Good morning, and welcome to the PG and E Corporation Third Quarter Earnings Conference Call. At this time, I would like to introduce your host, Gabe Tenieri. Thank you, and you may proceed, Mr. Tenieri.
Good morning, everyone, and thanks for joining us on our call. Leading our Gas and Electric Company and Kent Harvey, Senior VP and CFO of the Corporation. Of you that the prepared remarks and the Q and A session to follow will include forward looking statements and these are based on assumptions and expectations that reflect information available to management. Actual results may differ materially from those forward looking statements. Important factors that may affect our actual results are described in the reports that we file with the SEC, including the risk factors and other factors described in our annual report on Form 10 Q for the year ended December 31, 2000 and 9 and our Form 10 Q reports.
We'll be filing our Q3 10 Q report later today. The earnings release we we issued this morning is available on our website along with the supplemental earnings tables and including the Regulation G reconciliations. You'll probably want to have those supplemental tables available and refer to them as we go through the results for the quarter. And now I'll turn the call over to Peter Darby. Thanks, Gabe, and thank you all to those of you who are on the phone as well as those that joining us on the webcast this morning.
I'd like to begin with a review of the tragedy of San Bruno. On behalf of our whole team, let me again express our sympathy to the families affected and to the broader community. The night this occurred, we pledged that PG and E would do the right thing. Takes to it takes to fulfill this commitment. In our release this morning, you can see that we've taken a significant charge to account for the cost of this effort and the appropriate liability estimates.
We're going to discuss this in more detail shortly. But our principal focus regarding San Bruno remains on 3 areas, which we'd like to outline. The first has been providing support and assistance to the people affected. 2nd has been taking appropriate steps to ensure that our gas system is safe. And the 3rd has been learning what led to this tragedy so that we and the industry can prevent something like this from ever happening again.
Priorities have guided everything that we've done to date. Just a few days after the accident, for example, we created the Rebuild San Bruno Fund. We've made as much as $100,000,000 available to support the residents and the city. These funds are going toward: 1st, the immediate financial assistance second, residents' costs that aren't covered by their transmission system to assure the public of its safety. We recently completed an aerial leak resurvey of all 6,700 miles of transmission mains.
By year end, we will have completed a full on the ground leak survey of lastly, we've been cooperating fully with the National Transportation Safety Board and the CPUC in their investigations, so that we can all learn the root cause and take any appropriate actions. Very importantly, in our response to San Bruno, we've been communicating regularly with policymakers and regulators, and we've done so with an ongoing commitment to transparency as we redouble our focus on ensuring public trust and confidence in PG and E's system. As we've been responding to the San Bruno accident, it has been essential that we run all of our operations moving forward with other key regulatory cases such as our GRC to ensure that we have the resources to deliver clean, safe and reliable energy. I'm going to first turn it over to Chris, who will cover some of the Kent will cover our financial results for the quarter. Chris?
Thanks, Peter.
I'm going to expand on what Peter shared with regarding our efforts related to San Bruno starting with the NTSB and CPUC activity. I'll then provide an update on some of our regulatory proceedings and finish up with an update on some of our operational items. The National Transportation Safety Board released its preliminary report on the San Bruno accident about 3 weeks ago. The initial report expect the NTSB to focus expect the NTSB to focus on its physical analysis of the pipe, the events leading up to the rupture, our response to the event and other aspects surrounding the event. The final report will probably take about a year, although we expect additional interim reports.
It's critical to uncover the ultimate cause of the accident so that we and the industry can take into action, they won't wait for the final report to issue some recommendations. Into action, they won't wait for the final report to issue some recommendations. And obviously, we'll probably work to implement any of those recommendations. In addition to participating in the NTSB's investigation, the CPUC has investigate the events of San Bruno, review industry best practices and make recommendations to a request from the CPUC for information on a preliminary review of the appropriateness of installing automated or or and the results of our initial gas leak resurvey. We will continue to work with the CPC and other third party experts to evaluate the appropriateness of installing automated or remote control valves in our pipeline system and include the results in our Pipeline 2020 program.
