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PG&E Corporation and Pacific Gas and Electric Company
2014 Joint Annual Report to Shareholders

Table of contents

  • Page 1
    PG&E Corporation and Pacific Gas and Electric Company 2014 Joint Annual Report to Shareholders

  • Page 2

  • Page 3
    ... A Letter from the Chairman i Financial Highlights iii Comparison of Five-Year Cumulative Total Shareholder Return iv Form 10-K Cover Page 1 Form 10-K Table of Contents PG&E Corporation and Pacific Gas and Electric Company Boards of Directors Officers of PG&E Corporation and Pacific Gas and...

  • Page 4
    (This page intentionally left blank.)

  • Page 5
    ... increasing the state's use of renewable energy, improving energy efficiency and reducing gasoline consumption. Realizing these goals will require that we continue working to create a 21st-century electric grid. From renewables and energy storage to electric vehicles and smart homes and appliances...

  • Page 6
    ... California. As critical as these investments are however, it is equally vital that we keep our service affordable. Average monthly bills for PG&E customers are among the nation's lowest. But meeting our long-term goal to keep prices in line with inflation will require us to continue managing costs...

  • Page 7
    ...-tax) $ $ $ 347 116 12 (7) (112) 356 216 $ $ $ 2013 387 196 22 110 (70) 645 392 (5) PG&E Corporation's earnings from operations for 2014 and 2013 also exclude whole house water replacement program costs associated with the Utility's natural gas compressor station located near Hinkley, California...

  • Page 8
    PG&E Corporation common stock is traded on the New York Stock Exchange under the symbol "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 price appreciation) during ...

  • Page 9
    ...&E CORPORATION PACIFIC GAS AND ELECTRIC COMPANY State or Other Jurisdiction of Incorporation or Organization California California IRS Employer Identification Number 94-3234914 94-0742640 77 Beale Street, P.O. Box 770000 San Francisco, California 94177 (Address of principal executive offices) (Zip...

  • Page 10
    ...documents listed below have been incorporated by reference into the indicated parts of this report, as specified in the responses to the item numbers involved: Designated portions of the Joint Proxy Statement relating to the 2015 Part III (Items 10, 11, 12, 13 and 14) Annual Meetings of Shareholders...

  • Page 11
    ... Statements of Equity ...72 Pacific Gas and Electric Company...73 Consolidated Statements of Income ...73 Consolidated Statements of Comprehensive Income ...74 Consolidated Balance Sheets...75 Consolidated Statements of Cash Flows ...77 Consolidated Statements of Shareholders' Equity ...79 NOTES...

  • Page 12
    ... 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE ...134 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES...134 PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES ...135 SIGNATURES ...144 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ...146 FINANCIAL...

  • Page 13
    UNITS OF MEASUREMENT 1 Kilowatt (kW) 1 Kilowatt-Hour (kWh) 1 Megawatt (MW) 1 Megawatt-Hour (MWh) 1 Gigawatt (GW) 1 Gigawatt-Hour (GWh) 1 Kilovolt (kV) 1 MVA 1 Mcf 1 MMcf 1 Bcf 1 MDth One thousand watts One kilowatt continuously for one hour One thousand kilowatts One megawatt continuously for one ...

  • Page 14
    ... and Electric Company's combined Annual Report on Form 10-K for the year ended December 31, 2014, including the information incorporated by reference into the report Assembly Bill allowance for funds used during construction administrative law judge asset retirement obligation California Independent...

  • Page 15
    ... California. The Utility was incorporated in California in 1905. PG&E Corporation became the holding company of the Utility and its subsidiaries in 1997. The Utility generates revenues mainly through the sale and delivery of electricity and natural gas to customers. At the state level, the Utility...

  • Page 16
    ... California Independent System Operator The FERC has jurisdiction over the Utility's electricity transmission revenue requirements and rates, the licensing of substantially all of the Utility's hydroelectric generation facilities, and the interstate sale and transportation of natural gas. The FERC...

  • Page 17
    ... its costs to procure electricity, natural gas and nuclear fuel, to administer public purpose and customer programs, and to decommission its nuclear facilities. The Utility's rate of return on electric transmission assets is determined in the FERC TO proceedings. The authorized rate of return on...

  • Page 18
    ... rate of return on electric transmission assets, that the Utility may collect in rates in the TO tariff rate case. The Utility generally files a TO tariff rate case every year. The FERC typically authorizes the Utility to charge new rates based on the requested revenue requirement, subject to refund...

  • Page 19
    ... natural gas balancing accounts, with undercollections and over-collections taken into account in subsequent monthly rates. This is accomplished through monthly advice letters that are effective upon filing. The Utility recovers the cost of gas used in generation facilities as a cost of electricity...

  • Page 20
    ...a discount rate for low-income customers, known as California Alternate Rates for Energy ("CARE"), which is subsidized by the Utility's other customers. Nuclear Decommissioning Costs The Utility's nuclear power facilities consist of two units at Diablo Canyon and the retired facility at Humboldt Bay...

  • Page 21
    ... Large Hydroelectric Total Other Third-Party Purchase Agreements Renewable Large Hydroelectric Non-Renewable Total Others, Net (2) Total (3) This amount excludes electricity provided to direct access customers and CCAs who procure their own supplies of electricity. Mainly comprised of net CAISO open...

