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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 Mitigation Efforts: PG&E has taken extensive measures 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 tax code. The company’s 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 net income increased by 14% compared to 2024, primarily due to higher revenues to recover costs associated with the extended operations of the Diablo Canyon Power Plant, interim rate relief, and increased revenue recognition. These were partially offset by higher costs for electricity procurement, depreciation, and amortization.

The Utility’s operating revenues increased by 2% in 2025, reflecting the recovery of various costs, including those related to Diablo Canyon operations and interim rate relief. However, this was partially offset by lower revenues authorized in prior proceedings.

Operating expenses increased by 1%, driven by higher costs for electricity procurement, depreciation, and amortization, partially offset by lower operating and maintenance 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’s ability to fund operations, make debt payments, and pay dividends depends on the level of cash on hand, cash received from the Utility, and access to capital 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 compliance with financial covenants are important factors in maintaining access to financing.

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 2019 Kincade fire and 2021 Dixie fire. The outcomes of these proceedings will impact the company’s ability to recover these costs.

2. General Rate Cases and Cost of Capital: PG&E regularly participates in forward-looking rate case proceedings to determine its revenue requirements and authorized rate of return. The 2027 General Rate Case and the 2026 Cost of Capital proceeding are ongoing.

3. Other Regulatory Initiatives: The report also discusses PG&E’s involvement in proceedings related to the extension of Diablo Canyon operations, the SB 884 undergrounding program, and the 2026-2028 Wildfire Mitigation Plan.

Legislative and Regulatory Initiatives The report highlights the recent enactment of SB 254, which establishes the Continuation Account to provide additional liquidity for large electric utilities to cover catastrophic wildfire-related claims if the Wildfire Fund is depleted. This new mechanism, along with the existing Wildfire Fund, is intended to help mitigate the financial impact of future wildfires.

Litigation and Other Matters PG&E Corporation and the Utility face significant contingencies related to various legal and regulatory proceedings, including matters described in the report’s notes. 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 environmental regulations, including those related to the remediation of hazardous substances, the reduction of greenhouse gas emissions, and the handling of spent nuclear fuel. Compliance with these regulations can result in significant costs for the company.

Risk Management Activities PG&E actively manages its exposure to risks associated with commodity prices, interest rates, and counterparty credit through various risk management programs and the use of derivative instruments. The company’s ability to recover certain costs through regulated rates helps mitigate the impact of commodity price fluctuations on its financial results.

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 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 navigating the complex regulatory environment in California. The company’s ability to recover its costs, control operating and financing expenses, and effectively implement its wildfire mitigation strategies will be crucial in determining its future financial performance. Investors and stakeholders will closely monitor the outcomes of the company’s regulatory proceedings, its progress in managing wildfire risks, and its efforts to maintain financial stability and access to capital markets.