PG&E Corp quarterly report, Q2 FY2021

PG&E Corporation Form 10-Q Summary

Business Context and Reporting Period

Combined quarterly report for PG&E Corporation, a holding company, and Pacific Gas and Electric Company, its regulated utility serving northern and central California. The filing covers the three and six months ended June 30, 2021, with comparisons to 2020. The companies emerged from Chapter 11 on July 1, 2020, making year-over-year comparisons unusually affected by restructuring and emergence-related items.

Key Financial Metrics

PG&E Corporation consolidated	Q2 2021	Q2 2020	Six months 2021	Six months 2020
Operating revenue	$5.215 billion	$4.533 billion	$9.931 billion	$8.839 billion
Operating income	$634 million	$282 million	$938 million	$937 million
Net income attributable to common shareholders	$397 million	$(1.972) billion	$517 million	$(1.601) billion
Diluted EPS	$0.18	$(3.73)	$0.24	$(3.03)
Net cash from operating activities	Not separately provided	Not separately provided	$1.230 billion	$3.291 billion

Revenue increased 15% in the quarter and 12% year to date, primarily from higher authorized base revenues under the 2020 general rate case and 2019 gas transmission and storage rate case. Consolidated operating margin was approximately 12.2% in Q2 2021 versus 6.2% in Q2 2020; the comparison reflects significant 2020 restructuring charges.

Electric revenue was $3.951 billion in Q2 and $7.346 billion year to date, versus $3.435 billion and $6.475 billion in the comparable periods.
Natural gas revenue was $1.264 billion in Q2 and $2.585 billion year to date, versus $1.098 billion and $2.364 billion.
Operating and maintenance expense rose to $2.583 billion in Q2 and $4.919 billion year to date, driven in part by vegetation management, residential uncollectibles, interim rate-relief costs and higher insurance costs.
Interest expense increased to $398 million in Q2 and $806 million year to date, primarily because of debt issued in connection with or after emergence from Chapter 11.
Reorganization expense was $11 million in Q2 and year to date, compared with $1.624 billion and $1.800 billion in 2020, including approximately $1.5 billion of 2020 backstop-related expense.

Liquidity, Capital Expenditures and Debt

At June 30, 2021, PG&E Corporation had $307 million of cash and the Utility had $233 million. Management reported approximately $3.2 billion of total liquidity, including $74 million of PG&E Corporation cash, $233 million of Utility cash and approximately $2.9 billion of credit-facility availability.
PG&E Corporation reported $2.119 billion of short-term borrowings, $4.514 billion of current long-term debt and $35.955 billion of noncurrent long-term debt. The Utility reported $2.119 billion of short-term borrowings, $4.488 billion of current long-term debt and $31.361 billion of noncurrent long-term debt.
Credit facilities had $3.170 billion of borrowings, $950 million of letters of credit and $2.880 billion of stated availability. The Utility’s revolving facility was increased to $4.0 billion and extended to June 2026.
The Utility issued $2.4 billion of first mortgage bonds in March 2021 and $800 million in June 2021. Proceeds were used primarily to refinance term and revolving debt and for general corporate purposes.
Capital expenditures were $3.620 billion in the first six months of 2021, compared with $3.399 billion in 2020. Management expects 2021 capital expenditures of $7.5 billion to $8.5 billion and 2022 capital expenditures of $7.8 billion to $8.9 billion.
Net cash from operating activities declined to $1.230 billion from $3.291 billion, primarily because of the $758 million payment to the Fire Victim Trust and $595 million of interest paid, partly offset by higher collections and $581 million received from the transmission-tower license transaction.
Common and preferred dividends remained suspended, and the filing states that the timing of any resumption is uncertain.

