Edison International (EIX) — Q4 2024 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 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-K, 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.

Thanks a lot, Sam, and good afternoon, everyone. Let me start by saying that our hearts continue to be with everyone who has been impacted by the recent Southern California wildfires, including our own 18 team members who lost their homes. We are so grateful for the first responders, our colleagues, and partners who have begun the long recovery process. Edison's number one value and priority remains safety, and that means ensuring the safety of our customers and the safety of our team members. SCE continues to make tremendous progress as it works diligently on restructuring after the Eaton and Palisades fires. Turning to the Eaton fire, its cost remains undetermined, and the investigation is complex. SCE is examining the available evidence to help determine potential specifications, including the possibility of it being linked to SCE's equipment. Engineers, photogrammetrists, meteorologists, and other experts are reviewing images, videos, and other information. We anticipate that the full investigation will take several months or longer to complete, and there isn't a discrete timeline for the county or SCE to complete their respective investigations. For example, one valuable next step involves further examination and testing of the idle transmission line near the reported point of origin, inspecting the equipment for things like arc marks or missing metal, but this may take many weeks as it requires agreeing on a protocol with stakeholders' interests involved. We are committed to being transparent throughout this process. While this investigation is ongoing, we believe that SCE is a reasonable operator of its electric system. The commission has recognized the notion that the prudent standard does not demand perfection. We believe the prudence derives from the utilities' decision-making processes and whether its overall policies and practices are consistent with the actions of a reasonable utility. And there is CPUC precedent supporting our interpretation. If it is determined that SCE's transmission equipment was associated with the ignition of the Eaton fire, based on the information we have reviewed thus far, we are confident that SCE would make a good faith showing that its conduct with respect to its transmission facilities in the Eaton area was consistent with the actions of a reasonable utility. That is the standard by which the utility is judged as written into statute by AB 1054. The catastrophic impact of the recent wildfires underscores the importance of grid resiliency and the actions SCE has taken to harden its system to support the communities it serves. SCE continues to execute its robust risk-prioritized wildfire mitigation plan, which is approved by California's Office of Energy Infrastructure Safety and ratified by the CPUC. This has significantly bolstered efforts to protect against wildfire threats and to respond when they happen. SCE has now installed more than 6,400 miles of covered conductor and has hardened nearly 90% of its distribution lines in high fire-risk areas. This is in addition to significant investments in operational measures in transmission and distribution, such as vegetation management and an extensive network of weather stations and high-definition, AI-enabled wildfire cameras to provide greater situational awareness for SCE and fire agencies. We will continue to invest in SCE's important work to make its system safer for its customers and communities. On the regulatory framework, SCE has received timely approval of its safety certification each year, which provides a presumption of prudency and a cap on the liability to reimburse the wildfire fund. We have confidence in the fund, and we believe it is working as intended to protect wildfire victims, customers, and investors. The fund has $21 billion of credit capacity and has largely been unused by California IOUs. Let me emphasize that the fund provides liquidity for paying claims. Thus, in the event the utility were to make claims payments, it would not have to use its balance sheet. Turning to the legislative front, California has consistently demonstrated a strong commitment to supporting customers and the investor-owned utilities that serve them. Over my own 25-year career at Edison, I have personally witnessed the state's leadership during challenging times from the energy crisis in the early 2000s to the urgent need to develop new generation resources in the mid-2000s, managing through the financial crisis in 2008, dealing with natural gas spikes in the mid-2010s, and guiding the state through the COVID pandemic. Importantly, Governor Newsom led the charge in 2019, along with his colleagues in the legislature, to pass and implement AB 1054, and that is the model among all states to address wildfire risk. If we conclude that SCE's equipment ignited the Eaton fire, which was then