The conference operator, Chris, welcomes everyone to the PG&E Corporation Third Quarter 2023 Earnings Release and introduces the speakers, Patti Poppe and Carolyn Burke. The discussion will include forward-looking statements and the presentation can be found online. CEO Patti Poppe reports a solid progress with $0.24 core earnings per share for the third quarter and $0.76 for the first 9 months of 2023. The company is still going through the review process of their general rate case and has not yet recognized the benefit in their earnings.

The company plans to book new GRC revenues starting from January 1, 2023 and is awaiting a decision from the CPUC on their general rate case. They reaffirm their financial guidance and commitment to earnings per share growth. They will schedule an investor call once the final GRC decision is made and will provide more details on their financial plan at that time. The company also plans to reinstate their common dividend and has expressed disappointment with the proposed decision from the ALJ and assigned commissioner, as it may compromise safety and reliability for short-term cost considerations.

The work of mitigating wildfire risk and meeting regulatory requirements is critical and necessary, but the current PDs have declined to fund over $260 million for this work. This will result in delays in making the system safer and meeting legislative directives. The management team stands for delivering safety, reliability, and affordability, and believes their plan is the best and most affordable way to keep customers safe. They have received support from local leaders and stakeholders. The company is also working to mitigate physical and financial risk, including through their layers of protection strategy. The legislative session in Sacramento addressed challenges in keeping up with customer growth.

The SB 410 Energization Bill has been passed and signed into law, allowing for timely cost recovery for the company. The bill includes a provision for the CPUC to establish a ratemaking mechanism to recover energization investment above what is approved in the GRC. The company has proposed a new balancing account to implement this provision, with a cap on customer bill impact and potential for increased revenue and capital investment. The company has also reached a settlement with the CPUC's Safety and Enforcement Division regarding the Dixie fire, and maintains that they were a prudent operator. They are also able to apply for cost recovery from both the CPUC and the state Wildfire Fund.

PG&E has completed their work to improve risk reduction from wildfires and has seen a 94% reduction in risk, in line with their 2023 plan. This includes installing detection technology, using drones for inspections, and implementing artificial intelligence for smoke detection. Their latest wildfire mitigation plan is being reviewed and they are on track for their goal of zero catastrophic wildfire ignitions. Weather conditions can affect the data, so they also track a weather-normalized ignition rate.

PG&E has seen a 70% decrease in ignitions since 2017, with a 7% decrease in 2022. They are always prepared for dangerous conditions and have implemented technology and tools to protect customers and communities. They have improved their PSPS program to be more targeted and effective, with recent events only affecting a small number of customers. These measures have prevented potential ignitions and wildfires, but they also present reliability challenges for customers.

The company sees undergrounding as the best long-term solution for high-risk areas and is proposing a plan that will return more value compared to the APD. They have multiple layers of financial protection, including improving on cash elements of the rate case and shifting cost recovery into future proceedings. They also have room for investment in their FERC jurisdiction rate base and believe that safe infrastructure can be made affordable through efficient financing and low growth. The company's CEO recently visited a site in Vacaville where they are burying lines in a high-fire threat area.

The project manager and field engineer were proud of their team's accomplishments in reducing the cost and time of an undergrounding project. They utilized Lean principles to challenge the status quo and find cost savings in materials and labor. This has become the standard approach for all projects at PG&E. Despite challenges, the team has successfully completed 100% of the heavy construction work for 350 miles and will continue to energize 20 additional miles per week until the end of the year. The team has overcome significant weather challenges to achieve this milestone.

The company is confident in their progress and reaffirms their financial outlook for 2023 and beyond. They are on track to meet their operational and financial goals, including a 10% EPS growth in 2024 and a commitment to no new equity. However, there may be challenges in reaching their FFO to debt target in 2024 due to longer amortization periods in their general rate case.

The APD's restriction on inflation index adjustments may hinder the company's balance sheet recovery and force them to make difficult decisions on what projects to prioritize. The company is advocating for improvements in the PD and is on track to meet their 2023 EPS guidance. Year-to-date, they have seen a $0.76 per share result, with $0.03 in operating and maintenance cost reductions reinvested back into the business. They expect the $0.04 timing variance to reverse by year-end and are waiting for a final decision on their GRC before recording catch-up revenues.

The incremental catch-up revenue is the largest driver of earnings projected for the fourth quarter. The company has adjusted their accrual for the 2021 Dixie fire and is making a non-cash increase of $425 million to reflect their claims settlement experience. They have a 10-year capital investment plan that has not changed and are advocating for improvements in their GRC. They have financial protection in place to support their plan and are focused on reducing costs and delivering for their customers. They expect a step up in average customer bills in 2024, but forecast a declining bill trajectory in 2025 and 2026. They plan to sustain average annual bill increases at or below assumed inflation through 2026. Efficient financing is a key part of their affordable model.

In the paragraph, the speaker discusses the company's sale of a minority stake in their nonnuclear generating assets and the interest it has received from potential buyers. They also mention their filing for a cost of capital adjustment mechanism and a rate case application with FERC, both of which are expected to be effective in 2024. The company is focused on mitigating risk and offering attractive earnings growth to investors.

The company is looking forward to reinstating their common dividend and catching up with investors at an upcoming conference. They review their regulatory and legislative milestones in 2023, including cost savings for customers and progress towards normalizing their financial profile. They believe their strategy of being financially healthy and well-run will help them play a leading role in achieving a clean, affordable, and resilient energy future.

