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PG&E Corporation and Pacific Gas and Electric Company
2011 Annual Report

Table of contents

  • Page 1
    PG&E Corporation and Pacific Gas and Electric Company 2011 Annual Report

  • Page 2

  • Page 3
    ...Consolidated Financial Statements Quarterly Consolidated Financial Data Management's Report on Internal Control Over Financial Reporting PG&E Corporation and Pacific Gas and Electric Company Boards of Directors Officers of PG&E Corporation and Pacific Gas and Electric Company Shareholder Information...

  • Page 4

  • Page 5
    ... with the Utility's natural gas compressor site located near Hinkley, California. PG&E Corporation's earnings from operations for 2010 exclude $168 million of costs, after-tax, ($0.43) per common share, relating to the San Bruno accident, which primarily includes a provision for third-party claims...

  • Page 6
    ... stock is traded on the New York Stock Exchange. The official New York Stock Exchange symbol for PG&E Corporation is ''PCG.'' COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL SHAREHOLDER RETURN(1) This graph compares the cumulative total return on PG&E Corporation common stock (equal to dividends plus stock...

  • Page 7
    ... Dividends declared per common share(2) ...At Year-End Common stock price per share ...Total assets ...Long-term debt (excluding current portion) ...Capital lease obligations (excluding current portion)(3) ...Energy recovery bonds (excluding current portion)(4) ...Pacific Gas and Electric Company...

  • Page 8
    ... capital expenditures and costs that the CPUC has authorized the Utility to pass on to customers, including costs to purchase electricity and natural gas; and to fund public purpose, demand response, and customer energy efficiency programs. Therefore, although the timing and amount of these costs...

  • Page 9
    ... station located in Hinkley, California, penalties associated with investigations or violations, or that the Utility has decided it will not seek to recover through rates, such as certain costs associated with its natural gas transmission pipeline operations. This is a combined annual report...

  • Page 10
    ...recoverable through rates, such as costs associated with its natural gas compressor station located in Hinkley, California, could negatively affect PG&E Corporation's and the Utility's future financial condition, results of operations, and cash flows. • Authorized Rate of Return, Capital Structure...

  • Page 11
    ... 31, 2011, compared to the number of shares outstanding at December 31, 2010. PG&E Corporation issues shares to fund its equity contributions to the Utility that are used by the Utility to maintain its capital structure and fund operations, including expenses related to natural gas matters. This...

  • Page 12
    ... of electricity and natural gas prices, the ability of the Utility and its counterparties to post or return collateral in connection with price risk management activities; and the availability and price of nuclear fuel used in the two nuclear generation units at Diablo Canyon; • explosions, fires...

  • Page 13
    ... gas compressor station located near Hinkley, California, which are not recoverable through rates or insurance; • the loss of customers due to various forms of bypass and competition, including municipalization of the Utility's electric distribution facilities, increasing levels of ''direct access...

  • Page 14
    ... items from the accompanying Consolidated Statements of Income for 2011, 2010, and 2009: Year ended December 31, (in millions) Utility Electric operating revenues ...Natural gas operating revenues ...Total operating revenues ...Cost of electricity ...Cost of natural gas ...Operating and maintenance...

  • Page 15
    ... amounts charged to customers to recover the cost of electricity procurement, public purpose, energy efficiency, and demand response programs. The Utility provides electricity to residential, industrial, agricultural, and small and large commercial customers through its own generation facilities and...

  • Page 16
    ...of kWh) ...(1) Kilowatt-hour The Utility's total cost of electricity increased by $118 million, or 3%, in 2011 compared to 2010. This was caused by an increase in the price of purchased power resulting from California Independent System Operator Corporation (''CAISO'')-related transmission charges...

  • Page 17
    ...maintain its electricity and natural gas facilities, customer billing and service expenses, the cost of public purpose programs, and administrative and general expenses. The Utility's ability to earn its authorized rate of return depends in large part on the success of its ability to manage expenses...

  • Page 18
    ... to a number of factors, including $122 million for estimated environmental remediation costs and other liabilities associated with the Utility's natural gas compressor site located near Hinkley, California; approximately $82 million for labor and other maintenance-related costs, primarily...

