Q1 2022 PG&E Corp Earnings Call
Thank you for standing by my name is Cheryl and I will be your conference operator today at this time I would like to welcome everyone to the <unk>.
Specific gas and electric Corporation first quarter earnings release Conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
I would like to ask a question during this time.
Press Star followed by the number one on your telephone keypad. If you would like to withdraw your question again Quest Star one.
Macfarlane Senior director of Investor Relations you May begin your conference.
Good morning, everyone. Thank you for joining us for <unk> first quarter earnings call.
Today, Our party Poppy, 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.
Scott on the second page of today's first quarter earnings call presentation.
The presentation also includes the reconciliation between non-GAAP and GAAP measures.
The presentation can be found online along with other information at Investor that PGE Corp Dot com.
We also encourage you to review our quarterly report on Form 10-Q for the quarter ended March 31 two.
<unk> 2022.
With that I'll hand, it over to Patty.
Thanks, Matt and good morning, everyone. Thanks for joining us today.
Im happy to report that we earned <unk> 30, and non-GAAP core EPS in the first quarter.
And we're on track to deliver our 2022 non-GAAP core EPS guidance of $1 seven to $1 13.
We believe in delivering at least 10% EPS growth for you as investors. This year next year and the following year.
And at least 9% in 2025, and 2026, putting any annual surplus performance to work for important customer needs.
Win for customers and investors.
We're underway on my second year here at <unk> with a world class purpose driven team focused everyday on the triple bottom line, serving people the planet and California's prosperity.
We will deliver on our triple bottom line by mitigating physical risk and by mitigating financial risk as seen here on slide four.
We're changing the culture and building new capabilities at <unk>.
Our culture is shifting to one of service and performance.
We're rebuilding our team's confidence that we will deliver for our hometown.
We'll serve our planet and we will lead with love.
We've been enabling our leaders to challenge assumptions they have about how and why we do the work that we do.
Our culture is an important ingredient in our turnaround here at <unk>.
I am very pleased with the progress that I'm seeing.
For our customers and you our investors to believe that things have changed here at <unk> My co workers have to believe and experience the change themself.
One way to help people experience, a new and improved <unk> on the inside is through building the capabilities of our team through our lean operating system.
I learned long ago that the customer experience can be improved while we are reducing the cost to deliver and.
In fact, they often go hand in hand, improving our work processes takes all of US every day, using our visual management tools and our daily weekly and monthly operating review cadence to manage our performance we.
We can then identify our gaps and deploy problem solving to address them and set new standards to prevent recurrence of the problems.
By changing our culture and building our lean capabilities, we're enabling the mitigation of physical risk and financial risk.
<unk> fire, we're confident that we have the right tools in place to mitigate this risk through Etfs, NPS PFS as well as making our system safer everyday with our extensive inspection program and vegetation management work and we're ramping up our ultimate solution, our underground program, which is designed to permanently.
Reduced physical risk on our highest risk miles.
To mitigate financial risk, we're planning to keep customer cost down even as we invest in our system by utilizing our simple and affordable model.
And to further mitigate financial risk. We're also focused on paying down debt and delivering on our five year non-GAAP core EPS CAGR of 10%.
This premium return is driven by our simple and affordable model being on slide five.
There are many opportunities for us in 2022 and beyond that allow us to invest in necessary and high value improvements to our electric and gas energy system, while reducing the cost to deliver.
Let me share an example of a simple affordable model inaction.
At the end of February we filed an update to our 2023 general rate case.
Any update we've included the additional $7 billion of capital for underground plan through 2026, and then offsetting $1 billion in expense, resulting in a similar revenue level to what we filed in our initial application last summer.
We have confidence in our ability to execute these efficiencies due to the use of our lean operating system.
For example, as a result of the first year of using lean to drive our vegetation management work, we achieved a roughly 16% reduction in program unit costs.
This is a big deal.
We can make our systems safe with the right investments and keep customer bills affordable that benefits both customers and investors. It is not complicated.
In addition to mitigating financial risk with our simple and affordable model.
We're mitigating physical risk for our customers.
As I mentioned, we plan to make enhance powerline safety settings capable on all circuits and our high fire risk areas. This year.
As a reminder, on the circus, where we enable these settings in 2021, we saw an 80% reduction in CPUC reportable ignitions.
Is the first time, we have seen any material reduction in ignition since we've been tracking them.
Also we will continue to utilize public safety power shutoff, when we encounter dangerous and extreme weather conditions building on improvements we made in 2021.
When we back cast our power shutoff protocols. Our analysis shows that we would have prevented 96% of the structures damage from 2012 through 2020 from catastrophic wildfires.
To inform our PSP as protocols.
Use billions of data points, including <unk> 31 year weather climatology study to forecast hourly probability of large and catastrophic fires.
