PG&E Corp

NYSE:PCG

Earnings Call Transcript 2021-Q1

[Operator]

Greetings, thank you for standing by, and welcome to the PG&E Corporation First Quarter 2021 Earnings Call.

I would now like to hand the conference over to Matt Fallon, Senior Director of Investor Relations. Please go ahead.

[Matt Fallon, Senior Director, IR]

Good morning, everyone, and thank you for participating in PG&E's first quarter earnings call. Joining us today are Patti Poppe, our Chief Executive Officer; and Chris Foster, Executive Vice President and Chief Financial Officer.

I want to remind you that today's discussion will include forward-looking statements about our outlook for future financial results, which 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 on the second page of today's first quarter earnings call presentation.

The presentation also includes a reconciliation between non-GAAP and GAAP measures that can be found online, along with other information at investor.pgecorp.com. We also encourage you to review our quarterly report on Form 10-Q for the quarter ended March 31, 2021.

Before I turn it over to Patti, I'm excited to announce that we'll be hosting you for our Investor Day on August 9 here in California. Please keep an eye out for the invite.

With that, I'll turn it over to Patti.

[Patti Poppe, CEO]

Thank you, Matt. Good morning, everybody. It's so great to be with you for our first quarter earnings call. We delivered solid Q1 non-GAAP core earnings of $0.23 per share in our first quarter. This morning, we're reaffirming our 2021 non-GAAP core earnings per share guidance of $0.95 to $1.05.

We're also maintaining our longer-term 2021 to 2025 non-GAAP core earnings per share CAGR of 10% that we gave on the Q4 call. We're holding our equity guidance range for 2021 at 0 to $400 million. We're taking a conservative approach as we await a final decision on the securitization order from the CPUC and as we continue to make progress on legacy issues. Rest assured, Chris and I are laser-focused on minimizing our 2021 equity needs. We want you to have confidence in our forecast, and we have several more months this year to make progress on the equity range. Chris will describe the financials a bit more in a few minutes.

As I finished up my first 100-day listening tour, we've accelerated our move from listening to action. Our priorities fall into 3 categories: first, to end utility-caused catastrophic wildfires by demanding excellence of ourselves in our wildfire prevention work; second, to create a culture of performance by deploying our lean operating system across the enterprise during 2021; and third, by continuing to lead in the clean energy transition through the latest technologies in battery storage, electric vehicle infrastructure and microgrid solutions.

Our near and long-term financial performance is inextricably linked to these 3 focus areas. We can deliver on these objectives and thereby serve our customers and our investors better than ever before.

Thankfully, I don't need to do this alone. I've hired key senior leaders, who represent the best in the business. We added some very experienced senior leaders to the PG&E team, who we highlighted on the Q4 call. Since then, we've announced additional new senior leaders to round out our team, including Chris Foster as CFO; Jason Glickman, as EVP of Engineering, Planning and Strategy; Carla Peterman, as EVP of Corporate Affairs; and Wade Smith, as Head of Electric Operations.

I'm pleased with the team that we have here at PG&E, and I would stack our operating experience up against anyone. The common thread in all of our leaders is a tenacity to perform and the skills to deliver.

Before diving into the substantial changes we're making here at PG&E, there's something I'd like to address right up front. Earlier this month, the Sonoma county district attorney filed criminal charges related to the Kincade Fire against the company. We do not agree with these charges, and we'll defend them in legal proceedings. In the meantime, we'll make it right by working to resolve victim's claims fairly and justly. And each day, we'll continue to make it safe by prioritizing the work that needs to be done to deliver energy to our customers.

One organizational enhancement I'd like to highlight is our interim wildfire risk organization announced last month, led by Sumeet Singh. This team has been instrumental in responding to the criticism we faced on our enhanced vegetation work. As a part of our lean operating system implementation, the federal monitor and the governor's operational observer are included in our daily operating reviews associated with wildfire work. You may wonder, won't it lean take years to implement? The answer is no. We've already started our implementation on our most important work and the system will provide benefits immediately as well as for years to come as we grow our capability and our maturity.

One simple example happened in the very first week of our daily operating reviews, we were off track on our distribution sectionalizing device installations. We completed 12 devices as compared to a goal of 30. And as a result of the daily operating review, we gained visibility of the problem and built a recovery plan that's been outlined and managed to make sure we get back on track.

