PG&E Corp

NYSE:PCG

Earnings Call Transcript 2022-Q4

[Operator]

Good day, and welcome to the PG&E Corporation Fourth Quarter 2022 Earnings Release. Today's call is being recorded. [Operator Instructions]. I would now like to turn the call over to Jonathan Arnold. Please go ahead.

[Jonathan Arnold, VP, IR]

Good morning, everyone, and thank you for joining us for PG&E's Fourth Quarter and Year-end 2022 Earnings Call. With us today are Patti Poppe, Chief Executive Officer; and Chris Foster, 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 that could affect the company's actual financial results are described on the second page of today's fourth quarter and full year earnings call presentation.

The presentation also includes a reconciliation between non-GAAP and GAAP financial measures. And the slides, along with other relevant information, can be found online at investor.pgecorp.com. We would also encourage you to review our annual report on Form 10-K for the year ended December 31, 2022, which was released earlier this morning.

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

[Patricia Poppe, CEO & Director]

Thank you, Jonathan. Good morning, everyone, and thank you for joining us on what I know is a busy earnings morning.

As you'll see on Slide 3, this morning, we reported full year 2022 core earnings of $1.10 per share, right on guidance. This was my second year with PG&E with results delivered on plan. No more, no less. As I like to say, we sweat the details so you don't have to.

Our simple, affordable model is designed to maximize work for our customers and deliver on our commitment to you, our investors, each and every year. Our $1.10 EPS for 2022 was up 10% from 2021 as planned. We're also reaffirming our 2023 core EPS guidance range of $1.19 to $1.23, up 10% at the midpoint, along with our previously stated longer-term targets of at least 10% EPS growth in 2024 and at least 9% for '25 and '26.

Also unchanged is our plan for no new equity through 2024. As you know, our sector-leading EPS growth is supported by robust capital investment and ongoing efficiency gains for the benefit of the 16 million Californians we serve. In fact, in 2022, we invested $9.6 billion of capital into our system for the benefit of our customers.

Our system has never been safer, and we continue to make it safer every day. I want to thank you, our investors, for your part in making that possible. The simple, affordable model underpins our confidence in reiterating our financial outlook today despite the very real challenges faced by most businesses in today's inflationary and uncertain economic environment.

Turning to Slide 4. We've made strong progress mitigating physical and financial risk. So here are some high points. On wildfire mitigation, we saw a 99% reduction in acres burned in 2022 relative to the average of the 3 years directly before implementation of Enhanced Powerline Safety Setting.

As we reported last quarter, we were able to successfully navigate extreme summer heat conditions. And in January, our system was put to the test again with an unprecedented series of winter storms, which were met with truly historic levels of performance from the PG&E team.

In addition to addressing physical risks, 2022 was a big year for our financial risk mitigation. We delivered our earnings guidance as well as non-fuel O&M cost reductions of 3% net of inflation. This was ahead of our 2% plan and was achieved in the face of the most challenging inflationary backdrop many of us have seen in our careers.

In our GRC, we added undergrounding while removing vegetation management expense, delivering long-term safety while keeping cost neutral for customers. We closed our $7.5 billion rate-neutral securitization and worked with California policymakers over the summer as they passed constructive legislation supporting our 10-year undergrounding plans and to extend the life of our Diablo Canyon nuclear power plant. We view both as beneficial to customers and evidence of the greater trust we are building day in and day out with our stakeholders.

On the regulatory front, we appreciate the CPUC resolving both the 2022 and 2023 cost of capital proceedings last year. And in terms of customer savings, the Net Energy Metering 3.0 decision was a win for customers. We estimate it removes about $1 billion of cost shift through 2030 relative to NEM 2.0.

On Slide 5, we show some highlights on our historic January storm response. I want to emphasize that this story is about more than numbers on a page. This was us delivering for our hometowns, and our coworkers are at their best when put to the test.

During the first 2 weeks of 2023, hit by historic back-to-back to back-to-back atmospheric river storms, our electric team restored over 2.8 million customers through multiple waves of outages, and we had 95% back online within 24 hours during each of those events. January ranked as the top 5 storm in PG&E history and involved the largest contingent of resources we have ever mobilized, including around 7,200 dedicated personnel from 10 states.

The strength and speed of our response also resulted in us seeing improved customer satisfaction scores compared to prior storm-related outages. We've also adopted the standardized emergency management system and Internet command system. And with the support from California's Office of Emergency Services, we've been aligning training of our emergency center staff with our first responder public safety partners. When the time came, our team and an army of partners acted with skill and tenacity, protecting and serving each other and our hometown, and we couldn't be prouder of them.

On Slide 6, I'll recap our layers of protection against wildfire risk, which start with our core system hardening, vegetation management, inspections and repairs. When conditions warned, we supplement these with our Enhanced Powerline Safety Settings and our Public Safety Power Shutoffs.

We calculate these layers of protection, including improved situational awareness and coordination with first responders, as delivering over 90% overall wildfire risk reduction. We've already hardened more than 1,200 miles since 2019, and we expect our overall risk reduction to further increase as we pursue our 10,000-mile undergrounding program. In the meantime, we continue to look for innovative new technology solutions such as partial voltage detection and down conductor technology to keep reducing that remaining 10%.

On Slide 7, we take a closer look at our 2022 wildfire risk mitigation performance. Historical data show that from 2012 to 2020, that's before we implemented EPSS, 95% of the acres and 100% of the structures burned were related to ignitions at times when conditions were at R3 or higher. While we were fortunate that 2022 didn't bring significant wind events for the year, there were still 31% more R3 or higher days than in 2018 to 2020. Despite this significant increase, we saw a reduction of 99% in the number of acres impacted by utility ignitions in 2022 over the same time period.

Slide 8 illustrates our simple, affordable model, which includes driving efficiency to make room for customer investment. You've heard us talk a lot about the lean operating system and our 4 basic plays.

In 2023, we're rolling out a fifth play, my personal favorite, waste elimination. And we see this as key to continuing to deliver our plans for both customers and investors.

Our primary constraint is customer affordability, on which we are laser-focused through our newly established bill ownership center led by Carla Peterman. The entire team is looking at the whole customer bill for savings, including energy supply costs, which we know are top of mind.

We have a lot of opportunity to eliminate waste, improve our customers' experience, make our system cleaner and more resilient all the while reducing cost. We can do more for less.

The examples keep piling up. So I felt I needed to bring back my story of the month. So here we go. This month's story is about work we are doing to improve efficiency in our new business area.

Presently, our new customer connections take too long from start to finish. As I recently told a group of California builders, we can, and we will do better. In fact, it's another perfect application for our lean operating system, and specifically, waste elimination.

The team invited our developers and builders to come in and work with us to redesign our processes and share their pain points. We conducted a design thinking workshop. And through rapid prototyping, we can see the path to taking the cycle time down dramatically, improving our ability to both do the hook up on time and in less time. Imagine the rework, the waste, the frustration, the delays we can eliminate.

One challenge is that 64% of the new connection requests we receive today end up being canceled for a variety of reasons. We do too much engineering before we are sure it will even be used. This wastes both time and money, and it also is demoralizing for our talented engineers when much of their work never sees the light of day.

We can dramatically improve how we show up for our new customers. And by doing that, we can free up more time and resources to reinvest back into the system. This is just one of the areas where we are delivering more for customers with every dollar spent. Now that's what I call enabling California's prosperity.

Turning to Slide 9. You may recognize this chart, which shows how we executed in 2021 and 2022. In 2021, we faced headwinds early in the year. Our recovery work then put us ahead of plan. This is all part of the playbook we're running now at PG&E.

We plan conservatively, and we remain nimble, protecting investors from the downside. And when there's upside, we will redeploy it for the benefit of customers, which, in many cases, means pulling work forward and protecting future years. Consistency is the name of the game.

You can see it play out again in 2022. We faced headwinds, including a possible cost of capital reset. We have planned conservatively, though, and we're able to more than offset this and other pressures, allowing us to redeploy again on behalf of our customers and still deliver 10% EPS growth.

Employing the simple, affordable model, we plan to consistently manage the work and deliver our earnings targets, no more and no less. And when we can, we will redeploy favorability in the business on behalf of customers and look to derisk future years with a view to delivering our consistent growth trajectory.

Lots of people say to me, "Patti, what if this happens or what if that happens?" This is what we manage at PG&E. Come what may, we have the capability to be nimble and adapt to those challenging and changing conditions. It's a capability that can be taught and learned. As I've said many times, we ride the roller coaster so you don't have to. You can expect to see more of this in 2023 and beyond.

Moving to Slide 10. You can see the progress we made in 2022 as we continue on our journey to build trust with policymakers while creating the stability necessary to attract capital to invest on behalf of customers.

Already, in 2023, we're pleased with the expedited resolution of our self-insurance settlement reached as part of our General Rate Case. This innovative approach enjoys intervenous support and most importantly, can result in up to $1.8 billion of savings for customers over the 4-year GRC period with as much as $300 million expected in 2023.

We also have a number of important catalysts on the horizon. Each of the 4 items you'll see here in blue contain important benefits for our customers and for California. We'll continue to work every day toward timely and constructive outcomes, but we don't do big bets here at PG&E. And I want to remind you that we continue to plan conservatively even as I look forward to seeing more green check marks on this slide.

Turning to Slide 11. Let's take a look at our 2022 report card. While the material fire did not result in any serious injuries and the estimated liability is well within our available insurance, it did cause us to miss our goal of 0 CPUC reportable admissions of 100 acres or more.

We put 180 miles of lines underground last year, exceeding our 175-mile target. And we chose to redirect capital investment to maximize risk reduction during the year, which changed our plans for gas main replacements.

We exceeded our 2% annual O&M cost reduction, offsetting inflation and delivering net savings of 3%. Yes, that is net of inflationary pressure. We see plenty of potential to continue 2% net O&M reduction for many years ahead by working smarter and maximizing value for our customers and investors.

Core EPS came in right on plan at 10%, while we delivered 6% rate base growth in what was the final year of our GRC cycle. Lastly, we were pleased that Moody's recognized our significant progress on mitigating risk and improving relationships in the state when they revised our credit outlook to positive earlier this month.

On Slide 12, we introduced our 2023 report card. One key change is to our headline wildfire metric, where we're sticking with a target of 0 and resulting a new OEIS metric for catastrophic wildfires. This measure lines up with our future wildfire mitigation plans, and we think it's a better one for capturing events that are of real significance from both a customer and investor perspective.

We remain committed to our 10,000-mile undergrounding goal and to achieving our unit cost targets. We'll be filing our 10-year plan later this year with more details.

Our 2% O&M reduction plan shouldn't be a surprise either, and there are no changes to any of our previous financial targets through 2026. We're excited to be adding another year, 2027, to our rate base and CapEx as we look to give you more visibility into our long-term plan.

Our headline 5-year rate base CAGR of 9.5% remains the same, but it's now based off 2022 actuals and runs through 2027. We're feeling really good about what we accomplished in 2022, and we look forward to delivering for you again in 2023.

With that, I'll hand over to Chris, who will discuss our financial and regulatory items in more detail.

