Q3 2019 Earnings Call
Good afternoon, and welcome to the Edison International third quarter 2019 financial teleconference. My name is today I'll be your operator today when we get to the question answer session. If you had a question press Star Wonderful today's call is being recorded I'll now turn the call. After Mr., Sam Ramraj, Vice President of Investor Relations Mr. ran.
Mirage May begin your conference.
Thank you did and welcome everyone. Our speakers today, our president and Chief Executive Officer, Pedro Pizarro Executive Vice President and Chief Financial Officer, Maria Gotti always here on other members of the management team.
Material supporting today's call automobile about at Www Dot Edison Investor Dot Com.
These include a Form 10-Q prepared remarks from table and Maria and the teleconference presentation.
Moreover, we will distribute a regular business update presentation.
During this call we will make forward looking statements about the outlook for Edison International ended subsidiary.
Actual results could differ materially from current expectations.
Important factors that could cause the front consoles are set forth in all the SEC filings.
At least need these carefully.
The presentation includes certain outlook assumptions as well as the completion of non-GAAP measures to the nearest GAAP measure.
During the question answer session. Please limit yourself to one question and one follow up I will now turn the call on the Pedro.
Thank you Sam and good afternoon, everyone.
Let me start with the sentiment that we are sadly feeling all too often here in California.
Our Hearts go elsewhere customers in community members in our fellow Californians across the rest of our state we have lost loved ones homes and property been evacuated and have otherwise been impacted by devastating wildfires and will once again dedicate a significant part of my comments to how we are managing well player risks after I touched on our financial performance.
Today Edison International reported third quarter core earnings of one dollar and 50 cents per share, which was six cents below the same period last year. The decrease in core earnings was primarily due to higher Olin m. expense and share counts dilution.
These were partially offset by higher revenue from FERC. That's a result of the pending settlement of the 2018 formula rate case.
As I have mentioned before year over year comparisons are not particularly meaningful due to the timing of the adoption of the 2018 general rate case final decision.
Maria will discuss your financial performance in more detail during our remarks.
Since we last spoke to you on our second quarter earnings call as CE filed its 2021 GRC application in late August 2019, California Legislative session ended in September and California speak well player season has begun.
Much of the state has experience red flags conditions high heat variable humidity and strong winds requiring proactively energization using public safety power shut off or Psps.
Let's take legislative matters, a number one player related bills were enacted into law. In addition to maybe 10 54 that improve California's prevention mitigation and response efforts. These bills span a wide range of issues, including vegetation management can you, maybe resiliency and CPC safety regulations.
We put in California, as comprehensive approach to wildfire risk prevention and management.
At the same time Edison, it's been implementing elements of each and 54.
On our last earnings call. We noted that as she received its initial safety certification from the CP usage.
Since then FC made our initial wildfire full contribution of $2.4 billion on September nine.
As he will contribute approximately $95 million to the fun on January onest of each year for 10 years.
Last week, the CP, you'll see approved the continuation of the department of water resources, non bypassable charge, which will be used to fund customer contributions to the wildfire fund.
These actions have satisfied several important legislative conditions to establish the state like wildfire fund created by AB 10 54.
We are in the peak fire season, and the backdrop for FCS operational efforts continues to be severe weather conditions. This follows a winter that led to a build up a fields such conditions to elevate the wildfire threat in the states high fire risk areas.
Our number one priority continues to be the safety of the public or customers employees and first responders.
Since July and increasingly in the last several weeks, we have exercised or psps protocols to reduce the possibility that or system will be the cost of an admission.
We recognize that Psps is a disruptive hardship and we strive to minimize the impact on our customers and communities. We do not to take this action lightly but it is necessary to protect californians from catastrophic wildfires.
In fact, a tools conducted after a psps events are found several instances of equipment damage and three branches contracting power lines, which could have ignited a fire.
We will continue to harden their system to minimize the need for these safety for our shops.
But experts to utilize psps as we continue to enhance our system against wildfire threats.
We have invested over the past several years inception, the lighting many of our distribution circuits in nature of our A's using switches and re closer is to increase the number of isolation points.
Let's see has an average of for remotely operated such analyzing switches for each HFR a circuit.
This along with our work on weather stations, whether modeling and more granular risk models that have circuit and sub circuit level.
All enabled us to be more targeted in the application of Psps.
We monitor each threaten circuits. So that we can make the ultimate decision to the energize individual sections or not.
Based on a combination of real time conditions and short term forecast.
We will continue to invest in more installation points further situational awareness and more advanced computing power to provide even more granular analysis of our HFR A's, which will have to twin benefits of continuing to reduce the number of customers impacted during dsps events and sharpening our risk informed.
Alignment of grid hardening investments.
We follow the Cpcs Psps protocol, which requires investor owned utilities to notify customers in advance of a potential the energization.
Or psps process falls this protocol with 72 hours notifications to Californias office of emergency services or Cal Oh, yes.
CPC affected county governments and essential service providers. We then provide 48 hour 24 hour and imminent the inner decision notifications to customers and communities whenever possible.
Unfortunately, there are certain locations when rapidly changing and volatile weather conditions, both an immediate threats to public safety and do not allow us to provide sufficient advancement of vacation.
