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71
No. 107, “Disclosures about Fair Value of Financial Instru-
ments,” or SFAS No. 133, “Accounting for Derivatives and
Hedging Activities.” Specifi cally, it requires an entity to
incorporate any third-party credit enhancements that are
issued with and are inseparable from a debt instrument
into the fair value of that debt instrument. EITF 08-5 is
effective prospectively for fi scal years beginning on or after
December 15, 2008, and interim periods within those fi scal
years. PG&E Corporation and the Utility are currently
evaluating the impact of EITF 08-5.
EQUITY METHOD INVESTMENT ACCOUNTING
CONSIDERATION — AN AMENDMENT TO
ACCOUNTING PRINCIPLES BOARD NO. 18
In November 2008, the FASB issued EITF 08-6, “Equity
Method Accounting Considerations” (“EITF 08-6”).
EITF 08-6 clarifi es the application of equity method account-
ing under Accounting Principles Board 18, “The Equity
Method of Accounting for Investments in Common Stock.”
Specifi cally, it requires companies to initially record equity
method investments based on the cost accumulation model,
precludes separate other-than-temporary impairment tests on
an equity method investee’s indefi nite-lived assets from the
investee’s test, requires companies to account for an invest-
ee’s issuance of shares as if the equity method investor had
sold a proportionate share of its investment, and requires
that an equity method investor continue to apply the guid-
ance in paragraph 19(l) of Opinion 18 upon a change in
the investor’s accounting from the equity method to the
cost method. EITF 08-6 is effective prospectively for fi scal
years beginning on or after December 15, 2008, and interim
periods within those fi scal years. PG&E Corporation and the
Utility are currently evaluating the impact of EITF 08-6.
TAX MATTERS
During the fourth quarter of 2008, PG&E Corporation
and the IRS fi nalized the settlement of the IRS’s audits of
PG&E Corporation’s consolidated tax returns for tax years
2001 through 2004. As a result of the settlement, PG&E
Corporation recognized after-tax income of approximately
$257 million, including interest, in the fourth quarter of
2008. Approximately $154 million of this amount related
to NEGT, PG&E Corporation’s former subsidiary, and
was recorded as income from discontinued operations.
Approximately $60 million of the $257 million in net
income relates to the Utility. PG&E Corporation expects
to receive a tax refund from the IRS of approximately
$310 million, plus interest, as a result of the settlement,
of which approximately $170 million will be allocated
to the Utility.
ACCOUNTING PRONOUNCEMENTS
ISSUED BUT NOT YET ADOPTED
DISCLOSURES ABOUT DERIVATIVE
INSTRUMENTS AND HEDGING
ACTIVITIES — AN AMENDMENT OF
FASB STATEMENT NO. 133
In March 2008, the FASB issued SFAS No. 161, “Disclosures
about Derivative Instruments and Hedging Activities-an
amendment of FASB Statement No. 133” (“SFAS No. 161”).
SFAS No. 161 amends and expands the disclosure require-
ments of SFAS No. 133. An entity is required to provide
qualitative disclosures about objectives and strategies for
using derivatives, quantitative disclosures on fair value
amounts, and gains and losses on derivative instruments,
and disclosures relating to credit-risk-related contingent
features in derivative agreements. SFAS No. 161 is effective
prospectively for fi scal years beginning after November 15,
2008. PG&E Corporation and the Utility will include the
expanded disclosure required by SFAS No. 161 in their
combined quarterly report on Form 10-Q for the quarter
ended March 31, 2009.
DISCLOSURES ABOUT EMPLOYERS’
POSTRETIREMENT BENEFIT PLAN
ASSETS — AN AMENDMENT TO
FASB STATEMENT NO. 132(R)
In December 2008, the FASB issued FSP FAS 132(R)-1,
“Employers’ Disclosures about Postretirement Benefi t Plan
Assets” (“FSP 132(R)-1”). FSP 132(R)-1 amends and expands
the disclosure requirements of SFAS No. 132. An entity is
required to provide qualitative disclosures about how invest-
ment allocation decisions are made, the inputs and valuation
techniques used to measure the fair value of plan assets,
and the concentration of risk within plan assets. Addi-
tionally, quantitative disclosures are required showing the
fair value of each major category of plan assets, the levels
in which each asset is classifi ed within the fair value
hierarchy, and a reconciliation for the period of plan assets
that are measured using signifi cant unobservable inputs.
FSP 132(R)-1 is effective prospectively for fi scal years ending
after December 15, 2009. PG&E Corporation and the Utility
are currently evaluating the impact of FSP 132(R)-1.
ISSUER’S ACCOUNTING FOR LIABILITIES
MEASURED AT FAIR VALUE WITH A
THIRD-PARTY CREDIT ENHANCEMENT —
AN AMENDMENT TO FASB STATEMENT
NO. 107 AND FASB STATEMENT NO. 133
In September 2008, the FASB issued Emerging Issues Task
Force (“EITF”) 08-5, “Issuer’s Accounting for Liabilities
Measured at Fair Value with a Third-Party Credit Enhance-
ment” (“EITF 08-5”). EITF 08-5 clarifi es the unit of account
in determining the fair value of a liability under SFAS