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34
OVERVIEW
PG&E Corporation, incorporated in California in 1995, is a
holding company whose primary purpose is to hold interests
in energy-based businesses. PG&E Corporation conducts
its business principally through Pacifi c Gas and Electric
Company (“Utility”), a public utility operating in northern
and central California. The Utility engages in the busi-
nesses of electricity and natural gas distribution; electricity
generation, procurement, and transmission; and natural gas
procurement, transportation, and storage. PG&E Corporation
became the holding company of the Utility and its subsid-
iaries on January 1, 1997. Both PG&E Corporation and the
Utility are headquartered in San Francisco, California.
The Utility served approximately 5.1 million electricity
distribution customers and approximately 4.3 million natural
gas distribution customers at December 31, 2007. The Utility
had approximately $36.3 billion in assets at December 31,
2007 and generated revenues of approximately $13.2 billion
in the 12 months ended December 31, 2007.
The Utility is regulated primarily by the California
Public Utilities Commission (“CPUC”) and the Federal
Energy Regulatory Commission (“FERC”). The Utility
generates revenues mainly through the sale and delivery of
electricity and natural gas at rates set by the CPUC and
the FERC. Rates are set to permit the Utility to recover its
authorized “revenue requirements” from customers. Revenue
requirements are designed to allow the Utility an opportu-
nity to recover its reasonable costs of providing utility
services, including a return of, and a fair rate of return
on, its investment in utility facilities (“rate base”). Changes
in any individual revenue requirement affect customers’
rates and could affect the Utility’s revenues.
This is a combined annual report of PG&E Corpora-
tion and the Utility, and includes separate Consolidated
Financial Statements for each of these two entities. PG&E
Corporation’s Consolidated Financial Statements include
the accounts of PG&E Corporation, the Utility, and other
wholly owned and controlled subsidiaries. The Utility’s
Consolidated Financial Statements include the accounts of
the Utility and its wholly owned and controlled subsidiaries,
which the Utility is required to consolidate under applicable
accounting standards and variable interest entities for which
the Utility is subject to a majority of the risk of loss or
gain. This combined Management’s Discussion and Analysis
of Financial Condition and Results of Operations of PG&E
Corporation and the Utility should be read in conjunction
with the Consolidated Financial Statements and the Notes
to the Consolidated Financial Statements included in this
annual report.
SUMMARY OF CHANGES IN
EARNINGS PER COMMON SHARE
AND NET INCOME FOR 2007
PG&E Corporation’s diluted earnings per common share
(“EPS”) for 2007 was $2.78 per share, compared to $2.76 per
share for 2006. For 2007, PG&E Corporation’s net income
increased by approximately $15 million, or 2%, to $1,006 mil-
lion, compared to $991 million in 2006. The increase in
diluted EPS and net income for 2007 compared to 2006 is
primarily due to positive regulatory outcomes, in combina-
tion with certain events that affected 2006 net income but
did not recur in 2007.
Net income and EPS in 2007 refl ect increased revenues of
$125 million associated with the Utility’s return on equity
(“ROE”) on additional capital investments authorized by the
CPUC in the Utility’s General Rate Case (“GRC”) effective
January 1, 2007, and by the FERC in the Utility’s transmis-
sion owner (“TO”) rate case effective March 1, 2007. In addi-
tion, net income and EPS in 2007 were favorably affected
on a comparative basis by approximately $18 million, the
amount of an environmental remediation charge taken in
2006 as a result of changes in the California Regional Water
Control Board’s imposed remediation levels. These increases
were principally offset by amounts resulting from the follow-
ing events that increased 2006 net income but did not recur
in 2007: (1) the FERC’s approval of recovery of scheduling
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS