PG & E (PCG)

Q3 2011 Earnings Call

November 03, 2011 9:00 am ET

Executives

Christopher P. Johns - Former President and Director

Kent M. Harvey - Chief Financial Officer, Senior Vice President, Treasurer and Senior Vice President of Financial Services - Pacific Gas & Electric Company

Anthony F. Earley - Chairman, Chief Executive Officer and President

Gabriel B. Togneri - Vice President of Investor Relations

Thomas E. Bottorff - Senior Vice President of Regulatory Relations-Pacific Gas & Electric Company

Analysts

Andrew L. Smith - JP Morgan Chase & Co, Research Division

Michael J. Lapides - Goldman Sachs Group Inc., Research Division

Paul Patterson - Glenrock Associates

Dan Eggers - Crédit Suisse AG, Research Division

Jonathan P. Arnold - Deutsche Bank AG, Research Division

Andrew Levi - Caris & Company, Inc., Research Division

Greg Gordon - ISI Group Inc., Research Division

Hugh Wynne - Sanford C. Bernstein & Co., LLC., Research Division

Thomas O'Neill

Steven I. Fleishman - BofA Merrill Lynch, Research Division

Unknown Analyst -

Presentation

Operator

Good morning, and welcome to the PG&E Third Quarter Earnings Conference Call. [Operator Instructions] At this time, I would like to introduce your host, Gabe Togneri with PG&E. Thank you and enjoy your conference. You may proceed, Mr. Togneri.

Gabriel B. Togneri

Thank you, Lynn, and good morning, everyone. Thanks for joining us on the call. Along with our earnings release and the supplemental tables including the Reg G reconciliations, we've also provided you this morning with PowerPoint slides. Our remarks today will include forward-looking statements based on the assumptions and expectations reflecting information currently available to management. Some of the important factors that could affect our results are provided on Slide 2. We encourage you to review that, as well as the 10-Q report we'll be filing later today and all of the more fulsome discussion of factors in that. Today's speakers are noted on Slide 3, and other members of the team as usual are here to participate in the Q&A that will follow. And with that, I'll hand it over to Tony.

Anthony F. Earley

Good morning and thanks for joining us. We have a lot of tough news to communicate today, but since this is my first quarterly call at PG&E, I thought it'd be a good idea to take some time to share some initial impressions and my plans. So I'm going to start with Slide 4.

I am totally committed to making Pacific Gas & Electric one of the best operated utilities in the country, and I am certain that we can do that. But in order to succeed, we need to be brutally honest about how we stack up against the best today, then we need to have a culture that celebrates those gaps as a roadmap to future improvement. We know that San Bruno was a tragic event that has made it clear to us that our operations are not where they need to be. In my first 6 weeks with the company, I've spent time meeting with our leaders and assessing whether we have the right organizational structure and the right expertise and experience now on board. So let me start with organizational structure.

Earlier this year, the company split the Gas and Electric businesses into distinct operating units and created Gas and Electric EVP roles, and I think that was a very good move. It's already resulting in better focus and clear accountability for each business. Within those business units, we've done organizational alignment to get better focus on operational excellence. I've also shut down our corporate strategy group that was tasked with looking at industry trends and non-utility investments, again to get clearer focus on utility operations.

So let me move to Slide 5 and talk about the officer team. There have been some key leadership changes at PG&E since San Bruno. In addition to myself, we've added Nick Stavropoulos, an outstanding leader in the Gas business. Nick has been building up his organization including hiring experienced senior staff from companies including TransCanada, Public Service of New Mexico and El Paso Pipeline. We've added Karen Austin, our new CIO from the retail industry, who will accelerate our use of technology to support our operations improvement. We also just announced that we hired a new VP of Communications, Roger Frizzell from American Airlines. Our officer team overall includes a good mix of people with long-term PG&E experience as well as those with impressive industry experience at such companies as Exelon, Entergy, FPL and PP&L, to name just a few. I'm convinced that the team that we now have in place will deliver the results that we're going to need.

We all know that resolving all of the gas pipeline issues will be challenging. As you saw in our press release this morning and as shown on Slide 6, we have determined that we need to spend more on both our gas and electric system to reach our goal of operational excellence. Spending approximately $200 million incremental to our previous plan will have a negative impact on our earnings in 2012, which will continue into 2013. It is our objective, however, to earn our authorized return in 2014. Some of this additional spending will be acceleration of work we've previously planned to complete over a longer period and some will be new work that we've identified in our review of operations. Kent is going to take you through the details of our earnings guidance and Chris will provide more information on the operational areas we're targeting a little bit later on the call.

Work to improve our operations is vital to restoring the confidence and trust of customers and regulators. My personal experience at both LILCO and DTE is that you cannot PR or lobby your way to credibility. There's only one solution and that's to provide consistently better service to customers. Operational excellence and accountability drive customer perceptions. Operational excellence improves regulatory relations. We're going to use ongoing benchmarking to measure our progress and allow us to set meaningful improvement goals for the future.

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