Q4 2019 Earnings Call
Good afternoon, and welcome to the Edison International fourth quarter 2019 financial teleconference. My name is Michelle and I will be your operator today, when we get to the question and answer session. If you have a question press star one on your phone today's call is being recorded.
I would now like to turn the call over.
To Mr., Sam from Raj, Vice President of Investor Relations Mr. Raj you May begin your conference.
Thank you Michelle and welcome everyone a speakers today, our president and Chief Executive Officer Pedro Pizarro.
That makes it get a vice president and Chief Financial Officer Maria regarding ultra here on other members of the management team.
Material supporting today's call ought to be available at www dot innocent invest about call.
These include a form 10-K prepared remarks from Pedro and Maria and the teleconference presentation.
Well, we will distribute our regular business update presentation.
During this call we will make forward looking statements about the outlook for Edison International and its subsidiaries.
Actual results could differ materially from current expectations.
Important factors that could cause different results support.
That's the SEC filings Fleet Street these carefully.
Presentation includes outlook assumptions.
Acidize reconciliation of non-GAAP measures to the nearest GAAP measure.
During the question answer session. Please limit yourself to one question and one follow up I'd now turn the call over to Pedro.
Thanks, Sam and good afternoon, everyone.
Today Edison International reported core as a $4.70 or 2019 compared to $4.15 a year ago.
The increase in core EPS was primarily due to the approval of the 2018 general rate case and higher FERC revenues. This was partially offset by higher wildfire mitigation costs and an increasing the number of shares outstanding.
Maria will discuss our financial performance in more detail during our remarks.
We believe that FCB and California are beginning 2020, with a very different well player risk profile than the previous two years.
Edison, particularly commence distinct efforts on well fire suppression and be a booth coordination among utilities state and local the emergency management personnel.
Also the speech enactment of assembly they'll tend 54 had a stabilizing effect on the financial health of California's Investor owned utilities.
We have been pleased with a continued implementation of the ABS and 54 regulatory framework.
This includes the issuance of our safety certification last year, the appointments to the New California Catastrophe response Council and wildfire CP Advisory Board and our recently filed 2020 to 2022 wildfire mitigation plan.
We also are encouraged by the Cbcs timely approval of FCS 2020 cost of capital application and the proposed scheduled for FC used 2021 general rate case.
However.
Much work remains to be done.
Well FC this supported really means obtaining decisions on outstanding proceedings at the CBC.
This includes the grid safety and resiliency program settlement FC East Wildfire expense memorandum account application the capital structure waiver application related to the accounting for 2017 in 2018 charges and the litigation of the various phases of Etsys 2021 GRC application.
Additionally, in 2020 as she expects to continue to work with legislators regulators and communities to improve public safety power shut off or Psps related operations.
At the same time, we are moving forward with our vision for a sustainable and clean energy future I will just squawks discuss more about this out later.
This past year SPE aggressively executed a comprehensive wildfire mitigation strategy laid out in our grid safety and resiliency program in 2019 wildfire mitigation plans.
Since 2018 FC has installed more than 500 miles of covered conductor over 480 micro weather stations and more than 160 high definition cameras, covering 90% of high by a risk areas, reaching our effective saturation point for cameras.
We were able to go beyond the compliance targets and our 2019 WLP in many areas as we work to reduce well player risk as quickly as possible.
Also completed enhance inspection of all of our overhead infrastructure in our high for risk areas. During the first five months of the year.
In the past this would have been performed or over a five year period.
FCS recently filed 2020 to 2022 wallboard mitigation plan will advance our risk prioritization approach.
This plan includes ground based and aerial inspections for higher risk transmission and distribution assets you on standard inspection cycles building on the lessons learned from more comprehensive enhanced overhead inspection program in 2019.
The plan also calls for us to further harden infrastructure.
Bolster situational awareness capabilities and enhance operational practices, while harnessing data analytics and technology.
The plan includes specific metrics to provide transparency to the public and other stakeholders and will enable the CPC to evaluate SCS performance.
In our filings.
He has proposed spending approximately $3.8 billion in capital and all of them over the three year plan period.
Last October parts of our service territory faced many days of elevated wildfire threat conditions marked by severe wins low humidity and dry fuel.
During these periods FC exercised our psps protocols to protect the public from the risk of electronic equipment, causing a fire.
Patrols conducted after those deals plc, Vince Vaughn over 40 impacts from the severe conditions, including equipment damage and three branches contacting power lines.
This further validated the importance of prevented the legislation as the safety measures under severe weather conditions.
Let's see he understands the psps can be a hardship for our customers and communities.
We utilized on extensive community outreach effort to help customers prepare for these events.
We have learned from these experiences and are working to improve our Walford mitigation and psps resilience capabilities.
Our number one priority continues to be the safety of the public or customers employees and first responders.
As he has also spent significant time educating customers communities and state and local government officials on our psps related efforts to demonstrate the vast amount of work and data analysis that go into our decision making on psps events.
That's more mitigation start deployed we expect to reduce the school that Invicta Psps, what Dsps, we'll have to remain available as a tool to mitigate wildfire risks during severe weather in high fire potential in thats events.
I would now like to give you an update on our accounting we serve related to 2017 to 2018 wildfire and much slight events.
You will recall that in the fourth quarter of 2018 SC recorded a gross liability at $4.7 billion for the low end of the estimable loss range for these events.
We regularly we assess this reserve which includes our internal assessment of damage estimates known and expect to third party claims litigation proceedings and risks and prior experience litigating unsettling wildfire related claims.
In our latest assessments, we increased the estimated losses for claims related to the 2017 in 2018 wildfire and mudslide events.
$232 million to a gross estimate of $4.9 billion.
Well. This estimate is determined on aggregate basis. Some of the factors we evaluated in connection with the review contributed to a significant increase in certain loss estimates, while others contributed to significant decrease.
Also we lowered or accrued liabilities by the $360 million settlement reached in the fourth quarter with a number of local public entities.
These changes led to a revised pre tax accrual accrued liability of $4.5 billion for these what is 17 and 2018 wildfire and much slight events.
After adjusting disclose liability for $1.6 billion every meeting insurance coverage and $149 million for a FERC regulatory asset the net after tax charge for these events is $1.98 billion, which is an increase of $157 million from our previous estimates.
I would now like to provide an update on our operational and service excellence efforts and a few of the key non financial metrics. Our board uses in measuring our performance.
Operational and service excellence starts with the safety of our workers and our communities.
This is a major priority across our company and is at the very top of our core values.
Joining 19 performance on worker safety had mixed results.
Well, we did not have any employees and utilities there were three worker fatalities among our contract for workforce.
Hordes continues to go out to their families and loved ones.
The number of serious FC employee injuries in 2019 fell by more than 50% from 2018.
Or rates of injuries, leading todays away unrestricted duty or transferred known as the dark rate was worse than our target.
We did however, and importantly successfully complete and enterprise wide safety culture training program that has received strong reviews from our employees and lays the foundation for long term improvement.
Our goals related to improving public safety or tied to the implementation of the wildfire resiliency measures outlet NRG SRP in 2019 ballpark mitigation plan.
We made significant progress in these areas as I discussed earlier.
Among other key measures or customer satisfaction and system reliability fall short of our targets.
Our performance was heavily impacted by maintenance and repair activities related to wildfire mitigation, the installation of new equipment Hardener electric system.
And PSP SDN or decisions to safeguard our communities during dangerous fire weather conditions.
We also deployed additional digital technologies to transform processes across our business and improve the quality and efficiency of our operations.
For example, we rolled out new mobile solutions to support our enhanced overhead inspections, and we use robotic process automation to improve outage notification to our customers.
We continued our focus on sustainability.
Particularly on addressing climate change.
We are committed to delivering 60% renewable power by 2030, and 100% clean energy by 2045, which are among the most aggressive targets in the industry.
Last quarter I announced the release of our probably 2045 white paper.
Which shows the changes required across California economy to meet the state's 2045 carbon neutrality goals will be propelled.
We are focused on doing our part such as accelerating transportation electrification.
Today, FCS implementing the largest electric truck and transit utility initiative emanation.
By installing charging infrastructure to support approximately 8500 medium and heavy duty vehicles at 870 sites by 2024, two or $356 million charge, where the transfer program.
We're also awaiting CP, you'll see approval for $750 million charge ready to application that will support over 50000 passenger vehicle charters.
Those are big but we believe this is just a fraction of the new technologies and infrastructure that will be needed to support California's economy in the years ahead, which further underscores the need for resilience and financially strong utilities.
To conclude we are making significant investments over the near term and great hardening and resiliency.
At the same time, we continue to see significant long term investment opportunities and our business related to addressing California's 2045 climate goals.
We have a robust capital program over the next few years that if approved will invest more than $5 billion annually on infrastructure replacement Transportational interpretation, Chris mission infrastructure and wallpaper mitigation.
As you can see we have a continuing focus on safety and resiliency operational excellence and strategic advancement that policy objectives.
Our near term priorities to improve safety and mitigate wildfire risk will enable that reliable and resilient group that is needed to accelerate towards the state's clean energy goals and achieve our pathway 2045 vision for California.
Including increased use of zero carbon resources and broad electrification of the entire economy.
With that Maria will provide her financial report.
Thank you Pedro and good afternoon, everyone. My comments today will cover fourth quarter and full year 2019 results, our capital expenditure and rate. These forecasts 2020, EPS guidance and financing framework.
As we've said year over year comparisons for 2019 are less meaningful given the timing of the 2018 GRC decision.
Please turn to page two.
But the fourth quarter 2019, and international reported core earnings of 99 cents per share, which was five cents higher than the same period last year.
On the table on the right hand side, you will see an FC had a core EPS variant of positive seven cents year over year.
This was primarily driven by 17 cents of higher EPS.
Core activities, which is partially offset by 10 cents of dilution from increase in shares outstanding.
There are few items that accounted for the majority of the ETF variants.