I want to acknowledge the comments made by Governor Newsome and his concerns that customer impacts, particularly impacted the state's vulnerable populations be considered when psps events are necessary.
We are engaged with the Governor's office, Oh, yes, and the CPC and further improvements to the psps process with the goal of limiting impacts to customers and providing effective timely notifications.
SC remains focused on implementing the mitigation activities outline in its wildfire mitigation plan and the grid safety and resiliency program.
We continue to improve our situational awareness through the deployment of approximately 470 weather stations to monitor temperature wind speeds and humidity levels.
And more than 130 high definition cameras to more quickly be tech fire admissions.
Our sophisticated whether modeling and fire potential forecasting capabilities are also advancing to better assess fire threat.
These along with our prior work to such analyzed distribution circuits have enabled us to limit the scope of the inner decisions to minimize the number of customers affected.
Our work also includes having installed approximately 300 circuit miles of covered conductor and fast acting fees as at more than 10000 locations.
We understand the importance of hardening, our grid today and in the future as electrification of economy continues and customers, we like even more on the grid.
A number of recent wildfires in southern California garnered attention and while the valuations are continuing I would like to briefly comment on a few of these fires.
First we file an electric safety incident report or as they are related to the saddle rich fire.
We filed is in an abundance of caution because as CE had any bent on its system close in time to the start of the fire.
We will file a more detailed report a Threefifteen report next week that will also be posted to our investor website.
We did not filing iOS IR related to the tick fire.
Fire authorities have identified an incident location, but not yet a point of origin.
And FC distribution line near the incident location had been de energized several hours prior to the reported started the fire.
As CE Psps protocols did not triggered the energization of an FC transmission line about a quarter mile from the incident location.
And this line did not register any events prior to the reported sort of the fire.
Finally yesterday, a fire began in the vicinity of the gating Museum in Los Angeles.
Local media has reported that fire authorities have identified a point of origin.
This is not an official determination by the Los Angeles Fire Department, but this is in the Los Angeles Department of water and power service territory and the closest RC facilities are over three miles away.
I would like to give an update on the we'll see fire.
40, so the we'll see litigation, including FC receiving on file redirected draft of an investigation report from the Ventura County Fire Department, stating that electrical equipment owned and operated by FCB was the costs of the Woolsey fire.
The report is subject to the courts protective order and other than what we're disclosing to you today. We are not authorized to released a report or its contents to the public at this time.
Absent additional evidence SC believes that its likely that its equipment was associated with the addition of the Woolsey fire.
Finally during the final determination of legal costs Asian, and liability would only be made during lithium complex litigation.
You will recall that in the fourth quarter of 2018, we accrued an after tax charge to earnings of $1.8 billion in connection with the 2017 end 2018, wildfire and mudslide events.
This corresponds to the lower end of the reasonably estimated range of expected potential losses.
We have determined that no change to the reserve is needed at this time, although it is subject to changes additional information becomes available.
Hi, It's an FC are also aware a separate ongoing investigations with the Thomas Flyer and the will supplier by the California Attorney General's office for the purpose of determining whether any criminal violations of occurred.
CE is not aware of any basis for felony liability with regard to these fires.
Moving now to SCS next GRC the application we fall in August Thirtyth for the three year period 2021 to 2023 request a test year revenue requirement of $7.6 billion, an increase of approximately 13% above presently authorized rates.
We do not take decisive this week was slightly following a three day period over which FC kept its average rate growth below local inflation.
This funding request strikes a balance across FCS coal work of improving the reliability and security of electric service.
Helping California and meet its clean energy goals and reducing the risk of catastrophic wildfires.
Regarding the 2020 cost of capital application SC currently Expensed expects a proposed decision in late November .
Maria will discuss more on Sccrc and cost of capital filings later in her remarks.
Turning briefly to Edison energy and our outlook for this business two years ago, we set targets for a breakeven earnings run rate by the end of this year as well as customer capture goals.
The business has succeeded in capturing sales, while managing costs and will be close to with year end breakeven target.
Edison Energy has a number of high quality clients, including 12, the fortune 50.
Several of whom have use its broader managed portfolio solutions to reduce the clients overall energy risk, although not as many clients as we originally targeted.
However, we continue to see strong and growing client interest and we are gaining insights from our work for these customers that we see us increasingly relevant to our clean energy electrification and sustainability efforts and that will help inform our core strategies.
Well, we do not anticipate making significant investments in Edison energy, we will be providing limited support for this business to fund growth in key areas, such as technology renewables and fleet and building electrification.
We expect the ongoing financial impact of this business to be immaterial for the foreseeable future.
The business has a strong leadership team within requiring very limited focus from the Iocs holding company team.
Turning back to California, it's clear that our state is experiencing more extreme weather days, accompanied by a significant risk of psps events and wildfires and that is due to a large degree to climate change.
While SCS, primarily focused on its near term actions to keep our customers and community safe.
We must also engage with state policymakers on needed longer term solutions.
Adaptation to the climate change was begin in earnest, which as he is doing in part with our grid hardening situational awareness and operational changes, but we want to act on longer term solutions as well.
California has an urgent need for immediate actions to mitigate further climate change damage.
