Release and Selected Exhibits
Presentation and Complete Earnings Exhibits
SAN FRANCISCO — PG&E Corporation (NYSE: PCG) recorded second-quarter 2020 losses attributable to common shareholders of $1,972 million, or $3.73 per share, as reported in accordance with generally accepted accounting principles (GAAP). This compares with losses attributable to common shareholders of $2,553 million, or $4.83 per share, for the second quarter of 2019.
GAAP results include non-core items that management does not consider representative of ongoing earnings, which totaled $2.5 billion after-tax, or $4.75 per share, for the quarter. These results were primarily driven by costs related to PG&E Corporation's and Pacific Gas and Electric Company's (Utility) reorganization cases under Chapter 11 of the U.S. Bankruptcy Code (Chapter 11). PG&E also recorded charges related to the 2019 Kincade fire as a non-core item in the second quarter, which includes estimated third-party claims, net of probable insurance recoveries, Utility clean-up and repair costs, and legal and other costs. Other non-core items include the amortization of wildfire insurance fund contributions under Assembly Bill (AB) 1054 and investigation remedies and delayed cost recovery, partially offset by the recovery of capital expenditures in excess of adopted amounts from the 2011 Gas Transmission & Storage (GT&S) rate case.
PG&E Corporation and Pacific Gas and Electric Company emerged from Chapter 11 on July 1, 2020 after successfully completing the restructuring process and achieving approval for its Plan of Reorganization confirmed by the United States Bankruptcy Court.
PG&E enters the second half of 2020 having:
- Implemented the settlement and resolution of all prepetition wildfire claims pursuant to the Plan;
- Contributed to the State of California's go-forward wildfire fund, providing for full eligibility of its protections;
- Seated its new Board of Directors and Interim CEO; and
- Retired expensive, high-coupon debt and replaced it with lower-cost debt, yielding significant annual savings for customers over the duration of the debt, estimated to be approximately $250 million annually.
PG&E is also moving forward with commitments to the Governor's Office and the President of the California Public Utilities Commission (CPUC) regarding its governance, operations, and financial structure to further prioritize safety.
"With our Chapter 11 cases now behind us, we're on track to become a stronger company," said Bill Smith, Interim Chief Executive Officer, PG&E Corporation. "Our focus now will be building on the many changes we put in place during the bankruptcy, which set the foundation for this new era at PG&E. Our mandate is to rebuild the trust of our customers and stakeholders while delivering safety performance and operational excellence across our business. We'll do that by making targeted investments in our systems and achieving positive local results day in and day out."
Wildfire Mitigation Update
To further reduce the potential for wildfires associated with its electrical equipment in high fire-threat areas, PG&E is executing its 2020 Wildfire Mitigation Plan as submitted to the CPUC. The company is on track to meet its goals for each of the four categories of the 2020 Plan, which builds on the significant work completed in 2019.
- System hardening has exceeded 50 percent of the 2020 goal, with 122 circuit miles either relocated underground or replaced with stronger poles and covered conductor, making PG&E's system more resilient.
- Enhanced vegetation management progress is at 70 percent. PG&E has reviewed more than 1,200 miles of distribution and lower-voltage transmission lines and taken necessary action to trim or remove hazards and expand rights-of-way.
- Situational awareness completion exceeds 30 percent, with 144 weather stations and 60 high definition cameras installed, despite some initial supply chain issues due to COVID-19 disruptions.
- Enhanced inspections are 51 percent complete. PG&E continues to inspect all assets in Tier Three miles and a third of the Tier Two miles annually, which gives greater insight into the health of the company's assets and information to act on for equipment requiring maintenance.
In addition, PG&E is making foundational investments in new technologies to help reduce wildfire risk. Early stage efforts include:
- Advanced data analytics that will use information collected from drone and visual inspection tools to enable predictive maintenance of equipment and assets;
- Machine-learning tools and computer models designed to identify components which may require repair or replacement; and
- Sensor technology adopted from Australia that can detect failure and de-energize a falling overhead line before it reaches the ground, potentially avoiding ignition.
"All of us at PG&E recognize that no apology, no settlement, no sentencing can undo the damage from the wildfires of recent years, and no passage of time can lessen the anguish of the victims," Smith said. "We know that what's needed now is action. We will continue to work tirelessly to combat the growing threat of wildfires and keep our customers and communities safe."
