Operator: Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. I would like to welcome everyone to the PG&E Q3 2026 earnings release. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. To withdraw your question, again, press star one. Thank you. At this time, I would like to turn the conference over to Jonathan Arnold, Vice President of Investor Relations. Jonathan, please go ahead.
Jonathan Arnold: Good morning, everyone, and thank you for joining us for PG&E's Q3 2026 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 and other matters. These statements are based on management's current expectations, assumptions, and estimates. Some of the important factors which could cause our actual results to differ materially are described on the second page of today's earnings presentation. Today's discussion will also contain non-GAAP financial measures. The slides provide important information regarding these measures, including reconciliations between non-GAAP and GAAP. They can be found online at investor.pgecorp.com, along with other relevant information.
Jonathan Arnold: We also encourage you to review our quarterly report on Form 10-Q for the quarter ended 30 September 2026. With that, it is my pleasure to hand the call over to our CEO, Patti Poppe.
Patti Poppe: Thank you, Jonathan. Good morning, everyone. Our core EPS were $0.41 for Q3 and $1.24 for the first nine months. Today, we are reaffirming our 2026 core EPS guidance of $1.64 to $1.66, up 10% from 2025 at the midpoint. We are also reaffirming our 2027 core EPS guidance of $1.78 to $1.82, up 9% at the midpoint. While we are no longer providing guidance beyond 2027 during our strategic review, we already addressed our anticipated equity financing needs through 2030. On the common dividend, we typically set our annual rate for the upcoming year in December, and for 2027, you should expect our recommended increase to be consistent with our prior stated trajectory. Turning to slide 4. We know there are two topics that are top of mind today, wildfire policy reform and our previously announced strategic review. First, on wildfire policy.
Patti Poppe: Comprehensive reform has not yet been enacted, and action is needed to address the tail risk that exists under the current framework. At the same time, it is important to recognize that California's utility wildfire framework has evolved significantly from SB 901 in 2018 through AB 1054 in 2019, and most recently with SB 254 last year. Along that journey, our state policymakers have established important and substantive features, including self-insurance up to $1 billion, liquidity from the Wildfire Fund and continuation account, a revised prudency standard, a presumption of prudency for utilities meeting rigorous safety certification, limits on Wildfire Fund reimbursements if found imprudent, and precedent for securitization of claims exceeding fund capacity. Collectively, these protections have strengthened California's ability to compensate wildfire survivors while supporting safe, reliable, and affordable service.
Patti Poppe: Yet, key voices have plainly acknowledged that there is more work to do, including Governor Newsom, the CPUC, the Wildfire Fund administrator, and the credit rating agencies. We remain committed to working constructively with policymakers and stakeholders to build on the progress California has made to date. We look forward to the Governor's requested CPUC report due 1 November, which should further quantify the unsustainable impacts of the current framework on California and utility customers. While legislative action has not materialized yet this year, we are moving forward to unlock value for customers and investors. As you know, since 2020, we have been reinvesting nearly all of our earnings into the system to benefit customers. However, sustaining this level of investment requires a wildfire liability framework that supports affordable access to capital.
Patti Poppe: Reflecting current high financing costs, we previously announced a $2 billion reduction to our 2027 capital plan, and we recently began notifying customers whose projects may be delayed. These changes will affect the connection of new clean energy resources, system expansion to meet growing demand, and new or upgraded customer projects, including those supporting much-needed housing in California. We do not take those impacts on our customers lightly, but our current financing cost is too expensive for them. With our strategic review, we have also taken the initiative to start exploring solutions which could add protections and unlock value for customers and investors. As we announced on 2 September, we are assessing the full range of options for how PG&E is organized and financed. A key foundational objective is to achieve investment-grade credit ratings, which we view as critical to maximizing the value we can deliver for our customers.
Patti Poppe: While policy reform through legislation remains the fastest and most effective solution, we are also evaluating other options, including possible regulatory reforms, further reassessing our capital allocation priorities, and revisiting our corporate structure. On structure, options range from corporate ring-fencing to sales and separations. Today, a discount for wildfire risk burdens all of our assets, including businesses with little or no exposure to that risk. Our review is evaluating whether alternative structures could better reflect the value and risk profile of those businesses in order to lower financing costs for customers. We expect to share the outcome of our review and our planned path forward with you no later than next summer. In the meantime, we plan to keep you updated on our progress through future earnings calls or sooner if there are material developments to share.
