Edison International

NYSE:EIX

Earnings Call Transcript 2022-Q3

[Operator]

Good afternoon, and welcome to the Edison International Third Quarter 2022 Financial Teleconference. My name is Dexter, and I'll be your operator today. [Operator Instructions] Today's call is being recorded.

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

[Sam Ramraj, VP, IR]

Thank you, Dexter, and welcome, everyone. Our speakers today are President and Chief Executive Officer, Pedro Pizarro; and Executive Vice President and Chief Financial Officer, Maria Rigatti. Also on the call are other members of the management team. Materials supporting today's call are available at www.edisoninvestor.com. These include our Form 10-Q, prepared remarks from Pedro and Maria and the teleconference presentation.

Tomorrow, we will distribute our regular business update presentation. During this call, we will make forward-looking statements about the outlook for Edison International and its subsidiaries. Actual results could differ materially from current expectations. Important factors that could cause different results are set forth in our SEC filings. Please read these carefully.

The presentation includes certain outlook assumptions as well as reconciliation of non-GAAP measures to the nearest GAAP measure. During the question-and-answer session, please limit yourself to 1 question and 1 follow-up.

I will now turn the call over to Pedro.

[Pedro Pizarro, President, CEO]

Thank you, Sam. Edison International reported core earnings per share of $1.48 for the third quarter and $2.49 for the first 9 months of the year. Based on our year-to-date performance and outlook for the remainder of the year, we are narrowing our 2022 core EPS guidance range to $4.48 to $4.68 from our prior range of $4.40 to $4.70. We are fully committed to delivering our long-term EPS growth rate target of 5% to 7% for 2025.

In my remarks, I will focus on 3 key messages. First, SCE's excellent progress reducing wildfire risk. Second, we have updated the 2017 and 2018 wildfire and mudslide events reserve. Third, I'll talk about the increasing alignment between California's clean energy actions and SCE's vision to lead the transformation of the electric power industry.

SCE is making excellent progress in executing its wildfire mitigation plan. As I mentioned before, when we look across all 17,000 circuit miles of distribution lines in SCE's high fire risk area or HFRA, over 7,000 miles are already underground. And the utilities grid hardening measures are focused on the remaining approximately 10,000 miles that were above ground. SCE is rapidly deploying covered conductor and is on pace to complete 4,300 miles or 43% of its overhead miles in HFRA by year-end.

As depicted on Page 3, SCE plans to continue hardening the grid through its next rate case cycle, which would result in about 8,400 overhead miles hardened. Additionally, SCE has continued to reduce the impact of PSPS. With the acceleration of grid hardening activities on frequently impacted PSB circuits this year, SCE anticipates reducing PSPS out exploration by over 44 million customer minutes of interruption.

That's more than 17% compared to the last 2 years, assuming the same weather and fuel conditions. As analysts, investors, rating agencies and members of the CPUC have observed from visits to emergency operations center this year, SCE has made marked advancements in its wildfire mitigation and emergency preparedness capabilities.

Additionally, we continue to share extensive data on SCE wildfire mitigation efforts on the Investor Relations website. Turning to the 2017 and 2018 wildfire and mudslide events. In the third quarter, SCE paid about $350 million towards settlement of claims.

Driven by this significant new information obtained through the litigation process following the closing of the Woolsey Fire statute of limitations in May, and our thorough evaluation of such information. The utility increased the best estimate of total losses by $880 million to a total of $8.8 billion.

As summarized on Page 4, I would like to share with you some additional information and background on the reasons for this large estimate revision. [indiscernible] solution is a long and challenging process. And we really appreciate your patience as SCE works through it in a prudent manner, which will ultimately support the utility's strong cost recovery applications.

With the statute of limitations for Woolsey individual plaintiffs behind us, we now know the actual number of plaintiffs bringing claims in connection with that event. And we have obtained important additional information on the nature of the claims for many of these remaining plaintiffs though still not for all of them.

To give you more visibility into the process. We now have more information regarding the type of claim a plaintiff has. For example, whether a plaintive has a claim for smoke and ash damage or damaged property or entire property loss or for a business.

