PG&E Corp

The Utility is subject to substantial regulation by the CPUC, the FERC, the OEIS, the NRC, and other federal and state regulatory agencies. The resolutions of the proceedings described below and other proceedings may materially affect PG&E Corporation’s and the Utility’s financial condition, results of operations, liquidity, and cash flows. Except as otherwise noted, PG&E Corporation and the Utility are unable to predict the timing and outcome of the following proceedings.

During the three months ended June 30, 2024 and through the date of this filing, key updates to regulatory and legislative matters were as follows:

•On July 16, 2024, the CPUC issued a final decision for Phase 2 of the GRC that set a cumulative expenditure cap at $2.26 billion for the period of 2024 to 2026 and provides the Utility the ability to revisit the 2025 and 2026 cap amounts under certain conditions.

•On May 31, 2024, the OEIS approved in part and rejected in part the 2024 WMP change order request, aligning the Utility’s planned wildfire investments with its GRC.

•On May 9, 2024, the CPUC issued a final decision denying the petition for modification in the 2023 Cost of Capital proceeding.

•On May 8, 2024, the CPUC issued a final decision denying the Pacific Generation application.

•On May 8, 2024, the OEIS issued draft guidelines for the 10-year distribution infrastructure undergrounding plan.

Cost Recovery Proceedings

Periodically, costs arise that could not have been anticipated by the Utility during CPUC GRC proceedings or that have been deliberately excluded from such requests. For instance, these costs may result from catastrophic events, changes in regulation, or extraordinary changes in operating practices. The Utility may seek authority to track incremental costs in a memorandum account and the CPUC may authorize recovery of costs tracked in memorandum accounts if the costs are deemed incremental and prudently incurred. The CPUC may also authorize balancing accounts with limitations or caps on cost recovery. These accounts, which include the CEMA, WEMA, Fire Hazard Prevention Memorandum Account (“FHPMA”), FRMMA, WMPMA, VMBA, WMBA, and Microgrids Memorandum Account (“MGMA”) among others, allow the Utility to track the costs associated with work related to disaster and wildfire response, other wildfire prevention-related costs, and certain third-party wildfire claims. While the Utility generally expects such costs to be recoverable, the CPUC may authorize the Utility to recover less than the full amount of its costs.

In recent years, the amount of the costs recorded in these accounts has increased. Because rate recovery may require CPUC authorization of the costs in these accounts, there can be a delay between when the Utility incurs costs and when it may recover those costs. As of June 30, 2024, the Utility had recorded an aggregate amount of approximately $4.2 billion in costs for the CEMA, WEMA, FHPMA, FRMMA, WMPMA, VMBA, WMBA, and MGMA. Of these costs, approximately $619 million was authorized for recovery and accounted for as current, and $3.6 billion was accounted for as long term as of June 30, 2024. See Note 3 of the Notes to the Condensed Consolidated Financial Statements in Item 1.

If the amount of the costs recorded in these accounts continues to increase, or the delay between incurring and recovering costs lengthens, PG&E Corporation and the Utility may incur additional financing costs. If the Utility does not recover the full amount of its recorded costs, the difference between the recorded and recovered amounts would be written off as a non-cash disallowance. Such disallowances could materially affect PG&E Corporation’s and the Utility’s financial condition, results of operations, liquidity, and cash flows.

For more information, see Note 3 of the Notes to the Condensed Consolidated Financial Statements in Item 1, and “Wildfire Mitigation and Catastrophic Events Cost Recovery Applications” and “Wildfire and Gas Safety Costs Recovery Application” below.

The Utility’s cost recovery proceedings for the costs described above that are pending, have pending appeals, or were completed during the six months ended June 30, 2024 are summarized in the following table:

(1) The revenue requirement request amounts do not include interest.

Wildfire Mitigation and Catastrophic Events Cost Recovery Applications

2021 WMCE Application

On September 16, 2021, the Utility filed an application with the CPUC requesting cost recovery of approximately $1.6 billion of recorded expenditures, resulting in a proposed revenue requirement of approximately $1.47 billion (the “2021 WMCE application”). The costs addressed in this application reflect costs related to wildfire mitigation and certain catastrophic events, as well as implementation of various customer-focused initiatives. These costs were incurred primarily in 2020.