Patti Poppe: The important point is this: PG&E has more than one way to move forward and create value. We have several attractive businesses with unique and hard-to-replicate assets, providing essential electric and gas service to over 16 million people in a service area that includes the heart of the world's innovation economy. Turning to slide 5, the story here is simple: our investments are producing measurable results. Today, our Hazard Awareness and Warning Center has real-time visibility across our system through more than 700 AI-enabled cameras and 1,600 weather stations. The results are clear. We are now in our fourth year without a major wildfire associated with our equipment, and our weather-normalized ignition rate has declined 74% since 2017 to its lowest level since we began tracking the metric. We are also seeing tremendous progress in our gas business, where aerial and drone inspections have significantly improved leak detection efficiency and safety performance.
Patti Poppe: Additionally, we remain first quartile in both dig-in performance and emergency response, with first responder arriving on-site in an average of 20 minutes. We are also on track to achieve a 62% reduction in annual methane emissions compared to the 2015 CPUC-approved baseline, continuing to outperform our 2030 target. We have made similar improvements across our large and growing transmission and power generation businesses. Our electric transmission system spans 18,000 circuit miles with $13 billion of FERC rate base, along with significant opportunities to increase investment in the future. While our power generation portfolio includes 7.8 gigawatts of capacity, including our hydro system and top-performing Diablo Canyon Nuclear Power Plant. Turning to slide 6, we are continuing to build a high-quality data center pipeline and providing visibility into how projects advance from application to energization.
Patti Poppe: This quarter, we are showing a new category for megawatts that are now successfully connected to our system and receiving service. Since 2024, we have brought approximately 174 megawatts of data center projects online. As we look to bring more of our pipeline into service, our focus will continue to be on doing so in a way that will improve affordability for existing customers. We are focused on connecting the right projects, pricing them right, and ensuring large load customers make meaningful financial commitments as they advance through the process. Turning to slide 7, there is a common thread across the themes I have discussed this morning. Whether it is continuing our transformation and strengthening our layers of protection, advocating for durable wildfire policy reform, advancing rate-reducing load growth, or progressing our strategic review. We are guided by a simple principle: what is good for our customers is ultimately good for our investors and good for California.
Patti Poppe: We will continue to stay grounded in our customer-first approach and pursue opportunities to deliver a safer, more reliable, and more affordable system so that our customers and shareholders can prosper. We are proud of the progress we have made, and we are ready to tackle the work ahead. With that, I will hand it over to Carolyn to cover our financials in more detail.
Carolyn Burke: Thank you, Patti, and good morning, everyone. Turning to slide 8. We are showing you our earnings walk for the first 9 months of 2026. Our core EPS year to date has reached $1.24, up from $1.14 in the same period last year, keeping us on track to deliver on our full year core EPS guidance. As in prior quarters, customer capital investment continues to be the primary driver of our earnings growth, contributing $0.12 over the first 9 months. We also continue to make steady progress on our O&M savings goal with $0.04 year to date. This puts us on pace to deliver our savings guidance once again while redeploying $0.02. Timing and other items reduced earnings by $0.04 year to date. This mainly reflects the benefit we realized in the Q3 of last year from implementing a tax method change.
Carolyn Burke: While we benefited from the method change in the Q3 of both years, last year's Q3 also included a catch-up for the Q1 and Q2. Turning to slide 9. Our updated 2027 capital guidance of $11.4 billion reflects the $2 billion reduction we announced on 2 September. You might have noticed that our 2027 rate base guidance remains unchanged. Many of the projects impacted by our capital deferral have longer development and construction timelines and were not expected to enter service until after 2027, limiting the impact on next year's rate base. We also continue to see strong operational execution across the company, including efficiently converting construction work in progress into rate base. We expect to finance our 2027 capital investments with cash from operations and $4 billion to $5 billion of utility debt financing, which includes around $1 billion of maturities.
