PG&E 2007 Annual Report Download - page 94

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92
NOTE 1: ORGANIZATION
AND BASIS OF PRESENTATION
PG&E Corporation 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 oper-
ating in northern and central California. The Utility engages
in the businesses of electricity and natural gas distribu-
tion; electricity generation, procurement, and transmission;
and natural gas procurement, transportation, and storage.
The Utility is primarily regulated by the California Public
Utilities Commission (“CPUC”) and the Federal Energy
Regulatory Commission (“FERC”).
This is a combined annual report of PG&E Corporation
and the Utility. Therefore, the Notes to the Consolidated
Financial Statements apply to both PG&E Corporation and
the Utility. 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 its
accounts and those of its wholly owned and controlled sub-
sidiaries and variable interest entities for which it is subject
to a majority of the risk of loss or gain. All intercompany
transactions have been eliminated from the Consolidated
Financial Statements.
The preparation of fi nancial statements in conformity
with accounting principles generally accepted in the United
States of America (“GAAP”) requires management to make
estimates and assumptions. These estimates and assump-
tions affect the reported amounts of revenues, expenses,
assets and liabilities and the disclosure of contingencies and
include, but are not limited to, estimates and assumptions
used in determining the Utility’s regulatory asset and liabil-
ity balances based on probability assessments of regulatory
recovery, revenues earned but not yet billed, the remaining
disputed claims made by electricity suppliers in the Utility’s
proceeding under Chapter 11 of the U.S. Bankruptcy Code
(“Disputed Claims”) and customer refunds, asset retirement
obligations (“ARO”), allowance for doubtful accounts
receivable, provisions for losses that are deemed probable
from environmental remediation liabilities, pension and
other employee benefi t plan liabilities, severance costs, fair
value accounting under Statement of Financial Accounting
Standards (“SFAS”) No. 133, “Accounting for Derivative
Instruments and Hedging Activities” (“SFAS No. 133”),
income tax-related assets and liabilities, accruals for legal
matters, the fair value of fi nancial instruments, and the
Utility’s assessment of impairment of long-lived assets and
certain identifi able intangibles to be held and used whenever
events or changes in circumstances indicate that the carrying
amount of its assets might not be recoverable. A change
in management’s estimates or assumptions could have a
material impact on PG&E Corporation’s and the Utility’s
fi nancial condition and results of operations during the
period in which such change occurred. As these estimates
and assumptions involve judgments involving a wide range
of factors, including future regulatory decisions and eco-
nomic conditions that are diffi cult to predict, actual results
could differ from these estimates. PG&E Corporation’s and
the Utility’s Consolidated Financial Statements refl ect all
adjustments that management believes are necessary for the
fair presentation of their fi nancial position and results of
operations for the periods presented.
NOTE 2: SUMMARY
OF SIGNIFICANT
ACCOUNTING POLICIES
The accounting policies used by PG&E Corporation and the
Utility include those necessary for rate-regulated enterprises,
which refl ect the ratemaking policies of the CPUC and
the FERC.
CASH AND CASH EQUIVALENTS
Invested cash and other short-term investments with origi-
nal maturities of three months or less are considered cash
equivalents. Cash equivalents are stated at cost, which
approximates fair value. PG&E Corporation and the Utility
primarily invest their cash in money market funds.
PG&E Corporation and the Utility each had three
account balances that were each greater than 10% of PG&E
Corporation’s and the Utility’s total cash and cash equiva-
lents balance at December 31, 2007.
RESTRICTED CASH
Restricted cash consists primarily of the Utility’s cash held
in escrow pending the resolution of the remaining Disputed
Claims (see further discussion in Note 15). The Utility also
provides deposits under certain third-party agreements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS