01—Abstract
Summary
Summary of the 10-K filed February 22, 2008. Cited figures are marked; the original filing is the authoritative source.
PG&E Corporation, a California holding company, conducts its business principally through Pacific Gas and Electric Company (the Utility), a public utility operating in northern and central California.
At December 31, 2007, the Utility served approximately 5.1 million electricity distribution customers and 4.3 million natural gas distribution customers, had approximately $36.3 billiona of assets, and generated revenues of approximately $13.2 billion in 2007. PG&E Corporation reported 2007 net income of $1,006 million and diluted earnings per share of $2.78, compared with $2.76 in 2006. The filing attributes the increase mainly to positive regulatory outcomes, partly offset by events that boosted 2006 earnings but did not recur in 2007.
The Utility's regulatory position is central to investor outcomes. The CPUC's March 2007 General Rate Case decision set a $4.9 billionb annual revenue requirement for 2007 through 2010, and the CPUC kept the Utility's authorized return on equity at 11.35% with a 52% common equity component for 2008. The Utility expects capital expenditures of approximately $3.4 billion annually over the next four years, and PG&E Corporation anticipates contributing $2 billion to $2.5 billion of additional equity to the Utility over that period.
Key risks disclosed include the outcome of the CAISO's MRTU market redesign, a possible CPUC decision on direct access and resource adequacy, Diablo Canyon operating and spent fuel storage issues, environmental remediation liabilities of approximately $528 million (potentially up to $834 millionc), and a lawsuit by the California Attorney General and the City and County of San Francisco seeking restitution of approximately $5 billion plus penalties. The filing is a combined annual report for PG&E Corporation and the Utility.
Most financial statements, MD&A and risk disclosures are incorporated by reference from the 2007 Annual Report (Exhibit 13), and the Utility's dividend, debt and credit facility arrangements are described there. The company declared a quarterly dividend of $0.39d per share on February 20, 2008, up from $0.36.
02—Key points
Key Highlights
- 2007 diluted EPS of $2.78 versus $2.76 in 2006; net income of $1,006 million, up about $15 million, mainly from positive regulatory outcomes.
- Total operating revenues of $13.2 billion in 2007, with the Utility serving about 5.1 million electricity and 4.3 million natural gas distribution customers.
- The CPUC's 2007 GRC set a $4.9 billion annual revenue requirement for 2007-2010, with authorized increases in 2008-2010; the authorized ROE stays at 11.35% with a 52% common equity ratio for 2008.
- Capital expenditures of $2.8 billion in 2007, with about $3.6 billion expected in 2008 and an average of approximately $3.4 billion over the next four years; PG&E Corporation expects to contribute $2 billion to $2.5 billion of equity to the Utility over four years.
- Moody's upgraded the Utility to A3 in December 2007, terminating a Chapter 11 settlement provision that required a minimum 11.22% ROE and 52% equity ratio.
- Environmental remediation liability of approximately $528 million at December 31, 2007, which could rise to as much as $834 million.
- Pending litigation by the California Attorney General and City and County of San Francisco alleges violations of holding company conditions and seeks restitution of about $5 billion and a total penalty of not less than $500 million; the company believes the claims lack merit.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2007filed February 22, 2008Financial Statements
| Revenue | $13.24B |
| Operating Income | $2.11B |
| Interest Expense | $762.00M |
| Net Income | $1.01B |
| EPS (Basic) | $2.79 |
| EPS (Diluted) | $2.78 |
| Shares Outstanding (Basic) | 351.00M |
| Shares Outstanding (Diluted) | 353.00M |
05—Questions
Frequently Asked Questions
How did PG&E Corporation's 2007 earnings compare with 2006?
Diluted EPS was $2.78 in 2007 versus $2.76 in 2006, and net income rose about $15 million, or 2%, to $1,006 million. The filing says the increase was mainly due to positive regulatory outcomes, partly offset by 2006 items that did not recur, including $77 million from scheduling coordinator cost recovery and $39 million from interest and litigation cost recovery.
What returns can the Utility earn on its rate base?
For 2008 the CPUC maintained an 11.35% authorized ROE on electricity and natural gas distribution and generation rate base and a 52% common equity component. The overall authorized return on rate base is 8.79%, with 46% long-term debt at 6.05% and 2% preferred stock at 5.68%.
What major regulatory decisions could affect future results?
The CPUC is expected to decide in May 2008 whether to change the resource adequacy program toward a centralized capacity market, and it is scheduled to vote on February 28, 2008 on a proposed decision concerning direct access. A CPUC decision on replacing the annual cost of capital proceeding is due by April 24, 2008. The CAISO's MRTU market redesign has been delayed several times and has no set start date.
What are the largest legal and environmental exposures disclosed?
The most significant legal matter is the California Attorney General and City and County of San Francisco lawsuit, which seeks restitution of about $5 billion and a total penalty of not less than $500 million, though the company believes the allegations have no merit. Environmental remediation liabilities total approximately $528 million, with possible costs up to $834 million. The filing also notes that operations at Diablo Canyon could be curtailed as early as 2010 if spent fuel storage is not expanded.
Is the dividend changing?
On February 20, 2008, PG&E Corporation's Board declared a quarterly dividend of $0.39 per share, an increase of $0.03 from the prior $0.36 level, payable April 15, 2008. The 2007 dividends declared per common share totaled $1.44, compared with $1.32 in 2006.
06—Continue