Edison International Q4 2024 Earnings Call Transcript

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Provided by Quartr
February 27, 2025

There are 14 speakers on the call.

Operator

Good afternoon, and welcome to the Edison International Fourth Quarter twenty twenty four Financial Teleconference. My name is Michelle, and I will be your operator today. When we get to the question and answer session, if you have a question, press star one on your phone. Today's call is being recorded. I would now like to turn the call over to Mr.

Operator

Sam Ramraj, Vice President of Investor Relations. Mr. Ramraj, you may begin your conference.

Speaker 1

Thank you, Michelle, and welcome, everyone. Our speakers today are President and Chief Executive Officer, Pedro Pizarro and Executive Vice President and Chief Financial Officer, Maria Regati. 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 ks prepared to Marshall, Pedro and Maria and the teleconference presentation.

Speaker 1

Tomorrow, we will distribute our regular business update presentation. During this call, we'll 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. 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.

Speaker 2

Thanks a lot, Sam, and good afternoon, everyone. Let me start by saying that our hearts continue to be with everyone who's been impacted by the recent Southern California wildfires, including our own AT and T members who lost their homes. We are so grateful for the first responders, our colleagues and all the community partners who have begun the long recovery process. Edison's number one value and priority remains safety, and that means the safety of the public, safety of our customers and the safety of our team members. SCE continues to make tremendous progress as it works diligently on reconstruction after the Eaton and Palisades fires.

Speaker 2

Turning to the Eaton fire, its cost remains undetermined and the investigation continues and is complex. SCE is examining the available evidence to help determine potential causes of ignition, including the possibility of being linked to SCE's equipment. Engineers, photogrammetrists, meteorologists and other experts are reviewing images, videos and other information as part of this review. We anticipate the full investigation will take several months or longer to complete and there isn't a discrete timeline for the county or SCE to complete their respective investigations. For example, one valuable next step involves further examination and testing of the idle transmission line near the reported point of origin to examine the equipment for things like arc marks or missing metal, but this may still take many weeks as it requires agreeing on a protocol with plaintiff's attorneys and other interested stakeholders.

Speaker 2

We are committed to being transparent throughout this process. While this investigation is ongoing, we believe that SCE is a reasonable operator of its electric system. Importantly, the Commission has recognized in numerous decisions that the prudent standard does not demand perfection. We believe that prudence derives from the soundness of the utility's decision making process and whether its overall policies and systems and practices are consistent with actions of a reasonable utility. And there is CPUC precedent supporting our interpretation.

Speaker 2

If it is determined that SCE's transmission equipment was associated with the ignition of the Eaton Fire, Based on the information we have reviewed thus far, we are confident that SCE would make a good faith showing that its conduct with respect to its transmission facilities in the Eaton Canyon area was written into statute by AB1054. Page three provides a number of helpful links that pertain to information about SCE's wildfire mitigation, company disclosures, legislation and other resources. The catastrophic impact of the recent wildfires underscores the importance of grid resiliency and the actions SCE has taken to harden its system to support the communities it serves. SCE continues to execute its robust, risk prioritized wildfire mitigation plan, which is approved by California's Office of Energy Infrastructure Safety and ratified by the CPUC. This has significantly bolstered efforts to protect against wildfire threats and to respond when they happen.

Speaker 2

SCE has now installed more than 6,400 miles of covered conductor and has hardened nearly 90% of its distribution lines in high fire risk area. This is in addition to significant investments in operational measures in transmission and distribution, such as vegetation management and the extensive network of weather stations and high definition AI enabled wildfire cameras that provide greater situational awareness for SCE and fire agencies. We will continue to invest in SCE's important work to make its system safer for its customers and communities. On the regulatory framework, SCE has received timely approval of its safety certification each year, which provides a presumption of prudency and a cap on the liability to reimburse the wildfire fund. We have confidence in the fund and we believe it is working as intended to protect wildfire victims, customers and investors.

Speaker 2

The fund has $21,000,000,000 of claim paying capacity and has largely been unused by California IOUs. Let me also emphasize that the Fund provides liquidity for paying claims. Thus, in the event a utility were to need to make claims payments, it would not have to use its balance sheet. Turning to the legislative front, California has consistently demonstrated a strong commitment to supporting customers and the investor owned utilities that serve them. Over my own twenty five year career at Edison, I have personally witnessed the state's leadership during challenging times from the energy crisis in the early 2000s to the urgent need to develop new generation resources in the mid-2000s, managing to the financial crisis in 02/2008, dealing with natural gas spikes in the mid-2010s and guiding the state through the COVID pandemic.

Speaker 2

Importantly, Governor Newsom led the charge in 2019 along with his colleagues in the legislature to pass and implement AB ten fifty four and that is the model among all states to address wildfire risk. If we conclude SCE's equipment ignited the Ethan fire, which was then fanned by hurricane force winds in spite of firefighters' best efforts. This catastrophe is precisely what AB ten fifty four was designed to address recognizing wildfire risk will never be zero. This legislation reshaped the regulatory and financial landscape by balancing wildfire cost recovery with utility accountability and customer protections. Multiple stakeholders benefit and I want to focus on three broad areas.

Speaker 2

First, customer and community safety benefit from the risk reduction achieved through the WMP and safety certification process. Second, communities that suffer losses related to wildfires associated with utility equipment have a funding source for claims payments. And third, investor owned utilities that participate in the Fund benefit from a structure that provides liquidity for claims payments, a clear prudence standard and a liability cap, all of which support financial stability and long term investment in the grid at the most affordable cost to customers. The magnitude of the recent wildfires has brought the long term durability of the Fund into focus. We have been actively engaged in conversations with key stakeholders, including other utilities, the governor's office and legislative leaders to find solutions to support the safety of the community, effectively manage customer costs and reinforce investor confidence in California's utilities.

