Edgar Filing: PG&E Corp

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, 2014 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 22, 2014:
PG&E Corporation:				464,756,373
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, 2014

TABLE OF CONTENTS

				PAGE
GLOSSARY				ii

PART I.	FINANCIAL INFORMATION
ITEM 1.	CONDENSED CONSOLIDATED FINANCIAL STATEMENTS			1
	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	12
	NOTE 3:		Regulatory Assets, Liabilities, and Balancing Accounts	14
	NOTE 4:		Debt	15
	NOTE 5:		Equity	16
	NOTE 6:		Earnings Per Share	16
	NOTE 7:		Derivatives	17
	NOTE 8:		Fair Value Measurements	20
	NOTE 9:		Resolution of Remaining Chapter 11 Disputed Claims	25
	NOTE 10:		Commitments and Contingencies	26

ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	Overview			30
	Results of Operations			32
	Liquidity and Financial Resources			35
	Natural Gas Matters			39
	Regulatory Matters			42
	Environmental Matters			43
	Contractual Commitments			43
	Off-Balance Sheet Arrangements			43
	Risk Management Activities			43
	Critical Accounting Policies			43
	Cautionary Language Regarding Forward-Looking Statements			44

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			46
ITEM 4.	CONTROLS AND PROCEDURES			46

PART II.	OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS			47
ITEM 1A.	RISK FACTORS			49
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			50
ITEM 5.	OTHER INFORMATION			50
ITEM 6.	EXHIBITS			51

SIGNATURES				52

GLOSSARY

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

2013 Annual Report	PG&E Corporation's and Pacific Gas and Electric Company's combined Annual Report on Form 10-K for the year ended December 31, 2013
AFUDC	allowance for funds used during construction
ALJ	administrative law judge
CAISO	California Independent System Operator
CPUC	California Public Utilities Commission
CRRs	congestion revenue rights
EPS	earnings per common share
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
NEIL	Nuclear Electric Insurance Limited
NRC	Nuclear Regulatory Commission
ORA	Office of Ratepayer Advocates
PSEP	pipeline safety enhancement plan
SEC	U.S. Securities and Exchange Commission
SED	Safety and Enforcement Division of the CPUC, formerly known as the Consumer Protection and Safety Division or the CPSD
TURN	The Utility Reform Network
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)	2014			2013
Operating Revenues
Electric	$	3,001		$	2,799
Natural gas		890			873
Total operating revenues		3,891			3,672
Operating Expenses
Cost of electricity		1,210			983
Cost of natural gas		360			346
Operating and maintenance		1,299			1,338
Depreciation, amortization, and decommissioning		538			503
Total operating expenses		3,407			3,170
Operating Income		484			502
Interest income		3			2
Interest expense		(185	)		(176	)
Other income, net		19			28
Income Before Income Taxes		321			356
Income tax provision		91			114
Net Income		230			242
Preferred stock dividend requirement of subsidiary		3			3
Income Available for Common Shareholders	$	227		$	239
Weighted Average Common Shares Outstanding, Basic		459			434
Weighted Average Common Shares Outstanding, Diluted		460			435
Net Earnings Per Common Share, Basic	$	0.49		$	0.55
Net Earnings Per Common Share, Diluted	$	0.49		$	0.55
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)	2014		2013
Net Income	$	230	$	242
Other Comprehensive Income
Pension and other postretirement benefit plans obligations (net of taxes of
$0 and $3, at respective dates)		-		4
Gain on investments (net of taxes of $4, at respective dates)		5		6
Total other comprehensive income		5		10
Comprehensive Income		235		252
Preferred stock dividend requirement of subsidiary		3		3
Comprehensive Income Attributable to Common Shareholders	$	232	$	249

