PG&E Corp quarterly report, Q1 FY2023

Business Context and Reporting Period

PG&E Corporation is the holding company for Pacific Gas and Electric Company, a regulated California electric and natural gas utility. The combined unaudited Form 10-Q covers the three months ended March 31, 2023, with comparison to March 31, 2022.

Key Financial Metrics

PG&E Corporation consolidated results	Q1 2023	Q1 2022	Change
Total operating revenues	$6.209 billion	$5.798 billion	+$411 million
Operating income	$629 million	$536 million	+$93 million
Net income	$572 million	$478 million	+$94 million
Income available to common shareholders	$569 million	$475 million	+$94 million
Diluted EPS	$0.27	$0.22	+$0.05
Net cash from operating activities	$1.185 billion	$1.661 billion	-$476 million

Electric revenue was $4.119 billion, down from $4.158 billion; natural gas revenue was $2.090 billion, up from $1.640 billion.
Operating expenses increased to $5.580 billion from $5.262 billion. Higher natural gas costs, SB 901 securitization charges, and depreciation were partly offset by lower operating and maintenance expense.
Interest expense increased to $602 million from $419 million, primarily due to additional long-term debt and higher variable-rate borrowing costs.
The effective tax rate was negative 104.9%, reflecting a large tax benefit associated principally with PG&E common stock sales by the Fire Victim Trust.
Utility net income was $626 million versus $530 million; income available for Utility common stock was $623 million versus $527 million.
Utility cash flow from operations was $1.262 billion, down from $1.732 billion, primarily due to higher winter-storm repair and restoration costs.
Capital expenditures were $2.288 billion in the quarter. Management estimates 2023 capital expenditures of $7.9 billion to $11.2 billion.

Liquidity, Debt and Capital Structure

At March 31, 2023, consolidated cash and cash equivalents were $1.028 billion, including $871 million at the Utility and $157 million at PG&E Corporation. Total liquidity was approximately $3.9 billion, including approximately $2.8 billion of revolving-credit availability.
The Utility had $2.328 billion available under its $4.4 billion revolving credit facility. PG&E Corporation had $500 million available under its $500 million facility. The receivables securitization program had $1.230 billion outstanding and no additional availability at quarter-end.
The Utility issued $750 million of 6.150% First Mortgage Bonds due 2033, $750 million of 6.750% First Mortgage Bonds due 2053, and $750 million of 6.70% First Mortgage Bonds due 2053. Proceeds were primarily used to repay revolving-credit borrowings.
Consolidated long-term debt was $48.508 billion, with $3.726 billion classified as current. PG&E Corporation had suspended common dividends, and the Confirmation Order prevents common dividends until $6.2 billion of post-emergence Non-GAAP Core Earnings is recognized.

Material Changes Versus the Prior Comparable Period

Revenue increased 7%, driven mainly by approximately $585 million of revenue recognized under the approved 2020 Wildfire Mitigation and Catastrophic Events proceeding, partially offset by the absence of approximately $310 million of 2018 CEMA revenue recognized in Q1 2022.
Operating and maintenance expense declined approximately 8%, primarily because Q1 2022 included approximately $310 million of previously deferred CEMA expenses and approximately $140 million of Kincade and Dixie-related settlement charges. Q1 2023 included approximately $422 million of previously deferred expenses recognized under the 2020 WMCE decision.
Q1 2023 included a $273 million net SB 901 securitization charge related to tax benefits from Fire Victim Trust share sales; there was no comparable charge in Q1 2022.
Natural gas costs increased to $916 million from $561 million, reflecting higher demand and prices. Electricity costs increased modestly to $522 million from $502 million, despite lower purchased-power costs, because of higher generation fuel costs.
Cash flow from operations declined materially, while financing cash flow increased to $1.423 billion from $638 million because of debt issuance and credit-facility activity.