Speaker 2

We are confident policymakers will make the enhancements needed to strengthen the industry leading AB1054 regulatory framework. Before moving on to our financial results, I'd like to note an addition to our Board of Directors that was announced last week. Former U. S. Secretary of Energy, Jennifer Granholm, will join the Board of Directors of both EIX and SCE.

Speaker 2

Jennifer has deep expertise in energy technology, energy policy, safety and sustainability. We are thrilled that she is joining our boards and we look forward to the guidance she will provide based on her understanding of the technical and political and economic forces shaping our industry today. I know Jennifer has many organizations seeking her time, so I appreciate her vote of confidence in our company's strong future. For 2024, Edison International's core EPS of $4.93 was above the midpoint of our guidance. This extends our track record of meeting or exceeding annual EPS guidance over the last two decades.

Speaker 2

Additionally, we remain confident in our ability to meet our 2025 EPS guidance and deliver a 5% to 7% core EPS CAGR through 2028. Maria will discuss our financial performance and outlook later. Further, today, the Board declared EIX's first quarter twenty twenty five common stock dividend of $0.8275 per share. Consistent with this regular process, the Board took into account a broad range of considerations and scenarios before making this declaration. There is no change to our current dividend policy or outlook, and this balances a competitive dividend that investors expect with reinvesting SCE's earnings back into the infrastructure that serves customers' needs.

Speaker 2

This consistent and growing dividend demonstrates the confidence in our financial outlook, which supports raising cost effective capital and directly benefits customer rates. On the regulatory front, we are very encouraged by the CPUC's unanimous approval of the TKM settlement agreement, allowing FCE to recover about $1,600,000,000 or 60% of the wildfire claims payments and associated costs for a pre AB1054 wildfire. Approval of the settlement signals a constructive cost recovery framework in California. In fact, following approval, CPUC President Reynolds made important remarks about cost recovery and AB ten fifty four. She noted how under state law SCE, like public entities, is liable for damages from a fire caused by its electrical system, but if the utility acted prudently, these costs are covered by customers.

Speaker 2

She also noted that because of AB1054, in the future, the wildfire fund would cover claims similar to those in TKM. SCE expects to file its TKM securitization application in March. The Woolsey cost recovery proceeding is underway. Based on the pre hearing conference, participating interveners noted similar areas of focus and engagement to those in TKM. If the ALJ adopts a schedule SCE and intervenors jointly proposed, the next major filings to watch for are intervenor testimony due in early June and rebuttal testimony due in mid July.

Speaker 2

The proposed schedule also includes a motion for approval of a settlement agreement or joint statement of stipulations of issues that will be due in mid August. Just like with TKM, the utility is open to settlement discussions if a fair and reasonable outcome can be achieved. And we look forward to keeping you updated on progress in this important proceeding. Okay. I'm going to conclude by saying that SCE is focused on partnering with impacted communities on near and long term strategies to build back stronger, all while we continue to execute on core operations and deliver on the commitments we have laid out for you.

Speaker 2

I look forward to sharing more updates throughout the year. With that, Maria, turn over to you for your financial report.

Speaker 3

Thanks, Pedro. Before I turn to our financial results, I also want to take a moment to recognize the tireless efforts of our team to manage the response to the Southern California wildfires. Our management team is grateful for our colleagues who have come together to restore power and help customers recover. So now turning to my comments for today, I will discuss fourth quarter and full year 2024 results, our focus areas for 2025, SCE's capital and rate base forecasts and 2025 guidance. For the fourth quarter, EIX reported core EPS of $1.05 Full year 2024 core EPS of $4.93 was above the midpoint of our guidance range.

Speaker 3

Pages six and seven provide the year over year variance analysis and additional color can be found in our earnings news release. This strong performance demonstrates our ability to manage the business and extends our track record of meeting annual EPS guidance over the last two decades as shown on Page eight. Delivering strong financial results was just one accomplishment and another year of strong execution in 2024, as shown on Page nine. SCE also continued its progress in hardening the grid and making its system safer for customers by installing over 800 miles of covered conductor, bringing total deployment to more than 6,400 miles. On the regulatory front, we were pleased to see a number of positive developments.

Speaker 3

First, the timely settlement of PKM, which Pedro addressed earlier. Second, the utility reached substantial completion of resolving claims for Woolsey and filed the cost recovery application. Third, the CPUC issued a final decision in the 2022 FEMA proceeding, which contributed $0.14 to 2024 EPS. Fourth, the utility continued its strong advocacy in the twenty twenty five GRC and and settled numerous issues with intervenors. Lastly, reflecting the confidence and commitment to achieving our long term EPS growth target, in December, we raised the dividend by 6.1%, which is the twenty first consecutive annual increase.

Speaker 3

Page 10 summarizes the key management focus areas for 2025. Supporting the people and communities affected by wildfires is front and center. Rebuilding and emerging stronger by restoring infrastructure and bringing power back to those areas is critical. SCE will also continue its wildfire mitigation work and its focus on operational excellence to reduce costs for customers. There will also be additional progress on the regulatory front.

Speaker 3

This year, we expect SCE will receive decisions on its 2025 general rate case, its WMCE filing and its cost of capital application for 2026 through 2028. Additionally, the utility will be filing an application for its next gen ERP program. SCE will also continue its progress towards resolving the Woolsey cost recovery proceeding. Let's now turn to SCE's capital and rate based forecasts shown on Pages eleven, twelve and thirteen. The 2025 GRC is the core driver of the outlook through 2028.

