Morning, and welcome to the PG and E Second Quarter Earnings Call. All lines will be muted during the presentation portions of our call with an opportunity for questions and answers at the end. At this time, I'd like to turn it over to our host, Janet Laduka. Thank you, and enjoy your
conference. You may proceed.
Great. Good morning, everyone, and thanks for joining us. Before you hear from Tony Early, Chris Johns and Kent Harvey, I'll remind you that our discussion today includes forward looking statements about our outlook for future financial results 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 slide presentation. We also encourage you to review the Form 10 Q that will be filed with the SEC later today and the discussion of risk factors that appears there and in the 2014 Annual Report.
And with that, I'll turn it over to Tony.
Well, thank you, Janet, and good morning, everyone. I'm going to start by covering the leadership changes that we announced recently and also provide some regulatory updates. Chris will talk about operational results, and Kent will cover our financials later. So a couple of weeks ago, we announced that Geisha Williams and Nicks Stagropoulos will be assuming the roles of Presidents of Electric and Gas Operations, respectively, effective August 17. First, I really do want to thank Chris for his leadership at PG and E.
Chris has been a passionate sponsor of our efforts to improve the safety culture at PG and E. And since I arrived almost 4 years ago, he has been a great partner for me in improving PG and E's operations. So thank you, Chris, for all that you've done. Ayesha Williams joined PG and E in 2007 from Florida Power and Light. And under her leadership, PG and E has dramatically improved its electric reliability while managing the increasingly complex demands on our grid.
Nick Stebropoulos joined PG and E in 2011 from National Grid. And under his leadership, PG and E has completed an unprecedented amount of work to improve the safety of our gas system and has employed new innovative technologies that are literally changing the industry. Geisha and Nick are both here with us today and they will be available to answer any questions that you've got. While we're proud of the progress we've made to date, we also know that we have more work to do. We remain focused on continuing to strengthen our safety culture, resolving the remaining San Bruno related proceedings and rebuilding trust with our stakeholders, including the CPUC.
We're also focused on planning for California's clean energy future, and we've had a number of significant developments on that front since our last call that I'd like to touch on now. Earlier this month, we filed our electric distribution resources plan. This plan outlines our strategy for continuing to enable California's ambitious environmental goals by building a flexible, reliable grid that meets the growing demands for distributed generation, electric vehicles, energy efficiency and energy storage. We've been investing in grid modernization for several years now and will include the next round of investments in our 2017 general rate case filing that will come in September. Earlier this month, the CPUC also approved changes to our residential rates that will reduce the number of tiers from 4 to 2, decrease the differential between the tiers and establish a $10 minimum bill for most customers.
While this is an important first step, we believe that additional rate reform is critical to fully realize the state's objectives and ensure that all customers are appropriately paying for the use of the electric grid. We were a little disappointed that the commission didn't adopt fixed charges, but we're encouraged that the final decision recognized the importance of cost based rates to send the appropriate price signals. We'll be proposing additional enhancements in the future to bring us closer to that goal. We'll also be submitting our proposal for new net energy metering rates next week, which is another important component of aligning rates with costs. Solar is an essential part of California's clean energy future, but we need smart energy reform for it to grow sustainably.
The CPUC also issued a revised schedule in our gas transmission and storage rate case. We'll now have 2 separate decisions, one that decides what costs are authorized and then a second decision that decides how we will apply the $850,000,000 San Bruno penalty for safety related work. And Kent is going to discuss the financial implications of that new schedule in just minute. Finally, today we filed our TO-seventeen rate case. Our request was about $300,000,000 higher than TO-sixteen.
So with that, let me turn it over to Chris.
Great. Thanks, Tony, and good morning, everyone. We had another strong quarter in operations. We continue to perform well in our public safety metrics. In fact, we've reduced the number of wires down and gas dig ins across our system and we're responding to emergencies at an industry leading pace.
In line pipeline inspections and upgrades are a little behind due to permitting delays, but we anticipate catching up by the end of the year. And Diablo Canyon continues to perform very well. You can see our overall performance on key metrics in the appendices. In May, we successfully conducted a 2 day large scale exercise to test our preparedness and response plans for a major earthquake. It was our most ambitious exercise to date with over 7 50 employees and nearly a dozen external stakeholders participating across our service territory.
