PG&E Corp (PCG) 2014 Q3 法說會逐字稿

Good morning and welcome to the PG&E Q3 2014 earnings conference call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would like to introduce your host, Mr. Dinyar Mistry. You may proceed.

Good morning, everyone, and thanks for joining us. Before you hear from Tony Earley, Chris Johns, and Kent Harvey, I'll remind you that our discussion will include forward-looking statements about our outlook for future financial results 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 slide deck. We also encourage you to review the Form 10-Q that will be filed with the SEC later today and the discussion of risk factors that appears there and in the 2013 annual report. And with that, I'll hand it over to Tony.

Thank you, Dinyar, and good morning, everyone. This quarter had a number of significant developments at PG&E, and I know you're all interested in the impacts of the recent self-reports concerning ex parte communications. I'll get to that in a minute, but I also want to highlight several other key developments in the quarter.

After a long wait, the presiding officer's decision was finally issued in the gas investigations, an important step in resolving the gas issues. We also received a final decision in our 2014 General Rate Case, which positions us well for the next few years. We had a strong quarter operationally and financially. Chris and Kent will cover those aspects of the business on the call this morning.

So, getting back to our regulatory issues. We've also had some setbacks in recent weeks in that very important area. We regret these developments. When I arrived three years ago, we knew that we had gaps in our performance, particularly in our gas business, and we launched major efforts to focus on operational excellence.

We committed to seek out problems and to deal with them in a very transparent manner. Unfortunately, what we did not know was that we also had a gap in our CPUC communications protocols. All of this became apparent as a result of a voluntary review of communications between the Company and the CPUC that we undertook after allegations of improper communications were raised this summer. We were disappointed to discover communications that we believe violated the CPUC's rules regarding ex parte communications, including in the pending Gas Transmission and Storage Rate Case.

As you know, we took decisive action, we self-reported these violations, we held individuals accountable. And we're taking meaningful steps to put in place a best-in-class regulatory compliance model to prevent another incident. As you would expect, these ex parte violations have had a negative impact on the regulatory environment. Two commissioners have recused themselves from the pending decisions on both the San Bruno penalty and the Gas Transmission and Storage Rate Case.

Also in the Gas Transmission Case, the administrative law judge has been replaced and the schedule has been suspended. The commission also launched an order to show cause calling for PG&E to demonstrate why it should not be penalized for the ex parte communications related to the initial assignment of the judge. The ALJ issued a proposed decision and Commissioner Peterman issued an alternate decision. Both call for extended restrictions on our ability to interact with the commission and advisory staff except at all party meetings and require notification of even routine interactions such as data responses.

Additionally, Commissioner Peterman proposed a $1 million fine and a disallowance of up to half the revenue requirement increase that would have been recovered during the delay in the Gas Transmission Case. We've taken responsibility for the violations and understand that PG&E should be penalized, but we disagree strongly with these proposals. Silencing the Company is not the answer. We believe it's a bad regulatory practice, particularly since the Company self-reported and has taken responsibility for the actions.

As a regulated utility, it's imperative that we be able to communicate appropriately with our regulators. The CPUC must be able to communicate with utilities and other parties to reach informed decisions. We look to the commission to establish rules that strike the right balance going forward, but whatever their ultimate decision, we're committed to complying with it and we will work through these issues.

In addition to the CPUC, both the US Attorney's Office in San Francisco and the State Attorney General's Office have indicated they are investigating this matter. We are cooperating with the investigations and our expectation is that this issue is going to take some time to be fully resolved. However long it takes, we're going to continue to do the right thing for our customers, for the communities that we serve, and for our shareholders.

That means, first of all, insisting on accountability, transparency, and compliance with regulations and policies that govern our operations. It means continuing to strengthen and modernize our infrastructure and advance our operational performance through our continuous improvement efforts. We've made tremendous progress on both the electric and gas sides and we will not let up. It means advocating for resolution of the gas pipeline investigations and for penalties that are fair and proportionate.

Yesterday, we filed our reply comments in the proceeding, aimed at getting at that result, and it means rebuilding trust and an appropriate working relationship with the commission and other parties. We know this is going to take some time, but we are committed to it. The strength of the California regulatory model lies in the structures and policies that have been formalized over the last decade or more. It is been very successful and I don't see that changing. So, with that introduction, let me turn it over to Chris to update you on our operational performance.

