Good morning, and welcome to the PG&E Corporation second quarter earnings conference call. All lines will be muted during the presentation portions of the call, with an opportunity for questions and answers at the end. At this time, I would like to introduce your host, Gabriel Togneri, with PG&E. Thank you, and enjoy your conference. You may proceed, Mr. Togneri.
Thank you, Jackie. Hello, everyone, and thanks for joining our call. Before you hear from Anthony Earley, Christopher Johns, and Kent Harvey, I'll remind you that our discussion is going to include forward-looking statements based on assumptions and expectations reflecting information currently available to management. Some of the important factors that could affect the company's results are described in Exhibit 1, located in the appendix of today's slides. We also encourage you to review the discussion of risk factors that appears in our 2011 annual report and in the Form 10-Q that will be filed with the SEC later today. With that, I'll hand it over to Tony.
Well, good morning, everyone, and thank you for joining us. I'm going to provide some opening remarks, then I'll turn it over to Chris and Kent to cover operations and financials in more detail. On slide two, you see the three key objectives that we have been talking about this year. I'll speak to the first, resolving gas issues. We've been in settlement discussions regarding the regulatory proceedings. These are multiple proceedings, they're multiple parties, and they're complex issues. Beyond that, given where we are in the discussions, I just don't think it's helpful to go into any more detail about where we are. I will say that if and when we have news to share, we will in fact share that at the appropriate time.
We continue to believe that resolving the regulatory issues sooner rather than later would be beneficial for PG&E, our regulators, and our customers. We will continue to push forward on that. I do want to comment on third-party liability, our civil cases. We're making lots of progress in resolving these claims. We've settled several more of the most serious cases, our intent continues to be that we provide victims with fair compensation and doing that as soon as possible. Meanwhile, we continue to make good progress on our work in the field. As we've done this, and as we've added new experienced leaders, we've identified some new work that we need to accomplish. Given all that we're currently doing, it's probably going to take several years to finish this new work as well, and Chris is going to describe that in more detail shortly.
As I've indicated in the past, there's no quick fix, but we're going to do whatever it takes to meet the commitments we've made related to system safety. With respect to our second objective for the year, positioning the company for long-term success, last month, we filed our 2014 general rate case notice of intent, and it reflects the important work we should be doing over the next several years. We'll spend some time discussing that in this call as well. We've also introduced a new planning process. It's one that I've used in the past to more effectively manage the business. This process focuses first on developing a long-term strategy and identifying the critical objectives that we want to accomplish. Once the team has clear alignment on this, we develop tactical plans and budgets that then can be implemented on a company-wide basis.
I think this is a process that will keep us focused on our key objectives and ultimately help us deliver results for many years to come. Finally, shifting to our third objective, rebuilding relationships. We've seen a slight uptick in customer satisfaction, but I think it's a little too soon to predict that that is a consistent trend. In the last month, we launched a major new customer outreach campaign. This effort combines advertising, social media, online information, community outreach, and a variety of other elements. It will feature our own employees and provide concrete examples of the work we're doing to improve safety and reliability, and we anticipate that this is going to be a multi-year educational effort as we continue to work on our system.
Our research had told us that our customers really like the work that our employees are doing, and they respect them, but they do want to know what specifically that the company is doing to make our system safer. This multi-channel communications campaign will underscore the message that this is a new PG&E that's serious about making improvements. Ultimately, we believe that this educational campaign is an investment in our relationship with our customers and our communities and part of the recovery plan that's essential to our long-term success. We're focused on these key objectives, resolving our gas issues in the near term, positioning the company for success, and rebuilding the relationships, and I believe we're making good progress. It's going to take some time, but the long-term prospects for the company are positive.
With that, let me turn it over to Chris to discuss our operations in more detail.
Great. Thanks, Tony, and good morning, everyone. I'm going to provide the regulatory and then the operational updates that are summarized on slide three. I'll start with our general rate case notice of intent filing, in which covers the gas and electric distribution and electric generation parts of the business. You'll recall that the gas transmission and electric transmission are handled in other proceedings. The key themes in the general rate case filing are investing in our infrastructure and leveraging technology in order to improve operations and achieve significant gains in safety and reliability performance. The 2014 proposed revenue increase of $1.25 billion represents the funding necessary to cover operating expenses and provide for the annual costs associated with roughly $4 billion of infrastructure improvements. The capital expenditures in the general rate case should represent roughly two-thirds of the company's total CapEx in 2014.
