Core EPS missed expectations despite a wildfire-related accounting gain

The headline EPS beat is mostly accounting, not operating improvement. GAAP diluted EPS was $0.71 versus $0.15 a year ago, but the quarter included a $114 million after-tax non-cash gain from remeasuring the remaining wildfire settlement liability. Stripping out wildfire items and Pacific Current review costs, Core EPS was $0.13—below the published consensus of roughly $0.21.

Underlying utility earnings were weaker than the GAAP result suggests. Electric utility Core net income fell to $32.6 million from $42.5 million, while operating income benefited from the $154 million pretax settlement remeasurement. Higher fuel and purchased-power costs were largely passed through in revenue, but interest expense and operating costs still increased; the company also reiterated that 2026 adjusted O&M excluding pension should significantly outpace inflation. (Electric utility results; Non-GAAP reconciliation; management discussion)

The cost outlook remains the main operational pressure. Management cited higher insurance, storm response, vegetation management, maintenance, cyber-defense, labor and benefit costs, and expects a roughly $3.7 million pretax penalty under the Fuel Cost Risk Sharing mechanism. The planned 2027 rate rebasing and proposed changes to performance-based regulation may eventually address some of these costs, but they do not offset the near-term earnings drag in this quarter. (Management discussion)

The filing does reduce settlement uncertainty, but not current earnings pressure. Finalizing the wildfire settlement fixed the remaining payment obligations and reduced the recorded liability from $1.44 billion to $1.30 billion, creating the quarter's large non-cash gain. That benefit will reverse over time through interest accretion, so it improves accounting clarity rather than recurring profitability. The nearly 1,650 gigawatt-hours of renewable procurement, 465 megawatts of grid-forming resources and 111 megawatts of firm capacity submitted for PUC approval are strategically important, but remain future investment and regulatory commitments rather than current earnings support. (Financial highlights; management discussion)

Net read: a clear underlying miss, partly softened by better settlement visibility. Against roughly $0.21 of expected EPS, $0.13 of Core EPS and a 36% year-over-year decline in Core net income point to weaker recurring performance than the market was looking for. The settlement accounting gain and progress on grid planning are genuine positives, but they do not change the central takeaway that costs, financing burden and the transitional period ahead of 2027 rebasing weighed on the quarter.