Edison International Q4 2022 Earnings Call Transcript

Presentation

[Operator]

Good afternoon and welcome to the Edison International Fourth Quarter 2022 Financial Teleconference. My name is Ted and I will be your operator today. [Operator Instructions] Today's call is being recorded. I would now like to turn the call over to Mr. Sam Ramraj, Vice President of Investor Relations. Mr. Ramraj, you may begin your conference.

[Sam Ramraj, Vice President of Investor Relations at Edison International]

Thank you, Ted 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 Form 10-K, prepared remarks from Pedro and Maria and the teleconference presentation.

Tomorrow, we will distribute our regular business update presentation. During the 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. 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 1 question and 1 follow-up.

I will now turn the call over to Pedro.

[Pedro Pizarro, President & Chief Executive officer at Edison International]

Well, thanks a lot, Sam and good afternoon, everybody. I am pleased to report that Edison International's core EPS for 2022 was $4.63 which was in the upper end of our initial guidance range. Today, we are introducing 2023 EPS guidance of $4.55 to $4.85 and we are reinforcing our strong confidence in delivering our long-term EPS growth target of 5% to 7% from 2021 to 2025. Maria will discuss our financial performance and outlook.

So let's start with our key accomplishments in 2022 and they're noted on Page 3. First, we once again delivered on our annual EPS guidance, as I just mentioned. Second, SCE continued to make tremendous progress in reducing wildfire risk and PSPS. SCE successfully executed its wildfire mitigation plan and updated the key statistics shown on Page 5. That is that SCE now estimates it has reduced the probability of losses of catastrophic wildfires by 75% to 80% compared to pre-2018 levels and critically with much lower reliance on PSPS, now only 15%, as hardening and other mitigations continue as depicted on Page 6. Despite the strong operational and financial performance, market sentiment impacted our total shareholder return. Our TSR for 2022 trailed that of the Philadelphia Utility sector index and most of our peers.

As shareholders ourselves, our leadership team and I are deeply committed to achieving our financial targets while strengthening SCE's ability to deliver safe, reliable, affordable and increasingly clean electricity. Diving deeper into SCE's tremendous progress in wildfire mitigation. Despite challenging weather conditions and some fires in our service area last year, 2022 marks the fourth consecutive year without a catastrophic wildfire associated with SCE's infrastructure. Key achievements in 2022 included deploying about 1,400 circuit miles of covered conductor, bringing total installations to around 4,400 circuit miles. To put this in perspective, this is nearly the round-trip distance from Los Angeles to Washington, D.C.

So I am extremely proud of SCE's ongoing execution of grid hardening activities which have made our communities safer. The utility is targeting up to another 1,200 miles of covered conductor in 2023. By year-end, approximately 74% of total distribution lines in high fire risk areas, or HFRA, including the 7,000 miles already underground are expected to be hardened. This is a significant achievement and it is summarized on Page 7. The SCE completed its 1 million high fire risk inspection in 2019 which is like visiting every structure in HFRA at least 3x.

The utility continues to build out its network of weather stations and now with more than 1,600 in total, SCE has the largest privately-owned weather station network in the country providing a granular view of weather-related risk to inform operations. A key result is that total acres burned from ignitions on hardened sections of our grid are 99% smaller than those in areas not yet hardened. SCE's approach to reducing wildfire risk is differentiated by the speed of its infrastructure hardening and by reducing reliance on measures that affect customer reliability like PSPS, for example, by prioritizing hardening circuits at risk of power shutoffs.

By the end of the 2023 through 2025 wildfire mitigation plan, SCE will have hardened about 7,700 miles of its overhead distribution system and scaled innovative pilots, such as Early Fault Detection. We look forward to SCE's continued success in reducing the greatest amount of wildfire risk in the shortest amount of time. Turning to the 2017 and 2018 wildfire and mudslide events outlined on Page 8. In the fourth quarter, SCE paid about $280 million in claims settlements. SCE now targets filing the TKM cost recovery application in the third quarter of 2023.