Speaking of the Pipeline 2020 program, as Peter mentioned, this is a comprehensive initiative that we announced just a few weeks ago. This program is going to focus on 5 key areas. The first is modernizing our pipeline system with a particular focus on heavily populated and other critical areas. The second is expanding the use of remote control or automated valves. This would give operators the dedicated to supporting research and development of next generation pipeline inspection and diagnostic technology.
4th is conducting a thorough review of all of our internal processes and procedures related to pipeline safety, integrity and training as well as developing and implementing best practice policies and procedures. And the 5th area is increasing our partnership with local communities and first responders to enhance pipeline safety awareness and emergency response training and outreach. Now many of these efforts are applicable throughout the gas pipeline industry and we plan to work with other industry participants and experts to further develop the details of this program. Clearly, this is a major undertaking. It's going to take time to develop and even more time to implement.
As such, it's premature for us to make specific comments on things such as the number of valves or miles of pipeline to be modernized. I'll note that we don't expect this initiative to impact our gas transmission and storage rate case settlement that we announced back in August. We that case to continue on its normal schedule with the proposed decision by February. The judge and commissioner assigned to the case, that's Commissioner Simon have also established a separate phase to the GT and F case and that's going to focus on the evaluation of pipeline safety measures response procedures. We expect that the pipeline 2020 and any other initiatives resulting from San Bruno will be coordinated with the CPUC through this or a few other items on the regulatory front.
We recently announced an uncontested settlement in the general rate case. Our team worked hard to achieve this result. Such a settlement in a GRC where there is no opposition for the number of parties that are involved is very uncommon. The settlement is fair and strikes an appropriate balance between our objectives and the key issues for the settling parties. I'll also remind you that there are a number of factors outside of the GRC that will offset the increase requested in this settlement, allowing us to keep overall rates flat or slightly lower going into 2011.
Given where we are in the year, it's reasonable to expect that a final CPUC decision on our GRC will occur early next year. Regardless of the timing of the final decision, we've requested that the GRC revenue increase be made retroactive to January 1, 2011. Now of the separately reviewed projects we laid out at our Investor Conference in March, only one is still pending and that's our has not yet received a proposed decision. It continues to move through the regulatory process. And as we've communicated previously, the commission is still focused on the price of the project and the environmental issues.
In the energy efficiency incentives proceeding, we received 2 proposed decisions at the end of September for the final true up of incentive awards for 2006 through 2,008. The 2 alternatives, one that recommends no additional incentives and the other that would award $40,000,000 are now with the commission for a final decision. We're pleased to see the commission moving forward on this issue and we're proud of the savings that PG and E's programs have helped customers achieve. We estimate that these programs help customers save over 5,000 gigawatt hours 72,000,000 terms over the 3 year program cycle. This translates to over 650 $1,000,000 in savings on customers' energy bills.
Moving to our operational update. I'll start with our smart meter program, which continues to move forward. To date, we've deployed approximately 7,000,000 new gas and electric meters and we're on track to complete the rollout in 2012 as planned. At the same time, we're continuing to improve our customer communications regarding the benefits associated with smart meters. We're seeing more customers sign up to receive information about their energy usage.
It's only possible with a smart meter. This includes our energy alerts program, which proactively notifies customers when their usage reaches a certain threshold that could move them into a higher rate tier. Customers are telling us this is valuable and it's empowering them to better manage their usage and their monthly bill. Operationally, the benefits of the smart meter are already evident with a significant reduction in the number of estimated bills. Only 0.1% of smart meter bills are estimated compared to 1.2% for old meters.
This quarter, we can also report significant progress on our 2 large power plant construction projects. Our Humboldt Bay power plant began commercial operations and went online in September. Our other large generation project, the Calusa Generating Station is still expected to become operational by the end of the year. We're proud of our teams at Calusa and Humboldt for their impressive work moving these projects forward safely and on schedule. That's an overview of the major operational developments over the past quarter and I'll now hand it over to Ken.
