PG&E Corp annual report, FY2023

PG&E Corporation 2023 Form 10-K Summary

Reporting period: Fiscal year ended December 31, 2023. The filing is a combined annual report for PG&E Corporation, a holding company, and its wholly owned operating subsidiary, Pacific Gas and Electric Company. The business provides regulated electric and natural gas generation, transmission, distribution, storage, and related services in Northern and Central California. The filing reports full-year results; it does not provide a separate Q4 income statement in the supplied text.

Financial Performance and Position

Metric	2023	2022	Change
PG&E Corporation operating revenues	$24.428 billion	$21.680 billion	+13%
PG&E Corporation net income	$2.256 billion	$1.814 billion	+24%
Income attributable to common shareholders	$2.242 billion	$1.800 billion	+25%
Basic EPS	$1.09	$0.91	+20%
Diluted EPS	$1.05	$0.84	+25%
Net cash provided by operating activities	$4.747 billion	$3.721 billion	+28%
Capital expenditures	$9.714 billion	$9.584 billion	+1%
Net cash used in investing activities	$9.162 billion	$10.214 billion	Lower use of cash
Net cash provided by financing activities	$4.400 billion	$7.133 billion	-38%

Utility results: Pacific Gas and Electric Company reported operating revenues of $24.428 billion, operating income of $2.682 billion, net income of $2.544 billion, and income attributable to common stock of $2.530 billion, compared with $2.226 billion in 2022.

Electric operating revenues were $17.424 billion versus $15.060 billion in 2022.
Natural gas operating revenues were $7.004 billion versus $6.620 billion in 2022.
Utility operating expenses increased to $21.746 billion from $19.759 billion, principally reflecting higher operating and maintenance expense, SB 901 securitization charges, and Wildfire Fund expense.
Interest expense increased to $2.485 billion from $1.658 billion at the Utility, primarily because of higher debt balances, higher variable interest rates, and interest on regulatory balancing accounts.
The Utility’s effective tax rate was negative 134.8%, reflecting significant tax benefits, including benefits associated with the Fire Victim Trust’s stock sales.

Margins and Balance Sheet

PG&E Corporation’s operating margin was approximately 10.9% in 2023 versus approximately 8.5% in 2022, based on reported operating revenues and operating income.
Total assets were $125.698 billion at December 31, 2023, compared with $118.644 billion at December 31, 2022.
PG&E Corporation consolidated long-term debt was $50.975 billion, including approximately $46.376 billion at the Utility and $4.599 billion at PG&E Corporation.
PG&E Corporation reported approximately $3.971 billion of short-term borrowings and $1.376 billion of current long-term debt.
Cash and cash equivalents were $635 million for PG&E Corporation and $442 million for the Utility.
Total reported liquidity was approximately $3.1 billion, consisting of cash and cash equivalents plus approximately $2.5 billion of revolving-credit availability. The Utility also had a fully utilized receivables securitization program with approximately $1.5 billion of borrowings.
PG&E Corporation and the Utility remained in compliance with their financial covenants at year-end. The Utility’s credit rating remained below investment grade.
Regulatory assets totaled approximately $23.1 billion and regulatory liabilities approximately $22.3 billion. Recovery or refund depends on future regulatory decisions and the continuing applicability of regulatory accounting.

Material Changes Versus 2022

Higher earnings: PG&E Corporation’s income attributable to common shareholders increased by $442 million. The 2022 results included wildfire-related securities claim charges that did not recur in 2023.
Higher regulated revenue: Revenue increased primarily because of the 2023 General Rate Case, wildfire mitigation and catastrophic-event recovery proceedings, interim rate relief, and FERC formula-rate adjustments. Most procurement and customer-program revenue increases are pass-through items and generally do not increase net income.
Higher operating costs: Utility operating and maintenance expense rose by approximately $2.2 billion, including recognition of previously deferred expenses authorized in the 2023 GRC and wildfire mitigation proceedings.
Higher securitization charges: SB 901 securitization charges increased to $1.267 billion from $608 million, primarily reflecting customer refunds associated with tax benefits realized from Fire Victim Trust stock sales.
Lower energy procurement costs: Cost of electricity decreased to $2.443 billion from $2.756 billion, while cost of natural gas decreased to $1.754 billion from $2.100 billion.
Wildfire charges and recoveries: The company recorded additional probable-loss charges of $100 million for the Kincade fire and $425 million for the Dixie fire. Total accrued wildfire liabilities before recoveries were $1.125 billion for Kincade, $400 million for Zogg, $1.6 billion for Dixie, and $100 million for Mosquito.
Debt refinancing: The Utility issued multiple First Mortgage Bond tranches, including approximately $4.8 billion of 2023 issuances, and PG&E Corporation issued $2.15 billion of 4.25% convertible senior secured notes due 2027. PG&E Corporation used the proceeds primarily to repay term debt.
Dividend reinstatement: PG&E Corporation reinstated its common dividend in November 2023 at approximately $0.01 per share, after the dividend suspension that began in 2017.
Capital investment: Total capital expenditures were $9.8 billion on an accrual basis. The Utility undergrounded 364 miles of electric distribution lines in 2023, nearly twice the 2022 amount.

