Edison International

And welcome to the Edison International Fourth Quarter 2019 Financial Teleconference. My name is Michelle and I will be your operator today. When we get to the question and answer session, if you have a question, press star 1 on your phone. Today's call is being recorded. I would now like to turn the call over to Mr. Sam Ramraj, Vice President of Investor Relations. Mr. Ramraj, you may begin your conference.

Thank you, Michelle, and welcome everyone. Our speakers today are President and Chief Executive Officer Pedro Pizarro and Executive Vice President and Chief Financial Officer Maria Ragotti. Also here are other members of the management team. Materials supporting today's call are available at .edisoninvestor.com. These include a Form 10-K, prepared remarks from Pedro and Maria, and the teleconference presentation. Tomorrow we will distribute a 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, Sam, and good afternoon, everyone. Today Edison International reported core EPS of $4.70 for 2019 compared to $4.15 a year ago. The increase in core EPS was primarily due to the approval of the 2018 general rate case and higher FERC revenues. This was partially offset by higher wildfire mitigation costs and an increase in the number of shares outstanding. Maria will discuss her financial performance in more detail during her remarks. We believe that SCE and California are beginning 2020 with a very different wildfire risk profile than the previous two years. Edison particularly commends the state's efforts on wildfire suppression and the improved coordination among utilities, state, and local emergency management personnel. Also, the state's enactment of Assembly Bill 1054 had a stabilizing effect on the financial health of California's investor-owned utilities. We have been pleased with the continued implementation of the AB 1054 regulatory framework. This includes the issuance of our safety certification last year, the appointments to the new California Catastrophe Response Council and Wildfire Safety Advisory Board, and our recently filed 2020 to 2022 wildfire mitigation plan. We also are encouraged by the CPUC's timely approval of SCE's 2020 cost of capital application and the proposed schedule for SCE's 2021 general rate case. However, much work remains to be done. For SCE, this particularly means obtaining decisions on outstanding proceedings at the CPUC. This includes the Grid Safety and Resiliency Program settlement, SCE's wildfire expense memorandum account application, the capital structure waiver application related to the accounting for our 2017 and 2018 charges, and the litigation of the various phases of SCE's 2021 GRC application. Additionally, in 2020, SCE expects to continue to work with legislators, regulators, and communities to improve public safety power shutoff, or PSPS, related operations. At the same time, we are moving forward with our vision for a sustainable and clean energy future. I will discuss more about this later. This past year, SCE aggressively executed a comprehensive wildfire mitigation strategy laid out in our Grid Safety and Resiliency Program and 2019 wildfire mitigation plan. Since 2018, SCE has installed more than 500 miles of covered conductor, over 480 micro-weather stations, and more than 160 high-definition cameras covering 90% of high-fire risk areas, reaching our effective saturation point for cameras. We were able to go beyond the compliance targets in our 2019 WMP in many areas, as we worked to reduce wildfire risk as quickly as possible. We also completed enhanced inspection of all of our overhead infrastructure in our high-fire risk areas during the first five months of the year. In the past, this would have been performed over a five-year period. SCE's recently filed 2020-2022 wildfire mitigation plan will advance our risk prioritization approach. This plan includes ground-based and aerial inspections for higher-risk transmission and distribution assets beyond standard inspection cycles, building on the lessons learned from our comprehensive, enhanced overhead inspection program in 2019. The plan also calls for us to further harden infrastructure, bolster situational awareness capabilities, and enhance operational practices while harnessing data analytics and technology. The plan includes specific metrics that provide transparency to the public and other stakeholders, and will enable the CPUC to evaluate SCE's performance. In our filing, SCE has proposed spending approximately $3.8 billion in capital and O&M over the three-year plan period. Last October, parts of our service territory faced many days of elevated wildfire threat conditions marked by severe winds, low humidity, and dry fuel. During these periods, SCE exercised our PSPS protocols to protect the public from the risk of electric equipment causing a fire. Patrols conducted after those PSPS events found over 40 impacts from the severe conditions, including equipment damage and tree branches contacting power lines. This further validated the importance of preventive de-energization as a safety measure under severe weather conditions. SCE understands that PSPS can be a hardship for our customers and communities. We utilize an extensive community outreach effort to help customers prepare for these events. We have learned from these experiences and are working to improve our wildfire mitigation and PSPS resilience capabilities. Our number one priority continues to be the safety of the public, our customers, employees, and first responders. SCE has also spent significant time educating customers, communities, and state and local government officials on our PSPS-related efforts to demonstrate the vast amount of work and data analysis that go into our decision-making on PSPS events. As more mitigations