Q2 2022 PG&E Corp Earnings Call
The P. G any second quarter earnings 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. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question.
Star One again I would now like to turn the conference over to you, Matt Fallon Senior director of Investor Relations. Please go ahead.
Good morning, everyone. Thank you for joining us for <unk> second quarter earnings call.
With us today are Patti Poppe, Chief Executive Officer.
Chris Foster Executive Vice President and Chief Financial Officer.
I want to remind you that today's discussion will include forward looking statements about our outlook for future financial results.
These statements are based on assumptions forecasts expectations and information currently available to management.
Some of the important factors that could affect the company's actual financial results are described in the second page of today's second quarter earnings call presentation.
The presentation also includes the reconciliation between non-GAAP and GAAP measures the.
The presentation can be found online along with other information on Investor Dot PG Corp Dot com.
We also encourage you to review our quarterly report on Form 10-Q for the quarter ended June 32022.
With that I'll hand, it over to Patty.
Thank you Matt good morning, everyone. Thanks for joining us.
I'll focus on three key areas today first our financial results.
Our continued work to build trust with policymakers and play our role as an enabler for California's prosperity and third I'll provide an update on our wildfire mitigation progress.
Our results through the first half keep us on track to deliver our full year 2022, non-GAAP core EPS guidance of $1 77 to $1 13.
We've got the system in place to manage the inevitable pluses and minuses. The system provides confidence that will deliver our commitment of at least 10% non-GAAP core EPS growth through 2024, and at least 9% in 2025 and 2026.
As a result of further progress on legacy items.
Our rate neutral securitization and good cash management, we are lowering and narrowing our equity guidance, we are projecting a need of zero to $250 million for the remainder of the year. We're on the right path to mitigate financial risk and deliver the consistent results you can expect from P. Jamie.
We're continuing to build trusting relationships with policymakers and work with them on outcomes that are good for our customers and allow us to deliver the energy they want safely and reliably.
Earlier this year Governor Newsome reached out to ask us to evaluate keeping Diablo Canyon opened beyond its scheduled retirement in 2024, and 2025 to support the capacity and reliability of the state's electric supply system.
We're exploring the possibility of keeping the plant open for California's benefit.
It is not an easy option and it will require much coordination between the state multiple regulatory body and P. Jamie as well as many others impacted by the outcome of this decision.
We of course are motivated to be of service to the people of California, and our policymakers and we will continue to work with the state regarding the future available canyon and to ensure reliability.
I am very thankful to our team at the plant for continuing to remain focused on safe and excellent operations as the conversation and decision to move forward.
We're also continuing to work with legislators on Senate Bill 884.
The amended language in the underground and Bill provides a supportive framework for PGE need to file a long term underground implants, which is good for customers and investors because it allows us to build a more robust plan for labor the lowest cost contracts and provide the fastest path to eliminating the highest risk and improving reliability.
At the same time on our power lines.
I am pleased with the relationships we're building with these key policymakers in California.
We're proud to be recognized as essential to California safety and clean energy goal.
Our ability to continue to demonstrate the turnaround of pega enables long term relationships built on mutual benefit and prosperity.
Just this week, we filed our final responses in the review of our 2022 wildfire mitigation plan, we welcome to healthy dialogue with the office of energy infrastructure safety and we believe our responses addressed their concerns make our planned stronger and make our communities safer. We look forward to a draft decision on our <unk>.
Wildfire mitigation plan by the end of September .
Given the dry conditions, we've seen in our service area in 2022, I thought I would spend some time discussing our wildfire mitigation tools described on slide five.
As a result of the significant work that we've completed since 2019 combined with the protocols, we have implemented for our Etfs and PSP program, we estimate that we've mitigated more than 90% of the wildfire risk in our service area.
Our approach to catastrophic wildfire mitigation is driven by multiple layers of protection, starting with vegetation management enhanced inspections and our longer term system hardening work anchored by our underground plan.
While we continue to make progress on our longer term mitigation, we layer in Etfs and PSP to mitigate risks today.
Our situational awareness capability, which we built over the past three years, including installation of our high definition cameras, the use of enhanced technology, and our hazard awareness and warning center and the expertise of our safety and infrastructure protection team allow for better coordination and faster response shouldnt admission occur.
Our final layer of protection.
The 90% risk mitigation today is informed by the results we're seeing in operations.
For example on the surface, where we've implemented our Etfs program, we've observed significant reductions in reportable admission.
And the acres impacted per admission this year are significantly lower despite very dry conditions.
We're continuing to pursue opportunity to improve beyond the 90% risk mitigation additional innovative <unk> solutions.
Solutions, such as partial voltage smart meter alarm and down conductor capability.
We anticipate that additional opportunities, including underground will provide us with greater long term protection, while reducing the customer impact.
As you can see on slide six the fire potential index guys, our wildfire mitigation efforts.
Most of the damage in recent years have occurred under our three and higher conditions.
In recent years, we've experienced more acres in structures damaged due to fire spread driven by fuels and terrain.
