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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 9 Months Ended
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Sep. 30, 2022
Accounting Policies [Abstract] |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Revenue Recognition Revenue from Contracts with Customers The Utility recognizes revenues when electricity and natural gas services are delivered. The Utility records unbilled revenues for the estimated amount of energy delivered to customers but not yet billed at the end of the period. Unbilled revenues are included in accounts receivable on the Condensed Consolidated Balance Sheets. Rates charged to customers are based on CPUC and FERC authorized revenue requirements. Revenues can vary significantly from period to period because of seasonality, weather, and customer usage patterns. Regulatory Balancing Account Revenue The CPUC authorizes most of the Utility’s revenues in the Utility’s GRCs, which occur every four years. CPUC and FERC rates decouple authorized revenue from the volume of electricity and natural gas sales, so the Utility receives revenue equal to the amounts authorized by the relevant regulatory agencies. As a result, the volume of electricity and natural gas sold does not have a direct impact on PG&E Corporation’s and the Utility’s financial results. The Utility recognizes revenues that have been authorized for rate recovery, are objectively determinable and probable of recovery, and are expected to be collected within 24 months. Generally, electric and natural gas operating revenue is recognized ratably over the year. The Utility records a balancing account asset or liability for differences between customer billings and authorized revenue requirements that are probable of recovery or refund. The Utility also collects additional revenue requirements to recover costs that the CPUC has authorized the Utility to pass on to customers, including costs to purchase electricity and natural gas, and to fund public purpose, demand response, and customer energy efficiency programs. In general, the revenue recognition criteria for pass-through costs billed to customers are met at the time the costs are incurred. 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. As a result, these differences have no impact on net income. The following table presents the Utility’s revenues disaggregated by type of customer:
| Three Months Ended September 30, |  | Nine Months Ended September 30,
(in millions) | 2022 |  | 2021 |  | 2022 |  | 2021
Electric |  |  |  |  |  |  |
Revenue from contracts with customers |  |  |  |  |  |  |
Residential | $ | 2,128 |  |  | $ | 1,962 |  |  | $ | 4,834 |  |  | $ | 4,778 |
Commercial | 1,711 |  |  | 1,580 |  |  | 4,135 |  |  | 3,776 |
Industrial | 534 |  |  | 467 |  |  | 1,206 |  |  | 1,099 |
Agricultural | 777 |  |  | 655 |  |  | 1,477 |  |  | 1,238 |
Public street and highway lighting | 20 |  |  | 18 |  |  | 57 |  |  | 53 |
Other (1) | 115 |  |  | (52) |  |  | 26 |  |  | 169 |
Total revenue from contracts with customers - electric | 5,285 |  |  | 4,630 |  |  | 11,735 |  |  | 11,113 |
Regulatory balancing accounts (2) | (1,390) |  |  | (449) |  |  | 8 |  |  | 414 |
Total electric operating revenue | $ | 3,895 |  |  | $ | 4,181 |  |  | $ | 11,743 |  |  | $ | 11,527 |
Natural gas |  |  |  |  |  |  |
Revenue from contracts with customers |  |  |  |  |  |  |
Residential | $ | 392 |  |  | $ | 295 |  |  | $ | 2,243 |  |  | $ | 1,921 |
Commercial | 162 |  |  | 102 |  |  | 703 |  |  | 486 |
Transportation service only | 356 |  |  | 323 |  |  | 1,111 |  |  | 995 |
Other (1) | 16 |  |  | 16 |  |  | (251) |  |  | (168) |
Total revenue from contracts with customers - gas | 926 |  |  | 736 |  |  | 3,806 |  |  | 3,234 |
Regulatory balancing accounts (2) | 573 |  |  | 548 |  |  | 761 |  |  | 635 |
Total natural gas operating revenue | 1,499 |  |  | 1,284 |  |  | 4,567 |  |  | 3,869 |
Total operating revenues | $ | 5,394 |  |  | $ | 5,465 |  |  | $ | 16,310 |  |  | $ | 15,396 |
(1) This activity is primarily related to the change in unbilled revenue and amounts subject to refund, partially offset by other miscellaneous revenue items. (2) These amounts represent revenues authorized to be billed or refunded to customers. 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. Consolidated VIEs Receivables Securitization Program The SPV was created in connection with the Receivables Securitization Program and is a bankruptcy remote, limited liability company wholly owned by the Utility, and its assets are not available to creditors of PG&E Corporation or the Utility. Pursuant to the Receivables Securitization Program, the Utility sells certain of its receivables and certain related rights to payment and obligations of the Utility with respect to such receivables, and certain other related rights to the SPV, which, in turn, obtains loans secured by the receivables from financial institutions (the “Lenders”). The pledged receivables and the corresponding debt are included in Accounts receivable, Other noncurrent