Carolyn Burke: Importantly, with our updated capital plan, we remain fully committed to executing our wildfire mitigation plan, maintaining our annual safety certificate, and continuing the critical work required to operate our system safely every day. On slide 10. We have made significant progress over the past several years improving our credit profile. The rating agencies have recognized for some time that our financial metrics are consistent with investment-grade performance. At the same time, they have also been clear that policy risk remains the primary constraint on further ratings improvement. That dynamic was reinforced during the quarter when Fitch revised its outlook on PG&E to negative, and S&P highlighted the heightened risks faced by California investor-owned utilities. Together, these assessments reinforce the importance of a durable wildfire liability framework, which would support investment-grade ratings and more affordable access to capital for the benefit of our customers. On slide 11.
Carolyn Burke: We continue to execute our plan to reduce non-fuel O&M by 2% to 4% annually. Our results reflect the ongoing transformation underway at PG&E as we continue executing our performance playbook and eliminating waste. Turning to slide 12. We are highlighting several important regulatory and legislative milestones. In our 2027 general rate case, we received a favorable proposed decision that would authorize interim rate recovery of $456 million to be collected over 12 months, starting in January. If approved, this would promote more stable customer bills, better align cash flow with costs, and reduce financing expense. The commission may take up the PD as soon as next Thursday's voting meeting.
Carolyn Burke: At the end of September, we filed our 10-year electric undergrounding plan, or EUP, proposing 5,000 additional miles of undergrounding between 2028 and 2037, and building on the approximately 1,900 miles we expect to have completed by the end of next year. The plan contemplates an investment of $16.6 billion. That investment is expected to deliver approximately $117 billion of long-term customer benefits while also avoiding $6 billion of future vegetation management, operations, and maintenance costs. Our safety regulator, OEIS, has 9 months to review the filing, and if approved, we would then submit the plan and an application to the CPUC for approval of the cost, which is also a 9-month review. As a result, we expect to complete the approval process in Q2 2028. Separately, last week, the CPUC issued a proposed decision on the benefit-cost ratio methodology for utility EUPs.
Carolyn Burke: We are evaluating the PD and expect to submit comments by 5 November, ahead of a potential commission vote as early as 19 November. We are concerned that the proposed methodology would prevent undergrounding from reaching thousands of customers in high-risk communities, even where it offers the most effective means of reducing wildfire risk and improving reliability at the lowest cost. Next month, we anticipate a proposed decision in our Kincade and Dixie cost recovery proceeding. As a reminder, this is the first wildfire recovery case for a utility operating under an AB 1054 safety certificate and benefiting from the associated presumption of prudency. Finally, turning to slide 13. The consistent execution, operational improvement, and financial discipline we have highlighted this morning demonstrate PG&E's differentiated story. Our continued transformation benefits customers and investors today while strengthening the foundation for the future. With that, I will turn it to Patti.
Patti Poppe: Thank you, Carolyn. The facts do not lie. The foundational operations of PG&E are strong and improving every day. Our performance playbook is doing what we designed it to do: deliver for our customers. In the absence of wildfire liability reform, we will keep advancing our strategic review with the ambition of becoming a sustainable, investment-grade business that unlocks the full value of our company for our customers, our state, and our owners. With that, operator, please open the lines for questions.
Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, again, press star 1. We do ask that you kindly limit yourself to 1 question and a single follow-up. For any additional questions, please re-queue. Your first question comes from Steve Fleishman with Wolfe Research. Please go ahead.
Patti Poppe: Morning, Steve.
Carolyn Burke: Hi, Steve.
Steve Fleishman: Hi, good morning. I guess, just curious what signals, if any, you are getting on desire, interest of the legislature to address the wildfire liability this year. I know there is assembly hearings and maybe some more. Maybe you could talk about what you have heard and know so far, and just any sense that the Senate may want to look to do any hearings? Yeah.
Patti Poppe: Well, thanks, Steve. Obviously top of mind for everyone. Look, we continue to see progress. The hearing this week I think was effective at continuing to make the case that the status quo is unacceptable. As long as nothing happens, no legislation is passed, our customers continue to pay, and it is a status quo that needs to be resolved. The job is not done yet. We found the hearings that are scheduled next week, another one just got scheduled, so there are two next week that I think are addressing the right questions and the right issues. We are encouraged by that. In the meantime, obviously, we continue to lean forward and move forward on other alternatives to unlock the value.
