PG&E Corporation (PCG) Q3 2017 Earnings Report, Transcript and Summary

Good morning, and welcome to the PG&E Q3 2017 Earnings Conference Call. At this time, I would like to introduced your host, Chris Foster. Thank you and enjoy your conference. You may proceed, Mr. Foster. Chris Foster - PG&E Corp.: Thank you, Jackie. And thanks to those of you on the phone for joining us this morning. Before I turn it over to Geisha Williams, I want to remind you that our discussion today will include forward-looking statements about our outlook for future financial results, which are based on assumption, 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 third quarter earnings call presentation. We also encourage you to review our quarterly report on Form 10-Q that'll be filed later today with the SEC and the discussion of risk factors that appears there and in the 2016 annual report. With that, I'll hand it over to Geisha. Geisha J. Williams - PG&E Corp.: Thank you, Chris, and good morning everyone. Given the recent wildfires impacting our customers and communities, our discussion today will be different from our usual earnings call. This morning, I will update you on what we currently know about the fires and I'll describe our restoration activity. I will address the efforts to identify the causes of the fires and provide an overview of the process from here. I'll also talk about how we're working to protect the safety of our customers and communities as we see this trend towards more extreme weather events continuing to increase. Jason will walk you through the financials of the quarter, and then I'll provide a few closing remarks, and then we'll take your questions. I want to start by sharing what we know about the extraordinary nature of the fires that swept across Northern California a few weeks ago. On October 8 and 9, PG&E service area experienced a wind event without precedent with some recorded wind dust exceeding 75 miles per hour. Numerous meteorologists have addressed the extraordinary nature of the weather condition with one commenting that it produced extreme winds beyond contemporary experience. These destructive winds impacted an area with trees weakened by years of drought and other environmental factors. Additionally, heavy rain and snowstorms last winter brought renewed vegetation growth. But with the heat waves of this summer and fall, this vegetation dried out again, creating an abundant source of fuel. Several wildfires struck at night and spread quickly, and they burned for days. Before the fires are fully contained, I met with community leaders and our team members in Napa and Santa Rosa; two of the hardest-hit areas and I had an opportunity to see the damage. What I can tell you is, during my two decades in Florida, I worked through many major hurricanes. And I've seen firsthand the destruction that hurricane force winds can bring to a community, but this was like nothing I've ever seen. The fast-moving fires brought expansive devastation and left little standing in their paths. Many communities and families experienced catastrophic losses. Numerous lives were lost and several thousand people lost homes and businesses. The people impacted are our neighbors, our friends and family, our own employees, and of course, our customers; and I want to extend our deepest sympathies to all of them. I also want to acknowledge the thousands of firefighters involved in the response and recovery efforts. I thank them and other first responders, including our own, for the heroic efforts. From the earliest hours, we maintained a singular focus on the life safety and well-being of our customers and communities. Our public safety actions included proactively turning off gas in some areas to support the efforts of first responders and keep our communities safe. In terms of outages, about 42,000 gas customers and about 360,000 electric customers were impacted by the wildfires. We assembled a restoration team 4,300 strong; made up of our own employees, contractors and mutual-aid utility workers. They worked around-the-clock for weeks to get our customers safely back on line following, of course, Cal Fire's lead after they established containment boundaries. As part of our restoration efforts, we provided back-up fuel and generation support to critical services like hospitals and local water agencies until they could be permanently restored. And our customer service team, they staffed evacuation shelters and local assistance centers to provide support to our customers in both English and Spanish. This was the largest restoration team we've put together since the Loma Prieta earthquake in 1989 and they did an outstanding job. Now, I know there's a lot of interest in how these fires started and how PG&E assets might have been involved in or impacted by the wildfires. Our communities deserve answers and we are committed to learning what happened. It's critical that we identify anything that will help us to keep our customers and communities safe in the future. That is our goal as we work with Cal Fire and the CPUC. Both agencies are conducting investigations of the wildfires and we will continue to cooperate with them as that work moves forward. It has been reported in the press, we have received a number of losses and are, of course, conducting our own extensive facts finding in this important matter as we prepare to respond. As we've previously reported, when we gained access to some affected areas, we found instances of wires down, vegetation near our facilities and some broken poles. In those instances where Cal Fire investigators where PG&E identified a site potentially involving our facilities, we submitted incident reports to the CPUC. These electric incident reports are factual in nature and do not reflect a finding of cause. To-date, we've submitted 20 reports. As part of our commitment to transparency, we have posted the submitted incident reports on our website following the CPUC's decision to do the same. We expect that once Cal Fire completes its investigation on the causes of the fires, it will release its findings through one or more reports. Now, given the complexity and size of the fires, we don't know when Cal Fire may issue its findings. In the meantime, we will continue to cooperate with investigators and regulators while keeping our team focused on providing safe, reliable energy to our customers and communities. Many of you have reached out with questions about the potential impact of the wildfires to the company's financials, and also about the doctrine of inverse condemnation in California. At this time, the known financial impact of the wildfires is limited to the cost of the unprecedented response and restoration effort, costs related to our liability insurance and some legal expenses. And Jason will cover these later this morning. As a reminder, California is an outlier when it comes to potential liability. California is one of the only states in the country where the courts have applied inverse condemnation liability to events caused by utility equipment. This