PG&E Corporation 10-Q Summary
Reporting period: Three and six months ended June 30, 2023, compared with the corresponding 2022 periods. The filing is a combined report for PG&E Corporation, the holding company, and Pacific Gas and Electric Company, its regulated California utility subsidiary. The Utility generates revenue primarily from regulated electricity and natural gas delivery.
Financial performance and key metrics
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Operating revenues | $5.290 billion | $5.118 billion | $11.499 billion | $10.916 billion |
| Operating income | $506 million | $445 million | $1.135 billion | $981 million |
| Net income | $410 million | $360 million | $982 million | $838 million |
| Income available to PG&E common shareholders | $406 million | $356 million | $975 million | $831 million |
| Diluted EPS | $0.19 | $0.17 | $0.46 | $0.39 |
PG&E Corporation’s net income attributable to common shareholders increased 14% in the quarter and 17% year to date. The Utility’s income available for common shareholders decreased to $476 million from $596 million in the quarter and to $1.099 billion from $1.123 billion year to date. The difference reflects PG&E Corporation-level items, principally holding-company interest expense.
- Six-month revenue increased 5%, primarily from authorized wildfire mitigation and catastrophic-event recovery revenues, higher FERC formula-rate revenues, and higher natural gas revenue.
- Six-month operating and maintenance expense decreased 4% at PG&E Corporation and 4% at the Utility, partly due to the absence of 2022 wildfire settlement charges and operating efficiencies. This was partly offset by recognition of deferred expenses under the 2020 WMCE decision and a $50 million Zogg-related charge.
- SB 901 securitization charges increased to $289 million in Q2 and $562 million year to date, compared with $40 million in each 2022 comparable period. These charges primarily reflect tax benefits generated by Fire Victim Trust share sales that are refundable to customers.
- Interest expense increased 57% in Q2 and 50% year to date, reflecting additional long-term debt and higher variable-rate borrowing costs.
- The effective tax rate was negative 194.9% in Q2 and negative 136.2% year to date, primarily because of tax benefits associated with Fire Victim Trust share sales and regulatory flow-through treatment.
Cash flow, liquidity, debt, and capital spending
| Utility cash flow metric | Six months 2023 | Six months 2022 |
|---|---|---|
| Cash provided by operating activities | $2.627 billion | $1.703 billion |
| Cash used in investing activities | $(4.420) billion | $(4.835) billion |
| Cash provided by financing activities | $1.772 billion | $3.149 billion |
| Capital expenditures | $4.680 billion | $4.539 billion |
- At June 30, 2023, PG&E Corporation had $805 million of cash and the Utility had $545 million. Combined liquidity was approximately $5.0 billion, including approximately $4.2 billion of revolving-credit availability.
- PG&E Corporation and the Utility had $125 million of short-term borrowings. PG&E Corporation reported $50.230 billion of noncurrent debt and $3.749 billion of current-classified long-term debt; the Utility reported $45.645 billion of noncurrent debt and $3.722 billion of current-classified long-term debt.
- The Utility issued $4.5 billion of First Mortgage Bonds during the first half of 2023, including $2.5 billion issued in June. Proceeds were used primarily to repay revolving-credit borrowings and maturing debt.
- The Utility’s revolving credit facility had $3.703 billion available and PG&E Corporation’s facility had $500 million available at June 30, 2023. The receivables securitization program had $985 million outstanding and no remaining availability at that date.
- Management estimated 2023 capital expenditures of $7.9 billion to $11.2 billion. No specific earnings guidance was provided in the filing.
- The Utility paid $875 million of common-stock dividends to PG&E Corporation during the first half of 2023. PG&E Corporation’s common-stock dividend remains suspended and cannot resume until the requirements under the bankruptcy Confirmation Order are satisfied.
Material changes versus the prior comparable period
- PG&E Corporation’s consolidated six-month net income increased $144 million, while Utility income available to common shareholders decreased $24 million.
- Wildfire-related claims expense declined by $147 million year to date because the 2022 period included a $150 million Kincade-related charge; no comparable 2023 charge was recorded.
- Depreciation, amortization, and decommissioning expense increased 8% year to date to $2.074 billion, driven by higher plant balances and nuclear decommissioning expense.
- Interest income increased substantially because of higher interest rates on regulatory balancing accounts.
