Morning, and welcome to the PG and E Q3 2017 Earnings Conference Call. All lines will be muted during the presentation portions of the call At this time, I would like to introduce your host, Chris Foster. Thank you, and enjoy your conference. You may proceed, Mr. Foster.
Thank you, Jackie, and thanks to those of you on the phone for joining us this morning. Before I turn it over to Geisha Williams, I want to remind you that our discussion today will include 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 in the second page of today's Q3 earnings call presentation. We'd also encourage you to view our review our quarterly report on Form 10 Q that will be filed today later today at the SEC and the discussion of risk factors that appears there and in the 2016 Annual Report. With that, I'll hand it over to Geisha.
Thank you, Chris, and good morning, everyone. Given the recent wildfires impacting our customers and communities, our discussion today will be different from our usual earnings calls. This morning, I will update you on what we currently know about the fires and I'll describe our restoration activities. I will address the efforts to identify the causes of the fires and provide an overview of the process from here. I'll also talk about how we're working to protect the safety of our customers and communities as we see this trend toward more extreme weather events continuing to increase.
Jason will walk you through the financials of the quarter, and then I'll provide a few closing remarks and then we'll take your questions. I want to start by sharing what we know about the extraordinary nature of the fires that swept across Northern California a few weeks ago. On October 8 9, PG and E service area experienced a wind event without precedent, with some recorded wind gust exceeding 75 miles per hour. Numerous meteorologists have addressed the extraordinary nature of the weather conditions, with one commenting that it produced extreme winds beyond contemporary experience. These destructive winds impacted an area with trees weakened by years of drought and other environmental factors.
Additionally, heavy rain and snowstorms last winter brought renewed vegetation growth. But with the heat waves of the summer and fall, this vegetation dried out again, creating an abundant source of fuel. Several wildfires struck at night and spread quickly, and they burned for days. Before the fires were fully contained, I met with community leaders and our team members in Napa and Santa Rosa, 2 of the hardest hit areas, and I had an opportunity to see the damage. What I can tell you is during my 2 decades in Florida, I worked through many major hurricanes and I've seen first the destruction that hurricane force winds can bring to a community, but this was like nothing I've ever seen.
The fast moving fires brought expansive devastation and left little standing in their paths. Many communities and families experienced catastrophic losses. Numerous lives were lost and several 1,000 people lost homes and businesses. The people impacted are our neighbors, our friends and family, our own employees and of course our customers. And I want to extend our deepest sympathies to all of them.
I also want to acknowledge the thousands of firefighters involved in the response and recovery efforts. I thank them and other first responders, including our own, for their heroic efforts. From the earliest hours, we maintained a singular focus on the life safety and well-being of our customers and communities. Our public safety actions included proactively turning off gas in some areas to support the efforts of first responders and keep our communities safe. In terms of outages, about 42,000 gas customers and about 360,000 electric customers were impacted by the wildfires.
We assembled a restoration team 4,300 strong, made up of our own employees, contractors and mutual aid utility workers. They worked around the clock for weeks to get our customers safely back online following, of course, Cal Fire's lead after they established containment boundaries. As part of our restoration efforts, we provided backup fuel and generation support to critical services like hospitals and local water agencies until they could be permanently restored. And our customer service teams, they staff evacuation shelters and local assistance centers to provide support to our customers in both English and Spanish. This was the largest restoration team we've put together since the Loma Prieta earthquake in 1989 and they did an outstanding job.
Now I know there's a lot of interest in how these fires started and in how PG and E assets might have been involved in or impacted by the wildfires. Our communities deserve answers and we are committed to learning what happened. It's critical that we identify anything that will help us to keep our customers and communities safe in the future. That is our goal as we work with Cal Fire and the CPUC. Both agencies are conducting investigations of the wildfires, and we will continue to cooperate with them as that work moves forward.
As has been reported in the press, we have received a number of lawsuits and are, of course, conducting our own extensive fact finding in this important matter as we prepare to respond. As we've previously reported, when we gained access to some affected areas, we found instances of wires down, vegetation near our facilities and some broken poles. In those instances where Cal Fire investigators or PG and E identified a site potentially involving our facilities, we submitted incident reports to the CPUC. These electric incident reports are factual in nature and do not reflect a finding of cause. To date, we submitted 20 reports.
As part of our commitment to transparency, we have posted the submitted incident reports on our website following the CPUC's decision to do the same. We expect that once CalFire completes its investigation on the causes of the fires, it will release its findings through 1 or more reports. Now given the complexity and size of the fires, we don't know when Cal Fire may issue its findings. In the meantime, we will continue to cooperate with investigators and regulators, while keeping our team focused on providing safe, reliable energy to our customers and communities. Many of you have reached out with questions about the potential impact of the wildfires to the company's financials and also about the doctrine of inverse condemnation in California.
