And welcome to the PG and E Corporation Third Quarter Earnings 2013 Conference Call. I would like to introduce your host, Mr. Gabe Ponieri with PG and E. Thank you, and you may proceed.
Hello everyone. Thanks for joining us. Before you hear from Tony Early, Chris Johns and Kent these are based on assumptions, expectations and information that's currently available to management. Some of the important factors that could affect the company's results are described on the second page of today's slide deck. And in addition, we encourage you to review the Form 10 Q that will be filed with the SEC later today and also the discussion of risk factors that appears in the 2012 annual report.
And with that, I'll hand it over to Tony.
Thank you, Gabe. We've got a fair amount to cover today and I'm going to start with the gas business. We continue to make progress in the field to improve the safety and reliability of our system. We've gathered an unprecedented amount of data about our gas transmission system and we're using our comprehensive pipeline features database to prioritize our pipeline safety work. This has resulted in some changes to the work plan and higher unit cost for work on the pipeline safety enhancement plan as compared to the filing that we made a couple of years ago.
Yesterday, we filed a required update with the CPUC that reflects these changes. As a result, we'll be taking a charge for the additional costs that won't be recovered from customers. We're disappointed to have to do this, but it reflects the complexity and the challenges of this important gas safety work. And Chris will go through the details in just a couple of minutes. A noteworthy accomplishment this quarter was the resolution of substantially all of the remaining San Bruno related third party claims.
From the beginning, our focus has been on bringing closure as quickly as possible through settlements that treat people fairly. The judge overseeing the case expressed how pleased he was that we were able to work with the plaintiffs to resolve these significant cases without going to trial and we are proud of the outcome. Also, the San Mateo County District Attorney's Office has publicly indicated they will not be pursuing criminal charges under state law. However, the federal investigation under the Pipeline Safety Act is ongoing and we continue to cooperate with the U. S.
Attorney's Office on that. A regulatory area, the gas penalty proceedings are taking much longer than we had ever expected. However, the record is now complete in the 3 investigations and we await the Administrative Law Judge's rulings. So when you lay out the timetable for the ALJ's issuing a recommended penalty and the subsequent commission decision, I think it's fair to say that the final results be expected in the Q1 of 2014. As you know, the other parties to the proceedings have suggested unprecedented penalties.
More recently, a number of third parties have weighed in calling for a more balanced approach to the penalty, recognizing that an extreme decision would have negative implications for financing California's ongoing infrastructure needs. We believe it's vital that the Commission's final decision recognize the significant improvements we've made to large sums that we've already spent without recovery from customers and that the victims have been fairly compensated in the civil proceedings. Before I turn this over to Chris, I'll mention important progress we've made this quarter in addressing some key customer affordability issues.
As many
of you know, California has a multi tiered residential rate structure that was intended to promote energy Over the years, cost increases have been disproportionately loaded onto the upper tiers, while the CPUC's ability to address this has been constrained by the legislature. As an unintended consequence, the structure disadvantaged a large number of our customers in areas like Central Valley who need air conditioning in the hot summer months and pay extremely high bills. At the same time, customers living along the coast where there's moderate weather pay much lower bills, even those people that have fairly large houses. This year, the utilities and the consumer groups worked together on legislation that restores the CPUC's authority to make important changes to fix California's rate structure. The Governor signed the bill this month and we look forward to working with the CPUC to move this forward.
So with that, let me turn this over to Chris.
Thanks, Tony, and hello, everyone. I'll begin my remarks focused on operations and then touch on the regulatory proceedings. Although we've had a lot of success in our overall operations, I'm going to focus my comments on gas ops today. First, on slide 4, you can see the significant amount of work we've completed to make our pipeline safer just since the beginning of this year. Over the past few years, we've been testing and replacing more pipeline miles and installing more automated shutoff valves than just about any utility that I'm aware of.
Much of the pipeline safety work we've been doing was based on the pipeline safety enhancement plan that we filed in 2011. The CPUC approved the work in December of 2012, but only gave us partial recovery of our costs. That decision also required us to update the plan once we had finished validating the maximum allowable operating pressure for all 6,700 miles of our transmission pipelines. We recently completed that effort and used the results to reprioritize every pipeline segment for strength testing, which is funded with expense dollars and pipeline replacement, which is capital work. Yesterday, we filed the required pipeline safety enhancement plan update application with the commission.