Thanks, Chris and good morning. I will cover For the Q3 GAAP earnings, we're reporting $258,000,000 or 0 point $0.83 per share last year. The decline in GAAP earnings reflects a charge related to the San Bruno accident of 2 $38,000,000 pretax. As you can see from Table 2 of our supplemental earnings package, this equates to $141,000,000 after tax or $0.36 per share. Let me walk you through the 2 main components of the charge.
First are the direct expenses incurred during the quarter in connection with the accident and these totaled 18,000,000 dollars pretax and include costs associated with the pipeline inspections that Chris described, our efforts to support Bruno residents and our activities following the accident. The second and larger component is $220,000,000 pretax provision for the 3rd party liability associated with the accident. This encompasses property damage, personal injury claims and usage of our San Bruno relief fund. As you'd expect, these are estimates and there's significant judgment and uncertainty associated with the size of the ultimate liability. We've developed a range of estimates for the liability of between 2 $20,000,000 $400,000,000 Consistent with accounting practice, we've accrued a liability at the low end of that range.
We expect that as events unfold in the future, we'll obtain additional information that will affect the estimate and we'll adjustments to it when warranted. As far as insurance is concerned, our 3rd party liability coverage of $992,000,000 substantially exceeds our estimates of the liability. We believe that most of the costs associated with potential third party claims will ultimately be recoverable under our policy. However, we don't expect to book an asset until a future period when the insurance recovery process has progressed efficiently. Excluding the item impact and comparability related to the San Bruno accident, earnings from operations in the $1,000,000 or $0.93 per share last year.
The $0.09 difference in earnings from operations was the result of several factors summarized in Table 4 of our supplemental earnings package. They include an increase of $0.07 related to higher authorized rate $7 related to higher authorized rate base investment, dollars 0.02 due to a reduction in our long term disability expenses and 0 point 0 $3 for miscellaneous items. And these positive factors in Table 8, we're updating our overall GAAP guidance to reflect the item impacting comparability related to the San Bruno accident. Overall GAAP guidance is now $2.72 to $2.92 per share in 20 10 and $3.27 to 3.72 $20,000,000 to $20,000,000 to $400,000,000 pretax. 2nd is the estimated direct expenses that may be incurred as a result of the accident.
We estimate that these could total between $100,000,000 $150,000,000 pretax through the end of next year. The range for direct expenses is difficult to estimate since we're still fairly early in the process. Even though we don't know what will be required as part of the investigations, we've tried to identify and estimate the types of potential costs we may incur. They include the cost of additional inspections and repairs as well as any associated field work that may be required the cost of outside legal support related to third party claims. These are not included in the liability range I described before.
However, we'd expect to recover most of these ultimately through our insurance. There is also the cost of technical experts and legal work to support the investigations and respond to inquiries from policymakers. And then there are other items such as the planned $10,000,000 contribution to establish a non profit R and D entity to advance pipeline technology. Now given the timing of the investigations, many of these costs are expected to continue well into 2011. The sum of the liability and the direct cost ranges from $320,000,000 to $550,000,000 pre tax or roughly $0.50 to $0.85 per share.
And this item impacting comparability has been spread over 20 10 2011 in our guidance. You probably noticed that we've not reflected any benefit insurance recoveries in the item impacting comparability. Given that the NTSB investigation and the CPUC process may not be
not
2011. So we've not included it in guidance for the time being. Our guidance for earnings from operations for 20.10 remains at $3.35 to $3.50 per share. Given where we are through the 1st 3 quarters, you can discern what we need from the 4th quarter to be within our guidance range for the year. A few things to keep in mind about Q4 for us.
The quarter will reflect higher expenses more to Q4 than Q3 when compared to last year, a timing issue really. And then we also expect that we'll have lower positive contribution from tax settlement when compared to Q4 of last year. For 20 11 20 based on our full request in a number of key regulatory cases. We're narrowing the range now to reflect the settlements reached in the 2011 general rate case and the gas transmission and storage case as well as the final decision in the cornerstone case. Our guidance continues to be based on a number of assumptions, including those related to the level of capital invested and achieving our authorized return on equity of 11.35%.
