014			2013			2014			2013
Service cost for benefits earned	$	96		$	115		$	11		$	13
Interest cost		173			156			19			18
Expected return on plan assets		(201	)		(163	)		(26	)		(20	)
Amortization of prior service cost		5			5			5			5
Amortization of net actuarial loss		1			28			1			2
Net periodic benefit cost		74			141			10			18
Less: transfer to regulatory account (1)		9			(56	)		-			-
Total	$	83		$	85		$	10		$	18

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

	Pension Benefits						Other Benefits
	Six Months Ended June 30,
(in millions)	2014			2013			2014			2013
Service cost for benefits earned	$	195		$	230		$	22		$	26
Interest cost		346			312			38			37
Expected return on plan assets		(403	)		(325	)		(52	)		(40	)
Amortization of prior service cost		10			10			11			11
Amortization of net actuarial loss		1			55			1			3
Net periodic benefit cost		149			282			20			37
Less: transfer to regulatory account (1)		19			(113	)		-			-
Total	$	168		$	169		$	20		$	37

 ⁽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.

Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income

The changes, net of income tax, in PG&E Corporation's accumulated other comprehensive income (loss) are summarized below:

	Pension			Other			Other
	Benefits			Benefits			Investments			Total
(in millions, net of income tax)	Three Months Ended June 30, 2014
Beginning balance	$	(7	)	$	15		$	47		$	55
Other comprehensive income before reclassifications:
Gain on investments (net of taxes of $0, $0, and $3,
respectively)		-			-			5			5
Amounts reclassified from other comprehensive income:
Amortization of prior service cost (net of taxes of
$2, $2, and $0, respectively) (1)		3			3			-			6
Amortization of net actuarial loss (net of taxes of
$0, $0, and $0, respectively) (1)		1			1			-			2
Transfer to regulatory account (net of taxes of
$2, $2, and $0, respectively) (1)		(4	)		(4	)		-			(8	)
Realized gain on investments (net of taxes of
$0, $0, and $10, respectively)		-			-			(16	)		(16	)
Net current period other comprehensive loss		-			-			(11)			(11)
Ending balance	$	(7)		$	15		$	36		$	44

 ⁽¹⁾ These components are included in the computation of net periodic pension and other postretirement benefit 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)	Three Months Ended June 30, 2013
Beginning balance	$	(28	)	$	(73	)	$	10	$	(91	)
Other comprehensive income before reclassifications:
Gain on investments (net of taxes of $0, $0, and $11,
respectively)		-			-			16		16
Amounts reclassified from other comprehensive income: (1)
Amortization of prior service cost (net of taxes of
$2, $2, and $0, respectively)		3			3			-		6
Amortization of net actuarial loss (net of taxes of
$12, $1, and $0, respectively)		16			1			-		17
Transfer to regulatory account (net of taxes of
$13, $0, and $0, respectively)		(19	)		-			-		(19	)
Net current period other comprehensive income		-			4			16		20
Ending balance	$	(28)		$	(69)		$	26	$	(71)

 ⁽¹⁾ These components are included in the computation of net periodic pension and other postretirement benefit 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)	Six Months Ended June 30, 2014
Beginning balance	$	(7	)	$	15		$	42		$	50
Other comprehensive income before reclassifications:
Gain on investments (net of taxes of $0, $0, and $7,
respectively)		-			-			10			10
Amounts reclassified from other comprehensive income:
Amortization of prior service cost (net of taxes of
$4, $4, and $0, respectively) (1)		6			7			-			13
Amortization of net actuarial loss (net of taxes of
$0, $0, and $0, respectively) (1)		1			1			-			2
Transfer to regulatory account (net of taxes of
$4, $4, and $0, respectively) (1)		(7	)		(8	)		-			(15	)
Realized gain on investments (net of taxes of
$0, $0, and $10, respectively)		-			-			(16	)		(16	)
Net current period other comprehensive loss		-			-			(6)			(6)
Ending balance	$	(7)		$	15		$	36		$	44

 ⁽¹⁾ These components are included in the computation of net periodic pension and other postretirement benefit 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)	Six Months Ended June 30, 2013
Beginning balance	$	(28	)	$	(77	)	$	4	$	(101	)
Other comprehensive income before reclassifications:
Gain on investments (net of taxes of $0, $0, and $15,
respectively)		-			-			22		22
Amounts reclassified from other comprehensive income: (1)
Amortization of prior service cost (net of taxes of
$4, $5, and $0, respectively)		6			6			-		12
Amortization of net actuarial loss (net of taxes of
$23, $1, and $0, respectively)		32			2			-		34
Transfer to regulatory account (net of taxes of
$26, $0, and $0, respectively)		(38	)		-			-		(38	)
Net current period other comprehensive income		-			8			22		30
Ending balance	$	(28)		$	(69)		$	26	$	(71)

 ⁽¹⁾ These components are included in the computation of net periodic pension and other postretirement benefit costs.  (See the “Pension and Other Postretirement Benefits” table above for additional details.)

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.

Accounting Standards Issued But Not Yet Adopted

Revenue Recognition Standard

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers, which amends existing revenue recognition guidance.  The accounting standards update will be effective on January 1, 2017.  PG&E Corporation and the Utility are currently evaluating the impact the guidance will have on their consolidated financial statements and related disclosures.