[Christopher Foster, EVP & CFO]

Thank you, Patti, and good morning, everyone. As Patti mentioned, we delivered our financial commitments this year, landing at $1.10 in EPS for the full year 2022 and completed the year without issuing equity. We're also reaffirming our 2023 to 2026 earnings growth guidance and our commitment to no equity in 2023 or 2024.

This morning, I have a few updates to share with you. To start, I'll recap the drivers of our 2022 financial results and review our 2023 guidance drivers. I'll now provide some updates on how we're delivering against our simple, affordable model. Lastly, I'll provide a few highlights on regulatory, legal and legislative items.

Let's start on Slide 13. As you can see in our full year walk, non-GAAP core earnings were $1.10 per diluted share for the year. We earned $0.07 from our customer capital investments and achieved $0.08 in savings from cost reductions. This allowed us to navigate the ups and downs during the year and deploy resources in our system for customers by pulling forward some work in future years and making other sound financial decisions to deliver right on target for the year.

On Slide 14, as we showed you last quarter, we have planned for substantial customer investment in our 5-year plan, about 1/3 higher than the prior 5 years. We rolled this forward to include 2027. And as shown in orange, we're planning to spend almost 1/2 of our capital in the next 5 years on risk reduction across the enterprise.

This includes system hardening, pipeline replacement and other work critical to reducing risk. We use a risk-based approach to prioritize our capital spend, addressing the highest risk and customer-centric work first.

We are also focused on improving our capital to expense ratio over time. When we were able to do permanent repairs instead of temporary fixes, we improve that ratio and create headroom in the customer bill. This important work in our system also drives earnings per share growth and improves our cash flow from operations.

And as you can see on the right-hand side of the slide, we've identified over $5 billion of incremental investment opportunity not yet in the plan. We would intend to bring some of this customer-focused spending into the plan as we work to create headroom on the customer bill.

And using our simple, affordable model, we can deliver more risk reduction for every customer dollar spent because of our focus on lean, including waste elimination. Given the substantial capital opportunities in our plan, our pending 2023 General Rate Case and our focus on a return to investment-grade ratings, we intend to continue to show progress on our FFO to debt metric as you've seen on our report card slide. We landed at about 12.5% in 2022, showed some good progress there over where we ended 2021 at 10.9%.

Moving to Slide 15. 2022 came with own set of challenges that we overcame. We saw inflation, rising interest rates, extreme heat, targeted supply chain shortages, natural gas price spikes, an unprecedented range. And yet, we found ways to stay on plan. And as Patti mentioned, the work of the teams to respond to the historic storms late last year and early this year was incredible.

That's why we're so proud of what we are delivering for customers and for you, our investors, using our simple, affordable model. We are laser-focused on affordability and know you are, too. So let's dig a little further into the model.

Through a series of good business decisions and the lean capabilities we're building, we were able to exceed our targeted 2% non-fuel O&M reduction in 2022, delivering a 3% reduction despite inflation. And we use those savings to serve customers and derisk 2023.

We saw significant savings for customers in vegetation management driven by improvements in unit costs due to a few strategic changes. First, we implemented a new accountability model and a consistent pricing structure that supports the integration of work while improving contractor oversight and warranties for rework.

Then we also reduced our contractor counts from 24 to 14, implemented new subcontracting controls and regionalized work to build a stable and predictable plan. This should result in a better customer experience. There were repeat visits and lower cost to deliver for our hometowns while still meeting all our commitments.

Through these efforts, we've saved around $200 million in vegetation management costs in 2022 relative to budget. And we expect to realize over $300 million in cost savings this year while still delivering the units in the base work plan with improved safety and quality.

Also in 2022, we achieved an undergrounding average unit cost per mile, well below the $3.75 million target shared at Investor Day and the baseline of over $4 million from just a few years ago. And there's more opportunity for customers ahead.

As you saw in our report card, our 2% non-fuel O&M savings remains our annual target. We're just getting started finding cost savings for our customers, whether it be through improving our capital to expense ratio, eliminating waste from our processes or working with stakeholders to find better solutions for customers such as our self-insurance settlement.

And as you can see in the 2023 plan column, we are continuing to aggressively pursue efficiencies to deliver our annual 2% non-fuel O&M reduction, which similar to 2022 assumes continued inflationary cost pressures. While our 2% O&M reduction target excludes fuel, I want to take a moment to reflect on the higher bills our customers have been experiencing this winter compared to last winter, largely as a result of higher natural gas prices experienced across the West Coast.

Collectively, during the gas price run-ups in the winter, our procurement team was able to save customers well over $1 billion through a series of thoughtful measures, including a diversified portfolio that includes interstate pipeline capacity reaching back to the supply basins, natural gas storage and financial hedging. To further support our customers, we've been going after bill relief strategies in partnership with federal and state regulators and policymakers.

One example would be supporting the accelerated timing of the annual climate credit, which should put over $90 back in the pockets of our average combination electric and gas customer.

Let's move to the top of Slide 16. As you saw through 2022, we're getting better regulatory and financial outcomes because we're delivering on our operational commitments and serving our customers better every day. Performance is power, and we own our performance.

Our 2022 cost of capital was decided by the CPUC in Q4, leaving our 2022 ROE unchanged. We also received a final decision in our 2023 cost of capital as scheduled, providing further certainty as the 10% ROE approved applies through 2025.

Last month, as requested, the CPUC approved our self-insurance settlement. We appreciate this decision as it allows us to avoid procuring costly wildlife insurance from the commercial insurance markets over at least the next 3 years, saving customers up to $1.8 billion through 2026. We also filed a Track 2 settlement in the GRC, which should help streamline the case procedurally with the schedule calling for a final decision in the third quarter.

