Q3 2021 PG&E Corp Earnings Call

November 1, 2021

Yeah.

Thank you for standing by and welcome to PG&E corporation third quarter 2021 earnings call. I would now like to turn the call over to Matt Fallon senior director of Investor Relations. Please go ahead.

Corporation third quarter 2021.

I would now like to turn the conflict right, it's not Ballan senior director of Investor Relations. Please go ahead.

Thanks, Jenny good morning, everyone and thank you for participating in PG&E's third-quarter earnings call. Joining us today are Patty Poppy, our Chief Executive Officer, and Chris Foster Executive Vice President and Chief Financial Officer.

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 forward-looking statements about our outlook for future financial results.

These statements 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 in the second page of today's third-quarter earnings call presentation.

The presentation also includes a reconciliation between non-GAAP and GAAP measures. The presentation can be found online along with other information on investor.pgecorp.com.

The presentation can be found online along with other information on Investor Dot PGE Corp Dot com.

We also encourage you to review our quarterly report on Form 10-Q for the quarter ended September 30th 2021. Before I hand it over to Patty.

Before I hand, it over to Patty.

I'd like to thank all of you who attended Investor day, either in person or virtually and we look forward to seeing you again at ADI.

Thanks, Matt and hello, everybody. Thank you for joining us today. This quarter, we delivered non-GAAP core earnings of 24 cents per share.

This quarter, we delivered non-GAAP core earnings of 24 cents per share.

We're reaffirming our 2021 non-GAAP core earnings per share guidance of 95 cents to $1.5. And we no longer expect to issue equity in 2021.

And we no longer expect to issue equity in 2021.

We continue to see rate base growth of 8. 5% and longer-term earnings per share growth of 10%, Chris will provide more details on the financial in just a bit.

As you saw at Investor Day, our experienced team is driven and focused on delivering clean energy safely every day.

We have a very sophisticated and continually improving PSPS algorithm year over year. In fact, when we backcast our current models to the previous utility caused fires between 2012 and 2020, we would have prevented 96% of the structural damage had the current model been in place.

This year, we also implemented enhanced powerline tasty settings to address wildfire risk we face from extreme drought conditions. In fact, since the end of July through mid October we saw a 46% decrease and CPUC reportable Ignitions in high fire threat district, and an 80% reduction in Ignitions on unabled circuits.

Oh circuits.

These enhanced safety settings make our system and our customers' safer.

We're delivering on the 2021 wildfire mitigation plan with our lean operating system and applying it across the entire company to deliver predictable outcomes for customers and investors.

In addition to quarterly operational, financial and regulatory updates, I'd like to spend some time on the work done and the changes made since 2019 that make our system safer and more resilient. Let's start on slide four with how we've improved our PSPS program since 2019. In 2019, we had seven events that impacted over 2 million customers. Since then we've installed approximately 1300 weather stations, 500 high definition cameras and over 1100 sectionalizing devices to better pinpoint exactly where we need to initiate PSPS.

Let's start on slide four with how we've improved our P. S. P. S program since 2019.

2019, we had seven events that impacted over 2 million customers. Since then we've installed approximately 1300 weather stations 500 high definition cameras and over 1100 sexualizing devices to better pinpoint exactly where we need to initiate P. S. P. S.

Our 2021 PSPS algorithms are informed by more granular weather forecasting and we're using tech not sell the software to incorporate machine learning into our fire spread modeling. So we can better predict where the risk is on our system in real time.

Our continuous improvement approach applies to addressing safety risks, while minimizing disruption to our customers.

As you can see on slide five our model shows that buyback casting our new 2021 PSPS algorithm onto 2012 to 2020.

We would've prevented 96% of the structural damage from fires caused by overhead electrical equipment in our service area.

As you know this year, we experienced extreme drought conditions in our service area. Due to these conditions, we saw fire spread a non red flag warning gaze, we assess these risks and identified where we needed to focus.

Guided by former Cal fire and local fire authority personnel, who now work for PG&E, we implemented additional wildfire mitigation and our high fire threat areas. You can see the results of our safety focus on slide six.

You can see the results of our safety focus on slide six.

We've compared the data since we implemented our enhanced power lines safety setting against the most recent three year averages.

What we've seen is a 46% reduction in CPUC reportable admissions and our high fire threat districts from the end of July through mid October.

On the specific circuits, where we first implemented the enhanced powerline safety settings, we've seen an 80% decrease in ignitions over the same time period.

We're working hard to reduce the customer impact from these new necessary protocols.

We've optimized our protective device settings on all circuits that have enhanced power lines safety settings, and we've adjusted our circuit restoration procedures.

These enhancements are making out into smaller and faster to store, while still removing the emission risk.

We're communicating transparently our commitment to preventing fires a consequence to communities where enhanced car line safety settings are in place.

Let me make it real with one story. On Monday, October 11th we initiated a PSPS event that affected about 20000 people. The wins came in as forecasted.

On Monday October 11th we initiated a P. S. P. S event that affected about 20000 people the wins came in as forecasted.

And in 33 instances outside of the PSPS films and the highest wind areas. Our lines automatically de-energised due to the unpredictable disturbances and potential risk was mitigated.

Airlines automatically de-energize due to the unpredictable disturbances and potential risk was mitigated.

We know our protocols are working. We will continue to work around the clock to make these solutions less disruptive to customers and know that we are keeping them safe, while we do that.

We will continue to work around the clock to make these solutions less disruptive to customers and know that we are keeping them safe, while we do that.

Our experience since implementing these settings in late July will serve as an important guide for 2022 planning.

As we continue to keep people safe each day I wanted to talk a bit about the risk reduction work we've completed since 2019.

