PG&E 2015 Annual Report Download - page 49

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PART II
ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
()Includeslegalandotherregulatoryrelatedcoststhatwerepartiallyoffsetbyincentiverevenues
()RepresentsthelargergainrecognizedduringtheyearendedDecemberascomparedto
()Representsinsurancerecoveriesofmillionpre-taxforthirdpartyclaimsandassociatedlegalcostsrelatedtotheSan
BrunoaccidenttheUtilityreceivedduringtheyearendedDecemberTheUtilityhasreceivedacumulativetotalof
millionthroughinsurancerelatedtomillionofthird-partyclaimsandmillionoflegalcostsincurredNofurther
insurancerecoveriesrelatedtotheseclaimsandcostsareexpected
()RepresentstheimpactofthePenaltyDecision(seeNoteoftheNotestotheConsolidatedFinancialStatementsinItem
forbefore-taxamounts)
()Inpipeline-relatedexpensesincludecostsincurredtoidentifyandremoveencroachmentsfromtransmissionpipeline
rightsofwayandtoperformremainingworkundertheUtility’sPSEPLegalandregulatoryrelatedexpensesincludecosts
incurredinconnectionwithvariousenforcementregulatoryandlitigationactivitiesregardingnaturalgasmattersand
regulatorycommunications
Key Factors Aecting Results of Operations, Financial Condition, and Cash Flows
PG&E Corporation and the Utility believe that their future
results of operations, financial condition, and cash flows
will be materially aected by the following factors:
đ The Outcome of Enforcement and Litigation Matters.
Future financial results will be impacted by the
unrecoverable pipeline safety-related and remedies
costs required by the Penalty Decision. The Utility’s
future results may also be impacted by various other
pending enforcement and regulatory actions, including
the federal criminal charges and CPUC investigations
of the Utility’s compliance with natural gas distribution
record-keeping practices and potential violations of the
CPUC’s ex parte communication rules. (See “Enforcement
and Litigation Matters” in Note 13 of the Notes to the
Consolidated Financial Statements in Item 8.)
đ The Timing and Outcome of Regulatory Matters.
The 2015 GT&S rate case remains pending. The Utility
requested that the CPUC authorize a $532 million increase
in annual revenue requirements for gas transmission
and storage operations beginning on January 1, 2015
with attrition increases in 2016 and 2017. Any revenue
requirement increase that the CPUC may authorize would
be retroactive to January 1, 2015 but would berecorded
in the period a final decision is reached. (See “Regulatory
Matters − 2015 Gas Transmission and Storage Rate Case”
below for more information.) In September 2015, the
Utility filed its 2017 GRC application to request that the
CPUC authorize revenue requirements for the Utility’s
electric generation business and its electric and natural
gas distribution business for 2017 through 2019. (See
“Regulatory Matters − 2017 General Rate Case” below
for more information.) In addition, the Utility has one
transmission owner rate case pending at the FERC (See
“Regulatory Matters – FERC TO Rate Cases” below.) The
outcome of regulatory proceedings can be aected
by many factors, including the level of opposition by
intervening parties, potential rate impacts, the Utility’s
reputation, the regulatory and political environments,
and other factors.
đ The Ability of the Utility to Control Operating Costs
and Capital Expenditures. Whether the Utility is able
to earn its authorized rate of return could be materially
affected if the Utility’s actual costs differ from the
amounts authorized in the rate case decisions. In
addition to incurring shareholder-funded costs and
costs associated with remedial measures required by
the Penalty Decision, the Utility also forecasts that in
2016 it will incur unrecovered pipeline-related expenses
ranging from $100 million to $150 million which primarily
relate to costs to identify and remove encroachments
from transmission pipeline rights-of-way. The ultimate
amount of unrecovered costs also could be affected by
how the CPUC determines which costs are included in
determining whether the $850 million shareholder-funded
obligation under the Penalty Decision has been met, and
the outcome of pending and future investigations and
enforcement matters. (See “Enforcement and Litigation
Matters” in Note 13 of the Notes to the Consolidated
Financial Statements in Item 8.) The Utility’s ability to
recover costs in the future also could be affected by
decreases in customer demand driven by legislative and
regulatory initiatives relating to distributed generation
resources, renewable energy requirements, and changes
in the electric rate structure.
đ The Amount and Timing of the Utility’s Financing Needs.
PG&E Corporation contributes equity to the Utility
as needed to maintain the Utility’s CPUC-authorized
capital structure. In 2015, PG&E Corporation issued
$801 million of common stock with cash proceeds and
made equity contributions to the Utility of $705 million.
PG&E Corporation forecasts that it will issue a material
amount of equity in 2016 and future years to support
the Utility’s capital expenditures. PG&E Corporation
will issue additional equity to fund charges incurred
by the Utility to comply with the Penalty Decision, to
fund unrecoverable pipeline-related expenses, and to
pay fines and penalties that may be required by the
final outcomes of pending enforcement matters. These
additional issuances would have a material dilutive impact
on PG&E Corporation’s EPS. PG&E Corporation’s and
the Utility’s ability to access the capital markets and the
terms and rates of future financings could be aected by
the outcome of the matters discussed in “Enforcement
and Litigation Matters” in Note 13 of the Notes to the
Consolidated Financial Statements in Item 8, Financial
Statements and Supplementary Data, changes in their
respective credit ratings, general economic and market
conditions, and other factors.