PG&E Corp (PCG) 2016 Q1 法說會逐字稿

Good morning and welcome to the PG&E Corporation first-quarter 2016 earnings conference call.

(Operator Instructions)

At this time I'd like to introduce your host, Ms. Janet Loduca of PG&E. Thank you and enjoy your conference. You may proceed, Ms. Loduca.

Thank you, Jackie. And thanks to those of you on the phone for joining us this morning.

Before I turn it over to Tony Earley, I want to remind you that our discussion today will include forward-looking statements about our outlook for future financial results, which is 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 our quarterly report on Form 10-Q that will be filed with the SEC later today, and the discussion of risk factors that appears there and in the 2015 annual report.

With that I'll hand it over to Tony.

Thank you, Janet, and good morning, everyone. I've got some opening remarks and then I'll turn it over to Jason to review our financial results for the quarter.

We continue to believe that the three key focus areas shown on slide 3 are the foundation for long-term operational and financial success. I will also cover some of our near-term challenges later in some of my remarks but I do want to touch on some of the fundamental drivers of growth first.

Let me start with an update on how we are positioning ourselves for a clean enemy economy and the growth that it will make possible. As you know, California has some of the most ambitious greenhouse gas emissions reduction goals in the country, and we are helping the state to achieve those goals. First, as we plan for a 50% renewable portfolio standard, we're building additional flexibility into our contracts to effectively respond to changing market conditions.

We've also begun our second round of energy storage solicitations, targeting nearly 600 megawatts of storage by 2024 to help manage intermittency of renewables. In March we reached a settlement with many of the parties engaged in our electric vehicle charging infrastructure proposal, which is critical to enable the levels of EV adoption the state is targeting over the next decade. We are hopeful the Commission will approve the settlement later this summer. And, finally, as the uses of our energy grid now grow and evolve, we continue to invest in new technologies and equipment to enable distributed energy resources, and we are actively engaged with other stakeholders to shape future policies.

Turning to customer expectations, our recent JD Power survey results show that we have made significant progress with our gas and electric business customers, with the largest year-over-year increase in customer satisfaction in almost a decade. These results reflect concerted efforts to improve the customer experience through ongoing safety and reliability investments.

The El Nino storms this winter were good news and bad news. On the positive side, given all the precipitation we've had, we expect hydro production this year to be closer to normal compared with just 50% of normal last year. However, the increased storms also negatively impacted our electric reliability during the quarter.

Nevertheless, we continue to show very strong emergency response performance on both the gas and electric sides of the business. And our teams are working to get our reliability back on track for the remainder of the year.

We also continue to focus on reducing the number of third-party dig-ins on our gas lines. As you know, third-party dig-ins pose a significant public safety risk and are completely preventable through the free 800 Call Before You Dig service. The significant steps we've taken to raise public awareness on this issue were recently recognized by the Common Ground Alliance, and our efforts have resulted in industry-leading performance.

In April we announced that PG&E entered into an agreement with TransCanyon LLC, a joint venture between subsidiaries of Berkshire Hathaway Energy and Pinnacle West. The agreement with TransCanyon allows us to jointly pursue competitive electric transmission projects throughout the California ISO footprint. We look forward to leveraging our collective experience and resources to explore future opportunities.

Last week we had a development in the Butte fire when CAL FIRE issued its investigation report. The CAL FIRE report concluded that the fire was caused by a tree coming into contact with one of our lines, consistent with what had been reported in the press earlier.

First, let me say that our thoughts and prayers continue to be with the victims and communities who suffered losses as a result of that fire and all of the devastating fires across California last summer. We also want to thank CAL FIRE and other first responders, including our own, for their heroic efforts in responding to all of those fires.

We continue to believe we have one of the best vegetation management programs in the industry and disagree with the report's conclusion that our practices fell short. To give you a sense of the magnitude of our program, every year our certified arborists and registered professional foresters monitor nearly 50 million trees across our service territory, and we remove more than 1 million trees each year. We use some of the most sophisticated technology that I've seen in my career for this program. Jason will review the financial impact of the Butte fire in just a minute.

And, finally, I want to provide a few regulatory and legal updates. I'll start with the 2015 gas transmission and storage rate case, which I know is top of mind for many of us. Although we had hoped to receive a proposed decision in the first quarter of this year we're still waiting for that to be issued. As Jason will discuss, our quarterly financial results will continue to be impacted until we receive a final decision.