At this time, the known financial impact of the wildfires is limited to the cost of the unprecedented response and restoration effort, costs related to our liability insurance and some legal expenses, and Jason will cover these later this morning. As a reminder, California is an outlier when it comes to potential liability. California is one of the only states in the country where the courts have applied inverse condemnation liability to events caused by utility equipment. This means that if a utility's equipment is found to have been a substantial cause of the damage in an event like a wildfire, even if the utility has followed all the rules and in essence has not done anything wrong, the utility may be liable for property damages and attorney's fees associated with that event. We don't believe that inverse condemnation is an appropriate doctor, nor do we think it is appropriately applied to regulated utilities.
We would challenge its application if that were to be the case in these events. However, if it is applied, then the CPUC should take action that is consistent with the purpose of the doctrine. That said, I want to be clear. This was an extraordinary confluence of events and right now it's simply too early to make an assumption about liability. What we can say with certainty is that PG and E is going to be crucial to the rebuilding and recovery in the communities affected, and we are committed to supporting that process.
We've pledged more than $3,000,000 to help support the community's recovery efforts, and we are matching our employees' charitable contributions for wildfire relief. Employees from across the company have stepped up to volunteer their time to support the affected communities and we'll be doing much more in the weeks and the months ahead. I know there's a lot of interest in our pole maintenance and vegetation management program, so let me address these as well. 1st, we routinely inspect, maintain and replace our electric poles. This includes annual scheduled patrols, 5 year visual inspections and intrusive testing and treating on our wood poles on a frequency that significantly exceeds CPUC requirements.
We also have one of, if not the most comprehensive vegetation management programs in the country. Our vegetation management program manages about 123,000,000 trees across the service territory and every year we inspect every segment of the 99,000 miles of overhead line and we clear vegetation as needed. This is well beyond what is typical in our industry where most utilities have a 3 year vegetation management cycle or sometimes longer. Typically, we spend about $200,000,000 every year to line clear or remove 1,300,000 trees to mitigate both the risk of wildfires and to prevent electric outages. With the drought and the tree mortality crisis we've experienced in California, we have been expanding our vegetation management work since 2014.
In 2016, we spent an additional $200,000,000 essentially doubling our typical vegetation management spending last year. We removed an incremental 236,000 dead or dying trees, and we enhanced our tree maintenance work with additional patrols in areas of high fire danger, including a combination of boots on the ground, aerial patrols and sophisticated LiDAR technology. Before I transition to Jason, let me say, we know that this is a very difficult time for our customers and the communities impacted by these terrible wildfires. We're committed to their safety and well-being, and we're going to stand by them as they rebuild and recover. With that, I'll turn it over to Jason to take you through the financials.
Thank you, Geisha, and good morning, everyone. We appreciate the concerns many of you have expressed following the wildfires. And I want to reiterate our commitment to transparency as we gather additional information about the financial impact of these events. This morning, I'll cover our Q3 results and then provide a couple of updates to our guidance for 2017. I will also briefly touch on some known items for 2018 2019.
Slide 5 shows our results for the Q3. Earnings from operations came in at $1.12 per share. GAAP earnings, including the items impacting comparability, are also shown here. Pipeline related expenses were $20,000,000 pretax. Our legal and regulatory related expenses came in at $2,000,000 pretax.
Fines and penalties were $11,000,000 reflecting the incremental financial remedies in the proposed decision for the ex parte order instituting investigation, and that amount is not tax deductible. For the Butte fire, we had a few changes this quarter. We recorded 3rd party claims and legal costs of $368,000,000 pretax. This was partially offset by accrued insurance recoveries of $297,000,000 pretax. This total also includes $21,000,000 recovered through one of our contractors' insurers.
We have now recorded insurance recoveries up to the limit of our policy of 922,000,000 dollars The net impact of these items is $71,000,000 pretax. Finally, as we mentioned last quarter, in July, the quarter approved the shareholder derivative settlement. The pretax $65,000,000 shown here reflects the $90,000,000 in insurance proceeds, less $25,000,000 paid in plaintiff's legal fees. Moving on to Slide 6, which shows the quarter over quarter comparison from earnings from operations of $0.94 in Q3 last year and $1.12 in Q3 this year. We were $0.08 favorable due to the timing of taxes.
The full amount of this line item affecting our results year to date will reverse in the 4th quarter. We were another $0.06 favorable due to the timing of operational spend during the year. We took the opportunity to bundle some of our work to execute more efficiently, which created some delays. We expect this to fully reverse in the 4th quarter. Rate based earnings were 0 point 0 $5 You can expect to see rate based earnings of about $0.05 next quarter as well for a total of $0.20 for the full year.
We were $0.04 favorable due to the timing of the 2015 GT and S rate case decision, which we received in August of last year. The year to date favorable variance of roughly $0.33 will fully reverse in the 4th quarter. A number of small miscellaneous items totaled $0.07 positive. As we mentioned previously, our GRC revenues were adjusted in 2017, resulting in a loss of the incremental tax repair benefits of roughly 0 point 2 5 dollars annually, including $0.10 this quarter. Lastly, we had $0.02 negative for the issuance of shares.
