Pacific Gas & Electric Co.

Greetings. Thank you for standing by and welcome to the PG&E Corporation Third Quarter 2021 Earnings Call. I would now like to turn the conference over to Matt Fallon, Senior Director of Investor Relations. Please go ahead.

Thanks, Jenny. Good morning, everyone, and thank you for participating in PG&E's Third Quarter Earnings Call. Joining us today are Patty Poppe, our Chief Executive Officer, and Chris Foster, Executive Vice President and Chief Financial Officer. I want to remind you that today's discussion will include forward-looking statements about our outlook for future financial results. These statements are based on assumptions, forecasts, expectations, and information currently available to management. Some of the important factors that could affect the company's actual financial results are described in the second page of today's third quarter earnings call presentation. The presentation also includes a reconciliation between non-GAAP and GAAP measures. The presentation can be found online along with other information at investor.pgecorp.com. We also encourage you to review our quarterly report on Form 10-Q for the quarter ended September 30th, 2021. Before I hand it over to Patty, I would like to thank all of you who attended Investor Day, either in person or virtually, and we look forward to seeing you again at EEI.

Thanks, Matt. Hello, everybody. Thank you for joining us today. This quarter, we delivered non-GAAP core earnings of $0.24 per share. We're reaffirming our 2021 non-GAAP core earnings per share guidance of $0.95 to $1.05. And we no longer expect to issue equity in 2021. We continue to see rate-based growth of 8.5% and longer-term earnings per share growth of 10%. Chris will provide more details on the financials in just a bit. As you saw at Investor Day, Our experienced team is driven and focused on delivering clean energy safely every day. We have a very sophisticated and continually improving PSPS algorithm year over year. In fact, when we backcast our current models to the previous utility-caused fires between 2012 and 2020, we would have prevented 96% of the structure damage had the current model been in place. This year, we also implemented enhanced power line safety settings to address wildfire risk we face from extreme drought conditions. In fact, since the end of July through mid-October, we saw a 46% decrease in CPUC reportable ignitions in high-fire threat districts and an 80% reduction in ignitions on enabled circuits. These enhanced safety settings make our system and our customers safer. We're delivering on the 2021 wildfire mitigation plan with our lean operating system and deploying it across the entire company to deliver predictable outcomes for customers and investors. In addition to quarterly operational, financial, and regulatory updates, I'd like to spend some time on the work done and the changes made since 2019 that make our system safer and more resilient. Let's start on slide four with how we've improved our PSPS program since 2019. In 2019, we had seven events that impacted over 2 million customers. Since then, we've installed approximately 1,300 weather stations, 500 high-definition cameras, and over 1,100 sectionalizing devices to better pinpoint exactly where we need to initiate PSPS. Our 2021 PSPS algorithms are informed by more granular weather forecasting, and we're using TechnoSilva software to incorporate machine learning into our fire spread modeling so we can better predict where the risk is on our system in real time. Our continuous improvement approach applies to addressing safety risks while minimizing disruption to our customers. As you can see on slide five, Our model shows that by backcasting our new 2021 PSPS algorithm onto 2012 through 2020, we would have prevented 96% of the structure damage from fires caused by overhead electrical equipment in our service area. As you know, this year we experienced extreme drought conditions in our service area. Due to these conditions, we saw fire spread on non-red flag warning days. We assessed these risks and identified where we needed to focus. Guided by former CAL FIRE and local fire authority personnel who now work for PG&E, we implemented additional wildfire mitigation in our high fire threat areas. You can see the results of our safety focus on slide six. We've compared the data since we implemented our enhanced power line safety settings against the most recent three year averages. What we've seen is a 46% reduction in CPUC reportable ignitions in our high fire threat district from the end of July through mid-October. On the specific circuits where we first implemented the enhanced power line safety settings, we've seen an 80% decrease in ignition over the same time period. We're working hard to reduce the customer impact from these new necessary protocols. We've optimized our protective device settings on all circuits that have enhanced power line safety settings, and we've adjusted our circuit restoration procedures. These enhancements are making outages smaller and faster to restore, while still removing the ignition risk. We're communicating transparently our commitment to preventing fires of consequence to communities where enhanced power