Based on now having a defined number of claimants and more clarity on the nature of the respective claims, the reserve was adjusted to reflect our experience to date settling similar types of claims including higher-than-expected costs to settle several types of those claims.

The continued progress settling claims enables us to move further along in resolving these historical 2017 and 2018 events. I want to be clear that we still expect SCE to file the application for TKM cost recovery by late 2023 and to seek full CPUC cost recovery of claims payments excluding, of course, amounts recoverable from insurance or FERC forgone under the agreement with the Safety Enforcement Division.

I will also note that our financial assumptions for 2025 and beyond do not factor in any potential upside from this cost recovery application. My final comments focus on California's clean energy actions and Edison International's vision to lead the electric utility industry through the clean energy transition.

In August, the California Air Resources Board, or CARB, approved the rule requiring 100% of new cars sold in California to the zero emission vehicles by 2035. The regulation codifies the light-duty vehicle goals set out in an executive order earlier this year.

In September, CARB voted to ban the sale of new gas furnaces and water heaters beginning in 2030. This built on the CPUC's unanimous decision a week earlier to eliminate subsidies for new natural gas hookups beginning July 2023.

At the federal level, the administration is proceeding with multiple implementation actions by The Bipartisan Infrastructure Bill, the Inflation Reduction Act and the CHIPS Act. Just this week, the U.S. EPA announced the first $965 million tranche of funding for the electric school bus program authorized by the infrastructure built with about $35 million supporting school districts in SCE's area.

We are pleased to see this state and federal support for electrification, which is also consistent with our vision laid out in our Pathway 2045 white paper. SCE is a leader in electrification with the country's largest suite of transportation electrification programs led by an investor-owned utility, which benefit SCE in a differentiated manner.

Electric vehicle adoption continues to accelerate here in California. Over the last 3 months, EVs accounted for roughly 20% of new car sales in California. SCE service area has about 400,000 of the 3 million EVs in the country. EV charging accounts for over 2.5 million megawatt hours or about of 3% SCE's projected 2022 retail sales. However, by 2045, this could grow to about 50 million-megawatt hours.

Meanwhile, we are awaiting CPUC review of SCE's $677 million building electrification application which will help catalyze this market in tandem with California's plans to include around $1 billion in state budgets over the next 5 years.

We are excited about working in partnership with state and federal governments and with other stakeholders including the communities we serve to advance policies that rapidly cut greenhouse gas emissions. With that, Maria will provide her financial report.

[Maria Rigatti, EVP, CFO]

Thanks, Pedro, and good afternoon. In my comments today, I will highlight that we had strong third quarter results and have narrowed our 2022 EPS guidance range to $4.48 to $4.68. Before I move to that, there are 3 additional takeaways for today's call.

First, we remain committed to delivering on our 5% to 7% growth target through 2025. Second, our near-term maturities are manageable. Finally, SCE's current operational excellence program, which we call Catalyst, is up to a strong start, and we have high expectations for the program.

Let's move to third quarter results, as shown on Page 5. Edison International reported core earnings of $1.48 per share. Recall that in the third quarter 2021, SCE received its 2021 GRC final decision and recorded a $0.35 true-up. This results in an unfavorable year-over-year comparison for this quarter. I will highlight 2 additional key variances. SCE's earnings were driven by an increase in CPUC-related revenue in 2022 due to the GRC escalation mechanism and previously unrecognized return related to the customer service replatform project final decision.

Moving to Page 6. SCE's capital forecast has been updated slightly, primarily to reflect the timing of the spending related to the utility-owned storage project. The project is now expected to be online before summer 2023 and, consequently, some of the capital spending has shifted to 2023. As shown on Page 7, our capital forecast continues to result in projected rate base growth of 7% to 9% from 2021 to 2025. This forecast incorporates SCE's current view of the request to be made in the 2025 GRC and other applications.

With respect to 2022 guidance, as shown on Page 8, we are narrowing our 2022 core EPS guidance range to $4.48 to $4.68 from $4.40 to $4.70. Based on our year-to-date performance and outlook for the rest of the year, we are confident we will deliver results with narrowed range. I would now like to provide a brief update on our 2022 financing plan as outlined on Page 9.