Transitioning now to Slide 7. Today, we are reaffirming our guidance from earnings from operations of $3.55 to $3.75 per share. On Slide 8, we've laid out our underlying assumptions for that guidance. Let me be clear that the guidance outlined here and all of my remarks today assume no material financial impact from the wildfires beyond the restoration costs, insurance reinstatement and legal expenses that will impact the 2017 results. Our current forecast estimate for costs related to restoration and repairs following the recent fires ranges from $160,000,000 to $200,000,000 This includes an estimated $60,000,000 to $80,000,000 in capital.
We expect to seek recovery for our restoration activities for this extraordinary event through our existing catastrophic event memorandum account process at the CPUC. I'll reiterate that it remains our objective to our CPUC authorized return on equity across the enterprise this year as well as in 2018 2019. In terms of additional guidance for 2018 and beyond, we intend to provide an update with our 2017 results on the Q4 call. Among other considerations, our forward looking guidance will integrate the 2019 GT and S rate case, which we will file at the end of this year as required by the CPUC. The 2015 GTS rate case included multiyear plans for improving the safety of our gas system, including programs to replace segments of our pipelines and to redesign other segments to facilitate in line inspections.
The 2019 rate case application will include the continuation of those plans as well as work to comply with new regulations established to help prevent methane leaks from gas storage facilities. Turning to Slide 9, there are a few changes to our items impacting comparability in 2017. We've removed the range for pipeline related expenses for the year. We estimate we'll incur about $90,000,000 pretax to remove vegetation and structures from our pipeline rights of way. As we near the completion of our pipeline rights of way program, we are working through some particularly complex segments.
The environmental permitting requirement of these geographically dispersed projects require additional planning, which will shift more of the cost into 2018. You can expect us to spend between $35,000,000 $60,000,000 on this item next year. We expect the total cost of this multiyear program to come in between $450,000,000 $475,000,000 which reflects a narrowed range. The line items for both legal and regulatory related expenses and for fines and penalties reflect costs incurred through the Q3. View fire related costs, net of insurance, reflects amounts recorded through the Q3 for third party claims and legal costs, net of accrued insurance recoveries.
We increased our accrual for 3rd party claims by $350,000,000 which means we now believe our liability could be at least $1,100,000,000 This change reflects a number of additional claims that were filed during the quarter before a statute of limitations expired as well as our experience with resolving cases to date. We plan to seek recovery of all insured losses up to the $922,000,000 limit of our liability insurance, and we have now recorded that full amount for probable insurance recoveries as of Q3. To the extent our ultimate liability for Butte Fire claims exceeds the amounts recoverable through our insurance or through our contractors' insurance, we would expect to seek CPUC authorization to recover excess amounts from our customers consistent with the state's policy of inverse condemnation. And an additional note on insurance. Following the recent Northern California wildfires, we reinstated our insurance policy for any potential future events.
That will result in a 4th quarter charge related to the write off of the remaining unamortized costs of the original policy. Including both the insurance cost and legal expenses, we expect wildfire related cost of roughly $100,000,000 in 2017. And finally, the shareholder derivative line reflects the net benefit I discussed in the quarterly results. Moving now to Slide 10. We are reaffirming our equity guidance for the year at $400,000,000 to $500,000,000 And we continue to believe that we'll be able to meet our equity needs in 18 2019 largely through our internal programs.
Again, that assumes no material impact from the wildfires. On Slide 11, you can see we've reduced our CapEx for 2017 to $5,700,000,000 from $5,900,000,000 we previously provided. We've also increased our planned CapEx in 2018 from $6,100,000,000 to $6,300,000,000 This is because we continue to see a shift of some of our capital work into next year, mostly in gas transmission and distribution, where we have continued to look for opportunities to bundle some of that work to execute it more efficiently. In 2019 and beyond, we'll incorporate capital spend for our gas transmission and storage rate case. While final numbers will be included in our application, we expect the average CapEx impact to be on the order of roughly $900,000,000 to $1,000,000,000 per year.
On Slide 12, our 2018 rate base is lower as we've removed roughly $400,000,000 associated with capital expenditures we incurred above the authorized amounts in the 2011 through 2014 GT and S rate case period. Those expenditures are subject to audit. We've moved that rate base into 2019 because the CPUC's audit of that spending is still underway. However, we continue to pursue recovery of these expenditures. We are reaffirming our commitment to the dividend and our plan to reach a dividend payout ratio of approximately 60% by 2019.
Again, that assumes no material impact from the wildfires. And now I'll turn it back over to Geshir for some final remarks.
Thank you, Jason. I know we've gone through a lot of information this morning. And before we go to questions, I want to briefly emphasize a few important points. I want to say again, regardless of the cause of the fire, we at PG and E are committed to supporting our customers and the communities we serve as they rebuild and recover. We've recognized it is a privilege to serve them and we will be here for them for the long haul.
On the topic of liability, as we've said, it's premature to discuss any potential liability for the recent wildfires given that there has been no determination of the causes of any of the fires. However, it's clear that liability is a matter of important public policy and California's inverse condemnation policy makes it an outlier on this issue. That represents a risk for the state and for all Californians as well as for the state's energy providers at a time when the state is increasing its investment in a bold clean energy future. We need constructive solutions, and we're prepared to engage in that discussion with policymakers at the appropriate time. Now as we look ahead, we continue to focus discussed on our recent calls.
