PG&E Corp quarterly report, Q3 FY2022

PG&E Corporation 10-Q Summary

Business context and reporting period

PG&E Corporation is the holding company for Pacific Gas and Electric Company, a regulated electric and natural gas utility serving northern and central California. The combined Form 10-Q covers the quarter and nine months ended September 30, 2022, with comparison to the corresponding 2021 periods. The filing is unaudited and prepared under GAAP.

Financial performance and key metrics

Metric	Q3 2022	Q3 2021	9M 2022	9M 2021
Operating revenues	$5.394 billion	$5.465 billion	$16.310 billion	$15.396 billion
Operating income	$726 million	$304 million	$1.707 billion	$1.242 billion
Net income	$459 million	$(1.088) billion	$1.297 billion	$(564) million
Net income attributable to common shareholders	$456 million	$(1.091) billion	$1.287 billion	$(574) million
Diluted EPS	$0.21	$(0.55)	$0.60	$(0.29)

Consolidated operating margin was approximately 13.5% in Q3 and 10.5% for the first nine months, compared with approximately 5.6% and 8.1% in the respective 2021 periods.
Net margin was approximately 8.5% in Q3 and 8.0% for the first nine months, versus negative margins in the 2021 comparable periods.
Utility income available to common shareholders was $487 million in Q3 and $1.610 billion for the first nine months, compared with losses of $1.045 billion and $435 million, respectively, in 2021.
Revenue growth for the first nine months was driven primarily by recognition of approximately $310 million from the 2018 CEMA settlement, approximately $180 million from the GT&S proceeding, higher authorized base revenues, and FERC formula-rate revenues.
Operating and maintenance expense declined 8% for the first nine months, reflecting operating efficiencies and lower deferred-cost recognition, partly offset by approximately $310 million of previously deferred costs recognized under the 2018 CEMA settlement.
Depreciation, amortization, and decommissioning expense increased 15% for the first nine months to $2.915 billion, primarily from capital additions and higher Diablo Canyon decommissioning expense.
Interest expense increased 14% for the first nine months to $1.175 billion due to additional debt and higher variable-rate borrowing costs.
The effective tax rate was negative 46.8% for the first nine months, reflecting tax benefits associated with Fire Victim Trust share sales and regulatory tax treatment. The Fire Victim Trust’s sale of 100 million shares generated a $337 million tax benefit during the period.

Cash flow, liquidity, debt, and balance sheet

Utility operating cash flow was $2.940 billion for the first nine months, up from $2.220 billion in 2021. PG&E Corporation consolidated operating cash flow was $2.712 billion, compared with $2.053 billion.
Utility investing cash outflow was $8.173 billion, including $7.411 billion of capital expenditures and $1.017 billion of customer credit trust investments.
Utility financing cash inflow was $5.304 billion, including $7.464 billion of net proceeds from SB 901 recovery bonds. Net cash, cash equivalents, and restricted cash increased by $71 million.
Management estimated 2022 capital expenditures of $7.8 billion to $9.4 billion and 2023 capital expenditures of $7.9 billion to $11.2 billion.
As of September 30, 2022, PG&E Corporation had $262 million of cash and the Utility had $107 million. Combined liquidity was approximately $2.6 billion, including $2.3 billion of revolving-credit availability.
PG&E Corporation reported $48.884 billion of current and noncurrent debt, while the Utility reported $46.063 billion. The filing also reports $1.795 billion of short-term borrowings at each entity.
At September 30, the Utility had $1.370 billion outstanding under its revolving facility, $795 million of letters of credit, and $1.835 billion of facility availability. Its receivables securitization program was fully drawn at $1.325 billion.
Accounts receivable more than 30 days past due were approximately $1.1 billion, or $869 million above the December 2019 balance. Residential and nonresidential service disconnections resumed October 13, 2022, subject to an annual residential cap.

