Q1 2023 Edison International Earnings Call
Good afternoon, and welcome to the Edison International first quarter 2023 financial teleconference. My name is Ted that will be your operator today when we get to the question answer session. If you have a question pushed or wonder phone today's call's being recorded.
I'd now like to turn the call over to Mr. Sam <unk>, Vice President of Investor Relations. Mr. Ramos you may begin your conference.
Thank you Beth and welcome everyone. Our speakers today are president and Chief Executive Officer, Pedro Pizarro and executed 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 Investor Dot Com.
These include a 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 forth.
T SEC filings. Please read these carefully.
Reputation includes <unk>.
Certain outlook assumptions Aspen is a reconciliation of non-GAAP measures to the nearest GAAP measure.
During the question answer session. Please limit yourself to one question and one follow up.
Now I'll turn the call over to Pedro Hey, Thanks, a lot Sam and good afternoon everybody.
Ericsson International's core EPS for first quarter 2023 was $1 <unk> we.
We are pleased with our starts to the year and we are confident and affirming our 2023 core EPS guidance of $4 55 to $4.85. We also remain confident in delivering our long term EPS growth target of 5% to 7% from 2021 to 2025.
Maria will discuss our financial performance and outlook.
My key message today is that we continue to see a number of positives in the near term and in the long term.
And this make us excited for our company's future.
These actions to sustain and strengthen the electric grid mitigate wildfires and enable the carbonization can be electrification are critically needed for California and are increasing our investment opportunity.
In the longer term our pathway 2045 analysis highlights the continued investment in transmission and distribution needed to be bought the grid.
This is being merchandise by regulators in California.
Only a few weeks ago Cal ISO published a draft 2022 through 2023 transmission plan.
With its current thinking on system needs over the next 10 years their draft plan calls for 46 transmission projects with a total estimated cost of $9 $3 billion.
Over $2 billion does that represent proposed incumbent projects for SCE.
And over $5 billion represents FERC order 1000 competitive projects within southern California for which SCE will be able to compete.
In the near term.
CE continuous as diligent execution of its wildfire mitigation plan and how should reduce the probability of losses from catastrophic wildfires by 75% to 80% compared to 2018 levels predominantly from grid hardening measures that allows the utility to mitigate risk while keeping electricity flowing.
To our customers.
I wanted to say, thanks again to the many of you who visited us in person at our headquarters and hurts directly from several of our leaders about the utility of achievements and ongoing actions.
In March SCE filed its 2023 for 2025 W. M P with the office of energy infrastructure safety high.
Highlights of the plan are shown on page three.
Our number one priority remains the safety of the public.
Customers workers and first responders.
In 2023, the utility is building on the work already accomplished while focusing on five key areas.
These are continuing to harden the grid.
Ramping up targeted underground work and severe risk areas.
To reduce P. S. P S impacts expanding aerial fire suppression funding to year round.
And further in technological advancements.
Sce's flagship grid hardening program covered conductor remains a key mitigation measure.
More than 2850 additional miles of covered conductor will be installed between 2023 and 2025.
By the end of 2025, SCE expects to have replaced more than 7200 miles or about three quarters of overhead distribution power lines in high fire risk areas with covered conductor.
<unk> also plans to complete up about 100 miles of underground by 2025 to address the high risk presented by unique factors in certain areas and plans to underground a total of 600 miles by the end of 2028.
Additionally, two quickly suppressed buyers regardless of how they start and protect the communities C shares.
Ability continues to partner with the L. A county Fire Department, Orange County, Fire Authority, and Ventura County Fire Department to expand their firefighting capabilities.
As highlighted in the W. M. P. This supports has been expanded to year round aerial fire suppression from the quick reaction force.
Made up of the worlds largest fire suppression helicopters with unique nights firefighting capabilities.
The WPS adaptive and it's focused on furthering technological advancements to find new ways to mitigate wildfire risk.
