Good morning, everyone, and welcome to PG&E Corporation's Third Quarter 2022 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. I would now like to turn the call over to Matt Fallon, Senior Director, Investor Relations. Mr. Fallon, you may now begin.

Good morning, everyone. Thank you for joining us for PG&E's third quarter earnings call. With us today are Patti Poppe, Chief Executive Officer; and Chris Foster, Executive Vice President and Chief Financial Officer. I want to remind you that today's discussion will include forward-looking statements about our outlook for future financial results. These are based on information currently available to management. Some of the important factors that could affect the company's actual financial results are described on the second page of today's third quarter earnings call presentation. The presentation also includes a reconciliation between non-GAAP and GAAP measures. The presentation can be found online, along with other information at investor.pgecorp.com. We encourage you to review our quarterly report on Form 10-Q for the quarter ended September 30, 2022. With that, I'll hand it to Patti.

Thank you, Matt. Good morning, everyone. Thanks for joining us. As you can see on Slide 3, we are on track to deliver our commitments to you. We've narrowed our non-GAAP core EPS range for 2022 to $1.09 to $1.11 per share. As Chris will discuss, we performed well in the third quarter, providing room to reinvest for our customers in the fourth quarter and deliver at the midpoint of our non-GAAP core EPS guidance. No more, no less. In addition, we're initiating 2023 non-GAAP core EPS guidance. You probably won't be surprised, 2023 is in line with our projected 10% growth in a band of $1.19 to $1.23. We're also reiterating our at least 10% EPS growth for 2024 and at least 9% in 2025 and 2026. No change there. As you know, to fund growing important capital investment for our customers, we've been working on more efficient financing plans like the minority interest sale Pacific Generation. We've been working on plans like this for some time within our five-year planning process. As a result, we're happy to report that we forecast no equity issuance for the remainder of this year, nor in 2023 nor in 2024. There will undoubtedly be ups and downs in that time frame as we continue to resolve legacy legal matters and regulatory investigations and proceedings. We want you to know that we work hard to provide flexibility for the unknowns with an eye toward maximizing the resources available to serve the needs of our customers. Our goal is to be proactive, handle the ups and downs so that you don't have to. Our priority will always be to deliver the highest value investments for customers and deliver consistent financial results for you, our investors. Your capital is essential to our ability to make our system safer, faster and to deliver for our customers. Moving to Slide 4. We continue to be focused on mitigating physical risk and mitigating financial risk. I want to highlight a couple of major accomplishments for the team during the third quarter. First, we experienced a historic 10-day heat wave starting in late August, with all-time record high temperatures and all-time demand on September 6. PG&E and the people of California rose to the challenge. We avoided rotating power outages and we restored 97% of impacted customers within 12 hours. This response is a wonderful example of the PG&E team in action, partnering with the state, our fellow utilities, the California ISO, and our customers, mitigating physical risk for our hometowns. Second, this quarter, on our vegetation management, our efforts since 2021 are recognized in the CPUC draft resolution recommending us to exit Step 1 of enhanced oversight. You may remember that we entered into this additional regulatory oversight as a result of our evolving vegetation management program and inconsistent risk model application in 2020. Our customers have benefited from the constructive feedback of our regulators, and we thank them for their transparency and engaging oversight. Another highlight of the quarter came as a result of the policymakers of California working hard through the legislative session to enable us to better serve our customers by passing two historic legislative packages, one for undergrounding and another to support the extension of our Diablo Canyon Nuclear Power Plant. As I mentioned, we continue our focus on mitigating financial risk for our customers through our simple, affordable model and mitigating financial risk for our investors by delivering consistent, predictable results and a stronger balance sheet.

Thank you, Patti, and good morning, everyone. As Patti mentioned, we remain focused on delivering our financial commitments this year and we are reaffirming the five-year plan with our 2022 to 2026 earnings growth guidance remaining the same. This morning, I have a few updates to share with you. To start, I'll recap our third quarter financial results. Then I'll walk you through the details of our 2023 guidance. And lastly, I'll provide a few highlights on regulatory and legislative items. Let's start on Slide 11. With non-GAAP core earnings per share for the quarter coming in at $0.29, and at $0.84 for the first nine months, we're solidly on track to deliver the midpoint of our narrowed 2022 non-GAAP core EPS guidance of $1.10. As Patti mentioned, we took a charge of $100 million for the mosquito fire this quarter, an estimated impact that is well within our available $940 million wildfire insurance and does not factor into our walk here. We expect applicable self-insurance for this fire to be recoverable in CPUC and FERC grades. Earlier this week, the CPUC issued a proposed administrative enforcement order related to the 2020 dog fire. The proposed order recommends a penalty of $155 million. We'll look to work with the CPUC to resolve the issues identified in the proposed order as we have with other CPUC enforcement actions. While we're showing strong results year-to-date in 2022, some of the benefit is timing related and reflects conservative planning. But because of these efforts, we'll invest back into the system as part of maximizing every available resource for our customers and meet our commitments to you.

