PG&E Corp

NYSE:PCG

Earnings Call Transcript 2020-Q2

[Operator]

Ladies and gentlemen, thank you for standing by and welcome to the PG&E Corporation Second Quarter 2020 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Chris Foster, Vice President, Treasury and Investor Relations, PG&E Corporation. Thank you. Please go ahead.

[Chris Foster, Investor Relations]

Thank you, Stephanie. And thanks to those of you on the phone, for joining us. Before I turn it over to Bill Smith, I want to remind you that our discussion today 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. Also joining us this morning are John Simon, Executive Vice President Law Strategy and Policy and Jason Wells, Executive Vice President and CFO.

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 and could be found online along with other information at investor.pgecorp.com. We also encourage you to review our quarterly report on Form 10-Q that was filed with the SEC earlier today. And the discussion of risk factors that appears there and in the 2019 Annual Report on Form 10-Q.

With that, I'll hand it over to Bill.

[Bill Smith, Chief Executive Officer]

Thanks, Chris, and good morning everyone. We are excited to return to our traditional format. Today's call marks a milestone for us and we're excited to share our post emergence vision for the coming years. We've emerged from bankruptcy as a stronger company the complex legal matters are now resolved in major regulatory cases establishing our revenues are either approved or settled.

We also have a good line of sight on a regulatory framework for the next three years, our financial plan displays strong growth and enables a path for the company to get back to investment grade. Our remarks today will focus on changes we made on governance, progress on our wildfire plan and preparations ahead of the 2020 wildfire season. I will conclude with an update on key regulatory matters.

Jason, will then cover the financials, including updated guidance, kind of walk through the quarterly financial results. Our focus now turns to building on the many changes we've put in place in bankruptcy. We've set the foundation for an improved Company. At the same time, we will never forget the impacts to the communities we serve and those who lost their lives as a result of catastrophic wildfires in recent years. Our mandate is to rebuild the trust of our customers while delivering operational excellence. We'll do that by focusing on responsive customer service and system investments and focus on risk reduction, safety and reliability.

Organizational changes to help deliver on this mandate are already well underway. First, at the Board level a 11 new directors were ceded at the start of this month. These Directors were carefully chosen based on their individual skills and backgrounds and are well suited to [indiscernible] our Company for years to come. One of our initial priorities as a Board is to hire the next permanent CEO and that process is ongoing. We've had recent changes that we've announced among our leadership ranks and I want to thank each of them for all their contributions to PG&E.

With our emergence from Chapter 11, this is a natural inflection point for leaders to evaluate their future and the roles at the Company will continue to build our team through both internal development programs and external hires. A couple of recent additions to the team include Francisco Benavides, as our Chief Safety Officer and Sumeet Singh as our Chief Risk Officer. And I'm delighted to say we'll be announcing a CIO soon.

We have a seasoned team in place that is well suited to execute on our operational improvement plans developed during the bankruptcy process. For example, the core electronic operations team members that manage our wildfire mitigation efforts and successfully achieved our goals during the last wildfire season remain in place. This group has consistently improved our tools and evolved our capabilities each year. I have confidence that this team and others will add to deepen the bench will lean on their extensive experience to manage the evolving wildfire through it.

And we will take the necessary steps to keep our customers safe. If you go to Slide 3, of our presentation, you can see we're progressing well on our four key wildfire mitigation plan targets; I'll cover a few areas on the wildfire preparedness front; First, I'll touch on our operational work plan status. I will also showcase some of the technology, we continue to deploy to better understand our assets and reduce risk. Then I'll touch on our public safety power shut-off or PSPS program evolution.

Knowing a number of the program goals are longer term in nature, we continue to stand ready to shut off power when extreme weather conditions present themselves. So, let's start with this year's mitigation work behind these numbers, annual work plan is on track to meet all of our 2020 targets. We had some supply chain issues early on in the stages of due to COVID-19 which slowed our progress on the installation weather stations in HD cameras. We resolve those issues and fully expect to meet the program goals. Turning to Slide 4, you'll see a snapshot of how we're making foundational investments in technology that we're excited about.

On our enhanced inspection work, we're evaluating new programmable flight options to ensure greater consistency and efficiency of the drone inspections we do. We've also started partnership with one of the country's most advanced data analytics companies, we're working to migrate to predictive maintenance utilizing the enormous dataset we've collected from advanced visualization inspection tools. This year will likely add another 2.5 million images of our assets. We are utilizing machine learning tools to deploy computer vision models to compile asset inspection photos. This improves the quality and consistency of the analysis.