The biggest change is to the pipeline replacement component, which is the capital side of the program. About 90 miles or roughly half of the previously planned replacements were removed from the program and about 50 miles were added to the pipeline replacement portfolio, again based on the reprioritized risk ranking. Although there are fewer miles to replace in total, many of the miles reflected in the update are short pipeline segments, each with costs comparable to the longer segments. In addition, many of the segments included in the reprioritized and updated plan are in difficult terrain including unstable soil and high water tables that require pumping and disposing of water, adding to the unit cost of the replacement program. Also, we found more third party infrastructure under the street than originally anticipated such as water and sewer lines and this requires additional costs for trenching and pipe fitting.
Even though we're replacing fewer miles and the cost per mile will be higher, the total costs for pipeline replacement are not substantially different from the previous plan. However, since we are replacing fewer miles, the revenues eligible for recovery under the terms of the Pipeline Safety Enhancement Plan are lower. Given this profile, we're required to write off the projected shortfall, which is estimated at $196,000,000 and we've taken that charge this quarter. We also expect a smaller impact to our strength testing plan, which is the expense component of the program. That's because we expect to do a larger amount of the work on newer pipe, which is not eligible for cost recovery.
As a result, we expect additional unrecovered expenses in 2014 of about $30,000,000 However, those charges will be taken next year as the costs are incurred. While I don't like delivering this news, I know that the result of all this work will be a safer system for our customers. And Kent will cover how this impacts our guidance in just a couple of minutes. We continue to make progress on the system wide centerline survey of our pipeline rights of way. As you can see on the slide, we've completed about 5,800 miles, but we're not done yet.
And we're currently working throughout the San Francisco Bay Area, our most densely populated region. The survey will still be essentially complete by the end of this year and we'll review the total cost estimate once we have clear visibility into the entire portfolio of remediation work that results. For now, we're maintaining the estimate of roughly $500,000,000 over 5 years. Turning to regulatory matters on slide 5, the general rate case remains on track. We filed our reply brief and updated our overall request based on the outcome of the hearings.
Everything is now in the hands of the administrative law judge and the schedule calls for a proposed decision on November 19. On the electric transmission side last month, the FERC accepted our TO-fifteen filing and the rates went into effect on October 1, subject to refund based on the final outcome. We expect the case will now go through the settlement process. We approach the end of the year, I'll remind you that we're preparing to file our 2015 gas transmission rate case. We're already spending a lot more than is currently in revenues and in light of this increased spending, we expect the filing to be of significant size and certainly to draw attention from intervenors.
We plan to file the gas transmission case in the December timeframe to allow the CPUC a full year to make a decision because we don't have the same assurances about retroactivity of revenues that we've typically had in the general rate case. We'll try to address that through the regulatory process. So with that, I'll turn it over to Kent.
Thank you, Chris. As usual, I'm going to go through our Q3 results as well as guidance and I'll address the impact of the PSEF capital charge that Chris discussed. Slide 6 summarizes the results for the Q3 and earnings from operations were $0.88 per share and GAAP results were $0.36 The difference is our item impacting comparability related to natural gas matters, which totaled $0.52 in the quarter. As usual that's broken out in pretax dollars in the table at the bottom of the slide. Pipeline related expenses totaled $113,000,000 pretax in Q3 and these include the strength testing work and our pipeline safety enhancement plan, our rights of way and integrity management work and then our legal costs.
Next, you see the $196,000,000 pre tax charge that Chris described related to the required update to the pipeline safety enhancement plan. Again, these are capital costs we expect to incur for pipe replacement work, which we don't expect to recover from customers. In Q3, you see there were no changes in our accrual for potential fines in connection with the gas pipeline investigations. Our accrual remains at $200,000,000 During the quarter, we did increase our accrual for 3rd party liability claims by $110,000,000 dollars as a result of settling virtually all remaining third party claims in Q3. The total accrual for 3rd party liabilities stands at $565,000,000 which is within our previously established range of up to 600,000,000 dollars During Q3, we also recognized $25,000,000 of additional insurance recoveries and that brings total insurance recoveries to date to $354,000,000 Slide 7 shows the quarter over quarter comparison for earnings from operations.
Our lower authorized cost of capital resulted in a reduction of $0.09 compared to Q3 of last year and our increased shares outstanding resulted in a $0.04 reduction. These negative factors were partially offset by higher rate base earnings worth $0.05 compared to Q3 of last year along with a number of smaller items. Our guidance for 2013 is on slide 8. And at the top, you'll see that guidance for earnings from operations is unchanged at $2.55 to $2.75 per share. Some of the key assumptions underlying our guidance are provided in the appendix of the slide deck.
