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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 Cost Recovery: PG&E has taken extensive measures to mitigate wildfire risks, including enhanced power shutoffs, vegetation management, and system hardening. However, the company’s equipment may still be involved in future wildfires, and the financial impact can be substantial. PG&E can seek to recover wildfire-related costs through insurance, the Wildfire Fund, the Continuation Account (a new state program), and regulatory proceedings, but the availability and timing of these recoveries are uncertain.

2. Ratemaking and Regulatory Proceedings: The Utility’s revenues and costs are heavily influenced by the outcomes of ratemaking proceedings, where the California Public Utilities Commission (CPUC) determines the Utility’s authorized revenue requirements and rates. Delays in these proceedings or unfavorable decisions can impact the Utility’s financial results.

3. Legislative and Political Factors: There has been increased legislative and political activity in California regarding wildfires, energy affordability, and related topics. The substance and timing of any new laws or regulations could have a material impact on PG&E’s business.

4. Cost Control and Financing: PG&E’s earnings depend on its ability to manage costs within the amounts authorized for recovery in ratemaking proceedings. The company also works to reduce financing costs, but increased volatility in capital markets and elevated interest rates may impact its ability to obtain financing on acceptable terms.

Tax Matters PG&E Corporation has significant net operating loss carryforwards, which could be limited 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 Utility’s performance. Key highlights include:

• The Utility’s operating revenues increased by 2% in 2025 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.

• The Utility’s Cost of electricity increased by 15% 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.

• Operating and maintenance expenses decreased by 4%, mainly due to the recovery of previously deferred expenses, partially offset by higher costs related to the extended DCPP operations.

• Depreciation, amortization, and decommissioning expenses increased by 11% due to growth in the Utility’s asset base and recognition of deferred depreciation.

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

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 and restrictive debt covenants can impact the cost and availability of its financing.

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

• 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, with the CPUC approving partial cost recovery in recent decisions.

• 2027 General Rate Case: PG&E has filed its 2027 GRC application, requesting a revenue requirement of $16.64 billion for 2027 to support various safety, resiliency, and clean energy investments.

• Cost of Capital Proceedings: The CPUC has approved a return on equity of 9.98% and a cost of debt of 5.04% for the Utility, effective January 1, 2026.

• Transmission Owner Rate Case: PG&E’s transmission revenue requirement has been approved by FERC, with a base return on equity of 10.38%.

• Diablo Canyon Operations Extension: PG&E continues to work towards extending the operations of the DCPP, which is subject to various state and federal approvals.

Legislative and Regulatory Initiatives The report discusses two key legislative developments:

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 includes provisions related to the Utility’s fire risk mitigation capital expenditures.

2. SB 884: This law mandates a 10-year distribution infrastructure undergrounding program, with the CPUC establishing guidelines for the Utility’s plan and cost recovery.

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

Analysis and Outlook 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 complex, with the CPUC and other agencies playing a critical role in determining the Utility’s authorized revenues and the recoverability of its costs.

While PG&E has taken significant steps to enhance its wildfire mitigation efforts, the risk of its equipment being involved in future wildfires remains. The company’s financial results will depend on its success in managing these risks, navigating the regulatory landscape, and controlling its operating and financing costs.

The establishment of the Continuation Account provides an additional mechanism for PG&E to potentially recover wildfire-related costs, but the availability and timing of these recoveries are still uncertain. The company’s ability to access capital markets and maintain its credit ratings will also be crucial in supporting its liquidity and financing needs.

Overall, PG&E faces a challenging operating environment, but the company’s focus on safety, cost control, and regulatory engagement will be key to navigating the path ahead and delivering sustainable financial performance for its shareholders.