PG&E Corporation (PCG) Earnings Call Transcript & Summary

Good day, and welcome to the 2021 Annual Meeting for Pacific Gas & Electric.

Welcome, everyone. Thank you for joining us today. My name is Francisco Benavides, Senior Vice President and Chief Safety Officer at PG&E Corporation and Pacific Gas & Electric Company. As you'll hear throughout our meeting, safety is at the heart of everything we do. Nothing is more important to us than keeping the public, our coworkers and contractors safe. In that spirit, I'm here to start the annual shareholder meeting like we start all meetings at PG&E with a safety message to ensure that everyone knows what to do in case of an emergency. In an earthquake, make sure you know the safest place to dock, cover and hold, such as under a study desk or table. In case of fire, know your Cape routes and evacuation plan. Exit and call 911. In case of a medical emergency, know who in your location can perform first aid and CPR and who we call emergency services. Lastly, in the event of an active shooter, and in order of preference, get out if you can or hide out and as the last recourse, take out on the assailant. Call 911 when safe to do so. Thank you. And now I'm pleased to introduce Julius Cox, Executive Vice President, People, Shared Services and Supply Chain for PG&E Corporation and Pacific Gas & Electric Company, who will share with us a diversity message.

Thank you, Francisco. Good morning. My message today is about the growth we've seen over the last year in terms of PG&E's commitment to make it it's safe to talk about race, diversity and equity at work. I wasn't at PG&E in 2020. I joined in February of this year. But like my coworkers, I have been impacted by the incidents that have occurred over the past year, including the murder of George Floyd and the horrible incident of violence that was seen against Asian-Americans and those of Asian descent. At PG&E, we have actively worked to provide confidence and safe space for our leaders and their teams to talk about race relations, diversity, inclusion and equity. As a leader in the utility industry and in the communities where we serve, we have an obligation to do so. And although it can be difficult to talk about race in the workplace. It is a commitment that our organization has fully embraced. Taken steps to encourage these conversations and taking real action is even more important. To that end, we have encouraged our leaders to actively engage their teams by holding listening sessions across the organization. We have provided training on unconscious bias so that we are having honest discussions about our blind spots. We've even had a group of coworkers take the initiative to further bolster our efforts by creating interactive forms for awareness and candidate discussions in support of diversity, equity and inclusion. And I'm proud to say that our leadership team, took a stand, to formally state that black lives truly do matter. These are all important steps to making PG&E safer and more inclusive workplace. And while we've made great progress, much work remains to be done. Personally, I was inspired for a number of reasons to join PG&E earlier this year. But being here at this moment where the leadership team and organization that has committed to built words and actions has increased my belief that PG&E will serve as a leader in creating real outcomes in terms of diversity, equity and inclusion. Thank you. And now I'm pleased to introduce the independent chair of the PG&E Corporation Board, Bob Flexon.

Thanks, Julius, and good morning to all of you. On behalf of the Boards and management team, welcome to the 2021 joint Annual Meeting of Shareholders of PG&E Corporation and Pacific Gas and Electric company. Like many companies, we are holding this year's shareholders meeting virtually to protect the health and safety of our shareholders, employees and communities during COVID-19 pandemic. I hope you and your families are doing well during these challenging times. I will be serving as the chair of the joint meeting, and I call the meeting to order. Voting is open. Also joining me today are Dean Seavers, independent non-executive Chair of the Board of Pacific Gas & Electric Company; Patricia Kessler Poppe , Chief Executive Officer of PG&E Corporation; Brian Wong, Corporate Secretary of Pacific Gas and Electric Company and PG&E Corporation. Brian will serve as Secretary of the joint meeting. All of the members of our independent Boards of Directors are here today as well. Thank you. Broadridge Financial Solutions, Inc. has been appointed as inspector of elections to tabulate the votes cast on the matters before us today and has given it so of office to act fairly and impartially. Their representative, Trish Hodson, is here with us and has confirmed that quorums are present for the transaction of business. Thank you, Trish. Next, Brian Wong, our Corporate Secretary, will review the agenda for the joint meeting and rules of conduct that will allow us to have an informative meeting and engage with our shareholders and investors.

