PG&E Corp

NYSE:PCG

Q1-2025 Earnings Call

[Operator]

Ladies and gentlemen, thank you for standing by. My name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to the PG&E Corporation First Quarter 2025 Earnings Release. [Operator Instructions]

I would now like to turn the conference over to Jonathan Arnold, vice President of Investor Relations.

You may begin.

[Jonathan Arnold, executive]

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

With us today are Patti Poppe, Chief Executive Officer; and Carolyn Burke, Executive Vice President and Chief Financial Officer. We also have other members of the leadership team here with us in our Oakland headquarters.

First, I should remind you that today's discussion will include forward-looking statements about our outlook for future financial results. These statements are based on information currently available to management. Some of the important factors, which could affect our actual financial results are described on the second page of today's earnings presentation. The presentation also includes a reconciliation between non-GAAP and GAAP financial measures. The slides, along with other relevant information can be found online at investor.pgecorp.com. We'd also encourage you to review our quarterly report on Form 10-Q for the quarter ended March 31, 2025.

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

[Patricia Poppe, executive]

Thank you, Jonathan. I'm pleased to be with you this morning to report out on another solid quarter of progress.

Our core earnings per share for the first quarter are $0.33. While Q1 was a little light due to timing, we're confident in reaffirming our 2025 full year guidance range of $1.48 to $1.52. I'll remind you, the midpoint of this range is up 10% from our 2024 results. There's also no change to our EPS growth guidance for 2026 through 2028, which remains at least 9% each year. I'll also remind you that with our December issuance, the equity to fund our $63 billion capital investment plan through 2028 is fully priced and behind us. We're intently focused on affordability as an important outcome for both our customers and investors.

In fact, our bills are down in 2025 compared to 2024, and we forecast them to go down again in 2026. I know AB 1054 and wildfire risks are on your mind and you're looking for signals that California is working toward a solution to improve upon what is already a solid foundation of financial risk mitigation. The way I see it and what we're standing for is that California's utilities must be able to attract sufficient high-quality, long-term and low-cost capital to ensure that we can power the increase in growth we're excited to be seen. Also at stake is the opportunity to power the clean energy transition, which our customers and our state are counting on. We believe that an AB 1054 legislative solve in 2025 is what will produce the best long-term affordability outcome for our customers. Based on active conversations in Sacramento, we expect constructive legislative outcome yet this year.

All of these elements I'm talking about are reflected in our power pyramid, a foundation of safety from our physical and financial protections, including AB 1054, a PG&E that's providing affordable and resilient energy to our customers and a decarbonized energy system powering California's growth.

I am excited about several things ahead of us. First, submitting our general rate case that truly reflects the power of our simple, affordable model. Second, seizing the data center load growth opportunity, rapidly developing here in California for the benefit of our customers, driving even more affordability opportunities. And third and perhaps most importantly, our continued execution of our performance playbook, delivering improving outcomes for our customers in safety, quality, cost and delivery every day.

On May 15, we'll file our GRC covering the 4-year period 2027 through 2030. Our proposal will be a step in the process that will kick off a conversation about California's ambitions and expectations and how PG&E can best serve those goals. We're looking forward to demonstrating our simple affordable model as shown here on Slide 5. As a reminder, our goal under the model is to stabilize bills holding increases at or below inflation or 2% to 4%. While you'll have to wait until next month to see the filing, what I can share is that for our customers, it will reflect the benefits of the efficiency gains we've achieved in the past 3 years and most importantly, interrupting a pattern of double-digit increases. You'll also see we continue to have abundant opportunities to deploy capital into quality infrastructure for our customers' benefit.

On top of what we'll include in our proposal and not reflected in our conservative financial plan, there are even more opportunities for customer savings outside the GRC. These include interest cost savings from drawdowns on our $15 billion DOE loan guarantee facility. This has the potential to save customers up to $1 billion net present value over its life, achieving investment-grade credit ratings and adding more beneficial load growth from diversified sources, including data centers, electric vehicles and building electrification.

Turning to Slide 6. Let's talk more about beneficial load growth. We've updated our data center project pipeline from the year-end call. And as you can see, our pipeline has grown from 5.5 gigawatts to 8.7 gigawatts. We are privileged to serve California, including the Bay Area, which has the fiber network enabling speed and reliability for data center customers and also the density of talent needed to maximize the potential of artificial intelligence. We have 1.4 gigawatts in final engineering comprised of 18 projects. To date, these have not been the mega data center project designed to power large language learning models. Rather, the demand in our service area has been mostly from customers looking to power inference models which are driving value for their businesses, true Goldilocks demand, big enough to matter, not so big that it's a problem.

