Pacific Gas & Electric Co. (PCG) Q4 2017 Earnings Conference Call Transcript

Pacific Gas & Electric Co. (PCG 0.24%)
Q4 2017 Earnings Conference Call
Feb. 9, 2018, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning and welcome to the PG&E fourth quarter earnings conference call. All lines will be muted during the presentation portions of the call with an opportunity for questions and answers at the end. At this time, I would like to introduce your host, Chris Foster, Senior Director of Investments with PG&E. Thank you, and enjoy your conference. You may proceed, Mr. Foster.

 Chris Foster -- Senior Director Investor Relations

Thank you, Kiera, and thanks to those of you on the phone for joining us. Before I turn it over to Geisha Williams, I want to remind you that our discussion today will include forward-looking statements about our financial outlook which are based on assumptions, forecasts, expectations, and information currently available to management. Some of the important factors that could affect the company's actual financial results are described in the second page of today's fourth quarter earnings call presentation.

The presentation also includes a reconciliation between non-GAAP and GAAP measures. We also encourage you to review the 2017 annual report on Form 10K that will be filed with the SEC later today and the discussion of risk factors that happened there. With that, I'll hand it over to Geisha.

Geisha Williams -- Chief Executive Officer and President

Thank you, Chris, and good morning everyone. I know that the Northern California wildfires continue to be top of mind, and I will spend the majority of my remarks on that topic today. I'll also touch on the progress we continue to make in our core operations, including improving our ability to prepare for and respond to potential wildfires. Finally, I'll address how we're developing and implementing innovative solutions that both better serve our customers and help to advance California's clean energy goals. Jason will then address tax reform impacts followed by a walkthrough of the financial results for the quarter.

The record wildfires both in Northern and Southern California have had an extraordinary impact. They were absolutely tragic for the communities and families who lost loved ones and property and who continue to be in our thoughts as we support their recovery. They've had profound financial and economic consequences for the state, and of course, they've significantly impacted the utilities. At this point, CAL FIRE is continuing its investigations, and we still don't have a conclusion on the causes of the fires. But across the state, there is a growing recognition that we need comprehensive solutions and that we have to think differently about how we prevent how we respond to and recover from wildfires, as well as the importance of infrastructure resilience. Governor Brown has acknowledged this in his public comments. So have members of the legislature, and so have CPUC President Picker and other CPUC Commissioners.

We all recognize that California is facing a new normal when it comes to climate threats. I couldn't agree more. And looking ahead, we understand these challenges aren't going away. We have to adapt. That includes working together to manage and mitigate climate risks. It includes looking at how we plan future investments, and it includes ensuring that our state's infrastructure is more resilient. More immediately, it requires changes in operating practices which I'll touch on in a minute. Our communities need physical infrastructure that can withstand this new environment and rebound quickly, and we also need the policy infrastructure that facilitates our ability to recover from these events as well.

It's bigger than just PG&E and the other California IOUs, and much bigger than just this past years' fires. This is a collective, societal challenge. For example, it has a direct impact on the state's ability to meet its bold clean energy goal. The Northern California wildfires last year resulted in the equivalent of a full year of vehicle emissions in California over the course of just a few days. This simply isn't sustainable. Our commitment is that we're going to work together with leaders in the state, in our communities, our customers, our regulators, our fellow utilities, and others to find solutions.

Of course, it's complex. But in one sense, this is nothing new for us or our partners. Together, we've tackled big, complex challenges for decades be it systemwide rebuilding codes and system code modifications following the Loma Prieta earthquake, reaching the state's target for 33% renewables three year early while also improving reliability, or just recently, the joint proposal that was approved to safely retire our Diablo Canyon nuclear facility while replacing its carbon-free baseload power with clean energy resources.

In the meantime, I want to acknowledge up front the impact the wildfires have had on our shareholders as well, in particular, we know the dividend suspension was difficult news for our long-term investors, so let me speak to that. I want to emphasize what we said at the time of the announcement. The decision was not the result of any new information about causes of the fires. As I noted earlier, those investigations are ongoing and may be for quite some time. The decision was driven by the level of uncertainty about the potential causes and liabilities associated with the fires. Ultimately, the board and management, with the support of independent advisors, determined that suspension of the dividend was the prudent and appropriate course of action under these difficult and uncertain circumstances.

We recognize the importance of dividends to our investors, and we intend to revisit the issue as we get more clarity on any potential liabilities. The board has the appropriate flexibility to reinstate the dividend if we're able to narrow the current broad range of potential exposure and uncertainty. Until then, be assured that this issue is top of mind for the board and the management team, and we continue to reevaluate this on a regular basis.

As many of you already know, the biggest factor underlying the current uncertainty is California's application of inverse condemnation to investor-owned utilities. This establishes that a utility may be strictly liable for damages and legal fees if their equipment is found to have been the substantial cause of an event, such as a wildfire, even if a company acted reasonably. It effectively makes utilities the default insurers for wildfire risks, shifting the cost to our shareholders with no assurance of rate recovery. This is simply bad public policy. We believe the legal theory behind it is severely flawed, and we're challenging it aggressively on three fronts in the regulatory, legal, and legislative arenas.

From a regulatory perspective, we've requested a rehearing of the CPUC and the San Diego Gas & Electric Company's Wildfire Cost Recovery proceedings. On the legal side, we filed a motion about a month ago. There we've asked the trial court in the Butte wildfire case to reconsider its interpretation of the application of inverse condemnation given the CPUC's decision in the SDG&E case. We have a hearing that's been set for March 15^th where we will provide our arguments. And finally, we're informing lawmakers as part of a broad effort to tackle what is ultimately a societal issue of climate change and the holistic solutions that must be addressed. This includes improved resiliency for California as it relates to extreme climate-driven events, and we believe part of that solution must involve rationalizing the application of inverse condemnation.

