Add
PCG to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| PCG > SEC Filings for PCG > Form 10-Q on 29-Oct-2009 | All Recent SEC Filings |
29-Oct-2009
Quarterly Report
OVERVIEW
PG&E Corporation, incorporated in California in 1995, is a holding company whose primary purpose is to hold interests in energy-based businesses. PG&E Corporation conducts its business principally through Pacific Gas and Electric Company ("Utility"), a public utility operating in northern and central California. The Utility engages in the businesses of electricity and natural gas distribution; electricity generation, procurement, and transmission; and natural gas procurement, transportation, and storage. PG&E Corporation became the holding company of the Utility and its subsidiaries on January 1, 1997. Both PG&E Corporation and the Utility are headquartered in San Francisco, California.
The Utility served 5.1 million electricity distribution customers and 4.3 million natural gas distribution customers at September 30, 2009. The Utility had $42.3 billion in assets at September 30, 2009 and generated revenues of $9.9 billion in the nine months ended September 30, 2009.
The Utility is regulated primarily by the California Public Utilities Commission ("CPUC") and the Federal Energy Regulatory Commission ("FERC"). The Utility generates revenues mainly through the sale and delivery of electricity and natural gas at rates set by the CPUC and the FERC. Rates are set to permit the Utility to recover its authorized "revenue requirements" from customers. Revenue requirements are designed to allow the Utility an opportunity to recover its reasonable costs of providing utility services, including a return of, and a fair rate of return on, its investment in Utility facilities ("rate base"). Pending regulatory proceedings that could result in rate changes and affect the Utility's revenues are discussed in PG&E Corporation's and the Utility's combined Annual Report on Form 10-K for the year ended December 31, 2008, which, together with the information incorporated by reference into such report, is referred to in this quarterly report as the "2008 Annual Report." Significant developments that have occurred since the 2008 Annual Report was filed with the Securities and Exchange Commission ("SEC") are discussed in this Quarterly Report on Form 10-Q.
This is a combined quarterly report of PG&E Corporation and the Utility and includes separate Condensed Consolidated Financial Statements for each of these two entities. PG&E Corporation's Condensed Consolidated Financial Statements include the accounts of PG&E Corporation, the Utility, and other wholly owned and controlled subsidiaries. The Utility's Condensed Consolidated Financial Statements include the accounts of the Utility and its wholly owned and controlled subsidiaries, as well as the accounts of variable interest entities for which the Utility absorbs a majority of the risk of loss or gain. This combined Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") of PG&E Corporation and the Utility should be read in conjunction with the Condensed Consolidated Financial Statements and the Notes to the Condensed Consolidated Financial Statements included in this quarterly report, as well as the MD&A, the audited Consolidated Financial Statements, and the Notes to the Consolidated Financial Statements incorporated by reference in the 2008 Annual Report.
Summary of Changes in Earnings per Common Share and Income Available for Common Shareholders for the Three and Nine Months Ended September 30, 2009
PG&E Corporation's diluted earnings per common share ("EPS") was $0.83 for each of the three months ended September 30, 2009 and 2008. For the nine months ended September 30, 2009, PG&E Corporation's diluted EPS was $2.49 compared to $2.24 for the same period in 2008. PG&E Corporation's income available for common shareholders for the three months ended September 30, 2009 increased by $14 million, or 5%, to $318 million, compared to $304 million for the same period in 2008. For the nine months ended September 30, 2009, income available for common shareholders increased by $126 million, or 15%, to $947 million, compared to $821 million for the same period in 2008.
The increase in income available for common shareholders for the three months ended September 30, 2009, as compared to the same period in 2008, is attributable to (1) an increase of $24 million, after tax, due to the Utility's return on equity ("ROE") earned on higher authorized capital investments, (2) a tax benefit of $10 million associated with the settlement of tax refund claims involving the 1998 and 1999 tax years, (3) a benefit of $11 million, after-tax, as compared to the same period in the prior year when the Utility incurred costs to oppose certain legislation and municipalization efforts, and (4) an increase of $12 million, after tax, reflecting the sum of incentives earned for managing natural gas procurement costs and lower accrual levels for uncollectibles and environmental costs. These increases were partially offset by (1) a $30 million, after tax, decrease attributable to employee severance costs, and (2) a $16 million, after tax, decrease attributable to costs to perform accelerated natural gas leak surveys and associated remedial work.