means that if a Utility equipment is found to have been a substantial cause of a damage in an event like a wildfire, even if a Utility has followed all the rules and, in essence, has not done anything wrong, the Utility may be liable for property damages and attorney's fees associated with that event. We don't believe that inverse condemnation is an appropriate doctrine nor do we think it is appropriately applied to regulated utilities. We would challenge its application if that were to be the case in these events. However, if it is applied, then the CPUC should take action that is consistent with the purpose of the doctrine. That said, I want to be clear. This was an extraordinary confluence of events, and right now, it's simply too early to make an assumption about liability. What we can say with certainty is that PG&E is going to be crucial to the rebuilding and recovery in the communities affected, and we are committed to supporting that process. We've pledged more than $3 million to help support the community's recovery efforts and we are matching our employees' charitable contributions for wildfire relief. Employees from across the company had stepped up to volunteer their time to support the affected communities, and will be doing much more in the weeks and the months ahead. I know there's a lot of interest in our pole maintenance and vegetation management program, so let me address these as well. First, we routinely inspect, maintain, and replace our electric poles. This includes annual scheduled patrols, five-year visual inspections, an intrusive testing and treating on our wood poles on a frequency that significantly exceeds CPUC requirements. We also have one of, if not the most, comprehensive vegetation management programs in the country. Our vegetation management program manages about 123 million trees across the service territory, and every year we inspect every segment of the 99,000 miles of overhead line and we clear vegetation as needed. This is well beyond what is typical in our industry, where most utilities have a three-year vegetation management cycle or sometimes longer. Typically, we spend about $200 million every year to line clear or remove 1.3 million trees to mitigate both the risk of wildfires and to prevent electric outages. With the drought and the tree mortality crisis we've experienced in California, we have been expanding our vegetation management work since 2014. In 2016, we spent an additional $200 million, essentially doubling our typical vegetation management spending last year. We removed an incremental 236,000 dead or dying trees, and we enhanced our tree maintenance work with additional patrols in areas of high-fire danger, including a combination of boots on the ground, aerial patrols, and sophisticated LiDAR technology. Before I transition to Jason, let me say we know that this is a very difficult time for our customers and the communities impacted by these terrible wildfires. We're committed to their safety and well-being, and we're going to stand by them as they rebuild and recover. With that, I'll turn it over to Jason to take you through the financials. Jason P. Wells - PG&E Corp.: Thank you, Geisha, and good morning, everyone. We appreciate the concerns many of you have expressed following the wildfires. And I want to reiterate our commitment to transparency as we gather additional information about the financial impact of these events. This morning, I'll cover our third quarter results and then provide a couple of updates to our guidance for 2017. I will also briefly touch on some of the known items for 2018 and 2019. Slide 5 shows our results for the third quarter. Earnings from operations came in at $1.12 per share. GAAP earnings, including the items impacting comparability, are also shown here. Pipeline-related expenses were $20 million pre-tax. Our legal and regulatory related expenses came in at $2 million pre-tax. Fines and penalties were $11 million, reflect the incremental financial remedies in the proposed decision for the ex parte Order Instituting Investigation and that amount is not tax deductible. For the Butte fire, we had a few changes this quarter. We recorded third-party claims and legal costs of $368 million pre-tax. This was partially offset by accrued insurance recoveries of $297 million pre-tax. This total also includes $21 million recovered through one of our contractors' insurers. We have now recorded insurance recoveries up to the limit of our policy of $922 million. The net impact of these items is $71 million pre-tax. Finally, as we mentioned last quarter, in July, the court approved the shareholder derivative settlement. The pre-tax $65 million shown here reflects the $90 million in insurance proceeds, less $25 million paid in plaintiff's legal fees. Moving on to slide 6, which shows the quarter-over-quarter comparison from earnings from operations of $0.94 in Q3 last year and $1.12 in Q3 this year. We were $0.08 favorable due to the timing of taxes. The full amount of this line item affecting our results year-to-date will reverse in the fourth quarter. We were another $0.06 favorable due to the timing of operational spend during the year. We took the opportunity to bundle some of our work to execute more efficiently which created some delays. We expect this to fully reverse in the fourth quarter. Rate base earnings were $0.05. You can expect to see rate base earnings of about $0.05 next quarter as well for a total of $0.20 for the full year. We were $0.04 favorable due to the timing of the 2015 GT&S rate case decision which we received in August of last year. The year-to-date favorable variance of roughly $0.33 will fully reverse in the fourth quarter. A number of small miscellaneous items totaled $0.07 positive. As we mentioned previously, our GRC revenues were adjusted in 2017, resulting in a loss of the incremental tax repair benefits of roughly $0.25 annually, including $0.10 this quarter. Lastly, we had $0.02 negative for the issuance of shares. Transitioning now to slide 7. Today, we are reaffirming our guidance from earnings from operations of $3.55 to $3.75 per share. On slide 8, we've laid out our underlying assumptions for that guidance. Let me be clear that the guidance outlined here and all of my remarks today assume no material financial impact on the wildfires beyond the restoration cost, insurance reinstatement and legal expenses that will impact the 2017 results. Our current forecast estimate for cost related to restoration and repairs following the recent fires ranges from $160 million to $200 million. This includes an estimated $60 million to $80 million in capital. We expect to seek recovery for our restoration activities for this extraordinary event through our existing Catastrophic Event Memorandum Account process with the CPUC. I'll reiterate that it remains our objective to our CPUC authorized return on equity across the enterprise this year as well as in 2018 and 2019. In terms of additional guidance for 2018 and beyond, we intend to provide an update with our 2017 results on the