PG&E Corporation 2014 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2014. The filing is an annual Form 10-K for PG&E Corporation and its wholly owned operating subsidiary, Pacific Gas and Electric Company; it is not limited to fourth-quarter results. The company is a California holding company whose principal utility sells and delivers electricity and natural gas in northern and central California and is regulated primarily by the CPUC, FERC, and NRC.
Financial performance and key metrics
| PG&E Corporation, $ millions except per-share data | 2014 | 2013 | Change |
|---|---|---|---|
| Operating revenues | $17,090 | $15,598 | +$1,492, +10% |
| Operating income | $2,450 | $1,762 | +$688, +39% |
| Net income | $1,450 | $828 | +$622, +75% |
| Income available to common shareholders | $1,436 | $814 | +$622, +76% |
| Diluted EPS | $3.06 | $1.83 | +$1.23, +67% |
| Net cash from operating activities | $3,677 | $3,427 | +$250 |
| Capital expenditures | $4,833 | $5,207 | -$374 |
| Net cash used in investing activities | $4,714 | $5,107 | -$393 |
PG&E Corporation’s operating margin was approximately 14.3% in 2014 versus 11.3% in 2013. The effective tax rate was 19.4% for PG&E Corporation and 21.1% for the Utility, compared with 24.8% and 27.4%, respectively, in 2013. The lower tax rates primarily reflected flow-through ratemaking and IRS guidance concerning repair-cost deductions.
Utility operating revenues were $17.088 billion, including $13.656 billion from electricity and $3.432 billion from natural gas. Utility income available for common stock was $1.419 billion, compared with $852 million in 2013. Electricity and natural-gas procurement costs are generally passed through to customers and therefore typically do not affect earnings, subject to regulatory recovery.
Balance sheet, debt, liquidity, and cash flow
- Total assets were $60.127 billion at December 31, 2014, versus $55.605 billion a year earlier. Net property, plant, and equipment increased to $43.941 billion from $41.252 billion.
- Long-term debt, excluding current maturities, was $15.050 billion, up from $12.717 billion. PG&E Corporation issued $2.3 billion of long-term debt and $300 million of short-term debt during 2014.
- Cash and cash equivalents were $151 million at year-end, down from $296 million. Restricted cash was $298 million.
- Revolving credit availability was $300 million for PG&E Corporation and $2.6 billion for the Utility. Both entities were in compliance with their credit covenants, including the maximum 65% debt-to-capitalization ratio.
- The Utility generated $3.619 billion of operating cash flow, spent $4.799 billion on investing activities, and received $1.170 billion from financing activities. Capital expenditures are forecast at approximately $5.5 billion in 2015 and $5.3 billion to $5.8 billion in 2016.
- PG&E Corporation issued $802 million of common stock and contributed $705 million of equity to the Utility during 2014. Management forecast $400 million to $600 million of additional common-stock issuance during 2015, excluding potential funding for fines and enforcement-related costs.
- The annual common-stock dividend remained $1.82 per share, or $0.455 per quarter. The Utility paid $716 million of common dividends and $14 million of preferred dividends in 2014.
Material changes versus 2013
- Higher authorized revenues from the 2014 general rate case increased earnings. The CPUC authorized approximately $7.1 billion of 2014 revenue requirements and attrition increases of $324 million for 2015 and $371 million for 2016.
- Natural-gas-related costs that were not recoverable through rates declined to $356 million from $645 million. Cumulative nonrecoverable natural-gas matters since the San Bruno accident were approximately $2.8 billion.
- Depreciation, amortization, and decommissioning expense rose 17% to $2.432 billion, driven by higher authorized depreciation rates, increased capital additions, and higher nuclear decommissioning expense.
- The Utility recorded a $116 million fourth-quarter charge for pipeline safety enhancement plan capital costs expected to exceed authorized recovery. Cumulative PSEP capital disallowance charges reached $665 million.
- Operating cash flow improved primarily because of tax refunds, higher greenhouse-gas auction proceeds, and returned collateral, partly offset by higher purchased-power costs.
- PG&E Corporation’s weighted-average diluted share count increased to 470 million from 445 million, limiting the benefit of higher earnings on a per-share basis.
Guidance, outlook, risks, and unusual items
- CPUC enforcement: Administrative law judges proposed $1.4 billion of penalties and disallowances related to approximately 3,700 alleged gas-safety violations: a $950 million state fine, a $400 million ratepayer refund, and at least $50 million of remedial measures. The decisions were not final. The company had accrued $200 million for the minimum amount of fines deemed probable but stated that total penalties were likely to materially exceed that amount.
- Federal criminal case: The Utility faced a 28-count superseding indictment. The maximum statutory fine was $14 million, while the alternative fine alleged in the indictment could be approximately $1.13 billion. No criminal-fine accrual was recorded because such amounts were not considered probable.
- Gas transmission and storage rate case: The Utility requested a 2015 revenue requirement of $1.29 billion, including a $555 million increase over currently authorized revenues. The CPUC’s final decision was expected in August 2015, and the ultimate amount of recoverable revenue remained uncertain.
- Improper communications: The CPUC imposed a $1.05 million fine and could disallow up to the full incremental revenue increase for a five-month period in the GT&S case. The Utility also provided approximately 65,000 emails to the CPUC and the City of San Bruno; additional enforcement actions were possible but not estimable.
- 2015 unrecovered costs: Management forecast $100 million to $150 million of unrecovered pipeline-related expenses in 2015, including safety work, legal costs, and other gas-related expenses. Actual costs could be higher.
- Environmental liabilities: Accrued environmental remediation liabilities were $954 million, including $158 million for Hinkley and $291 million for Topock. Undiscounted future costs could reach approximately $1.8 billion if contamination or required remediation is greater than estimated.
- Diablo Canyon: The company faced potential costs or operational consequences from once-through cooling requirements. An adverse determination could require significant mitigation expenditures or, if required measures were not feasible, an earlier plant shutdown and material charges.
- Regulatory accounting: Regulatory assets totaled approximately $9.0 billion and regulatory liabilities approximately $7.6 billion. If recovery of material regulatory assets ceased to be probable, the company could be required to recognize significant charges.
- Commitments: Total contractual commitments were $84.076 billion, including $27.667 billion of Utility debt payments and $50.540 billion of power-purchase obligations. These amounts include interest and undiscounted contractual payments as described in the filing.
- Deloitte & Touche issued unqualified audit opinions on the financial statements and internal control over financial reporting, with an explanatory paragraph highlighting the potentially material CPUC enforcement penalties.
Most important facts for investors to verify
- Final CPUC penalties, ratepayer refunds, capital disallowances, remedial requirements, and any independent-monitor obligations arising from the gas-safety proceedings.
- Resolution and financial exposure from the federal criminal prosecution and investigations into communications with CPUC personnel.
- Final outcomes of the 2015 GT&S and FERC transmission rate cases, including the amount of revenue actually authorized and the effect on regulatory accounting.
- Actual unrecovered pipeline-safety spending, future PSEP charges, and the need for additional equity issuance or dividend changes.
- Progress and ultimate cost of Hinkley and Topock remediation and any changes to environmental liabilities.
- Capital spending, debt maturities, credit ratings, covenant compliance, and available liquidity as enforcement matters are resolved.
- Diablo Canyon cooling-water compliance costs, license-renewal status, nuclear decommissioning assumptions, and potential early-shutdown exposure.
- Whether the company continues to recover regulatory assets and pass-through procurement costs under applicable CPUC and FERC mechanisms.