In the 2017 general rate case, we were really gratified to receive a report from the safety enforcement division recognizing our risk management practices as industry-leading. The SED report found that PG&E's risk assessment approach provides greater transparency and successfully maps risk outcomes to requested expenditures, meeting the Commission's goal of moving safety to a fundamental consideration in the case. The SED report also acknowledged the value of the third-party certifications we received in our gas asset management programs.

In April we also received testimony from the other parties in the case which recommended reductions to our request. Obviously, we disagree with those proposed reductions and will be filing our response later this month.

In the gas distribution record-keeping investigation, we received penalty recommendations from both the safety and enforcement division and the city of Carmel. Fundamentally we do not believe that any of the penalties are warranted in the case; however, our response noted that if the CPUC decides to issue a penalty we believe it should not exceed $33.6 million, and should be applied towards future spending rather than taking the form of a fine. At this point the record is complete and we're awaiting a decision from the Commission.

I also want to provide a brief update on the criminal case. We continue to believe that the charges do not have any merit. While we have acknowledge that we have made mistakes in the past, we simply haven't seen any evidence to indicate that PG&E employees knowingly and willfully violated the law.

We're anxious to get the case underway, but just two weeks before the trial was scheduled to begin the government finally provided us with more than 100,000 pages of documents that we have been requesting for more than a year. To insure we could thoroughly review all of this material, we were compelled to ask the court for a delay. We're scheduled to go back before the court tomorrow to provide an update on our review of the documents and we hope to get a reasonable new trial date at that time.

So, to sum things up, while we continue to work through some of the outstanding regulatory and legal issues, we are well-positioned for growth as we support California's clean energy future.

With that I'll hand it over to Jason to review the financials.

Thank you, Tony, and good morning, everyone. I'll begin by covering the first-quarter results and then quickly review the 2016 outlook.

Slide 5 shows our results for the first quarter. Earnings from operations came in at $0.82. GAAP earnings, including the items impacting comparability, are also shown here. The pre-tax numbers for the items impacting comparability are at the bottom of the page.

Pipeline related expenses came in at $22 million pretax in Q1. Our legal and regulatory related expenses were $17 million pretax for the quarter. And fines and penalties were $87 million pretax. As a reminder, this amount represents our estimate of the disallowed capital work coming out of the final San Bruno penalty decision which we are accruing as we complete the work.

Our results for the first quarter are including new items impacting comparability for costs related to the Butte fire. Based on the CAL FIRE report, we have taken a charge for $381 million pretax for the first quarter.

As background, California has a theory of inverse condemnation under which utilities may be liable for property damages without a finding of negligence when a power line is involved in a fire. The charge we have taken includes $350 million to reflect the low end of a range for property damage, and an additional $31 million for other costs related to the fire. At this point we are not able to estimate the upper end of the range.

We do carry liability insurance for claims like these so we would expect to be able to recover a significant portion of those costs through insurance in the future. And we would show the insurance recoveries as an offsetting positive item impacting comparability in future periods as they are recorded. Finally, it is important to note that the $381 million does not include an accrual for any fire suppression or personal injury damages, both of which would require a showing of negligence.

Slide 6 shows the quarter-over-quarter comparison from earnings from operations of $0.87 in Q1 last year and $0.82 in Q1 this year. The largest item relates to the timing of taxes during the quarter, which was $0.08 negative. GAAP accounting requires us to smooth the impact of taxes across the quarters, even as income fluctuates. This is purely a timing item that will reverse by year end.

In the first quarter of 2015 we completed our disposition of the SolarCity shares. We did not have that item this quarter, resulting in $0.03 negative. And issuing additional shares also resulted in $0.03 negative.

These negative drivers were partially offset by growth in rate-based earnings, which was $0.05 positive for the quarter. This item reflects assets covered by our general rate case and our electric transmission [tia] rate case. It does not include the gas transmission rate case since we do not yet have a decision. At this point we would not expect a final decision in the first phase of the case until at least mid year.

So, while the timing should not affect our annual earnings from operations in 2016, it will continue to have an impact on our cash flows and quarterly results, as you saw last year. And, finally, we had $0.04 of smaller positive miscellaneous items that impacted the quarter.

