Edison International Q4 2022 Earnings Call Transcript

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Provided by Quartr
February 23, 2023

Key Takeaways

  • Edison International delivered 2022 core EPS of $4.63 at the upper end of guidance and launched 2023 EPS guidance of $4.55–$4.85, reaffirming its target of 5–7% long-term EPS growth from 2021 to 2025.
  • Southern California Edison has reduced the probability of catastrophic wildfires by 75–80%, completed nearly 4,400 miles of covered conductor and built the nation’s largest private weather‐station network, marking a fourth straight year without a catastrophic wildfire tied to its infrastructure.
  • The company plans to file a Q3 2023 cost-recovery application for about $2 billion of 2017–2018 wildfire and mudslide claims, seeking full CPUC reimbursement, with any upside not yet in the 2025 financial forecasts.
  • Rate base is expected to grow 8.5% in 2023 (7–9% 2021–2025) supported by a revised load forecast of ~2% annual electricity sales growth through 2035 thanks to accelerating electrification.
  • The team is monitoring the CPUC’s cost of capital mechanism, which could trigger a 50 bp ROE increase if utility bond yields exceed 5.37%, potentially adding about $0.28 to 2025 EPS.
AI Generated. May Contain Errors.
Earnings Conference Call
Edison International Q4 2022
00:00 / 00:00

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Operator

Good afternoon, welcome to the Edison International Fourth Quarter 2022 Financial Teleconference. My name is Ted, 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. Sam Ramraj, Vice President of Investor Relations. Mr. Ramraj, you may begin your conference.

Sam Ramraj
Sam Ramraj
VP 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'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. 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.

Sam Ramraj
Sam Ramraj
VP of Investor Relations at Edison International

I will now turn the call over to Pedro.

Pedro Pizarro
Pedro Pizarro
President and CEO at Edison International

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-$4.85. We are reinforcing our strong confidence in delivering our long-term EPS growth target of 5%-7% from 2021-2025. Maria will discuss our financial performance and outlook. 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.

Pedro Pizarro
Pedro Pizarro
President and CEO at Edison International

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%-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.

Pedro Pizarro
Pedro Pizarro
President and CEO at Edison International

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 include 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. 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 mi 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 mi already underground, are expected to be hardened. This is a significant achievement, and it is summarized on Page 7.

Pedro Pizarro
Pedro Pizarro
President and CEO at Edison International

SCE completed its one millionth high fire risk inspection since 2019, which is like visiting every structure in HFRA at least three times. The utility continued 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.

Pedro Pizarro
Pedro Pizarro
President and CEO at Edison International

By the end of the 2023-2025 wildfire mitigation plan, SCE will harden about 7,700 mi 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 claim 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 foregone under the agreement with the Safety Enforcement Division or already recovered.

Pedro Pizarro
Pedro Pizarro
President and CEO at Edison International

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.

Pedro Pizarro
Pedro Pizarro
President and CEO at Edison International

This was our first employee work-related fatality in five and a half years, and it redoubled my resolve, and it redoubled our team's resolve to make it our very last. SCE's unwavering commitment to keeping our communities safe through wildfire mitigation also continues. The utility plans to keep its pace of about 100 mi per month of covered conductor, reaching a total of 5,600 mi 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 it will monitor the cost of capital mechanism, which could result in significant upsides 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.

Pedro Pizarro
Pedro Pizarro
President and CEO at Edison International

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. Yep, that's a big 60. Previously, we projected almost flat annual growth through 2030, followed by trajectory through 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 these significant policy changes and now projects about 2% annual growth through from 2023 through 2035. Both transportation and building electrification forecasts have increased significantly, narrowing the gap to our Pathway 2045 analysis.

Pedro Pizarro
Pedro Pizarro
President and CEO at Edison International

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.

Pedro Pizarro
Pedro Pizarro
President and CEO at Edison International

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, I am confident that investors will fully recognize our significant value creation. Well, with that, let me turn it over to Maria for the financial report.