At the bottom of the slide, you'll
see our guidance for the key components of the natural gas matters in pre tax dollars and we've made 3 primary changes here. First, the range for pipeline related expenses has been adjusted downward by $50,000,000 to reflect somewhat lower cost experience this year. The new range is $350,000,000 to $400,000,000 compared to the old range of $400,000,000 to 500 dollars 2nd, below that you see that we've added the charge for the unrecovered PSEP capital of 196 $1,000,000 3rd, we've replaced the previous range for 3rd party liabilities with the actual amount of the accrual taken during Q3, $110,000,000 since virtually all claims have been settled. In addition, as we've done in the past, insurance recoveries have been updated to reflect the proceeds received during Q3. Regarding our equity needs, we continue to expect to target roughly $1,000,000,000 to $1,200,000,000 for the year, although some portion of that may be pushed into 2014.
Our cumulative issuance through the end of Q3 was about $740,000,000 and about $170,000,000 of that was done in Q3. I'm going to stop there and I'll turn it back to Tony for some closing remarks.
Thanks, Kent. Let me just summarize what we're doing to both resolve outstanding issues and to move the company forward. First, we're focused on wrapping up the uncertainty related to the gas penalty proceedings and we expect a final result in the Q1 of 2014. 2nd, on 3rd party liability claims, we're in good shape and we expect to recover a significant portion of the cost through insurance and we're going to continue to work through that process. 3rd, the hearings and all subsequent regulatory briefs for the general rate case are all completed and we're now awaiting the proposed decision in the GRC.
And 4th, we're working on the gas transmission rate case that will be filed by year end. The GRC and the gas transmission cases are critical to our path forward. We made solid progress executing on our plans and we know we're laying the foundation for future success. So with that, we'll open up the lines and answer your questions.
Our first question comes from the line of Leslie Reich with JPMorgan. You may proceed.
Hi, Toni. How are you?
Good morning, Leslie.
So just in terms of thinking of the timing of the ALJ rulings, I know they're on really separate and distinct paths. But is it possible that you get an ALJ ruling on the GRC before you get an ALJ ruling on the fines and penalties? And then in terms of the commission decision on the final decisions for both of those, are they interrelated at all or really sort of separate and distinct?
I'll let Tom Bahtov comment in a minute. But since the record is closed and now the ALJs are working on their decisions, It really is up to the ALJs to decide how to orchestrate when they issue those decisions. And I'm not privy to what their thinking is, but they really have lots of flexibility right now. Tom, I don't know if you have any more insights.
Yes. I think that's right. In the general rate case, Chris mentioned that the schedule calls for the GRCPD to come out in November That may or may not happen, but that's the current schedule. And with respect to the Poe's decision on the three investigations, we expect those to come out in mid December. That remains to be seen as well.
But the procedural schedule would call for that kind of outcome. I don't think that the two decisions are being coordinated. I think they're on separate tracks. The judges do communicate with one another occasionally, but I think they're working on their own decisions and trying to get them out as quickly as possible.
And then the final decisions are sort of typically within 60 to 90 days, but not necessarily?
Yes. They could be as early as 30 that rarely happens. Yes, 60 to 90 is realistic.
Great. Thank you.
Thank you. Our next question comes from the line of Steven Fleishman with Wolfe Research. You may proceed.
Yes. Hi. I have a couple of questions. First on this issue of what I guess there's kind of like a revenue per mile cap in the PSUP-one final order. Could you just explain a little better why it matters how much cost per mile?
Yes. This is Chris. I'll start off and then Tom can come in on some of the requirements from a regulatory process. But in general, when the order was put together and the supporting workpapers behind that, it identified a certain amount of work and then allowed revenues based on that certain amount and type of work that was being done. So when we've taken work out and putting work back in, it would basically reduce the amount of work being done and therefore the revenues go down with that.
Unfortunately, when you look at the mix of work that's remaining to be done, it is at a higher unit cost. And so it wasn't the way it was set up was not something that allowed us a bucket of dollars to do a bucket of work. It had a cap on it based on very specific type of work that was done. And so unfortunately the way the order works out for us is that the revenues are decreased because the amount of work is decreased. And it was indifferent as to what the cost per unit was and the types of work that we're seeing that's left to do is as I said in instances just in different terrains in situations where the cost per unit is higher.
