Q3 2020 PG&E Corp Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the P. Genie Corporation third quarter 2020, <unk> earnings release Conference call.
At this time, all participants are listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During the session you will need to press star one in your telephone. Please be advised that todays conference is being recorded if you're part any further assistance. Please press star zero I would now like to hand, the call much other Jewish speaker.
Today, not found senior director Investor Relations. Thank you. Please go ahead.
Thank you, Rob and thanks to those of you on the phone for attending.
Joining us this morning are Bill Smith, our interim Chief Executive Officer, and Chris Foster Vice President and interim Chief Financial Officer.
Also joining us today are John Simon Executive Vice President General Counsel, and Chief Ethics, and compliance Officer, Michael Lewis interim President.
He said the gas and electric company and Robert Kennedy, Vice President regulatory and external affairs.
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.
Some of the most important factors that could affect the companys actual financial results are described on the second page of todays third quarter earnings call presentation.
The presentation also includes a reconciliation between non-GAAP and GAAP measures and can be found online along with other information an investor got PG Corp Dot com.
We also encourage you to review our quarterly report on form 10-Q.
It was filed with the FCC earlier today and the discussion of risks factors that appears there.
In our Q2 10-Q and in the 2019 annual report on form 10-K.
With that I'll turn it over to Bill.
Thanks, Matt and good morning, everyone. Thank you for joining us today before I cover the priorities for the quarter.
Want to express our sympathy for all of those impacted by the devastating wildfires, we've experienced in California. This year.
It's been an historic and very challenging wildfire season for our customers. We have seen over 4 million acres burned in California, with nearly 3 million acres burned in our service area.
We thank the Governor's office Calfire, California office of emergency services in all the first responders for their tireless efforts in keeping or can you say.
We continue to focus on executing a series of important changes at PGT. These changes will help us live up to the commitments made as part of our chapter 11 emergency plan, including our efforts to improve our operations and safety outcomes reduce risk and enhance our customer focus.
This morning, I'll touch on three key areas of focus for PGT.
First improvements to our wildfire mitigation plan second our operational updates and third our executive leadership recruitment progress.
Chris will then cover our financial updates in key regulatory cases.
Looking in our wealth, our mitigation plan, our highest priorities remain mitigating ignition risk enhancing our situational awareness and implementing public safety power shut off or PSP us advance.
We will initiate these events when absolutely necessary to protect public safety.
As you can see on slide four we continue to be on track or ahead of our 2020 targets for system hardening enhanced vegetation management and installation and weather stations in high definition cameras.
Our efforts over the last quarter have our weather station in camera installations back on track.
We will respond to a.
The judge also EPS request for information in the monitors report of PG needs enhanced vegetation management inspections next week.
We share the monitor in the courts goals in ensuring we operate in a safe and reliable grid.
While we acknowledge there are some areas where our comprehensive off our mitigation plan that we stood up in 2019 could improve we do see some of the results somewhat differently than letter provided by the monitor.
We are unable to comment any further ahead of our response, which will be filed on November threerd.
There is one aspect of the WAF, our mitigation programs and I will give a detailed update on and Thats, our public safety power shut off or PSP as program.
We've done a lot since 2019 to increase cooperation with local authorities by hiring additional talent with emergency planning expertise.
We also prioritize better communications with our customers this will offer season.
The technology improvements that will help us achieve our program goals are highlighted on slide five.
As we have in prior years, we will continually evaluate conditions that include wind speed humidity levels in fuels moisture among other factors when conditions warrant we will implement power shut off as a last resort to keep our customers and communities safe.
We have taken steps to minimize the impact of these events on our customers and we've executed five events. So far this year.
We have made are Vince smarter through leveraging technology smaller by implementing sexualisation devices as well as temporary generation and shorter by increasing our posted inspection capabilities.
We have engaged with our communities and our customers to implement changes that incorporate their feedback.
While we have improved in 2020 versus 29 team in making these events less disruptive we continue to learn from each of them.
To make our program smarter, we collect fuels moisture data and incorporated into our prior spread modeling.
This data is important indicator along with wind speeds and assessing our conditions in real time.
We utilized the fuels data along with forecasting work, we do in collaboration with the National weather service to determine where we need to implement dsps event.
Our next priority to improve the program is to make the impacted customer footprint smaller.
We have prepositioned temporary generation in regions are prone to shut off events, we installed 600, sexualisation devices, which were in place by the end of August.
In addition, we've added an island in configurations, the homeowner Bay and caribou generating stations, which allow almost 70000 customers to stay online those customers would have been shut off in 2019.
This is one example of how we've implemented lessons learned from previous robbers seasons.