SCE is continuously developing new approaches and collaborating with other utilities with academia and with the energy sector to make our community safer.
The W. M P highlights technologies, such as the rapid Earth current limit or early.
Early false detection.
And using artificial intelligence that will continue to advance our suite of wildfire mitigation measures.
Going back to the long term view.
We aren't just talking here about a regulatory policies or long term forecast, we are seeing customers really starts to embrace and adopt evs today.
Including operators of medium and heavy duty vehicle fleets.
SCE was an early mover and today has the country's largest suite of transportation electrification programs led by the industrial and utility.
With over $800 million in approved funding for charge ready programs.
Which include a program aimed at the medium and heavy duty segment.
Momentum and customer interest has certainly increased.
We are beginning to see vehicle availability improvements in the heavy duty segment, whereas more options available to order.
SCE is currently working with nearly 200 sites to potentially support approximately 4000 medium and heavy duty vehicles.
Customers operating heavy duty vehicles are requesting higher power Chargers, resulting in larger load requests that may require additional distribution system upgrades to ensure adequate capacity is available.
Does she continues to engage with these customers to understand when and where these vehicles will materialize to ensure the grid is ready.
Beyond transportation electrification.
<unk> electrification is another critical opportunity to reduce greenhouse gas emissions.
SCE has proposed a $677 million program to help catalyze the adoption of electric heat pumps and that is currently being reviewed by the CPUC.
I will conclude by noting that even if the SCE make substantial investment in the grid to keep the utility and the states on track for the carbonization and electrification efforts.
Portability is always top of mind.
Sce's long standing culture of actively pursuing and maintaining productivity improvement and cost control measures has enabled it to have the lowest system average rate among California investor owned utilities.
Some recent examples include the pending settlement agreement with turn and call advocates to move to a customer funded wildfires self insurance model.
And Sce's operational Excellence program, which includes over 600 employee driven ideas with capital efficiency and O&M benefits.
These include work planning procurement and technology as shown on page four.
Beyond this we.
We will constantly pursue new opportunities for Digitization automation and generative artificial intelligence to drive further improvements in the customer interactions also data quality and back office efficiencies.
The expected benefits should progressively increase actually accelerates implementation through 2024 and beyond.
Further benefiting affordability for Sce's customers with that Maria will provide her financial report.
Thanks, Pedro and good afternoon, everyone.
In my comments today, I will discuss first quarter results, our 2023 EPS guidance, our 2023 financing plan and other financial topics.
Starting with the first quarter of 2023, Yeah, I extra reported core EPS of $1.09.
As you can see from the year over year quarterly variance analysis shown on page five Sce's first quarter earnings increased primarily due to G. R. C attrition your escalation.
This was partially offset by higher net interest expense driven by higher interest rates associated with funding in 2017, and 2018 wildfire claims peanuts.
At <unk> parent and other it was a negative variance of four cents due to higher holding company interest expense.
I would now like to discuss Sce's capital and rate base forecast shown on pages six and seven.
These are consistent with last quarter's disclosure.
S. T E will file its 2025 G. R. C application in mid May and we will update our capital and rate base projections and extend them through 2028 at that time.
Over the coming years, SCE will continue to invest in wildfire mitigation and increase its grid work to meet the needs of its customers. While also supporting California's leading role in building a carbon free economy.
You can see this increased investment again in our projections for 2025 capital spending which is just under $7 billion.
As a point of reference only six years ago, our annual Capex was less than $4 billion.
Let me provide a brief update on the 2017 and 2018 wildfire and mudslide events.
As outlined on page eight in the first quarter SCE resolve about $148 million in it.
Individual plaintiff claims.
This continued progress settling claims enables us to further along in resolving these historical events.
Naturally as we proceed towards full resolution, we continue to gain more and more information.
Each quarter, we take our cumulative experience into account as you find the best estimate.
Consequently, FTE adjusted the best estimate upward by $90 million.
More importantly, with this progress the utility remains confident that it will file the TK them cost recovery application in the third quarter of this year.
