| UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C., 20549 | |||||||||||||||||||||||||||||||||||||||||
| FORM | 10-Q | ||||||||||||||||||||||||||||||||||||||||
| (Mark One) | |||||||||||||||||||||||||||||||||||||||||
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||||||||||||||||||||||||||||||||||
| For the quarterly period ended | September 30, 2020 | ||||||||||||||||||||||||||||||||||||||||
| 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 | Pacific Gas and Electric Company | ||||||||||||||||||||||||||||||||||||||||
| 77 Beale Street | 77 Beale Street | ||||||||||||||||||||||||||||||||||||||||
| P.O. Box 770000 | P.O. Box 770000 | ||||||||||||||||||||||||||||||||||||||||
| San Francisco, | California | 94177 | San Francisco, | California | 94177 | ||||||||||||||||||||||||||||||||||||
| Address of principal executive offices, including zip code | |||||||||||||||||||||||||||||||||||||||||
| PG&E Corporation | Pacific Gas and Electric Company | ||||||||||||||||||||||||||||||||||||||||
| 415 | 973-1000 | 415 | 973-7000 | ||||||||||||||||||||||||||||||||||||||
| Registrant’s telephone number, including area code | |||||||||||||||||||||||||||||||||||||||||
| 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 | The New York Stock Exchange | ||||||
| Equity Units | PCGU | The New York Stock Exchange | ||||||
| First preferred stock, cumulative, par value $25 per share, 5% series A redeemable | PCG-PE | NYSE American LLC | ||||||
| First preferred stock, cumulative, par value $25 per share, 5% redeemable | PCG-PD | NYSE American LLC | ||||||
| First preferred stock, cumulative, par value $25 per share, 4.80% redeemable | PCG-PG | NYSE American LLC | ||||||
| First preferred stock, cumulative, par value $25 per share, 4.50% redeemable | PCG-PH | NYSE American LLC | ||||||
| First preferred stock, cumulative, par value $25 per share, 4.36% series A redeemable | PCG-PI | NYSE American LLC | ||||||
| First preferred stock, cumulative, par value $25 per share, 6% nonredeemable | PCG-PA | NYSE American LLC | ||||||
| First preferred stock, cumulative, par value $25 per share, 5.50% nonredeemable | PCG-PB | NYSE American LLC | ||||||
| First preferred stock, cumulative, par value $25 per share, 5% nonredeemable | PCG-PC | NYSE American LLC | ||||||
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: | ☒ | Yes | ☐ | No | |||||||||||||||||||||||||||||||
| Pacific Gas and Electric Company: | ☒ | Yes | ☐ | No | |||||||||||||||||||||||||||||||
1
| 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: | ☒ | Yes | ☐ | No | |||||||||||||||||||||||||||||||
| Pacific Gas and Electric Company: | ☒ | 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: | ☒ | Large accelerated filer | ☐ | Accelerated filer | ||||||||||||||||||||||||||||
☐ | Non-accelerated filer | |||||||||||||||||||||||||||||||
| ☐ | Smaller reporting company | ☐ | Emerging growth company | |||||||||||||||||||||||||||||
| Pacific Gas and Electric Company: | ☐ | Large accelerated filer | ☐ | Accelerated filer | ||||||||||||||||||||||||||||
☒ | 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 | ☒ | No | ||||||||||||||||||||||||||||
| Pacific Gas and Electric Company: | ☐ | Yes | ☒ | No | ||||||||||||||||||||||||||||
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. | ||||||||||||||||||||||||||||||||
| PG&E Corporation: | ☒ | Yes | ☐ | No | ||||||||||||||||||||||||||||
| Pacific Gas and Electric Company: | ☒ | Yes | ☐ | No | ||||||||||||||||||||||||||||
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 October 26, 2020: | ||||||||||||||||||||||||||
| PG&E Corporation: | 1,984,565,829 | |||||||||||||||||||||||||
Pacific Gas and Electric Company: | 264,374,809 | |||||||||||||||||||||||||
2
PG&E CORPORATION AND
PACIFIC GAS AND ELECTRIC COMPANY
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020
TABLE OF CONTENTS
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GLOSSARY
The following terms and abbreviations appearing in the text of this report have the meanings indicated below.
| 2019 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, 2019 | ||||
| 2019 Wildfire Mitigation Plan | the wildfire mitigation plan for 2019 submitted by the Utility to the CPUC pursuant to SB 901, previously also referred to as the “2019 Wildfire Safety Plan” | ||||
| AB | Assembly Bill | ||||
| ABR | alternate base rate | ||||
| ALJ | administrative law judge | ||||
| ARO | asset retirement obligation | ||||
| ASU | accounting standard update issued by the FASB (see below) | ||||
| Backstop Party | a third-party investor party to a Backstop Commitment Letter | ||||
| 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 | ||||
| CARB | California Air Resources Board | ||||
| CARE | California Alternate Rates for Energy | ||||
| CCA | Community Choice Aggregator | ||||
| CEMA | Catastrophic Event Memorandum Account | ||||
| CEP | Community Engagement Plan | ||||
| 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 | ||||
| CHT | Customer Harm Threshold | ||||
| CPUC | California Public Utilities Commission | ||||
| CPPMA | COVID-19 Pandemic Protections Memorandum Account | ||||
| CRRs | congestion revenue rights | ||||
| CUE | Coalition of California Utility Employees | ||||
| CVA | Climate Vulnerability Assessment | ||||
| DA | Direct Access | ||||
| 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 | ||||
| DTSC | Department of Toxic Substances Control | ||||
| EPS | earnings per common share | ||||
| Effective Date | July 1, 2020, the effective date of the Plan in the Chapter 11 Cases | ||||
| FASB | Financial Accounting Standards Board | ||||
| FEMA | Federal Emergency Management Agency | ||||
| FERC | Federal Energy Regulatory Commission | ||||
| FHPMA | Fire Hazard Prevention Memorandum Account | ||||
| Formula Rate Proceedings | consolidated proceedings for the TO18 and TO20 rate cases | ||||
| FRMMA | Fire Risk Mitigation Memorandum Account | ||||
| Fire Victim Trust | trust established pursuant to the Plan for the benefit of holders of the Fire Victim Claims into which the Aggregate Fire Victim Consideration (as defined in the Plan) has been, and will continue to be funded | ||||
| GAAP | U.S. Generally Accepted Accounting Principles | ||||
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| 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 | ||||
| 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 | ||||
| NBC | non-bypassable charge | ||||
| NDCTP | Nuclear Decommissioning Cost Triennial Proceedings | ||||
| NEIL | Nuclear Electric Insurance Limited | ||||
| NRC | Nuclear Regulatory Commission | ||||
| OII | order instituting investigation | ||||
| OIR | order instituting rulemaking | ||||
| PCIA | Power Charge Indifference Adjustment | ||||
| PERA | Public Employees Retirement Association of New Mexico | ||||
| POD | Presiding Officer’s Decision | ||||
| PD | proposed decision | ||||
| Petition Date | January 29, 2019 | ||||
| the Plan | Debtors’ and Shareholder Proponents’ Joint Chapter 11 Plan of Reorganization, dated June 19, 2020 | ||||
| PSA | plan support agreement | ||||
| PSPS | Public Safety Power Shutoff | ||||
| RA | resource adequacy | ||||
| RAMP | Risk Assessment Mitigation Phase Report | ||||
| ROE | return on equity | ||||
| RSA | restructuring support agreement (as amended) | ||||
| SB | Senate Bill | ||||
| SEC | U.S. Securities and Exchange Commission | ||||
| Securities Act | The Securities Act of 1933, as amended | ||||
| SED | Safety and Enforcement Division of the CPUC | ||||
| SPV | Special purpose vehicle | ||||
| Tax Act | Tax Cuts and Jobs Act of 2017 | ||||
| TCC | Official Committee of Tort Claimants | ||||
| TO | transmission owner | ||||
| TURN | The Utility Reform Network | ||||
| Utility | Pacific Gas and Electric Company | ||||
| VIE(s) | variable interest entity(ies) | ||||
| WEMA | Wildfire Expense Memorandum Account | ||||
| Wildfire Assistance Fund | program designed to assist those displaced by the 2018 Camp fire and 2017 Northern California wildfires with the costs of temporary housing and other urgent needs | ||||
| Wildfire Fund | statewide fund established by AB 1054 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 | ||||
| Wildfires OII | Order Instituting Investigation into the 2017 Northern California Wildfires and the 2018 Camp Fire | ||||