So the state has established clear greenhouse gas reduction targets, but much detail in hard work remain needed to ensure successful implementation.
To support California's efforts SC released our clean power notification passed a white paper two years ago, which focus on the clean energy transition to 2030.
We have continued this important work with a longer term you 2045, and FC will release sooner, new White paper, which we call pathway 2045 outlining our blueprint for help California can meet its ambitious goals for reducing greenhouse gas emissions by 2045.
Absolutely 2045 analyzes the implications of California as long term goal of achieving carbon neutrality through three pillars.
These include the carbonization of the electric sector.
Significant electrification of transportation and buildings, along with a continued focus on energy efficiency.
And use a low carbon fuels for sectors that are hard to electrified.
We believe that the changes required across California's economy will be profound.
Three quarters of light duty vehicles, two thirds of medium duty vehicles, and one third of heavy duty vehicles will need to be electric by 2045.
In addition, nearly 70% of building space and water heating, we'll need to be electric like 2045.
This greater reliance and electricity will result in a 60% increase in grid served electricity load and will require approximately 110 gigawatts of additional clean generation and storage for 2045.
Significant grid investment will be required to integrate this new renewable generation in storage capacity and served a substantial load growth associated with transportation and building electrification.
While electricity bills will increase over time, the overall cost across all types of energy for an average household should decrease by one third by 245.
Due to the inherently greater efficiency of electric technologies over fossil fuel combustion machines.
The increase dependence on electricity underscores the need for the state to ensure the greatest resilience and its utilities are financially healthy.
While the state's goals and therefore, our approach look 25 years in the future we intend for paper to support near term actions in policy areas, including clean power supply reliable and resilient systems customer technology adoption technology development and affordability.
In closing I would like to reiterate that we continue to make progress on our long term strategy, while at the same time addressing the immediate wildfire challenge.
We will move forward with our vision for sustainable and clean energy future transportation electrification digital transformation, while continuing to focus on operational excellence and maintaining the recent hard earned the gains we have achieved in reliability and customer satisfaction.
With that let me turn over to Maria for her financial report.
Thank you Pedro and good afternoon, everyone. My comments today will cover third quarter results for 2019 compared to the same period a year down.
Lets comments on our 2021 general rate case, and other financial update for CE and JAKKS.
As you said year over year comparisons are less meaningful given the timing of the 2018 GRC decision.
Please turn to page three.
For the third quarter 2019, Edison International reported core earnings of $1.50 cents per share, which was six cents lower than the same period last year.
On the table on right hand side, you will see the Etsy had a court eskandarian of negative three cents year over year.
This is primarily due to a negative impact of 10 cents from dilution from the equity offering in July 2019.
This was partially offset by seven cents in higher EPS from the core activities.
There are few items that accounted for the majority of this impact.
Higher revenues had a positive variance in 12 cents. This was primarily driven by 10 cents in higher FERC revenues related to the settlement at CES 2018 formula rate proceeding.
The settlement budget pending approval, resulting in all in our lead of 11.2%.
Other FERC revenues were four cents higher due to higher operating expenses under the FERC formula rate mechanism.
CPC revenues had a negative impact of two cents, which is largely due to an increase in flow through tax benefits, which were partially offset by higher GRC revenue.
Higher overhead expenses impacted year over year EPS by negative 21 cents and were largely driven by higher wildfire mitigation expenses.
Oh nm costs related to wildfire mitigation in high higher risk areas are being tracking memo account and deferred pending completion of various regulatory proceedings.
We are also experiencing higher cost you to contractor scarcity and an increase in section and preventative maintenance program in areas adjacent to designated high higher risk areas.
We will continue to track the cost impacts to support recovery request in the future. Although we have not establish a regulatory asset for certain of these costs.
Lower income taxes of 19 cents, primarily reflects benefits that are passed back to customers and our offsetting revenues as I mentioned.
Higher net financing cost due to increased borrowing had a negative EPS impact of four cents.
For the quarter ex parent and other had a negative three sent Corp earnings variance.
This was mainly due to the impact of five cents from higher interest expense related to increased borrowings, partially offset by better operating performance Edison energy.
Following our election to join the wildfire fund, we analyze the appropriate accounting treatment for our initial and subsequent annual contributions.
As we discussed in the past there are multiple aspects of 80 tented before that provide support and value.
These include the changes the application of the prudency and cost recovery standards as well as access to the fine for amounts above commercial insurance and the liability cap.
Although there is no specific authoritative guidance on how to account for this our conclusion is that contributions we treated in a manner similar to prepaid insurance.
This means that we have recorded an asset to reflect initial and ongoing contributions to the fun and we will expense. It ratably over the course of an estimated funds like.
Based on a number of assumptions, including recent wildfire activity, we estimate the like any 10 years.
Oh periodically assessed that tenure light based on future utilization of the funds as well as the impact of the extensive wildfire mitigation activity that is currently underway.
Since our wildfire fund contributions relate to change in law and are not tied to our ongoing operational decisions, we're classifying that expense any noncore items.
As a result during the quarter at CES non core earnings were impacted by $48 million after tax or 16 cents per share for amortization of esses contributions to the wildfire funds.