Finally, I'll cover our financing activities. Through the end of the Q3, equity issuance under our 401 and DRIP programs totaled about 150 $1,000,000 and we still expect it to be at roughly $200,000,000 by year end. We believe this will be sufficient to satisfy our 20 10 needs. We continue to expect that our equity needs for 20 11 will be more than the $200,000,000 or so that are normally provided by our 401 and DIRTT programs. Based on the GRC settlement and earlier regulatory decisions on our photovoltaic and cornerstone programs, we now estimate that our additional external equity needs for 20.11 could 11 could total up to $400,000,000 Whether we need the full $400,000,000 of external equity will depend In at the market program or an equity driven program.
We currently plan on issuing some equity under this program before year end as conditions warrant. Issuing some equity now will lower the amount that would otherwise be needed if we waited until into next year to begin. And you'll recall that we need to maintain a 52% equity ratio on average for the entire year. And obviously, we'll provide periodic updates to you going forward. Now I'll turn it back over to Peter.
Thanks, Kent. Before we open it up for questions, we'd like to congratulate Jerry Brown on his election to Governor of California. We look forward to working with him on advancing sound energy policy in California in the years to come. In closing, as we've highlighted today, we continue to take steps to ensure that PG and E is delivering the safe, reliable, clean and affordable energy that our customers value and expect. This last quarter presented many challenges.
In the midst of these challenges, we will continue to focus on the needs of the people who were directly affected on September 9. We're grateful for the way our employees have responded and in particular, the job they've done supporting the people of San Bruno. Just as important, they've done this while staying focused on all of the other work that has to be done every day to deliver for our customers. Thank you. And we're now ready to take your Mallory, are you still with us?
Yes, sir. One moment. Our first question comes from the line of Lishan Johan with RBC Capital Markets. You may proceed.
Mallory, we're not hearing Lassonde.
Probably my fault. As tragic as San Bruno was, I think you guys handled it pretty damn well. And I want to congratulate the team for job well done. My question is, the 5 point plan, I understand you can't give us any kind of details of mileage or lines involved or valves involved, but can you give us an idea of how much it's going to cost?
Listen, this is Chris. We don't have those estimates yet. I mean, basically what we're planning to do is to engage a 3rd party expert to work with us to help prioritize and look at the entire system and then start to develop those plans. So it's too early and we don't have any dollar estimates at all yet.
Okay. And again, I'm not suggesting that this is the case, but if there should be a case of gross negligence involved here on PG and E's part, would that negate your insurance policy?
This is Kent and the answer is no. Generally speaking, 3rd party liability coverage is quite broad and by definition is intended to cover anything that's unexpected and unintended. And so that would not be an issue.
Excellent. Last question for me. Well, last two questions related to smart metering. You mentioned the customers have been signing up for additional information. Can you give us a kind of a percentage of your customers that have the smart meters that have A signed up for it?
And 2, are you starting to see an impact on load?
Well, as we said, we've got 7,000,000 of these meters out there now and that's out of almost 10,000,000 that we're going to do, so about 70%. And they all have access to a variety of different opportunities to look at their information. So for instance, we try to monitor, but a lot of them are using their own account what we call my an hour by hour basis. And they use that to help monitor, an hour by hour basis. And they use that to help monitor what their energy usage has been.
In addition, we've had some of the folks sign up and it's just in its infancy for these energy alerts, which sends them out an automatic notice that when they start to reach the next level tiers, it gives them a warning that they're heading that way and then they can take action there. So that's how we've been engaged with them on those aspects of it. We haven't really seen anything yet that would show significant changes in load. But then again, we haven't really rolled out any programs that are totally designed to do that. We're really right now focused on getting all of these meters in and then we'll work with the commission on some of the pricing incentives that will really be designed to drive the changes in demand.
I see. Okay. Thank you. I'll get back in the queue.
From the line of Hu Wen with Sanford Bernstein. You may proceed.
