NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 1: ORGANIZATION AND BASIS OF PRESENTATION
Organization and Basis of Presentation
PG&E Corporation is a holding company whose primary operating subsidiary is Pacific Gas and Electric Company, a public utility serving northern and central California. The Utility generates revenues mainly through the sale and delivery of electricity and natural gas to customers. The Utility is primarily regulated by the CPUC and the FERC. In addition, the NRC oversees the licensing, construction, operation, and decommissioning of the Utility’s nuclear generation facilities.
This quarterly report on Form 10-Q is a combined report of PG&E Corporation and the Utility. 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. All intercompany transactions have been eliminated in consolidation. The Notes to the Condensed Consolidated Financial Statements apply to both PG&E Corporation and the Utility. PG&E Corporation and the Utility assess financial performance and allocate resources on a consolidated basis (i.e., the companies operate in one segment).
The accompanying Condensed Consolidated Financial Statements have been prepared in conformity with GAAP and in accordance with the interim period reporting requirements of Form 10-Q and reflect all adjustments that management believes are necessary for the fair presentation of PG&E Corporation’s and the Utility’s financial condition, results of operations, and cash flows for the periods presented. The information at December 31, 2019 in the Condensed Consolidated Balance Sheets included in this quarterly report was derived from the audited Consolidated Balance Sheets in Item 8 of the 2019 Form 10-K. This quarterly report should be read in conjunction with the 2019 Form 10-K.
The preparation of financial statements in conformity with GAAP requires the use of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Some of the more significant estimates and assumptions relate to the Utility’s regulatory assets and liabilities, wildfire-related liabilities, legal and regulatory contingencies, the Wildfire Fund, environmental remediation liabilities, AROs, insurance receivables, and pension and other post-retirement benefit plan obligations. Management believes that its estimates and assumptions reflected in the Condensed Consolidated Financial Statements are appropriate and reasonable. A change in management’s estimates or assumptions could result in an adjustment that would have a material impact on PG&E Corporation’s and the Utility’s financial condition, results of operations, liquidity, and cash flows during the period in which such change occurred.
Chapter 11 Emergence and Going Concern
The accompanying Condensed Consolidated Financial Statements have been prepared on a going concern basis, which contemplates the continuity of operations, the realization of assets and the satisfaction of liabilities in the normal course of business. PG&E Corporation and the Utility suffered material losses as a result of the 2017 Northern California wildfires and the 2018 Camp fire, which contributed to the decision to file for Chapter 11 protection on January 29, 2019. Uncertainty regarding these matters previously raised substantial doubt about PG&E Corporation’s and the Utility’s abilities to continue as going concerns.
As a result of PG&E Corporation’s and the Utility’s emergence from Chapter 11 on the Effective Date of July 1, 2020, substantial doubt has been alleviated regarding the Company’s ability to meet its obligations as they become due within one year after the date the financial statements were issued. (For more information regarding the Chapter 11 Cases, see Note 2 below.)
NOTE 2: BANKRUPTCY FILING
Chapter 11 Proceedings
On January 29, 2019, PG&E Corporation and the Utility commenced the Chapter 11 Cases with the Bankruptcy Court. Prior to the Effective Date, PG&E Corporation and the Utility continued to operate their business as debtors-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.
Except as otherwise set forth in the Plan, the Confirmation Order (as defined below) or another order of the Bankruptcy Court, substantially all pre-petition liabilities were discharged under the Plan.
Significant Bankruptcy Court Actions
Plan of Reorganization and Restructuring Support Agreements
On June 19, 2020, PG&E Corporation and the Utility, certain funds and accounts managed or advised by Abrams Capital Management, LP (“Abrams”), and certain funds and accounts managed or advised by Knighthead Capital Management, LLC (“Knighthead” and, together with Abrams, the “Shareholder Proponents”) filed PG&E Corporation’s and the Utility’s and the Shareholder Proponents’ Joint Chapter 11 Plan of Reorganization dated June 19, 2020 with the Bankruptcy Court (the “Plan”). On June 20, 2020, the Bankruptcy Court confirmed the Plan by issuing a confirmation order (the “Confirmation Order”). PG&E Corporation and the Utility emerged from Chapter 11 on July 1, 2020.
On September 22, 2019, PG&E Corporation and the Utility entered into a Restructuring Support Agreement with certain holders of wildfire insurance subrogation claims (as amended, the “Subrogation RSA”, and such claims, the “Subrogation Claims”). On December 19, 2019, the Bankruptcy Court entered an order approving the Subrogation RSA. As of September 30, 2020, PG&E Corporation and the Utility incurred $53 million in professional fees related to the Subrogation RSA. See “Restructuring Support Agreement with Holders of Subrogation Claims” in Note 10 for further information on the Subrogation RSA.
On December 6, 2019, PG&E Corporation and the Utility entered into a Restructuring Support Agreement, which was subsequently amended on December 16, 2019 (as amended, the “TCC RSA”), with the TCC, the attorneys and other advisors and agents for holders of claims against PG&E Corporation and the Utility relating to the 2015 Butte fire, the 2017 Northern California wildfires and the 2018 Camp fire (other than the Subrogation Claims and Public Entity Wildfire Claims (as defined below)) (the “Fire Victim Claims”) that are signatories to the TCC RSA, and the Shareholder Proponents. On December 19, 2019, the Bankruptcy Court entered an order approving the TCC RSA. See “Restructuring Support Agreement with the TCC” in Note 10 for further information on the TCC RSA.
On January 22, 2020, PG&E Corporation and the Utility entered into a Restructuring Support Agreement with those holders of senior unsecured debt of the Utility that are identified as “Consenting Noteholders” therein and the Shareholder Proponents (the “Noteholder RSA”). On February 5, 2020, the Bankruptcy Court entered an order approving the Noteholder RSA.
Confirmation of the Plan of Reorganization
The Plan as confirmed by the Confirmation Order provides for certain transactions and the satisfaction and treatment of claims against and interests in PG&E Corporation and the Utility, each in accordance with the terms of the Plan, including the transactions described below. The Plan provides for the following treatment of various classes of claims as described below. PG&E Corporation and the Utility are in the process of resolving and paying claims pursuant to the treatment provided under the Plan.
•PG&E Corporation and the Utility funded the Fire Victim Trust for the benefit of all holders of Fire Victim Claims, whose claims were channeled to the Fire Victim Trust on the Effective Date with no recourse to PG&E Corporation and the Utility. In full and final satisfaction, release, and discharge of all Fire Victim Claims, the Fire Victim Trust was funded with $5.4 billion in cash (with an additional $1.35 billion in cash to be funded on a deferred basis), common stock of PG&E Corporation representing 22.19% of the outstanding common stock of PG&E Corporation as of the Effective Date (subject to potential adjustments), plus the assignment of certain rights and causes of action. As a result of such funding, all Fire Victim Claims have been satisfied, released, discharged and channeled to the Fire Victim Trust with no recourse to PG&E Corporation or the Utility;
•PG&E Corporation and the Utility funded a trust (the “Subrogation Wildfire Trust”) for the benefit of holders of Subrogation Claims in the amount of $11.0 billion in cash. Such amount was initially funded into escrow and later paid to the Subrogation Wildfire Trust. As a result of such funding, all Subrogation Claims have been satisfied, released and discharged and channeled to the Subrogation Wildfire Trust with no recourse to PG&E Corporation or the Utility;
•PG&E Corporation and the Utility paid $1.0 billion in cash to certain local public entities (the “Settling Public Entities”) that entered into plan support agreements with PG&E Corporation and the Utility and established a segregated fund in the amount of $10 million to be used to reimburse the Settling Public Entities for any and all legal fees and costs associated with the defense or resolution of any third party claims against the Settling Public Entities in full and final satisfaction, release and discharge of such Settling Public Entities’ wildfire related claims;
•The following pre-petition notes of the Utility: (a) 3.50% Senior Notes due October 1, 2020; (b) 4.25% Senior Notes due May 15, 2021; (c) 3.25% Senior Notes due September 15, 2021; and (d) 2.45% Senior Notes due August 15, 2020), (collectively, the “Utility Short-Term Senior Notes”); the following pre-petition notes of the Utility: (a) 6.05% Senior Notes due 2034; (b) 5.80% Senior Notes due March 1, 2037; (c) 6.35% Senior Notes due February 15, 2038; (d) 6.25% Senior Notes due March 1, 2039; (e) 5.40% Senior Notes due January 15, 2040; and (f) 5.125% Senior Notes due November 15, 2043, (collectively, the “Utility Long-Term Senior Notes) and the pre-petition credit agreements of the Utility, including in connection with the pollution control bonds (except for $100 million of pollution control bonds (Series 2008F and 2010E), which were repaid in cash) (collectively, the “Utility Funded Debt”) were refinanced and all other Utility pre-petition senior notes (collectively, the “Utility Reinstated Senior Notes”) were reinstated and collateralized on or around the Effective Date through the issuance of a corresponding series of first mortgage bonds of the Utility;
•PG&E Corporation paid in full all of its pre-petition funded debt obligations that were allowed in the Chapter 11 Cases;
•PG&E Corporation and the Utility repaid all borrowings under the DIP Facilities (as defined in the DIP Credit Agreement) and will pay all other allowed administrative expense claims in accordance with the Plan;
•Holders of allowed claims by a governmental authority entitled to priority in payment under sections 502(i) and 507(a)(8) of the Bankruptcy Code (“Priority Tax Claims”) have received or will receive in the future, cash in an amount equal to such allowed Priority Tax Claims on the Effective Date or as soon as reasonably practicable thereafter;
•Holders of allowed secured claims other than Priority Tax Claims or secured claims related to the DIP facilities (“Other Secured Claims”) received cash in an amount equal to such Other Secured Claims;
•Holders of allowed claims other than administrative expense claims or Priority Tax Claims, entitled to priority in payment as specified in section 507(a)(3), (4), (5), (6), (7), or (9) of the Bankruptcy Code (“Priority Non-Tax Claims”) received cash in an amount equal to such allowed Priority Non-Tax Claims;
•PG&E Corporation and the Utility will pay in full all pre-petition unsecured claims that do not fall within any of the other classes of unsecured claims under the Plan (“General Unsecured Claims”) that are allowed in the Chapter 11 Cases; and
•PG&E Corporation and the Utility will pay all allowed claims that are subject to subordination under section 510(b) of the Bankruptcy Code other than subordinated claims related to the common stock of PG&E Corporation (“Subordinated Debt Claims”) in full and provide to each holder of an allowed claim that relates to the common stock of PG&E Corporation that is subject to subordination under section 510(b) of the Bankruptcy Code (a “HoldCo Rescission or Damage Claim”) a number of shares of PG&E Corporation common stock based on a formula as specified in the Plan that varies depending on when the claimant purchased the affected shares of common stock.
In addition, the Plan also provides for the following in connection with or following the implementation of the Plan:
•Holders of claims related to the 2016 Ghost Ship fire are entitled to pursue their claims against PG&E Corporation and the Utility (with any recovery being limited to amounts available under PG&E Corporation’s and the Utility’s insurance policies for the 2016 year);
•Holders of certain claims may be able to pursue their claims against PG&E Corporation and the Utility, such as administrative expense claims that have not been satisfied or come due by the Effective Date, claims arising from wildfires occurring after the Petition Date that have not been satisfied by the Effective Date (including the 2019 Kincade fire), and claims relating to certain FERC refund proceedings, workers’ compensation benefits and certain environmental claims;
•PG&E Corporation or the Utility, as applicable, assumed all of their respective power purchase agreements and community choice aggregation servicing agreements; and
•PG&E Corporation or the Utility, as applicable, assumed all of their respective pension obligations, other employee obligations, and collective bargaining agreements with labor.
The Confirmation Order contains a channeling injunction that is also in the Plan that provides, among other things, that the sole source of recovery for holders of Subrogation Claims will be from the Subrogation Wildfire Trust and the sole source of recovery for holders of Fire Victim Claims will be from the Fire Victim Trust. The holders of such claims will have no recourse to or claims whatsoever against PG&E Corporation and the Utility or their assets and properties.
The Plan as confirmed by the Confirmation Order provides for certain financing transactions as follows:
•one or more equity offerings of up to $9.0 billion of gross proceeds in cash through the issuance of common stock and/or other equity and/or equity-linked securities pursuant to one or more offerings and/or private placements;
•the issuance of $4.75 billion of new PG&E Corporation debt;
•the reinstatement of $9.575 billion of pre-petition debt of the Utility; and
•the issuance of $23.775 billion of new Utility debt, consisting of (i) $6.2 billion of the Utility’s 4.55% Senior Notes due 2030 and 4.95% Senior Notes due 2050 (the “New Utility Long-Term Bonds”) to be issued to holders of certain pre-petition senior notes of the Utility pursuant to the Plan, (ii) $1.75 billion of the Utility’s 3.45% Senior Notes due 2025 and 3.75% Senior Notes due 2028 (the “New Utility Short-Term Bonds”) to be issued to holders of certain pre-petition senior notes of the Utility pursuant to the Plan, (iii) $3.9 billion of the Utility’s 3.15% Senior Notes due 2025 and 4.50% Senior Notes due 2040 (the “New Utility Funded Debt Exchange Bonds”) to be issued to holders of certain pre-petition indebtedness of the Utility pursuant to the Plan and (iv) $11.925 billion of new debt securities or bank debt of the Utility to be issued to third parties for cash on or prior to the Effective Date (of which $6.0 billion is expected to be repaid with the proceeds of a new securitization transaction after the Effective Date) (see Note 5 below for a description of the debt transactions that occurred on or before the Effective Date).
The foregoing financing transactions occurred on or around the Effective Date.
On July 27, 2020, Elliott Management Corporation, a Consenting Noteholder, filed a motion with the Bankruptcy Court asserting an approximately $250 million administrative claim against PG&E Corporation and the Utility, alleging that PG&E Corporation and the Utility breached the Noteholder RSA by failing to use their best efforts to cause Backstop Parties to transfer up to $2.0 billion of Backstop Commitments to certain of the Consenting Noteholders. On August 26, 2020, PG&E Corporation and the Utility filed an initial legal opposition to the Elliott Management Corporation’s motion. Elliott Management Corporation filed its response on September 14, 2020, and PG&E Corporation and the Utility filed their reply on September 25, 2020. A hearing on the initial legal opposition to the motion was held on October 13, 2020. On October 22, 2020, the Bankruptcy Court issued a decision and separate orders disallowing the administrative expense claims asserted by Elliott Management Corporation and other Consenting Noteholders. PG&E Corporation and the Utility are unable to predict the timing and outcome of any appeals of the Bankruptcy Court’s decision and orders disallowing these claims.
On the Effective Date, pursuant to the Plan, the Utility entered into a tax benefits payment agreement (the “Tax Benefits Payment Agreement”) with the Fire Victim Trust, pursuant to which the Utility agreed to pay to the Fire Victim Trust in cash an aggregate amount of $1.35 billion, comprising (i) at least $650 million of tax benefits arising from certain tax deductions related to pre-petition wildfires (“Tax Benefits”) for fiscal year 2020 to be paid on or before January 15, 2021 (the “First Payment Date”) and (ii) of the remainder of $1.35 billion of Tax Benefits for fiscal year 2021 to be paid on or before January 15, 2022.
Also on the Effective Date, pursuant to the Plan, the Utility entered into an assignment agreement with the Fire Victim Trust, pursuant to which the Utility agreed to transfer to the Fire Victim Trust on the Effective Date 477 million shares (such shares, the “Fire Victim Trust Shares”) of common stock of PG&E Corporation, no par value (the “Common Stock”). As a result of the Equity Units Underwriters exercising their option to purchase 1.45 million additional Equity Units, on August 3, 2020, PG&E Corporation made an equity contribution of 748,415 shares to the Utility which delivered such additional shares of common stock to the Fire Victim Trust pursuant to an anti-dilution provision in the assignment agreement with the Fire Victim Trust.
Further, on the Effective Date, PG&E Corporation and the Utility funded a $10 million fund established for the benefit of the Supporting Public Entities under the PSAs in accordance with the terms of the Plan and the PSAs with the Supporting Public Entities, and also made a payment of $1.0 billion in cash to the public entities who are party to the PSAs with the Supporting Public Entities. Also, on the Effective Date, PG&E Corporation and the Utility funded $100 million to the Subrogation Wildfire Trust and placed the balance of the $11.0 billion in a segregated escrow account established and owned by the Subrogation Wildfire Trust for the benefit of holders of Subrogation Claims, which was subsequently paid to the Subrogation Wildfire Trust.
Equity Financing
In connection with its emergence from Chapter 11 in July 2020, PG&E raised an aggregate of $9.0 billion of gross proceeds through the issuance of common stock and other equity-linked instruments. For more information, see Note 6 below.
Equity Backstop Commitments and Forward Stock Purchase Agreements
As of March 6, 2020, PG&E Corporation entered into Chapter 11 Plan Backstop Commitment Letters (collectively, as amended by the Consent Agreements (as defined below), the “Backstop Commitment Letters”) with investors (collectively, the “Backstop Parties”), pursuant to which the Backstop Parties severally agreed to fund up to $12.0 billion of proceeds to finance the Plan through the purchase of PG&E Corporation common stock, subject to the terms and conditions set forth in such Backstop Commitment Letters (the “Backstop Commitments”). As a result of PG&E Corporation emerging from Chapter 11 on July 1, 2020, the Backstop Commitments were not utilized and terminated in accordance with their terms.
The commitment premium for the Backstop Commitments was paid in shares of PG&E Corporation’s common stock (with each Backstop Party receiving its pro rata share of 119 million shares of PG&E Corporation’s common stock based on the proportion of the amount of such Backstop Party’s Backstop Commitment to $12.0 billion). PG&E Corporation issued the commitment premium shares to the Backstop Parties on July 1, 2020 in connection with emerging from Chapter 11.
On June 30, 2020, PG&E Corporation recorded approximately $1.1 billion of expense related to the Backstop Commitment premium in Reorganization items, net. This amount was primarily based on PG&E Corporation’s closing stock price on June 30, 2020 of $8.87 per share. On the Effective Date, PG&E Corporation’s closing price was $9.03 per share and as a result, PG&E Corporation recorded an additional $19 million expense as of September 30, 2020.
Under the Backstop Commitment Letters, PG&E Corporation and the Utility have also agreed to reimburse the Backstop Parties for reasonable professional fees and expenses of up to $34 million in the aggregate for the legal advisors and $19 million in the aggregate for the financial advisor, upon the terms and conditions set forth in the Backstop Commitment Letters. As of September 30, 2020, PG&E Corporation recorded $49 million in professional fees and related expenses to the Backstop Parties in Reorganization items, net.
In connection with PG&E Corporation’s underwritten offerings of up to $5.75 billion of equity securities to finance the transactions contemplated by the Plan (the “Offerings”), up to $523 million was issuable pursuant to customary options granted to the underwriters thereof to purchase the Option Securities (as defined below in Note 6).
On June 19, 2020, PG&E Corporation entered into prepaid forward contracts (the “Forward Stock Purchase Agreements”) with the Backstop Parties. Each Forward Stock Purchase Agreement provided that, subject to certain conditions, the Backstop Party will purchase on the Effective Date, and receive on the Settlement Date (as defined in each Forward Stock Purchase Agreement) an amount of common stock of PG&E Corporation equal to its pro rata share of the value of the Option Securities not purchased by the underwriters (such amount, each Backstop Party’s “Greenshoe Backstop Purchase Amount” and all Greenshoe Backstop Purchase Amounts in the aggregate, the “Aggregate Greenshoe Backstop Purchase Amount”), at a price per share equal to the lesser of (i) the lowest per share price of common stock sold on an underwritten basis to the public in an offering of common stock of PG&E Corporation, as disclosed on the cover page of the prospectus or prospectus supplement, and (ii) the price per share payable by the investors party to the Investment Agreement dated as of June 7, 2020 (such lesser price, the “Settlement Price”). The Settlement Price was $9.50 per share. Each Forward Stock Purchase Agreement expired on August 3, 2020.
On June 25, 2020, the Backstop Parties funded the Greenshoe Backstop Purchase Amount to PG&E Corporation in the amount of $523 million which was recorded in Other current liabilities on the Condensed Consolidated Financial Statements. PG&E Corporation applied the proceeds of such funding to distributions under the Plan on the Effective Date. On August 3, 2020, PG&E Corporation redeemed $120.5 million of the Forward Stock Purchase Agreements payable in cash as a result of the exercise by the underwriters of their option to purchase Equity Units pursuant to the Equity Units Underwriting Agreement (as defined below in Note 6). On August 3, 2020, PG&E Corporation delivered 42.3 million shares of PG&E Corporation common stock to the Backstop Parties to settle the portion of the Forward Stock Purchase Agreements that was not redeemed.
Additionally, each Forward Stock Purchase Agreement provided that, subject to the consummation by PG&E Corporation of the Offerings, PG&E Corporation would issue to each Backstop Party its pro rata share of 50 million shares of common stock (such shares, each Backstop Party’s “Additional Backstop Premium Shares”). The Additional Backstop Premium Shares were issued to Backstop Parties on the Effective Date. On June 30, 2020, PG&E Corporation recorded $444 million of expense related to the Additional Backstop Premium Shares in Reorganization items, net. This amount was based primarily on PG&E Corporation’s closing stock price on June 30, 2020 of $8.87 per share. On the Effective Date, PG&E Corporation’s closing stock price was $9.03 per share and as a result, PG&E Corporation recorded an additional $8 million expense as of September 30, 2020.
Financial Reporting in Reorganization
Effective on the Petition Date and up to June 30, 2020, PG&E Corporation and the Utility applied accounting standards applicable to reorganizations, which are applicable to companies under Chapter 11 bankruptcy protection. These accounting standards require the financial statements for periods subsequent to the Petition Date to distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Expenses, realized gains and losses, and provisions for losses that was directly associated with reorganization proceedings must have been reported separately as reorganization items, net in the Condensed Consolidated Statements of Income. In addition, the balance sheet must have distinguished pre-petition LSTC of PG&E Corporation and the Utility from pre-petition liabilities that were not subject to compromise, post-petition liabilities, and liabilities of the subsidiaries of PG&E Corporation that were not debtors in the Chapter 11 Cases in the Condensed Consolidated Balance Sheets. LSTC are pre-petition obligations that were not fully secured and had at least a possibility of not being repaid at the full claim amount. Where there was uncertainty about whether a secured claim would be paid or impaired pursuant to the Chapter 11 Cases, PG&E Corporation and the Utility classified the entire amount of the claim as LSTC.
Furthermore, the realization of assets and the satisfaction of liabilities are subject to uncertainty. Pursuant to the Plan and Confirmation Order, actions to enforce or otherwise effect the payment of certain claims against PG&E Corporation and the Utility in existence before the Petition Date were subject to an injunction and were subject to treatment under the Plan. These claims were reflected as LSTC in the Condensed Consolidated Balance Sheets at December 31, 2019. Additional claims may arise for contingencies and other unliquidated and disputed amounts.
PG&E Corporation’s Condensed Consolidated Financial Statements are presented on a consolidated basis and include the accounts of PG&E Corporation and the Utility and other subsidiaries of PG&E Corporation and the Utility that individually and in aggregate are immaterial. Such other subsidiaries did not file for bankruptcy.
The Utility’s Condensed Consolidated Financial Statements are presented on a consolidated basis and include the accounts of the Utility and other subsidiaries of the Utility that individually and in aggregate are immaterial. Such other subsidiaries did not file for bankruptcy.
Upon emergence from Chapter 11 on July 1, 2020, PG&E Corporation and the Utility were not required to apply fresh start accounting based on the provisions of ASC 852 since the entity’s reorganization value immediately before the date of confirmation is more than the total of all its post-petition liabilities and allowed claims.
Liabilities Subject to Compromise
As a result of the commencement of the Chapter 11 Cases, the payment of pre-petition liabilities was subject to compromise or other treatment pursuant to the Plan. Generally, actions to enforce or otherwise effect payment of pre-petition liabilities were subject to an injunction and will be satisfied pursuant to the Plan and the Chapter 11 claims reconciliation process.
Prior to June 30, 2020, pre-petition liabilities that were subject to compromise were required to be reported at the amounts expected to be allowed. Therefore, liabilities subject to compromise as of December 31, 2019 in the table below reflected management’s estimates of amounts expected to be allowed in the Chapter 11 Cases, based upon, among other things, the status of negotiations with creditors. As of June 30, 2020, such amounts were reclassified to current or non-current liabilities in the Condensed Consolidated Balance Sheets, based upon management’s judgment as to the timing for settlement of such liabilities.
Liabilities subject to compromise as of December 31, 2019 which were settled or reclassified during the nine months ended September 30, 2020 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Utility
|
|
PG&E
Corporation (1)
|
|
December 31, 2019
PG&E
Corporation
Consolidated
|
|
Change in Estimated Allowed Claim 2020 (2)
|
|
Cash
Payment
|
|
Reclassified as of June 30, 2020 (3)
|
|
Utility
|
|
PG&E
Corporation (1)
|
|
September 30, 2020
PG&E
Corporation
Consolidated
|
Financing debt
|
$
|
22,450
|
|
|
$
|
666
|
|
|
$
|
23,116
|
|
|
$
|
351
|
|
|
$
|
—
|
|
|
$
|
(23,467)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Wildfire-related claims
|
25,548
|
|
|
—
|
|
|
25,548
|
|
|
18
|
|
|
(23)
|
|
|
(25,543)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Trade creditors (4)
|
1,183
|
|
|
5
|
|
|
1,188
|
|
|
6
|
|
|
(14)
|
|
|
(1,180)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Non-qualified benefit plan
|
20
|
|
|
137
|
|
|
157
|
|
|
—
|
|
|
—
|
|
|
(157)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
2001 bankruptcy disputed claims
|
234
|
|
|
—
|
|
|
234
|
|
|
4
|
|
|
—
|
|
|
(238)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Customer deposits & advances
|
71
|
|
|
—
|
|
|
71
|
|
|
12
|
|
|
—
|
|
|
(83)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other
|
230
|
|
|
2
|
|
|
232
|
|
|
59
|
|
|
—
|
|
|
(291)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total Liabilities Subject to Compromise
|
$
|
49,736
|
|
|
$
|
810
|
|
|
$
|
50,546
|
|
|
$
|
450
|
|
|
$
|
(37)
|
|
|
$
|
(50,959)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) PG&E Corporation amounts reflected under the column “PG&E Corporation” exclude the accounts of the Utility.
