Q4 2021 PG&E Corp Earnings Call
Our commitments in the 2021 wildfire mitigation plan by the end of the year and implemented programs, resulting in a significant reduction in wildfire risk.
Four, our federal probation period has ended.
We are a safer company because of the improvements we've made in the past five years.
We look forward to continuing to work closely with policymakers, agencies and regulators to rebuild trust through relentless focus on execution. We welcome the transparency and accountability that our customers should expect.
And five, on our financials, we delivered right on our EPS target of $1 a share the midpoint of our commitment for non-GAAP core earnings on a fully diluted basis.
This was $1.08 on our basic share count consistent with reporting a GAAP loss.
We met our commitment to you our investors not more not less putting every penny to work for our customers. As you would expect from us, we will continue to manage the business efficiently to benefit our customers and provide predictable financial results to you our investors every year.
For 2022, our non-GAAP core EPS guidance is $1.07 to $1.13.
Up 7% to 13% with a midpoint growth at 10%.
Longer term, we're focused on delivering a total return of EPS growth plus dividend yield of at least 10% per year every year.
This premium total return is driven by a simple affordable model that you can see on slide four we're making substantial necessary investments for our customers to improve the safety and resiliency and reliability of our service, including our aggressive underground plan.
To mitigate the customer impact of our higher investment growth, we're planning to reduce our non-fuel O&M expense by at least 2% every year and we're fortunate to have sales growth that accelerates over the years ahead from electric vehicles building electrification and more and of course, we're making smart business decisions focused on optimizing.
Our generation sources, efficient financing and minimizing the use of dilutive equity.
Longer-term, we expect the impact to our customers will be at or below in place inflation.
Everything we've accomplished in 2021.
Reflects our focus on the triple bottom line, serving people, the planet and California's prosperity.
Underpinning by a relentless pursuit of improving our performance. We will continue to lead by that triple bottom line driving our performance in 2022 and beyond.
Speaking of performance. To provide transparency and accountability, we will be providing you with a report card each quarter. This is something you've been asking for and it is shown here on slide five. We will provide you with specific metrics related to our wildfire efforts, our customers and our financials. Specifically, we will show the number of reportable admissions.
Speaking of performance. To provide transparency and accountability, we will be providing you with a report card each quarter. This is something you've been asking for and it is shown here on slide five. We will provide you with specific metrics related to our wildfire efforts, our customers and our financials. Specifically, we will show the number of reportable admissions.
Our progress on underground, gas distribution main replacements, our non-fuel O&M cost reductions and several financial metrics. You will see our progress across the business as we report out each quarter.
Our clear Sky Playbook works and in 2021, we experienced how powerful it can be here at PG&E.
One bread and butter example is an in line inspection job that I visited a couple of weeks ago.
Using our daily operating reviews, and visual management tools. The project team installed 14 miles of inline inspection capability.
At the ribbon-cutting 2 local mayors and City Council members shared with me how satisfied they were with the work and how we showed up for our hometown.
Seamless cross-functional execution that is focused on our customers. Thanks to our gas team for making it look easy.
And it can be when we have an operating method that delivers consistent and predictable outcomes.
Our lean playbook also drove the execution of our wildfire mitigation plan producing great results.
Last summer, we reengineered our distribution lines to shut off power within 1/10 of a second when an object strikes the line or a fault occurs.
We refer to this as enhanced power line safety settings or EPSS. In 2021, EPS US was enabled and 45% of the lines in our high fire threat service area based on fuel risks and accessibility.
To be clear, EPSS is different from our public safety power Shutoff program.
Which is based on proactively turning offline and dangerous fire weather conditions, primarily high wins combined with low fuel moisture levels.
We're planning on expanding our EPSS program in 2022 to up to 100% of our high fire threat distribution miles as a reminder, these settings are in place to address the risk of an ignition on a non-red flag warning day that also have dry conditions.
The expansion of the program in 2022 provides a greater level of risk reduction.
And we're also implementing enhancements to reduce the impact of EPSS on customers.
As you can see on slide six. Once we implemented our enhanced power line safety settings, we saw an 80% reduction in ignitions on enabled circuits, which translates to a 40% reduction in ignitions across all high fire threat districts and as I said in 2022, we are planning to adjust the program. So all of our high.
Fire threat distribution miles are capable of enhanced power line safety settings. We've learned a lot from our experience last summer and we will use that education to guide how we engineer these settings in 2022.
In addition to expanding our EPSS program in 2022, we continue to focus on our most impacted customers and our public safety power shutoff for PSPS program. As a reminder, our modeling shows that the protocols we have in place for the 2021 wildfire season would have reduced the number of impacted structures from 2012 to 2020 by 96%.
<unk> by 96%.
And due to increased sexualization and more localized weather forecasting our 2021 protocols reduced customer impacts from PSPS by 78% this year.
While we have developed and effectively scoped PSPS program. We expect this program to be less visible over time due to our focus on our enhanced vegetation management.
Our inspections or repairs are underground ing and our micro grid work.
On that last point, PG&E brought our first remote micro grid online in 2021.
