10-Q: PG&E Corp and Pacific Gas and Electric Company Report First Quarter 2024 Results

PG&E Corporation and Pacific Gas and Electric Company released their joint first quarter 2024 report, detailing financial performance and operational updates.

Summary

• PG&E Corporation and Pacific Gas and Electric Company's combined quarterly report for the period ended March 31, 2024, shows a net income of $735 million for PG&E Corporation and $781 million for the Utility.
• The Utility's operating revenues decreased by 6% to $5.861 billion, primarily due to the recognition of $585 million in revenues authorized in the final 2020 WMCE decision in the three months ended March 31, 2023, with no comparable revenues in 2024, and a decrease in revenues to recover the cost of electricity procurement (which decreased by approximately $200 million) and the cost of natural gas (which decreased by approximately $390 million).
• This was partially offset by approximately $650 million in increased base revenues authorized in the 2023 GRC and approximately $275 million in interim rate relief authorized in the 2022 WMCE proceeding.
• The cost of electricity decreased by $201 million due to lower natural gas market prices, while the cost of natural gas decreased by $387 million for the same reason.
• Operating and maintenance expenses decreased by $43 million, primarily due to the recognition of $420 million of previously deferred expenses authorized in the final 2020 WMCE decision in the three months ended March 31, 2023, partially offset by the recognition of approximately $110 million of previously deferred expenses as a result of the 2023 GRC and approximately $275 million of previously deferred expenses authorized in the 2022 WMCE proceeding.
• The Utility's Wildfire Fund expense decreased by $39 million due to an increase in the estimated period of coverage of the Wildfire Fund from 15 to 20 years.
• Interest expense increased by $134 million due to an increase in long-term debt with higher fixed interest rates and an increase in short-term debt with higher variable interest rates.
• The Utility recorded insurance receivables of $430 million for the 2019 Kincade fire, $374 million for the 2020 Zogg fire, $526 million for the 2021 Dixie fire, and $68 million for the 2022 Mosquito fire.
• The Utility has recorded a Wildfire Fund receivable of $600 million for the 2021 Dixie fire.
• The Utility has recorded receivables for regulatory recovery of $576 million for the 2021 Dixie fire and $60 million for the 2022 Mosquito fire.
• The Utility estimates that it will incur $10.4 billion of capital expenditures in 2024.

Sentiment

Score: 5

Explanation: The document presents a mixed picture. While the company shows some improvements in cost management and operational efficiencies, the decrease in revenue and the ongoing challenges related to wildfires and regulatory proceedings temper the overall sentiment. The company is still facing significant risks and uncertainties.

Positives

• The Utility's operating and maintenance expenses decreased by $43 million, or 2%, in the three months ended March 31, 2024, compared to the same period in 2023.
• The Utility's Wildfire Fund expense decreased by $39 million, or 33%, in the three months ended March 31, 2024, compared to the same period in 2023.
• The Utility's interest income increased by $24 million, or 22%, in the three months ended March 31, 2024, compared to the same period in 2023.

Negatives

• The Utility's electric and natural gas operating revenues decreased by $348 million, or 6%, in the three months ended March 31, 2024, compared to the same period in 2023.
• The Utility's interest expense increased by $134 million, or 26%, in the three months ended March 31, 2024 compared to the same period in 2023.

Risks

• The financial condition of PG&E Corporation and the Utility may be materially affected by the costs and effectiveness of the Utility's wildfire mitigation initiatives, the extent of damages from wildfires, and the ability to mitigate financial impacts with insurance, the Wildfire Fund, and regulatory recovery.
• The timing and outcome of ratemaking and other regulatory proceedings can significantly impact the Utility's business profile and financial results.
• The Utility's ability to control operating and financing costs is crucial for maintaining earnings within authorized levels.
• The potential that the Utility's equipment will be involved in the ignition of future wildfires, including catastrophic wildfires, is significant.
• The Utility could face fines, penalties, enforcement action, or other adverse legal or regulatory consequences for late inspections or other noncompliance related to wildfire mitigation efforts.

Future Outlook

PG&E Corporation and the Utility expect to be able to generate and obtain adequate cash to meet their cash requirements in the short-term and in the long-term, primarily through the capital and credit markets. PG&E Corporation does not plan to issue any equity in 2024, except for employee compensation purposes. PG&E Corporation and the Utility are pursuing the potential sale of a minority interest in Pacific Generation.

Management Comments

• The Utility has set a goal to increase its capital investments to meet safety and climate goals, while also achieving operating cost savings.
• The Utility plans to achieve such savings by improving the planning and execution of its work through increased efficiencies, including waste elimination through the Lean operating system.

Industry Context

The report reflects the ongoing challenges and investments in wildfire mitigation and infrastructure upgrades that are common among California utilities. The focus on cost recovery and regulatory proceedings highlights the complex environment in which PG&E operates, influenced by state policies and climate change.

Comparison to Industry Standards

• PG&E's financial results are being compared to other large investor-owned utilities (IOUs) in California, such as Southern California Edison and San Diego Gas & Electric, which also face similar challenges related to wildfire risk and regulatory oversight.
• The level of capital expenditure at $10.4 billion is significant and is being compared to other utilities' investments in grid hardening and renewable energy infrastructure.
• The reliance on regulatory mechanisms for cost recovery is a common practice among IOUs, but the specific outcomes of PG&E's rate cases are being closely watched by investors and regulators.
• The ongoing litigation and claims related to wildfires are a major factor affecting PG&E's financial performance, and the company's approach to managing these liabilities is being compared to other utilities that have faced similar challenges.

Legal Proceedings

• PG&E Corporation and the Utility have recorded aggregate liabilities of $1.125 billion, $400 million, $1.6 billion, and $100 million for claims in connection with the 2019 Kincade fire, the 2020 Zogg fire, the 2021 Dixie fire, and the 2022 Mosquito fire, respectively.
• The Utility is subject to a number of legal and regulatory requirements related to its wildfire mitigation efforts, which require periodic inspections of electric assets and ongoing reporting related to this work.
• The Utility could face fines, penalties, enforcement action, or other adverse legal or regulatory consequences for late inspections or other noncompliance related to wildfire mitigation efforts.
• The Utility is unable to predict the likelihood and the amount of potential fines or penalties, if any, related to self-reported violations to the CPUC.
• The Utility is involved in ongoing litigation related to the 2019 Kincade fire, the 2020 Zogg fire, the 2021 Dixie fire, and the 2022 Mosquito fire.
• The Utility is also subject to a criminal investigation by the USFS and the United States Department of Justice into the 2022 Mosquito fire.

Stakeholder Impact

• Shareholders are impacted by the financial performance and the potential for future liabilities related to wildfires.
• Employees are affected by the company's ability to attract and retain specialty personnel.
• Customers are impacted by the cost of service and the reliability of the Utility's infrastructure.
• Suppliers and creditors are affected by the Utility's financial stability and ability to meet its obligations.

Next Steps

• The Utility will continue to pursue cost recovery through various regulatory proceedings.
• The Utility will update its net recovery request for Diablo Canyon in the fourth quarter of 2024.
• The Utility expects to submit its undergrounding plan to the OEIS after final guidelines are issued before submitting its cost application to the CPUC.
• The Utility will continue to work with the California Coastal Commission and the Central Coast Regional Water Quality Control Board to resolve any outstanding issues related to the 2020 CZU Lightning Complex fire.

Key Dates

Keywords

wildfire mitigation, regulatory proceedings, cost recovery, capital expenditures, operating expenses, net income, insurance, Wildfire Fund, rate cases, Diablo Canyon