Edison International

NYSE:EIX

Earnings Call Transcript 2020-Q3

[Operator]

Good afternoon and welcome to the Edison International Third Quarter 2020 Financial Teleconference. My name is Michelle and I will be your operator today. [Operator Instructions] Today's call is being recorded.

I would now like to turn the call over to Mr. Sam Ramraj, Vice President of Investor Relations. Mr. Ramraj, you may begin your conference.

[Sam Ramraj, Vice President, Investor Relations]

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 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. So, please bear with us if we experience any technical difficulties. Materials supporting today's call are available at www.edisoninvestor.com. These include a 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'll 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.

[Pedro Pizarro, President and Chief Executive Officer]

Well, thank you Sam, and good afternoon, everyone.

Today, Edison International reported core earnings per share of $1.67 for the third quarter 2020, is up $0.17 compared to the same period last year. This increase was primarily due to higher CPUC-related revenue from the 2018 GRC escalation mechanism, and lower expenses from regulatory deferrals related to wildfire mitigation activities, partially offset by equity share dilution.

Reflecting our strong year-to-date performance and our confidence in the outlook for the year, we are narrowing our 2020 guidance range to $4.47 to $4.62 by raising the low-end $0.10. Maria will discuss our financial performance in detail in her report.

We continue to address the numerous impacts of COVID-19 on our operations, customers, and communities. At the same time, we recognize that climate change is driving unprecedented weather conditions and catastrophic wildfires in California. And the State is in the midst of another active wildfire season. Our thoughts are with the communities and families impacted, and we are thankful for the first responders who have worked tirelessly to contain the fires and protect the lives and property of Californians.

At Edison, safety remains our first and highest priority. SCE continues implementing measures to reduce wildfire risk, working closely with local first responders and emergency managers, and communicating regularly with customers to improve awareness and promote preparedness.

On the California legislative front, this year's session was shortened due to COVID-19. The Legislature prioritized the State's COVID-19 response and wildfire risk reduction. The Governor signed several pieces of legislation that build on the State's investments in firefighting personnel, and technology and fuels management projects.

I am also pleased that 2 issues advocated by SCE: clarifying the AB 1054 insurance policy year and obtaining the opportunity to securitize revenue under collections and bad debt expense due to COVID-19 in 2020, were both addressed by the Legislature through the unanimous passage of Assembly Bill 913.

During this wildfire season, we have seen near-record deployments of firefighters to contain major wildfires throughout the State, with over 19,000 first responders at the peak, which was the highest since 2008. Firefighters from CAL FIRE, the US Forest Service, and numerous cities and counties have done a tremendous job this year despite being stretched due to significant lightning-driven wildfire complexes and having to work with COVID precautions.

This reflects the work done over the past couple of years to significantly increase firefighting resources and enhance the ability to model and forecast fire progression to better position ground and aerial assets. SCE's wildfire mitigation efforts augment those of State and local agencies. For example, SCE has improved its situational awareness and that of local fire authorities, by installing 161 cameras.

In late September, SCE contributed $2.2 million to the Orange County Fire Authority to secure the largest heavy-lift helitanker in the world for this fire season, capable of night-time flying and making water drops of 3,000 gallons.

This helicopter was working all through last night and today on the Silverado fire in Orange County. As of this morning, the Orange County Fire Authority reported that this fire has burned over 11,000 acres and is 5% contained with no structure losses. Tragically, 2 firefighters have been seriously injured battling the blaze.

SCE filed an electric safety incident report, or ESIR, yesterday on the Silverado fire. As noted in the ESIR, there was no activity on a nearby SCE power-line nor evidence of any downed power lines prior to the reported start of the fire. While SCE's investigation is at an early stage, I would like to note that preliminary investigation suggests that a lashing wire attached to a third-party owned telecommunication line that sits beneath SCE's power-line may have contacted SCE's power line above it, possibly igniting the fire.

However, it is early to draw any definitive conclusions at this point.

I've mentioned before that covered conductor is the most effective and expeditious way for SCE to buy down public safety risk by preventing ignitions that can lead to catastrophic wildfires. SCE is on track to meet or exceed the target of 700 miles of installed covered conductor set in the 2020 Wildfire Mitigation Plan.

Our utility made substantial enhancements over the past year to its Public Safety Power Shutoff, or PSPS, program. SCE has enhanced communication and coordination with Government and communities and improved its capabilities to sectionalize circuits to reduce the number of customers impacted when a preventive de-energization is initiated.

In addition to our efforts to help reduce the risk of wildfires, the company continues to work to resolve wildfire-related litigation. As we noted on September 23, SCE resolved all insurance subrogation claims for the Thomas and Koenigstein fires, and Montecito Mudslides.

With this and other information in hand, we were able to move our accounting reserves from the low-end of the estimable range to a best estimate, providing investors greater clarity on this and our related equity need.

Moving to regulatory actions at the CPUC, we are very pleased to see continued timely decisions and progress on our key filings as originally scheduled. This is a significant improvement in action and progress under the leadership of President Batjer. We commend the Commission and its staff for their continuing efforts in ensuring that proceedings are staying on schedule, despite challenges from the new remote working environment during the pandemic.

During this quarter, the CPUC issued decisions in several of SCE's key filings. These include the 2020 Safety Certification, the Charge Ready 2 program, and the WEMA application, authorizing $505 million of wildfire insurance cost recovery and supporting continued treatment of insurance as a reasonable cost of service.

