10-Q 1 pge-033119x10q.htm 10-Q Document


 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
FORM 10-Q
 
 
(Mark One)
 
 
 
 
 
 
 
 
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
 
 
For the quarterly period ended March 31, 2019
OR
 
 
[  ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
 
For the transition period from ___________ to __________
Commission
File
Number
 
Exact Name of
Registrant
as Specified
in its Charter
 
State or Other
Jurisdiction of
Incorporation
 
IRS Employer
Identification
Number
1-12609
 
PG&E Corporation
 
California
 
94-3234914
1-2348
 
Pacific Gas and Electric Company
California
 
94-0742640
 
 
 
 
 
 
 
 
PG&E Corporation
77 Beale Street
P.O. Box 770000
San Francisco, California 94177
 
 
 
Pacific Gas and Electric Company
77 Beale Street
P.O. Box 770000
San Francisco, California 94177
 
 
 
 
Address of principal executive offices, including zip code
 
 
 
 
 
 
 
 
 
 
 
PG&E Corporation
(415) 973-1000
 
 
 
Pacific Gas and Electric Company
(415) 973-7000
 
 
 
 
Registrant’s telephone number, including area code
 
 
 
 
 
 
 
 
 
 
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 
PG&E Corporation:
 
 
[X] Yes [  ] No
Pacific Gas and Electric Company:
 
 
[X] Yes [  ] No
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
PG&E Corporation:
 
 
 
[X] Yes [  ] No
Pacific Gas and Electric Company:
 
 
 
[X] Yes [  ] No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
PG&E Corporation:
[X] Large accelerated filer
[  ] Accelerated filer
 
 
[  ] Non-accelerated filer  
 
 
 
[  ] Smaller reporting company
[  ] Emerging growth company
Pacific Gas and Electric Company:
[  ] Large accelerated filer
[  ] Accelerated filer
 
 
[X] Non-accelerated filer
 
 
 
[  ] Smaller reporting company
[  ] Emerging growth company
 
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
PG&E Corporation:
 
[  ]
Pacific Gas and Electric Company:
 
[  ]
 
 
 
 
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
PG&E Corporation:
 
[  ] Yes [X] No
Pacific Gas and Electric Company:
 
[  ] Yes [X] No

1



Securities registered pursuant to Section 12(b) of the Act:
 
 
 
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common stock, no par value
PCG
NYSE
First preferred stock, cumulative, par value $25 per share, 5% series A redeemable
PCG-PE
NYSE American
First preferred stock, cumulative, par value $25 per share, 5% redeemable
PCG-PD
NYSE American
First preferred stock, cumulative, par value $25 per share, 4.80% redeemable
PCG-PG
NYSE American
First preferred stock, cumulative, par value $25 per share, 4.50% redeemable
PCG-PH
NYSE American
First preferred stock, cumulative, par value $25 per share, 4.36% series A redeemable
PCG-PI
NYSE American
First preferred stock, cumulative, par value $25 per share, 6% nonredeemable
PCG-PA
NYSE American
First preferred stock, cumulative, par value $25 per share, 5.50% nonredeemable
PCG-PB
NYSE American
First preferred stock, cumulative, par value $25 per share, 5% nonredeemable
PCG-PC
NYSE American
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common stock outstanding as of April 25, 2019:
 
 
PG&E Corporation:
 
529,210,278

Pacific Gas and Electric Company:
 
264,374,809

 
 
 
 
 
 
 
 
 

2



PG&E CORPORATION AND
PACIFIC GAS AND ELECTRIC COMPANY, DEBTORS-IN-POSSESSION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2019

TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


3



GLOSSARY

The following terms and abbreviations appearing in the text of this report have the meanings indicated below.
2018 Form 10-K
PG&E Corporation and Pacific Gas and Electric Company’s combined Annual Report on Form 10-K for the year ended December 31, 2018
2019 Wildfire Safety Plan
the wildfire mitigation plan for 2019 submitted by the Utility to the CPUC pursuant to SB 901
ALJ
administrative law judge
ARO
asset retirement obligation
ASU
accounting standard update issued by the FASB (see below)
Bankruptcy Code
the United States Bankruptcy Code
Bankruptcy Court
the U.S. Bankruptcy Court for the Northern District of California
CAISO
California Independent System Operator
Cal Fire
California Department of Forestry and Fire Protection
Cal PA
Public Advocates Office of the California Public Utilities Commission (formerly known as Office of Ratepayer Advocates or ORA)
CCA
Community Choice Aggregator
CEC
California Energy Resources Conservation and Development Commission
CEMA
Catastrophic Event Memorandum Account
Chapter 11
chapter 11 of title 11 of the U.S. Code
Chapter 11 Cases
the voluntary cases commenced by each of PG&E Corporation and the Utility under Chapter 11 on January 29, 2019
CPUC
California Public Utilities Commission
CRRs
congestion revenue rights
CWSP
Community Wildfire Safety Program
DA
Direct Access
DER
distributed energy resources
Diablo Canyon
Diablo Canyon nuclear power plant
DIP Credit Agreement
Senior Secured Superpriority Debtor in Possession Credit, Guaranty and Security Agreement, dated as of February 1, 2019, among the Utility, as borrower, PG&E Corporation, as guarantor, JPMorgan Chase Bank, N.A., as administrative agent, and Citibank, N.A., as collateral agent
DOGGR
Division of Oil, Gas, and Geothermal Resources of the California Department of Conservation
DRP
Distribution Resource Plan
DTSC
Department of Toxic Substances Control
EPS
earnings per common share
EV
electric vehicle
FASB
Financial Accounting Standards Board
FERC
Federal Energy Regulatory Commission
FHPMA
fire hazard prevention memorandum account
FRMMA
fire risk mitigation memorandum account
GAAP
U.S. Generally Accepted Accounting Principles
GHG
greenhouse gas
GRC
general rate case
GT&S
gas transmission and storage
HSM
hazardous substance memorandum account
IOU(s)
investor-owned utility(ies)
LIBOR
London Interbank Offered Rate
LSTC
liabilities subject to compromise

4



MD&A
Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in Item 2 of this Form 10-Q
MGP(s)
manufactured gas plants
the Monitor
third-party monitor retained as part of its compliance with the sentencing terms of the Utility’s January 27, 2017 federal criminal conviction
NAV
net asset value
NDCTP
Nuclear Decommissioning Cost Triennial Proceedings
NEIL
Nuclear Electric Insurance Limited
NRC
Nuclear Regulatory Commission
OES
State of California Office of Emergency Services
OII
order instituting investigation
OIR
order instituting rulemaking
PAO
Public Advocates Office of the California Public Utilities Commission (formerly known as Office of Ratepayer Advocates or ORA)
PCIA
Power Charge Indifference Adjustment
PD
proposed decision
Petition Date
January 29, 2019
PFM
petition for modification
RAMP
Risk Assessment Mitigation Phase
ROE
return on equity
ROU asset
right-of-use asset
SB
Senate Bill
SEC
U.S. Securities and Exchange Commission
SED
Safety and Enforcement Division of the CPUC
Strike Force Report
California Governor Gavin Newsom’s “Strike Force” report in connection with the issues of wildfire, climate change and the state’s energy sector issued on April 12, 2019
Tax Act
Tax Cuts and Jobs Act of 2017
TE
transportation electrification
TO
transmission owner
TURN
The Utility Reform Network
USAO
United States Attorney’s Office for the Northern District of California
Utility
Pacific Gas and Electric Company
VIE(s)
variable interest entity(ies)
WEMA
Wildfire Expense Memorandum Account
Wildfire Assistance Fund
program to assist those displaced by the 2018 Camp fire and 2017 Northern California wildfires with the costs of temporary housing and other urgent needs