Patti Poppe: Obviously policy reform would be our number one desired next step, but we have a lot of value that is, I would suggest, trapped in the company right now. We are working hard to create parallel paths and move forward. We are hopeful that the legislature does continue to act out. We are looking to see if the Senate would schedule any hearings. That has not happened yet. Obviously, these hearings are very public, and the information is clear, and many people and many key leaders in the state continue to speak that action is absolutely required.
Steve Fleishman: I guess just related, I think we are still supposed to get the CPUC report on this topic 1 November, and just any sense of what may come out of that?
Patti Poppe: Yeah, I think it will be another good case in why the status quo is unacceptable. I do not know how many different ways that people are going to be able to publish and say, but I expect the CPUC report to be substantive. They have asked really meaningful questions in their discovery, so we were providing very important information to them. It will be good for them to be able to share that 1 November at the request of the Governor. We expect that that is just another signal that the status quo is just unacceptable.
Steve Fleishman: Okay. Thank you.
Patti Poppe: Yep. Thanks, Steve.
Operator: Your next question comes from the line of Shar Pourreza with Wells Fargo. Please go ahead.
[Analyst] (Wells Fargo): Hey, good morning.
Patti Poppe: Morning, Shar.
[Analyst] (Wells Fargo): This is Marcella on for Shar.
Patti Poppe: Oh, hi, Marcella.
[Analyst] (Wells Fargo): Hi. Thanks for taking my question. Thinking about the strategic review, and without asking you to prejudge any specific outcome, can you just frame kind of the criteria that you are using to evaluate potential pathways, specifically around weighing options ability to unlock value with their potential regulatory risk or reliance on processes outside of your control?
Patti Poppe: Yeah. Great question, Marcella. Look, first and foremost, we want to unlock value. We want to target investment-grade business or businesses to unlock that value for customers and owners. Obviously, feasibility and ability to execute a transaction is a priority. A lot of people ask us about PacGen and what was different about PacGen when the regulator did not approve a minority interest. There was a totally different time and a different set of facts. During that time, we were looking to raise cash and were unable to share benefits with customers.
Patti Poppe: We think in this scenario, we have got a much more compelling case to make with our regulator, that, for example, our gas business, our 4 million gas customers are paying sub-investment grade borrowing costs because it is part of the holdco related to wildfire risk, and that seems like an issue that should be resolved one way or another, whether it is resolved through policy reform, which would be great. If not there, then would we unlock that value and lower borrowing costs for our gas customers through a regulatory approved spin or sale or a separation of some kind.
[Analyst] (Wells Fargo): Got it. Appreciate that.
Patti Poppe: Yep
[Analyst] (Wells Fargo): You spoke a little bit about conversations around the current legislature and state leaders, but any sense of conversations with gubernatorial candidates or lawmakers who are running to be part of the next legislative body and how they are thinking about wildfire liability as potentially a day one priority?
Patti Poppe: Yeah. The governor's race is not over yet. We do know that Xavier Becerra, who is leading in the polls by a pretty wide margin today, has stated publicly support for action. I think he is hopeful, like we are, that we do not kick the can down the road into next year. That is certainly a possibility. He has spoken publicly that he is supportive of reform. We are hopeful that that reform does not wait for that.
[Analyst] (Wells Fargo): Got it. Thank you.
Patti Poppe: Thank you, Marcella.
Operator: Your next question comes from the line of Nicholas Campanella with Barclays. Please go ahead.
Patti Poppe: Morning, Nick.
Carolyn Burke: Hi, Nick.
Nicholas Campanella: Good morning. I guess in the last legislative session, there was obviously heavy input from the insurance industry right at the end. I am just curious if you could kind of elaborate on how conversations with that stakeholder has trended since then. Is there possibility to kind of come to some type of agreement with them, just to help increase the odds of any kind of special session? Thanks.
Patti Poppe: Yeah, you bet. The reality is nothing was passed. No law was passed at the end of the session. I am stating the obvious, but in the nuance of what does that mean to insurance, then that means insurance still needs to join in on discussions about what is going to occur to make sure that claims are limited and our customers are not the infinite backstop for insured properties. I would suggest that conversations have been productive. They have continued. Next week's hearing on the 29th is intended to discuss subrogation, my understanding is. Given that, I think we will hear continued discussions with insurance as well as all of the stakeholders. There is a wide coalition of interested parties, our builders, our real estate agents, our plaintiffs' attorneys, our environmental groups.
