Q2 2020 PG&E Corp Earnings Call
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Ladies and gentlemen, this is the operator today's conference is schedule, taking momentarily until that time your Atlantic NBP somebody called Thank you for your patience.
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Ladies and gentlemen, thank you for standing by welcome to the P.G.M.D. Corporation second quarter 2020 earnings release Conference call.
All participants are in listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During the session. You want me to press Star one on your telephone keypad. We ask that you. Please limit yourself to one question and a follow up you May press star one to rejoin the Kim please be advised that today.
This conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today, less Foster Vice President Treasury and Investor Relations Eugenia Corporation. Thank you. Please go ahead.
Thank you Stephanie and thank to those of you in the phone for joining us.
Before I turn it over to Bill Smith, I want to remind you that our discussion today will include forward looking statements about our outlook for future financial results, which are based on assumptions forecasts expectations and information currently available to management.
For joining this morning are John Simon Executive Vice President law strategy and policy.
And Jason Wells Executive Vice President and CFO.
Somebody important factors that could affect the company's actual financial results are described in the second page of today's second quarter earnings call presentation.
The presentation also include the reconciliation between non gap and GAAP measures and can be found online along with other information at Investor Day, P.D. Corp Dot com.
We also encourage you to review our quarterly report on form 10-Q that was filed with the FCC earlier today and the discussion of risk factors that appears there and in the 2019 annual report on form 10-Q.
With that I'll hand, it over to bill.
Thanks, Chris and good morning, everyone. We're excited to return to our traditional format today's call marks a milestone brush and we're excited this year or post emergence vision for the coming years.
We have emerged from bankruptcy as a stronger company the complex legal matters now resolved and major regulatory cases, establishing our revenues are either approved or settled.
We also have a good line of sight on a regulatory framework for the next three years, our financial plan to displace strong growth and enables a path for the companies get back to investment grade.
My remarks today will focus on changes, we made them governance progress on her wildfire plan and preparations ahead of the 2020 wall first season I.
I will conclude with an update on key regulatory matters.
Jason will then cover the financials, including updated guidance kind of walk through the for the quarterly financial results.
Our focus now terms to building on the many changes we've put in place you're in bankruptcy, which set the foundation for an improved company.
At the same time, we will never forget the impacts to the communities, we serve and those who lost their lives as a result of catastrophic wildfires in recent years.
Our mandate is to rebuild the trust where customers while delivering operational excellence.
We'll do that but focusing on unresponsive customer service and system investments focused on risk reduction safety and reliability.
Organizational changes to help deliver on this mandate or already well underway.
First at the board level 11, New directors were seated at the start of this month.
These directors were carefully chosen based on their individual skills and backgrounds and are well suited to gather company for years to come.
One of our initial priorities as a board as to how are the next permanent CEO and that process is ongoing.
We've had recent changes that we've announced among our leadership ranks and I want to thank each of them for all their contributions to PG any.
With our emergence from chapter 11. This is a natural inflection point for leaders to evaluate their future and the roles at the company.
We will continue to build our team through both internal development programs and external hires.
A couple of recent additions to the team include Francisco been a day days as our Chief Safety officer and to meet seeing as our chief risk officer, and I'm delighted to say, we'll be announcing a CIO soon.
We have a seasoned team in place that is well suited to execute on our operational improvement plans developed during the bankruptcy process.
For example, the core electronic operations team members that manage our wildfire mitigation efforts and successfully achieved our goals during the last wallpaper season remain in place. This group is consistently improved our tools and evolved our capabilities each year I.
I have confidence that this team and others will add to deepen the bench, we'll lean on their extensive experience to manage the evolving wildfire threat.
And we will take the necessary steps to keep our customers safe.
If you go to slide three of our presentation you can see we're progressing well on our four key wildfire mitigation plan targets.
Ill cover a few areas on the wildfire preparedness front.
First I will touch on our operational work plan status.
Ill also showcase some the technology, we continue to deploy to better understand our assets and reduce risk.
Then I'll touch on their public safety power shut off or Psps program evolution.
Knowing a number of the program goals for longer term in nature, we continue to stand ready to shut off power when extreme weather conditions present themselves.
So let's start with this year's mitigation work behind these numbers annual work plan is on track to meet all of our 2020 targets.
We had some supply chain issues early on in stages of due to covert 19, which slowed our progress on the installation of weather stations in HD cameras.
We centers all those issues and fully expect to meet the program goals.
Turning to slide four you will see a snapshot of how we're making foundational investments in technology that we're excited about.
On our enhanced inspection work, we're evaluating new programmable flight auctions to ensure greater consistency and efficiency of the drone inspections, we do.