Look, it may sound very simple, but this is a sort of thing that gets lost without an operating system. Next thing we know, the problem snowballs, we're too late to fix it, another commitment missed. Great operators keep their promises and have a system to manage them. We will be a great operator, thanks to our lean operating system. We have the right team implementing the lean system on this critical work, and there'll be a valuable resource as we implement lean across the enterprise throughout the year.

On that point, in early March, I attended a CPUC workshop on a regionalization filing. I was able to share my thoughts on how PG&E could benefit from implementing a lean operating process on a localized level. We'll leverage the benefit of the lean system and the regionalized teams focused on engaging customers and communities and incorporating their input. We've listened and we've seen that we need to improve our local presence and our performance, and we are going to do just that.

As we implement the lean operating system, we'll continue to uncover opportunities to improve and take actions to close the gap. In addition to getting our senior leadership team in place, establishing our lean operating system and ensuring a hometown experience, we're able to begin measuring our performance to the Triple Bottom Line of people, planet and California's prosperity.

For PG&E and for California, serving our planet means continuing our leadership role delivering clean energy to our customers. In 2020, 88% of our bundled sales were from greenhouse gas-free sources of energy, more than twice the average across U.S. utilities. We're not resting there, and we're working to bring on over 900 megawatts of additional battery storage by this August, assuring that we have both adequate supply and cleaner resources.

I'm particularly excited about these storage opportunities. In fact, earlier this month, I visited the Moss Landing project, where we have one of the largest utility-owned storage facilities in the world, and a great example of a brownfield conversion from fossil fuels to batteries, leveraging the existing transmission resources. We'll continue to evaluate opportunities to add battery storage across our territories, including opportunities in high fire threat areas.

Another major initiative is, in fact, our microgrid program. There are many locations across our high fire threat service area, where microgrids make a lot of sense.

One example is in Mariposa County, where we had 5 customers that lost power in 2019 when the line serving them was destroyed. There, we're deploying a utility-owned hybrid renewable stand-alone power system to energize these isolated customers. This option is designed to reliably repower the customer without the need to rebuild the overhead lines. The remote grid offers an alternative at a lower lifetime cost and importantly, at a lower risk of future fire.

As you can see, we've got a lot going on here at PG&E. The company has embraced the new vision. The senior leadership team is focused on achieving what all 25,000 PG&Eers and all of our other stakeholders in California want, a company that delivers clean, affordable, reliable energy safely. We'll meet that objective through a relentless focus on people, planet and prosperity, underpinned by performance.

With that, I'll turn it over to Chris.

[Chris Foster, EVP and CFO]

Thank you, Patti. As Patti mentioned earlier, we've started the year focused on execution against the goals we set forth in 2021, including on financial and regulatory matters. I plan to cover our Q1 results and then cover regulatory updates. But just to provide a few highlights up front: first, we're on track for our year-end earnings per share guidance. We're maintaining our 2021 equity guidance range. We've obtained our wildfire liability insurance coverage early this year, totaling $900 million. And we continue to gain financial clarity through progress on our key regulatory cases.

As I mentioned, we're on track for the 2021 non-GAAP core earnings per share range we set out at $0.95 to $1.05. You can see here on Slide 8, our results for the first quarter. Non-GAAP core earnings for the quarter came in at $487 million or $0.23. We recorded GAAP earnings of $120 million or $0.06, including noncore items, also shown here.

Moving to Slide 9. This shows the quarter-over-quarter comparison for non-GAAP core earnings of $0.23 per share for Q1 2021 versus the $0.89 per share for Q1 2020 or $0.27 per share after adjusting for the increase in shares outstanding.

EPS decreased $0.03 related to unrecoverable interest expense, $0.01 from the timing of nuclear refueling outages, $0.01 from the timing of taxes that will net to 0 over the year, $0.01 from wildfire mitigation costs above authorized and $0.01 from miscellaneous items. The decreases were partially offset by $0.03 of growth in rate base earnings.

Moving to Slide 10. Our guidance for some of our noncore items has changed. I'll start with bankruptcy and legal costs. We've increased the high and low end of our range by $30 million to $1.4 billion to $1.5 billion, reflecting an increase in legal and other fees as we work through the final bankruptcy stages.

