Q3 2022 PG&E Corp Earnings Call
Good morning, everyone and welcome to P. J E corporations third quarter 2022 earnings release Conference call.
At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question answer session.
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I would now like to turn the call over to Matt Fallon Director Senior director of Investor Relations. Mr. Cohen, you may now begin.
Good morning, everyone. Thank you for joining us for <unk> third quarter earnings call with US today are Patty 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.
They are based on information currently available to management.
Some of the important factors that could affect the company's actual financial results are described on the second page of today's third quarter earnings call presentation.
The presentation also includes a reconciliation between non-GAAP and GAAP measures.
The presentation can be found online along with other information that investor Dot PG Corp Dot com.
We encourage you to review our quarterly report on Form 10-Q for the quarter ended September 32022.
With that I'll hand, it to Patty.
Thank you Matt good morning, everyone. Thanks for joining us.
You can see on slide three we are on track to deliver our commitments to you.
We've narrowed our non-GAAP core EPS range for 2022 to $1 nine to $1 11 per share.
As Chris will discuss we performed well in the third quarter, providing room to reinvest for our customers in the fourth quarter and deliver at the midpoint of our non-GAAP core EPS guidance no more no less.
In addition, we are initiating 2023 non-GAAP core EPS guidance.
Probably won't be surprised 2023 is in line with our projected 10% growth in a band of $1 19 to $1 23.
We're also reiterating our at least 10% EPS growth for 2024 and at least 9% in 2025 and 2026 no change there.
As you know to fund growing important capital investment for our customers. We've been working on more efficient financing plans like the minority interest sale of specific generation.
We've been working on plans like this for some time within our five year planning process. As a result, we're happy to report that we forecast no equity issuance for the remainder of this year.
In 2023, nor in 2024.
There will undoubtedly be ups and downs in that timeframe as we continue to resolve legacy legal matters and regulatory investigations and proceeding.
We want you to know that we work hard to provide flexibility for the unknown with an eye towards maximizing the resources available to serve the needs of our customers.
Our goal is to be proactive handle the ups and downs. So that you don't have to.
Our priority will always be to deliver the highest value investments for customers and deliver consistent financial results for you. Our investors. Your capital is essential to our ability to make our system safer faster and to deliver for our customers.
Moving to slide four.
We continue to be focused on mitigating physical risk and mitigating financial risk I want to highlight a couple of major accomplishments for the team during the third quarter.
First we experienced historic 10 day heat waves starting in late August with all time record high temperatures and all time demand on September 6th <unk> and the people of California Rose to the challenge.
We avoided rotating power outages, and we restored 97% of impacted customers within 12 hours.
This response is a wonderful example of the <unk> inaction partnering with the state our fellow utilities, the California, ISO and our customers mitigating physical risk for our hometown.
Second this quarter on our vegetation management our efforts since 2021 are recognized and the CPUC draft resolution recommending us to exit step one of enhanced oversight.
Remember that we entered into this additional regulatory oversight as a result of our evolving vegetation management program and inconsistent risk model application in 2020.
Our customers have benefited from a constructive feedback of our regulators and we thank them for their transparency and engaging oversight.
Another highlight of the quarter came as a result of the policymakers have California working hard through the legislative session to enable us to better serve our customers bypassing to historic legislative packages, one for underground and another to support the extension of our Diablo Canyon nuclear power plant.
As I mentioned, we continue our focus on mitigating financial risk for our customers through our simple affordable model and mitigating financial risk for our investors by delivering consistent predictable results and a stronger balance sheet.
Turning to slide five we continue to add layers of protection that we estimate have mitigated 90 plus percent of the wildfire risk on our system today.
Start with our wildfire mitigation programs, such as system hardening and underground vegetation management and enhanced inspections and repairs, we leverage enhanced power line safety setting technology, and our public safety power shutoff tools to keep people safe when conditions require it.
We extend that protection by engaging with first responders when an admission does occur to make sure that we are using our collective knowledge and experience to minimize the impact of fire spread and of course, we continue to evaluate innovative solutions to move above the 90 plus percent wildfire risk reduction with a specific folk.
<unk> on low energy thoughts, which are typically not currently mitigated by Etfs.
To address these thoughts we're using parcel voltage force out and down conductor detection capabilities, we've implemented parcel voltage detection through our smart meters across the high fire risk areas and we've had 33 parcel voltage force out since the program initiation in June with 10 potential <unk>.
