PG&E, Edison & SDG&E Earnings Slump

The state’s investor-owned utilities and their parent companies saw lower earnings in the final quarter of last year, including because of the wildfires, regulatory decisions and the 2017 tax law. Executives warned that liability for the wildfires is expected to worsen the companies’ financial health.

Edison, Pacific Gas & Electric and Sempra Energy all reported big financial hits in the latest earnings reports.

Here’s a report on the latest earnings results for the state’s three major investor-owned utilities.

Edison International: The parent of Southern California Edison lost $545 million in the fourth quarter of 2017 compared to a net gain of $329 million during the same period in 2016. The loss per share was $1.67 in the last quarter, compared to a profit of $1.01 a share in the final quarter of 2016.

Southern California Edison, Edison’s regulated utility, saw fourth quarter 2017 earnings drop by $437 million, or $1.34 per share, from the fourth quarter 2016, to $44 million, or $0.14 per share. Much of the decline in earnings was attributed to the revised San Onfore Nuclear Generating Station closure agreement, which shifts many of the closure-related costs from the utility’s ratepayers to Edison’s shareholders.

For 2017 as a whole, Edison International reported net income of $565 million, or $1.73 per share, compared to $1.3 billion, or $4.02 per share, during 2016. Meanwhile, for last year as a whole, the utility’s net income decreased $364 million, or $1.12 per share, to $1.136 billion, or $1.73 a share, from 2016, when net income was about $1.3 billion, or $3.97 per share.

Edison President Pedro Pizarro noted that despite lower earnings at the utility, the regulated company had “strong operating performance and tax benefits.”

However, Pizarro said that this year the utility has to deal “with the effects of wildfires and concerns over the associated legal and regulatory framework.” He was referring to a recent stance taken by the California Public Utilities Commission to deny utilities the ability to recover costs related to wildfires sparked by electric lines, even when the company has complied with all applicable safety regulations.

Pizarro maintained that wildfires are becoming worse due to climate change and also that the cost of blazes is growing due to development in areas that historically have been prone to wildfires.

“Roughly a quarter of our service territory is in designated high-fire risk areas,” he told financial analysts in releasing Edison’s financial results.

In response, he said, state and local governments must require hardening of existing developments to fires and Edison and other utilities must “evaluate the safety impacts, along with the reliability and cost tradeoffs.” He said the growing fire threat may require “undergrounding more of the distribution network in selected areas, installing steel or composite poles instead of wood ones in specific locations, and using further preventive public safety shutoffs of power under high-risk conditions such as red flag warnings.”

Meanwhile, he said, Edison is challenging the CPUC policy regarding utilities’ ability to recover wildfire costs both in regulatory proceedings and with the Legislature.

On the up side, Pizarro highlighted opportunities for Edison in modernizing its grid and helping to electrify transportation to cut greenhouse gases and air pollution in California. He said that Edison’s utility is committed to delivering power that’s 80 percent greenhouse-gas-free by 2030, even as it provides power to charge an ever growing number of electric vehicles to and replace gas-fired space and water heating in buildings with electric energy.

Pacific Gas & Electric Corp: Its last quarterly statement reflected a considerable decline in earnings because of initial liability claims from the devastating Northern California wildfires.

Fourth quarter earnings for 2017 were reported Feb. 9 at $114 million, or 22 cents a share. In the last quarter of 2016, PG&E reported earnings of $692 million, or $1.36 a share.

However, overall 2017 earnings were higher, at $1.646 billion, or $3.21 per share. In 2016, net income was reported at $1.393 billion, or $2.78 a share.

The utility, PG&E, “incurred costs of $82 million (before the tax impact of $33 million) during the three and twelve months ending Dec. 31, 2017, associated with the Northern California wildfires,” states the company’s Securities & Exchange Commission 8K filing.

As a result of those costs, and many more expected to arise from the wildfire liability associated with utility wires, the company suspended dividends starting the fourth quarter of last year.

Even during the 2000-01 energy crisis dividends were paid.

The CPUC took the unprecedented step last year of denying another utility, San Diego Gas & Electric, recovery of nearly $400 million in wildfire costs after finding it was not a “prudent manager.” of its utility infrastructure. The CPUC applied a tighter legal standard, known as “inverse condemnation,” setting off alarm bells in the private utility and investment communities

PG&E stated at the end of last year that it “is committed to working with state policymakers to address the negative investment environment that strict liability under inverse condemnation is creating for California’s utilities.”

