Edgar Filing: PG&E Corp

form10q.htm


UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C., 20549 FORM 10-Q
(Mark One)
[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014 OR

[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to __________

Commission File Number _______________		Exact Name of Registrant as Specified in its Charter _______________		State or Other Jurisdiction of Incorporation ______________		IRS Employer Identification Number ___________

1-12609		PG&E Corporation		California		94-3234914
1-2348		Pacific Gas and Electric Company		California		94-0742640

Pacific Gas and Electric Company 77 Beale Street P.O. Box 770000 San Francisco, California 94177 ________________________________________				PG&E Corporation 77 Beale Street P.O. Box 770000 San Francisco, California 94177 ______________________________________
Address of principal executive offices, including zip code

Pacific Gas and Electric Company (415) 973-7000 ________________________________________				PG&E Corporation (415) 973-1000 ______________________________________
Registrant's telephone number, including area code

Indicate by check mark whether each registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. [X] Yes [ ] No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
PG&E Corporation:				[X] Yes [ ] No
Pacific Gas and Electric Company:				[X] Yes [ ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
PG&E Corporation:			[X] Large accelerated filer		[ ] Accelerated filer
			[ ] Non-accelerated filer		[ ] Smaller reporting company
Pacific Gas and Electric Company:			[ ] Large accelerated filer		[ ] Accelerated filer
			[X] Non-accelerated filer		[ ] Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
PG&E Corporation:				[ ] Yes [X] No
Pacific Gas and Electric Company:				[ ] Yes [X] No

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Common stock outstanding as of July 22, 2014:
PG&E Corporation:				471,411,575
Pacific Gas and Electric Company:				264,374,809

PG&E CORPORATION AND

PACIFIC GAS AND ELECTRIC COMPANY

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2014

TABLE OF CONTENTS

				PAGE
GLOSSARY				ii

PART I.	FINANCIAL INFORMATION
ITEM 1.	CONDENSED CONSOLIDATED FINANCIAL STATEMENTS			1
	PG&E Corporation
		Condensed Consolidated Statements of Income		1
		Condensed Consolidated Statements of Comprehensive Income		2
		Condensed Consolidated Balance Sheets		3
		Condensed Consolidated Statements of Cash Flows		5
	Pacific Gas and Electric Company
		Condensed Consolidated Statements of Income		6
		Condensed Consolidated Statements of Comprehensive Income		7
		Condensed Consolidated Balance Sheets		8
		Condensed Consolidated Statements of Cash Flows		10
	NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	NOTE 1:		Organization and Basis of Presentation	11
	NOTE 2:		Significant Accounting Policies	11
	NOTE 3:		Regulatory Assets, Liabilities, and Balancing Accounts	15
	NOTE 4:		Debt	16
	NOTE 5:		Equity	17
	NOTE 6:		Earnings Per Share	17
	NOTE 7:		Derivatives	18
	NOTE 8:		Fair Value Measurements	20
	NOTE 9:		Resolution of Remaining Chapter 11 Disputed Claims	26
	NOTE 10:		Commitments and Contingencies	27

ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	Overview			32
	Results of Operations			34
	Liquidity and Financial Resources			37
	Natural Gas Matters			41
	Regulatory Matters			44
	Environmental Matters			46
	Contractual Commitments			46
	Off-Balance Sheet Arrangements			46
	Risk Management Activities			47
	Critical Accounting Policies			47
	Cautionary Language Regarding Forward-Looking Statements			48

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			49
ITEM 4.	CONTROLS AND PROCEDURES			49

PART II.	OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS			50
ITEM 1A.	RISK FACTORS			52
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			53
ITEM 5.	OTHER INFORMATION			53
ITEM 6.	EXHIBITS			54

SIGNATURES				55

GLOSSARY

The following terms and abbreviations appearing in the text of this report have the meanings indicated below.