fanned by hurricane-force winds in spite of firefighters' best efforts, the catastrophe is precisely what AB 1054 was designed to address, recognizing that wildfire risk will never be zero. This legislation reshaped the regulatory and financial landscape by balancing wildfire cost recovery with utility accountability and customer protections. Multiple stakeholders benefit, and I want to focus on three broad areas. First, customer and community safety benefits from the risk reduction achieved through the WMP and safety certification process; second, communities that suffer losses related to wildfires associated with utility equipment have a funding source for claims payments; and third, investor-owned utilities that participate in the fund benefit from a structure that provides liquidity for claims payments, a clear prudent standard, and a liability cap, all of which support financial stability and long-term investment in the grid at the most affordable cost to customers. The magnitude of the wildfires has brought the long-term durability of the fund into focus. We have been actively engaged in conversations with key stakeholders, including other utilities, the Governor's office, and legislative leaders to find solutions to support community safety, effectively manage customer costs, and reinforce investor confidence in California utilities. We are confident policymakers will make the enhancements needed to strengthen the industry-leading AB 1054 regulatory framework. Before moving on to our financial results, I'd like to note, in addition to our Board of Directors that was announced last week, former U.S. Secretary of Energy Jennifer will join the Board of Directors of both EIX and SCE. Jennifer has deep expertise in energy technology, energy policy, safety, and sustainability. We are thrilled that she is joining our Board, and we look forward to the contributions she will provide based on her understanding of the technical, political, and economic forces shaping our industry today. I know Jennifer has many organizations seeking her time, so I appreciate her vote of confidence in our company's strong future. For 2024, Edison International's core EPS of $4.93 was above the midpoint of our guidance. This extends our track record of meeting or exceeding annual EPS guidance over the last two decades. Additionally, we remain confident in our ability to meet our 2025 EPS guidance and deliver a 5% to 7% core EPS CAGR through 2028. Maria will discuss our financial performance and outlook later. Furthermore, today, the Board declared EIX's first-quarter 2025 common stock dividend of $0.8275 per share. Consistent with this regular process, the Board took into account a broad range of considerations and scenarios before making this declaration. There is no change to our current dividend policy or outlook, and this balances a competitive dividend that investors expect with reinvesting SCE's earnings back into the infrastructure that serves customers' needs. This consistent and growing dividend demonstrates confidence in our financial outlook, which supports raising cost-effective capital and directly benefits customer rates. On the regulatory front, we are very encouraged by the CPUC's unanimous approval of the TKM settlement agreement, allowing SCE to recover about $1.6 billion, or 60%, of the wildfire claims payments and associated costs related to pre-AB 1054 wildfire. Approval of the settlement signals a constructive cost recovery framework in California. In fact, following approval, CPUC President Reynolds made important remarks about cost recovery and AB 1054. She noted how, under state law, SCE, like public entities, is liable for damages from a fire caused by its electrical system. But if the utility acted prudently, these costs are covered by customers. She also noted that because of AB 1054, in the future, the wildfire fund would cover claims similar to those in TKM. SCE expects to file its TKM securitization application in March. The Woolsey cost recovery proceeding is underway. Based on the pre-hearing conference, participating interveners noted focused engagement. If the ALJ adopts the schedule SCE and interveners jointly proposed, the next major filings to watch for are intervenor testimony due in early June and rebuttal testimony due in mid-July. The proposed schedule also includes a motion for approval of a settlement agreement or joint statement of stipulations of issues that will be due in mid-August. Just like with TKM, the utility is open to settlement discussions if a fair and reasonable outcome can be achieved. And we look forward to keeping you updated on progress in this important proceeding. Okay. I want to conclude by saying that SCE is focused on partnering with communities on near- and long-term strategies to build back stronger, all while we continue to execute on core operations and deliver on the commitments we have for the year. I look forward to sharing more updates throughout the year. With that, Maria, I turn it over to you for your financial report.