Guidance, Outlook and Management Commentary

Management expects to fund 2023 capital requirements through internally generated funds and debt financing. PG&E Corporation does not plan to issue equity securities in 2023 or 2024, subject to liquidity, capital spending, interest rates, regulatory outcomes and other financing considerations.
The companies are pursuing approval to transfer non-nuclear generation assets to Pacific Generation and potentially sell a minority interest in that business. A proposed CPUC decision is expected by January 2024.
The Utility submitted its 2023-2025 Wildfire Mitigation Plan on March 27, 2023. Wildfire mitigation activities include enhanced powerline safety settings, public safety power shutoffs, vegetation management, inspections, system hardening and undergrounding.
The CPUC approved a $1.04 billion revenue requirement in the 2020 WMCE proceeding. A partial settlement in the 2021 WMCE proceeding would provide $720.7 million, excluding approximately $591.9 million of vegetation-management costs. The 2022 WMCE application seeks approximately $1.29 billion of revenue requirement, including $1.1 billion of interim rate relief.
The 2023 General Rate Case requests a $15.82 billion revenue requirement, with a decision scheduled for the third quarter of 2023. The Utility’s authorized 2023 return on equity is 10%, subject to pending rehearing matters.
The NRC approved an exemption allowing continued Diablo Canyon operations while the Utility pursues license renewal. California agencies determined that continued operation through 2030 is needed for reliability, subject to further approvals.

Risks, Contingencies and Unusual Items

Recorded wildfire liabilities before recoveries were $1.025 billion for the 2019 Kincade fire, $400 million for the 2020 Zogg fire, $1.175 billion for the 2021 Dixie fire and $100 million for the 2022 Mosquito fire. These amounts exclude certain potentially material penalties, punitive damages, restitution, fire-suppression costs and other claims that are not reasonably estimable.
Probable recoveries for the Dixie fire totaled $1.218 billion, including $529 million of insurance, $116 million through FERC transmission rates, $398 million through the WEMA and $175 million from the Wildfire Fund. Probable Mosquito fire recoveries totaled $109 million.
The Zogg criminal proceeding could result in fines, penalties and restitution materially exceeding recorded liabilities. The filing states that liability insurance is not expected to cover court-ordered restitution.
As of March 31, 2023, approximately $6.0 billion of wildfire, catastrophic-event and related costs had been recorded in memorandum and balancing accounts; approximately $5.5 billion was classified as long term and remains subject to regulatory recovery decisions.
OEIS found that the Utility did not substantially comply with its 2020 Wildfire Mitigation Plan. The Utility is challenging that finding in state court; potential CPUC penalties cannot currently be estimated.
Customer accounts receivable more than 30 days outstanding were approximately $1.1 billion, about $821 million above the December 31, 2019 level. The quarter included $139 million of expected credit-loss expense.
The Utility’s environmental remediation liability was $1.266 billion. Management identified reasonably possible additional undiscounted costs of up to $237 million at Topock, $126 million at Hinkley, $530 million at former manufactured-gas-plant sites, $52 million at other facilities and $50 million at fossil-fuel sites.
PG&E Corporation recorded a $300 million liability for wildfire-related securities claims, but the ultimate amount remains uncertain. Other significant matters include FERC transmission-rate refunds, post-petition bankruptcy interest claims, environmental proceedings and a potential $892 million purchase of the Lakeside Building.
The filing identifies substantial risks from future wildfires, regulatory disallowances, rate-case outcomes, high leverage, interest rates, credit ratings, commodity prices, customer affordability, cyber events, severe weather and the availability of insurance and Wildfire Fund recoveries.

Important Facts for Investors to Verify

Whether wildfire liabilities and related insurance, Wildfire Fund and regulatory recoveries will ultimately match recorded estimates.
The outcome of the Zogg criminal case and associated civil, regulatory and restitution exposure.
CPUC decisions on the 2021 and 2022 WMCE proceedings, the 2023 General Rate Case and recovery of approximately $5.5 billion of long-term memorandum-account costs.
The final consequences of the 2020 WMP noncompliance finding and other inspection, maintenance and safety self-reports.
Debt maturities, refinancing needs, variable-rate exposure and available liquidity, including the impact of credit-rating changes.
Progress and approvals for Diablo Canyon license renewal and the proposed Pacific Generation asset transfer and minority-interest sale.
The pace and pricing of Fire Victim Trust share sales, related tax benefits and the resulting SB 901 customer-credit obligations.