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-: Be on the record.
This is the time and place for further evidentiary hearing
in investigation 1909016.
I am an Assistant Chief Administrative Law Judge,
Michelle Cooke, and I will be covering today's hearing
for Administrative Law Judge, Peter Allen,
who is the assigned Administrative Law Judge.
When we left off yesterday we had just sworn
in Mr. Wells, and Mr. Weitzman had some clarifications
to add to the items that he is sponsoring today.
Mr. Weitzman.
Weitzman: Thank you your Honor.
Good morning Mr. Wells.
Are you sponsoring what's been marked
for identification as PG&E2
which contains exhibits to your testimony?
Wells: I am.
Weitzman: Are you also sponsoring what's been marked
for identification as PG&E3 containing additional
exhibits to your testimony?
Wells: I am.
Weitzman: Are you also examining
within what's been marked
for identification as PG&E4 exhibits 2.7, 2.8, and 2.9?
-: Yes I am.
Weitzman: Thank you, the witness is
available for cross examination.
Michelle: All right thank you.
Before we turn to cross examination I'm gonna identify
a few exhibits that may be coming up today.
At this time I will mark
for identification as exhibit Abrahams-X9,
a cross examination exhibit titled, "Better Way
"Out of PG&E Bankruptcy."
At this time I will mark
for identification as exhibit Turn-X5,
a TURN cross examination exhibit,
PG&E response to Turn DR-5, question five.
At this time, I will mark
for identification as exhibit Turn-X6,
a turn cross examination exhibit
which is excerpts from an EPUC data response
and PGD responses to Turn DR7.
At this time, I will mark for identification
as Cal advocates dash X1, PG&E's public responses
to the public advocates offices data request
number 001 through number 006, dated February 2020.
At this time I will mark
for identification as Cal advocates dash X2, excerpts
from PG&E 2019 form 10K.
The cover page is dated February 20th, 2020.
At this time we'll turn to cross examination
by MCE, Ms. Kelly.
Kelly: Thank you your honor.
Thank you Mr. Wells. -: Good morning.
-: So in your testimony you state that PG&E will pursue
a securitization, this is the rate payer
securitization that is rate neutral on average
for the wildfire, for the $7 billion
in wildfire claim cost.
Is that correct? -: That's correct.
-: And you propose to basically securitize
rate payer revenues under that transaction.
Is that correct?
-: That's correct. -: Great.
Now if you could please turn to exhibit MCEX1, page 54.
Let me know when you're there.
-: Okay.
So for the benefit of the folks
in the room here, this is
the motion of the debtors regarding
customer programs and public purpose
programs dated March 12th, 2019.
And you are familiar with this document?
Wells: Yes I am.
-: Thank you.
So starting on page 54, PG&E describes funds received
by PG&E that flowed
to what is being broadly called customer programs.
Is that correct?
Wells: That's correct, yeah.
-: And I will quickly list those,
and you can correct me if I'm wrong.
Those customer programs are,
deposit and reimbursement programs, public purpose programs,
environmental cleanup programs, third party programs,
GHG credit programs and customer support programs.
Correct?
-: That's correct.
-: And community choice aggregator
or CCA funds are a
part of what is called third party programs.
Correct?
(faintly speaking)
-: If I can take just a minute to.
Michelle: Let's be off the record.
Let me know when you're ready.
(faintly speaking)
-: All right.
Michelle: Back on the record.
-: I would not characterize the community choice aggregation
as customer relating programs, no.
-: Please turn to page 69 of that same document
which defines third party programs.
-: I see the reference.
You're right.
-: So third party programs includes CCA funds.
-: That is correct. -: Okay.
So speaking about customer programs broadly,
the list of six items that we went through just now,
does PG&E propose to pledge or encumber
or securitize any of the funds associated
with these customer programs?
-: No we would not anticipate securitizing
or covering these revenues associated with these programs.
-: And is that showed in your testimony anywhere?
-: No, the testimony that I sponsored does not address
the specifics of the securitization
transaction that we intend
to file on a separate application.
So no, it is not addressed specifically.
-: Okay, thank you.
So turning to exhibit PG&E 12, slide 29.
-: Yes, I'm there.
-: Okay.
So this comes from PG&E's business outlook February 2020.
So in this chart what does this chart show?
-: This chart is highlighting
the rate based growth that the company has forecasted
under its five year financial projections.
-: Okay, so.
So this is for the forecast you're saying that it
would be a year over year increase of 8%
or is that 8% over the entire period?
-: It's a compounded annual growth rate,
so year annually on average rate base will grow 8%.
-: So subject to check, you expect your rate base
to go (mumbles) during the period of 2019 to 2024 by 47%?
-: Subject to check, but it sounds directionally accurate.
-: Okay.
And we were just talking about customer programs.
What is defined as customer programs funds included
in this rate based figure?
-: This rate based figure doesn't take
into consideration customer related programs.
Rate based is essentially, I'd characterize
it as our cumulative investment
in our gas and electric systems.
So it's actual cost to deliver electricity
and gas to customers less the depreciation in taxes.
Kelly: Thank you.
Michelle: May I interrupt for just a moment.
Ms. Kelly can you direct me
to where it is that you are
what document you're looking at again?
-: Yes, I'm happy to do that your Honor.
This is PG&E hearing room exhibit 12, slide 29.
Michelle: Thank you.
-: Okay, now turning back
to your testimony, let's go to page 2-1.
Michelle: And is this in PG&E1?
Kelly: Yes, I'm sorry.
In exhibit PG&E1, page 2-1.
Wells: Okay I'm there.
-: Okay, so if you could please read the last bullet
in your list on that page?
-: Positions and utility in PG&E corporation
to be financially healthy upon emergence.
That one?
-: Yeah, so you're saying that the plan of
reorganization will position the utility
and PG&E Corporation to be
financially healthy upon emergence?
Okay.
So what is an average secure data credit rating of an
investor owned utility in the United States?
-: I don't have the figures in front of me,
but I would anticipate high investment grade ratings,
triple B plus, A minus.
Using S&P's rating methodology.
-: Okay using S&P, you're saying that triple
B plus or A minus?
Yeah.
-: Subject to verification, but generally speaking, yes.
-: Yeah, thank you.
(faintly speaking)
Okay.
And what would be an average unsecured debt rating of an
investor owned utility in the United States?
-: I'm sorry could you repeat the question?
-: Yes what would be an average unsecured
debt rating of an investor owned utility
in the United States?
-: I think most are trading probably
around triple B plus or better.
-: Okay.
So that would be a reasonable investor owned
utility credit grade rating?
-: I object to the term reasonable.
But I would say yes generally speaking that's where
utility investment grade
ratings are occurring, currently set.
-: Okay, great.
And then so you had said it positions the utility
to be financially healthy.
Can you clarify that?
Are you saying that immediately
after emergence from chapter 11 the utility
and PG&E Corporation will be financially healthy?
-: I believe that's the case.
Yes. -: Okay.
So earlier this week Mr. Plaster testified that the secured
credit rating of the utility would be
about triple B or triple B minus.
Is that indicative of a financial healthy company?
Male Panelist: Sorry, could you repeat
the question please?
-: Yes.
Earlier this week, Mr. Plaster testified that the secured
credit rating of the utility would be
about triple B or triple B minus.
Is that indicative of a financially healthy company?
Male Attorney: Objection, misstates
Mr. Plaster's testimony.
Kelly: Would you like to correct what Mr. Plaster stated?
Male Attorney: Yes, he was talking about unsecured.
-: Mr. Plaster testified to both secured and unsecured.
Male Attorney: He did.
And he said secured would be investment grade.
-: Yes, correct.
That the secured credit rating of the utility would be
about triple B or triple B minus
which is an investment grade rating?
Male Attorney: That's incorrect.
Why don't we let the witness answer.
Michelle: Let's let the witness answer,
and people can review the transcript
and determine what Mr. Plaster said early in the work.
-: Yes I do think
it's reflective of a financially healthy utility.
I think what's important
to unpack here are that ratings are driven by two things.
They're driven by quantitative--
Kelly: Objection your honor.
May we please skip to the line of questioning.
Unfortunately, I only have 30 minutes.
Michelle: Let's answer the question that
the attorney asked, and if you attorney would like
to have clarification on redirect, that's okay.
Kelly: Thank you very much.
Michelle: Let's approach that this way
as much as possible today for everybody.
-: Thank you very much. -: Thank you.
-: Okay, so Mr. Plaster testified, getting back
to this, that the secure credit rating would be a triple B
or triple B minus.
Are those investment grade ratings?
-: Yes they are. -: Okay.
And are the secured credit ratings of triple B
or triple B minus indicative of a financially
healthy investor owned utility?
-: Yes they are.
-: Yesterday, Mr. Plaster testified that the unsecured
credit rating of the utility would be non-investment grade.
Is that correct?
-: That's likely, yes.
-: Having a unsecured credit
rating is that indicative of a financially healthy company?
-: Quantitatively we have targeted financial
metrics that are consistent
with a financially healthy utility.
That rating that you're referring
to is more of a reflection of the qualitative
business, risk assessment of the California environment.
-: So let's just use an abstract utility
with an unsecured credit rating of say double B
which I believe is one of the potential unsecured
debt ratings of the company.
So that is considered non-investment grade speculative.
Correct?
-: That is correct.
-: So would a utility with a double B unsecured credit rating
would you consider that to be a financially healthy company?
-: I could, depending on the financial metrics.
-: Okay, so.
And credit metrics are not the same as a credit rating.
Correct? -: Correct.
-: Okay.
When would PG&E inspect to have an investment grade
credit rating for unsecured debt?
-: It's hard to speculate exactly when
the credit rating agencies
would raise the company's rating,
because the driver of the rating that you're referring
to is more of an assessment of the business risk environment
here in California, as opposed
to the financial plan that we put forward.
-: And in your best professional judgment, based
on your knowledge as the CFO of a publicly traded
company and just knowing the market, what do you think
in your professional judgment would be
the timing for PG&E to have an investment grade
credit rating for unsecured debt?
-: I'm trying to be responsive that I believe
we put forward a plan that based
on the credit metrics--
Kelly: Yes.
Objection your honor, non-responsive.
Michelle: I'm gonna allow him to answer.
-: We put forward a plan that I believe meets
the definition of investment grade from a financial profile.
Another party's assessment of the California
business environment is difficult for me to speculate as
to when they will have confidence
to upgrade the overall rating to investment grade.
-: And when would PG&E seek
to receive an investment grade
credit rating for unsecured debt?
-: As quickly as possible.
-: But as testified yesterday, currently, my apologies.
The other day Mr. Plaster said
at this point those would be non-investment grade.
Correct?
-: That's correct.
-: Okay thank you.
So next I wanna turn to just some questions
about what PG&E is saying in its testimony
and what it's asking for.
So MCE had requested that the sources
and uses of PG&E be broken out into the utility sources
and uses and the corporation sources and uses.
Is that correct?
-: I think that's correct, yes.
-: And did you provide that?
-: I'm not aware of us providing that yet.
-: Subject to check, would you say that in your data request
response you stated that that
was quote, "highly confidential?"
-: Subject to check, yes.
-: And in the bankruptcy context, are
the finances of the utility
and the corporation highly confidential?
-: As a publicly traded company, much of the details of our
financial projections, yes, are highly confidential.
-: In the bankruptcy context. -: Yes.
-: Would you please turn to page...
Actually given that we're short on time I'll pass
on that question, but I'll refer to that in two.
The bankruptcy filing and
the financials that for example are given
to the bankruptcy court on a regular basis that is set forth
in MCEX1, beginning on page 25.
And have you provided
to the Commission a breakdown of sources
and uses between the company and the corporation?
-: I'm not aware of doing that yet.
-: And MCE had also requested for a visual representation
such as a cashflow diagram of this transactions.
Does PG&E have such a diagram?
-: Can you specify which transaction?
-: Yeah, just, how 'bout the transactions at close?
In order to emerge from bankruptcy, those transactions?
-: That's something I, it's reflected
in the second page of my testimony.
-: What I'm discussing is a visual representation,
a visual map, not just a list of sources and uses.
-: Yeah, we don't have a visual map.
We've identified the party, where the funding's coming
from, the party's where that funding's going.
-: Okay.
So now I'd like to clarify a bit what PGE is actually saying
at its testimony, and what it's asking of the Commission.
So you asked for four financing authorizations.
Correct?
-: That's correct.
-: And you also have those tables set forth
on tables 2.2 to 2.4.
Is that correct?
-: I believe that's correct, yes.
-: Okay.
So for table 2.2, what--
Michelle: Can you direct us to the page?
-: Oh yes-- -: 216.
-: At two dash 16 of your testimony.
-: I'm there.
-: Thank you.
For table two dash two, what is
the date of sources that you're contemplating there?
What is the date, as of what
date are you're contemplating there?
-: We haven't specified the specific date.
That will be dependent upon the receipt of the confirmation
order and effectuating the exit financing
and ultimately emergence from bankruptcy.
We're anticipating roughly middle of the summer.
-: Middle of the summer, okay.
And so this is the immediate exit from bankruptcy?
-: That's correct.
-: Okay.
And in table 2.3, those uses are upon the immediate exit.
Is that correct?
-: That's correct.
-: And table 2.4, what is that date?
-: That would be immediately upon exit as well.
-: Okay, so the items set forth in 2.4 are contained
within table 2...
Can you explain where those fit in?
-: They would reconcile to 2.2, the sources.
So the line in table 2.2, new utility
debt of 23.7, $75 billion reconciles.
This is an expansion of that detail under 2.4.
-: Thank you.
So getting into the more specifics of things,
I'm just gonna go one, two, three, four
with your financing request.
Is that okay?
-: Sure. -: Okay.
So your first request is
for $11.85 billion in longterm debt.
-: That's correct.
-: And that is also immediately upon exit?
-: That's correct. -: Okay.
And is there a shorthand that is used
more globally for that?
So for example, longterm note holder RSA debt
or some other defined term that's used consistently
throughout your financials,
the bankruptcy plan, and your testimony.
-: If I can have just one minute to flip.
It's defined in my testimony a little bit later.
Michelle: Let's be off the record.
-: I just find it your Honor.
Michelle: Back on the record.
-: H2-27, kind of at the bottom of the page there.
It starts a description of the $11.85 billion
in longterm debt securities contemplated
by the note holder RSA.
It then over the next, call it page and a quarter,
page and a third breaks down those specific insurance.
Kelly: And so this is reflected on exhibit 2.7.
Is that correct?
No exhibit 2.7.
It's volume four, H&E four.
Michelle: Let's be off the record.
-: Apologies, which page?
Michelle: It's at PG&E dash four.
Kelly: PG&E dash four.
-: And just for clarification purposes, I've.
Michelle: What page are you going to?
-: No I don't need to turn to any page of it.
All I need to know what it is.
I just wanted to make sure that I'm corresponding
everything that is for example just even
in the table of contents to what you're talking about.
-: Thank you.
Yes.
Michelle: Wait, wait, we're off
the record (faintly speaking).
Let's be back on the record.
I think what we're doing is doing a
nomenclature reconciliation and
across different volumes of the testimony.
-: And the plan your Honor. -: And the plan.
-: Yeah.
Okay, so let's start from the beginning, thank you.
Okay, so your first request is
$11.85 billion in longterm debt.
Where are the term sheets for this
or my apologies, let me go back to my original question.
Is this the same debt as reflected in exhibit 2.7?
-: In 2.6.
-: So you have to look at 2.6 and 2.7 combined
in order to reach this figure?
-: That's correct.
And a summary of that can be found basically
on page 228 of my testimony.
-: Okay, and so it isn't exactly longterm debt.
It's a split of medium term debt and longterm debt.
Is that correct?
-: Technically, it's longterm,
because it's greater than a a year,
but the maturities do differ.
And so we characterize them as medium term
for the essentially five and eight year notes
and in the longer term notes as longterm.
-: And what are the mandatory uses of that debt
on your tables, table 2.3?
-: It addresses the line item on table 2.3 that is entitled
"Pre-petition Debt, 22.18 billion."
-: Okay let me just take a quick pause there.
So these notes that you're talking
about are notes of the utility, correct?
-: That is correct, yes.
-: And that is paying off
items that include holding company debt?
-: May I explain with a longer answer?
-: Yeah, let's turn to page two dash 10 of your testimony.
I'm at PG1.
And I would appreciate a short answer.
And then if the short answer doesn't answer it,
then we can talk about the longer answer.
-: The short answer is it doesn't relate
to the items identified on page two dash 10 of my testimony.
It relates to table 2.3, that pre-petition debt
which I can break down for you.
-: I'm sorry.
I couldn't follow that.
Can you say that again?
-: It might be easier if I have the opportunity to--
Kelly: Yeah, please.
-: When we enter bankruptcy we had
22.18 billion of debt at the utility.
That is entitled "Pre-petition Debt" under table 2.3.
Some of that debt was Haiku Pond debt that we negotiated
with note holders to exchange
into new, lower cost notes that are outlined
later in my testimony.
That's that 11.825 billion, if you look on table 2.2.
Just above that line on table 2.2, there is
a reinstatement of utility debt.
So that 9.575 billion were the low coupon
bonds that we thought were
in customers' interest to reinstate.
So if you add the 9.575 billion
and the 11.85, it's essentially addressing
the pre-petition debt of the utility in that manner.