What differentiates this opportunity in California is a diversified set of customers and projects, excess generation to power incremental load in the near term and a regulatory approach, which ensures that our existing residential customers will save money. We continue to estimate that for every gigawatt of new electric demand from data centers, customers may save between 1% to 2% on their electricity bill. This is just some of the exciting work my team has been doing here at PG&E, and we've got more to come.

We know that to best capture this customer benefiting load growth, we need to attract high-quality, long-term low-cost capital. We trust our policymakers to understand this, and we want you to trust California policymakers too. Our team continues to work closely with key decision-makers on wildfire policy improvements. At a high level, we're looking to build on the already strong existing state legislative framework, rebuild investor confidence and ultimately make the model even stronger. In our advocacy, we're making sure state leaders understand that addressing capital provider and rating agency concerns is critical to ensuring access to competitively priced long-term capital. Addressing these concerns is also critical to delivering the most affordable solutions for our customers.

As the legislative process continues, let me remind you of our existing physical layers of protection in place and shown here on Slide 8. We're building infrastructure for purpose, a system that is safer and more resilient every day. In early March, we filed our 2026 to 2028 Wildfire Mitigation Plan. With this proposed plan, we will continue working to reduce wildfire risk attributable to vegetation or other objects contacting our power lines through both system resilience programs and operational programs, which reduce risk during periods of severe weather. And reduce the wildfire risk due to equipment failure through measures, including pole-mounted sensors to catch outages and ignitions before they occur as well as pole clearing. There's nothing more important than ensuring public and coworker safety.

Rebuilding PG&E's safety culture was one of the most important challenges when I joined the company in 2021. Back then, we were experiencing a coworker or contractor fatality on the job every 90 to 100 days. That was truly shocking and a call for action. I'm very proud to share that today, we are at 814 days without a fatality, and that is the longest run in over 25 years, and we are still going. The practical fact is that I can't be on every job site, ensuring our safety procedures are being followed. Rather, every day, my coworkers are showing up choosing to be safe, choosing to keep each other safe above all else. This is one of the most important proof points of the culture change that is happening at PG&E. Our system is safer, our hometowns are safer, and my coworkers are living our safety values every day on the job. That's a culture of safety you can believe in; however, we will never be satisfied when it comes to safety, and we continue to work it every day.

As you know, the safest job site is also the most productive one, and safety performance is a critical leading indicator for consistent financial performance.

With that, I'll turn the call over to Carolyn.

[Carolyn Burke, executive]

Thank you, Patti, and good morning, everyone. Today, I'm pleased to cover 3 main topics with you. First, our quarter-over-quarter results; second, a reiteration of our sector-leading 5-year capital plan and our derisked financing plan; and third, our continued execution against the simple, affordable model.

Starting here on Slide 9. We're showing you our first quarter 2025 earnings walk. Our core earnings of $0.33 are down $0.04 over 2024. Recall last year, in the first quarter, we had some unexpected tailwind, most notably the increase in ROE from 10% to 10.7%. We were committed to redeploying that upside to the benefit of both our customers and investors, and we did. Most of our redeployment came through in 2024 in later quarters as we pulled work forward to derisk 2025. Without a similar tailwind this year, we are instead absorbing a lower ROE and dilution from our well-timed December equity issuance, with line of sight on savings over the balance of the year, we fully expect to deliver our 2025 plan even while we look for opportunities to derisk next year. This is what we mean when we say we ride the roller coaster so you don't have to.

During the first quarter of 2025, the main positive driver was higher customer capital investment. This contributed $0.02 and that's net of the reduction in the authorized return on equity related to the Phase 2 cost of capital decision. That's 10.28% this year compared to the 10.7% in effect for 2024. Non-fuel O&M savings contributed $0.01 to our results, and you should expect to see this grow as we move throughout the year. These items are offset by redeploying $0.02 to various programs including those supporting risk mitigation, $0.02 from equity dilution and $0.03 of timing and other.

Turning to Slide 10. There is no change to our 5-year $63 billion capital plan through 2028. There's no shortage of customer beneficial work on our transmission and distribution systems, and we still see an incremental at least $5 billion of investment needs. And what's more, our growth is diverse with no single project accounting for more than 2% of the overall plan. When it comes to incremental demand, it's important to remember, we have a number of options or combinations thereof. We could add to our already robust plan. We could prioritize investment tied to connect a new load, what we're calling beneficial load growth and/or we could extend the duration of our sector-leading rate-based growth story. In other words, we have opportunities to make our plan bigger doing more for customers, make it better in terms of affordability and longer in duration.

