PG&E Corp

NYSE:PCG

Earnings Call Analysis

PG&E Q2 2024: Strong Progress and Future Outlook

In Q2 2024, PG&E reported core earnings of $0.31 per share and reaffirmed its 2024 guidance for earnings per share of $1.33 to $1.37, up at least 10% from 2023. The company continues to aim for a 9% annual EPS growth from 2025 through 2028. Additionally, PG&E obtained authorization for an incremental $2.3 billion in capital investment for energization, with a potential to request more. The return on equity was boosted to 10.7%. The firm is confident in its strategic plan involving no new equity in 2024 and a balanced approach to financing, ensuring affordability and growth.

Solid Earnings Performance

PG&E Corporation showcased a promising performance for the second quarter of 2024. The company's core earnings per share stood at $0.31, summing up to $0.69 for the first half. This consistent performance led the company to reaffirm its 2024 earnings guidance range of $1.33 to $1.37 per share, indicating a growth of at least 10% from 2023. For the longer term, PG&E is optimistic about an annual earnings per share growth of at least 9% from 2025 through 2028.

Strategic Capital Investments and Regulatory Approvals

PG&E continues to demonstrate its dedication to critical infrastructure investments with the California Public Utilities Commission (CPUC) recently approving Phase 2 of their general rate case. This approval allows an additional $2.3 billion of capital investment opportunities and raises PG&E's return on equity to 10.7%. Such regulatory support affirms the company's strategy and provides a solid foundation for ongoing and future projects. PG&E's commitment to no new equity in 2024 and its $62 billion customer capital investment plan over the next five years strengthens investor confidence.

Operational Efficiency and O&M Cost Reduction

Efficiency remains a cornerstone of PG&E's operational strategy. Through its performance playbook and reinventions in inspection processes, the company realized $15 million in O&M savings just this year. They’ve managed to reduce inspection costs and expedite completion times. This focus on efficiency is further highlighted by their success in meeting a 2% O&M reduction target for 2022 and 2023, with confidence to exceed this target in 2024.

Resilience and Risk Mitigation

PG&E is proactively addressing physical and financial risks, especially concerning wildfire management. They have implemented enhanced vegetation management, system hardening, and public safety power shutoffs to mitigate risks. Their layered protection strategy has resulted in significant reductions in wildfire risks. Notably, third-party analysis by Moody’s RMS model predicts a 93% reduction in economic loss risk from wildfires due to these mitigations.

Electrification and Clean Energy Transition

A significant part of PG&E's vision includes enabling a decarbonized energy future through electrification. The company sees new electric load as essential for reducing electricity costs and supporting a low carbon future. With a strong presence in Silicon Valley and significant electric vehicle (EV) adoption, PG&E plans to harness this growth for societal and investor benefits. They anticipate that the increasing adoption of EVs and new data centers will continue to drive beneficial load growth, ultimately lowering costs for all customers and supporting clean energy initiatives.

Commitment to Financial Stability and Growth

PG&E's financial strategy focuses on maintaining investment-grade ratings, prioritizing customer capital investments, and embedding dividend growth. Their financing plan includes paying down parent debt by $2 billion by the end of 2026, while simultaneously planning for substantial capital investments. This balanced approach ensures financial flexibility and long-term stability. Additionally, PG&E is on track with its operational cash flow targets, planning to grow from $5 billion in 2023 to $8 billion in 2024, further underpinning their financial health.

Earnings Call Transcript 2024-Q2

[Operator]

Good morning, and welcome to the PG&E Corporation Second Quarter 2024 Earnings Release.

[Operator Instructions]

I will now turn the call over to Jonathan Arnold, Vice President of Inter Relations. Please go ahead.

[Jonathan Arnold, executive]

Good morning, everyone, and thank you for joining us for PG&E's Second Quarter 2024 Earnings Call. With us today are Patti Poppe, Chief Executive Officer; and Carolyn Burke, Executive Vice President and Chief Financial Officer. We also have other members of the leadership team here with us in our Oakland headquarters.

First, I should remind you that today's discussion will include forward-looking statements about our outlook for future financial results. These statements are based on information currently available to management. Some of the important factors, which could affect our actual financial results are described on the second page of today's earnings presentation. 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 June 30, 2024. And with that, it's my pleasure to hand the call over to our CEO, Patti Poppe.

[Patricia Poppe, executive]

Thanks, Jonathan. Good morning, everyone. I'm pleased to report another quarter of solid progress. Our core earnings per share for the second quarter came in at $0.31, bringing us to $0.69 for the first half. We are reaffirming our 2024 guidance range of $1.33 to $1.37, up at least 10% from 2023, and we're also reaffirming our longer-term earnings per share growth of at least 9% each year starting in 2025 and continuing through 2028.

In addition, we remain firm in our commitment to no new equity in 2024 there have been no changes to our 5-year financing plan, which we shared with you during our first quarter call. Moving to Slide 4. We were excited to see so many of you in June at our investor event in New York City. Our message in New York was that with our layers of physical and financial protections as the foundation, and with our simple, affordable model making critical infrastructure investments affordable for our customers, we see a pathway where electrification can deliver a decarbonized energy future at a lower societal cost.

As we discussed in New York, new load is actually a key enabler to lowering the unit cost of electricity eliminating the green premium and enabling a low carbon future. This potential for a cleaner, more resilient energy future at a lower cost to consumers is why we refer to our graphic on this slide as the power pyramid. It's what motivates our team every day here at PG&E. It's our mandate and also our mission. It's beneficial for our customers and it's also good for our investors.

