Chief Executive Patti Poppe told investors that the company’s four million gas customers pay junk-rated borrowing costs because of wildfire risk on the electric side, and that a regulator-approved separation is one way out. Nothing has been decided.
PG&E has spent most of the past decade telling investors that its problem is wildfire liability. On Thursday, its chief executive suggested that one fix might be to take the gas business out of the building.
Speaking on the company’s third-quarter earnings call, Patti Poppe said PG&E’s natural gas customers were paying for a risk that mostly belongs to the electric grid. “Our gas business, our 4 million gas customers are paying sub investment grade borrowing costs because it is part of the holdco related to wildfire risk, and that seems like an issue that should be resolved one way or another,” she said, according to a transcript of the call published by The Motley Fool.
She said the company would prefer that lawmakers fix the problem. If they do not, she asked, “would we unlock that value and lower borrowing costs for our gas customers through a regulatory approved, spin or sale or separation of some kind?”
Bloomberg Law reported that PG&E “may spin off, sell or otherwise separate” the gas business. POLITICO described it as a possibility Ms. Poppe raised. The company has not announced a transaction, a buyer or a timeline specific to the gas unit, and she framed it as an example of options under study rather than a plan.
How the company got here
PG&E Corporation’s board formed a four-member committee of independent directors on Sept. 2 to run a strategic review of “the full range of regulatory, financial, operational and strategic alternatives,” including how the company is organized and financed. The announcement came after the Legislature ended its session without passing the wildfire liability changes that utilities had sought.
On the call, Ms. Poppe said structural options “range from corporate ring fencing to sales and separations,” and that “a discount for wildfire risk burdens all of our assets including businesses with little or no exposure to that risk.” The company expects to announce the outcome “no later than next summer,” she said, and will update investors sooner if there are material developments.
The numbers she cited explain the pressure. PG&E’s credit has been rated below investment grade since 2017, and Ms. Poppe said the debt issued in that period would cost customers an additional $4 billion in interest over its life. Fitch revised its outlook on the company to negative during the quarter, Carolyn Burke, the chief financial officer, told analysts.
PG&E’s third-quarter results were otherwise steady. Non-GAAP core earnings were 41 cents a share, down from 50 cents a year earlier, and the company reaffirmed core earnings guidance of $1.64 to $1.66 a share for 2026 and $1.78 to $1.82 for 2027. It stopped giving guidance beyond 2027 during the review. Ms. Burke said the company would not issue new stock at its current share price.
What the numbers leave out
The company’s plan to save money on financing has costs of its own. As part of the review, PG&E cut its 2027 capital plan by about $2 billion, to $11.4 billion. Ms. Poppe acknowledged on the call that the cut would delay new clean-energy connections, system expansion and customer projects, “including those supporting much needed housing in California.”
NBC Bay Area reported on Wednesday that PG&E had warned about 25,000 prospective customers that their power connections could be delayed by up to six months. Consumer advocates say the deferral is a pressure tactic. “They’re saying if we don’t get our bailout on wildfire liability, we’re not going to hook up your electricity,” Jamie Court of Consumer Watchdog told the station. “It’s pure, pure blackmail. They have the money.” Advocates also argue that much of the deferred spending is already built into customers’ rates. PG&E has said that postponing the work will help keep electricity costs down for existing customers.
San Francisco is watching closely. Last week the company told state regulators that a city takeover of its local electric grid would cost $22.5 billion, a figure the city disputes, as The Inquirer reported. The city puts the value of the assets at $3.4 billion and has cited slow grid connections as one reason it wants to buy them.
Regulators would have the last word
Any sale or change of control of a California utility’s business requires approval from the California Public Utilities Commission under Sections 851 and 854 of the Public Utilities Code, which ask whether a deal is in the public interest. Ms. Poppe acknowledged that history. Asked about PacGen, the generation unit in which PG&E had proposed selling a minority stake, she noted that the regulator did not approve it, calling that “a totally different time and a different set of facts” in which the company was raising cash and “unable to share benefits with customers.”
“In those cases, the regulator obviously has an important decision making role to play,” she said, adding that the company would bring a proposal forward only if it “actually created real value” for customers.
The legislative route is not closed. Ms. Poppe pointed to two legislative hearings scheduled for the coming week, including one on Oct. 29 expected to take up subrogation, the claims insurers bring to recover what they pay out after a fire, and to a report on the wildfire liability framework that the C.P.U.C. is due to deliver to Gov. Gavin Newsom on Nov. 1.
PG&E’s investor relations office, the C.P.U.C., Mary Flannelly of the commission’s Public Advocates Office, The Utility Reform Network and Michael Wara, a Stanford energy and wildfire policy scholar, did not respond to The Inquirer’s questions by publication time.
Wendell Yamashiro covers business, technology, labor, trade and the Bay Area economy for Trade and Commerce. More from Wendell Yamashiro