Guidance, Outlook, Commentary, and Unusual Items

Management expects ongoing capital intensity, forecasting Utility capital expenditures of $10.4 billion in 2024, $12.7 billion in 2025, $11.5 billion in 2026, $13.6 billion in 2027, and $14.0 billion in 2028.
PG&E Corporation has committed to reducing consolidated debt by at least $2 billion by the end of 2026 and expects to improve credit metrics toward investment-grade ratings.
PG&E Corporation does not plan to issue equity in 2024 except for employee compensation purposes, but the companies are pursuing a potential minority-interest sale in Pacific Generation.
Management expects future capital expenditures, debt maturities, and common dividends to exceed operating cash flows, requiring continued access to debt and equity markets and credit facilities.
The Utility expects Diablo Canyon operations to continue through no later than 2030, subject to NRC and other required approvals. The NRC deemed the license-renewal application sufficient in December 2023, and the CPUC approved extended operations through October 2029 for Unit 1 and October 2030 for Unit 2.
The OEIS approved the 2023–2025 Wildfire Mitigation Plan, and the CPUC ratified it in February 2024. The Utility received a safety certification in January 2024.
The CPUC’s 2023 GRC authorized 2023 base revenue requirements of $13.52 billion, below the Utility’s $15.41 billion request, and authorized lower rate base amounts than requested through 2026.
The Utility had approximately $4.8 billion of costs recorded in wildfire, catastrophic-event, vegetation-management, and related memorandum or balancing accounts; approximately $1.2 billion was authorized for recovery and $3.6 billion remained classified as long term at year-end.
Self-insurance replaced commercial wildfire liability insurance beginning August 2023. Customer-funded self-insurance is expected to build toward $1.0 billion, subject to specified adjustments and deductibles.
Fire Victim Trust sales of PG&E Corporation stock generated a $1.2 billion tax benefit in 2023 and approximately $2 billion cumulatively through year-end. The associated tax benefits also increased customer refund obligations under SB 901.
Management reported no cybersecurity incidents during the last three years that materially affected business strategy, results of operations, or financial condition. Internal control over financial reporting was assessed as effective, and Deloitte issued unqualified audit opinions.

Principal Risks and Contingencies

Wildfire exposure: Future wildfires, inverse-condemnation claims, regulatory penalties, uninsured losses, and limits or exhaustion of the Wildfire Fund could materially affect earnings, liquidity, and cash flow.
Wildfire recoverability: Recorded insurance, Wildfire Fund, WEMA, FERC, and other regulatory recoveries depend on regulatory findings, the AB 1054 prudency standard, available fund capacity, and the Utility’s safety certification.
Debt and refinancing: Substantial debt, variable-rate exposure, below-investment-grade ratings, collateral requirements, and near-term maturities—including the $2.1 billion Utility bridge term loan due August 15, 2024—constrain financial flexibility.
Regulatory risk: The CPUC, FERC, OEIS, NRC, and other agencies may disallow costs, impose fines, require refunds, or delay recovery of recorded regulatory assets.
Customer affordability: Rising rates and the cost of wildfire mitigation, grid modernization, renewable procurement, storage, and environmental compliance could increase customer resistance and limit future rate recovery.
Natural gas transition: Declining gas demand and local restrictions on gas use could strand gas infrastructure or require accelerated depreciation without full recovery.
Environmental liabilities: Environmental remediation liabilities were $1.315 billion at year-end, with potential undiscounted costs able to increase materially, particularly at Hinkley, Topock, and former manufactured-gas-plant sites.
Nuclear operations: Diablo Canyon operation, license renewal, fuel availability, safety compliance, decommissioning, and potential early retirement remain significant risks.
Litigation: PG&E Corporation recorded a $300 million liability for wildfire-related securities claims. Allowed subordinated claims could require additional common-stock issuance or material cash payments.
Other commitments: The Utility must contribute $1.0 billion to the customer credit trust in 2024 and has committed to purchase its Oakland headquarters for $906 million, subject to scheduled payments through June 2025.

Investor Verification Checklist

Verify the ultimate resolution, cash payments, insurance proceeds, and regulatory recoveries for the Kincade, Zogg, Dixie, and Mosquito fires.
Monitor CPUC and FERC decisions affecting the approximately $3.6 billion of long-term unrecovered memorandum-account costs and the 2023 GRC adjustments.
Assess refinancing plans for the Utility’s $2.1 billion bridge term loan due August 2024 and the $1.0 billion customer credit trust contribution due in 2024.
Confirm whether the proposed Pacific Generation asset transfer and potential minority-interest sale proceed, and how proceeds affect debt reduction.
Evaluate whether the Wildfire Fund remains adequately funded and whether PG&E maintains required safety certifications and approved wildfire mitigation plans.
Track Diablo Canyon license renewal, operating performance, DOE and DWR funding, and decommissioning obligations through 2030.
Reconcile reported consolidated debt and liquidity with secured debt, recovery bonds, receivables financing, letters of credit, collateral requirements, and covenant calculations.
Review the sensitivity of earnings and regulatory assets to higher interest rates, lower cost recovery, wildfire-related loss estimates, and environmental remediation estimates.