PG&E (PCG) Q2 2026 Earnings Call Transcript

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DATE

Thursday, July 23, 2026 at 11:00 a.m. ET

CALL PARTICIPANTS

• Vice President of Investor Relations - Jonathan Arnold
• Chief Executive Officer - Patricia Kessler Poppe
• Executive Vice President and Chief Financial Officer - Carolyn J. Burke

TAKEAWAYS

• Core EPS -- $0.40 for the second quarter and $0.83 for the first half of 2026, compared to $0.19 higher than the first half of 2025.
• Core EPS Guidance -- $1.64 to $1.66 for the full year 2026, representing a 10% increase over 2025 at the midpoint.
• Long-Term EPS Growth -- 9% plus annually from 2027 through 2030, supporting the company's multiyear financial plan.
• Capital Plan -- $73 billion through 2030, which management stated requires no additional equity financing.
• Dividend Payout Target -- 20% by 2028, compared to an implied 12% payout in 2026.
• Customer Bill Growth -- 0% to 3% targeted annually, as part of the company's path to flat bill growth objectives.
• Data Center Pipeline -- 12 gigawatts of total demand, including new projects integrated from the 2026 cluster study.
• Electric Rate Reductions -- 23% reduction for the most vulnerable residential customers since January 2024.
• Reliability Improvement -- 23% better performance year to date versus the same period last year, driven by fewer outages and faster restoration.
• Operational Safety Outcomes -- Zero public safety incidents from asset failures and zero structures destroyed by wildfires linked to equipment for the fourth consecutive year.
• Outage Avoidance -- Nearly 20 million outage minutes avoided since January 2025 through continuous grid monitoring.
• Ignition Prevention -- 28 ignitions in high fire risk areas avoided since January 2025 via mitigation technology.
• Procurement Savings -- Over $40 million saved year to date in 2026 through targeted sourcing and procurement initiatives.
• Earnings Drivers -- $0.09 per share contribution from customer capital investment and $0.03 from O&M savings and redeployment in the first half of 2026.
• Incremental Investment Opportunity -- At least $5 billion in potential capital projects outside the current $73 billion plan, focused on rate-reducing load growth.
• Financing Efficiency -- $10 billion in avoided equity financing over the planning period by maintaining a lower dividend payout ratio.
• Debt Issuance -- $2.2 billion in utility bonds completed in June, bringing total 2026 utility debt financing to $4.4 billion.
• Non-Fuel O&M Reductions -- 2% to 4% annual reduction target, which management characterized as a repeatable capability.
• Capital to Expense Ratio -- 1.0 in 2025, with a target to reach 1.7 by 2030 as the company eliminates waste and improves productivity.
• Resiliency Investment -- $16 billion allocated for system hardening and wildfire risk mitigation within the five-year capital plan.
• Growth Capital -- $23 billion designated for capacity and new business connections within the 2030 investment plan.
• Projected Load Growth -- 1.8 gigawatts of new data center load expected to be online by 2030.

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RISKS

• Poppe stated, "If the framework remains unresolved or insufficient, then we would need to reevaluate our capital allocation priorities and long term investment plans," referring to the potential for legislative inaction on wildfire liability reform.
• Poppe indicated, "The cost of inaction is too high to ignore... inaction would slow that progress and ultimately make the system more expensive to finance," regarding the risk that a failure to pass SB 254 would delay the return to investment-grade credit ratings.

SUMMARY

Management reported that PG&E Corporation (NYSE:PCG) remains on track to deliver its fifth consecutive year of double-digit earnings growth, supported by a $73 billion capital investment plan that requires no new equity through 2030. The company is emphasizing a simple affordable model focused on reducing operating expenses and leveraging a 12-gigawatt data center pipeline to mitigate customer bill increases. Executives stated that achieving investment-grade credit ratings is contingent upon the California legislature passing a durable wildfire liability framework, such as SB 254, to provide greater financial predictability. The company is also implementing a predictive electric grid system using continuous monitoring and AI to enhance safety and lower repair costs.

• Poppe described the data center demand as "one of the most exciting opportunities in front of us," noting that every gigawatt of new load can potentially drive a 1% rate reduction for all customers.
• The company updated its data center pipeline criteria, now requiring a signed work performance agreement and a 10% financial commitment for projects to enter the final engineering stage.
• CFO Burke noted that S&P recently upgraded the company's rating to one notch below investment grade, citing progress in reducing wildfire risk through technologies like PSPS and EPSS.
• Management filed for interim rate recovery effective Jan. 2, 2027, to prevent a "pancaking effect" where customers pay for multiple rate increases and retroactive collections simultaneously.
• The continuous monitoring center identified 1,080 potential grid issues this year, including 13 potential ignitions that were addressed before equipment failure.
• Burke stated the company's O&M savings are sustainable, noting that peers have capital-to-expense ratios over 2.0 while PCG is currently at 1.0.
• Poppe indicated the company is using machine learning and smart meter signals to detect faults on residential service lines, representing a new adoption of AI for wildfire prevention.