5



PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

PG&E CORPORATION
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF INCOME

 
(Unaudited)
 
Three Months Ended March 31,
(in millions, except per share amounts)
2019
 
2018
Operating Revenues
 
 
 
Electric
$
2,792

 
$
2,951

Natural gas
1,219

 
1,105

Total operating revenues
4,011

 
4,056

Operating Expenses
 
 
 
Cost of electricity
599

 
819

Cost of natural gas
339

 
289

Operating and maintenance
2,087

 
1,604

Wildfire-related claims, net of insurance recoveries

 
(7
)
Depreciation, amortization, and decommissioning
797

 
752

Total operating expenses
3,822

 
3,457

Operating Income
189

 
599

Interest income
22

 
9

Interest expense
(103
)
 
(220
)
Other income, net
71

 
108

Reorganization items, net
(127
)
 

Income Before Income Taxes
52

 
496

Income tax provision (benefit)
(84
)
 
51

Net Income
136

 
445

Preferred stock dividend requirement of subsidiary

 
3

Income Available for Common Shareholders
$
136

 
$
442

Weighted Average Common Shares Outstanding, Basic
526

 
515

Weighted Average Common Shares Outstanding, Diluted
527

 
516

Net Earnings Per Common Share, Basic
$
0.25

 
$
0.86

Net Earnings Per Common Share, Diluted
$
0.25

 
$
0.86

 
 
 
 
See accompanying Notes to the Condensed Consolidated Financial Statements.


6



PG&E CORPORATION
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
(Unaudited)
 
Three Months Ended March 31,
(in millions)
2019
 
2018
Net Income
$
136

 
$
445

Other Comprehensive Income
 
 
 
Pension and other post-retirement benefit plans obligations (net of taxes of $0, $0, $0, and $0, at respective dates)

 

Total other comprehensive income

 

Comprehensive Income
136

 
445

Preferred stock dividend requirement of subsidiary

 
3

Comprehensive Income Attributable to
Common Shareholders
$
136

 
$
442

 
 
 
 
See accompanying Notes to the Condensed Consolidated Financial Statements.


7



PG&E CORPORATION
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED BALANCE SHEETS
 
(Unaudited)
 
Balance At
(in millions)
March 31,
2019
 
December 31,
2018
ASSETS
 

 
 

Current Assets
 

 
 
Cash and cash equivalents
$
2,964

 
$
1,668

Accounts receivable:
 
 
 
Customers (net of allowance for doubtful accounts of $56
at respective dates)
1,319

 
1,148

Accrued unbilled revenue
838

 
1,000

Regulatory balancing accounts
1,497

 
1,435

Other
2,695

 
2,686

Regulatory assets
235

 
233

Inventories:
 
 
 
Gas stored underground and fuel oil
72

 
111

Materials and supplies
464

 
443

Income taxes receivable


23

Other
609

 
448

Total current assets
10,693

 
9,195

Property, Plant, and Equipment
 
 
 
Electric
59,982

 
59,150

Gas
21,930

 
21,556

Construction work in progress
2,525

 
2,564

Other
20

 
2

Total property, plant, and equipment
84,457

 
83,272

Accumulated depreciation
(25,220
)
 
(24,715
)
Net property, plant, and equipment
59,237

 
58,557

Other Noncurrent Assets
 
 
 
Regulatory assets
5,151

 
4,964

Nuclear decommissioning trusts
2,932

 
2,730

Operating lease right of use asset
2,738

 

Income taxes receivable
69

 
69

Other
1,467

 
1,480

Total other noncurrent assets
12,357

 
9,243

TOTAL ASSETS
$
82,287

 
$
76,995

 
 
 
 
See accompanying Notes to the Condensed Consolidated Financial Statements.

8



PG&E CORPORATION
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED BALANCE SHEETS
 
 
(Unaudited)
 
Balance At
(in millions, except share amounts)
March 31,
2019
 
December 31,
2018
LIABILITIES AND EQUITY
 

 
 

Current Liabilities
 

 
 

Short-term borrowings
$

 
$
3,435

Long-term debt, classified as current

 
18,559

Accounts payable:
 
 
 
Trade creditors
867

 
1,975

Regulatory balancing accounts
1,345

 
1,076

Other
453

 
464

Operating lease liabilities
539

 

Disputed claims and customer refunds

 
220

Interest payable
1

 
228

Wildfire-related claims

 
14,226

Other
1,603

 
1,512

Total current liabilities
4,808

 
41,695

Noncurrent Liabilities
 
 
 
Long-term debt

 

Debtor-in-possession financing
350

 

Regulatory liabilities
8,872

 
8,539

Pension and other post-retirement benefits
2,006

 
2,119

Asset retirement obligations
6,055

 
5,994

Deferred income taxes
3,273

 
3,281

Operating lease liabilities
2,199

 

Other
2,273

 
2,464

Total noncurrent liabilities
25,028

 
22,397

Liabilities Subject to Compromise
39,322

 

Equity
 
 
 
Shareholders’ Equity
 
 
 
Common stock, no par value, authorized 800,000,000 shares;
529,210,278 and 520,338,710 shares outstanding at respective dates
13,000

 
12,910

Reinvested earnings
(114
)
 
(250
)
Accumulated other comprehensive loss
(9
)
 
(9
)
Total shareholders’ equity
12,877

 
12,651

Noncontrolling Interest - Preferred Stock of Subsidiary
252

 
252

Total equity
13,129

 
12,903

TOTAL LIABILITIES AND EQUITY
$
82,287

 
$
76,995

 
 
 
 
See accompanying Notes to the Condensed Consolidated Financial Statements.


9



PG&E CORPORATION
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(Unaudited)
 
Three Months Ended March 31,
(in millions)
2019
 
2018
Cash Flows from Operating Activities
 
 
 
Net income
$
136

 
$
445

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation, amortization, and decommissioning
797

 
752

Allowance for equity funds used during construction
(25
)
 
(32
)
Deferred income taxes and tax credits, net
4

 
178

Reorganization items, net (Note 2)
19



Other
16

 
30

Effect of changes in operating assets and liabilities:
 
 
 
Accounts receivable
(31
)
 
120

Wildfire-related insurance receivable
25

 
197

Inventories
18

 
28

Accounts payable
(180
)
 
24

Wildfire-related claims
(14
)
 
(118
)
Income taxes receivable/payable
23



Other current assets and liabilities
150

 
(145
)
Regulatory assets, liabilities, and balancing accounts, net
343

 
114

Liabilities subject to compromise
833



Other noncurrent assets and liabilities
130

 
(81
)
Net cash provided by operating activities
2,244

 
1,512

Cash Flows from Investing Activities
 

 
 

Capital expenditures
(1,224
)
 