Exercises like these along with our many other emergency preparedness efforts help us to be ready to respond quickly and effectively when an event happens. With California in its 4th year of severe drought, our electric operations team has significantly enhanced our efforts to prevent wildfires. We're conducting daily aerial fire patrols across our service territory and we've partnered with federal and state agencies like Cal Fire and the U. S. Forest Service to create more firebreaks, improve emergency response and fund the cameras that will help detect wildfires in remote locations.
We're also continuing to manage water in our own hydro system to help meet the peak load this summer. In early July, the CPUC released the results of an independent report on the Fresno pipeline incident, which found that the pipeline ruptured when it was struck by 3rd party construction equipment. The report also confirmed that the pipe met all industry specifications and that the construction activity significantly reduced the depth of soil around the pipeline. This incident highlights the importance of calling 811 before digging and we've been working hard to make sure all of our customers are aware of this free service. We're continuing to cooperate with the CPUC in its ongoing investigation and our thoughts remain with the victims and families of this accident.
Finally, earlier this quarter, the National Transportation Safety Board announced that PG and E has successfully completed
the
The two remaining recommendations, which involve strength testing and valve installation are proceeding appropriately. And with that, I'll turn it over to Ken.
Thank you, Chris, and good morning. I'll start with our quarterly results, which are summarized on Slide 5. Earnings from operations came in at $0.91 in the 2nd quarter. GAAP earnings, which include our items impacting comparability, were $0.83 Our pipeline related expenses totaled $15,000,000 pretax or $9,000,000 after tax as shown in the table. This includes our cost to remediate encroachments on our pipeline rights of way and some remaining expense work for our pipeline safety enhancement.
Our legal and regulatory related expenses totaled $16,000,000 pretax or $10,000,000 after tax in the table. Here we have our costs for litigation and enforcement activities related to natural gas matters and regulatory communications. Fines and penalties for the 2nd quarter totaled $75,000,000 pretax as shown in the table below. You can see the Q2 charge was for disallowed capital work coming out of the final penalty decision in the San Bruno Disallowed capital work will continue to be recorded as an item impacting comparability in future periods as the capital is spent. But disallowed expense work won't be reflected as an item impacting comparability until the revenues are disallowed in the gas transmission rate case.
So the timing there will be linked to the final decision. Finally, as you can see in the table above, we received insurance recoveries during the quarter of $39,000,000 pretax or 23,000,000 after tax in the table. This brings our total insurance recoveries for 3rd party claims to $505,000,000 pretax. Slide 6 shows the quarter over quarter comparison for earnings from operations and the key factors that take us from $0.69 in Q2 last year to $0.91 in Q2 this year. To the 2014 general rate case decision, which you'll remember we didn't receive until Q3 of last year.
In addition, $0.05 of the increase was due to growth in rate based earnings and $0.04 was associated with tax timing. We expect the tax timing to reverse to 0 by year end. We also had $0.06 positive in miscellaneous smaller items. These factors were partially offset by $0.09 of lower cost recovery due to the timing of the gas rate case. As you know, the revenue increase from a final decision in the case will be retroactive to January 1.
There was also $0.03 attributable to the disposition of stock in Solar City in Q2 last year and $0.02 attributable to an increase in shares outstanding. That's it for our Q2 results. I'll now move on to our 2015 guidance summarized on Slide 7. As Tony mentioned, the CPUC issued a revised schedule in the gas transmission rate case. Since it now appears likely that the case will not be resolved until 2016, we don't expect to be able to book additional gas transmission revenues this year.
I indicated on our last call that not receiving a final rate case decision in 2015 would impact earnings from operations this year by about 0 point $0 per share. Accordingly, we're adjusting our guidance for 20.15 earnings from operations to reflect this delay, which takes us to a range of $2.90 to $3.10 for this year. The prior range was 3.50 dollars to $370,000 Since the final decision will be retroactive to January 1, 2015, this is just a timing issue. And next year, we would expect to book incremental revenues for both 20152016. We plan to treat the 20.15 amount as an item impacting comparability next year and the 20 16 amount will be included operating results.