The biggest percentage increase in the GRC filing is in the gas distribution area, where we would be replacing a substantially greater number of older gas distribution lines than in the past, improving the technology we use to detect gas leaks, and significantly upgrading asset management capabilities. For electric distribution, we'll be replacing more overhead electric lines based on their operating performance and installing more automation to limit the impact and duration of outages. The next step in the process is a full review of the filing by the Division of Ratepayer Advocates, followed ultimately by the filing of our formal application before the end of the year. Turning to the operations side, as you can see on the slide in the appendix, we're on track for many of our high-level operational performance metrics. We've also made substantial progress this quarter on several of our key initiatives.
We've validated and documented the maximum allowable operating pressure, or the MAOP, of over 1,300 miles of our gas transmission pipe in the second quarter, and that brings our year-to-date total to almost 2,000 miles out of the 3,400 miles planned for this year. We've completed 41 miles of hydrostatic tests during this quarter and remain on track to test 160 miles during the year. We've installed 24 new automated safety valves on our gas transmission system and plan to have 46 by year-end. We've also been doing some follow-up field work on class location and related issues, and this is where we've identified the additional work that Tony referred to earlier. Specifically, we found vegetation and structures that are encroaching on our rights of way over our transmission pipelines.
As a result, we'll be conducting a comprehensive survey of the entire gas transmission system to identify all of the encroachments, assess the cost and scope of the work, and begin taking action. We've also identified additional integrity management work that's necessary, and this includes completing more internal pipeline assessments and other types of inspections to confirm the quality of our pipelines. Now, most of this work will ramp up next year, and we expect that addressing these issues may take several years to complete. Next, you'll recall that we identified roughly $200 million in incremental work that we decided to undertake across the utility this year and next. To date, we've made solid progress in carrying out that work. In the electric operations, we've increased maintenance and repair work on both our overhead lines and underground cables and structures.
We've also increased our patrolling of poles by tens of thousands of units and have taken appropriate corrective maintenance actions to reduce fire risk and improve safety. On the gas side, we've completed more repairs to lower-grade distribution leaks as we've shortened our recheck intervals and have performed more maintenance work on our gas distribution lines. In putting together our 2014 General Rate Case filing, we have identified some additional work, mainly in the gas distribution area, that we expect to undertake going forward. It includes a higher volume of gas meter and service work, as well as some mark and locate work. Consistent with our commitment to safety and compliance, we're not going to be able to wait until 2014 to begin some of this work. This will result in an increase in the annual incremental spend from about $200 million to about $250 million.
There are some other areas, like the light storm season we experienced earlier this year, that create headroom for us to maintain our 2012 guidance for earnings from operations. Finally, I know a number of you have an interest in our progress on the Diablo Canyon seismic studies. There are a couple of authorizations that are pending to allow us to conduct the offshore seismic mapping. We're hopeful that we'll receive these authorizations in the next few months to allow us to complete the work by the end of this year. With that, I'll turn it over to Kent.
Thanks, Chris, and good morning. As usual, I'm going to go through the results for the second quarter and discuss our outlook for the rest of 2012. I also plan to provide some observations about post-2012. I'm going to start on slide four, which summarizes our results for the quarter. Earnings from operations were $0.81 per diluted common share, while GAAP results were $0.55 per share. The difference between the two is the item impacting comparability for natural gas matters, which totaled $0.26 for the quarter. The components of that are broken out in the table at the bottom in pre-tax dollars. The pipeline-related costs totaled $128 million during the quarter and includes the pipeline validation and strength testing work in the field, as well as our legal costs. In general, the field work has been on plan, although we continue to experience higher-than-planned legal costs.
We also took an $80 million accrual during the quarter for third-party liabilities. This reflects the results of the recent settlements reached, which Tony discussed, as well as the latest information that we have about the remaining claims. It brings our total accrual for third-party liability claims since the accident to $455 million. The upper end of our estimate for third-party liability remains at $600 million. We booked insurance recoveries of $25 million for the quarter, bringing us to $135 million of insurance recovery booked since the accident. We continue to believe that a significant portion of the cost incurred for third-party claims will be recovered through insurance, but we'll wait until we've resolved claims with each carrier before booking future recoveries. Moving to slide five.
