Q4 2020 PG&E Corp Earnings Call
Fourth quarter 2020 earnings release and conference call. At this time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone keypad, we ask that you limit yourself to one question and one follow up please.
Please be advised that today's conference is being recorded for Ya.
For any further assistance please press star zero.
I would now like to hand, the conference over to Matt Fallon Senior Director Investor Relations P. G. Any Mr. Fallon. Please go ahead. Good morning. Thank you for participating in <unk> fourth quarter 2020 earnings conference call. Joining us today are Patty Poppy, our chief Executive Officer, and Chris Foster.
<unk>, Vice President and interim Chief Financial Officer.
I want to remind you that our discussion 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 important factors that could affect the company's actual financial results are described on the second page of today's fourth 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 at Investor Dot PGE Corp Dot com.
We also encourage you to review our annual report on form 10-K for the year ended December 31.
2020.
With that let's move on to the person you all want to hear from.
Saudi Poppy.
Thank you, Matt and good morning, everyone I am so delighted to be with you for my very first PGE earnings call today.
And you're almost two months and have learned a lot by engaging with my coworkers.
Many external stakeholders.
I will highlight today, our 2020 results, our 2021 and long term outlook and what I've learned so far from Kerr for listening and importantly, what we're doing about it right now.
We delivered solid Q4, non-GAAP core earnings of 21 per share in the fourth quarter and $1 61 for the full year.
We are affirming non-GAAP core earnings of 95 to $1.05 per.
Per fully diluted share for 2021.
In addition, we're rolling forward, our five year plan, which takes us through 2025 I'm happy to report that we successfully executed the sale of our transmission tower wireless licenses delivering on our goal to reduce our 2021 equity need or 2021 equity needs are now down to a range of zero to $400 million.
We have visibility on our investments and we're increasing the quality of the plan and our guidance today, we are introducing a 2021% to 2025 non-GAAP core EPS CAGR of 10%.
As we bring our new leadership came into place we're building a clear sky playbook based on our lean operating system and delivering a regionalized hometown experience.
We're evaluating our work plan focused on what's best for longer term for our customers. We're already acting on all of this and we're happy to share more with you today, you'll hear more about this in future quarters as well, Chris will provide an update and more details on the financials investing on it.
First a recap of 2020 it.
It was a challenging year and I am so impressed with how our PGE team stepped up I'd like to take a second just to thank Bill Smith for serving as our interim CEO and Michael Lewis for his tireless efforts, serving as interim utility President My co workers made great progress on many fronts under their leadership and I'll quickly touch on a few.
The team continued to make progress on wildfire risk reduction, while also significantly improving the execution of our public safety power shutoff events through better coordination and support for our customers and our communities.
Coworker successfully resolved key regulatory cases, and while no one could have predicted the impact of COVID-19. The team has stood up for the challenge delivering energy to our friends families and neighbors.
I spent a good portion of my first weeks listening listening to you listening to our customers policymakers regulators coworker shareholders and many many more.
What <unk> said is direct and you've communicated both disappointment and encouragement.
Thank you for your honest feedback I've also spent time engaging with our federal monitor and our operational observer from the Governor's office.
We want what they want a safer system.
We've embraced their feedback and have continued to implement improvements to our wildfire mitigation work with an unwavering focus to reduce the risk of utility ignited wildfires.
One such example includes our evolution from a 2020 wildfire mitigation plan that was primarily activity based focused on miles completed for our key wildfire save measure such as enhanced vegetation management and system hardening, we're moving to a 2021 wildfire mitigation plan that is risk focused.
Addressing our highest risk areas for mitigation on our top most priority informed by enhanced predictive wildfire risk models.
We've developed and implemented machine learning capability, enabling an evolution from static to dynamic risk models. These models are informed by fire ignition profitability and potential wildfire consequence, considering fast burning fuels predictive fire behavior and buildings and population density impact. Additionally, we're leveraging state of the art.
Sensing capabilities to obtain an understanding of both the fuel type and condition that contribute to a fire spread in our high risk areas.
While we continue to perform the longer term work of enhanced vegetation management and system hardening using a risk informed approach.
<unk> event implementation remains an important tool of last resort to keep our customers safe.
We'll continue to focus on improving the PSP program for our customers and our communities keeping in mind that preventing electric equipment caused wildfires and associated damage is the highest priority.
For 2020, I'm happy to share that our enhanced letter forecasting our generation island and capabilities and sexualizing devices. Many of which were installed in 2020 led to more targeted PSP events in 2020 versus 2019 for similar weather conditions.
We identified a number of reported damages and hazards to our equipment from high wind conditions. During <unk> events in 2020 any one of these instances could have potentially caused a wildfire if our system had not been proactively de energized.