  • Page 22
    ... the Guernsey solar station, which is located in Kings County. Generation Resources from Third Parties. The Utility has entered into various agreements to purchase power and electric capacity, including agreements for renewable energy resources, in accordance with its CPUC-approved procurement plan...

  • Page 23
    ... and British Columbia, and parts of Mexico. In November 2013, the Utility, MidAmerican Transmission, LLC, and Citizens Energy Corporation were selected by the CAISO to jointly develop a new 230-kV transmission line to address the growing power demand in Fresno, Madera and Kings counties area. The 70...

  • Page 24
    ... Deliveries (in GWh) (1) Revenues (in millions): Residential Commercial Industrial Agricultural Public street and highway lighting Other (2) Subtotal Regulatory balancing accounts (3) Total operating revenues Selected Statistics: Average annual residential usage (kWh) Average billed revenues per kWh...

  • Page 25
    ... an annual system-wide review of its transmission pipeline class location designations. As part of its distribution integrity management program, during 2014 the Utility completed inspections of approximately 35,000 sewer laterals. Since work began on the PSEP and other gas transmission work in 2011...

  • Page 26
    ...sales: Residential Commercial Other Bundled gas revenues Transportation service only revenue Subtotal Regulatory balancing accounts Total operating revenues Selected Statistics: Average annual residential usage (Mcf) Average billed bundled gas sales revenues per Mcf: Residential Commercial Net plant...

  • Page 27
    ..., state, and local agencies. The Utility has incurred significant environmental remediation liabilities associated with former manufactured gas plant sites, power plant sites, gas gathering sites, sites where natural gas compressor stations are located, and sites used by the Utility for the storage...

  • Page 28
    ... the use of renewable energy and energy storage-are effective strategies for adapting to the expected increase in demand for electricity. The Utility's vegetation management activities also reduce the risk of wildfire impacts on electric and gas facilities. Over the long-term, the Utility also faces...

  • Page 29
    ... GHG emissions data in their annual Corporate Responsibility and Sustainability Report. Source Fossil Fuel-Fired Plants (1) (2) Amount (metric tonnes CO2 - equivalent) 2,382,463 325,701 213,858 43,506,493 Natural Gas Compressor Stations Distribution Fugitive Natural Gas Emissions Customer Natural...

  • Page 30
    ... interim dry cask storage facilities to store its spent fuel onsite at Diablo Canyon and at Humboldt Bay until such time as the DOE fulfills its contractual obligation to take possession of the spent fuel. The Utility and other nuclear power plant owners sued the DOE to recover the costs that they...

  • Page 31
    ... the Utility's violations of the CPUC's rules regarding ex parte communications relating to the 2015 GT&S rate case, the CPUC issued a decision to disallow up to the entire amount of incremental revenues that would have been collected from ratepayers over the five-month period between March 2015 and...

  • Page 32
    ...earn its authorized rate of return in a timely manner. As a regulated entity, the Utility's rates are set by the CPUC or the FERC on a prospective basis and are generally designed to allow the Utility to collect sufficient revenues to recover the costs of providing service, including a return on and...

  • Page 33
    ... agreements, and purchases on the wholesale electricity market. The Utility must manage these sources using the commercial and CPUC regulatory principles of "least cost dispatch" and prudent administration of power purchase agreements in compliance with its CPUC-approved long-term procurement plan...

  • Page 34
    ..., to pay preferred stock dividends, and meet its obligations to employees and creditors, before it can distribute cash to PG&E Corporation. Under the CPUC's rules applicable to utility holding companies, the Utility's dividend policy must be established by the Utility's Board of Directors as though...

  • Page 35
    ..., the Utility could incur costs to purchase replacement power, to repair assets and restore service, to compensate third parties, or to pay penalties or implement remedial measures. These costs may not be recoverable through rates or insurance and could have a material impact of PG&E Corporation...

  • Page 36
    ...result in increased costs, the inability to track or collect revenues, the diversion of management's and employees' attention and resources, and could negatively affect the effectiveness of the Utility's control environment, and/or the Utility's ability to timely file required regulatory reports. In...

  • Page 37
    ... costs to comply with alternative compliances measures or to make payments to support various environmental mitigation projects. The Utility also has an obligation to decommission its electricity generation facilities, including its nuclear facilities, as well as gas transmission system assets...

  • Page 38
    ... the rate of return on plan assets, employee demographics, discount rates used in determining future benefit obligations, rates of increase in health care costs, future government regulation, and prior contributions to the plans. Similarly, funding requirements for the nuclear decommissioning trusts...

  • Page 39
    ... services of a qualified workforce and its ability to maintain satisfactory collective bargaining agreements which cover a substantial number of employees. PG&E Corporation's and the Utility's results may suffer if the Utility is unable to attract and retain qualified personnel and senior management...

  • Page 40
    ...which the Central Coast Board agreed to find that the Utility's discharge of cooling water from the Diablo Canyon power plant protects beneficial uses and that the intake technology reflects the best technology available, as defined in the federal Clean Water Act. As part of the tentative settlement...

  • Page 41
    ... the City and County of San Francisco jointly filed an appeal urging the CPUC to disallow the Utility's recovery of remaining PSEP costs of $877 million and to require the Utility to pay $473 million to the State General Fund. These parties also argue that the record in the investigative proceedings...

  • Page 42
    ... Services Senior Vice President and Chief Financial Officer, PG&E Corporation Executive Vice President, Gas Operations Executive Vice President and Chief Operating Officer, U.S. Gas Distribution, National Grid Executive Vice President, Electric Operations Senior Vice President, Energy Delivery Time...