<unk> identified that could have led to potential admission.
For down conductor detection, we've installed protection on over 5000 miles of our overhead electric distribution lines in high fire risk areas and we've experienced nine down conductor detection outages to date any one of which could have led to a potential ignition will continue to innovate and push to further increase our <unk>.
<unk> fire mitigation above the estimated 90 plus percent in place today.
Here on slide six you'll see our systematic approach that enables our 90 plus percent wildfire risk mitigation today, we've implemented our enhanced power lines safety settings across 43000 miles of high fire risk areas and select adjacent areas.
With this systematic approach in place in 2022, we've seen a meaningful reduction in both the number of Ignitions and size of fires when ignitions do occur.
While admission count alone is a primary indicator of wildfire risk that all acquisitions are the same in terms of consequence, which is why we've developed this new metric the admission impact measure.
It is simply the sum of acres burned by CPUC reportable Ignitions on primary distribution assets in high fire risk areas. This measure proves to us the EPS work.
Due to our efforts in 2022, despite 36% more or three risk days in 2022 relative to the 2018 to 2020 average we've seen a 99% reduction in the admission impact measure.
Turning to slide seven.
We are committed to earning trust with policymakers in California, utilizing the simple affordable model.
The legislation on underground at <unk>, and the Diablo Canyon extension fit right into the simple affordable model, reducing financial risk by delivering safe reliable clean energy affordably to our customers.
The benefits of the underground and Diablo Canyon extension bills are shown here on slide eight.
For underground ing, the major benefit versus the prior construct is the longer term work plan, which leads to real cost savings for customers.
The new law allows us to provide certainty to our workforce create longer term partnerships for material and equipment and inform our hometowns about when they will benefit from their lines being buried.
This long term certainty is critical to accelerate permanent risk reduction of physical and financial risk for our customers.
So the Diablo Canyon power plant extension, the new law is a key step to allow us to provide California with a large source of non ghd emitting baseload power for another five years.
Alternative would have been for us and other load serving entities in California to procure more expensive base load clean power to replace what is today over 8% of all of California's energy consumed provided annually by Diablo Canyon.
Replacing this power has proven challenging given clean energy supply constraints and we estimate that this law will save customers several hundred million dollars relative to other potential Baseload solutions.
In addition to clean energy that provides savings to California electric customers extending Diablo Canyon provides local jobs to over 1000 P. Genie coworkers and is a big boost to local businesses and the central coast economy.
Moving to slide nine.
We are early on our journey with policymakers, earning trust and establishing the stability necessary to attract capital to invest on behalf of our customers.
It started in 2019 with the passage of AB 254 eight.
<unk> hundred 54, it provides a framework to keep California utilities financially healthy while we do the work necessary to mitigate wildfire risk building on the $8 $10 54 Foundation. The two pieces of legislation passed in 2020 to create the right outcomes for customers mitigating physical risk and financial risk.
Further enhancing the California regulatory construct.
Looking ahead to 2023, we will file our 10 year underground plan informed by feedback we receive from our various stakeholders and we proposed to finalize our potential sale of a minority interest in Pacific generation, and example of our continuous effort on efficient financing.
Earning trust also requires that we fulfill our regulatory requirements and meet our standards.
When we identify a shortcoming, we own that outcome communicate transparently and take appropriate corrective actions.
This week, we're doing just that we filed a self report with the CPUC for a pole inspection standard gap that was identified by a team of my co workers are standard did not match the Cpuc's standard.
We found it and are on track to remediate all of the highest risk Poles in question by the end of the week.
Talked a lot about how we're using lean here at <unk> are.
Our performance playbook is empowering our workforce and enabling us to make gaps to standards visible and allowing us to close the gaps making us a better operator. This is an essential part of the turnaround and culture change here at <unk>.
We need to have the will to change and the skills to execute our performance playbook enables both.
Closing on Slide 10, our report card slide.
You can see here, how we're tracking on our goals for 2022 and beyond.
We added the mosquito fire to our CPUC reportable admissions greater than or equal to 100 acres.
The investigation is not complete we can see that the fire started near the base of our 60 kv steel pole.
As Chris will discuss we booked a liability for the mosquito fire of $100 million.
Which is well within our range of insurance.
We will Miss our gas main miles replacement as we reallocated some funding to other higher risk capital spend. This year. This is a good example of our lean operating system, making visible the best choices for our customers, we're comfortable making that visible to you too.
