Q3 2021 Edison International Earnings Call
Good afternoon, and welcome to the Edison International third quarter 2021 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 <unk>, Vice President of Investor Relations. Mr. <unk> you may begin your conference.
Thank you Michelle and welcome everyone. Our speakers today are president and Chief Executive Officer, Pedro Pizarro, and Executive Vice President and Chief Financial Officer Maria everybody.
Also on the call are other members of the management team.
I would like to mention that we are doing this call that executives in different locations. So please bear with us.
Is it a technical difficulties.
Materials supporting today's call are available at Www Dot Edison Investor <unk> Com. These include our Form 10-Q.
Remarks from Pedro and Maria and the teleconference presentation Tomorrow, 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.
Factors that could cause different results are set forth in our SEC filings. Please read these carefully.
The presentation includes certain outlook assumptions.
Well as the cancellation of non-GAAP measures to the nearest GAAP measure.
During the question and answer session. Please limit yourself to one question and one follow up I will now turn the call over to Pedro.
Well, thank you Sam and before I start commenting on the quarter I wanted to know the senior leadership changes that we announced last week, Kevin Payne SCE, President and CEO wants to retire on December one and this is after 35 years with the company.
Kevin's had a profound impact on the utility most particularly with its customer centric focus with leading our wildfire risk mitigation efforts and advocating for and advancing the company's clean energy strategy.
I am going to Miss my good friend very much I am delighted with our deep bench, Steve Powell will succeed Kevin as President and CEO and Jill Anderson currently senior Vice President of customer service will succeed Steve as EVP of operations promoting.
Promoting Edison gallons will ensure a seamless transition and I believe that Steve and Jill both bring exceptional experience to their new roles I know that a number of you have already met Steven Jill and many of you will have an opportunity to meet them next week at <unk> financial conference as well.
Turning to the quarter today Edison International reported core earnings per share of $1 69, compared to $1 67, a year ago.
This comparison is not meaningful because during the quarter SCE recorded a true up for the final decision in track one of its 2021 general rate case, which is retroactive to January one.
Reflecting the year to date performance and our outlook for the remainder of the year. We are narrowing our 2021 EPS guidance range to $4 40 to two.
To $4 52.
We are also reiterating our longer term EPS growth target of 5% to 7% through 2025.
Maria will discuss our financial performance in detail in her report.
Now starting with past events SCE today announced two updates related to the 2017 and 2018 wildfire and mudslide events.
Page three in the slide deck provides an overall summary.
First SCE revised the best estimate of potential losses $275 billion from $6 2 billion.
As we have mentioned in our continuing communications on this topic, we evaluate the best estimate quarterly as part of the ongoing very complex litigation process. We diligence, we consider new information that arises to provide all of you with our best estimate.
Based on additional information across a broad set of claim types collected during the quarter.
Along with an agreement with the CPUC safety and enforcement division or S. E D, which I'll talk about in a minute.
SCE revised its estimate of the total potential losses.
While the total estimate increased this quarter SCE continues to make meaningful progress settling claims and completed approximately $485 million of settlements.
SCE has now settled about 70% of the estimated exposure for the 2017 and 2018 events.
I want to emphasize that we do not need equity above our previously disclosed 2021 financing plan to fund the higher estimated losses.
Maria will address this topic later on the call.
Secondly, utility reached an agreement with the S E D to resolve its investigations into the 2017, and 2018 wildfire and mudslide events and three other 2017 wildfires.
As we have previously disclosed yesterday has conducted investigations to assess sce's compliance with applicable rules and regulations in areas affected by the Thomas <unk> Stein and Woolsey fires.
It was possible the CPUC would initiate formal enforcement proceedings to pursue fines and penalties for alleged violations, though we were unable to estimate the magnitude or the timing is part of our best estimate.
The recently executed agreement, which is subject to CPUC approval would resolve that uncertainty.
The agreement has a total value of $550 billion.
About $110 million fine $65 million of shareholder funded safety measures and an agreement by SCE to with stripe to seek cost recovery for $375 million of uninsured claims payments out of the $5 2 billion total in the current best estimate.
And the SCB agreement SCE did not admit imprudence negligence or liability with respect to the 2017, and 2018 wildfire and mudslide events and will seek rate recovery of prudently incurred actual losses in excess of available insurance other than for the 375.
$5 million waived under the <unk> agreement.
While SCE disputes a number of the alleged violations.
An agreement puts one additional uncertainty behind us.
Let me now address the southern California wildfire season FTE.