Patti Poppe: There are large groups of stakeholders who are interested, obviously, in making sure that this is an affordable framework and that it is sustainable framework. I would suggest those discussions continue and are constructive, and we will hear more publicly next week through the hearing process.
Nicholas Campanella: Thanks for those thoughts. I guess you are telling folks that no later than summer, you would have an answer on the strategic review. Is this really that you guys are going to take time to do the work and finalize the plan by then, or could you be actively pursuing things today that could result in things happening to the corporate structure or maybe regulatory filings being made ahead of that summer date? Thanks.
Patti Poppe: Yeah, we will definitely be updating through our normal quarterly process, and what we have said is we will have a more definitive determination by next summer. But as things occur, we will obviously be communicating, and if there is something to be discussed between quarterly calls, we will certainly do that. We are moving with a sense of urgency. We see real opportunity here. These assets are extraordinarily valuable, and they are operated by the best in the world, I would argue. We have incredible people who operate these assets. They become very valuable, and I think our ability to unlock that value could take a lot of different forms. As we have said, policy reform is our first preference, and so hopefully we could have some update on that sooner than next summer. Otherwise, these other alternatives, as they materialize and as concepts and opportunities and potential filings become possible, we will do that.
Patti Poppe: We are not going to stick to the timeline of we have to wait until next summer. We are going to work aggressively between now and next summer. We just wanted to be clear that there was a finish line in mind.
Nicholas Campanella: Thank you very much.
Patti Poppe: Yep. Thanks, Nick.
Carolyn Burke: Thanks.
Operator: Your next question comes from the line of Ross Fowler with Bank of America. Please go ahead.
Ross Fowler: Morning, Patti and Carolyn.
Patti Poppe: Morning, Ross.
Ross Fowler: How are you?
Patti Poppe: Good.
Carolyn Burke: Good.
Ross Fowler: Morning. A couple of questions. Obviously, it seems like investment grade is sort of the foundational objective of the strategic review. A couple things on that. What is kind of the realistic time to get there? Can you do it on your own? Does it depend on legislative and regulatory outcomes? Is 14% kind of what we should mark to for an FFO at that level?
Patti Poppe: I would say a couple things. We do think it is realistic. It is very realistic that this business be investment grade. The question is what is the best framework and organization of our lines of business that we have today to maximize the value for our customers as well as our owners. Some things we can do on our own, like capital allocation strategy. That would be a strategy to unlock value. As you know, we have held back on an aggressive dividend because we have been reinvesting in the business for the benefit of customers and for stabilizing the financials of the company and making our investment-grade credit rating. We would look at capital allocation as a strategy. That is probably the most independent. We would look at ring-fencing. We would look at, as we have said, other corporate structures that would enable unlocking that growth.
Patti Poppe: In those cases, the regulator obviously has an important decision-making role to play in that, but we would only bring it to the regulator if it was truly in the best interest of customers and actually created real value for them that we can pass along to customers. I think given our valuation today and the valuation of these assets and their actual physical value. There is some real arbitrage in that distance between the current valuation and what we think the true value of these assets are to provide benefits for customers. We would think that we would have a compelling case for our regulator. All that to say, I will just reiterate that the fastest way to unlock the value is policy reform, which of course we are not giving up on.
Ross Fowler: Yeah, that makes sense. Go ahead, though.
Carolyn Burke: Yeah. I will just add that as we look at all of the alternatives through a lens of investment grade, we want to continue to target that mid-teens FFO to debt. That is how we model things, that is how we look at things. That is the goal.
Ross Fowler: Yeah, that makes sense, Carolyn. Then one more from me, and I am just trying to square these two things. Clearly I understand why there is no sort of guidance beyond 2027 at this point as you go through the strategic review, and you look over everything as you get to next summer, and you look at all the alternatives in front of you pending where policy goes and all the other things we are dealing with right now. But you have made a declarative financing statement through 2030. So what gives you the level of certainty that there is no equity needed in this business through 2030 when there is all the uncertainty related to CapEx rate base growth, earnings growth guidance, et cetera, past 2027?
Carolyn Burke: So we funded our equity under our plan, our original plan of a $73 billion capital program. We know that our equity program supports that. We love that plan, by the way. We absolutely love that plan and want to execute for our customers under that $73 billion plan. Any other alternative that we are looking at would be equal to trying to support the $73 billion plan as well. That is where we feel comfortable that under any other option that we are considering, that we would not need new equity through 2030.