2013 Annual Report	PG&E Corporation's and Pacific Gas and Electric Company's combined Annual Report on Form 10-K for the year ended December 31, 2013
AFUDC	allowance for funds used during construction
ALJ	administrative law judge
CAISO	California Independent System Operator
CPUC	California Public Utilities Commission
CRRs	congestion revenue rights
EPA	Environmental Protection Agency
EPS	earnings per common share
FERC	Federal Energy Regulatory Commission
GAAP	generally accepted accounting principles
GHG	greenhouse gas
GRC	general rate case
GT&S	gas transmission and storage
IRS	Internal Revenue Service
NEIL	Nuclear Electric Insurance Limited
NRC	Nuclear Regulatory Commission
NTSB	National Transportation Safety Board
ORA	Office of Ratepayer Advocates
PSEP	pipeline safety enhancement plan
SEC	U.S. Securities and Exchange Commission
SED	Safety and Enforcement Division of the CPUC, formerly known as the Consumer Protection and Safety Division or the CPSD
TURN	The Utility Reform Network
Utility	Pacific Gas and Electric Company
VIE(s)	variable interest entity(ies)

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

PG&E CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

	(Unaudited)
	Three Months Ended						Six Months Ended
	June 30,						June 30,
(in millions, except per share amounts)	2014			2013			2014			2013
Operating Revenues
Electric	$	3,233		$	3,059		$	6,234		$	5,858
Natural gas		719			717			1,609			1,590
Total operating revenues		3,952			3,776			7,843			7,448
Operating Expenses
Cost of electricity		1,349			1,189			2,559			2,172
Cost of natural gas		200			179			560			525
Operating and maintenance		1,328			1,256			2,627			2,594
Depreciation, amortization, and decommissioning		557			516			1,095			1,019
Total operating expenses		3,434			3,140			6,841			6,310
Operating Income		518			636			1,002			1,138
Interest income		2			2			5			4
Interest expense		(188	)		(177	)		(373	)		(353	)
Other income, net		43			24			62			52
Income Before Income Taxes		375			485			696			841
Income tax provision		104			153			195			267
Net Income		271			332			501			574
Preferred stock dividend requirement of subsidiary		4			4			7			7
Income Available for Common Shareholders	$	267		$	328		$	494		$	567
Weighted Average Common Shares Outstanding, Basic		467			442			463			438
Weighted Average Common Shares Outstanding, Diluted		469			443			465			439
Net Earnings Per Common Share, Basic	$	0.57		$	0.74		$	1.07		$	1.29
Net Earnings Per Common Share, Diluted	$	0.57		$	0.74		$	1.06		$	1.29
Dividends Declared Per Common Share	$	0.46		$	0.46		$	0.91		$	0.91

See accompanying Notes to the Condensed Consolidated Financial Statements.

PG&E CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	(Unaudited)
	Three Months Ended June 30,					Six Months Ended June 30,
(in millions)	2014			2013		2014			2013
Net Income	$	271		$	332	$	501		$	574
Other Comprehensive Income
Pension and other postretirement benefit plans obligations
(net of taxes of $0, $3, $0 and $6, at respective dates)		-			4		-			8
Net change in investments
(net of taxes of $7, $11, $3, $15 at respective dates)		(11	)		16		(6	)		22
Total other comprehensive income (loss)		(11	)		20		(6	)		30
Comprehensive Income		260			352		495			604
Preferred stock dividend requirement of subsidiary		4			4		7			7
Comprehensive Income Attributable to Common Shareholders	$	256		$	348	$	488		$	597

See accompanying Notes to the Condensed Consolidated Financial Statements.

PG&E CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

	(Unaudited)
	Balance At
	June 30,			December 31,
(in millions)	2014			2013
ASSETS
Current Assets
Cash and cash equivalents	$	132		$	296
Restricted cash		299			301
Accounts receivable:
Customers (net of allowance for doubtful accounts of $68 and $80
at respective dates)		1,009			1,091
Accrued unbilled revenue		870			766
Regulatory balancing accounts		1,745			1,124
Other		304			312
Regulatory assets		404			448
Inventories:
Gas stored underground and fuel oil		141			137
Materials and supplies		320			317
Income taxes receivable		613			574
Other		360			611
Total current assets		6,197			5,977
Property, Plant, and Equipment
Electric		43,990			42,881
Gas		15,040			14,379
Construction work in progress		1,981			1,834
Other		2			2
Total property, plant, and equipment		61,013			59,096
Accumulated depreciation		(18,530	)		(17,844	)
Net property, plant, and equipment		42,483			41,252
Other Noncurrent Assets
Regulatory assets		4,821			4,913
Nuclear decommissioning trusts		2,428			2,342
Income taxes receivable		88			85
Other		1,008			1,036
Total other noncurrent assets		8,345			8,376
TOTAL ASSETS	$	57,025		$	55,605

See accompanying Notes to the Condensed Consolidated Financial Statements.