Material Changes Versus the Prior Comparable Period

PG&E Corporation moved from a substantial loss to net income attributable to common shareholders of $397 million in Q2 and $517 million year to date. PG&E Corporation’s 2020 results included large bankruptcy-related equity and financing charges that did not recur in 2021.
The Utility generated $436 million of common-stock income in Q2 and $610 million year to date, versus a $477 million loss and $29 million loss in the comparable 2020 periods.
Wildfire-related expense, net of insurance recoveries, was a $5 million benefit in Q2 2021 versus $170 million of expense in Q2 2020. Year-to-date wildfire-related expense was $167 million versus $170 million.
Expected credit losses on trade and other receivables were $113 million in Q2 and $189 million year to date, compared with $44 million in the comparable 2020 periods. The customer receivables allowance increased to $304 million from $146 million at year-end 2020.
Regulatory balancing-account receivables increased to $2.759 billion from $2.001 billion at December 31, 2020, reflecting amounts awaiting recovery or refund determinations.
The Utility received $946 million at closing from the sale of wireless-license rights on transmission towers. Approximately $475 million was recorded as a regulatory liability expected to be returned to customers; other portions were recorded as financing and deferred-revenue obligations.

Guidance, Outlook, Risks and Unusual Items

The Utility filed its 2023 general rate case seeking $15.46 billion of 2023 revenue requirements, $3.56 billion above currently authorized 2022 requirements, and approximately $48.52 billion of weighted-average 2023 rate base. The filing requests average annual capital investments of approximately $7.75 billion from 2023 through 2026 and approximately $31 billion of safety, resiliency and clean-energy investments over that period. These are proposals, not approved guidance.
The CPUC authorized up to approximately $1.2 billion of recovery bonds for fire-risk mitigation capital expenditures; the financing order became final and non-appealable on July 6, 2021.
The Utility continues to seek approval for a rate-neutral securitization of $7.5 billion of 2017 wildfire costs. Rehearing applications remained pending as of the filing date.
For the 2019 Kincade fire, the company recorded an aggregate liability of $800 million before insurance, including a $175 million 2021 charge, and an insurance receivable of $430 million. The company states that additional losses, including criminal restitution, could materially exceed the recorded amount and cannot be reasonably estimated.
For the 2020 Zogg fire, the company recorded an aggregate liability of $375 million before insurance, including a $75 million Q2 charge, and an insurance receivable of $327 million. Additional losses above the recorded amount are reasonably possible but not estimable.
The 2021 Dixie fire began in July 2021, after quarter-end. Management believes a loss is probable but cannot estimate the amount or range. The cause remained under investigation, and potential liability could materially exceed insurance or Wildfire Fund coverage.
The Utility remained in step 1 of the CPUC’s Enhanced Oversight and Enforcement Process after the CPUC found insufficient progress in risk-based vegetation management. The Utility also disclosed missed inspections and incomplete records involving approximately 55,000 poles in 2020, creating possible enforcement, penalty and safety-certification risks.
COVID-19-related customer protections and disconnection moratoria continued to pressure collections. Customer energy accounts receivable more than 30 days past due were approximately $998 million at June 30, 2021, $507 million higher than a year earlier. A $39 million COVID-19 regulatory asset was recorded, subject to CPUC review.
The company recorded $1.625 billion of wildfire-related costs as permanently disallowed under a CPUC settlement and expects an additional $198 million of disallowed costs to be recorded, with $7 million expected by year-end 2021.
The Utility’s 2021 wildfire liability insurance included approximately $268 million of new coverage and $32 million of reinsurance, while approximately $600 million of existing coverage was scheduled to renew on August 1, 2021 at an estimated $516 million premium.
The Fire Victim Trust share-exchange and tax agreement executed July 8, 2021 is expected to reduce reported net operating losses by approximately $10 billion and produce a $1.3 billion net-of-tax charge to deferred tax assets in the quarter ending September 30, 2021.

Most Important Facts for Investors to Verify

Whether the Kincade, Zogg and Dixie fire liabilities, insurance recoveries and any Wildfire Fund claims remain within recorded estimates and available coverage.
The final outcomes and timing of the $7.5 billion wildfire securitization and the approximately $1.2 billion fire-mitigation securitization.
CPUC decisions on the 2023 general rate case, WMCE cost recovery, wildfire-related balancing accounts and the Utility’s step 1 corrective-action plan.
Actual capital expenditures, operating cash generation and refinancing needs relative to the stated 2021 and 2022 capital-expenditure ranges.
The impact of customer arrearages, disconnection protections and the implementation of California’s arrearage-assistance legislation.
The September 30, 2021 Form 10-Q accounting impact of the Fire Victim Trust grantor-trust election and related share ownership restrictions.
Whether dividends remain suspended and whether credit ratings, insurance costs or collateral requirements change.