Maria Rigatti
Maria Rigatti
EVP and CFO 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.

Maria Rigatti
Maria Rigatti
EVP and CFO at Edison International

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%-9% from 2021 to 2025. The forecast also incorporates SCE's current view of the request to be made in the 2025 GRC and other applications. SCE files its 2025 GRC application and testimony in May, we will update our forecasts and extend them through 2028 before our second quarter earnings call.

Maria Rigatti
Maria Rigatti
EVP and CFO at Edison International

Turning to our earnings outlook, we are initiating 2023 core EPS guidance of $4.55-$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.

Maria Rigatti
Maria Rigatti
EVP and CFO at Edison International

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 at $5.68. Let's next discuss SCE's operational variances, which have a net contribution to guidance of $0.48-$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.

Maria Rigatti
Maria Rigatti
EVP and CFO at Edison International

For EIX Parent and Other, we expect a total expense of $0.87-$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-$400 million of equity content and Parent debt for the remainder. As a reminder, we issue 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.

Maria Rigatti
Maria Rigatti
EVP and CFO at Edison International

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 costs of debt and preferred equity. Through February 16th, the measurement period average is around 5.8%. We will be monitoring this over the next seven 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.

Maria Rigatti
Maria Rigatti
EVP and CFO at Edison International

Looking ahead, we are reiterating our 5%-7% EPS growth rate guidance from 2021 through 2025, which translates to 2025 EPS of $5.50-$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 the cost of capital mechanism, which adjusts ROE and updates the cost 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.

Maria Rigatti
Maria Rigatti
EVP and CFO at Edison International

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 match 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.

Maria Rigatti
Maria Rigatti
EVP and CFO at Edison International

To conclude, EIX offers double-digit total return potential consisting of our 5%-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. I'll hand it back to Sam.

Sam Ramraj
Sam Ramraj
VP of Investor Relations at Edison International

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

Operator

The phone line is now open for questions. If you would like to ask a question, please press star one on your phone. One moment for the first question, please. The first question is from Shar Pourreza with Guggenheim Partners. Your line is now open.

Pedro Pizarro
Pedro Pizarro
President and CEO at Edison International

Afternoon, Shar.

Maria Rigatti
Maria Rigatti
EVP and CFO at Edison International

Hey, Shar.

Shar Pourreza
Senior Managing Director at Guggenheim Partners

Hey, good afternoon, Pedro. Hey, Maria. 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, 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, you could find some efficiency in deferring issuance and potentially showing the agencies a glide path for credit metrics.

Maria Rigatti
Maria Rigatti
EVP and CFO at Edison International

Hey, Shar, it's Maria.

Shar Pourreza
Senior Managing Director at Guggenheim Partners

Hey, Maria.

Maria Rigatti
Maria Rigatti
EVP and CFO at Edison International

I think you know that when we've shared our equity needs before, we really focus that on the underlying rate-based needs and the capital needs of the company. We've addressed all of the liabilities already, and, you know, our focus has been on getting to that point. Really we're talking about equity on a go-forward basis, that $1 billion or $250 million on average over the next four years. That's about rate-based growth. Yes, when we get recovery, you know, as we go through those processes, I think that we'll, you know, continue to address how we're gonna, you know, incorporate that into the capital structure. We obviously will have some debt to retire at SCE as we get those dollars in the door.

Maria Rigatti
Maria Rigatti
EVP and CFO at Edison International

I think we'll deal with all of that as we go forward.

Shar Pourreza
Senior Managing Director at Guggenheim Partners

Okay, got it. More to come there. Okay. Just obviously, since you're now seeing a 2% load growth starting in 2023, 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? How do we sort of think about the recovery mechanisms? Would that be recovered under, or do you need to file another GRC? Thanks.

Pedro Pizarro
Pedro Pizarro
President and CEO at Edison International

Yeah, no, thanks, Shar. Apologize, I jumped in there. There was a little blip on the phone line. I thought you were done.

Shar Pourreza
Senior Managing Director at Guggenheim Partners

No, it's all right.