Turning to Slide 11. We were very pleased to see the upgrade from Moody's in March, which brought the utility issuer credit rating to investment grade. We have more work to do at each of the agencies to get the parent company to investment grade, and that continues to be our focus. Our 5-year financing plan remains unchanged, as shown here on Slide 12. This is a strong plan built to support, achieving investment-grade ratings and prioritizing customer capital investment. While our debt needs have not changed over the 5-year period, we are modestly reducing our 2025 long-term debt guidance by $0.5 billion as some of that has now shifted to 2026 due to a term loan extension we closed on earlier this month.

On the equity side, our December issuance put us back in compliance with our authorized regulatory capital structure ahead of schedule and prior to our cost of capital filing. We also benefit from our differentiated dividend payout. We believe 20% by 2028 remains an appropriate target, allowing us to retain a significant majority of our earnings and prioritize needed customer capital investment on our system. I'll remind you, our 5-year plan does not assume any savings from the DOE loan or achieving investment grade, even though these are both near-term priorities. As Patti mentioned, both would be affordability benefits for our customers versus the base plan.

Turning to Slide 13. Executing against our simple affordable model is how we are making our industry-leading capital growth affordable for our customers. We work each element each and every day. O&M savings, where I'm particularly proud of our track record, exceeding our annual 2% target. Beneficial load growth, where the opportunity continues to grow. And efficient financing opportunities, which we aggressively pursue. Regarding our O&M cost reductions, we saved over $500 million in 2023 and another nearly $350 million in 2024. And as Patti noted, we're excited to incorporate these savings into our GRC filing.

Our ability to achieve these savings after absorbing inflation is a capability that is becoming more beneficial for our customers in the current uncertain economic environment. Our sourcing is primarily from domestic suppliers. Deploying our performance playbook, we intend to offset tariff-related cost pressures and inflation. As you've come to expect from us, our goal is to manage through these ups and downs of the business and this will continue to be our default and first line of defense. That said, we also operate under a constructive California regulatory model which has mechanism specifically designed to address significant unanticipated items on a timely basis, including outside the rate case cycle. With respect to recession risk, our decoupled revenue model offers significant protection, and our investment plans aren't built around any particular large project. Net-net, California's regulatory construct combined with our lean operating system is a powerful buffer against economic headwinds.

During the first quarter, the CPUC approved our settlement agreement to establish a non-wildfire self-insurance program. Assuming no claims, customers have the potential to save more than $600 million through 2030 under this program. This is another example of how we're working creative and innovative solutions on behalf of customers. We continue to see abundant opportunity to reduce costs in 2025 and beyond. Just take our capital to expense ratio as one proof point. While we've improved our ratio, we're still spending only $0.90 of capital for every dollar of expense. Best-in-class is spending $2.40. This remains a huge opportunity for us as we continue to drive O&M savings and invest in the most affordable infrastructure for our customers.

Turning to Slide 14. As I've said before, 2025 is a big year in terms of regulatory filings. During the first quarter, we submitted our 2026 cost of capital application supporting an ROE of 11.3%. We expect a final decision by year-end, with the new authorized cost of capital going into effect January 1, 2026. Another constructive feature of California's regulatory model is the fact that our cost of capital is decided independently of our general rate case. And as you know, we'll make the GRC proposal on May 15, covering the period 2027 through 2030. Like Patti, I am very excited to prove out the simple affordable model for the benefit of our customers. We'll be advocating for an outcome, which enables the right infrastructure investment and the right customer affordability.

We also plan to file our 10-year underground proposal with our safety regulator before the end of the year. I strongly believe that performance is power. We've been delivering on our sector-leading capital growth plan, converting rate base growth into earnings growth, proving that what's good for customers is also good for investors. We continue to plan conservatively and deliver consistent, predictable results. We do what we say.

And on that note, let me end here on Slide 15 with a reminder of our value proposition, consistent, predictable performance, serving our customers and delivering for investors, 10% rate base growth through 2028, 10% core EPS growth in 2025. At least 9% core EPS growth each year from 2026 through 2028 and bill increases held between 2% to 4%.

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

[Patricia Poppe, executive]

Thank you, Carolyn. Our simple affordable model is how we're executing on an industry-leading capital growth plan serving California while stabilizing customer bills. Our proven wildfire risk mitigation performance that gets stronger still every day. And our culture of safety being lived day in and day out is what gives me confidence that the culture we're creating here at PG&E is sustainable. We're excited about all the catalysts in front of us, resolving the AB 1054 uncertainty, realizing the promise of our simple affordable model through our upcoming GRC, reaching investment grade at the holding company, delivering on our growing large load story, drawing down on our DOE loan facility, extending our track record of O&M savings and filing our 10-year undergrounding plan. I've never felt more confident in the PG&E team and our ability to deliver for our customers and our investors.

