PG&E Corporation 2020 Form 10-K Summary
Business context and reporting period
PG&E Corporation is a California holding company whose principal subsidiary, Pacific Gas and Electric Company, provides regulated electric and natural-gas generation, transmission, distribution and related services in northern and central California. This combined Form 10-K covers the fiscal year ended December 31, 2020, not a standalone fourth quarter. PG&E Corporation and the Utility are separate legal entities with separate creditors and financial statements.
The companies emerged from Chapter 11 on July 1, 2020, under a court-approved reorganization plan. The filing therefore compares a post-emergence capital structure and operating environment with a 2019 period substantially affected by bankruptcy accounting and wildfire liabilities.
Key financial metrics
| PG&E Corporation consolidated | 2020 | 2019 | Change |
|---|---|---|---|
| Operating revenues | $18.469 billion | $17.129 billion | Up $1.340 billion |
| Operating income (loss) | $1.755 billion | $(10.094) billion | Improved $11.849 billion |
| Net loss | $(1.304) billion | $(7.642) billion | Improved $6.338 billion |
| Loss attributable to common shareholders | $(1.318) billion | $(7.656) billion | Improved $6.338 billion |
| diluted EPS | $(1.05) | $(14.50) | Improved |
| Cash and cash equivalents | $484 million | $1.570 billion | Down $1.086 billion |
| Total assets | $97.856 billion | $85.196 billion | Up $12.660 billion |
| Total debt, including current borrowings | Approximately $41.0 billion | Pre-emergence debt presentation not comparable | Materially higher post-emergence secured debt |
| Pacific Gas and Electric Company | 2020 | 2019 | Change |
|---|---|---|---|
| Operating revenues | $18.469 billion | $17.129 billion | Up $1.340 billion |
| Net income (loss) | $411 million | $(7.622) billion | Improved $8.033 billion |
| Income available for common stock | $397 million | $(7.636) billion | Improved $8.033 billion |
| Net cash provided by operating activities | $(19.047) billion | $4.810 billion | Down $23.857 billion |
| Capital expenditures | $7.690 billion | $6.313 billion | Up $1.377 billion |
| Cash and cash equivalents | $261 million | $1.122 billion | Down $861 million |
Revenue growth primarily reflected higher authorized base revenues from the 2020 General Rate Case, the 2019 gas transmission and storage rate case, the TO20 transmission proceeding and interim catastrophic-event rate relief. Utility revenues that impacted earnings increased 5% to $12.439 billion, while pass-through and balancing-account revenues increased to $6.030 billion.
Utility operating and maintenance expense affecting earnings declined 11% to $6.399 billion, primarily because 2020 did not include the 2019 accelerated transmission inspection costs, Wildfires OII settlement charge or certain gas-transmission disallowances. Depreciation, amortization and decommissioning expense increased 7% to $3.469 billion. Interest expense increased 22% to $1.111 billion because of new post-emergence debt.
Operating cash flow was substantially negative because the Utility paid approximately $18.8 billion for pre-petition wildfire-related claims and contributed approximately $5.2 billion to the Wildfire Fund. Financing activities provided $26.070 billion, including approximately $13.0 billion of equity funding from PG&E Corporation and $10.4 billion of first-mortgage-bond proceeds.
At December 31, 2020, reported liquidity was approximately $2.8 billion, comprising $261 million of Utility cash, $223 million of PG&E Corporation cash and approximately $2.4 billion of credit-facility availability. Credit facilities included $1.9 billion available under the Utility revolving facility and $500 million available under the PG&E Corporation revolving facility. The Utility also had $3.0 billion outstanding under term loans and $1.0 billion outstanding under its receivables securitization program.
Material changes versus the prior comparable period
- Wildfire-related claims expense fell to $251 million net of insurance recoveries from $11.435 billion in 2019, when the principal charges related to the 2018 Camp fire and 2017 Northern California wildfires.
- 2020 included $625 million of gross probable losses for the 2019 Kincade fire and $275 million for the 2020 Zogg fire, partially offset by recorded insurance receivables of $430 million and $219 million, respectively. Management states that both estimates represent the low end of reasonably estimable losses and may increase.
- PG&E Corporation recorded $1.959 billion of reorganization expense, including approximately $1.5 billion for Backstop Commitment Premium Shares and Additional Backstop Premium Shares.
- PG&E Corporation raised approximately $9.0 billion through common stock and equity-linked offerings and issued approximately 1.46 billion common shares during 2020. Shares outstanding increased to approximately 1.985 billion at year-end from 529 million at year-end 2019.
