PG&E Corporation

Thank you for standing by, and welcome to the PG&E Corporation Fourth Quarter 2023 Earnings Release Call. I would now like to welcome Jonathan Arnold, Vice President of Investor Relations, to begin the call. Jonathan, over to you.

Good morning, everyone, and thank you for joining us for PG&E's Fourth Quarter 2023 Earnings Call. With us today are Patty Poppy, Chief Executive Officer, and Carolyn Burke, Executive Vice President and Chief Financial Officer. We also have other members of the leadership team here with us in our Oakland headquarters. First, I should remind you that today's discussion will include forward-looking statements about our outlook for future financial results. These statements are based on information currently available to management. Some of the important factors which could affect our actual financial results are described on the second page of today's earnings presentation. The presentation also includes a reconciliation between non-GAAP and GAAP financial measures. The slides, along with other relevant information, can be found online at investor.pgecorp.com. We'd also encourage you to review our annual report on Form 10-K for the year ended December 31st, 2023. With that, it's my pleasure to hand the call over to our CEO, Patty Poppe.

Thank you, Jonathan. Good morning, everyone. This morning, we reported full year core earnings of $1.23, delivering at the high end of our annual guidance range. This result represents growth of 12% over our 2022 results of $1.10. In the fourth quarter, we recognized the full year benefit of our 2023 general rate case as expected. I'm also pleased to announce that we exceeded our 2% annual non-fuel O&M savings target for the second consecutive year, with savings coming in at 5.5% and pushing our EPS to the high end of the range. Because these savings were predominantly generated by reducing waste and improving service, they benefit customers today and benefit investors for years to come. Looking to 2024, we're reaffirming our at least 10% growth target, which is now based on our actual 2023 result of $1.23. This results in an increase to our 2024 core earnings guidance range with a new higher midpoint of $1.35 versus our previous guidance of $1.33. We also reaffirm our commitment to at least 9% core EPS growth for both 2025 and 2026, rebased off our actual 2023 results in our new 2024 range. In addition, I'm pleased to share that we're extending our core EPS growth guidance of at least 9% for an additional two years through 2028. Our needed customer investment leads to strong rate-based growth, which continues to be the primary driver of our future earnings growth. We're providing you with updated five-year forecasts for both rate-based and CapEx in today's slides. These numbers now extend to 2028 and show a consistent compound annual growth rate of 9.5%. using the new base year of 2023. Finally, we reaffirm our commitment to no new equity in 2024 and remain committed to pursuing the most efficient forms of financing available for 2025 and beyond, which Carolyn will discuss in her remarks. On slide four, we've added 2023 actuals, illustrating our high end of guidance results and the rebasing of forward year growth rates now through 2028. This is our simple affordable model in action. The list in 2023 reflects our 5.5% non-fuel O&M reduction well above our 2% plan. Slide 5 is a reminder of the key elements of our simple affordable model, which allows us to continue growing customer capital investment at 9% or more while containing customer bill increases at or below assumed inflation in the 2% to 4% range. Key enablers in the model are ongoing annual non-fuel O&M reductions of 2%, efficient financing, and electric load growth in the 1% to 3% range. The proof is in the numbers. The simple, affordable model works. You first saw slide 6 during our November business update call. This version has been updated for a few additional known items, such as the 2024 cost of capital trigger. Our new ROE of 10.7% took effect on January 1st this year, with collections beginning this month in gas rates and next month for electric. Delivering on this projected 2 to 4% bill growth trajectory is an essential element of the PG&E plan, and one which will be important for building trust with our customers over the long run. For our average gas and electric residential customer, Average monthly bill increases are limited to the 2% to 4% range from 2023 through 2026. I wanted to be clear that this includes the step-up in 2024 as we implement the GRC and other deferred cost recoveries. Our plan shows average bills stepping down beginning later this year and further in both 2025 and 2026. keeping the average annual increase in the lower half of the 2% to 4% range as catch-up recoveries roll off. Two of the larger items are around $1 billion of 2022 WMSE interim rate relief, which comes off bills in mid-2024, and the 24-month collection of our first-year GRC revenues, which come off at the start of 2026. Let me say that again. Based on what we know today, our bills will rise at the lower half of the range. around 2.5% per year on average for the duration of this RID case from 2023 through 2026. Let's shift gears to the significant progress the team has made on RISC mitigation. Slide 7 updates our 2023 ignition data for the full year. Total CPUC reportable ignitions came in at 65 for 2023, down 68% from the 2017 baseline and 29% down from 2022. On the right side of the slide, we're showing our weather normalized ignition rate, which is a metric from our wildfire mitigation plan. This year's number of 0.93 was a reduction of 71% from 2017 and our lowest annual number since we began calculating this metric. The metric demonstrates that we continue to drive down wildfire risk in 2023, even