line safety settings are in place. Let me make it real with one story. On Monday, October 11th, we initiated a PSPS event that affected about 20,000 people. The winds came in as forecasted, And in 33 instances outside of the PSPS zone and the highest wind areas, our lines automatically de-energized due to the unpredictable disturbances and potential risk was mitigated. We know our protocols are working. We will continue to work around the clock to make these solutions less disruptive to customers and know that we are keeping them safe while we do that. Our experience since implementing these settings in late July will serve as an important guide for our 2022 planning. As we continue to keep people safe each day, I want to talk a bit about the risk reduction work we've completed since 2019. Let's start on slide seven with our enhanced inspections. As you can see, we're on track to complete our enhanced inspections on half a million assets in 2021 in our high fire threat areas. These inspections are scheduled to be conducted every year on all assets in Tier 3 and every three years for all assets in Tier 2. At the bottom of this slide, you'll see a couple points on our routine inspection program, which gets a lot of attention internally but really isn't well known outside of PG&E. As you can see in the green box, we conduct vegetation management inspections across our entire system annually. And in high-fire threat areas, we patrol those conductors twice a year. In 2021, we plan to complete 1,800 miles of enhanced vegetation management work, combined with what we completed in 2019 and 2020 adds up to over 6,000 miles by the end of this year. While we're focused on keeping people safe with inspections and vegetation management, we're also focused on the longer-term hardening of our system. In the last three months, we've made great progress against our multi-year, 10,000-mile undergrounding program. Our engineering team is scoping out the work, as you'll begin to see in our 2022 wildfire mitigation plan. Our goal is to engage the entire community around the imperative of undergrounding, and we are succeeding. We're engaging stakeholders through our undergrounding advisory group with representatives from environmental groups, labor, telecom, consumer advocacy groups, counties, tribes, among others. and we're gathering ideas on innovations in engineering, equipment, and construction from the world's best through our RFI process. We're continuing to work on system hardening, as you can see here, and we'll provide an update on how we're thinking about that work as we further develop our undergrounding program. As a sneak peek, I'll share one project we completed this year In September, we completed undergrounding power lines in Santa Rosa, which resulted in 11,000 customers who will no longer be impacted by PSPS. This is one of many projects. This is the right solution for our customers in that area, and that's why we did it. Simple solutions based on customer needs. As I mentioned, more to come on our undergrounding plans as we move into early 2022. At PG&E, effective implementation of our wildfire mitigation plan is enabled by our lean operating system, which we're deploying across the entire company. Every day, we have over 1,200 daily operating reviews, beginning with our crews closest to the work first thing in the morning and cascading to our executive operating review. These brief 15-minute huddles provide daily visibility on the metrics that matter most, help us identify gaps, and quickly develop plans to support our teams closest to our customers, giving us control and predictability of our operations. As you know, this summer, we were challenged by the Dixie Fire and the impact the fire had on all of our customers. I'll repeat what we've said since Investor Day. Our actions around Dixie were those of a reasonable operator, and we're confident in the framework created by AB 1054. AB 1054 resulted in a wildfire fund to provide liquidity for resolved claims, a maximum liability cap for reimbursement by investor-owned utilities, and enhanced prudency standards when determining that reimbursement amount. We're reflecting that view in our financial statements, which show a gross charge of $1.15 billion. We've booked an offsetting $1.15 billion receivable that reflects our confidence to recover costs. As I highlighted, PG&E is working hard every day to deliver clean energy safely. We're building on the mitigation programs we started in 2019. We're staying nimble to respond to current conditions, and we are improving our performance enterprise-wide. For example, our team just last week responded to an atmospheric river weather event that included among the highest rainfall totals observed in a 48-hour timeframe. ranging from 16 inches at Mount Tam to 5 inches in downtown Sacramento. The strongest wind gusts recorded was 92 miles per hour from Mines Tower in Alameda County, with at least a dozen other locations experiencing gusts greater than 69 miles per hour. Even in the face of the returning service to 632,000 of the 851,000 customers impacted within 12 hours, I am very proud of the safe and rapid response of our team. Now I'll hand it over to Chris to cover financial and regulatory items.

