PG&E Corp (PCG) 2021 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the PG&E Corporation Second Quarter 2021 Earnings Release. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Matthew Fallon, Senior Director of Investor Relations. Thank you. Please go ahead, sir.

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

I want to remind you that today's discussion will include forward-looking statements about our outlook for future financial results, which are based on assumptions, forecasts, expectations and information currently available to management. Some of the important factors that could affect the company's actual financial results are described on the second page of today's second quarter earnings call presentation. The presentation also includes a reconciliation between non-GAAP and GAAP measures that can be found online along with other information at investor.pgecorp.com. We also encourage you to review our quarterly report on Form 10-Q for the quarter ended June 30, 2021.

And now I'll turn it over to Patti.

Thanks, Matt. Hello, everyone. Thanks for joining us today. I'm pleased to report that PG&E delivered non-GAAP core earnings of $0.27 per share in the second quarter. We're reaffirming our 2021 non-GAAP core earnings per share guidance of $0.95 to $1.05, and we're maintaining 2021 equity needs of $0 to $400 million. Our rate base grows 8.5% and our earnings grow 10%. Our investments will provide lasting value to our customers, while our new cost-reduction efforts will keep our customer bills affordable. All of this is good for customers and investors. Chris will dive into the financials in just a bit.

Before I get started, I want to express how much I'm looking forward to seeing many of you in person on August 9 on our Investor Day. You'll get to meet the team we've assembled to lead the transformation of PG&E. We'll take a deeper dive into how we're implementing our PG&E lean operating system across the company with a special focus on our wildfire prevention work, and you'll also get a glimpse into the future opportunities for our company.

For today, let's get right to it. I have a feeling I know what's on top of mind for you because I know it is for me. The wildfire season is underway early this year. The Dixie fire started on July 13 and is now 23% contained. My heart goes out to the impacted communities, our customers and my coworkers who've been affected by this and other fires. I'd like to thank both our crews who are working to make the area safe and CAL FIRE and the U.S. Forest Service for the challenging work that they are doing in fighting the fires.

As of this morning, the Dixie fire has burned 221,000 acres and has impacted about 60 structures. There have been no reported injuries or fatalities, thank goodness. As we've disclosed, the morning of July 13, the power went out at our Cresta Dam powerhouse. When the power plant personnel could not diagnose the problem, a line worker was dispatched to troubleshoot the outage. After substantial effort, he arrived on scene and found a tree leaning into our lines. The conductor was still attached to the pole and 2 fuses were open. He noticed a fire at the base of the tree. He called for help and attempted to stop the fire. We've filed a time line with Judge Alsup if you'd like more details.

Adam Wright, our Chief Operating Officer, and I went to the fire to ensure that we are providing our full support to our community and our team. We followed the steps of our coworker and were surprised by what was required to access the location of that tree on our lines. My coworker's effort that day reflects the tenacity and the professionalism of our team here at PG&E who come to work every day with one goal in mind: to serve our friends, our families and our neighbors, who also happen to be our customers.

Given the conditions this season and what we've learned from other fires, including the Dixie fire, we've taken additional actions to reduce wildfire risk during periods of no to low wind conditions. We've implemented a 911 standard for all faults in high-fire-threat areas. We're shifting to fast-trip settings on our highest-risk circuit sections, and we're conducting additional safety patrols in certain high-risk areas.

When we look at the tree density in our service area and the proximity to our lines, we know we must do something different. On one of my very early field visits, I was on a little dirt road, watching us remove many very large trees within falling distance of our power lines. When I saw that situation, I wondered if we could do something different. When I found we were spending $1.4 billion of expense on trimming and removing trees annually, I knew we needed a permanent solution and to no longer treat this as an annual maintenance activity.

Fortunately, my team knew this, too. The team doing our Butte County rebuild showed me on my very first day on the job that they had cracked the code on lower-cost, safer and more efficient undergrounding. The dots just had to be connected. A safer, permanent fix with a better expense to capital shift, which makes it safer and more affordable for the people that we serve.

Undergrounding minimizes the need for PSPS. Undergrounding saves the trees that we all love here in California. Undergrounding makes the state of California safer, which is why last week, we announced a multiyear safety initiative to underground 10,000 miles of power lines in the highest-risk wildfire-threat areas. This is not really a new idea or a new concept. Many companies who dealt with climate resilience issues like hurricanes, for example, have found ways to harden their system with a variety of methods, including undergrounding. We know it can be done at scale here in California at a price our customers can afford.

This effort will take some time. And as we've said, we want to take time to hear from a multitude of stakeholders to shape the best plan possible. We'll provide the initial actions on this plan when we file our annual update on our Wildfire Mitigation Plan in February of '22. But that will just be the start to serving our hometowns facing extreme risk with a safer, better and affordable solution.

