Q2 2021 PG&E Corp Earnings Call
Ladies and gentlemen, thank you for standing by and walk on to the P. G and H Corporation second quarter 2021earnings release at this time, all participants are and of us and all the mode. After the speaker's presentation, there will be a question and answer session.
And I ask a question during the session you will need the press star.
SAR 1 on your telephone please be advised that today's conference is being recorded if you require any further assistance. Please press star zero and I would now like to hand, the conference over to your speaker today, Matthew violin Senior director of Investor Relations. Thank you. Please go ahead Sir.
Thank you Ashley good morning, everyone and thank you for participating and <unk> second quarter earnings call Joy.
Joining us today are Patty Poppy, our Chief Executive Officer, and Chris Foster Executive Vice President and Chief Financial Officer.
I want to remind you that today's discussion will include.
<unk> forward looking statements about our outlook for future financial results, which are based on assumptions forecasts expectations and the 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.
Today's second quarter earnings call presentation.
The presentation also includes a reconciliation between non-GAAP and GAAP measures that can be found online along with other information investor The PGE Corp Dot com.
We also.
Also encourage you to review our quarterly report on form 10-Q for the quarter ended June 32021.
And now I'll turn it over to Patty.
Thanks, Matt Hello, everyone. Thanks for joining us today I'm pleased to report the PGE delivered non-GAAP core earnings.
And of 27 per share and the second quarter, we're reaffirming our 2021 non-GAAP core earnings per share guidance of 95 to $1.5.
And we are maintaining 2021 equity needs of zero to $400 million.
Our rate base growth 8.5% and our earnings grow at 10%.
Our investments will provide lasting value to our customers, while our new cost reduction efforts will keep our customer bills affordable all of this is good for customers and investors, Chris will dive into the financials and just a bit.
Before I get started I want to express how much I am looking forward to seeing many of you and person on August.
<unk> 9 for on our Investor day, you'll get to meet the team we've assembled to lead the transformation of PGE any will take a deeper dive into how we're implementing our PGE lean operating system across the company with the special focus on our wildfire prevention work and you'll also get a glimpse into the future opportunities for our company.
For.
Hey, let's get right to it.
I have of feeling I know, what's on top of mind for you because I know it is for me the.
And the wildfire season is underway early this year.
The Dixie fire started on July 13th and is now 23% contained.
My heart goes out to the impact of communities.
Our customers and my coworkers, who have been affected by this and other fires and I'd like to thank both our crews who are working to make the area of safe and Cal fire and the U S Forest service for the challenging work that theyre doing and fighting the fires.
As of this morning, the Dixie fire has burned 221000.
And as impacted about 60 structures there have been no reported injuries or fatalities. Thank goodness.
As we've disclosed the morning of July 13th the power went out at our crested dam powerhouse when the power plant personnel cannot diagnose the problem align worker was dispatched to troubleshoot the outage.
Acre interest substantial effort he arrived on scene and found the tree leaning into airlines.
The conductor was still attached to the pool and 2 views as we're open he noticed the fire at the base of the tree he called for help and attempted to stop the fire.
We've filed the timeline with judge Alsup, if you'd like more details.
Adam.
Our chief operating officer, and I went to the fire to ensure that we're providing our full support to our community and our team. We followed the steps of our co worker and we're surprised by what was required to access the location of that tree on our lines.
And my co workers effort that day reflects the tenacity and the professionalism of our team here at <unk>.
<unk>, who come to work every day with 1 goal in mind.
To serve our friends our families and our neighbors, who also happen to be our customers.
Given the conditions of this season and what we've learned from other fires, including the Dixie fire, we've taken additional actions to reduce wildfire risk during periods of no.
No to low wind conditions.
We've implemented the 911 standard for all faults and high fire threat areas, we're shifting of fast trip settings, and our highest risk risk circuit sections, and we're conducting additional safety patrols and certain high risk areas.
When we look at the tree density and our service area and the products.
<unk> 72 Airlines.
We know we must do something different on 1.
And my very early field visits I was on a little dirt road watching us remove many very large trees within falling distance of our power lines. When I saw that situation I wondered if we could do something different when.
And we were spending $1.4 billion of expense on trimming and removing trees annually I knew we needed a permanent solution and to no longer treat this as an annual maintenance activity. Fortunately my team knew this to the team doing our Butte County rebuild showed me.
On my very first day on the job the bad crack the code on lower cost safer and more efficient underground and <unk>.
The dots just had to be connected.
A safer permanent fix with the better expense the capital shift, which makes it safer and more affordable for the people that we serve.
Underground and minimize.
1 out of the need for PSP.
Under grounding stays the trees that we all love here in California underground and makes the state of California safer.
Which is why last week, we announced the multiyear safety initiatives to underground 10000 miles of power lines and the highest risk wildfire threat areas.
This is not really of new idea.
<unk> are a new concept many companies who've dealt with climate resilience issues like Hurricanes for example, and have found ways to harden their system with a variety of methods, including underground and <unk>.
We know it can be done at scale here in California at a price our customers can afford.
This effort will take some time and as we've said we want to take time.
<unk> from a multitude of stakeholders to shape. The best plan possible will provide the initial actions on this plan when we file our annual update on our wildfire mitigation plan in February of 'twenty, 2 but that will just be the start to serving our hometown facing extreme risk with the safer better and affordable solution.