Our Pacific Generation application is moving through the CPUC process with a schedule that was released calling for a proposed decision no later than the end of November. While this could mean we don't get a final decision until 2024, we don't see the schedule set forth in the scoping memo, resulting in a meaningful change to our financial plan. We continue to view the sale as an opportunity to efficiently raise needed equity and a solution that benefit customers through realized tax benefits, which accelerate contributions to the customer credit trust.

Moving to wildfire-related cost recovery. In 2022, we were authorized to collect $2.3 billion. The net unresolved balance is now approximately $4.7 billion, and I'm pleased to report additional progress on several cost recovery proceedings.

First, our 2020 WMCE is now final, with those costs moving into rates. Second, we settled our 2021 WMCE resolving all elements apart from the cost in our vegetation management balancing account. Additionally, we filed our 2022 WMCE application and a motion requesting interim rate relief.

Finally, on this slide, we are progressing through the next steps of 2 key pieces of legislation passed in 2022. In November, the Department of Energy confirmed Diablo Canyon is eligible for federal funding through the Civil Nuclear Credit Program and conditionally awarded a total of $1.1 billion.

We view the NRC staff decision last month to require a new application as procedural. And I note that our team has been working on a parallel approach from the outset. NRC staff expect to respond in March to our waiver request, which will allow for continued operation of the units beyond the current operating license expiration date. We're planning to file our new applications with the NRC before the end of this year.

Lastly, 2 notes on our progress on resolving legacy legal claims. First, this week, we filed a joint motion for approval of a settlement reached with the SED resolving their investigation into the Zogg fire. We continue to assert, we were a prudent operator, and we've agreed to forgo cost recovery on $140 million, which will be invested over 3 to 5 years primarily in future system enhancements with a $10 million penalty going to the state general fund.

Second, we've made some modest increases to our wildfire loss accruals for third-party claims this quarter, including $75 million for the Kincade fire, $25 million for the Zogg fire and $25 million for the Dixie fire. I'll remind you that our accrual for the Zogg fire is well within our available insurance. And we continue to book offsetting receivables for the accrual associated with the Dixie fire.

For the Dixie fire, we've reached agreements to settle claims, including with the cities and counties. And we continue to work to fairly resolve individual claims through our fast claims process and mediation.

In all of these cases, we remain committed to continuing to make it right for the communities and customers we serve. California has established legislative and regulatory processes to allow for constructive outcomes where we perform well. We recognize that we have a busy regulatory agenda with the CPUC, and we appreciate the commission's thoughtful consideration as we work relentlessly to achieve our safety and reliability goals as well as advancing California's climate leadership.

Here on Slide 17, I want to take a moment to remind you that we have relatively limited sensitivity to some key variables outside of our control. Part of this is due to constructive California regulation, including decoupling for both gas and electric.

Four elements provide for formulaic commodity recovery with timely cash collection, a 4-year General Rate Case cycle and a 3-year cost of capital cycle. Additionally, we're taking the initiative through our simple, affordable model and our focus on the bill, which we expect to further mitigate financial and regulatory risk as we continue to build trust with our customers, regulators and policymakers.

Moving to Slide 18. We are progressing towards meeting the common stock dividend eligibility threshold later this year. As a reminder, before declaring a dividend, we will first need to report a cumulative $6.2 billion in non-GAAP core earnings since our emergence from Chapter 11, so starting from the third quarter of 2020.

For this purpose, non-GAAP core earnings means GAAP earnings adjusted for certain non-core items specified in our plan of reorganization. And as we step into 2023, we still expect to reach eligibility around midyear. Our plan currently shows us reaching eligibility during the third quarter, although this remains subject to assumptions, including the timing of regulatory decisions. Regarding our eventual policy, I'll remind you that regardless of timing, we plan to recommend to the Board that we start with a small dividend initially, feathering in growth over time.

I'll wrap here by emphasizing that we met our 10% EPS growth target in 2022, no more and no less. And going forward, we continue to reiterate at least 10, 10, 9, 9.

And with that, I'll hand it back to Patti.

[Patricia Poppe, CEO & Director]

Thank you, Chris. Let me close by emphasizing we've made a lot of progress in 2022. And yet, we are long away from being done. We have plenty more for you to look forward to in 2023 and beyond as we continue to write the next chapter in the PG&E story.

For our current investors and for those of you still taking a look, we hope you'll consider joining us in California for our 2023 Investor Day on May 24 in the Bay Area followed by undergrounding site visits in and around Napa County on May 25. We're excited to share more details of our longer-term financial plan and our investment opportunities.

We'll roll up our sleeves to show some of our risk reduction tools and technology with you. And we'll also give you the chance to hear about our progress from some of our key California stakeholders. We can't wait to see you.

And with that, operator, please open the lines for questions.

[Operator]

[Operator Instructions]. We'll take our first question from Shar Pourreza with Guggenheim.

[Shahriar Pourreza, Guggenheim Securities]

Just real quick, Patti. In terms of the process and maybe establishing some framework around the Pac Gen equity sale, I mean, obviously, there's been some early stakeholder comments, and the CPUC narrowed down and issues list this year. I guess do you feel there could be an expedited resolution via some form of a settlement, partial settlement to move this process along faster?

[Patricia Poppe, CEO & Director]

Yes, Shar, we -- again, as we've been pretty clear about this, feel like the Pac Gen sale is a really good option for customers. It's a very efficient financing solution.

Expedited might be a little overly ambitious. We know that the commission has a lot of input to take in from stakeholders, and we want to give them the appropriate time to do that review. Though we feel like we've made a really great case, and we feel good about the potential.