Thank you, Patty. As Patty referenced earlier, our financial plan remains on track and is supported by our regulatory construct. I'll cover the highlights first, then go into more detail. Today we're announcing that we no longer see a need for equity in 2021. We're reaffirming our non-GAAP core EPS guidance for this year, and we anticipate issuing our 2022 guidance on our Q4 earnings call. Additionally, we're seeing progress on recoveries related to prior wildfire risk reduction investments to help the balance sheet. Let's start with the share count used for Q3 2021 and year-to-date GAAP and non-GAAP core earnings per share. We're in a GAAP loss position for both Q3 2021 as well as year-to-date 2021 due to our grantor trust election this quarter. As a result, we're required to use basic shares outstanding to calculate both GAAP EPS and non-GAAP core EPS for Q3 and year-to-date. Our full-year guidance has always assumed a GAAP-positive year, and our full-year non-GAAP core EPS of $0.95 to $1.05 per share reflects our fully diluted share count, so there's no impact there. I'll start with our Q3 results. We continue to be on track for the 2021 non-GAAP operating EPS of $0.95 to $1.05. This is calculated using our fully diluted share count I just mentioned, consistent with our assumption when we initiated guidance. Slide 9 shows the results for the third quarter. Non-GAAP core earnings per share for the quarter came in at $0.24. We recorded a GAAP loss of $0.55, including non-core items. This quarter, we recorded a $1.3 billion charge we've previously guided to as a result of our Granger Trust election. As you'll recall, this charge is expected to reverse over time as the Fire Victim Trust sells shares. Moving to slide 10, as Patty mentioned, we took a $1.15 billion charge this quarter for the Dixie Fire. We also recorded a $1.15 billion of offsetting receivables. and the receivables reflect our confidence to recover costs based on the facts and information available to us today. And as a reminder, we recognize a receivable if we believe recovery is probable under the applicable accounting standard. And due to the facts currently available, we're not as probable for recovery of amounts exceeding insurance for the 2019 Kincaid and 2020 Zog fires. Therefore, we haven't recorded offsetting receivables for either of those fires. On slide 11, We show the quarter-over-quarter comparison for non-GAAP core earnings of $0.24 per share for Q3 2021 versus $0.22 per share for Q3 2020. EPS increased due to $0.03 of growth in rate-based earnings, $0.02 from using basic share count as a result of the GAAP loss I mentioned earlier, and a penny from lower wildfire mitigation costs, partially offset by a penny decrease due to timing of taxes that will net to zero over the year. We expect a stronger fourth quarter due to timing on some regulatory revenue and efficient work execution. Moving to slide 12. We're reaffirming our non-GAAP core EPS of $0.95 to $1.05. On the debt side, we expect to complete an initial AB1054 securitization transaction this month for $860 million. Our separate rate neutral securitization has also been approved by the CPC. And once we resolve the final legal steps, we anticipate we'll start issuing bonds early next year. Now some updates on regulatory matters. I'll specifically highlight important filings reflecting both our focus on timely cost recovery for historical spend and our focus on the planet, supporting California's clean energy future. Turning to slide 13. At the end of the third quarter, we've requested cost recovery for approximately 80% of the unrecovered wildfire-related costs on our balance sheet. And we already have final decisions, settlement agreements, or interim rates for roughly 60%. In September, we filed a settlement agreement for our 2020 Wildfire Mitigation and Catastrophic Events application. Our request was $1.28 billion comprised of prior wildfire expense, including costs that were incurred in 2018. Given some of these costs predate the wildfire mitigation plan construct, we feel the settlement of $1.04 billion is a reasonable outcome. Most recently on this front in September, we filed for recovery of $1.4 billion of additional wildfire mitigation and catastrophic event costs. Most of the costs were incurred last year, and under our proposal, most of the revenue would be recovered in 2023 and 2024. You should expect to see similar filings in the coming years as we seek timely recovery of any incremental spend in these areas. Next, I'll cover a brief update on our cost of capital application. In late August, we filed the cost of capital application for rates increased in cost of capital for California utilities as seen from higher interest costs and equity issuance costs. At this stage, we'll follow the recent direction by the administrative law judge and file materials that would have been included in the cost of capital adjustment mechanism advice letter by next Monday. The filing will include calculations of the ROE, cost of debt, and the resulting overall return on rate base from the operation of the adjustment mechanism. The ALJ's order asks us to submit the relevant information into the cost of capital proceeding rather than requesting us to file an advice letter. Our focus on the triple bottom line of people, planning, and planning is going down.

Just last week, we filed for key transportation electrification investment that will accelerate technology adoption for under

serve communities, and of course, support California's greenhouse gas reduction goals. EV Charge 2 is an extension of our fully We're requesting a total revenue requirement of roughly $225 million from 2023 through 2030.

This phase of the program will provide the infrastructure to support 16,000 new charging ports. which is just scratching the surface to meet the demands of our customers, who today are driving nearly 20% of the electric vehicles in the country.

We are proud to serve the largest base of customers owning and purchasing EVs in the U.S. We have a critical need to reduce wildfire risk in the near term while running the business effectively for the long term. And we've eliminated our 2021 equity needs.

We'll continue to focus on improving our balance sheet while making the right investments to deliver clean energy safely to our customers. With that, I'll hand it back to Patty. Thanks, Chris. Every day, we are more and more excited about the future we're creating here at PG&E.

