Q1 2022 Edison International Earnings Call
Good afternoon, and welcome to the Edison International first quarter 2022 financial teleconference.
Dexter and I will be your operator today, when we get to the question and answer session. If you have a question. Please press star one.
Today's call is being recorded I would like to now turn the call over to Mr. Sam ROM Raj Vice President of Investor Relations. Mr. <unk> you may begin your conference.
Thank you Dexter and welcome everyone. Our speakers today are president and Chief Executive Officer Pedro Pizarro.
And executive Vice President and Chief Financial Officer Maria regarding also on the call are other members of the management team materials supporting today's call are available at Www Dot Edison invested dot com <unk>.
These include our Form 10-Q.
Prepared 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.
Important factors that could cause different yourselves set for SEC filings.
Please read these carefully.
<unk> includes certain outlook assumptions as.
As well as reconciliation 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.
Thank you Sam.
Edison International reported core earnings per share of $1 seven compared to 79 a year ago.
We are reiterating our 2022 core EPS guidance range of $4 40 to $4 17.
And our longer term EPS growth rate of 5% to 7% through 2025, resulting in core EPS of $5 50 to $5.90.
Maria will discuss our financial performance in her remarks.
Over the last year I've been updating you on SCE substantial reduction of wildfire risk.
Relative to <unk> 2018 levels.
He estimates it has reduced our probability of losses from catastrophic wildfire by 65% to 70% and continued investments will further reduces risk.
When we look across all 17000 circuit miles of distribution lines in Sce's wildfire risk area. The utility's grid hardening measures are focused on the roughly 10000 miles that are above ground with the other 7000 already being underground.
Cornerstone of Sce's grid hardening measures is the wildfire covered conductor program.
A key benefit is how quickly if reduces wildfire risk through.
Through the end of the first quarter SCE has over 3200 miles of covered conductor. This is nearly double what was covered at the same time last year SCE continues to drive this program forward and expects to have covered 40% of its overhead distribution lines or 4000 of its 10000 miles in its high fire risk.
Areas by year end.
The utility continues to adapt and update its wildfire mitigation plan to build on successes and learnings from the field.
Most importantly, sce's WMC is immediately actionable and the execution results and real risk reduction today, and each day that SCE hardens thats great.
In addition, SCE is preparing for this wildfire season by prioritizing its inspections and vegetation management programs.
<unk> focuses its annual inspections on equipment that makes up 97% of total wildfire risks in 2022 and plans to accelerate completion of the vast majority of these inspections before September one.
Today, 166 cameras provide visibility to about 90% of high fire risk areas and Brent installations in 2022 and beyond will increase coverage to nearly all of the utilities HRA to enhance early fire detection.
SCE is increasing installed weather stations by over 10% and using machine learning to further advanced forecasting and target T. Sps EBIT, it's more precisely.
Taken together all of these efforts give SCE confidence in its ability to mitigate wildfires associated with it with its equipment.
Turning to wildfire related settlements.
SCE made substantial progress resolving 2017, and 2018 wildfire and mudslide events Combs.
In the first quarter SCE, we sold over $700 million of claims.
Driven by this progress and given Sce's current assessment of claims.
The utility revised the best estimate of total losses higher by $460 million to a total of $7 9 billion.
I would like to share the two factors that contributed to this revision.
First during the quarter there were a handful of exceptionally large claims that were settled based on new information that became available during settlement negotiations.
Second as the statute of limitations for the Woolsey fire approaches SCE saw a higher than expected increase in the number of plaintiffs making claims.
SCE reviewed its estimate and determined it was appropriate to revise the best estimate.
Which includes new provisions for future potential exceptionally large claims.
In total the utility here was resolved over 80% of its best estimate of expected losses and continues to make steady progress in resolving claims.
I would like to be clear.
At SCE currently expects to seek full CPUC cost recovery of claims payments, excluding amounts recoverable from insurance or foresee or foregone under the agreement with the safety enforcement Division.
A related question we've heard from the investment community is when does <unk> expect to make that pilot.
Well based on the current pace of settlements SCE anticipates filing its first application for cost recovery by late 2023.
I strongly believe that SCE operated at system prudently and we'll make a solid case in its filings.
The considerations SCE will take into account in deciding the timing of its filings are described on page four.
Another action I want to highlight is Sce's recent legal challenge to inverse condemnation and the Thomas in Kazakhstan Prior litigation.
We have mentioned mentioned in past discussions that SCE will always seek opportunities to challenge the doctrine of inverse condemnation.
To that end in April the utility filed a notice of appeal with the California Court of appeals challenging inverse condemnation.
This is like this generally take one to two years to reach a conclusion and we will keep you apprised of any meaningful developments.
On the regulatory front SCE recently filed this application for the 2023 CPUC cost of capital requesting a return on equity of 10, 3%, while maintaining its authorized equity layer at 52%.
As we have outlined since publishing the pathway 2045 vision.
Economy wide electrification as necessary to meet California's policy goals.
SCE will be a key enabler of the clean energy transition and we will invest significant amounts of capital at its infrastructure we.
We believe that Sce's requested ROE will support our tracking of this capital necessary to meet its obligations to provide safe reliable and resilient service and enable the state's climate change adaptation and decarbonization goals.
Separately SCE is awaiting resolution of whether the cost of capital mechanism will operate for 2022, we.
We have summarized sce's outstanding cost of capital applications on page five.
Let me conclude by saying that we strongly believe Edison International is the best investment vehicles to participate in California's clean energy transition.
Sce's approach to wildfire mitigation has shown positive results over the last three wildfire seasons and.
And the utility is expeditiously hardening the grid everyday to the benefit of both our customers and our investors.
As an electric only wires focused utility sce's ongoing investment in the grid will enable an electric future.
By integrating clean resources, while enhancing resilience and broader climate adaptation.
Economy wide electrification is the most affordable path to achieving California's climate goals.
Maria will provide her financial report.
Thank you Pedro and good afternoon. My comments today will cover first quarter 2022 results, our capital expenditure and rate base forecast.
<unk> cost of capital application and 2022 EPS guidance.
Edison International reported core earnings of $1 seven per share for the first quarter.
An increase of 28 cents per share from the same period last year.
Core EPS increased year over year, primarily due to the adoption of the 2021 <unk> final decision in the third quarter of 2021, partially offset by interest expense from increased borrowings.
On page six you can see Sce's key first quarter EPS drivers on the right hand side.
Highlight a few.
Authorized revenue from the 2021 <unk> was higher by 35 for two reasons.
First the escalation mechanism for 2022 contributed 18 cents to the variance.
Second because the SCE did not have a GIC final decision in the first quarter of last year. It was recording revenue at 2020 levels.
This timing difference contributed 17 to year over year Q1 revenue growth.
Other CPUC revenue was 51 cents higher primarily related to the approval of <unk>.
With this approval SCE recognized revenue per cost previously deferred to memo accounts.
Note that this revenue increase was fully offset primarily by the recognition of 46 tenths of O&M, resulting from the track two decision.
At <unk> parent and other core loss was <unk> <unk> higher than the first quarter. This was primarily due to dividends on the preferred equity issued last year.
Now, let's move to Sce's capital expenditure and rate base forecast.
Aged seven shows Sce's updated capital forecast to reflect an upcoming GIC track for application, which will be filed on may 13th.
Trac for covers funding for 2024, which is the third attrition year of Sce's 2021 <unk>.
In addition to requesting a revenue increase driven by the <unk> attrition mechanism in inflation.
He will propose continued deployment of covered conductor beyond the over 5000 miles are expected to be installed by the end of 2023.
I would like to reiterate pedros earlier comment on Sce's wildfire mitigation plan is immediately actionable and the execution of the work, resulting real risk production today and each day that SCE hardens, it's Greg.
As shown on page eight our capital forecast continues to result in projected rate base growth of 79% from 2021 to 2025.
The forecast reflects Sce's current view of the request, we made and GIC track for the 2025 <unk> and other applications.
We continue to see strong potential for SCE to continue deploying capital and achieving 7% to 9% rate base growth through 2025.
Turning to guidance pages, nine and 10 show, our 2022 guidance and the key assumptions for modeling purposes.
Our affirming our 2022 core EPS guidance range of $4 40 to $4 70.
SCE is recording revenue based on its currently authorized cost of capital and will reflect the final decision in the 2022 cost of capital proceeding in the quarter and which has received.
As Pedro mentioned, we are awaiting resolution of whether the cost of capital mechanism will operate for 2022.
After receiving a final decision from the CPUC will provide an update on guidance to incorporate any changes in the ROE and.