Today we are reaffirming our guidance for earnings from operations of $3.65 to $3.85 per share. And that is shown on slide 7. The underlying assumptions for earnings from operations remain the same as what we provided last quarter, so I will just quickly cover the highlights.

On slide 8 we continue to assume capital expenditures of roughly $5.6 billion and a weighted average authorized rate base of about $32.6 billion for the year. On the bottom right, I want to reiterate a key assumption to our guidance, which is that we receive a reasonable outcome in the gas transmission rate case this year.

Turning to slide 9, the guidance for the items impacting comparability has been updated to include the Butte fire related costs. The other items impacting comparability are unchanged from last quarter. Our guidance for the year for the Butte fire related costs reflects the Q1 charge of $381 million, which is the low end of the range for property damages plus some other fire related costs. As I mentioned, we are not able to estimate the high end of the range at this time.

As shown at the bottom of the slide, the current range for items impacting comparability in 2016 is right about $1 billion. And, as a reminder, this range excludes any potential future fines or penalties beyond our estimates of the disallowed capital and expense costs associated with the San Bruno penalty.

On slide 10 we continue to assume equity issuance of $600 million to $800 million in 2016. During the first quarter we issued about $150 million in equity through our internal and dribble programs. As a reminder, the range reflects a number of assumptions including the timing and amount of revenues we received in the gas transmission rate base. The charge for the Butte fire results in roughly $100 million in new equity needs this year, which puts us towards the high end of our range.

And, finally, on slides 11 and 12, we are reaffirming the CapEx and rate-based ranges through 2019. To conclude, we continue to have a strong growth profile supported by California's long-term policy objectives. We are confident in our ability to execute on our operational plans as we continue to work through outstanding regulatory and legal issues.

With that let's open up the lines for questions.

(Operator Instructions)

Stephen Byrd, Morgan Stanley.

Hi, good morning I wanted to dig into the status of the efforts underway to create an integrated Western grid. We obviously follow with interest your joint venture. But more broadly it seems like there is a lot underway in terms of trying to move towards that overall goal. We have been trying to follow the procedural steps there. But at a high level can you give us a sense where that is headed? Is there any contentious issues or sticking points in terms of trying to move forward towards the concept of a more integrated Western grid?

Hi, Stephen. This is Geisha Williams. We are very supportive of the Energy Imbalance Market and also CAL-ISO's efforts to really have a more regional, larger footprint. There's a lot of discussion going on. Good progress has been made already with the EIM, or the Energy Imbalance Market. And a lot of discussion is occurring right now in terms of looking at beyond the energy imbalance market of what it would take to actually have a broader market, a broader area.

We support it for lots of reasons, not the least of which is we believe that it will enable CAL-ISO to really dispatch lower-cost renewables, really take advantage of the load diversity and supply diversity that really is in existence in the Western area. So, we're optimistic and very supportive of their efforts.

Great. And, Geisha, any particular elements of pushback? It seems like there are a number of benefits to having a more integrated grid. Are there any negatives or issues that have been raised that could potentially be sticking points?

I think that there could be. One of the issues is who governs this broad regional area. Right now the CAL-ISO is really focused on California, so the membership of the board are Californians appointed by the governor of California. As we look at a broader market, it will be interesting to see what the makeup of that board would be, what the representation would be from other states, and what the implications might therefore be on California.

One of the things that will create a bit of a sticking point will be that the rates of California not be increased as a result of a broader market. These are going to be some of the issues that are going to have to be resolved.

That's helpful. And if I could shift gears quickly to energy storage. You have taken a lot of proactive steps in building that out. One item of feedback we get is that, obviously as costs drop volumes in terms of installation, could go up. At a high level, could you speak to what you think would be necessary to have an even broader deployment of storage? Are there certain milepost levels in terms of overall cost that you would see? Or is this more just a gradual adoption plan in the state?

California, again, is leading in this area. And of course, you know about the RFO storage mandate we have in place where for PG&E we will be putting in place 580 megawatts of storage between now and 2024. We had our first solicitation in December of 2014. We announced who the winners of that solicitation were this year and now we are awaiting approval. We're going to have yet another solicitation at the end of this year for an additional 120 megawatts.

We are seeing great participation from the storage market, which is very good news. We think it's an emerging technology, a lot of investment from many different companies around the world. And we are hopeful that just as we saw declining prices on distributed generation or solar panels, that we will similarly see improved cost, if you will, on the storage side. But it's early days and I think the market is still evolving. We are watching it and hopeful that, again, as more and more storage comes online, that, in fact, we will see better pricing in the future.

