PG&E Stock

Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. I'd like to welcome everyone to the PG&E Third Quarter 2026 Earnings Release. [Operator Instructions]

At this time, I would like to turn the conference over to Jonathan Arnold, Vice President of Investor Relations. Jonathan, please go ahead.

Good morning, everyone, and thank you for joining us for PG&E's Third Quarter 2026 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 and other matters. These statements 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 September 30, 2026.

With that, it's my pleasure to hand the call over to our CEO, Patti Poppe.

Thank you, Jonathan. Good morning, everyone. Our core earnings per share were $0.41 for the third quarter and $1.24 for the first 9 months. Today, we're reaffirming our 2026 EPS guidance of $1.64 to $1.66, up 10% from 2025 at the midpoint. We're also reaffirming our 2027 core EPS guidance of $1.78 to $1.82, up 9% at the midpoint. While we're no longer providing guidance beyond 2027 during our strategic review, we already addressed our anticipated equity financing needs through 2030. On the common dividend, we typically set our annual rate for the upcoming year in December. And for 2027, you should expect our recommended increase to be consistent with our prior stated trajectory.

Turning to Slide 4. We know there are 2 topics that are top of mind today, wildfire policy reform and our previously announced strategic review. First, on wildfire policy, comprehensive reform has not yet been enacted, an action is needed to address the tail risk that exists under the current framework. At the same time, it's important to recognize that California's utility wildfire framework has evolved significantly from SB 901 in 2018 through AB 1054 in 2019 and most recently with SB 254 last year. Along that journey, our state policymakers have established important and substantive features, including self-insurance up to $1 billion. Liquidity from the Wildfire Fund and Continuation Account, a revised prudency standard, a presumption of prudency for utilities meeting rigorous safety certification.

Limits on Wildfire Fund reimbursements is found in prudent and precedent for securitization of claims exceeding on capacity. Collectively, these protections have strengthened California's ability to compensate wildfire survivors while supporting safe, reliable and affordable service. Yet, key voices have plainly acknowledged that there is more work to do, including Governor Newsom, the CPUC, the Wildfire Fund administrator and the credit rating agencies. We remain committed to working constructively with policymakers and stakeholders to build on the progress California has made to date. We look forward to the Governor's requested CPUC report due November 1, and which should further quantify the unsustainable impacts of the current framework on California and utility customers.

While legislative action has not materialized yet this year, we're moving forward to unlock value for customers and investors. As you know, since 2020, we've been reinvesting nearly all of our earnings into the system to benefit customers. However, sustaining this level of investment requires a wildfire liability framework that supports affordable access to capital, reflecting current high financing costs, we previously announced a $2 billion reduction to our 2027 capital plan, and we recently began notifying customers whose projects may be delayed. These changes will affect the connection of new clean energy resources, system expansion to meet growing demand and new or upgraded customer projects, including those supporting much-needed housing in California.

We do not take those impacts on our customers lightly. But our current financing cost is too expensive for them. With our strategic review, we've also taken the initiative to start exploring solutions which could add protections and unlock value for customers and investors. As we announced on September 2, we are assessing the full range of options for how PG&E is organized and financed. A key foundational objective is to achieve investment-grade credit ratings which we view as critical to maximizing the value we can deliver for our customers. While policy reform through legislation remains the fastest and most effective solution, we're also evaluating other options, including possible regulatory reforms, further reassessing our capital allocation priorities and revisiting our corporate structure.

On structure, options range from corporate ring fencing to sales and separations. Today, a discount for wildfire risk burdens all of our assets, including businesses with little or no exposure to that risk. Our review is evaluating whether alternative structures could better reflect the value and risk profile of those businesses in order to lower financing costs for customers. We expect to share the outcome of our review and our planned path forward with you no later than next summer.

In the meantime, we plan to keep you updated on our progress through future earnings calls or sooner if there are material developments to share. The important point is this, PG&E has more than one way to move forward and create value. We have several attractive businesses with unique and hard-to-replicate assets providing essential electric and gas service to over 16 million people in the service area that includes the heart of the world's innovation economy.

Turning to Slide 5. The story here is simple. Our investments are producing measurable results. Today, our hazard awareness and warning center has real-time visibility across our system through more than 700 AI-enabled cameras and 1,600 weather stations. The results are clear. We're now in our fourth year without a major wildfire associated with our equipment and our weather-normalized ignition rate has declined 74% since 2017 to its lowest level since we began tracking the metric. We're also seeing tremendous progress in our gas business, where aerial and drone inspections have significantly improved leak detection efficiency and safety performance.

Additionally, we remain first quartile in both dig in performance and emergency response with first responder arriving on site at an average of 20 minutes. We're also on track to achieve a 62% reduction in annual methane emissions compared to the 2015 CPUC-approved baseline, continuing to outperform our 2030 target. We've made similar improvements across our large and growing transmission and power generation businesses. Our electric transmission system spans 18,000 circuit miles with $13 billion of FERC rate base along with significant opportunities to increase investment in the future, while our power generation portfolio includes 7.8 gigawatts of capacity including our hydro system and top-performing Diablo Canyon nuclear power plant.

Turning to Slide 6. We're continuing to build a high-quality data center pipeline and providing visibility into how projects advance from application to energization. This quarter, we're showing a new category for megawatts that are now successfully connected to our system and receiving service. Since 2024, we brought approximately 174 megawatts of data center projects online. As we look to bring more of our pipeline into service, our focus will continue to be on doing so in a way that will improve affordability for existing customers. We're focused on connecting the right projects, pricing them right and ensuring large load customers make meaningful financial commitments as they advance through the process.

Turning to Slide 7. There's a common thread across the themes I've discussed this morning. Whether it's continuing our transformation and strengthening our layers of protection, advocating for durable wildfire policy reform, advancing rate reducing load growth or progressing our strategic review. We're guided by a simple principle. What's good for our customers is ultimately good for our investors and good for California. We'll continue to stay grounded in our customer-first approach and pursue opportunities to deliver a safer, more reliable and more affordable system so that our customers and shareholders can prosper. We're proud of the progress we've made, and we're ready to tackle the work ahead.

With that, I'll hand it over to Carolyn to cover our financials in more detail.

Thank you, Patti, and good morning, everyone. Turning to Slide 8. We're showing you our earnings walk for the first 9 months of 2026. Our core EPS year-to-date has reached $1.24, up from $1.14 in the same period last year, keeping us on track to deliver on our full year core EPS guidance. In prior quarters, customer capital investment continues to be the primary driver of our earnings growth. contributing $0.12 over the first 9 months.

We also continue to make steady progress on our O&M savings goal with $0.04 year-to-date. This puts us on pace to deliver our savings guidance once again, while redeploying $0.02. Timing and other items reduced earnings by $0.04 year-to-date. This mainly reflects the benefit we realized in the third quarter of last year, from implementing a tax method change. While we benefited from the method change in the third quarter of both years, last year's third quarter also included a catch-up for the first and second quarters.

Turning to Slide 9. Our updated 2027 capital guidance of $11.4 billion reflects the $2 billion reduction we announced on September 2. You might have noticed that our 2027 rate base guidance remains unchanged. Many of the projects impacted by capital deferral has longer development and construction time lines and were not expected to enter service until after 2027, limiting the impact on next year's rate base.

We also continue to see strong operational execution across the company, including efficiently converting construction work in progress into rate base. We expect to finance our 2027 capital investments with cash from operations and $4 billion to $5 billion of utility debt financing, which includes around $1 billion of maturities. Importantly, with our updated capital plan, we remain fully committed to executing our Wildfire Mitigation Plan, maintaining our annual safety certificate and continuing the critical work required to operate our systems safely every day.

On Slide 10, we've made significant progress over the past several years improving our credit profile. The rating agencies have recognized for some time that our financial metrics are consistent with investment-grade performance. At the same time, they've also been clear that policy risk remains the primary constraint on further ratings improvement. That dynamic was reinforced during the quarter when Fitch revised its outlook on PG&E to negative and S&P highlighted the heightened risk faced by California investor-owned utilities. Together, these assessments reinforce the importance of a durable wildfire liability framework, which would support investment-grade ratings and more affordable access to capital for the benefit of our customers.

On Slide 11, we continue to execute our plan to reduce nonfuel O&M by 2% to 4% annually. Our results reflect the ongoing transformation underway at PG&E as we continue executing our performance playbook and eliminating waste. Turning to Slide 12. We're highlighting several important regulatory and legislative milestones. In our 2027 general rate case, we received a favorable proposed decision that would authorize interim rate recovery of $456 million to be collected over 12 months starting in January. If approved, this would promote more stable customer bills better align cash flow with costs and reduce financing expense. The commission may take up the PD as soon as next Thursday's voting meeting.

At the end of September, we filed our 10-year Electric Undergrounding Plan, or EUP, proposing 5,000 additional miles of undergrounding between 2028 and 2037. And building on the approximately 1,900 miles we expect to have completed by the end of next year. The plan contemplates an investment of $16.6 billion. That investment is expected to deliver approximately $117 billion of long-term customer benefits while also avoiding $6 billion of future vegetation management, operations and maintenance costs. Our safety regulator, OEIS, has 9 months to review the filing. And if approved, we would then submit the plan and an application to the CPUC for approval of the cost, which is also a 9-month review.

As a result, we expect to complete the approval process in the second quarter of 2028. Separately, last week, the CPUC issued a proposed decision on the benefit/cost ratio methodology for utility EUP. We're evaluating the PD and expect to submit comments by November 5, ahead of a potential commission vote as early as November 19. We are concerned that the proposed methodology will prevent undergrounding from reaching thousands of customers in high-risk communities. Even where it offers the most effective means of reducing wildfire risk and improving reliability at the lowest cost. Next month, we anticipate a proposed decision in our Kincade and Dixie cost recovery proceeding. As a reminder, this is the first wildfire recovery case for a utility operating under the AB 1054 safety certificate and benefiting from the associated presumption of prudency.

Finally, turning to Slide 13. The consistent execution, operational improvement and financial discipline we've highlighted this morning demonstrate PG&E's differentiated story. Our continued transformation benefits customers and investors today while strengthening the foundation for the future.

With that, I'll turn it to Patti.

Thank you, Carolyn. The facts don't lie. The foundational operations of PG&E are strong and improving every day. Our performance playbook is doing what we designed it to do, deliver for our customers. In the absence of wildfire liability reform, we'll keep advancing our strategic review with the ambition of becoming a sustainable investment-grade business that unlocks the full value of our company for our customers, our state and our owners.

With that, operator, please open the lines for questions.

[Operator Instructions] And your first question comes from Steve Fleishman with Wolfe Research.

So I guess just curious what signals, if any, you're getting on desire, interest of the legislature to address the wildfire liability this year? I know there's assembly hearings and maybe some more. Maybe you could talk about what you've heard on those so far. Just any sense that the Senate may want to look to do any hearings?

Yes. Well, thanks, Steve. Obviously, top of mind for everyone. And look, we continue to see progress. The hearing this week, I think, was effective at continuing to make the case that the status quo is unacceptable. And as long as nothing happens, no legislation is passed, our customers continue to pay. And it's a status quo that needs to be resolved. The job is not done yet. So we found the hearings that are scheduled next week, another one just got scheduled. So there's 2 next week that I think are addressing the right questions and the right issues. And we're encouraged by that.

In the meantime, obviously, we continue to lean forward and move forward on other alternatives to unlock the value. Obviously, policy reform would be our #1 desired next step. But we have a lot of value that is -- I would suggest trapped in the company right now. And so we're working hard to create parallel paths and move forward. But we're hopeful that the legislature does continue to act -- the Senate, we're looking to see if they would schedule any hearings that hasn't happened yet. But obviously, these hearings are very public, and the information is clear and many people and many key leaders in the state continue to speak that action is absolutely required.

And then I guess just related, just I think we're still -- are we still supposed to get the CPUC report on this topic, November 1. And just any sense of what may come out of that?

Yes. I think it will be another good case in why the status quo is unacceptable. I don't know how many different ways that people are going to be able to publish and say, but I expect the CPUC report to be substantive. They've asked really meaningful questions in their discovery. So we were providing very important information to them. It will be good for them to be able to share that November 1 with the -- at the request of the governor. We expect that, that is just another signal that the status quo is just unacceptable.

Your next question comes from the line of Shar Pourreza with Wells Fargo.

Marcella on for Shar. Thinking about the strategic review and without asking you to prejudge any specific outcome, can you just frame kind of the criteria that you're using to evaluate potential pathways? Specifically around weighing options ability to unlock value with their potential regulatory risk or reliance on processes outside of your control?

Yes. Great question, Marcella. Look, first and foremost, we unlock value. We want to target investment-grade business or businesses to unlock that value for customers and owners. Obviously, feasibility and ability to execute a transaction is a priority. A lot of people ask us about PacGen and what was different about PacGen when the regulator didn't approve minority interest. That was a totally different time and a different set of facts.

During that time, we were looking to raise cash and we're unable to share benefits with customers. We think in this scenario, we've got a much more compelling case to make with our regulator that, for example, our gas business. Our 4 million gas customers are paying sub investment-grade borrowing costs because it's part of the holdco related to wildfire risk, and that seems like an issue that should be resolved one way or another, whether it's resolved through policy reform, which would be great. And if not there, then would we unlock that value and lower borrowing costs for our gas customers through a regulatory approved spin or sale or separation of some kind.

Got it. Appreciate that. And then you spoke a little bit about conversations around the current legislator and state leaders. But any sense of conversations with [indiscernible] candidates or lawmakers who are running to be part of the next legislative body and how they're thinking about wildfire liability as potentially a day 1 priority?

Yes. It's -- the governor's race is not over yet. We do know that Xavier Becerra, who's the leading in the polls by a pretty wide margin today has stated publicly support for action. I think he's hopeful like we are that it doesn't -- we don't kick the can down the road into next year. That is certainly a possibility. But -- so he's spoken publicly that he's supportive of reform. We're hopeful that, that reform doesn't wait for that.

Your next question comes from the line of Nicholas Campanella with Barclays.

I guess in the last legislative session, there was obviously heavy input from the insurance industry right at the end. And I'm just curious if you could kind of elaborate on how conversations with that stakeholder has trended since then? Is there a possibility to kind of come to some type of agreement with them just to help increase the odds of any kind of special session?

Yes, you bet. So look, the reality is nothing was passed. No law was passed at the end of the session, and I'm stating the obvious, but in the nuance of what does that mean to insurance then that means insurance still needs to join in, in discussions about what is going to occur to make sure that claims are limited and our customers are not the infinite backstop for insured properties. And so I would suggest that conversations have been productive. They've continued next week's hearing on the 29th is intended to discuss subrogation, my understanding is. And so given that, I think we'll hear continued discussions with insurance as well as all of the stakeholders.

There's a wide coalition of interested parties, our builders, our real estate agents, our plaintiffs' attorneys, our environmental groups. There are large groups of stakeholders who are interested obviously, in making sure that this is an affordable framework and that is sustainable framework. And so those -- I would suggest those discussions continue and are constructive, and we'll hear more publicly next week through the hearing process.

And then I guess just you're telling folks that no later than summer, I guess you'd have an answer on the strategic review. Is this really that you guys are going to take time to do the work and finalize the plan by then? Or could you be actively kind of pursuing things today that could result in things happening to the corporate structure or maybe regulatory filings being made ahead of that summer date?

Yes. We'll definitely be updating to our normal quarterly process. And what we've said is we'll have more definitive determination by next summer. But as things occur, we'll obviously be communicating. And if there's something to be discussed between quarterly calls, we'll certainly do that. We are moving with a sense of urgency. We see real opportunity here. These assets are extraordinarily valuable, and they're operated by the best in the world. I would argue we have incredible people who operate the assets. They become very valuable. And I think our ability to unlock that value could take a lot of different forms.

And as we've said, policy reform is our first preference. And so hopefully, we could have some update on that sooner than next summer. But otherwise, these other alternatives as they materialize and as concepts and opportunities and potential filings become possible. We'll do -- we're not going to stick to the time line of -- we have to wait until next summer. We're going to work aggressively between now and next summer. We just wanted to be clear that there was a finish line in mind.

Your next question comes from the line of [ Ross Fowler ] with Bank of America.

So a couple of questions. Obviously, it seems like investment grade is sort of the foundational objective of the strategic review. So a couple of things on that. what's kind of the realistic time to get there? Can you do it on your own? Does it depend on legislative and regulatory outcomes? And is 14% kind of what we should mark to for an FFO to debt level?

So I would say a couple of things. We do think it's realistic. It's very realistic that this business be investment grade. The question is what's the best framework and organization of these -- our lines of business that we have today to maximize the value for our customers as well as our owners. And so some things we can do on our own, like capital allocation strategy, that would be a strategy to unlock value. We've -- as you know, we've held back on an aggressive dividend because we've been reinvesting in the business for the benefit of customers and for stabilizing the financials of the company and making our investment-grade credit rating.

We would look at capital allocation as a strategy. That's more -- that's probably the most independent. We would look at ring-fencing, we would look at, as we've said, other corporate structures that would enable would enable unlocking that growth. In those cases, the regulator obviously has an important decision-making role to play in that. But we would only bring it to the regulator if it was truly in the best interest of customers and actually created real value for them that we can pass along to customers. And I think given our valuation today and the valuation of these assets, and their actual physical value, there's some real arbitrage in that distance between the current valuation and what we think the true value of these assets are to provide benefits for customers.

And so we would think that we would have a compelling case for our regulator. So all that to say, I'll just reiterate that the fastest way to unlock the value is policy reform, which, of course, we are not giving up on. Yes. I'll just add that as we look at all of the alternatives through a lens of investment grade. We want to continue to target that mid-teens FFO to debt. So that's how we model things. That's how we look at things. And so that's the goal.

Yes, that makes sense. Cool. And then one more for me. I'm just trying to square these 2 things. I mean, clearly, I understand why there's no sort of guidance beyond '27 at this point as you go through the strategic review and you look over everything as you get to next summer. You look at all the alternatives in front of you, depending where policy goes and all the other things we're dealing with right now. But you have made -- declared a financing statement through 2030. So what gives you the level of certainty that there is no equity need in this business through 2030 when there's all the uncertainty related to CapEx rate base growth, earnings growth guidance, et cetera past '27?

So we funded our equity under our plan -- our original plan of a $73 billion capital program. And so we know that our equity program supports that. And so any alternative -- and we love that plan, by the way. We absolutely love that plan and want to execute for our customers under that $73 billion plan. Any other alternative would need to -- would support that -- any other alternative that we're looking at is equal or is equal -- would be equal to trying to support the $73 billion plan as well. And so that's where we feel comfortable that under any other option that we're considering that we would not need new equity through 2030.

Yes. And I'll just reiterate, we would not issue equity at these current stock price, our valuation, that's not an option for us.

That's certainly cost of capital I would say.

Yes. I'll just say, as we continue to look forward on our financing plans, the principles that we've talked about before still hold under this strategic review. We plan conservatively. We plan with customers at heart. We're always mindful of market conditions and particularly our current value discount, and our primary focus continues to be IG supportive metrics.

All right. That makes sense, Carolyn. And then you do talk about this amortization or the faster amortization of the Wildfire Fund. You're calling that out this quarter. That -- I mean, I don't think that accelerated amortization would -- it seems like an accounting consequence, I should say, rather than an economic and credit consequence because I think it's pretty well known that, that might -- that Wildfire Fund asset might change given other things going on in California, but kind of I'm just trying to check in and make sure that really has no bearing on your financing plan objectives, strategic review analysis.

That's right. It has no bearing. You're right. It's an accounting charge. We're just waiting for the right trigger.

Your next question comes from the line of Carly Davenport with Goldman Sachs.