In addition, our weather stations, along with our high definition cameras and satellite detection capabilities enable us to determine when high risk when high fire risk has dissipated and when we can begin safely restoring power. These factors along with our increased aerial surveillance helped us reduce patrol and restoration times by nearly 40% in 2000.
'twenty we.
We were also able to improve our notification accuracy for impacted customers in advance of the PSP up events from levels below 90% in 2019 to 99, 5% in 2020.
This was enabled through the deployment of an innovative records and information management integration platform, where we're partnering with talented to quickly and seamlessly consolidate data for our electric assets and customers from separate and disparate data sets. This has been a game changer for us and we are expanding this technology solution to serve as the core enabling.
<unk> for building, our centralized data system, bringing together physical operational lifecycle and environmental data elements to drive data informed decisions for our wildfire mitigation programs and beyond.
The substantial improvements in 2020 over 2019 in our PSP event implementation were noticed by many and yet we are still dissatisfied and.
And we've already begun implementing improvements for our 2021 wildfire mitigation NPS PFS programs.
In fact during my first few weeks on the job I had the opportunity to see the team in action during a very unusual January Pea Sps events. The team quickly sprang into action, enabling a cross functional focus on an end to end process.
Our emergency response playbook in action and it was good for.
Strong gusty winds, we forecasted in our assessment on the dry fuels and potential fire spread risk in localized areas of our service territory led us to shut off power to keep our customers safe, while the dangerous weather past.
Let me be clear about this point.
The goal is to prevent damage and destruction from our equipment and we will choose to protect our customers and our communities even when that means utilizing sps.
I was impressed that we have the technology to pinpoint our highest risk areas and target for specific sections of our system to prevent potential wildfires that would hurt people.
Now moving into 2021.
We will embrace the triple bottom line mindset of serving people our planet and California's prosperity. This mindset, we will find an intersection between the need to safely deliver energy and meet the clean energy aspirations of Californians.
Optimistic that there is a bright path forward with the triple bottom line enabled by our laser like focus on performance.
Here are my initial observations and priorities to get us moving as we start 2021.
We have a best in class emergency response, playbook, and we're going to complement that by writing the PGE clear Sky playbook. So we can predictably deliver every day not just during and after a crisis.
I am putting together a team of senior leaders, that's developing that clear sky playbook underpinned by our lean operating system that predictably delivers on our commitments in the outcome.
We're bringing the best of our functional organizational design standard processes and scale to deliver a regionalized hometown experience for the communities and customers we serve.
And finally, our system requires substantial capital investment in our customers deserve more disciplined cost performance will adopt better processes that improve our safety quality delivery and cost our work will deliver for customers and our investors.
On my first day at <unk>, I went to Paradise, and Blue County to see the devastation caused from wildfires.
I met with my co workers, who live in the community whose own lives, we're forever impacted by the campfire.
We're so grateful to those who have the strength and the courage to represent PGE any through the rebuilding effort.
When I reflect on PGE first developed our skills and disaster response I go back to San Bruno.
I visited the city of San Bruno a couple of weeks ago, and I met with our co workers, who serve their community there.
They expressed their disappointment they felt that day and the helplessness of not being the heroes for the very first time.
It was frustrating not being able to deliver as our blue crude strive to do delivering an essential service safely to our customers every day.
<unk> has learned to respond to the challenges of emergencies and have developed a world class playbook for emergency response.
My passion is to capture that capability and focus to a clear sky playbook playbook to deliver these day disaster prevention.
The basics of the building blocks for a safe reliable affordable clean and resilient system.
Now for somewhat before.
Processes that caused delays and leave our frontline teams having to explain to customers why we can't deliver as promised our daily performance is sometimes a mystery to the organization, we learned about issues when the customer tenaciously escalate their frustration and then we jumped to respond.
We must enable our cohort in.
In the film to become prevalent preventive and solvers not victims of poor processes.
Improving the reliability of our day to day work will move us away from being just an emergency response company, we need and we will implement a clear sky lean operating system to effectuate this change because it works.
We are assembling the team to do just that Adam Wright as our new Chief operating officer, Adam joins <unk> after serving for 18 years at Berkshire Hathaway and for the past three years as president and CEO of mid American Energy Ann.
<unk> brings a strong track record of operational performance at mid American and he'll focus on safety standardizing practices and promoting excellent execution across the board.
Adam sand on approach has already started to show its value I love, how he leads with his heart and his mind, we need that.
Marley and Santos as our new Chief customer Officer Merrill Lynch joins us after an impressive career at Nextera energy. Most recently, serving as president of Gulf Power from our Lane led the integration effort of the acquisition of Gulf Power and she was able to deploy a best in class operating system to a new organization, which delivered meaningful results for the customers.