[Shahriar Pourreza, Guggenheim Securities]

And then obviously, you guys put out a mid- to high teens credit metric target. Is that -- just remind us, is that inclusive of the Pac Gen equity sale or not?

[Christopher Foster, EVP & CFO]

Shar, that's true. The base plan does include the proceeds from Pac Gen. And as you can imagine, as we kind of more broadly look at the consistent view we've had on mid- to high teens by 2024 on FFO to debt, the real drivers there are probably going to be the GRC.

You've got the wildfire recoveries that we touched on a little bit ago, and obviously, then just underlying CapEx profile as well. So I would think about those as really the drivers behind what we're looking at there for mid- to high teens.

[Shahriar Pourreza, Guggenheim Securities]

Got it. And then just lastly, Patti, I mean, obviously, one of the key messages for you on this call is like the bill impact is going to be sort of modest, let's just say, right? But some of the offsets and levers that you guys have been able to utilize and plan, which is a really good message. But there's still like, for instance, over $800 million in deferrals that are pending approval right now. I guess how does that kind of play into the equation?

[Patricia Poppe, CEO & Director]

Yes. Thanks, Shar. I would say a couple of things. First, there's near-term bill pressure as I think people across the country are feeling with the commodity cost impact and what we're doing there. As Chris mentioned on the call, the state did a really good job, and kudos to the commission for pulling ahead the California climate credit for customers to, in the near term, offset the commodity impact. And we've obviously seen, like others, the commodity cost is back down into more normal range. And that bodes well for customers, and we feel good about that.

But longer term, I think as we think about all of the necessary work for customers, this is why the simple, affordable model here at PG&E is so important. For a long time, we were doing Band-Aid replacements and not doing the permanent corrective climate-resilient infrastructure investments our customers have been asking for.

That's why undergrounding is so important. That's why our capital plan, we've given so much visibility to the capital plan because those investments in our infrastructure enable us to reduce our expense, improve that capital to expense ratio.

Our 3% delivery of our O&M savings this year, that's after inflation that factored in inflation, and then we still deliver 3% on top of that. That's just the beginnings of this team's capability to offset and reduce expenses to make the headroom for the necessary investments in truly climate-resilient infrastructure.

This is a model that is really starting to play out here at PG&E that will benefit customers from both their affordability. And as we layer in those legacy costs then they too will be offset by these cost savings that we're delivering. And so waste elimination is our theme this year, teaching people how to do more for less and really actually making the customer experience better at a lower cost is what the simple, affordable model delivers. And we're excited to be employing it here at PG&E.

[Operator]

We'll take our next question from Steve Fleishman with Wolfe.

[Steven Fleishman, Wolfe Research]

So I think you just answered my first question, Patti, which is that the -- when you talk about the O&M costs, net of inflation, you're basically saying those are absolute costs. So even though inflation was up 6%, 7%, 8% last year, your costs were -- your O&M was down 3%.

[Patricia Poppe, CEO & Director]

Yes, Steve. And we're proud of that, and I'm proud of the team for the hard work that they did, and we're just getting started, Steve. That's what's so exciting about this waste elimination and our story of the month about the new business.

There is so much opportunity here, and the team is so hungry to learn. I'm so proud of them. I actually was in our waste -- our new business center just the other day where we're highlighting our waste elimination efforts. And that team was smiling for the first time in a long time, because they're realizing that they can, in fact, have the tools. People need to learn these techniques to actually reduce cost while they're doing more work, and people are really learning fast. I'm super proud of the team.

[Steven Fleishman, Wolfe Research]

Should we think of the waste elimination is like incremental to the O&M costs of 2%? Or that's just part of -- or that's part of achieving the 2%?

[Patricia Poppe, CEO & Director]

Well, it definitely enables us to deliver that 2% and all the inflationary pressures. So we call it 2%, but it's inflation plus 2%. And so that's what waste elimination delivers. And that, again, as we have ups and downs that come at us, that roller coaster I talk about, this is the capability that we can build into the team to turn on that capacity to reduce waste and absorb inflation and still deliver the 2% plus.

[Steven Fleishman, Wolfe Research]

Okay. And then on the GRC, could you maybe just talk to the schedule for that? And is there likely to be any opportunities to settle either partial provisions of that further like the insurance or the case overall?

[Patricia Poppe, CEO & Director]

Yes. So we've hit the stage where settlement is not really an option at this juncture. We've settled pieces and parts like the insurance because it was so valuable for customers to get that settled early and deploy those savings here in '23.

And so as we follow the timetable that the commission has laid out, we're looking for a proposed decision and final decision in the third quarter. And we know that the commission has a lot on their plate, but we also know that this rate case is really important to customers and our ability to deploy all of the infrastructure investment that we've been talking about for the benefit of customers. So we expect timing to maintain the schedule that the commission has laid out.

[Steven Fleishman, Wolfe Research]

Okay. Great. And then lastly, I just have to ask again, just any color -- new color from the fire victim trustee on just their kind of pace of payments and timing of remaining stock sales?

[Patricia Poppe, CEO & Director]

Yes. No, we haven't really heard anything new. We know that the fire victim's trust is aligned with our interest of delivering safety for customers. As the company succeeds, it enables them to provide for the victims that are included in that trust. And so -- but no new information on timing on that front.

[Operator]

We'll take our next question from Julien Dumoulin-Smith with Bank of America.

[Julien Dumoulin-Smith, Bank of America Merrill Lynch]

Listen, I wanted to kick it up first on a question related to '27. I know you guys rolled forward the 9.5% rate base CAGR at 2027, held back on commenting on EPS. I know you had this conversation about 10% or 9% in the past. You bifurcated that very clearly. I also appreciate the timeline of the current GRC and what that means for '27. But just asking the question, how do you think about '27 EPS growth and rolling forward the EPS CAGR as well, if you will?

