PG&E Corporation (PCG) Q1 2022 Earnings Report, Transcript and Summary

Thank you for standing by. My name is Cheryl, and I will be your conference operator today. At this time, I would like to welcome everyone to the Pacific Gas & Electric Corporation First Quarter Earnings Release Conference Call. [Operator Instructions]. Matt Fallon, Senior Director of Investor Relations. You may begin your conference

Good morning, everyone. Thank you for joining us for PG&E's first quarter earnings call. With us today are Patti Poppe, 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. These statements 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 first quarter earnings call presentation. The presentation also includes a reconciliation between non-GAAP and GAAP measures. The presentation can be found online, along with other information at investor.pgcorp.com. We also encourage you to review our quarterly report on Form 10-Q for the quarter ended March 31, 2022. With that, I'll hand it over to Patti.

Thanks, Matt, and good morning, everyone. Thanks for joining us today. I'm happy to report that we earned $0.30 in non-GAAP core EPS in the first quarter, and we're on track to deliver our 2022 non-GAAP core EPS guidance of $1.07 to $1.13. We believe in delivering at least 10% EPS growth for you as investors, this year, next year and the following year and at least 9% in 2025 and 2026, putting any annual surplus performance to work for important customer needs, a win for customers and investors. We're underway on my second year here at PG&E with a world-class purpose-driven team focused every day on the triple bottom line, serving people, the planet and California's prosperity. We'll deliver on our triple bottom line by mitigating physical risk and by mitigating financial risk as seen here on Slide 4. We're changing the culture and building new capabilities at PG&E. Our culture is shifting to one of service and performance. We're rebuilding our team's confidence that we will deliver for our hometown. We will serve our planet, and we will lead with love. We've been enabling our leaders to challenge assumptions they have about how and why we do the work that we do. Our culture is an important ingredient in our turnaround here at PG&E. I'm very pleased with the progress that I'm seeing. For our customers and you, our investors, to believe that things have changed here at PG&E, my coworkers have to believe and experience the change themselves. One way to help people experience a new and improved PG&E on the inside is through building the capabilities of our team through our lean operating system. I learned long ago that the customer experience can be improved while we are reducing the cost to deliver. In fact, they often go hand in hand. Improving our work processes takes all of us every day using our visual management tools and our daily, weekly and monthly operating review cadence to manage our performance. We can then identify our gaps and deploy problem solving to address them and set new standards to prevent reoccurrence of the problems. By changing our culture and building our lean capabilities, we're enabling the mitigation of physical risk and financial risk. On wildfire, we're confident that we have the right tools in place to mitigate this risk through EPSS and PSPS as well as making our system safer every day with our extensive inspection program and vegetation management work. And we're ramping up our ultimate solution, our undergrounding program which is designed to permanently reduce physical risk on our highest risk miles. To mitigate financial risk, we're planning to keep customer costs down even as we invest in our system by utilizing our simple and affordable model. And to further mitigate financial risk, we're also focused on paying down debt and delivering on our 5-year non-GAAP core EPS CAGR of 10%. This premium return is driven by our simple and affordable model being on Slide 5. There are many opportunities for us in 2022 and beyond that allow us to invest in necessary and high-value improvements to our electric and gas energy system while reducing the cost to deliver. Let me share an example of the simple affordable model in action. At the end of February, we filed an update to our 2023 general rate case. In the update, we've included the additional $7 billion of capital for our undergrounding plan through 2026 and and an offsetting $1 billion in expense, resulting in a similar revenue level to what we filed in our initial application last summer. We have confidence in our ability to execute these efficiencies due to the use of our lean operating system. For example, as a result of the first year of using lean to drive our vegetation management work we achieved a roughly 16% reduction in program unit costs. This is a big deal. We can make our systems safe with the right investments and keep customer bills affordable that benefits both customers and investors. It is not complicated. In addition to mitigating financial risk with our simple and affordable model, we're mitigating physical risks for our customers. As I mentioned, we plan to make enhanced power line safety settings capable on all circuits in our high fire risk areas this year. As a