The Edison International Second Quarter 2023 Financial Teleconference has begun, and the operator has turned the call over to Mr. Sam Ramraj, Vice President of Investor Relations. President and Chief Executive Officer, Pedro Pizarro, and Executive Vice President and Chief Financial Officer, Maria Rigatti, are also on the call. Materials supporting the call are available on the company's website, and forward-looking statements about the outlook for the company will be made. Pedro Pizarro has made three financial comments, including that the company is confident in their 2023 core EPS guidance and their long-term EPS growth target from 2021 to 2025.

Southern California Edison has provided EPS growth guidance of 5%-7% for 2025 and 2028, with the potential of $7 in earnings per share by 2028. To meet these targets, SCE will make substantial investments in the reliability, resiliency and readiness of the grid, as outlined in its 2025 GRC application. SCE is also well prepared for the wildfire season due to its successful grid hardening actions. These investments are necessary to meet California's ambitious greenhouse gas reduction goals, which are deeply embedded in the state's legislative and policy frameworks.

Southern California Edison (SCE) has requested a 2025 base revenue requirement of $10.3 billion, an increase of 12% over 2024 rates, in order to meet its objectives. SCE is investing in wildfire mitigation and infrastructure replacement, as well as leveraging technology such as artificial intelligence, robotic process automation, and mobile solutions to improve the customer experience and drive efficiencies in its operations.

SCE is implementing new technology to improve operational excellence and affordability and is also taking steps to mitigate wildfires associated with its equipment. This includes replacing nearly 5,000 circuit miles of bare wire with covered conductor, performing 360-degree inspections of transmission and distribution structures, and inspecting 1.6 million trees across the service area annually. SCE is also filing for cost recovery in August for the 2017 and 2018 Wildfire and Mudslide Events.

SCE has been working to reduce the probability of losses from catastrophic wildfires since 2018, and has seen success in reducing structures destroyed and acres burned. SCE plans to inspect 130,000 trees and is hardening its grid by 2024, while the State of California is allocating $2.7 billion over four years for forest and wildland health.

Edison International is leading the way in the clean energy transition and is committed to providing 100% carbon-free electricity to customers. In 2022, SCE delivered 45% carbon-free power to customers, installed electric vehicle charging infrastructure, and installed or contracted for more than 1,800 megawatts of energy storage. They have also formed coalitions nationally and internationally to address climate change and are proud to lead the way on these initiatives and partnerships. The CAL FIRE budget for 2023 to '24 is double what was originally enacted in 2017 to '18 and staffing has increased by 74%.

EIX reported a $1.01 core EPS in the second quarter of 2023, with GRC attrition year revenue escalation and higher FERC and other revenue contributing to the increase. EIX is confident in delivering on its full-year core EPS guidance of $4.55 to $4.85. The company plans to finance its $38 to $43 billion capital plan for 2023-2028 with cash from operations and debt, with 85% of the investments going towards the distribution grid to meet California's greenhouse gas reduction goals.

SCE expects its equity needs to be met through internal programs, which will bring in $400 million over the next few years. Additionally, SCE has the potential to invest $2 billion in standalone applications and $5.3 billion in transmission upgrades and competitive projects. This is expected to lead to a rate base growth of 6-8%, starting from a 2023 base of $41.9 billion, in order to facilitate California's transition to a carbon-free economy.

SCE and the parent company issued debt during the quarter and the CPUC cost of capital mechanism is likely to trigger an upward ROE adjustment. SCE has also identified O&M savings for customers and the CPUC approved SCE’s expanded wildfire self-insurance program, which saves customers approximately $160 million per year.

SCE has successfully implemented a wildfire mitigation plan and a 360-degree inspection process to generate $55 million in savings. They have also switched healthcare vendors to achieve $50 million in savings. The company expects to continue their 5-7% EPS growth rate from 2021-2028, with the potential of $7 EPS for 2028. This growth is driven by SCE's strong rate base growth.

Fran has outlined SCE's growth story through 2028, which includes a midpoint of 2025 guidance that provides a stable platform for strong long-term growth. This growth is achievable without factoring in additional capital potential or cost recovery in legacy wildfire proceedings, and Fran believes that the 5-7% growth is highly achievable. He concluded his remarks by opening the call for questions.

Maria Rigatti and Pedro Pizarro discussed the need for infrastructure build and how SCE has encapsulated that in the general rate case application. They mentioned that the team at SCE has done a nice job encapsulating that and that the need for the infrastructure is strong. They also discussed the financing plan that was put in front of them and how that is supportive of the 15% to 17% FFO to debt range. Lastly, they mentioned that if they need more equity, they will have to take a look at that when the dollars actually start to hit.