As I wrap up our prepared remarks, I want to take a moment to thank Matt Fallon for his dedicated service to PG&E during a very difficult time. We wish Matt our very best, and I know you do too. By mitigating physical and financial risk for our customers and investors, we continue on our path toward making PG&E a premium utility, and we've made tremendous progress in 2022. We know we are rebuilding this utility in a way that can last. We are turning the page on our history, focused on the new PG&E story. We trust that you feel the momentum too. With that, operator, please open the line for Q&A.

Thank you. Our first question comes from Shahriar Pourreza from Guggenheim Partners. Please go ahead. Your line is open.

Hey guys. Good morning.

Good morning, Shahriar.

Good morning. So just maybe starting off with the new 9.5% rate base CAGR you put out there. I guess, what are some of the moving pieces that caused you to tick up by that 50 bps? Is it just confidence around the prior range that was provided by undergrounding? Is it some of the investment opportunities from Diablo Canyon baseline CapEx up? Is it all the above? And I guess, can you just help bridge the driver of that increase? And is there any near-term opportunities that could further be incremental to that plan? Thanks.

Yes. Great question, Shahriar. Look, one thing that I have definitely learned is that we have a lot of work to do here at PG&E. And one thing that's been really interesting to watch is our new business applications. We have over 120,000 applications for new business in a given year. And so as we're always looking to allocate capital and making sure we're serving all of our regions appropriately and making sure we have the best service for our customers, regardless of where they live in our service area, we knew that we needed to really make sure that we had enough capital deployed to serve that new business and certainly, the additional electrification that we're starting to see and our electric vehicle count continues to grow. And so capacity and new business will be a primary use. But as you can imagine, we do a lot of work on capital allocation and making sure that we can serve all of our regions well.

Hey, Shahriar, good morning. So I think, say, there's a couple of things moving around, obviously. But I think maybe the place to start is what are we solving for. I think Patti really hit it earlier, which is we've got substantial capital needs for the system. We're balancing that with going forward with the best economic decisions we can make on the financing itself. That's why you heard us say moderating at the holdco debt paydown, eliminating equity needs for 2023 and 2024, and we're going to continue to target that mid to high-teens FFO to debt guide through the plan. So that hasn't changed. So really, we're constantly managing the ups and downs. A couple of the examples to think about even in the last couple of years are our San Francisco general office sale, the towers related lease transaction, and now we've got the Pacific Generation transaction as well. It is embedded in the plan, Shahriar? We've got a current assumption for a year-end 2023 resolution at the CPUC. But obviously, we're going to be managing conservatively there around timing. So hopefully, that helps paint the moving pieces for you a bit.

No, it does. Fantastic. I'll jump back in the queue. Congratulations, Mr. Fallon. Thank you, everyone. Goodbye.

Thanks Shahriar.

Our next question comes from Steve Fleishman from Wolfe Research. Please go ahead. Your line is open.

Yes, hi good morning. Thanks, So great to see some of this progress and also great to see it getting reflected in the stock price recently, but obviously begs the question, just is there any color on the Fire Victim trust and how they're thinking about things now that the stock looks like it might actually be above where they got it at?

Sure, Steve. As you can imagine, we remain in continuous contact with the Fire Victim trust as given they are a large shareholder of the company. But at this point, it's definitely a very explicit decision in terms of execution of any kind of financing. Most recently, certainly, all of the saw in the market, roughly 35 million shares, just over, I think, about a month ago. So at this point, as you can imagine, it's tough for us to predict any future explicit transaction there.

Okay. Good. Regarding the minority sale and your rate base, is the rate base related to that potential sale still included in your rate base? Could you remind us how much that would be?

Sure, Steve. I think it's very limited is the way to think about it. You'd look at it and probably see about $0.03 total change. But that's in terms of our overall plan, that's pretty easy for us to manage here over that time frame. So really for us, it's about the efficient financing that this opportunity provides which is why this is really about the focus here over the next couple of years.

Okay. But it's still in the rate base data. So we just make that adjustment once we see something that's not pulled out already of the rate base?

That's correct. We'll be not explicitly pulling it out. Yes, thanks for the clarifying question.

