Edison International Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 1, 2023

There are 12 speakers on the call.

Operator

Good afternoon, and welcome to the Edison International Third Quarter 2023 Financial Teleconference. My name is Sue, and I will be your operator today. Today's call is being recorded. I would now like to turn the call over to Mr. Sam Ramraj, Vice President of Investor Relations.

Operator

Mr. Ramraj, you may begin your conference.

Speaker 1

Thank you, Sue, and welcome, everyone. Our speakers today are President and Chief Executive Officer, Pedro Pizarro and Executive Vice President and Chief Financial Officer, Maria Rigatti. Also on the call are other members of the management team. Materials supporting today's call are available at www.edisoninvestor.com. These include a Form 10 Q, prepared remarks from Peter and Maria and the teleconference presentation.

Speaker 1

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 results are set forth in our SEC filings. Please read these carefully.

Speaker 1

The presentation includes certain outlook assumptions as well as reconciliation of non GAAP measures to the nearest GAAP measure. I will now Turn the call over to Pedro.

Speaker 2

All right. Thanks, Sam, and good afternoon, everybody. Edison International reported core earnings per share of $1.38 for the Q3 and $3.48 for the 1st 9 months of the year. We are pleased with our performance year to date and Combined with the outlook for the Q4, we are confident in reaffirming our 2023 core EPS guidance range of $4.55 to $4.85 I would also like to reaffirm our ongoing commitment to delivering 5% to 7% Core EPS growth for 2025, which does not factor in several potential upsides. We also reaffirm our EPS growth guidance 5% to 7% for 2025 to 2028.

Speaker 2

My comments today cover 4 key topics. 1st, An update on the legacy wildfires relating to a change in the best estimate. 2nd, how SCE's industry leading wildfire mitigation practices differentiate the company As climate change driven wildfire risk affects utilities across the nation. 3rd, several SCE regulatory updates. And then finally, Edison's updated projections on the dramatic grid expansion required to enable economy wide electrification and the clean energy transition.

Speaker 2

Starting with SCE's legacy wildfires, as shown on Page 3, the process to resolve claims and estimate The final outcome is complex and challenging. And each quarter, SCE evaluates the estimated cost for resolving the remaining claims. The utility has made substantial progress at own claims and moving toward recovering these costs. However, this quarter's evaluation required SCE to increase the best estimate by $475,000,000 driven primarily by settlements being resolved at higher levels than originally estimated and assuming that trend will continue. SCE also now has more refined information about the types of claims being presented as it works through the mediation process.

Speaker 2

The majority, about 2 thirds of the increase, is attributable to Woolsey. The impact of this increase on you, our shareholders, is not lost on us. As shareholders ourselves, we understand the importance of putting this issue behind us. Resolving all outstanding claims is crucial and SCE is firmly committed to completing this in a reasonable and prudent manner that will ultimately support cost recovery. A positive step in this process is that recently a deadline was set for Woolsey claimants in the settlement protocol to notify SCE of their complete claims by February 2024.

Speaker 2

After then, SCE will have increased clarity on the remaining value of claims and the utility's ability to swiftly resolve them. As always, we will continue to update you each quarter, including SCE's expectation for when it will file the cost recovery application for the Woolsey Fire. The Woolsey application will cover more than $4,000,000,000 of eligible claims payments, plus financing and legal costs. We recognize that utilities across the country are facing new challenges from wildfires, which were initially viewed as specific to California, but have expanded to become an international issue. Against this backdrop, SCE has made tremendous progress since 2018, reducing its risk of losses from catastrophic wildfires by 85%.

Speaker 2

SCE has differentiated itself through its multilayered wildfire mitigation strategy. This is anchored by grid hardening and includes enhanced vegetation management, asset inspections and other programs. SCE has replaced more than 5,200 miles of distribution lines with covered conductor. And in fact, by year end, SCE will have physically hardened over 75% of its distribution miles in high fire risk areas. Risk mitigation, the uncovered conductor includes 1 of the largest private weather station networks in the country and enhanced protective settings known as fast With their deep experience and achievements, my SCE colleagues are sharing mitigation strategies with utilities across the country.

Speaker 2

Moving to the regulatory front, I'd like to provide 3 updates. 1st, in August, SCE delivered on its commitment to file its TKM cost recovery application, requesting recovery of $2,400,000,000 SCE provided a compelling case that it prudently designed, managed and operated its equipment and that the associated costs were recently incurred. The evidence provided shows that the damages resulted from extraordinary environmental conditions and other factors beyond SCE's control. Expert testimony estimates that a reasonable decision Could save customers as much as $4,900,000,000 by avoiding excess financing costs for SCE debt issued over the next 10 years, Making it more affordable to achieve economy wide electrification. As for next steps, the commission will issue a scoping memo that will set the procedural schedule.