Speaker 3

SCE's capital plan is focused on replacing aging infrastructure to support reliability and safety for customers, continuing grid hardening investments to mitigate risk and enhance resiliency, and expanding the grid to make the system ready for load growth today and in the future as customers increase their electricity usage. I would also like to highlight several additional capital deployment opportunities that support customer needs over the coming years, which we have discussed in the past and are not yet included in the plan. SCE has refined estimates for these projects, resulting in an increase of at least $1,000,000,000 to these opportunities. One such investment is the next gen ERP project I just mentioned. Later this year, the utility also plans to file an application for an advanced metering infrastructure program

Speaker 4

to replace

Speaker 3

and upgrade the first generation of smart meters, which are at the end of their useful lives. We also anticipate additional system needs on the distribution grid, including for system restoration and expansion. Further, SCE has more than $2,000,000,000 of FERC transmission projects in development. Moving to SCE's twenty twenty five GRC, the utility is awaiting a proposed decision from the ALJ. We remain optimistic that we could see a proposed decision during the first half of the year.

Speaker 3

To reiterate our previous comments, SCE made a compelling case. And even based on intervenors' positions, SCE's rate based growth would still be in line with its range case forecast of 6%. Once SCE gets a final decision from the CPC on the GRC, we will refresh our capital plan, financing plan, 2025 EPS guidance and EPS growth forecast. Turning to EPS guidance. Page 14 shows our 2025 core EPS guidance and modeling considerations.

Speaker 3

You will see that we have revised the guidance range. This is simply our prior range of 5.5 to $5.9 plus the incremental $0.44 associated with the recently approved TKM settlement. As we have discussed before, those $0.44 are composed of a $0.3 1 time true for historical interest expense and the $0.14 annual reduction in unrecoverable interest expense. While SCE waits for the GRC decision, I want to remind you that we will be recording revenue at twenty twenty four rates adjusted for the change in ROE. Therefore, quarterly results comparisons pending a 2025 GRC decision are not meaningful.

Speaker 3

We will record a true up when we receive a final decision. SCE has established a memo account to track the differences in revenue until it receives a final decision, which will be retroactive to January 1. I'll touch briefly on the parent financing plan. This year, EIX has $800,000,000 of debt maturities, a portion of which were pre funded through a debt offering last December. Moving to our longer term outlook on Page 15, you will see that we have also incorporated the benefit from the 0.14 interest expense reduction resulting from the TKM settlement into the $20.28 EPS range.

Speaker 3

Given that this annual interest reduction will be ongoing and is part of our base year, we are maintaining our target of 5% to 7% core EPS growth off a higher base of $5.84 While the cause of the Eaton Fire remains under investigation and we are not speculating on potential outcomes, AB1054 was enacted to ensure the financial stability of California's utilities in scenarios like this. The supportive regulatory framework and processes established by this legislation ensure that no utility would have to use its balance sheet while accessing the wildfire funds to make claims payments. Additionally, the potential liability to reimburse the fund is capped. Lastly, the prudency standard means a utility is presumed to be a prudent manager if it has a safety certification, which SCE has. Given these factors and the supportive regulatory framework, we remain confident in our financial outlook as we continue to support wildfire response, recovery and efforts to rebuild.

Speaker 3

SCE's core operations and the central role it plays in the clean energy transition remain the driving force behind our core earnings growth. That concludes my remarks. Back to you, Sam.

Speaker 1

Michelle, 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.

Operator

Thank you. Nick Campanella from Barclays, you may go ahead.

Speaker 5

Hey, this is Nick. Thanks for getting me on. So obviously, there's just been a lot of questions in the case that if equipment was involved with this fire, what the impact of the wildfire fund would be. And I appreciate it's early, but the 10 K does mention you've had several lawsuits already. And just do you have any indication about what the number would be for damages from a starting point?

Speaker 5

Or if you don't, when do you expect to know? Thank you.

Speaker 2

Nick, thanks very much for the question. And short answer is just way too early. First, we need to conclude determining whether our equipment was indeed involved. And then beyond that, there would be a process for determining what potential liabilities could be. And really hard to handicap timing.

Speaker 2

Maybe this will answer some of other questions that may come up. But for example, you might recall that in previous fires, it's taken twelve to eighteen months even to get an investigation report from official fire authorities that might help one conclude make conclusions. The establishment of viability really depends on on the filing of legal actions by plaintiffs and those can take some time. So it could be quite a while before there's a sense of what even a low end of a range might be.

Speaker 5

Understood. Thank you. And then just I know you're working towards legislative solutions this coming session and obviously

Speaker 6

this is

Speaker 5

a wider issue for the state to tackle as a whole here and there's going to be a lot of different interests at stake. Just how would you kind of frame the current policy environment and the conversations you've had with people and whether those conversations have been constructive in terms of having a solution here at the August? And maybe you can be more specific about what you think would be most helpful, whether it's an increase to the wildfire fund itself or some type of strengthening of a liquidity backstop? That's what I have. Thank you.

Speaker 2

Yes. Thanks, Nick. And certainly understand the questions. Let me just start by saying it's very early days. As you you can imagine, we're still the SE team is still very engaged in the main focus, which is helping the community be safe and rebuild back stronger.

Speaker 2

I will also say though that when I compare this to the activity that we had going back to 2018 and 2019 as the state developed SB901 and then AB1054, We are fortunately at a very different starting point. There is, I believe, strong understanding by policymakers of the importance of having financially healthy utilities to support the state's economy. And that's keeping the lights on, powering the economy, but it's also helping advance the state's goals for the clean energy transition. And so there's that underpinning of understanding the importance of financial health for companies like ours and our peers that's a really important starting point that we can so it's something we I think required more development back in 2018. Beyond that, you're seeing commitment to look into the issues.

