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Edited Transcript of PCG.N earnings conference call or presentation 25-Feb-21 4:00pm GMT

·45 min read

Q4 2020 PG&E Corp Earnings Call SAN FRANCISCO Feb 25, 2021 (Thomson StreetEvents) -- Edited Transcript of PG&E Corp earnings conference call or presentation Thursday, February 25, 2021 at 4:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Christopher A. Foster PG&E Corporation - VP & Interim CFO * Matt Fallon * Patricia Kessler Poppe PG&E Corporation - CEO & Director ================================================================================ Conference Call Participants ================================================================================ * Jeremy Bryan Tonet JPMorgan Chase & Co, Research Division - Senior Analyst * Jonathan Philip Arnold Vertical Research Partners, LLC - Principal * Julien Patrick Dumoulin-Smith BofA Securities, Research Division - Director and Head of the US Power, Utilities & Alternative Energy Equity Research * Michael Jay Lapides Goldman Sachs Group, Inc., Research Division - VP * Ryan Michael Levine Citigroup Inc. Exchange Research - Research Analyst * Steven Isaac Fleishman Wolfe Research, LLC - MD & Senior Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Thank you for standing by, and welcome to the PG&E Corporation Fourth Quarter 2020 Earnings Release and Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions) I would now like to hand the conference over to Matt Fallon, Senior Director, Investor Relations, PG&E. Mr. Fallon, please go ahead. -------------------------------------------------------------------------------- Matt Fallon, [2] -------------------------------------------------------------------------------- Good morning. Thank you for participating in PG&E's Fourth Quarter 2020 Earnings Conference Call. Joining us today are Patti Poppe, our Chief Executive Officer; and Chris Foster, Vice President and Interim Chief Financial Officer. I want to remind you that our 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 fourth quarter earnings call presentation. The presentation also includes a reconciliation between non-GAAP and GAAP measures and can be found online, along with other information at investor.pgecorp.com. We also encourage you to review our annual report on Form 10-K for the year ended December 31, 2020. With that, let's move on to the person you all want to hear from, Patti Poppe. -------------------------------------------------------------------------------- Patricia Kessler Poppe, PG&E Corporation - CEO & Director [3] -------------------------------------------------------------------------------- Thank you, Matt, and good morning, everyone. I am so delighted to be with you for my very first PG&E earnings call today. I've been here almost 2 months and have learned a lot by engaging with my coworkers and many external stakeholders. I'll highlight today our 2020 results, our 2021 and long-term outlook and what I've learned so far from careful listening, and importantly, what we're doing about it right now. We delivered solid Q4 non-GAAP core earnings of $0.21 per share in the fourth quarter and $1.61 for the full year. We're affirming non-GAAP core earnings of $0.95 to $1.05 per fully diluted share for 2021. In addition, we're rolling forward our 5-year plan, which takes us through 2025. I'm happy to report that we successfully executed the sale of our transmission tower wireless licenses, delivering on our goal to reduce our 2021 equity needs. Our 2021 equity needs are now down to a range of $0 to $400 million. We have visibility on our investments and we're increasing the quality of the plan and our guidance. Today, we're introducing a 2021 to 2025 non-GAAP core EPS CAGR of 10%. As we bring our new leadership team into place, we're building a clear sky playbook based on a lean operating system and delivering a regionalized hometown experience. We're evaluating our work plan, focused on what's best longer term for our customers. We're already acting on all of this, and we're happy to share more with you today. You'll hear more about this in future quarters as well. Chris will provide an update and more details on the financials in just a minute. First, a recap of 2020. It was a challenging year, and I am so impressed with how our PG&E team stepped up. I'd like to take a second just to thank Bill Smith for serving as our Interim CEO; and Michael Lewis for his tireless efforts, serving as Interim Utility President. My coworkers made great progress on many fronts under their leadership, and I'll quickly touch on a few. The team continued to make progress on wildfire risk reduction while also significantly improving the execution of our public safety power shutoff events through better coordination and support for our customers and our communities. My coworkers successfully resolved key regulatory cases. And while no one could have predicted the impact of COVID-19, the team has stood up for the challenge, delivering energy to our friends, families and neighbors. I spent a good portion of my first weeks listening. Listening to you, listening to our customers, policymakers, regulators, coworkers, shareholders and many, many more. What you've said is direct, and you've communicated both disappointment and encouragement. Thank you for your honest feedback. I've also spent time engaging with our federal monitor and our operational observer from the governor's office. We want what they want, a safer system. We've embraced their feedback and have continued to implement improvements to our wildfire mitigation work with an unwavering focus to reduce the risk of utility-ignited wildfires. One such example includes our evolution. From a 2020 wildfire mitigation plan that was primarily activity-based, focused on miles completed for our key wildfire safe measure such as enhanced vegetation management and system hardening, we're moving to a 2021 wildfire mitigation plan that is risk-focused, addressing the highest risk areas for mitigation on our topmost priority, informed by enhanced predictive wildfire risk models. We've developed and implemented machine learning capabilities, enabling an evolution from static to dynamic risk models. These models are informed by fire ignition probability and potential wildfire consequence, considering fast burning fuels, predictive fire behavior and buildings and population density impacts. Additionally, we're leveraging state-of-the-art remote sensing capabilities to obtain an understanding of both the fuel type and condition that contribute to a fire spread in our high-risk areas. While we continue to perform the longer-term work of enhanced vegetation management and system hardening using a risk-informed approach, our PSPS event implementation remains an important tool of last resort to keep our customers safe. We'll continue to focus on improving the PSPS program for our customers and our communities, keeping in mind that preventing electric equipment-caused wildfires and associated damage is the highest priority. For 2020, I'm happy to share that our enhanced weather forecasting, our generation