PCG - NYSE

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. I will now hand today's call over to Jonathan Arnold, Vice President, Investor Relations. Please go ahead, sir.

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. 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. Presentation also includes a reconciliation between non-GAAP and GAAP financial measures. The slide with other relevant information can be found online at investor.pgecorp.com. We'd also encourage you to review our quarterly report on Form 10-Q for the quarter ended March 31, 2024. With that, it's my pleasure to hand the call over to our CEO, Patti Poppe.

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. And we're reaffirming our longer-term earnings per share growth of at least 9% each year starting in 2025 and continuing through 2028. In addition, we remain firm in our commitment to no new equity in 2024. We're also pleased to share with you our 5-year financing plan, which Carolyn will discuss in more detail. What I want to emphasize is that our financing plan does not include the proposed sale of a minority interest in Pacific Generation. As you may have seen, we continue to advocate for the Pac Gen sale with the CPUC. We see the minority sale as an efficient financing alternative while offering significant benefits to our customers, and it would further strengthen our plan. However, as you can come to expect, we plan conservatively, so the sale is not currently in the plan. The key takeaway is that we are comfortable reaffirming our earnings guidance and our $62 billion capital plan with or without Pac Gen. Our plan also enables us to grow our dividend payout to a level closer to our regulated utility peers with $2.5 billion included in the plan through 2028. Consistent with our conservative approach, the plan assumes up to $3 billion of equity starting in 2025, likely through a routine utility ATM program. Moving to Slide 4. What I want to impress upon you is this. California and PG&E specifically have a favorable risk profile given significant changes made following catastrophic wildfire events we experienced in our state back in 2017 and 2018. California did the hard work to address challenges to the investor-owned utility model, policymakers passed key legislation. Assembly Bill 1054 provides access to liquidity through a wildfire insurance fund with $21 billion of claims paying capacity. Cost recovery under the presumption that the utility's conduct is reasonable with a valid safety certificate, and a cap on shareholder exposure if a portion of our requested cost recovery were to be disallowed by the CPUC. These protections afforded to PG&E under AB 1054 are further complemented by our self-insurance model, which limits shareholder exposure to a deductible of only $50 million, paired with our proven progress mitigating wildfire risk, and significant actions the state has taken to strengthen fire prevention and response in our communities. California stands out as a model for all states that have wildfire risk, and PG&E's operating system delivers the physical risk reduction, which further differentiates our story. In fact, we've reduced our wildfire risk by 94% and are working every day to reduce that further. As one additional proof point of our wildfire risk mitigation efforts, I'll remind you here on Slide 5 that in 2023, we reduced ignitions by 68% compared to 2017. And through the end of the first quarter of 2024 on a rolling 12-month basis, our weather-normalized ignition rate remains at 0.93, more than a 70% reduction from 2017. As well as our differentiated wildfire risk reduction framework, we also have a differentiated approach for how we intend to grow our customer capital investments while keeping bills affordable. Here on Slide 6 is our simple affordable model. Since its introduction, we have exceeded our annual nonfuel O&M reduction target every year, reducing O&M by 3% in 2022 and 5.5% in 2023. This is new for PG&E, and it will take repeated performance for our customers and policymakers to believe in the benefit of our new capability and what it delivers for customers. As I like to say, performance is power. When we perform, when we keep our commitments, we have the power to influence the perception of PG&E with our customers and investors. We are differentiated in our potential and our system to deliver on these annual nonfuel O&M savings. Time will prove this out. One exciting element of our simple affordable model is the opportunity for load growth in our service area. Our electric load growth opportunities are not just electric vehicles and data centers but an eventual and necessary decarbonization of our entire economy with clean electricity as the primary energy of the future. PG&E is vital to our state's ambition and the need to heal our planet. 