Pacific Gas & Electric Co.

Hello, my name is Chris, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the PG&Eth Corporation third quarter 2023 earnings release. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. If you'd like to ask a question during this time, simply press star, then the number one on your telephone keypad. To withdraw your question, please press star one again. Thank you. Jonathan Arnold, Vice President, Investor Relations. You may begin.

Good morning, everyone, and thank you for joining us for PG&E's third quarter 2023 earnings call. With us today are Patti Poppe, 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 third quarter 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 would also encourage you to review our quarterly report on Form 10-Q for the quarter ended September 30th, 2023. With that, it's my pleasure to hand the call over to our CEO, Patti Poppe.

Thank you, Jonathan, and good morning, everyone. I'm pleased to report another quarter of solid progress. As you'll see on slide three, Our core earnings per share of $0.24 for the third quarter bring us to $0.76 for the first nine months of 2023. We continue to work through the review process of our general rate case at the California Public Utilities Commission and have therefore not yet recognized the benefit in our earnings. With the customary memo account in place, once we receive the final order, we will book the new GRC revenues starting from the January 1, 2023 effective date. As you may know, our general rate case is on the agenda for CPUC's November 2nd voting meeting next week, and we trust that the Commission appreciates the importance of reaching a timely and constructive resolution, one which provides sufficient cash flow to support the critical work we have in front of us. If the GRC is not voted out next week, there are two further voting meetings in November, one on the 16th and one on the 30th. Resolving our GRC will be a key milestone as it sets our CPUC-based revenue through 2026. While we await the final decision, our memo account allows us to reaffirm our 2023 guidance range of $1.19 to $1.23. We also reaffirm our commitment to at least 10% earnings per share growth in 2024 and at least 9% in both 2025 and 2026, along with our plan for no new equity issuance through 2024. Looking ahead, once we have the final GRC decision, we anticipate scheduling a follow-up investor call, and we look forward to providing you with a more granular update on our financial plan at the time. Then, on our year-end call in February, you should expect further detail around our investment plans. With respect to reinstating our common dividend, we recognize how important this is to traditional utility and income investors, and we look forward to recommending this important step to our board soon. Turning back to our GRC, in our file comments with the CPUC, as well as in our public advocacy, we have been vocal that we view the ALJ's proposed decision, or PD, and the assigned commissioner's alternate proposal proposed decision, or APD, as falling short of providing the funding to accomplish the necessary safety work we have proposed on behalf of customers. As we have said, we are disappointed at the PD's apparent willingness to trade safety and reliability for short-term cost considerations. This is critical work, and in many cases, work that is required for us to execute on the safety commitments we make in our annual wildfire mitigation plan or under other regulatory orders. One good example, and there are others, is that the current PDs declined to fund over $260 million of capital for corrective maintenance of our gas meters. This work is not optional and is, in fact, required for compliance with CPUC General Order 58A, which sets the statewide standards for gas service in California. Unless the CPUC makes meaningful changes to the cash flow elements of the current PVs, we will have to slow down making our systems safer and delay meeting legislative directives and regulatory requirements. My management team and I stand for delivering safety, reliability, and affordability. We believe that our plan, thanks to the simple affordable model, offers a clear pathway to keep bill growth well below the current level of inflation at 2 to 4% annually over the rate case period. The CPUC's GRC process is designed to get the best outcome, and the state has been very clear about the infrastructure they want us to build. We stand by our filing and continue to view our undergrounding plan as the fastest and most affordable path to keep our customers safe. To that end, we have been encouraged by significant statements of support received from our local leaders and stakeholders. Aside from the GRC, on slide four, we continue to mitigate physical and financial risk. On the physical side, we're pleased with our continued progress mitigating wildfire risk through our layers of protection strategies. This remains at the heart of our plan, and we stand unapologetically on the side of public safety. In Sacramento, this year's legislative session included a number of bills which sought to address the very real challenges utilities have had keeping up with customer growth. Since our last update, the SB 410 Energization Bill was passed by the legislature and signed into law by Governor Newsom. We viewed SB 410 as a constructive solution. allowing us to deliver the necessary work for our customers with more timely cost recovery. One key provision is for the CPUC to establish a rate-making mechanism allowing for recovery of energization investment above what is approved in our GRC. We believe this is appropriate given the fast-moving and unpredictable nature of electrification-related customer demand, an emerging and high-quality problem for any utility would love to have. In the newly opened Phase 2 of our GRC, we've proposed a new balancing account to implement the provisions of SB410. Keeping affordability in mind, our proposal would cap annual incremental customer bill impact at 2.5% of electric distribution rates. This could amount to over $200 million of annual revenue, supporting close to $1.5 billion of incremental capital investments. The rate-making mechanism, in addition to the GRC-authorized funding, will allow an estimated 300-plus distribution capacity projects and over 35,000 new business connections over the next three years if the proposed rate-making mechanism is adopted. As with the pending GRC decision, it's critical that the Phase 2 proceedings support the necessary cash flow and timely resolution to do the work our legislature has directed and on the timeline our customers are requesting. Since our last call, we've also made progress on legacy legal risk, reaching a settlement with the CPUC Safety and Enforcement Division with respect to the Dixie Fire. This was, for $45 million, most to be spent on a new electronic record system over five years. We continue to maintain we were a prudent operator, and our settlement with SED specifically preserves our ability to apply for cost recovery, both from the CPUC and from the State Wildfire Fund. Turning to slide 5, our layers of protection strategy continue to underpin our approach to wildfire risk as we strive to make our communities safer each and every day. We've now completed the work which improves our risk reduction from 90% at the start of the year to 94% in line with our 2023 Wildfire Mitigation Plan. Much of this year's improvement relates to installing downed conductor