Good morning, and welcome to the PG and E Corporation First Quarter 2018 Conference Call. At this time, I would like to pass the conference over to your host, to Chris Foster. Thank you and have a great conference. You may proceed, Mr. Foster.
Thank you, Lisa, and thanks to you on the to those of you on the phone for joining us. Before I turn it over to Williams, I want to remind you that our discussion today will focus on forward looking statements about our outlook for future financial results, which are based on assumptions, forecasts, expectations and information currently available to management. Some of the important factors that could affect the company's actual financial results are described on the second page of today's Q1 earnings call presentation. The presentation also includes a reconciliation between non GAAP and GAAP measures. We also encourage you to look to review our quarterly report on Form Q10 that will be filed with the SEC later today and the discussion of risk factors that appear there in the 20 and in the 2017 annual report.
With that, I'll hand it over to Geisha.
Thank you, Chris, and good morning, everyone. Today, I'll provide an overview of our initiatives to drive comprehensive operational and policy solutions that address extreme weather driven events and the impact they're having on our communities, our company and our state. I'll also be covering how we continue to advance our business strategy and position PG and E for the future with examples that represent our vision of meeting the challenges of climate change while providing affordable energy for all of our customers. And finally, we'll close with Jason walking us through the financial results for the quarter. Nearly 7 months have passed since the devastating wildfires that impacted our North Bay communities.
Our thoughts continue to be with our customers, employees, families and friends who were affected. Nothing is more important to PG and E than the safety of our communities and workforce. And as I will speak to shortly, we are collaborating on a number of fronts to better prepare the communities that we're privileged to serve in the face of future potential wildfires. There's growing evidence that these wildfires may become more destructive in future years and we must adapt. California investor owned utilities are are responding to this new normal.
We have long been leaders in helping the state reduce its carbon footprint and now we must lead in climate adaptation and resilience as well. Our efforts include adapting our operations and infrastructure to changing climate conditions as well as supporting efforts at the local level to make the communities we serve more resilient. Today, I'll cover what PG and E is specifically doing to tackle these complex issues. We continue to aggressively pursue strategies that address needed policy reforms for the near and long term, while also enhancing our operations. On the operational front, we've initiated an enhanced multi year program to harden our system and increase its resiliency.
We're also working with regulators and other stakeholders to enhance procedures in high fire threat areas. On the legal front, we're addressing what we strongly believe is the inappropriate application of inverse condemnation to invest owned utilities in the California courts. And finally, we continue to advocate with leaders and policymakers across the state on comprehensive legislative solutions. I'll focus first on the legislative front, where a coalition of policymakers and other stakeholders are emphasizing the broader reforms needed to address issues such as forest management practices, wildland urban interface, insurance availability and utility liability among others. We think this is the right approach because there is no simple fix.
To that point, we were pleased to see the joint statement from Governor Brown and a bipartisan group of key legislative leaders who in their words will be partnering on solutions this year that will make California more resilient against the impact of natural disasters and climate change. These leaders called out 5 key areas that address the issues our state is facing, including the need to update liability rules and regulations for utility services. It's important to have policies in place to provide a sustainable financial future for the state's energy companies, which is why we believe the legislature needs to perform inverse condemnation. As a reminder, California is an outlier in applying inverse condemnation liability to events caused by an investor owned utilities equipment. This means that if a utilities equipment is found to have an event like a
wildfire, even if a
followed established inspection and safety rules, the utility may be liable for property damages and attorney's fees associated with that event. So in essence, this is a strict liability approach that presumes a commensurate cost recovery path and for investor owned utilities that just isn't true. We strongly believe this is not the right approach for our customers or our shareholders. We also are encouraged to hear the members of the California State Senate and Assembly share their perspectives on the challenges that inverse condemnation presents for investor owned utilities and the ripple effects it will have across the state. They recognize that access to affordable capital is essential to funding utility infrastructure.
This includes investments at scale that support the state's clean energy goals and enable the safety and reliability of our system. It also includes funding that is necessary to transform and harden our system in the face of climate change. We applaud the urgency to resolve these critical issues from both the Governor and members of the legislature and appreciate their commitment to timely and comprehensive solutions for all Californians. While we continue to work through the details with legislative leaders over the course of the session, which ends in August, we see common ground on many of the issues that have been raised and we look forward to collaborating on solutions. I want to reiterate, however, that it is imperative that these policy reforms comprehensively address the full range of issues that are before us and that, of course, includes inverse condemnation.
I'll transition now to actions we've taken in the courts. We continue to believe that the CPUC's denial of cost recovery in San Diego Gas and Electric's wildfire expense memorandum account request presents compelling new evidence. Investor owned utilities cannot unilaterally raise rates without authorization from the regulator and this fact alone undermines the entire premise of inverse condemnation. Earlier this week, the trial court denied our motion challenging inverse condemnation in the 2015 Butte Fire case. The court stated it believes it is bound by prior higher level court decisions that have applied inverse condemnation to investor owned utilities.