reminder, on the circuits where we enable these settings in 2021, we saw an 80% reduction in CPUC reportable ignitions. This is the first time we have seen any material reduction in ignition since we have been tracking them. Also, we'll continue to utilize public safety power shutoffs when we encounter dangerous and extreme weather conditions, building on improvements we made in 2021. When we backcast our power shutoff protocols, our analysis shows that we would have prevented 96% of the structures damaged from 2012 through 2020 from catastrophic wildfires. To inform our PSPS protocols, we use billions of data points including PG&E's 31-year weather climatology study to forecast hourly probability of large and catastrophic fires. In addition, we leveraged hundreds of millions of fire spread stimulations each day to help inform our PSPS protocols. Our PSPS algorithms use state-of-the-art machine learning models to increase predictive capability. The technology and data science that underpins our PSPS capabilities is extraordinary. We know shutting off power cannot be a permanent solution. Therefore, 2022 is an important and exciting year for us to learn from our experience in the field on undergrounding our lines. There's a lot of support and interest in our undergrounding plans. In fact, both the California State Senate and State Assembly have legislation focused on utility undergrounding this session. Senate Bill 884 and Assembly Bill 28 89 were recently passed out of their respective legislative energy and utilities committees. This is good progress. We're optimistic that the legislature will work toward a solid solution that's good for customers and attract the investor capital needed to vary the risk. We actually have a new thing around here. How do you rebuild PG&E? From the underground up and we are on our way. Turning to Slide 7. You and my coworkers have heard me talk about leading with love. Many people wonder what is that? Leading with love. Let me give you an example. At PG&E, my coworkers are responsible for keeping themselves and each other safe on the job. While we improved our DART performance, which is a measurement of injuries on the job in 2020, we knew we could be even safer in 2021. I'd like to say, even after best-ever performance, we are still dissatisfied. We found that by utilizing the simple plays from our ClearSky lean playbook, we were able to problem solve and prevent injuries with simple and effective action plans every day. We reduced our DART rate by 25% in 2021 relative to 2020. And as you can see here on Slide 7, we continue to improve this year, which reflects a 75% injury rate reduction since 2019. Coworker safety is where a culture change must start. Teaching people how to deliver and enabling them to believe in their own capability that is leading with love. Another example of the culture shift we are causing here involves our permitting team. I will never forget about a year ago at our first undergrounding planning session, we asked our permitting team what would have to be true to bury 10,000 miles of line. Everyone kept saying that permitting would be impossible. Our permits team stood up and declared. We are not going to be the problem, give us a solid long-term plan and we can get the permits. Come to us a day or a couple of weeks before we need the permit and then we have a problem. It is so true. Everything hinges on solid, long-term plans and well-designed workflow. We all know great plans to deliver predictable outcomes. As we've started to scale the underground program, we've already seen improvements in our permitting process cycle times, something that will set us up for success as we double the miles every year in the next couple of years. Specifically, we've seen an almost 50% reduction in the time it takes to produce and receive approval for detailed design drawings. Our first major underground project took 13 months to design and receive subsequent approval from local agencies, 13 months. Through a focus on implementing standard repeatable processes inside of PGME based on agency feedback and by building associated skills, we've reduced the review and approval time there to 5 months. That is real progress. We are making it right and making it safe at PG&E. I can't think of a better way to lead with loves than that. Before I hand it over to Chris, I'll end with our report card, which you can see here on Slide 8. We chose these metrics to show you where our focus is, culture and capability delivering consistent, predictable outcomes through 2022 and beyond. One metric I want to hit is our annual CPUC reportable ignitions in our high fire risk areas. The reason this metric is important is because fires over 100 acres accounted for 97% of the structures damaged in our service area from 2015, 2021. We have our eyes and our efforts focused on this one. Moving on in the report card. As you can see, as of quarter end, we're on track to hit our annual 2022 targets. Specifically, we're happy to report that we're on track with our miles underground to date target. We varied 41 miles against a plan of 34 year-to-date and are picking up speed. Now I'll hand it over to Chris to cover our financial and regulatory items.