We also received a proposed decision on our initial AB 1054 CapEx securitization application and see timely progress on track 1 of the 2021 GRC proceeding. Furthermore, SCE has reached a settlement-in-principle to resolve all issues pending in track 2 of the GRC.

SCE and numerous other parties filed their 2020 integrated resource plans. One of the principal objectives of this IRP is to help California meet its 2030 and 2045 GHG reduction targets. In SCE's plan, we urged the commission to adopt a 38 million metric ton target for 2030 to put California on a viable trajectory towards meeting its decarbonization goals. SCE also reiterated and highlighted a substantial CAISO system capacity need of 5,400 megawatts in the 2024 through 2026 timeframe due to planned power plant retirements.

To address this, SCE has recommended that the commission update its reliability planning methodology, including increasing the planning reserve margin, to better reflect the state's evolving electricity market and ensure system reliability. These recommendations are consistent with the conclusions found by the CAISO, the CPUC, and the California Energy Commission in their recent preliminary root cause analysis of the August rotating outages.

Last month, the governor issued an executive order that moves up the timeframe to have all new vehicles sold in California be emission-free to 2035. The order aligns with our Pathway 2045 work, in which electric vehicles are an important element to achieve carbon neutrality. I am proud that Edison has been recognized as a thought leader on this front.

I want to underscore the importance of making necessary investments today to ensure we have a strong, safe, reliable, and resilient grid to accommodate the increasing electrification of the economy. This drives substantial investment opportunities to meet increased electricity usage and increased system complexity including more distributed energy resources, higher levels of renewable resources, and energy storage.

Importantly, our analysis shows that this transition will also be affordable, since the greater efficiency of electric motors and appliances will reduce customers' total costs across all energy commodities by one-third by 2045.

With that, turn it over to Maria to provide her financial report

[Maria Rigatti, Chief Financial Officer]

Thank you, Pedro. Edison International reported core earnings of $1.67 per share for the third quarter 2020, an increase of $0.17 per share from the same period last year. This increase was primarily due to higher CPUC-related revenue due to the 2018 GRC escalation mechanism and lower expenses from regulatory deferrals related to wildfire mitigation activities. These were partially offset by equity share dilution. Reflecting our solid results for the first 9 months of the year, we are once again narrowing our guidance range by raising the low end of our 2020 EPS estimate. I will discuss this in more detail later in my remarks.

On Page 2, you can see SCE's key EPS drivers on the right-hand side. I would like to highlight 4 items that accounted for much of the variance. First, EPS increased by $0.43 related to higher revenue. CPUC-related revenue contributed $0.25 of this increase due to the escalation mechanism from the 2018 GRC decision. FERC and other operating revenue had a negative variance of $0.05, largely because of the true-up for the 2018 Formula Rate case we recorded last year. There was also a positive variance of $0.23 primarily related to the balancing account for the GSRP settlement that was approved in April. However, there were offsets in expenses related to this variance.

Second, O&M had a positive variance of $0.08, primarily due to recognizing lower wildfire mitigation expenses as a result of deferrals to regulatory assets. Third, income taxes had a negative impact of $0.13, primarily reflecting lower tax benefits captured through our tax balancing account. Lastly, SCE's EPS in the quarter was lower by $0.16 because of dilution from the increase in shares outstanding.

On Page 3, you will see SCE's capital expenditure and rate base forecast. CapEx is consistent with last quarter's forecast for 2021 through 2023, with a slight increase to 2020. Additionally, we updated the rate base forecast primarily for Charge Ready 2 and GRC rebuttal testimony. We continue to see significant opportunities to grow rate base over time, driven by investments in electric infrastructure, and this is reflected in our robust capital program of $20 billion to $21 billion over this period.

This request level represents a compound annual growth rate of 7.6% in rate base over 2 rate case periods. After applying a 10% reduction to the total capital forecast to reflect our experience of previously authorized amounts and other operational considerations, the low end of the range still reflects a strong rate base growth of 6.6%.

Please turn to Page 4. Track 1 of the 2021 GRC proceeding has been on schedule and during the quarter, all related briefs were completed. We are now waiting for a decision and continue to expect that in first quarter 2021. To emphasize our previous statements, SCE's core business will require minimal equity to fund our ongoing capital expenditures program beyond 2020. We will be able to quantify these levels after we receive the final approval of the GRC.

Page 5 summarizes our progress on SCE's cost recovery filings for incremental 2018 and 2019 wildfire mitigation costs. In April, SCE received CPUC approval for the GSRP settlement, which authorized recovery of $476 million of capital and $123 million of O&M. The decision approved a revenue requirement of $159 million, which went into rates on October 1. The balance of the capital costs that were approved will be recovered as we securitize amounts related to wildfire mitigation, as authorized in AB 1054.

In September, the WEMA application to recover $505 million of costs for wildfire insurance was approved. This is now included in rates and will be recovered over the next 24 months. Importantly, the CPUC noted in its decision that SCE had acted reasonably and prudently in its procurement of insurance policies.

The Commission also recognized that wildfire liability insurance serves as an important protection for customers against third-party legal claims invoking the inverse condemnation doctrine and allegations of negligence. These decisions enable SCE to recover approximately $665 million of cash over the next 2 years and further strengthen its balance sheet and credit metrics. In addition, the CPUC recently issued a proposed decision on SCE's application to securitize the GSRP capital noted above. When the financing is completed, it will add approximately $335 million to the cash position.