  • Page 19
    ... 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.) Other Income, Net The Utility's other income, net...

  • Page 20
    ... access to the capital and credit markets. The levels of the Utility's operating cash and short-term debt fluctuate as a result of seasonal load, volatility in energy commodity costs, collateral requirements related to price risk management activity, the timing and amount of tax payments or refunds...

  • Page 21
    ... PG&E Corporation's and the Utility's outstanding borrowings under their revolving credit facilities and the Utility's commercial paper program at December 31, 2011: Termination Date May 2016 May 2016 Facility Limit $ 300(1) 3,000(2) $3,300 Letters of Credit Outstanding $ - 343 $343 Commercial Paper...

  • Page 22
    ... commercial paper and the costs associated with the respective credit facilities, and long-term debt. In December 2011, Standard & Poor's Ratings Services (''S&P'') downgraded PG&E Corporation's and the Utility's corporate and senior unsecured debt credit ratings and the Utility's preferred stock...

  • Page 23
    ... Directors of PG&E Corporation (''Board'') declared dividends of $0.455 per share, totaling $188 million, of which $182 million was paid on January 15, 2012 to shareholders of record on December 30, 2011. The remaining $6 million was reinvested under the Dividend Reinvestment and Stock Purchase Plan...

  • Page 24
    ..., and decommissioning ...Allowance for equity funds used during construction ...Deferred income taxes and tax credits, net ...Other ...Effect of changes in operating assets and liabilities: Accounts receivable ...Inventories ...Accounts payable ...Disputed claims and customer refunds ...Income taxes...

  • Page 25
    ... of construction of new and replacement facilities necessary to deliver safe and reliable electricity and natural gas services to its customers. The amount and timing of the Utility's capital expenditures is affected by many factors, including the timing of regulatory approvals and the occurrence...

  • Page 26
    ...(2): Qualifying facilities ...Renewable contracts (other than QF) Other power purchase agreements ...Natural gas supply and transportation . . Nuclear fuel ...Pension and other benefits(3) ...Capital lease obligations(4) ...Operating leases(4) ...Preferred dividends(5) ...PG&E Corporation Long-term...

  • Page 27
    ... purposes primarily because authorized capital expenditures are not added to rate base until the assets are placed in service. The Utility's ability to invest in its electric and natural gas systems and develop new generation facilities is subject to many risks, including risks related to securing...

  • Page 28
    ... panel issued a report that was highly critical of the Utility's natural gas operating practices and procedures, including its risk management and pipeline integrity programs, and its corporate culture. In August 2011, the NTSB announced that it had determined that the probable cause of the San...

  • Page 29
    ... referred to the Utility's June 30, 2011 class location study, in which the Utility reported that the class designations for some of its transmission pipeline segments had changed from what was reflected in the Utility's Geographical Information System (''GIS''). Among other issues, the CPUC will...

  • Page 30
    ... certain state and federal regulations related to the safety of natural gas facilities and utilities' natural gas operating practices, including the authority to issue citations and impose penalties. The Utility has filed several self-reports to inform the CPUC that the Utility failed to comply with...

  • Page 31
    ...derivative lawsuit be delayed until further order of the court. In February 2011, the Board authorized PG&E Corporation to reject a shareholder demand that the Board (1) institute an independent investigation of the San Bruno accident and related alleged safety issues; (2) seek recovery of all costs...

  • Page 32
    ...authorized capital structure and rates of return beginning on January 1, 2013. Diablo Canyon Nuclear Power Plant In 2010, the Utility began to conduct extensive seismological studies of the area at and surrounding the Utility's Diablo Canyon nuclear power plant located in San Luis Obispo, California...

  • Page 33
    ...rate case, the CPUC will determine the disposition of the memorandum account. If the Utility's realized tax savings are not fully invested in its capital infrastructure, causing the memorandum account to be over-collected at the time of disposition, the balance will be subject to refund to customers...