We've also started a partnership when the countries most advanced data analytics companies, we're working to migrate to predictive maintenance utilizing the enormous dataset, we collected from advanced visualization inspection tools.
This year will likely at another two and a half million images of our assets, we're utilizing machine learning tools to deploy computer vision module models to compile asset inspection photos. This improves the quality inconsistency of the analysis.
All of this part is knowing our assets better and consistently improving our records and data.
Stepping back with these early stage examples were evaluating a range of different technologies much as we did with the methane leakage technology adopted by our gas business years ago.
We are fortunate to be working with California based companies on these emerging technologies that will reduce wildfire risk in our state.
We've taken this partnership approach for years on the clean energy front.
Our announcement yesterday that we're breaking ground on just on one of the worlds largest battery energy storage systems with Tesla is just another example of that.
There's one other aspect of the wildfire mitigation program, then I'll give an update on and that's our Psps program. It's covered here on slide five.
As we have in prior years, we'll continually evaluate conditions that include wind speed humidity levels fuel moisture and other factors when conditions warrant will implement power shut off for public safety purposes.
We've taken steps to minimize the impact of these events on our customers, we're working hard to make the psps programs smaller shorter and smarter.
To make our Psps program smarter, our team will be using new whether modeling that has doubled the granularity of the data feeding our models.
Our team will now use the improved insights to inform which circuits are considered for shut off.
Improved accuracy of the forecast should ultimately result in fewer customers being impacted.
Our next priority to improve the PSP is program is to make the customer footprint smaller.
To address this we are prepositioning about 460 megawatts of temporary generation in order to meet critical community needs in areas that have a high probability of an outage.
These will be strategically placed at over 60 substation midfielder locations and secondary health facilities.
We've also installed nearly 400 sexualizing devices and plan to achieve our 2020 goal of 600 devices by the end of August.
Both solutions allow us to keep power owning more places, where it's safe to do so.
In combination these elements are expected to allow us to reduce the number of customers impacted by a third.
In order to make the outages experienced by our customer shorter we've increased our aerial patrol abilities through additional helicopters and fixed wing aircraft.
By using infrared cameras will be able to conduct controls into the evening. Unlike last year, where our post of inspections were limited daylight hours.
This greatly advances our ability to meet our goal is at 50% faster restoration time this season.
As I mentioned earlier part of the improved financial Foundation for the company is improved clarity on our key regulatory cases, I will touch on a few of those.
First I'll cover some updates at the CPC.
Looking back to our previous gas transmission and storage rate case, we overspend on capital and Salt recovery.
Roughly 600 million of that span was subject to audit, which was completed in may with no disallowances recommended.
We're now authorized to seek recovery of the and we anticipate a decision on that filing in Q2 of 2021.
As a reminder, weve reached an all party settlement in our 2020 general rate case.
The Commission recently updated the procedural schedule and we expect a final decision by the middle of December.
And our securitization filing this week a scoping memo was released by the Commission.
Pointing to hearings at the end of November given this update we would anticipate resolution around the start of Twoq you next year.
We are required to have our safety certificate renewed each year in order access a b 10, 54 wildfire fun.
Our 2020 safety certification request is currently with the Commission for review and our certificate from last year's valid while to reviews underway.
Moving to FERC in our transmission owner 20 case. We're currently in settlement discussions that we do not know the timing of potential resolution.
I'll close by touching on Cobot, 19, and workforce impacts and I'd be remiss not to mention other challenges our employees and customers face given the broader backdrop of the issues that are part of our larger national discussion point, we continue to make headway in the second quarter, even with the challenges created by covert 19.
The recent uptick in coated cases in California has resulted in the state reinstituting measures to protect against further spread compared to what we reported in May.
During the period from mid May to July we've seen a 3% reduction in electric load and a 4% reduction in core gas load on a weather adjusted basis versus 2019.
We also experienced higher.
Cost into Q. These impacts have often been offset by regulatory asset that was reported to a memorandum account created to track co good related cost.
Given the challenge of our current operating environment I won't take a second to express my appreciation for all PGT frontline employees, who continue to execute on our risk reduction safety and reliability programs across in gas and electric systems.
Our workforce is also engaged in the broader discussion around diversity and inclusion.
We are fortunate disk.
For a customer base with extreme diversity diversity.
As a company that has whether bankruptcy in still maintains a very low overall attrition rate. We're focused on this conversation with our employees and our some over 50% of our hires in 2000.
And we'll maintain a history of investing in diversity, including eight consecutive years of exceed supplier spend.
With that.
And I'll turn it over Jason to cover financials.