Let me emphasize that SCE will seek full CPUC cost recovery, excluding amounts forgone under the agreement with the Safety Enforcement Division or already recovered. SCE will show its strong, compelling case that it operated the system prudently and that it is in the public interest to authorize full cost recovery. The utility currently expects to request about $2 billion in this first application. Our financial assumptions for 2025 and beyond do not factor in any potential upside from the cost recovery applications which would represent substantial value. Looking ahead, I want to highlight key management focus areas for 2023. These are laid out on Page 9.

First and foremost, safety is foundational to our values and success and we are targeting reducing the rates of employee injuries by 15%. Tragically, a utility troubleman, Johnny Kinkade, died from a work-related injury last month and 1,200 of us joined his loved ones at his memorial service last week. This was our first employee work-related fatality in 5.5 years and it redoubled my resolve and it redoubled our team's resolve to make it our very last. SCE is unwavering commitment to keeping our communities safe through wildfire mitigation also continues. The utility plans to keep its pace of about 100 miles per month of covered conductor, reaching a total of 5,600 miles by year-end. Again, filing the first cost recovery application for the historical wildfires is a front-and-center focus area for us.

On the regulatory front, SCE looks forward to its upcoming 2025 GRC application and will monitor the cost of capital mechanism which could result in significant upside to 2024 earnings should it trigger. On the financial side, we will be focused on achieving our capital expenditure and earnings goals, as well as pursuing upgrades to our credit ratings. We believe this is well warranted considering the significant wildfire risk reduction by SCE, the state's strong firefighting capabilities and supportive California regulation.

Looking to the future. The support for economy-wide electrification continues to grow nationally and here in California. We've shared before with you that we forecast electricity usage growing 60% by 2045. That's a big 6-0. And previously, we projected almost flat annual growth through 2030 followed by a steep trajectory to 2045 but we are now seeing earlier increases with the breadth of legislation, regulations and codes and standards approved last year. SCE has updated its electricity sales forecast to reflect the significant policy changes and now projects about 2% annual growth from 2023 to 2035. Both transportation and building electrification forecasts have increased significantly, narrowing the gap to our Pathway 2045 analysis.

This strong electrification load growth outlook is also consistent with the California Energy Commission's forecast based on the state's decarbonization policies, providing a source of external validation. Rapid expansion of electrification sharpens the continued need to make significant investments in SCE's infrastructure. Over the coming years, SCE will continue to invest in wildfire mitigation and increase its grid work to support California's leading role in building a carbon-free economy. With growth in electricity demand, this significant grid investment will be spread over a higher volume of sales, supporting affordability overall.

SCE's system average rate is already the lowest among major California investor-owned utilities and we expect it will be the lowest for the foreseeable future. All of this, wildfire risk reduction, cost recovery for historical wildfires, the clean electrification investment opportunity and, importantly, our confidence in the 2025 EPS target makes me very excited about our near-term steps and our long-term growth, so I am confident that investors will fully recognize our significant value creation. And with that, let me turn it over to Maria for the financial report.

[Maria Rigatti, Executive Vice President & Chief Financial Officer at Edison International]

Thanks, Pedro. Good afternoon, everyone. Let me start by highlighting that Edison International's core EPS of $4.63 for 2022 was in the upper end of our initial guidance range. In my comments today, I will discuss fourth quarter results, our 2023 EPS guidance and our 2023 financing plan. Starting with the fourth quarter of 2022, EIX reported core EPS of $1.15. As you can see from the year-over-year quarterly variance analysis shown on Page 10, SCE's fourth quarter earnings increased primarily due to GRC attrition year escalation.

This was partially offset by higher depreciation expense and higher net interest expense. The latter was driven by higher interest rates associated with funding 2017 and 2018 wildfire claims payments. At EIX Parent and Other, there was a negative variance of $0.03, primarily due to higher holding company interest expense. I would now like to discuss SCE's capital and rate base forecasts, shown on Pages 11 and 12. These are largely consistent with last quarter's disclosures. I want to emphasize that SCE has significant capital expenditure opportunities driven by investments in the safety and reliability of the grid. We continue to project strong rate base growth of 7% to 9% from 2021 to 2025.

The forecast also incorporates SCE's current view of the requests to be made in the 2025 GRC and other applications. SCE files its 2025 GRC application and testimony in May and we will update our forecast and extend them through 2028 before our second quarter earnings call. Turning to our earnings outlook. We are initiating 2023 core EPS guidance of $4.55 to $4.85. I will cover the components of 2023 guidance in a moment. But first, I want to frame our year-over-year EPS growth. The primary driver is rate base growth which we expect to be approximately 8.5% in 2023.