  • Page 43
    ... and Chief Information Officer President, Consumer Electronics, Sears Holdings Senior Vice President, Safety and Shared Services Senior Vice President, Shared Services and Chief Procurement Officer Senior Vice President, Corporate Affairs Senior Vice President, Corporate Affairs, PG&E Corporation...

  • Page 44
    Jesus Soto, Jr. 47 Senior Vice President, Engineering, Construction and Operations Senior Vice President, Gas Transmission Operations Vice President, Operations Services, El Paso Pipeline Group Senior Vice President, Energy Procurement Vice President, Chief Financial Officer, and Controller Vice ...

  • Page 45
    ... REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES As of January 27, 2015, there were 61,989 holders of record of PG&E Corporation common stock. PG&E Corporation common stock is listed on the New York Stock Exchange. The high and low sales prices of PG...

  • Page 46
    ... 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) Pacific­Gas­and­Electric­Company For the Year Operating revenues Operating income Income available...

  • Page 47
    ... Gas and Electric Company generates revenues mainly through the sale and delivery of electricity and natural gas to customers. PG&E Corporation is the parent holding company of the Utility. The authorized revenue requirements set by the CPUC in the GRC and GT&S rate cases and by the FERC in TO rate...

  • Page 48
    ...except per share amounts) Income Available for Common Shareholders - 2013 Natural gas matters (1) 2014 GRC expense recovery(2) Tax benefit - repairs method and forecast change (3) Growth in rate base earnings (4) Gain on disposition of SolarCity stock Regulatory matters (5) Gas transmission revenues...

  • Page 49
    ... regarding ex parte communications relating to the 2015 GT&S rate case, the CPUC issued a decision to disallow some GT&S incremental revenues that may otherwise be authorized in the final decision which is scheduled to be issued in August 2015. The Utility and other parties have filed applications...

  • Page 50
    ... did not impact earnings. In general, expenses the Utility is authorized to pass through directly to customers (such as costs to purchase electricity and natural gas, as well as costs to fund public purpose programs) and the corresponding amount of revenues collected to recover those pass-through...

  • Page 51
    ... nuclear decommissioning costs and certain PSEP-related costs and revenues authorized by the FERC in the TO rate case. The Utility also collected higher gas transmission revenues driven by increased demand for gas-fired generation. The Utility's electric and natural gas operating revenues increased...

  • Page 52
    ... income tax expense benefits attributable to the accelerated recognition of repair costs and certain other propertyrelated costs for federal tax purposes. PG&E Corporation and the Utility's effective tax rates for 2014 are lower as compared to 2013, and are expected to remain lower in 2015 and 2016...

  • Page 53
    ... energy as the Utility increases the amount of its renewable energy deliveries to comply with California law. (in millions) Cost of purchased power Fuel used in own generation facilities Total cost of electricity Average cost of purchased power per kWh Total purchased power (in millions of kWh) 2014...

  • Page 54
    ...the market price of natural gas, changes in the cost of storage and transportation, changes in customer demand, and by costs associated with complying with California's GHG laws. (in millions) Cost of natural gas sold Transportation cost of natural gas sold Total cost of natural gas Average cost per...

  • Page 55
    ... equity distribution agreement. There were no sales during the fourth quarter of 2014. In addition, during 2014, PG&E Corporation sold 8 million shares of common stock under its 401(k) plan, the Dividend Reinvestment and Stock Purchase Plan, and share-based compensation plans for total cash proceeds...

  • Page 56
    ...: the Board of Directors of PG&E Corporation declared quarterly common stock dividends of $0.455 per share, totaling $217 million, of which approximately $211 million was paid in January 2015 to shareholders of record on December 31, 2014; the Board of Directors of the Utility declared dividends on...

  • Page 57
    ... GHG auction proceeds during 2014 as compared to 2013, and $137 million in additional collateral returned to the Utility in 2014 as compared to 2013. The increase was offset by higher purchased power costs of $599 million (see "Cost of Electricity" within "Results of Operations - Utility Revenues...

  • Page 58
    ... Utility's nuclear generation facilities. The Utility's cash flows from investing activities for 2014, 2013, and 2012 were as follows: (in millions) Capital expenditures Decrease in restricted cash Proceeds from sales and maturities of nuclear decommissioning trust investments Purchases of nuclear...

  • Page 59
    ... (in millions) Utility Long-term debt (1): Purchase obligations (2): Power purchase agreements: Natural gas supply, transportation, and storage Nuclear fuel agreements Pension and other benefits (3) Operating leases (2) Preferred dividends (4) PG&E Corporation Long-term debt (1): Total Contractual...

  • Page 60
    .... The impact on PG&E Corporation's and the Utility's Consolidated Financial Statements will depend on the amounts and forms of penalties that are ultimately adopted by the CPUC. Fines payable to the State General Fund or refunds of revenues would be charged to net income when it is probable that...

  • Page 61
    ...Utility estimates that its total pre-tax unrecovered costs and fines related to natural gas transmission operations would be about $4.85 billion based on current forecasts, allocated as follows: Description of Component: Fine payable to the State General Fund Refund of revenues previously authorized...

  • Page 62
    ... that relate to the safety of natural gas facilities and operating practices. (As required by state law, a similar program for electric safety became effective on an interim basis on January 1, 2015. For more information, see "Regulatory Environment" in Item 1.) The California gas corporations are...