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

[Operator]

[Operator Instructions] And our first question comes from the line of Nicholas Campanella with Barclays.

[Nicholas Campanella, analyst]

So a lot of questions on legislation. Patti, you said you expect a constructive outcome this legislative session and this year. Can you maybe expand on why you're confident that that's indeed happening this year, just given the various things in front of the state legislature? And is there any chance that this is still kind of a multiyear effort? Maybe you can kind of give us a flavor of what you're working towards, whether it's an extension or an increase in the fund size or clarity in the liability cap. Just what should we kind of be expecting here?

[Patricia Poppe, executive]

Yes, Nick, thanks for the question. First, let me reflect what you said that the legislature does have a lot on their plate, and we respect their need to do a lot of different things in their roles. What makes me confident is how important it is to get this fixed. The AB 1054 construct is so important for all the constituents. It's good for customers because it acts as a rate smoothing design, especially when you've got a prudent operator and therefore, those costs are recoverable, the fund acts as a very good rates moving device. And the fund also serves those who were harmed by wildfire.

And so given that, we know that the legislature is attuned to the importance of AB 1054. We also know how important it is to attract high-quality, low-cost capital so that we can continue to improve the affordability of energy in California. And so that's what makes me confident. It's too important not to do. And we're confident that we can continue to help advocate for the right kind of surgical changes to the strong existing construct.

Nick, I would love to say more about what we think the changes are going to be, but this is a live ball, and it's very important that we don't get out in front of our legislators. They've got a lot of work to do. And so I'm not going to address any specifics about how we think the construct is going to change, but we do believe that a constructive outcome will happen this year.

[Nicholas Campanella, analyst]

Absolutely and understood on that. And then we're excited to see the rate case be filed here in the middle of May. When we look at some of your peers in the rate cases that they filed to the south of you and the outcomes that they've kind of received there are the ones that are still progressing. Just maybe you can kind of talk about what you see as kind of the key differentiator in your upcoming case, whether it's kind of the level of the ask or the amount of O&M that you're going to be able -- and efficiencies that you're going to be able to kind of flow back to customers? How does this kind of compare to other cases that we've seen in the state?

[Patricia Poppe, executive]

Yes. We're really excited about being able to bring forth our proposals for all the constituents. We know this is a step in the process. Our general rate case proposal that we'll be filing on May 15 provides good choices for our decision makers to make. We know that our proposal will reflect the simple affordable model. We know that our GRC must address the significant demand for infrastructure investments for a safer, reliable, clean energy system. And we know that by continuing to improve on our capital O&M ratio that ends up being the most affordable path for customers and still improving their service every day.

And so we are excited about passing along the O&M savings that we've delivered over the last several years. That's how it works. When you file a general rate case, you can start to reflect the improved operating and maintenance expenses and even the unit costs on the capital work. And so we do feel like this proposal is going to be a mark in the sand of a new era. We're going to get away from these double-digit requests. We know that whatever we propose the final outcome will be something less than what we propose, but we're prepared for that, and we've planned conservatively. But we're going to put forward some really great options for our decision-makers and great choices to best serve our customers and get the best suite of outcomes that reflects ample capital, capital investment that's good for customers that lowers their costs as well as all the operating maintenance savings.

Now one thing to remember, and this is good news for customers, is the GRC and what we'll be filing does not reflect the benefits of our DOE loan. It doesn't reflect the benefits of investment grade. It doesn't include the benefits of our beneficial load growth that we see coming. So all of those factors on top of what will be the very affordable proposal will be passed along over the coming years of the life of the general rate case. So we see bright skies ahead for our customers here at PG&E.

[Operator]

Our next question comes from the line of Shar Pourreza with Guggenheim Partners.

[Konstantin Lednev, analyst]

It's actually Constantine here on for Shar. So continuing the discussion on the GRC, how should we be thinking about the $5 billion of upside CapEx in the context of the upcoming filing? Should you anticipate that the upside categories will be included in the filing? Or do you see more incremental CapEx as far as separate recovery?

[Patricia Poppe, executive]

Well, keep in mind that in our $63 billion capital plan, we've got the first 2 years of the general rate case. And so then we've got a subsequent year so that would be in addition to the capital plan. But also keep in mind that our FERC jurisdiction transmission investments are also not reflected in the GRC. So as we continue to say, we'll add capital to the plan when it's affordable for customers. And we know that due to our O&M capital ratio, we know what the capital investments can be more affordable for customers than all the annual expense as well as our reductions in O&M.