are deployed, we expect to reduce the scope and impact of PSPS, but PSPS will have to remain available as a tool to mitigate wildfire risk during severe weather and high fire potential index events. I would now like to give you an update on our accounting reserve related to the 2017 and 2018 wildfire and mudslide events. You will recall that in the fourth quarter of 2018, SCE recorded a gross liability of $4.7 billion for the low end of the estimable loss range for these events. We regularly reassess this reserve, which includes our internal assessment of damage estimates, known and expected third-party claims, litigation proceedings and risks, and prior experience litigating and settling wildfire-related claims. In our latest assessment, we increased the estimated losses for claims related to the 2017 and 2018 wildfire and mudslide events by $232 million to a gross estimate of $4.9 billion. While this estimate is determined on an aggregate basis, some of the factors we evaluated in connection with the review contributed to a significant increase in certain loss estimates, while others contributed to a significant decrease. Also, we lowered our accrued liabilities by the $360 million settlement reached in the fourth quarter with a number of local public entities. These changes led to a revised pre-tax accrued liability of $4.5 billion for the 2017 and 2018 wildfire and mudslide events. After adjusting this gross liability for $1.6 billion of remaining insurance coverage and $149 million for a FERC regulatory asset, the net after-tax charge for these events is $1.98 billion, which is an increase of $157 million from our previous estimate. I would now like to provide an update on our operational and service excellence efforts and a few of the key non-financial metrics our board uses in measuring our performance. Operational and service excellence starts with the safety of our workers and our communities. This is a major priority across our company and is at the very top of our core values. Our 2019 performance on worker safety had mixed results. While we did not have any employee fatalities, there were three worker fatalities among our contractor workforce. Our hearts continued to go out to their families and loved ones. The number of serious FCE employee injuries in 2019 fell by more than 50% from 2018, but our rate of injuries leading to days away on restricted duty or transfer, known as the DART rate, was worse than our target. We did, however, and importantly, successfully complete an enterprise-wide safety culture training program that has received strong reviews from our employees and lays the foundation for long-term improvement. Our goals related to improving public safety are tied to the implementation of the wildfire resiliency measures outlined in our GSRP and 2019 wildfire mitigation plan. We made significant progress in these areas, as I discussed earlier. Among other key measures, our customer satisfaction and system reliability fell short of our targets. Our performance was heavily impacted by maintenance and repair activities related to wildfire mitigation, the installation of new equipment to harden our electric system, and PSPSC energizations to safeguard our communities during dangerous fire weather conditions. We also deployed additional digital technologies to transform processes across our business and improve the quality and efficiency of our operations. For example, we rolled out new mobile solutions to support our enhanced overhead inspections, and we used robotic process automation to improve outage notification to our customers. We continued our focus on sustainability, particularly on addressing climate change. We are committed to delivering 60% renewable power by 2030 and 100% clean energy by 2045, which are among the most aggressive targets in the industry. Last quarter, I announced the release of our Pathway 2045 white paper, which shows the changes required across California's economy to meet the state's 2045 carbon neutrality goals and will be profound. We are focused on doing our part, such as accelerating transportation electrification. Today, SCE is implementing the largest electric truck and transit utility initiative in the nation by installing charging infrastructure to support approximately 8,500 medium- and heavy-duty vehicles at 870 sites by 2024 through our $356 million charge-ready transport program. We are also awaiting CPUC approval for our $750 million charge-ready 2 application that will support over 50,000 passenger vehicle chargers. Those sound big, but we believe this is just a fraction of the new technologies and infrastructure that will be needed to support California's economy in the years ahead, which further underscores the need for resilient and financially strong utilities. To conclude, we are making significant investments over the near-term in grid hardening and resiliency. At the same time, we continue to see significant long-term investment opportunities in our business related to addressing California's 2045 climate goals. We have a robust capital program over the next few years that, if approved, will invest more than $5 billion annually on infrastructure replacement, transportation electrification, transmission infrastructure, and wildfire mitigation. As you can see, we have a continuing focus on safety and resiliency, operational excellence, and strategic advancement of policy objectives. Our near-term priorities to improve safety and mitigate wildfire risk will enable the reliable and resilient grid that is needed to accelerate toward the state's clean energy goals and achieve our Pathway 2045 vision for California, including increased use of zero carbon resources and broad electrification of the entire economy. With that, Maria will provide her financial report.

