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Edited Transcript of EIX.N earnings conference call or presentation 30-Apr-20 8:30pm GMT

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Q1 2020 Edison International Earnings Call Rosemead Jun 24, 2020 (Thomson StreetEvents) -- Edited Transcript of Edison International earnings conference call or presentation Thursday, April 30, 2020 at 8:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Maria C. Rigatti Edison International - Executive VP & CFO * Pedro J. Pizarro Edison International - President, CEO & Director * Sam Ramraj Edison International - VP of IR ================================================================================ Conference Call Participants ================================================================================ * Jeremy Bryan Tonet JP Morgan Chase & Co, Research Division - Senior Analyst * Jonathan Philip Arnold Vertical Research Partners, LLC - Principal * Julien Patrick Dumoulin-Smith BofA Merrill Lynch, Research Division - Director and Head of the US Power, Utilities & Alternative Energy Equity Research * Michael Jay Lapides Goldman Sachs Group Inc., Research Division - VP * Stephen Calder Byrd Morgan Stanley, Research Division - MD and Head of North American Research for the Power & Utilities and Clean Energy * Steven Isaac Fleishman Wolfe Research, LLC - MD & Senior Utilities Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good afternoon, and welcome to the Edison International First Quarter 2020 Financial Teleconference. My name is Sue, and I will be your operator today. (Operator Instructions) Today's call is being recorded. And 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, Edison International - VP of IR [2] -------------------------------------------------------------------------------- Thank you, Sue, 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. I would like to mention that we are doing this call with our executives in different locations because of California's stay-at-home order. So please bear with us if you experience any technical difficulties on the call. Materials supporting today's call are available at www.edisoninvestor.com. These include our 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. (Operator Instructions) I will now turn the call over to Pedro. -------------------------------------------------------------------------------- Pedro J. Pizarro, Edison International - President, CEO & Director [3] -------------------------------------------------------------------------------- Thanks, Sam, and good afternoon, everyone. Let me begin by saying that our thoughts go out to those here in California and elsewhere, who have been directly impacted by COVID-19, including colleagues from our Edison team. We're all facing an experience that is unprecedented. And I know that your participation in today's earnings call is likely not the routine it has been in the past. One thing that hasn't changed in these times is our company's commitment to the health and the safety of the 13,000 women and men of Edison International and Southern California Edison, and the 15 million people and their communities who are served by SCE. This pandemic and stay-at-home orders put a spotlight on the role that the electric grid plays in all our lives. The Edison team is demonstrating their incredible commitment to continue to deliver this essential service to our customers during this historic time. I could not be prouder of our team for the way they have worked together to carry out our mission. I will dedicate much of my prepared remarks to our response to COVID-19. But first, let me give you the quick financial headlines. Today, Edison International reported core earnings per share of $0.63 for the first quarter 2020, flat compared to the same period last year. Higher core EPS at SCE was fully offset by an increase in core loss per share at EIX Parent and Other. Maria will discuss our financial performance in more detail in her report. I will now turn to how the State of California has been responding to the COVID-19 crisis, how Edison has organized and responded and how we are preparing and caring for our workforce. I will also share some of the ways in which SCE is helping customers navigate the effects of the stay-at-home executive order. Lastly, I will provide an update on the continued progress SCE has made on its wildfire mitigation work, which the CPUC and other state agencies have identified as essential work that must continue. The headline on this is that we are ensuring our wildfire mitigation work is not unduly impacted by COVID-19. In California, the governor and legislature have taken actions to provide emergency funding of up to $1 billion to increase hospital capacity, purchase medical equipment, assist schools and protect facilities with the state's most vulnerable residents. The state is expected to spend significantly more in total to address the emergency. When the legislature returns, it is expected to pass a scaled-down budget by the June 15 deadline and develop a more robust budget after the extended July 15 tax filing deadline. The governor's budget priorities are to address COVID-19 related impacts, wildfire prevention and homelessness. We will continue to work closely with staff and senior government officials and maintain an open line of communication on the essential work that our company continues to undertake, particularly wildfire mitigation work. At Edison, our core focus is on ensuring the safety and health of our employees and providing them with the resources necessary to maintain critical operations for the benefit of our customers. Early on, SCE mobilized an Incident Management Team, or IMT, to run day-to-day COVID-19 response. The IMT is a group of individuals, trained to respond to emergencies on our system, utilizing protocols established by FEMA. I lead our crisis management council made up of senior leaders from EIX and SCE, and we check in daily with the incident commander and key IMT staff to provide guidance and approve new needed corporate policies. While we already had a robust pandemic response plan and had tested it in planning exercises, the reality is that the scale of the COVID-19 crisis has required us to make a number of policy changes on the fly, and we continue to learn. Leveraging the experience and training of the IMT, we quickly transitioned about 2/3 of our workforce to teleworking. At the same time, we remain committed to the essential nature of the service SCE provides, which was also called out in the governor's stay-at-home executive order. Frontline workers and employees who support critical functions remain in the field or at certain SCE facilities while observing appropriate safety measures. Furthermore, SCE has sequestered a small number of essential personnel to ensure their availability at designated critical facilities. Questions are already being asked about whether the COVID-19 pandemic will dramatically alter how we live, work and socialize once the immediate crisis is behind us. It's probably just too early to say with any certainty, but Edison is already preparing for the potential of longer-term changes. Some of these will be positive changes. For example, I am certain that our learnings in how we telework will lead to improvements in how we do our work more flexibly and sustainably even after we can rejoin our colleagues in physical offices. To this end, we stood up a future planning cell to consider and plan for a possible changed reality and how the company, employees and our customers can adjust and continue to thrive both socially and economically. I am honored to serve as the only utility representative on the governor's task force