INDUSTRY GLOSSARY

• GRC (General Rate Case): A regulatory proceeding where a utility's rates are set by the CPUC to cover the costs of providing service and a return on investment.
• SB 254: California Senate Bill 254, which aims to provide a durable and financeable framework for utility wildfire liability.
• PSPS (Public Safety Power Shutoffs): A safety measure where power is preemptively turned off during extreme weather conditions to prevent wildfires.
• EPSS (Enhanced Powerline Safety Settings): Technology that automatically shuts off power in milliseconds when a fault, such as a falling branch, is detected on a line.
• CAISO (California Independent System Operator): The nonprofit organization that manages the flow of electricity across the high-voltage, long-distance power lines for most of California.
• FERC (Federal Energy Regulatory Commission): The U.S. federal agency that regulates the transmission and wholesale sale of electricity and natural gas in interstate commerce.
• CPUC (California Public Utilities Commission): The state agency that regulates privately owned electric, natural gas, telecommunications, and water companies in California.
• FFO (Funds From Operations): A measure of the cash generated by a utility's operations, frequently used by credit rating agencies to assess financial health.

Full Conference Call Transcript

Operator: Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the PG and E Corporation Second Quarter 26 Earnings Release. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a Q&A session. And if you would like to withdraw your question, again, thank you. I would now like to turn the conference over to Jonathan Arnold, Vice President of Investor Relations. Jonathan? Please go ahead.

Jonathan Arnold: Good morning, everyone, and thank you for joining us for PG and E's Second Quarter 26 Earnings Call. With us today are Patty Poppe, Chief Executive Officer and Carolyn J. 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 and other matters. These statements are based on management's current expectations, assumptions, and estimates. Some of the important factors which could cause our actual results to differ materially are described on the second page of today's earnings presentation. Today's discussion will also contain non GAAP financial measures.

The slides provide important information regarding these measures including reconciliations between non GAAP and GAAP. They can be found online at investor.pgecorp.com along with other relevant information. We also encourage you to review our quarterly report on form 10 q for the quarter ended 06/30/2026. And with that, it is my pleasure to hand the call over to our CEO, Patty Poppe.

Patricia Kessler Poppe: Thank you, Jonathan. Good morning, everyone. Our core earnings per share are 40¢ for the second quarter and $0.83 for the first half of 26. These results reflect consistent disciplined execution enhanced by our lean operating system and the durability of our simple affordable model. Halfway through 2026, we are well on our way to extending our run of double digit earnings growth for a 5th year. Which supports my confidence in reaffirming our financial plan today. Including our full year core EPS guidance of $1.64 to $1.66, which at the midpoint is up 10% over 2025. Our 9% plus annual EPS growth from 2027 through 2030.

Our $73 billion capital plan through 2030, which does not require additional equity financing, and our target of reaching a 20% dividend payout by 2028 versus an implied 12% in 2026. At the same time, we remain intensely focused on customer affordability for Californians we serve every day. We are committed to achieving our path to flat targeting 0% to 3% annual customer bill growth. A key enabler is electric load growth, 1 of the most exciting opportunities in front of us is large load demand coming from our data center pipeline. As you will see in a few minutes, we have updated our pipeline this quarter, folding in new projects from our 2026 cluster study.

We continue to see our current plan as the best plan for our customers and for California. As we like to say, performance is power, and I am proud of the improvements we are delivering for our customers across multiple dimensions. We have extended our safety performance on serious injuries and fatalities. And have had zero public safety incidents from asset failures. On affordability, our residential bundled electric rates are down 23% since January 2024 for our most vulnerable customers. On wildfire safety, we are in our 4th year of no major fires linked to PG and E equipment and no structures destroyed. On reliability, our performance has improved 23% year to date.

Versus the same period last year driven by fewer outages along with faster restoration times. And as I will discuss shortly, we are continuing to see significant load growth opportunities associated with data centers looking to locate in our service area, which includes Silicon Valley. Home to the world's technology sector. Turning to slide 4. We know that California wildfire liability reform is top of mind for us as it is for us. While important work remains, we are encouraged that California's leading policymakers have made it clear they recognize the need for a durable solution. This is a critical moment for California.

And as the CEA emphasized clearly in their April report, the cost of inaction is too high to ignore. We could not agree more. A constructive outcome would accelerate our path to investment grade and lower financing costs for customers. Conversely, inaction would slow that progress and ultimately make the system more expensive to finance. that is why getting this right and getting it done this year matters so much for the long term affordability of the California energy system. For the customers we serve and for our investors. Our 5 year plan assumes that California will follow through on the commitment made in SB 254 to strengthen the wildfire liability framework.