To begin with higher revenues any positive variance of 32 cents.
This was primarily driven by 19 cents and higher CPC revenue largely as a result of the GRC escalation mechanism and lower income tax benefit refunded to customers in our tax balancing accounts, which is offset in income taxes.
First revenues had a positive variance of 13 cents due to higher expenses rate based growth and increased our Lee from the 2019 settlement of the 2018 formula rate proceeding.
Higher owned and expenses negatively impacted year over year EPS by three cents. This.
This is largely driven by an increase in wildfire mitigation expenses.
I will discuss more about this we cover full year variances.
During the quarter, we recorded a five cents charge for the self insured retention under our wildfire insurance primarily related to 2019 wildfire.
We treated this charge is core to remain consistent with how we treat deductible for expenses that are covered by insurance.
Higher net financing costs related to increased borrowings had a negative three cent impact.
There was also a seven cents lower income tax benefit, which primarily reflects tax benefits captured through our tax balancing count as noted earlier.
Yes parent and other had a negative 2% core variance in the quarter.
This is largely due to seven cents of higher interest expense related to increased borrowing partially offset by five cents positive variance Edison energy due to the 2018 goodwill impairment.
Please turn to page three.
For the full year Edison International core earnings per share increased 55 cents to $4.70 per share.
This includes an improvement in core earnings of 59 cents CE, partly offset by higher ex parent and other costs of four cents.
While the full year and fourth quarter earnings analysis are largely consistent I will highlight a few areas.
You will see a positive 20 cent impact from the retroactive application of the 2018 GRC decision that was recorded in Q2.
Also we have positive 13 cents in FERC revenues related to at CES 2018 Formula rate settlement, which includes 10 cents, we recorded in the third quarter.
Finally for the year there was a positive 14 sent income tax varian, primarily related to benefits that are passed back to customers through the tax balancing account with no impact on earnings.
Related specifically to wildfire mitigation activities for the full year, we recorded expenses of $519 million to the related Nemo accounts.
We recorded regulatory assets for $400 million of the spend the most closely resemble historical precedent.
As you know a regulatory asset is only recorded when there is objective lead verifiable precedent for recovery.
We have not recorded a regulatory asset for the remaining $119 million pretax and I would like to provide some additional context for these amounts which are reflected in opening expenses for the year.
The scale of this mitigation effort is unlike what we have seen in the past and there are some activities for which there is no historical precedent.
During the year, we had to increase cruise project management personnel and other human resources to execute our wildfire mitigation programs.
We also managed and sequenced the work in order to reduce risk as quickly as possible, which also contributed to higher costs.
The higher volume of work that drove increases in crew human resource and execution costs in high fire risk areas also drove increased costs and non high risk areas.
We don't have a precedent were incremental cost impacts in one program or geographic area tried input incremental cost in another area. So we have not recorded regulatory assets for all the costs incurred particularly the incremental costs in non high higher risk areas.
However, as CEO is seeking full recovery of these costs you separate tracks of the 2021 GRC.
Page four shows Esses capital expenditure forecast.
This includes CPC jurisdictional GRC capital expenditures certain non GRC CPC capital spending and for capital spending.
From 2020 through 2023, we're forecasting a robust 19.4 $21.2 billion capital program.
This represents an increase of approximately $200 million from our previous forecast and is primarily due to higher spending on wildfire mitigation.
In January the CPC extended the GRC cycle by adding a fourth year for CE and other large utilities.
As a result, CE is required to file an amendment to its 2021 GRC application to add attrition year for 2024.
We are waiting further direction from the commission on the timing of this amendment.
On page five we show at the ease rate these forecast at the capital expenditure levels requested in the 2021 GRC total weighted average CPC and FERC jurisdictional rate base will increase to $41 billion by 2023.
Turning to reiki periods. This represents a six year compound annual growth rate of 7.5% at the request level.
To develop a range of outcome management is applying a 10% reduction to the rate based forecast based on our historical experience of previously authorized amount and other operational considerations.
This level SCS rate they forecast reflects a compound annual growth rate of 6.6%.
Ages, six and seven show, our 2020 guidance and the key assumptions for modeling purposes.
As we have in the past, let's begin with rate base earnings.
This reflects the CPC jurisdictional rate base authorized in 2018, GRC as well as the recently approved our early and capital structure from the 2020 cost to capital decision.
We settled the 2018 transmission rate case and the rate was in effect until early November 2019.
However, we have not yet resolve the subsequent case and had to make an assumption regarding the FERC are we in 2020.
As you know FERC has varied its approach to determining our we over the past few years and its approach remains unsettled with FERC currently considering rehearing request MISO order.
We believe that methodologies, resulting in Burke, our lease lower than state level or are we will result in sub optimal investment decisions.
At this time, we're basing guidance on a 2020 FERC Roe.
Comparable to our CPC, our we have 10.3%.
Finally, FERC has historically use recorded capital structure to determine revenues.
This is forecasted at 47% in 2020 and does not benefit from the CPC exclusions related to 80 tend to 54 and other items.