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)	2014			2013
ASSETS
Current Assets
Cash and cash equivalents	$	108		$	296
Restricted cash		299			301
Accounts receivable:
Customers (net of allowance for doubtful accounts of $76 and $80
at respective dates)		877			1,091
Accrued unbilled revenue		638			766
Regulatory balancing accounts		1,707			1,124
Other		323			312
Regulatory assets		418			448
Inventories:
Gas stored underground and fuel oil		78			137
Materials and supplies		314			317
Income taxes receivable		602			574
Other		528			611
Total current assets		5,892			5,977
Property, Plant, and Equipment
Electric		43,402			42,881
Gas		14,734			14,379
Construction work in progress		1,888			1,834
Other		2			2
Total property, plant, and equipment		60,026			59,096
Accumulated depreciation		(18,209	)		(17,844	)
Net property, plant, and equipment		41,817			41,252
Other Noncurrent Assets
Regulatory assets		4,823			4,913
Nuclear decommissioning trusts		2,351			2,342
Income taxes receivable		87			85
Other		1,017			1,036
Total other noncurrent assets		8,278			8,376
TOTAL ASSETS	$	55,987		$	55,605

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)	2014		2013
LIABILITIES AND EQUITY
Current Liabilities
Short-term borrowings	$	930	$	1,174
Long-term debt, classified as current		-		889
Accounts payable:
Trade creditors		1,072		1,293
Disputed claims and customer refunds		154		154
Regulatory balancing accounts		1,031		1,008
Other		572		471
Interest payable		862		892
Other		1,526		1,612
Total current liabilities		6,147		7,493
Noncurrent Liabilities
Long-term debt		13,965		12,717
Regulatory liabilities		5,804		5,660
Pension and other postretirement benefits		1,592		1,601
Asset retirement obligations		3,540		3,539
Deferred income taxes		7,838		7,823
Other		2,169		2,178
Total noncurrent liabilities		34,908		33,518
Commitments and Contingencies (Note 10)
Equity
Shareholders' Equity
Common stock, no par value, authorized 800,000,000 shares,
464,263,173 and 456,670,424 shares outstanding at respective dates		9,869		9,550
Reinvested earnings		4,756		4,742
Accumulated other comprehensive income		55		50
Total shareholders' equity		14,680		14,342
Noncontrolling Interest - Preferred Stock of Subsidiary		252		252
Total equity		14,932		14,594
TOTAL LIABILITIES AND EQUITY	$	55,987	$	55,605

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)	2014			2013
Cash Flows from Operating Activities
Net income	$	230		$	242
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, amortization, and decommissioning		538			503
Allowance for equity funds used during construction		(22	)		(26	)
Deferred income taxes and tax credits, net		15			166
Other		56			57
Effect of changes in operating assets and liabilities:
Accounts receivable		321			209
Inventories		62			55
Accounts payable		31			(56	)
Income taxes receivable/payable		(28	)		49
Other current assets and liabilities		(37	)		(242	)
Regulatory assets, liabilities, and balancing accounts, net		(376	)		(133	)
Other noncurrent assets and liabilities		(19	)		45
Net cash provided by operating activities		771			869
Cash Flows from Investing Activities
Capital expenditures		(1,197	)		(1,249	)
Decrease in restricted cash		2			26
Proceeds from sales and maturities of nuclear decommissioning
trust investments		530			363
Purchases of nuclear decommissioning trust investments		(536	)		(364	)
Other		12			17
Net cash used in investing activities		(1,189	)		(1,207	)
Cash Flows from Financing Activities
Repayments under revolving credit facilities		(260	)		-
Net issuances (repayments) of commercial paper, net of discount of $1 in 2014		15			(2	)
Proceeds from issuance of long-term debt, net of premium, discount, and issuance
costs of $13 in 2014		1,237			-
Repayments of long-term debt		(889	)		-
Common stock issued		302			426
Common stock dividends paid		(202	)		(191	)
Other		27			(18	)
Net cash provided by financing activities		230			215
Net change in cash and cash equivalents		(188	)		(123	)
Cash and cash equivalents at January 1		296			401
Cash and cash equivalents at March 31	$	108		$	278
Supplemental disclosures of cash flow information
Cash received (paid) for:
Interest, net of amounts capitalized	$	(199	)	$	(197	)
Income taxes, net		1			36
Supplemental disclosures of noncash investing and financing activities
Common stock dividends declared but not yet paid	$	213		$	201
Capital expenditures financed through accounts payable		171			257
Noncash common stock issuances		5			6
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)	2014			2013
Operating Revenues
Electric	$	3,000		$	2,798
Natural gas		890			873
Total operating revenues		3,890			3,671
Operating Expenses
Cost of electricity		1,210			983
Cost of natural gas		360			346
Operating and maintenance		1,297			1,336
Depreciation, amortization, and decommissioning		538			503
Total operating expenses		3,405			3,168
Operating Income		485			503
Interest income		2			1
Interest expense		(179	)		(170	)
Other income, net		20			24
Income Before Income Taxes		328			358
Income tax provision		100			121
Net Income		228			237
Preferred stock dividend requirement		3			3
Income Available for Common Stock	$	225		$	234