Thank you Bill and good morning, everyone.
I plan on covering three items some of which are highlighted here on the financial summary on slide six.
First given a clarity resulting from the emergence from chapter 11, and the resolution of key regulatory proceedings, we are initiating earnings guidance there's.
Now benefit from as a full.
For a lot higher fund as well as from rate.
Lastly, I'll briefly cover our results for the quarter.
Stepping back at a more traditional earnings format post chapter 11 emergence we plan to provide a slightly longer view of our earnings potential and a greater level of detail than in the past.
We've provided some of the basic assumptions impacting GAAP and non-GAAP core earnings for you on slide seven.
We've also provided a traditional look at capex in rate base growth, the latter which has grown at roughly 8%.
Our assumption for rate.
Quarter.
Due to our anticipated.
Hey timeline for cost recovery of the GTS rate case audit results million dollars.
We now have that amount included in rate base and earning a return on equity in 2021.
There was no impact to our capital forecast for the year.
One item to note is that Capex is reflective of the $3.2 billion and wildfire mitigation spend that does not earn it equity.
Return under 80 Tenfifty for however, this amount is not included in these rate base projections.
Moving to our earnings guidance elements first we are updating earnings core earnings per share guidance for 2020.
Second.
Machining non-GAAP core earnings per share guidance, and updating our potential equity needs for 2021.
We have that if we now go to slide 10, starting with 2020 earnings guidance, we've updated our earnings backers to reflecting anticipated non-GAAP core earnings of roughly $2 billion for the full year.
That translates into approximately $1.60 to $1.63 per share.
Based on anticipated average share kind of 1.25 billion shares outstanding for the full year.
This non-GAAP core earnings target is 325 to three.
Price levels and reflect a tightening of the.
And to $350 million that we provided last quarter.
We're also narrowing the range on both components of and earnings.
On our net below the line and spending above authorized we are adjusting expense range to 200 $225 million and that primarily reflects additional wildfire spend about the rice.
Second Unrecoverable interest expense will be consistent with the midpoint of our prior forecast range and results 125 million dollar impact to earnings for the remaining six months of the year.
Keep in mind that for 2020, some of the factors such as increased shares outstanding and interest expense from our exit financing are impacting over the last six months of the year.
Additionally, the guidance assumes a final decision in the 2020 GRC this year consistent with our all party settlement.
Moving to non core earnings guidance, there are number of elements that I'd like to update here.
First we have an updated range.
To a range of $2.63 billion to $2.67 billion, which reflects the total equity backstop fees of $1.5 billion.
A charge of 620.
Billion dollars for the reduction in that effort share value for the equity contributed to the fire vacant Trust and total legal and professional service costs for the chapter 11 proceeding.
Second the $300 million of investigation remedies and cost recovery has been updated to reflect the uncertainty in the tax deductibility for a small portion of the amount related to the wildfire and locate in Mark.
Hi, guys.
Third amortization of the wildfire fund contribution has decreased a roughly $300 million for 2020, reflecting an increase in the assume life of the trust that I will discuss further in my prepared remarks.
Fourth due to the media notice provided by Calfire recently, identifying pgms transmission line as the cost for the Kincaid fire. We've also recorded an accounting charge that reflects the low end of the range. We provided last quarter a write off of associated restoration costs any receivable for the associated insurance recovery.
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And finally, we've updated the pickup associated with this successful audit of the GTS capital.
The $80 million reflects a recognition of the regulatory asset for recovery of the historical depreciation expense in cost of debt.
The final decision improving cost recovery is now anticipated in 2021, and accounting rules limit the ability for recognizing the regulatory asset for the historical equity return until that final decision has received.
Moving to 2021 earnings factors on slide 11.
We have made progress addressing the factors contributing to under earning our allowed return on equity, resulting in an increase in our forecasted non-GAAP core earnings relative to the forecast included in our March disclosure statement.
We are initiating non-GAAP core earnings for 2021, and a range of $2.1 billion to $2.3 billion.
This is roughly 50 million to $250 million more than our previous estimate in the March disclosure statement.
In comparing this range to our authorized earnings this guidance results in between 275 million and $425 million below authorized levels, reflecting an update to net below the line spend above authorized levels of up to $100 million to $325 million on recoverable interest expense.
Yes.
We have line of sight to initial improvements relative to our disclosure statement in a few areas, including lower unrecoverable interest costs and renegotiated third party contracts that will result in more efficient execution of some of our inspection repairs are electric system next year.
2021 is the first year will experience the full dilution from the exit financing and as a result, this translates into a range of non-GAAP core earnings per share of 95 cents to one dollar five cents.