  • Page 63
    ... violated applicable laws pertaining to record-keeping practices for its natural gas distribution service and facilities. The order also requires the Utility to show cause why (1) the CPUC should not find that the Utility violated provisions of the California Public Utilities Code, CPUC general...

  • Page 64
    ... rights-of-way. The Utility also has proposed changes to the revenue sharing mechanism authorized in the last GT&S rate case (covering 2011-2014) that subjected a portion of the Utility's transportation and storage revenue requirement to market risk. The Utility proposed full balancing account...

  • Page 65
    ... on the state's electric power grid. The Utility estimates that it would incur capital costs of $551 million and operating costs of $103 million over the proposed project timeline. The Utility has requested that the CPUC authorize the Utility to collect an average annual revenue requirement over...

  • Page 66
    .... The Utility's authorized revenue requirement for natural gas transportation and storage service to non-core customers is not balancing account protected. The Utility recovers these costs through fixed reservation charges and volumetric charges from long-term contracts, resulting in price and...

  • Page 67
    ... mainly in the energy industry, including the CAISO market, other California investor-owned electric utilities, municipal utilities, energy trading companies, financial institutions, electricity generation companies, and oil and natural gas production companies located in the United States...

  • Page 68
    ... or the FERC requires a refund to be made to customers or has required that a gain or other reduction of net allowable costs be given to customers over future periods. At December 31, 2014, PG&E Corporation and the Utility reported regulatory assets (including current regulatory balancing accounts...

  • Page 69
    .... The estimated future cash flows are discounted using a credit-adjusted risk-free rate that reflects the risk associated with the decommissioning obligation. At December 31, 2014, the Utility's recorded ARO for the estimated cost of retiring these long-lived assets was $3.6 billion. Changes...

  • Page 70
    ... of the employee benefit trusts, resulting in a weighted average rate of return on plan assets. Fixed-income returns were projected based on real maturity and credit spreads added to a long-term inflation rate. Equity returns were projected based on estimates of dividend yield and real earnings...

  • Page 71
    ... the Utility's natural gas compressor station site located near Hinkley, California; the impact of new legislation or NRC regulations, recommendations, policies, decisions, or orders relating to the nuclear industry, including operations, seismic design, security, safety, relicensing, the storage of...

  • Page 72
    ...and amount of insurance recoveries related to third party claims arising from the San Bruno accident; the ability of PG&E Corporation and the Utility to access capital markets and other sources of debt and equity financing in a timely manner on acceptable terms; changes in credit ratings which could...

  • Page 73
    ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information responding to Item 7A is set forth under the heading "Risk Management Activities," in MD&A in Item 7 and in Note 9: Derivatives and Note 10: Fair Value Measurements of the Notes to the Consolidated Financial Statements ...

  • Page 74
    ... Expenses Cost of electricity Cost of natural gas Operating and maintenance Depreciation, amortization, and decommissioning Total operating expenses Operating Income Interest income Interest expense Other income, net Income Before Income Taxes Income tax provision Net Income Preferred stock dividend...

  • Page 75
    ... Income Pension and other postretirement benefit plans obligations (net of taxes of $10, $80, and $72, at respective dates) Net change in investments (net of taxes of $17, $26, and $3 at respective dates) Total other comprehensive income (loss) Comprehensive Income Preferred stock dividend...

  • Page 76
    ... unbilled revenue Regulatory balancing accounts Other Regulatory assets 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 in progress Other Total property, plant, and...

  • Page 77
    ... Long-term debt Regulatory liabilities Pension and other postretirement benefits Asset retirement obligations Deferred income taxes Other Total noncurrent liabilities Commitments and Contingencies (Note 14) Equity Shareholders' Equity Common stock, no par value, authorized 800,000,000 shares...

  • Page 78
    ... Purchases of nuclear decommissioning trust investments Other Net cash used in investing activities Cash Flows from Financing Activities Borrowings under revolving credit facilities Repayments under revolving credit facilities Net issuances (repayments) of commercial paper, net of discount...

  • Page 79
    ...­of­cash­flow­information Cash received (paid) for: Interest, net of amounts capitalized Income taxes, net Supplemental­disclosures­of­noncash­investing­and­financing activities Common stock dividends declared but not yet paid Capital expenditures financed through accounts payable...

  • Page 80
    ... Shares Balance at December 31, 2011 Net income Other comprehensive income Common stock issued, net Stock-based compensation amortization Common stock dividends declared Tax benefit from employee stock plans Preferred stock dividend requirement of subsidiary Balance at December 31, 2012 Net income...

  • Page 81
    ... Expenses Cost of electricity Cost of natural gas Operating and maintenance Depreciation, amortization, and decommissioning Total operating expenses Operating Income Interest income Interest expense Other income, net Income Before Income Taxes Income tax provision Net Income Preferred stock dividend...

  • Page 82
    ...­Electric­Company CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year ended December 31, 2014 2013 2012 $ 1,433 $ 866 $ 811 (in millions) Net Income Other Comprehensive Income Pension and other postretirement benefit plans obligations (net of taxes of $6, $75, and $73, at respective dates) Total...

  • Page 83
    ... unbilled revenue Regulatory balancing accounts Other Regulatory assets 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 in progress Total property, plant, and...

