FAIR VALUE MEASUREMENTS

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



	Fair Value Measurements
	March 31, 2018
(in millions)	Level 1		Level 2		Level 3		Netting ⁽¹⁾			Total
Assets:
Nuclear decommissioning trusts
Short-term investments	$	28	—		—		—			$	28
Global equity securities	1,862		—		—		—			1,862
Fixed-income securities	776		599		—		—			1,375
Assets measured at NAV	—		—		—		—			17
Total nuclear decommissioning trusts ⁽²⁾	2,666		599		—		—			3,282
Price risk management instruments (Note 7)
Electricity	—		2		125		3			130
Gas	—		1		—		—			1
Total price risk management instruments	—		3		125		3			131
Rabbi trusts
Fixed-income securities	—		74		—		—			74
Life insurance contracts	—		69		—		—			69
Total rabbi trusts	—		143		—		—			143
Long-term disability trust
Short-term investments	5		—		—		—			5
Assets measured at NAV	—		—		—		—			162
Total long-term disability trust	5		—		—		—			167
TOTAL ASSETS	$	2,671	$	745	$	125	$	3		$	3,723
Liabilities:
Price risk management instruments (Note 7)
Electricity	$	8	$	25	$	85	$	(33	)	$	85
Gas	—		2		—		(1		)	1
TOTAL LIABILITIES	$	8	$	27	$	85	$	(34	)	$	86

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

⁽²⁾ Represents amount before deducting $440 million, primarily related to deferred taxes on appreciation of investment value.



	Fair Value Measurements
	December 31, 2017
(in millions)	Level 1		Level 2		Level 3		Netting ⁽¹⁾			Total
Assets:
Short-term investments	$	385	$	—	$	—	$	—		$	385
Nuclear decommissioning trusts
Short-term investments	23		—		—		—			23
Global equity securities	1,967		—		—		—			1,967
Fixed-income securities	733		562		—		—			1,295
Assets measured at NAV	—		—		—		—			18
Total nuclear decommissioning trusts ⁽²⁾	2,723		562		—		—			3,303
Price risk management instruments (Note 7)
Electricity	—		3		129		6			138
Gas	—		1		—		—			1
Total price risk management instruments	—		4		129		6			139
Rabbi trusts
Fixed-income securities	—		72		—		—			72
Life insurance contracts	—		71		—		—			71
Total rabbi trusts	—		143		—		—			143
Long-term disability trust
Short-term investments	8		—		—		—			8
Assets measured at NAV	—		—		—		—			167
Total long-term disability trust	8		—		—		—			175
TOTAL ASSETS	$	3,116	$	709	$	129	$	6		$	4,145
Liabilities:
Price risk management instruments (Note 7)
Electricity	$	10	$	15	$	87	$	(25	)	$	87
Gas	—		1		—		—			1
TOTAL LIABILITIES	$	10	$	16	$	87	$	(25	)	$	88

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

⁽²⁾ Represents amount before deducting $440 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. There are no restrictions on the terms and conditions upon which the investments may be redeemed. 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, 2018 and 2017.

Trust Assets

Assets Measured at Fair Value

In general, investments held in the trusts are exposed to various risks, such as interest rate, credit, and market volatility risks. Nuclear decommissioning trust assets and other trust assets are composed primarily of equity and fixed-income securities and also include short-term investments that are money market funds valued at Level 1.

Global equity securities primarily include investments in common stock that are valued based on quoted prices in active markets and are classified as Level 1.

Fixed-income 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 fixed-income 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.

Assets Measured at NAV Using Practical Expedient

Investments in the nuclear decommissioning trusts and the long-term disability trust that are measured at fair value using the NAV per share practical expedient have not been classified in the fair value hierarchy tables above. The fair value amounts are included in the tables above in order to reconcile to the amounts presented in the Condensed Consolidated Balance Sheets. These investments include commingled funds that are composed of equity securities traded publicly on exchanges as well as fixed-income securities that are composed primarily of U.S. government securities and asset-backed securities.