fourth quarter call. Among other considerations, our forward-looking guidance will integrate the 2019 GT&S rate case which we will file at the end of this year as required by the CPUC. The 2015 GT&S rate case included multiyear plans for improving the safety of our gas system, including programs to replace segments of our pipelines and to redesign other segments to facilitate in-line inspections. The 2019 rate case application will include the continuation of those plans as well as work to comply with new regulation established to help prevent methane leaks from gas storage facilities. Turning to slide 9. There are a few changes to our items impacting comparability in 2017. We've removed the range for pipeline related expenses for the year. We estimate we'll incur about $90 million pre-tax to remove vegetation structures from our pipeline rights-of-way. As we near the completion of our pipeline rights-of-way program, we are working through some particular complex segments. The environmental permitting requirements of these geographically dispersed projects require an additional planning which will shift more of the cost into 2018. You can expect us to spend between $35 million and $60 million on this item next year. We expect the total cost of this multiyear program to come in between $450 million and $475 million which reflects a narrow range. The line items for both legal and regulatory related expenses and for fines and penalties reflect cost incurred through the third quarter. Butte fire-related costs, net of insurance reflects amounts recorded through the third quarter for third-party claims and legal costs, net of accrued insurance recoveries. We increased our accrual for third-party claims by $350 million, which means we now believe our liability could be at least $1.1 billion. This change reflects a number of additional claims that were filed during the quarter before a statute of limitations expired as well as our experience with resolving cases to-date. We plan to seek recovery of all insured losses up to the $922-million limit of our liability insurance. And we have now recorded that full amount for probable insurance recoveries as of Q3. To the extent our ultimate liability for Butte fire claims exceeds the amounts recoverable through our insurance or through our contractor's insurance, we would expect to seek CPUC authorization to recover excess amounts from our customers consistent with the state's policy of inverse condemnation. And an additional note on insurance. Following the recent Northern California wildfires, we reinstated our insurance policy for any potential future event. That will result in a fourth quarter charge related to the write-off of the remaining unamortized costs of the original policy. Including both the insurance costs and legal expenses, we expect wildfire-related costs of roughly $100 million in 2017. And finally, the shareholder derivative line reflects the net benefit I discussed in the quarterly results. Moving now to slide 10. We are reaffirming our equity guidance for the year at $400 million to $500 million, and we continue to believe that we'll be able to meet our equity needs into 2018 and 2019, largely through our internal programs. Again, that assumes no material impact from the wildfires. On slide 11, you can see we've reduced our CapEx for 2017 to $5.7 billion from $5.9 billion we previously provided. We've also increased our planned CapEx in 2018 from $6.1 billion to $6.3 billion. This is because we continue to see a shift of some of our capital work into next year, mostly in gas transmission and distribution where we have continued to look for opportunities to bundle some of that work to execute it more efficiently. In 2019 and beyond, we'll incorporate the capital spend for our Gas Transmission and Storage rate case. While final numbers will be included in our application, we expect the average CapEx impact to be on the order of roughly $900 million to $1 billion per year. On slide 12, our 2018 rate base is lower as we've removed roughly $400 million associated with capital expenditures we incurred above the authorized amounts in the 2011 through 2014 GT&S rate case period. Those expenditures are subject to audit. We've moved that rate base into 2019 because the CPUC's audit of that spending is still underway. However, we continue to pursue recovery of these expenditures. We are reaffirming our commitment to the dividend and our plan to reach a dividend payout ratio of approximately 60% by 2019. Again, that assumes no material impact from the wildfires. And now, I'll turn it back over to Geisha for some final remarks. Geisha J. Williams - PG&E Corp.: Thank you, Jason. I know we've gone through a lot of information this morning. And before we go to questions, I want to briefly emphasize a few important points. I want to say again, regardless of the cause of the fires, we at PG&E are committed to supporting our customers and the communities we serve as they rebuild and recover. We've recognized it as a privilege to serve them, and we will be here for them for the long haul. On the topic of liability, as we've said, it's premature to discuss any potential liability for the recent wildfires given that there has been no determination of the causes of any of the fires. However, it's clear that liability is a matter of important public policy, and California's inverse condemnation policy makes it an outlier on this issue. That represents a risk for the state and for all Californians as well as for the state's energy providers at a time when the state is increasing its investment in a bold, clean energy future. We need constructive solutions, and we're prepared to engage in that discussion with policy makers at the appropriate time. Now, as we look ahead, we continue to focus on the areas we've discussed on our recent call. First, operational excellence with safety is our top priority. On that note, I'm very pleased that the Institute of Nuclear Power Operators has validated our progress and praised our safety and operational performance at Diablo Canyon. Second, delivering a positive customer experience to ensure that we are the provider of choice for our customers. Despite a record-setting year of emergencies and severe weather, our customer satisfaction results show continued progress. And finally, positioning the company for long-term success. We continue to see a future defined by a much more complex grid that enables the reduction of greenhouse gas emissions consistent with the safe energy goals and is more resilient to extreme weather conditions, and PG&E is going to continue to play a vital role. To that end, over the last several years, five years, we've invested roughly $15 billion in our grid to develop a more flexible and resilient energy network, and our investments of around $6 billion in our electric grid over the next two years will continue to make that future a reality. And you have our commitment that we will remain focused on the fundamentals of our business as we go forward. With that, let's go to your questions.

