PG&E Corp quarterly report, Q1 FY2022

PG&E Corporation 10-Q Summary

Business context and reporting period

Combined quarterly report for PG&E Corporation and Pacific Gas and Electric Company, the regulated California utility, for the three months ended March 31, 2022. PG&E Corporation is primarily a holding company; substantially all operating results arise from the Utility. The financial statements are unaudited and should be read with the 2021 Form 10-K.

Key financial metrics

PG&E Corporation, $ millions except per-share data	Q1 2022	Q1 2021	Change
Total operating revenue	5,798	4,716	+23%
Operating income	536	304	+76%
Net income	478	123	+289%
Income available to common shareholders	475	120	+296%
Diluted EPS	$0.22	$0.06	+$0.16
Operating margin	9.2%	6.4%	+2.8 points
Net margin	8.2%	2.6%	+5.6 points

Electric revenue was $4.16 billion, up from $3.40 billion; natural gas revenue was $1.64 billion, up from $1.32 billion.
Utility income available to common stock increased to $527 million from $174 million. The holding company recorded a $52 million loss, compared with a $54 million loss.
Net cash provided by operating activities was $1.66 billion, compared with $1.20 billion. Capital expenditures were $2.31 billion, compared with $1.78 billion, resulting in negative operating cash flow after capital expenditures of approximately $649 million.
Cash and cash equivalents were $247 million at March 31, 2022, including $199 million at the Utility. Total reported liquidity was approximately $2.4 billion, consisting of approximately $247 million of cash and $2.2 billion of revolving-facility availability.
PG&E Corporation reported approximately $45.5 billion of short-term, current, and noncurrent debt based on the balance-sheet categories presented. The Utility reported approximately $40.9 billion on the same basis. The Utility’s debt figures exclude certain PG&E Corporation-level obligations.
As of March 31, 2022, PG&E Corporation’s total assets were $103.9 billion and total equity was $21.6 billion.

Material changes versus the prior comparable period

Revenue impacting earnings increased $586 million, or 18%, primarily from approximately $310 million of revenue recognized under the 2018 CEMA settlement, higher 2020 GRC base revenues, and higher FERC formula-rate revenues.
Operating and maintenance expense increased $774 million at PG&E Corporation, primarily reflecting approximately $310 million of previously deferred expenses recognized under the 2018 CEMA settlement, approximately $85 million related to the Kincade SED settlement, and approximately $55 million related to Kincade and Dixie stipulations.
There were no comparable wildfire-related claims charges in Q1 2022. Q1 2021 included $175 million related to the Kincade fire and $25 million related to the Zogg fire, partially offset by $28 million of probable insurance recoveries.
Depreciation, amortization, and decommissioning expense increased 9% to $972 million, reflecting capital additions and higher nuclear decommissioning expense.
Income tax benefit increased to $204 million from $98 million, including a $135 million tax benefit associated with the Fire Victim Trust’s sale of 40 million PG&E Corporation shares.
Operating cash flow benefited from lower accounts receivable following a California Arrearage Payment Program payment received in January 2022. Cash flow also included a $592 million payment to the Fire Victim Trust, compared with $758 million in Q1 2021.
Net cash used in investing activities increased by $534 million because of higher capital expenditures, including system hardening and emergency-response work.

Debt, liquidity, dividends, and financing

On February 18, 2022, the Utility issued $2.4 billion of First Mortgage Bonds with maturities from 2024 through 2052 and coupons ranging from 3.25% to 5.25%. Proceeds were used partly to prepay $1.0 billion of term loans and for general corporate purposes.
The Utility prepaid the remaining $298 million under its 2020 term loan on March 31, 2022, terminating that agreement.
As of March 31, 2022, PG&E Corporation had $500 million available under its revolving facility, while the Utility had $1.7 billion available under its $4.0 billion revolving facility. The Utility’s $1.0 billion receivables securitization facility was fully drawn.
After quarter-end, the Utility borrowed $500 million under a 364-day term loan on April 4 and $525 million under additional term loans on April 20. The receivables securitization facility was amended to permit a potential increase of up to $500 million, subject to conditions.
The $400 million PG&E Corporation at-the-market equity program remained fully available; no shares were sold during the quarter.
Common-stock dividends remained suspended. The Utility authorized payment of $59.1 million of cumulative unpaid preferred dividends and declared an additional $3.5 million preferred dividend. The timing of any common-stock dividend resumption remains uncertain.

