Q2 2021 Edison International Earnings Call
Good afternoon, and welcome to the Edison International second quarter, 2021 financial teleconference.
Ms.
As Terry and I will be your operator today, we will get the when we get to the question and answer session. If you have a question press star 1 on your phone today's call is being recorded I would now like to turn the call over to Mr. Sam ROM Raj Vice President of Investor Relations. Mr. Ron Raj do you May begin your conference.
Thank you Terry and welcome everyone on our speakers today are president and Chief Executive Officer, Pedro Pizarro, and Executive Vice President and Chief Financial Officer, Maria regarding and also on the call on other members of the management team I would like to mention that we are doing this call with our executives and different locations. So please bear with us.
Do we have any technical difficulties.
And supporting today's call are available at Www Dot Edison Investor call.
These include our form 10-Q prepared remarks from Pedro and Maria and the teleconference presentation.
Model, we will distribute our regular business update presentation during.
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 and <unk>.
Factors that could cause for central sales are set forth and R. S.
You see filings. Please read these carefully the press.
And patient includes certain outlet.
Outlook assumptions as well as reconciliation of non-GAAP measures to the nearest GAAP measure.
During the question and answer session. Please limit yourself to 1 question and 1 follow up.
I'll now turn the call over to Pedro.
Well, thank you Sam and thanks to everybody for joining I hope all of you and your loved ones are staying healthy.
And safe.
Edison International reported core earnings per share of <unk> 94, compared to $1 a year ago.
However, this comparison is not meaningful because SCE did not receive a final decision on track 1 of its 2021 general rate case during the quarter.
As many of you are aware a proposed decision was issued.
On July 9.
The utility will file its opening comments later today and reply comments on August 3rd.
While Maria will cover the PD and more detail our financial performance for the quarter and other financial topics. Let me first give you a few observations which are summarized on page 2.
The BD space right revenue requirement.
A $6.9 billion is approximately 90% of Sce's requests.
The primary drivers of the reduction are lower funding for wildfire insurance premiums vegetation management and depreciation.
The main reduction to Sce's 2021 capital forecast was for the wildfire covered conductor program.
Excluding wildfire mitigation related capital the PD would approved 98% of Sce's 2021 capital request.
Each of which was uncontested.
The PD acknowledged the often competing objectives of balancing safety and reliability risks with the costs associated with ensuring SCE.
Take necessary investments to provide safe reliable and clean energy.
The PD also notes that wildfire mitigation is a high priority for the state and the commission.
And the PD supports critical safety and reliability investments and provides the foundation for capital spending and rate base through 2023.
We.
You can leave it it's generally well recent but it has some major policy implications that are fundamentally and consistent with what the state has had it.
S E C E O Kevin Payne address these implications well during the oral arguments earlier this week and the utility will elaborate on them and his opening comments.
And which are outlined on page 3.
The largest area of concern is the significant proposed cuts to Sce's wildfire covered conductor program.
This is sce's Paramount wildfire mitigation program and the utilities comments will focus on ensuring the programs and scope is consistent with the appropriate risk.
We believe state policy and achieving the desired level of risk mitigation.
The proposed reductions would be price customers of a key risk reduction tool.
So SCE is advocating strongly for a balance final decision.
We believe additional CPUC authorized funding.
And for Sce's covered conductor deployment is warranted.
<unk> customers and communities vital interests and achieve the state's objected from minimizing wildfire risk.
As noted in prior discussions SCE has prioritized covered conductor and other wildfire mitigation activities to urgently reduce wildfire risk.
<unk> wildfire.
Fire mitigation plan progress is on page 4 of the deck.
We believe that through the execution of the <unk> and other efforts SCE has made meaningful progress in reducing the risk that utility equipment will spark and catastrophic wildfire.
It provides a few proof points of how SCE believes it has reduced wildfire.
Risk for its customers.
First circuits with covered conductor and have experienced 69% fewer faults and dose without which demonstrates the efficacy of this tool.
In fact on segments, where we have covered the Bayer wired there has not been a single CPUC reportable edition.
Interact with objects or wire to wire content.
Second we're SCE has expanded <unk> patient clearance distances and remove trees that could fall into its lines, there have been 50% fewer tree or vegetation cost pulse and the historic average.
Lastly, since FTE began its high fire risk.
And from comp program and 2019.
It has found 66% fewer conditions requiring remediation on the same structure year over year.
These serve as observable data points of the substantial and risk reduction from Sce's wildfire mitigation activities and.
And utility will use the tools and it's just.
And spectrum to mitigate wildfire risk.
This includes deploying covered conductor at a level and formed by the final decision augmented by using public safety power shutoff or <unk>.
To achieve the risk reduction originally contemplated for the benefit of customers.
The PD also included comments on the topic.
And also the ability.
We agree that affordability is always important and must be weighed against the long term investments and public safety.
I will highlight debt sce's rates have generally tracked local inflation over the last 30 years and have risks and beliefs since 2009 relative to the other major and California.
<unk> current.
Currently Sce's system average rate is about 17% lower than <unk>, and 34% lower than <unk>, reflecting the emphasis SCE has placed on operational excellence over the years.
While we recognize that the increases in the next few years types of the investments.
And safety for the communities SCE serves are higher than this historical average.
SCE has demonstrated its ability to manage rate increases to the benefit of customers.
