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PG&E Corp  (NYSE:PCG)
Q3 2018 Earnings Conference Call
Nov. 05, 2018, 12:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon. My name is Chris, and I will be your conference operator today. At this time, I would like to welcome everyone to PG&E Corporation's Third Quarter 2018 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Thank you.

At this time, I would like to pass the conference over to your host, Chris Foster with PG&E. Chris, you may begin your conference.

Christopher Foster -- Senior Director, Investor Relations

Thank you, Chris, and thanks to those of you on the phone for joining us. Here with me today in the room, are Geisha Williams, Jason Wells, John Simon, Steve Malnight and Pat Hogan.

Before I turn it over to Geisha, I want to remind you that our discussion today will include forward-looking statements, which are based on assumptions, forecasts, expectations and information currently available to management. Some of the important factors that could affect the company's actual financial results are described on the second page of today's third quarter earnings call presentation. The presentation also includes a reconciliation between non-GAAP earnings from operations and GAAP measures. We also encourage you to review our quarterly report on the Form 10-Q that will be filed with the SEC later today and the discussion of risk factors that appears there and in the 2017 annual report.

With that, I'll hand it over to Geisha.

Geisha J. Williams -- Chief Executive Officer, President & Director

Thank you, Chris, and good morning, everyone. Before we dive in, I first want to acknowledge the one-year anniversary of last fall's devastating wildfires. The efforts by members of the impacted communities to rebuild and improve emergency planning and preparedness for potential future fires continue. We are deeply involved in all of this work, as we collectively adapt to the new normal.

I also want to take a moment to thank our employees who have worked tirelessly throughout the peak wildfire season to keep our customers and communities safe, including the recent activities associated with our decision to proactively shut off power for safety and parts of our service territory. Following extensive outreach to key third-party agencies and our customers, in mid-October we shut off power in certain communities in the North Bay and Sierra Foothills in response to a forecast for extreme high fire risk weather conditions.

When the weather improved, our crews conduct patrols across the entire 3,400 impacted miles of our power lines by helicopter, vehicle, and on foot identifying multiple lines that had sustained damage. Service was just sort to nearly all customers within about two days, and I would personally like to thank our impacted customers and communities for their patience, while we work to turn their lights safely back on.

This morning I'll touch on Senate Bill 901, and then I'll walk you through our Community Wildfire Safety Program proposal, the multi-year effort targeted at wildfire risk mitigation that continues to evolve and expand. I'll reference some of the near-term progress we're making on enhanced programs and also highlight our plans for the coming years. Finally, we have a number of regulatory proceedings that are under way or will be filed in the near-term, and I'll touch on a few of them today. These proceedings are a key area of focus over the coming months.

Now, as you all know, in September the Governor signed Senate Bill 901, which addresses a set of very complex wildfire related issues, while we believe this bill represents a constructive initial step, more important work remains. This will provides for improved financial stability for the investor-owned utilities in the state. However, it did not address inverse condemnation and it remains our firm view that this must be resolved through legislative reforms or legal challenges. So while we're pleased with the progress made, we will continue our focus on reforming inverse condemnation including as part of the Blue Ribbon Commission's work as it comes together during the upcoming legislative session.

Also coming out of the legislative session was the passage of Senate Bill 100, which sets a 60% renewable portfolio standard target by 2030. It also requires that 100% of all retail electricity sales come from RPS eligible or carbon free resources by 2045. California's investor-owned utilities are critical to meeting these clean energy goals, and we will require access to affordable capital in order to help the state meet these bold targets. As these policy reform and legal engagements continue, we are actively tackling this new normal on a variety of fronts.

Our operational approach and focus must evolve with a growing threat posed by extreme weather conditions, and with nearly a two-fold increase in the number of acres burned this year as compared to last, we are continuing to further ramp up the work that we began prior to the start of this year's wildfire season.

Our expanded Community Wildfire Safety Program was established after the 2017 wildfires to implement additional precautionary measures intended to reduce or further reduce wildfire risks. It consists of three core elements that collectively target reducing risk in the high fire threat areas across our system. We'll improve situational awareness in the near-term, execute targeted infrastructure hardening in the highest risk areas and further enhance our operational practices. These plans will be further detailed in the 2020 general rate case that will be filed later this year. We believe that our proposal set forth an appropriate level of risk reduction, while balancing the cost to our customers recognizing that we must strike a balance between the two.

At a high level, we'd use the mix of the tools, I'll describe and apply them in different parts of our service area to efficiently and effectively mitigate risk. First, we're enhancing our situational awareness, which improves our ability to track detailed weather conditions, detect fires more rapidly, communicate more effectively with local, state and federal agencies, and response to potential fires that are under way. By their nature, some of these program investments can be executed in a relatively shorter time frame and intentionally target our highest risk areas.

Our teams are refining advanced fire modeling and detection systems, which will utilize in our Wildfire Safety Operations Center that was opened earlier this year. The daily aerial patrols we're conducting will feed the captured information to this team of experts. And additionally, over the next four years we plan to deploy more than 600 high definition cameras established a coverage across these high fire risk areas to roughly 90% by 2022.

Over the same time frame, we're proposing to add approximately 1,300 weather stations, a density of one station roughly every 20 miles in the highest risk areas. When combined with existing weather stations, they will provide a significant level of awareness of localized weather differences experienced on the ground. As an example, one benefit overtime becomes the ability to very narrowly enact targeted outages on specific circuits to minimize impacts to our customers during extreme fire conditions as a last resort option that is part of our public safety power shut off program. These enhancements will give us additional information that we need to refine our Risk Assessment pursue smarter system investments and make timely decisions across the identified high fire threat districts.

Our second area of focus is on hardening our system to further enable and even safer, stronger and more resilient grid for our customers. In the next 10 years, we intend to upgrade our system across a targeted roughly 7,000 miles of our highest risk areas with stronger and more weather resistant poles and insulated tree wire. We are also proposing to replace other equipment, such as fuses and transformers to further reduce the risk to our system. We'll tailor upgrades to match the terrain and conditions we expect to face based on a more granular analysis of these fire prone regions.