Thank you, Patti. As Patti referenced on the report card slide, we are on track to deliver our 2022 financial commitments. Today, we're reaffirming our 2022 to 2026 earnings per share CAGR of 10% and also reaffirming EPS growth of at least 10% each year in 2022 to 2024 and at least 9% in 2025 and 2026. This morning, I'll cover 3 areas which tie directly to our focus on mitigating financial risk. First, our positive financial results. Second, how we're putting the simple, affordable model Paddy mentioned into practice with a few key examples. And finally, our progress on key regulatory and legal matters. Even with the financial impact from the legal items, our 2022 equity guidance remains the same at $100 million to $400 million. Slide 9 shows the results for the first quarter. Non-GAAP core earnings per share for the quarter came in at $0.30. We recorded GAAP income of $475 million, including noncore items for the first quarter of 2022. This means we've recorded cumulative positive GAAP earnings of $253 million for the most recent 4 consecutive quarters, which means we have met the eligibility requirements for S&P 500 index inclusion. On Slide 10, we show the quarter-over-quarter comparison for non-GAAP core earnings of $0.23 per share for Q1 2021 versus $0.30 per share for Q1 2022. EPS increased by $0.03 due to cost reductions in the first quarter, $0.02 of benefit were derived from rate base growth and timing of taxes contributed $0.02 quarter-over-quarter. As we experienced some timing benefit in the quarter, overall results were in line with our expectations, and our first quarter results put us on track to hit our full year 2022 guidance. Moving to Slide 11. We're reaffirming our non-GAAP core EPS of $1.07 to $1.13. As you can see here, our 2022 equity guidance remains $100 million to $400 million. As Patti mentioned in late February, we filed updated testimony in our 2023 generate case and our 2022 Wildfire Mitigation Plan. In the update, we included the capital for roughly 1/3 of our undergoing program as well as the additional expense from the expansion of our EPSS program, offset by a reduction in vegetation management and other expense across the business. The impact of the increase in undergrounding miles is included here on Slide 12 and reflected in our approximately 9% rate base CAGR. Next, I'll cover some specific examples of the simple affordable model we've adopted that will help reduce financial risk for customers and you, our investors, for the medium and long term. Here on Slide 13, we're providing a purely illustrative view of how our targeted 2% nonfuel O&M reduction can be achieved. For example, we are reducing costs from our suppliers as shown in the indicative $150 million here. We will externally source nearly $11 billion this year to execute our core work. But our focus is on efficient purchasing of materials and support, employing solid industry practices rather than unnecessarily unique standard and stabilizing our requirements with longer-term contracts. We value our supplier partners, and they are an important part of our team and they'll benefit for more certainty to produce more efficient outcomes. We are also reducing on costs this year and in the coming years through modifying our work to shift from quick repairs to more permanent improvements. This means moving on at a customer experience all at once to capital work with cost recovery over a longer period. To give you a sense of the long-term opportunity, our 2020 CapEx to O&M ratio was roughly $0.90 compared to the industry average closer to $1.40. You can bet that we have our eye on that benchmark. We're already using our leading capabilities to stabilize and improve our work planning to drive meaningful improvement. Examples I just covered are important for us for over the next 10 years, but I want to emphasize that incremental improvements are happening now. This year, we are implementing a new scheduling and dispatch platform and some functionality is already being deployed to frontline supervisors and it's allowing for daily visibility for work assignments. Supervisors confirm what work is going out each morning, and what is getting completed by the end of the day. Automated reports will be leveraged to show crew productive time and the related mix of capital versus expense. You've heard us talk about visual management as part of our lean operating system. This is putting it to work to manage a portfolio of over $3 billion a year. Already this year, we've seen quantifiable improvements in our work execution. While our gas maintenance and construction crews have historically performed mostly expense work, they are now averaging approximately 40% in capital. We have a number of smart ways to do our work better, more affordably. You'll hear more about these cost reduction programs at our Investor Day this June. Before moving off this slide, I want to point out that there's also a big cost increase shown here. Costs go up every year. And as we enter a period of high inflation, we're planning on it. The cost savings we're focused on are large enough to offset these increases and deliver a net savings of 2%. Now I'll transition to a few key regulatory and legal updates. Earlier, I referenced our equity needs are unchanged. On the debt side, we're focused on meeting our debt paydown commitments. To that end, I'm pleased to share that the final legal steps have been resolved on our rate neutral securitization request, and we are on track. We intend to price a first series in the next few days. As a reminder, we have CPUC authorization to issue a full $7.5 billion program in up to 3 series. The proceeds of these bonds will primarily go towards paying down $6 billion of temporary utility debt. This transaction was designed to improve PG&E credit metrics, and we look forward to fully executing this important piece of the financial plan. We've also filed an application to issue our second series of AB 1054 authorized wildfire mitigation capital expenditure securitization. We expect a decision in that proceeding later this year. This is an important opportunity to finance critical wildfire risk mitigation work at affordable rates for customers. Along with our deleveraging efforts, our focus on balance sheet health also includes timely recovery of wildfire-related spend. Turning to Slide 14. In the first quarter, the CPC issued a final decision on our 2018 CMA case, and we anticipate collecting that outstanding balance over a 12-month period for the terms of the settlement agreement. Cost recovery of another approximately $2 billion of previously incurred wildfire-related spend is pending a final decision from the CPUC. We are expecting proposed decisions in both of our outstanding Wines cases in the fourth quarter of this year. In terms of historical wildfire impacts, we continue to make good progress on important legacy legal matters. Earlier this month, we announced that we reached settlement agreements to resolve legal proceedings around the 2019 Kincade Fire and the 2021 DCF. As a result of these agreements, criminal charges for the Kincade fire are dismissed and the relevant district attorneys will not pursue criminal charges for the Dixie fire. While we have long stated, we do not believe these fires were the result of criminal conduct, this is a constructive outcome that enables us to continue to invest in making our systems safer every day. As I mentioned earlier, these settlements have not changed our equity guidance for 2022. Additionally, our previously recorded liabilities for estimated third-party claims for the 2018 Zog fire, the 2019 10-K fire and the 2020 Dixfire have not changed during the first quarter. And we are also engaged in settlement efforts to dissolve the securities claims that rode through the Chapter 11 process. Next, I'll cover a brief update on our cost of capital applications pending at the CPUC. In our outstanding 2022 application, we demonstrated extraordinary events warning and departure from the cost of capital mechanism and argue that the cost of capital components should remain at the pre-2022 level. Separately, on April 20, we filed our 2023 cost of capital application. We are requesting an 11% return on equity. Consistent with the details in our application, we believe this ROE is fair and necessary. We've made the case that this reflects an appropriate return on equity for PG&E which reflects a higher risk premium, driven by our current credit rating and the substantial stock discount we trade at relative to our peers. On the FERC side, in mid-March, we received a decision on our TO 2018 filing, as well as a favorable Nice Circuit Court decision, providing support for our 50 basis point California-specific adder. We have filed for rehearing on the TO 2018 case. These outcomes only impact prior periods. As a reminder, our FERC approved current return on equity through 2023 is 10.45%. I'll close by reiterating that we're mitigating financial risk by delivering stable financial results. Non-GAAP core EPS growth of at least 10% per year in 2022 to 2024 and at least 9% in 2025 and 2026. We're on track to deliver our 2022 financial targets while also running the business with a focus on the long term. We'll continue to make the right investments for our customers, both in terms of risk mitigation and affordability. And with that, I'll hand it back to Patti.

