This afternoon, the board of directors of PG&E Corporation and Pacific Gas and Electric announced the suspension of dividends for both the common and preferred stock as of the three month ending January 31, 2018. The decision was made due to the unprecedented wildfires from October 2017 in northern California, given that California’s courts have consistently applied inverse condemnation to events in which utility equipment were involved in the incident, regardless of whether or not the utility acted in accordance with established inspection and safety rules. This means that the utility is liable for the property damages and attorney’s fees associated with the incident. It is our understanding that California courts apply inverse condemnation under the assumption — not necessarily accurate, in our opinion — that the utility would be permitted to pass-through these costs to their customers.
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:
Instead of $350MM for the employee retention program, the PD proposes only $175MM, cutting the total provisions for employee assistance to $345MM from $520MM:
Complete denial of the $85MM in community assistance program (CAP):
Our Conclusion: Hearings are scheduled for November 28 with rebuttals due by December 4. We continue to expect a final decision (FD) by yearend. We’d expect the FD to … .
Given 9-months’ of strong results, PCG should’ve bumped-up guidance and celebrated. Then BAMO! Wildfires! We wonder why PCG goes through these periodic tragedies. So, is it bad luck or bad karma? We don’t know, but certainly the market has spoken.
Now it seems PCG’s going to be mired in wildfire controversy for months, if not years, which likely means PCG is going nowhere despite strong results, good strategy and good execution, in our opinion
Other than wildfires, PCG marked another uneventful quarter. And, PCG continues to talk-up MT-LT AEPS CAGR, which we agree with
Given wildfires, we’re no longer certain that it has no need for new equity starting 2018
We continue to be intrigued with PCG’s pursuit of independent transmission projects with TransCanyon but there’s no project to be had
PCG: 2015 GT&S Rate Case: Ouch! ||
On May 5, 2016, the proposed decision and the alternate proposed decision, which is substantively similar to the proposed decision, were issued in the 2015 Gas Transmission and Storage rate case by the California PUC.
Table 1. 2015 GT&S rate case proposed decision (PD) ($MM)
% Ute Ask
% Ute Ask
% Ute Ask
Ex Parte Penalty
PD B4 SB
SB Related Disallowed Expenses
SB Related Disallowed Revenue associated w/Capex
SB Related Penalty Adj. related to Ex Parte Penalty
Source: Company data and Auvila Research Consulting