on jobs and business recovery. SCE is safely providing reliable power to critical facilities, such as hospitals, medical labs and grocery stores. As California begins to plan the future of work in a post-COVID-19 environment, clean energy can play a critical role in a just and equitable economic recovery with thousands of good jobs that also address the challenges of climate change and air quality. Since the implementation of statewide stay-at-home measures, SCE system load has declined by 6%. We have seen an increase in residential load demand, but this is more than offset by decreases in the nonresidential sectors. While we are seeing reduced demand for power, I would like to remind you that California has a long-standing policy of decoupling revenue from electricity [and] sales. We also have a mechanism already in place to track any over or under collections called the base revenue requirement balancing account, so there is no net impact on revenue and earnings. Additionally, the commission recently approved the establishment of a new memorandum account, called the COVID-19 Pandemic Protections Memo Account to record costs associated with consumer protection efforts related to COVID-19, through which SCE can seek cost recovery in subsequent proceedings. Maria will address this topic in her remarks. We remain focused on supporting our customers and our communities. SCE was one of the first utilities nationwide to voluntarily suspend service disconnections for nonpayment for residential and commercial customers impacted by COVID-19 before it was mandated. SCE has waived late fees and is offering flexible billing arrangements. To further support our communities, Edison International has pledged $1 million to nonprofit organizations providing support to those facing economic hardship due to COVID-19. I am grateful and proud of the Edison employees who contributed more than $250,000 for COVID-19 relief. The funds they contributed will be matched by Edison International. In addition to our own efforts to support customers, the CPUC has continued to function during the pandemic and has itself identified initiatives to help utility customers. Some of these initiatives parallel what SCE had already implemented and which I covered earlier. Additionally, we are encouraged that the CPUC has moved on many of SCE's pending applications. For instance, on April 16, the commission issued a final decision on SCE's Grid Safety and Resiliency Program, approving the settlement agreement without any changes. The decision authorizes $407.3 million in capital and $119.2 million in O&M for 2018 through 2020. Additionally, earlier this month, SCE received a proposed decision on its capital structure waiver application that seeks to exclude from SCE's common equity, the previously recorded net charge of $1.8 billion, and any future charges associated with the 2017 and 2018 wildfire events. The PD also excludes debt issuance for the purpose of paying claims related to these events. This waiver continues for the earlier of a 2-year period or until 2017 and 2018 wildfire cost recovery claims are resolved. The CPUC also continues to move forward in the proceeding of the IOU's Wildfire Mitigation Plans, which are slated for approval as early as June. On April 3, the Wildfire Safety Advisory Board issued its draft recommendations on the WMP, and those were approved on April 15. Further, last month, SCE filed Track 2 of its 2021 GRC proceeding. The filing states reasonableness review of $810.5 million of incremental O&M and capital expenditures incurred for 2018 and 2019 wildfire mitigation activities and cost recovery of the associated revenue requirement of $500.1 million. Turning to operations. SCE continues to perform critical work related to public safety, wildfire mitigation and reliability while deferring noncritical outages for as long as our communities are staying at home. SCE has also developed a 14-day look ahead of planned outages across our service area to better coordinate with local jurisdictions and address any concerns. Additionally, SCE has made tremendous strides to mitigate wildfire risk in the last year, and we also filed our 2020 to 2022 Wildfire Mitigation Plan in February. This plan calls for SCE to continue to harden infrastructure, bolster situational awareness capabilities and enhance operational practices, all while implementing enhanced data analytics and technology. We are executing these programs as quickly as possible as they are critical to ensuring the safety of our communities and are viewed as essential by the state and by us. At the same time, we continue to prepare for potential Public Safety Power Shutoffs or PSPS. This is one of the more significant areas of wildfire-related work, and SCE established another incident management team earlier this year to focus on further reducing the potential impacts of PSPS on our customers. This dedicated team is working on measures like further automating the process to provide timely information to local jurisdictions and customers, developing more detailed playbooks to reroute power and minimize customer outages, and advancing customer care programs in our high fire risk areas, including use of backup generators. We remain committed to EIX's long-term strategy and its focus on clean energy consistent with the state's policies and objectives. The foundation of our clean energy strategy is found in Pathway 2045, a blueprint for how California's broader economy and our company can combat the climate change that catalyzes extreme weather events and exacerbates wildfires. It calls for the transformation of our industry through clean energy, electrification of the transportation sector where our deployment of electric vehicle charging stations plays a major role and the electrification of building space and water heating. I expect these areas will all be key elements as the governor's task force looks to reopen the California economy and position our state to prosper in the exciting decades ahead. I want to close my comments with an emphasis on the essential nature of the service we provide. We help power the economy. We power both lifesaving machines and lifestyles. We support our employees. We serve and help protect the public. Once again, I am very proud of my 13,000 colleagues who are working so hard on doing all of this safely. I also thank our investors for your commitment and support, and I hope that all of you and your loved ones are staying safe, well and healthy. With that, Maria will provide her financial report. -------------------------------------------------------------------------------- Maria C. Rigatti, Edison International - Executive VP & CFO [4] -------------------------------------------------------------------------------- Thanks, Pedro. My comments today will cover first quarter 2020 results, our capital expenditure and rate base forecast, 2020 EPS guidance and other topics including the impact of COVID-19 on our operations and financial performance. As we have said previously, quarterly year-over-year comparisons are less meaningful given the timing of the 2018 GRC decision. Please turn to Page 3. Edison International reported core earnings of $0.63 per share, which was flat compared to the same period last year. Higher core EPS at SCE was fully offset by an increase in core loss per share at EIX Parent and Other, primarily due to interest expense. From the table on the right-hand side, you will see that SCE had a core EPS variance of positive $0.04 year-over-year. This was primarily driven by $0.12 of higher EPS from SCE core activities, which was partially offset by $0.08 of share count dilution. There are a few items that accounted for the majority of the EPS