1% to 3% load growth per year in the near term with upwards of 70% load growth over the next 20 years will be required as California moves to carbon neutrality by 2045. California is not afraid to set ambitious targets and has proven repeatedly that we will innovate our way to achieving them. Cost savings and loan growth, coupled with continued efficient financing options are how we can execute on our commitment here on Slide 7 to control average annual bill increases to 2% to 4%. We appreciate that near-term build pressure due to consolidated years of GRC recovery and catch-up recovery of wildfire mitigation expense is difficult for some of our customers, and I look forward to the day when we can announce that customers' prices are coming down. At the same time, we stand by the need for the near-term increase as this GRC is funding critical work, which is making our customers and communities safer than ever before. Here on Slide 8 are just a few examples of important safety and reliability work funded by our GRC. Installation of more than 10,000 devices for situational awareness, system hardening, automation and reliability, repair or replacement of over 175,000 units on our distribution lines. Inspection of $2 million and replacement of over 60,000 poles, replacement of more than 160 miles of gas distribution pipeline and under-grounding of 1,230 miles of distribution lines in high fire risk areas. As we perform this work, it is our responsibility to ensure every customer dollar is put to maximum use, which brings us to my story of the month here on Slide 9. You may recall that last year, I shared a story on work bundling. Specifically, I highlighted an example of cross-functional bundling where we planned and executed 12 jobs under 1 planned outage. I also left you with a little teaser saying, this is just the tip of the iceberg. Well, my coworkers are now rolling out our next generation of work bundling with something we refer to as mega bundles. Using breakthrough thinking and our lean operating system, we've identified over 9,000 individual scopes of work and converted them into 20 bundled projects. With mega bundling, we're looking at an entire circuit as 1 project. In the past, we plan and execute work at a granular level. For example, we roll a truck to replace a single pole or just 1 switch. When we look at an entire circuit, we may find 100 poles that need to be replaced. In Stockton, for example, we have 1 circuit with nearly 1,000 poles that will be completed this year. Bundling these pulls into a single project improve safety, the customer experience, quality, cost, delivery and coworker morale. Imagine assembly line style production, the potential for 1 permit for hundreds of poles rather than hundreds of separate permits as it is today, seeking multiple pole holes per day in a specific region, resulting in significant fuel savings and less hazardous drive time for our coworkers. Framing hundreds of poles at a time using manufacturing style production off-site rather than one by one on-site. And customer outreach to entire neighborhoods, reduced outages and lane closures versus one job at a time. This approach also allows us to negotiate better contract pricing and reduced overhead costs. Overall, with mega bundling, we expect to see cost savings of at least 20% compared to historical all-in cost, which will result in at least $20 million of our customers' dollars saved just this year, freeing up resources to do even more safety and reliability work for our customers. When I joined PG&E, you may have heard one of my early observations. We're very good at engineering equipment, but we're not very good at engineering our work. Well, that's changing, thanks to our performance playbook. We are delivering improved performance every day, which serves both customers and investors. With that, let me turn it over to Carolyn to walk you through the financial details.