Speaker 2

2nd, in September, SCE filed an unopposed motion for the CPUC to approve a settlement on track 4 of its 2021 GRC, which sets the revenue requirement for 2024. Reaching this agreement with intervenors is a successful outcome for the utility and its customers, and SCE has sought CPUC approval by the end of the year. Maria will provide additional details in her remarks. 3rd, at the end of September, the cost of capital mechanism triggered resulting in a seventy basis point increase to SCE's return on equity effective January 1, 2024. SCE filed a Tier 2 advice letter on October 13 to implement the update to its ROE along with the cost of debt and preferred equity.

Speaker 2

The response period for intervenors ends tomorrow, through which the CPUC's Energy Division can approve it or refer it to the full CPUC. Consistent with our usual practice, We will provide 2024 earnings guidance on our 4th quarter earnings call. I would like to reiterate that our EPS growth through 2025 is achievable at SCE's currently authorized ROE and this increase is one of the upsides I mentioned earlier in my remarks. I now want to share a recent achievement and recognition of our company's strong corporate governance. The Center For Political Accountability and Zicklin Center For Business Ethics Research recently published their annual index, which is the marquee measurement of corporate political transparency and accountability.

Speaker 2

For the 2nd consecutive year, Edison International received a perfect score and we were recognized as a corporate leader for the 10th consecutive year. I am very proud of our team for this accomplishment and our continued commitment to integrity and transparency. And now putting my current Edison Electric Institute Chair hat on, I am also proud to say that 17 other utilities were also identified as trendsetters, which are S and P 500 Companies with CPA Zipline Index Scores indicating robust disclosure and oversight. Edison has been a thought leader on the clean energy transition for many years and has published numerous white papers about how California can achieve it. In September, we published Countdown to 2,045, our latest analysis.

Speaker 2

This updates the earlier Pathway 2,045 work, reflecting new laws and policies, technology advances and customer adoption, while leveraging the latest modeling in climate science. We conclude that for California to achieve its net zero greenhouse gas emission goals in just over 2 decades, The electric grid must expand faster than ever before to levels higher than we previously estimated. Page 4 shows some top line findings on how the state gets to carbon neutrality. We forecast An 80% increase in electrical demand by 2,045 due in part to 90% of vehicles and 95% of buildings going electric. To serve all this load, the grid will need to expand to handle 3 times the clean energy flowing today.

Speaker 2

This means new transmission and distribution rig projects will need to be added at 4 times and 10 times their historical rates respectively. Importantly though, the average household is going to save about 40% on their overall annual energy expenses by 2,045 due to reduced fossil fuel spending and the greater efficiency of electric vehicles and appliances. This unprecedented Space of grid build out needed to electrify the economy requires bold actions to improve how the state's entire energy infrastructure is At Edison, we are deeply committed to helping California reach its ambitious goal to mitigate the impacts of climate change and sees the set of approaches outlined in Countdown to 2,045 as a model for other states and nations. With that, let me turn it over to Maria for her financial report.

Speaker 3

Thanks, Pedro, and good afternoon, everyone. In my comments today, I will cover 3rd quarter results, discuss our 2023 EPS guidance and provide additional insight into our long term core EPS growth expectations. Starting with Q3 of 2023, EIX reported core EPS of $1.38 As you can see from the year over year quarterly variance analysis shown on Page 5, SDE's 3rd quarter earnings saw a $0.03 decrease. Recall that during this period last year, SCE received a CPUC final decision on its customer service replatform project and recorded a $0.09 true up. This results in an unfavorable year over year comparison for this quarter.

Speaker 3

I will highlight 2 additional key variances. SCE's earnings were driven by an increase in revenue due to the GRC escalation mechanism, partially offset by higher interest At EIX Parent and Other, there was a negative variance of $0.07 primarily due to higher holding company interest expense. Overall, we are pleased with our performance in the 1st 9 months of the year and combined with our outlook for the Q4, we are confident in reaffirming our full year core EPS guidance of $4.55 to $4.85 I'll cover this in more detail in a few minutes. On Page 6, we've updated the capital forecast to incorporate the GRC Track 4 settlement agreement and assumptions about the timing for certain projects. The key message here is that we continue to see $38,000,000,000 to $43,000,000,000 of capital investment opportunity from 2023 through 2028.

Speaker 3

Turning to Page 7. Our capital plan supports approximately 6% to 8% rate base growth from 2023 through 2028. Let me emphasize that SCE is an electric only transmission and distribution focused utility, which benefits from several strong regulatory mechanisms and competitive ROEs. So we see this rate base growth as high quality and lower risk since it is driven by the As outlined in our countdown to 2,045 analysis, unprecedented grid expansion is needed to keep pace with long term system wide resource capacity growth. For a sense of scale, because of the upgrades and additions needed for distribution circuits, substations, transformers and conductors, SCE expects to have a 25% larger distribution system by 2,045.