We can see the difference that's being made and the value to be unlocked. We continue to reduce wildfire risk and we're encouraged by the protections we have in place for our investors and the hometowns where we live and operate. Our 2021 PSPS protocols ignitions and the resulting damage given our current drought conditions. We're focusing our work to make our system safer every day. We're adapting based on what we learned so we can best serve our customers and you, our investors. We'll deliver on the financials and we'll continue to implement the necessary processes to run a high-performing utility. Jenny, please open the line for Q&A.

If you have a question, press star 1 on your telephone keypad. Your first question is from Jonathan Arnold with Vertical Research.

Morning, guys. Thank you for the update. Morning, Jonathan. A couple of questions. Just, Chris, picking up on your comment on cost of capital, does the fact that the ALJ didn't require the actual advice letters suggest that rates might stay where they are pending resolution of the applications, or is it a little early to tell and we need to wait for the scoping memo or some other directive on that?

Sure. Morning, Jonathan.

And again, just as a reminder for everyone, the trigger mechanism itself would have implied a 60 basis point ROE reduction, which for us is roughly 6 cents of EPS. In terms of the current state of affairs. We'll be filing this next set of information next Monday, but it is true, Jonathan, that our position is that the rates are not adjusted January 1st, 2022 by the ALJ's ruling, and so that's definitely our position at this point. Tough to know until, to your point, we see a little bit more in terms of the scoping memo, but we do think that was a good development in terms of how the judge was treating that next step.

Okay, great. Thank you. And then just a

I guess sort of stepping back a little bit and considering taking the equity out of this year and then the securitization you're about to do, at what point in your forward outlook does the utility arrive at a point where it can start delevering?

Absolutely. We're looking forward to that, Jonathan. Again, our commitment is really twofold, right? First, on that period in which we

exceeding a cumulative $6.2 billion.

At roughly mid-year in 2023, we may be in a position to reinstate the dividend and certainly would be partnering with Patty and myself, partnering with our board to really evaluate what makes sense in terms of reinstatement level and growth rate at that stage.

Matt, just clarify, that restriction is on the parent company dividend, right? But can the utility start dividend lending to the parent before that, or is it also?

At this stage, you may have seen that we had disclosed this quarter, actually, an intercompany loan. So I think at this point, we've got the path to make sure that we're feeding the holding company for any needs it has, Jonathan. And we'd still be of the view that the whole co-reinstable

Sure thing.

Your next question is from Steve Fleischman with Wolf Research.

Yeah. Hi. Good morning. Can you hear me?

Yep. We can hear you, Steve. Good morning.

Thanks. I'm curious on the, you know, last week we got the proposals from the Democrats in this, in this, uh, in their infrastructure bill, whatever you want to call it. And one of the proposals is this minimum effective tax rate. And I know it's early on, I know it's not passed, but is there any risk that that could kind of impact the ability to get all your NOL and also, you know, the securitization part of the NOL?

Sure, Steve. Good morning. Thanks for the question. I think at its highest level, it is definitely a little bit early. In terms of our initial read of this, just given the draft was provided, I believe, last Thursday, there's really a couple of things going on. First is that the tax and the wells are derived separately, are not impacted by book minimum tax, and the proposal really is focused on book and the wells. And then second, as you can imagine, just kind of going forward, very traditionally, these costs are considered part of cost of service and are passed through to customers. So it's a bit early to know exactly how this will play out. And certainly the draft again in DC could change again. But at this stage, I don't see an immediate impact coming through from the alternative minimum tax.

Okay, great. And then a question just on the zero equity this year. It does also look like the contribution, the billion dollar contribution for the securitization was moved to next year. Does that mean the equity could have been moved to next year then? or not clear?

Not necessarily, Steve. We've consistently articulated that our focus has been on resolving really prior legacy legal issues.

and that has driven some of the equity need.

And as we disclosed today, we've made some progress in particular on the Zod Fire. What I would say is it is true, and we've been signaled pretty clearly here, that any additional impact there as it relates specifically to the customer credit trust would be something that would move into 2022, meaning that that first billion-dollar payment would be only occurring after we have completed the securitization itself. So don't see a risk there.

Okay, that's great. And then just lastly on the Dixie fire cost, I know that was obviously a large fire in terms of the acreage, but the impact in terms of structures seemed to be relatively small, and so I'm a little surprised at the size of costs relative to just structures. Could you just maybe give us a better sense of what might explain that?

Sure. And traditionally what we'll do, Steve, every quarter is we'll consistently update this. And at this stage, when you look at the totality of structures impacted, what's going on there is you have a mix of a few things. First, it's the roughly 1,400 structures that were damaged or destroyed. Two, there's also an element of a commercial area or a downtown area that was impacted in the Pacific vicinity. And then third, there are some areas where we have to contemplate the potential for private timber operations, which would have all on top of each other. You get to the point where we get in terms of those private claims recoveries and the charge we disclosed today of $1.15 billion.