Finally, we're enhancing our operational practices to further align with the changing conditions we're facing daily. This is consistent with what you've seen us do over the last few years, including when we significantly increased the vegetation management work we began in 2014, as a result of the historic drought and bark beetle infestation. We'll be focused on an enhanced vegetation management program across our high fire threat areas in the coming years. Part of this plan includes risk informed targeted tree removal beyond the dead, diseased and dying trees that maybe within the fall zone of our overhead wires and that are part of our ongoing tree management efforts.

Our risk reduction strategy also includes 12-foot radio clearances in high fire threat areas consistent with the provisions of the fire prevention OIR issued by the CPUC at the end of last year, and we also plan to clear all vegetation that hangs above our wires. That represents enhanced vegetation management work on over 25,000 miles of our overhead distribution lines in high fire threat areas that we're targeting to complete over the next eight years.

We also have our public safety power shut off program that I mentioned earlier, and we'll of course only utilize this as a last resort in the most extreme forecasted weather conditions. All of these efforts are in addition to our ongoing pole maintenance and visual and infrared inspections of our assets. We plan to continue patrolling our poles at frequencies within high fire threat areas beyond the compliance requirements in place in California. Collectively, this is an integrated comprehensive program to further reduce risk across our high fire threat areas.

Jason will cover in more detail the financial impacts of these important programs, but I would offer that they create substantial incremental investment opportunities that we'll be presenting to the Commission for approval.

Finally, I'll now walk through what is a very full regulatory calendar over the course of the next year. Starting with one of our core rate cases, last month we filed our transmission owner case with the Federal Energy Regulatory Commission, which included a 12.5% return on equity. In December, we'll be filing our Nuclear Decommissioning Cost Triennial Proceeding, which includes our request for cost recovery associated with the eventual decommissioning of our nuclear units. Next April, we intend to file our 2020 cost of capital application. While, we evaluate the operating environment at the time of our filing, we believe our cost of capital is higher than the 10.25% currently authorized given the increased risk of extreme weather events. The continued application of inverse condemnations to investor-owned utilities and the state's bold clean energy targets.

In mid-December, we'll be filing our 2020 general rate case, which will include the System Hardening work that I just mentioned, as well as a continued focus on modernizing our gas and electric system to meet the evolving needs of our customers and communities. With the substantial investments I referenced this morning, you can appreciate that top of mind with all of our proceedings is a balance between risk reduction and affordable service for our customers.

The CPUC's shared emphasis on customer affordability was clear in its final decision in the power charge and different adjustment rule making. This ruling was a positive outcome and allows for equitable allocation of costs among all our customers. We look forward to working with the commission on future proceedings that also address cost allocation issues for our customers, including Net Energy Metering. Alongside these cases, we'll continue our path toward gaining efficiencies in our business.

The CPUC recently indicated that in February we will need to file the first annual wildfire mitigation plan as required by SB 901, and the commission two weeks ago held its first meeting to cover some of the initial thinking on the scope of this work in that order instituting rule making. We expect the vast majority of the work that we present will be captured in existing proceedings, such as the 2020 GRC, and recognize that the commission has expressed its desire to move expeditiously on these wildfire plans, which we support. But we will also evolve these plans, as we continue to further strengthen our risk mitigation technologies and practices, which is why the annual plans and reviews mandated by SB 901 are sensible approach.

Jason will walk you through our capital plan next, but I just wanted to emphasize, we're highly focused on tackling the need for greater policy and financing certainty, executing on a series of necessary system investments and continuing to prioritize affordability for our customers. As I look back over the last quarter, we've made solid progress on a number of fronts, including our Community Wildfire Safety Program and the passage of SB 901, and we're prepared to aggressively execute on additional work, as we seek to further mitigate risks in the communities that we have the privilege to serve.

Finally, we're committed to keeping you updated as we walk through our various regulatory proceedings over the course of the next year.

With that, I'll turn it over to Jason.

Jason P. Wells -- Senior Vice President & Chief Financial Officer

Thank you, Geisha, and good morning, everyone. Today, I'll walk through the results for the quarter. We will also provide CapEx and rate base guidance through 2023. Before we dive in, I want to address the customer harm threshold or disallowance cap, which will establish a cap on the amount that shareholders will contribute to costs associated with the 2017 fires. We're beginning to work constructively with the commission on a process to objectively review this unique charge in the legislature, but I want to acknowledge that we're still in early stages. We recognize there's great interest and better understanding of this figure, and believe it is just critical to establish this threshold timely. As new material information becomes available, we will continue to keep you apprised. Also I'll reiterate that given the continued uncertainty we're facing, particularly around the amount and timing of any potential future financing's, we're not providing earnings per share guidance on today's call.

With that, let's move now to the financial results for the quarter, starting on Slide 6. Earnings from operations came in at $1.13 per share. GAAP earnings, including the items impacting comparability are also shown here. We'll go another costs associated with the Northern California wildfires net of insurance recoveries totaled 43 million pre-tax. Pipeline related expenses were 13 million pre-tax. We recorded 9 million pre-tax for legal costs related to the Butte fire. Lastly, we reduced the previously recorded charge for capital costs that we anticipated would be disallowed based on previous gas transmission rate case decisions. This is driving a $38 million pre-tax gain this quarter.

Moving onto Slide 7, which shows the quarter-over-quarter comparison of earnings from operations of $1.12 in the third quarter of last year compared to $1.13 this quarter. We were $0.06 favorable due to the growth in rate base earnings. We expect rate base growth to drive an increase in earnings of $0.25 for the full-year. Timing of taxes, which fluctuates with earnings throughout the year was $0.02 favorable for the quarter. On a full-year basis, we expect this item to net to zero.

Anticipated recovery of insurance premiums was a penny, following the approval of our Wildfire Expense Memorandum Account in June, we expect to record roughly $0.09 in insurance recoveries in 2018. We were $0.06 unfavorable quarter-over-quarter due to the timing of our operational spend in 2017. We bundled some of our work to allow for more efficient execution in the second half of 2017, resulting in a delay in some spend from Q3 to Q4. This year our spend reflects a more typical pattern. We were a penny unfavorable due to the lower authorized return on equity in 2018, as compared to 2017, we expect this to be approximately $0.05 on an annualized basis.

