PG&E Corp

NYSE:PCG

Earnings Call Analysis

PG&E Reports Strong Earnings Growth and Increased Capital Plans Amid Rising Demand

In Q3 2024, PG&E's core earnings rose to $0.37, totaling $1.06 year-to-date. The company narrowed its 2024 earnings guidance to $1.34-$1.37, firming up a 10% growth target. Anticipating higher customer demand, PG&E added $1 billion to its five-year capital plan, increasing it to $63 billion and raising 2025 EPS growth guidance from 9% to 10%. The new EPS range for 2025 is set at $1.47-$1.51, with long-term growth anticipated at least 9% annually through 2028. Investing in electrification has driven higher customer connection requests and operational efficiencies, emphasizing PG&E's commitment to both profitability and customer affordability.

Solid Earnings Growth and Optimistic Guidance

PG&E Corporation has reported core earnings per share (EPS) of $0.37 for the third quarter of 2024, totaling $1.06 for the first nine months of the year. This marks an increase from the previous year, driven by growing customer demand and an increase in capital investment. The company is now projecting its 2024 EPS guidance to be in the range of $1.34 to $1.37, which represents a 10% growth over 2023. Additionally, PG&E has raised its 2025 EPS guidance from 9% to 10%, establishing a range of $1.47 to $1.51 for that year. The overarching commitment is to achieve at least 9% growth in EPS through 2028, reflecting a positive and consistent growth trajectory in the coming years.

Increased Capital Investment for Future Growth

In response to heightened customer demand in California, PG&E is increasing its five-year capital plan by an additional $1 billion, bringing the total to $63 billion through 2028. This investment focuses on enhancing infrastructure to meet growing needs, such as housing developments and electric vehicle (EV) charging stations. Driven by this growing capital plan, the rate base is expected to grow at a compound annual growth rate of 10%, up from 9.5%. PG&E's management highlighted this as a disciplined approach to creating shareholder value while improving service reliability and efficiency.

Operating Cost Reductions and Efficiency Improvements

The company's focus on operational efficiencies has yielded beneficial results. PG&E is implementing nearly 200 initiatives to reduce operational and maintenance (O&M) costs, which have resulted in reductions of 3% in 2022 and 5.5% in 2023. These efforts are expected to generate significant savings and further support the company's 'simple and affordable' model. The success in reducing costs is positioned to benefit customers while reinforcing PG&E's financial health and allowing for reinvestment back into the business.

Focus on Energy Transition and Electrification

PG&E is capitalizing on the state's electrification initiatives, which include increasing demand for electric vehicles and general building electrification. The company anticipates a yearly growth rate of approximately 10% in new customer connections, which is a positive indicator of future demand. Moreover, PG&E is preparing for this growth by enhancing their technology and infrastructure to successfully handle increased capacity without compromising on quality or reliability.

Commitment to Safety and Infrastructure Resilience

Safety remains a core priority for PG&E, especially following the heightened wildfire risk in California. The company reported a trend of no major fire incidents due to its equipment over the past years, affirming the effectiveness of its safety measures. As part of its strategy, PG&E is focusing on undergrounding high-risk powerlines, which not only reduces fire risks but is also seen as a crucial long-term investment in infrastructure resilience. The state has expressed support for such initiatives, showcasing a comprehensive commitment to safety and sustainability.

Financial Stability and Outlook for Improvement

PG&E is not anticipating any new equity needs in 2024, with scheduled issuance of $3 billion in equity planned from 2025 to 2028. The efficacy of the company’s financial strategy includes leveraging efficient financing options, which have facilitated the increase in capital expenditures. Recently issued junior subordinated notes have provided financial flexibility while minimizing the need for additional equity, further strengthening the balance sheet. The expectation is that operating cash flow will increase significantly, projected to reach $8 billion in 2024, reflecting an improvement from 2023.

Regulatory Environment and Future Funding

PG&E's growth strategy also involves engagement with regulatory bodies to ensure timely approvals for its projects. The company filed a supplemental request for an additional $3.1 billion to support energization needs, which could potentially enhance their operational capabilities if approved in 2025. The ongoing cooperative dialogue with policymakers is crucial for PG&E to adapt to changing regulations while focusing on maintaining service reliability and customer affordability.

Conclusion: Optimism in a Transformative Period

In summary, PG&E's third-quarter earnings call reflects a resilient company positioned for significant growth through strategic capital investments, cost-saving initiatives, and a strong commitment to safety. The focus on electrification and operational efficiencies, alongside proactive regulatory engagement, presents PG&E as a compelling investment opportunity for those looking to capitalize on the transition to clean energy while benefiting from a strong, financially disciplined model.

Earnings Call Transcript 2024-Q3

[Operator]

Hello, and welcome to the PG&E Corporation Third Quarter 2024 Earnings Release Conference Call. Please note that this call is being recorded. [Operator Instructions] Thank you. I'd now like to turn the call over to Jonathan Arnold. You may now begin.

