PG&E Corp Form 8-K Summary
Business Context and Reporting Period
This Current Report on Form 8-K, dated August 1, 2019, concerns PG&E Corporation and its subsidiary, Pacific Gas and Electric Company (the "Utility"). The filing addresses a supplemental cost of capital proceeding before the California Public Utilities Commission (CPUC) for the 2020 rate base, following the enactment of California Assembly Bill 1054 (AB 1054) and the Utility's election to participate in the resulting Wildfire Fund.
Key Financial Metrics and Capital Structure
The filing does not report revenue, profit, cash flow, or liquidity metrics. It focuses exclusively on the Utility's proposed capital structure and rates of return for 2020 compared to the 2019 authorized levels.
| Metric | 2019 Authorized | 2020 Requested (Revised) |
|---|---|---|
| Return on Common Equity | 10.25% | 12.00% |
| Preferred Stock Cost | 5.60% | 5.52% |
| Long-term Debt Cost | 4.89% | 5.16% |
| Weighted Average Cost of Capital (WACC) | 7.69% | 8.72% |
Material Changes
The Utility revised its requested rate of return on equity from an initial 16% down to 12% for 2020. This reduction reflects the expected mitigation of wildfire-related risks due to the Utility's participation in the Wildfire Fund established by AB 1054. Consequently, the requested Weighted Average Cost of Capital (WACC) increased from 7.69% to 8.72% due to the higher equity return, despite a slight decrease in the cost of preferred stock.
Outlook, Risks, and Contingencies
- Bankruptcy Proceedings: The Utility is currently in Chapter 11 bankruptcy. The estimated cost of debt for 2020 will be impacted by exit financing as part of the future reorganization plan.
- Regulatory Uncertainty: The Utility expects to file a new cost of capital application upon emerging from Chapter 11. The timing and outcome of the current CPUC proceeding are unpredictable.
- FERC Proceedings: This filing does not address the Utility's formula rate for electric transmission rates pending at the Federal Energy Regulatory Commission (FERC), where settlement negotiations are ongoing.
- Wildfire Fund Conditions: Participation in the Wildfire Fund is subject to specific conditions and limitations under AB 1054. Risks include the ability to satisfy eligibility conditions and the extent to which the fund mitigates wildfire liabilities.
Investor Verification Checklist
- Verify the final CPUC ruling on the 2020 cost of capital application and the approved rate of return on equity.
- Monitor the status of the Utility's Chapter 11 bankruptcy reorganization plan and the associated exit financing terms.
- Confirm the Utility's continued eligibility and compliance with the terms of the Wildfire Fund under AB 1054.
- Track the outcome of the separate FERC proceeding regarding electric transmission rates.