Thanks, Tony, and good morning, everyone. As you can see on slide 4, I'll begin my remarks with an update on our operations and then touch on additional regulatory development for the quarter.

For the last several years we've been focused on strengthening and modernizing our infrastructure across our business. We saw some of the benefits of these investments in August when a 6.0 magnitude earthquake hit Napa Valley and resulted in significant property damage with more than 70,000 of our customers experiencing outages. Using the data from the SmartMeters we've deployed over the last several years, our teams were able to quickly determine the extent of the outage and dispatch mobile command vehicles to rapidly establish an on-site presence.

Technologies like fault location and isolation devices minimize the duration and impact of power outages on our customers, and our employees worked around the clock to restore power to all of our impacted customers, generally within 24 hours.

On the gas side we addressed almost 6,000 customer calls regarding gas odors, leaks, and re-lights, and completed 2,500 courtesy gas safety checks in the following days. We also used our state-of-the-art leak detection vehicles to patrol more than 200 miles of gas transmission pipeline. Individuals in the communities we serve, as well as local and state officials, expressed significant appreciation for our concerted efforts following the earthquake. It's clear that the investments we've made over the past few years on both our electric and gas infrastructure really made a difference in Napa, as did the work we've been doing on emergency preparedness.

Shifting briefly to regulatory matters, Tony covered the General Rate Case and the pending gas investigations, as well as the current state of the Gas Transmission and Storage Rate Case. I'll just add that on September 30, the FERC accepted our transmission owner 16 rate case for our electric transmission business and suspended the rates until March 1, 2015, subject to refund. As a reminder, in that case we propose an ROE of 11.26% along with an increased revenue requirement as we continue to make investments in our electric transmission infrastructure. So, with that, I'll turn it over to Kent.

Thank you, Chris. I have a lot to cover this morning. First, I plan to go through our Q3 results which were significantly impacted by the final decision in our General Rate Case. I'll walk you through all of that, and then I plan to spend some time on our outlook going forward. I'll start on slide 5 with the overall results for Q3.

Earnings from operations for the quarter were $1.73 and GAAP results were $1.71. Before I get to earnings from operations, let me just quickly address the items impacting comparability. Natural gas matters totaled $0.03 negative for the quarter, and you can see from the table at the bottom, that was comprised of pipeline-related expenses of $108 million pretax, offset by insurance recoveries of $86 million during the quarter.

Back to the table at the top you will also see that we booked $0.01 positive in environmental-related costs for the quarter, a small pickup in connection with our efforts at Hinkley, which had been treated as an item impacting comparability in prior years.

Moving on to earnings from operations. Slide 6 shows the quarter-over-quarter comparison with last year. As I said, the 2014 General Rate Case was a big driver because we booked the year-to-date impact all in Q3 when we received the final decision. The first four items here relate primarily to the GRC, and they total $0.77. I'm going to go through each of them.

First, as a result of the GRC, our expense recovery increased $0.28 quarter-over-quarter. As you know, the past couple years we've been spending at levels higher than authorized across the utility to improve operations. This item represents the impact of now recovering this higher spending level for the first three quarters of this year. It also offsets the negative item you saw for GRC expense recovery in Q's one and two.

Second, we recorded earnings on a higher authorized rate base and this totaled $0.14. Again, this is the year-to-date impact all recorded in Q3.

Third, we had a positive $0.18 in the quarter resulting from tax benefits related to our federal tax deduction for repairs costs. As with one of the other California utilities, our General Rate Case decision authorized flow-through treatment of the federal repairs deduction. The $0.18 booked to this quarter reflects the fact that our estimate of this deduction has increased due to recent IRS guidance, as well as other factors affecting the size of the deduction. Again, we recorded the year-to-date impact of these benefits all in Q3.

Fourth, we had an additional $0.17 pick up, mainly related to the timing of taxes and other expenses. This item was driven by the delay in the General Rate Case decision, and unlike the first three items I've covered, we expect this one to reverse in Q4. So, those are the four components that are related primarily to the GRC decision.

As you see, we also had some smaller items in the quarter, another gain on Solar City stock, and a small pick up on some regulatory matters. There also was a host of miscellaneous items totaling $0.08 in the quarter; however, on a year-to-date basis, our miscellaneous items net to a negligible amount. And, finally, we had share dilution of $0.05 negative. That gets you to the $1.73. Suffice it to say, we had an unusual quarter with a lot going on, mostly related to the final decision in our General Rate Case.

