Thank you for standing by, and welcome to the PG&E Corporation Business Update 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 Business Update 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 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. With that, it's my pleasure to hand the call over to our CEO, Patti Poppe.
Thank you, Jonathan. Well, good morning, everyone. We're delighted to have you with us for our post-GRC update call today. As you know, earlier this month, the California Public Utilities Commission voted out a Revised Alternate Proposed Decision in our 2023 General Rate Case with a 5-0 unanimous vote. This GRC sets our utility-based revenue requirement for the four years of 2023 through 2026. We're really pleased to have the case resolved, allowing us to move on with refining and executing our financial and operating plans. I'd also like to take a moment to thank the CPUC commissioners and staff, along with our PG&E team, for their dedication and many months of hard work on such a complex and challenging case.
It's worth noting that this was the first 4-year GRC covering both electric and gas for California's largest utility, and it was always gonna be a lot of work for everyone involved. Turning to slide 3, let me start by covering some of the key highlights in terms of our financial plan. The punchline is we don't see any changes to our industry-leading earnings growth outlook, which we've been sharing with you for some time. For 2023, I'm happy to report that we are on track to deliver on our non-GAAP core earnings per share guidance range. We'll be recognizing this year's GRC revenue uplift in the fourth quarter, as allowed under our approved memo account treatment. Underscoring our confidence, we've raised the low end of our guidance by a penny, which puts our revised 2023 range at $1.20-$1.23.
This compares to our previous guidance of $1.19-$1.23. Sorry about that. Turning to 2024, we're introducing our guidance range of $1.31-$1.35, which is consistent with our commitment to deliver EPS growth of at least 10% for both 2023 and 2024. Looking beyond 2024, we're also reaffirming our commitment to at least 9% core EPS growth in both 2025 and 2026. Our plans for zero equity issuance in 2023 and 2024 also remain unchanged. I'm also pleased to be announcing this morning that our board has approved reinstating our common dividend, declaring an initial quarterly payment of $0.01 per share. This is payable on January fifteenth to shareholders of record as of December twenty-ninth.
As you know, under the terms of our plan of reorganization, we were required to have recognized $6.2 billion of Non-GAAP Core Earnings, as described in the plan, before resuming our common dividend. We passed this threshold with our third quarter earnings. With this milestone reached, our stock will be investable once again for those long-term utility and income-focused investors who require a dividend payment. I'd also like to take a moment to reflect that for almost six years, our shareholders have not received any dividends from PG&E, with 100% of our earnings retained. In fact, since 2017, we have reinvested the vast majority of our earnings back into our system to the benefit of our customers and will continue to do so.
We remain committed to building a safe, reliable energy system at the lowest cost for the hometowns we are privileged to serve, as well as offering investors a stable, long-term investment option. We've said consistently that we expect to reinstate our dividend at a low level, given our preference to prioritize critical customer investments on our system. We will communicate further on our future dividend growth strategy at a later date, and we expect to recommend growing the dividend at least as fast as our industry-leading earnings per share growth, and potentially quite a bit faster given our low starting point. In the near term, we'll continue prioritizing delivering above-average investment and earnings growth over higher yield. In the long run, we'd expect this mix to shift as we continue on our recovery path, driving deleveraging and further improvement in our relative valuation.
On cash flow and financing, we remain firmly committed to restoring our investment-grade credit ratings and still plan to pay down at least $2 billion of parent debt by 2026. In the meantime, we've made solid progress on the key qualitative and quantitative items on which the agencies are focused. We're pleased that the CPUC appreciated the need to deliver more timely cash recovery, as reflected in the final GRC decision. Based on the improvements from the initial PDs, our own self-help initiatives, including ongoing cost savings and outcomes of pending regulatory proceedings, such as our cost of capital advice letter and our Pacific Generation sale, we fully expect to improve our FFO to debt metric. I should emphasize, though, that while the regulatory items would further support our credit metrics, we still aren't counting on them in reaffirming our earnings growth outlook today.