Patti Poppe: Yeah. I will just reiterate, we would not issue equity at these current stock price, our valuation. That is not an option for us.
Ross Fowler: Yeah. That is certainly the wrong cost to capital to have, I would say.
Carolyn Burke: Yeah. I will just say, as we continue to look forward on our financing plans, the principles that we have talked about before still hold under this strategic review. We plan conservatively, we plan with customers at heart. We are always mindful of market conditions, and particularly our current value discount, and our primary focus continues to be IG supportive metrics.
Ross Fowler: All right. That makes sense, Carolyn. You do talk about this amortization or the faster amortization of the Wildfire Fund. You are calling that out this quarter. I do not think that accelerated amortization would That seems like an accounting consequence, I should say, rather than an economic and credit consequence, because I think it is pretty well known that that Wildfire Fund asset might change, given other things going on in California. I am just trying to check in and make sure that really has no bearing on your financing plan, credit objectives, strategic review analysis.
Carolyn Burke: That is right. It has no bearing. You are right. It is an accounting charge. We are just waiting for the right trigger.
Ross Fowler: Yep. Okay. Makes sense to me. Thank you.
Patti Poppe: Thanks, Ross.
Operator: Your next question comes from the line of Carly Davenport with Goldman Sachs. Please go ahead.
Patti Poppe: Morning, Carly.
Carly Davenport: Hey, good morning.
Carly Davenport: Hi, Carly.
Carly Davenport: Good morning. Thanks so much for taking the questions. Appreciate the time. Maybe just one on the data center pipeline. Any guidance on how we should just think about the pace and the opportunity to connect data center load in the face of the reduction to the capital plan? Any guidance that you can share on where the data centers may fall in the queue of projects that could be impacted by potential CapEx reductions?
Patti Poppe: Yeah. First of all, keeping in mind that our pipeline is a multi-year pipeline and our capital reduction is today specifically for 2027. We see that our 1.8 gigawatts of projects that we have previously signaled would be online by 2030 remain in that plan. When we talk about our capital reset, we reduced $2 billion of capital, but we are still spending $11.4 billion of capital next year. There is still obviously capital to deploy to our critical safety issues, our critical compliance issues, and projects that are well on their way to reducing rates for customers. Those are obviously very important to us. As we think further on down the line during the strategic review, obviously, as we have said, capital allocation will be an area of focus, and we will look at how we can continue to help power California's prosperity and our growth.
Patti Poppe: But certainly, under this liability framework, we are limited in that way. That is why when Carolyn Burke says we love our $73 billion plan, it can help fuel that growth and prosperity for customers and lower bills and bring jobs and new tax revenue to the state. I would just advocate strongly that a healthy PG&E, a wildfire reform, a wildfire liability policy that enables us to grow, enables California to grow and prosper. We are fans of what we have referred to as our Goldilocks data center pipeline, and our ability to serve the tech industry of California is an honor and a privilege, but we need a liability reform that enables that to happen sustainably and for the long haul.
Carly Davenport: Great. Very clear. Thank you. Then just a housekeeping item. On the dividend, is the shift in presentation there in the slides just a function of the strategic review, or is there anything more explicit that you are messaging there with the consistent growth versus the prior 20% payout guidance?
Patti Poppe: No, I do not think it is any new signaling there. As we have said before with our strategic review, everything is on the table, including the dividend policy. But we have also been very consistent that for 2027 in particular, where we get a lot of questions, is that you should expect 2027 to be in line with our prior trajectory, which is in line with the 20% by 2028. We have noted that it would be ratable. Ultimately, our board will set the dividend in December of this year, but that is what we were signaling. But everything is on the table under the strategic review.
Carly Davenport: Great. Thank you so much for the time.
Operator: Your next question comes from the line of Anthony Crowdell with Mizuho. Please go ahead.
Anthony Crowdell: Hey, good morning team.
Patti Poppe: Hi, Anthony.
Anthony Crowdell: Just a quick question, quick follow-up. I guess one on the strategic review. Is there a point, you are very clear you hope to have it no later than next summer. Is there a point where that review becomes more urgent, whether it is a credit rating action or another wildfire season? I guess how flexible is that date on external factors? Then I have a follow-up.