(2) Change in estimated allowed claim amounts are primarily due to interest accruals with the exception of the “wildfire-related claims”, “customer deposits & advances”, and “other” line items which are mainly due to the adjustment to recorded liabilities.
(3) Amounts reclassified as of June 30, 2020 included $8.6 million to Accounts payable - other, $237.6 million to Disputed claims and customer refunds, $1,347.4 million to Interest payable, $21,425.7 million to Long-term debt, $300.0 million to Short-term borrowings, $450.0 million to Long-term debt, classified as current, $301.0 million to Other current liabilities, $97.9 million to Other non-current liabilities, $121.3 million to Pension and other post-retirement benefits, $1,126.9 million to Accounts payable - trade creditors, and $25,542.7 million to Wildfire-related claims on the Condensed Consolidated Balance Sheets.
(4) As of October 23, 2020, $5 million and $801 million has been repaid by PG&E Corporation and the Utility, respectively.
Chapter 11 Claims Process
PG&E Corporation and the Utility have received over 100,000 proofs of claim since the Petition Date, of which approximately 80,000 were channeled to the Subrogation Wildfire Trust and Fire Victim Trust. The claims channeled to the Subrogation Wildfire Trust and Fire Victim Trust will be resolved by such trusts and PG&E Corporation and the Utility have no further liability in connection with such claims. PG&E Corporation and the Utility continue their review and analysis of certain remaining claims including litigation claims, trade creditor claims, non-qualified benefit plan claims, along with other tax and regulatory claims, and therefore the ultimate liability of PG&E Corporation or the Utility for such claims may differ from the amounts asserted in such claims. Allowed claims are paid in accordance with the Plan and the Confirmation Order.
The Bankruptcy Code provides that the confirmation of a plan of reorganization discharges a debtor from substantially all debts arising prior to confirmation, other than as provided in the Plan or the Confirmation Order.
The Plan, however, provides that the holders of certain claims may pursue their claims against PG&E Corporation and the Utility on or after the Effective Date, including, but not limited to, the following:
•claims arising after the January 29, 2019 Petition Date that constitute administrative expense claims, which will not be discharged pursuant to the Plan, other than allowed administrative expense claims that have been paid in cash or otherwise satisfied in the ordinary course in an amount equal to the allowed amount of such claim on or prior to the Effective Date;
•claims of the Ghost Ship fire litigation (with any recovery being limited to amounts available under PG&E Corporation’s and the Utility’s insurance policies for the 2016 year);
•claims arising out of or based on the 2019 Kincade fire, which the California Department of Forestry and Fire Protection has determined was caused by the Utility’s transmission lines; which is currently under investigation by the CPUC and the Sonoma County District Attorney’s Office; and which may also be under investigation by various other entities, including law enforcement agencies; and
•certain FERC refund proceedings, workers’ compensation benefits and environmental claims.
Furthermore, holders of certain claims may assert that they are entitled under the Plan or the Bankruptcy Code to pursue, or continue to pursue, their claims against PG&E Corporation and the Utility on or after the Effective Date, including but not limited to, claims arising from or relating to:
•the purported de-energization securities class action filed in October 2019 and amended to add PG&E Corporation in April 2020. For more information on the filing, see Note 10 below;
•the purported PSPS class action filed in December 2019 and seeking up to $2.5 billion in special and general damages, punitive and exemplary damages and injunctive relief to require the Utility to properly maintain and inspect its power grid, was dismissed on April 3, 2020, and subsequently appealed on April 6, 2020. For more information on the filing, see Note 11 below; and
•indemnification or contributing claims, including with respect to the 2018 Camp fire, the 2017 Northern California wildfires, and the 2015 Butte fire.
In addition, claims continue to be pursued against PG&E Corporation and the Utility and certain of their respective current and former directors and officers as well as certain underwriters, in connection with three purported securities class actions, as further described in Note 10 under the heading “Securities Class Action Litigation.”
Various electricity suppliers filed claims in the Utility’s 2001 prior proceeding filed under Chapter 11 of the U.S. Bankruptcy Code seeking payment for energy supplied to the Utility’s customers between May 2000 and June 2001. While the FERC and judicial proceedings are pending, the Utility pursued settlements with electricity suppliers and entered into a number of settlement agreements with various electricity suppliers to resolve some of these disputed claims and to resolve the Utility’s refund claims against these electricity suppliers. Under these settlement agreements, amounts payable by the parties, in some instances, would be subject to adjustment based on the outcome of the various refund offset and interest issues being considered by the FERC. Generally, any net refunds, claim offsets, or other credits that the Utility receives from electricity suppliers either through settlement or through the conclusion of the various FERC and judicial proceedings are refunded to customers through rates in future periods. Pursuant to the Plan, on and after the Effective Date, the holders of such claims are entitled to pursue their claims against the Reorganized Utility as if the Chapter 11 Cases had not been commenced.
Reorganization Items, Net
Reorganization items, net, represent amounts incurred after the Petition Date as a direct result of the Chapter 11 Cases and are comprised of professional fees and financing costs, net of interest income and other. Cash paid for reorganization items, net was $96 million and $300 million for PG&E Corporation and the Utility, respectively, during the nine months ended September 30, 2020 as compared to $13 million and $145 million for PG&E Corporation and the Utility, respectively, during the same period in 2019. Cash paid for reorganization items, net was $6 million and $93 million for PG&E Corporation and the Utility, respectively, during the three months ended September 30, 2020 as compared to cash received in the amount of $2 million and cash paid in the amount of $67 million for PG&E Corporation and the Utility, respectively, during the same period in 2019. Of the $300 million in cash paid for the Utility’s reorganization items, during the nine months ended September 30, 2020, $35 million in facility fees related to the Debt Commitment Letters were recorded to a regulatory asset as they were deemed probable of recovery. Reorganization items, net for the three and nine months ended September 30, 2020 include the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2020
|
(in millions)
|
Utility
|
|
PG&E Corporation (1)
|
|
PG&E Corporation Consolidated
|
Debtor-in-possession financing costs
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Legal and other
|
90
|
|
|
55
|
|
|
145
|
|
Interest and other
|
(8)
|
|
|
—
|
|
|
(8)
|
|
Total reorganization items, net
|
$
|
82
|
|
|
$
|
55
|
|
|
$
|
137
|
|
|
|
|
|
|
|
(1) PG&E Corporation amounts reflected under the column “PG&E Corporation” exclude the accounts of the Utility.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2020
|
(in millions)
|
Utility
|
|
PG&E Corporation (1)
|
|
PG&E Corporation Consolidated
|
Debtor-in-possession financing costs
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
3
|
|
Legal and other (2)
|
296
|
|
|
1,653
|
|
|
1,949
|
|
Interest and other
|
(13)
|
|
|
(2)
|
|
|
(15)
|
|
Total reorganization items, net
|
$
|
286
|
|
|
$
|
1,651
|
|
|
$
|
1,937
|
|
|
|
|
|
|
|
(1) PG&E Corporation amounts reflected under the column “PG&E Corporation” exclude the accounts of the Utility.
(2) Amount includes $1.5 billion in equity backstop premium expense and bridge loan facility fees.
Reorganization items, net for the three months ended September 30, 2019 and from the Petition Date through September 30, 2019 include the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2019
|
(in millions)
|
Utility
|
|
PG&E Corporation (1)
|
|
PG&E Corporation Consolidated
|
Debtor-in-possession financing costs
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Legal and other
|
83
|
|
|
7
|
|
|
90
|
|
Interest income
|
(14)
|
|
|
(3)
|
|
|
(17)
|
|
Total reorganization items, net
|
$
|
69
|
|
|
$
|
4
|
|
|
$
|
73
|
|
|
|
|
|
|
|
(1) PG&E Corporation amounts reflected under the column “PG&E Corporation” exclude the accounts of the Utility.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Petition Date Through September 30, 2019
|
(in millions)
|
Utility
|
|
PG&E Corporation (1)
|
|
PG&E Corporation Consolidated
|
Debtor-in-possession financing costs
|
$
|
97
|
|
|
$
|
17
|
|
|
$
|
114
|
|
Legal and other
|
181
|
|
|
10
|
|
|
191
|
|
Interest income
|
(41)
|
|
|
(8)
|
|
|
(49)
|
|
Total reorganization items, net
|
$
|
237
|
|
|
$
|
19
|
|
|
$
|
256
|
|
|
|
|
|
|
|
(1) PG&E Corporation amounts reflected under the column “PG&E Corporation” exclude the accounts of the Utility.
NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
For a summary of the significant accounting policies used by PG&E Corporation and the Utility, see Note 2 of the Condensed Consolidated Financial Statements above for bankruptcy-related policies and Note 3 of the Notes to the Consolidated Financial Statements in Item 8 of the 2019 Form 10-K.
Variable Interest Entities
A VIE is an entity that does not have sufficient equity at risk to finance its activities without additional subordinated financial support from other parties, or whose equity investors lack any characteristics of a controlling financial interest. An enterprise that has a controlling financial interest in a VIE is a primary beneficiary and is required to consolidate the VIE.
Some of the counterparties to the Utility’s power purchase agreements are considered VIEs. Each of these VIEs was designed to own a power plant that would generate electricity for sale to the Utility. To determine whether the Utility has a controlling interest or was the primary beneficiary of any of these VIEs at September 30, 2020, the Utility assessed whether it absorbs any of the VIE’s expected losses or receives any portion of the VIE’s expected residual returns under the terms of the power purchase agreement, analyzed the variability in the VIE’s gross margin, and considered whether it had any decision-making rights associated with the activities that are most significant to the VIE’s performance, such as dispatch rights and operating and maintenance activities. The Utility’s financial obligation is limited to the amount the Utility pays for delivered electricity and capacity. The Utility did not have any decision-making rights associated with any of the activities that are most significant to the economic performance of any of these VIEs. Since the Utility was not the primary beneficiary of any of these VIEs at September 30, 2020, it did not consolidate any of them.
Pension and Other Post-Retirement Benefits
PG&E Corporation and the Utility sponsor a non-contributory defined benefit pension plan and cash balance plan. Both plans are included in “Pension Benefits” below. Post-retirement medical and life insurance plans are included in “Other Benefits” below.
The net periodic benefit costs reflected in PG&E Corporation’s Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2020 and 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
Three Months Ended September 30,
|
(in millions)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Service cost for benefits earned (1)
|
$
|
133
|
|
|
$
|
110
|
|
|
$
|
15
|
|
|
$
|
14
|
|
Interest cost
|
178
|
|
|
189
|
|
|
16
|
|
|
19
|
|
Expected return on plan assets
|
(261)
|
|
|
(226)
|
|
|
(34)
|
|
|
(31)
|
|
Amortization of prior service cost
|
(1)
|
|
|
(1)
|
|
|
3
|
|
|
3
|
|
Amortization of net actuarial loss
|
1
|
|
|
1
|
|
|
(5)
|
|
|
—
|
|
Net periodic benefit cost
|
50
|
|
|
73
|
|
|
(5)
|
|
|
5
|
|
Regulatory account transfer (2)
|
34
|
|
|
10
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
84
|
|
|
$
|
83
|
|
|
$
|
(5)
|
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
(1) A portion of service costs are capitalized pursuant to GAAP.
(2) The Utility recorded these amounts to a regulatory account since they are probable of recovery from, or refund to, customers in future rates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
Nine Months Ended September 30,
|
(in millions)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Service cost for benefits earned (1)
|
$
|
397
|
|
|
$
|
332
|
|
|
$
|
46
|
|
|
$
|
42
|
|
Interest cost
|
535
|
|
|
568
|
|
|
47
|
|
|
57
|
|
Expected return on plan assets
|
(783)
|
|
|
(679)
|
|
|
(103)
|
|
|
(92)
|
|
Amortization of prior service cost
|
(4)
|
|
|
(4)
|
|
|
10
|
|
|
10
|
|
Amortization of net actuarial loss
|
3
|
|
|
2
|
|
|
(15)
|
|
|
(2)
|
|
Net periodic benefit cost
|
148
|
|
|
219
|
|
|
(15)
|
|
|
15
|
|
Regulatory account transfer (2)
|
102
|
|
|
31
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
250
|
|
|
$
|
250
|
|
|
$
|
(15)
|
|
|
$
|
15
|
|
|
|
|
|
|
|
|
|
(1) A portion of service costs are capitalized pursuant to GAAP.
(2) The Utility recorded these amounts to a regulatory account since they are probable of recovery from, or refund to, customers in future rates.
Non-service costs are reflected in Other income, net on the Condensed Consolidated Statements of Income. Service costs are reflected in Operating and maintenance on the Condensed Consolidated Statements of Income.
There was no material difference between PG&E Corporation and the Utility for the information disclosed above.
Pursuant to the Plan and Confirmation Order, all existing pension and other benefit plans were deemed assumed by PG&E Corporation and the Utility.
Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (Loss)
The changes, net of income tax, in PG&E Corporation’s accumulated other comprehensive income (loss) consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
Benefits
|
|
Other
Benefits
|
|
Total
|
(in millions, net of income tax)
|
Three Months Ended September 30, 2020
|
Beginning balance
|
$
|
(22)
|
|
|
$
|
17
|
|
|
$
|
(5)
|
|
Amounts reclassified from other comprehensive income: (1)
|
|
|
|
|
|
Amortization of prior service cost (net of taxes of $0 and $1, respectively)
|
(1)
|
|
|
2
|
|
|
1
|
|
Amortization of net actuarial loss (net of taxes of $0 and $1, respectively)
|
1
|
|
|
(4)
|
|
|
(3)
|
|
Regulatory account transfer (net of taxes of $1 and $0, respectively)
|
—
|
|
|
2
|
|
|
2
|
|
Net current period other comprehensive gain (loss)
|
—
|
|
|
—
|
|
|
—
|
|
Ending balance
|
$
|
(22)
|
|
|
$
|
17
|
|
|
$
|
(5)
|
|
|
|
|
|
|
|
(1) These components are included in the computation of net periodic pension and other post-retirement benefit costs. (See the “Pension and Other Post-Retirement Benefits” table above for additional details.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other
Benefits
|
|
Total
|
(in millions, net of income tax)
|
Three Months Ended September 30, 2019
|
Beginning balance
|
$
|
(21)
|
|
|
$
|
17
|
|
|
$
|
(4)
|
|
Amounts reclassified from other comprehensive income: (1)
|
|
|
|
|
|
Amortization of prior service cost (net of taxes of $0 and $1, respectively)
|
(1)
|
|
|
2
|
|
|
1
|
|
Amortization of net actuarial loss (net of taxes of $0, and $0, respectively)
|
1
|
|
|
—
|
|
|
1
|
|
Regulatory account transfer (net of taxes of $0 and $1, respectively)
|
—
|
|
|
(2)
|
|
|
(2)
|
|
Net current period other comprehensive gain (loss)
|
—
|
|
|
—
|
|
|
—
|
|
Ending balance
|
$
|
(21)
|
|
|
$
|
17
|
|
|
$
|
(4)
|
|
|
|
|
|
|
|
(1) These components are included in the computation of net periodic pension and other post-retirement benefit costs. (See the “Pension and Other Post-Retirement Benefits” table above for additional details.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
Total
|
(in millions, net of income tax)
|
Nine Months Ended September 30, 2020
|
Beginning balance
|
$
|
(22)
|
|
|
$
|
17
|
|
|
$
|
(5)
|
|
Amounts reclassified from other comprehensive income: (1)
|
|
|
|
|
|
Amortization of prior service cost (net of taxes of $1 and $3, respectively)
|
(3)
|
|
|
7
|
|
|
4
|
|
Amortization of net actuarial loss (net of taxes of $1 and $4, respectively)
|
2
|
|
|
(11)
|
|
|
(9)
|
|
Regulatory account transfer (net of taxes of $1 and $1, respectively)
|
1
|
|
|
4
|
|
|
5
|
|
Net current period other comprehensive gain (loss)
|
—
|
|
|
—
|
|
|
—
|
|
Ending balance
|
$
|
(22)
|
|
|
$
|
17
|
|
|
$
|
(5)
|
|
(1) These components are included in the computation of net periodic pension and other post-retirement benefit costs. (See the “Pension and Other Post-Retirement Benefits” table above for additional details.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
Total
|
(in millions, net of income tax)
|
Nine Months Ended September 30, 2019
|
Beginning balance
|
$
|
(21)
|
|
|
$
|
17
|
|
|
$
|
(4)
|
|
Amounts reclassified from other comprehensive income: (1)
|
|
|
|
|
|
Amortization of prior service cost (net of taxes of $1 and $3, respectively)
|
(3)
|
|
|
7
|
|
|
4
|
|
Amortization of net actuarial loss (net of taxes of $0 and $1, respectively)
|
2
|
|
|
(1)
|
|
|
1
|
|
Regulatory account transfer (net of taxes of $1 and $2, respectively)
|
1
|
|
|
(6)
|
|
|
(5)
|
|
Net current period other comprehensive gain (loss)
|
—
|
|
|
—
|
|
|
—
|
|
Ending balance
|
$
|
(21)
|
|
|
$
|
17
|
|
|
$
|
(4)
|
|
(1) These components are included in the computation of net periodic pension and other post-retirement benefit costs. (See the “Pension and Other Post-Retirement Benefits” table above for additional details.)
There was no material difference between PG&E Corporation and the Utility for the information disclosed above.
Revenue Recognition
Revenue from Contracts with Customers
The Utility recognizes revenues when electricity and natural gas services are delivered. The Utility records unbilled revenues for the estimated amount of energy delivered to customers but not yet billed at the end of the period. Unbilled revenues are included in accounts receivable on the Condensed Consolidated Balance Sheets. Rates charged to customers are based on CPUC and FERC authorized revenue requirements. Revenues can vary significantly from period to period because of seasonality, weather, and customer usage patterns.
Regulatory Balancing Account Revenue
The CPUC authorizes most of the Utility’s revenues in the Utility’s GRC and GT&S rate cases, which generally occur every three or four years. The Utility’s ability to recover revenue requirements authorized by the CPUC in these rate cases is independent, or “decoupled,” from the volume of the Utility’s sales of electricity and natural gas services. The Utility recognizes revenues that have been authorized for rate recovery, are objectively determinable and probable of recovery, and are expected to be collected within 24 months. Generally, electric and natural gas operating revenue is recognized ratably over the year. The Utility records a balancing account asset or liability for differences between customer billings and authorized revenue requirements that are probable of recovery or refund.
The CPUC also has authorized the Utility to collect additional revenue requirements to recover costs that the Utility has been authorized to pass on to customers, including costs to purchase electricity and natural gas, and to fund public purpose, demand response, and customer energy efficiency programs. In general, the revenue recognition criteria for pass-through costs billed to customers are met at the time the costs are incurred. The Utility records a regulatory balancing account asset or liability for differences between incurred costs and customer billings or authorized revenue meant to recover those costs, to the extent that these differences are probable of recovery or refund. As a result, these differences have no impact on net income.
The following table presents the Utility’s revenues disaggregated by type of customer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
(in millions)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
Electric
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from contracts with customers
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
$
|
1,862
|
|
|
$
|
1,557
|
|
|
$
|
4,092
|
|
|
$
|
3,839
|
|
|
|
|
|
Commercial
|
1,455
|
|
|
1,481
|
|
|
3,537
|
|
|
3,568
|
|
|
|
|
|
Industrial
|
453
|
|
|
466
|
|
|
1,135
|
|
|
1,085
|
|
|
|
|
|
Agricultural
|
657
|
|
|
496
|
|
|
1,149
|
|
|
844
|
|
|
|
|
|
Public street and highway lighting
|
17
|
|
|
17
|
|
|
51
|
|
|
50
|
|
|
|
|
|
Other (1)
|
(148)
|
|
|
(82)
|
|
|
54
|
|
|
(391)
|
|
|
|
|
|
Total revenue from contracts with customers - electric
|
4,296
|
|
|
3,935
|
|
|
10,018
|
|
|
8,995
|
|
|
|
|
|
Regulatory balancing accounts (2)
|
(486)
|
|
|
(381)
|
|
|
267
|
|
|
297
|
|
|
|
|
|
Total electric operating revenue
|
$
|
3,810
|
|
|
$
|
3,554
|
|
|
$
|
10,285
|
|
|
$
|
9,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from contracts with customers
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
$
|
303
|
|
|
$
|
249
|
|
|
$
|
1,795
|
|
|
$
|
1,764
|
|
|
|
|
|
Commercial
|
90
|
|
|
92
|
|
|
434
|
|
|
461
|
|
|
|
|
|
Transportation service only
|
259
|
|
|
264
|
|
|
902
|
|
|
950
|
|
|
|
|
|
Other (1)
|
27
|
|
|
(98)
|
|
|
(153)
|
|
|
(303)
|
|
|
|
|
|
Total revenue from contracts with customers - gas
|
679
|
|
|
507
|
|
|
2,978
|
|
|
2,872
|
|
|
|
|
|
Regulatory balancing accounts (2)
|
393
|
|
|
371
|
|
|
458
|
|
|
222
|
|
|
|
|
|
Total natural gas operating revenue
|
1,072
|
|
|
878
|
|
|
3,436
|
|
|
3,094
|
|
|
|
|
|
Total operating revenues
|
$
|
4,882
|
|
|
$
|
4,432
|
|
|
$
|
13,721
|
|
|
$
|
12,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) This activity is primarily related to the change in unbilled revenue and amounts subject to refund, partially offset by other miscellaneous revenue items.
(2) These amounts represent revenues authorized to be billed or refunded to customers.
Initial and annual contributions to the Wildfire Fund established pursuant to AB 1054
On the Effective Date, PG&E Corporation and the Utility contributed, in accordance with AB 1054, an initial contribution of approximately $4.8 billion and first annual contribution of approximately $193 million to the Wildfire Fund to secure participation of the Utility therein. As of September 30, 2020, PG&E Corporation and the Utility have nine remaining annual contributions of $193 million. PG&E Corporation and the Utility account for the contributions to the Wildfire Fund similarly to prepaid insurance with expense being allocated to periods ratably based on an estimated period of coverage. The Wildfire Fund is available to pay for eligible claims arising as of July 12, 2019, the effective date of AB 1054, subject to a limit of 40% of the amount of such claims arising between the effective date of AB 1054 and the Utility’s emergence from Chapter 11. The 40% limit does not apply to eligible claims that arise after the Utility’s emergence from Chapter 11. The Wildfire Fund is additionally limited to the portion of such claims that exceeds the greater of (i) $1.0 billion in the aggregate in any calendar year and (ii) the amount of insurance coverage required to be in place for the electric utility company pursuant to Section 3293 of the Public Utilities Code, added by AB 1054.
In the second quarter of 2020, PG&E Corporation and the Utility recorded a current liability of $5.2 billion in “Wildfire fund liability” and $1.5 billion in Other noncurrent liabilities for the present value of unpaid contribution amounts, as well as $6.5 billion in assets for its commitment to make contributions, reduced by amortization, of which $6.0 billion were non-current, called “Wildfire fund asset” in the Condensed Consolidated Balance Sheets. The initial contribution and first annual contribution were paid in the third quarter of 2020. During the three and nine months ended September 30, 2020, the Utility recorded amortization and accretion expense of $120 million and $293 million, respectively. The amortization of the asset, accretion of the liability, and if applicable, impairment of the asset is reflected in “Wildfire fund expense” in the Condensed Consolidated Statements of Income. Expected contributions are discounted to the present value using the 10-year US treasury rate at the date PG&E Corporation and the Utility satisfied all the eligibility requirements to participate in the Wildfire Fund. A useful life of 15 years is being used to amortize the Wildfire Fund asset.
AB 1054 did not specify a period of coverage; therefore, this accounting treatment is subject to significant accounting judgments and estimates. In estimating the period of coverage, PG&E Corporation and the Utility use a Monte Carlo simulation starting with 12 years of historical, publicly available fire-loss data from wildfires caused by electrical equipment. The period of historic fire-loss data and the effectiveness of mitigation efforts by the California electric utility companies are significant assumptions used to estimate the useful life. These assumptions along with the other assumptions below create a high degree of uncertainty related to the estimated useful life of the Wildfire Fund. The simulation results in the estimated number and severity of catastrophic fires that could occur in California within the participating electric utilities’ service territories during the term of the Wildfire Fund. Using a 5 year period of historical data, with average annual statewide claims or settlements of approximately $6.5 billion, compared to approximately $2.9 billion for the 12-year historical data, would decrease the amortization period to 6 years. Similarly, a ten percent change to the assumption around current and future mitigation effort effectiveness would increase the amortization period to 17 years assuming greater effectiveness and would decrease the amortization period to 12 years assuming less effectiveness.
Other assumptions used to estimate the useful life include the estimated cost of wildfires caused by other electric utilities, the amount at which wildfire claims would be settled, the likely adjudication of the CPUC in cases of electric utility-caused wildfires, the impacts of climate change, the level of future insurance coverage held by the electric utilities, the FERC-allocable portion of loss recovery, and the future transmission and distribution equity rate base growth of other electric utilities. Significant changes in any of these estimates could materially impact the amortization period.
PG&E Corporation and the Utility evaluate all assumptions quarterly, or upon claims being made from the Wildfire Fund for catastrophic wildfires, and the expected life of the Wildfire Fund will be adjusted as required. The Wildfire Fund is available to other participating utilities in California and the amount of claims that a participating utility incurs is not limited to their individual contribution amounts. PG&E Corporation and the Utility will assess the Wildfire Fund asset for impairment in the event that a participating utility's electrical equipment is found to be the substantial cause of a catastrophic wildfire. Timing of any such impairment could lag as the emergence of sufficient cause and claims information can take many quarters and could be limited to public disclosure of the participating electric utility, if ignition were to occur outside the Utility’s service territory. At September 30, 2020, there were no such known events requiring a reduction of the Wildfire Fund asset nor have there been any claims or withdrawals by the participating utilities against the Wildfire Fund.
