愛迪生國際 (EIX) 2002 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to Edison International conference call. This call will be available for replay at the following numbers, 877-693-4277, also 402-220-0042. You will need to use the pin code 9101 to access today's call. For your information this call is being recorded. Also, we want to advise you that Edison International is holding a simultaneous webcast this of this conference call. This will be on the company's website in a listen-only mode for interested parties. When the conference begins you will be on listen only, and there will be a chance for questions and answers at the end. In addition, if at any time you are in need of assistance, please press star followed by zero for a conference coordinator. Thank you again for your patience. The conference will be beginning shortly. At this time, would I like to introduce your host, Mr. John Bryson, chairman and CEO of Edison International. Thank you and go ahead, Mr. Bryson.

Thank you. Good morning, thanks to all of you for being with us. Today we will be reviewing our 2002 earnings which were released earlier this morning. We'll follow the usual format of providing opening comments followed by a question and answer session. In this case, I am in a location separate from others on our team. So please understand that as we coordinate answering your questions. Let's start with the legal requirements here with respect to forward-looking statements. I'm going to ask Associate General Counsel Barbara Mathews to cover that.

During this call, we will make forward-looking statements about the financial outlook for Edison International and subsidiaries and other future events. We believe these statements to be reasonable and well-founded, however, actual results could differ materially from current expectations. We have set forth important factors that could cause different results in Edison International's 2001 form 10-K and subsequent 10-Q's and 8-K's. We encourage to you read those reports carefully.

All right. Let me start summarizing the entire year. Principal priority during 2002 was restoring financial strength and recovering from the adverse effects of the power crisis. In sum, we made substantial progress. But the job is not yet done. All of you on this call understand that providing electricity is capital intensive. And to have full access to low-cost capital markets, we need to restore fully our credit quality and the ability by year end of this year to declare shareholder dividends.

That's the large overview. Let me take you just a little further through this by giving large highlights and then I'll ask Theodore Craver, Jr., our Chief Financial Officer to take knew greater detail. Recovery of Southern California Edison's past procurement costs, our crisis related costs in the form of what we call Proact, as I think all of you know, has been one of the most important aspects of restoring our financial health. The Proact balance was reduced to $574 million by the end of 2002. So that represents collection of over $1 billion. Since the settlement with the PUC went into effect in October of the year 2001.

The pace of collection of Proact over the course of the year was strong enough in 2002 to improve our forecast for fall recovery to mid 2003, so on the order of half a year or less from now, and we brought that back from an earlier forecast of late 2003. We've made some additional progress in our Proact recovery during January and the balance now stands at 452 million dollars remaining to collect. During 2002, we were able to significantly build cash flow and reduce debt across Edison International.

A measure of what we were able to accomplish in this regard was reduction in the leverage ratio of the consolidated Edison International level. Net was reduced to nearly 60% at the end of the year, down from 70% at the end of 2001. In fact, we were able to reduce leverage at each of our principal subsidiaries of the year. We are pleased with that progress.

May I have your name, please?

Hello?

One moment, please.

Theodore Craver, Jr.: Just go ahead, John.

We are pleased with the progress in reducing leverage, but what I want to emphasize is we plan to further reduce leverage at Edison International during this 2003 year.

Additionally over the course of 2002, we saw improvements in our credit ratings at Edison International at Southern California Edison and Edison capital. But that is not all that we need to accomplish. So progress, but far from completion.

Unfortunately, our credit ratings declined to junk state is late last year reflecting high levels of debt at EME and the rating agency's continuing concerns about wholesale power markets. Although we put more of an accent on balance sheet strength than an earnings in our goals for 2002, we did have better than expected earnings performance.

This morning, we reported earnings of $3.31 per share, an increase of 13 cents over 2001. Because our reported earnings have some very large writeups and writedowns in them, we have been also showing so-called core earnings which back out the large gains from restoring generation-related assets of Southern California Edison and back out discontinued operations principally at Edison Mission Energy. We began 2002 providing guidance for core earnings per share of $1.50 positive $1.60 per share as we reported this morning, core earnings per share for 2002, in fact, were $2.02. Even when we include the effects of discontinued operations at Edison Mission Energy, core earnings per share by that definition were $1.84.