islanding capabilities and sectionalizing devices, many of which were installed in 2020, led to more targeted PSPS events in 2020 versus 2019 for similar weather conditions. We identified a number of reported damages and hazards to our equipment from high wind conditions during 6 PSPS events in 2020. Any one of these instances could have potentially caused a wildfire if our system had not been proactively de-energized. In addition, our weather stations, along with our high-definition cameras and satellite detection capabilities, enable us to determine when high-risk -- when high fire risk has dissipated and when we can begin safely restoring power. These factors, along with our increased aerial surveillance, helped us reduce patrol and restoration times by nearly 40% in 2020. We were also able to improve our notification accuracy for impacted customers in advance of the PSPS events, from levels below 90% in 2019 to 99.5% in 2020. This was enabled through the deployment of an innovative records and information management integration platform, where we are partnering with Palantir to quickly and seamlessly consolidate data for our electric assets and customers from separate and disparate data sets. This has been a game changer for us, and we're expanding this technology solution to serve as the core enabling technology for building our centralized data system, bringing together physical, operational, life cycle and environmental data elements to drive data-informed decisions for our wildfire mitigation programs and beyond. The substantial improvements in 2020 over 2019 in our PSPS event implementation were noticed by many, and yet, we are still dissatisfied. And we've already begun implementing improvements for our 2021 wildfire mitigation and PSPS program. In fact, during my first few weeks on the job, I had the opportunity to see the team in action during a very unusual January PSPS event. The team quickly sprang into action, enabling a cross-functional focus on an end-to-end process. I saw our emergency response playbook in action, and it was good. The strong gusty winds we forecasted and our assessment of the dry fuels and potential fire spread risk in localized areas of our service territory led us to shut off power to keep our customers safe while the dangerous weather passed. Let me be clear about this point. The goal is to prevent damage and destruction from our equipment. And we'll choose to protect our customers and our communities even when that means utilizing PSPS. I was impressed that we have the technology to pinpoint our highest risk areas and target the specific sections of our systems to prevent potential wildfires that would hurt people. Now moving into 2021. We will embrace the triple bottom line mindset of serving people, our planet and California's prosperity. This mindset will find an intersection between the need to safely deliver energy and meet the clean energy aspirations of Californians. I'm optimistic that there is a bright path forward with a triple bottom line enabled by a laser-like focus on performance. Here are my initial observations and priorities to get us moving as we start 2021. We have a best-in-class emergency response playbook, and we're going to complement that by writing the PG&E clear sky playbook so we can predictably deliver every day, not just during and after a crisis. I'm putting together a team of senior leaders that's developing that clear sky playbook, underpinned by a lean operating system that predictively delivers on our commitments and outcomes. We're bringing the best of a functional organizational design, standards, processes and scale to deliver a regionalized hometown experience for the communities and customers we serve. And finally, our system requires substantial capital investment, and our customers deserve more disciplined cost performance. We'll adopt better processes that improve our safety, quality, delivery and cost. Our work will deliver for customers and our investors. On my first day at PG&E, I went to Paradise in Butte County to see the devastation caused from wildfires. I met with my coworkers who live in the community whose own lives were forever impacted by the campfire. We're so grateful to those who have the strength and the courage to represent PG&E through the rebuilding effort. When I reflect on when PG&E first developed our skills and disaster response, I go back to San Bruno. I visited the city of San Bruno a couple of weeks ago, and I met with our coworkers who serve their community there. They expressed the disappointment they felt that day and the helplessness of not being the heroes for the very first time. It was frustrating not being able to deliver as our [blue crews] strive to do, delivering an essential service safely to our customers every day. PG&E has learned to respond to the challenges of emergencies and have developed a world-class playbook for emergency response. My passion is to capture that capability and focus towards a clear sky playbook, a playbook that can deliver (inaudible) disaster prevention. The basics of the building blocks for a safe, reliable, affordable, clean and (inaudible) systems. [I've seen it before]. Processes that cause delays and leave our front-line teams having to explain to customers why we can't deliver as promised. Our daily performance is sometimes a mystery to the organization. We learned about issues when the customer tenaciously escalates their frustrations and then we jump to respond. We must enable our coworkers in the field to become problem preventers and solvers, not victims of poor processes. Improving the reliability of our day-to-day work will move us away from being just an emergency response company. We need and will implement a clear sky lean operating system to effectuate this change because it works. We're assembling the team to do just that. Adam Wright is our new Chief Operating Officer. Adam joins PG&E after serving for 18 years at Berkshire Hathaway and for the past 3 years as President and CEO of MidAmerican Energy. Adam brings a strong track record of operational performance at MidAmerican, and he'll focus on safety, standardizing practices and promoting excellent execution across the board. Adam's hands-on approach has already started to show its value. I love how he leads with his heart and his mind. We need that. Marlene Santos is our new Chief Customer Officer. Marlene joins us after an impressive career at NextEra Energy, most recently serving as President of Gulf Power. Marlene led the integration effort of the acquisition of Gulf Power, and she was able to deploy a best-in-class operating system to a new organization, which delivered meaningful results for the customers of Gulf Power. We're counting on Marlene to help us do the same here at PG&E. Julius Cox is our Chief Human Resources Officer and leader of our Shared Services and Supply Chain, a team charged with ensuring PG&E has the people, skills, resources and tools to meet customers' expectations. Prior to joining PG&E, Julius served as Chief Human Resource Officer at AEP and Chief Transformation Officer at Dynegy. Joe Forline