Business Context and Reporting Period
PG&E Corporation filed a combined Form 10-K with Pacific Gas and Electric Company for the fiscal year ended December 31, 2010. The filing covers the holding company and its principal subsidiary, a regulated northern and central California utility providing electricity and natural gas distribution, generation, procurement, transmission, transportation, and storage services.
- The Utility served approximately 5.2 million electric customers and 4.3 million natural gas customers at year-end.
- The Utility reported approximately $45.7 billion of assets and $13.8 billion of 2010 revenue.
- The filing is an annual report, not a standalone fourth-quarter filing; detailed consolidated financial statements and MD&A are incorporated by reference from the 2010 Annual Report to Shareholders.
Financial and Operating Metrics
| Metric | 2010 disclosed amount | Comparable period or context |
|---|---|---|
| PG&E Corporation income available to common shareholders | $1.099 billion | $1.220 billion in 2009; $1.338 billion in 2008 |
| Basic EPS | $2.86 | $3.25 in 2009; $3.64 in 2008 |
| Diluted EPS | $2.82 | $3.20 in 2009; $3.63 in 2008 |
| Parent cash and cash equivalents | $240 million | $193 million at December 31, 2009 |
| Parent operating cash flow | $34 million | $135 million in 2009; $(27) million in 2008 |
| Electricity operating revenues | $10.644 billion | $10.257 billion in 2009 |
| Natural gas operating revenues | $3.196 billion | $3.142 billion in 2009 |
| Electricity deliveries | 83,908 GWh | 85,629 GWh in 2009 |
| Natural gas deliveries | 842 Bcf | Approximately 7,404 MMDth of total system throughput |
| Parent long-term debt | $349 million | $348 million at December 31, 2009 |
The filing text provided does not clearly state consolidated PG&E Corporation or Utility net debt, total debt, consolidated operating cash flow, free cash flow, operating income, net margin, or liquidity availability under revolving credit facilities. The Utility maintained a CPUC-authorized capital structure of 52% equity, 46% long-term debt, and 2% preferred stock through 2012, absent an adjustment trigger.
Material Changes Versus the Prior Comparable Period
- PG&E Corporation income available to common shareholders declined approximately 10% from 2009, while diluted EPS declined approximately 12%.
- Parent operating cash flow declined from $135 million to $34 million, although year-end parent cash increased by $47 million to $240 million.
- Electricity operating revenue increased approximately 4% despite a 2% decline in electricity deliveries. The increase reflected rate and customer-mix effects, including higher average billed rates.
- Natural gas operating revenue increased approximately 2%, while net gas for sales declined from 252,767 MMcf to 249,116 MMcf.
- Colusa Generating Station became operational in December 2010, and Humboldt Bay Generating Station became operational in September 2010; older Humboldt Bay fossil facilities were retired at the end of September.
- PG&E Corporation contributed $20 million to the Utility during the fourth quarter to maintain the Utility’s 52% common-equity target and support capital expenditures.
- During 2010, the Utility issued multiple senior-note series, including $550 million of 3.50% notes due 2020 and $250 million of floating-rate notes due 2011, as well as other long-term debt issuances. The filing text does not provide a consolidated year-end debt total.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- San Bruno accident: The September 9, 2010 pipeline rupture caused eight deaths, injuries, destruction of at least 34 homes, extensive litigation, and investigations by the NTSB and CPUC. As of February 8, 2011, 64 lawsuits involving approximately 188 plaintiffs had been filed. The Utility had approximately $992 million of liability insurance above a $10 million deductible, but no insurance recoveries had been recorded at December 31, 2010.
- Regulatory and legal exposure: Potential civil or criminal penalties, third-party claims, service-disruption costs, pipeline safety mandates, reputational damage, and costs not recoverable through rates or insurance could materially affect results. The filing does not provide a clear ultimate liability estimate for the San Bruno matter.
- Diablo Canyon: The nuclear plant operated at an approximately 95% average capacity factor in 2010. California once-through-cooling requirements could require substantial compliance expenditures; management estimated cooling-tower costs could be as much as $4.5 billion and warned that an adverse determination could require plant closure and a material charge.
- Environmental remediation: 2010 expenditures included approximately $12 million at Hunters Point, $35 million at former manufactured-gas-plant sites, $15 million at Hinkley, and $22 million at Topock. Hinkley costs are not recoverable from customers or insurers; Topock costs are subject to a ratemaking mechanism.
- Capital program and procurement: The Utility was authorized to obtain approximately 1,500 MW of new generation resources by 2016 and expected continuing investment in transmission, distribution, pipeline safety, advanced meters, and renewable resources.
- Renewables: RPS-eligible deliveries were 15.9% of 2010 retail electricity sales, below the stated 20% target, subject to flexible-compliance rules. Future requirements increase to 33% beginning in 2020 under the cited regulatory schedule.
- SmartMeter program: Approximately 7.5 million of an authorized 10 million advanced meters had been installed by year-end. Customer complaints, CPUC investigations, municipal opposition, health concerns, and litigation created execution and regulatory risks.
- Outlook: Management emphasized cost recovery through CPUC and FERC ratemaking, energy efficiency, demand response, renewable resources, and infrastructure investment. No quantitative earnings or revenue guidance is provided in the supplied filing text.
Most Important Facts an Investor Should Verify
- Read the incorporated 2010 Annual Report MD&A and notes for consolidated debt, liquidity, cash flow, capital expenditures, provisions, insurance accounting, and quarterly results.
- Review the San Bruno and Rancho Cordova investigations, subsequent legal developments, recorded liabilities, insurance coverage, and potential rate recovery.
- Confirm the status and cost implications of Diablo Canyon once-through-cooling compliance and nuclear license renewal.
- Assess the Utility’s actual capital structure, credit facilities, debt maturities, interest costs, and access to capital markets.
- Verify the treatment of the 2010 renewable-energy shortfall, future RPS obligations, and associated procurement costs.
- Evaluate whether SmartMeter deployment, pipeline safety upgrades, environmental remediation, and other capital spending remain recoverable through rates.