Thanks, Pedro. Before I turn to our financial results, I also want to take a moment to recognize the tireless efforts of our team to manage the response to the Southern California fires. Our management team is grateful for our colleagues who have come together to restore and help customers recover. So now, turning to my comments for today. I will discuss fourth-quarter and full-year 2024 results, outlook areas for 2025, SCE's capital and rate base forecasts, and 2025 guidance. For the fourth quarter, EIX reported core EPS of $1.05. Full-year 2024 core EPS of $4.93 was above the midpoint of our guidance range. Pages 6 and 7 provide the year-over-year variance analysis, and additional color can be found in the earnings news release. This strong performance demonstrates our ability to manage the business and ends our track record of meeting annual EPS guidance over the last two decades, as shown on Page 8. Delivering strong financial results was just one accomplishment and another year of strong execution in 2024, as shown on Page 9. SCE also gained progress in hardening the grid and making its system safer for customers by installing over 800 miles of covered conductor, bringing total deployment to more than 6,400 miles. On the regulatory front, we saw a number of positive developments. First, the timely settlement of TKM, which Pedro addressed earlier. Second, the utility reached substantial completion of resolving claims for Woolsey and filed the cost recovery application. Third, the CPUC issued a final decision in the 2022 SEMA proceeding, which contributed $0.14 to 2024 EPS. Fourth, the utility continued its strong advocacy in the 2025 general rate case and settled numerous issues with interveners. Lastly, reflecting the confidence and commitment to achieving our long-term EPS growth target, in December, we raised the dividend by 6.1%, which is the 21st consecutive annual increase. Page 10 summarizes the key management focus areas for 2025. Supporting the people and communities affected by wildfires is front and center. Rebuilding and emerging stronger by restoring structures and bringing power back to those areas is critical. SCE will also continue its wildfire mitigation work and its focus on operational excellence to reduce costs to customers. There will also be additional progress on the regulatory front. This year, we expect SCE will receive decisions on a 2025 general rate case, its WMC, and its cost of capital application for 2026 through 2028. Additionally, the utility will be filing an application for its next-gen ERP program. SCE will also continue its progress towards resolving the Woolsey cost recovery proceeding. Let's now turn to SCE's capital and rate base forecast on pages 11, 12, and 13. The 2025 GRC is the core driver of the outlook through 2028. The SCE's capital plan is based on replacing aging infrastructure to support reliability and safety for customers, continuing grid hardening investments to mitigate and enhance our resiliency, and expanding the grid to make the system ready for low growth today and in the future as customers increase their electricity usage. I would also like to highlight several additional capital deployment opportunities that support customer needs over the coming years, which we have discussed in the past and are not yet included in the plan. SCE has refined its estimates for these projects, resulting in an increase of at least $1 billion to these opportunities. One such investment is the next-gen ERP project I just mentioned. Later this year, the utility also plans to file an application for an advanced metering infrastructure program to replace and upgrade the first generation of smart meters at the end of their useful lives. We also anticipate additional system needs on the distribution grid, including for system restoration and expansion. Further, SCE has more than $2 billion of FERC transmission projects in development. Moving to SCE's 2025 GRC, the utility is awaiting a position from the ALJ. We remain optimistic that we could see a proposed decision during the first half of the year. To reiterate our previous comments, SCE made a compelling case. And based on the position, SCE's rate base growth would still be in line with its range case forecast of 6%. Once SCE gets a final decision from the CPUC on the GRC, we will refresh our capital plan, financing plan, 2025 EPS guidance, and EPS forecast. Turning to EPS guidance, Page 14 shows our 2025 core EPS guidance and modeling considerations. You will see that we have revised the guidance range. This is simply our prior range of $5.50 to $5.90, plus the incremental $0.44 associated with the recently approved TKM settlement. As we have discussed before, those $0.44 are composed of a $0.30 one-time true historical interest expense and the $0.14 annual reduction in unrecoverable risk expense. While SCE waits for the GRC decision, I want to remind you that we will be recording revenue at 2024 rates adjusted for the change in ROE. Therefore, quarterly results comparisons pending a 2025 GRC decision are not meaningful. We will record a true-up when we receive the final decision. SCE has established a memo account to track the differences in revenue until it receives the final decision, which will be retroactive to January 1. I'll touch briefly on the parent financing plan. This year, EIX has $100 million in debt maturities, a portion of which were prefunded through a debt offering last December. Moving to our longer-term outlook on Page 15, you will see that we have also incorporated a benefit from the $0.14 interest expense reduction resulting from the TKM settlement into the 2028 EPS range. Given that this annual interest reduction will be ongoing and part of our base year, we are maintaining our target of 5% to 7% core EPS growth off a higher base of $5.84. While the cause of the Eaton fire remains under investigation, and we are not speculating on potential outcomes, AB 1054 was enacted to ensure the financial stability of California's utilities for scenarios like this. The supportive regulatory framework and processes established by this legislation ensure that no utility would have to use its balance sheet while accessing the wildfire fund to make claims payments. Additionally, the potential liability to reimburse the fund is capped. Lastly, the prudency standard means the utility is presumed to be a prudent manager if it has a safety certification, which SCE has. Given these factors and the supportive regulatory framework, we remain confident in our financial outlook as we continue to support wildfire response, recovery, and efforts to rebuild. SCE's core operations and the central role it plays in the clean energy transition remain the driving force behind our core earnings growth. That concludes my remarks. Back to you, Sam.