To mitigate the fuels and terrain driven risks in 2022, we've enabled etfs for all fire potential conditions across all our high fire risk areas, except under conditions of heavy fog high humidity and precipitation.
Historically, nearly all of the acres and structures burn during extreme wind events.
For these conditions categorized as archive and higher we rely on our <unk> program.
I've talked a lot about mitigating physical risk today as.
As I know this is a key area of concern given the impact of climate change across California, and the rest of the world.
As you've heard we have the right system in place to keep our coworkers and our customers safe from physical risk and a mindset that has a continuously improving that system every day.
Please be assured that the team and I are also continually focusing on mitigating financial risk. We know our customers are experiencing major inflationary impacts outside of utility bills.
And at <unk>, we're planning to keep costs down even as we invest in our system by utilizing our simple and affordable model.
I'm going to focus on the non fuel O&M cost reduction line you see here on slide seven.
I am never short on stories and this quarter is no different here's a simple example of an opportunity we came across in our inspection work.
People, often think it will cost more to do high quality work I beg to differ.
Last year due to multiple verification methodologies between our vegetation management pre inspectors and our work verification team, we had a 40% rejection rate on tree inspections, resulting in a crew coming back out to correct them.
We cut that rejection rate by half already this year by adopting a uniform technology driven inspection process.
Almost $100 million.
First time quality is more affordable.
One example of many such opportunities. We are just getting started here and there's a long runway of opportunities across the entire enterprise that the team is learning to uncover.
On the financing front, we successfully completed our rate neutral securitization bond issuance in July using the proceeds to pay down temporary utility debt to strengthen our balance sheet importantly, S&P moved our outlook is stable after the rate neutral issuance. We're following through on our commitment to you our investors.
To delever, our balance sheet and reduce financing costs for our customers our real time demonstration of our simple and affordable model in action.
Finally, let's turn to our report card, which you can see here on slide eight.
We chose these metrics to show you, where our focus is delivering consistent outcomes through 2022 and beyond by building on our culture and our capabilities.
One metric I want to highlight is our CPUC reportable admissions greater than or equal to 100 acres in high fire threat areas.
Buyers this size or a small percentage of ignitions, but account for more than 90% of the acres burned and more than 95% of the structures damage from 2015 to 2021 and our service area.
We have zero CPUC reportable admissions over 100 acres so far in 2022.
Youll recall that in early June PGE filed an electric incident report on the old player, which was 570 acres with no reported serious injuries fatalities are structural damage.
We filed the IR as required because Cal fire collected our equipment and there was media attention. However, we are not recording this as a CPUC reportable admission at this time as we are not aware of any damage to our equipment at Cal fire suspected ignition point.
Cal fire is continuing their investigation on the cause of the fire and we will review the final report when it's available and the associated recordable <unk> Accordingly.
In addition last week the fire started in Maricopa County.
After the time of the reported ignition, we energized lines for firefighter safety at the request of Cal player.
Based on our review of our data we are not aware of any information, suggesting our facilities were involved in the admission.
We have not filed an IR and Cal fire continues their investigation into the cause of the fire.
We do want to take this opportunity to thank our firefighters and the broader first responder community for working so hard to keep our community safe.
Physical and financial risk reduction are the building blocks that enable predictable results for customers and investors I feel good about progress to date.
With that I'll hand, it over to Chris to provide a deeper dive into our financial and regulatory items.
Thank you Patty we are on track to deliver our financial commitments. This year. In addition, we are reaffirming our 2022 to 2026 earnings per share CAGR of 10%.
And reaffirming EPS growth of at least 10% each year and 2022 to 2024 and at least 9% in 2025 and 2026.
As Patti mentioned I am pleased to share that we just issued $3 9 billion of our rate neutral securitization bonds at a weighted average rate of 5.0% to 5%.
Our transaction complete the critical element of our reorganization financing plan.
A total of $7 $5 billion of securitization bonds now issue.
This contributes to our focus on near term efficient financing.
The recent actions by both S&P and Fitch on our credit ratings reflect increasing confidence in our plans to make the investments our customers need and affordably finance our system enhancements.
This morning, I want to cover three key areas, where we are laser focused on mitigating financial risk and delivering predictable outcome for you our investors.
First a recap of our second quarter and first half financial results and the reiteration of our full year guidance.
Second a deeper dive into our results ownership center and how we're using that to execute from a simple and affordable model.
And finally, a few highlights on important regulatory and legal matters.
Slide nine shows our second quarter and first half results.
non-GAAP core earnings per share for the quarter came in at 25.
<unk> 55 for the first half of the year.
We recorded non-GAAP core income of $536 million for the second quarter of 2022.
This income keeps us on pace to hit the common stock dividend reinstatement eligibility criteria by mid 2023.
Moving to slide 10.
First half EPS growth is on target to 55.
Up five or 10% from last year.
You can see our rate base growth of <unk> <unk> per share in the first half.
And another for projected for the second half are.
A clear reflection of our investment in customer priorities.
Please also note our favorable cost performance at <unk>, so far and another 2% to <unk> planned for the second half combined.