<unk> continues to make solid progress on the execution of its wildfire mitigation plan or W. M. P and it's P. S. P. S action plan.
SCE has installed over 1000 miles of covered conductor year to date, bringing the total to 2500 miles since program inception.
Over the past three years, the utility has replaced about 25% of its overhead distribution power lines in high fire risk areas with covered conductor.
SCE has also performed another annual cycle of inspections in high fire risk areas supplemented with additional inspection star getting dry fuel areas.
This resulted in approximately 195000 assets undergoing 360 degree inspections and Sce's high fire risk area.
SCE also continues to be on track to meet most of its goals outlined in our WMC by end of the year and the scorecard is shown on page four of the slide deck.
All of these ongoing mitigation actions continue to strengthen our confidence in our utilities overall improved risk profile with respect to wildfires.
Turning to page five.
We highlight the metrics. We showed you last quarter, which are proof points of how SCE believes it has reduce wildfire risk for its customers.
We have added an additional metric.
Looking back at past wildfire events and considering the utility's current psb's protocols, we can quantify the damage that would have been prevented.
Using red flag warning days as a proxy for when the utility would use P. S. P. S. Today SCE.
He would have prevented over 90% of the structures damaged or destroyed four fires larger than 1000 acres associated with its infrastructure.
However, we think it is much more important to assess how much total risk SCE has reduced on a forward looking basis.
And we have summarized on page six.
In total considering physical mitigation measures such as covered conductor operational practices, such as removals inspections and vegetation management and the use of P. S. P. S.
<unk> estimates that it has reduced the probability of losses from catastrophic wildfires by 55% to 65% relative to pre 2018 levels.
This is based on a recent analysis using risk management solutions industry, leading wildfire model and Sce's data related to actual mitigation is deployed and mitigation of effectiveness, which enabled us to quantify that risk reduction.
While the risk can never be fully eliminated.
The utility does expect to further reduce risk and to decrease the need for <unk> to achieve this risk reduction with continued grid hardening investments.
As California continues to transition to a clean energy economy, maintaining and even improving system reliability becomes essential, particularly with greater reliance on electricity.
<unk> worked closely with the Governor's office Cal ISO the CPUC customers and many stakeholders to avoid rolling outages. This past summer when the state and the entire west once again face record temperatures.
Major California energy aid agencies, including the Cal ISO California Energy Commission and CPUC has indicated that additional capacity is needed to support summer 2020.
2022, pardon me under extreme conditions like the heat drought and wildfires, we have seen repeatedly over the past several years.
To accelerate construction of new capacity, the governor issued any emergency proclamation that request at the CPUC to work with load serving entities to accelerate construction of energy storage for 2021 and 2022.
To this end in addition, securing over 230 megawatts of additional capacity from third parties SCE plans to construct about 535 megawatts of utility owned storage for this upcoming summer.
This is a material increase in incremental capacity to mitigate the risk of statewide customer outages for summer 2022.
By extreme weather events and continued drought conditions.
While the Governor signed the largest climate package in state history, which included 24 bills and over $15 billion in climate clean energy and wildfire preparedness funding.
There is still an ongoing need for a lot more to be done.
So I would like to highlight a paper that we recently released and its entitled Mind, The gap policies for California's count down to 2030.
This policy paper is Edison International's latest contribution to identify policies and actions needed to help California reduce emissions and decarbonize the economy.
In the paper, we identified state and federal policy recommendations needed for California to meet its 2030 climate target, which is a foundational waypoint for the states to achieve its goal to decarbonize the economy by 2045.
While California has made progress in reducing GHT emissions closing the gap between the current trajectory and it's 2030 goal requires a significant acceleration of efforts.
Means quadrupling the average 1% annual reduction in <unk> emissions achieved by the state since 2006, quadrupling that to four 1% per year between 2021 and 2030.
That's a tall order, but its feasible it will require market transforming policies and incentives to advanced critical areas such as Decarbonising. The power supply preparing the grid for shifts in usage and increasing demands and electrifying transportation and buildings.
As the only all electric industrial owned utility in California SCE.
<unk> is well positioned to lead this transition.
We will continue to work in close partnership with policymakers and stakeholders to identify ways to improve funding planning standard setting and other approaches to successfully achieve the equitable and affordable transition to a clean energy economy.
To emphasize affordability.
Our analysis shows that an electric led transition is the most affordable pathway since the greater efficiency of electric motors and appliances will reduce customers' total cost across all energy commodities by one third by 2045.