You can see the quarter-over-quarter comparison for earnings from operations, including the primary factors that take us from $1.02 in Q2 last year to $0.81 in Q2 this year. Results for the period last year reflected two quarters of incremental revenues due to approval of the 2011 general rate case and gas transmission and storage case, which were both retroactive to January 1st. There's a $0.13 adjustment to normalize the timing of those decisions last year. There was also a $0.09 reduction due to our planned incremental spending this year to improve our operational performance across the utility. Finally, share dilution accounted for a $0.06 reduction, and this reflects the share issuance during the quarter, as well as the full effect of our equity offering completed late in Q1.
Those items were partially offset by a $0.05 increase due to higher authorized rate base investments this year compared to last year. We had another $0.02 positive due to other smaller items. Slide six summarizes our 2012 guidance. The guidance range for earnings from operations remains at $3.10-$3.30 per share. The range for the item impacting comparability for natural gas matters has been updated to reflect the accrual this quarter for third-party liability and our insurance recovery. In the table at the bottom, you can see the ranges for each component of the natural gas matters in pre-tax dollars. The range for pipeline-related costs is unchanged at $450 million-$550 million for the year. However, we continue to trend towards the upper end of that range, primarily due to legal costs. We're continuing to watch this one.
The range for third-party liability claims is now $80 million-$225 million. The lower end reflects the accrual taken in the quarter, and the upper end is unchanged. For insurance recoveries, you see the $36 million we booked during the first and second quarter. As in the past, we're not providing guidance for future insurance recoveries or for additional penalties beyond what we've already accrued. In terms of equity issuance, we continue to expect to need roughly $700 million this year based on our guidance assumptions. Through the end of the second quarter, our total issuance was $572 million. We're well along with our plans. Obviously, our actual issuance during the year will depend on a variety of things, most significantly, of course, developments related to the gas matters. At this point, I thought I'd also provide some observations to help you think about our profile beyond 2012.
Clearly, 2013 looks to be a down year for earnings from operations, primarily due to year-over-year dilution and some reduction in our authorized ROE. Of course, 2014 is going to be a key year for us since that's the start of our next general rate case period. As I go through this, I expect that you'll have some questions for which you'll want quantitative answers. However, much of what I'm going to say will be more directional, more qualitative than quantitative. We certainly want to be transparent with you all, but we won't be in a position to provide guidance for future years until at least we have more visibility around the outcome of our gas issues. In the meantime, this somewhat qualitative approach seemed to be the best option.
I'm going to start on slide seven. There you can see that we've listed some factors for you to consider in thinking about our future year earnings from operations. In terms of capital expenditures, this year, we expect to be approaching $4.8 billion. In 2013, we should be at or above that level since we have important investments planned throughout our business. As an aside, if bonus depreciation is not extended next year, that would cause us to be somewhat above our authorized rate base in 2013. We'd intend to true that up in the 2014 general rate case. For capital expenditures in 2014, we've proposed a higher level in the next general rate case.
In terms of our authorized rate base, which we earn on, we expect it could increase from around $24.5 billion this year to about $26 billion in 2013, based on our last general rate case and other proceedings, including the Pipeline Safety Enhancement Plan request, which obviously hasn't been decided yet. Our authorized rate base for 2014 will be reset in the upcoming general rate case, as well as other proceedings. Because we intend to true up historic rate base in the general rate case, we'd expect a more significant increase in authorized rate base in 2014, maybe in the 10% range or so, based on our general rate case and our Pipeline Safety Enhancement Plan request. We'd expect rate base growth after that to return to more normal levels during attrition years.
Our authorized ROE and equity ratio for 2013 will obviously be set in the cost of capital proceeding, which is now underway. We've proposed a reduction in ROE from 11.35% to 11% next year. We've proposed maintaining our common equity ratio at 52%. In addition to deciding those levels, the PUC is also going to consider a mechanism for adjusting ROE in 2014 and beyond. We don't expect them to address that until the early part of next year. Next is the incremental spend. As Chris discussed, we expect it to total about $250 million across the utility this year and to continue next year. As you know, these costs are not currently reflected in our rates. However, we will be seeking cost recovery in our general rate case starting in 2014. Next to the earnings on CWIP are construction work in progress.