Certainly. Our first question comes from the line of Jonathan Arnold with Deutsche Bank. Please proceed.

Good morning, guys. Jason P. Wells - PG&E Corp.: Good morning. Geisha J. Williams - PG&E Corp.: Good morning, Jonathan.

Thank you for all the commentary and update on the fire situation. I realize it's difficult to say anything very definitive but I think you added a lot of color. Thank you. Just I want to make sure I understand on the Butte fire. Did you say the statute of limitations has now expired, so this new estimate of a total claims of $1.1 billion is basically – you're not going to see new claims from here. The question is whether that's a good estimate? Jason P. Wells - PG&E Corp.: Jonathan, thanks for the question. We saw a key statute of limitations expire this quarter, and that was for personal injury claims. However, the statute of limitations per property extends for another year.

Okay. And given that you have the finding of inverse condemnation in that fire back in June, it's reasonable to expect you'd have other property claims come in over the next year but you've made an estimate of what those might be in your number, I would guess? Jason P. Wells - PG&E Corp.: Yeah. I can't speculate as to what others may do but we've tried to make an estimate here with our adjustments to the accrual to reflect what we believe would be the cost associated with those fires.

Okay. Thank you. And then there's obviously been a lot of attention on this case relating to one of your peer utilities around inverse. And when we sort of dig in to some of that discussion, it seems that the other side is arguing that because there was never a court finding of inverse, they assumed that it would apply but it wasn't actually applied, that that somehow changes the circumstances. Can you guys comment at all on that, i.e. what's your view on that sort of disagreement, if you like? Geisha J. Williams - PG&E Corp.: Yeah. Jonathan, this is Geisha. We don't believe negligence is applicable as it relates to inverse condemnation, and negligence is something that ultimately is going to be decided by a jury. It's complicated, it's not a bright line. And so when we think about inverse condemnation in the state of California, we believe that strict liability without the commensurate cost recovery would not be consistent with the underlying theory of inverse condemnation.

Okay. Understood. And then I had a related question actually on just the safety OII which is still sitting out there. I mean, obviously you've talked a bit about safety today. How much of that have you already implemented, all the proposals from the consultant, and how are you approaching what to implement or not to implement given the commission hasn't yet decided how much of it, it wants you to adopt? Nickolas Stavropoulos - PG&E Corp.: So this is Nick Stavropoulos. Good morning. Regarding the safety OII, right from the first time we received the report on the CPUC's consultant, we embraced the 68 recommendations that they laid out, and we've been working with the CPUC staff and their consultants to better understand some of those recommendations. We expect to have a significant percentage of those actually complete by the end of this year. We will have almost all of the recommendations either complete or well underway by midpoint of next year. There are five specific recommendations that were provided by the consultants that we really need feedback from the commission on, and so we look forward to that. But those recommendations are built into our safety plan, our company-wide One PG&E Safety Plan, and we are actively implementing those recommendations.

Great. Thank you. And just on one other issue. What would be the trigger for taking a charge on the Northern California wildfires? Are we waiting for the Cal Fire report essentially before that would happen, beyond the $100 million which, if I heard you right, is sort of restoration plus re-upping insurance cost? Jason P. Wells - PG&E Corp.: Jonathan, this is Jason. I think it's way too early to discuss potential liability, if any, stemming from these fires. Obviously, we've got to let Cal Fire conclude its investigation. That will be an important part of sort of our consideration for when and if to record liability, but I wouldn't say that that is the sole determinant.

Okay. Could it be before then in some circumstances? Jason P. Wells - PG&E Corp.: Really, I can't speculate at this time as to any potential timing for liability recognition. Investigations have really just begun, and so we're really just focused on cooperating with Cal Fire as they investigate the sources of these fires.

Okay. Great. Thanks for all the color. Geisha J. Williams - PG&E Corp.: You're welcome.