All of this part is knowing our assets better and consistently improving our records and data. Stepping back with these early stage examples we're evaluating a range of different technologies much as we did with the methane leakage technology adopted by our gas business years ago. We are fortunate to be working with California-based companies on these emerging technologies that will reduce wildfire risk in our state. We've taken this partnership approach for years on the Clean Energy front.

Our announcement yesterday that we're breaking ground on just on one of the world's largest battery energy storage systems with Tesla is just another example of that. There is one other aspect of the wildfire mitigation program that I'll give an update on, and that's our PSPS program. It's covered here on Slide 5. As we have in prior years we will continually evaluate conditions that include wind speed, humidity levels, fuel moisture and other factors when conditions warrant will implement power shutoffs for public safety purposes. We've taken steps to minimize the impact of these events on our customers, we're working hard to make the PSPS programs smaller, shorter and smarter.

To make our PSPS program smarter, our team will be using new whether modeling as double the granularity of the data feeding our models. Our team will now use the improved insights to inform which circuits are considered for shutoff. The improved accuracy of the forecast should ultimately result in fewer customers being impacted.

Our next priority to improve the PSPS program is to make the customer footprint smaller to address this, we are pre-positioning, about 460 megawatt of temporary generation, in order to meet critical community needs in areas that have a high probability of an outage. These will be strategically placed at over 60 substations, midfielder locations and secondary health facilities. We've also installed nearly 400 sectionalizing devices and plan to achieve our 2020 goal of 600 devices by the end of August, both solutions allow us to keep power on in more places where it's safe to do so.

In combination, these elements are expected to allow us to reduce the number of customers impacted by one-third. In order to make the outages experienced by our customer shorter, we've increased our Aerial Patrol abilities through additional helicopters and fixed-wing aircraft, by using infrared cameras we will be able to conduct controls into the evening, unlike last year where our post of it inspections were limited daylight hours. This greatly advances, our ability to meet our goal as a 50% faster restoration time this season.

As I mentioned earlier part of the improved financial foundation for the company has improved clarity on our key regulatory cases, I'll touch on a few of those. First, I'll cover some updates at the CPUC, looking back to our previous gas transmission and storage rate case we overspent on capital and Salt recovery. Roughly $600 million of that spend we're subject to audit, which was completed in May would no disallowance is recommended. We are now authorized to seek recovery of [indiscernible] that and we anticipate a decision on that filing in Q2 of 2021.

As a reminder, we've reached an all-party settlement in our 2020 general rate case, the Commission recently updated the procedural schedule and we expect a final decision by the middle of December. In our securitization filing this week of scoping memo was released by the Commission, pointing to hearings at the end of November. Given this update, we would anticipate resolution around the start of 2Q next year. We are required to have our safety certificate renewed each year in order to access that AB 1054 wildfire fund. Our 2020 safety certification request is currently with the Commission for review and our certificate from last year is valid while the review is underway.

Moving to FERC in our transmission owner 20 case, we are currently in settlement discussions. But we do not know the timing of potential resolution. I'll close by touching on COVID-19 and workforce impacts. And I'd be remiss not to mention other challenges, our employees and customers face given the broader backdrop of the issues that are part of our larger national discussions. While we continue to make headway in the second quarter even with the challenges created by COVID-19. The recent uptick in COVID cases in California has resulted in the state reinstituting measures to protect against further spread, compared to what we reported in May.

During the period from mid-May to July, we've seen a 3% reduction in electric load and a 4% reduction in core gas load on a weather adjusted basis versus 2019. We also experienced high -- cost in 2Q. These impacts have often there have been offset by a regulatory asset that was recorded to Memorandum Account created to track COVID related costs.

Given the challenge of our current operating environment, I want to take a second to express my appreciation for all PG&E frontline employees who continue to execute on our risk reduction, safety and reliability programs across Gas and Electric Systems. Our workforce is also engaged in the broader discussion around diversity and inclusion. We are fortunate to serve a customer base with extreme diversity. As a company that has weather bankruptcy and still maintains a very low overall attrition rate, we're focused on this conversation with our employees and our [Technical Difficulty] over 50% of our hires in [Technical Difficulty] and we will maintain a history of investing in diversity, including eight consecutive years of [Technical Difficulty] supplier spend.

With that I'll turn it over to Jason to cover the financials.