  • Page 34
    ... plant (''MGP'') sites, current and former power plant sites, former gas gathering and gas storage sites, sites where natural gas compressor stations are located, current and former substations, service center and general construction yard sites, and sites currently and formerly used by the Utility...

  • Page 35
    .... In the absence of federal legislative action, the EPA has used its existing authority under the Clean Air Act to address GHG emissions, including establishing an annual GHG reporting requirement. The California Legislature adopted the California Global Warming Solutions Act of 2006 (also known...

  • Page 36
    ... provided that costs do not exceed the maximums authorized by the CPUC for the respective project. Water Quality Section 316(b) of the federal Clean Water Act requires that cooling water intake structures at electric power plants, such as the nuclear generation facilities at Diablo Canyon, reflect...

  • Page 37
    ...for non-core customers may not be fully recoverable. The Utility is subject to price and volumetric risk for the portion of intrastate natural gas transportation and storage capacity that has not been sold under long-term contracts providing for the recovery of all fixed costs through the collection...

  • Page 38
    ...to procure electricity or gas at current market prices, which may be higher than the contract prices. The Utility manages credit risk associated with its counterparties by assigning credit limits based on evaluations of their financial conditions, net worth, credit ratings, and other credit criteria...

  • Page 39
    ... rates, or if the Utility ceased to be subject to rate regulation, the revenues or costs would be charged to income in the period in which that determination was made. At December 31, 2011, PG&E Corporation and the Utility reported regulatory assets (including current regulatory balancing accounts...

  • Page 40
    ... the expected return on plan assets. Actuarial assumptions used in determining other postretirement benefit obligations include the discount rate, the expected return on plan assets, and the health care cost trend rate. PG&E Corporation and the Utility review these assumptions on an annual basis and...

  • Page 41
    ... policies, assets are primarily invested in equity securities and fixed-income securities. (See Note 12 of the Notes to the Consolidated Financial Statements.) PG&E Corporation and the Utility review recent cost trends and projected future trends in establishing health care cost trend rates. This...

  • Page 42
    ... San Bruno accident-related lawsuits proceed. In addition, the Utility's operations are also subject to heightened and well-publicized concerns about many issues, such as the Utility's nuclear generation operations at Diablo Canyon and the risks of terrorist acts, earthquakes, or a nuclear accident...

  • Page 43
    ...plan-related costs through rates and that the Utility's rate of return on authorized capital expenditures be reduced or limited to the costs of debt. The ultimate amount of unrecoverable costs that shareholders may bear will depend on various factors, including when and whether the CPUC takes action...

  • Page 44
    ...its electricity and natural gas procurement costs and to earn a reasonable rate of return on capital investments, in a timely manner from the Utility's customers through regulated rates. The Utility's ability to recover its costs and earn its authorized rate of return can be affected by many factors...

  • Page 45
    ... provide these services. Furthermore, if the former customers return to receiving electricity supply from the Utility, the Utility would be required to meet their electricity needs at costs that could exceed the rates charged to these customers. A combination of technology-related cost declines and...

  • Page 46
    ... investments without a fundamental change in rate design and tariffs. If the CPUC fails to adjust the Utility's rates, including non-bypassable charges and procurement costs, to reflect the impact of changing loads, PG&E Corporation's and the Utility's financial condition, results of operations, and...

  • Page 47
    ... as a substantial number of employees are covered by collective bargaining agreements, and the Utility may be unable to retain or attract qualified individuals to serve in senior management positions. The Utility's workforce is aging and many employees will become eligible to retire within the next...

  • Page 48
    ... sites, current and former power plant sites, former gas gathering and gas storage sites, sites where natural gas compressor stations are located, current and former substations, service center and general construction yard sites, and sites currently and formerly used by the Utility for the storage...

  • Page 49
    ...related to the regulatory, technological, and financial aspects of decommissioning the nuclear generation plants when their licenses expire. The Utility maintains insurance and decommissioning trusts to reduce the Utility's financial exposure to these risks. However, the costs or damages the Utility...

  • Page 50
    ..., under ''Diablo Canyon Nuclear Power Plant,'' the Utility has been conducting extensive seismological studies of the area at and surrounding the Diablo Canyon power plant. These studies are not expected to be completed until 2014 or 2015. The NRC has agreed to delay processing the Utility's pending...

