Earnings Call Transcript - PCG Q4 2024

Operator, Operator

Ladies and gentlemen, thank you for standing by, and welcome to the PG&E Corporation Fourth Quarter 2024 Earnings Release. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during that time, press star followed by the number one on your telephone keypad. As a reminder, today's call is being recorded. I will now hand today's call over to Jonathan Arnold, Vice President of Investor Relations. Go ahead, sir.

Jonathan Arnold, Vice President of Investor Relations

Good morning, everyone, and thank you for joining us for PG&E's fourth quarter 2024 earnings call. With us today, Patty 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. These statements are based on information currently available to management. Some of the important factors which could affect our actual financial results are described on the second page of today's earnings presentation. The presentation also includes a reconciliation between non-GAAP and GAAP financial measures. The slides, along with other relevant information, can be found online at investor.pgecorp.com. We'd also encourage you to review our annual report on Form 10-K for the year ended December 31, 2024. With that, it's my pleasure to hand the call over to our CEO, Patty Poppe.

Patty Poppe, CEO

Thank you, Jonathan. Good morning, everyone. I know last month's heartbreaking fires in Southern California are on your mind. And we will address your concerns about them today. But first, please allow me to cover our fourth quarter and full year results. As we like to say, performance is power, and 2024 was another year of powerful performance at PG&E. Our core earnings per share for the fourth quarter were $0.31, bringing us to $1.36 for the year, an 11% growth over 2023. We've updated our 2025 guidance range with the midpoint up 10% from our actual 2024 results. This bumps our 2025 range by a penny, to $1.48 to $1.52. There's no change to our EPS growth guidance for 2026 through 2028, which remains at least 9% each year. As you saw from us in both 2023 and 2024, future year growth will continue to be based off our actual results. With our December issuance, the equity needs to fund our $63 billion capital investment plan through 2028 is fully behind us. In December, we also provided you with clarity on our dividend plans. Our annual dividend rate for 2025 is $0.10, up from $0.04 in 2024. We also shared our intent to reach a dividend payout ratio of 20% of our core earnings per share by 2028 with consistent annual increases. Clearly, this implies a growth rate well in excess of our earnings. We continue to build our cost reduction muscle, saving 4% in non-fuel O&M costs in 2024 on top of savings achieved in 2022 and 2023. And we're delivering on our affordability commitments. In fact, assuming similar usage, combined residential gas and electric bills remain flat for January 2025 compared to January 2024. In 2024, we were able to redeploy $0.16 for the benefit of our customers and deliver 11% earnings growth for our investors. Even though the recent devastating fires have been outside our service area and our equipment was not involved, they reinforce the importance of our stand that catastrophic wildfires shall stop. Based on the physical protections we have in place today, our system has never been safer. And we are working to make it even safer. As we continue to implement our wildfire mitigation plan and learn from every ignition. We know that PG&E's shareholders and bondholders are often Californians. Including pension holders, teachers, firefighters, and police. We want them to feel that their money is safe when invested in a California utility. While the utilities have made significant strides in risk mitigation, it seems clear that timely reforms are needed to extend the AB 1054 framework given evolving views of a worst-case fire. You can be assured that building and improving upon the core AB 1054 protections already in place is a critical priority for our team. Our model today was created first and foremost to provide important protections for the victims of catastrophic wildfires. The State Wildfire Fund assures compensation for victims of utility-caused fires while helping to ensure that utilities can continue to raise capital efficiently and affordably, enabling needed investment in safety and climate resiliency. This is a 180-degree change from the pre-AB 1054 world. Importantly, California's prudent manager standard is not a perfection standard. The model gives the utilities clear alignment with the safety regulator to continually improve upon mitigation strategies. In fact, our latest safety certificate was issued in December and came ahead of schedule. No other state has such a structure in place today. And California's approach has allowed our utilities to become industry leaders in wildfire mitigation. I know that our state leaders are hearing your concerns. And we'll keep advocating that key tenets of AB 1054 be upheld and enhanced. Ultimately, our construct is designed to serve the people of California in the event of loss. And it is this which gives me confidence that we will make the necessary timely improvements to ensure that our utilities remain in a strong position to efficiently finance continued investment in safety, growth, and other key state priorities. As shown here on slide seven, our foundations of physical safety start by understanding the risk each and every day. This situational awareness is propelled by data and experience. It informs our wildfire mitigation plans and our layers of protection. Our mitigation of last resort. In fact, we had six PSPS events executed without safety incidents and only approximately 50,000 customers were impacted over the course of these events. This is a simple, affordable model picking up speed.