Pedro Pizarro
Pedro Pizarro
President and CEO at Edison International

A couple pieces to this, and, you know, Steve Powell may want to add to this as well. you know, we're certainly managing within the current 2021 rate case. You saw that we got Track 4 application. We're, you know, waiting for, you know, approval of that. Key thing here, though, is, you know, as we look through 2030, 2035, we see that growth earlier than we had expected. We will certainly be building that into the 2025-2028 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 global perspective?

Steve Powell
President and CEO at Southern California Edison

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'll start lower. I wouldn't expect to see 2% starting next year. It'll ramp up as, you know, the level of vehicle electrification as well as building begins to accelerate. You know, at some point, it begins to swamp the solar rooftop growth as well. That won't really impact the next couple of years within our current rate case cycle. But Pedro, like you said, we'll be looking at hard for our 2025 rate case to figure out what additional investments will be needed to support that growth.

Pedro Pizarro
Pedro Pizarro
President and CEO at Edison International

Yeah. That's great, Steve. Shar, maybe more than you asked for, but I'll give you one other point here that I think is 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 gonna bring some, I use the term volatility. I don't mean it in a negative way, but just volatility in customer adoption. Particularly example that we focus a lot on is think about fleet electrification. You know, if we get a, you know, big box retailer with a large, you know, truck depot that is installing or, you know, buying a fleet of heavy-duty electric vehicles, they may not have let us know about that yet. That's gonna be a surprise at some point.

Pedro Pizarro
Pedro Pizarro
President and CEO at Edison International

We'll be able to manage that. I think one of the themes you will see in the upcoming 2025 GRC application is the team looking at, you know, 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, you know, earlier electrification or more concentrated electrification and on one distribution circuit than we have experienced in the past. It's a very different day that's coming up and ahead. It's a good thing, right? Because it's how California will decarbonize. 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, you know, larger trucks.

Maria Rigatti
Maria Rigatti
EVP and CFO at Edison International

Maybe, Shar, just the main takeaway there is that 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.

Shar Pourreza
Senior Managing Director at Guggenheim Partners

Okay, this is perfect. Fantastic, guys. I appreciate it.

Pedro Pizarro
Pedro Pizarro
President and CEO at Edison International

Thanks, Shar.

Operator

The next question in the queue is from Angie Storozynski. Your line is now open with Seaport.

Pedro Pizarro
Pedro Pizarro
President and CEO at Edison International

Hi, Angie.

Angie Storozynski
Angie Storozynski
Senior U.S. Utilities and Power Equity Research Analyst at Seaport

Thank you. How are you?

Pedro Pizarro
Pedro Pizarro
President and CEO at Edison International

How are you?

Angie Storozynski
Angie Storozynski
Senior U.S. Utilities and Power Equity Research Analyst at Seaport

Okay, good. First question, maybe a different angle. You know, I actually looked at the equity needs for 2023, and they seem relatively low given that you didn't issue all of the equity you needed for 2022. Is it a reflection of just some efficiencies on the cash flow side, you don't need to do the catch-up for 2022? Or is it that you've managed to, I don't know, monetize some assets, buildings, you name it?

Maria Rigatti
Maria Rigatti
EVP and CFO at Edison International

Hi, Angie. It's Maria. I'm gonna start by just saying we are managing to that 15%-17% FFO to debt range. You know, we have a real commitment to our investment-grade ratings. Having said that, we've told you before that, you know, we have about $1 billion, up to about $1 billion of equity content need from 2021 through 2025, that would flex depending on where we were in our capital program, et cetera. As we came into 2023, yes, we had deferred some of the equity content out of 2022 given the market conditions, we took another good look at where, you know, where we wanna 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.

Maria Rigatti
Maria Rigatti
EVP and CFO at Edison International

As we move through the rest of the, you know, 2021 through 2025 cycle, we'll continue to take looks at where we are in the capital plan, but we're very comfortable with where we are today for our 2023 financing plan.