Patti Poppe: Yeah, it is a great question, Anthony. Obviously, as we go through the reform, we will be watching current conditions and whatever conditions within which we are operating will have an influence on our trajectory. But what we are really looking for is a long-term, sustainable business organization and financing model that delivers value. We know that it can, and we know that this model works. We know that the investor-owned utility model works for customers as well as shareholders and investors and owners, and financing entities. So we will obviously respond to current conditions, but more importantly, have an eye on the horizon for what is our long-term value proposition and actually unlock that value.
Anthony Crowdell: Great. The follow-up, it may be more focused for the legislature, but I am just wondering, it seems like the cycle of decisions, or when I think about the success of AB 1054 and SB 254 were both after catastrophic events and the legislature acted. This year, again, all of the physical enhancements that companies have made across the state, we really fortunately did not have an event this year, but also were not as successful in the legislature. What decouples that of in order to get supportive legislative action, we do not want to have to have a catastrophic event?
Patti Poppe: Well, I will remind us, we did have a catastrophic event, obviously a significant one, back in 2025, which is when this legislative package started. So this has been a two-year package in response to the issues in 2025, and I would just suggest that PG&E remaining sub-investment grade is a major issue that must be solved. When Fitch put us on negative outlook, I think that really reiterated that inaction will continue to get increasingly expensive for our customers. In fact, for all of the debt that we have issued as our sub-investment grade since 2017 will cost our customers an incremental $4 billion in interest expense over the life of that financing. That is a cost that can be immediately remediated with good long-term policy.
Patti Poppe: I would like to think, Anthony, that we have got a real sense of urgency because customers are paying today, and our customers are waiting on our legislature to take the necessary actions to put us back in a position to be investment grade, given we meet all of the criteria for investment grade, but for California liability policy.
Anthony Crowdell: Great. That is all I had. Thanks for taking the questions.
Patti Poppe: Thanks, Anthony.
Operator: Your next question comes from the line of David Arcaro with Morgan Stanley. Please go ahead.
Patti Poppe: Morning, David.
David Arcaro: Thank you. Good morning. Sorry if this is a little duplicative, but I was just wondering if there is no special session, if there weren't legislation passed this year, would you consider that to be a potential catalyst for accelerating and taking additional actions within the strategic review?
Patti Poppe: Well, it definitely is a driver for the fact that the strategic review has been initiated, and so we will continue to do the work of that strategic review. I will reiterate that we didn't just start thinking about the strategic review. We started our internal process a year ago, thinking about what would be a response or what would be our actions that we could take in the event of inaction. So we've been working on this for some time. So we're not starting from a standing start. We've got a lot of momentum. We've been doing a lot of work, and so we want to make sure that we continue to operate with a sense of urgency.
David Arcaro: Yeah. Good. Understood. Thanks. Then, as you've had to make tough decisions around capital prioritization, in deferring some of your CapEx, I guess I was wondering, with the undergrounding plan, a very big amount of capital that you've proposed here, I guess how do you think about that in the prioritization of within the strategic review, how you prioritize capital? Is that something that would be an anchor in your overall longer-term CapEx intentions, and how important is that in your overall thinking?
Patti Poppe: Yeah. We think undergrounding is incredibly important, not for every mile, but for the most risky miles. Our 5,000-mile plan, which we've spread out over 10 years, takes in mind spreading that cost out over a longer period of time. It's just over $1 billion a year throughout the life of that 10-year plan. We think it's a very important part of risk reduction and cost reduction. The annual cost for inspections and vegetation management for those miles, and the reliability impact and the cost of the reliability impact for our customers is real. On those 5,000 miles, we think it's the most and best prudent deployment of capital.
Patti Poppe: Obviously, that has to be approved by the commission, and as Carolyn Burke mentioned in our prepared remarks, we're concerned with the current PD on the benefit-cost ratio that would dramatically reduce the number of miles we would do. We've got a lot of talking to do here in the state about that because we know that customers should not have to choose between being safe and being reliable and affordable. We think that undergrounding is the best answer in certain miles. We would say even in a CapEx allocation world that undergrounding is an important part of the plan. Now, I will also say, when we think about our $73 billion plan that we had previously declared, it's a small percentage of the total plan. So the plan doesn't hinge on undergrounding.