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)	2014			2013
Net Income		$	228		$	237
Other Comprehensive Income
Pension and other postretirement benefit plans obligations (net of taxes of
$0, and $2, at respective dates)			-			5
Total other comprehensive income			-			5
Comprehensive Income		$	228		$	242

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)	2014			2013
ASSETS
Current Assets
Cash and cash equivalents	$	68		$	65
Restricted cash		299			301
Accounts receivable:
Customers (net of allowance for doubtful accounts of $76 and $80
at respective dates)		877			1,091
Accrued unbilled revenue		638			766
Regulatory balancing accounts		1,707			1,124
Other		333			313
Regulatory assets		418			448
Inventories:
Gas stored underground and fuel oil		78			137
Materials and supplies		314			317
Income taxes receivable		588			563
Other		363			523
Total current assets		5,683			5,648
Property, Plant, and Equipment
Electric		43,402			42,881
Gas		14,734			14,379
Construction work in progress		1,888			1,834
Total property, plant, and equipment		60,024			59,094
Accumulated depreciation		(18,208	)		(17,843	)
Net property, plant, and equipment		41,816			41,251
Other Noncurrent Assets
Regulatory assets		4,823			4,913
Nuclear decommissioning trusts		2,351			2,342
Income taxes receivable		82			81
Other		831			814
Total other noncurrent assets		8,087			8,150
TOTAL ASSETS	$	55,586		$	55,049

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)	2014		2013
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings	$	882	$	914
Long-term debt, classified as current		-		539
Accounts payable:
Trade creditors		1,072		1,293
Disputed claims and customer refunds		154		154
Regulatory balancing accounts		1,031		1,008
Other		555		432
Interest payable		861		887
Other		1,272		1,382
Total current liabilities		5,827		6,609
Noncurrent Liabilities
Long-term debt		13,616		12,717
Regulatory liabilities		5,804		5,660
Pension and other postretirement benefits		1,520		1,530
Asset retirement obligations		3,540		3,539
Deferred income taxes		8,023		8,042
Other		2,124		2,111
Total noncurrent liabilities		34,627		33,599
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		6,066		5,821
Reinvested earnings		7,473		7,427
Accumulated other comprehensive income		13		13
Total shareholders' equity		15,132		14,841
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	55,586	$	55,049