Underfunding prudent mitigation like covered conductor would be penny wise and pound foolish as it may ultimately lead to even.
Our economic pain, and even loss of life for communities impacted by wildfires that could have been prevented.
And actually a wildfire season is underway right now and I would like to emphasize SCE substantial progress and executing SWM debt through.
Through the first half of the year SCE completed.
Great and 190000 high fire risk informed inspections of its transmission and distribution equipment on.
Cheating over 100% of its full year targets. The utility also continues to deploy covered conductor in the highest risk areas.
Year to date.
<unk> installed over 540 circuit miles of covered conductor.
Dr <unk> and high fire risk areas.
For the full year SCE expects to cover at least another 460 miles for a total of 1000 miles deployed in 2021, consistent with Astoria and people.
Additionally, SCE is executing its PSTN action plan to further.
Reduce the risk of utility equipment, igniting wildfires and to minimize the effects on customers.
<unk> is on target to complete its expedited grid hardening efforts on frequently impacted circuits and expects to reduce customer minutes of interruption by 78%, while not increasing risks assuming.
The same weather conditions of last year.
To support the most vulnerable customers living and high fire risk areas, whether it be sps's called by utility has distributed over 4000 and batteries for backup power through its critical care backup battery program.
We believe California is also a better prepared to combat.
Ambac is wildfire season.
The legislature has continued to allocate substantial funding to support wildfire prevention and additional firefighting resources.
Just last week, the state announced that Cal fire has secured 12 additional firefighting aircraft for exclusive use and a statewide response efforts.
Commenting the largest civil aerial firefighting fleet and the world.
SCE is also supporting the readiness and response efforts and local fire agencies.
And June SCE contributed $18 million to lease 3 fire suppression helicopters.
This includes 2 CH 47 helicon.
And just the worlds largest fire suppression and helicopters and on Sikorsky 61 helicopter.
All 3 aircrafts have unique water and fire retardant dropping capabilities and can fly day and night.
In addition, as of course, the 76 command and control helicopter along with ground based equipment to support rapid retardant refills and.
Tankers will be available to assist with wildfires.
Hello, tankers and command and control helicopters will be strategically station across Sce's service area and made available to various jurisdictions through existing partnerships and coordination agreements between the agencies through the end of the year.
We also appreciate.
Drop the strong efforts by precedent bite and energy Secretary brand home and the broader administration.
I was pleased to join the precedent Vice presidents cabinet members and western governors, including Governor Newsome.
Virtual working session on Western wildfire preparedness last month.
The group highlighted.
Key areas for continued partnership among the federal government states and utilities, including land and vegetation management deploying technology from Dod's National Labs, and other federal entities, and enabling response and recovery.
Let me conclude my comments on Sce's wildfire preparations for this year by pointing.
<unk>, we made available for investors.
We recently posted a video to our Investor Relations website, featuring SCE subject matter experts discussing the utilities operational and infrastructure mitigation efforts and an overview of state actions to meet California's 2021 drought and wildfire risks. So please go check it out.
Our investing to make the grid resilience to climate change driven wildfires is a critical component of our strategy and.
And it's just 1 element of our ESG performance.
Our recently published sustainability report details, our progress and long term goals related to the clean energy transition and electrification.
Out of in 2020, approximately 43% of the electricity SCE delivered to customers came from carbon free resources and the company remains well positioned to achieve its goal to deliver 100% carbon free power by 2045.
SCE doubled its energy storage capacity during.
This year and continues to maintain 1 of the largest storage portfolios in the nation.
We have been engaged and federal discussions on potential clean energy provisions and continue to support policies aligned with Sce's pathway 2045 target of 80% carbon free electricity by 2030.
However.
Electric affordability and reliability have to be top of mind as we push to decarbonize the economy through electrification.
The $1 needed to eliminate the last molecule of <unk> from power generation will have a much bigger impact when spent instead on on electric vehicle or a.
For example, the utility is spending over 800 million to accelerate vehicle electrification across its service area and Thats, a key component to achieve and economy wide net zero ago most affordable.
Recently SCE opened its charge ready 2 program for customer enrollment.
And this program.
He is going to support 38000, new electric car Chargers over the next 5 years with an emphasis on locations with limited access to at home charging option and disadvantaged communities.
We are really proud that Edison leadership and transportation electrification was recently recognized by our peers with E.
Graham <unk> Edison Award, that's our industry's highest honor.
SCE has been able to execute on these objectives, while maintaining the lowest system average rate among California's investor owned utilities and monthly residential customer bills at or below the national average.
As we grow our business toward a clean energy future we are.
We're also adapting our infrastructure and our operations to a new climate a reality for.
And we're striving for best in class operations, and importantly, we are aiming to deliver superior value to our customers and to our investors.
With that let me turn it over to Maria for and financial reporting.
Thank you Pedro and good afternoon, everyone My comments today.
Today, we will cover our second quarter 2021 results comment on the proposed decision and Sce's General rate case, our capital expenditure and rate base forecast and update on other financial topics.
And it's and international reported core earnings of <unk> 94 per share for the second quarter 2021.
A decrease of <unk> <unk> per share from.
Period last year.
As Pedro noted earlier this year over year comparison is not meaningful because SCE has not received a final decision and its 2021 and general rate case and continues to recognize revenue from CPUC activities based on 2020 authorized levels.
We will account for the 2020, 1 and G. R C track on.
And the same vision and the quarter SCE received debt.