Recently Adopted Accounting Standards
Intangibles—Goodwill and Other
In August 2018, the FASB issued ASU No. 2018-15, Intangibles – Goodwill and Other – Internal - Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. PG&E Corporation and the Utility adopted the ASU on January 1, 2020. The adoption of this ASU did not have a material impact on the Condensed Consolidated Financial Statements and related disclosures.
Financial Instruments—Credit Losses
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses On Financial Instruments, which provides a model, known as the current expected credit loss model, to estimate the expected lifetime credit loss on financial assets, including trade and other receivables, rather than incurred losses over the remaining life of most financial assets measured at amortized cost. The guidance also requires use of an allowance to record estimated credit losses on available-for-sale debt securities. PG&E Corporation and the Utility adopted the ASU on January 1, 2020.
PG&E Corporation and the Utility have three categories of financial assets in scope, each with their own associated credit risks. In applying the new guidance, PG&E Corporation and the Utility have incorporated forward-looking data in its estimate of credit loss as follows. Trade receivables are represented by customer accounts receivable and have credit exposure risk related to California unemployment rates. Insurance receivables are related to the liability insurance policies PG&E Corporation and the Utility carry. Insurance receivable risk is related to each insurance carrier’s risk of defaulting on their individual policies. Lastly, available-for-sale debt securities requires each company to determine if a decline in fair value is below amortized costs basis, or, impaired. Furthermore, if an impairment exists on available-for-sale debt securities, PG&E Corporation and the Utility will examine if there is an intent to sell, if it is more likely than not a requirement to sell prior to recovery, and if a portion of the unrealized loss is a result of credit loss. During the three and nine months ended September 30, 2020, expected credit losses of $33 million and $96 million, respectively, were recorded in Operating and maintenance expense on the Condensed Consolidated Statements of Income for credit losses associated with trade receivables. Of these amounts recorded during the three and nine months ended September 30, 2020, $17 million and $48 million, respectively, were deemed probable of recovery and deferred to the CPPMA.
Reference Rate Reform
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. PG&E Corporation and the Utility adopted this ASU on April 1, 2020 and elected the optional amendments for contract modifications prospectively. There was no material impact to PG&E Corporation or the Utility’s Condensed Consolidated Financial Statements resulting from the adoption of this ASU.
Accounting Standards Issued But Not Yet Adopted
Defined Benefit Plans
In August 2018, the FASB issued ASU No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans, which amends the existing guidance relating to the disclosure requirements for Defined Benefit Plans. PG&E Corporation and the Utility are evaluating the impact and will incorporate the new disclosure requirements in the fourth quarter of 2020.
Income Taxes
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which amends the existing guidance to reduce complexity relating to Income Tax disclosures. PG&E Corporation and the Utility plan to adopt this guidance in the first quarter of 2021. PG&E Corporation and the Utility do not anticipate the guidance will have a material impact on their Condensed Consolidated Financial Statements and related disclosures.
Debt
In August 2020, the FASB issued ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. This ASU will be effective for PG&E Corporation and the Utility on January 1, 2022, with early adoption permitted. PG&E Corporation and the Utility are currently evaluating the impact the guidance will have on their Condensed Consolidated Financial Statements and related disclosures.
NOTE 4: REGULATORY ASSETS, LIABILITIES, AND BALANCING ACCOUNTS
Regulatory Assets and Liabilities
Regulatory Assets
Long-term regulatory assets are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
(in millions)
|
September 30, 2020
|
|
December 31, 2019
|
Pension benefits (1)
|
$
|
1,723
|
|
|
$
|
1,823
|
|
Environmental compliance costs
|
1,089
|
|
|
1,062
|
|
Utility retained generation (2)
|
194
|
|
|
228
|
|
Price risk management
|
209
|
|
|
124
|
|
Unamortized loss, net of gain, on reacquired debt
|
53
|
|
|
63
|
|
Catastrophic event memorandum account (3)
|
771
|
|
|
656
|
|
Wildfire expense memorandum account (4)
|
419
|
|
|
423
|
|
Fire hazard prevention memorandum account (5)
|
259
|
|
|
259
|
|
Fire risk mitigation memorandum account (6)
|
99
|
|
|
95
|
|
Wildfire mitigation plan memorandum account (7)
|
1,080
|
|
|
558
|
|
Deferred income taxes (8)
|
729
|
|
|
252
|
|
Insurance premium costs (9)
|
588
|
|
|
—
|
|
COVID-19 pandemic protection memorandum accounts (10)
|
53
|
|
|
—
|
|
Other
|
720
|
|
|
523
|
|
Total long-term regulatory assets
|
$
|
7,986
|
|
|
$
|
6,066
|
|
|
|
|
|
(1) Payments into the pension and other benefits plans are based on annual contribution requirements. As these annual requirements continue indefinitely into the future, the Utility expects to continuously recover pension benefits.
(2) In connection with the settlement agreement entered into among PG&E Corporation, the Utility, and the CPUC in 2003 to resolve the Utility’s 2001 proceeding under Chapter 11, the CPUC authorized the Utility to recover $1.2 billion of costs related to the Utility’s retained generation assets. The individual components of these regulatory assets are being amortized over the respective lives of the underlying generation facilities, consistent with the period over which the related revenues are recognized.
(3) Includes costs of responding to catastrophic events that have been declared a disaster or state of emergency by competent federal or state authorities. As of September 30, 2020, $41 million in COVID-19 related costs was recorded to CEMA regulatory assets. Recovery of CEMA costs are subject to CPUC review and approval.
(4) Includes incremental wildfire liability insurance premium costs the CPUC approved for tracking in June 2018 for the period July 26, 2017 through December 31, 2019. Recovery of WEMA costs are subject to CPUC review and approval.
(5) Includes costs associated with the implementation of regulations and requirements adopted to protect the public from potential fire hazards associated with overhead power line facilities and nearby aerial communication facilities that have not been previously authorized in another proceeding. Recovery of FHPMA costs are subject to CPUC review and approval.
(6) Includes costs associated with the 2019 Wildfire Mitigation Plan for the period January 1, 2019 through June 4, 2019. Recovery of FRMMA costs are subject to CPUC review and approval.
(7) Includes costs associated with the 2019 Wildfire Mitigation Plan for the period June 5, 2019 through December 31, 2019 and the 2020 Wildfire Mitigation Plan for the period of January 1, 2020 through September 30, 2020. Recovery of WMPMA costs are subject to CPUC review and approval.
(8) Represents cumulative differences between amounts recognized for ratemaking purposes and expense recognized in accordance with GAAP.
(9) Represents incremental liability insurance premium costs for the period January 1, 2020 through September 30, 2020. Approval of costs is pending final 2020 GRC decision.
(10)On April 16, 2020, the CPUC passed a resolution that established a COVID-19 Pandemic Protections Memorandum Account (CPPMA) to recover costs associated with customer protections, including higher uncollectible costs related to a moratorium on electric and gas service disconnections for residential and small business customers. The CPPMA applies only to residential and small business customers and was approved on July 27, 2020 with an effective date of March 4, 2020. As of September 30, 2020, the Utility had recorded an aggregate under-collection of $48 million, representing incremental bad debt expense over what was collected in rates for the period the CPPMA is in effect. The remaining $5 million is associated with program costs and higher accounts receivable financing costs. Recovery of CPPMA costs are subject to CPUC review and approval.
Regulatory Liabilities
Long-term regulatory liabilities are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
(in millions)
|
September 30, 2020
|
|
December 31, 2019
|
Cost of removal obligations (1)
|
$
|
6,902
|
|
|
$
|
6,456
|
|
Recoveries in excess of AROs (2)
|
351
|
|
|
393
|
|
Public purpose programs (3)
|
930
|
|
|
817
|
|
Employee benefit plans (4)
|
774
|
|
|
750
|
|
Other
|
1,024
|
|
|
854
|
|
Total long-term regulatory liabilities
|
$
|
9,981
|
|
|
$
|
9,270
|
|
|
|
|
|
(1) Represents the cumulative differences between the recorded costs to remove assets and amounts collected in rates for expected costs to remove assets.
(2) Represents the cumulative differences between ARO expenses and amounts collected in rates. Decommissioning costs related to the Utility’s nuclear facilities are recovered through rates and are placed in nuclear decommissioning trusts. This regulatory liability also represents the deferral of realized and unrealized gains and losses on these nuclear decommissioning trust investments. (See Note 9 below.)
(3) Represents amounts received from customers designated for public purpose program costs expected to be incurred beyond the next 12 months, primarily related to energy efficiency programs.
(4) Represents cumulative differences between incurred costs and amounts collected in rates for Post-Retirement Medical, Post-Retirement Life and Long-Term Disability Plans.
Regulatory Balancing Accounts
Current regulatory balancing accounts receivable and payable are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivable Balance at
|
(in millions)
|
September 30, 2020
|
|
December 31, 2019
|
Electric transmission
|
$
|
—
|
|
|
$
|
9
|
|
Gas distribution and transmission
|
385
|
|
|
363
|
|
Energy procurement
|
1,168
|
|
|
901
|
|
Public purpose programs
|
289
|
|
|
209
|
|
Other
|
766
|
|
|
632
|
|
Total regulatory balancing accounts receivable
|
$
|
2,608
|
|
|
$
|
2,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payable Balance at
|
(in millions)
|
September 30, 2020
|
|
December 31, 2019
|
Electric distribution
|
$
|
227
|
|
|
$
|
31
|
|
Electric transmission
|
237
|
|
|
119
|
|
Gas distribution and transmission
|
65
|
|
|
45
|
|
Energy procurement
|
859
|
|
|
649
|
|
Public purpose programs
|
500
|
|
|
559
|
|
Other
|
438
|
|
|
394
|
|
Total regulatory balancing accounts payable
|
$
|
2,326
|
|
|
$
|
1,797
|
|
For more information, see Note 4 of the Notes to the Consolidated Financial Statements in Item 8 of the 2019 Form 10-K.
NOTE 5: DEBT
Debtor-In-Possession Facilities
In connection with the Chapter 11 Cases, PG&E Corporation and the Utility entered into the DIP Credit Agreement, among the Utility, as borrower, PG&E Corporation, as guarantor, JPMorgan Chase Bank, N.A. (“JPM”), as administrative agent, Citibank, N.A., as collateral agent, and the lenders and issuing banks party thereto.
On July 1, 2020, the DIP Facilities were repaid in full and all commitments thereunder were terminated in connection with emergence from Chapter 11.
Credit Facilities
The following table summarizes PG&E Corporation’s and the Utility’s outstanding borrowings and availability under their credit facilities at September 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Termination
Date
|
|
Facility Limit
|
|
Borrowings Outstanding
|
|
Letters of Credit Outstanding
|
|
Facility
Availability
|
Utility revolving credit facility
|
July 2023
|
|
$
|
3,500
|
|
(1)
|
$
|
940
|
|
|
$
|
852
|
|
|
$
|
1,708
|
|
Utility term loan credit facility
|
Various(2)
|
|
3,000
|
|
|
3,000
|
|
|
—
|
|
|
—
|
|
PG&E Corporation revolving credit facility
|
July 2023
|
|
500
|
|
|
—
|
|
|
—
|
|
|
500
|
|
Total credit facilities
|
|
|
$
|
7,000
|
|
|
$
|
3,940
|
|
|
$
|
852
|
|
|
$
|
2,208
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes a $1.5 billion letter of credit sublimit.
(2) This includes a $1.5 billion term loan credit facility with a termination date of June 2021 and a $1.5 billion term loan credit facility due January 2022.
Utility
On July 1, 2020, the Utility entered into a $3.5 billion revolving credit agreement (the “Utility Revolving Credit Facility”) with JPM, and Citibank, N.A. as co-administrative agents, and Citibank, N.A., as designated agent. The Utility Revolving Credit Agreement has a maturity date three years after the Effective Date, subject to two one-year extensions at the option of the Utility.
Borrowings under the Utility Revolving Credit Facility bear interest based on the Utility’s election of either (1) LIBOR plus an applicable margin of 1.375% to 2.50% based on the Utility’s credit rating or (2) the base rate plus an applicable margin of 0.375% to 1.50% based on the Utility’s credit rating. In addition to interest on outstanding principal under the Utility Revolving Credit Facility, the Utility is required to pay a commitment fee to the lenders in respect of the unutilized commitments thereunder, ranging from 0.25% to 0.50% per annum depending on the Utility’s credit rating. The Utility Revolving Credit Facility has a maximum letter of credit sublimit equal to $1.5 billion. The Utility may also pay customary letter of credit fees based on letters of credit issued under the Utility Revolving Credit Facility.
The Utility’s obligations under the Utility Revolving Credit Facility are secured by the issuance of a first mortgage bond, issued pursuant to the Utility’s mortgage indenture, secured by a first lien on substantially all of the Utility’s real property and certain tangible personal property related to its facilities, subject to certain exceptions, and which rank pari passu with the Utility’s other first mortgage bonds.
The Utility Revolving Credit Facility includes usual and customary provisions for revolving credit agreements of this type, including covenants limiting, with certain exceptions, (1) liens, (2) indebtedness, (3) sale and leaseback transactions, and (4) fundamental changes. In addition, the Utility Revolving Credit Facility requires that the Utility maintain a ratio of total consolidated debt to consolidated capitalization of no greater than 65% as of the end of each fiscal quarter. As of September 30, 2020, the Utility was in compliance with this covenant.
In the event of a default by the Utility under the Utility Revolving Credit Facility, including cross-defaults relating to specified other debt of the Utility or any of its significant subsidiaries in excess of $200 million, the designated agent may, with the consent of the required lenders (or upon the request of the required lenders), declare the amounts outstanding under the Utility Revolving Credit Facility, including all accrued interest, payable immediately. For events of default relating to insolvency, bankruptcy or receivership, the amounts outstanding under the Utility Revolving Credit Facility become payable immediately.
The Utility may voluntarily repay outstanding loans under the Utility Revolving Credit Facility at any time without premium or penalty, other than customary “breakage” costs with respect to eurodollar rate loans. Any voluntary prepayments made by the Utility will not reduce the commitments under the Utility Revolving Credit Facility.
In addition, on July 1, 2020, the Utility obtained a $3.0 billion secured term loan under a term loan credit agreement (the “Utility Term Loan Credit Facility”) with JPM, as administrative agent. The credit facilities under the Utility Term Loan Credit Facility consist of a $1.5 billion 364-day term loan facility (the “Utility 364-Day Term Loan Facility”) and a $1.5 billion 18-month term loan facility (the “Utility 18-Month Term Loan Facility”). The maturity date for the 364-Day Term Loan Facility is June 30, 2021 and the maturity date for the Utility 18-Month Term Loan Facility is January 1, 2022. The Utility borrowed the entire amount of the Utility 364-Day Term Loan Facility and the Utility 18-Month Term Loan Facility on July 1, 2020. The proceeds were used to fund transactions contemplated under the Plan.
Borrowings under the Utility Term Loan Credit Facility bear interest based on the Utility’s election of either (1) LIBOR plus an applicable margin of 2.00% with respect to the Utility 364-Day Term Loan Facility and 2.25% with respect to the Utility 18-Month Term Loan Facility, or (2) the base rate plus an applicable margin of 1.00% with respect to the Utility 364-Day Term Loan Facility and 1.25% with respect to the Utility 18-Month Term Loan Facility.
The Utility’s obligations under the Utility Term Loan Credit Facility are secured by the issuance of first mortgage bonds, issued pursuant to the Utility’s mortgage indenture, secured by a first lien on substantially all of the Utility’s real property and certain tangible personal property related to its facilities, subject to certain exceptions, and which rank pari passu with the Utility’s other first mortgage bonds.
The Utility Term Loan Credit Facility includes usual and customary provisions for term loan agreements of this type, including covenants limiting, with certain exceptions, (1) liens, (2) indebtedness, (3) sale and leaseback transactions, (4) fundamental changes, (5) entering into swap agreements and (6) modifications to the Utility’s mortgage indenture. In addition, the Utility Term Loan Credit Facility will require that the Utility maintain a ratio of total consolidated debt to consolidated capitalization of no greater than 65% as of the end of each fiscal quarter. As of September 30, 2020, the Utility was in compliance with this covenant.
In the event of a default by the Utility under the Utility Term Loan Credit Facility, including cross-defaults relating to specified other debt of the Utility or any of its significant subsidiaries in excess of $200 million, the administrative agent may, with the consent of the required lenders (or upon the request of the required lenders, shall), declare the amounts outstanding under the Utility Term Loan Credit Facility, including all accrued interest, payable immediately. For events of default relating to insolvency, bankruptcy or receivership, the amounts outstanding under the Utility Term Loan Credit Facility become payable immediately.
The Utility is required to prepay outstanding term loans under the Utility Term Loan Credit Facility (with all outstanding term loans made under the Utility 364-Day Term Loan Facility being paid first), subject to certain exceptions, with 100% of the net cash proceeds of certain securitization transactions. The Utility may voluntarily repay outstanding loans under the Utility Term Loan Credit Facility at any time without premium or penalty, other than customary “breakage” costs with respect to eurodollar rate loans.
PG&E Corporation
On July 1, 2020, PG&E Corporation entered into a $500 million revolving credit agreement (the “Corporation Revolving Credit Facility”) with JPM, as administrative agent and collateral agent. The Corporation Revolving Credit Facility has a maturity date three years after the Effective Date, subject to two one-year extensions at the option of PG&E Corporation. The proceeds from the loans under the Corporation Revolving Credit Facility will be used to finance working capital needs, capital expenditures and other general corporate purposes of PG&E Corporation and its subsidiaries.
Borrowings under the Corporation Revolving Credit Facility bear interest based on PG&E Corporation’s election of either (1) LIBOR plus an applicable margin of 3.00% to 4.25% based on PG&E Corporation’s credit rating or (2) the base rate plus an applicable margin of 2.00% to 3.25% based on PG&E Corporation’s credit rating. In addition to interest on outstanding principal under the Corporation Revolving Credit Facility, PG&E Corporation is required to pay a commitment fee to the lenders in respect of the unutilized commitments thereunder, ranging from 0.50% to 0.75% per annum depending on PG&E Corporation’s credit rating.
PG&E Corporation’s obligations under the Corporation Revolving Credit Facility are secured by a pledge of PG&E Corporation’s ownership interest in 100% of the shares of common stock of the Utility.
The Corporation Revolving Credit Facility includes usual and customary provisions for revolving credit agreements of this type, including covenants limiting, with certain exceptions, (1) liens, (2) indebtedness, (3) sale and leaseback transactions, (4) investments, (5) dispositions, (6) changes in the nature of business, (7) transactions with affiliates, (8) burdensome agreements, (9) restricted payments, (10) fundamental changes, (11) use of proceeds, (12) entering into swap agreements and (13) the ability to dispose of common stock of the Utility. In addition, the Corporation Revolving Credit Facility will require that PG&E Corporation (1) maintain a ratio of total consolidated debt to consolidated capitalization of no greater than 70% as of the end of each fiscal quarter and (2) if revolving loans are outstanding as of the end of a fiscal quarter, a ratio of adjusted cash to fixed charges, as of the end of such fiscal quarter, of at least 150% prior to the date that PG&E Corporation first declares a cash dividend on its common stock and at least 100% thereafter.
In the event of a default by PG&E Corporation under the Corporation Revolving Credit Facility, including cross-defaults relating to specified other debt of PG&E Corporation or any of its significant subsidiaries in excess of $200 million, the administrative agent may, with the consent of the required lenders (or upon the request of the required lenders, shall), declare the amounts outstanding under the Corporation Revolving Credit Facility, including all accrued interest, payable immediately. For events of default relating to insolvency, bankruptcy or receivership, the amounts outstanding under the Corporation Revolving Credit Facility become payable immediately.
PG&E Corporation may voluntarily repay outstanding loans under the Corporation Revolving Credit Facility at any time without premium or penalty, other than customary “breakage” costs with respect to eurodollar rate loans. Any voluntary repayments made by PG&E Corporation will not reduce the commitments under the Corporation Revolving Credit Facility.
On the Effective Date, PG&E Corporation repaid and terminated (i) $300 million of outstanding borrowings under the Second Amended and Restated Credit Agreement, dated as of April 27, 2015, among PG&E Corporation, as borrower, the several lenders party thereto and Bank of America, N.A., as administrative agent and (ii) $350 million of borrowings, plus interest, fees and other expenses arising under or in connection with the Term Loan Agreement, dated as of April 16, 2018, among PG&E Corporation, as borrower, the several lenders party thereto and Mizuho Bank Ltd., as administrative agent.
Accounts Receivable Financing
On October 5, 2020, the Utility, in its individual capacity and in its capacity as initial servicer, entered into an accounts receivable securitization program (the “Receivables Securitization Program”), providing for the sale of a portion of the Utility's accounts receivable to PG&E AR Facility, LLC (the “SPV”), a limited liability company wholly owned by the Utility. Pursuant to the Receivables Securitization Program, the Utility will sell certain of its receivables and certain related rights to payment and obligations of the Utility with respect to such receivables and certain other related rights to the SPV, which, in turn, will obtain loans secured by the receivables from financial institutions (the “Lenders”). The Utility has pledged to the Lenders 100% of the equity interests in the SPV as security for the repayment of the loans. The aggregate principal amount of the loans made by the Lenders cannot exceed $1 billion outstanding at any time.
The loans under the Receivables Securitization Program will bear interest based on a spread over LIBOR dependent on the tranche period thereto and any breakage fees accrued. The receivables financing agreement contains customary LIBOR benchmark replacement language giving the administrative agent, with consent from the SPV as to the successor rate, the right to determine such successor rate. The Receivables Securitization Program contains certain customary representations and warranties and affirmative and negative covenants, including as to the eligibility of the receivables being sold by the Utility and securing the loans made by the Lenders, as well as customary reserve requirements, Receivables Securitization Program termination events, and servicer defaults. The Receivables Securitization Program termination events permit the Lenders to terminate the agreement upon the occurrence of certain specified events, including failure by the SPV to pay amounts when due, certain defaults on indebtedness under the Utility’s credit facility, certain judgments, a change of control, certain events negatively affecting the overall credit quality of transferred receivables and bankruptcy and insolvency events.
The Receivables Securitization Program is scheduled to terminate on October 5, 2022, unless extended or earlier terminated, at which time no further advances will be available and the obligations thereunder must be repaid in full no later than (i) the date that is 180 days following such date or (ii) such earlier date on which the loans under the program become due and payable.
The Utility closed the Receivables Securitization Program on October 5, 2020. As of October 27, 2020, the Utility has obtained $1 billion in loans under the Receivables Securitization Program and the proceeds were primarily used to reduce borrowings outstanding on the Utility Revolving Credit Facility. In general, the proceeds from the sale of the accounts receivable will be used by the SPV to pay the purchase price for accounts receivables it acquires from the Utility and may be used to fund capital expenditures, repay borrowings on the Utility Revolving Credit Facility, satisfy maturing debt obligations, as well as fund working capital needs and other approved uses.
Although PG&E AR Facility, LLC is a wholly owned consolidated subsidiary of the Utility, PG&E AR Facility, LLC is legally separate from the Utility. The assets of PG&E AR Facility, LLC (including the accounts receivables) are not available to creditors of the Utility or PG&E Corporation, and the accounts receivables are not legally assets of the Utility or PG&E Corporation. The Receivables Securitization Program will be accounted for as a secured financing. When amounts are received from the Lenders, the pledged receivables and the corresponding debt will be included in Accounts receivable and Short-term borrowings, respectively, on the Condensed Consolidated Balance Sheets.
Long-Term Debt
Utility
On June 19, 2020, the Utility completed the sale of (i) $500 million aggregate principal amount of Floating Rate First Mortgage Bonds due June 16, 2022, (ii) $2.5 billion aggregate principal amount of 1.75% First Mortgage Bonds due June 16, 2022, (iii) $1 billion aggregate principal amount of 2.10% First Mortgage Bonds due August 1, 2027, (iv) $2 billion aggregate principal amount of 2.50% First Mortgage Bonds due February 1, 2031, (v) $1 billion aggregate principal amount of 3.30% First Mortgage Bonds due August 1, 2040, and (vi) $1.925 billion aggregate principal amount of 3.50% First Mortgage Bonds due August 1, 2050 (collectively, the “Mortgage Bonds”). The proceeds of the Mortgage Bonds were deposited into an account at The Bank of New York Mellon Trust Company, N.A., as Escrow Agent, which proceeds were held by the Escrow Agent as collateral pursuant to an escrow agreement by and among the Escrow Agent and the Utility. On July 1, 2020, the net proceeds were released from escrow and, together with the net proceeds from certain other Plan financing transactions, were used to effectuate the reorganization of the Utility and PG&E Corporation in accordance with the terms and conditions contained in the Plan.
On the Effective Date, pursuant to the Plan, the Utility issued approximately $11.9 billion of its first mortgage bonds (the “New Mortgage Bonds”) in satisfaction of certain of its pre-petition senior unsecured debt, as described in the table below.
On the Effective Date, pursuant to the Plan, the Utility reinstated approximately $9.6 billion aggregate principal amount of the Utility Reinstated Senior Notes. On the Effective Date, each series of the Utility Reinstated Senior Notes was collateralized by the Utility’s delivery of a first mortgage bond in a corresponding principal amount to the applicable trustee for the benefit of the holders of the Utility Reinstated Senior Notes.
The Mortgage Bonds, the New Mortgage Bonds and the Utility Reinstated Senior Notes are secured by a first lien, subject to permitted liens, on substantially all of the Utility’s real property and certain tangible property related to its facilities. The Mortgage Bonds, the New Mortgage Bonds and the Utility Reinstated Senior Notes are the Utility’s senior obligations and rank equally in right of payment with the Utility’s other existing or future first mortgage bonds issued under the Utility’s mortgage indenture.
On the Effective Date, by operation of the Plan, all outstanding obligations under the Utility Short-Term Senior Notes, the Utility Long-Term Senior Notes and the Utility Funded Debt were cancelled and the applicable agreements governing such obligations were terminated.
In addition, on July 1, 2020, the Utility obtained a $1.5 billion 18-month secured term loan under a term loan credit agreement. For more information, see “Credit Facilities” discussion above.