assets, and Long-term debt, respectively, on the Condensed Consolidated Balance Sheets. The SPV is considered a VIE because its equity capitalization is insufficient to support its activities. The most significant activities that impact the economic performance of the SPV are decisions made to manage receivables. The Utility is considered the primary beneficiary and consolidates the SPV as it makes these decisions. No additional financial support was provided to the SPV during the nine months ended September 30, 2022 or is expected to be provided in the future that was not previously contractually required. As of September 30, 2022 and December 31, 2021, the SPV had net accounts receivable of $3.3 billion, and outstanding borrowings of $1.3 billion and $974 million, respectively, under the Receivables Securitization Program. For more information, see Note 5 below. AB 1054 Securitization PG&E Recovery Funding LLC is a bankruptcy remote, limited liability company wholly owned by the Utility, and its assets are not available to creditors of PG&E Corporation or the Utility. Pursuant to the financing order for the first AB 1054 securitization transaction, the Utility sold its right to receive revenues from the non-bypassable wildfire hardening fixed recovery charge (“Recovery Property”) to PG&E Recovery Funding LLC, which, in turn, issued recovery bonds secured by the Recovery Property. On November 12, 2021, PG&E Recovery Funding LLC issued approximately $860 million of senior secured recovery bonds. The recovery bonds were issued in three tranches: (1) approximately $266 million with an interest rate of 1.46% and is due July 15, 2033, (2) approximately $160 million with an interest rate of 2.28% and is due January 15, 2038, and (3) approximately $434 million with an interest rate of 2.82% and is due July 15, 2048. The recovery bonds are scheduled to pay principal and interest semi-annually on January 15 and July 15 of each year. The final scheduled payment date is July 15, 2046. Amounts owed to bondholders are included in Long-term debt and Long-term debt, classified as current, on the Condensed Consolidated Balance Sheets. PG&E Recovery Funding LLC is considered a VIE because its equity capitalization is insufficient to support its operations. The most significant activities that impact the economic performance of PG&E Recovery Funding LLC are decisions made by the servicer of the Recovery Property. The Utility is considered the primary beneficiary and consolidates PG&E Recovery Funding LLC as it acts in this role as servicer. No additional financial support was provided to PG&E Recovery Funding LLC during the nine months ended September 30, 2022 or is expected to be provided in the future that was not previously contractually required. As of September 30, 2022 and December 31, 2021, PG&E Recovery Funding LLC had outstanding borrowings of $842 million and $860 million, respectively. SB 901 Securitization PG&E Wildfire Recovery Funding LLC is a bankruptcy remote, limited liability company wholly owned by the Utility, and its assets are not available to creditors of PG&E Corporation or the Utility. Pursuant to the financing order for the SB 901 securitization transaction, the Utility sold its right to receive revenues from the non-bypassable fixed recovery charge (“SB 901 Recovery Property”) to PG&E Wildfire Recovery Funding LLC, which, in turn, issued recovery bonds secured by the SB 901 Recovery Property. PG&E Wildfire Recovery Funding LLC is considered a VIE because its equity capitalization is insufficient to support its operations. The most significant activities that impact the economic performance of PG&E Wildfire Recovery Funding LLC are decisions made by the servicer of the SB 901 Recovery Property. The Utility is considered the primary beneficiary and consolidates PG&E Wildfire Recovery Funding LLC as it acts in this role as servicer. No additional financial support was provided to PG&E Wildfire Recovery Funding LLC during the nine months ended September 30, 2022 or is expected to be provided in the future that was not previously contractually required. On May 10, 2022, PG&E Wildfire Recovery Funding LLC issued $3.6 billion aggregate principal amount of senior secured recovery bonds (the “Series 2022-A Recovery Bonds”). On July 20, 2022, PG&E Wildfire Recovery Funding LLC issued $3.9 billion aggregate principal amount of senior secured recovery bonds (the “Series 2022-B Recovery Bonds”). As of September 30, 2022, PG&E Wildfire Recovery Funding LLC had outstanding borrowings of $7.5 billion. For more information, see Note 6 below. Non-Consolidated VIEs 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 as of September 30, 2022, 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 as of September 30, 2022, it did not consolidate any of them. Contributions to the Wildfire Fund Established Pursuant to AB 1054 PG&E Corporation and the Utility account for contributions to the Wildfire Fund by capitalizing an asset, amortizing to periods ratably based on an estimated period of