Item 8.01 Other Events.
2022 Cost of Capital Proceeding
On August 23, 2021, Pacific Gas and Electric Company (the “Utility”), a subsidiary of PG&E Corporation, filed an application with the California
Public Utilities Commission (the “CPUC”), requesting that the CPUC authorize the Utility's cost of capital for its electric generation, electric distribution, natural gas distribution, and natural gas transmission and storage rate base beginning on
January 1, 2022 (the “2022 cost of capital application”).
In its 2022 cost of capital application, the Utility requested that the CPUC approve the Utility’s proposed ratemaking capital structure (i.e., the
relative weightings of common equity, preferred equity, and debt for ratemaking), return on equity, cost of preferred stock, and cost of debt. The Utility proposed to adopt a rate of return on equity of 11% for 2022 and to retain the existing
capital structure, which would result in a $201.3 million total increase above currently adopted in its electric generation, electric distribution, natural gas distribution, and natural gas transmission and storage revenue requirements. The
estimated revenue increase is based on the 2022 adopted electric generation, electric distribution, natural gas distribution, and natural gas transmission and storage rate base and does not reflect projected infrastructure investments beyond 2022.
The Utility also requested an increase of 159 basis points above the three-month commercial paper rate for interest on the balancing and memorandum accounts specified in the application, which would result in an estimated $58.7 million increase in
recovery of short-term financing costs based on recent balancing account net under-collections. The actual revenue requirement impact of the short-term financing cost proposal will differ depending on the recorded balances in the balancing and
memorandum accounts in 2022.
As an alternative to its proposal to adopt a new cost of capital for 2022, the Utility requested a suspension of the cost of capital mechanism formula adjustment
mechanism in 2021 that, absent the filing of the 2022 cost of capital application, is expected to adjust the cost of capital effective January 1, 2022. If the alternative proposal is granted, the Utility would maintain its current authorized
rate of return on equity, would adjust its cost of long-term debt (using the methodology specified in the formula adjustment mechanism), and would file a regularly scheduled cost of capital application in April 2022 for the cost of capital
beginning on January 1, 2023.
The 2022 cost of capital application was filed off cycle based on the extraordinary event of the COVID-19 pandemic and related government response, which has decreased
interest rates but has not reduced the cost of capital for electric utilities in general and the Utility in particular to the same extent as the overall financial markets. The application explains that the filing of an off-cycle cost of capital
application suspends the operation of the cost of capital formula adjustment mechanism.
The following table compares the currently authorized capital structure and rates of return which will remain in effect through 2021 with those
requested in the Utility’s application for 2022:
For 2022, the Utility expects that the proposed cost of capital, if adopted, would result in revenue requirement increases of approximately $121.9
million for electric generation and distribution and $47.8 million for gas distribution operations, assuming 2022 authorized rate base amounts from the 2020 General Rate Case (“GRC”) decision. The revenues for the gas transmission and storage
operations would increase by approximately $31.6 million, assuming 2022 authorized rate base amounts from the 2019 Gas Transmission and Storage Rate Case decision. However, if the CPUC subsequently approves different electric and gas rate base
amounts for the Utility in its 2023 GRC, which is currently pending before the CPUC, the revenue requirement changes resulting from the Utility’s requested return on equity may differ from the amounts reflected in this cost of capital application for
the period beyond 2022.
The Utility is unable to predict the timing and outcome of this proceeding.
For more information about the Utility’s cost of capital, see PG&E Corporation and the Utility’s joint Annual Report on Form 10-K for the year ended
December 31, 2020.
Cautionary Statement Concerning Forward-Looking Statements
This current report on Form 8-K contains forward-looking statements that are not historical facts, including statements about the beliefs, expectations,
estimates, future plans and strategies of PG&E Corporation and the Utility, including but not limited to the 2022 cost of capital application and the formula adjustment mechanism under the 2020 cost of capital application. These statements are
based on current expectations and assumptions, which management believes are reasonable, and on information currently available to management, but are necessarily subject to various risks and uncertainties. In addition to the risk that these
assumptions prove to be inaccurate, factors that could cause actual results to differ materially from those contemplated by the forward-looking statements include whether the CPUC grants the 2022 cost of capital application and the other factors
disclosed in PG&E Corporation and the Utility’s joint annual report on Form 10-K for the year ended December 31, 2020, their joint quarterly reports on Form 10-Q for the quarters ended March 31, 2021 and June 30, 2021, and other reports filed
with the Securities and Exchange Commission (“SEC”), which are available on PG&E Corporation's website at www.pgecorp.com and on the SEC website at www.sec.gov. PG&E Corporation and the Utility undertake no obligation to publicly update or
revise any forward-looking statements, whether due to new information, future events or otherwise, except to the extent required by law.