1st, operational excellence with safety as our top priority. On that note, I'm very pleased that the Institute of Nuclear Power Operators has validated our progress and praised our safety and operational performance at Diablo Canyon. 2nd, delivering a positive customer experience to ensure that we are the provider of choice for our customers. Despite a record setting year of emergencies and severe weather, our customer satisfaction results show continued progress. And finally, positioning the company for long term success.
We continue to see a future defined by a much more complex grid that enables the reduction of greenhouse gas emissions consistent with the state's energy goals and is more resilient to extreme weather conditions. And PG and E is going to continue to play a vital role. To that end, over the last several years, 5 years, we've invested roughly $15,000,000,000 in our grid to develop a more flexible and resilient energy network. And our investments of around $6,000,000,000 in our electric grid over the next 2 years will continue to make that future a reality. And you have our commitment that we will remain focused on the fundamentals of our business as we go forward.
With that, let's go to your questions.
Our first question comes from the line of Steve Jonathan Arnold with Deutsche Bank. Please proceed.
Good morning, guys.
Morning.
Good morning, Jonathan.
Thank you for all the commentary and update on the fire situation. I realize it's difficult to say, and I think very definitive. I think you added a lot of color. Just on the I want to make sure I understand on the Butte fire. Did you say the statute of limitations has now expired?
So this new estimate of a total claims of $1,100,000,000 is basically that you're not going to see new claims from here. The question is whether that's a good estimate.
Jonathan, thanks for the question. We saw a key statute of limitations expire this quarter that was for personal injury claims. However, the statute of limitations for property extends for another year.
Okay. So given that you had the finding of inverse condemnation in that fire back in June, it's reasonable to expect you'd have other property claims come in over the next year, but you've made an estimate of what those might be in your number, I would guess.
Yes, I can't speculate as to what others may do, but we try to make an estimate here with our adjustments to the accrual to reflect what we believe would be the cost associated with this virus.
Okay. And then just there's obviously been a lot of attention on this case relating to one of your peer utilities around InVerse. And when we sort of dig into some of that discussion, it seems that the other side is arguing that because there was never a court finding of Inves, they assumed that it would apply, but it wasn't actually applied that, that somehow changes the circumstances. Can you guys comment at all on that? Or what's your view on that sort of disagreement, if you like?
Yes, Jonathan, this is Gesha. We don't believe negligence is applicable as it relates to inverse condemnation and negligence is something that ultimately is going to be decided by a jury. It's complicated. It's not a bright line. And so when we think about inverse condemnation in the State of California, we believe that strict liability without the commensurate cost recovery would not be consistent with the underlying theory of inverse condemnation.
Okay, Understood. And then I had a related question actually on just the safety OII, which is still sitting out there. And obviously, you talked a bit about safety today. How are you how much of that have you already implemented, or the proposals from the consultant? And how are you approaching what to implement or not to implement given that the commission hasn't yet decided how much of it it wants you to adopt?
So this is Nick Stavropoulos. Regarding the safety OII, right from the first time we received the report from the CPUC's consultant, we embraced the 68 recommendations that they laid out. And we've been working with the CPU staff CPUC staff and their consultants to better understand some of those recommendations. We expect to have a significant percentage of those actually complete by the end of this year. We will have almost all of the recommendations either complete or well underway by midpoint of next year.
There are 5 specific recommendations that were provided by the consultants that we really need feedback from the commission on. And so we look forward to that. But those recommendations are built into our safety plan, our company wide One PG and E safety plan, and we are actively implementing those recommendations.
Okay. Thank you. And just on one other issue, what would be the trigger for taking a charge on the Northern California wildfires? Would we are we waiting for the CAL FIRE report essentially before that would happen beyond the $100,000,000 which if I heard you right is sort of restoration plus re upping insurance cost?
Yes, Jonathan, this is Jason. I think it's way too early to discuss potential liability, if any, stemming from these fires. Obviously, we've got to let Cal Fire conclude its investigation. That will be an important part of sort of our consideration for when and if to record liability, but I wouldn't say that that is the sole determinant.
Okay. Could it be before then in some circumstances?
Really, I can't speculate at this time as to any potential timing for liability recognition. Investigations have really just begun. And so we're really just focused on cooperating with Cal Fire as they investigate the sources of these fires.
Okay, great. Thanks for all the color.
You're welcome. Thank you, Mr. Arnold. Our next question comes from the line of Stephen Byrd with Morgan Stanley. Please proceed.
Hi, good morning.
Good morning. Good morning.
I wanted to just I know inverse condemnation is very popular topic. I just wanted to make sure that I understand it, your perspective is that if inverse condemnation did apply to utilities, then utilities should be able to recover those costs. And if I may have gotten that position wrong, but regarding your position, what is the path to be taken to attempt to clarify how, if at all, inverse combination should apply to utilities? Is that through the CPUC? Is that through a court process?
Or is that too early to say?
Well, Stephen, this is Keshia. Let me go ahead and get started. So we don't believe that inverse condemnation is an appropriate doctrine, and we certainly don't believe that it is appropriately applied to investor owned utilities. Whether and how inverse condemnation is decided to be applied is really up to, I believe, the courts. We would challenge its application if in fact, it were to be determined that our facilities were among the causes of these fires.
