PCG 1Q2017 Earnings Note

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Market Price (5/02/2017): $66.79/share; ST-Target: $77/share; NIV: $112/share

San Bruno finish-line is tantalizingly close; focus shifted to ops, finally

March 15, 2017, all parties to San Bruno litigation reached settlement, which judge approved 6 days later. July 18, 2017, final ruling/approval due on this settlement. Also, on March 28, 2017, Ex Parte communications settlement agreement was filed. Focus back on operations, PCG launches $300MM cost savings program. Continues to fly 6.5%-7% 3-year CAGR for rate base flag, which is strong. PCG also contributing to CA’s objectives to reduce GHG by launching $130MM light-duty vehicle charging station program. Despite strong start to 2017, keeping guidance same given 2015 GT&S rate impact cumulating towards 1H2017. Like all businesses, it seems like PCG is not including upside from regulatory, economic, and tax policy changes, which we feel may lead to higher earnings. However, PCG is talking up MT-LT AEPS CAGR, which we agree with. As expected, hydrology returned to relatively normal. PCG expects to issue some $400MM-$600MM in new equity in 2017; no new equity starting in 2018. Capex plan for 2017-2019 has not changed materially. We’re intrigued with PCG’s pursuit of independent transmission projects with TransCanyon. We continue to expect PCG will grow dividend through 2019 and expect dividend payout ratio to increase closer towards 60%-65% by 2019. PG&E’s near-term investment program should drive shareholder value.

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