PG&E 2009 Annual Report Download - page 63

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 Pacific Gas and Electric Company (“Utility”), a
public utility operating in northern and central California.
The Utility generates revenues mainly through the sale and
delivery of electricity and natural gas to customers. The
Utility is primarily regulated by the California Public
Utilities Commission (“CPUC”) and the Federal Energy
Regulatory Commission (“FERC”).
The Utility’s accounts for electric and gas operations are
maintained in accordance with the Uniform System of
Accounts prescribed by the 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 financial statements in conformity
with accounting principles generally accepted 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
conditions that are difficult 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 obligations (“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 reflected 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
financial condition and results of operations during the
period in which such change occurred.
NOTE 2: SUMMARY
OF SIGNIFICANT
ACCOUNTING POLICIES
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 14 of the Notes to the
Consolidated Financial Statements.) Restricted cash also
includes the Utility’s 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.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are reported at their
original cost. These original costs include labor and
materials, construction overhead, and allowance for funds
used during construction (“AFUDC”).
59