Okay. And your ability, the AB 1054 is what allows you to be able to offset the write-off which shows, I guess, some conviction on being prudent.

Yeah, and, Steve, just to add, acting as a reasonable operator, you know, one of the interesting things about this fire, as we've seen through Judge Alsop's questions, many of the public, through his questions, supportive of a reasonable operator. And with the AB 1054 new prudency standard that is presumed, that does, we feel, give us confidence and gives us confidence in the accounting treatment.

Great. Thank you, Steve.

Thanks for those questions.

And again, what we did in terms of the materials this

morning for everyone is if you go to slide 10, we give a pretty defined breakout of the different components of potential recovery. But there are a few other recovery components there that we broke out for everyone this morning.

Thanks for that question, Steve.

Your next question is from Julian Smith with Bank of America.

Thanks for the time. Hey, good morning, Julian. Good morning. So maybe to follow up on Steve's question there briefly, can you talk to a little bit more of the process just in terms of seeing that affirmed through the AB 1054 process, at least for the initial $150 million, but also speak to the process on effectively truing it up with the $600 million-plus of suppression costs or what have you? When do we get that affirmation that the process under the AB 1054 wildfire fund, quote-unquote, works, if you will? And I know it is at times protracted here, but how do you practically see it from here, given now that you've established a receivable?

Sure thing. Good morning, Julian. And I think we touched a little bit about this, a little bit on this at our investor day actually earlier this year. And ultimately what would be happening here is we'd have to, first things first, work our way through the claims themselves. It's very early in terms of any kind of claims interface we're having at this stage. And you traditionally have a time period that passes in terms of the first couple of years before the initial statute of limitations hit. At that stage, once we resolve the claims and as we resolve the claims, we only then would be bringing things forward to the wildfire fund administrator, really the wildfire fund, to seek potential recoveries.

So if history is any guide, Julian, this could be a few years before we're having that explicit interaction.

In terms of any implications related to fire suppression costs, other additional acreage impacted in national and state forest lands. Those are things we provided in the disclosures certainly today and we'll continue to take a look at, and that's just something that every single quarter we consistently review all these different elements and update as we see necessary. But at this stage where we are today is the 1.15, and the recovery sources would be pretty limited in terms of the wildfire fund impact here, as you can imagine, right? It's just that amount, over $1 billion, so roughly $150 million.

Right, indeed. Excellent. And then if I could move into a slightly different subject here, if you don't mind. On the resource adequacy front, certainly we made it through the summer relatively unscathed, one would argue. Curious to see where you stand, where the state stands against whether process-oriented towards improving its reserve margins and or just execution, right? I imagine that supply chain, just ability to procure new resources has somewhat impeded the state's progress. Curious on your state of affairs after the summer.

Yeah, added to the system by the end of this year. And so that's all. In total, our plan is to have a total of 1,740 megawatts by the end of 2023. And we're working hard to get those procurements. procurement plans in place so that we can make up for the delays that continue to plague the supply chain.

I'll also just say that as we're thinking about the, I think the state of California is looking statewide at who's responsible for procuring what.

We've developed a CalISO. CalISO has some new leadership there, and we're transparency and visibility into what is required by when and so lots of I would say there as a state to make sure we have adequate it's very important and we see the potential of distributed resources and clean energy resources in this unique time you know this kind of unique moment in time a generational opportunity to clean the energy resources as we transition and provide more resource adequacy for the state.

Elaboration here. What types of documents are... If you can just quickly throw it in there. Hi, Julian. It's Chris.

There's not much more detail we can provide there. They do relate, broadly speaking, to the Dixie Fire. What I would offer as well is that you can imagine we have an enormous amount of information in the public domain at this stage, primarily due to the requests that have come through from Judge Alsup and the Federal Monitor. So quite a bit of information already out. We've shared certainly what we've seen from the U.S. Attorney.

And, you know, at the end of the day, we continue to say that the fact pattern reinforces that we are a reasonable operator and, you know, we'll continue to cooperate.

Thank you for the response, guys. Best of luck.

Thanks, Julian.

The next question is from Michael Lepantis with Goldman Sachs.

Hey, guys, thank you for taking my question. Just a high-level one. Commodity prices have moved a lot. Everybody can look every day of the week, and yet they've come down in the last couple of days a little bit. How are you thinking about the bill? Because you've got a pretty sizable general rate case request out there. You've got all the various cost recovery related to wildfire students that are starting to flow through the bill, maybe not on the income statement, but on the cash flow statement and on the customer's bill. And then you've got the move in gas and purchase power costs, which have been pretty material lately. How do you think about things that can help offset that to mitigate significant bill creep for your customer base?

