PG&E 2013 Annual Report Download - page 62

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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 operating subsidiary is Pacific Gas and Electric
Company, 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 CPUC and
the FERC. In addition, the NRC oversees the licensing, construction, operation, and decommissioning of the Utility’s
nuclear generation facilities.
This is a combined annual report of 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 Notes to the Consolidated Financial Statements apply to both PG&E Corporation and the Utility.
PG&E Corporation and the Utility operate in one segment.
The accompanying Consolidated Financial Statements have been prepared in accordance with GAAP and the
instructions to Form 10-K and Regulation S-X promulgated by the 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, 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
Regulation and Regulated Operations
As a regulated entity, the Utility collects rates from customers to recover ‘‘revenue requirements’’ that have
been authorized by the CPUC or the FERC based on the Utility’s costs of service. The Utility’s ability to recover a
significant portion of its authorized revenue requirements through rates is independent, or ‘‘decoupled,’’ from the
volume of the Utility’s electricity and natural gas sales. The Utility records assets and liabilities that result from the
regulated ratemaking process that would not be recorded under GAAP for nonregulated entities. The Utility
capitalizes and records, as regulatory assets, costs that would otherwise be charged to expense if it is probable that
the incurred costs will be recovered in future rates. Regulatory assets are amortized over the future periods in which
the costs are recovered. If costs expected to be incurred in the future are currently being recovered through rates,
the Utility records those expected future costs as regulatory liabilities. Amounts that are probable of being credited
or refunded to customers in the future are also recorded as regulatory liabilities.
The Utility also records a regulatory balancing account asset or liability for differences between actual customer
billings and authorized revenue requirements that are probable of recovery or refund. These differences do not have
an impact on net income. The Utility also records differences between incurred costs and customer billings or
authorized revenue meant to recover those costs. To the extent these differences are probable of recovery or refund,
the Utility records a regulatory balancing account asset or liability, respectively, and the differences do not have an
impact on net income. See ‘‘Revenue Recognition’’ below.
To the extent that portions of the Utility’s operations cease to be subject to cost-of-service rate regulation, or
recovery is no longer probable as a result of changes in regulation or other reasons, the related regulatory assets and
liabilities are written off.
Management continues to believe the use of regulatory accounting is applicable and that all regulatory assets
and liabilities are recoverable or refundable.
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.
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