However, you can see that our guidance range implies relatively flat to modest growth for the year. To help you bridge the difference, Page 13 lays out core EPS growth year-over-year. The primary reason for the difference is higher interest expense at both the parent and SCE. Refinancing of debt at the parent and debt for historical wildfire claims payments drive the increase. To put this in perspective, of the gap between 2023 rate base and EPS growth, about 75% can be attributed to SCE's wildfire settlement-related debt. While SCE is carrying this financing cost until they reach cost recovery resolution, I want to be very clear that the utility expects to seek full CPUC cost recovery of all eligible claims payments, including financing costs.

Please turn to Page 14 for 2023 guidance and key earnings drivers. The components of our EPS guidance start with rate base math which we forecast is $5.68. Let's next discuss SCE's operational variances which have a net contribution to guidance of $0.48 to $0.75 per share. The major contributors are shown on the right side of the page. SCE costs excluded from authorized are $0.71 with the biggest contributor being interest expense on debt for wildfire claims payments. For EIX Parent and Other, we expect a total expense of $0.87 to $0.90 per share. I would now like to provide the parent company's 2023 financing plan.

I'll preface this by saying that regardless of the specific instruments we use, our financing plan is fully reflected in our EPS guidance. Turning to Page 15. We project total EIX parent financing needs of $1.4 billion. We expect that this will be financed with a combination of securities with $300 million to $400 million of equity content and parent debt for the remainder. As a reminder, we issued securities with equity content to support our investment-grade credit ratings which we are firmly committed to maintaining. To achieve our desired level of equity content, we may use a combination of hybrid securities, internal programs, or our existing at-the-market program.

Page 16 provides an update on the CPUC cost of capital mechanism. If the 12-month average of the Moody's Baa Utility Bond Index exceeds 5.37% at the end of September, the mechanism calls for increasing the ROE by half the difference between the average and 4.37%. Importantly, the mechanism also resets the authorized cost of debt and preferred equity. Through February 16, the measurement period average is around 5.8%. We will be monitoring this over the next 7 months and as an aid for understanding the specifics of the mechanism, we have provided a spreadsheet on our Investor Relations website that you can download.

Looking ahead, we are reiterating our 5% to 7% EPS growth rate guidance from 2021 through 2025 which translates to 2025 EPS of $5.50 to $5.90, laid out on Page 17. My management team and I are fully committed to delivering on this target. I will note that this EPS target incorporates assumptions to accommodate the higher interest rate environment but does not include the upside potential associated with cost of capital mechanism which adjusts ROE and updates the costs of debt and preferred. To provide you with the sensitivity, if the mechanism does trigger, that would increase the ROE by a minimum of 50 basis points and each 50 basis points of ROE changes 2025 EPS by about $0.28. Further, our financial assumptions for 2025 do not factor in the potential recovery of historical wildfire costs which could be substantial.

Lastly, I want to build on Pedro's earlier point about affordability and highlight yet another action SCE has taken to manage customer rates. Earlier this month, SCE reached a settlement agreement with TURN and Cal Advocates to move to a customer-funded wildfire self-insurance model. This builds on the customer-funded self-insurance that was previously authorized in the 2021 GRC. Under the revised structure, SCE will be able to reduce its revenue requirement by an annualized $160 million, further driving down SCE's system average rate which is already the lowest among major California IOUs and we expect it will be the lowest for the foreseeable future.

To conclude, EIX offers double-digit total return potential, consisting of our 5% to 7% EPS growth rate guidance and 4% dividend yield. SCE's rate base growth is the fundamental driver as the utility invests in the safety and reliability of the grid which increases in importance each year as economy-wide electrification accelerates. That concludes my remarks and I'll hand it back to Sam.

[Sam Ramraj, Vice President of Investor Relations at Edison International]

Ted, please open the call for questions. As a reminder, we request you to limit yourself to 1 question and 1 follow-up. So everyone in line has the opportunity to ask questions.

