Business Context and Reporting Period
PG&E Corporation is a holding company whose principal operating subsidiary, Pacific Gas and Electric Company, provides regulated electricity and natural gas service in Northern and Central California. This combined, unaudited Form 10-Q covers the three months ended March 31, 2024, compared with the three months ended March 31, 2023.
Financial Performance and Position
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Operating revenue | $5.861 billion | $6.209 billion | (6%) |
| Operating income | $1.276 billion | $629 million | +$647 million |
| Net income | $735 million | $572 million | +29% |
| Income available to common shareholders | $732 million | $569 million | +29% |
| Diluted EPS | $0.34 | $0.27 | +$0.07 |
| Operating margin | 21.8% | 10.1% | +11.7 percentage points |
| Net margin | 12.5% | 9.2% | +3.3 percentage points |
Utility net income was $781 million, compared with $626 million in the prior-year quarter. Lower natural gas and electricity procurement costs, the absence of a $273 million 2023 SB 901 securitization charge, higher authorized base revenues, and lower wildfire fund expense more than offset higher interest expense and a substantially lower tax benefit.
- Electric revenue was $4.052 billion, down from $4.119 billion. Natural gas revenue was $1.809 billion, down from $2.090 billion.
- Cost of electricity declined to $321 million from $522 million, and cost of natural gas declined to $529 million from $916 million, primarily due to lower commodity prices. These costs are generally passed through to customers and have limited direct effect on net income.
- Operating and maintenance expense decreased to $2.636 billion from $2.677 billion. Depreciation, amortization, and decommissioning expense decreased to $1.022 billion from $1.077 billion.
- Interest expense increased to $715 million from $602 million at the consolidated level, reflecting higher debt balances and interest rates.
- The consolidated effective tax rate was approximately 5.0%, compared with a benefit-driven rate of approximately negative 60.5% in Q1 2023. The prior period included a significant tax benefit associated with the Fire Victim Trust’s sale of PG&E Corporation shares.
Cash Flow and Liquidity
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Utility operating cash flow | $2.309 billion | $1.262 billion |
| Consolidated operating cash flow | $2.261 billion | $1.185 billion |
| Capital expenditures | $2.638 billion | $2.288 billion |
| Utility investing cash flow | $(2.930) billion | $(2.140) billion |
| Utility financing cash flow | $769 million | $1.314 billion |
Operating cash flow improved primarily because of lower natural gas payments, lower storm restoration payments, increased rate collections, and favorable regulatory-account movements. Capital expenditures increased by $350 million, and the company also purchased $350 million of customer credit trust investments. The Utility estimates 2024 capital expenditures of approximately $10.4 billion.
At March 31, 2024, total reported liquidity was approximately $4.4 billion, consisting of $527 million of Utility cash, $131 million of PG&E Corporation cash, and approximately $3.8 billion of revolving credit availability. Consolidated cash and cash equivalents were $658 million.
Debt and Capital Structure
- Consolidated current short-term borrowings were $2.818 billion; current long-term debt was $926 million; and noncurrent long-term debt was $53.415 billion.
- The Utility completed a $2.25 billion First Mortgage Bond offering on February 28, 2024, with maturities in 2029, 2034, and 2053. Proceeds were used primarily to repay revolving credit borrowings.
- At quarter-end, the Utility had $3.3 billion of availability under its $4.4 billion revolving credit facility, while PG&E Corporation had $500 million available under its $500 million facility. The receivables securitization program had $1.5 billion of outstanding borrowings and no reported availability.
- On April 16, 2024, the Utility combined two maturing term-loan tranches into a $525 million loan maturing April 15, 2025.
- The Utility remained below investment grade, which can increase collateral requirements for commodity contracts and raise refinancing costs.
Material Changes Versus the Prior Comparable Period
- Revenue decreased 6%, largely because Q1 2023 included approximately $585 million of revenue authorized under the final 2020 WMCE decision and higher pass-through commodity revenues.
- Operating income more than doubled because of lower commodity costs, the absence of the 2023 SB 901 charge, increased base revenues under the 2023 GRC, and interim 2022 WMCE rate relief.
