Business Context and Reporting Period
This Form 8-K Current Report, dated April 20, 2022, is filed by PG&E Corporation and its subsidiary, Pacific Gas and Electric Company (the "Utility"). The report details a regulatory filing made on the same date with the California Public Utilities Commission (CPUC) regarding the Utility's cost of capital for the 2023 test year.
Key Financial Metrics and Requests
The Utility requested approval for a new cost of capital structure effective January 1, 2023. Key proposed metrics include:
- Return on Equity (ROE): Proposed increase from 10.25% to 11.00%.
- Weighted Average Cost of Capital (WACC): Proposed increase from 7.34% to 7.78%.
- Capital Structure: The Utility proposed retaining the existing weightings (52.00% Common Equity, 0.50% Preferred Stock, 47.50% Long-term Debt).
- Estimated Revenue Impact: A total increase of approximately $226.2 million in revenue requirements based on 2022 rate base amounts.
- Short-Term Debt Adjustment: An illustrative adjustment of 153 basis points above the commercial paper rate, potentially resulting in a $69.3 million increase in recovery of short-term financing costs for the prior two years.
Material Changes Versus Prior Period
The filing outlines specific changes requested for 2023 compared to the currently authorized 2022 rates:
| Component | 2022 Authorized Rate | 2023 Requested Rate | Weighted Cost (2022) | Weighted Cost (2023) |
|---|---|---|---|---|
| Common Equity | 10.25% | 11.00% | 5.33% | 5.72% |
| Preferred Stock | 5.52% | 5.52% | 0.03% | 0.03% |
| Long-term Debt | 4.17% | 4.27% | 1.98% | 2.03% |
| Total WACC | - | - | 7.34% | 7.78% |
The estimated revenue increase is segmented as follows: $138 million for electric generation and distribution, $53 million for gas distribution, and $35 million for gas transmission and storage.
Outlook, Risks, and Contingencies
Regulatory Uncertainty: The Utility explicitly states it is unable to predict the timing or outcome of the CPUC proceeding. The final revenue requirement impact depends on the CPUC's approval of the requested rates and the final rate base amounts determined in the pending 2023 General Rate Case (GRC).
Forward-Looking Statements: The filing contains forward-looking statements regarding the 2023 cost of capital application. Actual results may differ materially due to regulatory decisions, changes in assumptions, and other risks disclosed in the company's Form 10-K.
Short-Term Debt Variability: The revenue impact of the short-term debt proposal is contingent on the final annual adjustment set by the CPUC and the actual balances in the Utility's balancing and memorandum accounts.
Investor Verification Checklist
- Verify the status of the pending 2023 General Rate Case (GRC) to understand how final rate base amounts may alter the projected $226.2 million revenue increase.
- Monitor CPUC proceedings for the final decision on the 11% Return on Equity request and the 153 basis point short-term debt adjustment.
- Review the company's Form 10-K for the year ended December 31, 2021, for a comprehensive list of risks affecting the cost of capital proceeding.
- Confirm whether the CPUC adopts the proposed capital structure weightings or mandates changes to the mix of equity and debt.