Angie Storozynski
Angie Storozynski
Senior U.S. Utilities and Power Equity Research Analyst at Seaport

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

Pedro Pizarro
Pedro Pizarro
President and CEO at Edison International

Yeah. That's on track to be online by the summer. Steve, you wanna give any more detail on that?

Steve Powell
President and CEO at Southern California Edison

I'd just say, so as a reminder for everyone, the, you know, SCE signing agreement back in October of 2021, for with Ameresco for 537 MW. We've been working that project ever since. It last year did run into supply chain and some other execution challenges. Like Pedro said, we expect that that will be, you know, online for the summer. We fully expect still to spend about $1 billion in total on the projects. With the project coming online this year, though, we also are getting, it'll be eligible for about $270 million in tax credits under the Inflation Reduction Act. That'll go to the benefit of our customers.

Angie Storozynski
Angie Storozynski
Senior U.S. Utilities and Power Equity Research Analyst at Seaport

Okay. Lastly, and probably most importantly, 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? That's one. Number two is, you're not deferring any interest associated with the financing of those wildfire claims because you haven't had any decision from the CPUC. I'm just wondering, if you do get a decision or a settlement, well, at least a settlement in that first batch, is that enough for you to start deferring the interest expense associated with Woolsey?

Pedro Pizarro
Pedro Pizarro
President and CEO at Edison International

Yeah. Thanks, Angie. 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. Also, I think we commented on how we were, you know, looking to do that as soon as possible, right? Because we recognize that there's value in getting that certainty and getting that, you know, that first piece of cost recovery behind us. 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, that's when we're gonna get the filing out.

Pedro Pizarro
Pedro Pizarro
President and CEO at Edison International

Maria, you cover the other part?

Maria Rigatti
Maria Rigatti
EVP and CFO at Edison International

Yeah. Angie, as you correctly point out, we are not deferring the interest expense associated with the wildfire claims debt. That's running to the income statement. We are asking for well, we'll ask for recovery when we file the application. 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 wanna apply that to Woolsey or, you know, how that would set itself up as a precedent. We'll see what happens around that when we actually get the language of the decision on TKM.

Angie Storozynski
Angie Storozynski
Senior U.S. Utilities and Power Equity Research Analyst at Seaport

Awesome. Thank you.

Pedro Pizarro
Pedro Pizarro
President and CEO at Edison International

Thanks, Angie.

Operator

Next question is from Steve Fleishman with Wolfe Research. Your line is open.

Steve Fleishman
Steve Fleishman
Managing Director and Senior Analyst at Wolfe Research

Yeah. Hi, good afternoon.

Pedro Pizarro
Pedro Pizarro
President and CEO at Edison International

Hi, Steve.

Steve Fleishman
Steve Fleishman
Managing Director and Senior Analyst at Wolfe Research

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

Pedro Pizarro
Pedro Pizarro
President and CEO at Edison International

Thank you.

Maria Rigatti
Maria Rigatti
EVP and CFO at Edison International

First check mark on our scorecard, Steve.

Steve Fleishman
Steve Fleishman
Managing Director and Senior Analyst at Wolfe Research

Yeah. On the, I guess, just on the filing for recovery, could you talk about the expected timeline to get an answer from the CPUC? I think isn't there, like, two decisions? There's, you know, first prudency and then determining the actual dollars, part.

Maria Rigatti
Maria Rigatti
EVP and CFO at Edison International

Yeah.

Steve Fleishman
Steve Fleishman
Managing Director and Senior Analyst at Wolfe Research

Of the, of a prudence process. Could you talk about both of those?

Maria Rigatti
Maria Rigatti
EVP and CFO at Edison International

Sure. Our intent when we file the application is to request an 18-month schedule that's consistent with, you know, how they handle rate setting sorts of applications. We are also gonna 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 simultaneously. What'll happen after we file the application is typically there would be a 30-day window in which people could file comments, after which the commission would schedule a pre-hearing conference, and following a pre-hearing conference, they would issue their scoping memo. The scoping memo would then have their schedule, you know, sort of their response to our requests and other intervener comments.