In the short term, action is needed now, before we experience another fire season. And over the long term, not addressing this issue has grave implications for the industry's financial health and our ability to attract affordable capital needed not only for California to meet its clean energy goals, but for us to continue to deliver on our priorities of safe, reliable, affordable, and clean energy for our customers.

Let me transition now to our core operations. I'm really pleased to share that just this morning, we, along with the joint parties, announced that we will not seek rehearing of the CPUC's decision on the Diablo Canyon power plant joint proposal, and that we will be withdrawing our license renewal application at the Nuclear Regulatory Commission. This is a huge milestone, and as I mentioned earlier, an example of what can be accomplished through partnerships and coalitions.

Looking back now to 2017, I'm really proud of how our employees stepped up during what was really a challenging year. We've just come through a year with record-breaking rains, record-breaking heat waves, record numbers of dead or dying trees, all culminating in the most destructive wildfires we've ever seen. As a result, I want to acknowledge the incredible focus and dedication of our employees. In 2017, our teams worked an incremental one million hours, or a 50% increase above our historical norm in support of our customers and communities while continuing to advance our grid modernization efforts.

Looking ahead, as I mentioned, action is needed now prior to another wildfire season in our state, and so we're aggressively moving forward with our 2018 wildfire season plan, as well as some customer-focused specific efforts in the impacted areas in the North Bay. As you can imagine, our planning is also focused on fire resiliency, which will be reflected in our 2020 GRC.

We've already taken specific actions that we'll continue to execute on at a system level for 2018. They include first, in high-risk wildfire areas, disabling all distribution system remotely controlled reclosers on high-risk days, and disabling manually operated reclosers throughout the wildfire season. Second, expanding use of weather stations and forecasting modeling. Third, expanding our already extremely comprehensive vegetation management practices. And fourth, working collaboratively with first responders and others to evolve our prestaging and emergency response capabilities.

And we've already implemented new protocols for de-energizing our lines, a highly complex issue. Just as important, we're moving forward now on engaging the impacted local communities. The families and core local government officials as part of the Rebuild North Bay are ready to tackle creative solutions that reflect California's ability to move quickly with technology-based advances, and we'll be right there with them. We'll be working with the communities to see where new system design and operational improvements can be executed quickly. We'll be looking at non-wood poles, high-definition cameras, and new inspection techniques, as well as exploring micro-grid solutions that fit their specific needs.

Across the enterprise, we've remained focused on executing operational goals that form the foundation of our company in the next few years. And to that end, we're also not letting up on pursuing projects that will keep California at the forefront of clean energy policy. I'll highlight two areas that we're looking at in 2018, both of which I'm particularly excited about.

First is a project in Oakland. The areas surrounding the Port of Oakland are undergoing exciting changes under the leadership of Mayor Schaaf and other local leaders. We're contributing to that vision as well through what we call the Oakland Clean Energy Initiative. This is a proposal to provide the California Independent System Operator, or Cal ISO, with a really creative clean energy solution. We filed an alternative to replace an aging fossil fuel fire power plant with state of the art clean energy through a portfolio of energy efficiency and distributed generation resources that will provide reliable power to Oakland and other communities throughout the Bay area.

It's groundbreaking because when it's approved, the proposal would mark the first time that local clean energy resources are proactively deployed instead of fossil fuel generation for transmission reliability at this scale. It's big. And just last week, the Cal ISO included the approval of this project in their draft transmission plan, which is a key step in moving this forward. We see this as a preview of what the future of energy will look like. It's a great example of what we can do for our communities and our economy when we work together to come up with innovative solutions. And we're looking at opportunities to push the envelope in other areas as well.

In addition, we see tremendous opportunity to partner in helping to meet the state's carbon reduction goals in the electric vehicle space. Governor Brown recently issued a zero-emission vehicle executive order which sets a goal of having five million zero-emission vehicles on California's roads by the year 2030. Our energy infrastructure and nearly 80% GHG-free electric portfolio are key enablers of meeting this goal, and we look forward to working with the state in achieving it. We're already implementing our EV Charge Network, and in the coming quarter, we hope to receive approval for the $250-million filing we made early last year. This request moves beyond the light-duty vehicles and looks at medium and heavy-duty electrification technologies, and even school bus electrification for our communities.

These efforts, really using our planning and engineering expertise to push for clean energy solutions, while testing and evaluating new vehicle electrification efforts, represent just a portion of our commitment to advancing carbon-reduction goals for California.

So, before I turn it over to Jason, I want to reiterate that we are aggressively pursuing all avenues to address the application of inverse condemnation to investor-owned utilities. This is a critical issue that must be resolved, and I can assure you that we will continue to take a lead role in addressing it. At the same time, we haven't lost sight of our core operations, providing safe, reliable, and affordable, service, and offering innovative solutions for our customers continues to be our mission each and every day. And finally, we look forward to partnering across the state to tackle climate change impacts, and in the meantime, proactively addressing system resiliency to mitigate the impact of future events. As I said earlier, this is much bigger than just PG&E, but we recognize that we play a key role in helping to meet our safe clean energy goals, and we're excited about the opportunity that represents for both our customers as well as our shareholders.

With that, I'll turn it over to Jason to walk you through the financials before we take your questions.

Jason Wells -- Senior Vice President and Chief Financial Officer

Thank you, Geisha, and good morning, everyone. First I'd like to address 2018 guidance. Given the uncertainties stemming from the October 2017 Northern California wildfires, we will not be providing 2018 earnings per share guidance on today's call. We will revisit this as we have better clarity into potential liabilities, if any, related to the Northern California wildfires.

