Overview of PG&E Corporation and the Utility

This is a combined report of PG&E Corporation and its subsidiary, the Utility. PG&E Corporation’s and the Utility’s financial results can be significantly impacted by several key factors, including the costs and effectiveness of the Utility’s wildfire mitigation initiatives, the financial impacts of wildfires, the Utility’s ability to recover wildfire-related costs, the timing and outcome of ratemaking proceedings, and the Utility’s ability to control operating and financing costs.

The Utility’s revenues vary based on the outcomes of ratemaking proceedings and the amount of pass-through costs incurred, such as the cost of purchased power and fuel. Factors that cause the Utility’s costs to fluctuate include weather, criminal and regulatory charges for wildfires, and increases in interest expense from additional debt.

Key Factors Affecting Financial Results

1. Wildfire Mitigation and Cost Recovery: PG&E Corporation’s and the Utility’s financial performance can be significantly impacted by the costs and effectiveness of the Utility’s wildfire mitigation initiatives, the extent of damages from future wildfires, and the Utility’s ability to recover wildfire-related costs. The Utility has taken aggressive steps to mitigate wildfire risk, but its equipment may still be involved in future wildfires. The Utility has incurred substantial liabilities for past wildfires, and its ability to recover future wildfire costs depends on the Wildfire Fund, the Continuation Account, and regulatory recovery, all of which involve uncertainties.

2. Ratemaking Proceedings and Legislation: The timing and outcome of ratemaking proceedings, other regulatory proceedings, and legislation can have a material impact on PG&E Corporation’s and the Utility’s business profile and financial results. The Utility’s revenue requirements are set through ratemaking proceedings, and the Utility seeks to recover its recorded costs on a timely basis. Other proceedings, such as actions by municipalities to acquire the Utility’s assets, can also affect the Utility’s business. Additionally, there has been increased legislative and political activity in California regarding wildfires, energy affordability, and related topics.

3. Cost Control and Financing: PG&E Corporation’s and the Utility’s ability to manage operating and financing costs is crucial, as the Utility’s earnings depend on its ability to control costs within the amounts authorized for recovery in ratemaking proceedings. The Utility aims to achieve cost savings through increased efficiencies, while also identifying and executing on opportunities to efficiently finance the business, which can be impacted by capital market conditions.

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 Corporation’s Amended Articles of Incorporation contain restrictions on the acquisition or accumulation of its stock to prevent such an ownership change.

Results of Operations

PG&E Corporation’s consolidated results of operations consist primarily of the Utility’s results. The Utility’s electric and natural gas operating revenues increased by 2% in 2025 compared to 2024, primarily due to increased revenues to recover costs associated with extended operations at the Diablo Canyon Power Plant (DCPP) and interim rate relief, partially offset by decreases in other revenue authorizations.

The Utility’s Cost of electricity increased by 15% in 2025, mainly due to higher procurement costs, while the Cost of natural gas decreased by 7% due to lower greenhouse gas emission volumes and favorable price risk management activity.

The Utility’s Operating and maintenance expenses decreased by 4% in 2025, primarily due to the recognition of previously deferred expenses in 2024 and lower expenses authorized in certain proceedings, partially offset by increased costs associated with extended DCPP operations.

Depreciation, amortization, and decommissioning expenses increased by 11% in 2025, driven by growth in the Utility’s plant balance and the recognition of deferred depreciation expense.

The Utility’s Income tax benefit increased by 85% in 2025, primarily due to an increased tax repairs deduction and an additional deduction for certain costs attributable to electric generation.

Liquidity and Financial Resources

PG&E Corporation and the Utility expect to be able to generate and obtain adequate cash to meet their cash requirements in the short and long term. They rely on access to debt and equity markets and credit facilities to finance their capital requirements and support their liquidity needs.

As of December 31, 2025, PG&E Corporation and the Utility had access to approximately $4.5 billion of total liquidity, including $353 million of the Utility’s Cash and cash equivalents, $360 million of PG&E Corporation’s Cash and cash equivalents, and $3.8 billion of availability under their revolving credit facilities.

PG&E Corporation does not expect to undertake any equity issuances through 2030. The Utility generally issues first mortgage bonds and secured debt to meet its long-term funding requirements. The Utility also has access to a DOE Loan Guarantee Agreement, although it has not borrowed any advances under the facility as of the date of the report.

PG&E Corporation has announced a dividend policy targeting a dividend payout ratio of approximately 20% of core earnings by 2028, subject to the Board of Directors’ discretion.

Regulatory Matters

The Utility is subject to substantial regulation by various federal and state agencies, and the resolutions of regulatory proceedings can materially affect PG&E Corporation’s and the Utility’s financial condition, results of operations, liquidity, and cash flows.

Key regulatory updates include:

• The Utility’s 2023 Wildfire Mitigation and Catastrophic Events (WMCE) proceeding, in which the CPUC authorized $1.9 billion in cost recovery.
• The Utility’s 2026-2028 Wildfire Mitigation Plan, which was approved by the OEIS.
• The CPUC’s approval of the Utility’s request to extend operations at the Diablo Canyon Power Plant through 2030.
• The CPUC’s establishment of an expedited utility distribution infrastructure undergrounding program pursuant to SB 884.

Legislative and Regulatory Initiatives

The enactment of SB 254 in 2025 provided for the Continuation Account, which is designed to provide additional liquidity to reimburse catastrophic wildfire-related claims incurred by large electric corporations if the Wildfire Fund is depleted. The Continuation Account has several key features, including a $18 billion liquidity pool, potential extensions of the non-bypassable charge on customers, and a revised disallowance cap on reimbursements.

Litigation and Other Matters

PG&E Corporation and the Utility have significant contingencies arising from their operations, including matters related to wildfires, enforcement, environmental remediation, and other legal issues. The outcome of these matters could have a material effect on their financial condition, results of operations, liquidity, and cash flows.

Environmental Matters

The Utility’s operations are subject to extensive federal, state, and local environmental laws and regulations, which relate to a broad range of the Utility’s activities, including the remediation of hazardous substances, the reporting and reduction of greenhouse gas emissions, and the transportation, handling, storage, and disposal of spent nuclear fuel.

Risk Management Activities

PG&E Corporation and the Utility are exposed to risks associated with adverse changes in commodity prices, interest rates, and counterparty credit. They use various risk management programs and derivative instruments to mitigate these risks, but fluctuations in these factors can still impact their cash flows.

Critical Accounting Estimates

PG&E Corporation’s and the Utility’s critical accounting estimates include the accounting for contributions to the Wildfire Fund, loss contingencies, regulatory accounting, asset retirement obligations, and pension and other postretirement benefit plans. These estimates involve significant judgments and assumptions, and actual results may differ materially from the estimates.

Conclusion

PG&E Corporation’s and the Utility’s financial performance is heavily influenced by their ability to effectively manage wildfire-related costs and risks, navigate the regulatory environment, control operating and financing costs, and make sound accounting estimates. The company’s liquidity position and access to capital markets remain crucial to its ability to fund its operations and investments. Ongoing regulatory and legislative developments, as well as the resolution of various contingencies, will continue to shape the company’s financial outlook.