And our outlook for the rest of the year.
Also embedded in our guidance of <unk> 2022 financing plan, which we disclosed last quarter and remains unchanged.
The revision to the best estimate of total expected losses does not change our plan.
Also I'll remind you that the claims payments themselves are funded with debt issued by SCE.
I'd like to provide some additional insight into two of Sce's recent applications to the CPUC.
SCE filed a request to extend its CPUC capital structure labor with respect to the 2017 and 2018 wildfire and mudslide events.
You may recall that the CPUC previously approved in labor through the earlier of May 2022, or resolution of the 2017 and 2018 events.
The waiver allows SCE to exclude certain charges and debt when calculating compliance with its 52% authorized CPUC equity ratio.
SCE has requested an extension of the waiver period until the CPUC resolves the last of Sce's cost recovery applications for the 2017 and 2018 events.
The current labor remains in place until the CPUC rules on the recently filed application.
This provides SCE with the flexibility to finance itself in a way that is efficient for customers and shareholders.
Second in Sce's 2023 cost of capital application requested an ROE of 10 five 3%.
<unk> with its recently filed off cycle application.
This are we.
Is that the upper end of the reasonable range estimated by Sce's expert witness.
We believe SCE made strong arguments justifying its request I'll remind you that in Sce's last cost of capital incision. The CPUC concluded Sce's ROE should be at the upper end of the range.
Under Sce's proposed schedule the proceeding will conclude with a final decision by the end of the year.
Turning to page 11, I want to reiterate our growth opportunities that drive strong core earnings growth from 2021 through 2025 and highlight <unk> potential to achieve double digit total shareholder return during that period.
A key component of our total return proposition is our common dividend, which currently yields approximately 4%.
I'm proud of our track record of 18 consecutive years of dividend growth and look forward to building on that history.
Our EPS growth of 5% to 7% is driven by Sce's significant capital expenditure opportunities, including investments in the safety and reliability of the grid.
Sustainable rate base growth results from the investments necessary to reduce wildfire risk and investments to support infrastructure replacement and load growth.
Affordability is also a key consideration and I'd like to emphasize that SCE has the lowest system average rate among California's large ious.
This is in large part driven by our strong culture of excellent cost management that has been a cornerstone of utility for more than a decade.
That concludes my remarks, thank you.
Mr. Please open the call for questions. As a reminder, we request you to limit yourself to one question and one follow up so everyone. In line has the opportunity to ask questions.
If you'd like to ask a question. Please press star one on your phone.
One moment for the first question.
Our first question comes from Shar Teresa.
Guggenheim partner Shar Your line is open.
Hey, guys.
Sure sure.
Please your first sort of in terms of the initial filings coming in 'twenty three it's obviously, it's a great.
Start to a resolution on that obviously implies that you'd be filing multiple times for recovery, how do we plan to separate the tranches as it kind of based on a percentage of value settled just wanted to get some clarity on the process from your standpoint, how long the recovery regulatory recovery could take and if you don't have 90% of.
The claims settled are you still going to file in late 'twenty, three and even why not file even sooner than 'twenty. Two if these are going to be in step functions.
Yes, sure Oh, good parts of the question.
Shared before that we expected the CPUC and <unk> expects to Airbus be substantially complete on any given case before we go file for cost recovery. So and we've also said in the past that we see.
2017, Thomas Codecs time, Mudslides cases is one bundle and the Wuxi case from 2018 as a separate bundles. So I think it would be natural to expect this.
You'll see those as individual cost recovery packages and so we talked about being what we think will need to be at least at least 90% complete is for any one of those.
Packages before we would then go file the application.
Just to make sure our test came across clearly.
Based on the current.
Track and pace would be litigation and settlements.
We would expect that the earliest one build to be about 90% plus level by the end of <unk>. So that hence our expectation will be making a filing in late 2023, but again that is premised on continuing or attract that we bid on them.
If we we don't expect this to be the case, we currently expect to be there.
Late 'twenty 'twenty, three but if something happened.
That significantly delayed us from <unk> off of that track.
I don't know what that would be.
Another round of Covid that really led to shutdowns or something like that but recall that the early period of COVID-19 really both.
A halt on the pace of discussions don't expect that to happen, but is that kind of thing that could bench. So the timing off field late 2023 don't currently expect that to be the case got it and then just I guess the impetus was we're getting questions on because you have 80% already almost resolve it seems like it's quote unquote substantial so why not file sooner.