- Net income increased despite higher interest expense and the loss of the large prior-year tax benefit.
- Operating cash flow increased 83% for the Utility, while investing cash use increased 37% because of higher capital spending and customer credit trust investments.
- The estimated Wildfire Fund coverage period increased from 15 to 20 years, reducing Q1 wildfire fund expense to $78 million from $117 million.
- Regulatory balancing-account receivables increased to $6.442 billion from $5.660 billion at December 31, 2023. Approximately $4.6 billion of wildfire, catastrophic-event, and related costs were recorded in specified memorandum and balancing accounts, of which approximately $3.5 billion was classified as long term and remained subject to recovery proceedings.
Guidance, Outlook, Risks, and Unusual Items
- Management expects cash needs for capital expenditures, debt maturities, and PG&E Corporation dividends to exceed operating cash flow over time, requiring continued access to debt and credit markets. PG&E Corporation does not plan to issue equity in 2024 except for employee compensation purposes.
- The Utility is pursuing a potential minority-interest sale in Pacific Generation and DOE financing under the Energy Infrastructure Reinvestment program. The CPUC administrative law judge issued a proposed decision that would deny the Pacific Generation application; the matter remained unresolved.
- The company is pursuing approximately $1.385 billion of remaining fire-risk-mitigation securitization capacity. The CPUC approved the related third securitization application on February 16, 2024.
- The Utility filed for approximately $418 million of net rate recovery for Diablo Canyon extended operations for 2023 through 2025. The request reflects approximately $1.2 billion of forecast costs offset by $813 million of forecast market revenues. The NRC and other agencies’ approvals remain relevant to continued operations.
- The 2023-2025 Wildfire Mitigation Plan was approved, and the Utility received a safety certification in January 2024. Nevertheless, wildfire ignition, liability, regulatory disallowances, insurance recoveries, Wildfire Fund availability, and the effectiveness and cost of mitigation programs remain major risks.
- Recorded wildfire liabilities before recoveries totaled $1.125 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. These amounts exclude certain potentially significant damages, penalties, punitive damages, and government claims.
- Probable recoveries recorded for the Dixie and Mosquito fires totaled $1.702 billion and $128 million, respectively, from insurance, FERC transmission rates, the WEMA, and the Wildfire Fund. Recovery timing and ultimate amounts remain uncertain.
- PG&E Corporation recorded a $300 million liability for wildfire-related securities claims. Allowed subordinated claims could require additional cash payments or issuance of PG&E Corporation shares, but the total amount remains unresolved.
- Environmental remediation liabilities totaled $1.295 billion. Management identified reasonably possible additional undiscounted costs of up to $212 million at Topock, $129 million at Hinkley, $576 million at former manufactured-gas-plant sites, $79 million at other facilities, and $20 million at fossil-fuel sites.
- The Utility has a purchase commitment portfolio with approximately $32 billion of undiscounted future obligations as of December 31, 2023. It also expects to pay $250 million by July 2024 and $506 million at closing in June 2025 for the Oakland headquarters purchase, subject to a credit of approximately $172 million.
Important Facts for Investors to Verify
- Whether CPUC and FERC proceedings authorize full recovery of the substantial wildfire, WMCE, WGSC, WEMA, and other regulatory-account balances.
- The timing and amount of insurance, Wildfire Fund, and rate recoveries for the Dixie, Mosquito, Zogg, and Kincade fires.
- Potential additional wildfire liabilities, including government fire-suppression claims, punitive damages, securities claims, and costs not currently estimable.
- Whether PG&E maintains its safety certification and approved Wildfire Mitigation Plan, and whether future wildfire events or compliance findings affect access to the Wildfire Fund.
- Debt maturities, interest costs, credit ratings, collateral requirements, and the Utility’s ability to refinance while funding approximately $10.4 billion of 2024 capital expenditures.
- The outcome of the Pacific Generation application, the potential minority-interest transaction, Diablo Canyon cost recovery, and the third AB 1054 securitization.
- The Utility’s ability to collect customer receivables and manage customer affordability risks as regulated rates remain high.