A critical protection and our system of wildfire prevention efforts is also our public safety power Shutoff program.
Sps is an important backstop to prevent catastrophic wildfire and we will use it when conditions warrant to keep people safe our PSP improved substantially in 2020 and we've made.
Additional improvements for 2021, we continue to get smarter by being data driven and utilizing technology last year. We included factors such as wind humidity levels and fuels and moisture and our modeling this year, we're adding lidar imagery to incorporate trees that could strike overhead power lines.
And as we continue to inspect and harden. The system will also include maintenance conditions to inform outage parameters.
Another enhancement to our public safety program for 2021 is the use of technical sales us fire spread simulation software. The software helps identify given weather conditions, where we have.
Fire spread risk real time will be able to show you firsthand how all of these technologies come together at Investor Day.
Beyond the data and technology improvements, which allow us to pinpoint risks and minimize customers impacted we're constantly evaluating how to lessen the impact for customers, who ultimately do experience.
And.
We start by continuing to shrink the number of customers impacted through our vegetation management and hardening efforts by additional Sexualize sexualizing and by providing alternative backup power resources for example, and May I visited pilot kinds of small foothold community where approximately 45.
And Peter customers have experienced 7 psp's outages since 2018.
Earlier this month, we successfully installed the micro grid and Pollo time, which will allow customers there to have access to and energized downtown and critical services, including the fire station pharmacy grocery store and the Red Cross designated shelter.
Shelter at a local church.
Downtown Pallet Pines is already served by underground mines, which means it can be safely energized during PSP.
With the temporary generation resource that we've enabled.
We will continue to look for opportunities to use micro grids to power through PSP.
It's very important that.
We implement the key commitments of our wildfire mitigation plan.
Through June this year, we've completed 91% of our vegetation management and the highest risk areas consistent with our commitments and we've inspected over 375000 assets, including 355000 Poles.
Since 2018, we performed nearly 5000 miles of enhanced vegetation management. We are also fully inspected 100% of our lines and vegetation and tier 3 high fire threat districts 2 times since 2018 and repair the critical items found.
To monitor this work our lean wildfire commands.
<unk> centre in San Ramon, which Youll see on the ninth helps us identify escalate and resolve GAAP. So we can stay on track with our commitments and our work plan.
Our execution of the plan is a critical component and the wildfires certificate process, which enables access to $82.50 for funding we are zeroed in.
Fulfillment of our plan.
The structures and resources. The state has put into place are also critical improvements. This includes the framework that we have in place through $2.50 for a regulatory construct and legislative support for increased Calfire resources.
The $10.54 was created.
On the sort of provide utilities with the funding mechanism for resolve claims and the events of the utility equipment caused wildfire under $10.54, we first submit and annual update to our wildfire mitigation plan outlining the work, we'll do across the system in order to mitigate fire risk.
Approval of our plan is a necessary condition to obtain of.
Created our safety certificate.
Having and safety certificate makes us eligible for the $82.50 for protections, which in effect provide the backstop to pay wildfire claims.
These protections include a presumption that our actions are reasonable and provide a cap on our liability will be applying in the fall to renew.
And the safety certificate of.
A key condition is approval of our 2021 wildfire mitigation plan, which we expect to receive and the next month or so.
The point of this.
Identify the right work and execute it.
I assure you we're doing just that.
Im asked by many.
And while for why should someone invest and PGE any under such difficult conditions.
And I answered by saying for you.
<unk> are better equipped and aligned with the state to succeed.
We need, California, and California need us we.
We are partnering more than ever to mutually protect and serve.
Have you of our customers and to provide an attractive return to you our owners and investors, who make the necessary investments for our customers possible.
I'm asking all of our partners to join US It will take all of us to address climate change on a scale unlike anywhere else.
Gather we can make it right and.
Serve David again.
I'll hand, it over to Chris now to give the financial update for the quarter Chris.
Thank you Patty Patti.
Patty mentioned earlier, we've continued to meet our financial and regulatory objectives.
I'll cover the highlights then go into more detail.
We're on track for a year and EPS guidance landing.
And at 27 for the second quarter and <unk> 50 for the year.
We've maintained our equity needs guidance of zero to $400 million.
And we submitted our 2023 generate case and updated our capex and rate base forecast to reflect this important filing.
As I mentioned, we're on track for the 2021 EPS range, we set out of.
95 to $1.5 side.
Slide 8 shows our results for the second quarter.
Non-GAAP core earnings per share for the quarter came in at 27.
We recorded GAAP earnings, including non core items that are also shown here.
We have made further progress on legacy legal claims as.
As a reminder, we are resolved.
All of the claims asserted by the public entities and both the Kincaid and Dogfighters with.
We've continued to try and fairly resolve claims brought by individual claimants related is on fire and of reached settlements.
We also continue discussions with insurance carriers.
Progress on the settlements is about making it right for impacted communities.
<unk>.
And we increased our accrual for claims related to this on fire by $75 million to a total of $375 million.
This is within our insurance coverage and so Theres no earnings impact from this update.
Moving to slide 9 and this shows the quarter over quarter comparison for our non-GAAP core earnings of 27 per share.
Just on the 2.2021 versus $1 <unk> per share for Q2, 2020 or 26 per share after adjusting for the increasing shares outstanding.
EPS decreased due to <unk> of Unrecoverable interest expense.
<unk> from the timing of nuclear refueling outages and <unk> from the timing of taxes that will net to zero over the.
For Q. These decreases were offset by <unk> <unk> of growth and rate base earnings of <unk> from fewer wildfire mitigation costs above authorized and <unk> and miscellaneous.
Moving to slide 10, we've updated some of our non core guidance.
First investigation remedies has been increased by $20 million to $130 million.
<unk> deck.
This reflects the June presiding officers decision related to the 2019 Sps order to show cause.
The proposals of the penalty of $106 million and will be offset by $86 million and bill credits, we've already provided the customers.
We've appealed this proposal.
Second our prior.
After the net regulatory items forecast has been changed to a $50 million range. This reflects the outcome of our July GTS capital settlement.
The settlement of a result, and a $60 million reduction relative to the application and also differs recovery over a 5 year horizon starting in January of 2022.
As a result of incentives.
For period of $1 million of noncore periods of recoveries in 2021, we now expect to record and prior period recoveries of $45 million and 2021.
And an additional $100 million and 2022 through 2024.
Our guidance continues to include a $1.3 billion charge that we expect to take in the third quarter as a result.
Of 200 Trust election, we made with the agreement reached with the fire victims Trust earlier this month.
This charge is expected to reverse over time as the fire victim trust sell shares increases.
The increases in the value of our shares would also result in a larger tax deduction and ensuing noncore pickups at the time of sale.
Continuing with.
Of the grants.
We are maintaining our equity guidance of zero to $400 million for the year. While we continue work to resolve claims related to the Kincaid and dog fired.
Our focus remains on minimizing our equity needs.
Looking over the midterm horizon, you can see here on slide 11 that we filed our 2023 generate case and June which drives significant.
Investments in the coming years.
The GIC provides the roadmap through 2026, including key system enhancements and safety improvements emphasizing customer focused solutions and supporting the triple bottom line.
And the wildfire mitigation work makes up over $4 billion of investments across our 2023 generate case.
We've updated.
David our Capex and rate base forecast and extended into 2026 to align with the <unk> filing and increased expectations of our capital needs.
On average we plan to spend between roughly 8% and $10 billion of Capex per year over this period.
The low end of the range each year was largely unchanged and reflects amounts authorized and the 2020.
And the full amount recoverable through balancing accounts.
The high end of the range has increased to reflect an incremental $1 billion of potential capital spend above authorized through 2022 and.
And the capital forecast from the 2023 JRC application for the subsequent years.
After incorporating the updated capital forecast.
With the increased high end.
8 years, our long term rate base maintained a roughly 8.5% CAGR.
Alongside this growth we are certainly focused on customer bill impacts.
Currently our customers' bills reflect less and 3% of their average share of wallet.
And on average this compares to a roughly 3.4% average for the rest of the nation.
Recognizing the diversity of the hometown and we serve we will continue to execute on opportunities for cost savings the benefit our customers.
Such as our recent and San Francisco headquarter sale and capital plan enhancements to invest in the system and reduce costs.
We've had and updates on a few other key regulatory matters and I'd like to cover as well.
In addition to the $82.50 for related benefits that Patty mentioned the slot also provides the lower cost financing tool and the form of securitization.
This benefit will be realized by customers through lower financing costs.
Our <unk> hundred 50 for securitization application has received the final decision and we anticipate bringing up to $1.2 billion to.
The market later this year.
In June we were pleased to reach a settlement to recover insurance premium costs recorded to the wildfire expense memorandum account for arena.
Once approved by the CPUC this would allow us to recover roughly $450 million of insurance costs for wildfire coverage from 2017 through 2019.
As.
As you can see on slide 14, and this is 1 example of the steps we're taking to recover remaining $3.5 billion of wildfire related balancing accounts spend too.
To date, we have filed for recovery of roughly half of this balance.
And you should expect to see us continuing to file for timely recovery as we focus on balance sheet health.
And this quarter, we recognized for consecutive quarters of GAAP income with the.
Quarter itself GAAP positive.
Which means we now have met each of the 8 defined metrics required for S&P 500 inclusion.
While this marks a milestone for us as you know who are unable to predict the timing of inclusion, including how the charge we plan to take next quarter for.
The grantor trusts election could impact the timing of inclusion.
We have executed well against our financial plan for the year and the additional opportunities in the years to come with the underground and goal we've announced along with the consistent focus on helping California meet its decarbonization goals.
We are investing and key system enhancements and safety improvements that drive our.
8.5% rate base growth.
We will continue to delever, our balance sheet secret covering of incremental wildfire related costs and manage our equity needs.
These financial results rest on the solid framework provided by our regulatory construct the underpinnings of $82.50 for and they drive our 10% non-GAAP.
Core earnings per share compound average growth rate.
With that I will turn it back over to Patti.
Thank you Chris.
We're doing the right work for wildfire season, and we have a good solid framework in place to mitigate risks and strengthen our financial house, we're taking risk out of the system, each and every day and.
And there to use PSP as a backstop to keep our customers safe.
We are of a long term path in front of us that is focused on people the planet and prosperity. The triple bottom line is reflected in long term projections and in our daily work.