You'll remember that we accrue AFUDC on CWIP. Our 2012 guidance assumes that about half of that is offset by below-the-line costs that are not recovered from customers. Those are things like charitable contributions, advertising, public affairs work, and so forth. Of course, that reflects the minimal advertising we've done the last few years. Given the recovery plan that Tony talked about, including the customer outreach campaign, we expect that we will have higher below-the-line costs, which will largely offset our CWIP earnings in the future. You want to keep that in mind. Finally, we've seen significant equity issuance this year, much of which has been driven by unrecovered gas pipeline costs. You'll see our equity need estimate of roughly $700 million for 2012.
Our equity issuance beyond this year is expected to continue to be significantly higher than would be satisfied by our internal programs, our 401 and dividend reinvestment plan. Some of the key drivers for this are our capital expenditure levels, year-over-year differences in our cash flows, the potential expiration of bonus depreciation, which I mentioned, our planned incremental spend across the utility, and then the level of future gas pipeline costs. Let's go to slide eight now. Here we've shown some factors to consider in estimating future unrecovered pipeline-related costs. Let's start with 2012. At the top, you can see our current guidance for unrecovered pipeline-related costs of $450 million-$550 million. That includes the four components you see listed.
The Pipeline Safety Enhancement Plan expenses, which we've been seeking recovery of, but for which a final decision isn't expected until late in the year. The pipeline costs that we're not seeking recovery of, such as work on post-1960s pipe. Other work that's been identified since the PSEP filing last summer, and then legal and other costs. In 2013 and 2014, the PSEP expenses we are seeking recovery of are shown as to be determined, pending a decision by the PUC. Of course, you can go back to our PSEP filing from last summer to see our original request over this timeframe. The PSEP cost we are not requesting recovery of will continue in 2013 and 2014, but the level of expenditure is expected to decline after this year. That's why we show it as lower.
Other work refers to the pipeline rights of way and integrity management work that Chris discussed, which we're in the process of scoping out. We do expect it to ramp up next year and to take several years to complete. We show it as higher next year. Finally, we expect our legal cost to decline significantly after this year, so we show it as lower in both years. Obviously, that profile will depend on how quickly the various proceedings are concluded. Down below, you see the other components of our item impacting comparability for our natural gas matters, penalties, third-party liabilities, and insurance recoveries, along with some commentary there. In particular, I think we've made good progress in resolving a number of significant third-party claims, and we hope to be able to resolve many of the remaining claims in a timely manner.
I'd expect the timing of insurance recovery to generally follow from that, but it's hard to predict exactly when that will occur. That's an overview of some of the major factors likely to affect our earnings from operations and our unrecovered natural gas costs going forward. I know it's a lot to digest, but I do hope my comments are helpful to you in keeping track of the various pieces that are likely to influence our results over the next few years. Tony?
Thanks, Kent. We have a number of challenges and uncertainties that we're working our way through, I know it can be frustrating that we can't be more specific about timetables or predictions for all the different regulatory proceedings, That is the nature of the regulatory process. I do believe we're making good progress. We're focused on resolving our outstanding issues and running the business well so we can be successful in the long run. We continue to get positive feedback from many of our constituents regarding the direction that we've been moving in. As a result, I believe the company has a promising future and an attractive value proposition over the long run. With that, let me open it up for your questions.
Certainly. We will now allow questions from the phone lines. Ladies and gentlemen, to ask a question, please press star followed by 1 on your touch tone keypad. If you would like to remove your question, please press star followed by 2. If you are using a speakerphone, please pick up the handset before using the keypad. Again, if you would like to ask a question, please press star followed by 1. Our first question comes from the line of Mr. Michael Goldenberg with Luminus Management. Please proceed.
Good morning.
Morning.
I wanted to get a better understanding on the equity issuance that you mentioned is significantly higher versus 401 and DRIP. Can you provide some color as to how much of that is related to the substantially higher capital expenditures in the following rate case that you preliminarily filed for versus expenses and other things that are running above previous expectations that
Now will have to be plugged by equity.
Michael, this is Kent. We're not at the point of providing any guidance for the future years. I think you should be able to get a general sense of our CapEx levels and to determine from that sort of how much of that is driving year-over-year equity needs as compared to where you end up with looking at unrecovered costs. Those obviously hit our equity, so they drive our equity needs in order to maintain the balanced capital structure.
Got it. Okay. Thank you.
Thank you, Mr. Goldenberg. Our next question comes from the line of Mr. Greg Gordon with ISI Group. Please proceed.