We continue to expect to refinance the last $300 million of parent debt maturing this year with new debt. Recall that we completed a $400 million refinancing in August. Combined, these will complete the refinancing of $700 million of parent debt. On the equity side, we expect that internal programs will generate about $100 million of our 2022 need of $300 million to $400 million of equity content.

In April, we entered into a $600 million term loan maturing in April 2023, which provides execution timing flexibility for the equity content we identified in our original guidance. If we defer into 2023, we will incorporate any remaining amount into the 2023 EIX financing plan.

All in all, we will share our 2023 financing plan on our Q4 earnings call. Turning to the current interest rate environment, I would like to frame the company's interest rate exposure that factors into our 2025 EPS guidance and address how we plan to mitigate the impact from higher interest rates.

Page 10 shows Edison's debt maturities over the next 5 years. There are 3 categories to consider. The first category is the debt that funds 2017 and '18 wildfire and mudslide claims resolution. Pedro and I have been clear and consistent that SCE plans to apply for full cost recovery of eligible losses.

SCE's cost recovery application will also include the interest on the debt that funds the claims payments. None of this potential upside is built into our financial forecast. The second category is SCE operational debt. The interest rate exposure is minimal as we updated the estimated cost of debt and preferred in September as part of our 2023 caused capital application.

The third category is EIX parent debt. We are currently forecasting the incremental cost of debt at approximately 6.1%. To the extent rates go higher over the next several years, we have headwinds to manage. Across the organization, we are always looking for operational efficiencies underpinned by a continuous improvement mindset.

Over multiple rate case cycles, the utility has a distinguished track record of implementing operational excellent initiatives focused on enterprise-wide efforts to improve performance and safety, reliability, affordability, customer experience and quality. This has also enabled SCE to have the lowest system average rate among California IOUs.

In the current program, catalyst, the portfolio includes over 600 employee-driven ideas with capital efficiency and O&M benefits. These ideas and SCE's operations and major themes include work planning, procurement and technology as shown on Page 11. The expected benefits should aggressively increase as we accelerate implementation through 2024, further benefiting affordability for SCE's customers.

Additionally, we evaluate one-off opportunities. For instance, we have been evaluating our real estate portfolio for efficiencies. Reducing our footprint and managing the facilities costs will benefit customers in the longer term.

We have high expectations for the Catalyst program and the ability to deliver value for customers. We expect to identify additional opportunities in the core areas of safety, reliability, affordability and quality as part of a multiyear program. We look forward to sharing success stories from the front line as we go along.

Moving to Page 12. We have provided you with our long-term EPS guidance rooted in the significant investment opportunities aligned with our objectives of decarbonization and electrification. In this regard, I will emphasize 2 key points. First, we have incorporated the current interest rate environment and updated other assumptions.

Second, we have identified tailwinds and headwinds that may drive variability around these ranges and provided sensitivities where applicable. As you can see from individual details on the page, we believe that the combination of drivers and strong execution will deliver the 5% to 7% growth.

Let me highlight a few areas. One is operational variances, which include the catalyst work that I've described among other items. Also, I would like to point out that embedded in our guidance is SCE's current ROE of 10.3%. In the 2023 proceeding, SCE has requested an ROE of 10.53%, which is strongly supported by SCE's analysis and the current interest rate environment.

The 2023 proceeding also includes resetting the benchmark for the cost of capital mechanism to about 4.4%. If the bond index rates exceed the 100 basis point deadband, the mechanism would trigger, which in turn would result in updating the cost of debt and adjusting the ROE starting with the following year.

For sensitivity analysis, we expect each 10 basis points of ROE changes EPS by about $0.05 in 2025. Additionally, the range around the parent expense we've shown you in the past also incorporates a range of equity content needs, up to $250 million per year on average, and the amount will vary with rate base growth.

To conclude, we are reiterating our 5% to 7% EPS growth rate guidance from 2021 through 2025. My management team and I are fully committed to delivering on this target. That concludes my remarks. Sam?

[Sam Ramraj, VP, IR]

Dexter, 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]

[Operator Instructions] Our first question comes from Shar Pourreza, Guggenheim Partners.

