Edgar Filing: PACIFIC GAS & ELECTRIC Co

form10q.htm


UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C., 20549 FORM 10-Q
(Mark One)
[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2013 OR

[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to __________

Commission File Number _______________		Exact Name of Registrant as Specified in its Charter _______________		State or Other Jurisdiction of Incorporation ______________		IRS Employer Identification Number ___________

1-12609		PG&E Corporation		California		94-3234914
1-2348		Pacific Gas and Electric Company		California		94-0742640

Pacific Gas and Electric Company 77 Beale Street P.O. Box 770000 San Francisco, California 94177 ________________________________________				PG&E Corporation 77 Beale Street P.O. Box 770000 San Francisco, California 94177 ______________________________________
Address of principal executive offices, including zip code

Pacific Gas and Electric Company (415) 973-7000 ________________________________________				PG&E Corporation (415) 973-1000 ______________________________________
Registrant's telephone number, including area code

Indicate by check mark whether each registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. [X] Yes [ ] No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
PG&E Corporation:				[X] Yes [ ] No
Pacific Gas and Electric Company:				[X] Yes [ ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
PG&E Corporation:			[X] Large accelerated filer		[ ] Accelerated filer
			[ ] Non-accelerated filer		[ ] Smaller reporting company
Pacific Gas and Electric Company:			[ ] Large accelerated filer		[ ] Accelerated filer
			[X] Non-accelerated filer		[ ] Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
PG&E Corporation:				[ ] Yes [X] No
Pacific Gas and Electric Company:				[ ] Yes [X] No

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Common stock outstanding as of April 23, 2013:
PG&E Corporation:				442,173,394
Pacific Gas and Electric Company:				264,374,809

PG&E CORPORATION AND

PACIFIC GAS AND ELECTRIC COMPANY

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2013

TABLE OF CONTENTS

			PAGE
GLOSSARY			ii

PART I.	FINANCIAL INFORMATION
ITEM 1.	CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	PG&E Corporation
	Condensed Consolidated Statements of Income		1
	Condensed Consolidated Statements of Comprehensive Income		2
	Condensed Consolidated Balance Sheets		3
	Condensed Consolidated Statements of Cash Flows		5
	Pacific Gas and Electric Company
	Condensed Consolidated Statements of Income		6
	Condensed Consolidated Statements of Comprehensive Income		7
	Condensed Consolidated Balance Sheets		8
	Condensed Consolidated Statements of Cash Flows		10
	NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	NOTE 1:	Organization and Basis of Presentation	11
	NOTE 2:	Significant Accounting Policies	11
	NOTE 3:	Regulatory Assets, Liabilities, and Balancing Accounts	13
	NOTE 4:	Debt	14
	NOTE 5:	Equity	15
	NOTE 6:	Earnings Per Share	15
	NOTE 7:	Derivatives	16
	NOTE 8:	Fair Value Measurements	18
	NOTE 9:	Resolution of Remaining Chapter 11 Disputed Claims	24
	NOTE 10:	Commitments and Contingencies	25

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	Overview		32
	Cautionary Language Regarding Forward-Looking Statements		34
	Results of Operations		37
	Liquidity and Financial Resources		41
	Contractual Commitments		46
	Natural Gas Matters		46
	Regulatory Matters		49
	Environmental Matters		51
	Off-Balance Sheet Arrangements		51
	Risk Management Activities		52
	Critical Accounting Policies		52
	Accounting Standards Issued But Not Yet Adopted		52

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		53
ITEM 4.	CONTROLS AND PROCEDURES		53

PART II.	OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS		54
ITEM 1A.	RISK FACTORS		55
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		55
ITEM 5.	OTHER INFORMATION		55
ITEM 6.	EXHIBITS		56

SIGNATURES			57

GLOSSARY

The following terms and abbreviations appearing in the text of this report have the meanings indicated below.

2012 Annual Report	PG&E Corporation's and Pacific Gas and Electric Company's combined 2012 Annual Report on Form 10-K
ALJ	administrative law judge
ARO(s)	asset retirement obligation(s)
ASU	Accounting Standards Update
CAISO	California Independent System Operator
CARB	California Air Resources Board
CPUC	California Public Utilities Commission
CRRs	congestion revenue rights
DTSC	California Department of Toxic Substances Control
ERBs	Energy Recovery Bonds
EPS	earnings per common share
FASB	Financial Accounting Standards Board
FERC	Federal Energy Regulatory Commission
GAAP	generally accepted accounting principles
GHG	greenhouse gas
GRC	General Rate Case
GT&S	Gas Transmission and Storage
IRS	Internal Revenue Service
kWh(s)	kilowatt-hour(s)
NEIL	Nuclear Electric Insurance Limited
NRC	Nuclear Regulatory Commission
NTSB	National Transportation Safety Board
ROE	return on equity
San Bruno accident	On September 9, 2010, an underground 30-inch natural gas transmission pipeline owned and operated by the Utility, ruptured in a residential area located in the City of San Bruno, California. The ensuing explosion and fire resulted in the deaths of eight people, numerous personal injuries, and extensive property damage.
SED	Safety and Enforcement Division of the CPUC, formerly known as the Consumer Protection and Safety Division or CPSD
TO	Transmission Owner
Utility	Pacific Gas and Electric Company
VIE(s)	variable interest entity(ies)