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. Starting here with our first quarter walk on Slide 10. Our first quarter core earnings of $0.37 are up $0.08 over the first quarter last year. Remember, that our general rate case was approved in the fourth quarter when we booked the catch-up revenues for all of 2023. Adjusting first quarter 2023 for the GRC timing, our first quarter results are up $0.05 year-over-year. This improvement is primarily driven by an increase in customer capital investment. And our CPUC rate base now provides an equity return of 10.7% as approved through the adjusted cost of capital mechanism advice letter. As a reminder, we said that we were not counting on this increase to meet our earnings guidance but it does give us more flexibility to redeploy resources for the benefit of our customers. Other drivers include nonfuel O&M savings of $0.01 offset by $0.02 reinvested back into the business to fund more work, such as increased transmission system inspections and electric acid mapping. Also this quarter, we revised our estimate for the duration of the wildfire fund established under AB 1054. Based on all the data available to us, including the progress we've achieved in reducing physical wildfire risk on our system, the fund will provide coverage for 20 years, that's up from our previous estimate of 15 years. Another example of how AB 1054 is working as intended. Turning to Slide 11. There are no changes to our CapEx or rate base guidance. Our plan includes $62 billion of customer investment over the next 5 years, and we still have at least another $5 billion to pull into the plan once we make it affordable for both our customers and our balance sheet. And please keep in mind that in 2024, 93% of our rate base has already been authorized with 90% authorized out in 2026. This is higher than most utilities given our 4-year GRC cycle, and we continue to pursue cost recovery to increase that percentage. As an example, we filed an application for our gas metering replacement program last month, seeking revenue requirement to support nearly $500 million in capital additions from 2023 through 2026. That's in addition to the request filed late last year for revenue requirement to support the capital costs associated with moving our headquarters from San Francisco to Oakland. Here on Slide 12. Again, no changes from what we shared with you on our year-end call. Our operating cash flow grew substantially from $5 billion last year to $8 billion this year. This reflects collection of both our 2023 GRC revenue increase and 2024 GRC revenues as well as the catch-up recoveries of our prior work, including interim rate relief. Our operating cash flow continues to rise through the plan period, reflecting our growing capital investment on behalf of customers. In total, we're forecasting $50 billion in operating cash flow from 2024 through 2028. Turning to Slide 13. With $50 billion as the starting point, we are pleased to share our 5-year financing plan to support our $62 billion of capital investment. As Patti mentioned, our financing plan does not include the proposed Pac Gen minority interest sale, which would further strengthen what we're showing here. Now for the highlights. First, we plan to grow our dividend over the next 5 years. Given our commitment to prioritize customer capital investment in the near term, we anticipate growing the dividend more slowly at the front end of our plan, with the payout stepping up more quickly in the later years. In the meantime, we are benefiting from nearly $2.5 billion of annual retained earnings this year, and we consider this a valuable source of internally generated equity. Second, we forecast incremental utility long-term debt needs of approximately $14 billion. Third, we continue with our plan to reduce our parent company debt by $2 billion by the end of 2026. finally, we are contemplating [indiscernible] over the 2025 to 2028 planning horizon, likely through a routine ATM program. This supports our $62 billion of customer capital investment and our consistent earnings guidance of at least 10% this year and at least 9% each and every year through 2028. Importantly, our commitment to no new equity in 2024 remains firm. In developing this plan, we had several key objectives in mind for our customers and our investors. One, funding the significant safety and reliability investments our customers deserve; two, keeping customer bills affordable, and we gain 2% to 4% assumed inflation; three, delivering on our premium earnings per share growth; and four, achieving solid investment-grade ratings. We want to reinforce that final objective here on Slide 14. We're targeting investment-grade ratings at the corporate level. And since 2020, our ratings have improved steadily with all 3 agencies. We're now just 1 notch below investment grade at both Moody's and Fitch and on positive outlook at both. The recent improvements in our ratings are a function of demonstrated financial and operational progress since 2020, especially mitigating wildfire risk. Our 5-year financing plan is designed to build on the progress we've made in all of these areas and reflect our laser focus on improving the balance sheet. And as a reminder, our operating cash flow increased $3 billion from $5 billion in 2023 to $8 billion in 2024 with continued growth through the planned period. This growing operating cash flow supports including credit metrics, including our mid-teens goal for FFO to debt. We also generate new investment dollars every year as we execute on our simple, affordable model, as shown here on Slide 15. I'll remind you that in 2023, we realized net cost gains of just over $500 million. mega bundling, which Patti discussed is just one more example of the wealth of opportunities we see here at PG&E to deliver more for our customers while keeping build growth in the 2% to 4% range. Moving to Slide 16. Our progress working with policymakers continues. Just during March, we saw a number of constructive regulatory decisions, which together, accelerate well over $1 billion of cash flow. On March 7, the CPUC approved interim rate release in the amount of $516 million, while our wildfire and gas safety cost application moves through the typical process. Next, on March 15, the commission's Executive Director approved our request to delay until 2025, $650 million of contributions to the customer credit trust established as part of our great neutral securitization. And finally, on March 20, the commission issued a proposed decision denying the petition for modification filed by joint rate payers to suspend the formulae cost of capital adjustment mechanism for 2024. The proposed decision finds that the mechanism operated as intended, it also offers strong regulatory support for our return on equity. In terms of Pac Gen, we continue to believe this transaction is highly beneficial for customers. It has clear potential to lower bill while accelerating our return to investment grade and bringing them a partner to invest in these assets, which are key to California's energy transition. We'd appreciate the commission wanted to take some time from additional time before making a final decision. Looking ahead, as you know, the California legislature has passed a series of constructive measures, which have the potential to add upside to our plan and important benefits to our customers. This legislation, including Senate Bill 410 and 84 continue to move through the regulatory implementation stages. Regarding SB 410, our proposed decision in Phase 2 of our general rate case, which we're now calling the capacity phase is scheduled for later this quarter. This would authorize CapEx to support energization incremental to what was approved in our GRC. Regarding SB 884 on March 7, the commission approved of resolution establishing CPUC guidelines for approving under-grounding plans. We remain prepared to file our 10-year under-grounding plans later this year when our safety regulator is ready to accept our submission. I'll end here on Slide 17, with a reminder of our value proposition: 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. With that, I'll hand it back to Patti.

