PG&E Corporation 2019 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2019; the filing also provides unaudited fourth-quarter data. The report covers PG&E Corporation, a holding company, and its wholly owned regulated utility, Pacific Gas and Electric Company, serving northern and central California.
Business Context and Reporting Period
- PG&E Corporation and the Utility filed voluntary Chapter 11 petitions on January 29, 2019 and operated as debtors-in-possession throughout 2019.
- The Utility provides regulated electric generation, transmission and distribution, and natural gas transportation, storage, distribution and procurement services.
- Management and Deloitte identified substantial doubt regarding the companies’ ability to continue as going concerns because of wildfire liabilities and bankruptcy uncertainty. The financial statements nevertheless use going-concern accounting and contain no adjustments for potential bankruptcy outcomes.
- The Utility had approximately 5.5 million electric customers and 4.5 million natural gas customers on average during 2019, and approximately 23,000 employees at year-end.
Financial Performance and Key Metrics
| PG&E Corporation consolidated results | 2019 | 2018 | Change |
|---|
| Operating revenues | $17.129 billion | $16.759 billion | +2% |
| Operating income (loss) | $(10.094) billion | $(9.700) billion | Worse by $394 million |
| Net income (loss) | $(7.642) billion | $(6.837) billion | Worse by $805 million |
| Loss available to common shareholders | $(7.656) billion | $(6.851) billion | Worse by $805 million |
| Diluted EPS | $(14.50) | $(13.25) | Lower by $1.25 |
| Total assets at year-end | $85.196 billion | $76.995 billion | +$8.201 billion |
- Electric operating revenue was $12.740 billion, broadly unchanged from 2018. Natural gas operating revenue increased to $4.389 billion from $4.047 billion.
- Operating expenses were $27.223 billion, including $11.435 billion of wildfire-related claims net of insurance recoveries, $8.725 billion of operating and maintenance expense, and $3.234 billion of depreciation, amortization and decommissioning.
- The 2019 effective tax rate was approximately 30.8%, and the income tax benefit was $3.400 billion.
- Fourth-quarter 2019 revenue was $4.743 billion, operating loss was $4.343 billion, net loss was $3.613 billion, and diluted loss per share was $6.84. The quarter included a $5.0 billion wildfire-related claims charge and an $86 million customer credit related to the October 2019 Public Safety Power Shutoff event.
Cash Flow and Liquidity
| Utility cash flows | 2019 | 2018 |
|---|
| Operating cash flow | $4.810 billion | $4.704 billion |
| Investing cash flow | $(6.378) billion | $(6.564) billion |
| Financing cash flow | $1.395 billion | $2.708 billion |
| Year-end cash and equivalents | $1.122 billion | $1.295 billion |
- Utility capital expenditures were $6.313 billion in 2019; management estimated approximately $7.6 billion of 2020 capital expenditures.
- The $5.5 billion DIP facility consisted of a $3.5 billion revolving facility, a $1.5 billion initial term loan and a $500 million delayed-draw term loan. At December 31, 2019, $1.5 billion of term loans were outstanding, $663 million of letters of credit were outstanding and aggregate availability was $3.337 billion. The Utility subsequently borrowed the $500 million delayed-draw term loan on January 29, 2020.
- Pre-petition financing debt subject to compromise was $23.116 billion at PG&E Corporation consolidated level, and total liabilities subject to compromise were $50.546 billion.
- The DIP facilities mature December 31, 2020, subject to a potential extension to December 31, 2021 if specified conditions are met.
- Common and preferred dividends remained suspended. PG&E Corporation did not expect to pay common dividends for at least the next two years, subject to Board approval.
Material Changes Versus Prior Comparable Period
- Revenue increased modestly, but losses widened because 2019 included substantial wildfire claims, bankruptcy-related costs and higher safety and inspection spending.
- Wildfire-related claims, net of insurance recoveries, were $11.435 billion in 2019 versus $11.771 billion in 2018. The 2019 amount included a $5.0 billion fourth-quarter charge; total wildfire claims liabilities reached $25.5 billion at year-end.
- Operating and maintenance expense increased to $8.725 billion from $7.153 billion, primarily due to $773 million of enhanced and accelerated inspections and repairs, a $398 million Wildfires OII settlement charge and $237 million of disallowed capital expenditures in the 2019 gas transmission and storage rate case.