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)	2014			2013
Cash Flows from Operating Activities
Net income	$	228		$	237
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, amortization, and decommissioning		538			503
Allowance for equity funds used during construction		(22	)		(26	)
Deferred income taxes and tax credits, net		(19	)		163
Other		39			37
Effect of changes in operating assets and liabilities:
Accounts receivable		312			203
Inventories		62			55
Accounts payable		53			2
Income taxes receivable/payable		(25	)		51
Other current assets and liabilities		26			(230	)
Regulatory assets, liabilities, and balancing accounts, net		(376	)		(133	)
Other noncurrent assets and liabilities		(37	)		45
Net cash provided by operating activities		779			907
Cash Flows from Investing Activities
Capital expenditures		(1,197	)		(1,249	)
Decrease in restricted cash		2			26
Proceeds from sales and maturities of nuclear decommissioning
trust investments		530			363
Purchases of nuclear decommissioning trust investments		(536	)		(364	)
Other		9			5
Net cash used in investing activities		(1,192	)		(1,219	)
Cash Flows from Financing Activities
Net repayments of commercial paper, net of discount of $1 in 2014		(33	)		(2	)
Proceeds from issuance of long-term debt, net of premium, discount, and issuance
costs of $10 in 2014		890			-
Repayments of long-term debt		(539	)		-
Preferred stock dividends paid		(3	)		(3	)
Common stock dividends paid		(179	)		(179	)
Equity contribution		250			370
Other		30			(15	)
Net cash provided by financing activities		416			171
Net change in cash and cash equivalents		3			(141	)
Cash and cash equivalents at January 1		65			194
Cash and cash equivalents at March 31	$	68		$	53
Supplemental disclosures of cash flow information
Cash received (paid) for:
Interest, net of amounts capitalized	$	(188	)	$	(197	)
Income taxes, net		1			36
Supplemental disclosures of noncash investing and financing activities
Capital expenditures financed through accounts payable	$	171		$	257

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 whose primary operating subsidiary is 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.

This quarterly report on Form 10-Q is a combined report of PG&E Corporation and the Utility. PG&E Corporation’s Condensed Consolidated Financial Statements include the accounts of PG&E Corporation, the Utility, and subsidiaries. The Utility’s Condensed Consolidated Financial Statements include the accounts of the Utility and its subsidiaries. All intercompany transactions have been eliminated from the Condensed Consolidated Financial Statements. The Notes to the Condensed Consolidated Financial Statements apply to both PG&E Corporation and the Utility. 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 SEC and therefore do not contain all of the information and footnotes required by GAAP and the SEC 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, 2013 in the Condensed Consolidated Balance Sheets included in this quarterly report was derived from the audited Consolidated Balance Sheets in the 2013 Annual Report. This quarterly report should be read in conjunction with the 2013 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, asset retirement obligations, 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 2013 Annual Report.

Variable Interest Entities

A VIE is an entity that does not have sufficient equity at risk to finance its activities without additional subordinated financial support from other parties, or whose equity investors lack any characteristics of a controlling financial interest. An enterprise that has a controlling financial interest in a VIE is known as the VIE’s primary beneficiary and is required to consolidate the VIE. In determining whether consolidation of a particular entity is required, PG&E Corporation and the Utility first evaluate whether the entity is a VIE. If the entity is a VIE, PG&E Corporation and the Utility use a qualitative approach to determine if either is the primary beneficiary of the VIE.

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, 2014, 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 obligation is limited to the amount the Utility pays for delivered electricity and capacity. 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, 2014, it did not consolidate any of them.

PG&E Corporation affiliates have entered into four tax equity agreements to fund residential and commercial retail solar energy installations with four separate privately held funds that are considered VIEs. Under these agreements, PG&E Corporation has made cumulative lease payments and investment contributions of $363 million from 2010 to 2014 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. At March 31, 2014 and December 31, 2013, the carrying amount of PG&E Corporation’s investment in these agreements was $93 million and $98 million, respectively. PG&E Corporation has no material remaining commitment to fund these agreements. 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, construction, and the ongoing operations of the companies. Since PG&E Corporation was not the primary beneficiary of any of these VIEs at March 31, 2014, it did not consolidate any of them.

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 net periodic benefit costs reflected in PG&E Corporation’s Condensed Consolidated Financial Statements for the three months ended March 31, 2014 and 2013 were as follows:

	Pension Benefits						Other Benefits
	Three Months Ended March 31,
(in millions)	2014			2013			2014			2013
Service cost for benefits earned	$	99		$	115		$	11		$	13
Interest cost		173			156			19			19
Expected return on plan assets		(202	)		(162	)		(26	)		(20	)
Amortization of prior service cost		5			5			6			6
Amortization of net actuarial loss		-			27			-			1
Net periodic benefit cost		75			141			10			19
Less: transfer to regulatory account (1)		9			(57	)		-			-
Total	$	84		$	84		$	10		$	19

(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.

Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income

The changes, net of income tax, in PG&E Corporation’s accumulated other comprehensive income (loss) are summarized below:

	Pension			Other			Other
	Benefits			Benefits			Investments		Total
(in millions, net of income tax)	Three Months Ended March 31, 2014
Beginning balance	$	(7	)	$	15		$	42	$	50
Other comprehensive income before reclassifications:
Gain on investments (net of taxes of $0, $0, and $4,
respectively)		-			-			5		5
Amounts reclassified from other comprehensive income: (1)
Amortization of prior service cost (net of taxes of
$2, $2, and $0, respectively)		3			4			-		7
Transfer to regulatory account (net of taxes of
$2, $2, and $0, respectively)		(3	)		(4	)		-		(7	)
Net current period other comprehensive income		-			-			5		5
Ending balance	$	(7	)	$	15		$	47	$	55

(1) These 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.)

	Pension			Other			Other
	Benefits			Benefits			Investments		Total
(in millions, net of income tax)	Three Months Ended March 31, 2013
Beginning balance	$	(28	)	$	(77	)	$	4	$	(101	)
Other comprehensive income before reclassifications:
Gain on investments (net of taxes of $0, $0, and $4,
respectively)		-			-			6		6
Amounts reclassified from other comprehensive income: (1)
Amortization of prior service cost (net of taxes of
$2, $3, and $0, respectively)		3			3			-		6
Amortization of net actuarial loss (net of taxes of
$11, $0, and $0, respectively)		16			1			-		17
Transfer to regulatory account (net of taxes of
$13, $0, and $0, respectively)		(19	)		-			-		(19	)
Net current period other comprehensive income		-			4			6		10
Ending balance	$	(28	)	$	(73	)	$	10	$	(91	)

There was no material difference between PG&E Corporation and the Utility for the information disclosed above, with the exception of other investments which are held by PG&E Corporation.

NOTE 3: REGULATORY ASSETS, LIABILITIES, AND BALANCING ACCOUNTS

Regulatory Assets

Long-term regulatory assets are composed of the following:

	Balance at
	March 31,		December 31,
(in millions)	2014		2013
Pension benefits	$	1,429	$	1,444
Deferred income taxes		1,883		1,835
Utility retained generation		491		503
Environmental compliance costs		582		628
Price risk management		96		106
Electromechanical meters		119		135
Unamortized loss, net of gain, on reacquired debt		129		135
Other		94		127
Total long-term regulatory assets	$	4,823	$	4,913

Regulatory Liabilities

Long-term regulatory liabilities are composed of the following:

	Balance at
	March 31,			December 31,
(in millions)	2014			2013
Cost of removal obligations		$	3,920		$	3,844
Recoveries in excess of AROs			717			748
Public purpose programs			648			587
Other			519			481
Total long-term regulatory liabilities		$	5,804		$	5,660

Regulatory Balancing Accounts

The Utility’s recovery of revenue requirements and costs is generally decoupled from the volume of sales. The Utility records (1) differences between the Utility’s authorized revenue requirement and actual 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 does not expect to collect or refund over the next 12 months are included in other noncurrent assets – regulatory assets or noncurrent liabilities – regulatory liabilities, respectively, in the Condensed Consolidated Balance Sheets.