Okay.
Remember, Steve, we had also proposed contingencies that were disallowed in that case, which we didn't think was fair because of the uncertainties like this and that has hurt us. Right.
Okay. Tony, you've talked before about with the right kind of GRC orders being able to earn your allowed return, I guess electric in 2014 and gas 15. What's your can you say that that's still feasible?
Well, that's still our objective. I think as we've said in the past, I was pleased with the way that GRC went in. Remember the commission had asked us to really focus on risk and safety and what we were doing. We did that. They hired independent consultants to look at both the gas business and the gas distribution business that's in that case and the electric business.
The consultants had favorable reports. And the interveners in the case really did not take issue with the safety analysis and the risk analysis. It was really just well we don't want rates to go up too high. And in the case we've shown that even if we were granted the full relief which obviously never happens, but even if we were granted the full relief our the average customer bill is still below the national average. And so I'm guardedly optimistic that we will get a good result and we believe with a good result in the GRC that we certainly have an ability to earn or meet our objective of earning allowed return.
On the second piece gas transmission and storage that case as Chris said we'll file by the end of the year. Once we file it we'll see what the reaction to it is from various interveners and get a better feel for whether it's going to be hotly contested or whether people say, yes, you really do need to spend on gas transmission and storage because remember a lot of new requirements that we have to cover in that case. Okay.
And then just one other question to clarify on the rights of way issue. So I mean in the past when you've talked about $500,000,000 you kind of would say that we're still kind of on track for that. I mean is that fair to say this time that that's still kind of that's estimated or you're just
Well, Steve, this is Chris. And as I said earlier, we're getting near completion. We still have to do San Francisco, which is a more congested area to go through. But based on what we've seen, we're reiterating the $500,000,000 at this time.
Okay. And then one last thing. Can you just explain kind of what happened with this San Carlos situation and kind of how these might be handled going forward? Sure.
Sure, Steve. This is Chris again. And one of the things that everybody needs to recognize is obviously this is a very politically charged environment that we're working in right now. And when you look at San Carlos, we had this is what we refer to as our line number 147. And we pressure tested that line in 2011 and have done the work on it that we're convinced makes it a safe line.
And we've reiterated that to the commission and to our customers. But the issue that arose is that when we were in 2012 doing some follow-up excavation on a routine leak survey and repair, we found in there that some of our records associated with that line weren't accurate. And so we updated those and we did alert the CPC and their staff to that process and then eventually filed making sure that through an errata filing that folks were aware that we found that discrepancy. And quite frankly, that's part of what we want to do. As we're doing work, we want to constantly challenge and make sure that our records and the pipes are safe.
And so we're going to continue to look for those kind of things. But as we went through that then that caused the others in San Carlos to get concerned and that's where it's become a little bit more involved in the press and through the political process. But the CPUC did because they took issue with and had concerns about the timing of how we of when we notified them and the method that of which we notified them. They opened these orders to show cause. And both of those are proceeding now.
It's hard to estimate what will the outcome will be on those, but we do anticipate that they'll be wrapped up in the next month or 2, especially on the one that we need to get them to authorize us to reenergize that line.
Great. Thank you.
Thank you. Our next question comes from the line of Jonathan Arnold with Deutsche Bank. You may proceed.
Good morning, guys.
Good morning, Jonathan.
It's FYI, I think a PD on the very question you were addressing just came out. But my question is to on the equity delay, Ken saying some of it might be pushed into 2014. Is that and you obviously already also had this additional charge you've taken. Is that really just because the proceedings are taking longer and then are pushed into next year, sort of timing for any sort of significant incremental charges pushed out? Or are you doing better elsewhere?
Can you just talk around your thought process there?
Yes, Jonathan. First of all, I'll state the obvious, which is that equity requirements is sort of the end game. There's all sorts of different things that factor into our cash needs as well as our capital structure. Essentially everything in our results factors into that. So it's kind of at the end of the line.
The reality is as in any year there's been puts and takes that drive our equity needs. And the fact that we did take this charge fairly recently in reality isn't a huge driver for the total the total annual needs because the annual needs are weighted average over the whole year. And when you have a charge towards the end of the year, it doesn't have the same kind of impact as when it's reflected throughout the entire year. So puts and takes, no major changes in our expectations. And in our plans, we've built in flexibility so that obviously some amounts can always spill over into the following year just because that's how the markets work and that's how timing is and you want to have that kind of flexibility.
