PG&E Corporation 2011 Form 10-K Summary
Business context and reporting period
PG&E Corporation is a California holding company conducting substantially all operations through Pacific Gas and Electric Company, a regulated electric and natural gas utility serving northern and central California. The filing covers the fiscal year ended December 31, 2011; it is an annual filing rather than a standalone fourth-quarter report.
- Approximately 5.2 million electric distribution customers and 4.3 million natural gas distribution customers at year-end.
- Utility assets were approximately $49.2 billion and Utility revenues were approximately $15 billion in 2011.
- The Utility employed approximately 19,253 of the consolidated group’s 19,274 regular employees.
- Primary regulators include the California Public Utilities Commission, Federal Energy Regulatory Commission, Nuclear Regulatory Commission, and pipeline-safety authorities.
Financial metrics and operating indicators
| Metric | 2011 | Comparable period or context |
|---|---|---|
| Utility electricity operating revenues | $11.601 billion | $10.644 billion in 2010 |
| Utility natural gas operating revenues | $3.350 billion | $3.196 billion in 2010 |
| PG&E Corporation income available to common shareholders | $844 million | $1.099 billion in 2010; $1.220 billion in 2009 |
| PG&E Corporation diluted EPS | $2.10 | $2.82 in 2010; $3.20 in 2009 |
| PG&E Corporation cash and cash equivalents | $209 million | $240 million at December 31, 2010 |
| PG&E Corporation operating cash flow | $(76) million | $34 million in 2010 |
| PG&E Corporation total assets | $12.858 billion | $12.096 billion at December 31, 2010 |
| PG&E Corporation long-term debt | $349 million | $349 million at December 31, 2010 |
| Utility electric deliveries | 83,688 GWh | 83,908 GWh in 2010 |
| Utility natural gas deliveries | 804 Bcf | The filing text does not provide a directly comparable total for 2010 in this section |
The filing text provided does not include the complete consolidated Utility and PG&E Corporation income statements, balance sheets, cash flow statements, debt totals, liquidity ratios, or operating-margin calculations. Accordingly, consolidated revenue, net income, EBITDA, free cash flow, total debt, and consolidated margins cannot be stated reliably from the supplied text.
- The CPUC authorized approximately $6.0 billion of 2011 electric and natural gas distribution and electric-generation revenue requirements, up $450 million, or 8.0%, from the 2010 authorized amount of $5.6 billion.
- The authorized Utility capital structure through 2012 was 52% equity, 46% long-term debt, and 2% preferred stock. The 2012 authorized overall rate of return on rate base was 8.79%, including an 11.35% authorized return on common equity.
- PG&E Corporation contributed $205 million of equity to the Utility during the fourth quarter to maintain the Utility’s 52% common-equity target and support capital expenditures.
- PG&E Corporation paid $704 million of common dividends in 2011, compared with $662 million in 2010.
- The Utility issued $1.05 billion of senior notes during 2011, including notes due in 2021, 2012, and 2041; the supplied text does not provide the complete year-end consolidated debt balance.
Material changes versus prior comparable period
- PG&E Corporation income available to common shareholders declined approximately 23% from 2010, and diluted EPS declined from $2.82 to $2.10. The filing attributes the financial results to matters discussed in the incorporated Annual Report and does not provide sufficient MD&A detail in the supplied text to quantify each driver.
- Utility electric operating revenue increased approximately 9.0% from 2010, while electric deliveries declined modestly by approximately 0.3%.
- Utility natural gas operating revenue increased approximately 4.8% from 2010. Bundled gas revenue increased to $2.950 billion from $2.819 billion, and transportation-only revenue increased to $400 million from $377 million.
- Parent-company cash declined by $31 million during 2011, reflecting negative operating cash flow, investment in subsidiaries, dividends, equity issuance, and other financing activities.
- The Utility began or expanded major safety, integrity, recordkeeping, and emergency-response programs following the San Bruno accident, including validation of maximum allowable operating pressure on approximately 1,800 pipeline miles, automation of 11 shutoff valves, and hydrostatic testing of approximately 165 miles.
- RPS-eligible renewable deliveries represented 19.3% of total 2011 retail electric sales, while California legislation increased the eventual renewable requirement to 33% by 2020.
Guidance, outlook, commentary, risks, contingencies, and unusual items
- Management expected annual rate increases of $180 million for 2012 and $185 million for 2013 under the 2011 General Rate Case.
- The Utility planned to file its next General Rate Case application in December 2012 for the period beginning January 1, 2014.
- The Pipeline Safety Enhancement Plan could require significant testing, replacement, and other pipeline work. The Utility stated that costs incurred before CPUC approval might not be recoverable through rates.
- The San Bruno accident remains the most significant risk. Approximately 100 lawsuits involving about 370 plaintiffs had been filed, and civil, regulatory, and criminal investigations were pending. The Utility acknowledged liability for the accident and stated that it would take financial responsibility for victims.
- The Utility accrued an amount for probable and reasonably estimable penalties related to natural gas matters, but the supplied text does not state the total accrual. A separate January 2012 citation imposed an approximately $17 million penalty for self-reported violations.
- Regulators alleged deficiencies in pipeline installation, integrity management, recordkeeping, emergency response, and corporate safety culture. The CPUC may determine whether shareholders, ratepayers, or both bear future testing, replacement, and compliance costs.
- The Utility increased its Hinkley environmental remediation provision by $140 million in 2011 and spent $36 million on Hinkley remediation. Hinkley remediation costs are not recoverable through the Utility’s normal ratemaking mechanism.
- Diablo Canyon faces seismic, relicensing, nuclear-safety, spent-fuel, and once-through-cooling risks. Potential cooling-tower costs were estimated at as much as $4.5 billion; an adverse regulatory determination could require alternative compliance, substitute power, or plant shutdown.
- Helms pumped-storage units experienced rotor cracks and equipment failure. Unit 1 was expected to return to service by the end of 2012, subject to repair effectiveness.
- California greenhouse-gas cap-and-trade requirements began in 2012, with the first compliance period beginning in 2013. The Utility expected compliance costs to be passed through to customers, but allocation of certain allowances remained unresolved.
- Other material risks include access to capital markets, interest-rate and commodity-price volatility, weather and natural disasters, cyberattacks, environmental remediation, nuclear regulation, customer migration to direct access or community choice aggregation, and potential municipalization or distributed-generation competition.
- Deloitte & Touche issued an unqualified audit opinion, with an explanatory paragraph concerning pending CPUC investigations and enforcement matters that could result in material penalties.
Most important facts for an investor to verify
- Complete consolidated 2011 and 2010 financial statements, including Utility net income, operating cash flow, capital expenditures, total debt, liquidity, and margins, which are incorporated from the 2011 Annual Report but are not fully reproduced in the supplied filing text.
- The amount accrued for San Bruno-related penalties, litigation, claims, insurance recoveries, and other regulatory liabilities, as well as the range of reasonably possible additional losses.
- The ultimate cost and rate-recovery treatment of the Pipeline Safety Enhancement Plan and related natural gas compliance work.
- The status and financial impact of CPUC investigations, the criminal investigation, civil litigation, and potential shareholder-versus-ratepayer allocation of safety costs.
- The Hinkley remediation liability and any changes in estimates, insurance recoveries, or non-recoverable expenditures.
- Utility and parent-company debt maturities, revolver availability, covenants, refinancing needs, and dividend capacity.
- Diablo Canyon seismic, relicensing, cooling-water, decommissioning, and spent-fuel obligations, including the potential exposure associated with the estimated $4.5 billion cooling-tower alternative.