On page 7 you can see Sce's key second quarter EPS drivers on the right hand side.
I'll highlight the primary contributors to the variance.
To begin revenue was higher by <unk> <unk> per share.
<unk> related revenue contributed 6% and experience.
However, this was offset by balancing account expenses.
First related revenue contributed <unk> <unk> to the variance driven by higher rate base and a true up associated with filing Sce's annual formula rate update.
O&M and had a positive variance of <unk> 11, and 2 items account for the bulk of this variance.
And finally, the first cost recovery activities, which have no effect on earnings were 5 cents.
This variance is largely due to costs recognized last year following the approval of cost track and a memo accounts.
Second lower wildfire mitigation related O&M drove a 2 cent positive variance primarily because fewer remediation.
And fight through the inspection process.
This continues the trend and the observed in the first quarter.
Over the past few years SCE has accelerated and enhanced its approach to risk and formed inspection on the downside.
Inspection has continued to be 1 of the important measures for reducing the probability of ignition.
For.
The first half of the year, while we have maintained the pace of infections and net our annual target.
Observes pure findings of equipment requiring remediation.
Lastly, depreciation and property taxes had a combined negative variance and Tencent.
Driven by higher asset base, resulting from FTE continued execution.
<unk> and its capital plan.
As Pedro mentioned earlier SCE received a proposed decision on track 1 of its 2021 general rate case on July 9.
If adopted the PD would result, and base rate revenue requirement of $6.9 billion and 2021.7.
7.2 billion.
And 2022, and $7.6 billion and 2023.
This is lower than Sce's request, primarily related to lower authorized expenses for wildfire insurance premium.
<unk> management and employee benefits and depreciation.
For wildfire insurance, the PD would allow.
To eat to track premiums above authorized and the memo account for future recovery applications.
The PD would also approve and vegetation management balancing accounts per cost above authorized.
And it's opening comments SCE will address the P. D as procedural error that resulted in the exclusion of increased vegetation.
As management labor cost driven by updated wage rates.
Vegetation management costs and exceeded defined cap, including these higher labor costs would be deferred to the vegetation management and balancing accounts.
The earliest the commission can vote on the proposed decision and it's August 19th voting.
Consists.
Station and with our past practice, we will provide 2021 EPS guidance a few weeks after receiving a final decision.
I would also like to comment on Sce's capital expenditure and rate base growth forecast.
As shown on page 8 over the track 1 period of 2021 through 2020.3.
Rate.
Base growth would be approximately 7% based on sce's requests and approximately 6% based on the proposed decision.
And the absence of a 2021G. R. A C final decision SCE continues to execute our capital plan for 2020, 1 that would result in spending and the range of $5.4 to $5.5 billion.
SCE will adjust spending for what is ultimately authorized and the 2020.1 G. R. A C final decision, while minimizing the risk of disallowed spending.
We have updated our 2020, 1 through 2020.3 rate base forecast to include the customer service REIT platform project.
S T E filed a cost recovery application for the project last.
Last week I will note that this rate base forecast does not include capital spending for fire restoration related to wildfires affecting sce's facilities and equipment and late 2020.
This could add approximately $350 million to rate base by 2020.3.
Page 9 provides a summary of the approved.
And cost recovery applications for incremental wildfire related costs.
S. T E recently received a proposed decision and his team are proceeding for drought and 2017 fire related costs.
The P D would authorize recovery of $81 million of the requested revenue.
And you can see on page 10.
And during the quarter SCE requested a financing order that would allow us to issue up to $1 billion of recovery bonds to securitize, the cost authorized and G. R. C track to 2020 residential uncollectible and additional Avi tend to deploy capital on authorized and G. R. C check 1.
SCE expects.
And Pat decision on the financing order and the fourth quarter.
Turning to page 11, SCE continues to make solid progress and settling the remaining individual appointed claims arising from the 2017 and 2018 wildfire and mudslide events.
During the second quarter SCE resolved approximately 560.
The final dollars individual plaintiff claims.
And that leaves about $1.4 billion and claims to be resolved or less and 23 per cent of the best estimate of total losses.
Turning to page 12, let me conclude by building on pagers earlier comments on sustainability.
I will emphasize the strong alignment.
Millions strategy and drivers of the Isis business and the clean energy transition that is underway.
In June we published our sustainable financing framework outlining our intention to continue aligning capital raising activities with sustainability principles.
We have identified several eligible project categories, both green and social which capped.
And between the sizeable portion of our capital plan.
Including T&D infrastructure for the interconnection and delivery of renewable generation using our grid on.
Our EV charging infrastructure programs grid modernization and grid resiliency investments.
Shortly after publishing the framework SPE issued $900 million of sustainability bonds.
Bonds that will be allocated to eligible projects and reported on next year.
Our commitment to sustainability is core to the company's value and a key element of our stakeholder engagement efforts and.
Importantly, our approach to sustainability drives the large capital investment plan that needs to be implemented to address the.
It's the climate change and to serve our customers safely reliably and affordably.
That concludes my remarks.
Jerry could you. Please open the call for questions and as a reminder.
Limit yourself to 1 question and 1 follow up so everyone on the line has the opportunity to ask questions.
The impact thank you and if you would like to ask a question. Please press star 1 on your phone line.
For the first question please.
And our first question comes from Jeremy Tonet with J P. Morgan Your line is now open.
Alright.