PG&E CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

	(Unaudited)
	Balance At
	June 30,		December 31,
(in millions, except share amounts)	2014		2013
LIABILITIES AND EQUITY
Current Liabilities
Short-term borrowings	$	1,452	$	1,174
Long-term debt, classified as current		-		889
Accounts payable:
Trade creditors		1,161		1,293
Disputed claims and customer refunds		86		154
Regulatory balancing accounts		1,069		1,008
Other		472		471
Interest payable		865		892
Other		1,544		1,612
Total current liabilities		6,649		7,493
Noncurrent Liabilities
Long-term debt		13,966		12,717
Regulatory liabilities		5,966		5,660
Pension and other postretirement benefits		1,578		1,601
Asset retirement obligations		3,561		3,539
Deferred income taxes		7,874		7,823
Other		2,151		2,178
Total noncurrent liabilities		35,096		33,518
Commitments and Contingencies (Note 10)
Equity
Shareholders' Equity
Common stock, no par value, authorized 800,000,000 shares,
470,950,685 and 456,670,424 shares outstanding at respective dates		10,176		9,550
Reinvested earnings		4,808		4,742
Accumulated other comprehensive income		44		50
Total shareholders' equity		15,028		14,342
Noncontrolling Interest - Preferred Stock of Subsidiary		252		252
Total equity		15,280		14,594
TOTAL LIABILITIES AND EQUITY	$	57,025	$	55,605

See accompanying Notes to the Condensed Consolidated Financial Statements.

PG&E CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	(Unaudited)
	Six Months Ended June 30,
(in millions)	2014			2013
Cash Flows from Operating Activities
Net income	$	501		$	574
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, amortization, and decommissioning		1,095			1,019
Allowance for equity funds used during construction		(46	)		(52	)
Deferred income taxes and tax credits, net		51			346
Other		139			157
Effect of changes in operating assets and liabilities:
Accounts receivable		(30	)		(22	)
Inventories		(7	)		(31	)
Accounts payable		(101	)		28
Income taxes receivable/payable		(39	)		(143	)
Other current assets and liabilities		94			(367	)
Regulatory assets, liabilities, and balancing accounts, net		(311	)		(192	)
Other noncurrent assets and liabilities		(66	)		142
Net cash provided by operating activities		1,280			1,459
Cash Flows from Investing Activities
Capital expenditures		(2,320	)		(2,521	)
Decrease in restricted cash		2			25
Proceeds from sales and maturities of nuclear decommissioning
trust investments		877			795
Purchases of nuclear decommissioning trust investments		(873	)		(786	)
Other		21			16
Net cash used in investing activities		(2,293	)		(2,471	)
Cash Flows from Financing Activities
Borrowings (repayments) under revolving credit facilities		(260	)		140
Net issuances of commercial paper, net of discount of $1 at respective dates		237			321
Proceeds from issuance of short-term debt, net of issuance costs		300			-
Proceeds from issuance of long-term debt, net of premium, discount, and issuance
costs of $14 and $8 at respective dates		1,236			742
Repayments of long-term debt		(889	)		(461	)
Common stock issued		589			562
Common stock dividends paid		(408	)		(386	)
Other		44			(26	)
Net cash provided by financing activities		849			892
Net change in cash and cash equivalents		(164	)		(120	)
Cash and cash equivalents at January 1		296			401
Cash and cash equivalents at June 30	$	132		$	281
Supplemental disclosures of cash flow information
Cash paid for:
Interest, net of amounts capitalized	$	(318	)	$	(312	)
Income taxes, net		(1	)		(65	)

Supplemental disclosures of noncash investing and financing activities
Common stock dividends declared but not yet paid	$	215	$	202
Capital expenditures financed through accounts payable		224		253
Noncash common stock issuances		10		11
Terminated capital leases		68		-

See accompanying Notes to the Condensed Consolidated Financial Statements.

