PG&E Corp. Q3 FY2024 earnings call

• Solid progress seen with core earnings per share for Q3 2024 at $0.37, $1.06 for first nine months. • Narrowed 2024 guidance range, lifting low end by $0.01 and firming midpoint for 10% growth over 2023. 2024 range now $1.34 to $1.37. • Added $1 billion to five-year capital plan, now $63 billion through 2028. Raised 2025 guidance from 9% to 10% and initiated 2025 EPS range $1.47 to $1.51. Reaffirmed at least 9% earnings per share growth from 2026-2028. • Focus on safety with layers of physical and financial protections, laser focused on stopping catastrophic wildfires. • Dublin Innovation Center examples of process improvements leading to cost savings. • Simple affordable model to keep customer build growth at or below assumed inflation while investing in critical infrastructure, with opportunities for O&M reductions and electric load growth.

• 2024 core earnings per share range narrowed to $1.34 to $1.37. • 2025 guidance raised from 9% to 10% growth, with EPS range $1.47 to $1.51. • Reaffirmed at least 9% earnings per share growth from 2026-2028. • Five-year capital plan increased to $63 billion through 2028. • Remain firm in commitment to no new equity in 2024 and $3 billion equity guidance from 2025-2028.

• Wildfire risk elevated with ignition count up in high fire-threat areas. • Incidents affecting 10 acres or more increased more than threefold this year due to challenging weather conditions. • Impact of mitigations on reliability trade-offs, though undergrounding in high-risk locations is seen as the right solution. • Uncertainty around policy changes affecting funding sources like DOE loans.

Q: Obviously, congrats on the quarter. Just starting on the incremental CapEx, $1 billion is obviously accretive to plan. Was that the core driver of the 10% EPS growth as implied by the 2025 guidance? And how should we think about the level of CapEx upside in the context of the improved customer connection cost caps? Is there more to come as you fully utilize that construct?

A: Carolyn Burke responded that the $1 billion was the key driver for the increase to 10%, due to the disciplined approach ensuring CapEx is approved, affordable for customers, accretive to EPS, and efficiently financable. She also mentioned the supplemental SB 410 filing and the need for additional funding to meet customer demand.

Q: Your next question comes from Steve Fleishman from Wolfe. Just Governor Newsom's executive order on affordability initiatives. Could you talk to your thoughts on that? And the things I know you've got the simple affordable model, so you're obviously addressing it, but just maybe some perspective related to your plan?

A: Patty Poppe stated that the simple affordable model is the pathway to affordable energy for Californians, and the rate case filing next year for 2027 will show the impact of the simple affordable model. She also mentioned the growing load as a positive for customer affordability.

Q: Your next question comes from Jeremy Tonet from JPMorgan Securities LLC. Where things stand on the undergrounding guidelines, your approach to finalization. What are the next steps there after for harmonizing your plan to those guidelines once that process is completed?

A: Patty Poppe said they continue to work with OEIS to understand filing requirements, hopeful to make the undergrounding filing by mid-next year, advocating for undergrounding in highest risk miles for safety and affordability.

Q: Your next question comes from Julien Dumoulin-Smith from Jefferies. How you guys all doing. Just moving back to where Rich was a second to go here on the OEIS side. I mean, we saw SDG&E get fairly, at least in a proposed decision, get a fairly de minimis number. Can you speak to that a little bit?

A: Patty Poppe clarified it was a different situation with SDG&E's GRC, noting undergrounding filing is based on new legislation for a 10-year filing, advocating for undergrounding in highest risk miles for safety and affordability.

Q: Your next question comes from Gregg Orrill from UBS. Could you just update us on where you stand with FFO to debt and how that positions you with the agencies?

A: Carolyn Burke said there's no change to the mid-teens FFO to debt outlook, with operating cash flow on track to increase $3 billion over 2023 to $8 billion in 2024 and growing after that.

Q: Your next question comes from Carly Davenport from Goldman Sachs. As you think about moving through another wildfire season here, are there any updates you can share in terms of your recent conversations with the agencies on what they're focusing on with that kind of risk aspect?

A: Patty Poppe discussed the focus on making the system safer, the effectiveness of current mitigations, the conversation around acceptable outages given risk, and the bullish stance on undergrounding as the mitigation that eliminates both Public Safety Power Shutoffs and wildfire risk.

Q: Your next question comes from David Arcaro from Morgan Stanley. I had a follow-up on a prior question, just on the executive order related to affordability. One of the maybe topics that was mentioned or called out was Wildfire Safety programs. And I'm just wondering how you -- you've mentioned a lot about -- especially how effective they've been so far for sure. But is there an approach there that you might consider fat to cut in certain programs or any kind of affordability perspectives that you add to that program?

A: Patty Poppe said the conversation is more about alignment between safety and financial regulators on scope, cost, and effectiveness rather than specific mitigations being cut.

Q: Your next question comes from Michael Lonegan from Evercore ISI. You spoke about sources of efficient financing, highlighted various categories. I think you said other hybrid, DOE loan and grant programs, working capital improvements and credit rating upgrades. So you left out potential asset sales. Just wondering if that's something you've ruled out for now. And if not, what you could monetize? And given that Pac Gen was rejected, what would give you confidence in approvals going forward?

A: Carolyn Burke stated asset sales are not a primary source of efficient financing currently, with Pac Gen not being moved forward, and focus on other financing sources like hybrid instruments, DOE loans, etc.

Q: Your next question comes from Michael Lonegan from Evercore ISI. You continue to highlight the opportunity set in months and years to come that you reiterated today for the higher non-fuel O&M reductions, increased load growth, lower customer bills. Just wondering if you could share your latest thoughts on the timeline when we could expect some of that to roll into your formal plan?

A: Patty Poppe said O&M reductions will be reflected in the GRC filing, with the simple affordable model materializing, and load growth and O&M savings expected to be reflected in future GRC filings as savings are passed to customers.