The recorded expenditures consist of $1.4 billion in expenses and $197 million in capital expenditures. The Utility’s requested revenue requirement includes amounts recorded to the VMBA of $592 million, the CEMA of $535 million, the WMBA of $149 million, and other memorandum accounts.

On August 10, 2023, the CPUC approved a settlement agreement among the Utility and intervenors pursuant to which the Utility began collecting a revenue requirement of $721 million over 24 months beginning September 1, 2023. The settlement agreement did not address the Utility’s revenue requirement of $592 million associated with costs recorded to the VMBA, for which cost recovery will be determined separately by the CPUC.

On June 10, 2024, the CPUC extended the deadline to resolve the remaining issues in the proceeding to September 30, 2024.

2022 WMCE Application

On December 15, 2022, the Utility filed an application with the CPUC requesting cost recovery of approximately $1.36 billion of recorded expenditures, resulting in a proposed revenue requirement of approximately $1.29 billion (the “2022 WMCE application”). The costs addressed in this application reflect costs related to wildfire mitigation and certain catastrophic events, as well as implementation of various customer-focused initiatives. These costs were incurred primarily in 2021.

The recorded expenditures consist of $1.2 billion in expenses and $136 million in capital expenditures. On June 8, 2023, the CPUC adopted a final decision granting the Utility interim rate relief of $1.1 billion to be recovered over 12 months, which went into effect July 1, 2023. The remaining $224 million will be recovered to the extent it is approved after the CPUC issues a final decision. See “2022 WMCE Interim Rate Relief Subject to Refund” in Note 11 of the Notes to the Condensed Consolidated Financial Statements in Item 1.

On December 22, 2023, the Utility filed an unopposed joint settlement with intervenors for an additional $70 million revenue requirement, which is incremental to the previously approved interim rate relief. If the CPUC adopts the settlement agreement, it would resolve all costs recorded to accounts other than the VMBA and the WMBA. The settlement agreement did not address the Utility’s revenue requirement request of $916 million associated with costs recorded to the VMBA or the WMBA, for which cost recovery will be determined separately by the CPUC.

On May 20, 2024, the CPUC extended the statutory deadline to resolve the remaining issues in the proceeding to December 31, 2024.

2023 WMCE Application

On December 1, 2023, the Utility filed an application with the CPUC requesting cost recovery of approximately $2.18 billion of recorded expenditures, resulting in a proposed revenue requirement of approximately $1.86 billion (the “2023 WMCE application”). The costs addressed in this application reflect costs related to wildfire mitigation and certain catastrophic events, as well as implementation of various customer-focused initiatives. These costs were incurred primarily in 2022.

The recorded expenditures consist of $1.6 billion in expenses and $559 million in capital expenditures. Of these amounts, approximately 15% of expense, or $239 million, and 30% of capital expenditures, or $167 million, relate to the Utility’s response to the 2022-2023 extreme winter storms CEMA event.

In connection with the 2023 WMCE application, the Utility also requested interim rate relief of $1.46 billion to be recovered over 12 months beginning March 1, 2024. The remaining $399 million would be recovered after the CPUC issues a final decision. On January 29, 2024, the Utility filed a supplemental motion for interim rate relief based on an agreement with the Public Advocates Office of the CPUC. Under the supplemental motion, the Utility would recover $944 million over 17 months, at least $500 million of which would be recovered in 2024. Following the 17-month period, the Utility would recover the remaining $515 million amount up to $1.46 billion.

The CPUC’s procedural schedule indicates a final decision by the second quarter of 2025.

Wildfire and Gas Safety Costs Recovery Application

On June 15, 2023, the Utility filed a WGSC application with the CPUC requesting cost recovery of approximately $2.5 billion of recorded expenditures related to wildfire mitigation costs and gas safety and electric modernization costs.

