巴克莱-美股电力公用事业行业-加州：世纪价值还是名义上的公用事业？-2021.5.17-27页.pptx

COREEquity Research17 May 2021North America Power Utilities California: Value of the Century or Utilities in Name Only?Historic wildfires and a unique application of inverse condemnation led to a rapid deterioration in CA utilities’ equity value; however much of the legacy liabilities for EIX and PCG have been resolved and AB 1054 fundamentally restructured risk sharing in the state. Yet valuations remain disconnected from the broader US utility group: In this report, we examine the outlook for customer bills in the state and attempt to tie growth drivers impacting financial outlooks for PCG, EIX, and SRE to valuations. We believe utility investors have been content to exclude the CA IOUs from their investable universe for the past few years; however, we believe improvements to the regulatory compact and an acute focus on the mitigation of catastrophic wildfires will ultimately force the market to view CA IOUs as ‘real utilities’. The question of when is still open, and there is a perception that 2021 wildfire conditions are not favorable, but we believe successful execution over the summer and the issuance of financing for legacy liabilities could serve as a catalyst for CA IOUs to trend back toward average US utility valuations. Ultimately, we reiterate our Overweight ratings for PCG and SRE as they continue to offer the best ‘barbell’ approach to realize CA upside. We also view EIX as attractive, but ultimately reiterate our Equal Weight rating as we believe PCG presents a better relative value as we await final resolution of legacy liabilities and related financing.Customer bills are the constraint for CA rate base growth, not capital opportunities: The growth investment opportunity for CA utilities is obvious. The state is in the midst of one of the more aggressive clean energy transitions in the country and the IOUs will play a pivotal role in facilitating the transition from retiring generation sources to new renewable sites and out-of