PG&E’s Financial Performance: Navigating Wildfire Risks and Regulatory Challenges

Overview PG&E Corporation and its utility subsidiary, Pacific Gas & Electric (the Utility), have faced significant financial and operational challenges in recent years due to the growing threat of catastrophic wildfires in California. This combined financial report provides insights into the company’s performance, the key factors affecting its results, and the regulatory landscape it navigates.

PG&E’s revenues fluctuate based on the outcomes of ratemaking proceedings and the costs it incurs, such as for purchased electricity and natural gas, weather events, and wildfire-related expenses. The company’s financial condition is heavily influenced by the costs and effectiveness of its wildfire mitigation efforts, the damages from wildfires, and its ability to recover these costs through insurance, the state’s Wildfire Fund, and regulatory proceedings.

Key Factors Affecting Financial Results The report highlights several critical factors that can significantly impact PG&E’s financial performance:

1. Wildfire Risks and Mitigation Efforts: PG&E has taken aggressive steps to mitigate wildfire risks, including enhanced power shutoffs, vegetation management, system hardening, and other initiatives. However, the company’s equipment may still be involved in future wildfires, and the financial impacts could be substantial. PG&E has incurred significant liabilities for past wildfires, and its ability to recover future wildfire costs depends on the Wildfire Fund, the Continuation Account, and regulatory approvals.

2. Regulatory Proceedings and Legislation: The timing and outcomes of ratemaking proceedings, as well as state legislative and regulatory actions, can have a material impact on PG&E’s business and financial results. The company’s revenue requirements and ability to recover costs are subject to CPUC and FERC decisions.

3. Cost Control and Financing: PG&E’s earnings depend on its ability to manage operating and financing costs within the amounts authorized for recovery in ratemaking proceedings. The company aims to achieve cost savings through operational efficiencies, but elevated interest rates and capital market volatility may impact its financing costs.

Tax Matters PG&E Corporation has significant net operating loss carryforwards, which could be subject to limitations if the company undergoes an “ownership change” as defined by the Internal Revenue Code. The company’s Amended Articles of Incorporation contain restrictions to prevent such an ownership change.

Results of Operations PG&E Corporation’s consolidated results are primarily driven by the Utility’s performance. In 2025, the Utility’s operating revenues increased by 2% compared to 2024, primarily due to higher revenues to recover costs associated with the extended operations of the Diablo Canyon Power Plant (DCPP) and interim rate relief. However, these increases were partially offset by lower revenues authorized in other proceedings.

The Utility’s operating expenses increased by 1% in 2025, mainly due to higher costs related to the extended DCPP operations, partially offset by decreases in various deferred expenses authorized in prior proceedings. Depreciation, amortization, and decommissioning expenses increased by 11%, reflecting the growth in the Utility’s asset base and the recognition of deferred depreciation.

The Utility’s net income increased by 14% in 2025, driven by higher operating revenues and a larger income tax benefit, partially offset by higher operating expenses.

Liquidity and Financial Resources PG&E Corporation and the Utility rely on access to debt and equity markets, as well as credit facilities, to finance their capital requirements and support their liquidity needs. The company expects that capital expenditures, debt maturities, and dividends will exceed operating cash flows, requiring them to finance future cash needs primarily through the capital and credit markets.

As of December 31, 2025, PG&E Corporation and the Utility had approximately $4.5 billion in total liquidity, including cash and available credit facilities. The company’s credit ratings impact the cost and availability of short-term and long-term financing, as well as its ability to post collateral for energy procurement contracts.

Regulatory Matters PG&E is subject to extensive regulation by various state and federal agencies, including the CPUC, FERC, and the Office of Energy Infrastructure Safety (OEIS). Key regulatory proceedings include:

1. Wildfire Mitigation and Catastrophic Events Cost Recovery: PG&E has filed several applications with the CPUC seeking recovery of costs related to wildfire mitigation efforts and catastrophic events, such as the 2019 Kincade fire and the 2021 Dixie fire. The CPUC has authorized interim rate relief and is reviewing the prudency of the recorded costs.

2. Forward-Looking Rate Cases: PG&E regularly participates in rate case proceedings, including the 2027 General Rate Case, where the CPUC determines the company’s revenue requirements and authorized rate of return. The outcomes of these proceedings can significantly impact the Utility’s financial results.

3. Other Regulatory Initiatives: The report discusses PG&E’s 2026-2028 Wildfire Mitigation Plan, the extension of Diablo Canyon Power Plant operations, and the SB 884 distribution undergrounding program, all of which involve regulatory approvals and cost recovery considerations.

Legislative and Regulatory Initiatives The report highlights the recent enactment of SB 254, which establishes the Continuation Account to provide additional liquidity for catastrophic wildfire-related claims if the Wildfire Fund is depleted. The Continuation Account has specific provisions regarding contributions, reimbursements, and the disallowance cap on reimbursements.

Litigation and Other Matters PG&E faces significant contingencies related to various legal proceedings, including wildfire-related claims and environmental remediation matters. The outcomes of these matters could have a material impact on the company’s financial condition, results of operations, liquidity, and cash flows.

Environmental Matters PG&E’s operations are subject to extensive environmental regulations, including those related to the remediation of hazardous substances, emissions, and the handling and disposal of spent nuclear fuel.

Risk Management Activities PG&E actively manages market risks associated with commodity prices, interest rates, and counterparty credit through various risk management programs and the use of derivative instruments. The company’s exposure to these risks can impact its cash flows, although fluctuations in electricity and natural gas prices generally do not affect its earnings due to the company’s ratemaking mechanisms.

Critical Accounting Estimates The report highlights several critical accounting estimates that involve significant judgment and assumptions, including the accounting for the Wildfire Fund, loss contingencies, regulatory accounting, asset retirement obligations, and pension and other postretirement benefit plans. Changes in these estimates and assumptions could materially impact PG&E’s financial statements.

Outlook PG&E’s financial performance continues to be heavily influenced by the evolving landscape of wildfire risks and the regulatory environment in California. The company’s ability to effectively manage its wildfire mitigation efforts, recover costs through various mechanisms, and maintain its financial stability will be crucial in navigating the challenges ahead. Investors and stakeholders will closely monitor PG&E’s progress in addressing these critical issues and their impact on the company’s long-term financial health.