Of Gulf power, we're counting on Marlene to help US do the same here at <unk>.
Julian Cox as our Chief Human Resources Officer, and leader of our shared services and supply chain team charged with ensuring PGE has the people skills resources and tools to meet customers' expectations. Prior to joining PGE Julia served as chief Human Resource Officer, AEP and Chief transformation officer at Dynegy.
Joe for line as our new SVP of gas operations, Joe joins <unk>. After 35 years at PSEG, serving most recently as vice president of gas operations and prior to that as Vice President of customer solutions, We're really excited for Joe to leverage his experience to enhance our focus on both GAAP.
Operations and customer service.
This team is coming for the mission and more are on their way.
They all had great jobs and they were not looking to lease.
I call them, each and they answered the call to serve.
These clear eyes, and fresh legs combined with a 25000 dedicated resilient and smart PGE in years that I've found here will be the necessary ingredients to turn this company into a winning team we're focusing on meeting and exceeding the expectations of those we are privileged to serve our friends our families and our neighbors.
The new team will establish a regionalized daily heartbeat that puts decision, making where it belongs closest to our customers and communities.
I visited crews in many areas across our service area and the themes are clear, we're showing up in our hometown as like a big Big company with a big company bureaucracy and that needs to change there are advantages to the scale of a big company and we will leverage them to the best of functional expertise high quality standards.
And that will be delivered by our regional cross functional teams our customers don't need to feel that big company mindset, they need to feel like their hometown is the only one that matters.
Our hometown team can deliver for them by being empowered to solve the problems they see with the cross functional team on which they work.
A clear sky lean playbook will be essential in transforming our culture, our processes and our outcomes.
Now you might ask Patty that all sounds great, but how will that deliver financial results well. This brings me to my final observation.
We can accelerate the path to better financial health of <unk> by fixing the operational results we deliver.
Our regulators our legislators our customers my coworkers and yes, you are investors can believe in <unk> again ever.
Everyone can believe when we deliver when we keep our promises when we do what we say we will do that.
As a playbook for a great utility and we will be writing ours here at PGE any more.
More to come with that I'll turn it over to Chris.
Thank you Patty and good morning, everyone.
As Patti mentioned earlier, we've made substantial progress against the goals, we set forth in 2020, including on the financial and regulatory fronts.
I'll hit a few highlights then go into more detail.
We met our EPS guidance landing at $1 61 for the year.
We reduced our equity needs to a range of zero to $400 million re.
<unk>, our prior range of $450 million to $750 million as a result of our successful noncore asset sale.
We also made progress on our longer term savings for.
Including achieving over $300 million in savings from a combination of contracted work savings.
And for monetizing excess renewable energy credit in 2020.
And we closed out critical regulatory cases that provide multi year financial clarity.
I plan to cover our 2020 results and regulatory updates first then focus on 2021 and beyond.
I'll walk through near term targets and favorable updates for our 2021 financing needs as well as our longer term financial plan.
They are we see improvements on our prior projections getting us to a 10% earnings per share growth CAGR.
As I mentioned, we met our earnings guidance for 2020 and are maintaining for 2021 range, we set out of 95 to $1 five.
Let's start with 2020.
Slide nine shows our results for both the fourth quarter and the year.
Non-GAAP core earnings per share for the year came in at $2 billion.
GAAP earnings, including non core items are also shown here.
The non core items listed here are also consistent with our full year 2020 guidance range and included a $60 million net charge in the fourth quarter for <unk> related wildfire costs.
After applying insurance receivable.
Moving to slide 10.
This shows the quarter over quarter comparison for non-GAAP core earnings of $441 million for 'twenty, one from the fourth quarter of last year.
The largest driver of the quarter over quarter change was an increase in shares outstanding from our July 1st equity raise. Additionally.
Additionally, we saw decreases EPS, resulting from Unrecoverable interest expense for Tom.
Many of nuclear refueling outages inspection costs.
And for the small miscellaneous items.
The decreases were partially offset by growth in rate base earnings and the impact of a charge recorded in the fourth quarter of 2019 related to interest on pre petition payables in short term debt from the <unk>.
Timing of the 2020 generate case cost recovery.
I will now shift to covering a few significant updates on the regulatory front specific to 2020 for the progress we saw help cement our multi year earnings per share growth visibility.
Start with FERC.
In December PRC approved our transmission owner 2020 settlement.
<unk> formula rate.
And all in return on equity of 10, 45%.
And a capital structure that is 49, 75% equity through 2023.
For <unk> also completed a review of our PDC waiver filing.
Allowing us to apply for 49, 75% equity ratio.
<unk> back to May of 2019.
But the CPUC there are a number of proceedings in flight, including our wildfire mitigation plan filing that Patty covered.
I'll focus now on for additional key filings.