Good morning. I also wanted to commend your responsiveness to the San Bruno accident. I think that's been well handled. My questions are 1 around the equity and then 2 around the costs related to San Bruno and the gas pipeline inspection.
Can
you tell us what portion of that $400,000,000 of external equity would be contingent upon Manzana?
Peter, this is Kent. If you think about Manzana overall, it's a 900 dollars 1,000,000 project. If approved, most of those expenditures obviously would be next year and there would be a significant amount that would be the latter part of next year. I would also say that with a project like that there are significant tax benefits from it that offset some of the financing requirements. So while it would be a significant portion of the $400,000,000 it would not be all of it next
year. Okay. So basically what you're guiding me to is to look at the $900,000,000 in 20 11 less tax benefits, less debt component?
And then you'd want to think yes, that's correct. But you'd also want to just think about the timing because the timing of when you're doing it since we're managing our capital structure on a 12 month average, it's not as simple as just the total amount during the year divided by 2. It's a little more complicated than that. But generally speaking, you're on the right path. Okay.
Now the fact that the insurance policy is comforting. But I wonder then why have you booked the reserve for the pre insurance costs?
Book reserve for the oh, you
mean for the cost of the accident liability?
Without recovery assuming the recovery, yes.
Yes. And that's really the accounting rules for contingencies require us to take a charge.
Okay. And it requires us to look at the asset side as well as the liability side and separate the
2. The insurance company I'm sorry, let me just go on to the inspection of the natural gas transmission lines, this $100,000,000 or $150,000,000 expense you're estimating. I assume one that that will not be recoverable in any form under either the gas accord or any other regulatory adjustment. Is that right?
Generally speaking for this $100,000,000 to $150,000,000 I spoke about, we currently don't anticipate seeking recovery of these costs. And let me just describe a little bit about that. The costs that we've included in that category are one time in nature. We don't view them as ongoing mandates and that's why we've identified them as an item impacting comparability. And I mentioned some of the larger categories.
You mentioned the inspections of the pipeline. There's also significant costs associated with legal costs and the other categories that I mentioned. So on the other hand, if we had new programs or standards that might happen in the future, those would likely have ongoing implications. For example, the 2020 the Pipeline 2020 program contemplates those types of things. And there we would plan to work with our regulators to further develop the proposals and including funding.
The only other thing I would add though is within the $100,000,000 to $150,000,000 there is a piece of those one time costs that are legal costs associated with 3rd party claims. And those we did not include in our liabilities that we booked. We will accrue those as they occur, but we would seek to recover those under insurance. And I would expect that most of those ultimately would be recovered.
Okay. The gas accord may be finalized only in February. Would you expect the revenues to be increased in January or retroactively increased when the accord was approved?
This is Tom Bockworth speaking. We have a motion pending before the PUC to allow recovery beginning in January. That proposed decision on that motion is expected in December, but we'll have to wait and see how the commission rules on that. Great.
Thank you all very much.
Thank Our next question comes from the line of Michael Lapides with Goldman Sachs. You may proceed.
Hey, guys. Could you just give high level overview in terms of changeover at the commission and how you really the timing of that? And when and is that what you think impacts kind of the timing of the settlement being approved or not approved by the commission? Or is there something other kind of pushing it out entirely next year?
Okay. Well, let me begin and then Tom might be able to supplement that response. 2 of the commissioners off at the end of the year. That would be Diane Grunich and Commissioner Bohn. And then there's also what we need is confirmation with respect to a third, which would be needs to come before the end of January.
So that's the lineup as we have it. Tom anything that you would add?
Yes. I would just add that we would expect that the commission is able to rule on the general rate case in January, we would have 3 commissioners in place. If the decision comes after January, we would at least have 2. And the governor can easily appoint someone to sit in for a temporary period or it can be for a full time appointment. So there are a number of ways the commission can proceed in granting the decision, whether we have the existing 3 on the commission or we supplement it with 1 or 2 new ones at the beginning of the
commissioners, let's delayed if you've got a majority of the commissioners, let's say there are 3 new commissioners come early next year weren't commissioners when the case was actually heard?
