Q1 2024 PG&E Corp Earnings Call

1 billion of claims paying capacity.

Cost recovery under the presumption that the utilities' conduct is reasonable with a valid safety certificate and a cap on shareholder exposure. If a portion of our requested cost recovery where to be disallowed by the CPUC.

These protections afforded to Pee Jeanie under $10 54 are further complemented by our self insurance model, which limits shareholder exposure to a deductible of only $50 million per.

Paired with our proven progress mitigating wildfire risk and significant actions. The state has taken to strengthen fire prevention and response in our communities.

California stands out as a model for all states that have wildfire risk and <unk> operating system delivers the physical risk reduction, which further differentiates our story in fact, we've reduced our wildfire risk by 94% and are working everyday to reduce that further.

As one additional proof point of our wildfire risk mitigation efforts I'll remind you here on slide five that in 2023, we reduced ignitions by 68% compared to 2017 and through the end of the first quarter of 2024 on a rolling 12 month basis, our weather normalized ignition rate remains at zero.

<unk> 93 more than a 70% reduction from 2017.

As well as our differentiated wildfire risk reduction framework. We also have a differentiated approach for how we intend to grow our customer capital investments, while keeping bills affordable here on slide six is our simple affordable model.

Since its introduction, we have exceeded our annual non fuel O&M reduction target every year.

Reducing O&M by 3% in 2022 and five 5% in 2023 this.

This is new for <unk> and it will take repeated performance for our customers and policymakers to believe in the benefits of our new capability and what it delivers for customers as I like to say performance is power when we perform when we keep our commitments we have the power to influence the perception of <unk> with our customers.

And investors.

Our differentiated and our potential and our system to deliver on these annual non fuel O&M savings.

<unk> will prove this out.

One exciting element of our simple affordable model is the opportunity for load growth in our service area are electric load growth opportunities are not just electric vehicles and data centers, but an eventual unnecessary de carbonization of our entire economy with clean electricity as the primary energy of the future.

P. Genie is vital to our state's ambition and the need to heal our planet.

1% to 3% load growth per year in the near term with upwards of 70% load growth over the next 20 years will be required as California moves to carbon neutrality by 2045.

California is not afraid to set ambitious targets and has proven repeatedly that we will innovate our way to achieving them.

Cost savings and loan growth coupled with continued efficient financing options are how we can execute on our commitment here on slide seven to control average annual bill increases to 2% to 4%.

We appreciate that near term bill pressure due to consolidated years of <unk> recovery and catch up recovery of wildfire mitigation expense, it's difficult for some of our customers and I look forward to the day when we can announce that customers' prices are coming down.

At the same time, we standby the needs for the near term increase as this GIC as funding critical work, which is making our customers and communities safer than ever before.

Here on slide eight are just a few examples of important safety and reliability work funded by our ERC.

Installation of more than 10000 devices for situational awareness system hardening automation and reliability repair or replacement of over 175000 units on our distribution lines inspection.

Inspection of $2 million and replacement of over 60000 Poles replacement of more than 160 miles of gas distribution pipeline.

And under grounding of 1230 miles of distribution lines in high fire risk areas.

We perform this work it is our responsibility to ensure every customer dollar is put to maximum use which brings us to my story of the month here on slide nine.

You may recall that last year I shared a story I'm work bundling specifically I highlighted an example of cross functional bundling, where we planned and executed 12 jobs under one planned outage I also left you with a little teaser, saying this is just the tip of the iceberg.

<unk> micro workers are now rolling out our next generation of work bundling with something we refer to as Mega bundles using breakthrough thinking and our lean operating system. We've identified over 9000 individuals scopes of work and converted them into 'twenty bundled projects with Mega bundling we're looking.

At an entire circuit as one project.

In the past, we plan and execute work at a granular level for example, we'd roll a truck to replace a single pool or just one switch when we look at an entire circuit you may find 100 poles that need to be replaced.

And Stockton for example, we have one circuit with nearly 1000 pools that will be completed this year.

Underlying these pools into a single project improves safety, the customer experience quality cost delivery and coworker morale.

<unk> Assembly line style production the potential for one permit for hundreds of poles, rather than hundreds of separate permits as it is today digging multiple Paul Holt per day in a specific region, resulting in significant fuel savings and less hazardous drive time for our coworkers.

Hundreds of Poles at a time using manufacturing style production offsite, rather than one by one onsite and customer outreach to entire neighborhoods reduced outages and lane closures versus one job at a time.

