Hello everyone and welcome to At Barron's. I'm Andy Serwer and welcome to our guest Patty Poppe, CEO of PG&E. Patty, great to see you. Thanks for joining us.
Thank you, Andy. Great to be with you.
So data centers, AI must really be driving your business. People don't think about data centers in California, but I know you do have a lot of them. What's going on with demand right now?
Yeah, we have data centers and we have data center demand. We power the tech industry, for goodness' sake. All of the tech industry, the big and the small companies, we are privileged to serve. And so we have 12 gigawatts of applications for new load. And the good news is they're willing to pay the right price so it can lower rates for everybody else.
Why don't we take a step back and give us sort of a thumbnail sketch of the company? I mean, people have heard of PG&E, and we'll get into some of the issues later, but just what is the purview?
Yeah, PG&E is a natural gas and electric company for about two-thirds of California. 40 million people in California, we serve about 16 million of them from, I like to say, Eureka to Bakersfield. For those non-Californians, that's about Oregon to Santa Barbara.
And you're seeing some top-line growth this year as opposed to some of the previous years. We were sort of stuck at 24 billion, I think, and now you're starting to creep up. Is that from that demand that we were just talking about?
Our earnings growth is driven by...
Yeah. Okay. So our revenue growth is driven by certainly demand, but it's driven by all of our customer growth and by our investment. So we invest the capital to deploy for customers, and that drives really the company. And so that's about replacing existing and old infrastructure, upgrading equipment, making it safe, wildfire prevention, all of the infrastructure investment that we do grows both top-line and the bottom line. We've grown earnings at 10% EPS growth, well, double digits for the last five years, at least 10%, and we're forecasting 9% plus going forward.
And we've heard a lot over the previous several years about businesses and individuals leaving California, moving to Texas. Has that hurt your business, and is it still going on?
Yeah, it doesn't necessarily hurt our business. We did feel a little bit of pullback, but we definitely are feeling growth. And the grid nationwide, but certainly in my service area, has not seen growth in decades. And so to see this new growth, which is driven, yes, by technology companies and by their compute demands and data centers, but also electrification of vehicles and buildings. All of that growth gets powered by my grid.
Yeah. So how are you sort of mapping out and projecting electrification? I mean, you've got sort of electrification was going on with, you know, Tesla, etc. Your point on the sort of consumer level, also industrial level, and then AI and the data centers on top of that.
Yes. Yes. And yes. So you might be surprised to know California is the number one state for manufacturing. We manufacture more products, have more manufacturing jobs than any other state in the nation. Tesla being, of course, one of those manufacturers, but not the only one. And so EV growth has driven demand. But then so manufacturing, onshoring, the entire chip manufacturing, chip equipment manufacturers, that entire industry is based in California. And so we're building out infrastructure for them as well as for new housing. We're building housing all over California. It's the number one issue for California, housing access. And so building and constructing housing actually was a real major focus for us. We had gotten pretty far behind as a state, and we started to enable catching up, and that's exciting.
A lot of people concerned, Patty, with the data centers causing rates, consumer rates to rise. My understanding is you've cut rates, though, a bit over the past several years. How have you been able to do that with this increased demand, though?
Yeah, so there's two key things here, Andy. Number one, we have lowered rates five times in the last two years. Lowered our most vulnerable customers' rates by 23% in the last two years, 13% for everybody else. Not so much driven by demand, but by improving how we do work. We've been leading a significant transformation at PG&E, driven by a lean operating system. I brought that from my years in automotive. I learned all about quality management and lean manufacturing and building out an operating system that can improve outcomes for customers at a lower cost. So we improved reliability by 30% in the last two years at the same time reducing rates by 23% for the most vulnerable. That's driven by our lean operating system. Now you add to that new demand that can extend our runway of at a minimum stabilizing rates or even lowering them further. For every gigawatt of new large demand priced properly, we can reduce rates by 1%. So when I shared with you we have 12 gigawatts of demand, that could be 12% rate reduction for all customers. Rebuilding the grid funded by tech.
That's pretty amazing. And then you had this other constituency, shareholders. You talked about having a dividend payout, and you've been able to grow that as well, then, right?
Yeah, we, you know, we had post-wildfire bankruptcy back in 2020. So we suspended the dividend, obviously, during that time. We were able to reinstate that dividend and start that on a growth trajectory, which is going to be a really important part of PG&E's future story. It's the time for us to start growing that dividend again, where we can transition from reinvesting all of our retained earnings into the grid, which we've been doing to get the company back on stable footing and be able to serve customers. We can now start to grow that dividend over time.