Please turn to page four.
For the first nine months in the year Edison International core earnings per share increased 52 cents to $3.73 per share.
This includes an increase of 54 cents in core earnings as CE offset by a decrease of two cents at yet parent and other.
At the easier to date earnings analysis is largely consistent with third quarter results, except for two items, which had an impact in the second quarter.
You will recall that when the 2018 GRC final decision was received CE recorded the retroactive 2018 impact as 20 cents.
Further higher 2019 revenue as a positive impact that 55 cents, which includes 32 cents, resulting from the GRC decision and 13 cents at FERC from higher operating expenses and rate.
Before we turn to discussion of our 2021 general rate case capital spending and rate base I would like to note two pending applications seeking cost recovery of wildfire related expenses.
The catastrophic event memo account application sinks cost recovery of $139 million for system restoration falling declared emergencies related to the 2017 wildfires and 2017 and 2018 drought impacts.
The wildfire expense memo account applications seeks recovery of approximately $505 million for incremental wildfire insurance costs covering the period April 2018 to July 2020.
We also are waiting for CPC approval of the grid safety and resiliency program settlement that was filed on July 30, Onest to establish a capital and cost recovery framework for the 2018 to 2020 wildfire risk improvements.
Please turn to page five.
On August Thirtyth CE filed its 2021 general rate case application for the three year period 2021 through 2023.
The critical drivers of CE 2021, GRC request include the infrastructure and program necessary to implement California's ambitious policy goals, including wildfire mitigation de carbonization and economies relish vacation and integration of distributed energy resources across a rapidly modernizing grid.
We will do this while continuing to provide safe reliable and affordable service to our customers.
We acknowledge that the revenue requirement increase in the 2021 GRC applications is larger than it has been in the past.
This is due in large part to the pressing need for CE to undertake extraordinary measures to reduce wildfire risk.
The proposed increase its also driven by spending previously authorized in 2018, GRC and placed into service in 2019 in 2020.
And the 2021 GRC depreciation study proposal.
At CES requesting the CPC authorized the test year 2021 revenue requirement a $7.601 billion.
This is an increase of $1.155 billion over the 2020 revenue requirement authorized in the 2018 GRC as that isn't updated for anticipated post test year rate, making changes.
This represents a 12.7% increase over present presently authorized 2020 total rate.
As the 2021 GRC request also includes proposed revenue requirement increases of $400 million in 2022 and $531 million in 2023.
At CES requesting that the CPC issue a final decision by the end of 2020.
Prehearing conference for the GRC proceeding is scheduled for tomorrow, a scoping menno, including a schedule for the proceeding will be issued after that.
On page six SCS forecasting a $23.8 billion to $25.6 billion total capital program from 2019 through 2023.
This includes CPC jurisdictional GRC capital expenditures.
Certain non GRC CPC capital spending and for capital spending.
Please turn to page seven for at the rate base forecast.
At the capital expenditure levels requested in the 2021, GRC total weighted average CPC and FERC jurisdictional rate base will increase to $40.8 billion by 20 to 23.
This represents a six year compound annual growth rate of 7.7%.
The low end the range of 6.9% reflects a 10% reduction in the 2021 through 2023 total capital forecast.
Based on management judgment, incorporating historical experience of previously authorized amount potential for permitting delays and other operational considerations.
For 2020, the low end to the range reflects a 10% reduction flight that for capital spending and non GRC program.
The rate base forecast excludes approximately $1.6 billion of wildfire risk mitigation capital spend that will not earning equity return as detailed in entity for.
Page eight highlights total wildfire related capital spend between 2019 and 2023.
On page nine you will see our key financial assumptions and X core EPS guidance for 2019.
Our revised EPS guidance range for 2019 is $4.70 to $4 in 90 cents per share with the midpoint of four hours and 80 cents. This.
This is nine cents higher than our previous midpoint guidance of $4.71.
The changing guidance is largely driven by the 2018 FERC settlement offset by increased share dilution.
You may recall that in our second quarter guidance, we made some simplifying assumptions regarding the timing of the various elements of the 2019 financing plan and we have now adjusted those assumptions to incorporate the actual debt and equity issuances during the third quarter.
There are few highlights on this page point out.
The pending settlement of Sep 2018, FERC formula rate proceeding as a positive EPS impact of 15 cents in 2019.
There are two component to this.
The prior year true up is nine of the 15 cents and is called out in the center of the chart.
The balance or six cents that relate to 2019 is included in the bar that captures rate base earnings for the current year.
For ex parent and other we expect an earnings drag of 30 to 35 cents per share. This includes approximately one penny per share per month related operating expenses.
Our guidance includes Edison energy, achieving close to at year end breakeven earnings run rate target as Pedro noted.
Additionally, we expect the total of 24 cents EPS dilution from the 2019 financing plan, which I mentioned previously.
Let me provide an update on our 2019 FERC formula rate case, which we filed in April of this year in September as the modified its request with the FERC for its 2019 transmission rate case to reflect a reduction in the base our away from 17.12% to 11.97%.
This reflects our reduction in our estimate of wildfire risk following the passage of 80 tend to before from 600 basis points to 85 basis points.