This approach also allows us to negotiate better contract pricing and reduced overhead costs.

Overall with Mega bundling, we expect to see cost savings of at least 20% compared to historical all in cost, which will result in at least $20 million of our customer's dollar saved just this year freeing up resources to do even more safety and reliability work for our customers.

Speaker Change: When I joined <unk> you may have heard one of my early observations, we're very good at engineering equipment, but we're not very good at engineering our work.

Well, that's changing thanks to our performance playbook.

Speaker Change: We are delivering improved performance every day, which serves both customers and investors with that let me turn it over to Carolyn to walk you through the financial details.

Carolyn: Thank you Patty and good morning, everyone today, I'm looking forward to covering four topics with you.

Carolyn: First our quarterly results second our five year financing plan.

Carolyn: Third our continued execution against our simple affordable model and fourth an update on our regulatory process.

Carolyn: Starting here with our first quarter walk on slide 10.

Carolyn: First quarter core earnings of 37 are up eight <unk> over the first quarter last year remember that our general rate case was approved in the fourth quarter. When we booked the catch up revenues for all of 2023.

Carolyn: Adjusting first quarter 2023 for the Trc timing, our first quarter results are up five <unk> year over year.

Carolyn: This improvement is primarily driven by an increase in customer capital investment.

Carolyn: And our CPUC rate base now provides an equity return of 10, 7% as approved through the adjusted cost of capital mechanism advice letter.

Carolyn: As a reminder, we said that we were not counting on this increase to meet our earnings guidance, but it does give us more flexibility to redeploy resources for the benefit of our customers.

Carolyn: Other drivers include non fuel O&M savings of one penny offset by to reinvest it back into the business to fund more work.

Carolyn: Such as increased transmission system inspections, and electric asset mapping.

Carolyn: Also this quarter, we revised our estimate for the duration of the wildfire fund established under a $10 54.

Carolyn: Based on all the data available to us, including the progress we've achieved in reducing physical wildfire risk on our system. The fund will provide coverage for 20 years, that's up from our previous estimate of 15 years.

Carolyn: Another example of how a $10 54 is working as intended.

Carolyn: Turning to slide 11, there are no changes to our capex or rate base guidance.

Carolyn: Our plan includes $62 billion of customer investment over the next five years and we still have at least another $5 billion to put into the plan once we make it affordable for both our customers and our balance sheet.

Carolyn: And please keep in mind that in 2024, 93% of our rate base has already been authorized with 90% authorized out in 2026.

Carolyn: This is higher than most utilities, given our four year Trc cycle, and we continue to pursue cost recoveries to increase that percentage.

Carolyn: As an example, we filed an application for our gas metering replacement program last month seeking revenue requirement to support nearly $500 million in capital additions from 2023 through 2026.

Carolyn: In addition to the request filed late last year for revenue requirement to support the capital costs associated with moving our headquarters from San Francisco to Oakland.

Carolyn: Here on Slide 12, again, no changes from what we shared with you on our year end call.

Carolyn: Our operating cash flow grow substantially from $5 billion last year to $8 billion. This year. This reflects collection of both our 2023 <unk> revenue increase and 2020 for Trc revenues as well as the catch up recoveries of our prior work, including interim rate relief.

Carolyn: Our operating cash flow continues to rise through the plan period, reflecting our growing capital investment on behalf of customers.

Carolyn: In total we're forecasting $50 billion in operating cash flow from 2024 through 2028.

Carolyn: Turning to slide 13, with $50 billion as the starting point, we are pleased to share our five year financing plan to support our <unk> $62 billion of capital investment.

Carolyn: As Patti mentioned, our financing plan does not include the proposed pack Gen minority interest sale, which would further strengthen what we're showing here.

Carolyn: Now for the highlights.

Carolyn: First we plan to grow our dividend over the next five years.

Carolyn: Given our commitment to prioritize customer capital investment in the near term, we anticipate growing the dividend more slowly at the front end of our plan with the payout stepping up more quickly in the later years.

Carolyn: In the meantime, we are benefiting from nearly $2 5 billion of annual retained earnings this year and we consider this a valuable source of internally generated equity.

Carolyn: Second we forecast incremental utility long term debt needs approximately $14 billion.

Carolyn: Third we continue with our plan to reduce our parent company debt by $2 billion by the end of 2026.

Carolyn: Finally, we are contemplating raising new equity of $3 billion.

Carolyn: Okay.