We would challenge it to the extent that and again, if we were to not be successful in having inverse condemnation not be applied, then we would expect that the CPUC would take action that's consistent really with the underlying purpose of the doctrine, which is of course that our costs over and above insurance coverage should be shared by all customers.
That makes sense. Understood. And then I guess just looking forward at a high level, there have been a number of statements within the state around looking more broadly to address the impacts from climate change and obviously wildfires are one element of that. Is there a potential here for a broader process within the state, really a forward looking process where you reassess what is the fire risk, what are the other risks for climate change and how do we as an industry better address that proactively and sort of refine standards, beef up risk mitigation measures, whatever it might be? Is there sort of possibility for something more forward looking to come out of these wildfires?
Well, I appreciate that question. As I think, Anish, as I look at this, in my mind, there's no question that we're seeing the impacts of climate change. And you're seeing what's happening in the Caribbean with these horrible hurricanes in Florida, in Texas with the incredible flooding and now here with this truly extraordinary event that we experienced in Northern California. So as we take a step back and do everything we can to combat climate change, we also need to be taking actions to look at how do we make our infrastructure, how do we make society overall as resilient to the effects of climate change as possible. And we think clearly there's a role for the state to play in that and we would welcome an opportunity to participate in a broader, more comprehensive discussion about the actions that all of us, all of us need to take to be able to better withstand the ravages of climate change.
Understood. And Kaesha, is your sense that there is a willingness within the state to try to engage in that broader dialogue?
Well, when I think about California and our leadership position on all things climate change, I think it's a natural progression. I certainly don't want to speak for anyone in the government, but I welcome the opportunity to be at the table and have an ability to talk about it from our point of view. Again, we've been such a leader for years, for decades really and looking at what we can do to really improve the quality of life for our communities, reduce the impact of climate change that I think again it's only it's really a natural progression to start looking at adaptation as well as resilient strategies.
And building on that, Keshia, this is Nick. That we've actually already begun the process of working with different elements of the communities. We've awarded several grants to help communities begin to understand the impacts of climate change and what we can do from a resiliency standpoint and also internally for planning the long term future of our electric and gas networks, we've begun to really take a hard look at the long term impacts of things like higher winds, higher sea levels, more extensive rains so that we can build more resiliency into our asset structure.
That's very helpful color. Just one last point on just tax deductibility of fire expenses and damages, whatever those might be. I wondered if we could just get a quick refresher on how to think about the tax deductibility of costs that ultimately are borne by shareholders. How should we think about the ability to secure tax deductibility for those costs?
Yes, Stephen, this is Jason. We'd expect to be able to deduct 3rd party claims if we were to be found liable for those. So those would be deductible for tax purposes. The only thing that in our view that would not be tax deductible would be fines or penalties coming out of any investigation.
Great. That's all I had. Thank you very much.
Thank you. Thank you, Mr. Burt. Our next question comes from the line of Steve Fleishman with Wolfe Research. Please proceed.
Yes. Hi, good morning. Thanks.
Good morning.
Hey, Gaetha, Jason. So just I don't know if you guys got to see the turn letter from yesterday, but just at a high level, your point on inverse condemnation and spreading the cost seems to make sense. On the other hand, there's the kind of traditional prudency and all those things at the commission. Just so how do you kind of tie those 2 together and argue against customers having to pay for the cost of this?
Steve, hi, it's John Simon. I'm the General Counsel here. Inverse is, as Geshu mentioned, a strict liability concept. Negligence is a completely different construct. And inverse really excludes the consideration of negligence.
In other words, the premise of inverse is that the utility pays the property damages and attorney's fees without any showing that it's at fault and in turn the utility spreads the cost across all the customers and recovers those costs through rates. So as I understand the turn argument is sort of apples and oranges to where we are with inverse. So we see it differently.
Okay. And just tying into that, this seems to be getting back and forth addressed through ex parte or letters in the San Diego wildfire case. Do you get any sense that this could move into a kind of a broader venue of because it's such a big precedent setting decision making here. Is there any sense of maybe this instead of just deciding there gets brought in out into a different type of proceeding?
That's a good question, Steve. I mean, clearly, this issue of liability is such a public policy. It's a significant California issue. And there's no question that the decision in the San Diego Gas and Electric case will be very telling. And so not sure what the CPUC is thinking about at this point.
We do know that they've delayed taking action on it. I think that they're trying to be thoughtful and deliberate in understanding the ramifications of whatever decision that they ultimately end up making. But this issue of liability again in California, a state that has a history of extreme weather, extreme wildfires for that case, is one that has to be dealt affirmatively in the future. So we welcome an opportunity to be able to discuss it and again talk about constructive solutions that will be in the benefit of both the state and as many customers and citizens.
Okay. And then one just technical question, Jason, on the GT and S 2019 case, you mentioned $900,000,000 to $1,000,000,000 of capital spend. Is that can you just clarify, is that incremental to what is right now, you're using flat in 2019 as your base case. So is the $900,000,000 to $1,000,000,000 kind of incremental to that flat?
No. It essentially reflects our guidance reflects $900,000,000 that we're spending this year. So for context purposes for 2019, we're providing a range of $900,000,000 to $1,000,000,000 which is on one end flat with our consistent spending. On the upper end, it could be as much as $100,000,000 increase from where we are today.
Okay. So it's kind of it kind of suggests that that kind of level of spending will continue most likely through assuming it's approved through this next plant?
That's correct, yes.
Yes. Okay. Okay, thank you.
Thank you, Mr. Meister. Our next question comes from the line of Praful Mehta with Citigroup. Please proceed.
Thanks so much. Hey, guys. Hey. Good morning. Hi, morning.
So sorry to beat a dead horse, but I just want to on the inverse condemnation point, just want to clarify, if you win your argument, right, so either you are either not found to pay even though the cause for cause or you're allowed to recover it from customers, either way it effectively you're not liable from a shareholder perspective at least there's no cost that the shareholder is bearing for this except in the case of gross negligence. If gross negligence is found, then there are penalties, which obviously will flow to the shareholder. Is that a fair way of thinking about it?
Cal Fire is doing their investigation. It's early as Geisha mentioned. I don't think it's productive for us to speculate on some of the theories in your question. So I think it's just too soon to talk about sort of these concepts right now.
So just I guess I'll keep it more broad then and you touch on how you feel comfortable. But what I'm trying to understand is if you win the argument on inverse condemnation, in what scenario do you see the shareholder actually bearing any costs related with the fire?
Yes.
Well, first of all, I mean, I think you've jumped ahead and assumed that we have liability. So that's why we're uncomfortable talking about really what's in essence a hypothetical situation here. Inverse condemnation is very clear about its strict liability, but also providing the commensurate cost recovery from all the customers that have benefited, if you will, from the services. So, it's a question for the juries at the end of the day to determine what the customer what the company would be liable for versus shareholders or anyone else for that matter. But it is so very, very early in this whole process to be able to provide you any kind of confidence one way or the other.
Got you. Fair enough. I totally understand. Is there at this point any internal studies being done to figure out what the maintenance at the levels that you are expected to do? Any results of that internal review separate obviously from all the reviews that Cal Fire and others may be doing?
Well, as I mentioned in my opening remarks, we are doing extensive fact finding given the lawsuits that have been presented before us. And so we are gathering data.
Fair enough. Okay. And moving on to the tax reform and I know that this is clearly different from everything else that's going on, but tax reform obviously is coming or at least attempting to come in. Any color on how you think that impacts you guys? Any changes in terms of what that would mean for your plan going forward?
I mean, we're generally well positioned when you look at all the various considerations in the tax reform. So we find that we're in a good place overall. But I mean, Jason, anything you want to add to that? Yes.
I mean, obviously, it's still we're still very early in this process. But as we disclosed sort of on the Q4 earnings call earlier this year, we think we're, as Stacia mentioned, very well positioned. I know the recent discussions have included sort of a phase down of the corporate tax rate. We see that as beneficial to our customers in terms of refunding through the excess amount of taxes that we've collected in the past. And so for us that would allow us to create sort of build capacity for incremental capital expenditures in our system, which we think would continue to improve the safety and reliability of our gas and electric systems.
Thanks. And that refund that you mentioned, Jason, that you still expect to go over a long period of time as a credit to customer bills effectively?
Absolutely. The details are going to matter on this one, but I think it's a reasonable assumption to assume that that would refund back to customers over essentially the book life of the assets.
Got you. Great. Thanks so much guys.
Thank you, Mr. Mehta. Our next question comes from the line of Greg Gordon with Evercore. Please proceed.
Thanks. Can we just go back to what you said about the Butte fire costs? You said the estimate of the total potential liability is now in excess of your insurance policy. My understanding from prior conversations with you is that, however, that you also had access potentially to the insurance coverage of your vendors. You talked about having gotten some of that.
So are these costs above the limits of your policy potentially shareholder exposures? Or are you still confident that you have other avenues of recovery through still working with insurance the insurance agencies of your vendors and other venues that you'll be able to fully recover these costs?
So sort of factually, we've recorded insurance receivables up to the full policy limit of our insurance of 922,000,000 dollars We've collected a little bit more than $50,000,000 to date from our contractors' insurers. So the $1,100,000,000
accrual for
3rd party claims exceeds that amount. Consistent with the conversation that we've been having on the doctrine of inverse condemnation, we would expect to seek recovery for those costs from customers and have filed to do so.
Okay. But is there also a potential for a reduction in that amount from further recoveries from other insurance companies or no?
We will continue to seek recovery of incremental cost from our 3rd party insurance. But I'm not in a position to provide details on either one, their insurance levels or 2, sort of the nature of those negotiations.
Okay. Thank you.
Thank you, Mr. Gordon. Our next question comes from the line of Christopher Turnure with JPMorgan. Please proceed.
Good morning, guys. I just want to follow-up on the last question on contractor insurance and maybe apply it to the current wildfire situation? Do you also not have information there on size? Do you the, I guess, contractors or other utility companies have an allowance to charge their customers for the insurance premiums? And how can we get a sense of any kind of coverage there, if at all?
I think I understand your question. I'll try to answer it as I interpret it. We have recovery for our liability insurance costs through our general rate case process. There isn't a separate direct recovery for contractors insurance. Generally, our contractors procure insurance sort of an ordinary course of business.
We do not have, as I mentioned, direct subsidization of those costs. And just as for the View Fire, we're not in a position to talk about the level of insurance those contractors maintain.
Okay, fair enough. And then going back to one of the earlier questions or several of the earlier questions, I wanted to just make sure that we were on the same page with your legal strategy. Let's say that, in, I guess, next week's decision on the SDG and E fire, let's say that it does not go in the favor of SDG and E and the CPUC kind of makes its position known. Is there any change in specific legal strategy that you can take as you begin the 3rd party challenges for those claims for the Northern California wildfires?
Hi, this is Ghish. I just don't think it's constructive at this point to be speculating about what we might do if this happened or the other thing happened and kind of talk about legal strategies for things that haven't occurred yet. So I'd just rather not comment on that.
Okay, fair enough. Thanks, guys.
Thank you, Mr. Turner. Our next question comes from the line of Michael Lapides with Goldman Sachs. Please proceed.
Hi, Keisha. Thanks for taking my question.
Hi, Michael.
A process one and I know this is hard, but in general or historically, how long does it take for Cal Fire to A, do its investigation, but B, put out reports? And is there any precedent for where it's not just one incident, but it's multiple incidents that occur over the same time before you get that?
So we don't have a tremendous amount of experience with this at all. Our latest experience, I would say, was the Butte fire case. In that particular case, if you recall, the Butte fire actually occurred in September of 2015 and we received the Cal Fire report in April of the following year. So it took 7 months. And if you think about that fire, while it was a terrible fire and very expansive, it was one fire.
In this particular case, you have a series of fires all erupting over a several day period. And so I think the complexity of this particular investigation is much higher. So having said that, how long will it take? I don't know. When you look at the 2007 wildfires that occurred in Southern California, there were multiple fires and my understanding is that they issued multiple findings associated with those particular fires and again that took some time.
So, I think we're going to have to be patient. What I've read is the same things that you've read in the press that they are intent on being thorough, on being accurate. And I think that they need the time to be able to get to what actually happened, what Butte wildfire report put out by Cal Fire,
Butte wildfire report put out by Cal Fire and you compare that to the Cal Fire report, which the proposed decision in the San Diego Gas and Electric case kind of relied heavily on. What are the similarities and what are the biggest differences between those two reports?
Yes, I can't comment on that. I've obviously read cover to cover the Butte Fire report, but I'm not an expert on what the San Diego Gas and Electric report looks like. So I can't give you that comparison, the compare and contrast sort of answer that I think you're looking for.
Got it. Okay. Thank you, guys. One last one. How do you you've got a lot of uncertainty now about potential costs and about potential insurance recovery, although I think you've disclosed there's kind of a cap of about $800,000,000 of that.
How does that impact your broader financial planning, right? When you're thinking about your capital budget, you're thinking about your dividends, you're thinking about your financing needs. How do you plan around that knowing that for a time period, whether it's 6 months or 2 years, we don't really know, you're going to have a good bit of large dollar potential uncertainty outstanding?
Michael, this is Jason. I think it's just way too early to speculate as to the impact these fires may have, if any, on our financing plans. As I mentioned in my remarks, we reaffirmed the guidance we had issued earlier with the assumption that there was no additional material impact from the wildfires. We'll obviously update you with more comprehensive guidance for 2018 as part of the Q4 earnings call. We will take into consideration sort of developments through that period.
But right now, I think it's just way too early to speculate as to sort of any impacts on financing given the fact that cause for these fires has not yet been determined.
Got it. Thank you, guys. Much appreciated.
You bet.
Thank you, Michael. Our next question comes from the line of Julien Dumoulin Smith with Bank of America Merrill Lynch. Please proceed.
Hey, good morning.
Good morning. Good morning, Julie.
Hey, so quick follow-up on Steve's earlier question on CapEx. Just wanted to follow-up, I know there was some discussion earlier in the year around $700,000,000 related to the NTSB CapEx potentially. Where do we stand in terms of reflecting that into your expectations both currently and prospectively in the forecast?
I'm not sure I understand your question. What and TSV Capital?
Well, I suppose earlier in the year, we talked about some additional safety capital, maybe I think $300,000,000 and change was potentially the update we were talking about. Is that still a prospect here? Or is it or maybe I can ask the question a little bit more generically. Have you sort of reflected all of the additional potential spending throughout the course of the year related to safety that we kind of talked about?
Julien, this is Jason. The $900,000,000 to $1,000,000,000 that I referred to in my comments reflects the additional spending associated with the DOGGR regulations to improve or to mitigate methane leaks for gas storage facilities. So it takes into consideration our current programs to improve pipeline safety as well as the additional spending associated with reducing the risk of methane leaks on gas storage assets.
Thank you, sir. You knew what I was talking about. Separately and distinctly, just wanted to come back to just timeline here in terms of process. I don't want to talk about legal strategy per se, but just wanted to understand in terms of process here, obviously, we're going to wait to see what happens in terms of Cal Fire first and foremost, but then separately, this is a parallel process with respect to the, I suppose, establishing or not establishing a new policy on inverse combination. What happens once that decision comes out from your perspective next?
Or is it up to you? Or would you expect to be making any kind of filing with respect to inverse condemnation at that point in time? Or really your principal channel of action here is to follow the Cal Fire and then leave it to the separate and distinct process with SDG and E in the South?
Julien, I think, again, it's really premature to be thinking about actions we might take if this happened or that happened. I think we're going to have to get we have to be patient and I think we're going to have to give give Cal Fire its due time to be able to complete a thorough investigation of what happened here and then we'll go from there. I mean at this point, I think to speculate on courses of action that we might take under different scenarios, it's just not constructive.
Got it. But timeline wise, what's the expectation for each one of these if you were to put something out there?
Well, it's again depends on what happens with the Cal Fire reports, when they issue it, what the findings are. And again, way too many things to speculate on that, again, don't believe makes a whole lot of sense right now.
Totally understood. Thank you very much all.
Thank you, Mr. Smith. Our next question comes from the line of Paul Patterson with Glenrock Associates. Please proceed. Mr.
Patterson, your line is open.
I'm sorry. Just want to touch base with you on how should we think about how most of these lawsuits may be filed? Do you think that they're going to be done under inverse condemnation? Or would they go to the negligence route?
Paul, John, Simon. It's not clear. There's 9 lawsuits filed. There may be others to come. They may allege 1 or both theories.
I haven't studied the existing cases yet, so I can't comment on that. But it wouldn't surprise me if both are alleged. It's just we'll have to wait and see. Okay.
And if they I guess with respect to the insurance, does that would that would the insurance be applied equally under inverse condemnation or under the liability judgment scenario? In other words, could you allocate the insurance to the liability as opposed to the inverse condemnation? Does it work that way?
Our insurance covers claims for property under inverse combination. It could also cover claims under a negligent standard. So it it would apply to sort of any liability associating from any potential liability associating from these events.
So you could allocate the claims from liability to the insure you could take the liability and apply those claims before inverse condemnation. Does that make sense?
I think it's really way too early in the process to kind of begin to speculate how we deportion claims. So honestly, I think we just have to let CalFire conclude its investigation and work from there.
Okay. That's it. Thanks so much.
Thank you, Mr. Patterson. Our next question comes from the line of Paul Fremont with Mizuho. Please proceed.
Thank you very much. I guess my first question, the $1,100,000,000 is that an estimate of minimum, maximum or you're just or your best guess of likely damages for Butte?
That's the low end of the range, Paul.
It does reflect, Paul, the fact that we have settled now roughly a third of the cases. So we're taking into consideration our experience with these claims. However, as I mentioned, we've received a number of new claims in this Q3. So about a 50% increase in the number of claims. So there still remains some uncertainty as to the detail and the nature of those claims.
So right now, I consider it a minimum, but it is reflective of our experience to date. Okay.
And you've not identified sort of a high end of estimate?
We're unable to at this point identify a high end, particularly given the fact that so many new claims came in, in the Q3 for which we don't have any detail today.
And then, I guess the insurance coverage for View was higher than the insurance coverage that you've identified as available for the California wildfires. Can you explain why the insurance amount ended up being less for this event?
We've seen a reduction in capacity in the insurance markets here in California over the last several years. In California, there's been a number of notable full policy losses in the state of California. In addition, state California does have this unusual inverse condemnation doctrine. And as a result, what we've seen is a decrease of available insurance for liability.
Okay. And then,
I guess,
can you discuss your vegetation practices trees that are located near power lines. I guess we've seen sort of in reports that have come out for some of your peers that they sort of track vegetation that's within
certain
distances from the lines and they basically make their decisions on what to do based on sort of updates?
This is Nick
again. Thank you for the question. So as Geisha mentioned, we have a very aggressive vegetation management program across our 70,000 mile square mile territory. We manage about 123,000,000 trees that are near and adjacent to our facilities. And over the last 2 years, we've doubled the amount that we've invested in veg management.
That includes line clearing to remove parts of trees that are adjacent to our facilities as well as removal of dead and dying trees. So the program involves year round effort to identify these dead and dying trees through inspection processes where we use foot narrow patrols, we use LiDAR, which is light detecting and ranging technology to identify the trees that need to be worked. We inspect all of our overhead lines every year and we do second patrols in high fire danger areas at least twice a year. In some areas, we do it as often as 4 times a year. So it's a very aggressive program.
There are specific requirements around line clearing and it depends upon the voltage of the lines and it can range up to feet to as much as sort of 18 inches away for the facility. So there are all sorts of different requirements depending upon where the facilities are located and the voltage of the facilities.
This is Chris Foster. Nick, thank you for that. I think we're going to go ahead and wrap up the call. Again, thank you everyone for joining this morning. Jackie, thank you for facilitating the question and have a safe day.
Thank you.