Appreciate the time. Maybe just one on the data center pipeline. Any guidance on how we should just think about the pace and the opportunity to connect data center load the reduction to the capital plan? Any guidance that you can share sort of on where the data centers may fall in the queue of projects that could be impacted by potential CapEx reductions?

Yes. So first of all, keeping in mind that our pipeline is a multiyear pipeline and our capital reduction is today, specifically for 2027. We have -- we see that our 1.8 gigawatts of projects that we have previously signaled would online by 2030 remain in that plan. When we talk about our capital reset, we reduced $2 billion of capital, but we're still spending $11.4 billion of capital next year. So there's still obviously capital to deploy to our critical safety issues, our critical compliance issues and projects that are well on their way to reducing rates for customers, those are obviously very important to us.

As we think further on down the line during the strategic review, obviously, as we've said, capital allocation will be an area of focus, and we'll look at how we can continue to help power California's prosperity and our growth. But certainly, under this liability framework, we're limited in that way. That's why when Carolyn says, we love our $73 billion plan, it can help fuel that growth and prosperity for customers and lower bills. And bring jobs and new tax revenue to the state.

I would just advocate strongly that a healthy PG&E, a wildfire reform, wildfire liability policy that enables us to grow enables California to grow and prosper. And so we're fans of our -- what we've referred to as our Goldilocks data center pipeline and our ability to serve the tech industry of California as an honor and a privilege, but we need a liability reform that enables that to happen sustainably and for the long haul.

Great. Very clear. And then just a housekeeping item. On the dividend, is the shift in presentation there in the slides, just a function of the strategic review? Or is there anything more explicit that you're messaging there with the consistent growth versus the prior 20% payout guidance?

No, I don't think it's any new signaling there. As we've said before, with our strategic review, everything is on the table, including the dividend policy. But we've also been very consistent that for 2027 in particular, where we get a lot of questions is that you should expect 2027 to be in line with our prior trajectory, which is in line with the 20% by 2028, we've noted that it would be ratable ultimately, our Board will set the dividend in December of this year, but that's what we were signaling, but everything is on the table under the strategic review.

Your next question comes from the line of Anthony Crowdell with Mizuho.

Quick question, quick follow-up. I guess one on the strategic review. Is there a point -- you're very clear you hope to have it no later than next summer. Is there a point where that review becomes more urgent, whether it's credit rating action or another wildfire season? I guess, how flexible is that date on external factors? And then I have a follow-up.

Yes, it's a great question, Anthony. Obviously, as we go through the reform, we're we'll be watching current conditions and whatever conditions within which we're operating will have an influence on our trajectory. But what we're really looking for is a long-term sustainable business organization and financing model that deliver value. And we know that it can, and we know that this model works.

We know that the investor-owned utility model works for customers as well as shareholders and investors and owners and financing entities. And so we'll just -- we'll obviously respond to current conditions, but more importantly, have an eye on the horizon for what is our long-term value proposition and actually unlock that value.

Great. And a follow-up, maybe more focus for the legislature. But I'm just wondering, it seems like the cycle of decisions or when I think about the success of AB 1054 and SB 254 or both after catastrophic events and the legislature acted this year. Again, all of the physical enhancements that companies have made across the state, we really didn't -- unfortunately didn't have an event this year, but also weren't as successful in legislature. I mean, what decouples that of in order to get supportive legislative action, we don't want to have to have a catastrophic event.

Well, I will remind us, we did have a catastrophic event. Obviously significant one back in 2025, which is when this legislative package started. So this has been a 2-year package in response to the issues in 2025. And I would just suggest that the PG&E remaining subinvestment grade is a major issue that must be solved. And when Fitch put us on negative outlook, I think that really reiterated that inaction will continue to get increasingly expensive for our customers.

In fact, for all of the debt that we've issued as our -- in sub-investment-grade since 2017 will cost our customers an incremental $4 billion in interest expense over the life of that financing. That is a cost that can be immediately remediated with good long-term policy. So I'd like to think, Anthony, that we've got a real sense of urgency because customers are paying today. And our customers are waiting on our legislature to take the necessary actions to put us back in a position to be investment grade given we meet all of the criteria for investment grade, but for California liability policy.

Your next question comes from the line of David Arcaro with Morgan Stanley.

Sorry if this is a little duplicative, but I was just wondering if there is no special session if there weren't legislation passed this year? Would you consider that to be a potential catalyst for accelerating and taking additional actions within the strategic review?

Well, it definitely is a driver for the fact that the strategic review has been initiated. And so we will continue to do the work of that strategic review. I will reiterate that we didn't just start thinking about the strategic review. We started our internal process a year ago thinking about what would be our response or what would be our actions that we could take in the event of inaction. And so we've been working on this for some time. So we're not starting from a standing start. We've got a lot of momentum. We've been doing a lot of work. And so we want to make sure that we continue to operate with a sense of urgency.

Yes. Good. Understood. And then as you've had to make tough decisions around capital prioritization and deferring some of your CapEx? I guess I was wondering with the undergrounding plan, a very big amount of capital that you've proposed here. I guess how do you think about that in the prioritization of -- within the strategic review, how you prioritize capital? Is that something that would be kind of an anchor in your overall longer-term CapEx intentions? And how important is that in your overall thinking?

Yes. We think undergrounding is incredibly important, not for every mile but for the most risky miles. And so our 5,000-mile plan, which we've spread out over 10 years, takes in mind spreading that cost out over a longer period of time. It's just over $1 billion a year throughout the life of that 10-year plan. We think it's a very important part of risk reduction and cost reduction. The annual cost for inspections and vegetation management for those miles and the reliability impact and the cost of the reliability impact for our customers is real.

And so on those 5,000 miles, we think it's the most and best prudent deployment of capital. Obviously, that has to be approved by the commission. And as Carolyn mentioned in our prepared remarks, we're concerned with the current PD on the benefit/cost ratio that would dramatically reduce the number of miles we would do. We've got a lot of talking to do here in the state about that because we know that customers should not have to choose between being safe and being reliable and affordable. We think that undergrounding is the best answer in certain miles.

And so we would say, even in a capital -- recapital allocation world, that undergrounding is an important part of the plan. Now I will also say when we think of our $73 billion plan that we had previously declared, it was -- it's a small percentage of the total plan. So the plan doesn't hinge on underground. And I guess I just want to say out loud for the world to hear we're not doing undergrounding to make our earnings numbers and to grow CapEx. We're doing undergrounding to keep people safe. So as we think about the role that undergrounding plays, it's a key part of our safety investments on behalf of customers.

Your next question comes from the line of Richard Sunderland with Truist Securities.

I'll follow up on that last point around undergrounding and the methodology concerns. Could you speak a little bit more to how many miles of your filing would be impacted by that? I think you said significant potentially. But I guess, more importantly, how that would impact the quantified benefits you laid out in your filing?

Yes. We're still working through that on the exact number of miles that would result we use this benefit cost ratio. I think the thing that we're concerned about is it doesn't match the standard that we use for all other investment benefit cost ratios that we make. And so we're definitely concerned about the impact on our customers to that. So we're working through what those miles would be. And obviously, it's a proposed decision. And hopefully, we'll see some movement.

Got it. That's helpful. And then switching gears back to that November 1 CPUC report, I know you addressed this earlier, but thinking about the strategic review context alongside that, I'm curious if you have any sense of if this could have potential signals from the commission that could inform your strategic review? Or I guess, maybe putting this another way, do you see review opportunities that appeal logical to pursue and put in front of your regulators even if there is legislative action later this year?

That's a good question, Rich. We are thinking about that as we do all of this analysis and we see the value of our assets and the incredible people who operate them and the benefits to customers. If there's a customer beneficial outcome that even with legislative action would still be considered, we obviously will keep that on the table.

We do know that the fastest way to unlock value is policy reform. And so if that were to occur here in the near term, we'd be thinking hard about the scope and scale of the strategic review. But obviously, we're learning a lot about where we think the full potential of our businesses are, and like any good management team and Board of Directors, we're looking at the best way to unlock that value for customers and investors.

Your next question comes from the line of Aidan Kelly with JPM.

Maybe just going on the -- like the debt front of the strategic review. Carolyn, I know you mentioned kind of mid-teens FFO to debt as maybe a North Star to think about long term. I think like previously, you also mentioned like holdco debt below the 10% of total debt. Is that also kind of intact as well? Or is there kind of flexibility to revisit that threshold?

Yes. As we said, everything is on the table. And so we are considering both our debt profile, our capital growth and our capital return. And so I would say that we're not necessarily indicating any target for parent debt at this point in time.

Got it. And then just one kind of lingering question on the timing of the strategic review. I believe in the past in September, you kind of mentioned like maybe a default 12- to 18-month time line and now we're kind of seeing summer 2027 as the target. Is there any kind of rationale behind like the acceleration in that time line over the past 1.5 months, I know you kind of mentioned the urgencies, is it just as simple as taking that as the reason or is there anything kind of deeper to read into that?

Yes. When we have previously mentioned 12 to 18 months, Aidan, we were talking about that's typically what you would see from companies. We weren't intending to signal our time line. So that's what we wanted to clarify today. We want to be -- we want to really push to have a definitive direction forward that we can communicate by summer of next year.

Ladies and gentlemen, that does conclude our question-and-answer session. I would now like to turn the conference back over to Patti Poppe for closing comments.

Thank you, Krista. Thank you, everyone, for dialing in today. Look, our electric, gas and generation businesses are strong and they're operated well and they're getting stronger every day. Now while legislative action is still possible this year, we're moving forward, and we're advancing our strategic review. We're evaluating all our available paths to unlock value for customers and owners. And you can imagine that we're doing that with a sense of urgency. We look forward to seeing you at EEI. Please stay safe out there.

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

Hi, and welcome to today's S&P Global's Ratings webinar. I'm Gabe Grosberg, Managing Director and Sector Lead for S&P's North America's Regulated Utilities practice. Today's webinar is part of a larger series featuring interviews with utility industry CFOs. The industry has never been more complicated with considerable data center expansion, robust capital spending, high cash flow deficits and wildfire risk. I, along with Gerrit Jepsen, S&P's primary analyst for PG&E and Director at S&P's North America's Regulated Utilities practice, will be moderating today's discussion.

We are thrilled today to be joined by Carolyn Burke, CFO of PG&E. We want to thank the large number of investors who joined us on today's call. This webinar is primarily designed for our sophisticated fixed income investors and accordingly, we will first be asking your pre-submitted questions. [Operator Instructions]

Carolyn, prior to beginning our discussion, I believe it is extremely important to level set with investors as to where exactly S&P stands with regard to PG&E's credit quality and wildfire risks. As you see on the next slide, California investor-owned utilities operate with considerable higher risk than most of the utilities across the U.S. Prolonged periods of drought driven by climate change increase the likelihood of catastrophic wildfires. And under California's interpretation of inverse condemnation, utilities can be held financially liable for wildfires caused by their equipment regardless of negligence.

We have publicly acknowledged that absent California taking steps to reduce these risks, PG&E and Edison would likely be rated in the single B category. However, California did take steps to reduce these risks, including establishing a large wildfire fund and the liability cap. At the same time, as you see on the next slide, S&P Global Ratings assessed that these developments as highly supportive of credit quality directly contributing to our 2-notch upgrade of PG&E over the past 30 months.

However, despite California's efforts, significant risks remain. This includes the absence of an automatic replenishing mechanism for the wildfire fund. As such, as the fund depletes, the credit quality of the utilities, including PG&E that rely on the fund also weakens. Furthermore, when the fund is fully depleted, utilities also lose the protection of the liability cap. These outstanding risks directly impact the credit quality of California's investor-owned utilities. Because of these risks, as you see on the next slide, the ratings and outlooks for both PG&E and Edison are directly tied to the relative size of the wildfire fund.

Now, as you see on the next slide, if the California Earthquake Authority is correct that the Eaton Fire could deplete the AB 1054 $21 billion wildfire fund, then as you see on the bottom chart of the next slide, the wildfire fund balance will be reduced to only about $11 billion. Under such a scenario, S&P Global Ratings has indicated that we would likely downgrade Edison to the speculative grade and then California's 2 largest utilities that serve about 2/3 of all of California's electric customers would be rated in the speculative grade.

Now, getting back to recent developments, our base case assumptions for PG&E did not incorporate any potential legislative enactment that could reduce wildfire risk. And therefore, as you see on the next slide, when the legislation session concluded without any further wildfire reform, S&P Global Ratings affirmed our existing ratings and outlooks on both PG&E and Edison.

Now, Carolyn, with that brief background, PG&E did have an immediate response regarding the lack of legislative progress. And as you see on the next slide, the company announced a new strategic review and some capital spending reductions. So Carolyn, regarding the strategic review, your CEO recently elaborated in an interview that the company could consider ring-fencing both generation and gas operations. These businesses are not exposed to wildfire risk, but are being financially impacted by their association with PG&E's wildfire exposure. So first of all, can you please further elaborate on these potential initiatives?

Yes. Thanks, Gabe. First, can I just take a minute to thank you for the invitation today and particularly for sharing your perspective on wildfire risk and PG&E's credit. Your statement that you just made about a single B scenario and the absence of wildfire reform is really deeply concerning and it illustrates that the status quo does not work for our customers. I just want everyone, the listeners and you all to know that we're absolutely resolute to do what we can to support credit quality, and we're advocating for the state to take necessary action.

Now to your question specifically, under our strategic review, we're evaluating the full range of options available to us. Now the preferred path and the easiest for everyone is for legislation to get passed. And that opportunity isn't dead. And while it's certainly uncertain, highly uncertain, we're still hopeful that policymakers may act on that this year. But outside that policy reform under our strategic review, we're going to look broadly at capital allocation and all other options. As we've said, everything is on the table to make sure that we can meet our obligation to serve the state of California in a way that is affordable for our customers.

Now when we take a step back, what does that really mean? Our overall fundamental goal is to become investment grade and to be able to affordably deliver for our customers. And we have launched the review to open up that dialogue with our regulator and the state about how we can do that.

Yes. Thanks for that question, Carolyn. That's really helpful. Just as a follow-on question, why do you believe this strategy will successfully give the company's previous -- will be successful given the company's previous unsuccessful attempt to sell about 50% of its generation in 2023?

Yes, that's a good question. Maybe I'll just remind everyone, our PacGen minority sale proposal was filed in 2022, and that was under very different circumstances. The filing itself was -- and the objective was narrowly focused on efficient capital raising. Now today, 4 years later, we're in a very different situation. And importantly, there is a broad recognition that the status quo for us in California is completely unsustainable. And that's why we'll be engaging with regulators and other stakeholders now to identify solutions that can help address these shared challenges. So PacGen, different time, different circumstances. And today, we'll be working with our stakeholders and our regulators upfront.

Carolyn, I appreciate that perspective. As you see on the slide here, PG&E also announced about a $2 billion reduction in its capital spending plan for 2027. So could you please provide insight as to the rationale behind this decision? What are the company's objectives in reducing capital expenditures? And should investors anticipate further capital spending reductions?

Sure. Let me share. Like given the current wildfire liability framework, and as we talked about the resulting pressure on financing costs, we believe it's actually prudent to slow the pace of certain investments while we continue to fund the work that matters most, and that's focused on our safety and our compliance and serving our customers. And as you've noted in some of your reports, the utility model was designed to enable both the robust infrastructure investment that the state needs and, and the and is important, strong credit ratings. And that's what reduces the cost of ratepayers. That model is not working in California right now.

Now as for future plans, when we think about what we're considering, as I said, all options are on the table and are being explored as part of the strategic review, and that includes capital allocation and our capital program going forward.

Thank you, Carolyn. Given that capital spending reduction, what would be the impact to the company's operations?

Well, as we've always said, we're not going to sacrifice safety as we look at which work to delay or defer that is -- safety is going to continue to be priority #1. But there are impacts to our 2027 plan, and those changes impact areas like new housing, interconnect and new renewable generation, serving large load. And in our operations, though, what's very important, again, is that we keep our focus on the strong execution and pursuing efficiency opportunities under the Simple, Affordable Model. As you all have come to expect from us, I mean, you've seen our record over the last few years in terms of how we've executed and how we've been lowering our O&M.

But I'll say, honestly, it's painful for our coworkers. And of course, it's going to be painful for our customers as well, not to be able to deliver on some of this originally planned important work. We do our planning years out. And so to have made this decision is difficult for some of our coworkers who enjoy delivering for customers and our customers are at our heart. But honestly, this is just another example why wildfire reform is absolutely so critical.

Carolyn, thanks so much. We are receiving actually a lot of investor questions with regard to affordability. And also, we're definitely going to touch on PG&E's credit rating. But given that PG&E's issuer credit rating is currently in the speculative grade, the company maintains high capital spending and interest rates are more recently increasing, how does the company manage affordability concerns?

Okay. So we love this question because affordability is top of mind for us. And as I said, our customers are at the heart of everything we do. And so affordability continues to remain a key consideration in all of our long-term planning. And in fact, internally, we have an initiative that we call Path to Flat. And we are rallying all of our coworkers for them to focus on offsetting rate pressures through operating efficiencies, financing optimization, low growth and any other actions designed to moderate bill impacts and keep customer rates as flat as possible over time.

Remember, in our Simple, Affordable model, we target rates from 0% to 3%. And so this is really focused on trying to get to that 0%. Compared with many of our peers, we've already taken meaningful steps to reduce rates. I think I've mentioned this before, but I love mentioning it. We've reduced rates 5x in the last 2.5 years. But we're going to continue to make those investments needed to improve safety and reliability.

Now that said, the wildfire reform remains the major and critical headwind for affordable rates. And to quantify how that impacts rates over time, we actually looked backwards. We actually looked at our long-term debt issuance and measured our higher spreads due to wildfire risk compared to utilities with strong credit ratings, okay? So we took this calculation. And since 2017, higher spreads on PG&E debt issuances -- this is primarily due to wildfire risk. Have locked in approximately $4 billion of additional interest expense that will be borne by our customers over the life of those bonds. So it's -- to us, it's really clear that we need action from California to support our credit quality and to ensure our ability to affordably finance investment in the state.

Okay. Piggybacking on that. With the stated goal of reaching investment grade, why is attaining investment grade so important to PG&E? And what steps are required to reach this goal? Is it feasible to achieve investment-grade status without further wildfire reform?

Okay. As I said, customers are at our heart. So becoming investment grade is important to us because it's important to our customers and affordability. Strong ratings help customer affordability through the lower financing costs for our infrastructure investments. It is the prime example of efficient financing, which is a key component of the Simple, Affordable Model that we've talked about, that is our value proposition. But look, and we've been working really hard to get to IG over the last 5 years. And we are very proud, and I'm very proud of the progress all of our coworkers have made, both operationally and when you look at our wildfire risk and the management team that's been put in place and on improving our balance sheet and our credit metrics. I think you all would agree that we've done all the things within our control to achieve investment grade.

But since the fires in Southern California, the focus is on wildfire reform and action to ensure a durable construct. We're continuing to advocate for those changes, as I said. But honestly, we just -- we can't keep waiting for them, and that's why our strategic review has been announced. We find that the strategic review is actually opening the aperture for other pathways to achieve investment grade and a sustainable cost structure for our customers.

Thanks so much for that. We're actually receiving a lot of investor questions with regard to capital market access. As you see on the next slide, utilities such as PG&E typically operate with significant cash flow deficits. That's on the next slide, please. Due to substantial capital spending requirements, making consistent and full access to the capital markets is critical for maintaining credit quality. Given PG&E's recent decline of approximately 30% in equity valuations following the conclusion of California's legislative session and the absence of any additional wildfire reforms, do you believe the company continues to have full access to both debt and equity?