So we can add capital to the plan, but we also need to get it approved and we want to make sure that we spend in a disciplined way and that then we can finance that work in the most affordable way. So all of those factors are what will determine what the ultimate outcome is in our longer-term capital plan.

[Carolyn Burke, executive]

Yes. I think I would just add, Constantine, as we think about that $5 billion, remember, as Patti noted, most of it is or much of it does come in with transmission. But you shouldn't assume, as we've said before, that we would simply increase the size of our capital plan. We could look at making that plan better in terms of affordability. So we could reprioritize other projects within that envelope or we could make it longer, meaning we could extend the duration of our sector-leading 9% to 10% rate base growth. So think about that in terms of our capital plan as well.

[Konstantin Lednev, analyst]

Understood. And that leads into the second question, which is the data center pipeline update. How quickly do you believe the preliminary engineering can convert into construction projects? And maybe in other words, do you see the incremental data center-related CapEx moving into the 2030 CapEx plan once the GRC is filed? Is that the right time frame for an update?

[Patricia Poppe, executive]

Yes. Great question. We're -- as we look at the final engineering to construction, we're forecasting that about 90% of that 1.4 gigawatts will be built by 2030. So surely, we'll have to be spending. But most of the spend in those areas are for transmission. So that gets filed to the FERC proceeding separate from the GRC. But we'll be building on -- building that pipeline through 2026, through 2030. And keep in mind, what's wonderful about that new load growth is it actually helps to reduce rates. And so it's just such an important part of the story going forward that we can actually invest more capital and lower rates simultaneously. And I think that's a hard thing for some people to understand at first glance, but we're really excited about what beneficial load growth provides for our customers. and the growth here in California. And so we do see that capital being built into the plan as we go forward.

[Konstantin Lednev, analyst]

And more specific to the preliminary engineering volumes of 7.25 gigawatts, would that kind of start moving into the final engineering phase and essentially into that 2030 time frame?

[Patricia Poppe, executive]

Yes. Exactly, Nick. And -- sorry, exactly, Constantine. We do see the pipeline moving into final engineering. But keep in mind, not all of it's going to go through. And I think that's the part that we want to make sure it's clear that some of this falls out as we go. And we're not banking frankly, on any of it in our financial plan. This is all upside to the financial plan and upside to the affordability for customers on top of what we're already talking about holding rates at 2% to 4%. And so we will set workflow in. Some of it will be before 2030. In fact, we see substantial requests before 2030, but it goes on through 2035. So this could be an ongoing engine of affordability for our customers going forward.

And again, some of it is speculative. They put in their application. They do have to pay a significant amount of money to be in an application phase, so it's not that there's no skin in the game. They've definitely put some skin in the game to apply. And as we provide them, then their cost and timing, they'll make decisions. And we saw in our first cluster study that went through, we saw some fallout but we ended up with then now our current final engineering of 1.4 gigawatts. And so we see that there is definitely appetite here in the Bay Area to build out this data center both. Hope that helps.

[Operator]

Next question comes from the line of Richard Sunderland with JPMorgan Securities.

[Richard Sunderland, analyst]

Just following up on the data center questions. This is a significant jump in the application and preliminary engineering phase. Curious if you can share any feedback on what you're seeing on the ground, really thinking about, I guess, the cluster study approach last year? And if this is an acceleration of activity overall or some response to those initial cluster study efforts?

[Patricia Poppe, executive]

Yes. Great question. We are seeing on the ground, I do believe there was a misunderstanding that we were out of power in Northern California. And once they realized that we were able, through cluster Study 1 to serve their needs at the times that they wanted that did open up a real interest and really communicate to the market that we were open for business, and that's been exciting for us here at PG&E. The team has been working really hard now.

We've actually got a second cluster study that is not reflected in that 8.7 gigawatts, it's incremental even to that. And that's multiple gigawatts of more applications. And so we're being pretty disciplined about what we're calling an application. The cluster study is not complete, and so we're not at the stage that we will add those gigawatts into the plan. But as we go through that second cluster study, we know that some of it will carry through. And what's exciting about Northern California, and this is why we call it Goldilocks, is that these are inference model size data centers. The bulk of them are the 100-megawatt or so inference model data centers, imagine a data center that's designed to do -- to serve multiple tech companies who are using AI in their daily business, so they need more compute power. That's what we're able to serve.