Kelly: Would you please turn
to page two dash 10 of your testimony?
-: I'm there.
-: So one of the items that's identified as pre-petition
debt is utility PC bond claims
and HoldCo funded debt claims.
What are the HoldCo funded debt claims?
-: Prior to entering bankruptcy, we had
a term loan at the holding company.
And we had drawn on the corporate revolver.
And so we had two borrowings
at the holding company as we entered bankruptcy.
(faintly speaking)
Borrowings.
At the holding company.
Kelly: So turning back to table 2.3, is that included
in the pre-petition debt line item?
Male Attorney: Can you distribute your question please?
-: Yes.
So what I'm trying to understand just more generally
there is this longterm debt that is planned
to be taken out by the utility.
So this is this 11.85 billion.
It is going to be used for pre-petition debt.
And that pre-petition debt includes
debt of PG&E Corporation.
So I'm trying to understand that.
Male Attorney: That's states his testimony,
but you can answer.
-: Included in 22.18 billion is the funded debt
at the holding company which is approximately 650 million.
-: And are there any other amounts of pre-petition
debt that are at the corporation level?
-: No.
-: And so is that 650 million going
to be paid for directly or indirectly
by the 11.5 billion in longterm debt?
-: No.
-: Okay.
So your next request is 11.925 billion
in what you call additional longterm debt.
Where is that reflected on these tables?
-: On table 2.2 there is new debt of 5.825 billion
and then temporary utility debt of 6 billion.
And then, apologies, above those two lines,
there's the refinancing of pollution control
bonds for 0.1 billion.
-: Okay.
Michelle: So time check, you're at about half an hour.
-: Okay, thanK you.
I hope to be done...
This is taking longer than I expected your Honor.
Michelle: May we go off the record
for a moment, off the record.
-: I have quite a number of more clarifications.
Male Panelist: Again, we got three witnesses today.
They have to get on and off.
Michelle: I'll give you five more minutes.
Do as much as you can.
See if somebody else can take (mumbles) in their time.
(faintly speaking)
-: (mumbles) off the record. -: Yes.
Woman On Panel: San Francisco will donate
our 15 minutes to MC.
-: Okay. -: Thank you.
Michelle: Thank you.
Back on the record, Ms. Kelly.
-: Thank you your Honor.
In your exhibits where are the term sheets for those
or where are those documented referenced in your exhibits?
-: Please clarify what documents you're referring to counsel?
-: The 11.925 billion in additional longterm debt.
-: I don't believe they were referenced in the exhibits,
because they're the debt that we need
to issue upon exit.
So we're looking for authorization here to do so.
-: So there are no term sheets
or commitment letters for that?
-: The 5.825 billion is
part of the bridge commitment letter in exhibit 2.8.
-: And the remainder does not have
any commitment letter or term sheet.
-: Correct.
We have not negotiated one currently.
-: And you're intending for the Commission
to authorize this transaction
without the terms and conditions of those debts?
-: Yes we're asking for authorization
to issue six billion of debt at the utility.
But that debt would be paid for by shareholders.
-: But it would be taken out at the utility level.
-: That's correct.
-: So--
Michelle: Let me ask a question.
Mr. Wells, are you aware of when the Commission reviews
applications to grant utilities authority
to issue debt, of whether those applications incLude terms
and conditions related to that authority to issue date?
-: Yes I am generally aware, yep.
Michelle: And are you aware of whether
those applications typically do include those terms
and conditions or do not?
-: I'm not aware.
Michelle: You're not aware of what they include?
-: What they typically include, yeah.
Michelle: Okay, thank you.
-: Okay.
So we have the bridge commitment letter which we've defined
which I do want to come back to.
And some other needs that do not have
commitment letters or term sheets.
Now turning on to item three, this $6 billion
in short term debt, where is that reflected
in the sources and uses,
rather sources, my apologies?
-: That third authorization is not
directly reflected in sources.
It's authorization for ongoing short term borrowing.
-: And that would be executed immediately upon exit?
-: It would be a variety of instruments that we've outlined
later in my testimony.
-: And each of those instruments are expected
to be entered immediately upon emergence?
-: Not necessarily.
Some of them may, but not all of them.
-: And where are the term sheets
and commitment letters for those transactions?
-: We have not finalized the negotiations.
-: Okay.
Next item, item four, 11.925 billion
in short term debt
to temporarily finance PG&E's exit from bankruptcy.
Michelle: Ms. Kelly can you direct me
to where that number is?
-: Yeah, that is, sorry (faintly speaking).
That is item four.
My apologies, I'll speak into the microphone,
item four on page 2-3 of exhibit PG&E1,
the main part of PG&E's testimony.
Michelle: Thank you.
-: Thanks.
Micelle: So that's showing on line 21 of two dash three?
-: Line 25 of two dash, 26, my apologies, of two dash three.
Michelle: Okay.
-: Okay.
So where does that 11.925 billion show
up in the sources and uses?
-: It's essentially the short term financing of the three
line items that I mentioned under new utility
debt that would be refinancing of pollution control
bonds for 0.1 billion new debt of 5.825 billion.
New debt of 5.825 billion
in temporary utility debt six billion.
-: So you're actually talking
about, when you had said that, when you identified
the items of what I'm going to call request number two,
same amount 11.925 billion.
Can you explain the relationship
between request number two and request number four?
-: They're similar.
Request four authorizes the short term nature.
To the extent that we have to issue the securities
under the bridge commitment that is referenced
in exhibit 2.8 and to the extent that we issue
short term temporary utility debt.
The purpose would be that ultimately that should be
longterm debt that will be refinanced
into the longterm notes that are referenced
in authorization number two.
-: So what you're saying is anything that you are not able
to finance under the 11.925 billion would be
in essence shifted to this short term financing.
Is that correct?
-: Not necessarily.
I would look at it as somewhat of an insurance policy
to make sure that we would have exit financing
on a short term basis for the exit
which we would ultimately divert into longterm finances.
Michelle: Can I ask a clarifying question here?
On page 2.3 you have the item at line 21.
That's the same figure, 11.925 billion,
in longterm financing, and then in number four
which shows on the same 11.925 billion
on Line 26 of page 2.3 of exhibit PG&E1.
That's the same new utility debt that you're referring to.
It's just as different points
in time it might be short term versus longterm.
It's not twice.
-: It's not intended to be duplicative your Honor.
It's to the extent that for whatever reason
we can't access the capital markets
at exit the banks have committed
to fund on a short term basis a bridge loan
which would ultimately be taken out with longterm debt.
And so we wouldn't intend to have
at the same time the same amount issued twice.
It's just effectively the same amount,
in case we have challenges raising the money.
Michelle: But you're seeking the authority
to do it at the full amount at either level,
because over time that need will change.
-: That's correct. -: Thank you.
-: And to clarify that request would be authorization
for overall debt outstanding at any one time
for item two and number item four of 11.925 billion.
-: That's correct.
-: Okay, thank you.
Okay, now I would like to turn to your utility bridge loan.
It's up at 2.8.
Michelle: And exhibit 2.8 is in PG&E2.
-: No, 2.8 is in PG&E seven.
Michelle: Let's be off the record.
Male Panelist: PG&E four, volume four, right, .7.
-: But it was replaced in.
That was replaced by what was contained in PG&E dash seven.
May I have a time check your Honor?
Michelle: Five minutes.
-: Dang, okay.
Michelle: So we're off the record right now.
-: Okay, I think I can do this in five minutes.
Michelle: What document are we in?
I don't know that document (faintly speaking).
Does it look like this?
-: It's PG&E dash seven, supplemental
testimony including errata at.
The page number that I'm looking at begins
on two dash exhibit 2.8-1.
Michelle: Okay, commitment letter.
-: Yeah. -: Okay.
-: And since I do have limited time, please--
Michelle: All right, I just (mumbles)
before we end I wanna clarify.
On this particular page it says personal and confidential.
I'm assuming PG&E's waived confidentiality of this.
-: Yes. -: Okay.
Okay thank you.
-: So. -: Okay.
Hang on.
-: Sorry your Honor.
Michelle: Are you ready?
Everybody have what we're talking about
or Mr. Wells are you there yet?
(faintly speaking)
It's the commitment letter, JP Morgan, Chase,
Bank of America, Citigroup, Barclay's, Goldman Sachs--
-: Thank you your Honor.
I have it.
Michelle: Okay, great.
Let's be.
Are you ready to go back on the record?
-: Yes your Honor.
Michelle: Okay, let's be back on the record.
To clarify where we are, we're in exhibit PG&E seven
page 2-EXH.2.8-1, and although this document is entitled
personal and confidential in it,
it is not confidential any longer.
-: Thank you.
And I'm actually, due to the limited number of minutes
I have in cross examination, please hold that place
for just a second so that I can ask a quick,
but important question on another item.
In the main portion of PG&E's testimony,
in your testimony page two dash 21.
-: Yes.
-: Please look at footnote 47.
-: Yes.
-: Where is the complete
list of waivers that PG&E is requesting of the Commission
in connection with this plan?
-: I believe we clarified that.
We began to outline it on page 2-22 of the testimony
and then clarified that, I forget
the official title of the document, but
with testimony this week.
I can walk through the three adjustments that we're seeking
if that would be helpful.
Michelle: Let's have a statement from counsel
after lunch of what the clarification was that was done
in the earlier testimony.
-: That would be great.
Thank you your Honor.
And just to clarify in the footnote this includes,
I'm sorry, I just wanna make sure that I'm close
to the microphone here,
rate making capital, holding company conditions,
and affiliate transaction rolls.
Is that correct?
-: That's correct.
-: And it says including in connection with any dividends.
Could you explain that please?
-: Part of the company needs
to satisfy capital structure requirements
in order to declare a dividend.
And so we're suggesting here the adjustments would be
part of the calculation to become in compliance
with its capital structure.
-: And so are you referring here
to the Commission's requirement
on the first priority condition of the holding company?
-: I'm not familiar with that condition.
-: So you have not made a showing
in your testimony that PG&E is
in compliance under these transactions
with the first priority condition?
-: What I intended to do
with this testimony is reflect the adjustments--
Kelly: Objection, non-responsive.
Have you demonstrated in your testimony that PG&E has met
the first priority condition?
Male Attorney: Objection.
Calls for legal conclusion.
Michelle: The witness can answer
to the best of his ability.
-: I'm not aware.
-: Thank you.
Okay, turning back to the commitment letter.
Michelle: Two minutes.
-: Thank you your Honor.
I will make this as quick as possible.
Okay, so the term sheet refers also
to a sort of sister financing, let's call it
or parallel financing, let's call it, of PG&E Corporation.
Is that correct?
-: Yes.
-: And these two documents are very interrelated.
Is that correct?
-: Only insofar as it's
the same banks providing the commitment.
-: Okay, so.
So let's start what's being secured under this note.
So this note which you call what again, the bridge facility?
-: The bridge commitment letter.
-: Bridge commitment letter is a first priority
security interest in substantially all of the present
and after acquired assets of the borrower.
That's the utility.
Correct?
-: That's correct. -: Okay.
Now, if you could turn to mandatory pre-payments
and commitment reductions, starting at page 26.
-: I don't have a page 26.
-: Oh sorry, this is on MCE.
No I'm sorry this is in.
Michelle: Lets be off the record.
It's that part of the commitment letter.
You don't have the full--
-: I don't have the full commitment letter then.
Michelle: You've got one minute Ms.
Once he finishes reading.
-: All right I'm there.
Michelle: Back on the record.
-: Okay, so.
In these mandatory pre-payments it states, let's see, are
on page 27, middle of the second main paragraph,
"The borrower may not pre-pay loans
"or reduce commitments under the facility," that's this
facility, "without pre-paying
"or reducing the PG&E facility on a pro-rata basis."
Do you see where that is?
-: Yes I see that.
-: Okay, so in essence any payments
under this facility you have to pro-rata pay
down the same amount in the corporation's facility?
-: I would need time to read this to.
-: Who would be the correct witness
to ask about the terms and conditions of these
six billion dollar finances?
That would be you as the chief financial officer.
Is that correct?
-: That's correct, yes.
I just need a minute to read the document.
-: Can we be off the record your Honor.
Michelle: Let's be off the record.
I'm gonna move to the next cross examiner.
And if we have time we'll resume with questions.
So, we need to keep moving.
-: I believe there are two very important
clarifications that I would like
to make with regard to this,
and those are my last two clarifications of the testimony.
Michelle: Okay, it looks like
Cal advocates is ceding time.
-: Yes 10 is plenty, thank you.
Michelle: Okay, don't take 10 minutes.
Take less than 10 minutes.
-: I will take less than 10 minutes, thank you.
Michelle: Keep reading.
Are you ready? -: I'm ready.
Michelle: All right, let's be back on the record.
Mr. Wells has reviewed it.
Ms. Kelly what's your question?
Kelly: Yes, thank you.
So the amounts under this facility cannot be repaid
without also repaying the debt at the corporation level?
-: I believe that's correct.
-: And is that the term sheet
for that corporate debt included anywhere in your testimony?
-: Other than the bridge commitment, no I don't think so.
-: Just to clarify, so you have provided
the PG&E company bridge commitment letter
but not the PG&E Corporation bridge commitment
letter that's referenced here?
-: I thought we provided both is my hesitation.
-: Perhaps PG&R's counsel can clarify that later.
Michelle: Yes, after a break we'll have a clarification
from counsel on that.
-: Okay thank you.
And in order to be able to repay the amounts
up at the corporation level,
where does that money come from?
-: Typically it'll come through refinancing
what is a short term debt instrument with a longterm.
-: Is that money coming from the company
or is that money coming from the corporation?
-: Ultimately the money to satisfy
the debt would be dividend from the utility.
These instruments are what I would consider
a form of insurance as a backstop
so that we can raise the money despite
what is happening in the market upon exit.
So the intention here would be that it would be repaid
with a similar longterm instrument.
Kelly: But in the meantime until you refinance all
these commitments are the responsibility of the company,
and you're seeking approval of those transactions.
Is that correct?
-: I believe so. -: Okay, great.
And this is my last one.
I promise your Honor.
Thank you very, very much for your patience.
So turning back to mandatory pre-payments
and commitment reductions, on page 26 subsection A,
it states that 100% of the net cash
proceeds of all asset sales are
other dispositions of property by PG&E, the borrower,
and the respective subsidiaries
and any insurance and condemnation proceeds need
to prepay the debt.
I'm paraphrasing, other than the important phrase,
"any insurance and condemnation proceeds."
Is that accurate?
-: Yes.
-: Okay.
So for example if there were a fire
and PG&E received insurance proceeds
at the company level, all of those
proceeds would be required to go
to paying down this debt.
Is that correct?
-: That's correct, because again this is intended
to be short term in nature.
-: Okay.
And say the insurance proceeds are $500 million.
I'm just picking any number.
So PG&E company receives $500 million in insurance proceeds.
And PG&E, the corporation, who has an equivalent size
facility would then have to come
up with $500 million
to repay their pro-rata, their amount under their facility.
Is that correct?
-: Yes.
-: And in addition the insurance proceeds are intended
for something, are intended to pay for a loss.
Is that correct?
-: That is correct.
-: So those losses would still have
to be paid for in some way.
-: That is correct.
-: And how would those losses be compensated otherwise?
-: Through a typical financing in the market.
Again, this is short term.
(faintly speaking)
Through a typical financing.
This facility is just short term insurance
to insure that we have the committed capital on exit.
This is not intended
to be a longterm borrowing of the company.
-: I understand that it is not intended
to be a longterm borrowing of the company.
But my specific interest is with regards to rate payers.
Are they bearing those risks in this transaction
or solely to understand how this transaction works?
So I now understand that if PG&E receives
insurance proceeds it has to pay off a loan.
PG&E Corporation would also at that time also have
to pay essentially an equivalent amount on its loan,
and PG&E would need to come up with additional money
to offset the losses that would
otherwise be paid for by insurance.
-: Well I agree with that interpretation.
It mis-characterizes the intent.
-: But that's what it says on paper.
-: Yes, but it mis-characterizes the intent.
-: And that it was is being committed to on this term sheet.
-: I think the benefit of this is regardless of what occurs
in the financial markets, and we've seen
incredible disruption this week with the coronavirus,
customers would have the benefit of the ability
for the company to make a timely contribution
to the state's Wildfire Fund
and to participate in AB1054.
We have that certainty with this committed financing.
It also provides victims the comfort that the amounts
we agreed to pay will be available at exit.
It's a short term instrument,
but it's considered to be what I would characterize
as insurance on the exit financing.
The agreement works the way you've described,
but it mis-characterizes the intent.
-: And would any refinancing of this
facility have similar terms?
-: I don't think so.
-: But that is not provided in your testimony.
-: It would be uncommon to have the relationship
between the holding company financing
and the utility financing
in a longterm debt financing agreement.
-: And is it common in a short term debt financing agreement?
-: Yes, because of what is in effect the insurance
nature of this committed financing.
-: Thank you your Honor.
I have no further questions.
Michelle: All right, thank you.
And just for purposes of the records
and some of the discussion occurred off the record,
we had city and council of San Francisco ceded
their questioning time to MCE and Cal Advocates also ceded
some of their time to MCE to allow Ms. Kelly
to finish her line of questioning.