Material changes versus the prior comparable period

Results improved substantially from 2021, when earnings were heavily affected by a $1.15 billion Dixie fire charge and a large Fire Victim Trust-related deferred tax asset write-off.
Q3 2022 wildfire-related claims expense, net of recoveries, was $9 million versus $94 million in Q3 2021. For the first nine months, the expense was $153 million versus $261 million.
The Utility issued $7.5 billion of SB 901 recovery bonds in two transactions: $3.6 billion in May and $3.9 billion in July 2022. Proceeds funded debt redemptions, term-loan repayment, and revolver repayment.
Utility long-term regulatory assets increased to $16.448 billion from $9.207 billion at year-end 2021, principally reflecting the SB 901 securitization regulatory asset and additional regulatory deferrals.
The Utility reinstated its common-stock dividend and paid $425 million to PG&E Corporation in June and another $425 million in September. PG&E Corporation’s common-stock dividend remains restricted until it recognizes $6.2 billion of post-emergence Non-GAAP Core Earnings.
The Utility recorded $77 million of third-quarter operating and maintenance expense for voluntary separation program cash payments covering approximately 470 employees.

Guidance, outlook, commentary, risks, and unusual items

The 2023 GRC application requests $16.18 billion of 2023 revenue requirements and a $50.88 billion weighted-average rate base. The requested revenue requirement rises to $18.76 billion by 2026, with planned average annual capital investment of approximately $10.95 billion over 2023–2026. These are requests, not approved amounts.
PG&E is pursuing extension of Diablo Canyon operations through no later than 2030 under SB 846. The company executed a DWR loan agreement on October 18, 2022 and applied for federal Civil Nuclear Credit funding. The filing had not yet adjusted the Diablo Canyon asset-retirement obligation because required approvals and funding were pending.
As of September 30, recorded wildfire liabilities were $950 million for the 2019 Kincade fire, $375 million for the 2020 Zogg fire, $1.15 billion for the 2021 Dixie fire, and $100 million for the 2022 Mosquito fire. These amounts exclude various potential penalties, punitive damages, agency claims, and other losses.
Recorded probable wildfire recoveries included $430 million of Kincade insurance, $347 million of Zogg insurance, $553 million of Dixie insurance, and $40 million of Mosquito insurance. The Dixie fire also had $106 million of probable FERC recovery, $367 million of WEMA recovery, and $150 million of Wildfire Fund recovery.
The Zogg criminal proceeding remains pending. The Utility disclosed that a conviction on certain charges could cause total losses to materially exceed the $375 million accrued liability. Separately, the CPUC staff proposed a $155 million penalty in October 2022; the amount was not reasonably estimable because the Utility intended to request a hearing.
The Utility remained in step 1 of the CPUC’s Enhanced Oversight and Enforcement Process at September 30. A draft resolution issued October 14, 2022 would authorize exit, subject to a scheduled CPUC vote.
Approximately $5.7 billion of costs had been recorded in various memorandum and balancing accounts, of which approximately $4.9 billion was classified as long term and subject to future recovery proceedings.
Other significant risks include wildfire insurance limitations, potential cost disallowances, regulatory and litigation outcomes, substantial indebtedness, rising interest rates and inflation, customer arrearages, cybersecurity and privacy exposure, environmental remediation, municipalization efforts, and the potential depletion or reduced availability of the Wildfire Fund.
The filing states that the Ninth Circuit reversed a bankruptcy-related post-petition interest ruling; PG&E believes a loss is probable but cannot reasonably estimate the amount. The company planned to seek U.S. Supreme Court review.

Most important facts for investors to verify

Final outcomes of the Kincade, Zogg, Dixie, and Mosquito wildfire claims, investigations, penalties, insurance recoveries, Wildfire Fund recoveries, and regulatory cost-recovery proceedings.
Whether the CPUC approves the 2020 and 2021 WMCE applications, the 2023 GRC request, the requested cost of capital, and the proposed self-insurance structure.
Actual 2022–2023 capital spending, cash generation, customer arrearage trends, and access to revolving and receivables-based liquidity.
Terms and execution of the planned second AB 1054 securitization and any effects on customer charges, regulatory assets, and debt.
Federal and state approvals, funding, operating economics, and updated asset-retirement obligations associated with extending Diablo Canyon.
Progress toward exiting enhanced CPUC oversight and compliance with wildfire mitigation inspections, vegetation management, safety certifications, and WMP targets.
Potential dilution or tax effects from future Fire Victim Trust share sales and the status of PG&E Corporation’s restrictions on common-stock dividends.