PG&E Corporation Status update

Hello, and thank you for standing by. My name is Lacey, and I will be your conference operator today. At this time, I would like to welcome everyone to the PG&E Corporation Post-Legislative Session Update Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. Please limit yourself to 1 question and 1 follow-up. Thank you. I would now like to turn the call over to Jonathan Arnold, Vice President of Investor Relations.

Thank you, Jonathan. Good morning, everyone. Earlier today, we announced that our board of directors has authorized a strategic review. This review will evaluate the full range of regulatory, financial, operational, and strategic alternatives, including how PG&E is organized and financed, with the goal of best serving our customers in California. Becoming a financially strong, investment-grade company is a foundational objective of this review. As part of this, the company will seek input from California regulators and policymakers, investors, and other stakeholders. Today, I'll cover why we're initiating this process, other actions we're announcing, and what they mean for our financial outlook. First, I want to set some context. California has the talent and ambition to lead the world in innovation, economic opportunity, and the clean energy transition. Realizing that potential requires a well-functioning energy system capable of meeting growing demand.

At PG&E, we understand the responsibility we carry. We power the homes, hospitals, schools, farms, businesses, and infrastructure that keep California moving. That responsibility includes continuing to invest to reduce wildfire risk while being held accountable for operating our system safely every day. This is a consequential moment for PG&E and for California's energy future, and I also believe it can be a turning point. Over the last few years, our team at PG&E has been dedicated to transforming the company for the benefit of our customers. During this time, we've made meaningful, quantifiable improvements in wildfire safety and delivering on our commitments under our Wildfire Mitigation Plans. As of today, we're in our fourth consecutive year of no major wildfires associated with our equipment. Our reliability has improved by more than 30% over the past 2 years.

We've implemented the Lean Operating System, consistently exceeding our annual target of 2% O&M reduction, delivering savings, and improving service to our customers. We've partnered with many of the world's most innovative companies to modernize our energy system, a recent example being our continuous monitoring program. All the while, we've made electricity more affordable, lowering rates five times since January of 2024. Those are real results delivered by my coworkers. They prove that this company can change and that we are changing. They also demonstrate something else. Improving our performance alone is not enough to solve the challenges created by California's current liability framework. Despite our progress, the current framework continues to translate wildfire risk into higher financing costs, limiting our ability to fund the energy system California needs at an affordable cost.

Something has to change if we're going to preserve affordability, improve reliability, and continue making the investments needed to keep our communities safe. Our progress gives us confidence in what PG&E can accomplish. Having a policy environment worthy of investment-grade credit ratings is essential to attracting affordable long-term capital and funding the work our customers need. Combined with continued execution of the Simple, Affordable Model and an unwavering commitment to safety, we believe that we can deliver on the priorities of our customers and California policymakers. Over the past few years, it's become increasingly clear that targeted reforms to our state's wildfire liability structure are required for California utilities to affordably deliver the energy future that our customers expect. This year's legislative session ended without wildfire liability reform.

The governor provided real leadership on a complex issue, yet he himself said that the work here is not finished and that this system needs broader structural reform. We agree. Two things determine whether the company can attract capital at a cost our customers can afford. The first is a permanent source of liquidity beyond the current Wildfire Fund, which ensures that sufficient funds are available to pay claims if needed. The second is a maximum disallowance that is independent of the funding source, setting a known and quantifiable downside tail risk for investors. Neither has been addressed. We have concluded that PG&E cannot simply wait for the policy framework to change. We must take action now to sustainably serve our customers. That's why we're moving to reinvent PG&E, building on what is working and changing what is not. Today, we're announcing two specific actions.

First, as a near-term step, we're planning to reduce our 2027 capital investment by $2 billion from $13.4 billion to $11.4 billion, bringing next year's plan closer to 2025 actual levels. This will allow us to borrow less at a time when financing costs are high, helping reduce the cost ultimately borne by customers. Some work will be delayed or deferred, but we will never compromise on safety. We will carefully select the affected work so that we can continue to deliver on our critical safety programs and continue to maintain our current compliance performance, including our Wildfire Mitigation Plan and safety certificate requirements. The lower capital plan reduces our 2027 utility and parent debt needs by approximately $1 billion each. This will directly benefit customers through lower financing costs. In addition to this near-term action, our board of directors has also authorized a strategic review.

Our goal is to identify a solution that can attract affordable long-term capital to California and finance the work our customers need. Achieving that objective is essential to preserving affordability and supporting the energy investment that California's future requires. That's why we intend to consider the full range of options for how PG&E is organized and financed with investment-grade credit remaining a foundational objective. As part of our review, we'll seek input from California regulators, policymakers, and stakeholders, including our investors. We'll bring the facts, the options, the openness, and the urgency this moment requires as we work together to build a sustainable path forward. Key guardrails will include maintaining our safety commitments, delivering on commitments to the Wildfire Fund and Continuation Account, honoring all of our labor agreements, including pensions, and identifying durable, sustainable solutions that allow us to best serve our customers, our coworkers, and our investors.

The status quo policy framework does not deliver what any of our stakeholders need. We will keep working for policy reform, and we intend to be a constructive participant when lawmakers return to it. But we cannot plan around that alone. We must now be open to considering additional ways to unlock value for both customers and investors. The PG&E team is already working actively to identify the best path forward and will get input from key stakeholders so we can proceed with confidence and urgency. We expect to provide updates on our regular quarterly calls. Turning to our financial plan. Today, I'm reaffirming our 2026 core EPS guidance of $1.64 to $1.66, based on our first half results and the progress we've made this quarter. We're also initiating our 2027 core EPS guidance range of $1.78 to $1.82, which at the midpoint is up 9% over 2026.

While slower capital spending will reduce our 2027 rate base forecast, we expect the earnings impact to be offset by lower unrecoverable net interest. Considering our strategic review, we're no longer providing five-year CapEx and rate base guidance or an earnings growth rate beyond 2027. We anticipate providing a new long-term outlook at an appropriate time once we're further along with our review. We do not take any of these decisions lightly, and they are collectively motivated by our desire to deliver safe, affordable, reliable, and clean energy. Our customers deserve nothing less. The last six years have been an extraordinary example of what people can do when properly aligned. I am so proud of the people of PG&E. Our equipment and our people are essential to the daily life of every Californian. No one should be confused about that. We've done the hard part.

We have transformed the operations of this company. We've never been safer and have never operated better. That's a great foundation on which to build the coming era of PG&E, and it starts today. Thank you for your time this morning, and we're now happy to take your questions.