Speaker 3

This significant expansion in the grid makes us Before I discuss our outlook for 2023 and beyond, I'd like to point out 2 key opportunities we have identified that would add certainty around our future financing needs and financial outlook. First, SCE will be filing an application with the CPUC tomorrow that would allow the utility to monetize its current portfolio of contracts with wireless providers and future contracting opportunities on its transmission infrastructure. The utility currently has more than 8 Leases of space on transmission towers and other structures that wireless providers use to attach their equipment. SCE is making this filing prior to the marketing of these assets to shorten the time line leading to final regulatory approval. The contracts the utility expects to monetize generate nearly $20,000,000 in annual revenue.

Speaker 3

This transaction will financially benefit customers And for shareholders, this is an efficient form of financing that can reduce the need for equity in the future. We will keep you updated as the transaction progresses. 2nd, EIX recently announced a $750,000,000 tender offer for its outstanding preferred stock. This offer would be funded with debt issuances, such as junior subordinated notes or JSNs. By funding the repurchase with JSNs, we will replace the equity content of the preferred stock.

Speaker 3

Overall, the transaction will simultaneously delever the balance sheet and reduce our interest rate exposure. Let me underscore that this every $100,000,000 of preferred stock tendered. In 2026 and beyond, we will have locked in lower after tax financing costs compared to the expected reset rates for the preferred stock. These two opportunities build on our track record of successfully identifying ways to manage the business even more efficiently and executing to create additional value. As shown on Page 8, we are reaffirming our 2023 core EPS guidance range of $4.55 to $4.85 Based on our year to date performance and outlook for the rest of the year, we are confident in delivering on this target.

Speaker 3

Recall that this guidance includes $0.14 related to SCE's 2022 SEMA application. The CPUC recently extended the proceeding statutory deadline to April 2024, but there still is a possibility of a final decision by year end. Together with the tender offer, these two items could put us at the top end of our guidance range. However, if the CEMA final decision occurs in 2024, We will realize those earnings in that year. Page 9 gives you an update on our accomplishments to date in regarding to our 2023 financing plan.

Speaker 3

The financing transaction so far this year have been in line with our expectations and supported by strong investor response. As I mentioned a moment ago, We've opportunistically added a new component to our plan with the tender offer and look forward to executing another successful transaction. On the regulatory front, I'd like to expand on a couple of Pedro's earlier points. First, to provide some detail on GRC TRAC 4, The agreement with intervenors would authorize 98% of SCE's requested revenue requirement and 99% of its requested rate base. The key takeaway here is that once approved by the CPC, the agreement will provide clarity on 20.24 revenue and translate to 0 point incremental rate based EPS over 2023.

Speaker 3

Consistent with our typical practice, we will provide 2024 earnings guidance on our Q4 earnings call. 2nd, as shown on Page 10, the cost of capital mechanism triggered a 70 basis point ROE increase, resulting in 2024 and 2025 CPUC ROEs of 10.75%. This benefits 2025 Yes, by approximately $0.39 The mechanism provides a hedge against future increases in interest rates above the levels embedded in our 2025 guidance of $5.50 to $5.90 In terms of operational drivers, we are to accelerate initiatives that would benefit safety, quality and affordability for customers. This investment would enable the utility to capture savings sooner, thereby providing a strong base for long term customer benefits. I will share more on this front over time.

Speaker 3

I want to reiterate the high confidence we have in our ability to achieve our 20252028 EPS growth targets. In addition to our strong rate base growth, we also see upside opportunities. We are looking forward to delivering our targeted EPS growth, which sets the foundation for an attractive total return proposition. That concludes my remarks. And with that, I'll hand it back to Sam.

Speaker 1

Sue, can you please open the call for questions? As a reminder, we recognize you to limit yourself to one question and one follow-up, So everyone in line has the opportunity to ask questions.

Operator

Thank you. Our first question is from Anthony Crodel with Mizuho. You may go ahead.

Speaker 4

Good afternoon, Pedro. Good afternoon, Maria. Good. Follow-up on the last slide, Maria, Slide 10 or Pedro wants to take it, on the cost of capital. Just first, I mean, you gave some insight into the use of proceeds on the reset.

Speaker 4

Just curious if the Senate Bill 410 Plays into where you would deploy the proceeds? And then also if you go through the procedurally, what happens after November 2nd? And then I have one follow-up.

Speaker 3

Sure. So, maybe let's think a little bit about the $0.39 and the ROE shifts. And I think about it in 2 different ways. And basically, if you think about the cost of capital mechanism, it's really driven by interest rates and it's a mechanism that It's been embedded in the cost of capital proceeding for more than a decade now. And it's Part of the reason part and the reason for that is because we have this 3 year cost of capital cycle.