Questions and Answers

[Operator]

[Operator Instructions]

The first question is from Shar Pourreza with Guggenheim Partners.

[Shar Pourreza, Analyst at Guggenheim Partners]

Pedro, just given the, I guess, emerging visibility on the wildfire cost recovery, I mean, I guess that's the light at the end of the tunnel, if you will. Do you still need to issue equity or equity content? I mean assuming if you start getting cost recovery, you become over-equitized, right, at that time. So you could find some efficiency in deferring issuance and potentially showing the agencies a glide path for credit metrics?

[Maria Rigatti, Executive Vice President & Chief Financial Officer at Edison International]

Shar, it's Maria. So I think you know that when we've shared our equity needs before, we really focused that on the underlying rate base needs and the capital needs of the company. So we've addressed all of the liabilities already and our focus has been on getting to that point. So really, we're talking about equity on a go-forward basis, that $1 billion or $250 million on average over the next 4 years, that's about rate base growth.

Yes, when we get recovery as we go through those processes, I think that we'll continue to address how we're going to incorporate that into the capital structure. We obviously will have some debt to retire at SCE as we get those dollars in the door. But I think we'll deal with all of that as we go forward.

[Shar Pourreza, Analyst at Guggenheim Partners]

Okay. Got it. So more to come there. Okay. And then just obviously, since you're now seeing a 2% load growth starting in '23, I think, from flattish levels. I guess, do you anticipate any incremental investment needs that aren't currently in the GRC approved capex within sort of this planning horizon? I mean, could that sort of have an impact on rate base? And how do we sort of think about the recovery mechanisms? Would that be recovered under? Or do you need to follow another GRC?

[Pedro Pizarro, President & Chief Executive officer at Edison International]

Yes. Thanks, Shar. Apologies, I jumped in there. There was a little blip on the phone line, so I thought you were gone. A couple of pieces to this and Steve Powell may want to add to this as well. We're certainly managing within the current '21 rate case. You saw that we track 4 application. We're waiting for approval of that. Key thing here though is as we look through 2030, 2035, we see that growth earlier than we had expected. We will certainly be building that into the '25 to '28 GRC application that Steve's team is completing now and expecting to file in May. I think within that, we believe this is manageable. Steve, anything you would add from a perspective?

[Steven Powell, President & Chief Executive Officer of Southern California Edison at Edison International]

I'd just point out, Pedro, in terms of clarification around load growth. Over the next 13 years, we do expect to see that load growth increase over time. It will start lower. So I wouldn't expect to see 2% starting next year. It will ramp up as the level of vehicle electrification as well as building begins to accelerate. And at some point, it begins to swap the solar rooftop growth as well. So that won't really impact the next couple of years within our current rate case cycle. But Pedro, like you said, we're looking at hard for a 2025 rate case to figure out what additional investments will be needed to support that growth.

[Pedro Pizarro, President & Chief Executive officer at Edison International]

Yes, that's great, Steve. And Shar, maybe more than you asked for but I'll give you one other point here that I think it's really important and frankly exciting. This is not going to be necessarily smooth, right? We're going to see some, frankly, good surprises out there over time. That's going to bring some -- I use a term volatility. I don't mean it in a negative way but just volatility in customer adoption. And particularly an example that we focus a lot on is think about fleet electrification. If we get a big box retailer with a large truck depot, that is installing or buying a fleet of heavy-duty electric vehicles. They may not have let us know about that yet. That's going to be a surprise at some point. We'll be able to manage that but I think one of the themes you will see in the upcoming '25 GRC application is the team looking at getting -- proposing investments that will provide the team a little more flexibility in terms of being able to manage those good surprises, in terms of earlier electrification or more concentrated electrification on 1 distribution circuit than we have experienced in the past.

It's a very different day that's coming up ahead. It's a good thing, right, because it's how California will decarbonize but it's going to come with some step changes as we go along, particularly when you think about some of the heavier duty applications for electrification like larger trucks.

[Maria Rigatti, Executive Vice President & Chief Financial Officer at Edison International]

So maybe, Shar, just the main takeaway there is that in the next couple of years, we can fully manage within our existing GRC but you will see this low growth fully reflected in our 2025 application.

[Operator]

The next question in the queue is from Angie Storozynski with Seaport.

