PG&E Corporation — 2024 Q1
Transcript
Each turn shows the speaker, their inferred role, the section, and that turn's net sentiment (×1000).
Ladies and gentlemen, thank you for standing by, and welcome to the PG&E Corporation First Quarter 2024 Earnings Release. [Operator Instructions] As a 0reminder, today's call is being recorded.
Good morning, everyone, and thank you for joining us for PG&E's First Quarter 2024 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.
Thank you, Jonathan. Good morning, everyone. I'm pleased to report another quarter of solid progress with our core earnings per share for the first quarter coming in at $0.37. We're also reaffirming our 2024 guidance range of $1.33 to $1.37, up at least 10% from 2023.
Thank you, Patti, and good morning, everyone. Today, I'm looking forward to covering 4 topics with you: first, our quarterly results; second, our 5-year financing plan; third, our continued execution against our simple, affordable model; and fourth, an update on our regulatory process.
9.5% great base growth through 2028, at least $5 billion of incremental investment opportunities, at least 10% core earnings per share growth in 2024 and at least 9% in 2025 through 2028. Growing momentum around credit ratings with 2 agencies, Moody's and Fitch now just 1 notch below investment grade and with positive outlook and the continued consistent execution of our simple affordable model, delivering both for our customers and you, our investors.
Thanks, Carolyn. As I reflect on the progress we've made over the last 3 years, just imagine our performance in the next [indiscernible]. With the wildfire-related legal and regulatory protections in place and with our physical and financial risk mitigation progress, well understood and managed, we look to the energy transition in front of us and see nothing but opportunities.
[Operator Instructions] Your first question is from the line of Shahriar Pourreza with Guggenheim Partners.
Patti just running off on the new financing disclosures. Can we maybe elaborate sort of on the timing of equity needs and the levers to manage the equity needs over time. The $2.5 billion dividend use of funds implies kind of a big step up from the current levels. So is the timing and the amount of the dividend, kind of a lever to minimize dilutive equity? And do you assume -- have an assumption around getting to IG status at the parent as a potential headroom for the equity needs?
Sure, Carolyn. So I'm going to take that. So thanks for the question. There's a lot to unpack there. So let me just maybe start from the fact that we intentionally built a very reasonable -- potentially built our plan to assume a reasonable balance of utility debt, parent company debt, dividend growth and a routine equity financing.
Got it. Perfect. And then just maybe just top level, and I appreciate that, Carolyn. Patti, on just -- do you have any sort of thoughts on kind of the [ Buffet ] letter on sector wildfire risk, I mean, obviously caused a bit of a stir, painted everyone kind of in that same brush. It hasn't arguably helped valuation levels for a lot of the West Coast Pacific Northwest names. I guess it's certainly -- just I guess any thoughts there on how we should be thinking about that because it's a question that we get a lot in [ bounce ]?
Yes. Shar, thank you for asking that question because frankly, I think [ Buffet ] got it wrong in California. California has done the hard work to mitigate both physical and financial risk. When I think about the physical risk reductions and the wildfire mitigation that we have in place, we reduced 94% of our wildfire risk, and that remaining 6% is protected with all of our situational awareness and the investments that the state has made and CAL FIRE's ability to respond. Our weather stations that have AI-enabled cameras that are often the first notification, the first responders. We used to have to wait for a citizen to notice smoke and call it in.
No for many of us, that's obvious, but for a lot of us, it may not be so. Thank you so much for the clarity.
Your next question is from the line of Steve Fleishman with Wolfe.
On the -- just a clarification on the dividend comment. When you talk about slower kind of early and then ramping up, is that kind of more on a cents per share basis or a percent basis? Because obviously, the dividend's low -- a little bit of increased big percent. So just want to see if you can clarify that?
Yes. I mean I think our intent is to have a competitive payout ratio over the long term, right? And our financing here with the 5 years is that we intend to make meaningful progress towards having that competitive payout ratio. So when we think about it, you're right, yes, we're going to start slower.
Yes. And Steve, when I think about that dividend payout, combined with our sector-leading EPS growth, we feel that's a pretty compelling investment thesis. So we look forward to layering that on top of our -- already forecast at least 9% EPS growth in '25 through '28.
Got it. And then a question on the FFO to debt in the mid-teens. With that operating cash flow improving, is it fair to say maybe mid-teens can be kind of a wide range? Is it fair to say you're kind of improving within the mid-teens ratio over the period? Yes.