The Utility sells and delivers electricity and natural gas, which includes procuring and generating electricity. The Utility also administers public purpose programs, primarily related to customer energy efficiency programs. The balancing accounts associated with these items 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 composed of the following:

	Receivable
	Balance at
	March 31,			December 31,
(in millions)	2014			2013
Electric distribution		$	415		$	102
Utility generation			312			57
Gas distribution			41			70
Energy procurement			491			410
Public purpose programs			88			56
Other			360			429
Total regulatory balancing accounts receivable		$	1,707		$	1,124

	Payable
	Balance at
	March 31,			December 31,
(in millions)	2014			2013
Energy procurement		$	371		$	298
Public purpose programs			173			171
Other			487			539
Total regulatory balancing accounts payable		$	1,031		$	1,008

NOTE 4: DEBT

Senior Notes

In February 2014, the Utility issued $450 million principal amount of 3.75% Senior Notes due February 15, 2024 and $450 million principal amount of 4.75% Senior Notes due February 15, 2044. The proceeds were used to repay the 4.80% Senior Notes, in the principal outstanding amount of $539 million, to fund capital expenditures, and for general corporate purposes.

In February 2014, PG&E Corporation issued $350 million principal amount of 2.40% Senior Notes due March 1, 2019. The proceeds were used to repay the 5.75% Senior Notes, in the principal outstanding amount of $350 million.

Revolving Credit Facilities and Commercial Paper Program

In April 2014, PG&E Corporation and the Utility each extended the termination dates of their existing revolving credit facilities by one year from April 1, 2018 to April 1, 2019.

The following table summarizes PG&E Corporation’s and the Utility’s outstanding borrowings at March 31, 2014 :

					Letters of
	Termination	Facility			Credit				Commercial			Facility
(in millions)	Date	Limit			Outstanding		Borrowings		Paper			Availability
PG&E Corporation	April 2019	$	300	(1)	$	-	$	-	$	48	(3)	$	252	(3)
Utility	April 2019		3,000	(2)		79		-		882	(3)		2,039	(3)
Total revolving
credit facilities		$	3,300		$	79	$	-	$	930		$	2,291

(1) Includes a $100 million sublimit for letters of credit and a $100 million commitment for loans that are made available on a same-day basis and are repayable in full within 7 days.

(2) Includes a $1.0 billion sublimit for letters of credit and a $300 million commitment for loans that are made available on a same-day basis and are repayable in full within 7 days.

(3) PG&E Corporation and the Utility treat the amount of outstanding commercial paper as a reduction to the amount available under their respective revolving credit facilities.

Pollution Control Bonds

At March 31, 2014, 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 0.06% to 0.10%. At March 31, 2014, the interest rates on the $309 million principal amount of pollution control bonds Series 2009 A-D and the related loan agreements ranged from 0.05% to 0.07%.

NOTE 5: EQUITY

PG&E Corporation’s and the Utility’s changes in equity for the three months ended March 31, 2014 were as follows:


	PG&E Corporation			Utility
	Total			Total
(in millions)	Equity			Shareholders' Equity
Balance at December 31, 2013	$	14,594		$	14,841
Comprehensive income		235			228
Equity contributions		-			250
Common stock issued		307			-
Share-based compensation		12			(5	)
Common stock dividends declared		(213	)		(179	)
Preferred stock dividend requirement		-			(3	)
Preferred stock dividend requirement of subsidiary		(3	)		-
Balance at March 31, 2014	$	14,932		$	15,132

In February 2014, PG&E Corporation entered into a new equity distribution agreement providing for the sale of PG&E Corporation common stock having an aggregate gross sales price of up to $500 million.

During the three months ended March 31, 2014, PG&E Corporation issued 8 million shares of its common stock for aggregate net cash proceeds of $302 million in the following transactions:

·	3 million shares were issued for cash proceeds of $79 million under the PG&E Corporation 401(k) plan, the Dividend Reinvestment and Stock Purchase Plan, and share-based compensation plans; and

·	5 million shares were sold for cash proceeds of $223 million, net of commissions paid of $2 million, under the February 2014 equity distribution agreement.