Notably, the court also acknowledged the importance of the issues we raised and stated that the appellate courts are the appropriate place to consider them. We intend to promptly file a request for the Court of Appeals to hear our case. The court also suggests that the legislature consider the important public policy issues that our motion raised. We wholeheartedly agree. Moving now to the Northern California wildfire cases.
In March, we asked the court to dismiss the inverse condemnation cause of action in the 2017 Northern California wildfire cases that have been filed. We look forward to hearing the judge's decision in this case, but we again recognize that the issue of whether inverse condemnation should apply to investor owned utilities likely will be decided by the appellate courts. To the extent the outcomes are not in our favor as this issue was heard in various courts, we'll continue to challenge inverse condemnation through all available legal avenues. Ultimately, we are fighting for a reasonable outcome not only for PG and E, but also the customers who we serve and the people of California. At the same time, we're working with the California Public Utilities Commission and our communities on additional precautionary measures to enhance and strengthen our system.
These efforts will build on the substantial work we have done across our system to proactively respond to the drought conditions that we have faced over the last few years. We've more than doubled our annual spend to manage vegetation from roughly $190,000,000 in 2013 to $440,000,000 in 2017 and we increased the frequency of our patrols, particularly in high fire threat areas. But the new normal needs new solutions. To that end, we recently announced our community wildfire safety program. While significant progress has been made since the wildfires last October, we view this as a multiyear program that will evolve over time.
Our program has 3 core areas of focus and I will cover a few highlights this morning. First, we are bolstering our wildfire prevention and emergency response efforts in coordination with first responders, public safety agencies and other community partners. This includes establishment of a wildfire safety operations center that was opened last month. This center monitors wildfire risks and coordinates any necessary prevention and response efforts with first responders. And we brought on our own wildfire response teams to protect critical utility infrastructure, assist crews working in high fire threat areas and to support first responders in the event of a fire.
We have also procured 2 helicopters that will support our wildfire response teams when wildfires occur and have plans to procure 2 more in 2019. Of course, this will all be under the direction of Cal Fire. To enhance our weather forecasting and modeling capabilities, we're targeting to add roughly 200 new PG and E owned weather monitoring stations in 2018 with more to come in future years. These stations will provide enhanced visibility of potential wildfire threats across our system. 2nd, we will be working with our communities on additional precautionary measures to help reduce the threat of wildfires and keep our communities safe.
For example, we're executing on an even more expansive vegetation management program. We were pleased to see the CPUC adopt new regulations that require increased distances between our wires and the surrounding vegetation. We're also creating fire safety zones in high fire threat areas. This means we'll be clearing vegetation from at least 15 feet on either side of our power lines. This not only reduces wildfire risk, but also enables easier access for first responders in the event a wildfire occurs.
In addition, we are refining and executing on protocols to proactively turn off electric power where extreme fire conditions are occurring. This isn't without risk of course and will involve very close coordination with our communities. 3rd, on a longer term basis, we're working to harden the electric system and integrate new technologies. This means we'll be investing in stronger power lines with conductors that are more resistant to vegetation and we'll be replacing wood poles with non wood poles in the highest fire threat areas. As we look down the road, we'll be working closely with our communities to explore how we can expand the use of micro grids to help improve both reliability as well as resilience in the event of a major natural disaster.
Our plan includes partnering with our communities to establish energy resilience zones such as the designated hospitals and schools to provide support in the event of a widespread outage. As an example, Humboldt County, we've already partnered with members of the community to integrate a micro grid into a designated Red Cross evacuation center. These energy resilient zones will provide support not only in response to wildfire threats, but also other natural disasters including earthquakes. Finally, we also appreciate the CPUC's recognition that climate change is an issue that is incredibly impactful to our business. In fact, they recently issued an order instituting rulemaking that aims to move beyond just climate change prevention and to integrate adaptation into relevant proceedings at the commission.
This couldn't be more timely and we look forward to partnering with them on this important work over the course of the next year. As I think about this effort of the commission as well as the execution of our own community wildfire safety program, there is a natural tie to risk management. The muscle we have built in the last several years to proactively measure and mitigate risk has been instrumental as we've developed this program. Last fall, we filed our risk assessment mitigation phase or RAMP for our 2020 general rate case filing. The purpose of the RAMP filing is to demonstrate that energy utilities are placing the safety of both the public and their workforce as a top priority in general rate case proceedings.
Last month, the CPUC Safety Enforcement Division or SED issued a comprehensive report in our plan as reflected in the filing. We appreciate their positive feedback on several aspects of our plan as well as their suggestions on how to make it even better over time. SCD specifically recognized our work to address climate resilience from both a mitigation and adaptation perspective. They also highlighted our collaborative approach and the level of engagement as we developed our risk models. Additionally, they classified our quantitative modeling techniques as state of the art.