variance at SCE. To begin with, higher revenues had a positive variance of $0.42. This was primarily driven by $0.37 of higher CPUC revenues, mainly due to the adoption of the 2018 GRC final decision in Q2 2019. FERC revenues had a positive variance of $0.05, largely due to the increased equity layer, rate base growth and higher expenses. Higher O&M expenses negatively impacted year-over-year EPS by $0.28. The largest component was a $0.15 increase in vegetation management costs. This is due to a combination of higher wages and training mandated by the state's new legislation, SB 247, and an increase in the number of trims. We have discussed this in the past, but I want to pause here to summarize the methodology and impact of memo accounts. To begin, there are various expenses that qualify for tracking in the wildfire-related memo accounts. From the start of each year, we track actual costs incurred and compare that to the amounts authorized in the GRC for these same activities. Only costs that are incremental to the amounts authorized are eligible for deferral, and we have to incur the full annual amount authorized in the GRC before we record a regulatory asset for the incremental expenses probable of recovery. As a result, when considering quarterly results or comparing year-over-year results, impacts can be quite pronounced and not reflective of future quarters. The timing of the expenditures and the point at which the deferrals begin drive quarter-over-quarter variances. Finally, as we've said previously, we will seek recovery of costs for which we have not recorded a regulatory asset due to a lack of precedent. Next, there was a negative $0.04 impact due to the recovery of wildfire insurance expenses in the prior year, which is absent in 2020. There was also a $0.04 negative impact from costs related to short-term incentive compensation. Additionally, there was a negative $0.07 variance, primarily due to an increase in the estimated allowance for bad debt related to the economic impact of the COVID-19 pandemic and higher workers' comp and legal expenses. As Pedro mentioned earlier, the CPUC approved the establishment of the new COVID-19 Pandemic Protection Memo Account, the CPPMA, to track consumer protection costs for residential and small commercial customers. SCE will seek authority to record bad debt expense in excess of GRC authorized amounts, and once we exceed the 2018 GRC authorized amount for bad debt, we will recognize a regulatory asset for the amount we conclude as probable of recovery. We will track these expenses and ultimately seek cost recovery in an applicable proceeding designated by the CPUC. We expect to file an advice letter tomorrow, including the overall scope of costs to be tracked in this account. Higher interest expense related to increased borrowings had a negative $0.03 impact. Lastly, there was a positive $0.02 income tax variance related to benefits passed back to customers with no impact on earnings. EIX Parent and Other had a negative $0.04 core variance in the quarter. This was largely due to $0.05 of higher interest expense related to increased borrowings and was partially offset by the increase in shares outstanding. Page 4 shows SCE's capital expenditure forecast. This includes CPUC jurisdictional GRC capital expenditures, certain non-GRC CPUC capital spending and FERC capital spending. We continue to execute a robust capital program of $19.4 billion to $21.2 billion from 2020 through 2023. This forecast is unchanged from what we shared with you in February. However, due to the COVID-19 pandemic, we are modifying our work practices to reduce the impact on customers as they comply with stay-at-home orders. We are working with local governments to ensure they have visibility into the essential work being planned, but we continue to have a strong focus on our wildfire mitigation efforts. We are assessing the impact of this and the broader potential impacts of COVID-19 on our 2020 capital program, but are working to ensure that our customers' needs are met in the longer term. And we continue to see significant investment opportunities as we invest in the safety and resiliency of the grid and prepare for the clean energy future. On Page 5, we show SCE's rate base forecast. At the capital expenditure levels requested in the 2021 GRC, total weighted-average CPUC and FERC-jurisdictional rate base will increase to $41 billion by 2023. This request level represents a compound annual growth rate of 7.5% over 2 rate case periods. To give you an update on the 2021 GRC, on April 10, California Public Advocates, Cal PA, filed its intervenor testimony in response to the Track 1 request, in line with the schedule laid out in the scoping memo. Cal PA proposed a 2021 test year revenue requirement of $6.9 billion, a $651 million reduction from SCE's request of $7.6 billion. They also proposed post-test year revenue requirement increases of 3.5% for 2022 and 2023. Overall, Cal PA proposed approving approximately 90% of SCE's capital expenditure request. The primary difference between our request and the intervenor's proposal was in the covered conductor program related to wildfire prevention and mitigation and in T&D grid operations. TURN and other intervenors are scheduled to provide testimony on May 5, and our rebuttal is due on June 12. Additionally, earlier this month, the CPUC issued an amended scoping memo on the schedule and procedure for litigating the third attrition year of the 2021 GRC cycle. The ruling sets forth a Track 4 schedule beginning with SCE's filing for 2024 in May 2022 and concluding with the proposed decision in Q4 2023. Since the onset of the COVID-19 pandemic, we've been asked about the potential impact to revenue and earnings. We've also had conversations on the actions to strengthen our balance sheet, liquidity enhancements and the strong funding status of our pension benefits and postretirement benefits other than pensions, or PBOP, and related regulatory recovery mechanism. I'm going to take a few minutes to address these items, which are laid out on Slides 6 and 7. For nearly 4 decades, California has had a regulatory construct that has been supportive of customers and IOUs, particularly in decoupling utility revenues from sales volumes through various cost recovery mechanisms. CPUC rates decouple authorized revenue from volumetric risk related to retail electricity sales so that SCE receives revenue equal to the authorized amounts. We track over or under collections of the CPUC base rate due to variations in load in our Base Revenue Requirement Balancing Account, or BRRBA. Annually, the difference between amounts billed and authorized levels are either collected or refunded so there is no net impact to SCE's revenue and earnings from load changes. These adjustments address all volatility in SCE sales volumes, including from COVID-19 related developments. Additionally, as I noted earlier, we will request to use the new CPPMA to record consumer protection costs. We will seek cost recovery of these in our annual energy resource recovery account, GRC or other proceedings. In addition to the CPPMA, SCE has activated the Catastrophic Events Memorandum Account, or CEMA, to track other COVID-19 costs. The costs will be track -- we will be tracking include IT expenses to facilitate teleworking, employee benefits allowing employees to care for themselves and dependents affected by COVID-19 and other costs incurred to support the safety and well-being of our workers during this crisis. This account will also record any savings realized as a result of changes in work, which will be used to offset the additional costs recorded. I also want to share with you the impact of COVID-19 on SCE's load