Just this month, in fact, the CPUC voted out Phase 2 of our general rate case authorizing an incremental $2.3 billion of capital investment for energization with an opportunity to go back in and request more if customers need it. We were encouraged by comments from the commissioners, which supported the thesis that connecting new load can be beneficial for broader customer affordability. At the same meeting, the CPUC approved staff resolution affirming increasing our return on equity to 10.7%. California's regulatory environment is strong. forward-looking and delivers real value for customers and investors.

Using the power pyramid as our framework. And turning to Slide 5, a brief update on our performance mitigating physical risk. The bottom line is that our layers of protection strategy has reduced wildfire risk significantly across our service area. I'm sure you've seen plenty of news coverage of recent heat and wind events we've been experiencing in California, and I could not be prouder of our team for their continued tenacity with consistent execution, day in and day out. Take for example, the 8.5 day stretch over the July 4 holiday week. This was the longest duration excessive heat warning ever issued by the National Weather Service Bay Area Office. And it brought in increased system reliability risk as well as elevated wildfire risk. What's important is our readiness posture, no matter the conditions on the ground and the results speak for themselves, no flex alerts and no serious safety incidents.

On the reliability front, California has added over 9 gigawatts of capacity in just the last year, and it did the job. The state now also has 10 gigawatts of battery storage that are providing significant benefits in terms of additional flexible supply to the grid. And this is more than double the battery capacity from the same time last year. Overall, our system performed well in the early July heat wave and benefited from numerous proactive steps taken ahead of time. For example, when looking at San Jose data and comparing July performance to the September 2022 heat wave, unplanned and sustained outages were down more than 50%. With the total cumulative duration of those outages, down more than 85%, and the Bay Area region overall saw a 22% reduction in outages.

This is climate-resilient infrastructure, in action for new extreme weather norms. On the wildfire front, the key takeaway is that while we've certainly seen a more active start to this year's wildfire season, as of today, we've had no fires of consequence linked to PG&E. We are pleased with this performance given the increased wildfire activity being seen across California. So far this season, we've planned and prepared for 3 PSPS events and executed two, with about 2,000 customers affected in the largest one. Risk is certainly up versus 2023 with our circuit mile days under high-risk conditions, increasing 48% year-to-date and our CPUC reportable ignitions under our 3 or higher conditions, running at 20 year-to-date versus 6 at this time last year.

These dynamic conditions require a dynamic response. To prevent ignitions, we have layers of protection as listed on Slide 5, and all of which have been improved year-over-year, including another year of inspections and repairs more vegetation management and more system hardening, both undergrounding and covered conductor. Finally, when conditions warrant, we can turn to public safety power shutoffs. Where we do have ignitions, thanks to EPSS and improved situational awareness tools, including our weather stations, advanced meteorology and fire science models, we have less energy released and faster reaction times as our post ignition mitigations come into play.

These include our safety infrastructure protection team made up of 90 former firefighters who protect our assets every day. Our 32 public safety specialists, most of whom are former CAL FIRE, are U.S. Forest Service Chief Officers with at least 30 years of agency leadership experience. Our 24/7 365 hazard awareness Warning Center, over 600 wildfire cameras with AI smoke detection automatically notifying first responders, plus rapid response capabilities, including Black Hawk helicopters equipped to drop water on fire retardants, which we are making available to county fire agencies to supplement the significant state level resources deployed through CAL FIRE.

One point I'd like to note is that we've recently completed a third-party risk assessment by Moody's. Analysis using the Moody's RMS wildfire model estimates that our mitigations have reduced the risk of economic loss to PG&E from wildfires by 93%. Going forward, you should expect us to refer to this third-party benchmark, which it is based on a model widely used by the insurance industry to price risk, takes into account a wider range of conditions than the CPUC methodology we referred to in the past, and provides for better comparability across other utilities. The key message is, no matter the conditions, our physical risk mitigations are making our systems safer every day.

Turning to Slide 6. Financial risk mitigations are also in place through Assembly Bill 1054. These include access to liquidity and improved prudent standard and a cap on shareholder exposure. With our customer funded self-insurance in place since 2023, our near-term financial exposure is limited to $50 million deductible, while our customers benefit from the significant savings compared to commercial insurance. While the benefits of AB 1054 are in place and working as designed, some of you are keen to see the Wildfire Fund reimbursement process in action. Well, during the second quarter, we passed the $1 billion threshold for settle claims related to the 2021 Dixie Fire. This means that we are now eligible to access liquidity from the fund. Our accrual for the Dixie Fire remains $1.6 billion, and the fund previously took a $600 million reserve in anticipation of funding our claims.

We've been working closely with the administrator to ensure an orderly reimbursement process beginning as soon as the third quarter with requests for payment to be submitted monthly. We made our first such request earlier in July, and the fund has a statutory requirement to reimburse us within 45 days of claim adjudication. Given that time line, we anticipate having an update on progress with our next quarterly call. California, both physically and financially, has an entirely differentiated safety posture for our citizens and our investors. Wild fire has become a well-understood risk with well-understood mitigation and controls. Moving up our power pyramid.

Here on Slide 7 is our simple affordable model with our strong existing plan on the left and the opportunity we see for amplification on the right. Execution against this model is how we make needed safety, reliability, and resiliency investments while keeping bills at or below inflation for our customers. Think of this as our runway for additional value for customers and investors. An enduring winning model with no big bets.