Thank you, Chris. As we move through 2022, you can see how we are squarely focused on minimizing physical risk and financial risk. System resiliency, including our 10,000-mile undergrounding program provides long-term sustainable wildfire risk mitigation. In the near term. We continue with our engineered enhanced power line safety settings where fuel risk is high and our public safety power shutoff program during high wind events. Ultimately, we are investing in a hardened system that is resilient to the effects of climate change. To mitigate financial risk for our customers and our investors. We will continue to make the right investments affordably. We're focused on creating the culture and the capability we need, allowing us to execute on these operational and financial imperatives. We'll keep an eye on the horizon and ensure we're making the right investments to deliver California's safe, reliable, resilient and clean energy future. That's the way we serve customers and you, our investors. On a final note, many of you came to see us last August in California this June, we're coming to see you. We hope you can join us at our Investor Day on Friday, June 10, in New York City. We look forward to seeing you there. With that, operator, please open the line for Q&A.

[Operator Instructions]. The first question is from Shahriar Pourreza of Guggenheim Partners.

Patti, just a question on undergrounding. I know you obviously highlighted the legislative initiatives that are out there. zeroing in particular to 884, there's obviously some questionable constructs proposed like earnings deferral. I mean, we appreciate that it's kind of early in the session. But do you see a need for legislative improvement? And is this Senate bill in palatable would you even spend capital with this bill? And if the bill makes it out of the chamber at all, do you see that as a setting sort of a bid ask for negotiations or some sort of a construct later on? So just maybe more specific thoughts there.

Yes. Obviously, it's top of mind, Shar, and we appreciate the question. And you said it, it is early, that's the bottom line on this. I'm learning about the California legislative process, but I am assured that there's lots of opportunity for us to find a great outcome. The good news is people love undergrounding. So we're happy that the customers and our communities are responding very favorably to our proposals, and we're happy to see the progress that the team is delivering. And so I'm very confident very confident they're going to find a pathway to a really good outcome. And I'll say that even in Senate Bill 4, there are some good elements there about permitting and partnership with telecom. There's a lot that could really be assisted legislatively. But I will also add that our plan doesn't contemplate legislation. Our plan stands on its own, and we certainly can make good progress without any legislation. And so we'll be working closely with key policymakers to make sure it's a great outcome for customers and investors.

Okay. Perfect. And then just one last one on the wildfire victims fund. I mean, obviously, we saw the fund going to market with shares twice this year. there were some perceptions of need for maybe improved alignment after the first tranche was sold, which obviously didn't happen. Do you get a sense that the fund doesn't see a need to align a coal market with PG&E maybe from a political standpoint after these deals. I mean, at this point, do you think it's fair to assume continued selling when we see positive news from PCG post lockup periods. And have there been any like opportunities for refreshed conversation or feedback with the fund?