Edison International is committed to achieving net zero emissions across scopes, one two and three by 2045 and this covers the power SCE deliveries to customers as well as Edison International's enterprise wide operations, including supply chain.
This all continues our alignment with the broad policies needed to address climate change and ensure our resilient grid.
We will also continue to engage with state national and global leaders to advance the clean energy transition, which is why today I am joining you by phone from cop, 26th in Glasgow, Scotland, Corium, representing both Edison and <unk>.
And with that Maria will provide her financial report.
Thank you Pedro and good afternoon, everyone. My comments today will cover third quarter 2021 results, our capital expenditure and rate base forecast and update on other financial topics.
Edison International reported core earnings of $1 59 per share for the third quarter of 2021, an increase of two cents per share from the same period last year.
As Pedro noted earlier this year over year comparison is not particularly meaningful because SCE recorded a true up for the final decision in its 2021 general rate case, and that's retroactive back to January 1st.
On page seven you can see Sce's key third quarter EPS drivers on the right hand side.
I will highlight the primary contributors to the variance.
To begin SCE receives a final decision in the 2021 GIC during the third quarter.
First and second quarter results were based on 2020 authorized revenue.
With recorded during the quarter for the first six months of 2021.
This is reflected in several line items on the income statement for a net increase in earnings of 35.
The components are lifted in footnote three.
Higher 2021 revenues contributed 55, then including 50 cents related to the 2020 one JRC decision.
Four cents for CPUC revenues related to certain tracking account and one fainted FERC.
O&M had a positive variance in 2018, mainly due to the establishment of the vegetation management and risk management balancing account.
Partially offset by increased wildfire mitigation costs due to the timing of regulatory deferrals in the third quarter of 2020.
Depreciation had a negative variance of 20, primarily driven by higher asset base and a higher depreciation rate, resulting from the 2021 guarantee decision.
Income taxes had a negative variance of 41 times and this includes 39% of lower tax benefits related to balancing account and the JRC true up which are offsetting revenue and have no earnings impact.
Yeah, the ex parent and other the loss per share with ninth month higher than in third quarter 2020.
The primary driver with preferred dividends on the $125 billion of preferred equity issued at the parent in March of this year.
Now, let's move to Sce's capital expenditure and rate base growth forecast.
As shown on page eight we have updated our capital forecast primarily to reflect the recently announced utility owned storage investment.
As Pedro mentioned SCE filed an advice letter for cost recovery of $1 billion of capital spending to construct about 535 megawatts of utility owned storage.
As they are seeking expedited approval of the advice letter to maximize the likelihood of the projects meeting their expected online date for the incremental capacity needed for summer 2022.
These projects are a prime example of the essential role of utilities can play and quickly ensuring California has a safe reliable and clean electricity supply.
We increased our 2022 capital expenditure expenditure forecast by approximately $900 million and lowered the forecast somewhat for 2023 through 2025.
Because these storage projects accelerate some but not all of the capacity, we previously forecast in out years.
The net increase in the high end of the capital forecast for 2021 through 2025 is approximately $500 million.
As shown on page nine we have also updated our rate base forecast to reflect the storage investments I just mentioned.
This is the primary driver of the increase for 2020.
Okay.
For 2020, one we also fine tuned the forecast to reflect adjustments related to wildfire mitigation tracking count following the implementation of the 2021 here I see decision and quarter end estimates of the spending related to these accounts.
The results of these updates as a reduction to the 2021 rate base of $300 million.
Overall these updates result in a projected rate base growth rate of 7% to 9% from 2021% to 2025.
Page 10 provides an update on several major approved and pending applications for recovery of announcing regulatory assets.
This will result in significant incremental cash flow to SCE over the next few years.
SCE expects to collect over one $4 billion in rates between now and 2024 related to already approved applications.
About half of that balance will be recovered in 2022.
For the three pending applications shown in the middle of the slide assuming timely regulatory decisions SCE expects to collect another $844 million by the end of 2023.
Lastly, we show the remaining expected Securitizations of 80 countries before capital expenditure.
The utility recently received a final decision in the second securitization application.
It will allow SCE to securitized $518 million of wildfire mitigation capital expenditures.
SCE expects to complete the securitization in Q4, this year or Q1 2022.
The securitization along with the rate recovery of the other regulatory assets will allow SCE to pay down short term debt and strengthen our balance sheet and credit metrics.
Turning to page 11 during the quarter SCE filed an application to establish the CPUC cost of capital for 2022 through 2024 and reset the cost of capital mechanism.