The solution means that an overhead line is removed and our high fire-threat areas, keeping our customers safe, we're pursuing additional microgrid opportunities as part of our comprehensive wildfire mitigation plan in 2022.
When removing align isn't feasible, there are even more exciting tools in our toolkit. What we're exploring is the full potential of distributed energy resources and bi-directional charging electric vehicles that will offer resilient options for our customers. We can eliminate the tradeoff between being safe and having power.
That's the future and we're making it happen here in California.
For the longer term, we're expanding our system hardening program today, we are providing the first look at the next five years of our underground plan here on slide eight.
It's big and it's volt, we're moving on our commitment to underground 10,000 miles of power lines and our high fire risk areas.
Underground is a strong long term solution for PG&E to reduce wildfire risk in certain parts of our service area.
As we will outline in our 2022 wildfire mitigation plan. Our goal is to substantially increase our underground miles each year ramping up from 175 miles in 2022 to 200 miles in 2026.
Of the nearly 600 miles we plan to complete by the end of 2023 or 50% over 50% are already scoped construction-ready or under construction.
We will file an update to our 2023 general rate case, along with our 2022 wildfire mitigation plan on February 25th to reflect this game-changing investment and here's the good news underground is a great example of our simple and affordable model inaction, we invest in really high-value capital infrastructure.
And reduce our spend on temporary repairs and annual recurring expenses. Our update later this month will reflect a minimal impact to customers relative to our previous filings.
As you can see on slide nine our capital plan is larger from 2022 to 2026 than in previous five years.
The need for significant investment across the system results from many factors, including continued safety investments in our gas system property and building consolidations technology adoptions to make our work more efficient ongoing grid hardening and expansions and of course, our underground plan.
And as I covered earlier, we will protect our customers from energy bills they cannot afford with the cost discipline that many of you would expect.
Before I hand it over to Chris, I'd like to close by reinforcing that we've met our commitments in 2021, we've laid the foundation to continue meeting our commitments in 2022, we significantly reduced wildfire risk and are making investments that serve our triple bottom line of people planet and California's prosperity.
Now I'll hand it over to Chris to cover our financial and regulatory items.
Thank you, [Betty] and good morning, everyone.
As Patti mentioned earlier, this is about operating results and financial results.
We're hitting our stride on our financial outcomes, creating a solid path to becoming a premium utility.
This means meeting our financial targets.
Delivering consistent regulatory outcomes and keeping an eye on the horizon.
For us, that includes an improved emphasis on customer affordability balance sheet.
That includes an improved emphasis on customer affordability balance sheet.
health and enabling clean energy solution for California.
Today, I'll cover three topics. First, our 2021 results, which were right on target and our 2022 guidance.
Second, areas of regulatory and legislative progress.
And third, key elements of our strengthened five-year plan, which balances the range a necessary investment opportunities in our own term with a focus on affordability.
Let me I'll start with our 2021 highlights then move into greater detail.
We met our non-GAAP core EPS guidance at $1 for the year using our fully diluted share count assumed in our guidance for $1.8 billion using our basic share count consistent with our GAAP loss.
We finished the year without issuing equity.
We executed our first of three 8454 securitization transaction.
We reached settlement agreements at our 2018 Sema in 2020 Whimsy cases, and we received a positive final outcome at our first [NEM] application.
Slide 10 shows the results for both the fourth quarter and the year.
I'll start with the share count used for Q4, 2021, and full year, GAAP and non-GAAP core earnings per share.
As you can see where the small GAAP loss position for 2021 due to a greater trust election utilized for efficient tax planning.
As a result of the GAAP loss, will requires use basic shares outstanding to calculate both GAAP EPS and non-GAAP core EPS for the full year.
Our full year guidance assumes non-GAAP core EPS of 95 cents to $2.05 per share using a fully diluted share count on a fully diluted basis, we landed right at our target of $1.
We were GAAP positive for the quarter searching for GAAP and non-GAAP core EPS calculation reflects our fully diluted share count.
Non-GAAP core earnings for the year came in at $2.1 billion.
The non core items listed here are consistent with the full year 2021 guidance range.
Moving to slide 11, this shows the quarter over quarter comparison for non-GAAP core earnings of $596 million.
Or 28 cents in the fourth quarter.
We are pleased with the 11 sensitive improvement here and in particular, the 2 cents represented by operating costs in here in the fourth quarter.
These savings are reflective of our enhanced focus on implementing better long term solutions, allowing us to reduce costs and resulting in a more sustainable and affordable plan for our customers.
Now I'll share a few updates on regulatory matters.
On the debt side, we completed our initial 8454 securitization transaction during Q4 2021 for $860 million.
You can expect a similar transaction later this year once we work through the next regulatory proceeding.
Over the next couple of years, we expect to issue total securitization under the 84 54 legislation up to $3.2 billion.
And the cap that was previously established. With the timing of issuances tied to the timing of the qualified spend.
We view this as an important component of the capital plan to reduce costs for customers, while we invest in wildfire risk mitigation work.
