01—Abstract
Summary
Summary of the 10-K filed February 10, 2015. Cited figures are marked; the original filing is the authoritative source.
PG&E Corporation and Pacific Gas and Electric Company filed a combined 2014 Annual Report on Form 10-K.
The filing centers on the CPUC's September 2, 2014 presiding officer decisions in three investigative enforcement proceedings tied to the Utility's gas transmission system and the September 9, 2010 San Bruno accident. The ALJs jointly called for total penalties of $1.4 billiona, and the filing states the Utility has appealed, that the decisions are not final, and that the Utility estimates total pre-tax unrecovered costs and fines of about $4.85 billion if the decision becomes final. At December 31, 2014 the Utility had accrued $200 million for the minimum fines deemed probable, and the company states it believes total penalties will be materially in excess of that amount.
A federal criminal indictment (28 counts, superseding) is also pending, with a maximum alternative fine of about $1.13 billionb, which the Utility denies. Financially, PG&E Corporation reported 2014 operating revenues of $17,090 million, operating income of $2,450 million, and diluted EPS of $3.06, compared with $1.83 in 2013. Net income available for common shareholders was $1,436 million.
Results were supported by the August 14, 2014 final 2014 GRC decision, which authorized a total 2014 revenue requirement of approximately $7.1 billionc, and by approximately $200 million of 2013 excess spending that the GRC decision now supports in revenues. Total assets were $60,127 million at year-end. The company expects to issue $400 million to $600 million of common stock in 2015, excluding any fines, and states that these issuances could be materially dilutive to EPS.
The Utility forecasts 2015 capital expenditures of $5.5 billiond. Key pending matters for 2015 include the 2015 GT&S rate case, where the Utility requested a 2015 revenue requirement of $1.29 billion (an increase of $555 million), with a final decision expected in August 2015, and an ex parte communications matter that led the CPUC to disallow up to the entire incremental revenue for March to August 2015 and impose a $1.05 million fine.
02—Key points
Key Highlights
- Pending CPUC enforcement: presiding officer decisions call for $1.4 billion in total penalties and disallowances ($950 million fine, $400 million refund, at least $50 million remedial measures); the decisions are not final and are under appeal.
- Estimated total pre-tax shareholder impact if the decision becomes final: about $4.85 billion, including about $2.8 billion in gas pipeline safety costs incurred or committed.
- Accrued liability of $200 million at December 31, 2014 for the minimum probable fines; the company believes the final penalties will be materially higher.
- Federal criminal indictment: 27 felony counts under the Natural Gas Pipeline Safety Act plus one obstruction count; maximum statutory fines of $14 million and a maximum alternative fine of about $1.13 billion; the Utility pleaded not guilty.
- 2014 EPS of $3.06 diluted versus $1.83 in 2013, with operating revenues of $17.09 billion, supported by the 2014 GRC decision authorizing a total 2014 revenue requirement of about $7.1 billion.
- Equity issuance: $802 million of common stock issued in 2014, and $400 million to $600 million forecast for 2015, which could materially dilute EPS.
- Dividend held at $1.82 per share annually, with the company expecting to maintain the current quarterly dividend subject to the outcome of enforcement matters.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2014filed February 10, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $17.09B$15.60B | +9.6% |
| Operating Income | $2.45B$1.76B | +39.0% |
| Interest Expense | $734.00M$715.00M | +2.7% |
| Net Income | $1.44B$828.00M | +73.4% |
| EPS (Basic) | $3.07$1.83 | +67.8% |
| EPS (Diluted) | $3.06$1.83 | +67.2% |
| Shares Outstanding (Basic) | 468.00M444.00M | +5.4% |
| Shares Outstanding (Diluted) | 470.00M445.00M | +5.6% |
05—Questions
Frequently Asked Questions
How much could the Utility ultimately have to pay for the San Bruno-related enforcement matters?
The ALJs' presiding officer decisions call for $1.4 billion in total penalties and disallowances. The Utility estimates its total pre-tax unrecovered costs and fines would be about $4.85 billion if the joint decision becomes final, based on current forecasts. Only $200 million is accrued, and the company states that it believes the CPUC will impose penalties materially in excess of that amount, though the final amount is uncertain.
Is PG&E Corporation's financial performance improving?
Yes, based on the reported figures. Diluted EPS rose to $3.06 in 2014 from $1.83 in 2013, and operating income increased to $2,450 million from $1,762 million. The increase reflects the 2014 GRC decision, lower net natural gas matter costs, and a tax benefit from the repairs method and forecast change, which together offset the enforcement-related charges.
Will the company need to issue more stock?
Yes. The company issued $802 million of common stock in 2014 and forecasts issuing between $400 million and $600 million in 2015, excluding any fines the Utility may be required to pay. The company states that these issuances could have a material dilutive effect on EPS, depending on the outcome of the enforcement matters and the 2015 GT&S rate case.
What is the status of the 2015 GT&S rate case?
The Utility requested a 2015 revenue requirement of $1.29 billion, an increase of $555 million over currently authorized amounts. Hearings ran from February 2, 2015 to February 27, 2015, and the current schedule calls for a final decision in August 2015. The CPUC has disallowed up to the entire incremental revenue for March through August 2015 because of ex parte communications, and that decision is subject to rehearing applications.
Does the company face risk of losing its ability to use regulatory accounting for gas transmission?
Yes. The filing states that if rates in the 2015 GT&S rate case and future rate cases do not allow the Utility to recover the cost of gas transmission service and a reasonable return, the Utility may have to discontinue regulatory accounting for that business. Regulatory assets and liabilities that no longer qualify would be charged against income, which could have a material impact on financial results.
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