PG&E Corporation
On June 23, 2020, PG&E Corporation obtained a $2.75 billion secured term loan (the “Term Loan”) under a term loan credit agreement (the “Term Loan Agreement”) with JPM, and other lenders from time to time party thereto (collectively, the “Lenders”), JPM, as Administrative Agent and as Collateral Agent. The proceeds of the Term Loan were deposited into an account at The Bank of New York Mellon Trust Company, N.A., as Escrow Agent, which proceeds were held by the Escrow Agent as collateral pursuant to an escrow agreement by and among the Collateral Agent, the Escrow Agent, the Administrative Agent and PG&E Corporation and subsequently released from escrow on the Effective Date pursuant to the Plan.
In accordance with the Term Loan Agreement, PG&E Corporation is required to repay the principal amount outstanding on the Term Loan by $6.875 million on the last day of each quarter. The Term Loan matures on June 23, 2025, unless extended by PG&E Corporation pursuant to the terms of the Term Loan Agreement. The Term Loan bears interest based, at PG&E Corporation’s election, on (1) LIBOR (but in no event less than 1.0%) plus an applicable margin or (2) ABR (but in no event less than 2.0%) plus an applicable margin. ABR will equal the highest of the following: the prime rate, 0.5% above the overnight federal funds rate, and the one-month LIBOR plus 1.0%. The applicable margin for LIBOR loans is 4.5% and the applicable margin for ABR loans is 3.5%. PG&E Corporation may prepay the Term Loan in whole, at any time, and in part, from time to time, without premium or penalty, other than customary “breakage” costs with respect to eurodollar rate loans; provided, however, that any voluntary prepayment, refinancing or repricing of the Term Loan in connection with certain repricing transactions that occur on or prior to the first anniversary of the Effective Date shall be subject to a prepayment premium of 1.0% of the principal amount of the term loans so prepaid, refinanced or repriced.
The Term Loan Agreement includes usual and customary covenants for loan agreements of this type, including covenants limiting: (1) liens, (2) mergers, (3) sales of all or substantially all of PG&E Corporation’s assets, and (4) sale and leaseback transactions. In addition, the Term Loan Agreement requires that PG&E Corporation maintain ownership, either directly or indirectly, through one or more subsidiaries, of at least 100% of the outstanding common stock of the Utility.
In the event of a default by PG&E Corporation under the Term Loan Agreement, including cross-defaults relating to specified other debt of PG&E Corporation or any of its significant subsidiaries in excess of $200 million, the Administrative Agent may, with the consent of the required Lenders (or upon the request of the required Lenders, shall), declare the amounts outstanding under the Term Loan Agreement, including all accrued interest, payable immediately. For events of default relating to insolvency, bankruptcy or receivership, the amounts outstanding under the Term Loan Agreement become payable immediately.
On the Effective Date, the obligations under the Term Loan Agreement became secured by a pledge of PG&E Corporation’s ownership interest in 100% of the shares of common stock of the Utility. On July 1, 2020, the net proceeds from the Term Loan were released from escrow and were used to fund, in part, the transactions contemplated under the Plan.
Additionally, on June 23, 2020, PG&E Corporation completed the sale of (i) $1.0 billion aggregate principal amount of 5.00% Senior Secured Notes due July 1, 2028 (the “2028 Notes”) and (ii) $1.0 billion aggregate principal amount of 5.25% Senior Secured Notes due July 1, 2030 (the “2030 Notes,” and together with the 2028 Notes, the “Notes”). The proceeds of the Notes were deposited into an account at The Bank of New York Mellon Trust Company, N.A., as Escrow Agent, which proceeds were held by the Escrow Agent as collateral pursuant to an escrow agreement by and among the Escrow Agent and PG&E Corporation. Prior to July 1, 2023, in the case of the 2028 Notes, and prior to July 1, 2025, in the case of the 2030 Notes, (i) PG&E Corporation may redeem all or part of the Notes of the applicable series, on any one or more occasions at a redemption price equal to 100% of the principal amount of Notes of such series to be redeemed, plus a “make-whole” premium, plus accrued and unpaid interest, if any, to, but not including, the redemption date or (ii) PG&E Corporation may redeem up to 40% of the aggregate principal amount of the Notes of the applicable series on any one or more occasions at certain specified redemption prices with the net cash proceeds from certain equity offerings. On or after July 1, 2023, in the case of the 2028 Notes, and July 1, 2025, in the case of the 2030 Notes, PG&E Corporation may redeem the Notes of a series at certain specified redemption prices, plus accrued and unpaid interest thereon, if any, to but not including, the applicable redemption date.
On July 1, 2020, the net proceeds from the sale of the Notes were released from escrow and, together with the net proceeds from certain other Plan financing transactions, were used to effectuate the reorganization of the Corporation and the Utility in accordance with the terms and conditions contained in the Plan. The Notes are secured by a pledge of PG&E Corporation’s ownership interest in 100% of the shares of common stock of the Utility.
The following table summarizes PG&E Corporation’s and the Utility’s long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
(in millions)
|
|
Contractual Interest Rates (3)
|
|
September 30, 2020
|
|
December 31, 2019
|
|
Treatment under Plan on the Effective Date (1)
|
Pre-Petition Debt (2)
|
|
|
|
|
|
|
|
|
PG&E Corporation
|
|
|
|
|
|
|
|
|
Borrowings under Pre-Petition Credit Facility
|
|
|
|
|
|
|
|
|
PG&E Corporation Revolving Credit Facilities - Stated Maturity: 2022
|
|
variable rate (4)
|
|
$
|
—
|
|
|
$
|
300
|
|
|
Repaid in cash (13)
|
Other borrowings
|
|
|
|
|
|
|
|
|
Term Loan - Stated Maturity: 2020
|
|
variable rate (5)
|
|
—
|
|
|
350
|
|
|
Repaid in cash (12)
|
Total PG&E Corporation Pre-Petition Long-Term Debt
|
|
|
|
—
|
|
|
650
|
|
|
|
|
|
|
|
|
|
|
|
|
Utility
|
|
|
|
|
|
|
|
|
Senior Notes - Stated Maturity:
|
|
|
|
|
|
|
|
|
2020 through 2022
|
|
2.45% to 4.25%
|
|
—
|
|
|
1,750
|
|
|
Exchanged (14)
|
2023 through 2028
|
|
2.95% to 4.65%
|
|
—
|
|
|
5,025
|
|
|
Reinstated (15)
|
2034 through 2040
|
|
5.40% to 6.35%
|
|
—
|
|
|
5,700
|
|
|
Exchanged (16)
|
2041 through 2042
|
|
3.75% to 4.50%
|
|
—
|
|
|
1,000
|
|
|
Reinstated (15)
|
2043
|
|
5.13%
|
|
—
|
|
|
500
|
|
|
Exchanged (16)
|
2043 through 2047
|
|
3.95% to 4.75%
|
|
—
|
|
|
3,550
|
|
|
Reinstated (15)
|
Total Pre-Petition Senior Notes
|
|
|
|
—
|
|
|
17,525
|
|
|
|
Pollution Control Bonds - Stated Maturity:
|
|
|
|
|
|
|
|
|
Series 2008 F and 2010 E, due 2026
|
|
1.75%
|
|
—
|
|
|
100
|
|
|
Repaid in cash (13)
|
Series 2009 A-B, due 2026
|
|
variable rate (6)
|
|
—
|
|
|
149
|
|
|
Exchanged (17)
|
Series 1996 C, E, F, 1997 B due 2026
|
|
variable rate (7)
|
|
—
|
|
|
614
|
|
|
Exchanged (17)
|
Total Pre-Petition Pollution Control Bonds
|
|
|
|
—
|
|
|
863
|
|
|
|
Borrowings under Pre-Petition Credit Facilities
|
|
|
|
|
|
|
|
|
Utility Revolving Credit Facilities - Stated Maturity: 2022
|
|
variable rate (8)
|
|
—
|
|
|
2,888
|
|
|
Exchanged (17)
|
Other borrowings:
|
|
|
|
|
|
|
|
|
Term Loan - Stated Maturity: 2019
|
|
variable rate (9)
|
|
—
|
|
|
250
|
|
|
Exchanged (17)
|
Total Borrowings under Pre-Petition Credit Facility
|
|
|
|
—
|
|
|
3,138
|
|
|
|
Total Utility Pre-Petition Debt
|
|
|
|
—
|
|
|
21,526
|
|
|
|
Total PG&E Corporation Consolidated Pre-Petition Debt
|
|
|
|
$
|
—
|
|
|
$
|
22,176
|
|
|
|
|
|
|
|
|
|
|
|
|
New Long-Term Debt
|
|
|
|
|
|
|
|
|
PG&E Corporation
|
|
|
|
|
|
|
|
|
Term Loan - Stated Maturity: 2025
|
|
variable rate (10)
|
|
$
|
2,743
|
|
|
$
|
—
|
|
|
|
Senior Secured Notes due 2028
|
|
5.00%
|
|
1,000
|
|
|
—
|
|
|
|
Senior Secured Notes due 2030
|
|
5.25%
|
|
1,000
|
|
|
—
|
|
|
|
Unamortized discount, net of premium and debt issuance costs
|
|
|
|
(89)
|
|
|
—
|
|
|
|
Total PG&E Corporation New Long-Term Debt
|
|
|
|
4,654
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utility
|
|
|
|
|
|
|
|
|
Pre-Petition Senior Notes Reinstated as First Mortgage Bonds - Stated Maturity:
|
|
|
|
|
|
|
|
|
2023 through 2028
|
|
2.95% to 4.65%
|
|
5,025
|
|
|
—
|
|
|
|
2041 through 2042
|
|
3.75% to 4.50%
|
|
1,000
|
|
|
—
|
|
|
|
2043 through 2047
|
|
3.95% to 4.75%
|
|
3,550
|
|
|
—
|
|
|
|
Unamortized discount, net of premium and debt issuance costs
|
|
|
|
—
|
|
|
—
|
|
|
|
Total Utility Reinstated New Long-Term Debt
|
|
|
|
9,575
|
|
|
—
|
|
|
|
Pre-Petition Debt Exchanged for First Mortgage Bonds - Stated Maturity:
|
|
|
|
|
|
|
|
|
2025
|
|
3.45%
|
|
875
|
|
|
—
|
|
|
|
2026
|
|
3.15%
|
|
1,951
|
|
|
—
|
|
|
|
2028
|
|
3.75%
|
|
875
|
|
|
—
|
|
|
|
2030
|
|
4.55%
|
|
3,100
|
|
|
—
|
|
|
|
2040
|
|
4.50%
|
|
1,951
|
|
|
—
|
|
|
|
2050
|
|
4.95%
|
|
3,100
|
|
|
—
|
|
|
|
Unamortized discount, net of premium and debt issuance costs
|
|
|
|
(101)
|
|
|
—
|
|
|
|
Total Utility Exchanged New Long-Term Debt
|
|
|
|
11,751
|
|
|
—
|
|
|
|
New First Mortgage Bonds - Stated Maturity:
|
|
|
|
|
|
|
|
|
2022
|
|
variable rate (11)
|
|
500
|
|
|
—
|
|
|
|
2022
|
|
1.75%
|
|
2,500
|
|
|
—
|
|
|
|
2027
|
|
2.10%
|
|
1,000
|
|
|
—
|
|
|
|
2031
|
|
2.50%
|
|
2,000
|
|
|
—
|
|
|
|
2040
|
|
3.30%
|
|
1,000
|
|
|
—
|
|
|
|
2050
|
|
3.50%
|
|
1,925
|
|
|
—
|
|
|
|
Unamortized discount, net of premium and debt issuance costs
|
|
|
|
(87)
|
|
|
—
|
|
|
|
Total Utility New First Mortgage Bonds
|
|
|
|
8,838
|
|
|
—
|
|
|
|
Utility 18-Month Term Loan
|
|
variable rate (12)
|
|
1,500
|
|
|
—
|
|
|
|
Unamortized discount, net of premium and debt issuance costs
|
|
|
|
(7)
|
|
|
—
|
|
|
|
Total Utility New Long-Term Debt
|
|
|
|
31,657
|
|
|
—
|
|
|
|
Total PG&E Corporation Consolidated New Long-Term Debt
|
|
|
|
$
|
36,311
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) The treatments of pre-petition debt under the Plan, as described in this column, relate only to the treatment of principal amounts and not pre-petition or post-petition interest. See “Plan of Reorganization and Restructuring Support Agreements” in Note 2.
(2) As of December 31, 2019, pre-petition debt was reported at the amounts expected to be allowed by the Bankruptcy Court.
(3) The contractual interest rates for pre-petition debt and new debt are presented as of December 31, 2019 and September 30, 2020, respectively.
(4) At December 31, 2019, the contractual LIBOR-based interest rate on loans was 3.24%.
(5) At December 31, 2019, the contractual LIBOR-based interest rate on the term loan was 2.96%.
(6) At December 31, 2019, the contractual interest rate on the letter of credit facilities supporting these bonds was 7.95%.
(7) At December 31, 2019, the contractual interest rate on the letter of credit facilities supporting these bonds ranged from 7.95% to 8.08%.
(8) At December 31, 2019, the contractual LIBOR-based interest rate on the loans was 3.04%.
(9) At December 31, 2019, the contractual LIBOR-based interest rate on the term loan was 2.36%.
(10) At September 30, 2020, the contractual LIBOR-based interest rate on the loans was 5.50%.
(11) At September 30, 2020, the contractual LIBOR-based interest rate on the first mortgage bonds was 1.72%.
(12) At September 30, 2020, the contractual LIBOR-based interest rate on the first mortgage bonds was 2.44%.
(13) In accordance with the Plan, these borrowings were repaid in cash on July 1, 2020.
(14) In accordance with the Plan, on July 1, 2020, the Utility issued $875 million aggregate principal amount of 3.45% first mortgage bonds due 2025 and $875 million aggregate principal amount of 3.75% first mortgage bonds due 2028, in satisfaction of these Senior Notes. See “Pre-Petition Debt Exchanged for First Mortgage Bonds” in the table above.
(15) In accordance with the Plan, these Senior Notes were reinstated (and secured by First Mortgage Bonds) on July 1, 2020. See “Pre-Petition Senior Notes Reinstated (and secured by First Mortgage Bonds)” in the table above.
(16) In accordance with the Plan, on July 1, 2020, the Utility issued $3.1 billion aggregate principal amount of 4.55% first mortgage bonds due 2030 and $3.1 billion aggregate principal amount of 4.95% first mortgage bonds due 2050, in satisfaction of these Senior Notes. See “Pre-Petition Debt Exchanged for First Mortgage Bonds” in the table above.
(17) In accordance with the Plan, on July 1, 2020, the Utility issued $1.95 billion aggregate principal amount of 3.15% first mortgage bonds due 2026 and $1.95 billion aggregate principal amount of 4.50% first mortgage bonds due 2040, in satisfaction of these pre-petition liabilities. See “Pre-Petition Debt Exchanged for First Mortgage Bonds” in the table above.
NOTE 6: EQUITY
Increase in Authorized Capitalization
On June 22, 2020, PG&E Corporation filed the Amended Articles with the Secretary of State of California which increased the authorized number of shares of common stock to 3.6 billion and the authorized number of shares of preferred stock to 400 million.
Plan Equity Financings
In connection with emergence from Chapter 11, in July 2020, PG&E Corporation raised an aggregate of $9.0 billion of gross proceeds through the issuance of common stock and other equity-linked instruments as described below.
PG&E Corporation Investment Agreement
On June 7, 2020, PG&E Corporation entered into an Investment Agreement (the “Investment Agreement”) with certain investors (the “Investors”) relating to the issuance and sale to the Investors of an aggregate of $3.25 billion of PG&E Corporation’s common stock. Per the Investment Agreement, the price per share was equal to $9.50 per share, which was the public equity offering price in the Common Stock Offering (as defined below in “Equity Offerings”).
On July 1, 2020, pursuant to the terms of the Investment Agreement, PG&E Corporation issued to the Investors 342.1 million shares of common stock. The Investors and their affiliates have certain customary registration rights with respect to the Shares held by such Investor pursuant to the terms of the Investment Agreement.
Equity Offerings
On June 25, 2020, PG&E Corporation priced (i) an offering of 423.4 million shares of its common stock (the “Common Stock Offering”), and (ii) a concurrent offering of 14.5 million of its equity units (the “Equity Units,” and such offering the “Equity Units Offering”), for total net proceeds to PG&E Corporation, after deducting the underwriting discounts and before estimated offering expenses payable by the PG&E Corporation, of $3.97 billion and $1.19 billion, respectively.
On June 25, 2020, in connection with the Common Stock Offering, the Corporation entered into an underwriting agreement (the “Common Stock Underwriting Agreement”) with Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC, as representatives of several underwriters named in the Common Stock Underwriting Agreement (the “Common Stock Underwriters”), pursuant to which the Corporation agreed to issue and sell 423.4 million shares of its common stock to the Common Stock Underwriters. In addition, on June 25, 2020, the Corporation entered into an underwriting agreement (the “Equity Units Underwriting Agreement”) with Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC, as representatives of the several underwriters named in the Equity Units Underwriting Agreement (the “Equity Units Underwriters”), pursuant to which PG&E Corporation agreed to issue and sell 14.5 million prepaid forward stock purchase contracts (the “Purchase Contracts”) to the Equity Underwriters in order for the Equity Units Underwriters to sell 14.5 million Equity Units.
In connection with the Common Stock Offering and pursuant to the Common Stock Underwriting Agreement, PG&E Corporation granted the underwriters a 30-day over-allotment option to purchase up to an additional 42.3 million shares of common stock. In addition, in connection with the Equity Units Offering and pursuant to the Equity Units Underwriting Agreement, the Corporation also granted the underwriters a 30-day over-allotment option to purchase up to an additional 1.45 million Purchase Contracts to be used by the Equity Units Underwriters to create up to an additional 1.45 million Equity Units (together with the 42.3 million shares of common stock, the “Option Securities”).
The Common Stock Offering and the Equity Units Offering closed on July 1, 2020, and PG&E Corporation issued and sold a total of 423.4 million shares of its common stock and 14.5 million Purchase Contracts for total net proceeds of $5.2 billion. On July 24, 2020, the Equity Units Underwriters exercised in full, the over-allotment option in the Equity Units Underwriting Agreement and on August 3, 2020, PG&E Corporation issued and sold 1.45 million Equity Units to the Equity Units Underwriters (the “Additional Units Issuance”). The prepaid forward stock purchase contract portion of the Equity Units issued in the Equity Units Offering and the Additional Units Issuance represents the right of the unitholders to receive, on the settlement date, between 125 million and 153 million shares, and between 12.5 million and 15.3 million shares, respectively, of PG&E Corporation common stock, based on the value of PG&E Corporation common stock over a measurement period specified in the purchase contracts and subject to certain adjustments as provided herein. The settlement date of the purchase contract is August 16, 2023, subject to acceleration or postponement as provided in the purchase contracts. The Common Stock Underwriters did not exercise their option to purchase any additional shares of common stock.
PG&E Corporation applied accounting standards applicable to prepaid forward contracts to purchase common stock in order to determine the proper balance sheet classification for the Equity Units issued and sold during the three months ended, September 30, 2020. The Equity Units are considered a range forward contract, in that the settlement of common stock shares is based on a range of potential settlement outcomes. PG&E Corporation used various inputs, including stock price volatility, and determined that the potential outcomes are predominantly fixed share settlements. As such, PG&E Corporation does not view the Equity Units as an obligation to issue a variable number of shares and has concluded that the Equity Units meet all conditions for equity classification and do not meet any of the other conditions that would result in asset or liability classification. The Equity Units issued and sold are classified as Common stock on PG&E Corporation’s Condensed Consolidated Balance Sheet.
Equity Backstop Commitments and Forward Stock Purchase Agreements
See “Equity Financing” in Note 2 above for discussion of the equity backstop commitments which resulted in total net proceeds of $523 million (of which $120.5 million were returned to the Backstop Parties pursuant to the Forward Stock Purchase Agreements, as described below).
In connection with the Additional Units Issuance and pursuant to the terms of the Forward Stock Purchase Agreements, on August 3, 2020, PG&E Corporation (i) redeemed a portion of the rights under the Forward Stock Purchase Agreements to receive shares of Common Stock and returned approximately $120.5 million to the Backstop Parties and (ii) issued and delivered to the Backstop Parties 42.3 million shares of Common Stock, representing the unredeemed portion of the Aggregate Greenshoe Backstop Purchase Amount divided by the Settlement Price (without any issuance in respect of fractional shares).
Equity Issuances to the Fire Victim Trust
On the Effective Date, pursuant to the Plan, the Utility entered into an assignment agreement with the Fire Victim Trust, pursuant to which the Utility transferred to the Fire Victim Trust 477 million shares of common stock of PG&E Corporation. As a result of the Equity Units Underwriters exercising their option to purchase 1.45 million additional Equity Units, on August 3, 2020, PG&E Corporation made an equity contribution of 748,415 shares to the Utility which delivered such additional shares of common stock to the Fire Victim Trust pursuant to an anti-dilution provision in the assignment agreement with the Fire Victim Trust.
Contribution to the Utility Pursuant to the Plan
On the Effective Date, PG&E Corporation made an equity contribution of $12.9 billion in cash, along with the Fire Victim Trust Shares, to the Utility, which used the funds and shares to satisfy and discharge certain liabilities of PG&E Corporation and the Utility under the Plan and transferred the Fire Victim Trust Shares to the Fire Victim Trust as described above. PG&E Corporation’s cash equity contribution was funded by proceeds from the financing transactions described herein.
Ownership Restrictions in PG&E Corporation’s Amended Articles
Under Section 382 of the Internal Revenue Code, if a corporation (or a consolidated group) undergoes an “ownership change,” net operating loss carryforwards and other tax attributes may be subject to certain limitations (which could limit PG&E Corporation or the Utility’s ability to use these deferred tax assets to offset taxable income). In general, an ownership change occurs if the aggregate stock ownership of certain shareholders (generally 5% shareholders, applying certain look-through and aggregation rules) increases by more than 50% over such shareholders’ lowest percentage ownership during the testing period (generally three years). PG&E Corporation’s and the Utility’s Amended Articles limit Transfers (as defined in the Amended Articles) that increase a person’s ownership of PG&E Corporation’s equity securities to more than 4.75% prior to the Restriction Release Date without approval by the Board of Directors. The calculation of the percentage ownership may differ depending on whether the Fire Victim Trust is treated as a qualified settlement trust or grantor trust.
As of the date of this report, PG&E Corporation does not believe that it has undergone an ownership change and its net operating loss carryforwards and other tax attributes are not limited by Section 382 of the Internal Revenue Code.
In 2019, $6.75 billion of the liability to be paid to the Fire Victim Trust in PG&E Corporation’s common stock was accrued by the Utility. Because the corresponding tax deduction generally occurs no earlier than payment, the Utility established a deferred tax asset for the accrual in 2019. Because of the price of the stock on the date of transfer, the shares transferred to the Fire Victim Trust were valued at $4.53 billion, $2.22 billion less than the $6.75 billion that had been accrued as a liability in the Condensed Consolidated Financial Statements as of June 30, 2020. Therefore, in the quarter ended June 30, 2020, the Utility recorded a charge of $619 million to adjust the measurement of the deferred tax asset to reflect the tax-effected difference between the accrual of $6.75 billion and the tax deduction of $4.53 billion for the transfer of PG&E Corporation’s shares to the Fire Victim Trust. On July 1, 2020, the Utility paid to the Fire Victim Trust 477 million shares of PG&E Corporation’s common stock.
In addition, this deferred tax asset reflects PG&E Corporation’s conclusion as of September 30, 2020 that it is more likely than not that the Fire Victim Trust will be treated as a “qualified settlement fund” for U.S. federal income tax purposes, in which case the corresponding tax deduction will have occurred at the time the PG&E Corporation common stock was transferred to the Fire Victim Trust. PG&E Corporation believes that it may be beneficial to elect to treat the Fire Victim Trust as a “grantor trust,” but only if PG&E Corporation receives favorable determinations from the IRS regarding certain aspects of such election. If PG&E Corporation makes a “grantor trust” election for the Fire Victim Trust, the Utility’s tax deduction will occur instead at the time the Fire Victim Trust pays the fire victims and will be based on the price at which the Fire Victim Trust sells the shares. In this case, the accounting treatment will require a re-evaluation under applicable accounting guidance of the remaining deferred tax asset and could result in a further impairment thereof or other material impact on the Condensed Consolidated Financial Statements. Additionally, the value of the deduction may be materially different than the value of the deduction if the Fire Victim Trust is treated as a “qualified settlement fund.”
Dividends
On December 20, 2017, the Boards of Directors of PG&E Corporation and the Utility suspended quarterly cash dividends on both PG&E Corporation’s and the Utility’s common stock, beginning the fourth quarter of 2017, as well as the Utility’s preferred stock, beginning the three-month period ending January 31, 2018.
On April 3, 2019, the court overseeing the Utility’s probation issued an order imposing new conditions of probation, including forgoing issuing “any dividends until [the Utility] is in compliance with all applicable vegetation management requirements” under applicable law and the Utility’s Wildfire Mitigation Plan.
On March 20, 2020, PG&E Corporation and the Utility filed a Case Resolution Contingency Process Motion with the Bankruptcy Court that includes a dividend restriction for PG&E Corporation. According to the dividend restriction, PG&E Corporation “will not pay common dividends until it has recognized $6.2 billion in non-GAAP core earnings following the Effective Date” of the Plan. The Bankruptcy Court entered the order approving the motion on April 9, 2020.
In addition, the Corporation Revolving Credit Agreement requires that PG&E Corporation (1) maintain a ratio of total consolidated debt to consolidated capitalization of no greater than 70% as of the end of each fiscal quarter and (2) if revolving loans are outstanding as of the end of a fiscal quarter, a ratio of adjusted cash to fixed charges, as of the end of such fiscal quarter, of at least 150% prior to the date that PG&E Corporation first declares a cash dividend on its common stock and at least 100% thereafter.
Under the Utility’s Articles of Incorporation, the Utility cannot pay common stock dividends unless all cumulative preferred dividends on the Utility’s preferred stock have been paid. The Utility’s preferred stock is cumulative and any dividends in arrears must be paid before the Utility may pay any common stock dividends. Additionally, the CPUC requires the Utility to maintain a capital structure composed of at least 52% equity on average. On May 28, 2020, the CPUC approved a final decision in the Chapter 11 Proceedings OII, which, among other things, grants the Utility a temporary, five-year waiver from compliance with its authorized capital structure for the financing in place upon the Utility’s exit from Chapter 11.