The next cross examiner is Mr. Geesman for A4NR.
And again please speak into the microphone.
Geesman: Thank you your Honor.
Good morning Mr. Wells.
-: Good morning.
-: I'd like to start with a follow-up
to the question that the judge asked you.
And I will ask you to please explain how
it is that the chief financial
officer of this company is unaware of whether
the application for financial authorization
it seeks from this Commission
typically includes terms and conditions (faintly speaking).
-: I didn't understand the specific term
and how that related to the procedural requirements.
I understand the various filings we make,
but I couldn't connect to the description that was provided.
-: You have participated in those types of applications
to this Commission before.
Have you not?
-: I have, yes.
-: Thank you.
I'd like to turn to page two dash three of your testimony,
lines 12 through 15.
Michelle: This is in exhibit PG&E1.
-: Yes your Honor.
-: I'm there.
-: Lines 12 through 15 you say that the company will achieve
investment grade ratings for secured debt
and also expects to have investment grade
credit metrics at emergence
and will have a clear path
for improving its credit metrics over time.
I believe you've clarified with Ms. Kelly that those
references to investment grade credit metrics were focused
on the unsecured debt of the utility.
Is that correct?
-: No I don't believe that is correct.
-: Okay, would you clarify for me?
-: Can you help me clarify
the question you're seeking me to answer?
-: When you speak of investment grade metrics, are
you referring to the utilities unsecured debt?
-: I'm speaking to the quantitative assessment of the metrics
under the plan, not the holistic credit rating
which would also include
an assessment of the business risk environment.
-: But would that distinguish between the rating
on a secured instrument from a unsecured instrument?
-: What I was trying to convey
with this statement is that on a unsecured, insecured
basis I do believe that the quantitative
metrics the company is proposing
under its financial plan would qualify for investment grade.
-: Based on the five year projections that PG&E's made
when do you expect either Standard & Poor's
or Moody's or Fitch
to recognize PG&E's achievement of these objectives?
Male Attorney: Objection, asked and answered.
Michelle: I do believe Ms. Kelly asked that question.
Next question.
-: Is there any point during that five year period
when you expect Standard & Poor's, Moody's or Fitch
to issue a investment grade rating
on the utility's unsecured debt?
Male Attorney: Same objection.
Michelle: I'll allow that question.
-: I think they should.
I can't speculate as to the timing,
because it's not driven
by the financial plan that we put forward,
but more of an assessment of the business risk.
-: Would you describe the business risk
you believe will drive your ratings
over the next five years?
-: I'm sorry, could you repeat the question?
-: Would you describe the business risk that will drive
your ratings over the five year
period that the company has projected?
-: I think it's a reflection of a concern
around the California Regulatory Compact.
-: So that's a blame your regulator type of problem?
-: Not at all.
-: Would you elaborate then on what problems
in the California Regulatory Compact you believe
may prevent PG&E from achieving an investment grade rating
on its unsecured debt?
-: I think probably the best example of this is
while the credit rating
agencies acknowledge that the passage of AB-1054 was
credit positive, they did not increase
the credit rating of Southern California Edison,
specifically pointing to the credit rating agencies wanting
to understand how the Commission would apply
the new prudent manager standard under AB-1054.
So there are certain conditions that the financial
markets are looking to to gain confidence
in the broader California regulatory environment.
-: And does Southern California Edison have
an investment grade rating on its debt?
-: They currently do.
-: So what distinguishes PG&E during that five year
post-emergence period from Southern California Edison?
-: We also will carry
the burden of proving that we can execute
on our financial plan post-emergence.
We can execute on our financial plan post-emergence.
-: And are there prospects under your investment grade
metrics, the debt of the holding company
on an unsecured basis would achieve
an investment grade rating?
-: I think it's possible yes.
-: During those five years.
-: Yes.
-: Page two dash five, lines 13
through 14 where you speak of PG&E's mission of safely
and reliably delivering affordable clean energy.
Is that affordability objective subject
to any sort of market price benchmark?
-: Yes.
-: And would you explain what that is?
-: For residential customers we look at the total bill cost.
I'm proud to say that the company's total bills are
about 30% less than the national average.
John: And how do your rates compare
to the national average?
-: They're about a third higher on a rate basis,
but as I said, from a residential customer standpoint,
the focus is more on the share of wallet
or the total bill that's paid.
John: So you're giving yourself credit
for operating in a temperate climate?
-: Not at all.
That is one of the factors,
but I'm also proud of the company's track record
with respect to supporting energy efficiency.
That has kept per capita energy consumption flat
since the late '80s.
When you look at energy consumption per capita
for the rest of the country it is continued to increase.
-: And do you believe your customers' credit
PG&E's programs with that accomplishment?
-: I think some do, yes.
-: You think your customers consider
your rates to be affordable?
-: I think many have expressed concerns around it.
-: Page two dash 15, line seven through nine, state,
and I'm quoting, "Other material adverse events
"may also impair PG&E's ability
"to raise capital for its emergence," close quote.
Have you performed any stress tests
to determine what financial magnitude of adverse event
your plan can withstand
without impairing the company's ability
to raise capital for emergence?
-: We have.
-: And what have those stress tests revealed to you?
-: The company has adequate capacity
from a financials metrics standpoint
for material adverse events.
Coming back to my response
on the credit ratings, the qualitative
assessments of what occurs will also factor in.
And that is harder to pinpoint specifically.
-: Well let's focus on the quantitative.
What threshold of adverse event
in your judgment could your plan withstand
without impairing your ability
to raise capital for emergencies?
-: It is completely facts and circumstances based.
One situation that we looked
at is the risk of a catastrophic
fire as we comply with ABHN-54.
The threshold for that may be different
than a threshold for a different transaction.
So it's not a universal assessment.
-: But over the period of time that you evaluated
would it be correct to assume you must have hypothesized
an adverse event with a particular dollar consequence
at a particular point in time, irrespective of the cause?
-: I think cause matters.
We hypothesized about different events occurring.
The threshold for those events is different, depending
on the event itself.
-: Explain to me how that works quantitatively.
I'm trying to visualize a spreadsheet,
and I'm not certain that the way Excel,
for example, works distinguishes
between cause of a $10 billion hit.
So would you elaborate on your answer?
-: I'll acknowledge that there is an element of subjectivity
to it, but if I could elaborate for one instance.
For example, yesterday we received
a presiding officer's decision that modified
a settlement that we extensively negotiated.
I would say the focus there is more
on, again, the regulatory compact
and the potential instability that it introduces.
And so that threshold is different than say
a catastrophic fire that is covered by AB-1054.
-: Okay.
Focused on the quantitative analysis, once you've sorted
through all those subjective factors, was there
a dollar amount of hit that you could absorb of an adverse
event that you were comfortable?
-: Yes.
-: And what was that threshold?
-: Again, it differs by the type of transaction.
I can't summarize it in a simple quantitative threshold.
The analysis doesn't lend itself to a singular number.
-: Okay, were there a
range of numbers that you considered survivable?
-: I mean, I think on one end if we calculate
a lost of 20% of the electric T&E equity
portion of rate base that is a sizeable
number that the company could withstand.
-: Okay, that's one example.
Are there others?
-: And I think the continuum would kinda go all the way back
to something just north of zero depending
on the other qualitative factors.
-: But at the higher end
it would be 20% of the company's D&D (mumbles).
Did I understand that correctly?
-: Under specific conditions, yes.
-: Thank you.
-: And have you done a similar analysis
for post-emergence material events?
-: Yes, that's, apologies, that's what I was referring to.
-: Okay.
Would your answer be different if it was focused
on emergence or pre-emergence adverse events?
-: Likely not materially.
-: Thank you.
-: Page two dash 15, lines 18 through 20.
You described the $6 billion of temporary utility debt.
What steps does PG&E intend to take
in terms of accounting separation or otherwise
to guarantee that this temporary utility debt will remain,
and I'm quoting your testimony, "Financial
"responsibility of shareholders, not customers?"
-: That specifically it would be addressed
in the cost of capital proceeding where we identify
the authorized level of rate based multiplied times
the authorized level of debt
to ensure that the cost of financing customers are varying.
It's only the cost associated
with financing a rate based, not
additional debt for other needs.
-: So you're not envisioning using a special purpose
vehicle to segregate these cash flows?
-: Not fur purposes of this transaction here.
-: Not a separate account either?
-: It certainly would be a separate account
in our financial statements.
But I think the customers can have confidence
in the application of our cost of capital
and what is specifically used to finance rate base.
-: So will this temporary utility debt be cost collateralized
with or subject to cross default
provisions of other utility debt?
-: I would envision it would be issued on similar terms.
-: And that's a yes? -: Yes.
-: And what about cross collateralized
or subject to cross default
provisions of holding company debt?
-: No I don't...
I don't believe that would--
-: In.
I'm sorry did I cut you off?
In the event of another PG&E bankruptcy how would this
temporary utility debt remain,
and again quoting your testimony, "The financial
"responsibility of shareholders, not customers?"
-: Again, I'll come back
to the customer protections that we are only allowed
to recover the cost of debt associated
with the financing of rate based.
So this debt would continue to be satisfied
with the shareholder net operating
losses that are proposed here.
-: Do you expect the terms of the temporary
utility debt will include a make-hold
provision that would be triggered
in the event of an early redemption?
-: Not likely.
-: Now if I recall correctly you've not yet--
Michelle: Wait, wait.
Male Lawyer: I wasn't sure
the witness was done with his answer.
-: I was gonna expand on that not likely,
because what we're proposing
here is that the realization of the shareholder
on NOL's as that cashflow is generated
it would be used to retire the debt.
And so we would tranche that temporary debt
in a way that would minimize any make-hold risk.
-: So you would anticipate then that the securities issued
to finance this temporary utility debt would
in fact have a make-hold provision,
but that would be mitigated
by the availability of the NOL's?
-: We're looking at both terms loans
which would not have any make-hold provision
or a combination of different maturities
such that we can manage the maturities' schedule
to minimize make-hold risk.
-: When do you envision deciding whether the temporary
utility debt will be short-term or longterm?
-: I think initially we will pursue shorter term temporary
debt as the application for securitization is outstanding.
-: I'm not certain that I understood what you meant
by your reference to the application
for securitization being outstanding.
Could you elaborate on that?
-: Separately in my testimony I referenced
a separate application for securitization
which we will be filing in the coming weeks.
The purpose of that securitization, if approved
by the Commission, would be in part
to pay off this temporary debt.
And so as that separate application is outstanding
we would likely use shorter term debt
to minimize any make-hold risk.
-: But you will have already made a decision, will you not
when you issue the $6 billion as
to whether that is short term or longterm, correct?
-: That's correct.
-: And you'll have to make that decision
before you know whether
the Commission approves your application.
-: That's correct.
-: Okay.
You say in footnote 42,
on page two dash 16, that the temporary utility
debt will be retired by the realization of shareholder NOL's
in the event there is no securitization of transaction.
Can you explain how that would work?
-: Yes.
As a result of the wildfire victims
claims that are being paid in the bankruptcy proceeding
as well as the Wildfire Fund contribution
under AB-1054, there will be tax
benefits generated that will be
the property of shareholders,
since they are funding those underlying costs.
The realization of the shareholder
tax benefits will come over time.
As we minimize what would have
otherwise been payments, tax payments
to the IRS, we will take that cashflow and use it
to satisfy either the securitization that's been proposed
or the temporary utility debt proposed here.
John: And has PG&E done any section 382 studies
to confirm the availability and timing of those NOL's?
-: Yes we have.
John: Am I correct in understanding
those are confidential?
-: Yes.
John: With respect to the securitization transaction,
you indicated that you'll be filing that application
in the coming weeks.
-: That is correct.
John: Do you have any anticipation
when you might sell the securitization bonds?
-: Right now what we have modeled
in our financial projections based
on our assessment of the procedural
schedule could be March 31st, 31, 2021.
-: I know it's early to do so.
But have you made any
projections of likely maturities of those bonds?
-: The securitization bonds?
-: That's correct. -: Yes we have.
-: And what do you envision there?
-: Likely a waited average maturity of just under 20 years.
-: What type of pricing spread to treasuries?
-: I don't have that figure in front of me.
But one of the reasons why we think it is
in all of the stakeholders' interest is
because of it's better pricing.
I just don't have the exact figure.
-: But you probably assume some range of spreads?
Have you not?
-: I have.
-: And what assumptions (mumbles)?
-: I don't have the figures in front of me.
-: What occurs to your mind as you sit here today?
-: Low 3%.
-: Spread to treasure.
-: I don't know where treasures are trading this week?
-: Is it likely to be a very representative week.
But assume your treasury is trading at 1.5
on the 10 year.
-: Well, over the weighted average
maturity of those securities likely
100 basis points, 125 basis points.
-: You say at page two dash 15, lines 24
through 26, "That PG&E will use the proceeds
"from the shareholders' certain
"tax benefits, including NOL's and other credits
"to provide rate reductions."
Are there any other specific accounting mechanisms
than those in your cost of capital
proceeding that you anticipate using
to assure that those revenues are available?
-: As I mentioned, we will track
in our underlying financial records these items separately.
But ultimately I think
the confidence that we are not pursuing
a recovery will be
in the application of our cost of capital.
John: But you don't envision any
form of accounting firewall
or rink fencing to segregate those revenues?
Do you?
-: We will have separate accounts for those.
John: Separate accounts within the same company?
-: Correct.
-: What other shareholder certain tax benefits,
besides NOL's, do you intend
to utilize for the rate
reductions that's contemplated by your testimony?
-: We're still on a process of finalizing that application.
And so right now it's largely based
on the utilization of net operating losses.
We're still evaluating if there's any other opportunities.
-: And just conceptually, what
other opportunities might there be?
-: Largely I think it's gonna lead to really be
reflective of the use of the net operating losses.
-: Also mentioned other credits besides the shareholder
certain tax benefits that you intend
to utilize for these rate reductions.
What other credits are you talking about?
-: Could be a credit from shareholders.
One transaction that we are contemplating as part of this is
a securitization that relies
on a concept of present value for rate neutraLity,
because the timing of these shareholder
NOL's will likely happen up front
and will exceed the cost of the debt.
And so we may propose a transaction that relies
on present value, and to the extent that we do,
and we would need to make additional contributions
to continue to keep our customers' rate into on average.
We would, in that circumstance, propose to do so.
John: And you would anticipate describing that in
your application?
-: That's correct, yes.
-: Page two dash 19, lines 12
to 13, you say that "the plan will yield
"significant savings associated
"with lower interest expenses of utility."
What's the lower band or bound of what you would consider
to be significance savings?
-: I think what we proposed here...
I revised my testimony off our discounting rates
but on a discounted basis, 700 million is significant.
-: Let's go lower.
When does it stop being significant?
-: I think a rate reduction in any case is a benefit,
and I think that that is positive for customers.
-: So as long as it's above zero it's neutral.
Is that correct?
-: As long as it's above zero I would say it's
in the benefit of customers.
-: And that would satisfy the rate neutrality test,
if I understand you correctly?
Am I understanding you right?
-: As it relates to this item here, yes.
-: Page two dash 24, lines 11
through 15, you speak positively of the significant
flexibility PG&E gained from the terms of its $12 billion
in equity backstop commitments.
Why does the PG&E plan of reorganization contemplate
a capital structure of only nine billion in common equity?
-: I think the capital structure we proposed
really reflects shareholder
contributions of a total of $16 billion.
It's reflective of nine billion in common equity up front.
And over time the contribution of over $7 billion
in shareholder net operating losses.
So the proposal is actually higher than what
we have included in the original commitment letters.
-: And does that $16 billion number include
the infusion of equity that will come
from the holding company's sale of unsecured debt?
-: I did not include that amount in my calculation.
-: So that would be even on top of the 16, would it not?
-: That's correct.
-: Why don't you include that when you describe
the contribution from shareholders?
-: I could have.
-: At footnote 50 on page 26, you say that PG&E
also anticipates filing a separate request
for longterm financing authorization
to address PG&E's post-emergence longterm financing needs.
I take it that's separate
from the securitization application?
-: Do you mind referencing the line?
-: It's footnote 50.
It's on page 26.
-: Yes this is separate from the securitization transaction.
These are the longterm debt
authorizations that I had referenced previously
in, I think, cross.
-: When do you anticipate making that filing?
-: I've asked for the authorizations
as part of my testimony here.
-: Okay, okay, I'm clear now.
Last subject I wanted to touch
on are the pollution control bonds.
And I wonder if you would explain what
the company's intent is with respect
to the existing pollution controls.
-: May I correct my previous answer?
-: Yes.
-: Apologies.
The short term authorizations that I referenced
in my testimony are for the exit.
Given the $40 billion or nearly $40 billion that we plan
to invest in our rate base,
we will need additional post-emergence longterm
debt authorization to fund that growth.
That was what I was referring to here.
And those would come post-emergence as
the rate base is growing.
-: Okay.
Michelle: As new application.
-: Yes.
John: And when would
you anticipate making that new application?
-: Well before the financing authorization is needed.
John: But in your five year projection have you made
any assumption as to when
you would be filing that application
or when that financing would be needed?
-: Given the growth we would likely have
new financing needs in 2021.
John: So you'd anticipate
the application coming before then?
-: Yes.
-: And based on your five year projections,
what amounts are likely to be involved?