Understood. And if you did see significant cost reductions in storage, could there be a step-change upward in terms of the amount of storage you would ideally want to employ?

We believe storage is a critical part of integrating renewables. So, we are very active in the market, looking at our own ownership as well as contracting with third parties. But, again, it depends on the economics, it depends on what types of changes we see in the future. Again, we are hopeful and are always in discussions with folks about what could potentially work. But, again, it's like looking in a crystal ball, I can't really speculate on what prices might be and what our actions might be in relation to those prices.

Understood. Thank you very much.

Greg Gordon, Evercore ISI.

Good morning I know you have articulated that it's your aspiration to take some action on the dividend and give investors a vision for what you see as the long-term total return profile for the investment after we get through these last few milestones. Is it fair for me, or am I putting words in your mouth, to say the GT&S case and the criminal proceedings are the last two major issues we need to resolve before you feel comfortable articulating that outlook?

Greg, first of all, we have made good progress internally on our discussions about the dividend. I feel good about it. Recall at the last quarterly earnings report I said it's my objective to be able to publicly state our policy this year. Obviously, you've got to be sensitive to all the other things that are going on. So, I wouldn't call the things you mention as things that have to get behind us but they have to be in the right place in order to make a decision.

I will tell you that the Butte fire, we are just in the early stages of analyzing what the impacts are and we've got to just figure that out. I don't see that it will in the long run impact our ability at all for a dividend, but you just have to be sensitive. You've got to make you've got all those things lined up when you make that announcement.

Okay, thanks. And on the Butte fire, I know you increased your assumed equity issuance needs, within the guidance range of course, as a function of that. But if you ultimately are covered by your insurance policies, is it actually necessary to equitize those costs?

Hi, Greg, it's Jason Wells. No, over the long term it wouldn't be. But there may be a timing difference between the recognition for the cost associated with the Butte fire and the receipt of the insurance proceeds. Over the long term, though, there would not be a need to equitize those amounts, but there may be a short-term financing need.

Okay, thank you, gentlemen.

Steve Fleishman, Wolfe Research.

Just to follow up on that topic, would it be fair to say it's still something that could be addressed in 2016?

That's my goal.

Okay. And then a question on the criminal case -- you mentioned the document dump and that you will be responding tomorrow, I think, to the court. Just curious if you could -- and maybe we could get this tomorrow -- but were there a lot of documents in there that, would you say, better support your case? And obviously, better -- it sounds like it supports your comment that you remade that there is no evidence of any purposeful negligence.

Just a couple comments. One, the fact we got 100,000 pages of documents dumped on us two weeks before the trial is quite remarkable. The hearing tomorrow is just to report on going through those documents. You have to go through them one by -- somebody's got to read all the documents. They were not given to us in a form that you could do any automated reading of them, so somebody's got to put eyeballs on them, and it takes awhile to do that. And, yes, we are finding documents that are very helpful to our case.

Okay, great. And then, I think just on the Butte fire issue, could you maybe just go through once again the different areas of potential exposures that we need to think about? You mentioned you have taken this reserve for property damage but then what are the other areas that are not estimatable that you haven't reserved and how we should think about those?

This is Jason. We are still in the early stages of discovery and getting more information on the specific claims. With respect to the property damage, though, I would say we have a good handle on the damages related to structures. But some of the other components are more complicated, including damages to trees.

As you can imagine, there are a lot of variables that go into quantifying damages related to tree loss, including the number of trees that were burned over the 70,000 acres, the species and size of those trees, the pre-fire health of the trees, the post-fire tree value, among other factors. So, we are working through these issues and we will obviously provide an updated estimate once we have better information and are able to access those impacted parties. That's what I would focus on from a property damage standpoint.

Okay. Thank you.

Michael Lapides, Goldman Sachs.

I hate to beat the dead horse but on the wildfire issue, you mentioned the $350 million was the low end. What is the high end?

We don't have a high end of the range at this point. We are really in the early stages. So, we're trying to gather as much information as we can on the specific claims. And we will obviously update that range when we have better information.

Got it. So, it's not really a range, if there's not a high end. I'm just trying to think about, is this something we're going to be talking about every quarter where the number keeps creeping up, or is this -- hey, we have done the bulk of the work; we are 90% of the way there; and maybe there's a little bit more coming but it's not a material bit more?