In addition, we leveraged hundreds of millions of fire spread stimulations, each day to help inform our <unk> protocols.
<unk> algorithms use state of the art machine learning models to increase predictive capability, the technology and data science that underpins Rps PFS capabilities is extraordinary.
We know shutting off power cannot be a permanent solution. Therefore, 2022 is an important and exciting year for us to learn from our experience in the field on underground our lines.
Theres a lot of support and interest in our underground plans in fact, both the California State Senate and State Assembly have legislation focussed on utility underground this session.
Senate Bill 884, and Assembly Bill 2889 were recently passed out of their respective legislative energy and utilities committees.
This is good progress we're optimistic that the legislature will work toward a solid solution. That's good for customers and attract the investor capital needed to Bury the risk, we actually have a new thing around here.
How do you rebuild <unk>.
From the underground.
And we are on our way.
Turning to slide seven.
You are my coworkers have heard me talk about leading with love.
Many people wonder what is that leading with love.
Let me give you. An example at <unk> My co workers are responsible for keeping themselves and each other safe on the job.
While we improved our dart performance, which is a measurement of injuries on the job in 2020, we knew we could be even safer in 2021.
I like to say, even after best ever performance, we are still dissatisfied.
We've found that by utilizing the simple plays from a clear sky lean playbook, we were able to problem solve and prevent injuries with simple and effective action plans every day.
We reduced our dart rate by 25% in 2021 relative to 2020 and as you can see here on slide seven we continue to improve this year, which reflects a 75% injury rate reductions since 2019.
Co worker safety is where a culture change must start teaching people, how to deliver and enabling them to believe in their own capability.
<unk> is leading with love.
Another example of the culture shift we are causing here involves our permitting team.
I will never forget about a year ago at our first under grounding planning session. We asked our permitting team what would have to be true to Bury 10000 miles of line.
Everyone kept saying that permitting would be impossible or permits team stood up and declared we are not going to be the problem.
US a solid long term plan and we can get the permits.
Come to US a day or a couple of weeks before you need the permit and then we have a problem.
It is so true.
Everything hinges on solid long term plans and well designed workflow, we all know great plans deliver predictable outcomes.
As we've started to scale the underground program, we've already seen improvements in our permitting process cycle times, something that will set us up for success as we double the miles every year in the next couple of years.
Specifically, we've seen and almost 60% reduction in the time it takes to produce and receive approval for detailed design drawings are first major underground project took 13 months to design and received subsequent approval from local agencies 13 months.
Through a focus on implementing standard repeatable processes inside of P. Jamie based on agency feedback and by building associated skills, we've reduced the review and approval time, there to five months that is real progress.
We are making it right and making it safe at P. Jamie I can't think of a better way to lead with love than that.
Before I hand, it over to Chris I'll end with our report card, which you can see here on slide eight.
We chose these metrics to show you, where our focus is culture and capability delivering consistent predictable outcomes through 2022 and beyond.
One metric I want to highlight is our annual CPUC reportable admissions and our high fire risk areas.
The reason this metric is important is because fires over 100 acres accounted for 97% of the structures damaged in our service area from 2015 to 2021, we have our eyes and our efforts focused on this one.
Moving on in the report card as you can see as of quarter end. We are on track to hit our annual 2022 targets specifically, we're happy to report that we're on track with our miles underground to date target with very 41 miles against the plan of 34 year to date and are picking up speed.
Now I'll hand, it over to Chris to cover our financial and regulatory items.
Thank you Patty.
You referenced in the report card slide we are on track to deliver our 2022 financial commitments.
Today, we are reaffirming our 2022 to 2026 earnings per share CAGR of 10% and also reaffirming EPS growth of at least 10% each year and 2022 to 2024 and at least 9% in 2025 and 2026.
This morning, I'll cover three areas, which tied directly to our focus on mitigating credit risk.
First our positive financial results.
How we're putting the simple affordable model Patty mentioned into practice with a few key vehicles.
And finally, our progress on key regulatory and legal matters.
Even with the financial impact from the legal items, our 2022 equity guidance remains the same.
$100 million to $400 million.
Slide nine shows the results for the first quarter.
non-GAAP core earnings per share for the quarter came in at 30.
We recorded GAAP income of $475 million, including noncore items for the first quarter of 2022.
This means we recorded cumulative positive GAAP earnings of $253 million for the most recent four consecutive quarters.
Which means we have met the eligibility requirements for S&P 500, the mix inclusion.
On slide 10, we show the quarter over quarter comparison for non-GAAP core earnings of 23 per share for Q1 2021 versus <unk> 37 per share for Q1 2022.
EPS increased by <unk> <unk> due to cost reductions in the first quarter.
<unk> benefit were derived from rate base growth Antonio taxes contributed <unk> <unk> quarter over quarter.
But we experienced some timing benefits in the quarter overall results were in line with our expectations.