[Jonathan Arnold, executive]

Good morning, everyone, and thank you for joining us for PG&E's Third 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 September 30, 2024. And with that, it's my pleasure to hand the call over to our CEO, Patti Poppe.

[Patricia Poppe, executive]

Thank you, Jonathan. Good morning, everyone. We've seen another quarter of solid progress, and I'm pleased to share our third quarter results and some updates to our guidance and financial plan. Our core earnings per share for the third quarter were $0.37, bringing up to $1.06 for the first 9 months. We're narrowing our 2024 guidance range, lifting the low end by $0.01 and firming up our 10% growth over 2023 at the midpoint. Our 2024 range is now $1.34 to $1.37.

Reflecting growth in current customer demand, we're also adding $1 billion to our 5-year capital plan, which is now $63 billion through 2028. Previously, we said we'd grow earnings per share at least 9% in 2025. With this additional capital, we're now raising 2025 guidance from 9% to 10%. And we're initiating our formal 2025 EPS guidance range of $1.47 to $1.51. In addition, we're reaffirming our longer-term earnings per share growth of at least 9% in 2026, 2027 and 2028, and that's now from our new 2025 guidance midpoint.

We remain firm in our commitment to no new equity in 2024. Our equity guidance of $3 billion from 2025 through 2028 is also unchanged. We still expect this to be issued ratably over the period, likely through a routine utility at the market or ATM program. What you're seeing in these numbers is growing customer demand for electrification in California, from housing developments to electric vehicle charging stations, data centers, commercial projects and local infrastructure. Much of this is beneficial load growth, meaning it will help us achieve our affordability goals once completed.

Consistent with what we've told you, we're able to add this new capital to the plan because it meets our criteria. One, it's been approved by regulators. Two, it's affordable for customers. Three, it's beneficial for investors, meaning accretive to EPS. And four, we were able to finance it efficiently with our recent holdco offering of junior subordinated notes. This is the same disciplined approach you can expect from us going forward.

Moving to Slide 4 and our power pyramid. Let me reiterate that it all starts with safety. Our layers of physical and financial protections are working as intended. Our simple, affordable model is how we can make critical infrastructure investments affordable for our customers. And building on these first 2 layers, we intend to deliver a growing and decarbonized energy future in California.

As you know, our stand here at PG&E is that catastrophic wildfires shall stop. We are laser focused on doing just that every day. And days like tomorrow, which is the anniversary of the 2018 [ camp fire ] further reinforce what's at stake. Our strategy starts with understanding the risk each and every day. We innovate and implement layers of operational protection. We operate with a mindset of continuous improvement, keeping safety at the heart of every decision. We leverage our technology to partner with first responders to speed up and improve response to [ admission ] from any source. And we advocate for climate resilience, long-term infrastructure solutions such as undergrounding the highest-risk [ miles ] on our system, all of which create a fundamentally safer California for citizens and investors.

Wildfire risk was elevated this year, and the ignition count is up as a result. As shown here on Slide 5, the ignition rate in high fire-threat areas under [ R3 plus ] conditions is standing at 1.44 for the rolling 12 months through November 4. This is notably lower than 2017 and 2018, demonstrating that even under higher risk conditions, California is safer. Incidents affecting 10 acres or more for California, predominantly nonutility cost ignitions, have also increased more than threefold this year versus 2023, given the more challenging weather conditions.

Despite this backdrop, here's the metric that matters: a multiyear trend of no major fires due to PG&E equipment. While we're never satisfied, this summer was one more proof point that our physical risk mitigations are working. While our operational mitigations have proven effective, they do come with a reliability trade-off. That's why we continue to believe that strategic undergrounding in the highest risk locations is the right solution for our service territory.

Turning to Slide 6. Related to the Dixie Fire. We were pleased to share last month that the state Wildfire Fund has paid our first set of claims for $39 million. Our second monthly request for $34 million was paid out on October 28, and we intend to continue submitting our claims on a monthly cadence going forward. This is another proof point of Assembly Bill 1054 working as designed.

As you know, we're also working every day to execute on our simple, affordable model shown here on Slide 7. The simple affordable model is how we plan to keep customer build growth at or below assumed inflation as we continue to invest in critical infrastructure. This is a proven winning model supported by our lean operating system and bolstered by California's leadership in the transition to clean energy. We have a strong existing plan, as shown here on the left. And as we announced today, we're pulling some additional capital into the plan to better serve our customers while maintaining balance sheet health.

We continue to see opportunities for further amplification through incremental O&M reductions and electric load growth. We're working each element of this model every day with no [ big best ] approach, as Carolyn will discuss. But first, let's dive deeper into the PG&E performance playbook in action as we turn to Slide 8 and my story of the month. Our Dublin Innovation Center was created to drive better outcomes for our customers. Last quarter, I shared how 1 team was reinventing the inspection process, identifying the right work, completing it 50% faster than our previous standard and delivering cost savings, which we look forward to passing along to customers in our next rate case.