SCE is requesting an ROE of 10, 53% with resets to its cost of debt and preferred financing, which would keep customer rates unchanged.
Utilities alternative request to maintain its ROE at 10, 3% and reset the cost of debt and preferred would reduce customer rates by about $50 million in 2022.
When SCE filed the cost of capital requested August pause any other filings related to the trigger mechanism.
Last week SCE was directed by the CPUC to file the information they would have normally been provided in those other filings.
The next step from here is that the commission will issue a scoping memo to outline the issues and procedural schedule.
Turning to guidance pages, 12, and 13 show, our 2021 guidance and the preliminary modeling considerations for 2022.
As Pedro mentioned earlier, we are narrowing the 2021 EPS guidance range to $4.42 to $4 52.
Turning to page 14, we see an average need about $250 million of equity content annually through 2025.
Pacific annual amounts will depend on the level of spending within our capital plan for that year.
The significant new investment of $1 billion of utility owned storage considerably accelerates the timing of the capital investment program and increases the overall opportunity as noted earlier.
To fund this growth, which is well above the high end of the capital spending range previously disclosed for next.
Yeah, the equity content securities from 2023 through 2020 by period into 2022.
The 2022 equity needs will be in the range of $300 million to $400 million and we will provide more specifics on the financing plan. When we provide 2022 EPS guidance on our fourth quarter 2021 earnings call.
Additionally, let me reiterate Patriot comment that the SCB agreement, an update to the best estimate of potential losses associated with the 2017, and 2018 wildfire and mudslide events.
Not require equity above the levels previously announced in our 2021 financing plan.
Consistent with our prior disclosure, we plan to issue securities with up to $1 billion of equity content to support investment grade ratings.
In closing I want to underscore the important role that SCE plays and ensuring safety and resiliency.
This can be seen in the ongoing investment in risk, reducing wildfire mitigation as well as utility owned storage to enhance near term reliability.
These investments are indicative of the longer term opportunity associated with meeting customer needs and clean energy objectives and gives us confidence in reiterating our long term EPS growth rate of 5% to 7% for 2021 through 2025.
That concludes my remarks.
Michelle.
Please open.
On the call for questions as a reminder, the risks to the limit yourself to one question and one follow up so prevalent in line has the opportunity to ask questions.
Thank you Sir if you would like to ask a question. Please press star one on your phone one mom and for the first question. Please.
Jeremy Tonet from Jpmorgan you May go ahead Sir.
Hi, good afternoon, and good evening.
Hi, Jeremy.
Okay.
First question here, just wondering how does the safety enforcement Division agreement impact of settlement process for those remaining claims if at all and then do you have any updated thoughts on when you would be able to file for recovery here.
Yeah. So let me take both of those.
We don't really see any impact to the city Sullivan, who will have a b C. D agreement will have on settlement activity.
And importantly, as you heard me say.
We didn't.
Any claims there.
So imprudence or the like.
In terms of timing for cost recovery that continues to be uncertain, because we really need to work our way through.
A substantial portion of the claims in each of the events we could potentially.
Get the Thomas and Kona Eckstein.
So one track and separately on we'll see but I think we need to get through the bulk of the claims in each of the events before we would be able to go filed the PUC and as I've said on prior calls is just really difficult to handicap the timing now where we've made good progress and as I mentioned, we've you know worked their way to something like 70% of the claims.
But it's difficult to handicap when exactly we will complete that process.
Got it that's helpful. And then just wanted to pivot a little bit here and there's a lot of talk about resiliency investment potential I'm just wondering if.
Hi, I guess updated thoughts on what the total opportunity set.
Could look before for capital investments and resiliency investments.
Yeah.
I'd point, you back to the rate.
Rate base.
Forecast we provided.
Five year view.
And say that elements like the storage project that we just announced is supportive of that range with painted so you've heard us reaffirm that view.
When you translate it into earnings or EPS growth and a five 7%.
S growth coming from that.
And so we would view the opportunity set is falling within that range.
The storage project shows you that sometimes so they can be needs that pop up sooner than we might think and.
Ability to step in and take a meaningful action that will help to states with its resiliency and reliability in case that next summer ends up being one with extreme weather just like the last couple of summers have been.
And just one indication that sometimes.
Sometimes you can be called on to take those steps more quickly.
And a large one time like Youll see what the storage project.
But.
You know I would say that we would continue to see the opportunities falling within the range that we provided Maria anything you would say differently, though.
No I think that we have.
Cover the waterfront in that range. Jeremy you know, we think about resiliency from the perspective of additional wildfire mitigation, we think about resiliency from the perspective of storage.