and on customer bills to date, particularly given the importance of customer protection. Through April 19, SCE has experienced a 6% decline in system load during the stay-at-home order versus the prior year. While total load is down, experience has varied across customer classes. On Slide 6, you can see the load changes within each customer class. Given the timing of billing cycles versus the start of the stay-at-home order, we are still evaluating the full impact on customer payment behavior. However, we have seen some increases in the number of outstanding accounts receivable for both commercial and residential customers. This is a likely leading indicator for an increase in deferred payments or bad debt expense. Please turn to Page 7, which includes some information on our pension benefits and PBOP. At the end of 2019, our qualified pension plans were 96% funded. Also, we are well positioned with PBOP, which is managed through multiple trusts that, in total, range from approximately 80% to fully funded as of year-end. These plans have a diversified asset allocation, which provided a significant level of resiliency through the volatility we have seen in the early months of 2020. SCE makes annual contributions to its pension plans and PBOP accounts and these contributions are recoverable through a CPUC-approved balancing account that allows us to true-up every year to the actual contribution. Also, because we record a regulatory asset for the unfunded status of these plans, there is no impact to earnings. Please turn to Page 8. We continue to focus on ensuring we have a strong balance sheet and maintaining financial flexibility. As you can see from the bars on the page, as of April 15, EIX and SCE have a consolidated liquidity profile of $6.4 billion, which is a combination of cash on hand of $1.3 billion and available capacity on credit facilities of $5.1 billion. EIX and SCE have no long-term debt maturities for the rest of the year and approximately $1 billion of debt maturities in 2021. We have proactively derisked our financing needs for 2020 by accessing the capital market in January, March and April. This includes issuing $2.3 billion in long-term debt at SCE and $400 million of notes at EIX. The latter funds the debt portion of the EIX 2020 financing plan. EIX also put in place an $800 million, 364-day term loan to provide financing flexibility for our 2020 equity need, given the recent market volatility related to COVID-19. Also in the first quarter, SCE put in place a 364-day revolving credit facility and term loan for $1.3 billion. This will be dedicated to capital spending related to wildfire mitigation under AB 1054 that does not earn an equity return, but is eligible to be recovered through a securitizable dedicated rate component once authorized by the CPUC. Our long-term financing framework is to execute our SCE capital growth plans while maintaining investment-grade ratings at both SCE and EIX. This framework drives our previously disclosed EIX 2020 financing plan, which includes the $400 million of debt at EIX, which I just discussed, and $800 million in equity, out of which $600 million is in support of the growth capital needs at SCE for 2020. The remaining $200 million is a carryover of the equity plan we disclosed in 2019 that we expect to complete this year. As of March 31, approximately $90 million of that amount was raised through ATM and internal programs. As I have mentioned, given recent volatility in the capital markets, we put in a term loan at EIX last month to give us flexibility as we work deliberately on executing our remaining equity financing plan for 2020. Page 9 shows our 2020 guidance and the key assumptions for modeling purposes. We are reaffirming our guidance range of $4.32 to $4.62 per share. In light of the volatility introduced by COVID-19, let me explain our thoughts for not showing a bridge to the midpoint of this range as we have done in the past. Previously, our 2020 guidance started with rate based earnings from CPUC and FERC jurisdictional assets. As you can see from the information on the slide, our assumptions for rate base earnings are unchanged, but COVID-19 will have an effect on how we execute our operational and financing plans for the remainder of this year. As I mentioned earlier, there are strong regulatory constructs in California that will mitigate the impacts of load reduction as well as incremental costs related to COVID-19. However, there may be cost savings that are realized because some activities such as travel, have been reduced as a result of the stay-at-home order. These savings driven by COVID-19 government directive will be used to offset new costs before additional recovery is authorized. It will be a detailed and data-intensive process to determine which costs and savings are specifically COVID-19 related. Therefore, I expect that there will be more variability within and across the various earnings drivers that are typically part of our guidance. So it is more relevant to discuss the range rather than the midpoint. I look forward to giving you an update on the next earnings call as we continue to deliver this essential service to our customers and gain a more specific understanding of the impact of COVID-19 in California. That concludes my remarks. -------------------------------------------------------------------------------- Sam Ramraj, Edison International - VP of IR [5] -------------------------------------------------------------------------------- Sue, please open the line for questions. (Operator Instructions) ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) And that comes from Jonathan Arnold with Vertical Research Partners. -------------------------------------------------------------------------------- Jonathan Philip Arnold, Vertical Research Partners, LLC - Principal [2] -------------------------------------------------------------------------------- Just one thing, I saw in the 10-Q, I think the wildfire, the WEMA memo accounts are up to something like just under $950 million. But could you just tie those to what you talked about in terms of the Track 2 filing? Are those -- is that a filing covering some of that number? Or is it a separate piece? And then maybe an update on the WEMA proceeding itself. -------------------------------------------------------------------------------- Maria C. Rigatti, Edison International - Executive VP & CFO [3] -------------------------------------------------------------------------------- Sure. So I think you were looking back in the notes where we show the regulatory accounts, the memo accounts and the balancing accounts. From year-end to now, that number has moved, I'll say, about $80 million. So we recorded about another $80 million in that account. So the increment that we recorded this year is actually in the next track that we would be filing with the commission. So if you recall the costs incurred in 2020 are actually part of the track that gets filed in Q1 of 2021. So we'll continue to accumulate these costs. And that account that you're looking at or in the note, the line item that you're looking at is not just the WEMA account, it's the alphabet soup of wildfire-related memo accounts. -------------------------------------------------------------------------------- Jonathan Philip Arnold, Vertical Research Partners, LLC - Principal [4] -------------------------------------------------------------------------------- Okay. But the Track 2 filing you talked about is -- encompasses some of that balance, is that correct? -------------------------------------------------------------------------------- Maria C. Rigatti, Edison International - Executive VP & CFO [5] -------------------------------------------------------------------------------- That's right. The Track 2 that we filed for is seeking recovery for about $500 million of revenue requirement, and we would expect to see that decision in the early part of next year. The WEMA, which is primarily aimed at or associated with insurance costs, that isn't -- that proceeding is a little bit ahead of the Track 2 proceedings. And we are -- the CPUC is in the process of determining whether evidentiary hearings are required. And so we will understand whether or not those are required and could potentially -- those could take place in June and then a decision would be forthcoming following that. Right now, the parties have been asked to meet and confer to see if they actually need evidentiary hearing. -------------------------------------------------------------------------------- Jonathan Philip Arnold, Vertical Research Partners, LLC - Principal [6] -------------------------------------------------------------------------------- Okay. And then maybe just as my follow-up, what are the prospects of starting to work down some of these balances going to be at in 2020? And then how is your view on that evolved since last quarter? -------------------------------------------------------------------------------- Maria C. Rigatti, Edison International - Executive VP & CFO [7] -------------------------------------------------------------------------------- So I think the timing is reasonably the same in terms of where we think the proceedings will play out. The one thing I would say is there's always the issue of trying to get on -- you get a decision and you have to get on a calendar, 30 days later to get the proposed decision, then you have to roll it into rates. So there could be some variability as a result of that, but things are still reasonably in the same place as they were last quarter. -------------------------------------------------------------------------------- Operator [8] -------------------------------------------------------------------------------- The next question is from Steve Fleishman with Wolfe Research. -------------------------------------------------------------------------------- Steven Isaac Fleishman, Wolfe Research, LLC - MD & Senior Utilities Analyst [9] -------------------------------------------------------------------------------- So just -- I wanted to just make a clarification. You did reaffirm your 2020 guidance, including your current view of the impact of COVID and -- is that correct? And is your commentary related to all the moving pieces in the bridge, so to speak, more just about kind of dealing with just the exact way you get there, but you do think you'll be within this range, is that right? -------------------------------------------------------------------------------- Pedro J. Pizarro, Edison International - President, CEO & Director [10] -------------------------------------------------------------------------------- Yes. And a lot of moving pieces, but Maria. -------------------------------------------------------------------------------- Maria C. Rigatti, Edison International - Executive VP & CFO [11] -------------------------------------------------------------------------------- Yes. I agree with Pedro. I think that we've reaffirmed the range. I think there are a lot of moving pieces. And so we didn't want to build that bridge because I think it -- I'll tell you, I think if I try to keep -- if we try to keep putting things in very, very precise buckets, it would convey a level of precision that I think you would question. So I think we're just trying to be straightforward with the guidance range and that things are still moving, and we'll be able to provide maybe more specificity as we move on through the year, obviously. But right now, that's where we are. -------------------------------------------------------------------------------- Steven Isaac Fleishman, Wolfe Research, LLC - MD & Senior Utilities Analyst [12] -------------------------------------------------------------------------------- Got it. And just so I get -- because I think if you get into every detail of how California mechanisms work, it's probably -- it's kind of getting too much into the trees and not the forest. So just if I'm going back up to the forest, the overall view, despite the timing of when you record things and all the different things, all the different components of this is that you do have tracking mechanisms that recover a lot of the volatility of revenue and cost, such that a lot of the issue is just the timing intraquarter and the way you account for things, it's not -- the overall picture of the forest is a lot of these -- most of these issues are recovered. -------------------------------------------------------------------------------- Maria C. Rigatti, Edison International - Executive VP & CFO [13] -------------------------------------------------------------------------------- Yes, I think especially memo accounts definitely create that intraquarter year-over-year kind of variability just because of the way the mechanics work, the methodology. But I completely agree that there's a lot of mechanisms in California, some of them 40 years old at this point that allow us to recover a variety of costs or under-recoveries or undercollections of sales. -------------------------------------------------------------------------------- Pedro J. Pizarro, Edison International - President, CEO & Director [14] -------------------------------------------------------------------------------- And let me just add one piece here. Just maybe even -- not even at the forest levels, maybe up at the clouds level. But the reality is that when you think about all those moving pieces, if you bring it down to the actual things that we're doing, there are so many decisions we've had to make and steps along the way in terms of how we're changing, how our workforce is working, and what things we need to be providing our teleworking employees to do the work efficiently from home, our folks in the field, what things they need to be doing, different practices to be able to keep them safe out there and help do our part to slow down the spread of COVID-19. And so it's great we have all these tracking accounts. There will come a time, obviously, when we'll need to not only have the amounts tracked, but we'll need to demonstrate that those were prudent decisions that we made. That's why we have so much process around this, right, in terms of the IMT I described and crisis management council and senior oversight over that myriad decisions. But the other piece around this is we are having discussions informally with the CPUC, with the governor's office, with others involved because this is not just about how we're thinking about things, but it's about how the state overall is looking at managing through the crisis, through the pandemic and then looking at the building of the building blocks that will allow the state, the economy and our company to go back to whatever the new normal is after this. And so we're also trying to do what we're doing not in a vacuum by consulting policymakers, consulting peer utilities in the state, outside the state. So I think that all helps bolster the case for -- we're trying to do all this prudently and should ultimately have a good shot at recovery. -------------------------------------------------------------------------------- Operator [15] -------------------------------------------------------------------------------- The next question is from Michael Lapides with Goldman Sachs. -------------------------------------------------------------------------------- Michael Jay Lapides, Goldman Sachs Group Inc., Research Division - VP [16] -------------------------------------------------------------------------------- One easy one, which is on the BRRBA, how much lag is there? Meaning, how quickly does this BRRBA true up? So if demand is down, call it, 10% in a quarter or in 2 quarters, and for earnings purposes, there's no impact, but from a cash flow purpose, there's an impact, how does the mechanism work from a timing perspective? -------------------------------------------------------------------------------- Maria C. Rigatti, Edison International - Executive VP & CFO [17] -------------------------------------------------------------------------------- Michael, it's Maria. So BRRBA gets put into rates at the beginning of every year. So it's an annual [updraw]. -------------------------------------------------------------------------------- Michael Jay Lapides, Goldman Sachs Group Inc., Research Division - VP [18] -------------------------------------------------------------------------------- Got it. So in other words, if you've got a kind of -- I would use the term lost revenue number, pick a number, whatever it is, that lost revenue number gets put into rates at the beginning of next year, along with any other rate adjustments? -------------------------------------------------------------------------------- Maria C. Rigatti, Edison International - Executive VP & CFO [19] -------------------------------------------------------------------------------- That is how it's been working, yes. -------------------------------------------------------------------------------- Pedro J. Pizarro, Edison International - President, CEO & Director [20] -------------------------------------------------------------------------------- And it has been working this way for many, many, many years. -------------------------------------------------------------------------------- Michael Jay Lapides, Goldman Sachs Group Inc., Research Division - VP [21] -------------------------------------------------------------------------------- And it's an automatic process? Or do you have to actually file for the BRRBA, go through a docket, get regulatory approval to get update? -------------------------------------------------------------------------------- Maria C. Rigatti, Edison International - Executive VP & CFO [22] -------------------------------------------------------------------------------- BRRBA works a little bit differently than ERRA. You were thinking probably of our purchased power accounts, recovery accounts that they actually file and you go through and kind of talk to people about them and then we had a decision, then we roll that into rate. With BRRBA, what happens is it just really goes into rates automatically at the beginning of the year. -------------------------------------------------------------------------------- Michael Jay Lapides, Goldman Sachs Group Inc., Research Division - VP [23] -------------------------------------------------------------------------------- Got it. And then one rate base growth or CapEx question. On your CapEx slide, and you've got a list of things that are not included in that. And I think the last one on the list was transmission infrastructure. Can you just remind us what you're referring to or what that implies? -------------------------------------------------------------------------------- Maria C. Rigatti, Edison International - Executive VP & CFO [24] -------------------------------------------------------------------------------- So I think you're looking at something that says what the long-term growth drivers are and one of them is transmission infrastructure. We do have -- some of our FERC transmission projects are certainly in the rate base calculations that we've provided here. But I think this references to -- in California, as we move to electrifying more of the economy, will more transmission be needed, when will that be needed? And it would be a growth opportunity as that plays out over time. The CAISO has not yet put out their plans for the longer-term transmission needs, however, at this point. -------------------------------------------------------------------------------- Pedro J. Pizarro, Edison International - President, CEO & Director [25] -------------------------------------------------------------------------------- And just to [pay] back on that, remember, Michael, that the Cal ISO ends up developing the overall plan, they used it based on input -- developed that based on input that they get from transmission owners and other market participants to the extent that identify brand-new projects and under FERC Order 1000, those are open to competition to the extent that they identify projects that are upgrades or extensions of existing projects then the utility as transmission owner has the right of first refusal. And so we don't know what that time will be in the future for 2030 or for 2045 or what have you. But I think it's probably reasonable to expect there might be some combination of projects that are extensions upgrades of existing lines that we would have -- or SCE would have a right of first refusal on and some other projects [or the] new competed projects. -------------------------------------------------------------------------------- Operator [26] -------------------------------------------------------------------------------- The next question is from Julien Dumoulin-Smith with Bank of America. -------------------------------------------------------------------------------- Julien Patrick Dumoulin-Smith, BofA Merrill Lynch, Research Division - Director and Head of the US Power, Utilities & Alternative Energy Equity Research [27] -------------------------------------------------------------------------------- So I wanted to follow up on where Steve was a second ago here and just make sure we're crystal clear about this. Maria, when you're talking about missing the forest, the trees here and the whole conversation. I mean, ultimately, the variability is pretty strictly intraquarter. And ultimately, when you think about this netting, this netting dynamic simply reduces the ultimate amount that you're seeking from the CPUC and this new COVID account. And to the extent to which that you're seeking some net number from them and you're not able to offset everything that number is still going to be deferred, and that's not necessarily going to show up on your income statement as an expense. But you tell me how you're going to account for it, just to make sure I'm not missing the conceptual point that you're raising about added volatility this year. -------------------------------------------------------------------------------- Maria C. Rigatti, Edison International - Executive VP & CFO [28] -------------------------------------------------------------------------------- So the variability, obviously, covers not just COVID things, but probably in the -- earlier in my prepared remarks, I talked about just memo accounts and how that's working around wildfire mitigation as well. So there's a little bit of activity going on in both of those areas. So there is some variability around more than just COVID. In the COVID space, correct, we are going to be tracking all of our costs. We have to always be looking at whether or not those are costs that were just amplifications of things that were already authorized in the GRC. And so we would be first recording all of the GRC-authorized amounts and then only would be able to defer expenses. We also go through our standard process of probability of recovery because that's part of our quarterly process as well. And then we'd also have to be tracking savings that relate to these categories in terms of things that are being driven by COVID-19 government directives. And I gave an example of