Thank you, Pedro, and good afternoon, everyone. My comments today will cover fourth quarter and full year 2019 results, our capital expenditure and rate-based forecast, 2020 EPS guidance and financing framework. As we have said, -over-year comparisons for 2019 are less meaningful given the timing of the 2018 GRC decision. Please turn to page two. For the fourth quarter 2019, Edison International reported core earnings of 99 cents per share, which was five cents higher than the same period last year. From the table on the right-hand side, you will see that SCE had a core EPS variance of positive seven cents -over-year. This was primarily driven by 17 cents of higher EPS from SCE core activities, which was partially offset by 10 cents of dilution from an increase in shares outstanding. 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 32 cents. This was primarily driven by 19 cents of higher CPUC revenues, largely as a result of the GRC escalation mechanism and lower income tax benefits refunded to customers in our tax balancing account, which is offset in income taxes. FERC revenues had a positive variance of 13 cents due to higher expenses, rate-based growth, and increased ROE from the 2019 settlement of the 2018 formula rate proceeding. Higher O&M expenses negatively impacted -over-year EPS by three cents. This was largely driven by an increase in wildfire mitigation expenses. I will discuss more about this when we cover full-year variances. During the quarter, we recorded a 5-cent charge for the self-insured retention under our wildfire insurance, primarily related to 2019 wildfires. We treated this charge as core to remain consistent with how we treat deductibles for expenses that are covered by insurance. Higher net financing costs related to increased borrowings had a negative 3-cent impact. There was also a 7-cent lower income tax benefit, which primarily reflects tax benefits captured through our tax balancing account, as noted earlier. EIX parents and other had a negative 2-cent core variance in the quarter. This was largely due to 7 cents of higher interest expense related to increased borrowing, partially offset by a 5-cent positive variance of Edison Energy due to the 2018 goodwill impairment. Please turn to page three. For the full year, Edison International core earnings per share increased 55 cents to $4.70 per share. This includes an improvement in core earnings of 59 cents at SCE, partly offset by higher EIX parents and other costs of 4 cents. While the full year and fourth quarter earnings analysis are largely consistent, I will highlight a few areas. You will see a positive 20-cent impact from the retroactive application of the 2018 GRC decision that was recorded in Q2. Also, we have positive 13 cents in FERC revenues related to SCE's 2018 formula rate settlement, which includes 10 cents we recorded in the third quarter. Finally, for the year, there was a positive 14-cent income tax variance, primarily related to benefits that are passed back to customers through the tax balancing account, with no impact on earnings. Related specifically to wildfire mitigation activities, for the full year, we recorded expenses of $519 million to the related memo accounts. We recorded regulatory assets for $400 million of the spend that most closely resemble historical precedents. As you know, a regulatory asset is only recorded when there is objectively verifiable precedent for recovery. We have not recorded a regulatory asset for the remaining $119 million pre-tax, and I would like to provide some additional context for these amounts, which are reflected in O&M expenses for the year. The scale of this mitigation effort is unlike what we have seen in the past, and there are some activities for which there is no historical precedent. During the year, we had to increase crews, project management personnel, and other human resources to execute our wildfire mitigation programs. We also managed and sequenced the work in order to reduce risk as quickly as possible, which also contributed to higher costs. The higher volume of work that drove increases in crew, human resource, and execution costs in high-fire risk areas also drove increased costs in -high-fire risk areas. We don't have a precedent where incremental cost impacts in one program or geographic area drive incremental costs in another area, so we have not recorded regulatory assets for all the costs incurred, particularly the incremental costs in -high-fire risk areas. However, SCE is seeking full recovery of these costs through separate tracks of the 2021 GRC. 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. From 2020 through 2023, we are forecasting a robust $19.4 to $21.2 billion capital program. This represents an increase of approximately $200 million from our previous forecast, and is primarily due to higher spending on wildfire mitigation. In January, the CPUC extended the GRC cycle by adding a fourth year for SCE and other large utilities. As a result, SCE is required to file an amendment to its 2021 GRC application to add an attrition year for 2024. We are awaiting further direction from the Commission on the timing of this amendment. On page 5, we show SCE's rate-based 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. Standing two rate case periods, this represents a six-year compound annual growth rate of .5% at the request level. To develop a range of outcomes, management is applying a 10% reduction to the rate-based forecast based on our historical experience of previously authorized amounts and other operational considerations. At this level, SCE's rate-based forecast reflects a compound annual growth rate of 6.6%. Pages 6 and 7 show our 2020 guidance and the key assumptions for modeling purposes. As we have in the past, let's begin with rate-based earnings. This reflects the CPUC jurisdictional rate base authorized in the 2018 GRC, as well as the recently approved ROE and capital structure from the 2020 cost of capital decision. We settled the 2018 transmission rate case, and the rate was in effect until early November 2019. However, we have not yet resolved the subsequent case and had to make an assumption regarding the FERC ROE in 2020. As you know, FERC has varied its approach to determining ROE over the past few years, and its approach remains unsettled, with FERC currently considering rehearing requests to the MISO order. We believe that methodologies resulting in FERC