Now let's turn to Slide 8 and my story of the month. I wanted to share an update from the team working on reinventing our inspections. As a reminder, in June, we shared that using our performance playbook, we are avoiding costs by doing the right work through changes to our inspection strategy. You heard from our team at our Dublin innovation center, that they expect to save over $100 million this year, and that's roughly 50% of our O&M reduction target. Our reinvented process is resulting in less false positives, and the team has already realized $15 million of O&M savings through standard work, aerial inspections and bundling.

Most importantly, we are identifying the right work and completing it 50% faster than our previous standard. This is the power of our performance playbook, and it's just one example of the culture of performance that we are shaping at PG&E. With that, let me turn it over to Carolyn.

[Carolyn Burke, executive]

Thank you, Patti, and good morning, everyone. Today, I'm looking forward to covering 3 topics with you. First, our results of the first half of 2024. Second, our continued execution against our simple affordable model; and third, an update on our regulatory progress. Starting here on Slide 9. We are showing you our walk for our first half results. Through June, our quarter earnings of $0.69 are up $0.17 over the first half of last year. Remember that our general rate case was approved in the fourth quarter, when we booked the catch-up revenues for all of 2023. Adjusting the first half of 2023 for the GRC timing, our results are up $0.10 year-over-year. The uplift is mainly driven by higher customer capital investments.

Non-fuel O&M savings of $0.03 reflects savings realized by our team reinventing inspections as well as improvements to our contract spend. This is offset by $0.05, reinvested back into the business to fund our emergency response and preparedness programs, and incremental corrosion maintenance just as 2 examples. Turning to Slide 10. We have not changed our CapEx or rate base guidance this quarter. However, the recent GRC Phase II energization decision has further improved our confidence in the potential for upside. Our base plan continues to include $62 billion of customer capital investment over the next 5 years with a focus on distribution and transmission.

In terms of customer benefit, our capital plan is balanced, providing safety, enabling new business supporting the clean energy transition and improving reliability and resiliency and we can make it more affordable as we amplify our simple, affordable model. As we reaffirmed in June, we have line of sight into at least another $5 billion of incremental T&D investment and we intend to bring some of this into our plan once we make it affordable for both our customers and our balance sheet. We were pleased to see the commission approve their proposed decision in our GRC Phase II implementing provisions of Senate Bill 410 earlier this month.

The decision authorizes incremental spend of up to $2.3 billion to fund new energization projects through 2026 and with the potential for additional increases in 2025 and 2026, which we were encouraged to request. This decision has increased our percentage of rate base already authorized and, in our view, is a positive proof point of how we can work constructively with the commission to balance customer needs with affordability, and support California's clean energy transition leveraging the opportunity presented by beneficial load growth. As you know, we plan conservatively and have not yet folded in the full authorized amount to our plan.

Finally, I'll remind you approval for our Oakland General Office, which was moved out of our 2023 GRC into a separate filing is on the CPUC's consent agenda for August 1. This is another $900 million of rate base. As we shared with you on our first quarter call, we have a strong and balanced financing plan in place to support this capital growth. As shown here on Slide 11, there's no change from what we shared with you last quarter.

Overall, our plan prioritized its customer capital investments and our commitment to investment-grade ratings while also layering in dividend growth over the next 5 years and meeting our commitment to parent debt paydown. I also want to reinforce that we've built flexibility into our plan. and the equity is already contemplated in our earnings guidance of at least 10% this year and at least 9% each and every year through 2028. With our capital and financing plans in place, we are focused on executing against our simple, affordable model to ensure this growth is affordable for customers. Moving to Slide 12. We reducing operating and maintenance costs. As shown, we beat our 2% reduction target in both 2022 and 2023. I believe 3 years will be a trend, and I'm pleased to report that we are making good progress against our target again in 2024, and I am confident that we will meet or exceed our 2% goal. And let me tell you why. In '22 and 2023, large enterprise-level programs helped us come in better than target. Going forward, we can see planning, execution and automation ramping up as our team is trained and executes against our performance playbook, including our lean operating system and breakthrough thinking.

You can also expect to see improvements in our capital to expense ratio. This is important for customers because we can avoid costly annual repairs with long-term durable capital. For every dollar of ongoing expense saved, we can invest roughly $7 of capital while holding customer bills flat. Our capital to expense ratio is currently 0.8 in meaning we spend $0.80 of capital for every dollar of expense. Our peers averaged 1.4 in 2022 and improved to 1.6% in 2023. Our 5-year plan would bring us nearly on par with the peer average. And as you can imagine now, we don't plan on settling for average and the best-in-class utilities currently have capital to expense ratios well above 2. The next element of our simple, affordable model is load growth.

Overall, we're in a differentiated position when it comes to beneficial load growth. Specifically, we are the hometown utility to Silicon Valley, home of AI and innovation and headquarters to major cloud service providers. As Jason Glickman, our Head of Engineering, detailed in June, this Bay area has a vast fiber network and connects to a grid that is majority powered by renewables, making it 1 of 8 primary data center markets in the U.S. We also have one of the largest overlapping electric and gas distribution service areas.

And finally, our state and local policies are driving the need for electrification. I want to emphasize the beneficial load growth is new load that helps to reduce monthly electric bills for our existing customers. It allows us to deliver industry-leading rate base growth and deliver on our plan to keep customer build growth at or below inflation. We share the math here on Slide 13 with you in June, specifically held data centers and even to a larger extent, electric vehicles can improve customer affordability. Specifically, incremental revenue from this new load without a need to modify our tariffs is projected to more than offset the cost of our additional capital needed.