Speaker 3

And when I think about that driver and I think about the cost of capital mechanism, I have to think about interest And I think about interest rates in 2 different components. There's the 2021 through 2025 period and then the 2025 through 2018 period. And I just want to highlight that the assumption that we've given you around the 2021 through 2025 period, we've said that we're going to finance SCE will finance at a 5.3% interest rate and that EIX will finance at a 6.1% interest rate. And if you look at the plan that we've had for this year and the information that's in the slides, We've actually executed our plan in 2023 right at those levels. In fact, EIX slightly below those levels.

Speaker 3

Then I look forward to the rest of the period between now and 2025. And basically, I think about the cost of capital mechanism as providing a hedge against future increases in So it's one of those really good regulatory constructs that we have here in California that really protects against the kind of very recent volatility that we've seen in rates. And then if I think about the longer term, if I think about 25% to 28%, we've also given you some assumptions around interest rates. We said that SCE was financed at 4.6% And EIX was financed 5%. When I look at that, I look at our normal process, how do we develop those assumptions?

Speaker 3

We basically look to that, we look for longer term fundamental forecast. And yes, those longer term fundamental forecast for more recent vintages, they're higher in the front end. But again, that's captured by the hedge that's provided by the cost of capital mechanism. Longer term, the current vintage, prior vintages, they're actually converging. And so we think that we're still in a good place on a longer term basis.

Speaker 3

Of course, spreads play a role too. And since we first gave you our assumptions Interest rates about a year ago, we've actually seen our spreads narrow, hoping for more of that, but certainly we've seen some benefit in that direction as well. So that's a component of the CCM and how we think about the use of proceeds. I think the other piece that I reference We have a lot of confidence in the operational drivers that we shared with you already. But as we see the CCM trigger, we do want to look at the Opportunities that we might have to deploy some of that and accelerate benefits in our operational excellence program, because You know that we have been working on operational excellence and driving efficiencies for many, many years.

Speaker 3

And it's not a single year effort, It's a multiyear effort. And so as we see opportunities to deploy more initiatives and do that more quickly, we will definitely take a look at it because it basically provides even stronger foundation going forward. So I think those are the different components of the CCM and how we're thinking about it.

Speaker 4

Great. And then post November 2nd, intervenes filed, I guess, tomorrow and then post November 2nd, I guess, do we Wait for comments on the Energy division or just if you just took us through the year end?

Speaker 3

Sure. So Comments are due tomorrow. Tomorrow is the deadline from interveners. Once that deadline is passed, the Energy Division would still consider whether or not they would disposition it, decision or if they would pass it on to the commission. So we will know relatively shortly.

Speaker 3

Remember though that the cost of capital mechanism, it's very formulaic. Yes, there's not a lot of, it's only math in terms of how it would get implemented. So I do think that's an important element of the mechanism.

Speaker 4

Great. And then just lastly, if I went to Slide 3, appreciate the clarity. Is my understanding correct if I think about The additional increase, I think 2 thirds related to Woolsey and by February, I think where the deadline is due for claims, Again, maybe you may change that 6.4, but by February, we should be have much more certainty on the total amount of claims here?

Speaker 2

Yes. That's right Anthony, because that gives a deadline there for filing claims. So that provides a certainty around Yes, the scope here. So looking forward to reaching back the timeline.

Speaker 4

Great. Thanks for all the clarity.

Speaker 2

You bet. Thanks, Anthony.

Operator

Thank you. The next question is from Shar Pourreza with Guggenheim Partners. You may go ahead.

Speaker 5

Hey, Shar. Hey, guys. Hey, Pedro. Just Pedro, just on the monetization of the telecom infrastructure leases, dollars 20,000,000 in revenue and obviously potentially coupling that with the wildfire claims recovery. What timeframe are you embedding in plan to start seeing EPS and credit metric benefits?

Speaker 5

And do the increased claims figures present a drag versus some of the benefits from the equity content of the sale?

Speaker 3

Hey, Shahriar, it's Maria. So I'm going to take that in 2 pieces. So maybe a little bit on our credit metrics. So you know our framework is 15% to 17% FFO to debt. We've laid out our capital plan and our financing plan, including the plan including the $100,000,000 approximately through the DRIP and through the internal programs.

Speaker 3

And we are comfortable that we can hit our targets of the 15% to 17% FFO to debt. Obviously, with additional amounts related to the increase in the reserve and a little bit of Fluctuation in the metrics, but we are comfortable that we will be able to still meet our objectives when it comes to our credit metrics. That of course is related to the recovery the cost recovery applications that we filed. So we've already filed the TKM application. We will file the Woolsey application and we provided some metrics in the slides this time around where for every $1,000,000,000 of cost That's about a 40 to 50 basis point improvement in our credit metrics.