Our first quarter results put us on track to hit our full year 2022 guidance.
Moving to slide 11, we are reaffirming our non-GAAP core EPS of $1 seven to $1 13.
As you can see here, our 2022 equity guidance remains $100 million to $400 million.
As Patti mentioned in late February we filed updated testimony in our 2023 generate case and our 2022 wildfire mitigation plan.
And the update we included the capital for roughly one third of our underwriting program as well as the additional expense from the expansion of our Etfs program offset by reduction in vegetation management and other expense across the business.
The impact of the increase in underground Myles is included here on slide 12, and reflected in our approximately 9% rate base CAGR.
Next I'll cover some specific examples of the simple affordable model, we've adopted that will help reduce financial risk for customers and you our investors for the medium and long term.
Here on slide 13, we're providing a purely illustrative view of how our targeted 2% non fuel O&M reduction can be achieved.
For example, we are reducing costs from our suppliers are shown in the indicative of $150 million year.
He will externally sourced nearly $11 billion this year to execute our core work.
But our focus is on efficient purchasing and materials and support.
Employing solid industry practices, rather than unnecessarily unique standards.
Stabilizing our requirements with longer term contracts.
We value our supplier partners and they are an important part of our team.
They'll benefit for more certainty produce to produce more efficient outcomes.
We are also reducing O&M costs this year.
And in the coming years through modifying our work to shift from quick repairs to more permanent improvements.
This means moving O&M the customers experience all at once to capital work with cost recovery over a longer period.
To give you a sense of the long term opportunities our 2020 Capex O&M ratio was roughly <unk> 90 <unk>.
Compared to the industry average closer to $1 40.
You can bet, we have ROI on that benchmark.
We're already using our leading capabilities to stabilize and improve our route planning to drive meaningful improvement.
Examples of just covered are important for us for over the next 10 years, but I want to emphasize that incremental improvements are happening now.
This year, we are implementing a new scheduling and dispatch platform and sunset functionality is already being deployed the frontline supervisors and it's allowing for daily visibility for work assignments.
Supervisors can confirm what work is doing out each morning.
What is getting completed by the end of the day.
Automated reports will be leveraged to show crew productive time, and the related mix of capital versus expense.
You've heard us talk about visual management as part of our lean operating system. This is putting it to work to manage a portfolio of over $3 billion a year.
Already this year, we've seen quantifiable improvements in our work execution.
While our guests maintenance and construction crews have historically performed mostly expense work.
They are now averaging approximately 40% and capital.
We have a number of smart ways to do our work better more affordably.
Youll hear more about these cost reduction programs at our Investor Day. This June .
Before moving off this slide I want to point out because theres also big cost increase shown here.
Go up every year and as we enter a period of high inflation, we're planning on it.
The cost savings we're focused on are large enough to offset these increases and deliver a net savings of 2%.
Now I'll transition to a few key regulatory and legal updates.
Earlier, I referenced our equity needs are unchanged.
We're focused on meeting our debt pay down commitments.
To that end I'm pleased to share that the final legal steps have been resolved on a rate neutral securitization request and we are on track we intend to price. It first series in the next few days.
As a reminder, we have CPUC authorization issued a full $7 $5 billion program at up to three series.
The proceeds of these bonds will primarily go towards paying down $6 billion of temporary utility.
This transaction was designed to improve Peter need credit metrics, and we look forward to fully executing this important piece of the financial plan.
We've also filed an application to issue our second series of it would be $2 54 authorized wildfire mitigation capital expenditures securitization.
We expect a decision in that proceeding later this year.
This is an important opportunity to finance critical wildfire risk mitigation work at affordable rates for customers.
Along with our deleveraging efforts our focus on balance sheet health also includes timely recovery of wildfire related spend.
Turning to slide 14 in the first quarter. The CPUC issued a final decision on our 2000 AT&T in the case and we anticipate collecting that outstanding balance over 12 month period per the terms of the settlement agreement.
Cost recovery of another approximately $2 billion of previously incurred wildfire related spend is pending a final decision from the CPUC.
We are expecting proposed decisions in both of our outstanding Lindsay cases in the fourth quarter of this year.
In terms of historical wildfire impacts we continue to make good progress on important legacy legal matters.
Earlier this month, we announced that we reached settlement agreements to resolve legal proceedings around the 2019 can take fire and the $2021 65.
As a result of these agreements criminal charges for the Kincade fire are dismissed and the relevant district attorneys will not pursue criminal charges for the <unk> fire.
But we've long stated we do not believe these fires were the result of criminal conduct this as a constructive outcome that enables us to continue to invest in making our system safer everyday.
As I mentioned earlier these settlements have not changed our equity guidance for 2022. Additionally.
Additionally, our previously recorded liabilities for estimated third party claims for the 2000 teams on fire for 2019, Kincade fire and the 2020 Dixie fire have not changed during the first quarter.
