Yahoo Finance Will Improved Rates Boost Pacific Gas and Electric’s 4Q15 Revenues?
Will Pacific Gas and Electric Meet 4Q15 Earnings Guidance?
Revenues
Pacific Gas and Electric (PCG) serves nearly 10 million customers in California. According to Wall Street analyst estimates, PCG is expected to generate revenues of $4.5 billion in 4Q15. In the fourth quarter of 2014, PCG managed revenues of $4.3 billion. Revenues may see a positive impact due to increased rates in 4Q15.
Rate cases
New rates based on PCG’s transmission rate case worth $1.2 billion came into effect in October 2015. This may improve 4Q15 earnings, as it is an increase of $161 million from the prior year. It is expected that PCG’s earnings in the short term will be positively impacted by rate cases. The company is actively focusing on grid modernization. PCG’s continued capital investment in its service area can be periodically recovered through rate increases.
PG&E provides energy to a wide range of customers, but residential customers account for nearly 44% of PCG’s total revenues. Residential customers offer better profit margins, but sales to this category are highly impacted by weather conditions.
Regulatory conditions in California
California’s utility regulators have allowed a rate of return of 10.4%, which is one of the highest in the United States. Also, utilities in California follow a decoupling mechanism where regulators allow utilities (IDU) to collect revenues based on estimates rather than actual sales. Sempra Energy (SRE) and Edison International (EIX) also operate in California. SRE is expected to release its 4Q15 earnings on February 25 while EIX will release its earnings on February 23, 2016.
PG&E is aiming to achieve 6% to 8% compounded annual average rate base growth in the next five years. Rate base is the value of the property on which a utility (VPU) is allowed to earn a specific rate of return according to the rules set by regulators.
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