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

PG&E CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

	(Unaudited)
	Three Months Ended
	March 31,
(in millions, except per share amounts)	2013			2012
Operating Revenues
Electric	$	2,799		$	2,772
Natural gas		873			869
Total operating revenues		3,672			3,641
Operating Expenses
Cost of electricity		983			859
Cost of natural gas		346			343
Operating and maintenance		1,338			1,368
Depreciation, amortization, and decommissioning		503			584
Total operating expenses		3,170			3,154
Operating Income		502			487
Interest income		2			1
Interest expense		(176	)		(174	)
Other income, net		28			26
Income Before Income Taxes		356			340
Income tax provision		114			104
Net Income		242			236
Preferred stock dividend requirement of subsidiary		3			3
Income Available for Common Shareholders	$	239		$	233
Weighted Average Common Shares Outstanding, Basic		434			414
Weighted Average Common Shares Outstanding, Diluted		435			416
Net Earnings Per Common Share, Basic	$	0.55		$	0.56
Net Earnings Per Common Share, Diluted	$	0.55		$	0.56
Dividends Declared Per Common Share	$	0.46		$	0.46

See accompanying Notes to the Condensed Consolidated Financial Statements.

PG&E CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	(Unaudited)
	Three Months Ended March 31,
(in millions)	2013			2012
Net Income	$	242		$	236
Other Comprehensive Income
Pension and other postretirement benefit plans
Unrecognized prior service credit (net of income tax of $5 during respective periods)		6			6
Unrecognized net gain (net of income tax of $11 during respective periods)		17			21
Unrecognized net transition obligation (net of income tax of $2 in 2012)		-			4
Transfer to regulatory account (net of income tax of $13 and $15 during respective periods)		(19	)		(21	)
Other (net of income tax of $4 in 2013)		6			-
Total other comprehensive income		10			10
Comprehensive Income		252			246
Preferred stock dividend requirement of subsidiary		3			3
Comprehensive Income Attributable to Common Shareholders	$	249		$	243

See accompanying Notes to the Condensed Consolidated Financial Statements.

PG&E CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

	(Unaudited)
	Balance At
	March 31,			December 31,
(in millions)	2013			2012
ASSETS
Current Assets
Cash and cash equivalents	$	278		$	401
Restricted cash		304			330
Accounts receivable
Customers (net of allowance for doubtful accounts of $84 and $87at respective dates)		943			937
Accrued unbilled revenue		600			761
Regulatory balancing accounts		1,241			936
Other		298			365
Regulatory assets		486			564
Inventories
Gas stored underground and fuel oil		73			135
Materials and supplies		316			309
Income taxes receivable		166			211
Other		187			172
Total current assets		4,892			5,121
Property, Plant, and Equipment
Electric		40,356			39,701
Gas		12,786			12,571
Construction work in progress		2,100			1,894
Other		1			1
Total property, plant, and equipment		55,243			54,167
Accumulated depreciation		(16,961	)		(16,644	)
Net property, plant, and equipment		38,282			37,523
Other Noncurrent Assets
Regulatory assets		6,778			6,809
Nuclear decommissioning trusts		2,233			2,161
Income taxes receivable		202			176
Other		675			659
Total other noncurrent assets		9,888			9,805
TOTAL ASSETS	$	53,062		$	52,449

See accompanying Notes to the Condensed Consolidated Financial Statements.

PG&E CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

	(Unaudited)
	Balance At
	March 31,			December 31,
(in millions, except share amounts)	2013			2012
LIABILITIES AND EQUITY
Current Liabilities
Short-term borrowings	$	489		$	492
Long-term debt, classified as current		1,399			400
Accounts payable
Trade creditors		1,043			1,241
Disputed claims and customer refunds		156			157
Regulatory balancing accounts		1,102			634
Other		488			444
Interest payable		831			870
Income taxes payable		10			6
Deferred income taxes		44			-
Other		1,486			2,012
Total current liabilities		7,048			6,256
Noncurrent Liabilities
Long-term debt		11,518			12,517
Regulatory liabilities		5,187			5,088
Pension and other postretirement benefits		3,626			3,575
Asset retirement obligations		2,924			2,919
Deferred income taxes		6,870			6,748
Other		2,065			2,020
Total noncurrent liabilities		32,190			32,867
Commitments and Contingencies (Note 10)
Equity
Shareholders' Equity
Preferred stock		-			-
Common stock, no par value, authorized 800,000,000 shares, 441,509,054 and 430,718,293 shares outstanding at respective dates		8,879			8,428
Reinvested earnings		4,784			4,747
Accumulated other comprehensive loss		(91	)		(101	)
Total shareholders' equity		13,572			13,074
Noncontrolling Interest - Preferred Stock of Subsidiary		252			252
Total equity		13,824			13,326
TOTAL LIABILITIES AND EQUITY	$	53,062		$	52,449

See accompanying Notes to the Condensed Consolidated Financial Statements.