Yes. Thank you for that question. It's a really important one. It's really important for our regulators and our legislature as well to hear this answer. We may have access to both the debt and the equity capital markets, but it's not in the same stable, low-cost manner as our utility peers. Beyond the sub-investment-grade ratings, today, our stock is trading at more than a 50% discount to the utility sector. And that valuation gap means we cannot access capital at the same cost as our peers.

So the reality today is that equity investors are not just asking us to avoid issuing new capital, they are actually asking us to return the capital. We heard that just at a conference last week, and I heard that. I mean that's an extraordinary dynamic for a regulated utility designed to attract, not repel investors. We think that this is the situation that should be extremely concerning to policymakers who want stable, low-cost utilities to provide infrastructure in California. And as I keep saying, we are working hard to advocate for those changes.

Thank you, Carolyn. Just turning to Slide 18, kind of turning to regulatory filings. In November of 2025, PG&E initiated the fire -- first catastrophic wildfire proceeding involving the presumption of prudence under AB 1054, Assembly Bill 1054. The California Public Utilities Commission's review of this application includes costs paid by the wildfire fund totaling over $675 million as well as an additional $1.9 billion in costs PG&E seeks to recover that were not covered by the fund. Could you explain to our audience the significance of the commission's order for PG&E's credit quality and discuss its broader credit implications?

Yes. You're talking about our Dixie-Kincade cost recovery proceeding. We actually expect a proposed decision from the CPUC next month in November. And it is the first test of the new prudency standard established back in 2019 by AB 1054. This proceeding, it is being closely watched by investors and lenders who are looking for evidence that California's wildfire framework provides predictability and supports timely recovery of prudently incurred costs.

And so a constructive outcome here would reinforce the confidence in that framework and reduce uncertainty around wildfire cost recovery. And of course, because of that, it would then support continued access to capital that we need. That's why we think it's so significant. That's why we think investors and lenders are also thinking it is so significant.

Fantastic. Just moving on to the company's financial measures, as you see on the slide, FFO to debt has been maintained at about 13% since 2024. So for our fixed income investors, do you expect any improvement to this financial metric over the next 5 years?

Okay. That's a good question, and it's a pretty easy one. In all of our scenarios, we completely remain committed to mid-teens FFO to debt and metrics that are in line with investment-grade peers. This is, as I said, consistent with the fundamental goal of achieving investment grade that we've been very clear about all along the way. And it's actually a principle that underpins our strategic review.

Thank you for that comment. The company has now gone about 4 years without a major wildfire incident associated with its equipment. Operationally, PG&E has implemented measures such as PSPS, EPSS, high-definition cameras and enhanced communication with CAL fire. So how would you assess the company's current operational capabilities in terms of its ability to prevent causing a severe wildfire?

Yes. We continue to remain absolutely laser-focused on these capabilities and building them out. We actually have a stand at PG&E, and it's that catastrophic wildfires shall stop. Full stop. It's not wildfires shall stop in California. It's not wildfires should stop being caused by PG&E equipment. It's that catastrophic wildfires shall stop, and we absolutely need it.

We've invested in our layers of protection, and we're seeing that investment pay off, as you just mentioned, 4 years without a major wildfire incident. But our work is never done in this area. We're never satisfied, and we keep looking for additional tools to add to our toolkit. And we also view wildfire season as year-round. And our posture is to be able to prevent and respond regardless of the weather conditions. And so our continuous monitoring session is producing amazing results. It's really cool. And happy to have you all come and visit if you haven't seen it yet.

So -- but the Continuous Monitoring Center is giving us an ability to use our sensors and our smart meter data to predict actually where breakdowns on the system are actually likely to occur before they happen. So -- and this allows us to then proactively dispatch crews to address the issues before they become real issues. Now not only is that significant in terms of our stand in preventing catastrophic wildfires, but it's an affordability lever as well because it's far cheaper to do that preventative maintenance than to do the reactive type of work after an ignition.

In addition to that, in addition to our continuous monitoring center, we've also ungrounded over 1,200 miles. And we just filed last week, I think you probably have seen our 10-year undergrounding plan seeking approval to underground an additional 5,000 miles from 2028 to 2037. So again, we're never satisfied. We're going to keep adding to those layers of protection, and we love to share that with our utility industry and our fellow IOUs that are dealing with wildfire risk.

Carolyn, thanks so much for those insights. Let me ask a question that everybody is speculating these days. Do you anticipate a special legislative session? But more importantly, if a special session is not convened and there are no additional wildfire reforms that are enacted during the governor's remaining tenure, how likely is it that the next governor would address this seemingly contentious issue of wildfire reform?

Yes. We -- our investors are asking this very same question in a lot of different ways to us. And we're not putting specific percentages on the likelihood of a special session getting called. But I will say it's still an option. And we've seen the governor continue to be committed. We -- in fact, we know that this issue is still very much front and center for Governor Newsom, who has indicated publicly that more work is needed. And that reform needs to happen either during his term or during the next governor's term. This issue is, again, unsustainable and Newsom has called it out. The Chair has mentioned that he has -- he is aware of the untenableness of the situation.

So we also believe that right now the case for change has never been stronger. And there's also broad recognition that the status quo is not sustainable. And that's been -- you've seen that in the CEA report and the CPUC has been also very supportive of taking action now. But as we said, we can't wait. So in the meantime, we will continue to consider other alternatives under our strategic review. We do think the easiest path forward is a legislative action in the special session. But again, if that does not occur, we will continue with our strategic review and looking at other alternative options.

Okay. Just switching gears a little to pending electric and gas rate cases you have before the CPUC. You requested approximately $4.5 billion revenue increase over 4 years. That's a multiyear rate increases. However, the public advocate and the administrative law judge have recommended substantially lower rate increases. What is your perspective on the pending rate cases? And given ongoing affordability concerns, do you anticipate any significant challenges or complications?

Well, as we've discussed earlier, affordability is top of mind to us. It's really important, and it's a shared goal that we have with our commission. As I mentioned, we've reduced electric rates 5x since January 2024. But we've also exceeded our nonfuel O&M goals. We have a target of reducing nonfuel O&M by 2% each year, and we've been able to meet or exceed that 4 years running, and we're on track for our fifth year this year. So the Simple, Affordable model really does work.

And our 2027 GRC rate case, I'll just remind you, if approved in full, would keep bills flat to 2025. There's -- and we've seen a decrease in 2026, but so rates would be flat from 2025 with this GRC rate. And it's the lowest revenue requirement increase by any utility that's been requested in over a decade. So we feel like we've presented a really affordable filing that meets the needs of our customers, and it's affordable.

Speaking of affordability, currently in California, shareholders and ratepayers for the investor-owned utilities are effectively assuming the roles of insurers of last resort for anything related to wildfire risk. So in your view, is this model sustainable over the longer term? What, if any, are the viable alternatives that should be considered?

No, absolutely not. We believe, along with all the other California IOUs and a broad coalition that policy reform is needed because the current framework does not work and the status quo is not sustainable. And then if I were to boil it down to what we need to -- it's 2 things, right? It's a durable source of liquidity to pay claims that are -- that is outside of the fund. So the source of liquidity is outside of the fund. And then two, there's a true maximum disallowance or cap that is outside of the existence of any wildfire fund. We believe that these are the 2 items that will ultimately give investors and lenders the ability to quantify and price the tail risk in California. And it will ultimately open the door for further credit ratings progress and will lead to customer affordability, which is, again, ultimately our long-term goal here.

Okay. Thank you. So the California Earthquake Authority April 2026 report indicated that the Eaton Fire may well deplete the $21 billion wildfire fund. If this scenario were to occur, S&P Global Ratings has indicated that it would then likely downgrade Edison International to the speculative grade. In such a scenario, about 2/3 of California's electric customers would be served by utilities rating in the speculative grade. Given affordability concerns, what would be the potential impact on California's electric customers?

We've been really clear on this, Gerrit, that investment-grade access to the capital markets is critically important for us, and it's critically important for the state. And so every large investor-owned utility in the country has strong investment-grade ratings. And there's a good reason for that, right? Lower ratings and the associated higher financing costs ultimately translate into higher cost to fund the investment that California depends on. And we're seeing this in 2027, right? The status quo is slowing our ability to do important work for our customers to provide them with strong customer service, to meet the growth needs and the decarbonization goals of the state. And that's why establishing a very durable wildfire framework is so important for our customers and for the state. We've been very clear about that.

Okay. We're a little bit over time out of time, but we really sincerely want to thank Carolyn so much for joining us today as part of this larger CFO series. We also want to thank our very large audience again for attending.

Today's webinar was recorded for replay and will be available on our website. You'll also receive an e-mail later today with a link, so you may access it at your leisure. Your feedback is very important to us, and the survey is available at the bottom right side of your screen and will pop up automatically. Once the session ends, we would appreciate if you could please kindly complete our survey positively.

We hope you're enjoying our CFO series, and we look forward to meeting you in person at next month's EEI's conference, which will be held in Phoenix, Arizona. This concludes today's webinar. Thank you, and have a good day.

Thank you.

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. [Operator Instructions].

I would now like to turn the call over to Jonathan Arnold, Vice President of Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining us for PG&E's investor update. With us today in our Oakland headquarters are Patti Poppe, our Chief Executive Officer; Carolyn Burke, our Executive Vice President and Chief Financial Officer; and Carla Peterman, President of PG&E Corporation.

Before we start, 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 Page 2 of today's presentation. The slides, along with other relevant information can be found online at investor.pgecorp.com.

And with that, it's my pleasure to hand the call over to our CEO, Patti Poppe.

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. But 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, but 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, firms, businesses and infrastructure that keep California moving. That responsibility includes continuing to invest to reduce wildfire risk while being held accountable for operating our systems 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. And all the while, we've made electricity more affordable lowering rates 5x since January of 2024.

Now 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, and 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. And 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 costs ultimately borne by customers. Some work will be delayed or deferred, but we will never compromise on safety. We will carefully select the effective 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 be -- 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 earnings per share 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 5-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 6 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.

[Operator Instructions] Your first question comes from the line of Steve Fleishman with Wolfe Research.

Yes, hi, good morning. I mean I know you've kind of talked about alternative options if the appropriate legislation didn't pass for a while and been working a while. But this kind of sounds like you have a plan, to a Plan B as opposed to actually getting our plan B. So maybe you could just talk to how much work you've already done to kind of like -- or any color on what are some of these options? And the follow-up is really just how can any option work without addressing the two key issues that you manage without a law that does that?

Yes. It's a great question, Steve. I think fundamentally, we definitely still need liability reform. But one of the things I believe people don't appreciate or they often forget is that our holdco structure doesn't necessarily allow us to independently reflect the value of our different businesses. And so where wildfire reform is essential for our electric distribution business. We think there's a range of options that could create the ability to unlock value for both customers and investors in addition to or alongside policy reform. So a range of options could be as simple as #1 policy reform, but also some regulatory improvements, corporate structure, capital allocation strategy, legal structure. So there's a range of alternatives.

The team has been working on that in preparation as any good company does. We're always looking to see how to maximize value for customers and investors. And so we've got ideas and concepts, but any ideas and concepts would obviously have to be approved by our regulator, and so it's going to be important that we make sure that we're engaging and sharing our thoughts in a way that meets the needs of our regulators and the expectations of our policy leaders. We have a new governor coming into office. That new governor may have a point of view about what's the best structure of the energy system to best deliver for California.

So we think it's an exciting time. We think it can create value. And by announcing the strategic review today, that gives us an umbrella under which to have critical conversations and maintain our obligations to inform.

Your next question comes from the line of Shahriar Pourreza with Wells Fargo.

This is Marcella for Shahriar. So it's been a big debate, and we've been watching the comments out of the legislature closely, but do you think it's possible or likely we see a special session in 2026 at this point? And then if we do and that yields a solution this year, how might that change your calculus on how to go about implementing the revised '27 plan? Or are we kind of on the strategic review past indefinitely at this point?

Well, first, we're, of course, reading the same reports you are on the potential of a special session. But as it goes for us, we'll obviously participate and work with the legislature if they decide to take it up, but most importantly, we're moving forward today. Our goal is investment-grade for customer affordability and the ability to track that long-term capital, and so all of our solutions are being reviewed through that lens. And if there is policy reform, we'll revisit if the policy reform is sufficient to unlock the full value that we see exist at PG&E.

Your next question comes from the line of Nick Campanella with Barclays.

So I guess thanks for telling everyone about your contemplating a range of outcomes here and the work being done. That's good to hear. But I guess, just a strategic review just does raise further uncertainty and can you kind of talk about how you plan to protect your own cost of capital for customers while you're going through this strategic review, especially with the stock now kind of trading in certain years below 1x rate base.

Yes. Obviously, Nick, that is top of mind every day for us, and we're working on how to minimize that cost of capital for customers. But there's no doubt the current policy construct is a big anchor on that on our ability to deliver value for customers at a cost that they can afford. And so which is why we're taking actions to look at the totality of our business and the business is, again, as I said, the holdco structure just doesn't necessarily allow us to provide the value and the visibility to the value of our different businesses. We're a very large and complicated company with lots of businesses within which, today, I feel value is trapped and that value can be unlocked for customers and investors. And so we're exploring what steps would be necessary to unlock that value.

And then the $2 billion capital reduction, I guess that I'm interpreting slides correctly, that's mostly coming from that prior $23 billion bucket of capacity in new business. Can you kind of talk about if that is kind of the base case that we should expect into '28 and beyond here at a minimum? And then how do we think about the current rate case that's been filed?

Yes. I'll hit your first question, and then I'll kick it to Carla to talk about the implications for the general rate case. But this is a 1-year capital reduction under the umbrella of the strategic review. We felt given the cost of interest, we could do savings for customers. Look, it was a tough decision to make because every dollar that we had in our $13.4 billion plan had value for customers. And we felt we were justified in investing those dollars, but we just can't justify the cost for our customers to do that much work. And that -- therein lies the rub, that is the problem. There's more work to be done than at this capital structure we can afford to do.

And so we've got to make a change in the absence of policy reform. These are the tough decisions that we have to make. And therefore, we really think the strategic review provides the umbrella again, to find a way to unlock that value so that we can do the right amount of work for customers, the work that they value at the lowest cost possible.

And Carla, why don't you just hit on the implications for the GRC?

Sure, Patti, and Nick. And we believe with our GRC that we propose the right work for our 4-year case. And just as a reminder, we did file the lowest GRC increase in a decade. So we do believe it's quite anchored in our commitment to affordability. So as it relates to the short-term reduction, which does include for Xpand, it should not impact our overall case.

Your next question comes from the line of Carly Davenport with Goldman Sachs.

This is Jay on for Carly. Maybe first on the strategic review. While we know that there's no definitive conclusion, are you able to provide any color on the timing of it in the event that it continues beyond this time next year? And then in that case, should we expect 2028 guidance or any revisions to the capital plan as provided today?

Yes. The timing of our review will be dependent on the timing, obviously, of discussions here in California and any filings we might make, but a typical other reviews have taken in the 12- to 18-month range. So we wouldn't be surprised if we were in that ZIP code, but yet more to understand and we'll provide updates on our quarterly calls going forward.

Okay. Super helpful. And then maybe just a quick one on the credit rating side. Could you talk about any recent engagement you've had with the agencies regarding this legislative uncertainty? And then at what point does the lack of liability caps or subrogation put downward pressure on credit metrics?

Yes, this is Carolyn. I'll respond to that. We have been in touch with the rating agencies. They are disappointed that the state has not followed through on the second phase of SB 254. We have been hoping for further ratings improvements if credit supporter of legislation has been passed. But S&P has already indicated that our ratings will be unchanged. We're obviously, very disappointed on behalf of our customers that we will not be making progress on our ratings improvement and its ratings improvement has stalled. And so we're -- the rating agencies have indicated in their reports that an upgrade is unlikely for PCG.

And given the lack of legislation, there is a risk of multi-notch downgrades to us and others. So we've been in contact with them. They are aware of these plans that we've just announced today as well, and they're disappointed as we are.

Your next question comes from the line of Julien Dumoulin-Smith with Jefferies.

Hope you guys are hanging in there. Just wanted to ask, how do you think about M&A here in as much as typically, when we hear strategic review, that's the word association many think of. In this instance, I think a lot of folks are expecting buyback, dividend change, is that principally what you're thinking about? Or just if you can elaborate a little bit more about what the core of the strategic review consists of? And then even within that, how do you think about PacGen and revisiting a structure like that in as much as that was a recent conversation we all had?

Yes. Well, let me start there on the PacGen. As we -- as we reflect on the PacGen filing, that was a completely different circumstance. We were absolutely trying to raise cash. We were unable to share proceeds with customers. There was -- it wasn't a desirable framework on behalf of our regulators, and so they denied the filing. I would say today, we have so much more value. We're so much more stable. Our balance sheet is healthy. So we have a strong financial foundation.

It's a capital attraction problem that we are having to solve. And so when we think about the range of options within the strategic review. It certainly can include regulatory items, policy reform would make a big difference, but also corporate structure and capital allocation strategy. There's no doubt that our different businesses, if looked at individually would have different value propositions. And so we're really just thinking about how best to reflect the full value of this entire corporation and make it visible to investment capital in a variety of forms.

And so that's -- we're really open. Everything is on the table. We've got ideas, but we're anxious to hear input from others and see the best way to maximize value for customers and investors.

Excellent. If I can follow up on a quick detail here. Will you declare the September dividend in 2 weeks? And is there anything we should know about that dividend in as much as there's a good opportunity just as directly as to how you're thinking about that, dividend increase, otherwise?

The dividend is a Board decision, and we are on normal course with our timing on that, which will be at the end of the year when we make a decision around the dividend. And this is Carolyn, by the way.

And you'll declare the September dividend in a couple of weeks.

That will be a Board decision.

Your next question comes from the line of David Arcaro with Morgan Stanley.

Thank you. Good morning. How do you get to investment grade? I guess could you give -- to the extent there's no further policy actions and where we've got what we've got here. And you mentioned, Carolyn, the pressure that the agencies have suggested to the extent there's not broader reform, I guess, what are some of the ingredients or strategies you would potentially see or if you've gotten any guidance from the agencies as to how you could eventually get to investment grade?

Well, I think that it's a gauge. It's an outcome that we expect any decisions, any ideas, any concepts to need to be able to fulfill. And so it's really an outcome that we're setting as a standard for any changes that we would make. Obviously, policy reform is essential for the electric distribution business to be investment-grade, and that currently affects the whole holdco today. We think we've -- and the credit agencies have been clear. We meet all the financial metrics.

There's questions about the risk and the policy environment. And so that obviously still needs to be fixed, but all other ideas may provide other entities that could be investment grade as well. So that's all we're saying is that investment grade has to be a threshold, an outcome that we would expect to be delivered out of the strategic review.

Your next question comes from the line of Richard Sunderland with Truist Securities.

Good morning, and thanks for the time. I want to circle back to this $2 billion CapEx reduction for '27. You list some of these kind of broader buckets around in sort of connection of renewables, large load connecting new housing projects. How do you think about the impact of that work on state policies, state goals across stakeholders and, I guess, really the ramifications of that delay? And bigger picture, is this about finding a path to then do this work in '28? Or I guess, how do you see the consequences of kind of the current impacts we're at?

Yes. I think it -- look, we love to do the work. This is an operating team. I'm an operator at my heart. And so to have to slow the work it's heartbreaking for us. We really want to make sure that We, though, are able to -- our customers are able to afford that work that we do.

So the point is it's a 1-year slowdown. It will push dates out, defer some work, but not necessarily cancel work. We'll be working closely with those projects that are affected the work elements. And we haven't finalized the specific work that will be delayed and deferred because this is for 2027 work. And so our objective is to minimize customer disruption.