We can't wait to show you our progress when you come.
And to see us for Investor Day on August 9.
Now we must regain their trust and help you believe what I believe California is a great place for your investment dollars and so as PGE.
We look forward to seeing you August 9th at Investor Day.
Ashley Please open the lines for Q&A.
At this.
And this time if you have a question. Please press star then the Paraguay and and our telephone keypad.
And your first question comes from Paul Zimbardo with Bank of America.
Hey, good morning, it's actually Julien thanks for the time and the opportunity to connect.
Julien if I can.
Hey, congrats on.
And your progress here.
I am I wanted a true to.
To come back to where you started the call perhaps on the efforts of the underground and how does that complement some of the earlier efforts on covered conductors and <unk> efforts I mean sort of certainly the sort of a belt and suspenders approach here can you talk sort of conceptually how of com.
Or does this workplace and part of some of the earlier efforts. If you can as well and speaking with some of the early.
Reception from stakeholders to the proposal.
Yes, it is of complement.
Julian because we talk about 10000 miles our highest risk miles would be included.
And that but we have 25000 miles of high fire threat district.
Lines and so this isn't and it's in some places it's the it's and or for the hardening plans, we had before but we know it's a better solution in many areas, especially when we can do it at the kind of scale and and conditions that I think in the past where.
The perceived is.
Not possible for underground Ing, and we're seeing and in Butte County, the progress that we can make the advancements and equipment that enable us to dig into even areas of granite the potential for boring instead of trenching and so I would I would consider it and and there is still going.
B areas, where we do hardening theres still going to be areas, where vegetation management is an important part, but we think for certain areas of the 10000 miles that we set out our really important miles that need to be permanently de risked with underground and <unk>.
And I would say, it's been received extraordinarily well by our community.
And by all of our critical stakeholders there've been a lot of people who've been asking us to underground and and the fact that we can prove to ourselves by the work that we've already done that it can be done and in an affordable way and you know as well as I do Julian and the transition from the Opex that goes to funding beds.
<unk> instrument, when we can turn that into the capital to underground that it makes sense for investors too.
Yes, absolutely and thank you Bob if I kind of second question somewhat unrelated, but the admittedly a big the big issue in California. When you think about of resource adequacy and the dynamics last summer and more critically going into the peak.
And here. This summer can you talk about some of the the actions you committed to year over year as well as some of the prospective actions youre evaluating Dow on the very near term is of.
The longer term to help address the more acute flex alerts and things like that.
Yeah, you bet as we look to this summer and we've already had a couple of flex alerts.
We have of 11000 megawatts that we plan to have available in August and our forecasted peak is about 8500 megawatts. That's just for PGE, but as you know that we are part of the the system and and obviously part of the California, Cal ISO construct and so we were able to secure additional storage 7.
Per megawatts of additional storage, including specifically 1 project that I'm, particularly excited about that I think bodes well for the future as our Moss landing utility owned generation.
182 megawatts of storage, it's 1 of the largest storage utility owned storage facilities. It is definitely.
Tesla's largest project that they've done anywhere in the world and they've done it here with us at PGE and and so I do think long term.
However, we've got to do a better job here in California of matching supply and demand and so we're looking at pursuing additional demand response and leveraging more residential storage like.
And the Tesla power walls as the virtual power plant and we've got a pilot going for this summer to see how much capacity, we truly could count on from those residential storage solutions as well and so when I think about the future I see all of those things coming together of soften demand peak because of great demand management on the residential and the commercial.
Commercial side, then combined with more distributed.
The resources and storage is the perfect match to our solar duck curve and so I think we and at PGE knee in particular have the opportunity to really lead and the deployment of storage as the peak resource solution set.
Excellent well. Thank you for the time best of luck to you and your customers the summer.
Julie and look forward senior.
Your next question comes from Steve Fleishman with Wolfe Research.
Yes.
Good morning, Steve Alright, and you hear me okay.
And a little quiet.
The 1 month.
Hi.
So.
How do you just the.
This is obviously the first.
Fire event, that's occurred since you've been there of scale and I'm just kind of.
Curious, how you dealt with the political community regulatory and any.
Reaction do.
To your take on the.
The relations there and.
Kind of reaction to you.
Yes.
A couple of things, Steve 1 I'll tell you and everyone is focused on 1 thing and getting the wildfire of staff, particularly.
Support for Cal fire and the work that they're doing to kantar.
Contain Dixie fire, but it is not the only fire and the state I think everybody sees that.
There's just so much more work to do and therefore, that's why our underground the announcement was so well received from the key stakeholders all of.
And the feedback I received.
Some of it was it's about time.
And and a lot of it was thank you and so I do think.
Our commitment to doing whatever it takes and challenging perhaps the old perspective has been well received.
Okay.
And just.
1 question on the <unk> failure with respect to.
Damages and your release you mentioned.
For 1 of the risks and is just the damage to the trees is there any.
Particular kind of.
Special value of kind of trees.
And the region, where that is at the logging area or anything like that or just any any thoughts on that disclosure.
Yeah no.
There's nothing unique or special there and fac.
In some ways. It's a blessing that there were so few structures and people who live and the in the past.
And the fire.
So I would just say that.
No special additional exposure as a result in fact, it's probably less exposure given where the fire has the trigger up to date.