Yes. I think that's fair. We've not changed our FFO. We haven't changed any of our guidance for 2024. So we remain on target with our capital investment and our lean O&M savings and our EPS growth and the FFO to debt. And as our operating cash flow increases and again, it increases $3 billion just from '23 to '24, but then you see it continuing to increase, we would -- this is what's driving our balance sheet health and improving our credit metrics over the plan period.
Okay. And then one last question, just a topic to your data centers. And I know Santa Clara is one of the biggest current data center area. So just -- I think when you came out with your initial plan for low growth, data centers were probably not as front and center of that. But Patti, I'm curious just how you're thinking about that now? And just are you in a position to be able to kind of get them served, so to speak, with power on a timely basis?
Yes. Great question, Steve. And I'll share a couple of thoughts. One, I think we will definitely be one of the big ancillary winners of the demand growth for data centers as well as electric transportation given our state policies and electrification of the state, the decarbonizing of our energy system.
Your next question is from the line of Nicholas Campanella with Barclays.
Appreciate everything on the financing plan. I guess, can you talk about how this kind of takes into account your views on the authorized cap structure and the operating company, just knowing that you have that waiver through '25. Do you kind of continue to assume that you get back to that over time? Or how should we kind of think about that?
Yes. Nick, thanks for the question. So what's important about our plan is that it solves for 2 things. First is the $62 billion of customer capital but it also does solve for meeting our regulatory and balance sheet targets, including the 52% utility equity ratio by mid-2025, which is when the waiver expires. Does that answer your question? I think so.
It does. I appreciate that. And then I guess just on [indiscernible]. I think the liability is $1.6 billion, and I'm just thinking about your prepared remarks about AB 1054 framework. And maybe you can kind of walk us through the process of when you file up the administrator or the time line [indiscernible], if any? And how is your going to be thinking about funds potential against that liability?
Yes. So just to update you on the numbers. So at the end of Q1, we have paid out cash settlements of about $870 million we cannot tap the earthquake fund until we've actually cash settled $1 billion in settlements. We expect to hit that $1 billion over the course of the summer. And we've been having continued conversations with the earthquake authority to ensure that, that is as smooth of a claims process as possible.
Your next question is from the line of Carly Davenport with Goldman Sachs.
Maybe just on Pac Gen. Can you just refresh us on kind of the next steps to watch there? Obviously, you mentioned it got held at the last meeting until potentially May 9. So just what should we be watching on that front?
Yes. At this point, as you know, we did submit comments and we requested a supplemental phase. And as you stated, the PD is held until the -- at least the May 9 CPUC meeting. We don't know yet whether they're going to agree to our request to come forward with more information, including the identity of our minority partner. But we appreciate that the CPUC is taking more time to finalize this decision.
Got it. I appreciate that color. And then maybe just on the balance sheet, thanks for the commentary before on the FFO to debt levels. Just curious what your latest views are on sort of the milestones or the time line to get back to the IG rating?
Yes. Both -- thanks for the question. We're very proud of the progress that we've made there and rating agencies, both Moody's and Fitch have us just 1 notch below investment grade and have us on positive outlook. Both have indicated that they're continuing to look at the way we -- our wildfire risk mitigation. And as Patti has noted that we continue to make really good progress there. And so we would expect another action by both of them over the course of the next 12 months.
Your next question is from the line of Jeremy Tonet with JPMorgan Securities.
Just wanted to come back to the financing plan a little bit more, if I could, parsing through there. And just want to make sure I understood things right, think about the right way. If I think about the holdco debt, our understanding is it's more of a commitment to pay down as opposed to an obligation, which would seem to imply some flexibility there. And if that is the case, how do you weigh that versus, I guess, equity dilution or even capital deployment pace? Just wondering how this all kind of mixed together. It seems like that could be a lever to reduce [indiscernible] there, Pac Gen doesn't materialize as hoped.
Again, the plan assumes that does not include Pac Gen. Pac Gen would only strengthen the plan. That's number one. Number two, the plan does include paying down $2 billion of parent debt by the end of 2026. And so again, we are managing a couple of things in this plan. As you said, our capital investments. We have more capital than needs on the system than our plan of $62 billion.
Got it. Yes, just curious if I had the understanding of the holdco debt paydown being a commitment, not an obligation.
P That's right. It's a commitment. We're -- and as we said, we're very focused on our balance sheet health and reaching investment-grade status.