You May also notice that we increased our annual rate base growth from 9% to nine 5% through 2026, our customers expect us to make the right infrastructure investments and this investment reflects that.
We will continue to do that and manage the affordability with our simple model. The other metrics are on track and we feel great about our progress.
With that I'll hand, it over to Chris who will discuss our financial and regulatory items.
Thank you Patty and good morning, everyone.
Mentioned, we remain focused on delivering our financial commitments this year and we are.
We're reaffirming the five year plan with our 2022 to 2026 earnings growth guidance remaining the same.
This morning, I have a few updates to share with you to start a recap of our third quarter financial results.
Then I'll walk you through the details of our 2023 guidance.
Lastly, I'll provide a few highlights on regulatory and legislative items.
Let's start on slide 11.
non-GAAP core earnings per share for the quarter coming in at 29.
And at <unk> 84 for the first nine months.
Solidly on track to deliver the midpoint of our narrowed 2022, non-GAAP core EPS guidance of $1 10 sites.
As Patti mentioned, we took a charge of $100 million for the mosquito fire this quarter.
The estimated impact that is well within our available $940 million of wildfire insurance and does not factor into our work here.
We expect applicable self insurance for this fire to be recoverable and CPUC and FERC.
Earlier this week the CPUC issued a proposed administrative enforcement order related to the 2000 Twenty's dog fire.
Proposed order recommends a penalty of $155 million.
We will look to work with the CPUC to resolve the issues identified in the proposed order as we have with other CPUC enforcement actions.
While we're showing strong results year to date in 2022, some of the benefit is timing related and some of the benefit reflects conservative planning.
But because of these efforts, we will invest back into the system as part of maximizing every available resource for our customers and meet our commitments to you.
As Patti referenced our active efforts during the year has also allowed us to eliminate equity needs for 2022.
Turning to slide 12, with 2022, nearly complete we're initiating 2023 guidance.
System with our existing five year guidance and reflective of our abundant customer safety and reliability capital investment opportunities. Our 2023, non-GAAP core EPS guidance is up 10% from our 2022 midpoint at.
At $1 21.
This reflected here within a tight range of $1 19.
To $1 23.
On the financing front at the operating company, we expect to issue net long term debt through 2023, largely in line with our planned capex less depreciation and our approved capital structure.
An important part of our financing plan is the sale of a minority interest in Pacific generation filed with the CPUC last month.
This proposed transaction would allow customers to retain the benefits of our flexible and clean generation portfolio with no real impact.
While providing a source of funding to be invested in the system for their benefit.
Our plan to utilize efficient financing from the proposed minority interest sale, along with moderating our parent debt Paydown resulted in us projecting no equity issuance in 2023 or 2024.
I want to reinforce that customer affordability remains at the forefront of all our decision, making as we turn to slide 13.
Moderating customer bill growth to at or below inflation as our guidepost.
Affordable model is how we will get there.
Our proposed minority interest sale fits squarely into the efficient financing category show here with proceeds providing an alternative to equity issuance.
As this transaction moves through the regulatory approval process with the proposed transaction closed late in Q4 2023.
Not going down our pursuit of additional O&M cost reductions.
Our annual 2% non fuel O&M cost reduction target remains another key aspect of our simple affordable model.
We're making additional progress on this front and our 2023 generate case.
Which takes us to my last topic, our key regulatory and legislative update.
Starting at the top of Slide 14, we received a proposed decision and an alternate proposed decision in our 2022 cost of capital proceeding.
Both the proposed decision in the alternate acknowledged as an extraordinary event occurred.
No automatic adjustment mechanism should be implemented.
The proposed decision calls for a second phase to determine the appropriate ROE for 2022, while the ultimate call for the ROE remain at 10, 5%.
And the 2023 cost of capital case, we expect to see a proposed decision in November which will allow for a final decision before the end of the year.
Moving to the 2023 generate case this month, we filed a settlement agreement that provides for 100% wildfire liability self insurance.
This is a great outcome for customers with the potential for up to $1 $8 billion in savings over the 2023 to 2026 Trc period and here is our work with.
If approved the settlement allows for self insurance to be funded through CPUC jurisdictional rate starting at $400 million for test year 2023, and subsequent years into $1 billion of unimpaired self insurance is reached.
