01—Abstract
Summary
Summary of the 10-K filed February 18, 2020. Cited figures are marked; the original filing is the authoritative source.
PG&E Corporation (filed as PG&E Corporation; ticker PCG) and its utility subsidiary Pacific Gas and Electric Company filed a combined 2019 Form 10-K on February 18, 2020, while both remain debtors-in-possession under Chapter 11, which they entered on January 29, 2019.
Management has concluded that these circumstances raise substantial doubt about both entities' ability to continue as going concerns, and the auditor's report includes a corresponding explanatory paragraph. PG&E Corporation reported a 2019 net loss of $7.64 billiona (about $(14.50) per share) versus a $6.84 billion loss in 2018, driven by $11.4 billion of charges for wildfire-related claims from the 2018 Camp fire, the 2017 Northern California wildfires and the 2015 Butte fire. Operating revenues were $17.13 billion.
As of December 31, 2019, the Utility's best estimate of probable losses for these fires was $25.5 billionb, and the filing says it could substantially exceed that if settlements terminate. The path out of bankruptcy is a Proposed Plan filed January 31, 2020, which contemplates roughly $58 billion of total sources and uses, including up to $9.0 billion of new equity, $6.75 billion of stock to a Fire Victim Trust, and $23.775 billion of new Utility debt. Participation in California's AB 1054 Wildfire Fund requires emergence by June 30, 2020, and an initial contribution of about $4.8 billion plus annual contributions of about $193 million.
Investors should also note the filing's disclosure of a 2019 Kincade fire, for which the company says a loss is reasonably possible but cannot be estimated, and the ongoing federal probation proceedings and CPUC enforcement matters. The filing states that PG&E Corporation and the Utility do not expect to pay common dividends for at least two years, and the Utility's authorized capital structure and ROE (52%c equity, 10.25% ROE through 2023) remain key regulatory parameters. The filing is a detailed bankruptcy-era report where equity value depends heavily on plan confirmation, financing, and wildfire liability outcomes.
02—Key points
Key Highlights
- Net loss of $7.64 billion in 2019 (EPS of $(14.50)), compared with a $6.84 billion loss in 2018 (EPS of $(13.25)).
- Wildfire-related claims charges of $11.4 billion in 2019, net of insurance recoveries, primarily for the 2018 Camp fire and 2017 Northern California wildfires.
- Best estimate of probable wildfire-related losses of $25.5 billion, supported by settlement agreements totaling about $25.5 billion (subrogation $11.0 billion, Fire Victim Trust $13.5 billion, public entities $1.0 billion).
- Going-concern doubt disclosed by management and the auditor, with both PG&E Corporation and the Utility operating as debtors-in-possession since January 29, 2019.
- Proposed Plan of Reorganization filed January 31, 2020, targeting emergence by June 30, 2020 to qualify for AB 1054 Wildfire Fund participation, with about $58 billion of expected sources and uses.
- DIP financing of $5.5 billion in facilities maturing December 31, 2020, with $1.5 billion term loan outstanding and $3.34 billion aggregate availability at year-end 2019.
- Operating revenues of $17.13 billion in 2019; total assets of $85.2 billion at December 31, 2019; common dividends suspended since late 2017.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 18, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $17.13B$16.76B | +2.2% |
| Operating Income | -$10.09B-$9.70B | −4.1% |
| Interest Expense | $934.00M$929.00M | +0.5% |
| Net Income | -$7.64B-$6.84B | −11.8% |
| EPS (Basic) | $-14.50$-13.25 | −9.4% |
| EPS (Diluted) | $-14.50$-13.25 | −9.4% |
| Shares Outstanding (Basic) | 528.00M517.00M | +2.1% |
| Shares Outstanding (Diluted) | 528.00M517.00M | +2.1% |
05—Questions
Frequently Asked Questions
Why did PG&E Corporation report a large net loss in 2019?
The net loss of $7.64 billion was driven mainly by $11.4 billion of charges for wildfire-related claims from the 2018 Camp fire, the 2017 Northern California wildfires and the 2015 Butte fire, net of probable insurance recoveries. The company also recorded $773 million of enhanced inspection and repair costs and $398 million related to the Wildfires OII settlement.
What is the status of the bankruptcy and when could the company emerge?
PG&E Corporation and the Utility filed Chapter 11 on January 29, 2019 and filed a Proposed Plan on January 31, 2020. The plan contemplates funding through new equity, new debt and a Fire Victim Trust. The company and the CPUC are targeting confirmation by June 30, 2020, which the filing states is a statutory deadline for AB 1054 Wildfire Fund eligibility. The filing notes that the Chapter 11 process could extend beyond that date.
What wildfire liabilities could still exceed the current estimate?
The $25.5 billion estimate excludes potential fines, penalties, punitive damages and future claims. The filing says that if one or more settlement agreements terminate, aggregate liability could substantially exceed $25.5 billion. It also reports that the 2019 Kincade fire could result in a loss the company believes is reasonably possible but cannot estimate.
Will shareholders receive dividends?
No near-term dividends are expected. Common dividends were suspended beginning in the fourth quarter of 2017, and PG&E Corporation states it does not expect to pay any cash common dividends for at least the next two years, subject to board approval.
What regulatory returns and capital structure apply to the Utility?
The CPUC's December 19, 2019 decision authorizes a 52% common equity ratio, a 10.25% return on common equity and a 5.16% cost of debt through 2023. The Utility's equity ratio fell below the authorized level after the wildfire charges, and it filed a waiver application with the CPUC on February 28, 2019 that remains pending.
06—Continue