01—Abstract
Summary
Summary of the 10-K filed February 18, 2005. Cited figures are marked; the original filing is the authoritative source.
PG&E Corporation and Pacific Gas and Electric Company filed a combined 2004 annual report on Form 10-K.
The Utility emerged from its Chapter 11 proceeding on April 12, 2004, after recognizing a $3.7 billiona pre-tax Settlement Regulatory Asset and $1.2 billion of retained generation regulatory assets, producing a one-time after-tax gain of about $2.9 billion. PG&E Corporation reported 2004 net income of $4.504 billion, including a $684 million gain on the disposal of NEGT after its equity interest was cancelled on October 29, 2004. The Utility served approximately 4.9 million electricity and 4.1 million natural gas distribution customers and had about $34.3 billion of assets at year-end.
The filing highlights the Utility's return to cost-of-service ratemaking, a CPUC-authorized 11.22% return on equity, and a 52% equity ratio target. In February 2005, PG&E Energy Recovery Funding LLC issued about $1.9 billionb of energy recovery bonds to refinance the Settlement Regulatory Asset, and the Boards declared dividends and authorized share repurchases of up to $1.05 billion at PG&E Corporation. Key risks include pending appeals of the bankruptcy confirmation order and the CPUC's approval of the Settlement Agreement, the California FERC refund proceeding seeking up to $8.9 billion, Diablo Canyon spent fuel storage constraints, a 14-suit chromium litigation with a $160 million reserve, and California Attorney General and City and County of San Francisco complaints.
Leadership changes took effect January 1, 2005, when Peter A. Darbee became President and Chief Executive Officer of PG&E Corporation and Christopher P. Johns became Senior Vice President and Chief Financial Officer.
02—Key points
Key Highlights
- Reported 2004 consolidated net income of $4.504 billion, versus $420 million in 2003, with the increase driven largely by the Utility's recognition of regulatory assets under the Settlement Agreement.
- The Utility recognized a one-time, non-cash after-tax gain of approximately $2.9 billion in the first quarter of 2004 upon emergence from Chapter 11 on April 12, 2004.
- A $684 million after-tax gain on disposal of NEGT was recorded in the fourth quarter of 2004 after PG&E Corporation's equity interest in NEGT was cancelled.
- Issued about $1.9 billion of energy recovery bonds on February 10, 2005, to refinance the Settlement Regulatory Asset; the Utility expects its 2005 net income to be reduced by about $100 million from the loss of the 11.22% return on that asset.
- Boards declared a first-quarter 2005 PG&E Corporation dividend of $0.30 per share and increased the share repurchase authorization to $1.05 billion; the Utility's equity ratio reached 52% in January 2005.
- Cash and cash equivalents were $972 million at PG&E Corporation and $783 million at the Utility at year-end 2004, with restricted cash of $1.98 billion at each.
- Significant contingencies include appeals of the confirmation order and CPUC approval of the Settlement Agreement, a FERC refund proceeding seeking up to $8.9 billion, and a California Attorney General and CCSF complaint seeking civil penalties.
03—Questions
Frequently Asked Questions
How did the Utility's emergence from Chapter 11 affect 2004 results?
The Utility emerged on April 12, 2004, and recognized $3.7 billion pre-tax for the Settlement Regulatory Asset and $1.2 billion pre-tax for retained generation regulatory assets, a total after-tax gain of $2.9 billion. Consolidated 2004 net income was $4.504 billion, compared with $420 million in 2003. The Utility's 2004 operating revenues were $11.08 billion.
What are the main risks that could affect PG&E Corporation's financial results?
The filing identifies pending appeals of the bankruptcy confirmation order and the CPUC's approval of the Settlement Agreement, which if overturned could materially adversely affect financial condition. Other risks include the FERC Refund Proceeding seeking up to $8.9 billion, the chromium litigation with about 1,200 plaintiffs and a $160 million reserve, potential loss of Diablo Canyon if spent fuel storage is not expanded by about 2007, and the California Attorney General and CCSF complaints.
How is PG&E Corporation returning capital to shareholders?
PG&E Corporation declared a first-quarter 2005 cash dividend of $0.30 per share and set an initial annual target of $1.20 per share. The Board increased its share repurchase authorization to $1.05 billion on February 16, 2005, to be used through June 30, 2006, and expected to enter an accelerated share repurchase arrangement in early March 2005. The Utility also declared a $117 million dividend to its parent for the first quarter of 2005.
What is the status of the Settlement Agreement's regulatory assets and financing?
The Settlement Agreement established a $2.2 billion after-tax Settlement Regulatory Asset amortized over nine years. As of December 31, 2004, the Utility had recorded offsets of about $309 million pre-tax for supplier settlements and amortization of about $233 million pre-tax. On February 10, 2005, PERF issued about $1.9 billion of energy recovery bonds to refinance the remaining balance, with a second series of up to $1.1 billion anticipated in November 2005.
Who leads PG&E Corporation following the 2005 leadership changes?
Effective January 1, 2005, Peter A. Darbee became President and Chief Executive Officer of PG&E Corporation, replacing Robert D. Glynn, Jr., who remained Chairman of the Board. Christopher P. Johns became Senior Vice President and Chief Financial Officer, while continuing as Controller. Gordon R. Smith remained President and Chief Executive Officer of the Utility.
04—Continue