The increase in diluted EPS and income available for common shareholders for the
nine months ended September 30, 2009, as compared to the same period in 2008, is
attributable to (1) an increase of $73 million, after tax, representing the
Utility's ROE earned on higher authorized capital investments, (2) an increase
of $28 million, after tax, due to the recovery of previously incurred costs
related to the Utility's hydroelectric generation facilities, (3) a benefit of
$11 million, after-tax, as compared to the same period in the prior year
when the Utility incurred costs to oppose certain legislation and
municipalization efforts, (4) a tax benefit of $66 million associated with
the settlement of tax refund claims involving the 1998 and 1999 tax years, and
(5) a benefit of $24 million, after tax, as compared to the same period in the
prior year when the Utility incurred higher storm and outage expenses. These
increases were partially offset by (1) a $39 million, after tax, decrease
attributable to employee severance costs, and (2) a $32 million, after tax,
decrease attributable to costs to perform accelerated natural gas leak surveys
and associated remedial work.
Key Factors Affecting Results of Operations and Financial Condition
PG&E Corporation's and the Utility's results of operations and financial condition depend primarily on whether the Utility is able to operate its business within authorized revenue requirements, recover its authorized costs timely, and earn its authorized rate of return. A number of factors have had, or are expected to have, a significant impact on PG&E Corporation's and the Utility's results of operations and financial condition, including:
· The Outcome of Regulatory Proceedings and the Impact of Ratemaking Mechanisms. Most of the Utility's revenue requirements are set based on its costs of service in proceedings such as the General Rate Case ("GRC") filed with the CPUC and transmission owner ("TO") rate cases filed with the FERC. (See "Regulatory Matters" below.) The Utility intends to file its 2011-2013 GRC application with the CPUC before the end of 2009 to request an increase in authorized electric distribution, gas distribution, and electric generation revenue requirements. On September 18, 2009, the Utility requested the CPUC to determine the rates, and terms and conditions of the Utility's gas transmission and storage services beginning January 1, 2011. The Utility also files separate applications requesting the CPUC or the FERC to authorize additional revenue requirements for specific capital expenditure projects, such as new power plants, gas or electric transmission facilities, installation of an advanced metering infrastructure, and reliability or system infrastructure improvements. (See "Capital Expenditures" below.) The Utility's revenues will also be affected by incentive ratemaking, such as the CPUC's customer energy efficiency shareholder incentive mechanism. In addition, the CPUC has authorized the Utility to recover 100% of its reasonable electric fuel and energy procurement costs and has established a timely rate adjustment mechanism to recover such costs. As a result, the Utility's revenues and costs can be affected by volatility in the prices of natural gas and electricity. (See "Risk Management Activities" below.)
· Capital Structure and Return on Common Equity. The Utility's current CPUC-authorized capital structure includes a 52% common equity component, which will remain in effect through 2012. The CPUC has authorized the Utility to set rates targeted to earn an ROE of 11.35% on the equity component of its electric and natural gas distribution and electric generation rate base through 2010. The Utility's cost of capital for 2011 and 2012 will change only if the annual adjustment mechanism established by the CPUC is triggered. If the adjustment is triggered, the Utility's authorized cost of capital would be adjusted effective January 1 of the following year. The Utility can also apply for an adjustment to either its capital structure or its cost of capital at any time in the event of extraordinary circumstances. (See "Regulatory Matters" below.)