(1,470
)
Proceeds from sales and maturities of nuclear decommissioning trust investments
346

 
494

Purchases of nuclear decommissioning trust investments
(372
)
 
(505
)
Other
3

 
6

Net cash used in investing activities
(1,247
)
 
(1,475
)
Cash Flows from Financing Activities
 

 
 

Proceeds from debtor-in-possession credit facility
350



Debtor-in-possession credit facility debt issuance costs
(111
)


Net issuances (repayments) of commercial paper, net of discount

 
36

Short-term debt financing

 
250

Short-term debt matured

 
(250
)
Long-term debt matured or repurchased

 
(400
)
Common stock issued
85

 
35

Other
(24
)
 
(13
)
Net cash provided by (used in) financing activities
300

 
(342
)
Net change in cash, cash equivalents, and restricted cash
1,297

 
(305
)
Cash, cash equivalents, and restricted cash at January 1
1,675

 
456

Cash, cash equivalents, and restricted cash at March 31
$
2,972

 
$
151

Less: Restricted cash and restricted cash equivalents included in other current assets
(8
)

$
(7
)
Cash and cash equivalents at March 31
$
2,964


$
144


10



Supplemental disclosures of cash flow information
 

 
 

Cash received (paid) for:
 

 
 

Interest, net of amounts capitalized
$
(10
)
 
$
(268
)
Supplemental disclosures of noncash operating activities
 
 
 
Operating lease liabilities arising from obtaining ROU assets
$
2,816


$

Supplemental disclosures of noncash investing and financing activities
 
 
 
Capital expenditures financed through accounts payable
$
242

 
$
255

 
 
 
 
See accompanying Notes to the Condensed Consolidated Financial Statements.



11



PACIFIC GAS AND ELECTRIC COMPANY
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF INCOME

 
(Unaudited)
 
Three Months Ended March 31,
(in millions)
2019
 
2018
Operating Revenues
 

 
 

Electric
$
2,792

 
$
2,951

Natural gas
1,219

 
1,105

Total operating revenues
4,011

 
4,056

Operating Expenses
 
 
 
Cost of electricity
599

 
819

Cost of natural gas
339

 
289

Operating and maintenance
2,104

 
1,604

Wildfire-related claims, net of insurance recoveries

 
(7
)
Depreciation, amortization, and decommissioning
797

 
752

Total operating expenses
3,839

 
3,457

Operating Income
172

 
599

Interest income
21

 
9

Interest expense
(101
)
 
(217
)
Other income, net
66

 
109

Reorganization items, net
(111
)
 

Income Before Income Taxes
47

 
500

Income tax provision (benefit)
(86
)
 
48

Net Income
133

 
452

Preferred stock dividend requirement

 
3

Income Available for Common Stock
$
133

 
$
449

 
 
 
 
See accompanying Notes to the Condensed Consolidated Financial Statements.


12



PACIFIC GAS AND ELECTRIC COMPANY
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
(Unaudited)
 
Three Months Ended March 31,
(in millions)
2019
 
2018
Net Income
$
133

 
$
452

Other Comprehensive Income
 
 
 
Pension and other post-retirement benefit plans obligations (net of taxes of $0, $0, $0, and $0, at respective dates )

 

Total other comprehensive income

 

Comprehensive Income
$
133

 
$
452

 
 
 
 
See accompanying Notes to the Condensed Consolidated Financial Statements.


13



PACIFIC GAS AND ELECTRIC COMPANY
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED BALANCE SHEETS
 
(Unaudited)
 
Balance At
 
March 31,
2019
 
December 31, 2018
(in millions)
 
ASSETS
 

 
 

Current Assets
 

 
 

Cash and cash equivalents
$
2,552

 
$
1,295

Accounts receivable:
 
 
 
Customers (net of allowance for doubtful accounts of $56
at respective dates)
1,319

 
1,148

Accrued unbilled revenue
838

 
1,000

Regulatory balancing accounts
1,497

 
1,435

Other
2,716

 
2,688

Regulatory assets
235

 
233

Inventories:
 
 
 
Gas stored underground and fuel oil
72

 
111

Materials and supplies
464

 
443

Income taxes receivable

 
5

Other
609

 
448

Total current assets
10,302

 
8,806

Property, Plant, and Equipment
 
 
 
Electric
59,982

 
59,150

Gas
21,930

 
21,556

Construction work in progress
2,525

 
2,564

Other
18

 

Total property, plant, and equipment
84,455

 
83,270

Accumulated depreciation
(25,217
)
 
(24,713
)
Net property, plant, and equipment
59,238

 
58,557

Other Noncurrent Assets
 
 
 
Regulatory assets
5,151

 
4,964

Nuclear decommissioning trusts
2,932

 
2,730

Operating lease right of use asset
2,728

 

Income taxes receivable
66

 
66

Other
1,330

 
1,348

Total other noncurrent assets
12,207

 
9,108

TOTAL ASSETS
$
81,747

 
$
76,471

 
 
 
 
See accompanying Notes to the Condensed Consolidated Financial Statements.

14



PACIFIC GAS AND ELECTRIC COMPANY
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED BALANCE SHEETS
 
(Unaudited)
 
Balance At
 
March 31,
2019
 
December 31, 2018
(in millions. except share amounts)
 
LIABILITIES AND EQUITY
 
 
 
Current Liabilities
 

 
 

Short-term borrowings
$

 
$
3,135

Long-term debt, classified as current

 
18,209

Accounts payable:
 
 
 
Trade creditors
863

 
1,972

Regulatory balancing accounts
1,345

 
1,076

Other
553

 
498

Operating lease liabilities
536

 

Disputed claims and customer refunds

 
220

Interest payable
1

 
227

Wildfire-related claims

 
14,226

Other
1,620

 
1,497

Total current liabilities
4,918

 
41,060

Noncurrent Liabilities
 
 
 
Long-term debt

 

Debtor-in-possession financing
350

 

Regulatory liabilities
8,872

 
8,539

Pension and other post-retirement benefits
2,006

 
2,026

Asset retirement obligations
6,055

 
5,994

Deferred income taxes
3,396

 
3,405

Operating lease liabilities
2,192

 

Other
2,323

 
2,492

Total noncurrent liabilities
25,194

 
22,456

Liabilities Subject to Compromise
38,547

 

Shareholders’ Equity
 
 
 
Preferred stock
258

 
258

Common stock, $5 par value, authorized 800,000,000 shares; 264,374,809 shares outstanding at respective dates
1,322

 
1,322

Additional paid-in capital
8,550

 
8,550

Reinvested earnings
2,959

 
2,826

Accumulated other comprehensive income
(1
)
 
(1
)
Total shareholders’ equity
13,088

 
12,955

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
81,747

 
$
76,471

 
 
 
 
See accompanying Notes to the Condensed Consolidated Financial Statements.