Thank you, Bob, and good morning, everyone. I would like to outline the agenda for this morning. First, we'll conduct the formal business starting with introduction of the Directors standing for reelection and management proposals included in the proxy statement, followed by a report regarding the preliminary voting results. Then we'll adjourn the formal business meeting and close the polls. You'll hear remarks from Bob Flexon, our independent Chair of the PG&E Corporation Board and from PG&E Corporation's CEO, Patti Poppe. We will turn to Q&A at the end of the meeting. I would like to highlight some of the rules of conduct that will guide the business of the meeting this morning. These rules are available in the web platform under Meeting Materials and were posted there prior to the meeting. Only shareholders of record as of March 22, 2021, their duly appointed proxy holders who have entered the meeting with their control member may vote and submit questions during the meeting. As Bob previously noted, the polls are open for voting. Many shareholders have already voted by proxy. If you are eligible to vote, but haven't voted or would like to change your vote, you have an opportunity to do so here until the inspector of elections declares the polls closed at the end of the business portion of the meeting. [Operator Instructions]. Some shareholders submitted questions through the web portal ahead of the meeting. We will be addressing their questions during the Q&A portion of the meeting as well. We also ask that you focus your questions and comments on issues of general interest to shareholders and not an individual shareholder or customer issues or other topics stated in the rules of conduct. In general, we will not address questions that don't follow these guidelines. Video and voice recording of the meeting as well as capturing screenshots during the meeting is prohibited. In the event of technical malfunction or other event that disrupts the meeting, the chair of the joint annual meeting may postpone or adjourn it in a manner that allows all business to be conducted. We've done our best to mitigate any potential issues in order to conduct a successful and informative meeting with our shareholders. With that, I will turn it back to Bob.

Brian, thanks for setting the stage for a fair and transparent meeting. In our 2021 joint proxy statement, we have presented our nominees for Directors along with 3 additional management proposals or PG&E corporation shareholders and 2 additional management proposals for Pacific Gas & Electric Company shareholders. All of the proposals are fully discussed in the proxy statement, including our voting recommendations. For purposes of today's vote, each of the proposals is officially before the meeting. Item 1 is the election of Directors. We list each of the nominees in the proxy statement for shareholders' consideration. Each of our boards has been divided into 2 classes, and Directors are elected for 2-year terms. The Directors who are nominated for reelection to both boards today are Cheryl Campbell, Kerry Cooper, Arno Harris, Mike Niggli, Dara Treseder and Ben Wilson and at Pacific Gas & Electric Company only, Adam Wright. Item 2 is management's proposal to ratify the Audit Committee's selection of Deloitte & Touche as independent public accountants for the company. Item 3 is management's proposal asking shareholders to provide an advisory vote to approve executive compensation for the company. Item 4 is management's proposal asking the PG&E corporation shareholders to approve the 2021 long-term incentive plan. With that, Brian, would you please give the preliminary voting report.

Thanks, Bob. This slide shows you the preliminary voting results based on proxies that have been counted as of yesterday, May 19, at approximately 3:00 p.m. Pacific Time. Final results will include the votes cast through the close of polls at the joint meeting. We will post the final results on our website and report them in an SEC filing.