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 the opportunity to ask questions.

This is Nick. There have been many questions regarding the potential involvement of equipment in this fire and the implications for the wildfire fund. I understand it's early, but the 10-K indicates that you are facing several lawsuits. Do you have any preliminary estimates for the damages, or when do you expect to have that information?

Thank you for your question, Nick. The short answer is that it's just too early to tell. First, we need to determine whether our equipment was involved. After that, there will be a process to assess any potential liabilities, which is difficult to predict in terms of timing. For instance, past incidents have taken 12 to 18 months to receive investigation reports from official fire authorities that might provide clarity. The establishment of liability depends on legal actions filed by plaintiffs, which can take time. Therefore, it may be quite a while before we have an idea of what even the lowest estimates might be.

Understood. I know you're working on legislative solutions in the upcoming session, and this is a broader issue for the state to address, with various interests involved. How would you describe the current policy environment and your conversations with stakeholders? Have those discussions been constructive in finding a solution by the end of August? Additionally, could you specify what you believe would be most beneficial, whether it's an increase to the wildfire fund or a strengthening of the liquidity backstop?

Thank you, Nick, and I appreciate the questions. Let me begin by highlighting that we are still in the early stages. The SCE team remains dedicated to ensuring the community's safety and facilitating a stronger recovery. When I compare the current situation to the activity we saw in 2018 and 2019, particularly with the development of AB 1054, we are starting from a much better position. Policymakers are increasingly aware of the significance of financially healthy utilities for the state's economy, which includes maintaining reliable power supply and supporting clean energy goals. This recognition of the importance of financial stability for companies like ours and others in the industry is a crucial foundation. Additionally, there is a commitment to addressing the issues at hand. We are grateful that the governor has kept Patterson in his office, as he brings thoughtful leadership on wildfire matters. We also understand that the administration has engaged Guggenheim for financial analysis support, similar to what they provided during the formation of AB 1054. We are currently discussing with legislative leaders who generally recognize that further action is necessary. I admit, I do not have a clear view of the best path forward at this moment, and we will look to the government for guidance on the optimal approach. Nevertheless, we will advocate for immediate solutions. There are various measures that could reinforce the AB 1054 framework, and we will actively collaborate with them, taking comfort in the fact that they are also engaged and allocating the necessary resources to tackle these issues.

Obviously, you're evaluating a number of causes of the Eaton fire, including whether an idle transmission line could have become energized. You highlighted in the Section 315 letter that you're taking immediate steps to strengthen and standardize the bonding process. Just wondering if you could talk about some of the steps you are taking there that you felt needed to be strengthened despite wanting to take these steps, it sounds like you feel very confident you will sustain the presumption of prudency. Just wondering if you could share more of your thoughts on the confidence in that.

Yes. I'll start by reinforcing that we are confident that SCE has operated the system reasonably based on what we know today. It's important to consider both the overall operations of the system and how they relate to specific ignitions. I take pride in the efforts of Steve, Powell, and the SCE team over the years to enhance the system. Since the catastrophic wildfires in California that began in 2017, we adopted a risk-prioritized approach. We focus on addressing the highest risks first and continuously seek to learn from each situation. For example, following the recent fire, we implemented immediate steps outlined in the 315 letter. During the ignition, we successfully executed our PSPS protocols and had already adopted a conservative approach for the windstorm. We maintained this cautious stance during subsequent windstorms. We continuously evaluate our system for improvement opportunities, including inspections and grounding. Steve Powell, do you have anything to add regarding our operational strategies moving forward? Otherwise, I believe that summarizes our current approach.

I would just say that as we approach any situation, we're looking for insights we can gain, whether they pertain to our system or others, and how we can incorporate those lessons into our practices for the year. When I consider what we have planned for this year and in previous years, we've enhanced our vegetation management and inspection practices. We assess the conditions as we enter a season, particularly thinking about next summer and the upcoming fire season. We'll focus on identifying areas where fuels are driest and where we face the highest risks, allowing us to implement additional mitigations, such as increased vegetation management and inspections. Therefore, I think we are reinforcing our existing practices and will consistently seek out ways to strengthen our system and ensure safety as we head into the next season.

Yes. That's great, Steve. And Michael, maybe one more little piece that might be helpful here. You've heard us commit to transparency. And so as we continue to learn and as appropriate, we'll be sharing as much as we can. At the same time, we recognize that like with prior fires, there may be litigation involved, so we will need to be thoughtful about getting ahead of that process. So having the right sort of balance between not litigating individual elements in public while providing as much transparency as possible for our public.