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| WMCE | Wildfire Mitigation and Catastrophic Events | ||||
| WMP | Wildfire Mitigation Plan | ||||
| WMPMA | Wildfire Mitigation Plan Memorandum Account | ||||
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that are necessarily subject to various risks and uncertainties. These statements reflect management’s judgment and opinions that are based on current estimates, expectations, and projections about future events and assumptions regarding these events and management’s knowledge of facts as of the date of this report. These forward-looking statements relate to, among other matters, estimated losses, including penalties and fines, associated with various investigations and proceedings; forecasts of capital expenditures; estimates and assumptions used in critical accounting policies, including those relating to liabilities subject to compromise, insurance receivable, regulatory assets and liabilities, environmental remediation, litigation, third-party claims, the Wildfire Fund, and other liabilities; and the level of future equity or debt issuances. These statements are also identified by words such as “assume,” “expect,” “intend,” “forecast,” “plan,” “project,” “believe,” “estimate,” “predict,” “anticipate,” “may,” “should,” “would,” “could,” “potential” and similar expressions. PG&E Corporation and the Utility are not able to predict all the factors that may affect future results. Some of the factors that could cause future results to differ materially from those expressed or implied by the forward-looking statements, or from historical results, include, but are not limited to:
•PG&E Corporation’s and the Utility’s historical financial information not being indicative of future financial performance as a result of the Chapter 11 Cases and the financial and other restructuring recently undergone by PG&E Corporation and the Utility in connection with emergence from Chapter 11;
•the ability of PG&E Corporation and the Utility to raise financing for operations and investment;
•the risks and uncertainties associated with appeals to the Confirmation Order (as defined in Note 2 of the Notes to the Condensed Consolidated Financial Statements in Item 1);
•the risks and uncertainties associated with the 2019 Kincade fire, including the extent of the Utility’s liability in connection with the Kincade fire and whether the Utility will be able to timely recover related costs incurred therewith in excess of insurance; the timing of the insurance recoveries; the timing and outcome of the referral of the Cal Fire report in connection therewith to the Sonoma County District Attorney; and potential liabilities in connection with fines or penalties that could be imposed on the Utility if the CPUC or any other enforcement agency were to bring an enforcement action;
•the risks and uncertainties associated with any other wildfires, including the 2020 Zogg fire, that have occurred and/or may occur in the Utility’s service territory for which the cause has yet to be determined;
•the outcome of the Utility’s Community Wildfire Safety Program that the Utility has developed in coordination with first responders, civic and community leaders, and customers, to help reduce wildfire threats and improve safety as a result of climate-driven wildfires and extreme weather, including the Utility’s ability to comply with the targets and metrics set forth in its Wildfire Mitigation Plans; whether the Utility is able to retain or contract for the workforce necessary to execute its Community Wildfire Safety Program; and the cost of the program and the timing and outcome of any proceeding to recover such cost through rates;
•the ability of PG&E Corporation and the Utility to securitize $7.5 billion of costs related to the 2017 Northern California wildfires in a financing transaction that is designed to be rate neutral to customers;
•the impact of the Utility’s implementation of its PSPS program, including the timing and outcome of the OII to Examine the Late 2019 Public Safety Power Shutoff Events, and whether any fines or penalties or civil liability for damages will be imposed on the Utility as a result; the costs in connection with PSPS events, the timing and outcome of any proceeding to recover such cost through rates, and the effects on PG&E Corporation’s and the Utility’s reputations caused by implementation of the PSPS program;
•whether the Utility may be liable for future wildfires, and the impact of AB 1054 on potential losses in connection with such wildfires, including the CPUC’s implementation of the procedures for recovering such losses;
6
•the risks and uncertainties associated with the requirement under AB 1054 that the Utility maintain a valid safety certification pursuant to Section 8389(e) of the California Public Utilities Code and the potential unavailability of the Wildfire Fund in the event the Utility fails to maintain a valid safety certification;
•the timing and outcome of future regulatory and legislative developments, including future wildfire reforms, inverse condemnation reform, and other wildfire mitigation measures or other reforms targeted at the Utility or its industry;
•the severity, extent and duration of the global COVID-19 pandemic and its impact on PG&E Corporation’s and the Utility’s financial condition, results of operations, liquidity and cash flows, as well as on energy demand in the Utility’s service territory, the ability of the Utility to collect on customer invoices, the ability of the Utility to mitigate these effects, including with spending reductions, and the ability of the Utility to recover any losses incurred in connection with the COVID-19 pandemic, and the impact of workforce disruptions;
•whether the Utility will be able to obtain full recovery of its significantly increased insurance premiums, and the timing of any such recovery;
•whether the Utility can obtain wildfire insurance at a reasonable cost in the future, or at all, and whether insurance coverage is adequate for future losses or claims;
•increased employee attrition as a result of the challenging political and operating environment facing PG&E Corporation and the Utility;
•changes related to PG&E Corporation’s and the Utility’s pension and other post-retirement benefit plan obligations;
•the timing and outcomes of the 2020 GRC, FERC TO18, TO19, and TO20 rate cases, 2018 and 2019 CEMA applications, WEMA application, WMCE application, future applications for FRMMA, CPPMA, and WMPMA, future cost of capital proceedings, and other ratemaking and regulatory proceedings;
•the outcome of the probation and the Monitorship imposed by the federal court after the Utility’s conviction in the federal criminal trial in 2017, the timing and outcomes of the debarment proceeding, potential reliability penalties or sanctions from the North American Electric Reliability Corporation, or Western Electricity Coordinating Council, investigations that have been or may be commenced relating to the Utility’s compliance with natural gas- and electric- related laws and regulations, and the ultimate amount of fines, penalties, and remedial costs that the Utility may incur in connection with the outcomes including the costs of complying with any additional conditions of probation imposed in connection with the Utility’s federal criminal proceeding, such as expenses associated with any material expansion of the Utility’s vegetation management program, as well as the impact of additional conditions of probation on PG&E Corporation’s and the Utility’s ability to make distributions to shareholders;
•the effects on PG&E Corporation’s and the Utility’s reputations caused by matters such as the CPUC’s investigations and enforcement proceedings and the Utility’s criminal guilty plea as described in Note 10 of the Notes to the Condensed Consolidated Financial Statements under the heading “District Attorneys’ Offices Investigations”;
•the outcome of future legislative or regulatory actions as part of “Enhanced Enforcement” or otherwise that may be taken, such as requiring the Utility to transfer ownership of the Utility’s assets to municipalities or other public entities, or implement corporate governance, operational or other changes;