Speaker 2

We really appreciate that the government a governor has retained Ann Patterson in his office. He was just a very thoughtful person to be the point leader for the governor's office on wildfire issues. We understand that the administration has now engaged Guggenheim to provide financial analysis support, which they provided a financial advisory service back during the crafting of AB1054. As I mentioned, we're already in discussions with legislative leaders who I think generally understand that more needs to be done here. And I think you also mentioned, Nick, that it's a broad set of issues here and frankly, I'm not smart enough to know standing here today or sitting here today what's the best path.

Speaker 2

And frankly, we'll be looking to the governor and his team for their leadership and what's the best approach is here. But we certainly will be advocating for near term solutions as multiple levers that you could imagine to helping enforce the strength of the AB1054 framework. Lots of different levers that could be pulled, but we'll be engaged with them and I'm taking a lot of comfort from the fact that they in turn are engaged deploying the right resources against the issue. Thanks for

Speaker 5

all your thoughts there.

Operator

Thank you. Our next caller is Michael Lonergan with Evercore. You may go ahead, sir.

Speaker 7

Hi. Thanks for taking my questions. Obviously, you're evaluating a number of causes of the Eden Fire, including whether an idle transmission line could have become energized. You highlighted in the Section three fifteen letter that you're taking immediate steps to strengthen and standardize the grounding process. Just wondering if you could talk about some of the steps you are taking there that you felt needed to be strengthened despite wanting to take these steps.

Speaker 7

It sounds like you feel very confident and you will sustain the presumption of prudency. Just wondering if you could share more of your thoughts on the confidence in that?

Speaker 2

Yes. And I'll start with the back part of that to just reinforce that. Obviously, Michael, we know what we know today, right? But based on what we know today, we are confident that we would be able to make or SCU would be able to make a good faith drilling that it's been a reasonable operator in the system. And as I have said in my remarks, when we think about that, it's really about the operations of the broad system as well as its application to the specifics of any given ignition.

Speaker 2

I am very proud of the work that Steve Powell and the team at SE have done over the last several years to continue to strengthen the system. And if you go back to when this era for California started with the first catastrophic wildfires in 2017, we took a risk prioritized approach, right? And so we're consistently learning. And with our risk prioritized approach, we SCE went after closing the gaps that post the highest risk first and then going on down the line. So we're always looking to learn.

Speaker 2

I think we mentioned in the three fifteen letter just some of the steps that we took immediately after the fire, the ignition. I'll give you one example, maybe goes a little bit beyond your question. But for example, during the evening when the ignition happened, we exercised our PSPS protocols. And that worked well. We had already taken a more conservative stance going into this windstorm.

Speaker 2

We took an even more conservative stance as we went into the second and third windstorm events. So similarly, we're looking at everything around our system and always looking for opportunities to learn, whether it's about how we do inspections, grounding, etcetera. Steve Powell, anything you would like to add from an operational perspective in terms of things we're doing moving forward? Or I think that covered us sufficiently.

Speaker 8

I would just say as we like we do with any ignition,

Speaker 2

any fire, we're looking for anything that we can learn, whether

Speaker 8

it's related to our system or somebody else's anything that we can learn, whether it's related to our system or somebody else's system and then how we integrate those into our practices for the year. You know, when I look at what we have set up for this year and every other year, you know, we've improved our vegetation management practices, our inspection practices. We look at the conditions as we head into a season. So I think about the next summer and the fire season to come. And we'll be looking to see where is where fuels the driest and where do we have the highest risk that we can do additional mitigation that includes more vegetation management and more inspections.

Speaker 8

So I'd say it's a lot of the practices that we have only doubling down and putting them into places. But we'll continue to look for opportunities to see how else can we harden the system and what other practice can we take to make sure that we're safe as we head into next season.

Speaker 2

Yes. That's great, Steve. And Michael, maybe one more little piece that might be helpful here. You've heard us to commit to transparency. And so as we continue to learn and as appropriate, we'll be sharing as much as we can.

Speaker 2

At the same time, we recognize that like with prior fires, there may be litigation involved here, there will be litigation involved. So we will need to be thoughtful about not getting ahead of that process. And so having the right sort of balance between not litigating individual elements in public while providing as much transparency as possible for our public.

Speaker 7

Great. Thank you. And then secondly, I was just wondering if you have concerns about the wildfires impacting the outcome in the GRC. In the public, there's some perception that EIX may have started the fire. Do you think that makes it less likely that the commission will grant a rate increase given the headlines it could create as especially as residents are going to see an increase in insurance premiums?

Speaker 7

And then also do you see reaching a settlement amongst various parties in the Wolseley filing being harder to achieve as well?

Speaker 2

Yes, I don't think so. And it was reassuring to see the TKM approval of Maria. Let me turn it over to you.

Speaker 3

Yes. So Michael, so we're very far along in our GRC process. We filed all of our papers as have the interveners. And I think you've observed that we've actually settled quite a few things with intervenors. Twenty percent of the O and M items, 8% of the capital items covers a dozen different topics.

Speaker 3

So we see that proceeding continuing on as it previously was and we're looking for a proposed decision first half of the year. As far as the Woolsey cost recovery application goes, we had a pre hearing conference back in December. We actually are awaiting a scoping memo and the schedule for that has been agreed upon by the intervenors and SCE. So we continue to see that moving forward on its own path as well.

Speaker 7

Thank you for taking my questions.