Thank you, Mr. Arnold. Our next question comes from the line of Stephen Byrd with Morgan Stanley. Please proceed. Stephen Calder Byrd - Morgan Stanley & Co. LLC: Hi. Good morning. Geisha J. Williams - PG&E Corp.: Good morning. Jason P. Wells - PG&E Corp.: Good morning. Stephen Calder Byrd - Morgan Stanley & Co. LLC: I know inverse condemnation is very popular topic. I just wanted to make sure that I understood your perspective. So as I understand, your perspective is that if inverse condemnation did apply to utilities, then utilities should be able to recover those costs. And if I – I may have gotten that position wrong. But regarding your position, what is the path to be taken to attempt to clarify how, if at all, inverse condemnation should apply to utilities? Is that through the CPUC, is that through a court process or is that too early to say? Geisha J. Williams - PG&E Corp.: Well, Stephen, this Geisha. Let me go ahead and get started. So we don't believe that inverse condemnation is an appropriate doctrine, and we certainly don't believe that it is appropriately applied to investor-owned utilities. Whether and how inverse condemnation is decided to be applied is really up to, I believe, a court. We would challenge its application if, in fact, it were to be determined that our facilities were among the causes of these fires. We would challenge it to the extent that – and, again, if we were to not be successful in having inverse condemnation not be applied, then we would expect that the CPUC would take action that's consistent, really, with the underlying purpose of the doctrine, which is, of course, that our costs over and above insurance coverage should be shared by all customers. Stephen Calder Byrd - Morgan Stanley & Co. LLC: That makes sense. Understood. And then I guess just looking forward at a high level, there have been a number of statements within the state around looking more broadly to address the impacts from climate change, and obviously wildfires are one element of that. Is there a potential here for a broader process within the state, really a forward-looking process, where you reassess what is the fire risk, what are the other risks from climate change, and how do we, as an industry, better address that proactively and sort of refine standards, beef up risk mitigation measures, whatever it might be? Is there a possibility for something more forward-looking to come out of these wildfires? Geisha J. Williams - PG&E Corp.: Well, I appreciate that question. As I think on it, as I look at this, in my mind, there's no question that we're seeing the impacts of climate change, and you're seeing what's happening in the Caribbean with these horrible hurricanes in Florida, in Texas with the incredible flooding, and now here with this truly extraordinary event that we experienced in Northern California. So as we take a step back and do everything we can to combat climate change, we also need to be taking actions to look at how do we make our infrastructure, how do we make society overall as resilient to the effects of climate change as possible. And we think, clearly, there's a role for the state to play in that, and we would welcome an opportunity to participate in a broader, more comprehensive discussion about the actions that all of us, all of us need to take to be able to better withstand the ravages of climate change. Stephen Calder Byrd - Morgan Stanley & Co. LLC: Understood. And Geisha, is your sense that there is a willingness within the state to try to engage in that broader dialogue? Geisha J. Williams - PG&E Corp.: Well, when I think about California and our leadership position on all things climate change, I think it's a natural progression. I certainly don't want to speak for anyone in the government, but I welcome the opportunity to be at the table and have an ability to talk about it from our point of view. Again, we've been such a leader for years, for decades, really, in looking at what we can do to really improve the quality of life for our communities, reduce the impact of climate change that I think, again, it's really a natural progression to start looking at adaptation as well as resilient strategies. Nickolas Stavropoulos - PG&E Corp.: Building on that, Geisha – this is Nick – that we've actually already begun the process of working with different elements of the communities. We've awarded several grants to help communities begin to understand the impacts of climate change and what we can do from a resiliency standpoint. And also, internally, for planning the long-term future of our electric and gas networks, we've begun to really take a hard look at the long-term impacts of things like higher winds, higher sea levels, more extensive rains, so that we can build more resiliency into our asset structure. Stephen Calder Byrd - Morgan Stanley & Co. LLC: That's very helpful color. Just one last point on just tax deductibility of fire expenses and damages, whatever those might be. I wondered if we could just get a quick refresher on how to think about the tax deductibility of costs that ultimately are borne by shareholders. How should we think about the ability to secure a tax deductibility for those costs? Jason P. Wells - PG&E Corp.: Yeah. Stephen, this is Jason. We'd expect to be able to deduct third-party claims if we were to be found liable for those, so those would be deductible for tax purposes. The only thing that, in our view, that would not be tax deductible would be fines or penalties coming out of any investigation. Stephen Calder Byrd - Morgan Stanley & Co. LLC: Great. That's all I have. Thank you very much. Geisha J. Williams - PG&E Corp.: Thank you.

Thank you, Mr. Byrd. Our next question comes from the line of Steve Fleishman with Wolfe Research. Please proceed.

Yeah. Hi. Good morning. Thanks. Geisha J. Williams - PG&E Corp.: Good morning. Jason P. Wells - PG&E Corp.: Good morning.

Hey, Geisha, Jason. I don't know if you guys got to see the TURN letter from yesterday. But just at a high level, your point on inverse condemnation and spreading the costs seems to make sense. On the other hand, there's the kind of traditional prudency and all those things at the Commission. So how do you kind of tie those two together and argue against customers having to pay for the cost of this? John R. Simon - PG&E Corp.: Steve, hi. It's John Simon. I'm the General Counsel here. Inverse is, as Geisha mentioned, a strict liability concept. Negligence is a completely different construct, and inverse really excludes the consideration of negligence. In other words, the premise of inverse is that the utility pays the property damages and attorney's fees without any showing that it's at fault and, in turn, the utility spreads the cost across all the customers and recovers those costs through rates. So as I understand, the TURN argument is sort of apples and oranges to where we are with inverse. So we see it differently.

Okay. And just tying into that, this seems to be getting back and forth addressed through ex parte or letters in the San Diego wildfire case. Do you get any sense that this could move into kind of a broader venue because it's such a big precedent-setting decision-making here. Is there any sense of maybe this instead of just deciding there gets broadened out into a different type of proceeding? Geisha J. Williams - PG&E Corp.: That's a good question, Steve. I mean, clearly, this issue of liability is such a public policy. It's a significant California issue and there's no question that the decision in the San Diego Gas & Electric case will be very telling, and so not sure what the CPUC is thinking about at this point. We do know that they've delayed the taking action on it. I think that they're trying to be thoughtful and deliberate in understanding the ramifications of whatever decision that they ultimately end up making. But this issue of liability again in California, a state that has a history of extreme weather, extreme wildfires, so that case is one that has to be dealt affirmatively in the future. So we welcome an opportunity to be able to discuss it and, again, talk about constructive solutions that will be in the benefit of both state and as many customers.

Okay. And then one just technical question, Jason, on the GT&S 2019 case. You mentioned $900 million to $1 billion of capital spend. Can you just clarify. Is that incremental to what is – right now, you're using flat in 2019 as your base case. So is the $900 million to $1 billion kind of incremental to that flat? Jason P. Wells - PG&E Corp.: No. Our guidance reflects the $900 million that we're spending this year. So for context purposes, for 2019 we're providing a range of $900 million to $1 billion which is, on one end, flat with our consistent spending and, on the upper end, it could be as much as a $100 million increase from where we are today.

