PG&E Corporation 10-Q Summary
Business context and reporting period
Combined unaudited Form 10-Q for PG&E Corporation and Pacific Gas and Electric Company for the quarter and nine months ended September 30, 2021. PG&E Corporation is the holding company; the Utility provides regulated electricity and natural gas service in northern and central California under CPUC, FERC, and NRC oversight. The companies emerged from Chapter 11 on July 1, 2020.
Key financial metrics
| PG&E Corporation consolidated | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Total operating revenue | $5.465 billion | $4.882 billion | $15.396 billion | $13.721 billion |
| Operating income | $304 million | $398 million | $1.242 billion | $1.335 billion |
| Operating margin | 5.6% | 8.2% | 8.1% | 9.7% |
| Net income (loss) | $(1.088) billion | $86 million | $(564) million | $(1.508) billion |
| Loss attributable to common shareholders | $(1.091) billion | $83 million | $(574) million | $(1.518) billion |
| Basic EPS | $(0.55) | $0.04 | $(0.29) | $(1.50) |
| Operating cash flow | Not separately provided for quarter | Not separately provided for quarter | $2.053 billion | $(19.219) billion |
| Capital expenditures | Not separately provided for quarter | Not separately provided for quarter | $5.468 billion | $5.475 billion |
Electric revenue increased 12% in the quarter and 12% year to date; natural gas revenue increased 20% in the quarter and 13% year to date. Operating and maintenance expense increased to $2.795 billion in the quarter and $7.714 billion year to date. Interest expense was $399 million in the quarter and $1.205 billion year to date.
At September 30, 2021, PG&E Corporation had cash and cash equivalents of $420 million, total assets of $103.561 billion, total debt of approximately $42.947 billion, and total equity of $20.727 billion. Utility cash was $269 million, and Utility debt was approximately $38.327 billion. Combined liquidity was approximately $3.3 billion, including $2.9 billion of credit-facility availability.
PG&E Corporation’s nine-month operating cash flow was positive primarily because 2020 included $16.8 billion of wildfire-claim payments and approximately $5.0 billion of contributions to the Wildfire Fund. Financing cash flow was $2.429 billion, while cash, cash equivalents, and restricted cash declined by $196 million from year-end 2020 to $431 million.
Material changes versus the prior comparable period
- Revenue growth was more than offset at the operating-income level by higher operating and maintenance costs, wildfire-related costs, Wildfire Fund expense, and higher interest expense.
- Third-quarter and year-to-date net losses included a $1.3 billion after-tax charge associated with the grantor-trust election for the Fire Victim Trust. The filing states that the charge reduced deferred tax assets and had no comparable 2020 item.
- Reorganization expense declined materially following emergence from Chapter 11. Consolidated reorganization items were $11 million in the first nine months of 2021 versus $1.937 billion in the first nine months of 2020.
- Operating cash flow improved by $21.272 billion year to date, primarily because of the absence of 2020 bankruptcy-related wildfire payments and Wildfire Fund contributions.
- The Utility sold its San Francisco General Office complex for net cash proceeds of $749 million. A $422 million pretax gain was recorded as a regulatory liability for return to customers over five years beginning in 2022.
- The Utility issued $3.2 billion of first mortgage bonds during 2021, including $2.4 billion in March and $800 million in June, primarily to refinance credit-facility borrowings and for general corporate purposes.
- PG&E Corporation established a $400 million at-the-market equity program but sold no shares under the program through September 30, 2021.
Wildfire, regulatory, outlook, and other unusual items
- The company accrued probable wildfire liabilities of $800 million for the 2019 Kincade fire, $375 million for the 2020 Zogg fire, and $1.15 billion for the 2021 Dixie fire. These represent the lower end of reasonably estimable ranges and exclude certain potentially significant damages, penalties, fines, restitution, and other items that cannot yet be estimated.
- For the Dixie fire, recorded probable recoveries totaled $1.156 billion: $569 million of insurance, $98 million through FERC transmission rates, $339 million through WEMA, and $150 million from the Wildfire Fund. Recovery is not assured and the fire’s cause remained under investigation.
- The Kincade and Zogg fires are subject to criminal complaints against the Utility. Convictions could result in fines, penalties, restitution, and additional oversight; the company does not expect liability insurance to cover court-ordered restitution.
- The Utility remained in step 1 of the CPUC’s Enhanced Oversight and Enforcement Process because of insufficient progress in risk-driven vegetation-management investments. The CPUC staff also planned a fact-finding review of missed inspections and other self-reported safety incidents.
- The Utility’s 2021 Wildfire Mitigation Plan was approved by OEIS and ratified by the CPUC. Nevertheless, the Utility reported missed inspections, including approximately 55,000 poles in 2020 for which required inspections were not performed or records could not be located.
- The Utility requested approximately $1.47 billion of revenue requirements in its 2021 WMCE application and proposed recovery of $1.04 billion under a settlement for the 2020 WMCE application. These proceedings remain subject to regulatory review and potential disallowance.
- The 2023 general rate case requests $15.46 billion of 2023 revenue requirements, $3.56 billion above comparable 2022 authorized amounts. The Utility also proposes average annual capital investment of approximately $7.75 billion from 2023 through 2026.
- Management estimates 2021 capital expenditures of $7.5 billion to $8.5 billion and 2022 capital expenditures of $7.8 billion to $8.9 billion. The filing does not provide formal earnings guidance.
- The Utility’s credit ratings remained below investment grade, and certain commodity contracts require collateral support tied to credit ratings. The Utility stated that it had satisfied or otherwise addressed the related obligations at September 30, 2021.
- Dividends on common stock and the Utility’s preferred stock remained suspended. PG&E Corporation is restricted from paying common dividends until it recognizes $6.2 billion of post-emergence Non-GAAP Core earnings, subject to applicable restrictions.
- COVID-19 continued to affect collections and customer receivables. Utility accounts receivable more than 30 days past due were approximately $935 million, $666 million higher than at September 30, 2019. Approximately $250 million of residential undercollections was recorded in the Residential Uncollectibles Balancing Account.
Most important facts for an investor to verify
- Whether wildfire liabilities and recoveries, particularly for the Dixie fire, change as investigations, litigation, insurance claims, and Wildfire Fund proceedings develop.
- The outcome of the Kincade and Zogg criminal proceedings and any resulting restitution, penalties, or additional oversight requirements.
- Whether the Utility receives timely and full recovery of its approximately $4.4 billion of wildfire and other memorandum- and balancing-account costs.
- The final terms, timing, and litigation risk surrounding the proposed $7.5 billion wildfire-cost securitization and up to approximately $1.2 billion of fire-mitigation securitization.
- Liquidity, refinancing requirements, and maturities, including the $184 million term-loan tranche due January 1, 2022 and the $1.3 billion tranche extended to October 1, 2022.
- Progress on missed inspections, vegetation management, safety certification, and the CPUC’s Enhanced Oversight and Enforcement Process.
- The impact of the Fire Victim Trust’s potential share sales, including dilution, tax benefits, ownership restrictions, and market overhang.
- Whether the requested 2023 general rate case revenue requirements and capital-investment recovery are approved as proposed.