[Jason Wells, Chief Financial Officer]

Thank you, Bill and good morning everyone. I plan on covering three items, some of which are highlighted here on the financial summary on Slide 6. First, given the clarity resulting from the emergence from Chapter 11 and the resolution of key regulatory proceedings. -- Now benefit from -- as -- wildfire fund as well as from -- lastly, I'll briefly cover our results for the quarter. Stepping back to the more traditional earnings format -- Chapter 11 emergence. We plan to provide a slightly longer view of our earnings potential and a greater level of detail than in the past.

We've provided some of the basic assumptions impacting GAAP and non-GAAP core earnings for you on Slide 7. We've also provided a traditional, look at CapEx and rate base growth, the latter of which is growing at roughly 8% our assumption for rate -- order due to our anticipated timeline for cost recovery of the -- rate case audit results -- million. We now have that amount included in rate base and earning a return-on-equity in 2021, there was no impact to our capital forecast for the year.

One item to note is that CapEx is reflective of the $3.2 billion in wildfire mitigation spend but does not earning equity -- under AB 1054. However, this amount is not included in these rate base projections. Moving to our earnings guidance elements. First, we are updating earnings core earnings per share guidance for 2020. Second, -- non-GAAP core earnings per share guidance and updating our potential equity needs for 2021. We do about if we now go to Slide 10 starting with 2020 earnings guidance, we have updated our earnings factors to reflect the anticipated non-GAAP core earnings of roughly $2 billion for the full-year.

That translates into approximately a $1.60 to $1.63 per share based on anticipated average share count of 1.25 billion shares outstanding for the full-year. This non-GAAP core earnings -- levels and reflects a tightening of -- $350 million that we provided last quarter. We are also narrowing the range on both components of under earnings on our net below the line and spend above authorized we are adjusting the expense range $225 million. And that primarily reflects additional wildfire spend up of authorized.

Second, unrecoverable interest expense will be consistent with the midpoint of our prior forecast range and results in a $125 million impact to earnings for the remaining six months of the year. Keep in mind that for 2020 some of the factors such as increased shares outstanding and interest expense from our exit financing are impacting over the last six months of the year.

Additionally, the guidance assumes a final decision in the 2020 GRC this year, consistent with our all-party settlement. Moving to non-core earnings guidance. There are a number of elements that I'd like to update here. First, we have an updated range for [Technical Difficulty] to a range of $2.63 billion to $2.67 billion, which reflects the total equity backs up fees of $1.5 billion, a charge of $620 million [Technical Difficulty] for the reduction of the deferred share value for the equity contributed to the Fire Victims Trust. And total legal and professional service costs for the Chapter 11 proceeding.

Second, the $300 million of investigation remedies and cost recovery has been updated to reflect the uncertainty in the tax deductibility for a small portion of the amount -- due to the wildfire and Locate and Mark OII. Third amortization of the wildfire fund contribution has decreased to roughly $300 million for 2020 reflecting an increase in the assume life of the trust, that I'll discuss further in my prepared remarks.

Fourth due to the media notice provided by Cal Fire recently identifying PG&E's transmission line as the cause for the Kincade fire. We've also recorded an accounting charge that reflects the low end of the range we provided last quarter. A write-off of associated restoration costs any receivable for the associated insurance recovery. And finally, we've updated the pickup associated with the successful audit of the GT&S Capital. The $80 million reflects a recognition of the regulatory asset for recovery of the historical depreciation expense and cost of debt.

The final decision approving cost recovery is now anticipated in 2021 and accounting rules limit the ability for recognizing a regulatory asset for the historical equity return until that final decision is received. Moving to 2021 earnings factors on Slide 11, we have made progress addressing the factors contributing to under-earning our allowed return-on-equity, resulting in an increase in our forecasted non-GAAP core earnings relative to the forecast included in our March disclosure state.

We are initiating non-GAAP core earnings for 2021 in a range of $2.1 billion to $2.3 billion. This is roughly $50 million to $250 million more than our previous estimate in the March disclosure statement. Comparing this range to our authorized earnings this guidance results in between $275 million and $425 million below authorized levels, reflecting an update to net below the line spend above authorized levels of up to $100 million to $325 million in unrecoverable interest expense.

We have line of sight to initial improvements relative to our disclosure statement in a few areas including lower unrecoverable interest costs and renegotiated third-party contracts that will result in more efficient execution of some of our inspection repairs on our electric system next year. 2021 is the first year we'll experience the full dilution from the exit financing and as a result, this translates into a range of non-GAAP core earnings per share of $0.95 to $1.05.