Now I'll cover the updates on the 2019 to 2020 wildfire-related costs. On 2019 Kincade Fire costs, we have increased the claims accrual by $175 million to a total of $800 million. This reflects increased claims data as well as recent interactions with insurance providers and public entities.

Our guidance also now includes $10 million for cleanup and repair costs related to the 2020 Zogg Fire. While not reflected in our guidance because we have sufficient insurance to offset the costs, I'll also note that we increased our accrual for claims related to the Zogg Fire by $25 million to a total of $300 million. This is primarily due to our conversations with public entities and other litigation plaintiffs.

Next, the net securitization inception impact has been updated. We expect, assuming the language of both components of the proceeding hold to record an approximately $150 million pickup for the year following a final nonappealable decision and anticipate that the timing of the charge we previously guided to will largely coincide with the sale of shares by the fire victims trust over future periods.

Last year, the prior period net regulatory recoveries item has decreased $80 million to a $60 million pickup for the year. This reflects the impact of a FERC order denying our request for rehearing on TO18.

Continuing the 2021 guidance. On our financing plan, as Patti mentioned, we are maintaining our equity guidance of 0 to $400 million for the year. We're evaluating various options, such as an at-the-market equity program to provide flexibility to issue shares within the range, if needed. We'll also be active in the debt capital markets. As you know, we have 2 securitization proceedings pending at the CPUC. First is our $7.5 billion rate neutral securitization application. The CPUC issued its decision approving the costs under the stress test methodology on April 23, which justifies the amount we requested and the offsetting impact from the creation of the customer credit trust. We expect the CPUC to vote out the decision on the financing order on May 6, giving us the authority to issue securitization bonds.

We plan to move expeditiously to issue the securitized debt once the decisions become final and nonappealable. The timing depends on whether there is a challenge to the decision. And if so, how quickly it is resolved? But we expect to complete this issuance later this year or early 2022.

And as a reminder, the proceeds of the securitization will be used to retire $6 billion of utility temporary debt and also allow us to accelerate payments to the Fire Victims trust.

One of our key principles in pursuing the structure is also maintained, which is a transaction structure that is expected to be rate neutral while receiving off credit treatment for the benefit of the utility and our customers. We also filed a request for our first tranche of wildfire safety and risk reduction securitization at the CPUC, as authorized in AB 1054. Our request totals roughly $1.2 billion and reflects the work we completed in 2020 and a forecasted expenditures for 2021. We expect to receive a decision on the financing application in late June. Along with our planned securitization issuances, we'll have additional utility debt issuances over the rest of 2021, including potentially later this quarter.

Another key update is our early insurance renewal, which I touched on earlier. But this year, we decided to target obtaining insurance coverage well before the start of the traditional wildfire season. In April, we were successful in securing approximately $900 million of wildfire insurance for 2021 through 2022.

From a regulatory perspective, we remain on track to file our 2023 general rate case by the end of June. Our focused investments to reduce wildfire risk and enhanced public safety will continue to be highlighted in this case. The structure of the filing will be different in 2 notable ways: first, we'll incorporate both electric distribution and our gas transmission and storage business; and second, the case will cover 4 years, 2023 through 2026, rather than 3 years, providing certainty of revenues over a longer horizon.

This clarity underpins our longer-term projection, where our investment in critical safety and risk reduction efforts across our electric, gas and generation systems is at the core of 8.5% rate base growth. Our strong rate base growth, a disciplined approach to delevering our balance sheet while managing our equity needs, drives our 10% non-GAAP core earnings CAGR.

And with that, I'll turn it over to Patti.

[Patti Poppe, CEO]

Thank you, Chris. As I said, it is an exciting time here at PG&E. We will meet the challenges that lie ahead, such as ending catastrophic wildfires by demanding excellence of ourselves in our wildfire prevention work, creating culture of performance by building the lean operating system on a regional basis across the enterprise during 2021, and continuing our focus on delivering clean energy to our customers through the latest technologies in battery storage, electric vehicle infrastructure and micro grid solutions.

Our financial performance is driven by these 3 focus areas. We can deliver on these objectives and thereby serve our customers and our investors better than ever before. We are on the path to a new era at PG&E, focused on people, planet and prosperity underpinned by performance.

Operator, please open the line for questions.

[Operator]

[Operator Instructions] And your first question comes from the line of Julien Dumoulin-Smith with Bank of America.