I will, however, be addressing CapEx and rate-based guidance for 2018 and 2019 as well as sharing how we're thinking about equity. I want to emphasize that this guidance assumes no additional impact from the October 2017 Northern California wildfires beyond what we're providing on today's call.

So, today I'll start by covering the expected impacts from tax reform, and then transition to our fourth quarter results.

Slide four outlines the expected impacts from the Tax Cuts and Jobs Act signed into law in December. Income taxes are a significant component of our cost of service, so we expect tax reform changes to provide benefits for our customers in the long run, and we also expect these changes to generate higher rate-base growth for our shareholders. There are also impacts to PG&E's cash flow and financing needs as well as a transition charge we recorded in the fourth quarter. I'll talk about those in a minute. But first, I want to emphasize that we are very early in the overall implementation of tax reform. Our guidance reflects best expectations today, but there is work to be done to get all the details ironed out, and ultimately, the CPUC will need to authorize how and when tax reform is implemented.

In early January, we informed the CPUC that we would file our plan to implement tax reform by the end of March. On the GRC side, we are already required to track the impact of tax law changes in a memo account for disposition in the 2020 GRC. Our filing in March would accelerate that timing. In terms of the impact on revenues, we anticipate that the revenue we collect from our customers will be reduced by approximately $500 million annually as a result of the lower corporate tax rates. While this revenue reduction will be effective starting in 2018, the actual bill impact may be lower in the first year as we await CPUC approval on the implementation plan.

From a federal cash tax payment perspective, we won't see any immediate benefits due to our net operating loss. And while the lower corporate tax rate will reduce federal tax payments in the long run, the elimination of bonus depreciation accelerates the amortization of our net operating loss carried forward. This results in PG&E becoming a federal cash tax payer in 2020 which is a year earlier than our previous expectation of 2021.

Based on the combination of these drivers, an in particular the elimination of bonus depreciation, we expect rate base will be about $500 million more in 2018, and then an incremental $300 million more in 2019, for a cumulative total of $800 million more over the next two years.

Through 2019, we now expect rate-base growth of approximately 7.5-8% annually compared to the 6.5-7% we shared on our third-quarter call. Beyond 2019, while we expect rate base to grow at a higher rate as a result of tax reform, the incremental growth will begin to slow given that bonus depreciation was already scheduled to end in 2020 under the previous law.

So, stepping back from an overall cash perspective, we anticipate that tax reform on a net basis will drive incremental equity needs of roughly $200 million more in 2018 and 2019 for a total of $400 million more over the next two years. I'll talk more about equity in a bit.

While we're not providing earnings guidance today, we'd expect an increase in earnings from operations consistent with the change in rate base.

Finally, in the fourth quarter, we did record a one-time charge of $147 million after tax which reflects the revaluation of the holding company's net operating loss and deferred tax assets at the utility that fall outside of regulation for things such as disallowed plant. This charge is reflected as an item impacting comparability in our fourth quarter results. In summary, while we need to work through the regulatory process, it is clear that tax reform is going to provide long-term benefits to our customers and also drive higher rate-base growth, financing needs, and earnings.

Slide five shows our results for the fourth quarter. Earnings from operations on a per-share basis came in at $0.63. GAAP earnings, including the items impacting comparability are also shown here. Costs associated with the Northern California wildfires totaled $82 million pre-tax and included reinstatement of our insurance as well as legal and other costs.

For the Butte fire, we recorded legal expenses of $15 million pre-tax. Pipeline-related expenses were $12 million pre-tax for the quarter. Our legal and regulatory-related expenses came in at $2 million pre-tax.

Moving on to slide six, which shows quarter-over-quarter comparison from earnings from operations of $1.33 in Q4 last year and $0.63 in Q4 this year. We were $0.33 unfavorable due to the timing of the final Phase 2 decision in the 2015 GT&S rate case which was received in December of 2016. This fully reverses the favorable year-to-date variance for a new impact of zero for the full year. Timing of taxes was $0.18 unfavorable, also resulting in a zero net impact for the full year. Due to the loss of the incremental tax repair benefit as part of the 2017 GRC decision, we were $0.09 unfavorable. We were $0.06 unfavorable due to the timing of operational spend. As we mentioned on the third-quarter call, we bundled some of our work to execute it more efficiently, which created a delay in some of our spend from Q3 to Q4. In the fourth quarter of 2016, we received a Customer Energy Efficiency incentive award with no similar amount in 2017, resulting in $0.02 unfavorable. Share dilution resulted in $0.02 negative for the quarter. Miscellaneous items totaled $0.05 unfavorable for the quarter, and primarily reflect a reversal of certain timing-related items. Offsetting these unfavorable variances were favorable rate-base earnings of $0.05 for the quarter.

Slide seven outlines our capital expenditure, authorized rate base, and cost of capital assumptions for 2018. We've also provided a few additional factors that could impact our results for the year in the lower-right corner which we expect will largely offset each other. While we're not providing earnings-per-share guidance for 2018, on an earnings from operations basis, our objective is to earn the CPUC-authorized 10.25% return on equity across the enterprise.

Turning to slide eight, the guidance for our items impacting comparability reflects a range of $100-170 million pre-tax. Pipeline-related expenses are expected to fall between $35 and $60 million pre-tax, and reflect the final amounts we plan to incur under this program. We expect a total program spend to fall within our previously disclosed range of $450-475 million. We have estimated a range of $30-60 million pre-tax for legal costs associated with the Butte fire. This range does not include any estimate for claims-related costs. Northern California wildfire costs, net of insurance, are expected to range between $35-50 million. This includes an estimate of legal and other costs of $100-150 million, partially offset by insurance recoveries of $65-100 million. These estimates do not assume any amounts for claim-related costs.