Speaker 2

Thanks Mark.

Operator

Thank you. Our next caller is Paul Zimbardo with Jefferies. You may go ahead, sir.

Speaker 5

Hi, Paul.

Speaker 6

Hi. Good afternoon, team. I just want to touch a little bit on the balance sheet side of the equation. So obviously your cost of capital has changed quite a bit since we last chatted. Just to the extent you are successful on like the next gen ERP, the AMI, how should we think about financing some of the incremental capital if it does come into the plan?

Speaker 3

So we've actually been running a lot of those scenarios before and after the events in January. And we still see our financing plan, the one that we've laid out on one of the pages that's in the deck that you have. We still see something very consistent with that. To the extent we have more and more opportunities to invest capital because of things like next gen ERP etcetera, we will finance that at SCE in line with our authorized capital structure. And at EIX, we'll take a look at where our credit metrics are at the time.

Speaker 3

I think you know that our credit metrics, we've been moving into that 15% to 17% FFO to debt range. The latest reports, S and P reports also see us in that range in the '25 through '28 period. So we think we're in a good place there. Obviously, rating agencies are looking at the business environment in California, but I don't think that goes to sort of our balance sheet strength at this point.

Speaker 6

Okay, understood. And then to the extent that there are liabilities that do stem from the January 2025 events, kind of how should we think about financing that? Is that like you've done in the past, kind of hybrids, JSNs at the parent, preferred? Just any flavor you could give in that scenario would be helpful. Thank you.

Speaker 3

Absolutely, Paul. So that's one of the really big differences between a pre AB ten fifty four fire and a fire that occurs post AB ten fifty four. The wildfire fund is there obviously for, claims payments so that people who suffered from the fire can get paid quickly, but it's also there to support the balance sheet of the utilities. So there is a process in place where once we use our customer funded self insurance to the extent we have to make claims payments, we would then go to the wildfire fund and they have the process already set up and it's very streamlined. And so we would be using the fund and not issuing debt the way we were for the 2017 and 2018 spend.

Speaker 3

So I think there's a very, very big difference in terms of what it would look like.

Speaker 2

I mean that's really one of the core features of AB1054, Paul, and as Maria covered very well.

Speaker 6

Thank you, Tim.

Speaker 3

Thanks.

Operator

And our next caller is Steve Fleishman with Wolfe Research. You may go ahead, sir.

Speaker 2

Hey, Steve.

Speaker 9

Thanks. Hi, Pedro, Maria. So I guess just maybe along similar track, any sense of where the rating agencies are on kind of what the updated impact of these fires might be in ratings? And if there were, for example, some kind of risk rating that led to some kind of rating reduction, How does that impact your financing plan in terms of cost or anything meaningful to your financing cost? Thanks.

Speaker 3

Sure. So I mean, I do think that the rating agencies, obviously, we stay in touch with them and talk to them, but they've been pretty straightforward in other venues as well. They've, you know, talked to a bunch of, of you all. They've certainly been at conferences. And they're highlighting climate risk generally.

Speaker 3

So not just California, but across the country they are focused on climate risk and climate events. I think, they certainly are observing the things that are going on in California. I think you know that S and P has us on negative outlook. And so we are working to to move through the process and share more information with them obviously. Again, it's not about the metrics.

Speaker 3

It's about sort of how they view, sort of the climate risk in California and more broadly. I think if you look at, sort of what impact any of that would have on our financing plan, it is a cost issue. If you think about SCE and SCE's need to finance rate base, we actually are going into a cost of capital cycle. So we're filing an application in March. So anything that would need to be updated relative to SCE's cost of debt would be updated through that process and would be captured through that process.

Speaker 3

I think from an EIX perspective, we've been doing a number of different scenarios, I think, including to look at the longer term 2025 through 2028 period and we can manage what's happening to the rates and to the spreads within the range that we've already provided. So I think that, we're still on track for all of that as noted in the prepared remarks.

Speaker 9

Okay. And then one other unrelated question, just the comment you made Pedro about, it taking weeks to even work with the lawyers to figure out how to investigate and bring down the lines to investigate more. Could you just I mean it seems like you and they could just go there and watch and look just what maybe give more color on what the issue is there?

Speaker 2

Oh, I wish Steve, I wish. It's a little more complicated than that. As you can imagine, there are multiple plaintiffs and multiple plaintiffs' attorneys and they have an interest in making sure they and other stakeholders making sure that any movement of the lines, anything that's done regarding SCE's equipment is done in a way that will preserve the nature of the materials, not somehow spoil it or make it difficult to examine it in some way. So there is a series of extended discussions with this whole group to agree on protocols of how and when would a line be touched and how would it be removed and what might you inspect before touching it and how do you touch it and when you touch it, who's watching and where do you put it and what things get sent to a lab afterwards. So that is just the reality of it.

Speaker 2

This is very common in these kinds of cases. And so going through that process, as much as we would like to speed it up as much as possible, it's likely to take weeks yet. So hopefully it gives you a little bit of color, Steve. But I'm very confident that the SEA team could

Speaker 7

go there tomorrow and

Speaker 2

move things and do it in a way that would preserve the ability for parties to have confidence that it was done right. But in this case, we're really to have full agreement among all of the parties on the specific steps and precautions. And so we want to do that with integrity.

Speaker 9

Makes sense. Thank you. Understood.

Speaker 2

Yes. Thanks, Steve.

Operator

Thank you. Our next caller is Ryan Levine with Citi. You may go ahead,

Speaker 9

sir. Hi, everybody. How do you expect the events from last month will change the cost of CapEx items and O and M costs in the coming years?