ROE's -state-level ROE's will result in suboptimal investment decisions. At this time, we are basing guidance on a 2020 FERC ROE that is comparable to our CPUC ROE of 10.3%. Finally, FERC has historically used recorded capital structure to determine revenues. This is forecasted at 47% in 2020 and does not benefit from the CPUC exclusions related to AB1054 and other items. Based on the actual 2019 weighted average share count of $339.7 million, these items result in a rate-based EPS outlook of $5.17. Let's next discuss SCE operating and financial variances, which add to rate-based earnings. This is forecasted at a net contribution of $0.20, which is not as large as we have seen in some prior years. There are a number of drivers to this. First, as noted earlier, on January 1, the CPUC cost of capital decision was implemented, and the embedded cost of debt and preferred equity were adjusted to actual, reducing previous financing benefits. On the operating side, we continue to manage costs, which ultimately benefits our customers. However, $0.14 of costs related to wildfire mitigation activities represent a larger offset to other items, such as AFUGC, than we have seen historically. As I discussed earlier, we will pursue recovery of these incremental costs that we record in wildfire memo accounts. However, lacking in historical precedent, we do not assume we will meet the accounting requirements for deferral. We expect the drag related to wildfire mitigation activities to be removed in 2021, since the costs are included in the 2021 GRC revenue request. Finally, we also included $0.02 related to expected energy efficiency earnings. Moving to the right in the chart, SB 901 and AB 1054 included certain items that are not recovered in rates. In 2020 guidance, we highlight the annualized cost of interest expense related to the wildfire insurance fund contribution and the non-recovery of disallowed executive compensation. These amount to a total drag of $0.10. Finally, for EIX, Parents and Other, we expect a total drag of $0.41. This includes HoldCo and other operating expenses at the previously communicated rate of approximately $0.01 per month, or $0.14 for the year. The balance of $0.27 is the after-tax interest cost, including the expected impact of the $400 million debt issuance that is part of the 2020 financing plan. The impact from share count dilution in 2020 can be broken down into two areas. The first is the full year impact of the shares issued in 2019, and this translates to $0.30. The second area is the impact related to the $800 million equity issuance in 2020. This results in another $0.09 of dilution in our 2020 EPS guidance. I will discuss the 2020 financing plan that relates to these debt and equity assumptions embedded in guidance in a moment. Overall, this results in 2020 EPS guidance of $4.47 per share, with a range of $4.32 to $4.62 per share. This range is slightly wider than in the past and accommodates the large number of items that are being resolved in proceedings outside our typical general rate case. Please turn to slide 8, and we will discuss the rationale and strategy for our 2020 funding plan and the longer-term outlook. The objective is to provide details regarding 2020, as well as a framework that informs our longer-term approach. Over the past two years, there have been some unique issues that have informed our financing plan, including the Wildfire Insurance Fund contribution. One constant has been the robust level of capital spending required to make our grid more resilient and prepare for the clean energy future. As we discussed earlier, SCE is estimating approximately $5 billion per year of capital spending over the next several years. One key part of our framework is to deliver on these capital plans while we maintain investment grade ratings at both SCE and EIX. That overarching tenet informs the 2020 financing plan and will also influence us in the longer run as we are targeting a long-term FFO to debt ratio of 15 to 17%. We also look forward to a point when this ratio level will be supportive of a ratings improvement, as the rating agencies' view of wildfire risk and their general California outlook further improve. This longer-term ratings framework has implications for our near-term financing plan. First, we are spending significant amounts on wildfire mitigation and wildfire insurance, and these amounts are not yet being recovered in rates. Even though we expect the Commission to begin addressing some of these amounts this year, and while this spending provides additional operational risk mitigation, these items will continue to challenge our near-term credit metrics until the proceedings are resolved and the balances are worked down. Second, while very few claims have yet been paid related to the 2017-18 events, some rating agencies are burdening our credit metrics with imputed debt, equivalent to their assumptions around our liability to pay those claims. With this framework and factors in mind, the whole co-financing plan for 2020 includes $800 million in equity, of which $600 million supports the growth capital need at SCE. The remaining $200 million is a carryover related to the equity plan we disclosed in 2019 that we expect to complete this year. We have the flexibility to address this total equity need through a variety of approaches, including our ATM and internal program. The plan also includes $400 million of debt as mentioned earlier. In 2019, we deployed significant capital to meet our customers' needs, and we expect this to continue. Given this level of growth at the utility, our dividend payout ratio and current ratings are supported by the 2020 equity issuance, we expect minimal equity requirements to fund our ongoing capital expenditures beyond 2020. With regard to wildfire related costs, this financing plan is also predicated on requested cost recovery on the memorandum accounts, the current level of liabilities reflected on our balance sheet for the 2017 and 2018 wildfire and mudslide events, and timely resolution of SCE's capital structure waiver request. If there is a material change in these wildfire related assumptions, we will then reevaluate our balance sheet requirements using the same framework that drove our current and prior year plan. That is, we will work to maintain our investment grade ratings, and our financing approach will be consistent with that objective. That concludes my remarks.

