Edison International (EIX) — Q4 2019 Earnings Call Transcript

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 here are other members of the management team. Materials supporting today's call are available at www.edisoninvestor.com. These include our Form 10-K, prepared remarks from Pedro and Maria, and the teleconference presentation. Tomorrow, we will distribute our regular business update presentation. During this call, we will make forward-looking statements about the outlook for Edison International and its subsidiaries. Actual results could differ materially from current expectations. Important factors that could cause different results are set forth in our SEC filings. Please read these carefully. The presentation includes certain outlook assumptions as well as reconciliation of non-GAAP measures to the nearest GAAP measure. During the question-and-answer session, please limit yourself to one question and one follow-up. I will now turn the call over to Pedro.

Thank you, 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 our 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 utility, state, and local emergency management personnel. Also, the State’s enactment of Assembly Bill 1054 has 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 are also 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. This past year, SCE aggressively executed the 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 work 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 to 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, enabling 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 utilized 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. We also lowered our accrued liabilities by the $360 million settlement reached in the fourth quarter with several 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, and our hearts continue to go out to their families and loved ones. The number of serious SCE employee injuries in 2019 fell by more than 50% from 2018, but our rate of injuries leading to days away, on restricted duty, or transferred, 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 PSPS de-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 used robotic process automation to improve outage notification to 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 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. This sounds 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 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 base forecast, 2020 EPS guidance, and financing framework. As we’ve said, year-over-year comparisons for 2019 are less meaningful given the timing of the 2018 GRC decision. For the fourth quarter 2019, Edison International reported core earnings of $0.99 per share, which was $0.05 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 $0.07 year-over-year. This was primarily driven by $0.17 of higher EPS from SCE core activities which was partially offset by $0.10 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 $0.32. This was primarily driven by $0.19 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 $0.13 due to higher expenses, rate base growth, and increased ROE from the 2019 settlement of the 2018 Formula Rate proceeding. Higher O&M expenses negatively impacted year-over-year EPS by $0.03, largely driven by an increase in wildfire mitigation expenses. During the quarter, we recorded a $0.05 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 covered by insurance. Higher net financing costs related to increased borrowings had a negative $0.03 impact. There was also a $0.07 lower income tax benefit, which primarily reflects tax benefits captured through our tax balancing account as noted earlier. For the full-year, Edison International core earnings per share increased $0.55 to $4.70 per share. This includes an improvement in core earnings of $0.59 at SCE partly offset by higher EIX Parent and Other costs of $0.04. While the full-year and fourth quarter earnings analysis are largely consistent, I will highlight a few areas. You will see a positive $0.20 impact from the retroactive application of the 2018 GRC decision recorded in Q2. Also, we have positive $0.13 in FERC revenues related to SCE’s 2018 Formula Rate settlement, which includes $0.10 recorded in the third quarter. Finally, for the year, there was a positive $0.14 income tax variance primarily related to benefits 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 precedents for recovery. We have not recorded a regulatory asset for the remaining $119 million pre-tax, and I'd 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 managed and sequenced the work 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 non-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. However, SCE is seeking full recovery of these costs through separate tracks of the 2021 GRC. For 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 billion 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. 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. Spanning two rate case periods, this represents a 6-year compound annual growth rate of 7.5% at the request level. To develop a range of outcomes, management is applying a 10% reduction to the rate base forecast based on our historical experience of previously authorized amounts and other operational considerations. Regarding our 2020 guidance and the key assumptions for modeling purposes, let’s begin with rate base 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 that 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 ROEs lower than state-level ROEs will result in sub-optimal investment decisions. At this time, we are basing guidance on a 2020 FERC ROE that is comparable to our CPUC ROE of 10.3%. 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.

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.

Hello, Praful.

Thanks so much. Hi, guys. Sorry, I’ve been juggling calls, so if I repeat the 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 be with all the risk on the wildfire side?

Yes, thanks, Praful, and you’re the first question, so I can tell you don’t repeat anything. As far as the preparations that I mentioned in my remarks, there's been a lot of work that we've done. And we think 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. I mentioned in our last earnings call how, as we made our way through the bulk of 2019, we saw 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 ignitions, because we utilized PSPS. But I mentioned in the call that we have 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 and speed of response. 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 funds, that's harder to do. I'll remind you that when AB 1054 was being debated, 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 baked into it, some concept that over those ten 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’ll 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 answer. So I 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 needs, or do you keep the holdco debt kind of flat? How should we think about the ongoing equity needs going forward?

Yes. Praful, this is Maria. I think what we're trying to lay out for both is sort of that framework where on a long-term basis we will be targeting the metrics, 15% to 17% FFO to debt. As we think about the capital program related to the capital program, we actually see minimal equity going forward. I think I'm 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, we did just mention, we made certain assumptions around wildfire issues as well, whether that's recovery on minimal accounts, the level of liabilities associated with those wildfires, and the capital structure waiver. If we see material changes there, we'll revisit our balance sheet needs again within that 15% to 17% metric framework.