I think we are really in the early stage. And I mentioned before, I think we have a really good handle on the damages related to structures. There's still a lot more work we need to do particularly related to the damages to trees, so we are working through that as quickly as possible.

Got it. And, Tony, as you get through the GT&S case, as you get through the final San Bruno related stuff, how are you thinking longer term, meaning 2017 and beyond, about the ability to earn authorized and some of the tailwinds or headwinds that could actually enable you to do so, or keep you from doing so?

Obviously, that's our objective, is to earn our allowed return going forward. And we think we've done a lot of work internally on managing our costs. We've got a big push on affordability here. Obviously, we're going to invest what we think we need to invest in the system.

And I think, given the approach in rate cases, we're very optimistic that the showings we have made in our rate cases will support getting a level of revenues that means that we will have money to continue to make those investments. So, there are obviously going to be things that come up but I think we are positioning ourselves well for the future.

Got it. And when you think about the main GRC, the generation distribution one, how are you thinking about the time line for that? I know what the stated time line is. Unfortunately, California hasn't stuck to a stated time line on a rate case for anybody in the state for a number of years. And how any significant delays could potentially impact the balance sheet or cash flows.

Just in general, you are right, it's not just us. All of the cases have been delayed recently. We've had discussions about that, that's not helping California's image. From a regulatory standpoint, we've got lots of good policies in place but the policies aren't effective unless you get the decisions based on.

That said, I really do think this case is different. I mentioned some of the things that SED said about our filing. And, also, when you look at the bid-ask range, it's not as big as it has been in the past. So, we hope this can be moved along faster than in the past. Maybe I'll let Steve Malnight comment.

This is Steve. Thank you, Tony. I do think -- a couple things. I agree with Tony. The case so far is moving along on schedule. I think we're optimistic about the case. The challenges do come later in terms of timing. However, having said that, in this case we also did already receive the authorization to ensure that if the case is delayed, the revenues would be retroactive to the beginning of 2017, which is an important milestone that the Commission has regularly done in many of these cases. So, the timing impact is somewhat muted because of that benefit.

Got it. Thanks, guys. It's much appreciated.

Chris Turnure, JPMorgan.

Good morning, guys. I know we've gone over this on past calls but I wanted to just discuss the rate base and CapEx guidance for both this year and the next couple of years. Is there a chance that there could be lower CapEx than the bottom end of the range if all of your rate case decisions come out at the lowest potential scenario that you guys have been anticipating?

I would say it's really early to presuppose any decision on this process. Just as a reminder, our CapEx and rate base ranges, what we have provided here is essentially, in the outer years we stay flat to what we were spending in 2015, which I think is a reasonable assumption for the low end of the range. And then the upper end of the range reflects what we currently filed in our rate cases. And where there's a period not covered by the rate case we hold that upper range flat with the last rate case filing. So, I do think it represents a reasonable range for CapEx and rate base over the next several years.

The other thing that I would add, some of the recommendations of the other parties, while they have recommended reductions in our expenses, largely supported the capital proposals.

Okay. And then just to go back to the fire, maybe you could give us a bit of historical context here and remind us of your last major fire where you had a liability there, and how things played out in terms of timing, the amount of the liability and insurance proceeds. And, then, am I to understand this special legal clause in the state of California as basically putting any utility on the hook to pay for trees and other property damage, even if they are not negligent there? It seems a lot there. And obviously you have insurance proceeds. Do those costs of insurance and the premiums there get passed through to ratepayers ultimately?

So this is Hyun Park, General Counsel. You had a number of questions there so I will try to answer what I can recall. The first question was about our prior experience with fires. And, yes, we have had fires in the past. For example, in 2013 we settled two fires: 2004 Power fire, and 2008 Whiskey fire; and it cost us $50.5 million to settle those fire cases.

In 2012 we spent approximately $30 million settling the 2004 Freds and Sims fires. And in 2009 we spent approximately $15 million to settle the 1999 Pendola fire. So, those are the recent experience with fire cases.

And you asked a question, I think, about inverse condemnation. Basically inverse condemnation is a doctrine that is based on the California Constitution. It's based on the Takings Clause of the California Constitution.