15



PACIFIC GAS AND ELECTRIC COMPANY
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(Unaudited)
 
Three Months Ended March 31,
(in millions)
2019
 
2018
Cash Flows from Operating Activities
 

 
 

Net income
$
133

 
$
452

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation, amortization, and decommissioning
797

 
752

Allowance for equity funds used during construction
(25
)
 
(32
)
Deferred income taxes and tax credits, net
2

 
175

Reorganization items, net (Note 2)
20



Other
12

 
(1
)
Effect of changes in operating assets and liabilities:
 
 
 
Accounts receivable
(51
)
 
112

Wildfire-related insurance receivable
25

 
197

Inventories
18

 
28

Accounts payable
(132
)
 
55

Wildfire-related claims
(14
)
 
(118
)
Income taxes receivable/payable
5



Other current assets and liabilities
171

 
(131
)
Regulatory assets, liabilities, and balancing accounts, net
343

 
114

Liabilities subject to compromise
833



Other noncurrent assets and liabilities
137

 
(87
)
Net cash provided by operating activities
2,274

 
1,516

Cash Flows from Investing Activities
 
 
 
Capital expenditures
(1,224
)
 
(1,470
)
Proceeds from sales and maturities of nuclear decommissioning trust investments
346

 
494

Purchases of nuclear decommissioning trust investments
(372
)
 
(505
)
Other
3

 
6

Net cash used in investing activities
(1,247
)
 
(1,475
)
Cash Flows from Financing Activities
 
 
 
Proceeds from debtor-in-possession credit facility
350



Debtor-in-possession credit facility debt issuance costs
(95
)


Net issuances (repayments) of commercial paper, net of discount

 
47

Short-term debt financing

 
250

Short-term debt matured

 
(250
)
Long-term debt matured or repurchased

 
(400
)
Other
(24
)
 
(13
)
Net cash provided by (used in) financing activities
231

 
(366
)
Net change in cash, cash equivalents, and restricted cash
1,258

 
(325
)
Cash, cash equivalents, and restricted cash at January 1
1,302

 
454

Cash, cash equivalents, and restricted cash at March 31
$
2,560

 
$
129

Less: Restricted cash and restricted cash equivalents included in other current assets
(8
)

(7
)
Cash and cash equivalents at March 31
$
2,552


$
122


16



Supplemental disclosures of cash flow information
 
 
 
Cash received (paid) for:
 
 
 
Interest, net of amounts capitalized
$
(8
)
 
$
(259
)
Supplemental disclosures of noncash operating activities
 
 
 
Operating lease liabilities arising from obtaining ROU assets
$
2,807


$

Supplemental disclosures of noncash investing and financing activities
 
 
 
Capital expenditures financed through accounts payable
$
242

 
$
255

 
 
 
 
See accompanying Notes to the Condensed Consolidated Financial Statements.


17



NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 1: 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 (consisting only of normal recurring 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, 2018 in the Condensed Consolidated Balance Sheets included in this quarterly report was derived from the audited Consolidated Balance Sheets in Item 8 of the 2018 Form 10-K.  This quarterly report should be read in conjunction with the 2018 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, legal and regulatory contingencies, insurance recoveries, environmental remediation liabilities, AROs, pension and other post-retirement benefit plans obligations, and the valuation of pre-petition liabilities.  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 and results of operations during the period in which such change occurred.


18



Chapter 11 Filing 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. However, as a result of the challenges that are further described below, such realization of assets and satisfaction of liabilities are subject to uncertainty. PG&E Corporation and the Utility are facing extraordinary challenges relating to a series of catastrophic wildfires that occurred in Northern California in 2017 and 2018.  See Note 10 below. Uncertainty regarding these matters raises substantial doubt about PG&E Corporation’s and the Utility’s abilities to continue as going concerns.  PG&E Corporation and the Utility determined that commencing reorganization cases under Chapter 11 is necessary to restore PG&E Corporation’s and the Utility’s financial stability to fund ongoing operations and provide safe service to customers. However, there can be no assurance that such proceedings will restore PG&E Corporation’s and the Utility’s financial stability.  

On the Petition Date, PG&E Corporation and the Utility filed voluntary petitions for relief under Chapter 11 in the Bankruptcy Court. The Condensed Consolidated Financial Statements do not include any adjustments that might be necessary should PG&E Corporation and the Utility be unable to continue as going concerns. 

Pursuant to Chapter 11, PG&E Corporation and the Utility retain control of their assets and are authorized to operate their business as debtors-in-possession while being subject to the jurisdiction of the Bankruptcy Court. While operating as debtors-in-possession under Chapter 11, PG&E Corporation and the Utility may sell or otherwise dispose of or liquidate assets or settle liabilities, subject to the approval of the Bankruptcy Court or as otherwise permitted in the ordinary course of business and subject to restrictions in PG&E Corporation’s and the Utility’s DIP Credit Agreement (see Note 5 below) and applicable orders of the Bankruptcy Court, for amounts other than those reflected in the accompanying Condensed Consolidated Financial Statements.  Any such actions occurring during the Chapter 11 Cases confirmed by the Bankruptcy Court could materially impact the amounts and classifications of assets and liabilities reported in PG&E Corporation’s and the Utility’s Condensed Consolidated Financial Statements. (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 filed the Chapter 11 Cases with the Bankruptcy Court. PG&E Corporation and the Utility continue 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.

Under the Bankruptcy Code, third-party actions to collect pre-petition indebtedness owed by PG&E Corporation or the Utility, as well as most litigation pending against PG&E Corporation and the Utility (including the third-party matters described in Note 10 below), are subject to an automatic stay. Absent an order of the Bankruptcy Court providing otherwise, substantially all pre-petition liabilities will be administered under a Chapter 11 plan of reorganization to be voted upon by creditors and other stakeholders, and approved by the Bankruptcy Court. However, under the Bankruptcy Code, regulatory or criminal proceedings are generally not subject to an automatic stay, and PG&E Corporation and the Utility expect these proceedings to continue during the pendency of the Chapter 11 Cases.

Under the priority scheme established by the Bankruptcy Code, certain post-petition and secured or “priority” pre-petition liabilities need to be satisfied before general unsecured creditors and holders of PG&E Corporation's and the Utility’s equity are entitled to receive any distribution. No assurance can be given as to what values, if any, will be ascribed in the Chapter 11 Cases to the claims and interests of each of these constituencies. Additionally, no assurance can be given as to whether, when or in what form unsecured creditors and holders of PG&E Corporation’s or the Utility’s equity may receive a distribution on such claims or interests.

Under the Bankruptcy Code, PG&E Corporation and the Utility may assume, assume and assign, or reject certain executory contracts and unexpired leases, including, without limitation, leases of real property and equipment, subject to the approval of the Bankruptcy Court and to certain other conditions. Any description of an executory contract or unexpired lease in this quarterly report on Form 10-Q, or in the 2018 Form 10-K, including, where applicable, the express termination rights thereunder or a quantification of their obligations, must be read in conjunction with, and is qualified by, any overriding rejection rights PG&E Corporation and the Utility have under the Bankruptcy Code.


19



Significant Bankruptcy Court Actions

On January 31, 2019, the Bankruptcy Court approved, on an interim basis, certain motions (the “First Day Motions”) authorizing, but not directing, PG&E Corporation and the Utility to, among other things, (a) secure $5.5 billion of debtor-in-possession financing; (b) continue to use PG&E Corporation’s and the Utility’s cash management system; and (c) pay certain pre-petition claims relating to (i) certain safety, reliability, outage, and nuclear facility suppliers; (ii) shippers, warehousemen, and other lien claimants; (iii) taxes; (iv) employee wages, salaries, and other compensation and benefits; and (v) customer programs, including public purpose programs. The First Day Motions were subsequently approved by the Bankruptcy Court on a final basis at hearings on February 27, 2019, March 12, 2019, March 13, 2019, and March 27, 2019.