Michael, great question. This is obviously top of mind. Affordability is always very important to us. And there's lots of things. that we can do at PG&E to protect customers from bill increases. But just a couple facts for you. You know, our average monthly gas bill is at around $50. So a 10% increase in gas prices would increase the bill about 2%. The commodity portion of the bill is about 25% of the bill. So, you know, the impact is muted.

But more importantly, I would say that because we have pipeline access

to many gas production basins and we're able to that allows us to get the lowest cost gas as it's available and then we use our gas storage to then be able to protect

protect customers from these unusual upticks in price and protect our customers in that way.

So that's an important thing. And I would also say that, you know, as gas fuels electric prices, a 50% increase in electric power is natural gas for our customers' electric usage. So I would say of many jurisdictions, our customers are well positioned to develop a much stronger marketplace to protect customers Trade investments and infrastructure that they need, trading, operating expense, Band-Aid replacements for permanent, long-term, higher-value capital replacements that serve customers very well and better than deliver for investors. So that's definitely our game plan and our path forward.

Do you believe there's material O&M cost decrease potential in the company in the next couple of years, or do you think it's more beyond that?

Well, I think we're seeing cost improvements today by already some of our wealth. The visibility that we have with our daily operating review cadence, the management that we have in place today who are experienced executives, executives who are accustomed to finding cost savings on a routine annual basis, I suggest those cost savings will materialize. And they are materializing now, and they will materialize for years and years and years to come. I will share with you every moment that I spend observing our operations, which is a lot of moments, I see great opportunities for waste elimination and cost savings for our customers.

Got it. Thank you, Patty. Much appreciated.

You're welcome, Michael.

Our next question is from Stephen Bird with Morgan Stanley.

Hey, good morning. Thanks for taking my questions. Morning, Stephen. Morning. I wanted to step back on federal draft legislation, again, building on Steve's question, just thinking about other provisions that you always think aside for sort of mitigating climate change impacts, what that might be able to do from both a PG&E specific factor as well as just more broadly, reducing fire risk? And then maybe just the second part of the question is just very broad, which is just other impacts from federal legislation that you're... Great question, Stephen.

We have been actively engaged very early on in the grid resilience, the climate adaptation components of... much of the infrastructure package. And we wanted to make sure that there were a couple things that were recognized in that federal package. One is making sure that We could have support for our customers on vegetation management, which is a high expense item for us, as well as other grid hardening solutions, microgrids, or even undergrounding. And we see those elements in the package today. Now, your guess is as good as mine of what's actually going to get passed, but they continue to be in the revisions that we see coming forward. So we think that's a good sign. We also are very supportive of additional funding for the Federal Forest Service. You know, the U.S. Forest Service has a very important role to play here in California, and we're working in partnership with them on fire prevention and fire mitigation efforts and making sure they have appropriate state funds.

And so we're very supportive of the U.S. Forest Service. And then ultimately, obviously, this...

clean energy transition. We've been leaders in that. PG&E, you know, today we have an 85 percent greenhouse gas free generation mix and we're proud of that and we're proud of the leadership position we've shown nationally on that front. We want to make sure that The infrastructure package continues to reflect early movers, if you will, people who have advanced in clean energy early. We want to make sure that the package definitely recognizes that. So we've been working closely with our D.C. office and E.I. and others to make sure that the clean energy components of any of the legislation is favorable.

That's really helpful, Patty. Maybe just building on the point about fire risk, cost mitigation, I guess I'm thinking a lot about that magical 8 to 1 ratio of CapEx to O&M and to the extent that O&M costs can be defrayed by federal support. Could that potentially allow you to sort of accelerate the undergrounding effort in a way that does not harm customer bills because of that federal support, or is it kind of unclear at this point?

I would say there's lots of reasons why our customers will not be harmed economically by our undergrounding program. First and foremost, even without federal assistance, your point about the trade-off between OPEX to Capital is a key enabler to funding that undergrounding program. We know that the ongoing enhanced vegetation management and even our routine vegetation management program has a large expense to customers. We spend $1.4 billion a year on vegetation management. Being able to trade off some of that for capital investments in hardening the system or even so for undergrounding for sure, but also for microgrids and other hardening solutions depending on the circumstances, that trade-off is very good to plan that you'll see at the early part of 2022. We don't think that there's an economic tradeoff for customers to safety. We think we can both have affordable energy and safe, resilient energy, and that's our path forward.