Subject to the foregoing restrictions, any decision to declare and pay dividends in the future will be made at the discretion of the Boards of Directors and will depend on, among other things, results of operations, financial condition, cash requirements, contractual restrictions and other factors that the Boards of Directors may deem relevant. As of September 30, 2020, it is uncertain when PG&E Corporation and the Utility will commence the payment of dividends on their common stock and when the Utility will commence the payment of dividends on its preferred stock.
Miscellaneous
On July 23, 2020, PG&E Corporation sent a notice of termination to the managers of the Amended and Restated Equity Distribution Agreement, dated as of February 17, 2017, effectively terminating the agreement on that date. As of the termination date for this agreement, no amounts were outstanding which required repayment.
NOTE 7: EARNINGS PER SHARE
PG&E Corporation’s basic EPS is calculated by dividing the income available for common shareholders by the weighted average number of common shares outstanding. PG&E Corporation applies the treasury stock method of reflecting the dilutive effect of outstanding share-based compensation in the calculation of diluted EPS. The following is a reconciliation of PG&E Corporation’s income available for common shareholders and weighted average common shares outstanding for calculating diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(in millions, except per share amounts)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Income (Loss) attributable to common shareholders
|
$
|
83
|
|
|
$
|
(1,619)
|
|
|
$
|
(1,518)
|
|
|
$
|
(4,039)
|
|
Weighted average common shares outstanding, basic
|
1,967
|
|
|
529
|
|
|
1,012
|
|
|
528
|
|
Add incremental shares from assumed conversions:
|
|
|
|
|
|
|
|
Employee share-based compensation
|
5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Equity Units
|
168
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Weighted average common shares outstanding, diluted
|
2,140
|
|
|
529
|
|
|
1,012
|
|
|
528
|
|
Total Income (loss) per common share, diluted
|
$
|
0.04
|
|
|
$
|
(3.06)
|
|
|
$
|
(1.50)
|
|
|
$
|
(7.65)
|
|
All potentially dilutive securities were excluded from the calculation of outstanding common shares on a diluted basis in periods where PG&E Corporation has incurred a net loss.
NOTE 8: DERIVATIVES
Use of Derivative Instruments
The Utility is exposed to commodity price risk as a result of its electricity and natural gas procurement activities. Procurement costs are recovered through customer rates. The Utility uses both derivative and non-derivative contracts to manage volatility in customer rates due to fluctuating commodity prices. Derivatives include contracts, such as power purchase agreements, forwards, futures, swaps, options, and CRRs that are traded either on an exchange or over-the-counter.
Derivatives are presented in the Utility’s Condensed Consolidated Balance Sheets recorded at fair value and on a net basis in accordance with master netting arrangements for each counterparty. The fair value of derivative instruments is further offset by cash collateral paid or received where the right of offset and the intention to offset exist.
Price risk management activities that meet the definition of derivatives are recorded at fair value on the Condensed Consolidated Balance Sheets. These instruments are not held for speculative purposes and are subject to certain regulatory requirements. The Utility expects to fully recover in rates all costs related to derivatives under the applicable ratemaking mechanism in place as long as the Utility’s price risk management activities are carried out in accordance with CPUC directives. Therefore, all unrealized gains and losses associated with the change in fair value of these derivatives are deferred and recorded within the Utility’s regulatory assets and liabilities on the Condensed Consolidated Balance Sheets. Net realized gains or losses on commodity derivatives are recorded in the cost of electricity or the cost of natural gas with corresponding increases or decreases to regulatory balancing accounts for recovery from or refund to customers.
The Utility elects the normal purchase and sale exception for eligible derivatives. Eligible derivatives are those that require physical delivery in quantities that are expected to be used by the Utility over a reasonable period in the normal course of business, and do not contain pricing provisions unrelated to the commodity delivered. These items are not reflected in the Condensed Consolidated Balance Sheets at fair value.
Volume of Derivative Activity
The volumes of the Utility’s outstanding derivatives were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract Volume at
|
Underlying Product
|
|
Instruments
|
|
September 30, 2020
|
|
December 31, 2019
|
Natural Gas (1) (MMBtus (2))
|
|
Forwards, Futures and Swaps
|
|
159,168,216
|
|
|
131,896,159
|
|
|
|
Options
|
|
43,210,000
|
|
|
14,720,000
|
|
Electricity (Megawatt-hours)
|
|
Forwards, Futures and Swaps
|
|
9,925,993
|
|
|
18,675,852
|
|
|
|
Options
|
|
584,800
|
|
|
—
|
|
|
|
Congestion Revenue Rights (3)
|
|
275,838,390
|
|
|
308,467,999
|
|
|
|
|
|
|
|
|
(1) Amounts shown are for the combined positions of the electric fuels and core gas supply portfolios.
(2) Million British Thermal Units.
(3) CRRs are financial instruments that enable the holders to manage variability in electric energy congestion charges due to transmission grid limitations.
Presentation of Derivative Instruments in the Financial Statements
At September 30, 2020, the Utility’s outstanding derivative balances were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity Risk
|
(in millions)
|
Gross Derivative
Balance
|
|
Netting
|
|
Cash Collateral
|
|
Total Derivative
Balance
|
Current assets – other
|
$
|
51
|
|
|
$
|
(4)
|
|
|
$
|
50
|
|
|
$
|
97
|
|
Other noncurrent assets – other
|
118
|
|
|
—
|
|
|
—
|
|
|
118
|
|
Current liabilities – other
|
(37)
|
|
|
4
|
|
|
—
|
|
|
(33)
|
|
Noncurrent liabilities – other
|
(209)
|
|
|
—
|
|
|
—
|
|
|
(209)
|
|
Total commodity risk
|
$
|
(77)
|
|
|
$
|
—
|
|
|
$
|
50
|
|
|
$
|
(27)
|
|
At December 31, 2019, the Utility’s outstanding derivative balances were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity Risk
|
(in millions)
|
Gross Derivative
Balance
|
|
Netting
|
|
Cash Collateral
|
|
Total Derivative
Balance
|
Current assets – other
|
$
|
36
|
|
|
$
|
(6)
|
|
|
$
|
4
|
|
|
$
|
34
|
|
Other noncurrent assets – other
|
130
|
|
|
(6)
|
|
|
—
|
|
|
124
|
|
Current liabilities – other
|
(31)
|
|
|
6
|
|
|
2
|
|
|
(23)
|
|
Noncurrent liabilities – other
|
(130)
|
|
|
6
|
|
|
—
|
|
|
(124)
|
|
Total commodity risk
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
6
|
|
|
$
|
11
|
|
Cash inflows and outflows associated with derivatives are included in operating cash flows on the Utility’s Condensed Consolidated Statements of Cash Flows.
The majority of the Utility’s derivatives instruments, including power purchase agreements, contain collateral posting provisions tied to the Utility’s credit rating from each of the major credit rating agencies, also known as a credit-risk-related contingent feature. Upon emergence from Chapter 11, multiple credit agencies continue to rate the Utility below investment grade, which results in the Utility posting additional collateral. As of September 30, 2020, the Utility satisfied or has otherwise addressed its obligations related to the credit-risk related contingency features.
NOTE 9: FAIR VALUE MEASUREMENTS
PG&E Corporation and the Utility measure their cash equivalents, trust assets, and price risk management instruments at fair value. A three-tier fair value hierarchy is established that prioritizes the inputs to valuation methodologies used to measure fair value:
•Level 1 – Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
•Level 2 – Other inputs that are directly or indirectly observable in the marketplace.
•Level 3 – Unobservable inputs which are supported by little or no market activities.
The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
Assets and liabilities measured at fair value on a recurring basis for PG&E Corporation and the Utility are summarized below. Assets held in rabbi trusts are held by PG&E Corporation and not the Utility.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
September 30, 2020
|
(in millions)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Netting (1)
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
$
|
446
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
446
|
|
Nuclear decommissioning trusts
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
12
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12
|
|
Global equity securities
|
2,222
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,222
|
|
Fixed-income securities
|
856
|
|
|
791
|
|
|
—
|
|
|
—
|
|
|
1,647
|
|
Assets measured at NAV
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
23
|
|
Total nuclear decommissioning trusts (2)
|
3,090
|
|
|
791
|
|
|
—
|
|
|
—
|
|
|
3,904
|
|
Price risk management instruments (Note 8)
|
|
|
|
|
|
|
|
|
|
Electricity
|
—
|
|
|
13
|
|
|
142
|
|
|
41
|
|
|
196
|
|
Gas
|
—
|
|
|
14
|
|
|
—
|
|
|
5
|
|
|
19
|
|
Total price risk management instruments
|
—
|
|
|
27
|
|
|
142
|
|
|
46
|
|
|
215
|
|
Rabbi trusts
|
|
|
|
|
|
|
|
|
|
Fixed-income securities
|
—
|
|
|
105
|
|
|
—
|
|
|
—
|
|
|
105
|
|
Life insurance contracts
|
—
|
|
|
78
|
|
|
—
|
|
|
—
|
|
|
78
|
|
Total rabbi trusts
|
—
|
|
|
183
|
|
|
—
|
|
|
—
|
|
|
183
|
|
Long-term disability trust
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5
|
|
Assets measured at NAV
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
144
|
|
Total long-term disability trust
|
5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
149
|
|
TOTAL ASSETS
|
$
|
3,541
|
|
|
$
|
1001
|
|
|
$
|
142
|
|
|
$
|
46
|
|
|
$
|
4,897
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Price risk management instruments (Note 8)
|
|
|
|
|
|
|
|
|
|
Electricity
|
—
|
|
|
4
|
|
|
239
|
|
|
(3)
|
|
|
240
|
|
Gas
|
—
|
|
|
3
|
|
|
—
|
|
|
(1)
|
|
|
2
|
|
TOTAL LIABILITIES
|
$
|
—
|
|
|
$
|
7
|
|
|
$
|
239
|
|
|
$
|
(4)
|
|
|
$
|
242
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes the effect of the contractual ability to settle contracts under master netting agreements and margin cash collateral.
(2) Represents amount before deducting $586 million, primarily related to deferred taxes on appreciation of investment value.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
December 31, 2019
|
(in millions)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Netting (1)
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
$
|
1,323
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,323
|
|
Nuclear decommissioning trusts
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6
|
|
Global equity securities
|
2,086
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,086
|
|
Fixed-income securities
|
862
|
|
|
728
|
|
|
—
|
|
|
—
|
|
|
1,590
|
|
Assets measured at NAV
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
21
|
|
Total nuclear decommissioning trusts (2)
|
2,954
|
|
|
728
|
|
|
—
|
|
|
—
|
|
|
3,703
|
|
Price risk management instruments (Note 8)
|
|
|
|
|
|
|
|
|
|
Electricity
|
—
|
|
|
2
|
|
|
161
|
|
|
(11)
|
|
|
152
|
|
Gas
|
—
|
|
|
3
|
|
|
—
|
|
|
3
|
|
|
6
|
|
Total price risk management instruments
|
—
|
|
|
5
|
|
|
161
|
|
|
(8)
|
|
|
158
|
|
Rabbi trusts
|
|
|
|
|
|
|
|
|
|
Fixed-income securities
|
—
|
|
|
100
|
|
|
—
|
|
|
—
|
|
|
100
|
|
Life insurance contracts
|
—
|
|
|
73
|
|
|
—
|
|
|
—
|
|
|
73
|
|
Total rabbi trusts
|
—
|
|
|
173
|
|
|
—
|
|
|
—
|
|
|
173
|
|
Long-term disability trust
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
10
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10
|
|
Assets measured at NAV
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
156
|
|
Total long-term disability trust
|
10
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
166
|
|
TOTAL ASSETS
|
$
|
4,287
|
|
|
$
|
906
|
|
|
$
|
161
|
|
|
$
|
(8)
|
|
|
$
|
5,523
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Price risk management instruments (Note 8)
|
|
|
|
|
|
|
|
|
|
Electricity
|
$
|
1
|
|
|
$
|
2
|
|
|
$
|
156
|
|
|
$
|
(13)
|
|
|
$
|
146
|
|
Gas
|
—
|
|
|
2
|
|
|
—
|
|
|
(1)
|
|
|
1
|
|
TOTAL LIABILITIES
|
$
|
1
|
|
|
$
|
4
|
|
|
$
|
156
|
|
|
$
|
(14)
|
|
|
$
|
147
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes the effect of the contractual ability to settle contracts under master netting agreements and margin cash collateral.
(2) Represents amount before deducting $530 million, primarily related to deferred taxes on appreciation of investment value.
Valuation Techniques
The following describes the valuation techniques used to measure the fair value of the assets and liabilities shown in the tables above. There are no restrictions on the terms and conditions upon which the investments may be redeemed. There were no material transfers between any levels for the three and nine months ended September 30, 2020 and 2019.
Trust Assets
Assets Measured at Fair Value
In general, investments held in the trusts are exposed to various risks, such as interest rate, credit, and market volatility risks. Nuclear decommissioning trust assets and other trust assets are composed primarily of equity and fixed-income securities and also include short-term investments that are money market funds valued as Level 1.
Global equity securities primarily include investments in common stock that are valued based on quoted prices in active markets and are classified as Level 1.
Fixed-income securities are primarily composed of U.S. government and agency securities, municipal securities, and other fixed-income securities, including corporate debt securities. U.S. government and agency securities primarily consist of U.S. Treasury securities that are classified as Level 1 because the fair value is determined by observable market prices in active markets. A market approach is generally used to estimate the fair value of fixed-income securities classified as Level 2 using evaluated pricing data such as broker quotes, for similar securities adjusted for observable differences. Significant inputs used in the valuation model generally include benchmark yield curves and issuer spreads. The external credit ratings, coupon rate, and maturity of each security are considered in the valuation model, as applicable.
Assets Measured at NAV Using Practical Expedient
Investments in the nuclear decommissioning trusts and the long-term disability trust that are measured at fair value using the NAV per share practical expedient have not been classified in the fair value hierarchy tables above. The fair value amounts are included in the tables above in order to reconcile to the amounts presented in the Condensed Consolidated Balance Sheets. These investments include commingled funds that are composed of equity securities traded publicly on exchanges as well as fixed-income securities that are composed primarily of U.S. government securities and asset-backed securities.
Price Risk Management Instruments
Price risk management instruments include physical and financial derivative contracts, such as power purchase agreements, forwards, futures, swaps, options, and CRRs that are traded either on an exchange or over-the-counter.
Power purchase agreements, forwards, and swaps are valued using a discounted cash flow model. Exchange-traded futures that are valued using observable market forward prices for the underlying commodity are classified as Level 1. Over-the-counter forwards and swaps that are identical to exchange-traded futures or are valued using forward prices from broker quotes that are corroborated with market data are classified as Level 2. Exchange-traded options are valued using observable market data and market-corroborated data and are classified as Level 2.
Long-dated power purchase agreements that are valued using significant unobservable data are classified as Level 3. These Level 3 contracts are valued using either estimated basis adjustments from liquid trading points or techniques, including extrapolation from observable prices, when a contract term extends beyond a period for which market data is available. Market and credit risk management utilizes models to derive pricing inputs for the valuation of the Utility’s Level 3 instruments using pricing inputs from brokers and historical data.
The Utility holds CRRs to hedge the financial risk of CAISO-imposed congestion charges in the day-ahead market. Limited market data is available in the CAISO auction and between auction dates; therefore, the Utility utilizes historical prices to forecast forward prices. CRRs are classified as Level 3.
Level 3 Measurements and Uncertainty Analysis
Inputs used and the fair value of Level 3 instruments are reviewed period-over-period and compared with market conditions to determine reasonableness.
Significant increases or decreases in any of those inputs would result in a significantly higher or lower fair value, respectively. All reasonable costs related to Level 3 instruments are expected to be recoverable through customer rates; therefore, there is no impact to net income resulting from changes in the fair value of these instruments. (See Note 8 above.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at
|
|
|
|
|
|
|
(in millions)
|
|
September 30, 2020
|
|
|
|
|
|
|
Fair Value Measurement
|
|
Assets
|
|
Liabilities
|
|
Valuation
Technique
|
|
Unobservable
Input
|
|
Range(1) /Weighted-Average Price (2)
|
Congestion revenue rights
|
|
$
|
131
|
|
|
$
|
57
|
|
|
Market approach
|
|
CRR auction prices
|
|
$(20.20) - $20.20 / 0.27
|
Power purchase agreements
|
|
$
|
11
|
|
|
$
|
182
|
|
|
Discounted cash flow
|
|
Forward prices
|
|
$11.92 - $97.45 / 33.25
|
|
|
|
|
|
|
|
|
|
|
|
(1) Represents price per megawatt-hour.
(2) Unobservable inputs were weighted by the relative fair value of the instruments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at
|
|
|
|
|
|
|
(in millions)
|
|
December 31, 2019
|
|
|
|
|
|
|
Fair Value Measurement
|
|
Assets
|
|
Liabilities
|
|
Valuation Technique
|
|
Unobservable Input
|
|
Range (1)/Weighted-Average Price (2)
|
Congestion revenue rights
|
|
$
|
140
|
|
|
$
|
44
|
|
|
Market approach
|
|
CRR auction prices
|
|
$(20.20) - $20.20 / 0.28
|
Power purchase agreements
|
|
$
|
21
|
|
|
$
|
112
|
|
|
Discounted cash flow
|
|
Forward prices
|
|
$11.77 - $59.38 / 33.62
|
|
|
|
|
|
|
|
|
|
|
|
(1) Represents price per megawatt-hour.
(2) Unobservable inputs were weighted by the relative fair value of the instruments.
Level 3 Reconciliation
The following table presents the reconciliation for Level 3 instruments for the three and nine months ended September 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
Price Risk Management Instruments
|
(in millions)
|
2020
|
|
2019
|
Asset (liability) balance as of July 1
|
$
|
(66)
|
|
|
$
|
109
|
|
Net realized and unrealized losses:
|
|
|
|
Included in regulatory assets and liabilities or balancing accounts (1)
|
(31)
|
|
|
(75)
|
|
Asset (liability) balance as of September 30
|
$
|
(97)
|
|
|
$
|
34
|
|
|
|
|
|
(1) The costs related to price risk management activities are fully passed through to customers in rates. Accordingly, unrealized gains and losses are deferred in regulatory liabilities and assets and net income is not impacted.
|
|
|
|
|
|
|
|
|
|
|
|
|
Price Risk Management Instruments
|
(in millions)
|
2020
|
|
2019
|
Asset balance as of January 1
|
$
|
5
|
|
|
$
|
95
|
|
Net realized and unrealized gains (losses):
|
|
|
|
Included in regulatory assets and liabilities or balancing accounts (1)
|
(102)
|
|
|
(61)
|
|
Asset (liability) balance as of September 30
|
$
|
(97)
|
|
|
$
|
34
|
|
|
|
|
|
(1) The costs related to price risk management activities are fully passed through to customers in rates. Accordingly, unrealized gains and losses are deferred in regulatory liabilities and assets and net income is not impacted.
Financial Instruments
PG&E Corporation and the Utility use the following methods and assumptions in estimating fair value for financial instruments: the fair values of cash, net accounts receivable; short-term borrowings; accounts payable; and customer deposits approximate their carrying values at September 30, 2020 and December 31, 2019, as they are short-term in nature.
The carrying amount and fair value of PG&E Corporation’s and the Utility’s long-term debt instruments were as follows (the table below excludes financial instruments with carrying values that approximate their fair values):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2020
|
|
At December 31, 2019
|
(in millions)
|
Carrying Amount
|
|
Level 2 Fair Value
|
|
Carrying Amount(1)
|
|
Level 2 Fair Value(1)(2)
|
Debt (Note 5)
|
|
|
|
|
|
|
|
PG&E Corporation
|
$
|
1,904
|
|
|
$
|
1,942
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Utility
|
29,657
|
|
|
30,637
|
|
|
1,500
|
|
|
1,500
|
|
|
|
|
|
|
|
|
|
(1) On January 29, 2019 PG&E Corporation and the Utility filed for Chapter 11 protection. Debt held by PG&E Corporation and the Utility became debt subject to compromise and is valued at the allowed claim amount. For more information, see Note 2 and Note 5.
(2) The fair value of the Utility pre-petition debt was $17.9 billion at December 31, 2019. For more information, see Note 2 and Note 5.
Nuclear Decommissioning Trust Investments
The following table provides a summary of equity securities and available-for-sale debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
As of September 30, 2020
|
Amortized
Cost
|
|
Total Unrealized Gains
|
|
Total Unrealized Losses
|
|
Total Fair
Value
|
Nuclear decommissioning trusts
|
|
|
|
|
|
|
|
Short-term investments
|
$
|
12
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12
|
|
Global equity securities
|
584
|
|
|
1,670
|
|
|
(9)
|
|
|
2,245
|
|
Fixed-income securities
|
1,486
|
|
|
164
|
|
|
(3)
|
|
|
1,647
|
|
Total (1)
|
$
|
2,082
|
|
|
$
|
1,834
|
|
|
$
|
(12)
|
|
|
$
|
3,904
|
|
As of December 31, 2019
|
|
|
|
|
|
|
|
Nuclear decommissioning trusts
|
|
|
|
|
|
|
|
Short-term investments
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6
|
|
Global equity securities
|
500
|
|
|
1,609
|
|
|
(2)
|
|
|
2,107
|
|
Fixed-income securities
|
1,505
|
|
|
89
|
|
|
(4)
|
|
|
1,590
|
|
Total (1)
|
$
|
2,011
|
|
|
$
|
1,698
|
|
|
$
|
(6)
|
|
|
$
|
3,703
|
|
|
|
|
|
|
|
|
|
(1) Represents amounts before deducting $586 million and $530 million for the periods ended September 30, 2020 and December 31, 2019, respectively, primarily related to deferred taxes on appreciation of investment value.
The fair value of fixed-income securities by contractual maturity is as follows:
|
|
|
|
|
|
|
As of
|
(in millions)
|
September 30, 2020
|
Less than 1 year
|
$
|
23
|
|
1–5 years
|
452
|
|
5–10 years
|
402
|
|
More than 10 years
|
770
|
|
Total maturities of fixed-income securities
|
$
|
1,647
|
|
The following table provides a summary of activity for fixed income and equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(in millions)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Proceeds from sales and maturities of nuclear decommissioning trust investments
|
$
|
890
|
|
|
$
|
346
|
|
|
$
|
1,144
|
|
|
$
|
808
|
|
Gross realized gains on securities
|
51
|
|
|
45
|
|
|
59
|
|
|
67
|
|
Gross realized losses on securities
|
(22)
|
|
|
(5)
|
|
|
(34)
|
|
|
(12)
|
|
NOTE 10: WILDFIRE-RELATED CONTINGENCIES
PG&E Corporation and the Utility have significant contingencies arising from their operations, including contingencies related to wildfires. A provision for a loss contingency is recorded when it is both probable that a liability has been incurred and the amount of the liability can be reasonably estimated. PG&E Corporation and the Utility evaluate which potential liabilities are probable and the related range of reasonably estimated losses and record a charge that reflects their best estimate or the lower end of the range, if there is no better estimate. The assessment of whether a loss is probable or reasonably possible, and whether the loss or a range of losses is estimable, often involves a series of complex judgments about future events. Loss contingencies are reviewed quarterly, and estimates are adjusted to reflect the impact of all known information, such as negotiations, discovery, settlements and payments, rulings, advice of legal counsel, and other information and events pertaining to a particular matter. PG&E Corporation’s and the Utility’s provision for loss and expense excludes anticipated legal costs, which are expensed as incurred. PG&E Corporation’s and the Utility’s financial condition, results of operations, liquidity, and cash flows may be materially affected by the outcome of the following matters.
2015 Butte Fire
In September 2015, a wildfire (the “2015 Butte fire”) ignited and spread in Amador and Calaveras Counties in Northern California. Cal Fire concluded that the 2015 Butte fire was caused when a gray pine tree contacted the Utility’s electric line, which ignited portions of the tree, and determined that the failure by the Utility and/or its vegetation management contractors, ACRT Inc. and Trees, Inc., to identify certain potential hazards during its vegetation management program ultimately led to the failure of the tree.
During the quarter ended September 30, 2020, the remaining 2015 Butte fire claims were satisfied and discharged in accordance with the Plan. See “Pre-Petition Wildfire-Related Claims and Discharge Upon Plan Effective Date” and “District Attorneys’ Office Investigations” below for more information on the 2015 Butte fire.
2018 Camp Fire and 2017 Northern California Wildfires Background
According to Cal Fire, on November 8, 2018 at approximately 6:33 a.m., a wildfire began near the city of Paradise, Butte County, California (the “2018 Camp fire”), which is located in the Utility’s service territory. Cal Fire’s Camp Fire Incident Information Website as of November 15, 2019 (the “Cal Fire website”) indicated that the 2018 Camp fire consumed 153,336 acres. On the Cal Fire website, Cal Fire reported 85 fatalities and the destruction of 18,804 structures resulting from the 2018 Camp fire.
Beginning on October 8, 2017, multiple wildfires spread through Northern California, including Napa, Sonoma, Butte, Humboldt, Mendocino, Lake, Nevada, and Yuba Counties, as well as in the area surrounding Yuba City (the “2017 Northern California wildfires”). According to the Cal Fire California Statewide Fire Summary dated October 30, 2017, at the peak of the 2017 Northern California wildfires, there were 21 major fires that, in total, burned over 245,000 acres and destroyed an estimated 8,900 structures. The 2017 Northern California wildfires resulted in 44 fatalities.
PG&E Corporation and the Utility were subject to numerous claims in connection with the 2018 Camp fire and 2017 Northern California wildfires. These included claims by various groups of wildfire victims, including individual plaintiffs, holders of insurance subrogation claims, and various federal, state and local entities. During the quarter ended September 30, 2020, these claims have been satisfied and discharged in accordance with the Plan, as described below.
Pre-petition Wildfire-Related Claims and Discharge Upon Plan Effective Date
Pre-petition wildfire-related claims on the Condensed Consolidated Financial Statements include amounts associated with the 2018 Camp fire, the 2017 Northern California wildfires, and the 2015 Butte fire.