These actions allowed us to meet our goal of a one third reduction in customers impacted and our first events.
In order to make outages shorter we've increased our aerial patrol abilities through additional helicopters and fixed wing aircraft. We have now have access to more than 60 helicopters to help us meet our goal of a 50% faster restoration time versus 2019.
I'd like to touch on a couple of other areas of Psps implementation, where we've increased our focus in 2020.
This includes our coordination with county, and city emergency managers and our outreach to customers.
In December we started holding townhall listening sessions with Citi managers first responders and residents at these sessions PGT senior leaders listened to the local stakeholders and started working on plans to improve coordination for the 2020.
EPS events.
Our team then held subsequent discussions where we walk through local plans for these events based on the information we learned in the listening sessions.
As an example, a change made resulting from these listening sessions, we increased the local presence of being PGT personnel to coordinate with emergency managers.
These important employee serve as a single point of contact for individual counties and cities during a power shut off of that.
On the customer side. We've also made significant changes in response to lessons learned in 2019.
We conducted webinars focused on loss of fire safety initiatives in the counties we serve.
We ask questions and receive valuable feedback, which we've used to address the concerns and needs of our customers on county by County basis.
We've worked hard on three specific areas related to customer engagement during psps events. The first is our notification system. The second is our website and the third is customer resources provided by PGT.
With regard to our notification system, we worked to notify customers with an initial watch notification message as early as 48 hours prior to event.
The Psps watch will be upgraded to a warning when forecasting conditions show that a safety shut off will be necessary.
Morning, notifications are sent approximately four to 12 hours in advance of an event.
These messages also include an expected restoration time.
Outage in restoration information is updated throughout the event.
We improved our messaging in direct response to customer feedback from last year.
Second on our web site improvements, we have new BG got come from our data centers to the cloud, where we tested the site to levels well beyond the demand we saw during our peak usage in 2019.
Our enhanced web capability allows for customers to look up shut off turns and estimated restoration times by address this.
This information is available as early as two days before an event occurs.
Also we increased the number of our community resource centers during Psps events.
And our first event. This year, we had 50 community resource centers available for analogy impacting 172000 customers by comparison in 2019, we had 80 centers for 1 million customers impacted.
These centers provide a place for customers who go during power shut offs in are equipped with charging stations bottled water and other necessities all of these locations comply with Covance safety protocols.
We expect to have any incremental opportunities to leverage technology to improve our wildfire mitigation plans and our PSP as implementation, we continue to incorporate feedback from our community leaders and our customers to improve these events.
With respect to updates next steps on wildfire filings as we indicated before we anticipate a decision our safety certification requests at the CB you see by the end of this month.
We believe we provide all the necessary information and we hope to see that outcome any day now as a reminder, the prior certification we received last year remains in place.
Looking forward, we will take the learnings from our wild bird mitigation plans as well as our psps adjustments and will reflect them in our 2021 wildfire mitigation plan filing last week. The wildfire safety Division gave all three I'll use of February deadline for that submission.
One additional note on operations, we notified we were notified earlier in the month that Calpine has taken possession of PGT equipment as a part of their ongoing investigation into the cause of there is on fire, which was list of Redding, California.
Given the early stage of the investigation in the fact that we Havent had an opportunity to review the assets retained by Cal fire. There is limited additional information to provide today, we are fully cooperating with Cal fire in its investigation will provide more information on that is on fire at the appropriate time.
In addition on Monday, we filed a response to juggle such requests for information on the Zaugg buyer we.
We will not comment any further as do we do not want to get ahead of the Cal fire investigation.
While our electric operations are certainly an area of focus given our effort to mitigate wildfire risk I also want to highlight the continued good work done by our gas operations team.
One of the major initiatives to make our gas system safer is to enable inline inspections.
This method is preferable to traditional hydrostatic testing in a couple of ways. It eliminates the need for aligned to be taken out of service for testing and it's safer than hundred static testing, which can compromise the strength of the pipe.
In terms of day to day operations, our gas odor average response times and our third party dig in rates are at the upper end of industry standards. These are two areas of focus to ensure we provide safe and reliable gas delivery.
I want to mention two facilities that we opened in 2017 that have helped us improve our gas operations. These.
These centers were opened in direct response to a comprehensive evaluation of our operations.
First in 2017, we open the center for gas safety, which has expansive lab space that allows us to test new technologies SEC.
Second we opened our gas safety Academy here, we offer gas operations team at training space that simulates various gas emergencies, we encounter in our territory.
These two centers were open to ensure that we have given our operations team the necessary technology and training facilities to drive continuous improvement.
We will look to the practices, we have implemented in our gas business and our WAF our mitigation efforts to continue to inform our path forward.