  • Page 51
    ...these plans and trusts. The cost of providing pension and other postretirement benefits is also affected by other factors, including the assumed rate of return on plan assets, employee demographics, discount rates used in determining future benefit obligations, rates of increase in health care costs...

  • Page 52
    ... to pay common stock dividends is constrained by regulatory requirements, including that the Utility maintain its authorized capital structure with an average 52% equity component. Further, the CPUC could adopt the CPSD's financial recommendations made in its January 12, 2012 report on the San Bruno...

  • Page 53
    ... factors, including changes in their credit ratings; changes in the federal or state regulatory environment affecting energy companies generally or PG&E Corporation and the Utility in particular; the overall health of the energy industry; volatility in electricity or natural gas prices; disruptions...

  • Page 54
    PG&E Corporation CONSOLIDATED STATEMENTS OF INCOME (in millions, except per share amounts) Year ended December 31, 2011 2010 2009 Operating Revenues Electric ...Natural gas ...Total operating revenues ...Operating Expenses Cost of electricity ...Cost of natural gas ...Operating and maintenance ......

  • Page 55
    ... ($336 and $0 related to energy recovery bonds at December 31, 2011 and 2010, respectively) ...Inventories Gas stored underground and fuel oil ...Materials and supplies ...Income taxes receivable ...Other ...Total current assets ...Property, Plant, and Equipment Electric ...Gas ...Construction work...

  • Page 56
    ... share amounts) Balance at December 31, 2011 2010 LIABILITIES AND EQUITY Current Liabilities Short-term borrowings ...Long-term debt, classified as current ...Energy recovery bonds, classified as current Accounts payable Trade creditors ...Disputed claims and customer refunds ...Regulatory balancing...

  • Page 57
    ..., and decommissioning ...Allowance for equity funds used during construction ...Deferred income taxes and tax credits, net ...Other ...Effect of changes in operating assets and liabilities: Accounts receivable ...Inventories ...Accounts payable ...Disputed claims and customer refunds ...Income taxes...

  • Page 58
    ... Corporation CONSOLIDATED STATEMENTS OF EQUITY (in millions, except share amounts) Noncontrolling Interest- Preferred Stock of Subsidiary Common Stock Shares Balance at December 31, 2008 ...362,346,685 Income available for common shareholders ...- Employee benefit plan adjustment (net of income tax...

  • Page 59
    Pacific Gas and Electric Company CONSOLIDATED STATEMENTS OF INCOME (in millions) Year ended December 31, 2011 Operating Revenues Electric ...Natural gas ...Total operating revenues ...Operating Expenses Cost of electricity ...Cost of natural gas ...Operating and maintenance ...Depreciation, ...

  • Page 60
    ... ($336 and $0 related to energy recovery bonds at December 31, 2011 and 2010, respectively) ...Inventories Gas stored underground and fuel oil ...Materials and supplies ...Income taxes receivable ...Other ...Total current assets ...Property, Plant, and Equipment Electric ...Gas ...Construction work...

  • Page 61
    ..., except share amounts) Balance at December 31, 2011 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Short-term borrowings ...Long-term debt, classified as current ...Energy recovery bonds, classified as current . . Accounts payable Trade creditors ...Disputed claims and customer refunds...

  • Page 62
    ..., and decommissioning ...Allowance for equity funds used during construction ...Deferred income taxes and tax credits, net ...Other ...Effect of changes in operating assets and liabilities: Accounts receivable ...Inventories ...Accounts payable ...Disputed claims and customer refunds ...Income taxes...

  • Page 63
    Pacific Gas and Electric Company CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in millions) Accumulated Additional Other Total Preferred Common Paid-in Reinvested Comprehensive Shareholders' Comprehensive Stock Stock Capital Earnings Income (Loss) Equity Income Balance at December 31, 2008 . . ...

  • Page 64
    ...'s nuclear generation facilities. 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. The Notes to the Consolidated Financial Statements...