Our separate rate neutral securitization has also been approved by the CPUC.
As a reminder, the use of proceeds from this transaction will allow us to retire $6 billion of temporary debit the utility that is funded those payments in the interim.
We are still working through the legal challenge. There's been filed we are focused on issuing the securitization quickly. Once it is resolved and are hopeful to start issuing our first series as early as the second quarter of 2022.
Additionally, during 2021, we continue to make progress on settling our outstanding cost recovery request for wildfire related investments.
As previously highlighted, we filed a settlement agreement for 2020 [inaudible] case.
And we received a final decision on our first lien application during 2021.
Additionally, on November 4th we filed a settlement with the CPUC for 90% of our request in the 2018 Sema case.
As you can see here on slide 12, we expect to start seeing cash flows from the settled rate cases, starting this year.
I also want to touch briefly on the next steps in our cost of capital proceeding.
On December 24th, the CPUC issued a scoping memo and the 2022 cost of capital case, which narrowed the scope to review for just this year spin.
Specifically, the CPUC will consider whether there are extraordinary events that warrant a departure from the cost of capital mechanism and whether to leave the cost of capital components at pre 2022 levels for the year 2022.
Additionally, the scoping memo clarifies that this proceeding does not replace a requirement to file a full application for test year 2023, which we'll do in April.
The CPUC has not set a date for a final decision and as we indicated in our application. We believe are reasonable outcome is to continue the currently authorized cost of capital because of the COVID-19 pandemic and related government response warrants a departure from the cost of capital mechanism for 2022.
Patti touched on our 2023 generate case any updated testimony will be filing later this month in conjunction with our 2022 wildfire mitigation plan.
As a reminder, this is our first year as the universe on a four year cycle and our first GSE to incorporate costs for our gas transmission and storage facilities.
The scoping memo calls for hearings this May and a final decision in the second quarter of 2023.
Let's move to slide 13, and look ahead to this year and the next five years, where we'll continue to focus on the triple bottom line.
Guidance for 2022 represents consistency, including our focus on limiting equity needs, while continuing to make progress to resolve legacy issues.
For 2022, we are providing a range for non-GAAP core EPS guidance of $1.07 to $1.13.
Maintaining our 10% earnings per share growth.
For 2022, we estimate our equity issuance needs in the range of $100 million to $400 million.
As Patti touched on, we are substantially updated our five-year plan, let's go to move to slide 14, where we provide a refresh 2022 to 2026 projections.
There is much to share on this improved plan.
Including, earnings per share growth will continue on the 10% path in the near term and will transition into an EPS growth plus dividend yield of at least 10% as we grow into our dividend upon reinstatement.
Our rate base CAGR goes from 8.5% to 9%.
This growth includes our current estimates over this period, including the kicking off of our underground program.
This plan is consistent with what will be reflected in our upcoming February 25th filings. It also includes investments in remote grid and system modernization to expand our preparedness for electrification.
We also retain our commitment to reducing debt at the holding company in the coming years were targeted reductions of $2 billion by the end of 2023.
The continued suspension of the common stock dividend will support these debt reductions.
The overall financing plan has been developed with our long term FFO to debt targets and Mike as we look to achieve mid to high teens level in 2024.
As Patti mentioned, our capital investment program is focused sharply on critical customer needs.
We can finance this and make it affordable for our customers and we intend to manage this over time to maintain customer impacts around the level of inflation in California.
Starting this year.
We plan to reduce non fuel O&M costs by 2% every year.
Our O&M costs these to increase every year.
And over time, we anticipate load growth due to electrification will help spread our costs over a larger base.
They will make good business decisions to more efficiently provide.
Provide generation and more efficiently finance the enterprise.
This enhanced approach for us at PG&E helps us deliver for our hometown and for our investors.
We will execute against the five-year plan using our lean operating system, where we can better seek out waste elimination and make their work easier for our coworkers theres a lot of work to do and it can be done more simply.
We've already seen success in 2021.
Recall that we targeted savings of roughly $1 billion each year.
The outcome for 2021 had us at roughly $1.6 billion in savings.
The achieved savings well above the prior target of $1 billion, reflecting good business decisions with improved unit cost performance and transactional savings.
The operational savings achieved this year include around $560 million from efficiencies gained by renegotiating electric construction contracts with third party among other efforts and we're just getting started.
As a team, we are determined to execute well on both the operational and financial plan, we set out the benefit all components of the triple bottom line and drive prosperity for our state and investors.
I'll close by reiterating that we have delivered against our financial plan for 2021.
Our focus has been and will continue to be on addressing the critical need to reduce wildfire risk in the near term while running the business effectively for the long term.
Our stronger five year plan puts us on that path.
We're investing in needed wildfire mitigation, improving our balance sheet and making the right investments to deliver clean energy safely to our customers.
With that, I'll hand it back to Patti.
Thanks, Chris and as we've discussed a lot has happened here at PG&E in 2021 that create the launching pad for 2022. As most of you know, I like to tell stories. So here we go. I have one more. A couple of weeks ago on one of my field visits, I stopped at our service center in Auburn.