So I think as Carla mentioned, we've articulated, both through our GRC and through all of our capital plans that the work that we're doing is essential. And we know when we don't have access to low-cost capital, it affects customer service. And that's why this business model actually works when we have capital access, we have investment-grade ratings. We can deliver work that customers need. California is growing. We want to power that growth. But if we can't afford to, it's going to have to go at the pace our customers can afford. And the affordability drumbeat has been loud and persistent, and we need to answer that call.

That's helpful context. And then on the possibility of quarterly updates across the strategic review, could you speak a little bit more to what transparency you may be able to offer into the process along the way? Recognize they're just a lot of different moving pieces here, but I feel like generically, we often see these as you kind of go radio silent for a while. So how do you think you can speak to this on a quarterly basis?

Well, obviously, well, as you said, report out on a quarterly basis as we shared. But in the case where if there were regulatory changes or policy changes, I think you'd see that in the public square, we'll be making filings and you'd be able to see evidence of those filings. And so in some cases, you'll see that. And then some of the areas of the review will be radio silent until we're ready to announce something.

Yes. This is Carolyn. I'm just going to follow up on Julien's question around the dividend, just to be very clear that when we said December, we were referring to our normal course around our annual decision on setting our dividend for next year. And it will be a Board decision at that time frame. If we were going to signal a change in 2026, we would have said so today.

Your next question comes from the line of Gregg Orrill with PG&E Corp.

Just as you enter the strategic review, you talked about investment grade as a predisposition. Are there any sort of financial metrics that you have as a predisposition going into the strategic review sort of guardrails you might be thinking about?

Well, it's got to be accretive to our current construct and plan. So anything that we would do, just like any company would only be if it was net beneficial. So that's obviously on all things on balance sheet and earnings and return and customer value. So I'd say the boundaries are always that for us. We definitely would want to move forward, not rear work. That would be an objective for us. But it starts with investment grade. We've been chasing investment grade for 6 years, and we've been eligible from all of our financial performance for 2 years. And the single policy issue that is holding us back, we have to look at how to unlock the trapped value in our company for our customers and our investors. And the strategic review is intended to explore those alternatives that would best be able to do that.

[Operator Instructions] There are no further questions at this time. I would like to turn the call back to Patti Poppe, CEO, for closing remarks.

Thank you, Lacey. Everyone, the transformation of PG&E's operations is a real point of pride for us. We're proud of the progress we've made. We're not done yet. We have more to do, and we know there's more to improve, but that foundation of that operational turnaround is absolutely a great place to start and to launch this new era of PG&E and launch our future. And we start today, and we hope you'll join us on the journey. We look forward to keeping you posted as we go.

This concludes today's call. You may disconnect.

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&E Corporation Second Quarter 2026 Earnings Release. [Operator Instructions] I would now like to turn the conference over to Jonathan Arnold, Vice President of Investor Relations. Jonathan, please go ahead.

Good morning, everyone, and thank you for joining us for PG&E's Second Quarter 2026 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 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 June 30, 2026. And with that, it's my pleasure to hand the call over to our CEO, Patti Poppe.

Thank you, Jonathan, and good morning, everyone. Our core earnings per share are $0.40 for the second quarter and $0.83 for the first half of 2026. These results reflect consistent, disciplined execution enhanced by our lean operating system and the durability of our simple, affordable model. Halfway through 2026, we're well on our way to extending our run of double-digit earnings growth for a fifth 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're committed to achieving our Path to Flat, targeting 0% to 3% annual customer bill growth.

A key enabler is electric load growth, and one of the most exciting opportunities in front of us is large load demand coming from our data center pipeline. As you'll see in a few minutes, we've 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'm proud of the improvements we're delivering for our customers across multiple dimensions. We've extended our safety performance on serious injuries and fatalities and have had 0 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 fourth year of no major fires linked to PG&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'll discuss shortly, we're 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 investors, as it is for us. While important work remains, we're 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 couldn't 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's 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 one that supports access to low-cost utility capital, thereby protecting customer affordability.

While our preferred path is to continue executing the plan we've 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 who 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 0 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 5,000 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&E.

On Slide 6, we're 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're delivering results through disciplined execution across each of the levers in the model. We've built a strong track record of exceeding our annual O&M cost reduction targets, and that focus continues. For example, we've saved more than $40 million already this year through targeted sourcing and procurement initiatives, and we aren't stopping there. At the same time, we're laying the groundwork for future load growth by advancing our data center pipeline and enabling new business connections.

We're also continuing to pursue efficient financing, building on progress we've made toward restoring investment-grade credit, which will lower the cost for our customers of financing the needed long-term investments we're making on their behalf. We're 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 pre-application 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're focusing not on size, but on quality. To that end, with today's update, we've 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 costs, are now prerequisites to be included in final engineering. We've 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're 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'll hand it over to Carolyn.

Thank you, Patti, and good morning, everyone. Here on Slide 8, we're showing our earnings walk 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've 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 costs, supported by the same disciplined execution and operational vigor you heard Patti 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 satisfied 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&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 financings 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 on 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 one notch below investment grade. Importantly, S&P cited the progress we've made reducing wildfire risk through our mitigation efforts and operational execution. They noted that the improvements we've made in the last 7 years, like PSPS, EPSS, system hardening, vegetation management and the continuous monitoring that Patti 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&E. Over the last several years, we've consistently exceeded our cost reduction targets, 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're showing major regulatory and legislative milestones. In our 2027 GRC, we're 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 system safely and reliably. On Kincade 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'll 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'll hand it back to Patti.

Thank you, Carolyn. As you've heard this morning, we are continuing to deliver on our simple, affordable model. We're driving disciplined execution today while further advancing customer affordability, building on the 5 rate reductions we've already implemented in the past 2 years. That performance is showing up in our business. We've 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're encouraged to see the state continuing to do their part by working toward a constructive solution on SB 254 Phase 2. I'm 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 Instructions] And your first question comes from Shar Pourreza with Wells Fargo.

Just, Patti, on legislation, I mean, you've been clear, if you don't get what is needed from a legislative process, you'll rethink capital allocation priorities. I mean that's a key message today that you've repeated. I guess what are you looking for from legislation as we're approaching the tail end of this process? Like what's a fair outcome for you? And then how quickly can you pivot capital should the outcome not be adequate at the end of August?

Yes, it's a great question, Shar. Obviously, top of mind. We've been pretty clear that we need a durable, financeable, predictable and affordable legislative framework for how to deal with wildfire liability. So obviously, that's a pro-affordability message at a time where that's 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's one thing for people to really understand. Look, there's no case for no action. In other words, if the legislature does not act or if they act and don't actually solve the problem, then we're going to have to take action. And we've been very clear about that. And we'll look at, obviously, reallocating our capital plan. And as I've said, 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 part of the legislature. And I think you will hear from us shortly after the legislative session about that.

Appreciate that, Patti. And then just on Dixie and Kincade cost recovery, I mean, the ALJ just set a settlement conference for July 31, and evidentiary hearings are set for August 17 to the 20. I guess, anything to read into this? Can you settle? What could a settlement look like?

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

Your next question comes from the line of Steve Fleishman with Wolfe Research.

So I think you made a pretty good case of how things are going well across the spectrum of kind of shareholders, customer rates coming down, improvement in operational performance, and the like. Do you feel like the policymakers are like seeing this and understanding that these improvements are here and that they're subject to big changes? I mean I don't know what plan B would be, but some of these things could have to be changed if they don't do anything.

Well, Steve, we've 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 legislature still gets pressure from customers that they want more from PG&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're certainly making the case.

I was with a legislator to be left unnamed, but I said, "Are you aware that we have reduced our rates five 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 it's -- I think wildfire legislation is a complex subject, and I don't envy the amount of work that our legislature has on their table. And -- but they've 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's a legitimate cost of inaction. And so I do believe that's why we're seeing discussions happening, and we're very supportive and working close and resolute that a good outcome is absolutely possible, but we're prepared in the event that it doesn't occur.

Okay. And I guess 2 other questions. First, just on the -- there are a number of different things that were mentioned in the CEA report. And obviously, we know what some of the utility and cost of capital -- 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.

Yes. Great question. First of all, I think the tort reform and the insurance reforms, all of it is still on the table. There's -- nothing's off the table yet. I believe that there's certainly conversations. I think what's 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 order, specifically pointed to financial health of the utilities. So investment grade at the utilities is very important for customers. It is very important for California and particularly in this growth era that we're 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've been really clear about the fix for attracting capital doesn't necessarily require the whole of society approach. There's very specific things that make it more durable, predictable and affordable for investors. And so we're 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.

Your next question comes from the line of Nicholas Campanella with Barclays.

Just on the comments on reevaluating the plan, just understanding you have this GRC that's been filed, how does it intertwine with that? And would you have to kind of -- if you were to go to a plan B, would you kind of 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?

Yes. Nick, that's a great question. As we look at the GRC and our filing and any kind of shift to the capital plan, obviously, we'd have to integrate that. We don't know that it would require any kind of additional filing or filing modifications. But certainly, we would make sure that the capital that we're looking at still enables us to meet our first order obligations and our obligation to serve. Safety and reliability are key obligations and compliance obligations we would certainly fulfill. So that's the balance that we would have to seek. But we don't think it necessarily would require any kind of change in our GRC filing, and we certainly wouldn't want it to affect GRC timing.

Yes. And I'll just remind you, Nick, 2 things. One, we always plan conservatively, so our filing does not necessarily represent what's fully -- what's in our plan because of our assumptions there. And then two, just remember, our FERC represents $20 billion of our $73 billion plan. It's not all CPUC capital.

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

Yes. If you look in the appendix, we have a chart. There's about $16 billion related to resiliency, which is our system hardening, and then there's another $23 billion related to capacity and new business.

Your next question comes from the line of Carly Davenport with Goldman Sachs.

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.

Yes, Carly, we -- it's a great question. We learn every day further about which of these projects are the highest quality. And I think there's a couple factors that will drive the quality. I don't think we can predict today which of them will flow all the way through. We know they won't all, but our #1 criteria is they must be rate-reducing. And therefore, we have to price it right. It's actually quite simple. I know there's 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.

But so -- we assess all of them first, and that's why the cluster study process is powerful. It allows us to provide them adequate pricing visibility. Then we've added in the final engineering, this WPA, which allows for more significant capital upfront. It's 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've 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.

Great. That's 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?

Yes, 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's not necessarily -- it doesn't slow us down so much. But I would say that we're looking forward to continuing to collaborate with CAISO on -- and see what they file back to FERC. If there are improvements, that would be helpful. We can't help but think that AI can help us do more simultaneous engineering faster.

And so I am hopeful that we could have some improvement to that interconnection process just in the engineering portion. That's just the portion that we own. So we're looking forward to continuing to collaborate on 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're very much dialed in on that objective.

Your next question comes from the line of Richard Sunderland with Truist Securities.

I'll stick with the data center topic and just working 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 projects you're seeing now, if this is changing or if this is more reflective of where projects sit in the pipeline overall?

Yes. We've started to get some interest on some of the larger projects. Until now, we've had a lot of, as I affectionately call 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 as people realized that we have more capacity in California than they thought, and that we've been adding capacity and we have transmission capacity, we've 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.

Got it. That's helpful 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 of lagging performance. I'm curious how you're seeing the rate case process itself play out in this light. Any thoughts on sort of the -- where you stand to date and particularly in light of the rate reductions versus affordability attention overall, how that's factoring into the GRC?

Yes. I think the GRC was well received. Look, it's the lowest general rate case we've filed in over a decade. If fully implemented with our full ask, rates would be flat from '25 to 2027. That's a marked departure from this last decade of significant increases. And then combined with our implementation of the simple, affordable model, it's enabling a much more -- well, as you know, we're 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're in the process, as we speak, and we've got upcoming dates. We've got reply briefs will be due tomorrow. And we've got a proposed decision expected in March of '27 and a final decision in May of '27. As you know, we've applied 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'd like to prevent the customers from having that price spike they experienced in the implementation of our last GRC. So we're hopeful that the interim rate recovery will be considered and implemented.

Your next question comes from the line of David Arcaro with Morgan Stanley.

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?

Yes. David, it's Carolyn. I love this question. As I've said before, when I think about the numbers that we've put out there in terms of guidance, the O&M savings of 2% to 4% is one 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 are -- we hit 1.0 last year, which was an improvement, and we're really proud of that, and we're looking to improve it further. But our peers are at 2 -- well over 2. 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're really beginning to see some savings there, but there's still plenty of room to do in terms of how we source our significant materials and external services. And then two is AI. We've really only just really started to scratch the surface of being able to implement some AI solutions to the way we do work, is that we're excited about.

Got it. Yes, absolutely. Okay. Great. I was also wondering if you could touch on just the current fire season, how it's shaping up so far in your service territory, what it looks like maybe through the rest of the year from where you sit today?

Yes. 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, we just -- we don't think about it that way. We think about it as being ready every day. We don't 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 system and all of the potential faults and failures.

That continuous monitoring, already this year, we've had 1,076 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 going to 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 a pole once a year. Now we have daily continuous monitoring of our poles with these sensors. It's so -- I cannot overstate the safety enhancements and reliability and cost because now we can plan to address that pole on planned work, bundle it with other work and lower the cost to resolve that issue before there ever is an issue. So I can't overstate the value of that. So I guess to your point, the fire conditions are what the fire conditions are, we're ready.

Your next question comes from the line of Anthony Crowdell with Mizuho.

Jonathan, I thought we were going to say congrats for the big win, but it didn't work out as well. Sorry.

Too soon, Anthony. Too soon.

Just 2 cleanup questions. And I know you're not looking to talk about plan B, what that may exist. But just on Slide 24, I think a follow-up from Nick's question. 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?

I think the only thing we're willing to say about that is we have to evaluate all of it. But we're never going to sacrifice safety or compliance or obligation to serve. And so obviously, our customers' well-being is number one. But then number two, recognition of the capital that has come from the equity markets. It's your capital, and we need to think about how best to treat that.

Great. And then one follow-up to David's question. Carolyn, you talked about where the company is on a capital to expense ratio, where maybe the target of getting to 2x or 3x. I'm just wondering if you want to highlight maybe or talk about the timing that you think may require to get to that level.

Yes. In our capital plan, if you look at our 5-year plan, we get to 1.7 by 2030. That's -- I'd hope to beat that, to be honest. And the teams, we're using our lean playbook. As I 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 to become more efficient. And they're exceeding our expectations every year. So right now, it's 1.7 by 2030, but I'm hoping that we exceed that.

Your next question comes from the line of Gregg Orrill with UBS.

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?

Yes. It doesn't affect the financial plan. It just affects the customers' 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 hadn't been collected yet. And so you can have a pancaking effect and that happened in our last GRC, and it was very notable for customers.

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

Your next question comes from the line of Ryan Levine with Citi.

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

Yes. So couple 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?

Just around some new AI models.

AI for wildfire. Yes. I would say we definitely are using AI for wildfire and have been. The new models per se, we're 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's been a very important adoption of AI for wildfire.

Yes. In addition to that, like we have over 650 high-definition cameras out in our service territory, and that's allowed us to be 18 minutes faster in response versus our traditional methods.

Yes, those cameras send automatic notifications to our wildfire responders across the state, and we can -- oftentimes, fires -- well, 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.

And ladies and gentlemen, that does conclude our question-and-answer session. I will now turn the conference back over to Patti Poppe for closing comments.

Thank you, Krista. 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.

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

Thank you for standing by. At this time, I would like to welcome everyone to the PG&E Corporation First Quarter 2026 Earnings Release. [Operator Instructions] I would now like to turn the call over to Jonathan Arnold, Vice President of Investor Relations. You may begin.

Good morning, everyone, and thank you for joining us for PG&E's First Quarter 2026 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. The presentation also includes a reconciliation between non-GAAP and GAAP financial measures.

The slides along with other relevant information can be found online at investor.pgecorp.com. We'd also encourage you to review our quarterly report on Form 10-Q for the quarter ended March 31, 2026. And 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 be with you this morning to report another quarter of strong progress on multiple fronts. Today, we announced core earnings per share for the first quarter of $0.43. This strong start puts us solidly on track to deliver again and reaffirm our full year 2026 core EPS guidance of $1.64 to $1.66.

At the midpoint, our guidance implies 10% growth over 2025 and would mark our fifth consecutive year of double-digit core earnings growth. Looking forward, we're reaffirming our EPS growth guidance for 2027 through 2030, which is unchanged at 9% plus annually. We're also reaffirming our 5-year capital and financing plans, including 0 new equity issuance needs through 2030.

We continue to deliver for our customers on affordability. On March 1, we lowered electric rates for the fifth time since January 2024. For our most vulnerable residential customers, bundled rates are now down 23%. For other residential customers, rates are down 13% over that same period. In February, our Diablo Canyon nuclear power plant received the final state permit approvals needed to support extended operations through 2030. And in early April, the Nuclear Regulatory Commission granted Diablo Canyon, a 20-year license extension. These actions underscore Diablo Canyon's critical role in supporting California's reliability and clean energy goals, although further action by the state is required in order to operate beyond 2030.

Turning to Slide 4. We remain focused on helping California build a durable, long-term wildfire solution. The CEA's report and recommendations provide a strong foundation as the legislature begins the next phase of this important work. We were encouraged to see the CEA emphasize the cost of inaction, noting that, and I quote, "Inaction perpetuates unaffordability for consumers and hinders the ability to attract the capital required to maintain safe, clean and reliable infrastructure." This is a strong call to act for California policymakers.

As we said last quarter, the CEA report marks the beginning of the legislative phase. With the session running through August, policymakers now have the opportunity to evaluate a menu of options across multiple pathways. We remain encouraged by the progress toward meeting the commitment made by the legislature last year, to find and implement a long-term [ pole of society ] solutions. That commitment began with last year's SB 254, followed by the Governor's executive order, the CPUC submission to the CEA and now the CEA's report.

As I said last quarter, the status quo is neither sustainable nor affordable, and California needs a model that works for all stakeholders, whether they are those affected by wildfires utility and insurance customers, communities, the state and the capital providers needed to support a safe, reliable and clean energy system.

Turning to Slide 5. Our focus on wildfire mitigation remains clear and unwavering. We know this work is never finished, which is why we continuously look for better and more effective ways to strengthen our mitigation. Our operational mitigations, including PSPS, EPSS and continuous monitoring, are making us safer every day and position us to respond effectively whatever the weather conditions.

Looking forward, our long-term infrastructure hardening plans will combine safety and improved reliability and lower maintenance costs. Undergrounding is an important driver of customer affordability too, reducing the need for and expense of annual inspections and vegetation management. As you heard on our last call, the CPUC has now provided a clear path for us to request additional undergrounding through a 10-year plan.

We're still on track to make this filing with the OEIS in the third quarter, including our next approximately 5,000 miles and covering years 2028 through 2037. Combined with the 1,900 miles of undergrounding we expect to have completed by the end of 2027, plus an additional 4,000 miles of overhead hardening, this would result in nearly 11,000 miles of planned system hardening through 2037 or more than 3/4 of the high-fire threat miles we plan to harden based on our current risk modeling.

We'll provide more detail in our 10-year filing. But in the meantime, we calculate that our undergrounding to date, over 1,200 miles has already allowed us to avoid more than $100 million of maintenance spend, which otherwise would have been paid by customers. That is exactly the kind of durable affordability we're working hard every day to deliver for our customers.

Looking at Slide 6, you'll see our simple affordable model as amplified last quarter, giving us line of sight to customer bill growth of 0% to 3%. We call that our [ path to flat ], a destination our customers would love. As noted earlier, in March, we implemented our fifth reduction in electric rates in 2 years. That's real progress on affordability, and this progress matters most for customers who need it most.

