PG&E Corporation’s third quarter 2012 net income after dividends on preferred stock (also called “income available for common shareholders”) was $361 million, or $0.84 per share, as reported in accordance with generally accepted accounting principles (GAAP). This compares with $200 million, or $0.50 per share, for the third quarter of 2011, when GAAP results were reduced significantly by charges for third-party liability related to the San Bruno pipeline accident and environmental cleanup costs associated with historic operations at the company’s natural gas compressor station in Hinkley.
Third-quarter 2012 GAAP results include items related to natural gas matters and environmental costs that management does not consider part of normal, ongoing operations (items impacting comparability). These items net to $64 million pre-tax, or $0.09 per share, for the quarter.
The item related to natural gas matters includes $139 million pre-tax in costs during the quarter for continuing work to validate safe pipeline operating pressures and conduct strength testing, as well as legal and other expenses in connection with the accident. The item related to natural gas matters also reflects the benefit of $99 million pre-tax of insurance recoveries for third-party liability. The net result is a $40 million pre-tax, or $0.06 per share, cost for the quarter.
The total cost for natural gas pipeline-related actions since the accident is now approximately $915 million, all of which has been incurred at shareholders’ expense.
The item related to environmental costs reflects a $0.03 per share charge primarily associated with the company’s water-treatment and property-purchase programs offered to residents in Hinkley.
“Our results for the quarter reflect continued progress in our ongoing efforts to improve PG&E’s operations across the business, with a clear focus on making our system the safest in the country and delivering service reliably and affordably,” said Chairman, CEO and President Tony Earley. “We remain fully committed to resolving our gas pipeline issues, positioning PG&E for long-term success, and rebuilding relationships with customers and others.”
Earley affirmed that the company is continuing efforts to work with all parties to pursue a settlement of the outstanding regulatory issues related to its gas pipeline operations, notwithstanding a recent proposed decision on the company’s Pipeline Safety Enhancement Plan that would disallow recovery of significant costs.
“While we are deeply disappointed in the proposed decision, we will continue to move forward with projects to meet new safety standards, and we will continue to work with regulators and others to reach a balanced agreement that resolves the various regulatory issues and provides adequate support for critical investments,” he said.
Earnings from Operations
On a non-GAAP basis, excluding items impacting comparability, PG&E Corporation’s earnings from operations for the third quarter were $399 million, or $0.93 per share. During the same period in 2011, earnings from operations were $436 million, or $1.08 per share.
The quarter-over-quarter difference primarily reflects several factors that negatively impacted this year’s quarter. Most significantly, $0.10 per share of the decrease is due to planned incremental spending on operational improvements being made across the utility, in keeping with previously announced plans for 2012. An additional $0.06 per share of the decrease is due to a greater number of common shares outstanding. Some smaller items account for a further $0.04 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.
2012 Earnings Guidance
PG&E Corporation is maintaining its previously issued 2012 guidance range for non-GAAP earnings from operations of $3.10 to $3.30 per share.
Reflecting insurance recoveries in the third quarter and the accrual for environmental costs, 2012 GAAP earnings guidance is now updated to $1.97 to $2.52 per share, compared with the previous range of $1.83 to $2.41 per share.
The range for 2012 pipeline-related costs is unchanged at $450 million to $550 million pre-tax. However, the cost trend remains toward the upper end of that range.
The range for third-party liability claims this year remains $80 million to $225 million pre-tax. The low end of the range corresponds to the total accrual of $455 million since the San Bruno accident. The high end of the range for 2012 corresponds to the upper end of the range for third-party liability claims since the accident, which remains at $600 million. Insurance recoveries total $135 million for the year to date and $234 million since the accident. Guidance does not include any potential future insurance recoveries or penalties (other than those already accrued) or any potential punitive damages.
Guidance for environmental costs is unchanged at $0.14 per share on the upper end, but has increased on the low end to $0.13 per share to reflect the $0.03 per share charge the company took in the third quarter associated with the remediation activities in Hinkley.
Guidance is based on various assumptions, including the level of capital expenditures, authorized rate base and return on equity. Approximately $720 million of equity has been issued this year through the third quarter, with a modest amount expected in the fourth quarter from employee 401K and dividend reinvestment programs.
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 net income presented in accordance with GAAP.
Supplemental Financial Information
In addition to the financial information accompanying this release, 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_Archive2012/121029press_release.shtml