SCE and all intervenors reached a confidential settlement-in-principle regarding all issues in Track 2 of the 2021 GRC. Once a definitive settlement is executed, a motion will be filed with the CPUC seeking approval. SCE expects a proposed decision on the track 2 settlement in Q1 2021. We will record the impact of the settlement once the commission acts and do not expect a negative earnings impact.

I will highlight a number of other pending filings and future applications related to wildfire mitigation costs. First, we are due to receive a decision on our CEMA filing for certain drought and restoration costs in first quarter 2021. In the next few months, we also anticipate filing a WEMA application for excess insurance premium costs for July through December 2020. Finally, we will make our GRC track 3 filing in first quarter 2021, with a proposed decision expected a year later.

As for other regulatory actions during the quarter, the CPUC approved SCE's Charge Ready 2 program, which supports approximately 38,000 light-duty EV charging ports. This is the largest light-duty EV charging program by an investor-owned utility in the U.S., and will add approximately $400 million to SCE's rate base by 2026.

Turning to guidance, Pages 6 and 7 show our updated 2020 guidance and the key assumptions for modeling purposes. Let me highlight that we are once again narrowing our full year 2020 EPS guidance range to $4.47 to $4.62 per share by raising the low end of the range. This also increases the midpoint of the EPS range by $0.05 to $4.55. While most of the earnings assumptions are essentially unchanged from the last quarter, there are a couple of factors driving the majority of this upward revision.

First, we now expect SCE earnings to be $0.04 higher than our previous assumption. This is driven by improvements of $0.01 in rate base earnings and $0.03 from SCE variances related to the timing of financing activities as well as operational items.

Second, the EIX Parent and Other forecast has improved by $0.01 versus our previous estimate. These factors and our strong performance so far this year make us increasingly confident in our narrowed 2020 EPS guidance range.

Last month, we issued a news release about the September 2020 subrogation settlement and noted that we anticipate issuing approximately $1 billion of equity to invest in SCE, enabling the utility to debt finance wildfire claims payments. Since then, many of you have asked questions about the timing of the equity issuance.

As we shared with you, we will provide an update on the fourth quarter 2020 earnings call. The timing of the equity issuance will be dependent upon the timing of future claims resolutions and payments that exceed insurance.

And that concludes our remarks.

[Sam Ramraj, Vice President, Investor Relations]

Michelle, please open the call for questions. As a reminder, we request you to limit yourself to 1 question and 1 follow-up, so everyone in line has the opportunity to ask questions.

[Operator]

Thank you. [Operator Instructions] Our first question comes from Jonathan Arnold with Vertical Research Partner. You may go ahead, sir.

[Jonathan Arnold, Vertical Research Partners]

Good afternoon, guys. Thank you.

[Pedro Pizarro, President and Chief Executive Officer]

Hi, Jonathan.

[Maria Rigatti, Chief Financial Officer]

Hi, Jonathan.

[Jonathan Arnold, Vertical Research Partners]

Could I just ask a question on the September announcement, and the - which, obviously, was mentioned now? And particularly, of the $6.2 billion that is now your accrual, could you give us any sense, Pedro, sort of how - what proportion of that is effectively settled or agreed, and then how much is still subject to estimate or extrapolation, just sort of some directional sense of how you arrived at that being the estimate, as opposed to the low-end these days?

[Pedro Pizarro, President and Chief Executive Officer]

Sure. Thanks, Jonathan. Maria can fill in the numbers here. But in terms of the categories, you've seen the major announcement so far, the various settlements that we have announced, 1 last fall with the public entities, and now the subrogation parties in this latest settlement.

In addition, there's been, I think, we've shared that there's been settlements with a number of private parties, private plaintiffs, but those are small, relative to the thousands of plaintiffs in the individual cases. So that's - based on that, and we can probably give you the precise number that we disclose that's included in the settlements. But in the writing of the best estimate, what we did was, you have the benefits of now having those major settlements under our wings, all right, and behind us.

And then, in addition to that, going through the discovery process on the rest of the claims, we're deeper into the discovery process, we think have a better understanding of the facts at hand, and what our arguments would be. We have an understanding of some of the counterarguments that various classes of plaintiffs might have. And that just gives us a better ability to now move from the low-ends to the best estimate. There are still assumptions in there. And we disclose that the final result could be higher or lower. And we're not able to disclose an uncertainty band around it, Jonathan.

But our hope and expectation is that by now moving from the low-end to a best estimate that, we're no longer talking about being on one end of the roadway, we're now right down the middle of the roadway. And I know that investors will be probably making assumptions or having their own expectations about what that uncertainty band might be. Again, we're not in a place to be able to communicate that.

But what we've given you is our best estimate or best sense of what a final outcome would look like, on the benefit of not only things that we've locked down, but facts that we now better understand to through the litigation process. Maria, I don't know if you want to give - if you have a handy kind of percent.

[Maria Rigatti, Chief Financial Officer]

Yeah, I think just the only thing, Jonathan, maybe that's left with your question is you were I think asking about which portion of that amount is the subject? I think the way I interpret is the subject of the subrogation claims settlement that we reached, and that's about $1.2 billion.

[Jonathan Arnold, Vertical Research Partners]

I know that, Maria. I was looking for not just overall how much of it is known versus estimated.

[Pedro Pizarro, President and Chief Executive Officer]

Yeah, Maria, I guess that the answer to Jonathan's question would be that you take the $6-billion-plus gross amount, and then point him to the settlement that we just entered for $1.2 billion, the settlement that we had last fall, which was on the order of $1 billion, the claims, or $1 billion in the settlement was, call it, a third or so of that.