[Shar Pourreza, Guggenheim Partners]

Wanted to just start off on the legacy claims disclosures. Obviously, the estimates going up to 8.8%. What are you currently embedding for financing needs associated with the increase in the overall liability? And as you guys are reiterating the cost recovery process could be an upside to the current financial plan. I guess, what's a good way of looking at the potential range of scenarios and how and when you would disclose any potential benefits?

[Pedro Pizarro, President, CEO]

Let me start with the last part of your question, Shar, and then turn to Maria for the financing things. But just to reiterate some of my comments, we want to be crystal clear that we plan to and expect to have SCE recover full cost recovery other than for the amounts that are already being expected to be recurred from or excluded in the SED settlement.

We -- as you've noted, have not taken any sort of regulatory asset for those. So we leave it to investors to develop your own expectations. But certainly, we expect that we'll have a very strong case for cost recovery. We'll go through the regulatory process. We cannot guarantee results under the GAAP precedent of the San Diego Gas & Electric position where don't feel like we're able or adapt to claim a regulatory asset. But we think we're going to have a strong case for prudency. And so any recovery amounts or upside relative to the base numbers we provided here. Maria, do you want to talk about the financing assumptions?

[Maria Rigatti, EVP, CFO]

Sure. So Shar, just to reiterate, we don't have anything built into our 5% to 7% EPS CAGR through 2025 related to a cure on this. But rather, we've actually embedded all of the liability beyond the insurance recovery, et cetera, that we have. We've embedded that in basically the SCE costs excluded from authorized. So the drag is in there. we've updated the drag includes the update to the revision -- the liabilities that we did this quarter.

And we've assumed about a 5.3% cost of financing, which corresponds to sort of where the forward curve looks today, and we're assuming sort of a 5-year tenure on that debt. We will, of course, be as efficient as possible as we go out and finance it -- so as the market reasserts itself and you see a shorter-term debt looking cheaper, we might decide to do some of that as well. But right now, that's what we're embedding. We're embedding 5-year tenure is based on a current forward curve.

[Shar Pourreza, Guggenheim Partners]

Got it. And then just 1 last thing on the financing side. Could you delay beyond '23? And obviously, you guys have some generating assets and in rate base. One of your peers is obviously engaged in a process to split and sell equity for efficient financing. Could you envision something very similar or not? You have, I think, a little bit over 4 gigs?

[Maria Rigatti, EVP, CFO]

Yes. So I would say, as part of the 5% to 7% CAGR, we're assuming that we execute our financing plans, I'll say, in the normal course. So what we announced earlier this year, but we've just created additional runway to push that off into next year.

We're always looking at opportunities. I think obviously, we'll be tracking the developments that are happening in other parts of the state, looking at the regulatory outcomes, et cetera. We're also looking at other opportunities. We're always looking through our portfolio for assets that could provide a more efficient form of financing, but every company has a different portfolio. So we'll have to just keep looking.

[Operator]

Our next question comes from Greg -- Steve Fleishman, Wolfe Research.

[Steve Fleishman, Wolfe Research]

So I think just going to the claims increase, I think your percent resolved actually went down. And so could you just explain, is that just because you're now assuming just a bigger total amount?

[Pedro Pizarro, President, CEO]

Yes, that's simple math, Steve. Yes.

[Maria Rigatti, EVP, CFO]

We resolved about $350 million claims this quarter. So we're still making progress on the claims, but it's just the math of the increase versus the resolutions.

[Steve Fleishman, Wolfe Research]

Okay. Is there any other statute of limitations left to pit that you haven't yet?

[Pedro Pizarro, President, CEO]

No, there is not.

[Steve Fleishman, Wolfe Research]

Okay. And just in terms of just the -- so how are the rating agencies trading the clams here? And is there any risk of more equity needed to support the further increase in claims?

[Maria Rigatti, EVP, CFO]

So the rating agencies typically treat whether we've actually sent the dollars yet or we've just reported the reserve or the liability, they treat that as either actual debt. We've we financed it or imputed debt if we haven't yet financed it. So that is part of the calculation.