For us, this means a durable and financeable framework that provides greater predictability and 1 that supports access to low cost utility capital, thereby protecting customer affordability. While our preferred path is to continue executing the plan we have laid out, we have a responsibility to investors and customers alike to ensure capital is allocated appropriately under whatever framework ultimately emerges. If the framework remains unresolved or insufficient, then we would need to reevaluate our capital allocation priorities. And long term investment plans. Our objectives would remain unchanged.

Safely serve our customers preserve affordability, and attract the low cost capital necessary for any regulated utility to deliver the expectations of policymakers, regulators, customers, and, of course, fulfill the expectations of those of you have entrusted your capital to us. Turning to slide 5, our continuous monitoring capabilities are a key driver of wildfire safety, reliability, and affordability. We are on track for a fourth consecutive year with zero structures destroyed, More broadly, our mitigation investments and disciplined execution continue to reduce risk and strengthen safety outcomes. Continuous monitoring is also delivering tangible operational benefits for the Californians and communities we serve. In fact, I was just at our command center on Monday. It is amazing.

Since January 2025, our team has helped avoid nearly 20 million outage minutes, 28 ignitions in high fire risk areas, and over 5 thousand emergency response hours while saving more than $11 million through lower cost repairs. We are in pursuit of the first completely predictive electric grid. No more waiting to see what breaks. Continuous monitoring is enabling our next level of extraordinary operational performance at PG and E. On slide 6, we are showing once again our simple affordable model. Which continues to give us line of sight to our path to flat. Keeping annual customer bill growth at 0% to 3%. We are delivering results through disciplined execution across each of the levers in the model.

We have built a strong track record of exceeding our annual O&M cost reduction targets and that focus continues. For example, we have saved more than $40 million already this year through targeted sourcing and procurement initiatives. And we are not stopping there. At the same time, we are laying the groundwork for future load growth by advancing our data center pipeline and enabling new business connections. We are also continuing to pursue efficient financing, building on progress we have made restoring investment grade credit which will lower the cost for our customers of financing the needed long term investments we are making on their behalf. We are working every day to bring this model to life for Californians.

Delivering better service to our customers, at a lower cost. And demonstrating that affordability is enabled by investing in the right infrastructure. Looking forward, we remain confident in our ability to deliver affordable service for customers alongside consistent high quality results. Turning to our data center pipeline on slide 7. We shared last quarter that we had over 10 gigawatts of additional preapplication interest coming out of our 2026 cluster study illustrating the strength and breadth of demand across our service area. This quarter, that demand is coming into focus with new projects moving into our pipeline which now stands at over 12 gigawatts. As we continue to build our pipeline, we are focusing not on size, but on quality.

To that end, with today's update, we refined how we categorize our projects, raising the threshold for inclusion in both the preliminary and final engineering stages. A signed work performance agreement and the associated financial commitment, typically around 10% of overall project cost, are now prerequisites to be included in final engineering. We have also restated our March numbers so they are shown on a comparable basis. At the same time, we remain very focused on pricing this load correctly. Attractive to data center customers, but still rate reducing for our other customers. We support efforts to achieve this on a national level and believe that FERC's recent order to show cause is a positive step.

We are collaborating with external stakeholders, including CAISO, to respond by next month's deadline. On the state level, we continue to engage with stakeholders and the CPUC on both Rule 30 and the Commission's advanced rate design rulemaking. Our focus across all venues is simple. Create clear, transparent, and durable frameworks for new large load customers while improving affordability for the customers we already serve. Done right, these efforts can help build a high confidence pipeline that lowers electric bills drives economic growth, and keeps California at the forefront of technology and innovation. With that, I will hand it over to Carolyn.

Carolyn J. Burke: Thank you, Patty, and good morning, everyone. Here on slide 8, we are showing our earnings block for the first 6 months of 2026. Our core EPS of $0.83 is $0.19 higher than this point last year. As a reminder, prior year results through the first half were impacted by dilution from our December 2024 equity financing. As well as the CPUC cost of capital phase 2 decision from October 2024. The core drivers of this year's earnings growth are coming in as expected. With customer capital investment contributing $0.09 year over year and O&M savings and redeployment contributing a net $0.03.

While some of the remaining growth reflects timing related items that we expect to reverse over the remainder of the year, this quarter's performance reflects consistent underlying execution you have come to expect from our team and positions us well for the year. As we look forward, we remain confident in delivering our 2026 core EPS guidance of $1.64 to $1.66. We continue to see opportunities across the business to drive efficiency and manage cost supported by the same disciplined execution and operational vigor you heard Patty discuss earlier. On slide 9, there is no change to our 5 year $73 billion capital plan through 2030.

We continue to see at least $5 billion of customer beneficial investment opportunity that sit outside the plan. These opportunities largely for capital, have the potential to improve the plan by facilitating incremental rate reducing load. Which is consistent with our current preference. Namely making our plan better in terms of affordability. Or longer in terms of duration. Rather than making it bigger. Moving to slide 10. Our 5 year financing plan remains unchanged from our prior call. And that includes reaffirming that our equity needs are fully funded through 2030. Additionally, our current dividend payout ratio enables us to grow earnings in line with rate base without the need for additional equity financing.