Our 2020 generate case, two securitization cases, and our upcoming 2023 general rate case filings.
As a reminder, our 2020 <unk> received a final decision in December.
The revenue requirement approved in our 2020 <unk> mirrors the amount from our initial settlement agreement.
Importantly, the final decision authorizes two way balancing accounts for vegetation management.
I'll fire mitigation and liability insurance premium costs.
We will implement new races authorized in the final decision starting next month.
And the rate neutral securitization proceeding we filed an alternative in mid January that recognize concerns raised in the proceeding.
This alternative is consistent with our goals of ensuring we can accelerate payments for the Firebird can trust.
Meeting our commitment to pursuing a transaction structure that is expected to be rate neutral and maintaining our credit treatment. So this cost efficient transaction can be if actuated with maximum benefit for the utility and its customers.
An alternative filing instead of contributing $1 8 billion in 2021 to the customer credit Trust, we proposed to contribute $1 billion in 2021.
1 billion from 2024.
Additionally, we proposed to the CPUC conductor proceeding in 2040 to determine whether an additional shareholder funded contribution is needed to keep the structure rate neutral.
Any additional contribution will be capped at $775 million.
We are confident based on our modeling, but the risk of this additional onetime payment 20 years from now is a low probability of occurring.
The proceeding is currently scheduled for a proposed decision in April and a commission decision in May.
Yesterday, we also filed our first $82 50 for related securitization requested for CPUC. This.
This is the first tranche of what is likely to be three and totaled roughly $1 2 billion.
This reflects the work we've completed thus far in the forecasted expenditures for 2021 relative to the total $3 $2 billion of qualified spend.
We expect to receive a decision on the financing application in late June.
And that could bring us to market as early as Q3.
Finally, we are scheduled to file our 2023 generate case by the end of June.
This case will be different from previous generate cases for two reasons.
First we will incorporate not just electric distribution, but also gas transmission and storage, which was previously a fabricator.
Second this case will cover for years 2023 through 2026, rather than three years, providing certainty over a longer horizon.
Our substantial investments to reduce the risk of wildfires and enhance public safety will continue to be highlighted in this case.
Moving forward for 2021 guidance on slide 11.
We have adjusted non-GAAP core earnings to $2, one to 225 billion.
From two 1% to $2 3 billion for the year.
And maintain our prior EPS guidance of approximately 95 to $1 five per share.
This non-GAAP core earnings target is $300 million to $425 million below our authorized level with the range, mostly comprised of interest expense of 300 for $325 million.
We anticipate net below the line and spend above authorized will be substantially lower than 2020, as we carry out additional efficiency measures in 2021.
Bringing a range of zero to $100 million there.
Also noted here is the assumption underlying 2021 guidance that we received authorization in the second quarter for our securitization request, which is designed to be rate neutral to customers as originally filed.
Moving to non core earnings guidance, which is broken out on the same slide.
We've made a couple of adjustments for these items.
Our range for bankruptcy and legal cost guidance increased to a range of $1 4 billion to $1 5 billion.
This reflects two items.
First based on current discussions with the fire victims trust and input from the IRS, we expect to elect for antitrust treatment for the shares issued for the fire victim Trust.
Grantor Trust treatment would result in a deduction equal to the fair value for shares held by the fire victim trusts when ultimately sold by the trust.
Instead of when the shares were placed into the trust accordingly, there will be a $1 $3 billion charge when the grantor trust elections made reflecting the elimination of the existing deferred tax assets and then income recognized overtime is the fire victim trusts so their shares in future periods.
Similarly, we would anticipate gains in future periods of shares are sold by the trusts.
Given we have until April to complete this review.
Should we elect for greater trust treatment. It would result in a charge in that scenario in Q1.
The second element of bankruptcy and legal cost to note as exit financing costs, reflecting temporary utility debt with increased from $60 million pre tax to a range of $95 million to $135 million.
This reflects our updated assumption of rate neutral securitization, starting the second quarter and assumes two tranches.
We also anticipate a range of $10 million to $20 million in legal and other costs related to the 2019 Kincade fire that are recorded in the period incurred and separate from the claims accrual. Additionally for investigation remedies, we have lowered our forecast for roughly $110 million.
The $30 million decrease is permanent and we will apply it towards the wildfire OIS requirement.
Our full year guidance for net securitization inception charge amortization of the wildfire fund contributions and prior period net regulatory recoveries remained unchanged.
Next I'll cover our updated 2021 equity needs as you can see on slide 11, we've updated the range to reflect equity needs of zero to $400 million for the year.
The substantial reduction reflects the cash impact from 2021 of our non core license transaction that was announced earlier this month.
I'm also pleased to share that we closed the transaction as well.
And have received the vast majority of the initial proceeds.