•whether the Utility can control its operating costs within the authorized levels of spending, and timely recover its costs through rates; whether the Utility can continue implementing a streamlined organizational structure and achieve project savings, the extent to which the Utility incurs unrecoverable costs that are higher than the forecasts of such costs; and changes in cost forecasts or the scope and timing of planned work resulting from changes in customer demand for electricity and natural gas or other reasons;
•whether the Utility and its third-party vendors and contractors are able to protect the Utility’s operational networks and information technology systems from cyber- and physical attacks, or other internal or external hazards;
•the timing and outcome in the Court of Appeals of the appeal of FERC’s order denying rehearing on March 17, 2020 granting the Utility a 50-basis point ROE incentive adder for continued participation in the CAISO;
7
•the outcome of current and future self-reports, investigations, or other enforcement proceedings that could be commenced or notices of violation that could be issued relating to the Utility’s compliance with laws, rules, regulations, or orders applicable to its operations, including the construction, expansion, or replacement of its electric and gas facilities, electric grid reliability, inspection and maintenance practices, customer billing and privacy, physical and cybersecurity, environmental laws and regulations; and the outcome of existing and future SED notices of violations;
•the impact of environmental remediation laws, regulations, and orders; the ultimate amount of costs incurred to discharge the Utility’s known and unknown remediation obligations; and the extent to which the Utility is able to recover environmental costs in rates or from other sources;
•the impact of SB 100, signed into law on September 10, 2018, which increased the percentage from 50% to 60% of California’s electricity portfolio that must come from renewables by 2030; and establishes state policy that 100% of all retail electricity sales must come from renewable portfolio standard-eligible or carbon-free resources by 2045;
•how the CPUC and the CARB implement state environmental laws relating to greenhouse gas, renewable energy targets, energy efficiency standards, distributed energy resources, electric vehicles, and similar matters, including whether the Utility is able to continue recovering associated compliance costs, such as the cost of emission allowances and offsets under cap-and-trade regulations; and whether the Utility is able to timely recover its associated investment costs;
•the impact of the California governor’s executive order issued on January 26, 2018, to implement a new target of five million zero-emission vehicles on the road in California by 2030 and the California governor’s executive order issued on September 23, 2020, requiring sales of all new passenger vehicles to be zero-emission by 2035 and additional measures to eliminate harmful emissions from the transportation sector;
•the ultimate amount of unrecoverable environmental costs the Utility incurs associated with the Utility’s natural gas compressor station site located near Hinkley, California and the Utility’s fossil fuel-fired generation sites;
•the impact of new legislation or NRC regulations, recommendations, policies, decisions, or orders relating to the nuclear industry, including operations, seismic design, security, safety, relicensing, the storage of spent nuclear fuel, decommissioning, cooling water intake, or other issues; the impact of potential actions, such as legislation, taken by state agencies that may affect the Utility’s ability to continue operating Diablo Canyon until its planned retirement;
•the impact of wildfires, droughts, floods, high winds, lightning or other weather-related conditions or events, climate change, natural disasters, acts of terrorism, war, vandalism (including cyber-attacks), downed power lines, and other events, that can cause unplanned outages, reduce generating output, disrupt the Utility’s service to customers, or damage or disrupt the facilities, operations, or information technology and systems owned by the Utility, its customers, or third parties on which the Utility relies, and the reparation and other costs that the Utility may incur in connection with such conditions or events; the impact of the adequacy of the Utility’s emergency preparedness; whether the Utility incurs liability to third parties for property damage or personal injury caused by such events; whether the Utility is subject to civil, criminal, or regulatory penalties in connection with such events; and whether the Utility’s insurance coverage is available for these types of claims and sufficient to cover the Utility’s liability;
•the breakdown or failure of equipment that can cause damages, including fires, and unplanned outages; and whether the Utility will be subject to investigations, penalties, and other costs in connection with such events;
•the outcome of future legislative developments in connection with SB 350 (the Golden State Energy Act), a bill which was signed into law on June 30, 2020 and authorizes the creation by the California governor of a new entity “Golden State Energy,” a nonprofit public benefit corporation, for the purpose of acquiring the Utility’s assets and serving electric and gas in the Utility’s service territory in the event that the CPUC revokes the Utility’s Certificate of Public Convenience and Necessity;
•whether the Utility’s climate change adaptation strategies are successful;
•the impact that reductions in Utility customer demand for electricity and natural gas, driven by customer departures to CCAs and DA providers, have on the Utility’s ability to make and recover its investments through rates and earn its authorized return on equity, and whether the Utility is successful in addressing the impact of growing distributed and renewable generation resources, and changing customer demand for its natural gas and electric services;
8
•the supply and price of electricity, natural gas, and nuclear fuel; the extent to which the Utility can manage and respond to the volatility of energy commodity prices; the ability of the Utility and its counterparties to post or return collateral in connection with price risk management activities; and whether the Utility is able to recover timely its electric generation and energy commodity costs through rates, including its renewable energy procurement costs;
•the amount and timing of charges reflecting probable liabilities for third-party claims; the extent to which costs incurred in connection with third-party claims or litigation can be recovered through insurance, rates, or from other third parties; and whether the Utility can continue to obtain adequate insurance coverage for future losses or claims, especially following a major event that causes widespread third-party losses;
•the risks and uncertainties associated with any future substantial sales of shares of common stock of PG&E Corporation by existing shareholders, including the Fire Victim Trust, the investors party to the Investment Agreement (as defined in Note 6 of the Notes to the Condensed Consolidated Financial Statements in Item 1) and the Backstop Parties;
•the impact of the regulation of utilities and their holding companies, including how the CPUC interprets and enforces the financial and other conditions imposed on PG&E Corporation when it became the Utility’s holding company, and whether the uncertainty in connection with the Utility’s probation or enforcement matters will impact the Utility’s ability to make distributions to PG&E Corporation;
•the outcome of federal or state tax audits and the impact of any changes in federal or state tax laws, policies, regulations, or their interpretation;
•whether PG&E Corporation or the Utility undergoes an “ownership change” within the meaning of Section 382 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), as a result of which, tax attributes could be limited;
•changes in the regulatory and economic environment, including potential changes affecting renewable energy sources and associated tax credits, as a result of the current federal administration; and
•the impact of changes in GAAP, standards, rules, or policies, including those related to regulatory accounting, and the impact of changes in their interpretation or application.