Maria Rigatti
Maria Rigatti
EVP and CFO at Edison International

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
Steve Fleishman
Managing Director and Senior Analyst at Wolfe Research

Okay. Great. Just on the, I guess with respect to the operational variances, you know, 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 2025. Could you just give a sense, better sense of what those are in driving that. Like, since that's a GRC year, how does that play into the 2025 GRC also? Yeah. Thanks.

Maria Rigatti
Maria Rigatti
EVP and CFO at Edison International

Sure. 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 2023 that we have in the 2025 EPS CAGR. 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. When we get those decisions, some of those true ups then go through the operational variances. You know, speaking specifically to 2025 and, you know, how do we manage through that since it's the first year of a GRC cycle, there are things that become, less aligned over the course of a GRC cycle.

Maria Rigatti
Maria Rigatti
EVP and CFO at Edison International

An example I often use is depreciation. You can get out of, You can get misaligned with what you're actually recognizing as depreciation versus what was authorized. When you get to the first year of a GRC cycle, you can actually true those things back up and get more into a normal cadence. Those are the sorts of things that we have embedded, whether it was 2023 or last year, 2022 or the future 2025.

Steve Fleishman
Steve Fleishman
Managing Director and Senior Analyst at Wolfe Research

Okay, thank you.

Pedro Pizarro
Pedro Pizarro
President and CEO at Edison International

Yeah, thanks, Dave.

Operator

Next question is from Ryan Levine with Citi. Your line is now open.

Ryan Levine
Ryan Levine
Equity Analyst at Citi

Hi, everybody. Hoping to follow up on the cost recovery application. In the prepared remarks in the presentation, you highlight 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
Pedro Pizarro
President and CEO at Edison International

All right. Good question, Ryan. I think the simple answer is this is about the TKM case and, you know, it's separate from the Woolsey case. We have not before given you a sense of how that total amount was divided up between the two cases. This gives you insight into the amount that's allocated or relevant to TKM. Simply that, that's it. It's just that's the accounting of, you know, what claims are which.

Maria Rigatti
Maria Rigatti
EVP and CFO at Edison International

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 any cost we incur following the application.

Pedro Pizarro
Pedro Pizarro
President and CEO at Edison International

That's right.

Ryan Levine
Ryan Levine
Equity Analyst at Citi

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
Pedro Pizarro
President and CEO at Edison International

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

Ryan Levine
Ryan Levine
Equity Analyst at Citi

Okay. Thank you.

Pedro Pizarro
Pedro Pizarro
President and CEO at Edison International

Yeah, thanks, Ryan.

Operator

The next question is from Gregg Orrill with UBS. Your line is open.

Pedro Pizarro
Pedro Pizarro
President and CEO at Edison International

Hey, Gregg.

Gregg Orrill
Gregg Orrill
Executive Director and Equity Analyst at UBS

Yeah. Hi. Thank you. Can you talk about the Track 4 proceeding and sort of, you know, how that impacts your, you know, how that's going and, you know, how that impacts your ability to hit your financial goals? How we should think about it?

Maria Rigatti
Maria Rigatti
EVP and CFO at Edison International

Sure. Track 4 is the, that stub year in our 2021 GRC case, it addresses 2024 revenue requirements. 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. That's, you know, a very relevant data point for 2024. That is, you know, 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. If you recall, you know, we'll be through this GRC cycle, as we mentioned, you know, in response to Steve's question, and 2025 is the first year of the next GRC cycle.

Maria Rigatti
Maria Rigatti
EVP and CFO at Edison International

Our 5%-7% EPS CAGR from 2021 through 2025 is really focused on that 2025 outcome.

Gregg Orrill
Gregg Orrill
Executive Director and Equity Analyst at UBS

The final outcome, you know, would be expected to be somewhere between the interveners and some improvement on that in the final decision?

Maria Rigatti
Maria Rigatti
EVP and CFO at Edison International

You're talking about Track 4?