Speaker 3

So it's a very material number. And We're focused on demonstrating our prudency. We're focused on the long term customer benefits that having a good decision will create and we're also focused on the financial benefits and the balance strength that will ensue. So I think that that's all an important element. When it comes to the tower attachment sale, in terms of sort of Timing of what to look at.

Speaker 3

So we're filing our application tomorrow. The reason we're filing it tomorrow is so that we can get a little bit more clarity on precisely What the regulatory process will be, we think we qualify for a somewhat streamlined regulatory approval process. But in the alternative, we just want to get ahead of the time frame. So we are going to align our marketing schedule with the regulatory approval. So we'd like to have the regulatory approval just before we sign any purchase and sale agreement Because that will, of course, reduce uncertainty for everyone.

Speaker 3

And depending on which path the commission goes down, we would expect potentially middle of next year until sometime into 2025 to see transaction close. So that's the sort of time frame we're looking at for that.

Speaker 5

Got it. And the increasing value of the claims, does that present any challenges to the timing of the claims recoveries With the CPC?

Speaker 2

No. I'll say no. Remember, Shar, that in our TKM filing, the cost Recovery application filing, we proposed a procedure for introducing amounts that have been settled after the filing date. And so it's been contemplated there'll be some number of settlements coming in that we'd be doing beyond the numbers that we had initially filed. So The increase in claims are just fit into that final trial procedure that we proposed.

Speaker 5

Okay, perfect. That was good. And then just lastly, you obviously noted 0.39 Upside from the cost of capital mechanisms and the opportunity to sort of deploy it into customer focused CapEx. I guess how long would it take you to deploy the incremental CapEx that the $0.39 of earnings would support? And I guess what mechanisms would you utilize to minimize that lag?

Speaker 5

Thanks guys.

Speaker 3

Yes. So, we would be looking at a whole range of things In terms of deploying that $0.39 and that could range from everywhere from further pushing forward on our initiatives in the field to improve the processes there and so that would allow us to get capital efficiencies as well as O and M efficiencies. We're going to keep looking at other opportunities service and enhancing or improving the customer experience. We also have things that we want to do with support services and places in finance and regulatory affairs as examples. So we're looking at that.

Speaker 3

As I said earlier, For us, operational excellence, cost efficiencies, really driving effectiveness in the business. It's not a single year effort Like we are doing this on a multiyear basis and so we're going to be building on successes that we have next year into 2025. So I think the plan is still developing, but we would expect to see that 'twenty five, 26, 27.

Speaker 5

Okay, perfect. Thank you, guys. I appreciate it.

Speaker 6

Thanks, Bob.

Operator

Thank you. And our next question is from Angie Storozynski with Seaport. You may go ahead.

Speaker 6

Hello. Thanks for letting me ask the question. So the first, again, I mean those wildfire loss These are very substantial. It just almost feels like it's a moving target, right? We're almost in the 9th inning And every other quarter, we have these very big increases.

Speaker 6

It's somewhat surprising, at least from our vantage points, to see it This late into the process, and again, I'm clearly hopeful that by February, we will have a full picture, but it just It feels like there is more of those increases to come. Would you disagree?

Speaker 2

So listen, Angie, you heard it in my comments. We know this is something that our Shareholders are certainly taking notice of and we are too as management and as shareholders. The Reality is that every quarter we test again, we reevaluate and This quarter, a number of factors changed. As I mentioned in my comments, it all adds down or boils down to We're seeing settlements coming in higher than expected. And so that now becomes the new best estimate.

Speaker 2

I think you're right. We're certainly looking forward to February, and at least knowing what the claims finally are going to be for Woolsey. I do want to Caution that that's the deadline for claims filing might still take some time beyond the deadline to get all the details Specific claims and really dig into those. That is a it's a process as you've seen over the last several years. So we'll continue to work at it and our Team is very focused on having a fair outcome as we go through all of this litigation.

Speaker 2

It's going to be Fair to people who were impacted by the fires, but it also has to be fair to our customers. And so we want to make sure that we do it as quickly as we can, But taking the time needed to have a good thoughtful process and be able to demonstrate the prudency of our actions to the PUC.

Speaker 3

Angie, maybe if I could just offer up one more thing, and I think Pedro kind of touched on it in his last comment. It is A process that we have to go through and we have to do an evaluation. The most important part of this process is getting through it and creating the certainty that comes with completion, Because that's when we will be able to fully we have a true up mechanism in the TKM application, but when we're done with all these processes, we'll be able to go and get A final resolution also with the commission. So from our perspective, it's getting through the claims and getting to the claims as we possibly can because that completion will create the certainty.