Thank you, Brian. With that, we have concluded the items of business and will officially adjourn the formal business meeting. The Inspector of Elections has informed me that the polls are now closed. We'll now move to prepared remarks and Q&A. Some of today's remarks discuss our strategy, goals and expectations for the future and are thus considered forward-looking statements. It's important to note that actual results could differ materially. We encourage you to read our joint 2020 annual report to shareholders and our SEC filings for a discussion of the factors that could cause actual results to differ. These documents are available on our website, www.pge corp.com. It is a pleasure to have this opportunity to speak with you today, even if we can't see each other and we're gathering 1 place. We look forward to doing that again as soon as health conditions allow. The past 5 years have been some of the most difficult in our organization's history, marked by devastating wildfires, Chapter 11 bankruptcy and painful court proceedings. But even as we embrace the hard lessons we've learned, we are embarking on a bright and promising future. Above all, our plan of reorganization includes strong commitments that are designed to prioritize the safety of our communities and hometown. Under the leadership of PG&E Corporation's new CEO, Patti Poppe, a reinvigorated senior leadership team and substantially new boards of directors, we are charting a path as a different enterprise. One organized to provide better outcomes and more sustainable results for everyone who depends on us. We believe that the quarters we have set will position PG&E as a financially sound energy business with the right governance and oversight to safely and reliably serve our customers for the long-term and help our state achieve its climate and clean energy goals. From a governance perspective, we have seeded a diverse, deeply experienced for many with Deep California routes. At the officer level, in the past 4 months, we have recruited and hired 11 new leaders from outside the company to bring in new perspectives and talent to the existing team. We've been fortunate to attract talented and diverse leaders who bring the necessary experience to hit the ground running. Along with our existing leaders who bring their institutional knowledge of PG&E's past, the common quality they all share is a tenacity to perform and the skills to deliver. All of us know that the only way for PG&E to earn back trust is to fulfill our commitments and keep our promises without fail. Our goal can be to return to the normal conditions of the past, but to redefine normal as the condition of never being satisfied, we have to get better every day, that a challenge that we welcome and are determined to meet. With that, I am pleased to introduce Patti Poppe, who joined us in January as PG&E Corporation's CEO.

Thank you, Bob. Well, good morning, everyone. I'm delighted to be with you for this shareholder meeting, my very first as CEO of PG&E Corporation. I've been here for about 5 months now. I spent many of my initial days on a listening tour, meeting and speaking with all kinds of people with all kinds of perspectives, from customers and coworkers to community leaders, regulators and elected officials. Along with shareholders. Today, I'll share my thinking about what I've learned and how I envision PG&E's future, where we're going in the years ahead and how we're going to get there. Energy companies like us have a unique ability to brighten people's lives literally and figuratively. We provide light on the darkest knights and warms on the coldest days. But we also have a special obligation to help drive economic growth in the communities we serve and to be a force for good by using our core capabilities to address social problems wherever they intersect with