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. This combined, unaudited Form 10-Q covers the three and nine months ended September 30, 2020. PG&E Corporation and the Utility emerged from Chapter 11 on July 1, 2020, a material change affecting comparability with 2019 results.
Financial Highlights
| PG&E Corporation consolidated | Q3 2020 | Q3 2019 | 9M 2020 | 9M 2019 |
|---|---|---|---|---|
| Operating revenues | $4.882 billion | $4.432 billion | $13.721 billion | $12.386 billion |
| Operating income (loss) | $398 million | $(2.300) billion | $1.335 billion | $(5.751) billion |
| Net income (loss) | $86 million | $(1.616) billion | $(1.508) billion | $(4.029) billion |
| Income (loss) attributable to common shareholders | $83 million | $(1.619) billion | $(1.518) billion | $(4.039) billion |
| Basic EPS | $0.04 | $(3.06) | $(1.50) | $(7.65) |
| Operating margin | 8.2% | (51.9%) | 9.7% | (46.4%) |
Revenue increased 10% in the quarter and 11% year to date, primarily reflecting higher authorized revenue requirements, including transmission rate-case revenues and recovery of certain capital expenditures. The filing does not provide a single consolidated adjusted EBITDA measure.
- Cash flow: Nine-month operating cash flow was $(19.219) billion, compared with $4.067 billion provided in 2019. The decline primarily reflected approximately $18.8 billion of wildfire-related claim payments and $5.0 billion contributed to the Wildfire Fund.
- Investing: Nine-month capital expenditures were $5.475 billion, compared with $4.192 billion in 2019. Management estimated approximately $7.5 billion of 2020 capital expenditures and $7.6 billion to $8.2 billion in 2021.
- Liquidity: At September 30, PG&E Corporation had $464 million of cash and $215 million of restricted cash. Management reported approximately $2.6 billion of total liquidity, including approximately $2.2 billion of credit-facility availability. A subsequent October 5 receivables securitization provided up to $1.0 billion of additional financing; by October 27, the Utility had drawn the full $1.0 billion.
- Debt: Consolidated long-term debt was $36.311 billion, versus no long-term debt shown at December 31, 2019 because pre-petition obligations were subject to compromise. PG&E Corporation reported approximately $4.75 billion of debt and the Utility approximately $31.8 billion. Utility credit facilities had $2.208 billion of stated availability at September 30, including $1.708 billion under the revolving facility after borrowings and letters of credit.
- Balance sheet: Total assets were $95.587 billion and total equity was $21.064 billion. Liabilities subject to compromise declined from $50.546 billion at December 31, 2019 to zero following emergence and implementation of the Plan.
- Credit quality: Following emergence, the companies were rated below investment grade at the issuer level by Moody’s, Fitch, and S&P, although certain Utility secured debt ratings were investment grade.
Material Changes Versus the Prior Comparable Period
- Q3 2020 included only $25 million of wildfire-related claims expense, compared with $2.548 billion in Q3 2019. Nine-month 2020 wildfire-related expense was $195 million, net of insurance recoveries, compared with $6.448 billion in 2019.
- Interest expense rose to $391 million in Q3 and $844 million for nine months, from $52 million and $215 million, respectively, primarily because interest accruals resumed and new emergence debt was issued.
- PG&E Corporation recorded $1.937 billion of reorganization items in the first nine months of 2020, including approximately $1.5 billion of backstop commitment premium and bridge-loan-related expense. The corresponding 2019 amount was $256 million.
- PG&E Corporation raised approximately $9.0 billion of gross equity proceeds in connection with emergence. Shares outstanding increased to approximately 1.985 billion at September 30, 2020 from approximately 529 million at December 31, 2019, materially affecting per-share comparability.
- The Utility recorded $293 million of Wildfire Fund expense in the first nine months, including $120 million in Q3, with no comparable 2019 expense. Initial and first annual contributions totaled approximately $5.0 billion; nine annual contributions of approximately $193 million remain.