[Angie Storozynski, Analyst at Seaport Global Securities]

Okay. Good. So first question, maybe a different angle. I actually looked at the equity needs for '23 and they seem relatively low given that you didn't issue all of the equity you needed for '22. So is it a reflection of just some efficiencies on the cash flow side and thus, you don't need to do the catch-up for '22? Or is it that you've managed to, I don't know, monetize some assets, buildings, you name it?

[Maria Rigatti, Executive Vice President & Chief Financial Officer at Edison International]

Angie, it's Maria. So I think with -- I'm going to start by just saying we are managing to that 15% to 17% FFO to debt range. We have a real commitment to our investment-grade rating. Having said that, we've told you before that we have about $1 billion -- up to about $1 billion of equity content need from '21 through '25. But that would flex depending on where we were in our capital program et cetera. So as we came into 2023, yes, we had deferred some of the equity content out of 2022, given the market conditions but we took another good look at where we want to be in terms of our metrics. And this will satisfy that and allow us to continue to make that commitment to our investment-grade rating. As we move through the rest of the '21 through '25 cycle, we'll continue to take a look at where we are in the capital plan but we're very comfortable with where we are today for our '23 financing plan.

[Angie Storozynski, Analyst at Seaport Global Securities]

Okay. And you didn't mention anything about your battery project. Could you give us a sense of the status of that project?

[Pedro Pizarro, President & Chief Executive officer at Edison International]

Yes, that's on track to be online by the summer. Steve, do you want to give any more detail.

[Steven Powell, President & Chief Executive Officer of Southern California Edison at Edison International]

I'd just say -- so as a reminder for everyone, the SCE signed agreement back in October of '21 for -- with Ameresco for 537 megawatts. We've been working that project ever since. Last year, it did run into supply chain and some other execution challenges. And we -- like Pedro said, we expect that, that will be online for the summer. We fully expect still to spend about $1 billion in total on the project. And with the project coming online, this year though, we also are getting -- it will be eligible for about $270 million of tax credits under the Inflation Reduction Act. And so that will go to the benefit of our customers.

[Angie Storozynski, Analyst at Seaport Global Securities]

Okay. And then lastly and probably most importantly, so you are planning to accelerate the filing for the wildfire cost recovery at least the first portion. I'm just wondering why is it coming earlier than expected? So that's one. And number two is, so you're not deferring any interest associated with the financing of those wildfire claims because you haven't had any decision from the CPUC. So I'm just wondering if you do get a decision or a settlement -- or at least the settlement in that first batch, is that enough for you to start deferring the interest expense associated with Woolsey?

[Pedro Pizarro, President & Chief Executive officer at Edison International]

I think I'll take the first part and Maria can take the second part. I think what we said over the last several quarters' earnings calls is that we were targeting the first filing by the end of this year. And also, I think we commented on how we were looking to do that as soon as possible, right, because we recognize that there's value in getting that certainty and getting the first piece of cost recovery behind us. So I'm not sure, I would say, that we accelerated the filing. Again, it's consistently by the end of the year. But now that we have more clarity every quarter, we see that we have the ability to file in the third quarter. And so that's when we're going to get the filing out. Maria, can you cover the other part?

[Maria Rigatti, Executive Vice President & Chief Financial Officer at Edison International]

Yes. So Angie, as you correctly point out, we are not deferring the interest expense associated with the wildfire claims debt. And so that's running to the income statement. We are asking for -- we'll ask for recovery when we file the application. And when we get recovery, then we would reverse that and you would recognize that in earnings. When we get the decision, we will look at what the precise language is, et cetera and see if we want to apply that to Woolsey, or how that would set itself up as a precedent. So we'll see what happens around that and we actually get the language of the decision on TKM.

[Operator]

Next question is from Steve Fleishman with Wolfe Research.

[Steve Fleishman, Analyst at Wolfe Research]

You guys -- you've probably heard this already but as we were on this call, it looks like Moody's may have upgraded you already, so congrats on that.

[Maria Rigatti, Executive Vice President & Chief Financial Officer at Edison International]

First checkmark on our scorecard. Do you?