Miscellaneous items, we're also a penny unfavorable this quarter, there were several offsetting items here, including incremental wildfire risk mitigation spend associated with our Community Wildfire Safety Program. While we have several mechanisms in place to recover costs associated with this program, we believe there are some cost recovery risk as the expanded program ramps up.

Transitioning now to Slide 8, and our assumptions for 2018. Our capital expenditure forecast for 2018 has increased by 200 million with the forecasted total spend of roughly 6.5 billion, this is primarily driven by incremental spend on our electric distribution substations, reflecting our continued focus on improved reliability for our customers. Partially offsetting this increase is a reduction in our electric transmission spend, mainly driven by project work moving from this year to future periods.

In the lower right quadrant, we've also updated our other factors affecting earnings from operations. As I highlighted last quarter, the regulatory asset we are recording this year to recover a portion of our incremental insurance premium costs is expected to have a favorable impact on earnings. However, the incremental costs associated with our wildfire risk mitigation work will likely offset much of this favorability. We don't anticipate these costs will have an impact on our earnings from operations in 2019. It remains our objective to earn our authorized return on equity on earnings from an operations basis in 2018.

Slide 9, shows our forecasted items impacting comparability. We've narrowed the range for pipeline related expenses to 40 to 50 million pre-tax, while small portion of this work will carry over into 2019, we will discontinue reporting these costs as an item impacting comparability after 2018. We've also narrowed the range for legal costs associated with the Butte fire resulting in a revised range of 35 million to 45 million. The high end of the range for the Butte fire also includes 200 million for third-party claims costs consistent with last quarter.

Estimated legal and other costs associated with the Northern California wildfires reflecting narrowed range of 150 million to 160 million. We've also reduced the expected insurance recoveries associated with the Northern California wildfires to roughly 400 million. While we ultimately expect to recover up to the full amount of our insurance policy, the timing of this recovery shifted our EBIT. The reduction in anticipated gas related capital disallowances of 38 million pre-tax reflects a partial reversal of the previous disallowances of capital cost that I mentioned earlier. Finally, anticipated 2017 insurance premium cost recoveries were consistent with last quarter.

Slide 10, shows our forecasted capital expenditures from 2018 through 2023. For 2019, we expect our CapEx to be roughly 6.4 billion compared to our forecast of approximately 6 billion last quarter, this increase is primarily driven by roughly 300 million in System Hardening work associated with our Community Wildfire Safety Program. Providing an annual range for CapEx beginning in 2020 and continuing through 2023 with a low end of 5.7 billion, reflecting amounts currently authorized in our rate cases, and the high end of the roughly 7 billion based on amounts we have filed or expect to file in future rate case proceedings. The high end also reflects the capital we're proposing to spend as part of our Community Wildfire Safety Program at roughly 700 million annually from 2020 to 2023, these amounts will be reflected in our upcoming 2020 GRC request with similar levels anticipated in future GRC requests.

Slide 11, provides our rate base growth with a compound annual growth rate of approximately 7% to 8.5% from 2018 through 2023. As Geisha mentioned, the passage of Senate Bill 901 represents progress, and we look forward to executing on this robust capital plan in the coming years. California's bold clean energy goals continue to fostered environment of growth, which only increase with a recent passage of Senate Bill 100, attracting capital to execute on these goals is more important than ever, and we look forward to partnering with the state on continuing to drive this positive change for California's environment. Of course, our shareholders require a fair return for their investment needed to make these transformational changes. As Geisha noted, we'll be considering the factors that drive incremental risk in California, when we file our cost of capital application next spring.

Moving now to equity. We issued approximately 140 million through our internal programs through the third quarter. While participation in these plans can vary throughout the year, I expect that they will generate roughly $200 million for the full year. As of September 30, 2018, our equity ratio was 51.5% at the utility resulting in a pre-tax cushion of roughly 500 million relative to the 51% minimum that would require a capital structure waiver. Looking ahead, given the continued uncertainty regarding our financing plans, we are not issuing equity guidance today for 2019, and for future years. However, we do expect to continue to utilize our internal programs in future periods.

On Slide 13, we've summarized the key factors that will influence future equity issuances.

In closing, I want to reinforce that we are laser focused on working through the items that will ultimately provide the investment community greater clarity. We have a strong growth plan in front of us, and we are well positioned to execute on it. At the same time, we continue to drive efficiencies in our business, as we look for ways to keep our service affordable for all of our customers. A key focus in coming years, particularly as we ramp up on System Hardening to continue to keep our communities we serve safe. While, this year has proved challenging, our priority remains at solutions that result in favorable outcomes with our customers and shareholders. And the same priority will guide our efforts associated with our wildfire litigation strategy and how we approach the customer harm threshold process.

With that, let's open up the line for questions.

Questions and Answers:

Operator

(Operator Instructions) Your first question comes from Jonathan Arnold with Deutsche Bank. Your line is open.

Jonathan Arnold -- Deutsche Bank AG -- Analyst

Good morning, guys.

Jason P. Wells -- Senior Vice President & Chief Financial Officer

Good morning, Jonathan.

Jonathan Arnold -- Deutsche Bank AG -- Analyst

Quick question on -- I'm just curious previous occasions you've given sort of a three-year GRC type outlook, and this is the 2023, if I'm not wrong, would be after the -- to be filed 2020 GRC or is it -- you perhaps signaling that you could look for a full-year GRC here?

Jason P. Wells -- Senior Vice President & Chief Financial Officer

Jonathan, our intention with providing a five-year forecast was to reflect our confidence in long-term spending programs that we're proposing. We anticipate the 2020 GRC will cover the period of 2020 through 2022, but we have line of sight to the long-term spending plans, which gave us confidence to provide the five-year forecast.

Jonathan Arnold -- Deutsche Bank AG -- Analyst

Okay. That's helpful. And then you also -- I think the details you gave on the Community Wildfire Safety Program, I just -- you're showing us a five-year look, but -- what's the kind of real longevity on this and as you mentioned spending at similar levels in future GRCs -- if I heard you correctly.

Geisha J. Williams -- Chief Executive Officer, President & Director

Jonathan, this is Geisha. Our view is Community Wildfire Safety Program has different element. The veg management work that I described, our intention is to really address that 25,000 miles over an eight-year period. On the System Hardening, we're looking at a 10-year focus on roughly the 7,000 miles, and this is a long-term approach to frankly, derisking our assets in these high fire prone areas.