While we accomplished a lot in increasing safety and reducing risk we continue to work hard to improve.
The last time I would like to cover is the progress we're making on open executive leadership roles.
We remain on track to name the new CEO as well as a present of utility by the end of the year we.
We have also kicked off a national search for a CFO.
All three of these key senior leadership searches are being supported by the same firm that will help with the alignment of abilities and backgrounds.
We are fortunate to have Chris Foster taking the lead as interim CFO, Chris is leading a very strong finance department, while we conduct our search for a permanent CFO.
These leaders will build off a few recent hires that are very exciting. Those include Francisco Benevides is our chief safety officer, So we'd seen our chief risk officer, and Jay Rhodri as our Chief Information Officer. These three recent additions to the PGT team reflect our commitment to change we will continue to operate with us.
Focus on safety and risk while continuously looking for new ways to implement technology to increase efficiency to.
To build on that a bit I'd like to share a recent initiative that we kicked off.
We are taking a focused look at our operations.
We will look to operate more efficiently and improve our relationship with our customers by creating an enterprise approach to asset management adopting consistent work management practices and implementing tools to measure track and monitor our customer experience, we'll have more to share on this initiative as we move into 2021.
In closing I want to express my appreciation for all PGT frontline employees, our employees are navigating a difficult operating environment and they continue to execute on safety of risk reduction in reliability programs across electric and gas systems.
With that I will turn it over to Chris to cover our financials and some key regulatory cases, Chris.
Thank you Bill and good morning, everyone.
I plan on covering four items, which are highlighted as the key takeaways on fivethree.
First we are on track and reaffirming the five year earnings guidance, we set last quarter.
This is reflective of the consistent growth, we anticipate over the coming years.
Second I will provide an update on our insurance coverage the impact of covered in our financing needs.
Third I will highlight meaningful progress on our regulatory cases that provide additional revenue clarity.
Lastly, I'll briefly cover the third quarter results.
Starting with our earnings guidance elements. They are highlighted on slide 10.
We have updated our GAAP earnings guidance range slightly for 2020 to reflect a loss between one dollar and dollar six per share.
We are reaffirming non-GAAP core earnings per share guidance as well as our earning factors for both 2020 and 2021.
Specifically in 2020, we are guiding to non-GAAP core earnings of $2 billion for the year or approximately $1.60 to $1.63 per share.
This is based on weighted average shares of roughly $1.25 billion in 2020.
The driver the variance from earning our authorized returns remain unchanged.
Also noted here are the key assumptions underlying 2020 guidance. This includes reaching a final decision in 2020 general rate case in the fourth quarter.
Our guidance is also consistent with the tier 20 formula rate settlement Anderson's Fercs approval of our separate AFUDC waiver request reflected in the settlement in the fourth quarter.
I'll come back to these regulatory items to provide more color.
Moving to non core earnings guidance, which is broken out on the same slide we've.
We made a couple of adjustments these items.
Our range for bankruptcy and legal costs increased $30 million to the range of $2.66 billion to $2.7 billion.
The increase to the range reflects a final adjustment required to the fair value of the equity Backstopping based on a share price at the beginning of July.
Additionally for investigation revenue and cost recovery, we have lowered the forecasted spend from $300 million to $230 million for the year.
Roughly $30 million. This decrease is permanent and we will apply it towards the wildfire spend requirement.
The remaining difference as a timing item that will impact 2021 noncore spend.
We have increased the guidance for 2019, Kincaid fire related costs by $20 million to approximately $170 million for the year.
During the third quarter, we received information from potential claimants, including insurance subjugation claims that led to an increase in our crude oil from $600 million to $625 million pretax.
As it relates to the country fire, we continue to not have access to Calfire investigative report or the evidence they have collected.
We've also included a pickup of $50 million for the category prior period net regulatory recovery. This category includes three items.
First we've included revenues related to the 2011, GTN EPS capital audit consistent with previous guidance.
This quarter, we also added a pickup for the 2018 impact of our modified AFDC filing.
Partially offsetting the first two items our prior year revenue reduction there associated with Fercs recent order until 18, and 20 settlement now pending with FERC.
Our full year guidance for the amortization of the wildfire fund contribution remains the same.
Moving to 2021 guidance on slide 11.
We continue to see non-GAAP core earnings of 2.1% $2.3 billion for the year or approximately 95 cents to one dollar five per share.
This non-GAAP core earnings target is $275 million to $425 million below our authorized levels.
The train is mostly comprised of interest.
$275 million to $325 million.
Additionally, net below the line and spend above authorized will taper off as we carry out additional efficiency measures. This.