Debtor-In-Possession Financing

See Note 5 for further discussion of the DIP Facilities, which provide up to $5.5 billion in financing.

Financial Reporting in Reorganization

Effective on the Petition Date, PG&E Corporation and the Utility began to apply accounting standards applicable to reorganizations, which are applicable to companies under Chapter 11 bankruptcy protection. They 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 are directly associated with reorganization proceedings must be reported separately as reorganization items, net in the Condensed Consolidated Statements of Income. In addition, the balance sheet must distinguish pre-petition LSTC of PG&E Corporation and the Utility from pre-petition liabilities that are not subject to compromise, post-petition liabilities, and liabilities of the subsidiaries of PG&E Corporation that are not debtors in the Chapter 11 Cases in the Condensed Consolidated Balance Sheets. LSTC are pre-petition obligations that are not fully secured and have at least a possibility of not being repaid at the full claim amount. Where there is uncertainty about whether a secured claim will be paid or impaired pursuant to the Chapter 11 Cases, PG&E Corporation and the Utility have classified the entire amount of the claim as LSTC.

Furthermore, the realization of assets and the satisfaction of liabilities are subject to uncertainty. While operating as debtors-in-possession, certain claims against PG&E Corporation and the Utility in existence before the filing of the petitions for relief under the federal bankruptcy laws are stayed while PG&E Corporation and the Utility continue business operations as debtors in possession. These claims are reflected as LSTC in the Condensed Consolidated Balance Sheets at March 31, 2019. Additional claims (which could be LSTC) may arise after the Petition Date resulting from rejection of executory contracts, including leases, and from the determination by the Bankruptcy Court (or agreement by parties in interest) of allowed claims for contingencies and other 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. 

Liabilities Subject to Compromise

As a result of the commencement of the Chapter 11 Cases, the payment of pre-petition liabilities is generally subject to compromise pursuant to a plan of reorganization. Generally, actions to enforce or otherwise effect payment of pre-petition liabilities are stayed. Although payment of pre-petition claims generally is not permitted, the Bankruptcy Court granted PG&E Corporation and the Utility authority to pay certain pre-petition claims in designated categories and subject to certain terms and conditions. This relief generally was designed to preserve the value of PG&E Corporation’s and the Utility’s business and assets. Among other things, the Bankruptcy Court authorized, but did not require, PG&E Corporation and the Utility to pay certain pre-petition claims relating to employee wages and benefits, taxes, and certain vendors.


20



As a result of the Chapter 11 Cases, the payment of pre-petition indebtedness is subject to compromise or other treatment under a plan of reorganization. The determination of how liabilities will ultimately be settled or treated cannot be made until the Bankruptcy Court confirms a Chapter 11 plan of reorganization and such plan becomes effective. Accordingly, the ultimate amount of such liabilities is not determinable at this time. GAAP requires pre-petition liabilities that are subject to compromise to be reported at the amounts expected to be allowed by the Bankruptcy Court, even if they may be settled for different amounts. The amounts currently classified as LSTC are preliminary and may be subject to future adjustments depending on Bankruptcy Court actions, further developments with respect to disputed claims, determinations of the secured status of certain claims, the values of any collateral securing such claims, rejection of executory contracts, continued reconciliation or other events.

The following table presents LSTC as reported in the Condensed Consolidated Balance Sheets at March 31, 2019:
(in millions)
PG&E Corporation (1)
 
Utility
 
PG&E Corporation Consolidated
Financing debt (2)
$
650

 
$
21,811

 
$
22,461

Wildfire-related claims (3)

 
14,212

 
14,212

Trade creditors
1

 
1,850

 
1,851

Non-qualified benefit plan
122

 
17

 
139

2001 bankruptcy disputed claims

 
221

 
221

Customer deposits & advances

 
272

 
272

Other
2

 
164

 
166

Total Liabilities Subject to Compromise
$
775

 
$
38,547

 
$
39,322

 
 
 
 
 
 
(1) PG&E Corporation amounts reflected under the column “PG&E Corporation” exclude the accounts of the Utility.
(2) At March 31, 2019, PG&E Corporation and the Utility had $650 million and $21,526 million in aggregate principal amount of indebtedness, respectively. Utility financing debt also includes $285 million of accrued contractual interest to the Petition Date. See Note 5 for details of pre-petition debt reported as LSTC.
(3) See Note 10 for details of pre-petition wildfire-related claims reported as LSTC.

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. Reorganization items also include adjustments to reflect the carrying value of LSTC at their estimated allowed claim amounts, as such adjustments are determined.  Cash paid for reorganization items, net was $17 million and $91 million for PG&E Corporation and the Utility, respectively, during the three months ended March 31, 2019. Reorganization items, net as of March 31, 2019 include the following:
 
Post-Petition Period Through March 31, 2019
(in millions)
PG&E Corporation (1)
 
Utility
 
PG&E Corporation Consolidated
Debtor-in-possession financing costs
17

 
97

 
114

Legal and other
$
1

 
$
23

 
$
24

Interest income
(2
)
 
(9
)
 
(11
)
Total reorganization items, net
$
16

 
$
111

 
$
127

 
 
 
 
 
 
(1) PG&E Corporation amounts reflected under the column “PG&E Corporation” exclude the accounts of the Utility.

Contractual Interest on Debt Subject to Compromise

Effective as of the Petition Date, PG&E Corporation and the Utility ceased recording interest expense on outstanding pre-petition debt. Contractual interest expense represents amounts due under the contractual terms of outstanding pre-petition debt. From the Petition Date through March 31, 2019, contractual interest expense of $166 million related to LSTC has not been recorded in the financial statements. Additionally, the portion of authorized revenues from the Petition Date through March 31, 2019 related to interest expense on pre-petition debt has been deferred as a non-current regulatory liability.


21



Resolution of Remaining 2001 Chapter 11 Disputed Claims

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.

The Utility’s obligations with respect to such claims (all of which arose prior to the initiation of the Utility’s pending Chapter 11 Case on January 29, 2019), including pursuant to any prior settlements relating thereto, are expected to be determined through the proceedings of the Chapter 11 Cases.

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 and Note 2 of the Notes to the Consolidated Financial Statements in Item 8 of the 2018 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 March 31, 2019, 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 March 31, 2019, 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.

22




The net periodic benefit costs reflected in PG&E Corporation’s Condensed Consolidated Financial Statements for the three months ended March 31, 2019 and 2018 were as follows:
 
Pension Benefits
 
Other Benefits
 
Three Months Ended March 31,
(in millions)
2019
 
2018
 
2019
 
2018
Service cost for benefits earned (1)
$
111

 
$
128

 
$
14

 
$
16

Interest cost
189

 
172

 
19

 
17

Expected return on plan assets
(227
)
 
(255
)
 
(31
)
 
(33
)
Amortization of prior service cost
(1
)
 
(1
)
 
4

 
4

Amortization of net actuarial loss
1

 
1

 
(1
)
 
(1
)
Net periodic benefit cost
73

 
45

 
5

 
3

Regulatory account transfer (2)
10

 
39

 

 

Total
$
83

 
$
84

 
$
5

 
$
3

 
 
 
 
 
 
 
 
(1) A portion of service costs are capitalized pursuant to ASU 2017-07.
(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.