  • Page 84
    ...Long-term debt Regulatory liabilities Pension and other postretirement benefits Asset retirement obligations Deferred income taxes Other Total noncurrent liabilities Commitments and Contingencies (Note 14) Shareholders' Equity Preferred stock Common stock, $5 par value, authorized 800,000,000 shares...

  • Page 85
    ..., and balancing accounts, net Other noncurrent assets and liabilities Net cash provided by operating activities Cash Flows from Investing Activities Capital expenditures Decrease in restricted cash Proceeds from sales and maturities of nuclear decommissioning trust investments Purchases of nuclear...

  • Page 86
    Supplemental­disclosures­of­cash­flow­information­ Cash received (paid) for: Interest, net of amounts capitalized Income taxes, net Supplemental­disclosures­of­noncash­investing­and­financing activities Capital expenditures financed through accounts payable Terminated capital leases $ ...

  • Page 87
    ... 31, 2011 Net income Other comprehensive income Equity contribution Tax benefit from employee stock plans Common stock dividend Preferred stock dividend Balance at December 31, 2012 Net income Other comprehensive income Equity contribution Tax expense from employee stock plans Common stock dividend...

  • Page 88
    ... 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 generally independent, or "decoupled," from the volume of the Utility's electricity and natural gas sales. The Utility records assets and...

  • Page 89
    ...to purchase electricity and natural gas; and to fund public purpose, demand response, and customer energy efficiency programs. In general, the revenue recognition criteria for pass-through costs billed to customers are met at the time the costs are incurred. The FERC authorizes the Utility's revenue...

  • Page 90
    ... Natural gas transportation and storage facilities Construction work in progress Total property, plant, and equipment Accumulated depreciation Net property, plant, and equipment (1) $ Balance includes nuclear fuel inventories. Stored nuclear fuel inventory is stated at weighted-average cost...

  • Page 91
    ... costs that are expected to exceed the CPUC's authorized levels or that are specifically disallowed. (See "Enforcement and Litigation Matters" in Note 14 below.) Nuclear Decommissioning Trusts The Utility's nuclear generation facilities consist of two units at Diablo Canyon and one retired facility...

  • Page 92
    ... to the Utility's power purchase agreements are considered VIEs. Each of these VIEs was designed to own a power plant that would generate electricity for sale to the Utility. To determine whether the Utility was the primary beneficiary of any of these VIEs at December 31, 2014, it assessed...

  • Page 93
    Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income The changes, net of income tax, in PG&E Corporation's accumulated other comprehensive income (loss) for the year ended December 31, 2014 consisted of the following: Pension Benefits $ (7) Other Benefits $ 15 Other ...

  • Page 94
    ... service cost (net of taxes of $8, $10, and $0, respectively) Amortization of net actuarial loss (net of taxes of $45, $3, and $0, respectively) Transfer to regulatory account (net of taxes of $54, $0, and $0, respectively) Net current period other comprehensive income Ending balance (1) $ Total...

  • Page 95
    ... 12 years Various Deferred income taxes (1) Utility retained generation (2) Environmental compliance costs (1) Price risk management (1) Electromechanical meters (3) Unamortized loss, net of gain, on reacquired debt (1) Other Total long-term regulatory assets (1) $ $ Represents the cumulative...

  • Page 96
    ... designated for public purpose program costs expected to be incurred beyond the next 12 months, primarily related to energy efficiency programs. Regulatory Balancing Accounts The Utility's recovery of revenue requirements and costs is generally decoupled from the volume of sales. The Utility tracks...

  • Page 97
    ... 31, (in millions) Energy procurement Public purpose programs Other (1) Total regulatory balancing accounts payable (1) 2014 $ 188 154 748 $ 1,090 $ $ 2013 298 171 539 1,008 At December 31, 2014, Other regulatory balancing accounts payable mostly includes energy supplier settlements. (See Note...

  • Page 98
    ... variable rates (1), due 2016 and 2026 (4) Total pollution control bonds Total Utility long-term debt, net of current portion Total consolidated long-term debt, net of current portion (1) (2) 2014 350 350 350 2013 350 (350) - 700 800 800 300 250 400 375 300 350 450 3,000 950 400 550 800 250 400...

  • Page 99
    ... plant or at the Utility's Diablo Canyon nuclear power plant. In 1999, the Utility sold all bond-financed facilities at the non-retired units of the Geysers geothermal power plant to Geysers Power Company, LLC pursuant to purchase and sale agreements stating that Geysers Power Company, LLC will use...

  • Page 100
    ... 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 101
    ... Reinvestment and Stock Purchase Plan, and share-based compensation plans. During 2014, 8 million shares were issued for cash proceeds of $306 million under these plans. Dividends The Board of Directors of PG&E Corporation and the Utility declare dividends quarterly. Under the Utility's Articles...

  • Page 102
    ... in shares of common stock based on PG&E Corporation's total shareholder return relative to a specified group of industry peer companies over a three-year performance period. Dividend equivalents are paid in cash based on the amount of common stock to which the recipients are entitled. Compensation...

  • Page 103
    ... part, if the Utility pays the specified redemption price plus accumulated and unpaid dividends through the redemption date. At December 31, 2014, annual dividends on redeemable preferred stock ranged from $1.09 to $1.25 per share. Dividends on all Utility preferred stock are cumulative. All shares...