A strong earnings performance over the year at Southern California Edison helped us as we absorbed a number of negatives, including write-offs at our Lakeland plant and the United Kingdom and two, United Airlines aircraft leases.

Let me emphasize our largest goals for delivering value to our shareholders in 2003. First, validating and completing the recovery of Proact. While we won't have anything new to report today on the matter of the consumer group turn appeal, we are continuing to focus now at the California Supreme Court on validating our right to fully collect the Proact and there by restoring our credit worthiness and allowing us to fully resume our utility role in California.

Second, satisfactorily addressing the sufficient debt maturities at Edison Mission Energy consistent with enhancing Edison international value. While we won't have a lot to report on this today. We are actively involved in the preparatory work that will be required for meaningful discussions with our lenders later this year.

Edison Mission Energy is in a very challenging environment but it accomplished many significant self-help steps last year, which we believe have helped the company. Important among those were the capital commitment and O&M expense reductions, asset sales, the finalization of the Paiton restructuring, negotiating a solution to the so-called in-city obligation at Midwest Generation and resolving the Brooklyn Navy yard and Sunrise contract litigation.

Finally, putting the company by year end in a position to pay a common stock dividend to our shareholders. We need to have access to the equity markets as well as the fixed income markets to function effectively. Particularly as I indicated at the outset, in the capital intensive business of providing electricity. To ensure that we have access to the equity markets, we need to restore the dividend just as to ensure full access to the fixed income markets requires we regain our investment-grade credit ratings.

As I have said before, I identify restoring the dividend as a goal rather than a forecast, and the main precondition to restarting a dividend is completing Proact recovery at Southern California Edison since Southern California Edison has always been the source of funding for the Edison International international dividend.

All right, it is of course too early this year to have much to say yet about the earnings guidance for 2003, we provided just a couple of months ago, but I will conclude by saying we are looking forward to a successful 2003. With that, let me ask Theodore Craver, Jr. now to take you in greater detail through our 2002 earnings.

Theodore Craver, Jr.: Thank you, John. First part of my remarks will cover earnings and then the second part I'll focus on balance sheet and cash flow items. I'm actually not going to spend much time talking about the fourth quarter except to highlight some of the special one-time items. Really, we'll concentrate my remarks on the full year results and comparisons with the prior year.

As we reported this morning, 2002 earnings were 1.1 billion, or $3.31 per share compared with $3.18 per share in 2001 for an increase of 13 cents. Unfortunately, our reported earnings both in 2002 and 2001 have such large writeups and writedowns related to the effects of the California crisis and discontinued operations that it makes it difficult to really understand the underlying earnings of the company.

As a result, we started in 2001 by providing numbers on a so-called core earnings basis that stripped out the write-off and subsequent writeups of generation-related regulatory assets as well as adjusted out the results of discontinued operations at Edison Mission Energy and Edison Enterprises. Following this practice, our core earnings at EIX for 2002, were $2.02 per share versus the $1.30 in 2001.

It's important to note that the $2.02 per share excludes the write-off and results of operations of our Lakeland project at Edison Mission Energy. By accounting rules, it's required that we put that in discontinued operation since that activity resides in a separate project company. Both the write-off of $77 million or 24 cents and the results of operations, which net to 18 cents when we adjust those out or said differently, if we only make one adjustment to EIX reported earnings of $3.31, adjusting out the $1.47 for the restoration of generation-related assets at SCE, the earnings for 2002 were $1.84. This is the number that I really focus on as most meaningful.

What I'd like to do now is go through each of the companies and explain the major operating variances and identify some of the major one-time items. Starting with Southern California Edison, core earnings with are $2.30 a share, which as we said, excludes the $1.47 per share gain related to restoring generation gain assets. This compares with core earnings of $1.25 per share in 2001 for an increase of $1.05. Nearly half or 48 cents of that year-over-year positive variance was due to a PUC decision to establish ratemaking mechanism that neutralizes the effects of lower than forecast electric sales volumes on the utilities and revenue, or the so-called ERAM mechanism.

