© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good afternoon, and welcome to the Edison International First Quarter 2023 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.
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-Q, prepared remarks from Pedro and Maria, and the teleconference presentation. Tomorrow we will distribute our regular business update presentation.
During this 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 one question and one follow-up.
I will now turn the call over to Pedro.
Well, thanks a lot, Sam, and good afternoon, everybody. Edison International's core EPS for the first quarter 2023 was $1.09. We are pleased with our start to the year and are confident in affirming our 2023 core EPS guidance of $4.55 to $4.85. We also remain confident in delivering our long-term EPS growth target of 5% to 7% from 2021 through 2025. Maria will discuss our financial performance and outlook.
My key message today is that we continue to see a number of positives in the near-term and in the long-term, and these make us excited for our company’s future. SCE’s actions to sustain and strengthen the electric grid, mitigate wildfires, and enable decarbonization through electrification are critically needed by California and are increasing our investment opportunity.
In the longer-term, our Pathway 2045 analysis highlights the continued investment in transmission and distribution needed to evolve the grid. This is being recognized by regulators in California. In 2021, the California ISO released a 20-year plan estimating about $30 billion of transmission investment needed through 2040, consistent with our Pathway analysis.
Only a few weeks ago, CAISO published its Draft 2022 to 2023 Transmission Plan, with its current thinking on system needs over the next 10 years. Their draft plan calls for 46 transmission projects with a total estimated cost of $9.3 billion. Over $2 billion of that represents proposed incumbent projects for SCE, and over $5 billion represents FERC Order 1000 competitive projects within Southern California for which SCE will be able to compete.
In the near-term, SCE continues its diligent execution of its Wildfire Mitigation Plan and has reduced the probability of losses from catastrophic wildfires by 75% to 80% compared to pre-2018 levels, predominantly from grid hardening measures that allow the utility to mitigate risk while keeping electricity flowing to our customers. I want to say thanks again to the many of you who visited us in person at our headquarters and heard directly from several of our leaders about the utility’s achievements and ongoing actions.
In March, SCE filed its 2023 through 2025 WMP with the Office of Energy Infrastructure Safety. Highlights of the plan are shown on Page 3. Our number one priority remains the safety of the public, customers, workers, and first responders. In 2023, the utility is building on the work already accomplished while focusing on five key areas: these are continuing to harden the grid, ramping up targeted undergrounding work in severe risk areas, continuing to reduce PSPS impacts, expanding aerial fire suppression funding to year-round, and furthering technological advancements.
SCE’s flagship grid hardening program, covered conductor, remains its key mitigation measure. More than 2,850 additional miles of covered conductor will be installed between 2023 and 2025. By the end of 2025, SCE expects to have replaced more than 7,200 miles, or about three quarters, of overhead distribution power lines in high fire risk areas with covered conductor. SCE also plans to complete about 100 miles of undergrounding by 2025 to address the high risk presented by unique factors in certain areas, and plans to underground a total of 600 miles by the end of 2028.
Additionally, to quickly suppress fires regardless of how they start and protect the communities SCE serves, the utility continues to partner with the LA County Fire Department, Orange County Fire Authority, and Ventura County Fire Department to expand their firefighting capabilities. As highlighted in the WMP, this support has been expanded to year-round aerial fire suppression from the Quick Reaction Force, made up of the world’s largest fire-suppression helicopters with unique night firefighting capabilities.
The WMP is adaptive and is focused on furthering technological advancements to find new ways to mitigate wildfire risk. SCE is continuously developing new approaches and collaborating with other utilities, with academia, and with the energy sector to make our communities safer. The WMP highlights technologies, such as the Rapid Earth Current Limiter, Early Fault Detection, and using artificial intelligence that will continue to advance our suite of wildfire mitigation measures.
Going back to the long-term view, a key driver for SCE’s investment in the grid and for enabling customer affordability is transportation electrification. We aren’t just talking here about regulatory policies or long-term forecasts. We are seeing customers really start to embrace and adopt EVs today, including operators of medium- and heavy-duty vehicle fleets. SCE was an early mover and today has the country’s largest suite of transportation electrification programs led by an investor-owned utility, with over $800 million in approved funding for its Charge Ready programs, which include a program aimed at the medium- and heavy-duty segment.
Momentum and customer interest have certainly increased, and we are beginning to see vehicle availability improvements in the heavy-duty segment, with more options available to order. SCE is currently working with nearly 200 sites to potentially support approximately 4,000 medium- and heavy-duty vehicles. Customers operating heavy-duty vehicles are requesting higher-powered chargers, resulting in larger load requests that may require additional distribution system upgrades to ensure adequate capacity is available. SCE continues to engage with these customers to understand when and where these vehicles will materialize to ensure the grid is ready.