Transitioning now to slide nine, our capital expenditure plans through 2019 are consistent with what we disclosed in the third quarter with plant spend of approximately $6.3 billion in 2018 and roughly $6 billion in 2019.

Moving to slide ten, as I previously mentioned, our rate base now reflects the impact of tax reform with a growth rate of roughly 7.5-8% annually through 2019. This also incorporates the 2019 Gas Transmission & Storage rate case that we filed last November.

Slide eleven outlines how we're thinking about usage and sources of equity for the next couple of years. We've previously shared that we expected our equity needs for 2018 and 2019 to largely be met through our internal programs which have generated approximately $300-400 million annually over the last several years. This was primarily to support our CapEx programs and rate-base growth. Additionally, as I shared earlier, tax reform increases our equity needs by roughly $200 million in both 2018 and 2019, and our items impacting comparability also drive incremental equity requirements. As we think about our equity plans with a dividend suspension, we do plan to continue issuing equity under our internal programs. However, with our dividend suspended, a dividend reinvestment program has been halted, so we expect a decrease in the amount of these -- of equity these programs will generate. With that said, we expect our current equity needs will be covered as a result of the dividend suspension. But as Geisha mentioned earlier, the board is committed to revisiting the dividend decision as greater clarity is reached, and also resuming a more normal financing approach.

Finally, the cash that we are conserving as a result of the dividend suspension is reducing our financing needs and creating an equity cushion that, if needed, could ultimately be used for any potential liabilities that result from the Northern California wildfires.

In closing, I want to reiterate that we fully recognize what a challenging few months this has been for our shareholder community, both with the uncertainty generated by the Northern California wildfires and the decision to suspend our dividend in December. As Geisha shared, we are working hard to address the challenges that inverse condemnation raises for both our customers and our shareholders, and you have our commitment that as material facts unfold, we will keep you apprised of the progress.

...

So, with that, let's open up the lines for questions.

Questions and Answers:

Operator

Certainly. We will now allow questions from the phone lines. Ladies and gentlemen, to ask a question, please press * followed by 1. If you would like to remove that question, press * followed by 2. If you are using a speakerphone, please pick up the handset before using the key pad. Again, if you'd like to ask a question, press *1. We will now pause briefly to allow questions to generate in queue.

Our first question comes from the line of Jonathan Arnold with Deutsche Bank. You may proceed.

Jonathan Arnold -- Deutsche Bank

Yeah, good morning, guys.

Jason Wells -- Senior Vice President and Chief Financial Officer

Good morning, Jonathan.

Geisha Williams -- Chief Executive Officer and President

Good morning.

Jonathan Arnold -- Deutsche Bank

Thank you for the update. And a question on your -- well, I guess we'll see more discussion in the 10Q, but you haven't taken any incremental reserves against the Butte fire this quarter I think, is that correct?

Jason Wells -- Senior Vice President and Chief Financial Officer

That is correct.

Jonathan Arnold -- Deutsche Bank

And the last quarter, you'd said you didn't have enough information to determine the high end because there were a large number of claims you didn't know enough about, I think. So, is that still the case, or is, you know, the fact that you're not taking a charge a reflection of your view of the strength of your legal position in the challenge you filed in front of the court? I'm just curious if you could give us some sense of, you know, what's driving the sort of reserving policy there.

Jason Wells -- Senior Vice President and Chief Financial Officer

Sure. Well, we continue to make progress steadily in some of the cases in the fourth quarter. We still don't have detail for about 25% of the total claims related to the Butte fire. But also importantly, as Geisha mentioned, we feel strongly about the strength of our challenge, the application of inverse condemnation as it relates to investor-owned utilities. So, we need both further clarity as it relates to claims data as well as progress on the legal front.

Jonathan Arnold -- Deutsche Bank

In order to sort of have a probable number you could estimate? Is that the right way to think? It's no more probable or estimable than it was last quarter, is that where we are, Jason?

Jason Wells -- Senior Vice President and Chief Financial Officer

That's correct. We still feel that the $1.1 billion that we've accrued so far for the Butte-related fire to be appropriate.

Jonathan Arnold -- Deutsche Bank

Okay. And then just one other on this area, if possible. So it sounds like you're saying that whatever you said about equity before you now see the divided suspension covering that in the next couple of years. Have I understood that right?

Jason Wells -- Senior Vice President and Chief Financial Officer

We didn't give any guidance on the length of the dividend suspension. What we tried to provide was just the underlying drivers of our sort of base equity needs. You'll have to make an assumption about any potential liabilities, if any, arising from the Northern California wildfires as well as the length of the dividend suspension.

Jonathan Arnold -- Deutsche Bank

Okay. No, sure. I wasn't getting at that. But I think you did say that you felt that given what you laid out as the current needs that that would be -- would fall under the amount of equity created by the dividend suspension and your turning off the drip so there's really not going to be very much issuance under internal programs for the time being. Is that fair?

Jason Wells -- Senior Vice President and Chief Financial Officer

We will continue issuing under the internal programs, but with the dividend suspended, we expect less from the drip. The drip has historically contributed roughly $60 million a year to our internal equity needs. That combination of continuing to issue though under the internal programs coupled with the suspension of the dividend provides us sufficient financing for our ongoing capital.

Jonathan Arnold -- Deutsche Bank

So, $60 million into the drip component of the three to 400 roughly?

Jason Wells -- Senior Vice President and Chief Financial Officer

That's correct, yes.

Jonathan Arnold -- Deutsche Bank

Okay, great. Thank you. And then just on -- so, it feels like the Commission has kind of somewhat encouraged, you know, the idea that you would want to address inverse condemnation in the courts, and you talked about building an equity cushion against any charges on the 2017 fires. Is there a case to be made that you might request some kind of waiver from the 52% equity if you felt that the inverse condemnation discussion was still pending and live, but you arrived at a point where you didn't need to take a charge? I'm just curious kind of if that's something you could even do or if you would think it would be a good idea.