This is allowing us to avoid as much as $10 billion of financing over the planning period. Versus if we had a typical utility payout ratio. Our combination of a disciplined capital allocation program, a focus on affordability, and a self funded growth profile. Positions PG and E to deliver premium results for both our customers and our investors well into the future. In June, we completed a $2.2 billion utility bond issuance bringing our total utility debt financing to $4.4 billion for the year. And covering the annual financing needs that we previously shared with you. As we look ahead, our financing priorities remain unchanged.

We continue to focus on achieving investment grade ratings, sustaining FFO to debt in the mid teens, and targeting a dividend payout ratio of 20% by 2028 and holding at that level through 2030. We believe our plan is the right plan for California and for our customers. That said, our plan is premised on achieving a constructive legislative outcome. On slide 11, we continue to make progress toward investment grade credit ratings. As shown, following our first quarter call, S&P upgraded our rating. Bringing us to just 1 notch below investment grade. Importantly, S&P cited the progress we have made reducing wildfire risk through our mitigation efforts and operational execution.

They noted that the improvements we have made in the last 7 years like PSPS, EPSS, system hardening, vegetation management, and the continuous monitoring that Patty talked about all are meaningfully reducing the likelihood of utility caused wildfires. That recognition reinforces an important point. That safety and financial performance go hand in hand. Benefiting both customers and investors over the long term. Additionally, our underlying credit metrics continue to be at levels consistent with investment grade ratings. Achieving investment grade remains a critical milestone because it enables more efficient access to capital. Which in turn translates directly into lower borrowing costs and lower bills for our customers.

Both S&P and Moody's also continue to highlight the importance of a durable legislative solution to wildfire liability as the catalyst for additional upgrades. On slide 12, we remain on track to deliver 2% to 4% annual reductions in nonfuel O&M. As our history shows, reducing costs while improving safety, reliability, and customer outcomes. Has become a repeatable capability at PG and E. Over the last several years, we have consistently exceeded our cost reduction target. And we continue to see opportunities across the business by taking a systematic approach to eliminating waste improving productivity, and finding ways to better serve our customers.

While no single initiative drives the outcome, literally, thousands of improvements large and small, all across the company. Give us confidence in our ability to continue delivering both operational excellence and customer affordability. On slide 13, we are showing major regulatory and legislative milestones. In our 2027 GRC, we are making steady progress with hearings and opening briefs taking place this quarter. We also filed for interim rate recovery effective January 2027. Which, if approved, would help smooth customer rates. This request is consistent with our broader approach of pursuing every available lever to support affordability for our customers. While making the investments needed to operate the systems. Safely and reliably.

On Kincaid and Dixie, we continue to expect a proposed decision in November. As a reminder, this is the first wildfire recovery case where a utility had a valid safety certificate and a corresponding presumption of prudency. I will close here on slide 14. By reiterating that our simple affordable model is working. Our focus on affordability keeps customers at the center of our decision making. Our capital plan is designed to deliver the right customer outcomes while offering premium growth and avoiding the need for equity. With that, I will hand it back to Patty.

Patricia Kessler Poppe: Thank you, Carolyn. As you have heard this morning, we are continuing to deliver on our simple affordable model. We are driving disciplined execution today while further advancing customer affordability, building on the 5 rate reductions we have already implemented in the past 2 years. That performance is showing up in our business. We have maintained a strong safety culture. Improved reliability, and improved customer satisfaction across a wide spectrum of experiences, all while reducing rates. While we deliver continued execution and operational performance, we are encouraged to see the state continuing to do their part by working toward a constructive solution on SB 254 Phase 2.

I am confident that we have the right team with the right plan at the right time to deliver for the millions of Californians we serve. With the right wildfire liability framework, we can fully realize the benefits of that plan. For our customers, and for our investors. With that, operator, please open the lines for questions.

Operator: Thank you. We will now begin the Q&A session. We do ask that you limit yourself to 1 question and 1 follow-up. For any additional questions, please re queue. And your first question comes from Shahriar Pourreza with Wells Fargo. Please go ahead.

Shahriar Pourreza: Hey, guys. Good morning. Morning. Morning, Patty. Just, Patty, on legislation, I mean, you have been clear if you do not get what is needed from a legislative process, you will rethink capital allocation priorities. I mean, that is a key message today that you have repeated. I guess, what are you looking for from legislation as we are approaching the tail end of this process? Like, what is a fair outcome for you? And then how quickly can you pivot capital should the outcome not be adequate at the end of August? Thanks.

Patricia Kessler Poppe: Yeah. it is a great question, Shar. Obviously, top of mind. We have been pretty clear that we need a durable, financeable, predictable, and affordable legislative, framework for how to deal with wildfire liability. So obviously, that is a pro affordability message at a time where that is a top topic in Sacramento. We think it needs to be affordable for customers, and we think attracting low cost capital from the equity and debt markets is an essential ingredient to affordability for customers. So whatever the final proposal is and legislative action is, it needs to make it attractive to the capital markets and affordable for customers.