The recorded expenditures for wildfire mitigation consist of $726 million in expenses and $1.5 billion in capital expenditures and cover activities during the years 2020 to 2022. The recorded expenditures for gas safety and electric modernization consist of $120 million in expenses and $118 million in capital expenditures and cover activities during the years 2017 to 2022. If approved, the requested cost recovery would result in an aggregate revenue requirement of $688 million. The costs addressed in the WGSC application are incremental to those previously authorized in the Utility’s 2020 GRC and other proceedings.

The Utility recorded these costs to the memorandum and balancing accounts as set forth in the following table:

In connection with the WGSC application, the Utility also requested interim rate relief of $583 million. The remaining $105 million would be recovered after the CPUC issues a final decision. On March 7, 2024, the CPUC approved a final decision authorizing the Utility to recover $516 million in interim rates to be recovered over at least 12 months starting April 1, 2024.

The ALJ has adopted a schedule that would result in a proposed decision (“PD”) on the wildfire mitigation costs in the first half of 2025 and a final decision on the gas safety and electric modernization costs by June 2025.

Forward-Looking Rate Cases

The Utility routinely participates in forward-looking rate case applications before the CPUC and the FERC. Those applications include GRCs, where the revenue required for general operations (“base revenue”) of the Utility is assessed and reset. In addition, the Utility is periodically involved in “cost of capital” proceedings to adjust its regulated return on rate base. The Utility’s future earnings will depend on the revenue requirements authorized in such rate cases. The Utility also expects to file its SB 884 cost application with the CPUC after the OEIS approves guidelines. See “SB 884 10-Year Distribution Undergrounding Program” below.

The Utility’s forward-looking rate cases that are pending, have pending appeals, or were completed during the three months ended June 30, 2024 are summarized in the following table:

2023 General Rate Case

Phase 1

On November 17, 2023, the CPUC issued a final decision on Phase 1, Tracks 1 and 2. For more information, see “Regulatory Matters” in the 2023 Form 10-K.

Phase 2

On September 15, 2023, the Utility served opening testimony proposing to establish a balancing account to record and recover energization costs incremental to the forecasts of the Utility’s Phase 1 2023 GRC. Energization activities include new business connections and capacity-related work to allow for the connections and reduce energization timelines. The Utility proposed to record to the balancing account actual capital expenditures for these programs, with recorded costs for a given year to be recovered through the following year’s rates and subject to reasonableness review in the 2027 GRC application. Costs recorded to the account would be subject to an annual cap. On July 16, 2024, the CPUC issued a final decision that set the expenditure cap at $2.26 billion for the period of 2024 to 2026 and provides the Utility the ability to revisit the 2025 and 2026 cap amounts under certain conditions.

Cost of Capital Proceedings

2023 Cost of Capital Application

On December 19, 2022, the CPUC issued a final decision adopting a new cost of capital including ratemaking capital structure (i.e., the relative weightings of common equity, preferred equity, and debt for ratemaking), ROE, cost of preferred stock, and cost of debt for the Utility’s electric generation, electric distribution, natural gas distribution, and natural gas transmission and storage rate base beginning on January 1, 2023. On January 10, 2023, the CPUC issued a decision correcting certain typographical errors in the final decision. On December 14, 2023, certain intervenors filed a petition for modification requesting that the 2023 cost of capital decision be modified to, among other things, suspend application of the cost of capital adjustment mechanism pending further CPUC decision. On May 9, 2024, the CPUC issued a final decision denying the petition for modification. On June 17, 2024, intervenors filed an application for rehearing of the decision denying their petition for modification.

The 2023 cost of capital application also requested that the CPUC approve an upward adjustment above the three-month commercial paper rate for interest on the Utility’s balancing and memorandum accounts to reflect the Utility’s actual cost of short-term debt. The Utility requested that the adjustment be set on an annual basis effective January 1 of each year based on the average difference between the three-month commercial paper rate and the Utility’s actual cost of short-term debt over the preceding twelve-month period from November through October. The decision deferred consideration of the proposal and any further changes to the cost of capital adjustment mechanism to a second phase of the proceeding. The assigned ALJ has set a schedule that would fully resolve the proceeding by October 31, 2024.