This reduction is consistent with a similar decrease filed in our CPC cost of capital proceeding.
The settlement effectively modified our base are we request, but no. Other aspect is proceeding as impacted we are still in settlement discussions.
I would now like to give you an update on our 2019 financing plan on our last earnings call. We outlined EA access 2019 equity and debt means overall the plan included $1 billion of holding company debt and $1.5 billion of common equity to fund SC ease requirement related to the.
Requested increase in the CPC authorized equity layer on additional growth investment at the utility.
We identified an additional $1.2 billion equity needs, which will be contributed to as CE to finance, 50% of the initial contribution to the wildfire on established by 80 commented before.
At the planned on issuing operating company debt financed the remaining 50% of the initial contribution.
Through the end of the third quarter, we completed a substantial portion of this plan.
We raised $2.2 billion in AI ex equity through the issuance of 32.2 million shares in July relative to a total identified need of $2.7 billion.
We will opportunistically use our ATM program to supplement our internal equity programs over the rest of year.
Onto the holding company debt financing plan, we issued $600 million of the planned 1 billion dollar debt mean.
We plan to issue the remaining $400 million in the fourth quarter, and we'll continue to assess opportunities given the low interest rate environment.
As we look into funding needs beyond 2019 to support Esses operations, we remain focused on a balanced financing approach and maintains a healthy balance sheet and promote investment grade ratings at both CE and DIY tax.
Our balanced approach provides us the flexibility to you the combination of debt and equity.
We believe this is the most effective way to support operations and capital investments in the near future as you resolve the business risks driven by the wildfire challenges we face.
That concludes my remarks, Sam and please open the call for questions. As a reminder, we work was due to limit yourself to one question and one follow up so everyone mine has the opportunity to ask questions.
If you would like to ask your question. Please press star one on your phone and record your name one moment for the first question. Please.
The first question in the queue is from Greg Gordon with Evercore ISI. Your line is now open.
Okay.
Thanks.
Good afternoon, and best of luck to you and the communities you serve and getting to fire season without any further hardship.
Great.
The.
Yes.
Can you remind us where we stand in terms of your position on the cause or causes are admission points in disputes around the Mitch ignition point as it relates to the Thomas fire. Please.
Sure Greg if you recall.
It's actually hurt by commenting Calfire issued a report on that higher at one point issue ignition point that identified as a way.
Koning sign road point is the what is the ignition point that we had said in the third quarter. Our equipment was involved in that and the report they came out from the virus already is consistent with acquisition date in the second report, which was the second ignition point, Dave also identified or have allege that our equipment was involved in that.
Second ignition point, we do not agree with that we have there is publicly available radar evidence that shows you smoke at least 10 or 12 minutes before there were any anomalies on our system and so thats an ongoing.
Pointed or discrepancy between opposition in there and we're going I'll just add all degree point this out on the Q.
No more metal fragrance were found in the investigation report sales and will be evidence you would typically look for.
It.
Seems to be assets.
There is no appeals process or anything like that for Calfire reports and so really.
Ultimate liability will be sorted out through the litigation losses.
Right and then.
I will look where I know, we just you gave us the information that you're able to on the Woolsey fire can you just update us on the process for going through settlements or litigation and or potential settlements. So that we can get a sense of whether the charge that you have taken.
We'll wind up being UNESCO reasonable estimates of potential liability, what's the what's the sort of critical path to resolution to this.
So certainly give you are really broad brush answer and our general counsel, but always fill in more details on promises as needed.
All of that might be more detail and you want but.
I think the headline of is it's a very complex process.
How many plaintiffs many individual lawsuits different pluses uplink this across irrigation individual parties governmental entities et cetera.
The cases are being consolidated under a judge.
And there's a process for the oil.
The third the formal or steps.
Around discovery and the initial handling or what are called bellwether cases.
Start layout the facts of the case in Paulo, there's always the possibility or discussions among formal parties across all these different classes of length is.
For and potentially settlement sort of approaches will not in a position today to comment on those but that is certainly.
Our pathway that you've seen happen in a number of other cases.
As we proceed with the case will continue to check points on.
What information are we getting is there additional discovery is there other information that changes our view on the low end of the estimable range and that could lead to adjustments to the reserving taken already.
As I noted.
With the Redacted report there we received that even sealed on Wolsey particular.
After viewing what what we could view, obviously weakening of the reduction imports, but there was nothing that we saw there that led us to determine that we needed to make a change to the reserve at this at this point.
Greg as Ed.
In all four do you need more detail on process steps level.
No I think investors if you could we'll just like to though let me remind us what the timing is as we go down both for litigation path to getting our resolution.
We will have a settlement.
So Adam Adam can give you some Adam human offer general counsel can give you. Some dates in terms of introduced said by the court for the litigation process.
I don't think that we can give you anything concrete in terms of the possibility of what timing will be for settlement with Adam Let me turn to you. Thanks Pedro enroll the the court has set a July 2020 date.
Or what's known as a bellwether trial.
These are a sample jury trials that are conducted to CEO drawers will respond to.
Evidence and the arguments in the case that obviously is months from now between now and then we continue to be engaged in discovery.
Okay us and the plaintiffs.