Typically, no. No, there isn't that wouldn't be the case. The commission what the I'm sorry, the governor would do in that event is bring on sometimes and this has occurred in the past, bring on new appointments to ensure that decisions are issued with at least 3 members. But we've had decisions in the past where 3 sitting
that. Got it. Okay. Thank you.
Thank you. Our next question comes from the line of Leslie Reich with JPMorgan. You may proceed. Yeah. I just wondered what you expect the timing of the Manzana decision to be initially.
I think you had said it would be by year end. And I'm just wondering if you think that will be delayed into the Q1 as well?
We're still expecting a proposed decision probably towards the end of this month. So it's probably more likely that the decision final decision will be issued in the 1st part of next year.
Okay. So that ties back into the magnitude of the Dribble program will be dependent on that?
Yes. That could drive the pace of the program as well as the magnitude.
Okay, great. Thank you. Thank you. Our question comes from the line of Paul Patterson with Glenrock Associates. You may proceed.
Good morning. Can you hear me?
Yes, we can. Paul.
Just on the 2011 guidance, the GAAP guidance, are there any insurance proceeds that are being in there, being calculated in there?
And if not, why not? I mean, is
it going to be
2011 that you think will get recovery of it? How do those factor into the GAAP guidance that you have for
thinking there is that the NTSC process could take us well into the second half of next year. And since it's likely that or possible a way that a lot of the claims really ultimately may not get resolved or the significant ones until after that happens, it's possible that a lot of the claims won't be resolved until you get beyond 2011. So for the time being, we've not reflected that in our 2011 GAAP guidance.
Okay. So on a cash basis, the settlement discussions the settlement the issue of settlements and giving people money and the issue of getting proceeds, do you expect a significant mismatch there? Or does that change any financing issues? Or is it how do you factor that? How do you what's your outlook on that?
I think that it could we could have some financing impact of that. I would expect if it happen next year, it would be the latter part of the year. But that's sort of to be expected anyway. We often reach settlements and then resolve the insurance after that.
Okay. And then just in terms of the ongoing impact, I mean, you guys have this accelerated work on the gas system in the past. And I was wondering, is there anything going forward that might be some certain expense that would that you see from San Bruno in terms of just related to the work you might be doing and whether there's any in other words, is any impact on shareholders that we should be thinking about other than these sort of accounting provisions that you're making that we should think about?
Yes. This is Chris, Paul. And the way I would think about it is that when you talk about the number from last year on the distribution side, that was the 40,000 miles of distribution pipeline that we were looking at. Here, we're talking about a much smaller population of pipeline. And in fact, we've already completed the aerial survey and we will complete the total walking survey by the end of this year.
And those kind of costs are included in the $100,000,000 to $150,000,000 that Kent talked about. Outside of that, I would be looking more at the Pipeline 2020 program, which will work with the regulatory commissioners on the extent of what that program would be. And I would anticipate that the majority of that is going to be capital in nature. And so I think that's how you'd want to look at the future costs.
Okay. Thanks a lot.
Thank you. Our next question comes from the line of Dan Eggers with Credit Suisse. You may proceed.
Hey, good morning. I guess, first question just with the elections over and Governor Brown coming in. Can you just give an updated thoughts on how energy policy is going to look in California and if you see any substantive changes from the Schwarzenegger administration to the Brown administration?
Sure. So let me begin by outlining our focus on energy as a company and that is that we've been very committed to providing clean and reliable energy to our customers, but also with a commitment to climate change and supportive of renewable strategy and AB32 rollout. But at the same time, we focus very much on affordability. So we have to clean energy at affordable rates. As we see it, we see this very well aligned with where the new governor will be in that he has indicated his support for the implementation of AB32.
He's indicated his support for 33% renewables. But at the same time, one of the messages he's sending out to in general is about the importance of frugality in government, because he recognizes the pressures that are So we see Governor Brown really extending on the path that's been set in recent years and very well aligned with the leadership under President Peavey at the CPUC.
So Peter, do you see the renewable standard being what Schwarzenegger has put forward as far as allowing out of state resources? Or do you think there's going to be a shift to in state resources for a variety of political reasons?