This lower equity range benefits, our shareholders, including the fire victim Trust in.
And reducing dilution.
As Patti touched on we have updated our five year plan as well with projections from 2021 through 2025, you can see on slides 12 through 14.
Gabriel showing incremental positive update.
Our non-GAAP core earnings growth is driven by eight 5% rate base growth.
This is underpinned by focusing on the key investments that reduce risk and improve service to our customers primarily in our wildfire mitigation and gases from needs.
We also continue to be focused on holding company debt reduction to improve our balance sheet over time.
We anticipate paying down over $2 billion over the next three years and further reducing our holding company debt balance down to approximately $1 billion in 2025.
Together these factors fuel our non-GAAP core earnings growth of over 10% from.
And we are guiding to 10% non-GAAP core EPS growth.
This includes an assumption of from equity needs following 2021, which stem from increases in our capital spend and would follow our capital structure.
We plan to provide more specifics on equity needs for each year, when we issue our annual forward year guidance.
As a team we are determined to execute well on both the operational and financial plan, we set out the benefit all elements of the triple bottom line and drive prosperity for our state and investors.
With that I'll turn it back over to Patti.
Thank you Chris.
The path to reestablish PGE is simple the implementation is our challenge will meet the challenge and here's how.
We have a best in class Emergency response, playbook, and we'll build on it by writing the PGE clear Sky playbook.
I am putting together a team of senior leaders that are writing in implementing that lean playbook that can predictably deliver our commitments and our outcomes.
We are building the best a centralized function standards processes and scale and will deliver a regionalized hometown experience for the communities and customers, we serve and finally, our system required substantial capital investment in our customers deserve more disciplined cost performance will adapt better processes that improve our safety quality delivery and <unk>.
Costs.
As a result, our work will deliver for our customers and for our investors.
These initial priorities are the steps on the path to a new era at PGE focused on people planet and prosperity with laser like focus on performance.
Operator, please open the line for questions.
Certainly at this time, if you'd like to ask a question. Please press star one we asked for yourself to one question and one follow up Richard <unk> with Bank of America. Your line is open.
Hey, good morning, it's Julien here, thanks for the time and opportunity.
And I see that.
I hear your voice Likewise, I should add my congratulations as.
As well as the.
A portion of the management for a year. So it's a pleasure congrats al.
But with this can we speak a little bit more about the equity and <unk>.
<unk> ability to reduce them that further so a couple of different questions within this.
Securitization can you speak to what's reflected in your updated expectations here.
And then secondly, just wanted to be very explicit about the asset sale here in that contributing to your narrowed range here as well if you don't mind.
Sure Julian it's Chris Hi, happy to take that one.
I think theres really two factors to think about first let's start with the underlying assumption.
Embedded within the zero to $400 million guidance is the as filed original case that we put forward at the CPUC.
Should the alternative we filed be approved it could further reduce net equity need which would take us down potentially for that low end of the range again zero to $400 million.
That's because we have spaced out the two contributions of $1 billion in 2021 and $1 billion from 2024.
As it relates to the towers transaction that definitely helped us to bring down the original high end of $700 million excuse me $750 million to where we are today at $400 million. We've consistently articulated as you know upon completion of that transaction, we would be focused on reducing our financing needs overall and it's certainly heavily contributed to our equity needs reduction.
Got it excellent and then secondly, if I can put it back to you here, obviously short time here, thus far but <unk>.
Safety certification process.
This business is going to be net annual conversation here, but when we think about this going forward and just getting these on a timely basis. How do you think about improving that process to just give folks in.
And all stakeholders visibility on that if you don't mind.
Yes. This is actually an area Julian that I'm pretty excited about <unk>.
I feel good about our ability to build a transparent system, so anybody and anyone who wants to Kent.
Be aware on the status of our wildfire mitigation plans.
Perfect application of our clear Sky playbook is to prepare and prevent disaster and so we're actually leveraging our lean playbook. We've got for basic plays and we're going to apply them to our wildfire mitigation plan. We're actually in the process. We've already initiated building out of our control center at our San Ramon facility.
It will be able to observe the progress monitor problem solve establish standards continuously improve.
I am finding we've got some incredibly talented people here. They just need a process, we need a system to make visible our commitments and that enables us to make and meet our commitments and so.
The work that we're going to do I think we'll give the commission the visibility that they need we welcome their partnership we welcome their oversight.
The policymakers have a lot at stake with our success and they share that with me and so our job is to make it easy for them to regulate us easy for them to monitor us.
Because I can tell you. This no one is going to be looking closer at us than us and so we're going to be watching our performance and we're going to be utilizing our clear sky playbook to do just that and that should make those filings in that process much more streamlined Julien.
Got it alright ill leave it there. Thank you guys best of luck. Thank you.
