PCG: ALJ PD on Diablo Canyon seems a bit capricious, so room for upside

The PD has adjustments to employee, community, and energy replacement programs that PG&E believes are inappropriate and advocates for the settlement agreement to go forward as is. The significant differences between the settlement agreement and the PD are as follows:

The PD proposes that replacement power for Diablo Canyon Power Plant (DCPP) should be handled through the Integrated Resource Plan (IRP) instead of separately through an independent track:
Our Analysis:
Instead of $350MM for the employee retention program, the PD proposes only $175MM, cutting the total provisions for employee assistance to $345MM from $520MM:
Our Analysis:
Complete denial of the $85MM in community assistance program (CAP):
Our Analysis:

Our Conclusion: Hearings are scheduled for November 28 with rebuttals due by December 4. We continue to expect a final decision (FD) by yearend. We’d expect the FD to … .

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PCG 3Q2017: After great quarter is PCG bad luck or have bad karma or bad mgmt.?

Given 9-months’ of strong results, PCG should’ve bumped-up guidance and celebrated. Then BAMO! Wildfires! We wonder why PCG goes through these periodic tragedies. So, is it bad luck or bad karma? We don’t know, but certainly the market has spoken.
Now it seems PCG’s going to be mired in wildfire controversy for months, if not years, which likely means PCG is going nowhere despite strong results, good strategy and good execution, in our opinion
Other than wildfires, PCG marked another uneventful quarter. And, PCG continues to talk-up MT-LT AEPS CAGR, which we agree with
Given wildfires, we’re no longer certain that it has no need for new equity starting 2018
We continue to be intrigued with PCG’s pursuit of independent transmission projects with TransCanyon but there’s no project to be had

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PCG 2Q2017 Earnings Note: PCG’s Brilliantly boring quarter and strong operational execution bodes well

Brilliantly boring quarter and strong operational execution bodes well || Although 2Q2017 was marked by stronger than expected June weather, the Utility performed well meeting over 50% of its power needs through renewables. Other than minor updates, small shifts in capex, update on its cost of capital and 2017 GRC – both of which did not surprise – PG&E marked an uneventful quarter. Despite strong start to 2017, keeping guidance same. Like all businesses, it seems like PCG is not including upside from regulatory, economic, and tax policy changes, which we feel may lead to higher earnings. However, PCG is talking up MT-LT AEPS CAGR, which we agree with. PCG expects to issue some $400MM-$500MM in new equity in 2017, $100MM lower on the top range and no need for new equity starting 2018. Capex plan for 2017-2019 is not materially changed. We continue to be intrigued with PCG’s pursuit of independent transmission projects with TransCanyon but no update was provided. We continue to expect PCG will grow dividend through 2019 and expect dividend payout ratio to increase closer towards 60%-65% by 2019. PG&E’s NT investment program should drive shareholder value. Diablo Canyon issues close to resolution but stranded costs isn’t expected to be material, if any. We feel starting in 2018 PG&E is set to join its CA peers as a strong, growth-oriented utility investment with strong prospects through the LT-horizon.

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PCG 2017 GRC Final Decision

On May 11, 2017, the California PUC (CPUC) promulgated its final decision (FD) regarding Pacific, Gas & Electric Company’s (PG&E) 2017 general rate case (2017 GRC)
The FD substantially replicates the alternate proposed decision (APD) that was issued on April 4, 2017, except with two modifications related to the recovery of certain customer outreach and other incurred costs resulting from residential rate reform implementation and potential changes to the federal corporate tax rates
The FD calls for an effective date for revenue increases as of January 1, 2017 (retroactively to that date) in the amount of some $88.2MM, an increase of about 1.1% to roughly $8.0B
Compared to PG&E’s final requested increase of some $319MM, the permitted increase for 2017 in the FD is lower by about $231MM or lower by some 62%
The increase was based on adjustments to 2016 rates in effect:
Gas distribution rates decreased by about $3MM
Electric distribution rates decreased by some $62MM
Electric transmission rates increased by approximately $153MM
The 2Q2017 financial results are expected to account for the increase attributable to the cumulative 6-months financial results ending June 30, 2017

