PG&E Corp quarterly report, Q2 FY2022

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PG&E Corporation and Pacific Gas and Electric Company 10-Q Summary

Business context and reporting period

Combined unaudited Form 10-Q for PG&E Corporation, a holding company, and Pacific Gas and Electric Company, its principal regulated utility subsidiary. The report covers the three and six months ended June 30, 2022, with comparative periods ended June 30, 2021. The Utility serves northern and central California and is primarily regulated by the CPUC and FERC.

Financial performance and key metrics

  • PG&E Corporation: Six-month operating revenue was $10.916 billion, up from $9.931 billion. Operating income was $981 million versus $938 million, and net income available to common shareholders was $831 million versus $517 million.
  • PG&E Corporation quarterly results: Second-quarter revenue was $5.118 billion, operating income was $445 million, and net income available to common shareholders was $356 million, compared with $397 million in the prior-year quarter.
  • EPS: Six-month basic and diluted EPS were $0.42 and $0.39, respectively, versus $0.26 and $0.24 in 2021. Second-quarter diluted EPS was $0.17 versus $0.18.
  • Utility earnings: Six-month income available for common shareholders was $1.123 billion versus $610 million; second-quarter income available for common shareholders was $596 million versus $436 million.
  • Margins: PG&E Corporation’s six-month operating margin was approximately 9.0% and net margin approximately 7.7%, compared with approximately 9.4% and 5.3% in 2021. The improvement in net margin was substantially influenced by tax benefits rather than operating revenue growth alone.
  • Operating cash flow: PG&E Corporation generated $1.639 billion in operating cash flow in the first six months, versus $1.230 billion in 2021. Utility operating cash flow was $1.703 billion versus $1.335 billion.
  • Capital spending and investing: PG&E Corporation used $4.980 billion in investing activities, including $4.539 billion of capital expenditures and $485 million invested in the customer credit trust. Management estimated 2022 capital expenditures of $7.8 billion to $8.9 billion and 2023 capital expenditures of $7.9 billion to $10.4 billion.
  • Liquidity: At June 30, 2022, consolidated liquidity was approximately $2.7 billion, consisting of $122 million of Utility cash, $117 million of PG&E Corporation cash, and approximately $2.5 billion of revolving credit availability. PG&E Corporation had $500 million of revolver availability; the Utility had $2.0 billion.
  • Debt: At June 30, 2022, PG&E Corporation reported $2.134 billion of short-term borrowings, $1.995 billion of current long-term debt, and $44.174 billion of noncurrent long-term debt. The Utility reported $2.134 billion of short-term borrowings, $1.968 billion of current long-term debt, and $39.584 billion of noncurrent long-term debt.
  • Balance sheet: PG&E Corporation total assets were $113.541 billion and total equity was $22.019 billion at June 30, 2022. Regulatory assets increased to $15.215 billion from $9.207 billion at December 31, 2021.

Material changes versus the prior comparable period

  • Six-month earnings increased primarily because of a $337 million tax benefit associated with the Fire Victim Trust’s sale of 100 million PG&E Corporation shares, higher authorized revenues, and operating cost efficiencies.
  • Six-month revenue impacting earnings increased 6%, while operating and maintenance expense impacting earnings decreased 1%. Second-quarter revenue impacting earnings decreased 4%, while operating and maintenance expense decreased 21%.
  • Depreciation, amortization, and decommissioning expense increased 10% for the six-month period, primarily from capital additions and higher nuclear decommissioning expense.
  • Natural gas procurement costs increased materially, reaching $920 million for the six-month period versus $494 million in 2021, while electricity costs declined to $1.282 billion from $1.437 billion. These pass-through costs generally do not affect earnings.
  • PG&E Wildfire Recovery Funding LLC issued $3.6 billion of Series 2022-A SB 901 recovery bonds in May 2022. The proceeds were used to refinance debt and repay revolving credit borrowings. A further $3.9 billion Series 2022-B issuance occurred on July 20, 2022, after quarter-end.
  • The Utility reinstated its common-stock dividend and paid a $425 million dividend to PG&E Corporation in June 2022. PG&E Corporation’s common-stock dividend remains restricted until it recognizes $6.2 billion of post-emergence non-GAAP core earnings.