A critical protection in our system of wildfire prevention efforts is also our public safety power shutoff program. PSPS is an important backstop to prevent catastrophic wildfire, and we will use it when conditions warrant to keep people safe. Our PSPS improved substantially in 2020, and we've made additional improvements for 2021. We continue to get smarter by being data-driven and utilizing technology. Last year, we included factors such as wind, humidity levels and fuel moisture in our modeling. This year, we're adding LiDAR imagery to incorporate trees that could strike overhead power lines. And as we continue to inspect and harden the system, we'll also include maintenance conditions to inform outage parameters.

Another enhancement to our public safety program for 2021 is the use of Technosylva’s fire spread simulation software. This software helps identify, given weather conditions, where we have fire spread risk real time. We'll be able to show you firsthand how all these technologies come together at Investor Day. Beyond the data and technology improvements, which allow us to pinpoint risk and minimize customers impacted, we're constantly evaluating how to lessen the impact for customers who ultimately do experience PSPS. We start by continuing to shrink the number of customers impacted through our vegetation management and hardening efforts by additional sectionalizing and by providing alternative backup power resources.

For example, in May, I visited Pollock Pines, a small foothold community where approximately 4,500 of our customers have experienced 7 PSPS outages since 2018. Earlier this month, we successfully installed a microgrid in Pollock Pines, which will allow customers there to have access to an energized downtown and critical services, including the fire station, pharmacy, grocery store and a Red Cross-designated shelter at a local church. Downtown Pollock Pines is already served by underground lines, which means it can be safely energized during PSPS with the temporary generation resource that we've enabled. We'll continue to look for opportunities to use microgrids to power through PSPS.

It's very important that we implement the key commitments of our Wildfire Mitigation Plan. Through June this year, we've completed 91% of our vegetation management in the highest-risk areas, consistent with our commitments. And we've inspected over 375,000 assets, including 355,000 poles. Since 2018, we've performed nearly 5,000 miles of enhanced vegetation management. We've also fully inspected 100% of our lines and vegetation in Tier 3 high-fire-threat districts 2 times since 2018 and repaired the critical items found.

To monitor this work, our lean wildfire command center in San Ramon, which you'll see on the 9th, helps us identify, escalate and resolve gaps so we can stay on track with our commitments and our work plan. Our execution of the plan is a critical component in the wildfire certificate process, which enables access to AB 1054 funding. We are zeroed in on the fulfillment of our plan.

The structures and resources the state has put into place are also critical improvements. This includes the framework that we have in place through AB 1054, our regulatory construct and legislative support for increased CAL FIRE resources. AB 1054 was created to provide utilities with a funding mechanism for resolved claims in the event of the utility equipment-caused wildfire. Under AB 1054, we first submit an annual update to our Wildfire Mitigation Plan outlining the work we'll do across the system in order to mitigate fire risk.

Approval of our plan is a necessary condition to obtain a wildfire safety certificate. Having a safety certificate makes us eligible for the AB 1054 protections, which in effect, provides a backstop to pay wildfire claims. These protections include a presumption that our actions are reasonable and provide a cap on our liability. We'll be applying in the fall to renew the safety certificate. A key condition is approval of our 2021 Wildfire Mitigation Plan, which we expect to receive in the next month or so.

The point is this: identify the right work and execute it. I assure you we're doing just that. I'm asked by many of you, why should someone invest in PG&E under such difficult conditions? I answer by saying, "Few are better equipped and aligned with the state to succeed. We need California, and California needs us. We are partnering more than ever to mutually protect and serve our customers and to provide an attractive return to you, our owners and investors, who make the necessary investments for our customers possible."

I'm asking all our partners to join us. It will take all of us to address climate change on a scale unlike anywhere else. Together, we can make it right and make it safe again.

I'll hand it over to Chris now to give the financial update for the quarter. Chris?

Thank you, Patti. As Patti mentioned earlier, we've continued to meet our financial and regulatory objectives. I'll cover the highlights then go into more detail. We're on track for our year-end EPS guidance, landing at $0.27 for the second quarter and $0.50 for the year. We've maintained our equity needs guidance of $0 to $400 million, and we submitted our 2023 General Rate Case and updated our CapEx and rate base forecast to reflect this important filing.

As I mentioned, we're on track for the 2021 EPS range we set out of $0.95 to $1.05. Slide 8 shows our results for the second quarter. Non-GAAP core earnings per share for the quarter came in at $0.27. We recorded GAAP earnings, including noncore items that are also shown here.

We have made further progress on legacy legal claims. As a reminder, we have resolved the claims asserted by the public entities in both the Kincade and Zogg fires. We continued to try and fairly resolve claims brought by individual claimants related to Zogg fire and have reached settlements. We also continued discussions with insurance carriers. Progress on these settlements is about making it right for impacted communities.

Based on these updates, we increased our accrual for claims related to the Zogg fire by $75 million to a total of $375 million. This is within our insurance coverage, and so there's no earnings impact from this update.