Now pivoting on the capital plan, I think there is 1 thing for people to really understand. Look, there is no case for no action. In other words, if the legislature does not act or if they act and do not actually solve the problem. And we will look at, obviously, the problem, then we are going to have to take action, and we have been very clear about that. reallocating our capital plan. And as I have been as I have and I continue, this is not the right time for me to go into detail about what that looks like on this call.

I have no intention of racking and stacking what we would do with that capital and how we would reallocate it. But I want you to know that there will be action in the event of inaction on the part of the legislature.

Shahriar Pourreza: Got it. Perfect. And I think you would hear from us shortly after the legislative session about that Appreciate that, Patricia. Appreciate that, Patty. Yeah. And then just on Dixie and Kinkade, cost recovery, I mean, the ALJ just set a settlement conference for July 31st. And evidential hearings are set for August 17th to the 20th. I guess, anything to read into this Can you settle? What could a settlement look like? Thanks, guys.

Carolyn J. Burke: Yeah. Hi, Shar. it is Carolyn. That settlement conference date has been part of the schedule that is just really standard in almost every case. As we have shared previously, we are always open to settlement, but at this point in time, like, we are just very focused. That we presented a very strong case. And the next steps in the hearings, as you have just talked about, the hearings are in August, briefs are in September, and then we still expect a PD in November.

Shahriar Pourreza: Got it. Fantastic, guys. Thank you so much. See you soon. Thanks, Shar.

Operator: Your next question comes from the line of Steven Fleishman with Wolfe Research. Please go ahead.

Steve Fleishman: Morning, Steve. Hi. Good morning. Good morning. So I think you made a pretty good case of how things are going well across the spectrum of shareholders, customer rates coming down, improvement in operation performance, and the like. Do you feel like the policymakers are, like, seeing this and understanding that these improvements are here and that there is subject to big changes. I mean, I do not know what plan b would be, but some of these things could have to be changed if they do not do anything.

Patricia Kessler Poppe: Well, you know, Steven, we have worked hard to make the case that our, simple affordable model works. I think the proof has definitely been realized, but perceptions lag actual performance. And so when we say performance is power, we know that it takes time for people to believe and see the consistency of that performance So I can appreciate that my legislators still gets pressure from customers that they want more from PG and E, and they have higher expectations of us, and we believe that we can live up to those expectations best with our current plan. We think our capital plan and our simple affordable model absolutely is the right plan. We love our plan.

And so we hope that they are noticing. We are certainly making a case I was with a legislator who will be left unnamed, but I said, are you aware that we have reduced our rates 5 times? And he said, I am aware. I have gotten the message. So I do think, our communications have been breaking through the fog. All that to say, I think I think wildfire legislation is a complex subject, and I do not envy the amount of work that our legislature has on their table. But they have given good signals that they obviously think that they need to find a path that works for customers. Look. The case for inaction is clear.

The CEA study shared that wildfire related charges now account for approximately $20 to $40 per month, as much as 14% to 19% of monthly bills that is a legitimate cost of inaction And so I do believe that is why you know, we are seeing, discussions happening and we are very supportive and working closely and are resolute that a good outcome is absolutely possible. But we are prepared in the event that it does not occur.

Steve Fleishman: Okay. And I guess 2 other questions. First, just on the--, there are a number of different things that were mentioned, the CA report and obviously, we know what some of the utility and cost of capital access issues are that need to be resolved. But how about some of the other issues were mentioned on things like tort reforms and insurance reforms, things like that. Just any sense on progress in some of those kind of other areas And then the last question is just on maybe you could give us any takeaways from the investor letters that you sent in to the commission the other night.

Patricia Kessler Poppe: Yeah. Great question. First of all, I think the tort reform and the insurance reforms, all of it is still on the table. Nothing's off the table yet. I believe that there is certainly conversations. I think what is important to us to be clear is what is an acceptable outcome for utility customers and utility investors. Which when the governor did his executive orders specifically pointed to financial health of the utilities. So investment grade at the utilities is very important for customers, very important for California, particularly in this growth era that we are entering. We need to have access to-- the state needs us to have low cost access to low cost capital.

So I would say nothing's off the table, but we have been really clear about the fix for attracting capital does not necessarily require the whole society approach. there is very specific things that make it more durable, predictable, and affordable for investors. And so we are not losing sight of that. As it relates to the investor letters, I really appreciated our investors speaking clearly directly to us about what they see and we felt it was important that the CPUC hear from them as well.

I think the CPUC has been interested in hearing from the capital markets to understand what is the necessary steps to attract capital here in California And so those letters were a means of us being able to share what investors are saying directly to us with the CPUC. Great. Thank you. Yep. Thanks, Steve.

