01—Abstract
Summary
Summary of the 10-K filed February 21, 2013. Cited figures are marked; the original filing is the authoritative source.
PG&E Corporation and Pacific Gas and Electric Company filed a combined 2012 Form 10-K on February 21, 2013.
The Utility served about 5.2 million electricity and 4.4 million natural gas distribution customers at year-end 2012, with approximately $52 billiona in assets and roughly $15 billion in 2012 revenues. The filing is dominated by the San Bruno pipeline accident of September 9, 2010. Through December 31, 2012, the company had recorded cumulative charges of about $1.83 billion related to the accident and natural gas matters, including a $353 million charge in 2012 for disallowed pipeline safety enhancement plan capital expenditures.
The CPUC approved the plan on December 20, 2012 but capped capital recovery at $1.0 billionb of the $1.4 billion requested, and the company forecasts $400 million to $500 million of non-recoverable pipeline-related costs in 2013. The largest pending exposure is three CPUC investigations plus other enforcement matters. The Utility has accrued at least $200 million in probable penalties, but management says the ultimate amount could be materially higher.
Briefs on penalties are due April 26, 2013, and presiding officer decisions are expected by July 23, 2013. Third-party San Bruno claims were accrued at $455 millionc cumulatively, with a reasonably possible additional $145 million. The company is also a federal criminal investigation target.
Reported 2012 net income available for common shareholders was $816 milliond, or $1.92 diluted EPS, down from $2.10 in 2011. The company expects to issue about $1 billion of common stock in 2013 to fund the Utility's equity needs, which is dilutive, and capital spending is forecast at about $5.1 billion in 2013. The Utility's 2013 cost of capital decision cuts the authorized ROE to 10.40% from 11.35%, with a 52% equity structure.
The 2014 General Rate Case requests base revenue of $1.28 billion above the 2013 authorized level. The dividend was held at $1.82 per share annualized, and management expects to maintain the current quarterly rate subject to the outcome of natural gas matters.
02—Key points
Key Highlights
- Cumulative natural gas matter charges of about $1.83 billion since the September 2010 San Bruno accident, including a $353 million 2012 charge for disallowed pipeline safety enhancement plan capital expenditures.
- At least $200 million of penalties accrued for three pending CPUC investigations; the ultimate amount could be materially higher, with presiding officer decisions expected by July 23, 2013.
- 2012 income available for common shareholders of $816 million, or $1.92 diluted EPS, versus $2.10 in 2011.
- Expected 2013 common stock issuance of about $1 billion to fund Utility equity needs, which will be materially dilutive to earnings per share.
- CPUC cut the authorized ROE to 10.40% from 11.35% effective January 1, 2013, with a 52% equity capital structure; the 2013 revenue requirement falls by about $235 million.
- Utility requested a $1.28 billion increase in 2014 base revenues in its November 2012 General Rate Case filing.
- The U.S. Department of Justice, California Attorney General and San Mateo County District Attorney are investigating the San Bruno accident, and the Utility has been told it is a target.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2012filed February 21, 2013Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Revenue | $15.04B$14.96B | +0.6% |
| Operating Income | $1.69B$1.94B | −12.8% |
| Interest Expense | $703.00M$700.00M | +0.4% |
| Net Income | $830.00M$858.00M | −3.3% |
| EPS (Basic) | $1.92$2.10 | −8.6% |
| EPS (Diluted) | $1.92$2.10 | −8.6% |
| Shares Outstanding (Basic) | 424.00M401.00M | +5.7% |
| Shares Outstanding (Diluted) | 425.00M402.00M | +5.7% |
05—Questions
Frequently Asked Questions
How much has the San Bruno accident and related natural gas matters cost so far?
Through December 31, 2012, PG&E Corporation and the Utility recorded cumulative charges to net income of about $1.83 billion related to natural gas matters. This includes $1.023 billion of pipeline-related expenses, $353 million of disallowed capital expenditures, $217 million of accrued penalties, $455 million of third-party claims, $284 million of insurance recoveries offset against those claims, and a $70 million contribution to the City of San Bruno.
What penalties could the CPUC impose, and what has been accrued?
The Utility believes it is probable it will incur at least $200 million in penalties and has accrued that amount. The CPUC can impose up to $50,000 per day per violation for violations occurring on or after January 1, 2012. The SED's financial consultant suggested PG&E Corporation could raise about $2.25 billion of equity to fund penalties, while the Utility's consultant cited a mean analyst expectation of $477 million. Management says the final amount could be materially higher than the accrued amount.
How will the company fund its equity needs and what does that mean for shareholders?
PG&E Corporation funds equity contributions to the Utility, which maintains a CPUC-authorized 52% equity capital structure, primarily through common stock issuances. The company forecasts issuing about $1 billion of common stock in 2013. The filing states that these issuances will have a material dilutive effect on earnings per common share, and that issuances used to fund unrecoverable costs and penalties will add further dilution. The Board has said it expects to maintain the current quarterly dividend of $0.455 per share, subject to the outcome of natural gas matters.
What regulatory decisions affect the Utility's earnings going forward?
The CPUC's December 2012 cost of capital decision reduces the authorized ROE to 10.40% from 11.35% for 2013, lowering the revenue requirement by about $235 million. The pending 2014 General Rate Case requests $1.28 billion more in base revenues for 2014 than authorized for 2013, with a decision expected in December 2013. At the FERC, the Utility's transmission owner rate case reflects a 9.1% ROE after FERC directed a reduction from the 11.5% originally requested, with new rates effective May 1, 2013 subject to refund.
What is the current status of San Bruno-related lawsuits?
At December 31, 2012, about 140 third-party lawsuits involving roughly 450 plaintiffs had been filed, including two class actions. As of February 8, 2013, the Utility had settled claims of about 140 plaintiffs, and the court vacated the January 2013 trial after many cases settled. The Utility had recorded $455 million in cumulative charges for third-party claims and estimates up to an additional $145 million is reasonably possible, for a total possible loss of $600 million, excluding punitive damages, which the company cannot estimate. Insurance covers a significant portion of these costs, though the amount and timing of future recoveries are uncertain.
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