[Julien Dumoulin-Smith, Bank of America]

Congrats on all the continued progress of your team. Perhaps at the outset, if I can ask, Chris, maybe, you mentioned keeping the 0 to $400 million of equity range and looking at the aftermarket, can you talk about some of the updated puts and takes as to how you think about potentially needed to access equity here, if you don't mind?

[Chris Foster, EVP and CFO]

Sure thing. Julien, in short, it's -- we kind of have to start with the start, which is the CPUC has not completed yet the final decision on the financing order for our securitization case. So again, we're looking at soon here, that's May 6. Certainly, that's our -- really the first gating item there.

And then beyond that, as we mentioned today, we're certainly still working through some legacy legal items. We did update for both Zogg and Kincade, and we are in some ongoing discussions there as well. So from an approach for this quarter, we wanted to be sure to be appropriately conservative as we work our way through some of those issues.

[Julien Dumoulin-Smith, Bank of America]

Got it. Excellent. And can you just elaborate a little bit more on what the issues you're working through there? And perhaps, if you can elaborate anything at these expected time lines on resolution there as best you see it, I guess, that it's always quite difficult?

[Chris Foster, EVP and CFO]

Sure, Julien, it's hard to be specific, as you can imagine. We did note in our disclosures today that we are in live conversations is how I would think about it on both the Kincade Fire and the Zogg Fire, Kincade particular, with the -- related to the insurance claims of the subrogated claims as well as public entities. And similarly, on the Zogg Fire with public entities as well as some individual plaintiffs.

So obviously, just the complexity of some of the cases, it's hard for me to be specific about timing of resolution, but certainly want to move forward as expeditiously as possible, knowing the impact to victims.

[Operator]

And your next question comes from the line of Steve Fleishman with Wolfe Research.

[Steve Fleishman, Wolfe Research]

Can you hear me?

[Patti Poppe, CEO]

Yes, we can hear you, Steve.

[Steve Fleishman, Wolfe Research]

So maybe first, just a high-level question. The stock's been relatively weak, and I think it's now trading at less -- more than a 50% discount to the average utility. And so I guess just to somebody who was an outsider kind of coming in and now spent several months getting very in tune with the company in California and just the regulatory structure environment, et cetera, and then also the wildfire risk, just I'd be curious your thoughts on does it make any sense that PG&E would trade more than 50% below the average utility?

[Patti Poppe, CEO]

Well, Steve, you can imagine I ask myself that question quite routinely. As I've gotten on the ground here and really gotten on solid footing, there's a couple of things that I think about and I observe and actually makes me very helpful. One is the regulatory construct in California was a pleasant surprise. I long heard about the regulatory construct, it's actually very good. We've got multiyear general rate cases, pass-through costs for commodity procurement, decoupling, separate cost of capital proceedings. It's a good construct that provides for reliable outcomes.

The State of California recognizes and obviously sees and is experiencing the risk of wildfire. The state and we at PG&E as well as all of the IOUs have learned a lot about wildfire mitigation. I have a little saying associated with our lean operating system that says you can't fix what you don't know about. And we know a lot about what we're doing now under these conditions. And the state has stepped up, the commitment to increase, the equipment increased, fire and forest health, fire prevention increased, fire crews, I think the CAL FIRE and all of our firefighters across the state have demonstrated their incredible capacity and their improvement and everything they've done to fight wildfires.

So it really comes down to the question I ask myself about us here at PG&E, can we, in fact, perform? And I wouldn't be here, Steve, if I didn't believe that we can. And this lean operating system that we talk about all the time is because we talk about it all the time because it is how we will create this culture of performance. It is what we've deployed against our wildfire mitigation plan for this year. We're seeing results of it right now as we speak.

And so I just have to tell you, I think that a lot of companies have a lot of different kind of risks, and you can't fix what you don't know about. We know about this risk. We've gotten incredibly sophisticated about dealing with this risk. And we've got the team for the time to deliver on this risk. And so I'm a believer. And I guess I'd just say that. If I believe, I think there's a lot of reasons for other people to believe in PCG.

[Steve Fleishman, Wolfe Research]

Great. That's helpful. Just on your comment on the Sonoma District Attorney filing on Kincade Fire, just have they given you any rationale for the criminal charges there? What is the basis?