PG&E CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	(Unaudited)
	Three Months Ended March 31,
(in millions)	2013			2012
Cash Flows from Operating Activities
Net income	$	242		$	236
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization, and decommissioning		503			584
Allowance for equity funds used during construction		(26	)		(27	)
Deferred income taxes and tax credits, net		166			146
Other		57			73
Effect of changes in operating assets and liabilities:
Accounts receivable		209			221
Inventories		55			50
Accounts payable		(56	)		(213	)
Income taxes receivable/payable		49			29
Other current assets and liabilities		(242	)		(70	)
Regulatory assets, liabilities, and balancing accounts, net		(133	)		(171	)
Other noncurrent assets and liabilities		45			73
Net cash provided by operating activities		869			931
Cash Flows from Investing Activities
Capital expenditures		(1,249	)		(1,094	)
Decrease (increase) in restricted cash		26			(5	)
Proceeds from sales and maturities of nuclear decommissioning trust investments		363			351
Purchases of nuclear decommissioning trust investments		(364	)		(370	)
Other		17			25
Net cash used in investing activities		(1,207	)		(1,093	)
Cash Flows from Financing Activities
Net repayments of commercial paper, net of discount of $1 in 2012		(2	)		(245	)
Energy recovery bonds matured		-			(102	)
Common stock issued		426			387
Common stock dividends paid		(191	)		(182	)
Other		(18	)		48
Net cash provided by (used in) financing activities		215			(94	)
Net change in cash and cash equivalents		(123	)		(256	)
Cash and cash equivalents at January 1		401			513
Cash and cash equivalents at March 31	$	278		$	257
Supplemental disclosures of cash flow information
Cash received (paid) for:
Interest, net of amounts capitalized	$	(197	)	$	(204	)
Income taxes, net		36			-
Supplemental disclosures of noncash investing and financing activities
Common stock dividends declared but not yet paid	$	201		$	193
Capital expenditures financed through accounts payable		257			276
Noncash common stock issuances		6			6
Terminated capital leases		-			136

See accompanying Notes to the Condensed Consolidated Financial Statements.

PACIFIC GAS AND ELECTRIC COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

	(Unaudited)
	Three Months Ended
	March 31,
(in millions)	2013			2012
Operating Revenues
Electric	$	2,798		$	2,771
Natural gas		873			869
Total operating revenues		3,671			3,640
Operating Expenses
Cost of electricity		983			859
Cost of natural gas		346			343
Operating and maintenance		1,336			1,366
Depreciation, amortization, and decommissioning		503			584
Total operating expenses		3,168			3,152
Operating Income		503			488
Interest income		1			1
Interest expense		(170	)		(168	)
Other income, net		24			23
Income Before Income Taxes		358			344
Income tax provision		121			113
Net Income		237			231
Preferred stock dividend requirement		3			3
Income Available for Common Stock	$	234		$	228

See accompanying Notes to the Condensed Consolidated Financial Statements.

PACIFIC GAS AND ELECTRIC COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	(Unaudited)
	Three Months Ended March 31,
(in millions)	2013			2012
Net Income	$	237		$	231
Other Comprehensive Income
Pension and other postretirement benefit plans
Unrecognized prior service credit (net of income tax of $5 during respective periods)		6			6
Unrecognized net gain (net of income tax of $10 and $11 during respective periods)		18			21
Unrecognized net transition obligation (net of income tax of $2 in 2012)		-			4
Transfer to regulatory account (net of income tax of $13 and $15 during respective periods)		(19	)		(21	)
Total other comprehensive income		5			10
Comprehensive Income	$	242		$	241

See accompanying Notes to the Condensed Consolidated Financial Statements.

PACIFIC GAS AND ELECTRIC COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

	(Unaudited)
	Balance At
	March 31,			December 31,
(in millions)	2013			2012
ASSETS
Current Assets
Cash and cash equivalents	$	53		$	194
Restricted cash		304			330
Accounts receivable
Customers (net of allowance for doubtful accounts of $84 and $87 at respective dates)		943			937
Accrued unbilled revenue		600			761
Regulatory balancing accounts		1,241			936
Other		305			366
Regulatory assets		486			564
Inventories
Gas stored underground and fuel oil		73			135
Materials and supplies		316			309
Income taxes receivable		140			186
Other		161			160
Total current assets		4,622			4,878
Property, Plant, and Equipment
Electric		40,356			39,701
Gas		12,786			12,571
Construction work in progress		2,100			1,894
Total property, plant, and equipment		55,242			54,166
Accumulated depreciation		(16,960	)		(16,643	)
Net property, plant, and equipment		38,282			37,523
Other Noncurrent Assets
Regulatory assets		6,778			6,809
Nuclear decommissioning trusts		2,233			2,161
Income taxes receivable		197			171
Other		403			381
Total other noncurrent assets		9,611			9,522
TOTAL ASSETS	$	52,515		$	51,923

See accompanying Notes to the Condensed Consolidated Financial Statements.