Okay.
And then just the.
Listen you mentioned you do for your wildfire mitigation plan.
And approval and and the next month or so.
<unk> has there been any life.
Recommendations from parties or other things related to that.
Well, yes.
Sorry, Steve go ahead.
Yes.
I'll go ahead and answer yes.
<unk> received some feedback.
As did all of the Io use when we originally filed our plans and we were asked for some.
The improvements, but we've made those and the wildfire.
Mitigation plan approval is expected here relatively soon.
And we were happy to see the office of energy infrastructure safety.
And is which will be of new acronym for everyone and OIS is formerly the wildfire safety Division and they did announced.
This week that they will issue.
On the certificates by their objective is the issue then by December 2021 for next year.
And that we will submit our.
Request for the safety certificate by September 13th.
On 2021, and just to remind everyone. We do have and active certificate that carries us through to January of 2020, twos and so we were really happy to see that they're working towards the timeline. So that we can have more certainty and the process and so.
And that's good news.
Great. Thanks look forward to seeing you soon yes, we do to see thank you.
Your next question comes from and Jonathan Arnold with vertical research.
Hey, good morning, Hey, Jonathan.
Quick question Patrick in your remarks, you mentioned.
Mentioned, having the.
And 91% I think of.
Patient management, and the highest risk areas.
Could you just square that with slide 6 where the percentages of obviously quite a bit lower but I think the sort of.
On the high risk areas, perhaps and then.
Is there any chances.
And what how much further along and you got in July.
And as of June numbers right.
Yeah couple of things number 1 the 91% reflects of.
All of the vegetation management, and we've done what percentage of and the high risk areas of you'll remember our enhanced enforcement was reflective of.
And the desire that our actions matched the highest risk reduction areas and so that that's the point of the 91% is just to say of the veg management and we've done on 91 per cent of it is and the highest risk areas, which meets the intent of enhanced enforcement on the progress front as you know.
And the I think and the slide it says 598 miles to date, we're moving miles every single day and so for our in our last 48 hour update we were up to 754 miles of enhanced vegetation management.
Achieved we're working at about 10 miles per day and this is 1 of those measures and our wildfire.
Oilfired Command center that we're tracking every single day and so the pace of progress the slope of the curve. If you will has increased.
And as at it.
And as highest rate to date, because if you'll remember because of the risk model, we had to front and we had to really do a lot of re planning.
And the early part of the year to make sure that that vegetation management and we did was in fact and the highest risk areas. So its 2 signs of progress 1 of the 91 per cent of the work that we're doing is and the highest risk areas. That's great news and number 2 we're up to 750 for miles.
Which is 5 miles ahead of our plan, which.
It's.
200 miles by year end.
So you feel good about hitting these targets.
Regardless of where you might be on them today for those.
Yeah, I feel great about hitting those targets and I am so thankful for my team.
They are just on for full force and.
Doing a great job great.
1 of the you'd be could maybe on the of the grounding plan of the I think Adam mentioned briefing last week, you would hope to do sort of tens of thousands of miles a year. How soon do you think you can get to that sort of level of.
And secondly.
Can you sort of maybe relate that a little bits of your new rate base forecast is there any is that sort of from pardon.
Pardon me and lab or not really of tool yet on how to think about that.
Yeah, 1 of the things, we're very careful not to do and our announcement to our local community about.
The underground and effort.
As to not put a ceiling on how much we thought we could get done by 1 of our objective is to do more faster Jonathan and so as the.
Adam and talked about on a day that we could imagine ourselves beyond the 1000 miles a year when we think about today.
For closer.
70 miles and a year, we know that curve for 1000 is going to take some time, but we want it I think of it like this Jonathan and I think of it is right now we're building model Ts and Henry for the old factory and we're about to turn on the Assembly line.
And so that's really what's on our mind and so we're not capping our forecast and that's why we're not.
All of certain and date, because we're working that plan with our engineers as we speak the reason for announcing it before the plan is all not of down and.
Because we wanted to get the input of critical stakeholders, we want to engage with our tribal leaders with our environmental groups with our local communities and determine the best place to do that under grounding first.
First we know there's high demand for underground and and so this is of great opportunity for us to engage with the people of California to change the risk profile of California, and P. J and eat together, so I would say that when we file our wildfire mitigation plan for next year.
We'll be filing that in.
Given the areas first quarter 2022, you'll get to see the first couple of years of it but every year, we're going to get better and every year, we'll do more and so we really are hesitant to put a cap on it or are set and end date, because we're gonna be very dissatisfied until we have fully derisk the system, but I'll let.
Chris talked about the reconciliation to the rate case is filed.
Sure thing Thanks, Paddy Hi, Jonathan it's at this stage I guess, what I would say is we're already seeing unit costs come down, which I think of it as impressive as we do some of the work here and the field that we're even just early scoping out and emphasis on early.
That would be what youre seeing today in terms of our financial disclosures that were directly reflecting the 2023 generate case filings as well as our most recent wildfire mitigation plan filing from earlier this year that did have the limited underground and the envision sort of what we're what we're currently contemplating as as Patti mentioned looking at the February filing next year, well give you really the first.
Look operationally and how that would roll out over the first few years and we would anticipate Q1 or the first half of next year, providing a more fulsome view of the complete financial impact with updated financial.
