NOTE 3: REGULATORY ASSETS, LIABILITIES, AND BALANCING ACCOUNTS

Regulatory Assets

Long-term regulatory assets are comprised of the following:

	Balance at December 31,					Recovery
(in millions)	2016		2015			Period
Pension benefits (1)	$	2,429	$	2,414	Indefinitely (3)
Deferred income taxes (1)		3,859		3,054	47 years
Utility retained generation (2)		364		411	9 years
Environmental compliance costs (1)		778		748	32 years
Price risk management (1)		92		138	10 years
Unamortized loss, net of gain, on reacquired debt (1)		76		94	26 years
Other		353		170	Various
Total long-term regulatory assets	$	7,951	$	7,029

(1) Represents the cumulative differences between amounts recognized for ratemaking purposes and expense or accumulated other comprehensive income (loss) recognized in accordance with GAAP.

(2) In connection with the settlement agreement entered into among PG&E Corporation, the Utility, and the CPUC in 2003 to resolve the Utility’s proceeding under Chapter 11, the CPUC authorized the Utility to recover $1.2 billion of costs related to the Utility’s retained generation assets. The individual components of these regulatory assets are being amortized over the respective lives of the underlying generation facilities, consistent with the period over which the related revenues are recognized.

(3) Payments into the pension and other benefits plans are based on annual contribution requirements. As these annual requirements continue indefinitely into the future, the Utility expects to continuously recover pension benefits.

In general, the Utility does not earn a return on regulatory assets if the related costs do not accrue interest. Accordingly, the Utility earns a return only on its regulatory assets for retained generation, and regulatory assets for unamortized loss, net of gain, on reacquired debt.

Regulatory Liabilities

Long-term regulatory liabilities are comprised of the following:

	Balance at December 31,
(in millions)	2016		2015
Cost of removal obligations (1)	$	5,060	$	4,605
Recoveries in excess of AROs (2)		626		631
Public purpose programs (3)		567		600
Other		552		485
Total long-term regulatory liabilities	$	6,805	$	6,321

(1) Represents the cumulative differences between asset removal costs recorded and amounts collected in rates for expected asset removal costs.

(2) Represents the cumulative differences between ARO expenses and amounts collected in rates. Decommissioning costs related to the Utility’s nuclear facilities are recovered through rates and are placed in nuclear decommissioning trusts. This regulatory liability also represents the deferral of realized and unrealized gains and losses on these nuclear decommissioning trust investments. (See Note 10 below.)

(3) Represents amounts received from customers designated for public purpose program costs expected to be incurred beyond the next 12 months, primarily related to energy efficiency programs.

Regulatory Balancing Accounts

The Utility tracks (1) differences between the Utility’s authorized revenue requirement and customer billings, and (2) differences between incurred costs and customer billings. To the extent these differences are probable of recovery or refund over the next 12 months, the Utility records a current regulatory balancing account receivable or payable. Regulatory balancing accounts that the Utility expects to collect or refund over a period exceeding 12 months are recorded as other noncurrent assets – regulatory assets or noncurrent liabilities – regulatory liabilities, respectively, in the Consolidated Balance Sheets. These differences do not have an impact on net income. Balancing accounts will fluctuate during the year based on seasonal electric and gas usage and the timing of when costs are incurred and customer revenues are collected.

Current regulatory balancing accounts receivable and payable are comprised of the following:

	Receivable
	Balance at December 31,
(in millions)	2016		2015
Electric distribution	$	132	$	380
Utility generation		48		122
Gas distribution and transmission		541		493
Energy procurement		132		262
Public purpose programs		106		155
Other		541		348
Total regulatory balancing accounts receivable	$	1,500	$	1,760

	Payable
	Balance at December 31,
(in millions)	2016		2015
Gas distribution and transmission	$	48	$	-
Energy procurement		13		112
Public purpose programs		264		244
Other		320		359
Total regulatory balancing accounts payable	$	645	$	715

The electric distribution and utility generation accounts track the collection of revenue requirements approved in the GRC. The gas distribution and transmission accounts track the collection of revenue requirements approved in the GRC and the GT&S rate case. Energy procurement balancing accounts track recovery of costs related to the procurement of electricity, including any environmental compliance-related activities. Public purpose programs balancing accounts are primarily used to record and recover authorized revenue requirements for commission-mandated programs such as energy efficiency.