Now I'd like to move on to our outlook going forward. The GRC decision resolved a lot of uncertainty for the Company for this year. Of course, the final outcome of the gas investigations is still pending and we anticipate the ultimate impact will be significant, but at this point in the year, it's unlikely to be a big driver of our average share count for 2014. Therefore, with the GRC resolved, we believe it now make sense to provide 2014 guidance for earnings from operations.

On slide 7, you'll see updates to some of our key assumptions underlying guidance such as CapEx and authorized rate base. These primarily reflect the changes we've previewed last quarter based on the proposed GRC decision, although we've made some other updates as well.

In the upper left you see we're assuming CapEx of roughly $5 billion this year, and in the upper right, weighted average authorized rate base of about $28 billion. There haven't been any changes in our assumptions regarding authorized return on equity and equity ratio, down in the lower left.

In terms of the other factors affecting earnings from operations this year, shown in the lower right, we previously indicated that these factors should roughly net to zero for the year. However, that was without the impact of the tax benefits associated with the repairs deduction. With these tax benefits included, we now believe that these factors taken together could result in an overall positive of roughly $0.25 per share for the year. By the way, we'd expect this impact to be fairly similar next year as well.

Turning to slide 8, you'll see that these assumptions lead us to provide a guidance range for earnings from operations in 2014 of between $3.45 and $3.55 per share. Again, the primary driver is the resolution of our General Rate Case, which provides us the opportunity to earn our authorized return on equity on a higher level of rate base in 2014. Additionally, we expect 2014 earnings from operations to reflect the impact of the tax benefits related to the repairs deductions, and the other factors covered on slide 7 which together should total roughly $0.25 this year.

Moving on to slide 9. You will see we've narrowed our 2014 guidance range for the item impacting comparability for natural gas matters to between $350 million and $400 million pretax. Our previous range was $350 million to $450 million. At this stage in the year we've tightened our range for PSEP expenses, we've also reduced and narrowed the range for non-PSEP expenses in part due to the delays we've experienced in clearing encroachments on our pipeline rights-of-way.

We've also narrowed our estimate of legal costs. As an aside, although our PSEP expense work for pressure testing is going well, we continue to find our PSEP capital work, mainly pipeline replacement, a challenge. We expect some of our PSEP capital work to be completed in 2015 rather than this year mainly due to permitting delays. We continue to work hard to manage a variety of cost pressures affecting our capital work.

On slide 10 you can see we've narrowed our estimate for 2014 equity issuance of between $800 million and $900 million, excluding resolution of the gas investigation. Our previous estimate was $800 million to $1 billion. We're bringing the estimate down a bit due to the net impact of the various items shown on this slide 10. During Q3 we issued about $160 million of common stock, and that brought us to about $760 million issued through the end of Q3.

We are not providing earnings guidance today for future years, but on slides 11 and 12 we have updated our guidance ranges for CapEx and rate base through 2016 to reflect the final decision in our General Rate Case as well as current expectations of other cases. As you can see, we expect to maintain a robust capital program into the future as we continue to replace aging infrastructure as well as overlay technology on the grid. Our total CapEx is expected to remain north of $5 billion annually during this period.

Our average rate base of about $28 billion in 2014 is expected to grow to more than $33 billion in 2016, and that represents a CAGR in the 9% range. I think that's it for the financials. So I'm going to stop here and we will open it up for your questions.

(Operator Instructions)

Dan Eggers with Credit Suisse.

Hello. Good morning.

Good morning, Dan.

I know that we're not getting into the 2015 guidance, and there's a lot that has to happen before then. But is it still fair to assume with the GTS perspective delays that you remain confident earning your allowed ROEs at both the utilities and the gas businesses next year, or is that a little more in question at this moment?

That's still our objective for 2015, yes.

And then the timing of equity, the $800 million-$900 million for this year, that is adjusted to assume no additional resolution on the San Bruno expenses or fines between now and year end, is that correct?

Well, our previous guidance on equity issuance actually did not include resolution of the San Bruno penalty. It's mainly adjusted for the items we've shown on slide 10. So we do have slightly lower CapEx, just mainly given the timing of the General Rate Case. Some CapEx we'll probably see next year as compared to this year. And remember, our original guidance for equity issuance was based on the midpoint of our prior CapEx range. And the range we're providing now is somewhat lower for 2014.