Thanks. First, a quick follow-up on that question. In the normal course of business, Kent, what is the amount of equity that you issue through those programs?
For the 401(k) and dividend reinvestment plan, we typically have issued between $200 million and $300 million per year.
Okay. You're telling us that given the level of capital expenditures and everything else, that in the future, to maintain your cap structure, you would expect to have issued more than that?
Yes, significantly more. That's right.
Is there anything that you all can tell us about the possibility, anything more you can talk about the possibility of resolving some or all of the outstanding pipeline matters via settlement at some point this year? Or should we presume that's just too complicated, and we're going to have to see a litigated outcome?
Greg, this is Tony. It's still my objective to try and wrap up all of those issues through a settlement by the end of the year. As I said, this is one of the more complex proceedings I've been involved in. We've got 3 investigations, 1 rulemaking. We've got multiple parties. We've got the attorney general, the U.S. attorney, and several other prosecutors involved. It just takes time to work through the issues. Each has their own agenda that they want to make sure gets covered in the agreement. I think where we are here in August, I still think that we can accomplish my stated objective of trying.
Thank you, Tony.
Thank you, Mr. Gordon. Our next question comes from the line of Hugh Wynne with Sanford C. Bernstein. Please proceed.
Hi. I wonder if you might just help me sort through some of the strands of your disclosure here regarding factors affecting EPS. Just two quick questions on that. The incremental spend that you mentioned on page three, or rather, I should say increased scope and incremental work that you mentioned on page three. Is the implication of that solely the increase in incremental spend that you show on page seven from an anticipated $200 to an anticipated $250 continuing on into 2013? Or is there something else that we need to be on the lookout for by way of incremental CapEx or incremental costs that are somehow not reflected here?
Hugh, this is Kent. The mention that's on slide three, which talks about rights of way issues identified, that actually ties to slide eight. That's new spend in the pipeline area having to do with rights of way and integrity management. Also on slide three, and this may be what you're referring to, the increased scope of incremental work. That relates to slide seven and the item that is mentioned as incremental spend, and that is the work we're doing across the utility that is not specific to the pipelines, which we'd previously estimated at $200 million this year and next year, and we're saying that's going to be $250 million.
Good. Okay. I think that's clear. On page seven, you mentioned that you've requested PSEP to be included in rate base over 2012 through 2014, and you give the annual amounts. Is that included then in this authorized rate base number that you show up in 2012 and 2013?
It is, yes. You'll want to keep that in mind, and that's why we provided you the details down below in the footnote.
Okay. The point that you're making is that you've spent this money, but you actually don't have the rate base revenues at this point. Is that what I'll be?
Correct.
Okay. Just a final quickly, you mentioned, or Tony mentioned that the attorney general of the state of California and the U.S. attorney were involved in the settlement discussions. Are the feds and the California authorities then continuing to proceed with a criminal investigation of the case? Is that what we should read into that?
They have been involved. They have interviewed employees. Obviously, it's not as high on their priority list as it is on ours to get this done. They've got lots of other things, so they've kind of gone in fits and starts, been involved and not, but we have reached out to try and get everybody involved in an overall settlement.
All right. Thanks very much.
Thank you, Mr. Wynne. Our next question comes from the line of Michael Lapides with Goldman Sachs. Please proceed.
Yeah. Hi, maybe a few questions for Kent. Just curious, at the end of the quarter, how are some of your key balance sheet metrics? Meaning, like, how much short-term debt did you have outstanding? What was debt to cap? When we think about kind of cash requirements going forward? How much of what's been accrued for third-party liabilities have actually been paid, and what are your expectations for things like either Hinkley-related payments or CapEx-related items in the next few years, et cetera?
Yeah. Michael, in terms of major changes in cash in our balance sheet, I don't think there's anything very significant there. I think our amount of commercial paper outstanding is down by a few hundred million dollars since the end of last quarter. That's kind of normal course of business for us. In terms of the cash requirements associated with things like third-party liabilities and stuff, we've accrued $455 million to date. I think the actual payments that have been made through the end of the second quarter were $145 million. Again, on the insurance side, we've booked $135 million of insurance. We tend to pay those settlements as the settlements are concluded, and some of those are fairly recent.
Got it. Tony, I'm seeing a lot of the items on page seven and page eight, just want to get a feel. I think going back to the third quarter call, you may have made some comments about the goal is to get closer to earning your authorized ROE by 2014. Do you still view that as the goal, are there any items that have been outlined here which clearly won't be recoverable in rates by 2014?
