PG&E Corporation and the Utility measure their cash equivalents, trust assets, price risk management instruments, and other investments 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 and other investments are held by PG&E Corporation and not the Utility):

	Fair Value Measurements
	At March 31, 2015
(in millions)	Level 1			Level 2			Level 3			Netting (1)			Total
Assets:
Money market investments	$	96	$		-	$		-	$		-	$		96
Nuclear decommissioning trusts
Money market investments		29			-			-			-			29
Global equity securities		1,619			13			-			-			1,632
Fixed-income securities		673			539			-			-			1,212
Total nuclear decommissioning trusts (2)		2,321			552			-			-			2,873
Price risk management instruments
(Note 7)
Electricity		-			7			230			9			246
Gas		2			1			-			-			3
Total price risk management instruments		2			8			230			9			249
Rabbi trusts
Fixed-income securities		-			42			-			-			42
Life insurance contracts		-			74			-			-			74
Total rabbi trusts		-			116			-			-			116
Long-term disability trust
Money market investments		4			-			-			-			4
Global equity securities		-			24			-			-			24
Fixed-income securities		-			123			-			-			123
Total long-term disability trust		4			147			-			-			151
Total assets	$	2,423	$		823	$		230	$		9	$		3,485
Liabilities:
Price risk management instruments
(Note 7)
Electricity	$	59	$		11	$		188	$		(70)	$		188
Gas		-			1			-			-			1
Total liabilities	$	59	$		12	$		188	$		(70)	$		189

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

(2) Represents amount before deducting $347 million, primarily related to deferred taxes on appreciation of investment value.

	Fair Value Measurements
	At December 31, 2014
(in millions)	Level 1			Level 2			Level 3			Netting (1)			Total
Assets:
Money market investments	$	94	$		-	$		-	$		-	$		94
Nuclear decommissioning trusts
Money market investments		17			-			-			-			17
Global equity securities		1,585			13			-			-			1,598
Fixed-income securities		741			389			-			-			1,130
Total nuclear decommissioning trusts (2)		2,343			402			-			-			2,745
Price risk management instruments
(Note 9)
Electricity		-			17			232			2			251
Gas		1			1			-			-			2
Total price risk management instruments		1			18			232			2			253
Rabbi trusts
Fixed-income securities		-			42			-			-			42
Life insurance contracts		-			72			-			-			72
Total rabbi trusts		-			114			-			-			114
Long-term disability trust
Money market investments		7			-			-			-			7
Global equity securities		-			25			-			-			25
Fixed-income securities		-			128			-			-			128
Total long-term disability trust		7			153			-			-			160
Other investments		33			-			-			-			33
Total assets	$	2,478	$		687	$		232	$		2	$		3,399
Liabilities:
Price risk management instruments
(Note 9)
Electricity	$	47	$		5	$		163	$		(52)	$		163
Gas		-			3			-			-			3
Total liabilities	$	47	$		8	$		163	$		(52)	$		166

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

(2) Represents amount before deducting $324 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. Investments, primarily consisting of equity securities, that are valued using a net asset value per share can be redeemed quarterly with notice not to exceed 90 days. Equity investments valued at net asset value per share utilize investment strategies aimed at matching the performance of indexed funds. Transfers between levels in the fair value hierarchy are recognized as of the end of the reporting period. There were no material transfers between any levels for the three months ended March 31, 2015 and 2014.

Trust Assets

Nuclear decommissioning trust assets and other trust assets are composed primarily of equity securities, debt securities, and life insurance policies. In general, investments held in the trusts are exposed to various risks, such as interest rate, credit, and market volatility risks.

Equity securities primarily include investments in common stock that are valued based on quoted prices in active markets and are classified as Level 1. Equity securities also include commingled funds that are composed of equity securities traded publicly on exchanges across multiple industry sectors in the U.S. and other regions of the world. Investments in these funds are classified as Level 2 because price quotes are readily observable and available.

Debt 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 debt 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.

Price Risk Management Instruments

Price risk management instruments include physical and financial derivative contracts, such as power purchase agreements, forwards, 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 forwards and swaps 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 forwards and swaps, 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. CRRs are classified as Level 3 and are valued based on CRR auction prices, including historical prices. Limited market data is available in the CAISO auction and between auction dates; therefore, the Utility uses models to forecast CRR prices for those periods not covered in the auctions.