Moving to Slide 9. This shows the quarter-over-quarter comparison for our non-GAAP core earnings of $0.27 per share for Q2 2021 versus $1.03 per share for Q2 2020 or $0.26 per share after adjusting for the increase in shares outstanding. EPS decreased due to $0.03 of unrecoverable interest expense, $0.01 from the timing of nuclear refueling outages and $0.01 from the timing of taxes that will net to 0 over the year. These decreases were offset by $0.04 of growth in rate base earnings, $0.01 from fewer wildfire mitigation costs above authorized and $0.01 of miscellaneous.

Moving to Slide 10. We've updated some of our noncore guidance. First, investigation remedies has been increased by $20 million to $130 million after tax. This reflects the June presiding officer's decision related to the 2019 PSPS order to show cause that proposes a penalty of $106 million and will be offset by $86 million in bill credits we have already provided to customers. We have appealed this proposal.

Second, our prior period net regulatory items forecast has been changed to a $50 million range. This reflects the outcome of our July GT&S capital settlement. The settlement will result in a $60 million reduction relative to our application and also defers recovery over a 5-year horizon, starting in January of 2022. As a result, instead of $200 million of noncore period recoveries in 2021, we now expect to record prior period recoveries of $45 million in 2021 and an additional $100 million in 2022 through 2024.

Our guidance continues to include a $1.3 billion charge that we expect to take in the third quarter as a result of the grantor trust election we made with the agreement reached with the Fire Victims Trust earlier this month. This charge is expected to reverse over time as the Fire Victim Trust sell shares. Increases in the value of our shares would also result in a larger tax deduction and ensuing noncore pickups at the time of sale.

Continuing this guidance. We are maintaining our equity guidance of $0 to $400 million for the year, while we continue to work to resolve claims related to the Kincade and Zogg fires. Our focus remains on minimizing our equity needs.

Looking over the midterm horizon. You can see here on Slide 11 that we filed our 2023 General Rate Case in June, which drives significant investments in the coming years. The GRC provides a road map through 2026, including key system enhancements and safety improvements, emphasizing customer-focused solutions and supporting the Triple Bottom Line. The wildfire mitigation work makes up over $4 billion of investments across our 2023 General Rate Case.

We've updated our CapEx and rate base forecast and extended them to 2026 to align with the GRC filing and increased expectations of our capital needs. On average, we plan to spend between roughly $8 billion and $10 billion of CapEx per year over this period. The low end of the range each year was largely unchanged and reflects amounts authorized in the 2020 GRC and the full amount recoverable through balancing account. The high end of the range has increased to reflect an incremental $1 billion of potential capital spend above authorized through 2022 and the capital forecast from the 2023 GRC application for the subsequent years. After incorporating the updated capital forecast with the increased high end, our long-term rate base maintains a roughly 8.5% CAGR.

Alongside this growth, we are certainly focused on customer bill impacts. Currently, our customers' bills reflect less than 3% of their average share of wallet. And on average, this compares to a roughly 3.4% average for the rest of the nation. Recognizing the diversity of our -- the hometowns we serve, we will continue to execute on opportunities for cost savings that benefit our customers, such as our recent San Francisco headquarter sale and capital plan enhancements to invest in the system at reduced costs.

We've had updates on a few other key regulatory matters that I'd like to cover as well. In addition to the AB 1054-related benefits that Patti mentioned, this law also provides a lower-cost financing tool in the form of securitization. This benefit will be realized by customers through lower financing costs. Our AB 1054 securitization application has received a final decision, and we anticipate bringing up to $1.2 billion to the market later this year.

In June, we were pleased to reach a settlement to recover insurance premium costs recorded to the Wildfire Expense Memorandum Account or WEMA. Once approved by the CPUC, this would allow us to recover roughly $450 million of insurance costs for wildfire coverage from 2017 through 2019.

As you can see on Slide 14, this is one example of the steps we're taking to recover remaining $3.5 billion of wildfire-related balancing account spend. To date, we have filed for recovery of roughly half of this balance. And you should expect to see us continuing to file for timely recovery as we focus on balance sheet health.

Separately, this quarter, we recognized 4 consecutive quarters of GAAP income, with the quarter itself GAAP-positive, which means we now have met each of the 8 defined metrics required for S&P 500 inclusion. While this marks a milestone for us, as you know, we're unable to predict the timing of inclusion, including how the charge we plan to take next quarter for the grantor trust election could impact the timing of inclusion.

We have executed well against our financial plan for the year and see additional opportunities in the years to come with the undergrounding goal we've announced, along with a consistent focus on helping California meet its decarbonization goals. We are investing in key system enhancements and safety improvements that drive our 8.5% rate base growth. We'll continue to delever our balance sheet, seek recovery of incremental wildfire-related costs and manage our equity needs. These financial results rest on the solid framework provided by our regulatory construct, the underpinnings of AB 1054, and they drive our 10% non-GAAP core earnings per share compound average growth rate.

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

Thank you, Chris. We're doing the right work for wildfire season, and we have a good solid framework in place to mitigate risks and strengthen our financial health. We're taking risk out of the system each and every day, and we're prepared to use PSPS as a backstop to keep our customers safe.