  • Page 65
    ...in 2011, 3.38% in 2010, and 3.43% in 2009. The useful lives of the Utility's property, plant, and equipment are authorized by the CPUC and the FERC, and the depreciation expense is recovered through rates charged to customers. Depreciation expense includes a component for the original cost of assets...

  • Page 66
    ... for its nuclear generation facilities, certain fossil fuel-fired generation facilities, and gas transmission system assets. Detailed studies of the cost to decommission the Utility's nuclear power plants are conducted every three years in conjunction with the Nuclear Decommissioning Cost Triennial...

  • Page 67
    ...to be economically beneficial. Therefore, the settlement date cannot be determined at this time. Impairment of Long-Lived Assets PG&E Corporation and the Utility evaluate the carrying amounts of long-lived assets for impairment, based on projections of undiscounted future cash flows, whenever events...

  • Page 68
    ...Utility to collect additional revenue requirements to recover certain capital expenditures and costs that the Utility has been authorized to pass on to customers, including costs to purchase electricity and natural gas; to fund public purpose, demand response, and customer energy efficiency programs...

  • Page 69
    ... its income tax provision (benefit) on a stand-alone basis. Nuclear Decommissioning Trusts The Utility's nuclear power facilities consist of two units at Diablo Canyon and the retired facility at Humboldt Bay. Nuclear decommissioning requires the safe removal of nuclear facilities from service and...

  • Page 70
    ... of the power plant that most directly impact the VIE's economic performance. The Utility held a variable interest in several entities that own power plants that generate electricity for sale to the Utility under power purchase agreements. Each of these VIEs was designed to own a power plant that...

  • Page 71
    ... PG&E Corporation's Consolidated Balance Sheets. As of December 31, 2011, PG&E Corporation had made total payments of $359 million under these tax equity agreements and received $136 million in benefits and customer payments. PG&E Corporation holds a variable interest in these companies as a result...

  • Page 72
    ... next 12 months. Long-Term Regulatory Assets Long-term regulatory assets are composed of the following: Balance at December 31, (in millions) Pension benefits ...Deferred income taxes ...Utility retained generation ...Environmental compliance costs . Price risk management ...Electromechanical meters...

  • Page 73
    ... generation facilities that are probable of future recovery through the ratemaking process; costs that the Utility incurred in terminating a 30-year power purchase agreement which are being amortized and collected in rates through September 2014; and costs incurred in relation to the Utility's plan...

  • Page 74
    ... amounts collected from customers to pay for costs that the Utility expects to incur in the future under energy efficiency programs designed to encourage the manufacture, design, distribution, and customer use of energy efficient appliances and other energy-using products; under the California Solar...

  • Page 75
    ... used to record and recover the authorized public purpose program revenue requirements and incentive awards earned by the Utility for implementing customer energy efficiency programs. The public purpose programs primarily consist of the energy efficiency programs; low-income energy efficiency...

  • Page 76
    ... without a credit facility. The Utility has obtained credit support from an insurance company for these bonds. At December 31, 2011, interest rates on these bonds and the related loans ranged from 0.02% to 0.05%. Each series of these bonds is supported by a separate direct-pay letter of credit that...

  • Page 77
    ... commercial paper program at December 31, 2011: Termination Date May 2016 May 2016 Facility Limit $ 300(1) 3,000(2) $3,300 Letters of Credit Outstanding $ - 343 $343 Commercial Paper $ - 1,389(3) $1,389 Facility Availability $ 300 1,268(3) $1,568 (in millions) PG&E Corporation ...Utility ...Total...

  • Page 78
    ... pay a facility fee on the total commitments of the lenders under the revolving credit facilities. The applicable margins and the facility fees will be based on PG&E Corporation's and the Utility's senior unsecured debt ratings issued by Standard & Poor's Rating Services and Moody's Investor Service...

  • Page 79
    ...Equity Distribution Agreement. Utility As of December 31, 2011, PG&E Corporation held all of the Utility's outstanding common stock. Dividends The Board of Directors of PG&E Corporation and the Utility declare dividends quarterly. Under the Utility's Articles of Incorporation, the Utility cannot pay...