PACIFIC GAS AND ELECTRIC COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

	(Unaudited)
	Three Months Ended						Six Months Ended
	June 30,						June 30,
(in millions)	2014			2013			2014			2013
Operating Revenues
Electric	$	3,232		$	3,057		$	6,232		$	5,855
Natural gas		719			718			1,609			1,591
Total operating revenues		3,951			3,775			7,841			7,446
Operating Expenses
Cost of electricity		1,349			1,189			2,559			2,172
Cost of natural gas		200			179			560			525
Operating and maintenance		1,321			1,256			2,618			2,592
Depreciation, amortization, and decommissioning		556			516			1,094			1,019
Total operating expenses		3,426			3,140			6,831			6,308
Operating Income		525			635			1,010			1,138
Interest income		3			3			5			4
Interest expense		(185	)		(171	)		(364	)		(341	)
Other income, net		17			22			37			46
Income Before Income Taxes		360			489			688			847
Income tax provision		110			160			210			281
Net Income		250			329			478			566
Preferred stock dividend requirement		4			4			7			7
Income Available for Common Stock	$	246		$	325		$	471		$	559

See accompanying Notes to the Condensed Consolidated Financial Statements.

PACIFIC GAS AND ELECTRIC COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	(Unaudited)
	Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	2014			2013			2014			2013
Net Income		$	250		$	329		$	478		$	566
Other Comprehensive Income
Pension and other postretirement benefit plans obligations
(net of taxes of $0, $3, $0 and $6 at respective dates)			-			4			-			9
Total other comprehensive income			-			4			-			9
Comprehensive Income		$	250		$	333		$	478		$	575

See accompanying Notes to the Condensed Consolidated Financial Statements.

PACIFIC GAS AND ELECTRIC COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

	(Unaudited)
	Balance At
	June 30,			December 31,
(in millions)	2014			2013
ASSETS
Current Assets
Cash and cash equivalents	$	70		$	65
Restricted cash		299			301
Accounts receivable:
Customers (net of allowance for doubtful accounts of $68 and $80
at respective dates)		1,009			1,091
Accrued unbilled revenue		870			766
Regulatory balancing accounts		1,745			1,124
Other		306			313
Regulatory assets		404			448
Inventories:
Gas stored underground and fuel oil		141			137
Materials and supplies		320			317
Income taxes receivable		598			563
Other		208			523
Total current assets		5,970			5,648
Property, Plant, and Equipment
Electric		43,990			42,881
Gas		15,040			14,379
Construction work in progress		1,981			1,834
Total property, plant, and equipment		61,011			59,094
Accumulated depreciation		(18,529	)		(17,843	)
Net property, plant, and equipment		42,482			41,251
Other Noncurrent Assets
Regulatory assets		4,821			4,913
Nuclear decommissioning trusts		2,428			2,342
Income taxes receivable		83			81
Other		824			814
Total other noncurrent assets		8,156			8,150
TOTAL ASSETS	$	56,608		$	55,049

See accompanying Notes to the Condensed Consolidated Financial Statements.

PACIFIC GAS AND ELECTRIC COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

	(Unaudited)
	Balance At
	June 30,		December 31,
(in millions, except share amounts)	2014		2013
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings	$	1,340	$	914
Long-term debt, classified as current		-		539
Accounts payable:
Trade creditors		1,161		1,293
Disputed claims and customer refunds		86		154
Regulatory balancing accounts		1,069		1,008
Other		462		432
Interest payable		862		887
Other		1,285		1,382
Total current liabilities		6,265		6,609
Noncurrent Liabilities
Long-term debt		13,616		12,717
Regulatory liabilities		5,966		5,660
Pension and other postretirement benefits		1,505		1,530
Asset retirement obligations		3,561		3,539
Deferred income taxes		8,060		8,042
Other		2,106		2,111
Total noncurrent liabilities		34,814		33,599
Commitments and Contingencies (Note 10)
Shareholders' Equity
Preferred stock		258		258
Common stock, $5 par value, authorized 800,000,000 shares, 264,374,809
shares outstanding at respective dates		1,322		1,322
Additional paid-in capital		6,396		5,821
Reinvested earnings		7,540		7,427
Accumulated other comprehensive income		13		13
Total shareholders' equity		15,529		14,841
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	56,608	$	55,049

See accompanying Notes to the Condensed Consolidated Financial Statements.