In this time of increased risk as we face greater threats from climate change, I'm pleased with the progress we've made. And as SED also noted, we have raised the bar for future ramp filings. I would like to transition now to some additional operational updates as we continue to make steady progress across our business in a variety of areas. First, I'm happy to share that nearly 80% of the electricity delivered to our customers in 2017 was carbon free with 1 third coming from qualified renewables. But we know that more can be done and we continue to see opportunities to partner with the state on achieving further carbon reductions.
To that point, we believe transportation is the next sector of the economy to tackle. If you include the fossil fuel refining process, transportation accounts for 50% of greenhouse gas emissions in the state. Simply put, California cannot achieve its greenhouse gas reduction goals if we don't tackle transportation, which is why the Governor recently announced a goal of getting 5,000,000 zero emission vehicles on California roads by the year 2,030. Right now, we've got about 350,000 in the state, less than a tenth of that target. The potential growth curve is tremendous and we must think about how we can do things differently to hit that objective.
We are positioning ourselves to play a significant role by investing in the infrastructure necessary to enable EV adoption and address consumer range anxiety. Energy companies like ours are uniquely positioned to help lower barriers to EV adoption. We can build public charging infrastructure, design rates that reduce the cost of charging, administer rebates, educate customers and spur EV manufacturers to increase production through our own fleet purchases. PG and E is engaged on all these fronts. We were pleased with most elements of the recent proposed decision that will allow us to move forward with our plans to deploy charging stations for medium and heavy duty vehicles and we continue to make strong progress on our program to install 7,500 chargers for light duty vehicles, which is by the way the largest approved investor owned public charging program in the country.
Combined, we'll be spending several $100,000,000 in the
coming years as we begin to build
out the charging grid of the future. This is a period of dynamic change for our industry and we continue to push the envelope to meet the evolving needs of our customers and our communities. Another area where we continue to see change is, of course, in the growth of Community Choice Aggregators or CCAs. California law requires that customers have a choice of energy providers. As some communities opt to procure their own energy from third parties, a portion of the cost of the energy that PG and E procured on their behalf is falling to our remaining bundled customers.
Right now, when a community opts to take energy from another provider, the customers that depart only pay roughly 65% of the cost that we procured on their behalf. That leaves our bundled customers to bear the remaining 35% in addition to their own share. While we support customer choice, fair cost allocation must be addressed in accordance with the law. To that end, we along with Southern California Edison and San Diego Gas and Electric propose a new mechanism to allocate these costs. Our proposal is intended to ensure parity for all of our customers.
Ultimately, if it's not affordable, it's not sustainable and revising the cost allocation rules for CCA customers is key to our affordability efforts. In summary, while we navigate the challenges posed by climate change, we also continue our effort to support California's place as a global clean energy leader. PG and E has a long history of effective coalition building and partnering on complex issues to help move California forward. And I'm optimistic that we as a state can come up with the solutions needed to continue our progress. With that, I'll turn it over to Jason.
Thank you, Geisha, and good morning, everyone. Before I cover our results for the quarter, I'd first like to address our 2018 guidance. Given the continued uncertainty related to the 2017 Northern California wildfires, we will not be providing 2018 earnings per share guidance on today's call. As I shared previously, we will revisit this as we have better clarity with potential liabilities related to the 2017 Northern California wildfires. Consistent with last quarter, we will be providing guidance on 2018 items impacting comparability, CapEx and rate base for both 2018 2019.
I want to emphasize that our guidance for these items assumes no additional impact from the Northern California wildfires beyond what we're providing on today's call. This morning, I'll be covering our Q1 results as well as an update on the estimated impacts from tax reform. Slide 6 shows our results for the Q1. Earnings from operations came in at $0.91 GAAP earnings, including the items impacting comparability are also shown here. Costs associated with the Northern California wildfires totaled $21,000,000 pretax and primarily reflect legal costs.
Pipeline related expenses were $10,000,000 pre tax for the quarter. We also recorded legal expenses for the Butte Fire net of insurance recoveries from our contractor of $5,000,000 pre tax. Moving on, slide 7 shows a quarter over quarter comparison from earnings from operations of 1.06 dollars in the Q1 of last year and $0.91 this year. We were 0 point 0 $8 favorable due to growth in rate base earnings. $0.02 of this increase simply reflects the timing of the 2017 GRC decision, which didn't allow recognition of the incremental authorized revenues until the Q2 of 2017.
We'll see this small timing difference reverse next quarter. With the incremental rate base we're recording as a result of tax reform, we expect earnings from our rate base growth to be roughly $0.25 for the full year, slightly higher than 2017. Moving on in the Q1 of last year, we incurred incremental capital costs such as depreciation and interest without offsetting revenues, also due to the timing of the 2017 GRC decision. This is driving a $0.03 favorable variance in the Q1 of this year, which will reverse next quarter. We were $0.08 unfavorable due to the tax impact from share based compensation in 2017.
We recorded a $0.06 benefit due to favorable performance in our long term incentive plan in the prior year. Conversely, with lower performance in 2017, we recorded a tax expense of $0.02 in the Q1 of 2018. We also had a nuclear refueling outage this quarter that contributed $0.06 unfavorable quarter over quarter. In 2017, our refueling outage was in the 2nd quarter. Timing of taxes was $0.05 unfavorable.