Jason Wells -- Senior Vice President and Chief Financial Officer

While I appreciate the question, Jonathan, I mean, right now, we still don't even know the cause of the fires, so it's premature to talk about sort of potential liability and courses of action. That being said, we do have the ability to file a waiver with the CPUC if we believe we will be out of compliance with the regulated capital structure.

Jonathan Arnold -- Deutsche Bank

Is that something you've ever done before with success?

Jason Wells -- Senior Vice President and Chief Financial Officer

We actually have filed that as part of the energy crisis, but it was never ruled on by the Commission given the -- it was ultimately disposed of as the overall resolution of the bankruptcy proceeding.

Jonathan Arnold -- Deutsche Bank

Okay, great. Thank you. Sorry for all the questions. I'll let you off.

Operator

Thank you. Our next question comes from the line of Steve Fleishman with Wolfe Research. You may proceed.

Steve Fleishman -- Wolfe Research

Yeah, hey, good morning. Morning. So, first, just I'm not sure if you can answer this, but should we expect to get any more color on the claims that have been filed for the Northern California fire in your 10K?

John Simon -- General Counsel

Good morning, it's John Simon. I'm the General Counsel here. We do discuss the number of claims and where they're filed and briefly the status of where we are in those cases. There's been, just to highlight this for you, about 107 or so complaints filed against PG&E. We don't know if they'll all been served, by the way, but we know they've been filed. They've been coordinated in the San Francisco Superior Court, and at this point, there's -- I believe there's a case management conference coming up toward the end of February. That's the point where we'll learn a little bit more about what the procedure is going forward. But that's about where we are.

Steve Fleishman -- Wolfe Research

How about the dollar value?

John Simon -- General Counsel

We don't have -- we don't have much insight into the dollar value at this point. We do know that those complaints are asserting, for the most part, either property damage claims under inverse or personal injury claims under negligence, and that's about all we know.

Steve Fleishman -- Wolfe Research

Okay.

John Simon -- General Counsel

We're very early on.

Steve Fleishman -- Wolfe Research

Okay. When will we likely get more info on the dollar value of claims then?

John Simon -- General Counsel

I think -- honestly, I think that's going to be a while. So, right now, those cases are at the very early stages of procedure and process. There's no schedule set. I think over the course of discovery, which again, hasn't even -- no schedule is set on that. Over the course of the next year, year and a half or so we might get more visibility into it. But it's hard to know for sure.

Steve Fleishman -- Wolfe Research

Okay. My other question is just, I'm sure you all listened to the Commission's session related to -- I think directed at the financial community this week, and I guess my sense on the take away from that is that they don't have any understanding there's a potential crisis here for the investor-owned utilities, if you're going to have to take on all these costs under inverse with if you did cause the fires, and so I guess I would be curious your take of that, but more importantly, what are you doing to make sure they understand how bad this could be? And that the implications it has? Or do they understand it and they're just not communicating it given all their rules?

Steve Malnight -- Senior Vice President, Strategy and Policy

Hi, this is Steve Malnight. I wanted to say I think we were also disappointed with the comments and the tone from the webinar earlier this week. I do think it's important to put it in a little bit of context. First of all, you mentioned this was a -- the rules that were applied against that discussion, clearly it was a little bit of a new forum for them, and they were very cautious about delving into anything that could be an ex parte. So, you know, there wasn't really discussions about inverse or other things. And when you look at, you know, the broader suite of comments from the Commissioners, I think looking at the San Diego WEMA case, with President Picker and Commissioner Guzman Aceves' concurrence where they clearly noted that, you know, the logic for applying inverse condemnation investor-owned utilities was unsound and they urged the legislature and courts to address the issue, I think there is some context in other places where there's maybe more recognition than was shown in that discussion. So, you know, I think from our perspective, we're taking every opportunity available to not only talk to the Commission and the Commissioners, but also really all the policymakers across California and Sacramento and others. You know, as Geisha said, this is a bigger challenge than just the investor-owned utilities. It's a bigger challenge than just PG&E. And it really calls for a significant and statewide solution. So, we are very active in every place we can be to share that message and to explain that. We're also partnering with the other investor-owned utilities, labor, and other interested parties in seeking out, you know, comprehensive solutions. So we're going to continue to work that hard and take every opportunity we can.

Steve Fleishman -- Wolfe Research

Great. Thank you.

Operator

Thank you. Our next question comes from the line of Stephen Byrd with Morgan Stanley. You may proceed.

Stephen Byrd -- Morgan Stanley

Hi, good morning.

Jason Wells -- Senior Vice President and Chief Financial Officer

Good morning.

Geisha Williams -- Chief Executive Officer and President

Good morning.

Stephen Byrd -- Morgan Stanley

I wanted to just talk about the Butte process. I think Geisha had mentioned there will be a hearing on March 15^th. I wondered if it'd be possible to get some sense for the process and timeline after that hearing, how we should think about that case playing out. And I guess it depends on, ultimately, the decision made by the court on that. But just curious if you could give a little more color around how to think about next steps after that hearing.