Our 2021 guidance incorporates the same inception assumptions as 2020 with the addition of approved securitization application in the first quarter. Non-core earnings guidance for 2021 includes a one-time upfront charge for securitization of $1.36 billion, amortization of the wildfire fund contribution of $330 million bankruptcy and legal cost of around $40 million to $80 million, $80 million of investigation remedies and cost recovery and pickup, about $140 million related to the deferred equity return on the successful audit of the GT&S capital given the final decision we expect next year.

We're also providing an update to our potential equity needs in 2021 which are contingent on approval next year of our securitization application at the CPUC that Bill mentioned earlier. While we remain committed to achieving an investment-grade ratings across the enterprise and paying down roughly $1.7 billion and holding company debt in 2021 consistent with our March disclosure statement, we are lowering our projected equity need in 2021 to between $450 million and $750 million. This range includes the net impact from the Kincade fire accrual this quarter.

I would also like to reaffirm that we also do not have any anticipated equity needs beyond 2021 for our five-year plan. There are a few factors that contribute to this overall reduction, including the improved earnings range I referenced earlier and a slight reduction in CapEx, we are projecting. Additionally, we continue to pursue the vesting of certain non-core assets that could generate additional proceeds, more cost effectively than issuing equity it would enable us to trend of the lower end of this revised equity range. Turning to Slide 12, we have confidence that 2022 and subsequent years will continue to reflect a roughly 8% rate base growth, I mentioned earlier and that rate base growth will be outpaced by earnings growth as we continue to pay down unrecoverable interest costs.

As Bill covered the operational efforts we are making to mitigate fires along with a good execution, thus far on our operational work plans or financial risk has also been reduced as we head into the traditional start of fire season. We are now fully participating in the AB 1054 wildfire fund having made our roughly $5 billion contribution. As a reminder as participants in the fund a disallowance liability cap is in place and the new prudent manager regulatory framework applies. In terms of how this contribution has been reflected in our second quarter financial statements, we've recorded a regulatory liability of $6.7 billion, reflecting the discounted value of the total payments to be made to the wildfire fund.

In addition, we recorded a wildfire contribution assets of $6.5 billion with a difference reflecting amortization expense for the period of time we had partial coverage under the fund prior to our emergence from Chapter 11. The total expenses amortized based on an expected life of 15-years, which is longer than the previous estimated life of 10-years, this change resulted from an adjustment to the model to better reflect relevant historical data in the effectiveness of the state's collective wildfire mitigation programs.

We also establish our new liability insurance coverage, which runs from August 2020 through July 2021, total in slightly more than $1.4 billion. The wildfire liability insurance component provides up to $757 million in coverage for the period. The non-wildfire liability insurance provides up to $700 million for wildfire events. The total cost of this overall coverage is roughly $750 million. We will continue to pursue additional insurance coverage for the same policy period and weeks to come. We will seek recovery for all premiums associated with this coverage, either through the proposed two-way balancing account included in our pending 2020 general rate case settlement or through the existing Wildfire Expense Memorandum Account tracking mechanism.

Now I would like to transition to our second quarter financial results. Slide 13, shows our results for the second quarter. Non-GAAP core earnings came in at $1.3 per share and is largely consistent with the disclosure statement forecast. GAAP earnings, including non-core items are also shown here. The non-core items are consistent with the discussion of the full-year 2020 guidance I mentioned. Moving on Slide 14 shows the quarter-over-quarter comparison of non-GAAP core earnings per share of $1.10 in the second quarter of last year and $1.03 this year.

The primary drivers related to the way in the 2020 GRC decision as well as an increase in interest on prepetition payables and short-term debt with no corresponding cost last year and wildfire mitigation costs that exceeded our authorized levels. These costs were partially offset by growth in rate base earnings and timing of taxes. To close this out. I just want to echo Bill's comments at the start of our call today. The clarity we have on a number of fronts, positions us very well from a governance operations and financial standpoint.

We are focused on earning our authorized rate of return-on-equity lastly unrecoverable interest expense in 2022. And you can see that our five-year financial plan grows at roughly 10% earnings growth, which exceeds the 8% rate base growth we provided. When combined, we see a competitive total return. Even with our temporary suspension of the dividend, having a Chapter 11 case be in on our operational plans.

Open up the line for questions.

[Operator]

[Operator Instructions] Your first question comes from Steve Fleishman with Wolfe Research. Please go ahead.

[Steve Fleishman, Wolfe Research]

Yes, thanks. Hi, good morning and nice to have you all back, doing…

[Bill Smith, Chief Executive Officer]

Good Morning Steve.