And we're also engagements.
And settlement efforts resolve the securities claims that rode through the chapter 11 process.
Next I'll cover a brief update on our cost of capital applications pending at the CPUC.
And our outstanding 2000.
2022 application, we demonstrated extraordinary events warning a departure from the cost of capital mechanism and argue that the cost of capital components should remain at the pre 2022 level.
Separately on April 20th we filed our 2023 cost of capital application.
We are requesting an 11%.
We've made the case that this reflects an appropriate return on equity for PP&E, which reflects a higher risk premium driven by our current credit rate to our peers.
On the FERC side in mid March we received the decision on our 2018 as well as the favorable circuit court decision, providing support for a 50 basis point.
Okay.
These outcomes only impact prior periods as a reminder.
FERC approved current return on equity through 2023 is 10 four.
I'll close by reiterating that we're mitigating financial risk, but delivering stable financial results.
That's growth of at least 10% per year in 2022 to 2000 22025 and 2026.
22 financial targets while also.
We're running the business with a focus on the long term.
We will continue to make the right investments for our customers both in terms of risk mitigation and affordability.
That I will hand, it back to Patti.
Thank you, Chris as we move through 2022.
Minimizing physical risk and.
System resiliency, including ours.
10000 mile Underground program provides long term sustainable in the near term we continue with.
Yes, our engineered enhanced power.
Let's get high and our public safety power Shutoff program during high wind events.
Ultimately we are investing in a hardened system that is resilient to the effect.
Financial risk for our customers and.
Our investors, we will continue to make the right investments affordably.
Focus.
The ability, we need allowing us to execute on these operational and financial imperatives.
We will keep an eye on the horizon and ensure we're making the right investments to deliver californias safe reliable resilient and clean energy future. That's the way we serve customers and you our investors.
On a final note. Many of you came to see US last August in California. This June were coming to see or we hope you can join us at our Investor Day on Friday June 10th in New York City.
With that operator please.
To ask a question.
Please press star one please.
When that yourself.
And one follow up.
First question is from Josh go ahead. Your line is open.
Hey, good morning, guys.
Sure Good morning Shar.
Just a question on underground and I know you obviously you highlighted some of the like.
Sure.
Zero wing in particular to 84 or Theres, obviously, some questionable construct proposed like a 60 month earnings deferral I mean, we appreciate that it's kind of early in the session, but do you see a need for legislative improvement and is this Senate bill even palatable would you even spend capital would disappear.
And if the bill makes it out of the chamber at all do you see that as a setting sort of a bid ask for negotiations or some sort of a construct later on so just maybe more specific obviously is top of mind share and we are.
I appreciate the question and you said it is early.
That's the bottom line on this I'm learning about the case.
I am.
I assured that there's lots of opportunity for us to find a great outcome. The good news is people love underground.
So.
And our communities are responding very favorably to our proposal team is delivering and so on.
And so we're going to find a pathway.
To a really good outcome.
Say that even in Senate Bill 884, there's some good elements thereabout permitting and.
Partnership with Telecom Theres a lot.
That could really be assisted legislatively, but I will also add that our plan does not contemplate legislation. Our plan stands on its own and we certainly can make good progress without any legislation.
So we'll be working closely with.
Key policymakers to make sure it's a great outcome for customers and investors.
Okay perfect. Thank you Patti and then just one last one on the wildfire victims fund I mean, obviously, we saw the fund going to market with shares twice. This year. There were some perceptions of need for maybe improved alignment. After the first tranche was sold which are.
You get a sense that the fund.
It doesn't see a need to align our core market with <unk>, maybe from a political.
Cool standpoint. After these two deals I mean at this point do you think it's fair to assume continued selling when we see positive news from TCG post lockup periods.
Been any like opportunities.
For refresh conversation or feedback with the fund.
Hi, Good morning, it's Chris there's a lot there. So let me just kind of let me just kind of try to tackle the different pieces. There. So just in terms of where we are at this point. So from a company standpoint, <unk> completed all the cash payments to the trust of about <unk>.
75 billion.
Total so far the trusted sold about 100 million shares so call that roughly another $1 2 billion.
At this stage, we certainly think it could be advantageous that the company has the opportunity to co market alongside them for a public offering and so theres very open communication lines, there and I know theres a lot of interest here in the settings of the selling patterns of the trust.
Say the trust really has its own fiduciary interests and theyre going to independently make those decisions on whether and when and how theyre going to sell the stock, but I do want to emphasize short we've had that dialogue and provided the trust advisors really with some of the investor feedback following the recent sales and we're absolutely ready to cooperate under the terms of the registration rights agreement that we've got.
Ultimately.
The focus here as you can imagine is on for them and for our investors is to continue to focus on physical and financial risk mitigation and thats going to provide clear value to really all parties here. So we've got a lot of alignment at its core.