  • Page 104
    ... its ownership is 80% or more. PG&E Corporation files a combined state income tax return in California. PG&E Corporation and the Utility are parties to a tax-sharing agreement under which the Utility determines its income tax provision (benefit) on a stand-alone basis. The significant components...

  • Page 105
    ... statutory income tax rate Increase (decrease) in income tax rate resulting from: State income tax (net of federal benefit) (1) Effect of regulatory treatment of fixed asset differences (2) Tax credits Benefit of loss carryback Non deductible penalties Other, net Effective tax rate (1) (2) Utility...

  • Page 106
    ... tax returns. The most significant relates to a 2011 accounting method change to adopt guidance issued by the IRS in determining which repair costs are deductible for the electric transmission and distribution businesses. PG&E Corporation and the Utility expect that the IRS will complete the review...

  • Page 107
    ... are recorded in the cost of electricity or the cost of natural gas with corresponding increases or decreases to regulatory balancing accounts for recovery from or refund to customers. Cash collateral paid or received is offset against the fair value of derivative instruments executed with...

  • Page 108
    ... - cost of electricity (2) Realized loss - cost of natural gas (2) Total commodity risk (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...

  • Page 109
    ... FAIR VALUE MEASUREMENTS PG&E Corporation and the Utility measure their cash equivalents, trust assets, price risk management instruments, and other investments at fair value. A three-tier fair value hierarchy is established that prioritizes the inputs to valuation methodologies used to measure fair...

  • Page 110
    ...-income securities Life insurance contracts Total rabbi trusts Long-term disability trust Money market investments Global equity securities Fixed-income securities Total long-term disability trust Other investments Total assets Liabilities: Price risk management instruments (Note 9) Electricity Gas...

  • Page 111
    ...insurance contracts Total rabbi trusts Long-term disability trust Money market investments U.S. equity securities Non-U.S. equity securities Fixed-income securities Total long-term disability trust Other investments Total assets Liabilities: Price risk management instruments (Note 9) Electricity Gas...

  • Page 112
    ... December 31, 2014 and 2013. Trust Assets Nuclear decommissioning trust assets and other trust assets are composed primarily of equity securities, debt securities, and life insurance policies. In general, investments held in the trusts are exposed to various risks, such as interest rate, credit, and...

  • Page 113
    ... or balancing accounts (1) Asset (liability) balance as of December 31 (1) $ $ The costs related to price risk management activities are recoverable through customer rates, therefore, balancing account revenue is recorded for amounts settled and purchased and there is no impact to net income...

  • Page 114
    ..., as they are short-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 bonds and PG&E Corporation's fixed-rate senior notes were based on quoted market prices at December 31, 2014 and 2013. The carrying...

  • Page 115
    ... Nuclear decommissioning trusts Money market investments Equity securities U.S. Non-U.S. Debt securities U.S. government and agency securities Municipal securities Other fixed-income securities Total nuclear decommissioning trusts (1) Other investments Total (1) (1) Amortized Cost Total Fair Value...

  • Page 116
    ... life insurance plans for eligible employees and retirees. PG&E Corporation and the Utility use a fiscal year-end measurement date for all plans. Change in Plan Assets, Benefit Obligations, and Funded Status The following tables show the reconciliation of changes in plan assets, benefit...

  • Page 117
    ...­of­year Service cost for benefits earned Interest cost Actuarial (gain) loss Benefits paid Federal subsidy on benefits paid Plan participant contributions Benefit­obligation­at­end­of­year Funded Status: (1) Noncurrent asset Noncurrent liability Net asset at end of year (1) 2014 $ 1,892 241...

  • Page 118
    ... purposes, which is based on authorized plan contributions. For pension benefits, a regulatory asset or liability is recorded for amounts that would otherwise be recorded to accumulated other comprehensive income. For post-retirement benefits other than pension, the Utility generally records...

  • Page 119
    ... the target asset allocations of the employee 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...

  • Page 120
    ... manage volatility, PG&E Corporation's and the Utility's trusts hold significant allocations in long maturity fixed-income investments. Although they contribute to funded status volatility, equity investments are held to reduce long-term funding costs due to their higher expected return. Real assets...

  • Page 121
    ... fair value of plan assets for pension and other benefits plans by major asset category at December 31, 2014 and 2013. Fair Value Measurements At December 31, 2014 (in millions) Pension Plan: Short-term investments Global equity Absolute return Real assets Fixed-income Total PBOP Plans: Short-term...

  • Page 122
    ... equities are actively traded on a public exchange and are therefore considered Level 1 assets. Private real estate funds are valued using a net asset value per share derived using appraisals, pricing models, and valuation inputs that are unobservable and are considered Level 3 assets. Fixed-Income...

  • Page 123
    ...still held at the reporting date Relating to assets sold during the period Purchases, issuances, sales, and settlements: Purchases Settlements Balance at end of year Absolute Return $ 554 23 577 Pension Plan FixedIncome Real Assets $ 625 $ 544 24 4 1 (16) 638 54 78 (1) 675 $ Total 1,723 101 4 79...

  • Page 124
    ... 2014. The Utility's pension benefits met all the funding requirements under ERISA. PG&E Corporation and the Utility expect to make total contributions of approximately $327 million and $61 million to the pension plan and other postretirement benefit plans, respectively, for 2015. Benefits Payments...

  • Page 125
    ... factors, including the number of employees, operating and maintenance expenses, total assets, and other cost allocation methodologies. Management believes that the methods used to allocate expenses are reasonable and meet the reporting and accounting requirements of its regulatory agencies...

