2010 FERC Form 1 - Pacific Gas and Electric Company

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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) U.S. equity securities (1) 762 6 - 768 Non-U.S. equity securities 344 - - 344 U.S. government and agency securities 653 51 - 704 Municipal securities 1 89 - 90 Other fixed income securities - 108 - 108 Total nuclear decommissioning trusts (2) 1,760 254 - 2,014 Rabbi trusts Equity securities 21 - - 21 Life insurance contracts 60 - - 60 Total rabbi trusts 81 - - 81 Long-term disability trust U.S. equity securities (1) 52 23 - 75 Corporate debt securities (1) - 113 - 113 Total long-term disability trust 52 136 - 188 Total assets $ 2,082 $ 390 $ 4 $ 2,476 Liabilities: Dividend participation rights (3) $ - $ - $ 12 $ 12 Price risk management instruments (Note 10) Electric (4) 2 73 157 232 Gas (5) 1 - 60 61 Total price risk management instruments 3 73 217 293 Other liabilities - - 3 3 Total liabilities $ 3 $ 73 $ 232 $ 308 (1) Level 2 balances include commingled funds, which are comprised primarily of securities traded publicly on exchanges. Price quotes for the assets held by the funds are readily observable and available. (2) Excludes deferred taxes on appreciation of investment value. (3) The dividend participation rights were associated with PG&E Corporation’s Convertible Subordinated Notes which were no longer outstanding as of December 31, 2010. (4) Balances include the impact of netting adjustments of $108 million to Level 1, $48 million to Level 2, and $19 million to Level 3. Includes natural gas for electric portfolio. (5) Balances include the impact of netting adjustments of $13 million to Level 3. Includes natural gas for core customers. Money Market Investments PG&E Corporation invests in money market funds that seek to maintain a stable net asset value. These funds invest in high-quality, short-term, diversified money market instruments, such as treasury bills, federal agency securities, certificates of deposit, and commercial paper with a maximum weighted average maturity of 60 days or less. PG&E Corporation’s investments in these money market funds are generally valued using unadjusted quotes in an active market for identical assets and are thus classified as Level 1 instruments. Money market funds are recorded as cash and cash equivalents in PG&E Corporation’s Consolidated Balance Sheets. Trust Assets The assets held by the nuclear decommissioning trusts, the rabbi trusts related to the non-qualified deferred compensation plans, and the long-term disability trust are comprised primarily of equity securities and debt securities. In general, investments held in the trusts are exposed to various risks, such as interest rate, credit, and market volatility risks. It is reasonably possible that changes in the market values of investment securities could occur in the near term, and such changes could materially affect the trusts’ fair value. Equity securities primarily include investments in common stock and commingled funds comprised of equity across multiple FERC FORM NO. 1 (ED. 12-88) Page 123.34
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) industry sectors in the U.S. and other regions of the world. Equity securities are generally valued based on unadjusted prices in active markets for identical transactions and are classified as Level 1. Debt securities are comprised primarily of fixed income securities that include U.S. government and agency securities, municipal securities, and corporate debt securities. A market based valuation approach is generally used to estimate the fair value of debt securities classified as Level 2 instruments in the tables above. Under a market approach, fair values are determined based on evaluated pricing data, such as broker quotes, for similar securities adjusted for observable differences. Significant inputs used in the valuation model generally include benchmark yield curves and issuer spreads. The external credit rating, coupon rate, and maturity of each security are considered in the valuation, as applicable. The Consolidated Balance Sheets of PG&E Corporation and the Utility contain assets held in trust for the PG&E Retirement Plan Master Trust, the Postretirement Life Insurance Trust, and the Postretirement Medical Trusts presented on a net basis. (See Note 12 below.) The pension assets are presented net of pension obligations as noncurrent liabilities – other in PG&E Corporation’s and the Utility’s Consolidated Balance Sheets. Price Risk Management Instruments Price risk management instruments include physical and financial derivative contracts, such as futures, forwards, swaps, options, and CRRs that are either exchange-traded or over-the-counter traded. (See Note 10 above.) Futures, forwards, and swaps are valued using observable market prices for the underlying commodity or an identical instrument and are classified as Level 1 or Level 2 instruments. For periods where market data is not available, the Utility extrapolates forward prices. Other futures, forwards, and swaps are considered Level 3 instruments as the determination of their fair value includes the use of unobservable forward prices. All energy-related options are classified as Level 3 and are valued using a standard option pricing model with various assumptions, including forward prices for the underlying commodity, time value at a risk free rate, and volatility. For periods when market data is not available, the Utility extrapolates these assumptions using internal models. The Utility holds CRRs to hedge financial risk of CAISO-imposed congestion charges in the day-ahead markets. CRRs are valued based on the forecasted settlement price at the delivery points underlying the CRR using internal models. The Utility also uses the most current annual auction prices published by the CAISO to calibrate internal models. Limited market data is available between auction dates; therefore, CRRs are classified as Level 3 measurements. The Utility enters into power purchase agreements for the purchase of electricity to meet the demand of its customers. (See Note 10 above.) The Utility uses internal models to determine the fair value of these power purchase agreements. These power purchase agreements include contract terms that extend beyond a period for which an active market exists. The Utility utilizes market data for the underlying commodity to the extent that it is available in determining the fair value. For periods where market data is not available, the Utility extrapolates forward prices. These power purchase agreements are considered Level 3 instruments as the determination of their fair value includes the use of unobservable forward prices. Transfers between Levels PG&E Corporation and the Utility recognize any transfers between levels in the fair value hierarchy as of the end of the reporting period. There were no significant transfers between levels for the year ended December 31, 2010. Level 3 Reconciliation The following tables present reconciliations for assets and liabilities measured and recorded at fair value on a recurring basis, using significant unobservable inputs (Level 3), for the years ended December 31, 2010 and 2009: PG&E Corporation Only PG&E Corporation and the Utility FERC FORM NO. 1 (ED. 12-88) Page 123.35
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2010 ANNUAL REPORT of Pacific Gas a
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SELECTED FINANCIAL DATA - CLASS A,
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2010 FERC Form 1 - Pacific Gas and Electric Company

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