[Patti Poppe, CEO]

Well, they've certainly outlined what the charges are. And so the basis for the charges are somewhat implied. I would say this, Sonoma County District Attorney has a constituency. She's elected. She has a job to do. We disagree with those charges. We don't think there's a criminal basis for those charges. We will fight those charges. And again, the whole thing comes back to the same -- every rock, I find, Steve, everything I learn, every time I see an opportunity, it's the same answer. The same answer is improve our performance, implement our wildfire mitigation plan, prevent these disasters from happening in the future, be a company that can be relied upon to deliver and prevent incidents. And that's what we are doing, and that is the exclusive focus for myself and my team is on making sure that we create that culture of performance and that we make it safe here in California and catastrophic wildfires caused by our equipment.

[Steve Fleishman, Wolfe Research]

Okay, great. And one last question. Just any update on the status of this grantor trust election and then just any update on intentions of the Fire Victims Trust with their stake in the company?

[Chris Foster, EVP and CFO]

Sure. Steve, it's Chris. I'll take that. I think it's -- we're on a good path is the short answer. At this stage, we do have the private letter ruling that's positive from the IRS. We have good alignment in terms of shared benefit for both the Fire Victims Trust and the company toward completing this work. And just yesterday, we had approval in the bankruptcy court for the motion that came forward for our share exchange. So that was a good data point literally [ph] from yesterday.

Going forward, I think there's probably a couple of gates to think about in considerations. The first would be that was mentioned yesterday in court that there's a California entity where there need to be approval, which is, I believe, in the third week of May for the approach, then we'll be working on finalizing some of the definitive documents that we're pursuing. And so ultimately, I think at this stage, we continue to be on a good path and largely you're kind of looking at that May time frame to ideally be able to position to elect.

[Steve Fleishman, Wolfe Research]

Okay. And just to clarify that, the exchange of stock with you does not require the trust to sell stock to the market, that's just an exchange with you?

[Chris Foster, EVP and CFO]

Thank you for that question because I think there's been a little bit of confusion around it. That is correct. It is -- you can almost think about it as an instantaneous exchange -- so with the company. So it's not -- actually does not create a mandate to sell.

[Operator]

And your next question comes from the line of Ryan Levine with Citi.

[Ryan Levine, Citi]

I guess, I wanted to start off around the increased drought risk since the Wildfire Mitigation Plan was submitted. In light of some of the recent developments, is there any opportunities to amend or derisk the wildfire risk in the upcoming season in light of some of the changing weather conditions within your service territory.

[Patti Poppe, CEO]

One of the things -- Ryan, nice to hear your voice. We -- one of the things that we're doing is we're drilling earlier. We have this excellent partnership with our community safety organizations, our firefighters, and we are drilling -- doing those drills in preparation for the wildfire season earlier given the drought conditions.

And so we're going to be doing south and central in May, and we'll do the drills in the north in July. That's an important part of getting ready for and being aligned and coordinated. During an emergency response, that coordination is incredibly important and delivers better outcomes. So I'd say that's one thing that we're doing.

But more than everything -- anything, we're executing to our plan, and much of our plan is scheduled to be in place. Early by September 1, some of our work will be complete, but a lot -- we're doing work every single day. So we're derisking the system every single day with our hardening efforts and our equipment upgrades. And so we're just -- we're absolutely zeroed in.

[Ryan Levine, Citi]

Okay. And then in terms of the $900 million wildfire insurance cost that I think Chris had highlighted that you had purchased, can you provide a little color as to why you made that election earlier this year? And what the pricing and terms were to the extent you're able to comment for that insurance purchase?

[Chris Foster, EVP and CFO]

Sure thing. Ryan, the way I would think about this is we were just looking at the situation where in previous years, our policy ran from July 31 -- excuse me, from August 1 until July 31 of any given year. And the thinking was if we were able to move that just strategically earlier in the year, we give ourselves some space from the start of the traditional fire season.

And so what we saw, as a result, if you look at it year-over-year, we have an increased amount of insurance from about $868 million up to $900 million for this year. We have greater policy coverage in and of itself in terms of the elements of the policy that we have are improved, and we were able to achieve this increase at a lower cost relative to last year's coverage. So we think it was -- the team did a lot of work there to make sure we're in a good position for this fire season. So again, it gets us to $900 million for this year.

[Ryan Levine, Citi]

Okay. Appreciate it. And what about in terms of pricing on the $900 million?