We also have somewhat lower unrecovered gas costs. I just went through our guidance there for the unrecovered gas costs coming down slightly. We did get a depreciation rate change -- not what we asked for in the General Rate Case, but some improvement in depreciation rate.

And then on the other hand, somewhat mitigating that was the GRC decision was delayed. So we've gotten less cash now through revenues this year as compared to what we had originally contemplated. So the net of all that is to bring down the upper end of the range a bit.

Okay. And then I guess just on the intervenors last night with their comments on the POD. There did not seem to be a huge amount of debate ultimately on the total amount of money they would like for you to hand over. What do you see as kind of the next steps from here? And if the number ends up coming out where the POD recommended, how are you evaluating kind of legal recourses, next steps, given the significant penalties associated?

Well, obviously, we've got to see the numbers. We, yesterday, filed additional comments objecting to pieces of the decision. But quite honestly, on the flip side, there is some benefit to getting finality and getting things done. So the way we've been playing it is we'll take a look at the totality of the circumstances when we get that decision, and then have to decide whether we want to appeal pieces of it or whether we just try and move on from there.

Okay. Thank you.

Julien Dumoulin-Smith with UBS.

Hello. Good morning.

Good morning.

First question. If you could clarify just a little bit. Is the 2015 -- I don't want to use the word guidance -- but the view on taxes, shall we say. Can you break that out a little bit more granularly in terms of what the $0.25 is comprised of? And then subsequently, not to read too far further, but 2016 as well -- is their an expectation for that as well, just given the timeline associated with the rate cases?

Hi, Julien. This is Kent.

The $0.25 that I provided on the call, the roughly $0.25, is for the combination of all the factors that are listed on slide 7, those other factors affecting earnings from operations. But the big change from last quarter are the tax benefits. The tax benefits, we do see them being triggered by the outcome of the General Rate Case. And so we do see them existing through the rate case period, so that's through 2016. We haven't broken down the other items for you previously, and I don't intend to at this point in the year either.

I'm not providing a specific number for next year. But I was indicating that we saw it of a similar order of magnitude for next year.

But no necessary composition, shall we say?

No. I don't think it makes sense. We really need to see what those other factors are going to look like next year on that slide. And the tax benefits again, similar order of magnitude next year as this year.

Great. And then secondly, just a little different. On the transmission ROE front, you provided some commentary here briefly in the slides. Can you elaborate a little bit? What kind of ROE should we be thinking about going forward, coming out of this?

Well, Julien, our guidance for this year was assuming essentially, on average for our whole business, 10.4. As Chris indicated, we've requested a higher amount from the FERC in our TO16 filing, 11.26. We have to see how that case proceeds. But, in general, I would expect when we do get around to providing guidance for next year, I would say overall for our Company, assuming something around 10.4 probably makes sense. We don't know how the FERC stuff is going to come out. It's still early in that process.

Okay. So, you're not reading necessarily out of the FERC decision in the last quarter any the new changes to the request that you put in? That's really what I was getting at.

Not at this point.

Okay. All right. Great. Thank you.

Jonathan Arnold with Deutsche Bank.

Good morning.

Good morning, Jonathan

Couple of questions on the rate base and CapEx numbers. First, I was just curious. Versus last quarter's numbers, the generation rate base seemed to have kicked up $200 million in 2014. Any explanation sort of what drove that? I thought the number last quarter was kind of what you were expecting from the GRC.

Yes, Jonathan. This is Kent.

You're right. It is a bit different. I think one of the factors there was we had some adjustments related to our utility-owned (inaudible). So that program is kind of completed. But we had to true up some numbers in that. Otherwise, we did not see any significant changes in our overall results.

Okay. Thank you.

My second one. If I look at the rate base forecast, the CapEx forecast, the CapEx obviously a little bit lower this year. But then it's $400 million or $500 million higher at the midpoint versus the GRC midpoint from the last quarter slides in both 2015 and 2016. And yet your rate base forecast is essentially unchanged, a tiny bit higher in 2016.

So you seem to be spending $0.5 billion more of CapEx each year, but ending up in the same place on rate base. Can you explain what's going on there?

Yes, Jonathan. This is Dinyar.

We're actually a little lower on CapEx in 2014 because of the delay in the General Rate Case. And also, the way that the attrition revenues come out, they don't result in kind of like an even CapEx program. But the way we spend our capital is a little more even. So that's what's causing that phenomenon that you're seeing.

Why would that be a change versus what you showed us last quarter for that GRC estimate?