[Steve Fleishman, Analyst at Wolfe Research]

Yes. But -- so on the -- I guess just on the filing for recovery, could you talk about the expected time line to get an answer from the CPUC? And I think there -- isn't there like 2 decisions? There's first prudency and then determining the actual dollars part of prudence process. Could you talk about both of those?

[Maria Rigatti, Executive Vice President & Chief Financial Officer at Edison International]

Sure. So our intent when we file the application is to request an 18-month schedule, that's consistent with how they handle rate-setting sorts of applications. We are also going to ask that they consider both of those items that you just mentioned, both the prudency of our operations and the prudency of our settlement process or our claims process simultaneously.

What will happen after we file the application is that typically, there would be a 30-day window in which people could file comments, after which the commission would schedule a prehearing conference and following a prehearing conference, they would issue their scoping memo. The scoping memo would then have their schedule their response to our requests and other intervener comments. So that's the sort of thing we're looking at and we'll know a lot more after that scoping memo is issued.

[Steve Fleishman, Analyst at Wolfe Research]

Okay. Great. And then just on the -- I guess with respect to the operational variances. So I think you've been able to offset in terms of your long-term growth rate, a lot of the interest rate increases through improvement in the operational variances, particularly out to '25. Could you just give a sense -- a better sense of what those are in driving that? And since that's the GRC year, how does that play into the '25 GRC also? Yes.

[Maria Rigatti, Executive Vice President & Chief Financial Officer at Edison International]

Sure. And there's a lot of things in there and you can even see it in our 2023 guidance. We have actually a fairly similar range in '23 that we have in the 2025 EPS CAGR. So what's in there? Big things that are in there are AFUDC earnings. That's a healthy chunk of operational variances. We also have regulatory applications that we have been submitting from time to time, actually pretty much every year at this point. And when those get -- when we get those decisions, some of those true-ups then go through the operational variances.

Speaking specifically to '25 and how do we manage through that since it's the first year with GRC cycle, there are things that become less aligned over the course of a GRC cycle. An example I often use is depreciation. So you can get out of -- or you can get misaligned with what you're actually recognizing of depreciation versus what was authorized. When you get to the first year with GRC cycle, you can actually true those things back up and get more into a normal cadence. So those are the sorts of things that we have embedded, whether it was '23 or last year '22 or the future '25.

[Operator]

Next question is from Ryan Levine with Citi.

[Ryan Levine, Analyst at Smith Barney Citigroup]

Hoping to follow up on cost recovery application. In the prepared remarks in the presentation, you highlighted about $2 billion that would be the ask. How did you determine that amount? And what factors could cause some deviation from that request?

[Pedro Pizarro, President & Chief Executive officer at Edison International]

Good question, Ryan. And I think the simple answer is, this is about the TKM case. And it's separate from the Woolsey case. We are not before giving you a sense of how that total amount was divided up between the 2 cases. Now this gives you insight into the amount that's allocated or relevant to TKM. So simply, that's it. It's just -- that's the accounting of what claims are rich.

[Maria Rigatti, Executive Vice President & Chief Financial Officer at Edison International]

But it probably doesn't give you perfect insight quite yet because we will continue to settle claims and we will continue to accrue interest and we will include a true-up mechanism in the application that we file so that we can address anything that we -- any cost we incur following the application.

[Ryan Levine, Analyst at Smith Barney Citigroup]

Between now and any filing in the third quarter, I presume there's a lot of work that needs to be done. Any factors that you care to share that could influence the more specific timing and milestones to watch in the process?

[Pedro Pizarro, President & Chief Executive officer at Edison International]

I think Maria covered nicely earlier, Ryan, our expectation that we'll be proposing an 18-month schedule. I think we shared in past calls that the team has been working on these applications already for quite some time. So it's not work that starts now. It's work that's been ongoing. And so we'll have final details once we put the application out there.

[Operator]

Next question is from Gregg Orrill with UBS.

[Gregg Orrill, Analyst at UBS Group]

Can you talk about the track 4 proceeding and sort of how that impacts your -- how that's going and how that impacts your ability to hit your financial goals? How we should think about it?

[Maria Rigatti, Executive Vice President & Chief Financial Officer at Edison International]

Sure. So track 4 is that stub year in our 2021 GRC case, so it addresses 2024 revenue requirement. We've gotten interveners have filed comments. I think we're going through the normal process. The schedule for that is to get a decision by the end of this year. So that's a very relevant data point for 2024.