On July 1, 2020, pursuant to the Plan, PG&E Corporation and the Utility funded the Fire Victim Trust with $5.4 billion in cash (with an additional $1.35 billion to be funded on a deferred basis), 477.0 million shares of common stock of PG&E Corporation (representing 22.19% of the outstanding common stock of PG&E Corporation as of the Effective Date (subject to potential adjustments)), plus the assignment of certain rights and causes of action. Additionally, as a result of the Equity Units Underwriters exercising their option to purchase 1.45 million additional Equity Units, on August 3, 2020, PG&E Corporation made an equity contribution of 748,415 shares to the Utility which delivered such additional shares of common stock to the Fire Victim Trust pursuant to an anti-dilution provision in the assignment agreement with the Fire Victim Trust. In accordance with the Plan and the Confirmation Order, as a result of such funding, all Fire Victim Claims have been fully and finally satisfied, released and discharged and channeled to the Fire Victim Trust with no recourse to PG&E Corporation or the Utility. Accordingly, $12.15 billion of the $13.5 billion liability as of June 30, 2020 was extinguished in the third quarter of 2020, and the remaining $1.35 billion will be paid out under the terms of the Tax Benefits Payment Agreement, as described in Note 2 under the heading “Significant Bankruptcy Court Actions.”
On July 1, 2020, PG&E Corporation and the Utility funded the Subrogation Wildfire Trust for the benefit of holders of Subrogation Claims in the amount of $11.0 billion in cash and paid approximately $43 million in respect of professional fees of such claimants, for a total of approximately $52 million for subrogation wildfire claimants’ professional fees. Such amount was initially funded into escrow and later paid to the Subrogation Wildfire Trust. In accordance with the Plan and the Confirmation Order, as a result of such funding, all Subrogation Claims have been satisfied, released and discharged and channeled to the Subrogation Wildfire Trust with no recourse to PG&E Corporation or the Utility. Accordingly, the $11.0 billion liability accrual for Subrogation Claims and $47.5 million liability for professional fees was extinguished in the third quarter of 2020.
On July 1, 2020, PG&E Corporation and the Utility paid $1.0 billion in cash to the Settling Public Entities and established a segregated fund in the amount of $10 million to be used to reimburse the Settling Public Entities for any and all legal fees and costs associated with the defense or resolution of any third party claims against the Settling Public Entities. In accordance with the Plan and the Confirmation Order, as a result of such payments, the $1.0 billion liability for the Public Entity Wildfire Claims has been satisfied, released and discharged in the third quarter of 2020.
Plan Support Agreements with Public Entities
On June 18, 2019, PG&E Corporation and the Utility entered into PSAs with certain local public entities (collectively, the “Supporting Public Entities”) providing for an aggregate of $1.0 billion to be paid by PG&E Corporation and the Utility to such public entities pursuant to the Plan in order to fully and finally settle and discharge such public entities’ claims against PG&E Corporation and the Utility relating to the 2018 Camp fire, 2017 Northern California wildfires and 2015 Butte fire (collectively, “Public Entity Wildfire Claims”).
The PSAs also provide that, following the Effective Date, PG&E Corporation and the Utility would create and promptly fund $10 million to a segregated fund to be used by the Supporting Public Entities collectively in connection with the defense or resolution of claims against the Supporting Public Entities by third parties relating to the wildfires noted above (“Third Party Claims”).
These elements were incorporated into the Plan which was approved by the Bankruptcy Court in the Confirmation Order. As described in Note 2 under the heading “Significant Bankruptcy Court Actions,” the actions required by each PSA were taken on or around the Effective Date.
Restructuring Support Agreement with Holders of Subrogation Claims
On September 22, 2019, PG&E Corporation and the Utility entered into the Subrogation RSA. The Subrogation RSA provides for an aggregate amount of $11.0 billion to be paid by PG&E Corporation and the Utility pursuant to the Plan in order to fully and finally settle the Subrogation Claims, upon the terms and conditions set forth in the Subrogation RSA. Under the Subrogation RSA, PG&E Corporation and the Utility have also agreed to reimburse the holders of Subrogation Claims for professional fees of up to $55 million, upon the terms and conditions set forth in the Subrogation RSA.
As described above under the heading “Pre-petition Wildfire-Related Claims and Discharge Upon Plan Effective Date,” the payments described in the Subrogation RSA were made on the Effective Date.
Restructuring Support Agreement with the TCC
On December 6, 2019, PG&E Corporation and the Utility entered into the TCC RSA. The TCC RSA provides for, among other things, a combination of cash and common stock of the reorganized PG&E Corporation to be provided by PG&E Corporation and the Utility pursuant to the Plan (together with certain additional rights, the “Aggregate Fire Victim Consideration”) in order to settle and discharge the Fire Victim Claims, upon the terms and conditions set forth in the TCC RSA and the Plan. The Aggregate Fire Victim Consideration that will fund the Fire Victim Trust pursuant to the Plan for the benefit of holders of the Fire Victim Claims will consist of (a) $5.4 billion in cash that was contributed on the Effective Date of the Plan, (b) $1.35 billion in cash consisting of (i) $650 million to be paid in cash on or before January 15, 2021 and (ii) the remaining balance of $1.35 billion to be paid in cash on or before January 15, 2022, in each case pursuant to the terms of a tax benefit payment agreement to be entered into between the Fire Victim Trust and the reorganized Utility, and (c) an amount of common stock of the reorganized PG&E Corporation valued at 14.9 times Normalized Estimated Net Income (as defined in the TCC RSA), except that the Fire Victim Trust’s share ownership of the reorganized PG&E Corporation would not be less than 20.9% based on the number of fully diluted shares of the reorganized PG&E Corporation outstanding as of the Effective Date of the Plan, assuming the Utility’s allowed ROE as of the date of the TCC RSA. Under certain circumstances, including certain change of control transactions and in connection with the monetization of certain tax benefits related to the payment of wildfire-related claims, the payments described in clause (b) will be accelerated and payable upon an earlier date. The Aggregate Fire Victim Consideration also includes (1) the assignment by PG&E Corporation and the Utility to the Fire Victim Trust of certain rights and causes of action related to the 2015 Butte fire, the 2017 Northern California wildfires and the 2018 Camp fire (together, the “Fires”) that PG&E Corporation and the Utility may have against certain third parties and (2) the assignment of rights under the 2015 insurance policies to resolve any claims related to the Fires in those policy years, other than the rights of PG&E Corporation and the Utility to be reimbursed under the 2015 insurance policies for claims submitted to and paid by PG&E Corporation and the Utility prior to the Petition Date to resolve any claims related to the Fires in those policy years. On June 11, 2020, PG&E Corporation and the Utility and the TCC agreed that the percentage ownership of the Fire Victim Trust will be 22.19% of the outstanding shares of the PG&E Corporation on the Effective Date, subject to potential adjustments.
Pursuant to further discussions with claimants relating to the Ghost Ship fire, certain provisions of the TCC RSA were superseded by the terms of the Plan, and accordingly the above description of the TCC RSA has been revised to reflect the fact that claims arising out of the Ghost Ship fire will be resolved separately from the TCC RSA.
As described above under the heading “Pre-petition Wildfire-Related Claims and Discharge Upon Plan Effective Date,” the funding to be made pursuant to the TCC RSA and the Plan were made on the Effective Date.
2019 Kincade Fire
According to Cal Fire, on October 23, 2019 at approximately 9:27 p.m., a wildfire began northeast of Geyserville in Sonoma County, California (the “2019 Kincade fire”), located in the service territory of the Utility. The Cal Fire Kincade Fire Incident Update dated November 20, 2019, 11:02 a.m. Pacific Time (the “incident update”) indicated that the 2019 Kincade fire had consumed 77,758 acres. In the incident update, Cal Fire reported no fatalities and four first responder injuries. The incident update also indicates the following: structures destroyed, 374 (consisting of 174 residential structures, 11 commercial structures and 189 other structures); and structures damaged, 60 (consisting of 35 residential structures, one commercial structure and 24 other structures). In connection with the 2019 Kincade fire, state and local officials issued numerous mandatory evacuation orders and evacuation warnings at various times for certain areas of the region. Based on County of Sonoma information, PG&E Corporation and the Utility understand that the geographic zones subject to either a mandatory evacuation order or an evacuation warning between October 23, 2019 and November 4, 2019 included approximately 200,000 persons.
On October 23, 2019, by 3:00 p.m. Pacific Time, the Utility had conducted a PSPS event and turned off the power to approximately 27,837 customers in Sonoma County, including Geyserville and the surrounding area. As part of the PSPS, the Utility’s distribution lines in these areas were deenergized. Following the Utility’s established and CPUC-approved PSPS protocols and procedures, transmission lines in these areas remained energized.
The Utility has submitted electric incident reports to the CPUC indicating that:
•at approximately 9:19 p.m. Pacific Time on October 23, 2019, the Utility became aware of a transmission level outage on the Geysers #9 Lakeville 230 kV line when the line relayed and did not reclose;
•various generating facilities on the Geysers #9 Lakeville 230kV line detected the disturbance and separated at approximately the same time;
•at approximately 9:21 p.m. Pacific Time, the PG&E Grid Control Center received a report that a fire had started in an area near transmission tower 001/006;
•at approximately 7:30 a.m. Pacific Time on October 24, 2019, a responding Utility troubleman patrolling the Geysers #9 Lakeville 230 kV line observed that Cal Fire had taped off the area around the base of transmission tower 001/006 in the area of the 2019 Kincade fire; and
•on site Cal Fire personnel brought to the troubleman’s attention what appeared to be a broken jumper on the same tower.
On July 16, 2020, Cal Fire issued a press release addressing the cause of the 2019 Kincade fire. Cal Fire has determined that “the Kincade Fire was caused by electrical transmission lines owned and operated by Pacific Gas and Electric (PG&E) located northeast of Geyserville. Tinder dry vegetation and strong winds combined with low humidity and warm temperatures contributed to extreme rates of fire spread.”
Cal Fire also indicated that its investigative report has been forwarded to the Sonoma County District Attorney’s Office, which is investigating the matter. On September 25, 2020, the Utility entered into a tolling agreement with the Sonoma County District Attorney’s Office in which the Utility agreed to waive any applicable statute of limitations for violations related to the Kincade fire that would otherwise have expired on or about October 23, 2020, for a period of six months, until April 23, 2021.
PG&E Corporation and the Utility are also conducting their own investigation into the cause of the 2019 Kincade fire. This investigation is preliminary, and PG&E Corporation and the Utility do not have access to all of the evidence in the possession of Cal Fire or other third parties.
Potential liabilities related to the Kincade fire depend on various factors, including but not limited to the cause of the fire, contributing causes of the fire (including alternative potential origins, weather- and climate-related issues), the number, size and type of structures damaged or destroyed, the contents of such structures and other personal property damage, the number and types of trees damaged or destroyed, attorneys’ fees for claimants, the nature and extent of any personal injuries, the amount of fire suppression and clean-up costs, other damages the Utility may be responsible for if found negligent, and the amount of any penalties, fines, or restitution that may be imposed by governmental entities.
If the Utility’s facilities, such as its electric distribution and transmission lines, are judicially determined to be the substantial cause of the Kincade fire, and the doctrine of inverse condemnation applies, the Utility could be liable for property damage, business interruption, interest and attorneys’ fees without having been found negligent. California courts have imposed liability under the doctrine of inverse condemnation in legal actions brought by property holders against utilities on the grounds that losses borne by the person whose property was damaged through a public use undertaking should be spread across the community that benefited from such undertaking, and based on the assumption that utilities have the ability to recover these costs from their customers. Further, California courts have determined that the doctrine of inverse condemnation is applicable regardless of whether the CPUC ultimately allows recovery by the utility for any such costs. The CPUC may decide not to authorize cost recovery even if a court decision were to determine that the Utility is liable as a result of the application of the doctrine of inverse condemnation. (See “Loss Recoveries – Regulatory Recovery” below for further information regarding potential cost recovery related to the wildfires.)
In light of the current state of the law concerning inverse condemnation and the information currently available to PG&E Corporation and the Utility, including the information contained in the electric incident reports, Cal Fire’s determination of the cause, and other information gathered as part of PG&E Corporation’s and the Utility’s investigation, PG&E Corporation and the Utility believe it is probable that they will incur a loss in connection with the 2019 Kincade fire. PG&E Corporation and the Utility recorded a charge in the amount of $600 million for the six months ended June 30, 2020 (before available insurance). Based on additional facts and circumstances available to the Utility as of the date of this filing, PG&E Corporation and the Utility recorded an additional charge for potential losses in connection with the 2019 Kincade fire in the amount of $25 million for the three months ended September 30, 2020.
The aggregate liability of $625 million for claims in connection with the 2019 Kincade fire (before available insurance) corresponds to the lower end of the range of PG&E Corporation’s and the Utility’s reasonably estimable range of losses and is subject to change based on additional information. The $625 million estimate does not include, among other things, (i) any amounts for potential penalties or fines that may be imposed by governmental entities on PG&E Corporation or the Utility, (ii) any punitive damages, (iii) any amounts in respect of compensation claims by Federal or state agencies other than state fire suppression costs, (iv) evacuation costs or (v) any other amounts that are not reasonably estimable.
The $600 million estimate of the lower end of the range of PG&E Corporation’s and the Utility’s reasonably estimable range of losses from the end of the prior quarter was based primarily on publicly available information and the Utility had not received significant data regarding actual claimed losses from potential claimants. Since that time, the Utility has received certain information from potential claimants, including certain information received from holders of certain insurance subrogation claims, leading to an increase in such estimate of the lower end. The Utility believes it will continue to receive additional information from potential claimants as litigation or resolution efforts progress. Any such additional information may potentially allow PG&E Corporation and the Utility to refine such estimate and may result in additional changes to the accrual depending on the information provided.
PG&E Corporation and the Utility currently believe that it is reasonably possible that the amount of loss could be greater than $625 million (before available insurance) but are unable to reasonably estimate the additional loss and the upper end of the range because, as described above, there are a number of unknown facts and legal considerations that may impact the amount of any potential liability, including the total scope and nature of claims that may be asserted against PG&E Corporation and the Utility. If the liability for the 2019 Kincade fire were to exceed $1.0 billion, it is possible the Utility would be eligible to make a claim to the Wildfire Fund under AB 1054 for such excess amount, subject to the 40% limitation on claims arising before emergence from bankruptcy. PG&E Corporation and the Utility intend to continue to review the available information and other information as it becomes available, including evidence in Cal Fire’s possession, evidence from or held by other parties, claims that have not yet been submitted, and additional information about the nature and extent of potential damages.
The process for estimating losses associated with potential claims related to the 2019 Kincade fire requires management to exercise significant judgment based on a number of assumptions and subjective factors, including the factors identified above and estimates based on currently available information and prior experience with wildfires. As more information becomes available, management estimates and assumptions regarding the potential financial impact of the 2019 Kincade fire may change.
The Utility has liability insurance from various insurers, which provides coverage for third-party liability attributable to the Kincade fire in an aggregate amount of $430 million. The Utility records insurance recoveries when it is deemed probable that recovery will occur, and the Utility can reasonably estimate the amount or its range. As of September 30, 2020, the Utility has recorded an insurance receivable for the full amount of the $430 million. While the Utility plans to seek recovery of all insured losses, it is unable to predict the ultimate amount and timing of such insurance recoveries.
PG&E Corporation and the Utility have received and are responding to data requests from the SED relating to the Kincade fire. The Sonoma County District Attorney’s Office is currently investigating the fire and various other entities may also be investigating the fire. It is uncertain when the investigations will be complete.
As of October 28, 2020, PG&E Corporation and the Utility are aware of 16 complaints on behalf of approximately 377 plaintiffs related to the 2019 Kincade fire and expects that they may receive further such complaints. The complaints were filed in the California Superior Court for the County of Sonoma and include claims based on multiple theories of liability, including inverse condemnation, negligence, violations of the Public Utilities Code, violations of the Health & Safety Code, premises liability, trespass, public nuisance and private nuisance. The plaintiffs in each action principally assert that PG&E Corporation’s and the Utility’s alleged failure to properly maintain, inspect and de-energize their transmission lines was the cause of the 2019 Kincade fire. The plaintiffs seek damages that include property damage, economic loss, punitive damages, exemplary damages, attorneys’ fees and other damages.
In addition to claims for property damage, business interruption, interest and attorneys’ fees, the Utility could be liable for fire suppression costs, evacuation costs, medical expenses, personal injury damages, punitive damages and other damages under other theories of liability, including if the Utility were found to have been negligent.
2020 Zogg Fire
According to Cal Fire, on September 27, 2020, a wildfire began in the area of Zogg Mine Road and Jenny Bird Lane, north of Igo in Shasta County, California (the “2020 Zogg fire”), located in the service territory of the Utility. The Cal Fire Zogg fire Incident Update dated October 16, 2020, 3:08 p.m. Pacific Time (the “incident update”), indicated that the 2020 Zogg fire had consumed 56,338 acres. The incident update reported four fatalities and one injury. The incident update also indicated that 27 structures were damaged and 204 structures were destroyed.
On October 9, 2020, the Utility submitted an electric incident report to the CPUC indicating that:
•wildfire camera and satellite data on September 27, 2020 show smoke, heat or signs of fire in the area of Zogg Mine Road and Jenny Bird Lane between approximately 2:43 p.m. and 2:46 p.m. Pacific Time;
•according to Utility records, on September 27, 2020, a SmartMeter and a line recloser serving the area of Zogg Mine Road and Jenny Bird Lane reported alarms and other activity between approximately 2:40 p.m. and 3:06 p.m. Pacific Time when the line recloser de-energized a portion of the Girvan 1101 12 kV circuit, a distribution line that serves that area;
•the data currently available to the Utility do not establish the causes of the activity on the Girvan 1101 circuit or the locations of these causes;
•on October 9, 2020, Cal Fire informed the Utility that they had taken possession of Utility equipment as part of Cal Fire’s ongoing investigation into the cause of the 2020 Zogg fire and allowed the Utility access to the area; and
•Cal Fire has not issued a determination as to the cause.
The cause of the 2020 Zogg fire remains under investigation by Cal Fire, and PG&E Corporation and the Utility are cooperating with its investigation. The Shasta County District Attorney’s Office is investigating the fire, and various other entities, which may include other law enforcement agencies, may also be investigating the fire. It is uncertain when any such investigations will be complete. PG&E Corporation and the Utility are also conducting their own investigation into the cause of the 2020 Zogg fire. This investigation is preliminary, and PG&E Corporation and the Utility do not have access to all of the evidence in the possession of Cal Fire or other third parties.
Based on the facts and circumstances available to PG&E Corporation and the Utility as of the date of this filing, including the information contained in the electric incident report and other information gathered as part of PG&E Corporation’s and the Utility’s investigation, PG&E Corporation and the Utility believe it is reasonably possible that they will incur a loss in connection with the 2020 Zogg fire. However, due to the limited amount of time that has elapsed since the start of the 2020 Zogg fire, the preliminary stages of the investigations, and the uncertainty as to the extent and magnitude of potential losses, PG&E Corporation and the Utility cannot reasonably estimate the amount or range of such possible loss at this time.
While the cause of the 2020 Zogg fire remains under investigation and there are a number of unknown facts surrounding the cause of the 2020 Zogg fire, the Utility could be subject to significant liability in connection with this fire. If such liability were to exceed insurance coverage, it could have a material impact on PG&E Corporation’s and the Utility’s financial condition, results of operations, liquidity, and cash flows.
As of October 28, 2020, PG&E Corporation and the Utility are aware of one complaint on behalf of approximately six plaintiffs that may be related to the 2020 Zogg fire and expect that they may receive further such complaints. The one complaint filed thus far has, as of October 28, 2020, not yet been served on PG&E Corporation or the Utility, and PG&E Corporation and the Utility have not yet had the opportunity to review it.
In addition to claims for property damage, business interruption, interest and attorneys’ fees, the Utility could be liable for fire suppression costs, evacuation costs, medical expenses, personal injury damages, punitive damages and other damages under other theories of liability, including if the Utility were found to have been negligent.
Loss Recoveries
PG&E Corporation and the Utility have insurance coverage for liabilities, including wildfire. Additionally, there are several mechanisms that allow for recovery of costs from customers. Potential for recovery is described below. Failure to obtain a substantial or full recovery of costs related to wildfires or any conclusion that such recovery is no longer probable could have a material effect on PG&E Corporation’s and the Utility’s financial condition, results of operations, liquidity, and cash flows. In addition, the inability to recover costs in a timely manner could have a material effect on PG&E Corporation’s and the Utility’s financial condition, results of operations, liquidity, and cash flows.
Insurance
Insurance Coverage
PG&E Corporation and the Utility have liability insurance coverage for wildfire events in an amount of $430 million (subject to an initial self-insured retention of $10 million per occurrence) for the period from August 1, 2019 through July 31, 2020, and approximately $1 billion in liability insurance coverage for non-wildfire events (subject to an initial self-insured retention of $10 million per occurrence), comprised of $520 million for the period from August 1, 2019 through July 31, 2020 and $480 million for the period from September 3, 2019 through September 2, 2020. PG&E Corporation’s and the Utility’s cost of obtaining this wildfire and non-wildfire insurance coverage in place for the period of August 1, 2019 through September 2, 2020 is approximately $212 million.
In July 2020, and through additional purchases in August 2020, the Utility renewed its liability insurance coverage for wildfire events in the amount of $867.5 million (subject to an initial self-insured retention of $60 million), comprised of $825 million for the period of August 1, 2020 to July 31, 2021 and $42.5 million in reinsurance for the period of July 1, 2020 through June 30, 2021. In addition, the Utility renewed its liability insurance coverage for non-wildfire events in the amount of $700 million (subject to an initial self-insured retention of $10 million) for the period from August 1, 2020 through July 31, 2021. PG&E Corporation’s and the Utility’s cost of obtaining this wildfire and non-wildfire coverage is approximately $859 million.
Various coverage limitations applicable to different insurance layers could result in material uninsured costs in the future depending on the amount and type of damages resulting from covered events.
The Utility’s 2020 GRC settlement agreement, currently pending before the Commission, includes a new two-way balancing account that, if approved, would allow the Utility to recover in rates its actual insurance premium costs for up to $1.4 billion in coverage. The Utility is unable to predict the timing and outcome of the 2020 GRC proceeding.
The Utility will not be able to obtain any recovery from the Wildfire Fund for wildfire-related losses in any calendar year that do not exceed the greater of $1.0 billion in the aggregate and the amount of insurance coverage required under AB 1054. (See “Wildfire Fund under AB 1054” below.)
Insurance Receivable
PG&E Corporation and the Utility record a receivable for insurance recoveries when it is deemed probable that recovery of a recorded loss will occur. Through September 30, 2020, PG&E Corporation and the Utility recorded $1.38 billion for probable insurance recoveries in connection with the 2018 Camp fire, $843 million for probable insurance recoveries in connection with the 2017 Northern California wildfires, and $430 million for probable insurance recoveries in connection with the 2019 Kincade fire. These amounts reflect an assumption that the cause of each fire is deemed to be a separate occurrence under the insurance policies. PG&E Corporation and the Utility intend to seek full recovery for all insured losses.
If PG&E Corporation and the Utility are unable to recover the full amount of their insurance, PG&E Corporation’s and the Utility’s financial condition, results of operations, liquidity, and cash flows could be materially affected.
The balances for insurance receivables with respect to wildfires are included in Other accounts receivable in PG&E Corporation’s and the Utility’s Condensed Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance Receivable (in millions)
|
2019 Kincade fire
|
|
2018 Camp fire
|
|
2017 Northern California wildfires
|
|
2015 Butte fire
|
|
Total
|
Balance at December 31, 2019
|
$
|
—
|
|
|
$
|
1,380
|
|
|
$
|
807
|
|
|
$
|
50
|
|
|
$
|
2,237
|
|
Accrued insurance recoveries
|
430
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
430
|
|
Reimbursements
|
—
|
|
|
(1,380)
|
|
|
(707)
|
|
|
—
|
|
|
(2,087)
|
|
Balance at September 30, 2020
|
$
|
430
|
|
|
$
|
—
|
|
|
$
|
100
|
|
|
$
|
50
|
|
|
$
|
580
|
|
In October 2020, the Utility received another $75 million and $50 million in insurance reimbursements related to the 2017 Northern California wildfires and the 2015 Butte fire, respectively.
Regulatory Recovery
On June 21, 2018, the CPUC issued a decision granting the Utility’s request to establish a WEMA to track specific incremental wildfire liability costs effective as of July 26, 2017. The decision does not grant the Utility rate recovery of any wildfire-related costs. Any such rate recovery would require CPUC authorization in a separate proceeding. The Utility may be unable to fully recover costs in excess of insurance, if at all. Rate recovery is uncertain; therefore, the Utility has not recorded a regulatory asset related to any wildfire claims costs. Even if such recovery is possible, it could take a number of years to resolve and a number of years to collect.
In addition, SB 901, signed into law on September 21, 2018, requires the CPUC to establish a CHT, directing the CPUC to limit certain disallowances in the aggregate, so that they do not exceed the maximum amount that the Utility can pay without harming ratepayers or materially impacting its ability to provide adequate and safe service. SB 901 also authorizes the CPUC to issue a financing order that permits recovery, through the issuance of recovery bonds (also referred to as “securitization”), of wildfire-related costs found to be just and reasonable by the CPUC and, only for the 2017 Northern California wildfires, any amounts in excess of the CHT.
On January 10, 2019, the CPUC adopted an OIR, which establishes a process to develop criteria and a methodology to inform determinations of the CHT in future applications under Section 451.2(a) of the Public Utilities Code for recovery of costs related to the 2017 Northern California wildfires.
On July 8, 2019, the CPUC issued a decision in the CHT proceeding. The decision adopts a methodology to determine the CHT based on (1) the maximum additional debt that a utility can take on and maintain a minimum investment grade credit rating; (2) excess cash available to the utility; (3) a potential regulatory adjustment of 20% of the CHT or 5% of the total disallowed wildfire liabilities; and (4) an adjustment to preserve for ratepayers any tax benefits associated with the CHT. The decision also requires a utility to include proposed ratepayer protection measures to mitigate harm to ratepayers as part of an application under Section 451.2(b).