So round numbers would be - Maria, you probably have a more precise number, $1.5 billion or so, $1.6 billion.

[Maria Rigatti, Chief Financial Officer]

Yeah, I guess, I would probably just go back to, what we have recorded on the books right now is the total recorded liability, Jonathan. The portion of that, the $1.2 billion approximately is associated with the subrogation claims payment. What I would say about your question and what's known and what's unknown, we took all of that into consideration in order to reach the best estimate.

I don't think Pedro's comments earlier about the process we went through, et cetera. We're not trying to break down between all of the different types of claims payments at this point. You can understand why.

[Jonathan Arnold, Vertical Research Partners]

Okay, understood. And may I just sort of - on a related topic for my follow-up, the equity that you say you're going to talk to us on the fourth quarter, any - would you comment at all on your sort of interest in using the current ATM that you have between now then?

And then - and sort of also why - what's the thought process behind sort of waiting till you need to actually pay claims? Why not just sort of put this dilution behind you? So that, for a better - for want of a better reason 2021 will be a sort of the base that won't be further diluted.

[Maria Rigatti, Chief Financial Officer]

So, in regards to both of those questions, I think your first question about thoughts about what I'll say approaches or tactics or tools, I think we have a lot of flexibility around the tools and all options I think are available to us, running the gamut, to ways we've done it before, ATM, et cetera. So I think we have a lot of options when it comes to the tools. And we'll work that out as we progress closer to the point in time in which we will be issuing the equity.

And I think your second question around kind of why wait, I think we've described before that, the way these processes work, we have changed our best estimate. But that doesn't mean that cash is going out the door right now. In fact, the subrogation settlement that we announced last month, really - most of that was covered by insurance. So we're really going to follow that pattern of where - when cash is actually required. And that will play into our decision about the timing of the equity issuance.

[Jonathan Arnold, Vertical Research Partners]

Okay, fair enough. Thank you.

[Pedro Pizarro, President and Chief Executive Officer]

Let me just put a fine - let me put a fine point in it, Jonathan, because perhaps reading too much between the lines of your question, there could be an implication there that perhaps events might be happening within a certain timeframe. And the reality is we just don't know what the timeframe will be for resolution of the remaining claims. I think as we've said all along, often these claims get resolved through settlement, but they need not resolve through settlement.

If it goes through settlement, some have happened more quickly, like you saw the public entities settlement and the subrogation claims. But there's no guarantee that remaining claims outstanding will be settled on a similar sort of timeframe. And it could take much longer for those to be resolved. And if we ultimately ended up going all the way through litigation that we would expect would be a multiyear process.

So I think it was hearing into your question, the idea, well, if you need it by X time, why not go ahead and do it, issue the equity a little bit earlier. But we don't know whether that will be a little bit or a lot earlier, because we don't really know the timeframe, Jonathan.

[Jonathan Arnold, Vertical Research Partners]

Okay, fair enough. That makes sense. Thanks very much for all the help.

[Pedro Pizarro, President and Chief Executive Officer]

Thank you.

[Operator]

Thank you. Our next question comes from Julien Dumoulin-Smith from Bank of America. You may go ahead.

[Pedro Pizarro, President and Chief Executive Officer]

Hi, Julien.

[Julien Dumoulin-Smith, BofA Securities, Inc.]

Hey, good afternoon, team. Thank you very much for the time. So if I can pivot to the Silverado Fire, if you don't mind, I appreciate the remarks at the outset here. But can you help frame as best you understand the liability statutes pertaining to third parties, such as those potentially involved with the telecom lines in the case?

And also further, I appreciate all this is preliminary, but how should we want to think about your direct exposure, should the fact pattern that you guys just alluded to about a third-party causing the fire be affirmed and, most critically, that inverse condemnation would not apply to the utility, seeing that at least is best I physically understand what you're describing that this wire basically flew up from below and actually touched your - or presumably sparked your own wires there. Sorry for longwinded question. But I just want to be very clear, to make sure we understand the statute here.

[Pedro Pizarro, President and Chief Executive Officer]

Sure. And I'm going to give you a sadly unsatisfying answer, because this fire is still raging. We know very little at this point. And so, even what - I won't say statute, what legal treatment would apply, ultimately, is still unclear. I know and you're probably focusing, for example, on could inverse condemnation apply, for example. And even with that, whether it applies will depend upon the facts of a particular case, ultimately will be determined by a court. So we've been speculating if we were tried to opine on whether something like inverse would apply here. Likewise, in terms of liability, potentially by other parties, I think, you're understanding the picture as well as we do right now, right. We shared, we're aware of this possibility of the lashing potentially having gone up and flown up into the power line. So we're above that on that particular segment.

And so that could imply then some potential liability by that third-party telecommunications carrier. The utility could show that there were clauses like that, then the utility would be able to pursue a contribution from other responsible parties. And so that certainly is a possibility here. But it's just way too early to draw any conclusions at all, Julien. So I probably have to leave it at that.

[Julien Dumoulin-Smith, BofA Securities, Inc.]

All right. Fair enough. I'll ask you a little bit of an easier one here, if you don't mind?

[Pedro Pizarro, President and Chief Executive Officer]

Sure.

[Julien Dumoulin-Smith, BofA Securities, Inc.]