Non-GAAP Core Earnings
PG&E Corporation's non-GAAP core earnings, which exclude non-core items, were $542 million, or $1.03 per share, in the second quarter of 2020, compared with $581 million, or $1.10 per share, during the same period in 2019.
The decrease in quarter-over-quarter non-GAAP core earnings per share was primarily driven by interest on pre-petition payables and short-term debt, the timing of 2020 General Rate Case cost recovery, and incremental wildfire mitigation, partially offset by the growth in rate base earnings and timing of taxes.
PG&E Corporation uses "non-GAAP core earnings," which is a non-GAAP financial measure, in order to provide a measure that allows investors to compare the underlying financial performance of the business from one period to another, exclusive of non-core items. See the accompanying tables for a reconciliation of non-GAAP core earnings to consolidated earnings (loss) attributable to common shareholders.
PG&E Corporation is initiating 2020 guidance for consolidated GAAP losses in the range of $0.99 to $1.05 per share, which includes non-core items. PG&E is updating 2020 non-core items guidance of approximately $3.3 billion for after-tax for bankruptcy and legal costs, the amortization of wildfire insurance fund contributions, Kincade fire-related costs, investigation remedies and delayed cost recovery, partially offset by the 2011 GT&S capital audit.
On a non-GAAP basis, the guidance range for projected 2020 core earnings is $1.60 to $1.63 per share. Factors driving non-GAAP core earnings include net below the line and spend above authorized items of $200 million to $225 million after tax and unrecoverable interest expense of $125 million after tax.
Guidance is based on various assumptions and forecasts, including those relating to future authorized revenues, expenses, capital expenditures, rate base, and certain other factors.
PG&E Corporation is initiating 2021 GAAP earnings guidance in the range of $0.17 to $0.29 per share, which includes non-core items. PG&E is providing 2021 non-core items guidance of approximately $1.7 billion after-tax for a net securitization inception charge, amortization of wildfire insurance fund contributions, bankruptcy and legal costs, and investigation remedies and delayed cost recovery, partially offset by the 2011 GT&S capital audit.
On a non-GAAP basis, the guidance range for projected 2021 core earnings is $0.95 to $1.05 per share. Factors driving non-GAAP core earnings include net below the line and spend above authorized of up to $100 million after tax and unrecoverable interest expense of $275 million to $325 million after tax.
Guidance is based on various assumptions and forecasts, including those relating to authorized revenues, future expenses, capital expenditures, rate base, equity issuances, the potential Net Operating Loss (NOL) securitization, and certain other factors.
Update on Ownership Restrictions in PG&E Corporation Charter
PG&E's Chapter 11 Plan contemplates that the Fire Victim Trust will be treated as a "qualified settlement fund" for U.S. federal income tax purposes, subject to PG&E Corporation's ability to elect to treat the Fire Victim Trust as a "grantor trust" for U.S. federal income tax purposes instead. Based on the facts known to date, PG&E Corporation believes that it may be beneficial to elect to treat the Fire Victim Trust as a "grantor trust" for U.S. federal income tax purposes, subject to receipt of certain favorable determinations from the Internal Revenue Service regarding such election.
If PG&E Corporation were to make such a "grantor trust" election with respect to the Fire Victim Trust, then any shares owned by the Fire Victim Trust would effectively be excluded from the total number of outstanding equity securities when calculating a person's percentage ownership for purposes of the 4.75 percent ownership limitation in PG&E Corporation's charter. For example, although PG&E had 1,941,473,377 shares outstanding as of July 27, 2020 for corporate purposes, only 1,464,478,202 shares (the number of outstanding shares of common stock less the number of shares held by the Fire Victim Trust) would count as outstanding for purposes of the ownership restrictions in the charter.
PG&E Corporation will publicly announce its determination on whether it will elect to treat the Fire Victim Trust as a "grantor trust" no later than April 1, 2021. If PG&E Corporation decides to make a "grantor trust" election with respect to the Fire Victim Trust, PG&E Corporation intends to enforce the ownership restrictions in the charter accordingly (i.e. by excluding any shares owned by the Fire Victim Trust from the total number of outstanding equity securities), including with respect to transfers occurring before such announcement. However, PG&E Corporation anticipates that any transfers of PG&E Corporation common stock occurring prior to July 30, 2020 will be exempted from the application of the ownership restrictions in the charter solely to the extent that such transfers would have complied with the ownership restrictions if they were applied on the basis that the shares owned by the Fire Victim Trust were treated as outstanding equity securities. To facilitate compliance by investors, PG&E Corporation will periodically make available information about the number of shares of common stock held by the Fire Victim Trust on a specified date for purposes of the ownership restrictions, including in its quarterly and annual reports filed with the SEC.