Since January 2024, electric rates for our most vulnerable customers are down 23%. For our other residential customers, rates are now down 13%, about $300 less per year. That is real money. Turning to Slide 7. You can see the progress we're making in enabling rate reducing load growth. Projects are moving through our development pipeline with our final engineering stage increasing to 4.6 gigawatts since our year-end update. This progression from application to preliminary engineering and on to final engineering is a natural and expected part of the project cycle and reflects healthy forward momentum.

We also recently initiated our third cluster study, and the results reinforce that there's strong interest across our service area. In total, customer interest exceeded an additional 10 gigawatts, spanning multiple regions, including Silicon Valley and the Central Valley.

Importantly, this demand remains diversified. There's no single project driving these totals. We're committed to only adding load that is definitively rate reducing. We simply need to get the pricing right. Projects from this latest cluster study, which meet the rate-reducing threshold will move through preliminary engineering over the next 6 months, refilling the pipeline funnel from the top as earlier projects mature.

Importantly, this growth is occurring alongside significant resource additions across California. Since 2020, CAISO load-serving entities have added more than 33 gigawatts of new resources to the grid, including over 7 gigawatts in 2025 alone. In addition, the CPUC is continuing their practice of issuing [ new build ] procurement orders, which have resulted in 22 gigawatts under contract through 2029. This kind of growth is good for customers and good for California's economy.

Every gigawatt of new data center load can contribute to affordability by reducing electric bills by 1% or more, while also supporting thousands of construction jobs and generating hundreds of millions of dollars in additional tax revenue.

Before I hand it over to Carolyn, I'd like to tie all of this together with my story of the month. This quarter, that story is about continuous monitoring and how we are shifting from reactive maintenance to proactive, data-driven risk management. Continuous monitoring uses sensors, our smart meters, analytics and machine learning models to identify emerging issues on the system before they turn into outages, ignitions or safety events.

It's allowing us to see developing conditions in real time and intervene earlier, often before there's any customer impact. We're seeing tangible operational benefits from this approach. Continuous monitoring helped us avoid approximately 12 million unplanned customer outage minutes in 2025 and another 4 million minutes in the first quarter of 2026. In many cases, these interventions occurred before customers were even aware there was a problem.

Since the beginning of last year, we've had 1,484 good catches where sensor data flagged developing weaknesses or active events on the grid. 23 of these could have become ignitions but didn't. Identifying stressed equipment early also allows us to fix issues at a lower cost and avoid more expensive emergency repairs down the road. In fact, over that same 5-quarter period, early detection of stressed equipment helped us save an estimated $8 million of capital spend through lower cost repairs and over $1 million in expense by reducing time spent responding to emergency asset failures.

Continuous monitoring is also improving how our teams work in the field. More precise diagnostics mean our troubleshooter spend less time searching for problems and more time fixing them, improving both productivity and safety. Taken together, our continuous monitoring program is an important step forward and an example of how we manage risk, control costs and deliver reliable service.

With that, I'll turn it over to Caroline.

Thank you, Patty, and good morning, everyone. Turning to Slide 9. You can see our first quarter 2026 earnings walk. Core earnings for the quarter were $0.43, up $0.10 from the first quarter last year, putting us in position to once again deliver on our plan. Customer capital investments contributed $0.06, -- of that, $0.02 reflects ongoing execution of our capital plan and the associated return on rate base, including CPUC ROE. We also have a $0.04 benefit related to February's final commission decision in our 2023 [indiscernible] application.

Nonfuel O&M savings contributed an additional $0.02, partially offset by our decision to redeploy $0.01 back into business. Timing and other was a $0.03 tailwind in the quarter compared to the prior year. As we look forward to the balance of 2026, you can count on us to remain focused on disciplined execution and delivering our guidance while taking a thoughtful approach to redeploying savings in ways that benefit customers and help to derisk 2027 and beyond.

On Slide 10, there is no change to our 5-year $73 billion capital plan through 2030. We continue to see strong demand for customer beneficial investment across the transmission and distribution systems, and we still see at least $5 billion of incremental customer investment opportunity outside the current plan. We have flexibility in how and when we may pursue these additional opportunities to ensure we're making the right decisions for customers and investors.

Our preference today remains making the plans better by prioritizing bringing in investments, which enable new beneficial load and help lower rates for our core customers over time, or we could make the plan longer by extending the duration of our top-tier rate base growth. A third option, though not one we're considering right now is to make the plan bigger by adding to our current $73 billion plan envelope.

Taken together, these options give us confidence that we have flexibility in the plan and that we can continue to deploy growth capital in a disciplined way while at the same time, supporting affordability, growth and long-term value creation for owners.

Turning to Slide 11. Our Five-Year Financing Plan is also unchanged from our prior call. The plan continues to be built on conservative assumptions, which align with the guideposts I've previously shared. First, our plan is built to require no new common equity through 2030. Second, we remain focused on achieving investment-grade ratings, including sustaining FFO to debt in the mid-teens. And third, we continue to target ramping up to a 20% dividend payout ratio by 2028, then maintaining that level through 2030.

In February, we took advantage of favorable market conditions to execute 2 financings. We issued $1 billion of parent-level junior subordinated notes opportunistically starting to address 2027 parent funding needs. There is no change to our guidance for a net $2 billion of financing from parent debt and other through 2030. At the utility, we issued $2.2 billion of first mortgage bonds covering roughly half of our 2026 utility debt needs, which remain unchanged.

From a capital allocation perspective, and in light of encouraging indications that the state is serious about pursuing additional wildfire reform, we continue to see our current plan as the right one for both customers and investors. However, I'll reiterate that if we stop seeing progress towards reforming the wildfire risk model, you can be sure that we will actively reevaluate all aspects of our capital allocation plan.

On Slide 12, we continue to make steady progress toward investment-grade credit ratings, and I'm encouraged by the momentum we're seeing. Following our fourth quarter call, Moody's revised their outlook to positive, reflecting continued improvement in our credit trajectory. Our focus on strong financial ratios, discipline to hold the company leverage and continued progress on wildfire mitigation directly supports the criteria for potential upgrades.

As I've noted before, achieving investment grade is a key milestone for us. It will lower our borrowing costs and translate into hundreds of millions of dollars in customer savings over the life of the debt we issue, creating a durable affordability driver for customers, not currently assumed in our plan.

On Slide 13, we're reinforcing that we continue to see a path to deliver 2% to 4% long-term reductions in nonfuel O&M even after absorbing inflation and other cost pressures. Executing against our simple, affordable model is how we keep our capital program affordable for customers and sustained reductions in nonfuel O&M are a key element allowing us to grow our plan and fund the investments our system needs while also protecting customer bills.

In addition to the great example of continuous monitoring Patti mentioned, we continue to innovate and drive efficiencies in our field operations by applying technology. By leveraging satellite and LiDAR, we're improving the quality and consistency of inspections while reducing the volume of patrols, lowering contractor reliance and enhancing safety in the field.

Taken together, these changes are expected to deliver $24 million in annual O&M savings this year alone. This is another tangible example of how targeted technology investments support our long-term nonfuel O&M trajectory.

Slide 14 highlights major regulatory and legislative milestones we're monitoring this year. On the regulatory front, following our fourth quarter call, we received our 2025 safety certificate from the CPUC, which is valid for 12 months through early March 2027. Additionally, as Patti mentioned, we're on track to file our 10-year undergrounding plan with the OEIS in the third quarter.

I'll end here on Slide 15 by pointing out our differentiated story. We're proud of what we've accomplished, and we know there's still plenty of opportunity in front of us to continue delivering for our customers and our investors. We're focused on doing just that day in and day out. With that, I'll hand it back to Patti.

Thank you, Carolyn. Before we take your questions, I'd like to recap where we stand as we are building California's energy future. We delivered a strong first quarter, putting us firmly on track for another year of double-digit earnings growth. Safety remains our highest priority. We continue to strengthen our wildfire layers of protection. We continue to make real progress on affordability with a 23% reduction for our most vulnerable customers since January 2024. At the same time, we're seeing good progression of our rate-reducing large load pipeline, and we're encouraged by California's focus on constructive wildfire reform. .

With that, operator, please open the lines for questions.

[Operator Instructions] Your first question comes from the line of Shar Purreza with Wells Fargo Securities.

Patti, you've been vocal about not wanting to see the can kick down the road on legislation. I mean, obviously, that would be a bad outcome in your view. I guess, how should we think about capital allocation, like the buybacks in case some aspects of the CEA report get passed, but we don't get something that is all encompassing. So step in the right direction, but not the Goldilocks scenario. Is some progress about outcome [indiscernible] key aspects get pushed into '27, it's obviously a tight window and California is dealing with a lot. Just get a sense there.

Yes. Thanks, Shar. First and foremost, I would just reiterate that we're encouraged by the progress to date. We do think the right conversations are happening with the right folks, and we feel good and encouraged about that. I'll just offer that there's obviously minimum outcome to prevent additional costs being born by shareholders and this tail risk being able to be measured and understood.

We know that that's a very important floor for an outcome here. And as we've been very clear, we've been reiterating wide and far the value of the investor-owned utility model. We've been advocating for the importance of the capital that we are able to attain from the capital markets from our investors and how important that is to making our infrastructure investments affordable for California that as we spread out the cost of infrastructure over time because of the great capital that is deployed by our important owners, that is good for customers.

And so an important outcome of SB 254 is that we can attract low-cost capital to invest in that infrastructure to help California grow and make our energy cost more affordable for customers here. So I'll say all that backdrop to say that we feel like our capital allocation and our model is working. We're lowering rates while we're deploying our capital today. We think right now is not the time to change that plan, we know that the simple affordable model is the best plan for customers and investors.

And so we're very bullish on that. Now to the ultimate heart of your question, if that doesn't occur, if we don't get a minimum outcome that's essential, then obviously, we'll have to look at and we will not avoid looking at our entire capital allocation plan, the whole financial plan. I'm not going to rack and stack how we would think about that here on this call, but I will just say that all aspects of the plan will have to be on the table, and we'll take a look at doing what's best in totality.

But for now, we are encouraged by the progress that's being made and the level of attention to the issue.

Got it. Perfect. I appreciate that. And good luck there. Patti, just lastly, I mean, I know obviously, you keep highlighting the data center opportunity in the context of savings and kind of bill reductions, probably that's the right messaging in this environment. But is there kind of a point you can convert that into sort of like an earnings impact like some of your peers. I mean 4.6 gig in final engineering is somewhat material. I guess at what point does large load growth drive significant new transmission investments.

Well, I would say that it is. We are and we shared at the -- on our Q4 call that we've added more CapEx for transmission into our $73 billion capital plan. Given all of our circumstances, we think our $73 billion plan is the right plan. The idea that we would make that bigger would take some other changes, I would say, over time.

And so right now, as Carolyn has been very consistent in sharing that we want to make the plan better. And when we say better, what we mean by that is by pulling in that transmission and data center load growth, if it makes it more affordable for customers, that's better. And so we've been very disciplined about our cluster study work. And when we talk about final engineering, we're sharing real costs with our potential large load customers and they're signing on for them that are absolutely not just from a a sound bite or a marketing perspective but an absolute rate reducing new CapEx investment.

And so that makes our capital plan even better. There will come a time, I think, particularly after SB 254 Phase II resolution at the end of the legislative session that we should look at if the conditions are such that we could make the plan bigger, but that's just not now.

Your next question comes from the line of Nicholas Campanella with Barclays.

I just wanted to ask a follow-up on just the legislation and just there was a lot put forward by the CEA, like 3 separate phases. It's a big menu of things. And I guess just -- where are you kind of drawing the line? And what is sufficient? Is it more about having some type of permanent cap if I'm reading your response correctly? And then I just in the last legislative session, shareholders did have to kind of participate in some instances there. So how are you kind of thinking about that for Phase 2?

Yes. Nick, the most important thing, we think, is the whole of society approach. We think the governor was clear and the CEA report reflects that there are multiple aspects of wildfire liability reform that would be important for all California because remember, all fires in California are not caused by utilities. Insurance access in California is a real challenge to homeownership.

We have a housing crisis in California, making sure that we have an insurable housing market is very essential for the state. So well beyond utility concerns the CEA report reflects a whole of society approach. We think that's smart because we're Californians too. And we care about what happens here and what happens to all Californians, not just those impacted by a utility wildfire.

Now that being said, I am the CEO of the utility. So I do have a point of view that we need to make sure that the tail risk of wildfire liability is one that shareholders and investors can model can predict and know how great the risk is so that you can feel comfortable investing your clients' pension funds and retirement funds into our infrastructure here in California. So our minimum is very important that we have an ability to see and model and quantify what that tail risk is.

Now on shareholder contributions, as were required in the 254 Phase I, that is a question that's part of a total look of the value of the fix, the totality of the legislative action will determine whether there's any reason to make additional contributions. And so the package would have to be looked at as a package. And if it doesn't improve the status quo then contributions would be unacceptable. But if there's a dramatic improvement to the status quo, we obviously would be in dialogue with policymakers.

That's very clear. I appreciate that. And then I just had another question because it's kind of come up to the foray recently. Just the governor election in the state for various reasons has been more of a focus for folks. And I know that there's been some calls from various candidates on returns and affordability and maybe even notably a rate freeze.

But I do recognize on slides and in the simple affordable model, you're showing that you're pretty well positioned against that. So just what's the strategy here to kind of make that resonate with new policymakers? And then, I guess, just how high grade is the plan if we were to kind of go that way with some of the more draconian things that are being piched right now?

Yes. Look, the good news is this. Number one, whomever is elected governor of the state of California, we're going to want what they want, and that's affordable utility rates. The even better news is performance is power, and we are performing. As I mentioned, we've reduced rates 5x in the last 2 years. Our most vulnerable customers' bills and rates are down 23%. That is meaningful progress that we can point to.

And so politicians have to say what they have to say, I guess, to get elected. But when it comes down to brass tacks, and we actually have to do what's promised, I think our performance is a key enabler to our ability to work with whomever is elected to do exactly what these politicians want. We want the same thing. We want a healthy, vibrant California powered by PG&E and the IOU model is essential to the growth and prosperity of California.

[Operator Instructions] Your next question comes from the line of Steve Fleishman with Wolfe Research.

Just I think your comments are pretty clear on what you kind of want out of a law. Just when you look at the different proposals or structures that were in the wildfire report, are there any of the ones that best met what you want and you think other parties stakeholders as well.

Yes. I think Steve -- I think this whole of society look is super important. So the 3 pillars, the looking at hardening our communities from spread is so important. It's 1 thing to prevent an ignition. But when the 100-mile per hour winds are here, we need to make sure that our communities are ready and that they are built purpose, just like in hurricane zones, making sure that we get those building codes and implementation of those codes, that would be very important to derisking our communities. .

So obviously, that's a good thing. The liability limits and liability reform is something that we feel strongly should be looked at, particularly when a utility can demonstrate prudence and can demonstrate that through their wildfire mitigation plan, they are prudent. And then finally, any kind of state, backstop obviously helps to manage that tail risk. But what I'll tell you is there's lots of paths to odds here. There are all sorts of vehicles and methods and mechanisms.

And so the report, I thought did a good job of outlining multiple paths, not -- we don't need everything in that. In fact, some of them were intentionally this or that. And so I think now is the heavy lifting for the legislature to really consider what's the totality package. What is the state's ambition to truly create a wildfire liability construct that works for everyone and works best. And we're, as I've said, encouraged by the conversations that have ensued so far.

And then I guess 1 related question. Just somebody brought up the governor election and obviously, we had this shake up occur. Is there any way to interpret whether that actually adds more impetus to address this wildfire law this year or the other way around? Is it disruptive to it? Just any thoughts there?

I would say the Governor Newsom has done incredible work over his time as Governor to address these major fundamental issues with wildfire risk in the state. I think he's probably the leading governor in the nation who has taken and led his legislative bodies through major reform in this area on his watch. .

So as he indicated, and we're just -- from the reports and the executive order that he issued, I think he expressed interest in having a real fix but he can't act alone. He's got to have the legislature with him. And so it's been good to see legislative leadership describing a desire to really get into this issue. And so I look forward to them being able to do their job. And I think unrelated as much to the governor's election, but for the fact that it's Governor Newsom's last year in office here in California, I think he's made it clear that he'd really like to see action on this.

Your next question comes from the line of David Arcaro with Morgan Stanley.

I was wondering on the data center side of things. When might you expect to refill that bucket of application and preliminary engineering within a pipeline? And maybe more broadly, just what has been the pace of data center demand and conversations that you've been seeing?

Yes. I would say, first of all, the cluster study that we've initiated, we call it Cluster '26, our third cluster study has initiated -- has shown significant demand as we look at how we do the engineering, we do that over the next 6 to 8 months. We do parallel engineering of all the projects. This has been a real enabler to minimizing costs for any 1 project maximizing shared infrastructure investment and really getting a clear eye of where the capacity needs to be either added or leveraged where we have existing capacity.

And so one of the, I would say, the big developments we're seeing lately is more interest outside of just the Bay Area. And so that's exciting. I'll just tell you, I was at a conference in EEI Key Accounts Conference with all our large customers, and I was on a panel with, I'll just call a Class A data center developer. And as he and I were talking before we went on stage, he -- and this is a major data center developer was unaware, we had additional capacity here in California.

And so I think we still have a job to get the word out that California is open for business. We've added 33 gigawatts of capacity to the California grid, and we've got 22 gigawatts more under contract for the next 4 years. That is significant capacity being added on a grid that is underutilized because of our low air conditioning demand. So we really have an opportunity to serve these large load customers and I think word's getting out. And our third cluster, cluster 26 really has demonstrated that. So I would say, as you can see, as we indicated, 10-plus gigawatts showing interest. That's in the early phases of that cluster study. And as we do the engineering, obviously, some of that will fall out. We don't -- we've seen that over time.

But as you can see, we continue to move closer and closer to actual construction and being online. We still expect to have about 1.8 gigawatts online by 2030. And again, these are multiple projects, no one silver shovel, as I like to say. So this is, I'd just say all good for California, for California's tech industries, for the customers who leverage technology and for all of the people who use the grid in California, this is a big win-win.

Great. Yes, that's helpful. And I guess, I think you kind of alluded to this also in that response. But I was just curious, I mean, you've got significant electric bill reduction coming as you start to bring this online. So could you just help with a sense of when those data centers are coming online and when customers would end up seeing some of that bill reduction to kind of add on top of what you've been highlighting and achieving on the affordability side of things.

Yes. So the 1.8 gigawatts will be online by 2030. We forecast that to be about a 1% to 2% rate reduction for that time period. And so when you add that into our simple affordable model, remember, this is the way that we've been reducing rates already. There's very limited large load that's contributed to the 23% rate reduction for our most vulnerable customers and 13% rate reduction to date. That's been delivered through a simple, affordable model. Converting our capital O&M ratio to a more capital less O&M, reducing our maintenance costs through more efficient operations.

And as Carolyn mentioned, $26 million of savings by transforming how we do inspections. Those inspections are all O&M. So one of the secret sauces here at PG&E is our O&M reduction capacity and that is the most beneficial, quickest way to lower rates for customers. Of course, investment-grade credit metrics would also help lower bills for customers and large load as we transition forward is in the future years, our pathway, as we like to say, our path to flat. That is being driven by all of those factors. O&M reductions, more efficient financing and large load and the large load in the latter half of the plan.

Your next question comes from the line of Anthony Crowdell with Mizuho.

Follow-up to David's question on the -- I'm curious on the conversion from final engineering to construction, just your confidence in obviously, you've had an increase there, up to 140, just as that 4,600 now is in final engineering. Confidence of converting it to the construction mode. And then I have a follow-up.

Yes. So first of all, one thing to remember about how this large load gets approved and financed here in California. Our generation capacity is driven through the California Energy Commission, CAISO and the CPUC. And that's why we've added 33 gigawatts that process is working really well. I know that some of the ISOs across the country are struggling to get new large load built. We're getting capacity added to the grid.