But I get it.
It makes sense it makes sense Pedro and then just maybe a question for Maria.
Thinking about potentially more cost increases as sort of the incremental 20% gets resolved what's the trigger for more equity back and as we think about the balance sheet capacity sort of where the rating agencies comfortable with the current metrics in their approach you guys are taking how's the dialogue going I guess, what's your sense.
Patients in anticipation of multiple filings for recovery.
Sure, Thanks, Shar and I think.
Generally.
Dancing framework at 15% to 17% <unk> to debt I think where you know approximately at those levels right now I think as we go into next year I would say, we're generally going to be sort of around the middle of that range I think the rating agencies first and foremost are interested in our risk reduction and that's the first order of of any conversation, we have with them and so we've been able to <unk>.
Besides with the rating agencies that 65% to 70% risk reduction because of the hardening of the grid. We continue to talk to them about the strong support we get from $82 54, and so those are all the things that really are part and parcel of our rating agency discussion you know from the comments we've already made today that the change in the best estimate.
Currently is not causing us to change our financing plan, we're still on track with the financing plan, we announced in Q4 for 2022, and if we move forward subject to any changes for the changes in the in the in the estimates really it's going to depend on sort of the timing, where we are et cetera, but since we are in a good spot in our metrics.
I think that that will continue to have constructive conversations with the rating agencies got it thats, what I wanted to sort of get them ready as if there is incremental cost increases you think you have enough cushion in your balance sheet, it or thresholds and not have to hit the equity markets.
That's the impetus.
Yes, so we've laid out our longer term equity plan as well.
That follows our growth in the company and as we move through and into that 15% to 17% range that would just give us more support from the balance sheet. Okay terrific. Thank you guys. So much.
Okay. Thank you sure.
Our next question comes from Steve Fleishman with Wolfe Research Your line is open.
Yes, hi, good afternoon. Thank you.
So just on the.
Excluding chi cases any change.
Maria how long those cases might take.
To adjudicate.
Yes.
Hard to predict in advance I would say first of all it starts with having a strong showing in so we expect that our team will have.
A very strong showing put together.
When we file it as you can imagine the team has been working on that all along.
Once you go into a CPUC proceeding hard to estimate what that would be a typical timeframe for CP you'd CPUC proceedings can be on the short end something very fast maybe 12 months 18 months. So does it going to take a little a little longer. So we'll just have to see.
And it will have a better gauge for how long it might take once we file levels. Once we see what kind of initial set of intervenor reactions are filed.
Okay that makes sense.
That's helpful.
And then just related the estimate change.
This quarter.
You mentioned the exceptionally large.
Range and also the statute of limitations.
Shooting for Wolfgang.
Okay.
Any reason why can't those things happening again I guess.
Is there another statute of limitations on any of the fires still to come.
So for the for the 2017 and Canadian cases, the remaining statute of limitation status. This will see they wanted.
One or two.
To your broader question.
As we go along that uncertainty cone continues to narrow right because we have more settlements under our belt and you heard the 80% number that.
As youll see in their disclosures.
We acknowledge it is possible we may see further changes because the reality is every individual cases different and.
Frankly, there can be.
<unk>, new insights and new kinds of cases et cetera that show up.
In this particular quarter as we mentioned we made great progress Steve.
But frankly, there was a small number of outlier cases.
Where the ultimate claims were significantly larger than what we had expected based on the neighborhood.
And what you would expect for.
An average case in dose.
And sale one thing that you heard me say is that we have now made provisions not only increasing our reserve for what we have seen.
But we also added a provision and the reserve now.
Now expecting some of that previously unexpected based on the experience we had we've added provision for potentially.
Potential other.
Exceedingly large individual claims exceeding what we had initially thought might be an average claim size. So we tried to learn from the continuous information we've gotten make a provision for that.
But at the end of the day under GAAP, we're providing you what we believe is our best estimate at this point in time.
Maybe I'll just add one other thing Steve because I think as we go through our best estimate exercise. It is important we are looking at it every quarter and we will continue it's going to continue to be one of the big areas of management judgment as I think about it I also think about all the things you've accomplished that have brought us to this point, we started with a public entity settlements, we went to the Teekay and subrogation settlements, we went back to the.