is our new SVP of Gas Operations. Joe joins PG&E after 35 years at PSE&G, serving most recently as Vice President of Gas Operations, and prior to that, as Vice President of Customer Solutions. We're really excited for Joe to leverage his experience to enhance our focus on both gas operations and customer service. This team is coming for the mission and more are on their way. They all had great jobs, and they were not looking to leave. I called them each, and they answered the call to serve. These clear eyes and fresh legs, combined with the 25,000 dedicated, resilient and smart PG&E'ers that I found here will be the necessary ingredients to turn this company into a winning team. We're focusing on meeting and exceeding the expectations of those we are privileged to serve: our friends, our families and our neighbors. The new team will establish a regionalized daily heartbeat that puts decision-making where it belongs, closest to our customers and communities. I've visited crews in many areas across our service area, and the themes are clear. We're showing up in our hometowns like a big company with a big company bureaucracy. And that needs to change. There are advantages to the scale of a big company and we'll leverage them through the best of functional expertise, high-quality standards, and that will be delivered by our regional cross-functional teams. Our customers don't need to feel that big company mindset. They need to feel like their hometown is the only one that matters. Our hometown team can deliver for them by being empowered to solve the problems they see with the cross-functional team on which they work. Our clear sky lean playbook will be essential in transforming our culture, our processes and our outcomes. Now you might ask Patti, that all sounds great. But how will that deliver financial results? Well, this brings me to my final observation. We can accelerate the path to better financial health at PG&E by fixing the operational results we deliver. Our regulators, our legislators, our customers, my coworkers, and yes, you, our investors, can believe in PG&E again. Everyone can believe when we deliver, when we keep our promises, when we do what we say we will do. There's a playbook for a great utility, and we'll be writing ours here at PG&E. More to come. With that, I'll turn it over to Chris. -------------------------------------------------------------------------------- Christopher A. Foster, PG&E Corporation - VP & Interim CFO [4] -------------------------------------------------------------------------------- Thank you, Patti, and good morning, everyone. As Patti mentioned earlier, we made substantial progress against the goals we set forth in 2020, including on the financial and regulatory front. I'll hit a few highlights, then go into more detail. We met our EPS guidance, landing at $1.61 for the year. We reduced our equity needs to a range of $0 to $400 million, reducing our prior range of $450 million to $750 million as a result of our successful noncore asset sale. We also made progress on our longer-term savings goal, including achieving over $300 million in savings from a combination of contracted work savings and for monetizing excess renewable energy credits in 2020. And we closed out critical regulatory cases that provide multiyear financial clarity. I plan to cover our 2020 results and regulatory updates first, then focus on 2021 and beyond. I'll walk through near-term targets and favorable updates to our 2021 financing needs as well as our longer-term financial plan. There, we see improvements on our prior projection, getting us to a 10% earnings per share growth CAGR. As I mentioned, we met our earnings guidance for 2020 and are maintaining the 2021 range we set out of $0.95 to $1.05. Let's start with 2020. Slide 9 shows our results for both the fourth quarter and the year. Non-GAAP core earnings per share for the year came in at $2 billion. GAAP earnings including noncore items are also shown here. The noncore items listed here are also consistent with the full year 2020 guidance range and includes a $60 million net charge in the fourth quarter for (inaudible) related wildfire costs after applying insurance receivables. Moving to Slide 10. This shows the quarter-over-quarter comparison for non-GAAP core earnings of $441 million or $0.21 in the fourth quarter of last year. The largest driver of the quarter-over-quarter change was an increase in shares outstanding from our July 1 equity raise. Additionally, we saw a decrease with EPS resulting from unrecoverable interest expense, the timing of nuclear refueling outages, inspection costs and some small miscellaneous items. The decreases were partially offset by growth in rate base earnings and the impact of a charge recorded in the fourth quarter of 2019 related to interest on pre-petition payables and short-term debt and the timing of the 2020 general rate case cost recovery. I will now shift to covering a few significant updates on the regulatory front, specific to 2020, with the progress we saw helped cement our multi-year earnings per share growth visibility. I'll start with FERC. In December, FERC approved our transmission owner 2020 settlement, establishing formula rate, an all-in return on equity of 10.45% and a capital structure that is 49.75% equity through 2023. FERC also completed a review of our AFUDC waiver filing, allowing us to apply the 49.75% equity ratio on AFUDC back to May of 2019. At the CPUC, there are a number of proceedings in flight, including our wildfire mitigation plan filing that Patti covered. I'll focus now on 4 additional key filings. Our 2020 general rate case, 2 securitization cases and our upcoming 2023 general rate case filing. As a reminder, our 2020 GRC received a final decision in December. The revenue requirement approved in our 2020 GRC mirrors the amount from our initial settlement agreement. Importantly, the final decision authorizes 2-way balancing accounts for vegetation management, wildfire mitigation and liability insurance premium costs. We will implement new rates as authorized in the final decision starting next month. In the rate-neutral securitization proceeding, we filed an alternative in mid-January that recognized concerns raised during the proceeding. This alternative is consistent with our goals of ensuring we can accelerate payments to the Fire Victim Trust, meeting our commitment to pursuing a transaction structure that is expected to be rate-neutral and maintaining off-credit treatment. So that this cost-efficient transaction can be effectuated with maximum benefit to the utility and its customers. In our alternative filing, instead of contributing $1.8 billion in 2021 to the customer credit trust, we proposed to contribute $1 billion in 2021 and $1 billion in 2024. Additionally, we propose that the CPUC could conduct proceeding in 2040 to determine whether an additional shareholder-funded contribution is needed to keep the structure rate-neutral. Any additional contribution will be capped at $775 million. We are confident based on our modeling that the risk of this additional onetime payment 20 years from