Based on the actual 2019 weighted average share count of 339.7 million. These items result in a rate base EPS outlook of $5 in 17 cents.
Lets next discussed at the operating and financial variances, which adds to rate base earnings.
This is forecasted at a net contribution of 20 cents, which is not as large as we've seen in some prior years.
There are a number of drivers to that.
First as noted earlier on January one the CPC cost of capital decision was implemented and the embedded cost of debt and preferred equity were adjusted to actual reducing previous financing benefits.
On the operating side, we continue to manage costs, which ultimately benefits our customers.
Ever 14 cents of costs related to wildfire mitigation activities represent a larger offset offset to other items such as ABDC than we have seen historically.
As I discussed earlier, we will pursue recover recovery of these incremental costs that we record in wildfire memo account.
However, lacking a historical precedent, we do not assume we will meet the accounting requirements for deferral.
We expect the drag related to wildfire mitigation activities to be removed in 2021 is the cost are included in the 2021 GRC revenue request.
Finally, we also included two cents related to expected energy efficiency earnings.
Moving to the right in the chart.
The nine Hawaiian and 80 Tenfifty for included certain items that are not recovering rates.
In 2020 guidance, we highlight the annualized cost of interest expense related to the wildfire insurance fund contribution and the non recovery of disallowed executive compensation.
These amount to total drag of 10 cents.
Finally for ex parent and other we expect to total drag of 41 cents. This.
This includes Holdco and other operating expenses at the previously communicated rate of approximately one cent per month or 14 cents for the year.
The balance of 27 cents is the after tax interest costs, including the expected impact of the 400 million dollar debt issuance that is part of the 2020 financing plan.
The impact from share count dilution in 2020 can you broken down into two areas.
The first is the full year impacted the shares issued in 2019 and this translates to 30 cents.
The second area is the impact related to the $800 million equity issuance in 2020.
This results in another nine cents in dilution in our 2020 EPS guidance.
I will discuss the 2020 financing plan that relates to these debt and equity assumptions embedded in guidance in a moment.
Overall this results in 2020, EPS guidance of $4.47 per share with the range of $4 in 32 cents to $4 in 62 cents per share.
This range is slightly wider than in the past and accommodates a large number of items that are being resolved in proceedings outside our typical general rate case.
Please turn to slide eight and we will discuss the rationale and strategy for our 2020 funding plan and longer term outlook.
The objected to provide details regarding 2020 as well as a framework that informs our longer term approach.
Over the past two years theres been some unique issues that have informed our financing plans, including the wildfire insurance fund contributions.
One constant has been the robust level of capital spending required to make our grid more resilient and prepare for the clean energy future.
As we discussed earlier and CE is estimating approximately $5 billion per year of capital spending over the next several years.
One key part of our framework is to deliver on these capital plans, while we maintain investment grade ratings at both CE and Ian.
That overarching tenant informs the 2020 financing plan and will also influence us in the longer run as we are targeting a long term FFO to debt ratio of 15% to 17%.
We also look forward to a point when this ratio level will be supportive of a ratings improvement as the rating agencies view of wildfire risk and their general, California outlook further improve.
This longer term ratings framework has implications for our near term financing plan.
First we are spending significant amounts on wildfire mitigation and wildfire insurance and these amounts are not yet being recovering rate.
Even though we expect to commission to begin addressing some of these amounts this year.
And while the spending provides additional operational risk mitigation.
These items will continue to challenge our near term credit metrics until the proceedings are resolved and the balances are worked down.
Second while very few planes have yet been hain related to the 2017 18 events. Some rating agencies are burdening, our credit metrics with imputed debt equivalent to their assumptions around our liability to pay those claims.
With this framework and factors in mind the whole co financing plan for 2020 includes $800 million in equity of which $600 million supports the growth capital needed CE.
The remaining 200 million at the carryover related to the equity plan, we disclose in 2019 that we expect to complete this year.
We have the flexibility to address this total equity need through a variety of approaches, including our ATM and internal programs.
The plan also includes $400 million of debt as mentioned earlier.
In 2019, we deployed significant capital to meet our customers' needs and we expect us to continue.
Given this level of growth at the utility our dividend payout ratio in current ratings supported by the 2020 equity issuance, we expect minimal equity requirements to fund our ongoing capital expenditures beyond 2020.
With regard to wildfire related costs. This financing plan is also predicated on requested cost recovery on the memorandum accounts. The current level of liabilities reflected on our balance sheet for the 2017, and 2018 wildfire and mudslide events and timely resolution of seed capital structure waiver request.
There is a material change in these wildfire related assumptions, we will then reevaluate our balance sheet requirements using the same framework that drove our current and prior year plan.
That is we will work to maintain our investment grade ratings and our financing approach will be consistent with that objective.
That concludes my remarks.
Show Please open the call for questions.
As a reminder, we refer you to limit yourself to one question and one follow up.
Well in line has an opportunity to ask questions.
If you would like to ask your question. Please press star one on your phone one moment for the first question. Please.