Got it. Thank you, guys. Lots more questions, I will get back in queue. I appreciate it.

Hey, Thanks, Praful.

Hi, 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 rolled on? And is there any real opposition to it, or are you just waiting for an answer?

So this is a reminder. We did file for that last February when we took the charge. The two things that we asked for on the capital structure waiver were 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 the fact that some of the interveners actually said they 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 pushed it out a little bit. But once we got the decision, we were asked to answer a particular question, not all of which were particularly relevant for us. Some of them were more related to PG&E, largely around whether there should be a set date at which the waiver kind of stops being effective. The commission has set a deadline for issuing 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. I have one more question. Regarding the variances from 2020, specifically the SCE variances, you mentioned the $0.14 incremental wildfire cost that you hope to recover in 2021, and that you've completed the General Rate Case. The financial operating number, aside from the $0.32, has been consistent for a while. Therefore, I assume there should be some sustainability for that portion moving forward?

That bucket includes a lot of things. It includes financing benefits which actually change from time to time. This year they would have changed because we adjusted the embedded costs of debt and equity due to the capital cost of capital proceeding decision. Every year when we have a new rate case, we get back benefits to customers. So we're continuing to try and really manage our costs because that overall helps us 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're starting a new rate case cycle.

Great. Thank you.

Thanks, Steve.

Hey, good afternoon.

Hey, good afternoon. I want to focus on the credit metrics a little bit further and just understand the 15% to 17% FFO-to-debt metric. Where are you today? And how do you think about latitude relative to that metric? Specifically thinking here around some of the imputation issues that you already alluded to. If I 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 on an ongoing basis?

The first question is about our perspective on having liabilities imputed. Before the termination, we need to consider whether we will achieve recovery. We've had numerous discussions with the rating agencies regarding this matter. Currently, because we are required to take the charge without having a regulatory asset associated with it due to the lack of precedent, the rating agencies want to see actual cost recovery before they will stop imputing the debt. This is an issue we will continue discussing as the commission progresses. As for our metrics, I have to be honest; we are a bit challenged right now. A significant part of this is due to our lack of real-time recovery of wildfire mitigation expenses and wildfire insurance. We have substantial capital expenses but also many O&M expenses, which typically would allow for quicker recovery. We've been in ongoing dialogues with the rating agencies and they are aware of our situation. That’s why I mentioned earlier that our financing plan was based on certain assumptions, including the timely recovery of those funds. If circumstances change, we will need to reevaluate our position.

Got it. If I may just clarify that quickly. With what you just said there, are you basically saying the $0.14, for instance, of income at the 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?

I would like you to clarify that last part. Regarding the first question you asked about the $0.14, it's not solely about the $0.14. I understand that no one has reviewed our 10-K yet, but if you take a look at it, we currently have around $868 million under a cover. The $0.14 included in the 2020 guidance represents amounts that do not have a regulatory asset recorded against us. By the end of 2019, we were already involved in certain aspects where we do have regulatory assets on the books as well. We have approximately $868 million that is cash already spent but not yet collected. So it encompasses all of these factors.

That’s fair. And then the second piece there was just when you were saying that the credit rating agencies needed to get comfort here, that was about your ability to tap into the fund?

No, no. I’m not getting comfortable with the cash flow from these accounts, etcetera, will be timely. That’s all.

Yes, 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 is 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 and the machinery in place, that also translates into reduced overall wildfire risk. We’d hope that there's some reassessments over time of what credit rating is implied by that kind of range.

Expectations, guys.

Yes, thanks, Julien.

Hi, 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?

That continues to be quite challenging. As we examine all the various factors, I think I mentioned that we took a broad look at everything as part of our assessments. As I noted during this revision, some factors increased significantly while others decreased significantly. We still struggle to determine how to define a high-end estimate. It's possible we may not be able to establish one at all. However, if we see progress in addressing uncertainties, whether through additional settlements or a court process later in the regulatory timeline, then as those elements come together, you might observe that with the $360 million settlement, that uncertainty is removed. Now we know that the range might be narrower, and we can define what the low end could be for the remaining liabilities. But to be candid, considering the nature of these wildfire cases and all their complexities, I'm unclear whether we'll reach a point where we can establish a concrete 75% probability under accounting rules for the high end of the range. Maria, do you have a different perspective on this? 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?

We put the tax impacts when we took the charge. I think your question may be like when we become a cash taxpayer? We would expect or right now, 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 compensation, advertising, charitable donations as offsets. The only offset that I've heard so far is executive compensation. So should we expect that you should be able to recognize the remaining portion of equity AFUDC?

We might be misunderstanding each other a bit here. When we outlined our 2020 guidance, we included all those elements. Historically, we've mentioned a variety of factors that contribute to the bar to the right. The $0.20 net benefit includes everything you just referenced. Those factors haven’t disappeared; they are incorporated in that figure. We’ve highlighted some of them for more clarity. Additionally, AB 1054 and SB 901 are newer issues that have not been part of our previous discussions. However, following the legislation, we recognize that we won't be able to recoup those costs as stipulated by the law.