Patti Poppe: I guess I just want to say out loud for the world to hear, we're not doing undergrounding to make our earnings numbers and to grow CapEx. We're doing undergrounding to keep people safe. As we think about the role that undergrounding plays, it's a key part of our safety investments on behalf of customers.
David Arcaro: Yeah. Great. Thanks for that. Really appreciate it.
Patti Poppe: Yep. Thanks, David.
Operator: Your next question comes from the line of Richard Sunderland with Truist Securities. Please go ahead.
Patti Poppe: Hey, morning, Rich.
Carolyn Burke: Good morning, Rich.
Richard Sunderland: Hey, good morning. Thanks for the time. I will follow up on that last point around undergrounding and the methodology concerns. Could you speak a little bit more to how many miles of your filing would be impacted by that? I think you said significant potentially, but I guess more importantly, how that would impact the quantified benefits you laid out in your filing?
Patti Poppe: Yeah. We are still working through that on the exact number of miles that would result if we use this benefit-cost ratio. I think the thing that we are concerned about is it does not match the standard that we use for all other investment benefit-cost ratios that we make. We are definitely concerned about the impact on our customers to that. So we are working through what those miles would be, and obviously it is a proposed decision and hopefully we will see some movement.
Richard Sunderland: Got it. That is helpful. Then switching gears back to that 1 November CPUC report. I know you addressed this earlier, but thinking about the strategic review context alongside that, I am curious if you have any sense of if this could have potential signals from the commission that could inform your strategic review, or I guess maybe putting this another way, do you see review opportunities that appeal logical to pursue and put in front of your regulators, even if there is legislative action later this year?
Patti Poppe: Well, that is a good question, Rich. We are thinking about that as we do all of this analysis and we see the value of our assets and the incredible people who operate them, and the benefits to customers. If there is a customer beneficial outcome that even with legislative action would still be considered, we obviously will keep that on the table. We do know that the fastest way to unlock value is policy reform. If that were to occur here in the near term, we would be thinking hard about the scope and scale of the strategic review. But, obviously we are learning a lot about where we think the full potential of our businesses are, and like any good management team and board of directors, we are looking at the best way to unlock that value for customers and investors.
Richard Sunderland: Very clear. Thank you for the time today.
Operator: Your next question comes from the line of Aidan Kelly with JPMorgan. Please go ahead.
Patti Poppe: Morning, Aidan.
Carolyn Burke: Hi, Aidan.
Aidan Kelly: Hey, guys. Good morning. Thanks for the time today. Maybe just going on the debt front of the strategic review. Carolyn, I know you mentioned mid-teens FFO to debt as maybe a North Star to think about long term. I think previously you also mentioned holdco debt below the 10% of total debt. Is that also intact as well, or is there flexibility to revisit that threshold?
Carolyn Burke: Yeah. As we've said, everything's on the table. We are considering both our debt profile, our capital growth, and our capital return. I would say that we're not necessarily indicating any target for parent debt at this point in time.
Aidan Kelly: Got it. Then just one lingering question on the timing of the strategic review. I believe in the past, in September, you mentioned as maybe of a default 12 to 18-month timeline, and now we're seeing summer 2027 as the target. Is there any rationale behind the acceleration in that timeline over the past month and a half? I know you mentioned urgency. Is it just simple as taking that as the reason, or is there anything deeper to read into that?
Patti Poppe: Yeah. When we had previously mentioned 12 to 18 months, Aidan, we were talking about that's typically what you would see from companies. We weren't intending to signal our timeline, so that's why we wanted to clarify today. We want to really push to have a definitive direction forward that we can communicate by summer of next year.
Aidan Kelly: Understood. Well, appreciate it. Thank you.
Patti Poppe: Yeah. Thank you.
Operator: Ladies and gentlemen, that does conclude our question and answer session. I would now like to turn the conference back over to Patti Poppe for closing comments.
Patti Poppe: Thank you, Krista. Thank you everyone for dialing in today. Look, our electric, gas, and generation businesses are strong, and they are operated well, and they are getting stronger every day. While legislative action is still possible this year, we are moving forward and we are advancing our strategic review. We are evaluating all our available paths to unlock value for customers and owners. You can imagine that we are doing that with a sense of urgency. We look forward to seeing you at EEI. Please stay safe out there.
Operator: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.