[Chris Foster, EVP and CFO]

Sure. We've got a good -- sure, exactly. We're looking at pricing there where we break out because it's in multiple policy towers, Ryan. One is a multiyear tower, that's about $600 million that runs for multiple years. And then we have a breakout specifically for the incremental above that, that gets us to $900 million for this year. And we're happy to follow up on any of the specific tower details for you, if you'd like to.

We have provided today additional disclosure within our 10-Q that I would point you to as well. It's a little bit more detail than we've done in the past to try to give you help there.

[Ryan Levine, Citi]

Okay, great. And then maybe just one clarifying question around the equity issuance plan. Is there any -- outside of the highlighted, the securitization proceedings and the legacy claims, is there any changes in working capital that we should keep in mind, given the pace of COVID or exit from COVID?

[Chris Foster, EVP and CFO]

I appreciate that question. Ryan, as I think about other factors, just kind of more broadly speaking in terms of cash, it's not really -- there's no real working capital shifts here. Certainly, a meaningful effort that we're undertaking right now is the execution of the sale of our San Francisco headquarters. So certainly, that's a cash impacting item, both from a timing standpoint and a magnitude.

And the team is underway now with the broker and is -- we'll be moving forward. So at this stage, again, just kind of working through those details. Hard to be more specific on that, given we're currently evaluating bids, but excited to get that moving forward as well.

[Operator]

And your next question comes from the line of Jonathan Arnold with Vertical Research.

[Jonathan Arnold, Vertical Research]

Just one quick one for Chris first, and I have a broader question. Chris, on the -- could you just explain the recent change in the timing of when you would recognize the loss that you had previously expected to be more upfront? I thought that you were expecting the grantor trust election when you updated last quarter. So I'm just trying to figure out what changed in the timing there?

[Chris Foster, EVP and CFO]

Absolutely. Jonathan, what I would start with, I have to say just kind of framing this, if you take a step back, we've been appreciative of the pace with which the CPUC has moved on our securitization cases. And explicitly, as you can see in the decision, there's a recognition of the benefits to customers, to the Fire Victims Trust and it's aligned with the goals as I stated there for both SB 901 and AB 1054 in terms of improving the company's business risk profile. So I think that, that's important just to be aware of in the back.

So as we reevaluated and updated our accounting, we wanted to be sure to give you the clearest picture possible of the net impacts across both the grantor trust treatment as well as the securitization outcome. And so we would expect to record that $150 million pickup for the year, following a final nonappealable decision. Then we'd anticipate that the timing of the shareholder-funded charge we previously guided to will largely coincide with the sale of shares by the Fire Victims Trust over future periods.

So it's really -- for us, this is really about a change in timing for the expense itself that we're reflecting and updating today to the positive.

[Jonathan Arnold, Vertical Research]

Just the timing of how you're going to recognize it as opposed to when the cash flows may or may not occur?

[Chris Foster, EVP and CFO]

That's correct. That's right.

[Jonathan Arnold, Vertical Research]

I'll leave a feedback there. And then just on -- you've obviously mentioned you're going to host this Analyst Day in August, could we get maybe a little sense of what you'll be hoping to accomplish there and what to be expecting?

[Patti Poppe, CEO]

Well, first of all, we can't wait to have everybody here with us in California safely, of course. It all hinges on status of COVID, but we feel good that it's -- absolutely, we want everybody to hold the date and make your plans.

We look forward to first introducing you to the team, demonstrating our wildfire mitigation planning in action, gets you up close and personal with the incredible technical talent that we have here at the company that I can't wait for you to meet that gives me the confidence that I think will give you the confidence as well. And then also more broadly, talking about our commitment to a culture of performance and talk about our clean energy plan. This is -- it's an exciting part of the PG&E story that certainly is underreported right now.

And I understand that, but we can't wait to give that some daylight and help people get exposed to and excited about the future that PG&E has here serving the people of California. So no substitute for face-to-face. Can't wait to see you.

[Operator]

Your next question comes from the line of Stephen Byrd with Morgan Stanley.

[Stephen Byrd, Morgan Stanley]

A lot has been covered. I wanted to just talk about the CPUC and their assessment of the, I guess, the long-term future of natural gas. And just curious sort of your thoughts, and dialogue with the CPUC, anything you would highlight there?