Well, last quarter what we showed you is what the CapEx would have been implied by the General Rate Case decision. So it would have been really tracking whatever the revenues that were implied in the GRC. Whereas here, we're showing you what we think our CapEx spending profile is going to be. So over the three-year rate case cycle, they should be pretty much the same. It's just that in each year, they look a little different.

So is it essentially the kind of delay effectively compounds a little into the future?

Yes.

Okay. Great. Thank you, Dinyar.

Michael Lapides with Goldman Sachs.

Hello, Dinyar and Kent.

I want to follow on John's question a little bit. Because if I just look at it on a cumulative basis -- and I'm comparing slide 10 from your last quarter's deck to slide 11 of today's deck. The total CapEx number, if I just kind of sum it up, is actually a higher number in today's deck than it was in slide 10. That would almost make it seem like rate base by the end of the period would be a higher number -- unless there's some other offset, like DNA or maybe an assumption around bonus or higher add set.

I just want to make sure I understand that. It's one thing if it's lower in 2014 and higher in 2016. But if I just do the sum of the three, it seems like it's a higher number in terms of the total CapEx over the three-year period. And yet the rate base number isn't up by nearly the same amount.

Well, Michael, we actually recalculated our rate base based on the GRC and all of the other factors in there. And one of the things we did do is we did kind of re-look at our deferred taxes as well. So that is a component of the adjustments.

We can go over it in more detail. But essentially the way to think about it is that what we showed previously is what would have been implied by the GRC PD, but we didn't adjust for anything else. And this time around, we've pretty much looked at the totality of the things that we see coming up and we've made those changes.

Got it. Okay. I'll follow up offline. Thank you. Much appreciate it and congrats on a good quarter.

Thanks.

Hugh Wynne with Sanford Bernstein.

Hello, thank you.

Hopefully we'll get the main San Bruno penalty resolved soon. But there are still kind of reverberations in the coming years, and I wanted to try to get a little bit of clarity on those. Is there any update on the Federal case that was brought by the US attorney?

Let me ask Hyun Park to comment on that, our General Counsel.

There is really not much update. We have a status conference that is scheduled for November 13. And at that status conference, we may get a better sense of the schedule for the case going forward.

Okay. Have you been notified of any legal action related to the ex parte communications?

We're aware that both the US Attorney's Office and the California Attorney General's Office are investigating the circumstances. I said we're fully cooperating with both those investigations.

Okay. Could you just update us briefly on the extent of delay in the GT&S case that you expect as a result of the ex parte?

We can't speculate on the extent of the delay. We did get a new administrative law judge in the case. But the case had not gone to the formal hearings yet. So we're early on in the process. I don't know if we have any further information on the exact dates, but I think we expect that shortly we'll get a schedule.

Okay. And then a final question. On the PSEP expenditures, do you have any estimates of what we would be looking at? Well, I shouldn't say PSEP, but unrecovered expenditures related to the gas work? Do you have any estimates of what we would be looking at next year?

Hugh, this is Kent.

Really, the item that we have talked about continuing into next year and frankly through 2017 is the costs associated with our efforts to clear our rights-of-way. We do anticipate that we'll have some continuing legal costs. Obviously, these proceedings have gone on for some time.

And then the significant question mark is really sort of the outcome of the fines and penalties part of it for the natural gas matters because it's looking like those could be booked beyond this year, too. It just depends on the timing.

Okay. And just on the rights-of-way, what's your latest view in terms of outlays?

Chris, do you want to-- ?

Yes. We continue to move forward with that program. And really, we're in the same position that we were in the second quarter when we said that we don't anticipate exceeding the $500 million number that we've given. There are some timing issues that we've got right now, but we still anticipate being able to complete the plan on our original schedule.

Okay. Thanks very much.

Hugh, I just want to make one correction. I said November 13 for the status conference. It's actually November 3.

Great. Thank you.

Kit Konolige with BGC.

Good morning.

Do you have any sense if the Commission feels that they should await a replacement for President Peevey before making decisions in either -- well, obviously there will be a replacement before the GTNS case, but before the San Bruno issues are resolved?

Well, from a legal standpoint, the Commission can make a decision with the three commissioners. They need a majority vote, so two commissioners can vote out a case. We have no indication that they're going to wait until they get a replacement.

And has there been any discussion publicly of who the new commissioner might be appointed to replace Peevey and/or if the Governor would be interested in any of the current commissioners as the new president? Or would we expect the president and a replacement to be named at the same time?