Speaker 2

Do you mean from a supply availability kind of volume of materials perspective or am I do you have a different angle on the question, Ryan? Exactly.

Speaker 9

Yes, exactly. Okay.

Speaker 2

Steve, I don't have a perspective on it. It feels probably a little early. I'm not sure that it would be in the context of the broad California or Western economy. I don't think that we have an answer. It might be a little bit of impact, but I don't think it's a massive impact based on where we sit right now.

Speaker 2

But any different views, Steve?

Speaker 8

Yes. No, that's a Ryan, the scale I mean, obviously, the impact of the communities is massive and we've got a lot of work to do. But it's also not of the scale that it's meaningful to our overall plans that we do each year in terms of you think about the number of line miles just last year that we did in cover conductor alone, 800 miles, that's an order of magnitude more than the types of impacts we're seeing from a conductor side, amount of conductor you need to deal with this. And so it's a small amount relative to our overall plan and what would anything that could actually impact broader supply chains.

Speaker 2

And Steve, probably be appropriate to also say that all the homes and customer premises that can be reconnected are already reconnected. And so a lot of the rebuild moving forward will be more for homes, premises that need to be rebuilt. And so that doesn't happen overnight. The process that will involve, siding, permitting for those structures themselves. And so that's probably the larger gating item here, which means that it's not months, it's going to be years likely for these communities.

Speaker 2

And by the way, from an Edison perspective, it's not just what Steve and his team will be doing to make sure that we have the power side of that right, but as a company, we want to make sure we're there with those communities through our charitable giving, through our engagement more broadly, Because again, as I mentioned, this is not just something near to home. This is home for a lot of us and we'll be part of the answer here.

Speaker 9

Thanks. And then one follow-up. In terms of the venue, is there an established venue to determine how the protocol will unfold in terms of investigating the equipment and other related items regarding the Unifier?

Speaker 2

Yes, that's happening to the court process. And so there's a judge assigned and I believe the discussions over the specific protocols are happening under the umbrella of her oversight. In fact, I think there was a court hearing just yesterday on this, yes, just yesterday. I believe she said, I think the next discussion will be in a week or so, if I recall correctly. So it's a court process.

Speaker 9

Thank you. Appreciate it.

Speaker 2

Thanks, Ryan.

Operator

Thank you. Our next caller is Shar Pourreza with Guggenheim. You may go ahead.

Speaker 9

Hi, Shar. Hi, good

Speaker 10

afternoon, team. It's actually Constantine here. Really appreciate you taking

Speaker 1

the questions.

Speaker 2

Maybe starting off, following up

Speaker 10

on Nick's question, a bit more theoretical in terms of the timing for a potential AB1054 drawdown given the history of claims and settlements as you mentioned. Do you believe it will take a few years and does that give the stakeholders more time to deliberate and the best assurances around the constructs?

Speaker 3

So I think, Constantine, when people will start you know, fast forward, we haven't determined, you know, sort of what the cause is yet for the fire. But fast forward, if it was a fire that was subject to AB10 before, I think it's actually early to know when people will start to be submitting claims and entering into a process. And I just that's my firm opinion. The first thing that we would do as well is we have $1,000,000,000 of customer funded self insurance. And so we would be utilizing that for the first one billion dollars of claims payments.

Speaker 3

And only then would we go on to the AB ten fifty four layer. So I think, we do know that the processes are in place to go to the Fund and to submit claims for payments, but I think it's early to tell when we would exactly that point.

Speaker 2

Yes. And I think Maria answered the substance of your question well. I think I also heard an angle in your question around does that then give parties in Sacramento more time to deliberate? And I think the flip side to that is we have a real sense of urgency here. And part of the message that we'll be providing is that, I think the market has responded very quickly and we believe that it will be in California's best interest to demonstrate the commitment to extending the framework or making changes.

Speaker 2

Again, we're not I'm not sitting here specifying it's ABC, right, but we're specifying here's the issue. And I think from a market perspective in restoring investors' confidence in California And frankly, I think this accrues not only to the view on California utilities, but the view on the California economy more broadly. We believe it's important that action, at least the first steps, happen soon. And so while technically there's a time that you were asking about from an overall perspective, the timing here for action in Sacramento, we are certainly focused on near term action, at least for the initial steps.

Speaker 10

Thanks for that. Really appreciate it. I do think that the question was more oriented towards kind of finding the best assurances, but I don't think that there is a question around the urgency at this point. I think that's been communicated very clear. I really appreciate that.

Speaker 10

And maybe as a quick follow-up in terms of regulatory proceedings, just with the cost of capital coming up in the state, obviously the markets are not changing for the better. Does that impact kind of the impacts of the filing and maybe do you see a sense of delaying the proceedings to alleviate some of that pressure?

Speaker 3

So, Kathleen, we're moving forward with the filing. It's due in March. I think, you'll see us file as we have in the past, we'll file all of the information both from a quantitative aspect as well as a qualitative aspect. Clearly, events recently have impacted the cost of capital and we will be discussing that as well. And I think at the end of the day, sort of the approaches that Pedro was talking about before, those are solutions to the cost of capital.

Speaker 3

I don't know that you find the solution purely and exclusively through the cost of capital proceeding, but you will see extensive discussion of these events in our applications.

Speaker 2

Yes. And maybe one more thought on this one is, again, I brought this up with one of the other questions as well. I keep pointing to the fact that the PUC proceeded with its approval of the TKM settlement on the schedule. This happened even after the fires had taken place. So I think this is an important time for their steady leadership, which they are showing and they're providing, because frankly, that's part of helping investors retain confidence in the durability of the California framework.