Hey.
Hey, Jeremy.
Right.
Wanted to start off here.
With underground and how helpful. Because the underground and B and your service territory is this and option you'd explore and.
How does the covered conductor pushback kind of inform your thought process here.
Yeah.
To pick up.
And Jeremy so because you've seen our sales.
And the past we are looking on all of the tools and the toolbox and.
Given our terrain and the fact that.
So it was really predominant and felt 1 of the freedom and inform civic mission.
The past has been from a contract.
On behalf of foreign objects refined the covered conductor from has really provided the optimal low tool for reducing risk while maintaining affordability for customers.
And so we see that covered conductor has something like 70 per cent of the risk reduction.
That underground and house.
Yes, the cost difference and the numbers, we've seen strength today and obviously the team continues to to keep track of what's going on and talking with our peers and talking with experts about potential improvements.
The latest numbers, we've seen are the covered conductor cost us something like $456000 per mile.
And with underground being on average and our territory or cost you about $3.4 million and while we have seen from smart applications and in fact, there's about 17 miles that we've targeted to underground and between this year and next year and we'll continue to look at the tool sets to her toolbox, but at least you know with.
And with our territory with.
Our incidents of.
Work with it.
Emissions, we believe that a covered conductor provides a really at optimal tool in terms from both risk reduction on affordability.
Yeah.
Got it that's helpful.
<unk>.
Maybe just kind of shifting.
Here's your bet if you could.
Speak more to the policy implications from the P D and how you see intervenors position here on these policies versus just pure cost considerations here.
Yeah, and give you some thoughts on where you have and have more.
And Kevin.
As royalty and Miss anything.
Look maybe 2 thoughts that come right away to my first is <unk> or a litigated proceeding alright and so.
You always have at least 2 sides actually multiple sides with multiple intervenors.
And so intervenors debt.
And are more focused on.
On purely the affordability side of things because the utility we're really working hard to provide well supported testimony and analysis that is looking at finding the right balance stripes and we're balancing first of all having a reliable system actually above all having a safe system that there needs to be and violet.
And you really see tradeoffs with reliability and affordability and you could always spend more to get and extra percentage points and reliability, but at some point that becomes on affordable for the customer and how do you find that right balance.
I think you know if you heard me say on the prepared remarks already.
Well really that the day.
The largest issuers on the only book the largest issue and it's been the position that turned took in terms of the risk reduction provided by covered conductor and you know how many miles are enough and we just have a fundamental difference and view in terms of the policy argument that they're making.
We are facing a significant.
Michigan significant wildfire risk growth was day, we've seen it in our area. We strongly believe that the wildfire mitigation plans that we prepared.
It really help address at risk and you saw the data that we shared in the deck and that I mentioned in my remarks are on some of these early returns that we're experiencing with significantly.
And decreases in and.
And some of the risks that we had just 3 years ago right. So.
And so did the figures on on.
Reduction and false and.
And frankly, no CPUC reportable admissions yet.
On on miles that we've covered.
Where we used to have their wire.
So.
The fundamental policy.
Debate here is the.
Churn has what we think are some flawed math about stopping and 2700 miles and we believe that.
On the plan and we've laid out that would go to over 6000 miles covering about 60% of the 10000 miles and high fire risk areas.
Slides that kind of risk protection that our customers need and it's consistent with the emphasis the state house on fire mitigation fire suppression. So.
<unk>.
Affordability is always really important but 1 final point and I'll give you is 1 that Kevin Payne made really well during the oral argument affordability is not just about the building.
Book Tomorrow affordability is about the entire economic equation and if we allow on mitigated wildfire risk to persist.
And our fire takes place it could have been prevented that's a much bigger affordability shock for the community and the long run and addition to the health and safety impacts and that can have so we.
And you can we cut it right in terms of the.
Policy Tradeoffs, and we hope that the 5 commissioners will agree with that and the final decision.
Maria or Kevin anything to add there is debt to cover.
No I think from a policy perspective nature, that's really that really is the biggest discussion we might have with the commission.
We think with the intervenors.
And.
It's around covered conductor and the affordability and risk trade off that you. Just described there are some other things when if and when we bought when we file our comments later today there will be some other things that <unk> outlined some of them are on when those lines and the and the debt today. Those are things that certainly we think we should be treated.
And as other utilities or and in line with precedent, but I think the big discussion and you can probably tell from the oral arguments was really around and Israeli around covered conductor and the efficacy of that and debt.
Proof points, all said that we'd seen as Pedro mentioned.
Got it that's.
Equal local thank you. Thank you the deal and whether you'd be.
Well.
Thank you and our next question comes from and she started and ski with Seaport. Your line is now open.
Hey, Andrew and thank you.
Good afternoon, and okay. So I have 2 questions. The first 1.
Given what happened with our bond yields.
And the the cost of capital.
Moving the bond yield drove and true ups and what do we expect here for I mean, obviously you can tell it depends what happens with.
The interest rates are between now and October but should.
Should we expect you know from <unk>.
Stylings from you guys are trying to preempt this a lowering of the ROE, which would imply that from current bond yields.
Okay and do you think you know and you know the the average.
Average bond yield has to be.
And that dead band right now if you look at sort of the amount of time remaining until the measurement period is over yields would have to average just over 4 per cent to kind of make the whole year average within that within the dead band. So yeah, we'll see what happens the and to the measurement period.
Is.