For more information about the significant risks that could affect the outcome of the forward-looking statements and PG&E Corporation’s and the Utility’s future financial condition, results of operations, liquidity, and cash flows, see Item 1A. Risk Factors below and a detailed discussion of these matters contained in Item 2. MD&A. PG&E Corporation and the Utility do not undertake any obligation to update forward-looking statements, whether in response to new information, future events, or otherwise.
PG&E Corporation and the Utility routinely provide links to the Utility’s principal regulatory proceedings before the CPUC and the FERC at http://investor.pgecorp.com, under the “Regulatory Filings” tab, so that such filings are available to investors upon filing with the relevant agency. PG&E Corporation and the Utility also routinely post or provide direct links to presentations, documents, and other information that may be of interest to investors at http://investor.pgecorp.com, under the “PG&E Progress,” “Chapter 11,” “Wildfire Updates” and “News & Events: Events & Presentations” tabs, respectively, in order to publicly disseminate such information. It is possible that any of these filings or information included therein could be deemed to be material information. The information contained on such website is not part of this or any other report that PG&E Corporation or the Utility files with, or furnishes to, the SEC. PG&E Corporation and the Utility are providing the address to this website solely for the information of investors and do not intend the address to be an active link.
9
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PG&E CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
| (Unaudited) | |||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (in millions, except per share amounts) | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
| Operating Revenues | |||||||||||||||||||||||
| Electric | $ | 3,810 | $ | 3,554 | $ | 10,285 | $ | 9,292 | |||||||||||||||
| Natural gas | 1,072 | 878 | 3,436 | 3,094 | |||||||||||||||||||
| Total operating revenues | 4,882 | 4,432 | 13,721 | 12,386 | |||||||||||||||||||
| Operating Expenses | |||||||||||||||||||||||
| Cost of electricity | 1,114 | 1,070 | 2,418 | 2,506 | |||||||||||||||||||
| Cost of natural gas | 90 | 68 | 508 | 515 | |||||||||||||||||||
| Operating and maintenance | 2,290 | 2,206 | 6,398 | 6,235 | |||||||||||||||||||
| Wildfire-related claims, net of insurance recoveries | 25 | 2,548 | 195 | 6,448 | |||||||||||||||||||
| Wildfire fund expense | 120 | — | 293 | — | |||||||||||||||||||
| Depreciation, amortization, and decommissioning | 845 | 840 | 2,574 | 2,433 | |||||||||||||||||||
| Total operating expenses | 4,484 | 6,732 | 12,386 | 18,137 | |||||||||||||||||||
| Operating Income (Loss) | 398 | (2,300) | 1,335 | (5,751) | |||||||||||||||||||
| Interest income | 5 | 18 | 33 | 62 | |||||||||||||||||||
| Interest expense | (391) | (52) | (844) | (215) | |||||||||||||||||||
| Other income, net | 102 | 62 | 299 | 199 | |||||||||||||||||||
| Reorganization items, net | (137) | (73) | (1,937) | (256) | |||||||||||||||||||
| Loss Before Income Taxes | (23) | (2,345) | (1,114) | (5,961) | |||||||||||||||||||
| Income tax provision (benefit) | (109) | (729) | 394 | (1,932) | |||||||||||||||||||
| Net Income (Loss) | 86 | (1,616) | (1,508) | (4,029) | |||||||||||||||||||
| Preferred stock dividend requirement of subsidiary | 3 | 3 | 10 | 10 | |||||||||||||||||||
| 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 | |||||||||||||||||||
| Weighted Average Common Shares Outstanding, Diluted | 2,140 | 529 | 1,012 | 528 | |||||||||||||||||||
| Net Earnings (Loss) Per Common Share, Basic | $ | 0.04 | $ | (3.06) | $ | (1.50) | $ | (7.65) | |||||||||||||||
| Net Earnings (Loss) Per Common Share, Diluted | $ | 0.04 | $ | (3.06) | $ | (1.50) | $ | (7.65) | |||||||||||||||
| See accompanying Notes to the Condensed Consolidated Financial Statements. | |||||||||||||||||||||||
10
PG&E CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| (Unaudited) | |||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (in millions) | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
| Net Income (Loss) | $ | 86 | $ | (1,616) | $ | (1,508) | $ | (4,029) | |||||||||||||||
| 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 (Loss) | 86 | (1,616) | (1,508) | (4,029) | |||||||||||||||||||
| Preferred stock dividend requirement of subsidiary | 3 | 3 | 10 | 10 | |||||||||||||||||||
Comprehensive Income (Loss) Attributable to Common Shareholders | $ | 83 | $ | (1,619) | $ | (1,518) | $ | (4,039) | |||||||||||||||
| See accompanying Notes to the Condensed Consolidated Financial Statements. | |||||||||||||||||||||||
11
PG&E CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
| (Unaudited) | |||||||||||
| Balance At | |||||||||||
| (in millions) | September 30, 2020 | December 31, 2019 | |||||||||
| ASSETS | |||||||||||
| Current Assets | |||||||||||
| Cash and cash equivalents | $ | 464 | $ | 1,570 | |||||||
| Restricted cash | 215 | 7 | |||||||||
| Accounts receivable: | |||||||||||
Customers (net of allowance for doubtful accounts of $98 and $43 at respective dates) | 1,775 | 1,287 | |||||||||
| Accrued unbilled revenue | 1,078 | 969 | |||||||||
| Regulatory balancing accounts | 2,608 | 2,114 | |||||||||
| Other | 1,075 | 2,617 | |||||||||
| Regulatory assets | 346 | 315 | |||||||||
| Inventories: | |||||||||||
| Gas stored underground and fuel oil | 94 | 97 | |||||||||
| Materials and supplies | 552 | 550 | |||||||||
| Wildfire fund asset | 465 | — | |||||||||
| Other | 1,126 | 639 | |||||||||
| Total current assets | 9,798 | 10,165 | |||||||||
| Property, Plant, and Equipment | |||||||||||
| Electric | 65,498 | 62,707 | |||||||||
| Gas | 23,636 | 22,688 | |||||||||
| Construction work in progress | 2,941 | 2,675 | |||||||||
| Other | 21 | 20 | |||||||||
| Total property, plant, and equipment | 92,096 | 88,090 | |||||||||