  • Page 126
    ... Corporation's and the Utility's financial condition, results of operations, and cash flows have been materially affected by the costs the Utility has incurred related to shareholder funded safety work, the ongoing regulatory investigations, and civil lawsuits that commenced following the San Bruno...

  • Page 127
    .... The impact on PG&E Corporation's and the Utility's Consolidated Financial Statements will depend on the amounts and forms of penalties that are ultimately adopted by the CPUC. Fines payable to the State General Fund or refunds of revenues would be charged to net income when it is probable that...

  • Page 128
    ... Attorney's Office in San Francisco and the California Attorney General's office have begun investigations in connection with these communications. The Utility is cooperating with the federal and state investigators. It is uncertain whether any charges will be brought against the Utility. Gas Safety...

  • Page 129
    ... violated applicable laws pertaining to record-keeping practices for its natural gas distribution service and facilities. The order also requires the Utility to show cause why (1) the CPUC should not find that the Utility violated provisions of the California Public Utilities Code, CPUC general...

  • Page 130
    ... that are expected to exceed the authorized amounts, bringing the total cumulative charge to $665 million. $209 million is expected to be incurred in 2015 and beyond. At December 31, 2014, approximately $549 million of PSEP-related capital costs is recorded in property, plant, and equipment on the...

  • Page 131
    ... (1) Hinkley natural gas compressor station (1) Former manufactured gas plant sites owned by the Utility or third parties Utility-owned generation facilities (other than fossil fuel-fired), other facilities, and third-party disposal sites Fossil fuel-fired generation facilities and sites Total...

  • Page 132
    ... cash flows. Topock Site The Utility's remediation and abatement efforts at the Topock site are subject to the regulatory authority of the California Department of Toxic Substances Control and the U.S. Department of the Interior. In September 2014, the Utility submitted its 90% remedial design plan...

  • Page 133
    ...12-month period against one or more commercial nuclear power plants insured by NEIL as one event and the owners of the affected plants would share the $3.2 billion policy limit amount. Under the Price-Anderson Act, public liability claims that arise from nuclear incidents that occur at Diablo Canyon...

  • Page 134
    ... natural gas supplies, natural gas transportation, natural gas storage, and nuclear fuel as of December 31, 2014: Power Purchase Agreements (in millions) 2015 2016 2017 2018 2019 Thereafter Total purchase commitments Renewable Energy $ 2,145 2,185 2,187 2,063 2,053 30,289 40,922 Qualifying Facility...

  • Page 135
    ... and the United States to serve its core customers and to fuel its owned-generation facilities. These purchase agreements expire at various dates between 2015 and 2026. The Utility also contracts for natural gas transportation from the points at which the Utility takes delivery (typically in Canada...

  • Page 136
    ... recorded an increase to base revenues as authorized by the CPUC in the 2014 GRC decision. The Utility recorded a charge to net income of $116 million in the fourth quarter of 2014 and $196 million in the third quarter of 2013 for PSEP capital costs that are forecasted to exceed the authorized...

  • Page 137
    ... are being made only in accordance with authorizations of management and directors of PG&E Corporation and the Utility, and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of assets that could have a material effect on the...

  • Page 138
    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 internal control over financial reporting of PG&E Corporation and subsidiaries (the "Company") and...

  • Page 139
    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") and ...

  • Page 140
    ... Exchange Act is included under the heading "Section 16(a) Beneficial Ownership Reporting Compliance" in the Joint Proxy Statement relating to the 2015 Annual Meetings of Shareholders, which information is incorporated herein by reference. Website Availability of Code of Ethics, Corporate Governance...

  • Page 141
    ...Potential Payments Upon Resignation, Retirement, Termination, Change in Control, Death, or Disability" and "Compensation of Non-Employee Directors - 2014 Director Compensation" in the Joint Proxy Statement relating to the 2015 Annual Meetings of Shareholders, which information is incorporated herein...

  • Page 142
    ... Statement relating to the 2015 Annual Meetings of Shareholders, which information is incorporated herein by reference. Equity Compensation Plan Information The following table provides information as of December 31, 2014 concerning shares of PG&E Corporation common stock authorized for issuance...

  • Page 143
    ..., supplemental information and report of independent registered public accounting firm are filed as part of this report in Item 8: Consolidated Statements of Income for the Years Ended December 31, 2014, 2013, and 2012 for each of PG&E Corporation and Pacific Gas and Electric Company. Consolidated...

  • Page 144
    ... to PG&E Corporation's Form 10-Q for the quarter ended March 31, 2014 (File No. 1-12609), Exhibit 3.1) Restated Articles of Incorporation of Pacific Gas and Electric Company effective as of April 12, 2004 (incorporated by reference to Pacific Gas and Electric Company's Form 8-K filed April 12...

  • Page 145
    ... as of May 13, 2011, relating to the issuance of $300,000,000 aggregate principal amount of Pacific Gas and Electric Company's 4.25% Senior Notes due May 15, 2021 (incorporated by reference to Pacific Gas and Electric Company's Form 8-K dated May 13, 2011 (File No. 1-2348), Exhibit 4.1) Fourteenth...

  • Page 146
    ...as of May 12, 2014, relating to the issuance of $300,000,000 aggregate principal amount of Pacific Gas and Electric Company's Floating Rate Senior Notes due May 11, 2015 (incorporated by reference to Pacific Gas and Electric Company's Form 8-K dated May 12, 2014 (File No. 12348), Exhibit 4.1) Twenty...