Consistent with previous quarters, our taxes fluctuate with a variability in earnings throughout the year, but ultimately will net to 0 for the full year. Following the settlement in our cost of capital proceeding last year, we are seeing a $0.01 unfavorable variance due to the decrease in our authorized return on equity. We expect this to equal roughly $0.05 on an annualized basis. Share dilution resulted in a $0.01 unfavorable. And finally, miscellaneous items accounted for $0.05 unfavorable.
This includes a number of timing related items as well as a charge this quarter related to environmental obligations at a former electric generating site, which we've just begun remediation work on. Moving on to slide 8. Our assumptions for 2018 are largely unchanged from what we shared last quarter with the exception of a shift in rate base, which I'll cover shortly. While we're not providing earnings per share guidance for 2018, on an earnings from operations basis, our objective is to earn our CPUC authorized 10.25% return on equity across the enterprise. Slide 9 shows our forecasted items impacting comparability.
These are consistent with what we shared on the Q4 call. As a reminder, our range for Northern California wildfire related costs, net of insurance, excludes any potential impacts related to claims. On slide 10, we've provided a few updates to the expected impacts from the Tax Cuts and Jobs Act. At the end of March, we filed a proposed implementation plan with the CPUC to incorporate the impacts of tax reform and customer rates. As we work through the details, we identified adjustments to the preliminary estimates we had shared on our Q4 call that I'll cover briefly.
First, we anticipate a slightly lower initial annual benefit to customers. We had previously estimated that the annual revenue reduction would be approximately $500,000,000 and we now expect it to be roughly $450,000,000 This difference is timing related and is expected to eventually flow back to customers in future periods. 2nd, while we still anticipate rate base growth to be higher by approximately $800,000,000 by 2019, roughly $200,000,000 that we previously expected to be added in 2018 has now shifted to 2019. This was driven by several factors such as a slightly longer amortization period for certain excess deferred taxes. 3rd, while our cumulative financing needs of about $400,000,000 remain unchanged over the next 2 years as a result of tax reform, we've asked the CPUC for flexibility in the timing of when we implement these adjustments and rates.
As a result, our financing needs may be more heavily weighted towards 2019. Finally, our guidance reflects best expectations today, but ultimately the CPUC and FERC will need to review our proposal and authorize how and when tax reform impacts are implemented. With that said, as I shared last quarter, tax reform is going to provide long term benefits to our customers and also drive higher rate base growth, financing needs and earnings. We look forward to working with the CPUC and FERC on an implementation plan that benefits all parties. Slides 1112 show our expected CapEx and rate base for both 2018 2019.
Our capital expenditure plans through 2019 are unchanged from what we shared last quarter, with plans of approximately $6,300,000,000 in 2018 and roughly $6,000,000,000 in 2019. Our rate base forecast also remains consistent with what we shared last quarter with the exception of the $200,000,000 shift in incremental rate base related reform from 2018 to 2019, rate base growth is expected to be roughly 7.5% to 8% annually from 2017 through 2019. Slide 13 shows how we're thinking about uses and sources of equity in 2018 2019. In 2017, we had shared that we expected our equity needs for 2018 2019 to be largely met through our internal programs, which have generated approximately $300,000,000 to $400,000,000 annually over the last several years. However, with our dividend suspended, the dividend reinvestment program has been halted.
So we expect a decrease in the amount of equity these programs will generate. The dividend reinvestment program has historically provided about $60,000,000 annually. Additionally, through the Q1, our internal programs have generated equity of roughly $35,000,000 While investment activity can vary throughout the year, our internal programs may not generate the same levels of equity that we've seen in recent years. The other factors that we've outlined here are largely unchanged from last quarter. The cash that we're conserving from the dividend suspension continues to provide an equity cushion that could be used to provide needed equity, including for any potential liabilities that result from the Northern California wildfires.
In closing, I want to reiterate what Geshi said. We're actively working to address inverse as greater clarity is reached with regard to potential liability stemming from the 2017 Northern California wildfires. Finally, as I've shared with you before, we'll keep you apprised of the progress as material facts unfold. With that, let's open up the lines for questions.
Certainly. Our first question comes from the line of Stephen Byrd of Morgan Stanley. Please proceed.
Hi, good afternoon. Good morning.
Good morning, Stephen.
Casey, you mentioned in your prepared remarks the need to directly address inverse condemnation. I think the investor community very much understands the seriousness of that issue. Without speaking for the legislature? Is it your sense that that's it's understood that that is a very significant issue and needs to be addressed? Is there broad understanding?
Or is there still sort of more education to be done on that?
Thanks for the question, Steve. Let me just start by saying what we've been doing. We've been spending a great deal of time educating a lot of the different stakeholders in the state on how truly flawed the application of inverse condemnation is to industrial and utilities. And I do believe that that message is resonating and is well understood. And that's why we were so encouraged to see the Governor and the bipartisan leaders come out in March announcing their intention to develop comprehensive solutions this year to really address the climate change issues and how they impact California.