All current and prospective investors are advised to consider the foregoing in determining their ownership of PG&E common stock.
Additional information is available regarding the ownership limitations under the headings "Risk Factors" in Part II Item 1A of the second quarter's 10-Q.
Supplemental Financial Information
In addition to the financial information accompanying this release, presentation slides have been furnished to the Securities and Exchange Commission (SEC) and are available on PG&E Corporation's website at: http://investor.pgecorp.com/financials/quarterly-earnings-reports/default.aspx.
Earnings Conference Call
PG&E Corporation will also hold a conference call on July 30, 2020, at 11:00 a.m. Eastern Time (8:00 a.m. Pacific Time) to discuss its second quarter 2020 results. The public can access the conference call through a simultaneous webcast. The link is provided below and will also be available from the PG&E Corporation website.
What: Second Quarter 2020 Earnings Call
When: Thursday, July 30, 2020 at 11:00 a.m. Eastern Time
How: Live over the Internet – log on at the address above
Participants are encouraged to pre-register for the conference call at http://www.directeventreg.com/registration/event/7187556. Participants who pre-register will receive dial-in information, conference passcode and registrant ID. At the time of the call, participants will dial in using the information provided in the confirmation email. Participants may pre-register at any time, up to and including after the conference call has started.
The public can access the conference call through a simultaneous webcast.
A replay of the conference call will be archived through August 6, 2020 at http://investor.pgecorp.com/news-events/events-and-presentations/default.aspx.
Alternatively, a toll-free replay of the conference call may be accessed shortly after the live call through August 6, 2020, by dialing (800) 585-8367. International callers may dial (416) 621- 4642. For both domestic and international callers, the confirmation code 7187556 will be required to access the replay.
Public Dissemination of Certain Information
PG&E Corporation and the Utility routinely provide links to the Utility's principal regulatory proceedings with the CPUC and the Federal Energy Regulatory Commission (FERC) at http://investor.pgecorp.com, under the "Regulatory Filings" tab, so that such filings are available to investors upon filing with the relevant agency. PG&E Corporation and the Utility also routinely post, or provide direct links to, presentations, documents, and other information that may be of interest to investors at http://investor.pgecorp.com, under the "Chapter 11," "Wildfire Updates" and "News & Events: Events & Presentations" tabs, respectively, in order to publicly disseminate such information. It is possible that any of these filings or information included therein could be deemed to be material information.
About PG&E Corporation
PG&E Corporation (NYSE: PCG) is a holding company headquartered in San Francisco. It is the parent company of Pacific Gas and Electric Company, an energy company that serves 16 million Californians across a 70,000-square-mile service area in Northern and Central California. Each of PG&E Corporation and the Utility is a separate entity, with distinct creditors and claimants, and is subject to separate laws, rules and regulations. For more information, visit http://www.pgecorp.com. In this press release, they are together referred to as "PG&E."
This press release contains forward-looking statements that are not historical facts, including statements about the beliefs, expectations, estimates, future plans and strategies of PG&E Corporation and the Utility, as well as forecasts and estimates regarding PG&E Corporation's earnings guidance for 2020 and 2021 and the 2020 Wildfire Mitigation Plan. These statements are based on current expectations and assumptions, which management believes are reasonable, and on information currently available to management, but are necessarily subject to various risks and uncertainties. In addition to the risk that these assumptions prove to be inaccurate, factors that could cause actual results to differ materially from those contemplated by the forward-looking statements include factors disclosed in PG&E Corporation's and the Utility's joint annual report on Form 10-K for the year ended December 31, 2019, their joint quarterly reports on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020, and other reports filed with the SEC, which are available on PG&E Corporation's website at www.pgecorp.com and on the SEC website at www.sec.gov. Additional factors include, but are not limited to, those associated with the Plan of Reorganization of PG&E Corporation and the Utility that became effective on July 1, 2020. PG&E Corporation and the Utility undertake no obligation to publicly update or revise any forward-looking statements, whether due to new information, future events or otherwise, except to the extent required by law.