Let's start on slide seven with our enhanced inspection. As you can see, we're on track to complete our enhanced inspections on half a million assets in 2021, and our high fire-threat areas.

You can see we're on track to complete our enhanced inspections I'm half a million assets in 2021, and our high fire threat areas.

These inspections are scheduled to be conducted every year on all assets in tier three and every three years for all assets in tier two.

At the bottom of this slide you'll see a couple of points on a routine inspection program. Which gets a lot of attention internally, but really isn't well known outside of PTNE.

Which gets a lot of attention internally, but really isn't well known outside of P. T.

As you can see in the green box, we conduct vegetation management inspections across our entire system annually. And in high fire-threat areas, we patrol those conductors twice a year.

In 2020, one we plan to complete 1800 miles of enhanced vegetation management work combined with what we completed in 2019 and 2020 adds up to over 6000 miles by the end of this year.

While we're focused on keeping people safe with inspections and vegetation management. We're also focused on the longer-term hardening of our system.

Also focused on the longer term hardening of our system.

In the last three months, we've made great progress against our multiyear 10000 mile Underground program, our engineering team of scoping out the work and you'll begin to see in our 2022 wildfire mitigation plan.

Our goal is to engage the entire community around the imperative of undergrounding and we are succeeding. We're engaging stakeholders, who are underground advisory group with representatives from environmental groups Labor, Telecom, consumer advocacy groups, counting tribes among others.

And we're gathering ideas on innovations and engineering equipment and construction from the world's best through our RFID process.

We're continuing to work on system hardening as you can see here and we'll provide an update on how we're thinking about that work as we further develop our undergrounding program.

As a sneak peek I'll share one project, we completed this year. On September we completed undergrounding power lines in Santa Rosa, which resulted in 11000 customers, who will no longer be impacted by PSPS. This is one of many projects.

September we completed underground power lines in Santa Rosa, which resulted in 11000 customers, who will no longer be impacted by P. S. P. S. This is one of many projects.

This is the right solution for our customers in that area and that's why we did it. Simple solutions based on customer needs. As I mentioned more to come on our underground plans as we move into early 2022.

Simple solutions based on customer needs as I mentioned more to come on our underground plans as we move into early 2022.

And PG&E effective implementation of our wildfire mitigation plan is enabled by our lean operating system, which we're deploying across the entire company.

Every day, we have over 1200 daily operating reviews, beginning with our crews closest to the work first thing in the morning, and cascading to our executive operating review.

These brief 15 minutes huddles provide daily visibility on the metrics that matter most. Helped us identify gaps and quickly develop plans to support our teams closer to our customers, giving us control and predictability of our operations.

As you know this summer we were challenged by the Dixie fire and the impact of fire head-on all of our customers.

I'll repeat what we said since Investor day, our actions around Dixie were those of a reasonable operator.

And we're confident in the framework created by AB-1054. AB-1054 resulted in a wildfire fund to provide liquidity for resolve claims.

Maximum liability cap for reimbursement by Investor owned utilities, and enhanced prudency standards, when determining that reimbursement amount.

We're reflecting that view in our financial statements, which show a gross charge of $1.15 billion, we've booked an offsetting $1.15 billion receivable that reflects our confidence to recover cost.

As I highlighted, PG&E is working hard every day to deliver clean energy safely. We're building on the mitigation programs we started in 2019.

We're staying nimble to respond to current conditions and we are improving our performance enterprise wide.

For example, our team just last week responded to an atmospheric river weather event.

That included among the highest rainfall totals observed in a 48 hour time frame ranging from 16 inches at Mt. Tam to five inches in downtown Sacramento.

The strongest wind gusts recorded was 92 miles per hour for mines tower in Alameda County, with at least a dozen other locations experiencing gusts greater than 69 miles per hour.

Even in the face of returning service to 632000 of the 851000 customers impacted within 12 hours.

132000 of the 851000 customers impacted within 12 hours.

I am very proud of the safe and rapid response of our team. Now I'll hand it over to Chris to cover financial and regulatory items.

Now I'll hand, it over to Chris to cover our financial and regulatory items.

Thank you, Patti. As Patti referenced earlier, our financial plan remains on track and is supported by a regulatory construct. I'll cover the highlight first then go into more detail. Today, we're [inaudible] that we no longer see the need for equity in 2021.

As Patti referenced earlier, our financial plan remains on track and is supported by a regulatory construct.

Cover that.

So I'll highlight first then go into more detail.

Today, we're in now.

One thing that we no longer see the need for equity in 2021.

We're reaffirming our non-GAAP core EPS guidance for this year and we anticipate issuing our 2022 guidance on our Q4 earnings call.

Additionally, we're seeing progress on recoveries related to prior wildfire risk reduction investments helped the balance sheet.

Let's start with the share count used for Q3, 2021 and year to date, GAAP and non-GAAP core earnings per share.

We're in a GAAP loss position for both both Q3 2021 as well as year to date 2021 due to our grantor trusts election this quarter.

As a result, we're required to use basic shares outstanding to calculate both GAAP EPS and non-GAAP core EPS for Q3 and year to date.

Our full-year guidance as always assumed a GAAP positive year and our full-year non-GAAP core EPS of 95 cents to $1.05 per share reflects our fully diluted share count. So there's no impact there.

I'll start with our Q3 results. We continue to be on track for the 2021 non-GAAP operating EPS of 95 cents to $1.5.

We continue to be on track for the 2021 non-GAAP operating EPS of 95 $2 five.

This is calculated using our fully diluted share kind of just mentioned consistent with our assumptions when we initiated guidance. Slide nine shows the results for the third quarter.