| Accumulated depreciation | (27,426) | (26,455) | |||||||||
| Net property, plant, and equipment | 64,670 | 61,635 | |||||||||
| Other Noncurrent Assets | |||||||||||
| Regulatory assets | 7,986 | 6,066 | |||||||||
| Nuclear decommissioning trusts | 3,318 | 3,173 | |||||||||
| Operating lease right of use asset | 1,893 | 2,286 | |||||||||
| Wildfire fund asset | 5,932 | — | |||||||||
| Income taxes receivable | 67 | 67 | |||||||||
| Other | 1,923 | 1,804 | |||||||||
| Total other noncurrent assets | 21,119 | 13,396 | |||||||||
| TOTAL ASSETS | $ | 95,587 | $ | 85,196 | |||||||
| See accompanying Notes to the Condensed Consolidated Financial Statements. | |||||||||||
12
PG&E CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
| | (Unaudited) | ||||||||||
| Balance At | |||||||||||
| (in millions, except share amounts) | September 30, 2020 | December 31, 2019 | |||||||||
| LIABILITIES AND EQUITY | |||||||||||
Current Liabilities | |||||||||||
| Short-term borrowings | $ | 2,432 | $ | — | |||||||
| Debtor-in-possession financing, classified as current | — | 1,500 | |||||||||
| Accounts payable: | |||||||||||
| Trade creditors | 2,756 | 1,954 | |||||||||
| Regulatory balancing accounts | 2,326 | 1,797 | |||||||||
| Other | 719 | 566 | |||||||||
| Operating lease liabilities | 536 | 556 | |||||||||
| Interest payable | 327 | 4 | |||||||||
| Disputed claims and customer refunds | 240 | — | |||||||||
| Wildfire-related claims | 1,975 | — | |||||||||
| Other | 2,010 | 1,254 | |||||||||
| Total current liabilities | 13,321 | 7,631 | |||||||||
| Noncurrent Liabilities | |||||||||||
| Long-term debt | 36,311 | — | |||||||||
| Regulatory liabilities | 9,981 | 9,270 | |||||||||
| Pension and other post-retirement benefits | 1,894 | 1,884 | |||||||||
| Asset retirement obligations | 6,019 | 5,854 | |||||||||
| Deferred income taxes | 1,225 | 320 | |||||||||
| Operating lease liabilities | 1,357 | 1,730 | |||||||||
| Other | 4,415 | 2,573 | |||||||||
| Total noncurrent liabilities | 61,202 | 21,631 | |||||||||
| Liabilities Subject to Compromise | — | 50,546 | |||||||||
| Equity | |||||||||||
| Shareholders’ Equity | |||||||||||
Common stock, no par value, authorized 3,600,000,000 and 800,000,000 shares at respective dates; 1,984,562,035 and 529,236,741 shares outstanding at respective dates | 30,222 | 13,038 | |||||||||
| Reinvested earnings | (9,400) | (7,892) | |||||||||
| Accumulated other comprehensive loss | (10) | (10) | |||||||||
Total shareholders’ equity | 20,812 | 5,136 | |||||||||
| Noncontrolling Interest - Preferred Stock of Subsidiary | 252 | 252 | |||||||||
| Total equity | 21,064 | 5,388 | |||||||||
| TOTAL LIABILITIES AND EQUITY | $ | 95,587 | $ | 85,196 | |||||||
| See accompanying Notes to the Condensed Consolidated Financial Statements. | |||||||||||
13
PG&E CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| (Unaudited) | |||||||||||
| Nine Months Ended September 30, | |||||||||||
| (in millions) | 2020 | 2019 | |||||||||
| Cash Flows from Operating Activities | |||||||||||
| Net loss | $ | (1,508) | $ | (4,029) | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation, amortization, and decommissioning | 2,574 | 2,433 | |||||||||
| Allowance for equity funds used during construction | (43) | (64) | |||||||||
| Deferred income taxes and tax credits, net | 923 | (1,548) | |||||||||
| Reorganization items, net (Note 2) | 1,597 | 97 | |||||||||
| Wildfire fund expense | 293 | — | |||||||||
| Disallowed capital expenditures | 16 | 232 | |||||||||
| Other | 260 | 112 | |||||||||
| Effect of changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | (1,012) | (264) | |||||||||
| Wildfire-related insurance receivable | 1,657 | 35 | |||||||||
| Inventories | (12) | (68) | |||||||||
| Accounts payable | 465 | 371 | |||||||||
| Wildfire-related claims | (16,800) | (114) | |||||||||
| Income taxes receivable/payable | — | 8 | |||||||||
| Other current assets and liabilities | (1,557) | (7) | |||||||||
| Regulatory assets, liabilities, and balancing accounts, net | (1,393) | 90 | |||||||||
| Liabilities subject to compromise | 413 | 6,704 | |||||||||
| Contributions to wildfire fund | (5,008) | — | |||||||||
| Other noncurrent assets and liabilities | (84) | 79 | |||||||||
| Net cash provided by (used in) operating activities | (19,219) | 4,067 | |||||||||
| Cash Flows from Investing Activities | |||||||||||
| Capital expenditures | (5,475) | (4,192) | |||||||||
| Proceeds from sales and maturities of nuclear decommissioning trust investments | 1,144 | 808 | |||||||||
| Purchases of nuclear decommissioning trust investments | (1,203) | (874) | |||||||||
| Other | 10 | 8 | |||||||||
Net cash used in investing activities | (5,524) | (4,250) | |||||||||
| Cash Flows from Financing Activities | |||||||||||
Proceeds from debtor-in-possession credit facility | 500 | 1,850 | |||||||||
| Repayments of debtor-in-possession credit facility | (2,000) | (350) | |||||||||
Debtor-in-possession credit facility debt issuance costs | (3) | (114) | |||||||||
| Bridge facility financing fees | (73) | — | |||||||||
| Pre-petition long-term debt repaid | (750) | — | |||||||||
| Borrowings under revolving credit facilities | 2,420 | — | |||||||||
| Repayments under revolving credit facilities | (1,480) | — | |||||||||
| Borrowings under term loan credit facilities | 3,000 | — | |||||||||
| Credit facilities financing fees | (22) | — | |||||||||
Proceeds from issuance of long-term debt, net of discount and issuance costs of $178 | 13,497 | — | |||||||||
| Repayment of long-term debt | (7) | — | |||||||||
| Exchanged debt financing fees | (103) | — | |||||||||
14
| Common stock issued, net of issuance costs | 7,582 | 85 | |||||||||
| Equity Units issued | 1,304 | — | |||||||||
| Other | (20) | 14 | |||||||||
| Net cash provided by financing activities | 23,845 | 1,485 | |||||||||
| Net change in cash, cash equivalents, and restricted cash | (898) | 1,302 | |||||||||