We have a long-term path in front of us that is focused on people, the planet and prosperity. The Triple Bottom Line is reflected in long-term projections and in our daily work. We can't wait to show you our progress when you come to see us for Investor Day on August 9. We know we must regain your trust and help you believe what I believe: California is a great place for your investment dollars, and so is PG&E. We look forward to seeing you August 9 at Investor Day.

Ashley, please open the lines for Q&A.

(Operator Instructions) And your first question comes from Paul Zimbardo with Bank of America.

It's actually Julien. Congrats on continued progress here. I wanted to come back to where you started the call perhaps, on the efforts to underground. How does that complement some of the earlier efforts on covered conductors and de-energization efforts? I mean certainly there's sort of a belt-and-suspenders approach here. Can you talk sort of conceptually how it complements? Or does this replace in part some of the earlier efforts, if you can, as well as speaking to some of the early reception from stakeholders to the proposal.

Yes. It is a complement, Julien, because we talk about 10,000 miles. Our highest-risk miles would be included in that, but we have 25,000 miles of high-fire threat district lines. And so this is an "and." It's -- in some places, it's an "or" for the hardening plans we had before, but we know it's a better solution in many areas, especially when we can do it at the kind of scale and in conditions that I think, in the past, were perceived as not possible for undergrounding.

And we're seeing, in Butte County, the progress that we can make, the advancements in equipment that enable us to dig into even areas of granite, the potential for boring instead of trenching. And so I would consider it an "and." There's still going to be areas where we do hardening. There's still going to be areas where vegetation management is an important part. But we think, for certain areas, the 10,000 miles that we set out are really important miles that need to be permanently derisked with undergrounding.

And I would say it's been received extraordinarily well by our communities and by all of our critical stakeholders. There have been a lot of people who have been asking us to underground. And the fact that we could prove to ourselves, by the work that we've already done, that it can be done in an affordable way. And you know as well as I do, Julien, the transition from the OpEx that goes to funding veg management, when we can turn that into the capital to underground, that it makes sense for investors, too.

Yes. Absolutely. If I can, a second question, perhaps somewhat unrelated but admittedly a big issue in California. When you think about resource adequacy and the dynamics last summer and, more critically, going into the peak season here this summer, can you talk about some of the actions you've committed to year-over-year as well, some of the prospective actions you're evaluating now in the very near term as well as the longer term to help address the more cheap Flex Alerts and things like that?

Yes, you bet. As we look to this summer, and we've already had a couple of Flex Alerts, we have 11,000 megawatts that we plan to have available in August. And our forecast at peak is about 8,500 megawatts. That's just for PG&E. But as you know that we are part of the system, and obviously, part of the California Cal ISO construct. And so we were able to secure additional storage, 700 megawatts of additional storage, including, specifically, one project that I'm particularly excited about that I think bodes well for the future, is our Moss Landing utility-owned generation, 182 megawatts of storage. It's one of the largest storage -- utility-owned storage facilities. It is definitely Tesla's largest project that they've done anywhere in the world, and they've done it here with us at PG&E.

And so I do think long term, however, we've got to do a better job here in California of matching supply and demand. And so we're looking at pursuing additional demand response and leveraging more residential storage like the Tesla power walls as a virtual power plant. We've got a pilot going for this summer to see how much capacity we truly could count on from those residential storage solutions as well.

And so when I think about the future, I see all those things coming together. A softened demand peak because of great demand management on the residential and the commercial side, then combined with more distributed resources, and storage is the perfect match to our solar duck curve. And so I think we -- and at PG&E, in particular, have the opportunity to really lead in the deployment of storage as a peak resource solution set.

Your next question comes from Steve Fleishman with Wolfe Research.

Can you hear me okay?

You're a little quiet.

So Patti, just -- this is obviously the first fire event that's occurred since you've been there, of scale. I'm just kind of curious how you dealt with the political community, regulatory. And any reaction to -- your take on the relations there and kind of reaction to you?

Yes. A couple of things, Steve. One, I'll tell you everyone is focused on one thing, getting the wildfire stopped, particularly support for CAL FIRE and the work that they're doing to contain Dixie fire, but it's not the only fire in the state. I think everybody sees that there's just so much more work to do.

And therefore, that's why our undergrounding announcement was still well received from the key stakeholders. All of the feedback I received, some of it was "It's about time," and a lot of it was "Thank you." And so I do think our commitment to doing whatever it takes and challenging perhaps old perspectives has been well received.

Okay. And just one question on the Dixie fire with respect to damages. In your release, you mentioned -- or one of the risks is just the damage to trees. Is there any particular kind of special value of kind of trees in the region where it's at? Is it a logging area or anything like that? Or just any thoughts on that disclosure?

Yes. No, there's nothing unique or special there. In fact, in some ways, it's a blessing that there are so few structures and people who live in the path of the Dixie fire. So I would just say that no special additional exposure as a result. In fact, there's probably less exposure given where the fire has triggered to date.