PACIFIC GAS AND ELECTRIC COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	(Unaudited)
	Six Months Ended June 30,
(in millions)	2014			2013
Cash Flows from Operating Activities
Net income	$	478		$	566
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, amortization, and decommissioning		1,094			1,019
Allowance for equity funds used during construction		(46	)		(52	)
Deferred income taxes and tax credits, net		18			337
Other		108			126
Effect of changes in operating assets and liabilities:
Accounts receivable		(31	)		(24	)
Inventories		(7	)		(31	)
Accounts payable		(72	)		68
Income taxes receivable/payable		(35	)		(162	)
Other current assets and liabilities		141			(317	)
Regulatory assets, liabilities, and balancing accounts, net		(311	)		(192	)
Other noncurrent assets and liabilities		(76	)		126
Net cash provided by operating activities		1,261			1,464
Cash Flows from Investing Activities
Capital expenditures		(2,320	)		(2,521	)
Decrease in restricted cash		2			25
Proceeds from sales and maturities of nuclear decommissioning
trust investments		877			795
Purchases of nuclear decommissioning trust investments		(873	)		(786	)
Other		17			8
Net cash used in investing activities		(2,297	)		(2,479	)
Cash Flows from Financing Activities
Net issuances of commercial paper, net of discount of $1 at respective dates		125			321
Proceeds from issuance of short-term debt, net of issuance costs		300			-
Proceeds from issuance of long-term debt, net of premium, discount, and issuance
costs of $11 and $8 at respective dates		889			742
Repayments of long-term debt		(539	)		(461	)
Preferred stock dividends paid		(7	)		(7	)
Common stock dividends paid		(358	)		(358	)
Equity contribution		580			665
Other		51			(20	)
Net cash provided by financing activities		1,041			882
Net change in cash and cash equivalents		5			(133	)
Cash and cash equivalents at January 1		65			194
Cash and cash equivalents at June 30	$	70		$	61
Supplemental disclosures of cash flow information
Cash paid for:
Interest, net of amounts capitalized	$	(307	)	$	(300	)
Income taxes, net		(1	)		(86	)
Supplemental disclosures of noncash investing and financing activities
Capital expenditures financed through accounts payable	$	224		$	253
Terminated capital leases		68			-
See accompanying Notes to the Condensed Consolidated Financial Statements.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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 quarterly report on Form 10-Q is a combined report of PG&E Corporation and the Utility. PG&E Corporation’s Condensed Consolidated Financial Statements include the accounts of PG&E Corporation, the Utility, and subsidiaries. The Utility’s Condensed Consolidated Financial Statements include the accounts of the Utility and its subsidiaries. All intercompany balances and transactions have been eliminated. The Notes to the Condensed Consolidated Financial Statements apply to both PG&E Corporation and the Utility unless described otherwise. PG&E Corporation and the Utility operate in one segment.

The accompanying Condensed Consolidated Financial Statements have been prepared in conformity with GAAP and in accordance with the interim period reporting requirements of Form 10-Q and reflect all adjustments (consisting only of normal recurring adjustments) that management believes are necessary for the fair presentation of PG&E Corporation and the Utility’s financial condition, results of operations, and cash flows for the periods presented. The information at December 31, 2013 in the Condensed Consolidated Balance Sheets included in this quarterly report was derived from the audited Consolidated Balance Sheets in the 2013 Annual Report. This quarterly report should be read in conjunction with the 2013 Annual Report.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions based on a wide range of factors, including future regulatory decisions and economic conditions, that are difficult to predict. Some of the more critical estimates and assumptions relate to the Utility’s regulatory assets and liabilities, legal and regulatory contingencies, environmental remediation liabilities, asset retirement obligations, and pension and other postretirement benefit plans obligations. Management believes that its estimates and assumptions reflected in the Condensed Consolidated Financial Statements are appropriate and reasonable. Actual results could differ materially from those estimates.