Jonathan Arnold -- Deutsche Bank AG -- Analyst

Okay. I just had one other thing, on the -- when I look at the rate base for 2019, it's obviously higher than what you had approved in the prior GRC, is the difference there pretty much all to do with this community plan spending or are there some other -- any impact or any other differences, Jason there. As we're trying to translate that into sort of probability of getting approved at that level, et cetera?

Jason P. Wells -- Senior Vice President & Chief Financial Officer

I do think that there's low cost recovery risk. In 2019, the higher level of CapEx and rate base associated with the Community Wildfire Safety Program is roughly 300 million. The remaining difference is essentially the timing of spend associated with our general rate case and gas transmission storage rate case decisions with a small amount coming from CapEx, essentially we have been spending more in the later years of those rate cases than we did in the earlier years, but the spend overall during those rate case periods is generally consistent with what has been authorized in those cases.

Jonathan Arnold -- Deutsche Bank AG -- Analyst

So, you would isolate the amount by which '19 rate base exceeds currently approved amounts to the piece related to the wildfire program, is that fair?

Jason P. Wells -- Senior Vice President & Chief Financial Officer

So, roughly about 300 million that we intend to spend for the Community Wildfire Safety Program.

Jonathan Arnold -- Deutsche Bank AG -- Analyst

Okay. Thank you very much, guys.

Geisha J. Williams -- Chief Executive Officer, President & Director

Thank you.

Operator

Your next question is from Stephen Byrd with Morgan Stanley. Your line is open.

Stephen Byrd -- Morgan Stanley -- Analyst

Hi. Good morning.

Geisha J. Williams -- Chief Executive Officer, President & Director

Good morning.

Jason P. Wells -- Senior Vice President & Chief Financial Officer

Good morning, Stephen.

Stephen Byrd -- Morgan Stanley -- Analyst

It was helpful disclosure you provided in terms of the CapEx, and I'm just sort of thinking through that CapEx that you laid out on Slide 10. And at the higher end of that range at the $7 billion kind of the far right bar, how should we think about how you would fund that, would you be able to rely solely on your programs, and I'm kind of thinking steady rather, I know there are number of moving parts in the near-term, but longer-term at that higher end, could you rely on your equity programs, would you need to go out and seek larger amounts of equity and offering, how should we think about sort of financing that $7 billion number you lay out?

Jason P. Wells -- Senior Vice President & Chief Financial Officer

Stephen -- I think the -- at the $7 billion level, the required equity contribution, it would exceed what we anticipate to recover through our internal programs, both kind of the amount that we're seeing this year as well as sort of the amounts that were generated prior to the 2017 fires. And so, I really think there's a number of factors that are going to be impacting our financing plans, most largely associated with the 2017 wildfires. As we think about dividend reinstatement down the road, we are going to have to balance the growth that we see in our business with a competitive payout ratio of our dividend. And so, we will balance all those factors. So I think it's too early to really be specific with how we will raise that incremental equity that will be needed to fund that higher level of CapEx.

Stephen Byrd -- Morgan Stanley -- Analyst

Yes. My respect to that. There are a lot of factors actually, and just you had mentioned dividend, which was another area. Just wanted to touch on, when you think about both the factors that are really driving your thought about potential dividend reinstatement, but also I think importantly about the policy, the payout level, et cetera, would you mind just giving us your latest thoughts around the key drivers there, both the timing to reinstitute as well as sort of philosophically does -- obviously, we have much higher wildfire risk than we used to, does that factor into your decision about payout ratio. Any color on the dividend would be helpful?

Geisha J. Williams -- Chief Executive Officer, President & Director

Yes. Thanks for that question, Stephen. I can tell you, we couldn't be more cognizant of the importance of dividends and the role the dividends play to our utility investors. So, as we think about this, I would also tell you that our Board is very engaged and is continuously evaluating both the timing of the dividend reinstatements, as well as to what level it should consider, but it has to look at a number of factors that are impacting our environment. So for example, we've got to take a look at what is the ultimate determination of the cause of the Tubbs Fire from Cal Fire, what is the safety and informants divisions report in terms of our operating practices in regard to those -- to the fires that we had in '17, and we're also looking at what are the potential decisions of local DAs in terms of bringing charges against the company. Now, all of these factors we believe could impact the determination of the customer harm threshold process that is going to be kicking off at the CPUC. What I would tell you is that, well, we are not looking at any of these specific items or milestones of the triggering event. We do need to acknowledge that there are a number of uncertainties that could impact the longer-term value of the company. So, all that said, the focus is on our Board anyway, is really to consistently evaluate all of these relevant factors. It's a pretty fluid situation and our goal is to provide you with clarity in terms of the dividend reinstatement when it's appropriate, but we're just not in a position to do that today.

Stephen Byrd -- Morgan Stanley -- Analyst

I understood. Thanks. I'll get back in the queue. Appreciate it.

Operator

Your next question is from Steve Fleishman with Wolfe Research. Your line is open.

Steve Fleishman -- Wolfe Research -- Analyst

Hi. Just on the affordability, could you maybe give a little more color on this capital plan, when you see all the different factors costs, cost cuts, and PPAs are roll-off kind of what are your rate levels look like over the five-year plan?

Geisha J. Williams -- Chief Executive Officer, President & Director

Well. I think I'll talk about it pretty broadly. I mean, we are absolutely focused on cost and we understand how important the issue of affordability is for our customers, particularly at a time when we are proposing additional wildfire related spend and also right, the potential for the securitization of third-party liability in the years ahead. So, we understand we've got to take a look back and figure out how do we expand the necessary work to derisk our system, while at the same time focus on doing that in the most cost-of-way (ph) effective way possible. So, as you know, Steve, we've been really focused on our affordability initiatives for several years, and those initiatives as we look at our costs and our efficiencies will apply as well for all of the hardening effort that we have planned. So, we are -- we're also frankly looking at our own costs, our own programs and at the same time looking at broader policies that are designed to relieve cost pressure. So for example, and I mentioned this in my opening remarks, we advocate it really aggressively for changes to the PCIA, and we're gratified to see the substantial progress that we made on correcting that cost shift from CCA customers to a broader bundled customer. Next year, we've got another opportunity to take a look at those costs, as we start thinking about Net Energy Metering and how to reduce those costs shifts as well. So our view is to look at the work we can do on our own, in terms of our own programs, our own efficiencies, while also looking more holistically at the policy area to see if there's opportunities to reduce costs further for our customers.