our business. At PG&E, we're going to measure our performance and impact, not just in dollars and cents, but with the triple bottom line of people, the Planet and California's prosperity. People because providing safe, reliable and affordable energy to those we are privileged to serve is the reason we exist. Planet, because delivering natural gas and electricity in a way that does no harm to the environment that sustains us is our solum responsibility. And prosperity, because the special business charter we enjoy comes with a social duty to help expand economic opportunity, attract investment and create jobs. Already, we're delivering solid results in the people category, we've assembled a diverse new team of senior leaders who are skilled in the kind of organizational design, standards and processes that will enable us to deliver a hometown service experience for our customers and home towns, 1 tailor to the specific local needs within our distinctive geographic regions. For the Planet, we're meeting California's clean energy and climate goals, while continuing to look aggressively for new ways to reduce our carbon footprint. We're leading with an electric power portfolio that is now 88% GHG free. We are leading on rooftop solar installations. We are leading on electric vehicles, and we are leading on utility-scale battery storage. In support of California's prosperity, we are investing in state-of-the-art improvements to our energy grid, selling noncore assets and sharing the proceeds with customers and significantly reducing our own equity needs. The triple bottom line will continue to guide our decision-making. But achieving those goals also requires a relentless focus on performance, even on days of best ever performance, we will look for ways to improve and get better, only by keeping our promises and doing what we say we will do, can we earn back the trust and become the company that all of our stakeholders deserve. When I visited San Bruno, Sonoma County, Napa County and Paradise, it became clear to me. We have caused and responded to disasters at an alarming level. My heart ached, as I listen to the efforts and the effects on our communities, on families and our coworkers. We are working to get out of the disaster response business and getting into the disaster prevention business. In 2021, we are writing a new playbook for operational excellence in how we spend our time and do our work. We are establishing a daily rhythm, a heartbeat that makes our results visible across the entire company for immediate evaluation and response, informed timely action and continuous improvement. We will build a culture of performance. We will build a culture of safety that begins with each of us individually and extends to those we serve. We will stand together for 0 injuries. 0 fatalities, 0 ignitions of catastrophic wildfires, 0 harm to the environment and 0 harm to ourselves or the public. To be clear, we know our past does not define our future. We are writing the next chapter of this iconic company right now, a chapter of redemption. Welcome. To the new era at PG&E. We are glad to have you with us. I also want to thank our 3 labor unions, which represent more than half of our employees, the International Brotherhood of Electric Workers, Local 1245, The Engineers and Scientists of California Local 20 and Service Employees International Union Local 24/7. We couldn't be successful without their partnership. Thank you. With the remainder of our time, we'll turn to general questions from shareholders with the support of members of our leadership team. We received questions from shareholders through the voting portal in advance of the meeting, and we'll respond to those questions here. We have a lot to get through, so we appreciate your patience, and we will do our best to get through as much as possible.