Given the high cost of wildfire insurance. This is a priority for PGD turn and Cal advocates and we'd like to thank the parties for working collaboratively on a constructive outcome for customers.
We're asking for a final decision by February 2023, So we can lock into self insurance option for the 2023 policy year.
The remainder of the 2023 generated case continues to move through the process with the final decision is scheduled for the third quarter of 2023.
Moving down the slide we've summarized the status on our outstanding recoveries related to wildfire risk reduction of investment.
We have approximately $5 7 billion outstanding at the end of the quarter.
This amount approximately $800 million.
<unk> has already been approved for cost recovery through 2023, and we anticipate an additional roughly $1 billion in additional recoveries in 2023 overall.
This month, the CPUC issued both a proposed decision and an alternate proposed decision on our 2020 wildfire mitigation and catastrophic events application.
While we are glad to see the movement in this case, we're disappointed with the proposed decision both of which declined to adopt a settlement agreement for <unk> and we will be advocating for improvements.
At the bottom of this slide we highlight two important pieces of legislation signed by the Governor last month.
<unk> provides support for a 10 year underground plan, which we'll file in 2023.
And SBA four six provides for the five year extension of Diablo Canyon, which as Pat discussed with a great outcome for our customers and our co workers.
I'll close on slide 15 by reiterating that we are on track to deliver our 2022 financial targets.
On plan to deliver predictable results and mitigate financial risk.
Our five year commitment remains unchanged non-GAAP core EPS growth of at least 10% each year and 2022 to 2024.
And at least 9% in 2025 and 2026.
With that I'll hand, it back to Patti.
Thank you Chris.
As I wrap up our prepared remarks, I want to take a moment to thank Matt film for his dedicated service to <unk> during a very difficult time, we wish Matt our very best and I know you do too.
By mitigating physical and financial risk for our customers and investors. We continue on our path toward making <unk> a premium utility and we've made tremendous progress in 2022. We know we are rebuilding this utility in a way that can last we are turning the page on our history folk.
Just on the new <unk> story, we trust that you feel the momentum too.
With that operator, please open the line for Q&A.
Yes.
Thank you as a reminder to ask a question. Please press star followed by the number one on your telephone keypad.
Please limit yourself to one question and one follow up. Thank you. Our first question comes from Shar <unk> from Guggenheim Partners. Please go ahead. Your line is open.
Hey, guys good morning Morningstar.
Morningstar.
Good morning, So just maybe starting off with the new 95% rate base CAGR you put out there I guess what are some of the moving pieces that caused you to pick up by about 50 bps is it just confidence around the prior range that was provided by underground at some reinvestment opportunities from Diablo Canyon.
Baseline Capex is it all of the above.
I guess can you just help bridge the driver of that increase and is there any near term opportunities that could further be incremental to that plan. Thanks.
Yes, Great question Shar look one thing that I have definitely learned is that we have a lot of work to do here at <unk>.
One thing that's been really interesting to watch as our new business applications. We have over 120000 applications for new business in a given year and so as we're always looking to allocate capital and making sure. We're serving all of our regions appropriately making sure we have.
The best service for our customers, regardless of where they live in our service area. We knew that we needed to really make sure that we had enough capital deployed to make to serve that new business and certainly the additional electrification that we're starting to see in our electric vehicle count continues to grow and so capacity new business will be.
Our primary use but as you can imagine we do a lot of work on capital allocation and making sure that we can serve all of our regions as well.
Got it perfect and then just kind of looking at sort of your early outlook for financing you guys reduced equity need through 'twenty four down to zero now you're targeting about $2 billion more in debt Paydowns.
What are some of the moving pieces and being able to get the offsets and just to confirm you are now embedding the proposed equity sale of Pacific generation. What are you assuming there since this process is I guess more infancy stages still.
Hey, good morning, So I think Theres, a couple of things moving around obviously, but I think maybe the place to start is what are we solving for I think Patty you really hit it earlier, which is we've got substantial capital needs for the system, we're balancing that with going forward with the best economic decisions. We can make on the financing itself. So that's why you heard us.
Say moderating at the Holdco debt Paydown the <unk>.
Eliminating equity needs for 'twenty, three and 'twenty four and we're going to continue to target that mid to high teens <unk> to that guide.
Through the plan so that hasn't changed so really we're constantly managing.