Got it. That's helpful there. And then maybe just kind of pivoting here, given continued national attention wildfires and everything that's happened as discussed on the call, could you talk to PCG's kind of leadership role in the industry engagement with peers to socialize best practices? Clearly, PCG has really advanced in this mitigation and wondering how you think about your role within the industry at this point?
Yes, Jeremy, thanks for asking the question. We feel compelled to play our part. We've learned a lot through some tough times. And so it would be a shame if we didn't share those learnings with others, just like other energy and utility providers have shared with us, and we have learned from them. So we do feel that we can play an important role nationally.
Got it. That's very helpful. And just want to go a little bit more with that. I guess, on the national level, how do you think about the potential for some national policy here? Conversations really starting, moving in earnest or how do you think about the possibility of that over time?
Yes. I think there is a possibility. I think one of the things we lack at the national level is a national safety regulator for wildfire. Like we have FEMSA on the gas pipeline. FEMSA did a great job of bringing together all the parties and establishing safe practices that have then been implemented nationwide that regulators can look to and know that their utilities are not gold plating, but their utilities are doing the recommended safety standards.
Your next question is from the line of Gregg Orrill with UBS.
Just maybe a clarification, please, on the equity guidance of sort of up to $3 billion. What would change that? Or should we just think about the $3 billion? And then is there -- should we also sort of assume that the FFO to debt metrics continue to show improvement through the plan? Or is there a plateauing there?
Yes. I think let me just take the second one first, and then we can go back. I think on the FFO to debt, as we mentioned answering Steve's question. So yes, so our FFO to debt does is one, we -- one we're hitting our target for this year. And two, as you look at our operating cash flow, that's where I really draw your attention to. You can see that our operating cash flow continues to improve throughout the 5-year plan. And our FFO to debt is really improving across the plan as our operating cash flow improves.
No. Understood. Got it.
Your next question is from the line of Ryan Levine with Citi.
In terms of cost-cutting initiatives, how much visibility do you have in achieving your goals? I know you've been making a lot of progress there, but trying to get a sense of how many quarters or years out you have line of sight to achieving these [indiscernible] goals?
Ryan, this is my favorite question. Thank you for asking it. We -- I swear, we have unlimited line of sight for places where we can continue to do more for customers at a lower unit cost. And I have the most gratifying visit this week to a place in Dublin, California, where we say we're reinventing inspections, where the team was completely data-driven and focused on how can we do the right inspections that predict the right failures and do the right repairs at a lower cost using technology and process design.
Great. And then one on financing to the extent you're able to comment. So with the stated intention, correct me if I'm not hearing this correctly around a programmatic ATM starting in '25. To the extent that Pac Gen were to be monetized in some way or form. Would that -- is that viewed to be direct offset to equity? Or are there other considerations that we should take in mind?
Yes, I wouldn't necessarily assume that. I think, one, a Pac Gen approval certainly strengthens the plan. And so it's better for our balance sheet, and it's better for our customers. It's going to allow us to consider a number of different elements in the current plan, but particularly how much customer work we get done, because as we've said, we have more customer work than the $62 billion.
Your next question is from the line of David Arcaro with Morgan Stanley.
I was just -- maybe a bit of a follow-on that. As I'm thinking about the $5 billion in potential upside CapEx opportunities, how would you think about financing that in terms of potential equity needs incremental to the plan?
We're -- on the $5 billion. So thanks for the question. So what's important for us on the $5 billion is that it is affordable. It needs to be affordable both for our customers and fitting within our target of bill increases in line with inflation of the 2% to 4%. And then it needs to be affordable on our balance sheet.
Got it. Yes, that's helpful. I was wondering, as we think about the load growth outlook and the potential for data centers, could you speak to maybe just how long it takes to connect a new large load to the system? And any initiatives that you're involved in that could reduce that time and increase the efficiency there?
Yes, it's a great question. I will say that I think there's a national challenge with the supply chain and being able to access some of the necessary equipment to build out that capacity as well as timely cash recoveries and cost recoveries for that investment.
At this time, there are no further questions. I will now hand today's call over to Patti Poppe, Chief Executive Officer, for closing remarks.
Thanks, Tamica for being our operator today. And thank you, everyone, for joining us today. We're glad that you were with us. We hope that you appreciate the information that we shared.
This concludes today's call. Thank you for joining. You may now disconnect your lines.