Again, from a legal standpoint, the Governor can select one of the sitting commissioners and name him or her Chair. But we're just not going to speculate on who might be the replacements.

Okay. And one final question on financing.

Kent, can you give us any sense of the timing of equity issuance over the rest of this year and then into next year? I assume it's dependent on the outcome of several of these cases. Can you give us a sense of how much is dependent on what?

Kit, for this year, we've issued $760 million through the end of the third quarter. So I would anticipate, putting aside the resolution of the gas investigations, that we would just rely on our internal programs for the remainder of the year in order to achieve our range of $800 million to $900 million. We're pretty far along in that program for this year.

The uncertainty really is the timing and the form of the resolution of the gas investigations. And as we've previously talked about, depending upon the variety of how that can play out, the timing and the form of our financing can be very, very different. And so we're just going to have to see if the Presiding Officer decision is voted out or something different.

Very good. Okay. Thank you.

Paul Patterson with Glenrock Associates.

Hello, can you hear me?

We can, Paul.

I just sort of wanted to follow up on that. One of the transmission pipeline operations proposed deadline extension. A lot of the issues that they sort of mentioned there would seem to maybe apply to San Bruno. When do you think we might get more clarity as to what they might do with respect to the review process? And just in general, do we have any other sense about how the San Bruno case itself might -- with the timing associated with that?

Paul, could you clarify what you're talking about in terms of the San Bruno case? All of the material has now been submitted by the parties, so it's ripe for a decision.

Right, I understand that. But it seems like there were two commissioners who have recused themselves. You have a couple of the commissioners asking for reviews, right? I'm just wondering whether or not that might lead to more of a delay, or if you think that that won't have an impact?

The requests there are around alternate decisions. And that's a fairly normal process. Commissioners can, in fact, propose alternatives. And the Commission generally works through those. Whether it's days, weeks, or longer, it's hard to speculate.

But I think the Commission generally, when they get to this stage, moves along pretty quickly. But we can't predict how long it's going to be.

Okay. I just wanted to follow up on that because it's a little unusual -- just the case itself.

Okay, and then just in terms of the ex parte and all that stuff, is my understanding correct that you have done your internal review subject to pretty much all the proceedings that you have going on at CPUC. And at least your self-investigation is over, and we're not going to probably hear much more from that at least?

We've reviewed a huge number of email communications focusing on those between PG&E and the Commission because that's where you'd have an ex parte communication. But as I said before, there are investigations underway. We're cooperating with those investigations. And it's likely we're going to have to undertake additional reviews that would be necessary in the context of those investigations. So I can't say we're not reviewing any further emails. It's going to take some time to get through that full resolution as we work through those investigations.

I can say in the meantime we've taken the appropriate actions to self-report all the violations that we've identified. We've held people accountable, and we're working to create a best-in-class regulatory compliance program so we don't have incidents of this kind in the future.

I am sure you are, Tony. I guess what I was wondering was -- in other words, the investigation continues insofar as your cooperation with these other investigations that are going on. Or are you guys having a separate internal investigation that's continuing with respect to the CPUC interaction?

I think the way I'd characterize it is what we're looking at is trying to stay ahead of those investigations. You don't want to be surprised and either in direct response or drawing some conclusions about where those questions may come. That's what we're looking at largely.

Okay. Great. I really appreciate it. Thanks a lot.

Travis Miller with Morningstar.

Thanks.

I want to go back to the $0.77 to catch up from the GRC. How much of that was third quarter such that we get a real comp against the $0.88? We see that kind of year-over-year impact in terms of the appreciation from the GRC decision?

This is Dinyar.

I think the best way to think about it -- let's go through each of those components. The first one, the 2014 GRC expense recovery, that is a three quarter catch-up. So that is really four three quarters' worth. So we should expect to see one more quarter of that in Q4. And again, the way to think about this is that this represents overspending that we were doing in previous years to improve operations. And so it's just getting revenues to recover those costs. I will say embedded in that $0.28 is about $0.08 worth of previously kind of like a timing delay from the previous two quarters, as Kent mentioned. So if you look at it, it's on a year-to-date basis, $0.21.

The next item, the growth in rate base earnings, again that's a three quarters catch-up. So you can expect to see one more quarter of that next quarter. Similarly with the tax benefit of the $0.18.