detection technology supplementing our enhanced power line safety settings and public safety power shutoff programs. Other improvements this year include securing FAA approval for beyond line-of-sight drone inspections and integration of artificial intelligence for smoke detection on 610 cameras covering over 91% of PG&E's high-fire risk areas. Our latest wildfire mitigation plan is working through the review process with the Office of Energy Infrastructure Safety, or OEIS. Last month, we submitted our supplemental response to their revision notice, and their updated schedule calls for a draft decision by November 14th, with a final decision by December 29th. As directed, we're expecting to file for our 2023 safety certificate by December 12th, and remember that, under AB 1054, the current certificate remains in full force while OEIS reviews the new request. Turning to slide six. Let's review our wildfire season performance to date. First, we are pleased to report that we are on track with our primary goal of zero catastrophic wildfire ignitions associated with PG&E equipment. As of October 22nd, CPUC reportable ignitions in our high-risk zones are down 27% from last year and down 67% from 2017. The extended period of winter storms we experienced in 2023 certainly delayed the start of fire season, But this also led to an abundance of growth and fuel once conditions dried out. While we are really pleased with the headline data, variances in weather conditions from year to year can create some comparability challenges. To account for this, we track a weather normalized ignition rate. We express this as ignitions per 100,000 circuit mile days under R3 or higher conditions, as measured by our fire potential index. We've seen this ignition rate decline by 70% overall since 2017, including significant step-downs in 2021 and 2022, validating our layers of protection approach. This year, through mid-October, I am pleased to report that we've seen our weather normalized ignition rate come down by a further 7% versus 2022. One point I want to reinforce, at PG&E, we're ready every day for dangerous conditions. Our layers of protection do not rely on weather being in our favor. We've implemented state-of-the-art situational readiness technology, tools, and people. We treat every day as a high-risk day. This is the mindset that will protect our customers and our communities. No matter the conditions, we are ready. A good example is our use of public safety power shutoffs. Last year, we didn't need to activate any PSPS events, since we did not experience sufficiently high-risk wind conditions. This year, we've initiated two PSPS events, one in August and one in September, and both were quite localized. Through our enhanced situational awareness, which breaks the system down into two-kilometer polygons along with our extensive use of data and advanced meteorology, we are continuing to refine our PSPS capabilities. Our program is now far more surgical than when we first rolled it out in 2018. Because of those improvements, our PSPS events only affected around 3,900 customers in August and 1,200 in September. Our post-event analysis shows that our 2023 shutoffs prevented two likely ignitions and close to 30,000 acres which might have otherwise burned. We are standing for our hometowns and are resolved that catastrophic wildfires shall stop. PSPS and EPSS, our Enhanced Power Line Safety Settings Program, have been very effective at reducing ignitions, but both present unacceptable reliability challenges for customers. That's why we see undergrounding as the right long-term infrastructure for the very specific high-risk miles identified in our 10,000-mile plan and affordable for customers at $3.40 per month for the average non-care residential customers. In fact, based on our analysis, over the expected life of the assets to be installed during the GRC period, our proposal returns billions of dollars more in net present value compared to the APD. Just like our layers of physical protection, our financial plan also includes multiple layers of protection as illustrated on slide seven. The orange wedge represents the difference between the APD rate base and our guidance midpoint. Most critically, our layers of protection include improving on the cash elements of the rate case PDs, which we are working hard to do in our advocacy. There are also three items where the PDs do not recommend disallowances, but instead shift cost recovery into other future proceedings. These include future WMSE or equivalent filings, incremental spending on energization as provided under SB410, and our 10-year undergrounding plan under SB 884. We also see no shortage of incremental investment headroom in our FERC jurisdiction rate base. Keep in mind that capital investment for the benefit of customers' needs can be offset with O&M reductions and efficient financing along with low growth to make sure safe infrastructure is also affordable. This is the heart of our simple affordable model. Our regulators and key stakeholders are just becoming familiar with this model, and we must implement it in a very trustworthy way so that California can have the modern infrastructure in place that keeps people safe and energized. Which takes me to my story of the month on slide eight. A couple weeks ago, I visited a site in Vacaville where my coworkers are burying lines in a high-fire threat area. The project manager and field engineer were onsite and could not have been more excited about what they were accomplishing for their hometown. This undergrounding project was originally estimated to cost close to $3.5 million a mile with a completion date in 2024. The team is now estimating a unit cost of approximately $2.9 million a mile and finishing in early December. Using LEAN and the principles of waste elimination, my coworkers found opportunities to reduce materials and labor costs by challenging the status quo. They reduced trench depth and width while staying in compliance with county standards, and they found additional cost savings during the backfill process. The combination of these solutions brought down the unit costs, and they reduced total active construction time, making it safer, faster, and reducing the impact on the community. As you can imagine, each project comes with its unique challenges, and this one was no different. What is different now at PG&E is the standard set of tools and the mindset that my coworkers bring to every job. It's consistent application of lean and problem-solving that drives predictable and, in some cases, extraordinary breakthrough results no matter what challenges we face. Speaking with undergrounding, I should note that we currently have more than 2,000 qualified personnel working safely on undergrounding in our service territory every day. Earlier this month, we announced that we had finished 100% of the heavy construction work necessary to complete the 350 miles targeted for this year. We expect to energize an average of 20 additional miles per week through the end of the year, and I could not be prouder of the team for overcoming the significant challenges presented by the weather we experienced earlier this year. Day by day, week by week, we are managing our progress, leveraging visual management and operating reviews, giving me the confidence to affirm that we are right on track with our plan for 2023 with line of sight running well into 2024. And with that, let me hand you over to Carolyn for our financial highlights.