So in order to get one of these large load customers, they can leverage that capacity that's been added to the grid without having to do one-on-one contracts per se. So when we talk about final engineering, we're predominantly talking about transmission and the transmission engineering that's required because in a lot of cases, we're able to just do a direct connect, dual feed with a backup online on-site in order to deliver the reliability that these large data centers require.

So to answer your question specifically, Anthony, we think there's a high conversion, but we've not been at this stage with this volume before. And so we're buttoning up all the final details with our counterparties. But the fact that they're moving forward, they're putting money on the table, these aren't final agreements, but they're awfully close, and they're putting real forecasted expectations for bringing load online that -- and so we'd say that process is working, but these will be important tests here, these final -- these 4 gigawatts to see how much of that actually goes to construction, but we're pretty optimistic than a lot of it will.

And so that's why we forecasted 1.8 gigawatts by 2030. Right now, that's -- you can use that as simple math, but those numbers could change here in the coming months.

Great. And then a follow-up on the $5 billion of incremental investment opportunities. And I know I think third quarter, you're going to file an undergrounding plan, and the miles are kind of subject to approval, how much of the $5 billion of incremental opportunities is dependent on the approval for the undergrounding plan or the undergrounding plan would be incremental to this $5 billion?

Unrelated. We built in a level of undergrounding and around $1 billion a year in our $73 billion plan, and that's what's built into our assumptions. So when we talk about the $5 billion, we talk more about accelerating reliability improvements, accelerating new business connections, accelerating these large loads, including more and more transmission infrastructure investment in our plan because right now, we're making trades between where best to deploy capital.

We have plenty of capital to deploy, and we're really working from an affordability and our balance sheet are key drivers to how much capital we deploy, which is why we love our plan. We think it's the best. It really threads the needle for customers and investors. And so anything we add to the plan at this juncture means something else is coming out. And so that's why we would say that the $73 billion incorporates all of those things.

Your next question comes from the line of Gregg Orrill with UBS.

I Was wondering about settlement discussions in the rate case, if you've had any and just your general thoughts on how that's going and settlement is at all likely>

Yes. I would say, first of all, evidentiary hearings will be here throughout May, and I think that's an important step in the process. That may create an opportunity for settlement. And so we would never rule out settlement. Obviously, we've settled cases in the past. But we've also gotten pretty strong indications from the CPUC that they like to do a fully adjudicated GRC. So we're open to both. We think we filed a great case. We think given our commitment to affordability and our follow-through on what we promised the commission, we would be doing with rates, and they're watching it happen. I think we enter those discussions as a real, trusted counterparty, and we look forward to the hearings throughout May. .

Your next question comes from the line of Ryan Levine with Citi.

Two questions. One, just in general, how does the summer look for weather into wildfire season? And then secondly, as you continue to look to optimize capital allocation into potential scenarios around CapEx, whether it's growth or something else. How do you look at what credit metrics to maintain on your holding company leverage?

Well, I'll take a weather question, and then I'll pass off to Carolyn on the credit metrics. On the forecast for weather, look, one thing I've learned, we have incredible scientists here at PG&E who are extraordinary weather predictors. But our strategy is not to count on weather prediction, we count on being ready every day.

And so regardless of the conditions, we are in a position and a posture to respond and to be prepared and to prevent. As I shared in my prepared remarks, this continuous monitoring application to our grid is extraordinary. I cannot overstate how exciting it is to us here at the company to look at the potential of being able to move from a reactive grid operations to proactive grid operations with visibility, knowledge and forethought before conditions materialize. And before a branch grows into a tree, before a line has any kind of degradation, we can see it. Before a transformer might have early signals of failure, we are moving into a fully predictive grid posture.

We're not there yet, but boy o boy, are we making progress and this continuous monitoring gives us a lot of confidence heading into this wildfire season that we have the posture required to prevent catastrophic wildfires. And so we're just -- we're working hard to make sure that we deploy those sensors and leverage that technology as quickly and as affordably as possible because it is so beneficial. I'll go ahead and kick it over to Carolyn for the credit metrics question.

Yes. Just on -- so just -- as a reminder, stepping back, like our current plan is certainly built around 3 things, as we've said. No equity, particularly at today's low valuation. We want maintain the common dividend, which provides us with flexibility. And then we do have some modest debt levels at parent level, sorry, debt financing in the plan at the end, but we are maintaining that 10%, and that's all built around maintaining our IG-level credit metrics today. post SB 254, I think that what you're getting at and looking at a different capital allocation if we said everything is on the table at that point in time.

And so all elements of that plan that I just went through, will be on the table to be considered at that point in time. And what I will say is that you can just really count on us to look at market conditions. We're going to be looking at what's going on with our stock price, what's going on with interest rates, what is the overall environment, and we'll come to that conclusion at that time.

Okay. And I appreciate the maybe sensitivity, but is there any color you could share around whether special dividends or ratable dividends or buybacks that we should consider in those type of scenarios?

Ryan, it's Patty. Yes, as I've said, we're just not going to rack and stack the alternatives here today. We're going to make sure that we do first things first, and that's to get a solid SB 254 outcome.

Your next question comes from the line of Richard Sunderland with Truist Securities.

Just 1 for me. Given the transparency in the SB 254 Phase 2 process, recent CEA report, do you expect any new look to the legislative process this summer, like in earlier bill introduction or more debate on public text or I guess anything else that offers more external insight into where the process stands.

Well, we don't know exactly what -- how the legislature is going to approach this, but we do know that the Assembly Energy Committee Chair, Cottie Petrie-Norris had indicated that she had hoped to hold hearing sometime in May, which would be -- she said that in public statements.

And so we're hoping that, that gets followed through on. We do think hearings will be important because it's a complex subject, and we think the more are legislators and these important committees both the insurance and the energy committees and the Senate and the assembly understand the alternatives. They'll see what the CEA report really was conveying that in action is not a good path forward. In action would be really just not an option. It's unaffordable. It's too expensive and too regressive. And we know our policymakers when they understand that we'll want to take the appropriate actions. And the good news is the CEA report provides multiple alternatives for consideration that would dramatically improve the status quo. So we look forward to those hearings and look forward to the discussion how it transpires here over the legislative session between now and the end of August.

Your next question comes from the line of Carly Davenport with Goldman Sachs.

This is [indiscernible] on for Carly. I had a question on the CAISO transmission project. Could you give us a sense of where things stand in terms of getting to a final approved status? Are there any projects that you're more optimistic could clear the final iteration this year? And then how should we think about the financing strategy for these projects?

Yes. Thanks. Great questions. We're excited to report the transmission planning process from CAISO is has completed, and they've awarded 25 projects for '25 '26 planning, totaling $4.16 billion of projects for PG&E. This is a big improvement for PG&E. I think there was a period of time where the CISO was not sure that PG&E could follow through and do these transmission projects at this scale. And their determination certainly has shown that they have confidence that of 26 projects, 25 were awarded to PG&E.

And we're proud of that. And all of those projects are currently built into our $73 billion capital plan. So no change to the capital plan there, just our ability to go ahead and execute those.

That's great. And then a quick follow-up on Diablo Canyon. Now that you got the license renewal, how are you thinking about appetite from the state to keep the plant on longer term?

Yes. Well, thank you for asking this question. I always love to talk about Diablo Canyon. Look, we're very happy with the NRC's 20-year license renewal, and that was a big milestone for the team. I think they've earned that with their performance, their continued delivery of clean energy for the state of California, one of the best operated nuclear plants in the country, proud of their performance, and we think that performance was essential in that license renewal.

Now it is up to the legislature on whether the plant would be extended beyond 2030. I think the CPUC has been very clear that there's a real cost benefit and the billions of dollars of savings for customers by having Diablo remain online. And there's a recent study by MIT that confirmed and validated CPUC's understanding -- or CPUC's forecast. So I think with affordability top of mind, I leave it in the hands of the legislature to take the necessary actions to extend the life beyond 2030. But the economics certainly work.

This concludes the question-and-answer session. I will now turn the call back over to Patti Poppe for closing remarks.

Thank you, Jeannie.

Well, Thanks, everyone, for tuning in today. We know a lot of eyes, including ours, are on Sacramento and wildfire liability reform, and you can rest assured that our eyes are also on running a great utility. The PG&E transformation is on track. We have never been stronger or better positioned to serve, and it is our honor to do so. Thank you for joining us today. Stay safe out there.

Ladies and gentlemen, that concludes today's call. Thank you again for all joining. You may now disconnect.

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We are increasing the low end by $0.02, which brings the range to $1.64 to $1.66. At the midpoint, our 2026 guidance implies 10% EPS growth. Looking further out, I'm pleased to reaffirm our growth outlook of 9% plus annually from 2027 to 2030. As you've come to expect, we'll also continue our practice of basing future growth on our actual earnings. As previously announced, last month, I began the 5-year extension of my contract as CEO, which runs through 2030. I'm energized by the work ahead. Our priorities are clear: safely keep the lights on and the gas flowing and keep making bills more affordable. It's a safety, reliability and affordability trifecta that we're delivering here at PG&E. On the safety front, in 2025, we had a 43% reduction in serious injuries and fatalities compared to 2024, and our serious preventable motor vehicle incident rate improved by 30% achieving some of our best ever safety metrics. On reliability, our system-wide performance measured by SADI improved by 19% from 2024. And on affordability, it's our consistent execution on our plan. our simple, affordable model, which is allowing us to chart a differentiated path for our customers. On January 1, we delivered our fourth reduction in electric rates in two years, with our gas rates also going down. Combined with prior decreases, our bundled residential electric rates are now 11% lower than January 2024, with the typical customer paying about $20 less per month. That's progress customers can feel. If our pending 2027 GRC were to be approved as filed, combined gas and electric bills would be flat to down compared to 2025, and we're going to keep pushing because fighting for customer affordability is core to our strategy. Looking ahead, we see opportunities to further improve this trajectory through the addition of rate reducing load from data centers and other electric growth. This new load can deliver a win-win for California, economic development and affordability.

Slide 4 should be familiar by now and summarizes our consistent execution track record. Each year brings different headwinds and tailwinds, but our approach is unchanged. Plan conservatively and execute relentlessly to deliver consistent, predictable results over the long term. In 2025, we confronted early headwinds with strong execution during the year, particularly on the cost side, ultimately putting us ahead of plan. This allowed us to redeploy and pull ahead costs in the back half of the year. That's our model doing exactly what it's designed to do, deliver consistent results for owners while redeploying outperformance to benefit our customers. As shown on the slide, over the past four years, savings generated under our simple affordable model have allowed us to redeploy over $700 million for the benefit of customers, while still delivering for our investors. These are dollars which could have shown up as higher profits, but which we chose instead to deploy towards better customer outcomes and derisking future years. Said another way, profits and customer savings go hand in hand.

Turning to Slide 5. We remain intensely focused on helping California find a path to address the state's wildfire challenge. We will stay constructive and tenacious until we reach a more sustainable, safer and affordable future for our customers, for our communities, for our state and for those who commit their capital to us. Since our last call, the California Earthquake Authority stakeholder process for SB 254 Phase 2 has been progressing, and they are tracking towards submission of their report and recommendations to the governor and legislature by April 1st. I should note that the April 1st CA report won't be the end of the road for Phase II. In fact, it will mark the beginning of the legislative process. We aren't getting specific today on which policy choices might be most effective, but be reassured our team is actively engaged. In terms of core principles, our goal is to address the open-ended and unknown risks which the current construct puts on the IOUs and our customers. For California to attract your much-needed capital, you must be able to quantify and price the risk. Our customers and hometowns need us to access affordable capital as a prerequisite for safe, resilient and clean energy systems they expect.

Turning to Slide 6. Ignitions were down 43%, which resulted in a third consecutive year without a major fire caused by our equipment. This was achieved despite elevated fire activity statewide. As we do every year, we're looking to drive further safety improvements in 2026. We expect to further expand our continuous monitoring capabilities, including our smart meters, which are helping us get ahead of potential issues, anticipating failures before they happen. In late January, we announced the launch of Ember Point, a new venture between Lockheed Martin and PG&E Corporation, marking a critical milestone in our mission to end catastrophic wildfires. EMBERPOINT is intended to integrate next-generation wildfire solutions and set a new standard of wildfire safety. With our regulators approval, we can bring our wildfire mitigation experience and proven layers of protection while Lockheed Martin brings its cutting-edge prediction and detection along with military grade equipment and tools to help our firefighters stay safe while putting out fires faster. We can accelerate at scale the deployment of technology at the lowest societal cost, the goal being speed to safety, making our systems and others safer faster. In addition, EMBERPOINT gives us a pathway to flow some savings back to our customers over time. Also in January, five finalists were announced in the autonomous response track of [ X Prise ] wildfire, where PG&E is a main sponsor. This summer, the five finalists will be tasked with demonstrating autonomous systems, which can detect and fully suppress a high-risk fire in a 1,000 square kilometer test zone within minutes, while leaving decoy fires untouched. We couldn't be more excited to be helping advance real-world adoption of game-changing solutions. On the regulatory front, in December, the CPUC voted out revised guidelines for utility undergrounding plans. This is a key step that moves us toward initiating our 10-year plan filing with OEIS, luckily in the third quarter of this year.

Earlier this week, we and the other IOUs may require filing with the CPUC to establish the benefit/cost ratio methodology. Aligned with that, the CPUC guidelines provide us a path for us to file for approximately 5,000 miles of additional undergrounding over 10 years starting in 2028. These miles will represent the next phase of our undergrounding journey and will add to the 1,900 miles we expect to have completed by the end of 2027. Combined with overhead hardening, this would bring our total system hardening plans through 2037 to almost 11,000 miles and more than 3/4 of the high-fire threat miles we plan to harden based on our current modeling. The remainder of our overhead system in the HSD will be protected with operational controls like PSPS, EPSS, maintenance, including vegetation management and continuous monitoring as it is today.

As illustrated on Slide 7, we see PG&E's affordability story as our story of the year. As I mentioned earlier, on January 1st, we lowered our bundled residential electric rates for the fourth time in two years, and our average bills for those customers are now 11% lower than in January of 2024. That's a headline worth repeating. We hear a lot of discussion of affordability in absolute terms, but what gets less attention is that our bills as measured by share of wallet are below the U.S. average. Our value proposition relative to income levels is, therefore, better than average. Our prices are moving in the right direction, and we believe this will become easier for policymakers to recognize going forward. As our 2027 GRC proposal laid out, our simple, affordable model allows us to make needed investments, while holding our bill increases at or below typical inflation. Back in 2024, we started talking about our simple affordable model, amplified. This showed an opportunity for further improvement in each of the key elements, our goal being to bend our future customer build trajectory down even further.

Today, as shown here on Slide 8, I'm excited to share with you that we're officially updating our simple affordable model to show a new target future build trajectory of 0% to 3%. You heard me 0% increase in our bill is insight. We've amplified two key enablers, our nonfuel O&M savings and electric load growth. Our confidence in the PG&E performance playbook and in our ability to drive savings has continued to grow. We still see plenty of headroom for savings. As indicated by our capital to expense ratio, which has improved from 0.8 to 1.0 over the past two years, while improving our ratio remains well below our peer group average of 2.0, while top decile performers are close to 3.

Turning to our rate reducing load story here on Slide 9. Since our third quarter update, we've seen significant growth in projects moving into the final engineering stage, which now stands at almost 3.6 gigawatts, that's up 2 gigawatts, more than doubling from last quarter. We're excited by the opportunity to bring on large load and deliver savings to our bundled customer base, while enabling growth and economic prosperity for our state. In January, Carla Peterman represented us at a ribbon-cutting ceremony at the Equinix Great Oaks South data center, the first data center to come online under our joint implementation agreement with the City of San Jose. This was an opportunity to demonstrate that PG&E is delivering on our promise to provide fast, reliable power to large energy users. For each gigawatt of large load, we see the potential to drive savings of 1% or more on average monthly electric bills. In order to do this, it's actually quite simple. We just need to get the pricing right. And while the relationship between data centers and customer affordability is now receiving a lot of attention at the national level, demonstrating savings for our core customers has been nonnegotiable for us from the beginning and continues to be so.

With that, I'll hand it over to Carolyn.

Thank you, Patti, and good morning, everyone. Here on Slide 10, we're showing you our 2025 earnings walk for the full year. Core earnings per share are $1.50 at the midpoint of our guidance and up 10% from 2024. We've added $0.07 from our customer capital investment, deploying critical capital on behalf of our customers for safety, resiliency, reliability, capacity and new customer connections. In fact, with respect to new connections, by late 2025, we had cut application intake time by 40% from a 2023 average of 76 days to just 45 calendar days, and our engineering design times are down by 1/3, thanks to our performance playbook.

Our operating and maintenance savings came in at $0.20 for the year, and we were able to redeploy $0.09 back into our system for the benefit of our customers. We had over 160 waste elimination initiatives in 2025, which came from across PG&A from our front line to the back office, and we're not done yet as this is a muscle we're continuing to strengthen. Timing items reversed for the full year with the other bucket here mainly reflecting benefits from smart tax planning as we shared on the third quarter call.

Turning to Slide 11. There's no change to our $73 billion 5-year capital plan. We still see at least $5 billion outside the plan, much of which is FERC jurisdictional capital, which can enable rate reducing load growth.

Here on Slide 12, I'm pleased to share our 5-year financing plan. On the third quarter call, I shared our financing guideposts. Those principles have not changed and are reflected here. Importantly, our plan is [indiscernible] to require no new common equity through 2030. We continue to prioritize investment-grade ratings, including sustaining FFO to debt in the mid-teens. And we still target reaching a dividend payout of 20% by 2028 and holding that level through 2030. As you likely saw, we've doubled our annual share dividend to $0.20 for 2026. And based on our payout guidance, you can expect consistent increases in the next two years. This plan offers flexibility over the 5-year period and is based on conservative assumptions. On this slide, we're also showing our expected 2026 utility debt issuance of up to $4.6 billion. Our plan includes some modest additional parent level debt financing, which may include efficient tools such as junior subordinated notes. Overall, we expect our percentage of parent debt to remain below 10% through 2030, which is on the lower end of sector norms. While this need is more towards the back end of the plan, we'll always be opportunistic in terms of timing our market access. Given uncertainty on timing and indeed, whether the contingent contributions to the continuation account will be caused, we've not explicitly included these in our waterfall. If these were called PG&E share would be $373 million annually over 5 years, which we would plan to debt finance and still maintain our mid-teens credit metric.

Turning to Slide 13. Achieving investment-grade ratings and efficient financing are key principles of our financing plan. With investment-grade credit, we would be able to access lower cost debt, unlocking a key incremental affordability driver for our customers. Regarding capital allocation, consistent with what we've said before, we're in the midst of a state-led process on wildfire policy reform, and we continue to see our current investment plan as the one that best delivers for our customers and investors. Now is not the time to make a change. That said, as you would expect, we'll have a disciplined approach. And if we reach a point where we're not seeing clear signs of progress on the legislative front, then you can be certain, we'll take a hard look at all aspects of our plan.

Here on Slide 14. Now this is where I get really excited. We reduced nonfuel O&M by 2.5% in 2025, meaning we've now exceeded our target for 4 years in a row, and we're definitely not done yet. As Patti mentioned, we've updated our simple affordable model on this call to reflect O&M savings in the 2% to 4% range, up from the previous target of 2%. And as a reminder, this savings target is after we've absorbed inflation and other cost pressures.