On the $0.17, as Kent said, of timing of taxes and other expenses, we expect that to fully reverse in Q4. But that would be the way to think of each of those components.

And are each of these components just about evenly spread, such that we could take say the $0.28 net of that $0.08 adjustment and divide it by 3 to get an idea of what Q4 would be and to get an idea of what year-over-year third quarter was?

That's true for the second and third component. The first one, remember, we actually had some under recovery in Q1 and Q2. So the way to think about the first one, the $0.28, is that is $0.21 on a year-to-date basis.

Okay. Great.

And then with the FERC proposal TO16. Given we've had the case from New England and the MISO thoughts at least from FERC, what's you're thinking now regarding 2016? What's the nature of the conversations now that we have some more recent -- I don't want to say precedent -- but certainly, thoughts from the FERC?

This is Kent, Travis.

I view it as still fairly early on in the FERC process. I think there's been a reasonably encouraging trend at the FERC. And certainly with the New England case, it seems as if the FERC is open to not applying the DCF model so mechanically. There is an acknowledgment that there are shortcomings. And there are always anomalies in the market and those need to be considered.

And so there's an overall sort of question about reasonableness, and I think that's really healthy. And I hope we're going to end up with more reasonable outcomes going forward. But we haven't gone through our case, and we haven't seen a lot of cases yet post these developments at the FERC. So we'll see how that goes.

Okay. Did you use the DCF -- primarily [1126]?

We do use the DCF in our analysis.

Okay, great. Thanks so much for the help.

Rajeev Lalwani with Morgan Stanley.

Thank you.

A couple of questions. As it relates to the tax benefits that you're seeing in 2014, and you pointed to them showing up into 2015. Will they continue into 2016, or is it just going through 2015?

This is Kent, Rajeev.

Yes, we do expect that the tax benefits will continue through this General Rate Case cycle, which is through 2016.

Okay. And would the amount be similar to what you noted in 2015 for 2016?

I would say kind of on an order of magnitude, but I wouldn't want to get more precise than that at this point.

And then, Kent, another question for you.

As it relates to providing an updated, longer-term financial outlook, what are you envisioning once you're hopefully done with the investigation on San Bruno and the penalties, et cetera, as well as maybe the GTNS case?

I continue to believe that the key milestone for us is the resolution of the San Bruno penalties. And so that's really the milestone that I'm looking for before I would consider doing more of a longer-term outlook at this point.

Okay, and just one last question.

Tough to ask in the complexity of the issue, but as it relates to the proposed decision on the ex parte issue, does that cover just what you disclosed on the GTNS side? Or does it cover all emails that you disclosed in ex parte communications, if that makes sense?

Yes, and the administrative law judge made it clear the focus of that was just the GTNS issues. I think we submitted the second round of issues just right before the hearing in that case. So they kept that segregated. We don't know what they're going to do with the other filing.

Okay. So no idea on timeline, et cetera, as it relates to resolving that aspect?

We don't have any timeline on that.

Okay. Thank you, gentlemen.

Anthony Crowdell with Jefferies.

Hello. Good morning.

When you look at 2015 CapEx, it's a pretty tight range, $5.4 billion to $5.6 billion. Is there a way you could give us the equity issuance forecast for 2015, as you gave us for 2014, which does not reflect the resolution of the gas investigation since it's a pretty tight range? And if you just exclude the gas investigation, what you think the equity needs would be?

Anthony, this is Kent.

We're not at the stage of for giving equity issuance for 2015. But I would point you to something we have been suggesting to people as sort of a shorthand way of understanding the underlying equity needs resulting from our rate base growth. And that is to look at our year-over-year growth in rate base, and taking that difference and looking at 52% of it. That's the amount that needs to be financed with equity.

You'd want to take away from that the fact that we retain some of our earnings. So you'd want to look at our earnings less the dividends for that year. And what remains after you net that amount is generally the equity that needs to be raised externally. And so that gives you a good ballpark estimate when you look year over year.

Does that exclude then -- that calculation -- you don't really then include any benefit from deferred taxes, right?

Well, it does essentially because of the rate base figure reflects changes in deferred taxes. I think implicitly it's in there's, so it's just an easier approach to take. The other thing to just keep in mind is whatever unrecovered costs we have, that's usually the other increment of equity needs.

Great. Thank you.

Ashar Khan with Visium.

Good morning.