Is that at the end of September.
And we all know that you know the CPUC has taken positions on prior request to either extend into 4 different changes on the cost of capital for others and we also know from our experience back in 2017, but they really prefer to see litigated cases and were preparing testimony that is going to focus on.
And the.
French weighted role and the risks that the California, ious have and that notwithstanding these lower interest rates and that's really driven by these extraordinary events over the past 18 months and all of the government programs that have been implemented to alleviate the impact of the pandemic, but that should not really imply that a change and the ROE is necessary and.
With the changes and the volatility certainly underscore that and I think you know we have regardless of what happens we have to file next and next spring for another cost of capital proceeding. So those are the sorts of things that we are thinking about.
You know is that basic issue and we really need to demonstrate that notwithstanding the interest rate environment the cost.
Cost of equity isn't in fact, lower you know, we'll continue to look at everything that's going on options on how to best get that point across to the commission to the to the intervenors and also to really underscore the point that you know financially stable Io use and California, Iowa.
And I think he is that are attracted to investors ultimately support customer affordability and the long run too. So I think we're just going to continue to monitor the situation and we're preparing testimony already and we'll go from there.
Okay. Thank you and my second question is on your financing needs this year.
You continue to settle.
On a wildfire claims you have and yet issued debt.
You know enough equity to meet your guidance for this year. So are we waiting for the final decision and did you see.
Is it that there is.
And some movement and the total number that you might need given again ongoing settlement of claims.
Excuse me Oh, Okay bifurcate that into a couple of different parts. If you don't mind. That's you know I'll just kind of go back to sort of where I always like to start with as you know our financing plan is really built on a prospective and maintaining.
Investment grade ratings and back when we move to a best estimate for the wildfire liability last year. We said, we would issue approximately $1 billion of equity to support the ratings and then that would allow SCE to continue to issue debt to fund the wildfire claims payments and since then we've been evaluating our needs and we focused on different financing options.
In March we issued the 1 and affordably and a profit and that had the 50% equity content and you've also said and the pass it. We do think we have flexibility regarding the timing and so.
And we're continuing to have that belief that we can be flexible in terms of timing and we're continuing to monitor and market conditions and that's going to inform our next steps and we're gonna can.
We continue to consider and I think we've talked about this a little bit before you know the tools that we would use so continue to consider preferred equity internal programs and then if needed the ATM and that's the piece associated with you know sort of the ongoing discussion around the wildfire claims and the liabilities and 17 and 18.
And backing up and we've also talked about and the need on an ongoing basis. What we think is a minimal equity requirement that that piece of it that ongoing minimal equity needs associated with the core business is 1 that we will provide more specificity around once we get the final decision. So that piece does kind of tie back to your to the final decision.
Very good. Thank you. Thank you very much.
Thanks Angie.
Okay.
And our next question comes from Shar <unk> with Guggenheim and your line is now open.
Hi, good afternoon.
And it's in it's actually a constancy and here for sure. Thanks for the update on the and all the information.
Provided.
And just wanted to kind of follow up a little bit on the PD and kind of the view that it takes on wildfire insurance covered conductor and such and does that does that change your approach to procuring wildfire insurance and are you comfortable over the low on insurance that you have.
And would you anticipate the cost would come down as kind of.
More areas are converted to cover things out there.
And I should Murray I'll pick up the last part first and then on the first part to you.
And Pennsylvania, and I sit here and here.
We would expect certainly my hope that over time as the risk envelope continues to be narrowed in this day right and it's not just the utility work.
But what the state is doing in terms of fire suppression.
Further constraining the overall risk envelope, we certainly hope that over time that translates into insurer seeing that the risks and ensuring is not as large as it used to be and that should reflect itself and premiums but of course the <unk>.
Markets the markets that we will see.
Work progresses on account, let me turn it over to you from the first part.
Sure.
And so because as you know that our our policy year is July 1 through June 30. So we just started a new policy year.
In terms of the PD the original request and the P. D. When we filed the application.
That's where you know increasing.
And how that my big percentages year over year, and I request had something like a $600 million and wildfire insurance premium embedded in it.
And what came out and the PD is that 1 and very importantly, they reiterated that ensure and wildfire insurance premiums are a cost of service so customers will pay.
Pay for that and part of their rates and.
They approved a number or and authorized revenue of about $460 million, which is actually as it turns out sufficient or at least you know if we were to look at the balance of this year and then the beginning part of the year, which was the last policy year.
That is a comparable or at least a little bit more than what the premiums are we expect to be expense for this year to be about $425 million for about 4.
And $1 billion gross of insurance, but net once you deduct out the self insured retention and a little bit coinsurance and about 800.
$1 million mm of wildfire insurance, which we which is consistent you know once you get right to redo it with what's required and it depends on before so from that perspective, you know good policy points on cut cost of service aligns with at least for this year, what what premiums would be what.
The third piece of it is that they also reiterated that to the extent premiums go up and the future. We can use that memo accounts feature that we have used in the past and successfully recovered premiums under in the future as well. So that's that's all good the 1 piece of the conversation that we will continue to have with them is whether or not it is.
And 70 fighter to actually collect a little bit more from customers and not just the amount for the wildfire insurance premium, but also collect a little bit for customer funded self insurance, which may and you know over time be more economical for customers and to the extent and you don't have a loss you keep it and roll it over into the next year, which is different from what you would do with the.