With the incremental energization capital spend top of mind, I thought I'd share how our service planning and design team is using our performance playbook to rapidly implement regulatory decisions and deliver for our customers. Following the CPUC approval of our initial SB 410 energization filing and an incremental $1 billion of funding, the team immediately mobilized. Looking across a number of factors, including customer readiness, permitting agency time lines and materials availability, the team quickly identified over 3,000 incremental customer requests that can be completed this year. The team is also implementing process improvements that lead to labor and cost savings to our customers. For example, we reimagined the application process, which we estimate will reduce our customer cancellation rate by 70%. And we updated the job package preparation and estimating standards, cutting processing time for electric design work by 40%. These are classic examples of waste and rework that we're eliminating to the benefit of customers. I could not be prouder of this and all the other examples I see of coworkers using the tools of our performance playbook to cause better outcomes for our customers and predictable growth for our investors. 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 main topics with you. First, our results for the first 9 months of 2024. Second, our growing capital plan and strong financing plan. And third, how we continue to execute against our simple, affordable model. As you know, performance is power. And [ RPEs ] investment-grade and constructive regulatory outcomes depends on consistently delivering against our targets.

Starting here on Slide 9, we are showing you our earnings [ raw ]. For the first 9 months through September, our core earnings of $1.06 are up $0.30 over the same period last year. Remember that last year, our general rate case was not approved until the fourth quarter, and that is when [ both the ] revenue catch-up for all of 2023. Adjusting the first 9 months of 2023 for the [ juniors timing ], our results were up $0.19 year-over-year. The main driver of our year-over-year increase continues to be higher customer capital investment, including the change in ROE from 10% in 2023 to 10.7% for 2024.

We continue to drive nonfuel O&M savings throughout the business. This performance is contributing [ 4 sets ] to our results and [ in currencies ] achieved for various programs such as profit improvement per [ inspection ] as well as lower contract spend new strategic sourcing. We also remain committed to reinvesting new savings and the orderly upside back into the business to support incremental customer investment. This drove $0.07 of redeployment, including into programs which support risk mitigation, such as conversion maintenance and emergency preparedness and response. As a reminder, we redeploy as a way to derisk future years and deliver consistent performance year-end and year out.

Turning to Slide 10. As you saw earlier, these pulled an incremental $1 billion of CapEx into our 5-year plan as a result of the SB 410 funding for new energization projects approved during the third quarter. This increases the 5-year compound growth in our rate base from 9.5% to 10%. Our share of rate base already authorized picks up to 93% in 2026, including the additional $1 billion for energization spend and $900 million accrued for our Open General Office.

Also, we are still signaling an incremental at least $5 billion of additional customer investment opportunities. There is no shortage for customer beneficial work on our transmission and distribution systems. And even after pulling in $8 billion of capital, we still see at least $5 billion in potential. I'll remind you that incremental transmission work would fall under our FERC formula rate.

Back in July, the CPUC issued a decision in the second phase of our general rate case, implementing provisions of Senate Bill 410. The commission encouraged us to request incremental funding for 2025 and 2026 if necessary to address customer energization needs. In response to the demand we're seeing from customers, we filed a supplemental request on October 4, proposing to add $3.1 billion of [ work ] for 2025 and 2026. Including timing adjustments, this would amount to a further net addition of $2.8 billion. This represents another proof point of the growing revenue demand we see in California, and we stand ready to serve this demand.

The commissions and [ medicine ] and will call for a proposed decision in the first quarter of 2025. Once we have the final decision, we will expect implications both for our workplace and for our financing. As I discussed last quarter, we'll make this devaluation in context of our financial guide posts, namely the incremental capital investments must be beneficial and affordable for customers, accretive to earnings per share and also helpful to our balance sheet.

Here on Slide 11, you can see that our updated 5-year financial plan now reflects [ $63 billion ] of CapEx over the period. Of note, no change to [ dining ] equity component, no change to our commitment to reduce $2 billion of corporate debt by the end of 2026 and no change to flexibility that we built into this plan. Our updated financing plan continues our commitment to achieving investment-grade ratings and prioritizing customer capital investment.

On the slide, you'll see the comparisons plan that we shared with you on our second quarter earnings call. We've increased utility long-term debt issuance and the corporate debt hybrid and other bucket, each by $0.5 billion. These changes reflect the impact of the $1 billion in junior subordinated notes issued in September. I'll remind you that the [ JSM ] received 50% equity credit from S&P and Fitch and are an example of our commitment to pursue the most efficient financing possible. Proceeds to mid hybrid instruments were used in part to pay down $500 million on our term loan base, resulting in a transaction that is neutral to credit rate metrics. The remaining $500 million of JSM proceeds will fund the equity portion of the capital addition to this plan.

