PG&E 2014 Annual Report Download - page 88

Download and view the complete annual report

Please find page 88 of the 2014 PG&E annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 164

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162
  • 163
  • 164

80
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 in consolidation. 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 consolidated financial statements have been prepared in accordance with GAAP and in accordance with the
instructions to Form 10-K and Regulation S-X promulgated by the SEC. The preparation of financial statements in conformity
with GAAP requires the use of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and
expenses and the disclosure of contingent assets and liabilities. Some of the more significant estimates and assumptions relate to
the Utility’s regulatory assets and liabilities, legal and regulatory contingencies, environmental remediation liabilities, AROs, 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 generally 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 customer billings and
authorized revenue requirements that are probable of recovery or refund. In addition, the Utility records a regulatory balancing
account asset or liability for differences between incurred costs and customer billings or authorized revenue meant to recover those
costs, to the extent that these differences are probable of recovery or refund. These differences have no impact on net income. See
“Revenue Recognition” below.
Management continues to believe the use of regulatory accounting is applicable and that all regulatory assets and
liabilities are recoverable or refundable. 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.