[Steve Fleishman, Wolfe Research]

A couple of operational questions just on the wildfire preparation. The it's not the year just based on looking full-year that you're kind of how much you're on track or not. Could you just how you're progressing with those categories and…

[Bill Smith, Chief Executive Officer]

Steve, this is Bill. I'd be glad to do that. We are really on chart on target with all of the -- as I mentioned a couple that we had a little bit of a delay. Starting on were related to weather stations and the HD cameras, those were impacted by some assembly issues at factories that were closed down temporarily in some things of that nature. But, we are on plan to be on target and get -- everything completed in some of these cases we're ahead of target. So for example on the veg management, we're actually running ahead of -- where we are on temporary generation, we're going to overshoot that target by about 50%. So we're doing very well. Overall, the two items that were a little bit delayed early on. We've got a recovery plan in place. So we feel very solid about getting all of this program executed as scheduled.

[Steve Fleishman, Wolfe Research]

Okay. And then just any comment on the departure of the Utility, CEO.

[Bill Smith, Chief Executive Officer]

No, I think, I think during an emergence like this, it's a lot of times people reevaluate what's going on and so this is not an expected situation we're situated with the leadership team we have in place and we're actively bringing in the next generation of leaders for the new PG&E. So, we're all set.

[Steve Fleishman, Wolfe Research]

Okay, great. And then just on the thinking about 2021 in the securitization assumptions, -- just do things change -- dramatically for some reason the securities. And is it or would it be kind of I think you have other alternatives and worst case but just Sumeet could you give maybe a little bit of color there.

[Jason Wells, Chief Financial Officer]

Sure, happy to do so. Steve, this is Jason. While we have confidence in the securitization application being improved. I mean I think it was a strong statement of support, by governor -- when he said it was in the best interest of the public to see that securitization application approved we did as a fallback measure as part of our plan of reorganization. We asked the CPUC to approve extension of that temporary debt the $6 billion -- we asked for a -- waiver to the capital structure in the event that securitization application is not approved, so from financing risk associated with the securitization application. I would say that the one impact if not approved, would be there would be incremental unrecoverable debt on that $6 billion in 2021 and beyond.

[Steve Fleishman, Wolfe Research]

Okay. And I apologize, I have one last question, the grantor trust discussion that you mentioned in the release that kind of in terms of the Fire Victim Trust how you treat it. Could you maybe just give a little bit of a punchline on how to interpret that. And what that discussion means?

[Bill Smith, Chief Executive Officer]

Sure. As I mentioned in my prepared remarks, we took a $620 million charge this quarter to reduce the deferred tax asset associated with the stock that we issued to the Fire Victims Trust. We had originally recorded -- as asset based on the settlement value of $6.75 billion. As a result of -- then that original assume asset -- billion of value attributed to that trust. At that reduction in the deferred tax asset assumes that we maintain the tax reduction based on a qualified settlement fund which essentially the tax deduction is recognized at the time, but the stock is issued to the Fire Victim Trust, however, we are pursuing a different election for the deduction -- and that would be the cross-election actually allows us to deduct the value of the stock when it is sold, and so as the stock value increases over time it would allow us to recognize a larger tax deduction.

There are a couple of technical to -- convert to that grant to our trust that we are we'd expect clarity on that likely around the end of the calendar year.

[Steve Fleishman, Wolfe Research]

Okay, thank you very much. Appreciate all questions.

[Operator]

Your next question comes from Stephen Byrd with Morgan Stanley, please go ahead.

[Stephen Byrd, Morgan Stanley]

Hi, good morning.

[Bill Smith, Chief Executive Officer]

Good Morning, Stephen.

[Stephen Byrd, Morgan Stanley]

Thanks for that really thorough update on a lot of topics. Just a couple of items here. I guess from my end. Just in terms of the cost of wildfire insurance you laid out the amount of coverage. I was just curious, generally in terms of commentary in terms of just availability and cost of that. What's your general sense of sort of the magnitude in cost that you're seeing these days.

[Bill Smith, Chief Executive Officer]

No, we are certainly seeing tightening in the liability insurance market well, AB 1054 provides significant financial stability to the utility's, the fact that inverse still applies mean sort of the first dollar of loss falls on liability insurers and as a result we've seen sort of tightening capacity in that market and a significant increase in costs, as I mentioned in liability insurance at $757 of which relates to wildfire claims. The total cost of that program at $750 million, it's obviously a significant increase over what we were doing several years ago and I think it sort of reflective of what will be an ongoing trend of higher liability insurance costs going forward.