Okay. And then just the last one, you mentioned you're due for your Wildfire Mitigation Plan approval in the next month or so. I think -- has there been any, like, recommendations from parties or other things related to that?

Well, we -- sorry, Steve, go ahead.

No. Go ahead.

Yes. Okay. I'll go ahead and answer. Yes, we did receive some feedback, as did all the IOUs, when we originally filed our plans. And we were asked for some improvements, but we've made those. And the Wildfire Mitigation Plan approval is expected here relatively soon.

And we were happy to see the Office of Energy Infrastructure Safety, OEIS, which will be a new acronym for everyone, OEIS is formerly the Wildfire Safety Division. They did announce this week that they will issue the certificates by -- their objective is to issue them by December 2021 for next year and that we will submit our request for the safety certificate by September 13, 2021.

And just to remind everyone, we do have an active certificate that carries us through to January of 2022. So we were really happy to see that they're working toward a time line so that we can have more certainty in the process. And so that's good news.

Your next question comes from Jonathan Arnold with Vertical Research.

A quick question, Patti. In your remarks, you mentioned having got 91%, I think, of vegetation management in the highest-risk areas done. Could you just square that with Slide 6, where the percentages are obviously quite a bit lower, but I think they are the sort of not just the high-risk areas perhaps? And then is there any chance of sort of updating how much further along you got in July, because I think those are June numbers, right?

Yes. A couple of things. Number one, the 91% reflects, of all the vegetation management we've done, what percent is in the high-risk areas. If you'll remember, our enhanced enforcement was reflective of the desire that our actions match the highest-risk reduction areas. And so that -- the point of the 91% is just to say of the veg management we've done, 91% of it is in the highest-risk areas, which meets the intent of enhanced enforcement.

On the progress front, as you know, the -- I think in the slide, it says 598 miles to date. We're moving miles every single day. And so for -- in our last 48-hour update, we are up to 754 miles of enhanced vegetation management achieved. We're working at about 10 miles per day. And this is one of those measures that's in our Wildfire Command Center that we're tracking every single day.

And so the pace of progress, the slope of the curve, if you will, has increased and is at its highest rate to date. Because if you'll remember, because of the risk model, we had to -- front end, we had to really do a lot of replanning at the early part of the year to make sure that, that vegetation management we did was, in fact, in the highest-risk areas.

So it's 2 signs of progress. One, the 91% of the work that we're doing is in the highest-risk areas. That's great news. And number two, we're up to 754 miles, which is 5 miles ahead of our plan, which gets us to 1,800 miles by year-end.

Okay. So you feel good about hitting these targets regardless of where you might be on them today for those?

Yes, I feel great about hitting those targets, and I'm so thankful for my team. They are just on full force and doing a great job.

Great. And then just one other, if you could, maybe, on the undergrounding plan, the -- I think Adam mentioned at your briefing last week that you would hope to do sort of 1,000 miles a year. How soon do you think you can get to that sort of level?

And secondly, can you sort of maybe relate that a little bit to your new rate base forecast? Is there any -- is that sort of some -- partly in there or not really at all yet or how to think about that?

Yes. One of the things we are very careful not to do in our announcement to our local community about the undergrounding effort is to not put a ceiling on how much we thought we could get done by when. Our objective is to do more faster, Jonathan.

And so as Adam talked about a day that we could imagine ourselves beyond 1,000 miles a year. When we think about today, we're closer to 70 miles in a year. We know that curve to 1,000 is going to take some time, but we want to -- I think of it like this, Jonathan. I think of it as right now, we're building Model Ts in Henry Ford's old factory, and we're about to turn on the assembly line. And so that's really what's on our mind.

And so we're not capping our forecast, and that's why we're not giving an end date because we're working that plan with our engineers as we speak. The reason for announcing it before the plan was all noted down is because we wanted to get the input of critical stakeholders.

We want to engage with our tribal leaders, with our environmental groups, with our local communities and determine the best place to do that undergrounding first. We know there's high demand for undergrounding. And so this is a great opportunity for us to engage with the people of California to change the risk profile of California and PG&E together.

So I would say that when we file our Wildfire Mitigation Plan for next year, we'll be filing that in February-ish, first quarter 2022, you'll get to see the first couple of years of it. But every year, we're going to get better. And every year, we'll do more. And so we really are hesitant to put a cap on it or set an end date because we're going to be very dissatisfied until we have fully derisked the system.

But I'll let Chris talk about the reconciliation to the rate case as filed.

Sure thing. Thanks, Patti. At this stage, I guess what I would say is we're already seeing unit costs come down, which I think is impressive as we do some of the work here in the field that we're even just early scoping now, and emphasis on early.

What you're seeing today in terms of our financial disclosures is that we're directly reflecting the 2023 General Rate Case filing as well as our most recent Wildfire Mitigation Plan filing from earlier this year, it did have a limited undergrounding in vision. So what we're currently contemplating is, as Patti mentioned, looking at that February filing next year will give you really the first look operationally in how that would roll out over the first few years. And we would anticipate Q1 or the first half of next year providing a more fulsome view of the complete financial impact with updated financial.