Lastly, our plan still calls for $3 billion of equity from 2025 to 2028, which we expect to issue on a ratable basis under a normal utility ATM program. This amount is easily achievable for a utility of our size and is in line with many of our industry peers who also utilize ATM program. As we've indicated before, this equity need is already factored into our multiyear earnings per share guidance of at least 10%, now extended through 2025, and at least 9% each year in 2026 and 2027 to 2028.

Turning to Slide 12. As Patti mentioned, our simple affordable model assumes a [ no-fee ] approach and we are laser focused on executing it every day to make our industry-leading capital growth affordable for all our customers. Here's why I consider this a [ no big bets ] model and why we see further opportunities for amplification. First, in terms of O&M cost savings. We are currently working nearly 200 initiatives to reduce material contracts and other costs to more efficiently plan, execute and automate our work. Our statements are not dependent on any 1 initiative, as we are reducing waste across the enterprise.

We have ample runway to improve our capital to expense ratio, such as reducing annual repairs or ongoing [ the trait ] and placing these activities with durable, long-lasting capital improvement, which also benefit customer rates. And we exceeded our O&M reduction goal 2 years in a row, reducing operating and maintenance expense by 3% in 2022 and 5.5% in 2023. These projects fuel the excitement and momentum [ we feel ], whether you're out in the field, at our Dublin Innovation Center, or in 1 of our command centers here in Oakland.

[indiscernible] is a way of thinking that is grounded and improving customer experiences at a lower cost. We're proving out the philosophy that this philosophy is well placed at PG&E and is delivering meaningful results. With year-end in sight, I'm confident that in 2024, we will meet or exceed our 2% target.

Second, load growth. Our load growth will come from electric vehicles, data centers and building electrification. It's not dependent on 1 mega customer or a project. And state policy and decarbonization goals are driving increased electrification. I'm also excited about the innovations taking place that will help us leverage new load in ways beneficial to the grid. Take, for example, our partnership with the Open School District [indiscernible] to deploy the nation's the largest bidirectional electric school bus fleet. This EV fleet is equipped with groundbreaking vehicle-to-grid technology, enabling the buses to return annually but the 2 or more gigawatt hours of energy back to the grid when not in use.

Lastly, efficient financing. In addition to our recent convertible and [ JSN ] financing, Future opportunities could include other hybrids, DOE loan and grant programs, working capital improvement and credit rating upgrades.

Turning to Slide 14. In terms of credit rating, I'll remind you that we're just 1 notch below investment grade at both Moody's and Fitch and on positive outlook at both. With our strong performance especially through this challenging fire season, we continue to demonstrate the effectiveness of our layers of physical risk mitigation. Coupled with improving financial metrics and maintained strong governance, we see a near-term path to achieving investment-grade credit at the parent company.

Growing cash flows drive balance sheet health, supports our credit rating improvement and in turn, will help to make our critical customer investment affordable. As you can see here on Slide 15, we grew our operating cash flow by $1.8 billion in the first 9 months of 2024 compared to the first 9 months of 2023. And we're in course to deliver over $3 billion more operating cash flow for the full year, consistent with prior forecasts. Of course, the GRC is a key driver of this improvement, as well as the interim rate release we've seen from the CPUC in our 2022 [ Wendy ] and the 2023 WGSD applications.

Turning to Slide 16. We continue to work well with policymakers and stakeholders. We saw constructive final decisions in our first SB 410, our open headquarter purchase and our request for interim rate relief for our 2023 ramping, all in the third quarter. All in here on Slide 17 is a reminder of our value proposition. [ It's onto ] differentiated performance, a constructive operating environment and placing the customer at the heart of everything we do. And it's allowing us to deliver 10% rate-based growth through 2028, at least 10% core EPS growth in 2024 and now through 2025 and at least 9% core EPS growth each year from 2026 to 2028. With that, I'll hand it back to Patti.

[Patricia Poppe, executive]

Thank you, Carolyn. I'm excited about our differentiated story here at PG&E. Our power pyramid is the path forward. It starts with the foundation of physical and financial safety. That foundation gives us permission to focus on our simple, affordable model. When we saw you in New York in June, we talked about our model and how it can be amplified. Today is another step toward that being realized.

Ultimately, we share California's aspiration for growth in the decarbonized economy at a lower societal cost. We are proud to be leading the way and delivering results for our customers and for you, our investors. We're looking forward to seeing you in just a couple of days at EEI. With that, operator, please open the lines for questions.

[Operator]

[Operator Instructions] Your first question comes from Shar Pourreza from Guggenheim Partners.

[Shahriar Pourreza, analyst]

Obviously, congrats on the quarter. Just starting on the incremental CapEx, $1 billion is obviously accretive to plan. Was that the core driver of the 10% EPS growth as implied by the '25 guidance? And how should we think about the level of CapEx upside in the context of the approved customer connection cost caps? Is there more to come as you fully utilize that construct?