So it will be embedded. We do not need to change our financing plan to address this. We've been, as you know, quite interested in having our metrics improve. And so we've built up a little cushion. This is leading to the cushion over the next several years now.

[Steve Fleishman, Wolfe Research]

Okay. And I mean, this might be a statement of the obvious, but kind of this just seems kind of like a bit manning. What's happening here in terms of this keep increasing and then just kind of having to wait and wait and wait for recovery. Is there anything else that can be done or any way to kind of further accelerate this. So it's just kind of not just doesn't continue as it is. for several years until we get an answer on any recovery? Or could you just -- is there any other options the company can pursue to move this quicker?

[Pedro Pizarro, President, CEO]

Yes. Steve, I appreciate the question, and I know it's a lot of investor minds. We have all hands on deck on this. And the reality is that we passed a major milestone in terms of information content with the closing of the Woolsey statute of limitations period.

As I said in my prepared remarks, we now actually know the number of claimants, which is not something that we knew until we were able to get past that closer date and be able to evaluate the data. We said all along that we work hard to make sure we are providing investors the best estimate under GAAP, but we recognize that there's things that can change the best estimate as we proceed along I'm not aware of something -- the magic tool that we could use to somehow accelerate this other than where our legal team is working expeditiously with the thousands of remaining plaintiffs to get through that process.

As you might recall from prior quarters, we have worked successfully to set up processes or having that be as expedited as possible with support from the respective courts. And so we will continue at it. I know there's some element of frustration with this for all of us but it is the reality of having the mass litigation case with thousands of individual plans still remaining in the balance sheet.

[Maria Rigatti, EVP, CFO]

And Steve, maybe I'll just add one more thing. We do plan on filing for our first application recovery by late 2023. The change in the reserve has not impacted that schedule.

[Steve Fleishman, Wolfe Research]

And just one more clarification on that filing. Of the -- could you give us some sense roughly of the kind of amount that's available for recovery, how much that filing would capture as a percent of that? Is it half of it? Is it 90% of it? Is it 20% of it?

[Maria Rigatti, EVP, CFO]

Yes. Steve, I think because we're still in the middle of the settlement process and the litigation process, we probably don't want to break it out in too much detail, but obviously, it's a substantial amount.

[Pedro Pizarro, President, CEO]

But to be clear, Maria, and helping out upon misunderstanding, Steve, Steve, we plan to request for recovery of all allowable amounts. So the only amount that we would not be asking for recovery for are the amounts that we've recovered already through insurance, the amounts that will recover from FERC or we expect to recover from FERC and the amounts that we agreed in the settlement with the safety enforcement division to exclude from cost recovery. So that leaves the vast bulk of the reserve is we are planning to go seek for recovery of all of that.

[Steve Fleishman, Wolfe Research]

In this filing in late '23?

[Pedro Pizarro, President, CEO]

Between the combined filings. So again, remember, this filing in 2023 will be for the 2017 events, the TKM events, and then that will follow later with our filing for the 2018 events when '18 happened a year after 2017. So it's natural that those would not land at the finish line at the same time.

And I think what Maria was referring to is we have not broken out for investors what portion is TKM versus what portion is Woolsey. We've shown you a combined number. We are in active litigation, and that's just -- we can always finding the balance point here between providing sufficient information for our investors, while recognizing we're in active litigation, so making sure that we're not providing excessive information that could end up impairing our ability to defend our customers in the litigation poses.

[Operator]

Our next question comes from Gregg Orrill of UBS.

[Gregg Orrill, UBS]

I think Maria made a comment about the real estate portfolio or management of and an optimization there. What were you referring to?

[Maria Rigatti, EVP, CFO]

So Gregg, I think that, that real estate portfolio optimization is really about reducing the size of our footprint. Like many companies, we're returning to the office or have returned to the office in a different mode. So we're looking at places to consolidate and reduce our real estate footprint. I'd say that has the biggest impact on customer costs over time as we get more efficient with the use of our facilities.

[Operator]

Our next question comes from Jeremy Tonet, JPMorgan.