· The Ability of the Utility to Control Costs While Improving Operational Efficiency and Reliability. The Utility's revenue requirements are generally set at a level to allow the Utility the opportunity to recover its basic forecasted operating expenses, as well as to earn an ROE and recover depreciation, tax, and interest expense associated with authorized capital expenditures. Differences in the amount or timing of forecasted and actual operating expenses and capital expenditures can affect the Utility's ability to earn its authorized rate of return and the amount of PG&E Corporation's income available for common shareholders. The Utility also seeks to make the amount and timing of its capital expenditures consistent with budgeted amounts and timing. When capital expenditures are higher than authorized levels, the Utility incurs associated depreciation, property tax, and interest expense but does not recover revenues to fully offset these expenses or earn an ROE until the increased capital expenditures are added to rate base in future rate cases. Items that could cause higher expenses than provided for in the last GRC primarily relate to the Utility's efforts to maintain its aging electric and natural gas systems infrastructure, to improve the reliability and safety of its electric and natural gas system, and to improve its information technology infrastructure, support, and security. The Utility continually seeks to achieve operational efficiencies and improve reliability while creating future sustainable cost savings to offset these higher anticipated expenses. In connection with these efforts, the Utility has accrued severance costs, including severance costs related to the reduction of approximately 2% of the Utility's workforce, in the three months ended September 30, 2009. (See "Results of Operations" below.)
· Timing and Amount of Debt and Equity Financing. The timing and amount of the Utility's future financing needs will depend on various factors, including the conditions in the capital markets, the amount and timing of scheduled principal and interest payments on long-term debt, the amount and timing of planned capital expenditures, and the amount and timing of interest payments related to the remaining disputed claims that were made by electricity suppliers in the Utility's proceeding under Chapter 11 of the U.S. Bankruptcy Code ("Chapter 11"). (See Note 10 of the Notes to the Condensed Consolidated Financial Statements.) The amount of the Utility's short-term financing will vary depending on the level of operating cash flows, seasonal demand for electricity and natural gas, volatility in electricity and natural gas prices, and collateral requirements related to price risk management activities, among other factors. In order to maintain the Utility's CPUC-authorized capital structure, PG&E Corporation contributed $688 million of equity to the Utility during 2009. The timing and amount of future equity contributions to the Utility will affect the timing and amount of any future equity or debt issuances by PG&E Corporation. (See "Liquidity and Financial Resources" below.)
FORWARD-LOOKING STATEMENTS
This combined quarterly report on Form 10-Q contains forward-looking statements that are necessarily subject to various risks and uncertainties. These statements are based on current estimates, expectations, and projections about future events and assumptions regarding these events and management's knowledge of facts as of the date of this report. These forward-looking statements relate to, among other matters, estimated capital expenditures, estimated environmental remediation liabilities, estimated tax liabilities, the anticipated outcome of various regulatory and legal proceedings, estimated future cash flows, and the level of future equity or debt issuances, and are also identified by words such as "assume," "expect," "intend," "plan," "project," "believe," "estimate," "target," "predict," "anticipate," "aim," "may," "might," "should," "would," "could," "goal," "potential," and similar expressions. PG&E Corporation and the Utility are not able to predict all the factors that may affect future results. Some of the factors that could cause future results to differ materially from those expressed or implied by the forward-looking statements, or from historical results, include, but are not limited to:
· the Utility's ability to manage capital expenditures and its operating and maintenance expenses within authorized levels;
· the outcome of pending and future regulatory proceedings and whether the Utility is able to timely recover its costs through rates;
· the adequacy and price of electricity and natural gas supplies, and the ability of the Utility to manage and respond to the volatility of the electricity and natural gas markets, including the ability of the Utility and its counterparties to post or return collateral;
· explosions, fires, accidents, mechanical breakdowns, the disruption of information technology and computer systems, and similar events that may occur while operating and maintaining an electric and natural gas system in a large service territory with varying geographic conditions, that can cause unplanned outages, reduce generating output, damage the Utility's assets or operations, subject the Utility to third-party claims for property damage or personal injury, or result in the imposition of civil, criminal, or regulatory fines or penalties on the Utility;