Speaker 6

Okay. But in the meantime, the total number of claims or financing of claims grows and the cost of capital mechanism doesn't really help me here, right, because those are not Currently eligible for recovery, so the rising interest expense on those isn't trued up. Is that Yes.

Speaker 3

So we will in our cost recovery application, we are going to file for recovery of the interest expense associated with the financing the claims And the other aspect as well is that, we are and just to highlight another couple of numbers for you. We are about 85% With all of our individual plaintiff claims resolutions. So we are moving through the pile, if you will, expeditiously.

Speaker 6

Okay. And then changing topics. So you lowered your rate base projections, Well, 2023, 2024, 20 25. So and you're pointing out obviously upside to what the CapEx and that's rate base mostly beyond 25. So maybe some more details behind that.

Speaker 6

And then secondly, in your guidance, I've noticed Some changes in the components, one of which is the $0.10 increase in the AFUDC just Since last quarter, and if you could just provide more color.

Speaker 3

Sure. And actually, it turns out that your two questions are very much related. So the capital that you're seeing moving around is, particularly in the very near term, it's just a shift in the Utility owned storage project and the timing of those payments. So what you're seeing related to your second question shifts between Rate base earnings and AFUDC on the slide that has modeling considerations. It's really a shift between those two buckets.

Speaker 3

So utility owned storage was in rate base before. Now it's in construction work in progress longer. And so you just see the two Numbers, if you add them back together, they'll be the same as they were last quarter. So that's one piece of it. The other piece that's going on in our capital program is we have shifted One of the transmission projects that we are still going through the permitting process on, but that's just shifted out each year, it's shifted out just 1 year.

Speaker 3

And so you're seeing a little bit of that impact. But that's why overall for the period 2023 through 2028, the capital program is still the same as it was last quarter.

Speaker 6

Okay. Thank you.

Speaker 2

Thanks. Thanks, Angie.

Operator

Thank you. The next question is from Greg Orrill with UBS. You may go ahead.

Speaker 2

Hi, Greg.

Speaker 1

Hi. Sorry for a detail oriented question. Is there a temporary financing for the preferred tender before you get to the potential Subnote Financing?

Speaker 3

So Greg, this is Maria. We can address it in different ways. I think in the offering documents, We note how we will finance, the tender and we can do that either by, a JSN or some other equity content Security, right after the offering, we could have some sort of bridge using some other securities, temporarily. But I think Our objective overall is and then we've made it clear in the offering documents is that we will replace the equity content of the preferred stock.

Speaker 1

Okay. Thank you.

Speaker 2

Thanks, Kurt.

Operator

Thank you. The next question is from Ryan Levine with Citi, you may go ahead.

Speaker 7

Hi, everybody.

Speaker 3

Hi, Ryan.

Speaker 8

Just to clarify One question more for Maria. In terms of clarification of why now for the telecom asset sale? And can you walk through the mechanics of how I think in your remarks you suggested in offsetting to equity content? How does that work and given that the benefits are so hard to go to customers.

Speaker 3

Sure. So a couple of things. So why now? I think we have been and we've gotten questions before about are we looking at different things in our portfolio that might We might consider selling and so we have been doing that. And so the why now is that we've completed our analysis and we think that these are attractive assets that folks who are in this business day in and day out will also find attractive.

Speaker 3

And so that's why that's the why now. I think that when you look at the overall portfolio that we have, the other thing that helps to drive this is that These are good assets. Customers do share in the benefit of this, whether we sell them or not. You'll see in our filing tomorrow that round numbers, you can think about this as 15% of the value is for customers and about 85% of the value is for the company or shareholders. By taking this action Now we actually during a time of affordability concerns and constraints for customers, we'll be able to accelerate those benefits into the near term.

Speaker 3

So another element of the why now. And I think that the comment I just made probably answered the question about what part is for customers and what part is for shareholders. Was there something else in there, Ryan?

Speaker 8

In terms of the I think in your prepared remarks, you suggested kind of offsetting equity. Yes. I think maybe that's a bit

Speaker 2

of 85%.

Speaker 3

Yes. So when you think about our equity program, we've said that it's about $100,000,000 a year or so because we're going to be using our internal programs. As I mentioned earlier, depending on the regulatory path, if the commission goes down, we could see something in middle of 'twenty four, maybe into 2025, at which We can look at the proceeds and determine what that there's an opportunity there to offset some of the equity that we would otherwise issue under our internal program.

Speaker 8

Okay, great. Thanks.

Operator

Thank you. The next question is from Michael Lonergan with Kare, you may go ahead.

Speaker 9

Hi. Thanks for taking my question. There's been some concerns about electric vehicle demand slowing. We recently saw Panasonic cut its battery production. Obviously, there's a high EV adoption rate in your service territory.