The ups and downs a couple of examples to think about even in the last couple of years, our San Francisco General office sale. The towers related lease transaction and now we've got the specific generation transaction as well it is embedded in the plan Shar right. We've got a current assumption for a year end 2023 resolution at the CPUC.
But obviously, we're going to be managing conservatively there around timing, so hopefully that helps paint the moving pieces for you that.
No. It does fantastic ill jump back in the queue. So you guys soon and congrats Mr. Fallon, Thanks, guys Bye.
Thanks Shar.
Yes.
Our next question comes from Steve Fleishman from Wolfe Research. Please go ahead. Your line is open.
Yes, hi, good morning. Thanks.
So great to see some of this progress and also great to see you getting reflected in the stock price recently.
But obviously begs the question just is there any color.
The fire victim trust and how they're thinking about things now that the stock looks like it might actually be above.
Where are they got at that.
Sure Steve as you can imagine.
Remain in continuous contact with a fire become trusted given their large shareholder of the company, but at this point it's definitely.
Their explicit decision in terms of execution of any kind of financing. Most recently certainly all of US all in the market of roughly 35 million shares.
I would think about a month ago. So at this point you can imagine tough for us to predict any future explicit transaction there.
Okay.
Good and then just on the <unk>.
<unk>.
Okay.
Minority sale and looking at your rate base is that is the rate base associated with that potential sale.
Included in your rate base still.
Could you just remind us how much that would be.
Sure Steve I think it's very limited as the way to think about it you would look at it and probably see about <unk> total change, but thats in terms of our overall plan, that's pretty easy to for us to manage here over that timeframe. So really for us it's about the efficient financing with this opportunity provides.
Which is why this is really about the focus here over the next couple of years.
Okay, but it's still in the rate base data. So we just make that adjustment.
Once we see something.
We pulled out already of the rate base Thats correct, okay, not explicitly pulled out yes. Thanks for the clarifying question.
And then last question is just in terms of the overall financing environment and I guess kind of combining with kind of IRI impacts could you just talk to.
Weather.
The kind of higher cost financing environment and.
IRA and all those things are kind of embedded in.
And this kind of refresh plant.
Is there anything we need to be watching.
Yes, they definitely are embedded in fact, we were able to update our general general rate case here recently, which really showcase the next four years of IRA impacts.
So really you could see that there's no material impacts in terms of the overall plan itself and the five year plan.
What I would offer is kind of two different points. So one the customer benefits that can come here from the iras passenger substantial we're talking probably over half a billion dollars.
Over the next 10 years, just purely in customer savings from reduced pricing on the renewable energy contracts and PPA that we pursue.
And then in the near term as we look at interest rate pressure, we have already assumed that rates continue to go up and just as a reminder for us in terms of a rule of thumb you could probably look at a 100 basis point move for the company is up or down as roughly two up or down. So we've already managed roughly $60 million and impacts this.
Year and are comfortable again, managing that going forward.
Great.
Thanks for the updates.
Thanks, Steve.
Our next question comes from Julien Dumoulin Smith from Bank of America. Please go ahead. Your line is open.
Hey, good morning team. Thanks for the time and congratulations on the continued success here really really impressive.
Just just if I can clarify a couple things so far your 'twenty three outlook here I mean, given the step up in rate base.
I thought there might have been a bigger jump in earnings here can you elaborate a little bit on the moving pieces here clearly the hampden impact.
The sale here a great base, you said three sets a moment ago would be potentially.
Essentially a plurality of items here, but can you talk about it outside of just the conservatism in your plan.
About the bigger step up in rate base versus the earnings and.
And then separately I'll just throw in a quick second question at the same time, the 25% and 26 bio mission are you, saying that theres still kind of an equity balance sheet date.
Thank you Julien a couple of things first as you know, we do plan conservatively and Thats, how we can be confident in our forward looking equity forecast as well as our.
And equity guidance as well as our earnings guidance.
Our goal is to ride those ups and downs and we still as I mentioned, we will see legacy items, we'll see items.
Of opportunity and we will see items that we can invest back in the business. It is always going to be number one for us to be balancing affordability with quality of service and so that's those are the tradeoffs in the.
Visions that we balance against and so that's what drives our earnings forecast, we think that at a 10% EPS growth.
Feel good about that and we feel good that we can consistently deliver and that's what most is most important to us and to our customers and I think thats, how we best serve investors as well.
Got it and I'm 25 and 26.
Your first question.