now has a low probability of occurring. The proceeding is currently scheduled for a proposed decision in April and a commission decision in May. Yesterday, we also filed our first AB 1054-related securitization request at the CPUC. This is the first tranche of what is likely to be 3, and totals roughly $1.2 billion. This reflects the work we've completed thus far and have forecasted expenditures for 2021 relative to the total $3.2 billion of qualified spend. We expect to receive a decision on the financing application in late June, and that could bring us to market as early as Q3. Finally, we are scheduled to file our 2023 general rate case by the end of June. This case will be different from previous general rate cases for 2 reasons. First, we will incorporate not just electric distribution, but also gas transmission and storage, which was previously a separate case. Second, this case will cover 4 years, 2023 through 2026, rather than 3 years, providing certainty over a longer horizon. Our substantial investments to reduce risk of wildfires and enhanced public safety will continue to be highlighted in this case. Moving forward to 2021 guidance on Slide 11. We have adjusted non-GAAP core earnings to $2.1 billion to $2.25 billion from $2.1 billion to $2.3 billion for the year, and maintain our prior EPS guidance of approximately $0.95 to $1.05 per share. This non-GAAP core earnings target is $300 million to $425 million below our authorized levels with a range mostly comprised of interest expense of $300 million to $325 million. We anticipate net below the line and spend above authorized will be substantially lower than 2020 as we carry out additional efficiency measures in 2021, bringing a range of $0 to $100 million there. Also noted here is the assumption underlying 2021 guidance that we received authorization in the second quarter for our securitization request, which is designed to be rate-neutral to customers, as originally filed. Moving to noncore earnings guidance, which is broken out in the same slide, we've made a couple of adjustments to these items. Our range for bankruptcy and legal costs guidance increased to a range of $1.4 billion to $1.5 billion. This reflects 2 items. First, based on current discussions with the Fire Victims Trust and input from the IRS, we expect to elect grantor trust treatment for the shares issued to the Fire Victim Trust. Grantor trust treatment would result in a deduction equal to the fair value of the shares held by the Fire Victim Trust when ultimately sold by the trust instead of when the shares were placed into the trust. Accordingly, there would be a $1.3 billion charge when the grantor trust election is made, reflecting the elimination of the existing deferred tax asset and then income recognized over time as the Fire Victim Trust sells their shares in future periods. Similarly, we would anticipate gains in future periods as shares are sold by the trust. Given we have until April to complete this review, should we elect the grantor trust treatment, it would result in a charge in that scenario in Q1. The second element of bankruptcy and legal cost to note is exit financing costs reflecting temporary utility debt, an increase from $60 million pretax to a range of $95 million to $135 million. This reflects our updated assumption of rate-neutral securitization starting in the second quarter and assumes 2 tranches. We also anticipate a range of $10 million to $20 million in legal and other costs related to the 2019 Kincade Fire that are recorded in the period incurred and separate from the claims accrual. Additionally, for investigation remedies, we have lowered our forecast to roughly $110 million. This $30 million decrease is permanent, and we will apply it towards the wildfire OII spend requirement. Our full year guidance for the net securitization inception charge, amortization of the wildfire fund contribution and prior period net regulatory recoveries remain unchanged. Next, I'll cover our updated 2021 equity needs. As you can see on Slide 11, we've updated the range to reflect equity needs of $0 to $400 million for the year. This substantial reduction reflects the cash impact in 2021 of our noncore license transaction that was announced earlier this month. I'm also pleased to share that we closed the transaction as well and have received the vast majority of the initial proceeds. This lower equity range benefits our shareholders, including the Fire Victim Trust in reducing dilution. As Patti touched on, we have updated our 5-year plan as well with projections from 2021 through 2025 that you can see on Slides 12 through 14. Here, we are showing incremental positive update. Our non-GAAP core earnings growth is driven by 8.5% rate base growth. This is underpinned by focusing on the key investments that reduce risk and improve service to our customers, primarily in our wildfire mitigation and gas system needs. We also continue to be focused on holding company debt reduction to improve our balance sheet off over time. We anticipate paying down over $2 billion over the next 3 years and further reducing the holding company debt balance down to approximately $1 billion in 2025. Together, these factors fuel our non-GAAP core earnings growth of over 10%, and we are guiding to 10% non-GAAP core EPS growth. This includes an assumption from equity needs following 2021, which stem from increases in our capital spend and would follow our capital structure. We plan to provide more specifics on equity needs for each year when we issue our annual 4-year guidance. As a team, we are determined to execute well on both the operational and financial plans we set out that benefit all elements of the triple bottom line and drive prosperity for our state and investors. With that, I'll turn it back over to Patti. -------------------------------------------------------------------------------- Patricia Kessler Poppe, PG&E Corporation - CEO & Director [5] -------------------------------------------------------------------------------- Thank you, Chris. The path to reestablish PG&E is simple, the implementation is our challenge. We'll meet the challenge and here's how. We have a best-in-class emergency response playbook, and we'll build on it by writing the PG&E clear sky playbook. I'm putting together a team of senior leaders that are writing and implementing that lean playbook that can predictably deliver our commitments and our outcomes. We're building the best of centralized functions, standards, processes and scale, and we'll deliver a regionalized hometown experience for the communities and customers we serve. And finally, our system requires substantial capital investment, and our customers deserve more disciplined cost performance. We'll adopt better processes that improve our safety, quality, delivery and costs. As a result, our work will deliver for our customers and for our investors. These initial priorities are the steps on the path to a new era at PG&E, focused on people, planet and prosperity with laser-like focus on performance. Operator, please open the line for questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Richard