Slide 15 highlights our upcoming legislative and regulatory calendar. The California legislative session is already underway. And as you know, the Wildfire Fund Administrator report is due April 1st. On the regulatory front, our general rate case process continues with intervener testimony tomorrow and hearings in April. We expect to file our 10-year undergrounding plan with OEIS in the third quarter, and we're tracking towards a November proposed decision in the concede and Dixie cost recovery proceeding.

I'll end here on Slide 16 with our value proposition. It's a reminder that the simple affordable model works. The concept is simple, but it's our differentiated performance that is unlocking benefits for both customers and investors.

And now I'll hand it back to Patti.

Thank you, Carolyn. We understand that the state's work on wildfire risk and SB 254 Phase II remains the critical variable for many investors, and we're fully committed to finding an outcome which delivers on key priorities. These include continuing to accelerate our reduction of wildfire risk while also delivering on affordability for our customers and attracting investment for California energy infrastructure.

Before we take your questions, let me recap some highlights from this past year. We achieved a significant reduction in serious injury and motor vehicle incidents resulting in some of our best ever safety performance. We reduced ignitions by over 40%, resulting in our third consecutive year with no major fires caused by our equipment. We improved electric reliability by 19% year-over-year. We now have 3.6 gigawatts of data center demand in the final engineering stage, positioning us to capture rate reducing load growth. Our customer transaction score, which we measure every day is up and our field crews are being scored 9.5 out of 10 by our customers when they interact with our frontline team. Our brand trust is up. We reduced O&M by 2.5%. We delivered another year of double-digit earnings growth, further extending our execution track record. And with all of that, we've lowered bills again, with our now amplified simple, affordable model offering a pathway to zero bill inflation. Now that's a year to be proud of.

With that, operator, please open the lines for questions.

[Operator Instructions] Your first question comes from the line of Nicholas Campanella of Barclays.

Great to see progress overall and definitely hear you on the 0% to 3% build growth in the refresh plants, thanks for that. Maybe just kind of if you were to kind of reflect on the CEA process, what is most encouraging to you? And then what is your view on just having something done legislatively in June versus September, just given the summer recess is. Historically, I think things have gone the full distance into September. I'm wondering if there's broad enough alignment in your view to maybe get something done sooner than that? And any comments on timing?

Yes. Thanks, Nick. I'll start with timing questions. Look, this is a complex legislative effort, and we definitely want to support taking the time to get it right and getting the right outcomes. And obviously, the sooner the better, but we want to make sure the most important thing is getting something right done this year. So we're very much intent of really helping make sure that we're on the right footing. We've got the right information and that the decision makers have the information they need to make decisions well. And so that leads to the CEA process. And look, I would say that they're right where they're supposed to be in terms of timing in the process, they're doing what they said they were going to do. We're encouraged by that. And as they close their latest webinar, the CEA said they're focused on actionable, viable and durable solution. And boy, we really support that because we know our customers and our investors bear an outweigh the cost of the current construct. And it's regressive. Our most vulnerable citizens are paying too much for this current construct. And so we definitely support the actions that are being considered. We do think that the most important criteria for us as we look at it is making sure that we continue to focus on risk reduction, on recovery outcomes for costs that are born, affordability, obviously needs to be a key component of whatever solution there is. And today, the current model is not affordable for our customers. And so we need to fix that and make sure then most importantly, for the audience on this call is that we continue and are able to be investable and that you can price the downside risk associated with the legal construct here in California. So we're very much focused on getting the right outcomes and taking the time required to do that here in this legislative session.

And then I know in the prepared, there was also kind of discussion about you would relook at the overall plan depending on the signs of progress in legislation overall. Can you just -- if it doesn't go the way it's planned, can you just give us a sense of some of the items or just how you would kind of rank what takes priority in capital allocation, whether it's the capital investment, dividend or otherwise that you would be looking at first?

Well, let's just back up for a little bit about capital allocation just in general. As Carolyn reiterated, and I'll just reiterate for everyone on the call that look, we see what you see. We, too, can do the math. The current valuation is absolutely not sustainable. And we are ringing that bell in every corner of California that we can find and in every office and in every conversation to make sure that people understand the value of the investor-owned utility model, and how important attracting low-cost, high-quality investment is to spread out the cost of infrastructure for customers over the long haul. And that means we need to have an attractive legislative construct. Therefore, that's what makes SB 254 Phase II so important. Now we say that, and as I said earlier that we do think that they're right where they're supposed to be, and people are following through on what they said they were going to do, so we feel good about that. But as we think about capital allocation today, because we're encouraged by that progress, because we're having the right conversations and because we're delivering everything that I talked about on the call, performance is power here. This is no time for us to pull back on serving our customers. Look, as I mentioned, our safety has continued to improve. Our reliability has improved 19% year-over-year. Our customer satisfaction is up. Our trust is up. Our rates are down. All of that to say, this is no time to change the model. However, to your ultimate question, Nick, if progress stops or derails, or we feel that the state has lost interest in getting to the right outcome on 254s, and obviously, all aspects of our plan. Must be and will be on the table. We will not continue to sustain this valuation. And so today, that could take a lot of different forms, and I'm not going to [indiscernible] here on the call, but there's a lot of different ways to approach that problem. And the entire plan will be on the table if we don't see progress or if it stops and derails.

Your next question comes from the line of Steve Fleishman of Wolfe Research.

So yes, so just maybe following on the CA process. We did get this view from the CPUC last week. And I'm kind of curious your take on that. And how influential they might be with the legislature in this process?

Yes. The CPUC is what we see that this is -- this current model is regressive, and it's putting excessive burden on our electric IOUs and our customers. And so I appreciated them sharing their points of view. They support what we support, which is a whole society approach. And I think people will definitely listen to what the CPUC thinks they are the state agency whose job is to confirm that we have financially healthy utilities and rates and affordability for customers. And given our performance and our ability to lower rates, while we are continuing to improve the service for customers. We hope that it makes it easier for the CPUC to fully advocate for the reforms that we think are necessary in SB 254 Phase II.

Okay. Great. And then just going back to the simple affordable model changes. So on the growth level, does the -- is this basically with this better visibility from the data centers you now have kind of line of sight to higher growth? Yes, I would action is going to be higher.

Yes. Yes. We definitely see, and as we shared, 3.6 gigawatts in final engineering. We had previously said about 1.5 gigawatts of that would be online by 2030. Now we're saying it's closer to 1.8 gigawatts will be online by 2030. Obviously, that continues to change and evolve. And as we get more applications and we can combine projects and bring things online faster, obviously, we'd accelerate that. But the good news is that we do see that real load growth in project stages that makes it very real, and we have lots of confidence about that. We said 2% to 4% load growth in the simple affordable model. That 4% is more at the back end of the 2030 -- of the 5-year plan, but we definitely see it in there. And we also see, as Carolyn shared an opportunity to continue to increase our O&M reductions as we continue to better serve customers. So it's really a combination. I'll also say that we are still seeing EV load penetration. We had 18% EV penetration in the final quarter of the year. even after the incentives went away. So we definitely are still seeing increased EV demand as well, and that's an additional load driver.

Your next question comes from the line of Shar Pourreza, Wells Fargo.

This is Marcelo [indiscernible] on for Shar. Maybe following up on that data center piece. How should we be thinking about the time line for ramp beyond 2026? And then is that, just to clarify final engineering stage fully incorporated into the 0% to 3% bill growth and CapEx opportunities on transmission, or would be incremental when it reaches construction stage?

Yes. That -- so our loan growth is part of the 0 to 3%. So to get to 0, we would need to see more of that low growth online. And so as I was sharing, as we look at the ramp to 2030, we can see about 50% of that 3.6 gigawatts online by the end of that range, so 2030. And so that's in that zone of 2% to 4% within that 5-year time period. So consider that a ramp in that period. There's other things, though, that we've got in the hopper to help drive affordability in addition to -- we talk about O&M and load growth on that. But the other line, we held at 2%, but there's other parts of the bill like supply costs, we had a good reduction in our supply cost here this year-over-year, thanks to our incredible supply team and work they've been doing to make the energy that we purchase and procure and produce more affordable. So there's a lot that goes into a customer's bill that can help get us to that 0% to 3% range and trying real hard to buy us as close to zero as we can get. And so we're going to keep working that every day.

Great. And then pivoting a little bit to credit metrics, investment-grade 1 agency, how much incentive is there for continued balance sheet improvement and then in line of sight to multi-agency investment grade?

Yes. So I'll take that. This is Carolyn. So a couple of things. Just to remember, Fitch just upgraded us this past fall to investment grade. Both Moody's and S&P have said that our financial metrics are meeting the investment-grade criteria. What they're really looking at is, again, the progress on SB 254 less of continued improvement in our balance sheet. With that said, we remain very committed to mid-teens FFO to debt metrics, and we continue to look at building a very sustainable financing plan to continue to meet those metrics.

Your next question comes from the line of Anthony Crowdell of Mizuho.

Just I wanted to follow up on Steve's question, only had one. On the legislature, there's some new faces or maybe old faces and new places in the State Senate, Senator [ Lamona ] is a [indiscernible] of the Senate, also a new Head of the Energy Committee. Just curious if you had any discussion with them. Just wondering if you think that may be required big portion of support of getting something across to finish line.

Well, of course, we've been in conversation with the leadership, and we continue to be -- and I think one of the hard things is our business model is hard to understand. And it's hard for people to believe and see that you can raise profits and lower rates, all at the same time. That's why our performance is so important, and why our mantra that performance is power really holds true at this time as we work to educate all of the legislators, including the leaders as well as others that we can, in fact, invest in long-term infrastructure, make the system safe, make the system resilient and lower costs. I think affordability is top of mind for all the legislature. And I think they're going to want to understand that as they make decisions on and can see that 254 is actually contributing to the affordability issues for their constituents, puts us on very much common ground. We want the same thing. We want a safe state. We want the ability for resources to respond when there is an incident and spread is taking place, but that our customers should not be subject to this regressive policy that has them bearing both the cost of the hardening of the infrastructure and claims then that follow when we were, in fact, prudent and capable operators. And so I think that, that problem takes a long form to explain to people. And so the more we work with the legislators to help them understand the full picture, the better. So we look forward to engaging with those leaders to help make sure that they're making the best decisions for the people they represent, which happen to be the people that we serve.

Your next question comes from the line of Julien Dumoulin-Smith of Jefferies.

Look, just wanted to come back on the upside capital you guys have here, look away from 254, how do you think about that $5 billion, and when you would be in a position around that, right? And as much as obviously, you guys are talking about sales and that trending in the right direction. I'd love to hear how you think about upside in the $73 billion CapEx plan. And then in tandem, how do you think about financing that to the extent to which you were over to go down that rabbit hole. I imagine that there is debt capacity is late to be able to accommodate that upside capital that you guys are identifying and/or how do you think about [indiscernible]

Yes. Julien, this is Carolyn, I'll answer that. As we think about the additional $5 billion, as we've said in the past, there's -- we see three options. The first of is you can make the plan favor, right? You could increase your $73 billion, but that's probably the least likely given our current valuation discount. Then there's the potential to make the plan better. And when we say better, we mean in terms of affordability in particular. And an example of that is accelerating or prioritizing certain capital that's associated with new load that could improve upon our bill trajectory. And then the third option is we could simply make it longer in terms of extending our above-average growth runway. So where we sit today and seeing the pipeline for load growth, where the way we think about that $5 billion is if there's any additional capital coming in, it's probably option 2, where we're looking to make the plan better, keep into the $73 billion envelope of our capital plan, but ensuring that we can drive affordability for our customers with that additional capital. In terms of financing, I'll just say that we continue to prioritize avoiding the need for equity at today's low value and maintaining the FFO to debt to mid-teens. So as we look at financing, that those are two of our key principles.

Awesome. Excellent. And then just if I can follow up a little bit on the process front, any specific milestones after April 1st that you'd be looking towards? I mean, I know at times, it gets pretty dark and opaque through the summer months, but anything in particularly flat here, at least at the outset beyond the April 1st recommendation?

Yes. I think that -- there's no specific milestones I would point to. I think there will be ongoing conversations, and it remains to be seen how much of those political conversations will be public or will they be handled by a subcommittee or however the legislature intends to take on the process once they've been given recommendations.

Your next question comes from the line of Carly Davenport, Goldman Sachs.

Just a couple of quick follow-ups to some other questions. Firstly, just on the data center pipeline. Great to see that growth in the final engineering and the under construction. Just any color on the movement in the overall pipeline? Is that a high grading, or are you seeing any shifts in sort of overall tone on demand?

Yes. I would say that will -- that number will continue to move. We -- as we mentioned, we just -- or at least we said on the slide, we just hired a Chief Commercial Officer. We're seeing lots of opportunity. People don't think about California when you think about manufacturing, but let me remind everyone on this call that California manufactures more products than any other state in the nation. California has more manufacturing jobs than any other state in the nation. I expect that those companies intend to grow. And so we're working to make sure that we can supply their growth as well, whether it's robotics or silicon manufacturing equipment and chip manufacturing equipment. That all lives here. And there's an electric bus company in California, like these companies intend to grow, and so we want to make sure that we grow for them as well. So I would say that number is at a moment in time, and I expect over time, when people realize that we have the capacity that we can, in fact, deliver the time lines that they want and make sure that what we deliver is then affordable for all of our customers that we're going to continue to be a key enabler to California's prosperity, and that requires growth, and we're excited to power it.

Really clear. And then just back on the wildfire policy reform, just as you talked about, given the urgency but also the complexity here. I guess, is it your expectation that this will be completed sort of in this legislative session? Or do you see any potential for other processes to sort of be borne out of this one?

We are very hopeful that this has resolved the substantive risk and cost allocation we're very hopeful that this is resolved during this legislative session. That would be -- this is the second phase of a 2-phase process, a 2-year session. And we've gotten -- I think we've seen what everyone has seen that they're right where they said they were going to be. The process is working as planned and the CEA is a very professional organization who is I'm impressed by the actions that they've taken and then following through on exactly what they said they were going to do.

Your next question comes from the line of Greg Orrill of UBS.

Congratulations on the results. Just I was wondering if you could talk about what you're expecting from the concede and Dixie cost recovery proceedings, who handles that? And what you're expecting to see out of that?

Yes. So we filed in November 2025, the first catastrophic wildfire proceeding that involves the resumption of prudency. What we submitted is a review of the cost that were paid by the while fund associated with Dixie and Kincade, that's the over $1 billion in claims. That's about $674 million. We're also looking for a recovery of Wema cost, which is about $1.6 billion. And that's primarily, if you think about this, remember, we did not have the self-insurance at that time. And so it's the donut hole between what we recovered from insurance versus up to the $1 billion, threshold before we can have access to the wild event. So we're looking for -- that's the second thing we're looking for recovery from. And then we're looking for a recovery from SEMA costs, which are about $314 million. So that's what we're looking for. I'll just remind you that we -- both with Kincade and with Dixie, we had a valid safety certificate which is -- so we're deemed reasonable in terms of our prudency. We think we've made a strong case, and we believe the facts support our case.

Your next question comes from the line of Ryan Levine of Citi.

Had one clarifying question around some of your comments. Are you looking to accelerate the prudency determination through the CEA process for future liabilities or future claims, the CEA process?

Yes. Ryan, there's a lot of things that we're looking at through the CEA process. So really, not specific. It's going to be a bundle of options and improvements and construct. And so I hesitate to have a specific outcome that we want to make sure that the risk, the downside risk is knowable and affordable for both customers and investors, and there's probably a lot of ways to make that happen.

Are no further questions at this time. And with that, I will now turn the call over to Patti Poppe, CEO, for closing remarks. Please go ahead.

Thank you, Oliver. Thanks, everyone, for joining us today. I'll just hit the high points. Look, our safety has improved. Our reliability has improved. Our customer satisfaction has improved. Our earnings have improved and our rates are down. And at the fundamental aspect of running a great utility, I could not be more proud of this team and the work that they have done. And for a company that leads with love, Happy Valentine's Day. I hope you have big plans for tomorrow. Enjoy your time. Thanks so much. We'll see you soon.

Ladies and gentlemen, this concludes today's call. We thank you for participating. You may now disconnect your lines.

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 you to the PG&E Corporation Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, we have allotted 45 minutes for this conference call.

I would now like to turn the call over to Jonathan Arnold, Vice President of Investor Relations. Jonathan, you may begin.

Good morning, everyone, and thank you for joining us for PG&E's Third Quarter 2025 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.

The presentation also includes a reconciliation between non-GAAP and GAAP financial measures. The slides along with other relevant information can be found online at investor.pgecorp.com. We'd also encourage you to review our quarterly report on Form 10-Q for the quarter ended September 30, 2025.

And with that, it's my pleasure to hand the call over to our CEO, Patti Poppe.

Thank you, Jonathan. Good morning, everyone. Our core earnings per share are [ $0.53 ] for the third quarter and $1.14 for the first 9 months of 2025. Today, we're narrowing our full year guidance range. We've previously shared a range of $1.48 to $1.52. The new range is $1.49 to $1.51 and we're keeping our bias toward the midpoint which is up 10% over 2024. We're also introducing our 2026 EPS guidance range of $1.62 to $1.66. At the midpoint, this is up 9% from our 2025 midpoint.

Last month, on our investor update call, we extended our 5-year capital plan through 2030. Highlights included at least 9% EPS growth each year 2026 to 2030, a 5-year capital plan of $73 billion through 2030, which supports average annual rate base growth of 9% and a financing plan, which does not require new equity also through 2030.

With the 2025 California legislative session over and the enhanced protections of Senate Bill 254 in place, our team is focused on collaborating with key parties, advisers and state agencies as the Wildfire Fund administrator prepares their April 1 report and recommendations for how best to socialize and mitigate climate-driven wildfire risk in the state.

This report is expected to lay out a wide range of policy options that will inform potential legislative action to stabilize the utility sector in the 2026 session. We're feeling the positive momentum of this process with what Governor Newsom on issuing his recent executive order calls a whole of government response to protect Californians from Wildfire. We share the governor's sense of scale and urgency and are committed to supporting the state's efforts to meaningfully adapt California's policy construct to meet the moment.

As this work continues, we know that there's no better protection for our customers and our investors than predicting and preventing catastrophic fires in the first place. PG&E's physical layers of protection are delivering. Through October 20, our total year-to-date CPUC reportable ignitions are down over 35% from 2024 levels and are running lower than any year since we started tracking these data in 2015. Despite this year having seen the second largest number of fires greater than 10 acres statewide since 2017, PG&E is on track for a third consecutive year of 0 structures destroyed due to CPUC reportable fires in high-risk areas under high-risk conditions. We are proud of that.

In spite of continued elevated climate-related risk, PG&E's layers of protection from ignition prevention to hazard awareness and response are proving effective. Contributing to this performance, we can point to several ongoing and new mitigations. About a month ago, we marked a significant milestone for our customers. PG&E has now constructed and energized 1,000 miles of power lines underground in the highest fire-risk areas. As we've consistently said, undergrounding remains the most affordable and effective way of delivering the safety and resilience our customers deserve. Customers should not have to choose between safety and having reliable electricity. Undergrounding is the only mitigation that delivers both.

This year, we cleared vegetation in a 50-foot radius at the base of nearly 4,000 transmission structures our data showed this approach would have contained the majority of transmission-related ignitions that we have experienced over the last 3 years. And we're continuing to deploy advanced sensor capabilities. including installing another 8,500 sensor devices this year, which builds on the 10,000 we rolled out last year.

These low-cost sensors, coupled with our existing smart meters and our newly deployed AI-enabled machine learning model are enabling secondary system-wide continuous monitoring. This capability allows us to detect potential thoughts on the system before they occur, including on the customer side of the distribution pool. We will continue to leverage data to drive our mitigations in the field, making the system and our customers safer each and every day.