Speaker 2

So I really appreciate it. Not only the approval of TKM, but the very thoughtful comments that President Reynolds made that I mentioned before.

Speaker 10

Thanks for that. Really appreciate the transparency and the updates. I think it goes a long way. Thanks so

Speaker 2

much. Thanks so much. Take care.

Operator

Thank you. Our next caller is Anthony Cardell with Mizuho. You may go ahead, sir.

Speaker 4

Hey, good afternoon, Pedro. Good afternoon, Maria. Just a quick question. Slide 20 talks about prudency, whether if you have found 100% imprudent or 100% prudent. I'm just curious, is there a middle ground there?

Speaker 2

Yes. That's a really important thing. Just speaking generally in terms of how this works, absolutely, the PUC has full discretion to find a utility prudent based on fully prudent based on the facts or fully imprudent or something in between. And you might recall, Anthony, that frankly, this is one of the challenges with the prior PUC in the case regarding the 2,007 fires for San Diego Gas and Electric, where a prior PUC in making their decision said that they were stuck with a binary choice. They could only provide either full recovery or zero recovery.

Speaker 2

And later on, even that same precedent in, I believe, the general counsel at the time, both made comments again later on that they realized that was not the case and the commission has discretion as it always has. So that's a really important part of the framework here and life is not binary.

Speaker 4

Great. That's all I had. Thank you so much.

Speaker 2

Thanks, Anthony. Take care.

Operator

Thank you. Our next caller is Richard Sunderland with JPMorgan.

Speaker 11

Hi, Richard. Hi, good afternoon. Can you hear me?

Speaker 2

Yes. I hear you well.

Speaker 11

Great. Thank you. Just one question for me. If a legislative solution does not emerge, are there any operational changes across PSPS practices or elsewhere you would consider if the future fund backstop is potentially lower given that potential that Eaton impacts the fund as a risk backstop?

Speaker 2

Ash, I'm going to answer the question or start if Steve may have more to add from a little different angle. We are always in learning mode. And so we're always looking for steps that we think might be needed to maintain the safety of our public as we continue to learn more and more. This windstorm was something else, right, because we had up to 100 mile an hour winds. And so you heard me mention earlier that going into the windstorm, we had already gone in more conservative in terms of the PSPS criteria, meaning that SE was ready to de energize at a little bit lower conditions than the standard protocols would call for.

Speaker 2

And in fact during the windstorm, at one point when night flying firefighting aircraft were unable to fly because of the strength of the winds, SCE then became even more conservative in terms of its application of PSPS. So that's one example where there was more conservatism that came in, in real time based on conditions, right? The team and Steve, maybe you can talk a bit about what SCE is doing and as part of your continuous learning as we look at the next WMP update, etcetera.

Speaker 8

Yes. So maybe Pedro, I'll reiterate. When we look at our mitigations, for wildfire, whether it is the grid hardening, our choices around cover conductor, where we do our undergrounding, the factors that are there, how we have enhanced our inspections, where and how much of its management we're doing, every aspect of our wildfire mitigation plan is based in public safety and how do we make sure that we have a system that operates safely. Now we learn along the way with, as Pedro noted, from incidents that happen on our system off our system and we look at other ways that there may be risks in the system that we didn't see before. And we then bake those into our wildfire mitigation plans.

Speaker 8

We started on a risk prioritized basis seven or eight years ago heavily focused on distribution because that's where the bulk of our ignitions and our risk was at and we've been working our way down. As we continue to learn, we'll continue to look at what the next set of mitigations are. And so but that is primarily driven from a public safety perspective as we're thinking about the best way to run the system and keep our communities safe.

Speaker 2

Yes. So that's what drives it at the end of the day. And as I said in my comments, we are confident that this state will do the right thing in terms of the framework.

Speaker 11

Great. Thank you for the thought with that response. I'll leave it there.

Speaker 2

Thanks Rich.

Operator

Thank you. Carly Davenport with Goldman Sachs. You may go ahead.

Speaker 2

Hi Carly.

Speaker 3

Hi,

Speaker 12

good afternoon. Hey, thanks so much for taking the questions. Just one from me as well, a follow-up on, I think, Constantine's question earlier. Just any color that you can share in terms of what's embedded in your plan or just how you're thinking about a potential improvement or not in the CPUC ROE as you go into the cost of capital next month, just what's reflected over this planning period?

Speaker 3

So, Mary, I'll decompose that into two questions because you're asking what's embedded in our planning period. So I think you see the sensitivities that we have in the deck in terms of the '25 through '28 EPS growth. And we've had a number of different ROEs over the time that we've been providing those updates and those numbers. So we have run numerous scenarios related to that and we think that the range covers us for a number of different outcomes. Your question is really more aimed at sort of what is in the cost of capital filing when we go in, in March.

Speaker 3

I think I'll just reiterate that it's going to, I would say, look like the ones that we filed before in the sense of doing a quantitative analysis as well as the qualitative analysis. We will have extensive discussion on the impacts of the January events, the market reaction to that as well as sort of how we would think about that in terms of the ongoing costs. I do think that the commission in the past when we filed back in 2019 when we filed did include the concept of a wildfire adder. But even at the time, we underscored not going to fix this issue by just addressing it to the cost of capital. It's really the structural changes back then it was AB1054 that will help the market react more favorably to California.

Speaker 3

So we're really going to approach it from that fundamental perspective.

Speaker 12

That's really helpful. Thank you. I'll leave it there.

Speaker 3

Thanks, Carly. Thanks.

Operator

Thank you. David O'Kara with Morgan Stanley. You may go ahead.

Speaker 13

Hi, David. Thanks so much for taking my questions. Hey, I was curious to get your thoughts. What do you think is the solution here? What are you advocating for?