· the impact of storms, earthquakes, floods, drought, wildfires, disease and similar natural disasters, or acts of terrorism, that affect customer demand, or that damage or disrupt the facilities, operations, or information technology and computer systems owned by the Utility, its customers, or third parties on which the Utility relies;
· the potential impacts of climate change on the Utility's electricity and natural gas businesses;
· changes in customer demand for electricity and natural gas resulting from unanticipated population growth or decline, general economic and financial market conditions, changes in technology including the development of alternative energy sources, or other reasons;
· operating performance of the Utility's two nuclear generating units at the Diablo Canyon Power Plant ("Diablo Canyon"), the availability of nuclear fuel, the occurrence of unplanned outages at Diablo Canyon, or the temporary or permanent cessation of operations at Diablo Canyon;
· whether the Utility can maintain the cost savings that it has recognized from operating efficiencies that it has achieved and identify and successfully implement additional sustainable cost-saving measures;
· whether the Utility incurs substantial expense to improve the safety and reliability of its electric and natural gas systems;
· whether the Utility achieves the CPUC's energy efficiency targets and recognizes any incentives that the Utility may earn in a timely manner;
· the impact of changes in federal or state laws, or their interpretation, on energy policy and the regulation of utilities and their holding companies;
· the impact of changing wholesale electric or gas market rules, including the impact of future FERC-ordered changes that will be incorporated into the new day-ahead, hour-ahead, and real-time wholesale electricity markets established by the California Independent System Operator ("CAISO") to restructure the California wholesale electricity market;
· how the CPUC administers the conditions imposed on PG&E Corporation when it became the Utility's holding company;
· the extent to which PG&E Corporation or the Utility incurs costs and liabilities in connection with litigation that are not recoverable through rates, from insurance, or from other third parties;
· the ability of PG&E Corporation, the Utility, and counterparties to access capital markets and other sources of credit in a timely manner on acceptable terms;
· the impact of environmental laws and regulations and the costs of compliance and remediation;
· the effect of municipalization, direct access, community choice aggregation, or other forms of bypass; and
· the outcome of federal or state tax audits and the impact of changes in federal or state tax laws, policies, or regulations.
For more information about the significant risks that could affect the outcome of these forward-looking statements and PG&E Corporation's and the Utility's future financial condition and results of operations, see the discussion in the section entitled "Risk Factors" in the 2008 Annual Report and the discussion below under Part II. Other Information, Item 1A. Risk Factors. PG&E Corporation and the Utility do not undertake an obligation to update forward-looking statements, whether in response to new information, future events, or otherwise.
RESULTS OF OPERATIONS
The table below details certain items from the accompanying Condensed
Consolidated Statements of Income for the three and nine months ended September
30, 2009 and 2008:
Three Months Ended Nine Months Ended
September 30, September 30,
(in millions) 2009 2008 2009 2008
Utility
Electric operating revenues $ 2,630 $ 2,880 $ 7,610 $ 8,039
Natural gas operating revenues 605 794 2,250 2,946
Total operating revenues 3,235 3,674 9,860 10,985
Cost of electricity 997 1,282 2,763 3,406
Cost of natural gas 134 351 879 1,613
Operating and maintenance 1,047 982 3,143 3,009
Depreciation, amortization, and
decommissioning 450 419 1,298 1,239
Total operating expenses 2,628 3,034 8,083 9,267
Operating Income 607 640 1,777 1,718
Interest income 3 20 29 77
Interest expense (162 ) (170 ) (501 ) (528 )
Other income (expense), net 16 (2 ) 52 24
Income Before Income Taxes 464 488 1,357 1,291
Income tax provision 111 167 374 421
Net Income 353 321 983 870
Preferred stock dividend requirement 3 3 10 10
Income Available for Common Stock $ 350 $ 318 $ 973 $ 860
PG&E Corporation, Eliminations, and
Other(1)
Operating revenues $ - $ - $ - $ -
Operating expenses - 1 1 2
Operating Loss - (1 ) (1 ) (2 )
Interest income (2 ) 3 (2 ) 5
Interest expense (12 ) (8 ) (32 ) (22 )
Other income (expense), net 7 (12 ) 11 (28 )
Loss Before Income Taxes (7 ) (18 ) (24 ) (47 )
Income tax provision (benefit) 25 (4 ) 2 (8 )
Net Income (Loss) $ (32 ) $ (14 ) $ (26 ) $ (39 )
Consolidated Total
Operating revenues $ 3,235 $ 3,674 $ 9,860 $ 10,985
Operating expenses 2,628 3,035 8,084 9,269
Operating Income 607 639 1,776 1,716
Interest income 1 23 27 82
Interest expense (174 ) (178 ) (533 ) (550 )
Other income (expense), net 23 (14 ) 63 (4 )
Income Before Income Taxes 457 470 1,333 1,244
Income tax provision 136 163 376 413
Net Income 321 307 957 831
Preferred stock dividend requirement of
subsidiary 3 3 10 10
Income Available for Common Shareholders $ 318 $ 304 $ 947 $ 821
|
(1) PG&E Corporation eliminates all intercompany transactions in consolidation.