This includes are visiting contracted work such as contract for wildfire mitigation and bring that to a range of zero to $100 million there.
Next I'll cover updates on our noncore asset sales insurance coverage and the impact of COVID-19 and the effect of these items on our financing needs.
As we mentioned in our second quarter call, we are considering selling a set of small noncore assets.
Remain early in the process there, but we have made some progress on that front.
Successful in 2021 impacts from such a transaction could reduce the high end of our $450 million to $750 million forecasted equity range for the year.
Weve also filed an application with the CPC for approval to sell our San Francisco office complex fulfilling that commitment we set out in our plan of reorganization.
Based on an illustrative sale price of $1 billion shown in our application a benefit of $600 million would flow back to customers.
We are looking at 2021 for the likely timing of the sale.
Moving to our wildfire insurance we.
We have made progress in accessing over $100 million of additional coverage since the second quarter.
That puts the wildfire liability insurance component of our overall insurance portfolio at up to $868 million in coverage for the period.
With regard to the impact of COVID-19, we continue to experience higher uncollectible cost during the year as well as incremental operating costs roughly.
Roughly $90 million has been recorded a memorandum account created to track committee related costs for collection future period.
When combining the impact of higher insurance costs, the timing of the general building office sale and the timing of the recovery for COVID-19 costs, we foresee a short term cash needs in the fourth quarter that we anticipate will be met with short term debt.
We do not see these items changing our equity needs.
I will now shift to covering a few significant updates on the regulatory front.
We've made progress in a few areas that keep us on the path to achieving the guidance ranges, we set out last quarter I'll start with FERC.
Two weeks ago, we filed a settlement in the transmission under 2020 rate case that is subject to approval by FERC.
We are pleased with the outcome and the support of the broad set of settling parties.
There are few elements to the settlement of a highlight.
First we established an all in return on equity of 10.45% and a capital structure that is 49.75% equity.
These factors remain in place through 2023.
The settlement establishes our first formula rate case to bring clarity with the annual expense true up process.
Additionally, the settlement outlines a modified ABDC waiver filing with FERC that if approved will allow us to apply a higher equity ratio on AFDC back to May 2019.
That is being reviewed by FERC staff on a separate track and Weixin completion of that review by the end of Q4.
I will now shifted to cases at the CPC last week, we received a proposed decision at our 2020 general rate case, yes.
The outcome is largely similar to the multiparty settlement relates to be reached last December.
And does not impact our 2020 or 2021 earnings guidance.
The total $9.1 billion revenue requirement was unchanged.
The proposed proposed decision does include changes to the cost recovery process for liability insurance vegetation management, and wildfire mitigation capital and expense.
Specifically the proposed decision would require us to file separate applications for the recovery of costs about 130% of the authorized amount.
It also proposed reduction to the authorize wildfire mitigation capital costs.
These are considered 80 tenfifty four related capital spend and are at the magnitude of roughly $900 million over two years.
These amounts were already excluded from our rate base forecast. So we do not anticipate a change in our rate base projection.
The timing of this proposed decision should keep us on track for a final decision by the end of the year, which aligns well with the previous statutory deadline of December 13th set forth by the CPC in June.
We have also sought recovery for roughly $1.3 billion of 2017 through 2019 costs through our recent wildfire mitigation and catastrophic events or Wednesday filing of the CPC.
Related to these costs, we received a decision in our Sema case last week that allows us to recover roughly $450 million beginning in December.
Now the wildfire with mitigation catastrophic events, our Lindsay filing becomes a path to recover the remaining costs.
On our securitization filing hearings begin in December the CPC and based on the procedural schedule. We anticipate the case could wrap up in the second quarter of 2021 with a securitized debt offering closely following.
We will also be separately preparing our abbey 10, 54 related securitization filing after we received the final decision in the 2020 generate case.
Looking forward last area I'd like to touch on due to the broad public policy focus in California is vehicle electrification.
The transportation sector remains the largest emitter of greenhouse gases accounting for roughly 40% of the total for the state.
So the need for emission reductions in this sector is as part of meeting our statewide carbon reduction goals is clear.
Our customers excitement for electric vehicles continues to be reflected in consistent consistent adoption levels.
More than 300000 electric vehicles and plug in to teach unused grid, representing one out of every five electric vehicles nationwide and we see additional growth due to the increasingly competitive space among Oems.
Our current CPC approved 80 charging infrastructure portfolio is one of the largest of any utility in the United States.
At this time, we have installed roughly 3500 ports as part of our phase one or electric vehicle charging network filing with the SEC.
And as an indicator of our customers' interest. This program is more than three times oversubscribed.