Okay. That's great. If I could squeeze one other thing in. What's the latest on where you are with the main securitization docket and rehearing requests and sort of expected timing to move forward there?

Sure thing. We had just an update this week. So again, this is for context. This is the $7.5 billion rate-neutral securitization that we have filed for at the CPUC. At this stage, Jonathan, just had an update that next week, on August 5, the CPUC is calendared to do their affirmative vote, which is an important next step. What that does is that puts us on track for late this year to early next year for executing those securitization.

Your next question comes from Michael Lapides with Goldman Sachs.

Patti, when I look at what other states, and I'll use Florida as an example, have done when proposing a major undergrounding program, they actually went to the legislature to ensure kind of an annual rigorous analytical process for doing a 10- or 20-year forecast but also to ensure ratemaking. Do you think you need legislation at all to get approval for this 10,000-mile program? Or do you think it's best done in the wildfire mitigation planning process? And how do you think about the kind of what this -- how the cost recovery for that spend occurs? Meaning is this something that gets included in rate base over a long period of time? Or is this something that's outside of rate base?

Yes. Well, I'm a big fan of what they did in Florida. There's no doubt that was a smart way to do it. I'm not convinced that we need legislation nor am I convinced that we need funding outside the utility, but I wouldn't rule it out. As we work with our critical stakeholders, we'll talk about the best way to do this work.

The reality, much like Florida, where they wanted to harden their system against hurricanes, you can bet people in California are very motivated to rebuild and harden our system against wildfire. And so the most important thing is that we're considered a great resource to attract the capital, that we're the resource that can do the infrastructure at this kind of scale.

There's very few entities that could be equipped to take on the risk and the work like PG&E for the state of California. And so we do look forward to partnering with those critical stakeholders in determining the best way to make sure that the work is done safely and we most quickly derisk the state of California against all the hazards that a wildfire bring.

Got it. And then a follow-up, unrelated to that. Just curious in your thinking about your 10% EPS growth rate. How are you all thinking about how the cost-of-capital mechanism could impact the ability to hit that growth rate, especially given the recent move down in kind of treasury -- U.S. Treasury yields and corporate bond yields and what that means for kind of 2022 and maybe even longer term?

Sure thing, Michael, it's Chris. Happy to take it. I think there's a couple of things going on there. First is just the cost of capital adjustment mechanism itself. So seeing where the index is at this stage certainly looks complex to get to that, but we'd have to average over 4% at this point to be able to stay out the dead band. And so I think at this point, it is increasingly likely that it triggers. So I would just say we're evaluating options in real-time on that front.

And second, as you can imagine, we're currently looking at Q3 to provide an update there. At that stage, we'll have the view on the impact from the trigger itself and we'll be in a situation where we could look forward for 2022 impacts and beyond. But at this stage, our plan internally is to plan conservatively. And ultimately, the goal here is, as Patti referenced earlier and I referenced, is we're really looking fundamentally at our 5-year plan, Michael, not just 2022, but the 5-year plan and saying, "Let's think about how undergrounding folds in and at what pace, and let's continue to pursue more aggressive cost reductions, so that we're both making room for those investments, but also keeping in mind affordability for customers."

Got it. And last thing, with the high end of the CapEx band raised for the next 5 years, especially in '23 and beyond, how does that impact your multiyear financing plans?

Sure thing. So I think at this stage, we haven't been too specific on equity needs outside of the explicit year. And I think what you would find is that we would have a reasonable growth rate there such that we would have limited financing needs. But I don't want to be too specific at this stage, again, Michael, because we're actually working the 5-year plan, as you can imagine, to fold in the undergrounding work.

(Operator Instructions) And your next question comes from Shar Pourreza with Guggenheim Partners.

It's actually Constantine here for Shar. I just wanted to kind of follow up on the question on the 2021 Wildfire Mitigation Plan progress and kind of some of the categories showing below 50% and where -- as of, I guess, June. Can you just speak to the various categories and how they get prioritized? And maybe, how do you get -- how do you plan to get ahead of the curve on these categories? And any kind of risk of regulatory action that you may foresee?

Yes. One thing that's -- I'm so glad you asked this question, Constantine, because one thing to clarify is that the percent complete doesn't -- the plan doesn't have a linear line across the year. The plan has a curve to it, mainly because of the pre-engineering work and getting the highest-risk miles engineered and planned. We -- and so when we're in our Wildfire Command Center every week, we're looking at that pipeline of work and confirming that we've got the work that will feed the plan that completes on the finish date. We're tracking daily targets.

And I can tell you, I'm feeling very good about our ability to achieve our year -- in-year plan. So for example, enhanced vegetation management is a good example. The status to date shows 39% complete, but we're 5 miles ahead of our plan, which gets us home on time by year-end. And so that's -- I don't want you confused by those percent complete year-to-date. It's not a linear curve.