Pursuant to SB 901 and the CPUC’s methodology adopted in the CHT OIR, on April 30, 2020, the Utility filed an application with the CPUC seeking authorization for a post-emergence transaction to securitize $7.5 billion of 2017 wildfire claims costs that is designed to not impact amounts billed to customers, with the proceeds used to pay or reimburse the Utility for the payment of wildfire claims costs associated with the 2017 Northern California wildfires. As a result of the proposed transaction, the Utility would retire $6.0 billion of Utility debt and accelerate a $700 million payment due to the Fire Victim Trust.
Failure to obtain a substantial or full recovery of costs related to wildfires could have a material effect on PG&E Corporation’s and the Utility’s financial condition, results of operations, liquidity and cash flows.
Wildfire-Related Derivative Litigation
Two purported derivative lawsuits alleging claims for breach of fiduciary duties and unjust enrichment were filed in the San Francisco County Superior Court on November 16, 2017 and November 20, 2017, respectively, naming as defendants certain current and former members of the Board of Directors and certain current and former officers of PG&E Corporation and the Utility. PG&E Corporation and the Utility are named as nominal defendants. These lawsuits were consolidated by the court on February 14, 2018 and are denominated In Re California North Bay Fire Derivative Litigation. On April 13, 2018, the plaintiffs filed a consolidated complaint. After the parties reached an agreement regarding a stay of the derivative proceeding pending resolution of the tort actions described above and any regulatory proceeding relating to the 2017 Northern California wildfires, on April 24, 2018, the court entered a stipulation and order to stay. The stay was subject to certain conditions regarding the plaintiffs’ access to discovery in other actions. On January 28, 2019, the plaintiffs filed a request to lift the stay for the purposes of amending their complaint to add allegations regarding the 2018 Camp fire. Prior to resolution of the plaintiffs’ request to lift the stay, this matter was automatically stayed by PG&E Corporation’s and the Utility’s commencement of bankruptcy proceedings, as discussed below.
On August 3, 2018, a third purported derivative lawsuit, entitled Oklahoma Firefighters Pension and Retirement System v. Chew, et al., was filed in the U.S. District Court for the Northern District of California, naming as defendants certain current and former members of the Board of Directors and certain current and former officers of PG&E Corporation and the Utility. PG&E Corporation is named as a nominal defendant. The lawsuit alleges claims for breach of fiduciary duties and unjust enrichment as well as a claim under Section 14(a) of the federal Securities Exchange Act of 1934 alleging that PG&E Corporation’s and the Utility’s 2017 proxy statement contained misrepresentations regarding the companies’ risk management and safety programs. On October 15, 2018, PG&E Corporation filed a motion to stay the litigation. Prior to the scheduled hearing on this motion, this matter was automatically stayed by PG&E Corporation’s and the Utility’s commencement of bankruptcy proceedings, as discussed below. A case management conference is currently set for November 19, 2020.
On October 23, 2018, a fourth purported derivative lawsuit, entitled City of Warren Police and Fire Retirement System v. Chew, et al., was filed in San Francisco County Superior Court, alleging claims for breach of fiduciary duty, corporate waste and unjust enrichment. It names as defendants certain current and former members of the Board of Directors and certain current and former officers of PG&E Corporation, and names PG&E Corporation as a nominal defendant. The plaintiff filed a request with the court seeking the voluntary dismissal of this matter without prejudice on January 18, 2019.
On November 21, 2018, a fifth purported derivative lawsuit, entitled Williams v. Earley, Jr., et al., was filed in federal court in San Francisco, alleging claims identical to those alleged in the Oklahoma Firefighters Pension and Retirement System v. Chew, et al. lawsuit listed above against certain current and former officers and directors, and naming PG&E Corporation and the Utility as nominal defendants. This lawsuit includes allegations related to the 2017 Northern California wildfires and the 2018 Camp fire. This action was stayed by stipulation of the parties and order of the court on December 21, 2018, subject to resolution of the pending securities class action. A case management conference is currently set for November 19, 2020.
On December 24, 2018, a sixth purported derivative lawsuit, entitled Bowlinger v. Chew, et al., was filed in San Francisco Superior Court, alleging claims for breach of fiduciary duty, abuse of control, corporate waste, and unjust enrichment in connection with the 2018 Camp fire against certain current and former officers and directors, and naming PG&E Corporation and the Utility as nominal defendants. On February 5, 2019, the plaintiff in Bowlinger filed a response to the notice asserting that the automatic stay did not apply to his claims. PG&E Corporation and the Utility accordingly filed a Motion to Enforce the Automatic Stay with the Bankruptcy Court as to the Bowlinger action, which was granted. A case management conference is currently set for November 6, 2020.
On January 25, 2019, a seventh purported derivative lawsuit, entitled Hagberg v. Chew, et al., was filed in San Francisco Superior Court, alleging claims for breach of fiduciary duty, abuse of control, corporate waste, and unjust enrichment in connection with the 2018 Camp fire against certain current and former officers and directors, and naming PG&E Corporation and the Utility as nominal defendants. A case management conference is currently set for January 6, 2021.
On January 28, 2019, an eighth purported derivative lawsuit, entitled Blackburn v. Meserve, et al., was filed in federal court alleging claims for breach of fiduciary duty, unjust enrichment, and waste of corporate assets in connection with the 2017 Northern California wildfires and the 2018 Camp fire against certain current and former officers and directors, and naming PG&E Corporation as a nominal defendant. A case management conference is currently set for November 19, 2020.
Due to the commencement of the Chapter 11 Cases, PG&E Corporation and the Utility filed notices in each of these proceedings on February 1, 2019, reflecting that the proceedings were automatically stayed through the Effective Date pursuant to section 362(a) of the Bankruptcy Code. PG&E Corporation’s and the Utility’s rights with respect to the derivative claims asserted against former officers and directors of PG&E Corporation and the Utility were assigned to the Fire Victim Trust under the TCC RSA. The assignment became effective as of the Effective Date.
The above purported derivative lawsuits were brought against the named defendants on behalf of PG&E Corporation and/or the Utility. As a result of the assignment of these derivative claims to the Fire Victim Trust, any recovery based on the derivative claims would be paid to the Fire Victim Trust. Any such recovery is limited to the extent of any director and officer insurance policy proceeds paid by any insurance carrier to reimburse PG&E Corporation and/or the Utility for amounts paid pursuant to their indemnification obligations in connection with such causes of action.
Securities Class Action Litigation
Wildfire-Related Class Action
In June 2018, two purported securities class actions were filed in the United States District Court for the Northern District of California, naming PG&E Corporation and certain of its current and former officers as defendants, entitled David C. Weston v. PG&E Corporation, et al. and Jon Paul Moretti v. PG&E Corporation, et al., respectively. The complaints alleged material misrepresentations and omissions related to, among other things, vegetation management and transmission line safety in various PG&E Corporation public disclosures. The complaints asserted claims under Section 10(b) and Section 20(a) of the federal Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and sought unspecified monetary relief, interest, attorneys’ fees and other costs. Both complaints identified a proposed class period of April 29, 2015 to June 8, 2018. On September 10, 2018, the court consolidated both cases and the litigation is now denominated In re PG&E Corporation Securities Litigation. The court also appointed the Public Employees Retirement Association of New Mexico (“PERA”) as lead plaintiff. The plaintiff filed a consolidated amended complaint on November 9, 2018. After the plaintiff requested leave to amend its complaint to add allegations regarding the 2018 Camp fire, the plaintiff filed a second amended consolidated complaint on December 14, 2018.
Due to the commencement of the Chapter 11 Cases, PG&E Corporation and the Utility filed a notice on February 1, 2019, reflecting that the proceedings were automatically stayed as to PG&E Corporation and the Utility pursuant to section 362(a) of the Bankruptcy Code. On February 15, 2019, PG&E Corporation and the Utility filed a complaint in Bankruptcy Court against the plaintiff seeking preliminary and permanent injunctive relief to extend the stay to the claims alleged against the individual officer defendants.
On February 22, 2019, a third purported securities class action was filed in the United States District Court for the Northern District of California, entitled York County on behalf of the York County Retirement Fund, et al. v. Rambo, et al. (the “York County Action”). The complaint names as defendants certain current and former officers and directors, as well as the underwriters of four public offerings of notes from 2016 to 2018. Neither PG&E Corporation nor the Utility is named as a defendant. The complaint alleges material misrepresentations and omissions in connection with the note offerings related to, among other things, PG&E Corporation’s and the Utility’s vegetation management and wildfire safety measures. The complaint asserts claims under Section 11 and Section 15 of the Securities Act, and seeks unspecified monetary relief, attorneys’ fees and other costs, and injunctive relief. On May 7, 2019, the York County Action was consolidated with In re PG&E Corporation Securities Litigation.
On May 28, 2019, the plaintiffs in the consolidated securities actions filed a third amended consolidated class action complaint, which includes the claims asserted in the previously filed actions and names as defendants PG&E Corporation, the Utility, certain current and former officers and directors, and the underwriters. On August 28, 2019, the Bankruptcy Court denied PG&E Corporation’s and the Utility’s request to extend the stay to the claims against the officer, director, and underwriter defendants. On October 4, 2019, the officer, director, and underwriter defendants filed motions to dismiss the third amended complaint, which motions are currently under submission with the District Court.
Satisfaction of HoldCo Rescission or Damage Claims and Subordinated Debt Claims
Claims against PG&E Corporation and the Utility relating to the three purported securities class actions (described above) that have been consolidated and denominated In re PG&E Corporation Securities Litigation, U.S. District Court for the Northern District of California, Case No. 18-035509, will be resolved pursuant to the Plan. As described above, these claims consist of pre-petition claims under the Federal securities laws related to, among other things, allegedly misleading statements or omissions with respect to vegetation management and wildfire safety disclosures, and are classified into two categories under the Plan, each of which is subject to subordination under the Bankruptcy Code. The first category of claims consists of pre-petition claims arising from or related to the common stock of PG&E Corporation (such claims, with certain other similar claims against PG&E Corporation, the “HoldCo Rescission or Damage Claims”). The second category of pre-petition claims consists of claims arising from debt securities issued by PG&E Corporation and the Utility (such claims, with certain other similar claims against PG&E Corporation and the Utility, the “Subordinated Debt Claims,” and together with the HoldCo Rescission or Damage Claims, the “Subordinated Claims”).
While PG&E Corporation and the Utility believe they have defenses to the Subordinated Claims, as well as insurance coverage that may be available in respect of the Subordinated Claims, these defenses may not prevail and any such insurance coverage may not be adequate to cover the full amount of the allowed claims. In that case, PG&E Corporation and the Utility will be required, pursuant to the Plan, to satisfy such claims as follows:
•each holder of an allowed HoldCo Rescission or Damage Claim will receive a number of shares of common stock of PG&E Corporation equal to such holder’s HoldCo Rescission or Damage Claim Share (as such term is defined in the Plan); and
•each holder of an allowed Subordinated Debt Claim will receive payment in full in cash.
PG&E Corporation and the Utility have been engaged in settlement efforts with respect to the Subordinated Claims. If the Subordinated Claims are not settled (with any such resolution being subject to the approval of the Bankruptcy Court), PG&E Corporation and the Utility expect that the Subordinated Claims will be resolved by the Bankruptcy Court in the claims reconciliation process and treated as described above under the Plan. Under the Plan, after the Effective Date, PG&E Corporation and the Utility have the authority to compromise, settle, object to, or otherwise resolve proofs of claim, and the Bankruptcy Court retains jurisdiction to hear disputes arising in connection with disputed claims. With respect to the Subordinated Claims, the claims reconciliation process may include litigation of the merits of such claims, including the filing of motions, fact discovery, and expert discovery. The total number and amount of allowed Subordinated Claims, if any, was not determined at the Effective Date. To the extent any such claims are allowed, the total amount of such claims could be material, and therefore could result in (a) the issuance of a material number of shares of common stock of PG&E Corporation with respect to allowed HoldCo Rescission or Damage Claims, and/or (b) the payment of a material amount of cash with respect to allowed Subordinated Debt Claims. There can be no assurance that such claims will not have a material adverse impact on PG&E Corporation’s and the Utility’s business, financial condition, results of operations, and cash flows.
Further, if shares are issued in respect of allowed HoldCo Rescission or Damage Claims, it may be determined that under the Plan, the Fire Victim Trust should receive additional shares of common stock of PG&E Corporation (assuming, for this purpose, that shares issued in respect of the HoldCo Rescission or Damage Claims were issued on the Effective Date).
The named plaintiffs in the consolidated securities actions filed proofs of claim with the Bankruptcy Court on or before the bar date that reflect their securities litigation claims against PG&E Corporation and the Utility. On December 9, 2019, the lead plaintiff in the consolidated securities actions filed a motion seeking approval from the Bankruptcy Court to treat its proof of claim as a class proof of claim. On February 27, 2020, the Bankruptcy Court issued an order denying the motion, but extending the bar date for putative class members to file proofs of claim until April 16, 2020. On March 6, 2020, the lead plaintiff filed a notice of appeal regarding the denial of its motion. On May 15, 2020, the lead plaintiff filed the opening brief for its appeal. On June 15, 2020, PG&E filed its brief in response. On June 29, 2020, the lead plaintiff filed its reply. No hearing date has been set.
On July 2, 2020, PERA filed a notice of appeal of the Confirmation Order to the District Court, solely to the extent of seeking review of that part of the Confirmation Order approving the Insurance Deduction (as defined in the Plan) with respect to the formula for the determination of the HoldCo Rescission or Damage Claims Share. On September 3, 2020, PERA filed its principal brief in support of the appeal. On October 5, 2020, PG&E Corporation and the Utility filed their response brief. PERA filed its reply brief on October 19, 2020.
On September 1, 2020, PG&E Corporation and the Utility filed a motion (the “Securities Claims Procedures Motion”) with the Bankruptcy Court to approve procedures to allow for the resolution of the outstanding and unresolved Subordinated Claims, which motion, among other things, requests approval of certain information request procedures, standard and abbreviate mediation processes, and procedures with respect to the potential filing of omnibus claim objections with respect to the Subordinated Claims. PERA and a number of other parties have filed objections to the Securities Claims Procedures Motion.
On September 28, 2020, PERA filed a second motion requesting the Bankruptcy Court exercise its discretion pursuant to Bankruptcy Rule 7023 to allow PERA to file a class proof of claim on behalf of the holders of Subordinated Claims (the “Renewed 7023 Motion”). The Bankruptcy Court set a briefing schedule that, among other things, (i) adjourned the hearing on the Securities Claims Procedures Motion to November 17, 2020, and (ii) established a briefing scheduled with respect to the Renewed 7023 Motion with a hearing on the motion also scheduled for November 17, 2020. PG&E Corporation’s and the Utility’s deadline to object to the Renewed 7023 Motion is October 29, 2020.
De-energization Class Action
On October 25, 2019, a purported securities class action was filed in the United States District Court for the Northern District of California, entitled Vataj v. Johnson et al. The complaint named as defendants a current director and certain current and former officers of PG&E Corporation. Neither PG&E Corporation nor the Utility was named as a defendant. The complaint alleged materially false and misleading statements regarding PG&E Corporation’s wildfire prevention and safety protocols and policies, including regarding the Utility’s public safety power shutoffs, that allegedly resulted in losses and damages to holders of PG&E Corporation’s securities. The complaint asserted claims under Section 10(b) and Section 20(a) of the federal Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and sought unspecified monetary relief, attorneys’ fees and other costs. On February 3, 2020, the District Court granted a stipulation appointing Iron Workers Local 580 Joint Funds, Ironworkers Locals 40,361 & 417 Union Security Funds and Robert Allustiarti co-lead plaintiffs and approving the selection of the plaintiffs’ counsel, and further ordered the parties to submit a proposed schedule by February 13, 2020. On February 20, 2020, the District Court issued a scheduling order that required the amended complaint to be filed by April 17, 2020.
On April 17, 2020, the plaintiffs filed an amended complaint asserting the same claims. The amended complaint added PG&E Corporation and a former officer of PG&E Corporation as defendants, and no longer asserts claims against the other two officers of PG&E Corporation previously named in the action.
On May 15, 2020 the officer defendants filed their motion to dismiss in Vataj. On June 19, 2020, the lead plaintiff filed its opposition to the motion to dismiss. On July 10, 2020 the officer defendants filed their reply. The motion is currently under submission with the District Court. As of October 28, 2020, PG&E Corporation had not yet been served with this complaint.
PG&E Corporation and the Utility currently believe it is probable that they will incur a loss in connection with this proceeding and accordingly recorded a charge during the three months ended September 30, 2020. PG&E Corporation and the Utility determined that the amount of the charge recorded in connection with such loss is not material and corresponds to the lower end of the range of PG&E Corporation’s and the Utility’s reasonably estimable range of losses. This amount is subject to change based on additional information.
PG&E Corporation and the Utility are unable to reasonably estimate the upper end of the range given the early stages of the consolidated securities actions and the de-energization class action, including but not limited to, the fact that the defendants’ motions to dismiss have not yet been decided and no discovery has occurred.
Indemnification Obligations
To the extent permitted by law, PG&E Corporation and the Utility have obligations to indemnify directors and officers for certain events or occurrences while a director or officer is or was serving in such capacity, which indemnification obligations extend to the claims asserted against the directors and officers in the securities class action. PG&E Corporation and the Utility maintain directors’ and officers’ insurance coverage to reduce their exposure to such indemnification obligations. PG&E Corporation and the Utility have provided notice to their insurance carriers of the claims asserted in the wildfire-related securities class actions and derivative litigation, and are in communication with the carriers regarding the applicability of the directors and officers insurance policies to those matters. PG&E Corporation and the Utility additionally have potential indemnification obligations to the underwriters for the Utility’s note offerings, pursuant to the underwriting agreements associated with those offerings. PG&E Corporation’s and the Utility’s indemnification obligations to the officers, directors and underwriters may be limited or affected by the Chapter 11 Cases.
District Attorneys’ Offices Investigations
Following the 2018 Camp fire, the Butte County District Attorney’s Office and the California Attorney General’s Office opened a criminal investigation of the 2018 Camp fire. PG&E Corporation and the Utility were informed by the Butte County District Attorney’s Office and the California Attorney General’s Office that a grand jury had been empaneled in Butte County.
On March 17, 2020, the Utility entered into the Plea Agreement and Settlement (the “Plea Agreement”) with the People of the State of California, by and through the Butte County District Attorney’s office (the “People” and the “Butte DA,” respectively) to resolve the criminal prosecution of the Utility in connection with the 2018 Camp fire. Subject to the terms and conditions of the Plea Agreement, the Utility agreed to plead guilty to 84 counts of involuntary manslaughter in violation of Penal Code section 192(b) and one count of unlawfully causing a fire in violation of Penal Code section 452, and to admit special allegations pursuant to Penal Code sections 452.1(a)(2), 452.1(a)(3) and 452.1(a)(4).
Per the Plea Agreement, the Utility was sentenced to pay the maximum total fine and penalty of approximately $3.5 million. The Utility also agreed to pay $500,000 to the Butte County District Attorney Environmental and Consumer Protection Fund to reimburse costs spent on the investigation of the 2018 Camp fire.
Simultaneous with entry into the Plea Agreement, the Utility has committed to spend up to $15 million over five years to provide water to Butte County residents impacted by damage to the Utility’s Miocene Canal caused by the 2018 Camp fire. In addition, the Utility has consented to the Butte DA consulting, sharing information with and receiving information from the Monitor overseeing the Utility’s probation related to the San Bruno explosion through the expiration of the Utility’s term of probation and in no event until later than January 31, 2022. This consent is subject to the approval of the federal court overseeing the Utility’s probation and the Monitor.
On June 16, 2020 through June 18, 2020, the Butte County Superior Court held proceedings at which the Utility pled guilty and was sentenced according to the terms of the Plea Agreement. On July 21, 2020, the Utility paid the $3.5 million fine and penalty to the Butte County Superior Court and $500,000 to the Butte County District Attorney Environmental and Consumer Protection Fund.
Cal Fire announced that it had determined that “the Kincade Fire was caused by electrical transmission lines owned and operated by Pacific Gas and Electric (PG&E) located northeast of Geyserville. Tinder dry vegetation and strong winds combined with low humidity and warm temperatures contributed to extreme rates of fire spread.” Cal Fire also indicated that its investigative report has been forwarded to the Sonoma County District Attorney’s Office, which is currently conducting an investigation of the fire. For more information see “2019 Kincade Fire” above.
The Shasta County District Attorney’s Office is investigating the 2020 Zogg fire. See “2020 Zogg Fire” above for further information.
Additional investigations and other actions may arise out of the 2019 Kincade fire or the 2020 Zogg fire. The timing and outcome for resolution of any such investigations are uncertain.
SEC Investigation
On March 20, 2019, PG&E Corporation learned that the SEC’s San Francisco Regional Office was conducting an investigation related to PG&E Corporation’s and the Utility’s public disclosures and accounting for losses associated with the 2018 Camp fire, the 2017 Northern California wildfires and the 2015 Butte fire. PG&E Corporation and the Utility are unable to predict the timing and outcome of the investigation.
Clean-up and Repair Costs
The Utility incurred costs of $62 million for clean-up and repair of the Utility’s facilities (including $18 million in capital expenditures) through September 30, 2020, in connection with the 2019 Kincade fire. The Utility is authorized to track and seek recovery of clean-up and repair costs through CEMA. (CEMA requests are subject to CPUC approval.) The Utility capitalizes and records as regulatory assets costs that are probable of recovery. At September 30, 2020, the CEMA regulatory asset balance related to the 2019 Kincade fire was zero. Additionally, the capital expenditures for clean-up and repair are included in property, plant and equipment at September 30, 2020.
Failure to obtain a substantial or full recovery of costs that are deemed probable of recovery could have a material effect on PG&E Corporation’s and the Utility’s financial condition, results of operations, liquidity, and cash flows.
Wildfire Fund under AB 1054
On July 12, 2019, the California governor signed into law AB 1054, a bill which provides for the establishment of a statewide fund that will be available for eligible electric utility companies to pay eligible claims for liabilities arising from wildfires occurring after July 12, 2019 that are caused by the applicable electric utility company’s equipment, subject to the terms and conditions of AB 1054. Eligible claims are claims for third party damages resulting from any such wildfires, limited to the portion of such claims that exceeds the greater of (i) $1.0 billion in the aggregate in any calendar year and (ii) the amount of insurance coverage required to be in place for the electric utility company pursuant to Section 3293 of the Public Utilities Code, added by AB 1054.
Electric utility companies that draw from the Wildfire Fund will only be required to repay amounts that are determined by the CPUC in an application for cost recovery not to be just and reasonable, subject to a rolling three-year disallowance cap equal to 20% of the electric utility company’s transmission and distribution equity rate base. For the Utility, this disallowance cap is expected to be approximately $2.4 billion for the three-year period starting in 2019, subject to adjustment based on changes in the Utility’s total transmission and distribution equity rate base. The disallowance cap is inapplicable in certain circumstances, including if the Wildfire Fund administrator determines that the electric utility company’s actions or inactions that resulted in the applicable wildfire constituted “conscious or willful disregard for the rights and safety of others,” or the electric utility company fails to maintain a valid safety certification. Costs that the CPUC determines to be just and reasonable will not need to be repaid to the Wildfire Fund, resulting in a draw-down of the Wildfire Fund.
On August 23, 2019, the CPUC approved the Utility’s Initial Safety Certification, which under AB 1054 entitles the Utility to certain benefits, including eligibility for a cap on wildfire fund reimbursement and for a reformed prudent manager standard. The Utility satisfied the required elements for its Initial Safety Certificate, as follows: (i) the electrical corporation has an approved wildfire mitigation plan, (ii) the electrical corporation is in good standing, which can be satisfied by the electrical corporation having agreed to implement the findings of its most recent safety culture assessment, if applicable, (iii) the electrical corporation has established a safety committee of its board of directors composed of members with relevant safety experience, and (iv) the electrical corporation has established board-of-director-level reporting to the CPUC on safety issues. The Initial Safety Certification is valid for 12 months. Before the expiration of any current safety certification, the Utility must request a new safety certification for the following 12 months, which shall be issued within 90 days if the Utility has provided documentation that it has satisfied the requirements for the safety certification pursuant to Section 8389(e) of the Public Utilities Code, added by AB 1054. The existing safety certification remains valid until a timely request for a new safety certification is acted upon. On July 29, 2020, the Utility submitted its application for a new safety certification.
The Wildfire Fund and disallowance cap will be terminated when the amounts therein are exhausted. The Wildfire Fund is expected to be capitalized with (i) $10.5 billion of proceeds of bonds supported by a 15-year extension of the Department of Water Resources charge to ratepayers, (ii) $7.5 billion in initial contributions from California’s three investor-owned electric utility companies and (iii) $300 million in annual contributions paid by California’s three investor-owned electric utility companies for at least a 10 year period. The contributions from the investor-owned electric utility companies will be effectively borne by their respective shareholders, as they will not be permitted to recover these costs from ratepayers. The costs of the initial and annual contributions are allocated among the three investor-owned electric utility companies pursuant to a “Wildfire Fund allocation metric” set forth in AB 1054 based on land area in the applicable utility’s service territory classified as high fire threat districts and adjusted to account for risk mitigation efforts. The Utility’s Wildfire Fund allocation metric is 64.2% (representing an initial contribution of approximately $4.8 billion and annual contributions of approximately $193 million). The Wildfire Fund will only be available for payment of eligible claims so long as there are sufficient funds remaining in the Wildfire Fund. Such funds could be depleted more quickly than expected, including as a result of claims made by California’s other participating electric utility companies.
AB 1054 also provides that the first $5.0 billion expended in the aggregate by California’s three investor-owned electric utility companies on fire risk mitigation capital expenditures included in their respective approved WMPs will be excluded from their respective equity rate bases. The $5.0 billion of capital expenditures will be allocated among the investor-owned electric utility companies in accordance with their Wildfire Fund allocation metrics (described above). The Utility’s allocation is $3.21 billion. AB 1054 contemplates that such capital expenditures may be securitized through a customer charge.