The delay in the rate case decision affects 2 of the assumptions underlying our 2015 earnings guidance. So I want to just briefly touch on those and then we'll come back to the items impacting comparability. On Slide 8, we've adjusted our 2015 CapEx for gas transmission given the delay in the case. We're now showing $650,000,000 versus a previous range of $600,000,000 to $800,000,000 We've also reduced our 2015 authorized rate base for gas transmission to $1,800,000,000 since the increase in authorized rate base won't occur until next year when we get a final decision. The other assumptions here are unchanged from last quarter.
Moving to Slide 9. The ranges for the items impacting comparability are also unchanged from last quarter with the exception of the fines and penalties, which we've reduced from roughly $1,000,000,000 to about $900,000,000 for 20.15. The delay in the gas transmission rate case means we will not record disallowed expense work until next year when we get the decision. We previously had $160,000,000 in 20.15 guidance for that. Partially offsetting that change, we've increased our 2015 estimate for disallowed capital by about $50,000,000 to 400,000,000 dollars The net of these two changes is a reduction in 20.15 fines and penalties of about $100,000,000 I also need to remind you here that our estimate does not include other potential fines and penalties such as any revenues disallowed in the gas transmission rate case as a penalty for ex parte communications.
Finally, in the table above, we've also updated it to reflect the receipt of the insurance recoveries that we booked in Q2. Slide 10 just shows you how you get from the roughly $900,000,000 estimate for 2015 to the total $1,600,000,000 of fines and penalties coming out of the gas investigations. This table has been updated to reflect the timing changes I just covered. Moving on to Slide 11. Our total equity needs for 2015 remain unchanged at between $700,000,000 $800,000,000 In the Q2, we issued about $100,000,000 of equity through our internal programs, which include our 401 and dividend reinvestment program.
And we expect to issue a total of roughly $300,000,000 through these programs for the full year. We previously issued about $75,000,000 through our continuous equity offering, leaving the remaining need for the year at about $300,000,000 to $400,000,000 and that's unchanged from last quarter. Slides 1213 just summarize our assumptions for CapEx and rate base through 20 16. Other than the change to 2015 authorized rate base, which I've already covered, the numbers are unchanged from last quarter. With that, I'll stop here and we can open up the lines for your questions.
Our first question comes from the line of Daniel Eggers with Credit Suisse.
Hey, good morning guys. Good morning, Dan. Hey, just on the just to make sure I have this right.
So in 2016, you guys will not include the $0.60 in recurring numbers. So a $0.16 estimate or as we should be publishing, where you're going to talk about them will look like some sort of a function of a return on rate base plus any tax benefits you guys get from the manufacturing deductions?
Yes, Dan, I think you have that correct. We just we want to make sure that we're pulling out the $15 amount because we think it makes next year more comparable.
Okay. And then on the just on the timing of GT and S, kind of if you look at the proceedings as laid out and where flex points or debates are going to be, when do you guys anticipate us getting to a clean number? And when will you give guidance for 2016 in that context?
Hi, Dan. This is Dinyar Mistry, the Controller. I think when we look at the procedural schedule, it seems that early 2016, maybe around the January timeframe is when we would expect to see the first decision. And the second decision will probably follow maybe a couple of months or 3 months after that.
And when do you guys think about giving guidance around those numbers?
So when are you
going to give 'sixteen guidance, I guess?
Don't know for sure, Dan, but on a normal schedule, we probably do that in February when we announce year end earnings.
Would you be comfortable doing that before GT and S is done?
Well, if the schedule ends up playing out as Dignard just described, you would at least have the first part of the decision, which is the authorized revenues, which you wouldn't really have is how they're treating all the fines and penalties. And I think we could make our way through that. Okay, very good. Thank you, guys.
Thank you. Our next question comes from the line of Greg Gordon with Evercore. Thanks. Good morning.
Good morning, Greg. So when we think about the guidance provision for this year, very simply, it's the not getting the revenues from the GT and S case offset by the tweaks and the timing on the fines and penalties to get to that new range. Everything else is basically the same? Yes, I think that's pretty much it. Okay, great.
The second question was on you're not presuming any incremental equity needs this year versus your last update. Clearly the one big change is there's going to be a cash flow deferral of recovery of these
cash flows to this case is done.