We'll be subrogation claims settlement over the course of that time. The attorney General is closed both of the both of the inquiries into Woolsey and T km and just the last quarter Q1, 2022, we did $700 million in settlement. So that's what brought us to this point, where we made the revision, but it's also what prices point in terms of being <unk>.
To highlight by late 2023 going in for a prudency review and filing an application. So I think all of that also factors into sort of how we thought about the quarter and how we're thinking about the go forward.
I think also Maria and basically we keep taking uncertainty off the table.
Great. Thank you for all that color. Thank you.
Thanks Pete.
Our next question comes from Ryan Levine City, Ryan Your line is open.
And good afternoon, hi, everybody.
Two questions, what's the status of the battery supply chain and execution and do you still see the August 1st date is realistic and I guess more broadly how do you viewing resource adequacy going into their mean remaining portion of the year.
Yeah, well I'll kick off on that and actually I can also turn it over to Steve <unk> CEO of the utility.
<unk>.
I think the headline on this is that.
As you know of our escrow to a contractor for the SCE 535 megawatt utility on storage project.
Yes.
We're working with them under the contract.
There have been constraints in terms of the development of the whole supply chain, but you can imagine with conditions in the particularly in China.
We.
We do see the potential for a portion of the project being online by August one but.
Steve Let me turn it over to you to provide some more commentary sure.
So hey, Brian .
Like we talked about for the increased risk of delivery some of that come through in at this point based on the project delays.
We're trying to get work with <unk> to ensure we get as many megawatts online as possible at this point, we expect that there could be up to 300 megawatts online in August .
Subject to continued.
Co bid and shipping restrictions out of China.
The on the ground here at work is progressing.
With respect to the broader.
Broader batteries.
Battery supply chain and really now to your other question around resource adequacy.
As we look at this summer we feel that the state is in a slightly better position than its been the last couple of summers with respect to capacity.
We're definitely focused on bringing our batteries are online and ensure any other projects are getting online for the summer.
But still it's still there'll be a lot of caution going into the summer and Theres a lot of effort going into ensuring we get more resources available as you project beyond this year, we know that states are focused on bringing more than 11000 megawatts of resources online by 2026.
A portion of that is about 4000 megawatts and so we continue to procure resources for 'twenty three 'twenty four and then we will be focused on 25% to 26 next.
We were.
We're working on everything from interconnection to securing supplies and with all of our third parties to ensure that we can get enough resources in the state to ensure reliability and thats sce's job as well as the other load serving entities within the state. So this.
Summary.
We'll be in a better position in the last few summers.
And Steve I will give a lot of credit not only to other load serving entities like us, but the CPUC. The Governor's office I think everybody is very focused on continuing to reduce the risk in California.
Thanks, and if I guess one.
In terms of the cost recovery, if youre going to file that in way twenty-three. How are you currently looking at use of proceeds.
Hey, Ryan It's Maria I mean, obviously, we yeah, we have some.
Upon recovery, we have some delevering Theo SCE has issued a bunch of debt to support the claim payments and <unk> has as well issues, perhaps to support the balance sheet. So when we get through that and we'll figure out what the next steps are with use of proceeds.
Appreciate the color. Thank you.
Thanks, so much for IDEXX.
Our next question comes from Sophie Karp of Keybanc Sophie Your line is open.
Hey, good afternoon.
Thank you for taking my question.
So to follow up on this battery project right sorry, Thank your equity needs for this year were a little higher to accommodate the cost of this project.
Versus kind of like the run rate that you communicated pool other periods.
Should we expect that to sort of come down because of the potential delays with this project so should we.
I would expect that.
Duffy, we still plan to deploy the full capital plan. This year, so it would be no.
No impact on our financing plan.
Got it thank you.
Could you talk a little bit more about the legal challenge to inverse condemnation that you discussed in your prepared remarks I guess.
Question is where should the where could this go with what given the potential outcomes could be the implications for pick up quicker than sort of the final work in this space for now how should we view this help us frame that.
Let me turn this over to Adam <unk>, Our General Counsel survey.
Hey, good afternoon.
So the utility has the opportunity to enter into a settlement with a particular plaintiffs.
We now are able to appeal to an appellate court here in California. The issue of the application of inverse condemnation to investor owned utilities.
And as we said before we think that the existing law is misguided that investor owned utilities should not be strictly liable for damages arising from.
Wildfires that have ignited by their equipment.