- Customer accounts receivable more than 30 days past due were approximately $923 million at June 30, 2023, down $199 million from December 31, 2022 but still $691 million above December 31, 2019.
- Regulatory balancing accounts receivable increased to $5.383 billion from $3.264 billion at year-end 2022. Total recorded costs in specified memorandum and balancing accounts were approximately $6.1 billion, of which $4.4 billion was classified as long term and remained subject to recovery approval.
- Fire Victim Trust sales of 120 million PG&E shares during the first half generated a $527 million tax benefit. Cumulative sales through June 30, 2023 generated approximately $1.4 billion of recorded tax benefits.
Outlook, contingencies, and unusual items
- Wildfires: Recorded liabilities before available recoveries were $1.025 billion for the 2019 Kincade fire, $400 million for the 2020 Zogg fire, $1.175 billion for the 2021 Dixie fire, and $100 million for the 2022 Mosquito fire. Management states that additional losses could be material but cannot be reasonably estimated.
- At June 30, 2023, recorded probable wildfire recoveries included $430 million of Kincade insurance, $372 million of Zogg insurance, $528 million of Dixie insurance, and $54 million of Mosquito insurance. Probable Dixie recoveries also included $117 million through FERC rates, $411 million through the WEMA, and $175 million from the Wildfire Fund.
- The Utility’s commercial wildfire liability insurance program was scheduled to expire on August 1, 2023, after which wildfire liability insurance will be replaced by a CPUC-approved self-insurance program funded through rates at $400 million annually until $1.0 billion of unimpaired self-insurance is reached.
- The Utility recorded a $50 million liability under the Zogg criminal-case settlement and a separate $10 million liability under the Zogg SED settlement. The SED settlement also requires $140 million of non-recoverable mitigation initiatives as costs are incurred.
- The 2023-2025 Wildfire Mitigation Plan received an OEIS revision notice requiring responses to eight critical issues. A draft decision was scheduled for September 29, 2023. The Utility is also challenging an OEIS finding that it did not substantially comply with its 2020 plan; potential penalties cannot be estimated.
- The Utility requested approximately $749 million of revenue requirement in its 2023 wildfire and gas safety cost application, including $631 million of interim rate relief. The CPUC authorized $1.1 billion of interim relief for the 2022 WMCE proceeding, effective July 1, 2023.
- The 2023 general rate case requested a $15.82 billion revenue requirement, with a final decision scheduled for the third quarter of 2023. The 2023 cost-of-capital decision adopted a 10% authorized ROE.
- Diablo Canyon operations may continue through no later than 2030 under SB 846, subject to NRC license renewal and other approvals. The Utility expects to submit its license-renewal application by year-end 2023.
- PG&E Corporation recorded a $300 million liability for wildfire-related securities claims, before available insurance. The ultimate number and value of certain bankruptcy-related subordinated claims remain unresolved.
- The Utility recorded $1.380 billion of environmental remediation liabilities. Management identified possible additional undiscounted costs of up to $231 million at Topock, $126 million at Hinkley, $561 million at former manufactured-gas-plant sites, $78 million at other facilities, and $50 million at fossil-fuel sites.
- The Utility agreed in July 2023 to purchase the Lakeside Building for $906 million, with $150 million paid at signing, $250 million due in July 2024, and $506 million due at closing in June 2025.
Most important facts for investors to verify
- Whether wildfire liabilities, insurance proceeds, Wildfire Fund recoveries, and CPUC/FERC cost recovery ultimately match recorded estimates.
- The outcome and timing of the 2023 GRC, 2023 WGSC application, WMCE proceedings, FERC TO18 matters, and the 2023-2025 Wildfire Mitigation Plan.
- The adequacy of liquidity and access to capital markets given substantial debt, rising interest expense, expected capital expenditures, and the $1.0 billion customer credit trust contribution required in 2024.
- The transition from commercial wildfire insurance to self-insurance and the resulting exposure to uninsured wildfire losses.
- The final number of shares issued upon settlement of remaining equity units and the effect of continuing Fire Victim Trust share sales on dilution, tax benefits, and customer refunds under SB 901.
- The status and potential magnitude of unresolved securities litigation, environmental remediation, regulatory enforcement, and post-petition-interest claims.