Understood. I was thinking as well that that could get accelerated even further. If you could get federal support, that could lower your cost structure. But I guess we'll stay tuned to see how this goes. specific shape up for that.

Yeah, no, your intuition's right on that, Stephen. Of course it is. There's certainly any support from this package will be good for customers, and we've got ample capital to deploy that if we can, you know, defray some of the cost through federal support, we're all for it. There's definitely lots to be done out here in California.

Very good. Thank you so much.

Thanks, Stephen.

The next question is from Char Perez with Guggenheim Partners.

Good morning, guys. Morning, Char. Morning, Char. Just real quick on the equity. Obviously, you guys removed it for this year, but I'd love to get a little bit of a sense on sort of the moving pieces as you're thinking about financing what seems to be a relatively ambitious CapEx plan, right? So as you're thinking about undergrounding distributed generation microgrids, would any of those programs push you to issue equity? I guess the broader question is, what would push you from zero? Or do you think, Patty, with the amount of leverage that you have at your disposal, like on the O&M side, that you can leverage that opportunity versus having to actually raise future equity?

Hey, Sharth, Chris, I'll go ahead and take it. I think Morning. So I think there's a couple of factors. First, we'll be growing into our undergrounding plan a bit. That's the way I would think about it. As we start to reduce operating expense and work into that undergrounding plan, it will occur over time. We'll really start to disclose more details there as part of our 2022 wildfire mitigation plan in February. We haven't guided toward 2022 equity needs at this stage specifically, but we would intend to do so, again, at Q4 and provide more color at that stage. I wouldn't necessarily just offhand consider, though, what I'm getting at here, undergrounding or, for that matter, kind of DER-related investments driving an immediate equity need. This is going to be something where we're really growing into this plan over time.

And then just on undergrounding, I'm curious, right, you know, And I know you kind of mentioned it, but I'd love to get a little bit more of an early indication on sort of the cost and scaling up that 10,000-mile program, right? I mean, obviously the slides reiterate the plan through 26 with undergrounding remain, you know, quote-unquote a potential opportunities bucket. Are there, I guess, Patty, are there any changes to the scope or timing that you're contemplating for such an Undertaking from your prior messaging as the CPUC is starting to more actively inquire about your plan. So net net, I guess, can you do more cheaper and faster?

You know, I would say we're very bullish on that, Char. You know, we have started to have, you know, we did a global RFI of construction and engineering firms, and we received about 25 responses that were very elaborate. We're doing face-to-face discussions with seven of the firms, and they're very affirming. It's very exciting. We can't wait to share more details, and we will. But I'll just tell you that we feel more convicted than ever that this is an important part of the solution. And I will reiterate that our capital program is very expansive, and undergrounding is a portion of it. We do think that it's an important portion of it. But I can tell you, I heard about just one example of a job last week where we're undergrounding as we speak. And as we observe the work, we see tremendous opportunity to reduce the cost of doing that work. And when we're at scale, and in fact, that project was in about the $2.5 to $2.7 million a mile range. And that's a current active project that is not what I would describe at scale. We will be at scale, and when we are, the costs are inherently lower. And so we are very, very bullish. And, you know, all of the feedback we're getting from people is they do want more information, and I'm, you know, we have to respect the CPUC's role to affirm that that's the right plan. But knowing what we know and what we can see moving forward, we're very confident that as people see the numbers and the plan, they'll feel very excited just like we do.

Now, the comment on the recent Wildfire Safety Division resolution, you know, ratifying actions from the 21 WMP update, especially as the resolution would require the 22 WMP update to be included in the GRC proceeding. Thank you.

Yeah. Well, just a couple things. Just a So the good news is, as you all remember, the wildfire mitigation plan was approved by OEIS.

The CPUC ratified that safety certificate, or ratified our plan on April 21st, 2021. And then we'll shortly file for...

for our safety certificate.

We do have a required safety meeting on Wednesday, November 10th with the CPC and OEIS. We look forward to that opportunity to continue to talk about our plans. And so then shortly thereafter, we'll file our 2022 wildfire safety certificate for OEIS. Now, currently, that wildfire safety certificate that we currently have is in place until the following proceeding happens. So we feel the process is happening as discussed. we think it's a great opportunity to talk more about our undergrounding plans and our 2022 wildfire mitigation plan but we'll file that in february of next year so no red flags as far as we're concerned we feel good about how it's progressing and if you have a question press star 1 on your telephone keypad your next question is from jeremy tonnett with jp morgan

I think outside of Dixie, I think it's pretty clear that wildfires in recent years and just wondering if much of this might be a factor of weather conditions and how much might be evidence of what you've been doing so far really starting to, you know, turn a corner.