Cost of Capital Adjustment Mechanism

The Utility’s annual cost of capital adjustment mechanism provides that in any year during the applicable cost of capital period in which the difference between (i) the average Moody’s Baa utility bond rates (as measured in the 12-month period from October of the prior year through September of the year in which the mechanism could trigger (the “Index”)) and (ii) 4.37% (based on the 2023 cost of capital decision) exceeds 100 basis points, the Utility’s ROE will be adjusted by one-half of such difference, and the cost of debt will be trued up to the most recent recorded cost of debt. The Utility is to initiate this adjustment mechanism by filing an advice letter on or before October 15 of the year in which the mechanism is triggered, to become effective on January 1 of the next year. For the period from October 1, 2022 to September 30, 2023, the Index averaged 141 basis points above the Utility’s cost of capital benchmark rate of 4.37%, triggering the adjustment mechanism for the rest of the cost of capital period.

On October 13, 2023, the Utility filed an advice letter indicating that the cost of capital adjustment mechanism had been triggered and requesting to increase the Utility’s ROE from 10.0% to 10.7% and its cost of long-term debt from 4.31% to 4.66%.

On December 22, 2023, the CPUC approved the Utility’s advice letter. As a result, the Utility is authorized to collect a revenue requirement of $328 million, based on the 2023 GRC rate base, effective January 1, 2024. Starting on January 1, 2024, the Utility’s authorized ROE increased from 10.0% to 10.7%, its authorized cost of long-term debt increased from 4.31% to 4.66%, and the benchmark has been updated to 5.78%. On January 12, 2024, several intervenors submitted a request for the CPUC to review the December 22, 2023 approval of the advice letter. On July 11, 2024, the CPUC issued a resolution confirming the approval of the advice letter.

Transmission Owner Rate Cases

Transmission Owner Rate Case for 2024 (the “TO21” rate case)

On October 13, 2023, the Utility filed its TO21 rate case with the FERC. In the filing, the Utility forecasts a 2024 retail electric transmission revenue requirement of $2.83 billion. The proposed amount reflects an approximately 11% decrease over the current rate year 2023 retail revenue requirement of $3.18 billion, due in part to a refund to customers (see “Transmission Owner Rate Case Revenue Subject to Refund” in Note 11 of the Notes to the Condensed Consolidated Financial Statements in Item 1) and the transaction to lease entitlements associated with certain transmission assets (see “Liquidity and Financial Resources - Other Financings” above). The Utility made investments of approximately $1.22 billion in 2023 and forecasts that it will make investments of approximately $1.43 billion in 2024 for various capital projects to be placed in service before the end of 2024. The Utility has requested that FERC approve a 12.37% base ROE as well as a 0.5% adder for its participation in the CAISO. The TO21 filing also addresses the Utility’s capital structure and several new issues including wildfire self-insurance recovery from transmission customers. On December 29, 2023, the FERC issued an order accepting the TO21 filing subject to refund, establishing a January 1, 2024 effective date, and establishing a settlement and hearing process, but rejecting the 0.5% ROE adder for participation in the CAISO. On January 29, 2024, the Utility filed a request for rehearing of the FERC’s rejection of the 0.5% ROE adder. On February 29, 2024, the FERC issued a notice of denial of rehearing by operation of law. FERC’s denial indicated that substantive issues related to rehearing will be addressed in a future order. On April 22, 2024, the Utility filed an appeal of the FERC’s order in the Court of Appeals for the Ninth Circuit. On June 12, 2024, the FERC issued an order denying the Utility’s request for rehearing. On June 18, 2024, the Utility filed an appeal of the FERC’s order denying the Utility’s request for rehearing. The two appeals have been consolidated.