I heard a familiar story from one of our co-workers who lives in Placer County, with the PG&E need distribution line on his property.
Due to various work processes that should've been coordinated he's had in sectors on his property four times. Tree crews on his property three times and would management crews another three times. That has 10 visits and a little over a year.
Now right after I grown in frustration I clap and I say, okay, team that's upside let's go on this job we could have reduced our cost by 20% simply by having a better work plan.
Similar jobs in 2021 cost PG&E $1 billion. Just think of how much better we can do and how our customers will benefit as we reduce the waste and therefore the cost in our processes.
I feel that momentum and potential every day.
That's just one opportunity of many that I've encountered in my time here at PG&E.
Opportunities to reduce costs, opportunities to improve our customer relationships, opportunities to deliver as the hometown team.
We're excited about what we've accomplished in 2021, and where we're going in 2022 and beyond. We're further mitigating wildfire risk by expanding our enhanced power line safety setting program.
And launching our underground initiatives, we've got the right operating system in place to deliver industry, leading financial growth.
By the important safety and resiliency driven infrastructure investments funded by our cost savings. Our growing loans and good management practices to keep customer bills affordable. This is a new era at PG&E without tradeoffs, we can serve customers and you, our investors without a compromise.
Compromised.
Thank you all for your time and thank you for supporting the great work being done here at PG&E.
Operator, please open the line for questions and answers.
Thank you and as a reminder to ask a question you will need to press star one on your telephone keypad. Again that will be star one on your telephone keypad to ask a question and to withdraw your question, press the pound key.
We had the first question come from the line of [inaudible] from Wolfe Research. Your line is now open, you may ask your question.
Thanks. Good morning, everyone.
So just on a couple of questions on the underground plan with how should we think about.
How much you might actually be doing the work before you have full approval for it?
Approval for it.
And then just.
How you're thinking about that.
Hi, Steve. Nice to hear your voice.
We have already approved filings for our hardening work and so we're biasing the plan now to include more undergrounding.
We have 211.
We have 14 miles done to date already this year, which we're excited about. We continue to make progress.
So as we look forward to future filings will continue to and you'll see in our wildfire mitigation plan, which we filed on February 25th what our plan is for.
The future of underground and year by year as we've described.
In the deck today, but that will then be approved in the coming years, we've actually been asked to update the GRS to reflect the inclusion of underground in and I think the part that's most.
Exciting for people is that we can.
Make those additional underground miles when we factored into our total capital plan with minimal impact on our original filing in terms of cost for customers and so we can both make it safe and keep it affordable and we're excited about that progress.
Great and just could you maybe give a little more color on when you look at the five year plan on undergrounding?
Years three to five start becoming pretty big.
Pretty big numbers in capital, just how you're thinking about funding it.
Are you looking at kind of something other than straight balance sheet financing?
Sure. Hi, Steve, it's a couple of things we're looking at there as you can imagine that the equity driver itself is going to ultimately depend on where we end up on that CAPEX, but just stepping back you can imagine we do have a couple of levers as we look forward first is going to be the amount of holding company debt that we retain as one lever that gives us some good flexibility in those.
Outer years. I think the second would be just the assumption for how quickly we choose to ramp up the dividend. So we're giving ourselves I think some good leverage there in the out years of kind of tried to manage any potential any financing pressures.
Okay.
And then one other just technical question.
The $5 million GAAP loss for '21, does that mean you are not eligible for S&P 500 inclusion until we get past the next quarter?
Sure Steve happy to clarify that when we did have a GAAP GAAP loss in Q3, right that we had pointed to was going to occur.
We have a positive Q4, right. So that would mean that the most recent quarter is GAAP positive.
As it's looked at by S&P. So really the two metrics that we've got to meet at this stage are the most recent quarter being GAAP positive.
As it's looked at by S&P. So really the two metrics that we've got to meet at this stage are the most recent quarter being GAAP positive.
And the sum of the four most recent quarter's GAAP positive in terms of the ability to have S&P inclusion and then it's really just.
That qualitative factor that's harder to put a timeline on as you can imagine which is another entity has to fall out of the S&P for us to have eligibility to go in.
Okay.
Just to clarify that second piece that because this is the last four quarters this year that you don't meet the metrics are going to wait till at least maybe in the next quarter.
That's a fair assumption, yes, Steve.
Okay. Thank you.
Thanks, Steve.
Thank you. We have the next question comes from the line of Jonathan Arnold with Vertical Research. Your line is now open, you may ask your question. Hi. Good morning, guys.
Good morning, Jonathan.
This one I think from the, put that to the side that says that you're effectively assuming.
Sure.
So as you effectively assuming.
Current cost of capital.
And equity ratio across the business.
In your '22 guidance.
So I'll go through the clarify that that's correct.
Secondly, just to sort of how you're thinking about potentially different outcomes there.
How would sort of fall within the range that you've given us? Would you be able to expect to be able to offset that? Would you expect to able to be delivering at 10% through pulling other levers?
Thank you, Doug.
Yes, great question, Jonathan.