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

If you would like to ask a question, please press star 1 on your phone. One moment for the first question, please. Our first question will come from Prayful Mahita from C, from Citigroup. Your line is now open.

Hello, Prayful. Thanks so much. Hi, hi, guys.

Sorry, I've been

juggling calls. So if I repeat a question, then sorry about that. But just wanted to understand from the progress on the wildfire mitigation activities, could you give us a sense for how you feel in 2020 versus 2019 in terms of the efforts on the ground so far, and how you expect the wildfire fund in terms of sufficiency to deal with all the risks on the wildfire side?

Yeah, thanks, Prayful. And you're the first question, so I can tell you didn't repeat any. So as far as the preparations, as I mentioned in my remarks, there's been a lot of work that we've done. And we think that that certainly helps to continue to advance the ball in terms of mitigation and risk reduction. But importantly, it's not just the work that we're doing. It's also the work that the state is doing and that other entities are doing, and frankly greater consciousness about fire prevention and preparedness across the state. And so I think in our last learning skull, I probably mentioned how, as we had made our way through the bulk of 2019, we saw that one of the key factors in the mix, in addition to the work we were doing, the early stages of things like covered conductor replacement, the impact of PSPS, which we saw, I mentioned in my remarks already that after the big wave in October, we saw over 40 instances of issues that could have turned into ignition that were not in ignition because we had used PSPS. But I mentioned in the call that we had seen a remarkable difference in the state's capacity around fire suppression. And the impact from the governor's actions in terms of increasing the state budget to add firefighters and equipment, speed of response. And so that made a significant impact in 2019. As we now head into 2020, I don't know if you're aware, but the governor in his 2020 budget proposal talked about increasing firefighting resources by another, I believe, 625 individuals over the next five years. Taking a good chunk of that in 2020. So the fact that it's not just our work, but the work by the state in areas like fire suppression, that all helps. Now, in terms of answering your question quantitatively in terms of the fund, that's harder to do. I remind you that when AB 1054 was being debated, the state, I think through the governor's team, had some analysis that showed a 94% probability of the fund surviving at least 10 years, based on a number of assumptions. That I think baked into it some concept that over the course of those 10 years, utilities and others were continuing to improve in terms of their risk reduction. So I can't tell you quantitatively what that means in terms of percent risk reduced, but I will tell you we're in a much stronger place this year than we were last year or the year before. That said, the risk is not zero and I don't think the risk will ever be zero, given the realities of California.

Got it. Got it. As always, pretty comprehensive answers. So appreciate that. Just separately on the equity side quickly, we get the $800 million need, but as I look at going forward post the 2020 timeframe, are you looking at like an ongoing equity need driven by the SCE equity need so you keep the whole core debt kind of flat? How should we think about the ongoing post-2020 kind of equity needs going forward?

Yeah, this is Maria. I think what we're trying to lay out for folks is sort of that framework where on a long-term basis we will be targeting the metrics, you know, 15%, 70% FFO to debt. As we think about the capital program, related to the capital program, we actually see a minimal equity going forward, you know, at those levels. I think, you know, not trying to pinpoint a very precise level, so it's not a particularly quantitative response, but we just don't really see a need for significant new equity for that. Separately, you know, I just did mention, you know, we made certain assumptions around wildfire issues as well, whether that's, you know, recovery on the memo accounts, the level of liabilities associated with those wildfires, the capital structure waiver. If we see material changes there, we'll revisit, you know, our balance sheet needs, you know, again, within that 15% to 17% metric framework.

Got it. Thank you, guys. Lots more questions, and I'll get back into Q. Appreciate it.

Thanks, Prof.

Our next question will come from Steve Fleshman from Wolf Research. Your line is now open. Hey, Steve.

Hey, good afternoon. I'm just curious on the capital structure waiver request. I think PG&E also has a similar one. Could you just give us an update? Is there any process of knowing when that will likely get ruled on, and is there any, like, real opposition to it, or are you just waiting for an answer?

Sure. So just as a reminder, we did file for that last February when we took the charge. The two things that we asked for in the capital structure waiver were that, would be that the charge itself would be excluded from the calculation of our capital structure, and the debt associated with paying any liabilities or claims would also be excluded from the capital structure until the commission made a decision as to whether or not we would get recovery for that. The request has been pending for a while. Interveners have filed various comments, some of which have really been around. Actually, some of the interveners actually said they didn't think our request was ripe yet at the time because we still are in compliance with the 37-month average. As part of our cost of capital proceeding, the ALJ sort of, like, pushed it out a little bit, but once we got the decision, we then asked each of us to answer particular questions, not all of which were particularly relevant for us. Some of them were more related to PG&E, largely around whether or not there should be a set date at which the waiver kind of stops being effective, and then also sort of implications for customers. We filed those comments. There actually were not any reply comments, I believe, in return for those. And then the commission has set a deadline, or their regulatory process is that they have to issue a decision before August. Of course, they have flexibility in terms of determining whether or not they extend that. But that's the status right now. We don't have a date for when we will hear back. Until we do receive the waiver, we would be deemed to be in compliance. And even if you look at our numbers today and calculate where we are, even if we do the calculation on the basis of not getting the waiver, we're in compliance with the 37-month rolling average.

Okay. And one other question, just in looking at the 2020 variances, excuse me, related to the, I guess, the SCE variances. As you mentioned, the 14-cents incremental wildfire, you would hopefully have recovery in 2021 through the GRC. The financial operating other, the 32 cents, not necessarily specifically that number, but, you know, that's been there for a while. So I assume there should be some sustainability to that portion continuing?