Okay. That's great. Thank you for the clarity of that and if I can squeeze 1 other thing and what's the <unk>.
The system, where you are with the the main secured.
<unk> activation.
Rehearing requests and sort of expected timing.
And to move for the.
Sure thing we had just an update of this week. So again. This is for context. This is of the $7.5 billion rate neutral securitization that we've filed for the the CPUC at this stage, Jonathan just had an update the next week on.
First of all the CPUC of calendar to do their they are affirmative vote, which is an important next step.
That does is that puts us on track for late this year to early next year for executing the securitization.
Okay, great. Thank you.
Thank you thanks, Jonathan.
On August of your next question comes from Michael at the days with Goldman Sachs.
Hey, guys. Thank you for taking my question.
Pat.
And when I look at what other states and and I'll use Florida as an example have done when proposing a major underground and program.
Actually went to the legislature.
For 2.
Insurer of kind of an and.
A rigorous analytical process for doing of 10 or 20 year of forecast, but also to ensure ratemaking do you think you need legislation at all to get approval for this 10000 mile program would you think it's best done in the and the wildfire mitigation.
And in process and how do you think about the kind of what this how the cost recovery for that spend the curve, meaning and thats something that gets included in rate base over a long period of time or is this something thats outside of rate base.
Yeah.
I'm, a big fan of what they did and Florida Theres no doubt that was the smart way.
And I.
I'm not convinced that we need legislation norm and convinced that we need funding outside the utility, but I wouldn't rule it out.
We work with our critical stakeholders, we will talk about the best way to do this work the reality and much like Florida, where they wanted to harden their system against Hurricanes.
And do you convert people and California, very motivated to rebuild and hard and our system against wildfire and so the most important thing is that were considered.
Great.
Resource to attract the capital that we're the resource that can do the infrastructure at this kind of scale. There is very few entities that could be equipped.
To take on the risk and the work like PGE for the state of California, and so we do look forward to partnering with those critical stakeholders and determining the best way to make sure that the work is done safely and we most quickly de risk.
On the state of California against all of the hazards that.
And wildfire bring got it and then a follow up unrelated to that just curious from your thinking about sort of 10% EPS growth rate.
And I was thinking about how the cost of capital mechanism could impact the ability to hit that growth rate, especially given the recent move down and kind of Treasury U S treasury yields and corporate bond yields.
And what that means for kind of 2022, and maybe even longer term.
Sure thing Michael of Chris Happy to take it I think Theres a couple of things going on there first is just the cost of capital adjustment mechanism itself, so seeing where the.
And the index is at this stage certainly looks complex to get to the.
But we'd have to average over 4% of at this point to be able to stay out of the dead band and so I think at this point it is increasingly likely that the triggers. So I would just say, we're evaluating and up options and real time on that front and second as you can imagine. We're currently looking at Q3 to provide an update there at that stage, we will have the view on the impact from the triggers of AB.
It will be in a situation, where we could look forward for 2022 impacts and beyond but at this stage our plan internally as the plan conservatively and ultimately the goal here is as Patti referenced earlier and I referenced is we're really looking fundamentally at our 5 year plan, Michael not just 2022, but the 5 year plan and saying, let's think about.
How underground and folds and and at what pace and let's continue to pursue more aggressive cost reductions. So that we're both making room for those investments, but also keeping in mind of affordability for customers.
Got it and the last thing with the high end of the Capex pay and raised for the next 5 years, especially in 'twenty, 3 and beyond how does that impact your multiyear.
The your financing plans.
Sure thing so I think at this stage, we haven't been too specific on equity needs outside of the explicit here and I think what you would find is that we would have a.
A reasonable growth rate there is such that we would have a limited financing needs, but I don't want to be too specific at this stage again, Michael because we are actually working the <unk>.
Plan as you can imagine default and the underground and Mark got it. Thank you Chris Thanks Patti.
Thanks, Michael Thank you.
And again for any questions. Please press Star then the number 1 on your telephone keypad.
And your next question comes from Shar <unk> with Guggenheim Partners.
5 year.
Good morning team and it's actually Constantine here for sure. Thanks for the very comprehensive update to this point.
And constantly and just.
Wanted to kind of follow up on the question on the 2021 wildfire mitigation plan progress and kind of some of the categories showing kind of below 50% and where.
I guess, Jim and.
Can you just speak to the various categories and how they get prioritized and maybe how do you again, how do you plan to get ahead of the curve on these categories and any kind of per risk of regulatory action.
But you may foresee.
Yes, 1 thing that I'm. So glad you asked this question constantly.
And because 1 thing to clarify is that the percent complete and doesn't the plan doesn't have a linear line across the year. The plan has a curve to it.
Mainly because of the pre engineering work and getting the highest risk miles engineered and planned we had and so.
So when we're and our wildfire Command Center every week, we're looking at that pipeline of work and confirming that we've got the work that will feed the plan that completes on the finished state where we're tracking daily targets and I can tell you I'm feeling very good about our ability to achieve our year on year plan and so for example, and enhanced vegetation management and a good example.
Kimball.
The.
Status to date, so 39% complete but we're 5 miles ahead of our plan, which gets us all of them on time by year end and so thats I don't want you confused by the percent complete year to date, its not a linear curve.