Shahriar, it's Chris. There's a lot there. Let me just kind of try to tackle the different pieces there. So just in terms of where we are at this point. So from the company standpoint, PTs completed all the cash payments to the trust of about $6.75 billion. The total so far, the trust has sold about 100 million shares. So call that roughly another $1.2 billion. And at this stage, we certainly think it could be advantageous if the company has the opportunity to co-market alongside them for a public offering. And so there's very open communication lines there. And I know there's a lot of interest here in the selling patterns of the trust. I'd just say the trust really has its own fiduciary interests. And they're going to independently make those decisions on whether and when and how they're going to sell the stock. But I do want to emphasize, Shahriar, we've had that dialogue and provided the trust advisers really with some of the investor feedback following the recent sales, and we're absolutely ready to cooperate under the terms of the registration rights agreement that we've got. Because ultimately, the focus here, as you can imagine, is on -- for them and for our investors is to continue to focus on is going financial risk mitigation, and that's going to provide clear value to really all parties here. So we've got a lot of alignment at its core.

Your next question is from Steve Fleishman of Wolfe Research.

So just on the -- sorry to ask on the same topics, and it tends to be a popular one. The -- there was these stories the last week or 2 about a potential involvement of the trust seeking like a loan from the California government, I guess, to deal with getting cash instead of directly selling shares. Is there any update in that process? And -- is that something that you're involved in at all? Or -- yes.

Steve, I'm happy to take it. is tough to speculate, as you can imagine on where some of that would eventually land. I think there's kind of 2 different concepts at high levels that have been discussed that we've certainly seen in the media. The first would be this concept of would there be the potential to tap the wildfire fund itself. We've obviously got concerns about that, as you can imagine, for purposes of the importance of the fund being there as a backstop for all Alon utilities. The second alternative more recently that was referenced in terms of a potential loan from the state in order to provide more time and more growth for the company's underlying stock value. Again, tough to know if there's explicit traction there. Again, I would say, certainly, our state is in a budget surplus position but just tough to know where that will land specifically. I think our focus has been more on educating and ensuring that there's alignment on the fact that the wildfire fund itself, it's important to protect that as a foundational tool for downside risk for all California utilities.

Great. Other question is just the new -- we've had the 2 new commissioners now in place for, I guess, months now, and it's been very quiet, which is, I guess, kind of nice in California. But just maybe curious, any sense you're getting from the commission on priorities for the year? And they have a lot of different things on their plate just ranging from cost of capital to net metering to obviously, electrification and clean energy? So just any better sense of priorities of the new President and commission?

Yes. Well, as we've said before, Steve, we are very grateful to have talented and capable commissioners. And Alice and John were 2 great additions to the commission based on their experience and their knowledge of California energy and energy challenges. And so what we expect is their priorities are very much aligned with our own. Affordability is obviously an important topic here in California. And I think nationally as inflation is starting to pressure families affordability is an impure topic, which is what makes our simple and affordable model so important. And it will be great for us to be able to build trust with the commission when they start to see the simple and affordable model in action as they were able to see in this GRC update that we made that showed that we could invest in undergrounding, reduce expense and keep the request about the same. That was the first sort of, I would say, public example of that simple and affordable model in action. And so we do look forward to working with the commission on making sure that our energy is affordable, safe, reliable and resilient. And so as you said, there's a lot of priorities and I'm convinced that the commission is very capable to deal with those priorities as is the team here at PG&E.

Your next question is from Jonathan Arnold of Vertical Research Partners.

A quick one on undergrounding, could you maybe give us an update on efforts to secure sort of federal and/or other funding out by your customers? Just -- and then just how you think about that as part of the plan? Is it a way to get more safety for the same bill impact or accelerate? Just how we should think about that as you contemplate that?

Yes, Jonathan, great to hear your voice. We are -- we think that it's quite reasonable to expect that we'll be able to attract the capital to fund the undergrounding efforts. This filing that we made, the update to the GRC cannot be understated what we -- the message we were able to send in numbers, in dollars and cents. In fact, we can invest in undergrounding with our new capability that we're building to reduce cost here at the company. So there's a real opportunity for us to continue to demonstrate that external funding sources are not required to deliver this. Now that's not to say that we would object if somebody wanted to help contribute things related to other parts of the wildfire expenses, for example, if there was external funding for vegetation management or some of the expense-related issues associated with our wildfire plans, I think that would be something that we were very interested in talking to people about. But we think the undergrounding investment is the right investment for customers and we can offset the cost through the expense reductions. The other thing I'll point to is something Chris talked about in his prepared remarks, this ratio of capital to expense and what opportunity there is here at PG&E to get that ratio more in line with benchmarks. When we're at a capital to O&M ratio of 0.9, that means that we don't have the ratio right compared to benchmarks at 1.4 million. So we really think that undergrounding is a good example of how you can shift from the expense laden spending that we've been doing shift to a more permanent fix that is good for customers, a safer solution, a longer-term permanent solution investing that capital. We think you -- the investment community and others will appreciate the value of that, and that's an important message for us to continue to send here in California and demonstrate the value of that getting that ratio right.