Premium excellent and that makes a lot of sense and.
Just shifting a little bit to the to the wildfire and the legacy wildfire loss estimates.
I guess can you quantify the level of comfort that the estimates we will not change and is the best estimate at this point pretty much de risk now that you have all the settlements in place and kind of does the remaining.
<unk> 1.4.
Of the kind of loss estimate is just kind of progressing towards completion do you have any.
And that's on the duration of kind of settlement and the settlement process either.
And any qualitative statements around that.
Yes.
Probably a statement it sounds a lot like what we said before because even though the number you know more even though more claims have been settled it's still very dynamic every day every claim as you know different and has to be addressed differently. We continue to monitor the situation obviously it's.
The biggest areas of management judgment and we sit down.
And have that conversation every quarter to be sure that you know.
Reflecting the things that we know in the in the reserve, but I would say you know theres still an Arab and around that and we'll have to address that as time passes.
And.
1 of their proposal flow point of if it's fair to assume that since we haven't moving and while it's been kinda co.
Close to your the settlements that have been going through on kind of close to your best estimate.
Yeah.
He has said we constantly we look at this every quarter.
Recognize that we still have several thousand plaintiffs.
And you know typically smaller than you.
You know larger settlements, we did earlier on and for example from the sub Roes.
So.
Such a wide diversity.
Cases, and plaintiffs everything from.
Homeowners to smaller businesses 12, Ocado gross too.
Just a whole lot of broad.
Range. So that's why we will continue to test it every quarter and keep you posted if there's any changes.
Difficult for us and probably not appropriate for us to try and give some perspective on the probability of changes.
I think under the accounting rules, we provide you what our current best estimate is.
And that I should say has not changed.
Okay. That's very helpful. Thanks for taking our questions.
Thanks, you day care.
Thank you and our next question comes from Michael Lapidus with Goldman Sachs. Your line is now open.
Hello, guys. Thank you first hey, Pedro and thank you for taking my question.
A little bit of a high level, 1 which is if you think about things that are not and the DRC and track 1 through 4 but might be upside over the next 3 to 4 years to your potential capital spend level can you highlight what those may be and which ones you are actually already filed for but you did ramp.
Before yet and which ones you haven't even filed for yet, but somewhere embedded within the S. E organization, you've got a team of people, who are or who are pins and pencil to paper and and starting to put together numbers.
Well, you know, particularly on the pandemic, we're less pencil to paper and all electronic and so very high Tech now.
And all virtual but joking aside and Maria and maybe you can come and hear with details on either the high level answer to your high level question.
Similar to what you've heard from us before right.
And what you've seen in our rate case, obviously is very very concrete and you know, we'll see where the final decision comes out but if we look forward and we think about the clean.
And energy transition alright, so there's a number of things as part of the transition.
That will either support our view that we'll continue to have robust investment needs for a long time or potentially.
<unk> upside to that.
Areas like.
But as I talked a little bit on my remarks.
And about charge ready open question right now as to whether there will be a further roll needed for utilities to continue to support the charging infrastructure.
Market or weather.
Private entities will be able to step in and do that shortly.
Interestingly I think re as a commissioner rich Hoffman.
And our recent commission meeting was I, just think thinking out loud about <unk>.
Well be they need to have utility step in and do more just given the scale of the transition and in particular as I look at it.
Just about getting charging infrastructure to the average customer and making sure that to transition and equitable.
And so therefore, making sure there's enough penetration and disadvantaged communities low income communities, where private players by not be as economically and ties to do that and where there might be a case to socialize more of that through the bill So transportation and certainly 1 area storage and other.
On <unk> request.
Quest and.
Polluted and there I think and assumption of.
Was it 60 megawatts or so of new storage over the pendency of the <unk> rate case period.
But.
As we see the amount of storage that will continue to be needed moving forward and.
But certainly the potential for some of that too.
To be.
Part and parcel of utility operations might make a lot of sense for some portion of that to be and rate base right and so that also creates either support for on <unk>.
Overall investment trajectory or potentially even further upside.
Building electrification is another area, where we've seen frankly relatively little profit.
To date.
Compared to what we think will be needed as we get out as we the state heads up to 23 and 2045 and so right now the utility team is thinking about are there places where the utility will be able to help and where it'll be economic for our customers to support that day rates. So because you need both of those right.
And so there is some good.
Good thinking underway right now around are there potential programs, where we might be able to be helpful to the state's transition. So that gives you a few examples.
Maria you may have more specific things.
Yes, I think maybe.
In terms of numerical examples because I think there are obviously a lot of opportunity.
<unk> and the lift that Peter provided.
More detailed comments <expletive> and the team and I can say with a pencil to paper or virtually depends on pay per works more on the specifics, but in terms of things that had been filed already and where the numbers are more explicit and.
We did recently include in our rate base forecast so already in the numbers, but we did.
And we included on our customer service platform project. So that's that reflects about $500 million or so of rate base by the time, you get out to 2020.3 so that's now embedded application was filed last week.
Also we did as you know experience wildfires and our service territory late last year.
Hum.
And the Big Creek area lot of restoration had to go on there we havent yet applied for recovery of that but that would be say about another $350 million of rate base.
If approved and I'll say and the year of 2023, and it would probably be a reasonable timeframe. So those are more.
Specific things Michael and addition to you know what I would view us and all the clean energy transition and opportunities that Pedro mentioned.