  • Page 80
    ... Utility to meet its debt service and other financial obligations and to pay dividends on its common stock. Long-Term Incentive Plan The PG&E Corporation 2006 Long-Term Incentive Plan (''2006 LTIP'') permits the award of various forms of incentive awards, including stock options, stock appreciation...

  • Page 81
    ... sell or transfer their shares until the shares vest. For restricted common stock awarded prior to 2009, the terms of the agreements provide that 60% of the shares vest over a period of three years at the rate of 20% per year. If PG&E Corporation's annual total shareholder return (''TSR'') is in the...

  • Page 82
    ... was no tax benefit associated with performance shares during 2011, 2010, and 2009, as awards that settle in cash have no tax impact, and awards that settle in shares do not generate a tax benefit until vested. As of December 31, 2011, $17 million of total unrecognized compensation costs related to...

  • Page 83
    ... or in part, if the Utility pays the specified redemption price plus accumulated and unpaid dividends through the redemption date. At December 31, 2011, annual dividends on redeemable preferred stock ranged from $1.09 to $1.25 per share. Dividends on all Utility preferred stock are cumulative. All...

  • Page 84
    ... effect of outstanding share-based compensation in the calculation of diluted EPS. The following is a reconciliation of PG&E Corporation's income available for common shareholders and weighted average common shares outstanding for calculating diluted EPS: Year Ended December 31, 2011 2010 2009...

  • Page 85
    ... reserve ...Compensation ...Net operating loss carry forward ...Other ...Deferred income tax liabilities: Regulatory balancing accounts . . Property related basis differences Income tax regulatory asset ...Other ... PG&E Corporation Utility Year Ended December 31, 2011 2010 2011 2010 ...$ 108...

  • Page 86
    ...: PG&E Corporation Utility Year Ended December 31, 2011 2010 2009 2011 2010 Federal statutory income tax rate ...Increase (decrease) in income tax rate resulting from: State income tax (net of federal benefit) ...Effect of regulatory treatment of fixed asset differences . Tax credits ...IRS audit...

  • Page 87
    ... related to electricity and natural gas commodity prices. All of the Utility's risk management activities involving derivatives reduce the volatility of commodity costs on behalf of its customers. The CPUC allows the Utility to charge customer rates designed to recover the Utility's reasonable costs...

  • Page 88
    ... gas price risk primarily through physical natural gas commodity purchases to fuel Utility-owned natural gas generating facilities and tolling agreements, and electricity procurement contracts indexed to natural gas prices. To reduce the volatility in customer rates, the Utility purchases financial...

  • Page 89
    ... winter hedging program in order to manage customer exposure to high natural gas prices during peak winter months. These financial instruments are considered derivative instruments. Volume of Derivative Activity At December 31, 2011, the volumes of PG&E Corporation's and the Utility's outstanding...

  • Page 90
    ...cost of electricity(2) ...Realized loss-cost of natural gas(2) ...Total commodity risk instruments ...(1) (2) Unrealized gains and losses on commodity risk-related derivative instruments are recorded to regulatory assets or liabilities, rather than recorded to the Consolidated Statements of Income...

  • Page 91
    NOTE 11: FAIR VALUE MEASUREMENTS PG&E Corporation and the Utility measure their cash equivalents, trust assets, and price risk management instruments at fair value. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an ...

  • Page 92
    ...194 Total nuclear decommissioning trusts(2) ...Price risk management instruments (Note 10) Electric ...Gas ...Total price risk management instruments ...Rabbi trusts Fixed-income securities ...Life insurance contracts ...Total rabbi trusts ...Long-term disability trust U.S. equity securities ...Non...

  • Page 93
    ... MEASUREMENTS (Continued) Trust Assets The assets held by the nuclear decommissioning trusts, the rabbi trusts related to the non-qualified deferred compensation plans, and the long-term disability trust are composed primarily of equity securities, debt securities, and life insurance policies. In...

  • Page 94
    ...-term in nature or have interest rates that reset daily. • The fair values of the Utility's fixed rate senior notes and fixed rate pollution control bond loan agreements, PG&E Corporation's fixed rate senior notes, and the ERBs issued by PERF were based on quoted market prices at December 31, 2011...