[Patricia Poppe, CEO & Director]

Yes. Julien, I think -- how I think about 2027 is the abundant investment opportunity that we have for the benefit of customers. So we've been pretty transparent with our at least 10, at least 10, at least 9, at least 9.

We're going to continue on that EPS growth trajectory, but we need to -- our focus is on developing the best long-term capital investment plan that enables customers to have the infrastructure they've been waiting for and the cost mix by our cost savings that we continue to do that enable that investment without burdening customers too much on that affordability. So our eyes are definitely on a long-term infrastructure investment plan at the lowest cost possible for our customers.

[Julien Dumoulin-Smith, Bank of America Merrill Lynch]

Right. I would imagine, given the GRC and also, over time, kind of a normalization of the growth trajectories between rate base and EPS, perhaps the bias seems closer to 9 than 10?

[Patricia Poppe, CEO & Director]

Well, we're just going to have to see, Julien.

[Julien Dumoulin-Smith, Bank of America Merrill Lynch]

Fair enough. Fair enough.

[Patricia Poppe, CEO & Director]

We're obviously thinking a lot mostly about derisking our system physically and making those necessary investments for customers.

[Julien Dumoulin-Smith, Bank of America Merrill Lynch]

Absolutely. Understood. Listen, Patti, actually, since you mentioned this in the prepared remarks on the interconnections and your story, I thought it was very relevant given some of the feedback we're hearing. I'm curious to get your perspectives on what kind of load growth you're seeing. Where are you trending within that 1% to 3%? And can you comment maybe on some pent-up load growth that maybe because of those interconnection delays may not have been realized yet, if you will. But I also appreciate that the transportation electrification figures into that 1% to 3%. But overall, where are you trending against that prospectively, given some of these tailwinds?

[Patricia Poppe, CEO & Director]

Yes. As we've said, we're looking at 1% to 3% load growth over time, more toward the back end of our plan than the front end, but we are seeing low growth. In fact, cut off the presses, Julien, we had 23% of all new vehicle sales in our service area in 2022 were EVs, 23%. I think that's a surprising number. That's up from 16% in 2021. So the EV evolution is definitely happening in California and definitely happening in our service area. In fact, the state was 20% EV penetration. We were 23% in 2022. So all that to say, we are very bullish on the EV role in load growth.

Every EV is like half a house. So in other words, 2 EVs equals a new household in our service area. There is definitely load growth potential. Our forecasts reflect that. And you're right, we have to get really good at building out this capacity for our industrial and residential customers as more fleets electrify, big -- a school bus.

So I was just -- in fact, we just were in one of the electric school buses last week. And that school bus is a megawatt, and Oakland Public Schools is planning to include electric school buses in their fleet. So here we are in our hometown, making sure that they're going to be ready, that's all opportunity for us.

And so as we work with our regulators, making sure that we have a dynamic regulatory environment where we can, in fact, prepare for that capacity investment, be ahead of it is pretty exciting for customers. And so the interconnection, we're continuing to track with that investment, but we see real forecasted growth in the coming years, and that's exciting for us.

[Operator]

We'll take our next question from Nicholas Campanella with Credit Suisse.

[Nicholas Campanella, Crédit Suisse]

I wanted to hit the undergrounding. So you've done about 300 miles now. You have this 10-year plan that's going to be filed soon, but you also kind of changed the GRC. I think there was an intra-quarter update, which might have removed some of the underground in capital.

So I guess, first, can you just kind of comment on -- since you've progressed through this program, are you seeing pressures higher in cost? Or are you seeing efficiencies more from lessons learned? And then second, just how do we kind of think about your ability to hit the goal for roughly 2,000 miles with the shift in the GRC?

[Patricia Poppe, CEO & Director]

Great question. Of course, we're very excited about our undergrounding plan. And just a couple of good important clarifications for everyone.

Number one, we reduced our mileage as a result of conversations with our key stakeholders. We have to earn the right to do that underground. We have to prove that we can, in fact, do it at the unit cost that we've described.

Happy to report in 2022, the 180 miles we delivered was at a unit cost lower than we had forecasted. So the team is definitely improving on efficiency. And I feel like we're just getting started and really having the scope and scale of program that will consistently deliver the unit costs that we're forecasting.

Our 10-year plan comes out later this year, and that will clarify mileage and unit cost targets. And I also want to remind everyone that, look, this undergrounding program is very important from a risk reduction and a customer satisfaction, but it's not a big bet. The undergrounding program is less than 20% of our total capital plan. It is flexible and dynamic in nature. We're going to be working with our regulators and those stakeholders to make sure that we do undergrounding at a pace that they support.

I remind myself, the Golden Gate Bridge wasn't built in a year. It was built over time, and it's beloved, and that's what our undergrounding program is going to be. It's going to be built over time, and it's going to be beloved. And we have to earn the right to grow those miles year after year after year. And so we're very focused on doing that well. We've got a program structure set up that's delivered real savings in our wildfire mitigation through vegetation management inspections.

The same leadership team is leading the undergrounding program. So we're expecting big things from Peter and the team as they build out our undergrounding program to the benefit of customers. I hope that helps.

[Nicholas Campanella, Crédit Suisse]

Absolutely. I'm excited to see the plan as it comes together here. So just a quick question on the credit side. Congrats on getting the positive outlook, I guess, from Moody's. What is your understanding, I guess, of what the agencies are looking for now? Is it more time, another fire season to get back to IG here or is it more metrics-based because it does seem like the metrics are going in the right direction.