And then last question is just in terms of the overall financing environment and I guess combining with kind of IRA impacts. Could you just talk to whether the kind of higher cost financing environment and IRA and all those things are kind of embedded in this kind of refresh plan? Is there anything we need to be watching? Yes.

Yes, they definitely are embedded. In fact, we were able to update our general rate case here recently, which really showcased the next four years of IRA impacts. So really, you could see that no material impacts in terms of the overall plan itself in the five-year plan. What I would offer is kind of two different points. So one, the customer benefits that can come here from the IRA are substantial. We're talking probably over $0.5 billion over the next 10 years, just purely in customer savings from reduced pricing on the renewable energy contracts and PPAs that we pursue. Then in the near term, as we look at interest rate pressure, we've already assumed that rates continue to go up. And just as a reminder for us, in terms of a rule of thumb, you can probably look at a 100 basis point move for the company's up or down is roughly $0.02 up or down. So we've already managed roughly $60 million in impacts this year and are comfortable, again, managing that going forward.

Great. Thanks for the updates.

Thanks Steve.

Our next question comes from Julien Dumoulin-Smith from Bank of America. Please go ahead. Your line is open.

Hey, good morning team. Thanks for the time and congratulations on the continued success here really, really impressive. Just if I can clarifying a couple of things thus far. Your '23 outlook here. I mean, given the step-up in rate base, one might have thought there might have been a bigger jump in earnings here. Can you elaborate a little bit on the moving pieces here? Clearly, the front-end impact of a sale here of rate base, you said $0.03 a moment ago. What would be one of potentially a plurality of items here? But can you talk about it outside of just the conservatism in your plan? About the bigger step up in rate base versus earnings? And then separately, I'm just showing a quick second question at the same time. The '25 and '26 bio mission, are you saying that there's still kind of an equity balance sheet?

Thank you, Julien. A couple of things. First, as you know, we do plan conservatively, and that's how we can be confident in our forward-looking equity forecast as well as our equity guidance as well as our earnings guidance. Our goal is to ride those ups and downs. And we still, as I mentioned, we'll see legacy items. We'll see items of opportunity, and we'll see items that we can invest back in the business. It is always going to be number one for us to be balancing affordability with quality of service. And so those are the trade-offs and the precision that we balance against. And so that's what drives our earnings forecast. We think that added 10% EPS growth, we feel good about that, and we feel good that we can consistently deliver, and that's what is most important to us and to our customers. And I think that's how we best serve investors as well.

Got it. On '25 and '26, there? Maybe a Chris question.

Sure, Julien. I was just about to jump in. Good morning. As we consider the timing regarding the Pacific Generation sale, we expect to have more clarity as we move into next year. We are anticipating an initial view from the CPUC around midyear based on our requests. As we progress, we'll also have a clearer picture regarding our dividend reinstatement, which will help us provide a better outlook on equity for 2025 and 2026. Right now, it's still too early to draw any conclusions.

Yes. No, you give some. We want more right always.

We know Julien. We know. We're just keeping it on the straight and narrow here. Thank you.

Hi everyone. Thank you for taking my question. I actually have three, and I apologize for that. I'll just list them out. The first two are for Chris and the last one is for Patti. Chris, as you look a few years ahead, how much holding company debt do you plan to maintain? For the second question, could you remind us of your cash tax position after the IRA and whether that will affect the amount of cash taxes moving forward? And Patti, regarding labor availability, I am aware that labor rates, especially in the aircraft sector, have risen significantly in your area. Are you experiencing any difficulties with the actual availability of labor, regardless of the costs?

Okay. Chris, why don't you take the first two, and then I'll take number three.

Sure, I'm happy to address that. Michael, regarding holdco debt, we currently have $4.75 billion in holdco debt. This morning, we shared our plan through 2026, and we anticipate reducing that by over $2 billion. So, we expect to reduce it by more than $2 billion. As for cash taxes, we've been clear in our filings regarding our general rate case. It’s challenging to provide further specifics on cash taxes, but in our five-year plan, we saw a generally offsetting impact from the corporate minimum tax and the depreciation provisions included. Therefore, there is really no significant impact on the plan in the near term.

I'll address your question about labor availability. Michael, that's an excellent question. I want to acknowledge our labor partners, the ESC and the IBW, who have been remarkable collaborators as we work to improve our company. For instance, we aimed to enhance our service in the Bay Area, particularly in San Francisco and Oakland, where we faced staffing challenges. We partnered with our union and challenged ourselves to add 100 new line workers in these cities. Initially, we were uncertain about finding those resources, but we succeeded. The great outcome is that by hiring these line workers at PG&E, we were able to save money by eliminating the need for expensive contractors, resulting in over $8 million in savings from in-sourcing those positions. Collaborating with our labor unions has been a fantastic opportunity, and we’re finding that many people want to work at PG&E, allowing us to attract strong talent.