travel, that's a really easy one, right? Because frankly, none of us is traveling right now. So we'll have to go through that process. And I think it could create some variability across the year. And then I think we're also going to always be looking at some of those other categories as well, and we want to make sure that we manage across all of them. And that's why while we're reaffirming the guidance range, we didn't want to provide that level of specificity with every piece part and every component with what we know today. -------------------------------------------------------------------------------- Julien Patrick Dumoulin-Smith, BofA Merrill Lynch, Research Division - Director and Head of the US Power, Utilities & Alternative Energy Equity Research [29] -------------------------------------------------------------------------------- Got it. And if I can follow-up here. So obviously, there's a lot of earnings gyrations, but cash flow gyrations and working capital gyrations. I presume, given your commentary is unchanged with respect to equity cumulatively for the year that the quantum of working capital involved with respect to decoupling or with respect to COVID or the litany of other accounts that you just alluded to, that fundamentally does not drive any changes in how you're thinking about balance sheet considerations, FFO metrics, et cetera, et cetera? And perhaps even within that, doesn't necessarily change this notion of latitude on timing as well, I presume. -------------------------------------------------------------------------------- Maria C. Rigatti, Edison International - Executive VP & CFO [30] -------------------------------------------------------------------------------- There's a lot in there. So obviously, we're very focused on cash flows and customer payment behaviors, et cetera. We did put in an additional credit facility that I mentioned earlier that was really focused on a certain sliver of our capital spending. So the AB 1054 capital spending, the amounts that will ultimately be securitized. So we put that into place, so that would also free up our, I'll say, normal course credit facilities. We have a $3 billion credit facility down at SCE, which would be the one that was aimed at customer payment issues, et cetera. But yes, so we have been managing and putting into place various facilities that we think really help us manage the cash flow and liquidity impact. In terms of your question on the equity plan for the year, I think we announced that back in Q4. We still have the same plan. The term loan that we put in place at EIX, obviously, gives us flexibility around timing there. But we are still -- have the same, I'll say, financing philosophy, which is to create opportunities to invest in SCE's growth opportunities as well as to maintain investment-grade ratings at both the SCE and EIX. So we will be continuing with our plan. I think the rating agencies are very, I think, find the California regulatory constructs around some of the issues we're facing in COVID-19 to be very helpful. But we're still going to be pursuing our financing plan. -------------------------------------------------------------------------------- Operator [31] -------------------------------------------------------------------------------- Our next question is from Jeremy Tonet with JPMorgan. -------------------------------------------------------------------------------- Jeremy Bryan Tonet, JP Morgan Chase & Co, Research Division - Senior Analyst [32] -------------------------------------------------------------------------------- Just wanted to clarify here. When it comes to the earnings and not putting the bridge here that you've done in the past, just wanted to clarify that you're not necessarily indicating the lower end of the range here, just that there's too much uncertainty right now for you to kind of provide this type of dynamic. Is that the right way to think about this? -------------------------------------------------------------------------------- Pedro J. Pizarro, Edison International - President, CEO & Director [33] -------------------------------------------------------------------------------- Yes. And I think Maria captured it well earlier. We're reaffirming the whole guidance range. We're not providing a bridge to a midpoint, and we're just pointing out that there are a lot of moving parts and pieces right now. So -- but we've reaffirmed the range. -------------------------------------------------------------------------------- Jeremy Bryan Tonet, JP Morgan Chase & Co, Research Division - Senior Analyst [34] -------------------------------------------------------------------------------- Got it. That's helpful there. And then just wanted to turn to equity funding real quick for a second. Given really the unprecedented volatility we're seeing in the capital markets here, just wondering if in any way this has altered your strategy for raising equity, be it looking at blocks or ATM or timing of either? And also given that you -- that a portion of 2019 equity was carried into 2020, would you consider delaying equity further at this point if volatility in the marketplace continues? -------------------------------------------------------------------------------- Maria C. Rigatti, Edison International - Executive VP & CFO [35] -------------------------------------------------------------------------------- Jeremy, I think kind of tying back to one of the earlier questions, the 2020 financing plan that we announced in Q4 is still our financing plan. What we've done to help in terms of flexibility is put the term loan in up at EIX, which if you look at the quantum, is about the same. But our plan for 2020 continues to be our plan. -------------------------------------------------------------------------------- Operator [36] -------------------------------------------------------------------------------- The next question is from Stephen Byrd with Morgan Stanley. -------------------------------------------------------------------------------- Stephen Calder Byrd, Morgan Stanley, Research Division - MD and Head of North American Research for the Power & Utilities and Clean Energy [37] -------------------------------------------------------------------------------- Hope you all are doing well. Wanted to just touch first on the PSPS commentary, Pedro, that you gave. It sounds like there's been a lot of work that's been done, thinking about shut-off approaches. Would you mind just talking a little bit more about how that might look different this year in terms of whether it be scope, duration or just approach, any further color around sort of how that might look this year compared to last year? -------------------------------------------------------------------------------- Pedro J. Pizarro, Edison International - President, CEO & Director [38] -------------------------------------------------------------------------------- Sure. Yes, happy to do that. And so like I said in the comments, there's been a lot of work going on, really all through since last year. Just to remind you of last year's performance, I think it was generally similar to that of San Diego Gas & Electric when you look at the percent of customers who were out throughout that, call it, 2% or so of the population was impacted at some point rather. And that, I think, was the product for a lot of years of investment in areas like sectionalizing our distribution circuits. On average, in a high fire risk area, we can subdivide a circuit into 4. So if there's a high fire risk portion of that circuit, but there's 3 portions that are non-high fire risk you can take out one part and not the 3 parts and that limits the scope. So that was one major item. And then the other