Steve Fleishman with Wolfe Research your line is open.
Yeah, Hi, good morning, Patti Congrats.
Good morning, Steve for the hear your voice.
So.
Yes.
One question so it sounds like.
In the past the for.
For long term growth rate wasn't net income growth and now it's.
EPS growth.
So to the degree that you do need future equity in the plan because your investment is higher and Thats I assume thats embedded.
And the net growth.
That of course is embedded and Thats, what made us feel pretty confident about our forward look on EPS and shifting to that EPS oriented our long term growth target, but Chris why don't you add a couple points on that.
Sure thing Patty that's right, Steve as you think about the growth that's embedded in our rate base update there is over $2 billion in additional investment there and so what we've what we've put forward as an EPS growth rate absolutely includes future equity need through that time period.
Okay great.
And then.
Secondly, just.
On the.
Back last year, when we were there with the uncertainty over the wildfire safety certificate. If there was also.
From mentioned by the commission of the kind of enhanced oversight process was.
Is there any update on that in.
That obviously hasn't happened so.
Should we view that as a good sign or is that still.
Got it.
A potential event to watch.
Yes, Steve we have not had official notification or closeout of the letter that was sent at the end of last year on enhanced enforcement. So honestly, Steve I don't think we'd be surprised if that action happened.
The first step is just a corrective action plan and frankly, that's what we're building out we've been working very closely with the wildfire staff at the commission to make sure that our plans meet expectations, but it's certainly within the realm of possibility that the commission might take that step and frankly, we welcome and I don't see that as a bad thing Steve.
It all comes down to this but we've got to do what we said we're going to do.
Our plan for 2021 wildfire mitigation is good it is enhanced over 2000 22020 was better than 2019.
We're using more technology, we're doing more fire prevention with our enhanced vegetation management with our better visibility we are using technology tools, there honestly impressive I'm impressed by them.
And we're reducing the impact of PSP events. So all of that being said we have confidence in our plan. We welcome additional oversight I wouldn't be concerned if additional oversight and the enhanced enforcement with.
Initiated because the commission has a job to do and.
We welcome we welcome to visibility and as I said, we're building out our lean operating system to really drive home that performance of that wildfire mitigation plan and it will provide all the visibility and transparency that's required.
Great Congrats.
Congrats again thanks.
Thanks, Steve.
Ryan Levine with Citi. Your line is open.
Hi, everybody.
One for Patty is this new clear Sky playbook fully written at this point or is it more on the initial drafting stages is there a timeline that you expect.
Three fully rented.
That's a great question one of the things that excites me is this team on building.
In addition to the very impressive talent I am finding here at PGE.
We're going to have the best of the best.
Influencing this playbook. So certainly people know that I have a lien orientation and lots of experience I have a point of view on this matter, but where we're hiring some really talented people Marlin Santos is going to bring our playbook and so trust me, we're going to lean into that Nextera playbook of Merrill Lynch.
Share Hathaway has a playbook and Adam brings that with them.
And so.
We will be looking for the best of the best Lean operating system that matches, the PGE needs and addresses what we need to address here, most but I will say the basic place of our lean operating system will include visual management operating reviews problem solving and standard.
It's clear to me in my already in just the two months I've been here that those.
<unk> are essential to us being able to keep our promises and do what we say, we're going to do and so.
The kind of the framework of the playbook is written but we will have the best of the best.
Certainly, adding to that playbook, and making sure that it reflects the specific needs of the PGE in 18.
So in terms of time index here on your question on timing.
We expect to have the fundamentals of the playbook written by mid year.
But we'll be always continually updating and improving our playbook. That's the spirit of our lean operating system, we're never going to be satisfied right. We could have best ever performance and still be dissatisfied and so that playbook will ever be an evolution. So I wouldn't suggest that there's a finish line to it but we will be getting better every day.
Yeah.
And then in terms of the wildfire mitigation plan that came out earlier this month.
Is there any changes to day you wanted to call out in terms of your forecast time horizon for any more meaningful opportunities around that effort that you could envision to evolve in the coming years.
Well I'll I'll hone in on the work and I'll, let Chris weigh in in just a second on the financial implications, but the work itself. The big change for 2021 over 2020 is the risk orientation of the plan.
<unk> thousand 20, we got a lot of work done we did a lot of vegetation management and system hardening, but it was more based on volume of work and what we're transitioning in 2021, two which I think will really meet the needs of.
Both the system and certainly a lot of the observers that we have is that we're transitioning to a risk prioritized system and so.
It's really important that we prioritize the work that we're doing to maximize the amount of risk we reduced every single year and so we're targeting the 20%.
<unk>.
A 20% reduction of the highest risk areas of the system and so we're going to be focused on that as well as additional technology additions additional weather stations additional cameras.