Gregg Orrill
Gregg Orrill
Executive Director and Equity Analyst at UBS

Yes.

Maria Rigatti
Maria Rigatti
EVP and CFO 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. We'll work through that the balance of the year.

Gregg Orrill
Gregg Orrill
Executive Director and Equity Analyst at UBS

All right. Good luck.

Pedro Pizarro
Pedro Pizarro
President and CEO at Edison International

Yeah, thanks, Gregg.

Operator

Next question is from Nicholas Campanella with Credit Suisse. Your line is now open.

Nicholas Campanella
Nicholas Campanella
VP at Credit Suisse

Hey, everyone. Thanks for taking my questions. I wanted to ask just a follow-up on the, on the claims. I'm sorry if I missed it, but just for Woolsey, when would that actually be filed? I guess would it be sometime after 2025, after the 18-month process on the TKM or can you just explain that?

Pedro Pizarro
Pedro Pizarro
President and CEO at Edison International

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

Nicholas Campanella
Nicholas Campanella
VP at Credit Suisse

Okay. That's helpful. I appreciate it. You know, on the earnings guidance, it's, you know, your confidence on 2025 is very notable and thanks for the walk to get there. I guess just, you know, as we think about there's that $0.24 a drag with the debt balances affecting 2023, presumably that's gonna get carried forward, I would imagine the 2024 as you potentially wait for recovery and actions from the CPUC. How do you frame where you are within this $5-$7 range in 2024? Do you have a line of sight to be within it, or is it more just about getting there in 2025? Thank you.

Maria Rigatti
Maria Rigatti
EVP and CFO at Edison International

Fundamentally, 2025 is the most important aspect of this conversation, right? 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, you know, how do we think about that? Obviously, we'll give guidance for 2024 on the Q4 call of this year, Q4 2023. I still think about 2024 as, you know, rate base is a fundamental driver of growth. There are things that we're gonna find out in 2023 that are going to inform our 2024 guidance when we give it. Some of the things we've already discussed today, you know, the GRC Track 4 decision.

Maria Rigatti
Maria Rigatti
EVP and CFO at Edison International

We have a number of memo account filings that we've made, and we'll see where, you know, the timing on those, for example. We're gonna continue to execute on our financing plan. I wanna be really clear. We've embedded, you know, so this higher interest rate environment in all the numbers at this point. I think, you know, I won't say to you definitively where interest rates will end up in 2025, but, you know, there is that already baked into it. You know, we're also frankly gonna continue to monitor the cost of capital mechanism. It's not necessary for us to get to our 5%-7% EPS CAGR in 2025, but it is something that could impact 2024. We are doing all of those things as we prepare and move into 2024.

Maria Rigatti
Maria Rigatti
EVP and CFO at Edison International

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.

Nicholas Campanella
Nicholas Campanella
VP at Credit Suisse

Thanks for that color, Maria. I really appreciate it. Thank you.

Pedro Pizarro
Pedro Pizarro
President and CEO at Edison International

Thanks, Nick. Take care.

Operator

Next question is from David Arcaro with Morgan Stanley. Your line is open.

David Arcaro
David Arcaro
Executive Director of Equity Research at Morgan Stanley

Oh, hi. Thanks so much for taking my questions.

Pedro Pizarro
Pedro Pizarro
President and CEO at Edison International

Hey, yeah.

David Arcaro
David Arcaro
Executive Director of Equity Research at Morgan Stanley

I was wondering, maybe, first following up on the financing outlook and the interest rate environment. You know, 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
Maria Rigatti
EVP and CFO at Edison International

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

David Arcaro
David Arcaro
Executive Director of Equity Research at Morgan Stanley

Okay. Got it. Thanks. Also following up on the operational variances, looking at the 2025 outlook, I'm wondering if you could give an indication as to what kind of portion of that increased versus the prior expectation. Are you able to give just how much of that is operational efficiencies within the overall bucket?