On slide 4, we show some highlights of the GRC decision and the significant beneficial work it will fund for our customers. The final decision included a few important changes versus the original APD. First, shortening the amortization or collection period for our 2023 revenue increase from 36 to 24 months. Second, improving the incremental escalation factor for 2021 and 2022 inflation from 25% to 20-50%. And third, increasing the undergrounding mileage for the 4-year GRC period to 1,230 miles, for a total of over 2,000 miles of system hardening. The final decision funds are critical wildfire mitigation programs, including EPSS and PSPS, and approves 100% of our requested funding for new business and energization spend.
Energization-related CapEx could be further supplemented under the new balancing account we proposed in our Phase Two filing, consistent with Senate Bill 410, although this approach remains subject to CPUC approval. Turning to slide 5, we've updated the rate base view from our last earnings call to include our FERC rate base and to reflect our CPUC rate base for the GRC final decision. The orange wedge is smaller than before, largely due to the higher escalation factors approved in the final decision. The remainder shows needed customer investment, which we expect to pursue outside of the GRC through various proceedings. As we said on the earnings call, we view these as additional layers of financial protection or opportunities to deploy capital for the benefit of our customers. We're also now giving you a preliminary look at the potential sizing and timing of each of these opportunities.
As you'll see, they are more than sufficient to exceed our forecast rate base trajectory, and they support our high level of confidence in delivering on our consistent longer-term growth plans. We expect to provide you further specifics when we roll forward our full plan on the year-end earnings call in February. At a high level, though, we see a clear path to delivering rate-based growth consistent with the earnings growth targets we've previously laid out. The layers of financial protection we're highlighting include: around $4 billion in other cost recovery filings. Two of the pieces are wildfire mitigation and other memo accounts for $1.3 billion, and the already approved purchase of our Oakland General Office building for $900 million, which we delayed from 2023 to 2025.
Last week, we filed supplemental testimony in our Phase 2 GRC application to implement SB 410, aligning potential incremental spend with the final GRC revenue requirement. As proposed, this amounts to around $4 billion over the remaining three years of the rate case period. We've also identified around $2 billion of incremental transmission spend, which could be deployed under our FERC formula rate through 2026. Finally, we expect to be able to file our 10-year undergrounding plan under SB 884 by mid-2024, once OEIS and the CPUC have completed their required scoping. This will allow us to present to the commission a more inclusive view of the very significant benefit and savings we expect over the duration of the plan. We'll also be able to show in the record our continued strong execution against both mileage and cost targets in 2023.
The expected timing should allow for some incremental undergrounding miles to be layered in as soon as late 2025. One point to emphasize is that we see no shortage of potential capital investment opportunities that meet the needs of our customers for a service level they expect. As such, we are constrained more by our focus on customer affordability, which includes the need to prioritize improving our credit rating. Turning to Slide 6, we noted on our earnings call and in our recent advocacy around the GRC, that our plans show average annual increases in customer bills within our target range of 2%-4% through 2026.
Importantly, this takes into account the one-time large step up in 2024 for catch-up recoveries and reflects other elements rolling off through the forecast period, including the 2022 WMCE interim rate relief in mid-2024, and the 24-month collection of 2023 incremental GRC revenues, which only runs through 2025. Key to delivering on this forecast trajectory is our differentiated, simple, affordable model, under which we continue to target at least 2% savings annually in non-fuel O&M, with expectations that we will deliver at least 2% in 2023 on top of our 3% savings delivered in 2022. Before we take your questions, on slide 7, we just wanted to spend a brief moment reflecting on some of the meaningful milestones PG&E has seen outside of the GRC process in 2023.
As you'll see on the slide, these run the gamut across operational, regulatory, legislative, and financial achievements. We see plenty of catalysts still in front of us, many of which are set to play out in the not-so-distant future. These include the final decision from OEIS on our 2023 Wildfire Mitigation Plan, for which we received the draft approval a couple of weeks ago. We'll also be filing our annual safety certificate request with OEIS by mid-December. We and the other California utilities are also waiting on CPUC action on our cost of capital advice letter... and we're due to get a proposed decision from the CPUC on the Pacific Generation sales structure in January.
