PG&E Corporation 2009 Form 10-K Summary
Business context and reporting period
PG&E Corporation is a California holding company operating principally through Pacific Gas and Electric Company, a regulated utility serving northern and central California. The Utility distributes electricity and natural gas and operates electricity generation, procurement, transmission, and natural gas procurement, transportation, and storage businesses. The filing covers the fiscal year ended December 31, 2009; it is an annual report rather than a quarterly filing.
- Approximately 5.1 million electricity customers and 4.3 million natural gas customers at year-end.
- Utility assets were approximately $42.7 billion and Utility revenues were approximately $13.4 billion in 2009.
- PG&E Corporation had 19,425 regular employees, including 19,401 at the Utility.
- The Utility is primarily regulated by the California Public Utilities Commission and the Federal Energy Regulatory Commission.
Financial and operating metrics
| Metric | 2009 | Comparable period |
|---|---|---|
| PG&E Corporation income available to common shareholders | $1,220 million | $1,338 million in 2008 |
| Basic earnings per share | $3.25 | $3.64 in 2008 |
| Diluted earnings per share | $3.20 | $3.63 in 2008 |
| PG&E Corporation cash and equivalents at year-end | $193 million | $167 million in 2008 |
| PG&E Corporation total assets | $11,286 million | $10,021 million in 2008 |
| PG&E Corporation debt | $595 million, including $247 million current and $348 million noncurrent | $280 million noncurrent debt in 2008; current debt was not reported in the provided balance-sheet excerpt |
| Electricity operating revenues | $10,257 million | $10,738 million in 2008 |
| Natural gas operating revenues | $3,142 million | $3,890 million in 2008 |
| Electricity delivered | 85,629 GWh | 88,127 GWh in 2008 |
| Natural gas throughput | 845 Bcf | Comparable prior-period throughput is not clearly provided |
The filing text provided does not include the consolidated PG&E Corporation or Utility income statements, balance sheets, and cash flow statements in full. Accordingly, consolidated operating margin, net debt, total Utility debt, consolidated operating cash flow, capital expenditures, and free cash flow cannot be determined reliably from the supplied text.
PG&E Corporation reported $135 million of parent-level operating cash flow in 2009, compared with negative $27 million in 2008. Parent-level investing cash flow was negative $87 million, including $721 million invested in subsidiaries and $624 million of dividends received from subsidiaries. Parent-level financing cash flow was negative $22 million after $348 million of debt issuance, $219 million of common stock issuance, and $590 million of common dividends paid.
- The Utility delivered 79,585 GWh from its electricity resource portfolio, including 36.3% from owned generation, 18.0% from Department of Water Resources contracts, 18.8% from qualifying facilities, and 23.2% from other power purchases.
- Diablo Canyon operated at an approximately 83% average capacity factor and had 2,240 MW of capacity.
- Renewable deliveries totaled 11,441 GWh, or 14.4% of bundled load, below the 20% renewable portfolio standard target for 2010, subject to applicable compliance rules.
- Average 2009 natural gas purchase cost was $3.57 per Mcf, compared with $7.51 per Mcf in 2008.
Material changes versus the prior comparable period
- Parent-level income available to common shareholders declined approximately 8.8% from 2008, while basic EPS declined from $3.64 to $3.25 and diluted EPS declined from $3.63 to $3.20. The 2008 figure included a $154 million gain on disposal of National Energy & Gas Transmission, Inc.; the provided filing excerpt does not quantify the full impact of this item on the year-over-year change.
- Electricity operating revenues declined approximately 4.5%, while electricity deliveries declined approximately 2.8%.
- Natural gas operating revenues declined approximately 19.2%, primarily in the context of substantially lower gas prices and lower bundled gas sales; the filing reports bundled gas revenues of $3,557 million in 2009 versus $3,417 million in 2008, but total operating revenues declined because of classification and other items.
- Parent-level total assets increased approximately $1.3 billion, driven primarily by higher investments in subsidiaries and equity issuance.
- PG&E Corporation issued $350 million aggregate principal amount of 5.75% senior notes due 2014. The Utility issued $550 million of senior notes due 2039, $500 million of floating-rate senior notes due June 2010, and $550 million of senior notes due 2040.
- PG&E Corporation contributed $30 million of equity to the Utility during the fourth quarter to support the Utility's authorized 52% common-equity target and capital expenditures.
- Gateway Generating Station became operational in January 2009. The Utility expected the 657 MW Colusa Generating Station and 163 MW Humboldt Bay repowering project to begin operations in 2010.
Guidance, outlook, risks, contingencies, and unusual items
- The Utility filed a general rate case for 2011 through 2013 and sought continuation of most Gas Accord IV terms for 2011 through 2014. Regulatory decisions were expected in 2010.
- The Utility's authorized capital structure through 2012 was 52% equity, 46% long-term debt, and 2% preferred stock. The authorized overall rate of return on rate base was 8.79%, including an 11.35% authorized return on common equity.
- The approved long-term procurement plan projected a need for 1,112 to 1,512 MW of additional generation resources by 2015 after cancellations of two previously selected projects.
- Management identified risks from regulatory cost recovery, capital spending, energy-market volatility, access to capital, outages, natural disasters, wildfires, earthquakes, cyber and physical security, customer demand changes, direct access, community choice aggregation, environmental compliance, tax matters, litigation, and nuclear operations.
- Diablo Canyon license renewal applications were filed in November 2009. Unit 1 and Unit 2 licenses currently expire in November 2024 and August 2025, respectively.
- Potential cooling-water regulations could require significant capital investment at Diablo Canyon, including cooling towers. If compliance were not technically or economically feasible, the plant could be required to cease operations; the filing states that the ultimate outcome was not expected to have a material adverse effect, but the potential exposure is significant.
- Environmental remediation remained a material contingency. Estimated 2010 and 2011 spending included approximately $37 million and $39 million for former manufactured gas plant sites, $24 million and $16 million at Hunters Point, and at least $19 million and $4 million at Hinkley. Topock remediation was estimated at at least $24 million in 2010 and $23 million in 2011.
- The Utility was pursuing approximately $92 million of costs related to on-site spent-fuel storage from the Department of Energy and stated that the Department had conceded approximately $82 million under a disputed damages methodology.
- The proposed Pacific Connector Gas Pipeline and Jordan Cove LNG project received FERC authorization in December 2009 but remained subject to permits, capacity commitments, and other conditions. Commercial operation was described as potentially occurring by late 2014.
- Management reported effective disclosure controls and no material changes in internal control over financial reporting during the fourth quarter of 2009. Deloitte & Touche LLP audited the financial statements and schedules.
Important facts investors should verify
- Review the incorporated 2009 Annual Report and consolidated financial statements for Utility debt, liquidity facilities, operating cash flow, capital expenditures, rate base, earnings by segment, and margins, which are not fully included in the supplied filing text.
- Reconcile the reported $13.4 billion of Utility revenues with the separate electricity and natural gas operating-revenue tables and assess the effect of regulatory balancing accounts and DWR-related amounts.
- Assess refinancing and liquidity requirements for the Utility's $500 million floating-rate notes due June 2010 and PG&E Corporation's $247 million of convertible subordinated notes due in 2010.
- Monitor CPUC and FERC decisions on the 2011-2013 general rate case, Gas Accord V, transmission rates, cost of capital, and recovery of environmental and procurement costs.
- Evaluate Diablo Canyon license renewal, cooling-water compliance, spent-fuel storage litigation, decommissioning funding, and potential outage or shutdown exposure.
- Verify renewable portfolio compliance, future generation requirements, project completion schedules, and the recoverability of related capital expenditures.