Got it perfect. Thank you so much guys and congrats on the execution of approach and very noticeable. Thank you great. Thanks Shar.
Your next question is from Steve Fleishman of Wolfe Research. Please go ahead. Your line is open.
Yes, hi, good morning, Thank you.
Just on the sorry to ask on that same topic since it tends to be a popular one.
There was these stories in the last week or two about our potential.
Bob.
Hey Trust seeking a loan from the.
California.
Government I guess.
We've got getting cash instead of directly selling shares is there any update in that process.
Is that something that youre involved in at all or.
Yes.
Hi, Steve I'm happy to take it it's tough to speculate as you can imagine on where some of that would eventually land I think theres kind of two different concepts at a high level that have been.
Discussed that we've certainly seen in the media. The first would be this concept of would there be the potential to tap the wildfire fund itself. We've obviously got concerns about that as you can imagine for purposes of the importance of the fund being there as a backstop for all our California utilities.
The second alternative more recently that was referenced in terms of the potential loan from the state in order to provide more time and more growth for the company's underlying stock value again tough to know if theres explicit traction there again I would say certainly our state is in a budget surplus position, but just tough to know where that when lance.
But typically I think our focus has been more on educating and ensuring that there is alignment on the fact that the wildfire fund itself, it's important to protect that as a foundational tool for downside risk from our California utilities.
Great. Other question is just.
The new <unk>.
The two new commissioners now in place for I guess.
For months now.
It's been very quiet, which is I guess kind of.
Nice in California, but just maybe curious any sense, you're getting from the commission on priorities.
For the year.
We have a lot of different things on their plate.
Ranging from cost of capital to net metering too.
Obviously electrification and clean energy so just.
Any better sense of our priorities of the of the New President Commission.
Yeah, well as we've said before Steve.
We are very.
Grateful to have talented and capable commissioners and.
Alison John were two great additions to the commission based on their experience and their knowledge of California energy and energy challenges.
And so what we expect as their priorities are very much aligned with our own affordability. It's obviously an important topic here in California, and I think nationally.
Inflation is starting to pressure families affordability is an important topic, which is what makes our simple and affordable model sell important and it'll be great for us to be able to build trust with the commission when they start to see that simple and affordable model in action.
As they were able to see in this.
<unk> update that we made that showed that we could invest in underground ing reduce expense and keep the request about the same that was the first sort of I would say public example of that simple and affordable model in action.
And so we do look forward to working with the commission.
And making sure that our energy is affordable safe reliable and resilient.
And so as you said theres a lot of priorities and I am convinced that the commission is very capable to deal with those priorities as is the team here at <unk>.
Okay. Thank you.
Thanks, Steve.
Your next question is from Jonathan Arnold of vertical Research partners. Please go ahead. Your line is open hi.
Hi, good morning, guys good.
Good morning, Jonathan.
A quick one on underground could you maybe give us an update on efforts to secure federal handle other funding outside of your customers.
And then just how you think about that.
The plan is it a.
A way to get more safety for the same bill impactful.
Accelerated just to how we should think about that issue.
As you contemplated.
Yeah, Jonathan Great to hear your voice.
<unk>.
Are we think that its quite reasonable to expect that we'll be able to attract that capital to fund the underground efforts.
This.
Filing that we made the update to the DRC cannot be understated.
Message, we were able to send in numbers and dollars and cents that in fact, we can invest in underground <unk> with our new capability that we're building to reduce cost here at the company. So there's a real opportunity for us to continue to demonstrate that external funding sources are not required to.
Deliver this now that's not to say that we would object if somebody wanted to help.
To help contribute to things.
<unk> to other parts of the wildfire expenses for example, if there was external funding for vegetation management are some of the expense related issues associated with our wildfire plans I think that would be something that we would be very interested in talking to people about but we think the underground investment is the right investment for.
Our customers and we can offset the costs through the expense reductions and the other thing I'll point to is something Chris talked about in his prepared remarks this ratio of capital to expense and what opportunity. There is here at <unk> to get that ratio more in line with benchmarks.
We're at a capital to O&M ratio of <unk> nine that means that we don't have the ratio rate compared to the benchmark at one four so we really think the underground is a good example of how you can shift from the expense lading spending that we've been doing shift to a more permanent fix that is good for customers.
Safer solution a longer term permanent solution investing that capital we think the.
The investment community.
And others will appreciate the value of that and that's an important message for us to continue to send here in California, and demonstrate the value of that getting that ratio right.
Great. Thank you for that.
Could I also ask on <unk>.
Thoughts around timing for <unk>.
Getting into the parent debt reduction I think you have a commitment runs out through the end of 'twenty, three but should we think of that as being something that.
Get going one securitization.
Get going or is it kind of more towards the end of the window.