The Governor recently issued an executive order for zero emission passenger vehicles by 2035 and medium heavy duty vehicles by 2045.
And in support of the state energy clean energy goals, we anticipate submitting a 10 year transportation electrification plan by early 2022.
Now I'd like to transition to our third quarter financial results.
Slide 13 shows our result for the third quarter.
Non-GAAP core earnings per share for the year came in at $1.6 billion and is consistent with our full year guidance.
GAAP earnings, including Noncore items are also shown here the.
The noncore items are consistent with the full year 2020 guidance I mentioned.
Moving on slide 14 shows the quarter over quarter comparison for non-GAAP core earnings of $590 million.
Or $1.11 cents in the third quarter last year and $461 million or 22 cents. This year.
The primary drivers were an increase in shares outstanding from our July 1st equity raise.
Interest expense.
As well as to timing items that are each expected to reverse. The first is the 2020 general rate case cost recovery and second is the timing of taxes.
With a full quarter behind us after the bankruptcy, we are very focused on executing well on the operational and financial plan, we set out.
We have a strong earnings projection head of it that is supported by regulatory outcomes that I discussed.
And we are excited for the long term opportunities provided from our state focus on clean energy technology.
With that operator could you. Please open the lines for questions.
As a reminder to ask a question we need to press star one on your telephone to inspire question, Chris depend can yes.
Our next question comes from the line of Stephen Byrd from Morgan Stanley. Your line is open.
Steven Beg your line is open.
Your next question comes along at JP Morgan Smith from Bank of America. Your line is open.
Hey, Good morning can you hear me now.
Hi, good to hear you Julie and good morning.
Hey, good morning, Thank you.
So perhaps if I can go back here thanks for all the detail.
The wildfire certification process and just your expectations here I mean, clearly both of your peers have it.
Certainly you had articulated some.
Cutting deadline here on on on obtaining it.
Any specific context that you would provide us in thinking about.
Nuances to delays or otherwise as the process itself is given our reach and today and I have a follow up.
Sure Julien no problem again, I think as bill laid out Ray we have filed all the information that we think is relevant that the commission was seeking at this stage we filed that on July 29. So we do still anticipate a decision from the commission by the end of the month.
What I would offer just in terms of context around it because I think theres been a little bit of confusion is maybe a couple of ways to think about it first it's important to keep in mind that while the commission's constrain that decision. The prior safety certificate remains in place.
If we run into a scenario, where the commission were not to approve you'd have a couple of things occurring.
First we would have the ability to continue to have access to the 80 Tenfifty four wildfire fund but.
But we lose the protection of the shareholder liability cap and the improved prudency construct so just wanted to provide that we don't anticipate that beanie outcome, Julien, but I just wanted to provide that as a way for us to help you think about what the other scenario could look like.
Got it all right excellent. Thank you.
If I can go back.
Can you talk a little bit of scenarios here with that zaugg fire.
I know, it's difficult to speak to it at this point in time.
We speak a little bit to the contact and then they can make around Psps and I know I know you all provided context earlier, but can.
Can you give a little bit more as to the advantage to why you did not engage in PSP not specific context there.
Again, how that fits into the certification framework as well.
Sure Julien this.
This is Chris I think the safety certificate, we would consider largely separate and apart there was a fairly straight forward set of criteria that the commission with evaluating as it related to the certificate itself.
If you look at the situation in terms of the data points around the dog fire. There were three different weather stations that were in the general vicinity, which is what we shared which has also been our filing this week.
And there I think what you saw is generally speaking the sustained winds were roughly 50 miles per hour and that area with gas at certain publicly owned a weather station that up to around I think 32 miles an hour.
That deviate from what we have in terms of our own planning as you know our public safety power shut off approach consists of a number of different considerations from relative humidity.
The the moisture in the fuels in the ground to wind speeds as well the wind speeds in those areas did not meet the general requirements that we have in place you could consider those as roughly 25 miles per hour in terms of sustained Lynn and generally speaking in exceedance of 45 miles per hour in terms of purposes when we.
Typically consider shutting off of it at Marriott that customers are being served by.
Got it. Thank you for that clarification lastly, sorry for another one but I get credit in general insurance obviously.
The market is dynamic you've obtained more here going forward into next year, what are your option around.
From an Avenue here. If you can just elaborate very quickly we intend to which that it may not if they perpetuate and as it has this year.
Sure I guess I would start with the have to acknowledge it's been a pretty dramatic year as bill talked about in terms of statewide impacts.
From the August heat storm fires and other elements. So it obviously Julian that the market is going to continue to evolve I think from a from a cost recovery standpoint, we do think that we have achieved what is reasonable in terms of insurance coverage for this year in terms of next year I think there are probably a few things at play.