Building electrification, because we know we have to pursue.
Pursue those sorts of investments, we're going to get to those ghd emissions reductions. So I think that that whole range is covered in the in the capital forecast that we've laid out for you.
Got it that's helpful I'll leave it there thanks.
Thanks, Jeremy.
Thank you. Our next caller is sharp <unk> with Guggenheim Partners. You May go ahead Sir.
Hey, guys.
Hey, Charlie Hey, guys, Hey, Treasury Maryann.
Just maybe just bridging today's disclosures to your equity needs. So with the new estimates for the aggregate wildfire liability going up by 1.3, and and the CPUC agreement to not seek recovery of a portion of that.
Just on the reiterated equity of 1 billion is that for the current plan through 'twenty five.
Does the timing of paying out the claims impact that equity and kind of related Pedro why settle now if you feel strong enough about prudence.
Seeking recovery.
Yeah, Let me let me take your last question first and then Maria can fill in on the equity piece.
And I'd refer again to my prepared remarks here.
<unk>.
There.
The LCD has.
Powers and responsibility to do investigations, there's always uncertainty when you go into those processes, there's uncertainty as well in terms of how the CPUC will ultimately.
View.
You know the facts.
<unk>.
As I mentioned don't agree with a number of the claims but we recognize that there's a process heater and.
We believe it was the thoughtful being a prudent thing for us to do too.
Put one more uncertainty behind us.
And we therefore feel that the settlement is.
As a way to do that.
And so that's really the why now an opportunity presented itself to work with the OCD.
And you see the makeup of the pieces here.
We don't see that.
So interfering with our ability to go seek cost recovery for prudently incurred expenses other than for the $375 million that were set aside in the settlement.
And so again, it's frankly all of them.
Understanding that there's a lot of uncertainty and sometimes it's a.
Rational and kind of the right thing to do to.
Do something there you know maybe we might not have agreed with the auto overall and there are different circumstances, but in this case by entering into settlement and working constructively with LCD, we can put that uncertainty behind us.
Do you think the equity tranche.
Sure sure.
We talked a bunch before about our 2021 financing plan and the.
Need to issue up to $1 billion of equity content securities and that was really.
To support the 15% 15 percentage within <unk> to that framework that we have at the company and so as we assess the change in the reserve level, we think that that $1 billion.
Equity content in 2020, one still supports our overall financing framework objective and you know we've been pretty measured in how we approach issuing additional equity or equity content securities.
At the same time SCE and at the same time SCE does issue that can make claims payments. They do you think about <unk> financing plan. That's in support of the metrics and then SCE is cash flow tied to sort of when they issued debt to pay the claim.
At that at that level or at the SEC SCE level. They are basically pacing their financing plan.
Along the same lines as when they make claims payments I think when you think about that.
But the equity requirement that we have for this year, we've already done one point to $5 billion of that.
Preferred financing to get the certain amount of the equity content and we will continue to evaluate market conditions as we can.
Undertake the balance of the program.
Got it got it and then just lastly for me just on thoughts on the Capex and rate base growth from 24 to 25, there is a significant step up in your expectations on slide eight with sort of the range case staying flat from 'twenty. Three what is included in the top end of that Capex on the slide any color on what is covered.
Under the <unk> versus incremental programs like reliability storage spending in 'twenty two.
Sure and you cut out just a tiny bit at the end at least for me, but I think I got your question Shar.
So as you move out in time, obviously in the front end we have authorized.
You know we have the 2021 JRC decision now.
Harking back to the utility on storage you can have things happen even in the near term that increased your capital expenditure opportunities, but as you move out to 'twenty four 'twenty five and there are a few things going on one 'twenty 'twenty four is a year in this rate case cycle that we havent yet gotten authorization for so.
While it might look a lot like the attrition mechanism that's embedded in 2021 and 'twenty two and 'twenty three we do know there are some budget based.
Approaches that we can use for a wildfire mitigation. So it will be focused on that and that can expand the range.
Look out beyond that 2025 is actually new rate case cycle, and so things like ongoing wildfire mitigation, but as we start to get back potentially to more infrastructure replacement and the like that could happen that could drive that.
Wider range that you see in the backend. In addition, there are opportunities potentially to file applications outside of a of.
The general rate case proceedings, and so all the things that I think Pedro mentioned earlier around.
Are there things around a greenhouse gas emissions reductions on the path to 2045 areas around transportation and education are building electrification or more energy storage or transmission. Those are all things that moved the range up and down.