In addition to executing on this important safety work, my coworkers have been leveraging our performance playbook to deliver consistent outcomes across the business for customers and investors. You can see our simple affordable model is working. Our 5-year plan contemplates $73 billion of customer beneficial capital investment through 2030. At the same time, building on lowered electric rates this year and planned even lower rates for bundled electric customers in 2026, we expect customer bills in 2027 to be flat to down to where they are this year.

We are doing this by eliminating waste and delivering on our 2% O&M cost reduction goals, enabling rate reducing load growth by partnering with our large load customers and executing on a financial plan built with flexibility conservatism and credit metric targets supportive of investment-grade ratings, which will lead to interest expense savings for customers.

We know that performance is power. When we perform we will have the power to influence perceptions and outcomes. By putting customers at the heart of everything we do and by doing what we say, our brand trust is on the rise and has been since our 2027 GRC filing started to change the narrative on affordability. In fact, when compared to our U.S. utility peers, the second quarter 2025 residential customer engagement study by Escalent showed, we had the highest annual increase in brand trust.

Our data center pipeline remains robust, at over 9.5 gigawatts. We've seen modest net attrition in our application and preliminary engineering phase since June. However, our projects in the final engineering stage continue to grow and advance. Most of the applications in our pipeline are for 100 megawatts or less. This is a function of existing California regulation but also assigned that data centers designed to support AI inference models have strong and compelling reasons to want to locate in PG&E service area, which includes Silicon Valley, the home of the technology sector.

Data centers of this size can be located in densely populated areas close to the end user and benefit from Northern California's extensive existing fiber network. This makes our service area a prime location for these customers who require real-time speed to ensure an optimal user experience. We are laser-focused on making this a win-win-win for our cities, our customers and data center developers. For example, we partnered with the City of San Jose to identify more than 150 acres of land adjacent to our existing infrastructure and in the heart of Silicon Valley that will be power ready for the data center selected from the city's competitive RFP issued earlier this year.

Our robust pipeline with a diverse set of projects is a great opportunity for customer affordability and California's economic prosperity. Every gigawatt we bring online offers the opportunity to reduce electric bills by 1% to 2%. I'll remind you that this is upside to our plan, both in terms of customer affordability and in terms of capital growth. Given our bias for conservative planning, our capital plan only includes about $300 million a year for this type of capital, much of which falls under our FERC formula rate.

With that, I'll hand it over to Carolyn to discuss our financials.

Thank you, Patti, and good morning, everyone. Here on Slide 8, we're showing you our earnings walk for the first 9 months of 2025. Core earnings per share are $1.14 and we're on track to deliver on our 2025 non-GAAP core EPS guidance narrowed today. As you can see, we've made additional progress towards our O&M cost savings goal contributing $0.05 for the quarter and $0.08 year-to-date. We continue to see unit cost reductions in our inspection processes and savings through vendor contract renegotiations as 2 examples of our cost savings initiatives.

Another key driver is timing and other. This bucket is contributing $0.10 for the quarter and $0.04 year-to-date. Both the third quarter and 9 months include benefits from smart tax planning. As a result of a method change, we're able to accelerate the deductibility of certain mark and recognize greater tax savings. We view this tailwind as upside available to redeploy for the benefit of our customers in addition to protecting future years.

Turning to Slide 9. There's no change to the extended 5-year capital plan, which we shared with you last month. Our planned customer beneficial investments support average annual rate base growth of approximately 9%, 2026 through 2030. Our rate base growth in turn, supports annual core EPS growth of at least 9% also through 2030. As a reminder, our rate base forecast excludes the $2.9 billion of CapEx to be securitized under SB 254.

Incrementally today, we're sharing more detail on our capital investment plan as shown here on Slide 10. This continues to be a no big bets plan. It includes many important projects over the course of the 5 years to improve safety, reliability and resiliency for our customers while enabling economic growth through capacity upgrades and new business connections.

To give you some examples, our plan includes a recently approved upgrade of our Helms hydro facility, enabling at least 150-megawatt increase in generating capacity. It also includes a substation upgrade, which more than doubles the electric capacity and improves reliability north of Sacramento. And it includes deployment of about 300,000 grid edge meters by 2030. These meters have distributed intelligent apps and advanced data processing, which support customer electrification as well as wildfire risk reduction.

Last month, I shared with you our financing guidepost, shown here again on Slide 11. We Importantly, our plan is built not to require a new common equity through 2030, a key consideration given where we currently trade. I also emphasize that we are continuing to prioritize investment grade ratings including maintaining FFO to debt in the mid-teens. Again, IG is one of the most meaningful potential affordability enablers for our customers.

I'll remind you that we're targeting a dividend payout ratio of 20% by 2028 and maintaining that level through 2030. This offers financing flexibility over the course of our plan as well as implying near-term compound EPS growth well in excess of 50% over the next 3 years. Our planning also contemplates the possibility that the Wildfire Fund administrator calls for the contingent contributions authorized by SB 254.

Regarding capital allocation, I'll remind you what both Patti and I shared on our September update call. Based on progress in the 2025 legislative session and encourage and signals that the state is serious about pursuing further reform in Phase 2, we see the investment plan we have shared with you that's delivering for our customers and investors now and for the long run.

That being said, we'll continue to take a disciplined approach when it comes to capital allocation. If we were to reach a point where we aren't seeing clear indications of progress, we would certainly consider reallocating some capital towards more immediate shareholder return. Of course, always being mindful of our credit metrics. A key differentiator of the PG&E story is our performance playbook and focus on waste elimination to deliver better outcomes for our customers.

To that end, we've achieved nonfuel O&M savings in excess of our target for 3 years running, and I'm confident that we will meet or exceed our 2% reduction target again this year. We're also on track to make meaningful improvements in our capital to expense ratio this year and beyond. In 2024, we invested $0.90 of capital for every dollar of expense. We forecast that this year, we'll invest $1.20 of capital for every dollar of expense. On the regulatory and policy front, we expect a proposed decision on our cost of capital application in November. And as Patti said, important milestones are coming up as stakeholders weigh into the second phase of SP 254.

I'll end here on Slide 14, with a reminder of our value proposition enabled by our differentiated performance. We're executing on our simple affordable model by generating annual cost savings for the benefit of our customers, enabling load growth with our 5-year capital investment plan and improving our balance sheet. I'm pleased Fitch has taken the first move to return our parent company rating to investment grade. This is just the beginning. As we continue to prove out our philosophy that performance is power.

And now I'll hand it back to Patti.

Thank you, Carolyn. The fundamentals of the PG&E playbook are undeniable. Strong layers of physical risk mitigation improving every day. ample runway to continue reducing nonfuel O&M, rate reducing load growth serving customers and California's prosperity, improving credit ratings and balance sheet health and our differentiated rate case proposal as a critical proof point all of which provide a path for customer bills to be flat to down in 2027 from today. These performance fundamentals set the stage for constructive legislation but more importantly, a framework that creates prosperity for customers and investors.

With that, operator, please open the lines for questions.

[Operator Instructions] Your first question comes from the line of Steve Fleishman with Wolfe Research.

So just on the SB 254 process, is there any better sense of in these steps, whether those would be made available that we can see? Or are we going to really more see things towards the end of the process.

Yes. Thanks, Steve. On the process front, we do -- we aren't sure what the CEA is going to share publicly. We do know just process-wise, the stakeholder abstracts are due November 3, right around the corner, full submissions by December 12. State agencies will submit final recommendations by January 30 and then that final study from the CEA April 1. We don't know what of those will be public. We're waiting to see that ourselves but we do know those are the milestone dates.

Okay. Understood. And then maybe just on the -- just any -- at this point on the cost of capital case, are we just basically waiting for a proposed order the process is done otherwise?

Yes. Steve, this is Carolyn. Yes. No, we are. We're -- as we've said in the past, we believe we put a really strong case forward, and the PD is expected in November 2025.

Your next question comes from the line of David Arcaro with Morgan Stanley.

I guess would you expect the policy reform recommendations next April to be prescreened with like the legislature and kind of have buy in, in advance of then going into the session. Is this something that we should have gave you a little bit more confidence that it's kind of vetted and should have a good chance of making it through.

So I guess, as we talk about this, David, let's just back up a little bit and talk about where we are and then we'll talk about where we're going. First and foremost, what we saw from the legislature this year is that they took action. Look, there was concerns certainly about the fund durability and the risk then that was to shareholders. in the event that the fund were depleted and the disallowance cap was dissolved.

So I do want to just step back and remind everyone that this legislature and our governor took action very quickly, and we're thankful for the actions that they took. And there are some key benefits that I just want to reinforce have been achieved already. I think there's a lot of, obviously, focus on Phase 2, but let me just remind us what happened in Phase 1. You know that protecting the fund and through the continuation account and our disallowance cap was a very important continuation of AB 1054, but there were several improvements to AB 1054 that I just want to hit really quickly, and I'll get to your process question.

Moving the disallowance cap date to the date of ignition, I'm going to call that the unsung hero of SB 254. A lot of people haven't talked about that, but moving that disallowance cap date to the date of ignition versus after the entire prudence determination process protects investors in the billions of dollars range of lower exposure through the disallowance cap and any dollars that the IOU would have to pay back to the fund. That reduces that exposure dramatically. That was a big improvement.

We also, of course, had no upfront contributions and with a significant portion of the contributions from the IOUs to the fund as a contingent call only in the event of a future large utility cost fire that jeopardizes the liquidity of the fund. That was a much improved source of -- or method of refueling the fund versus how it was done the first time. And of course, all new IOU contributions to the fund act as credits against the future regulatory disallowance that again, was a big improvement. And individual utility funding has been rebalanced, reducing the amount that certainly PG&E is paying into the fund by about 25%.

So I say all that, just a reminder to everyone that we have some significant improvements as a result of this Phase 1 process of SB 254. We were very thankful that the governor had leaned in so strongly though on Phase 2. He did not have to issue an executive order. The study bills are issued all the time. He wanted to make it clear. I think that the actions of the CEA and the report and the recommendations and then potential action by the legislature in 2026 was a top priority for him through that executive order. And his comments about a whole of government approach to wildfire is very important, I think, for California, for our citizens, for the -- all of our customers and for everyone who lives here, it's just a very important step to take.

Now what we know is that the comprehensive language that he shared that was both in the actual legislation and in his executive order was good to see. I would suggest that just flat out too soon to say what the best answer is going to be. We're going to see this range of proposals. The dates I just reviewed with Steve are the dates that the process will work. Obviously, the governor and the legislative leaders will be having conversation as this process unfolds. And -- but I would expect that the CEA report should be providing some really good recommendations to the legislature on which to act.

Excellent. Now I appreciate all that color and the context there for the entire process. And then maybe a bit of a separate question here. From what you can tell, is the undergrounding decision still on track for this year? And how should we think about that? Could that still lead to a future acceleration of your undergrounding activities in the future GRCs?

Yes. Procedurally, currently on October 30, here just a couple of days, commission meeting. Currently, the final recommendations on the 10-year undergrounding procedure will be -- it currently is on the agenda. All that to say, we certainly have expressed concern with some of the requirements and some of the methodology associated with determining which miles should be undergrounded. And so we'll be watching closely as the commission provides that direction next week.

I will say that -- and I shared this in our prepared remarks, we do believe that undergrounding remains the appropriate mitigation in some of our miles, not all miles. And I think that's important for people to understand. The miles that we've been talking about are in our highest risk areas where today, customers are experiencing 10 or more outages as a result of our safety methods. Our safety methods with enhanced power line safety settings, certainly reduces the risk for customers and keeps customers safe.

However, the outages that go with that safety choice are not acceptable. And so in these areas, we need to have a higher risk reduction through undergrounding and a better customer experience through a resilient energy system that can stand up through all sorts of weather conditions. Both fire hazard conditions as well as extreme snow conditions et cetera. So we are -- we continue to be bullish about undergrounding as the most affordable means of both reducing risk and providing resiliency in these highest-risk miles and will continue to advocate for that. We'll be obviously working with the commission on the time depending on their timing on our 10-year filing. And we obviously will need to meet the requirements that the commission outlines.

But just to remind everyone, as part of our 2027 GRC, we did include a bridging strategy in the event the 10-year plan were delayed in some way. we did propose a bridging strategy to continue our current level of undergrounding, which is about 300 miles a year. And I'm happy to report, as I mentioned in my prepared remarks, that we did hit a key milestone of 1,000 miles underground, and we've done that at a 25% lower cost than when we started. And so we continue to improve the cost for customers while we improve their safety and resilience.

Your next question comes from the line of Julien Dumoulin-Smith with Jefferies.

Just wanted to follow-up, actually, if I can push a little bit more on the Phase 2 piece. How do you think about that conversation fitting into a broader, more comprehensive focus in the state on reform of insurance. Just want to understand what your understanding of the scope of the conversation is in the coming year as well as if there is any nuance to break apart as far as inverse condonation.

I get that IC perhaps is maybe a bridge too far or at least it seems like a big ask. Are there other ways to dissect this that are relevant that folks should be thinking about? Again, I don't want to preempt the study per se that's coming out, but how do you think about strict liability conversation more broadly here as best you can tell? I get it's early.

Yes, Julien, if I had a crystal ball, I would say that it's too soon to say the governor comments in his executive order and in the actual legislation itself, we're clear that it's a whole of government approach to insurance and utilities. Look, utilities are so important to California's future. We at PG&E power the tech industry. We power the future prosperity of our state. We think there's a big case to be made that our financial health and our customers' well-being our essential ingredients to California's future.

So we'll look forward to how the study plays out, and we'll look forward to fruitful discussions with many parties to determine the best way to protect customers, preventing catastrophic wildfire in the first place and then having the right response and a means of compensation for those people who are harmed. So I do look forward to the whole of government approach that the governor has outlined.

Awesome. Excellent. And then just following up a little bit on the nuance of the data center pipeline. It was down slightly here, but again, if you can speak a little bit to what transpired there with the 500-megawatt reduction. But more broadly, as you think about it's actually coming into fruition, would you in for being able to raise capital as you drive more bill headroom from data center realization? Or is that more about having a more of a linear read to build reductions at large?

Yes. So I would suggest -- and this is great news. The most important numbers to look are the ones that are getting closer and closer to construction. So the final engineering numbers went up, and we expect of that 1.6 gigawatts in final engineering, about 95% to be online by the end of 2030. So -- and some of that's on -- will be online as soon as next year. So all that to say that I would suggest that our pipeline is rich.

There's a lot of -- that kind of opening of the funnel is a very fluid number. I had a call this week with another customer that's not reflected in those numbers. So trust me when I say those numbers move a lot. And that's -- I think that's good because we're really taking a stand here that any of this new large load that we add here in California is going to be beneficial to customers and investors. Because what that means is we'll be able to invest in the capital to deploy, particularly transmission to build out the -- and some of the distribution system to build out that new large load for those customers.

But the new revenue from that large load more than offsets the cost for customers to fund that CapEx, so we can grow our returns and yet reduce bills for customers. It's a really important win for California. And then you layer in the tax benefits, local property and sales tax to local communities. I'm in continual conversation with community leaders, mayors, et cetera, who are very bullish about this as a source of growth and new revenue for our cities to provide new housing options to provide new public safety options. And so there's really a lot of momentum here across the state to make sure that we bring online this new load.

Yes. And maybe I'll just add to your second part of your question there, Julien, as we think about additional capital for these additional data centers, we think about it in 3 distinct possibilities. One could make the plan bigger. We could make the plan bigger. But perhaps that's the least likely given that -- given our current stock valuation. There's also the potential to make the plant better, as you indicated, right, in terms of affordability and driving affordability for our customers by bringing in this beneficial load from data centers. that's a strong possibility. And then we also could just simply make the plan longer in terms of extending our above-average growth runway. So that's the way we're thinking about it. And as I said, it's more likely the second or third and not the first part.

Your next question comes from the line of Carly Davenport with Goldman Sachs.

Maybe just to start on some of the commentary on the credit side. You obviously highlighted the Fitch upgraded in your prepared remarks. Just curious if anything you can share on conversations with the other agencies and sort of how you're thinking about milestones on the path to potential upgrades there as well.

Yes. We continue to have good conversations with both Moody's and S&P. And as you know, Fitch just did the upgrade. I would say they're looking for what you're looking for, which is progress on Phase 2 and that would be a significant trigger for them as they think about our investment grade. They both indicated that our financial credit metrics meet their investment grade criteria to really looking at the regulatory environment. Moody's is on a typical cycle where we see action in the first quarter. But again, that's really up to their internal assessment of the regulatory environment as well.

Great. And then maybe just on the O&M front. You've executed really well there relative to your targets for a number of years now. I guess just help us frame out what it would take for you to have the confidence to potentially raise that target? Or just curious if that is a potential driver of upside as you think about the 2026 range that you've introduced here?

Yes. I'll just say that I just continue to be really all and proud of my -- of our PG&E coworkers and their use of the lean playbook and driving waste out of the system. As you indicated, 3 years in a row running and we are on target to meet or exceed the 2% this year I have no lack of confidence that, that's going to continue. Just we may -- as we indicated, we're seeing significant progress on our capital expense ratio, but we're still fourth quarter. We still have lots of opportunity to go.

So I would say that, that continues to be a driver of our simple affordable model. We are continuing to look at our numbers and where there's opportunity. We're not at the point where we're thinking about raising that. We're not raising that 2% for this year, but it is definitely a driver for affordability in our earnings.

Your next question comes from the line of Aidan Kelly with JPMorgan.

Just wondering how comfortable are you with 2026 EPS guidance before you have a resolution on the cost of capital proceeding, I guess just any detail on what outcome ranges are contemplated in this outlook would be great.

Yes, I think you can rest assured that we plan conservatively. We think we filed a good cost of capital proceeding or filing. We think there's no lack of evidence that our actual cost of capital is up. All that to say, though, as we build out our plan, and I think you can start to really see the pattern year after year after year that despite a variety of circumstances, we ride that roller coaster so you don't have to, and we deliver what we say.

I think we could all agree it's a choppy year, and there's been a lot of conversation here in California, and yet, we continue to deliver. And that's what I want everyone just to get comfortable with that we will plan conservatively under a variety of scenarios and make sure that we're in a position to deliver for customers and investors very consistently.

Got it. That's clear. And then on the storage front, I guess, it looks like some positive momentum here for commerciality with your completion of the CRC energy storage microgrid with Vault -- Energy Vault last month. Just curious to what extent you see this project as like a blueprint for other higher communities as you kind of think about the reliability concerns during like safety shutoffs.

Yes. We're really excited about that project. And we definitely have other communities that we're preparing to do similar installations. We have -- every time we do these, we learn. This will be another opportunity for us to learn. Look, our ideal scenario is that, number one, we have less outages through infrastructure built for purpose, Aka undergrounding.

And then in cases where public safety power shutoffs are a necessary part of our safety tool kit, which they are minimizing exposure by sectionalizing devices by some of these microgrids to harden -- to protect downtown so that they can have critical services during a public safety power shutoff, we want to make these outages invisible to our customers and keep them safe. So the whole suite of operational opportunities that we have, we're going to continue to pursue those.

Your next question comes from the line of Gregg Orrill with UBS.

How do you think about the direction of the payout ratio beyond 2028, if that's possible to know at this stage?

Well, as we had indicated in our last call that we are growing the dividend to a 20% payout to '28 and then maintaining it through 2030 at 20%.

And that concludes our question-and-answer session. I will now turn the conference back over to Patti Poppe, Chief Executive Officer, for closing comments.

Thanks, Christa. Well, thank you, everyone. We appreciate you joining us. As I hope you hear today, we're on full speed here at PG&E. Our entire team is working to deliver for our customers and for you, our investors every day. You can expect nothing less. With that, we look forward to seeing you at EEI.

This concludes today's conference call. Thank you for your participation, and you may now disconnect.