To start us off, we've received a number of questions about the dividend. The first question is when are you going to pay a dividend? And what about preferred dividends? Thank you for the question. We're very aware of the importance of dividends to utility investors, like yourself, we understand the frustration and disappointment of our shareholders on this. In our agreement with the Governor of California and as part of our plan of reorganization from bankruptcy, we agreed that we would not pay a corporation common dividend until we recognized $6.2 billion in non-GAAP core earnings. We've not provided guidance on the timing of the preferred dividends, but these dividends will continue to accrue. We know that we need to do what we need to do to restore the dividend, and we're working hard to get there. Okay. Our next question is, what is PG&E doing to combat climate change? Well, for PG&E and for California, serving our planet means continuing our leadership role, delivering clean energy to our customers. In 2020, 88% of our bundled sales were from greenhouse gas free sources of energy. That's more than twice the average among U.S. utilities. We continue to deliver some of the nation's cleanest energy, and we are well on our way to meet the State's goal of 60% renewable energy by 2030, and we're committed to providing clean transportation programs and incentives that are affordable and easy to use and that help California meet its clean air and GHG emission reduction goals. We continue to actively support the State's goals of 5 million 0 emission vehicles on the road by 2030. The state has big plans for EV, and we will help by continuing to install EV charging stations as well as provide education and incentives to our customers who want to buy EVs. As part of our broader commitment to address climate change, we launched the 1 million-ton challenge, a voluntary 5-year carbon reduction goal for Pacific Gas & Electric Company's operations. The goal is to avoid 1 million tons of cumulative GHG emissions from our operations from 2018 through 2022. We're just a few years in and already, we've avoided over 800,000 tons of GHG emissions through our efforts. I'm very proud of that. The next question is, how are you going to prevent any more catastrophic wildfires? Well, I will definitely tell you that this is a top priority for us. Safety is so important, and we're focused on using the best available technologies, to reduce the wildfire risk facing our customers and our communities. We're facing an extreme and dangerous wildfire season due to the drought conditions in Northern California. In response, we're making important investments to our 2021 Wildfire Mitigation Plan that help further reduce the potential for wildfires associated with the electrical equipment in high fire threat areas. We've established goals that we've shared with the State on things like vegetation management, and we're executing against those plans as we speak. We've updated our risk modeling so that we can see more information in real-time about conditions that could turn a small fire into a major fire. This also allows us to more accurately prioritize our efforts in the highest risk areas. We're using the improved risk model to guide where the work will be performed with the assistance of a team, a former Fire Chiefs and Fire Professionals so that we know we're focused on the right things. Public safety power shutoffs are and will continue to be a measure of last resort as we continue to harden our system and make progress on all of our wildfire risk reduction efforts. We understand the impact that turning off power has on our customers, and it is not something that we take lightly. We're working with local leaders so that we can make sure we provide the right kind of support. If we do need to turn power to keep our communities safe. Okay. I also see questions about the safety of our vegetation management work, including safety of our coworkers and the environmental impacts of cut woods generated by tree trimming. We have to acknowledge that the work our people are doing every day is dangerous, and we can't afford to lose focus on safety. We're not where we need to be, but we are working to get it right. Our website is a great place to look if you want more information about safety and vegetation management. The next question is on a related note. What are you doing to upgrade the electrical systems to make them safer? Well, 1 of the key things that we're doing to improve safety on our electrical system, in addition to our vegetation management programs and enhanced inspections is called System Hardening which includes strategies such as stronger polls, covered lines and insulated conductors. Let's use Sonoma County as an example because we have a specific question, in fact, from a shareholder about Sonoma County. So in Sonoma, we've made a great deal of safety improvements in 2020. We increased the number of weather stations to more than 60 and increase the number of high-definition cameras to 11 and these tools help us gain situational awareness to detect and respond to wildfire. And to date, we've been through 67 lines of system hardening. I also want to share a story that showcases how we are listening and responding when it comes to our wildfire mitigation work. We heard that some of our customers in Oakmont in Sonoma County. They were worried about the PSPS events. We were able to partner with Oakmont to install specialized equipment that allows us to make our PSPS events more targeted and more precise. This is a win-win. We're still able to deenergize the lines when safety requires it. But we help these customers keep their lights on as much as possible. We're continuing to build and evolve on this work in our 2021 Wildfire Mitigation Plan. Another way we make our electric system safer is by undergrounding equipment, and we have a question about undergrounding. As shareholders, I understand why you would want to ask about undergrounding. It has the potential to reduce our risk and it's a capital investment infrastructure. I can tell you that we're looking for where undergrounding can make a good long-term sense and mitigation, and we'll do it wherever it does makes sense. Okay. The next question in the queue is asking about our commitment to diversity and inclusion. I'm actually going to ask our Chair, Bob Flexon to support me on this one. I'll talk about the companies, and then Bob, you can talk about the Board. So I'll start by saying at PG&E, we're committed to putting diversity and inclusion at the heart of everything we do. We want our coworkers to experience a sense of belonging at PG&E. How do we do this? Well, from day 1, we focus on employee development to level the playing field, and we have an ongoing commitment to diversity among our leadership team. Today, 60% of our management brings diversity in terms of race or gender or both. I'm proud to say that 46% of our coworkers are ethnic minorities, 27% are women and 7% are military veterans. We also invest in our communities. We're committed to cultivating an inclusive supply chain for a diversity of small businesses. In 2020, we spent almost 40% of our total procurement with suppliers owned by women, ethnic minority, LGBTQ individuals and service disabled veterans. Bob, what about the diversity on the Board of Directors?