Courts have basically held that inverse condemnation may be found when three elements are satisfied. First, there has to be injury to private property. And, second, the property damage was substantially caused. So, there has to be substantial causation and it does not matter whether there was fault or not. And, thirdly, the damage has to be caused by a public improvement operating as deliberately designed, constructed or maintained.

That's the language from the case law. And inverse condemnation has been applied to utility fire cases where fires were caused by power lines. Court cases have basically described the underlying purpose of this doctrine as intending to distribute throughout the community any loss inflicted upon an individual property owner by a public improvement. And inverse condemnation allows recovery for property damage, pre-judgment interest, and attorneys' fees.

I think you had one question about the recoverability of our insurance costs. They are a component of our rate cases so we do file and seek recovery for the cost of our various insurance programs.

Okay, thank you.

Anthony Crowdell, Jefferies.

Good morning. I just want to follow-up on the previous questions. What is the path from here to reconcile the Butte fire? Do you guys go through the paperwork, you come up with a new target. Does it go to a court? Does it go to a District Court? Where does it get resolved?

To date we have 32 complaints involving approximately 1,300 plaintiffs and their property insurers. These cases have been coordinated in Sacramento Superior Court. And, of course, it's possible that more cases will be filed.

Right now what is happening is the plaintiffs are starting to present to the utility claims, seeking early resolution of the so-called preference cases. These are the cases that involve plaintiffs who either, due to their age or physical condition, are not able to wait for the full trial process. We are starting to engage in discussions with plaintiffs' counsel about these preference cases. And we have a case management conference in Sacramento Superior Court on May 24.

When you went to the previous question, it seemed that from fires to settlement, we were looking at anywhere from 8 to 10 years. Is that accurate or did I not hear it correctly?

I don't recall saying anything about 8 to 10 years.

When you mentioned the fires, there was like 2004 fires that were settled in the last couple of years.

Is that accurate?

Some of these settlements do take a while.

I think the component of a settlement that normally takes the longest is the actual CAL FIRE or US Forestry Service component, where they are asking or claiming fire suppression costs. And it's that element that likely often takes a long time.

Okay. And, just lastly, Jason, I just want to make sure I heard correctly, the fine recommended by CAL FIRE was $90 million, but that's not included in the Company's low end of the range right now -- is that correct?

A couple of things on that. The first is the $90 million that CAL FIRE mentioned in its report was not a fine. It was essentially they are seeking recovery for their cost to respond to the fire. In order for us to be liable for the fire suppression costs that were incurred by CAL FIRE we would have to be found liable for negligence. We just don't see that based on what we understand today. We don't see the possibility being found liable for negligence. As Geisha mentioned and Tony mentioned, we have an industry-leading veg management program. So, at this point we have not accrued anything for the fire suppression costs.

Great, thanks for taking my questions.

Paul Patterson, Glenrock Associates.

Good morning, guys. I wanted to follow up on Steve's question regarding the criminal case. There has been some discussion about some of the former executives getting granted immunity. And I don't really know what that actually means practically. What does that mean? How should we think about that in terms of -- what are the ramifications of that? I just don't understand it that well. Do you follow what I am saying?

This is Hyun Park again. At the earlier stages of the government's investigation of this case, the government insisted that certain of our current or former employee witnesses be represented by separate counsel other than the Company counsel. And in situations like the one we are in, getting immunity by certain witnesses is actually fairly common and I don't think one should read too much into that.

As part of our cooperation with the government, we agreed to have some of our employee witnesses be represented by separate counsel. These witnesses' lawyers negotiated immunity. It's fairly routine. Just being granted immunity does not mean that they are going to testify for or against anybody. The bottom line is that they all have to be sworn in to tell the truth.

This is Tony. I might add that in the civil cases -- because, remember, we had the investigation into San Bruno -- but in the civil cases most of these employees were deposed. So, we have a pretty good idea of what they're going to say. And that's why we continue to believe that there is no basis for saying anyone knowingly and willfully violated the law.

Okay, so it's fairly routine. I guess just lawyers probably protecting their clients. So would it be safe to say, in terms of any potential charges being brought up, just to make them more comfortable in terms of what they are able to discuss? Is that how we should think about it procedurally, meaning as opposed to them necessarily cooperating with the government?

As I said, I just don't think you can read too much into this. It's pretty standard practice on the part of defense counsel to try to negotiate immunity for their clients.