Where do you stand on the ability to procure insurance, as you look forward here? And I'm asking this in light of continued elevated wildfire activity in the state, even if it's admittedly not been directly tied to utility matters, but rather broader environmental factors here?

[Pedro Pizarro, President and Chief Executive Officer]

Yeah, I'll start this, and Maria will probably have even better detail that I think it sort of by saying you saw that we procured insurance successfully for this calendar year. It is a tighter market than it's been in the past, the disclosures you've seen of premiums and amounts we've sought recovery have indicated that the pricing for that product is a lot higher than it was 3 or 4 years ago, I wouldn't want to speculate on what the market will look like when we're back out in the market. I think we would expect that there would be product available, but that's discovery you go through every time that you go to the insurance cycle. Maria, what would you add there?

[Maria Rigatti, Chief Financial Officer]

Sure. So Julien, I think, it was a tough market, it's been a tough market for a couple of years, we have had the ability to get the amount of capacity that we wanted, albeit at a higher and higher price. So that is, of course, an issue for our customers. You may be aware that in our 2021 GRC, we've actually started to try and explore other alternatives that would have helped to lower the cost, so funded self-insurance and some things like that, balancing accounts, so that if the market changes to the good or the bad in terms of pricing that we're not caught short, nor would our customers bear an undue burden, if it actually turns out to be better than we were forecasting. So I think it's just something that we continue to monitor and we continue to work hard to get it into our program at the most affordable price for our customers.

[Pedro Pizarro, President and Chief Executive Officer]

Maybe one more thing I would add, Julien, that might be helpful is - and again, this is a little bit of speculation here. But at the same time, I think it's important to reflect on the fire season that we've seen so far, which has been once again historic. We thought 2017 and 2018 are historic, but in terms of acreage burn, we've seen over 4 million acres burned across the state with over half of that having been due to lightning strikes. The point I'm making here is one that I think I made already in my prepared remarks. The fire suppression effort has been really strong. And, I'm going to speculate a little bit here, but it can't prove the negative here.

But I would hazard a pretty good guess, that if we have had this fire season 3 years ago, before the state has significantly increased its firefighting resources and capabilities. We might be seeing a much different level of damage across the state, regardless of the cost of the fire. We might have seen much more damage for the lightning induced fires. And if there were utility caused fires, we might see more damage stemming from those as well.

So I would hope that as the insurance carriers look at their risk profile for California, they - I'm sure will be taken into account some of the climate change related weather conditions, winds, et cetera, that have contributed to the large fires this year. But I would also hope that they would be looking at the flip side, the fire suppression effort that helps bring the risk envelope down for everyone.

And at the same time, I would hope they would be looking at the efforts of all the utilities, certainly our utility in executing the wildfire mitigation plan, the risk isn't zero, the risk will never be zero. But I think the risk is very different today than it was 3 years ago. As we - and we will continue to change, as we continue to harden the system, as we continue to use PSPS responsibly and the like.

[Julien Dumoulin-Smith, BofA Securities, Inc.]

Got it. Thank you, guys. I'll follow up on offline here.

[Pedro Pizarro, President and Chief Executive Officer]

You bet. Hey, thanks, Julien.

[Operator]

Thank you. Our next question comes from Michael Lapides with Goldman Sachs. You may go ahead, sir.

[Michael Lapides, Goldman Sachs]

Hey, guys, thank you for taking my question. I want to - I have 2 things. One is just a payment level question for the 2017 and 2018 wildfires. If I just do back of the envelope, and I'm sure the queue has more, and I'll hop in offline. But the $6.2 billion accrual, you paid out about $1.6 billion. You have somewhere between a $1.5 billion and $2 billion of insurance left and you're getting around to $225 million on FERC recovery. So that's - it's kind of rough - the cash out of pocket is somewhere in the $2.5 billion to $3 billion range from the 2017 and 2018 wildfires. Am I kind of in the ballpark, Maria? And that's for forward tax benefit.

[Maria Rigatti, Chief Financial Officer]

Yeah, that's about right. And now I have to go to the math a little bit, went through it pretty quickly. But we had about $6.2 billion, or probably, I would say, $2.5 billion is a little low to me, if I go through the numbers. If you're going all the ways from the beginning, you're not - if you take all of the charges including the ones that have already been paid for the evidence of the settlements back here.

[Michael Lapides, Goldman Sachs]

I'm just trying to think about cash going out from today onwards, so the $6.2 billion, but you've already paid $1.6 billion, roughly $1.6 billion. And you have some insurance skill to collect, so I don't remember what that number is, the math is $2 billion, but I think you've already collected some.

[Maria Rigatti, Chief Financial Officer]

If you're are all thinking about the - if you're thinking about to go forward, that's probably about - right about $3 billion.

[Michael Lapides, Goldman Sachs]

Okay. Thank you.

[Maria Rigatti, Chief Financial Officer]

In the best estimate - embedded in the best estimate.

[Michael Lapides, Goldman Sachs]

Understood. Pedro, I have a question just about the tone in California towards utilities, which is one of the major publications in Northern California today put out what scene or maybe it was last night put out what seemed like a very harsh piece on one of your peers. And it seems to have been relatively quiet coming out of Sacramento and other public officials about kind of the low utilities play in wildfires and wildfire mitigation, and maybe that's because we're going to our first season. But can you just talk about how you manage the court of public opinion from here and the sentiment, and how that impacts and kind of flows through policymakers and the coordination with policymakers?