Our 2021 guidance incorporates the same inception assumptions as 2020 with the addition of approved securitization application in the first quarter.
Non core earnings guidance for 2021 includes a onetime upfront charge for securitization of $1.36 billion amortization of the wildfire fund contribution of $330 million.
Bankruptcy in legal costs of around $40 million to $80 million.
$80 million of investigation remedies and cost recovery.
Any pickup of about $140 million related to the deferred equity return on the successful audit of the GTS capital given a final decision we expect next year.
We're also providing update to our potential equity needs in 2021.
Which are contingent on approval next year of our securitization application at the CPSC that Bill mentioned earlier.
While we remain committed to achieving investment grade ratings across the enterprise and paying down roughly $1.7 billion in holding company debt in 2021, consistent with our March disclosure statement, we're lowering our projected equity need in 2021 to between 450 million in $750 million.
This range includes the net impact from the Kincaid fire accrual this quarter.
I would also like to reaffirmed we also do not have any anticipated equity needs beyond 2021 for our five year plan.
There are few factors that contribute to this overall reduction.
Including the improved earnings range I referenced earlier, a slight reduction in Capex, we are projecting.
Additionally, we continue to pursue divesting of certain noncore assets that can generate additional proceeds more cost effectively than issuing equity it would enable us to trend at a lower end of this revised equity range.
Turning to slide 12, we have confidence that 2022 in subsequent years, we'll continue to reflect that roughly 8% rate base growth I mentioned earlier and that rate base growth will be outpaced by earnings growth as we continue to pay down on recoverable interest costs.
Bill covered the operational efforts, we are making to mitigate fires along with a good execution, thus far on our operational our plans our financial risk has also been reduced as we head into the traditional start of fire season.
We are now fully participating in the 10 54 wildfire fund having made are roughly 5 billion dollar contribution.
As a reminder, as participants in the find a disallowance liability cap is in place and the new prudent manager regulatory framework applies.
In terms of how this contribution has been reflected in our second quarter financial statements. We recorded a writer regulatory liability of $6.7 billion, reflecting the discounted value of the total payments to be made it allows our fund.
In addition, we recorded a wildfire contribution asset of six $6.5 billion with a difference reflecting amortization expense for the period of time, we'd had partial coverage under the fund prior to our margins from chapter 11.
The total expenses amortized based on an expected life of 15 years.
Which is longer than the previous estimated life of 10 years. This change resulted from an adjustment to the model to better reflect relevant historical data in the effectiveness of the state's collective wildfire mitigation programs.
We also establish our new liability insurance coverage, which runs from August 2020 through July 2021, totaling slightly more than $1.4 billion.
The wildfire liability insurance component provides up to $757 million in coverage for the period.
The non wildfire liability insurance provides up to $700 million for non wildfire events.
The total cost of this overall coverage is roughly $750 million.
We will continue to pursue additional insurance coverage for the same policy period and weeks to come.
We will seek.
Recovery for all premiums associated with this coverage either through the proposed two way balancing account included in our pending 2020 general rate case settlement or through the existing wildfire expense memorandum account tracking mechanism.
Now I'd like to transition to our second quarter financial results.
Slide 13 shows our results for the second quarter.
Non-GAAP core earnings came in at a dollar three.
Per share and is largely consistent with a disclosure statement forecast.
GAAP earnings, including Noncore items are also shown here.
The non core items are consistent with a discussion of the full year 2020 guidance I mentioned.
Moving on slide 14 chose a quarter over quarter comparison of non-GAAP core earnings per share of $1.10 cents in the second quarter of last year and a dollar three cents this year.
The primary drivers.
Related to.
The delay in the 2020 GRC decision.
As well as an increase in interest on pre petition payables and short term debt.
With no corresponding cost last year, and wildfire mitigation costs that exceeded our authorized levels.
These costs were partially offset by growth in rate base earnings and timing of taxes.
To close us out I, just want to Echo Bill's comments at the start of our call today. The clarity we have on a number of fronts positions us very well from a governance operations and financial standpoint.
We are focused on earning our authorized rate of return on equity less the unrecoverable interest expense in 2022.
And you can see that our five year financial plan.
Grows at roughly 10% earnings growth, which exceeds the 8% rate base growth. We provided when combined we see a competitive total return even with our temporary suspension of the dividend having a chapter 11 case behind US allows us to now fully focused on executing on our operational plans.
With that operator could you. Please open up the line for questions.
At this time I would like to remind everyone in order to us.
Good question. Please press Star then the number one on your telephone keypad.
Your first question comes from Steve Fleishman with Wolfe Research.
Please go ahead.
