Pacific Gas & Electric Initiates Strategic Review, Cuts 2027 Capital Plan by $2B to Target Investment-Grade Rating

Key Points

• Pacific Gas & Electric launched a 12- to 18-month strategic review covering its regulatory environment, financing, corporate structure, and capital allocation, aiming to achieve investment-grade credit ratings following the state’s failure to pass wildfire liability reform.

• The company cut its 2027 capital plan by $2 billion to $11.4 billion, which is expected to reduce utility and parent-company debt needs by roughly $1 billion each. While some renewable interconnections, large-load projects, and housing connections may be delayed, PG&E affirmed that safety and wildfire-mitigation work will remain protected.

• PG&E reaffirmed its 2026 core EPS guidance of $1.64-$1.66 and issued 2027 guidance of $1.78-$1.82, but withdrew its five-year capital-expenditure, rate-base, and longer-term earnings-growth outlooks while the strategic review proceeds.

Pacific Gas & Electric (NYSE:PCG) announced that its board has authorized a comprehensive strategic review of regulatory, financial, operational, and strategic alternatives. This move comes after California’s legislative session concluded without passing critical wildfire liability reform legislation.

Chief Executive Officer Patti Poppe stated that the review will evaluate the company’s organizational and financing structures, establishing the achievement of investment-grade credit ratings as a core objective. PG&E intends to gather input from California regulators, policymakers, investors, and other key stakeholders during this evaluation process.

In conjunction with the review, the company plans to reduce its 2027 capital investment program by $2 billion, bringing the total down to $11.4 billion from the previously projected $13.4 billion. Poppe noted that this reduction will lower projected utility debt needs by approximately $1 billion and parent-company debt needs by a similar amount, ultimately reducing financing costs for customers.

Wildfire liability reform remains central

Poppe highlighted PG&E’s improved operational performance, pointing to a fourth consecutive year without a major wildfire linked to company equipment and a reliability improvement exceeding 30% over the past two years. Additionally, the company has lowered electricity rates five times since January 2024 and surpassed its annual target for a 2% reduction in operations and maintenance costs.

However, the CEO emphasized that operational improvements alone cannot overcome the financial impact of California’s current wildfire liability framework on the company’s borrowing costs. She stated that a policy environment capable of sustaining investment-grade credit ratings is essential to attracting long-term capital at affordable rates.

Two key unresolved policy issues remain critical: establishing a permanent liquidity source beyond the existing Wildfire Fund to cover future claims, and setting a maximum disallowance limit independent of the funding source to provide investors with a defined downside risk.

“We have concluded that PG&E cannot simply wait for the policy framework to change,” Poppe stated. “We must take action now to sustainably serve our customers.”

While the company will continue to advocate for liability reform and participate in any future legislative discussions, including potential special sessions, PG&E is moving forward with its independent strategic review rather than relying solely on legislative outcomes.

Capital reduction will delay some work

The reduced 2027 capital budget will defer or delay certain projects, though Poppe affirmed that safety will not be compromised. PG&E plans to carefully select affected projects to ensure ongoing compliance with its Wildfire Mitigation Plan and safety certificate requirements.

Specific delayed projects have not been finalized, but Poppe acknowledged that the affected spending primarily relates to renewable-energy interconnections, large-load initiatives, and new housing connections. This reduction is characterized as a temporary one-year slowdown rather than a permanent cancellation.

Carla Peterman, president of PG&E Corporation, noted that the company’s proposed four-year general rate case represents the lowest increase in a decade and that the near-term capital reduction is not expected to impact the overall rate case framework.

2026 guidance reaffirmed; 2027 outlook initiated

PG&E has reaffirmed its 2026 core earnings-per-share guidance of $1.64 to $1.66 and initiated 2027 core EPS guidance of $1.78 to $1.82. At the midpoint, this forecast represents a 9% growth trajectory from 2026 levels.

Although the reduced capital plan will lower the company’s 2027 rate-base forecast, PG&E expects a corresponding decrease in unrecoverable net interest expense to offset the impact on earnings.

Due to the ongoing strategic review, the company is withholding its five-year capital-expenditure and rate-base guidance, as well as long-term earnings growth targets beyond 2027. A new long-term outlook will be provided once the review progresses further.

Review could extend 12 to 18 months

The strategic review will examine policy and regulatory frameworks, corporate and legal structures, and capital allocation strategies. Poppe indicated that the current holding-company structure may not fully reflect the value of PG&E’s diverse business segments, and the company is exploring ways to enhance visibility for investors.

No specific outcomes have been prioritized, and all proposed alternatives will require regulatory approval. The proposals will be evaluated based on their capacity to deliver customer value, strengthen financial results, and support the path to investment-grade status.

Historically, comparable strategic reviews have taken 12 to 18 months, though final timing will depend on regulatory discussions and filing requirements. PG&E will provide updates on regular quarterly calls, though certain details may remain confidential until official announcements are prepared.

Carolyn Burke, executive vice president and chief financial officer, commented on ratings agency sentiment, noting disappointment over the lack of progress on the second phase of SB 254. While S&P has kept PG&E’s ratings unchanged, agencies have indicated that an upgrade is unlikely and that the legislative gap poses a risk of multi-notch downgrades for PG&E and peer utilities.

Burke clarified that dividend policy remains a board-level decision, with the standard annual review cycle occurring at year-end. Any changes for the upcoming fiscal year would have been disclosed during the current financial update.

About Pacific Gas & Electric (NYSE:PCG)

Pacific Gas & Electric (NYSE: PCG) is a major investor-owned utility holding company. Its principal operating subsidiary, Pacific Gas and Electric Company, delivers electricity and natural gas services across northern and central California. The company’s core operations include the generation, procurement, transmission, and distribution of electric power, alongside the transmission and distribution of natural gas.

Serving a diverse mix of residential, commercial, and industrial customers, PG&E’s operations span utility infrastructure planning and construction, grid management, customer service, and energy procurement across its extensive California service territory.

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