PG&E 2010 Annual Report Download - page 24

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interest income decreased as compared to 2009, when the
Utility received interest income on previously incurred
costs related to the proposed divestiture of its hydroelectric
generation facilities.
The Utility’s interest income decreased by $58 million,
or 64%, in 2009 compared to 2008, primarily due to lower
interest rates affecting various regulatory balancing
accounts and regulatory assets, and lower balances in those
accounts. In addition, interest income decreased due to
lower interest rates earned on funds held in escrow pending
the disposition of disputed claims that had been made in
the Utility’s proceeding under Chapter 11 of the U.S.
Bankruptcy Code (“Chapter 11”). (See Note 13 of the
Notes to the Consolidated Financial Statements.) These
decreases were partially offset by an increase in interest
income for the recovery of interest on previously incurred
costs related to the Utility’s hydroelectric generation
facilities.
The Utility’s interest income in future periods will be
primarily affected by changes in the balance of funds held
in escrow pending resolution of the Chapter 11 disputed
claims, changes in regulatory balancing accounts, and
changes in interest rates.
Interest Expense
The Utility’s interest expense decreased by $12 million, or
2%, in 2010 as compared to 2009. This decrease was
primarily attributable to decreases in the outstanding
balances of the liability for Chapter 11 disputed claims,
energy recovery bonds (“ERBs”), and various regulatory
balancing accounts, and to lower interest rates on short-
term debt. The decrease was partially offset by an increase
in outstanding senior notes. (See Note 4 of the Notes to
the Consolidated Financial Statements.)
The Utility’s interest expense decreased by $36 million,
or 5%, in 2009 as compared to 2008. This was primarily
attributable to lower interest rates and outstanding balances
on liabilities that the Utility incurs interest expense on
(such as the liability for Chapter 11 disputed claims and
various regulatory balancing accounts). This decrease was
partially offset by higher outstanding balances for long-
term debt due to timing of senior note issuances.
The Utility’s interest expense in future periods will be
impacted by changes in interest rates, changes in the
liability for Chapter 11 disputed claims, changes in
regulatory balancing accounts and regulatory assets, and
changes in the amount of debt outstanding as long-term
debt matures and additional long-term debt is issued. (See
“Liquidity and Financial Resources” below.)
OtherIncome, Net
The Utility’s other income, net decreased by $37 million,
or 63%, in 2010 compared to 2009. The decrease was
primarily due to a $45 million increase in other expenses as
a result of costs the Utility incurred to support a California
ballot initiative that appeared on the June 2010 ballot,
which are not recoverable in rates. This expense was
partially offset by a $15 million increase in allowance for
equity funds used during construction, due to higher
average balances of construction work in progress.
The Utility’s other income, net increased by $31
million, or 111%, in 2009 compared to 2008, when the
Utility incurred costs to oppose a California ballot
initiative related to renewable energy and to oppose the
City of San Francisco’s municipalization efforts.
Income Tax Provision
The Utility’s income tax provision increased by $92
million, or 19%, in 2010 compared to 2009. The effective
tax rates were 34% and 28% for 2010 and 2009,
respectively. The effective tax rate for 2010 increased as
compared to the same period in 2009, when the Utility
recognized state tax benefits arising from tax accounting
method changes and benefits of various audit settlements
at higher levels than 2010 settlements. The effective tax rate
also increased due to the reversal of a deferred tax asset in
the first quarter of 2010 that had previously been recorded
to reflect the future tax benefits attributable to the
Medicare Part D subsidy after 2012, which was eliminated
as part of the federal health care legislation passed during
March 2010. (See Note 9 of the Notes to the Consolidated
Financial Statements.)
The Utility’s income tax provision decreased by $6
million, or 1%, in 2009 compared to 2008. The effective
tax rates were 28% and 29% for 2009 and 2008,
respectively. The lower effective tax rate for 2009 was
primarily due to the recognition of California tax and
related interest benefits attributable to the settlement of
various federal tax matters. (See Note 9 of the Notes to the
Consolidated Financial Statements.)
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