Our first question will come from pro forma heater from.
From Citigroup. Your line is now open.
Okay. Thanks, so much hi, guys, sorry, I've been Jabbering gold. So if if I repeat a question venmo, sorry about that but just wanted to understand from of the progress on the wildfire mitigation activities could you give us a sense for how you're feeling twentytwenty was 29 theme in Denver.
If you efforts on the ground, so far and how you expect the waterfall fund in terms of sufficiency to deal with all the all the risks on the large part time, yes, Thanks, Brad Cohen.
First question. So I can tell you didnt repeat any.
So as far as service the preparations as I mentioned in my remarks, there's been a lot of work that we've done and we think that Thats certainly helps to.
Continue to advance the ball in terms of mitigation and risk reduction.
But importantly is not just a work that we're doing it's also the work that this state is doing and that other entities are doing frankly, greater consciousness above fire prevention and preparedness across the state.
And so we could more than a less earnings goal at briefly mention how as we head Neil Littlewood through the bulk of 2019, we sold at a one of the key factors.
In the mix. In addition to the work we were doing the early stages with things like Comed covered conductor replacements.
The impact of Psps, which resolved.
I mentioned in my remarks already that after the big wave in October we solar 40 instances of issues that could have turned to admission that that will not in a vision because we use dsps, but I mentioned in the call that we're seeing a remarkable difference in these states capacity on fire suppression.
And the impact from the Governor's actions in terms of in bridging that the budgets wed firefighters and equipment.
Europe response, and so that made a significant impact and 29 team as we now have into 2020.
Have you are aware, but the governor and is 2020 budget.
Proposal.
Talk about increasing firefighting resources by another I believe 625 individuals over the next five years.
Ticking up a good chunk of that in 2020. So the fact that is not just our work led the where work what are the states in areas like fire oil supply suppression.
That all hills sell in terms of answering your question quantitatively in terms of have fallen that's harder to do.
I'll remind you that when 80 cents at before was being debated the states Dick through the Governor's team had some analysis of showed a 90, 494% probability of the phone surviving and leaves 10 years based on a number of assumptions.
That I think baked into which some concept that over the course of those 10 years.
Utilities, and others were continuing to improve or drops or there was reduction.
Cancel your quantitatively what that means in terms of 4% risk reduced but I'll tell you we're in a much.
Stronger place this year than we were last year or the year before the upset the risk is not zero and in that building the risk will ever be easier.
Given the in the realities of California.
Got it got it that's always a pretty comprehensive answers appreciate that just separately on the equity side quickly.
I forget the 800 million need.
As I look at going forward, both the Twentytwenty timeframe are you looking I'd like an ongoing equity need driven by the FCC equity needs are you keep the holdco debt kind of flat how should we think about the ongoing post 2020 kind of equity needs going forward.
People. This is Maria I think.
What we're trying to lay out for folks to sort of that framework, where on a long term basis slogan, we will be targeting the metrics, the averaging 70% FFO to debt.
As we think about the capital program related to the capital program, we actually see a minimal equity going forward.
At those levels I think not trying to pinpoint a very precise levels or not it particularly quantify response, but we just don't really see a need for significant new equity for that separately. We did I just did mention we made certain assumptions around wildfire issues as well whether that recovery on memo account the less.
The liabilities associated with those wildfires capital structure labor, if we see material changes there, we'll revisit our balance sheet needs again within that cities and 17% metric.
Mark.
Got it. Thank you guys lots of questions I'll get back in queue. Appreciate it. Thanks.
Our next question will come from Steve Fleishman from Wolfe Research. Your line is now open.
Hi, Steve Hey, good afternoon.
The Im just curious on the capital structure waiver request I think could you need also has us.
More wants could you just give us an update as Ernie process knowing what.
I will likely get rolled on then is there any like real opposition to are you just waiting for an answer.
So just as a reminder, we did file for that last February when we took the charge. The two things that we asked for on the capital structure waiver, where that would be that the charge itself would be excluded from the calculation on our capital structure and the debt associated with paying any liabilities or claims would also be excluded from the.
Capital structure until the did the commission made a decision as to whether or not we we get recovery for that.
That.
Just a quick requested and pending for awhile Interveners have filed various comments some of which has really been around actually some of the interveners actually said didn't think our our request was right at the timely because we still are in compliance with the 37 month average as part of our cost of capital proceeding.
The lj sort of like pushed it out a little bit but once we got the decision asked us to each of us.
To answer a particular question not all of which were pretty relevant for us some of them more and more related to piccinini, largely around whether or not there should be a.
Set date at which the waiver kind of stopped being effective and then also sort of implications for our customers. We filed those comments actually were not any reply comments I believe in in return for those and then that commission has set a deadline or their regulatory processes that they'd have to it.
You a decision before August of course, they have flexibility in terms of.
Determining whether or not they extend that but thats. The status right now we don't have an a date or when we will hear back until we do receive the waiver we would be deemed to be in compliance and even if you look at our numbers today and calculate where we are even if we do the calculation on the basis of not getting the waiver in compliance with the reset.