Should we just assume you're funding with short term debt until you get the money in? Well, Greg, this is Kent again. There's kind of 2 things that have happened in terms of a few factors that result in not really a material change in our equity needs. One is you're right, the GT and S case has been delayed until early next year, but we weren't anticipating it to actually happen anyway until very late this year. So it really only affected our equity balances for a few months this year.
So moving it out out of this year isn't a big 2015 impact on our equity. And then in the other direction, of course, we're not expecting to have the charge for the disallowed expense work this year and previously we were. So that actually helps the equity balance a little this year. And the net of those 2 is not a significant change.
Okay. So the and to the
extent those cash flow cash flows are pushed out a few months, you have obviously sufficient balance sheet capacity to fund that, right? Yes. And there's really no cash flow impact this year. It'll be next year just in terms of the timing of when the actual decision is made and we start collecting the revenues through cash rates.
Perfect. Thank you.
Thank you, Mr. Gordon. Our next question comes from the line of Jonathan Arnold with Deutsche Bank. You may proceed.
Good morning, guys. Good morning, Jonathan. A quick one. Just to push back with the GT and S case change your thinking at all, Tony, about timing for revisiting the dividend? And then just give us an update on that process?
Yes. Well, I mean, let me reiterate. I mean, we know that dividend is very important. We've been focused on that. Obviously, with the change in timing of that case that does change things.
Our commitment is to continue to figure out what would be an appropriate time to deal with the dividend. We're having ongoing discussions here internally, but I don't have a projection of exactly when that might be yet.
Okay. But is it reasonable to expect it's more like a 2016 event now then given what you've just said?
I think that's a reasonable assumption for you.
Okay. Thank you. And then just on the miscellaneous items in the quarter, I mean, it seems to add up to quite a big number. Was there anything particularly worth calling out?
Yes, Jonathan, this is Ken. The miscellaneous by definition usually ends up being lots of small items. And some of them can be timing and some of them aren't necessarily timing. In Q2, we did have a couple of settlements with contractors, litigation settlements. So that added to the quarter compared to what we would normally see.
And then there's some smaller items in there too. And I would say overall, it's always hard for us to forecast miscellaneous by their very nature, but we expect we may have a few offsets in miscellaneous later this year.
Great. Thank you, Ken. And on the similar subject, you said you thought that the tax item would reverse by the end of the year. Would that be in Q3 and Q4 or sort of between the two quarters?
This is Denyer, Jonathan. They should reverse over the next set of quarters.
Okay. As in the next two quarters? Or is it some of it slip into next year?
No. It should all reverse this year. So the reason that we have it is that accounting rules require companies to use a consistent effective tax rate every quarter, but your income isn't consistent each quarter. And so you have this timing issue that reverses itself out by the end of the year.
Okay. Thank you for the clarity.
Thank you, Mr. Arnold. Our next question comes from the line of Leslie Reich with JPMorgan. You may proceed.
Hi, good morning. Wondered if you could talk a bit about some of the rate design issues you mentioned. I know you got a final decision on that did not allow an immediate fixed charge, but you said you were going to submit a new proposal for net metering. I wondered what that might look like?
Yes. I think the decision that came down moved us in the right direction cutting down the number of tiers. It did go with a minimum bill charge rather than a fixed charge. We, of course, had advocated for a fixed charge. But we're moving in the right direction.
The next step will be a net energy meter rate filing. And in that filing, we're going to make sure that we underscore that we continue to support rooftop solar. We have the largest number of rooftop solar installations in the country. It's now over 175,000 installations. But we also need to keep investing in the grid.
So we'll submit a proposal that will allow us to reinvest in the grid at the same time we're supporting rooftop solar. And that filing should be coming out in the next week or so.
And then, did you make a filing in July, maybe you call it the grid of things, there's a bullet point there, on sort of longer term grid infrastructure improvement. And I think you said you would lump that in with your next rate case. Have you quantified that?
We haven't yet. I mean, it's a our distribution resource plan filing kind of outlines our strategy on the grid. And as I think we've said in prior calls, we've already made lots of investments, starting with virtually percent coverage on our automated meter reading program. And our next filing will have a substantial chunk of investment for continuing the transformation of the grid to a 21st century grid. I can't really quantify how much of it is grid development versus how much of it is going to be routine maintenance of existing equipment.
