PCG Q2 2025: Reaffirms 2028 Guidance Amid 10GW Data Center Pipeline
- Legislative Flexibility and Clarity: Management has modeled multiple legislative scenarios—including wildfire fund reforms and affordability measures—and remains confident in reaffirming guidance through 2028. This clear planning and advocacy in a complex policy environment underpins a strong outlook for stable earnings and rate stability.
- Robust Data Center Pipeline & Beneficial Load Growth: The call highlighted a rapidly expanding data center pipeline—with nearly 10 GW in various stages and key projects in San Jose—that is expected to lower customer bills by 1% to 2% per gigawatt once load materializes by 2027. This growth supports a bull case of increased customer affordability and revenue upside.
- Strong and Flexible Capital Funding: PG&E’s fully funded $63 billion capital investment plan through 2028, combined with financing flexibility (avoiding additional equity issuance and maintaining parent debt levels), strengthens its balance sheet and supports sustainable long‐term returns.
- Regulatory uncertainty: Analysts questioned legislative outcomes, notably around wildfire fund replenishment and potential securitization measures that could force PCG into unfavorable funding mechanisms—such as equity issuance—that may increase customer bills and strain investor returns.
- Data center pipeline conversion risk: Given the reported ~50% attrition rate in the data center project pipeline, uncertainty remains around achieving the anticipated load growth benefits, which could pressure future earnings and customer affordability improvements.
- Financing and balance sheet concerns: Issues like the delayed $2,000,000,000 parent debt paydown and unresolved wildfire funding strategies raise concerns that adverse legislative outcomes could lead to higher financing costs or capital redeployment challenges.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Non‐GAAP EPS | FY 2025 | $1.48 to $1.52 | $1.48 to $1.52 | no change |
Capital Investments | FY 2025 | $63 billion capital investment plan | $63 billion through 2028 | no change |
Dividend Payout Target | FY 2025 | Aiming for a 20% dividend payout by FY 2028 | 20% by 2028 | no change |
EPS Growth Guidance | FY 2025 | At least 9% growth each year (FY 2026–2028) | At least 9% annually (FY 2026–2028) | no change |
O&M Cost Reduction | FY 2025 | no prior guidance | Annual non‐fuel O&M cost reductions exceeding $200 million in 2022–2024, with continued reductions expected in 2025 and beyond | no prior guidance |
Customer Bill Growth | FY 2025 | no prior guidance | Targeting bill growth of 1% to 3% annually | no prior guidance |
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Wildfire Funding
Q: How will wildfire fund be financed without equity?
A: Management emphasized they will not issue equity at current valuations for funding the wildfire fund. Instead, they expect a delayed and measured contribution because wildfire claims accrue over years, ensuring customer bills remain stable. -
Legislative Package
Q: Will AB1054 merge with affordability bills?
A: They expect a holistic legislative solution that bundles AB1054 modifications with affordability measures. The focus is on balancing protection for investors and lowering customer costs, with outcomes to be finalized soon. -
Data Center Pipeline
Q: What’s the timeline for data center load benefits?
A: Management noted that construction of new data centers is set to begin by late 2026/early 2027, with load benefits—and corresponding rate reductions—expected to materialize primarily in 2027. -
Cost of Capital Flexibility
Q: Could legislative outcomes adjust your cost-of-capital?
A: They maintain an ROE target of 11.3% and are open to off-cycle filings if legislative changes demand adjustments. This conservatism underscores their commitment to preserving financing flexibility. -
O&M Savings
Q: What are data center conversion and O&M cost targets?
A: Management reported a roughly 50% attrition rate from early-stage applications and stressed that their O&M improvements—leveraging AI and other innovations—should consistently beat the 2% annual target. -
Replenishment Funding Detail
Q: Is the $18B replenishment the full governor’s plan?
A: They cautioned against relying solely on press reports; final legislative decisions will define the complete funding package, ensuring a balanced approach between customer affordability and IOU capital needs.
Research analysts covering PG&E.