On February 27, 2019, PG&E Corporation and the Utility received final approval from the Bankruptcy Court to maintain existing pension and other benefit plans during the pendency of the Chapter 11 Cases.

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) are summarized below:
 
Pension
Benefits
 
Other
Benefits
 
Total
(in millions, net of income tax)
Three Months Ended March 31, 2019
Beginning balance
$
(21
)
 
$
17

 
$
(4
)
Amounts reclassified from other comprehensive income:
 
 
 
 
 
Amortization of prior service cost (net of taxes of $0 and $1, respectively) (1)
(1
)
 
3

 
2

Amortization of net actuarial loss (net of taxes of $0 and $0, respectively) (1)
1

 
(1
)
 

Regulatory account transfer (net of taxes of $0 and $1, respectively) (1)

 
(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.)


23



 
Pension Benefits
 
Other
Benefits
 
Total
(in millions, net of income tax)
Three Months Ended March 31, 2018
Beginning balance
$
(25
)
 
$
17

 
$
(8
)
Amounts reclassified from other comprehensive income: (1)
 
 
 
 
 
Amortization of prior service cost (net of taxes of $0 and $1, respectively)
(1
)
 
3

 
2

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
)
Reclassification of stranded income tax to retained earnings (net of taxes of $0 and $0, respectively)
(5
)
 

 
(5
)
Net current period other comprehensive gain (loss)
(5
)
 

 
(5
)
Ending balance
$
(30
)
 
$
17

 
$
(13
)
 
 
 
 
 
 
(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 its 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.


24



The following table presents the Utility’s revenues disaggregated by type of customer:
 
Three Months Ended March 31,
(in millions)
2019
 
2018
Electric
 
 
 
Revenue from contracts with customers
 
 
 
   Residential
$
1,288

 
$
1,336

   Commercial
953

 
1,073

   Industrial
293

 
324

   Agricultural
86

 
125

   Public street and highway lighting
17

 
20

   Other (1)
(309
)
 
(201
)
      Total revenue from contracts with customers - electric
2,328

 
2,677

Regulatory balancing accounts (2)
464

 
274

Total electric operating revenue
$
2,792

 
$
2,951

 
 
 
 
Natural gas
 
 
 
Revenue from contracts with customers
 
 
 
   Residential
$
1,171

 
$
958

   Commercial
240

 
196

   Transportation service only
382

 
297

   Other (1)
(75
)
 
(52
)
      Total revenue from contracts with customers - gas
1,718

 
1,399

Regulatory balancing accounts (2)
(499
)
 
(294
)
Total natural gas operating revenue
1,219

 
1,105

Total operating revenues
$
4,011

 
$
4,056

 
 
 
 
(1) This activity is primarily related to the change in unbilled revenue, partially offset by other miscellaneous revenue items.
(2) These amounts represent revenues authorized to be billed or refunded to customers.

Recently Adopted Accounting Standards

Recognition of Lease Assets and Liabilities

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which amends the guidance relating to the definition of a lease, the recognition of lease assets and lease liabilities on the balance sheet, and the disclosure of key information about leasing arrangements.  Under the new standard, all lessees must recognize a ROU asset, reflecting the right to use the underlying asset for the lease term, and a lease liability, reflecting the obligation to make lease payments, on the balance sheet. Operating leases were previously not recognized on the balance sheet.  PG&E Corporation and the Utility adopted the ASU on January 1, 2019.

PG&E Corporation and the Utility elected certain practical expedients and will carry forward historical conclusions related to (1) contracts that contain leases, (2) existing lease and easement classification, and (3) initial direct costs. After adoption of the new standard, the Corporation and Utility elected to not separate lease and non-lease components. Additionally, PG&E Corporation and the Utility have elected not to restate comparative periods upon adoption.

PG&E Corporation and the Utility determine if an arrangement is a lease at inception. As most of the leases do not provide implicit discount rates, the Utility uses an estimate of its incremental secured borrowing rates based on observed market data and other information available at the lease commencement date. The ROU assets and lease liabilities include only fixed lease payments, and leases with an initial term of 12 months or less are not recorded on the balance sheet. Lease terms will only include options to extend or terminate the lease when it is reasonably certain that the Utility will exercise such options. The Utility recognizes lease expense in conformity with ratemaking.


25



Operating leases are included in operating lease ROU assets and current and noncurrent operating lease liabilities on the Condensed Consolidated Balance Sheets. Finance leases are included in property, plant, and equipment, other current liabilities, and other noncurrent liabilities on the Condensed Consolidated Balance Sheets. Financing leases were immaterial for the three months ended March 31, 2019.

Cash payments arising from operating leases were $335 million for the three months ended March 31, 2019 and are presented within operating activities on the Condensed Consolidated Statement of Cash Flows. Cash payments for the principal portion of the financing lease liability will continue to be presented within financing activities. Variable lease payments, if any, not included in the financing lease liability, if any, are presented within operating activities. On January 1, 2019, PG&E Corporation and the Utility recorded ROU assets and lease liabilities of $2.8 billion, representing the net present value of fixed lease payments and excluding any variable lease payments. This amount is presented within the supplemental disclosures of noncash activities for the three months ended, March 31, 2019.

The majority of the Utility’s ROU assets and lease liabilities relate to various power purchase agreements. These power purchase agreements primarily consist of generation plants leased to meet customer demand plus applicable reserve margins, for terms between 5 years and 20 years. PG&E Corporation and the Utility have also recorded ROU assets and lease liabilities related to property and land leases.

At March 31, 2019, the Utility’s operating leases had a weighted average remaining lease term of 6.3 years and a weighted average discount rate of 6.11%.

The following table shows the lease expense recognized for the fixed and variable component of the Utility’s lease obligations:
(in millions)
Three Months Ended March 31, 2019
Operating lease fixed cost
$
122

Operating lease variable cost
309

Total operating lease costs
$
431

 
The following table shows the Utility’s future expected operating lease payments:
(in millions)
March 31, 2019
2019
$
686

2020
669

2021
616

2022
523

2023
195

Thereafter
672

  Total lease payments
3,361

Less imputed interest
(633
)
  Total
$
2,728


The following table shows the Utility’s future expected obligations for power purchase and other lease commitments:
(in millions)
December 31, 2018
2019
$
684

2020
677

2021
621

2022
546

2023
252

Thereafter
581

  Total lease commitments
$
3,361


26




Accounting Standards Issued But Not Yet Adopted

Fair Value Measurement

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurements, which amends the existing guidance relating to the disclosure requirements for fair value measurements. The ASU will be effective for PG&E Corporation and the Utility on January 1, 2020 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.

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. This ASU will be effective for PG&E Corporation and the Utility on January 1, 2020 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.