You know, that bucket includes a lot of things. It includes financing benefits, which actually do change from time to time. This year they would have changed because we adjusted the embedded cost of debt and equity due to the capital, cost of capital proceeding decision. Every year when we have a new rate case, we give back benefits to customers. So we're continuing to try and really manage our costs because that overall helps us, you know, in terms of system average rate and how we implement all of our capital plans as well. So we do have an ability to manage through in those areas, but you'll see different mixes from time to time. And you could potentially see things go up and down just because we start a new rate case cycle.

Great. Thank you.

Thanks,

Dave. Our next question will come from Julian Jumlin Smith from Bank of America. Your line is now open.

Hey, good afternoon. Hi, Julian. Howdy. So perhaps I want to focus on the credit metrics here a little bit further and just understand the 15 to 17% FFOTA debt metric. A, where are you today? And B, how do you think about latitude relative to that metric sort of under a variety of scenarios? And I'm specifically thinking here around some of the imputation issues that you already alluded to. Maybe ask in a more simplistic way, how are you thinking about getting the rating agencies to not impute a certain amount of liability? And how do you think about the latitude that you possess today sort of on an ongoing basis? And again, this kind of gets back to the last question that Steve just asked about your variances and what that might look like on a normalized basis. But I'll let you respond now.

Okay. So I think the first question is, you know, how do we feel about having the liabilities imputed, I guess, before the determination as to whether or not we will get recovery? You know, certainly we've had lots of ongoing conversations with the rating agencies around this. I think at this point in time, because again, you know, similar to our requirement to take the charge and not have a regulatory asset booked against it, because there's really no precedent here, I think that's a place where the rating agencies are going to want to see some actual cost recovery absent, you know, before they would actually take a step back and not impute the debt. I think that that's an ongoing conversation as we see more things happen with the commission. Potentially that will, you know, be a conversation that we can continue to have with them. But this is where they are right now. I mean, that's just a fact. In terms of sort of where we are relative to our metrics, I'll be really frank with you right now. I think our metrics are a little bit challenged, a lot of it having to do with the fact that we are not getting recovery real time on those wildfire mitigation expenses and the wildfire insurance, because we do have a lot of dollars that are capital related, but we actually have a lot of dollars that are O&M related, which you would normally get recovery on in a lot quicker turnaround, or I'll say in real time. I think that we've had those discussions and ongoing dialogues with the rating agencies around that as well, and I think they understand that. But again, that's why in the closing part of my remarks earlier, I said, you know, the financing plan was predicated on certain assumptions, one of which was, you know, timely recovery of the amounts in those accounts. To the extent we see things going in a different direction, we will have to revisit that.

Got it. If I may just clarify that quickly, with what you just said there, are you basically saying the 14 cents, for instance, of incremental wildfire mitigation costs, that would be what you're talking about, of timely recovery here, principally in those variances? And then secondly, going back to what you just said, are you alluding to securitization, or when you think about getting comfortable here, is that just simply being able to successfully tap into this newly created fund?

So I'm going to ask you to clarify that last part, but in terms of the first question that you asked, the 14 cents, it's not just the 14 cents. I realize no one has looked at our 10K yet, but if you look at that, we are actually under covered right now about $868 million. So the 14 cents that you see in 2020 guidance are the amounts that do not have a regulatory asset booked against it. Right now, at the end of 2019, we're already in part, there are things that we have regulatory assets on the books for as well, but cash out the door that we have not yet collected is about $868 million. So it's all of the above.

That's fair. And then the second piece there was just when you were saying that the credit rating agency needed to get comfort here, that was about your ability to tap into the fund and actually successfully doing so?

No, no. I meant getting comfortable that the cash flow from these memo accounts, et cetera, would be timely. That's all.

Oh, and you don't actually need to tap the fund or the securitization

more than to get

comfortable? Okay. Sorry. I

mean, just to be clear, Julian, I think their overall comfort with California should increase over time, and it's going to be related to all the factors that you just described, but I was speaking more narrowly. I

mean, just to make sure that it's really clear, there was a time when a 15% to 17% FFO to debt would have implied a higher level of credit ratings. There's a discount being applied in terms of how they view California risk. We would hope that over time, as they see continued implementation of AB 1054, the machinery in place, that also translating into reduced overall wildfire risk, we would hope that there's some reassessment over time of what credit rating is implied by that kind of range.

Thanks for the patience, guys.

Thanks, Julian.

Our next question will come from Paul Freeman from Miss Oho. Your line is now open.

Hey, Paul. Hey. Thank you very much. You guys, I think, have revised, obviously, the low-end estimate on wildfire exposure. At what point would you expect that you would have an estimate on the high end?