The final element of our simple, affordable model is the efficient financing. I am pleased to provide you with an update that we expect to close our final securitization issuance under AB 1054 next week. In aggregate, the 380-1054 issuances support $3.2 billion of safety spend while delivering meaningful financing savings to our customers. As we continue to deliver on our simple, affordable model and meet our commitments, we also see continued progress working with policymakers and stakeholders, as shown on Slide 14. We already discussed the commission's final decision on our GRC capacity phase and their affirmation of our increase to an ROE of 10.7% under the cost of capital adjustment mechanism.

Additionally, we continue to work towards final guidelines with our safety regulator, OEIS, for our 10-year undergrounding filing. As we like to say, performance is power, and we're pleased to see our performance reflected in steadily improving credit ratings, as shown here on Slide 15. We're now just one notch below investment grade at both Moody's and Fitch and on positive outlook of both. We will continue to build upon the progress we've made reducing physical risk, improving financial metrics and maintaining strong governance as we remain steadfast in our goal to achieve investment-grade credit at the parent company.

Finally, here on Slide 16, I'd like to end by leaving you with a reminder of our value proposition. It's one fueled by differentiated performance, placing the customer at the heart of everything we do and delivering 9.5% rate base growth through 2020 at least 10% core earnings per share growth in 2024 and at least 9% 2025 through 2028. And with that, I'll hand it back to Patti.

[Patricia Poppe, executive]

Thank you, Carolyn. Our power pyramid is our differentiated path forward built on the foundation of safety was well understood and well managed wildfire-related physical and financial risk. Our simple affordable model delivers for customers and investors with room to grow. Ultimately, California's aspiration for an electrified economy at a lower societal cost is our destination, and we are well on our way. This is a winning proposition for our customers for the state of California and for you. our investors. With that, operator, please open the lines for questions.

[Operator]

[Operator Instructions]

Our first question comes from Shahriar Pourreza with Guggenheim.

[Shahriar Pourreza, analyst]

Pete, obviously, you guys have talked about this in the preparers, but it's obviously been a pretty active fire season. So starting off kind of on the plan for undergrounding I mean, obviously, we appreciate that you're waiting for the final go-ahead for filing.

But I guess, how have your assumptions and plan evolved over the past few quarters? Any thoughts on maybe layering in incremental miles versus the GRC approved levels?

[Patricia Poppe, executive]

Well, that's a great question. Obviously, undergrounding is top of mind, and I'll open by saying we continue to see undergrounding as a critical element of our total layers of protection. It's one of the layers and one of the most important layers in our highest risk, most vegetation dense areas. So we definitely stand by our commitment to underground our highest risk miles.

As we work through the application process of our 10-year filing, look, we're still working through with OEIS. In fact, there's a public workshop scheduled for today to continue to look at the necessities related to the filing. And so as we look at the timing of that filing, it's going to be wholly dependent on what those requirements are and what the expectations of OEIS require. So given that, we have 1,230 miles approved in the GRC through 2026 and we intend to -- obviously, we're on track this year to meet the mileage requirements. I don't see us filing a different kind of filing between here and the filing of the 10-year plan. And so I don't think there will be incremental mileage added outside of either our next GRC or the undergrounding 10-year plan. Those are 2 good mechanisms. And given the direction of our regulators, we'll use the appropriate one to file for the next range of miles.

[Shahriar Pourreza, analyst]

That's perfect. And then just lastly, -- any comments on sort of the Park fire and View County. I mean, is there any kind of early indications on the cause or any kind of presence of PG&E's equipment? I guess how are you executing on PSPS preparedness and response in that area? I mean it's such a new event, there's no data on it, no EIRs and we're getting a lot of questions. It would be great if you can maybe just provide a little bit of elaboration.

[Patricia Poppe, executive]

Yes. Well, first of all, our hearts go out to the folks near and around Chico and we pray for their safety and the safety of our firefighters who are out there doing valiant work -- right now, there are no indications of our equipment being involved or contributing at this time, and there are no anomalies detected on our system at the reported time of the fire start.

And one of the things, Shar, that I'll share with you that gives me great comfort, and I would hope that would give investors great comfort as we know. We can see our situational awareness with our 24/7 365 hazard awareness center, we're on the job and we can see we know what's happening. We can have boots on the ground immediately, and I'm just so thankful for our partnership with CALFIRE as well as our own crews, as I mentioned in our prepared remarks and our public safety specialists, they give us a level of awareness and understanding that just didn't exist just a handful of years ago, and I'm so thankful for our team being so ready and on the job at all times. I will offer you mentioned PSPS here it is July, we haven't done PSPS in July before, but we did this year. That's our readiness posture. We've done 2 small ones.

The first one was about 2,000 people look, these are -- we've sectionalized our system. We've enabled the ability to very targetedly respond to changing conditions and be prepared. I just can't overly emphasize how important it is daily readiness should be reinforced for folks. We have a totally differentiated safety posture here in California and specifically my team here at PG&E is ready and on the job and partnering with CAL FIRE Hann glove.

[Operator]

Our next question comes from Steve Fleishman with Wolfe Research.

[Steven Fleishman, analyst]

Yes, no, I would agree a lot of success in managing their risk this year. So just on the, I guess a couple of questions. First, the to degree, it sounds like you're getting closer to potentially being in a position to invest some of the incremental capital beyond the plan. And just any framework to think about the financing part of that once you get there?

[Carolyn Burke, executive]

Yes. So I think what's very important is that -- and we've communicated this before, that we do have a framework, we have certain guideposts when we consider financing any new capital. One, it needs to be affordable for customers -- and then we define that as being within the 2% to 4% of build growth that we've talked about over the course of our plan. It must be accretive to EPS.

