PG&E 2008 Annual Report Download - page 101

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Fair Value Option
On January 1, 2008, PG&E Corporation and the Utility
adopted the provisions of SFAS No. 159, “The Fair Value
Option for Financial Assets and Financial Liabilities” (“SFAS
No. 159”). SFAS No. 159 establishes a fair value option under
which entities can elect to report certain fi nancial assets and
liabilities at fair value with changes in fair value recognized
in earnings. PG&E Corporation and the Utility have not
elected the fair value option for any assets or liabilities as of
and during the three and twelve months ended December 31,
2008; therefore, the adoption of SFAS No. 159 did not impact
the Condensed Consolidated Financial Statements.
Disclosures by Public Entities (Enterprises)
about Transfers of Financial Assets and
Interests in Variable Interest Entities
On December 31, 2008, PG&E Corporation and the Utility
adopted the provisions of FASB Staff Position (“FSP”)
FAS 140-4 and FIN 46R-8, “Disclosures by Public Entities
(Enterprises) about Transfers of Financial Assets and
Interests in Variable Interest Entities” (“FSP FAS 140-4 and
FIN 46R-8”). This FSP amends FASB No. 140, “Accounting
for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities” to require public companies
to provide additional qualitative disclosures about transfers
of fi nancial assets. This guidance also amended FIN 46R
to require public enterprises to provide additional disclo-
sures about their involvement with VIEs when they are the
primary benefi ciary of the VIE, hold a signifi cant variable
interest in the VIE, or are sponsors of and hold a variable
interest in the VIE.
Although PG&E Corporation and the Utility were
not impacted by the amendment to FASB No. 140 as of
December 31, 2008, they were impacted by the amendment
to FIN 46R, primarily through the Utility’s power purchase
agreements, which may be considered signifi cant variable
interests. Accordingly, when the Utility has a signifi cant
variable interest in a VIE, FSP FAS 140-4 and FIN 46R-8
require additional disclosures about the entity, the extent of
the Utility’s involvement with the entity, and the Utility’s
methodology for evaluating these entities under FIN 46R.
See “Consolidation of Variable Interest Entities” within Note
2 to the Consolidated Financial Statements for expanded
disclosures required by FSP FAS 140-4 and FIN 46R-8.
The Utility has derivative instruments for the physical
delivery of commodities transacted in the normal course of
business, as well as non-fi nancial assets that are not exchange-
traded. These derivative instruments are eligible for the
normal purchase and sales and non-exchange traded contract
exceptions under SFAS No. 133, and are not refl ected in
the Utility’s Consolidated Balance Sheets at fair value. They
are recorded and recognized in income under the accrual
method of accounting. Therefore, expenses are recognized
as incurred.
The Utility has certain commodity contracts for the pur-
chase of nuclear fuel and core gas transportation and storage
contracts that are not derivative instruments and are not
refl ected in the Utility’s Consolidated Balance Sheets at fair
value. Expenses are recognized as incurred.
See Note 11 of the Notes to the Consolidated Financial
Statements.
ADOPTION OF NEW ACCOUNTING
PRONOUNCEMENTS
Fair Value Measurements
On January 1, 2008, PG&E Corporation and the Utility
adopted the provisions of SFAS No. 157, “Fair Value
Measurements” (“SFAS No. 157”), which establishes a fair
value hierarchy that prioritizes inputs to valuation tech-
niques used to measure fair value. Fair value is defi ned as
the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market
participants at the measurement date, or the “exit price.” The
hierarchy gives the highest priority to unadjusted quoted
prices in active markets for identical assets or liabilities
(Level 1 measurements) and the lowest priority to unobserv-
able inputs (Level 3 measurements). Assets and liabilities are
classifi ed based on the lowest level of input that is signifi cant
to the fair value measurement. (See Note 12 of the Notes to
the Consolidated Financial Statements for further discussion
on SFAS No. 157.)
Amendment of FASB Interpretation No. 39
On January 1, 2008, PG&E Corporation and the Utility
adopted the provisions of FASB Staff Position on FASB
Interpretation 39, “Amendment of FASB Interpretation
No. 39” (“FIN 39-1”). Under FIN 39-1, a reporting entity is
required to offset the cash collateral paid or cash collateral
received against the fair value amounts recognized for deriva-
tive instruments executed with the same counterparty under
a master netting arrangement when reporting those amounts
on a net basis. The provisions of FIN 39-1 are applied ret-
rospectively. See Note 11 of the Notes to the Consolidated
Financial Statements for further discussion and fi nancial
statement impact of the implementation of FIN 39-1.