PCG

PG&E Corp 8-K Filing Summary

Business Context and Reporting Period

This Form 8-K, dated September 13, 2023, reports on the California Public Utilities Commission (CPUC) proceedings regarding Pacific Gas and Electric Company's (PG&E) 2023 General Rate Case (GRC). The filing details a Proposed Decision (PD) and an Alternate Proposed Decision (APD) issued by administrative law judges and the assigned Commissioner concerning revenue requirements, rate base, and infrastructure hardening for the period 2023 through 2026.

Key Financial Metrics and Revenue Requirements

The filing outlines projected revenue requirements and rate bases under two scenarios (PD and APD) compared to PG&E's original request. All figures are in billions unless noted otherwise.

Rate Base: The PD proposes a weighted-average rate base ranging from $47.3 billion (2023) to $54.6 billion (2026). The APD proposes a range from $46.2 billion (2023) to $53.5 billion (2026). Both are subject to potential reductions of up to $1 billion annually pending reasonableness reviews.

Cost Recovery (Track 2): Both decisions approve a settlement for $221 million in cost recovery for gas transmission and storage safety expenditures incurred between 2015 and 2021, to be recovered over 2023 and 2024.

Material Changes and Discrepancies

• Revenue Reductions: Both the PD and APD authorize revenue requirements significantly lower than PG&E's request. The PD reduces the 2023 request by $1.59 billion, while the APD reduces it by $2.10 billion. The gap widens in subsequent years, with the APD reducing the 2026 request by $2.94 billion.
• Infrastructure Hardening: Significant divergence exists regarding undergrounding and covered conductor funding. The PD authorizes 200 miles of undergrounding and 1,800 miles of covered conductor. The APD authorizes 973 miles of undergrounding and 1,027 miles of covered conductor. PG&E had originally requested 2,000 miles of undergrounding and 320 miles of covered conductor.
• Escalation Rates: The PD grants PG&E's requested escalation updates for inflation and tax law changes. The APD grants only 25% of the requested increase in escalation rates.
• Excluded Costs: Both decisions exclude approximately $3.9 billion in specific capital and expense costs from immediate rate base, including $0.9 billion for the Oakland headquarters move, $1.2 billion for Camp Fire rebuilding, and $0.5 billion for gas meter replacement. PG&E may seek recovery for these in future proceedings.

Outlook, Risks, and Unusual Items

Regulatory Timeline: Comments on the decisions are due October 3, 2023, with reply comments due October 9, 2023. The CPUC could vote as early as November 2, 2023.

SB 410 and Balancing Account: Following the passage of Senate Bill 410, PG&E proposed a balancing account to recover costs for electric distribution capacity additions exceeding GRC forecasts. The proposal caps the annual rate impact at 2.5%, equating to approximately $213 million in revenue requirement and $1.5 billion in incremental capital expenditures for 2024. These costs would be reviewed for reasonableness in the 2027 GRC.

Wildfire Liability: The filing notes that PG&E's wildfire liability insurance is transitioning to full self-insurance, funded through rates at $400 million for the 2023 test year, aiming to reach $1.0 billion in unimpaired self-insurance.

Risks: The primary risk is the final adoption of the APD, which offers lower revenue and less funding for undergrounding compared to the PD. Additionally, up to $1 billion in rate base per year remains subject to removal pending reasonableness reviews.

Investor Verification Checklist

• Verify the final CPUC vote outcome between the Proposed Decision (PD) and Alternate Proposed Decision (APD), as this determines the 2023-2026 revenue baseline.
• Confirm the final approved mileage for undergrounding and covered conductor, as the APD offers significantly more undergrounding than the PD but less than requested.
• Monitor the reasonableness review process that could remove up to $1 billion annually from the approved rate base.
• Track the implementation of the SB 410 balancing account and the $213 million annual revenue cap for distribution capacity additions.
• Review future filings regarding the recovery of the $3.9 billion in excluded costs (headquarters move, Camp Fire rebuilding, etc.).