Sure Julian I was just getting ready to jump in good morning, I think that as we if we look at the timing really around the alpine excuse me around the Pacific generation sale.
At this point you can imagine we'll be getting greater certainty as we go into next year. We've got a mid year timeframe of an initial view from the CPUC at least what we've requested and so once we can get further along there I think once we also look at our dividend reinstatement right, we're going to be able to give a better view on equity as we go out to 'twenty five 'twenty six certainly.
At this point just too early.
Yes.
Can you give some we want more right.
Julie.
No I just gave you on the straight and narrow here. Thank you.
Indeed, hey, congratulations nicely then patty on brick.
Bringing the conservatism back into the plan that we know you for it.
Thank you Julien.
Our next question comes from Michael <unk> from Goldman Sachs. Please go ahead. Your line is open.
Hi, guys. Thanks for taking my question actually I have three I apologize for for three questions I'll, just rattle them off I think two or probably for Chris one for Patty to for Chris Just curious as you think out a few years how much in the way of holding company debt do you want to keep up top. That's question. One question. Two is can you remind.
US what your cash tax position will be post iras, and whether that impacts the level of cash taxes going forward and then Patty for you.
Labor availability.
I know labor rates for and I'm thinking line aircraft and folks who who work on the system.
I know labor rates are up a lot, especially in your region, but are you seeing any challenges in the actual availability regardless of cost.
Okay, Chris why don't you take the first two and then I'll take number three sure happy to Michael on the first one in terms of Holdco debt again as a reminder, we've got $4 75 billion of Holdco debt at this point and what we updated this morning as we're looking through the plan from now through 2026 would anticipate reducing that over $2 billion. So the two.
Billion plus numbers that we provided this morning.
On cash taxes at this stage, we were again pretty specific in terms of our filing in terms of our general rate case, specifically, they're tough for me to be much more specific on cash taxes other than to say, what we experienced in the five year plan was really a generally offsetting impact from the from the corporate minimum tax and then the deep depression.
<unk> provisions that were embedded there so really no material impact in the plan in the near term.
And then.
I'll go on to question three on the labor availability, Michael that's a great question.
I'm really I, just need to give a shout out to our labor partners the ASC and the IBEW have been extraordinary partners for.
As we have been really turning around the company and just one example.
We felt like we were we can do a better job serving the bay area, specifically, San Francisco and the city of Oakland, and we had a challenge staffing those communities and we worked with our Union and in fact, we challenged ourselves to to add 100, new line workers.
For the city of San Francisco, and Oakland, and we weren't sure we would be able to finals resources and in fact, we have and the beauty of that is as we.
Higher those line workers to work here at <unk>, we were able to actually save money, because we were paying premiums for contractors and we ended up saving over $8 million by.
By in sourcing 100, new line workers, So it's really an incredible honor.
Opportunity to work with our labor unions people want to work at <unk>, and we're able to attract that talent.
Got it thanks, Patti Thanks, Chris much appreciate it.
Thanks, Michael.
Our next question comes from Nicholas Campanella from Credit Suisse Financial services. Please go ahead. Your line is open.
Hey, good morning, everyone I dropped so hopefully I'm not repeating a question here.
But I guess just.
Since you've kind of announced this minority interest sale and the strategy around specific generation have you had in Cummings of interest on the assets and can you give us any kind of detail on how those conversations have been and just overall interest in the assets would be helpful.
Hi, Nick absolutely no. Thanks for the question I know, it's a busy morning. This hasnt been asked so happy to give you color at least on what we can.
Again the portfolio itself is one that is very clean right. We're talking about five six gigawatts with 75% of it plus is completely ghd free and a very straightforward predictable regulatory environment for these assets themselves. So because of that certainly have had interest in the assets themselves, but let me maybe.
I'll give you some color on timing right in the timeframe. We're looking at we have already filed the request with the CPUC for the ability to create a subsidiary of the utility. So the way I would think about this in terms of our timing will be and that marketing process with counterparties in Q1 next year. So it's a little premature for me to give.
A whole lot of color other than to say definitely is ive been down inbounds definitely have had interest, but we want to make a little bit more progress first year on the underlying case itself before we get into those detailed diligence discussions.
Got it that's helpful. That's helpful and then just on the credit side.
A lot of positive data points across the board this year credit.
Rate neutral securitization.
You seem to be on the path to achieve further debt targets that you've lined out just what are the conversations with the agency has been how should we just kind of think about timing to get back to investment grade at the Holdco.
