How Are California Utilities Positioned for the Future?
California utilities beat XLU
California is the most populous state in the US. It’s also the leader in renewable energy generation. California aims to obtain 50% of its energy from renewables by 2030. Currently, three major utility holding companies operate in the state—PG&E (PCG), Sempra Energy (SRE), and Edison International (EIX).
In this series, we’ll compare these three companies and try to figure out which one is better from an investment perspective. It should be noted that all three of the utilities outperformed the Utilities Select Sector SPDR ETF (XLU) in the last five years. So, what’s making the difference? Is it the state’s population growth or the renewables? Are the utilities doing things differently?
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Which utility is the largest?
PG&E is the largest utility holding company by market capitalization among the three companies. It provides electric service and natural gas to nearly 16 million people in California. Sempra Energy, an internationally diversified utility, serves nearly 32 million people globally. Edison International, with a market capitalization of $26 billion, is the smallest of the three companies. It serves 15 million customers in the state.
Collectively, the three utilities form more than 15% in XLU.
Even though California is the most populated state in the country, its population growth has been well below the national average. Economic growth in California also lagged the national average in the last few years. Both of these factors are important for customer base expansion. US utilities focused on growing their customer bases as electricity consumption per customer fell significantly in the post-crisis period. The per capita electricity consumption in California has always been significantly lower than the US national average due to energy efficiency programs in the state.
In the next part, we’ll compare the three utilities’ returns.