Got it thank you guys much appreciated.
You bet.
And here.
And our next question comes from Jonathan Arnold with vertical research partners and.
And is now open.
Thank you Jonathan Hi, I think you just answered my question, which is that the customer right.
<unk> platform is is effectively what's driving the higher range and sort of.
Maine rate base forecast versus last quarter and is that pretty much all.
All of it or was there something else and.
And that that should that should be and it Jonathan I think we haven't changed anything we've shown you what the PD numbers are obviously, but we havent really changed anything yet and until we get the final decision on.
And you sort of.
Competence and and recovery of that.
Sort of.
And talk to that a little bit please.
Sure and well if the customer service request from project and it replaces them are very very old systems and so it was very much needed and some of it was written and.
And software languages that nothing and we couldn't even get people to who knew them anymore. So I think from that.
That perspective are very much needed I think over the course of the implementation and the team has had a ongoing dialogue with them you know energy division and the like to keep them apprised of whats been happening at the project and there have been over time, you know some cost increases obviously, because we had we had to wrap more into the project.
And the complexity of our system, but we think that all the work that we've done.
It really is well justified and the testimony that we filed supports that and we're now and stabilization mode and so we keep on keeping a close eye on them you know just customer satisfaction and ability to answer customers' questions.
And all of the things that you would expect to happen when you're you know.
And when a new system goes live but the teams very very attuned to that and you've added extra folks and the stabilization mode as well. So I think you know we've done all the things that we should be doing and order to ensure that we can make a good case with the commission.
<unk>, Okay, and then maybe if I could well I think you've been speaking with those of shelf filing came across and stuff just a refresh of.
And be something expiring can you just speak to that yet.
Yeah, both S T E N E and I ask them.
And the shelf registrations were fine were expiring. So that's this is just normal.
E I actually the only thing we did with we used to have 2 separate ones. We we put them together. So that we don't have to have the I'll say the debt you know the administrative burden of 2 filings and so very normal course, okay.
Okay, great. Thank you guys.
Thanks Allison.
And our next question comes.
Chorus from Sophie Karp with Keybanc capital market and your line is now open.
Awesome.
And I actually it's on get though force Sophie Thanks for taking my call off line.
And then.
And.
Oh, we did go through the PD and and understand and be the the cover.
And if that's the point of difference here would you consider let's say the final decision comes in closer to where the P. Do you would you still consider bill.
Building on your covered conductor program over the plan to seek recovery it at a future day.
No I think that Kevin Payne said.
Conduct and oral argument you know we will.
Strongly factor in the guidance from the CPUC and so ultimately they will be ruling on a certain risk level of risk trade off level.
They think about balancing affordability.
And risk and safety.
And we certainly feel strongly about and what.
And the right answer is here right, which is not the P. D is a molecule we proposed to.
And to the extent debt.
You know the guidance or provide us.
Would limit spending.
We will use up all the other tools that we have in the toolbox, including P. S. P.
And a bunch more appetite or.
As needed in order to make sure that we maintain an appropriate risk level for our customers.
Great. Thanks, so much.
You bet. Thank you.
Thank you and our next question comes from Julien Dumoulin Smith with.
Bank of America and your line is now open.
Hey, good afternoon, and see index and the time.
Hey, Julien how are you.
Good. Thank you continue the day.
I suppose you break and come back to the correct from the conversation around affordability.
How do you think about the different scenarios around cash.
P S around what the commission could do here and creating the bill affordability right. It seems evident that 1 needs to try to continue to push as much as possible towards addressing and mitigating wildfire risk. How do you think about you know, creating bill headroom, whether through opex or effectively shifting out other.
Projects from a capex perspective, and just thinking out loud and putting it back to you on on on sort of the different levers here that might exist.
To create that affordability that seems necessary to move forward with the wildfires spending it at your proposed pace.
Yeah, Julian it's a great question.
A few reactions.
Ray and Maria May have more first.
It's what we've been doing for the last 5678 years, right and you've seen us create.
Okay, a lot of rate headroom in order to do the work that we needed to do.
And I commented in my prepared remarks on the.
Right and where do we know.
Maintained.
O&M cost increases and frankly total total system rate average rate increases on around the level of inflation for the last 3 decades, and I know, we've talked with you and with other investors and analysts are significantly above that and the past.
And a track record obviously this DRC.
As a major departure from that you know driven in large part by the wildfire related needs.
But we will continue to look at opportunities to do better cost management to do more use of technology that can help make our work more effective more efficient.
On the windowing tool and and I don't think on that 1 you're ever done right because the reality of the bar keeps going up.
And the digital tools data and analytics.
All of these continue to improve and open up new opportunities that I don't think any of us imagine 5 or 10 years ago.
So I'd say that's.
And I know part 1 of the answer.
Our portfolio kind of goes back to to some of the discussion and.
So for some of the earlier questions.
There is a.
There's a balance there right and it's important that the commission be thinking about affordability.
Italy, not only in terms of.
Near term rate increase, but the impacts of that over time, the risk that it either mitigates or just and mitigate risks and my at least me how and on the table that might then you know increase the risk of wildfire and the future that would have a much more devastating economic impact on.
Broadly or the risk debt by not spending enough on covered conductor we might have to continue using <unk> for a longer period of time, and a particular community, which has its own set of impacts right and I know that the commission has appropriately been very sensitive to balance so they're there.