Operator: Your next question comes from the line of Nicholas Campanella with Barclays. Please go ahead.

Nicholas Campanella: Hey. Good morning. Thanks for taking the time. Good morning. Just on the comments on reevaluating the plan, just understanding you have this GRC that is been filed, how does it intertwine with that? And would you have to-- if you were to go to a plan B, would you come and materially update that? Are you too far along in that process? And would we expect that to kind of get pushed to the right? Can you kind of comment on that?

Patricia Kessler Poppe: Yeah. Nick, that is a great question. As we look at the GRC in our filing and any kind of shift to the capital plan, obviously, we would have to integrate that. We do not know that it would necessitate require any kind of additional filing or filing modifications But certainly, we would make sure that the capital that, we are looking at still enables us to meet our first order obligations and our obligation to serve safety and reliability are our key obligations, and compliance obligations we would certainly fulfill.

So that is the balance that we would have to seek, but we do not think it necessarily would require any kind of change in our GRC filing, and we certainly would not want it to affect GRC timing.

Carolyn J. Burke: And I will just remind you, Nick. 2 things. 1, always plan conservatively. So our filing does not necessarily represent what is fully in what is in our plan because of our assumptions there. And then 2, just remember, our, FERC represents $20 billion of our $73 billion plan. it is not all CPUC capital.

Nicholas Campanella: that is great. And then in that spirit on the $73 billion you have this big portion that is FERC. Is there just anything that you could offer on how much of $73 billion is really on reliability and resilience versus, say, things that are more growth-oriented to facilitate economic development for the state. Or otherwise programs that could be looked at? Thank you.

Carolyn J. Burke: Yeah. If you look in the appendix, we have a we have a chart. there is about $16 billion related to resiliency, which is our system hardening, and then there is another $23 billion related to capacity and new business. Thank you.

Operator: Your next question comes from the line of Carly Davenport with Goldman Sachs. Please go ahead.

Carly Davenport: Hey. Good morning. Thanks for taking my questions. Just 2 on the data center pipeline updates that you guys provided. First is, how do you think about the potential of this cluster study load to move through the pipeline versus prior studies? I guess just kind of trying to get at the characterization of the quality of the projects and these applications.

Patricia Kessler Poppe: Yeah, Carly. it is a great question. We learn every day further about which of these projects are the highest quality I think there is a couple factors that will drive the quality. I do not think we can predict today which of them will flow all the way through. We know they will not all, but number 1 criteria is they must be rate reducing. And so, therefore, we have to price it right. it is actually quite simple. I know there is a lot of conversation about all of these matters, but the bottom line is you get the pricing right, then that can convert into the 1% per gigawatt of new load, a 1% rate reduction.

So or more. We assess all of them first, and that is why the cluster study process is powerful. It allows us to provide them adequate pricing visibility. Then we have added in the final engineering this WPA, which, allows for more significant capital upfront. it is about 10% fee that they pay And so we have more and more confidence as the projects flow through this pipeline. And so when you see them in final engineering, they have higher probability, obviously, than pre engineering. What we know right now and what we have been clear about is we expect about 1.8 gigawatts to be online by 2030 of this pipeline.

Now some of these earlier projects have faster speed to power or have direct connect, for example, to our 500 kV in the Central Valley, things like that, that may, enable us to increase that number by 2030. But right now, our real important planning assumption is about a 1.8-gigawatt addition of load by 2030.

Carly Davenport: Great. that is super helpful. And then just a follow-up. As you think about the interconnection process, do you see any potential changes coming from CAISO's response to the FERC show cause order relative to what has been ongoing with the rule 30 process?

Patricia Kessler Poppe: Yeah. It could be. It could be. I think, our process has improved a lot here in California. In the last several years. And so that is becoming less of a deterrent, I would say. it is not necessarily it does not slow us down so much. But I would say that, we are looking forward to continue to collaborate with CAISO and see what they file back to FERC. If there are improvements, that would be, helpful. We cannot help but think that AI can help us do more simultaneous engineering faster.

And so I am hopeful that we could have some in improvement to that interconnection process just in the engineering portion. that is just the portion that we own. So we are looking forward to continuing to collaborate that. Anything that we can do to reduce cost and improve speed, in order to get that load growth that rate reducing load growth online faster feels great to us. So we are very much, dialed in on that objective. Great. Thank you. Appreciate the time.

Operator: Your next question comes from the line of Richard Wallace Sunderland with Truist Securities. Please go ahead.

Richard Sunderland: Morning, Richard. Hey. Good morning. Thanks for the time today. Know, I will stick with the data center topic and just some of these newer disclosures. It looks like the number of projects for preliminary versus final engineering in the pipeline implies a much larger average size out of the latest cluster study? Can you speak a little bit more to the type of project you are seeing now? If this is changing or if this is more reflective of where projects sit in the pipeline overall?