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PCG 1Q2017 Earnings Note

San Bruno finish-line is tantalizingly close; focus shifted to ops, finally ||

March 15, 2017, all parties to San Bruno litigation reached settlement, which judge approved 6 days later. July 18, 2017, final ruling/approval due on this settlement. Also, on March 28, 2017, Ex Parte communications settlement agreement was filed. Focus back on operations, PCG launches $300MM cost savings program. Continues to fly 6.5%-7% 3-year CAGR for rate base flag, which is strong. PCG also contributing to CA’s objectives to reduce GHG by launching $130MM light-duty vehicle charging station program. Despite strong start to 2017, keeping guidance same given 2015 GT&S rate impact cumulating towards 1H2017. Like all businesses, it seems like PCG is not including upside from regulatory, economic, and tax policy changes, which we feel may lead to higher earnings. However, PCG is talking up MT-LT AEPS CAGR, which we agree with. As expected, hydrology returned to relatively normal. PCG expects to issue some $400MM-$600MM in new equity in 2017; no new equity starting in 2018. Capex plan for 2017-2019 has not changed materially. We’re intrigued with PCG’s pursuit of independent transmission projects with TransCanyon. We continue to expect PCG will grow dividend through 2019 and expect dividend payout ratio to increase closer towards 60%-65% by 2019. PG&E’s near-term investment program should drive shareholder value.

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PCG 4Q2016 Earnings Note

Prospects brightening and focus back on operations ||

Like all businesses, it seems like PCG is not including upside from regulatory, economic, and tax policy changes, which we feel may lead to higher earnings due to higher than forecasted capex spending starting in 2017. However, PCG is talking up MT-LT AEPS CAGR, which we agree with. As expected, hydrology returned to relatively normal for PG&E and PG&E is taking measures to ensure another Orville Dam incident doesn’t occur. PCG expects to issue some $400MM-$600MM in new equity in 2017; PCG doesn’t expect to issue equity starting in 2018. Capex plan for 2017-2019 has not changed materially and PCG is on track to achieve some 7% CAGR through 2020 with 6.5%-7.0% CAGR in rate base. We’re intrigued with PCG’s pursuit of independent transmission projects with TransCanyon. We continue to expect PCG will grow dividend through 2019. We expect dividend payout ratio to increase closer towards 60%-65% by 2019. Beyond the current pale, PG&E’s near-term investment program should drive shareholder value, and management believes it has options for LT growth too. However, we’re concerned for CA generation mix in the long-term due to its RPS. New Washington policies may be more of a boon than currently envisioned, especially on the tax front.

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PCG 3Q2016 Earnings Note

MT-LT Prospects still attractive but 2017 guidance leaves us wanting ||

2017E AEPS guidance is $3.55-$3.75 vs. our original estimate of $3.93, which was surprising given pending regulatory relief. However, PCG is talking up MT-LT AEPS CAGR, which we agree with. As expected, hydrology returned to relatively normal for PG&E due to El Nino, but flooding was issue for 1Q206 results too. PCG may issue close to high end of $600MM-$800MM in new equity. Capex plan for 2016-2019 has not changed materially and PCG is on track to achieve 5.5%-6.5% (was 5%-7%) CAGR through 2019, but rate base is expected to be some $0.2B lower at $32.4B due to lower gas transmission rate base from 2015 GT&S rate case. We’re intrigued with PCG’s pursuit of independent transmission projects with TransCanyon. We continue to expect PCG will grow dividend through 2019. We expect dividend payout ratio to increase closer towards 60%-65% by 2019. Beyond the current pale, PG&E’s near-term investment program should drive shareholder value, and management believes it has options for LT growth too.