So we're going to see how the last part of the year goes. We're generally on track, but some of it may end up being in 2014. I don't think it's a concern.
Great. Thank you.
Thank you. Our next question comes from the line of Dan Eggers with Credit Suisse. You may proceed.
Hey, good morning guys. Just following up on this extra $200,000,000 of cost is you reallocated priority of work. Is there potential for more of these to be done as you guys reprioritize kind of the phase of work that's got to get done in 2014 or 2015 under the PSAP? Or is there a chance this could be reversed as you continue doing more work on what needs to get done?
Hey, Dan, this is Chris. We were required to file this as a one time update on the pipeline and safety enhancement plan. So we don't anticipate going through and reprioritizing or doing another 2014.
Okay.
And then I guess just kind of could
we get in the car before the horse a little bit, but as far as getting a resolution on San Bruno and potentially where the fines could end up or the penalties could end up. Can you guys just walk through kind of the legal arguments if some of these high fines or penalties are put out there? How you guys could look to protest or try and reduce those impacts to shareholders from a legal perspective?
Yes. I'll start off and Yoon Park, our General Counsel is here and can add to this. But we believe that there are some very strong arguments that when the penalty gets too large that we do have options to appeal that penalty that there are provisions under California law that prevent excessive fines and penalties. And we think that we've got some good arguments there if they just get out of line with precedents across the country and what's reasonable given all the money we've already spent. And I don't know if you want to add any more to that.
So this is Hyun Park, General Counsel. I actually think it's too early to tell. Obviously, we're speculating. But as Tony said, we believe that if the fine is so excessive, we would have both state and federal constitutional law based arguments.
And those would be appealed through California State Court, U. S. Federal Court or combination of any which where you decide to go?
I think those are all being assessed at this point. And we would have option to go to both state as well as federal court we believe. Okay.
Got it. Thank you, guys.
Thank you. Our next question comes from the line of Kit Colic with BGC. You may proceed.
Good morning, guys. To revisit the gas transmission case a little bit again, how is it going to be part of the potential reaction here that it may not be completely clear what you've been disallowed from recovering that you've already spent or planned to spend versus what the new rules require you to spend in the future? In other words, are we going to get into some very complex detailed arguments that will make it hard to figure out what the rate base is and what the return is likely to be?
Kit, this is Chris. And just for clarification, are you referring to the gas transmission case that we're going to file? Is that what you're talking about? Yes. Yes.
So as I said, we're spending significantly more right now as you guys are well aware in than we're getting in revenues. And so we expect this filing to be a pretty large ask. And I think it's important to remember there's a couple of differences from what we asked for the first time that got disallowed versus what we're going to ask for this time. In the last case, when they did the big disallowance, there were 2 real big areas that they disallowed. 1 was on our records systems that we were updating and modernizing and that project will be done by the end of next year.
And so that won't be part of the ask for the next time. And then the second one was referred to earlier as we asked for a large contingency because at the time, this was several years ago, we hadn't gotten through the design phase and all the engineering and the estimates were pretty rough at that time. So we put in some large contingencies and they disallowed all those contingencies. And in this case, now we've got 2 years under our belts, 2.5 years under our belts knowing what these costs look like. And so contingency requests would be a lot smaller.
And so I think that it will be a little bit more of a standard type in terms of filings and such other than part of the big increases is from the fact that they've changed the rules and they've raised the standards around safety which are good standards and that requires a lot more work from us and the other utilities. And so those will be items that will be in there. We do expect that because of the size of the asset interveners will get involved and they'll probably challenge us as they did on the last case to did we already have did we already get paid for these kind of costs in the past. But we think we're going to we'll have a very solid case to be able to file. And I think you'll be able to see with transparency what the rate base ask will look like.
And I don't think that the issues that will be raised will be any different than things that we've seen in the past.
Okay. Thank you.
Thank you. Our next Yes
Yes, we can.
Excellent. So just wrapping up on the gas side quickly. Just you talked about filing this later this year just to provide a little extra buffer. How much buffer do you think that provides you ultimately in terms of getting through it in a timely fashion?
I'll start and Tom you can this is Chris again. What we're trying to do is if we do it in December that gives them hopefully a full 12 months' worth of time to get through the regulatory process which is what we would hope that they would be able to do at the commission. Normally, the schedules will call for something around the 12 month timeframe. So that's really what we're trying to have accomplished. I don't know Tom if you want to add anything.