The proposed decision on our Phase 2 GRC application to implement SB 410 is due in early April, and we expect to file our 10-year undergrounding plan by mid-2024, if not sooner. On the financing front, we will soon file our final loan application with the Department of Energy, with potential to deliver meaningful savings for customers versus traditional financing sources. Successfully navigating another fire season without any major incidents and resolving our GRC should also provide the credit rating agencies with two key proof points in support of ratings upgrades. Finally, recent public comments from the trustee of the Fire Victim Trust point to needing to complete monetization of the remaining 3.4% holding before stepping up payments to their beneficiaries.
All in all, we believe we have a clear and strong path, with a number of near-term catalysts in view to maintain our valuation trajectory. As we reflect today, we are proud of our progress, and we feel the momentum. We hope you do, too. We look forward to providing you with a more comprehensive update on the year-end call in February. In the meantime, we'll connect with many of you at investor conferences in December and January. With that, operator, please open the lines for questions.
At this time, I'd like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We ask that you limit yourself to one question and one follow-up question, please. We'll pause for just a moment to compile any questions. Again, if you'd like to ask a question, please press star one on your telephone keypad now. Our first question comes from the line of Shar Pourreza with Guggenheim Partners. Please go ahead.
Hey, guys. Good morning.
Good morning, Shar.
Good morning, Shar. How are you?
Good morning. Patti, just from a credit metric perspective, the GRC obviously had some puts and takes, with the APD providing some improvements. I guess, where do you stand relative to the Q3 commitment around the mid-teens FFO to debt by 2024? Does the deferred capital recovery, combined with the dividend announcement, shift that target out a bit? And do you anticipate PacGen process will be accretive to your financing metrics? Thanks.
Hey, Shar, it's Carolyn. So I'll take that.
Hey, Caroline.
So, hi. First, I just want to say we are 100% committed to achieving investment grade. As you know, the rating agencies look at both qualitative and quantitative factors, and we've made tremendous progress on both of those. With this GRC, as Patty laid out, we clearly see a path to mid-teens FFO to debt in 2024. This includes some self-help and regulatory support, but our biggest tool in our toolkit, just remember, is our simple, affordable model, where we're targeting at least 2% reduction in O&M year over year over year. We also have efficient financings, and, PacGen, as you said, is one of those, and that is certainly accretive to, to our credit metrics as well.
Perfect. And then just on the incremental CapEx, obviously, you highlighted on slide five, will get you to the midpoint of that rate base guidance. How much of that, I guess, $4 billion of capital from the cost recovery applications is already spent, and how much of it has been filed for? The press release highlighted $1.1 billion for 2018 capital, another $1.3 billion for wildfire mitigation. So just trying to clarify some hurdles to get that capital rolled into rate base. Thanks.
Yeah. Thanks, Shar. Much of that has been spent already. It's a mix, though. Some of it hasn't. Like, for example, on our Oakland General Office, we spent a portion of it, but not all of it. Other portions of it have been spent, and so it's just a matter of regulatory proceedings. And to remind you, in the GRC outcome, Commissioner Reynolds didn't reject those expenses. He just pushed many of them to future proceedings, just to spread out the timing of that. But we have a lot of confidence in that stack of recovery items. And so we see a really strong path forward, Shar.
Okay, just one quick follow-up, if I may, just Patti, on SB 410, the capital bucket, it's kind of a wide range of outcomes. Are those volumetrically dependent on load and customer growth, and what do you sort of embed in planning as a baseline for those? Thanks, guys.
Yeah, thanks, Shar. So on the SB 410, first of all, that's part of the phase two. We've filed that in conjunction with phase two. The CPUC will have to make approvals on that, but it will truly be a true-up of actual spend for customers, and so our assumptions around that, we can see it today. We have a backlog of new customer connections. We have a backlog of interconnection requests. The reason why the legislature took action on this is they were getting concerns that we would fall behind in our ability to invest in the infrastructure to enable the energization of California, which is a key pathway to the clean energy transition here.
So given that, we've certainly planned conservatively, but frankly, there is a lot of pent-up demand for us to prepare this grid to receive all the clean energy that's being produced and all the demand for customers here in California.