And there is an imbalance in the in the way the courts imposed strict liability against investor owned utilities versus the fact that we need to ship, a prudent and cost recovery proceedings with our regulator.
So if we are successful in winning an appeal.
We would no longer be subject to strict liability and a wildfire case, rather plaintiffs would need to show that we were negligent in the construction and operation of our equipment.
To pursue damages that will be a significant improvement in the liability.
Exposure that investor owned utilities have in California.
So would that apply to only like prior cases, wildfire damages or prospectively as well.
It was only applied prospectively.
<unk> matter, we live with the current law that we have for cases that have been settled.
Those would not be reopened.
But for even current cases that have not yet been resolved. If we were to win an appeal that would be new law and that law would apply to pending cases, but the appeal process is likely to take some time.
So I wouldn't expect an immediate.
Answer from an appellate court.
Right. So Q1 would that sort of greatly diminished the need for the problems.
I guess wildfire framework or in the space.
Well there is.
There is a question of what the utilities liability is on the one hand, a separate issue is.
Recovering costs and a wildfire case under a prudence review, which would still happen under APB $10 54.
Yes, I think right.
So if we said another way.
Inverse condemnation really is about the non lawyers speaking here.
That's another avenue for plaintiffs to make cases in surcharges I guess a utility.
<unk> 54 is really about defining the cause of most important part in our view is redefining the prudency framework under which utilities can seek cost recovery for fire damages that have a crude so the utility so doing away with inverse condemnation by the reduce the potentially the exposure for.
Utilities.
<unk> exposure for utility <unk> 54 is all about how the utility of first base for those damages from the first instance, right.
Terms of exits in the fund had been more importantly over time.
The utility makes the case for cost recovery of demonstrating that it's been prudent. So that is important I think in any scenario and we're glad to have that strong piece of legislation.
Alright, thanks for the color.
Yeah, Thanks very much thank you.
Our next question comes from Jonathan Arnold with vertical Research partners. Jonathan Your line is open hi, good.
Afternoon, guys.
Hi, there just a quick one on the larger claims federal Youre talking about.
If I understood you correctly, you had some that you've already seen the much bigger than you thought they would be and then you've also made a provision for potentially others that might come in larger can you give us any more color are these sort of claims you kind of know coming in that you have the claimants.
We identified it's just a question of how big is it going to be or is it more a case of <unk>.
New claims or just popping up.
You might not have.
You had on your radar that I don't know if you can share anything there, yes. So as you might imagine Jonathan I can't share anything about stuff that would be on the radar because that would be active litigation or settlement discussions.
I can give you an illustration.
One one case without getting into any sort of detail. These are for personal property cases alright.
That's by and large where we've seen similar pace.
Larger than expected cases.
So as I mentioned earlier that the way we have developed a best estimate at the persistence was we understand what the neighborhood as we understand what the average value conscious we make provisions for the average value of content and that average phone.
Yeah, not all Hunter average and we know that and I think the average to expand into accounts. So it will be a little higher so it will be a little lower in the case of this last quarter. We saw a handful number of cases that we're exceedingly large and one of them to illustrate it. One example is make sure that pattern.
So okay with my sharing this as I speak but.
There was a case of an individual homeowner who happen to have a very expensive automobile collection in the garage.
Above and beyond what the.
The kinds of cars that people keep in very affluent neighborhoods. This was an exceptional case when you basically had a museum quality collection with lots and lots of cars.
Very hard to predict better French we've got that built in provision for that kind of you know amazing car collection in anybody's garage. When we built the best estimate and sale. The reserve now includes provisions for what we paid and it also has included now provisions four basis.
Sophistical analysis.
Some number and I am now going to be very specific about this show is just because.
We are in active litigation.
We now have included in their provision for some number of additional.
Exceptionally large cases, if the remaining tail that we're that we're working through.
That help illustrate a Jonathan I think Sergio Thank you for that Pedro and if I. If I may just on the tail and how you as my follow up your.
The new best estimate is seven nine you've got one three sort of unresolved and which is actually sort of closer to 85% really in round numbers.
And have you continued to you obviously resolved $700 million in this quarter.
Given what you're saying about timing and the 90% target is it feels like you you must be anticipating a really quite a slowdown in pace of resolution here.