Well, that is still our goal. I think the big driver for 2014 is going to be how the GRC, the general rate case, comes out. It's a large number, $1.25 billion, and we think that we're able to justify that level of spending. The results of that are going to dictate a large part of our ability to achieve our allowed returns then.
This is Kent. The only other thing I'd add, obviously, the general rate case covers electric and gas distribution and electric generation. In terms of gas transmission, that rate case is not until 2015. Our opportunity to true up costs there that are outside of the PSEP proceeding is really a year later in 2015.
Does that imply there's a little bit of drag or a little bit of regulatory lag on the gas pipeline side?
I think that would be a reasonable expectation.
Okay. Thank you, Kent.
Thank you, Mr. Lapidus. Our next question comes from the line of Jonathan Arnold with Deutsche Bank. Please proceed.
Good morning, guys.
Morning, Jonathan.
Quick question. On the $250 million number that you're now giving for incremental spend that's to continue into 2013, did I hear you correctly that you think you can offset that partly because you've had below-trend storm costs in 2012, but that we shouldn't necessarily assume that that offset would continue into 2013? Or do you have some other offset to the kind of incremental $50 million since last quarter?
Hey, Jonathan, this is Chris. You're right. When we look at this year, we've had the lighter storm season. We've also had some tax benefits and some other savings that we've focused on, that's been able to offset that. We anticipate that that level of spend will continue into next year. Obviously, we're always looking for ways to continually improve on there, we wanted to make sure that you all were alerted to that higher level.
If the higher level continues, the offset, unless something else materializes, it doesn't necessarily.
That's true.
Okay. Secondly, in the first quarter, you had $0.07 a share of miscellaneous items that were positive that you'd said you thought would reverse over the course of 2012. Obviously, that didn't show up as a driver in this second quarter. Do you still anticipate that through the balance of the year? Any comment on that?
Yeah, Jonathan, this is Kent. We do still have the same view of that was a number of small items that many of which were timing in nature. We do anticipate that trending down during the rest of the year.
Okay. Finally, Kent, if I may, just on your comments around equity. Those are sort of premised on the 52% that you requested in the cost of capital case, I would presume. Firstly, is that correct, and secondly, does that comment change significantly depending on where that shakes out?
Yeah. No, I think that's reasonable. I think that would be a driver if we ended up with a different authorized equity ratio. There really aren't indications that's going to be the case at this point. We filed, obviously, for 52%. We think it makes a lot of sense from a credit perspective and otherwise. We noticed last night when the interveners filed their testimony, I think everyone did 52% common equity as well. We're at least in alignment on that dimension of the case. Certainly, we're not at alignment in terms of the recommended ROEs that they proposed, that's no surprise.
Okay. If I may, just on one final thing. There was a date in the schedule in the OIR for a proposed decision, I think yesterday as well. Is it a reasonable working assumption that given you said you're still in settlement talks, that there will not be a PD in the meantime, or any kind of help you can give us on what to expect there?
Yeah. This is Tom Bottorff from Regulatory Relations. We haven't heard anything different from the PUC on the schedule for when that proposed decision would come out, but we have no indication that it's scheduled to come out on that date either.
Okay, thank you.
Thank you, Mr. Arnold. Our next question comes from the line of Tom O'Neil with Green Arrow. Please proceed.
Good morning. I was just curious if you could review the longer-term dividend policy and just whether we should recalibrate that if CapEx levels are approved as proposed.
Let me just reiterate, we're committed to the dividend. We believe that's an important part of the value proposition for a company like ours. In terms of policy, we can't revisit what we're going to do until we get some major things behind us, like the gas proceedings. We've got cost of capital. We've got to take a look at some indication of where the general rate case is going to be going before we would be able to say any more about policy going forward. What we've been saying is we're committed to the dividend, but are going to have to resolve a couple of these major issues before we start to give you some guidance on what you might expect.
Understood. Thanks.
Thank you, Mr. O'Neil. Our next question comes from the line of Steven Fleishman with Bank of America. Please proceed.
Yeah. Hi, can you hear me?
Can, Steve. Yep.
Hi, Tony. Just one clarification on the settlement discussions. When you say you're targeting to have a resolution by the end of the year, are you targeting a settlement by then or approval by the PUC of a settlement by then?
