Business Context and Reporting Period
This Form 8-K, dated November 25, 2019, reports on a regulatory event concerning PG&E Corporation and its subsidiary, Pacific Gas and Electric Company (the "Utility"). The filing addresses a Proposed Decision (PD) issued by the California Public Utilities Commission (CPUC) regarding the Utility's 2020 Cost of Capital proceeding.
Key Financial Metrics and Regulatory Terms
The filing details the proposed cost of capital terms for the three-year period beginning January 1, 2020. Key metrics include:
- Return on Common Equity (ROE): Proposed at 10.25%, maintaining the current authorized rate.
- Capital Structure: Common equity maintained at 52.00%; preferred stock reduced from 1.00% to 0.50%; long-term debt increased from 47.00% to 47.50%.
- Weighted Average Cost of Capital (WACC): Proposed at 7.81%, an increase from the currently authorized 7.69%.
- Revenue Impact: The Utility estimates the 2020 revenue requirement would be approximately $30 million higher than currently authorized if the PD is adopted.
Material Changes Versus Prior Period
Compared to the Utility's request and the currently authorized 2019 rates:
- ROE Reduction: The PD maintains the ROE at 10.25%, rejecting the Utility's request for 12%.
- Wildfire Risk Premium: The PD explicitly states it will not authorize a specific wildfire risk premium, citing the passage of AB 1054 and other investor-supportive policies as mitigating factors.
- Cost of Capital Adjustment: The annual cost of capital adjustment mechanism starting in 2021 remains unchanged.
Outlook, Risks, and Contingencies
Regulatory Timeline: Comments on the PD are due December 13, 2019, with reply comments due December 17, 2019. A final decision is scheduled for December 19, 2019, with potential effective dates of January 1, 2020.
Bankruptcy Contingency: The PD does not address whether the Utility must submit a new cost of capital application following its emergence from Chapter 11 bankruptcy. This issue is deferred to a separate CPUC order investigating bankruptcy-related matters.
Risk Factors: The filing highlights the regulatory risk regarding the denial of a wildfire risk premium and the uncertainty surrounding future cost of capital applications post-bankruptcy.
Investor Verification Checklist
- Verify the final CPUC decision on the 2020 Cost of Capital proceeding scheduled for December 19, 2019.
- Monitor the separate CPUC order regarding the requirement for a new cost of capital application post-Chapter 11 bankruptcy.
- Confirm the actual impact on the 2020 revenue requirement once the final decision is adopted.
- Review the joint Form 10-Q for the period ended September 30, 2019, for additional context on the cost of capital proceeding.