Hi, Jonathan It's Chris I think ultimately we're definitely focused on the $2 billion reduction by the end of 2023 haven't been too specific beyond that but I would just generically consider the rate neutral component an important milestone as we go and again as I mentioned, we're actually.
Really in parallel today in the market on that rate neutral securitization as well.
Okay perfect.
I see a number of $3 billion.
But with now.
Yes, I would think about in terms of that filing I would think about that as a floor. Jonathan ultimately what we're trying to do there and what I mentioned on the call. The prepared remarks is that we are.
Substantially oversubscribed really what we're trying to do as you can imagine is find that balance between the fact that we've got the flexibility to do the three series and also make sure that we keep in mind, knowing the market backdrop that is volatile to get a good amount in this first series, but also balanced customer affordability, which is just going to be key.
Perfect. Okay. Thanks for the update.
Great great quarter. Thanks.
Thanks, Jonathan.
Your next question is from Julien Dumoulin Smith of Bank of America. Please go ahead. Your line is open.
Yeah.
Hey, good morning team. Thanks for the time, just following up here on the cost of capital and so the prepared remarks, but I was just curious if you can talk a little bit more on the <unk> side.
Clearly one of your peers talk about.
For an increase there just could you guys talk about risks whether that side, the CPA or ongoing wildfire concerns et cetera, why not touch both variables here not just ROE components, but also the equity with sugar.
Sure Julian and as you can imagine we've got both the 2022 cost of capital adjustment mechanism being contemplated but also 2023 your specific I think pointing to the 2023 filing we did maintain the consistent capital structure, there and ultimately what you saw in terms of our 11% ROE request it was directly.
Selective of what we had filed even last year as we contemplate the update to the 2022 case.
What we're expressing there is consistency across cases of what we're seeing in terms of ongoing risk to the enterprise necessitating both your 11% ROE, but also maintaining the cap structure itself. As you probably also saw a moderate increase the long term debt to four 7%, which we think is reasonable as well.
Yeah.
Got it Alright fair enough and then just can we talk a little bit about the upcoming season and the risk profile. There. Obviously, we've seen some comments about water availability of the state of late.
But can you given the mix of your system improvements.
Already identified in the prepared remarks in these projections.
Water can you talk about sort of the net and how you guys would frame.
Our assessment for the summer.
You bet.
Julien, it's such an important question and something that.
I really am thankful for our team and I'm, particularly a shout out to all our engineers here at <unk> for the incredible work they've done I can't overstate. The progress that has been made to the implementation of these engineered enhanced power line safety settings.
As we filed in our updated JRC and our wildfire mitigation plan, we've shown drew.
Dramatic risk reduction quantifiable risk reduction over 90% and that is a huge progress in one year and so let me just hit a couple of high points about why that is true.
One of these engineered settings as we shared last year.
And the areas, where we implemented then we had an 80% reduction in ignitions. While this season I'm. So excited to report that we have already deployed and enable those enhanced powerline safety settings, and our entire high fire threat areas will be done by early next week. We did a review this week in our Wildfire Command Center and the engineers are very.
Added to share the progress they've made but we're not stopping there we're doing it in adjacent areas as well and so we committed in our wildfire mitigation plan to have those adjacent areas done by August but Im happy to report, we're going to have that done in a matter of weeks not months and that is a very important safety backstop for our.
Customers and being able to de energize those lines with the contact of an animal.
Sorry.
Anything.
In less than a 10th of a second puts us on a new plane of safety and I just can't overstate the benefit of that to the system. So for example.
This year, we are utilizing all of these millions of simulations and data extracts that we have everyday to determine does a circuit needs to be turned on today. We were thinking of this that there is no longer there.
So we have to prepare for a wildfire season, we're gonna be prepared everyday Julien. This team is going to be ready to go and we have information and data at already that allows us to make those decisions. So for example, this year, we've already initiated etfs on certain things.
Circuits under certain conditions, and we've had 27 outages on an EPS enabled circuit in other words, we had enabled Etfs and something did in fact make contact with alignment and that in fact, the energized and we had zero ignitions in all of those Etfs enabled circuits that is.
A safe risk reduced system that is in play today couldnt be more proud of my engineers for the incredible work they've been doing a nine day to make sure that our customers are safe no matter the conditions.
Julian if I could just build on that I think Pat you hit it really well and what we're focusing on today as you've heard us both physical risk reduction to the system as well as financial risk and the other key thing to think about there is that we've also now just last month's completed the update to our wildfire related insurance. So for the period of again basically think about it as <unk>.
<unk> this year to April of next year, we've got $940 million of wildfire related insurance too. So good protection there on really both sides, so again risk reduction and financial risk reduction, that's our belts and suspenders solution.
Got it excellent, but glad to hear continued progress.
Julian.
Your next question is from Michael Lapides of Goldman Sachs. Please go ahead. Your line is open.