And again, I'll just remind you that our current financing plan assumes issue equity and still meet the 10% growth this year and 9% and 25% through '28. And finally, it needs to be helpful to our balance sheet. So those are our goalpost. And when you look at our current financing plan, you know that 2 key elements that we've maintained. It's balanced, and it provides flexibility. And that flexibility, again, is in the ramp-up of the dividend and then the parent debt paydown of $2 billion by the end of 2026.

So when we think about new capital, we just think about our current financing plan and using that same approach. We're going to be balanced and we're going to try to maintain flexibility. And so you can assume one way to think about this is that you can assume that we're going to follow our authorized regulatory structure at the utility and always look ways we'll always find ways to make it as efficient as possible by using the parent level.

So we'll always be mindful of market conditions. We're very aware of where our stock is trading, and we're going to maintain, as I said, that balance and that flexibility.

[Steven Fleishman, analyst]

And then one other question, just I know you've been highlighting the data center growth in your region? And then also in the past, the -- I think been the leader in electric vehicle adoption. Could you just be curious to get some of the data. I know you're decoupled, but it'd still be good to get some of the data on how those things are tracking this year Yes.

[Patricia Poppe, executive]

Yes. Thanks, Steve. This is an exciting part of our story. And as we mentioned in New York, and some people may remember this, right now, in our plan, we only have a couple of hundred megawatts of data center load growth built into our capital plan.

So the cluster study that's underway where we're looking at our pipeline of data center demand that we shared in New York we're going to make sure that any of that we would add in would be incrementally beneficial for customers, whether both on cost savings for customers, most specifically, we don't want our residential customers subsidizing the big data center load growth. And so this year, that study is underway. We have a lot of demand, as we mentioned.

And in fact, by offering up the opportunity to participate in this cluster study. We've gotten much better visibility to what the real forecasted expectations should be. And so when we complete that study, we'll share those results. But obviously, that's not materializing in terms of load this year because that's the plan for coming years. On the EV front, EVs continue to sell well here. We're up to now 610,000 EVs on the road in California up in fact, in our service area, up from 580 that we reported in New York.

So we're tracking at about 25% of new vehicles sold continue to be electric. And given the car regulation, the executive order here in California for banning internal combustion engines by 2035, we are actively benefiting from the transition. And it's interesting because I know I spent time in other parts of the country, when I'm there, I don't see what I see here in California, which is an active adoption of electric vehicles and the infrastructure being built out to serve them. So we continue to see EV load growth.

And that's, again, beneficial as we shared to customers from a cost perspective, both that customer who bought the EV saves about 20% of their household energy cost because the switch from gasoline to electricity is cheaper and as well as all customers benefit because that's the kind of beneficial load that we love the most.

[Operator]

Our next question comes from Jeremy Tonet with JP Morgan Securities.

[Jeremy Tonet, analyst]

I was just wondering if you could walk through the energization order and process going forward to secure more of the CapEx at this point?

[Patricia Poppe, executive]

So are you asking, Jeremy, about the regulatory procedures or are you asking about the actual CapEx?

[Jeremy Tonet, analyst]

The procedures itself.

[Patricia Poppe, executive]

Yes. So first of all, the commission's order to include $2.3 billion of incremental funding is a cap. And so what we do then is we'll make filings that reflect what we actually were completing and up to that cap. So what was really good was that the commission made it clear that if there were incremental demand beyond that cap, which, frankly, we see, then we can make additional applications and we'll consider doing that even yet this year to show that with there's -- like when we have real demand that we can serve, we'll file for that, and that should give the commission then more visibility into what the actual customer need is. And therefore, that could go above and beyond that $2.3 billion cap. Does that answer your question, Jeremy?

[Jeremy Tonet, analyst]

Yes, that's very helpful. And then just continuing on packing a bit more of your discussion on ground conditions. Can you walk through what you're seeing on the ground and how to think about factors contributing to the uptick in the commission rate as discussed?

[Patricia Poppe, executive]

Yes. because of the moisture that we received early in the year, the fuel levels are very high. So there's a lot of grasses and then it got really hot. So those excessive fuel got very dry. So the fuel moisture levels are very low, and that means that there is a risk of even a small spark can quickly move.

But let me give a shout out to a couple of things. We talked a little bit in our prepared remarks about our layers of protection post ignition. And this is really important. We talked about this in New York as well. And I think it's probably part of our layers of protection that are least understood. We have, first of all, visibility to real-time information about an ignition occurring. And so our AI-enabled cameras can directly alert a first responder. In the past, it took some good citizen noticing that was smoke somewhere and calling someone, if you can imagine that's a very unpredictable response, our AI cameras now enable very predictable response.

Our hazard awareness center is monitoring those cameras. They see it. They confirm that first responders have been notified. And then our safety infrastructure preparedness teams are out there -- protection teams are out there often on the site nearly as quickly as our first responders. We are our own first responders protecting our assets. So then you combine that with CAL FIRE and there's a couple of stats I'd love to share about CAL FIRE that might surprise you. First of all, kudos to California and California policymakers and our governor for continuing to fund the importance of these first responders. So CALFIRE's budget has tripled since 2015. And it was $1 billion. It is now $3 billion annually, and there are no cuts this year, even though there was budget constraints here in the state. Their staffing is up 80%.