So that is sort of the normal process that we go through anytime there's a GRC or some component of the GRC outstanding. It is not something that is affecting 2025. So if you recall, we'll be through this GRC cycle, as we mentioned in response to Steve's question and 2025 is the first year of the next GRC cycle and our 5% to 7% EPS CAGR from '21 through 2025 is really focused on that 2025 outcome.

[Gregg Orrill, Analyst at UBS Group]

And the final outcome would be expected to be somewhere between the intervenors and some improvement on that and the final decision?

[Maria Rigatti, Executive Vice President & Chief Financial Officer at Edison International]

You're talking about track 4?

[Gregg Orrill, Analyst at UBS Group]

Yes.

[Maria Rigatti, Executive Vice President & Chief Financial Officer at Edison International]

I think there's still some things we need to work through on track 4. There's still procedural schedules and comments that are due. So we'll work through that the balance of the year.

[Operator]

Next question is from Nicholas Campanella with Credit Suisse.

[Nicholas Campanella, Analyst at Credit Suisse Group]

I wanted to ask just a follow-up on the claims. And I'm sorry if I missed it but just for Woolsey, when would that actually be filed? I guess would it be sometime after '25 after the 18-month process on the TKM, or can you just explain that?

[Pedro Pizarro, President & Chief Executive officer at Edison International]

Yes. We haven't given you timing on that yet. We have commented in the past on how Woolsey happen around a year after TKM, so you'd expect that schedule to be sometime later than TKM. I don't think that we would necessarily need to wait for the TKM proceeding to be completed to file for Woolsey. So just as we did with TKM when we have the -- really we have -- are substantially complete in terms of settlements, I think that would be the timing for our filing.

[Nicholas Campanella, Analyst at Credit Suisse Group]

Okay. That's helpful. I appreciate it. And on the earnings guidance, your confidence on '25 is very notable and thanks for the walk to get there. I guess just as we think about there's that $0.24 drag with the debt balances affecting '23, presumably, that's going to get carried forward, I would imagine the '24 as you potentially await for recovery and actions from the CPUC -- just how do you frame where you are within the 5% to 7% range in '24? Are you -- do you have a line of sight to be within it? Or is it more just about getting there in '25?

[Maria Rigatti, Executive Vice President & Chief Financial Officer at Edison International]

Well, fundamentally, '25 is the most important aspect of this conversation, right? Because that's the target we put out there and that we're driving towards and that we'll commit to. In terms of 2024 though, how do we think about that? I think -- obviously, we'll give guidance for 2024 on the Q4 call of next year -- this year, Q4 '23. But I still think about 2024 as rate base is the fundamental driver of growth. And there are things that we're going to find out in 2023 that are going to inform our 2024 guidance when we give it. So some of the things we've already discussed today, the GRC track 3 to track 4 decision. We have a number of memo account filings that we've made and we'll see the timing on those, for example. We're going to continue to execute on our financing plan. I want to be really clear, we've embedded sort of this higher interest rate environment in all the numbers at this point. So I think I won't say too definitively where interest rates will end up in 2025 but there is that already baked into it.

We're also frankly going to continue to monitor the cost of capital mechanism. It's not necessary for us to get to our 5% to 7% EPS CAGR in 2025 but it is something that could impact 2024. So we are doing all of those things as we prepare and move into 2024. And of course, the team here continues to lean in and work on all of the operational efficiencies that are so important to this question but also to customer affordability.

[Operator]

Next question is from David Arcaro with Morgan Stanley.

[David Arcaro, Analyst at Morgan Stanley]

I was wondering, maybe first, following up on the financing outlook and the interest rate environment. We've seen a couple of your peers do some different types of debt securities, recently convertible like debt securities that have offered lower interest rates. Wondering if there are any ideas like that, that you're exploring in terms of opportunities to lower the debt financing costs as you look at some of the upcoming refinancings and debt issuances.

[Maria Rigatti, Executive Vice President & Chief Financial Officer at Edison International]

Yes. I think the answer to that question is we're always looking at opportunities to be as cost effective as possible. We'll have to monitor the market and see how all of those other transactions go, whether it fits our situation but absolutely looking for every opportunity like that, that we can.