[Patricia Poppe, executive]

Yes, Shar. Great question. The $1 billion definitely was the key driver for our increase to 10%. This is the disciplined approach we're talking about to make sure that we get this the CapEx approved, it's affordable for customers. It's accretive to EPS, and then we can finance it efficiently. So we were able to meet all of our criteria in this case. And so as we look at the next phase of our filing, the supplemental SB 410, we see that we're going to need additional funding to keep up with customer demand. And so that's great news, I think, for California. I think it's great news for our customers. And so that's why we filed the supplemental. We won't build that into the plan until we know we meet our criteria of our disciplined approach, however, but I do think that bodes well for both customers and investors.

[Shahriar Pourreza, analyst]

Got it. Perfect. And then you noted there's no incremental equity needs from the new CapEx in part due to your subordinated funded. Are there any other embedded assumptions around timing of future equity or dividend that helps you absorb the $1 billion of new CapEx? And how do you offset the $1 billion of CapEx with no equity? And does it sort of -- does it do anything to the IG timing? I don't get a sense it does, but just curious.

[Carolyn Burke, executive]

No, it doesn't. So the $1 billion of additional CapEx was funded. That was funded by the junior subordinated notes. That was a $1 billion issue. And so -- it's a very efficient financing. It had 50% equity content. We were pleased to the response to that. I will say -- I'll just remind you, yes, we had no change -- no further changes to our equity plan in our financing plan. We're still looking at issuing a routine ATM program next year and over the 5-year plan, it's in total of $3 billion. And again, no new equity in 2024.

[Shahriar Pourreza, analyst]

Fantastic, guys. Congrats, and see you in a couple of days. I appreciate it.

[Patricia Poppe, executive]

Awesome. Thanks, Shar.

[Operator]

Your next question comes from Steve Fleishman from Wolfe.

[Steven Fleishman, analyst]

Yes. Just -- Governor Newsom's, I guess, executive order on affordability initiatives. Just -- could you talk to, I guess, your thoughts on that? And the things I know you've got the simple affordable model, so you're obviously addressing it, but just maybe some perspective related to your plan?

[Patricia Poppe, executive]

Yes. Steve, we definitely want what the Governor wants and what our policymakers want, and that's affordable energy for the people of California. And really, you answered the question for me by mentioning our simple affordable model. That is the pathway. And I think as the state starts to see us truly implementing and delivering those savings, especially when we talk about our rate case that we'll be filing next year for 2027, we'll be able to show the impact of the simple affordable model through that filing.

And so we do look forward to helping earn the -- well, to earn the trust of the regulators and our policymakers in this process, but also give them good ideas about what can really drive affordability here in California. I think the idea that we can continue to reduce our cost and grow load. I think the growing load is something that is a big change here. And I think that's going to be exciting and welcome news to our policymakers when they truly understand what the implications are for customer affordability as we invest in the infrastructure to grow load here in California.

[Steven Fleishman, analyst]

Okay. And then 1 other question. You mentioned 1 source of funding being DOE loans potentially. Just any thoughts on how the election outcome might impact that, if at all?

[Patricia Poppe, executive]

Yes. Unfortunately, it's a very confidential process. So I can't say much about it, Steve. But obviously, there's still time before the year-end for a resolution on the DOE funding and DOE loan. The thing that we like about the DOE loan is it's just net-net savings for customers. However, we've not built our financial plan assuming anything associated with that. That would be upside and accretive to the plan.

[Steven Fleishman, analyst]

Okay. Great.

[Patricia Poppe, executive]

Yes, you're welcome. Have a great day, Steve.

[Operator]

Your next question comes from Jeremy Tonet from JPMorgan Securities LLC.

[Richard Sunderland, analyst]

It's actually Rich Sunderland on for Jeremy. Can you hear me?

[Patricia Poppe, executive]

Yes.

[Richard Sunderland, analyst]

I'm curious, where things stand on the undergrounding guidelines, you're approach to finalization. What are the next steps there after for harmonizing your plan to those guidelines once that process is completed?

[Patricia Poppe, executive]

Yes, great question. We continue to work with OEIS to understand and establish what those filing requirements will be. To date, they've been more extensive than we expected. And so our filing will -- if the current guidelines as published are the final guidelines, that could very much delay our filing, but we are hopeful to make that undergrounding filing by mid-next year. We continue to stand that in our highest risk areas, undergrounding is the right solution. It's not all our miles, but it is definitely our highest risk miles. And so we do believe that, as directed by the legislature that this undergrounding filing will be able to demonstrate the longer-term cost benefit savings for customers. We know that it is the most affordable way to make our customers safe and to have them not have to choose between having reliability and being safe. And so we look forward to making that filing. We'll continue to work with the OEIS, but I expect our filing will be mid-2025 likely at the earliest.