And of course, we were particularly encouraged to see the liability rules and regulations for utility service actually called out as an area requiring updating. So we've shared many times with all of you and of course all the various stakeholders, in risk condemnation is a risk to the financial health of all the California IOUs and by extension to the state's ability to meet its clean energy goals. So that's why we're so focused on it. It's such an important issue. And I do believe that that message is resonating and is well understood.
That's helpful. Just on fire insurance and just availability and cost. Jason, I just wanted to check-in with you and just hear your latest thoughts on market conditions for actually being able to obtain fire insurance.
Thanks, David. Yes. Just as a quick reminder, our liability insurance period runs from August 1 through July 31. And so so last year when we renewed, we saw increases in prices, roughly at a level that was nearly 3 times
what
we're collecting in rates. And as you can imagine, as we're in the market for renewal this year, we're seeing capacity decline and pricing increase. I don't think it's it wouldn't be prudent for me to comment directly on pricing, but I think that general trend of smaller capacity, declining capacity as well as increasing pricing is something that we're going to face with this new upcoming renewal period.
Thank you. And if I could just maybe one last question just on, I guess I'm thinking about accounting charges for potential fire liabilities. And assuming that we received the first real data point from Cal Fire in terms of causation, Is simply a report on causation enough for you all to think about taking a charge for fire liability? Or would you want to see more in terms of from the enforcement division, for example, report from them or just further data points before considering the accounting charge? And perhaps though more broadly, I'm questioning how relevant the accounting charge is in terms of the timing for the need, if at all, to raise additional equity?
I know that's kind of a long question. I'm just sort of trying to think about what would sort of spur a potential accounting charge and what might result in the need to raise capital? Or is that pretty far off in time?
Yes. Thank you. There's a lot there. But let me say that I think the Cal Fire reports are going to be an important milestone as it relates to the evaluation of whether an accounting charge is needed. But those Cal Fire reports are not going to be necessarily absolutely dispositive.
We will take into consideration what is produced in those reports as well as other factors that we've gathered as we've conducted our own fact finding work as well. So while an important milestone, it is not an absolute conclusion that an accounting charge will be recognized. In terms of the second part of the question relating to equity needs, I think it's an important reminder that if we were to take a charge, that charge would be non cash. And so a way to think about the equity needs associated with the non cash charge is it would essentially be about 36% of the pre tax charge. We have to the way that calculation works is essentially charges would be tax deductible.
Our statutory rate is about 28%. So an after tax charge would be about 72% of the pre tax charge. And at the time that we would take a non cash charge, we'd only have to raise about half of that equity need. The remaining 36% would be raised as we actually spend the cash. So the short of it is, equity needs would materialize over time.
It would start when we took the accounting charge and they would conclude as we actually pay the cash out.
Very good. Thank you very much.
Thank you. Our next question comes from the line of Jonathan Arnold of Deutsche Bank. Please proceed.
Good morning, guys.
Good morning, Jonathan.
Good morning.
Question on since I was planning to ask this, I know the 10 Q just came out and it might be answered in there, but if it is, I haven't seen it. So I'm just curious on the Butte fire. The past two quarters, you haven't taken additional charges, but you said you didn't have you haven't been able to estimate the high end. At one point, it was because you didn't have information on the claims, but that's like 2 quarters ago now. So can you give us any perspective on sort of how the settlement of those cases is going along?
How it's trended relative to what you booked? Whether there's anything to read into you not having taken incremental charge,
etcetera? Jonathan, we are about halfway through sort of the settlement of claims associated with Butte. And to your point, we saw a large influx of claims in September of last year. We're still working through the details of some of those claims that came in late, as well as we are working through the impact of our legal challenges with respect to inverse condemnation in the Butte case. So as of the Q1, we have not modified or provided a high end of that range.
It's still $1,100,000,000
So Are you still saying that you can't estimate the high end? Or is there is the inference that it's possible that number is what you booked is the high end?
At this point, we still cannot estimate the high end of the range, but I think there are a number of factors that that are having an impact on settlement values and we need more time to understand how those long term trends will play out as we resolve the remaining sort of 50% of the claims.
Okay, great.
And then just sticking on Butte, I believe the judge decided not to certify his denial of your motion to the appellate court. And does that have much of a bearing in your legal team's view of how long an appeals process might take?
Jonathan, it's John Simon, the General Counsel. I not materially. So the as you were saying that the judge at our request could have certified his Butte ruling on appeal. He chose not to and when he said that, when he issued his ruling, he said there were 2 factors in that. One is that if there's significant disagreements about substantive law that might militate for certification and he said there were significant disagreements.
But the second factor is would certification materially advance the timing of the litigation and he felt that certification would not. So he denied the certification. Certification might have some moderate impact on whether the Court of Appeals takes the writ on appeal. But there's cases where certifications are granted by the trial judge and the Court of Appeals doesn't take the appeal and vice versa. So it really could go either way on the writ at this point.