Price Risk Management Instruments

Price risk management instruments include physical and financial derivative contracts, such as power purchase agreements, forwards, futures, 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 futures 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 futures, 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. Limited market data is available in the CAISO auction and between auction dates; therefore, the Utility utilizes historical prices to forecast forward prices. CRRs are classified as Level 3.

Level 3 Measurements and Sensitivity Analysis

The Utility’s market and credit risk management function, which reports to PG&E Corporation’s Chief Financial Officer, 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, 2018
Fair Value Measurement	Assets		Liabilities		Valuation Technique	Unobservable Input	Range ⁽¹⁾
Congestion revenue rights	$	125	$	25	Market approach	CRR auction prices	$ (7.44) - 13.91
Power purchase agreements	$	—	$	60	Discounted cash flow	Forward prices	$ 18.81 - 38.80

⁽¹⁾Represents price per megawatt-hour



	Fair Value at
(in millions)	December 31, 2017
Fair Value Measurement	Assets		Liabilities		Valuation Technique	Unobservable Input	Range ⁽¹⁾
Congestion revenue rights	$	129	$	24	Market approach	CRR auction prices	$ (16.03) - 11.99
Power purchase agreements	$	—	$	63	Discounted cash flow	Forward prices	$ 18.81 - 38.80

⁽¹⁾ Represents price per megawatt-hour

Level 3 Reconciliation

The following table presents the reconciliation for Level 3 price risk management instruments for the three months ended March 31, 2018 and 2017:



	Price Risk Management Instruments
(in millions)	2018			2017
Asset (liability) balance as of January 1	$	42		$	55
Net realized and unrealized gains:
Included in regulatory assets and liabilities or balancing accounts ⁽¹⁾	(2		)	(6		)
Asset (liability) balance as of March 31	$	40		$	49

⁽¹⁾The costs related to price risk management activities are fully passed through to customers in rates. Accordingly, unrealized gains and losses are deferred in regulatory liabilities and assets and net income is not impacted.

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, net accounts receivable, short-term borrowings, accounts payable, customer deposits, and the Utility’s variable rate pollution control bond loan agreements approximate their carrying values at March 31, 2018 and December 31, 2017, as they are short-term in nature or have interest rates that reset daily.

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, 2018				At December 31, 2017
(in millions)	Carrying Amount		Level 2 Fair Value		Carrying Amount		Level 2 Fair Value
PG&E Corporation	$	350	$	348	$	350	$	350
Utility	16,693		17,723		17,090		19,128

Nuclear Decommissioning Trust Investments

The following table provides a summary of equity securities and available-for-sale debt securities:



(in millions)
As of March 31, 2018	Amortized Cost		Total Unrealized Gains		Total Unrealized Losses			Total Fair Value
Nuclear decommissioning trusts
Short-term investments	$	28	$	—	$	—		$	28
Global equity securities	475		1,405		(1		)	1,879
Fixed-income securities	1,355		39		(19		)	1,375
Total⁽¹⁾	$	1,858	$	1,444	$	(20	)	$	3,282
As of December 31, 2017
Nuclear decommissioning trusts
Short-term investments	$	23	$	—	$	—		$	23
Global equity securities	524		1,463		(2		)	1,985
Fixed-income securities	1,252		51		(8		)	1,295
Total⁽¹⁾	$	1,799	$	1,514	$	(10	)	$	3,303

⁽¹⁾ Represents amounts before deducting $440 million for the periods ended March 31, 2018 and December 31, 2017, primarily related to deferred taxes on appreciation of investment value.

The fair value of fixed-income securities by contractual maturity is as follows:



	As of
(in millions)	March 31, 2018
Less than 1 year	$	42
1–5 years	438
5–10 years	374
More than 10 years	521
Total maturities of fixed-income securities	$	1,375

The following table provides a summary of activity for fixed income and equity securities:



	Three Months Ended March 31,
(in millions)	2018			2017
Proceeds from sales and maturities of nuclear decommissioning trust investments	$	494		$	470
Gross realized gains on securities	37			29
Gross realized losses on securities	(4		)	(5		)