Got it. Thanks Patti. Thanks Chris. Much appreciated.

Thanks Michael.

Our next question comes from Nicholas Campanella from Credit Suisse Financial Services. Please go ahead. Your line is open.

Hey good morning everyone. I dropped, so hopefully, I'm not repeating a question here. But I guess just since you kind of announced this minority interest sale and the strategy around Pacific Generation, have you had incomings of interest on the assets? And can you give us any kind of detail on how those conversations have been? And just overall interest in the assets would be helpful.

Hi, Nick, absolutely no. Thanks for the question. I know it's a busy morning. This hasn't been asked. So happy to give you color in lease in what we can. Again, the portfolio itself is one that is very clean, right? We're talking about 5.6 gigawatts with 75% of it plus completely GHG free and a very straightforward predictable regulatory environment for these assets themselves. So because of that, certainly have had interest in the assets themselves. But let me maybe help give you some color on timing, right, and the time frame we're looking at. We have already filed the request of the CPUC for the ability to create the subsidiary at the utility. So the way I would think about this in terms of our timing, we'll be in that marketing process with counterparties in Q1 next year. So it's a little premature for me to give a whole lot of color other than to say definitely inbounds, definitely have had interest. But we want to make a little bit more progress first here on the underlying case itself before we get into those detailed diligence discussions.

Got it. That's helpful. That's helpful. And then just on the credit side, a lot of positive data points across the board this year. The credit rate-neutral securitization and you seem to be on the path to achieve the FFO to debt targets that you've outlined. Just what are the conversations with the agencies been? How should we just kind of think about timing to get back to investment grade at the holdco? Thanks.

Sure. We're very focused on two key areas. First, we are consistently measuring our financial performance, particularly the ratio of funds from operations to debt. We believe that maintaining a trajectory in the mid to high teens positions us well for continued improvement beyond the positive outlooks we've recently received. Secondly, it's crucial to highlight some of the qualitative progress we've made, including a 99% reduction in risk related to our EPSS protocols, which is essential for demonstrating operational improvements. Furthermore, we expect consistent and straightforward regulatory outcomes, which have begun to materialize. We've made progress on both the legislative and regulatory fronts, including developments related to Diablo Canyon legislation and undergrounding efforts. Our next step is to file a comprehensive 10-year undergrounding plan next year and execute it effectively. On the regulatory front, decisions related to the cost of capital will be important for showcasing our progress to rating agencies in both quantitative and qualitative terms, especially concerning our operational and regulatory initiatives.

All right. Thanks so much team and Matt. Pleasure working with you.

Thanks Nick.

Our next question comes from Gregg Orrill from UBS. Please go ahead. Your line is open.

Yes, thank you. Good morning.

Good morning, Gregg.

So as you get to the point where you're tapping the wildfire fund. Can you please sort of remind me of the process there and the timeline? And if there's any sort of review around that and how you think about it?

Sure. Hi Gregg. I can outline a few steps for you. This specifically relates to the charges we've taken on the Dixie Fire, which could lead to a roughly $150 million impact on the wildfire fund. To understand this, we will navigate through various legal claims. Typically, it takes about two to three years to fully grasp the extent of these legal claims. Once we reach that point, we will begin the process of settling or litigating those claims. After that, we will undergo a review at the CPUC, which typically takes about 12 to 18 months. So, you have three years, plus an additional 18 months for our filing related to prudency under the new AB 1054 framework. It will only be after we have substantially resolved most of the claims that we can approach the wildfire fund for recoveries. As you can see from our current situation regarding the charge we took and the corresponding receivables, we are confident that our actions as a prudent operator will lead to recoveries beyond insurance at the CPUC and FERC, as well as from the wildfire fund, but it will be a few years before that happens.

Okay. Thank you. And then the realization of the tax benefits related to the Fire Victims Trust sales. What's the timing of how that comes through? How does that work?

We acknowledge those tax benefits, and you will see them reported on a quarterly basis as we provide updates. Each time there is a sale, both the Fire Victim Trust and the company benefit from the tax advantages. Therefore, you will see these updates reflected in our financials for the subsequent quarter following the three sales that have occurred this year.

Thanks very much. Congratulations.

Thank you, Gregg.

Thanks Gregg.

Our next question comes from David Arcaro from Morgan Stanley. Please go ahead. Your line is open.