Okay. And then just thinking on the legal, I have one other thing. If I'm not wrong, the sort of form of the motion that you filed in the North Bay case in San Francisco is sort of is different from the type of motion that was filed in the Butte fire case. Can you sort of ask non lawyers explain what the if that has any bearing on sort of how that's likely to play out just procedurally?
I'll do my best for the non lawyers. And I bottom line is we don't think it makes a material difference on how it plays out. You're right that procedural vehicles of the motions in Butte and the North Bay cases are different, but they're substantively the exact same arguments, which is inverse ought not to be applied to investor owned utilities for many of the reasons that Geshe mentioned. The difference in the procedures really has to do with the difference in the vintage of those two cases. So as you know the Butte cases have been on file for going on several years now.
The North Bay cases are brand new. And as soon as the first opportunity for us to attack inverse after the commission issued its WEMA decision, we brought those motions. So the difference again is the vehicle had more to do with where the cases were in their life cycle, substantively they're the same.
Okay. That's probably enough for me. Thank you.
Thank you. Our next question comes from the line of Steve Fleishman of Wolfe Research. Please
proceed. Yes. Hi. So can you hear me?
Yes. Yes.
Okay, great. So first question just on the legislature. So I get that there's been very strong high level support to address fire issues including utility liability in this session. Maybe to go into more detail of that, if you listen to the legislative hearings, there does seem to be the difference in willingness to address things like pre prudence in the future relative to actually fixing inverse I. E.
There's a lot more openness to pre prudence than fixing inverse. So could you be more specific in addressing legislation with respect to the chance of fixing inverse will actually be part of it relative to some of these other utility liability fixes?
Yes, Steve. This is Gesha. We view fixes that need to occur in the state legislature as being threefold and they're broad in nature. So first, we have 3 specific goals. 1st, there's a need to reform strict liability.
I mean, it's simply not sustainable to put all the state's utilities whether they be investor owned or publicly owned at that level of risk when these wildfires are occurring, particularly when they haven't violated any safety rules or regulations. So the first order of business is we need a reform on strict liability as it applies to utilities. The second issue that we need a solution on is the 17 wildfires, which impacted both Northern and Southern California. And then the 3rd significant issue that we need movement on is looking at the standard that establishes the legal baseline of reasonableness. That's really part of what is the prudent manager of the system.
We believe that all three of those elements need to be addressed to get
just how much willingness there is to move beyond just that third one into the first two?
Yes. So it's early days. We still have 4 months left in the session. There are many conversations and dialogue going on with the various stakeholders. The legislative session is, I've mentioned this, what's not linear, it's a highly fluid sort of process.
You're going to see different bills, I believe. You're going to see different amendments. I would really caution everyone not to get over fixated on any one particular piece of legislation as I do believe we're going to see many different bills, many different amendments and there's going to be a lot of ups and downs during this process. So conversations are occurring, lots of discussions are occurring and it's just a question now of putting the right text on paper to figure out what is the right comprehensive solution for the state.
Okay. And then a separate question on the there was a Bloomberg story last night where President Picker mentioned that you expected the Cal Fire reports this summer. And I'm just curious if there is I'm not sure where that reference came from, but just have you gotten any indications on a timing update for the CAL FIRE report?
No. We haven't gotten any timing updates from Cal Fire. Maybe he's I don't know, doing the math and thinking through the comments of the Cal Fire Chief. Back in January, I think it was Ken Pimwatt at a hearing in Santa Rosa, he talked about reports, many reports, individual reports coming out in the next few months and perhaps President Picker is making an assumption there that those are ready sometime this summer. But no, certainly we haven't gotten any indication of when the timing for those reports will be.
Okay. Thank you.
Thank you. Our next question comes from the line of Praful Mehta of Citigroup. Please proceed.
Thanks so much. Hi, guys. Good morning, Praful. Good morning. So just on this CalFile report, just wanted to understand given we don't know timing, but if it does happen before the assumed solution on the legislative side, how do you see that impacting the legislative process?
As in if it does come out saying there is some fault or causation connecting the utilities, do you think that hampers the process? And do you think the legislators wait to see that
before they do something? Praful, this is Gesha. We don't know, is really the honest answer here. We there are going to be multiple reports. We know that there were 21 fires.
The reality is we don't know what kind of impact the actual reports themselves will have on the legislative leaders as they consider utility liability both in the short and the long term. It's a great question. I have the same question, but I don't have an answer for you.
Fair enough. No, it's one that troubles as well. So just wanted to check. But moving on, I know Jason you mentioned that the settlement amounts are coming down for the Butte settlement. So just wanted to get a sense firstly of where do you think those ranges are going?
And you mentioned there are a number of drivers that were helping bring those settlement amounts down. So would like to get some color on what those drivers are you think?
