PG&E May Separate Its Gas Business Over California's Unresolved Wildfire Liability Rules
PG&E says its 4 million gas customers are paying higher borrowing costs tied to wildfire risk that has nothing to do with gas, and the company is now weighing a spinoff, sale or ring-fencing of that business.
PG&E says it may spin off, sell or otherwise separate its natural gas business if California doesn't rewrite the state's wildfire liability rules. CEO Patti Poppe told investors Thursday that PG&E's 4 million gas customers are carrying higher borrowing costs because the gas business sits inside a holding company whose credit rating is dragged down by wildfire risk that has nothing to do with gas pipelines. "That seems like an issue that should be resolved one way or another," Poppe said on the call.
Why a Gas Bill Is Paying for Wildfire Risk
PG&E pushed state lawmakers to pass legislation that would limit utilities' liability for wildfires sparked by their equipment. Governor Gavin Newsom backed changes, but the California legislature ended its session without an agreement. That failure is why PG&E is now weighing options ranging from ring-fencing the gas business inside the corporate structure to an outright sale or spinoff, all part of a strategic review the company announced in September.
That post is the same Bloomberg story picked up elsewhere. This isn't a rumor floating around one trade outlet. It's a company telling its own investors, on a call, that it's reconsidering its corporate structure because the legislature couldn't get a wildfire liability bill across the finish line.
The Deferred $2 Billion and What It Means for Grid Contractors and Rates
As part of the strategic review, PG&E is deferring $2 billion of investment next year. PG&E has also filed a 10 year plan to underground 5,000 miles of power lines in California, the kind of work that keeps electrical contractors, line crews and heavy equipment operators busy for years. When a utility this size pulls back $2 billion in spending while it sorts out its corporate structure, that is real contractor and construction work that gets pushed out or put on hold, not just a line item on a balance sheet.
For households and small businesses that pay a PG&E bill, the math is more direct. A company with sub investment grade credit pays more to borrow, and utilities recover the cost of capital through rates. Until California's wildfire liability rules get resolved, that cost sits on the gas side of the bill too, even though gas pipelines don't start wildfires.
How This Looks From an Insurance Agency's Side of the Desk
I run an insurance agency, and this is a version of something I see in underwriting all the time. Risk that isn't ring fenced spreads. If one line of business carries exposure that drags down the credit or the loss record of everything sitting next to it, the whole structure gets priced for the worst piece, not the best one. That is effectively what is happening to PG&E's gas customers: they are paying a credit cost set by electric wildfire risk, because the two businesses haven't been separated.
Carriers deal with this by pricing risk separately where they can, because bundling unrelated exposures together usually means someone who didn't create the risk ends up paying for it anyway. PG&E separating its gas business would do the same thing on the corporate finance side: wall off a cleaner risk so it stops being priced like the riskier one next to it.
What to Watch If You Pay a PG&E Bill or Work on Grid Contracts
Here's what I would watch if this affects you directly.
- If you're a PG&E gas customer, watch whether California's legislature takes up wildfire liability again, since that is the lever that decides whether PG&E actually separates the gas business.
- If your business depends on utility contract work, especially undergrounding or line construction tied to PG&E's 10 year plan, watch the outcome of the September strategic review before you count on next year's spending levels.
- If you're evaluating PG&E as a counterparty for any commercial relationship, the sub investment grade credit rating is public information now. Factor it in the way you would any other credit risk.