Our message is very clear SCE will seek full CPUC cost recovery, excluding amounts were gone under the agreement with the safety enforcement division or already recovered.
SCE will show a strong compelling case, but it operated system prudently and that it is in the public interest to authorize full cost recovery.
Turning to guidance page nine shows our 2023, EPS guidance and the key assumptions for modeling purposes.
We are pleased with our start to the year and are confident in affirming our 2023 core EPS guidance of $4 55 to $4 85 times.
Progress related to the parent company is 2023 financing plan as shown on page 10.
In March we issued $500 million of junior subordinated notes, which provided $250 million of equity content.
The transaction was in line with our expectations and we were pleased to see strong investor support for this offering which was significantly oversubscribed.
We expect to generate approximately $100 million of equity to internal program consistent with the $300 million to $400 million of equity content in our financing plan.
To add another highlight on the financing front just last week SCE closed on its securitization financing for the final portion of the $1 $6 billion in a tens of people or capital expenditures.
S T. He saw very robust investor engagement with the $775 million offering.
This resulted in a cost effective transaction for Sce's customers.
And allow the utilities to repay an outstanding term loan further improving its credit profile.
Please turn to page 11.
In addition to growing investor support we are seeing our strengthening business and credit profile reflected in the rating agencies outlooks.
In February Moodys upgraded E I ask in Sce's credit ratings by one notch, reflecting the decline in wildfire risks facing FTE.
Additionally, last week Fitch upgraded E I ask in Sce's credit ratings by one notch, noting the meaningful decline in major wildfires links to Sce's equipment post 2018.
Fight elevated wildfire activity in California in 2020 in 2021 and ongoing efforts to enhance system resilience, while mitigating reliance on and frequency of public safety power shut off.
Page 12 provides an update on the CPUC cost of capital mechanism.
If the 12 month average of the Moody's double a utility bond index exceeds 537% at the end of September SCE will file a tier two advice letter to implement the adjustment to the 2024 or are we.
The adjustment would be equal to half the difference between the average and 4.37%.
The mechanism also updates the authorized cost of debt and preferred equity.
Through April 25th the measurement period average is around five 7%.
We will continue monitoring the cost of capital mechanism, which could result in significant upside to 2024 earnings should a trader.
Looking ahead, we are reiterating our 5% to 7% EPS growth rate guidance from 2021 through 2025, which translates to 2025 EPS of $5.50 to $5.90.
My management team and I are fully committed to delivering on this target.
We will provide an update on our EPS growth rate projections through 2028 on our Q2 earnings call.
With strong rate base growth is the underlying driver coupled with a significant investment needed in our electric grid, we continue to be optimistic about the companys growth prospects, both near and long term.
That concludes my remarks, Sam Ted.
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 past the opportunity to ask questions.
The floor is now open for questions if you'd like to ask a question press star one on your phone one moment for the first question. Please.
The first question is from Andrew stores and ski with Seaport. Your line is now open.
Hi, Andrew Thank you.
How are you.
Okay. So my first question. So just looking at the settlements of the 2017 in 2018 claims.
So you didn't settle anything more.
Since basically the fourth quarter update.
No. Andrew this is Maria we actually settled about $148 million in additional claims during the quarter. So we have been settling more claims and we report on the amount settled in each quarter. So last quarter the pace of the demand did slow down some.
But it's we're still very well positioned and we will be filing our first cost recovery application in Q3 for the teekay them events.
Okay. Okay, that's fine and then for the the STC DRC application that you'll file in May.
Do you plan to.
You know positive load growth in your filing.
So we won't be filing that in another week and a half or so I think we reported in the last quarter that we're seeing.
Our load growth picking up.
And there are assumptions built into the rate case youll see those when we file it but there are assumptions built into a rate case on load growth, Steve Paul do you want to add anything there.
I guess not.
Not around load growth.
To see in the rate case.