The schedule had called for us to file no later than February 3. So we're ratting this extra couple of months just to try to make sure we get a decision by the end of the year. And we'll have that established once the commission application is filed. There'll be a pre airing conference to set the schedule. And again, we hope it calls for a decision by January 1, 2015.
Great. And then going back a little bit to Dan's question and kind of juxtaposing, if you will, a potential appeals process in the context of equity needs. Can you provide just a little bit of clarity in terms of when you might need to issue equity to the extent to which a decision were to come out from the CPCs? Is there some need to fund that immediately pending an appeal process? Or how do you think about that ultimately?
I mean, obviously, there's some balance sheet ramifications as well.
Julie, this is Kent. Of course, any answer to that is somewhat hypothetical because it kind of depends on what the decision is. And we have a huge variety of recommendations out there and a range of possible outcomes still in these proceedings. So the specifics are going to depend on what the final decision is. If we do appeal it, unless it's an unusual situation, my guess is that from an accounting perspective, we'll still be required to accrue what the decision is because to not do that would essentially we'd have to think it probable that the appeal would be would occur.
And so my guess is the accounting will cause us to have to deal with some of the capital structure and financing implications. And the appeal could last a long time before that's actually resolved.
So really the reality is you could only need a partial amount of equity to the extent which you get resolution and ultimately full payment ultimately would be on resolution of the appeal most likely, if you were to come to that.
But Julian, let's remember the scenarios. And if I use one scenario, which is the time. So again, it really depends on the specifics of the final PUC decision.
Right. Absolutely. Thank you very much.
Thank you. Our next question comes from the line of Anthony Crodell with Jefferies. You may proceed.
Good morning. I want to follow-up on Julien and Dan's question talking about the appeals process. And I think that one of the responses you gave Dan was based on precedents across the country, I guess, and other pipeline matters. I mean, could you, I guess, highlight or give us some examples or yard markers of where previous appeals or I guess pipeline penalties have been?
Well, as far as we can determine the largest penalty in a pipeline gas pipeline explosion incident related to El Paso Natural Gas about a little over a decade ago and it was just over $100,000,000 in penalties. Now there have been some more recently. There was one in Pennsylvania that was in the low double digits. Nick, do you remember that number? About $25,000,000 Now some of that was constrained by some of the state law in Pennsylvania.
But if you look at all of it and we've done this work, the numbers that are being talked about, which would total of $4,000,000,000 in penalties are orders of magnitude beyond anything that's ever been assessed. And when you think about it, assessing a penalty that size doesn't accomplish anything. We made major changes in the leadership in the organization here. We immediately started to do work knowing that we weren't going to recover, but we didn't wait until we had an order telling us what we'd recover and what we didn't. We went and did the right thing.
And so we don't think it accomplishes any logical purpose to have penalties of the size that some of
the folks are talking about.
So just to follow-up, if I think about it, a decision comes out, we hope in the Q1 of 2014 and just let's just say the decision comes out that's on top of the SED recommendation and the company does appeal it and I guess there's really no timeline for an appeal. If an appeal brings a decision back to something previously?
Yes. It's too early to speculate what you do in that case. But clearly, if we get a decision that's near where some of the proponents are advocating, we'll start the appeal process and work that through.
Great. Thanks for your time.
Thank you. Our next question comes from the line of Michael Lapides with Goldman Sachs. You may proceed.
Hey, guys. A question on the general rate case. Tony, you commented that you've kind of got a little bit of a positive outlook or have gotten somewhat of positive feedback on the rate case filing. But if I go back and actually look at the testimony, there's a pretty big spread between your request and what some of the main interveners had requested in terms of a revenue requirement. I'm just curious, is there a bogey or a level where if you get a certain amount in the rate increase, it wouldn't impact what you would wind up spending on the system whether in OpEx or in capital spending levels?
Meaning, are you in a position where if you get an outcome that isn't what you're looking for that you're willing to dial back spending on the system?
Well, we think everything that we've asked for is justifiable. We did a lot of work around the risk associated with not doing the work. I think the issue as I said before, you never get 100%. So at some point whatever the number is, you have to take a look at are there discretionary things that you take out of your spending? Or are there some important things that instead of having a 5 year plan to do a particular program, do it in 7 years or 8 years or something like that.