  • Page 95
    ...in the Utility's nuclear decommissioning trusts: Amortized Cost Total Unrealized Gains Total Unrealized Losses Total Fair Value(1) (in millions) As of December 31, 2011 Equity securities U.S...Non-U.S...Debt securities U.S. government and agency securities Municipal securities ...Other fixed-income...

  • Page 96
    ...dependents, and non-contributory postretirement life insurance plans for eligible employees and retirees (referred to collectively as ''other benefits''). PG&E Corporation and the Utility have elected that certain of the trusts underlying these plans be treated under the Code as qualified trusts. If...

  • Page 97
    ... in plan assets: Fair value of plan assets at January Actual return on plan assets ...Company contributions ...Plan participant contribution ...Benefits and expenses paid ...Change in benefit obligation: Benefit obligation at January 1 . Service cost for benefits earned Interest cost ...Actuarial...

  • Page 98
    ... Periodic Benefit Cost Net periodic benefit cost as reflected in PG&E Corporation's Consolidated Statements of Income for the year ended December 31, 2011, 2010, and 2009 is as follows: Pension Benefits (in millions) Service cost for benefits earned ...Interest cost ...Expected return on plan assets...

  • Page 99
    ... benefit plan trusts, resulting in a weighted average rate of return on plan assets. Returns on fixed-income debt investments were projected based on real maturity and credit spreads added to a long-term inflation rate. Returns on equity investments were estimated based on estimates of dividend...

  • Page 100
    ... plans at December 31, 2012, 2011, and 2010 are as follows: Pension Benefits 2012 2011 2010 Global equity securities ...U.S. equity securities ...Non-U.S. equity securities ...Absolute return ...Private real estate securities ...Real assets ...Extended fixed-income securities Fixed-income securities...

  • Page 101
    ...31, 2011 (in millions) Pension Benefits: U.S. equity securities ...Non-U.S. equity securities Global equity securities . . Absolute return ...Real assets ...Fixed-income securities: U.S. government ...Corporate ...Other ...Cash equivalents ...Other Benefits: U.S. equity securities ...Non-U.S. equity...

  • Page 102
    ...a public exchange and are therefore considered Level 1 assets. Private real estate funds are valued using pricing models and valuation inputs that are unobservable and are considered Level 3 assets. Fixed-Income The fixed-income category includes U.S. government securities, corporate securities, and...

  • Page 103
    ... Benefits Corporate Other fixedfixedReal income income assets $124 15 (2) (8) $129 $17 - - (7) $10 (in millions) Balance as of January 1, 2010 . . Actual return on plan assets: Relating to assets still held at the reporting date ...Relating to assets sold during the period ...Purchases, issuances...

  • Page 104
    ... 11 proceeding seeking payment for energy supplied to the Utility's customers through the wholesale electricity markets operated by the CAISO and the California Power Exchange (''PX'') between May 2000 and June 2001. These claims, which the Utility disputes, are being addressed in various FERC and...

  • Page 105
    ... on the nature and value of the services. PG&E Corporation also allocates various corporate administrative and general costs to the Utility and other subsidiaries using agreed-upon allocation factors, including the number of employees, operating and maintenance expenses, total assets, and other...

  • Page 106
    ...CPUC required California investor-owned electric utilities to enter into long-term power purchase agreements with QFs and approved the applicable terms and conditions, prices, and eligibility requirements. These agreements require the Utility to pay for energy and capacity. Energy payments are based...

  • Page 107
    ... Total fixed capacity payments ...Less: amount representing interest ...Present value of fixed capacity payments ... Minimum lease payments associated with the lease obligations are included in cost of electricity on PG&E Corporation's and the Utility's Consolidated Statements of Income. The timing...

  • Page 108
    ...Rocky Mountain supply area, and the southwestern United States) to the points at which the Utility's natural gas transportation system begins. In addition, the Utility has contracted for natural gas storage services in northern California in order to better meet core customers' winter peak loads. At...