Steve Fleishman -- Wolfe Research -- Analyst

Okay. And then -- you probably noticed that Edison gave their view of their -- I guess, filed on the Thomas Fire prior to Cal Fire actually issuing a report, do you see any chance that you would do that on Tubbs, or you definitely going to wait till Cal Fire issues a report?

Geisha J. Williams -- Chief Executive Officer, President & Director

I think that we are at this point in the game, we are really very much waiting on Cal Fire to complete its work, we're looking forward to seeing them complete their work. And we obviously, don't have access to all the information, all the evidence, all the various things that they are considering, so it's our belief that at this point, given what we know, that it would be prudent to allow Cal Fire to complete its work.

Steve Fleishman -- Wolfe Research -- Analyst

Okay. That makes sense. One last question on the customer threshold filing. When you do make a filing, is it going to be more of -- here's what the procedure we think should be or we're actually be -- here's what we actually think the customer threshold should be?

Geisha J. Williams -- Chief Executive Officer, President & Director

Well. I think that when you look at SB 901, it left a lot of room for interpretation, in terms of how to answer that question, which I think adds a lot of complexity, and frankly, likely adds a lot of stakeholders into the process, who might be really interested in the outcome. Our point of view is and what we've been advocating is that the process, whatever that process is needs to move forward soon, and we've been expressing that view throughout this last quarter. So, not exactly sure as a bottom line, Steve. We're working expeditiously with the CPUC, we're asking them to take up this important question, but I would tell you as we are working urgently, this is a high priority. We want to bring clarity to both the process as well as what the final threshold amounts going to be as soon as possible. We understand how important that number that process is to the various stakeholders.

Steve Fleishman -- Wolfe Research -- Analyst

Okay. Thank you very much.

Geisha J. Williams -- Chief Executive Officer, President & Director

You bet.

Operator

Your next question is from Greg Gordon with Evercore ISI. Your line is open.

Greg Gordon -- Evercore Group -- Analyst

Thanks. Good morning.

Geisha J. Williams -- Chief Executive Officer, President & Director

Good morning.

Jason P. Wells -- Senior Vice President & Chief Financial Officer

Good morning, Greg.

Greg Gordon -- Evercore Group -- Analyst

Has there been a formal process that's even been started in terms of engagement between the different utilities will be affected by the stress test or as we're calling now the customer threshold. And the CPUC, so that we'll have a sense of when that -- there's also been official sort of starting date for that?

Geisha J. Williams -- Chief Executive Officer, President & Director

Well. First of all, I think in terms of the stress test, the customer harm threshold for 2017, it's really a PG&E issue primarily. And so, we've been, as I mentioned earlier to Steve, engage in dialog with the CPUC on the importance of getting started quickly, we recognize that there likely will be other stakeholders that will have an interest in the proceeding, whatever that may look like. And so, it's in process, but there isn't an official date or timing that I can give you at this time.

Greg Gordon -- Evercore Group -- Analyst

Got you. Thank you. And how does the wildfire mitigation plan -- the wildfire mitigation plan, filing sort of dovetail with the GRC, are they sort of operating in parallel, but relate to each other as it pertains to the $7 billion spend you've requested?

Geisha J. Williams -- Chief Executive Officer, President & Director

Yes. That's a good way of thinking about it. We're using the vehicle that's available to us, which is I think appropriately the GRC, the 2020 GRC, to propose our wildfire mitigation activity, our wildfire mitigation plans. Having said that, on an annual basis the CPUC will take a look at what the wildfire management plans are, and so they've kicked off through that OIR process, but we're using the GRC as a funding mechanism, and then we'll have a separate proceeding to approve those plans through the SB 901 annual review process.

Greg Gordon -- Evercore Group -- Analyst

Got you. And the Safety and Enforcement Division is conducting a review of the fires as well. If my memory serves me correctly, I don't see that on timeline of key regulatory cases here, but when we last spoke, your lead Director indicated that was something that you were keenly watching. So, can you explain why and when the expected timing is of its release?

Steven E. Malnight -- SVP of Strategy & Policy

So, this is Steve Malnight. Greg, thanks for the question. The SED has said that they are investigating working alongside with Cal Fire and others. We expect that they will issue a report once all of the Cal Fire reports are out. We don't really yet know the timing, and we don't know what would result from that. Obviously, as you know that PUC has wide discretion to consider potential penalties if they found something as a result of that investigation or also could launch an OII. I think at this point, we don't know yet where that proceeding will go, but we've mentioned that, that is a factor that's out there as well.

Greg Gordon -- Evercore Group -- Analyst

Okay. Final one, really quick, the safety culture investigation that came out of the San Bruno Fire is still open, what are our expectations there in terms of whether that will ever be resolved?

Steven E. Malnight -- SVP of Strategy & Policy

So, this is Steve Malnight, again. Thanks. Recently the PUC actually issued a proposed decision in the safety culture OII, that proposed decision effectively agrees with the recommendations from NorthStar, that NorthStar had originally reported and requires PG&E to implement them by July 2019 with quarterly reports to the commission. So, we're actively engaged in implementing those recommendations and moving forward. And we expect that the commission could vote on their proposed decision, I think the earliest is the second meeting in November.

Greg Gordon -- Evercore Group -- Analyst

Okay. And there's no ROE penalty proposed in that PD?

Steven E. Malnight -- SVP of Strategy & Policy

No. That proposal was -- that proceeding was just to look at those recommendations and where they go, they rejected other recommendations from other parties, so it's just about implementing the existing recommendations from NorthStar.

Greg Gordon -- Evercore Group -- Analyst

Thank you.

Operator

Your next question is from Praful Mehta with Citigroup. Your line is open.

Praful Mehta -- Citigroup -- Analyst

Thanks so much. Hi, guys.

Geisha J. Williams -- Chief Executive Officer, President & Director

Good morning.