Speaker 9

You have an investment program that It supports the load growth associated with EVs. I was wondering if you could share your thoughts on the risks within your planning period whether There could be a slowdown or any color you could provide on that?

Speaker 2

Yes. I'll start and Steve Powell, you might have some additional thoughts on this here. First, you're right. We've seen, I think, really significant pickup of EVs in our territory and really across California. That's continued through the latest reporting period that I saw.

Speaker 2

I know I've seen some broader articles in the press that you're probably referring to as well In terms of could there be a slowdown at a national level, there are a number of things that come together here. And I think one of the important elements is The strong support that there is in the IRA, right, for continuing not only the $7,500 tax credit for new electric vehicles, But also the introduction of the $4,000 used electric vehicle tax credit, which is something that, by the way, Edison really helped advance in Washington Since this patterned after something we had here already in California. So look, I think like with any market, you're going to see ups and downs. And I have to guess that things like higher interest rate environment, making vehicle loans a little more expensive probably puts A bit of a temporary damper on that, but the long term trend, I think, is pretty clear here in terms of the The value of electric vehicles to consumers and the role that EBIT deployment will play in reducing greenhouse gases. I mean, it's really our calendar 2,045 white paper Makes clear how valuable that is for GHG reduction.

Speaker 2

But also I'd just say that you take a look at the total cost of ownership for electric vehicles today, it's already certainly for the lower cost EV models, The total cost of ownership is lower than it is for similar combustion engine vehicles. You asked also about the impact it could have on our infrastructure build out and our planning. And I think right now, we're seeing Significant growth still and that's been baked into our rate case. So we can we're following the customer on this. So Steve, let me turn it over to you in case you have thoughts around Impacts on the distribution system or

Speaker 1

from that growth?

Speaker 10

Sure. So, obviously we've seen significant growth in EV adoption in California over the last number of years. In 2019, about 6% of new vehicle sales were electric. Right now, we're hitting about 25% of new vehicle sales in the state being electric. And so That's we've seen the ramp up and we see that continuing.

Speaker 10

We've been planning for this for quite some time. So in our distribution long term planning forecast, This has been baked into our load forecast, which then feeds our plans around the distribution grid. And that's what informed the plans in our 2025 to 20 20 rate case where a big portion of our load growth program in there is driven from electrification load growth. And so that's what our teams are focused on both not just Planning it out, but then starting to build the circuits and the infrastructure to support it. Aside from the light duty side, we see a lot of growth in our territory from medium and heavy Vehicle charging, particularly in pockets that range from the transportation segments down by the ports all the way out to the warehouses further inland.

Speaker 10

And that's where our teams are really looking at different solutions so that we can meet the demands because those demands come in large chunks and they come quickly. From how do we accelerate the infrastructure development ahead of that demand to temporary bridge solutions in places like mobile batteries and mobile substations that help us get through while we have to build out more circuits and substations to enable it. So the we're certainly able to meet the growth that we're seeing right now and we've planned and planning for the growth that's coming ahead.

Speaker 2

Yes. And I think the last point that Steve made is really critical that innovation in the general rate case include The request for mobile equipment, temporary equipment, is a it's a great step because particularly when we think about medium and heavy duty fleet deployment, That's a technical term here chunkier, right, than when you're looking at passenger vehicles being spread out over Neighborhoods. And so that's where Steve and the team have been working on how to make sure we can meet that led. So Michael maybe more than you wanted, but it's a topic that's near and dear to us.

Speaker 9

Yes, yes,

Speaker 2

of course.

Speaker 9

No, thank you. Thank you very much. I'll see

Speaker 2

you at EEI. Okay, terrific. Thanks.

Operator

Thank you. The next question is from David O'Cao with Morgan Stanley. You may go ahead.

Speaker 2

Hi, David.

Speaker 11

Hey, how are you doing? Thanks so much for taking my questions.

Speaker 2

Good.

Speaker 11

I was just curious to get your perspective On PG and E's rate case, they've had just some challenges getting CapEx and rate base approved in its Rate case, it's not done yet, but just wondering if there's anything you would take away or read across to your GRC as you go forward? Any changes in your your strategy there or any perspectives that might come into play as

Speaker 5

you go through the process?

Speaker 2

Yes, David, thanks for the question. And to give you maybe a quick answer here, I think it starts with Acknowledging that each of these rate cases is very situation specific and company specific. So I know that our colleagues PG and E, for example, have had a big emphasis in their rate case on the amount of undergrounding based on their territory and the fact that they have So much more forest land in our high fire risk areas as compared to SCE, which has more grasslands and The ambitions have been in the past more from elements that can be addressed through a covered conductor. So you've seen us in the 25 to 28 rate case application continue completing the build out of covered conductor with another 2 50 miles per post, Complemented by around 600 miles of undergrounding, very different needs in our territory than in PG and E's territory. So hard to abstract Out strong perils from the PG and E case for ours, given that difference.