major item last year was the fact that we, particularly comparing to our colleagues at PG&E, what they have been working towards is now, we had the ability to de-energize based on actual conditions as opposed to on a 48-hour ahead forecast. So those 2 were really helpful last year. Now you move forward what has happened since last year. I thought it was good to anchor you in the starting point. We've been working on further refining. Let me start with the forecasting piece. There's been a lot of work that's been done to further refine our modeling capabilities, make them more granular, tighter grid, if you will, that should allow us to have a higher fidelity, mapping and modeling, forecasting capability that should, we believe, allow us to just be a bit more targeted around it. Another advancement since last year that I think I mentioned was these playbooks, right? So rather than having to do a fair amount of work to update the number of variables as we're getting close to de-energization or planning for one, the team did a good job over the last year of trying to collate the variables that are more static. These are more repeatable versus the ones that you really need to update in real time. And then you seem [that] to have a cookbook or instruction set on a circuit by circuit level so that as that time approaches, we can just move a lot more quickly in terms of determining what portions of the circuit might need to be de-energized, what customers get the heads up that they may be turned off and or do you ultimately do that for real. Another thing we did was that -- the team did was that they took a look at our, I'll call them, the frequent flyers from last year, circuits that were de-energized multiple times because they're in high-risk areas, and they looked at -- are there ways to further narrow the scope of de-energizations on those. In some cases, they might have been doing some rewiring or doing some -- adding more sectionalization capability to further isolate the trouble spot, if you will, the higher fire risk spot within the circuit, so that instead -- and I'll make up numbers here, right? But if you have a circuit where you were taking out 500 people -- 500 customers last year several times during the year, if we can narrow that down to 50 people who are in the highest interest area, that actually reduces the overall pain across that community. And then finally, maybe I should have started with this one. Another year means another year's worth of progress in terms of hardening the system, more covered conductor mile deployment out there. That piece, in particular, we'll continue to improve year-to-year over the course of our WMP. And so we should see more and more risk reduction from that. When you put all that together, Stephen, and you think about it as we look at the risk-informed decision to de-energize or not, that is the product of weather conditions, of fuel conditions out there, of the particulars of that neighborhood, but it's also dependent on variables like how much bare wire do we have in high-risk areas versus covered conductor, right? And so that's why the hardening of the system will continue to decrease our risk profile year-on-year and will allow us to continue to decrease the number of customers impacted. Bottom line on all that -- sorry, it was a little long-winded, but there's a lot that's going on. Bottom line is that if we saw the same -- exact same weather conditions that we did last year, we would expect some proportionately smaller amount of de-energization. Of course, we won't see the exact same conditions as last year, but it just gives you a sense that there's been some meaningful progress. -------------------------------------------------------------------------------- Stephen Calder Byrd, Morgan Stanley, Research Division - MD and Head of North American Research for the Power & Utilities and Clean Energy [39] -------------------------------------------------------------------------------- That's extremely helpful. And just one separate question on your EV infrastructure program. Would you mind just providing a high-level update on the status of that program in terms of implementation, key milestones from here? Just kind of thinking about the pace of that rollout as you try to meet the increased EV penetration in the state. How do we generally stand on the pace of that program? -------------------------------------------------------------------------------- Pedro J. Pizarro, Edison International - President, CEO & Director [40] -------------------------------------------------------------------------------- Sure. So remember, I'll summarize this as 2 large programs. One is the heavy -- sorry, medium and heavy-duty Charge Ready Transport Program for which we already have full CPUC approval in the $340 million range or so, and that's a multiyear program. And then the second large program is our Charge Ready program. There, we've got approval for -- we had a pilot that had been approved to the tune of around $22 million or so. We had an extension of that, that basically gave us about the same amount to continue in pilot mode or bridge mode, while the CPUC considers our larger application for what would be around a $750 million program all in between capital and O&M, about $550 million of that, I think, is capital. And so the -- that application is sitting at the CPUC. I believe they have extended the deadline for considering it until June 30 of this year. When they extended that 6 months ago or 4 months ago, when -- I think it's the 6-month extension, they -- I think it's Commissioner Rechtschaffen who is the lead commissioner on this docket, and he said he expected that it will be a PD out early in the year. I don't think we've seen a PD out yet, but certainly, understandably, there's a lot going on with the COVID impacts, et cetera. But we have not heard anything different from the June 30 deadline that they talked about. So we look forward to hopefully getting that approved in that timeframe. In the meantime, we made a lot of progress in terms of both deployment on the Charge Ready Transport and the passenger vehicle charge rate. I will tell you through this COVID period, some of that work has slowed down just because it requires working in close proximity, probably it's less essential than, say, working on a pole to keep the lights on. And customers themselves might not be ready on the customer premise to have somebody come in and work on the installation stuff. And so there's been some slowdown in that, and that's one of the pieces we're looking at, how does that get ramped back up as we follow the lead of the governor and the state in reopening up parts of the economy. But I think it just is a long-term need for that, that continues unabated. And in fact, some of the early discussions of the governor's task force have been all about how again, as I think I mentioned, this is not just about the near-term reopening, but how do you bolster the economy for the long term. And clean energy and electrification are viewed as a big part of that long-term plan for the state. -------------------------------------------------------------------------------- Operator [41] -------------------------------------------------------------------------------- And that was the last question. I will now turn the call back to Mr. Sam Ramraj. -------------------------------------------------------------------------------- Sam Ramraj, Edison International - VP of IR [42] -------------------------------------------------------------------------------- Thank you, Sue, and thanks, everyone, joining us today. Please call us if you have any follow-up questions. This concludes the conference call. You may now disconnect.