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, 2021 Dixie fire, and 2022 Mosquito fire, with potential recoveries from insurance, the Wildfire Fund, and regulatory proceedings subject to various uncertainties.

2. Regulatory Proceedings and Legislation: The timing and outcomes of ratemaking proceedings, as well as state 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 a key factor.

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 seeking to finance its business in a cost-effective manner.

Tax Matters PG&E Corporation has significant net operating loss carryforwards for federal and state income tax purposes, which could be subject to limitations if the company undergoes an “ownership change” as defined under 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 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. These increases were partially offset by lower revenues from other regulatory proceedings.

The Utility’s cost of electricity increased by 15% in 2025, mainly due to higher procurement costs, including for local resource adequacy contracts and nuclear fuel. However, the Utility’s cost of natural gas decreased by 7% due to lower greenhouse gas emission volumes and favorable price risk management activities.

Operating and maintenance expenses for the Utility decreased by 4% in 2025, primarily due to the recovery of previously deferred expenses authorized in prior regulatory proceedings, partially offset by increased costs associated with the extended operations of DCPP.

Depreciation, amortization, and decommissioning expenses for the Utility increased by 11% in 2025, reflecting the growth in the company’s asset base and the recognition of deferred depreciation expense.

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, the company 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 its short-term and long-term borrowings, as well as its ability to post collateral for certain contracts. PG&E Corporation and the Utility remain in compliance with the financial covenants in their financing arrangements.

PG&E Corporation does not expect to undertake any equity issuances through 2030, but the company may issue debt to meet its long-term funding requirements. The Utility 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. The CPUC has authorized partial cost recovery in these proceedings, with some disallowances.

2. Forward-Looking Rate Cases: PG&E regularly participates in rate case proceedings to determine its authorized revenue requirements and return on equity. The 2027 General Rate Case, filed in 2025, requests a revenue requirement of $16.64 billion for 2027, with proposed investments in safety, resiliency, and clean energy initiatives.

3. Other Regulatory Proceedings: The company is also involved in proceedings related to the extension of Diablo Canyon Power Plant operations, the SB 884 distribution undergrounding program, and the 2026-2028 Wildfire Mitigation Plan, among others.

Legislative and Regulatory Initiatives The report discusses the potential impact of recent legislation, including SB 254, which establishes the Continuation Account to provide additional liquidity for catastrophic wildfire-related claims if the Wildfire Fund is depleted. This new mechanism, along with the existing Wildfire Fund, aims to help mitigate the financial burden of wildfires on PG&E and other participating utilities.

Litigation and Other Matters PG&E Corporation and the Utility face significant contingencies related to various legal proceedings, including those arising from their operations and wildfire-related liabilities. The outcomes of these matters could have a material effect on the company’s financial condition, results of operations, liquidity, and cash flows.

Environmental Matters PG&E’s operations are subject to extensive federal, state, and local environmental laws and regulations, which relate to the remediation of hazardous substances, emissions, and the handling and disposal of various materials. Compliance with these requirements can have a significant impact on the company’s financial performance.

Risk Management Activities PG&E actively manages its exposure to risks associated with adverse changes in commodity prices, interest rates, and counterparty credit. The company uses various financial instruments and agreements to mitigate these risks, but fluctuations in these factors can still impact the company’s cash flows.

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 can materially affect PG&E’s financial statements.

Outlook PG&E Corporation and the Utility face an ongoing challenge in managing the financial impacts of wildfires and the associated costs of mitigation efforts. The company’s ability to recover these costs through regulatory proceedings, insurance, and the Wildfire Fund/Continuation Account will be crucial to its financial performance going forward. Additionally, the company’s success in controlling operating and financing costs, as well as navigating the complex regulatory landscape, will be key factors in determining its future results.

Overall, PG&E’s financial report highlights the significant risks and uncertainties the company faces, while also demonstrating its efforts to adapt and respond to the evolving landscape of wildfire management and regulatory requirements. Investors and stakeholders will closely monitor the company’s progress in addressing these challenges and its ability to maintain financial stability in the years ahead.