The company also was adversely impacted by the new tax law signed into law Dec. 22. It stated that it incurred a charge of $147 million. Of that, “the utility’s charge of $64 million was related to deferred tax assets not reflected in authorized revenue requirements, such as deferred tax assets associated with disallowed plant, and PG&E Corp.’s charge of $83 million was primarily related to net operating loss carryforwards and compensation-related deferred tax assets,” its earnings report states.

Other financial costs reported included: $75 million from the Butte fire; and $71 million for fines and penalties, including for the San Bruno gas pipe blast and ex parte communication violations. On the other side of the ledger, PG&E reaped revenues of $150 million in excess of its 2017 authorized revenue requirement.

Sempra: The parent company of San Diego Gas & Electric and SoCal Gas reported annual earnings of $256 million, or $1.01 per share in 2017. That is well below net income reported in 2016 of $1.37 billion, or $5.46 a share.

The corporation’s 2017 fourth quarter results brought a loss of $501 million, or $1.99 a share, compared to $379 million in profits, or $1.51 a share, in the fourth quarter of 2016.

However, Debbie Reed, Sempra president, during a Feb.27 investors call, touted an increase in last year’s adjusted earnings. She attributed it to higher operation earnings and “finding new growth opportunities.”

At the same time, she stressed that the company was pursuing a three-pronged strategy to reduce fire liability in California. First, is a regulatory filing seeking a rehearing on the CPUC’s denial of full cost recovery for the 2007 wildfires. She said the company also is seeking legislative action to increase fire safety and provide greater clarity on fire risk mitigation.

Reed called the CPUC’s controversial denial of full recovery of wildfire costs “a terribly flawed decision.”

SDG&E’s fourth-quarter earnings in 2017 were $131 million, compared with $151 million in 2016. The drop in earnings was largely attributed to a $28 million income-tax hit under the federal tax law signed into law last year, according to Sempra.

The electric utility’s 2017 earnings were $407 million, down from $570 million in 2016. The drop was primarily due to the third-quarter after-tax write-off of $208 million because of the CPUC’s denial of full recovery of costs from the 2007 San Diego wildfires.

SoCal Gas’ fourth quarter earnings for 2017 were $128 million, down from $151 million in the fourth quarter of 2016. The decrease was attributed to “litigation reserves” from last year for the massive Aliso Canyon natural gas leak.

For the full year, SoCal Gas’ 2017 earnings rose to $396 million, from $349 million in 2016. The rise was attributed to higher earnings from the Pipeline Safety Enhancement Plan and advanced meter technology programs.

Other good news on the financial front reported by Reed included resolution of most of the Aliso Canyon litigation, collection of “substantial insurance proceeds” from the fires, and a $160 million proposed benefit to SDG&E ratepayers from the revised San Onfore Nuclear Plant closure proposal before the CPUC.

Also bolstering Sempra's earnings was the U.S. Bankruptcy Court for the District of Delaware Feb. 26 confirmation of the reorganization plan for Energy Future Holdings Corp. That represents its final approval for Sempra to acquire an 80 percent inTexas' Oncor Electric Delivery Co.

Unlike Sempra’s California utilities, its other affiliates earnings were much healthier.

Sempra Mexico’s fourth-quarter 2017 earnings rose to $64 million, from $56 million in the fourth quarter 2016, due primarily to favorable currency exchange rate and inflation effects.

Sempra Mexico’s full-year earnings were $169 million in 2017, compared with $463 million in 2016.

Sempra Renewables fourth-quarter earnings were $203 million in 2017, compared with $12 million in 2016. Full-year 2017 earnings for Sempra Renewables were $252 million, up from $55 million in 2016.

Sempra LNG & Midstream’s fourth quarter earnings were $126 million, compared with a loss of $3 million in the fourth quarter 2016. For the full year, it reported earnings of $150 million, compared with a net loss of $107 million in 2016. — Elizabeth McCarthy & William J. Kelly

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PG&E, Edison & SDG&E Earnings Slump

William J. Kelly

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