Great. And could I also ask on just thoughts around the timing for getting into parent debt reduction. I think you have a commitment that runs out through the end of '23, but should we think of that as being something that get going once securitization starts to get going? Or is it kind of more out towards the end of the window?

Jonathan, it's Chris. I think ultimately, we're definitely focused on the $2 billion reduction by the end of 2023. Haven't been too specific beyond that, but I would just generically consider the rate neutral component, an important milestone as we go. And again, as I mentioned, we're actually really in parallel today in the market on that rate neutral securitization as well.

Okay. Perfect. And did I see a number of $3 billion that you're out with now or?

Yes. I would think about in terms of that filing, I think about that as a floor, Jonathan. Ultimately, what we're trying to do there and what I mentioned on the call, the prepared remarks is that we're substantially oversubscribed. Really what we're trying to do, as you can imagine, is find that balance between the fact that we've got the flexibility to do these 3 series and also make sure that we keep in mind knowing the market backdrop that is volatile, to get a good amount in in this first series but also balance customer affordability, which is just going to be key.

Your next question is from Julian Dumoulin of Bank of America.

Just following up here on the cost of capital, I saw the prepared remarks but -- just curious if you can talk a little bit more on the accretion side as one of your peers has talked about asking for an increase there. Just did you guys talk about risks, whether that's the CCA or on wildfire concerns, et cetera. Why not touch both variables here, not just the ROE component but also the equity ratio here?

Sure, Julien. And as you can imagine, we've got both the 2022 cost of capital adjustment mechanism being contemplated but also 2023. You're specific, I think, pointing to the 2023 filing, we did maintain the consistent capital structure there. And ultimately, what you saw in terms of our 11% ROE request, it was directly reflective of what we had filed even last year as we contemplated the update to the 2022 case. So what we're expressing there is consistency across cases of what we're seeing in terms of ongoing risk to the enterprise, necessitating both 11% ROE, but also maintaining the cap structure itself. As you probably also thought a moderate increase to long-term debt to 4.27%, which we think is reasonable as well.

Got it. All right. And then just -- can we talk a little bit about the upcoming wildfire season and the risk profile there. Obviously, we've seen some comments about water availability in the state of late. But can you given the mix of your system improvements that you already identified in the prepared remarks and these projections for Water, can you talk about sort of the net and how you guys would frame your assessment for the summer?

Julien, it's such an important question and something that I really am thankful for our team and particularly a shout-out to all our engineers here at PG&E for the incredible work they've done I can't overstate the progress that has been made through the implementation of these engineered enhanced power line safety settings. As we filed in our updated GRC and our wildfire mitigation plan, we've shown a dramatic risk reduction, a quantifiable risk reduction over 90% and that is a huge progress in 1 year. And so let me just hit a couple of high points about why that's true. One, these engineered settings, as we shared last year in the areas where we implemented them, we had an 80% reduction in ignitions. While this season, I'm so excited to report that we have already deployed and enable those enhanced power line safety settings in our entire high-fire threat area. We'll be done by early next week. We did a review this week in our Wildfire command center and the engineers, we're very excited to share the progress they've made. But we're not stopping there. We're doing it in adjacent areas as well. And so we committed in our wildfire mitigation plan to have those adjacent areas done by August, but I'm happy to report, we're going to have that done in a matter of weeks, not months. And that is a very important safety backstop for our customers and being able to de-energize those lines with the contact of an animal, a tree, anything less than 1/10 of a second puts us on a new plane of safety and I just can't overstate the benefit of that to the system. So for example, this year, we're utilizing all of these millions of simulations and data extracts that we have every day to determine, does the circuit need to be turned on today. We're thinking of this that there's no longer that we have to prepare for a wildfire season. We're going to be prepared every day, Julian. This team is going to be ready to go and we have information and data at already that allows us to make those decisions. So for example, this year, we've already initiated EPSS on certain circuits under certain conditions, and we've had 27 outages on an EPSS-enabled circuit. In other words, we had enabled EPSS and something did, in fact, make contact with the line and it did, in fact, be energized, and we had 0 ignitions in all of those EPSS-enabled circuits. That is a safe risk-reduced system that is in play today. I couldn't be more proud of my engineers for the incredible work they've been doing night and day to make sure that our customers are safe, no matter the conditions.