So I think there will be flexibility. We'll have to work hard, but I think we made a really good showing that a lot of this and particularly on the gas side of the business is things that we ought to get on with.
Okay. And how much when you think about the rate increase request, how much is capital driven versus how much is growth in O and
Let me ask Tom do you have those numbers handy?
No, I'm sorry. We don't have those numbers available, but we can certainly share them with you later.
Okay. And apologies just focusing on the rate case because I know there's been so much attention on the San Bruno related dockets. But I mean the revenue request of over $1,000,000,000 is a big number in the grand scheme of things and some of the interveners came out with dramatic differences versus your forecast.
They did. But to get back to my point earlier, when you look at it, I mean, it's a big company. And with total revenues in the high teens, the average bill if we get 100% of what we've asked for is still below the national average. And I think that's what customers really care about. I mean there's always a discussion about why your rate is high.
But in many parts of our service territory, the total bill is low because of usage. And that's why the legislation we got that allows restructuring the rates is so important because this skewing where the high end of our structure was way high. We'll be able to make a significant dent in that high end. I mean our current high rate is about $0.35 That will come down significantly if we just use the normal cost of service regulation that many other states, probably almost all states use.
Got it. Okay. Thanks, Tony. Much appreciated.
Thank you. Our next question comes from the line of Angie Storozynski with Macquarie. You may proceed.
Thank you very much. So okay, I'm actually looking at the calendar here. So we are waiting for a decision on the penalty or a proposed decision on the penalty. Then you will file a transmission gas transmission rate case where you're going to ask for a pretty significant increase as you're suggesting. We have a pending electric rate case.
So how is it possible though you could actually challenge the decision by the commission while you have 2 big rate cases pending? So I'm asking about legal challenges to a proposed penalty decision or the final penalty decision.
Well, there certainly is no legal barrier to doing that. I mean these are all
I'm talking about the collateral damage to those other proceedings from such a filing.
Right. And remember I mean so our gas transmission and storage case while we'll file it, it'll go through a year long process. So you're going to have a significant amount of time pass between when we file the case and when it actually gets decided and lots of hearings and a recommended decision there. So I'm comfortable that in the interest of protecting our shareholders' interests, we'll have to make the right decision on the penalty phase. And if the penalty phase is too big, we're comfortable with going ahead and appealing that.
And we've seen that the commission seems to have been able to separate the San Bruno proceeding from our normal regulatory process. I know early on there was a lot of concern about was there going to be some slop over and would San Bruno affect other regulatory proceedings and we continue to believe that there isn't any evidence of that.
Okay. And separately, separately, so you were planning to issue between $1,000,000,000 $1,200,000,000 of equity this year and we are almost in November and you've issued $740,000,000 So I mean is it that you need less for this year and thus you're not rushing to issue the additional equity? Or are you basically waiting for the final for well, at least for the proposed penalty decision?
Angie, this is Kent. We have had 1% to 1.2% as our target
for the year. I indicated
on an earlier question that we do have some flexibility. So if it's appropriate and we're going to assess things over the remaining months, if it's appropriate, some might push into next year. But we haven't had any major change in our overall needs for equity.
Great. Thank you.
Thank you. Our next question comes from the line of Ashar Khan with Vism Asset Management. You may proceed.
Hi. Good morning. Ken, I just was trying to look at this slide 8, where you have the natural gas matters and the expenses tied to them. The pipeline related expenses, the low end of the guidance is $450,000,000 and the high guidance range, I guess, is $350,000,000 If I'm right you've spent till the 9 months something like 250. So can you give us a sense where you're going to end up over here because it's still I guess the range is still wide enough with only 1 quarter left and I guess now only 2 months left as the year is coming to a close?
Well, Ashar, we're keeping the range at we've adjusted the range to $350,000,000 to $450,000,000 That range used to be at $400,000,000 to $500,000,000 and that's the adjustment we've made on the call.
So we could still why is it back end loaded? Can I ask? That's what I'm trying to understand.
Well, let me just go to recap what's included in that. There's 3 major components. There is our pipeline safety enhancement plan expense work, which is for the strength testing and that is seasonal work. And we don't we didn't have a lot of that very early in the year. So it tends to be certainly in the Q3 and some of it in the Q4 as well.