As you might expect Jonathan. There's lots of puts and takes in any given year and this is one and we would expect to find another way to achieve our financial commitments and so we're planning conservatively putting into putting together plans in the event that the.
The cost of capital proceeding does not go the way that we think it should.
We're very optimistic about our filing and think that we've made a compelling argument but of course, we'll plan accordingly.
I'd like to say, Jonathan will will ride the rollercoaster. So you don't have to.
Okay.
Thank you for that.
Just one other thing.
With 2% to 4%.
For the longer-term customer rate I guess, it was customer bill impacts. I think you've described that as a longer term.
Tom.
Could we talk a little about the near term?
And how does that sort of calibrated against the broader target?
Yes, as you can imagine, we've got a lot of plans in place that we're working to reduce our O&M and reduce our cost structure. We do have our current rate filing has already in flight for the next four years as we look at what the rate.
implications of that filing, it's on average about 4% per year.
It tapers down in the latter half of the plan and we expect to continue to be able to build this muscle to to keep our rates affordable.
We do think that our rates.
Are affordable. We believe that the value offered to customers is significant and so it's truly on us to continue to make the business more efficient find ways of reducing costs and one of the things I'm excited about hearing California's actual load growth.
That's a nice phenomenon.
We see with electric vehicles and electrification as well as customer growth.
We've got a lot of opportunities here to continue to grow in California, and that's another offset the unit cost.
For customers going forward. So this is.
For customers going forward. So this is.
An important muscle for us to develop here at PG&E and as I mentioned.
In my opening remarks, I see lots of opportunity everywhere I go across the system for ways that we can improve the customer experience and reduce the cost to deliver.
Great. Okay. Thank you.
Just one quick follow up.
Because you said Chris.
Steve, you talked about.
How quickly you ramp up the dividend being a lever you can pull.
You can pull for.
For financing.
The incremental capsule.
Would you.
That would appear to imply you still anticipate staffing it.
In that kind of mid next year time frame assuming the.
Earnings play out the way.
Versus the cumulative target.
That's accurate, Jonathan. We'd still be looking at a situation, where we will hit that $6.2 billion non-GAAP core earnings threshold that allow us to turn it back on and I just think at this stage you can imagine I can't really get ahead of.
The decision will be making with the board on the exact level of reinstatement, but we would certainly be eligible.
Again, roughly mid next year and looking forward to being able to turn it back on but as you can imagine just given the the plants in front of US we will be safe to assume right, we'd be growing into that dividend for sure. Okay. Thank you.
Thank you.
Thank you we have the next question comes from the line of Shai <unk> of Guggenheim Partners. Your line is now open you may ask your question.
Hi, Good morning team. This is actually conferencing here for Shar Congrats on all the accomplishments in 'twenty one.
Good morning, thank loyalty.
We are thinking about the underground they're presenting today and can you elaborate on the inputs from any kind of bids or RFID drove the formation of the 3600.
Targeted in the kind of cost level that you are presenting how does that fit within the 10000 mile. Low previously stated and you see some opportunities to improve our accelerated without crowding any investments.
Yes, great question.
A couple of things.
Current active underground projects as we speak and they range in their costs.
Complete and we have some that are today in the $2 million a mile range. We have some that are more than that and so we're working to find the best methods and systems. We don't have a unit cost negotiated yet with a contractor for the full scope of the 10000 miles we're working on identifying.
What is that.
The path forward, but one of the things thats exciting about the RFP that we did conduct a request for information we got a lot of new technologies that are being deployed across across the globe presented to US here for example, some.
Some boring equipment, that's being used in Germany to underground transmission lines, it's pretty exciting stuff, which gives us confidence as we ramp up and scale of this program with the right equipment with the right partners with the right work process, we can dramatically reduce our costs every year.
On the underground and scope and scale. So we have a lot more meat to put on the bonds as we move forward, but again, we will share more specifics on our cost forecast in the near term plan.
With our wildfire mitigation plan, we're filing on the 25th of February and if I could just build on that cost containment, we really don't see this as crowding out the work.
The beauty of this is that as Patti mentioned earlier, we've already got that ability in the underlying generate case and in our subsequent rate case to put forward system hardening investments. So we're going to pull out from a what would previously have been the overhead line miles would have been putting in and are putting in better risk reduction with the underground myeloid youre, putting it instead, so the risk spend efficiencies.
Better safety for our customers has improved and ultimately what you'll see is we're also going to have a true up that goes and alongside that wildfire mitigation plan filing in February 25th that Triple show you that in the end. This is really where the rubber meets the road that we will be able to put forward. A plan there was minimal impact to customers, while still going after this aggressive underwriting effort on behalf of our customers in the state.
That's excellent color I appreciate that very much.
As we noted in the multi year financial plan can you elaborate on the drivers for the 10% ETF and big dividend yield how does that incorporate the 9% rate base growth.
Our financing needs versus prior guidance and are there any assumptions in there around reinstating the dividend.
Sure thing.