NOTE 2: SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies used by PG&E Corporation and the Utility are discussed in Note 2 of the Notes to the Consolidated Financial Statements in the 2013 Annual Report.

Variable Interest Entities

A VIE is an entity that does not have sufficient equity at risk to finance its activities without additional subordinated financial support from other parties, or whose equity investors lack any characteristics of a controlling financial interest. An enterprise that has a controlling financial interest in a VIE is a primary beneficiary and is required to consolidate the VIE.

Some of the counterparties 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 June 30, 2014, it assessed whether it absorbs any of the VIE’s expected losses or receives any portion of the VIE’s expected residual returns under the terms of the power purchase agreement, analyzed the variability in the VIE’s gross margin, and considered whether it had any decision-making rights associated with the activities that are most significant to the VIE’s performance, such as dispatch rights and operating and maintenance activities. The Utility’s financial obligation is limited to the amount the Utility pays for delivered electricity and capacity. The Utility did not have any decision-making rights associated with any of the activities that are most significant to the economic performance of any of these VIEs. Since the Utility was not the primary beneficiary of any of these VIEs at June 30, 2014, it did not consolidate any of them.

PG&E Corporation affiliates have entered into four tax equity agreements to fund residential and commercial retail solar energy installations with four separate privately held funds that are considered VIEs. Under these agreements, PG&E Corporation has made cumulative lease payments and investment contributions of $363 million to these companies since 2010 in exchange for the right to receive benefits from local rebates, federal grants, and a share of the customer payments made to these companies. At June 30, 2014 and December 31, 2013, the carrying amount of PG&E Corporation’s investment in these VIEs was $87 million and $98 million, respectively. PG&E Corporation does not have decision-making rights associated with any of the activities that are most significant to the economic performance of any of these VIEs, such as the design of the companies, vendor selection, construction, and the ongoing operations of the companies. Since PG&E Corporation was not the primary beneficiary of any of these VIEs at June 30, 2014, it did not consolidate any of them. On July 2, 2014, PG&E Corporation disposed of its interest in the tax equity agreements. PG&E Corporation has no remaining commitment to fund these agreements.

Pension and Other Postretirement Benefits

PG&E Corporation and the Utility provide a non-contributory defined benefit pension plan for eligible employees, as well as contributory postretirement medical plans for retirees and their eligible dependents, and non-contributory postretirement life insurance plans for eligible employees and retirees.

The net periodic benefit costs reflected in PG&E Corporation’s Condensed Consolidated Financial Statements for the three and six months ended June 30, 2014 and 2013 were as follows:

	Pension Benefits						Other Benefits
	Three Months Ended June 30,
(in millions)	2014			2013			2014			2013
Service cost for benefits earned	$	96		$	115		$	11		$	13
Interest cost		173			156			19			18
Expected return on plan assets		(201	)		(163	)		(26	)		(20	)
Amortization of prior service cost		5			5			5			5
Amortization of net actuarial loss		1			28			1			2
Net periodic benefit cost		74			141			10			18
Less: transfer to regulatory account (1)		9			(56	)		-			-
Total	$	83		$	85		$	10		$	18

(1) The Utility recorded these amounts to a regulatory account since they are probable of recovery from customers in future rates.

	Pension Benefits						Other Benefits
	Six Months Ended June 30,
(in millions)	2014			2013			2014			2013
Service cost for benefits earned	$	195		$	230		$	22		$	26
Interest cost		346			312			38			37
Expected return on plan assets		(403	)		(325	)		(52	)		(40	)
Amortization of prior service cost		10			10			11			11
Amortization of net actuarial loss		1			55			1			3
Net periodic benefit cost		149			282			20			37
Less: transfer to regulatory account (1)		19			(113	)		-			-
Total	$	168		$	169		$	20		$	37

(1) The Utility recorded these amounts to a regulatory account since they are probable of recovery from customers in future rates.

There was no material difference between PG&E Corporation and the Utility for the information disclosed above.

