Again. Boy, it's been a tough week if you own any California-based electric utilities. Last weekend, a deal to reform the way wildfire liabilities are treated fell through, sending stocks like PG&E and Edison International down roughly 20% over the past three days. Right now, regulated utilities in California, if they cause a wildfire with their power, can be held liable and on the hook for major financial penalties, even if they have insurance policies in place. The law lets the insurance companies sue the utilities to recover the money they pay out. Utilities have been trying to cap that amount they pay, and it looks like they've been able to get this through the legislature. But then, I don't know, at the last minute the deal fell apart. Now it's unclear what's going to happen this morning. PG&E, the gas and electric utility in Northern California, said they're exploring strategic alternatives. They also announced they'll be cutting back on their capital spending next year, not safety capital spending. So what's going on here? Is it possible the stock is worth buying on weakness? Let's check in with Patti Poppe. She's the CEO of PG&E to break things down. Ms. Poppe, welcome back to Mad Money.
Thank you, Jim Cramer. Great to be with you, as always.
Okay. So Patti, you know because I contacted you this weekend, I found this very hard to understand. I also found it very wrong, but let's leave that aside. Maybe you can just explain the core wildfire liability reform issue so that we at least know what's going on.
Yeah. So this wildfire reform has been two years in the making. There was a report drafted at the order of the governor a year ago to describe the problem, and everyone agrees the cost for our customers is too high of the wildfire liability construct. So given that cost being too high, reforms were possible. A couple lines of text in a proposed law would make all the difference in the world to my customers, and that fell through.
Well, I know that you've been incredibly diligent in getting your company's balance sheet back and also fixing wildfire problems and delivering great lower costs to your customers. I'm trying to figure out, one, why you would possibly be, let's say, damaged by that, because it seems like you're doing everything right. And two, what could a strategic review accomplish?
Yeah, you're not wrong, Jim. We've done the hard part. We've done the real work to transform this company. We're six years into a major transformation where we've reduced our wildfire risk dramatically. This is our fourth year without a major wildfire. We've lowered rates five times in the last two years. We've improved reliability by 30%. All that to say, we need this liability reform done to unlock the value and to bring the capital in from the capital markets. If investors and banks see the risk too high, they charge more or they don't enter the stock at all. And it's actually just very targeted fixes to the current legislative framework that would make all the difference in the world for our customers. Our debt costs are too high, specifically because we made a real pathway toward investment grade coming out of bankruptcy six years ago. We've been on our track to investment grade credit ratings, and we're just at the cusp, and we've been in a holding pattern waiting for this legislative work to get done that would save my customers $600 million just in the last two years of debt issuances. This is real savings for customers. It's a matter of a simple legislative fix, and we're counting on the legislature to take that action.
So what does it do to cut 2027 capital expenditures then?
Yeah. So we announced today our strategic review as well as a $2 billion capital cut. We have a $11.4 billion capital plan after that $2 billion cut, so it's not zero. We're not going to zero, but we've reduced it by $2 billion, and that's going to delay housing starts. That's going to delay renewable energy interconnections to the grid. That's going to delay our connections of new and growing load here in California. California is growing and we power that, and we need access to low-cost debt and high-quality investors to make that happen. And look, we're not done yet. Speaker Rivas yesterday held the bill, as you suggested. He said they want to get back to work. They've scheduled some hearings. Governor Newsom has been adamant that this work needs to get done. We really are hopeful that they'll be able to find their way to get back to the table and finish the job for our customers. The people of California are waiting.
Well, were they aware about how you put all that stock in the trust and you bang, you had to hurt the shareholders? There was nothing you could do. You explained it very clearly what was going to happen. So it wasn't like someone came in and said, "I'm shocked," because you laid it out. But I had thought you had done the hard work.
We've done the hard work. You are not wrong, Jim Cramer. We have done the hard work. Look at the fundamentals of this company; they have never been better. Our foundation of operational safety, wildfire safety, reliability, affordability—that construct exists. My people have delivered for California. Now we need our legislature to finish the job so we can take it to the next level and let this racehorse out of the barn. We've got a great company to serve the people of California, and we just need a simple legislative fix to get that done.
Now, there were four analysts that downgraded the stock. I guess they just kind of feel like it's just I can't get a handle on it. Because I mean, to me, I wanted to say just go buy it. But I myself did spend a lot of time on this. And I came back and I said, I really hope that Patty gets it. I really believe that the governor's for it. But this California legislature, from the day that I covered it as a reporter in 1978, has been very hard to gauge.
Well, look, they've done a lot of hard work in the years gone by. They've set up actually an industry-leading liability framework for wildfire. But there's a real tail risk that has spooked investors that can be fixed. This tail risk can be addressed, and a liquidity question can be resolved with some simple language, a simple fix. The existing legislature needs to build on the actions of the past. The governor has led this process for eight years. I know he's been clear. The California Earthquake Authority report was clear. Our CPUC was clear. Everyone agrees the status quo doesn't work for customers. Let's get that done, and then investors will be the beneficiaries of unlocking that value for customers, lowering rates, making our debt more affordable, and getting to investment grade once and for all.