John Simon -- General Counsel

Sure, Stephen. John Simon. You know, the hearing is, as you mentioned, scheduled for March 15^th. We filed briefs. There's a briefing schedule, which I don't know off the top of my heading, leading up to that hearing. We don't know at that hearing what actually is going to happen. There's options. The judge may rule right then and there. He may listen to arguments and then set some sort of timetable after that. So, it's really hard to know, and I wouldn't want to speculate on what the judge is going to do there. Several have asked about so what happens after that. You know, whomever loses that motion, whether it's the plaintiffs. I'll speak for PG&E. If we lose that motion, we would then expect to seek permission from the Court of Appeals to appeal that decision. That's an appeal that isn't automatically granted, but we would file papers asking for permission to pursue that appeal. There's a timeline on that. It's a little unpredictable, but you know, two months to six months I think is a fair estimate of considering a writ on appeal. If the writ's granted, then we go ahead and get into a briefing situation on the appeal. And appeal could take -- again, this is a wide range here, because one doesn't completely know. But, you know, nine months to two years on an appeal is not uncommon. If we seek a writ and the writ's denied, then the appeal stops at that point, and we would then look to appeal any sort of judgement on any Butte case to, again, reraise the issue if we lose. So, that's really I think the best insight we can give you on how this could play out.

Stephen Byrd -- Morgan Stanley

Well, that's helpful. And then I guess just adding on to that, both for this decision as well as I guess the San Diego case, which we expect to ultimately go to the California Court of Appeals as well, if you do have a victory on one of these court cases or one of your -- one of the other utilities do, would that decision effectively apply to the Northern California claims and cases that are likely to be arising as per Steve Fleishman's question earlier in terms of all the cases filed? You know, in other words, are those decisions timely enough to be able to apply to these upcoming cases that you're likely to have for the Northern California fires?

John Simon -- General Counsel

We would most certainly argue they do. It depends a little bit on what the decision says and how it's written. I would say that there's a good chance that a decision from the trial court, but particularly an appeals court, would be considered and applied by another court considering a wildfire case. It's not, you know, completely certain on that point, Stephen, and I don't want to overly speculate. But that would then get worked out in the courts over the next couple of years.

Stephen Byrd -- Morgan Stanley

Okay, great. And I'm sorry for all the questions. Just one last one on -- really on -- thinking about co-lease of equipment with the telecom companies and, you know, there sometimes is telecom equipment involved as well. What is your general take on how, if at all, that could intersect with the overall investigation or whether or not that might imply some involvement or causation from the telecom equipment side of things? Or is it, you know, too uncertain at this point.

John Simon -- General Counsel

Well, you know, to restress what Jason and Geisha said, it's very early, and the investigations are ongoing. I will tell you what we do know is that after the 2017 wildfires, CAL FIRE, which is the lead investigating agency, sent letters to various companies with respect to asking us to make sure we preserve evidence, which of course we're doing. They sent those letters also to some telecoms. I don't know which ones off the top of my head. So, you know, I think we have to see how the investigations play out and see which facilities, if any, we're talking about here. But I think that, you know, it's potentially a bigger world than just PG&E involved in litigation. That's really as far as I know.

Geisha Williams -- Chief Executive Officer and President

If I could add something to that. Stephen, this is Geisha. When you look at the fire footprints for these 21 fires, something like 75% of the poles that are in the impacted area are jointly used. In other words, they have both PG&E equipment and telecom equipment. Only 25% of the poles are just PG&E. So, that also should give you a little bit of flavor in terms of the potential impact.

Stephen Byrd -- Morgan Stanley

That's super helpful. Thank you very much.

Operator

Thank you. Our next question comes from the line of Michael Lapides with Goldman Sachs. You may proceed.

Michael Lapides -- Goldman Sachs

Hey, guys. Couple of easy questions for you. First of all, can you remind us which of the telecom companies overlap with your service territory in the area impacted by the October 2017 wildfires? Is it just the wire line telephone, is it the cable, is it both?

Jason Wells -- Senior Vice President and Chief Financial Officer

Michael, this is Jason. It's hard to say, you know, definitively over that fire footprint. But what I would say is cable and telecom both have quite a bit of equipment on our poles up there, and it would be the traditional large cable and telecom companies owning that equipment.

Michael Lapides -- Goldman Sachs

Got it. Can you all talk a little bit about whether -- I'm trying to think a little bit about when you would start actually paying out claims, meaning the cash that you settle as part of the October 2017 wildfire process. We wait obviously until you get the CAL FIRE report and some of the other reports, maybe your own as well. Would you start kind of resolving those complaints as early and as soon as possible to get through them? I'm just trying to think about cash flow and liquidity.

Jason Wells -- Senior Vice President and Chief Financial Officer

Michael, this is Jason. You know, it's just really way too early in that process since we don't really know the cause of the fires. It's hard to kind of give any estimate on when claims will be resolved. I will, you know, just provide some anecdotal evidence as it relates to the Butte fire though. That fire, it took about seven months or so to publish the results of the investigation on the cause of the fire. We didn't start settling claims for probably about another six months or so. So, it was a good year sort of after the fire before we started to settle on Butte. You know, obviously the Northern California wildfires are a much more complex set of fires, but right now we just don't have any better visibility as to timing and cash flows.

Michael Lapides -- Goldman Sachs

Got it. And then last thing, like we saw in the San Diego case and you all have seen in Butte, even if inverse condemnation is reversed, there's still exposure of potential private kind of negligence-related lawsuits. How do you kind of think through that process and how that process would work relative to a process where inverse condemnation is kind of the governing statute or the governing rule?

John Simon -- General Counsel

Well, they're very -- John Simon, Michael. Very different theories, and negligence, which is a reasonableness standard of care is determined by the trier of fact at the end of the day after a trial. So, you know, you think about those cases very differently whereas inverse is strict liability, and the utility's conduct. And even if we did everything right really doesn't matter in a negligence case. It's all about, as I said, standard of care. So it's a lengthier process that's determined in court down the road. We think, as we've said, in the Butte case, that we exercised all reasonable standards of care, and we're prepared to defend ourselves in court on a negligence claim if we get to that.