Our weather meteorology system is.
Really very advanced and we're going to continue to advance it and so more to come on all the work and that's a big change for 2021, but in terms of the financials I'll turn it over to Chris.
Sure. Thanks, Paddy Hi, Ryan the way I would I would think about this is we've got the three year wildfire mitigation plan fully embedded in our five year forecast from the financial side, what we're able to do though as we improve the plan and see the work plan longevity here, what we're able to do is work with our colleagues to reduce costs and be more.
Along the way I mentioned this a little bit earlier, but we have been able through improved contracting already been able to take out a few hundred million dollars out of the business and so as we improve the ability to take out the riskiest miles every year that patties referencing the work plan will be tighter year over year as well, but at this stage ultimately all three years of what was filed for your back.
In February is currently reflected in the five year plan.
Great. Thanks.
Jonathan Arnold with vertical research your line is open.
Morning, guys.
Congratulations Patrick.
Good morning, Jonathan.
Just a quick one.
Obviously assembled an impressive group of new leaders.
<unk> done with that process or is there still more to come.
Im sorry, Jonathan can you repeat your question just curious from the leadership team and we're pretty much done with.
What you're planning there or if there's more to come.
No we're not done.
There's more to come and I think you'll.
You'll like what you see we still have Ann.
Engineering role, which we've highlighted as an important role I think for PGE because.
We spent so much time.
Responding to the crisis that I think there has been a loss of.
The ability to focus on the horizon to get focused on the future of the clean energy transformation and how that clean energy transformation.
Overlaps with the need for wildfire prevention and.
There's a really exciting opportunity, where new technology with the right engineering.
Team can mitigate or multiple risks supply shortages in the summer wildfire mitigation as well as our clean energy transformation and so we're definitely.
We've got some great names comment I'm not going to work.
Broken up news today, we will be sharing the additional news here in the coming weeks of additional talent that is joining the team okay. Great. Thank you Ann.
Maybe more for Chris Chris could you.
Just explain when it may be a reminder.
Yes.
The chance to do with the Grantor trust a bit more and maybe focus on the implications for cash and timing and the like and then if there is any.
Knock on impact from financing needs.
I recall, you would you'd wanted to you've been wanting to elect the ground from trusts.
My assumption is that this is an outcome.
It wasn't going to be an upfront charge would be it would be helpful.
Sure Jonathan Thanks for the question happy to take it too and I appreciate it because definitely I wanted to simplify. This this is ultimately a good tax planning for the company the bottom line.
We are able to elect the grantor trust construct which we're on a good path. We've noted here today that we had current ongoing discussions with the fire victim trusts and from the IRS. So we believe it's likely we will be able to make that election.
What would happen there is no impact of financing needs.
Let me unpack that a little bit so PGE will be required to take that $1 3 billion noncash charge reversing the deferred tax asset we created and that's ultimately just.
An advantage that we gained here right because now the advantage of the Grantor Trust US we're able to experience the benefit of the share price depreciation that would occur.
We will reverse that charge as soon as we recognize income in future periods, which depends on the price at which the firebird entrust solve the stock so.
Should we be electric grantor trusts, which we'll do by April there are no financing need changes.
We will benefit from a tax standpoint, and the fire victims Trust would benefit as well from a cost structure from a tax planning purposes.
Great.
But we've got the physical thank you.
Yes.
Michael <unk> with Goldman Sachs. Your line is open.
Hey, Pat and team congrats to everybody on your new roles.
My question is a little more longer term and trying to think about the work the company will do to help for state achieve its goals and vice versa.
Any time I have seen.
A regulated utility succeed over the long term.
And succeed is probably defined in terms of providing reliable safe low cost clean power, whereas low cost as possible.
It also comes with support of policymaking in regulation those two things tend to go hand in hand.
When you look at how California policy set up in a line right now and the things that are in place, but also the things that might be on your wish list things that maybe aren't in place today, but could exist tomorrow, whether its policy, whether it's regulation or something else what would be on that wishlist.
Well good morning. Thank you for asking the question a couple of things first one thing I will share.
As a newcomer to the California team I have been pleasantly surprised by the regulatory environment around the construct I think outside of California, I told myself things about what was true here and now that I am here Theres. Some really good components of our regulatory construct multi year general rate cases with attrition adjust.
<unk>.
Many of you know that I have not.
We have long advocated for annual filings because you need flexibility.
Flexibility and adjustment, but as I see the Californian contract. We have these long term rate cases, and filings and outcomes that provide long term certainty to revenue, but we still have balancing accounts that allow for that flexibility to adjust and adapt as needs and conditions for our customers change.
And I like that a lot that's a that's a good part of the contract the decoupling the pass through costs associated with commodity procurement.