You know, that continues to be really challenging, and as we continue to look at all the various facts, I think as I mentioned in my comments, we looked at a broad set of factors as we do our assessments, and as I shared as we did this revision, some things went up significantly, some things went down significantly, so we continue to have a hard time seeing how we would define a high end. It may be that we don't end up being able to define a high end, but, you know, for example, if we continue to see resolution of the uncertainties through whether it be additional settlements or court process, you know, later on the regulatory process, then as those pieces fall into place, you would see us do what we've done here, which is that with the $360 million settlement, that uncertainty gets taken off the table, and now the range may be narrower. We define what the low end might be for the remaining liabilities, but just be honest with you, given the nature of these wildfire cases and all the ins and outs, it's unclear to me whether we would get to a place where we can define a hard and fast 75% probability under accounting rules, high end of the range. Maria, do you have any different view of...

Does that make sense, Paul? Yes. I would assume that when you actually are paying out the claims that you're going to book at least an equivalent NOL to the charge off that you took in 2018, can we get a sense of the timeframe over which that NOL could materialize?

So we booked the tax impacts when we took the charge. I think your question may be like when we become a cash taxpayer, and we would expect, or right now, you know, obviously the future will inform this as well, but right now we're estimating that EIX becomes a cash taxpayer around 2027.

Great. And maybe the last question for me, historically I think in terms of AFUDC, you've talked about executive comp, you've talked about advertising, charitable donations as offsets. The only offset that I've heard so far is executive comp. So should we expect that you should be able to recognize the remaining portion of equity AFUDC?

So we may be talking past each other a little bit here, but when we provided the sort of walkover for 2020 guidance, we included all of those. I know historically we've kind of enumerated a whole laundry list of things that are in the bars that are to the right. Included in that bar that's 20 cent net benefit are all the things that you were just talking about. So it isn't that they've sort of gone away, they're just all included there. We've broken some out to give you a little bit more specificity. And then to the right of that, AB 1054, SB 901 items, those are, I'll call those newer issues. They weren't historically in the set of things that we discussed, but post the legislation, those are things that we know we cannot get recovery on as per the legislation.

So as we go out sort of two years beyond 2020, I mean, should we expect that there would be no material offsets to that?

So what we try to do when we laid out the chart is to identify things that you might consider, you know, things that are new. So the SB 901, AB 1054 items, and then some things that we think will not continue because, as for example, the incremental wildfire mitigation costs that we don't currently have a reg asset against, because those things will get incorporated into our 2021 GRC revenue. We will continue, as we always have, trying to manage our costs so that we create headroom, which ultimately benefits our customers. So I think that we have the same approach to how we manage the business on a go-forward basis. We just wanted to give you more visibility into some of these new components.

Great. Thank you. Next question will come from Michael Lapides with Goldman Sachs. Your line is now open.

Hi. I have a trying to ask a simplifying question, which is, how do you think about the path to get to what is a normal learnings power and how long it takes kind of in the key things that have to happen to get you there?

So I think one of the things, Michael, is that what we've been seeing the past few years is that more things are happening outside the general rate case. We've always had balancing accounts, and those are actually good things. They're very constructive in terms of sort of visibility, et cetera. But what we have now, in addition to the balancing accounts, which generally cover amounts that have either already been reviewed or we have a lot of history with them in terms of recovery, now we have a lot of memo accounts. And the memo accounts help us avoid sort of a retroactive rate-making issue, but they don't actually give you visibility as to sort of when costs will hit. And we don't yet have, in some cases, an ability to say that they're all probable of recovery or 100% of them are probable of recovery because we don't have historical precedent. So I think that we, and that was really the driver for how we set up the 2020 core earnings guidance. So you could start to see some of those things more specifically. As we get into the next general rate case, I think you'll see some of that variability dissipate because we will have things included in our revenue requirement, as opposed to now where the 18 and 19 costs related with wildfire mitigation are in one track that gets decided in 2021. The 2020 costs are going to be in another track that gets decided after that. So I think we do need to move through and get into the next rate case cycle to have a little bit less variability and a little bit more clarity. But again, that's why we tried to set up the guidance slide the way that we did.

And Maria, I'll add one other point to this, maybe from a different angle. Some of the variability you've seen here has been because we've been in an unprecedented period of figuring out how to address a very different type of wildfire risk or different level of wildfire risk than we understood three years ago. And so a lot of the extraordinary things you've seen our team doing require the use of the memo accounts, etc. They've also redefined activities that the utility needs to take on and cost them that need to be recovered. I think as we get further maturity through the wildfire mitigation plan process and another year or two of experience under our belts, I'm hoping that we see that uncertainty band continue to narrow in terms of understanding, okay, here's how we now do utility operations in a world of a much higher wildfire risk. And then Maria's point translates into more predictability both for us and for investors in terms of the kinds of investments and cost recovery items that get built into rate cases and other proceedings. So to use the lingo a little bit, moving from the new normal to actually having it normalized and stabilized. Got

it. And then I have one other question, which is the settlement, the 360 that you're paying the municipal, just curious, what is that as a percent of what the original request or what the original damages and claims they filed were?