coverage, and incrementally adjusting for accelerated amortization as the level of coverage declines, as further described below. However, AB 1054 did not specify a period of coverage for the Wildfire Fund; therefore, this accounting treatment is subject to significant accounting judgments and estimates. Since the inception of the Wildfire Fund, PG&E Corporation and the Utility have estimated a period of coverage of 15 years. In estimating that initial period of coverage, PG&E Corporation and the Utility started in 2019 with a dataset of 12 years of historical, publicly available fire-loss data for the period from 2007 to 2018 for wildfires caused by electrical equipment to create Monte Carlo simulations of expected loss. For each year after 2019, PG&E Corporation and the Utility added the fire-loss data for the preceding year to the dataset. The number of years of historic fire-loss data and the effectiveness of mitigation efforts by the California electric utility companies are significant assumptions used to estimate the period of coverage. Other assumptions include the estimated costs to settle wildfire claims for participating electric utilities including the Utility, the CPUC’s determinations of whether costs were just and reasonable in cases of electric utility-caused wildfires and amounts required to be reimbursed to the Wildfire Fund, the impacts of climate change, the amount of future insurance coverage held by the electric utilities, the FERC-allocable portion of loss recovery, and the future transmission and distribution equity rate base growth of participating electric utilities. These assumptions create a high degree of uncertainty for the estimated useful life of the Wildfire Fund. PG&E Corporation and the Utility evaluate and, where appropriate, update all assumptions quarterly. Changes in any of the assumptions could materially impact the estimated period of coverage. PG&E Corporation and the Utility assess the Wildfire Fund asset for acceleration of the amortization of the asset in the event that it is probable that a participating utility’s electrical equipment will be found to be the substantial cause of a catastrophic wildfire. In the first quarter of 2022, PG&E Corporation and the Utility updated assumptions related to the mitigation effectiveness and historical fire loss dataset to align with the 2022 WMP. These updates did not change the estimated period of coverage, which continues to be 15 years from the inception of the Wildfire Fund. As of September 30, 2022, PG&E Corporation and the Utility recorded $193 million in Other current liabilities, $1.1 billion in Other non-current liabilities, $461 million in Current assets - Wildfire Fund asset, and $5.0 billion in Non-current assets - Wildfire Fund asset in the Condensed Consolidated Balance Sheets. During the three months ended September 30, 2022 and 2021, the Utility recorded amortization and accretion expense of $118 million and $162 million, respectively. During the nine months ended September 30, 2022 and 2021, the Utility recorded amortization and accretion expense of $353 million and $399 million, respectively. The amortization of the asset, accretion of the liability, and applicable acceleration of the amortization of the asset is reflected in Wildfire Fund expense in the Condensed Consolidated Statements of Income. As of September 30, 2022, PG&E Corporation and the Utility had recorded $150 million in Other noncurrent assets for Wildfire Fund receivables related to the 2021 Dixie fire. For more information, see Note 3 of the Notes to the Consolidated Financial Statements in Item 8 of the 2021 Form 10-K and “Wildfire Fund under AB 1054” in Note 11 below. Pension and Other Post-Retirement Benefits PG&E Corporation and the Utility sponsor a non-contributory defined benefit pension plan and cash balance plan. Both plans are included in “Pension Benefits” below. Post-retirement medical and life insurance plans are included in “Other Benefits” below. The net periodic benefit costs reflected in PG&E Corporation’s Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2022 and 2021 were as follows:
| Pension Benefits |  | Other Benefits
| Three Months Ended September 30,
(in millions) | 2022 |  | 2021 |  | 2022 |  | 2021
Service cost for benefits earned (1) | $ | 144 |  |  | $ | 147 |  |  | $ | 15 |  |  | $ | 15 |
Interest cost | 173 |  |  | 161 |  |  | 13 |  |  | 13 |
Expected return on plan assets | (297) |  |  | (261) |  |  | (32) |  |  | (33) |
Amortization of prior service cost | (1) |  |  | (1) |  |  | 2 |  |  | 3 |
Amortization of net actuarial (gain) loss | — |  |  | 1 |  |  | (10) |  |  | (8) |
Net periodic benefit cost | 19 |  |  | 47 |  |  | (12) |  |  | (10) |
Regulatory account transfer (2) | 64 |  |  | 37 |  |  | — |  |  | — |
Total | $ | 83 |  |  | $ | 84 |  |  | $ | (12) |  |  | $ | (10) |
(1) A portion of service costs is capitalized pursuant to GAAP. (2) The Utility recorded these amounts to a regulatory account since they are probable of recovery from, or refund to, customers in future rates.