As far as settlements concerned as Pedro noted, we really can't comment on prospects, but in complex litigation like this it's not uncommon of course for argues to enter into settlement negotiations.
Got you. Thank you Oliver.
A lot more questions, but other people I'm sure behind me. So thank you all are I'll hop off by that thanks, a lot of growth.
Next question is from Steve Fleishman with Wolfe Research. Your line is now open.
Hi, there Steve.
Hi.
Just.
One other question on Wolseley is.
Is there were there any.
Relations found in the report at least on redacted.
But we can't comment than what's in the report beyond what we said already because of the court seal on it. So sorry, we just can't give anymore insight. However, while we continue to state as I did my.
Script remarks that we see no basis for felony liability.
Okay and.
And I guess two degree you found something in there you just can't comment in theory, you could have changed your reserve.
Based on it yes, Thats correct Steve.
Maybe more affirmatively, if we had seen something that we thought was.
Hey.
Significant compelling.
Information that we didn't have before.
And then that we thought change the low Inovios mobile range, we would have done that.
Okay.
And then just.
On the managing your system through these difficult period.
You mentioned some of the things you've done to be able to more surgically deal with.
Power shut off.
The one question I have is that it appears possibly in settle Richard also in Kincaid up north.
Ed.
The issue came from a transmission line by the distribution line.
Could you maybe talk a little bit about just the difficulty of.
Managing this process with transmission launch.
Sure.
Let's start by saying that we manage this for both transmission and distribution lines.
I think the history, we've seen all the admissions in the past is that.
The vast majority of admissions.
Connected to utility equipment have been on the distribution system.
In terms of the process we follow.
The overall process I think is similar in a we have.
A map being up or high fire risk areas, we have risk models around the potential for or impacts in those areas. We have all mapping of our distribution and transmission circuits.
And then we have criteria around things like wind speed and humidity and fuel content right how much how much vegetation is or on the ground that could turn into fuel for example, so the whole form baseline criteria.
As we then apply those to distribution versus transmission equipment. The differences that typically transmission towers and that equipment. Just a lot more robust typically has broader clearances around it and so you will typically see for example, higher windspeed thresholds of light to transmission lines that you will see to district.
Useful lives just because there's a lot more mass to move up there and it says a lot more robust in that sense.
Beyond bag and obviously, if you take out to transmission section through Psps. It. So theres a likelihood that that will have a greater impact in terms of number come number of customers that are.
The energized.
Fortunately I think with our system and with our topology.
The area that we serve.
We have seen much more PSP as activity on the distribution system. The transmission, although we've seen someone transmission and then with the distribution system.
As I mentioned in my earlier remarks, one of the benefits there is that because we had been investing for a few years now.
And dividing up circuits.
Adding adding switches and re grocers deception analyzed and I think I mentioned on average are for isolation points per circuit in our each of our a hyper risk areas.
That allows us to more finely tune what portion is good the energize as we get closer to the events sale rather than just do a broad brush of the distribution circa level. We can actually you know if we determined that it's safe to leave part of a circuit up but we need to take boards be 30 off then we'll do that.
The final thing I'll mention that maybe a little more deal and as that in my remarks.
When we set our forecasts are I mentioned, a 72 hours notification do agencies, followed by the 48 hour notification to customers et cetera, Thats all based on forecast, we do not the energized based on that 48 hour forecast right. Because if we did that I think there'll be a much broader set of customers like we have already the energized we continue to monitor.
Preconditions through our dilemma three our instruments as well as observations on the ground all the way down to the moment when with the energized and allows us to be a little more tailored in our ability to.
To manage this year, if we see any to the energized.
You can be fully confident that we will be energized.
And.
But if we see that there isn't the need and it's good when we can really those customers so that impact.
Okay.
Thank you very much I'll, let other people ask questions appreciate it.
Next question is from profitable motto and your line is to open.
From Citigroup Oprah.
Hi, Hi, Hydro again hope everybody is coming through this.
Got it relatively well given it's a tough season, but just wanted to touch first on the charge itself. The 1.8 billion charge. So that is a combination to conform bolt of civil C and the tallest correct guides. It's related I think those awards are used for 2017 in 2018 fires.
Which is which is where we will see adamas as well as the mudslides.
I got you. Okay. So now just stepping back to more big picture question, given what's happening right now in California, and the fact that Dsps itself isn't working as well as people that hope to at least some at hoped.
Do you think AB den 54, right now.
Works and it's sufficient is the wildfire foreign sufficient or do you think more needs to be down on the legislative side, all the operational side the kind of deal with all of this that's happening right now in California.
Yes, that's a great question.
I think my snap answer with a little more detail to governments as usual for me is the.
The becomes 54 framework is very solid for work right because I mentioned in the prior call.
It probably doesn't have everything we would have desire, but it was a compromise and.
On balance we think it was a good workable compromise.
So our focus now is primarily on the implementation we become 50 for a lot of pieces that up to fall into place as I mentioned in my remarks, we seen a number of those already you will take place that have activated the welfare fund, but there's more work ahead, including fully staffing out there wildfire safety Division.
Good and new Wildfire Advisory Board and somebody other bodies that were specified and 54 in terms will be size of the fund I think.