Jason P. Wells -- Senior Vice President & Chief Financial Officer

Good morning, Praful.

Praful Mehta -- Citigroup -- Analyst

Good morning. So, there's obviously a lot going on the legislative legal side related to wildfires and waiting for the customer threshold, as well. How should we think about the financing and the plan for like '19, '20 time frame, given all of these uncertainties, is there any near-term equity, I guess related to the current fires that you already know about or how should we think about all of this playing out, I guess for the '19, '20 time frame?

Jason P. Wells -- Senior Vice President & Chief Financial Officer

Praful, I think it's just too early to be definitive. There are -- with the suspension of the dividend, there is not a near-term equity need, I think the sort of clarity around sort of the longer-term equity needs for 2019 and 2020 are really largely going to be driven by the timing of the customer harm threshold process, and so it's just really too early to put a date to that time.

Praful Mehta -- Citigroup -- Analyst

Got you. So in the near-term, any financing need will be more funded through holding company debt or revolver borrowings?

Jason P. Wells -- Senior Vice President & Chief Financial Officer

Currently, we don't have any discrete equity needs, we're going to continue to issue equity through our internal programs, as I mentioned in my prepared remarks, and we will continue to raise long-term debt consistent with our rate base growth, as we periodically need that as we have in the past.

Praful Mehta -- Citigroup -- Analyst

Understood. And then in terms of the customer threshold, again, just to get back to that given the importance, I wanted to understand, is there any -- when do you expect I guess somebody to get appointed to do that process, you said you already working with the CPUC on it, so is that directly with the CPUC or do you expect somebody to be appointed by the CPUC, and what is the timing for that?

Geisha J. Williams -- Chief Executive Officer, President & Director

Let me start, Praful. It's a very fluid situation without specific sort of milestones that have to be achieved by a particular time. So it's a difficult question to ask in terms of how the CPUC is looking out at this point. We are continuing to advocate for timely and starting to process whatever that process may look like. We understand that other stakeholders will have a point of view on that as well as we, but there's not a specific series of actions that are need to be taken in order to provide that customer harm threshold analysis to be completed. As I mentioned earlier, SB 901 provided pretty broad discretion to the CPUC and how it handle something like that.

Praful Mehta -- Citigroup -- Analyst

Understood. And do you expect the Overland report to -- be any kind of framework or guidepost to that process or do you see this is completely different?

Geisha J. Williams -- Chief Executive Officer, President & Director

It could. Again, it's -- I think it possibly could be something that acts as an overarching framework, but we certainly don't know what the CPUC's intentions are or what -- what they're thinking in terms of how or if to use the Overland report.

Praful Mehta -- Citigroup -- Analyst

Got you. Thanks so much, guys.

Geisha J. Williams -- Chief Executive Officer, President & Director

You bet.

Operator

Your next question is from Julien Dumoulin-Smith with Bank of America Merrill Lynch. Your line is open.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Hi. Good morning, everyone.

Geisha J. Williams -- Chief Executive Officer, President & Director

Good morning.

Jason P. Wells -- Senior Vice President & Chief Financial Officer

Good morning, Julien.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

So I wanted to go back to the projected rate base figures you provided out through '23. I wanted to understand just reconciling the CapEx ranges, the 577 relative to the rate base, when you think about the lower and upper ends, does that necessarily reconcile with the 577 or are there other moving factors that we should be aware of when it comes to whether it's tax reform or perhaps other items that you may be accruing to rate base. I just want to may be extra clear about this, particularly given the wide range of the rate base?

Jason P. Wells -- Senior Vice President & Chief Financial Officer

Julien, this is Jason. It largely as a reflection of the CapEx, obviously the rate base figures have assumptions around depreciation, deferred taxes, but none of those things are unusual nature there, just sort of byproducts of the CapEx spending plans.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Got it. So said differently to be clear, if you got the $7 billion number through that 2022, '23 period, that would be consistent with the upper end of that range to be sure?

Jason P. Wells -- Senior Vice President & Chief Financial Officer

Yes. That's right.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

If that's the reason for the wide range is not a reflection of some other factor, it is simply reflection of the range of the CapEx itself?

Jason P. Wells -- Senior Vice President & Chief Financial Officer

In the compounding nature of that -- of the wide range in CapEx over that period of time. Yes.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Great. Excellent. I wanted to come back to Steve's earlier question around the customer threshold process. How do you -- in light of the commentary around the Overland report, what other methodologies are you thinking about, again, I know it's early days in the process, but how would you frame it outside of the Overland report, given how relevant or lack of relevant data points there might be within that?

Steven E. Malnight -- SVP of Strategy & Policy

Hi. This is Steve Malnight, Julien, and I think as Geisha was saying really look, there is -- there are a lot of different processes and pathways that this proceeding could go. I think we're engaging in conversations with the commission about different potential pathways, different processes that could be engaged and other interveners will have, they will have their point of view as well. I appreciate the desire to know more, I wish we just don't have more to really tell you about that today. I think there are -- as you can imagine, many different ways they could go and we're going to continue those conversations. As Geisha said, obviously, this is an urgent focus for us. It is something we are focused on driving clarity on not only process, but obviously, getting to a clarity on the amount as well, and we'll continue to keep you updated as we go.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Right. And sorry -- just a quick clarification on the rate base, given that a lot of the wildfire mitigation seems to be running through the GRC process as well as -- I suppose in parallel wildfire mitigation plan, do you expect to get definitive kind of CapEx related updates more in the mid part of next year or you really waiting for a GRC outcome before getting real comfort on where you are in this range, just to be clear, the incremental overtime obviously?

Jason P. Wells -- Senior Vice President & Chief Financial Officer

I think the incremental CapEx spending associated with the wildfire mitigation efforts roughly 700 million a year in that 2020 to 2022 period. I think we'll get a stronger signal next year as we go through the wildfire safety action plan at the commission. Obviously, we're going to have to wait for the GRC decision to finalize that overall spending level. But next year, we should get a good indication of the -- support for the program that we're proposing.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Excellent. All right. Thank you very much.

Operator

Your next question is from Michael Lapides with Goldman Sachs. Your line is open.