Sure.
<unk> focus there Nick as you can imagine for it's really two things for us. It's first it's the quantitative measures consistently focus there on <unk> to debt as we've talked about and we think that trajectory of mid to high teens puts us on that path to continue to walk up beyond the positive outlooks that we recently saw Additionally, I think it's really important.
Some of the highlights that we were able to provide this morning show progress on the qualitative components Patti really hit in detail the progress were making with 99%.
Risk reduction as it relates to our EPS protocols, that's the essence of the improvements we need to be able to show operationally.
Additionally, the final key pieces consistent timely straightforward regulatory outcomes and I think that that's what we're starting to see we showcased both on the legislative and regulatory side progress being made on the legislative side with the Diablo Canyon legislation as well as underground.
And then it's up to us to file next year, our comprehensive 10 year underground plan and really execute that work effectively similarly on the regulatory side of things that we've got right in front of us here.
Cost of capital related decisions are going to be important to showing the rating agencies progress on again, both quantitative in terms of the <unk> to debt and then qualitative on both operational and regulatory efforts that are underway.
Alright, thanks, so much team in Matt pleasure working with you.
Thanks, and our next question. Our next question comes from Greg <unk> from UBS. Please go ahead. Your line is open.
Yes. Thank you good morning.
Morning, Greg.
So as you.
As you get to the point, where youre tapping the.
Wildfire phone could you please sort of.
Mining of the process, there and the timeline and if theres any sort of review around that.
How you think about it.
Sure Hi, Greg I think there is a few steps that I can I can lay out there for you. So specifically this would relate to the charges. We've taken on the <unk> fire, where the implication would be roughly very small, but it roughly $150 million impact to the wildfire fund. So the way to think about this is we will work our way through now the various legal claims themselves.
<unk> traditionally takes you.
You really don't get your arms around really the totality of the legal claims for roughly two to three years then the embark upon settlement in resolution or litigation of those claims at that stage.
And then move forward with a review with the CPUC of roughly 12 months to 18 months right. So you've got three years, then you add another 18 months.
For our filing related to prudency under the new $82 54 improved construct.
Only after that once we've resolved and I believe the wording in the law is substantially resolved most of the claims only then would you be knocking on the door of the wildfire fund for those recoveries and so as you've seen at this stage in terms of our both the charge we took in the offsetting receivables. We are confident at this point that in terms of our actions at that location.
<unk> as a prudent operator to be able to have both recoveries above insurance.
<unk> and FERC as well as recoveries of the wildfire fund, but it will be a few years ahead of us.
Okay. Thank you.
And then the.
Realization of the tax benefits related to the.
Fire victims Trust sales.
What's the timing of how that comes through.
How does that work.
We recognize thank you Greg we do recognize those tax benefits you'd see those on a quarterly basis as we update each quarter because anytime there is a sale of both of the fire victim trusts enjoys the tax benefit as well as the company. So we would you would see that updated as the three sales have happened this year directly into our financials the subsequent quarter.
Thanks very much congratulations.
Thank you Greg Thanks, Craig.
Our next question comes from David Arcaro from Morgan Stanley . Please go ahead. Your line is open.
Yes.
Hi, good morning, Thanks, so much for taking my question.
David.
I was wondering if you could speak to the GIC there was.
Updates related to inflation had a fairly significant impact on just the.
Higher rate base level, that's getting requested there I'm wondering if you could just give a sense of are those are those inflation numbers.
Fairly mechanical so are they real how are you interpreting them.
In terms of the cost of the business for the next couple of years and how might the commission.
Interpret those inflation adjustments that were made.
It's a great question, we definitely are seeing inflation in our actual spend we see that but.
I think what's really important to think about as we look at our filings in our GSE and inflation update is our commitment to affordability for customers.
And so as we look at.
Sure.
The.
Our bill's here in California, we do have the benefit of mild weather in most parts of our state and so that's one piece of the puzzle here that we're aware of that our energy bills or lower percent of wallet than in many parts of the country. However, there are parts of our state where they are more energy into.
And so we have a very important focus on affordability and that's what the simple affordable model is all about we know that our customers have been really anxious for us to invest in our infrastructure make it more resilient make it say for make it more reliable and yet make it affordable and so as we do our O&M cost reductions as we do.
