9. PG&E Corp. (NYSE:PCG)
Number of Hedge Fund Holders: 74
Upside Potential as of February 19: 39.86%
PG&E Corp. (NYSE:PCG) is an energy provider in northern and central California. It delivers electricity and natural gas to a wide range of customers. Using a diverse energy generation portfolio and extensive infrastructure, it ensures the reliable delivery of essential energy services.
It’s seeing a surge in the demand from data centers, making this beneficial load segment a key growth area. The company has applications for 5.5 gigawatts of new data center power, with 1.4 gigawatts already moving through advanced planning stages, which involves 15 customers and 27 sites. This growth is projected to come online between 2026 and 2030. The influx of data center power demand offers economic advantages. The company estimates that for every 1,000 megawatts of new data center load, customer bills could decrease by 1% to 2%.
To manage this growth efficiently, PG&E Corp. (NYSE:PCG) proposed “electric rule 30” to the CPUC (California Public Utilities Commission), which would allow large customers to fund upfront costs, thus protecting existing customers from potential financial risks. The company views this beneficial load as a long-term growth driver, allowing it to invest in grid improvements while keeping costs down. It’s taking a strategic approach to balance growth with affordability and is working closely with regulators to ensure that these projects benefit all customers.
Third Point Management discussed the implications of potential utility liability from California wildfires, emphasizing that PG&E Corp. (NYSE:PCG) benefits from AB1054 protections due to its safety compliance and substantial wildfire mitigation investments. It highlighted the financial safeguards in place, which include cost recovery mechanisms and an insurance fund, which provide stability despite inherent risks in grid infrastructure. Here’s what it said in its Q4 2024 investor letter:
“We are devastated by the recent events in Southern California. Several of our family members and team members call Los Angeles home, and our hearts are with all impacted by the fires.
While PG&E Corporation (NYSE:PCG) does not operate in this region, there is press speculation that one of the fires, Eaton, may have been related to transmission equipment owned by SoCal Edison (SCE), another investor-owned utility (parent company Edison International.) Edison has stated publicly that they do not believe their equipment was involved. The investigation is ongoing, and we believe it is premature to make conclusions about the origin of the fire…
If the Eaton fire ignition was related to SCE equipment, the California legal standard of “inverse condemnation” exposes SCE to resultant property damage liabilities. After PG&E’s bankruptcy in 2019, California passed a bill called AB1054 which protects the state’s investor-owned utilities (Edison, PG&E and Sempra) from these liabilities as long as they adhere to a rigorous safety standard. This includes a comprehensive wildfire mitigation plan approved annually by the government and a commitment to spend billions to harden the grid; for example, PG&E is spending a whopping $18 billion on wildfire mitigation from 2023 -2025. In exchange, AB1054 includes several protections, such as a legal prudency standard that entitles the utility to cost recovery via multiple avenues in the event of a catastrophic fire and a $21 billion insurance fund to cover incurred liabilities. SCE has an active safety certificate and thus should benefit from the protections under AB 1054, just as PG&E would in case of a future fire. Regulator-approved cost recovery is a routine proceeding for utilities in areas prone to severe climate events (hurricanes, tornadoes, earthquakes, etc.) in acknowledgement of the fact that it is not feasible to remove all risk from overhead grid infrastructure. PCG has been the preeminent advocate in California for undergrounding, which we believe is the only way to permanently eliminate wildfire risk from grid assets…” (Click here to read the full text)