27



NOTE 4: REGULATORY ASSETS, LIABILITIES, AND BALANCING ACCOUNTS

Regulatory Assets and Liabilities

Long-Term Regulatory Assets

Long-term regulatory assets are comprised of the following:
 
Asset Balance at
(in millions)
March 31, 2019
 
December 31, 2018
Pension benefits (1)
$
1,938

 
$
1,947

Environmental compliance costs
932

 
1,013

Utility retained generation (2)
262

 
274

Price risk management
65

 
90

Unamortized loss, net of gain, on reacquired debt (3)
237

 
76

Catastrophic event memorandum account (4)
865

 
790

Wildfire expense memorandum account (5)
111

 
94

Fire hazard prevention memorandum account (6)
329

 
263

Other
412

 
417

Total long-term regulatory assets
$
5,151

 
$
4,964

 
 
 
 
(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 the accelerated amortization of premiums and debt issuance costs on pre-petition debt.
(4) Includes costs of responding to catastrophic events that have been declared a disaster or state of emergency by competent federal or state authorities. Recovery of CEMA costs are subject to CPUC review and approval.
(5) Includes specific incremental wildfire liability costs the CPUC approved for tracking in June 2018. Recovery of WEMA costs are subject to CPUC review and approval.
(6) 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.

Current Regulatory Liabilities

Current regulatory liabilities are primarily comprised of the current portion of the tax reform adjustment recorded as a result of the Tax Act.


28



Long-Term Regulatory Liabilities

Long-term regulatory liabilities are comprised of the following:
 
Liability Balance at
(in millions)
March 31, 2019
 
December 31, 2018
Cost of removal obligations (1)
$
6,134

 
$
5,981

Deferred income taxes (2)
142

 
283

Recoveries in excess of AROs (3)
471

 
356

Public purpose programs (4)
758

 
674

Retirement Plan (5)
422

 
421

Other
945

 
824

Total long-term regulatory liabilities
$
8,872

 
$
8,539

 
 
 
 
(1) Represents the cumulative differences between asset removal costs recorded and amounts collected in rates for expected asset removal costs.
(2) Represents the net of amounts owed to customers for deferred taxes collected at higher rates before the Tax Act and amounts owed to the Utility for reversal of deferred taxes subject to flow-through treatment.
(3) 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.)
(4) 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.
(5) Represents cumulative differences between incurred costs and amounts collected in rates for Post-Retirement Medical, Post-Retirement Life and Long Term Disability Plans.

For more information, see Note 3 of the Notes to the Consolidated Financial Statements in Item 8 of the 2018 Form 10-K.

Regulatory Balancing Accounts

Current regulatory balancing accounts receivable and payable are comprised of the following:
 
Receivable Balance at
(in millions)
March 31, 2019
 
December 31, 2018
Electric distribution
$
449

 
$
160

Electric transmission
128

 
128

Utility generation
357

 
79

Gas distribution and transmission
70

 
462

Energy procurement
137

 
168

Public purpose programs
76

 
111

Other
280

 
327

Total regulatory balancing accounts receivable
$
1,497

 
$
1,435


 
Payable Balance at
(in millions)
March 31, 2019
 
December 31, 2018
Electric transmission
146

 
134

Gas distribution and transmission
51

 
9

Energy procurement
223

 
59

Public purpose programs
600

 
587

Other
325

 
287

Total regulatory balancing accounts payable
$
1,345

 
$
1,076


For more information, see Note 3 of the Notes to the Consolidated Financial Statements in Item 8 of the 2018 Form 10-K.


29



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., as administrative agent, Citibank, N.A., as collateral agent, and the lenders and issuing banks party thereto (together with such other financial institutions from time to time party thereto, the “DIP Lenders”). The DIP Credit Agreement provides for $5.5 billion in senior secured superpriority debtor in possession credit facilities in the form of (i) a revolving credit facility in an aggregate amount of $3.5 billion (the “DIP Revolving Facility”), including a $1.5 billion letter of credit subfacility, (ii) a term loan facility in an aggregate principal amount of $1.5 billion (the “DIP Initial Term Loan Facility”) and (iii) a delayed draw term loan facility in an aggregate principal amount of $500 million (the “DIP Delayed Draw Term Loan Facility”, together with the DIP Revolving Facility and the DIP Initial Term Loan Facility, the “DIP Facilities”), subject to the terms and conditions set forth therein.

On the Petition Date, PG&E Corporation and the Utility filed a motion seeking, among other things, interim and final approval of the DIP Facilities, which motion was granted on an interim basis by the Bankruptcy Court following a hearing on January 31, 2019. As a result of the Bankruptcy Court’s interim approval of the DIP Facilities and the satisfaction of the other conditions thereof, the DIP Credit Agreement became effective on February 1, 2019 and a portion of the DIP Revolving Facility in the amount of $1.5 billion (including $750 million of the letter of credit subfacility) was made available to the Utility. On March 27, 2019, the Bankruptcy Court approved the DIP Facilities on a final basis, authorizing the Utility to borrow up to the remainder of the DIP Revolving Facility (including the remainder of the $1.5 billion letter of credit subfacility), the DIP Initial Term Loan Facility and the DIP Delayed Draw Term Loan Facility, in each case subject to the terms and conditions of the DIP Credit Agreement.

Borrowings under the DIP Facilities are senior secured obligations of the Utility, secured by substantially all of the Utility’s assets and entitled to superpriority administrative expense claim status in the Utility’s Chapter 11 Case. The Utility’s obligations under the DIP Facilities are guaranteed by PG&E Corporation, and such guarantee is a senior secured obligation of PG&E Corporation, secured by substantially all of PG&E Corporation’s assets and entitled to superpriority administrative expense claim status in PG&E Corporation’s Chapter 11 Case.

On February 1, 2019, the Utility borrowed $350 million under the DIP Revolving Facility. On April 3, 2019, following the Bankruptcy Court’s final approval of the DIP Facilities, the Utility borrowed $1.5 billion under the DIP Initial Term Loan Facility and repaid the $350 million outstanding under the DIP Revolving Facility.

The commencement of the Chapter 11 Cases constituted an event of default or termination event with respect to, and caused an automatic and immediate acceleration of the debt outstanding under or in respect of, certain instruments and agreements relating to direct financial obligations of PG&E Corporation and the Utility (the “Accelerated Direct Financial Obligations”). However, any efforts to enforce such payment obligations are automatically stayed as of the Petition Date, and are subject to the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. The material Accelerated Direct Financial Obligations include the Utility’s outstanding senior notes, agreements in respect of certain series of pollution control bonds, and PG&E Corporation’s term loan facility, as well as short-term borrowings under PG&E Corporation’s and the Utility’s revolving credit facilities and the Utility’s term loan facility. For more information, see Note 15 of the Notes to the Consolidated Financial Statements in Item 8 of the 2018 Form 10-K.

Debtor-in-Possession Financing

The following table summarizes the Utility’s outstanding borrowings and availability under the DIP Facilities at March 31, 2019:
(in millions)
Termination
Date
 
Limit
 
 
Letters of Credit Outstanding
 
Borrowings Against DIP Revolving Facility
 
Availability
DIP Facilities
December 2020
(1)
$
1,500

(2)
 
$
131

 
$
350

 
$
1,019

 
 
 
 
 
 
 
 
 
 
 
(1) May be extended to December 2021, subject to satisfaction of certain terms and conditions, including payment of a 25 basis point extension fee.
(2) On March 27, 2019, the Bankruptcy Court approved the DIP Facilities in full, but the conditions precedent to the full availability of the DIP Facilities were not satisfied until April 3, 2019. Accordingly, the amounts set forth in this table are based on the interim availability under the DIP Revolving Facility of $1.5 billion.


