The operator welcomes participants to the Edison International Fourth Quarter 2023 Financial Teleconference and introduces the speakers, Pedro Pizarro and Maria Rigatti. The presentation materials and important factors that could affect the company's results are also mentioned. Pedro reports that the company's core EPS for 2023 exceeded expectations and introduces the 2024 EPS guidance range.

In 2023, the company delivered on its annual EPS guidance and exceeded its wildfire mitigation plan target. It also filed for cost recovery for TKM events and raised its annual dividend. The company's progress has significantly reduced the need for public safety power shutoffs and has achieved a high level of risk reduction. The company remains confident in its long-term EPS growth targets and its dividend yield remains a key component of its total return proposition.

In 2024, SCE is expecting to face significant losses due to a settlement in the Woolsey case and is currently evaluating responses from claimants. They aim to resolve 90% of Woolsey claims and file for cost recovery in Q3. The CPUC has issued a scoping memo for the TKM proceeding, which aligns with SCE's framing of the issues and could lead to a final decision by Q1, 2025. SCE plans to install 1,050 miles of covered conductor in 2024 and is approaching a milestone of 90% hardening of distribution lines in high fire risk areas. They will continue to advocate for funding for critical investments in the distribution grid to support efficient electrification and the state's clean energy transition.

Edison is focused on long-term goals and investing in expanding the high-voltage transmission system and localized distribution networks to support California's pathway to net zero. This aligns with their investment outlook as they anticipate an 80% increase in electricity demand over the next 20 years. They have also developed innovative proposals, such as transportation electrification programs, and are investing in digital and AI capabilities to improve efficiency and decision-making.

In the paragraph, the speaker discusses how the company is utilizing AI for various tasks such as research, workflow automation, and code development. They also mention how AI is being used in their customer service operations to improve efficiency and support billing operations. The company has a clear operational agenda focused on safety, reliability, affordability, and resiliency. They also have a financial agenda to deliver on their 2024 EPS guidance and achieve their EPS target for 2025. The speaker then hands over to Maria for the financial report, where she discusses fourth quarter and full year results, CapEx and rate base opportunities, and reaffirms their confidence in achieving their long-term EPS growth target. She also mentions the specific items that affected their full year guidance.

The company's operational excellence initiatives have resulted in higher efficiency and better-than-expected operational variances. Their 2023 performance was successful, with core EPS above the midpoint. The company plans to invest $38 to $43 billion in capital, primarily in the distribution grid, to support California's transition to a carbon-free economy. Additionally, there are potential long-term CapEx opportunities in the NextGen ERP and AMI 2.0 programs and FERC projects. The 2024 EPS guidance is $4.75 to $5.05, with strong rate base earnings growth but modest overall growth due to three primary reasons.

The article discusses the factors contributing to a $0.16 increase in interest expense on wildfire settlement-related debt, as well as a $0.15 to $0.34 decrease in SCE Operational Variance. The increase in Parent & Other costs is also highlighted, but the underlying business growth is expected to result in 5% to 7% core EPS growth for 2021 through 2025. However, the burden of $325 million in pretax interest will reduce this growth by 250 basis points. The potential value from successful resolution of cost recovery proceedings is also mentioned.

The company is providing a bridge between 2024 and 2025 core EPS guidance, with the biggest contributor to earnings growth being an increase in rate base earnings. This increase is due to the 2025 GRC and non-GRC applications for past wildfire mitigation and other spending. Operational variances and wildfire interest expense are not major drivers. The company's confidence is supported by these growth drivers and the expectation that headwinds will moderate in 2025. In 2024, the company plans to issue $500 million of debt to refinance a maturity, with minimal financing activities planned after an active year in 2023.

The speaker discusses the company's core EPS growth target of 5% to 7% for 2025 through 2028, which only requires $100 million of equity per year. They also mention potential value creation opportunities that are not factored into their guidance metrics or equity value, such as cost recovery for past events and investment opportunities. They express confidence in meeting their 2024 and 2025 EPS targets and mention plans for operational excellence and cost leadership. The speaker then invites questions from participants. The first question is about the components of the 2024 drivers, specifically the $0.15 to $0.20 cents of O&M reinvestment and how it will impact customers in the future. The speaker responds that the investment will focus on systems and processes for long-term benefits.

The paragraph discusses the importance of thinking long term and making good decisions for the business. The company is focused on investing in reliability and operational excellence, which will provide value over a long period of time. The impact of wildfire debt on the company's results is also mentioned, but no assumptions have been made about potential recovery. The company will provide updates on the cost recovery application and interest rate forecast.

Maria Rigatti discusses the cost of capital mechanism and its impact on the company's financials. She explains that the mechanism acts as a hedge against interest rate changes and allows for reinvestment in the business. The company plans to use this mechanism to update rate-based earnings and adjust other financial buckets in 2025.

The increase in earnings between 2024 and 2025 will be driven by rate-based growth, with SCE operational variances, EIX parents, and wildfire debt not being significant drivers. The FERC transmission projects that are not currently included in the plan are expected to be added in the future, with decisions on competitive bids expected in the spring. The utility sees a need for continued investment in the grid through 2045.

The speaker, Nick Campanella from Barclays, asks a question about the EPS bridge and the $0.30 true-up in 2025. Maria Rigatti explains that the true-up is related to rate-based growth, with some of it coming from 2025 GRC and some from non-GRC applications. The true-up includes items such as prior period spending, taxes, and customer deposits, and is not uncommon in a rate case proceeding. The non-GRC portion will be filed soon, specifically related to prior period covered conductor spending.