[Richard Sunderland, analyst]

Great. Very helpful. And then picking up the energization conversation, how are you thinking about ramping that work and clearing the backlog? Curious if it simply comes down to, I guess, what the CPUC authorizes in your supplemental request? Any other thoughts there?

[Patricia Poppe, executive]

Yes, that obviously is a big driver. It does cost something to do the work. It's not free. And so the proposal -- the filing that we made reflects actual customer demand to both clear any kind of backlog but also to maintain the growth rate that we're seeing. We're seeing about a 10% year-over-year growth rate in new customer connection requests, which is exciting news. I mean, I just think it really bodes well for California.

And so we want to fulfill that demand. And the good news is much of that demand can be fulfilled at a continually improving unit cost, which we'll be driving for by improving how we do our work, the way we contract for that work, the way we schedule and bundle that work. All of those process improvements we've been making will be beneficial to customers, but that's fully reflected in the filing that we made, and we look forward to being able to continue to fulfill our customers' expectations as the commission has their role to play in going ahead and approving that important investment in our customers' expectations.

[Operator]

Your next question comes from Julien Dumoulin-Smith from Jefferies.

[Julien Dumoulin-Smith, analyst]

Just moving back to where -- how Rich was a second to go here on the OEIS side. I mean, we saw SDG&E get fairly, at least in a proposed decision, get a fairly de minimis number. Can you speak to that a little bit? I mean, what do you read out of that? I mean, obviously, your service starts a little different here, but anything to note out of that, again, as you plan towards mid next year's filing here, if you will?

[Patricia Poppe, executive]

Yes. Keep in mind, that was their GRC. We're talking about our undergrounding filing, which is based on the new legislation that was passed about a 10-year filing. So 2 different things. I will say, at a minimum, we have the undergrounding that's been approved in our GRC, which was a total of 1,200 miles, and we are on track to continue to build those miles through 2026. So we have undergrounding in our plan through 2026. The OEIS filing that we'll be making will be supplemental, obviously, to that and longer term.

So I do think that here in California, we do need to understand -- and I do think there's a lot of misinformation that's being spread about the cost effectiveness of undergrounding. And we very much believe in the certain conditions, it is the right mitigation. And it is the most cost-effective mitigation. People are forgetting how much we spend on tree trimming and overhead inspections year after year after year. So for example, in customers' bills today, in our customers' bills, we spend about $1 a month on undergrounding. And we spend $20 a month for vegetation management and inspections. Customers don't understand that.

And honestly, I think some of the policy decision makers -- and certainly, the interveners clearly do not understand the actual math. And so we're going to continue to try and make that math clear that it is in the best interest of customers, not just for safety and reliability, but affordability for undergrounding in our highest risk miles. So we continue to advocate and we will continue to do that and try and make the case.

[Julien Dumoulin-Smith, analyst]

Yes. No, I thought SDG&E got like 6% of the miles in the PD. But actually adjacent here, just last quarter, we talked about this 3.5 gigawatt data center pipeline, right? And you spoke about potentially a sizable chunk of that being related to 1 counterparty here. Where are you on that pipeline and moving forward and maybe diversifying it out, if you will?

[Patricia Poppe, executive]

Yes. Let me clarify that, Julien. We definitely -- we're completing our first cluster study. We should be communicating with those customers here by December, and it was a much more efficient way to study the interconnection of all of this new demand. And it was multiple customers and multiple projects adding up to an initial request of 3.5 gigawatts. Keeping in mind, we only had a couple of hundred megawatts in our plan to begin with. So the 3.5 gigawatts was a nice increase, but that's not been our last request, to be clear. That was just what was in this cluster study. And I feel like the most popular girl in school these days, that I get a call every week about some other projects, somebody wants us to squeeze into our plan and our study.

And so 1 of the things, Julien, that I think about for California and for PG&E specifically, being here in the Bay Area, the demand for being -- having access to this fiber network that's here in the hub that's in the Bay Area and Silicon Valley, the demand is real. They thought that we were out of power. And we have been able to confirm that we actually have significant capacity available on our system. We've added both generation and transmission capacity here in California.

On the generation side, we added just last year, 9.5 gigawatts of new supply. In California, 10 gigawatts of supply now is battery storage. That really is a great complement to our excess solar that we have midday. So we are open for business in California. I kind of think of -- think of us as like the perfect mix, like you can have too much demand that's too expensive to supply, and you can have too little so you don't get the benefit of load growth. I put us right there in the sweet spot. Kind of the Goldilocks of load growth is here at PG&E. We have just the right amount that we can fund that's affordable for customers. And I'm excited to build that and we're excited to be able to deliver for these customers who are more and more interested by the day.

[Julien Dumoulin-Smith, analyst]

Excellent. I like the Goldilocks. Good luck, we'll see you shortly.