PACIFIC GAS AND ELECTRIC COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

	(Unaudited)
	Balance At
	March 31,			December 31,
(in millions, except share amounts)	2013			2012
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings	$	369		$	372
Long-term debt, classified as current		1,399			400
Accounts payable
Trade creditors		1,044			1,241
Disputed claims and customer refunds		156			157
Regulatory balancing accounts		1,102			634
Other		520			419
Interest payable		820			865
Income taxes payable		17			12
Deferred income taxes		36			-
Other		1,267			1,794
Total current liabilities		6,730			5,894
Noncurrent Liabilities
Long-term debt		11,168			12,167
Regulatory liabilities		5,187			5,088
Pension and other postretirement benefits		3,546			3,497
Asset retirement obligations		2,924			2,919
Deferred income taxes		7,066			6,939
Other		2,005			1,959
Total noncurrent liabilities		31,896			32,569
Commitments and Contingencies (Note 10)
Shareholders' Equity
Preferred stock		258			258
Common stock, $5 par value, authorized 800,000,000 shares, 264,374,809 shares outstanding at respective dates		1,322			1,322
Additional paid-in capital		5,051			4,682
Reinvested earnings		7,346			7,291
Accumulated other comprehensive loss		(88	)		(93	)
Total shareholders' equity		13,889			13,460
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	52,515		$	51,923

See accompanying Notes to the Condensed Consolidated Financial Statements.

PACIFIC GAS AND ELECTRIC COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	(Unaudited)
	Three Months Ended March 31,
(in millions)	2013			2012
Cash Flows from Operating Activities
Net income	$	237		$	231
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization, and decommissioning		503			584
Allowance for equity funds used during construction		(26	)		(27	)
Deferred income taxes and tax credits, net		163			153
Other		37			57
Effect of changes in operating assets and liabilities:
Accounts receivable		203			218
Inventories		55			50
Accounts payable		2			(182	)
Income taxes receivable/payable		51			30
Other current assets and liabilities		(230	)		(69	)
Regulatory assets, liabilities, and balancing accounts, net		(133	)		(171	)
Other noncurrent assets and liabilities		45			75
Net cash provided by operating activities		907			949
Cash Flows from Investing Activities
Capital expenditures		(1,249	)		(1,094	)
Decrease (increase) in restricted cash		26			(5	)
Proceeds from sales and maturities of nuclear decommissioning trust investments		363			351
Purchases of nuclear decommissioning trust investments		(364	)		(370	)
Other		5			3
Net cash used in investing activities		(1,219	)		(1,115	)
Cash Flows from Financing Activities
Net repayments of commercial paper, net of discount of $1 in 2012		(2	)		(245	)
Energy recovery bonds matured		-			(102	)
Preferred stock dividends paid		(3	)		(3	)
Common stock dividends paid		(179	)		(179	)
Equity contribution		370			385
Other		(15	)		51
Net cash provided by (used in) financing activities		171			(93	)
Net change in cash and cash equivalents		(141	)		(259	)
Cash and cash equivalents at January 1		194			304
Cash and cash equivalents at March 31	$	53		$	45
Supplemental disclosures of cash flow information
Cash received (paid) for:
Interest, net of amounts capitalized	$	(197	)	$	(204	)
Income taxes, net		36			-
Supplemental disclosures of noncash investing and financing activities
Capital expenditures financed through accounts payable	$	257		$	276
Terminated capital leases		-			136

See accompanying Notes to the Condensed Consolidated Financial Statements.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 1: ORGANIZATION AND BASIS OF PRESENTATION

PG&E Corporation is a holding company that conducts its business through Pacific Gas and Electric Company, a public utility operating in northern and central California. The Utility generates revenues mainly through the sale and delivery of electricity and natural gas to customers. The Utility is primarily regulated by the CPUC and the FERC. In addition, the NRC oversees the licensing, construction, operation, and decommissioning of the Utility’s nuclear generation facilities. The Utility’s accounts for electric and gas operations are maintained in accordance with the Uniform System of Accounts prescribed by the FERC.

This quarterly report on Form 10-Q is a combined report of PG&E Corporation and the Utility that includes separate Condensed Consolidated Financial Statements for each company. The Notes to the Condensed Consolidated Financial Statements apply to both PG&E Corporation and the Utility. PG&E Corporation’s Condensed Consolidated Financial Statements include the accounts of PG&E Corporation, the Utility, and other wholly owned and controlled subsidiaries. The Utility’s Condensed Consolidated Financial Statements include the accounts of the Utility and its wholly owned and controlled subsidiaries. All intercompany transactions have been eliminated from the Condensed Consolidated Financial Statements. PG&E Corporation and the Utility operate in one segment.