Okay. So it kind of suggests that that kind of level of spending will continue most likely through, assuming it's approved through this next plan? Jason P. Wells - PG&E Corp.: That's correct. Yes.

Yeah. Okay. Okay. Thank you.

Thank you, Mr. Fleishman. Our next question comes from the line of Praful Mehta with Citigroup. Please proceed.

Thanks so much. Hey, guys. Geisha J. Williams - PG&E Corp.: Hey. Jason P. Wells - PG&E Corp.: Good morning.

Hi. Good morning. So sorry to beat a dead horse, but I just want to – on the inverse condemnation point, I just wanted to clarify. If you win your argument, right, so either you are either not found to pay for cause or you're allowed to recover it from customers? Either way, you're not liable from a shareholder perspective at least. There's no cost that the shareholder is bearing for this except in the case of gross negligence. If gross negligence is found, then there are penalties which, obviously, will flow to the shareholder. Is that a fair way of thinking about it? John R. Simon - PG&E Corp.: Cal Fire is doing their investigation. It's early as Geisha mentioned. I don't think it's productive for us to speculate on some of the theories in your questions. So I think it's just too soon to talk about sort of these concepts right now.

So just, I guess, I'll keep it more broad. And then you touched on how you feel comfortable. But what I'm trying to understand is if you win the argument on inverse condemnation, in what scenario do you see the shareholder actually bearing any costs related to the fire? Geisha J. Williams - PG&E Corp.: Well first of all, I mean, I think you've jumped ahead and assumed that we have liability, so that's why we're uncomfortable talking about really, what's in essence, a hypothetical situation here. Inverse condemnation is very clear about its strict liability but also providing the commensurate cost recovery from all the customers that have benefited, if you will, from the services. So it's a question for the juries at the end of the day to determine what the company will be liable for versus shareholders or anyone else for that matter. But it is so very, very early in this whole process to be able to provide you any kind of confidence one way or the other.

Got you. Fair enough. I totally understand. Is there, at this point, any internal studies being done to figure out what the maintenance at the levels that you are expected to do? Any results of that internal review, separate obviously from all the reviews that Cal Fire and others may be doing? Geisha J. Williams - PG&E Corp.: Well as I mentioned in my opening remarks, we are doing extensive fact-finding given the lawsuits that have been presented before us, and so we're gathering data.

Fair enough. Okay. And moving on to the tax reform, and I know that this is clearly different from everything else that's going on. But tax reform obviously is coming or at least attempting to come in. Any color on how you think that impacts you, guys? Any changes in terms of what that would mean for your plan going forward? Geisha J. Williams - PG&E Corp.: I mean, we're generally well-positioned when you look at all the various considerations in the tax reform, so we find that we're in a good place overall. But, I mean, Jason, anything you want to add to that? Jason P. Wells - PG&E Corp.: Yeah. I mean, obviously, we're still very early in this process. But as we disclosed sort of on the fourth quarter earnings call earlier this year, we think we're, as Geisha mentioned, very well-positioned in that the recent discussions have included sort of a phase down of the corporate tax rate. We see that as beneficial to our customers in terms of refunding sort of the excess amount of taxes that we've collected in the past. And so for us, that would allow us to create sort of bill capacity for incremental capital expenditures in our system which we think would continue to improve the safety and reliability of our gas and electric systems.

Yeah. Thanks. And that refund that you mentioned, Jason, that you still expect to go over a long period of time as the credit to customer bills effectively? Jason P. Wells - PG&E Corp.: Absolutely. The details are going to matter on this one, but I think it's a reasonable assumption to assume that that would refund back to customers over essentially the book life of the assets.

Got you. Okay. Thanks so much, guys.

Thank you, Mr. Mehta. Our next question comes from the line of Greg Gordon with Evercore. Please proceed.

Thanks. Can we just go back to what you said about the Butte fire cost? You said the estimate of the total potential liability is now in excess of your insurance policy. My understanding from prior conversations with you however is that you also had access potentially to the insurance coverage of your vendors. You talk about having gotten some of that. So are these costs above even limits of your policy, potentially shareholder exposures, or are you still confident that you have other avenues of recovery through still working with the insurance agencies of your vendors and other venues that you'll be able to fully recover these costs? Jason P. Wells - PG&E Corp.: We've recorded insurance receivables up to the full policy limit of our insurance of $922 million. We've collected a little bit more than $50 million to-date from our contactors' insurers. So the $1.1 billion accrual for third party claims exceeds that amount. Consistent with the conversation that we've been having on the doctrine of inverse condemnation, we would expect to see recovery for those costs from customers and have filed to do so.

Okay. But is there also a potential for a reduction in that amount from further recoveries from other insurance companies or no? Jason P. Wells - PG&E Corp.: We will continue to seek recovery of incremental costs for third party insurance. But I'm not in a position to provide details on either one there. Their insurance levels are too sort of – nature of those negotiations.

Okay. Thank you.

Thank you, Mr. Gordon. Our next question comes from the line of Christopher Turnure with JPMorgan. Please proceed.

Good morning, guys. I just want to follow-up on the last question on contractor insurance and maybe apply it to the current wildfire situation. Do you also not have information there on size? Do you, the – I guess contractors or other utility companies have an allowance to charge their customers for the insurance premiums and how can we get a sense of any kind of coverage there, if at all? Jason P. Wells - PG&E Corp.: I think I understand your question. I'll try to answer it as I interpret it. We have recovery for our liability insurance cost through our General Rate Case process. There isn't a separate, direct recovery for contractor's insurance. Generally, our contractors procure insurance sort of in an ordinary course of business. We do not have, as I mentioned, direct subsidization of those costs. And just as for the Butte fire, we're not in a position to talk about the level of insurance those contractors maintain.