| Pension Benefits |  | Other Benefits
| Nine Months Ended September 30,
(in millions) | 2022 |  | 2021 |  | 2022 |  | 2021
Service cost for benefits earned (1) | $ | 432 |  |  | $ | 440 |  |  | $ | 46 |  |  | $ | 47 |
Interest cost | 519 |  |  | 484 |  |  | 40 |  |  | 39 |
Expected return on plan assets | (892) |  |  | (784) |  |  | (97) |  |  | (103) |
Amortization of prior service cost | (3) |  |  | (4) |  |  | 5 |  |  | 10 |
Amortization of net actuarial (gain) loss | 1 |  |  | 4 |  |  | (30) |  |  | (24) |
Net periodic benefit cost | 57 |  |  | 140 |  |  | (36) |  |  | (31) |
Regulatory account transfer (2) | 191 |  |  | 111 |  |  | — |  |  | — |
Total | $ | 248 |  |  | $ | 251 |  |  | $ | (36) |  |  | $ | (31) |
(1) A portion of service costs is capitalized pursuant to GAAP. (2) The Utility recorded these amounts to a regulatory account since they are probable of recovery from, or refund to, customers in future rates. Non-service costs are reflected in Other income, net on the Condensed Consolidated Statements of Income. Service costs are reflected in Operating and maintenance on the Condensed Consolidated Statements of Income. 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 (Loss) The changes, net of income tax, in PG&E Corporation’s accumulated other comprehensive income (loss) consisted of the following:
| Pension Benefits |  | Other Benefits |  | Customer Credit Trust |  | Total
(in millions, net of income tax) | Three Months Ended September 30, 2022
Beginning balance | $ | (33) |  |  | $ | 18 |  |  | $ | (5) |  |  | $ | (20) |
Other comprehensive income before reclassification |  |  |  |  |  |  |
Loss on investments (net of taxes of $0, $0 and $5, respectively) | — |  |  | — |  |  | (12) |  |  | (12) |
Amounts reclassified from other comprehensive income: (1) |  |  |  |  |  |  |
Amortization of prior service cost (net of taxes of $1, $0 and $0, respectively) | — |  |  | 2 |  |  | — |  |  | 2 |
Amortization of net actuarial gain (net of taxes of $0, $2 and $0, respectively) | — |  |  | (8) |  |  | — |  |  | (8) |
Regulatory account transfer (net of taxes of $1, $2 and $0, respectively) | — |  |  | 6 |  |  | — |  |  | 6 |
Net current period other comprehensive loss | — |  |  | — |  |  | (12) |  |  | (12) |
Ending balance | $ | (33) |  |  | $ | 18 |  |  | $ | (17) |  |  | $ | (32) |
(1) These components are included in the computation of net periodic pension and other post-retirement benefit costs. See the “Pension and Other Post-Retirement Benefits” table above for additional details.
| Pension Benefits |  | Other Benefits |  | Total
(in millions, net of income tax) | Three Months Ended September 30, 2021
Beginning balance | $ | (38) |  |  | $ | 17 |  |  | $ | (21) |
Amounts reclassified from other comprehensive income: (1) |  |  |  |  |
Amortization of prior service cost (net of taxes of $0 and $1, respectively) | (1) |  |  | 2 |  |  | 1 |
Amortization of net actuarial (gain) loss (net of taxes of $0 and $3, respectively) | 1 |  |  | (5) |  |  | (4) |
Regulatory account transfer (net of taxes of $1 and $2, respectively) | 1 |  |  | 3 |  |  | 4 |
Net current period other comprehensive gain | 1 |  |  | — |  |  | 1 |
Ending balance | $ | (37) |  |  | $ | 17 |  |  | $ | (20) |
(1) These components are included in the computation of net periodic pension and other post-retirement benefit costs. See the “Pension and Other Post-Retirement Benefits” table above for additional details.