Beyond transportation electrification, building electrification is another critical opportunity to reduce greenhouse gas emissions. SCE has proposed a $677 million program to help catalyze the adoption of electric heat pumps, and that is currently being reviewed by the CPUC.
I will conclude by noting that even as SCE makes substantial investment in the grid to keep the utility and the state on track for decarbonization and electrification efforts, affordability is always top-of-mind. SCE’s long-standing culture of actively pursuing and maintaining productivity improvement and cost control measures has enabled it to have the lowest system average rate among California investor owned utilities.
Some recent examples include the pending settlement agreement with TURN and Cal Advocates to move to a customer-funded wildfire self-insurance model and SCE’s operational excellence program, which includes over 600 employee-driven ideas with capital efficiency and O&M benefits. These include work planning, procurement, and technology as shown on Page 4.
Beyond these, we will constantly pursue new opportunities for digitization, automation, and generative artificial intelligence to drive further improvements in customer interactions, asset data quality, and back-office efficiencies. The expected benefits should progressively increase as we accelerate implementation through 2024 and beyond, further benefiting affordability for SCE's customers.
With that, Maria will provide her financial report.
Maria Rigatti
Thanks Pedro and good afternoon everyone. In my comments today, I will discuss first quarter results, our 2023 EPS guidance, our 2023 financing plan, and other financial topics. Starting with the first quarter of 2023, EIX reported core EPS of $1.09. As you can see from the year-over-year quarterly variance analysis shown on Page 5, SCE’s first quarter earnings increased primarily due to GRC attrition year escalation. This was partially offset by higher net interest expense, 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 $0.04, due to higher holding company interest expense.
I would now like to discuss SCE’s capital and rate base forecasts, shown on Pages 6 and 7. These are consistent with last quarter’s disclosures. SCE will file its 2025 GRC application in mid-May and we will update our capital and rate base projections and extend them through 2028 at that time.
Over the coming years, SCE will continue to invest in wildfire mitigation and increase its grid work to meet the needs of its customers while also supporting California’s leading role in building a carbon-free economy. You can see this increased investment begin in our projections for 2025 capital spending, which is just under $7 billion. As a point of reference, only six years ago, our annual CapEx was less than $4 billion.
Let me provide a brief update on the 2017 and 2018 Wildfire and Mudslide Events. As outlined on Page 8, in the first quarter, SCE resolved about $148 million in individual plaintiff claims. This continued progress settling claims enables us to move further along in resolving these historical events. Naturally, as we proceed toward full resolution, we continue to gain more and more information.
Each quarter we take our cumulative experience into account as we refine the best estimate. Consequently, SCE adjusted the best estimate upward by $90 million. More importantly, with this progress, the utility remains confident that it will file the TKM cost recovery application in the third quarter of this year.
Our message is very clear. SCE will seek full CPUC cost recovery, excluding amounts foregone under the agreement with the Safety Enforcement Division or already recovered. SCE will show its strong, compelling case that it operated its system prudently and that it is in the public interest to authorize full cost recovery.
Turning to guidance, Page 9 shows our 2023 EPS guidance and the key assumptions for modeling purposes. We are pleased with our start to the year and are confident in affirming our 2023 core EPS guidance of $4.55 to $4.85.
Progress related to the parent company’s 2023 financing plan is shown on Page 10. In March, we issued $500 million of junior subordinated notes, which provided $250 million of equity content. The transaction was in line with our expectations, and we were pleased to see strong investor support for this offering, which was significantly oversubscribed. We expect to generate approximately $100 million of equity through internal programs, consistent with the $300 to $400 million of equity content in our financing plan.
To add another highlight on the financing front, just last week, SCE closed on its securitization financing for the final portion of the $1.6 billion in AB 1054 capital expenditures. SCE saw very robust investor engagement for this $775 million offering. This resulted in a cost-effective transaction for SCE’s customers and allowed the utility to repay an outstanding term loan, further improving its credit profile.
Please turn to Page 11. In addition to growing investor support, we are seeing our strengthening business and credit profile reflected in the rating agencies’ outlooks. In February, Moody’s upgraded EIX and SCE’s credit ratings by one notch, reflecting the decline in wildfire risk facing SCE. Additionally, last week, Fitch upgraded EIX and SCE’s credit ratings by one notch, noting the meaningful decline in major wildfires linked to SCE’s equipment post-2018, despite elevated wildfire activity in California in 2020 and 2021, and ongoing efforts to enhance system resilience while mitigating reliance on and frequency of public safety power shutoffs.
Page 12 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, SCE will file a Tier 2 advice letter to implement the adjustment to the 2024 ROE. The adjustment would be equal to half the difference between the average and 4.37%. The mechanism also updates the authorized costs of debt and preferred equity. Through April 25, the measurement period average is around 5.7%. We will continue monitoring the cost of capital mechanism, which could result in significant upside to 2024 earnings should it trigger.