Speaker 2

At the same time, there are some elements that are common. In fact, you saw that Southern California Edison filed comments in the PG and E rate case, particularly focused on the topic of the escalation mechanism in there. The fact that the alternative proposed decision relied on essentially a 25% Provided only 25 percent of the escalation requested. That it's Something that we thought needed to be called out and so we provided comments saying that in order to be fully compensatory, rates have to include, right, the Full allowable costs and escalation is an important part of that cost structure. So that's certainly one that we've watched more closely.

Speaker 2

And like I said, our team Intervened in the rate case because it's a topic that will be of common interest across all utilities. But beyond that though, we're just Watching the case and recognize that there's some significant differences in the situations for the 2 companies. Maria, anything you would add?

Speaker 3

Yes. And Just to kind of underscore Pedro's comment about everything is very situation specific and every rate case is different. Even that last example on the escalator, we actually have a different escalation So I think it's like as I said as Stacia said rather, there's really not a read through across to the different general rate cases in our view.

Speaker 11

Got it. Got it. Thanks. I appreciate that perspective. And then also wanted to, let's see, check on the CapEx outlook.

Speaker 11

It was decreased for this year and next year. Was that also related to the storage project?

Speaker 3

Yes. So David, it's entirely well, not entirely, but one piece of it is related to particularly 2023 and 2024, That's related to the schedule around the utility on storage. So more dollars will be spent in 2024 versus 2023. And then the other piece that I mentioned earlier, was that we have some slightly different schedules around one of our transmission a larger transmission projects that we're supposed to start in the very near future that's moved out essentially a year as well. So still all captured within the period through 2028 and we're still at that $38,000,000,000 to $43,000,000,000 of

Speaker 11

Okay, perfect. Thanks for that. I'll pass it on. Appreciate it.

Operator

Thank you. Our next question is from Paul Zimbardo with Bank of America. You may go ahead.

Speaker 7

Hi, good afternoon team. The first one, I just want to clarify something in the prepared remarks Around the track for GRC benefit, you mentioned $0.12 year over year into 2024. Is it correct? That's just a component of kind of what you would expect in terms of like the rate base earnings per share growth?

Speaker 3

That's right. That's the floor. To reflect the rate base map, yes.

Speaker 7

Okay. And then The other just assuming the cost of capital trigger is enforced at $0.39 should we think about it as kind of above the earnings growth Range to 2025, because I think at the midpoint that'd be like $609,000,000 versus the $590,000,000 or should we think about within the range with some of those Reinvestments that you discussed.

Speaker 3

Yes. So, I don't want to sort of recap everything I said earlier, but I'll just take a few points. What I was saying in response, I think it was Anthony who asked the question first off, was that we have the cost of capital mechanism, It's related to interest rates. We have done a really good job, completing our financing plan for 2023, hitting the marks that we have shared with you around our interest rate assumptions. The CCM, again, driven by interest rates, And I'll say the more recent volatility underscores the benefit of the DCM.

Speaker 3

We see that as a hedge against Interest rate movements beyond what's embedded in our forecast going forward. That's a piece of it. 2nd part of it is that we do year in and year out look for opportunities to reduce costs The benefit of the customer and of course, the benefit of our overall operation, we are managing the business every day. If we see an opportunity To accelerate benefits, we have 4 years, 4 or 5 years ahead of us. If we see an opportunity to accelerate lock in benefits So that we can provide an even sure foundation for customer benefit going forward, we are going to do that.

Speaker 3

The plan is in works. And as I said during the prepared remarks, we'll

Speaker 2

And Paul, I would add just more broadly on the cost of capital mechanisms. I think I saw a report of yours Where you had some questions about the mechanism or I think you may have been speculating on potential outcomes. I want to be really clear here. This kind of situation is precisely what this mechanism was built to deal with, right? When we've had The kinds of interest rate movements that have happened here, it's not an extraordinary case in the sense of what the issue we had last year.

Speaker 2

I think it's very much part and parcel of what the mechanism was designed to cover and to provide appropriate cost recovery. So that's why you heard Maria say earlier when she was responding to Anthony's similar question that we would expect this to be a fairly mechanical approach at the CPUC by the Energy Division given that the mechanism is very strong, very clearly articulated and the condition statics is now precisely the conditions

Operator

Thank you. And that was our last question. I will now turn the call back over to Mr. Sam Ramraj.

Speaker 1

Thank you everyone for joining us. This concludes the conference call. Have a good rest of the day. You may now disconnect.

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Earnings Conference Call
Edison International Q3 2023
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