[Pedro Pizarro, President and Chief Executive Officer]

That's a good question. And I'll try not to take up the whole rest of the earnings call on. I guess, we probably could spend a whole afternoon on it. By the way, in your prior question, I'm glad you asked that, I think that your question was probably in the same zone as Jonathan's in looking for the sizing of the numbers. So hopefully, that helps everybody. I think in terms of tone and look, I won't comment on the publication you just mentioned or other utilities out there.

But I think - I'll make 2 comments. I'll make a general comment and then a more specific comment about Edison. The general comment is that particularly with the 2020 wildfire season, so far. The fact that over half of the acres burned stem from lightning induced fires. The issues that everybody in the population has seen around firefighting, and frankly the great efforts by firefighters, et cetera. I think at some level, there's a deeper understanding that this is not just about the source of the fire, but it's about this convergence of factors, including climate change, including weather conditions, including fuel on the ground, including all of this, right, including where homes have built, that adds up to this risk that the state bears and trying to do something about. So that I think brings in maybe a little different tone overall.

I'll make a second comment about our utility. One of the things we've tried to do throughout all this is - name a few things we've done. We try to be really transparent, Michael. And so, as we have seen issues in the system, as we've gone through the 2017 and 2018, wildfire experience, you saw us be very transparent when we saw that there might have been issues related to our equipment that might have contributed to fires, because of all, I want to make sure that the public can have confidence and trust in the Edison company, being forthright, and not only working hard to improve things and reduce wildfire risk for our communities, but also in being transparent about when things might happen.

And the reality is we operate under a prudency standard, not a perfection standard because we operate a system with a million and a half poles across 50,000 square miles with 27% of those 50,000 square miles being high fire risk territory. The other thing we've tried to do is - 2 more things we do. The second thing has been to work really hard at continuing to learn developer wildfire mitigation plans, improve on them.

Actually, even before there was the concept of the WMP, frankly, even before we'd seen the Thomas fire in 2017. We started to work on the Grid Safety and Resiliency Program, because we saw with the combination of the one country fires in the fall of 2017, and the instability event in the regulatory framework at the CPUC San Diego Gas & Electric decision.

We saw that the risk profile was very different, both physically and in regulatory space. And that began our first iteration of a radical rethinking of how we thought about wildfire risk on our system that led to the GSRP filing, and we haven't stopped since then. And we try to communicate with our communities, everything that we're doing around it.

The third and final thing I'll mention is, even as we focus most of our attention on this near-term issue and these risks. We've also kept the eye on the long-term ball here. And that's why you've seen us continue to think hard about things like Pathway 2045, and what California needs to do to address climate change, both because we're seeing the climate change impacts manifests themselves in wildfire. So it's important to take care of the wildfire risk. But we also have to help the state to take care of the crew long-term risk, which is doing something about climate change, but also because, taking care of - addressing greenhouse gas reduction turns out that you really need a strong utility to be a major partner with the state to have a strong grid to help access clean energy and electrify the economy.

And that I think that that need for a strong utility for the long run, to help the state achieve its climate goals, is part of the fabric here, right, as part of the reason to ensure that the utility can have a compact to keep it healthy. It's part of the reason that you saw state government support AB 1054. And it's part of the reason that you saw unanimous approval for AB 913 this year.

So a little long winded here, but we really think a lot about this in terms of what we do in the near-term? But how do we think about the long-term? And how do we help demonstrate to the state and to our public that we want to be a partner and we need to be a strong partner for the long haul here in order to make California the great state that we all enjoy living in.

[Michael Lapides, Goldman Sachs]

Got it. Thank you, Pedro. Much appreciate it.

[Pedro Pizarro, President and Chief Executive Officer]

You bet. Thanks, Michael.

[Maria Rigatti, Chief Financial Officer]

Hey, Michael, just one thing, because I was using my scratchpad while Pedro was going through it, I think…

[Michael Lapides, Goldman Sachs]

I give Maria time to work with some numbers.

[Maria Rigatti, Chief Financial Officer]

Yeah, I think the number you're looking for is more like $3.5 billion to $3.7 billion. And we can go over how I did my math offline, if you want.

[Michael Lapides, Goldman Sachs]

That sounds great. Happy look forward to following up, Maria. Thank you.

[Pedro Pizarro, President and Chief Executive Officer]

Thanks, Michael.

[Operator]

And the next question comes from Steve Fleishman with Wolfe Research. You may go ahead, sir.

[Pedro Pizarro, President and Chief Executive Officer]

Hi, Steve.

[Steve Fleishman, Wolfe Research, LLC]

Hey, good afternoon. So just one technical question on the lashing wire, and I guess, the telecom wires and electric. Is the telecom company responsible for managing and servicing their own wires near your poles? Or do you have to do that at all?

[Pedro Pizarro, President and Chief Executive Officer]

In general, they are responsible for managing their equipment. It gets even more complicated here, because you can have multiple telco companies using the assets under Joint Pole Agreements. In some cases, they might have a space on the pole designated for them, but they can then being that or dedicated to other telco providers through transaction. So it really their responsibility, it is the responsibility to maintain the physical assets.

That said, when we go on and inspect our facilities, we look for any hazards that could interfere with the electrical system. And so while we don't do detail inspection of their telco assets, if we see something and we certainly keep an eye out for any hazards that the telco assets might pose to the electric system, and report those to the telco companies.