Thanks Praful for the question. As you can imagine any settlement negotiation is very fluid. We the reason why we are unable to provide a high end of the range is we really need to understand the longer term impact that the various legal challenges we have to inverse condemnation, what those will do to the underlying settlement values. And so I think providing a specific range today just probably wouldn't be productive.
Yes. No, totally understand on the number. But in terms of like drivers, is there any drivers that you would say would help your story in terms of helping reduce those settlement amounts further?
I think Praful, John Simon. And I think that the earlier slide talked about the number of claimants or plaintiffs in the View cases. You've got more than 3,000 plaintiffs. Every single one is a bit different. So you can imagine that when you're talking settlement or mediation, you're talking about very unique facts that have to do with each case.
And then you overlay on that, the uncertainties around inverse and we believe as again Geshu said that inverse will be decided at some point in an appeals court and we take that into account. Some of the more severe claims tended to be brought upfront. You can imagine why that would be. So it's a whole lot of different things and it's hard to come up with sort of any sort of there is no algorithm on it.
And how about the statute of limitations, the fact that that's I think that is another determinant.
So, Geshi mentioning the statute of limitations, that's a good point. So, there's 2 statute of limitations that are at play in the Butte case. One's for personal injury and that's a 2 year statute of limitations and that ran in September of 2017 and right before that ran or expired, we saw a fairly big spike in claims. I think we had something like 700 to 900 or so more claims filed. The second statute of limitations in place on property damage that expires 3 years after the fire.
So that's September 2018. And it's certainly possible if the past is prologue that we'll get more claims filed before that run. So that's another factor.
Got you. Super helpful guys. Thank you.
Thank you. Our next question comes from the line of Julien Dumoulin Smith of Bank of America. Please proceed.
Hey, good morning.
Good morning, Julien. Good morning.
Hey, if we can, can I come back to this insurance question just real quickly, a couple of nuance there. So I know we're early on and it's a little bit difficult to talk about, but how do you think about the mitigating the impact from an earnings perspective of the higher insurance premiums? Just you talked about bringing down the total volume. I mean, I know you're not providing guidance, how do you think about that sort of in the back half of the year as these new policies take effect over the next quarter or so? And could we see efforts for recovery?
And I'll leave it there.
There's a couple of ways. Yes, there's a couple of ways we're trying to manage the costs. As we thought about our financial plan for 2018, we understood that pricing for insurance was going to go up. And it was one of the reasons why we're continuing our focus to keep our service affordable for our customers, driving efficiencies throughout our business. And so it was one of the headwinds that helped shape our efficiency targets for the year, which are essentially probably on an order of magnitude basis similar to what we announced last year.
The other thing that I'll mention is we do have the opportunity to see cost recovery. Currently, we have filed in our WEMA application the ability to recover excessive insurance premiums. That application is pending before the commission. And finally, the other tool that we have available if WEMA application is denied is a Z factor filing, which essentially allows us to recover costs that could not be contemplated in our original forecast that were included in our rate cases. So we have a couple of tools available to try to mitigate sort of the ongoing risk of an earnings drag from these higher insurance costs.
Got it. But just from a timing perspective, given the WEMA application out there, so how do you think we should be thinking through even a transient impact here?
So I think as it relates to 2018, in my prepared remarks, I mentioned that our financial plan for the year on an earnings from operations basis, not a per share basis, but on an earnings from operations basis, it's our plan to earn our CPUC authorized return on equity. So we are contemplating higher insurance costs for the latter part of the year. The challenge that we're confronted with is the longer term impact of these elevated insurance costs, probably more in 2019, 2020 beyond.
Got it. But the implementation
of the WEMA filing and the timeline there just to kind of reconcile with that 2019 impact?
In terms of the WEMA application, it's been filed. We are just essentially awaiting a proposed decision in that case. I don't think we have a timeline for that proposed decision, but we're currently awaiting that PD so that we have better clarity as to that potential recovery path.
Got it. Excellent. And then if I could cut back, I know we're talking about several different cases, but if you could perhaps provide us a little bit of a roadmap of upcoming data points. I know you've attempted to do so a little bit in the slide deck here, but what subsequent court cases should we be paying attention to that could really be the sort of these critical addressing these critical milestones sort of from a more chronological here rather than talking about the individual case merits?
I think the next Julian, it's John, the next milestone would be and we're prepared and ready to file our appeal of the Butte decision that came out last week relatively soon. So that's the next milestone. And once we do that, then we're asking for the Court of Appeals in the 3rd District here in California to take that appeal. There's not an exact rule on when they will decide whether or not to take that appeal. But I think it's fair to say that's usually within a couple of months, maybe a little bit shorter.
If they take the appeal then the appeal process on that motion goes forward. Separately in the 2017 wildfire cases, we have a motion Gesho alluded to that's pending to dismiss inverse condemnation from all those cases. The hearing for that case is in mid May. I think it may be May 18th. And so that would be the next milestone.
Then I think one might look to the litigation involving Edison and motions they may be filing along the same lines. I don't know the timelines with respect to them though. Thank you very much.