The speaker expresses confidence in their company's momentum and opens the lines for questions. The first question is about the company's core drivers and metrics, and the speaker mentions difficult decisions that need to be made regarding spending and rate requests. They also address the possibility of needing to issue equity and the importance of improving the balance sheet. The speaker notes that the regulatory environment in California is also a factor to consider.

The speaker emphasizes the importance of equity and access to capital markets in attracting investments for necessary investments in California. They also discuss the benefits of the state's regulatory construct, but highlight the need for timely cash recovery in order to improve credit metrics and continue essential work without delays or trade-offs.

In this paragraph, the speaker discusses the challenges PG&E faces in terms of cash flow and credit ratings, but expresses confidence in the company's ability to work together with stakeholders and prove its trustworthiness. They also mention the potential for new mechanisms, such as SB 410 and undergrounding legislation, to help catch up on necessary customer investments. However, the availability of cash remains a crucial factor.

The company is discussing the cost and benefits of undergrounding and covered conductor work for customers. They believe that undergrounding is a more cost-effective option and are working towards a constructive outcome with regulators. They also mentioned the need for upfront rate increases to generate more cash, but ultimately aim for a declining bill trajectory.

Patti Poppe discusses the catch-up that needs to be done in terms of necessary work and the utility bearing the risk of doing wildfire preventive work. This results in some short-term costs in the early years of the rate proceeding, but as the years progress, these costs will be taken out of the bill. Poppe emphasizes that the new PG&E model is focused on simple and affordable funding through cost savings and efficient financing, which will ultimately result in lower bills for customers. She also mentions the potential for reducing costs in the bills through improvements in undergrounding, vegetation management, and system inspections.

Patti Poppe, CEO of PG&E, discusses the company's new habit of focusing on cost savings while making necessary infrastructure investments. She also mentions the upcoming GRC meeting and the possibility of a final decision being made on November 2. The company is hopeful for a positive outcome, but is also open to delaying the decision if it means getting it right. The company has been in conversation with rating agencies about their path to achieving an investment grade rating, and the impact of the GRC and PDs on their FFO to debt ratio. They are committed to achieving mid-teens in 2024, but acknowledge that it will be challenging and may slow progress on their balance sheet.

The company is committed to increasing their FFO to debt ratio to at least 13-14% in the next 2 years and to mid-teens by the end of 2024. They have not yet tapped into the wildfire fund, but have increased their accrual for it by $425 million. They can only tap into the fund once they have paid out $1 billion in settlements, and the statute of limitations for the Dixie fire runs out in October 2024. The process for accessing the fund is still being determined. This fund provides certainty and prevents liquidity issues in the event of a significant incident.

The speaker discusses the efficiency and funding of undergrounding work, stating that they will only do work that has been funded by the commission. They have negotiated with contractors and have a skilled workforce of 2,000 people currently working on the project. The speaker does not want to disrupt the progress by having workers step off the job.

The company has a plan to underground 350 miles this year, with plans to increase to 450 miles next year, 550 miles in 2025, and 750 miles in 2026, pending regulator approval. The CPUC's decision on the amount of undergrounding could affect costs for customers, but the company is focused on achieving scale to lower costs. They will be filing a 10-year plan when the OEIS is ready, and are also watching the commission's decision on undergrounding for 2024 and 2025. The company is also focused on timely interconnect and how it affects cash flow and ratings.

Patti Poppe expresses gratitude for the legislature's recognition of the challenges in predicting demand for electric vehicle transition. She highlights an increase in volume of requests and improvements in their process, thanks to lean operating systems and reimagining estimating. She also mentions the benefits of SB 410, but emphasizes the need for improved credit ratings to attract debt markets for funding.

The speaker is responding to a question about the PacGen transaction and confirms that it is on track and following the planned process. They anticipate the closing to occur in the first half of 2023 and have seen strong interest from infrastructure funds. The purpose of the transaction is to provide efficient financing for customers and is part of their simple and affordable model.

During a Q&A session, Ryan Levine from Citi asked if the company was open to accelerating the undergrounding of the top 5% risk lines and if there was a political solution to help advance this. Patti Poppe responded that the company's plan is flexible and can be adjusted in 2025 and 2026 to prioritize certain high-risk miles. She also mentioned that the company wants to ensure safety and resilience for customers through undergrounding, and that they are working on 300-plus projects related to SB 410.

The speaker discusses the challenges of meeting the increasing demand for capacity and EV charging infrastructure, which cannot be predicted accurately due to the constantly changing nature of the industry. They highlight the benefits of SB 410, which allows them to meet any level of demand without recovering more than they install. They also mention the potential impact of a revision to the PD and the importance of timely proceedings to help with cash flow.

The company is facing a delayed recovery that doesn't affect earnings, but it does affect credit metrics and the balance sheet. They are working on a 10-year undergrounding plan and have filed a TO filing for FERC transmission. The company is focused on providing value and cost savings for customers while also investing in capital infrastructure. The upcoming 21 application is mainly focused on transmission investments that support the clean energy transition and improve reliability.

The operator concludes the question-and-answer session and hands it back to Patti Poppe, CEO of PG&E, for closing remarks. Poppe thanks everyone for their patience regarding the GRC and emphasizes the importance of getting it right for the long-term impact. She assures that PG&E and regulators are working together to achieve the common goal of a safe and affordable system. A special call will be held to discuss the final decision, and Poppe looks forward to seeing everyone at EEI. The operator then ends the call.

This summary was generated with AI and may contain some inaccuracies.