Guidance, outlook, management commentary, and unusual items

The Utility estimated 2022 capital expenditures of $7.8 billion to $8.9 billion and 2023 capital expenditures of $7.9 billion to $10.4 billion.
The amended 2023 General Rate Case request seeks $15.34 billion of 2023 revenue requirements, a proposed rate base of approximately $49.18 billion, and average annual capital investment of approximately $9.61 billion from 2023 through 2026. The request includes an initial proposal to underground 10,000 miles of high-fire-risk distribution lines. Regulatory approval remains pending.
The 2018 CEMA settlement authorized $683 million plus interest, with the remaining amount expected to be amortized beginning June 1, 2022.
The CPUC’s financing order authorizing up to $7.5 billion of recovery bonds for 2017 wildfire costs became final and non-appealable on February 28, 2022. Timing, market capacity, and the amount ultimately issued remain uncertain.
The Utility applied to securitize up to $1.7 billion of wildfire-mitigation capital expenditures under a second AB 1054 transaction.
As of March 31, 2022, approximately $4.7 billion of costs in memorandum and balancing accounts were not yet being recovered through existing revenue requirements. Recovery depends on CPUC approval and may be delayed or denied.

Wildfire, regulatory, and other risks

Recorded wildfire liabilities before recoveries were $800 million for the 2019 Kincade fire, $375 million for the 2020 Zogg fire, and $1.15 billion for the 2021 Dixie fire. These amounts represent the lower end of reasonably estimable probable losses and exclude some potential damages, penalties, restitution, suppression costs, and other claims.
Recorded wildfire-related receivables included $430 million of Kincade insurance, $338 million of Zogg insurance, and $562 million of Dixie insurance. Dixie also included $102 million of probable FERC recovery, $350 million of WEMA recovery, and $150 million of Wildfire Fund recovery. Ultimate recoverability and timing are uncertain.
The Zogg criminal proceeding could result in material fines, penalties, and restitution. Management stated that losses could materially exceed the $375 million recorded liability and that the amount of additional loss could not be reasonably estimated.
The Utility remained in step 1 of the CPUC’s Enhanced Oversight and Enforcement Process because of insufficient progress toward certain safety and risk-driven investments. Missed inspections and other wildfire-mitigation reporting issues could result in additional penalties or regulatory action.
The 2022 safety certification was issued by OEIS on January 31, 2022 and is important to continued participation in the Wildfire Fund. The fund could be depleted faster than expected, and coverage is subject to statutory conditions and limitations.
The Utility’s insurance program remains expensive and subject to self-insured retentions and coverage limitations. In April 2022, it purchased approximately $340 million of wildfire coverage for approximately $263 million and expects to renew approximately $600 million of existing wildfire coverage at an estimated cost of $516 million.
Other significant exposures include regulatory refunds, the pending 2022 cost-of-capital proceeding, environmental remediation, cybersecurity and privacy risks, commodity prices, substantial purchase commitments, and unresolved bankruptcy-related securities claims. The filing states that losses related to wildfire securities claims were probable but not reasonably estimable; therefore, no liability was recorded.

Most important facts for investors to verify

Whether recorded wildfire recoveries, including insurance, WEMA, FERC, and Wildfire Fund amounts, are ultimately collected in full and on schedule.
The outcome of the Zogg criminal proceeding and the potential for restitution or penalties beyond the recorded liability.
CPUＣ decisions on the 2022 cost of capital, 2023 GRC, 2020 and 2021 WMCE applications, and approximately $4.7 billion of deferred cost-recovery balances.
The timing, pricing, and final amount of the authorized $7.5 billion post-emergence securitization and proposed $1.7 billion AB 1054 securitization.
Execution of the wildfire mitigation plan, inspection remediation, safety certification, and progress toward exiting enhanced regulatory oversight.
Liquidity after post-quarter-end borrowings, future capital expenditures, wildfire insurance premiums, and debt maturities.
Whether the Fire Victim Trust’s continuing share sales, unresolved bankruptcy claims, and tax attributes affect ownership dilution, tax benefits, or future common dividends.