Our understanding as we read the statute is that 80 Tenfifty four does contemplate the wildfire safety administrator the entity that oversees the wildfire fun to contemplate a level of coverage for the investor owned utilities in the state.
Absent any kind of explicit guidance there we'd be looking into next year to to determine what would be the most cost cost effective coverage options for our customers.
Everything from multiyear plan components, some different structures to the insurance itself as well as certainly trying to compete as best we can for the best price possible for customers. So at this stage for this year. We do have a total of 1 billion five in comprehensive coverage 868 million of that is for a while.
With our coverage at a total cost of the Onefive, which comes to roughly $860 million.
Thanks Richard.
Appreciate it.
Your next question comes from a line EPS infringement from Wolfe Research. Your line is open.
Hi, excuse me good morning.
Just I guess a question on the.
Fire victim fine have you gotten any indication from them on their intentions in terms of.
The shares they own them.
And then plans for.
Basically.
Okay, what the plans offer those shares.
Going forward.
Hi, Good morning, Steve we Havent at this point.
Well, you'll see in our Q is that we did point out that as of October Twentyth. The information. The company has is that the trust has not sold any shares.
So that that really is the update on that front I think at this stage, obviously, given the five seconds trust as a substantial shareholder of the company, we do our best to communicate openly with them as well to help make sure that they are aware of events around the company, but at this stage can't really speculate on.
How they're thinking about share issuances in the future.
Okay.
Can you clarify whether they were blacked out at all.
Or anything or just not.
Now where ishares need I think it's it's a fair question that the dynamics. There that you should think about going forward are that some.
The registration rights agreement that we do have with the trust provides for a blackout period, some demand rights provisions and other things, but large.
Largely those attributes would not be.
Really in the public domain those would be exchanges of information between the company and the fire victims Trust certainly at this stage our interests are very aligned and so we would want to collaborate with the trust as appropriate should they undertake an underwritten offering.
Okay.
Second question, just and this is I don't know how are you can answer this but.
We've had a lot of.
A lot of events this season.
And we've done several psps and obviously most of them will work very well, we do have this naga van.
But then a lot of successful events in terms of avoiding issue. So could you is there any color you can give on just kind.
Kind of political.
Regulatory feedback you're getting on that.
Activities so far.
Hi, Steve This is bill Smith, thanks for the question.
I think that generally speaking people understand the nature of the challenges we are facing and the feedback has been relative.
A relatively good from our key stakeholders.
No one likes to see us have to do this but I've seen in fact, some articles at kind of recognize that this is about public safety and I think it is unfortunate as this season has been if you look at the early part of the season than the number wildfires, we had that had nothing to do with utilities of any kind.
Let me get showed the public in general that this is a much broader issues and then PGT and CGI thing I mean, the state of California said something approaching 9000 fires. So far this year. So I think there is a better acceptance this year of the nature the challenge.
We've been getting some pretty good feedback from all the key stake holders that there were executing well and I would like to say that in the event that we've had this year how long we're still doing some of the final tallies from this latest event, but there have been well over 100 cases, where we found debris and other things into our.
Lines that had we not take.
Taken proactive steps to implement of Dsps could have or would have likely started a fire. So I think that obviously point out design issue Weve got to learn more about that but.
I would say generally speaking what were doing.
Is working and I think people will appreciate that it's for their their safety and the safety of the communities.
Great just one last quick one just on the management.
[music].
Hires that you're working on I know can't probably give specifics, but just given that these are obviously three very important malls could you give us some color on.
The types of people Youre looking at for these these different roles or are these are we going to notice the ball.
Any color there would be helpful.
Yeah, well look without getting the detailed specifics I think what I would say is we're looking for people with new with experience and a strong commitment to safety and operational.
The effectiveness and basically operational excellence so.
I'm really pleased that how that whole process is coming along.
So this new say June, but but it's coming along quite well and very much according to our plan.
Great. Thank you.
Your next question comes from the line of Jonathan Arnold from vertical Research. Your line is open.
Hi, good morning, guys.
[music].
Quick question on the.
20, and just sort of how to think about that.
Going forward I see.
It looks on the slides as though youre sticking with the rule of thumb.
The guidance modeling.
15.
The cost structure.
In the past and across the enterprise.
They are lumpy chain on the south on them.
Getting to that on the pipe that for profit structure.
For the curious whether there is some that will help embedded within that and how you are suggesting we approach the fall or whether it's a bit differently in general.
General color.
It's consistent Jonathan Thanks for the question I know that.