[Patti Poppe, CEO]

I know it's a question on people's minds. I do think that in all the clean energy scenarios, certainly in the near term, say, the next decade, next 15 years, there's a need for natural gas as continued bridge fuel. And from an LDC perspective, our customers still want natural gas. And we're going to have to figure out how to make sure that we minimize our methane emissions through our good practices. And every time we change -- upgrade a service or change the main, we're reducing our fugitive emissions. We feel great about that. There's more to be done, though, to really think about what's the long-term role of natural gas here in California specifically. And so we're in the process of doing some strategic planning where we're asking ourselves all those questions. And when the time is right, we'll talk more about that publicly.

[Operator]

And your next question comes from the line of Michael Lapides with Goldman Sachs.

[Michael Lapides, Goldman Sachs]

I think I have probably one for Patti, and one or two for Chris. Patti, when we look at your CapEx spend, so if I come back and look at your slides that you have, and your very progressive goal to eliminate all utility-caused wildfires, if I look at the gray bars on Slide 11, are those funds that you need to spend to be able to hit those goals? And were those funds, meaning the embedded in the gray bar, things you wouldn't actually spend if you didn't get state regulatory approval, but it would put that goal of eliminating utility-caused wildfires at risk?

[Patti Poppe, CEO]

Well, I'd say there's 2 things that help us mitigate utility-caused ignition risk. One is our hardening of our system. And so obviously, the investments that we're making there are very important, and we have a widely alignment with the CPUC and the Wildfire Safety Division. In fact, the Safety Division Director spent 3 days with us just a week ago, actually out in the field, observing our mitigation efforts and what we're doing to harden the system and the enhanced vegetation management efforts that we're taking. And so I would say we broadly have alignment on investments necessary to do our work. But we also mitigate risk and prevent ignition and specifically on catastrophic wildfire through our PSPS program. And so that's another important complement, too.

And we try and represent this notion that -- in the near term, PSPS is our backstop, and it needs to be an important measure that we take to protect people's safety and prevent fires of consequence. But over time, our hardening investments, as you've described, will help to mitigate the actual source of the ignition in the first place. And so I'm getting pretty excited about what we're learning about how to make that happen through new technologies as well as just some of the fundamentals of undergrounding the right portions of the grid, doing these remote grids where necessary, conductor, hardening as well as all the other equipment that we're learning about and utilizing. Some of it quite traditional, some of it new and exciting. So that capital plan really does a major part of what we need to do to mitigate wildfire hazards.

[Michael Lapides, Goldman Sachs]

But if you didn't get approval for those gray bars in this upcoming case or in some of the memo accounts, would you spend it anyway because it is the thing that need to happen on the system to eliminate wildfire risk?

[Chris Foster, EVP and CFO]

Michael, it's Chris. I'll go ahead and just maybe build on that as well. The advantage that we have in the state is really now we have annually filed wildfire mitigation plan. So in essence, it provides -- it's really good transparency into year-over-year how we're adjusting the plan, how our risk model allows us to evolve our work. And it allows for greater alignment that Patti is alluding to.

And so as you see there in those gray bars, we're trying to do our best to give that level of transparency. At the same time, we have a full expectation of recoveries of the work that directly tracks with what we filed in the plan previously. So there's a little bit of a regulatory lag in terms of the cost recovery. But ultimately, the good news is here, it doesn't experience the regulatory lag of a general rate case-oriented request because, again, annually, we're putting forward a wildfire mitigation plan, committing to the work that we're going to do. As long as we follow through on that, we have a good level of confidence of the recovery of those items in the gray.

Additionally, we have -- we're aiming at end of June filing on our 2023 general rate case. And you can imagine, that's a bit of a catch-up opportunity there to give better line of sight to a multiyear investment prioritization there as well. So from both angles, it's actually a really good transparent process with the CPUC. And for us, it's really just about executing the work we commit to.

[Michael Lapides, Goldman Sachs]

Right. One follow-up, Chris, in your prepared remarks about the securitization and the timing, and you made the comment of end of year or beginning of '22 for the actual issuance. But then you followed that with a brief remark about assuming all appeals or litigation at risk. If litigation delayed the issuance, how does that impact, a couple of things, how does that impact when you make your $1 billion payment to the wildfire victims trust fund? And how does that impact your kind of earnings guidance, which assumes you'd be paying down a lot of debt that you're actually not recovering in the customer bill?