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) are summarized below:

	Pension			Other			Other
	Benefits			Benefits			Investments			Total
(in millions, net of income tax)	Three Months Ended June 30, 2014
Beginning balance	$	(7	)	$	15		$	47		$	55
Other comprehensive income before reclassifications:
Gain on investments (net of taxes of $0, $0, and $3,
respectively)		-			-			5			5
Amounts reclassified from other comprehensive income:
Amortization of prior service cost (net of taxes of
$2, $2, and $0, respectively) (1)		3			3			-			6
Amortization of net actuarial loss (net of taxes of
$0, $0, and $0, respectively) (1)		1			1			-			2
Transfer to regulatory account (net of taxes of
$2, $2, and $0, respectively) (1)		(4	)		(4	)		-			(8	)
Realized gain on investments (net of taxes of
$0, $0, and $10, respectively)		-			-			(16	)		(16	)
Net current period other comprehensive loss		-			-			(11	)		(11	)
Ending balance	$	(7	)	$	15		$	36		$	44

(1) These components are included in the computation of net periodic pension and other postretirement benefit costs. (See the “Pension and Other Postretirement Benefits” table above for additional details.)

	Pension			Other			Other
	Benefits			Benefits			Investments		Total
(in millions, net of income tax)	Three Months Ended June 30, 2013
Beginning balance	$	(28	)	$	(73	)	$	10	$	(91	)
Other comprehensive income before reclassifications:
Gain on investments (net of taxes of $0, $0, and $11,
respectively)		-			-			16		16
Amounts reclassified from other comprehensive income: (1)
Amortization of prior service cost (net of taxes of
$2, $2, and $0, respectively)		3			3			-		6
Amortization of net actuarial loss (net of taxes of
$12, $1, and $0, respectively)		16			1			-		17
Transfer to regulatory account (net of taxes of
$13, $0, and $0, respectively)		(19	)		-			-		(19	)
Net current period other comprehensive income		-			4			16		20
Ending balance	$	(28	)	$	(69	)	$	26	$	(71	)

	Pension			Other			Other
	Benefits			Benefits			Investments			Total
(in millions, net of income tax)	Six Months Ended June 30, 2014
Beginning balance	$	(7	)	$	15		$	42		$	50
Other comprehensive income before reclassifications:
Gain on investments (net of taxes of $0, $0, and $7,
respectively)		-			-			10			10
Amounts reclassified from other comprehensive income:
Amortization of prior service cost (net of taxes of
$4, $4, and $0, respectively) (1)		6			7			-			13
Amortization of net actuarial loss (net of taxes of
$0, $0, and $0, respectively) (1)		1			1			-			2
Transfer to regulatory account (net of taxes of
$4, $4, and $0, respectively) (1)		(7	)		(8	)		-			(15	)
Realized gain on investments (net of taxes of
$0, $0, and $10, respectively)		-			-			(16	)		(16	)
Net current period other comprehensive loss		-			-			(6	)		(6	)
Ending balance	$	(7	)	$	15		$	36		$	44

	Pension			Other			Other
	Benefits			Benefits			Investments		Total
(in millions, net of income tax)	Six Months Ended June 30, 2013
Beginning balance	$	(28	)	$	(77	)	$	4	$	(101	)
Other comprehensive income before reclassifications:
Gain on investments (net of taxes of $0, $0, and $15,
respectively)		-			-			22		22
Amounts reclassified from other comprehensive income: (1)
Amortization of prior service cost (net of taxes of
$4, $5, and $0, respectively)		6			6			-		12
Amortization of net actuarial loss (net of taxes of
$23, $1, and $0, respectively)		32			2			-		34
Transfer to regulatory account (net of taxes of
$26, $0, and $0, respectively)		(38	)		-			-		(38	)
Net current period other comprehensive income		-			8			22		30
Ending balance	$	(28	)	$	(69	)	$	26	$	(71	)

There was no material difference between PG&E Corporation and the Utility for the information disclosed above, with the exception of other investments which are held by PG&E Corporation.

Accounting Standards Issued But Not Yet Adopted

Revenue Recognition Standard

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers, which amends existing revenue recognition guidance. The accounting standards update will be effective on January 1, 2017. PG&E Corporation and the Utility are currently evaluating the impact the guidance will have on their consolidated financial statements and related disclosures.