Great. And then secondly, I was just wondering if you have concerns about the wildfires impacting the outcome in the GRC. In public, there's some perception that EIS may have started the fire. Do you think that makes it less likely that the commission will grant a rate increase given the headlines it could create, especially as residents are going to see an increase in insurance premiums? And then also, do you see reaching a settlement amongst various parties in the Woolsey filing being harder to achieve as well?

I don't think so. It was reassuring to see the TKM approval. Maria, let me turn it over to you.

So Michael, we’re very far along in our GRC process. We filed all our papers as have the intervenors. And I think you've observed that we've actually settled quite a few things with intervenors, 20% of the O&M items and 8% of the capital items, covering a dozen different topics. So we see that proceeding continuing on as it previously was, and we are looking for a proposed decision in the first half of the year. As far as the Woolsey cost recovery application goes, we had a prehearing conference back in December. We actually are awaiting a scoping memo, and the schedule for that has been agreed upon by the intervenors and SCE. So we continue to see that moving forward on its own path as well.

I just want to touch a little bit on the balance sheet side of the equation. So obviously, your cost of capital has changed quite a bit since we last chatted. To the extent you are successful on the next-gen ERP, how should we think about financing some of the incremental capital if it does come into the plan?

So we've actually been running a lot of those scenarios before and after the events in January. And we still see our financing plan that we've laid out in one of the pages in the deck that you have as being very consistent with that. To the extent we have more opportunities to invest capital because of next-gen ERP, et cetera, we will finance that at SCE in line with our authorized capital structure. And at EIX, we'll take a look at where our credit metrics are at the time. I think you know that our credit metrics have been moving into that 15% to 17% FFO to debt range. The latest reports see us in that range in the 25 through 28 period. So we think we're in a good place there. Obviously, rating agencies are looking at the business environment in California, but I don't think that goes to sort of our balance sheet strength at this point.

Okay. Understood. And then to the extent there are liabilities that do stem from the January 2025 events, how should we think about financing that? Is that like you've done in the past, kind of Brits, JSN at the parent, preferred? Just any flavor you could give in that scenario would be helpful?

Absolutely. One of the key differences between a fire that occurred before AB 1054 and one that happens after is the wildfire fund. It is designed not only for claims payments so that individuals affected by the fire receive compensation promptly, but also to support the utilities' balance sheet. The process allows us to utilize our customer-funded self-insurance for claims payments first, and then we can access the wildfire fund, which has a streamlined process already in place. This means we would be drawing from the fund instead of issuing debt like we did for the previous $0.17 to $0.18. Therefore, there is a significant difference in how we will handle the situation.

I mean that's really one of the core features of AB 1054, Paul, and Maria covered it very well.

So I guess just maybe along a similar track, any sense of where the rating agencies are on kind of what the updated impact of these fires might be in ratings? And if there were, for example, some kind of risk rating that led to some kind of rating reduction, how does that impact your financing plan in terms of cost or anything meaningful to your financing costs?

Sure. I mean, I do think that the rating agencies, obviously, we stay in touch with them and talk to them, but they have been pretty straightforward in other venues as well. They've talked to a bunch of you all. They've certainly been at conferences. And they're highlighting climate risk generally. So not just California, but across the country, they are focused on climate risk and climate events. I think they certainly are observing the things that are going on in California. You know that S&P has us on negative outlook. And so we are working to move through the process and share more information with them, obviously. Again, it's not about the metrics; it's about sort of how they view the climate risks in California and more broadly. I think you look at sort of what impact any of that would have on our financing plan. It is a cost issue. If you think about SCE and SCE's need to finance rate base, we are going into a cost of capital cycle. So we're filing an application in March. So anything that would need to be updated relative to SCE's cost of debt would be updated through that process and would be captured through that process. I think from an EIX perspective, we’ve been doing a number of different scenarios to include in our longer-term, '25 through '28 period, and we can manage what's happening to the rates and to the spreads within the range that we've already provided. So I think that we' re still on track for all of that as noted in the prepared remarks.

Okay. I have one unrelated question. Pedro, you mentioned that it takes weeks to work with the lawyers to determine how to investigate and address the issues. Can you elaborate on what the issue is and why it seems like you and the lawyers can't simply go there to observe and assess the situation?

