PG&E CORPORATION REPORTS
FULL-YEAR AND FOURTH-QUARTER 2012 RESULTS
PG&E Also Provides Guidance for 2013 Earnings, and Future Business Outlook
SAN FRANCISCO, Calif.—As it released its fourth-quarter and full-year 2012 earnings, PG&E Corporation (NYSE: PCG) said it will continue to invest heavily in upgrading its gas and electric infrastructure to provide safer, more reliable service for its customers and position the company for long-term success.
PG&E Corporation’s full-year 2012 net income after dividends on preferred stock (also called "income available for common shareholders") was $816 million or $1.92 per share, as reported in accordance with generally accepted accounting principles (GAAP). This compares with $844 million, or $2.10 per share, for the full year 2011. For the fourth quarter of 2012, GAAP results were a loss of $0.03 per share, compared to $0.20 for the same quarter in 2011.
GAAP results include items that management does not consider part of normal, ongoing operations (items impacting comparability), which totaled $918 million pre-tax, or $1.30 per share, for the year and $437 million pre-tax, or $0.62 per share, for the quarter. The items impacting comparability relate to natural gas matters (pipeline-related costs, penalties, third-party claims, and insurance recoveries), and environmental costs associated with historic operations at the natural gas compressor station in Hinkley, California.
“Our results continue to reflect the significant impact of legacy issues, but we are encouraged by our continued progress in building a stronger utility to serve our customers,” said Tony Earley, Chairman, CEO, and President of PG&E Corporation. “In 2012, we accomplished all of our ambitious work plans aimed at making us a better performing company and resolved many of the uncertainties related to our Pipeline Safety Enhancement Plan and third-party claims. We are starting to transition from the uncertainties of the past couple of years, and regain the confidence and support of our customers and our other stakeholders as we continue to deliver on our commitments.”
Pipeline-related expenses and capital expenditures that were absorbed by shareholders in 2012 were the largest items impacting comparability reflected in GAAP results. Pipeline-related expenses consisted of continuing work to validate safe pipeline operating pressures and conduct strength testing, as well as legal and other expenses in connection with the San Bruno accident. These expenses totaled $477 million pre-tax for the year and $106 million pre-tax for the fourth quarter. In addition, the company took a charge of $353 million pre-tax in the fourth quarter for capital improvements to the gas pipeline system that were identified in its Pipeline Safety Enhancement Plan, but that are not authorized to be recovered in rates.
The total cost for natural gas pipeline-related actions since the San Bruno accident in 2010 is now approximately $1.4 billion on a pre-tax basis, all of which has been incurred at shareholders’ expense.
Full-Year and Fourth-Quarter Earnings from Operations
On a non-GAAP basis, excluding items impacting comparability, PG&E Corporation’s earnings from operations in 2012 were $1.37 billion, or $3.22 per share, compared with $1.44 billion, or $3.58 per share, in 2011.
For the fourth quarter, earnings from operations were $253 million, or $0.59 per share. During the same period in 2011, earnings from operations were $366 million, or $0.89 per share. The quarter-over-quarter difference primarily reflects a number of factors that negatively impacted this year’s fourth quarter. Planned incremental spending on operational improvements being made across the utility accounted for $0.11 of the decrease, and employee compensation accounted for $0.09 of the decrease. Additional shares outstanding accounted for a $0.05 decrease, while storm costs, litigation, and other items accounted for a combined $0.10 decrease. Partially offsetting those decreases was a $0.05 per share increase due to additional revenue from capital investments authorized by the California Public Utilities Commission (CPUC).
2013 Earnings Guidance
The company is initiating guidance for 2013 non-GAAP earnings from operations in the range of $2.55 to $2.75 per share. Guidance is based on various assumptions, including a lower authorized return on equity and additional equity issuances of $1.0 billion to $1.2 billion. These and other assumptions are provided in the slide presentation that accompanies the earnings release and is available on the corporation website at http://www.pgecorp.com/news/pdf/2012Q4EarningsSlides.pdf.
On a GAAP basis, including the estimated amounts for the items impacting comparability related to gas pipeline matters and environmental costs, the range for projected earnings per share is $1.66 to $2.22 per share for 2013. The company expects to incur between $400 million and $500 million pre-tax in unrecovered pipeline-related costs in 2013. This range encompasses unrecovered expenses for the Pipeline Safety Enhancement Plan and emerging pipeline work, including costs to survey and clear pipeline rights of way. GAAP guidance for 2013 also reflects a range of $0 to $145 million pre-tax for third-party liability. The low end of the range corresponds to the total accrual of $455 million since the San Bruno accident. The high end corresponds to the upper end of the range for third-party liability stemming from the accident, which remains at $600 million. Guidance does not include any potential future insurance recoveries or penalties (other than those already accrued) or any potential punitive damages.
The company also expects to incur between $0 and $30 million pre-tax for environmental-related costs in 2013 associated with historic natural gas compressor station operations in Hinkley, California.
PG&E Corporation discloses historical financial results and provides guidance based on “earnings from operations” in order to provide a measure that allows investors to compare the underlying financial performance of the business from one period to another, exclusive of items that management believes do not reflect the normal course of operations. Earnings from operations are not a substitute or alternative for consolidated income available for common shareholders presented in accordance with GAAP. See the accompanying exhibits for a reconciliation of the differences between results and guidance based on earnings from operations and results and guidance based on consolidated income available for common shareholders.
Future Business Outlook
The company is targeting 2014 to significantly recover from the uncertainties of the past several years, pending resolution of the San Bruno investigations and the company’s 2014 general rate case. Its future gas pipeline work is expected to be addressed in the company’s 2015 gas transmission rate case.
The company expects to be making infrastructure investments of $4.5 billion to $6.0 billion per year in the 2014-2016 period in order to maintain safe and reliable electric and gas service. It also anticipates needing substantial amounts of equity to fund a portion of these investments. The company estimates its average authorized rate base in 2014 will range from $28.5 billion to $29 billion, and grow to between $32 billion and $35 billion in 2016.
Supplemental Financial Information
In addition to the financial information accompanying this release, presentation slides for today's conference call with the financial community have been furnished to the Securities and Exchange Commission and are available on PG&E Corporation's web site at: http://www.pgecorp.com/news/press_releases/Release_Archive2013/130221press_release.shtml.
Conference Call with the Financial Community to Discuss Financial Results
Today's call at 10:00 a.m., Eastern Time, is open to the public on a listen-only basis via webcast. Please visit http://www.pgecorp.com/investors/investor_info/conference/ for more information and instructions for accessing the webcast. The call will be archived on the website. Alternatively, a toll-free replay of the conference call may be accessed shortly after the live call until 8:00 p.m. Eastern Time, March 7, 2013, by dialing 866-415-9493. International callers may dial 585-419-6446. For both domestic and international callers, the replay pin 23911# will be required to access the replay.