We do definitely have a high level assumption that's within the details of the five year plan certainly can't guide with specificity today, because we have just made that assumption don't want again wanted to get ahead of that decision by management and the board, but what I would offer is again you can see this year that we certainly were already kicking off a substantial doubling or more than doubling of underground mileage.
Terms of that effort as well as continuing our key safety and reliability reliability investments.
Moderate equity need that we disclosed today and our goal again going forward Constantine would be to ensure that we're finding that right balance and that is going to be about making sure that we're pulling forward the work to get the work done efficiently, but doing so in a way that.
From a financing standpoint efficient as we go.
Excellent.
Really quick follow up unrelated note in terms of the O&M profile in the 2% target.
It was less of a cadence and a reduction, especially as you start seeing some benefits around WMC and under grounding and the tailwind versus the front end of the plan.
Now we're shooting constant team to do our goal is to shoot for 2% a year, we're going to work that every year, there's a lot of effort and underway and a lot of opportunities that we see going forward. So we're going to work that every year, though your intuition is right underground and is a perfect example of that simple and affordable.
<unk> model.
Capital intensive because it's the right kind of long term infrastructure that the system needs to be resilient in these conditions here in California, and it reduces then the need to rely on annual vegetation management and other annual expenses. So we really have the opportunity here.
To demonstrate our simple and affordable model through underground and so youre spot on on that.
Yes.
Excellent I appreciate you taking the question Sam Congrats on a good year.
Thanks Constantine season.
Thank you we have the next question comes from the line of Julian demand Smith of Bank of America. Your line is now open you may ask your question.
Hey, good good morning team. Thanks, so much for the time appreciate it.
Thanks, Julie and nice to hear your voice.
Likewise likewise, so just on those 2% non fuel O&M cost reduction what's the gross number what's the starting point that youre, starting with offsetting here I just wanted to understand how meaningful of a program that <unk> got underway I know you do throughout the $1 billion number of cost savings at least on just work process here at the outset.
The script, but just high level, how much inflation are you otherwise looking at to offset here as a baseline.
<unk> had a net minus two here.
Sure. Thank you it's substantial again previously what we guided to is taking out roughly $1 billion out of the business a year. Our target last year was $1 billion. We came through at one six we're pivoting now to this non fuel O&M view, which will be all in and think about it as roughly a total $10 billion amount that will be working downgrade over.
Time for a 2% year over year.
No matter, where inflation stands right. Our focus is going to be taking up at 2% productivity levels to improve themselves as well as you heard US mentioned some of these large contracting efforts being ones, where we can take out in some cases as we did last year hundreds of millions of dollars in cost as we go so thats really going to be the focus of the enterprise year over year productivity in the field.
As well as making sure from a sourcing and contracting standpoint, we're really doing our best to get the best pricing possible.
And speaking of getting the best pricing possible here.
How much confidence.
About the confidence intervals in terms of achieving the new underground cost metrics per mile that you've laid out both near term and long term.
How much confidence can you have in those numbers is considering the amount of inflation and inflation in some of the input commodities here and how do you think about potentially putting parameters are hedging around those especially through near and medium term worker.
Well I think of our contracting strategy on our underground work is going to obviously be very important and will be working that out in the coming.
We have confidence Julian because we're doing it today, we have projects that are coming in at $2 million a mile per day, and that's with what I would say very rudimentary methods that we haven't deployed the best technology, because we don't have the scale to deploy the technology in fact I was out on.
Job.
And I was talking to one of our providers of the trenching equipment and I said to them Hey is this your best stuff that where he was when he said no I have much better equipment that we could be using as well why isn't it here. He said because you don't have scale youre not running enough miles underground to make it worth for me to bring my best equipment.
And scale up and I can help reduce the cost and the speed and the time to deliver so it's pretty interesting.
Ill go back to my Old School, Industrial Engineering, Julian and I know that with scale, we can improve the unit cost. So knowing that we can do $2 million of my on certain jobs today I know at scale, we can do that.
With the right equipment process partners and work plan.
And sorry, just to clarify have you run these numbers by the commission staff et cetera, just in terms of the new cost metrics that you're talking about today and I know that this has been a gradual unveil if you will.
And the reaction that.
We certainly had conversations with staff about our plans and where we're headed but our formal filing comments on February 25, and Thats. When we will get formal feedback from all the key stakeholders.
Alright, we'll wait for that thank you again and best of luck to you soon here.
Thanks Julien.
Thank you we have the next question comes from the line of Michael Lapides of Goldman Sachs. Your line is now open you may ask your question.
Guys. Thank you for taking my question I actually had a couple of things one is really to me.
Language question, which is.
In your text around the EPS CAGR. This is the first time, I think where you referred to it as kind of a total return proposition long term, so EPS plus a yield if I go back and look at the third quarter <unk> and some of the ones. Previously it was just an EPS CAGR no mention of the combo yield.
I know that's a really small difference can you just walk us through what drove that language change.
No absolutely Michael and good to hear from you. This is absolutely one of the key components of the five year plan I would really think about it and Thats. One I think there's probably three things we're really focused on today for the first is shifting from that EPS CAGR generically to a total return scenario, where as we turn the dividend back on rate and we will grow that dividend towards the.