Got it fantastic I appreciate I'll stop there Susan Thanks Shar.
Thank you our next caller is Steve Fleishman with Wolfe you May go ahead Sir.
Hey, Steve.
Hello.
I guess in terms of the reserve for the wildfire claims.
Could you maybe explain.
As best as possible why the number went up and this has happened a couple of times and.
Why are we shouldn't assume it's not going to happen more.
Yeah, Thanks, Steve and I think we covered it had been in the prepared remarks, but it isn't exactly worth doubling down on.
Simply put.
The more.
Claims we go through the more settlements, we do the more we learn.
And I would hope that that uncertainty band continues to narrow.
As I mentioned and we're now a process around 70% of the exposure.
And so.
We have been testing quarterly.
To see whether there are new pieces of information you know more detail in terms of specific claims that are you know.
Waiting down the pipe et cetera that would call for a need to change the reserves.
We did.
Did not need to do that the prior quarter plus we got through this quarter.
We had enough new information in hand that this was the right thing to do the appropriate thing to do under GAAP was true.
The reserve adjustments.
I would.
And as we say in our disclosures right, we're providing you the best estimate.
There is uncertainty around that best estimate M D and we might find the things Paul you've got higher again.
Those things end up lower than this.
But I would hope that as more time goes on and again as we get more of the volume behind Us that picture will you know continue to sharpen.
And that's probably best I can do here, Steve you know and I realize that it would be great. If we could provide you know.
More chapter and verse on what drove it but given the active litigation that we have going on that's challenging to do Maria anything to say differently or.
Adam Newman off if you want to come on the line from a legal perspective feel free.
Okay.
Hey, James covered it.
Thanks.
And so just related question on the SCD.
Settlement portion so on the one hand, you agreed not to seek $375 million.
On the other hand.
That.
Would imply that theoretically you.
How might seek recovery of a lot of the other cost of this.
Which obviously is not assumed in your plan so even though on the surface that seems like a negative as there.
Is it possible to read this is that you still have a.
Claim and potential to seek recovery of these costs.
Yes.
Pretty consistent in saying all along that.
You know our plan and expectation is to.
Seek recovery for prudently incurred costs.
For purposes of striking into settlement and.
Removing this uncertainty we agreed to set aside that $375 million, but.
Importantly.
As I said earlier.
We're not meeting too and Prudence, we're not admitting to negligence were preserving every rights to go.
And seek cost recovery.
I can't tell you today.
Precise figures for which we'll seek recovery.
Because well continue complete investigations I think I said this in prior quarters believe it or not it's still true that believe we still don't have our hands on some pieces of equipment.
Because they are still being held up by it but.
Fire agencies.
And so and that's just as part of the process, but you.
Our expectation is that there are certainly in a number of strong arguments, where we bring you would be able to bring to the table and we'd expect to seek recovery for everything that we believe we should seek recovery for now.
The reason that you're not seeing that.
Level of.
Well I'll say confidence show.
So up in adjusting the reserves to include the assumption of recovery is that since these are 2017, and 2018 events and the only CPUC precedent that exists prior to the time frame of $82 54.
Precedent in the San Diego gas and electric case under GAAP.
We're really not able to assume any CPUC recovery that did you see that we've continued to assume recovery from FERC for the same set of facts.
And so that I think points to.
Our sense that recovery would be appropriate based on the facts.
We can't assure you mentioned the CPUC based on the San Diego gas and electric precedent, because we will plan.
<unk> plans to make our case and we've said before also that we believe for the Cpuc's determination in the San Diego case, we're seeing consistent with what we understood the facts to be in that case.
So while <unk> provides us.
A strengthening of the framework, we do believe that we have the ability to go along to even prior to between 54 to make our case for just and reasonable cost recovery based on facts and we believe will help those facts here.
Great. Thanks, Thank you.
Thanks, Steve.
Thank you Ryan Levine from Citi. You May go ahead Sir.
Hi, everybody I guess during the quarter. It looked like SCE received about $400 million of cash from them are ongoing transmission asset for use of the asset for about 30 years is there any other similar opportunities in the portfolio to raise capital to help offset some of this equity need.
Hi, Ryan its Mike.
So that that actual transaction has been part of the part of that project for many many years and the trigger for it was when the project was completed and became commercial so that was the genesis of that $400 million and you're right. It did happen over the summer.
We built I think we've talked a little bit about this before in terms of just the overall portfolio.
That FTE owns basically you know there really customer assets and so the opportunity to sell a bunch of assets.