The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with GAAP for interim financial statements and in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X promulgated by the U.S. Securities and Exchange Commission and therefore do not contain all of the information and footnotes required by GAAP and the U.S. Securities and Exchange Commission for annual financial statements. PG&E Corporation’s and the Utility’s Condensed Consolidated Financial Statements reflect all adjustments (consisting only of normal recurring adjustments) that management believes are necessary for the fair presentation of their financial condition, results of operations, and cash flows for the periods presented. The information at December 31, 2012 in both PG&E Corporation’s and the Utility’s Condensed Consolidated Balance Sheets included in this quarterly report was derived from the audited Consolidated Balance Sheets incorporated by reference into their combined 2012 Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission on February 21, 2013. This quarterly report should be read in conjunction with the 2012 Annual Report. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions based on a wide range of factors, including future regulatory decisions and economic conditions, that are difficult to predict. Some of the more critical estimates and assumptions relate to the Utility’s regulatory assets and liabilities, legal and regulatory contingencies, environmental remediation liabilities, ARO, and pension and other postretirement benefit plans obligations. Management believes that its estimates and assumptions reflected in the Condensed Consolidated Financial Statements are appropriate and reasonable. Actual results could differ materially from those estimates.

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 2012 Annual Report.

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 trusts underlying certain of these plans are qualified trusts under the Internal Revenue Code of 1986, as amended (“Code”). If certain conditions are met, PG&E Corporation and the Utility can deduct payments made to the qualified trusts, subject to certain Code limitations. PG&E Corporation and the Utility use a December 31 measurement date for all plans.

The net periodic benefit costs reflected in PG&E Corporation’s Condensed Consolidated Financial Statements for the three months ended March 31, 2013 and 2012 were as follows:

	Pension Benefits						Other Benefits
	Three Months Ended						Three Months Ended
	March 31,						March 31,
(in millions)	2013			2012			2013			2012
Service cost for benefits earned	$	115		$	99		$	13		$	12
Interest cost		156			164			19			21
Expected return on plan assets		(162	)		(149	)		(20	)		(19	)
Amortization of transition obligation		-			-			-			6
Amortization of prior service cost		5			5			6			6
Amortization of unrecognized loss		27			31			1			1
Net periodic benefit cost		141			150			19			27
Less: transfer to regulatory account (1)		(57	)		(75	)		-			-
Total	$	84		$	75		$	19		$	27

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

There was no material difference between PG&E Corporation and the Utility for the information disclosed above.

Variable Interest Entities

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 March 31, 2013, 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 exposure is limited to the amount the Utility pays for delivered electricity and capacity. (See Note 10 below.) 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 March 31, 2013, it did not consolidate any of them.

At March 31, 2013, PG&E Corporation affiliates had entered into four tax equity agreements to fund residential and commercial retail solar energy installations with two privately held companies that are considered VIEs. Under these agreements, PG&E Corporation has made lease payments and investment contributions of $363 million to these companies in exchange for the right to receive benefits from local rebates, federal grants, and a share of the customer payments made to these companies. The majority of these amounts are recorded in other noncurrent assets – other in PG&E Corporation’s Condensed Consolidated Balance Sheets. PG&E Corporation determined that it does not have control over the companies’ significant economic activities, such as the design of the companies, vendor selection, and construction. PG&E Corporation’s remaining financial exposure is not material. Since PG&E Corporation was not the primary beneficiary of any of these VIEs at March 31, 2013, it did not consolidate any of them.

Adoption of New Accounting Pronouncements

Disclosures about Offsetting Assets and Liabilities

In January 2013, the FASB issued an ASU that clarifies the scope of disclosures about offsetting assets and liabilities. The guidance requires an entity to disclose gross and net information about derivatives that are offset in the balance sheet or subject to an enforceable master-netting arrangement or similar agreement The ASU became effective for PG&E Corporation and the Utility on January 1, 2013. (See Note 7 below).

Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income

In February 2013, the FASB issued an ASU that requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income. The ASU became effective for PG&E Corporation and the Utility on January 1, 2013.

The changes, net of income tax, in PG&E Corporation’s other comprehensive income for the three months ended March 31, 2013 consist of the following:

	Pension and
	Other
	Postretirement
(in millions)	Benefit Plans			Other		Total
Beginning balance (net of total income tax of $101)	$	(105	)	$	4	$	(101	)
Other comprehensive income before reclassifications (net of total income tax of $9)		(19	)		6		(13	)
Amounts reclassified from other comprehensive income:
Amortization of prior service cost (net of total income tax of $5) (1)		6			-		6
Amortization of actuarial gains (net of total income tax of $11) (1)		17			-		17
Net current period other comprehensive income		4			6		10
Ending balance (net of total income tax of $94)	$	(101	)	$	10	$	(91	)

(1) These other comprehensive income components are included in the computation of net periodic pension and other postretirement 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.