In monthly.
Rolling average.
Okay and one other question just looking at the 2020.
Variances excuse me related to the.
I guess the SC variances.
As you mentioned the 14 cents incremental wildfire you would hopefully have.
Recovery in 2021 in your through the GRC.
The financial operating other the 32 cents not necessarily specifically that number but.
All right.
Thats been there for whilst I assume there should be some sustainability to too.
Portion continuing.
To that that bucket includes a lot of things included financing benefits, which actually do changed from time to time on this year they would change because we.
Adjusted the embedded cost of debt and equity due to capital.
Cost of capital proceeding decision.
Here when we have any rate case, we get back benefits to customers. So we're continuing to try and.
Really manage our costs because that overall helps us in terms of.
As an average rate and how we implement all of our capital plans as well. So we do have an ability to manage through in those areas, but you will see different mixes from time to time and you could potentially see things go up and down just because we are you starting new rate case cycle.
Great. Thank you.
Thanks.
Our next question will come from Julien.
Dylan Smith from Bank of America. Your line is now open.
Hey, good afternoon, Hi, Joe at the time Howdy.
Perhaps I want to focus on the credit metrics, but further and just to understand the 15% to 17% FFO to debt metric.
Where are you today and B, how do you think about latitude relative that metric.
Sure.
There are variety of snarl, specifically thinking here around some of the imputation issues that you already alluded to.
Maybe ask in a more simplistic way how are you thinking about getting the rating agencies to not impute.
So a certain amount of liability and how do you think about the latitude that you will possess today sort of on ongoing basis and again this kind of gets back to the last question that Steve just ask about your variances and what that might look like on a normalized basis, but I'll, let you all to respond.
Okay. So I think first question is how do we feel about having their liabilities imputed I guess before the determination as to whether or not we will get recovery.
Certainly we've had lots of ongoing conversations with the rating agencies around that I think at this point in time, because again similar to our in our requirement to take the charge and not have regulatory asset booked against it because there's really no precedent here I think thats.
Place, where the to the rating agencies are going to want to see some actual cost recovery.
Absent.
Before they would actually take a step back and not impede the debt.
I think that that's an ongoing conversation as we see more things happen with the commission potentially that will.
A conversation that we can continue to have with them, but this is where they are right. Now I mean, that's just a factor in terms of sort of where we are relative to our metrics on.
Really Frank with you right now I think growth our metrics are a little bit challenged a lot of it having to do with the fact that we're not getting recovery real time on those wildfire mitigation expenses and the.
While fire insurance, because we do have a lot of dollars that our capital related but we actually have a lot of dollars OEM related which you would normally get recovery on in a lot quicker turnaround during real I'll say in real time.
I think that we've had those discussions and ongoing dialogues with rating agencies around that as well I think they understand that.
But again Thats why in the closing part of my remarks earlier I said financing plan was predicated on certain assumptions one of which will was.
Timely recovery of the mountain that accounts to the extent, we see things going in a different direction, we will have to revisit that.
Got it if I may just clarify that quickly.
What you just said there are you basically saying the 14 cents for instance of incremental off our litigation costs that would be what you're talking about of timely recovery here principally in those variances and then secondly going back to what you just said.
This are you alluding to securitization or when you. When you think about getting comfortable here is that just simply being able to successfully tap into this newly created Fox.
So I'm going ask you to clarify that last part but in terms of the first question that you asked on the 14th and it's not just the 14 cents I realize no and looked at our 10-K, yet, but if you look at that we are actually under a covered right now about $868 million. So.
The 14 cents that you see in 2020 guidance is are these are the amount that do not have a regulatory asset booked against it.
Right now at the end to 2019, we are already.
In part is.
Things that we have regulatory assets.
On the books for as well, but cash out the door that we had not yet collected in about $868 million. So it's all of the above.
Thats Fair and then the second piece there was just when you were saying that the credit rating it needed to get comfort here that was about your ability to tap into the funded actually successfully doing so no I meant get getting comfortable that the cash flow from these nemo accounts et cetera would be timely that's all.
Oh actually need to tap the fall under the securitization more now comfortable okay. All right I mean, just to be clear doing I think there overall comfort with California should increase over time, and it's going to be related to all the factors that you just.
Described but I was speaking more narrowly just to make sure that really clear there was a time Warner 15% to 17% episodes. It it would have in blood higher level of credit ratings Theres, a discount being applied in terms of other utilities on your reserves, we would hope that over time as they see continued implementation.
One of the legal entity for the machinery in place that also translated into it will reduce overall wildfire risks. We hope that there is some reassessment over time, but what credit rating as implied by the way they can range.
Thanks for the patients guys.
Thanks Julie.
Our next question will come from Paul Freeman from Mizuho. Your line is now open.
Global Hey, Thank you very much.
You guys I think have revised obviously, the low end estimate on wildfire.
Exposure.
What point do you would you expect that you would have an estimate on the high end.