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PCG Revised Estimates: July 29, 2017

Addendum to correctly account for the 2015 GT&S accounting true-up ||

We apologize for this addendum; however, we felt it necessary to change our estimates due to an incorrect interpretation of the accounting true-up stemming from the 2015 GT&S rate case
The following lays out the correct accounting true-up, which is now correctly applied to our model
From a cash perspective, PCG is expected to start collecting the authorized revenue from the 2015 GT&S rate case starting in August 1, 2016, subject to potential refunds based on the phase 2 penalty decision stemming from the San Bruno tragedy that would allocate some $850MM of operating and capital expenditure disallowances sometime in 2H2016; for our modeling purposes, we assume that this decision occurs in 4Q2016
In addition to the increase in rates, starting August 1, 2016, PCG is authorized to charge customers for the undercollections due to the delayed decision in the 2015 GT&S rate case; this undercollections cover all of 2015 and the first seven months of 2016 totaling some $790MM over a 36-month period
From an accounting perspective, the total undercollections for 2015 and the first seven months of 2016 is expected to be booked in two lump sums; the first portion is expected to be booked in 2H16 (for modeling purposes, we assume that it would be booked in 4Q2016) concurrent with the phase 2 penalty decision and the second portion is expected to be booked in 1Q2017
The total undercollections is roughly $790MM; 29/36th of this is expected to be booked concurrent with the phase 2 penalty decision in 2H2016 (for modeling purposes, we assume that it would be booked in 4Q2016) and 7/36th would be booked in 1Q2017

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PCG 2Q2016 Earnings Note

PCG: Fog is lifting but lingering mist causing confusion ||

Even though much of the San Bruno fallout is behind PCG, remnants of regulatory decisions continue to impact PCG in ways that only serve to unnecessarily continue to cast a pall on the stock. 2Q16 results were impacted by regulatory bureaucracy and Butte fire, but we’d expect poor performance should be made up in 3Q and 4Q, given management’s unchanged guidance. As expected, hydrology returned to relatively normal for PG&E due to El Nino, but flooding was issue for 1Q206 results too. PCG may issue close to high end of $600MM-$800MM in new equity. Capex plan for 2016-2019 has not changed materially and PCG is on track to achieve 5.5%-6.5% (was 5%-7%) CAGR through 2019, but rate base is expected to be some $0.2B lower at $32.4B due to lower gas transmission rate base from 2015 GT&S rate case. We’re intrigued with PCG’s pursuit of independent transmission projects with TransCanyon. We continue to expect PCG will grow dividend through 2019. We expect dividend payout ratio to increase closer towards 60%-65% by 2019. Beyond the current pale, PG&E’s near-term investment program should drive shareholder value, and management believes it has options for LT growth too.

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PCG 2015 GT&S Final Decision

PCG: GT&S Final Decision Forces Utility to Make Difficult Choices; Does this Set-up a Future San Bruno? ||

Of course, we cannot say for sure; however, it is our contention that San Bruno was not solely the responsibility of the company and that regulators and intervenors share partial responsibility for the tragic San Bruno accident
Therefore, the 2015 GT&S final decision (FD), which continues to penalize PG&E (in Phase 2, which is pending) for San Bruno and ex parte communications has the potential to contribute to a future San Bruno-type accident, in our opinion
The FD not only reduces PG&E request for $1.263B in 2015 revenue requirement to $1.046B, a reduction of some 17.2%, but also the $850MM in safety costs disallowance is still pending in a phase 2 decision that is expected mid-October 2016
The estimated impact of the ex parte communications disallowance is about $138MM, which reduces 2015 GT&S revenue to $908MM, an increase of some $193MM or about 27.0% over 2014 authorized revenue of approximately $715MM
Of the $850MM of disallowed safety spending, about $689MM is to come from capital expenditures and another approximately $161MM is expected to be cut from expenses – both items are to be determined by the CPUC taking into consideration public comments, briefs and reply briefs
Due to the delay in the FD, the CPUC allowed for attrition revenues to be determined through 2018 as part of the 2015 GT&S, allowing for $64MM increase in 2016 to $1.110B, $110MM increase in 2017 to $1.220B, and a further $104MM increase in 2018 to $1.324B, representing some 22.2%, 9.9%, and 8.5% increase, respectively, excluding any consideration for the $850MM reduction in safety spending to be determined – please see below table for more details

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