Okay, great. And the immunity is only for the issues that are involved in this case, is that correct? Do you know that?

I don't. I haven't seen these immunity agreements so I really can't speak to that directly.

Okay, fair enough. The rest of my questions have been answered. Thanks so much.

Praful Mehta, Citigroup.

Hi, guys. My question, firstly, is on the growth side, the 5% to 7% growth. I know there are utilities who worry about retail rates. Is that a concern for you guys at all? Consistently growing at that level, do you see ever a rate pressure coming that may restrict or limit the growth going forward?

I will start off. This is Tony. Obviously affordability is one of the things that we focus on here. One of the good news things here in California is, while some people say your rates are high, actually the total customer bill is below the national average. So, while we're always sensitive, we still think that our products are overall affordable for the customer.

One of California's challenges is, the rate structure that has been in place for a long time really needs to be reformed because there are some groups of customers that are paying far more than they should and others are probably paying less. We've made some progress in improving that. We need to continue to make further progress on it.

Got you. Great. Thanks. And then, secondly, just quickly, on M&A and strategic direction, both on the buy and sell side, is there any view from your perspective on how you look at the landscape today given the consolidation that's happened in the space? How are you looking at the strategic path going forward?

Obviously, you never comment on specifics of M&A. But just stepping back from an industry standpoint, I believe we will continue to see a fairly slow consolidation of the industry. It goes in fits and starts.

One of the interesting things is consolidations recently, the big consolidations, have been creating combination companies -- so, gas and electric combining. Of course, we're already there, we are a combination company. Also, California's different. In many parts of the country gas is viewed as the transition fuel from an environmental standpoint replacing coal. We have no coal on our system in California so the long-term issues are a little bit different here in California.

Got you. Thank you, guys.

Julien Dumoulin-Smith, UBS.

Hi, good morning A lot has been asked and answered already, but just following up here. First, just on the equity side of the equation, obviously Butte fire is not necessarily explicitly reflected. How do you think about equity needs 2016 and, more importantly, onwards? You've laid out rate base, you've laid out CapEx. Is there any good way to think about that generically?

What I continue to focus on is the two big drivers of our CapEx needs, which are our CapEx program and our unrecovered costs. For our CapEx guidance, we've provided a range that relates to our pending rate cases. I think there, you would have to make an assumption of what we will receive in those rate cases and what our CapEx will be to inform equity needs related to CapEx.

On the other side of unrecovered costs, what I will say is, we expect to fully fund the San Bruno penalty in 2016, so that will go away after 2016 as a driver of equity needs. We also have our right-of-way program on our gas rate business, which will continue through 2017. And as a quick reminder, that was a $500 million program to be completed over five years, ending in 2017. That will continue into 2017.

And then you'll have to make your assumptions around any additional unrecovered costs. But absent any new items, unrecovered costs should start to decrease in 2017 and 2018 and be much less of a driver of the ongoing equity needs for the business.

Got it, okay. And then just continuing there since you left it off with the GT&S, I'd be curious, can you elaborate a little bit more -- I know it's been out there for a bit -- what the rate impacts are by customer class? And perhaps if you can comment, to what extent is that any potential limiting factor in getting resolution here versus just the conventional lag that we have seen before the CPUC in getting cases processed?

Hi, this is Steve Malnight. Obviously, this is a big case and it's been going on for some time. The rate impacts, when you look at our original proposal, the rate impacts would be a monthly increase of about $5 a month or 12% for our customers. That is an issue, I think, that is in consideration and was part of the discussion throughout this case. But more so it's really about what's the right work that needs to be done in the system and the right cost to do that. I think in this case we've seen a substantial record built on why we believe that the work we proposed is the right work to get done. So, we will just have to see how that comes out in the proposed decision.

Got it. And last quick one, TransCanyon, why the latest partnership, why now, perhaps, if I were to ask, after years of success alone?

Hi, Julien, this is Geisha. We have been very successful within California in terms of competitive projects. But as we look at a broader market -- we've talked about it earlier -- broader CAL-ISO footprint, we think an alliance agreement with TransCanyon make sense. We think we have strength, they have strength, and together we can be even more competitive and successful.

Fair enough, thank you.

Ladies and gentlemen, thank you for attending the PG&E Corporation first-quarter 2016 earnings conference call. This now concludes the conference. Enjoy the rest of your day.