Ciciarelli with Bank of America. -------------------------------------------------------------------------------- Julien Patrick Dumoulin-Smith, BofA Securities, Research Division - Director and Head of the US Power, Utilities & Alternative Energy Equity Research [2] -------------------------------------------------------------------------------- It's Julien here. I should have my congratulations to you, Patti, as well as a portion of the management team here. It's a pleasure. Congrats all. But with this, can we speak a little bit more about the equity and ability to reduce down that further? So a couple of different questions within this. Securitization, can you speak to what's reflected in your updated expectations here? And then secondly, just want to be very explicit about the asset sale here in that contributing to your narrowed range here as well, if you don't mind. -------------------------------------------------------------------------------- Christopher A. Foster, PG&E Corporation - VP & Interim CFO [3] -------------------------------------------------------------------------------- Sure, Julien. It's Chris. Happy to take that one. I think there's really 2 factors to think about. First, let's start with the underlying assumption. Embedded within the $0 to $400 million guidance is the as filed original case that we put forward at the CPUC. Should the alternative we filed be approved, it could further reduce that equity need, which would take us down potentially to that low end of the range, again, $0 to $400 million. That's because we have spaced out the 2 contributions, $1 billion in 2021 and $1 billion in 2024. As it relates to the towers transaction, that definitely helped us to bring down the original high end of $700 million -- excuse me, $750 million to where we are today at $400 million. We consistently articulated, as you know, upon completion of that transaction, we would be focused on reducing our financing needs overall and it's certainly heavily contributed to our equity needs reduction. -------------------------------------------------------------------------------- Julien Patrick Dumoulin-Smith, BofA Securities, Research Division - Director and Head of the US Power, Utilities & Alternative Energy Equity Research [4] -------------------------------------------------------------------------------- Got it. Excellent. And then secondly, Patti, if I can put it back to you here. Obviously, short time here thus far. But the safety certification process, this business is going to be an annual conversation here. But when we think about this going forward and just getting these on a timely basis, how do you think about improving that process to just give folks and all stakeholders visibility on that, if you don't mind? -------------------------------------------------------------------------------- Patricia Kessler Poppe, PG&E Corporation - CEO & Director [5] -------------------------------------------------------------------------------- Yes. This is actually an area, Julien, that I'm pretty excited about. And I feel good about our ability to build a transparent system so anybody and anyone who wants to can be aware of the status of our wildfire mitigation plans. It's a perfect application of our clear sky playbook as to prepare and prevent disaster. And so we're actually leveraging our lean playbook. We've got 4 basic plays, and we're going to apply them to our wildfire mitigation plan. We're actually in the process. We've already initiated building out a control center at our San Ramon facility, where we'll be able to observe the progress, monitor, problem-solve, establish standards, continuously improve. I am finding we've got some incredibly talented people here. They just need a process. We need a system to make visible our commitments, and that enables us to make and meet our commitments. And so the work that we're going to do, I think, will give the commission the visibility that they need. We welcome their partnership. We welcome their oversight. The policymakers have a lot at stake with our success, and they've shared that with me. And so our job is to make it easy for them to regulate us, easy for them to monitor us. Because I can tell you this, no one is going to be looking closer at us than us. And so we're going to be watching our performance, and we're going to be utilizing our clear sky playbook to do just that. And that should make those filings and that process much more streamlined, Julien. -------------------------------------------------------------------------------- Operator [6] -------------------------------------------------------------------------------- Steve Fleishman with Wolfe Research. -------------------------------------------------------------------------------- Steven Isaac Fleishman, Wolfe Research, LLC - MD & Senior Analyst [7] -------------------------------------------------------------------------------- Patti, congrats. So I guess, one question. So it sounds like in the past, the long-term growth rate was the net income growth and now it's EPS growth. So to the degree that you do need future equity in the plan because your investment is higher, that's -- I assume that's embedded in the growth rate. -------------------------------------------------------------------------------- Patricia Kessler Poppe, PG&E Corporation - CEO & Director [8] -------------------------------------------------------------------------------- Yes. That, of course, is embedded, and that's what made us feel pretty confident about our forward look on EPS and shifting to that EPS-oriented long-term growth target. But Chris, why don't you add a couple of points on that? -------------------------------------------------------------------------------- Christopher A. Foster, PG&E Corporation - VP & Interim CFO [9] -------------------------------------------------------------------------------- Sure thing, Patti. That's right. Steve, as you think about the growth that's embedded in our rate base update, there's over $2 billion in additional investment there. And so what we've put forward is an EPS growth rate that absolutely includes future equity needs through that time period. -------------------------------------------------------------------------------- Steven Isaac Fleishman, Wolfe Research, LLC - MD & Senior Analyst [10] -------------------------------------------------------------------------------- Okay. Great. And then secondly, just on the -- back last year, when there was the uncertainty over the wildfire safety certificate, there was also some mentioned by the commission of the kind of enhanced oversight process. Is there any update on that? And that obviously hasn't happened, so should we view that as a good sign? Or is that still kind of a potential event to watch? -------------------------------------------------------------------------------- Patricia Kessler Poppe, PG&E Corporation - CEO & Director [11] -------------------------------------------------------------------------------- Yes. Steve, we have not had official notification or closeout of the letter that was sent at the end of last year on enhanced enforcement. So honestly, Steve, I don't think we'd be surprised if that action happened. The first step is just a corrective action plan. And frankly, that's what we're building out. We've been working very closely with the wildfire staff at the commission to make sure that our plans meet expectations, but it's certainly within the realm of possibility that the commission might take that step. And frankly, we welcome it. I don't see that as a bad thing, Steve. It all comes down to this. Look, we've got to do what we said we're going to do. Our plan for 2021 wildfire mitigation is good. It is enhanced over 2020. 