Slide nine shows the results for the third quarter.

Non non-GAAP core earnings per share for the quarter came in at 24 cents.

We recorded a GAAP loss of 55 cents, including noncore items.

This quarter, we recorded a $1.3 billion charge, we've previously guided to as a result of our greater trust election.

As you recall this charge is expected to reverse over time as the fire victim trusts sells shares. Moving to slide 10. As Patti mentioned, we took a $1.15 billion charge this quarter for the Dixie fire.

Moving to slide 10.

As Patti mentioned, we took a $1.15 billion charge this quarter for the Dixie fire.

We also recorded a 1.15 billion of offsetting receivables. And the receivables reflect our covenants to recover costs based on the facts and information available to us today.

And the receivables reflect our covenants to recover costs based on the facts and information available to us today.

And as a reminder, we recognize a receivable as we believe recovery is probable under the applicable accounting standards.

Due to the fact currently available we're not improbable for recovery of amounts exceeding insurance for the 2019 Kincade in 2020, Dogfighters. Therefore, we haven't recorded offsetting receivables for either of those fires.

On slide 11. We show the quarter over quarter comparison for non-GAAP core earnings of 24 cents per share for Q3 2021 versus 22 cents per share for Q3 2020.

We show the quarter over quarter comparison for non-GAAP core earnings of 24 per share for Q3 2021 versus <unk> 22 per share for Q3 2020.

EPS increased two to three cents a growth in rate base earnings, 2 cents from using basic share count as a result of the GAAP loss I mentioned earlier.

<unk> from using basic share count as a result of the GAAP loss I mentioned earlier.

And a penny from lower wildfire mitigation costs. Partially offset by a penny decrease due to timing of taxes that will net to zero over the year.

Partially offset by a penny decrease due to timing of taxes that will net to zero over the year.

We expect a stronger fourth quarter due to timing of some regulatory revenue and efficient execution.

Moving to slide 12. We're reaffirming our non-GAAP core EPS of 95 cents to $1.5.

We're reaffirming our non-GAAP core EPS of <unk> 95 cents to $1 five.

On the debt side, we expect to complete an initial 810 54 securitization transaction this month for $860 million.

$860 million.

Our separate rate neutral securitization has also been approved by the CPUC and once we resolve the final legal steps, we anticipate will start issuing bonds early next year.

Now some updates on regulatory matters. I'll specifically highlight important filings, reflecting both our focus on timely cost recovery for historical spend and our focus on the planet supporting California's clean energy future.

Specifically highlight important filings, reflecting both our focus on timely cost recovery for historical spend and our focus on the planet supporting California's clean energy future.

Turning to slide 13. At the end of the third quarter, we requested cost recovery for approximately 80% of the unrecovered wildfire-related costs on our balance sheet.

At the end of the third quarter, we requested cost recovery for approximately 80% of the Unrecovered wildfire related costs on our balance sheet.

And we already had a final decision settlement agreements for interim rates for roughly 60%.

In September we filed a settlement agreement for our 2020 wildfire mitigation and catastrophic events application.

Our request was $1.28 billion comprised of prior wildfire expense, including costs that were incurred in 2018.

Given some of these cost predate the wildfire mitigation plan construct we feel the settlement of $1.04 billion is a reasonable outcome.

Most recently on this front in September, we filed for recovery of $1.4 billion of additional wildfire mitigation and catastrophic event costs.

Most of the costs were incurred last year and under our proposal most of the revenue would be recovered in 2020. Q3 in 2024. You should expect to see similar filings in the coming years as we seek timely recovery of any incremental spend in these areas.

Q3 in 2024.

You should expect to see similar filings in the coming years as we seek timely recovery of any incremental spend in these areas.

Next I'll cover a brief update on our cost of capital application.

In late August we filed our cost of capital application for rate freeze and cost of capital for California utilities, I've seen from higher interest cost and equity issuance costs.

At this stage, we'll follow the recent direction by the administrative law judge and for all materials that would have been included in the cost of capital adjustment mechanism advice letter by next Monday.

The filing will include calculations of the ROE, cost of debt and the resulting overall return on rate base from the operation of the adjustment mechanism.

Cost of debt and the resulting overall return on rate base from the operation of the adjustment mechanism.

The Alj's order asked us to submit the relevant information into the cost of capital proceeding rather than requesting us to do.

Our focus on the triple bottom line of people planet and prosperity is also not slowing down. The adoption for underserved communities.

Triple bottom line of people planet and prosperity is also not slowing down.

The adoption for underserved communities.

And of course support account enough gas reduction goals. The extension of our fully subscribing successful EV charging network program. We request.

43 enough gas reduction goals.

The extension of our fully subscribing successful EV charging network program.

We request.

I think a total revenue requirement of roughly $225 million from 2023 through 2030.

We'll provide the infrastructure to support it. 10000, new charging ports. Which is just scratching the surface to meet the demands of our customers.

10000, new charging ports.

Which is just scratching the surface to meet the demands of ours.

Our customers.

Through today are driving nearly 20% of the electric vehicles in the country.

We are proud to serve the largest base of customers owning in purchasing [DDS] in the US.

Political need to reduce wildfire risk in the near term. While running the business. The long term.

While running the business.

The long term.

We're investing in needed wildfire mitigation and we've eliminated the right investments to deliver clean energy safely to our customers.

The right investments to deliver clean.

Energy safely to our customers.

With that I'll hand it back to Patti.

Thanks, Chris. Every day, we are more and more excited about the future we're creating here at PG&E. You can see the difference that's being made and the value to be unlocked.

Every day, we are more and more excited about the future we're creating here at P. T.