Focus on all the things we need to do on the grid.
Deal with customer demand right now as well as the low growth, we may see from electrification and other things and so that'll be a focus on reliability, including looking at infrastructure replacement that has been ramped down over the last number of years, while we've dealt with.
A lot more wildfire mitigation, so you'll see more wildfire mitigation activities and they're both continuation of our covered conductor program as well as he moves towards some targeted underground in.
Continued adaptation investments and of course dealing with what we projected load growth.
That between now and 2035 is going to be about 2% a year on average so that was that was the right investments in the grid and of course, all with all of it is making sure we're thinking about it from an affordability perspective balancing the needed investments in the grid with the customers' needs for affordability.
Okay and then my last question for Maria So you know given them all of the credit upgrades and then reduction in our wildfire mitigation of wildfire risk.
Have you seen and again I could probably sees myself, but have you seen a meaningful reduction.
In your credit spreads I'm, just wondering if you know everybody else in the industry is actually seeing Roche in their cost of debt are you guys actually seeing some reversal of the of the risk premium that is you know positioning U.
Better versus our peers in the industry.
Sure Angie I think we've for a long time, we've had the reverse right, where there's been a big gap between us and where others in the industry are you sure that with the commission as well we are seeing some improvement I think there's still room for improvement and it's one of the things that we're very focused on over time, but we have seen some benefits from some of these.
Recent upgrades.
Okay. That's that's great. Thank you.
Randy.
Okay.
The next question is from Shar <unk> with Guggenheim Partners. Your line is now open.
Hey, guys.
Good afternoon.
Good afternoon, Pedro you mentioned, the queso transmission plan and sort of that associated capex opportunities in your prepared remarks, just to clarify those have not been assumed in your current 5% to 7% growth guidance and maybe just tying into the Kai so a.
E. B 538 is proposing to kind of expand kai sell into Western art T. O does that put further.
L wins for transmission development there.
Yeah. So on the first part of the question no. Those are not part of our 21% to 25 EPS growth rate.
And in fact, the chances are that those projects would be early in the development process by 20 to 25. So it's early now being identified by the Cal ISO as you know one of the challenges Shar is that.
Today transmission development can take a decade.
Largely because of the approval and permitting and siting processes. So I know we're also looking at the.
The efforts of the federal level and state levels to expedite permitting and sighting.
So that's the those are all new transmission piece on your question about western regional market expansion.
We are monitoring the bell.
We are actually very supportive of the concept of an expanded Cal ISO providing a platform to become a western regional market of.
Of course, the Devil will be in the details and.
We want to make sure that.
That expansion.
If and when it happens and hopefully it will but that it's done with all the right sort of safeguards in place to make sure the right benefits accrue both to California, and other states customers I know you asked whether that go to a tailwind.
I think of it as yet.
It's.
A larger market will provide greater opportunities to minimize the cost of the clean energy transition will allow better sharing of resources across the west and so added score I think the main benefit of it would be to provide a platform to support greater affordability for both California customers.
And customers across the west and.
We mentioned in remarks here.
We are mindful of affordability is something we continue to focus a lot answer anything like your western regional market that helps bring down the cost of the transition.
Good thing that in terms of creating more room.
And our rates are these are men.
<unk> rates or provide a rate room for all the other projects that are important here as to whether you know it wasn't regional market like mean more transmission projects ultimately for us, it's a little harder to tell and I think the main benefit is that a cost reduction for our customers.
Got it and then lastly, obviously you guys just completed your financing plan, but there is somewhat of a cash pay convert market forming several peers have tapped it some don't even need equity.
Your embedded interest cost is over 6%, which is obviously materially higher than this market any kind of interest there in that and could that be sort of accretive to the current plan.
Yes, I'm sorry, it's Maria so the financing we've done to date has been consistent with what we said on our last call that in terms of the total $1 4 billion and the junior subordinated notes were aimed at the equity at the equity content.
