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 the threat of catastrophic wildfires, 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 impact of past wildfires has been substantial. PG&E has incurred significant liabilities for the 2019 Kincade fire ($1.325 billion), the 2021 Dixie fire ($2.15 billion), and the 2022 Mosquito fire ($350 million). The company’s ability to recover these costs depends on the Wildfire Fund, the Continuation Account, and regulatory approval, all of which involve uncertainties.

2. Regulatory Proceedings and Legislation: The timing and outcomes of ratemaking proceedings, as well as legislative and regulatory actions related to wildfires, energy affordability, and other issues, can have a material impact on PG&E’s business and financial results. The company’s ability to recover its costs through regulated rates is crucial.

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, while also identifying opportunities to finance the business efficiently.

Tax Matters PG&E Corporation had significant net operating loss carryforwards as of December 31, 2025, which could be subject to limitations under Section 382 of the Internal Revenue Code if the company undergoes an “ownership change.” PG&E’s Amended Articles of Incorporation contain restrictions to prevent such an ownership change and preserve the use of these tax attributes.

Results of Operations PG&E Corporation’s consolidated results are primarily driven by the performance of the Utility. 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 authorized in various proceedings. However, these increases were partially offset by lower revenues from other regulatory 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 other operating and maintenance expenses. The Utility’s net income increased by 14% in 2025, primarily due to higher operating revenues and a larger income tax benefit.

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. As of December 31, 2025, they had approximately $4.5 billion in total liquidity.

The company’s credit ratings impact the cost and availability of its borrowings, and some of the Utility’s contracts require collateral postings tied to its credit ratings. PG&E Corporation and the Utility remain in compliance with the financial covenants in their financing arrangements.

PG&E does not expect to undertake any equity issuances through 2030, but it plans to continue issuing debt to meet its long-term funding requirements. The company also has access to a Department of Energy loan guarantee agreement, although it has not borrowed any funds under this facility as of the report date.

Regulatory Matters PG&E is subject to extensive regulation by various state and federal agencies, including the California Public Utilities Commission (CPUC) and the Federal Energy Regulatory Commission (FERC). 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 2022 WMCE application ($1.06 billion approved), the 2023 WMCE application ($1.9 billion approved), and the 2024 WMCE application (pending).

2. Kincade and Dixie Fire Cost Review and Recovery: PG&E has filed an application with the CPUC seeking review and recovery of costs associated with the 2019 Kincade fire and the 2021 Dixie fire, including $1.59 billion in WEMA costs and $314 million in CEMA costs.

3. General Rate Cases and Cost of Capital Proceedings: PG&E regularly participates in forward-looking rate case applications with the CPUC and FERC to determine its revenue requirements and authorized returns. The company filed its 2027 General Rate Case application in 2025 and its 2026 Cost of Capital application in 2025.

4. Other Regulatory Proceedings: PG&E is also involved in various other regulatory proceedings, such as the approval of its 2026-2028 Wildfire Mitigation Plan, the extension of Diablo Canyon Power Plant operations, and the implementation of the SB 884 distribution undergrounding program.

Legislative and Regulatory Initiatives The report discusses several key legislative and regulatory initiatives that could impact PG&E’s financial condition, including:

1. SB 254: This new law establishes the Continuation Account, which provides additional liquidity to reimburse catastrophic wildfire-related claims if the Wildfire Fund is depleted. It also introduces changes to the disallowance cap and other provisions related to wildfire cost recovery.

2. Other Matters: The report also covers environmental regulations, risk management activities, and critical accounting estimates, such as the accounting for the Wildfire Fund, loss contingencies, regulatory accounting, and pension and other postretirement benefit plans.

Outlook and Analysis PG&E’s financial performance continues to be heavily influenced by the growing threat of catastrophic wildfires in California and the company’s ability to effectively mitigate these risks and recover associated costs. The regulatory environment remains crucial, as the timing and outcomes of various proceedings can have a significant impact on the company’s financial condition, results of operations, liquidity, and cash flows.

While PG&E has taken extensive measures to address the wildfire threat, the risk of its equipment being involved in future wildfires remains. The financial impact of past wildfires has been substantial, and the company’s ability to recover these costs through insurance, the Wildfire Fund, the Continuation Account, and regulatory proceedings is subject to various uncertainties.

The report highlights PG&E’s efforts to control operating and financing costs, but the company’s earnings remain heavily dependent on its ability to manage these expenses within the amounts authorized for recovery in ratemaking proceedings. Regulatory decisions, legislative actions, and the company’s success in executing its cost-saving initiatives will be key factors in determining its future financial performance.

Overall, PG&E’s financial outlook continues to be shaped by the complex and evolving landscape of wildfire risks, regulatory challenges, and the company’s ability to navigate these issues effectively. Investors and stakeholders will closely monitor PG&E’s progress in managing these critical factors and their impact on the company’s long-term financial stability and growth.