Thank you. Our next question comes from the line of Christopher Turnure of JPMorgan. Please proceed.
Good afternoon. Could you guys just give a little bit more detail on that last response there as it pertains to the 2017 wildfire case and the hearing on, I guess, May 18. How does the case itself proceed when either you or the plaintiffs end up appealing the initial decision there?
It's John, Christopher. The case you should presume the case will go forward if an appeal on an inverse motion is filed. I think it's a fair assumption that an appeal would be filed either by whichever party is disappointed on that ruling. Normally the case would go forward. Again, I think that's a fair assumption.
It is possible for either party to try to stay a case while an appeal is moving forward, but that all I'm doing there is telling you there's a rule that allows for it. It would be and I wouldn't speculate on whether either party would seek a stay.
Got you. Okay. So in the absence of that basically 2 parallel processes to watch obviously the focus being on the higher court proceeding? Yes. It's a good way to look at it.
Okay. And then I also wanted to ask about your catastrophic memorandum account that you filed, I guess, around the same time as your tax reform proposal with the PUC. Can you give us some color on your decision to use this account to get recovery of past and future spending versus maybe any opportunity you would have had to displace CapEx in your current rate plans and kind of get recovery in that manner? Is it that you're kind of putting a spotlight on these costs and the total amount? Is it that you get a return on the balance while it's being looked at by the commission over other factors?
Thanks for the question, Chris. This is Jason. Essentially the catastrophic event memorandum account we often refer to as CEMA is the procedural mechanism to recover costs for declared events. So it really wasn't an analysis of alternative recovery paths or reprioritizing spend in our general rate cases. What it was is essentially an ability for us to recover the cost to restore service and repair our system after declared events.
The one nuance to this CEMA application that we recently filed is that we also included a forecast of the elevated vegetation management work that we've been executing on our system just given sort of the size of those investments and the delay in recovery periods from previous CEMA events. So essentially an average sort of CEMA application generally takes about 3 years between the time we actually spend the money on our system before we actually start to collect the money in rates. And as we are significantly increasing the amount of work related to vegetation management, we felt that delay in recovery. It was not in the best interest of our customers, which is why we've included a forecast of the vegetation drought related vegetation management work in this most recent FEMA application.
Okay. And to clarify there, you felt like you did not have an alternative to this, like there was no other option that you could use. This was the appropriate account and you use it? And then separately, do you get a return on that balance before decision?
On the first question in terms of the appropriateness, this is the account that the commission directs recovery for these types of costs. So there was really no analysis or decision. We're using the essentially the procedural vehicle that's available to us for recovery of these types of costs. In terms of our ability to recover the balance before it's before we receive a decision, Our balancing accounts do have a short term financing rate component, essentially the that we're allowed to recover and as well the capital that we've invested in our system to restore and repair service also earns a rate of return during the period, which the application is being heard.
Got it. Thanks for the detail, Jason.
Thank you. Our next question comes from the line of Paul Fremont of Mizuho Financial Group. Please proceed.
Thanks. I guess, first question relates to the timing of the release of the Cal Fire report. I mean as you indicated earlier, it sounded as if the Cal Fire was thinking of releasing within several months. If in fact, Picker is right and it ends up coming out in the summer, that would seem to represent a delay. Is there a sense that they want to issue the NorCal and the Southern California fire reports at the same time?
Paul, hi. This is Geisha. No, we haven't heard that. We, as a matter of fact, have heard that as they finish up their investigations and have the reports ready to go, what we had heard back in January was that there was not going to be a delay in grouping sort of a strategy there. So, we have not heard anything different since January.
So our expectation would be that when they're ready, as they're ready, they would be issued.
Great. And then to date, I mean, aside from the very general comment that the Governor made earlier in the year, has the Governor's office may come out specifically on the issue of strict liability or inverse condemnation?
Just in terms of their statement that utility liability needed to be reviewed updated actually I think is the word that their statement had. And relative to the fact that we're seeing more frequent and more severe issues impacting the state, That's the one public statement that I've seen from the Governor's office.
And I guess the last question that I have is sort of a legal question on the judge's decision in the Butte case. He seemed to indicate that recovery was in his view not a central tenant of inverse based on a footnote, I guess, in one of the prior legal decisions issued by the appellate court. Any thoughts on sort of that interpretation of recoverability?
Paul, it's John. The judge was referring to a footnote in the PacBell case that wasn't part of the PacBell holding and was really a statement that was trying to distinguish munis from IOUs. But honestly that PacBell case came out way before the CPUC's recent decision on San Diego's WEMA case where both the commission and in the concurrences there was strong language that inverse needs to be reformed. So I can't speak to why the judge included the reference to that footnote, but we think everything's changed and that footnote really no longer applies on a going forward basis.
Great. Thank you.
Thank you for that question, Paul. This is Chris. I'll go ahead and close this out. I just want to thank everyone again for joining us this morning on the call and for the questions and have a safe day. Thank you.
Thank you. This now concludes the conference. Enjoy the rest of your