  • Page 109
    ... with commercial nuclear power plants no later than January 31, 1998, in exchange for fees paid by the utilities. The DOE failed to meet its contractual obligation to dispose of nuclear waste from the Utility's nuclear generating facility at Diablo Canyon and its retired facility at Humboldt Bay...

  • Page 110
    ... of such costs since 2005. Any amounts recovered from the DOE will be credited to customers. Nuclear Insurance The Utility has several types of nuclear insurance for the two nuclear generating units at Diablo Canyon and Humboldt Bay Unit 3. The Utility has insurance coverage for property damages...

  • Page 111
    ... area located in the City of San Bruno, California (the ''San Bruno accident''). The ensuing explosion and fire resulted in the deaths of eight people, numerous personal injuries, and extensive property damage. The National Transportation Safety Board (''NTSB''), an independent review panel...

  • Page 112
    ... related to the safety of natural gas facilities and utilities' natural gas operating practices, including the authority to levy citations and impose penalties. The Utility has filed several self-reports to inform the CPUC of violations of various regulations and orders applicable to its natural gas...

  • Page 113
    ... 100 lawsuits involving third-party claims for personal injury and property damage in connection with the San Bruno accident, including two class action lawsuits, have been filed against PG&E Corporation and the Utility on behalf of approximately 370 plaintiffs. The lawsuits seek compensation for...

  • Page 114
    ... manufactured gas plant (''MGP'') sites, power plant sites, gas gathering sites, sites where natural gas compressor stations are located, and sites used by the Utility for the storage, recycling, or disposal of potentially hazardous substances. Under federal and California laws, the Utility may...

  • Page 115
    ...chromium used in the past at the Utility's natural gas compressor site located near Hinkley, California. The Utility is also required to take measures to abate the effects of the contamination on the environment. The Utility's remediation and abatement efforts are subject to the regulatory authority...

  • Page 116
    ...Hinkley natural gas compressor site). The Utility expects to recover $393 million through this ratemaking mechanism. The CPUC has historically authorized the Utility to recover 100% of its remediation costs for decommissioning fossil fuel-fired generation facilities and sites through decommissioning...

  • Page 117
    ... Note 15 of the Notes to the Consolidated Financial Statements. During the third quarter 2011, the Utility recorded a charge of $125 million for environmental remediation and other estimated liabilities associated with the Utility's natural gas compressor site located near Hinkley, California. 113

  • Page 118
    ... Utility's related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2011. As stated in their report, which is included in this annual report, Deloitte & Touche LLP also has audited PG&E Corporation's and the Utility...

  • Page 119
    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of PG&E Corporation and Pacific Gas and Electric Company San Francisco, California We have audited the accompanying consolidated balance sheets of PG&E Corporation and subsidiaries (the ''Company'') ...

  • Page 120
    BOARDS OF DIRECTORS OF PG&E CORPORATION AND PACIFIC GAS AND ELECTRIC COMPANY DAVID R. ANDREWS Senior Vice President, Government Affairs, General Counsel, and Secretary, Retired, PepsiCo, Inc. LEWIS CHEW Former Senior Vice President, Finance and Chief Financial Officer, National Semiconductor ...

  • Page 121
    ... Affairs JOHN R. SIMON Senior Vice President, Human Resources FONG WAN Senior Vice President, Energy Procurement WILLIAM D. ARNDT Vice President, Strategic Business Management JAMES R. BECKER Site Vice President, Diablo Canyon Power Plant EDWARD T. BEDWELL Vice President, Government Relations...

  • Page 122
    ... Governance and Corporate Secretary Linda Y.H. Cheng PG&E Corporation 77 Beale Street P. O. Box 770000 San Francisco, CA 94177 415-267-7070 Fax 415-267-7268 Securities analysts, portfolio managers, or other representatives of the investment community should contact the Investor Relations Office...

  • Page 123
    ... Street San Francisco, CA 94105 Form 10-K If you would like to obtain a copy, free of charge, of PG&E Corporation's and Pacific Gas and Electric Company's joint Annual Report on Form 10-K for the year ended December 31, 2011, which has been filed with the Securities and Exchange Commission, please...

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