[Rich Sunderland, JP Morgan]

Rich Sunderland on for Jeremy, but thank you for the time today. I just wanted to start on the operational variances. I think first and foremost, that $0.80 to $0.95 EIX in other. That was unchanged from 2Q. Curious if you were already embedding the current interest rate assumptions in there if there are kind of other offsets you've adjusted over the quarter here?

[Maria Rigatti, EVP, CFO]

Yes. So we did update the financing assumptions there. So now at the parent company, we are assuming that the embedded cost is about 6.1%. Like the rest of the company, at the parent, we have opportunities for both operational and performance efficiencies. And so we're targeting some of those to help offset the increase in rates. So it's a blend of things that have happened this quarter.

[Rich Sunderland, JP Morgan]

Understood. I guess at a high level on these variances, are these recurring or I guess, thinking about that walk, you mentioned 2024, but then the new GRC cycle in '25, do they reset in 25, whatever you've accomplished in '24.

[Maria Rigatti, EVP, CFO]

It's a variety. So some things will certainly -- we will accomplish some efficiencies over the course of the next few years, and that will reset in the 2025 GRC. There's also things where you get misaligned over the course of a GRC. And so when we the spend back in line with authorized or vice versa, authorized back in line with the spend, we'd actually see a reduction of maybe some drag that we've been experiencing.

So I think across the different variances, there's just a variety of different inputs. And so other things in that line, AFUDC, we have operational efficiencies. We have some other things where we'll have a catch up with the GRC. So a have a number of things.

[Rich Sunderland, JP Morgan]

Maybe I'll just squeeze in one last one. Any rough breakdown on what the sort of ongoing are versus the resets?

[Maria Rigatti, EVP, CFO]

It changes through the year because the other thing that impacts that line item is also the timing of regulatory approvals. So you saw that earlier this year, we had highlighted getting an approval on the customer service replatform project and said that was a big timing difference potentially between this year and next year.

We've gotten a final decision now. And so it's in 2022. You'll see some of those things over the course of the next few years, the exact timing of when they hit does -- is impacted by when we file the application as well. So it's a little bit of a mix from year-to-year.

[Operator]

Our next question comes from Nick Campanella, Credit Suisse.

[Nick Campanella, Credit Suisse]

I just wanted to ask kind of when you think about the capital that needs to be deployed for your decarbonization plan, the coverage conductor plan? And then also the just the fact that fuel lines have come up and we're in just a greater inflationary environment here. And then you kind of layer on the recovery of the wildfires. Just overall confidence level and just being able to kind of maintain customer rates where they are and kind of execute on this plan?

[PedroPizarro]

Yes. Let me start with that one, and it's a great question. So -- let me start at the end. This is where the view that we have of Pathway 2045 is so important because we need to remember that this decarbonization pathway fortunately is one that we believe would lower customers' total energy costs. There will be upward pressure over the next couple of decades on electric rates as we make the investments that are needed to decarbonized to electrify a lot of the economy, the lead customer site investments that they'll need to be making in end-use technologies.

That's where we're seeing the support from things like the inflation Reduction Act is so helpful. But the punch line or one of the punch line from Path 2045 was that because of the greater efficiency of the electric technologies, we expect the average customer in 2045 to be spending 1/3 less than they do today on their total energy bill.

That's also why if you see the business update that we'll publish tomorrow and similarly the 1 that we did last quarter, we have started including in there a chart that shows you the share of wallet of our customers compared to customers in other states, what share of wallet is going across all energy uses.

Because you really need to look at this as not just electric, but the entire pie of electric was natural gas -- gasoline. That's what ultimately impacts the wallet and that you're going to have some realignments in spending going from gasoline, gas towards electric -- so you can just be looking at the electric side alone, you need to look at the total picture. So that's the long-term view.

In the short term, though, I think the work that Maria mentioned around catalyst builds on the work that SE has been doing for over a decade and looking at how we control the parts that we can control in our cost structures to minimize rate impacts to if we make more room for the capital that's needed every dollar that you see on O&M can save around -- or can allow us to invest around $7 in capital while keeping rates constant.