2020 was better than 2019. We're using more technology. We're doing more fire prevention with our enhanced vegetation management, with our better visibility. We're using technology tools that are honestly impressive. I'm impressed by them. And we're reducing the impact of PSPS events. So all of that being said, we have confidence in our plan. We welcome additional oversight. I wouldn't be concerned if additional oversight in the enhanced enforcement was initiated because the commission has a job to do, and we welcome the visibility. And as I said, building out our lean operating system to really drive home the performance of that wildfire mitigation plan, and it will provide all the visibility and transparency that's required. -------------------------------------------------------------------------------- Operator [12] -------------------------------------------------------------------------------- Ryan Levine with Citi. -------------------------------------------------------------------------------- Ryan Michael Levine, Citigroup Inc. Exchange Research - Research Analyst [13] -------------------------------------------------------------------------------- One for Patti. Is this new clear sky playbook fully written at this point? Or is it more in the initial drafting stages? Is there a time line that you expect this playbook to be fully written? -------------------------------------------------------------------------------- Patricia Kessler Poppe, PG&E Corporation - CEO & Director [14] -------------------------------------------------------------------------------- That's a great question. One of the things that excites me is this team I'm building. In addition to the very impressive talent I'm finding here at PG&E, we're going to have the best of the best influencing this playbook. So certainly, people know that I have a lean orientation and lots of experience, so I have a point of view on this matter. But we're hiring some really talented people. Marlene Santos is going to bring a playbook. And so we're -- trust me, we're going to lean into that NextEra playbook of Marlene's. Berkshire Hathaway has a playbook, and Adam brings that with him. And so we will be looking for the best-of-the-best lean operating system that matches the PG&E needs and addresses what we need to address here most. But I will say the basic plays of our lean operating system will include visual management, operating reviews, problem-solving and standards. It's clear to me in my already in just the 2 months I've been here that those plays are essential to us being able to keep our promises and do what we say we're going to do. And so the kind of the framework of the playbook is written, but we'll have the best of the best certainly adding to that playbook and making sure that it reflects the specific needs of the PG&E team. So in terms of time -- on your question on timing, we expect to have the fundamentals of the playbook written by midyear. But we'll be always continually updating and improving our playbook. But that's the spirit of a lean operating system, we're never going to be satisfied, right? We could have best ever performance and still be dissatisfied. And so that playbook will ever be an evolution. So I wouldn't suggest that there's a finish line to it, but we will be getting better every day. -------------------------------------------------------------------------------- Ryan Michael Levine, Citigroup Inc. Exchange Research - Research Analyst [15] -------------------------------------------------------------------------------- And then in terms of the wildfire mitigation plan that came out earlier this month, was there any changes to -- that you wanted to call out in terms of your forecast time horizon for any more meaningful opportunities around that effort that you could envision to evolve in the coming years? -------------------------------------------------------------------------------- Patricia Kessler Poppe, PG&E Corporation - CEO & Director [16] -------------------------------------------------------------------------------- Well, I'll hone in on the work, and I'll let Chris weigh in, in just a second on the financial implications. But the work itself, the big change for 2021 over 2020 is the risk orientation of the plan. 2020, we've got a lot of work done. We did a lot of vegetation management and system hardening. But it was more based on volume of work. And what we're transitioning in 2021 to, which I think will really meet the needs of both the system, and certainly, a lot of the observers that we have is that we're transitioning to a risk-prioritized system. And so it's really important that we prioritize the work that we're doing to maximize the amount of risk we reduce every single year. And so we're targeting the 20% of -- a 20% reduction of the highest risk areas of the system. And so we're going to be focused on that as well as additional technology additions, additional weather stations, additional cameras. Our weather meteorology system is really very advanced, and we're going to continue to advance it. And so more to come on the work, and that's a big change for 2021. But in terms of the financials, I'll turn it over to Chris. -------------------------------------------------------------------------------- Christopher A. Foster, PG&E Corporation - VP & Interim CFO [17] -------------------------------------------------------------------------------- Sure. Thanks, Patti. Ryan, the way I would think about this is we've got the 3-year wildfire mitigation plan fully embedded in our 5-year forecast from the financial side. What we're able to do though as we improve the plan and see the work plan longevity here, what we're able to do is work with our colleagues to reduce costs and be more efficient along the way. I mentioned this a little bit earlier, but we have been able through improved contracting, already been able to take out a few hundred million dollars out of the business. And so as we improve the ability to take out the riskiest miles every year that Patti is referencing, the work plan will be tighter year-over-year as well. But at this stage, ultimately, all 3 years of what was filed here back in February is currently reflected in the 5-year plan. -------------------------------------------------------------------------------- Operator [18] -------------------------------------------------------------------------------- Jonathan Arnold with Vertical