I think that still has to play itself out. On the one hand, I think the influence of unions will be a factor. But at the other on the other hand, we know that Jerry Brown is concerned about frugality. And so we see 2 offsetting pressures occurring there. And I think at this point, it's a little early to know for certain how that's going to play out.
Do you have comfort that you can get to your 33% standard with an in
state mandate? Or do you think you need
the out of state with an in state mandate? Or do you think you need the out of state resource to make it a more economically viable goal?
Well, I think we're talking about 10 years. And if we look at the development that has occurred in the last 10 years, that would lead us to conclude that we can get to 33%. Really the factor is cost. And that's the reason that PG and E has pushed very hard for broad access to out of state resources and we will continue to push in that regard. So can we get there?
I think we can within state resources, but we don't like the impact that that would have on our customers potentially from a cost state by state really doesn't make sense in the context of solving a global problem.
Okay. Just one last question
on this. I'm sorry, Peter. But the capital spending you guys have laid out for your plan, does that take into account going to a 33% renewable standard maybe 32% enforcement? Is there room for more spending to help accomplish those goals on your medium term planning horizon?
Why don't I have Kent address that question?
Yes. In terms of the capital that we've laid out in our guidance, of course, that goes through next year. And you remember going back to March, the the original layout that we had the upper end really for renewables had our photovoltaic program which is now up and going and we're working very hard on that. That's about 1,500,000,000 dollars over about 5 years. And then it also has the Montana Wind project in there.
Those are really the only
question comes from the line of Jonathan Arnold with Deutsche Bank. You may proceed.
Hi, good morning. Can I just ask on Manzana? I just to your comments about the timing of the spend having a bearing on what you might need on in terms of the equity dribble and it's obviously later in the year. So if you do get Manzana, would it be Yes. That would be reasonable, all else being equal.
And
Yes, that would be reasonable, all else being equal.
In a similar kind of zip code to what you're saying this year 411, sorry?
Yeah. Our DRIP and our 401 we would normally expect to be at about $200,000,000 a year this year and we would expect something similar next year.
But in terms of incremental if in the event Manzanar goes forward, would it be the same kind of incremental in 2012 as you have in 2011?
You're asking about 12. I'm sorry. I misunderstood the question. No, we would we're not really providing any guidance about 2012 and financing needs for 12 at this point. The Manzana would occur in 2011 under the current schedule.
My question was more that with the back end because they're back end loaded. Does that sort of carry some of this equity need into 2012? Or are you planning the dribble you would do in 2011 would effectively get you where you need to be for 12?
I would say generally speaking the dribble would satisfy us for 11. I haven't really looked at equity needs in 2012 and we'll be talking about that when we provide 12 guidance in future months.
Thanks, Ken. Could I if I could on one other thing, it seems like the cost that you're planning to book through guidance between for San Bruno between 11 1011 equate to sort of the high end of these ranges you've given, whereas you're only booking the low end in 2010. How does the accounting work around that? And how should we think about the fact that you're sort of using the $400,000,000 higher end, I think, of the bigger number before in your between the $10,000,000 and the $11,000,000 guidance.
Yes. Jonathan, let me take a crack at that. Again, there's 2 pieces in our guidance for the item impacting comparability related to San Bruno. There's the liability estimates and then there's the direct cost. In the case of the liability estimates, we've identified a range of $220,000,000 to $400,000,000 and we've booked the 2 $20,000,000 pretax.
The upper the higher estimate for the IIC, which is in the lower guidance category is reflects the full $400,000,000 The higher guidance, which has the lower IIC reflects the 2 $20,000,000 for the liability. And similar with the $100,000,000 to $150,000,000 for the direct costs, we've used the to the $150,000,000 to bound that component of the items impacting comparability.
It's between the 2 years.
For 2 years and we've spread it over
Thank you.
Our next question comes from the line of Steve Fleishman with Bank of America Merrill Lynch. You may proceed.
Great. Thank you. Ken, what is the bonus depreciation cash in 2011 now that that's been extended?