Kent, so I understand, you came up with the guidance range. And from that you are saying that $0.25 of it is related to certain tax matters primarily and others. But that $0.25, or roughly approximate to that, would remain there for 2014, 2015, and 2016 through this rate case cycle?

Yes, I indicated a similar order of magnitude for the tax piece in 2015 and 2016. On slide 7, however, we show a number of factors that in 2014 are affecting earnings from operations. Those will change year over year. And so you'd want to look at those as well and make your own assessment.

Is there anything in one of those that reverses itself? Because it seems like the way you went over them was basically a majority of them were relating to picking things up on the GRC, which seems to be a normal part of picking up the rate case.

Some of the other factors that are shown in the bottom right part of slide 7 include under earning on our Gas Transmission and Storage business, which we hope to address through the GTNS case. We also have the monetizing of the shares of Solar City. And to date, we've done about two-thirds of those shares this year. So you shouldn't expect that that continues at the same pace in subsequent years.

Those are just some examples of how some of these items will change year over year.

Okay. Okay. There enough. I appreciate it thank you.

Thanks, Ashar.

Jonathan Arnold with Deutsche Bank.

Thank you.

Kent, sorry, just a bit on the same topic. I just want to clarify. Previously you've said that you were not asking for recovery of about $50 million of annual expense in the GTNS and that you would hope to be able to offset that. Is the $0.25 part of how you offset that under earning, or is the $0.25 net of that starting point?

Well, let me just unpack that a little bit.

Again, what I'm saying for 2014 is all of those factors in the lower right, on average, should be roughly $0.25 for this year. I think you know that last quarter we had a guidance for those factors of roughly net to zero. Your conclusion is that the tax benefits are the main driver there of that $0.25, and I think that's reasonable. I've also indicated that in subsequent years, 2015 and 2016, the magnitude of the tax benefits will be comparable, similar order of magnitude. And so I'm tracking with you to that point.

I do agree that we have not requested all of our costs in the Gas Transmission and Storage case. and your estimate of roughly $50 million is reasonable to me as well. I think it follows that the tax benefits could offset that amount. But there are a lot of other items in our financial results that could also offset it. So I would not just necessarily pair those, but I think that's a reasonable way to think about it.

Asking slightly differently, are you intending to offset that $50-odd million of unrecovered expense absent tax benefits?

Yes, I mean we'd like to overall be able to earn or (inaudible) return the tax benefits we would like to have as an increment. But we still haven't actually gotten through the Gas Transmission and Storage case.

Perfect. Okay. Thank you for the clarification.

Thanks Jonathan.

Andy Levi with Avon Capital.

Hello. Good morning. I thought I was clear on this tax thing, but now actually I have a question. So just to ask the question another way. So really all year you were saying that 2015, you should be able to earn your allowed return and whether you do or not we'll see and I have faith that you will be able to, but when you said that earlier in the year, did it contemplate this tax benefit from the repairs method?

Andy, I don't know if it did are not at this point. The tax benefit is a fairly recent development, so probably not. I guess you guys are asking similar questions multiple ways and to me it's pushing me more and more toward sort of guidance of earnings and I'd like to sort of leave things the way I've said them to date which is that we would expect that the benefit from the taxes going forward should be roughly comparable to this year and the next couple years, and that we do still hope to earn our overall authorized return for the company.

Okay, and let me just follow up so again ask it one other way just to torture you. So it doesn't matter what the number was. Let's say I assumed $3 in earnings for next year. It doesn't matter whether that's correct or incorrect, and it had not contemplated this tax benefit. I would just basically add that to whatever number I thought it was because it's incremental to whatever that number is. Is that kind of the way to think about it?

The tax benefit is a significant change from last quarter on the list of the other factors that are on slide 7.

Okay. I think I got it now. Thank you.

[Jessie Lauden] with Nexus Asset Management.

Hi, guys. It's actually Craig Lucas. How are you?

Hi, Craig.

I just want to ask a question about this ex parte communication issue. I'm sorry if it's redundant, I apologize for that, but I just want to be sure about something. So, right now the case centers around the GTS case and the ex parte communication there and that's because it was only really there and regarding the gas pressure issue that you found any ex parte communication when you reviewed all the emails, is that correct?

That's correct. We've reported all the ex parte communications that we've discovered in our review.

Okay. Thank you very much. Appreciate it.

Thank you. There are currently no additional questions waiting from the phone lines.

Okay. If that's the case, thank you all for your interest and for joining us this morning.