-: I don't have the exact figure.
It would be the growth in rate base attributable to debt.
(mumbles) I just don't have that figure top of my mind.
John: General range in mind?
-: Probably on an order of...
Rate base is growing at a roughly three billion a year,
half of that funded, not exactly with debt.
So maybe a billion and a half
kind of annually, sort of roughly.
It will obviously be dependent
on the specific financial needs at that time,
but on average over the life of the five years.
-: Thank you.
And now I wonder if you would describe
for me what's going on
with the pollution control
bonds you currently have outstanding?
What are your future plans for those?
-: Are plan is to refinance those upon exit.
-: All of them?
-: Yes.
-: I believe your testimony makes reference
or rather a discovery
response that you provided indicated that you
would be foregoing the tax exempt
benefit of about 800 million.
Is that correct?
-: I believe that is correct.
-: So if you were foregoing that tax exempt benefit
you'd be refinancing them with taxable bonds?
-: That's correct.
-: Why would you do that?
-: The spreads between the tax exempt
and the taxable pollution control
bonds have narrowed significantly over the years.
-: And those bonds would still be secured
by direct pay letters of credit?
-: I don't know.
-: Those are all of my questions.
I wanna thank you very much.
-: Thank you.
-: Thank you Mr. Geesman.
I think this would be a good time
for a brief 10 minute break.
So everybody please be back by 10, 22 on your phones.
Off the record.
On the record.
Ms. Sheriff for CLECA
Sheriff: Thank you.
Good morning your Honor.
Good morning Mr. Wells.
Wells: Good morning.
-: My name is Nora Sheriff.
I represent the California Large Energy
Consumers Association or CLECA.
At page two dash 14 of what's been marked
for identification as exhibit PG&E one you talk
about conditions precedent
to plan confirmation and effectiveness.
What do you mean by conditions precedent?
-: Conditions that would be needed for planned confirmation.
-: So for example you state at lines 24
to 28 that PG&E requests that the Commission rule
in investigation 1508019 that PG&E will not be forced
to and then you list several
options that have been proposed in that proceeding.
Is the company asking judge Allen
to draft a proposed decision
in the safety culture proceeding granting this request
and for the Commission to adopt it in the next few months?
-: We think that that is in customers' interest
as part of this proceeding here, yes.
Nora: So you are asking the Commission to do that?
-: Yes.
Michelle: Let me, could interject here.
Are you then saying that if such
a decision is not forthcoming between now
and June 30th, that you will not be able to emerge?
-: It's a complicated answer.
A short answer is no.
The longer answer is this will be
the largest capital raise in the utility industry
and one of the largest in corporate history.
The more that we can provide stability
the more effective this capital raise will be.
Michelle: Thank you.
Nora: You asked the next question your Honor.
Michelle: I thought I might.
-: At page two dash 15 and two dash 16
and two dash 17 Mr. Wells you talk
about temporary utility debt and net operating losses
and a proposed post-emergence
rate neutral $7 billion securitization transaction.
Is that proposed securitization of the $7 billion
necessary to enable PG&E to exit bankruptcy?
-: No, it's not necessary.
-: Thank you.
If the Commission were to deny PG&E's request
to secure ties the $7 billion of debt post-bankruptcy
would PG&E be unable to refinance the $6 billion
in short term debt currently targeted
for repaying the wildfire victims?
-: We would be able to refinance.
-: Thank you.
Could PG&E use cash flows
from the net operating losses you reference
in your testimony directly to support the six billion
in utility debt which is needed to pay the wildfire victims?
-: That's the intention if unapproved.
-: Thank you.
And in terms of net operating losses,
you've also referenced another investigation, I1906015
in your testimony in the discussion of conditions precedent.
Between that proceeding and the plan of reorganization
and the bankruptcy there are
two sets of net operating losses right,
because you have two different sets of losses there,
a much larger one here about 27 billion
and then a smaller one in that I1906015,
about two billion, a little over two billion?
-: That is correct.
-: Okay.
So my question to you now is,
because you have those distinct, separate
sets of net operating losses, how will PG&E apportion
or attribute the different net operating losses, right.
If you attribute the 2.137 billion
from I1906015 to rate payers
and then the much larger chunk for the 27 billion
to go to the short term utility debt,
how will you track that?
-: We track all of these underlying tax benefits separately.
And if I may correct my previous statement,
we actually have a third group of net operating losses.
When the company filed for bankruptcy
the company had net operating losses that were
not referenced in the two that you mentioned.
We track all of that separately.
-: Okay.
Michelle: Just a moment.
I would just like to note
for the record that Commissioner
Rechtschaffen has joined me on the dais.
Go head Ms. Sheriff.
-: Thank you, good morning Commissioner.
Will it take you a long time
to write-off the $27 billion
in net operating losses that are contemplating
here in this bankruptcy?
-: We haven't quantified the exact timeline.
But yes, it will be multiple years.
-: So will the rate payers be reimbursed
in the first couple of years worth of the net operating
losses for the 2.137 billion in I1906015
or will you do it as sort of a 3.7%
in each year of the longer term writing-off of the NOL's?
-: Apologies, can you help clarify that question?
-: So you've got, I'm not gonna worry
about the third set of NOL's.
-: Okay, yeah, all right.
-: I'm just looking at the two that I have
in my head, the 2.137 from the investigation I1906015
and then 27.137 billion from the plan of reorganization.
I'm looking to understand how will the rate payers see
the 2.137 billion of NOL's from I1906015.
Will it be refunded in years one, two, and three entirely
or will you do sort of a pro-rata treatment
over a longer term,
because as you said it will take you a while
to write-off the entire amount of the NOL's?
-: Thank you for the clarification.
In short I don't know.
We are currently evaluating the presiding officer's
decision that was released last night.
And I don't have an answer this morning.
-: Okay.
Michelle: One more minute.
-: At page two dash 23, lines three
to five, you state that you have confidence
in the company's ability
to raise both equity and debt.
Do you still have that confidence today?
-: I do.
-: Okay, and then--
Male Panelist: I'm sorry, were you done with your answer?
-: May he please expand on redirect your Honor.
Michelle: Yes.
-: You also say at lines nine to 10
you talk about a clear path to further improving
the company's credit metrics.
Does that involve participation in the Wildfire Fund?
-: That is credit positive,
but this sentence here was referring to the improvement
in the quantitative credit metrics according
to our financial plan.
-: Does PG&E's projection of an ability
to obtain investment grade debt depend
on its participation in the Wildfire Fund?
-: Yes.
-: Do you know what the unsecured credit
ratings of Southern California Edison
and San Diego Gas and Electric Company are?
-: Generally, yes.
-: What are they?
-: I believe Southern California Edison is Triple B.
And I believe SDG&E is either Triple B plus or A minus.
-: Okay.
And you say you're still digesting
the proposed decision that came out last night in I1906015.
Have you studied various possibilities in your,
you reference section 302 studies with Mr. Geesman?
Have you studied various timings
and how streams of tax benefits would be achieved?
-: Yes.
-: Okay.
Thank you your Honor.
I have nothing further.
Michelle: All right, thank you.
Mr. Abrams.
-: Thank you your Honor.
Thank you Mr. Wells.
I am just by way of background a wildfire survivor.
In bankruptcy they call us victims.
And as part of that
and through this bankruptcy
proceeding that means that we are going
to be apparently in a trust that holds 21% of shares.
So from that perspective,
I'll be asking you questions today.
I feel an extra duty to talk as a victim,
because the attorneys who are not,
the DCC attorneys are precluded
from doing so because of the RSA which is unfortunate.
Taking a looK first I'm trying to understand the degree
to which you see the actions of PG&E tied
to the financials of the victims.
Are you aware that 50% of the settlement
for victims will be paid in shares as opposed to cash?
-: Yes I am.
-: Are you aware that many of these victims are rebuilding
homes and reliant upon that money to be able
to rebuild their homes and their lives?
-: I am aware.
-: Do you take that responsibility very seriously?
-: Absolutely.
-: Do you also understand that there is a link
between PG&E's actions and these very same folks
in terms of being able to afford insurance
and being able to have insurance
in their homes that are next to the PG&E lines?
Male Panelist: Objection, beyond the scope.
-: It's directly related to safety and security.
Michelle: I'll let him respond.
Please answer to the best of your ability.
-: I understand there are a number of challenges
and factors that are impacting the ability
to procure residential home insurance
in fire prone areas, yes.
-: Would you say that the PG&E wildfires are
a significant contributor to those insurance rates?
-: I'm not aware.
-: You're not aware.
Do you have active communications
with the insurance industry
to understand those implications?
-: Yes we do.
-: And from that dialogue what is
your understanding regarding your impacts on those rates?
-: We regularly engage with the insurance markets.
I think the focus the insurance markets have had
sort of more broadly is fire risk generally.
Obviously, given the 2015, '17, and '18 wildfires,
insurers want to understand the programs we're undertaking
to mitigate fire risk.
But they point to a multitude of factors that are impacting
the availability of insurance.
-: Is it your understanding
from those discussions that they base their rating
on subjective measures of how well things are going,
and is that typically how they do rates
or do they sort of measure the risk?
-: I don't exactly know how
they price residential homeowners' insurance.
-: That wasn't my question.
Do you consider that they measure the risk
or do you think they go
on subjective measures like other factors?
Do you think they measure risk?
Male Panelist: Objection lacks foundation.
He's asking him how insurance companies price.
Michelle: Let me have you repeat the question Mr. Abrams.
-: Your understanding from the discussions
with the insurance carriers.
Do they measure risk?
-: I think they try to quantify risk, yes.
-: Thank you.
If they are trying to quantify risk, does
your quantification of risk and risk mitigation, are
you providing those figures
to them so that they can provide better
homeowners insurance for your customers?
-: They have not asked nor have we provided our calculations.
-: Okay.
Who have you provided your calculations to?
-: Liability insurance companies that provide that company
insurance for future events, as opposed
to insurance companies that underwrite
insurance for homeowners themselves.
-: Are those publicly available numbers?
-: The quantification of our wildfire risk is included
as part of our enterprise risk management program
and part of the test map process here at the Commission.
-: Are those the same numbers or are they different numbers
or different level of detail that you provide
to those insurance companies versus
what you provide to the Commission?
-: It's the same.
-: Same numbers.
Thank you.
I'd like to now turn to the exhibit,
I think it was X nine, that I submitted.
Michelle: It's Abrams dash X nine,
a better way out of PG&E bankruptcy.
Is that what you are referring to?
-: Yes your Honor.
Michelle: Do you have a copy of that Mr. Wells?
-: I do, thank you.
-: Okay.
I'd like to be able to walk
through the particular points associated with this.
This is a op-ed that was put
forward by Sam Liccardo who I understand is
the mayor of San Jose.
Correct, yeah.
-: That's correct.
-: So on the first page,
one of his statements is that masterfully sprinkling
billions among the company's most powerful
stakeholders, hedge funds, shareholders,
and bondholders, along with perhaps one billion
in fees to consultants, banks, and attorneys.
Is your understanding that that is a true
and accurate statement of what you've done?
Male Attorney: Objection, lacks foundation.
-: This is directly related to what the finances are
and where the dollars go.
Male Attorney: That wasn't my objection.
My objection is he didn't write this document,
and he lacks foundation about the statements made here.
You can ask him about his exhibits
which he goes into great detail
about the fees that are sought to be recovered.
But I don't think it's correct
or fair to ask him to comment
on adjectives that this author has chosen to use.
Michelle: Mr. Wells would
you agree that the places that this article states that
funds will be going to is accurate,
regardless of whether you agree
with the characterization of the purpose of that effort.
-: I disagree with the characterization,
but the figures are generally accurate.
Michelle: Okay, thank you.
-: In the next sentence of the document,
it indicates that the bankruptcy is being put
forward over the California Public Utilities
Commission again and again.
This is similar to
Governor Newsom's objection that he raised
in the bankruptcy proceeding that PG&E's objective
through putting this bankruptcy forward is
to hurry up the California Public Utilities Commission
to make a hasty decision.
Is that your characterization and understanding?
Male Attorney: Objection, lacks foundation.
Michelle: Let's just start out with he can ask him
his understanding of the words on the paper,
and let's see dispense with the objections.
I'm gonna let him answer those questions.
-: Thank you your Honor.
Michelle: Do you have the question in mind?
-: I disagree with the characterization.
-: On the next page it states that "This bankruptcy tethers
"the victims' financial's futures
"to the performance of the company."
Do you agree with that statement?
-: Yes.
-: Thank you.
In the next sentence it states, "It also saddles
"those families with the risks of any future
"wildfires started by PG&E's failing equipment."
Would you agree with that statement?
-: I don't agree with the characterization.
-: Do you agree with the families,
the victims who are relying upon this money that they have
risks associated with that investment?
-: I would agree that there is
some risk associated with that investment.
-: Would you say that those risks would increase
if PG&E started another wildfire?
-: It's hard to speculate.
Obviously a fire would be catastrophic.
But under what conditions?
There are many questions I would have.
-: Try to understand this a little bit further.
If PG&E starts a catastrophic wildfire do
you expect that the risks
to these victims' investment will be adversely effected?
-: I think there is risk, yes.
-: I'm asking if the risk increases.
So there's a wildfire.
-: The risk increases, yes.
-: Thank you.
I thought that would be obvious.
Male Attorney: Object to the statement.
Michelle: Let's just stick to the questions.
-: I will your Honor.
Thank you.
Do you understand that as a victim these are difficult
questions for me to be asking?
-: I do.
And I apologize for what you've gone
through as well as the other victims.
-: ThanK you.
In the next paragraph, oh sorry, let me take this back.
Do you agree that part of what this bankruptcy does
and this bankruptcy agreement is it transfers risk
from some of your entrenched investors to victims?
-: I would not agree with that assessment.
-: Moving on to the next paragraph.
The second sentence, "In the 23 month span
"over which the company's wires ignited
"18 wildfires, killing 107 people
"and destroying 15,700 homes
"the company's shares plummeted 90%."
Is that a true statement?
-: I believe it is.
I haven't calculated
the stock decline, but yes directionally.
-: Okay.
So I guess this goes back
to the earlier question when
I asked you would a wildfire affect the shares associated
with victims I guess the answer is categorically yes.
Is that correct?
-: A wildfire would increase
risk of financial results, yes, yes.
-: Thank you.
In the next paragraph, it states "That a federal court
"monitor found that PG&E falsified documents."
Is that a true statement?
-: Yes it is.
-: Given that would you say that there's
a significant trust gap
between what victims have experienced first hand,
these additional illegal
transgressions that must be overcome by PG&E?
-: I recognize that we need to rebuild trust
with the communities we serve, wildfire victims,
and all of the stakeholders we support.
-: In the next paragraph
it states that "All cash payments as part of this agreement
"were provided to insurance companies."
Is that a correct statement?
-: That is a correct statement.
-: In the next sentence it says, "Hedge funds gobbled
"up insurance claims at steep discounts
"and will reap steep profits
"in their 11 billion payout in cash, not in stock."
Is that a true statement?
-: I can't speak specifically to what they paid.
I don't know what they paid for those claims.
-: So is it safe to state that the savvy, entrenched
investors have more protection
for their investment than the new, less savvy,
by-and-large victims associated with your fires?
-: I don't agree with the characterization.
-: Were there asset liens provided
through this bankruptcy process?
-: Yes.
-: Are asset liens providing security for those investments?
-: We're requesting security
for the debt that we're issuing at exit, yes.
-: So yes they provide security for those investments?
-: I apologize.
It's not our investment.
They're providing security for
the debt that we intend to issue.
-: Are their investments more secure,
because they have asset liens?
-: Compared to?
-: Compared to where they were
before they got the asset liens?
-: Yes.
-: Okay.
So if they get asset liens and have more security, would
the converse not also be true, that because
the victims do not have asset liens they are less secure?
-: I think that's a factual
statement that equity is subordinate to debt
and debt that is securer than asset lien, yes.
-: Thank you.
In the next paragraph it states, "PG&E's plan
"also unfairly dilutes the victims' claims
"by committing to secure bondholder claims."
So does it dilute victims' claims,
the fact that the bondholders' claims have been secured?
-: I don't agree with that statement.
-: From your understanding of the bankruptcy process,
what came first the TCC RSA deal or the bondholder deal?
Male Attorney: Objection, beyond the scope.
Michelle: Could you repeat the question?
-: Is your understanding as the chief financial officer
which came first the bondholder RSA
or the TCC RSA in terms of the timeline.
-: We executed the TCC RSA settlement
before the note holder RSA settlement.
-: Thank you.
Given that order would you say that the implications
to the note holder RSA could not have been incorporated
into the TCC RSA, because what transpired
and the agreement came after they agreed
to the TCC RSA?
Male Attorney: Objection, beyond the scope.
Michelle: Can you repeat the question again?
-: The note holder RSA as you have stated came
after the TCC RSA.
So they signed, executed the agreement
for the TCC RSA first, then came the note holder RSA.
So the implications to the note holder
RSA were not incorporated into or accounted
for before the signatures and the commitment
to the TCC RSA.
Is that not correct?
Male Attorney: Objection your Honor.
We're seeking to re-litigate matters that are
within the jurisdiction of the bankruptcy court.
-: I am not.
I'm trying to get underneath the financials.
Michelle: I'm going to allow the witness
to answer to the best of his ability.
