PG&E Corp. launched a strategic review aimed at working toward investment-grade credit ratings as the lack of comprehensive wildfire liability reform in California continues to weigh on the utility company.
Shares of PG&E Corp. plummeted on Aug. 31 after California lawmakers filed legislation that fell short of the reforms that operating arm Pacific Gas and Electric Co. (PG&E) and other investor-owned utilities have been seeking for years.
The parent company recovered some of those losses the following trading day after the state Assembly declined to vote on the bill, which focused largely on providing protections for wildfire victims. However, PG&E Corp. announced Sept. 2 that it would reduce 2027 capital spending by $2 billion, to $11.4 billion from $13.4 billion, and would no longer provide five-year spending and growth plans beyond 2027 while the review is underway.
"We have concluded that PG&E cannot simply wait for the policy framework to change," CEO Patti Poppe told investors during a Sept. 2 conference call. "We must take action now to sustainably serve our customers."
"The holdco structure just doesn't necessarily allow us to provide the value and the visibility to the value of our different businesses," she continued. "We're a very large and complicated company with lots of businesses within which, today, I feel value is trapped and that value can be unlocked for customers and investors, and so we're exploring what steps would be necessary to unlock that value."
The range of potential options includes regulatory measures such as policy reform, as well as changes to the company's corporate structure and capital allocation strategy, Poppe noted.
Regaining investment-grade credit ratings, which PG&E Corp. lost during its Chapter 11 bankruptcy proceedings in 2019, is "a foundational objective" of the strategic review, she emphasized.
Poppe said credit rating agencies have made clear to PG&E Corp. that while the company meets the necessary financial metrics, wildfire policy "is holding us back."
When asked whether the company might reconsider spinning off its non-nuclear generation portfolio, Poppe responded that "everything is on the table."
In 2024, the California Public Utilities Commission denied PG&E's application to spin off that part of the business, ruling that creating Pacific Generation LLC and authorizing it as a separate utility did not meet the public interest standard.
"I would say today, we have so much more value. We're so much more stable," Poppe emphasized.
PG&E Corp. anticipates the review will take 12 to 18 months.
Shares fall further
Following the call, PG&E Corp. shares dropped another 10%, trading as low as $12.59 on the morning of Sept. 2, as industry analysts said details of the review fell short of expectations. They finished the day down about 5%.
Barclays analysts had expected a 2027 capex cut of $3.5 billion, while Jefferies analysts noted that investors had hoped to see "a sizable increase in payout ratio" or "meaningful buybacks of at least $500 million annually."
While California Governor Gavin Newsom (Democrat) may still call a special legislative session before a new governor takes office next year, Jefferies sees "a challenging path forward for securing pro-shareholder legislation."
There is no feasible path to a special session "unless the Senate flips," Mizuho analysts told clients.
Senate Bill 492 would not have barred insurance companies from subrogation, which allows them to sue utilities to recover costs for damage claims resulting from wildfires linked to utility assets.
The measure would have prohibited insurance companies from transferring subrogation rights to any third party and barred individuals, businesses and other entities from selling or transferring wildfire claims to a private equity group.
SB 492 would also have required utilities to establish an executive pay structure that links compensation to public safety, barring CEOs and other senior executives from receiving bonuses if a utility triggers a wildfire that damages or destroys 500 structures or more.
PG&E said in an Aug. 30 statement that the bill "does not adequately address the financing risks created by California's current wildfire liability framework" and "falls short of creating the long-term durability needed to attract affordable investment to support a safer, more reliable energy system and help keep costs down for customers."
