PG&E 2007 Annual Report Download - page 51

49
PG&E Corporation anticipates that it will fund a portion
of future equity infusions to the Utility from the proceeds
of common stock issued (1) upon exercise of employee stock
options, (2) to the trustee of PG&E Corporation’s 401(k)
plan for employee-participant accounts, and (3) under the
PG&E Corporation Dividend Reinvestment and Stock
Purchase Plan (“DRSPP”), which became effective on
October 1, 2007. During the year ended December 31, 2007,
PG&E Corporation issued 5,038,197 shares of common stock
upon the exercise of employee stock options, for the account
of 401(k) plan participants, and under its DRSPP, generating
approximately $175 million of cash. PG&E Corporation
also expects to issue additional common stock, debt, or
other securities, depending on market conditions, to fund
a portion of the Utility’s future equity needs.
The amount and timing of the Utility’s future fi nancing
needs will depend on various factors, including: (1) the
timing and amount of forecasted capital expenditures and
any incremental capital expenditures beyond those currently
forecasted; (2) the amount of cash internally generated
through normal business operations; and (3) the timing
of the resolution of the Disputed Claims (upon settlement
or the conclusion of the FERC and judicial proceedings)
and the amount of interest on these claims that the Utility
will be required to pay. (See Note 15 of the Notes to the
Consolidated Financial Statements.) PG&E Corporation will
continue to evaluate how to best fund the Utility’s future
equity needs considering such factors as the timing and
amount of the Utility’s future fi nancings, market conditions,
and available interest rates and credit terms.
In addition, PG&E Corporation may issue additional
debt, equity, or other securities to fi nance potential capital
investments.
DIVIDENDS
The dividend policies of PG&E Corporation and the Utility
are designed to meet the following three objectives:
• Comparability: Pay a dividend competitive with the
securities of comparable companies based on payout ratio
(the proportion of earnings paid out as dividends) and,
with respect to PG&E Corporation, yield (i.e., dividend
divided by share price);
• Flexibility: Allow suffi cient cash to pay a dividend and
to fund investments while avoiding having to issue new
equity unless PG&E Corporation’s or the Utility’s capital
expenditure requirements are growing rapidly and PG&E
Corporation or the Utility can issue equity at reasonable
cost and terms; and
• Sustainability: Avoid reduction or suspension of the
dividend despite fl uctuations in fi nancial performance
except in extreme and unforeseen circumstances.
The target dividend payout ratio range is 50% to 70%
of PG&E Corporation’s earnings. Dividends are expected
to remain in the lower end of PG&E Corporation’s target
payout ratio range to ensure that equity funding is readily
available to support capital investment needs. The Boards of
Directors retain authority to change the companies’ respec-
tive common stock dividend policy and dividend payout
ratio at any time, especially if unexpected events occur that
would change the Boards’ view as to the prudent level of
cash conservation. No dividend is payable unless and until
declared by the applicable Board of Directors.
During 2007, the Utility paid cash dividends to holders
of various series of preferred stock in the aggregate amount
of $14 million. In addition, on February 15, 2008, the
Utility paid cash dividends of $3 million to holders of
preferred stock.
During 2007, the Utility paid common stock dividends
of $547 million. Approximately $509 million of this
amount was paid to PG&E Corporation and the remain-
ing amount was paid to PG&E Holdings, LLC, a wholly
owned subsidiary of the Utility that holds approximately
7% of the Utility’s common stock.
On March 16, 2007, the Board of Directors of PG&E
Corporation declared its quarterly dividend at $0.36 per
share, an increase of $0.03 per share over the previous
level of $0.33 per share. During 2007, PG&E Corporation
paid common stock dividends of $529 million, including
approximately $35 million paid to Elm Power Corporation,
a wholly owned subsidiary of PG&E Corporation that holds
approximately 6% of PG&E Corporation’s common stock.
On January 15, 2008, PG&E Corporation paid common
stock dividends of $137 million, including $9 million paid
to Elm Power Corporation. On February 20, 2008, the Board
of Directors of PG&E Corporation declared its quarterly
dividend at $0.39 per share, an increase of $0.03 per share
over the previous level of $0.36 per share, payable on
April 15, 2008 to shareholders of record on March 31, 2008.