Yes, Thanks, Hi, good morning, and nice to have squall back doing promoting halt.
So just could you maybe a couple operational questions just on the wildfire preparation.
The when you look at the different percentage is it's not clear just based on looking full year that you're kind of how much are on track or not.
Could you just give a little more color on.
How you are progressing with each of those categories and.
And being ready for the fire season.
Okay.
Sure. This is bill I'd be glad to do that.
We were really on chart on target with all of the ones as I mentioned, a couple that we had a little bit of.
The delay starting on.
Were related to the weather stations and the HD cameras.
Those were.
Impacted by some assembly issues at factories that were were closed down temporarily and some things of that nature, but but we are progressing very well and.
Planned to be owned target and getting everything completed in some of these cases. We're ahead of target. So for example on the edge management were actually running ahead of schedule. There. If you look at where we are on temporary generation, we're going to overshoot that target by about 50%. So so we're doing very well overall.
The two items that were a little bit delayed early on we've got a recovery plan in place. So we feel very solid about getting all of this program executed as scheduled.
Okay, and then just any comment on the departure of the utility.
CEO.
I think.
I think during during an emergence like this it so a lot of times people reevaluate.
What's going on and.
And so this is not an unexpected situation we're.
Very well situated with the leadership team we have in place and we're actively bringing in the next generation of leaders for the new PGT. So.
So we're we're we're all set.
Okay, Great and then just on the.
Thinking about 2021 in the securitization assumptions you're mentioning.
Just two things change.
Dramatically if for some reason the securities securitization doesn't happen.
Is it or would it be kind of I think you have other alternatives and worse case, but just.
Certainly.
Could you give maybe a little bit of color there.
Sure happy to do so.
Steve This is Jason.
While we have confidence in EMEA security securitization application being improved I mean, I think it was.
A strong statement a support by Governor Newsome when he said it was in the best interest of the public to see that securitization application of group.
We did as a fallback measure as part of our plan of reorganization, we ask the CPC to approve.
An extension of that temporary debt.
The $6 billion and temporary debt that we emerge with.
We asked for a permanent waiver to the capital structure in the event that that securitization application is not approved so from a financial standpoint, there is limited.
Financing risk associated with the securitization application I would say that the one impact if not approved would be.
They would be incremental on recoverable debt.
On that $6 billion, a temporary debt that would remain outstanding.
In 2021 and beyond.
Okay, and I apologize I have one last question the.
Guaran term trust discussion that you mentioned in the release fits.
Kind of.
In terms of the fire victim Trust.
How you treat it could you maybe just give a little bit of a punch line on.
I had I will interpret that and what what that discussion means.
Sure as I mentioned in my prepared remarks, we took about a $620 million charge this quarter.
To reduce the deferred tax asset associated with.
The stock that we issued to the fire, but can trust we had originally recorded.
The the accrual in the associated deferred tax asset based on the settlement value of $6.75 billion.
As a result of.
The stock value coming in lower than that original as Jim value, we wrote down the deferred tax asset.
Two about sort of roughly $4.5 billion of value contributing to that trust.
What we are highlighting is that.
That reduction in the deferred tax asset assumes that we maintain.
The tax desk to tax reduction based on a qualified settlement fund, which which essentially the tax deduction is recognized at the time that the stock is issued to the fire because trust. However, we are pursuing a different election for deduction.
And that would be.
The grant to our trust election, the grant to our trust election actually allows us to adopted to deduct the value of the stock when it is sold.
And so as the stock.
You increases over time, it would allow us to recognize a larger tax deduction. There are a couple of.
Technical IRS elements to the and able to convert.
To that grant to our trust that we're currently working through with the IRS, we'd expect clarity on that likely around the end of the calendar year.
Okay. Thank you very much appreciate all the questions.
Your next question comes from Stephen Byrd with Morgan Stanley.
Please go ahead.
Hi, good morning.
Good morning soon.
Thanks, So that really thorough update on on a lot of topics.
Just a couple of items here I guess on my end just in terms of the cost of wildfire insurance you laid out the amount of coverage I was just curious generally in terms of commentary in terms of just availability and cost of that insurance beyond 2020, just what's your general sense of sort of the magnitude and cost.
That you're seeing these days.
We've certainly seen tightening.
In the liability insurance market.
Well, maybe 10 54 provides.
Significant financial stability to the utilities. The fact that inverse still applies mean sort of our first dollar of loss.
Falls on liability insurers as a result, we've seen sort of tightening capacity in that market.
A significant increase in costs.
As I mentioned.
We've secured a total of $1.4 billion and liability insurance about 757 of which relates to wildfire claims. The total cost of that program is $750 million.