The tier 20 case has some unique elements to it but at this stage the way the thing that I would focus on is the assumption that we've called out if you specifically look at our 2020 factors I think you'd want to focus on the PHP waiver hvdc waiver because that's the piece that at this stage. The other elements are fairly straight forward, they're not changing relative to where.
We were before you'd want the AFUDC waiver piece to be handled by the FERC accounting staff reasonably in a general way to think about that if its helpful. Jonathan is is that you'd probably be looking at a three cents swing roughly depending on how that turns out but our assumption as we call out here.
Implies that we think that we'll have that FERC accounting staff final view by the end of the year.
Actually I did want to follow up on that to understand that better is that does that have an ongoing earnings.
Variance impact, though I sounded like it might be more retroactive.
Looking at what clients looking back, but I'm not sure.
It'd be looking back Jonathan.
Okay. So fairly.
Thirdly that three cents, you're talking about insist that a swing factor in terms of what you would book of core adding 20, while.
But that ultimately doesn't really change that.
The trajectory is that right.
So just to be clear Jonathan is we called it out as an assumption in 2020, specifically to that's where we would anticipate the impact if it were to go in a different direction.
But about going in a different direction would that change the go forward earnings power and pipeline Twentytwenty.
It would be an impact confined to 2020, okay right now so that delta.
I think on one just one thing on insurance agents gave us. The total cost is there is a data point on what you ended up paying for that incremental 100 million.
No there is not specifically Jonathan I do appreciate the question because there has been quite a bit of focus on the wildfire component of the coverage itself. We just we havent.
Provided any additional color at this stage I certainly imagine we'll continue that discussion that the CPC as we as we examine cost recovery. There at this stage again this overlaps with the 2020 general rate case proposed decision that we have and we do hope that commission ultimately in their final decision could land at the place where in the language that's roughly.
And in our settlement agreement.
Okay. Thank you very much.
Your next question comes from the line of Michael Lapides from Goldman Sachs. Your line is open.
Hi, guys. Thank you for taking my question Chris.
Chris this one's probably for you.
Yes, there are lots of items.
That won't necessarily have to back to income statement impact, but hopefully with significant sources of cash flow.
Seen by debt new debt.
Okay can you just walk us through those a little bit at somebody's are starting to get pretty material and I'm. Just trying to think about things that would be kind of cash inflows or 2021, 2022 that may be more cash flow statement versus income state line staple drivers.
Sure Michael Good morning, I think if you look at it we call them out as well in our in our disclosures in the Q, but the way I think about it as you have multiple different memorandum accounts that have been stacking up I want to say, it's I could be off on this number so I'm going to be generic but I think it was roughly in the neighborhood of two and a half to $3 billion of in building us I think that.
Thats, where your focus is ultimately if you step back though.
These these cost recovery mechanisms and the memorandum accounts or something we have been planning around for a few quarters. So I wouldn't think about it as implying you know theres any kind of change in the financing plan that sits behind it to support it.
Because I think ultimately if you really start with Sina for example, it's been a fairly straightforward cost recovery mechanism for the company for years, we were pleased to see that the interim rate relief requests came through that accelerated some of those recoveries, Michael but but otherwise as you see those broken out we would contemplate that traditional regulatory lag that exists for cash.
Beforehand that wouldnt necessarily be impacting on any kind of future financing.
Got it and then last item.
Hi.
Think about the bill.
What kind of happened customer sale over the next couple of years can you talk just directionally. What you think the level of build in place in a deflationary anticipate over the next three to four years three to five years will be with active player.
Sure so stepping back of it Michael I think it's a good question right, we have substantial investments needed to mitigate wildfire risk, but in terms of the company's plan, it's actually pretty straightforward. We have the combination of the GTF case, our cost of capital proceeding the general rate case, and now that the tier two.
20 case, which really gives us pretty good line of sight to what thats going to look like at least for the next three years and in most of those examples as you start to look at that kind of three to five year range were generally speaking looking at roughly four to just north of 4% average electric system bundled average rate.
Impacts for our customers that puts us generally speaking in line with growth projections in our state. We are very fortunate to serve the area that we do in the economic diversity that exists here and.
And I think theres another way to look at it as you can imagine as well. We also contemplate these growth rates as it relates to a percentage share of wallet for customers right. We acknowledge that our customer base is very different from customers, who may live in the central Valley of California to Northern California, and those in the more moderate tempered areas in the coastal communities and so.
That's the range that were generally speaking looking at for the next few years.
And finally, our hearing aid to a cost savings in areas, where you think you could offset some of that pellet pricing.
Yes. Thanks. This is bill I think there are a lot of areas I wouldn't say, there's a gibbon major place, but either a lot of opportunities and we think that we can do from.