You can see the difference that's being made and the value to be unlocked.

We continue to reduce wildfire risk and we're encouraged by the protections we have in place for our investors in the hometown, where we live and operate.

Our 2021 PSPS protocols ignitions in the resulting damage. Given our current drought conditions.

Given our current drought conditions.

Okay.

We're focusing our work to make our system safer everyday we're adapting based on what we learn so we can best serve our customers and you, our investors.

We will deliver on the financials and we will continue to implement the necessary processes to run a high performing utility. Jenny. Please open the line for Q&A.

Jenny Please open the line for Q&A.

Okay.

If you have a question press star one on the telephone keypad. So my first question is from Jonathan Arnold. With Vertical research.

Yeah.

So my first question is from Jonathan Arnold.

With vertical research.

Good morning, guys. Thank you for the update. There's a couple of question just picking up on your comment on cost to capital. Does the fact that the ALJ didn't require the actual advice letters suggests that rates might stay where they are pending resolution of the applications?

There's a couple of questions.

Just picking up on your comment on cost to capital.

Does the fact that the ALJ didnt require the actual advice letters.

Suggests that rates might stay where they are pending resolution of the conflict patients.

Or is it early to tell and we need to wait for the scoping memo or some other directive on that?

Sure. Good morning, Jonathan and again, just as a reminder for everyone. The trigger mechanism itself would have implied a 60 basis point reduction, which for us is roughly six tenths of EPS. In terms of the current state of affairs will be filing this next set of information next Monday, but it is true Jonathan that our position is that the rates are not adjusted.

Current.

State of affairs will be filing. This next set of information next Monday, but it is true Jonathan that our position is that the rates are not adjusted.

January 1st 2022 by the Alj's ruling and so that's definitely our position at this point. Tough to know until that to your point, we see a little bit more in terms of the scoping memo, but we do think that was a good development in terms of how the Dodgers treating that next step.

Okay, great. Thank you. And then. I guess sort of stepping back a little bit and considering the taking out of the equity out of this year. And then the securitization you were about to do. At what point in the annual report outlook does the utility arrive at a point, where it can stop delivering?

And then.

I guess sort of stepping back a little bit and considering the the taking out of the equity out of.

This year.

And then the securitization you were about to do.

At what point in the annual report outlook does the utility.

Yes to arrive at a point, where it can stop delevering.

Absolutely, we're looking forward to that Jonathan again, our commitment is really twofold first to lay on that period in which we exceeding it accumulative 6.2 billion. It roughly. Midyear in 2023, when we'd be in a position to reinstate the dividend and certainly would be partnering and Patti myself partnering with our board to really evaluate what makes sense in terms of reinstatement level and growth rate at that stage.

Lay on that period in which we.

Exceeding it accumulative six 2 billion.

It roughly.

Midyear in 2023, when we'd be in a position to reinstate the dividend and certainly would be partnering.

Patti myself partnering with our board to really evaluate what makes sense in terms of reinstatement level and growth rate at that stage.

But I was just kind of like about restriction is on the parent company dividend. Can the utility stock dividend to the parent. We pulled out or is it also.

Striction is on the come in the parent company dividend.

Does the utility stock dividend.

To the parent.

We pulled out or is it also.

At this stage you may have seen that we have disclosed this quarter actually an intercompany loan. So I think at this point, we've got the path to make sure that we're feeding the holding company for any needs. It has Jonathan it would still be of the view that the Holdco reinstatement.

Feeding the holding company for any needs. It has Jonathan it would still be of the view that the holdco reinstatement sure thing.

Your next question is from Steve Fleishman with Wolfe Research.

Yeah, Hi, good morning can you hear me? Steve. Yes, we can hear you Steve good morning. Thanks. I'm curious on the proposals from the. The Democrats in their infrastructure bill.

Steve Yes, we can hear you Steve good morning.

Thanks.

I'm curious on the <unk>.

But the proposals are.

From the.

The Democrats.

And this and this.

And the infrastructure Bill.

And one of the proposals is this minimum effective tax rate. And I know it's early on and I know, it's not passed but. Is there any risk that that could kind of impact the ability to get all your NOL and then also the securitization tied to the NOL?

And I know, it's early on and I know, it's not passed but.

Is there any risk that that could.

What kind of impact the ability to.

Get all your NOL and then also the securitization tied to the NOL.

Sure, Steve. Good morning. Thanks for the question. I think at its highest level. It is definitely a little bit early in terms of our initial read of this just given the draft was provided I believe last Thursday.

There's really a couple of things going on, first is that the tax Nols to derive separately are not impacted by book minimum tax.

The tax Nols to derive separately are not impacted by book minimum tax.

The proposal really is focused on book Nols. And then second as you can imagine just kind of going forward very traditionally these costs are considered costs that are part of the cost of service and are pass through to customers. So it's a bit early to know exactly how this will play out and certainly the draft again in DC could change again, but at this stage I don't see an immediate impact coming from the alternative minimum tax.

From the alternative minimum tax.

Great. And then. Question just on the zero equity this year. It does also look like the contribution. The 1 billion contribution to the securitization was moved to next year does that mean the equity could have been moved to next year then? Or not clear yet?

And then.

Question just on the Euro.

This year. It does also look like the contribution of.

1 billion contribution to the securitization was moved to next year does that mean the equity could have been moved to next year then.

Or not.

Not clear.

Not necessarily, Steve, we've consistently articulated that our focus has been on resolving really prior legacy legal issues. And that has driven some of the equity need.

Legacy legal issues.

She isn't that has driven some of the equity need.

As we disclosed today, we made some progress in particular on the Zogg fire.