[Stephen Byrd, Morgan Stanley]

Understood. That's helpful. And then I guess, stepping back, when you look at the overall business I guess I'm thinking a lot about optimization -- and then not related to wildfire risk, but just sort of cost optimization across the entire PG&E footprint, whether that be how do you go about procurement, looking at real estate that is owned is there a potential in your mind for a kind of a more thorough review now that sort of you've re-emerged and just looking across that the whole business in terms of here's where either operating costs, not related to safety, again, but just, other areas could be reduced or real estate could be monetized just thinking more broadly, are there such opportunities?

[Bill Smith, Chief Executive Officer]

Yes, Stephen. Thanks for the question. I think there are pretty extensive of opportunities available for the company. We are cognizant of maintaining the affordability of our service particularly as we continue to invest significantly in our gas and electric systems. I think you've touched on a couple of the programs that are at the forefront of the start of our work on cost optimization and that is selling underutilized assets, things like as you mentioned real estate could also include has included selling excess renewable energy credits.

I also think you've touched on another opportunity that we see an opportunity for significant improvement around and that's our third-party spend the company spent about $10 billion annually with third-party suppliers, there was a number of contracts that we had to enter into over the last couple of years to incentivize crews to come out west to accelerate the work on our wildfire system, those contracts include premiums to attract that significant level of work that was needed on our system.

However, what we are doing now with third-party suppliers is we are bundling that work and committing to longer term plans in order to bring the cost structure down over-time, we've seen a couple of really good examples in our vegetation management inspection programs and look forward to continuing to work with our third-party suppliers on the rest, sort of those elements. There is an opportunity for the company to redesign, some of our work management related capabilities, but our focus is on the upcoming fire season and so, we will grow into that sort of process redesign over the coming couple of years.

[Operator]

You're next question comes from Jonathan Arnold with Vertical Research. Please go ahead.

[Jonathan Arnold, Deutsche Bank]

Good morning, everyone.

[Bill Smith, Chief Executive Officer]

Good morning Jonathan.

[Jonathan Arnold, Deutsche Bank]

And can I just ask on the timing of the CEO search process you I think you mentioned you were going to announce a new CIO soon, but any sense of just what the sort of likely time frame for the leadership announcement would be and then also on that topic do you anticipate still having a separate Utility and Co-CEO. It is, could be as a reminder on where you stand on that Governance question?

[Bill Smith, Chief Executive Officer]

Sure. Thanks for the question. This is Bill. The search is being launch for the CEO as we speak, so that process is underway. The target deadline is to have someone in that role permanent -- by the end of the year fortunately, there is no -- flexibility to be in the role as long as I need to be, but we're really looking for getting the next generation of the leadership team fully in place and get that flows.

So, that team can start executing their plan going forward. So we think that it's reasonable to have that individual in place by the end of the year and that's still our target. But what's most important is finding the right person. So, there's nothing artificially imposing a deadline on that particular item. With regard to the Utility head. There is a requirement to have some separation between the corporation and the Utility. I don't think it will be a CEO per se, I think will likely go back to the way it had been for a number of years with the President of the Utility more if you think about it more of a President and Chief Operating Officer. That seems to make more sense, I think it's been a little bit confusing to a lot of constituents with the dual CEO title, but there are some requirements to keep separation between the Utility in the Corporation and we'll obviously continue to honor those.

[Jonathan Arnold, Deutsche Bank]

Great, thank you, Bill. And then Matt just on one other question on the equity for the 2021 if I believe in the disclosure statement you sort of talked about that being one possibility, but you might also pay down debt a little slower, presumably, if you didn't like the price on the potential equity issuances that should we take what you're doing today more as a definitive statement that you plan to do this piece with equity or is it still possible you might choose not to.

[Jason Wells, Chief Financial Officer]

Jonathan, thanks for the question. I mean, I do think we retain that flexibility as we look at, there is equity needs. Right. Let me clarify a couple of things first he equity that I mentioned that revised range to $450 million to $750 million that's contingent on the securitization application. We also have had an opportunity given sort of the earnings forecast improvements as well as some timing and cash flows have been able to sort of generate a reduction in that contingent equity need. As I also mentioned, we are exploring certain divestiture of non-core assets with sort of a more natural owner and so that would also has an opportunity sort of bring us to the lower end of the range that I mentioned and then into the point that you raised. We do have some flexibility around the timing of the holding company debt pay down, but I want to reiterate we are also committed to improving our balance sheet health and achieving investment grade credit ratings. And so I would anticipate, if the securitization application is issued equity in that general range next year.

[Operator]

Your next question comes from [indiscernible] with Citi. Please go ahead.

[Unidentified Analyst]

Good morning.