Level 3 Measurements and Sensitivity Analysis

The Utility’s market and credit risk management function, which reports to the Chief Risk Officer of the Utility, is responsible for determining the fair value of the Utility’s price risk management derivatives. The Utility’s finance and risk management functions collaborate to determine the appropriate fair value methodologies and classification for each derivative. 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 7 above.)

	Fair Value at
(in millions)	March 31, 2015				Valuation	Unobservable
Fair Value Measurement	Assets		Liabilities		Technique	Input	Range (1)
Congestion revenue rights	$	230	$	64	Market approach	CRR auction prices	$	(15.97) - 8.17
Power purchase agreements	$	-	$	124	Discounted cash flow	Forward prices	$	15.56 - 47.26

(1) Represents price per megawatt-hour

	Fair Value at
(in millions)	December 31, 2014					Valuation		Unobservable
Fair Value Measurement	Assets		Liabilities		Technique		Input		Range (1)
Congestion revenue rights	$	232	$	63	Market approach		CRR auction prices		$	(15.97) - 8.17
Power purchase agreements	$	-	$	100	Discounted cash flow		Forward prices		$	16.04 - 56.21

(1) Represents price per megawatt-hour

Level 3 Reconciliation

The following tables present the reconciliation for Level 3 price risk management instruments for the three months ended March 31, 2015 and 2014:

	Price Risk Management Instruments
(in millions)	2015		2014
Asset (liability) balance as of January 1	$	69	$	(30)
Net realized and unrealized gains:
Included in regulatory assets and liabilities or balancing accounts (1)		(27)		8
Asset (liability) balance as of March 31	$	42	$	(22)

(1) The costs related to price risk management activities are recoverable through customer rates, therefore, balancing account revenue is recorded for amounts settled and purchased and there is no impact to net income. Unrealized gains and losses are deferred in regulatory liabilities and assets.

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, restricted cash, net accounts receivable, short-term borrowings, accounts payable, customer deposits, floating rate senior notes, and the Utility’s variable rate pollution control bond loan agreements approximate their carrying values at March 31, 2015 and December 31, 2014, as they are short-term in nature or have interest rates that reset daily.

The fair values of the Utility’s fixed-rate senior notes and fixed-rate pollution control bonds and PG&E Corporation’s fixed-rate senior notes were based on quoted market prices at March 31, 2015 and December 31, 2014.

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

	At March 31, 2015				At December 31, 2014
(in millions)	Carrying Amount		Level 2 Fair Value			Carrying Amount		Level 2 Fair Value
PG&E Corporation	$	350	$	354		$	350	$	352
Utility		13,779		16,324			13,778		15,851

Available for Sale Investments

The following table provides a summary of available-for-sale investments:

				Total		Total
	Amortized			Unrealized		Unrealized		Total Fair
(in millions)	Cost			Gains		Losses		Value
As of March 31, 2015
Nuclear decommissioning trusts
Money market investments	$	29	$	-	$	-	$	29
Global Equity securities		536		1,109		(13)		1,632
Fixed Income securities		1,133		82		(3)		1,212
Total nuclear decommissioning trusts (1)		1,698		1,191		(16)		2,873
Total	$	1,698	$	1,191	$	(16)	$	2,873
As of December 31, 2014
Nuclear decommissioning trusts
Money market investments	$	17	$	-	$	-	$	17
Global Equity securities		520		1,087		(9)		1,598
Fixed-income securities		1,059		75		(4)		1,130
Total nuclear decommissioning trusts (1)		1,596		1,162		(13)		2,745
Other investments		5		28		-		33
Total	$	1,601	$	1,190	$	(13)	$	2,778

(1) Represents amounts before deducting $347 million and $324 million at March 31, 2015 and December 31, 2014, respectively, primarily related to deferred taxes on appreciation of investment value.

The fair value of debt securities by contractual maturity is as follows:

	As of
(in millions)	March 31, 2015
Less than 1 year	$	25
1–5 years		450
5–10 years		257
More than 10 years		480
Total maturities of debt securities	$	1,212

The following table provides a summary of activity for the debt and equity securities:

	Three Months Ended
	March 31, 2015		March 31, 2014
(in millions)
Proceeds from sales and maturities of nuclear decommissioning trust
investments	$	417	$	530
Gross realized gains on sales of securities held as available-for-sale		35		56
Gross realized losses on sales of securities held as available-for-sale		(3)		(1)