And so the final data point I'll give you there is that we're proud of the record there because it's led to SCE's rates being significantly lower than those of the electric rates of PG&A and Santo gas and electric. So we've been working on this for a while. We'll continue to work at it. But I think it's a combination of working on the near-term things we can control and also communicating the long-term view that these electric side items are important to not only decarbonize but to lower total energy cost for the customer. Maria, anything you would add?

[Maria Rigatti, EVP, CFO]

Yes. Maybe Nick, just maybe one more thing. I think Pedro has really focused both on the long term and the near term and recognizing that there are things that we want to work on over the near term to help bridge to that longer term. I think it's really interesting, too, from a commission perspective that they recognize the need for affordability. They recognize the work that people need to do.

And our recent cost of capital proposed decision alternate proposed decision. A lot of the interveners actually focused a lot on affordability as the reason why the trigger mechanism should be permitted to trigger. And when the PD and the APD came out, the commission recognized that it's allowed to trigger that rates would actually go down, things were dollars already refunded to customers.

But they also recognize that if you don't set the ROE at an appropriate level that reflects the utilities' risk. It will just make it that much harder to attract capital. So I think that you're seeing a balanced approach to affordability in California.

[Nick Campanella, Credit Suisse]

That's helpful. And definitely noted the strong confidence in the long-term outlook and the opportunities you're kind of searching for to deliver this 5% to 7% that you're working on to deliver this 5% to 7% rate you narrowed the '22 midpoint. Just how do we kind of think about '23 in the context of this 5% to 7% range and just any drivers that are explicit into the '23 that are notable today?

[Maria Rigatti, EVP, CFO]

So we'll obviously give our guidance on our 2023 guidance on our Q4 call. We've said before 5% to 7% from the midpoint of our 2021 guidance through 2025. There are some nonlinear years in there, you can imagine. But we are focused on delivering that value over the longer term.

[Operator]

Our next question comes from Julien Dumoulin-Smith, Bank of America.

[Julien Dumoulin-Smith, Bank of America]

Thanks, team, for the time. I appreciate it. So maybe just stepping in when Nick left off here, just to make sure I heard this right. As you think about '23 relative to the core of the outlook through '25, is it fair to say that there's sort of a nonlinear element to getting to that 5% to 7%, i.e., near-term pressures with respect to the refinancing, et cetera, but ultimately, between the cost savings that you've identified and latitude on timing of equity that you can get to that '25 outlook in kind of a nonlinear way?

[Maria Rigatti, EVP, CFO]

Yes. I think when I was with Nick, I did mention that it was nonlinear. So -- and we expect that because as you move through time, you're building up more efficiencies and the like. Obviously, as we're moving through time, we're able to put lean in our programs even more effectively. So I think that, that is true. There is also, as I mentioned, speaking to someone earlier on the call, we also have regulatory proceedings that we are very focused on so that we can deliver on those decisions at the appropriate time as well. And so that is part of the mix to Julian. So I think it definitely is all part of the mix of getting to that 5% to 7% EPS CAGR by 2025.

[Julien Dumoulin-Smith, Bank of America]

Excellent. And then just to clarify, I think just going back to Rich's question on the 85 to 95 by '25 here. Can you elaborate a little bit on the lower total equity content issued? Is that basically pushing out the time line in the 26 plus the total equity? Or is there a way to actually eliminate equity from the plan altogether. I just want to clarify, because you alluded before to multiple moving pieces and how you get there, although in the slide you specifically called this one out.

[Maria Rigatti, EVP, CFO]

Yes. So in that range for parent and other, because that's where we're incorporating all the dilution. Obviously, with the lower end of the capital range, we would need less equity. That's been part of the if you go back to when we first started to talk about the plan through 2025, we talked about $250 million per year on average but that get at the higher end of that range if you're at the higher end of the capital range. So that's what that variability is as well as our ability to various operational variances, too.

[Julien Dumoulin-Smith, Bank of America]

Right. But the core point there being that you could actually structurally bring down equity content potentially depending on what happens?

[Maria Rigatti, EVP, CFO]

Yes.

[Operator]

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

[Sam Ramraj, VP, IR]

Well, thank you for joining us today. This concludes the conference call. Have a good rest of the day and stay safe. You may now disconnect.