Back half of those years were looking instead of just that generic EPS guide is a CAGR, what we're saying is a consistent 10% return at least over that time period.
Significant shifts I think the second is our increased focus on cost and cost efficiencies previously when we last guided on overall.
Customer Bill impact trajectory that we were talking in the neighborhood of roughly 5%, but we're talking about today as Patti mentioned is closer to 4% and we're going to keep working that down and I think the third piece is just the underlying risk reduction is what we're trying to convey today. The body of work is going to mean better risk reduction in the near term, which is the very large expansion of our <unk>.
S program, which is immediate risk reduction once we get that ready on the system and to the long term risk reduction that come from underground. So those are really the three key components of the financial plan and operating plan right I just wanted to come back to the EPS CAGR a portion of it.
Harp on this but.
This is now including a 10% total return.
Projections like Thats, the long term goal, but it includes the dividend yield.
Could you and does that basically imply relative to what you put out its second quarter and third quarter is kind of a 10% EPS CAGR that you're basically reducing the EPS CAGR because part of that total return if I'm kind of moving towards 10% is the eventual future dividend yields.
Thats essentially correct Michael again, we're really shifting ultimately to the total return model, we're going to reinvest in the enterprise, where we need to to keep costs low and put ourselves in line with premium peers at a total return level.
Got it and then one thing just from a customer bill can you.
Commodity prices are up I know youll have control over a lot of things in the Bill you also don't have there are a lot of things in the bill Youre cables in the K or are great on that that you don't really have as much control of can you talk about.
Over the next year or so what the move in commodities has done in the total bill.
Yes, so as we look at.
Particularly natural gas.
Been a big driver we're proud of the fact that we've been able to minimize the impact to customers on that when some of the commodity prices are up 90%, we've been able to protect our customers closer to a 10% to 12% impact of the commodity and that's because we've got good storage resources, we have a really aggressive purchasing.
<unk>, so that we prevent those big real time spikes from heading our customers.
Okay.
Got it. Thank you Patti Thank you Chris much appreciate it guys.
Thank you thanks, Michael.
Thank you. The next question comes from Jeremy Tonet of Jpmorgan. Your line is now open you may ask your question.
Hi, Good morning, it's actually rich Sunderland on for Jeremy can you hear me sure Ken Good morning.
Hi, Thanks.
Maybe just starting around 2022 equity can you speak to your timing expectations, there and what drives the high and low ends of the range.
Sure happy to cover it for you at this point nothing specific on timing just because again as you can imagine we're always trying to taking a conservative look at this rate.
Last year as you recall right, we had guided to zero to 400.
Please that we landed at zero last year ultimately what we're looking at are a couple of drivers first would be at its highest order we're going to continue to work through legacy wildfire cases, right. We've got the commitment there to ensure we're continuing to make progress with the communities on individual claims that are there I think the other one is just going to be assumptions on some of the debt.
Recoveries that we've got here in the materials that we're showcasing today for prior wildfire recoveries as well so in line at this point for the appropriate timing on proposed decisions on prior recoveries and we will continue to work our way through some of the legacy claims as well.
Got it thanks for the color there and then just thinking about the experience of Etfs, how do you see in the future play with PSP issues. This year, just how do you see that.
Wider rollout impacting the need to implement the USPS.
Yes, it's a great question, we're continuing to learn and optimize the use of both of those very important tools.
I do want to remind and thanks for the prompt here rich that I.
I want to remind everyone listening that the system is safer today, because we know that we can rely on PSTN and etfs under multitude of conditions, regardless of whether regardless of drought. We can protect our customers now we know that PSTN is.
All of last resort and we only use it when the conditions warrant, but we do have a model that when we look rearward and we can see.
Previous or current algorithm against previous conditions, we would have prevented 96% of structures loss between 2012 and 2020 that is a significant.
Safety mitigation, but we're pretty excited about EPS and what we learned last year and the dramatic reduction in Ignitions Enel circuits, where we enabled PSS.
So keep in mind <unk> has enabled even on a dry non win the day on a non red flag day. When we know the conditions are ripe for a fire spread we can enable those settings and we've we're in the process of engineering and preparing to.
Have a 100% of our high fire threat miles.
Able to utilize the Etfs standards. So that's pretty exciting for us I think it's an important combination of risks against that really enable us to keep people safe today.
Great. Thanks for the time today.
Thank you rich.
Thank you we have the next question comes from the line of Greg <unk>.
Your line is now open you may ask your question.
Yes. Thank you.
Greg I was wondering hi paddy.
Was wondering if you could come back to the rate neutral securitization and sort of how youre thinking about.
The steps there and the timing for.
Implementing them.
Sure, saying hi, Greg looking basically at this point is just a reminder, this is at this stage already has had two approvals at the CPUC if ive nothing boats and so we're currently in the appeals process through the courts at this stage.
Currently looking at the earliest Q2 execution time frame just in terms of what we're seeing the appeals process kind of work its way through still intend to execute this year, allowing us to take out the $6 billion of an operating company debt.