We have 12,000 CAL FIRE professional firefighters on the job every day, and we couldn't be more grateful for their great work. And then finally, our -- the CALFIRE aircraft system, it is the largest aerial firefighting fleet in the world. We have 60 aircraft that are armed and ready to go. And in fact, our CAL FIRE aerial fleet can get anywhere that they serve in under 20 minutes when there's sign of trouble. Listen, California's posture is dramatically improved from previous years. This is a statewide effort. PG&E's posture has dramatically changed, but so has the states in our neighborhoods, our communities, and I couldn't be more thankful for the partnerships across the state for all the good work that's happening.

So I just want people to understand that when we say California safety posture is differentiated, we've got lots of evidence to validate that. We have the financial protections with AB 1054, but we have massive physical protections that make a catastrophic wildfire very unlikely.

[Jeremy Tonet, analyst]

That's very helpful, clearly, very differentiated today. So that's great to hear. And I just want to kind of come back to some question I asked in the past, and you had commentary on before. And just as far as the national policy is concerned as it relates to wildfires. Just wondering, if you're seeing anything incremental there as far as more alignment on a potential national solution or at least the attention level getting more seed right now?

[Patricia Poppe, executive]

We're actively involved in those discussions mainly providing insights and experience. Our lawyers and the federal affairs teams are very engaged across the utilities to understand what are the benefits of AB 1054, how could something be structured like that federally. And I would say there's definitely lots of interest from the Western states I do think it's a long put from some of the other states who are not as affected by wildfire to want to support a national solution.

But we keep making the case this is just another climate resilience infrastructure standard that needs to be established and where some states have risk of hurricanes or tornadoes or flooding, -- those states that have risk of wildfire need to have a preparedness plan. And if there's a federal back stock, I think that really helps serve the smaller states that don't have the paying capacity and the volume and scale that California has that can deal with a problem like this.

[Operator]

Our next question comes from Julian Dumoulin-Smith with Jefferies.

[Unknown Analyst]

Thank you. We welcome back to you and Lilian Hey, Julien, welcome back, and I hear your voice. Yes. Likewise, absolutely Siris you guys last month. Well, look, Patty, let me ask you this. I mean it's -- again, apologies about missing less, but you've had a great run. I mean, I was thinking about this in the context of the IP and bringing it all together. And I'm curious, as you reflect here on 4 years of the company or almost 4 years, I think.

How do you think about committing to another contract extension? I'm thinking big picture here, you got a 5-year deal. It's been a great run. You've built out a robust team around you here -- how would you just set expectations on a contract extension. I think there's like a 1-year possibility here, what have you formally written in there. But just how would you set as we come in on your left under the contract here and having resolved a lot of -- well, having resolved or at least on track to resolve a lot of the bigger questions here.

[Patricia Poppe, executive]

So Julien, a couple of things. Number one is my honor to lead the people of PG&E, and this has been the greatest challenge of my professional career, and I'm so happy to be part of the team. On the contract front, there's a lot of work to do. I definitely don't think we're done and nor will we be done in a year from now, we'll work through the contract. But what's most important and the thing that I remind my team all the time, is that we're building a system.

We've got a performance playbook here at PG&E. We're building a bench. We're building a talent machine. So we don't have to rely on one person that is the linchpin to the whole program. This isn't a charismatic CEO turnaround that when she goes, all of a sudden, the thing falls apart. My job is to build a system that lasts and stands to test the time, and that's what we're up to. And when I go off into the sunset, it's going to be when I know that their performance playbook is solid and my team is equipped and able to execute the continued service to the people of California at the standards that I expect.

[Unknown Analyst]

Excellent. I'm looking forward to it. And kudos indeed, on building out a really robust team here. It's been impressive. Carolyn, just to go back to some of the earlier conversation here on financing, and I know there's been a lot of commentary here. How do you think about the time line here on kind of addressing credit improvement, right? Now you talked -- I think there's been some discussion about the $2 billion of corporate debt reduction getting extended to 2028 versus maybe [ 26% ] previously.

Just how do you think about the time line here at the same time some of the challenges faced to get the financing that you guys had previously been pushing for. Is there parent debt capacity at this point? How do you think about that against the wider targets? And ultimately, is there an ability to increase CapEx in this environment? Or is it more about shifting things around prior to addressing the financing backdrop?

[Carolyn Burke, executive]

Yes. There's a lot there, Julien. Thank you for your question. So let me just start with in terms of time line and improving our overall financial help. We're -- I'm very pleased with the progress that we've made. And then you can just look to our credit ratings and that's sort of proof in the pudding that we've had a number of upgrades recently. We're just 1 notch below investment grade at Moody's and positive outlook there, similar with Fitch and even S&P upgraded us in the last year. So we have those continued conversations, and we're continuing to see positive momentum there.

We've got -- we're on target for our capital investment this year. We have SB 410 right in front of us now, and that's particularly constructive and helpful for our outlook there. We have -- we're on target for our O&M savings of at least 2%, and we're on target for our EPS growth. and particularly important, if you look at our operating cash flow, we were on target to increase from $5 billion in 2023 to $8 billion in 2024. So all of those are very positive signs in terms of and keeping us on track towards our investment grade and improving our balance sheet.

When we think about new capital, I mentioned that earlier in terms of bringing it into the plan, I will say our current financing plan, again, we've built it to be balanced and to have flexibility. So when we think about that parent debt, which we have a commitment to pay down by the end of 2026 in the amount of $2 billion. That remains at this point in time, but there is flexibility there in terms of both the timing and the amount of that pay down. So that's how we're thinking about it. And so that provides us flexibility to bring in new capital into the plan. And Ken, I'll just repeat is the dividend and the ramp-up of that dividend. Right now, as we've communicated, we see it going slower in the front end and then increasing in the back end. But that is our choice as well, and that's what differentiates us is that we have a choice about how we ramp up that dividend to facilitate additional capital.