Guidance, outlook, risks, contingencies, and unusual items

  • Wildfire liabilities: At June 30, 2022, recorded liabilities were $950 million for the 2019 Kincade fire, $375 million for the 2020 Zogg fire, and $1.15 billion for the 2021 Dixie fire, before available recoveries. Recorded insurance receivables totaled $430 million, $346 million, and $555 million, respectively.
  • Dixie fire recoveries: The Utility recorded $1.170 billion of probable recoveries for the Dixie fire, including $555 million of insurance, $104 million through FERC transmission rates, $361 million through the WEMA, and $150 million from the Wildfire Fund. Actual recovery remains uncertain.
  • Zogg criminal proceeding: The Utility pleaded not guilty to 31 charges related to the Zogg fire. Potential fines, penalties, restitution, and other remedies could materially exceed the recorded liability; the company cannot reasonably estimate the additional exposure.
  • Regulatory cost recovery: Approximately $5.2 billion of costs in memorandum and balancing accounts were not otherwise being recovered in existing revenue requirements at June 30, 2022. Recovery depends on CPUC approval and may be delayed, reduced, or denied.
  • Regulatory proceedings: The 2023 GRC requested a $15.34 billion 2023 revenue requirement and approximately $49.18 billion of rate base. The Utility requested an 11% ROE and 4.30% cost of debt in its 2023 cost-of-capital application. Decisions were pending.
  • Wildfire mitigation and oversight: The Utility remained in step 1 of the CPUC’s Enhanced Oversight and Enforcement Process. Missed inspections, incomplete records, and other potential WMP compliance issues could result in fines, penalties, or advancement to a higher oversight step.
  • COVID-19 and collections: Customer accounts receivable more than 30 days outstanding were approximately $983 million, $752 million above the December 31, 2019 balance. Residential disconnections were expected to resume in the fourth quarter of 2022, subject to CPUC limits.
  • Insurance: The Utility purchased approximately $340 million of wildfire liability coverage for April 2022-April 2023 at a cost of approximately $263 million and expected renewal of approximately $600 million of existing coverage at an estimated cost of $516 million.
  • Environmental and other contingencies: Environmental remediation liabilities were $1.240 billion, with potential increases if contamination or remediation requirements are greater than currently estimated. The Utility also had approximately $34 billion of undiscounted purchase commitments at December 31, 2021.
  • Unusual items: The quarter included a $40 million pre-tax SB 901 securitization charge, a $150 million Kincade wildfire charge, and significant tax benefits related to Fire Victim Trust share sales. A voluntary separation program covering approximately 445 employees was expected to result in special termination benefits in the second half of 2022.

Most important facts for investors to verify

  • Whether recorded wildfire liabilities and related insurance, Wildfire Fund, FERC, and CPUC recoveries will ultimately be realized.
  • The outcome of the Zogg criminal case and the potential for restitution, fines, penalties, and additional civil claims.
  • CPUＣ decisions on the 2020 and 2021 WMCE applications, the 2023 GRC, cost of capital, and approximately $5.2 billion of deferred regulatory costs.
  • Actual 2022 capital expenditures, financing needs, credit-facility availability, and the effect of rising interest rates on debt service.
  • Whether wildfire mitigation execution, inspection remediation, safety certification, and the Utility’s WMP support continued access to the Wildfire Fund.
  • The status and final economics of the post-quarter-end $3.9 billion Series 2022-B recovery-bond issuance and related debt redemptions.
  • The extent to which tax benefits from future Fire Victim Trust share sales increase the SB 901 customer-credit obligation and benefit PG&E Corporation liquidity.
  • Whether and when PG&E Corporation can resume common-stock dividends after satisfying the post-emergence earnings restriction.