Thank you.
Thank you Greg Thanks, Greg.
Thank you next question, we have the line of Stephen Byrd of Morgan Stanley . Your line is now open you may ask your question.
Good morning, Thanks for taking my questions.
Hey, Steven.
Wanted to just talk about EPS expansion in 2022, and just wanted to check in terms of whether there are any any approvals or other processes or do you feel fairly confident that that should be relatively straightforward to rollout more broadly in 'twenty two.
Well.
We will obviously file as part of our wildfire mitigation plan, we are moving forward in enabling the circuits.
Some of the challenges we had early last year, when we did what we call our hotline tag process, which is different than our full EPS engineered coordinated settings that were installing now they had a significant impact on a small handful of customers who had multiple outages that were long because it would take out a really long.
Stretch of our circuit and we'd have to patrol it to make sure that it was safe before we re energized.
Much dramatically improved our ability to address those.
Challenges by.
Coordinating the settings engineering it so that a much smaller portion of the line is D. Energized when it's made contact with something whether it's a tree or an animal that would cause a spark we are de energizing tenths of a second which is incredible but then much shorter spans of lines. So the patrol as much.
Faster on the restoration is much faster and so.
Certainly we'll work with our regulators to make sure. They are comfortable with our approach here and that filing will reflect that but we're pretty bullish that this is a very very important.
Transformation of the safety and de risking of our system on behalf of customers and.
It's something we're pretty excited about.
Well that's helpful color and then just one other for me on the load growth.
Discussion thats, all laid out youll laid out 1% to 3% load growth. How do you think about the how do you factor in I guess, the impacts of potential sort of customer loss of load from distributed generation, whether it's for commercial customers residential et cetera, how does that factor into your thinking on load growth.
Yes, so when we're talking about load growth, we're talking about wires growth, we do see that the.
Distributed solar actually is an important part of the mix here in California, both from a resiliency perspective as well as that.
Our peak mitigation, particularly when combined with storage, which Stephen you and I have talked about many times, but I'm pretty excited about the bidirectional charging capacity of these new electric vehicles that are on the road today and the combination of that storage with distributed energy.
And.
Certainly has an impact you can describe on load, but I think of it much more as a key enabler to the kind of supply that customers want that's resilient.
Conserve a peak demand and reduce the number of flex alerts we have here in California in and make our supply more reliable and at the same time electrification and those evs still does grow demand. So net net that's why we come out on that 1% to 3% over time.
Like load growth, even with those distributed resources, it's a pretty exciting combination of technologies.
Great. Thank you very much thank.
Thanks Steven.
Thank you next question, we have the line of Mr. Ryan Levine of Citi. Your line is now open you may ask your question.
Good morning.
Okay Brian .
Okay and how is this determined that the target 3600 underground mileage from their grounding as appropriate that was laid out in the plan today is there any color you're able to share.
Well as we've mentioned publicly we've announced that we're going to do 10000 miles and so what we have challenged ourselves in what we're forecasting and we're going to do is essentially doubling the miles every year. So in 2020, we did 75 miles in 2022 and 2021, we did 75 miles in 2022, we're shooting for 175.
And then we will grow that double double double each year until we get up to about that 1200 range, which we think would be a reasonable level now I say all that to say we have to prove that out we have to do it we have to actually execute on those plans and and we felt like that was the sort of ramp given the feedback we've received through our.
Request for information from global contractors.
We could.
<unk> deliver but obviously that all has to be approved through our regulatory filings and more to come on that as we work with key stakeholders across the state to make sure that that plan is one that everyone all support.
Thanks, and then a follow up would be the timeline for <unk> to get more concrete.
On the cost of underground.
Yeah.
It was more information is received at this point.
Yes, that'll be coming in the coming months, we've got our first aligning with stakeholders on the volume. We're looking at then we will do the bids in and we'll have a pretty.
Comprehensive contracting strategy for how we will complete that that work and with whom we will partner and what portions of that will end for us what will outsource et cetera, We're building out that plan as we speak.
I appreciate the color. Thank you.
Thank you Ryan.
Thank you there are no further question at this time I would now like to turn the call over back to Ms. Patty coffee.
Thanks, Mel Thank you everyone again for joining us today I just want to reiterate that we have.
Really taken very positive steps forward on our wildfire risk the combination of EPS S&P Sps in the near term today makes the system safer hardening the system re imagining it with underground ing as our.
Backbone of our hardening program going forward.
Gives us a lot of confidence going forward on our ability to keep people safe.
The other thing I really want to leave you with is that our simple, but affordable model is the path to both keep people safe and to deliver for our investors. So we think there is no tradeoff here we can have.
The important capital work done offset by cost savings and load growth and other smart management.
<unk> will work to deliver for customers every single day and for you delivering predictable outcomes for investors. This is a new era of <unk> and we can't wait to take the right along with you. So thanks, so much for tuning in today and be safe out there.
Thank you ladies and gentlemen that concludes today's conference call. Thank you all for participating you may now disconnect.
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