PG&E 2009 Annual Report Download - page 89

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PRESENTATION OF DERIVATIVE INSTRUMENTS IN THE FINANCIAL STATEMENTS
In PG&E Corporation’s and the Utility’s Consolidated Balance Sheets, derivative instruments are presented on a net basis
by counterparty where the right of offset exists. The net balances include outstanding cash collateral associated with
derivative positions.
At December 31, 2009, PG&E Corporation’s and the Utility’s outstanding derivative balances were as follows:
(in millions)
Gross
Derivative
Balance(1) Netting(2)
Cash
Collateral(2)
Total
Derivative
Balances
Commodity Risk (PG&E Corporation and Utility)
Current Assets – Prepaid expenses and other $ 76 $(12) $ 77 $ 141
Other Noncurrent Assets – Other 64 (44) 13 33
Current Liabilities – Other (231) 12 54 (165)
Noncurrent Liabilities – Other (390) 44 44 (302)
Total commodity risk $(481) $ – $188 $(293)
Other Risk Instruments(3) (PG&E Corporation Only)
Current Liabilities – Other $ (13) $ – $ – $ (13)
Total derivatives $(494) $ – $188 $(306)
(1) See Note 11 of the Notes to the Consolidated Financial Statements for a discussion of the valuation techniques used to calculate the fair value of
these instruments.
(2) Positions, by counterparty, are netted where the intent and legal right to offset exist in accordance with master netting agreements.
(3) This category relates to the dividend participation rights of PG&E Corporation’s Convertible Subordinated Notes.
Expenses related to the dividend participation rights are
not recoverable in customers’ rates. Therefore, changes in
the fair value of these instruments are recorded in PG&E
Corporation’s Consolidated Statements of Income.
For the 12-month period ended December 31, 2009, the
gains and losses recorded on PG&E Corporation’s and the
Utility’s derivative instruments were as follows:
(in millions)
Commodity Risk
(PG&E
Corporation and
Utility)
Unrealized gain/(loss) – Regulatory assets and
liabilities(1) $15
Realized gain/(loss) – Cost of electricity(2) (701)
Realized gain/(loss) – Cost of natural gas(2) (54)
Total commodity risk instruments $(740)
(1) Unrealized gains and losses on commodity risk-related derivative
instruments are recorded to regulatory assets or liabilities rather than
being recorded to the Consolidated Statements of Income. These
amounts exclude the impact of cash collateral postings.
(2) These amounts are fully passed through to customers in rates.
Accordingly, net income was not impacted by realized amounts on
these instruments.
Cash inflows and outflows associated with the
settlement of all derivative instruments are recognized in
operating cash flows on PG&E Corporation’s and the
Utility’s Consolidated Statements of Cash Flows.
The majority of the Utility’s commodity risk-related
derivative instruments contain collateral posting provisions
tied to the Utility’s credit rating from each of the major
credit rating agencies. If the Utility’s credit rating were to
fall below investment grade, the Utility would be required
to immediately post additional cash to fully collateralize its
net liability derivative positions.
At December 31, 2009, the additional cash collateral
that the Utility would be required to post if its credit risk-
related contingency features were triggered was as follows:
(in millions)
Derivatives in a liability position with credit risk-related
contingencies that are not fully collateralized $(522)
Related derivatives in an asset position 50
Collateral posting in the normal course of business
related to these derivatives 12
Net position of derivative contracts/additional
collateral posting requirements(1) $(460)
(1) This calculation excludes the impact of closed but unpaid positions, as
their settlement is not impacted by any of the Utility’s credit risk-
related contingencies.
85