Thanks, Patti. I am proud to be a member of the diverse and talented team. We're not only diverse in terms of race and gender, but we also bring a diverse set of skills, all relevant for the communities we have the privilege of serving. Each Director is on our Board because they bring a diverse list of quality that we value. We have Board members with utility background as well as experts in nuclear, cybersecurity, emergency management and audit. We also consider important public policy issues such as diversity and representations from regions PG&E serves when we consider Board membership. There are communities that our Board isn't as reflective of all communities as it could be. Specifically, I've had conversations with members of the Latinx community on that. We hear you, and the Board will continue to focus on this in our nominating process. What else do we have in the queue, Patti?

Well, another great question. It asks how can I partake in or participate in regulatory proceedings, so that I can make sure my opinions are her. Well, it's nice to hear from someone who wants to participate in the process. The CPUC actually does provide opportunities for members of the public to participate. If you go to the CPUC website, they have a section about how to give them comments and feedback on different matters that they are considering. They also hold public participation hearings on key issues such as our general rate case. The regulatory process in California is pretty complicated, but it's so important to our communities day in and day out. I admire anyone who wants to take the time to understand how it works and make their voice heard. Okay. The next question is about our incentive program. One shareholder would like to know more about it, but another shareholder wants to know, shouldn't compensation for executives be commensurate with the performance of PG&E. Bob, how about I turn this 1 over to you, too.

Thanks, Patti. The company's incentive programs are aligned with our fundamental belief that safety is paramount as well as a focus on customer welfare and financial stability. When the Board was considering performance metrics, we wanted to make sure we had a robust and measurable goals in these key areas. We want to drive the rate behavior, so the metrics are outcome based, and we reflected the insight from our regulators as well. We also made sure that our executive compensation is both aligned with market standards and designed to protect shareholder interest. We agree that compensation should follow results. The compensation committee designs performance measures to do just that, but also has a discretion to adjust compensation to reflect performance. In fact, in 2020, we exercised that discretion and we reduced the performance-based equity award payouts of key officers to 0 and also reduce the payout through the 2020 short-term incentive awards. Our goal in the long run is for PG&E to achieve these targets and to continue to be able to retain and attract top talent. Back to you, Patti.

Thanks, Bob. Okay. What do we have next? The next question says, when will Gallagher fiduciary lift the 20% limit into the PG&E stock fund on plan participants? I'm guessing that this is an employee shareholder because the question is referring to the 401(k). In 2019, PG&E hired an independent fiduciary to manage the company's stock fund. We did this so that there could be no conflict of interest in offering the stock on to employees. Many companies that offer company stock through their 401(k) plans do this, whether they are in financial distress or not. It was the independent fiduciaries decision to impose the 20% limit, and it is their decision as to whether that remains or not. Of course, employees are free to purchase PG&E stock without limits outside the 401(k) plan, subject to insider trading laws. The next question does the Board of Directors support the Black Lives Matter movement. If so, why? Well, you've already heard us talk about the company's leadership commitment to diversity. Let me hand it back to you, Bob, to talk about the Board's commitment.

Thanks, Patti. We understand that people have differences of opinion on the approach to achieving racial adjusted. PG&E has a long-standing commitment to the values of diversity and inclusion. We support the goals and the desire for change that Black Lives Matter represents. We recognize the unique moment we're in and that our words and actions matter. The aims of equal, fair and respectful treatment underpin our support of not just Black Lives Matter, but other causes for social justice as well. That is why we've been active and vocal supporters of movements to support equal rights, and we will continue to do so.

Thanks, Bob. The next question is does PG&E's common stock have any value? Well, the good news is, yes, yes, it does. Our bankruptcy was a reorganization, not a liquidation. So we are still here. And we are committed to increasing the value over the next few years by focusing on the triple bottom line, serving people, planet and California's prosperity and getting back to the dividend at the right time. All right. We're going to address 1 final question. Bob, it's 1 more question for you. Is this the right management team for the future? When will we see real change?

Since the day that Patti arrived, she's been putting together a team of senior leaders to take PG&E into a stronger, better future. We've been able to attract talented leaders with significant utility experience, including Adam Wright, our Chief Operating Officer; Marlene Santos, the top customer-facing Executive; and Jason Glickman, who has significant experience in utilities and renewables. The team is focused on improving problem-solving and building a new PG&E focused on our customers. I'm excited for what the future holds. Thanks, Patti, and thanks, everyone, for your questions.

Well, we have now concluded the question-and-answer portion of our meeting. Thank you for your questions and interest. We also thank you for your continued investment in PGE. Thanks For joining us today. Have a safe day.

Call has now concluded. Thank you for attending today's presentation. You may now disconnect.