Patricia Kessler Poppe: Yeah. We have started to get some interest on some of the larger projects. Until now, we have had a lot of you know, as I affectionately called them Goldilocks projects, lots of smaller, expansion of existing facilities, facilities that are concentrated in the Bay Area and so constrained in geography and size and scope. And as the cluster study process has become more visible and people realize that we have more capacity in California than they thought, and that we have been adding capacity, and we have transmission capacity. We have had more applications for these larger projects in the mix.

But we continue to be at the 1.5-gigawatt or smaller size of projects, and the bulk of them, however, are the sub gigawatt projects.

Richard Sunderland: Got it. that is good context there. And then we touched on a few of these themes over the course of the Q&A, but circling back to I guess, the rate case and your comments on perception, lagging performance, I am curious how you are seeing the rate case process itself play out in this light. Any thoughts on sort of where you stand to date? And particularly in light of the rate reductions versus affordability attention overall how that is factoring into the GRC.

Patricia Kessler Poppe: Yeah. I think the GRC was well received. Look. it is the lowest general rate case we would filed in over a decade. If fully implemented with our full ask, rates would be flat from 2027 to 2020. that is a marked departure from this last, decade of significant increases. And then combined with our implementation of the simple affordable model, it is enabling a much more well, as you know, we are pursuing our path to flat, which is the 0% to 3% annual increase, so obviously below inflation. So, I would say the case was well received. We are in the, process as we speak. We have got upcoming dates.

We have got, reply briefs will be due tomorrow. And we have got a proposed decision expected in March 2027 and a final decision in May 2027. As you know, we have implied for interim rate relief so that we could have a better customer experience, smooth those rates out, because the implementation really should start in January versus midyear of next year. We would like to prevent the customers from having that price spike they experienced in the implementation of our last GRC. So we are hopeful that the interim rate recovery will be considered and implemented. Appreciate all the color. Thanks for the time. Yep. Thanks, Richard.

Operator: Your next question comes from the line of David Arcaro with Morgan Stanley. Please go ahead.

David Arcaro: Morning, David. Hey. Thank you. Good morning. Let's see. As you iterate on O&M cost reduction, efforts, I was wondering how do you see the sustainability of the 2% to 4% savings? And any, potential areas of upside, that you see emerging there?

Carolyn J. Burke: Yeah. Hi, David. it is Carolyn. I love this question. As I have said before, when I think about the numbers that we have put out there in terms of guidance, the O&M savings of 2% to 4% is 1 that does not keep me up at night. We still have plenty of room for savings. If you look at our capital to expense ratio, we hit 1.0 last year, which was an improvement, and then we are really proud of that, and we look to see and we are looking to improve it further. But our peers are at 2.0, well over 2.0.

And so we have some room for improvement and our O&M continues to be an area of high focus. The places where we see real potential are, in particular, strategic sourcing We are really beginning to see some savings there, but there is still plenty of room to go in terms of how we source our significant materials and external services. And then 2 is AI. We have really only just really started to scratch the surface of being able to implement some AI solutions to the way we do work. This is something that we are excited about. Got it. Yeah. Absolutely. Okay. Great. Thanks for that.

David Arcaro: I was also wondering if you could touch on just the current fire season, how it is shaping up so far in your service territory, what it looks like maybe through the rest of the year, from where you sit today?

Patricia Kessler Poppe: Yeah. We would say that this year's conditions are, and actual ignitions and acreages have been similar to last year. But as we look at it, you know, we just we do not think about it that way. We think about it as being ready every day. We do not prepare. We are prepared. We are prepared 365 days a year regardless of the conditions. And as I shared, our continuous monitoring has like, it just has continued to improve our visibility to our grid and all of the, potential faults and failures, you know, that continuous monitoring already this year, we have had 1.08 thousand good catches of potential outages.

13 of those could have been potential ignitions We just see technology and innovation every single day from our wildfire team and our continuous monitoring center. I was just there this week. So excited about what it foretells both on a wildfire prevention, ignition prevention, seeing the way it works is these sensors tell us when something is gonna fail before it fails. That prevents the ignition. In fact, while I was standing in the continuous monitoring center, there was a fault alert that a pole was leaning. Now come on, guys. We used to walk past the pole once a year.

Now we have daily continuous monitoring of our poles with these sensors, so I cannot overstate the safety enhancements and reliability and cost because now we can plan to address that poll on planned work bundle it with other work, and lower the cost to resolve that issue before there ever is an issue. So I cannot overstate the value of that And so I guess to your point, the fire conditions are what the fire conditions are. We are ready. Excellent. Thanks so much for the color. Appreciate it. Thanks, David.

Operator: Your next question comes from the line of Anthony Crowdell with Mizuho. Please go ahead.

Anthony Crowdell: Hey. Hey. Good morning. Hi, Anthony. How are doing, Jonathan? I thought we were going to say congrats for the big win, but it did not work out as well. Sorry.