-: Do you mind rephrasing the question again?
I apologize.
Michelle: Let me ask the question I think.
Given that the note holder agreement was entered
into after the TCC agreement was entered
into, do you believe that the TCC agreement does
or does not include or reflect
on how it would be impacted based
on the note holder agreement?
-: I think the execution the note holder RSA is a benefit
to the TCC RSA.
Abrams: That's not my question.
Michelle: That's the question that is before him
-: I think, yes, I think it is a benefit
to the TCC RSA that we were able
to negotiate the note holder RSA afterwards.
Michelle: And do you believe that the...
Or do you have any knowledge as to whether
or not the entities that entered
into the TCC agreement were aware of the terms of the RSA
at the point at which they entered into the TCC agreement?
-: The individuals that executed the TCC did
so at a time
with an understanding of the terms of the note holder RSA.
It was done well before.
Michelle: Okay, thank you.
-: Thank you.
Given that the TCC represents the victims who are
part of this shareholder class,
wouldn't you say that that put them
at a significant disadvantage to being able
to assess the financial implications
for which the deal
they signed, given that the note holder RSA came after?
Male Attorney: Objection, beyond the scope.
Michelle: I'll allow the witness to answer.
-: Not necessarily.
The resolution of the note holder RSA is a benefit
for all stakeholders in a bankruptcy case.
It creates stability.
-: Is that your opinion or fact?
-: It's a fact.
-: Do you understand as part of the TCC RSA that there were
provisions within that agreement that would prevent
the TCC attorneys to be able to talk
about the benefits and about perhaps some of the detrimental
effects of what transpired after,
because they already executed their agreement,
and so are not free to be able to speak
to the impacts that came after that were
in the note holder RSA?
Are you aware of those provisions?
-: I'm aware of those provisions,
but I don't agree with the characterization.
-: How would you characterize the silence of the TCC
after the signatures on the TCC RSA?
-: I think the note holder RSA is a benefit
for all stakeholders as part of this case.
First it eliminates any litigation risk.
It creates support by all claimants in the bankruptcy
for the plan of reorganization that we face.
That creates stability.
It helps improve the exit financing.
In addition, the note holder RSA allows
for the reduction in customer rates as it relates
to interest expense which is a benefit for customers.
And so I think it's actually a benefit to all.
-: Okay.
My next questions will challenge those assumptions.
It was indicated on the next paragraph of the same
exhibit that the expectation is
from Mayor Liccardo is that the company will receive
a junk level credit rating upon exit from bankruptcy.
Is that your understanding, yes or no?
-: I anticipate the issuer rating to be sub-investment grade.
I anticipate the bond rating to be investment grade.
-: So when you say sub-investment, help
me understand sub versus junk.
-: One in the same.
-: So it is a correct statement then?
-: The bonds themselves will be investment grade.
The issuer rating will be as phrased
here, sub-investment grade or junk.
-: Thank you.
At the bottom of that paragraph, it states,
"38 billion in debt and pay billions of dollars
"a year in interest."
So this debt increased, correct me if I'm wrong,
generally from 34 billion to 38 billion through this deal.
Is that correct?
So it increased the debt.
-: This deal didn't specifically increase the debt.
This deal debt with pre-petition debt that was outstanding
at the time of the bankruptcy and did not address
debt that we anticipated on issuing upon exit.
-: Did it contribute to the increase of the debt?
-: It did not increase the level of total debt.
-: Did it contribute to it?
-: It did not contribute to it.
-: Is it a correct statement that billions of dollars
a year in interest will need to be paid?
-: It is a correct statement, yes.
-: In the next paragraph it states,
"The results would be hefty rate hikes."
Do you believe that the results will be hefty rate hikes?
-: No, I disagree with that statement.
-: Do you believe that the result will be any rate hikes?
-: No, the plan that we're proposing
actually reduces customer rates as it relates to this plan.
-: I'm gonna move to the last sentence of this paragraph.
"Company executives have little to fear.
"However, by turning wildfire victims
"into shareholders they will have created
"a sympathetic bulwark against customer objections."
I'd like to explore that a little bit.
If PG&E needed to hike rates
because say, you had another wildfire, would you say that it
would be more difficult
for the California Public Utilities Commission to be able
to not grant rate hikes if victims were counting
on it to rebuild half their homes and half their lives?
-: I don't agree with that statement.
So victims being made shareholders
through this agreement would have a vested interest
in seeing a greater return on that investment.
Is that correct?
-: That would be correct.
-: Do higher rates lead
to oftentimes greater return for investors?
-: No.
-: They don't.
There is no relationship between the rates you pay
and what return goes to investors.
-: Our business model is cost of service.
And so our rates are adjusted the cost
to provide our electric and gas customers.
Separate and apart from that we set.
The authorized levels of the financing cost
to finance the business.
If the Commission decides
to adjust those authorized financing levels, they can impact
rates, but what we have seen
over the last decade is that rates have been more driven
by the level of investment in our system which has nothing
to do with profits for shareholders.
-: So I'm not familiar with all the things you just said,
so if you could help me boil it down.
So it sounds to me from what you've said,
and correct me if I'm wrong, that there is some relationship
between rates and what investors get paid.
Is that correct?
-: There is a relationship, yes.
-: Thank you.
Given that relationship, victims who are now
investors will wanna make sure
to the best of their ability, just like
any investor would, would wanna see
a greater return on their investment.
Is that a correct statement?
-: I think that's a correct statement.
-: Given that, would you expect that a victim
who is also a customer, like other investors, would have
sort of a conflict, if you will, or a difficult decision,
because on the one hand, they wanna keep rates low
so that they have lower energy bills,
but on the other hand, there may be
through increased rates ability
for them to get a greater return?
Is that sort of a natural assumption?
-: I think it overstates the relationship.
-: So if I'm a victim and I want the stock price
to go up, 'cause now I'm a shareholder,
and I live next to somebody
in my community who's not a victim.
Their home was spared from the PG&E fires.
My neighbor would like to keep rates as low as possible,
'cause he's got no upside associated
with increasing rates, only downside.
The victim on the other hand has this difficulty,
'cause he'd like to see great return on his investment.
Given that, do you see that this discontentment
amongst neighbors helps the customers
and helps the Commission and helps the public?
-: I still would just disagree with this characterization.
I do think it's in shareholders' interest
to keep rates affordable, providing
what is an essential service
to the communities of northern and central California.
I think shareholders reward, actually, affordable service
as opposed to looking for rate increases.
And so I just fundamentally disagree with the assertion.
Abrams: Would you agree with
the assertion that affordable is not a fixed number?
Affordable is not a fixed number
and that there's some range there.
-: I would agree with that. -: Okay.
So it could be something that you would consider affordable
or the public would consider affordable, that there might be
a disagreement along the lines of what I just described.
Is that correct?
-: Possibly.
-: I'm done with that exhibit.
Moving on to a few more questions, if I may.
So Beth Kelly in her cross
and in her questions asked if there was
confidentiality associated with corporate financials.
And you indicated that there was confidentiality.
Is that correct?
-: On specific transactions, yes.
-: Understanding that of course confidentiality is required
in certain circumstances, would you say that to build trust
particularly for a company that has had
the let's call it troubles that PG&E has had, that providing
as much transparency is an important way to build trust.
-: I do and as a public company
and as a company in bankruptcy, we submit
financial information monthly to the court
and quarterly to the financial community.
-: Given that you're looking
to build trust, would you say that you are bound
by what is legally required
or that you have the opportunity
to go above and beyond what is legally required
in terms of financial transparency
in disclosing things to the public, to the victims,
so that they get a better sense of their investment
to help build trust?
-: I believe transparency is important in any relationship,
critically those in which we're trying to rebuild trust.
That being said, full transparency is not
necessarily in stakeholders' interest.
There are transactions that have market
consequences that we need to maintain as confidential.
-: What's the extent of the asset liens currently with PG&E?
What percentage?
-: We have very few asset liens currently.
-: Can you give me a sense of percentage of what that--
-: It's a very low percentage.
We, prior to the bankruptcy, issued unsecured borrowings.
-: Prior to the bankruptcy?
Is it a fair statement that what got the bondholders
to drop their competing plan was they went
from unsecured investment to secured investment?
-: That was likely an element of their agreement
with a note holder RSA.
But I think there were a number of other reasons as well.
-: Was that type of security part of the TCC RSA for victims?
-: No we did not offer...
Sorry, the TCC RSA does not include debt.
And therefore does not include security.
-: So in Mr. Johnson's statement, it's on the record,
he said that part of this bankruptcy
first priority was victims.
Given what you've described that the note holders
who I imagine have been with PG&E a long time got security.
I'd sort of feel security is a good thing.
And the TCC RSA and the victims
through that didn't get security.
How is that putting the victims first?
-: I think what's important
about the TCC RSA is it was negotiated extensively
over months, and attorneys representing
70% of the victims felt that this was
in the interests of their clients.
It reflected what they thought was necessary
to satisfy their needs.
This was not a unilateral decision by the company.
And so I think the TCC RSA to the company was able
to strike with allow for more cash
to be available for victims at closing than the alternative.
And as a result of those extensive negotiations, yes,
I think that this is a fair outcome.
Michelle: Just as a time check, Mr. Abrams you have
about five more minutes.
-: I'll do my best your Honor.
Michelle: It might be seven minutes.
-: Earlier you stipulated that the TCC RSA came first
before the note holder RSA.
So the implications that you just described
about that security wasn't something they could move on,
because they already inked their agreement
before the note holder RSA.
Is that correct?
Male Attorney: Objection, asked and answered.
Michelle: Agreed, sustained.
-: I'll move on.
What do you know about how the victims'
trust will be managed as holding this 21% shares?
-: I think that the details are being worked
out specifically, but as we disclosed
as part of the disclosure statement,
it's the intention of the trust
to sell the stock of the company over time
in order to generate additional cash
to help victims rebuild.
-: So over time.
So...
If, when there's another catastrophic wildfire, let's say
the summer, would the management of this trust preclude
them from selling off all the shares in the trust?
-: The management of that trust agreement
to the best of my knowledge is still being negotiated.
-: So do you stipulate that this is what we're all working
with, right, is being able to provide cross examination
on a moving plan.
So the degree to which you can provide
solid answer would really help.
Male Attorney: Objection to
the characterization, your Honor.
He's doing his best to answer the question
to the best of his ability.
Michelle: I'm not sure there's a question out there,
but do you agree that terms of various
parts of the emergence are
from bankruptcy are still being negotiated?
-: Yes.
-: Is your understanding that the TCC RSA
and how this trust is going to be managed.
Give me your best guess.
As the negotiations are ongoing, will
these negotiations provide the opportunity
for the manager of that trust to sell those shares
with the next wildfire if it's this summer?
-: These are confidential negotiations that are
still continuing to be worked out.
The intention here is to sell that stock
over time in a way that maximizes value
and recovery for wildfire victims.
It's still being discussed what that looks like.
-: Thank you.
Would you say that the degree to which there is flexibility
for that trust manager to do what they want
and sell when they want and buy when they want
and increase the investment is to the advantage of victims
and constraints on when those sell most likely would be
to the benefit of the other investors?
-: I would disagree with that statement.
I think in part the reason why it is taking
so long to negotiate is because it is a complicated issue.
The intention of that trust agreement is
to maximize the value, maximize the recovery.
To the extent that the trust was going
to sell in any one day, 21% of the company that would have
a significant impact on share price, providing the market
with some stability as to when
and how those shares will be disposed helps support
a better stock value
and therefore a higher recovery for victims.
-: Given all these requirements that may be
in this trust, do you
really feel that a company that burned
down your home, that affected the people who are
in your community, having them own the stock
and then precluding them
from selling the stock of the company
who burned their house down, does that strike
you as a bit unfair?
-: I don't agree with the characterization,
and I also don't agree that that's the underlying intent.
The victims themselves will not hold the stock.
The stock is being held by a trust that is trying
to maximize recovery and will sell that stock over time
so that victims can receive cash
in order to help rebuild for losses they've incurred.
-: But it's a victim trust, right.
So it's the victims.
It's their trust, right?
-: It's set up to maximize recovery for the victims, yes.
-: Given this large shareholder class, I wanna understand
the rights of that shareholder class.
Will they be able to vote based on their 21%?
-: That's an element that is continuing to be discussed.
The underlying stock that will be held will have
the same rights as all other stock issued by PG&E.
It'll be common stock of the PG&E corporation.
Abrams: So they will be able to vote as a 21% class?
-: Subject to potential capital markets limitations, but yes.
Michelle: Two minutes Mr. Abrams.
-: Thank you.
What was the settlement associated
with the Tubbs Fire, the dollar value?
-: It was a confidential settlement.
-: So if I'm a victim of the fires,
and I'm being asked to vote on a plan
for my financial future,
I don't know the settlement associated
with the Tubbs Fire, don't know the value of the shares.
Those are unknown variables for the victims.
Is that correct?
-: The value of the shares wilL be known, given
the fact that we currently have a traded stock price.
The settlement of the Tubbs, it's a confidential settlement.
-: The degree to which they can understand what that means
for cash in their wallet is an unknown.
Is that correct?
-: I believe that the plaintiffs' attorneys representing
the victims have and we'll continue
to provide perspective on what that means
for cash in hands of the victims, yes.
-: When you say continue to provide perspective,
the TCC RSA precludes them
from providing that perspective to victims.
So who are they providing that perspective to?
-: They have to advise their clients on the decision
to vote for the plan or not.
-: How can they advise their clients, given
the TCC RSA precludes them from doing so?
-: I don't think it precludes discussing
the terms of the plan of reorganization.
And in the opinion of their attorney lie they should
or shouldn't vote for the plan itself.
-: That's an interesting opinion given the clauses that are
in the TCC RSA, but I'll leave that there.
After all that we've, I guess discussed is the wrong word,
after all that we've been mentioning to date
I'd like to you think about this
and answer this question if you would as a neighbor,
as someone who would wanna provide advice to their neighbor.
Is this fair?
-: I believe it is.
-: That's all.
Michelle: Thank you Mr. Abrams.
Mr. Finkelstein.
-: Thank you your Honor.
Good morning Mr. Wells.
I'm Bob Finkelstein representing TURN.
A question that came to mind as Mr. Abrams was asking
you questions, the TCC RSA
at the time that it was negotiated,
it's correct, is it not, that the TCC was not sponsoring
its own proposed plan of reorganization.
-: Prior to the current TCC RSA, the TCC
and certain ad hoc note holders were sponsoring
a separate plan of reorganization.
-: Okay, thank you.
First of all, do you have
before you what's been marked as TURN x five
and TURN x six which were two cross examination exhibits?
Your Honor I provided you with copies of these earlier,
and we'd sent them to the service list via email
at some point in the last week.
-: I have it.
Michelle: Thank you.
-: Let me start with TURN x five.
Do you recognize this as a PG&E response
to a TURN data request?
-: Yes I do.
-: And then turning to what's been marked as TURN x six.
Do you recognize this as the first few pages are
the data request itself from EPOC followed
by, starting at page nine and 19 as it's designated
in the bottom right-hand corner was
the start of PG&E's response to that data request?
-: I see that, yes. -: Okay.
And then it continues on with a response
to a TURN data request, starting
at page 16 and 19 of that document.
-: I see that, yes.
-: Okay thank you.
Let me get you to turn in your direct testimony
in PG&E one to page two dash 22.
Do you have that?
-: I'm there yes.
-: And on line nine there's the beginning of a
paragraph that starts with, "Under PG&E's plan."
Do you see that?
I'm sorry--
Michelle: Two dash 23.
-: Two dash 23.
-: Yes I see that.
-: I need to make sure I can get
my bearings when I read the transcript.
So on page two dash 23, starting at line nine, do you see
the paragraph that begins "Under PG&E's plan?"
-: Yes. -: Okay.
And the first sentence of that paragraph describes
PG&E's expectation of achieving investment
grade ratings upon emergence.
Do you see that? -: That's right.
-: And that's sort of a snapshot
at the time that the plan has been confirmed.
PG&E has pursued and successfully obtained the financing,
and at that moment
it will have achieved investment grade ratings.
Is that correct?
-: For the secured bonds the company intends to issue.
-: And at this point, PG&E's not intending
to issue any unsecured bonds.
Is it?
-: That's correct.
-: And then the sentence that follows beginning
on line 10 describes a clear path
towards further improving its credit rating.
Do you see that?
-: I do.
-: So for PG&E it's not just a matter of the credit ratings
and it's financial health at the moment of emergence
but on an ongoing basis thereafter?
-: That's correct.
-: Okay.
Let me get you to turn I hope to page two dash 15,
still in PG&E one.
And it's the material that starts on line 18.
Again, paragraph starting under PG&E's plan.
Do you see that?
-: I do.
-: So as I understand your testimony here
there is no doubt that the $6 billion of temporary
utility debt is going to be used
to pay wildfire claims at exit.
Is that correct?
-: That is correct.
-: And you go on to say on line 19 to 20,
therefore that debt will be
the financial responsibility of shareholders, not customers.
-: That is correct.
-: And the therefore is
because it's financing wildfire claims.
-: The therefore is because it's debt that does not
directly finance the company's rate base, that it goes
to financing wildfire claims, and so is the obligation
and responsibility of the shareholder to pay.