The CEO of the utilities, Steven Powell, discussed the inflation pressures across their supply chain and how their team is working to manage them. They have mechanisms in place to manage the rate case and are constantly looking for ways to reduce costs. In the longer term, they will start to see the benefits of the CHIPS Act, which is focused on bringing back domestic manufacturing supply.

Maria Rigatti explains that CAISO opportunities are significant and could result in a growth rate increase, but this will not happen until after 2028. She also notes that the CCM trigger is likely to happen and the company is not relying on it for their 5-7% growth trajectory. Finally, she states that they will be prudent in their cost recovery when they file their application in August.

Maria Rigatti and Pedro Pizarro discussed the possibility of SCE selling part of its regulated Janko in order to fund its capital increase and reduce existing debt. They noted that SCE typically realizes $100 million a year through their internal programs and will be observing the process up north. Pizarro stated that SCE expects to be able to do all of their capital program with only the internal programs, indicating a limited need for equity.

Pedro Pizarro is speaking with Gregg Orrill and Steven Powell about the California Independent System Operator's transmission planning process. The last plan identified $30 billion of projects that need to be done over the next 20 years. They are currently working through the process with the current approved plan and three projects worth approximately $3 billion are going out to bid in the fall. A new plan is being developed and will be put out in two years and new projects will be assigned to fill out the long-term outlook.

Maria Rigatti explains that the company has historically provided information about their business in four line items. However, they are now providing more granular information to give more insight into the business. This includes information about AFEDC, timing of regulatory approvals, operational efficiencies, and depreciation. They are providing sensitivity information, such as the sensitivity around AFEDC, to help understand how the capital program is growing and how it will affect the business.

Pedro Pizarro states that they will be requesting an 18 month timeline for the regulatory proceedings, and will have listening sessions with stakeholders before filing the application. He believes that the evidence supports a fair outcome and that they are providing visibility into the strength of their arguments.

The speaker is asking about the company's equity needs in 2024 and beyond. Maria Rigatti responds that they will likely rely on internal programs for financing in 2024. The speaker then asks if the rate base growth will increase over time as new CapEx plans are identified. Maria Rigatti is unsure what the speaker means and requests clarification.

Maria Rigatti explains that the rate base growth and EPS growth will remain in sync over the next five years due to the stabilization of debt, lower costs, and the increasing AFEDC. She also mentions that refinancing has been done in the more recent interest rate environment and that the company has moved away from preps to junior subordinated notes in order to obtain the necessary equity content securities.

Maria Rigatti and David Arcaro discussed the operational variances between the 2025 and 2028 period, with Rigatti explaining that depreciation variances must be taken into account when evaluating the rate base growth. David Paz then asked about the cash recoveries expected in the 2028 period, to which Rigatti did not provide an answer.

Maria Rigatti and David Paz discussed cash recoveries from memo accounts over the next two years and clarified that there are no assumptions of recovery on Wildfire Legacy claims. Nick Campanella asked for an update on the 5% to 7% EPS CAGR for 2021 to 2025 and for clarification on the California Public Utilities Commission (CPUC) process, specifically the CCM trigger. Rigatti explained that they are still looking at various items to provide guidance for 2024 and that the CCM trigger is relevant but not for the 5% to 7% EPS CAGR. The CPUC process was initiated in October with the goal of having something out by year end.

Maria Rigatti explains how the process works when the measurement period ends on September 30th. In October, an advice letter is filed with the energy division. If there are protests, the energy division will make a decision on whether to keep the disposition or send it to an ALJ or the broader commission. She also notes that the interest rate changes are why the commission adopted the CCM or cost of capital mechanism. Lastly, she explains that the depreciation sensitivity in the appendix page contributes to the earnings variance in '28.

The company provides a range of outcomes in terms of capital forecast and rate base when the CapEx is reduced. They make simplifying assumptions about the timing and type of CapEx when calculating the lower end of the range. They also provide a sensitivity of what would happen to earnings if their depreciation proposal is modified from the request. Julien Dumoulin-Smith asked what the equity capital ratio is at the utility level given the waiver.

Maria Rigatti provides potential solutions to get back to the authorized capital structure, such as excluding the differences permanently from the capital structure or moving the debt up to the parent company. She also explains that the equity ratio is measured over a 36-month period and the equity has already been issued to support the claims. Julien Dumoulin-Smith expresses appreciation for the information before the operator closes the call.

The conference call has concluded, and participants are encouraged to have a good rest of the day and stay safe. They can now disconnect.

This summary was generated with AI and may contain some inaccuracies.