Okay. Fair enough. And then, going back to one of the earlier questions or several of the earlier questions. I wanted to just make sure that we were on the same page with your legal strategy, let's say, that in I guess next week's decision on the SDG&E fire. Let's say that it does not go in the favor of SDG&E and the CPUC kind of makes its position known. Is there any change in specific legal strategy that you can take as you begin the third-party challenges for those claims for the Northern California wildfires? Geisha J. Williams - PG&E Corp.: Hi. This is Geisha. I just don't think it's constructive at this point to be speculating about what we might do if this happened or the other thing happened and kind of talk about legal strategies for things that haven't occurred yet. So, I'd just rather not comment on that.

Okay. Fair enough. Thanks, guys.

Thank you, Mr. Turnure. Our next question comes from the line of Michael Lapides with Goldman Sachs. Please proceed. Michael Lapides - Goldman Sachs & Co. LLC: Hi, Geisha. Thanks for taking my question. Geisha J. Williams - PG&E Corp.: Hi, Michael. Michael Lapides - Goldman Sachs & Co. LLC: A process one, and I know this is hard. But in general or historically, how long does it take for Cal Fire to (a) do its investigation, but (b) put out reports? And is there any precedent for where it's not just one incident, but it's multiple incidents that occur over the same time before you get that? Geisha J. Williams - PG&E Corp.: So, we don't have a tremendous amount of experience at this but our latest experience, I would say, was the Butte fire case. In that particular case, if you recall, the Butte fire actually occurred in September of 2015 and we received the Cal Fire report in April the following year. So, it took seven months. And if you think about that fire, while it was a terrible fire and very expansive, it was one fire. In this particular case, you have a series of fires all erupting over a several-day period. And so I think the complexity of this particular investigation is much higher. So, having said that, how long will it take? I don't know. When you look at the 2007 wildfires that occurred in Southern California, there were multiple fires and my understanding is that they issued multiple findings associated with those particular fires. And, again, that took some time. So, I think we're going to have to be patient. What I've read is the same things that you've read in the press, that they're intent on being thorough, on being accurate, and I think that they need the time to be able to get to what actually happened, what caused it, what were the different causes of the various fires. I think it's highly complex. Michael Lapides - Goldman Sachs & Co. LLC: Got it. And when you look at the Butte wildfire report put out by Cal Fire, and you compare that to the Cal Fire report which the proposed decision in the San Diego Gas & Electric case kind of relied heavily on. What are the similarities and what are the biggest differences between those two reports? Geisha J. Williams - PG&E Corp.: Yeah. I can't comment on that. I've obviously read cover-to-cover the Butte fire repot, but I'm not an expert on what the San Diego Gas & Electric report looks like. So I can't give you that comparison – the compare-and-contrast sort of answer that I think you're looking for. Michael Lapides - Goldman Sachs & Co. LLC: Got it. Okay. Thank you, guys. One last one. How do you – you've got a lot of uncertainty now about potential costs and about potential insurance recovery, although I think you've disclosed there's kind of a cap of about $800 million of that. How does that impact your broader financial planning, right? When you're thinking about your capital budget, you're thinking about your dividends, you're thinking about your financing needs? How do you plan around that knowing that for a time period, whether it's six months or two years, we don't really know, you're going to have a good bit of large dollar potential uncertainty outstanding? Jason P. Wells - PG&E Corp.: Michael, this is Jason. I think it's just way too early to speculate as to the impact these fires may have, if any, on our financing plans. As I mentioned in my remarks, we reaffirmed the guidance we had issued earlier with the assumption that there is no additional material impact from the wildfires. We'll obviously update you with more comprehensive guidance for 2018 as part of the fourth quarter earnings call. We will take into consideration sort of developments through that period. But right now, I think it's just way too early to speculate as to sort of any impacts on financing, given the fact that cause for these fires has not yet been determined. Michael Lapides - Goldman Sachs & Co. LLC: Got it. Thank you, guys. Much appreciated. Geisha J. Williams - PG&E Corp.: You bet.

Thank you, Michael. Our next question comes from the line of Julien Dumoulin-Smith with Bank of America Merrill Lynch. Please proceed.

Hey. Good morning. Geisha J. Williams - PG&E Corp.: Good morning. Jason P. Wells - PG&E Corp.: Good morning, Julien.

Hey. So, a quick follow-up on Steve's earlier question on CapEx. Just wanted to follow-up. I know there was some discussion earlier in the year around $700 million related to the NTSB CapEx potentially. Where do we stand in terms of reflecting that into your expectations, both currently and prospectively in the forecast? Geisha J. Williams - PG&E Corp.: I'm not sure I understand your question. What NTSB capital?

Well, I suppose earlier in the year, we talked about some additional safety capital. Maybe I think $300 million and change was potentially the update we were talking about. Is that still a prospect here or is – or maybe I can ask the question a little bit more generically. Have you sort of reflected all of the additional potential spending throughout the course of the year related to safety that we'd kind of talked about? Jason P. Wells - PG&E Corp.: Julien, this is Jason. The $900 million to $1 billion that I referred to in my comments reflects the additional spending associated with the DOGGR regulations to improve – or to mitigate methane leaks for gas storage facilities. So, it takes into consideration our current programs to improve pipeline safety as well as the additional spending associated with reducing the risk of methane leaks on gas storage assets.