It's obviously a significant increase over what we already in several years ago, and I think it or sort of reflective of what will be an ongoing trend of.
Higher.
Liability insurance costs going forward.
Understood. That's helpful and then I guess stepping back.
When you look at the overall business I guess I'm thinking a lot about optimization not related to.
To swap Iris, but just sort of cost optimization across the entire PGT footprint whether that be.
How you go about procurement looking at real estate that.
That is owned up is there a potential in your mind for for kind of a more thorough review now that sort of view here Youve reemerged.
And just looking across that that the whole business in terms of areas, where either operating costs not related to safety again, but just other areas could be reduced or real estate can be monetized just thinking more broadly do you are there such opportunities.
Yes, Stephen Thanks for the question I think there are pretty extensive of opportunities available for the company we're cognizant of.
Maintaining the affordability of our service, particularly as we continue to invest as significantly.
And our gas and electric systems, I think you've touched on a couple of the programs that.
Our at the forefront of the start of our work on cost optimization and that is selling underutilized assets things like as you mentioned real estate could also include or has included selling excess renewable energy credits.
I think you've touched on another opportunity that.
We see.
Yes.
An opportunity for significant improvement around and that's our third party spans the company spends about $10 billion annually with third party suppliers.
There was.
A number of contracts that we had to enter into over the last couple of years to incentivize crews to come out west to accelerate the work on a lot of our system.
Those contracts included premiums to attract that died that significant level of work that was needed on our system. However, what we're doing now with third party suppliers. As we are we are bundling that work in committing to.
Longer term plans in order to bring the cost structure down over time, we've seen a couple of.
Really good examples in our vegetation management inspection programs and look forward to continuing to work with our third party suppliers.
On the rest of that remaining spend I think as we get past sort of those elements. There is an opportunity for the company to redesign some of our work management.
Related capabilities.
But our focus is on the upcoming fire season, and so we will grow into that sort of process redesign over the coming couple of years.
Your next question comes from Jonathan Arnold with vertical research.
Please go ahead.
Hi, Thanks, everyone.
Morning, Jonathan.
And can I just thought.
On the timing of the C.
You said to process. You think you mentioned you were kind of announcing new seat.
Any sense of just well that like the.
Timeframe.
Leadership announcement would be and then.
Also on that topic do you anticipate still having a separate utility and call C.
Could you remind her on the way you stand on that come next question.
Sure. Thanks for the question this is bill.
The surge, which is being launch for the CEO as we speak so that process is underway.
The target deadline is to have someone in that role permanently by the end of the year.
As I've said before.
Fortunately there is no artificial deadline and I have the flexibility to be in the role as long as I need to be but we're really looking for.
Getting the next generation under the leadership team fully in place and.
And get that close so those that team can start.
Executing their plan going forward. So we think that it's reasonable to have that individual in place by the end of the year and that's that's still our target.
What's most important is finding the right person so theres nothing artificially.
Imposing a deadline on that particular item.
With regard to the utility ahead, there is on a requirement to have some separation between the corporation in the utility.
I don't think it will be a CEO per se I think will likely.
Go back to the way it had been for a number of years with the president of the utility more if you think about a more of a president and chief operating officer that seems to make more sense I think it's been a little bit confusing to a lot of constituents.
With the dual CEO tidal.
Doug, but there are some requirement to keep separation between the utility in the corporation and we'll obviously continue to honor those.
Great. Thanks, just one other question on the adequacy Twentytwenty won that.
Just stay menu sort of talked about that being one possibility, but you might also pay down debt a little slower presumably have you.
Yes, the price on the potential equity issuances that should we take what you're doing today more as a definitive statement that you you plan to do this these with equity or is it still possible you might might choose not to.
Jonathan Thanks for the question I mean, if you think we retain that flexibility.
As we look at.
Yes, there is equity needs right, let me clarify a couple of things first the equity that that I mentioned that revised range to 450 750 million. That's that's contingent on the securitization application.
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We also have had an opportunity given sort of the earnings forecast improvements as well as some some timing and cash flows have been able to sort of generate a reduction in that contingent equity need.
As I also mentioned we are exploring certain divestiture of non noncore assets. We then have sort of a more natural owner.
And so that would also has an opportunity sort of bring us to the lower end of the of the range that I mentioned to then into the point. They raised we do have some flexibility.
Around the timing of the holding company debt pay down, but I want to reiterate we are also committed to improving our balance sheet health and achieving investment grade credit ratings and so I would anticipate if the securitization application.
Is issued.
Equity in that in general range next year.
Your next.
Question comes from Ryan Levine with Citi.