Yes.
But it's fair to say the spending would be 2017 and beyond?
Yes.
Great. Thank you.
Thank you, Ms. Reg. Our next question comes from the line of Steve Fleishman with Wolfe Research. You may proceed.
Yes. Hi, good
morning. Just first on the equity issuance. So it seems like you've only done about a third of the equity for the year. Is that is there any reason that you kind of haven't done it more prorated? And how should we think about the way you're likely to do the $300,000,000 to 400,000,000 dollars not through programs?
Steve, as you might imagine, I'm reluctant to really comment a lot on what our equity plans are. I just don't think that's going to serve us well. So I will tell you, I'm very confident we have more than adequate tools and the amount that we need to raise this year is quite manageable.
Okay. And any more clarity on that? I know this year there was a lot of that tax cash flow coming in. Is there any more sense on kind of tax cash flows in 2016 that you can provide us? Or at least is the cash flows that are stay stable or continue to be a positive?
Steve, I think you're referring to balancing account activities, which is one of many drivers maybe in our cash flows.
That's correct.
I don't really have anything to add to what was discussed on the last call since then. And I just continue to point out that our balancing accounts are very complex. It's very hard to look on our balance sheet and really decipher all the things that are going on because we have longer term balancing counts and shorter term ones. Sometimes the trends have to do with prior years and then you're reversing them. Sometimes they have to do with what's going on in the current period and they amortize over different periods.
So I just think it's going to be a very difficult path to try to do analytics to figure out how that drives our financing needs. And so I think that the easiest way to get to the big picture is to focus on year over year CapEx changes. And obviously, we've had the fines and penalties we're financing and those are a few of the key drivers.
Okay. Last question is just for Tony. Obviously, you announced some management responsibility changes a few weeks ago. Could you maybe talk a little bit in context of Chris leaving? And then I'm not sure you're going to be there till you're 100.
So thoughts on kind of succession planning?
Yes. When I came, I said I thought it'd be 3 to 5 years. Obviously, with Chris' announcement, things have changed. What I am committed to is making sure that we have a strong leadership team in place. I think with the changes that we announced a few weeks ago, we've got some great leaders now in place going forward.
But I'm committed to make sure that we've got a good plan. I continue to discuss that with our Board. Plus my wife and I like it here. Sarah and I just bought a place here in San Francisco, which I got to move into later this week, which I'm not looking forward to move. But I'm committed to making sure that we've got strong leadership to continue the momentum we've got in place.
Okay. Thank you.
Thank you, Mr. Fleishman. Our next question comes from the line of Michael Weinstein with UBS. You may proceed.
Hi, good morning. It's Julian here. Hey, Julian. So first question, just going back to tax issues. In terms of the deductibility from any penalty, can you talk to some of the proposed state legislation specifically to state taxes?
Hi, Julian. This is Denyar again. So you're right that there was a proposal that was introduced in the California legislature. I think it was in the last week of June. And what that would do would potentially disallow the deduction for the penalty for the San Bruno penalty for California tax purposes.
Right. Do you have any sense of what that would be in terms of the total bill? I know that it's not the federal number, it's the state number, so it's considerably smaller. Yes, yes. So on
a really high level, it's of the $1,600,000,000 penalty, dollars 300,000,000 was a fine, so that would not be deductible anyway. And our state tax rate is roughly 10%.
Okay. So it's fair to just take 10%? Yes. Got it. And then going back to Leslie's question and trying to get a little bit more of a holistic understanding on how you're Broadly, is Broadly, is the thought process here to bring down compensation to the solar sector in tandem with the cost structure declines that we're seeing?
I'm just kind of getting a sense as to how you're thinking about at least structurally approaching the question. Would there be some kind of or is the thought process to provide some kind of tracker to bring down NEM over time? Or I know you can't exactly say what your the NEM rate would be, but just holistically how we think about that next year and in subsequent years?
Yes. Hi, this is Steve Melny from the regulatory affairs team. I think Tony talked a little bit about the approach on NEM. And I think it's important to recognize that the existing structure allows customers to get credits at a full retail rate. I think it's been very successful in California at helping the solar market grow and advance.