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)	2014		2013
Income available for common shareholders	$	227	$	239
Weighted average common shares outstanding, basic		459		434
Add incremental shares from assumed conversions:
Employee share-based compensation		1		1
Weighted average common shares outstanding, diluted		460		435
Total earnings per common share, diluted	$	0.49	$	0.55

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, 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. The Utility expects to fully recover in rates all costs related to derivatives as long as the current ratemaking mechanism remains in place and the Utility’s price risk management activities are carried out in accordance with CPUC directives. 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. (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.

PG&E Corporation and the Utility offset cash collateral paid or cash collateral received against the fair value amounts recognized for derivative instruments executed with the same counterparty under a master netting arrangement where the right of offset and the intention to offset exist.

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 at fair value, but are accounted for under the accrual method of accounting. Therefore, expenses are recognized as incurred.

Volume of Derivative Activity

At March 31, 2014, 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

Less Than 1

Less Than 3

Less Than 5

5 Years or

Underlying Product

Instruments

Year

Years

Greater (2)

Natural Gas (3)

Forwards and

(MMBtus (4))

Swaps

243,602,622

76,235,312

7,640,000

Options

140,209,906

62,803,770

2,550,000

Electricity

Forwards and

(Megawatt-hours)

Swaps

2,132,784

1,956,498

1,871,208

1,394,250

Congestion

Revenue Rights

65,730,617

83,761,019

57,617,664

27,407,793

(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 2019 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, 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

Less Than 1

Less Than 3

Less Than 5

5 Years or

Underlying Product

Instruments

Year

Years

Greater (2)

Natural Gas (3)

Forwards and

(MMBtus (4))

Swaps

243,213,288

79,735,000

8,892,500

Options

169,123,208

87,689,708

3,450,000

Electricity

Forwards and

(Megawatt-hours)

Swaps

2,537,023

2,009,505

2,008,046

1,534,695

Congestion

Revenue Rights

73,510,440

83,747,782

63,718,517

29,945,852

(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 2019 and 2022.

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

(4) Million British Thermal Units.

Presentation of Derivative Instruments in the Financial Statements

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

At March 31, 2014, 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		$	65			$	(11	)		$	10		$	64
Other noncurrent assets – other			92				(4	)			-			88
Current liabilities – other			(90	)			11				34			(45	)
Noncurrent liabilities – other			(100	)			4				-			(96	)
Total commodity risk		$	(33	)		$	-			$	44		$	11

At December 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		$	42			$	(10	)		$	16		$	48
Other noncurrent assets – other			99				(4	)			-			95
Current liabilities – other			(122	)			10				69			(43	)
Noncurrent liabilities – other			(110	)			4				2			(104	)
Total commodity risk		$	(91	)		$	-			$	87		$	(4	)

Gains and losses associated with price risk management activities were recorded as follows:

	Commodity Risk
	Three Months Ended March 31,
(in millions)	2014				2013
Net unrealized gain - regulatory assets and liabilities (1)		$	58			$	98
Realized loss - cost of electricity (2)			(18	)			(48	)
Realized loss - cost of natural gas (2)			-				(8	)
Total commodity risk		$	40			$	42

(1) Unrealized gains and losses on commodity risk-related derivative instruments are recorded to regulatory liabilities or assets, respectively, 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.

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. 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. At March 31, 2014, the Utility’s credit rating was investment grade.

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)	2014			2013
Derivatives in a liability position with credit risk-related
contingencies that are not fully collateralized	$	(63	)	$	(79	)
Related derivatives in an asset position		6			4
Collateral posting in the normal course of business related to
these derivatives		44			65
Net position of derivative contracts/additional collateral
posting requirements (1)	$	(13	)	$	(10	)

(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, 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, 2014
(in millions)	Level 1		Level 2		Level 3		Netting (1)		Total
Assets:
Money market investments	$	46	$	-	$	-	$	-	$	46
Nuclear decommissioning trusts
Money market investments		31		-		-		-		31
U.S. equity securities		1,087		12		-		-		1,099
Non-U.S. equity securities		439		1		-		-		440
U.S. government and agency securities		741		166		-		-		907
Municipal securities		-