In paragraph 14, the speaker emphasizes the diversity of factors that contribute to the company's rate-based growth and earnings. They also mention their commitment to strengthening their balance sheet and their ability to fund capital plans. In response to a question about interest expenses, the speaker explains that the stability in expenses shown on slide 6 is due to a combination of hedges and slower claims, allowing for less funding.

Maria Rigatti and Anthony Crowdell discuss the expected debt and claims for the company. Maria explains that the debt will stay constant due to upcoming maturities and settlements of claims. Anthony asks for clarification on the claims, to which Pedro Pizarro responds that the majority of the increase is from one claim with a few outliers. The next question is about tower attachments and Maria says they are waiting for a scoping memo and have seen interest from potential buyers. They expect to receive proceeds in 2024 and 2025.

The company has addressed safety concerns and is waiting for the scoping memo to move forward with the sale. They expect to start marketing once the regulatory schedule is determined. The company plans to harden 90% of their distribution lines in high-risk areas by the end of 2025 and is monitoring for potential areas that could become high-risk in the future.

The speaker discusses the partnership between fire agencies and OEIS to designate high fire risk areas and the use of similar standards for future high-risk areas. They also mention the expected increase in wildfire risk due to climate change and the implementation of hardening measures in both HFRA and generic replacements. The speaker also touches on the potential cost-cutting benefits of AI for Edison and the industry as a whole, and notes Edison's early adoption of this technology.

The speaker discusses examples of pilot programs and permanent additions in the Customer Call Center support, but notes that it is still early days and it will take time for the technology to mature and for long-term savings to be realized. They mention that they will continue to see this in future rate cases and that they are moving quickly, but it will take time for the impact to be seen. They also mention that they cannot share details about their bid for the transmission opportunity at this time. In response to a question about the benefit from the cost of capital, the speaker explains that it will not reappear in 2025 due to reinvestment and the GRC truing up the cost.

The company has updated their cost of capital mechanism and has taken into account interest rate movements and operational variances. They are making investments to improve affordability and reliability for customers, which will ultimately drive earnings growth. The stability and foundation for the company's long-term earnings trajectory is tied to rate-based growth.

Angie Storozynski is asking Maria Rigatti if the $0.61 earnings drag associated with wildfire claims is the potential upside scenario, or if there are any factors that could eat into this benefit. Maria Rigatti responds by stating that the earnings drag is already factored into their projections and they have not incorporated any potential benefits from cost recovery. She also notes that cost recovery would actually create a benefit by offsetting the interest expense with authorized revenue.

The speaker is asked about the potential downside of a 10.3 transmission ROE, and they respond by saying they are comfortable with that number and have a black box settlement. They also mention that interest rates are a potential risk. The next question asks about the prior spending true-ups and whether they will recur in the future. The speaker clarifies that these will be rate-based earnings and will continue to be included in the rate-based each year.

Maria Rigatti, in response to a question about the 2025 core earnings per share component ranges and SCE costs excluded from authorized, explains that the increase in costs is largely due to Wildfire Claims Payment-Related Debt. She also mentions that the cost of capital mechanism is a hedge against ongoing interest rate movements. When asked about the impact of the deadline for filing claims for the Woolsey recovery, Maria explains that the team is currently evaluating all of the responses to determine the best estimate of total losses.

The company will be updating their plans for the next quarter on the next earnings call. In response to a question about building electrification, the company's CEO discusses the potential of the application and its cost benefits, as well as the potential to drive down costs and increase production volumes. The company sees this as a similar phenomenon to what has happened with solar and battery cells.

The commission acknowledges the importance of SCE for creativity, but they also had concerns about affordability and the availability of funding. However, the speaker disagrees and believes that SCE had factored in these factors. The governor's budget cuts for building electrification also highlight the importance of this issue. The denial of DEA does not affect the EPS growth targets for 2025 and 2028.

The speaker states that the recent events surrounding SCE's GRC application do not affect its merit, as the infrastructure investment is necessary regardless. The team will continue to monitor the state's progress towards its greenhouse gas emission reduction goals and explore other opportunities to help. The need for investment is increasing and there may be other funding sources and actions that SCE can take to address the gap. The speaker also addresses a question about the cost excluded from authorized and explains that there were no significant changes in the amount of wildfire claim debt or the interest rate assumption between the two slides.

Maria Rigatti explains that in Q3, they did not update every line item in their 2025 forecast due to the sizable increase in reserves. However, with the integration of CCM into their tariffs, they are now providing a fresher update. When asked about the potential impact of further changes in the cost of capital, Rigatti states that they always manage the variability in their business and would do so in response to changes in the cost of capital. She also reminds that the cost of capital mechanism was triggered by the current interest rate environment.

The company has responded to intervener commentary and is moving forward with implementing changes. They have met or exceeded guidance for the past two decades and plan to continue this trend. The $0.37 impact will be part of the rate base in each year. Earnings are driven by rate base and there is a growth trajectory through 2028. The wildfire claims debt expense has stabilized.

The speaker explains that there will not be a dynamic shift in the company's operations from 2021 to 2025, and that operational efficiencies will not be a driving factor in the company's growth in 2025 to 2028. The company's target growth rate for this period is 5% to 7%, and they are confident in meeting this goal. The call concludes with closing remarks from the moderator.

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