So things -- there are some things, though, that we definitely want to have completed before August, September. And so some of those things, like asset inspections, for example, we've got almost fully completed. So again, all of these areas, system hardening, veg management, we're not trading off. Like, we'll not get veg management done so -- and we'll be willing to accept that we miss another area like hardening. No, no. Our plan is to get all of them done. Some of them by year-end, some have interim dates before year-end. And so we're on track with the plan. And that's the power of this lean operating system. I know I'm a broken record on that, but that's because it makes a big difference.

And I can tell you, I can assure you, this team this year has more visibility into our performance than ever before. And we know daily, and I'm getting a weekly boots-on-the-ground, like, eyes-on-the-work update of exactly where we are, which is what gives us a lot of confidence that we can complete the plan by year-end.

Excellent. I think that clarifies it quite a bit. Just one kind of follow-up on wildfires. Your filings disclosed kind of a potential loss for Dixie. And just to understand the process of how and kind of when the loss gets recorded and then the insurance coverage and 1054, can you remind us of the insurance levels? And I think it's around 900 for this period and with some self-insured. And kind of what's the time line for 1054 protections and funding to get accessed?

Yes. I'll make a couple of comments, and then I'll kick it to Chris to cover the insurance and some of the detailed time line elements. But keep in mind, it is early. And there's no way to estimate, at this time, the value of the damage done on the Dixie fire.

Again, I will reiterate that it is a blessing that it's in mostly forested difficult terrain. It's difficult for CAL FIRE to access the terrain, which increases obviously the acres burned, but very limited damage to structure and people for which we're very, very grateful. And we're very grateful for their skill in being able to, in some ways, direct the fire into the less populated areas.

But I'll let Chris talk through the time line when we do know what happens next.

Sure thing. Constantine, it's true. So the time line, it's -- traditionally, it's going to take time, how about that. It's ultimately -- at this stage, certainly, even though we have the probable commentary in the Q, it's not estimable at this stage. We need to understand, once the fire is contained, to be able to understand the total impact. We also need to make sure that we're understanding of the result of the CAL FIRE investigation and any review that takes place there.

So when you typically look at a time line in the situation you would have, it could be anywhere up to a year for CAL FIRE investigation. You could then have multiple years that are required to complete, review and, eventually, resolve any outstanding claims themselves. So you're actually looking at a few years before there's any contemplation of interaction with the AB 1054 Wildfire Fund. So hopefully, that provides a bit more color.

It does. And I think -- if I may have a last question, just turning to something a little bit outside of wildfire than bearing cables. The request from the city of San Francisco for CPUC, they're going to do a valuation of the assets that are within the city. Is there kind of a reasonable level that you would actually consider separating the assets? Is it even feasible? And does the CPUC have any power in mandating the sale? Or is it kind of a lead into a potential combination municipalization proceeding?

Well, first, let me just say that PG&E has served San Franciscans for more than 100 years, and we are proud to have that being true. The previous offers made by the city well undervalued our assets. And so their filing just asked that the CPUC confirm the value of our assets. And bottom line, we look very much forward to continuing to serve the people of San Francisco.

Your next question comes from Stephen Byrd with Morgan Stanley.

Lots been covered. I wondered if we could just get your latest thoughts on the state of the insurance market in California for fire risk, sort of everything from your own insurance to the ability of the statewide fund to get reinsurance. I know you're not responsible for that, but just curious. And also sort of availability of insurance to residents and businesses in California, sort of the state of play of the insurance market.

Sure, Stephen. Thanks for the question. I think there's really a few different things there, as you can imagine. First is personal, residential, small business coverage. As you can imagine, that's been limited at this stage, although the state has stepped in, in multiple areas to make sure that there is coverage provided from companies in situations where homeowners really would have otherwise limited to no option. So I think that's been a great example of the state evaluating that need for individual customers.

As it relates to us and as it relates to the wildfire fund administrator themselves, I think what we're seeing at this stage is typically what we've done. And we went out this year, really, in the spring, to really revisit some of our coverage as well on purpose to kind of test the market. At this stage, there still remains depth. The reinsurance market is there as well. And this is after the dramatic acreage that was impacted last year in California. So just to put -- write that in context, that's over 4 million acres that were impacted. Yet we still saw depth in the market.

Now the pricing is substantial, as you can imagine, but we do have good cost recovery mechanism here, both in terms of the WEMA accounts that we have, but also going forward, we have contemplated actually a self-insurance construct that we have put forward in our 2023 GRC. Because really, Stephen, we're looking at this and these impacts over a number of years as it relates to customers. And this is hundreds of millions of dollars, right, that are really critical for us to be able to take on. But they're expense dollars that go really directly through the customers.

So we're actually interested in examining a self-insurance approach, where we could build this up over time yet not have to have that $700 million, $900-plus million impact to customers on an annual basis. So it's a unique construct, and we think it's one that we'd put forward to the CPUC and are hopeful there's serious consideration there. Because ultimately, for us, we are going to need to continue to procure a sufficient amount of coverage that makes us comfortable in any given year to protect against any substantial risk there for the company.