So these aren't single silver shovel projects as we talk about. These are a variety of smaller projects that will go through because that demand for compute power is real, particularly here in the Bay Area where we have this density of technical talent and leverage AI. So this trend is absolutely real for us. We're being conservative about how we're building it into the financial plan. But net and net, this will be so beneficial for our customers. and we're so excited about being able to power California's progress and lower rates by serving this new and growing large and compute power load.

[Richard Sunderland, analyst]

Great. And then shifting gears to the 10-year undergrounding plan filing later this year. I know it's been a little bit of a process and a journey to get to that point. Can you speak a little bit to what you're focused on in the run-up to that application? Maybe some recent learnings over the past year or 2 in work across your system. And just how you think about that process going forward relative to expectations maybe at the start of all this.

[Patricia Poppe, executive]

Yes. Look, we continue to stand in the highest risk areas where they're most vegetation dense undergrounding is the right permanent solution. It reduces 98% of the wildfire to where it's deployed. And for example, we expect that it will -- $465 million in O&M savings and more than $280 million in vegetation savings will be realized over the life of our first 1,230 miles being underground during the GRC cycle, this existing GRC cycle. We want to continue to do that high-value risk-mitigating work. And so we have to continue to share those benefits and savings and make sure that, that is materially represented in our filing for our 10-year plan.

And so we'll be making that plan. It's undergrounding -- some people think that undergrounding is a driver for why our previous rates were going up. I would tell you that only $1 a month of our customers' bill is undergrounding today, yet $20 a month is vegetation management. That's the example of why that capital to O&M ratio is so important that we get that right here in California and get back on track with utility peers who understand that when you deploy capital, you can lower costs for customers.

[Operator]

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

[Julien Dumoulin-Smith, analyst]

Maybe picking back up on the wildfire -- picking back up on the Wildfire Mitigation conversation, maybe just a little nuance here, but you added some statistics on idled and abandoned line activity. Can you elaborate a little bit more on what you all have been doing on that? And more specifically, as you think about some of the recent events here, how does that change your anticipated filing when you think about the safety certification review process and your future filings? How do you think about that all?

[Patricia Poppe, executive]

Yes. Thanks, Julien. We have had a robust induction prevention program. We delineate between de-energized lines and deactivated lines that are in place. So de-energized lines that have no future use, we remove them. And in fact, we've removed 64 lines that were de-energized and had no future use. Now there are cases where you have the activated lines, but they remain in place because there may be a future use for those. Those are the ones that might have subject -- might be subject to induction risk. They don't always -- they aren't always subject to induction risk because maybe they're not near their power lines.

So we continue to mitigate and confirm that we've got the grounding right on those that are remaining. And as a result of continual learning, every year, we learn something new, every incident we learn something new. We've been definitely reviewing those remaining lines and confirming that we've got the safest configuration to prevent ignitions.

[Julien Dumoulin-Smith, analyst]

Got it. Excellent. And then just coming back a little bit to the conversation of data centers and kudos on making progress here. Can you talk a little bit more about linking that back to affordability? I mean you've put some meaningful move on the board against your earlier targets, right, this 1 gigawatt of demand. How does that put your bill increase target, right? You talked about this 2% to 4%. You talked about data centers helping ameliorate that number. Any sense as it stands today, maybe even tentatively or as a sensitivity against that 2% to 4% based on what you're on track to do on data centers to push down bill numbers? I know you've alluded to it, but I just want to ask you more directly.

[Patricia Poppe, executive]

Yes, very directly. We have done the analysis that for a gigawatt of new demand of data center demand, we can spend up to $1.6 billion to serve that demand and still reduce every customer's rates by a percent. And so as long as we are disciplined in how we invest in the infrastructure and that we make sure that we get the cost allocation proper with the large load customer we can pass along savings to customers. We have not built that in yet to our financial plan because we don't want to get ahead of ourselves. We want to plan conservatively. We'll deliver for customers.

And as this new load materializes and gets final complete construction, those savings in that load then materializes on the system, then those savings start to pass through to customers, which is what makes us so excited. We're going to be filing this general rate case and showing that our proposal reflects our simple affordable model and keeping rates -- rate increases in the 2% to 4%. That does not reflect this new large load. And so even though we're going to be filing the lowest GRC ask in a decade, we still have more savings that we can pass along to customers as a result of the new large load as well as the DOE loan as well as our credit metrics improving and getting to investment grade. There is -- this is really -- we're interrupting the pattern here in California for affordability for customers. We know our customers don't feel that yet. So there is a doubt that we can deliver on this but we are able to deliver, and we've delivered this year.

Our bills are lower this year over last year, and our bills are forecast to go down again in 2026, and then you convert over to this new general rate case and you keep rates increasing only nominally and then you add in beneficial load growth, Julien, things are bright here in California. We're going to really help our customers believe in us again and really trust that we can deliver higher service, higher quality service at a fundamentally lower cost, and we can't wait for those numbers to start hitting the table.