-: And so while it is temporary utility debt
as you're describing it here, it would be solely
the responsibility of shareholders.
Is that a fair statement?
-: It would be secured debt of the utility.
The obligation to pay the associated debt service
would be that of shareholders.
-: Well not to put too fine a point
on it, if shareholders aren't paying it,
the financial cost of the debt, nobody's paying it.
Is that a fair statement?
-: It's a fair statement, but I think it mischaracterizes it.
I think what's important to look at--
-: Your Honor I'm gonna ask that we save this
for redirect, given the time constraints.
Michelle: I agree.
-: Thank you.
Well let me ask it this way Mr. Wallace.
If the utility were to default
on the temporary utility debt,
the debt holders recourse would be
against the utility, not PG&E's rate payers.
Is that a fair statement?
-: That's correct.
-: And then on line 20 you describe
the securitization that's been a topic earlier
and describe also that securitization as being rate neutral.
Do you see that?
-: I see that, yes.
-: And then this, there is a direct linkage is there not,
between that securitization that you're describing
and the temporary utility debt?
-: Yes.
-: And the proceeds of the securitization would be used
to retire the temporary utility debt.
Is that correct?
-: That's correct.
-: And once the temporary utility debt is retired it's fair
to understand that shareholders are no longer obligated
for its repayment or any financing cost associated
with that temporary utility debt.
-: Yes it's retired.
-: And from that point
forward the wildfire costs that had been
the subject of the temporary utility debt would now be
the subject of the securitization transaction.
-: Yes.
-: And as you're contemplating it
under the securitization the cost would be collected
from rate payers through a dedicated rate component.
-: That is how we're currently contemplating it.
-: And would you agree
with the characterization that a dedicated rate
component is structured in a way so as
to be bankruptcy proof for any future bankruptcies?
-: That is the intent.
-: And then at lines 24 through 27 of two dash 15 of your
direct testimony, you describe
how PG&E intends to use certain tax benefits
and other credits to provide rate reductions.
Oo you see that?
-: I do.
-: Is it PG&E's intention to structure those benefits
in a way so they would also be bankruptcy proof
in terms of any future bankruptcy?
-: We're currently finalizing that application.
Our intention though is to put
forward an application that would be customer protective.
How it's specifically structured
we're still working through those details.
Michelle: I have a question related to this.
When you responded to Mr. Finkelstein's question
and the term bankruptcy proof, what does that mean to you?
-: That is a special purpose entity that is
outside of the legal entity of PG&E.
Since it has dedicated rate component,
legally or functionally it would be separate
from the utility itself.
Michelle: And if PG&E were granted
the securitization that it will be seeking
at some point in the future
and PG&E declared bankruptcy again, would rate payers
still be responsible for paying
the non-bypassable charge as contemplated?
-: As contemplated currently, yes.
But that's why we're still working
through the details of the customer protection
for the offsetting credits.
Michelle: Thank you.
-: Thank you your Honor.
Mr. Wells let me get you to now turn
to what I understand has been marked as PG&E eight
which I think were the clarifications.
-: I have that.
-: Okay.
If I can get you to turn to page three.
And at the start you have heading
two recovery of wildfire claims cost.
Do you see that?
-: Yes.
-: And the last sentence of this paragraph states,
"If the Commission approves PG&E's proposed securitization,
"PG&E will not seek any other recovery of 2017
"or 2018 in wildfire claims cost."
Do you see that?
-: That's correct.
-: And is it fair to understand that seek
any other recovery, meaning, seek any other rate recovery?
-: That's correct.
-: Is it reasonable to interpret this sentence as
at least implying that if the Commission does not approve
the securitization, PG&E may seek
rate recover of 2017, 2018 wildfire claims cost.
-: That is correct.
-: Prior to submitting this clarification document on Monday,
I'm sorry, maybe Tuesday, this week, had
PG&E ever taken this position in public?
-: Not to my recollection which is why we wanted
to clarify it for the record here.
-: But is it something that had been understood
within the company at the time that you served
the testimony January 31st?
-: Yes.
Michelle: Mr. Wells could you point me
to the place in your testimony
where the fires covered are listed that are
part of that 2017 and 2018 fires?
-: Apologies, what specifically?
Michelle: Sorry, on page three of exhibit of PG&E eight
where Mr. Finkelstein was referring you
to, PG&E's plan does not address rate recovery of 2017
and 2018 wildfire claims and costs.
Is there a list somewhere
in your testimony that the specific fire events
for 2017 and 2018 are identified?
-: If I can have just very quickly?
Michelle: Let's be off the record.
(faintly speaking)
-: Your Honor.
Michelle: Let's be back on the record.
-: On page two dash 16 of my original testimony
there is a table, table 2.3 uses.
We have not broken it out, but the fire claims
at the top of that table, the 24.15 billion plus
as footnoted the 1.35 billion in deferred payments.
That's the total fire claims that is referenced
on page three of the clarification testimony.
We don't have a more
granular breakdown of the '17 and '18 fires.
Male Questioner: Can I interject?
Michelle: Mr. Weisman.
Weisman: In the plan of reorganization
which has been filed with the Commission,
those fires are listed.
I can give you a particular page if that would be helpful.
Michelle: Thank you.
Why don't we do that after lunch?
-: Your Honor, is it back to me?
-: Yes sorry. -: Thank you.
Mr. Wells let me get you to turn
in your direct testimony in PG&E one, page two dash 22.
It's the sentence that starts on line 21.
Do you see that?
-: I do.
-: And you see that it states "PG&E is
"not requesting that the wildfire claims be recovered
"from customers, and those amounts would
"ultimately be paid by shareholders,
"even if initially financed with debt in whole or in part."
Do you see that?
-: I do.
-: Would you agree that that's no longer true given
PG&E's position taken in the clarification, that if
it does not obtain securitization,
it may seek rate recovery of the cost of those claims?
-: No, not exactly.
We haven't taken a position one way
or the other, if securitization is denied.
We're withholding that evaluation.
-: But you are holding on
to the possibility that you might seek rate recovery
should securitization be denied.
-: But we are currently as part of this application
not seeking recovery for those claims costs from customers.
-: So based on this investigation
and PG&E's testimony submitted to date
and the clarifications and things of that nature,
the Commission can conclude safely that PG&E is not
at this time seeking rate recovery
for 2017 and 2018 wildfire costs.
Is that correct?
I'm sorry wildfire claims cost.
Is that correct?
-: As part of this plan we are not seeking recovery
for 2017, 2018 wildfires claims cost.
-: But at some point going forward that may change
and PG&E could then seek
rate recovery of claims cost associated
with 2017 and 2018 wildfires.
-: That's correct.
-: And Mr. Wells just for clarification
we keep talking about 2017
and 2018 wildfires, does that figure also include
costs associated with the 2015 Butte, b-u-t-t-e fire?
-: It does include a little bit related
to the Butte fire in 2015.
-: And when you say a little bit, do you have
order of magnitude, what a little bit is in this context?
-: A few hundred million.
-: And for the Butte wildfire, if you know
would that be the amount of wildfire
claims, cost that exceeded
the available liability insurance proceeds?
If you know.
-: The agreement wasn't structured
in a way to resolve each of those individual fires.
It was resolving a collection of fires.
So I don't have the ability to answer that directly.
-: And could you, hopefully very briefly, describe
how 2019 wildfire claims cost are treated
in your bankruptcy claim, your plan of reorganization?
-: They're currently not addressed here.
-: It's correct to understand those claims
would not be discharged if your proposed
plan of reorganization gets confirmed?
-: Currently we don't know the cause
and origin of the 2019 fires.
So we're not proposing any payment of claim as
part of this plan of reorganization.
-: But you are, are you not, proposing
payment of claims associated with the Tubbs Fire?
-: Sorry, I thought you said 2019.
-: I'm sorry, I'm switching now from your previous response
to the treatment of the Tubbs Fire
under the proposed plan of reorganization.
Does the proposed plan of reorganization include
cost of claims associated with the Tubbs Fire?
-: No.
-: Let me get you to turn to what's been marked as
PG&E 13 which is a document that was financial projections.
-: I have that document.
-: And well, I don't.
So hold on a second Mr. Wells.
Woman On Panel: Are we off the record?
Michelle: Off the record.
-: Now I got it.
Thank you your Honor.
Michelle: Back on the record.
-: So Mr. Wells PG&E 13 the first page of text
simply has the heading "Exhibit B, Financial Projections."
Do you see that?
-: I see that.
-: Can you briefly describe what this document is?
There are financial projections for what purpose?
-: Under the bankruptcy court
as part of the required disclosures
statement that is used to evaluate
and vote on the plan of reorganization,
the company is required
to put together financial projections supporting its ability
to maintain financial health post-emergence.
This document addresses that.
-: And this document was issued
on February 18th of this year.
Is that correct?
-: I believe that's the case.
-: On page five of this document
there is several bullet points towards the top of the page.
Do you see that?
-: I do.
-: And the last bullet point
before the heading financing
considerations, starts off wildfires OII.
Do you see that?
-: Yes.
-: And the last sentence states,
"The consolidated financial projections assume that these
"costs will not be recovered."
Do you see that?
-: I do.
-: And when PG&E says will not be recovered
in this context is it will not be recovered in rates?
-: That's correct.
-: And then on page six of the same document Mr. Wells,
the second to the last bullet point on this page
about restoring common dividends.
Do you see this?
-: I do.
-: And it seems to be tied
to achieving a certain equity ratio,
and then you use the phrase
or PG&E uses the phrase "on a regulatory basis."
Do you see that?
-: I do.
-: In this context does on a regulatory basis mean
with the various adjustments that you've described
in your direct testimony here?
-: That is correct.
-: Are there any adjustments being made
to the calculation of the equity ratio
other than the ones that you've described
in your testimony here to your knowledge?
-: Not that I'm aware of.
-: Let me get you to turn please
to what's been marked as PG&E 12.
No I'm sorry, still on PG&E 13, the consolidated,
the financial projections document in PG&E 13.
On page nine of that document,
there's a consolidated cashflow table.
-: Yes.
-: I'm sorry.
The first line of the table itself says cashflow statement.
Do you see that?
-: I do.
-: And then the bottom of the first section has
a net cash from operations figure.
Is that correct?
-: Yes.
-: And it reflects, if I'm reading it correctly, an increase
from $5.8 billion in 2022
to approximately $7.9 billion in 2024.
-: Yes.
-: Then now let me get you to turn please
to what's been marked as PG&E 12.
And that's a set of slides
the first page of which says PG&E business outlook.
Do you have that?
-: I have that document.
-: Let me get you to turn to slide 34 of this document.
Do you have that?
-: I have it.
-: And at the very top of the page it says, "Sustainable
"financials" as part of the heading.
Do you see that?
-: Yes.
-: So in the left hand column there is
what looks to be
a label of sorts of non-core earnings factors.
Do you see that?
-: I do.
-: And then...
There are appears to me the five listed here on this slide.
Is that the correct way to interpret this slide?
-: Yes.
-: And just in general what are the non-core earning
factors trying to identify in this context?
-: Is there transactions that are flowing
through our financial projections that we don't think are
reflective of the ongoing earnings power of the company.
And so we're trying
to highlight them separately for investors.
-: And in each of the five cases that you've listed here
or the five examples you've listed here, are they
costs that the utility anticipates incurring
sort of as a one-off basis
and doesn't expect to reflect what cost
the utility will incur in a going forward basis?
-: That's basically the, yes.
-: On the next page is
slide 35 of what's been marked as PG&E 12.
Do you have that?
-: I have it.
-: And the title here is cost savings areas of focus.
Is that correct?
-: Yes.
-: And am I correct in understanding, well,
it says it at the very top, identified
an average of $1 billion per year
in operational cost through 2025.
Do you see that?
-: I do.
-: And that's an average of $1 billion per
year that PG&E expects to be able to cut
from its operational costs.
-: That are reflected in our operating plan, yes.
-: And then the next sentence says that it will moderate,
such savings would moderate the expected increase
on customer bills to support infrastructure investment.
Do you see that?
-: That's correct.
-: And that's increases on the bills, separate
and apart from any treatment of wildfire claims cost.
These are the costs of infrastructure
for the wildfire mitigation plan
and things of that nature.
-: That is correct.
-: Would you agree with me that the savings
would only serve that purpose to the extent they show
up in the authorized revenue requirement?
-: Not necessarily.
-: Until they show up in the authorized revenue requirement
how do they moderate
the expected increase on customer bills?
-: In some cases this is a void cost that would have
otherwise flown into the authorized revenue requirement.
-: So where the authorized revenue requirement is set
on a recorded cost basis, you're suggesting that there be
a lower amount of recorded cost that PG&E would
ultimately seek rate recovery of.
Is that correct?
-: May I briefly expand?
-: If it's really brief Mr. Wells.
-: The time that we put together our rate cases
we have seen additional costs come
into our forecast for things like
the passage of senate bill 247.
We want to minimize your impact of PSP events.
Anyway, we've seen cost increases that were otherwise
eligible to track in either memorandum accounts
or balance accounts to seek recovery at a later date.
These cost savings are intended
to execute that work more efficiently
so we can reduce what would be
a forecasted impact on future rates.
Bob: And to your knowledge as you sit here today
would these cost savings be entirely
in programs that are subject
to rate recovery on a recorded cost basis
or would any of them be in programs that are subject
to rate recovery on a forecast basis?
-: Some of them are gonna, both.
-: Okay.
Would you agree with me that to the extent they are
for programs that are recovered
on a forecast basis that cost savings until there's
an adjustment in the revenue requirement flow
to the utility rather than to its rate payers?
-: Yes.
-: Let me get you to turn back
to what's been marked as PG&E 13
which is the financial projections document.
Remember we were talking about a second ago.
-: I have it.
-: In the very last page.
-: Yes.
-: So on this table the net cash
from operations that's listed here,
would these figures reflect the cost savings
we were just talking about a second ago
from attachment, I'm sorry,
from what's been marked as PG&E 12?
-: They do.
-: And then...
I'm sorry to keep asking you to bounce
and forth Mr. Wells.
Back to exhibit 12.
-: I've got it.
-: And slide 29.
-: I'm there.
-: I think Ms. Kelly asked you some questions
about the PG&E forecast for rate case growth of 8% per year.
Do you recall those questions?
-: I do.
-: For these historical figures that are shown
in the first column on this graph.
I'm sorry.
Let me ask for both.
Is this just electric operations
or does it include all operations?
-: All operations.
-: Okay.
And for the historical figures would
it include disallowed capital expenditures
or are those excluded from this?
-: That would be excluded from this.
-: Let me ask you...
Let me ask you to look at what's been marked as TURN x five
which is the response to TURN data request question five.
Do you see that?
-: I'm turning to it.
I have it.
-: And this was a debtor request that asked
PG&E to provide its best
current estimate of the cost of financing
and financial advisor fees.
Do you see that?
It's the second page of text.
It's designated page four on the bottom right-hand corner.
-: Which question is that?
-: I'm sorry, it's question five,
would have been a good start.
-: I'm there.
-: And then part of what PG&E provided
in response is this table that is attached as
the last page of the document.
Is that correct?
-: That's correct.
-: And this is a by the heading
a summary of professional fees and expenses.
Do you see that?
-: I do.
-: And it states at the top that it's
a summary as of January 29th, 2020.
Do you see that?
-: I do.
-: But would you agree with me that for a number of these
firms that are listed here, they're submissions
for compensation or reimbursement had not been kept current
for lack of a more precise term?
-: It's possible.
-: Well, so the first one is
Crabath, c-r-a-b-a-t-h, Swaine, s-w-a-i-n-e.
Do you see that firm? -: Yep.
-: And that would be one of the outside attorney
firms that PG&E holding company's relying on?
-: That's correct, yes.
-: Okay, and it shows that the figure that's listed here was
only for submissions through September 30th, 2019?
-: Yes.
-: Okay.
So it'd be reasonable to conclude that the actual
amounts of professional fees through January 29th, is likely
to be somewhat higher than
the figures that are listed on this table.
-: That's correct.
-: And then for financing fees and such is it correct
to understand that those fees will
for the most part be incurred later
in the process closer to when PG&E emerges from bankruptcy?
-: A large percentage of those
fees have been incurred have been set,
not paid as part of the note holder RSA.
The remainder will be incurred as part of the exit.
-: So when you say set, if the Commission were
to ask you what is the current amount that PG&E has paid
for such financing fees,
if they've been set, does that necessarily mean
they've been paid to this point
or they will be paid at some point in the future?
-: They will be paid at exit but we know the amount.
-: Okay.
So then it sounds to me, Mr. Wells, like
there are three categories.
There's a category that have been incurred and paid.
There's a category that have been set but not yet paid.
And then there's a third category that has
not yet been set and not yet paid.
Is that a fair characterization?
-: That's right.
-: And is it fair
to understand that the majority of the financing related
costs would fall into the latter two categories, that is,
either set but not yet paid or not yet set and not yet paid?
-: That is correct.
-: And then as I understand PG&E's position it is that it is
only seeking recovery of, and I apologize
for not having the figures at hand Mr. Wells,
but something in the range of $150
million of financing fees.
-: Just a little more than that yes.
-: And--
-: 154 million.
-: Thank you.
And is PG&E committing at this time that it is that's it.