Well, Jeremy, I appreciate you asking the question because it's a good opportunity for us to reiterate that we believe that our safety measures that we've put in place, the investments that we've made, the vegetation management, the inspections, and the enhanced power line safety settings combined with PSPS has made our system safer. and our customers are safer, and therefore our investors are as well as a result.

Certainly we were not disappointed to have a little early rain, and rain is forecast.

forecast today and later this week and that all makes us feel good but as we look at our ignition rate that is the most compelling statistic in my opinion and I encourage everyone to look closely at it. In the areas where we implemented our EPSS we've had an 80% reduction in ignitions. I attribute that to that measure. I'll also say that given the drought conditions that we experienced this year, historic extreme drought, we have fared extraordinarily well. And again, managing the vegetation and doing those inspections.

Got it. That makes sense. And maybe just kind of picking up on your point there, given the success of these enhanced safety settings, what percentage of the high-risk circuits can you expand these to, and how long might that take?

Well, again, we can be very targeted about this. We know where we have drought conditions, and it's a very dynamic tool that we can use. This year we did around 50%. Next year we could do 100%. It's not like an on-off. We turn it on and we leave it on when we can see the conditions warrant. We can be very, very targeted. And, you know, we've done some work to really optimize the device settings to shrink the impact. The time to restore now is much longer.

was before we put in the settings because we've shrunk the impact of each of the disturbances and our patrols have become more effective and more targeted. So I would just suggest that the degree of improvement for our team response this year has been extraordinary, particularly given the conditions.

And we know it's an important tool to have in our toolkit.

Long term, we know the ultimate solution is a hardened system that is designed and built to be resilient to wildfire.

And that's why our undergrounding and all of our other mitigations are a very important path forward. But in the meantime, today, every day, customers on our system are safer because of the measures that we have taken.

Got it. That's helpful. And just one last one, if I could here, and understanding that anything other that's top priorities into the wildfire mitigation plan filing?

Yeah, I think it's really continuing to streamline our vegetation management and our hardening plans. I do think that you'll see more of these remote grid applications.

You know, there's a lot of circumstances where we have a long radio running through a forest.

that we can just eliminate and don't even underground it. Just equip those people at the end of that line with a distributed energy resource that is both clean and resilient to wildfire and lower cost. And so we do think there's a variety of solutions that you'll see more of in our wildfire mitigation plan for 2022 and beyond.

Great. That's very good.

The next question is from Ryan Levine with Citi.

Thanks for taking my questions. What portion of the gas is a gas ?

Hey, Ryan. It's Chris. You can imagine we don't disclose at that level of specificity just because it's commercial decision making for us. But I would just offer, again, to reiterate what Patty had mentioned is when you combine the gas storage we've got, when you combine the availability from the basins that we have, you combine the hedging to limit volatility, And the fact that we have costs trued up annually, it really is combined a really good solution for customers and clarity for investors.

Okay. But just to be clear, the 10% increase in gas and 2% impact on customer?

I wouldn't think about that, Ryan, as netting a hedging impact. I would think about that just as a basic rule of thumb.

Okay. And then there's several mentions around undergrounding to date or year to date, how much undergrounding has been completed and how much more is possible this year under the current regulatory construct.

Well, that's what we're excited to share at the beginning of next year. You know, we'll start to show 100 miles, and we're so excited about it. That's why when I talk about our cost per mile, we're at a very – get the economies of scale with that ramp.

Appreciate that. And then there was mention of seven parties in the more face-to-face conversation. Is the intention – for one party to emerge or more than one to the extent you're able to comment?

Oh, yeah.

You know, we're looking at it could be multiple. It could be one. We're not sure. That's the benefit of having these conversations with these folks. We'll see. That's why it was a request for information, not a request for proposal. We're really working together to learn what is the best path forward.

And just to add there, I think, Ryan, for us it's exciting, right, because the beauty of this is the program at this scale, it's natural to have a couple of large providers so you can create good competitive tension in there to get the best outcome possible for customers. We're definitely excited about what we're seeing so far.

A couple dozen initial entrants, and we're winning that list down to some really good potential partners.

Appreciate the cover. Thank you.

Thanks, Ryan.

At this time, there are no questions. Do you have any closing remarks?

Yeah, thanks, Jenny. You know, everyone, thank you for joining us today. Our system is safer every day, and we want you to know that. It's both safer for our customers and for you, our investors. We look forward to sharing more details with you and having more conversation with you at EEI next week. It's right around the corner. Be safe, everybody.

Thank you for attending today's call. You may now disconnect.