So.
Things there are some things.
Example, that we definitely want to have completed.
Before August September and so some of those things like asset inspections. For example, we've got.
Almost fully completed so again all of these area of system hardening Veg management were not true.
Trading off like we will not get veg management done so and we will.
<unk> be willing to accept that we miss another.
Area like hardening, none of our plan is to get all of them done.
Some of them by year and some have interim data before year end and so we're on track with the plan and and that's the power of this lean operating system.
System I know on a broken record on that but that's because it makes a big difference and I can tell you I can assure you. This team this year has more visibility into our performance than ever before and we know daily and I'm getting a weekly boots on the ground like is on the work update of exactly where we are which is.
What gives us.
A lot of confidence that we can complete the plan by year end.
Excellent and I think that clarifies on quite a bit.
Just 1 kind of follow up on wildfire the.
The filings disclosed kind of a potential loss for the Dixie and.
And just to understand the process of.
And kind of when the law of gets recorded in the insurance coverage and kind of 54 can you remind us of the insurance levels and I think it's around 900.
For this period and with some self insured and what kind of what's the timeline for $10.54 of protections and funding to get access.
Yes, I'll make a couple of comments and I'll kick it to Chris to cover the insurance and some of the detailed timeline elements, but keep in mind. It is early and.
Theres no way to estimate at this time the.
<unk> of our of the.
The damage done on the.
The <unk> fire again, and I will reiterate that.
It is a blessing that it's in mostly forested differ.
Difficult terrain, it's difficult for Cal fire to access the train which increases obviously the acres burned, but very limited damage to structure and people.
And for which we're very very grateful and we're very grateful for their skill and being able to and some ways direct the fire into the less populated areas, but I'll, let Chris talk to and the timeline when we do know what happens next.
Sure. Thanks, Hi, Constantine and it's true so the timeline is traditionally it's going to take time.
And that it's ultimately at this stage certainly even though we have the probable commentary and the Q. It's not estimable at this stage, we need to understand once the fires contained to be able and understand the total impact. We also need to make sure that we're understanding of the result of the Cal fire investigation.
Of the review that takes place there. So when you when you typically look at it.
The timeline and the situation you would have it.
It could be anywhere up to a year for Cal fire investigation. You can then have multiple years that are required.
To complete review and eventually resolve any outstanding claims themselves for you're actually looking at a few.
Few years before there is any contemplation of interaction with the $82.50 for wildfire fund so hopefully that provides a bit more color.
It does and.
If I may have on last question the turning of the pumping a lot of outside of wildfire then bearing tables.
On the request from.
And then your San Francisco for CPUC, there kind of a new evaluation of the assets that are within the city and.
Is there kind of a reasonable level of it you would actually consider separating the assets of that even the feasible and instead of the CPUC have any power and mandating the sale of our the kind of lead and 2 of potential combination and the municipal relationships.
From the 60 day.
Well first let me just say that PGE knee and serve San Franciscans for more than 100 years, and we are proud to have that being true.
The previous offers made by the city well undervalued our assets and so their filing.
Jason for acid, the CPUC confirm the value of our assets.
And bottom line, we look very much for forward to continuing to serve the people of San Francisco.
That makes sense.
Thanks, so much for taking my questions.
And just the yep. Thank you.
Your next question comes from Stephen Byrd with Morgan Stanley.
Hi, good evening, thanks for taking my questions.
Lots been covered I was wondering if we could just get your latest thoughts on the state of the insurance market and.
And California for.
For the fire risk sort of everything from from.
From your own insurance too.
The ability of the statewide funds get sick and reinsurance and I know you're not responsible for that but just curious and also sort of availability of insurance too.
The residents and businesses in California, and sort of the state of play of the insurance market.
Sure Hi, Steven Thanks for the question I think there's really a few different things there as you can imagine first is.
Personal residential small business coverage as you can imagine that's been limited at the.
The stage, although the state of the step in and multiple areas to make sure that there is coverage provided from from companies and situations.
<unk> for homeowners really would have otherwise and limited to no option. So I think thats been of great. A great example of the state of evaluating that need for for individual customers as it relates to us and as it relates to the wildfire fund administrator themselves I think what we're seeing at this stage is typically what we've done and we went out this year it really and the spring.
The revisit some of <unk>.
Our coverage is well on purpose the kind of test the market at this stage of their still remains that the reinsurance market is there as well and this is after the dramatic acreage that was impacted last year and California. So just to put that in context. That's over 4 million acres that were impacted yet we still saw.
And really fit and the market and other.
Pricing is substantial as you can imagine, but we do have good cost recovery mechanism here both in terms of the the Lima accounts that we have but also going forward, we have contemplated actually of self insurance construct that we've put forward and our 2023 GIC because it really Steve and we're looking at this and these.
These impacts over a number of years as it relates to customers.
And this is this is hundreds of millions of dollars rates that are really critical for us to be able to take on but the expense dollars that go really directly through the customers. So we're actually interest and in examining and self insurance approach, where we could build this up over time, yet not half.
And to have that 7% the 900 plus million dollars impact the customers on an annual basis. So it's a unique construct and we think it's 1 that we put forward of the CPUC and are hopeful there is a serious consideration there because ultimately for US we are going to need to continue to procure a sufficient amount of coverage that makes us comfortable and any given year to predict.