[Operator]

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

[Anthony Crowdell, analyst]

I just have one question. And I think maybe to Nick's question earlier, you talked about maybe all the things going on and the legislature may be working for a solution for the wildfire fund. Do you think it's helping the process or like helping out showing the urgency to legislators on a cost of capital filing and also a rate case filing? I know it's a busy plate there. But clearly, they're all intertwined. Is that you think helping out the process of maybe showing you a sense of urgency to the legislatures?

[Patricia Poppe, executive]

Anthony, I think there is no doubt that affordability is job one and Item 1A in Sacramento and here in Oakland for all of us at PG&E. Affordability is job one. So at first glance, when you see a cost of capital filing, when you see a general rate case, it can appear that we're tone deaf to what's happening for customers. We want to make sure that what we're reflecting is demonstrating how we can, in fact, lower cost for customers. That's why we actually have to sing it from the mountain top that the bills are lower this year than last, that we are forecasting bills going down again next year.

It's sometimes hard for people to understand that you can actually improve service, improve earnings and investment in capital for customers and lower their bills. Those 2 things absolutely can go together because we have our lean operating system because we're reducing O&M and eliminating waste through our lean operating system every day, I think it's going to be really important that our general rate case proposals reflect: number one, choices that we can make choices about how much we invest and what we invest but reflect the savings getting passed along to customers.

And again, I just want to reiterate this, our general rate case is going to be the lowest ask in a decade, and we want that to be the new pattern and then layering in other affordability matters. When the legislature is looking at all of this simultaneously, it's pretty hard to absorb all of it at once. So it's important that we continue to just be an active conversation and make sure that we're sharing the information that we have and continuing to really demonstrate that we don't have to choose between customers and investors that the business model of the regulated utility is, in fact, designed to serve customers through low-cost, high-quality investment and that we can serve customers and investors simultaneously. We know that for people who aren't as close to our industry as everyone like you are, Anthony, and we all are that sometimes that can be confusing. And so we're just working hard to a clear message that we can, in fact, do more work for customers at a fundamentally lower cost.

[Operator]

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

[Carly Davenport, analyst]

Maybe just one clarifying question for me. You had mentioned the tariff exposure in the prepared remarks. Is there any quantification on those impacts on the capital plan that you can provide?

[Carolyn Burke, executive]

Yes. Carly, it's Carolyn. So when we looked at our sourcing company -- our sourcing group, first of all, has done a really good scrub of the impact on tariffs. When we look at our total materials and supply spend, over 90% is domestic. And the main categories in that spend, 10 better tariff exposed tend to be actually computer hardware, smart grid equipment and electric equipment like transformers. Now I'll just remind you, 1/3 of our transformers are sourced internationally from South Korea, and that's at a, I think it's a 12% tariff at this point in time. So that's $100 million of our total spend. So not really significant.

On top of that, both our sourcing group believes that the tariff exposure is very manageable, but I'll just remind you that over the last 3 years, with our lean operating system in play, and our O&M reductions, those reductions were on top of absorbing inflation. And 2022, in particular, was a high inflationary year, and we've absorbed that inflation and saw those savings. So we think our biggest tool in our toolkit right now is our lean operating system and our O&M savings.

[Operator]

Next question comes from the line of Ryan Levine with Citi.

[Ryan Levine, analyst]

Some of the prepared remarks focused on potential legislative solution. But outside of legislation -- legislative solutions, do you see any progress in the conversation to revisit or change the attachment rate for the wildfire fund?

[Patricia Poppe, executive]

Ryan, there's lots of ideas on the table. And as I mentioned earlier, I'm very hesitant to get out in front of the decision-makers and the policymakers. I would just offer that there's a lot of ideas that are being discussed and reviewed and we stand that we can get a constructive outcome this year that works for customers and investors.

[Ryan Levine, analyst]

Okay. I appreciate that. And then just one follow-up to an earlier comment you had made around a 90% assumption around some of the data center projects that have already reached engineering study. How do you have -- where is the 90% number coming from? And kind of what are the drivers and how you're coming to these forecasts?

[Patricia Poppe, executive]

Yes. So the 90% is in reference to the 1.4 gigawatts that's in final engineering. We expect 90% of that to be online by the end of 2030. We know that because we did the cluster study that had agreed timing and load. And so that when they move into construction, obviously, that's where it will get all the way to 100%. And so that's the basis for that. We have a lot of detailed engineering already complete and agreements signed with customers at that stage of the 1.4 gigawatts.