I wish it were that simple, Steve. It’s a bit more complex than that. As you might expect, there are several attorneys involved, and they want to ensure that any adjustments to the lines or any actions taken with SCE's equipment maintain the integrity of the materials, avoiding any damage or making them hard to analyze. This requires extensive discussions among all parties to agree on procedures for when and how the lines will be handled, what may be inspected beforehand, and how to assess them during the process. Additionally, it involves determining who will supervise the handling of the lines and what gets sent for lab analysis afterward. This is quite typical for such cases. While we would like to speed things up, this process will likely take several more weeks. I hope this gives you a better understanding, Steve. I am confident that the SCE team could go out there tomorrow and manage the process in a way that ensures everyone involved can trust that it’s being done correctly. However, we need to wait for full agreement from all parties on the specific procedures and safety measures, and we are committed to operating with integrity in this matter.

How do you expect the events from last month will change costs of CapEx items and O&M costs in the coming years?

Do you mean from a supply availability perspective regarding the volume of materials? Or do you have a different angle on the question, Ryan?

That was exactly. Yes, exactly. Okay.

Steve, I don't have a perspective on it; it feels probably a little early. I'm not sure that it would be in the context of the broad California or Western economy. I don't think that we have an answer; it might be a little bit of impact, but I don't think it's a massive impact based on where we sit right now, but any different views, Steve, or?

Yes. The impact of the communities is significant, but it is not on a scale that affects our overall plans each year. For example, the amount of line miles we implemented last year with covered conductors was 800 miles, which is significantly greater than the impacts we're experiencing from the conductor side. Therefore, the amount we need to manage is relatively small compared to our overall plan and anything that could affect broader supply chains.

And Steve, it's important to note that all the homes and customer premises that are able to be reconnected have already been reconnected. The upcoming rebuild efforts will primarily focus on homes and premises that need to be reconstructed, which will not happen quickly. This process will require siting and permitting for those new structures. Consequently, while it won't take years to address the needs of these communities, the timeline is still significant. Additionally, from an Edison perspective, it's not only about what Steve and his team will be doing to ensure the proper resources are available, but as a company, we are committed to supporting these communities through charitable initiatives and broader engagement. This situation resonates personally for many of us, and we aim to contribute to the solution.

And then one follow-up. In terms of the venue, is there an established venue to determine how the protocol will unfold in terms of investigating the equipment and other related items regarding the fire?

Yes, that's happening in the court process. And so there is a judge assigned that I believe the discussions over the specific protocols are happening under her oversight. In fact, I think there was a court hearing just yesterday on this. Yes, just yesterday, I believe she said I think the next discussion will be in a week or so, if I recall correctly, so it's a court process.

It's Konstantin here. I want to follow up on Nick's question in a more theoretical sense regarding the timing for a potential AB 1054 drawdown, considering the claims and settlement you mentioned. Do you think this will take a few years, allowing stakeholders more time to discuss and ensuring the best assurances around the consents?

I think, Konstantin, as we look ahead, we haven't yet identified the cause of the fire. However, if it turns out to be a fire covered by AB 1054, it is still too soon to determine when claims will start being submitted and when the process will begin. That is my firm belief. Our first step will be to utilize the $1 billion of customer-funded self-insurance for the initial claims payments, and only after that will we access the AB 1054 funding. We understand the processes are already in place to submit claims for payments, but it's too early to pinpoint when we will reach that stage.

Yes. And I think Maria answered the substance of your question well. I think I also heard an angle in your question around whether that then gives parties in Sacramento time to deliberate. And I think the flip side to that is we have a real sense of urgency here. Part of the message that we'll be providing is that in the market has responded very quickly, and we believe it will be in California's best interest to demonstrate a commitment to extending the framework or making changes. Again, we're not specifying its ABC, right? But we're specifying here's the issue. And I think from a market perspective, then restoring investors' confidence in California, and frankly, I think this accrues not only to the view on California utilities but the view on the California economy more broadly. We believe it's important that action, at least the first steps, happen soon. While technically, this is a time that you were asking about from an overall perspective, the timing here for action in Sacramento, we are certainly focused on near-term action, at least for the initial steps.

I really appreciate it. I think the question was more about securing the best assurances, but I don't believe there's any uncertainty about the urgency at this time. That has been communicated very clearly, and I'm grateful for that. As a quick follow-up regarding regulatory proceedings, given the rising cost of capital and the current market conditions, does this affect the filing process? Do you anticipate any delays in the proceedings to ease some of that pressure?

Konstantin, we are proceeding with the filing, which is due in March. You can expect us to submit all relevant information, both quantitative and qualitative. Recent events have certainly affected the cost of capital, and we will address that as well. Ultimately, the strategies Pedro mentioned earlier are potential solutions regarding the cost of capital. While the answers may not solely come from the cost of capital proceedings, you will see a thorough discussion of these events in our applications.