You know that continues to be really challenging element as we consumed into to look at all the various brands I think as I mentioned in my comments, we looked at our broad set of factors.
As we door assessments.
And just.
Sure as we did this revision some things went up significantly from things went down significantly. So we continue to have a hard time see how we would be fine a high end. It may be that we don't end up being able to the for the high end, but.
For example, if weakens units ASU resolution, both the uncertainties through whether it be no additional settlements or or grosses.
Later on the regulatory process, then as those pieces fall into place you. Once you would see US do what we've done here, which is the with the $360 million settlement that uncertainty that's taken off the table.
And now we.
The.
The range, maybe mirror, we define what the low end might be for the remaining liabilities, but just beyond what have you given the nature of.
These wildfire cases on all the ins and outs.
It's unclear to me, whether we will get to a place where we can define a hard and fast.
75% probability under accounting rules high end of the range.
We're really noted the from New Jersey.
Right.
So it makes sense ball yes.
I would assume that when you actually are paying out the claims that you're going to book.
At least an equivalent and I'll well to the charge offs that you took in 2018.
Can we get a sense of the timeframe over which.
That and a well.
Could materialize.
So we look to tax impacts when we took the charge, adding liquidity I think your question, maybe like when Nivo comments cash taxpayer and we would expect or right now obviously the future will inform this as well the right now we're estimating that becomes a cash taxpayer around 2027.
Great and maybe the last question for me.
Historically I think.
In terms of shot ask UGC, you've talked about executive comp you've talked about.
Advertising charitable.
Joe Nations as offsets the only offset that I've heard so far as his executive comp so should we expect.
That you should be able to recognize.
The remaining portion of equity Hvdc.
So.
We may be talking path each other a little bit here, but when we provided the sort of walk over for 2020 guidance.
We we include it all doses I know historically, we've kind of a new rated a whole a whole laundry list of things that are in the bar is that our to the right.
Included in that bar that said 20 cents net benefit or all the things that you were just talking about there isn't isn't that they sort of gone away. There. Just all included there we've broken some out to give you a little bit more specificity and then to the rate of that the tendency for SG nine one items those are I'll call those.
And newer issues they werent historically in the in the set of things that we discussed but.
Postal legislation those are things that we know we cannot get recovery on as per the legislation.
Okay.
So as we go out sort of two years beyond 2020, I mean should we expect that there.
And would be.
No no material offsets to that.
So what we try to do when we laid out the chart is to identify things that you might consider things that are new so the SB nine Hawaiian Abbey tend to 54 items and then some things that we think will not continue because as for example, the incremental wildfire mitigation cost that we don't currently have a leg athletic.
Yes, because those things will get incorporated into our 2021 GRC revenue.
We will continue as we always have joined manage our costs that we create head room, which ultimately benefits our customers. So I think that we have the same approach to how we manage the business on a go forward basis. We just wanted to give you more visibility into some of these new components.
Great. Thank you.
Next question will come from Michael Lapidus with Goldman Sachs. Your line is now open.
Hi.
Trying to ask US simplifying question, which is.
How do you think about the path to get to what is a normal earnings power and how long it takes kind of in the key things that have to happen to get you there.
So I think one of the thing Michael is that what we've been seeing the past few years is that more things are happening outside the general rate case, we've always had balancing accounts and those are actually good things are very constructive in terms of sort of visibility et cetera.
But what we have now in addition to the balancing accounts, which generally are.
Cover amounts that if either already been reviewed or are we have a lot history with them in terms of recovery now we have a lot of memo account and the memo account help us avoid sort of a retroactive rate, making issue, but they don't actually.
Yes gives you visibility as to sort of when costs will hit.
And we don't yet have in some cases and ability to say that they're all probable of recovery or 100% of them a problem.
Bubble of recovery, because we don't have historical precedent. So I think that we and that was really the driver for how we set up the 2020 core earnings guidance. So you could start to see some of those things more specifically as we get into the next general rate case, and then you'll see some of that.
Does vary that variability dissipate because we will have things included in our revenue requirement as opposed to now where the 18 and 19 cost related with wildfire mitigation are in a one track that gets decided in 2021 between 20 costs are going in and other track decided after that so I think we do need to move.
Through and get into the next rate case cycle to have a little bit less variability in a little bit.
A little bit more clarity, but again, that's why we tried to set up the guidance slide the way that we did and Maria Allah one other point to this new from a different angle.
Some of the variability you've seen here has been because we've been in recent periods of figuring out how to.
Whereas a very different type of wildfire was close to the level ofer risk than we understood three years ago, and so although the extraordinary things using our team doing.
Before we use a little girls et cetera. They have also redefine activities to the utility needs to take on cost and the need to be recovered, but because we give further maturities through the Walford mitigation plan process.
A year or two of experience under our belts.
Multi though we see that uncertainty brand continues to narrow in terms of understanding over the years there.
Here's how we now do utility operations in a world of a much higher qualifier risks and into the Marines point translates into more predictability well for us and for investors in terms of the kinds of investments and cost recovery items again built internally pieces move proceeding sale.