And you know what, I'll add a couple of points, Julian, on what it means to add that additional capital. Let's get concrete here on the SB 410. First of all, a great recognition that there is such a thing as beneficial load for the people of California. So our CPC reflected that we had about $1 billion of energization in our current plan -- so the incremental $1.3 billion is a perfect example of what Carolyn is talking about. In order to fold that additional $1.3 billion into the plan, there's a couple of things that have to happen.

Number one, we need to plan the work. We need to be ready to do the work. We need to be able to do that work at the lowest cost. We need to see that simple, affordable model actually materialize. We need to see those O&M savings. We need to be able to see efficient financing pathways and then we can enable that load growth, which is enabled by this very good CPUC directive. So given that, you'll see in time, we'll build out that work plan, first and foremost, the most important step, and then we'll figure out how to then get that financing and make sure this is affordable both for the balance sheet and for customers.

And this is just another example. I can't tell you how optimistic I am about the regulatory construct here in California, the enthusiasm we have from policymakers and legislators about the potential prosperity enablement that PGE is for the state of California. This is a perfect example of how that's coming to fruition in the numbers.

[Operator]

Our next question comes from Carly Davenport with Goldman Sachs.

[Unknown Analyst]

I wanted to just sort on the O&M target. I guess how should we think about the path or catalyst there to maybe shift towards the opportunity level that you highlighted at the investor event versus that 2% target. I think, Carolyn, you had referenced 3 years being a trend. So just curious of sort of getting through this year at or above target could be what you need to see to get comfortable there.

[Carolyn Burke, executive]

No, that's exactly right. I think of 3 years as real proof that, as Patti said, the performance playbook is being executed upon across the company. And as I mentioned in my in my remarks, we're on target for at least 2% or exceeding the 2% this year. So we're halfway through. We are seeing both smaller initiatives come through with savings and larger initiatives come through with savings. And so I'm very comfortable with where we are at this point in the year, the 2%.

[Patricia Poppe, executive]

Yes, Carly, I'll just add -- this is Patti. I'll add a little bit of layering on to that, how does this work? What -- how do you make it real -- we have a waste elimination as our Play 5 in our Lean playbook. We've taught thousands of our coworkers about how to see and identify waste -- we then have a weekly operating review where we are reviewing people's ideas, a funnel of ideas, thousands of ideas coming through that funnel to determine which ones have the most viability and how do we convert them from an idea into execution -- these are bottoms-up ideas coming from our people all across the organization because we can see that ratio of capital to O&M.

They experienced the ratio of capital to O&M of 0.8:1 in how we do our work and how work comes to them and the weighting that they might experience and inefficient paper processes that could be automated and digitized. And so our people are really getting enthusiastic about our waste elimination targets. In fact, our IT department as a waste can award that they present. I mean we're having a good time with this because making your work easier to do, and I think all of us, every one of us and all of our companies can imagine doing our work more efficiently in some of the laborious processes and steps we have can be eliminated and work can be more fun. And you can do higher value work for a lower cost for customers. And that's what we're teaching people how to do and systematically teaching it.

As Carolyn said, we had some big ticket items, and those are great. We love those as kind of priming of the pump, but what we really love is when all of our coworkers are learning to see waste and eliminate it on a daily basis. And that's the culture of performance that we're shaping here. That's what we want to really communicate here on the call.

[Unknown Analyst]

And then just one quick follow-up. Apologies if I missed this in response to Jeremy's question earlier, but did you have any thoughts from a timing perspective on when you might look to file incremental requests around SB 410 to sort of address the backlog of new connection requests?

[Patricia Poppe, executive]

Yes. We haven't determined when we would file, but what will drive that is customer demand. And so as we fill out our work plan now that we have this decision, we're working our work plan for '24. We're already building our '25 and '26 work plan. And where we see we've got deficiencies where we've got more demand than the decision allows, then that's what we'll file that incremental funding.

What I can tell you is that we see that demand is outstripping that $2.3 billion, which, again, is another signal of the growth here in California of our potential for load growth. We just need to build a work plan so that when we make that filing, we've got the real bottoms-up demand numbers for the commission to make a good decision.

[Operator]

Our next question comes from Greg Orrill with UBS.

[Gregg Orrill, analyst]

I was wondering if you could comment on, again, on what you're seeing in terms of the path of bill increases. I guess some of the interveners have been out there talking about double-digit percent change increases over the next several years, namely Cal advocates. Just what do you think the disconnect is there?

[Patricia Poppe, executive]

Well, I think, Greg, that Cal Advocates does not yet understand the simple affordable model. This is new for California. This is new for PG&E. And so we will prove out that we can maintain rate increases below the rate of inflation with the simple affordable model. We have all the key components. That's why we're so excited about the amplification of that simple affordable model with more O&M savings, more efficient financing, more load growth, being able to demonstrate that for our customers is going to take some time.

They're going to have to learn to trust that what we say is what we'll do. And so that's just -- I just think it's a matter of time. They're forecasting based on previous experience, not based on what we know that we are doing here at PG&E.

[Operator]

Our next question comes from Anthony Crowdell with Mizuho.

[Anthony Crowdell, analyst]

Just, I guess, 2 quick ones. Maybe a segment of PG&E that we kind of together. We don't talk about enough is the gas system. I'm just wondering I know you're decoupled, but the throughputs of the gas system year-over-year, are you seeing increases, decreases? Is the electrification, electrification really impacting the throughputs of that system?