Maria Rigatti
Maria Rigatti
EVP and CFO at Edison International

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. Like, you have many line items that you're working through. Some of the broad thematic areas that we're looking at relate to technology improvements and leveraging technology. It relates to work management, it relates to procurement. There are a number of areas that I would say fall under the category of operational efficiencies. 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.

Maria Rigatti
Maria Rigatti
EVP and CFO at Edison International

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 four-year GRC cycle, like depreciation. There's all of those things that fall into the operational variances.

David Arcaro
David Arcaro
Executive Director of Equity Research at Morgan Stanley

Okay, great. That's helpful color. I appreciate it. Thanks so much.

Maria Rigatti
Maria Rigatti
EVP and CFO at Edison International

Thank you.

Pedro Pizarro
Pedro Pizarro
President and CEO at Edison International

Thanks. Thanks much.

Operator

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

Julien Dumoulin-Smith
Julien Dumoulin-Smith
Senior Research Analyst at Bank of America

Hey, good afternoon, team. Thanks so much for the time. Appreciate it. Hope you guys are well. Just coming on back to the guidance here, right, 2023, 2025 is we've received a good amount of attention here. Just let me ask it this way. When you look at your Parent and Other, right, it's relatively flattish from 2023 to 2025. I call it like that $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 pay down from TKM or something like that.

Julien Dumoulin-Smith
Julien Dumoulin-Smith
Senior Research Analyst at Bank of America

Just trying to understand the puts and takes in that Parent and Other line.

Maria Rigatti
Maria Rigatti
EVP and CFO at Edison International

Yeah, 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, you know, fall into the range that we've given in 2025. I think it's not that glamorous, but it's a lot of hard work getting costs down.

Julien Dumoulin-Smith
Julien Dumoulin-Smith
Senior Research Analyst at Bank of America

Got it. Do we have any sense of how much is baked in there in terms of, you know, cost reductions through the course of the period, if you will? Also in the 2023 guidance, I think it was like a $0.14 CEMA. Just what is that true up as well, while we're on the subject of details?

Maria Rigatti
Maria Rigatti
EVP and CFO at Edison International

Sure. We're working across a whole range of items to hit our operational efficiencies and frankly just our business effectiveness at the holding company. 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 CEMA is a Catastrophic Events Memo Account. We incurred costs a few years ago related to, in, you know, 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 2017 or 2018 events. When that happens, we make an application for any incremental costs, and now that application, we believe, will come to fruition in this year, and that would be recognized in our operational variances.

Maria Rigatti
Maria Rigatti
EVP and CFO at Edison International

It's very similar in, at least in, it's analogous to the CSRP item that we flagged when we gave 2022 guidance.

Julien Dumoulin-Smith
Julien Dumoulin-Smith
Senior Research Analyst at Bank of America

Got it. All right. Thank you guys very much. Have a great day.

Pedro Pizarro
Pedro Pizarro
President and CEO at Edison International

Thanks. Take care.

Maria Rigatti
Maria Rigatti
EVP and CFO at Edison International

Thanks, Julien.

Operator

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

Sam Ramraj
Sam Ramraj
VP 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.

Executives
    • Maria Rigatti
      Maria Rigatti
      EVP and CFO
    • Pedro Pizarro
      Pedro Pizarro
      President and CEO
    • Sam Ramraj
      Sam Ramraj
      VP of Investor Relations
Analysts
    • Angie Storozynski
      Senior U.S. Utilities and Power Equity Research Analyst at Seaport
    • David Arcaro
      Executive Director of Equity Research at Morgan Stanley
    • Gregg Orrill
      Executive Director and Equity Analyst at UBS
    • Julien Dumoulin-Smith
      Senior Research Analyst at Bank of America
    • Nicholas Campanella
      VP at Credit Suisse
    • Ryan Levine
      Equity Analyst at Citi
    • Shar Pourreza
      Senior Managing Director at Guggenheim Partners
    • Steve Fleishman
      Managing Director and Senior Analyst at Wolfe Research
    • Steve Powell
      President and CEO at Southern California Edison
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