Michael Lapides -- Goldman Sachs & Co. -- Analyst

Hi, guys. Thanks for taking my question. Real quick, when interpreting Senate Bill 901, and what costs are potentially recoverable via securitization and what are not. I get it that anything that would be inverse condemnation related would be recoverable via at least some portion of that, if not all would be recoverable via securitization. What about private liability or if there are any negligence related costs that come out of various lawsuits that are under way, is that covered under 901 or is that covered separately?

Steven E. Malnight -- SVP of Strategy & Policy

Michael, this is Steve Malnight. So, under Senate Bill 901, what it really did was established the customer harm threshold to apply against all costs that the utility could bear as a result of the wildfires. So, it really is indifferent to the drivers, it's just the point that beyond a certain threshold customers would be broadly harmed and therefore the better alternative past that point is securitization. So, really it doesn't speak specifically about different aspects of the cost.

Michael Lapides -- Goldman Sachs & Co. -- Analyst

Okay. And is there is -- at this point, meaning, or at least until you have the docket next year, there's no real way of kind of knowing or defining what is that kind of the harm to all rate payers number or level, you've got to literally go through that and have view in the commission and others kind of analyze that and come up with whatever the best estimate is for any number of years?

Steven E. Malnight -- SVP of Strategy & Policy

Yes. That's correct. The Senate Bill 901 really doesn't spell that out beyond the general direction for the commission to consider customer harm and the inability for us to continue investing in the safety and reliability of the system. So, that -- they left it to the commission to decide the best process and pathway and that's what the commission will be doing.

Michael Lapides -- Goldman Sachs & Co. -- Analyst

Got it. Thank you, guys. Much appreciated.

Geisha J. Williams -- Chief Executive Officer, President & Director

You bet.

Operator

Your next question is from Christopher Turnure with JPMorgan. Your line is open.

Christopher James Turnure -- JP Morgan Chase & Co -- Analyst

Hi. I wanted to follow-up on the fire safety or fire mitigation plans that you're going to be filing shortly with the commission. How specific do you think the plan should be or how specific do you think the CPUC would want those plans in terms of milestones to achieve the exact timelines, cost buckets, et cetera, as opposed to just one or two big numbers over the 12 or 18 months time frame?

Steven E. Malnight -- SVP of Strategy & Policy

Yes. Christopher, this is Steve Malnight, again. So, I think that, that is the process that the commission will lay out in their scoping memo, which will be coming soon, as they have laid out this process, so they'll issue scoping memo, and we'll have the discussion in November, we'll be filing those plans in February, and they will be deciding on those plans, three months after. So, they've set out an aggressive timeline here. I think this will be the first time through. So a big part of it will be the specifics. I should say that as Geisha and Jason laid out in the comments, we have a very specific plan in mind in terms of what we want to go deploy and we'll be advocating for that through this proceeding as well as through the GRC and those will align in our initial filing and in the GRC filing. So, the commission will set that really soon. We'll see more on what they're going to propose.

Christopher James Turnure -- JP Morgan Chase & Co -- Analyst

Okay. Got it. And then my second question is on your overall capital plan and funding requirements. There's been a couple of questions on this already, obviously, but I think it's probably fair to assume that you view your cost of equity as being above your authorized cost of equity right now. How reasonable a source of funding is equity overall four-year, five-year plan given the current numbers authorized to you by the commission in your current, and have estimate of your own cost of capital?

Jason P. Wells -- Senior Vice President & Chief Financial Officer

Yes. We've seen -- we've clearly seen an increase in the -- in our cost of capital, Chris, and I think the recent transmission owner rate case that we filed with FERC reflects our current thinking about that elevated cost of capital. What we think broadly about sort of funding CapEx over this five-year time horizon, I think -- an important element of that is going to be the timely resolution of the customer harm threshold, as well as the securitization of costs above that threshold. And so, our focus right now is working constructively to bring clarity to those items to lower our cost of capital, so that our customers don't have to pay that elevated cost for an extended period of time. I think it's really too early to be specific, or any more specific than that.

Christopher James Turnure -- JP Morgan Chase & Co -- Analyst

Okay. Fair enough. Thank you.

Operator

Your next question is from Shar Pourreza with Guggenheim Partners. Your line is open.

Shahriar Pourreza -- Guggenheim Partners -- Analyst

Hi. Good morning, guys.

Jason P. Wells -- Senior Vice President & Chief Financial Officer

Good morning, Shar.

Geisha J. Williams -- Chief Executive Officer, President & Director

Good morning.

Shahriar Pourreza -- Guggenheim Partners -- Analyst

So I know you touched a little bit on the ultimate cost to the consumer, but maybe specifically honed in on O&M, obviously it's a healthy amount of O&M that you guys requested in the current wildfire plan. So how should we sort of think about your O&M growth both on a go-forward basis, especially as we think about the rate impact given sort of the sizable capital program you presented today. I mean, knowing the plans you know and obviously they will somewhat change through time. Is there a way we should be thinking about your O&M growth profile?

Jason P. Wells -- Senior Vice President & Chief Financial Officer

Sure. This is Jason. I think it's too early to give a specific O&M trajectory. What I will say as Geisha has mentioned in her comments, we are laser focused on continuing to drive efficiencies in our core work. We have lowered the cost of our base O&M over the last couple of years. However, those reductions have been largely offset by cost increases we're seeing with insurance costs as well as the elevated levels of vegetation management that we're proposing here. So, while we've made good progress, there is more to do and we are laser focused on continuing to execute on those long-term affordability programs for the company.

Shahriar Pourreza -- Guggenheim Partners -- Analyst

Got it. And then just real quick from legality standpoint, the power shut off program is leading the summary, pursuing (ph) for the disruptions, is there sort of any merits to these cases?

Geisha J. Williams -- Chief Executive Officer, President & Director

Hi, Shar, this is Geisha. I'll tell you, actually initiating that public safety power shut off program couple of weeks ago, was a very, very difficult decision. But from our point of view it was the right one given the forecast that we have of extreme weather conditions, the real-time weather modeling that our team was doing, and frankly field observations from our employees. So, as we took a look at all that, there was no doubt in our mind that we had initiated. And I would tell you if we're faced with similar conditions in the future, similar forecasts, we're going to do it again. It's -- as we've talked about this in the past, it's not a free play when you do a public safety power shut off. There's clearly implications associated with doing right that. But as we look at the potential implications of another ignition associated with these extreme wildfire conditions, we've got to take the broader public safety sort of considerations in mind and that's what we've done. As far as litigation, and whether it has merits, I'm not sure, I mean, that's something that we'll have to play out overtime, but we would do it again -- we'd absolutely do it again. I don't know, John, if you want to comment on that.