Other Regulatory Proceedings

2020-2022 Wildfire Mitigation Plans

On February 26, 2023, the OEIS issued its final ARC for the Utility’s 2020 WMP. In the final ARC, the OEIS found that the Utility undertook significant efforts to reduce its wildfire risk and, in many instances, achieved its stated objectives and targets, but did not substantially comply with the WMP during the 2020 compliance period. On March 24, 2023, the Utility filed a writ in the California superior court seeking judicial review of the OEIS ARC on the grounds that the OEIS failed to utilize the compliance evaluation criteria adopted by the CPUC. On June 11, 2024, the Utility and the OEIS entered into a settlement agreement, pursuant to which the Utility dismissed the writ and the OEIS agreed not to recommend that the CPUC pursue an enforcement action against the Utility or impose penalties. On July 10, 2024, enforcement staff of the CPUC determined that the Utility had remediated the defects in the ARC and that no further action was required.

2023-2025 Wildfire Mitigation Plan

On March 27, 2023, the Utility submitted the 2023-2025 WMP. The 2023-2025 WMP addresses the Utility’s wildfire safety programs and initiatives focused on reducing the potential for catastrophic wildfires related to electrical equipment and reducing the customer impact of EPSS and PSPS events. On December 29, 2023, the OEIS issued a final decision approving the Utility’s 2023-2025 WMP. On February 15, 2024, the CPUC ratified the OEIS’s approval. On January 8, 2024, the Utility filed a change order request to reflect spend amounts approved in the 2023 GRC final decision. On May 31, 2024, the OEIS issued a decision approving in part and rejecting in part the change order request.

The Utility submitted updates to the WMP for 2025 on April 2, 2024, as directed by the OEIS. The OEIS stated it will issue a decision on the 2025 WMP update by August 31, 2024.

Application with Pacific Generation for Approval to Transfer Non-Nuclear Generation Assets

On September 28, 2022, the Utility filed an application with the CPUC regarding the separation of the Utility’s non-nuclear generation assets into a newly formed, stand-alone Utility subsidiary, Pacific Generation. The application, which was filed jointly with Pacific Generation, sought to establish Pacific Generation as a separate, rate-regulated utility subject to regulation by the CPUC and contemplated the potential sale of a minority interest in Pacific Generation to one or more investors to be identified. On May 10, 2024, the CPUC issued a final decision denying the application.

Self-Reports to the CPUC

The Utility self-reports potential violations of certain requirements to the CPUC. The Utility could face penalties, enforcement actions, or other adverse legal or regulatory consequences for these potential violations, including under the EOEP. For more information about the EOEP, see “PG&E Corporation and the Utility are subject to the Enhanced Oversight and Enforcement Process” in Item 1A. Risk Factors in the 2023 Form 10-K. The Utility is unable to predict the likelihood and the amount of potential fines or penalties, if any, related to these matters.

Electric Asset Inspections

The Utility has notified the CPUC of various errors relating to inspections and maintenance of its electric assets or implementation of WMP initiatives. These notices include missed inspections or the inability to locate records evidencing performance of inspections required under CPUC GOs 95 and 165 and errors regarding reporting meeting targets set by the Utility’s 2020 WMP. In these notices, the Utility describes the failures and corrective actions the Utility is taking to remediate these issues and to prevent recurrence. Among other corrective measures, the Utility has developed short-term and longer-term systemic corrective actions to address these errors, including performing enhanced inspections for poles with outdated or incomplete GO 165 inspection records and strengthening the Utility’s asset registry, as well as corrective actions regarding reporting on the progress toward WMP targets.

On October 26, 2022, the Utility notified the CPUC that the Utility’s procedure for wood pole replacements did not comply with CPUC requirements for replacement of poles under certain conditions and, in some instances, the Utility failed to replace wood poles with safety factors below the required minimum. Among other short- and longer-term corrective measures, the Utility is replacing identified poles on a risk prioritized basis and revising its wood pole replacement procedures in alignment with CPUC requirements. On December 22, 2022, February 1, 2024, and July 1, 2024, the Utility submitted updates to the CPUC explaining the Utility had identified a population of wood poles that had not received intrusive inspections in accordance with GO 165’s deadlines due to legacy issues.

The Utility continues to evaluate whether there are additional failures to comply with GO 95 and 165, beyond those identified in submitted self-reports. The Utility intends to update the CPUC upon completion of its reviews and to address any issues it identifies.