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. My management team and I are fully committed to delivering on this target. We will provide an update on our EPS growth rate projections through 2028 on our Q2 earnings call. With strong rate base growth as the underlying driver, coupled with the significant investment needed in our electric grid, we continue to be optimistic about the company’s growth prospects, both near and long-term.
That concludes my remarks. Sam?
Ted, please open the call for questions. As a reminder we request you to limit yourself to one question and one followup so everyone in line has the opportunity to ask questions.
The phone line is now open for questions. [Operator Instructions] The first question is from Angie Storozynski with Seaport. Your line is now open.
Hi, Angie.
Thank you. How are you? Okay, so my first question is still just looking at the settlements of the 2017 and 2018 claims, so didn’t settle more since basically the fourth quarter update?
No. Angie, this is Maria. We actually settled about $148 million in additional claims during the quarter. So we have been settling more claims. We report on the amount settled in each quarter. So last quarter the pace of the demands did slow down some, but we're still very well positioned and we will be filing our first cost recovery application in Q3 for the TKM event.
Okay, okay, that's fine. And then for the SCC GRC application that you'll file in May, do you plan to assume positive load growth in your filing?
So we will be filing that in another week and a half or so. I think we reported in our last quarter that we're seeing load growth picking up and there are assumptions built into the rate case you'll see those when we file it, but there are assumptions hoping the rate case on load growth. Steven Powell, do you have anything to add?
Hi, yes. As we, now on load growth we expect to see in the rate case focus on all the things we need to do on the grid, both to deal with customer demands like now as well as the load growth [indiscernible] investigation and other things. And so that will be a focus on reliability including looking at infrastructure replacements that has been ramped down over the last number of years while we've dealt with a lot more wildfire mitigation.
So you'll see more wildfire mitigation activities in there, both continuation of our covered conductor program as well as a move towards some targeted undergrounding, continued electrification investment and of course dealing with what we project to be load growth between now and 2035 is going to be about 2% a year on average. So that was right investments in the grid and of course with all of that is making sure we're thinking about from affordability perspective balancing the needed investments in the grid with the customer's needs for affordability.
Okay, and then my last question for Maria, so given all of the credit upgrades and then reduction in wildfire risk, have you seen and again I could probably see myself, but have you seen a meaningful reduction in your credit spreads? I'm just wondering if everybody else in the industry is chasing growth in their cost of debt, are you guys actually seeing some reversal of the risk premium that is positioning you better versus peers in the industry?
Sure, so Angie I think we've -- for a long time we've had the reverse, right, where there's been a big gap between us and where the others in the industry are, we share that with the commission as well. We are seeing some improvement. I think there's still room for improvement and it's one of the things that we're very focused on over time, but we have seen some benefits from some of these recent upgrades.
Okay, that's great. Thank you.
Thank you, Angie.
The next question is from Shar Pourreza with Guggenheim Partners. Your line is now open.
Hey guys.
Hey Shar.
Hey, good afternoon, Shar.
Good afternoon. Pedro, you mentioned the CAISO transmission plan and sort of that associated CapEx opportunities in your prepared remarks. Just to clarify, those have not been assumed in your current 5% to 7% growth guidance. And maybe just tying into the CAISO AB, 538 is proposing to kind of expand CAISO into a western RTO. Does that put further tailwinds for transmission development there?
Yes, so on the first part of the question, no, those are not part of our 2021 to 2025 EPS growth rate. And in fact, the chances are that those projects would be early in the development process by 2025, since they're only now being identified by the Cal-ISO. One of the challenges Shar is that, today transmission development can take a decade largely because of the approval and permitting and siding processes. So, we're also looking at the efforts at the federal level and state levels to expedite permitting and siding. So that's on the transmission piece.
On your question about Western regional market expansion, we're monitoring the bill. We are actually very supportive of the concept of an expanded Cal-ISO providing a platform to become a western regional market. Of course the devil will be in the details and we want to make sure that that expansion if and when it happens, and hopefully it will, but that it's done with all the right sort of safeguards in place to make sure that the right benefits accrue both to California and other state's customers.
And then you asked whether that could add tailwinds and I think of it as a, it's a larger market will provide greater opportunities to minimize the cost of the clean energy transition. It will allow better sharing of resources across the west. And so at its core, I think the main benefit of it would be to provide a platform to support greater affordability for both California customers and customers across the west. And it's -- we mentioned in remarks here we are mindful of affordability. It's something we continue to focus a lot on.
So anything like a western regional market that helps bring down the cost of the transition is a good thing then in terms of creating more room in our rates to either minimize rates or to provide, rate room for all the other projects that are important here. As to whether our western regional market like mean more transmission projects, ultimately for SCE it's a little harder to tell and I think the main benefit is that cost reduction for customers.