You know investors and analysts and we have all identified all along that one of the features of the fine or the legislation was than it did not set up a replenishment mechanism and I know there's been a brokers for everyone. Assuming the PGT is able to successfully emerged from bankruptcy by June Thirtyth of next.
A year.
Both sides of the fund will be $21 billion, which we analysis from some of the state entities and Volvo thermal legislation suggested that that have something like 94% confidence.
Surviving for a 10 year period, and kind of rough numbers, who will cover something like 45 billion dollars' worth of gross damages.
So that means that there is durability for for some period, which in general.
If you go by that analysis.
Then prober loosely speaking grew high confidence it allows for at least the 10 years.
And then that would have relied time for all of us to continue to harden our systems.
Clearly if there were a catastrophic flyers of depleted. The fun then I think the state would need to do more work legislatively to figure out how to.
You know replenish the fund.
Beyond that I think we've acknowledged there might be additional modifications needed to babies and 54, we don't have any to point out at this point just going to lead that open as a possibility as we get deeper into implementation stepson, how old the mechanics work.
No. That's super helpful. Thanks for that pressure and then just a quick follow up on the on so which is.
Guineas exited and die amount its participation in the fond obviously now is a little bit address given everything that's happening from a wired far into bankruptcy process perspective. So from your view if BG any wasn't able to exit in time by not able to participate in the fund does that bother you in terms of the size of the fund.
Or do you think it instead a sustainable solution.
No.
I think be the broadbrush answer is that if PG were not to participate and clearly the fund would not have that portion of the contributions but it also will not have the risk of 70000 square mile utilities.
With a lot of high fire risk territory, so im not sure I'm, having enough of a crystal ball to tell you whether the math ends up being a little possibly a little negative on that but I think it's important to acknowledge debt with the lack of participation also comes a decrease amount of risk being covered by the fund.
Alright, well. Thank you so much I'll go back in queue, you bet Brocal.
Next question is from Julien Dumoulin Smith with Bank of America. Your line is now open.
In the drilling.
Hi, Good afternoon hope everyone thing and then there just wanted to follow up a little bit on some of the some of the questions.
Or rather some of the commentary from the Governor's office around wildfire mitigation efforts. Obviously, you guys are doing a lot of ready sounds a sustained its really willing to kick it off in terms of efforts and commitment. How do you think about further acceleration in both opex and capex and infrastructure and especially some of the technology Undergrounding, specifically that the Governor's mentioned device.
Right.
Yes.
There's a lot there.
By servicing that as you heard from both more year my remarks.
We were doing a lot we're doing a lot right now in terms of ours or hardening. We've also proposed allot and that import is driving the to the size of the general rate case request that we did achieve submitted.
We also continue to learn all along Youre right and so.
I would expect that a year from now two years from now three years from now will be new ideas that arise that might allow us to.
Either accelerate what tools were using or in a more bluntly accelerate the pace of risk reduction as we do both capital investment in operational measures.
Picking what part of your question, maybe a little more finally on Psps in the Governor's comments.
This is a tough thing for everybody right and you have particularly in northern California, such large swaths of customers being the energized.
Given the conditions up there in the ability of the system MPG new territory that.
It's tough.
For customers to work through that and I think government officials are sorting through the risk balanced over benefit and versus reward Ben if there is cost and impacts of psps.
For our part one of things, we've really stressed is making sure that we.
I have continued to work or protocols and invest in.
Training or incident management teams. So we have a very consistent application of the process.
One.
As you heard it might be bill remarks, our ability to be more granular.
How we assess.
Potential scope of Psps, all the way through two in real time, who really needs to be an at the inner doesn't who doesn't that's allowed us to be even more targeted with that.
Again make no mistake, if we think that we need to reenergize. The circuit for public safety. We will so this is not about avoiding public backlash, but it's about only impacting customers, who really need to be impacted up I do expect that through our discussions with the Governor's office with Khelil years for this GPU see with a new of proceeding with the Gebusi announced.
A day or two ago.
We will continue to see continuous improvement in learning on how we applied dsps and some of the other measures.
Did I get to everything in your question are there I missed some important part Julie.
No. That's good enough. Thank you and then separately if I could quickly asked and I just want to kind of broadly affirms concept right now that we have a 20% criteria over three years.
In terms of eligibility participate in this fund I just want to be extra clear about dividend confidence here right. Because we had a few seasons already where theres been an open question. When you have harm your dividend Theres been some positive investment community as one of the extra clear caught with respect to knowing what the downside is today, if you will in terms of what.
The deductible is into this fund that at least as best you see it speaks of what you want to trigger that threshold.
Certainly not thus far but.
Respectively.
Just confidence in being able to continue to pay out the dividends at that point and maybe that's to do much safer, but I'm curious as you would take a stab at answering that.
Sure. Thanks Julien.
Let me answer this way Maria may have more to add here.
First just to make sure everybody's level set maybe 10 54 was very clear about limiting our liability over a three year period.
20% of the TMB equity rate base, so for us around $2.6 billion Russell.
And so we have high confidence that the law reads very clearly and there will be implemented by the state.
So does that.
I think so and by the way or just a reminder, that that is attaching above insurance levels.