Patricia Kessler Poppe: Too soon, Anthony. Too soon. Too soon. Do not tell you are asking anybody. Just 2 cleanup questions. And I know you are not looking to talk about plan B, what that may entail, but just on Slide 24, I think a follow-up from Nick's question.

Anthony Crowdell: You do identify the buckets of your future capital plan. Would you be willing to tell us maybe what bucket of spending would be most at risk on a plan b?

Patricia Kessler Poppe: I think the only thing we are willing to say about that is we have to evaluate all of it, but we are never going to sacrifice safety or compliance or obligation to serve. And so, obviously, our customers' well-being is number 1. But then number 2, recognition of the capital that has, you know, come from the equity markets. it is your capital, and we need to think about how best to treat that. Great. And then 1 follow-up to David's question.

Anthony Crowdell: Carolyn, you talked about where you are where the company is on a capital to expense ratio, where maybe the target of getting to 2x or 3x. I am just wondering if you want to highlight maybe or talk about the timing that you think may require to get to that level.

Carolyn J. Burke: Yeah. In our capital plan, if you are look at our 5 year plan, we get to 1.7x by 2030. that is I would hope to beat that. To be honest. And the teams, you know, we are we are using our lean playbook. As I have mentioned on our call, we have thousands of improvements coming from employees. From our coworkers that are working every day on behalf of our customers become more efficient, and they are exceeding our expectations every year. So right now, it is 1.7 by 2030, but I am hoping that we exceed that.

Anthony Crowdell: Great. Thanks so much for taking the questions.

Operator: Your next question comes from the line of Gregg Orrill with UBS. Please go ahead.

Gregg Orrill: Good morning, Gregg. Yeah. Hi. Good morning. Thank you. Regarding the rate case and the request for interim rates What is your case there, and how does that affect the financial plan whether you get it or not?

Patricia Kessler Poppe: Yeah. It does not affect the financial plan. It just affects the customer's experience. And so the way given our rate making construct here in California, whenever we get the final decision, we get to, allocate those earnings that year. So no earnings impact. But what it does impact is customers would be paying both for the rate increase plus that which had not been collected yet. And so you can have a pancaking effect And that happened in our last GRC, and it was very notable to customers.

And so in this affordability environment, we would prefer to see that rate collection spread throughout the year so we have made a proposal at 55%, 75%, and 85% of the total revenue requested. And we are hopeful that the commission will see the value in doing an interim rate recovery. And then what happens is if we over collected, then we would do a return. But, again, the total revenues are captured in the calendar year as per our regulatory accounting standards. Appreciate it. Thanks.

Operator: Your next question comes from the line of Ryan Levine with Citi. Please go ahead.

Ryan Levine: Hi. A couple of follow-ups. Are you seeing any unlocks of any of the new AI models reducing wildfire risk? Should we expect a meaningful update in the data center outlook as Rule 30 outcome becomes determined?

Patricia Kessler Poppe: Yeah. So, a couple of things. On the Rule 30, we were allowed to have interim, implementation of that rule. So that, I would say, is reflected in our current pipeline. It will be great when we can have certainty about that. And I do think the FERC, order to show cause may cause us to spend some time making sure that whatever we implement meets the needs of both of those. And, Ryan, sorry. What was your first question?

Ryan Levine: Around the new AI models. Yeah.

Patricia Kessler Poppe: Yep. Yeah. Yeah. I would say we definitely are using AI, for wildfire and have been. The new models per se were always continually improving our technology adoption Our biggest utilization of AI is certainly in meteorology, in predicting, our fire conditions, and the fire situations, we use machine learning with our smart meters, which has been a big enhancement as of late. We take signals from our meters that previously were unutilized, and we can now triangulate those with some of the sensor technology as well as just the smart meters themselves and go ahead and see faults on the service lines, to homes, which is a whole new advancement.

So that is been a very important adoption of AI for wildfire. Yeah.

Carolyn J. Burke: In addition to that, like, we have over 650 high-definition cameras out in our service territory, and that is allowed us to be 18 minutes faster, in response versus our traditional methods. Yeah.

Patricia Kessler Poppe: Those cameras send automatic notifications to our wildfire responders. Across the state, and we can oftentimes-- fires are-- well, the in the past, they required somebody noticing and having the wherewithal to pick up the phone and call someone. Now these cameras automatically notify first responders So, as Carolyn mentioned, 18-minute faster response. Can be the matter of a catastrophic fire to a very containable fire. Thank you. Yeah. Thanks, Ryan.

Operator: And ladies and gentlemen, that does conclude our Q&A session. I will now turn the conference back over to Patty Poppe for closing comments. Thank you, Krista.

Patricia Kessler Poppe: Well, thank you, everyone, for calling in today. We remain encouraged by the progress on SB 254 Phase 2 and the continued focus on a durable solution for California. In the meantime, our team is focused on delivering safe, affordable, and reliable service every day. This is the team for the time, and we have a plan to serve. Thank you for joining us, and please stay safe out there.

Operator: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation and you may now disconnect.

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