| Cash, cash equivalents, and restricted cash at January 1 | 1,577 | 1,675 | |||||||||
| Cash, cash equivalents, and restricted cash at September 30 | $ | 679 | $ | 2,977 | |||||||
| Less: Restricted cash and restricted cash equivalents included in other current assets | (215) | (7) | |||||||||
| Cash and cash equivalents at September 30 | $ | 464 | $ | 2,970 | |||||||
| Supplemental disclosures of cash flow information | |||||||||||
| Cash paid for: | |||||||||||
| Interest, net of amounts capitalized | $ | (1,372) | $ | (38) | |||||||
Supplemental disclosures of noncash investing and financing activities | |||||||||||
| Capital expenditures financed through accounts payable | $ | 404 | $ | 981 | |||||||
| Operating lease liabilities arising from obtaining right-of-use assets | 13 | 2,816 | |||||||||
| Common stock issued in satisfaction of liabilities | 8,276 | — | |||||||||
| See accompanying Notes to the Condensed Consolidated Financial Statements. | |||||||||||
15
PG&E CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
| (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, 2019 | 529,236,741 | $ | 13,038 | $ | (7,892) | $ | (10) | $ | 5,136 | $ | 252 | $ | 5,388 | ||||||||||||||||||||||||||||
| Net income | — | — | 374 | — | 374 | — | 374 | ||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Common stock issued, net | 549,155 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Stock-based compensation amortization | — | (3) | — | — | (3) | — | (3) | ||||||||||||||||||||||||||||||||||
| Balance at March 31, 2020 | 529,785,896 | $ | 13,035 | $ | (7,518) | $ | (10) | $ | 5,507 | $ | 252 | $ | 5,759 | ||||||||||||||||||||||||||||
| Net loss | — | — | (1,968) | — | (1,968) | — | (1,968) | ||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Common stock issued, net | 7,459 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Stock-based compensation amortization | — | 10 | — | — | 10 | — | 10 | ||||||||||||||||||||||||||||||||||
| Balance at June 30, 2020 | 529,793,355 | $ | 13,045 | $ | (9,486) | $ | (10) | $ | 3,549 | $ | 252 | $ | 3,801 | ||||||||||||||||||||||||||||
| Net income | — | — | 86 | — | 86 | — | 86 | ||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Common stock issued, net | 1,454,768,680 | 15,855 | — | — | 15,855 | — | 15,855 | ||||||||||||||||||||||||||||||||||
| Equity units issued | — | 1,304 | — | — | 1,304 | — | 1,304 | ||||||||||||||||||||||||||||||||||
| Stock-based compensation amortization | — | 18 | — | — | 18 | — | 18 | ||||||||||||||||||||||||||||||||||
| Balance at September 30, 2020 | 1,984,562,035 | $ | 30,222 | $ | (9,400) | $ | (10) | $ | 20,812 | $ | 252 | $ | 21,064 | ||||||||||||||||||||||||||||
| (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 | — | — | 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 | ||||||||||||||||||||||||||||
| Net loss | — | — | (2,549) | — | (2,549) | — | (2,549) | ||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Common stock issued, net | 13,515 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Stock-based compensation amortization | — | 14 | — | — | 14 | — | 14 | ||||||||||||||||||||||||||||||||||
| Balance at June 30, 2019 | 529,223,793 | $ | 13,014 | $ | (2,663) | $ | (9) | $ | 10,342 | $ | 252 | $ | 10,594 | ||||||||||||||||||||||||||||
| Net loss | — | — | (1,616) | — | (1,616) | — | (1,616) | ||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Common stock issued, net | 5,724 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Stock-based compensation amortization | — | 13 | — | — | 13 | — | 13 | ||||||||||||||||||||||||||||||||||
| Balance at September 30, 2019 | 529,229,517 | $ | 13,027 | $ | (4,279) | $ | (9) | $ | 8,739 | $ | 252 | $ | 8,991 | ||||||||||||||||||||||||||||
| See accompanying Notes to the Condensed Consolidated Financial Statements. | ||
16
PACIFIC GAS AND ELECTRIC COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
| (Unaudited) | |||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (in millions) | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
| Operating Revenues | |||||||||||||||||||||||
| Electric | $ | 3,810 | $ | 3,554 | $ | 10,285 | $ | 9,292 | |||||||||||||||
| Natural gas | 1,072 | 878 | 3,436 | 3,094 | |||||||||||||||||||
| Total operating revenues | 4,882 | 4,432 | 13,721 | 12,386 | |||||||||||||||||||
| Operating Expenses | |||||||||||||||||||||||
| Cost of electricity | 1,114 | 1,070 | 2,418 | 2,506 | |||||||||||||||||||
| Cost of natural gas | 90 | 68 | 508 | 515 | |||||||||||||||||||
| Operating and maintenance | 2,311 | 2,208 | 6,421 | 6,252 | |||||||||||||||||||
| Wildfire-related claims, net of insurance recoveries | 25 | 2,548 | 195 | 6,448 | |||||||||||||||||||
| Wildfire fund expense | 120 | — | 293 | — | |||||||||||||||||||
| Depreciation, amortization, and decommissioning | 845 | 840 | 2,574 | 2,433 | |||||||||||||||||||
| Total operating expenses | 4,505 | 6,734 | 12,409 | 18,154 | |||||||||||||||||||
| Operating Income (Loss) | 377 | (2,302) | 1,312 | (5,768) | |||||||||||||||||||
| Interest income | 5 | 18 | 33 | 61 | |||||||||||||||||||
| Interest expense | (323) | (52) | (764) | (213) | |||||||||||||||||||
| Other income, net | 101 | 57 | 287 | 187 | |||||||||||||||||||
Reorganization items, net | (82) | (69) | (286) | (237) | |||||||||||||||||||
| Income (Loss) Before Income Taxes | 78 | (2,348) | 582 | (5,970) | |||||||||||||||||||
| Income tax provision (benefit) | (92) | (738) | 434 | (1,943) | |||||||||||||||||||
| Net Income (Loss) | 170 | (1,610) | 148 | (4,027) | |||||||||||||||||||
| Preferred stock dividend requirement | 3 | 3 | 10 | 10 | |||||||||||||||||||
| Income (Loss) Attributable to Common Stock | $ | 167 | $ | (1,613) | $ | 138 | $ | (4,037) | |||||||||||||||
| See accompanying Notes to the Condensed Consolidated Financial Statements. | |||||||||||||||||||||||
17
PACIFIC GAS AND ELECTRIC COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| (Unaudited) | |||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (in millions) | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