Got it. And then lastly, obviously you guys just completed your financing plan, but there is somewhat of a cash pay convert market forming. Several peers have tapped it, some don't even need equity. Your embedded interest cost is over 6%, which is obviously materially higher than this market. Any kind of interest there in that, and could that be sort of accretive to the current plan? Thanks.
Yes. So Shar, it’s Maria. So the financing we've done to date has been consistent with what we said on our last call in terms of the total $1.4 billion and the junior subordinate notes were aimed at the equity content, balance in the equity content we're going to be addressing through our internal program, so that's one piece of it. In terms of the debt financings we have to do for the balance of the year, we're going to look at all the different options. We want to be efficient. We want to consider all of the costs, the all in cost of doing that and take into consideration what both the near-term but also the longer-term potential costs associated with that. But, we're going to keep everything on our radar.
Perfect. That was it. Thank you guys so much.
Yes, thanks Shar.
The next question is from Ryan Levine with Citi. Your line is open.
Hi, Ryan.
Hi everybody. Follow-up on some of the transmission comments or questions. In terms of the initial FERC Order 1000 transmission projects when do you think the company is likely to pursue those from a timeline standpoint?
Hey Ryan, you're cutting up a little bit. Would you mind repeating the question? Might be our bad phone line or so.
In terms of the FERC Order, 1000 transmission lines, from a timeline standpoint, when do you think the company is looking to pursue those opportunities?
Yes, so it really starts with what timeline the Cal-ISO follows for the process of finalizing the transmission plan and then ultimately taking projects through that competitive process. I don't know that we have a specific time available yet, but Steve, are you aware of anything more specific at this point?
Yes, I think, so in the in the draft plan there were four projects identified that would be eligible for competition. They still have to finalize and approve the draft plan. And then in terms of the bidding windows, I believe some of the bidding windows start as early as the beginning into the summer and into the fall. So the project evaluation bidding is kind of later this year in terms of when bidders would be going in on those projects.
Okay. And then the follow-up maybe from Maria, if those projects were to be one, what, how would you look at the financing of the incremental capital given that it's more long duration?
Yes, so when SCE bids and wins, we'll finance that the way we would finance our normal rate based investments, Ryan. So we'll do that in the normal course. I think that there will be a lot of opportunity for us to be able to finance all of it.
Right. Thank you.
Thanks Ryan.
The next question is from Gregg Orrill with UBS. Your line is open.
Hi, Gregg.
Yes, hi. Thank you. Maybe just a quick one on the pending heat pumps investment and just wondering what you would expect the duration of that program would be to spend the money, the $677 million?
That was -- our proposal for that was a five-year program and it can just, I think it's either four or five-year, four-year program. And just to remind you, it's -- we proposed in there around deployment of a quarter million heat pumps. We also proposed to take about a third of the customers with getting heat pumps and upgrading their homes for broader electrification to make them electrification ready. Around 90% of the program is targeted towards residential customers, and a good portion of that is targeting low income and the disadvantage communities. It is still going through the PUC process and so, think about, four years or so deployment timeline after PUC approval.
Thank you very much.
Thanks.
The next question is from Julien Dumoulin-Smith with Bank of America. Your line is open.
Hey, good afternoon, Julien.
Hey, thank you guys very much. I appreciate it. Hey, look, I wanted to come back to the commentary about the update forthcoming. When you made the -- obviously mid-May we've got this rate base update coming. It seemed like in the prepared remarks you were alluding to a potential extension of the earnings outlook with the second quarter call. Can you affirm that? Just think of -- provide us some context as to the parameters that you're thinking there in the base here, et cetera? But more specifically also how you think about maybe the EPS trajectory relative to the rate base that you'll release here with mid-May.
Those are all great questions, Julien. Let me take them from a timing perspective first. So when we file the rate case in mid-May, we'll provide an update at that point relative to capital spend and rate base and that will be through 2028. So that's consistent with the timeline of the general rate case itself. On the Q2 call, we will then add to that our EPS projections through 2028. So your other questions are really excellent, but we'll bring all of that into play on the Q2 call.
So stay tuned.
Got it. Okay, understood. And base here will be rolled forward by a couple of years?
So we'll go into all that detail when we get to the Q2 call.
Got it. All right. Excellent. Well, we will leave it there. Thank you guys. I appreciate it.
All right, thanks Julien.
Thanks, Julien.
And that was the last question. I will now turn the call back over to Mr. Sam Ramraj.
Well, thank you for joining us. This concludes the conference call. Have a good rest of the day and stay safe everyone. You may now disconnect.
Thank you for your participation. You may disconnect at this time.