[Patricia Poppe, executive]

Thanks, Julien.

[Carolyn Burke, executive]

Thank you.

[Operator]

Your next question comes from Gregg Orrill from UBS.

[Gregg Orrill, analyst]

Could you just update us on where you stand with FFO to debt and how that positions you with the agencies?

[Carolyn Burke, executive]

Sure. So we don't normally give intra year updates, but there is no change to our outlook, which is the mid-teens. What I'll point you to is our operating cash flow, which is absolutely on track to increase $3 billion over 2023 to $8 billion in 2024. And we still see it growing after 2024. Sitting here on November 7, I'm feeling confident that by year-end, we'll be at or very close to that mid-teens guidance that we've put out there, showing significant improvements over 2023.

[Gregg Orrill, analyst]

Okay. Thank you.

[Operator]

Your next question comes from Carly Davenport from Goldman Sachs.

[Carly Davenport, analyst]

Maybe just a quick follow-up to the prior question. Just -- as you think about moving through another wildfire season here, are there any updates you can share in terms of your recent conversations with the agencies on what they're focusing on with that kind of risk aspect?

[Patricia Poppe, executive]

Well, I think the real focus is just what do we need to do to make the system safer, faster. I think we have shown that our current mitigations are working. And this is the case that we really want to make sure is clear. There is no doubt that the conditions here in California are at a heightened risk level this year. And we're seeing that in the number of 10-acre fires caused by any number of things, predominantly non-utility caused fires. But 10-acre fires across California are way up this year. And understanding that and looking at how effective our mitigations have been is a real conversation that we're having, and people are really starting to see that.

The disadvantage of these mitigations -- so when I'm talking about these mitigations, I'm talking about our Enhanced Powerline Safety Settings, and I'm talking about the Public Safety Power Shutoffs, which we are continuing to shrink their scope and get them very targeted and restore customers as quickly, as safely possible. And all of that is good, but it's still an outage. And so I think the conversation is what is an acceptable amount of outage given the risk. So we know that there's only 1 mitigation that eliminates the risk of both a Public Safety Power Shutoff and a wildfire, and that's undergrounding, which is why we're so bullish on that.

However, I think we're also seeing that there are certainly miles and miles. And we've done 1,000 miles already of covered conductor. We think that's important in certain areas that aren't so tree-dense and making sure that we do the right inspections and the right evaluations of the safety of our equipment. So I would say our discussions with our safety regulators and our financial regulators are very constructive. And they are very complementary of the progress we've made. And there's no doubt that across the state, people feel the change. And we're very proud of our multiyear trend here of no major fires and 2 years specifically with limited to no structural damage. That's the real test of our system and our safety measures. So just real progress. And I think people feel that. I think the healthy debate about what's the right mitigation for the long run, what's the right infrastructure, fit for purpose for the long run, that conversation continues, and we need to keep educating and advocating for the right work for our customers.

[Carolyn Burke, executive]

Yes. And Carly, I'll just -- to be clear, we remain absolutely intently focused on improving our credit quality, and we have ongoing conversations with the rating agencies. As we've noted, we're just 1 notch below investment grade at Moody's. They've been pretty clear that we are already meeting their financial metrics, and we're looking at our performance through another wildfire season.

This season was particularly challenging. And as we've noted on the call today, our performance was -- I don't want to her say [indiscernible].

[Patricia Poppe, executive]

It was good.

[Carolyn Burke, executive]

Very strong. And I think Moody's is going to see that. We're on an annual cycle with Moody's. We're on positive outlook with them, and we're looking forward to having conversations with them and we're optimistic.

[Carly Davenport, analyst]

That's super helpful. And then maybe shifting gears a little bit. Just as we think about the $5 billion of incremental investments you've highlighted in the context of the changes you've announced today related to the $1 billion of capital. Just how would you frame out the potential around rate base and earnings growth over that 26 plus '26 to '28 kind of time frame?

[Carolyn Burke, executive]

When we're looking at the -- your question around the timing, but around the $5 billion and when we would expect to bring that in. So maybe I'll just start with the latter point. As we did say, we do have an additional $5 billion of incremental capital that we could bring into our plan. As Patti indicated, it needs to be authorized. I call it the 4As for everybody. This way, you'll remember it. It has to be authorized. It has to be affordable for our customers, has to be accretive to our earnings and we have to be able to finance it efficiently for our balance sheet.

So when we think about that, we've already talked about seeing an outcome of the SB 410 supplemental sometime in the first half of 2025. And so we would -- as long as we see a positive outcome then, we would look at it to ensure the guidelines and roll that in. There's additional -- in the pipeline, as we look at that $5 billion, there's additional transmission capacity build out. We talked about the data centers, and we're seeing more requests there. We have some IT improvements that we're looking at. And then there's just the additional work in both generation and our hydros and EV-related capital. So all of that would be brought in. And as we said, over the course of 5-year plan as it meets our criteria. But we have a very robust pipeline. I'll just note, we brought in $1 billion this quarter, and yet we didn't change the $5 billion. We didn't put that $5 billion of potential down to $4 billion. We kept it at $5 billion. We have a very robust pipeline.