Please go ahead good morning.
Going around the insurer.
And in terms of the 757 million dollar insurance it thinking your prepared remarks, you mentioned potential to expand that further elaborate or around the potential or what your call we'd be.
Okay.
Closer to Opex it.
Yes.
We're currently as.
Conducting this call still in the market with a number of different.
Risk transfer.
Policies and so we think that there is still something that we were continuing to pursue our goal would be too.
Others of risk transfer that's prescriber under 80 10 54.
We'll say I think thats, probably going to be tough to achieve that full level, but there is some additional capacity in the market that we're pursuing.
Thank you and then in terms of then issuances function for 21 beyond asset sales are there any other key drivers of where you may be within the range.
And as the securitization.
No the.
The reduction in the.
Equity range really.
Improved earnings forecast some of the cash flow benefits that I mentioned really bring as to sort of the.
I call at the top end of the range and I think Dan. It's the disposition of noncore assets that would will drive us to the lower into that range that we provided.
Your next question comes from Michael Levitz with Goldman Sachs. Please.
Please go ahead.
Hey, guys. Thank you for taking my question and congratulations for the.
Yep.
For the last two years, especially over the 18 or 20 months, which has been hectic obviously.
Just curious Campbell, Jason talk about Dol holding company debt.
I'd like to around 4.8 billion and then the temporary short term debt. The 6 billion can you walk us through a path over the next couple of years of one balances to be two or three years from now and how you get there.
Yes, Thanks, Michael on.
Great to lead to be back on a formal earnings call again.
With respect to.
The holding company debt.
As part of.
Our plan of reorganization.
We committed to.
To the state of California that we would not reinstate.
Our common stock dividend until we achieved 6.2 billion of non-GAAP core earnings.
Thats roughly about.
Three years post emergence and so those retained.
Our cash flows.
Provide significant capacity to pay down.
That that holding company debt.
We are anticipating.
On paying down roughly.
A little more than 3 billion of that debt over the next five years.
With the majority of that debt being pay down over the next three.
Given the at the retained cash flows from that suspended dividend.
I think with respect to the $6 billion and temporary debt.
There's really two paths to.
To pay that debt down the first path is the securitization application that is in front of the commission to the extent that that application is approved.
$7.5 billion of proceeds from that securitization will be used to pay down at $6 billion and temporary debt.
If.
And we think it's unlikely the securitization application is not approved.
We have asked the commission for a permanent capital structure waiver on that $6 million are temporary debt and what we have committed to is using the shareholder funded net operating losses.
As we realize those shareholder.
Not net net operating losses will use those cash flows to pay down that $6 billion and temporary debt over time.
And so those would be the two pathways to two addressing that debt at the utility level.
Got it I think about when we guide.
For 2021 guidance.
And recoverable interest expense.
Thank you lay out the guidance implied.
It is that all just tied to the holdco debt to the temporary dad or is there anything else that's contributing to that.
Yes, there are sort of three sort of factors that I would there is the holding company debt that we've discussed.
There is some incremental debt above authorized levels.
First.
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We.
Raised about two and a half billion dollars of incremental data at the utility.
To find half of the wildfire fund contribution upon emergence.
That has no impact on our equity ratio, because we have an equal amount of equity to offset it on a ratio standpoint, but it is two and a half billion dollars of data above authorized levels.
That contributes to under recovery.
And then as result of the securitization application and the impact on the equity ratio, we do have a.
Modest amount of.
Incremental utility debt in 2021 that is contributing to.
That unrecoverable interest expense that will effectively.
Get paid down in 2022 in 2023.
Those are sort of the three sources beyond the again, the holding company in the temporary debt that we discussed.
Your next question comes from Richard Sutherland with JP Morgan.
Please go ahead.
Hi, good morning, Thanks for taking my questions here.
Turning back to the insurance previewed question.
That was touched on a couple times.
Could you speak to the central before requirements and.
Any changes there.
Possible should you be under situation, we are not getting full recovery of the premiums.
Thanks, Richard for the the question no I wouldn't anticipate any change to that fundamental structure that.
And maybe 10 54 M&A began 54.
As past.
Really sets sort of the foundation for eligibility for the state while if our fund at at damages that exceed $1 billion utilities are encouraged.
Two.
Secure risk transfer up to that level.
Given.
And of all of the issues that California has currently undertaking I don't necessarily see at amendment 80, Tenfifty for that would modify that.
That expected level of risk transfer liability insurance.
Got it. Thank you and then just on Kincaid will take you spoke a little bit about this in the script Im curious interim reaching.
We expect that impacted the costing plenty.