[Jason Wells, Chief Financial Officer]

Good morning.

[Unidentified Analyst]

In terms of the $757 million insurance. I think in your prepared remarks, you mentioned potential to expand that further new operator around the potential or what you'd call would be as we get closer to wildfires here?

[Bill Smith, Chief Executive Officer]

Yes, we're currently as conducting this call is still in the market with a number of different risk transfer policies, and so we think that there is still some -- that we are continuing to pursue our goal would be to try to achieve the billion [ph] for that it's prescribed under AB 1054 I will say, I think [Technical Difficulty] full level, but there is some additional capacity -- in the market that we're pursuing.

[Unidentified Analyst]

And then in terms of the issuance assumption for '21 beyond asset sales, are there any other key drivers of where you may be within the range as the securitization?

[Bill Smith, Chief Executive Officer]

No, the reduction in the equity range really improved earnings forecast some of the cash flow benefits that I mentioned really bring us to sort of I call it -- it's the disposition of some non-core assets that would drive us to the lower end of that range that we provided.

[Operator]

Next question comes from Michael Lapides with Goldman Sachs. Please go ahead.

[Michael Lapides, Goldman Sachs]

Hey guys, Thank you for taking my question. All of the upper you've put in over the last two years, especially over the life 18 or 20 months, which has been hectic obviously just curious, can you, Jason talk about the holding company debt. So I think it was around $4.8 billion. And then the temporary short-term debt the $6 billion. Can you walk us through a path -- over the next couple of years of what you want those balances to be two or three years from now and how you get there.

[John Simon, Executive Vice President & General Counsel]

Thanks, Michael. Great to be back on a formal earnings call again. With respect to the holding company debt as part of our plan of reorganization we committed to the State of California that we would not reinstate our common stock dividend until we had achieved $6.2 billion of non-GAAP core earnings, that's roughly about three years post emergence. And so those retained cash flows provide significant capacity to pay down that holding company debt.

We are anticipating paying down roughly a little more than $3 billion of that debt over the next five years with the majority of that debt being paid down over the retained cash flows from that suspended dividend. I think with respect to the $6 billion in temporary debt there is really two paths to pay that debt down the first path is the securitization application that is in front of the commission to the extent that application is approved the $7.5 billion of proceeds from that securitization will be used to pay down a $6 billion in temporary debt if, and we think it's unlikely the securitization application is not approved. We have asked the Commission for a permanent capital structure waiver on that $6 billion temporary debt and what we have committed to is using the shareholder funded net operating losses as we realize those shareholder net operating losses, we will use those cash flows to pay down that $6 billion in temporary debt over time. And so those would be the two pathways to addressing that debt at the utility level.

[Michael Lapides, Goldman Sachs]

Got it. And if I think about when you guide for 2021 guidance the unrecoverable interest expense that you lay out in the guidance slide how much is that all just tied to the HoldCo debt into the temporary debt or is there anything else that's contributing to that?

[Jason Wells, Chief Financial Officer]

There are sort of the three sort of factors that I would, there is some incremental debt above authorized levels; First, we raised about $2.5 billion of incremental debt at the utility to fund half of the wildfire fund contribution upon emergence that has no impact on our equity ratio because we have an equal amount of equity to offset it on a ratio standpoint, but it is $2.5 billion of debt above authorized levels that contributes to under recovery. And then, as a result of the securitization application and the impact on the equity ratio we do have a modest amount of incremental Utility debt in 2021 that is contributing to that unrecoverable interest expense that will effectively get paid down in 2022 and 2023. Those are sort of the three sources beyond again the holding company and the temporary debt we discussed.

[Operator]

Your next question comes from Richard Sutherland with JPMorgan. Please go ahead.

[Richard Sutherland, JPMorgan]

Hi, good morning. Thanks for taking my questions here. Maybe turning back to the insurance premium question by that we've touched on a couple of times. Could you speak to the AB 1054 requirements and any changes there possible should you be under situation, we are not going for recovery of the premiums.

[Jason Wells, Chief Financial Officer]

Thanks, Richard for the question. No, I wouldn't anticipate any change to that fundamental structure that in AB 1054 -- in AB 1054 as past really sets sort of the foundation for eligibility for the state wildfire fund that damages that exceed $1 billion utilities are encouraged to secure risk transfer up to that level given kind of all of the issues that California is currently undertaking. I don't necessarily see an amendment AB 1054 that would modify that, that expected level of risk transfer liability insurance.