Speaker 13

I'm thinking in the legislative backdrop, what are you advocating for? What do you think is kind of needed to give the certainty that investors are seeking with the California wildfire kind of protective financial backdrop?

Speaker 2

David, look, I'm going to acknowledge it's still early days. And as I mentioned, we're talking and we're listening too, but certainly discussing with our peer utilities, with legislative leaders, etcetera. And there's probably a lot of different levers that could be employed here. So I don't want to get too far ahead of that, but I think ultimately part of the message we're hearing from investors and I think is reflected in the valuation impact not just for Edison but for Sempra and PCG, is a concern that the events that the LA area just lived through were really large events. Whether or not they were caused by electric infrastructure, they were large events.

Speaker 2

And to some extent, they reset the sense of how large events could get in California. And so that does then get folks thinking about the durability of the fund and levers like the liability cap, right? Today, the liability cap is attached to the existence of the fund. So are there ways to provide for the fund being able to scale up if needed, right, however you get there? The ways to ensure that the liability cap endures regardless of the state of the fund.

Speaker 2

So, I think those are some of the questions. There's probably different levers to answer this. Beyond the utility piece, we've already seen the leadership across the state talk about some of the other elements that may be part of a solution. And again, I don't know ultimately, will we see vehicles in Sacramento that are at least in this first turn this year for this session focused just in AB 1054 or will you see other pieces? I noticed that I believe yesterday, Mike McGuire, the Head of the Senate, announced a package, a series of bills that touch on insurance reform.

Speaker 2

You've heard discussion around building codes and standards, right? The reality is California will continue to have to work through wildfire risk, Our Adapting for Tomorrow white paper three or four years ago pointed out that the state will see increased wildfire risk as we see deeper impacts from climate change over the next several decades. And so I give a lot of credit to the governor and the legislature. They've been working on more than just AB ten fifty four. They've doubled state budgets for firefighting.

Speaker 2

They are having a further discussion around managing fuel and cleaning forests and that kind of thing. Again, the role for building codes and standards, defensible space, which I saw that package I mentioned on the insurance side, believe one of the bills dealt with ensuring defensible space. This will all be, I'm sure, tough topics on each of their own two feet. And that's why I don't know, will we see the legislature coalesce around trying to do a lot of this all at once or take a piece at a time? From our perspective, we want to make sure that we have a strong voice in helping them understand the immediacy of demonstrating to you all, to the market, the immediacy of the need to reassure investors on the strength and durability of AB1054.

Speaker 2

And again, the good news here is that this is not like 2018 when we were starting from scratch. We get to stand on the platform of a very strong bill led by Governor Newsom and a prior legislature that really set the model for the country. And now it's always better to be in a place where you can talk about how you modify and extend as opposed to how you create from a new whole cloth.

Speaker 13

Yes, absolutely. No, very helpful. Thank you for the thoughts there. And I was also curious as you maybe reflect on your capital plan and the prioritization of different projects and initiatives, do you think it would make sense to pivot incremental CapEx back toward fire risk reduction? I'm looking at like Slide 12, the split of where CapEx is flowing within the distribution system.

Speaker 13

Is there a do you think there's a case to be made for wildfire mitigation

Speaker 2

become a bigger piece again?

Speaker 3

Yes. So we always have the discretion to move the general rate case dollars around to prioritize based on what is at hand when we get into that period. I think one of the first things you'll see us do is in the areas where we're doing restoration, we are taking a look at how we rebuild those communities and support those communities, whether it's places we have already put cover conductor or places where we can advance and targeted undergrounding. But I'll turn it over to Steve. He probably has other thoughts as to where we might actually lean in a little bit differently.

Speaker 8

Yes. I think really one of the things from these, the fires, whether it's the Palisades fire, the Eden fire, I think everyone's looking back at risk models and to determine what's changed in terms of risks or anything new that we've missed. And when we look at how we prioritize our capital, we're starting with risk and public safety, reliability, etcetera, to determine where we put those. And so to the extent that our risk models are showing that we should be hardening the system differently or placing our capital allocation differently, that's what we'll evaluate. It's too early to say how we'll change.

Speaker 8

Maria mentioned certainly where we're in places where we are rebuilding and starting from scratch. One, a lot of places if we're starting clean, our standard generally is to underground. And so we can likely see more underground in places where we're building from scratch. But that's really as we look at that overall capital allocation. It starts with how we allocate the risk how we view the risks and what the best mitigations are.

Speaker 8

So too early to say how much change there will be, but it's something that we'll go back and look at like we do each year as we reevaluate our capital plans.

Speaker 2

And Steve, my guess is that as we're standing twelve months from now or twenty four, thirty six months from now when we look backwards, it might not be a clean split, right, because particularly in the communities that require rebuilding and doing that stronger. I mean, for example, you already your team has now replaced something like four or five existing four kV circuits in Altadena with a modern 16 kV circuit with cover conductor, right? And so there's a that was a rebuild into a fire, but it was also a resiliency improvement. I think some of those circuits were parts of them were in non HFRA areas, so they got rebuilt with covered conductors and it's also a wildfire risk improvement. So it hits probably multiple boxes, checks in multiple boxes around the categories that you were asking about, David, if that makes sense.

Speaker 13

Yes, it does. Great. Thanks so much.

Speaker 2

Thanks.

Operator

Thank you. I will now turn the call back over to Mr. Sam Ramraj for any closing comments.

Speaker 1

Thank you for joining us. This concludes our conference call. Have a good rest of

Speaker 9

the day. You may now disconnect.

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Edison International Q4 2024
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