| Net Income (Loss) | $ | 170 | $ | (1,610) | $ | 148 | $ | (4,027) | |||||||||||||||
| Other Comprehensive Income | |||||||||||||||||||||||
Pension and other post-retirement benefit plans obligations (net of taxes of $0, $0, $0, and $0, at respective dates) | 1 | — | 1 | — | |||||||||||||||||||
| Total other comprehensive income | 1 | — | 1 | — | |||||||||||||||||||
| Comprehensive Income (Loss) | $ | 171 | $ | (1,610) | $ | 149 | $ | (4,027) | |||||||||||||||
| See accompanying Notes to the Condensed Consolidated Financial Statements. | |||||||||||||||||||||||
18
PACIFIC GAS AND ELECTRIC COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
| (Unaudited) | |||||||||||
| Balance At | |||||||||||
| (in millions) | September 30, 2020 | December 31, 2019 | |||||||||
| ASSETS | |||||||||||
| Current Assets | |||||||||||
| Cash and cash equivalents | $ | 202 | $ | 1,122 | |||||||
| Restricted cash | 215 | 7 | |||||||||
| Accounts receivable: | |||||||||||
Customers (net of allowance for doubtful accounts of $98 and $43 at respective dates) | 1,775 | 1,287 | |||||||||
| Accrued unbilled revenue | 1,078 | 969 | |||||||||
| Regulatory balancing accounts | 2,608 | 2,114 | |||||||||
| Other | 1,081 | 2,647 | |||||||||
| Regulatory assets | 346 | 315 | |||||||||
| Inventories: | |||||||||||
| Gas stored underground and fuel oil | 94 | 97 | |||||||||
| Materials and supplies | 552 | 550 | |||||||||
| Wildfire fund asset | 465 | — | |||||||||
| Other | 1,112 | 628 | |||||||||
| Total current assets | 9,528 | 9,736 | |||||||||
| Property, Plant, and Equipment | |||||||||||
| Electric | 65,498 | 62,707 | |||||||||
| Gas | 23,636 | 22,688 | |||||||||
| Construction work in progress | 2,941 | 2,675 | |||||||||
| Other | 18 | 18 | |||||||||
| Total property, plant, and equipment | 92,093 | 88,088 | |||||||||
| Accumulated depreciation | (27,423) | (26,453) | |||||||||
| Net property, plant, and equipment | 64,670 | 61,635 | |||||||||
| Other Noncurrent Assets | |||||||||||
| Regulatory assets | 7,986 | 6,066 | |||||||||
| Nuclear decommissioning trusts | 3,318 | 3,173 | |||||||||
| Operating lease right of use asset | 1,887 | 2,279 | |||||||||
| Wildfire fund asset | 5,932 | — | |||||||||
| Income taxes receivable | 66 | 66 | |||||||||
| Other | 1,764 | 1,659 | |||||||||
| Total other noncurrent assets | 20,953 | 13,243 | |||||||||
| TOTAL ASSETS | $ | 95,151 | $ | 84,614 | |||||||
| See accompanying Notes to the Condensed Consolidated Financial Statements. | |||||||||||
19
PACIFIC GAS AND ELECTRIC COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
| (Unaudited) | |||||||||||
| Balance At | |||||||||||
| (in millions. except share amounts) | September 30, 2020 | December 31, 2019 | |||||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current Liabilities | |||||||||||
| Short-term borrowings | $ | 2,432 | $ | — | |||||||
| Debtor-in-possession financing, classified as current | — | 1,500 | |||||||||
| Accounts payable: | |||||||||||
| Trade creditors | 2,719 | 1,949 | |||||||||
| Regulatory balancing accounts | 2,326 | 1,797 | |||||||||
| Other | 759 | 675 | |||||||||
| Operating lease liabilities | 533 | 553 | |||||||||
| Interest payable | 298 | 4 | |||||||||
| Disputed claims and customer refunds | 240 | — | |||||||||
| Wildfire-related claims | 1,975 | — | |||||||||
| Other | 1,998 | 1,263 | |||||||||
| Total current liabilities | 13,280 | 7,741 | |||||||||
| Noncurrent Liabilities | |||||||||||
| Long-term debt | 31,657 | — | |||||||||
| Regulatory liabilities | 9,981 | 9,270 | |||||||||
| Pension and other post-retirement benefits | 1,797 | 1,884 | |||||||||
| Asset retirement obligations | 6,019 | 5,854 | |||||||||
| Deferred income taxes | 1,387 | 442 | |||||||||
| Operating lease liabilities | 1,354 | 1,726 | |||||||||
| Other | 4,456 | 2,626 | |||||||||
| Total noncurrent liabilities | 56,651 | 21,802 | |||||||||
| Liabilities Subject to Compromise | — | 49,736 | |||||||||
| 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 | 28,286 | 8,550 | |||||||||
| Reinvested earnings | (4,648) | (4,796) | |||||||||
| Accumulated other comprehensive income | 2 | 1 | |||||||||
| Total shareholders’ equity | 25,220 | 5,335 | |||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 95,151 | $ | 84,614 | |||||||
| See accompanying Notes to the Condensed Consolidated Financial Statements. | |||||||||||
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PACIFIC GAS AND ELECTRIC COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| (Unaudited) | |||||||||||
| Nine Months Ended September 30, | |||||||||||
| (in millions) | 2020 | 2019 | |||||||||
| Cash Flows from Operating Activities | |||||||||||
| Net income (loss) | $ | 148 | $ | (4,027) | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation, amortization, and decommissioning | 2,574 | 2,433 | |||||||||
| Allowance for equity funds used during construction | (43) | (64) | |||||||||
| Deferred income taxes and tax credits, net | 961 | (1,555) | |||||||||
| Reorganization items, net (Note 2) | 3 | 92 | |||||||||
| Wildfire fund expense | 293 | — | |||||||||
| Disallowed capital expenditures | 16 | 232 | |||||||||
| Other | 237 | 79 | |||||||||
| Effect of changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | (987) | (274) | |||||||||
| Wildfire-related insurance receivable | 1,657 | 35 | |||||||||
| Inventories | (12) | (68) | |||||||||
| Accounts payable | 423 | 418 | |||||||||
| Wildfire-related claims | (16,800) | (114) | |||||||||
| Income taxes receivable/payable | — | 1 | |||||||||
| Other current assets and liabilities | (1,594) | 9 | |||||||||
| Regulatory assets, liabilities, and balancing accounts, net | (1,393) | 90 | |||||||||
| Liabilities subject to compromise | 401 | 6,695 | |||||||||
| Contributions to wildfire fund | (5,008) | — | |||||||||
| Other noncurrent assets and liabilities | (46) | 96 | |||||||||