There is absolutely a balancing act.
And our communities are tough jobs with the regulator houses touch up and we have but I think we've put together a well thought out approach for balancing those risks and so just a.
Your reaction and Maria May have others.
Yeah, I guess, Julie and the 1 thing I would also add to that and maybe 2 things.
We go all the way back to when we filed our application for this GIC.
Third we actually tee that up for the Commission and said, we know we have to balance a lot of different things.
<unk>, what we need to invest for safety and also and wildfire risk mitigation and then affordability for our customers. So we actually told them that some of our investments and infrastructure replacement, we would hold on to and not proposed.
And that's where the CRC cycle and instead take that up again when more of the wildfire mitigation Capex had been spent so I think I think.
And that balance is 1 that we've always tried to strike and I think it's the conversation with the commission and the commission raised it during their own affordability on bonds, because they recognize that over the longer term.
Propose more or less vacation is actually going to drive lower cost for customers.
And you've seen it and our pathway paper the commission themselves recognize that electrification will reduce.
Energy is a customer is as a share of customer wallet. So we have to focus on the near term with a view not just on affordability what's on the bill.
And third and here's the oral argument and it's the overall economic proposition that we have to think about and with our customers and so let's get let's get this done I think a 1 of the numbers he quoted and use oral arguments was that its me.
Increased covered conductor you know to the level that we had and the request and it's really about 2.
And $2 a month on the customer Bill I'm not trying to minimize that I know people are in different situations, you know economically, but when you think about the alternatives. That's really I think the most economical choice and then that resiliency Tees up the system and the customers for the long term on electrification really does and minimize cost.
And it was kept and Maria let me just pick up 1 more thing.
Triggered by your comments.
Julien a lot of the focus right now it's early and this rate case is on the affordability trade off relative to wildfire mitigation.
I think as we move forward over the next decade or 2.
To <unk> point in line with our.
Our pathway 2045.
Analysis.
I think we'll see more of the discussion shifts to the affordability trade offs relative to meet and clean energy targets and Decarbonize the economy.
And so that's why it's so important debt.
And the analytical work, we've done that demonstrates that.
Alright.
Using clean electricity to electrify a lot of the economy.
Is the cheapest way.
For the economy to get to net zero Alright. This will put pressure on the electric Bill I don't think.
And it'll be the sort of rate increases year on year that we see and this rate case right but.
We might see excursions, a little bit of both local inflation in order to build on the infrastructure needed to electrify and a much more on the economy and therefore, the carb on us right and.
And so frankly part of our job and the job of future teams at Edison over the next 2 decades will be to constantly be putting.
With educational materials out there good analysis around.
The world not just the cents per kilowatt hour world, but the world and a $1 per ton of ghd removed perspective, because thats just as important a metric as day per kilowatt hour.
Yes.
If I could well thank you.
And the comprehensive responses, if I can throw and and quick here just to follow up how do you think about it.
Obviously, there's some fairly.
Transparent constant capital dynamics out there.
It could put pressure on our numbers how do you think about offsetting factors again, I'm coming back to O&M thinking about that as being a lever both on the near term.
You guys built long term, how do you think about offsetting some of the cost of capital with O&M or refinancing opportunities et cetera, just trying to reconcile rate base back to earnings growth here, if you will.
And he was 1 reaction Maria may have different ones.
First.
Look at the end of the day per customer sees 1 bill.
And.
So we want to make sure we're pulling on all the levers.
We'll provide them and affordable experience and social safe and reliable and clean and also to make sure that we have and appropriate opportunity for investors to get a return on and off their capital right.
And so.
Kind of stating the blindingly obvious thats important.
And the reaction, though is that we do have separate proceedings, and California, and we think it's been a lot of value and having a separate rate case proceeding from.
Different cost of capital proceeding.
And particularly as we get to our cost of capital filing.
And while clearly.
And the commissions mines and our.
We will all be thinking about the impacts on customers. So.
These incremental cost of capital and California is really constructed around ensuring that there is a fair opportunity for investors for shareholders.
2 and get that return off and on capital in order to make the California investment.
And attractive 1 relative to investments elsewhere in the country and and other marketplaces right and.
And so, particularly as we head into a period over the next decade, or 2 where the country as a whole we will see a dramatic need for investment across all sectors of the economy to decarbonize its really important debt the regulatory framework and California.
And my only I remain 1 that is viewed as fare as stable as compensatory does it too.
Shareholders and to all stakeholders.
And 1 where maybe the cost of service principles are respected alright, and so youre seeing a lot of our advocacy focus on making sure that.
We are constantly.
Going back to the center line in terms of what's a fair cost of service and how do we get recovery on that versus what things.
You know where and.
And what areas through the shareholder bear risk of recovery and so that's why I like the idea of on fairly pure cost of capital proceeding. That's just looking at the math at the principles of the policy.
Around what's a fair return given the unique risks that utilities are asked to bear in California, given that we are at the leading edge of the clean energy transition.
So anyway, we just see a few rambling thoughts there Julian and Maria and anything you want to clean up or change there.
I think you've captured and Pedro.
And guys. Thank you, but does not take care.
Yeah.
Thank you and that was our last question. So I will now turn the call back to Mr. Sam Rob Mirage.
Well. Thank you for joining and gives everyone. This concludes the conference call and have a good rest of the day and stay safe.
You may now disconnect.
Thanks, everybody.