after adjusting for fewer circuit mile days under R3 or higher conditions when the risks of catastrophic wildfire are highest. While we're extremely pleased with these results, our team certainly isn't stopping here. We see further opportunities to drive overall wildfire risk reduction beyond the 94% achieved in 2023 as we continue with additional system hardening and deployment of new technologies. In addition to the physical risk reduction, Financial risks are also lower, including key protections under AB 1054, which were reaffirmed with the issuance of our annual safety certificate last month. Looking forward, here on slide 8, we want to take a moment to highlight how we see PG&E offering investors a truly differentiated, high-quality utility growth story. This starts with premium rate-based growth and industry-leading 9.5%. What sets us apart is our commitment to make this investment affordable for our customers. The key enabler is our ability to drive consistent non-fuel O&M savings as we deploy our lean operating system in a utility which previously saw costs compound at an annual 10% rate over the prior five years. As a reminder, several years of doing whatever was necessary to respond to back-to-back crises pushed our capital-to-expense ratio far below the industry average. This is where we have a wealth of opportunity and a long runway to drive efficiencies with sustainable savings benefiting both our customers and our investors. We expect future load growth related to California's leadership in electrification to be a further differentiator and one which will help keep customer bill growth within our 2% to 4% forecast. In addition to continued adoption of electric vehicles throughout our service territory, We have seen a three-fold increase in data center applications in 2023 versus the prior four years. We plan to speak more about these load growth trends over the course of this year, including at an investor meeting, which we are planning for June 12th in New York. So please mark your calendars for that. For the fundamental differentiators of rate-based growth, O&M savings, and load growth, we would add our constructive state regulatory and policy environment in California. Key elements of the California regulatory model include four years of revenue certainty under the GRC, returns which are set separately from the GRC, including a formulaic adjustment mechanism, and timely recovery for pass-through of important cost categories, including fuel and pension. With our GRC resolved, we now have revenue certainty extended through 2026, giving us the best level of regulatory visibility we've had since I joined PG&E, and something which any regulated utility would love. This brings me to our performance playbook, including our lean operating system, which is becoming a critical differentiator for PG&E as we continue building a sustainable culture based on continuous improvement and what we refer to as breakthrough thinking. And so, on slide nine, to my story of the month, or in this case, the story of the year. Let me first take you back to the beginning of 2023. We had a goal to underground 350 miles of electric lines at a unit cost of $3.3 million per mile. We started 2023 with only about five miles of civil construction fully complete. At that point, we had hundreds of miles still to design, thousands of individual easements to negotiate, 345 miles of trenches to dig, and 350 miles of cable to pull. And then the winter storms hit. 15 atmospheric rivers to be exact, which brought civil work to a near standstill through April. So how did we deliver on 2023 undergrounding plan as scoped on time and at better than targeted unit cost performance? Well, during a visit with our board of directors in December, I watched proudly as the undergrounding team described how they use the PG&E performance playbook every day and at every level. What they shared wasn't one silver bullet, not just a breakthrough idea or a value stream map or a waste elimination. Rather, it was this team's commitment to living the culture, using the tools, and building the capabilities that enabled our results and which will cause future success. In 2023 alone, the undergrounding team eliminated $68 million in waste for the benefit of our customers. They did this by updating our standards, deploying optimal construction methods, and better managing spoils. With additional improvements, average unit costs came in below our target of $3.3 million to just under $3 million per mile. And the average construction cycle time improved from five and a half months back in February 2023 to three and a half months today. This was a total game changer in meeting and exceeding our 350-mile goals. Thanks to our 2023 undergrounding efforts, we can avoid proactively turning off power to about 15,000 households during dangerous high wind events. These customers who live in our highest risk areas can now sleep at night knowing they do not have to trade safety for reliability or worry that a tree might land on the power line in their backyard. This is climate resilient infrastructure for all weather conditions and for generations to come. The team reminded us that before Lean, we would have managed the undergrounding effort through spreadsheets and phone calls. That was the old PG&E way. The undergrounding team is showing us the new PG&E. Imagine the impact our performance playbook can have enterprise-wide. It's great that we achieved our 2023 goals. What's even better is that we've created a playbook enabling consistent, premium performance year in and year out. As I like to say, performance is power. This means delivering safe, affordable, and reliable service to our hometowns, along with consistent, predictable financial results. With that, let me turn it over to Carolyn.