Hey, Pat Hey, Chris. Thank you for taking my question.
Have a system reliability and renewable question for you, which is you are very active as our California peers in buying incremental solar and storage to meet summer peak demands.
But theres a lot of solar and storage projects around the country that are facing delays, whether it's supply chain, whether it's part of the circumvention related case.
How are you thinking about it is first of all or some of the projects. There are many of the projects that you've contracted for already off schedule that you are aware of that's question one.
Question two is if you have projects where.
You are the buyer of the power and it looks like theyre going to be delayed how do you backfill that for reliability purposes.
Yes, great questions, Michael Nice to hear your voice.
First of all we're very comfortable about our supply situation for this summer for 2022.
Even if no additional storage comes online and so we are already planned prepared.
Our Moss landing facility came online at the 182 megawatts of storage that we're very excited about utility on storage.
Our prepared for this summer, but all that being said you're right. There are supply chain deficiencies and thankfully we planned conservatively conservatively in our prepared we're prepared for that.
But I don't think those supply chain issues are permanent.
Theres such market demand the market will figure this out.
Again, we are prepared for this summer, but as the coming years.
Evolve we know that storage is a critical complement to renewable and clean energy ambitions of California, which is what made us. So excited about our announcement with general Motors and Ford and our continued relationship with BMW and <unk>.
By directional charging vehicles, we have 6600 megawatts of capacity driving on the roads of PJ New service area today in the form of electric vehicles.
A single kilowatt of those cars.
Powering back to the grid, that's a huge opportunity for us in fact, thats three large power plants.
Capacity driving around the relative California, specifically our service area that we think is a really long term ambition that we can optimize supply and demand.
Have a much smarter energy system and our team is fortunate to be here in the bay area with the incredible commitment to clean energy, we can actually get back into a leadership position leading the world in this clean energy transformation and it's not going to be I would say.
The system of big bulk power delivering on large transmission I think we're going to have a lot more distributed resources that we're going to be able to enable and optimize demand. So we're pretty excited about what the future holds for us here.
Okay, and then a follow up and a little bit of a regulatory question now that all three of the utilities in the state of filed their cost of capital proceedings for 2023.
Do you think there is a potential scenario, where you are in the various intervenors.
Potentially come to a settlement between now and the year and where do you think this has to go to fully litigated process.
Hi, Michael It's Chris Good question, I think it's a little premature.
To know exactly how it would how it would play out ultimately we've had a good track record in the state I'll just have to say in terms of the timing I think the commission recognizes the importance of the cases just for certainty purposes.
So certainly on the 2022 cost of capital adjustment mechanism piece that one is a little bit less clear in terms of the calendar, but in terms of the 2023 to 2025 consideration. We have asked for a December 2022 final decision and I do think the commission has got a good track record of kind of generally keeping it around that timeframe or <unk>.
The subsequent year, just so that we know we're heading into but tough for me to speculate as you can imagine specifically on settlement posture, just where we are right now because we really just filed the what last week.
Got it. Thank you guys much appreciate it.
Thanks, Michael Thanks, Michael.
Our next question is from Nicholas Campanella of Credit Suisse. Please go ahead. Your line is open.
Hey, good morning, Thanks for taking my question.
So.
I guess a lot of things have been answered, but as it relates to just maybe the agencies.
I'm sure you've kind of met with them like everyone else. This this past quarter can you just kind of maybe update on some of the discussions you're having with them what are they looking for in terms of just getting you back to <unk>. If you kind of have any outlook on the plan at this point I know that there's going to be some material holdco debt paydown in 'twenty three but maybe you could just talk to that a little.
Sure happy to Hi, Nick.
There's really three factors that theyre looking at closely talk often I think the first is certainly in its highest order just how are we doing toward operational oriented risk reduction in progress there and I really mean that broadly across the enterprise not necessarily just around wildfire risk.
<unk> piece really relates to what's the level of alignment with both the state and our customers. How are we making how are we looking in terms of progress on key regulatory cases outcomes, there as well as ensuring that frankly some of the volume lessons around impacts that we're having to customers and thats why we got a tighter plan this year as it relates to our.
Etfs program and then finally, it's hitting our core financial I think ultimately there our focus is on the balance that you've seen and we've talked about consistently in terms of heading back to the <unk> guide that we've given.
Mid to high teens in 2024, as well as starting down this path right. I mean, this isn't quite so key about our rate neutral securitization again that we're expecting to close. This in may we are in the middle of pricing here over the next few days and that really starts to that path right. We're able to take out $6 billion of temporary operating company debt and really get back to.
Here, our regulated capital structure. So when you pull them together it really is a combination of they want to see progress on the operational plan, we're going to be showing you and them that every quarter.