Accounting Standards Issued But Not Yet Adopted

Joint and Several Liability

In February 2013, the FASB issued an ASU that will require certain obligations resulting from joint and several liability arrangements to be recognized as the sum of (1) the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and (2) any additional amount the reporting entity expects to pay on behalf of its co-obligors. The ASU also requires entities to disclose the nature and amount of the obligation as well as other information about those obligations. This ASU will be effective retrospectively beginning on January 1, 2014. PG&E Corporation and the Utility are currently evaluating the impact of the ASU.

NOTE 3: REGULATORY ASSETS, LIABILITIES, AND BALANCING ACCOUNTS

Regulatory Assets

Long-Term Regulatory Assets

Long-term regulatory assets are composed of the following:

	Balance at
	March 31,		December 31,
(in millions)	2013		2012
Pension benefits	$	3,299	$	3,275
Deferred income taxes		1,668		1,627
Utility retained generation		539		552
Environmental compliance costs		596		604
Price risk management		185		210
Electromechanical meters		179		194
Unamortized loss, net of gain, on reacquired debt		136		141
Other		176		206
Total long-term regulatory assets	$	6,778	$	6,809

Regulatory Liabilities

Long-Term Regulatory Liabilities

Long-term regulatory liabilities are composed of the following:

	Balance at
	March 31,			December 31,
(in millions)	2013			2012
Cost of removal obligations		$	3,709		$	3,625
Recoveries in excess of AROs			673			620
Public purpose programs			539			590
Other			266			253
Total long-term regulatory liabilities		$	5,187		$	5,088

Regulatory Balancing Accounts

The Utility’s recovery of a significant portion of revenue requirements and costs is decoupled from the volume of sales. The Utility records differences between actual customer billings and the Utility’s authorized revenue requirement as well as differences between incurred costs and customer billings or authorized revenue. To the extent these differences are probable of recovery or refund, the Utility records a regulatory balancing account receivable or payable. Regulatory balancing accounts receivable and payable will fluctuate during the year based on seasonal electric and gas usage and timing of cost and collections.

Current Regulatory Balancing Accounts, Net

	Receivable (Payable)
	Balance at
	March 31,			December 31,
(in millions)	2013			2012
Distribution revenue adjustment mechanism	$	359		$	219
Utility generation		321			117
Hazardous substance		76			56
Public purpose programs		(69	)		(83	)
Gas fixed cost		(81	)		44
Energy recovery bonds		(192	)		(43	)
Energy procurement		(31	)		77
U.S. Department of Energy Settlement		(250	)		(250	)
Greenhouse gas allowance auction proceeds (1)		(141	)		-
Other		147			165
Total regulatory balancing accounts, net	$	139		$	302

(1) The CARB has adopted regulations that established a state-wide, “cap-and-trade” program (effective January 1, 2013) that sets a gradually declining limit on the amount of GHGs that may be emitted each year. This balancing

account is used to record proceeds collected by the Utility for GHG emission allowances associated with the cap-and-trade program. These amounts will be refunded to customers in future periods.

NOTE 4: DEBT

Revolving Credit Facilities – PG&E Corporation and the Utility

At March 31, 2013, PG&E Corporation had $120 million of cash borrowings and no letters of credit outstanding under its $300 million revolving credit facility.

At March 31, 2013, the Utility had no cash borrowings and $243 million of letters of credit outstanding under its $3.0 billion revolving credit facility.

On April 1, 2013, PG&E Corporation and the Utility entered into an amendment and restatement of their respective $300 million and $3.0 billion five-year revolving credit facilities that were entered into on May 31, 2011. PG&E Corporation’s and the Utility’s amended and restated credit agreements contain substantially similar terms as their 2011 credit agreements, except that the termination dates have been extended to April 1, 2018.

Utility

Pollution Control Bonds

At March 31, 2013, the interest rates on the $614 million principal amount of pollution control bonds Series 1996 C, E, F, and 1997 B and the related loan agreements ranged from 0.10% to 0.17%. At March 31, 2013, the interest rates on the $309 million principal amount of pollution control bonds Series 2009 A-D and the related loan agreements ranged from 0.10% to 0.11%.

Commercial Paper Program

At March 31, 2013, the Utility had $368 million of commercial paper outstanding.

NOTE 5: EQUITY

PG&E Corporation’s and the Utility’s changes in equity for the three months ended March 31, 2013 were as follows:


	PG&E Corporation			Utility
	Total			Total
(in millions)	Equity			Shareholders' Equity
Balance at December 31, 2012	$	13,326		$	13,460
Comprehensive income		252			242
Common stock issued		432			-
Share-based compensation expense		19			(1	)
Common stock dividends declared		(202	)		(179	)
Preferred stock dividend requirement		-			(3	)
Preferred stock dividend requirement of subsidiary		(3	)		-
Equity contributions		-			370
Balance at March 31, 2013	$	13,824		$	13,889

In March 2013, PG&E Corporation sold 7,200,000 shares of its common stock in an underwritten public offering for cash proceeds of $300 million, net of fees and commissions. During the three months ended March 31, 2013, PG&E Corporation issued 2,109,980 shares of its common stock under its 401(k) plan, its Dividend Reinvestment and Stock Purchase Plan, and its share-based compensation plans for total cash proceeds of $63 million. PG&E Corporation also sold 1,480,900 shares of its common stock under the Equity Distribution Agreement executed in November 2011 for cash proceeds of $63 million, net of fees, exhausting the remaining capacity under this agreement.