| Net cash provided by (used in) operating activities | (19,170) | 4,078 | |||||||||
| Cash Flows from Investing Activities | |||||||||||
| Capital expenditures | (5,475) | (4,192) | |||||||||
| Proceeds from sales and maturities of nuclear decommissioning trust investments | 1,144 | 808 | |||||||||
| Purchases of nuclear decommissioning trust investments | (1,203) | (874) | |||||||||
| Other | 10 | 8 | |||||||||
Net cash used in investing activities | (5,524) | (4,250) | |||||||||
| Cash Flows from Financing Activities | |||||||||||
Proceeds from debtor-in-possession credit facility | 500 | 1,850 | |||||||||
| Repayments of debtor-in-possession credit facility | (2,000) | (350) | |||||||||
Debtor-in-possession credit facility debt issuance costs | (3) | (98) | |||||||||
| Bridge facility financing fees | (33) | — | |||||||||
| Pre-petition long-term debt repaid | (100) | — | |||||||||
| Borrowings under revolving credit facilities | 2,420 | — | |||||||||
| Repayments under revolving credit facilities | (1,480) | — | |||||||||
| Borrowings under term loan credit facilities | 3,000 | — | |||||||||
| Credit facilities financing fees | (22) | — | |||||||||
Proceeds from issuance of long-term debt, net of discount and issuance costs of $88 | 8,837 | — | |||||||||
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| Exchanged debt financing fees | (103) | — | |||||||||
| Equity contribution from PG&E Corporation | 12,986 | — | |||||||||
| Other | (20) | 14 | |||||||||
| Net cash provided by financing activities | 23,982 | 1,416 | |||||||||
| Net change in cash, cash equivalents, and restricted cash | (712) | 1,244 | |||||||||
| Cash, cash equivalents, and restricted cash at January 1 | 1,129 | 1,302 | |||||||||
| Cash, cash equivalents, and restricted cash at September 30 | $ | 417 | $ | 2,546 | |||||||
| Less: Restricted cash and restricted cash equivalents included in other current assets | (215) | (7) | |||||||||
| Cash and cash equivalents at September 30 | $ | 202 | $ | 2,539 | |||||||
| Supplemental disclosures of cash flow information | |||||||||||
| Cash paid for: | |||||||||||
| Interest, net of amounts capitalized | $ | (1,305) | $ | (36) | |||||||
| Supplemental disclosures of noncash investing and financing activities | |||||||||||
| Capital expenditures financed through accounts payable | $ | 404 | $ | 981 | |||||||
| Operating lease liabilities arising from obtaining right-of-use assets | 13 | 2,807 | |||||||||
| Common stock equity infusion from PG&E Corporation used to satisfy liabilities | 6,750 | — | |||||||||
| See accompanying Notes to the Condensed Consolidated Financial Statements. | |||||||||||
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PACIFIC GAS AND ELECTRIC COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
| (in millions) | Preferred Stock | Common Stock Amount | Additional Paid-in Capital | Reinvested Earnings | Accumulated Other Comprehensive Income (Loss) | Total Shareholders’ Equity | |||||||||||||||||||||||||||||
| Balance at December 31, 2019 | $ | 258 | $ | 1,322 | $ | 8,550 | $ | (4,796) | $ | 1 | $ | 5,335 | |||||||||||||||||||||||
| Net income | — | — | — | 451 | — | 451 | |||||||||||||||||||||||||||||
| Balance at March 31, 2020 | $ | 258 | $ | 1,322 | $ | 8,550 | $ | (4,345) | $ | 1 | $ | 5,786 | |||||||||||||||||||||||
| Net loss | — | — | — | (473) | — | (473) | |||||||||||||||||||||||||||||
| Balance at June 30, 2020 | $ | 258 | $ | 1,322 | $ | 8,550 | $ | (4,818) | $ | 1 | $ | 5,313 | |||||||||||||||||||||||
| Net income | — | — | — | 170 | — | 170 | |||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | 1 | 1 | |||||||||||||||||||||||||||||
| Equity contribution | — | — | 19,736 | — | — | 19,736 | |||||||||||||||||||||||||||||
| Balance at September 30, 2020 | $ | 258 | $ | 1,322 | $ | 28,286 | $ | (4,648) | $ | 2 | $ | 25,220 | |||||||||||||||||||||||
| (in millions) | Preferred Stock | Common Stock Amount | Additional Paid-in Capital | Reinvested Earnings | Accumulated Other Comprehensive Income (Loss) | Total Shareholders’ Equity | |||||||||||||||||||||||||||||
| Balance at December 31, 2018 | $ | 258 | $ | 1,322 | $ | 8,550 | $ | 2,826 | $ | (1) | $ | 12,955 | |||||||||||||||||||||||
| Net income | — | — | — | 133 | — | 133 | |||||||||||||||||||||||||||||
| Balance at March 31, 2019 | $ | 258 | $ | 1,322 | $ | 8,550 | $ | 2,959 | $ | (1) | $ | 13,088 | |||||||||||||||||||||||
| Net loss | — | — | — | (2,550) | — | (2,550) | |||||||||||||||||||||||||||||
| Balance at June 30, 2019 | $ | 258 | $ | 1,322 | $ | 8,550 | $ | 409 | $ | (1) | $ | 10,538 | |||||||||||||||||||||||
| Net loss | — | — | — | (1,610) | — | (1,610) | |||||||||||||||||||||||||||||
| Balance at September 30, 2019 | $ | 258 | $ | 1,322 | $ | 8,550 | $ | (1,201) | $ | (1) | $ | 8,928 | |||||||||||||||||||||||
| See accompanying Notes to the Condensed Consolidated Financial Statements. | ||
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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.)
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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;
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•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);
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•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.
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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).
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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.
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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.
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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.
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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.
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| 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 th