Yes. We estimate that the cash impact of that pretax obviously will be between $400,000,000 $500,000,000 for
us. Okay. And then
We expect most of the financing benefit of that given the timing in 2010, most of the financing benefit will be realized next year.
Okay. And then between that extension together with the rate settlement, how you tracking to the kind of rate base forecast that you've given in the past for 2011?
I think we have as part of our 8 ks on the general rate case, we provided the rate base funded in 2011. And I know what it is in terms of zip code, but I don't remember the specific number. It's north of $16,000,000,000 was the GRC jurisdictional rate base. Okay.
But if you go back to kind of back to your Analyst Day or something like that, would I know bonus depreciation was kind of you weren't sure either way then and we didn't have the settlement. Are you still are the ranges back then for rate base still in the ballpark or?
Steve, we're not going back and updating all of the different inputs into the original guidance. But I would tell you, if you go back to the March guidance, in the lower case that we had there was no bonus depreciation for 20.10. And in the higher case it actually was reflected in there. At a comparable level I think we had assumed $400,000,000 of benefit. So that was largely already reflected in the higher guidance that we provided on March 1.
Thank you.
You bet.
Thank you. Our next question comes from the line of Reza Hatfi with Decade Capital. You may proceed.
Thank you very much. Just to clarify on the rate base. So you're still in that range for 2011 that you gave back at the Analyst Day?
I've not gone back and added up all the pieces.
Okay. I guess at some point down the line you'll give us besides I guess doing that calculation you'll give us a
2011 and 2012.
Okay. And then I guess just thinking about this rate case and obviously there is a lot of moving parts and lot of different projects as you mentioned. How should we think about the trajectory and progression of rate based growth post 2011?
We haven't provided any guidance beyond 2011 at this point. What you have seen is in terms of the general rate case, we've disclosed that the general rate case, if the settlement is approved, would allow funding between $2,200,000,000 $2,300,000,000 for those pieces annually those pieces that are CPUC, GRC jurisdictional.
Okay, got it. Thank you very much.
Thank you. Our next question comes from the line of Rudy Valentino with Morgan Stanley. You may proceed.
Hi, thank you. You've answered a lot of my questions. Can you just kind of give an idea of what's your expectation for the tax rate for 2010 and maybe into 2011? For the For the tax rate? I don't have any specific estimates to provide you going forward.
Okay. Riddhi, this is Gabe. The one thing I would say is, I think people have recognized that we have over the last several years
his name. So this is Dinyar Mistry, the Controller. Our effective tax rate for the 9 months of September was 37%. And as Gabe mentioned, we are now in a program called a continuous audit program, where we work with the IRS, every year as we file the return, they're sitting by our side and we're discussing issues contemporaneously. But our current effective tax rate is 37%.
Okay. Thank you very much.
Thank you. Our next question comes from the
line of
Ashraf Khan with
case, Kent, that you provided, how much depreciation is there annually? Could you just remind us?
No, I don't have that available to me. I'm sorry.
Okay. Okay. Thank you so much.
Thank you. We have a follow-up question from the line of Lisanne Jahang with RBC Capital Markets. You may proceed.
Kent, I have a question on Manzana again. It's interesting because if I'm not mistaken, you ought to qualify for 30% tax cash grant money, and you ought to have bonus depreciation on that project, which would probably cover your entire equity, if you chose to take the 30% tax grant as opposed to PTC. If you do that option, are you not over equitized going into 2012?
No. We have factored in us for 2012.
But you're not in the position to disclose whether you would take the cash grant or the PTC?
I think that's still to be determined through the regulatory process.
I see. And so what you're preparing for is, I'm assuming, the PTC
side of the business, just in case?
That is a
regulatory process.
I see. Thank you.
Thank you. We have a follow-up question from the line of Michael Lapides with Goldman Sachs. You may proceed.
Hey, guys. My apologies, I asked any uncertainty.
Okay. Thank you, Michael.
Thank you. There are currently no additional questions waiting from the phone lines.
In that case,