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 we try to do when we laid out the chart is to identify things that you might consider, 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 regulatory asset against because those things will get incorporated into our 2021 GRC revenue. We will continue as we always have, to try and manage our costs so that we create headroom, which ultimately benefits our customers. 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.

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

One of the things we've observed over the past few years is that more developments are occurring outside of the general rate case. While we have always had balancing accounts, which are beneficial in terms of visibility, we also now have many memo accounts. These memo accounts help us avoid retroactive rate-making issues, but they do not provide clarity on when costs will be incurred. In some situations, we cannot confidently say that all costs are likely to be recovered, as we lack historical precedent. This uncertainty influenced how we established the 2020 core earnings guidance to highlight these aspects. As we approach the next general rate case, we expect to see reduced variability because certain costs will be included in our revenue requirements. Currently, costs from 2018 and 2019 related to wildfire mitigation are in one track that will be resolved in 2021, while 2020 costs will be decided afterward. We believe it is necessary to progress into the next rate case cycle to achieve greater clarity and less variability, which is why we designed our guidance in this manner.

And Maria, I would like to add one more point from a different perspective. Some of the variability you've observed can be attributed to the unprecedented challenges we’ve faced in managing a new kind of wildfire risk, significantly different from what we understood three years ago. The remarkable actions taken by our team have necessitated the use of memo accounts. They have also redefined the activities the utility must undertake at a cost that needs to be recovered. As we gain more experience with the wildfire mitigation plan over the next year or two, I expect the uncertainty will decrease as we better comprehend how utility operations will function in an environment with heightened wildfire risk. This, in turn, will lead to greater predictability for both us and our investors regarding the investments and cost recovery elements included in rate cases and other processes. The terminology is evolving from a new normal to a more normalized and stabilized approach.

Got it. And then I have one other question, which is the settlement, the 360 that you're paying in municipals. 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 the original hope or expectation was.

Got it. So they filed for a little over a $1 billion roughly and settled at 360.

Yes.

Thank you. It's great to be back with you. I'm curious if you could provide any insight into the changes in the accruals you mentioned. You indicated there were significant movements. Could you offer more specifics to help us better understand the process?

I'm sorry, but I can't provide specific details about the movements in the accruals. We have disclosed the net amount, but we won't be sharing the breakdown as some elements are ongoing and crucial. That's why we've decided to keep our guidance at a high level. While I cannot specify which items have changed or remained stable, this encompasses the various components we monitor, including additional facts emerging from the discovery process. It's important to acknowledge that these are just parts of a much larger and intricate system of individual actions across multiple events. Therefore, we've opted to maintain a high-level disclosure to ensure we do not underrepresent the complexity involved.

Will we see any change in your general position on your view of your involvement in various ignitions when we read the 10-K?

No, there are no new material disclosures regarding information about the events that I can think of.

The one thing that is a little bit new is they've gotten through the attorney general holding that comment. But other than that, we felt, to summarize the iconic sign, we're indiscernible. We still believe our client was involved. The other ignition in the 2017 fire still has information pending. We'll maintain 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, please.

Yes. Throughout the year, we have learned that the California attorney general has completed the analysis regarding Thomas, and there will be no criminal liability charges pursued. The evaluation will continue.

Thank you for that. I wanted to clarify something regarding one of the earlier questions. It was suggested that you might be accessing the fund. I want to ensure that I was correctly understanding that this is not related to the fund at all, right?

Yes, we are not going into the funds. We did have a few wildfires in our service territory in 2019. We did take a little bit of a charge for a self-insured retention on those fires primarily, but it's well within our own commercial insurance. We don't need to actuate the fund, just to be really clear that there has been no event that would qualify or require that.

Yes. You were just talking about regular recovery?

Right.

Hey, good afternoon.

A lot of my questions have been addressed. I have just one remaining question regarding the competitive environment for transmission projects that you mentioned in your 10-K. We were particularly interested in the Diablo Canyon Gates project. You also noted that some aspects related to Mesa might be somewhat uncertain. Could you provide some insights into your plans for regulated projects and what you are observing regarding the developments in the industry?

Yes, the planning in California for additional transmission needed to support increased solar and wind energy to meet higher renewable energy standards has not yet begun. Until the relevant agencies complete their transition planning, it will be unclear what specific projects will be necessary. There is still some time before we will have clarity on this matter. As you know, most of these projects, aside from the ones involving our own facilities, will be competitively bid out for participation. Currently, there is still work required to identify the necessary facilities.

If the facility needed is an upgrade of an existing line, we essentially have the first right of refusal on that. However, if it is a brand new line, it will go through the full court process.

Okay. And when are they going to be releasing this updated information about what their plans are with respect to …

We don’t believe they started that broad planning process yet. And that's really with them probably in mind or view towards 2030-ish kind of timeframe and actually milestone sale. Sitting here, I don't think we have a timeline to offer.

Okay. Thanks so much.

Yes. Thanks, Paul.

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