PG&E 2007 Annual Report Download - page 115

Download and view the complete annual report

Please find page 115 of the 2007 PG&E annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 148

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148

113
In recent months PG&E Corporation reached settlements
on a number of its open tax years with the IRS.
In the fi rst quarter of 2008, PG&E Corporation reached
a settlement with the IRS appellate division for tax years
1997–2000. This settlement would not result in material
changes to unrecognized tax benefi ts recognized under FIN
48, and it would resolve all open issues for those years with
the exception of reserving the right to fi le two refund claims.
The most signifi cant claim relates to the deferral of gains
from power plant sales and income from recovery of
transition costs during 1998 and 1999.
In addition, during the fi rst quarter of 2008, PG&E
Corporation reached a tentative settlement with the IRS for
tax years 2001–2002. The IRS has indicated that it intends
to apply aspects of this tentative settlement to resolution of
later tax years. That settlement, if fi nalized, would resolve
several signifi cant deductions taken in the 2002 tax return
with respect to assets abandoned at NEGT, as well as issues
affecting the Utility. However, this settlement would be
subject to approval by the Joint Committee on Taxation.
Two issues are not part of the audit settlement and will be
referred to the IRS appellate division. The most signifi cant
of these is a dispute over PG&E Corporation’s entitlement
to $104 million in synthetic fuel tax credits.
The IRS also has indicated that it intends to complete
its audit examination of tax years 2003–2004 by June 2008.
Based on the IRS’ proposed adjustments, this audit could be
resolved within the next 18 months.
Currently, PG&E Corporation has $247 million of federal
capital loss carry forwards based on tax returns as fi led from
the disposition of NEGT stock in 2004, which, if not used
by December 2009, will expire. The settlement of the 2001–
2002 audit together with the completion of the 2003–2004
audit could result in utilization of a signifi cant portion of
the federal capital loss carry forwards. However, because the
settlement of the 2003–2004 audit remains uncertain, no
benefi ts have been recognized.
The settlement of the 2001–2002 audit and the comple-
tion of the 2003–2004 audit could also result in net changes
to unrecognized tax benefi ts currently recorded pursuant to
FIN 48 (see Note 2 for further discussion of the impact of
adopting FIN 48).
The California Franchise Tax Board is currently auditing
PG&E Corporation’s 2004 and 2005 combined California
income tax returns. To date, no adjustments have been pro-
posed. In addition to the federal capital loss carry forwards,
PG&E Corporation has $2.1 billion of California capital loss
carry forwards based on tax returns as fi led, the majority of
which, if not used by 2008, will expire. PG&E Corporation
believes it has accrued adequate reserves for tax years that are
open for California tax purposes.
NOTE 12: DERIVATIVES
AND HEDGING ACTIVITIES
The Utility enters into contracts to procure electricity, natu-
ral gas, nuclear fuel, and fi rm electricity transmission rights.
Some of these contracts meet the defi nition of derivative
instruments under SFAS No. 133. All derivative instruments,
including instruments designated as cash fl ow hedges, are
recorded at fair value and presented as price risk manage-
ment assets and liabilities on the balance sheet (see table
below). Changes in the fair value of derivative instruments
are deferred and recorded in regulatory accounts because
they are expected to be recovered or refunded through
regulated rates. Under the same regulatory accounting treat-
ment, changes in the fair value of cash fl ow hedges are also
recorded in regulatory accounts, rather than being deferred
in accumulated other comprehensive income.
On PG&E Corporation’s and the Utility’s Consolidated
Balance Sheets, price risk management assets and liabilities
associated with the Utility’s electricity and gas procurement
activities are presented on a net basis by counterparty as
the right of offset exists, resulting in a net asset or liability
as follows:
Derivatives
December 31, December 31,
(in millions) 2007 2006
Current Assets — Prepaid expenses
and other $ 52 $ 16
Other Noncurrent Assets — Other 125 37
Current Liabilities — Other 83 192
Noncurrent Liabilities — Other 20 50