PG&E 2011 Annual Report Download - page 64

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NOTE 1: ORGANIZATION AND BASIS OF PRESENTATION
PG&E Corporation is a holding company that conducts its business 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 regulated by the California
Public Utilities Commission (‘‘CPUC’’) and the Federal Energy Regulatory Commission (‘‘FERC’’). In addition, the
Nuclear Regulatory Commission (‘‘NRC’’) oversees the licensing, construction, operation, and decommissioning of
the Utility’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 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. All intercompany transactions have been eliminated from the Consolidated Financial
Statements.
The accompanying Consolidated Financial Statements have been prepared in accordance with accounting
principles generally accepted in the United States of America (‘‘GAAP’’) for annual financial statements and in
accordance with the instructions to Form 10-K and Regulation S-X promulgated by the Securities and Exchange
Commission (‘‘SEC’’). The preparation of financial statements in conformity with 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 relate to the
Utility’s regulatory assets and liabilities, legal and regulatory contingencies, environmental remediation liabilities,
asset retirement obligations (‘‘ARO’’), and pension and other postretirement benefit plans obligations. Management
believes that its estimates and assumptions reflected in the Consolidated Financial Statements are appropriate and
reasonable. Actual results could differ materially from those estimates.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and short-term, highly liquid investments with original maturities of
three months or less. Cash equivalents are stated at fair value.
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 Settlement Agreement’’). (See Note 13 below.) Restricted cash also includes the cash collected
from the Utility’s electricity customers and remitted to PG&E Energy Recovery Funding LLC (‘‘PERF’’) for payment
of principal, interest, and miscellaneous expenses associated with the energy recovery bonds (‘‘ERBs’’) issued by
PERF. (See Note 5 below.)
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, aging of receivables, current economic conditions, and assessment of customer collectability.
Inventories
Inventories are carried at weighted-average cost. Inventories include natural gas stored underground, and
materials and supplies. Natural gas stored underground represents purchases that are injected into inventory and
then expensed at weighted average cost when withdrawn and distributed to customers or used in electric generation.
Materials and supplies are charged to inventory when purchased and then expensed or capitalized to plant, as
appropriate, when consumed or installed.
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