John R. Simon -- Executive Vice President & General Counsel

Well. We haven't seen any claims from it yet, and the CPUC will evaluate the reasonableness of our actions, we filed a fairly detailed report on what that was. So, we're pretty hopeful, confident that they're going to see what we saw when they read that and not overly fixated on claims at this point.

Shahriar Pourreza -- Guggenheim Partners -- Analyst

Got it. And then Geisha, you've been pretty visible as far as the -- somewhat of the shortcomings of 901, that was obviously a very good start. Are you going to sit out next year as far as looking for a fixed around inverse, and let the state kind of digest 901, and reasonableness or you're going to pursue what fixed next year?

Geisha J. Williams -- Chief Executive Officer, President & Director

Well. I think that it's not that inverse condemnation is what and it needs to be addressed as I've been, as you said, very, very vocal about that. As we look at the next legislative session, I think one of the most important drivers or one of the most important activities in that will be the Blue Ribbon commissions work, looking at wildfire issues broadly including whether and how to socialize those costs. So, we think the Blue Ribbon commissions work will be important, and we will be engaged in that to the extent that we can be, and that work is supposed to be completed in July. So, will it be too late for the next legislative session? I'm not sure it depends on how much work they've done, how much they've socialized, how much they've been able to engage with stakeholders, legislators in particular. But we're certainly going to continue to advocate for a change, whether that be through legal court sort of system or through continued legislative process, we're going to continue to look for opportunities to change what we believe is a flawed doctrine, not really appropriately applied to investor-owned utilities.

Shahriar Pourreza -- Guggenheim Partners -- Analyst

Terrific. Thanks, guys.

Geisha J. Williams -- Chief Executive Officer, President & Director

You bet.

Operator

Your next question is from Paul Patterson with Glenrock Associates. Your line is open.

Paul Patterson -- Glenrock Associates -- Analyst

Good morning, guys.

Geisha J. Williams -- Chief Executive Officer, President & Director

Good morning.

Jason P. Wells -- Senior Vice President & Chief Financial Officer

Good morning.

Paul Patterson -- Glenrock Associates -- Analyst

Just a follow-up on the cost of capital, did I hear you correctly to say that it was kind of in the ballpark of what your power for transmission that you're kind of think, I know there's going to be some fine-tuning, et cetera, but that's kind of a proxy we should be thinking about or could there be a change in equity ratio or ROE from there?

Jason P. Wells -- Senior Vice President & Chief Financial Officer

I think it's too early to be definitive, but clearly that filing with the FERC represents our current thinking on our current cost of capital and how we'll approach. The cost of capital proceeding with the CPUC next spring, but it is early and they're going to be a number of factors that may influence that filing.

Paul Patterson -- Glenrock Associates -- Analyst

Okay. And then just finally following up on the affordability question that's been asked, is there a metric for a particular class of customer that we should be thinking about as being particularly sensitive, just how should we think about that, I mean, if it's -- if there's any sort of direction we have yet in terms of exact -- I mean, what we're talking about, I assume it's not just average rates across the system, or is it, can you give us just a little bit more of a feeling for what -- what we should be thinking about sort of a thresholds that might be really key?

Jason P. Wells -- Senior Vice President & Chief Financial Officer

Yes. Thank you for the question. We look at customer affordability through a number of different lenses, at it's sort of highest sort of view, we consider a sort of rate increases in line with inflation, but we also do look at share of wallet or share of disposable income for the different communities we serve. And I think really where the pressure point largely lies is more in the Central Valley, those customers who are higher users of electricity feel more of the burden of cost increases and so that's why we're trying to work very diligently and with a lot of rigor on continuing to drive not just affordability in our -- efficiency in our spend, but also focusing on working with the commission on the policies that may impact those communities as well.

Paul Patterson -- Glenrock Associates -- Analyst

So, rate design change perhaps augment some of the issues or is it -- how should we think about the potential for rate design particularly alleviating some of the affordability issues versus actual cost cutting or what have you?

Jason P. Wells -- Senior Vice President & Chief Financial Officer

I think that's -- we look at these issues holistically, it's not just spend, it's the policies associated with that. I think the recent proposed decision on PCIA was a -- or decision rather on PCIA was a good step in terms of minimizing the impact on some of those communities that are sort of most sensitive to rate increases. And I think as the commission looks at -- Net Energy Metering, I think that's another opportunity for us to update our rate design to take more pressure of some of these communities that face the most direct pressure from rate increases.

Paul Patterson -- Glenrock Associates -- Analyst

Great. Thanks a lot.

Operator

This concludes the Q&A portion of the call. I'll now turn it back over to Chris Foster.

Christopher Foster -- Senior Director, Investor Relations

Thank you, Chris. I'll just wrap this up. Thanks, everyone, for joining us this morning on the call and please have a safe day. Thanks very much.

Operator

This concludes today's conference call. You may now disconnect.

Duration: 59 minutes

Call participants:

Christopher Foster -- Senior Director, Investor Relations

Geisha J. Williams -- Chief Executive Officer, President & Director

Jason P. Wells -- Senior Vice President & Chief Financial Officer

Jonathan Arnold -- Deutsche Bank AG -- Analyst

Stephen Byrd -- Morgan Stanley -- Analyst

Steve Fleishman -- Wolfe Research -- Analyst

Greg Gordon -- Evercore Group -- Analyst

Steven E. Malnight -- SVP of Strategy & Policy

Praful Mehta -- Citigroup -- Analyst

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Michael Lapides -- Goldman Sachs & Co. -- Analyst

Christopher James Turnure -- JP Morgan Chase & Co -- Analyst

Shahriar Pourreza -- Guggenheim Partners -- Analyst

John R. Simon -- Executive Vice President & General Counsel

Paul Patterson -- Glenrock Associates -- Analyst

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