PG&E 2014 Annual Report Download - page 109

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101
Cash inflows and outflows associated with derivatives are included in operating cash flows on the Utility’s Consolidated
Statements of Cash Flows.
The majority of the Utility’s derivatives contain collateral posting provisions tied to the Utility’s credit rating from each
of the major credit rating agencies. At December 31, 2014, the Utility’s credit rating was investment grade. If the Utility’s credit
rating were to fall below investment grade, the Utility would be required to post additional cash immediately to fully collateralize
some of its net liability derivative positions.
The additional cash collateral that the Utility would be required to post if the credit risk-related contingency features were
triggered was as follows:
Balance at December 31,
(in millions) 2014 2013
Derivatives in a liability position with credit risk-related
contingencies that are not fully collateralized $ (47) $ (79)
Related derivatives in an asset position - 4
Collateral posting in the normal course of business related to
these derivatives 44 65
Net position of derivative contracts/additional collateral
posting requirements (1) $ (3) $ (10)
(1) This calculation excludes the impact of closed but unpaid positions, as their settlement is not impacted by any of the Utility’s credit risk-related contingencies.
NOTE 10: 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 value:
Level 1 – Observable inputs that reect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 – Other inputs that are directly or indirectly observable in the marketplace.
Level 3 – Unobservable inputs which are supported by little or no market activities.
The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value.