And then, Julian, if I could just build on that, I think Patty hit it really well. And what we're focusing on today, as you've heard, is both physical risk reduction of the system as well as financial risk. And the other key thing to think about there is that we've also now just last month completed the update to our wildfire-related insurance. So for the period of, again -- basically, think about it as April this year to April of next year, we've got $940 million of Wilba-related insurance, too. So good protection there on really both sides. So risk reduction and financial risk reduction.

That's our Belton suspender solution.

Your next question is from Michael Lapides of Goldman Sachs.

Patty, Chris, have a system reliability and renewable question for you, which is you're very active as are your California peers in buying incremental solar and storage to meet summer peak demands. But there's a lot of solar and storage projects around the country that are facing delays, whether it's supply chain, whether it's part of the circumvention related case. How are you thinking about it -- first of all, are some of the projects or many of the projects you've contracted for already off schedule that you're aware of? That's question one. Question 2 is if you have projects where you're the buyer of the power and it looks like they're going to be delayed. How do you backfill that for reliability purposes?

Yes. Great questions, Michael. Nice to hear your voice. We -- first of all, we're very comfortable about our supply situation for this summer for 2022 even if no additional storage comes online. And so we are already planned prepared. Our Moss Landing facility came online. That's 182 megawatts of storage that we're very excited about utility-owned storage. We are prepared for this summer. But all that being said, you're right, there are supply chain deficiencies. And thankfully, we plan conservatively and are prepared -- we're prepared for that. But I don't think those supply chain issues are permanent. There's such market demand, the market will figure this out. Again, we're prepared for this summer. But as the coming years evolves, we know that storage is a critical complement to the renewable and clean energy ambitions of California, which is what made us so excited about our announcement with General Motors and Ford and our continued relationship with BMW on bidirectional charging vehicles. We have 6,600 megawatts of capacity driving on the roads of PG&E service area today in the form of electric vehicles. Not a single kilowatt of those cars are powering back to the grid. That's a huge opportunity for us. In fact, that's 3 large power plants of capacity, driving around the roads of California, specifically our service area. That, we think, is a really long-term ambition that we can optimize supply and demand and have a much smarter energy system, and our team is fortunate to be here in the Bay Area with the incredible commitment to clean energy, we can actually get back into a leadership position, leading the world in this clean energy transformation. And it's not going to be, I would say, the system of old, big bulk power delivering on large transmission. I think we're going to have a lot more distributed resources that we're going to be able to enable and optimize demand. So we're pretty excited about what the future holds for us here.

Okay. And then a follow up in a little bit of a regulatory question. Now that all 3 of the utilities in the state have filed their cost of capital proceedings for 2023. Do you think there's a potential scenario where you and the various intervenors could potentially come to a settlement between now and the year-end? Or do you think this has to go the fully litigated process?

Michael, it's Chris. Good question. I think it's a little premature to know exactly how it would how it would play out. Ultimately, we've had a good track record in the state. I just have to say in terms of the timing. I think the commission recognizes the importance of the case is just for certainty purposes. And so certainly on cost of capital adjustment mechanism piece that one is a little bit less clear in terms of the calendar. But in terms of the 2023 to 2025 consideration, we have asked for a December 2022 decision. And I do think the commission has got a good track record of kind of generally keeping it around that time frame or early the subsequent year, just so that we know what we're heading into. But tough for me to speculate, as you can imagine, specifically on settlement posture just where we are right now because we've really just filed, what, last week.

Your next question is from Nicos Campana of Credit Suisse.

So I guess a lot of things have been answered, but as it relates to just maybe the agencies, I'm sure you kind of met with them like everyone else this past quarter. Can you just kind of maybe update on some of the discussions you're having with them? What are they looking for in terms of just getting you back to IG if you kind of have any outlook in the plan here at this point? I know that there's going to be some material holdco debt paydown in '23, but maybe you can just talk to that a little?

Sure. Happy to Nick. I think there's really 3 factors that they're looking at closely when we talk often. I think the first is certainly its highest order. Just how are we doing toward operational-oriented risk reduction and progress there? And I really mean that broadly across the enterprise, not necessarily just around wildfire risk. I think the second piece really relates to the level of alignment with both the state and our customers. How are we making -- how are we looking in terms of progress on key regulatory cases, outcomes there? As well as ensuring that, frankly, some of the volume lessons around impacts that we're having to customers. And that's why we've got a tighter plan this year as it relates to our EPSS program. And then finally, it's hitting our core financials. I think ultimately, there are focus on the balance that you mean, and we've talked about consistently in terms of heading back to the FFO to debt guide that we've given of mid- to high teens in 2024 as well as starting down this path, right? I mean this is what's so key about our rate neutral securitization. Again, that we're expecting to close this in May, we're in the middle of pricing here over the next few days. And that really starts that path, right? We're able to take out $6 billion of temporary operating company debt and really get back to here our regulated capital structure, so when you pull them together, it really is that combination. They want to see progress on the operational plan. We're going to be showing you and then that every quarter. Two, regulatory outcomes. We've got some key components up here in front of us, right, of our wildfire mitigation plan approval that's up here in front of us. How does the enhanced oversight process turned out and the progress we're making there in our vegetation management program. And then finally, like I said, hitting our core financial program, and we're definitely on track there as well.