- The Utility established a post-emergence capital structure comprising substantial secured debt, including approximately $9.6 billion of reinstated senior debt, approximately $11.9 billion of new mortgage bonds issued under the plan and additional bank and receivables financing.
- PG&E Corporation and the Utility funded the Fire Victim Trust with $5.4 billion of cash and approximately 477 million shares of PG&E Corporation common stock, representing 22.19% of outstanding shares at emergence, subject to potential adjustments. The Utility also funded an $11.0 billion Subrogation Wildfire Trust and paid $1.0 billion to settling public entities.
- Customer accounts receivable more than 30 days outstanding rose to approximately $825 million at year-end, $478 million above 2019, amid COVID-19 collection pressures and a disconnection moratorium.
Guidance, outlook, management commentary and risks
- Management estimates 2021 capital expenditures of approximately $7.5 billion to $8.3 billion.
- The 2020 General Rate Case authorized $9.102 billion of 2020 revenue requirements, with additional increases of $316 million for 2021 and $364 million for 2022, subject to implementation through regulatory advice letters. The Utility expects to file an integrated 2023 GRC and gas transmission and storage case by June 30, 2021.
- Wildfire mitigation remains a major spending priority. The Utility incurred approximately $2.9 billion under its 2020-2022 Wildfire Mitigation Plan and expects continued substantial vegetation-management, system-hardening, inspection and Public Safety Power Shutoff costs. Recovery of many amounts requires CPUC reasonableness review.
- The Utility received its 2020 AB 1054 safety certification in January 2021, but CPUC staff was evaluating whether to place the Utility into an Enhanced Oversight and Enforcement Process. Failure to maintain certification could limit access to the Wildfire Fund and remove certain liability protections.
- The Utility expects additional Public Safety Power Shutoff events. Related CPUC investigations and litigation could result in fines, customer payments or other costs; one intervenor proposed $166 million of penalties in a PSPS proceeding.
- The Utility is seeking authorization to securitize $7.5 billion of 2017 wildfire claims costs, which would be used in part to retire approximately $6.0 billion of Utility debt and accelerate a $592 million payment to the Fire Victim Trust. The filing states that the timing and outcome remain uncertain.
- COVID-19 reduced weather-adjusted electric and core-gas loads by approximately 2% each from mid-March through December 2020 and reduced billed revenues by an estimated $430 million over the comparable period. Recovery of COVID-related costs and uncollectibles remains subject to regulatory approval.
- PG&E Corporation may not pay common dividends until it recognizes $6.2 billion of post-emergence non-GAAP core earnings. Utility dividends are also restricted by probation requirements, preferred-dividend arrearages and regulatory capital conditions. No common or preferred dividends were paid in 2020.
- Key risks include future wildfires, inverse condemnation, insurance availability and coverage limits, exhaustion or restriction of the Wildfire Fund, regulatory disallowances, probation conditions, appeals of the reorganization plan, high leverage, refinancing needs, customer migration to community choice aggregators and direct access, cyber incidents, environmental remediation and the planned retirement of Diablo Canyon Units 1 and 2 in 2024 and 2025.
- The filing reports $1.301 billion of environmental remediation liabilities and indicates undiscounted future costs could reach approximately $2.2 billion if contamination or remediation requirements are greater than currently estimated.
Most important facts an investor should verify
- Whether the Utility obtains timely CPUC approval for the proposed $7.5 billion wildfire securitization and the separate proposed securitization of up to approximately $1.19 billion of wildfire-mitigation capital expenditures.
- Updated loss estimates, insurance recoveries and investigative outcomes for the Kincade and Zogg fires, including potential liabilities beyond the $900 million accrued probable loss.
- Maintenance of AB 1054 safety certification and the remaining capacity and claims experience of the Wildfire Fund.
- Compliance with the Utility’s debt covenants, maturity schedule and refinancing requirements, including the $1.5 billion term loan due June 30, 2021 and the $1.5 billion term loan due January 1, 2022.
- Progress on wildfire mitigation, vegetation management, PSPS performance and any CPUC or federal probation enforcement actions.
- Regulatory recovery of wildfire, COVID-19, insurance, environmental and other memorandum-account balances, including the $1.28 billion revenue requirement requested in the WMCE application.
- Potential dilution from the Fire Victim Trust, equity units, additional subordinated claims and any future equity issuance, together with the status of the proposed grantor-trust tax election.
- Actual 2021 capital spending, cash collections, customer arrears, operating cash flow and the impact of Diablo Canyon Unit 2 outages.