Research. -------------------------------------------------------------------------------- Jonathan Philip Arnold, Vertical Research Partners, LLC - Principal [19] -------------------------------------------------------------------------------- Just a quick one. On -- you've obviously assembled an impressive group of new leaders. Are we done with that process or is there still more to come? -------------------------------------------------------------------------------- Patricia Kessler Poppe, PG&E Corporation - CEO & Director [20] -------------------------------------------------------------------------------- I'm sorry, Jonathan. Can you repeat your question? -------------------------------------------------------------------------------- Jonathan Philip Arnold, Vertical Research Partners, LLC - Principal [21] -------------------------------------------------------------------------------- Yes. Just curious on the leadership team, if we're -- you're pretty much done with what you're planning there? Or is there more to come? -------------------------------------------------------------------------------- Patricia Kessler Poppe, PG&E Corporation - CEO & Director [22] -------------------------------------------------------------------------------- Oh, thank you. No, we're not done. There's more to come. And I think you'll like what you see. We still have an engineering role, which we've highlighted as an important role, I think, for PG&E because we've spent so much time responding to crisis that I think there's been a loss of the ability to focus on the horizon to get focused on the future of the clean energy transformation and how that clean energy transformation overlaps with the need for wildfire prevention. And I think there's a really exciting opportunity where new technologies with the right engineering team can mitigate our multiple risks, supply shortages in the summer, wildfire mitigation as well as our clean energy transformation. And so we're definitely -- we've got some great names coming. I'm not going to -- we broken up news today. We'll be sharing the additional news here in the coming weeks of additional talent that's joining the team. -------------------------------------------------------------------------------- Jonathan Philip Arnold, Vertical Research Partners, LLC - Principal [23] -------------------------------------------------------------------------------- Okay. Great. And maybe more for Chris. Just, Chris, could you perhaps just explain or maybe a reminder, just this -- the charge to do with the grantor trust a bit more and maybe focus on the implications for cash and timing and the like and if there's any sort of knock-on impact on financing needs? And if I recall, you wanted to -- you've been wanting to elect the grantor trust. So my assumption is that this is an outcome that (inaudible) there's going to be an upfront charge, it would be helpful. -------------------------------------------------------------------------------- Christopher A. Foster, PG&E Corporation - VP & Interim CFO [24] -------------------------------------------------------------------------------- Sure, Jonathan. Thanks for the question. Happy to take it, too. And I appreciate it because definitely, I want to simplify this. This is ultimately good tax planning for the company. The bottom line is, if we are able to elect the grantor trust construct, which we're on a good path. We've noted here today that we've had current ongoing discussions with the Fire Victims Trust and from the IRS. So we believe it's likely we'll be able to make that election. What would happen there is no impact to financing needs. And let me unpack that a little bit. So PG&E will be required to take the $1.3 billion noncash charge reversing the deferred tax asset we created. And that's ultimately just an advantage that we gain here, right? Because now the advantage of the grantor trust is we're able to experience the benefit of the share price appreciation that would occur. So we'll reverse that charge as soon as we recognize income in future periods, which depends on the price at which the Fire Victim Trust sells the stock. So should we electric the grantor trust, which we'll do by April, there are no financing need changes. We will benefit from a tax standpoint, and the Fire Victims Trust would benefit as well from the construct from a tax planning purpose. -------------------------------------------------------------------------------- Operator [25] -------------------------------------------------------------------------------- Michael Lapides with Goldman Sachs. -------------------------------------------------------------------------------- Michael Jay Lapides, Goldman Sachs Group, Inc., Research Division - VP [26] -------------------------------------------------------------------------------- Hey, Patti and team, congrats to everybody on your new roles. My question is a little more longer term in trying to think about the work the company will do to help the state achieve its goals and vice versa. Anytime I've seen a regulated utility succeed over the long term, and succeed is probably defined in terms of providing reliable, safe, low cost, clean power, where it's low cost as possible. It also comes with supportive policymaking and regulation. Those 2 things tend to go hand-in-hand. When you look at how California policy is set up and aligned right now and the things that are in place, but also the things that might be on your wish list, things that maybe aren't in place today but could exist tomorrow, whether it's policy, whether it's regulation or something else, what would be on that wish list? -------------------------------------------------------------------------------- Patricia Kessler Poppe, PG&E Corporation - CEO & Director [27] -------------------------------------------------------------------------------- Well, thank you for asking the question. A couple of things. First, one thing I will share as a newcomer to the California scene, I have been pleasantly surprised by the regulatory environment and the construct. I think outside of California, I told myself things about what was true here. And now that I am here, there's some really good components of our regulatory construct, multiyear general rate cases with attrition adjustments. Many of you know that I have long advocated for annual filings because you need flexibility and adjustment. But as I see the California construct, we have these long-term rate cases and filings and outcomes that provide long-term certainty to revenue, but we still have balancing accounts that allow for that flexibility to adjust and adapt as needs and conditions for our customers change. And I like that a lot. That's a good part of the construct. The decoupling, the pass-through costs associated with commodity procurement, all of these elements make for a pretty solid regulatory construct when we do what we said we would do. And so it comes back to that whole thing. So my wish list, Michael, truly is that we are reliable again and our word stands. And so that's the focus of our efforts. It's the focus of our attention. Now to your point about the long-term aspirations