So the welfare fund.
Attaches above our commercial insurance levels and so we continue to use commercial insurance as the first layer.
In the event of having unfortunate wildfires.
Beyond that.
We continue to work hard to.
Have a strong balance sheet.
Roughly be the success of our equity raised earlier this year and in our financing fees Maria covered our momentum continued to re strengthen our balance sheet overtime.
I can't comment sitting here about future dividends, we always say, we never get ahead of our ski tips, but I think we've communicated to investors.
Our overall commitment over the long run too we understand the the roll the dividends play for utility.
Equity investors shareholders.
And the maintaining a strengthened balance sheet as a way to give us a flexibility too.
Whether any other.
Issues that we may have with wildfires or or other capital needs.
Maria will drop to add or.
Finally, I'd, just say onion dividends has its hearing health conditions in the retained earning assets inability are likely to meet obligations as they come due after paying dividend and I think pages exactly right. Our world. She doesn't often say that by the way it limits.
Our ability to maintain a strong balance sheet as has.
Helped us in the past to maintain our dividend.
We don't get App head on the board on this but certainly not strength is something that allows us to continue to say they are good and policy in 45% count ratio is one that we know is important to investors and we're keeping our front and center.
Thanks, a lot. Thank you guys.
Thanks Joel.
Next question is from Ali Agha with Suntrust. Your line is now open.
Okay.
Hey, good afternoon.
First question federally I'd, just get bigger picture.
Just on the fire stuff could be ready care, so far as we know both for the Thomas the fires eight meenal allegation of any violation by Edison and as soon as that is it fair to share that that does inching up a solution for cost recovery when at work.
Each that stage is that is that fair.
Let me, let me parse it very precisely regular stuff is important.
As I recall these fire investigation reports that once you see anabolic typically will have a list of potential section of code decorative mobilization second hoping right, but I think is fairly standard that they are said listen the reports. We've also acknowledged that our understanding that the attorney General's.
Office or retail Instigations and both of those fires tunnels and we will seek.
But as we look at the facts, we continue to see no basis or.
Criminal felony.
Liability.
And so that that's not a statement, we take lightly and we just don't see a basis for that.
The find parsing I'd make is there.
Various a difference between.
Certainly the space of criminal violations, the space of determining legal liability and the space of the Pfcs determination of prudency and their related but theyre not the same.
We continue to do our investigations on.
On most of the fires.
I don't think we've commented on prudency, yet we have commented on the fact that prior to 254.
There is.
Some question about the uncertainty about CPC determination of prudency as we saw on this and reorganizing electric case, and so thats why when we took the $1.8 billion net charge, we did assume recovery from FERC for the FERC jurisdictional portion, but we did not assume recoveries from this USI, that's not to say that.
We have a basin say we were imprudent that we were now we haven't got that we're still doing the whole work on that but it was more about the.
The fact pattern that we saw this indigo case, it up until the point, where ABT on 54 importantly, we formed a cost recovery standard and frankly I know, it's been a lot of focus on though wildfire fund and the.
The liability cap, but our view that redefinition of.
What prudency is in other BDC and needs to look at that in the conscious of cost recovery is a very important for babies and 54.
Yes, and in that context, given the kind of reaction stall book when the decent fire season started.
I mean again are you confident in the food industry definition and other Tom just extend 54 that knowing what you know about the fire season, so far that on a going forward basis, certainly for the 19 fires you're not seeing really any big financial implications for for your company.
Yes, let me answer it this way very thoughtful here.
We have not put out on our own any estimates of what the damages might be for.
The 19 events.
I think as you looked at what the overall scale of that and you compare it to our billion dollar admits commercial insurance 1.2 billion when it's around a couple hundred million of deductibles and.
Coinsurance.
Certainly seems at this scale will be insurance programs, we have.
Appears to be larger than the scale of the events, we have seen in our area.
And so.
Got it so that's what we see at this point.
Okay, one unrelated point just to be clear.
Talked about that need potentially for both equity and debt funding as you're looking at your point do you want to 23 cycle of Capex given that there should be some equity presumably there's the.
Motion that you would leave what was that a rate base gig is a good proxy for SK.
Is that no longer the case, we should assume some good each between rate base gig EPS gagan going forward.
And now focused on the need for your question first and we do see in the near term any intent in nature of their balance sheet is is resilient as possible.
In the near term as we work through some of these wildfire issues because as you know I think the rating agencies have responded well to entity for but.
I'm sure, they're still looking in implementation questions and speed and et cetera. So it's not always going to be just purely a metric tissue for us and thats why we have the philosophy that we put forward.
For everyone that we can take a balanced approach, which need to combination debt and equity I think we're always going to be trying to manage that aliante, we understand the answer to the impacts and doing that on one hand, and keeping the balance sheet John the other hanging on kind of maybe creating a little bit more of a disconnect for folks that we're going to keep all that in mind, we make our decisions and we'll have more on the finance.
The plan is he going to next year.
Thank you.
Hey, Thanks, a lot Ali.
That was last question I'll now turn the call back over to Mr., Sam Ram Raj.
Thank you everyone for joining us today and please call us as you have any follow up questions.
This concludes the conference call you may now disconnect.