The uses the lingo a little bit is moving from the new normal virtually having a normalized and stabilized.
Got it and then I have one other question, which is the settlement the 360 that you're paying municipals.
Just curious what is that as a percent of what the original request.
Or what the original damages and claims they filed work.
That's about a third of what they.
Jerry Jones hope our expectation I guess got it so they filed for a little over a billion roughly and settle victory 60.
Yes, but if there is right.
Got it okay. Thank you much appreciated thanks Michael.
Our next question will come from Jonathan Arnold with vertical research. Your line is now open.
Jonathan and good to have you begun the circuit or.
Thank you if it could be back to thank you Pedro.
Just a London I'm not sure you'll be willing to do that but I'm curious whether you might be you could give us any insight into sort of.
The kinds of things have moved around in the accrual you said they've moved that big movements.
Can you be any more specifics as to give us a little bit more sense of the frozen.
Yes, sorry no.
In the recent is sooner there is this a lot of pieces imports insight there.
[music].
And.
From a disclose who perspective.
Weve disclosed the mix a mile.
We don't expect that we will be disclosing all the pieces imports ongoing basis. So that's why to think that the guidance has been through just the good high level.
This will answer your question, but you can imagine this themes that are inside there and I wont wont be able to sure which was when the upper which ones were down or which was at a move but this includes the spreads you have the will of items that we track and things like you know the size of claims to the.
Actual claims being filed continue to move around.
Additional facts that are being.
Hello.
Covered for the discovery process.
It's those sorts of things that are the underlying elements across each of the cases in the news wed memorial complexity remember is not just one big set of cases, it's really individual actions across all the different events and so a lot of de Ville under needs under these each of those goods.
Pretty massive complex thing and that's why rather than try and do adjust as we're just keeping the disclosure to investors are the hurdle.
Will we see any change in you'll generally physician owned you view fuel.
Goldman and various ignitions when we read the 10-K.
There are no new material disclosures reordering information about the either but I can think of the one thing that is a little bit new is.
The gotten through the attorney generals holding on Thomas but other than that.
We didn't we still think summarizing accounting signed learning, we still believe arcos involved.
The other ignition and the 2017 fire, we still have the same information in there around that and we'll need to same disclosure we had last quarter. So so so no no new information that were offered with Maria maybe elaborate a little bit all the attorney General's office yeah. So.
As we got through the process.
During this over the course of the year.
We understand now that the California Attorney General has.
We did their analysis around Thomas and that there is not they're not moving forward with any sort of criminal liability charges and will the.
Valuation continue.
Okay, great. Thank you for that I, just wanted to clarify something on one of the previous questions. We lose some suggestion that.
You'd be tapping the fun.
And we'll make sure.
No nothing.
No we're not we're not going into the fun.
We did have a few wildfires in our service territory in 2019, we did take a little bit of a charge for self insured retention on those buyers, primarily but it's well within our own commercial insurance loan interacts with the funds the really clear about theres been no. We then silly qualifier require that.
You were just looking at that regular recovery across Europe.
Okay.
Yes.
Thanks, Jonathan.
Our next question will come from Paul Patterson with Glenrock Associates. Your line is now open.
Hey, good afternoon Barbara.
So all my questions have been answered so.
So one remain anymore and that is.
And your 10-K, you mentioned a little bit about this the competitive.
Environment for transmission projects.
We saw the Diablo Canyon Gates project, good LS power and you mentioned that.
So.
Portions of that might be bid out I'm, just wondering could you give us a little bit of a flavor as to.
I assume that given your or we guidance and everything but what's your avenue.
Do you plan is for regulated projects, but what are you seeing in terms of what happens when when.
So were for quarter 1000 stuff is happening.
Yes.
The planning in California around additional transmission that might be required for more solar or more wind would have to get to sort of the higher renewal the higher green energy downturn that hasn't yet started sir.
Until.
So the tight those does their transition planning I think it won't be clear yet.
Exactly what projects are going to be required what's needed. So I think there's a little bit of time still to last I mean, you're obviously very familiar with the fact that.
Those projects other than the ones that are already sort of involve our own facilities. They would normally be bid out and people will participate in China and get them on a competitive basis, but right now I think there's still work to be done determine what facilities are needed.
And again EBIDTA. If it is the facility needed is an upgrade of and assisting line than we ever.
Actually right of first refusal on that if it's a brand new line and that goes with for quarter, one philson comparative frost, okay wins colors.
So going to be releasing this.
Subdued.
Information about.
What their plans or with respect we don't believe they started the broad planning process, yet and that's really know with them well your mind or view towards 2000, thirtyish well done timeframe.
Milestone sale.
But sitting here what are the we have a timeline to offer.
Okay. Thanks, so much.
Thanks Bill.
That is our last question I will now turn the call back to VP Sam.
Okay.
Okay. Thank you for joining us today, and if you have any most lessons please.
Carlos So this concludes the conference call you may now disconnect.
Thank you for joining today's call and thank you for your participation.
You may disconnect at this time.
Thank you.