PG&E Corp quarterly report, Q1 FY2021

PG&E Corporation Form 10-Q Summary

Business context and reporting period

Combined quarterly report for PG&E Corporation and Pacific Gas and Electric Company, covering the three months ended March 31, 2021. PG&E Corporation is the holding company; the Utility provides regulated electric and natural-gas service in northern and central California and is primarily regulated by the CPUC and FERC. The companies emerged from Chapter 11 on July 1, 2020, limiting comparability with prior periods.

Key financial metrics

PG&E Corporation consolidated	Q1 2021	Q1 2020	Change
Operating revenue	$4.716 billion	$4.306 billion	+9.5%
Operating income	$304 million	$655 million	-54%
Operating margin	6.4%	15.2%	Down 8.8 percentage points
Net income	$123 million	$374 million	-67%
Income available to common shareholders	$120 million	$371 million	-68%
Diluted EPS	$0.06	$0.57	Down $0.51
Operating cash flow	$1.198 billion	$1.605 billion	-25%
Capital expenditures	$1.778 billion	$1.641 billion	+8%

Revenue growth primarily reflected higher authorized base revenues from the 2020 general rate case and 2019 gas transmission and storage rate cases. Profitability was reduced by $172 million of wildfire-related claims net of insurance recoveries, $119 million of Wildfire Fund amortization and accretion expense, higher operating and maintenance costs, and higher interest expense.

The Utility reported $174 million of income attributable to common stock, compared with $448 million in Q1 2020. PG&E Corporation excluding the Utility reported a $54 million net loss, compared with a $77 million net loss in Q1 2020.

Balance sheet, debt and liquidity

PG&E Corporation cash and cash equivalents were $229 million at March 31, 2021, compared with $484 million at December 31, 2020. Utility cash was $127 million.
Total PG&E Corporation debt comprised $1.448 billion of short-term borrowings, $1.522 billion of current long-term debt and $37.801 billion of noncurrent long-term debt.
Credit facilities totaled $6.5 billion, with $2.15 billion of borrowings and $979 million of letters of credit, leaving reported availability of $3.371 billion. Management reported approximately $3.6 billion of total liquidity, including cash and credit availability.
In March 2021, the Utility issued $2.4 billion of first mortgage bonds, using proceeds primarily to repay a $1.5 billion term loan and revolving-credit borrowings and for general corporate purposes.
Customer accounts receivable more than 30 days past due were approximately $965 million at March 31, 2021, up approximately $544 million from March 31, 2020, reflecting ongoing COVID-19 collection pressure.

Material changes versus the prior comparable period

Operating and maintenance expense increased $366 million, or approximately 19%, on a consolidated basis. Utility expense growth was driven principally by approximately $200 million of higher insurance costs and $79 million of previously deferred WMCE costs recognized in the quarter.
Interest expense increased to $408 million from $254 million at the consolidated level, primarily because of debt issued in connection with emergence from Chapter 11.
Reorganization items declined to zero for PG&E Corporation consolidated from a $176 million expense in Q1 2020, reflecting post-bankruptcy operations.
Weighted-average basic shares increased to 1.985 billion from 529 million, substantially affecting per-share comparability.
Operating cash flow declined partly because of the $758 million payment to the Fire Victim Trust and $550 million of consolidated interest payments, while capital spending increased.
On February 16, 2021, the Utility received $946 million at closing from the sale of wireless licensing rights on transmission towers and related assets. Approximately $475 million was recorded as a regulatory liability expected to be returned to customers; other amounts were recorded as a financing obligation and deferred revenue.

Guidance, outlook and management commentary

Management estimated 2021 capital expenditures of $7.5 billion to $8.3 billion and 2022 capital expenditures of $7.8 billion to $8.2 billion.
The Utility expected to file its 2023 general rate case application by June 30, 2021. The authorized common-equity return on equity remained 10.25% for 2020 through 2022, subject to the annual cost-of-capital adjustment mechanism.
The Utility had eight remaining annual Wildfire Fund contributions of approximately $193 million each as of March 31, 2021.
Dividends on PG&E Corporation common stock, Utility common stock and Utility preferred stock remained suspended. The filing states that the timing of any resumption was uncertain.
PG&E Corporation and the Utility maintained their 2021 outlook subject to substantial uncertainty from wildfire liabilities, insurance recoveries, regulatory cost recovery, COVID-19 collections, financing needs and enforcement proceedings.

Wildfire, regulatory and other material risks

The companies recorded probable wildfire liabilities of $800 million for the 2019 Kincade fire and $300 million for the 2020 Zogg fire, both before available insurance. Management stated that these amounts represent the low end of reasonably estimable losses and could increase materially.
Recorded insurance receivables were $430 million for Kincade and $247 million for Zogg. Insurance recovery timing and ultimate recoverability remain uncertain.
The Sonoma County District Attorney filed a criminal complaint against the Utility concerning the Kincade fire, alleging five felonies and 28 misdemeanors. Potential fines, penalties, restitution and other remedies are not included in the Kincade liability estimate.
Cal Fire determined that the Zogg fire was caused by a pine tree contacting Utility electrical facilities; the Shasta County District Attorney was investigating.
The Utility was placed into step 1 of the CPUC’s Enhanced Oversight and Enforcement Process on April 15, 2021 because of insufficient progress toward risk-driven vegetation-management investments. A corrective action plan was required.
The CPUC approved the Utility’s application for a rate-neutral securitization of $7.5 billion of 2017 wildfire claims costs on April 23, 2021. A related financing order remained pending as of the filing date.
The Utility sought authorization to securitize up to approximately $1.19 billion of 2020 and 2021 wildfire-mitigation capital expenditures; a CPUC decision was expected by June 24, 2021.
Material recovery proceedings remained pending, including the WMCE application seeking approximately $1.28 billion of revenue requirements, the $498.7 million WEMA insurance-cost application, FERC transmission rate cases and other memorandum-account recoveries.
COVID-19 protections and service-disconnection moratoria continued to pressure collections. The Utility had recorded $132 million in CPPMA costs subject to CPUC review and recovery.
Environmental remediation liabilities totaled $1.313 billion at March 31, 2021; management expected $1.017 billion to be recoverable through ratemaking mechanisms.
The companies had approximately $35 billion of undiscounted future purchase commitments at December 31, 2020, primarily for power, gas, transportation, renewable energy and nuclear fuel.

Most important facts for investors to verify

Whether Kincade and Zogg wildfire liabilities increase beyond the recorded $1.1 billion aggregate, and whether insurance and Wildfire Fund recoveries are ultimately available.
The outcome of the Kincade criminal proceeding, Zogg investigation and related civil claims, including potential restitution and penalties.
Whether the Utility maintains its AB 1054 safety certification and remains eligible to access the Wildfire Fund.
Final CPUC approval and execution terms for the $7.5 billion securitization and the proposed $1.19 billion wildfire-mitigation securitization.
Timely recovery or refund exposure for WMCE, WEMA, CEMA, WMPMA, FERC transmission and other regulatory accounts.
Cash collections, customer arrears, annual Wildfire Fund contributions, insurance premiums and available credit capacity.
The effect of the Fire Victim Trust’s potential grantor-trust tax treatment on tax deductions, deferred tax assets, net operating losses and ownership restrictions.
The effectiveness of corrective actions under CPUC enhanced oversight and federal probation, including missed asset inspections and vegetation-management execution.