Two regulatory outcomes, we've got some key components up here in front of US right of our wildfire mitigation plan approval. That's up here in front of US how does the enhanced oversight process turned out and the progress we're making there on our vegetation management program and then finally like I said hitting our core financial program and we're definitely on track there as well.
Got it thanks, I'm going to leave it there for that I appreciate it hey, thanks Nick.
Your next question is from Gregg <unk> of UBS. Please go ahead. Your line is open.
Yeah. Thank you, Hi, Paddy Hi, Chris Hi.
Greg.
Okay.
So.
Just in terms of proving out the.
A liability.
<unk> for maybe $10 54 can you talk about how youre thinking about the.
$2 billion.
Wildfire mitigation.
Spend that you have pending.
The regulatory asset around.
See that you have.
If those are milestones or if there are other ones you are thinking about.
Sure Greg let me try to take both of those.
Definitely related in one way I think one if im hearing you right it's specific to.
How we've been able to continue recoveries on prior wildfire investments I do think you saw our disclosures today in the update as we continue to work our way that 4 billion plus dollars down really quarter over quarter indicated this time that we've actually seen $1 billion to $5 billion come through in.
In rates, so theres key progress already underway there.
With regard to the Dixie related progress itself again, the headline there is no explicit change to the charge itself. What I would offer is in terms of thinking about where maybe $10 54 related considerations would come about.
We have put forward a fast claims process as part of the settlement that we recently announced which would allow for resolution of claims that come forward within 75 days.
The reason I'm offering that.
As an example, as you could see us in one scenario is starting to accelerate some claims.
Keep in mind that we do have over $560 million of insurance to apply against that but I'm just offering that to you Greg a little bit of color for you there could be a scenario here, where we're able to accelerate some of these considerations.
Call. The eventual question of recoveries in terms of FERC, the CPUC and eventually the wildfire fund itself.
Okay. Thanks.
Thanks, Craig its Greg.
Your next question is from Ryan Levine of Citi. Please go ahead. Your line is open.
Good morning.
Congrats on the S&P inclusion qualification.
Income I guess, one follow up on that are there any near term onetime items related to the legal cost securitization or dress sales that could impact the GAAP requirement in the upcoming quarters. There is footnote six in your area.
Yes.
<unk> had some data that suggest that maybe.
Sure Ryan I think in terms of.
Looking forward.
Thanks.
The example that would be there in terms of what we've consistently described with legacy legal claims would be explicit to the securities related items that run through the chapter 11 process. We did indicate that we are in.
Discussions there and so I think that is an item that we're currently evaluating what I want to emphasize there, though Ryan is that.
We've certainly come forward with our best information today.
In terms of where those discussions lie and both have not impacted our equity guide of $100 million to $400 million. So just wanted to offer to you that.
We've got that level of insight there and it does not impact the financing guide that we've given for 2022.
Hopefully that helps you in terms of a way to think about it is that it would need to be specific on the negotiation.
With the rate neutral securitization or fire victims trust sale given.
The grants are stressed decision from last year impact.
The gap.
Income profile.
<unk> quarter.
I mean, it would be tough to again that would depend on whether the trust itself is selling what we did disclose today is that there is a tax benefit to come through this noncore.
Thus far on the truck sales I think we disclosed that at $135 million.
In terms of the 100 million shares that have been disclosed so far.
Okay. Thank you and then in turn.
As of the Analyst day in June is there any color you could provide around what you are.
Intending to communicate at that event.
Yes, you bet, Ryan Youre, not going to want to Miss it.
We have the opportunity.
To showcase this all star team now.
You had a chance to meet him when he came out in August last year.
This is an extraordinary team, leading TCG and we want to make sure that everyone gets a chance to hear from them on things like our business process improvement the wildfire technology that's underpinning.
Our risk reduction here are underground plan, and certainly are simple and affordable model in more detail and then regulatory implications and benefits.
As a result of that deployment of our simple and affordable model, So really going deep on the physical and financial risk mitigation that we.
We really want people to understand firsthand from our top leadership team here at the company.
Appreciate the color. Thank you.
Thanks.
We have completed the allotted time for questions I will now turn the call over to Patti Poppe for closing remarks.
Thank you Cheryl.
And thanks, everyone for joining us today, it's always a great opportunity for us to share with you the progress that we're making in the transformation of <unk>, the physical and financial risks continue to be reduced in meaningful ways and we look forward to again sharing more with you about that at our June 10th invest.
Your day.
Again I'll be joined by this all star team and I know, you'll enjoy hearing from them directly about how all of the things, Chris and I have talked about today are coming to life, the culture and capabilities that we're building at <unk> create a sustainable winning business model for this company and we couldnt be more excited to be able to share that with you in here and we will see in New York.
This concludes today's conference call. Thank you for your participation you may now disconnect.
Okay.
Thanks.
Yeah.
Yes.
Okay.
Yes.
Yeah.
Okay.