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. The future California energy system calls on PG&E to deliver the clean electricity of the future. Growth will fuel the simple affordable model and California's economy. We can't wait to share more with you at the New York Stock Exchange for our investor update on June 12. With that, operator, please open the line for questions.

[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. Importantly, the plan is consistent with our earnings guidance of 10% in 2024 and at least 90% in 2025 to 2028. We -- as we look at the plan, a couple of things, we will remain focused on accessing the most efficient finance decisions. The plan does introduce a routine ATM program. So in routine, I think that what you can expect from that is sort of a ratable program over the course of our plan. That's the assumption. And then on the dividend, we did give you a number of $2.5 billion. And what we said to expect from the dividends is that we will grow it more slowly in the front end of our 5-year plan and then it will ramp up over the course of the 5-year plan. So I think that's how we're thinking about the balance between all of those elements of the plan. On IG status, we continue to make good progress there and we can talk about that in detail in a bit. But yes, the plan assumes that we continue to make progress on our credit metrics.

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. Now we have technology that is the backbone of our wildfire mitigations and the incredible work that we're doing to rebuild our infrastructure to the new climate standards and to the new extreme weather is something we're very proud of. But then you combine that with AB 1054 in the financial risk mitigation. There is -- we -- investors are able to invest in California. The wildfire risk exposure for an investor is restricted to the $50 million deductible of our self-insurance. $50 million deductible of our self-insurance. It's important for investors to know that. And the wildfire fund with $21 billion of claim capacity, we just revealed today that we've extended the life of that fund for 20 years, up from 15 because AB 1054 and our physical risk reduction is working. So I can just share that, Shar, I think California is very much investable. And I think PG&E specifically has put us in a position, the citizens of California have never been safer from wildfire risk. And I think that investors will soon come to believe that and definitely should not be swayed by a broad brush about all Western states. California is notably unique.

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. So we think about it in terms of percent or we really haven't revealed that or talked about that publicly. But I think the key is that we're going to go slower in current half of our 5-year plan because we're, again, committed to prioritizing customer capital investment. And then on the back end, it will go -- it will ramp up more quickly.

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. But I do want to just tell a quick story. I was -- I had a visit to our [indiscernible], which is one of the critical substations, transmission substations across the nation. And we invited some customers to come. And when I got there, I was pleasantly surprised to see AWS, Microsoft, Apple, Google, Equinix, Cisco, Western Digital Semiconductors, Tesla, all in attendance. These are our customers that we serve who want us to serve more. And they were very clear that they would build where if we can provide. And so we're working on a plan that's going to be a big part of what we share in New York at Investor Day. We really want people to come out and see what the future looks like. I'm so proud of this team here at PG&E, who has been able to mitigate the near-term risk of physical and financial risk of wildfire so that we can now play our rightful position in the industry and in the nation as a leader in the clean energy transition. Our state has ambitious goals. We're going to be the energy provider to fuel those ambitious goals and data centers are a piece of the puzzle. I'll also just add 1 recent publication from CISO shared. CISO forecast an additional 120 gigawatts of clean electricity to be added in the next 20 years in California. That's 120 gigawatts on top of our 67 gigawatt system today. That is a 2x increase. And we are going to be the energy provider here in California, the transmission load that comes with that, we're in a position to win on the clean energy transition and so is California. And one last -- this data point I'll share with you, Steve. We forecast that as we decarbonize the economy and reduce carbon emissions by 70%, we forecast a reduction in household energy spend. In the neighborhood of 20% to 30%, household energy spend reduction as we decarbonize the economy because electricity is a more efficient fuel than gasoline. That is a win for citizens. That's a win for the planet. And certainly, that's a win for PCG investors.

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. Yes, it's $1.6 billion. A couple of things other to note is that, one, the statute of limitations on Dixie runs out in October. And the earthquake authority actually booked a $600 million loss on their books for payout. And so it's just -- it's very -- we've been working very closely with them. I think we're expecting a very smooth process at this point in time. And I think I answered all your questions there, so I'd leave anything else.

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. And we're going to use that time, obviously, to advocate because we continue to believe that Pac Gen is highly beneficial for our customers. It brings affordability to the bills. It helps accelerate our return to investment grade. And importantly, it brings in a partner who's going to help us grow these assets that are critical to California's energy transition. So at this point in time, we're -- we believe Pac Gen is a good transaction. We're going to continue to advocate for it, and we are waiting for the final decision or an approval to do the second phase. I will just add that we provided our financing plan. Again, I'll note that it was without Pac Gen. But with Pac Gen, that current plan would certainly be strengthened.

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. And I think they're both looking at maybe another season and our financial metrics continue to improve, and they're continuing to watch those as well.

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. We are managing the equity -- the utility equity ratio of 52%. So -- but what's really important as we look at equity, I just -- again, we'll say that we will always look to access the most efficient financing alternatives, and we'll be very mindful of market conditions. And so I think those are the key points to be mindful about. Does that answer your question?