And the equity content, we're gonna be addressing through our internal programs. So that's one piece of it in terms of the debt financings that we have to do the balance for the balance of the year, we're going to look at all the different options, we want to be efficient we want to consider all of the costs. You know the all in cost of doing that and take into consideration both the near term, but also had a longer term potential costs.
Associated with that but you know we're going to keep everything on our radar.
Perfect that was it. Thank you guys so much.
Thanks sure.
The next question is from Ryan Levine with Citi. Your line is open.
Hello, everybody.
Follow up on some of the transmission comments or questions in terms of the initial for quarter 1000 transmission projects. When do you think the company is likely to pursue those.
From a timeline standpoint.
Hey, Ryan cutting up a little bit would you mind repeating the question might be a bad phone liners huh.
In terms of the FERC order 1000 transmission lines from a timeline standpoint, when do you think the company is looking to pursue those opportunities.
Yeah. So it really starts with what timeline the Cal ISO follows four.
You know the process.
Finalizing the transmission plan and ultimately taking projects stood a competitive process I don't know that we have a specific time available yet, but Steve are you aware of anything more specific at this point yes.
Yes, I think so.
The draft plan there were four projects identified that would be eligible for competition and they still have to finalize and approved the dry plant.
And then in terms of the bidding windows I believe some of the bidding window start as early as beginning this summer and into the fall so.
The project evaluation bidding is kind of late later this year in terms of ones that are to be going in on those projects.
Okay and then the follow up maybe for Maria if those projects were to be one what how would you look at the financing of the incremental capital given that it's more of a long duration.
Yeah, so when.
When at the bids and wins will finance that we've been able to advance our normal rate based investments Ryan. So we'll do that in the normal course, I think that there will be alive opportunity for us to be able to finance all of it.
Alright, thank you.
Thanks Ryan.
The next question is from Greg oral with UBS. Your line is open.
Hi, Greg.
Yeah, Hi, thank you.
Maybe just a quick one on the.
Heading heat pumps.
Investment and just wondering.
Where you would expect the duration of that program would.
Would be to spend the.
The money so the $677 million.
That wasn't our proposal for that was a.
Five year program.
And then can you just I think it's right for either four or five years for you in that program.
And just to remind you it's we propulsion their Iran. The appointment of a quarter million heat pumps.
We also propose to take about a third of the customers are getting heat pumps.
And upgrading their homes for a broader electrification to make them electrification ready now around 90% of the program is targeted towards residential customers and a good portion of that is targeting low income in disadvantaged communities.
It is still going to the PUC process.
So you know think about four years or so deployment timeline after PUC approval.
Thank you very much.
Thanks.
The next question is from Julien Dumoulin Smith with Bank of America. Your line is open.
Good afternoon Julian.
Hey, Thank you guys very much I appreciate it hey look I wanted to come back to the commentary about the update forthcoming when you maybe.
Do you see mid day, we got this rate base update coming it seemed like in the prepared remarks, you were alluding to a potential extension of the earnings outlook with the second quarter call can you affirm that just think provide us some context as to the parameters that youre thinking there in the base year et cetera.
But more specifically also how you think about maybe the EPS trajectory relative to the rate base that youll release here with mid day.
Those are all great questions Julien, Let me, let me take them from a timing perspective first so when we file the rate case in mid May we will provide an update at that point relative to capital spend and rate base and that'll be through 2028. So that's consistent with the timeline of the general rate case itself on the Q2.
We will then.
Add to that our EPS projections through 2028.
Other questions are really excellent that will bring all of that into play on the Q2 call. So stay tuned.
Yeah.
Got it okay understood and base year, it'll be rolled forward by a couple of years.
So we'll go into all that detail when we get to the Q2 call.
Got it alright excellent well, we will leave it there. Thank you guys. Appreciate it thanks Julien Julien.
And that was the last question I will now turn the call back over to Mr. Shamrock.
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 for your participation you may disconnect at this time.
Yeah.
Okay.
Okay.