Take your approach.
Approach to some of our our contracting efforts.
When we started after the events of 2017 in 2018, there was a very aggressive.
Tamp to get as many resources on the ground as we could I think there are ways for us to come back and look at that more effectively I think one of the things I'm excited about is the point that I made about a new initiative that we're kicking off around similar operational process improvements I mean, there are ways that we can get much more effective at what we do reduce.
Last time, we take cycle time out, which reduces inventory needs a lot of things. So I think it's a broad range of areas that can help us get costs out of the business not not any one or two.
Individual items.
Got it thank you guys much appreciated.
Hi, Jan if you'd like to ask a question. Please press star one on your telephone. Our next question comes the line of Jeremy Tonet from Jpmorgan Securities. Your line is open.
Hi, Good morning. This is rich on for Jeremy Thanks for taking my questions.
Just wanted to start off with.
Circling back on the prior question could you provide a little bit more color around these.
Enterprise wide initiatives that you alluded to earlier, maybe the magnitude of the impact over the next few years in how this fits me.
Assuming driving earnings versus offsetting customer rates.
Sure Jeremy So there is a few different ways to look at it I think.
Stepping back when I think you are interested in this and I want to be sure unresponsive are kind of categories as a way to contemplate that.
Some categories of the earnings impacting others would be more specific to benefit the customers as we look forward to the next few years. Some of those categories. We've talked about include things like renewable energy credits right. If you anytime you look at kind of the energy side of the business in that way, we're always searching for savings to make sure that were cost compare.
Additive on behalf of customers rates I think benefit that you would see there would accrue to customers.
We also continue to evaluate additional.
Surplus property assets.
Similar largely similar treatment there in a number of those cases, where if there is a developed area. There many of those benefits, but also accrue back to customers you can imagine that conversation is really evolving in real time as we look at the COVID-19 impacts and how to think about the future state of kind of the footprint of the company, obviously thats the case with our our future move as well.
Now on to Oakland and moving our primary headquarters there as well.
As we think about some of these other elements of work process improvement that.
Bill alluded to I think you could see a split there, but ultimately we see that as as being a driver for us going forward in terms of achieving cost savings that will allow us to in the future earn our authorized return as we guided to in 2022.
Great. Thank you and then just given the current context, let me elections right. Now can you provide any early thoughts around your financial planning and savings their shared corporate tax rates increase.
Sure. Thanks, Rich sorry, it's limited in short because of the Nols at the company has I think should there be a change and should there be a substantial change in terms of tax policy I think for at least PG LLC limited impacts there.
Got it thank you very much thanks.
Thank you.
Your next question comes from the line of Ryan Levine from Citi. Your line is open.
Good morning.
Thank you Eric what's non core assets in the company is targeting Sal and can you remind us the sharing mechanism same rate areas and shareholders on potential proceeds.
Hey, Mark how are you able to China.
Sure Ryan I appreciate the question and.
I am really not able to be much more forthcoming than that I think it's what emphasize there and where we were really last quarter. As we are really doing the internal work right now to evaluate some small noncore assets that we're evaluating.
If you step back and just think about different what I'll call of asset classes.
Which one.
You can think about different ethical asset classes in different ways, one of which is the land that the company owns the physical footprint that we have in different areas. Some of which has developed some of which is not.
Generally speaking the benefits that accrue from any sale will differ depending on that treatment as one example.
As you look across different other different asset classes, there could be opportunities where the gain on sale treatment is is slightly different and so at this stage. We are very focused on this effort do you think we can continue to make progress, but don't want to be too specific because I don't want to get ahead of our internal work in any kind of outreach, we'd otherwise be doing at a later stage.
Thanks, and then changing gears, what assumptions changed much of the higher Kincaid estimate.
And given that you haven't received the Cal fire report are there any additional information changes that you're anticipating that that we may see further revisions to our estimates.
Sure Ryan. So this is really just an element of time passage and us getting better information overtime.
At this stage, what we had Ed referenced where we're having conversations as you can imagine with some of the different entities and in particular, what we noted where the segregation claims themselves we have better data than we had before as you recall with prior as you may recall that prior wildfires in prior years, the California office of insurance had.
Had disclosed a greater level of granularity, which provided one means by which to have additional input in this situation. We have now improved data as it relates to the segregation claims in particular and that allowed us to update.
Our accrual at this stage.
Okay. Thank you.
Thank you.
And there are no further questions at this time.
Well. Thank you all for your interest in PGT and thank you for joining us on the call today.
If you have any follow up questions. Please don't hesitate to reach out to Investor relations. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
[music].
Hi.
Good morning.
Okay.
[music].