NOTE 3: REGULATORY ASSETS, LIABILITIES, AND BALANCING ACCOUNTS

Regulatory Assets

Current Regulatory Assets

At December 31, 2017 and 2016, the Utility had current regulatory assets of $615 million and $423 million, respectively. At December 31, 2017 and 2016, the current regulatory assets included $426 million and $223 million, respectively, of costs related to CEMA fire prevention and vegetation management. Current regulatory assets are included within the current assets in the Consolidated Balance Sheets.

Long-Term Regulatory Assets

Long-term regulatory assets are comprised of the following:

	Balance at December 31,					Recovery
(in millions)	2017		2016			Period
Pension benefits (1)	$	1,954	$	2,429	Indefinitely (3)
Deferred income taxes (1)(4)		-		3,859
Utility retained generation (2)		319		364	9 years
Environmental compliance costs (1)		837		778	32 years
Price risk management (1)		65		92	10 years
Unamortized loss, net of gain, on reacquired debt (1)		79		76	25 years
Other		539		353	Various
Total long-term regulatory assets	$	3,793	$	7,951

(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.

(4) The change in the balance from a regulatory asset as of December 31, 2016 to a regulatory liability as of December 31, 2017 reflects the impact of changes in net deferred tax liabilities associated with a lower federal income tax rate as a result of the Tax Act. (See “Regulatory Liabilities” below and Note 8.)

At December 31, 2017 and 2016, other long-term regulatory assets included $274 million and $70 million, respectively, of costs related to CEMA events from 2014 through 2017 that the Utility believes are recoverable based on historical experience in recovering costs for these types of events.

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 unamortized loss, net of gain, on reacquired debt.

Regulatory Liabilities

Long-Term Regulatory Liabilities

Long-term regulatory liabilities are comprised of the following:

	Balance at December 31,
(in millions)	2017		2016
Cost of removal obligations (1)	$	5,547	$	5,060
Deferred income taxes (2)		1,021		-
Recoveries in excess of AROs (3)		624		626
Public purpose programs (4)		590		567
Other		897		552
Total long-term regulatory liabilities	$	8,679	$	6,805

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

(2) Represents the net of amounts owed to customers for deferred taxes collected at higher rates before the Tax Act and amounts owed to the Utility for reversal of deferred taxes subject to flow-through treatment. (See Note 8 below.)

(3) 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.)

(4) 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)	2017		2016
Electric distribution	$	-	$	132
Electric transmission		139		244
Utility generation		-		48
Gas distribution and transmission		486		541
Energy procurement		71		132
Public purpose programs		103		106
Other		423		297
Total regulatory balancing accounts receivable	$	1,222	$	1,500

	Payable
	Balance at December 31,
(in millions)	2017		2016
Electric distribution	$	72	$	-
Electric transmission		120		99
Utility generation		14		-
Gas distribution and transmission		-		48
Energy procurement		149		13
Public purpose programs		452		264
Other		313		221
Total regulatory balancing accounts payable	$	1,120	$	645

The electric distribution and utility generation accounts track the collection of revenue requirements approved in the GRC. The electric transmission accounts track recovery of costs related to the transmission of electricity. 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.