Your next question is from Greg Orrill of UBS.

Just in terms of proving out the liability improvements for maybe 1054, can you talk about how you're thinking about the $2 billion of wildfire mitigation spend that you have pending and maybe also the regulatory asset around Dixi that you have? And if those are milestones or if there are other ones you're thinking about?

Sure, Greg. Let me try to take both of those. They're definitely related in one way. I think one, if I'm hearing you right, it's specific to how we've been able to continue recoveries on prior wildfire investments. I do think you saw our disclosures today and the update is we continue to work our way, that $4 billion-plus down really quarter-over-quarter indicated this time that we've actually seen $1.25 billion come through in rates. So there's key progress already underway there. With regard to the Dixie related progress itself, again, the headline there is no explicit change to the charge itself. What I would offer is in terms of thinking about when AB 1054-related considerations would come about. We have put forward a fast claims process as part of the settlement that we recently announced which would allow for a resolution of claims that come forward within 75 days. The only reason I'm offering that as an example is you could see us in one scenario start to accelerate some claims. Keep in mind that we do have over $560 million of insurance to apply against that. But I'm just offering that to you, Greg, is a little bit of color for -- there could be a scenario here where we're able to accelerate some of these considerations to call the eventual question of recoveries in terms of FERC, the CPUC and eventually the wildfire fund itself.

Next question is from Ryan Levine of Citi.

Congrats on the S&P inclusion qualification, with income. I guess 1 follow-up on that. Are there any near-term onetime items related to the legal cost securitization or trust sales that could impact the GAAP requirement in the upcoming quarters. There was, I guess, footnote 6 in your release had some data that suggested maybe?

Sure, Ryan. I think in terms of looking forward, I think the example that would be there in terms of what we've consistently described as legacy legal claims would be explicit to the securities related items that rode through the Chapter 11 process. We did indicate that we are in discussions there. And so I think that is an item that we're currently evaluating.. What I want to emphasize there, though, Ryan, is that we've certainly come forward with our best information today in terms of where those discussions lie and those have not impacted our equity guide of $100 million to $400 million. So I just wanted to offer to you that we've got that level of insight there and this does not impact the financing guide that we've given for 2022. Hopefully, that helps in terms of a way to think about it need to be specific on the negotiation.

With the rate neutral securitization or Fire Victims Trust sale, given the Grane Trust decision from last year impact the GAAP income profile in the coming quarter?

I mean it'd be tough to -- again, that would depend on whether the trust itself is selling. What we did disclose today is that there is a tax benefit that comes through this noncore. Thus far on the trust sales, I think we disclosed it at $135 million in terms of the 100 million shares that have been disposed so far.

Okay. And then in terms of the Analyst Day in June, is there any color you could provide around what you're intending to communicate at that event?

Yes, you bet, Ryan. You're not going to want to miss it. We have the opportunity to showcase this all-star team I know you had a chance to meet him when he came out in August last year, is an extraordinary team leading PCG, and we want to make sure that everyone gets a chance to hear from them on things like our business process improvement, the wildfire technology that's underpinning our risk reduction here, our undergrounding plan, and certainly our simple and affordable model in more detail and any then regulatory implications and benefits as a result of that deployment of our simple and affordable model. So really going deep on this physical and financial risk mitigation that we really want people to understand firsthand from our top leadership team here at the company.

We have completed the allotted time for questions. I will now turn the call over to Patti Poppe for closing remarks.

Thank you, Cheryl, and thanks, everyone, for joining us today. It's always a great opportunity for us to share with you the progress that we're making in the transformation of PG&E. The physical and financial risks continue to be reduced in meaningful ways, and we look forward to again sharing more with you about that at our June 10 Investor Day. Again, I'll be joined by this All-Star team, and I know you'll enjoy hearing from them directly about how all the things Chris and I have talked about today are coming to life. The culture and capabilities that we are building at PG&E create a sustainable, winning business model for this company, and we couldn't be more excited to be able to share that with you in June. We'll see you in New York.

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