30



As of March 31, 2019, PG&E Corporation and the Utility each had no commercial paper borrowings outstanding. PG&E Corporation and the Utility do not expect to be able to access the commercial paper market for the duration of the Chapter 11 Cases.

Debt

The following table summarizes PG&E Corporation’s and the Utility’s outstanding debt subject to compromise:
 
 
 
 
Balance at,
(in millions)
 
Contractual Interest Rates
 
March 31, 2019
 
December 31, 2018
Debt Subject to Compromise (1)
 
 
 
 
 
 
PG&E Corporation
 
 
 
 
 
 
Borrowings under Pre-Petition Credit Facilities
 
 
 
 
 
 
PG&E Corporation Revolving Credit Facilities - Stated Maturity: 2022
 
 variable rate(2)
 
$
300

 
$
300

Other borrowings:
 
 
 
 
 
 
Term Loan - Stated Maturity: 2020
 
 variable rate(3)
 
350

 
350

Total PG&E Corporation Debt Subject to Compromise
 
 
 
650

 
650

 
 
 
 
 
 
 
Utility
 
 
 
 
 
 
Senior Notes - Stated Maturity:
 
 
 

 
 
2020
 
3.50%
 
800

 
800

2021
 
3.25% to 4.25%
 
550

 
550

2022
 
2.45%
 
400

 
400

2023
 
3.25% to 4.25%
 
1,175

 
1,175

2024 through 2046
 
2.95% to 6.35%
 
14,600

 
14,600

Unamortized discount, net or premium and debt issuance costs
 
 
 

 
(178
)
Total Senior notes, net of premium and debt issuance costs
 
 
 
17,525

 
17,347

Pollution Control Bonds - Stated Maturity:
 
 
 
 
 
 
Series 2008 F and 2010 E, due 2026 (4)
 
1.75%
 
100

 
100

Series 2009 A-B, due 2026 (5)
 
variable rate (6)
 
149

 
149

Series 1996 C, E, F, 1997 B due 2026 (5)
 
variable rate (7)
 
614

 
614

Total pollution control bonds
 
 
 
863

 
863

Borrowings under Pre-Petition Credit Facilities
 
 
 
 
 
 
Utility Revolving Credit Facilities - Stated Maturity: 2022 (8)
 
 variable rate(9)
 
2,965

 
2,965

Other borrowings:
 
 
 
 
 
 
Term Loan - Stated Maturity: 2019
 
 variable rate(10)
 
250

 
250

Total Borrowings under Pre-Petition Credit Facility Subject to Compromise
 
 
 
3,215

 
3,215

Total Utility Debt Subject to Compromise
 
 
 
21,603

 
21,425

Total PG&E Corporation Consolidated Debt Subject to Compromise
 
 
 
$
22,253

 
$
22,075

 
 
 
 
 
 
 
(1) LSTC must be reported at the amounts expected to be allowed by the Bankruptcy Court. The carrying value of the debt subject to compromise will be adjusted as claims are approved. As of March 31, 2019, PG&E Corporation and the Utility wrote off $178 million of unamortized debt issuance costs and debt discount to present the debt subject to compromise at the outstanding face value. The write-offs are included within long-term regulatory assets in the Condensed Consolidated Statements of Income. See Notes 2 and 4 for further details.
(2) At March 31, 2019, the contractual LIBOR-based interest rate on loans were 3.97%.
(3) At March 31, 2019, the contractual LIBOR-based interest rate on the term loan was 3.71%.
(4) Pollution Control Bonds series 2008F and 2010E were reissued in June 2017.  Although the stated maturity date for both series is 2026, these bonds have a mandatory redemption date of May 31, 2022.

31



(5) Each series of these bonds is supported by a separate direct-pay letter of credit. Following the Utility’s Chapter 11 filing, investors in these bonds drew on the letter of credit facilities. The letter of credit facility supporting the Series 2009 A-B bonds has a maturity date of June 5, 2019. In December 2015, the maturity dates of the letter of credit facilities supporting the Series 1996 C, E, F, 1997 B bonds were extended to December 1, 2020. Although the stated maturity date of these bonds is 2026, each series will remain outstanding only if the Utility extends or replaces the letter of credit related to the series or otherwise obtains consent from the issuer to the continuation of the series without a credit facility.
(6) At March 31, 2019, the contractual interest rate on the letter of credit facility supporting these bonds was 4.13%.
(7) At March 31, 2019, the contractual interest rate on the letter of credit facility supporting these bonds ranged from 4.13% to 4.47%.
(8) Also includes $80 million in letters of credit.
(9) At March 31, 2019, the contractual LIBOR-based interest rate was 3.67%.
(10) At March 31, 2019, the contractual LIBOR-based interest rate was 3.09%.

NOTE 6: EQUITY

PG&E Corporation’s changes in equity for the three months ended March 31, 2019 and 2018 were as follows:
(in millions, except share amounts)
Common
Stock
Shares
 
Common
Stock
Amount
 
Reinvested
Earnings
 
Accumulated
Other
Comprehensive
Income
(Loss)
 
Total
Shareholders’
Equity
 
Non
controlling
Interest -
Preferred
Stock of
Subsidiary
 
Total
Equity
Balance at December 31, 2018
520,338,710

 
$
12,910

 
$
(250
)
 
$
(9
)
 
$
12,651

 
$
252

 
$
12,903

Net income (loss)

 

 
136

 

 
136

 

 
136

Other comprehensive loss

 

 

 

 

 

 

Common stock issued, net
8,871,568

 
85

 

 

 
85

 

 
85

Stock-based compensation amortization

 
5

 

 

 
5

 

 
5

Balance at March 31, 2019
529,210,278

 
$
13,000

 
$
(114
)
 
$
(9
)
 
$
12,877

 
$
252

 
$
13,129

(in millions, except share amounts)
Common
Stock
Shares
 
Common
Stock
Amount
 
Reinvested
Earnings
 
Accumulated
Other
Comprehensive
Income
(Loss)
 
Total
Shareholders’
Equity
 
Non
controlling
Interest -
Preferred
Stock of
Subsidiary
 
Total
Equity
Balance at December 31, 2017
514,775,845

 
$
12,632

 
$
6,596

 
$
(8
)
 
$
19,220

 
$
252

 
$
19,472

Net income

 

 
445

 

 
445

 

 
445

Other comprehensive income

 

 

 

 

 

 

Common stock issued, net
1,248,112

 
35

 

 

 
35

 

 
35

Stock-based compensation amortization

 
34

 

 

 
34

 

 
34

Preferred stock dividend requirement of
    subsidiary

 

 
(3
)
 

 
(3
)
 

 
(3
)
Balance at March 31, 2018
516,023,957

 
$
12,701

 
$
7,038

 
$
(8
)
 
$
19,731

 
$
252

 
$
19,983


The Utility’s changes in equity for the three months ended March 31, 2019 and 2018 were as follows:
(in millions)
Preferred
Stock
 
Common
Stock
Amount
 
Additional
Paid-in
Capital
 
Reinvested
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)