I would say is it is true and we've been signaled pretty clearly here that any additional impact there as it relates specifically to the customer credit trust would be something that would move into 2022, meaning that that first $1 billion payment rate would be only occurring after we have completed the securitization itself. So don't see a risk there.

The securitization itself.

So don't see a risk there.

Okay. That's great and then just lastly on the Dixie fire costs. I know there was obviously a large fire in terms of the acreage but the impact in terms of structures seem to be relatively small and so I'm a little surprised that the size those costs relative to just structures. Could you just maybe give us a better sense of what might explain that?

I know there was obviously a large fire in terms of the acreage but.

<unk>.

The impact in terms of structures seem to be.

Relatively small and so I'm a little surprised that.

Size those costs relative to just structures could you just maybe give us a better sense of.

What might explain that.

Sure. And traditionally what we will do, Steve, every quarter will consistently update this at this stage.

And traditionally what we will do Steve every quarters will consistently update this at this stage.

When you look at the totality of structures impacted what's going on there as you have a mix of a few things. First, is the roughly 1400 structures that were damaged or destroyed.

Two, there is also an element of our commercial area of downtown area that was impacted specific affinity. And then third, there are some areas, where we have to contemplate the potential for private timber operations, which would have on top of each other you get to the point, where we get in terms of those private claims recoveries and the charge we disclosed today of $1.15 billion.

On top of each other you get to the point, where we get in terms of those private claims recoveries and the charge, we disclosed today of $1 5 billion.

Okay, and your ability, the AB-1054 is what allows you to be able to offset the right off. Which shows some conviction on being prudent.

So right off.

Which shows some conviction on being prudent.

Conviction.

Being prudent.

Yeah, and Steve just to add as acting as a reasonable operator, you know. One of the interesting things about this fire. Got you all sort of questions. Many of them, through to his questions. That's supportive of a reasonable operator, and with the AB-1054, new prudency standard fit is a presumed that does. We feel gives us confidence. And it gives us confidence in the accounting treatment.

One of the interesting.

Things about this.

Fire as well.

Got you all set of questions.

Many of them.

Click through to his question.

That's supportive of reasonable operator, and with the <unk> 10, 54, New Prudency standard fit is a presumed.

That does.

We feel gives us confidence and.

It gives us confidence in the accounting treatment.

Great. Thank you Steve. Thanks for those questions and again, what we did in terms of the materials this morning for everyone, is if you go to slide 10, we gave a pretty defined breakout of the different components of potential recovery.

He did in terms of the materials.

Good morning for everyone is if you go to slide 10, we gave a pretty defined breakout of the different components of potential recovery.

And so there, but there are a few other recovery components, there that we broke out for everyone this morning. Thanks for that question, Steve.

Recovery components, there that we broke out for everyone. This morning, Thanks for that question Steve.

Your next question is from Julien Dumoulin Smith with Bank of America.

Thanks for the time.

Good morning Julien.

Yes. Good morning. So maybe to follow up on Steve's question there briefly can you talk to a little bit more of the process just in terms of seeing that affirmed through the AB-1054 process at least for the initial $150 million? But also speak to the process on effectively truing it up with the 600 million-plus of suppression costs and what have you.

Suppression costs, what have you been.

When do we get that affirmation that the process under the tendency for wildfire fund critical works. If you will and I know it is at times protracted here, but how do you practically see it from here given now that you've established a receivable.

Sure Good morning, Julien and I think we touched a little bit about this a little bit on this at our Investor day actually earlier this year and ultimately what would be happening here is we'd have to, first things first, work our way through the claims themselves. It's very early in terms of any kind of claims interface we're having at this stage and we traditionally have a time period that path is in terms of the first couple of years before the initial statute of limitations.

At a time period that path is in terms of the first couple of years before the initial statute of limitations.

At that stage once we resolve the claims and as we resolve the claims we only then would be we'd be bringing things forward to the wildfire fund administrator really the wildfire fund to seek potential recoveries. So if history is any guide Julien.

This could be a few years before we're having that explicit interaction. In terms of any implications related to fire suppression costs, others additional acreage impacted in national and state Forest land, but those are things we provided in the disclosures certainly today and will continue to take a look at and that's just something that every single quarter we consistently review all of these different elements and update as we see necessary. But at this stage, where we are today is the 115 and the recovery resources would be pretty limited in terms of the wildfire fund impacts here as you can imagine right. It's just that amount over 1 billion, so roughly $150 million.

In terms of any implications related to.

As fire suppression costs, others additional acreage impacted in national and state Forest land, but those are things we provided in the disclosures certainly today and will continue to take a look at and that's just something that every single quarter. We consistently review all of these different elements and update as we see necessary, but at this stage, where we are today is the 115 and the rig.

Resources would be pretty limited in terms of the wildfire fund impacts here as you can imagine right. It's just that amount over 1 billion, so roughly $150 million.

Right. Indeed, excellent and then if I could maybe just slightly different subject here, if you don't mind on the resource adequacy front, certainly we made it through the summer relatively unscathed. I'm curious to see where you stand with the state's stance against whether process oriented towards improving its reserve margins and or just execution, but I imagine that supply chain, just the ability to procure new resources of somewhat impeded the states progress, curious on viewers to state of affairs after the summer. Yes, added to the system by the end of this year and so that's all valuable for next year in total our plan is to have a total of 1740 megawatts by the end of 2023, and we're working hard to get those procurement plans in place. So that we can make up for the delays that continued to play the supply chain.

The resource adequacy front, certainly we made it through the summer relatively unscathed. One would argue curious to see where you stand with the state's stance against whether process oriented towards improving its reserve margins and or just execution, but I imagine that supply chain, just the ability to procure Luis.