Yes. And maybe one more thought on this one is, again, I brought this up with one of the other questions as well. I keep pointing to the fact that the PUC proceeded with its approval of the TKM settlement on the schedule. This happened even after the fires have taken place. It's just an important time for their steady leadership, which they are showing and they're providing. Because frankly, that's part of helping investors retain confidence in the durability of the California framework. So I really appreciate not only the approval of TKM but the very thoughtful comments at press and Reynolds made that I mentioned before.

I have a quick question. Slide 20 discusses prudency, and I'm wondering if there is a middle ground between being 100% imprudent or 100% prudent.

Yes. That's a really important thing. Speaking generally in terms of how this works, absolutely, the PUC has full discretion to find a utility prudent, fully prudent based on the facts, or fully imprudent or something in between. You might recall, Anthony, that frankly, this is one of the challenges with the prior PUC in the case regarding the 2007 fires for San Diego Gas & Electric, where a prior PUC, in making their decision, that they were stuck with a binary choice. They could only provide either full recovery or zero recovery. Later on, even that same precedent and, I believe, the General Counsel at the time both made comments later on that they realized that was not the case. The commission has discretion, as it should.

Can you hear me?

Yes, I hear you well.

Just one question for me. If a legislative solution does not emerge, are there any operational changes across PSPS practices or elsewhere you would consider? Is the future fund backstop potentially lower given that potential that even impacts the fund as a risk backstop?

I’ll answer the question, and Steve might add his perspective. We're always in learning mode, continuously looking for ways to ensure public safety as we gain more insights. The recent windstorm was quite significant, with winds reaching up to 100 miles per hour. I previously mentioned that we entered the windstorm with a more cautious approach concerning our Public Safety Power Shutoff (PSPS) criteria, which meant we were prepared to shut off power under conditions that were stricter than usual. During the windstorm, when night-flying firefighting aircraft couldn't operate due to the wind, we opted for an even more conservative application of PSPS. That's one instance where we adjusted our strategy in real-time based on the conditions. The team, including Steve, could elaborate on what SCE is doing as part of our ongoing learning process as we prepare for the next Wildfire Mitigation Plan update.

Yes. So maybe Pedro, I'll reiterate. When we look at our mitigations for wildfire, whether it is grid hardening, our choices around covered conductor or undergrounding, the factors that are there, and how we have enhanced our inspections, where and how much is management we're doing, every aspect of our wildfire mitigation plan is based on public safety. And how do we make sure that we have a system that operates safely? Now we learn along the way from incidents that happen on our system, off of our system, and we look at other ways that there may be risks in the system that we didn't see before. We then bake those into our wildfire mitigation plans. We started on a risk-prioritized basis seven or eight years ago, really focused on distribution because that's where the bulk of our cognitions and our risk lie, and we've been working our way down. As we continue to learn, we’ll continue to look at what the next set of mitigations are. But that's primarily driven from a public safety perspective as we're thinking about the best way to run the system and keep our communities safe.

So that's what drives it at the end of the day. And as I said in my comments, we are confident that this state will do the right thing regarding the future.

Just one for me as well, a follow-up on, I think, Konstantin's question earlier. Just any color that you can share in terms of what's embedded in your plan or just how you're thinking about a potential improvement or not in the CPUC ROE as you go into the cost of capital next month, just what's reflected over this planning period?

I will break that into two questions since you are deeply involved in our planning period. You likely recognize the sensitivities we have regarding our EPS growth from 2025 to 2028, and we have presented various return on equity metrics over time. We have considered numerous factors that we believe will accommodate different outcomes. Your question is mainly about what we will include in the cost filing coming up in March. I want to emphasize that it will be similar to what we have filed before, involving both quantitative analyses and qualitative assessments. We will have thorough discussions on the effects from the January events and the market's reaction, as well as how we will consider ongoing costs. I believe that when we filed back in 2019, we included the idea of a wildfire adder, but we highlighted that merely addressing the cost of capital wouldn’t resolve this issue. It is the structural changes from AB 1054 that will help the market respond more positively to California. Our approach will be fundamentally based on that perspective.

I was curious to get your thoughts. What do you think is the solution here? What are you advocating for? I'm thinking in the legislative backdrop? What are you advocating for? What do you think is kind of needed to give the certainty that investors are seeking with the California wildfire kind of protective financial backdrop?