The second component of that is our rights away work as well as our integrity management work. And Chris gave an update on the rights away work. We're not done with that yet and that will continue into the Q4. And then the last category is sort of our legal and other costs and that also is obviously driven by the things you think would drive that. So those are really the factors and our guidance is $350,000,000 to 4.50 dollars
Can you give us some approximation percentage wise the three factors that you mentioned how much the makeup of this total?
There is a slide in the appendix that gives the ranges for each of the components. So I'll refer you to that.
Okay. Okay. Thank you so much.
Thank you. Our next question comes from the line of Travis Miller with Morningstar. You may proceed.
Hi. Thanks. Want to turn to the trend, the electric transmission stop at TEO. I wonder if you could characterize the key issues in those settlement discussions right now about the the TO-fourteen, TO-fifteen?
Yes. This is Tom Bottos. Well, maybe where TO-fourteen has been settled. We reached a tentative agreement with all the parties and we filed that settlement agreement with FERC yesterday. So that's pending.
We expect the judge to certify it, make a recommendation to the full commission to approve it and probably expect a final decision in the Q1 of next year. So all the issues in that case were settled. The key issues tend to be around the rate of return. That's been one not just in our proceedings, but nationally. And the amount of investment is also an issue.
The depreciation rate sometimes is an issue. Operating and maintenance costs compared to historical trends tend to be an issue. So they tend to be fairly consistent from proceeding to proceeding. And I'm sure we'll address those again in TO 15, which is pending.
Okay. And then on TO-fifteen with that possible increase in the ROE, what kind of earnings impact could that have given that the rates went into effect October 1? So you have essentially 3 months versus what I believe you said in guidance was about a 9.1% full year.
Yes. This is Kent. It is in effect for 3 months. I'll just say we book the revenues that we request, but we also reserve against those revenues for a those revenues for a litigation assessment until the case is resolved. So it's really the net of those that affect our overall results.
I would say compared to the 9.1%, we're hopeful that we're going to end up doing better. So it's probably a slight favorable this year. But it's in reality not in place for very long during 2013.
I take it that there are no further questions.
One moment, sir. We have one question from Kamil. From Kamil Patel with Wells Fargo. You may proceed.
Hi. This is Kamil Patel from Wells Fargo. I had two questions. 1, dealing with
Monique, did we lose him?
Yes, sir. One moment. Mr. Patel, your line is open.
Yes. Can you hear me?
Yes, we
can. Sorry. What risk do
you see in your pending or your upcoming gas transmission rate case with a potential shuffling of leadership at the CPUC late next year early 2015?
This is Tom Bodorf. I don't think the shuffling of the commissioners puts the case at risk at this point. I think it depends on the arguments that are presented by both sides and what the judge ultimately considers to be a reasonable outcome after hearing the case. If the decision if the PD is out prior to the end of the year and commissioners who are ceded today get a chance to vote on it, there's no change. But you're correct if the decision is beyond January 15, we could have 2 new commissioners and it's unclear what perspectives they will bring to the commission at this point.
Okay. Second question being, one of the, I guess, key focus areas for the management team has been to partner effectively and rebuild relationships. And wondering where you think you stand in light of Tony, I think you've been there about 2 years, in light of comments that were made back in August regarding concerns surrounding a bankruptcy and the recent San Carlos issues, do you think those have had a detrimental impact on rebuilding these relationships?
Obviously, this is politically charged and the articles in the press can affect that, but we continue to see improvement in our customer satisfaction numbers. So last quarter we saw yet another increase. And the other indicator I think over the past probably 2 months, we've had 1 to 2 dozen editorials and op ed pieces from community leaders, mayors, business associations supporting the notion that while PG and E ought to be penalized for San Bruno that the numbers that are now being talked about are counterproductive that the company is an effective and important member of communities across a large portions of the state. And if you read those things, it's very encouraging that our message has gotten out and our efforts to as we call it go local and really partner with local communities have been very effective.
Okay. Thank you. It seems like the newswires tend up to pick up the negative articles a bit more than the positive ones.
We'd be happy to send you copies of the good ones. Thanks.
Thank you. There are currently no additional questions waiting from the phone lines.
In that
case, I'd like to thank everybody for your time today. I know it's a very busy day with a number of earnings calls and we'll probably see many of you at the EEI Finance Conference in a little bit more than a week. Thank you.
Thank you, ladies and gentlemen, for attending today's PG and E Corporation Third Quarter Earnings 2013 Conference Call. This will now conclude the conference. Please enjoy the rest of your day.