Sources of somewhat impeded the states.

Progress curious on viewers to state of affairs after the summer.

Yes added to the system by the end of this year.

Here and so that's all valuable for next year in total our plan.

Plan is to have a total of 1740 megawatts by the end of 2023, and we're working hard to get those procurement plans in place. So that we can make up for the delays that continued to play the supply chain.

I'll also just say that as we're thinking about our path forward, I think in statewide it who's responsible for procuring what. We developed a strong working relationship with Cal ISO. And in transparency and visibility into what is required by when.

That I think in statewide it who's responsible for procuring what.

We developed a strong working relationship with Cal ISO.

And in transparency and visibility.

He into.

What is required by.

And so lots of I would say there is a state to make sure we have adequate. It's very important and we see the potential of distributed resources and clean energy resources in this unique time, this unique moment in time. A generational opportunity to clean energy resources, as we transition and provide more resource adequacy for the state.

There is a state to make sure we have adequate.

It's very important and we see the potential.

Distributed resources and clean energy resource.

Horses in this unique time.

Unique moment in time.

Yeah.

Generational opportunity.

Clean energy resources, as we transition and provide more resource adequacy for the state.

So leverage near what types of documents.

Requested by the October 7th so TNF from even federal investigators if you can just quickly.

Okay, so other than that.

Hi, Julien, it's Chris there's not much more detail we can provide there they do relate broadly speaking to the Dixie fire.

What I would what I would offer as well.

So that you can imagine we have an enormous amount of information in the public domain at this stage.

Through primarily due to the requests that have come through from judge also the federal monitor so.

Quite a bit of information already out we've shared certainly what we've seen from a from the U S attorney and at the end of the day, we continue to say that the fact pattern.

Reinforces that we are a reasonable operator and.

We will continue to cooperate.

Thank you for the responses guys best of luck. Thanks.

Thanks Julien.

Your next question is from Michael Lapides Goldman Sachs.

Hey, guys. Thank you for taking my question. Just a high level one commodity prices have moved a lot. That's just so everybody can look every day of the week and then you have to come down over the last couple of days a little bit. How are you thinking about the spill. Because you've got a pretty sizable general rate case request out there.

Just a high level one commodity prices have moved a lot.

That's just so everybody can look every day of the week and then you have to come down over the last couple of days a little bit.

How are you thinking about the spill.

Because you've got a pretty sizable general rate case request out there.

He's got all the various cost recovery related to wildfires that.

That are starting to flow through the build maybe not on the income statement, but on the cash flow statement and on the customer sale.

And then you've got the move in gas and purchase power costs, which have been pretty material lately.

How do you think about things that can help offset that mitigate significant Phil Creek for your customer base.

Michael Great question.

Obviously top of mind affordability is always very important to us and there's lots of things that we can do at P. G need to protect customers from bill increases, but just a couple of just a couple of facts for you in our average monthly gas Bill.

At around $50.

A 10% increase in gas prices would increase the bill about 2%.

Commodity portion of the Bill is about 25 pipeline access to many gas production basins, and we're able to that it allows us to get.

The lowest cost gas as its available and then we use our guests.

Being able to protect customers from these unusual upticks in price and protect our customers in that way. So that's an important thing and I would also say that.

As gas fuels electric prices.

<unk> electric power prices would have less than a 10% increase on our customers' overall belt felt like.

Natural gas for our customers electric usage, so I would say of many jurisdictions our customers are well positioned.

Especially given the commodity prices, but more importantly, I would suggest that we P J and evil.

All in place to protect customer investments in infrastructure that they need trading operating expense bandaid replacements for permanent long term higher value capital replacements that serve customers very well and better than deliver for investors. So that is definitely our game plan and our path forward.

Do you believe there's material millennium cost.

<unk> potential as a company in the next couple of years. So do you think it's more beyond that.

Well I think.

I think cost improvements today by Oliver already some of our well.

The visibility that we have with our daily operating review cadence.

Managing our experienced executives who are accustomed to finding cost savings on a routine annual basis I suggest those cost savings will materialize and they are materializing now and they will materialize for years and years and years to come I will share with you every moment that I spend observing our operations, which is a lot of mom.

I see great opportunities for waste elimination and cost savings for our customers.

Got it. Thank you Patti much appreciate it Youre welcome Michael.

Your next question is from Stephen Byrd with Morgan Stanley.

Hey, good morning, Thanks for taking my question. He then. Good morning, Justin. So instead of a draft legislation on Steve. Steve's question, just thinking about other provisions. Thank you Ms down 60 relevant I was certainly thinking about sort of the capital put aside for sort of. But mitigating climate change impacts. That might be able to do from a P. Any specific sector as well as just. Jason that youre that youre thinking about. And sort of. Uh huh.

He then.

Good morning, Justin.

So instead of a draft legislation on Steve.

Steve's question, just thinking about other provisions.

Thank you Ms down 60 relevant I was certainly thinking about sort of the capital put aside for sort of.

But mitigating climate change impacts.

That might be able to do from a P.

Any specific sector as well as just.

Jason that youre that youre thinking about.

And sort of.

Uh huh.

Great question.

Even we have been actively engaged.

Very early on in that grid resilience to climate adaptation components of much of the infrastructure package and we wanted to make sure that there were a couple of things that were recognized in that.

Ill package, one is making sure that we.

We can have support for our customers.

Vegetation management, which is a high expense item for us as well as other grid hardening solutions micro grid or even under grounding. So.

And we see those elements in the package today now you. Your guess is as good as mine of what's actually going to get passed but they continue to be in the revisions that we see coming forward. So we think that's a good sign. We also are very supportive of additional funding for the federal foreign.