Terrific. Thank you, guys. A big congrats on this, on this milestone.
Mm-hmm.
Appreciate it.
Great.
Thanks, Shar.
Our next question comes from the line of Nicholas Campanella with Barclays. Please go ahead.
Hey, good morning, everyone. Thanks for taking my question.
Morning.
Morning, Nick.
... Good morning. Hey, so thanks for the disclosure on no equity this year and next. I think that's pretty consistent. Can you just kind of help us think about, like, 2025 and 2026 and the, and the magnitude, if, if at all, and how much is needed relative to that 9% EPS CAGR that you're reaffirming today?
You're referring specifically around equity? I mean, I, I'll just say-
Yes, please.
The way you think you should think about equity is that as you know, we've made significant progress in terms of the discount that we see in our stock. And as that closes, that's when we would see it being a potential opening to go to the equity markets. Right now, we're committed to no new equity through 2024, and through 2025, that is a possibility.
Yeah, and just to be clear, we won't issue dilutive equity.
Right.
You know, we know that that is not part of the plan here, and so that's why it's so important that we continue to work on our, our cash flow and financing plans that are the lowest cost for customers and maintain our progress.
Okay. Thanks a lot for that. And then I guess just on cost of capital mechanism, you know, I know the energy division's taking their time here, and you've been clear you're not relying on this at all for your own EPS targets. But just can you kind of update us on how you see that proceeding playing out and the timeline for an actual decision?
Yeah. So, I don't think we have clarity on the timeline of the decision, but we do know that it is a very important part of our financial health. We do believe the formulaic nature of the cost of capital is something to appreciate about the California regulatory construct. We know that the regulators understand how important that is, given the actual cost of capital and the impact it has on our ability to do work for customers. And so, we're optimistic that the CPUC sees a path forward on that, but we can't - we don't have clear visibility on timing. If in fact, the timing does go into 2024, we'll be applying for a memo account like we have done in previous years.
Thank you very much. Have a great day.
Thanks, Nick.
Our next question comes from the line of Julian Dumoulin-Smith with Bank of America. Please go ahead.
Hey, good morning, team. Congratulations here. Thank you for the time.
Thanks, Julian.
So maybe just to follow up. Hey, good morning. Thank you. Maybe just following up on Nick's question real quickly here. Just, I heard the commentary about equity and FFO. Can you elaborate a little bit more about how you think about asset sale candidates? I mean, Patti, you were very specific a moment ago in saying, "Look, you don't want to issue dilutive equity," and obviously, no one wants to see that. At the same time, you guys are pursuing very thoughtful process here with PacGen. You guys have looked at your real estate portfolio, or at least partially in recent years. Are there other, quote, unquote, "candidates" that you would put out there that merit attention as you think about potential 2025 needs, for instance?
You know, we always have a lot of options, Julian. We own a lot of stuff. And you'll remember, we've done creative things in the past, like our transmission towers for use of telecom. You know, there's a lot of things that we have as a consideration set ideally. We maintain, we have timely cost recovery, and we maintain our investments in our infrastructure, and we keep moving forward. That's plan A, but in the event that additional needs were required, though, there's always opportunities with asset sales. We don't have anything on the front burner today, but if we needed to, we would certainly consider that.
Got it. Thanks for elaborating on that. I really appreciate it. And then just coming back to dividends, I mean, obviously, you know, you talk about meaningfully faster growth rate potentially than earnings. Clearly, given the starting point, that seems in the cards, but how do you think about the timing and potential pathways to seeing a more meaningful, you know, overall dividend profile? Again, I think there's a lot of different considerations that went into today's announcement. How do you think about the growth from here and some of the key factors that you would be looking towards?
Yeah, I think one of the things that's important for the board to have time to consider this, you know, this was a big milestone for us, not just for the company and certainly my coworkers and our investors. We know it's important to all of us, but it's also a milestone for our regulators and for our customers. And so, given that, I think we need to give people a little time to settle in, that we're getting back to normal and having a normal utility profile will take some time on the dividend front. In the meantime, we have so much investment to be made into our system that our customers really expect, and that's driving this premium earnings growth. I would plan on us continuing to be a premium-earning utility, and the dividend will catch up over time.