During the three months ended March 31, 2013, PG&E Corporation contributed equity of $370 million to the Utility to maintain the Utility’s CPUC-authorized capital structure, which consists of 52% common equity and 48% debt and preferred stock.

NOTE 6: EARNINGS PER SHARE

PG&E Corporation’s basic EPS is calculated by dividing the income available for common shareholders by the weighted average number of common shares outstanding. PG&E Corporation applies the treasury stock method of reflecting the dilutive effect of outstanding share-based compensation in the calculation of diluted EPS. The following is a reconciliation of PG&E Corporation’s income available for common shareholders and weighted average common shares outstanding for calculating diluted EPS:

	Three Months Ended March 31,
(in millions, except per share amounts)	2013		2012
Income available for common shareholders	$	239	$	233
Weighted average common shares outstanding, basic		434		414
Add incremental shares from assumed conversions:
Employee share-based compensation		1		2
Weighted average common share outstanding, diluted		435		416
Total earnings per common share, diluted	$	0.55	$	0.56

For each of the periods presented above, the calculation of outstanding common shares on a diluted basis excluded an insignificant amount of options and securities that were antidilutive.

NOTE 7: DERIVATIVES

The Utility uses both derivative and non-derivative contracts in managing its customers’ exposure to commodity-related price risk, including forward contracts, swap agreements and futures contracts, and option contracts.

These instruments are not held for speculative purposes and are subject to certain regulatory requirements. Customer rates are designed to recover the Utility’s reasonable costs of providing services, including the costs related to price risk management activities.

Price risk management activities that meet the definition of derivatives are recorded at fair value on the Condensed Consolidated Balance Sheets. As long as the current ratemaking mechanism discussed above remains in place and the Utility’s price risk management activities are carried out in accordance with CPUC directives, the Utility expects to recover fully, in rates, all costs related to derivatives. Therefore, all unrealized gains and losses associated with the change in fair value of these derivatives are deferred and recorded within the Utility’s regulatory assets and liabilities on the Condensed Consolidated Balance Sheets. (See Note 3 above.) Net realized gains or losses on commodity derivatives are recorded in the cost of electricity or the cost of natural gas with corresponding increases or decreases to regulatory balancing accounts for recovery from or refund to customers.

The Utility elects the normal purchase and sale exception for eligible derivatives. Derivatives that require physical delivery in quantities that are expected to be used by the Utility over a reasonable period in the normal course of business, and do not contain pricing provisions unrelated to the commodity delivered are eligible for the normal purchase and sale exception. The fair value of derivatives that are eligible for the normal purchase and sales exception are not reflected in the Condensed Consolidated Balance Sheets.

Presentation of Derivative Instruments in the Financial Statements

In PG&E Corporation’s and the Utility’s Condensed Consolidated Balance Sheets, derivatives are presented on a net basis by counterparty where the right and the intention to offset exists under a master netting agreement. All derivatives that are subject to a master netting arrangement have been netted. The net balances include outstanding cash collateral associated with derivative positions.

At March 31, 2013, PG&E Corporation’s and the Utility’s outstanding derivative balances were as follows:

	Commodity Risk
	Gross Derivative											Total Derivative
(in millions)	Balance				Netting				Cash Collateral			Balance
Current assets – other		$	47			$	(27	)		$	33		$	53
Other noncurrent assets – other			92				(4	)			-			88
Current liabilities – other			(182	)			27				55			(100	)
Noncurrent liabilities – other			(188	)			4				11			(173	)
Total commodity risk		$	(231	)		$	-			$	99		$	(132	)

At December 31, 2012, PG&E Corporation’s and the Utility’s outstanding derivative balances were as follows:

	Commodity Risk
	Gross Derivative											Total Derivative
(in millions)	Balance				Netting				Cash Collateral			Balance
Current assets – other		$	48			$	(25	)		$	36		$	59
Other noncurrent assets – other			99				(11	)			-			88
Current liabilities – other			(255	)			25				115			(115	)
Noncurrent liabilities – other			(221	)			11				14			(196	)
Total commodity risk		$	(329	)		$	-			$	165		$	(164	)

Gains and losses recorded on PG&E Corporation’s and the Utility’s derivatives were as follows:

	Commodity Risk
	Three Months Ended
	March 31,
(in millions)	2013				2012
Unrealized gain/(loss) - regulatory assets and liabilities (1)		$	98			$	(54	)
Realized loss - cost of electricity (2)			(48	)			(151	)
Realized loss - cost of natural gas (2)			(8	)			(22	)
Total commodity risk		$	42			$	(227	)

(1) Unrealized gains and losses on commodity risk-related derivative instruments are recorded to regulatory assets or liabilities, rather than being recorded to the Condensed Consolidated Statements of Income. These amounts exclude the impact of cash collateral postings.