<unk> service.

The U S Forest service.

That's a very important role to play here in California, and we're working in partnership with them on fire prevention and fire mitigation efforts and making sure they have the appropriate staffing.

So that in the event of fires theyre able to adequately respond and so U S Forest service.

And then ultimately obviously.

Clean energy transition.

Been leaders in that P. J D. You know today, we have an 85% greenhouse gas free.

Generation mix and we're proud of that and we're proud of the leadership position, we've shown nationally on that front.

We want to make sure that.

Right.

Net debt the infrastructure package continues to reflect our early mover. If you will people who have advanced in clean energy.

Early we want to make sure that the package definitely recognizes that so we've been working closely with our D C office, and <unk> and others to make sure that the clean energy components of any of that legislation is favorable.

That's really helpful. Studying maybe just building on the point about fire risk cost mitigation.

Thinking a lot about that magical eight to one ratio of capex to O&M.

O&M costs can be.

But instead will support could that potentially allow you to sort of.

Accelerate.

The way that it does not.

Customer bills because of that total support or is it kind of unclear, but this one well.

I would say there's lots of reasons why our customers will not be harmed economically by our underground program first and foremost even without federal assistance.

Your point about the tradeoff between Opex to capital is a key enabler to finding that underground program, we know that the ongoing and Ah NL.

Enhanced vegetation management, and even our routine vegetation management program.

Has a large expense to customers.

We spend $1 $4 billion, a year on vegetation management being able to trade off.

Some of that for our capital investments in hardening the system or even so for underground for sure but also for.

Micro grids and other hardening solutions, depending on the circumstances that tradeoff is very good for our customers and we think theres, a very and we will start to demonstrate some of that in our longer term financial plans in our wildfire mitigation plan.

And you'll see at the early part of 2022.

Don't think that there's an economic tradeoff for customers to safety. We think they can both we can both have affordable energy and safe resilient energy and that's our path forward.

Understood.

I was thinking as well, but that could get accelerated even further if he could get federal support that could lower your cost structure, but I guess, we'll stay tuned to see how the specific shape up for that yeah. No. Your intuition is right on that Steven of course. It is it's certainly any support from this package will be good for customers and we've got ample capital to deploy it and if we can.

Defray some of the cost to federal support we're all for it there's definitely a lots to be done out here in California.

Very good. Thank you so much thanks Steven.

The next question is from sharp razor with Guggenheim partners.

Good morning, guys.

Morning, Shar flooring sharp.

Just a real quick on the equity obviously, you guys removed it for this year, but I'd love to get a little bit of a sense on sort of the moving pieces. As you are thinking about financing, which seems to be a relatively ambitious capex plan right. So as you're thinking about underground in distributed generation micro grids wood.

Sort of any of those programs push you to issue equity I guess the broader question is what would push you from zero or do you think sort of pattern with the amount of levers that you have at your disposal like on the O&M side, but.

But you can leverage that opportunity versus having to mitigate versus having to actually raise future equity.

Hey, Shar, it's Chris I'll go into this I think.

So I think Theres a couple of factors first we will be growing into our underground plan a bit that's the way I would think about it as we start to reduce operating expense.

And work into that and integrating plant. It will occur over time, we will really start to disclose more details there as part of our 2022 wildfire mitigation plan in February.

We haven't guided towards 2022 equity needs at this stage, specifically, but we would intend to do so again at Q4 and provide more color at that stage I wouldn't necessarily just offhand consider though what I'm getting at here underground or for that matter kind of Dr related investments driving of an image.

<unk> equity need others.

To be something we're really growing into this plan overtime.

And then just on the underground I'm curious right.

In the slides reiterate the plan through 2006 with underground remain quote unquote, a potential opportunities bucket are there I guess, how do you are there any changes to the scope or timing that you're contemplating for <unk>.

An undertaking from your prior messaging as the CPUC is starting to more actively inquire about your plan. So net net I guess can you do more cheaper and faster.

I would say, we're very bullish on that short.

We have started to have.

Our global RFID for construction and engineering firms and we received about 25 responses they were very.

Elaborate I mean.

We're doing a face to face discussions with seven of the firms.

And Theyre very affirming.

It's very exciting we can't wait to share more details and we will but I'll just tell you that we feel more convicted than ever that this is an important part of the solution and I will reiterate that our capital program is very expansive in an underground as a portion of it we do think that it's an important portion of that but I can tell.

I heard about just one example of a job last week, where underground as we speak and as we observed at work.

We see tremendous opportunity to reduce the cost of doing that work and when we're at scale and so and the impact that project was in about the two five to $2 $7 million a mile range and that the current active project that is not what I would describe at scale.

We will be at scale and when we are the costs are inherently lower and so we are very very bullish and all of the feedback we're getting from people if they do a lot more information than I am.

We have to respect the cpuc's role to affirm that that's the right plan, but knowing what we know and what we can see moving forward, we're very confident that as people see the numbers and the plan. They will feel very excited just like we do know that that's helpful. And then I think investors would like to see that 10000 mile target triple, but but thank you for that.

And then and then just last one I apologize I had to hop on and off the call, but can you just maybe comment on the 21 there'll be M. P update, especially as the resolution would require the 'twenty two there'll be M. P.

Gaming, including sort of an explanation of the underground plans does it kind of complicate the preceding or is it.

Thank you.

Yeah, well just a couple of things.

Just to touch on so the goods.

The wildfire mitigation plan was approved by <unk>.

The CPUC ratified that safety certificate or a ratified our plan on April 21, 2021, and then I will shortly file.