[Christopher Foster, EVP & CFO]

Sure thing. Nick, I think it's -- in Moody's really reaffirmed this too that our financial metrics as we look at them are really already in that investment-grade territory. So I think really across the agencies, their emphasis is really shared on the physical risk reduction progress we're making.

Patti hit the year-over-year improvements in our Enhanced Powerline Safety Settings and just the clear results of that delivers. And then I think also it's the desire to see continued progress and data points with our policymakers.

Last year, we clearly made progress on some key customer-friendly programs, both the undergrounding program and the Diablo Canyon operating life extension in terms of new policy. And I think we just want to continue that progress this year. And that could be across wildfire-related recoveries at the CPUC, certainly our General Rate Case as well as the Pacific Generation filing there at the CPUC as well.

[Operator]

[Operator Instructions]. We'll take our next question from David Arcaro with Morgan Stanley.

[David Arcaro, Morgan Stanley]

I was wondering if you could speak a little bit to the upside CapEx opportunities, the $5 billion that you laid out in terms of the transmission investment distribution. What could be kind of the timing of getting more concrete numbers around that? When -- could it hit the 5-year plan? Is it potentially kind of elongating the CapEx runway from here? And are there any like milestones that we might track as you evaluate some of those upside opportunities?

[Patricia Poppe, CEO & Director]

Yes. Thanks, David. The point in sharing that potential upside is just to share that we have abundant capital infrastructure demand on the system. And so it is truly on us to find ways to offset costs.

Everything that's in the bill that is unrelated to capital investment are areas of the bill that we can reduce in order to enable potential headroom then for that necessary customer benefiting infrastructure investment. So for example, we talked about this insurance settlement. That's a big savings for customers over time.

That would be the sort of thing that creates headroom that we can enable additional capital without pressuring customers' bills. Now we filed a General Rate Case. It's important. That will be an important outcome later this year. That will provide more visibility to exactly what capital we have support from our commission to invest.

And then we're going to continue to demonstrate this waste elimination capacity. So if we start to deliver greater than 2% O&M savings or other savings that enable headroom, that creates the room for capital investment that doesn't pressure customer bills. This is the simple, affordable model in action. And it's dynamic in that way that if we additional -- find additional customer savings, then we'll work with our regulators to approve additional capital to deploy to the benefit of customers.

[David Arcaro, Morgan Stanley]

Okay. Understood. That's helpful. And then I was wondering your fire risk mitigation strategies, they're broad. There are a lot of different components of that. I was wondering if you could speak to innovation that you're working on with regard to fire risk reduction in terms of technologies or new applications that you're exploring right now that could be layered on to the current risk mitigation programs?

[Patricia Poppe, CEO & Director]

Well, I'm so glad you asked because we're going to be highlighting that at our Investor Day in May, May 24 and 25. We'd love to have you out, and everyone on the call is welcome to join us.

Some of the things that are pretty exciting are our partial voltage detection, which utilizes our smart meter technology for service line risk. We've got our down conductor technology. We're expanding the development of that program. Our teams have had some great breakthroughs in the last year. Kudos to our advanced technology team and all the hard work they've been doing.

And you'll get to see a firsthand when you come out. So lots of innovation and technology, of course, all the data science that underpins our EPSS and our PSPS is really incredible to understand in more detail. And it's what gives us confidence heading throughout the year, whatever the environmental conditions around us, whether it's dry, it's wet, it's hot, it's cold, we're building infrastructure and the capability to adapt to those changing conditions and keep people safe.

And I couldn't be more proud of the team and the progress we've made. We continue to make that progress, and we'll have it on display at our Investor Day here in May. Come on out and see us.

[Operator]

We'll take our next question from Jeremy Tonet with JPMorgan Securities.

[Richard Sunderland, JPMorgan Chase & Co.]

It's actually Rich Sunderland on for Jeremy. Just one quick follow-up on the $5 billion CapEx upside. Curious a little bit more around those opportunities and what the total bucket of possibilities are. Just really the $5 billion, is it sized for what you think you may be able to fold in over the near to medium term? And is there a larger opportunity set that you're still working through?

[Christopher Foster, EVP & CFO]

Rich, happy to take it. I would take the second part first and say there is a larger opportunity set. But again, as Patti mentioned, keep in mind, our focus is absolutely on that overall simple, affordable model, which includes that affordability constraint for customers, right? So we've always got to keep that in mind as we go.

As we look at the opportunities themselves, I really think that what we were mentioning earlier about the electrification growth is very unique for us. And so as we look at that, the EV penetration opportunity you explicitly see us call out in that $5 billion opportunity capacity-based investments.

And that's really where we see targeted investments that we can make that will benefit the areas where you're seeing not just need for wildfire risk reduction, but also in some of those suburban communities where we're seeing a pretty dramatic EV uptake. So the opportunity there, I would say, do start to come in the medium term and only increase as we go further out.

[Richard Sunderland, JPMorgan Chase & Co.]

Understood. That's very clear. And then just one last one at the risk of, I guess, front running the Analyst Day update. Would that be the forum to address the EPS growth through 2027? I know this was asked earlier.

[Christopher Foster, EVP & CFO]

Sure. I think I'll have to offer this to you. Come on out and see us. We do certainly plan on intending to give you more insight into that longer-term capital plan. But come on out, and we'll be able to share more at that time.

[Operator]

We'll take our next question from Gregg Orrill with UBS.

[Gregg Orrill, UBS]

What in the Diablo Canyon extension process should we be watching for in the NRC and state levels?