  • Page 147
    ... for the year ended December 31, 2012 (File No. 1-12609), Exhibit 10.18) Letter regarding Compensation Agreement between Pacific Gas and Electric Company and Jesus Soto, Jr. dated * April 4, 2012 (incorporated by reference to Pacific Gas and Electric Company's Form 10-Q for the quarter ended June 30...

  • Page 148
    ... Pacific Gas and Electric Company's Form 10-Q for the quarter ended September 30, 2014 (File No. 1-2348), Exhibit 10.3) Amended and Restated Restricted Stock Unit Agreement between C. Lee Cox and PG&E Corporation for * 2013 grant under the PG&E Corporation 2006 Long-Term Incentive Plan (incorporated...

  • Page 149
    ...2348), Exhibit 10.7) PG&E Corporation Non-Employee Director Stock Incentive Plan (a component of the PG&E Corporation Long-Term Incentive Program) as amended effective as of July 1, 2004 (incorporated by reference to PG&E * Corporation's and Pacific Gas and Electric Company's Form 10-K for the year...

  • Page 150
    ... Stock Option Agreement under the PG&E Corporation Long-Term Incentive Program * (incorporated by reference to PG&E Corporation and Pacific Gas and Electric Company's Form 8-K filed January 6, 2005 (File No. 1-12609 and File No. 1-2348), Exhibit 99.1) Form of Performance Share Agreement for 2014...

  • Page 151
    ... Gas and Electric Company Computation of Ratios of Earnings to Fixed Charges for PG&E Corporation Subsidiaries of the Registrant Consent of Independent Registered Public Accounting Firm (Deloitte & Touche LLP) Powers of Attorney Certifications of the Chief Executive Officer and the Chief Financial...

  • Page 152
    ... 31, 2014 to be signed on their behalf by the undersigned, thereunto duly authorized. PG&E CORPORATION (Registrant) PACIFIC GAS AND ELECTRIC COMPANY (Registrant) ANTHONY F. EARLEY, JR. Anthony F. Earley, Jr. By: Chairman of the Board, Chief Executive Officer, and President February 10, 2015 By...

  • Page 153
    ...10, 2015 Director February 10, 2015 Director February 10, 2015 Director February 10, 2015 Director (Pacific Gas and Electric Company only) February 10, 2015 Director February 10, 2015 Director February 10, 2015 Director February 10, 2015 Director February 10, 2015 Director February...

  • Page 154
    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 consolidated financial statements of PG&E Corporation and subsidiaries (the "Company") and Pacific...

  • Page 155
    ...) Administrative service revenue Operating expenses Interest income Interest expense Other expense Equity in earnings of subsidiaries Income before income taxes Income tax benefit Net income Other Comprehensive Income Pension and other postretirement benefit plans obligations (net of taxes of $10...

  • Page 156
    ... Net equipment Investments in subsidiaries Other investments Income taxes receivable Deferred income taxes Total noncurrent assets Total Assets LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Short-term borrowings Long-term debt classified as current Accounts payable - other Other Total...

  • Page 157
    ... facilities Proceeds from issuance of long-term debt, net of discount and issuance costs of $3 in 2014 Repayments of long-term debt Common stock issued Common stock dividends paid (2) Other Net cash provided by (used in) financing activities Net change in cash and cash equivalents Cash and cash...

  • Page 158
    PG&E Corporation SCHEDULE II - CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS For the Years Ended December 31, 2014, 2013, and 2012 (in millions) Balance at Beginning of Period Additions Charged to Charged to Costs and Other Expenses Accounts Description Valuation and qualifying accounts deducted ...

  • Page 159
    ... Gas and Electric Company SCHEDULE II - CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS For the Years Ended December 31, 2014, 2013, and 2012 (in millions) Balance at Beginning of Period Additions Charged to Charged to Costs and Other Expenses Accounts Description Valuation and qualifying accounts...

  • Page 160
    ... Management Services ANNE SHEN SMITH Retired Chairman and Chief Executive Officer of Southern California Gas Company BARRY LAWSON WILLIAMS (2) Retired Managing General Partner and President of Williams Pacific Ventures, Inc. (1) Christopher P. Johns is a director of Pacific Gas and Electric Company...

  • Page 161
    ...Chief Nuclear Officer TIMOTHY FITZPATRICK Vice President, Corporate Relations and Chief Communications Officer JAMES M. WELSCH Site Vice President, Diablo Canyon Power Plant KENT M. HARVEY Senior Vice President, Financial Services ANDREW K. WILLIAMS EZRA C. GARRETT Vice President, Safety, Health...

  • Page 162
    ..., LLC 6201 15th Avenue Brooklyn, NY 11219 Toll-free telephone services: 1-888-489-4689 (Representatives are available from 8:00 a.m. ET to 8:00 p.m. ET) Website: www.amstock.com PG&E Corporation Dividend Reinvestment and Stock Purchase Plan ("DRSPP") If you hold PG&E Corporation or Pacific Gas and...

  • Page 163
    ... community should contact the Investor Relations Office. Vice President, Investor Relations Janet C. Loduca PG&E Corporation P. O. Box 770000 San Francisco, CA 94177 415-972-7080 Email: [email protected] PG&E Corporation General Information 415-973-1000 Pacific Gas and Electric Company General...

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