Oh, Yeah, absolutely Jonathan actually Jonathan This is Maria I think I mean, you could see some slow down because obviously is as good as cases progress any people may decide to come in more slowly, but I think that's the thing about a couple of thing, it's 90% plus we'll see what's in that last 10% or so the complexity of those cases that might inform timing regardless of quanta.
There are a couple of other things related to the litigation that we are also tracking one of them is included where the where.
Where the intervenor case around the safety important division settlement stand. So we took a few things related to litigation with the individual plaintiff claims settlement process for sure and a few other things that are going to inform our timing, but we think based on all of those different components that we will be filing for.
Our first application by late 2023.
Thank you for all that.
Yeah. Thanks, Jonathan.
Our next question comes from Michael Lapidus Goldman Sachs. Michael Your line is open Hey, guys. Thank you for taking my question.
Just curious can you remind me your EPS compound growth rate that 5% to 7% annual growth.
That doesn't incorporate any outcome as part of the five 2 billion dollar cost recovery is that right.
That's correct.
So it assumes no recovery it assumes zero recovery. So your rate base growth is still faster than your EPS growth and I assume those proceeds if there were any regardless of how much.
Most people would go to debt reduction and therefore would reduce interest expense.
So yeah, our rate based growth exceeds our earnings growth, partly because of the investment to have that growth.
<unk> financing plan, but also the debt associated with those wildfire claims payments.
Is a drag on the growth rate certainty and to the extent, we get recovery and reduce those and are able to reduce that then we will certainly have lower interest expense.
Got it Okay. That's super Super helpful and just curious when we think about if you were to get proceeds.
Does it all go to kind of pay down debt. That's at the utility or would you think about some being used to pay down.
Any capitalization up top at the holding company level.
Sure well I think we can.
Do a mix of things right. There is definitely in the dollars of the utility <unk> elected to use perhaps last year because it is more flexible. If you think about you know in five years, we'll have an opportunity to call. It reset at what have you said it we can do a mix of things to the extent, we get the recovery.
Got it thanks, guys much appreciated Maria.
Yeah Michael.
Our next question comes from Greg Oral UBS, Greg Your line is open.
Okay. Thank you.
I was wondering.
You covered this I was wondering if you could.
Review the.
<unk>.
Sort of a recovery mechanism, how it gets into rate base.
Incremental covered conductor.
Miles above that 4500 level.
Sure So and GIC track one we were approved we are authorized for covered conductor, including a balancing account that allows us to go up to the 4500 mile level for amounts up above that level, we would file an application and the commission will review the reasonable.
Isn't that we're already contemplating going beyond that the.
The 4500, and when we file our <unk> that we have about 5000 plus by the end of 'twenty. Three so there will be an application associated with that and then in track for which is for 2024, we will be proposing additional covered conductor mild and it will be approved as part of track for.
Okay. Thank you.
Our next question comes from Richard Sutherland J P. Morgan Chase Richard Your line is open.
Hi, good afternoon, and thank you for the time just wanted to circle back to your financing outlook now that carries the late 2023 target on the wildfire liability application for cost recovery.
In that timeframe, meaning from now through late 'twenty three what is your capacity to carry incremental claims.
The associated incremental equity need.
So I think.
But I'll go back to sort of the.
Prospective on our balance sheet right now we're generally in that.
15% to 17% everybody that range is our framework generally around that 15% level going into next year. We would also generally see ourselves moving farther into that into that band or that range.
You know that we've just announced that we had a revision to the estimate and have not had to change our financing plan. We're still committed to the financing plan, we disclosed on the Q4 call as we move into the next year.
Balance sheet gets stronger yet, we'll have more room and more opportunity to absorb anything that might happen.
Absolutely.
Our reiterating our financing plan for 2022, but given all of that fluctuation and volatility in the market. We actually took a term loan out and E IX to give ourselves more time and more flexibility to actually execute on that plan. So we're really focused primarily rich.
Richard on.
Flexibility and you know kind of executing in the best possible way.
Understood So just to be.
Candidly, it's really that 15% to 17% range to keep at it and I guess sort of movements within that range versus say the midpoint is an outlook for now.
That's right I mean that 15% to 17% range is the range and we're going to use the range.
Got it very clear.
And then separately just a cleanup question saw that 2020 for rate base ticked down a little bit for 2025 is unchanged any moving parts to call out behind that that revision.