(2) These amounts are fully passed through to customers in rates. Accordingly, net income was not impacted by realized amounts on these instruments.

Volume of Derivative Activity

At March 31, 2013, the volumes of PG&E Corporation’s and the Utility’s outstanding derivatives were as follows:

		Contract Volume (1)
				1 Year or		3 Years or
				Greater but		Greater but
		Less Than 1		Less Than 3		Less Than 5		5 Years or
Underlying Product	Instruments	Year		Years		Years		Greater (2)
Natural Gas (3)	Forwards and
(MMBtus (4))	Swaps		311,804,316		85,857,500		4,812,500		-
	Options		209,274,282		166,356,071		7,050,000		-
Electricity	Forwards and
(Megawatt-hours)	Swaps		2,537,023		3,164,680		2,008,046		2,402,346
	Options		21,002		239,233		239,015		98,505
	Congestion
	Revenue Rights		63,826,023		74,481,760		74,358,484		17,972,340

(1) Amounts shown reflect the total gross derivative volumes by commodity type that are expected to settle in each period.

(2) Derivatives in this category expire between 2018 and 2023.

(3) Amounts shown are for the combined positions of the electric fuels and core gas portfolios.

(4) Million British Thermal Units.

At December 31, 2012, the volumes of PG&E Corporation’s and the Utility’s outstanding derivatives were as follows:

		Contract Volume (1)
				1 Year or		3 Years or
				Greater but		Greater but
		Less Than 1		Less Than 3		Less Than 5		5 Years or
Underlying Product	Instruments	Year		Years		Years		Greater (2)
Natural Gas (3)	Forwards and
(MMBtus (4))	Swaps		329,466,510		98,628,398		5,490,000		-
	Options		221,587,431		216,279,767		10,050,000		-
Electricity	Forwards and
(Megawatt-hours)	Swaps		2,537,023		3,541,046		2,009,505		2,538,718
	Options		-		239,015		239,233		119,508
	Congestion
	Revenue Rights		74,198,690		74,187,803		74,240,147		25,699,804

(1) Amounts shown reflect the total gross derivative volumes by commodity type that are expected to settle in each period.

(2) Derivatives in this category expire between 2018 and 2023.

(3) Amounts shown are for the combined positions of the electric fuels and core gas portfolios.

(4) Million British Thermal Units.

The majority of the Utility’s derivatives contain collateral posting provisions tied to the Utility’s credit rating from each of the major credit rating agencies. At March 31, 2013, the Utility’s credit rating was investment grade. If the Utility’s credit rating were to fall below investment grade, the Utility would be required to post additional cash immediately to fully collateralize some of its net liability derivative positions.

The additional cash collateral that the Utility would be required to post if the credit risk-related contingency features were triggered was as follows:

	Balance at
	March 31,			December 31,
(in millions)	2013			2012
Derivatives in a liability position with credit risk-relatedcontingencies that are not fully collateralized	$	(191	)	$	(266	)
Related derivatives in an asset position		59			59
Collateral posting in the normal course of business related to these derivatives		63			103
Net position of derivative contracts/additional collateral posting requirements (1)	$	(69	)	$	(104	)

(1) This calculation excludes the impact of closed but unpaid positions, as their settlement is not impacted by any of the Utility’s

credit risk-related contingencies.

NOTE 8: FAIR VALUE MEASUREMENTS

PG&E Corporation and the Utility measure their cash equivalents, trust assets, and price risk management instruments at fair value. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring 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
	At March 31, 2013
(in millions)	Level 1		Level 2		Level 3		Netting (1)			Total
Assets:
Money market investments	$	205	$	-	$	-	$	-		$	205
Nuclear decommissioning trusts
Money market investments		25		-		-		-			25
U.S. equity securities		984		10		-		-			994
Non-U.S. equity securities		394		-		-		-			394
U.S. government and agency securities		692		159		-		-			851
Municipal securities		-		65		-		-			65
Other fixed-income securities		-		177		-		-			177
Total nuclear decommissioning trusts (2)		2,095		411		-		-			2,506
Price risk management instruments
(Note 7)
Electricity		4		53		76		7			140
Gas		-		4		2		(5	)		1
Total price risk management instruments		4		57		78		2			141
Rabbi trusts
Fixed-income securities		-		30		-		-			30
Life insurance contracts		-		72		-		-			72
Total rabbi trusts		-		102		-		-			102
Long-term disability trust
Money market investments		4		-		-		-			4
U.S. equity securities		-		12		-		-			12
Non-U.S. equity securities		-		12		-		-			12
Fixed-income securities		-		136		-		-			136
Total long-term disability trust		4		160		-		-			164
Total assets