PG&E Corporation 2013 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2013. The filing is a combined annual report for PG&E Corporation and its wholly owned operating subsidiary, Pacific Gas and Electric Company; it is not a standalone fourth-quarter filing. The source text incorporates the principal financial statements and MD&A by reference but does not include their complete contents.
Business Context
PG&E Corporation is a California holding company whose primary operating subsidiary provides regulated electricity and natural gas generation, transmission, distribution, storage, and procurement services in northern and central California. At December 31, 2013, the companies had 21,166 regular employees. PG&E Corporation had 457,663,407 common shares outstanding as of February 3, 2014.
Financial and Operating Metrics
- Parent net income: $814 million in 2013, compared with $816 million in 2012 and $844 million in 2011.
- Parent diluted earnings per share: $1.83 in 2013, compared with $1.92 in 2012 and $2.10 in 2011.
- Parent comprehensive income: $965 million in 2013, compared with $928 million in 2012.
- Parent cash and equivalents: $231 million at December 31, 2013, compared with $207 million at December 31, 2012.
- Parent operating cash flow: $10 million in 2013, compared with cash used of $49 million in 2012.
- Parent investing cash flow: Cash used of $388 million, including $1.371 billion invested in subsidiaries, partly offset by $716 million of subsidiary dividends and $275 million of tax-equity investment proceeds.
- Parent financing cash flow: $402 million provided in 2013, including $1.045 billion of common stock issuance, $140 million of revolving-credit borrowings, and $782 million of common dividends paid.
- Electricity operating revenue: $12.489 billion in 2013, compared with $12.014 billion in 2012 and $11.601 billion in 2011.
- Natural gas operating revenue: $3.104 billion in 2013, compared with $3.021 billion in 2012 and $3.350 billion in 2011.
- Electricity deliveries: 86,513 GWh in 2013, compared with 86,113 GWh in 2012.
- Natural gas customers: Average customers increased to 4,378,797 from 4,353,278 in 2012; gas purchased declined to 240,414 MMcf from 247,792 MMcf.
- Authorized utility capital structure: 52% common equity, 47% long-term debt, and 1% preferred stock through 2015. The authorized return on equity was reduced to 10.40% effective January 1, 2013, from 11.35% previously.
- Debt and liquidity: The source text does not provide complete consolidated debt, total liquidity, or consolidated cash-flow figures. At the parent level, current liabilities included $260 million of short-term borrowings and $350 million of current long-term debt at year-end 2013.
- Margins: The source text does not provide sufficient consolidated income-statement detail to calculate operating or net margins reliably.
Material Changes Versus the Prior Comparable Period
- Parent net income was broadly unchanged year over year, while diluted EPS declined from $1.92 to $1.83, partly reflecting higher weighted-average shares outstanding.
- Parent operating cash flow improved from a $49 million use to $10 million provided, while investing cash outflows increased substantially because of higher investment in subsidiaries.
- Electricity operating revenue increased approximately 4% from 2012, supported by higher residential and commercial revenues and regulatory balancing-account activity.
- Natural gas operating revenue increased approximately 3% from 2012, despite lower bundled gas volumes, while transportation-service revenue increased.
- PG&E Corporation contributed $305 million to the Utility during the fourth quarter to maintain the Utility’s authorized 52% common-equity target and support capital expenditures.
- The Utility issued $675 million of senior notes in June 2013 and $800 million in November 2013, with maturities ranging from 2023 to 2043.
Guidance, Outlook, Risks, and Unusual Items
- Safety and capital program: The Utility continued substantial investment in electric infrastructure and its Pipeline Safety Enhancement Plan. Since 2011, it had verified 657 miles of gas transmission pipeline, replaced 127 miles, and installed 134 automated valves.
- San Bruno matters: The Utility recorded cumulative probable losses of $565 million for third-party claims related to the 2010 San Bruno accident and had paid $520 million by December 31, 2013. Most civil claims had been settled, but CPUC investigations and a federal criminal investigation remained unresolved.
- Potential CPUC penalties: CPUC staff recommended a total penalty of $2.25 billion, consisting of a $300 million fine and $1.95 billion of non-recoverable safety-related work. The ultimate outcome and timing were uncertain.
- Other enforcement: The Utility reported more than 50 unresolved self-reports of potential gas-safety violations. The CPUC also imposed approximately $14 million in fines related to an erroneous pipeline-record submission; the Utility sought rehearing.
- Regulatory proceedings: The 2014 general rate case was awaiting a proposed decision, and the Utility filed its 2015-2017 gas transmission and storage rate case. Results could affect future revenue requirements and cost recovery.
- Diablo Canyon: Potential once-through-cooling requirements could require significant mitigation spending or, if compliance were deemed infeasible, affect plant operations. The Utility stated it would seek rate recovery for allowable costs.
- Environmental and nuclear liabilities: The filing identifies ongoing environmental remediation, spent-fuel storage, nuclear decommissioning, and hazardous-site obligations. The DOE remained unable to meet its spent-fuel disposal obligations; the Utility received $29 million in 2013 for previously incurred storage costs.
- Market and policy risks: Community choice aggregators, direct access, distributed generation, storage, net energy metering, renewable mandates, and changing residential-rate rules may pressure traditional utility cost recovery and customer rates.
- Audit matter: Deloitte & Touche issued an unqualified audit opinion but included an explanatory paragraph concerning the three pending CPUC enforcement proceedings that could result in material penalties.
Investor Verification Items
- Verify the complete consolidated income statements, balance sheets, cash-flow statements, debt balances, liquidity facilities, and rate-base information in the incorporated 2013 Annual Report.
- Assess the expected financial exposure, insurance coverage, and regulatory treatment of San Bruno-related penalties, remediation, and safety spending.
- Review the status and final outcomes of the 2014 general rate case, the 2015 gas transmission and storage rate case, and CPUC enforcement proceedings.
- Reconcile parent-level cash flows and equity contributions with the Utility’s consolidated financing needs and dividend capacity.
- Evaluate Diablo Canyon licensing, cooling-water compliance, spent-fuel storage, and decommissioning obligations.
- Monitor the effect of distributed generation, community choice aggregation, direct access, renewable procurement, and California rate reforms on future utility revenue recovery.