On July 23, 2019, the Utility notified the CPUC of its intent to participate in the Wildfire Fund. On August 7, 2019, PG&E Corporation and the Utility submitted a motion with the Bankruptcy Court for the entry of an order authorizing PG&E Corporation and the Utility to participate in the Wildfire Fund and to make any initial and annual contributions to the Wildfire Fund upon emergence from Chapter 11. On August 26, 2019, the Bankruptcy Court entered an order granting such authorizations. In order to participate in the Wildfire Fund, the Utility also was required to meet the eligibility and other requirements set forth in AB 1054, and to pay its share of the initial contribution to the Wildfire Fund upon emergence from Chapter 11.
On the Effective Date, having satisfied the conditions for the Utility’s participation in the Wildfire Fund, PG&E Corporation and the Utility contributed, in accordance with AB 1054, an initial contribution of approximately $4.8 billion and first annual contribution of approximately $193 million to the Wildfire Fund to secure participation of the Utility therein. SDG&E and Edison made their initial contributions to the Wildfire Fund in September 2019.
As of the Effective Date, the Wildfire Fund is available to the Utility to pay for eligible claims arising on or after the effective date of AB 1054, July 12, 2019, subject to a limit of 40% of the amount of allowed claims arising between the effective date of AB 1054 and the Effective Date of the Plan.
For additional information on the Wildfire Fund, see Note 3 above.
NOTE 11: OTHER CONTINGENCIES AND COMMITMENTS
PG&E Corporation and the Utility have significant contingencies arising from their operations, including contingencies related to enforcement and litigation matters and environmental remediation. A provision for a loss contingency is recorded when it is both probable that a loss has been incurred and the amount of the loss can be reasonably estimated. PG&E Corporation and the Utility evaluate the range of reasonably estimated losses and record a provision based on the lower end of the range, unless an amount within the range is a better estimate than any other amount. The assessment of whether a loss is probable or reasonably possible, and whether the loss or a range of loss is estimable, often involves a series of complex judgments about future events. Loss contingencies are reviewed quarterly and estimates are adjusted to reflect the impact of all known information, such as negotiations, discovery, settlements and payments, rulings, penalties related to regulatory compliance, advice of legal counsel, and other information and events pertaining to a particular matter. PG&E Corporation’s and the Utility’s policy is to exclude anticipated legal costs from the provision for loss and expense these costs as incurred.
The Utility also has substantial financial commitments in connection with agreements entered into to support its operating activities. See “Purchase Commitments” below.
PG&E Corporation’s and the Utility’s financial condition, results of operations, liquidity and cash flows may be materially affected by the outcome of the following matters.
Enforcement Matters
U.S. District Court Matters and Probation
In connection with the Utility’s probation proceeding, the United States District Court for the Northern District of California has the ability to impose additional probation conditions on the Utility. Additional conditions, if implemented, could be wide-ranging and would impact the Utility’s operations, number of employees, costs and financial performance. Depending on the terms of these additional requirements, costs in connections with such requirements could have a material effect on PG&E Corporation’s and the Utility’s financial condition, results of operations, liquidity, and cash flows.
CPUC and FERC Matters
Order Instituting Investigation into the 2017 Northern California Wildfires and the 2018 Camp Fire
On June 27, 2019, the CPUC issued the Wildfires OII to determine whether the Utility “violated any provision(s) of the California Public Utilities Code (PU Code), Commission General Orders (GO) or decisions, or other applicable rules or requirements pertaining to the maintenance and operation of its electric facilities that were involved in igniting fires in its service territory in 2017.” On December 5, 2019, the assigned commissioner issued a second amended scoping memo and ruling that amended the scope of issues to be considered in this proceeding to include the 2018 Camp fire.
As previously disclosed, on December 17, 2019, the Utility, the SED of the CPUC, the CPUC’s Office of the Safety Advocate, and CUE jointly submitted to the CPUC a proposed settlement agreement in connection with this proceeding and jointly moved for its approval.
Pursuant to the settlement agreement, the Utility agreed to (i) not seek rate recovery of wildfire-related expenses and capital expenditures in future applications in the amount of $1.625 billion, as specified below, and (ii) incur costs of $50 million in shareholder-funded system enhancement initiatives as described further in the settlement agreement. The settlement agreement stipulates that no violations have been identified in the Tubbs fire. As a result of this finding, the settlement agreement does not prevent the Utility from seeking recovery of costs associated with the Tubbs fire through rates. The amounts set forth in the table below include actual recorded costs and forecasted cost estimates as of the date of the settlement agreement for expenses and capital expenditures which the Utility has incurred or planned to incur to comply with its legal obligations to provide safe and reliable service. While actual costs incurred for certain cost categories are different than what was assumed in the settlement agreement, the Utility has recorded $1.621 billion of the disallowed costs through September 30, 2020 and plans to incur the remaining $4 million in the fourth quarter of 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
Description(1)
|
Expense
|
|
Capital
|
|
Total
|
Distribution Safety Inspections and Repairs Expense (FRMMA/WMPMA)(2)
|
$
|
236
|
|
|
$
|
—
|
|
|
$
|
236
|
|
Transmission Safety Inspections and Repairs Expense (TO)(3)
|
433
|
|
|
—
|
|
|
433
|
|
Vegetation Management Support Costs (FHPMA)
|
36
|
|
|
—
|
|
|
36
|
|
2017 Northern California Wildfires CEMA Expense and Capital (CEMA)
|
82
|
|
|
66
|
|
|
148
|
|
2018 Camp Fire CEMA Expense (CEMA)
|
435
|
|
|
—
|
|
|
435
|
|
2018 Camp Fire CEMA Capital for Restoration (CEMA)
|
—
|
|
|
253
|
|
|
253
|
|
2018 Camp Fire CEMA Capital for Temporary Facilities (CEMA)(4)
|
—
|
|
|
84
|
|
|
84
|
|
Total
|
$
|
1,222
|
|
|
$
|
403
|
|
|
$
|
1,625
|
|
|
|
|
|
|
|
(1) Unless indicated otherwise, all amounts included in the table reflect actual recorded costs for 2019.
(2) Includes $29 million forecasted for 2020.
(3) Transmission amounts are under the FERC’s regulatory authority.
(4) Includes $59 million forecasted for 2020.
PG&E Corporation and the Utility record a charge when it is both probable that costs incurred or projected to be incurred for recently completed plant will not be recoverable through rates charged to customers and the amount of disallowance can be reasonably estimated.
The Utility expects that the system enhancement spending pursuant to the settlement agreement will occur through 2025.
On April 20, 2020, the assigned commissioner issued a Decision Different adopting, with changes, the proposed modifications set forth in the request for review. The Decision Different (i) increases the amount of disallowed wildfire expenditures by $198 million (as set forth in the POD); (ii) increases the amount of shareholder funding for System Enhancement Initiatives by $64 million (as set forth in the POD); (iii) imposes a $200 million fine but permanently suspends payment of the fine; and (iii) limits the tax savings that must be returned to ratepayers to those savings generated by disallowed operating expenditures. The Decision Different also denies all pending appeals of the POD and denies, in part, the Utility’s motion requesting other relief. On April 30, 2020, the Utility submitted its comments on the Decision Different to the CPUC, accepting the modifications. The CPUC approved the Decision Different on May 7, 2020.
The settlement agreement, as modified by the Decision Different, became effective upon: (i) approval by the CPUC in the Decision Different, (ii) following such approval by the CPUC, the June 20, 2020 approval of the Bankruptcy Court, and (iii) the July 1, 2020 effectiveness of the Plan.
As it relates to the additional $198 million in disallowed costs as adopted in the Decision Different, the Utility has recorded charges of $80 million as of September 30, 2020 and intend to record the remaining charges of $118 million in fourth quarter of 2020 and 2021.
On June 8, 2020, two parties filed separate Applications for Rehearing, the purpose of which was to challenge the CPUC’s approval of the settlement agreement, as modified. On June 23, 2020, the Utility and CUE filed a joint response opposing the Applications for Rehearing. The Utility is unable to predict the timing and outcome of the CPUC’s rulings on the Applications for Rehearing.
Transmission Owner Rate Case Revenue Subject to Refund
The FERC determines the amount of authorized revenue requirements, including the rate of return on electric transmission assets, that the Utility may collect in rates in the TO rate case. The FERC typically authorizes the Utility to charge new rates based on the requested revenue requirement, subject to refund, before the FERC has issued a final decision. The Utility bills and records revenue based on the amounts requested in its rate case filing and records a reserve for its estimate of the amounts that are probable of refund. Rates subject to refund went into effect on March 1, 2017, and March 1, 2018, for TO18 and TO19, respectively. Rates subject to refund for TO20 went into effect on May 1, 2019.
On October 1, 2018, the ALJ issued an initial decision in the TO18 rate case and the Utility filed initial briefs on October 31, 2018, in response to the ALJ’s recommendations. On October 15, 2020, FERC issued an order that affirmed in part and reversed in part the initial decision. The order reopens the record for the limited purpose of allowing the participants to this proceeding an opportunity to present written evidence concerning FERC’s revised ROE methodology adopted in FERC Opinion No. 569-A, issued on May 21, 2020, that refined the methodology it established in Opinion No. 569 for setting the ROE that electric utilities are authorized to earn on electric transmission investments. In addition, the order approves depreciation rates that yield an estimated composite depreciation rate of 2.94% compared to the Utility’s request of 3.25%. Further, the decision reduces forecasted capital, operations and maintenance, and cost of debt expense to actual costs incurred for the rate case period. Finally, the order upheld the initial decision’s rejection of the Utility’s direct assignment of common plant to FERC and required the allocation of all common plant between CPUC and FERC jurisdiction be based on operating and maintenance labor ratios. Application of the operating and maintenance labor rates would result in an allocation of 6.15% of common plant to FERC in comparison to 8.84% under the Utility’s direct assignment method.
On September 21, 2018, the Utility filed an all-party settlement with the FERC, which was approved by FERC on December 20, 2018, in connection with TO19. As part of the settlement, the TO19 revenue requirement will be set at 98.85% of the revenue requirement for TO18 that will be determined upon issuance of a final unappealable decision in TO18.
On November 30, 2018, the FERC issued an order accepting the Utility’s October 2018 filing of its TO20 formula rate case, subject to hearings and refund, and established May 1, 2019, as the Effective Date for rate changes. The FERC also ordered that the hearings will be held in abeyance pending settlement discussions among the parties. On March 31, 2020, the Utility filed a partial settlement of TO20 resolving certain issues related to the formula rate but leaving several issues including return on equity, capital structure, and depreciation rates for further settlement discussions or hearing. FERC approved the Partial Settlement on August 17, 2020. On October 15, 2020, the Utility filed a settlement with FERC resolving all of the remaining issues in the Formula Rate Proceedings, including the Utility’s ROE, capital structure, depreciation rates, as well as certain other aspects of the Utility’s formula rate. The term of the settlement continues until December 31, 2023 and the Utility will be required to file a replacement rate filing to be effective on January 1, 2024. The settlement also required the Utility to concurrently file a motion for interim rates requesting that the settlement rates go into effect on January 1, 2021, while approval of the settlement is pending at FERC. The settlement also provides that the Utility will make supplemental filings in two FERC dockets addressing the calculation of the AFUDC, effective May 1, 2019, to reflect the terms of the settlement. The two AFUDC dockets have not been consolidated with the Formula Rate Proceedings but include capital structure issues addressed by the settlement.
The Utility is unable to predict the timing or outcome of FERC’s decisions in the TO18 and TO19 proceedings.
Other Matters
PG&E Corporation and the Utility are subject to various claims and lawsuits that separately are not considered material. Accruals for contingencies related to such matters (excluding amounts related to the contingencies discussed above under “Enforcement and Litigation Matters”) totaled $167 million and $116 million at September 30, 2020 and December 31, 2019, respectively. These amounts were included in LSTC at December 31, 2019 and were included in Other current liabilities at September 30, 2020. PG&E Corporation and the Utility do not believe it is reasonably possible that the resolution of these matters will have a material impact on their financial condition, results of operations, or cash flows.
PSPS Class Action
On December 19, 2019, a complaint was filed in the United States Bankruptcy Court for the Northern District of California naming PG&E Corporation and the Utility. The plaintiff seeks certification of a class consisting of all California residents and business owners who had their power shut off by the Utility during the October 9, October 23, October 26, October 28, or November 20, 2019 power outages and any subsequent voluntary outages occurring during the course of litigation. The plaintiff alleges that the necessity for the October and November 2019 power shutoff events was caused by the Utility’s negligence in failing to properly maintain its electrical lines and surrounding vegetation. The complaint seeks up to $2.5 billion in special and general damages, punitive and exemplary damages and injunctive relief to require the Utility to properly maintain and inspect its power grid. PG&E Corporation and the Utility believe the allegations are without merit and intend to defend this lawsuit vigorously.
On January 21, 2020, PG&E Corporation and the Utility filed a motion to dismiss the complaint or in the alternative strike the class action allegations. The motion to dismiss and strike was heard by the Bankruptcy Court on March 10, 2020, and on April 3, 2020, the Bankruptcy Court entered an order dismissing the action without leave to amend, finding that the action was preempted under the California Public Utilities Code.
On March 30, 2020, the Bankruptcy Court issued an opinion granting the Utility's motion to dismiss this class action. The court held that plaintiff’s class action claims are preempted as a matter of law by section 1759 of the California Public Utilities Code and thus plaintiffs could not pursue civil damages. The court stated that “any claim for damages caused by PSPS events approved by the CPUC, even if based on pre-existing events that may or may not have contributed to the necessity of the PSPS events, would interfere with the CPUC’s policy-making decisions.”
On April 6, 2020, plaintiff filed a notice of appeal of the Bankruptcy Court decision dismissing the complaint. Plaintiff has elected to have the appeal heard by the District Court, rather than the Bankruptcy Appellate Panel. Plaintiff filed a designation of the record and statement of the issues on April 20, 2020, and the Utility had until May 4, 2020, 14 days thereafter, to file a designation of any additional items.
On June 8, 2020, plaintiff filed its opening brief. The Utility filed its opposition brief on July 6, 2020. Plaintiff’s reply brief was filed on August 4, 2020 with a request for oral argument. The court has not yet ruled on plaintiff’s request for oral argument.
The Utility is unable to determine the timing and outcome of this proceeding.
GT&S Capital Expenditures 2011-2014
On June 23, 2016, the CPUC approved a final phase one decision in the Utility’s 2015 GT&S rate case. The phase one decision excluded from rate base $696 million of capital spending in 2011 through 2014 in excess of the amount adopted in the prior GT&S rate case. The decision permanently disallowed $120 million of that amount and ordered that the remaining $576 million be subject to a review of reasonableness to be conducted, or overseen, by the CPUC staff. The review was completed on June 1, 2020 and did not result in any additional disallowances. The report certified $512 million for future recovery. The difference between the certified amount and the $576 million previously disallowed is primarily a result of differences between capital expenditures forecasted in the 2015 GT&S rate case and recorded capital expenditures.
On July 31, 2020, the Utility filed an application seeking recovery of revenue requirements on the $512 million of capital expenditures retroactive to January 1, 2015. On October 16, 2020, the assigned commissioner issued a scoping memo establishing the scope and schedule for the proceeding. The scoping memo requires the Utility to provide supplemental testimony on January 20, 2021 addressing the reasonableness of the capital expenditures. The scoping memo calls for the issuance of a proposed decision in the fourth quarter of 2021.
The Utility is unable to determine the timing and outcome of this upcoming proceeding.
Environmental Remediation Contingencies
The Utility’s environmental remediation liability is primarily included in non-current liabilities on the Condensed Consolidated Balance Sheets and is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
(in millions)
|
September 30, 2020
|
|
December 31, 2019
|
Topock natural gas compressor station
|
$
|
323
|
|
|
$
|
362
|
|
Hinkley natural gas compressor station
|
133
|
|
|
138
|
|
Former manufactured gas plant sites owned by the Utility or third parties (1)
|
670
|
|
|
568
|
|
Utility-owned generation facilities (other than fossil fuel-fired),
other facilities, and third-party disposal sites (2)
|
99
|
|
|
101
|
|
Fossil fuel-fired generation facilities and sites (3)
|
100
|
|
|
106
|
|
Total environmental remediation liability
|
$
|
1,325
|
|
|
$
|
1,275
|
|
|
|
|
|
(1) Primarily driven by the following sites: San Francisco Beach Street, Vallejo, and San Francisco East Harbor.
(2) Primarily driven by Geothermal landfill and Shell Pond site.
(3) Primarily driven by the San Francisco Potrero Power Plant.
The Utility’s gas compressor stations, former manufactured gas plant sites, power plant sites, gas gathering sites, and sites used by the Utility for the storage, recycling, and disposal of potentially hazardous substances are subject to requirements issued by the Environmental Protection Agency under the Federal Resource Conservation and Recovery Act in addition to other state hazardous waste laws. The Utility has a comprehensive program in place designed to comply with federal, state, and local laws and regulations related to hazardous materials, waste, remediation activities, and other environmental requirements. The Utility assesses and monitors the environmental requirements on an ongoing basis and implements changes to its program as deemed appropriate. The Utility’s remediation activities are overseen by the DTSC, several California regional water quality control boards, and various other federal, state, and local agencies.
The Utility’s environmental remediation liability at September 30, 2020, reflects its best estimate of probable future costs for remediation based on the current assessment data and regulatory obligations. Future costs will depend on many factors, including the extent of work necessary to implement final remediation plans, the Utility’s time frame for remediation, and unanticipated claims filed against the Utility. The Utility may incur actual costs in the future that are materially different than this estimate and such costs could have a material impact on results of operations, financial condition, and cash flows during the period in which they are recorded. At September 30, 2020, the Utility expected to recover $1,003 million of its environmental remediation liability for certain sites through various ratemaking mechanisms authorized by the CPUC.
For more information, see remediation site descriptions below and see Note 15 of the Notes to the Consolidated Financial Statements in Item 8 of the 2019 Form 10-K.
Natural Gas Compressor Station Sites
The Utility is legally responsible for remediating groundwater contamination caused by hexavalent chromium used in the past at the Utility’s natural gas compressor stations. The Utility is also required to take measures to abate the effects of the contamination on the environment.
Topock Site
The Utility’s remediation and abatement efforts at the Topock site are subject to the regulatory authority of the California DTSC and the U.S. Department of the Interior. On April 24, 2018, the DTSC authorized the Utility to build an in-situ groundwater treatment system to convert hexavalent chromium into a non-toxic and non-soluble form of chromium. Construction activities began in October 2018 and will continue for several years. The Utility’s undiscounted future costs associated with the Topock site may increase by as much as $221 million if the extent of contamination or necessary remediation is greater than anticipated. The costs associated with environmental remediation at the Topock site are expected to be recovered primarily through the HSM, where 90% of the costs are recovered in rates.
Hinkley Site
The Utility has been implementing remediation measures at the Hinkley site to reduce the mass of the chromium plume in groundwater and to monitor and control movement of the plume. The Utility’s remediation and abatement efforts at the Hinkley site are subject to the regulatory authority of the California Regional Water Quality Control Board, Lahontan Region. In November 2015, the California Regional Water Quality Control Board, Lahontan Region adopted a clean-up and abatement order directing the Utility to contain and remediate the underground plume of hexavalent chromium and the potential environmental impacts. The final order states that the Utility must continue and improve its remediation efforts, define the boundaries of the chromium plume, and take other action. Additionally, the final order sets plume capture requirements, requires a monitoring and reporting program, and includes deadlines for the Utility to meet interim cleanup targets. The United States Geological Survey team is currently conducting a background study on the site to better define the chromium plume boundaries. A draft background report was received in January 2020 and is expected to be finalized in 2021. The Utility’s undiscounted future costs associated with the Hinkley site may increase by as much as $137 million if the extent of contamination or necessary remediation is greater than anticipated. The costs associated with environmental remediation at the Hinkley site will not be recovered through rates.
Former Manufactured Gas Plants
Former MGPs used coal and oil to produce gas for use by the Utility’s customers before natural gas became available. The by-products and residues of this process were often disposed of at the MGPs themselves. The Utility has a program to manage the residues left behind as a result of the manufacturing process; many of the sites in the program have been addressed. The Utility’s undiscounted future costs associated with MGP sites may increase by as much as $492 million if the extent of contamination or necessary remediation at currently identified MGP sites is greater than anticipated. The costs associated with environmental remediation at the MGP sites are recovered through the HSM, where 90% of the costs are recovered in rates.
Utility-Owned Generation Facilities and Third-Party Disposal Sites
Utility-owned generation facilities and third-party disposal sites often involve long-term remediation. The Utility’s undiscounted future costs associated with Utility-owned generation facilities and third-party disposal sites may increase by as much as $64 million if the extent of contamination or necessary remediation is greater than anticipated. The environmental remediation costs associated with the Utility-owned generation facilities and third-party disposal sites are recovered through the HSM, where 90% of the costs are recovered in rates.
Fossil Fuel-Fired Generation Sites
In 1998, the Utility divested its generation power plant business as part of generation deregulation. Although the Utility sold its fossil-fueled power plants, the Utility retained the environmental remediation liability associated with each site. The Utility’s undiscounted future costs associated with fossil fuel-fired generation sites may increase by as much as $40 million if the extent of contamination or necessary remediation is greater than anticipated. The environmental remediation costs associated with the fossil fuel-fired sites will not be recovered through rates.
Nuclear Insurance
The Utility maintains multiple insurance policies through NEIL and European Mutual Association for Nuclear Insurance, covering nuclear or non-nuclear events at the Utility’s two nuclear generating units at Diablo Canyon and the retired Humboldt Bay Unit 3. If NEIL losses in any policy year exceed accumulated funds, the Utility could be subject to a retrospective assessment. If NEIL were to exercise this assessment, the maximum aggregate annual retrospective premium obligation for the Utility would be approximately $43 million. If European Mutual Association for Nuclear Insurance losses in any policy year exceed accumulated funds, the Utility could be subject to a retrospective assessment of approximately $4 million. For more information about the Utility’s nuclear insurance coverage, see Note 15 of the Notes to the Consolidated Financial Statements in Item 8 of the 2019 Form 10-K.
Tax Matters
PG&E Corporation’s and the Utility’s unrecognized tax benefits may change significantly within the next 12 months due to the resolution of audits. As of September 30, 2020, it is reasonably possible that unrecognized tax benefits will decrease by approximately $30 million within the next 12 months.
As of the date of this report, PG&E Corporation did not believe that it had undergone an ownership change, and consequently, its net operating loss carryforwards and other tax attributes are not limited by Section 382 of the Internal Revenue Code.
In March 2020, Congress passed, and the President signed into law the Coronavirus Aid, Relief and Economic Security (“CARES”) Act. Under the CARES Act, PG&E Corporation and the Utility expect to be able to defer the payment of 2020 payroll taxes for the remainder of the year to 2021 and 2022.
During June 2020, the State of California enacted AB 85, which increases taxes on corporations over a three-year period beginning in 2020 by suspension of the net operating loss deduction and a limit of $5 million per year on business tax credits. PG&E Corporation and the Utility do not anticipate any material impacts to PG&E Corporation’s Condensed Consolidated Financial Statements due to this legislation.
See “Ownership Restrictions in PG&E Corporation’s Amended Articles” in Note 6 for information on the possible election to treat the Fire Victim Trust as a “grantor trust” for federal income tax purposes.
Purchase Commitments
In the ordinary course of business, the Utility enters into various agreements to purchase power and electric capacity; natural gas supply, transportation, and storage; nuclear fuel supply and services; and various other commitments. At December 31, 2019, the Utility had undiscounted future expected obligations of approximately $38 billion. (See Note 15 of the Notes to the Consolidated Financial Statements in Item 8 of the 2019 Form 10-K.)
Oakland Headquarters Lease
On June 5, 2020, the Utility entered into an Agreement to Enter Into Lease and Purchase Option (the “Agreement”) with TMG Bay Area Investments II, LLC (“TMG”). The Agreement provides that, contingent on (i) entry of an order by the Bankruptcy Court authorizing the Utility to enter into the Agreement and the Lease Agreement (as defined below), subject to certain conditions, and (ii) acquisition of the Building (as defined below) by BA2 300 Lakeside LLC (“Landlord”), a wholly owned subsidiary of TMG, the Utility and Landlord will enter into an office lease agreement (the “Lease Agreement”) for approximately 910,000 rentable square feet of space within the building located at 300 Lakeside Drive, Oakland, California 94612 (the “Building”) to serve as the Utility’s principal administrative headquarters (the “Lease”). On June 9, 2020, PG&E Corporation and the Utility filed a motion with the Bankruptcy Court authorizing them to enter into the Agreement and grant related relief. The Bankruptcy Court entered an order approving the motion on June 24, 2020.
The term of the Lease will begin on or about January 1, 2022. The Lease term will expire 34 years and 11 months after the commencement date, unless earlier terminated in accordance with the terms of the Lease. In addition to base rent, the Utility will be responsible for certain costs and charges specified in the Lease, including insurance costs, maintenance costs and taxes.
The Lease will require the Landlord to pursue approvals to subdivide the real estate it owns surrounding the Building to create a separate legal parcel that contains the Building (the “Property”) that can be sold to the Utility. The Lease will grant to the Utility an option to purchase the Property, following such subdivision, at a price of $892 million, subject to certain adjustments (the “Purchase Price”). The Purchase Price would not be paid until 2023.
Pursuant to the terms of the Agreement, concurrent with the Landlord’s acquisition of the building, on October 23, 2020, the Utility and the Landlord entered into the Lease, and the Utility issued to Landlord (i) an option payment letter of credit in the amount of $75 million on or before the Lease Date (as defined in the Agreement and the Lease Agreement), and (ii) and a lease security letter of credit in the amount of $75 million.
In connection with entry into the Agreement, the Utility intends to sell its current office space generally located at 77 Beale Street, 215 Market Street, 245 Market Street and 50 Main Street, San Francisco, California 94105, and associated properties owned by the Utility (“SFGO”). Any sale of the SFGO would be subject to approval by the CPUC. On September 30, 2020, the Utility filed an application with the CPUC seeking authorization to sell the SFGO.
At September 30, 2020, the Agreement had no impact on PG&E Corporation’s and the Utility’s Condensed Consolidated Financial Statements.