But in terms of specifically when we'll announce what that trajectory looks like, that's going to take a little time as we come to terms with what that looks like in the future. But I wouldn't expect big news on that anytime in the near term.
Yeah. And I think, as we've said in the past, I think, it's important to just remember that we, we're-- we've said that we will grow the dividend at least in line with our earnings, if not more. And I'll just remind you, that's 10% in 2024, and at least 9% in 2025, and at least 9% in 2026.
Yeah, indeed. Thank you guys very much. I appreciate it.
Thanks, Julian.
Our next question comes from the line of Ryan Levine with Citi. Please go ahead.
... Hi, everybody.
Good morning, Ryan.
Good morning, Patti. In terms of the SB 410 CapEx upside of $4 billion, is there any color you could share around the potential cadence of some of that potential spend? You know, realizing there's a lot of moving pieces that will determine the outcome, but any color around, maybe the cadence of that CapEx upside?
Yeah, I think, first of all, we have to get through the proceedings. So obviously portions of 2024 would have to wait for the, the phase two to be completed. We'll do the work that customers require, then we'll file, and so the filing then has to get approved. So there's a little bit, there's a little bit of a lag, but it's not the four-year lag that would have been in place without SB 410. And so I would say the, the spend will happen as customers demand, and then we'll be truing this up through this mechanism. But there will be some time required in 2024 to get clarity about how that works before we are able to really accelerate that work.
You know, one of the things that we're going to really continue to get disciplined about is spending what is approved. We have forward-looking rate making here in California, which is a good thing, and we've got lots of mechanisms. We're going to be very disciplined about not overspending in the hopes of getting recovery later. We're getting back into a normal cadence here where we can prepare, plan, execute great work that customers demand, that drive our consistent earnings performance and consistent delivery for both customers and investors, and expect timely recovery of that. So that I would put in that category, SB 410.
Great. And then in terms of the dividend raises in the future, you know, it's very clear you're targeting over or 10%+ from a growth rate standpoint, at least in the near term. Is the cadence of increases likely to be on an annual basis, or should we look for more regular updates to dividend policy?
You know, we haven't really resolved that with our board yet. We're, we're in the early days. Yesterday was a big day with our board to get approval for the reinstatement of the dividend. We've got more time, and, and we want to be thoughtful about how we then make determinations about what our dividend regime will look like here at PCG.
Great. Well, thanks for taking my questions.
Thanks, Ryan.
Our next question comes from the line of Jeremy Tonet with JP Morgan. Please go ahead.
Hi, good morning.
Hey, Jeremy. Good morning.
Thanks. Just wanted to start off, what is the process to formally introduce the FERC CapEx to your base plan at this point?
So, you know, the FERC mechanism works that we can make filings, and then we do an annual true-up of that FERC rate base. And we do have a lot of demand for our transmission. We have a lot of generation interconnection requests that enable the clean energy transition here in California. We have basic asset health and system upgrades that we'll be filing for, and we get very timely recovery of those FERC investments. So, we'll be making filings and truing that up annually.
Got it. That's, that's helpful there. Thanks. And just wanted to kind of pivot towards affordability, if I could here. Could you parse the affordability drivers relative to the assumptions baked into your 2%-4% outlook here? Are these fully reflected in that? And what are the opportunities through 2026 versus later on, I guess, the affordability drivers as you think about them?
Yeah, so it's really the... This is the heartbeat of the simple, affordable model. I think, you know, certainly investors have seen the application of the simple, affordable model in other utilities over the years to great success. California, it's new. We are really helping to gain the trust of our regulators and our customers to recognize that we can make significant earnings, driving capital investment that customers expect and appreciate. What delivers real value for customers is infrastructure that's robust. But then we offset that with cost savings on operating expense and efficient financing and obviously load growth. But here we actually have an additional layer, which is previous recoveries that are falling off.