Michael Lapides -- Goldman Sachs

Got it. Last one. How long did it take in the Butte case before you had a good handle on what the total number of claims that were submitted was like? I can just kind of go through the 10Qs and go through the amounts that got you up to the $1.1 billion, but can you just remind us, you know, how much time that took before all the claims actually got filed and before you had a chance to evaluate?

John Simon -- General Counsel

It's possible some more claims could come in. So, we had -- it was fairly stable on the number of claims filed, but at the two-year anniversary of the Butte fire, which is the time at which the statute of limitations expired for personal injury claims, we got a large spike of claims, which is where we sit today. The statute of limitations has -- runs on property damages at the three-year anniversary of the fire. That's why I said it's possible more claims could come in. Our experience in Butte was that most of them did come in within a year or so of the event. But again, we had that spike toward the two-year anniversary on the statute and could see more when the property damage statute expires. It's hard to come up with a rule of thumb on the cadence and timing of when claims are filed. That's sort of our best view of what happened.

Michael Lapides -- Goldman Sachs

Got it. Thank you guys. Much appreciated, John and Jason.

Operator

Thank you. Our next question comes from the line of Greg Gordon with Evercore ISI. You may proceed.

Greg Gordon -- Evercore ISI

Thanks. A couple questions. Just -- I just want to be clear I understood what I heard with regard to your plans for equity. On the Q3, in the Q3 disclosures, you said you needed $400-500 million a year of equity, and your disclosures today you're saying tax increases that by $200 million a year in this year and next year. On the other hand, you're not as -- you're not -- you've generated $1 billion of cash by virtue of not paying the dividend for as long as you're not doing that annualized. So, are you saying that you're going to issue $600-700 million dollars a year, or are you simply giving us a -- for the next two years, for '18, or are you saying that that would theoretically be your equity need in a normal course of business framework, but the actual amount of equity you are going to issue is going to be different from that? I'm just not clear on exactly what your guidance was today.

Jason Wells -- Senior Vice President and Chief Financial Officer

Sure. Thanks for the question, Greg. A couple of things. On the Q3 call, our $400-500 million forecast for equity related to 2017, on the Q3 call, we provided sort of qualitative guidance on 2018 and 2019 equity needs which was we would essentially be able to largely meet our expected equity needs in 2018 and 2019 through our internal programs which on average generated $350 million. Rolling forward to today's discussion of equity, what we wanted to provide was sort of the underlying changes in the base equity needs. So, the principle change from the Q3 call for 2018 and 2019 guidance of roughly $350 million annually was that we now expect to need $200 million more in both 2018 and 2019 related to tax reform. We also have small incremental equity needs related to the items impacting comparability which I disclosed. Offsetting those equity needs though, we will continue to issue equity under our internal programs, although we expect the numbers to be less this year given the suspension of the dividend. At the same time, since we're not paying out a dividend, that more than offsets the equity we would have had to raise. Ultimately, what we tried to do here with this guidance is provide sort of the underlying equity drivers so that you can make your assumptions around any potential equity from potential liabilities from the Northern California wildfires as well as your view on the assumptions for the length of the dividend suspension. What we tried to do is provide those components.

Greg Gordon -- Evercore ISI

Yeah, that's actually very clear. But I guess begs the question, like, do you expect to keep your internal programs on as sort of at a minimum in terms of the equity you're going to issue this year, which you were also very clear on saying would be 350 in the normal course of business, but probably $60 million lower all things equal and given that there is now no dividend and the drip would therefore not generate any proceeds?

Jason Wells -- Senior Vice President and Chief Financial Officer

Yes, we do intend to keep the internal programs on. While they, on average, generated $350 million annually, there was some variability. The ranges for the last three years were between $300-400 million. We know though that it could be as much as $60 million less as a result of the dividend suspension. So, there will be some variabilities as to what those internal programs generate, but those are the components.

Greg Gordon -- Evercore ISI

Okay, that's 100% clear, thanks. My second question is relative from a quarterly cash -- from a cash flow perspective, when you look at your PG&E subsidiary, and you look at the corporate parent, now that you've suspended the dividend, is cash actually flowing up to the parent to fundamentally cover the parent interest and overhead obligations, or is PG&E essentially a closed system at this point, not dividending cash up to the parent, and does the parent have any other cash sources other than the equity you're issuing to cover its costs and approximately what are those costs on a quarterly and annual basis?

Jason Wells -- Senior Vice President and Chief Financial Officer

Well, the decision to suspend the dividend was both at the utility as well as PG&E Corporation. So, no, there is no more cash flowing from the utility to the corporation. That being said, as I mentioned, we are continuing to issue equity under the internal programs. And just to sort of frame the ongoing sort of cost of the corporation, we have about $350 million in holding company debt, which is set to mature in 2019. But we don't really have much in the way of incremental overhead. And beyond sort of the sources of cash from the internal programs, we also have access to the commercial paper market at the holding company. So, we have sufficient liquidity at the holding company despite not having dividends from the utility to the holding company.

Greg Gordon -- Evercore ISI

Okay. So, unallocated corporate expenses like advertising or incentive compensation, things like that, you know, when you look at what's not being paid for in rates that's unrecoverable that's parent, it's not a meaningful number in any given quarter?

Jason Wells -- Senior Vice President and Chief Financial Officer

No, the majority of those costs for things such as advertising, compensation, which is not recovered in the rate cases are really costs borne by the utility as below-the-line costs. They're not charged back to customers. But those are essentially costs that are incurred at the utility level. So, we have minimal overhead costs at the holding company.

Greg Gordon -- Evercore ISI

Okay. Thank you very much.

Operator

Thank you. Our next question comes from the line of Christopher Turner with J.P. Morgan. You may proceed.

