PG&E Corporation Form 10-Q Summary
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. The combined, unaudited Form 10-Q covers the quarter and nine months ended September 30, 2023, compared with the same periods in 2022.
Key financial metrics
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Operating revenue | $5.888 billion | $5.394 billion | $17.387 billion | $16.310 billion |
| Operating income | $401 million | $726 million | $1.536 billion | $1.707 billion |
| Net income | $351 million | $459 million | $1.333 billion | $1.297 billion |
| Income available to common shareholders | $348 million | $456 million | $1.323 billion | $1.287 billion |
| Diluted EPS | $0.16 | $0.21 | $0.62 | $0.60 |
| Net cash from operating activities | Not separately provided | Not separately provided | $4.270 billion | $2.712 billion |
| Capital expenditures | Not separately provided | Not separately provided | $7.101 billion | $7.411 billion |
Operating margins were approximately 6.8% in Q3 and 8.8% for the first nine months, versus approximately 13.5% and 10.5%, respectively, in the comparable 2022 periods. The margin compression primarily reflected higher operating and maintenance costs, SB 901 securitization charges, wildfire fund expense, and interest expense.
- At September 30, 2023, PG&E Corporation had $589 million of cash and cash equivalents, $373 million of restricted cash, $53.9 billion of total debt including current maturities, and $24.4 billion of total equity.
- Total available liquidity was approximately $4.4 billion, consisting of $265 million of Utility cash, $324 million of PG&E Corporation cash, and $3.8 billion of revolving credit availability.
- Credit facilities included $3.3 billion of availability under the Utility revolver and $500 million under the PG&E Corporation revolver. The receivables securitization program had $1.5 billion outstanding and no reported availability.
- The Utility generated $4.530 billion of operating cash flow, used $6.710 billion in investing activities, and generated $1.991 billion in financing activities during the first nine months.
- Management estimated 2023 capital expenditures of $7.9 billion to $11.2 billion. Average annual capital investment planned for the 2023–2026 GRC period is approximately $9.69 billion.
Material changes versus the prior comparable period
- Q3 operating revenue increased 9% to $5.888 billion, while nine-month revenue increased 7% to $17.387 billion, primarily due to authorized wildfire mitigation and catastrophic event recovery revenues and interim rate relief.
- Q3 operating income declined 45% and nine-month operating income declined 10%, primarily because operating and maintenance expense rose to $3.139 billion in Q3 and $8.252 billion for nine months.
- Interest expense increased 30% in Q3 and 42% for nine months, reflecting additional debt issuance and higher variable-rate borrowing costs.
- Net income increased modestly for nine months, despite lower operating income, because of larger tax benefits, including benefits associated with Fire Victim Trust share sales. The nine-month tax benefit was $1.099 billion versus $629 million in 2022.
- Fire Victim Trust sales of 180 million PG&E shares during the first nine months generated an $822 million tax benefit. Cumulative sales of 410 million shares through September 30 generated approximately $1.7 billion of recorded tax benefits.
- SB 901 securitization charges increased to $908 million for nine months from $40 million in 2022, including $908 million related to tax benefits realized from Fire Victim Trust share sales and $251 million of regulatory asset and liability amortization.
- The Utility’s operating cash flow increased $1.590 billion, mainly because 2022 included $778 million of wildfire insurance premium payments and a $592 million payment to the Fire Victim Trust that did not recur in 2023.
- The Utility issued $4.5 billion of First Mortgage Bonds during 2023, primarily to repay revolving credit borrowings and maturing debt. PG&E Corporation’s common stock dividend remains suspended.
Guidance, outlook, commentary, risks and unusual items
- Management expects to fund 2023 capital requirements through internally generated funds and debt financing. PG&E Corporation stated it does not plan to issue equity securities in 2023 or 2024, while pursuing a potential minority-interest sale in Pacific Generation.
- The Utility filed for a cost-of-capital adjustment that would increase authorized ROE from 10.0% to 10.7% and long-term debt cost from 4.31% to 4.66%; the outcome was not determined in the filing.
- The 2023 GRC proposed decisions would authorize revenue requirements below the Utility’s request. The filing reported an APD revenue requirement of $13.31 billion for 2023 versus a $15.41 billion request, with a final CPUC decision expected in the fourth quarter of 2023.
- The Utility had approximately $5.8 billion recorded in wildfire and other memorandum or balancing accounts at September 30, 2023. Approximately $1.7 billion was authorized for recovery and $4.1 billion was classified as long term; recovery of the remaining amounts remains subject to regulatory approval.
- Wildfire liabilities recorded before recoveries were $1.025 billion for the 2019 Kincade fire, $400 million for the 2020 Zogg fire, $1.6 billion for the 2021 Dixie fire, and $100 million for the 2022 Mosquito fire.
- The Utility recorded a $425 million third-quarter charge for additional probable Dixie fire losses. Probable recoveries for the Dixie fire totaled $1.669 billion, including $527 million of insurance, $600 million from the Wildfire Fund, and $542 million through FERC rates and the WEMA.
- Wildfire recoveries depend on insurance, regulatory approval, the AB 1054 prudency standard, and the availability of the Wildfire Fund. The Utility has transitioned to rate-funded wildfire self-insurance, targeting $1.0 billion of unimpaired coverage.
- Key ongoing risks include future wildfires, regulatory disallowances, litigation, enforcement actions, customer arrearages, high debt and interest rates, credit-rating-related collateral requirements, environmental remediation, cybersecurity, commodity prices, and access to capital markets.
- Accounts receivable more than 30 days outstanding were approximately $1.0 billion, $107 million below December 31, 2022 but $783 million above December 31, 2019. The Utility also recorded approximately $450 million of 2023 residential under-collections expected to be recovered in 2024.
- Environmental remediation liabilities totaled $1.367 billion, including $282 million for Topock, $106 million for Hinkley, and $837 million for former manufactured gas plant sites. The filing identified additional reasonably possible future costs across these sites.
- Diablo Canyon operations may continue through no later than 2030, subject to NRC license renewal and other approvals. The Utility reported conditional DOE support of approximately $1.1 billion and DWR-related funding arrangements for the extension.
Most important facts for investors to verify
- Final outcomes of the 2023 GRC, cost-of-capital adjustment, WGSC and WMCE proceedings, including the amount and timing of recoveries and potential refunds.
- Ultimate Dixie, Zogg, Kincade and Mosquito fire liabilities, insurance collections, Wildfire Fund recoveries, and regulatory cost recovery.
- Whether wildfire mitigation compliance findings, self-reported inspection issues, or enforcement actions result in material penalties or disallowances.
- PG&E’s debt maturity profile, refinancing costs, credit ratings, collateral requirements, and available revolving liquidity.
- Progress and approved terms of the proposed third AB 1054 securitization and any minority-interest transaction involving Pacific Generation.
- Actual 2023 capital expenditures relative to the $7.9 billion–$11.2 billion estimate and the effect of spending on leverage and cash flow.
- Future Fire Victim Trust share sales, related tax benefits, SB 901 customer-credit obligations, and potential dilution from outstanding equity-related claims or instruments.