| Pension Benefits |  | Other Benefits |  | Customer Credit Trust |  | Total
(in millions, net of income tax) | Nine Months Ended September 30, 2022
Beginning balance | $ | (33) |  |  | $ | 18 |  |  | $ | — |  |  | $ | (15) |
Other comprehensive income before reclassification |  |  |  |  |  |  |
Loss on investments (net of taxes of $0, $0 and $7, respectively) | — |  |  | — |  |  | (17) |  |  | (17) |
Amounts reclassified from other comprehensive income: (1) |  |  |  |  |  |  |
Amortization of prior service cost (net of taxes of $1, $1 and $0, respectively) | (2) |  |  | 4 |  |  | — |  |  | 2 |
Amortization of net actuarial (gain) loss (net of taxes of $0, $8 and $0, respectively) | 1 |  |  | (22) |  |  | — |  |  | (21) |
Regulatory account transfer (net of taxes of $1, $7 and $0, respectively) | 1 |  |  | 18 |  |  | — |  |  | 19 |
Net current period other comprehensive gain (loss) | — |  |  | — |  |  | (17) |  |  | (17) |
Ending balance | $ | (33) |  |  | $ | 18 |  |  | $ | (17) |  |  | $ | (32) |
(1) These components are included in the computation of net periodic pension and other post-retirement benefit costs. See the “Pension and Other Post-Retirement Benefits” table above for additional details.
| Pension Benefits |  | Other Benefits |  | Total
(in millions, net of income tax) | Nine Months Ended September 30, 2021
Beginning balance | $ | (39) |  |  | $ | 17 |  |  | $ | (22) |
Amounts reclassified from other comprehensive income: (1) |  |  |  |  |
Amortization of prior service cost (net of taxes of $1 and $3, respectively) | (3) |  |  | 7 |  |  | 4 |
Amortization of net actuarial (gain) loss (net of taxes of $1 and $7, respectively) | 3 |  |  | (17) |  |  | (14) |
Regulatory account transfer (net of taxes of $1 and $4, respectively) | 2 |  |  | 10 |  |  | 12 |
Net current period other comprehensive gain (loss) | 2 |  |  | — |  |  | 2 |
Ending balance | $ | (37) |  |  | $ | 17 |  |  | $ | (20) |
(1) These components are included in the computation of net periodic pension and other post-retirement benefit costs. See the “Pension and Other Post-Retirement Benefits” table above for additional details. There was no material difference between PG&E Corporation and the Utility for the information disclosed above. Voluntary Separation Program In the second quarter of 2022, PG&E Corporation and the Utility enacted a VSP, which provides separation benefits to approximately 470 eligible employees who voluntarily agreed to terminate their employment under the program. The VSP includes certain one-time cash payments and a credit to the employee’s retirement health savings account. PG&E Corporation and the Utility account for the VSP as a special termination benefit with any costs of the special separation benefits recorded upon each employee’s irrevocable acceptance. In the third quarter of 2022, PG&E Corporation and the Utility recorded $77 million in Operating and maintenance expense on the Condensed Consolidated Statements of Income related to the VSP one-time cash payments. In addition, during the third quarter of 2022, VSP-related credits to employee retirement health savings accounts totaled $22 million. This amount will be paid using the PG&E Corporation and Utility postretirement medical plan trusts’ assets and does not impact income. Financial Assets Measured at Amortized Cost – Credit Losses PG&E Corporation and the Utility use the current expected credit loss model to estimate the expected lifetime credit loss on financial assets measured at amortized cost. PG&E Corporation and the Utility evaluate credit risk in their portfolio of financial assets quarterly. As of September 30, 2022, PG&E Corporation and the Utility identified the following significant categories of financial assets. Trade Receivables Trade receivables are represented by customer accounts. PG&E Corporation and the Utility record an allowance for doubtful accounts to recognize an estimate of expected lifetime credit losses. The allowance is determined on a collective basis based on the historical amounts written-off and an assessment of customer collectability. Furthermore, economic conditions are evaluated as part of the estimate of expected lifetime credit losses. During the nine months ended September 30, 2022, expected credit losses of $126 million were recorded in Operating and maintenance expense on the Condensed Consolidated Statements of Income for credit losses associated with trade and other receivables. The portion of expected credit losses that are deemed probable of recovery are deferred to the RUBA, CPPMA and a FERC regulatory asset. As of September 30, 2022, the RUBA current balancing accounts receivable balance was $109 million, and CPPMA and FERC long-term regulatory asset balances were $10 million and $10 million, respectively. Other Receivables and Available-For-Sale Debt Securities Insurance receivables are related to the liability insurance policies PG&E Corporation and the Utility carry. Insurance receivable risk is related to each insurance carrier’s risk of defaulting on their individual policies. Wildfire Fund receivables are the funds available from the statewide fund established under AB 1054 for payment of eligible claims related to the 2021 Dixie fire that exceed $1.0 billion and available insurance coverage. For more information, see Note 11 below. Wildfire