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The goal of this case study is to provide a detailed outline for potential addition into the company’s investment portfolio. The company targeted for potential investment is Pacific Gas and Electric Company or PG&E. Covered herein is the organizational analysis, critical incidents, the company’s investment potential, and recommendations based on findings.

PG&E Corporation (PG&E or the company) is an energy-based holding company for Pacific Gas and Electric Company (Pacific Gas and Electric). PG&E subsidiaries provide customers with public utility services, and services relating to the generation of energy, transmission of electricity and natural gas, generation of electricity, and the distribution of energy. The company primarily operates in the US. It is headquartered in San Francisco, California, and employed 21,166 people as on December 31, 2013.

Leadership

PG&E is an energy-based holding company for Pacific Gas and Electric. Pacific Gas and Electric is engaged primarily in the following businesses: electricity and natural gas distribution; electricity generation, procurement, and transmission; and natural gas procurement, transportation, and storage. PG&E operates through two segments: electric and natural gas. The company's strength lies in its strong distribution network in electricity and natural gas segments, which provide it with a competitive edge. However, volatility of the natural gas and electricity markets may adversely impact its financial condition, results of operations, and cash flows.

PG&E's subsidiary, Pacific Gas and Electric, has a strong distribution network for the supply of electricity and natural gas. As on December 31, 2013, the company owned approximately 18,115 circuit miles of interconnected transmission lines operated at voltages of 500 kV to 60 kV and transmission substations with a capacity of 62,289 MVA. Pacific Gas and Electric's electricity distribution network consists of approximately 141,000 circuit miles of distribution lines (of which approximately 20% are underground and approximately 80% are overhead), 58 transmission-switching substations, and 603 distribution substations. The strong distribution network provides competitive advantage to the company.

As on December 31, 2013, Pacific Gas and Electric's natural gas system consisted of approximately 42,559 miles of distribution pipelines, over 6,000 miles of backbone and local transmission pipelines, and various storage facilities. Pacific Gas and Electric owns and operates three underground natural gas storage fields connected to its transmission and storage system and has a 25% interest in the new Gill Ranch Storage Field. In addition, three independent storage operators are interconnected to Pacific Gas and Electric's northern California transportation system. The utility served over 5.2 million electricity distribution customers and approximately 4.4 million natural gas distribution customers in FY2013.

The company recorded revenues of $15,598 million during the financial year ended December 2013 (FY2013), an increase of 3.7% over FY2012.The operating profit of the company was $1,762 million in FY2013, an increase of 4.1% over FY2012.The net profit was $814 million in FY2013, a decrease of 0.2% compared to FY2012. PG&E’s financial condition, results of operation, and cash flows may be further affected by the amount of penalties and fines, if any, that may be imposed on the company.

PG&E, through its subsidiary Pacific Gas and Electric, primarily operates in the US.While most of the company's competitors have been expanding their operations across diverse geographic areas, PG&E has operations only in the US, mostly concentrated in northern and central California. Dependence on a particular market exposes the company to many risks. The restricted exposure of PG&E poses operational and financial limitations to the company in the event of any domestic market downfall, inflationary pressures, excess liquidity, and natural disasters.

PG&E must comply with all the regulations of the CPUC, the Federal Energy Regulatory Commission (FERC), the Nuclear Regulatory Commission (NRC), and other regulatory agencies relating to the aspects of its electricity and natural gas utility operations. Failure to comply with these regulations will subject the company to fines and penalties.

In addition, under the Energy Policy Act of 2005, the FERC can impose penalties (up to $1 million per day per violation) for failure to comply with mandatory electric reliability standards, including standards to protect the nation’s bulk power system against potential disruptions from cyber and physical security breaches. As part of the continuing development of new and modified reliability standards, the FERC has approved changes to its critical infrastructure protection reliability standards that will establish a compliance schedule for assets that a company has identified as critical cyber assets.

As these and other standards and rules evolve, and as the wholesale electricity markets become more complex, the company’s non-compliance with the regulations may result in increased penalties which further impacts its financial position

A PG&E-owned natural gas pipeline ruptured in a residential area located in the City of San Bruno, California, in September 2010.This resulted in the deaths of eight people, injuries to numerous individuals, and extensive property damage.The National Transportation Safety Board (NTSB) and the California Public Utilities Commission (CPUC) are investigating the San Bruno accident. A cause of the pipeline rupture has not yet been determined.The company, on March 2012, reached an agreement with the city of San Bruno to pay $70 million in restitution to support the city and community's efforts to recover after the PG&E pipeline tragedy. In January 2013, PG&E and Pacific Gas and Electric requested the court to dismiss the complaint on the grounds that the CPUC has exclusive jurisdiction to adjudicate the issues raised by the plaintiffs’ allegations.

The energy market is witnessing increasing concerns about environment and rising energy prices and is looking to shift their focus for promoting non-conventional sources of energy.These energy sources are effective power generation methods that do not emit carbon dioxide.

To capitalize on this growing demand, PG&E has added renewable generation to its portfolio with the inauguration of the Vaca-Dixon photovoltaic solar station.This represents the first major project under its five-year program to develop up to 500 MW of clean solar photovoltaic power, 250 MW of which will be owned by PG&E. Further, in August 2011, PCG, a subsidiary of PG&E, and Sempra Generation, a subsidiary of Sempra Energy, entered into a 25-year contract for 150 MW of renewable power from an expansion of Sempra Generation's Copper Mountain Solar complex in Boulder City, Nevada. Additionally, PG&E currently has 12 renewable projects totaling 1,366 MW that are under construction.

Further, in April 2013, Pacific Gas and Electric reached an agreement with a diverse group of consumer and other organizations to enhance its proposed "Green Option" to give electric customers an opportunity to support 100% renewable energy.The new proposal will allow customers to directly support the development of new projects that generate clean energy in and around the communities that PG&E serves. Moreover, in May 2013, Pacific Gas and Electric completed the installation of a battery energy storage system to evaluate how it can improve power quality and reliability, support greater integration of intermittent renewable energy resources within the grid, and supply electrical services to California electricity markets.

Including how the investment might help the organization to address its current issues or realize its potential for growth.

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