[Operator]

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

[David Arcaro, analyst]

Let me the -- I was wondering where does the conversation with rating agencies stand at this point in terms of the path and timing potentially to get to investment grade?

[Carolyn Burke, executive]

Yes. Thanks, David, for your question. So it's Carolyn here. We were really pleased this year that we -- last year, really, that we've reached our FFO to debt target of mid-teens. And I'll just say, we remain very focused on maintaining an IG balance sheet. Now we recognize the agencies are taking a measured approach with rating agencies. We were very pleased to see that Moody's upgraded the PG&E's utility rating was a great outcome acknowledging our progress. But as you know, we're still below IG at the holdco. The rating agencies are looking for the same signals from policymakers that you are. We remain confident that once AB 1054 uncertainty is addressed by the state, the rating agencies are going to take favorable action on our ratings. All our financial metrics are in line with IG, and we continue to make good progress on wildfire mitigation. So I think it's that AB 1054 uncertainty that as we've expressed confidence that we're going to see action this year, and we think that rating agencies will then follow.

[David Arcaro, analyst]

Okay. Excellent. And I was just curious if there's anything you'd be able to add on whether shareholder contributions would be a part of the future discussion around the AB 1054 framework and whether there's been any conversation or indications on that front?

[Patricia Poppe, executive]

Yes. David, we continue to advocate that we don't think that there is a good case that investors should contribute to the fund. The fund is important. It plays an important role as a rates smoothing device and as a fund to make sure those harmed by wildfire have recoveries. But given inverse condemnation reflects that a prudent operators costs are recoverable in rates. We don't think that there's a case to be made that investors should be contributing to that fund, and we'll continue to advocate for that. We know that no matter what, if you increase the cost of capital that makes it less affordable for customers, and we're always standing for affordability for our customers. And we'll just continue to keep you updated as the legislative session continues.

[Operator]

Next question comes from the line of David Paz with Wolfe Research.

[David Paz, analyst]

I know a lot has been covered. So maybe just one on IRA. Can you just remind me, please, on any IRA-related items in your outlook, such as any transferability assumptions, tax rate deductions and so forth.

[Carolyn Burke, executive]

No, David, this is Carolyn. Thank you for the question. We really don't have significant exposure to the IRA, the way we in -- a way to think about this first. PG&E currently does not have any utility-owned solar restore projects under construction. So we really don't have any exposure there. We do, of course, have energy procurement costs and have a number of executed PPAs for solar and battery projects currently under development. And so we're in the market right now as well in terms of buying some of that procurement. It remains to be seen how the pricing may be impacted by tariffs and the availability of those tax credits on those but we're following the competitive solicitation process very closely, and we're very mindful of securing our best commercial terms on behalf of our customers. But that's our exposure to the -- direct exposure to the tax credit is limited.

[Operator]

We will take our last question from Michael Lonegan with Evercore ISI.

[Michael Lonegan, analyst]

So as we think about the cost of capital application, what is embedded for your ROE and equity ratio and your current long-term EPS growth forecast? And are you looking for this application in the upcoming GRC filing as an opportunity to extend this growth rate or potentially raise it?

[Carolyn Burke, executive]

In terms of our plan, I will just reiterate that we always plan conservatively. So we have a cost of capital application out there at 11.3%. We would not call that conservative in terms of what we're planning but we haven't necessarily shared exactly the number that's in our plan at this point in time and aren't sharing that at this time.

[Michael Lonegan, analyst]

Okay. Great. And then secondly, you talked about incremental capital, making your base plan better or reprioritizing spend with it or extending the duration of rate base growth. Just wondering, as it pertains to the SB 410 filing, specifically, the $2.8 billion of capital. Do you have a narrower view of your approach to that?

[Patricia Poppe, executive]

Well, we're awaiting the proposed and final decisions on our supplemental SB 410 filing. Look, that just reflects a cap. And what's most important is that we connect these new customers. They want to be connected. They need electricity. And so we'll continue to advocate for that work to be able to be -- to have timely cost recovery. It is -- I think our continued growth of new business is reflected both in our current plan as well as will be reflected in the GRC.

[Operator]

That concludes the question-and-answer session. I would like to turn the call back over to Patti Poppe for closing remarks.

[Patricia Poppe, executive]

Thank you, Desiree. Hey, thanks, everyone, for joining us today. I will just remind you that we ride this roller coaster so you don't have to. And we ride this roller coaster so that we can deliver consistent, high-quality outcomes for customers and investors. That's what we're up to every day and can't wait to see at AGA and talk more about it. Thanks so much for joining us today.

[Operator]

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