Yeah. Good question it actually does not have to do with our capital execution as you see our our capital plan is pretty very very close to where it was when we did our Q4, our Q4 call. The change in 2024 is related to I'll say, two very broad buckets, mostly around timing, both timing of applications and timing of when we adjust.
Or get authorization to adjust some working capital items that impact rate base. So youll see that there is a change in 'twenty four 'twenty five hasnt changed.
Great. Thank you for the color.
Our next question comes from Julien Dumoulin Smith from Bank of America Julien Your line is open.
Thank you operator, good afternoon, everyone. Thanks for the time.
So just coming back to where we started the Q&A here can we talk a bit about what the new information during settlement negotiations that led to your desire to settle just can you elaborate to the best extent possible and just what led to that twist here at this point.
Hey, Julien.
So I think I covered it pretty well with Jonathan's question right because that question of went a bit too.
What were some of the extraordinary cases and I think that's related to your question what would have led us to settle.
Cases that we thought were.
<unk> significantly larger than what we might have expected based on our prior analysis. So I'm not sure I have a whole lot to add there just maybe to reiterate the points.
We said this in the past as well Julien.
We are nothing about consistent on these calls and the reality is that each of these cases, it's an individual case. It is case by case by case by case across thousands of cases.
And I give a lot of credit to our team they've done a good job of the internal team with outside support and trying to get our arms around this uncertainty coming from the very beginning and dual mappings of the areas that were impacted and you have a sense of what kind of households are in each neighborhood that was impacted and obviously I was thinking about.
The tragic toll on too many families and so.
Developing a number of estimates that led to the best estimate initially you might recall, we didn't provide you. The best estimate we were only able to provide you a low end of the estimable range. Because we are still at such a large part of the uncertainty cone that we couldnt develop a best estimate as we got more experience under our belts. We progressed they were able to shift to the best.
Estimate.
To be candid about it they've been learnings and surprises along the way and not but.
We're not surprised that there are surprises right with this kind of complex very large case and so you know again going back to what I shared with Jonathan or in response to Jonathan's question.
We saw and as I think the biggest driver of this this quarter was seen.
A small number.
Very large cases.
We're well beyond the scope of what we had anticipated.
Making taking a reserve for those cases that we've now settle taking an additional reserve amount anticipating that we might find more surprises in the rest of the tail. That's remaining and then of course the secondary factors that I mentioned in my prepared remarks was also adjusting for the number of plaintiffs that we're seeing that's above.
That's all the color we can give you at this point Julien, but it's been a I think a area.
Deliberate process on the part of our team around is very methodical and.
It's just a reality.
The statistics.
Frankly, the probability curve across thousands and thousands of cases.
Andrew if I can clarify actually maybe to bifurcate.
From Jonathan's question.
Here are you in addressing sort of the.
The different settling fact pattern in the quarter and maybe that's driving a different estimate, but maybe the nuance here and what's interesting and what's <unk>.
<unk> is why settle right why is that triggering a decision to settle is it simply just understanding what the mark to market is in the bid ask it gets resolved or is there some new information that's driving settlements if you see what it is.
You can distinguish between the two.
Yes.
I think the best way to answer your questions again.
We go case by case, let.
And let me paint an extreme here, we have not come across this one yet but if we saw that there was a particular plaintiff who was.
Making a demand that was so out of left field.
Baffled at the logic of settling I don't think we will settle at that point right. There that might be a case that we would decide to take through to join trial at the end of the day. So I don't think theres any systemic.
Big news or change of saying, we have changed our approach to settlements.
Really have been.
Yeah.
Bottom up case by case decisions around Okay. We understand the fact better in this case, we understand what the arguments we have in our favor we earn.
What arguments might buy less of our favor we have some sense of where our jewelry might end up we have a sense of what the continuing of course are in pursuing all the way to the litigation, which by the way has its own set of cost alright, that's just the legal process.
And then further attorneys' fees and the like and so we continue to make those judgments on a case by case basis there.
Your question is asking is there something else that that you're aware of whether we're aware of or is there something more systemic or something that is influencing how we think about settlement differently from a quarter ago, the answer will be announced.
Does that help with your question Julien.
Yeah, absolutely. Thank you for the time and patience.
[laughter], Thank you Julien.
Sure.
That was our last question I will now turn the call back over to Mr. Sam <unk>.
Well. Thank you for joining us. This concludes the conference call have a good rest of the day and stay safe you may now disconnect.
Yeah.