I think you're cutting too fine a line there.
It could be several, three, four, five months.
It could, or it could go very quickly. It probably depends on how many parties you can get to sign on. Is it a heavily contested settlement? Or is it one way you've got a number of parties? I've said I want to try and get them wrapped up by year-end. Either one of those would be real progress if we just got an agreement, even if it wasn't yet approved by the Commission.
At one point, you had mentioned the two-year anniversary of San Bruno as a potential kind of goalpost on this. Should we not really focus on that as a potential goalpost date on this?
Well, it certainly continues to be a driver of trying to move things along. Here, we're about a month away. Certainly, you're not going to get total resolution by then, but it continues to be in everyone's mind that we'd like to make a lot of progress by then.
Thank you.
Thank you, Mr. Fleishman. Our next question comes from the line of Travis Miller with Morningstar Securities Research. Please proceed.
Hi, thanks. With the docket right now, all the dockets right now of the CPUC, what's your sense for where you stand for each of these proceedings in line in the queue? How would you rank each one of the four outstanding in the regulatory calendar that you guys give there?
This is Tom Bottorff again. The rulemaking is the furthest along, it has, again, the proposed decision scheduled for release this month. That hasn't happened yet. We're not sure when it will happen, it calls for a final decision as early as September. Again, I don't see that on a track where that's likely to happen, but that's what the current schedule calls for. The three investigations are all on similar timelines right now. PG&E's filed its responses. We expect rebuttal testimony from the staff in August, hearings will probably take place either in late August or early September. The procedural timeline for the three investigations have probably proposed decisions by the end of this year or early January and final decisions in the first quarter of 2013.
Is it reasonable to expect that those will be on time?
Well, as of now, they've been on schedule. Yes. If they absent a settlement, I'd expect those schedules to proceed on that timeline.
Okay, great. Thanks a lot.
Thank you, Mr. Miller. Our next question comes from the line of Anthony Crowdell with Jefferies. Please proceed.
Good morning. You may have addressed this already. I was wondering if the company could comment if they've been successful in maybe getting all of the OIRs wrapped up into one settlement discussion. I know maybe on the previous earnings call you mentioned that was your goal or that was your hope. Could you give any status on that?
As I said before, these are complex issues. We are trying to get a global settlement, but I really don't want to get into the details of the discussions.
Great. Thank you.
Thank you, Mr. Crowdell. Our next question comes from the line of Ashar Khan with Visium Asset Management. Please proceed.
Hi, how are you doing? As you were trying to point out directionally the earnings, is it fair you're saying, from what I heard, 2013 is down versus 2012, of course, because of the ROE issue. Even the rate increase and everything is not going to offset the rate base increase. It's not going to offset, of course, the lower ROE, what you're predicting. You're expecting 2014 to be higher than 2013. Can you point out whether you expect 2014 to be equal to 2012, higher or lower? Can you give any kind of indication from that perspective?
Are you referring to overall earnings from operations?
That's correct.
Well, I think the key drivers in 2013 that I mentioned were the fact that there will be some reduction in the ROE that's authorized. In addition to that, we do have the cumulative impact of dilution, some year-over-year dilution because of the equity issuance that's happening throughout this year, for example, and will be outstanding for all of next year. Probably one of the bigger factors in 2014 is that it's a general rate case, which will affect our authorized rate base, and it will affect our ability to earn an authorized return, given that we're doing incremental spend this year and next year in the $250 million range.
We are looking to the General Rate Case as a way for us to address a lot of the activities that we're doing over the next few years and to make sure that our revenues are aligned with what we think we ought to be doing on our system.
Okay, understood. Is there any guidance that you can give in terms of, I know, I guess we don't know what will come out in the Rate Case, are you pointing that 2014, any directional guidance of 2014 versus 2012?
We're not providing guidance for either year at this point.
Okay. Thank you.
Thank you, Mr. Khan. Once again, ladies and gentlemen, to ask a question, please press star followed by one.
Jackie, is that an indication that there are no further questions?
Yes, sir. There are currently no additional questions waiting from the phone lines.
All right. In that case, I would like to thank everybody for spending some time with us today. I know it's a very busy earnings season, and this is towards the tail end, so have a great day. Thanks again.
Ladies and gentlemen, thank you for attending the PG&E Corporation second quarter earnings conference call. This now.