Fund receivables risk is related to the Wildfire Fund’s durability, which is a measurement of the claim-paying capacity. Lastly, PG&E Corporation and the Utility are required to determine if the fair value is below the amortized cost basis for its available-for-sale debt securities (i.e., impairment). If such an impairment exists and it does not otherwise result in a write-down, then PG&E Corporation and the Utility must determine whether a portion of the impairment is a result of expected credit loss. As of September 30, 2022, expected credit losses for insurance receivables, Wildfire Fund receivables, and available-for-sale debt securities were immaterial. Asset Retirement Obligations PG&E Corporation and the Utility account for an ARO at fair value in the period during which the legal obligation is incurred if a reasonable estimate of fair value and its settlement date can be made. At the time of recording an ARO, the associated asset retirement costs are capitalized as part of the carrying amount of the related long-lived asset. The Utility recognizes a regulatory asset or liability for the timing differences between the recognition of expenses and costs recovered through the ratemaking process. For more information, see Note 4 below. To estimate its liability, the Utility uses a discounted cash flow model based upon significant estimates and assumptions about future decommissioning costs, escalation rates, credit-adjusted risk-free rates, and the estimated date of decommissioning. For generation facilities, the Utility uses a probability-weighted, discounted cash flow model. For nuclear generation facilities, the model also considers multiple decommissioning start-year scenarios. The estimated future cash flows are discounted using a credit-adjusted risk-free rate that reflects the risk associated with the decommissioning obligation. The Utility performs detailed studies of its nuclear generation facilities every three years in conjunction with the NDCTP, and updates its nuclear AROs accordingly, unless circumstances warrant more frequent updates, based on its annual evaluation of cost escalation factors and probabilities assigned to various scenarios. The ARO liability decreased from $6.4 billion as of December 31, 2020 to $5.3 billion as of December 31, 2021, primarily due to the decrease in nuclear decommissioning ARO of $1.3 billion. In December 2021, the Utility filed its 2021 NDCTP application, which includes a Diablo Canyon site-specific decommissioning cost estimate of $4.0 billion. Relative to the 2018 NDCTP decision, the 2021 NDCTP application resulted in a decommissioning cost estimate that was decreased by $378 million on a non-escalated basis and $2.6 billion on an escalated basis. The escalated basis assumed that costs will be spread primarily over 56 years, which represents the assumption for how much time will be required for physical decommissioning of Units 1 and 2. This decrease reflected favorable changes in the scope and methods of planned decommissioning activities. In addition, the Utility’s escalation rates were filed as part of the NDCTP and include factors for the Utility’s labor, materials, contract labor, burial costs, and other costs. Additionally, the average total escalation factor decreased, primarily due to a reduction in the escalation factor for burial costs. Furthermore, the credit-adjusted risk-free rate, was greater in 2021 than in 2020. The increase of $925 million in the 2022 ARO liability at September 30, 2022 as compared to December 31, 2021 is primarily due to a realignment of the expected timing of Diablo Canyon decommissioning work to be completed; the creation of a new liability for the permanently abandoned electric transmission lines in connection with the Kincade SED Settlement (as defined in Note 11); increases in the probability that the Utility will be responsible for decommissioning certain hydroelectric generation facilities; increases in the costs associated with retiring gas transmission pipelines; and increases in escalation factors. On September 2, 2022, the Governor of California signed SB 846, which supports the extension of operations at Diablo Canyon through no later than 2030, with the potential for an earlier retirement date. The Utility’s ARO associated with the decommissioning of Diablo Canyon could be materially impacted if the plant’s operations are extended beyond 2025. As of September 30, 2022, the Utility did not adjust the ARO associated with the decommissioning of Diablo Canyon because the Utility has not received approval of its application for federal funding through the U.S. DOE’s Civil Nuclear Credit program, and the Utility has not received required federal and state licenses, permits, and approvals. PG&E Corporation and the Utility expect to adjust the ARO associated with the decommissioning of Diablo Canyon, if at all, in the fourth quarter of 2022. Recently Adopted Accounting Standards Debt In August 2020, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. PG&E Corporation and the Utility adopted this ASU on January 1, 2022. There was no material impact on PG&E Corporation’s or the Utility’s Condensed Consolidated Financial Statements and the related disclosures resulting from the adoption of this ASU.

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