[Steve Fleishman, Wolfe Research, LLC]

Okay. And then just one other question on the GRC. The - how - sounds like you feel pretty good on the timing of the Track 1 by early next year. Do you think there's any chance of settling the GRC Track 1 like you have Track 2 or should we assume that's going to go through the full litigated process?

[Maria Rigatti, Chief Financial Officer]

Yeah, we're pretty far along in the process now. I mean, we - all we have left is really the ALJ to issue a proposed decision, and you could have oral arguments after that. So I won't say you can never do something like that. But we are pretty far along in the process in terms of Track 1. Track 2 on the other hand, obviously we were much earlier in the process and hadn't yet gone through a lot of the different piece parts of the proceeding when we reach the settlement in principal.

[Steve Fleishman, Wolfe Research, LLC]

And you'll wait for that to give 2021 guidance, the outcome of the GRC like you've done in the past?

[Maria Rigatti, Chief Financial Officer]

Yeah, the Track 1. Yeah.

[Steve Fleishman, Wolfe Research, LLC]

Yeah. Okay. Thank you.

[Pedro Pizarro, President and Chief Executive Officer]

Steve, Steve, Steve, we always remain open if parties want to discuss things. But I think Maria got it right, this one is pretty far down the path. Thanks a lot.

[Steve Fleishman, Wolfe Research, LLC]

Thank you.

[Operator]

Thank you. Our next question comes from Jeremy Tonet with JPMorgan. You may go ahead.

[Jeremy Tonet, JPMorgan Chase & Co.]

Hi, good afternoon.

[Pedro Pizarro, President and Chief Executive Officer]

Hi, there.

[Jeremy Tonet, JPMorgan Chase & Co.]

Switching gears here to the Blue Ridge fire. Just wondering if you're able to share with us if any EIX assets reside within the vicinity of the Blue Ridge ignition point or if that is not the case?

[Pedro Pizarro, President and Chief Executive Officer]

I think - Jeremy, thanks for the question. I think the short answer I'll give you is that we have not filed an ESIR for Blue Ridge. And at this point, we don't see any basis for needing to file an ESIR.

[Jeremy Tonet, JPMorgan Chase & Co.]

Got it. That's very helpful. Thank you.

[Pedro Pizarro, President and Chief Executive Officer]

Yeah. You bet.

[Jeremy Tonet, JPMorgan Chase & Co.]

When thinking about potential changes to California system planning, how should we think about incremental capital opportunities for EIX over the next few years, just kind of a broader question there?

[Pedro Pizarro, President and Chief Executive Officer]

Yeah. No, that's a great question. I'll try and keep it brief. When we think about that, I think certainly the near-term thesis I talked about, right. So the procurement needs that we foresee across the state for the 2024 to 2026 timeframe, I would suspect that much of that will continue to be served by competitive generators in the state. The state has generally had a preference for that. There's always an opportunity for utility involvement.

We have shared with investors before that we don't see SCE investing capital into traditional generation. It's just not the core business at this point. We like the generation that we do have in rate base. But we don't see dedicating new capital to new generation since we have a very vibrant third-party market here.

And we have plenty of opportunities to invest capital in the wire system. A little different with storage, because storage could well be part of that, not only the midterm procurement. But we certainly see storage being a big part of the story in California as we go up to 2030 and 2045. And so, just to remind you, our Pathway 2045 analysis suggests that California-wide you'll see a need for 80 gigawatts of new renewables and 30 gigawatts of new storage at the bulk power level statewide.

And while I would expect a lot of storage will also be done by third-parties, we have seen certainly an interest in statutes in preserving the options for some utility on storage. You've seen in our current rate case, we had filed in their provisions for not a large amount of capital, but some capital that was set aside. Maria, I want to say it was around $60 million, if I remember correctly, but check me on that $60 million, all right, for potential utility on storage.

And when we see storage being a more likely target for utility ownership would be - where it can play a more integral role in grid operations; as an example, the 20 megawatts of batteries that we deploy at our Mira Loma Substation a few years ago.

I'd say, bigger picture though, as we think about those near and midterm needs. And in the longer-term energy transition, the big capital investment opportunity in need here is making sure we have a robust grid to be able to interconnect clean energy resources with the increase in users across the economy as the economy electrifies.

And as we see load, which was been generally stagnant for the last decade, increased by 60%, by the time we get up to 2045. So we see a significant need for investment in the wire system. And that along with potential upside opportunities in areas like the Charge Ready 2 program, there might be other opportunities like that as the environment evolves.

So hope that covers it, Jeremy.

[Jeremy Tonet, JPMorgan Chase & Co.]

Got it. Got it. Really appreciate that. And if I could slip one more in, just what's your current outlook for customer rates over the planning period, with kind of incremental recoveries authorized as expected?

[Maria Rigatti, Chief Financial Officer]

If you look at our current rate case, so the GRC, that's especially the [Chapter 1] [ph], is everything were approved, which obviously that never happens. But the average monthly residential bill would go up to about $13 on average. Our care customers would go up to about - I think it's about $8 a month.

[Jeremy Tonet, JPMorgan Chase & Co.]

Got it. Thank you very much for that.

[Pedro Pizarro, President and Chief Executive Officer]

Thanks.

[Operator]

Thank you. And our next question comes from Ryan Levine with Citi. You may go ahead, sir.

[Ryan Levine, Citigroup, Inc.]

Good afternoon.

[Pedro Pizarro, President and Chief Executive Officer]

Hey, Ryan.

[Ryan Levine, Citigroup, Inc.]

