Wildfire Policy Reform and Legislative Outlook
Q: Steve Fleishman of Wolfe Research asked about signals from the legislature regarding wildfire liability reform this year.
A: Patti Poppe stated that hearings are ongoing and effective at demonstrating that the status quo is unacceptable. While the Senate has not scheduled hearings yet, the company remains hopeful for action.
Q: Steve Fleishman of Wolfe Research asked about the upcoming CPUC report due November 1.
A: Patti Poppe noted that the report will be substantive and will further illustrate why the current wildfire liability framework is unsustainable.
Strategic Review Criteria and Process
Q: Marcella Petiprin of Wells Fargo asked about the criteria for evaluating strategic pathways and balancing value against regulatory risk.
A: Patti Poppe explained that the primary goal is achieving investment-grade status to unlock value for customers and owners. They are evaluating options like spin-offs or sales, noting that gas customers currently pay sub-investment-grade borrowing costs.
Q: Marcella Petiprin of Wells Fargo asked about conversations with potential future legislative candidates regarding wildfire liability.
A: Patti Poppe mentioned that leading candidates have expressed support for action, and the company hopes reform does not get delayed until next year.
Q: Nicholas Campanella of Barclays asked about the status of conversations with the insurance industry.
A: Patti Poppe stated that discussions have been productive and the insurance industry remains a key stakeholder in finding a sustainable framework.
Q: Nicholas Campanella of Barclays asked if the summer deadline for the strategic review is a hard stop or if actions could occur sooner.
A: Patti Poppe clarified that they are moving with urgency and will communicate developments as they happen rather than waiting for the summer deadline if opportunities arise.
Investment Grade and Financial Strategy
Q: An analyst from Bank of America asked about the timeline for reaching investment grade and the target FFO to debt level.
A: Patti Poppe confirmed that reaching investment grade is realistic and they are targeting mid-teens FFO to debt. They are exploring capital allocation and corporate structures to achieve this.
Q: An analyst from Bank of America asked about the certainty of having no equity needs through 2030 given the uncertainty of the strategic review.
A: Carolyn Burke stated that the original $73 billion capital plan is supported by their equity program, and any alternative path would also be modeled to avoid new equity needs through 2030.
Q: An analyst from Bank of America asked if the accelerated amortization of the Wildfire Fund impacts financing plans.
A: Carolyn Burke clarified that it is an accounting charge and has no bearing on financing objectives.
Data Center Pipeline and Capital Allocation
Q: Carly Davenport of Goldman Sachs asked about the impact of capital reductions on the data center pipeline.
A: Patti Poppe noted that the 1.8 gigawatts of projects expected by 2030 remain in the plan. While they reduced $2 billion in capital, they are still spending $11.4 billion next year and prioritizing safety and compliance.
Q: Carly Davenport of Goldman Sachs asked if the change in dividend presentation is a function of the strategic review.
A: Carolyn Burke stated that there is no new signaling, but everything is on the table under the strategic review, though 2027 is expected to follow the prior trajectory.
Urgency and Legislative Action
Q: Anthony Crowdell of Mizuho asked how flexible the summer deadline for the strategic review is based on external factors.
A: Patti Poppe said they will respond to conditions but remain focused on the long-term value proposition.
Q: Anthony Crowdell of Mizuho asked what decouples the need for legislative action from the occurrence of a catastrophic event.
A: Patti Poppe explained that the current sub-investment-grade status is already costing customers an incremental $4 billion in interest expense, which provides a clear sense of urgency for reform.
Strategic Review Catalysts and Undergrounding
Q: David Arcaro of Morgan Stanley asked if a lack of legislative action this year would accelerate the strategic review.
A: Patti Poppe stated that the review was initiated with the possibility of inaction in mind, so they have been working on this for a year and will continue with urgency.
Q: David Arcaro of Morgan Stanley asked how the undergrounding plan fits into capital prioritization.
A: Patti Poppe emphasized that undergrounding is a key safety investment and remains a priority for high-risk areas, despite concerns about the proposed benefit/cost ratio methodology.
Undergrounding Methodology and Strategic Review Scope
Q: Richard Sunderland of Truist Securities asked about the impact of the proposed benefit/cost ratio on undergrounding miles.
A: Patti Poppe said they are still evaluating the impact but are concerned it does not match standard investment benefit/cost ratios.
Q: Richard Sunderland of Truist Securities asked if strategic review opportunities could be pursued even if legislative action occurs.
A: Patti Poppe confirmed that they are learning about the full potential of their businesses and will keep customer-beneficial outcomes on the table regardless of legislative outcomes.
Debt Profile and Timeline Clarification
Q: Aidan Kelly of JPM asked if the target for holdco debt below 10% of total debt is still intact.
A: Carolyn Burke stated that everything is on the table and they are not indicating a specific target for parent debt at this time.
Q: Aidan Kelly of JPM asked for the rationale behind the summer 2027 timeline.
A: Patti Poppe clarified that the previous 12 to 18 month mention was a general industry standard, not a specific signal of their timeline, and they want to push for a definitive direction by next summer.