For financing fees it'd be $154 million
and absolutely nothing else, no matter what?
-: No.
That's our current estimate.
-: Well.
For the fees that are covered
by the current estimate, whatever the final amount turns out
to be for that subset of the fees, is PG&E committing
now that it's only that subset,
the fees that have been identified as now being $154
million, whatever that figure proves
to be, that would be the entirety of what PG&E
ever seeks to recover from rate pairs for financing cost?
-: We're seeking to clarify that we intend
to recover those categories of financing costs.
Our current estimate is 154 million.
-: And that category of financing costs,
as I understand it, are the financing costs associated
with a subset of the total financing
transactions that PG&E contemplates
for its plan at reorganization.
-: The subset related to costs that areused
to fund the company's rate base, yes.
It's a subset of the total financing.
-: Okay.
So other than that subset, is PG&E taking
the position now that for all
the other categories of financing,
it's never gonna seek rate recovery for those costs?
-: Yes, we are trying to clarify that we are not intending
to seek rate recovery for the professional fees,
the financing costs that are not associated
with the funding rate base.
-: And your use of the term intending gives me
the heebie-jeebies, to use a technical term Mr. Wells.
Can the Commission take that to the bank
and say the utility's never gonna seek it
or is it based on what PG&E knows today
it doesn't intend to seek it,
but things could change and we might seek it later.
-: We're not seeking recovery for these costs.
-: At this time as part of the material that you've submitted
in this investigation, is that correct?
-: It would be easier if we went line by line.
We're not going to seek recovery
for the professional cost associated
with the bankruptcy except
for the professional cost that were associated
with a note holder RSA.
We're not going to seek recovery now
or in the future for the financing cost associated
with the financing that does not fund rate base.
We do intend to seek recovery
for the financing cost that areused
to support funding a rate base.
-: And those are the amounts that you've been characterizing
as being offset by interest rate savings
in your testimony and other places.
Is that correct?
-: That last category yes.
-: All right.
Can I have one second off the record.
Michelle: Off the record.
(faintly speaking) time check, you've used 40 minutes.
-: Okay.
Thank you your Honor.
Back on (faintly speaking).
Michelle: Back on the record.
-: Mr. Wells that's all I have.
Thank you for your patience.
Thank you your Honor.
Michelle: Thank you.
Let's be off the record.
Do you have an estimate of your amount of time?
(faintly speaking)
-: I'm gonna be same category of time,
but it's gotten much shorter given some of the last
statements from Mr. Wells to (mumbles) helpful.
So I'm certain I'll be within that timeframe.
Michelle: Okay.
And Mr. Miley can you please come forward
and speak into a microphone for this conversation?
You don't need to speak until you're on a microphone.
We're webcasting so you need to speak into a microphone.
Miley: Your Honor, Matt Miley with the Public Advocates.
We do have I believe it should be only five minutes
or less of questions for Mr. Wells.
-: Okay, then at this time I think we'll continue
to move forward with the goal of trying
to wrap up no later than one o'clock with this witness.
So be as brief as possible, much shorter
than your target as much as possible.
And this also means that you're gonna have
to be very brief on your redirect as well.
In addition Commissioner Rechtschaffen
and I both have some questions for this witness, so.
At this time we'll turn to Mr. Algontar
once we go back on the record.
We'll be back on the record at Mr. Algontar EPUC.
-: Mr. Wells good afternoon.
It's early.
My name is Michael Algontar as I think you know.
I represent the energy producers and users Olish
and the indicated shippers in this proceeding.
Let me start with exactly who you work for.
Is it the utility corporation,
the holding company corporation or both?
Jason: I work for the corporation.
-: Okay.
There is in your estimation a direct link, is there not,
between the debt status if
you will of the corporation and the utility?
Jason: Yes.
-: So in that event if the corporation were
to take on greater debt that would have an impact
upon the utility's capacity and rate
with respect to other debt?
-: It could at certain thresholds.
-: Okay.
I wanna go through a hopefully a quick
process of chronological check of where credit ratings were
and where they've come.
Is it correct that PG&E's credit rating
progressively declined from A minus rating
at the end of 2017 to Triple B through 2018?
-: That's correct.
Mike: The Triple B rating is below investor
grade as we've established, correct?
-: Triple B is investment grade.
It's not below.
-: Okay.
When PG&E filed for bankruptcy in January 20 of 2019 was it
at a Triple B rating or lower?
-: The rating agency downgraded us to sub-investment grade--
-: Which was?
-: I don't recall the specific rating,
but it was below investment grade
before we filed for bankruptcy.
-: Below Triple B.
-: Yes. -: Okay.
This credit rating drop in 2018 created financial distress
for PG during 2018.
Is that fair to say?
-: Apologies.
We were downgraded from investment grade in 2019.
We maintained an investment grade rating throughout 2018.
We experienced the most acute financial challenges
after the camp fire, late 2018 and early 2019.
Mike: And my question's a little more broad.
You were on a stressed decline I suppose is
what I'm trying to get to.
Is that fair?
-: That's fair.
Mike: You would agree would you not that the 2018
and 2019 credit ratings drop
and financial distress was caused
by wildfire damage claims adverse
to PG&E related to 2017 and 2018 events?
-: Largely.
-: In PG&E's publicly available announcement
to investors at the end of 2018, beginning of 2019,
the stated reason for the January 29 bankruptcy filing was
a result of wildfire damage claims.
Is that correct?
-: That's correct.
-: Yeah.
In the financial markets, based
upon your experience, is it fair
to say that interest rates for utility
with a Triple B or lower rating will be higher
than the interest rate for utility
with an A minus bond rating?
-: That's fair.
-: In your historical time horizon of reviewing
credit ratings and bond ratings
in particular are you aware of an
interest rate spread reflecting a difference
in bond ratings that did not exist
in terms of this kind of correlation
between credit rating and bond rating?
-: I'm not aware.
-: You would agree, would you not, that PG&E's
cost of selling new
bonds, refinancing existing bonds will be
at a higher interest rate if PG&E's bond rating is say
Triple B in comparison to a PG&E bond rating at A minus?
-: Yes.
-: And I think we've established this,
but I wanna make sure just in this chronology.
In 2017 when PG&E had an A minus bond rating,
PG&E did not issue secured debt.
Correct? -: That's correct.
-: Did issue unsecured debt during that period though.
Is that also correct?
-: That's right.
-: Is it correct to say, and I'll open this up
to you if you disagree, but is it correct
to say that PG&E can only issue secured debt
in an amount limited
by the market value of its property that can be mortgaged?
-: Generally yes.
Mike: I'd like you to turn with me briefly
to your one testimony, original testimony
at page two dash.
-: I'm sorry, two dash.
-: Yeah, no, sorry about that.
Two dash 12.
And I'm focused on lines beginning
at 15 and extending through 18 for a couple of reasons,
one is I am very much interested in understanding
your definition, complete definition,
in as much detail as possible of the term
utility contributions as it's used at line 17.
And for example, just described
before I started questioning you utility
contributions associated with bankruptcy fees.
Those will come from shareholders and not from rate payers.
Those are the kinds of things I'm interested
in making sure I understand your full list of what is
and isn't a utility contribution.
-: This testimony here relates specifically
to the payment to the state's Wildfire Fund.
So it's not trying
to refer any broader to (mumbles) contribution.
It's our payment or contribution
to the AB1054 Wildfire Funds.
-: Also embedded in this passage is
a reflection of your understanding of obligations
under AB1054.
Is that fair?
-: That's fair.
-: You've studied that carefully.
Have you not?
-: I have.
-: As a rate payer, are you a rate payer of PG&E by the way?
-: I am.
-: I am as well.
As a rate payer of PG&E you would agree,
would you not, that every rate payer has an acute
interest in preserving the protections that they thought
they had under state law with respect to 1054?
-: I'm not sure I understand the question.
-: There are protections in AB1054 that accrue
to rate payers in terms of the amount of cost
they might bear from the bankruptcy
or from the wildfires, correct?
-: I understand that limitation yes.
-: Okay.
And therefore there's an interest
in those rate payers knowing with clarity
and with as much specificity as possible
exactly what those limitations are.
Is that a fair statement?
-: I think that is yes.
-: There's also an interest in this Commission
who has an obligation to protect rate payers
and to implement effectively AB1054 protections.
Would you agree with that statement?
-: Yes I do.
-: So what is vitally important to me,
and I'll try and cut to the chase as best we can, see
if we can cut some of this out, is your plan is a plan.
It has intentions.
It has hopes.
It has some expectations.
There are places where it's hard
to find, as I think you were hear
for Mr. Johnson's testimony, the term commitments
and assurances and enforceability and if you will process
or triggers that this Commission could employ
in a timely way to assure those protections
under 1054 are both understood and timely enforced.
Is that a fair
characterization of your description of the PG&E plan?
-: We're seeking to clarify our intentions
under this plan, because we understand
the point that you raised which is
why we've filed that supplemental testimony this week.
-: And that's PG&E eight you're referring
to is the supplemental testimony.
Well I'm sorry.
PG&E seven is your supplemental testimony.
But in PG&E eight, if I can get you
to refer to that, there are several paragraphs
there that I think your ceo passed along
to you as something you'd be responsible for
and your counsel was careful with me
to make sure that I didn't exclusive rely
on Mr. Johnson's testimony,
but make sure I asked you these questions.
This is your effort to clarify what is now a different
position from what was filed by PG&E on the 31st of January
in terms of issues associated with wildfire cost
and fees and bankruptcy fees, professional fees
and debt carrying costs incurred that you will
not be seeking recovery from rate payers.
Correct?
-: I wouldn't characterize it as a change of position,
but we're trying to do is provide further clarity,
because we recognize that the original testimony was unclear
in some of these areas.
-: Fair point, okay.
Are there standards in the plan
to assure for the Commission that they will have
the opportunity, and for rate payers, that they will have
the opportunity in advance of costs being incurred
or allocated to them under your plan that preserve
these protections that we've been alluding to?
-: That's what we're seeking
to support providing this clarity.
-: But there isn't, as I've seen,
and that's what I'm trying to clarify
with you, there isn't a dear Commission here's
the process questions or process that you should go
through tier two, tier three advice
letter filings that we will submit.
Here are the areas that you should be sensitive
to in terms of what standards would trigger
a different and expected result?
-: We're trying to articulate that.
I mean, I think it's the, we've committed
to advice on our process to true up our cost of debt
to be reflective of the savings we've anticipated
as well as the financing costs that we've forecasted.
We have identified the separate application
for securitization which is not a component of this plan,
but as we referenced if unapproved we will have
to evaluate at the time, whether
or not the company will seek going forward
from there any cost for recovery related
to 2017 and 2018 fires.
So what we've tried to do is clarify each of those points.
-: Okay.
In the event the Commission makes
different assessments of the baseline
under 1054, AB1054, then your testimony
on the corrections and supplemental testimony seeks
to justify will your plan be withdrawn?
-: It's hard to speculate as
to how we would address those issues.
We've tried to be very forthcoming
and put forward a plan that on
our basis of our understanding of the baseline results
in a net decrease for customer rates.
Obviously we wanna work with the Commission
to incorporate feedback, but it's hard
to speculate until I understand specifically
what that feedback is.
-: There's risk in your plan.
Is there not?
-: I think there's risk in all financial projections, yes.
-: Of course.
That's exactly fair.
And there's risk
for rate payers if your projections are wrong.
Correct?
-: Correct.
-: And if rate payers sought relief
from a risk that went awry
or projection that went awry that resulted in harm
to them, they would need to seek recovery
through a Commission process.
Is that correct, your understanding?
-: I don't know the procedural mechanism to seek recovery.
To seek recovery.
-: Would you expect rate payers to have some other action
against PG&E directly if your plan goes awry?
-: I wanna be responsive.
I'm struggling with plan goes awry.
I will acknowledge that plans are
a projection of the future.
-: Yes. -: There is risk to that.
But we have taken a number of steps
to feel confident in this plan.
-: And I want to endorse your confidence.
I want it all to come together.
Unfortunately we live in a
world that doesn't accept that as reality.
So you look at a future that bears risk.
And you're looking at a Commission that needs
to try and assess that risk and act upon those risks failing
to meet standards that are enforceable
and identified which is as you know akin
to what the governor seemed to be saying to PG&E as well.
So I'm trying to explore with you just what process
you see, what guidance you would suggest
for this Commission about the standards
it should be concerned with
and whether or not there are commitments
in this plan that if there's a failure of those
future forecast projections and
injuries result, harm results,
what will they do, how will they act,
and how will they act in a timely way.
It's a compound question.
I'm sorry for trying to move along here.
-: The basis of the majority of these
financial projections are rate
cases that either have been decided or settled.
So we have a great deal of visibility
under these financial plans.
To the extent that adverse actions were
to occur, I think those adverse
actions would likely accrue more to shareholders
than they would customers,
because these plans are based again
on either settled rate cases or decided rate cases.
-: And again, I accept your hope, and I accept your dream.
I guess you're being asked to speak into the microphone.
I accept your hope and I accept your optimism.
I'm really not challenging that.
What I'm asking about is unfortunately plans go awry.
That's really the scenario I'm trying
to drill down on because--
Michelle: Can you ask a more specific question?
I don't know that he's gonna be able to answer any better.
That's the third time.
-: Fair point.
Michelle: And Mr. Wells if you tip
your microphone up a little, it might be better.
-: Thank you.
-: There was, as you've alluded to, a change
in or correction or an updating of views regarding
the pass through of cost to rate payers concerning
wild fires 2017 and '18
and part of 2015 as well as
the professional fees associated with bankruptcy.
What was it that caused you to change your earlier expressed
position that PG&E was not taking a position
on the treatment of those costs?
-: It was an understanding of the lack of clarity,
how important timeliness of this entire proceeding is
in wanting to be as clear as possible
with parties in this proceeding.
Mike: Were there principles involved
in terms of your interpretation of 1054?
-: Yes.
Mike: And what were the changes
in those principles that might be instructive
to this Commission about your interpretation?
-: I don't think there's ever been a change in principle.
Our basic premise with respect
to AB1054 and the customer
protection is that that protection addressed
the cost directly associated
with this plan of reorganization.
And as a result that's why we tried
to clarify we're incurring financing costs that we intend
to seek recovery for that will be offset
by interest rate savings
and that the other professional services costs,
the other financing cost for non-rate based funded debt
and equity would be covered by shareholders.
-: Let me step into the assumption world
about the securitized debt that you're looking
for to making an application for.
And let's assume that those projections
also don't exactly match expectations
instead of being a rate reduction actually work adversely
in terms of rates for rate payers.
Is there any basis if that event
would occur that this Commission should
not assure that PG&E is not issuing any dividends
to any shareholder during that period of time?
-: We intend to offer specificity
around the customer protections in an upcoming application.
As it relates to restrictions
on dividends I think that that would complicate what will be
a record capital raise post-emergence.
I don't think that is in any stakeholder's interest,
customer's, shareholder's, wild fire victim's,
all stakeholder's as part of this case.
-: But you agree that paying off that debt as quickly
as conceivably possible is in everyone's interest.
Male Attorney: Sorry what debt are you referring?
-: The securitization debt.
-: Our plan doesn't require securitization.
So it's hard to directly answer that question.
-: Yes I'm looking towards the future you've described
for us, about, excuse me,
the securitization plan that's also coming.
In that plan what are the rate payer protection
concepts that you're working on for that plan?
-: Subject to continued changes, we finalize our application.
We have considered the opportunity at general rate cases
to include a review of the customer credits
to ensure that on a present value basis
those customer credits still result
in a rate neutral securitization.
-: Okay.
What about a principle that would,
if you don't like the idea of withholding dividends,
what about a principle that would require
the repayment of that securitization debt till have reached
a pre-2017 A-1 credit rating?
-: I think any additional restrictions are going
to complicate what is already going
to be a very complicated capital raise.
I think it's unfair to look at the credit rating prior
to 2017, because since then it's not just the company's
actions that have impacted the company's credit ratings.
It's also the qualitative concerns
around the (mumbles) environment.
-: I have nothing further your Honor.
Thank you Mr. Wells.
-: Thank you.
Michelle: Thank you.
Mr. Miley.
Matt: Good afternoon your Honor.
Good afternoon Mr. Wells.
My name is Matt Miley with the Public Advocates Office.
-: Good afternoon.
-: Just a short line of questions for you today.
Do you have access to chapter seven?
This would be PG&E chapter seven.
That's the testimony sponsored by John Will.
Do you have that in front of you?
-: I don't have it in front of me.
Michelle: Let's be off the record.
It's in PG&E one.
Matt: Correct, PG&E one.
(faintly speaking)
-: Lowe, l-o-w-e.
Michelle: All right, let's be back on the record.
While we were off the record we clarified that this is
in PG&E one, chapter seven, Mr. John Lowe's testimony.
Off the record.
(faintly speaking)
Jason: Apologies I have it.
Michelle: Back on the record.
Mr. Miley.
-: Mr. Wells if you could please turn
to page seven dash 15.
PG&E one.
-: I've turned there.
-: Thank you.
So for context this section, what we're looking
at is under the overall
heading of executive compensation structure.
So I'd like to point you please to
about 2/3 of the way down the page
there's a heading titled "Longterm Incentive Plan."
Do you see that?
Jason: I see that.