- Interest paid declined sharply because the bankruptcy automatic stay halted payments on pre-petition debt; the Utility paid $7 million of interest in 2019 versus $773 million in 2018.
- Cash from operations increased modestly, while investing cash outflows remained substantial. Financing cash flow declined because 2018 included significant revolving-credit borrowings.
- PG&E adopted the new lease standard in 2019, recording approximately $2.8 billion of operating lease right-of-use assets and liabilities, principally related to power purchase agreements.
Guidance, Outlook, Risks and Unusual Items
- Chapter 11 and proposed emergence: The Proposed Plan contemplated approximately $57.65 billion of emergence sources and uses, including $9.0 billion of cash equity, $6.75 billion of equity issued to the Fire Victim Trust, $28.525 billion of new or reinstated Utility debt, $4.75 billion of PG&E Corporation debt, $2.2 billion of insurance proceeds and $24.15 billion of fire claims paid at emergence. The plan was not approved as of the filing date.
- Wildfire settlements: The recorded $25.5 billion best estimate comprised $13.5 billion for fire victims and related claims, $11.0 billion for insurance subrogation claims and $1.0 billion for specified public entities. The amount could increase if settlement agreements terminate, claims are reclassified or governmental claims are not resolved as contemplated.
- Kincade fire: Management considered a loss reasonably possible but could not estimate a loss or range because investigations were preliminary. The fire involved 374 destroyed structures and 60 damaged structures according to the filing.
- AB 1054 Wildfire Fund: Participation required emergence from Chapter 11 and satisfaction of CPUC and other eligibility requirements by June 30, 2020. Expected Utility contributions were approximately $4.8 billion initially and $193 million annually. The Utility had not recorded these contributions at December 31, 2019.
- Wildfire mitigation: PG&E incurred approximately $2.6 billion under the 2019 Wildfire Mitigation Plan and expected approximately $2.6 billion in 2020. A proposed settlement would bar recovery of $1.625 billion of specified wildfire-related costs and require $50 million of shareholder-funded system enhancements, subject to approvals.
- Insurance: Wildfire liability coverage for August 2019 through July 2020 was $430 million, compared with approximately $1.4 billion for the prior policy period. Insurance costs for the broader August 2019–September 2020 period were approximately $212 million, versus approximately $50 million recovered in 2019 rates.
- Regulation and enforcement: The Utility remained subject to CPUC, FERC, federal court probation and third-party monitor oversight, including proceedings involving wildfire safety, vegetation management, PSPS events, gas locate-and-mark practices and corporate safety culture.
- Rate outlook: The proposed 2020 GRC settlement contemplated a $575 million increase in 2020 authorized revenue requirements, to approximately $9.1 billion, with additional increases of $318 million in 2021 and $367 million in 2022. Approval and final terms remained uncertain.
- Other long-term obligations: Contractual commitments totaled $71.328 billion, including $35.998 billion of power purchase agreements, $30.849 billion of long-term debt obligations including interest, and $1.377 billion of natural gas supply, transportation and storage commitments.
- Diablo Canyon: The two nuclear units remained scheduled for retirement in 2024 and 2025. The Utility reported $1.6 billion of unrecovered investment at December 31, 2019 and a recorded asset-retirement obligation of approximately $6 billion.
Most Important Facts for Investors to Verify
- Whether the Chapter 11 Proposed Plan was confirmed and implemented, including the final treatment of common equity, debt, wildfire claims and governance.
- Whether PG&E met the June 30, 2020 eligibility deadline for the AB 1054 Wildfire Fund and the ultimate amount and timing of required contributions.
- Whether the $25.5 billion wildfire liability and related settlement agreements remain sufficient, particularly regarding FEMA, OES, Cal Fire and other governmental claims.
- The final outcome and potential liability from the 2019 Kincade fire, PSPS litigation and related CPUC or criminal investigations.
- The amount of insurance recoveries actually collected and the extent of uninsured wildfire losses.
- CPUС and FERC decisions affecting recovery of wildfire mitigation, inspection, remediation, capital and other memorandum-account costs.
- The final 2020 GRC settlement, authorized return on equity, capital structure and post-emergence rate base.
- Post-bankruptcy leverage, refinancing terms, dilution from equity issuance and the availability of permanent financing.
- Potential additional costs from probation modifications, vegetation management, environmental remediation and Diablo Canyon decommissioning.