Thank you, sir. You knew what I was talking about. Separately and distinctly, I just wanted to come back to just timeline here in terms of process. I don't want to talk about legal strategy per se, but just wanted to understand, in terms of process here, obviously, we're going to wait to see what happens in terms of Cal Fire, first and foremost. But then separately, there's the parallel process with respect to the, I suppose, establishing or not establishing a new policy on inverse condemnation. What happens once that decision comes out from your perspective next? Or is it up to you or would you expect to be making any kind of filing with respect to inverse condemnation at that point in time or really your principal channel of action here is to follow the Cal Fire and then leave it to the separate and distinct process with SDG&E in the South? Geisha J. Williams - PG&E Corp.: Julien, I think, again, it's really premature to be thinking about actions we might take if this happened or that happened. I think we're going to have to give – we have to be patient and I think we're going to have to give Cal Fire its due time to be able to complete a thorough investigation of what happened here, and then we'll go from there. I mean, at this point, I think to speculate on courses of action that we might take under different scenarios is just not constructive.

Got it. But timeline-wise, what's the expectation for each one of these if you were to put something out there? Geisha J. Williams - PG&E Corp.: Well, it's – again, depends on what happens with the Cal Fire reports, when they issue it, what the findings are. And again, way too many things to speculate on it. Again, I don't believe makes a whole lot of sense right now.

Totally understood. Thank you very much, all.

Thank you, Mr. Smith. Our next question comes from the line of Paul Patterson with Glenrock Associates. Please proceed. Mr. Patterson, your line is open.

I'm sorry. Just want to touch base with you on how should we think about how most of these lawsuits may be filed? Do you think that they're going to be done under inverse condemnation or would they go to the negligence route? John R. Simon - PG&E Corp.: Paul, John Simon. It's not clear. There's nine lawsuits filed. There may be others to come. They may allege one or both theories. I haven't studied the existing cases yet, so I can't comment on that. But it wouldn't surprise me if both are alleged. It's just we'll have to wait and see.

Okay. And if they – I guess with respect to the insurance, does that -would the insurance be applied equally under inverse condemnation or under the liability judgment scenario? In other words, could you allocate the insurance to the liability as opposed to the inverse condemnation? Did it work that way? Jason P. Wells - PG&E Corp.: Our insurance covers claims for property under inverse condemnation. It could also cover claims under a negligence standard. So, it would apply to sort of any potential liabilities associating from these events.

But you could allocate the claims from liability to the insure – you could take the liability and apply those claims before inverse condemnation, does that makes sense? Jason P. Wells - PG&E Corp.: I think it's really way too early in a process to kind of begin to speculate with the portion claims. So, honestly, I think we just have to let Cal Fire concludes its investigation and work from there.

Okay. That's it. Thanks so much.

Thank you, Mr. Patterson. Our next question comes from the line of Paul Fremont with Mizuho. Please proceed.

Thank you very much. I guess, my first question, the $1.1 billion, is that an estimate of minimum, maximum, or you're just – or your best guess of likely damages for Butte? Geisha J. Williams - PG&E Corp.: That's the low end of the range, Paul. Jason P. Wells - PG&E Corp.: It does reflect, Paul, the fact that we have settled now roughly a third of the cases. So, we're taking into consideration our experience with these claims. However, as I mentioned, we've received a number of new claims in this third quarter. We saw about a 50% increase in the number of claims, so there still remains some uncertainty as to the detail and nature of those claims. So, right now, I consider it a minimum, but it is reflective of our experience to-date.

Okay. And you've not identified sort of a high end of estimate? Jason P. Wells - PG&E Corp.: We're unable to, at this point, identify a high end particularly given the fact that so many new claims came in the third quarter for which we don't have any detail today.

And then I guess the insurance coverage for Butte was higher than the insurance coverage that you've identified as available for the California wildfires? Can you explain why the insurance amount ended up being less for this event? Jason P. Wells - PG&E Corp.: We've seen a reduction in capacity the insurance markets here in California over the last several years. In California, there's been a number of notable full policy losses in the state of California. In addition, the state of California does have this unusual inverse condemnation doctrine. And as a result, what we've seen is a decrease of available insurance for liability.

Okay. And then, I guess, can you discuss your vegetation practices or the trees that are located near power lines? I guess we've seen sort of – and reports that have come out from some of your peers, that they sort of track vegetation that's within certain distances from the lines and they basically make their decisions on what to do based on sort of updates? Nickolas Stavropoulos - PG&E Corp.: This is Nick again. Thank you for the question. So, as Geisha mentioned, we have a very aggressive vegetation management program across our 70,000 square mile territory. We manage about 123 million trees that are near and adjacent to our facilities. And over the last two years, we've doubled the amount that we have invested in veg management, that includes line clearing to remove parts of trees that are adjacent to our facilities, as well as removal of dead and dying trees. So, the program involves a year-round effort to identify these dead and dying trees through inspection processes where we use foot and aerial patrols; we use LiDAR, which is light detecting and ranging technology to identify the trees that need to be worked. We inspect all of our overhead lines every year, and we do second patrols in high-fire danger areas at least twice a year. In some areas, we do it as often as four times a year. So, it's a very aggressive program. There are specific requirements around line clearing, and it depends upon the voltage of the lines. And it can range up to a feet to as much as sort of 18 inches away from the facility. So, there are all sorts of different requirements depending upon where the facilities are located and the voltage of the facilities.