That's about a third of what they, their original hope or expectation, I guess.

Got it. So they filed for a little over a billion roughly and settled at 360.

Yep, about a third.

Got it. Okay. Thank you. Much appreciated.

Thanks, Michael. Our next question will come from Jonathan Arnold with Vertical Research. Your line is now open.

Jonathan, good to have you back in the circuit here. Well, thank you. Good to be back too. Thank you, Pedro. I wonder, I'm not sure you'll be willing to do this, but I'm curious whether you might be, you could give us any insight into sort of the kinds of things that moved around in the accrual. You said they moved, you know, they were big movements. Can you be any more specific just to give us a little bit more sense of the process?

Yes, sorry, no. And the reason is, you know, there's a lot of pieces and parts in sight there. And, you know, from a disclosure perspective, you know, we've disclosed the net amount, but, you know, we don't expect that we would be disclosing all the pieces and parts on an ongoing basis. So that's why I think that the guidance has been to just keep it at high level. This won't answer your question, but you can imagine that things that are inside there, and I won't, you know, won't be able to share which ones went up or which ones were down or which ones didn't move. But, you know, this includes the spreadsheet, if you will, of items that we track, things like, you know, the size of claims, the, you know, actual claims being filed, continued to move around, additional facts that are being, you know, uncovered through the discovery process, you know, those sorts of things that are the underlying elements across each of the cases. And then, you know, to add one more layer of complexity, remember, it's not just one big set of cases. It's really individual actions across all the different events. And so a lot of detail underneath each of those. So it's a pretty massive complex thing, and that's why, you know, rather than trying not to adjust this, we're just keeping the disclosure to investors at a high level.

Will we see any change in your sort of general position on your view of your involvement in various ignitions when we read the 10-K? There are no

new material disclosures regarding information about the events that I can think of, right?

The one thing that is a little bit new is, you know, they've gotten through the Attorney General's process on Thomas. But other than that, we didn't, you know, we still, I think, you know, to summarize, you know, Koenigstein ignition, we still believe our column was involved. The other ignition in the 2017 fire, we still have the same information in there around that. And we'll see it's the same disclosure we had last quarter. So

no new information that we're offering, but Maria,

you're right, maybe elaborate a little bit on the Attorney General piece. Yeah, so as we got through the process over the course of the year, we understand now that the California Attorney General has completed their analysis around Thomas, and that they're not moving forward with any sort of criminal liability charges. And will the evaluation continue?

Okay, great. Thank you for that. And just, I wanted to clarify something on one of the previous questions. There was sort of some suggestion that you'd be tapping the fund. But I just, I want to make sure I have it straight. You're talking about nothing whatsoever to do with the fund, right? No, we're not

going into the fund. You know, we did have a few wildfires in our service territory in 2019. We did take a little bit of a charge for self-insured retention on those fires primarily, but it's, you know, well within our own commercial insurance.

No need to actually defund. Let's be really clear about that.

There's been no event that would qualify or require that. Yeah, we're just talking about regular recovery of costs you're incurring. Correct. Yep. Thanks, Jonathan.

Our next question will come from Paul Patterson with Glen Rock Associates. Your line is now open.

Hey, good afternoon.

Hi, Paul.

So a lot of my questions have been answered. And so I've got just sort of one remaining one. And that is, in your 10K, you mentioned a little bit about this, the competitive environment for transmission projects. And we saw the Diablo Canyon Gates project go to Ellis Power. And you mentioned that, I think with Mesa, that part of that might be bid out. And I'm just wondering, could you give us a little bit of a flavor as to, I assume that given your ROE guidance and everything that what you have in your plan is for regulated projects. But what are you guys seeing in terms of what happens when sort of per quarter 1000 stuff is happening?

Yeah, so the planning in California around additional transmission that might be required for more solar, more wind, what have you, to get to sort of the higher renewable, the higher green energy standards, that hasn't yet started. Until the KISOs does their transmission planning, I think it won't be clear yet exactly what projects are going to be required, what's needed. So I think there's a little bit of time still to last. I mean, you're obviously very familiar with the fact that those projects, other than the ones that are already sort of involve our own facilities, they would normally be bid out and people would participate and try and get them on a competitive basis. But right now, I think there's still work to be done to determine what facilities are needed.

And again, if the facility needed is an upgrade of an existing line, then we have essentially right of first refusal on that. If it's a brand new line, then that goes to the per quarter 1000 competitive process.

Okay. And when's CalISO going to be releasing this updated information about what their plans are with respect to that? We don't

believe they've started that broad planning process yet, and that's really within probably a mind or view towards 2030-ish kind of timeframe, the next big milestone sale. Sitting here, I don't think we have a timeline to offer you.

Okay. Thanks so much.

Yeah, thanks Paul.

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

Thank you for joining us today, and if you have any questions, please call us. So this concludes the conference call. You may now disconnect.

Thank you for joining today's call, and thank you for your participation. You may disconnect at this time.