2010 FERC Form 1 - Pacific Gas and Electric Company

Name of Respondent
PACIFIC GAS AND ELECTRIC COMPANY
This Report is:
(1) X An Original
(2) A Resubmission
Date of Report
(Mo, Da, Yr)
04/08/2011
Year/Period of Report
2010/Q4
NOTES TO FINANCIAL STATEMENTS (Continued)
any other jurisdiction.
Loss carry forwards
As of December 31, 2010 and 2009, PG&E Corporation has $24 million and $25 million, respectively, of federal and
California capital loss carry forwards based on filed tax returns, of which approximately $9 million will expire if not used by
December 31, 2011. For all periods presented, PG&E Corporation has provided a full valuation allowance against its deferred income
tax assets for capital loss carry forwards.
The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the “Tax Relief Act”) Federal
legislation that was signed into law on December 17, 2010, provides for full expensing of qualified property, plant, and equipment
placed in service from September 9, 2010 to December 31, 2011 for tax purposes. The Tax Relief Act increased PG&E Corporation’s
federal net operating loss carry forwards. As of December 31, 2010, PG&E Corporation has approximately $540 million of federal net
operating loss carry forwards and $45 million of tax credit carry forwards, which will expire between 2029 and 2030. In addition,
PG&E Corporation has approximately $46 million of loss carry forwards related to charitable contributions, which will expire between
2014 and 2015. PG&E Corporation believes it is more likely than not the tax benefits associated with the federal operating loss and
tax credit can be realized within the carry forward periods, therefore no valuation allowance was recognized as of December 31, 2010.
The amount of federal net operating loss carry forwards for which a tax benefit from employee stock plans would be recorded in
additional paid-in capital was approximately $9 million as of December 31, 2010.
NOTE 10: DERIVATIVES AND HEDGING ACTIVITIES
Use of Derivative Instruments
The Utility faces market risk primarily related to electricity and natural gas commodity prices. All of the Utility’s risk
management activities involving derivatives reduce the volatility of commodity costs on behalf of its customers. The CPUC allows the
Utility to charge customer rates designed to recover the Utility’s reasonable costs of providing services, including the cost to obtain
and deliver electricity and natural gas.
The Utility uses both derivative and non-derivative contracts in managing its customers’ exposure to commodity-related price
risk, including:
• forward ? contracts that commit the Utility to purchase a commodity in the future;
• swap agreements that require payments to or from counterparties based upon the difference between two prices for a
predetermined contractual quantity;
• option ? contracts that provide the Utility with the right to buy a commodity at a predetermined price; and
• futures ? contracts that are exchange-traded contracts committing the Utility to make a cash settlement at a specified price and
future date.
These instruments are not held for speculative purposes and are subject to certain regulatory requirements.
Commodity-Related Price Risk
Commodity-related price risk management activities that meet the definition of a derivative are recorded at fair value on the
Consolidated Balance Sheets. As long as the ratemaking mechanisms discussed above remain in place and the Utility’s risk
management activities are carried out in accordance with CPUC directives, the Utility expects to fully recover from customers, in rates,
all costs related to commodity-related price risk-related derivative instruments. Therefore, all unrealized gains and losses associated
with the change in fair value of these derivative instruments are deferred and recorded within the Utility’s regulatory assets and
liabilities on the Consolidated Balance Sheets. (See Note 3 above.) Net realized gains or losses on derivative instruments related to
FERC FORM NO. 1 (ED. 12-88) Page 123.28