All of these elements make for a pretty solid regulatory construct when we do what we said we would do and so it comes back to that whole thing. So my wishlist.
Michael truly is that.
We are a reliable again and our word scans and so that's the focus of our efforts is the focus of our attention now to your point about the long term.
Aspirations of policymakers here around clean energy and affordable energy you.
You may be aware the that the commission held a non bonds event yesterday and I was very.
Optimistic about what I heard from that event.
There is a real recognition that there is a risk that the entire clean energy transition the cost of it is born in a residential electric bill and that in many ways is basically a regressive tax its tax policy and born out in electric bills and the good news is that was part of the conversation yesterday.
Day that we need to make sure that we have holistic cost sharing for the clean energy transition and frankly, if we do our job right. We can help reduce costs and certainly the unit cost of energy should go down as electrification takes hold both in buildings and vehicles. So I do think what.
If I had a wish list outside of my own wishlist that we do what we say we're going to do the rest of my wish list would be that we as California come together and find a holistic set of solutions that meet the expectations of our citizens I find the ambitions inspiring and we do it together as a state and that we.
Fingerpointing from sub optimized, but rather we work together to come for a great outcome. The best outcome for Californians, which frankly than can be a role model for the rest of the world.
Got it thank you Matti <unk>. Thank you.
Again, if you'd like to ask a question. Please press star one on your telephone keypad, Jeremy Tonet with JP Morgan Your line is open.
Hi, good morning.
Good morning, Jeremy.
Paddy just wanted to say thanks for all the observations congratulations as well, but maybe just kind of taking a step back just as far as what brought you to this position that you felt compelled to take it and just as you as you look at TCG versus your experience with CMS. Just wondering if you might if it makes sense to contrast, what you see here or maybe just ask for.
Directly to the CMS weigh the right fit for PSEG or could the clear sky Playbooks for.
Different.
Well first of all a shout out to all my friends at CMS. They now I love them and I think about them all the time.
I was.
Compelled.
By the mission here at PGE and this is what I'm finding Bob.
In the people who are here that people who stayed.
They say when the going gets tough the tough get going and this team has got gone I mean, this PGE and the team that I have met is resilient and strong and they are here and they have stayed and I'm proud of them and grateful for them for their endurance. The additional team members, we're bringing along and the reason I am here.
For us because we felt compelled by this cause.
The people of California need PGE need to be strong.
We need PGE need to have the capability to answer the call that the citizens and the policymakers.
Our defining.
And so when I thought about both the citizens.
California, and I thought about the people who work at PGE.
At the end of the day, Jeremy I, just Couldnt turn away.
And I think people know I had a pretty good gang back there in Michigan.
But to sit.
And not do my part.
Just didn't feel like an acceptable choice. So I came out and I am happy to report again that people are coming with me and it's really.
It's a mission worth serving now I'll also say that.
It won't be the CMS playbook, it will be the PGE and a playbook, we have to write our own based on the current conditions and needs of the system and.
The lean concepts are universal and they weren't written at CMS Heck. They were written for 100 years ago.
<unk> wrote some of the early fundamentals and lots of companies have implemented them and I've seen it implemented well and I've seen that implemented poorly and we're going to implement it well.
I do think my years of experience do bring visibility and perspective about what good looks like when we talk about our lean implementation and so the team and I hear a writing that playbook and we're going to implement it and.
Our highly confident that it will provide the certainty and the transparency and the ability to deliver outcomes not just activity for outcomes for the sake of the people that we serve.
Great. That's very helpful. Thanks for that.
Maybe just a separate question on the SBA agreement.
Just if you could walk us through what happens if God forbid there there was.
Because of a fire from a telco assets, just how how would that work exactly there.
Sure so.
In terms of the agreement the way to think about it Jeremy is at a high level in all situations PGE retains the ability to have appropriate and pay for access to our facilities. That's everything from pole loading ensuring that any new facilities that are cited.
Our dunzo only in a situation, where we know ahead of time.
But the additional weight as appropriate. It also means that if there are impacts for the facilities certainly in that situation. It will be evaluated for for liability at that stage, but ultimately where we're focused is and this is really the impetus behind the agreement was to ensure that going forward PGE maintain the flexibility to manage our assets as we need to do in that.
Flexibility remains but this agreement.
Great I'll stop there. Thank you.
Thanks, Jeremy.
There are no further questions at this time I will now turn the call back over for Patti Poppe for final remarks.
Thanks, Jack well, thanks, everyone for the discussion today, it really was going to be with all of you. We are looking forward to staying in touch in the coming months.
And certainly most importantly, restoring your trust and your confidence in the PGE in 18.
Thanks again for joining us today.
This concludes today's call. We thank you for your participation you may now disconnect.