Hi, good morning team. Thanks so much for taking my question.

Good morning, David.

Could you provide insights on the GRC? Your recent update regarding inflation had a notable impact on the higher rate base level being requested. Can you clarify whether those inflation figures were largely mechanical and if they are genuine? How do you perceive them in relation to the business costs over the next few years? Additionally, how do you think the commission will view the inflation adjustments that have been made?

It's a great question. We are definitely experiencing inflation in our actual spending. However, an important aspect to consider regarding our filings and recent updates is our commitment to customer affordability. In California, we benefit from mild weather in most areas, which means that our energy bills represent a smaller percentage of household budgets compared to many regions in the country. Still, there are areas in our state where energy consumption is higher. Thus, maintaining affordability is a significant focus for us, which is the essence of our simple affordable model. Our customers have been eager for us to invest in our infrastructure to enhance its resilience, safety, and reliability while keeping it affordable. As we work on reducing operational and maintenance costs and implement efficient financing strategies, such as through sales, we will offset capital investments for the benefit of our customers, who will see these advantages in the coming years. As an example, our vegetation management team has made substantial improvements by applying our lean performance playbook, which helps us standardize and enhance various operational aspects, particularly in vegetation management, a crucial safety measure for our company. We've increased the visibility of training and safety standards for all our contractors, thoroughly reviewed and eliminated outdated quality standards, standardized contracts, and reduced our contractor count from 24 to 14 to better serve our communities. These improvements will lead to a better customer experience in 2023 with fewer repeat visits for vegetation management work, resulting in lower costs. The savings from smarter contracting and utilizing our performance playbook are estimated to exceed $300 million. This is how we are operating at PG&E, focusing on delivering enhanced service to customers at a lower cost while ensuring affordability.

Great. Thanks. That's helpful color. And just related to the Pacific Generation sales. I was just wondering, are you able to give if that were to not be approved or if it gets delayed just how much equity might be needed into the plan in that alternative case?

Sure. I think in short, you can imagine this is exactly what we were mentioning earlier, is that we're constantly looking at internal cash management levers, regulatory levers to manage any variability for you. So I think that it wouldn't necessarily change anything. I think that's our point is that we're putting ourselves in a position with a more conservative plan to be sure that we can have the most efficient financing possible. And that's why this filing makes good sense.

Got it. Okay. Great. And then just last one. I was wondering any updates on just undergrounding in terms of cost forecast or technology improvements Patti, just what you're seeing on the undergrounding opportunity and how that's evolving after we've gotten the legislation now in place?

We are currently developing our tender plan in response to the recent legislation, and we appreciate our legislators for their significant decision to support undergrounding. This 10-year plan will provide greater savings for customers and will improve our workforce planning, equipment, and long-term contracts, all of which contribute to cost reductions. This year, we have made notable progress, having already completed 165 miles of civil construction. We expect to finalize that work and meet our target of 175 miles for the year, a significant increase from the 72 miles we accomplished last year. Many of these miles are coming in at approximately $2.5 million each, compared to the initial estimate of $3.7 million per mile, highlighting our improvement. We are eager to publicly file the 10-year plan in 2023 to share the complete outlook, including the associated cost forecasts.

Great. Thanks so much.

Thank you.

Our next question comes from Ryan Levine from Citigroup. Please go ahead. Your line is open.

Hi everybody.

Good morning, Ryan.

I appreciate the updates, Patti. I'm interested in your equity issuance plan and would like to know your current thoughts on dividend policy, considering the need for board approval. In light of the ability to return capital to shareholders, how are you approaching this given the pending or potential transaction that would occur before a dividend decision is made?

Ryan, thank you for your question. I believe we can provide some preliminary insights. Regarding the current calendar we submitted to the commission and our request, we expect to have an initial assessment of the transaction concerning Alpine by mid-year. This will inform our considerations. To clarify, our eligibility for reinstating the dividend arises when we reach $6.2 billion in non-GAAP core earnings, and we are on track to meet this milestone by mid-year next year. However, it is important to highlight, as Patti mentioned, that there is significant demand from our customers. Therefore, you should expect that any initial dividend would be quite small, with plans to gradually increase it over time. We will focus on this in the upcoming year with our Board and provide additional details when possible.

Appreciate the color. Thank you.

We have no further questions. I would like to turn the call back over to Patti Poppe for closing remarks.

Thank you, Julianne. Thank you everyone for joining us. We are looking forward to seeing you at EEI in just a couple of weeks, and we just hope that you are safe out there, and we look forward to seeing you in November.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.