And as we now look forward, what our goal will be to better balance both ensuring we have sustainable opportunities for solar to grow in the state, which I think is an option customers want and that we think is a vital part of meeting the energy goals in the state. And at the same time, start to shift that shift the way we structure compensation for NEM customers. So we'll be filing an updated tariff in the new proposal. I think we'll see a lot of proposals from multiple parties and the commission will work through that and make that decision and we'll participate in that proceeding.
But nothing necessarily formulaic?
No, I think we'll have to see how all the different proposals come out. I think there'll be a lot and there'll be opportunities for the commission to look for how we make changes now and into the future.
Great. Thank
you. Thank you, Mr. Weinstein. Our next question comes from the line of Michael Lapides with Goldman Sachs. You may proceed.
Hey, guys. Congrats on a good quarter. Real quick question for you. Just one on slide 12 related to CapEx. I want to make sure I understand this.
The $5,500,000,000 in 2015 and the range you give in 2016 that includes the funds you'll spend the $400,000,000 in $15,000,000 $316,000,000 that will get disallowed? Michael, this is Kent. That's correct. Okay. 2nd, any update on insurance recoveries in terms of what you think you might be able to recover or what you've requested for recovery versus what you've recovered to date?
I'm just trying to kind of think about that from a cash on cash impact. Yes. Michael, we're not totally done with insurance recoveries, but the vast majority of the claims are resolved at this point. Yes. Got it.
And one final one. When you get the GT and S case and you we get to February, the year end earnings call and you think about giving 2016 guidance, is your thought process you'll give a multiyear view at that stage? Michael, we're still working through that on our end exactly what we're going to do for guidance next year. Got it. Thanks guys.
Once again congrats. Thanks.
Thank you, Mr. Lapides. Our next question comes from the line of Stephen Byrd with Morgan Stanley. You may proceed. Hi, good morning.
Good morning, Stephen.
I wanted to touch on the longer term in terms of as you think about your total growth outlook and spending, you obviously laid out a lot of interesting information in your filing about the long term resource need. At a high level, as you think about the growth outlook that that provides you, how do you think about that compared to historical levels of spend? What could be the key sort of up and down drivers that could take you lower than you expect or higher than you expect when we think about it's a little challenging given all the possible areas of spend in the future given how the grid is changing. But I was just curious if you could speak to that at a high level.
Yes. As Ken said, we're not giving future guidance yet. But I think it's fair to say and we've said this in the past that our capital investments going forward will be higher than our historic levels and consistent with what we've had in the last 2 or 3 years where we've been investing in our electric grid, we've been investing in our gas system. And while there are obviously going to be changes as we see particularly the grid of things develop and how fast we need to invest in the grid, but I think you will see a significant amount of capital investment going forward. You can see that Slide 12 shows our estimate for 2016.
Beyond that, I think we're going to see some things that are comparable to it and we'll talk as we get further out as to more specifics.
Understood. And then shifting over to solar and thinking about the outlook there. As you looked at bill increases over time, what have you been thinking of in terms of as you think about the net changes to customers' bills, what kind of growth in solar do you expect? And what have you sort of factored into thinking on where the bill goes just given obviously that there's a shift in costs from the solar customers to the remaining customers?
Well, let me start off by saying one of the key focus areas that I've had since I've been here, I talk about safety, affordability, clean safety, reliability, clean energy and affordability. And so we have a very aggressive continuous improvement program in place and our teams are delivering on that to mitigate the cost of investment. But obviously, given the capital investment that we're making, we continue to see upward movement on our rates. But we're sensitive to the subsidies. I think the net energy metering proposal that we'll make will try and bring more in line the amount we're paying for the solar that we're receiving in line with the value to the rest of the customers so that it reduces the subsidies.
But we continue to see very healthy growth of solar in California, both at the utility scale and at the rooftop distributed generation solar sale.
Steve, I don't know if
you want to add any more about to that.
Well, Tony, I would just say again, I think that we've recognized throughout this that solar is a vital part of achieving a lot of the goals that California has for our energy policy. We're supportive of that. And as we look at rate changes, be it in the residential rates or in the NEM proceeding, one of the goals is to make sure that solar can continue to grow sustainably. And I think that's a goal and that's something we see going into the future.
Okay. Understood. And so it sounds like you do continue to forecast fairly rapid growth in solar as you think about the overall customer build. But obviously you're going to try to modify how things are working to make it more rational and have costs bear things appropriately for solar.
Well, that's correct. And then as I said before, we've actually made progress on the rate structure. So reducing the number of tiers from 4 to 2 is helpful, and we'll continue to keep working the rate issue because I think everyone agrees that we need to get to more cost based rates. In fact, in the commission decision, they reaffirmed the belief in cost based rates. It's just we might have disagreements over how fast we get there.
Understood. Thank you very much. Thank you, Mr. Byrd. Our next question comes from the line of Huynh with Bernstein Research.
You may proceed.
Hi. I'd like to also follow-up on some of the previous questions. So, specifically, what is your target for annual increases in the per kilowatt hour rate and in the average customer bill? Do you have a rate of increase relative to the rate of inflation that you would like to achieve?
Yes. Our target over the long term is to track the rate of inflation for our rate increases. Obviously, it's chunky and we're on a 3 year rate cycle with our GRC our general rate case. And so you tend to see a spike up and then it slows down and then you get the next filing. We will make our next GRC filing here this fall.
And so that won't go into effect for more than a year. So you see those kind of bumps. But our long range target is to get that those rate increases around the rate of inflation over a longer period of time. Okay.
And then also following up on the prior discussion of the net energy metering case. Would it be possible for you to maybe just sketch out the positions that you believe will be put forward in that case? I'm interested in your views, for example, whether you believe that there will be focused solely on a net energy metering construct or whether parties in the case will look to move in the direction of a value for energy supplied, whether others will look for a feed in tariff. Can you perhaps guess where you think the different proposals will fall out?
I'm reluctant to speculate on what others are doing. I think we'll probably see all of those things included in the various filings. As I said before, our focus is going to be on the value we get for electricity that is being supplied to us and getting it more aligned with the value to other customers. But I'm sure we're going to see a range of proposals from the various parties. But I can't speculate on exactly which ones.
Okay. Thank you very much.
Thank you, Mr. Wen. Our next question comes from the line of Greg Orrill with Barclays. You may proceed.
Yes. Thank you. Just a follow-up on slide 10. You talked about essentially moving 100,000,000 dollars of shareholder impact from the disallowed capital and pipeline safety expenses out into future periods. Is it possible to lay out how that would track 2016 and beyond?
This is Kent. As you know, because we discussed it on the last call, all of our estimates here about timing and the actual costs we're incurring, they're based on estimates because the PUC has not yet decided specifically which costs will count as safety related. So we've been using our best estimates of categories and this chart reflects that. And based on our estimates, we would expect that most of what you see there in estimated future periods would actually happen in 2016. Again, whether or not it plays out that way will largely depend on the final PUC determination of which ones count.
Okay. Thank you.
Thank you. Our next question comes from the line of Jim Von Reisman with Mizuho. You may proceed.
Hi, good morning everyone. A simple question following up on the dividend. In 2016, do you think your GAAP earnings per share will exceed your current dividend level? Jim, this is Kent. We're not giving you a GAAP guidance for 2016.
So you can do that calculation yourself. I tried. Thank you.
Thank you. Our next question comes from the line of Paul Patterson with Glenrock Associates. You may proceed.
Just a couple of quick questions. On the felony case, there's a story about you guys making efforts under statute of limitations. Basically that a whole bunch that you guys are arguing that under the statute of limitations, a whole bunch of these charges don't apply or violations. Could you elaborate on that and how much that might change the outcome of the course of the case if you guys succeed with that?
Yes. I'll let Yon Park comment in a minute. But between now and of course, the scheduled trial date is next spring, and obviously, those sorts of things can change. But between now and then, you're going to see a lot of legal wrangling on the lawyers and a number of different motions filed. But Jan, do you want to comment on this one that we recently filed?
Sure. This past Monday, we filed a motion based on statute of limitation. And our request was that 7 counts out of 28 counts should be dismissed on statute of limitation grounds. And the 7 counts all relate to record keeping. And the motion is publicly available.
And if you'd like a
copy, we'd be happy to send that to you.
Okay. But then, I mean, in terms of is there any way of estimating what the impact would be if that position was taken 1 third of the request or maybe a little less would be taken away?
So if it were to succeed, it's 7 counts out of 28 that would be dismissed.
And the penalty is $500,000 per pound. Yes, per pound.
Okay. I got you. And then the second thing that I'd like to ask is, in the Safe Harbor disclosure, I saw a new bullet point, at least I don't remember seeing it before, about the impact of reductions that and earned its authorized ROE, etcetera. Is there any reason why that showed up this quarter? Is there anything you could point to that why this is now an issue?
I think that's a trend we've been seeing that electricity sales continue to be soft, particularly here in California. We've been so successful with our energy efficiency programs. Of course, now we're getting a large number of rooftop solar installations that are starting to get to be more than just trivial numbers when you get 175,000 of them. And as we look ahead, we don't see electricity growth getting back to our historic levels. And what that means because here in California, of course, in that we're fully decoupled, our costs stay the same to operate the grid.
And the risk that we refer to here is that at some point, you're going to be spreading those costs over a smaller number of kilowatt hours. Mean, that's precisely why we're looking at pushing hard on the rate reform. We really need a 21st century rate design, not a 19th or 20th century. And we thought just given all those trends, it's appropriate to add that as a caveat, but there's no one thing that contributed to it.
Okay. So it's just sort of recognizing a trend that you guys have recognized for some time, but for whatever reason you guys decided to put it this time, correct?
Yes. I mean, the various factors have been developing and we just decided it's probably appropriate to start including this.
Okay, fair enough. And then finally, there's a bunch of legislative initiatives concerning CPC reform, the administration of energy efficiency. You guys know them more than I do and I won't list them. Are there any is there 1 or 2 bills that you think are particularly of significance for investors that we should be perhaps paying more attention to or focusing on with respect to this? Or is there anything you'd like to comment on in terms of sort of the political environment that's sort of that's separate from you guys to a certain degree now at this point.
It's migrated from San Bruno, etcetera, to other things. Just in general, I mean, is there any legislative initiative or changes at the CPUC you think we should be thinking about?
Well, I've learned in my 4 years not to predict what happens here in this horse race to the end of the legislative session. You can never tell exactly what's going to come out of it. But the one that we're really focused on is a bill called SB 350, which is focusing on the renewable portfolio standard issues. And looking at whether we increase the renewable portfolio standard to 50%. We're very actively involved in those discussions.
We're working with all of the legislative leaders to see what comes out of that. And that's one I think you can be taking a look at as having some impact. We're going to hit the 33% renewable standard by 2020. But and we know we can go above that 33%. It's a matter of how fast we get there and also how much it would cost to get there.
And we're actively involved in those discussions.
Okay. But on the CPUC reform legislation or efforts thereof, is there any thoughts about what 660 or825 might or might not mean?
I wouldn't want to handicap any of them right now.
Okay. Fair enough. Thanks so much. Sure.
Thank you. Our next question comes from the line of Travis Miller with Morningstar. You may proceed.
Good morning. Thank you. On the transmission side, in
the T-sixteen TO-sixteen in that settlement, is there anything in that settlement that would lead you
to believe that it wouldn't be a rubber stamp type of approval from FERC, anything debatable there?
This is Steve Miller again from Regulatory Affairs. We feel it's a good settlement with multiple parties. We submitted that to FERC and we'll just have to see how FERC processes that. But it's not FERC.
I think we've had good experience with FERC Okay. And then just in general for TO-seventeen and even perhaps TO-sixteen, but what's the risk of an ROE cut like we've seen in some other transmission areas? Well, we are just filing TO-seventeen today. We're requesting 10.96. That includes a 50 basis point adder in our request and we have to go through the proceeding.
Okay, great. Fair, thanks.
Thank you. Our next question comes from the line of Felix Kerman with Cisium. You may proceed.
Hi, good morning. My questions were previously answered. Thank you.
Thank you. There are currently no additional questions waiting for the phone lines.
All right,
great. Thank you everyone. Appreciate your participation today and we'll have a safe day. Thank you so much.