Utility
The following presents the Utility's operating results for the three and nine months ended September 30, 2009 and 2008.
Electric Operating Revenues
The Utility provides electricity to residential, industrial, agricultural, and small and large commercial customers through its own generation facilities and through power purchase agreements with third parties. In addition, the Utility relies on electricity provided under long-term contracts entered into by the California Department of Water Resources ("DWR") to meet a material portion of the Utility's customers' demand for electricity ("load"). The Utility's electric operating revenues consist of amounts charged to customers for electricity generation and procurement and for electric transmission and distribution services, as well as amounts charged to customers to recover the cost of public purpose, energy efficiency, and demand response programs.
The following table provides a summary of the Utility's electric operating revenues:
Three Months Ended Nine Months Ended
September 30, September 30,
(in millions) 2009 2008 2009 2008
Electric revenues $ 3,233 $ 3,255 $ 9,066 $ 9,044
DWR pass-through revenues(1) (603 ) (375 ) (1,456 ) (1,005 )
Total electric operating revenues $ 2,630 $ 2,880 $ 7,610 $ 8,039
|
(1)These are revenues collected on behalf of the DWR for electricity allocated to the Utility's customers under contracts between the DWR and power suppliers, and are not included in the Utility's Condensed Consolidated Statements of Income.
The Utility's total electric operating revenues decreased by $250 million, or 9%, in the three months ended September 30, 2009 and $429 million, or 5%, in the nine months ended September 30, 2009, compared to the same period in 2008, due to the following factors:
· Electricity costs passed through to customers decreased by $285 million in the three months ended September 30, 2009 and $643 million in the nine months ended September 30, 2009. (See "Cost of Electricity" below.)
· Public purpose program costs passed through to customers decreased by $2 million in the three months ended September 30, 2009 and $46 million in the nine months ended September 30, 2009 due to the timing of program spending. (See "Operating and Maintenance" below.)
· CAISO collateral costs, passed through to customers, related to the new day-ahead market decreased by $20 million in the three months ended September 30, 2009. (See "Operating and Maintenance" below.)
· Other miscellaneous electric operating revenues decreased by $13 million in the three months ended September 30, 2009.
These decreases were partially offset by the following:
· Base revenues increased by $26 million in the three months ended September 30, 2009 and $77 million in the nine months ended September 30, 2009, as previously authorized in the 2007 GRC.
· Revenues associated with separately funded projects placed in service, including the Gateway Generating Station and the new steam generators at Diablo Canyon, increased by $44 million in the three months ended September 30, 2009 and $137 million in the nine months ended September 30, 2009.
· Electric operating revenues increased by $35 million in the nine months ended September 30, 2009 for the recovery of previously incurred costs related to hydroelectric generation facilities. (See "Regulatory Matters" below.)
· Other miscellaneous electric operating revenues increased by $11 million in the nine months ended September 30, 2009.
The Utility's electric operating revenues for the remainder of 2009 and 2010 are expected to increase, as authorized by the CPUC in the 2007 GRC. The Utility's electric operating revenues for future years are also expected to increase, as authorized by the FERC in the TO rate cases and by the CPUC in the 2011 GRC. (See "Regulatory Matters" below.)
In addition, the Utility expects to continue to collect revenue requirements related to CPUC-approved capital expenditures outside the GRC, including capital expenditures for the new Utility-owned generation projects and the SmartMeterTM advanced metering project. Revenues would also increase to the extent that the CPUC approves the Utility's proposal for other capital projects. (See "Capital Expenditures" below.)
Revenue requirements associated with new or expanded public purpose, energy efficiency, and demand response programs will also result in increased electric operating revenues. In addition, future electric operating revenues are affected . . .
|
|