2020 Gigawatts.
What hurdles from I guess is cheap you see or other party standpoint on may in Q.
Kind of tighten that up.
Hi, Richard It's John I will say on on Kincaid, It's very early.
In the process and.
I won't speculate on tying it up what makes it really difficult to give more certainty in the answer is a couple of things.
First we don't have.
The evidence Calfire has that I think is leading them to conclude what their concluding they their practice is to lock down evidence after the fire. So they have things we don't.
As you probably know we don't have the report from Calfire, either which lays out.
Their determination, we'd certainly like to see it.
What I can tell you is if in fact PGT equipment is the cause of Kincaid, we would work for an expeditious resolution. It's just hard to give you a sense for the timing and so therefore, it's hard to answer the rest of your question.
Hi, Dan if you would like to ask a question. Please press Star then the number one on your telephone keypad.
Your next question comes from Paul Fremont with Mizuho.
Please go ahead.
Hi, Thank you very much and congratulations.
Being back I guess my first question can you just confirm that dollar amounts that were raised under the public issuance the pipe.
The convert including all the over allotment.
That.
Our expected to be finalized our hadn't been finalized.
Yes, Thanks, Paul for the question.
Okay.
Overallotment feature the backup the Greenshoe those structures were put in place to ensure that.
We raised a total.
Of.
$9 billion across the pipe.
Mandatory convertible.
Equity as well as the common equity.
And so.
We have issued the total $9 billion as a result of.
The expiration of that over allotment feature at this time.
Great and can can I, just got to convert dollar amount that because that's obviously going to affect the future share count.
Okay.
Paul It's Chris I'll make sure we follow up with the separately on that.
Great.
And.
Then.
It's a secure would you expect the securitization to happen in 90 days.
Sure you receive regulatory approvals. So does that put you midyear next year on the securitization.
Generally speaking areas, a 90 day appeal window for securitization applications I don't think that necessarily pushes us to mid year, though I think in terms of bills prepared remarks, referencing the second quarter, we took into consideration the timing of the decision as well as.
The the appeal window, so we think it.
Sometimes sort of early in in the second quarter.
Your next question comes from Travis Miller with Morningstar.
Please go ahead.
Good morning, and definitely appreciate you guys doing the call and taking the questions.
Okay quick question answered milestone, but for the CEO search how much input. There are you going to seek or do you have to seek from legislators Governor's office and other.
Nonutility entities.
This is bill thanks for the question. There is no formal requirement. Obviously, we will look for someone that would be a good fit in California.
On someone that the stakeholders here would be comfortable with theres no formal requirement for approval of but that process basically is what we went through in seeding the new board and the New Board is extremely talented group of people and I think we'll do the same thing with the with the CEO search.
So.
I'm I'm really.
Really pleased the prospects of having.
Hi caliber people interested in this job it's been a challenge for obviously the last couple of years, but there's there's nothing that will keep this corporation in my opinion from being able to perform in a top quartile if not talk desal level. We've just got some work to do and I think it's a great opportunity for the right person coming.
And so I have no concerns about.
Any.
Inability to find someone that's a nice fit for the you know the environment year in California.
Okay, great. Thanks, and then one other quick follow up on came Kate.
What do the the timeline or the ability or the amount that you'd have access to the Abby tenfifty for London, how that might impact the insurance recovery that you've booked.
So far.
Thanks, Travis I'll I'll answer the first part maybe Jason you can answer the second part in terms of the wildfire fund and are Tenfifty for.
It's available for claims costs after insurance above $1 billion.
For the reasons I was mentioning earlier, it's very early.
For Us know evidenced snow report, we haven't paid any claims either so.
In terms of tapping into that fund.
Won't speculate on that and maybe Jason on the second part.
Yes, thanks, Sean they.
Right now because the the.
The accrual estimated blood that billion dollar threshold theirs.
They know recognition of.
Cost recovery from the state's wildfire funded we would only.
Begin to record.
A receivable for our those expected receipts Wayne.
The cost exceed that build outs for billion dollar threshold. One thing go that I will point out is that we do have and are eligible to seek recovery for about 10% of those costs.
Through our transmission owner rate cases at FERC.
We have to wait and see.
But the underlying report by Calfire alleges before we can seek that cost recovery, but any event that there.
Our.
Substantive violations.
Identify than we have the opportunity to again seek about 10% of of the net costs through the transmission owner rate case process.
Thank you Travis for that question, Stephanie Thanks for helping us to organize the call today, everyone. Thanks for joining for our call today have a safe day and feel free to let US know if you have additional questions. Thank you very much.
Thank you. This concludes today's conference call you may now disconnect.
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