Any substantial risk there for the company.
Net net.
Really helps and just going back to the of the large proposed the underground and it makes a lot of sense I can see the efficiency of of doing a large program and the benefit and.
And I Wonder if you could talk a little bit more about sort.
The portion of your vegetation management and relate into these 10000 miles over what kind of time period.
That can be reduced is it fairly linear meaning as you underground and your vegetation managed program from kind of proportionately decline potentially or is it just too early to say how are you all kind of thinking about that.
And again.
Well, Steve and we are obviously and early days of building out the plan and that will determine exactly which miles we're going underground, but conceivably you could imagine the mile for mile swap because we're going to continue to Kent.
And that we would have and the absence of underground and continued to vegetation.
And to manage the vegetation and near any of our trees are near any of our lines and so.
As we underground and you can imagine that's 1 last mile converge manage and of mild for miles slop and so that's really where the benefits are realized for our customers I mean.
The 1 point for.
$4 billion of annual expense and vegetation management is.
Expenses for our customers today, and so to have a permanent repair of permanent fix of permanent risk elimination to make it safer and not have the ongoing annual maintenance expense really does benefit.
Benefit customers on 2 fronts safety risk and affordability.
That's correct and maybe just following up on that how do the terms of the customer.
Bill outlook.
It looks like the bill for residents is going up quite a bit over the next 2 years and then it slows down.
And is there a possibility of kind of sculptors. So that there is some further kind of customer bill pressure and the and the near term on the next couple of years when bills are going up quite a bit or how do you how much this kind of be feathered into the overall bill.
Yeah, It's a little early to say that we do know just at the highest order you can see that and the early years of the swap there's been.
And the swapping of expense for capital of the benefits of realized earlier that can help soften our our curve and the near years and.
Our big opportunity here and I can tell you with fresh eyes looking at how we do our work where we do our work we have so much opportunity to scrub out costs from our system.
And we're building that into our plans and we're starting to build the capability and it's early days, but I can tell you our lean operating system. We all know will help us provide higher value for customers at a lower cost to deliver and we'll look forward to and it's probably really too just set expectations properly probably early in Q.
Q1, 2022, where we will show you the long term financial plan and what are the implications then for customers 1 of the implications for capital and how does the whole.
Plan come together, and we'll look forward to doing that.
Great. Thank you so much thanks Steven.
Your next question comes from Ryan Levine with Citi.
Hi, good morning, Thanks for taking my question.
What was the process and analysis that led to the proposal to the underground 10000 miles of line and how did you arrive as 10000 of the right number.
So as I mentioned in my prepared remarks, you know there was a series of observations that I had new on the ground the underground and might be a better solution set but it was truly working with our team and seeing what we're doing and viewed that really connected the dots are cost to achieve.
Ive has been reduced dramatically, we've got and absolute evidence of in the $2 million of mile real time happening as we speak and we know that's before we even have a full scale program. So we knew that the affordability was real the 10000 miles matches up to our highest.
This risk Myles as we look at the high fire threat.
Areas, our total lines that are in those areas.
And so we really wanted to make sure that we were both planning for today's risk and any additional risk that might occur as climate conditions become more extreme and so that's really what drove the asked.
And that's what's the the building block of the plan, but as I've mentioned, we're going to not set of a feeling if you will that's really just an aspiration that will then engineer and and rollout of full scale play on that people can have better visibility, but we want to do that play on with others. This is a significant benefit to the people of California and.
Aspirate share we do it in the way that they feel part of the process that we have an opportunity to build relationships and trust and.
And involvement from our critical stakeholders, how we embark on this.
Really ambitious goal of that people have been asking us to do everywhere I go somebody says it can't be just the underground it.
We want them on so proud of this team for being able to see the potential and something that hasn't been done before and save the in fact, we can do that here at P. J D.
Thanks and the.
August 5th final vote on the securitization.
That being on appeal for the.
Assuming that that becomes a favorable decision.
And sort of the company.
Sure Ryan.
Actually close out the issue of the CPUC. That's the important importance of the vote on August 5th there could be the judicial review for the limited period of time after the if the.
The intervenors sought to take another stab, but again because it's on a good track again, because we continue to aim at the end of this year early next year to execute.
And the securitization.
Okay and then the last question and just to clarify can you confirm that and whether or not the company issued any shares.
So far year to date, and the VIX and trusts and sold any shares subsequent to the July 7th.
The final agreement on.
On the graduate of crush decision.
Sure thing Ryan no shares from the company and none from the fire of victim Trust and in fact of the fire victims Trust provided in early July update public update where they have indicated they have roughly.
$5.8 billion cash on hand at this stage and have distributed roughly 430.
<unk> million dollars, which as you can imagine puts them in a good cash position to make sure that theyre resolving claims for victim.
And I appreciate it partisan thanks Nick.
Thanks Ryan.
And at this time there are no further questions I'll hand, the call back for closing remarks.
Thanks, Ashley. Thank you everyone for joining us we really do look forward to seeing you and I can't wait for you to see what I'm seeing here every day and Thats an extraordinary team under extraordinary circumstance stances will see August 9 thanks, so much.
That concludes today's conference. Thank you for your participation.
And now disconnect.
Okay.