Extension of Diablo Canyon Operations

On September 2, 2022, SB 846 became law. SB 846 supports the extension of operations at Diablo Canyon through no later than 2030, with the potential for an earlier retirement date. Under the legislation, the Utility would continue to operate Diablo Canyon on behalf of all CPUC-jurisdictional load serving entities (“LSEs”), and all customers of those LSEs would be responsible for the cost of extended operations.

The key steps to continued operations are NRC license renewal and approvals from California state agencies, including the CPUC, California Energy Resources Conservation and Development Commission, California State Lands Commission, California Coastal Commission, and other state agencies. In 2023, the Utility received approvals from the CPUC, California Energy Resources Conservation and Development Commission, California State Lands Commission, and California State Water Resources Control Board.

On November 7, 2023, the Utility submitted an application for license renewal with the NRC. On December 19, 2023, the NRC deemed the application sufficient, which allows continued operations at Diablo Canyon past the plant’s current licenses. The NRC’s schedule indicates that it will issue a final safety evaluation report and supplemental environmental impact statement by June 2025.

On March 29, 2024, the Utility submitted an application for net recovery through rates of approximately $418 million of costs associated with extended operations at Diablo Canyon for the period from 2023 through 2025. The request represents approximately $1.2 billion of forecasted expenditures and collectible revenues authorized by SB 846, offset by forecasted market revenues of $813 million, and incorporating certain fees for the final net recovery amount. The Utility expects to update its net recovery request in the fourth quarter of 2024, before the CPUC issues a final decision, to reflect updated market conditions and potential cost revisions.

Application for Third AB 1054 Securitization Transaction

AB 1054 provides that the first $5.0 billion expended in the aggregate by California’s three large electric IOUs on fire risk mitigation capital expenditures included in their respective approved WMPs will be excluded from their respective equity rate bases. The $5.0 billion of capital expenditures has been allocated among the large electric IOUs in accordance with their Wildfire Fund allocation metrics. The Utility’s allocation is $3.21 billion.

On August 10, 2023, the Utility filed an application with the CPUC seeking authorization for a third transaction to use securitization to finance the recovery of up to $1.38 billion of fire risk mitigation capital expenditure amounts that have been or would be incurred by the Utility from August 1, 2019 through the second quarter of 2024. The final amount to be financed using securitization would be based on actual recorded and authorized capital expenditures incurred by the Utility prior to the securitization transaction and not to exceed the remaining $1.38 billion of the Utility’s AB 1054 allocation.

The application requested that the CPUC issue a financing order authorizing one or more series of recovery bonds, determine that the issuance of the bonds and collection through fixed recovery charges is just and reasonable, consistent with the public interest, would reduce rates on a present-value basis compared to traditional utility financing mechanisms, and authorize the Utility to collect a non-bypassable charge sufficient to pay debt service on the recovery bonds.

On February 16, 2024, the CPUC issued a final decision approving the Utility’s application.

On July 24, 2024, the Utility and PG&E Recovery Funding LLC (the “Issuing Entity”) entered into an Underwriting Agreement with Goldman Sachs & Co. LLC, Citigroup Global Markets Inc. and J.P. Morgan Securities LLC, as representatives of the underwriters party thereto with respect to the purchase and sale of $1.42 billion aggregate principal amount of senior secured recovery bonds, series 2024-A, to be issued by the Issuing Entity. The issuance is expected to close in August 2024.

SB 884 10-Year Distribution Undergrounding Program

On March 7, 2024, the CPUC approved a resolution that establishes an expedited utility distribution infrastructure undergrounding program pursuant to Public Utilities Code Section 8388.5. The resolution addresses the process and requirements for the CPUC’s review of any large electrical corporation’s 10-year distribution infrastructure undergrounding plan and conditional approval of its related costs.

On December 13, 2023, the OEIS issued a request for comments as part of its ongoing process to develop guidelines for its program.

On May 8, 2024, the OEIS issued draft guidelines. The Utility anticipates that the OEIS will issue final guidelines in 2024.

The Utility expects to submit its undergrounding plan to the OEIS after final guidelines are issued before submitting its cost application to the CPUC, as directed in Public Utilities Code Section 8388.5.