- The Utility’s nine-month net income was $148 million, compared with a $4.027 billion net loss in 2019. Utility income attributable to common stock was $138 million versus a $4.037 billion loss.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Kincade fire: Cal Fire determined that the 2019 Kincade fire was caused by PG&E transmission lines. The companies accrued $625 million of probable losses before insurance, representing the low end of the reasonably estimable range, and recorded a $430 million insurance receivable. Potential additional losses, penalties, fines, punitive damages, and regulatory consequences remain uncertain.
- Zogg fire: The cause of the September 2020 Zogg fire remained under investigation. Management considered a loss reasonably possible but could not estimate an amount or range. Cal Fire and the Shasta County District Attorney were investigating.
- Wildfire exposure: Renewed wildfire insurance totaled approximately $867.5 million for the 2020–2021 period, subject to a $60 million initial self-insured retention and coverage limitations. Wildfire Fund recovery is subject to statutory thresholds, funding availability, safety-certification requirements, and a 40% limitation for certain pre-emergence claims.
- Regulatory recovery: Regulatory assets included $1.08 billion for the Wildfire Mitigation Plan, $419 million for wildfire insurance expense, $259 million for fire-hazard prevention, $99 million for fire-risk mitigation, and $53 million for COVID-19 protections. Recovery remains subject to CPUC review and approval.
- Rate cases: A proposed decision in the 2020 GRC would authorize 2020 revenue requirements of $9.102 billion, with additional proposed increases of $339 million in 2021 and $344 million in 2022. The proposed decision also reduced certain wildfire-mitigation capital forecasts. Final CPUC approval was pending at the filing date.
- Wildfire securitization: The Utility sought approval to securitize $7.5 billion of 2017 wildfire costs, retire $6.0 billion of Utility debt, and accelerate a $700 million payment to the Fire Victim Trust. The outcome and timing were uncertain.
- COVID-19: Customer receivables more than 30 days outstanding reached approximately $696 million, $310 million above the comparable 2019 level. Management estimated weather-adjusted electric and core-gas load reductions of approximately 3%, with an estimated $350 million reduction in billed revenues from mid-March through early October. Cost recovery and collection trends remained uncertain.
- Dividends: Common dividends remained suspended. PG&E Corporation may not pay common dividends until it recognizes $6.2 billion of post-emergence non-GAAP core earnings, in addition to other probation, regulatory, debt, and preferred-dividend restrictions.
- Other contingencies: The companies remained subject to federal probation and monitoring, CPUC and FERC proceedings, securities litigation, environmental remediation liabilities of $1.325 billion, and potential appeals of the Chapter 11 Confirmation Order.
- Unusual subsequent event: On October 23, 2020, the Utility entered into a long-term Oakland headquarters lease beginning in or about January 2022, with an option to purchase the property for approximately $892 million, subject to adjustments and conditions.
Most Important Facts for Investors to Verify
- Final outcomes and cash requirements for the Kincade fire, Zogg fire, future wildfires, insurance recoveries, and Wildfire Fund eligibility.
- Approval and implementation of the $7.5 billion wildfire securitization and the timing of the related debt retirement and Fire Victim Trust payment.
- CPUС and FERC decisions affecting the 2020 GRC, wildfire-mitigation cost recovery, transmission rates, and regulatory assets.
- Actual cash collections, bad-debt trends, load levels, and recoverability of COVID-19-related costs.
- Debt maturities, variable-rate exposure, refinancing needs, credit ratings, collateral requirements, and availability under credit facilities.
- Potential dilution from unresolved HoldCo securities claims, Fire Victim Trust ownership adjustments, equity-unit settlements, and future stock sales.
- Compliance with probation, safety-certification, wildfire-mitigation, and vegetation-management requirements, including the effect of any sanctions or enhanced oversight.
- The tax treatment of the Fire Victim Trust and whether PG&E Corporation preserves the stated federal and state net operating loss carryforwards without Section 382 limitations.