Or our safety certificate.

We do have a required safety meeting on Wednesday November 10th with the CPUC in <unk> as we look forward to that opportunity to continue to talk about our plans.

And so then shortly thereafter, we'll file our 2022 wildfire safety certificate.

For now.

Now currently that wildfire safety certificate and we currently have in place.

Hill following preceding happened so we feel very that the process is happening as that Scott. We think it's a great opportunity to talk more about our underground plans in our 2022 wildfire mitigation plan, but we'll file that in February of next year. So no red flags as far as we're concerned we feel good about how it's progressing.

Fantastic. Thank you guys seem a few days I appreciate thanks Shar.

Once again, if you have a question.

Jim Press Star one on your telephone.

Keith.

Your next question is from.

Jeremy Tonet with Jpmorgan.

I think outside of Dixie I think it's pretty clear that wildfire season has been much less active versus recent years much of this might be a factor weather conditions and how much might be evidence of any mitigation the investments you've been doing so far.

Really starting to.

Turn the corner.

Well Jeremy I appreciate you asking the question because it's a good opportunity for us to reiterate that we believe that our safety measures that we've put in place the investments that we've made the vegetation management fee inspections and the enhanced power line safety settings, combined with PSP has made our system safer and our.

Our customers are safer and therefore, our investors are as well as a result.

Certainly we were not disappointed tableau early rain and marine is fourth.

Our cast today and later this week and that all makes us feel good but as we look at our ignition right that is the most compelling statistic in my opinion and I encourage everyone to look closely at it.

And in the areas, where we implemented our EPS as we've had an 80% reduction in ignitions I attribute that to that measure.

I'll also say that given the drought conditions that we experienced this year historic extreme drought, we have fared extraordinarily well and again I am managing the vegetation and getting those inspections.

Yes.

Got it that makes sense and maybe just kind of picking up on your point there given the success of these enhanced safety settings, what percentage of the high risk circuits can you expand these too and how long might that take.

Well again, we can be very targeted about this we know where a dynamic tool that we can use it here.

We've had around 50.

For that next year, we could do 100%, but it doesn't have to it's not like an on off when we can see the conditions warrant.

Can be very very targeted and we've done some work to really optimize the device settings to shrink the impact the time to restore now is much closer to what the time to restore was before we put it in the settings, because we've shrunk the impact of each of them.

Both have become more effective and more targeted so I would just suggest that our.

Yeah.

Demand for our team's response this year has been extraordinary, particularly given the conditions and we now.

The ultimate solution is a hard and systems.

And that is designed and built to be resilient to wildfire and that's why our underground ing and all of our other mitigation are a very important path forward by in the meantime today every day customers on our system are safer because of the measures that we've taken.

Got it that's helpful and just one last one if I could here and understanding in the underground and announcements as most topical and some of them.

Anything other than his top priorities.

So one.

Yeah, I think it's really continuing to streamline our vegetation management and are hardening plan I do think that you'll see more of these.

There's a lot of.

The circumstances, where we have a long radio running through a forest. The we can just eliminate and don't even underground. It just equip those people at the end of that line with the distributed energy resource that is.

Both clean and resilient to wildfire and lower cost and so we do think there is a variety of solutions that you'll see more of in our wealth.

Our mitigation plan for 2022 and beyond.

Great that's very helpful. I'll leave it there thanks.

Thanks, Jeremy.

The next question is from Ryan Levine with Citi.

Thanks for taking my question kind of the gas at the gas utility is hedged.

Hey, Ryan it's Chris.

You can imagine we don't disclose at that level.

The commercial decision, making for us, but I would just offer again to reiterate what Pat had mentioned is when you combine the gas storage. We got when you combine the availability from the basins that we have you combine the hedging the limited volatility.

And the fact that we have cost true up annually. It. It really is combined at a really good solution for customers and clarity for investors.

Okay, but just to be clear the 10% increase.

Pact on customer Bill.

It is on a hedge basis and to that end.

Just to confirm that and then does that assume about three of them.

I wouldn't I wouldn't think about that Ryan is netting.

The hedging impact.

So think about that just as a basic rule of thumb.

Okay.

That's been completed and how much more.

Or it's possible.

Year under the current regulatory construct.

Well, that's what we're excited to share at the beginning of next year, you will start to show your miles.

Hi.

And we're so excited about that's why I wonder.

We're at a very a.

A project by project basis, now and so we can't wait to be able to share with everyone. What the ramp up plan.

And get the economies of scale with.

That ramp.

I appreciate that and then there was mention of seven parties and more face.

Face to face conversation is the intention.

Mhm for one party to emerge or more than one to the extent you're able to comment.

Yeah.

Oh yeah.

I'm looking at it could be multiple it could be one we're not sure where that's the benefit of having these conversations with.

These folks we'll see.

That's why there's a request for information out a request for proposal are really working together to learn what is the best path forward.

And I think Ryan for Us, it's exciting right because the beauty of this is a program at this scale.

It's natural to have a couple of large providers. So you can create good good competitive tension in there to get the best outcome possible for customers. We're definitely excited about what we're seeing so far coupled to a couple of dozen initial entrants.

And when are you going to Atlas down to some really good potential partners.

I appreciate the color. Thank you.

Thanks Ryan.

At this time there are no questions do you have any closing remarks.

Yeah. Thanks, Jenny everyone. Thank you for joining us today, our system is safer everyday and we want to know that it's both safer for our customers and for you our investors.

We look forward to sharing more details with you and having more conversation with you at EI next week right around the corner be safe everybody.

Thank you for attending today's call you may now disconnect.

Yeah.

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Q3 2021 PG&E Corp Earnings Call

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