-: And beginning on line 23, Mr. Low's testimony states,
"Longterm incentive plan awards
"for 2020 post-emergence will consist
"entirely of performance shares that will be awarded
"only upon achievement of the objective performance
"metrics described below, with the proviso that such
"awards must be held for at least three years
"from the grant date."
There's a footnote there, footnote 18.
That footnote reads, "The ceo's compensation
"structure currently also includes stock options."
Do you see that Mr. Wells?
Jason: I do.
-: Mr. Wells could you please describe your involvement
or contribution if any in developing the ceo stock
option exercise prices, the quantity of stocks
or the corresponding expiration
dates associated with those shares?
Jason: I was not involved
in the development of that compensation package.
-: Is the compensation package something you would,
it would have come across your desk
or something you would have reviewed
at all before it was presented, regardless of development?
I guess what I'm asking is would you say that you have
any influence over that structure, the development?
-: I did not, no, have any influence.
-: No further questions.
Thank you Mr. Wells.
Thank you your Honor.
Michelle: All right thank you.
Let's be off the record.
(faintly speaking)
All right, let's be back on the record.
At this time, Commissioner Rechtschaffen has some questions.
Make sure your mic is on.
-: Thank you very much.
Thank you Mr. Wells.
Sorry I was unable
to hear your entire testimony this morning.
I wanna ask you first
a question that President Batjer asked Mr. Plaster
two days ago, and I don't know if you were here
for that or not.
Jason: I was not, but I'd heard.
-: And he reserved it for you.
The question is what happens if it turns
out that PG&E's under capitalized as a result of the plan?
What are its options going forward?
-: We've worked extensively
with financial market participants
to ensure that we're putting
forward a plan that's not under capitalized.
To the extent that concerns
around our capitalization are raised,
it would be our intention to continue
to work with all stakeholders on the case
to address those concerns that we could exit timely.
We've got a track record as part of this bankruptcy
to address stakeholder related issues.
And if that presented itself we would do the same there.
Rex: Do you have any specifics?
Can you be any more detailed about what other options
or mechanisms you might consider to raise more equity?
-: The only reason I'm pausing to be more specific is
because I think what we have put
forward is a plan that is fully capitalized.
We worked extensively with all capital markets participants
to develop a plan where we're actually putting
in $16 billion of equity contribution,
nine up front, six over time.
To the extent that concerns were raised,
I think we would look at a way to continue
to work with again everybody in the case
to find a method to address it.
But until I find specifically what the concern is
it's hard for me to be any more specific as to the action.
-: I understand you think there's enough there.
And I'll just ask you again, if there's any more
you wanna say about what
other mechanisms you might consider.
Jason: We've set up a process
with our equity backstop letter
where we are intending to raise the equity
through a marketed raise as opposed
to the backstop agreement.
We could evaluate the opportunity
at that point in time as we undertake that marketed raise
whether or not there's more equity available.
But again, I think like this is sufficiently capitalized.
-: I wanted to ask you about securitization.
I've heard some of the testimony about it.
I'm not sure I got all of it.
Your testimony is that securitization will be rate neutral.
And specifically you said you will provide credits
so that I can show you where it is,
but I'm just paraphrasing so that customers
on average will not pay
the associated costs of securitization charges.
What is that mean on average?
What does that mean to rate payers on average?
-: We're still in the process of finalizing
the securitization application.
We intend to file that in a few weeks.
Currently what we're envisioning is a securitization that on
a present value basis customers would be rate neutral.
So the refund to customers of the shareholder
NOL's that are realized will likely exceed
the associated debt service cost
for the securitization bonds
in the early years.
So customers would have a rate benefit early.
And as those securitization bonds expire
customers would pay the outer years debt service cost.
So that on a present value basis
on average customers are made whole.
-: Is another way of saying that is that's gonna be lumpy?
-: Possibly but as part of the details of trying
to finalize that application, trying
to make it as smooth as possible.
-: But what I understand you to be saying is it's not neutral
to customers on a yearly basis.
Some years customers may realize a benefit.
Other years they may realize a cost.
Jason: Over time yes.
-: Okay.
And the final question I have about this,
and Mr. Johnson testified about this.
President Batjer asked Mr. Johnson
about what happens if securitization doesn't go forward.
I'm not gonna ask you that again.
But if it doesn't go forward,
if it's not ultimately approved,
what's the impact on the key credit metrics that we look
at, that the rating agencies look
at, the funds from operation to debt,
the other metrics if securitization isn't approved?
-: Yeah, so the claims not doesn't need securitization.
We think it's in everybody's interest if it's,
and all stakeholders' interest if it's not approved, funds
from operations FFO to debt would likely be
about 200 basis points lower than what we're projecting
here which assumes securitization is approved.
-: And what does that do to where you would end
up in the credit ratings?
-: So each of the credit ratings have a band
for the quantitative credit metrics.
We would still squarely be
in the band of investment grade credit metrics
even if securitization's not approved.
Where we see a challenge with the credit rating is more
on the qualitative aspect of the plan,
not the quantitative, even without securitization.
-: I understand.
And the same would be true to for debt that Evita.
You'd still be within the band even
though you might be lower on the band.
Jason: We would be lower on the band
but within the investment grade ratings, yes.
-: Okay, thank you very much.
-: Okay.
Mr. Wells for the seven billion
in anticipated rate payer securitization described
on page two dash 15 of exhibit PG&E one line 21.
Is that a subset of the fire claims shown
in table 2.3 on page two dash 16 of exhibit PG&E one?
Jason: I apologize your Honor.
I was flipping the pages.
Michelle: First go to page two dash 15.
Jason: Yes.
Michelle: Line 21, there's the seven billion
in anticipated rate payer securitization.
Jason: Yes.
Michelle: Is that a subset of the fire
claims that are shown in table 2.3 on the next page?
-: Yes.
-: And is that $7 billion of anticipated
rate payer securitization associated
with claims for specific fires
or is that just
$7 billion of that total that's in 2.3 associated
with any of those elements?
-: We're working through those details.
This testimony here is more the latter.
That it's seven billion of the total 24
billion that's presented in this table.
-: Okay.
On page two dash three of your testimony
in exhibit PG&E one you state that PG&E expects
to achieve investment grade ratings
for secured debt on emergence.
Is there anything within the plan that describes
what would occur if you did not achieve
investment grade credit rating?
-: No we don't, but we put this statement
forward because of the extensive work that we have done
with the rating agencies, the money center banks.
-: Okay.
And.
In this application you're requesting
a large amount of short term debt authorization.
To your knowledge does PG&E recover
the debt related costs from rate payers,
and if so, how?
-: We're asking for two short term debt authorizations.
One is sort of a very temporary issue.
And there's only a small
percentage of that that we are intending
to include in our cost of capital by filing.
The other short term debt...
I know we recover from customers.
I'm drawing a blank as to where and how.
-: Okay.
Counsel could you provide a follow-up
on Monday for that?
On page two dash 19 of your testimony in PG&E dash one.
-: I'm there.
-: At lines 13 through 16 you talk
about the reduction in interests cost,
the cost of debt essentially reductions of about
a billion dollars as a result of the note holder RSA.
Do you see that?
-: I do.
-: It's my understanding that some of the intervener
testimony estimates the cost savings
around 600 million rather than a billion.
Do you have any comments on the calculation differences?
-: The nominal value of the savings is
a little bit more than a billion dollars.
Originally when I put forward this testimony
I used debt discount rate,
because I was evaluating it through the lens of the company.
Intervener testimony appropriately pointed
out that from a customer standpoint
a more appropriate discount rate would be
our weighted average cost in capital.
I think our collection was closer
to 700 million but directionally in that ballpark.
-: And so the difference is the intervener version
or the somewhere between 600
and 700 million dollar
calculation is using weighted cost of capital?
-: Yes at the higher discount rate.
-: Thank you.
All right that concludes my questions.
Do you have any redirect?
-: Yes.
-: All right, are you ready to go?
-: Yes.
-: Go forward.
-: Thank you.
Mr. Wells you were asked some questions
by Commissioner Rechtschaffen
about the impact of securitization
on company's credit ratings.
So first I just wanna clarify
between qualitative and quantitative.
On the quantitative side can you explain
how securitization would effect
the company's quantitative credit
metrics as measured by S&P?
-: S&P essentially excludes the debt associated
with securitization in the calculation of FFO to debt.
So there's a lower essentially denominator
and therefore a higher ratio
under the S&P methodology when securitization's included.
Male Attorney: So all else equal does that increase
the--
-: All else equal it increases
the FFO to debt.
-: And the implication of that for credit ratings?
-: It's obviously favorable for credit ratings
to have a higher FFO to debt rating.
-: Okay, now let's talk
about the qualitative side, the business risk.
How in your judgment would
a Commission decision approving securitization affect
the rating agencies evaluation of the company's
business risk?
-: I think it is an important signal.
Let me step back.
One of the larger concerns of the California regulatory
environment after the denial of San Diego Gas
and Electric's claim for wildfire cost
as part of their 2007 and 2008 fires created
a perception in the financial community that utilities
would likely not be able to recover costs in the future.
I think a signal that securitization's approved
would offset that previous decision
and lead to more optimism around potential recovery
in the future and therefore
a better assessment of the qualitative factors
for the utility credit ratings.
While we're on that topic you were asked some questions
about decisions, sorry investigation,
the presiding officer's decision, the investigation 1906015.
Do you have any views
about the impact of that presiding officer's decision
on the same qualitative
factors that you were just discussing?
-: I think it is credit negative on a qualitative basis
to modify settlements, because
it introduces unpredictability in the regulatory process.
Another factor the market looks
to is timely decision making.
And modifying settlements creates
the potential that parties will be more reticent
to engage in settlement discussions.
Female Lawyer: Your Honor.
I believe this is a bit
beyond the scope of my questioning
on that presided on officer's decision.
Michelle: I understand why you might think.
I'm gonna allow him to answer, but briefly.
-: So I think it creates potential
uncertainty that heightens risk
and therefore is challenges the qualitative
aspect of the credit ratings.
-: You were asked some questions by counsel for A4NR
about the stress test around future adverse events.
And you mentioned 20% of transmission
and distribution rate based.
Where did that figure come from?
-: AB1054.
-: Can you be more specific?
Is there a provision in 1054 that relates to that metric?
-: The potential for losses under
for catastrophic fires were
a utility is deemed to be imprudent.
-: On page two dash 15 there's
a sentence that you were examined
about that I wanna clarify.
It's on lines 24 through 27.
And there's a reference here.
Are you there? -: I am.
-: PG&E will use the proceeds from
the realization of the shareholder certain tax benefits.
Do you see that?
-: I do.
-: And by certain did you mean that there were
certain tax benefits or that the tax benefits were
definitely going to happen?
Maybe, would it be better for the sentence
to read realization of certain shareholder tax benefits?
-: Yes. -: Okay.
Female Attorney: Your Honor, I would like
to limit the use of leading questions.
Male Attorney: Or rewriting testimony by counsel.
Michelle: I understand your concerns.
I'm allowing the answer.
-: You were asked some questions
about whether the utilities assets are subject to liens.
Under the debtor in possession financing, are
utility assets subject to liens?
-: Yes they are.
-: You were asked a question
about the treatment of Tubbs claims,
claims arising from the Tubbs Fire.
Under the TCC RSA are those claims resolved?
-: Yes they were included in the TCC RSA.
-: You were asked a question
about whether holding company debt could have an impact
on the utilities cost of debt.
And you said it could within certain threshold.
-: I do.
-: Is the quantum of holding company debt
under the plan of reorganization?
Would that affect the utility's cost of debt?
-: No.
-: You were asked some questions by counsel
for TURN and EPUC about the fees that are being as
to which the company would seek recovery,
the financing professional fees.
Do you recall that?
-: I do.
-: Okay, can you summarize
the estimated quantum of the bankruptcy related
fees that the company is not seeking recovery of.
-: Our current estimate is just under 1.6 billion.
-: You were asked some questions
about a potential securitization transaction.
In your experience do securitization
transactions typically permit pre-payment?
-: Not in my experience.
-: You were asked some questions going back
to the subject of the estimated 140, 54 million of financing
fees that the company would seek to recover.
And you said, "The quantum is uncertain
"and subject to change."
Is that correct?
-: That's correct.
-: If that amount changed would
the company seek recovery of fees that would exceed
the net savings to customers from the depth financing?
-: No.
-: You were asked some questions regarding a data response
in which the company stated
in that data response that it had not
at that time made a final determination regarding
its intended recovery of 2017, 2018 wildfire costs.
Do you recall that?
-: I do.
-: And are you certain of the date?
What is the date on which the company made
a final determination of its approach
with respect to that subject relative
to the date of that data response?
(faintly speaking)
Michelle: Okay.
Do you recall which cross examiner asked the question?
Let's be off the record.
-: Sorry, I seem to recall that there was a question
where counsel asked about, didn't you ask
about a data response where we talked
about at that time what the?
(faintly speaking)
I thought there was a question
about the date on which
the company had formulated a position, but I might--
Michelle: I don't think so.
-: Okay.
Michelle: We're off the record as well so that.
(faintly speaking)
Okay, I'll let it pass.
Michelle: Let's be back on the record.
While we were off the record we had a discussion
about this particular question,
and we're going to forego this question.
-: Thank you your Honor.
Can I have just one second please?
Michelle: Let's be off the record.
-: Those are the only questions I have your Honor.
Michelle: Let's be back on the record.
Mr. Weisman has indicated that he did not have
any further questions.
So we have a limited opportunity for re-cross.
Mr. Geesman.
-: Mr. Weisman asked you whether
the rating agencies used securitization as
positive credit metrics or not,
and I believe your answer was confined to Standard & Poor's.
Isn't it true that Moody's is less permissive
about your ability to de-consolidate securitization
from your balance sheet?
-: That is correct.
-: Thank you your Honor. -: Thank you.
Ms. Sheriff.
Nora: No re-cross your Honor.
Michelle: Thank you.
Ms. Kelly.
-: No re-cross your Honor.
Michelle: Thank you.
Mr. Abrams.
This should be limited to the questions
for which re-direct was related to your questions.
-: Thank you your Honor.
Amongst all of the questions he didn't mention me
by name, so it was very difficult
for me to understand exactly,
but I did bring up the Tubbs Fire
in relation to the TCC RSA.
And on cross I would like
to understand what you mean by resolved?
-: The Tubbs Fire victims were considered as
part of the total settlement.
So the settlement is intended to compensate Tubbs victims
with the other fire victims.
-: I guess I'm still lacking
the understanding of what resolved means.
So does resolve mean that the Commission can't start
an investigation into Tubbs?
Does it mean that other wild fire
survivors couldn't seek compensation through Tubbs?
What does resolved mean?
-: Settled the amount of the claim.
-: Just specific to that, not beyond it.
Is that correct?
-: That's correct.
-: Thank you.
Michelle: Thank you, Mr. Algatar.
(faintly speaking)
Mr. Finkelstein.
All right, thank you.
Mr. Miley.
Matt: Nothing your Honor, thank you.
-: Okay, thank you Mr. Wells for your testimony.
You are excused.
At this time let's go off the record.
The court reporters need a break.
So we'll take an hour for lunch.
Is that good?
And then when we resume I will start with Ms. Brunell.
And Mr. Bloom will
the TCC have any questions for Ms. Brunell?
Bloom: We will not your Honor.
-: Okay, great.
And I have for Ms. Brunell A4NR, CLECA, MCE,
SBUA, TURN, and Abrams.
Female Counsel: Your Honor, if I could
possibly go first with Ms. Brunell?
-: Yes I have you listed first,
'cause I know you need to leave
at two 20, no later than two 20.
And is there a preferred order Ms. Kelly?
Male Counsel: Happy to go whenever you'd like your Honor.
-: How about you go third?
Mr. Abrams you go fourth.
Abrams: Happy to go towards the end.
-: That is towards the end. -: Thank you.
-: Unless TURN, you would like to go before Mr.,
the TURN and Mr. Abrams are the last two.
Oh no, SBUA sorry.
We'll have you go fourth Mr. Strauss,
then either TURN or Abrams.
(faintly speaking)
Okay.
(audio is choppy) so let me have you go first
between the two of them Mr. Abrams.
So you'll be fifth and then Mr. Long will be sixth.
Okay.
Male Counsel: Your Honor may I get
on your planning agenda just with respect
to witness scheduling for next week,
because I have used up all of my chips
with my consultant being out here for the week,
and I'd like to get a date certain when you get a chance--
-: Yeah, I was hoping we were gonna do that at the end
so we can excuse the witnesses that are,
we wanna get through that, and then we'll do that stuff
at the end, and we'll do the procedural items
at the end after the witnesses.
Mr. Abrams has something he would like to ask procedurally.
Can we do it after witness Brunell and Hogle?
-: Yes your Honor, thank you. -: Okay, thank you.
(faintly speaking)
Correct.
Yes.
(faintly speaking)
Yes.
Male Counsel: Your Honor do we have
a estimated time of departure?
-: For the end of the day?
-: Yeah.
-: For the witnesses we do, I think.
So I'm looking at this, and I'm seeing
threeish hours, so if people are more concise
we can be less than threeish.
But that to me means about five.
Male Counsel: Okay.
-: Okay.
So let's come back at two o'clock.
Okay. -: Thank you your Honor.
(faintly speaking)