PG&E 2008 Annual Report Download - page 111

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NEGT and its subsidiaries in its consolidated income tax
returns beginning October 29, 2004. PG&E Corporation
will continue to report resolution of NEGT matters in
discontinued operations.
On the effective date, PG&E Corporation recorded
a net of tax gain on disposal of NEGT of $684 million.
On October 28, 2008, PG&E Corporation resolved 2001-2004
audits with the Internal Revenue Service (“IRS”) and recog-
nized after-tax income of approximately $257 million in the
fourth quarter of 2008, of which $154 million was related
to NEGT and recorded as income from discontinued
operations. See Note 10 of the Notes to the Consolidated
Financial Statements for further discussion of the resolution
of the 2001-2004 audits.
At December 31, 2008 and 2007, PG&E Corporation’s
Consolidated Balance Sheets included the following assets
and liabilities related to NEGT:
(in millions) 2008 2007
Current Assets
Income taxes receivable $137 $33
Current Liabilities
Income taxes payable — —
Other 10 11
Noncurrent Liabilities
Income taxes payable 3 74
Deferred income taxes 7 34
Other 12 14
While PERF is a wholly owned consolidated subsidiary
of the Utility, it is legally separate from the Utility. The
assets (including the recovery property) of PERF are not
available to creditors of the Utility or PG&E Corporation,
and the recovery property is not legally an asset of the
Utility or PG&E Corporation.
RATE REDUCTION BONDS
In December 1997, PG&E Funding LLC, a limited liability
corporation wholly owned by and consolidated with the
Utility, issued $2.9 billion of rate reduction bonds (“RRBs”).
The proceeds of the RRBs were used by PG&E Funding
LLC to purchase from the Utility the right, known as
“transition property,” to be paid a specifi ed amount from
a non-bypassable charge levied on residential and small
commercial customers. The RRBs were paid in full when
they matured on December 26, 2007 and there are no
future principal or interest payments.
NOTE 6: DISCONTINUED
OPERATIONS
National Energy & Gas Transmission, Inc. (“NEGT”) was
incorporated on December 18, 1998 as a wholly owned
subsidiary of PG&E Corporation. NEGT fi led a voluntary
petition for relief under Chapter 11 on July 8, 2003. On
October 29, 2004, NEGT’s plan of reorganization became
effective (“effective date”), at which time NEGT emerged
from Chapter 11 and PG&E Corporation’s equity ownership
in NEGT was cancelled. PG&E Corporation ceased including
The fi rst series of ERBs issued on February 10, 2005 included fi ve classes aggregating approximately $1.9 billion principal
amount with scheduled maturities ranging from September 25, 2006 to December 25, 2012. Interest rates on the remaining
four outstanding classes range from 3.87% for the earliest maturing class to 4.47% for the latest maturing class. The proceeds
of the fi rst series of ERBs were paid by PERF to the Utility and were used by the Utility to refi nance the remaining unam-
ortized after-tax balance of the settlement regulatory asset. The second series of ERBs, issued on November 9, 2005, included
three classes aggregating approximately $844 million principal amount, with scheduled maturities ranging from June 25, 2009
to December 25, 2012. Interest rates on the three classes range from 4.85% for the earliest maturing class to 5.12% for the
latest maturing class. The proceeds of the second series of ERBs were paid by PERF to the Utility to pre-fund the Utility’s
tax liability that will be due as the Utility collects the DRC charges from customers.
The total amount of ERB principal outstanding was $1.6 billion at December 31, 2008 and $1.9 billion at December 31,
2007. The scheduled principal repayments for ERBs are refl ected in the table below:
(in millions) 2009 2010 2011 2012 Total
Utility
Average fi xed interest rate 4.36% 4.49% 4.59% 4.66% 4.53%
Energy recovery bonds $ 370 $ 386 $ 404 $ 423 $1,583