[Richard Sutherland, JPMorgan]

Got it. Thank you. And then just on Kincade real quickly, you spoke a little bit about this in the script, but curious in terms of reaching the expected impact of the costs in 2020 here what hurdles from, I guess the CPUC or other parties -- standpoint remain to kind of tying it up?

[John Simon, Executive Vice President & General Counsel]

Hi, Richard, it's John. I will say on Kincade. It's very early in the process and I won't speculate on tying it up what makes it really difficult to give more certainty in the answer is, a couple of things; First, we don't have the evidence fire has that their concluding there and after the fire. So they have things as you probably know, we don't have the report which lays out their determination, we'd certainly like to see it. What I can tell you is meant is the cause of Kincade. We would work for an expeditious for the timing and so with a -- question.

[Operator]

[Operator Instructions] Your next question comes from Paul Fremont with Mizuho. Please go ahead.

[Paul Fremont, Mizuho]

Thank you very much and congratulations for being back I guess my first question. Can you just confirm the dollar amounts doing the pipe and the convert, including all the over allotment that are sort haven't been finalized.

[Bill Smith, Chief Executive Officer]

Yes. Thanks, Paul. For the question. The over allotment feature the backstop of the green shoe -- the structures were put in place to ensure that we raised a total of $9 billion across the pipe, the mandatory convertible equity as well as the common equity and so we have issued the total $9 billion as a result of the expiration of that over allotment feature at this time.

[Paul Fremont, Mizuho]

Great. And can I just get the convert dollar amount that because that's obviously going to affect the future share count.

[Chris Foster, Investor Relations]

Paul, it's Chris. I'll make sure we follow up with you separately on that.

[Paul Fremont, Mizuho]

Great. Then is a secure, would you expect the securitization to -- have you receive regulatory approvals…

[Chris Foster, Investor Relations]

Generally speaking, there is a 90 day -- applications. I don't think that -- I think in terms of Bill's prepared remarks references in the second quarter, we took into consideration, the timing of the decision is well, as the appeal window. So we think it is sometime sort of early in the second quarter.

[Operator]

Your next question comes from Travis Miller with Morningstar. Please go ahead.

[Travis Miller, Morningstar]

Good morning. And definitely appreciate you guys during the call and taking the questions. Quick question, you answered most of them, but for the CEO search how much input -- is the --are you going to seek or do you have to seek from legislators, governor's office and other non- Utility entities?

[Bill Smith, Chief Executive Officer]

This is Bill. Thanks for the question. There is no formal requirement obviously, we will look for someone -- that would be a good fit in California and someone that the stakeholders here would be comfortable with. There is no formal requirement for approval, but that process basically is what we went through in feeding the new Board. And the new Board is extremely talented group of people and I think we'll do the same thing with the CEO search. So I'm really, really pleased at the prospects of having high caliber challenge for obviously the last couple of years, but there is nothing that will keep this Corporation in my opinion from being able to perform in top quartile, if not top decile level, we just got some work to do and I think it's a great opportunity for the right person coming in. So, I have no concerns about any inability to find someone that's a nice fit for the environment here in California.

[Travis Miller, Morningstar]

Okay, great, thanks. And then one other quick follow-up on Kincade, what is the time line or the ability or the amount that you'd have access to the AB 1054 fund and how that might impact the insurance recovery that you've booked so far.

[Bill Smith, Chief Executive Officer]

Thanks, Travis. I'll answer the first part, maybe, Jason you can answer the second part in terms of the wildfire fund AB 1054 is available for claims costs after insurance above $1 billion for the reasons I was mentioning earlier it's very early for us, no evidence no report we haven't paid any claims side there. So in terms of tapping into that fund won't speculate on that and maybe, Jason on the second part.

[Jason Wells, Chief Financial Officer]

Yes. Thanks, John. Right now because the accrual estimate is below the $1 billion threshold. There's been no recognition of cost recovery from the states wildfire fund it we would only begin to record a receivable for our the cost exceeded $1 billion, up $4 billion threshold one thing though that I will point out is that we do have and are -- eligible about 10% of those costs through our transmission and rate cases, we have to wait and see what the underlying report by fire -- before we can see that cost recovery, but in the event that -- there our substantive violations identified, then we have the opportunity to again speak about 10% of the net cost through the Transmission Owner rate case process.

[Bill Smith, Chief Executive Officer]

Thank you. Travis for that question, Stephanie, thanks for helping us to organize the call today. Everyone, thanks for joining for our call today. Have a safe day and fell free to ask us if you have additional questions. Thank you very much.

[Operator]

Thank you, this concludes today's conference call. You may now disconnect.