Christopher Turner -- J. P. Morgan

Good morning, guys. I wanted to understand one as it relates to the Butte proceedings. You continue to settle claims even knowing that you are challenging the June 22^nd decision there, and then secondly, can you just remind me if you had appealed that June decision on any other grounds than just challenging the punitive damage element of it?

John Simon -- General Counsel

Let me -- Christopher, John. Let me take these both. The first one, we are well aware that our -- the outcome of our inverse condemnation motion could impact both the timing and valuation of any settlements. We're monitoring that very carefully. We really are gearing up for the motion right now, and while we had some court-ordered mediations to try to reach settlements, you know, we've been very diligent and careful about not getting ahead of that motion. With respect to your second question, the company took a writ to the Court of Appeals on the trial judge's denial of our motion to strike punitive damages from the Butte case. That's what's up on appeal right now, and that appeal writ has been taken. So, we're now in the process of briefing that issue before the Court of Appeals. There's nothing else before the Court of Appeals on Butte, but as I mentioned earlier, depending on the outcome of the inverse decision, we would seek a writ to the Court of Appeals on that.

Christopher Turner -- J. P. Morgan

Okay. So, sorry, that's for the punitive damage element only?

John Simon -- General Counsel

Yes.

Christopher Turner -- J. P. Morgan

So not an appeal of the entire decision?

John Simon -- General Counsel

Correct.

Geisha Williams -- Chief Executive Officer and President

You may want to elaborate what we're doing March 15^th.

John Simon -- General Counsel

Well, and just as a reminder, on March 15^th, different issue than punitive damages. March 15^th is the issue of our motion to get inverse condemnation dismissed out of Butte. So, there's many things happening on the legal front in Butte. Punitive damages, getting those eliminated, and then inverse condemnation and getting that dismissed.

Christopher Turner -- J. P. Morgan

Right. Right. What I was trying to distinguish was from that June decision, other than the punitive damage element, how successful or unsuccessful were you on challenging that decision? Even though that goes back in time, obviously.

John Simon -- General Counsel

Yeah, on the punitive damages decision?

Christopher Turner -- J. P. Morgan

No, just on -- I guess we could break it into two and just say obviously you didn't want inverse condemnation applied there. What were your options at the time for that?

John Simon -- General Counsel

Yeah, we didn't take a writ to the Court of Appeals on the Butte charges initial denial on our motion to get rid of inverse condemnation, but we would do that now. I think what changed, as we've talked about, is the CPUC's decision on San Diego's WEMA case where the CPUC basically indicated that they didn't believe inverse condemnation [inaudible] was relevant to their decision on spreading costs. So, that's sort of the intervening fact as to why we've renewed our motion in Butte, and that's where we are on that.

Christopher Turner -- J. P. Morgan

Okay. I hear you. It just seems kind of surprising to me that outside of the CPUC rejection, you guys didn't feel like you had a good enough legal case to challenge that up to a higher court at the time.

John Simon -- General Counsel

Well, the bases for that denial back in the summer, the original motion, was the fact that there was not evidence historically of the CPUC denying cost recovery under inverse claims. Essentially, the previous cases where inverse condemnation was applied to investor-owned utilities were settled at levels that were covered by insurance, and therefore, there were no cost recovery applications directly heard by the Commission. Given that as the basis for the ruling this past summer, and given the fact that the Commission denied San Diego's WEMA application, we now have direct evidence that investor-owned utilities do not have the ability to adjust rates for the costs associated with inverse condemnation. So, the facts changed pretty significantly over those six months.

Christopher Turner -- J. P. Morgan

Got you. Okay. Hopefully you'll prevail there. My second question is a little bit broader, and it speaks to one of the earlier questions. You've cut your dividend here clearly sending a strong message, but the CPUC does not seem to appreciate the gravity of the situation at all, in my opinion. So, is there something else that you could do to really hit the point home that this is going to hurt customers in the end, like you guys cutting your CapEx or taking some other action to protect shareholders?

John Simon -- General Counsel

Thank you for the question, but I want to emphasize one part of that, the statement about the decision to suspend the dividends sending a strong message. By no way or no means was the underlying message a consideration for the suspension of the dividend. The decision to suspend the dividend was essentially governed by the California Corporate Code and our consideration of our ability to pay a lawful dividend under that code. That being said, as a result of that decision, it is strong evidence that the Commission needs to evaluate the impact inverse condemnation is having on investor-owned utilities. We are aggressively pursuing multiple challenges in trying to bring awareness to policymakers in the state on this issue. We do believe, given some of the comments that the Commissioners and President Picker have made in other forums, as well as a number of messages that key policymakers in the state have made around the need to address comprehensive solution for the impacts of climate change, we believe awareness of the issue is understood, and we're working constructively to find a comprehensive solution.

Christopher Turner -- J. P. Morgan

Okay, great. Thanks for the clarification.

Chris Foster -- Senior Director Investor Relations

Chris, thank you. This is Chris. Kiera, thanks for helping us with the call today. It's 9:00. I want to also thank everyone for joining us, and have a safe day. Thank you.

...

Operator

Ladies and gentlemen, thank you for attending. This now concludes the conference. Enjoy the rest of your day.

Duration: 62 minutes

Call participants:

Chris Foster -- Senior Director Investor Relations

Geisha Williams -- Chief Executive Officer and President

Jason Wells -- Senior Vice President and Chief Financial Officer

John Simon -- General Counsel

Steve Malnight -- Senior Vice President, Strategy and Policy

Jonathan Arnold -- Deutsche Bank

Steve Fleishman -- Wolfe Research

Stephen Byrd -- Morgan Stanley

Michael Lapides -- Goldman Sachs

Greg Gordon -- Evercore ISI

Christopher Turner -- J. P. Morgan

More PCG analysis

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.