In light of the blackouts in California over the last few months, can you comment around, specifically blackout related potential investment opportunities in transmission and storage that may address some of the problems of the last few months and reduce the risk for future seasons?

[Pedro Pizarro, President and Chief Executive Officer]

Yeah. Thanks for the question, Ryan. And I think a lot of the answer in broad strokes is what I just shared with Jeremy. I don't think that we have a more precise beat right now on here's this specific piece of equipment that might help with that. Remember that the rotating outages were not driven by the transmission or distribution system per se. They were driven by insufficiency in supply.

And so a lot of the focus therefore is on the kind of near-term procurement that SCE advocated for and the CPUC approved last year. So recall that they approve something like 3,000 megawatts of procurement for the 2021 to 2023 timeframe. Of that, I think SCE has done - that's statewide number. And I think SCE has done something like 2,700 megawatts of procurement for that timeframe, largely with keeping some existing generators, going for a few more years, that's been in tandem with the State Water Resources Board, having extended the timelines for retirements due to once the cooling restrictions.

So I think that's a lot of the very near-term actions. In the midterm, that's what I was talking about earlier, we see that statewide need for around 5,400 megawatts of resources beyond current contracts statewide. And so, some of that may be met by once again existing plants, being able to extend their lifetime, some of that may be driven by new resources, some of that could be combinations of storage additions that might provide greater effective capacity. So that I think could be something that - some portion of which might end up being done through utility rate base.

And I think certainly it'd be a large portion of that that is done through competitive processes. On the transmission side, I don't know that I can point to any specific transmission deficiencies that would have contributed to the rotating outages. But as we think about the system, adding new resources that, of course, will then need to - lead to needs for transmission interconnection if those resources are landing in places that already have wire connections.

And so, again, I don't think I have anything specific to share in terms of the near term. I will tell you in terms of the longer term view, heading out to 2045, in our Pathway 2045 white paper, when we try to put dollar figure around the resource needs, that 80 gigawatts of renewables and 30 gigawatts of storage, those new clean energy resources added up in our estimates, a rough estimate, go around $175 billion need for new investments statewide.

Again, much of that may be done by third parties, and the related transmission bulk power system investments, through 2045 statewide will be something like $70 billion. So there is significant investment need ahead. And I think some portion of that will need to be served by utilities.

[Ryan Levine, Citigroup, Inc.]

Thank you.

[Pedro Pizarro, President and Chief Executive Officer]

Thanks, Ryan.

[Operator]

Paul Fremont from Mizuho. You may go ahead, sir.

[Pedro Pizarro, President and Chief Executive Officer]

Hey, Paul.

[Paul Fremont., Mizuho Securities USA Inc.]

Hi. I guess my first question is can you tell us a little bit more about the Bobcat Fire. And I guess, there were some news reports with respect to the Bobcat Fire that there may have been vegetation or tree branches that came into contact with the transmission lines. Are you able to sort of give us any update there?

[Pedro Pizarro, President and Chief Executive Officer]

So I don't think there are any major new updates beyond what we have reported already. But just to recap that, we have reported that, this fire starting September 6, the reported start time of the fire was 12:21. We did have a relay on our system, on a 12 KV circuit, 5 minutes before that at 12:16. But one of the high-definition cameras that we have out there saw or captured the initial stages of the fire and saw smoke as early as 12:10 PM.

So, 6 minutes before we saw any sort of activity in our circuit. And what was that, 11 minutes before the reported start of the fire. The US Forest Service is doing investigation. And they removed a 23-foot section of overhead conductor from the area of interest. And we understand that they also removed and retained some tree branches. So this suggested they may be investigating if vegetation was involved in ignition of the fire.

We don't know if the US Forest Service is also looking at any other possible causes of the - for the fire or if this equipment is their sole focus. SCE is doing its own review. It's still really early here. We will certainly be looking at any number of potential causes. The bottom line, Paul, is it's way too early. And we have reached no conclusions in either direction in terms of causation at this point.

[Paul Fremont., Mizuho Securities USA Inc.]

And then, my other question is, with respect to the Track 2 settlement, you were making a statement that you don't expect a negative earnings impact. Can you elaborate on that, is that relative to what?

[Maria Rigatti, Chief Financial Officer]

So I guess I will caveat everything by saying that since the settlement go in to a lot of detail, only meant more people to think that there was anything in the settlement that would be untoward. We don't see any impact on earnings or anything like that. We'd be deferred some of the costs as being probable of recovery. Just wanted to clarify that, this is consistent with what we've previously thought.

[Paul Fremont., Mizuho Securities USA Inc.]

Okay, so that's not in any way, any type of the signal on future EPS?

[Maria Rigatti, Chief Financial Officer]

No. It was more to clarify that - well, I mean, I guess, it is a signal things are not going to have negative effect on earnings. But it was more to point to the fact that we had previously talked about, how we were deferring costs. And this settlement covers a number of those costs that we've been deferring.

[Paul Fremont., Mizuho Securities USA Inc.]

Okay, thank you very much.

[Pedro Pizarro, President and Chief Executive Officer]

Thanks, Paul.

[Operator]

That was the last question. I will now turn the call back over to Mr. Sam Ramraj.

[Sam Ramraj, Vice President, Investor Relations]

Thank you for joining us today. And please call if you have any follow-up questions. That concludes our conference call. You may now disconnect.

[Operator]

Thank you. This concludes today's conference. You may go ahead and disconnect at this time.