That really helps. And just going back to the large, proposed undergrounding. It makes a lot of sense. I can see the efficiency of doing a large program and the benefit. And I wonder if you could just talk a little bit more about sort of the portion of your vegetation management relating to these 10,000 miles, over what kind of time period that could be reduced? Is it fairly linear, meaning as you underground, then your vegetation management program can kind of proportionately decline potentially? Or is it just too early to say? How are you all kind of thinking about that?

Well, Stephen, we are obviously in early days of building out the plan, and it will determine exactly which miles we're going to underground. But conceivably, you could imagine a mile-for-mile swap because we're going to continue to -- we would have, in the absence of undergrounding, continue to vegetation -- to manage the vegetation near any of our trees -- or near any of our lines.

And so as we underground, you can imagine that's 1 less mile to veg manage and a mile-for-mile swap. And so that's really where the benefits are realized for customers. I mean $1.4 billion of annual expense in vegetation management is very expensive for our customers today. And so to have a permanent repair, a permanent fix, a permanent risk elimination to make it safer and not have that ongoing annual maintenance expense really does benefit customers on 2 fronts: safety risk, and affordability.

That's great. Maybe just following up on that, Patti. The -- in terms of the customer bill outlook, it looks like the bill for residents is going up quite a bit over the next 2 years and then it slows down. Is there a possibility to kind of sculpt this so that there isn't further kind of customer bill pressure in the near term over the next couple of years when bills are going up quite a bit? Or how might this kind of be feathered into the overall bill?

Yes. It's a little early to say, though we do know -- just at the highest order, you can see that in the early years of the swap, there's been the swapping of expense for capital. The benefits are realized earlier. That can help soften our curve in the near years.

And our big opportunity here, and I can tell you with fresh eyes looking at how we do our work, where we do our work, we have so much opportunity to scrub out costs from our system. And we're building that into our plans, and we're starting to build the capability, and it's early days. But I can tell you, our lean operating system, we all know, will help us provide higher value for customers at a lower cost to deliver.

And we look forward to -- and it's probably really -- to set expectations properly, probably early in Q1 2022, where we'll show you the long-term financial plan and what are the implications then for customers, what are the implications for capital, and how does the whole plan come together and we look forward to doing that.

Your next question comes from Ryan Levine with Citi.

What was the process and analysis that led to the proposal to underground 10,000 miles a line? And how did you arrive at 10,000 as the right number?

Yes. Well, as I mentioned in my prepared remarks, there's a series of observations that I had, new on the ground that undergrounding might be a better solution set, but it was truly working with our team. And seeing what we're doing in Butte, that really connected the dots.

Our cost to achieve has been reduced dramatically. We've got absolute evidence of -- in the $2 million a mile real-time happening as we speak, and we know that's before we even have a full-scale program. So we knew that the affordability was real. The 10,000 miles matches up to our highest-risk miles as we look at the high-fire-threat areas, our total lines that are in those areas. And so we really wanted to make sure that we were both planning for today's risk and any additional risk that might occur as climate conditions become more extreme.

And so that's really what drove the aspiration, and that's what's the building block of the plan. But as I've mentioned, we're going to not set a ceiling, if you will. That's really just an aspiration that we'll then engineer and roll out a full-scale plan that people can have better visibility. But we want to do that plan with others. This is a significant benefit to the people in California, and we want to make sure we do it in a way that they feel part of the process, that we have an opportunity to build relationships and trust and involvement from our critical stakeholders, how we embark on this really ambitious goal that people have been asking us to do. Everywhere I go, somebody says, "Can't you just underground it?" And so I'm so proud of this team for being able to see the potential in something that hasn't been done before and face that, in fact, we can do that here at PG&E.

And the August 5 final vote on securitization, would that be non-appealable assuming that, that becomes a favorable decision for the company?

Sure, Ryan. It would actually close out the issue with the CPUC. That's the importance of the vote on August 5. There could be judicial review for a limited period of time after that if the intervener sought to take another step. But again, it puts us on a good track, again, because we're -- we continue to aim at the end of this year, early next year to execute that securitization.

Okay. And then last question just to clarify. Can you confirm that -- whether or not the company has issued any shares so far year-to-date and the Victim Trust has sold any shares subsequent to the July 7 final agreement on the grantor's trust decision?

Sure thing. Ryan, no shares from the company and none from the Fire Victims Trust. In fact, the Fire Victims Trust provided an early July update -- public update, where they had indicated they have roughly $5.8 billion cash on hand at this stage and have distributed roughly $430 million, which, as you can imagine, puts them in a good cash position to make sure that they're resolving claims for victims.

At this time, there are no further questions. I will hand the call back for closing remarks.

Thanks, Ashley. Thank you, everyone, for joining us. We really do look forward to seeing you, and I can't wait for you to see what I'm seeing here every day, and that's an extraordinary team under extraordinary circumstances. We'll see you August 9. Thanks so much.

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