David, look, I want to acknowledge it's still early days. As I mentioned, we're talking and we're listening to discussions with our peer utilities, legislative leaders, etc. There are probably a lot of different levers that could be employed here. I don’t want to get too far ahead of that. Ultimately, part of the message we're hearing from investors, and I think is reflected in the valuation impact, not just for Edison, but for Cempra and PCG is a concern that the events that the L.A. area just lived through were really large events, whether or not they were caused by electrical infrastructure, they were large events. To some extent, they reset the sense of how large events could get in California. That does then get folks thinking about the durability of the fund and levers like the liability cap, right? Today, the liability cap is attached to the existence of the fund. So are there ways to provide for the fund being able to scale up if needed? However you get there, ways to ensure that the liability cap endures, regardless of the state of the fund. I think those are some of the questions here; probably different levers to answer this. Beyond the utility piece, we've already seen the leadership across the state talk about some of the other elements that may be part of a solution. I noticed that yesterday, the Head of the Senate announced a package of series of bills that touch on insurance reform. You've heard discussion around building codes and standards. The reality of California will continue to have to work through wildfire risk. Our adapting for tomorrow white paper from three or four years ago pointed out that the state will see increased fire risk as we see deeper impacts from climate change over the next several decades. I give a lot of credit to the governor and the legislature. They've been working on more than just AB 1054. They doubled the state budgets for firefighting and have had further discussions around managing fuel and cleaning forests. The role for building codes and standards, defensible space, which as I saw that package I mentioned on the insurance side, is ensuring the principal space. This will all be, I’m sure, tough topics on each of their own. That’s why I don’t know whether we will see the legislature calling less around trying to do a lot of this all at once or take a piece at a time. From our perspective, we want to make sure that we have a strong voice in helping them understand the immediacy of demonstrating to the market the immediacy of the need to reassure investors on the strength and durability of AB 1054. The good news here is that this is not like 2018 when we were starting from scratch. We get to stand on the platform of a very strong bill led by Governor Newsom and a prior legislature that really set the model for the country. It's always better to be in a place where you can talk about how to modify and extend rather than how to create from scratch.

Yes, absolutely. No, very helpful. I was also curious, as you reflect on your capital plan and the prioritization of different projects and initiatives. Do you think it would make sense to shift incremental capital expenditures back toward fire risk reduction? I'm looking at Slide 12, which shows the distribution of where capital expenditures are allocated within the distribution system. Is there a case to be made for wildfire mitigation to become a larger focus again?

Yes. We always have the discretion to move the general rate case dollars around to prioritize based on what is at hand when we get into that period. I think one of the first things you'll see us do is in the areas where we're doing restoration, we are taking a look at how we rebuild those communities and support those communities, whether it's places we have already put covered conductors or places where we can advance targeted undergrounding. But I'll turn it over to Steve. I think probably has other thoughts as to where we might actually lean in a little bit differently.

Yes. I think really, one of the things from these fires, whether it's the Palisades fire or the Eaton fire, I think everyone's looking back at risk models and trying to determine what's changed in terms of risk and if there's anything new that we've missed. When we prioritize our capital, we start with risk, public safety, reliability, etc., to determine where we put those. To the extent that our risk models are showing that we should be hardening the system differently or placing our capital allocation differently, that's what we'll evaluate. It's too early to say how well change. Maria mentioned, certainly, we’re in places where we are rebuilding and starting from scratch. A lot of times, when we're building from clean slate, our standard generally is to underground. So we will likely see more undergrounding in places where we're starting from scratch. But that's really as we look at that overall capital allocation. It starts with how we allocate the risk and how we view the risks and what the best mitigations are. So it's too early to say how much change there will be, but it’s something that we’ll go back and look at like we do each year as we reevaluate our capital plans.

And Steve, my guess is that as we are standing 12, 24, or 36 months from now, when you look back, it might not be a clean split because particularly in the communities that require rebuilding and doing that stronger. For example, you think your team has now raised something like four or five existing 4 kV circuits in Altadena, with a modern 16 kV circuit with covered conductor. It was a rebuild for fire, but it was also a resiliency improvement. So I think some of those circuits were part of them that were in non-HFRA areas that we built with covered conductors, so that's also a wildfire improvement. It checks multiple boxes around the categories that you were asking about, if that makes sense.

I will now turn the call back over to Ms. Michelle for any closing comments.