01—Abstract
Summary
Summary of the 10-K filed February 28, 2019. Cited figures are marked; the original filing is the authoritative source.
PG&E Corporation and Pacific Gas and Electric Company filed a combined 2018 Form 10-K on February 28, 2019, reporting a net loss available for common shareholders of $6.9 billiona for 2018, compared with net income of $1.6 billion in 2017.
The loss reflects charges of $14 billionb (pre-tax) associated with third-party claims and legal and other costs related to the 2018 Camp fire and 2017 Northern California wildfires, partly offset by probable insurance recoveries of $2.2 billion (pre-tax). Operating revenues were $16.8 billion. Management concluded that these circumstances raise substantial doubt about both entities' ability to continue as going concerns, and the auditor included a going-concern explanatory paragraph.
On January 29, 2019, PG&E Corporation and the Utility filed voluntary petitions for relief under Chapter 11 in the U.S. Bankruptcy Court for the Northern District of California. A $5.5 billionc DIP Credit Agreement was entered into, of which $1.5 billion of the DIP Revolving Facility became available on February 1, 2019; the remaining facilities await a final hearing scheduled for March 13, 2019. All long-term debt was classified as current at December 31, 2018, with $18.6 billion of long-term debt classified as current at the parent level and $18.2 billion at the Utility.
The filing states that losses from the wildfires are expected to greatly exceed insurance, and that liability could exceed $30 billiond excluding punitive damages, fines, penalties and future claims. For investors, the central issues are the outcome of the Chapter 11 process, the eventual allocation of wildfire liabilities, the treatment of equity holders, and whether the Utility can recover costs through regulatory mechanisms such as SB 901 securitization and the Customer Harm Threshold. The filing states that trading in the securities during the Chapter 11 Cases is highly speculative and that ultimate recovery could differ substantially from implied trading values.
02—Key points
Key Highlights
- 2018 net loss available for common shareholders of $6.9 billion ($13.25 per share), versus net income of $1.6 billion ($3.21 per share) in 2017.
- Wildfire-related claims, net of insurance recoveries, were $11.8 billion in 2018, including a $10.5 billion charge for the 2018 Camp fire and $3.5 billion for the 2017 Northern California wildfires, net of insurance recoveries.
- Filed Chapter 11 on January 29, 2019; $1.5 billion of the $3.5 billion DIP Revolving Facility became available February 1, 2019, and the final DIP hearing is scheduled for March 13, 2019.
- Management and the auditor, Deloitte & Touche LLP, raised substantial doubt about the ability of both PG&E Corporation and the Utility to continue as going concerns.
- Potential liability for the 2018 Camp fire and 2017 Northern California wildfires could exceed $30 billion, excluding punitive damages, fines, penalties and future claims; insurance coverage is about $1.4 billion for the 2018–2019 policy period.
- The Utility's 2015 Butte fire third-party liability is estimated at $1.1 billion, with the Utility having paid $874 million of $904 million in settlements to date.
- Dividends on common stock have been suspended since the fourth quarter of 2017, and no dividends were declared in 2018.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 28, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $16.76B$17.14B | −2.2% |
| Operating Income | -$9.70B$2.90B | −433.9% |
| Interest Expense | $929.00M$888.00M | +4.6% |
| Net Income | -$6.84B$1.65B | −515.4% |
| EPS (Basic) | $-13.25$3.21 | −512.8% |
| EPS (Diluted) | $-13.25$3.21 | −512.8% |
| Shares Outstanding (Basic) | 517.00M512.00M | +1.0% |
| Shares Outstanding (Diluted) | 517.00M513.00M | +0.8% |
05—Questions
Frequently Asked Questions
Why did PG&E Corporation report a large net loss in 2018?
The net loss of $6.9 billion reflects charges of $14 billion (pre-tax) for third-party claims and related legal and other costs from the 2018 Camp fire and 2017 Northern California wildfires, offset by $2.2 billion (pre-tax) of probable insurance recoveries. The Utility recorded a $10.5 billion charge for the 2018 Camp fire and $3.5 billion for the 2017 Northern California wildfires in 2018.
Why did the companies file for Chapter 11 bankruptcy?
The filing states that the Utility determined commencing reorganization cases under Chapter 11 was necessary to restore financial stability, to fund ongoing operations, and to provide safe service to customers, given the extraordinary challenges from the 2017 and 2018 wildfires. The filing notes that the companies commenced the cases without a restructuring support agreement or agreed consensual plan of reorganization.
How much liquidity do the companies have to operate during bankruptcy?
The DIP Credit Agreement provides $5.5 billion in facilities, but only $1.5 billion of the DIP Revolving Facility was available as of February 28, 2019. As of that date, the Utility had $350 million in borrowings and $30 million in letters of credit outstanding, leaving $1.12 billion of availability under the DIP Revolving Facility. Unconsolidated cash was about $480 million at PG&E Corporation and $1.7 billion at the Utility as of February 27, 2019.
Can the Utility recover wildfire costs from customers?
Recovery is uncertain. The CPUC has granted the Utility a Wildfire Expense Memorandum Account to track costs, but this does not grant rate recovery. SB 901 allows securitization of 2017 wildfire costs in excess of a Customer Harm Threshold yet to be set, and the CPUC's January 2019 order suggests securitization would likely take years. The filing states that the Utility has not recorded a regulatory asset for wildfire claims costs.
What are the main risks for investors in PCG shares?
The filing states that trading in PG&E Corporation's securities during the Chapter 11 Cases is highly speculative, and that ultimate recovery could differ substantially from implied trading values. Key uncertainties include the plan of reorganization, the exclusivity period (at least until May 29, 2019), the outcome of wildfire liability and inverse condemnation litigation, potential fines and penalties, and the Utility's ability to recover costs in rates.
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