01—Abstract
Summary
Summary of the 10-K filed February 9, 2018. Cited figures are marked; the original filing is the authoritative source.
PG&E Corporation and its utility subsidiary, Pacific Gas and Electric Company, report 2017 results shaped overwhelmingly by the Northern California wildfires that began October 8, 2017.
The Utility has incurred $219 milliona in service restoration and repair costs through December 31, 2017 (including $97 million of capital expenditures), which it believes are recoverable through CEMA subject to CPUC approval. The filing states that neither PG&E Corporation nor the Utility has accrued a liability for the wildfires, because a loss is not yet probable and cannot be reasonably estimated. The filing also cites a California Department of Insurance estimate of roughly $10 billion in insured statewide losses from the October 2017 fires, and notes the Utility's liability insurance of approximately $800 million for third-party claims, so exposure could exceed available coverage.
Reported financial results were solid. PG&E Corporation's 2017 income available for common shareholders was $1,646 millionb, or $3.21 per diluted share, compared with $1,393 million, or $2.78, in 2016. Earnings from operations, a non-GAAP measure, were $3.68 per share versus $3.76.
Operating revenues were $17,135 millionc and total assets were $68,012 million. The Tax Act required a one-time provisional tax expense of $147 million at the holding company level, and a provisional $5.7 billion re-measurement of the Utility's deferred taxes, offset by a regulatory liability. The filing expects an annual revenue requirement reduction of about $500 million starting in 2018.
Both the common dividend and the Utility's preferred dividend were suspended in December 2017, and the filing says it could not predict when dividends would resume. Other significant risks include the Butte fire, for which the Utility now believes a loss of at least $1.1 billiond is probable (up from $750 million), the doctrine of inverse condemnation, and multiple CPUC enforcement and litigation matters, including a 2017 federal criminal conviction and related probation and monitorship. Credit ratings were placed under review for downgrade by Moody's and S&P in December 2017, and the filing says equity issuance needs will be material in future years.
02—Key points
Key Highlights
- Northern California wildfires beginning October 8, 2017: the Utility incurred $219 million in restoration and repair costs through December 31, 2017, and no liability has been accrued because a loss is not yet probable or estimable.
- Butte fire: the Utility now believes a loss of at least $1.1 billion is probable, up from $750 million previously estimated, and insurance recoveries of $922 million have been recorded for probable third-party claims.
- 2017 income available for common shareholders of $1,646 million, or $3.21 per diluted share, versus $1,393 million, or $2.78, in 2016; earnings from operations were $3.68 per share versus $3.76.
- Dividends on PG&E Corporation common stock and the Utility's preferred stock were suspended in December 2017, and the filing gives no timeline for reinstatement.
- Tax Act impact: a one-time $147 million provisional charge at the holding company and a $5.7 billion provisional re-measurement of Utility deferred taxes, with an expected annual revenue requirement reduction of about $500 million starting in 2018.
- Credit ratings were placed under review for downgrade by Moody's (December 21, 2017) and S&P (December 22, 2017), and the filing states that PG&E Corporation expects to need a material amount of equity in future years.
- Capital expenditures are estimated at approximately $6.3 billion in 2018 and $6.0 billion in 2019, and the Utility retained a third-party monitor under its federal criminal probation.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 9, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $17.14B$17.67B | −3.0% |
| Operating Income | $2.90B$2.08B | +39.7% |
| Interest Expense | $888.00M$829.00M | +7.1% |
| Net Income | $1.65B$1.39B | +18.2% |
| EPS (Basic) | $3.21$2.79 | +15.1% |
| EPS (Diluted) | $3.21$2.78 | +15.5% |
| Shares Outstanding (Basic) | 512.00M499.00M | +2.6% |
| Shares Outstanding (Diluted) | 513.00M501.00M | +2.4% |
05—Questions
Frequently Asked Questions
Has PG&E recorded a liability for the Northern California wildfires?
No. As of December 31, 2017, neither PG&E Corporation nor the Utility had accrued a liability. The filing says a loss is not considered probable at this time, and the companies are currently unable to reasonably estimate the amount of losses they could incur. If it becomes probable and estimable, a liability could be material and would reduce shareholders' equity to the extent not offset by insurance.
How much insurance coverage does the Utility have for wildfire third-party liability?
The filing states the Utility has liability insurance from various insurers that provides coverage for third-party liability attributable to the Northern California wildfires in an aggregate amount of approximately $800 million. It also notes that the Utility could be found liable for amounts exceeding that coverage, and that uninsured losses may not be recoverable in rates.
Why were dividends suspended, and when might they resume?
On December 20, 2017, the Boards of PG&E Corporation and the Utility suspended dividends due to uncertainty related to the causes and potential liabilities associated with the Northern California wildfires. The filing states there can be no assurance as to when, if at all, dividends will be reinstated.
What is the Tax Act's effect on PG&E's financials?
The Tax Act resulted in a one-time provisional tax expense of $147 million at the consolidated PG&E Corporation level, including $83 million related to the holding company's deferred tax asset and $64 million related to the Utility's deferred taxes not reflected in authorized revenue requirements. The Utility also recorded a provisional $5.7 billion re-measurement of deferred taxes, offset by a regulatory liability. The Utility expects an annual reduction in revenue requirements of approximately $500 million starting in 2018.
What are the main risks to PG&E's ability to raise capital?
The filing identifies wildfire litigation outcomes, the pending CPUC and Cal Fire investigations, and the December 2017 credit rating reviews as key factors. A credit downgrade, particularly below investment grade, could increase borrowing costs and collateral requirements. The filing also states PG&E Corporation forecasts it will need a material amount of equity in future years, which could dilute earnings per share.
06—Continue