PCG PG&E Corporation

PG&E Corporation (PCG) has recently announced a secondary offering of 5,900,000 shares, valued at approximately $250 million. The shares are expected to be issued on March 20, 2012.

The offering would be utilized partly to meet a portion of the company's estimated equity needs during 2012.  The rest of the proceeds would be utilized in its regulated utility subsidiary, Pacific Gas and Electric Company, for general corporate purposes.

PG&E ended fiscal 2011 with cash and cash equivalents of approximately $513 million compared with $291 million at year-end 2010. Cash generated from operations in 2011 totaled $3.7 billion versus cash from operations of $3.2 billion in the year-ago period. Long-term debt however increased to $11.8 billion at fiscal 2011 end from roughly $10.9 billion at the end of fiscal 2010.

PG&E operates in the regulatory progressive state of California. The California Public Utilities Commission (CPUC) provides the company with ample regulatory support through progressive mechanisms like decoupling. Decoupling insulates the top line of the company from risks of lower customer usage, vagaries of weather and volatility in prices. The revenue decoupling mechanism is paired with an annual attrition mechanism that adjusts annually for customer growth, inflation and replacement of aging infrastructure facilities.

PG&E Corporation has a solid portfolio of regulated utility assets that offer a stable earnings base and substantial long-term growth potential. The company strives to optimize generation margins by improving the cost structure, performance and reliability of its nuclear as well as fossil units. Going forward, PG&E’s earnings growth will be driven by favorable decisions from CPUC and FERC, as well as long-term supply agreements, diversification into alternative power sources and infrastructure improvement programs (such as Cornerstone and Smart Meter).

These positives, however, will be partially offset by risks, including the present unfavorable macro backdrop, headwinds in the California economy, tepid demand for electricity, risk of penalties related to the San Bruno pipeline explosion and power-price volatility. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

San Francisco, California-based PG&E Corporation is the parent holding company of California’s largest regulated electric and gas utility, Pacific Gas and Electric Company (Pacific Gas). The company mainly competes with Edison International (EIX) and Sempra Energy (SRE).

 
EDISON INTL (EIX): Free Stock Analysis Report
 
PG&E CORP (PCG): Free Stock Analysis Report
 
SEMPRA ENERGY (SRE): Free Stock Analysis Report
 
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