Isn't really available to us in the sense that you were talking about I think the.
From time to time people have asked about.
Real estate and the like but there's really not an opportunity in this portfolio.
Thank you and then in the prepared material it was referenced that the settlement process for Wolseley in.
<unk> increased.
Pes, which helped drive the increased estimate, but what's the current outlook from the pace from here for the settlement process.
Well I think that's that's what I touched on earlier right.
Continuing to work really diligently on this but Ryan you know, it's just really hard for us to forecast when we will be substantially complete with it so the.
The good news is as you know.
We've mentioned this in prior calls or so structure processes in place for both the Thomas go next time, and we will see cases does are allowing us to work our way through.
A good volume of these cases every month, but just really difficult to handicap, what that means in terms of ultimate time.
Yeah.
Okay, and then last one as you continue to implement the covered conductor plan you know what.
This thing.
Any improvement in the cost per mile as the plan is implemented.
I think they've been pretty constant around the cost per mile. I mean, it's and we haven't seen big increases, but we haven't seen decreases either I think we actually.
Got it pretty spot on when we made the initial estimates.
I appreciate it thank you.
Alright, Thanks, a lot Ryan.
Thank you. Our next caller is Michael Peterson from Goldman Sachs. You May go ahead.
Hey, guys. Thank you Hey, Pedro.
Just a little bit of a macro question, which is.
You're proposing is you didnt herc covered conductor so your neighbor to the north.
Is proposing kind of a.
Kind of the more of the underground <unk> program.
Anything material different out of <unk> in a while.
Just curious do you think there is a a need for a piece of follow on legislation, where the state develops a formal multiyear may be more multi decade kind of similar to like what Illinois has with gas distribution of what Florida has with storm hardening.
To help kind of think through both the timeline and the pace of investment.
Cost recovery and kind of the broader state strict state strategy in terms of doing things for wildfire mitigation and prevention.
Yes.
Interesting question Michael Thanks.
So I'll give you my quick reaction to that which is I don't think we need legislation for that I I actually say that.
Many ways $82 54 provided the framework for that already right because it set up the whole wildfire mitigation plan process.
We have seen a review by O I S ratification by the CPUC in addition.
The state budget this year included.
A line item for our outside consultant, who is advising the governor's office.
And it's actually working with the utilities.
Frankly, its becoming a good venue for conversation in comparing of notes. In addition to the work that we do interfacing directly with our with our peers at the other utilities, but ultimately I view the wildfire mitigation plan.
<unk> as the place where utilities are breathing.
Updated information.
And you know new ideas about what.
What tools they should be using to prevent fires and then ultimately that feeds into the ramp and GIC processes.
The other reason.
That's my reaction Michael is that.
And this is something that's important in the W. N P framework.
Reality is that each of the utilities are fairly different territories.
From the outside it looks like it's all California rights, but <unk> has 70000 square miles we have 50000, San Diego has a smaller territory, but even if you look at PGD versus ourselves yet and I had mentioned this in prior calls.
The territory for PGE, the high fire risk area territory includes a lot more geography, that's more heavily forested and sales for example for them.
They as we understand it from our discussions with them they see.
A lot higher probability of ignition from trees falling into lines.
Those can be trees, well outside of the vegetation management zone.
The fully screaming zone.
And Edison case.
Much of the high fire risk area.
So it's not forest, it's chaparral its grasslands are theres, a much higher probability of ignition drive the Edison area.
For English.
From contact from objects stuff flowing into the lines.
And so you know that.
It helps give a little bit of insight.
Insight into why for PP&E as they run the math.
I think generally we're all using the same math equation.
But the variables the values of the variables are different right.
And so as they look at the cost benefit analysis for underground English discovered conductor or other tools.
And my understanding is that.
The trees falling in drives a lot of the.
Incremental benefit from underground and in our case.
We see that covered conductor provides significant risk reduction at a much lower all in cost.
Additionally, in Sce's territory since we had already gone through a poll the pole loading program that led to you know pole replacements that means that.
So a lot of our covered conductor installations, we don't have to go out and replace the pole right and so that takes out another cost increments that.
Our utility might have what they need to not only replace the wires, but also replace supposedly here now.
That's a little long winded the bottom line of that is that we have fairly different territories different needs were comparing notes I think we used to have seen fundamental concepts.
But the the values just sticking to the equation leading to different results for each of us, but we're staying connected right and to the extent that.
And unique consumer need to learn more and.