[Chris Foster, EVP and CFO]

Sure. Again, it's a bit of a scenario, but I hear where it's coming from. I think ultimately, what we're trying to do our best to do is provide the understanding that in the situation where there is an application for rehearing that would move forward or something of that sort that, we still envision a situation where we're prepared to execute this year.

I did mention 2022 because the other factor that's in there, Michael, is just the market. And so at this size of the offering, we want to make sure to give ourselves the flexibility on the $7.5 billion. If we need to evaluate doing multiple tranches, there's a scenario where it could move -- a portion of it could move into 2022. So really, that's just our way of expressing. In one sense that there's a delay -- it would delay the final payment to the Fire Victims Trust. It could delay the initial contribution. But again, still looking at a situation where we'll execute this year.

[Operator]

Our next question comes from the line of Paul Fremont with Mizuho.

[Paul Fremont, Mizuho]

I guess, if you fight the criminal charges in the courts, are you -- are we talking about months? Are we talking about years before you would potentially get a resolution out of the court on those matters?

[Patti Poppe, CEO]

First of all, it's hard to say. And there's a lot of contributing factors to that. It could be months, it could also be up to potentially 2 years. So I would just say there's a range and a lot of factors that will go into that.

[Paul Fremont, Mizuho]

And then I mean, is it fair to say that if there are criminal charges that would potentially come out of Zogg that we wouldn't know either way until roughly a year from now, just given the time line of when they acted on Kincade?

[Patti Poppe, CEO]

Yes. It's really -- I guess, I would say that those things would be linked. If, in fact, there were criminal charges, we wouldn't -- if any of those stuck, we wouldn't know what the outcome of that would be until that happens. But again, let me just reiterate that we don't agree with these charges. And we definitely are going to fight them because that we just don't agree. And so that's really what our focus is right now.

[Paul Fremont, Mizuho]

Right. No, I'm just trying to figure out because I would think that the criminal charges would weaken your ability to recover under 1054, is -- that's a fair assessment? If -- I mean, if the criminal charges were upheld?

[Chris Foster, EVP and CFO]

Paul, I think AB 1054 doesn't contemplate criminality in that way, just to be clear. If you think about -- you are accurate with the time frame, the time passage you mentioned there between any theoretical potential criminal charges that relate to the Zogg Fire is a similar kind of time frame. So it is accurate to think about the timing that way, but AB 1054 does not contemplate criminality in that way to the negative.

[Paul Fremont, Mizuho]

Well, but it does basically set a negligent standard, right? So one could argue if you're found criminally liable that it would be more difficult for you to pass sort of that negligent standard, right?

[Chris Foster, EVP and CFO]

There's 2 tests. The first is at the CPUC in terms of cost recovery, which is essentially a substantial doubt construct that came about with AB 1054, which is similar to the existing kind of FERC-oriented language. And then the second gate, I think, is what you're pointing to, which is actually about replenishment of the wildfire fund. And so we're not necessarily in that scenario right now. That's the question of willful disregard, which is what I think most people try to mix in that question of criminality. So they're actually 2 separate things, Paul.

[Patti Poppe, CEO]

And Paul, just to close this out. Just to be clear, just -- we can't speculate about all these conditions, but the most important thing to remember is we don't agree. We don't agree with the charges. And so we're going to fight that.

[Paul Fremont, Mizuho]

Great. And maybe the last question for me on Zogg. I guess I've seen different accounts with respect to whether the tree that was involved was marked for removal or not? Is there any further clarification that you might be able to give on that tree?

[Patti Poppe, CEO]

Yes. There's no new information to share on that, Paul.

[Operator]

That concludes all questions for today. I'd like to turn the call back over to Patti Poppe for closing remarks.

[Patti Poppe, CEO]

Thank you, April. Well, thanks, everyone, for joining us today. Our future becomes significantly derisked as we deliver day in and day out. This is a long game, and we're in it to win it by serving our customers and our investors.

We really do look forward to having you safely with us in California on August 9, for our Investor Day at our Wildfire Command Center. I want you to see the team that is in action and learn what I know. We are entering a new era at PG&E, grounded in our Triple Bottom Line that is underpinned by our performance. We will see you soon. And in the meantime, stay safe and be well.

[Operator]

That concludes today's conference call. Thank you for your participation. You may now disconnect.