This trial nicely to a roughly $200 million or 2% non fuel O&M reduction plan.
Both of what you do not see here in our yearly forecast our risks due to pension costs that we manage on behalf of our coworkers.
Due to our longstanding to recovery mechanism approved by the CPUC, we do not see an impact to earnings even with the current market volatility.
There are other changes, including our regulatory agenda as well as tax and other items.
And buying this shows how we are delivering on our at least 10% EPS growth this year consistent progress to deliver for our customers and investors.
As shown next on slide 11, we are reaffirming our non-GAAP core EPS of $1 seven to $1 13.
We are also nearing and lowering our equity range for 2022.
And are now forecasting zero to $250 million in equity needs for the year.
As we resolve legacy claim which I'll talk about a bit later, we maintain our confidence that our equity needs. We have limited this year.
Let's move to our simple and affordable model.
We adopted this model to help reduce medium and long term financial risk for both our customers and you our investors.
The model allows us to reduce risk for our customers' holdings down bill increases overtime.
And we will deliver on this model by using our lean operating system, which allows us to actively manage variability.
It's about evaluating and executing against opportunities like putting lasting fixes instead of temporary repairs in the system, which helps avoid expensing cost otherwise flow through right away to our customers.
Our efforts on this front give us greater confidence in our financial targets for the long term.
It starts with lean and how my co workers are using these proven techniques to manage performance.
Do think medium and long term financial risk.
Turning to slide 13.
For the past eight months, we've been maturing our process to bring improved visibility and control to executing our work plans affordably and a room, we fondly referred to as the rock.
Short for the result ownership et cetera.
On the left hand side of the slide you can see the elements of visibility and control.
And the rock we hold a weekly cross functional operating review focused on our plan and performance against our financial targets.
This is the same method, we've used to consistently deliver on our operational goals for our wildfire mitigation plan over the last year.
You've heard Patti <unk>.
We sweat the details so you don't have to.
The rock is where that statement comes to life.
Additionally, we leveraged the <unk> concept of visual management.
You can consistently refresh data all attendees can tell within one second if our performance is on track within three seconds, which way the metric is trending.
And within 10 seconds, the recovery plan for any metric that is not on track.
Managing all aspects of variability as shown on the right hand side of the slide is how we deliver predictable results.
When a key financial metric is off track or trending off track. We identified almost immediately you can current data not month old or quarter old data.
The conversation always include who is doing what by one.
And the resulting catch back plan will include a combination of short term containment and long term countermeasures.
In addition to O&M and capital cost performance our focus on the rock. This year has been on efficiencies in our contracted study evaluating.
Evaluating productive time.
The capital optimization that create lasting system enhancements for our customers.
And internal staffing levels.
Taking productive time for example.
In addition to the trading rationalization, Adam Ray discussed at Investor Day. We've also improved our time reporting this year based on an idea surfaced at the rock.
Our co workers in the field now explicitly report hours lost due to no work or work delays when they are not able to charge to a specific job.
Having this data now readily available allows us to problem solve.
Work delays can occur would accrue cannot access a customer's property for example, but with good planning, we can enable that crude with the backup job.
This simple change towards reporting has uncovered a huge opportunity to increase productive hours.
And just a 1% improvement translates to approximately 30000 more productive hours per month.
Can imagine we're excited about how this can translate into better outcomes for the hometowns reserve.
This example, along with our focus on first time quality to Patty spoke to many others as how through the rock our entire enterprise owns our financial results and not just members of the finance team.
Again visibility and control provide predictable results.
Our focus is on delivering that for you our customers and our investors.
Now I'll cover the key regulatory legislative and legal updates for the quarter.
Turning to slide 14 epitaph as I mentioned in my opening we've now issued the full seven 5 billion in rate neutral securitization bonds.
We view those proceeds to pay off $5 billion of utility temporary debt and we'll pay off the remaining $1 billion in the first quarter of 2023 is that debt becomes callable.
The remaining proceeds will go towards paying down short term borrowings at the utility.
Completion of the securitization was a key aspect of improving our balance sheet and as a result last week S&P moved us to stable outlook and in June Fitch ratings revised their outlook moving us from stable to positive.
Keeping with the theme of securitization as expected on June 29, the CPUC issued a favorable proposed decision granting our request to securitize up to approximately $1 4 billion.
Of eligible <unk> hundred 54 capital expenditures previously found reasonable in the 2020 Trc.
We expect a final vote on this proceeding on August 4th.
Which that timing keeps us on plan to proceed with the bond issuance later this year or early 2023.
These securitizations are an important aspect of our financing plan, a stronger balance sheet improved credit ratings and reduced borrowing spreads.
Moving down the slide we've.
We've made substantial progress resolving legacy securities legal claims.
The net impact we're reflecting this quarter is $145 million.
We believe this is a constructive outcome.
Within our forecasted equity.
Additionally, in connection with the 2019 Kincade fire and based on the status of discussions with certain subrogation entities in individual claimants.
During this quarter, we recorded an incremental charge of $150 million for additional potential losses above available insurance.
The movement you are seeing this bucket of legacy claims demonstrates our commitment to putting these litigation matters in the rearview mirror.
And we're making progress on these key legal matters, while maintaining our focus on financing.
As a reminder, we have now reduced and narrowed our 2022 equity needs range from $100 to $400 million down to a range of zero to $250 million.
Next on the slide we summarize the status of our yet to be recovered wildfire related spend.
As you can see we have approximately $5 2 billion outstanding at the end of the quarter.
Of this amount approximately $1 billion approved for cost recovery in 2022 and 2023.
Clearly, we still have more work to do but just around the quarter in September we plan to file our <unk> application.
And as a reminder, based on the Cpuc's schedule, we expect proposed decisions on both our 2020 and 2021 when <unk> filings during Q4 this year.
Together these represent the majority of the $2 2 billion shown here is pending a final decision.
And finally at the bottom of this slide we are highlighting our two outstanding cost of capital application the.
The CPUC held oral arguments in the 2022 case last Friday, where we had a chance to reiterate our position that the cost of capital components should remain at pre 2022 levels for 2022.
This month the CPUC also issued a scoping memo in our 2023 cost of capital application.
The Commission accepted our request to include an updated cost of debt in September , which we think is constructive given where rates have moved.
The schedule provides for a possible final decision of the CPUC last business meeting of the year on December 15th.
Before I move from key regulatory cases, just a brief update on the 2023 DRC for which we requested a test year revenue requirement of $15 three 4 billion.
On July 11th we submitted our rebuttal testimony responding to GIC proceeding stakeholders comments and recommendations.
We continue to defend our request and as a next step for.
For evidentiary hearings starting on August 15th.
We expect a final decision in the third quarter of 2023.
I'll close by reiterating that we are on track to deliver our 2022 financial targets.
Can proven tools and techniques to remain to deliver predictable results mitigating financial risk.
Our commitment is worth repeating again.
non-GAAP core EPS growth of at least 10% each year and 2022% to 2024 and.
And at least 9% in 2025 and 2026.
With that I'll hand, it back to Patti.
Thank you Chris.
As we move through 2022, we're focused on minimizing physical and financial risk or layers of protection start with system inspections repairs vegetation management overhead hardening in our 10000 mile underground program, which provide long term sustainable climate resilient infrastructure.
In the near term additional layers of protection provided by engineered enhanced power lines safety settings, when fuel risk is high and our public safety power Shutoff program during high wind events.
Our coordination with local and statewide agencies and situational awareness and SaaS response continues to strengthen and reduce our physical risk and provide a final in a central there of protection.
To mitigate financial risk for customers and investors, we will continue to fully deploy our simple and affordable model.
I am pleased with the progress as I see our relationships and trust growing with policymakers and stakeholders here in California, <unk> is an essential contributor to California's prosperity.
We will keep an eye on the horizon and ensure we're making the right investments to deliver California's clean energy future.
Something really exciting is blossoming here at P. Jamie.
We feel the momentum and we hope you do too.
Operator, please open the line for Q&A.
At this time I would like to remind everyone in order to ask a question simply press star one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.
Our first question will come from the line of Jonathan Arnold with vertical research. Please go ahead.
Yes, good morning, guys.
Good morning, Jonathan Hi, could I ask just a.
Could we get an update on the EPS SaaS effectiveness, we are experiencing in 'twenty two.
I know you spoke to the overall, 90% risk mitigation, but are we still seeing that kind of 80% reduction that you talked about at the analyst day or is that has that evolved somewhat.
Yes, Jonathan first of all as we talked about Etfs, let's just step back for a second and remember that the objective is to end catastrophic wildfire.
Objective of the program and.
For that we have layers of protection Etfs being one of them.
So on EPS as effectiveness, we are in the 70 plus range right now as we've gotten a larger sample size and obviously conditions are very challenging here in California.
Feel good about that 70% because in concert with the 70% plus.
Ignition reduction the acres burned per ignition is dramatically lower than the <unk>.
65% range and so we feel like that is a really important sign of progress and in fact, we're working on a new metric Jonathan it's not ready for prime time, but while we're looking at is sort of an ignition times acres burned.
And as we look back on previous years, we've seen significant improvements when we look at that all of that driving toward.
The elimination of catastrophic wildfire the other thing I'll share on Etfs effectiveness that we feel good about.
<unk> is the duration of those outages has dropped dramatically year over year. In fact, we set a target for ourselves in 240 minutes.
And we are well under that year to date and so our operations team has done an extraordinary job responding to this new configuration of our system that frankly, no one else in the industry at this scope and scale has this sort of safety measure in place and we continue to have successful conversations with communities who are most impacted.
<unk> bye.
PSS in fact peers.
Pismo Beach is a good example of community down by San Louis Obispo.
Was experiencing multiple outages our engineering team went and studied that that circuit was able to make repairs and modifications and engineering improvements to significantly reduce the outages and so we held webinars with the community and the local leaders gave us very positive feedback about our response.
And so we just continue to be focused on our hometown and making sure that we're keeping everybody safe.
Our next question will come from the line of Shar <unk> with Guggenheim Partners. Please go ahead.
Good morning, guys.
Good morning Shar.
How do I just wanted to maybe start off with the progress that's being made on multiple fronts in terms of physical de risking in particular kind of how the underground plans are evolving and just the general sensitivity of the CPUC around affordability and just as a quick follow up understanding what the regulatory process.
It is still ongoing but what are the current expectations from potential moves with legislation and any updates around the RFP process, where that stands from Jacobs.
The program. Thanks.
Yes, Thanks Shar.
It's great because under grounding and affordability go hand in hand underground is a great example of our simple and affordable model at work, where we're going to be able to transition from a highly expense intensive vegetation management program to more permanent corrective action, which is underground the lines.
As you May remember, we filed our modification to the JRC, we added $7 billion of capital for the first couple of years of the underground plan.
And offset with $1 billion of expense reduction, resulting in a flat no modification essentially to the rate increases.
That ask and so we think it's an important combination I'll just say.
We're really pleased with the progress on the underground and Bill.
I think it shows a couple of things number one our customers.
Have been demanding that we invest in our infrastructure there I've seen so many quality and headlines about.
G&A underinvested in its infrastructure. This is our pathway to investing in the infrastructure to keep our people safe and have a climate resilient.
Energy system, our legislators to see the same thing.
And they are working with us.
Bill 884 is making progress we like the current draft.
There is still it's still alive ball I would say theres still modifications that that can be made and so we're continuing to work closely but we like the idea that there is clarity to our long term plan and clarity that the legislature expects us and will hold us accountable to completing this undervalued plan, we want that too.
And so that accountability, then translates into a 10 year plan and the OIS and the CPUC or directed to.
Review and approve that in a timely fashion, which allows us to save the most dollars for our customers. It allows us to do that massive infrastructure project at the most affordable price. It gives us the opportunity and better long term contracts better access to equipment at a lower cost staffing up a labor workforce to deliver that incredible.
Infrastructure projects and so.
Just feel like underground is such a perfect example of the simple affordable model at work and making the system safe.
Got it thank you Patrick and just one last quick one in terms of the guidance the reduction in equity needs is certainly really appreciate it there.
You have securitization getting that off the balance sheet does that open some opportunities to maybe simplify financings going forward. Thanks.
Hi, Shar.
I think if you look at equity what we've said is that really looking forward to getting some of these important legacy items behind us, which we were able to make progress on including this quarter that helped us refine and really narrow our equity guide for the year and Thats really ultimately about a good financing plan. That's looking at a couple of years out at any point.
You also got as you mentioned the rate neutral securitization completely done.
Tier by midyear, which was nice because ultimately we're initially sure if we could get it all done at this point or if it was going to take us to the end of the year and then on the debt side ultimately you've got a couple of things they write theyre going to help us further simplify first we've got $82 54.
<unk>, that's really our next one coming up that we're hoping to execute later this year early next.
Just along the same timeframe, we're probably going to be looking at ongoing needs for long term debt, which really just finance our rate base growth and thats consistent with our base financing plan.
Got it thank you guys.
Thanks Carter.
Your next question comes from the line at that Julien Dumoulin Smith with Bank of America. Please go ahead.
Hey, good morning team. Thank you very much and congrats again on another quarter with a zero to 100 acre plus buyers good stuff.
Thanks Julien.
Absolutely what to recognize it.
Maybe this is more of a financial question.
Equity issuance can we talk about the reduced nuclear and how to think about that in the long term, obviously moving things in the right direction. Here can you talk about just what drove that in part but also more specifically how we can think about longer term means as well here, especially if you want to avoid them considering where the stock is so I appreciate the continued hustle.
Absolutely Julien I think you said that ultimately our focus is going to be uncertainty, where we're trading at this point to have to make the best economic decision, we can and so obviously looking at the five year plan, but at this stage and really the focus is consistently on making sure that we're putting these legacy items are front and center because they are.
And a driver for US specifically, you saw us resolve or make substantial progress and able to bound the securities claims right at $145 million, we're making progress on the kincade related claims and so we've got a much better focus now with the increase we had there quarter over quarter on where that will land as well and as you can imagine those are two key.
Key drivers as you look at future years, we're going to have fewer implications on that front, we're going to have obviously there is on fire is completely covered by insurance at this stage. So you can you can imagine Julian that really our focus is going to be on making it right with these communities, where we need to that's going to be the core focus of the company at the same time, we've got to actively manage our financing needs, which.
I think what Youre seeing the result of this year and bringing down the range.
From $1 million to $400 million down to zero to $2 50 this quarter.
Yes, absolutely.
Let me, let me pivot here Diablo so quickly.
How is the new $82 five and 180 <unk>.
You guys as well as federal left this year.
Is that new build potential angle to help defray costs from the state back to the fed in terms of paying for Diablo and ultimately as those.
Bottom line is also what does this means financially for you all considering that you were going to have a fully depreciated assets and a couple of years here.
So Julien obviously Diablo Canyon is very much on our minds and so if we step back and just think about what is being discussed here and what the path forward is first of all it's.
We continue to mind all engaged parties that the clock is ticking here, we've got a real sense of urgency in order to transition from being in a decommissioning posture to a life extension posture. So the most important thing to US right now is that we get certainty on the decision making.
We have to secure tasks, we have to order fuel.
There is some very near term items.
Actions that we would need to take if in fact, we changed the posture of the plant and so with that we're working very closely with the state first to understand.
What are the needs and what do we need to do to move forward. This is not an easy option.
Legislation will have to be passed the permitting and re licensing of the facility is complex and so theres a lot of hurdles to be overcome in order to move forward. However, we like the fact that that plant value is being recognized by the state that there is it seems to be kind of a shift in the attitude.
The role that nuclear can play in a ghd free.
<unk>. So obviously our team at Diablo continues to do great work and earn the respect.
The citizens of California, and the policymakers as well we have we do think that the Doe funding.
<unk> is a possibility and certainly the state has expressed interest in maximizing that and making sure that Diablo Canyon gets included and the Doe program to extend the life of nuclear again nationally I think theres been a real shift in attitude about the value of these baseload nuclear facilities and so.
Given that we're just going to continue to work through the financials.
And that will be second to making sure that the plant is ready in safe and able to operate for the for the state.
Got it and just from a financial.
And again, it's a depreciated asset by 'twenty five you're right.
We shouldn't think about that earnings impact beyond any differently.
That's accurate Julian there at this stage.
David.
That was part of our prior agreement with the CPUC to fully depreciate the assets.
The retirement lighter the second unit in 2025, we are also watching certainly the different pieces are moving on the state level Paddy fit well that we're looking at the federal level. The state also has the resiliency fund that Theyre looking at.
And Additionally, you mentioned the specific pieces of legislation, including customer ridges, and certainly think that that's a good.
A good example of the legislature acting on behalf of our customers and helping to lower costs and so certainly there is a financing advantage for and that for us as well.
Got it alright, guys.
Guys. Thank you.
Thanks Julien.
Your next question comes from the line of Richard Sunderland with Jpmorgan. Please go ahead.
Sure.
Hi, Good morning, Thank you for the time today.
Quick follow up on Diablo Canyon, you spoke to some of the hurdles there, but could you speak to the climbing at all in terms of.
A red line, where you need to address a few of those items.
Switching from decommissioning to life extension.
Yeah. So.
Legislation, we believe legislation.
Pretty well agreed that the legislation is required in order to change the the permitting and re licensing timeline and so the legislature.
Yes.
Needs to pass any new laws by the end of April April 30th and then they're signed by the Governor in September and so that really drives an important deadline for us and in addition to the fact that we need to order Cas and the CLO.
And so given that the combination of that timing really does drive.
The decision making.
Got it. Thank you and then switching gears here.
You can stick to the timeline and achieve ability of addressing the residual wildfire risk that's on top of the 90% estimated mitigation today.
Are you going to stay focused on the near term or sort of longer term aspiration does technology evolves.
Yes, we're implementing new technologies as we speak literally in fact, when we look at.
The utilization of our smart meter technology to its full potential it can identify.
Risks and false.
The system and we're already implementing that system wide. So thats, an additional layer of protection. Another layer of protection is on our secondary lines are down conductors we have.
New settings that we can utilize and some new technology in our controller box that we're deploying out to the system as we speak so what I can tell you is every single day, we have.
Our technology team, who is focused on ending catastrophic wildfire our team at our advanced Technology Center Ats. They are working night and day to come up with new and better technologies to deploy so we're not waiting you can rest assured and as the quarters progress we'll continue to share progress on those additional layers of protection.
And that we're putting in.
Great. Thank you for the color.
Yes, Thanks Richard.
Your next question will come from the line of Michael Lapidus with Goldman Sachs. Please go ahead.
Hey, guys. Thank you for taking my question and congrats on a good first half of the year.
Quickly how are you thinking about <unk>.
It takes a wildfire and the potential for this to be the test case to kind of I don't know see see how a $10 54 actually gets put to work when it comes to a wildfire that may have over $1 billion of costs to kind of walk us through where that stands potentially.
There's going to be in your view the potential trial run to see how this all plays out.
Michael Happy to take it I think that there is that potential at this stage as you know we have recorded a $1. One 5 billion total impact and so that would that would imply that the $150 million a year could interacts with.
The wildfire fund itself.
Just have to emphasize this could take some time.
I think in the interim what we're very focused on including with a an accelerated claims process in the community is making sure we have impacted families paid quickly.
So at this point, we've got over 100 claims that have come forward in that way and that have allowed us to compensate impacted local communities quickly. So that's the near term overtime. There is really the way to think about this is we've got our insurance layer itself.
CPUC recoveries above that.
Of roughly $360 million you have got the FERC related recoveries of roughly $100 million.
And then ultimately the remainder of the tapping the wildfire fund so there could be could be time here before we really get to the stage of tapping the fund because the statute actually requires that Youre youre substantially completed with your claims themselves before you move forward to the fund.
In terms of the <unk>.
Pattern in our operational prudency as it related to Dixie fire I think we've been quite clear.
In terms of vegetation management in terms of the management of our assets and the appropriate response, I think all of those things position us well for the recovery themselves at.
At the various jurisdictions, including the wildfire fund.
Got it thanks, Chris just one quick one can you remind me.
The last date or deadline for when either property or other claims have to be filed predictably.
Sure thing so theres too to keep in mind, the first would be personal injury statute of limitations, which runs from two years from.
From the incident and then.
Property damage, which is three years those are the two primary drivers of claims and claims timing.
Got it thank you Chris much appreciate it guys.
Sure thing.
Your next question will come from the line of Nick Campanella with Credit Suisse. Please go ahead.
Hey, good morning, Thanks for taking my question.
I wanted to just ask about the pending wildfire legislation in the Senate here understand we're kind of in recess and this will go through through August , but I believe there have been some amendments and I'm just curious.
Current bill as it stands today, if it was passed how would that affect your plan is it acceptable in current form.
What should we kind of expect here as we get to the end of August .
Yes.
We feel good about the current draft some of the things that we did not like about the previous drafts have been removed I think it was important for our legislature legislators and the authors of the bill to understand how important it was that the financial mechanisms in place. So we can attract the high value.
Capital.
To fund the program, we know it's important to you to have certainty for.
For your clients to make sure that those moms and Pops, who invest their money in a utility can count on a predictable return and so I think that was a really good understanding.
Understanding that we formed there so the language is good about cost recovery.
Terminating.
Distance as well as <unk>.
Especially the legislative direction.
Oh, yes, and the CPUC to support a 10 year plan, which would be outside the general rate case on infrastructure projects of this scope and scale is so important.
The longer term so we can get the labor force ready, we can get the equipment ready we can get the long term contracts that will save our customers. The most money. We can do the program at the lowest total cost when we have that longer term plan.
So having visibility transparency and frankly accountability to for us to do what we said, we're going to do and to get the unit cost where we want the unit cost I think it's in the best interest of everyone to have this kind of legislative direction.
<unk> provides a certainty that we need and just to remind you on timing August 31, as the deadline for bills to be passed and sent to the Governor and then September 30th is the last day of the Governor can sign a bill and so that'll be the timing of.
That legislative activity.
Great. Thanks appreciate that and.
I know, it's just happened yesterday, but just inflation protected that protection Act.
The A&P specifically if there is an alternative minimum tax how does that affect the company.
I mean, just looking at the BBB example.
Maybe you've done some work there already.
Yes in fact, Nick I was in Washington D. C. Two days ago in fact with the.
A small group of Ceos are focused on this climate package encouraging its inclusion in this new program and it's amazing to me how much can happen in two days and so.
We're excited about the clean energy components of the package. We think we think that it will allow us to continue to grow the clean energy assets here in California.
Alrighty of owners not just the utility, but making sure that we've got that clean energy transition at the most economic and lowest societal cost. We're excited about the inclusion of hydrogen in the Standalone storage credits, we're studying the implications for the EV credits, but it looks like the cap is being proposed to be lifted which would be good and important here in California.
Because these are such an important part of our future.
Of course like I would suppose most businesses, we don't love the corporate minimum tax.
For us it is a pass through which is why we don't like it puts affordability pressure directly on our customers and so.
There's obviously a lot of discussion about that we will continue to work our simple and affordable model, However, and we'll ride that roller coaster. So you don't have to it will make the necessary.
Terry adjustments to continue to build our our funding our infrastructure for our customers as they would wish and lower costs in a variety of areas. If in fact that additional cost gets borne by our customers.
Got it thanks.
I appreciate that just one more follow up if I can just on the on the victim's Trust I think we've seen some some turnover and the folks that we're running the trust and just kind of curious on what the conversations have been of late if you could provide any kind of color on the relationship or just in general your ability to align yourself, even more than before there.
Yes, Nick Thanks for asking the question I had a very productive conversation with the new administrator Kathy <unk>. She is a professional she has been in this business for.
Many well her whole career and she was very impressive to me I was happy to have the chance to talk with her.
We clarify clarify for her that we want what they want.
We want to maximize the value of this agreement that was made on behalf of victims.
And obviously, our stock price has an impact on that and their actions with the volume of shares that they all have an impact on the stock price and so we talked about that and we talked about how working together could be very beneficial too.
The victims and that's our sole focus and again, we want what they want to make it right and.
We obviously.
Working together with them is more productive than working independently. However.
They have been clear that they want to make sure that they get certainty around the dollars that they will have available to distribute to.
To victims.
And if you check their website you can see they've made a.
Our significant progress in disbursing funds. She is very focused on doing that efficiently and effectively until certainty helps them bottomline, we want what they want and we look forward to continuing to work with them.
Alright, thanks for everything today.
Thanks, Nick.
Your next question will come from the line of Gregg <unk> with UBS. Please go ahead.
Yes, hi, good morning.
Greg.
So maybe following up on Nick's question.
Are you looking at additional ways to.
Provide.
Certainty.
The fire victims.
The ball is really in their court on the stock and it's up to them how they wanted to disperse it.
Okay got it.
Okay and then.
Just on the.
Wildfire related cost recovery.
The $5 2 billion could you tie that back to.
Recoveries timeline and how that.
Sort of quantify the improvement in the.
<unk> to debt.
But it ties back to the credit measures.
Sure thing, Greg I think that this is going to be a key for the company over the next really two years, primarily with the majority of the funds coming into 2023, and 2024 does it help us from a cash flow perspective.
The key things to keep in mind are really too first quarter over quarter. The overall increase that you saw move of roughly $1 billion was directly related to prior vegetation management work that was critical for the system.
Second thing to keep in mind is that we do have two important data points here that are expected in Q4, which is the resolution of both the 2020 wildfire mitigation and catastrophic event, our whimsy related account as well as the 2021 when you look at those two together thats roughly the $2 2 billion that we've talked about so those are going to be key in turn in terms of getting resolution.
In there and then keeping us on track for our <unk> Guide.
Our next question will come from the line of David Arcaro with Morgan Stanley . Please go ahead.
Okay. Thanks, so much for taking my question good morning.
David.
I wanted to check in on on load.
Growth and what Youre seeing this year I know longer term you have got targets and it's an important component to reduce the customer bill impact from.
From your from your rate base growth over time, and that's driven by longer term programs around electrification and evs, but I guess im curious what youre seeing.
Currently this year and expectations for the rest of the year in terms of loan growth.
Yes, so we're continuing to look at that we definitely see.
Continued load growth is lower at this early part of our five year plan at the latter part of the five year plan and then going into the 10 year plan, we see significantly more forecast it will be interesting to see if.
The additional incentives on Evs accelerates adoption here in California.
But.
As we've said, 1% to 3% is in our long term forecast.
Okay, great. Thanks for that and then.
You mentioned a couple of technology.
Technology aspects, the partial voltage detection down conductor.
<unk> brands.
Just to kind of attack that last 10% of the risk.
When could we see maybe programs like that Kent.
Officially rolled out our targets set in place.
And kind of quantified.
Well the parcel voltage detection through our smart meters is deployed that is deployed as we speak and so.
We're learning a lot as we get those parcel voltage alarms, we have a 60 minute response time, we're trying to narrow that into even less than that so we can get out and observe the situation and find out if it in fact unsafe and so in the coming months Youll get more.
We will share more insights with you on what we're learning there again, that's an infrequent occurrence, but it is an occurrence.
And then the down conductor I think has a ton of potential.
Does require new hardware some of the hardware that we have on the system can be reprogrammed and so we're doing that as we speak but theres new hardware that needs to be deployed in some of that is caught up in the supply chain constraints globally and so we're continuing to work to accelerate the.
Implementation of these particular control or boxes, and we look forward to sharing news on progress on that as well, we definitely have already experienced down conductors that have been identified by this equipment and de energized automatically we're seeing the benefits of it but it's on a smaller scale.
Then etfs, where we have a 100% deployed so in the coming months, we'll share more about the deployment and the completion of the installation of that hardware.
Okay got it thank you.
Youre welcome. Thank you.
Your next question will come from the line of Ryan Levine with Citi. Please go ahead.
Good morning.
Throughout the call you had highlighted that the before and the <unk>.
<unk> 31 deadline for pending legislation within the state.
Given that we're nearing a deadline is there any other processes or legislation.
Insulated panels that could be introduced at the last minute here as we work towards the deadline.
Yeah.
Sure I'm happy to report that our team is very engaged in Sacramento has a good pulse on what's coming.
And at this stage bills have had to have been introduced there is procedurally. It's now an environment can be added to an existing package and so we have to be on the lookout for that but we don't have any alarm bells on the on the horizon at this stage.
Okay, and then on the on their grounding effort what progress as a company made on Rfps and other contracting.
For it's for underground in packages over the last few months.
Yes were not complete on the selection of our.
Final partners that will be selecting but we'll definitely make that public when we do I am happy to report we've already underground more miles of line. This year than we did in the entire year last year. So we've accelerated our <unk>.
Capabilities and the team is just continuing to make great progress.
And then last question from me in terms of the engagement with the victims Trust you highlighted your recent meeting but in terms of the overall.
Cadence or pace of engagements has it started to pick up.
Change in leadership of the organization or have things been relatively consistent.
Over the last six to nine months.
I would say, it's been consistent but maybe over the last six months I would suggest that we've had a lot of conversations in the last six months.
Helping the trust to understand what's happening with the equity price why it is what it is and what we can do together to really serve the victims best.
I appreciate it thank you.
Yeah.
At this time I will turn the conference back over to Patti for any closing remarks.
Thank you Regina.
Thanks, everyone. We know it's a busy day for you and as I said in my prepared remarks, something special is happening here at <unk> and we can feel the momentum and I really hope you're feeling it to have a great afternoon and be safe out there.
Ladies and gentlemen that will conclude today's call. Thank you all for joining you may now disconnect.
Okay.
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