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. I do think California can serve as an important model for how perhaps a regional or national solution might be able to be implemented. California has scale on its side so we can have a regulatory and financial protection that goes with our physical protections. But at some of our smaller states might benefit from a national solution. And we certainly will have a voice in that. I'm thankful for EEI as a good platform where we work together as an industry. It's one of the things I love about this industry that we share lessons with one another. We've been spending time together in the recent months, learning from each other and sharing best practices. And so we will continue to do that, and I do believe that PG&E and I intend to personally work hard to make sure that the nation learns the lessons that we've learned. We've taken a stand here at PG&E that catastrophic wildfire shall stop. And when we took that stance, some people thought we were a little overzealous, but I see that stand coming to life every day. And we didn't say in California or we didn't say California -- or catastrophic wildfire caused by PG&E's equipment, we think catastrophic wildfire shall stop, just like the nation learned to mitigate risk of earthquake and hurricanes, we can learn to mitigate the effects of drought that cause wildfire conditions. And so we certainly will be active nationally to help others know. And I'm just gratified by the people of California who have done the hard work to put in the mitigations that exist today here as we speak, that we don't have to wait for those mitigations to be in place. They exist here in California today, and they serve as a blueprint for the nation.

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. We need the same thing on the electric side. So I do think that's something that we're having a lot of conversation about who is that appropriate safety regulator and how do we establish standards because right now, plaintiff's attorneys are setting the standards and they use whatever the highest standard that someone else did, and that might not be the appropriate standard in certain states. And so we want to make sure that the safety standards are clear, and then some sort of national fund makes a lot of sense to us that mirrors the California fund that exists today.

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. So you can see that. Now does it plateau? We haven't given you that information at this point in time. No, the $3 billion in equity is what's in our plan. That is the amount. And how you should think about that, as we've said, is that we will be very mindful of market conditions, and we will always be looking to access the most efficient financing alternatives available to us. And I think that's the bottom line. Is there any other question on that?

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. And it was just unbelievable how fast this team is learning to embrace our lean operating system and our performance playbook our safety management system, combined with our lean operating place and our breakthrough thinking is unlocking extraordinary ideas from this team. And I am so proud of what I see them doing and I can see that we are just getting started. I have a lot of experience in this area, and it has long been my experience that no process is ever finished. That we will always find ways to improve what we do, do it smarter, do it for less, save customers' money while we're improving the service we deliver to them. And we are just unlocking that potential. We are in the first inning of unlocking that potential here at PG&E, and it has the opportunity to provide benefits for customers for decades to come.

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. And we'll also consider our debt financing assumptions. I think what's important, again, I go back to is that we will always look at the most efficient financing, and we'll be mindful of market conditions.

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. And so I go back to -- our plan has a reasonable balance of the debt, both utility debt and company debt and dividend and routine equity. And as we implement that plan, we will again be very mindful of market conditions and look for the most efficient financing for that $5 billion. And David, I'll just add that, keep in mind, things like, for example, a 1% reduction in O&M is $100 million of additional -- or additional cash flow. And so as we think about we continue to do more for less, that frees up cash flow to do more work and pull in additional capital and fund it through efficiencies through some of our more efficient financing. One of the things we wanted everyone to really hear today is this financing plan is a conservative plan. It's a good plan. And it can only improve from here. So this is a good starting point, a good baseline, and we're excited to share it with you today.

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. We've got the cost recoveries improvement here in flight in California with SB 410. We're looking forward to that process coming so that we can have certainty about the cash flow recovery associated with building out that new capacity. So that's been a delay for -- certainly for some people and certainly for us. But I'd say the biggest delay right now is the supply chain. And so we're doing something called a cluster study where we have brought together, that was one of the reasons we had all those customers at the [indiscernible] with us the other day is we're doing a study with them collectively so that they can understand there, instead of one project at a time, looking at a suite of these projects, really understanding their growth forecast, and we can get way further ahead in the planning for their ability -- their plans to build out and our ability to serve that load. So we're very excited about the transparency that's being created here with our big customers, so that we can better build out their large load demands.

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. We're excited to see you in June 12 at the New York Stock Exchange. We are going to be sharing our latest wildfire mitigation technologies. You're going to meet some of our brightest and best who are closest to the improvements that have been made here, so you can have more and more confidence, both in the physical and the financial risks that have been mitigated here in California. And because of that success that we've experienced in the physical and financial risk mitigation of wildfire, we have the privilege of looking forward and planning for the energy system of the future for California. We are proud to be the providers of that clean energy and clean electricity that will fuel the decarbonizing of our nation and our state. And we are proud to serve the role and answer the call from California, and we'll be able to share more with you about our plans in that light and what the growth of PG&E looks like going forward. So we look forward to seeing you in New York. Thanks so much for tuning in today. Everybody, please be safe out there.