Financing to things like our <unk> sale, we have ways of offsetting the capital investment to the benefit of customers and customers will start to experience that in the coming years.
Here's one example, I was.
Sort of famous for a story of the month. So here's our story that's months impacted is the story of the week. If you will because it seems like we're finding lots of opportunity all across the company, but we hadn't update this week from our vegetation management team and our sourcing team we've come a long way using our lean performance playbook to standardize on <unk>.
Prove many aspects of our business, but especially our vegetation management, which is a very important.
Part of our safety measures here at the company. So we added visibility to the training and the safety standards for all of our contractors. We did a thorough review and removed outdated quality standards, we standardized unit rate contracts versus time and equipment contracts, we reduced our contractor count from 24 2014.
<unk> them to better serve our hometown.
This is going to be resulting for 2023 and a better customer experience less repeat visits I've talked about this on previous calls where we visited customers on multiple times to do our vegetation management work. So in this case with all of the improvements. The team has made will make less repeat visits so customers Tom at a lower cost.
This is our performance playbook in action the Bottomline savings is going to be over $300 million just from standardizing smarter contracting and utilizing our performance playbook. That's the play we're running at <unk>. That's what's happening here, we're going to find ways to do better work for customers at a lower cost. So we are.
Zero, Dan I'm, making sure that we have a more affordable service.
Great. Thanks, that's helpful color.
And just related to the fifth generation sales I was just wondering if you're able to give.
That were to not be approved or if it got delayed just how much equity might be easing of the plan.
And that alternatives.
Sure. Good morning, I think in short you can imagine this is exactly what we were mentioning earlier that we're constantly looking at internal cash management levers regulatory levers to manage any variability for you. So I think that.
It wouldn't necessarily change anything I think thats. Our point is that we're putting ourselves in a position with a more conservative plan to be sure that we give the most efficient financing possible and thats why this filing makes good sense.
Got it okay great.
And then just last one I was wondering any updates on just underground in terms of.
<unk> forecast our technology improvements.
Just what youre seeing on the underground opportunity and how thats evolving and we've gotten the legislation in.
Please.
Yes. So we're in the process of building out our plan as a result of that legislation and kudos to our legislation tours for making.
Im a big decision and supporting that underground drafting and supporting that underground legislation that 10 year plan allows for better savings for customers fundamentally we can have better work plant workforce planning, we can have better equipment. We can have better long term contracts and we all we know that all of that result.
Some savings for customers, we're seeing good progress this year.
We completed 165 miles of civil construction already we'll do the final buttoning up of that work and expect to meet our target of 175 miles this year, which youll.
Youll remember, we did about 72 miles last year, so thats the huge improvement year over year and many of those miles are coming in closer to the $2 $5 million a mile than the original $3 $7 million a mile. So we're really seeing progress we continue to improve and we're looking forward to being able to.
Publicly file that 10 year plan in 2023, so we can share with the whole outlook looks like including the cost forecast that go with it.
Okay.
Great. Thanks, so much.
Thank you.
Our next question comes from Ryan Levine from Citigroup. Please go ahead. Your line is open.
Hi, everybody.
Good morning, guys.
Good morning.
I appreciate the answer on your equity issuance plan just curious how you're currently thinking about your dividend policy.
Recognizing you need board approval, but in the context of.
Ability to return capital to shareholders.
How are you thinking about that given the pending transaction or potential transaction wont close until after a dividend decision would be made.
Ryan Thanks for the question again, I think we will have maybe some initial insight remember with regard to at least the current calendar we've provided.
To the commissioning of our request, which would have a midyear initial view really of the transaction on alpine so.
Go into our thinking a bit but let me just take a step back remember that our eligibility for reinstating the dividend as when we hit $6 2 billion and non-GAAP core earnings and so we are well on that path at this stage and would be at the point of eligibility mid year next year I think.
I have to emphasize though is that he said there is an awful lot of needs for our customers in our system. So you should assume that it's actually a very small dividend. Initially at this point and then we would feathered in over time, obviously going to spend time on that going into next year with our board and be able to come forward with more detail when we can.
I appreciate the color. Thank you.
We have no further questions I would like to turn the call back over to Patti Poppe for closing remarks.
Thank you Julie and thank you everyone for joining us.
We are looking forward to seeing you at <unk> in just a couple of weeks and.
We just hope that you are safe out there and we'll look forward to seeing you in November .
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
Yeah.
Okay.
Yeah.
Yes.