PG&E 2008 Annual Report Download - page 95

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93
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
original 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.
RESTRICTED CASH
Restricted cash consists primarily of the Utility’s cash
held in escrow pending the resolution of the remaining
disputed claims made by electricity suppliers in the Utility’s
proceeding under Chapter 11 of the U.S. Bankruptcy Code
(“Chapter 11”). (See Note 15 of the Notes to the Consoli-
dated Financial Statements.) Restricted cash also includes
the Utility deposits of cash and cash equivalents made under
certain third-party agreements.
ALLOWANCE FOR
DOUBTFUL ACCOUNTS RECEIVABLE
PG&E Corporation and the Utility recognize an allowance
for doubtful accounts to record accounts receivable at
estimated net realizable value. The allowance is determined
based upon a variety of factors, including historical write-off
experience, delinquency rates, current economic conditions,
and assessment of customer collectability. If circumstances
require changes in the assumption, allowance estimates
are adjusted accordingly.
INVENTORIES
Inventories are carried at average cost and are valued at the
lower of average cost or market. Inventories include materials,
supplies, and natural gas stored underground. Materials
and supplies are charged to inventory when purchased and
then expensed or capitalized to plant, as appropriate, when
consumed or installed. Natural gas stored underground
represents purchases that are injected into inventory and
then expensed at average cost when withdrawn and distributed
to customers or used in electric generation.
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 (the “Utility”), a public
utility operating in northern and central California. The
Utility engages in the businesses of electricity and natural gas
distribution; electricity generation, procurement, and trans-
mission; 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 the
accounts of the Utility and its wholly owned and controlled
subsidiaries as well as the accounts of variable interest
entities for which the Utility absorbs 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 generally accepted accounting principles in the United
States of America (“GAAP”) requires management to make
estimates and assumptions based on a wide range of factors,
including future regulatory decisions and economic condi-
tions that are diffi cult to predict. Some of the more critical
estimates and assumptions, discussed further below in these
notes, relate to the Utility’s regulatory assets and liabilities,
environmental remediation liability, asset retirement obli-
gations (“ARO”), income tax-related assets and liabilities,
pension plan and other postretirement plan obligations,
and accruals for legal matters. Management believes that
its estimates and assumptions refl ected in the Consolidated
Financial Statements are appropriate and reasonable.
A change in management’s estimates or assumptions could
result in an adjustment that would 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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS