Janet Loduca - Vice President, Investor Relations Tony Earley - Chairman, President and Chief Executive Officer Jason Wells - Senior Vice President and Chief Financial Officer Geisha Williams - President, Electric.

Steve Fleishman - Wolfe Research Julien Smith - UBS Jonathan Arnold - Deutsche Bank. Michael Lapides - Goldman Sachs Chris Turnure - J.P. Morgan Michael Weinstein - Credit Suisse Anthony Crowdell - Jefferies Praful Mehta - Citigroup Kevin Fallon - Citadel Travis Miller - Morningstar.

Good morning and welcome to the PG&E Corporation Third Quarter Earnings Conference Call. All lines will be muted during the presentation portions of the call, with an opportunity for questions and answers at the end. At this time I will like to introduce your hostess, Ms Janet Loduca. You may proceed..

Thank you, [Monique], and thanks to those of you on the phone for joining us.

Before I turn it over to Tony Earley, I want to remind you that our discussion today will include forward-looking statements about our outlooks for future financial results which are based on assumptions, forecasts, expectations and information currently available to management.

Some of the important factors that could affect the Company’s actual financial results are described on the second page of today’s third quarter earnings and business update presentations.

We also encourage you to review our quarterly report on form 10-Q that will be filed with the SEC later today and the discussion of risk factors that appears there and in the 2015 annual report. With that, I’ll hand it over to Tony..

Well, thank you, Janet. And thanks all of you for joining us. We're going to do something little different on today's call. We've resolved number of regulatory and legal issues over the last several months.

With the gas transmission and storage rate case decision, the all party general rate case settlement and the resolution of the most of the San Bruno related proceedings we want to step back and review where we are and where we're heading. We plan to spend about half a time on today call with our prepared remarks.

I'll start with the quick overview of our third quarter results and then share our vision for where the company is headed. We're also initiating 2017 earnings guidance today. So our presentation will take a little longer than usual, but we still expect to have about 30 minutes for questions at the end.

So with that, let me turn it over to Jason to cover the third quarter results and then I'll talk more about or longer term vision..

Thank you, Tony, and good morning everyone. I'm going to just start with the third quarter earnings presentation that we issued this morning and then we'll move to the business update presentation. Slide three shows our results for the third quarter. Earnings from operations came at $0.94.

I know this is lower than many of you expected, but we are reaffirming our guidance from earnings from operations for the full year. As I'll discuss more in a minute, the Q3 results are largely driven by timing items. Our third quarter GAAP earnings including the items impacting comparability were also shown on slide three.

Pipeline related expenses were $31 million pretax this quarter. The charge for legal and regulatory related expenses was $23 of pretax, and fines and penalties were $67 million pretax are primarily related to the San Bruno penalty decision.

We're showing $60 million pretax for the Butte fire-related, net of insurance which are largely for legal costs associated with the butte fire. We did not adjust our insurance receivable this third quarter. However, we do intent to seek recovery of all insured losses from our insurance carriers.

And as a reminder, the current receivable should not be viewed as a ceiling on insurance recoveries. Moving to slide four, you'll see our quarter-over-quarter comparison of earnings from operations of $0.84 in Q3 of last year to $0.94 in Q3 of this year.

As a result of the Phase 1 gas transmission storage rate case decision we increased our rates in August to begin recovering the higher approved revenues. This resulted in a $0.11 of higher revenues compared to Q3 of last year.

We also continue to see $0.05 positive for growth and rate concerns, and regulatory and legal matters total$0.05 positive for the quarter. This item include some incentive revenue awards Timing of taxes was $0.04 negative for the quarter and as a reminder this is purely a timing item that will net to zero by year end.

As a result you can expect to see a $0.20 pickup in the fourth quarter of fully offset the amount recognized through Q3. We also had $0.03 negative for an increased in outstanding shares and $0.04 negative for number of miscellaneous items. Turning to slide five. We are reaffirming our guidance from earnings from operations of $3.65 to $3.85 per share.

GAAP guidance is shown here as well. We are also reaffirming our expectation of roughly 800 million in equity issuance this year. Slide six shows our updated guidance assumptions. We assume capital expenditures of roughly $5.7 billion which is slightly higher than our second quarter projection of 5.6 billion.

We've increase the gas distribution number to reflect our best estimate of spend through the end of the year. Our assumption for weighted average rate base is $32.4 billion consistent with last quarter.

At in the bottom right we've updated the other factors effecting earnings from operations to reflect the proposed Phase 2 decision we received earlier this week in the gas transmission rate case. Our guidance assumes that the proposed decision is approved this year without any material modifications.

If we do not receive a final Phase 2 decision before the end of the year our earnings will be reduced by about $0.25. And we continue to target earning, our 10.4% CPUC authorized return on equity across the enterprise plus the net impact of the other earnings factors listed here.

Moving to slide seven, we've updated the ranges for several of the 2016 items impacting comparability. The range for pipeline related expenses is the same as last quarter. For legal and regulatory related expenses we've updated this slide to reflect our expectation that will come in at about $75 million which is the high end of the previous range.

Fines and penalties increased by $50 million pretax reflecting a number of updates which I'll cover in a minute. We've also updated the butte fire related costs reflect a charge of $60 million pretax in Q3 largely driven by legal costs. We remained unable to estimate the high end of the range at this time.

The remaining items are unchanged from last quarter. The table at the bottom of the page is our updates to fines and penalties. First the charge for disallowed capital has increased by $6 million. We have now fully accrued for all of these safety related capital we've expect to be disallowed in the Phase 2 gas transmission decision.

Second, we incurred $4 million charge for the ex parte penalty associated with the higher gas transmission revenues we collected in August and September. Assuming the proposed Phase 2 decision has approved this year we will record an additional 54 million in Q4 to reflect the full 2016 impact of the ex parte penalty.

Third, we increase the gas distribution record keeping fine by 2 million to reflect the modified presiding officer's decision. The total is now $26 million. And finally, we've included a $3 million charges as a result of federal criminal verdict. So that's concludes Q3 earnings update.

We continue to have confidence and our ability to achieve our guidance this year assuming the proposed Phase 2 decision in the gas transmission rate case is approved in December.

With a resolution of a number of significant issues over the last several months we have much greater clarity in our future operational and financial performance which we've laid out in the business update. So with that, let me turn it back over to Tony..

Thanks, Jason. Let me turn to the business update presentation that we issued earlier this morning. I'd encourage all of you to have the presentation in front of you as I share my comments because I think it will be a little easier to follow on. As you can see on slide three, we're going to cover three areas today.

First, I'm going to review the progress we've made over the last six years because we have come a long way. We know we still have more work to do but I am really proud of what the team has accomplished and I want to share some of those results with you.

Second, I'm going to talk about some of the things that really provide PG&A with a strategic advantage, and third I'm going to talk about what's driving growth going forward. As part of that Jason is going to review the 2017 earnings guidance as well as our updated CapEx at rate base guidance through 2019.

Between our 6.5% to 7% rate base growth and our above average dividend per share growth we expect to deliver strong returns over the next several years. So let me start with the progress that we made. Slide five provides the high level overview of the company.

As you can see over 90% of our revenues are set by the California Public Utilities Commission with the remainder set by FERC and nearly half of our revenues are pass through for things like energy procurement costs and public purpose programs.

Turning to slides six, one of things I'm most proud of is how we've embedded safety into our core governance structures. Safety is really the foundation of everything that we do. When I join the company in 2011 we began a back to basic structure with safety at the forefront. Let me give you some examples of that.

At the leadership level we've supplemented our team with new board members and executives who bring significant utility experience. At the Boards of Directors we brought on a number of former utility CEOs like Anne Shen Smith from Southern Cal Gas.

Rich Kelly from Xcel Energy and Fred Fowler from Spectra Energy, and we brought in a whole new leadership team on the gas side of the business starting with Nick Stavropoulos who brings more than 35 years of experience in the gas industry. We've included bios for some of our leadership team in the appendix.

In 2012 we became the first utility in the industry to publish a dashboard to track how we're performing on key public safety metrics such as emergency response times and reduction of gas dig-ins and electric wire downs. And that focus is driven significant operational improvements as I'll discuss in just a minute.

Several years ago we also restructured our short term variable compensation plan so that 50% is now tied to our performance on public and employee safety. This incentive program applies to all of our management employees as well as some of our union representative employees. And finally we've done a lot of work on our safety culture.

This is probably the most critical piece because it's our culture that ultimately drives the performance that we're looking for. Part of our strategy has been to install continuous improvement mindset by encouraging employees to identify gaps and opportunities and then close them to benchmarking and process improvement.

We also wanted to make sure that every employee felt comfortable raising concerns no matters how big or small. So we made a number of changes to encourage all employees to speak up when something doesn't seem right. For example, we work with our unions to develop a non-punitive self-reporting policy.

We've also adapted the nuclear industry's corrective action program across the company to make it easy for employees to report things that need to be fixed. In fact employees can now report corrective action items through a simple app on their smart devices.

And we've created a number of awards to publicly recognized employees when they do speak up so that we're encouraging and reinforcing that behavior. All of these efforts have really paid off. As you can see on slide seven, we've achieve industry leading performance on a number of gas safety metrics.

We've reduced our emergency response time and gas dig-ins by about 40%. And we've virtually eliminated our leak backlog by completely redesigning our approach to finding and repairing leaks, including deploying sophisticated new technologies that are thousand times more sensitive than traditional detection equipment.

We've replaced to upgrade 100s of miles of distribution and transmission pipeline. We're the first utility in the country to be certify under PAS 55, ISO 55001, and RC 14001 for asset management programs. And we're the first company in the U.S. to meet the rigor of the American petroleum institute 1173 standard for pipeline safety and safety culture.

So I couldn't be more proud of how the team has turned the gas business around. We've also made tremendous improvements on the electric side of the business.

As you can see on slide eight, our emergency response performance is now in the first quartile and as a result of our investments in smart meters, automatic switches and circuit upgrades we've delivered seven straight years of record breaking electric reliability. Our customers are experiencing fewer and shorter outages than ever before.

All of these improvements are really showing up in our customer satisfactions scores, while we still have more work to do, our JD Power results across all customer classes have increased steadily since 2012 as you can see on slide nine.

The improvement we made in safety and reliability over the last six years have put us in a position to deliver strong financial results going forward. Earlier this year we announced our first dividend increase in six years and we've committed to achieving roughly payout ratio by 2019.

Combined with our expected rate base growth we're confident we can deliver a strong overall return for our shareholders. Turning to section, I want to highlight a few areas that provide PG&A with the strategic advantage particular as our industry undergoes significant change.

One of the trends we've seen over the last decade is the increasing focus on climate change and greenhouse gas reduction and that trend is only going to intensify in coming years. At PG&E we've been committed to sustainability for decades and we're one of the greenest utilities in the country.

As you can see on slide 13 nearly 60% of our electric deliveries come from carbon free and renewable resources, that's almost [Indiscernible] average, and that's important to our customers who pride themselves on environmental stewardship.

PG&E's customers are leading the way for the country with 25% of all rooftop solar installations and 20% of all electric vehicles. We've also expanded our engagement efforts establishing Advisory Council last year to help inform our sustainability strategy and priorities.

Discounts was made up of a diverse group of leaders from environmental organization like Ceres and the National Resource and Defense Council, as well as policy experts academia and businesses, and we consistently been recognized as one of the leading companies by a number of third party sustainability assessments.

We've also had the privilege of operating in a state that has a number constructive regulatory mechanism which is shown on slide 14. In California revenues have been decoupled from sales for decades to a help encourage energy efficiencies, so PG&E's revenues are not impacted by changes and load.

The CPUC has also authorized a number of balancing accounts that allows us to track and recover costs that are more unpredictable such as a cost to respond earthquakes and other large scale emergency. Our rate cases are based on forward looking test years, and the CPUC is now reviewing all requests through the lens of risk mitigation.

We think this is that right approach and aligns well with our strategic planning process which starts with a detailed risk assessment of all of our assets. In fact earlier this year the CPUC safety and enforcement division found PG&E's risk management process to be industry leading.

California also has a separate cost of capital proceeding that establishes the authorize capital structure and return on equity over three-year period for all of the IOUs. Our current 10.4% return on equity is fixed through 2017. Turning to slide 15. California continues to be a leader on energy policy.

The state is now targeting to reduced greenhouse gas emissions to at least 40% below [1990] levels by 2030. To get there California will be increasing renewables to 50% doubling energy efficiency and electrifying the transportation sector. And PG&E will continue to be a critical partner in helping the state to achieve its energy policy goals.

So that brings me to our last differentiator. California's policy goals around safety and environmental leadership will continue to provide opportunities for sustained infrastructure investment.

To support safety and reliability PG&E is investing in multiyear programs to enhance our gas, electric and generation assets, and I'll provide some specific examples in just a minute.

To enable California's clean energy economy PG&E will continue to modernize the grid to ensure our systems – ensure that our systems can effectively integrate both the increased renewables and distribute energy resources.

Longer term California is working on some of the largest rail and water infrastructure projects in the country which we expect will require hundreds of millions in PG&E investments over the next 15 years.

With our proven track record of being able to finance and deliver on these types of large scale projects we are well-positioned to help the state achieve all of its goals at a reasonable cost. This brings me to our last section which focuses on our future growth profile.

As you can see on slide 18, we have three focus areas; continuing to enhance safety and reliability, enabling California's clean energy economy, and ensuring that our customer's rates will continue to be affordable particularly in light of future load projections.

Slide 19 shows a few examples to some of the longer term programs will be executing to enhance safety and reliability. On the gas side of the business, we've been steadily increasing the percentage of our gas transmission pipeline that is capable of inline inspection and we're targeting to reach about 65% by 2026.

In fact we partnered with a number of companies to create the next generation of inline inspection tools that can capture even more detailed information about the integrity of the pipeline without any interruption to gas service. We also continue to increase the number of miles of gas distribution pipeline we're replacing each year.

On the electric side by 2019 we're targeting to install automated switch on about 45% of our urban distribution lines and upgrade about 85% of our urban substations. These investments will continue to enhance electric reliability by increasing our ability to automatically reroute power during outages.

California's clean energy policies will also drive continued investment. As you can see on slide 20, we expect to spend about $1 billion through 2020 on grid modernization projects. As I mentioned earlier our customers are already adaptors of technology and we already have the most solar rooftop installations and electric vehicles in the country.

The demands on distribution grid are greater than ever before and we need to continue to invest in technologies and systems that seamlessly integrate distributed energy resources and accommodate two-way power flow.

We also expect to play a critical role and helping to electrify the transportation sector by building out the necessary charging infrastructure. And we see this trend continuing well into the next decade as the states moves towards its longer term goals of increased renewables, energy efficiency, energy storage and electric vehicles.

With all of this investment in our future, we are keenly focused on affordability. As you can see on slide 21, we are in good shape today. Our bills are 30% lower than the national average. And over the last couple of decades, our electric rates have grown in line with the rate of inflation. But we know it will be challenging to continue this trend.

Over the next 10 to 15 years, we expect our bundled electric load to decline due to a combination of increased energy efficiency and demand response, and communities electing to procure their own generation through community choice aggregation.

In fact this was a major driver behind our decision not to seek to extend the Diablo Canyon Power Plant license beyond the current expiration dates of 2024 and 2025. As you can see on slide 22, we have a number of strategies to manage this change. Our current electric portfolio gives us a lot of flexibility.

We purchased over half of our energy from third-parties and about 30% of the megawatt hours under contract are expiring over the next five years. As I mentioned earlier, our revenues have been decoupled from sales for decades and we have mechanisms in place to allocate appropriate costs to our departing customers.

So, while declining load doesn't impact our earnings, it does ship costs among our customers under the current rate structures. That’s why our strategy also includes modernizing our rate structures. As the use of our grid changes, the way our rates are designed needs to be changed as well.

Both the State Legislature and the Public Utilities Commission have recognized the need for reform and we’ve made some progress over the last year through flattening the residential tiers and moving new net energy metering customers to time of use rates.

We’ve also shifted the peak period for our time of use rates from mid-day to the evening hours in recognition of the significant amount of solar generation now available during the day but more work needs to be done.

In September, the CPUC issued a draft whitepaper on its Distributed Energy Resources Action Plan, which outlined its vision for effectively integrating Distributed Energy Resources into the system. Part of that vision is to develop rates structure for the new grid uses, while ensuring that rates remain affordable for non-DER customers.

We look forward to working with the commission over the next several years to update our rate structures, to better reflect the current and future uses of the grid. At the same time, we are working to drive sustainable efficiencies in our own cost structure.

To our benchmarking and continuous improvement efforts, we have successfully reduced costs in a number of areas over the last few years. Going forward, we will continue to capture savings through process improvement, technology investment and procurement efficiencies while maintaining a strong focus on safety and reliability.

So, as I think you can see, we are at the forefront of a lot of exciting industry changes. California’s vision of a decarbonized economy creates a lot of investment opportunities. As we just discussed, we are well-positioned to manage changes to our load profile as customer choice increases.

So before I turn it back over to Jason to talk about our updated guidance, I want to say again how proud I’m of the progress that this team has made over the last six years. We’ve had a relentless focus on safety and reliability and you can really see the results of that in our operational metrics.

I’m excited about our future and confident in our ability to deliver strong operational and financial results going forward. So with that, let me turn it back over to Jason..

Thank you, Tony. I’m going to finish up today’s presentation by reviewing our 2017 earnings guidance and updated CapEx and rate base guidance through 2019. Turning to slide 25, our 2017 guidance on an earnings from operations basis is $3.55 to $3.75 per share.

We are also providing ranges for the items impacting comparability, which I will come back to in a minute after we review the guidance assumptions on slide 26. Starting the upper left corner, you will see we are assuming capital expenditures of roughly $6 billion. We’ve included the breakdown by rate case here.

In the upper right corner, our estimate weighted average rate base is about $34.3 billion for the year. Both the CapEx and rate base assumptions are within the ranges as we provided last quarter. In the lower left, we continue to assume a CPUC authorized equity ratio of 52% and a return on equity of 10.4%.

Finally in the bottom right corner, we list some of the other factors we believe will affect 2017 earnings from operations. Our guidance assumes that both the GRC settlement and a proposed Phase 2 decision in the gas transmission rate case are approved without material change.

And you will recall that we do not seek recovery in the gas transmission rate case for about $50 million of costs in 2017. We are also showing a positive item here for incentive revenues and other benefits, which include things like our energy efficiency programs.

I will note that we are no longer showing a positive item for tax benefits, consistent with the guidance we previously provided. And we continue to expect that CWIP earnings will be offset by below-the-line costs, which includes things like charitable contributions, advertising and certain environmental costs.

In 2017, we expect that a number of other -- we expect that the other earnings factors listed here will largely offset each other. As a result, we are targeting to earn the CPUC authorized return on equity on rate base for the enterprise as a whole. Turning to slide 27.

The guidance for our items impacting comparability ranges from a negative $35 million to a positive $40 million pre-tax. The categories are consistent with the items we had in 2016. The estimated range for pipeline related expenses is $80 million to a $125 million pre-tax. This item relates to clearing our gas transmission rights-of-way.

While we are confident in our ability to fully complete the program within this range, there is a chance that a small portion of that work could slip to 2018 due to permitting requirements. We will monitor the program throughout the year and provide updates as we have better information.

The second component is legal and regulatory related expenses, which we estimate to be between $10 million and $40 million pre-tax. This represents costs incurred with enforcement, regulatory and litigation activities regarding natural gas matters and regulatory communications.

The third component is for potential fines and penalties, again related to natural gas matters and regulatory communications. We are showing a total of $30 million, which reflects a 2017 portion of the disallowed expenses expected from the Phase 2 gas transmission rate case decision.

While we haven’t yet reflected the 2017 portion of the ex-parte penalty, we would expect to report an additional $40 million pre-tax after the proposed Phase 2 decision is approved. Butte fire related costs are uncertain in 2017. But this item will reflect any updates to third-party liability estimates, legal costs and insurance receivables.

And finally for the gas transmission rate case, we are showing a positive $160 million for the portion of the 2015 and 2016 out-of-period revenues that we plan to recognize in 2017. Turning to slide 28. We assume equity issuance of about $400 million to $600 million in 2017. That compares to roughly $800 million in 2016.

The main drivers for the difference are the lower expected San Bruno penalty costs and gas transmission capital disallowance. Partially offsetting these reductions are higher capital expenditures. After 2017, we expect our unrecovered costs to continue to decline as we wrap up the gas transmission rights-of-way program.

As a result in 2018 and 2019, we expect to be able to meet our equity needs largely through our internal programs, which can generate about $350 million annually. Moving to slide 29 and 30. We’ve updated our CapEx and rate base guidance through 2019. This year, we are including a breakdown by major rate case.

For the general rate case, the numbers are consistent with the all-party settlement we announced earlier this year. For the gas transmission and storage rate case, the numbers are consistent with the assumptions embedded in our Q2 guidance with one exception.

We previously assumed that roughly $400 million would be added to rate base in 2017 for the 2011 through 2014 capital spend subject to audit. Because that audit has not yet begun, we are now assuming that the $400 million will be added to rate base in 2018.

For the electric transmission owner rate case, we show a small range, which represent the TO18 request at the high end and a TO17 settlement at the low end. We’ve held these assumptions flat through 2019.

We’ve also listed some items here that are not included in our rate base assumptions, including primarily any new investments that will be included in the 2019 gas transmission rate case and the 2018, 2019 electric transmission rate cases. Finally, slide 31 is just a reminder that we are targeting a roughly 60% payout ratio for our dividend by 2019.

On average, this should provide for above average dividend per share growth. I know we’ve covered a lot this morning. Let me conclude by reiterating the points Tony started with. Over the last six years, our focus on safety has resulted in significant operational improvements.

We have a number of strategic advantages that help position us to effectively manage industry changes and we believe our roughly 6.5% to 7% rate base growth and above average dividend per share growth through 2019 make us an attractive investment. With that, I will open it up for questions in the time we have remaining..

[Operator Instructions] Our first question comes from the line of Steve Fleishman with Wolfe Research. You may proceed, Mr. Fleishman..

Hi. Good morning.

So, just on the financing plan for 2017 and the equity, is this -- are we pretty much at a level where we are just funding the core business, or we are not really dealing with any of the kind of balance sheet fixes for some of the lingering issues?.

Hey. Good morning, Steve. The 2017 equity guidance plan does assume that we continue to fund some unrecovered costs, which are primarily related to the clearance of our rights-of-way, our gas transmission business. Otherwise the major driver of the equity plan is our CapEx and the needs of our CapEx spending..

And how much -- is that a $100 million still or is that a different rights-of-way for $75million?.

We are estimating between $80 million to $125 million for the year..

Okay..

Pre-tax..

Okay. And then one other high-level question.

Tony, you mentioned in terms of the affordability stuff, you have a lot of your old PPA contract rolling off over the next five years?.

That’s correct..

My recollection is some of these probably are pretty high pricing.

So, I’m just curious how much potential rate headroom that creates over the long-term or any kind of just sense of that?.

Yes. Steve, the way to look at is -- our objective is to maintain a rate trajectory to approximate the rate of inflation and you’ve got several levers to pull. One is we are working hard on efficiencies within our operations. But as you recognized, another will be the cost of purchase power. And you are absolutely right.

Some of the early renewable contracts that we signed probably decade ago were significantly higher and while those aren’t changes that fall to the bottom line as such but they are changes that affect affordability because they directly affect the customer bill. So, we are working on pulling those levers.

And then we have a number of other balancing accounts. So, we continue to work on where again, don’t necessarily fall to the bottom line but give us more headroom when we invest the capital that we see we are going to be investing over the next decade or so..

Okay. Thank you..

Thank you, Mr. Fleishman. Our next question comes from the line of Julien Smith with UBS. You may proceed..

Hi. Two questions here.

First, little bit more detailed, when you think about the cost of capital proceeding coming up, can you give us some comments on what the tailwinds you are seeing in your cost of debt versus what’s embedded in rates today and willingness to potentially use that as something as part of the ongoing conversations? I will stop there..

Cost of capital or any settlement discussions are confidential. But what I would say in terms of the embedded benefit for cost of that is roughly around $75 million a year..

Got it. And that’s pretty stable right now..

That’s kind of what we are currently experiencing. Now, I will have to see what rates, how rates move and what our upcoming issuances look like..

Got it. Excellent. And then going back a little bit higher level, you commented one of the erosions in your sales forecast relates to CCAs.

Can you comment on what the pace of the CCA is and just broadly what that means for your business? I know there is puts and takes but I’d just be curious, specifically on the procurement front, what does that mean?.

Geisha Williams will comment on that..

Hi, Julien. This is Geisha. So, we have CCA activity going on at various stages of development or at various stages of considerations.

Some of the CCAs, some of the communities present larger amounts of loads than others and so it’s really a probabilistic view of trying to figure out when certain CCAs are going to happen, what kind of load might affect the partner. Now, remember that they would only be responsible for providing the energy, the energy side of the business.

We would still be responsible for the T&D business. So, as we look at our load projections, it is kind of difficult to pinpoint it down to a particular number in terms of what we might be able to see from CCAs. It can move pretty quickly. And in other cases we see CCA is taking longer, sometimes up to 18 months or 24 months.

So it’s a bit fluid is how I would answer that..

Got it.

Maybe just curious, do you think broadly the tariff structure, the exits and ongoing payments are sort of reflective of what the incurred costs?.

Hey, Julien. This is Steve Malnight from Regulatory Affairs. As we look back, we are constantly working with the commission on how to continue to revisit and look at the cost allocation mechanisms that are in place.

I will say as Geisha alluded to, I think when we look forward, we see a significant expansion of CCA load growth and that’s one of the reasons why the Diablo Canyon settlement made sense for us. So in light of that, we continue to go back and look. And I think that it’s likely that those mechanisms will evolve as the marketplace evolves as well..

Got it. Great. Thank you so much..

Thank you, Mr. Smith. Our next question comes from the line of Jonathan Arnold with Deutsche Bank. You may proceed..

Good morning, guys..

Good morning, Jon..

Hi, Jon..

Thanks for all the details. Just a quick question. You indicated that the items kind of other than regular rate base type of math would amount to about zero in 2017.

Any reason to see that changing, as you look out into ‘18 and ‘19 that’s obvious?.

It continues to remain our objective to earn our authorized return on equity. What I will say is the gas transmission and storage Phase 1 decision created some challenges for us in terms of mandated work levels and certain cost gaps.

However, we are going to continue to drive efficiencies to offset these challenges to enable us to earn our authorized return. So, I think that should be focus, earning the authorized return on equity across the enterprise as a whole..

And then just sort of a little detailed. I think you said that going forward ‘18, ’19, you think you could hit your equity needs largely through internal plans and that they generate about 350 a year.

Should we be using 350, is it little higher or?.

I was going to stick with what I had said, which was it will largely meet our equity needs..

Thanks. All right. That’s it. Thank you very much..

Thank you, Mr. Arnold. Our next question comes from the line of Michael Lapides with Goldman Sachs. You may proceed..

Hey guys. Congrats.

Tony, one question, the slide on grid modernization and the $1 billion spend, just curios is all of that embedded in some of the GRC settlement in your distribution spend that you have over the next few years, or we have to go into the CPUC and request approval of this in some kind of memo account?.

The approach we’re making is to embed our grid modernization in our GRC cases, in our transmission system cases. So, we’ve been making these investments probably for close to a decade and we continue to make and the $1 billion numbers are estimate of what it’s going to be in the next couple years coming up..

As a reminder, I would say most of it has already been approved but there is a component that we are still seeking recovery from in terms of our TO case..

Got it.

And turning to the TO on the electric side, just curious how do you think about what the trajectory of electric transmission spend is over the next three to five years, kind of flattish to what you’ve got in 2016, 2017 potentially elevated and what could be some of the drivers that could move that around?.

Yes. I think as you look at the next -- clearly through 2019, you are going see a pretty flat but pretty robust spend in TO. And that’s really driven by a number of things but a lot as we look beyond 2019 frankly, will be with renewals integration work.

As we seek to achieve a 55% RPS goal by 2031, we recognized that we are going to need to continue to invest in our transmission infrastructure. So, a strong amount of capital through 2019 and although we are not providing guidance beyond it, I would imagine that we continue with the similar type of expenditure..

And then finally when I look at your CapEx budget, so kind of in the $6 billion range for the next three years, pretty flat actually, not kind of accelerating which is fine. But that would imply that free cash flow should improve, right because you get D&A, you have some other items like insurance proceeds and those things that add to some cash flow.

So should we think about -- your earnings growth may slow down a little bit in the backend of this forecast because CapEx is just confined at the $6 billion level but maybe your cash flow actually accelerates each year relative to the prior one?.

I think that’s -- there's a couple of things that are moving against towards those assumptions. So what we’ve seen is sort of an increase in the regulatory lag for cash recoveries, certain items.

One of the things that I would point to would be our expenditures for our wildfire prevention costs, which are pretty significant given the drought in the state and that’s generally been taking us three years -- between the time we spend the money and when we collected in rates.

And so there are offsetting factors that I would point to that would offset the cash acceleration that you mentioned..

Got it. Okay. Thanks guys. Much appreciate it..

Thank you, Michael. Our next question comes from the line of Chris Turnure with J.P. Morgan. You may proceed..

Good morning. I wanted to focus on the equity needs for next year. You saw a pretty good range there of $200 million.

What is embedded in that assumption in terms of proceeds from insurance on the Butte fire or other factors that might move you to the top or bottom end of the range?.

We continue to expect to see recovery for all of our insured losses from insurers. There will be a timing lag between points in which we recognize the charge for the costs when we actually paid those and when we collect them. Since they are mostly timing related items, we’d expect to try to finance as much as possible with short-term financing..

Okay. And when you think about the GT&S 2011 to ’14 audit, you are kind of putting that into 2018 rate base.

Right now is that a full assumption of the amount that’s being reviewed and how can we think about the considerations that that audit group will be taking into consideration there?.

Yes. The $400 million reflect the full rate base impact subject to audits and we feel good about the spend. We feel it was prudent. We feel it was necessary. So, we are going to have to go through that out.

You are going to have to make your assumptions around any perspective we will receive from our regulators but we feel confident enough to have proposed it and we will continue to seek recovery of it through the audit..

And what about timing there? Is early 2018 a conservative assumption that could be accelerated?.

There wasn’t really a timing ascribed to the audit in the Phase 1 gas transmission rate case. So that’s why we conservatively move the rate base impact to 2018. I think it’s just going to be important to follow the timing of the audit here throughout 2017 to make assumptions on ultimate timing of collection..

Okay. That makes sense. Thanks..

Thank you. Our next question comes from the line of Michael Weinstein with Credit Suisse. You may proceed..

Hi, guys. Question on the $1 billion grid modernization investment plan, how much of that or how much upside is there potentially when you look at that versus the distribution resource plan that are filed? Specifically, I’m thinking of the amount that you originally intended to spend on let’s say for example, electric vehicles.

That’s been pared back and I’m just wondering if there’s more -- if there is more spending that you would like to do beyond the $1 billion that just simply hasn’t been approved yet or that you’re not planning on filing immediately and how long could that go out for?.

Hi, Michael. This is Geisha. We’ve been at this grid modernization for quite some time now. And we’ve continued to be making investments for the last five, six years and so what’s reflected on page 20 is our estimate of the work that we intend to do through 2020.

As we get more insights and we continue to work with the commission on the DER plan, on IDER and the DRP, there could be additional sort of changes along the way. But we would invest. We would actually seek that recovery through future rate cases. So, I think in terms of an outlook through 2020, I think what we are showing on page 20 is accurate..

All right. Not expected to change much then.

And then also on the equity range, just going back to that previous question that you said that the timing high versus low depends on insurance recoveries, is that accurate?.

No, I wouldn’t count the insurance recoveries for the Butte fire in that equity issuance guidance. What I was referring to is there is going to be a timing difference between ultimately when we report the charge, when we pay out the cash and when we collect it from insurers.

Since that is largely a timing related issue, financing those payments we will do so through short-term financing options..

Like so how -- what are the factors that vary between the high and low end of the equity range for 2017?.

I think there is going to be a lot of factors in terms of sort of timing of recoveries. As I mentioned, I think we are seeing a trend towards a lag in cash recovery of certain expenditures, particularly as I mentioned wildfire prevention costs. Our last application for recovering those costs was about $200 million.

And so we continue to accelerate the spend in terms of preventing wildfires here in the state because of the drought. So there are assumptions on the recovery that could push us, recovery of cash that could push us to the upper end of that range..

Got you. Thank you.

Thank you, Michael. Our next question comes from the line of Anthony Crowdell with Jefferies. You may proceed..

Good morning. Just a question on CWIP. I guess prior to the San Bruno incident, I think CWIP was split, half went to shareholders, half went for below-the-line costs. As you’ve cleared maybe a lot of the issues related to the San Bruno incident, you’ve cleared them up.

Is there still a need with this level of below-the-line costs?.

It would be hard for us right now to say we could cut back on them. We still are dealing with some San Bruno issues. But also as we look forward with this size of capital investment, we’ve got to make sure the public understands why we are investing in renewables, why we are investing in electric vehicles.

So, I would be reluctant to say we could cut back on those costs in the next couple years certainly..

Okay. And just, last question and Anthony, you don’t have to answer, that’s fine. Just when you had started this endeavor of turning the company around, you looked at a timeframe of maybe three to four years, kind of in five years. I think the slides today you put out really show how much the company has been transformed over that time.

Do you see yourself still around there through this transformation or you thinking other things?.

I’m having a great time. I love seeing these slides. We pulled them together and you are making progress that when you lay them out. It’s fun to see how things have come together. I talk to our Board all the time about our talent development plans and at some point we will make a decision about transition but I'm not going to speculate.

I’m having too good of a time..

Okay. Thanks for taking my question..

Thank you, Anthony. Our next question comes from the line of Praful Mehta with Citigroup. You may proceed..

Thank you and thanks a lot for the slides. They are very helpful. Quick question on business update and I guess an important component of that is regulatory relationships.

How do you see that having transitioned over this transformation and are there anything that you are looking to achieve, or any trackers that we should look for that would suggest where regulatory relationships stand today?.

Hi. This is Steve Malnight. So, I would say we recognize that over the last several years we’ve had a need to focus on rebuilding trust with our regulators and stakeholders externally.

We have really made intensive efforts at that and are continuing to increase our engagement with commissioners, with staff, with interveners, all with clear eye toward the ex parte rules and restrictions. And I think that those kinds of efforts have really paid off as we are working on trying to settle key cases or other things.

So, we're going to really continue on that path and keep moving forward. I think that between the commission and PG&E we share tremendous common interest on ensuring that this company runs a safe, reliable, and affordable and clean system and that's we're going to keep working..

What I'd like to add too is, if you look at the role of the regulator I mean, they ultimately wanting sure that we're delivering safe and reliable service to our customers.

And so, when you look at the slide deck that's been put together and you look at the type of improvement that we've made over the last five or six years, we feel good about it and we think it’s a foundational basis of conversation with our regulators about the good work that we've done.

So, I think that it's about making sure you're delivering great service to your customers and that in turn ultimately we believe leads to improved relationships with our regulator as well..

Got you. That's very helpful. Thanks. And then, secondly in terms of retail rates, you've really pointed out that something that you're focused on which make sense. And as you're looking forward post 2019 and you're looking at growth rates relative to keeping retail rates in check.

Is there is deepening off of the growth you see over time balancing off these different considerations or how do you see that growth being maintained through the post 2019 period?.

I think we are going to look at lot of factors here, Tony mentioned earlier on the call the fact that we've potentially got some headroom associated with our expiring procurement contracts. Our focus is continue to drive efficiency in our operations to keep our rates affordable.

And kind of as we mentioned the trends we're seeing for capital investment, we think our longer term and extent beyond this 2019 period. So our objective is to kind of balance the need for that system investment while continuing to drive efficiencies in all aspects of the customers build..

And there are structural things in rates that the commission has already laid out [audio gap] dynamic area, but we watch it very closely, so we don't get rates spiking in any part of the state..

Fair enough. Thank you guys..

Thank you, Praful. Our next question comes from the line of Kevin Fallon with Citgroup – I'm sorry Citadel. You may proceed..

I had a question on slide 10 on the dividend that you are targeting in 2019 of $2.40.

Are you guys implicitly trying to lead people to earnings power of $4 in 2019? Or does the roughly 60% payout range fall in the old guidance of 55% to 65%?.

I think we're not trying to lead there, we're trying to focus on a 60% payout ratio of our earnings to 2019 and our objective is to get there over the next several years. [audio gap] that's correct yes..

Okay. Thank you..

Thank you, Kevin. Our next question comes from the line of Travis Miller with Morningstar. You may proceed..

All right. Thank you..

Good morning..

With respect to the grid modernization investments, the $1 billion and then any other extra that might come of that, how do you think about rate recovery for that? Are you thinking GRC? Are you thinking other trackers? Is there something else completely different out there? Help me think about the recovery of that?.

I think you should think of it in terms of the regular recovery we through the GRC and the TO rate case, that's the approach we've taken over the last six to ten years now. We have been investing in our grid at a pretty good clip.

It’s a big part of the reason we're seeing the improved reliability and as we look at future GRC that will be the right mechanism for distribution and infrastructure improvements modernization and cases for the transmission piece..

Got it.

Are any of these initiatives you would expect to either request or get rate tracker treatment and annual true up type treatment?.

The one that sort of a little bit different is probably the electric vehicle. That would be outside. It’s a separate sort of filing. We're expecting to get a decision on that hopefully in the near term, so that's an example of one falls outside the GRC. And there could be others, but right now we don't think of anything else.

We really do like putting everything for the GRC and using the TO rate case for transmission as well..

Great. Appreciate it. Thanks..

You bet..

Thank you, Travis. There are currently no additional questions waiting in queue..

Alright. Great. Thanks Monique, and thanks to everyone for joining us this morning. We look forward to seeing many of you next week at the EEI conference. Thank you..

Thank you ladies and gentlemen for attending the PG&E Corporation third quarter earnings conference. This will now conclude the conference. Please enjoy the rest of your day..