[Operator]

[Operator Instructions] Your next question comes from David Arcaro from Morgan Stanley.

[David Arcaro, analyst]

Good morning. Thanks so much. I had a follow-up on a prior question, just on the executive order related to affordability. One of the maybe topics that was mentioned or called out was wildfire safety programs. And I'm just wondering how you -- you've mentioned a lot about -- especially how effective they've been so far for sure. But is there an approach there that you might consider fat to cut in certain programs or any kind of affordability perspectives that you add to that program?

[Patricia Poppe, executive]

I think the bigger question is, do we have alignment between the safety regulator and the financial regulator on scope and cost and what's most effective. And I think that's really what's being discussed, is how do we streamline the process of getting a safety regulation signed off on and then how does that feed into the financial approvals. And so I think it's more processed than specific mitigations that are being discussed.

[David Arcaro, analyst]

Got it. Okay. Understood. Then on the financial side, I was wondering, would you expect the plan going forward to be rebasing EPS off of actual numbers as you finish up [ years ]?

[Carolyn Burke, executive]

Absolutely.

[David Arcaro, analyst]

Okay. Perfect. Clear enough.

[Operator]

Your next question comes from Michael Lonegan from Evercore ISI.

[Michael Lonegan, analyst]

You spoke about sources of efficient financing, highlighted various categories. I think you said other hybrid, DOE loan and grant programs, working capital improvements and credit rating upgrades. So you left out potential asset sales. Just wondering if that's something you've ruled out for now? And if not, what you could monetize? And given that [ Pac Gen ] was rejected, what would give you confidence in approvals going forward?

[Carolyn Burke, executive]

Yes, Michael, asset sales has not been on the list. It's not -- we've seen -- we've done the sale of the towers in the past. [ Pac Gen ] is definitely not something we're moving forward with. So we don't really see that as a primary source of efficient financing in the future.

[Michael Lonegan, analyst]

Got it. Great. And then secondly, you continue to highlight the opportunity set in [ months and years ] to come that you reiterated today for the higher nonfuel O&M reductions, increased load growth, lower customer bills. Just wondering if you could share your latest thoughts on the time line when we could expect some of that to roll into your formal plan?

[Patricia Poppe, executive]

Well, we just rolled in $1 billion of it. So we'll be looking forward then to the next -- over the next year when the right time to meet Carolyn's 4 As, as she called them. That 4 As is good disciplined business. And that's -- I think this is just such an important takeaway for this call today. So thanks for reiterating it. PG&E is in a position where we have demand, and we have a disciplined path forward. We have the ability to finance our work. We have the ability to grow our business. We have the ability to better serve our customers. And given a variety of conditions all around us, I'm so proud of the progress that the team has made to truly move forward with growth, industry-leading. We're going to continue to do that, and we're going to continue to be disciplined in how we do that for the benefit of customers and consistent financial results for you.

[Michael Lonegan, analyst]

I was referring to the -- like the O&M reduction, like the 1 to 3 to the 2 to 4. And then the electric load growth going up and the customer bill is going down. That "opportunity" versus the formal plan. I was wondering when we could expect to see that potentially enter your formal plan?

[Patricia Poppe, executive]

Yes. So you're seeing some of that -- as we speak now, the O&M reductions will be reflected in our GRC filing because that's how we pass those through to customers directly. So you'll see that then. We definitely are trying to signal here today that we see that amplified simple affordable model materializing. So we started with the capital rate base growth that we've grown here. We're seeing the O&M savings internally. In fact, just yesterday -- or earlier this week, I was in our Waste Elimination Center. And I have to tell you, if I could bottle up that enthusiasm that our team is demonstrating actual joy at work and improving how our business is operated. Carolyn mentioned over 200 projects that are being implemented. There was a total of 500 projects that were also really looked at across all different types of improvements, some of them directly related to O&M, some related to other things.

But the team is learning how to transform this business. So we definitely see the amplified simple, affordable model being realized in the next -- near term as we're able to pass along those savings and reflect then this load growth in our forecast for our next GRC as well. So that's really the mechanism that we have to pass those along to customers.

[Operator]

We've reached the end of our time. I'd now like to hand back over to Patti Poppe for further remarks.

[Patricia Poppe, executive]

Thank you, Eli. Well, everyone, we appreciate you joining us today. And we appreciate your ongoing support. We really feel the momentum. PG&E is delivering the right kind of progress at the right time, and we hope you feel that, too. And we look forward to seeing you at EEI. Have a great day.

[Operator]

Thank you for attending today's call. You may now disconnect. Have a wonderful day.