[David Arcaro, Analyst at Morgan Stanley]

Okay. Got it. And then also following up on the operational variances, looking at the 2025 outlook. Wondering if you could give an indication as to what kind of portion of that increased versus the prior expectation? And are you able to give just how much of that is operational efficiencies within the overall bucket?

[Maria Rigatti, Executive Vice President & Chief Financial Officer at Edison International]

Yes. So we haven't broken it out into a ton of detail in terms of operational efficiencies because remember, operational efficiencies, there's a lot of work that goes on at SCE and at EIX. And so like you have many, many line items that you're working through. But some of the broad thematic areas that we're looking at relate to technology improvements and leveraging technology, it relates to work management and it relates to procurement. So there are a number of areas that I would say fall under the category of operational efficiencies. But as I mentioned earlier, the operational variances bucket also includes a lot of other things. It includes AFUDC. It includes sort of the realization of regulatory applications as we get into that time period. It includes the fact that we're going to realign some of the things that may have gotten a little bit misaligned over the course of a 4-year GRC cycle like depreciation. So there's all of those things that fall into the operational variances.

[Operator]

The next question is from Julien Dumoulin-Smith with Bank of America.

[Julien Dumoulin-Smith, Analyst at Bank of America]

Just coming back to the guidance here, right, '23, '25, we received a good amount of attention here. But just let me ask you this way. When you look at your parent and other, right, it's relatively flattish from '23 to '25, I call it like the $0.88 midpoint. Given the commentary thus far about the balance sheet and the focus on equity issuance and the fact that some of that's included, right? The parent includes that dilutive effect. It kind of suggests that there's no incremental parent debt issuance or equity issued or if there is, there's some kind of positive offset, right, i.e., maybe some debt paydown from TKM or something like that? Just trying to understand the puts and takes in that parent and other line.

[Maria Rigatti, Executive Vice President & Chief Financial Officer at Edison International]

Yes. I think, Julien, at the parent, we do the same things that the utility does and look for cost efficiencies. And we think that there are a number of areas around operational efficiencies around how we manage our work, et cetera, that will allow us to fall into the range that we've given in 2025. So I think it's not that glamorous but it's a lot of hard work getting cost down.

[Julien Dumoulin-Smith, Analyst at Bank of America]

Got it. Do we have any sense of how much is baked in there in terms of cost reductions through the course of the period, if you will? And also in the '23 guidance, I think it was like a $0.14 CEMA. So what is that true up as well? Just that while we're on the subject of details.

[Maria Rigatti, Executive Vice President & Chief Financial Officer at Edison International]

Sure. So we're working across a whole range of items to hit our operational efficiencies and, frankly, just our business effectiveness at the holding company. So more to come on that as we work through those issues. In terms of the 2023 CEMA item that you're referring to, that relates to -- so CEMA is a catastrophic event memo account. So we incurred costs a few years ago related to capital, et cetera, that we had to invest because there was a catastrophic event, so a storm or wildfire, et cetera, not related to any of the '17 or '18 events. And when that happens, we make an application for any incremental cost and now that application, we believe, will come to fruition in this year and that would be recognized in our operational variances. It's very similar in it's analogous to the CSRP item that we flagged when we gave 2022 guidance.

[Operator]

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

[Sam Ramraj, Vice President of Investor Relations at Edison International]

Well, thank you for joining us. This concludes the conference call and have a good rest of the day and stay safe. You may now disconnect.

Participants

Corporate Executives

• Sam Ramraj, Vice President of Investor Relations
• Pedro Pizarro, President & Chief Executive officer
• Maria Rigatti, Executive Vice President & Chief Financial Officer
• Steven Powell, President & Chief Executive Officer of Southern California Edison

Analysts

• Shar Pourreza, Guggenheim Partners
• Angie Storozynski, Seaport Global Securities
• Steve Fleishman, Wolfe Research
• Ryan Levine, Smith Barney Citigroup
• Gregg Orrill, UBS Group AG
• Nicholas Campanella, Credit Suisse Group AG
• David Arcaro, Morgan Stanley
• Julien Dumoulin-Smith, Bank of America Co.