For example, as we shared in our this, we have an uptick here in 2024, but that's a lot of it is driven by 2023's earnings being collected in 2024 and 2025, and so that then falls off. So you can see that our average of 2%-4% earnings or bill growth is the average over that four-year period, and we forecast that going forward beyond 2026, because that's what the simple affordable model delivers. That's why it's so important that we continue to build this muscle of our lean operating system to reduce costs and add value for customers, continuing to reduce waste, our play number 5. That's what will deliver real savings for customers and the infrastructure that they expect. This is why the simple, affordable model is so important for customers and investors.
It creates the energy system of the future that California has been expecting and delivers performance for investors so that you can be confident in investing in this California story.
Got it. That's very helpful. Thank you.
Thanks, Jeremy.
Our next question comes from a line of Michael Lonegan with Evercore ISI. Please go ahead.
Yeah, hi. Thanks for taking my question. On the incremental investment opportunities, just wondering if you could help us compare, you know, reconcile the update you provided today through 2026 with the, you know, the $5 billion of opportunities you previously identified for the 2023-2027 period. You know, obviously, you, you know, you have the cost recovery applications, this time around, you know, coming out of the rate case.
Yeah. There's some overlap there for sure, particularly transmission investment as well as distribution investment. Look, we have a distribution system which will become the backbone of the distributed energy system, and that distribution system needs to be robust and needs to be able to enable the energization of California or the electrification of California. You know, the key pathway to decarbonizing California's economy, and frankly, the world's economy, is through electrification. We need a grid that is ready, and there is a lot of investment demand on the grid that, frankly, we are throttling because of affordability, which is why our simple, affordable model is so important and because of timely cash, our balance sheet and cash recovery.
And so that's why this GRC is such an important milestone in our progress and why we really do see this today as a positive news about our ability to have the kind of financial health that's necessary to deliver California's ambitions.
Great. And then secondly, for me, taking a step back, you know, I was wondering if you could talk about the, the level of your base capital plan with this update. You, again, you had the cost recovery delayed. You know, you did, you talked about 9% rate base growth. You reiterated your EPS growth forecast. I'm just wondering, you know, if you could talk about the level of the base plan and then, you know, should we expect any lumpiness in that program?
No, our base capital plan, as we've shared with you in the past, remains untouched. I mean, it's been funded, for the most part, through our GRC. I'll just remind you that the GRC was 86% of our request was funded in this GRC, and much of that is our base capital. Right, and then the layers of financial protection we're describing here are the incremental form methods of achieving capital investment or receiving recovery for capital investments such as SB 884 and the SB 410. These are important things that the legislature has been very clear that they want PG&E to do, and they want us to deliver this investment for customers.
And so, that's just the financial layers of protection that go on top of our previous capital plan as described.
Great. Thank you. Very helpful.
Thanks, Michael.
Our final question comes from the line of David Arcaro with Morgan Stanley. Please go ahead.
Oh, hey, good morning. Thanks so much for taking my questions.
Morning, David.
I was curious, on the 2024 outlook, is there an O&M reduction target that you're specifically aiming for? Should we assume it's the 2%, you know, roughly 2% in line with the 2023 in the longer-term levels?
Yep, that's our annual target, and that's what we'll be shooting for in 2024.
Okay, perfect. I was curious if there's any specific debt reduction planned in 2024, just moving along toward that, you know, longer-term $2 billion debt paydown level. Is there a certain amount that's embedded in the 2024 outlook there?
We just remain, we remain committed to reducing the $2 billion in by the end of 2026, and we don't really comment on any debt transactions in the next 12 months. So I would just count on that. We remain committed to the two, at least $2 billion dollar reduction in our corporate holdco debt by 2026.
Okay, got it. Understood. Thanks so much. Appreciate it.
Thanks, David.
I would now like to turn the call over to Patti Poppe for closing remarks.
Thanks, Mandeep. Thank you, everyone, for joining us today. We know it was short notice, so we appreciate your attention. You know, we mark today as a key milestone in the PG&E redemption story. We are definitely on our way, and it's a joy to take this journey with you. Thanks so much for being with us. Have a safe day out there.
I'd like to thank our speakers for today's presentation, and thank you all for joining us. This now concludes today's call, and you may now disconnect.