[Patricia Poppe, CEO & Director]

Well, first of all, we should be continuing to look for progress because we continue to make progress on that front. The NRC really does have an important job to do, and we don't want them to take any shortcuts. Their focus is on safety and making sure that Diablo Canyon will meet the safety expectations and standards. And so we'll work with them. We have a great relationship with the NRC, and we look forward to working with them on the relicensing process. That's an important part of the process.

There's other several state-based regulatory proceedings that will be occurring. And I will remind everyone, we're -- we want to just send some gratitude and recognition to our state and to our state legislature and our governor for having the wisdom to suggest we extend the life of Diablo Canyon power plant.

That is a high-performing nuclear facility, GHG-free baseload energy to the benefit of all of California. And so we definitely will be working closely with all of the different regulators to make sure that we make positive progress on that. And so that continues throughout the rest of the year.

[Operator]

We'll take our next question from Ryan Levine with Citi.

[Ryan Levine, Citigroup]

A couple of questions for Patti. How has the hookup cancellation rate changed in the past year? How do you determine which interconnects to prioritize, given limited resources? And then, like in the comments around a new play to the playbook, are you looking at any changes to this process?

[Patricia Poppe, CEO & Director]

Yes, we're looking at changes every day to the process. Look, we've got to be easier to do business with. And I've had a couple of different sessions with our builders here in California. They are a key to California's prosperity. And therefore, we power them and they power California with new housing.

And we're very much aligned with them. We're working with them to find accelerated tools and methods. And it's really amazing to see our new business process map and simple changes that can be made right away so that we don't have to make choices about who we're going to energize and who we're not. The question is about how do we energize people faster and streamline that process.

And so as I shared, that example of these jobs, they get canceled for a variety of reasons, maybe the customer decides they're not going to do their project after all, having nothing to do with us. And we've done the full engineering. So we're looking at ways of doing a lighter engineering touch upfront just to give people the estimate that they need and making sure that we're only doing the engineering on the jobs that are going to get finished.

That's a huge cost savings in hours and dollars. And it enables us to get the work done on time for the builders that are going to finish their projects. And so both capacity and new business are really exciting load growth opportunities for us, and the progress that we've made in a very short order is pretty impressive. We look forward to demonstrating that progress this year and continuing forward.

[Ryan Levine, Citigroup]

Appreciate the comments. I guess I'm trying to get a sense in terms of quantifying the materiality of some of these delays between when you assumed your currency -- I mean, have you noticed any material changes in how customers have been interconnected or any color you could share around the progress that may be made on a go-forward basis?

[Patricia Poppe, CEO & Director]

Yes. I mean, I think we're seeing increased demand, which is great. There's building happening in California. People are talking about the exodus of California. I can tell you, I'm not feeling it. We're seeing a lot of growth here in customers and capacity. So the -- obviously, the additional electric vehicles that I pointed to is -- requires capacity investments at a substation level, but we also have transmission forecast of additional load. And we're continuing to see the opportunity to build more homes in broader spaces in California.

And we're going to keep up with our building and our progress here at PG&E. And that's what this lean operating system provides for us, the foundation to have visibility into our demand and our ability to eliminate the waste so that we can meet that demand. It's pretty exciting times here at PG&E.

[Operator]

We'll take our next question from with Ladenburg Dolman.

[Unidentified Analyst]

Great. To start with, I was hoping to maybe get a little bit of an update on the Zogg trial. I guess the trial's due to begin in June. How long should we sort of expect before there would be a final decision reached in that proceeding? And in the past, I think you've indicated that the liability estimates could triple. Is that still sort of your view in terms of how much the liability could go up if you were found liable?

[Patricia Poppe, CEO & Director]

Thank you, Paul. First of all, on that subject, I just want to reiterate that our heart goes out to the victims of the Zogg fire and all of the wildfires. These environmental disasters are extraordinarily painful, and we don't take them lightly. And we're doing everything we can to make our system safer and faster.

At the same time, I know that my coworkers are not criminals, and we don't believe that these are criminal matters. All that to say, we do -- the trial date has been set for June 6. We expect it to take about 6 weeks. And we don't expect additional liabilities because we actually plan to win.

I think it's important to know that our coworkers, our vegetation management team works day in and day out to make the system safer and faster. And they have no other ambition than to do just that. So we plan to defend our position vigorously.

[Unidentified Analyst]

So the trial would take 6 weeks, but the judge issuing a decision could take up to a year after that or...

[Patricia Poppe, CEO & Director]

Yes, Paul, it's hard to say. We'll obviously keep people posted as that goes.

[Unidentified Analyst]

In terms of disallowed interest, can you sort of break out the liabilities or the disallowed rate base items that -- at the utility that go into that calculation?

[Christopher Foster, EVP & CFO]

Paul, it's Chris. I'm happy to work on that with you offline. I can actually give you the bill. As you know, we do a roll-up that's in the appendices of our materials, and I'm happy to spend time with you breaking that out. The undercoverable interest expense, as we noted today, ranges from $370 million to $430 million.

[Operator]

And that concludes the question-and-answer session. I'd now like to turn the call back over to Patti Poppe for any additional or closing remarks.

[Patricia Poppe, CEO & Director]

Thank you, Lisa, and thank you, everyone, for your questions and your support. I just want to remind you all that your investment in PG&E is an investment in California's safety and prosperity, and we thank you for that.

We really appreciate your support. And we are definitely feeling the momentum here at PG&E. We're proud of our performance in 2022, and we're writing the next chapter of our redemption story, and we hope you'll be along for the ride. We look forward to seeing you in California in May, please be safe out there.

[Operator]

And that concludes today's presentation. Thank you for your participation, and you may now disconnect.