[Patricia Poppe, executive]

So far, Anthony, again, heavily weather-dependent, ore throughput. But pretty flat. I wouldn't say we see notable decrease in throughput as a result of electrification, though. We've seen it in targeted locations where we make a decision, for example, I do think PG&E is uniquely positioned because of our overlapping gas and electric service areas. So we're really well equipped to answer these questions, Anthony.

But where we see a specific case, for example, we have a mobile home program, where -- if we were scheduled to replace the service lines for that mobile home, we've determined that per mobile home, it's cheaper to electrify those mobile homes than it is to actually change those gas service lines. And so in those cases, we're doing what we call targeted electrification. We're doing some other projects where we want to start to show that electrification is viable for homes and economic. And so therefore, I see this gas throughput change probably in the latter half of our 10-year plan versus so much here in the first -- next 5 years.

[Anthony Crowdell, analyst]

And just a follow-up, I love the capital to expense ratio. Is that number similar for the gas and electric segments of PG&E or it's, I guess, less?

[Patricia Poppe, executive]

Yes, they're similar across the enterprise. And we can get into some of those details and get you some more of those specifics, Anthony, after the call. But yes, they're pretty similar enterprise-wide.

[Operator]

Our next question comes from Ryan Levine with Citi.

[Ryan Levine, analyst]

I noticed you made progress on the percentage of rate base authorized on Slide 10 across 24 to 2028. What are the drivers besides 410 million cap spending, particularly for 2027 and 2028 after the period end?

[Patricia Poppe, executive]

It's predominantly, Ryan, SB410 as well as the OGL approval that we received affected in -- go ahead, Carol.

[Carolyn Burke, executive]

Yes. So it is the increase that we saw in that -- on the authorized is all SB 1. So we had assumed some of the $2.3 billion in our plan, but we hadn't assumed the full $2.3 million billion. So the percentage increase is reflected there. We'll just remind you that there are 2 other things. OG is on the docket to be approved on August 1. So that's another $900 billion. And so that would then further secure or push that percentage up higher. And then we've also filed back in March, our gas AMI application, which is another $500 million. That's not on the docket yet, but that's been filed.

So we continue to make progress in terms of things that were kicked out of the GRC. We're making those filings and we're seeing those things come to fruition.

[Patricia Poppe, executive]

And just to clarify, the, yes. Sorry, the GO is $900 million I'm sorry, what do I say?

[Ryan Levine, analyst]

So you're assuming that the 410 CapEx continues beyond '26. Is that what I'm hearing?

[Patricia Poppe, executive]

The rate base continues, yes. Of course. .

[Ryan Levine, analyst]

And then in terms of the Fire Protection index that you had highlighted in the previous Analyst Day, any sense on what the outlook is for the remaining portion of this year compared to prior years on the internal PG&E fire production index.

[Patricia Poppe, executive]

Yes. Our FTI, we're showing more days in higher risk conditions for sure. The R3 and above days are up. Yes. And so -- and our forecasts are showing because of the fuel moisture levels until we get more moisture in the atmosphere, we're going to continue to see those high-risk days.

But thankfully, we are well positioned and continue to have the necessary layers of protection that both predict and prevent as well as respond and very proud of the team for the progress made.

[Ryan Levine, analyst]

And then one just clarifying question, Carolyn, I think you mentioned that next week, you're planning to issue the third [ AB154 ] bond issuance. I just wanted to clarify if that was the correct message?

[Carolyn Burke, executive]

That's right. We're going to close it next week.

[Operator]

Our final question comes from Michael Lonegan with Evercore ISI.

[Michael Lonegan, analyst]

So going back to O&M, you talked about meeting or exceeding the 2% nonfuel reduction this year. I saw your savings year-to-date is $52 million versus the targeted $200 million, about 25% of your target halfway through the year. I was just wondering, are savings currently behind due to summer conditions this year. Or was there a planned acceleration for the second half, the whole time? And how much should we expect in terms of savings in Q3 versus Q4?

[Patricia Poppe, executive]

Yes. Typically, you're going to get some of those ideas rolling in the beginning of the year, and the material materialize in the second half of the year. So that's not unusual. We would expect to see that kind of trend.

[Carolyn Burke, executive]

Yes. And just a reminder that O&M is full O&M reductions.

[Michael Lonegan, analyst]

And then you reaffirmed your undergrounding target of 250 miles this year. With this quarter, you installed 46 miles underground and energized 15 miles in the first quarter, I know first quarter is typically low because of snow conditions in some of your territory. But implying an acceleration and undergrounding the balance of the year, just wondering if summer conditions have presented a risk to the full year target, given a potential diversion of workforce to unplanned work.

[Patricia Poppe, executive]

No, not at all. In fact, let me just remind you, last year, we did 364 miles. This year's target is 250, we still have our same process improvements are in place. We've completed 61 miles through the end of June, but let me clarify what that means. We've energized 61 miles. The civil work for those 250 miles is well underway and that's all the -- that's the heaviest lifting that has to get done and the energization quickly catches up the mileage in the second half of the year. That's a very similar pattern to previous years and we are right on track.

[Operator]

There are no further questions at this time. I will now turn the call back over to Patti for any closing remarks.

[Patricia Poppe, executive]

Thanks, Brianna. Well, thank you, everyone, for joining our call. And I just hope you see what we see: continued progress on a path to differentiate it, safe, affordable and a growing company. We're delivering for our customers and then in turn for you, our investors. Thanks for tuning in today, and please stay safe out there.

[Operator]

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