All right, Patty, I got to ask you something. And you mentioned this bankruptcy, right? Okay, so the wildfires we're talking about in California were 2017, 2018. The company went into bankruptcy in 2019, emerged in 2020, 17 months. Why in the world would you take this job in January of 2021?
It's just utility, Andy. No, look, I was CEO of CMS Energy in Michigan, the Michigan utility in my hometown, and felt privileged to know what it felt like to lead a company that people loved, to lead a company with people who loved working there and the people that they serve. And I felt a sense of obligation to come do my part for both the industry and the nation, honestly. PG&E is so fundamentally important to California, therefore to the nation. And I just thought if you run it well, you'll be able to do such good for people. And it was sort of my time to give back. The board chair said it could be my professional final exam. So maybe I'm halfway through that final exam, but we're definitely, I'm proud of the progress the team has made. They've really come back from a very dark time at the company and have delivered for customers, as I described. You know, improving safety, both co-worker and community safety, dramatically reducing wildfire risk for the people of California. I tell my team all the time, look, no one may ever know your name, but they're so blessed to be served by you because you're making them safe every single day. And so the system has never been safer, and it gets safer every day. So it's been a labor of love, but we're not done yet. We've got more to do.
Yeah, I want to talk about that. I mean, the stock had a nice run-up from when you came in to, I guess, late 2024. So it went from double digits, teens to over 20. And then you've had some setbacks along the way. There was a big drop at the end of 2024, 2025. Was that the LA fires, or what was going on there? And that's not your remit, LA...
100%. We had collateral damage being associated with Southern California during this Pacific Palisades fire.
Well, the Eaton fire, actually, which happened the same week, the Eaton fire was Altadena.
And Edison International is associated with that fire, and as a result, we get associated because we have a shared liability pool.
Yeah. And so our customers and my investors will have funded claims that Edison International is in the process of paying. But what it really reflected was a very specific tail risk that exists in California that the legislature has been working on for the last two years. Gavin Newsom really encouraged the legislature to take on this remaining tail risk that exists in wildfire exposure for utility investors and utility customers. A report was issued in April of this year that was very clear that the status quo was unacceptable. The governor has been very much on the record: the status quo is unacceptable. The regular session of the legislature ended here at the end of August, and they did not quite finish the job. So we're hopeful they...
And the stock took another hit there because people had anticipated, investors had anticipated you might get a settlement, you might get some relief. It's very complicated stuff in terms of this liability and the funding and all that. Yeah. But in any event, so subsequent to that failure of the California state legislature to do anything, you've sort of taken matters in your own hands.
Yeah, we announced both a strategic review and a capital pullback here in the interim, awaiting action by the legislature. And the strategic review really has a full range of options. It starts with policy reform. That job still needs to get done. There's no scenario where the state can continue to have investor-owned utilities uninvestable. So that has to get fixed. But in addition to that, there's other things that could happen. Both our capital allocation strategy, maybe grow the dividend faster, maybe take different actions on how we deploy capital so investors have a reason to invest in California infrastructure, but also looking at, I have a large suite of businesses. I have a natural gas company, and my four million natural gas customers are paying a sub-investment-grade cost of debt for a company that has nothing to do with wildfire. And so just because it's associated to the holding company, it gets this risk exposure to wildfire. I suggest that perhaps the gas company, our generation assets, we have this incredible fleet: 8 gigawatts of hydro, nuclear, a couple gas plants. That fleet of generation assets has never been more valuable. Yet, it's trading at a 56% discount. So, as investors look at the thesis, there's definitely an ability to unlock value for customers as well as investors with these assets.
Would that entail a spin-off or somehow segregating those assets and making them investable separately?
Yeah, it could be a range of outcomes, but all of them having the goal of investment-grade, creditworthy infrastructure that can be invested in.
And you need to get to be investment grade. I mean, that's the bottom line. So what does the legislature, what do they say about not moving this through? They're protecting consumers so they can still sue you. Is that sort of what they're saying?
Well, the liability construct is clear. There's a tail risk that needs to be resolved, and there's some questions about the role of insurance versus the role of the utility. It's a complicated issue. I don't envy the legislature's duty here, but it is a duty, and they do need to finish the job. And so we're hopeful. The governor has been very adamant and very public, even recently, talking about that change could still occur yet here in 2026. We're hopeful that they finish the job.
But aren't you going to get a new governor?