Carolyn Burke, CFO

Thank you, Patty, and good morning, everyone. Today, I am pleased to cover three main topics with you. First, our full year 2024 results; second, a reiteration of our five-year capital and financing plans; and third, how we continue to build upon our foundation of financial safety and execute against our simple affordable model. Starting here on slide ten, our core earnings of $1.36 are up 11% over 2023. The main drivers were higher customer capital investment, which contributed $0.26 and non-fuel O&M savings contributing another $0.07. We've been very clear about our commitment to share any upside with customers and investors. Redeployment for the full year was $0.16 and went towards programs that support risk mitigation, such as inspections and distribution maintenance. There is no change to our five-year $63 billion capital plan through 2028, and we still see at least $5 billion of additional investment needs. As we've discussed before, there are no shortage of customer beneficial work on our transmission and distribution systems. Our financing plan was built to support achieving investment-grade ratings. Our December equity issuance put us back in compliance with our authorized regulatory capital structure ahead of schedule. In terms of financial safety, we've been laser-focused on building a healthy balance sheet. Our robust capital plan contributes to cash from operations, which in turn drives balance sheet health.

Patty Poppe, CEO

I am confident about this next phase in our story here at PG&E. What was true about PG&E as we enter 2025 is still true today. We're building a culture of performance built on a solid foundation of physical and financial safety. We know that when you trust the California regulatory construct and the people who oversee it like I do, you will see that there is no other utility in offering our customer focus, our growth, our operational capability, and our valuation upside potential. We are a vital piece of California's infrastructure story and there is no one better positioned to serve our hometowns at this scale than this team. With that, operator, please open the lines for questions.

Shar Pourreza, Analyst

Hey, guys. Good morning. So starting off on the California wildfire construct, the fires in the south have created a potential stress for AB 1054. Is there a recognition of the wildfire funding problem or do you think we need to see more progress on investigations and fund payouts to start to get clarity if there's any constructs that need to be changed?

Patty Poppe, CEO

This has definitely hit the radar of our policymakers and leaders here in the state. You know, I think we all agree that AB 1054 fundamentally is a very good construct, and it's industry-leading and the only state in the nation that has this kind of comprehensive construct. However, the question about the fund and the longevity of the fund given this new potential of an extreme case fire has gotten the attention of all of us. We have a lot of confidence in every leader. I think that's a signal from the state recognizing there's importance in having conversations about this.

Shar Pourreza, Analyst

And you noted on the load expectations for data centers stepping up to 5.5 gigs, but some of that ramp time is in the current decade. What's driving that? Is there more investment needed on the grid side to accommodate the load?

Patty Poppe, CEO

We're pretty excited about this. When we talked in June, we had input an interest of 3.5 gigawatts. We're now up to 5.5 gigawatts, and that's just the data centers. Our ability to engineer these demands and requests allows us to better give indicative pricing, which we've had a very positive response from the applicants. It's really driven by customer demand and their timing matching up well. So we have a clear path forward. We're continuing to move forward in our engineering, and we expect about 90% of that 1.4 gigawatts of demand to be online by 2030.

Richard Sutherland, Analyst

In thinking more broadly about the fire issues, do you think the firefighting capabilities in the region are sufficient for growing wildfire risks?

Patty Poppe, CEO

Our firefighters here in the state are the best in the world. I do think that continuing to help our communities fire harden is an important priority. We need to eliminate the hazards surround our homes, whether it's vegetation or fencing. We're all in this together, and we stand for California being a place where families can prosper and be safe.

Anthony Crowdell, Analyst

On the IG rating, what we thought was a positive outlook last February. I'm wondering if you could share any conversation you've had with Moody's following the events in Southern California.

Patty Poppe, CEO

Maybe just purely on the merits, we've seen our credit metrics improve, and we've made progress on the wildfire risk mitigation. The rating agencies seem to be taking a very measured approach, and we remain confident that they will ultimately recognize our progress in time.

Carly Davenport, Analyst

On the O&M reduction you have embedded in both the long-term plan and the 2025 plan, how would you think about cadence of potentially revisiting that assumption?

Patty Poppe, CEO

We expect to update our plans after the GRC filing. We hope that these O&M savings become part of PG&E's signature. We have a couple of years before we get into a case where all our coworkers have that kind of capability, and that's going to be a key part of how we serve customers.

Operator, Operator

This does conclude today's call. Thank you for joining. You may now disconnect your lines.