of policymakers here around clean energy and affordable energy. You may be aware the that the commission held an en banc event yesterday, and I was very optimistic about what I heard from that event. There's a real recognition that there's a risk that the entire clean energy transition, the cost of it is borne in a residential electric bill. And that, in many ways, is basically a regressive tax. It's tax policy borne out in electric bills. And the good news is that was part of the conversation yesterday, that we need to make sure that we have holistic cost-sharing for the clean energy transition. And frankly, if we do our job right, we can help reduce costs. And certainly, the unit cost of energy should go down as electrification takes hold, both in buildings and vehicles. So I do think what -- if I had a wish list outside of my own wish list that we do what we say we're going to do, the rest of my wish list would be that we, as California, come together and find a holistic set of solutions that meet the expectations of our citizens. I find the ambitions inspiring, and we do it together as a state and that we don't finger-point and suboptimize, but rather, we work together to come for a great outcome, the best outcome for Californians, which frankly, then can be a role model for the rest of the world. -------------------------------------------------------------------------------- Operator [28] -------------------------------------------------------------------------------- (Operator Instructions) Jeremy Tonet with JPMorgan. -------------------------------------------------------------------------------- Jeremy Bryan Tonet, JPMorgan Chase & Co, Research Division - Senior Analyst [29] -------------------------------------------------------------------------------- Patti, just wanted to say thanks for all the observations and congratulations as well. But maybe just kind of taking a step back just as far as what brought you to this position that you felt compelled to take it? And just as you look at PCG versus your experience at CMS, just wondering if you might -- if it makes sense to contrast what you see here or maybe just asked more directly, is the CMS way the right fit for PCG or could the clear sky playbooks look different? -------------------------------------------------------------------------------- Patricia Kessler Poppe, PG&E Corporation - CEO & Director [30] -------------------------------------------------------------------------------- Well, first of all, a little shout-out to all my friends at CMS. They know I love them, and I think about them all the time. I was compelled by the mission here at PG&E. And this is what I'm finding, both in the people who are here, the people who stayed. They say, when the going gets tough, the tough get going. And this team has got going. I mean this PG&E team that I have met is resilient and strong, and they are here and they have stayed. And I'm proud of them and grateful for them for their endurance. The additional team members we're bringing along, and the reason I am here is because we felt compelled by this cause, that the people of California need PG&E to be strong. We need PG&E to have the capability to answer the call that the citizens and the policymakers are defining. And so when I thought about both the citizens of California and I thought about the people who work at PG&E, at the end of the day, Jeremy, I just couldn't turn away. And I think people know I had a pretty good gig back there in Michigan. And -- but to sit and not do my part just didn't feel like an acceptable choice. So I came out, and I'm happy to report again that people are coming with me, and it's really -- it's a mission worth serving. Now I'll also say that it won't be the CMS playbook, it will be the PG&E playbook. We have to write our own based on the current conditions and needs of the system. And -- but the lean concepts are universal, and they weren't written at CMS. Heck, they were written 100 years ago. [Deming] wrote some of the early fundamentals and lots of companies have implemented them. And I've seen it implemented well, and I've seen it implemented poorly. And we're going to implement it well. I do think my years of experience do bring visibility and perspective about what good looks like when we talk about a lean implementation. And so the team and I here are writing that playbook, and we're going to implement it. And I'm highly confident that it will provide the certainty and the transparency and the ability to deliver outcomes, not just activity, but outcomes for the sake of the people that we serve. -------------------------------------------------------------------------------- Jeremy Bryan Tonet, JPMorgan Chase & Co, Research Division - Senior Analyst [31] -------------------------------------------------------------------------------- Great. That's very helpful. And maybe just a separate question on the SBA agreement. Just if you could walk us through what happens if, God forbid, there was a cause of a fire from the telco assets, just how would that work exactly there? -------------------------------------------------------------------------------- Christopher A. Foster, PG&E Corporation - VP & Interim CFO [32] -------------------------------------------------------------------------------- Sure. So in terms of the agreement, the way to think about it, Jeremy, is at a high level in all situations, PG&E retains the ability to have appropriate and safe access to its facilities. That's everything from pole loading, ensuring that any new facilities that are cited are done so only in a situation where we know ahead of time that the additional weight is appropriate. It also means that if there are impacts to the facilities, certainly in that situation, it will be evaluated for liability at that stage. But ultimately, where we're focused is -- and this is really the impetus behind the agreement, was to ensure that going forward, PG&E maintain the flexibility to manage our assets as we need to do. And that flexibility remains with this agreement. -------------------------------------------------------------------------------- Operator [33] -------------------------------------------------------------------------------- There are no further questions at this time. I will now turn the call back over to Patti Poppe for final remarks. -------------------------------------------------------------------------------- Patricia Kessler Poppe, PG&E Corporation - CEO & Director [34] -------------------------------------------------------------------------------- Thanks, Jack. Well, thanks, everyone, for the discussion today. It really was good to be with all of you. We are looking forward to staying in touch in the coming months. And certainly, most importantly, restoring your trust and your confidence in the PG&E team. Thanks again for joining us today. -------------------------------------------------------------------------------- Operator [35] -------------------------------------------------------------------------------- This concludes today's call. We thank you for your participation. You may now disconnect.