You see different results of underground and we could potentially see more miles come into scope for underground for Edison. So we're certainly continuing to learn there.
Got it thank you Pedro much appreciate it take care.
Yeah, Maria and Michael just one just one more thing since you're asking about it from sort of a macro perspective.
Legislation to help utilities might be something that's already been addressed in Haiti before we do keep an eye on and definitely would.
Support. Additionally, additional legislation that really addresses things like land management, and forest management and home hardening and development in the <unk> because those are things that are going to have to be addressed if we really want to have a long term.
Mitigation to this issue.
It's a great time.
Thank you Maria.
Thank you Jonathan Arnold from vertical research you May go ahead.
Jonathan Good afternoon guys.
Make sure I understand these numbers on the of the accrual correctly.
$550 million settlement.
Now in the past that that part of the increase and the best estimate is that correct.
Yeah. So there there are three components to the 550, Jonathan There is 110 net payments to the general fund and a $65 million of mitigation activity that will undertake and there's that $375 million of forgone.
Sure.
Recovery.
So I should think about the company because we had because we haven't taken sorry, because we haven't taken a regulatory asset against the 375.
That has already been part of our overall cost of the events of 2017 and 2018. So is that part of the seven 5 billion best estimate effectively all of it.
All of it but.
But it is not part of the.
Resolved as it all considered like unresolved perspective is the difference between the 75 and the <unk>.
Well in terms, it's all in that number the 75 in terms of cash flows obviously.
We have different time frames around which we have to make a payment to the general fund and we have to make the mitigation investments. So those cash flow having gone yet I think I think your question that the catalog and my question is if the CPUC approves the settlement.
The $2 2 billion of remaining expected losses effectively go down by.
<unk> hundred 50, because that will now be resolved or at least.
No longer on <unk>.
No. The 2.2 remaining will go down as we make actual cash payments for settlement or payment to the general fund or litigation payments. Okay. So not that it will be kind of a teacher.
Okay.
So just to be really clear the SCD.
<unk> resolved not unresolved.
It's viewed as resolved but.
Okay pending approval is.
Pending approval, but I think for purposes of the 6.2 versus seven five.
Thank you.
Thanks, Jonathan.
Thank you Julien Dumoulin Smith from Bank of America, You May go ahead Sir.
Hey, Julien.
Hey afternoon team. Thank you for the time.
If I can just review the fact pattern here I just want to make sure we're crystal clear about the equity needs here.
And the moving pieces here. So in the remarks, you you specifically called out the 21 financing plan does not require incremental equity and then you also kept intact the incremental equity from 22% to 25 I just wanted to understand how that fits together considering the find peace.
And considering well I'll leave it open ended just can you rehash that quickly.
Sure absolutely and I think doing you know that we've been really measured and the approach that we've taken to issuing additional equity and equity content securities and we've been watching the cash flows and the like and in our 2021 financing plan, we did envision that up to $1 billion of equity content and so as we thought about and assess the change in the reserve less.
We were looking at what we had already announced as part as our 2021 plan and we think that it's still consistent even with the reserve level changing with the objective of.
Improving credit metrics over time with that focus on the 15% to 17%.
Now the equity that we've discussed for next year and that we will discuss in more detail when we get to that.
Q4 call that really relates to sort of how we were thinking about.
The equity needs over the next.
Four years through 2025 related to the growth of the utility and so let's think back a little bit on how that ties together. So previously when you laid out that 'twenty, one 'twenty two 'twenty five EPS CAGR.
We talked to that we talked about the EPS CAGR of 5% to 7% we still.
From I believe that that is the range that we're in and in terms of total equity needs over the period, we talked about up to $250 million a year to some extent varying based on the capital that was needed in that year as we look over that period, while we've got $900 million more capex in 2022.
Which obviously that's in response to customer needs and the statement from a liability and that's on top of an already robust capital plan. We wanted to basically take some of the equity that otherwise otherwise would've turned up in later years and rebalance back to 2022, and that's again in support of our metrics. So you know that's you know that's kind of the balance that we're always trying to strike.
So those are how I think about the pieces of the equity need and how we thought through them.
You know as we develop the plan for the balance of this year and then for next year.
Got it excellent alrighty, well I'll leave it there.
Alright, thanks, Thanks Julien.
Thank you and that was the last question I will now turn the call back over to Mr. Sam Momma's. Thank you Sir.
Well. Thank you for joining US. This concludes our conference call have a good rest of the day and stay safe everyone. You may now disconnect.
Thank you. This concludes today's conference call you May go ahead and disconnect at this time.