NOTE 3: REGULATORY ASSETS, LIABILITIES, AND BALANCING ACCOUNTS

Regulatory Assets

Long-term regulatory assets are composed of the following:

	Balance at
	June 30,		December 31,
(in millions)	2014		2013
Pension benefits	$	1,415	$	1,444
Deferred income taxes		1,932		1,835
Utility retained generation		479		503
Environmental compliance costs		599		628
Price risk management		83		106
Electromechanical meters		103		135
Unamortized loss, net of gain, on reacquired debt		124		135
Other		86		127
Total long-term regulatory assets	$	4,821	$	4,913

Regulatory Liabilities

Long-term regulatory liabilities are composed of the following:

	Balance at
	June 30,			December 31,
(in millions)	2014			2013
Cost of removal obligations		$	3,978		$	3,844
Recoveries in excess of asset retirement obligations			754			748
Public purpose programs			677			587
Other			557			481
Total long-term regulatory liabilities		$	5,966		$	5,660

Regulatory Balancing Accounts

The Utility’s recovery of revenue requirements and costs is generally decoupled from the volume of sales. The Utility records (1) differences between the Utility’s authorized revenue requirement and actual customer billings, and (2) differences between incurred costs and customer billings. To the extent these differences are probable of recovery or refund over the next 12 months, the Utility records a current regulatory balancing account receivable or payable. Regulatory balancing accounts that the Utility does not expect to collect or refund over the next 12 months are included in other noncurrent assets – regulatory assets or noncurrent liabilities – regulatory liabilities, respectively, in the Condensed Consolidated Balance Sheets.

The Utility sells and delivers electricity and natural gas. The Utility also administers public purpose programs, primarily related to customer energy efficiency programs. The balancing accounts associated with these items will fluctuate during the year based on seasonal electric and gas usage and the timing of when costs are incurred and customer revenues are collected.

Current regulatory balancing accounts receivable and payable are composed of the following:

	Receivable
	Balance at
	June 30,			December 31,
(in millions)	2014			2013
Electric distribution		$	455		$	102
Utility generation			257			57
Gas distribution			154			70
Energy procurement			486			410
Public purpose programs			39			56
Other			354			429
Total regulatory balancing accounts receivable		$	1,745		$	1,124

	Payable
	Balance at
	June 30,			December 31,
(in millions)	2014			2013
Energy procurement		$	298		$	298
Public purpose programs			199			171
Other			572			539
Total regulatory balancing accounts payable		$	1,069		$	1,008

NOTE 4: DEBT

Senior Notes

In February 2014, the Utility issued $450 million principal amount of 3.75% Senior Notes due February 15, 2024 and $450 million principal amount of 4.75% Senior Notes due February 15, 2044. The proceeds were used to repay the 4.80% Senior Notes, in the principal outstanding amount of $539 million, to fund capital expenditures, and for general corporate purposes. In addition, in May 2014, the Utility issued $300 million principal amount of Floating Rate Senior Notes due May 11, 2015. The proceeds were used for general corporate purposes, including the repayment of a portion of the Utility's outstanding commercial paper.

In February 2014, PG&E Corporation issued $350 million principal amount of 2.40% Senior Notes due March 1, 2019. The proceeds were used to repay the 5.75% Senior Notes, in the principal outstanding amount of $350 million.

Revolving Credit Facilities and Commercial Paper Program

In April 2014, PG&E Corporation and the Utility each extended the termination dates of their existing revolving credit facilities by one year from April 1, 2018 to April 1, 2019. PG&E Corporation and the Utility can issue commercial paper up to the maximum amounts of $300 million and $1.75 billion, respectively. PG&E Corporation and the Utility treat the amount of outstanding commercial paper as a reduction to the amount available under their respective revolving credit facilities.

The following table summarizes PG&E Corporation’s and the Utility’s outstanding borrowings at June 30, 2014:

						Letters of
	Termination	Facility				Credit						Commercial			Facility
(in millions)	Date	Limit				Outstanding			Borrowings			Paper			Availability
PG&E Corporation	April 2019		$	300	(1)		$	-		$	-		$	112		$	188
Utility	April 2019			3,000	(2)			86		$