Two other large favorable variances worth noting, at SCE we had 33 cents related to a part of the decision on utility retain generation that allowed for higher returns on our generation assets and also resolved other related issues. And we had 23 cents positive variance related to lower interest expense on short-term debt.

Rounding out the positive variances, 11 cents associated with the PBR, performance based ratemaking rewards for years 1998, '99 and 2000. 10 cents from higher performance on Songs unit two and three. Principle unfavorable variance was higher operating maintenance expense in 2002 versus 2001 of 26 cents.

Really summarizing, SE had an exceptionally strong year. Our original expectation was $1.55 yet SCE achieved $2.30 on a quarter earnings basis.

Turning to Edison Capital, we -- Edison Capital recorded earnings per share of 10 cents in 2002 versus 26 cents in 2001. The 11 cents of that total 16 cents unfavorable variance was due to the writeoff of two investment aircraft leases at United Airlines. There are a variety of puts and takes that account for the remaining 5 cents unfavorable variance but in simple terms, reductions in operating and interest expense were not quite sufficient to offset the 15 cents unfavorable variance attributable to lower revenues from the maturing portfolio.

At Edison mission energy, EME recorded earnings from continuing operations of 26 cents per share in 2002 versus 35 cents per share in 2001. Remember, the continuing operations excludes the effects in 2001 of the triple F loss on sale and results and excludes the write-off and 2002 results for Lakeland in 2002.

The nine cents unfavorable variance year-over-year variance from continuing operations is comprised of a host of items, but let me first describe those associated with the operating assets and then I'll talk about the one-time items. First, on the positive side, the Illinois plants had a positive variance of 22 cents due to higher generation and capacity revenues. Paiton was 10 cents positive variance due to equity income recorded in 2002 on the restructured contract. Loy Yang B, positive 9 cents due to higher volume prices. At ISAB, we were at a positive variance of 7 cents. Most of that was due to operating performance. Some due to insurance recovery. And First Hydro, positive 3 cents due to higher ancillary services, revenue and lower O&M expenses.

On the negative side, the big four projects were down 21 cents in 2002 versus 2001 principally due to a decline in prices. Homer City was down 14 cents. Mostly -- most of this was outage related and Four Star was down 14 cents due to lower natural gas prices in 2002 and an absence of swap gains that we had in 2001.

There were really five major one-time items that in total drained 15 cents on a year-over-year basis. First one was write-off of capitalized turbine costs, 11 cents. Next was a write-off of the Powerton SCR costs which was negative five cents. The writedown of good will associated with the Citizens Power trading operations in Boston was minus four cents. And the settlement of the so-called in-city obligation at Midwest Generation was minus eight cents and all of those were partially offset, though not entirely by a gain from the settlement of a post requirement employee benefit liability, which was a positive 13 cents. So the net of all of those one-time items was negative 15 cents.

At Mission Energy Holding Company, this is the intermediate holding company for Edison Mission Energy. The only thing we really have in that entity is debt, so it's the interest expense associated with the debt. Earnings per share were negative 29 cents in 2002 versus negative 15 cents in 2001. The 14 cents unfavorable variance is due to only a half year worth of interest in 2001 versus a full year of interest expense in 2002.

And at the parent on the year-over-year basis, EIX parent and other miscellaneous subs showed an improvement from a loss of 41 cents per share in 2001 to a loss of 35 cents in 2002. Lower interest expense of 8 cents and lower overhead expenses of two cents more than offset the impact, the write-off of two small investments and the restructuring expense associated with the shutdown of a third small entity.

Moving to the balance sheet and cash flow items, let me just make a note up front here. When I go through the company by company review here in a minute, I'll provide the actual year end 2002 cash balances for each company, but regarding 2003, I'll only have an update for Southern California Edison's year end cash outlook, which is really the only material change. We'll probably do a full 2003 cash sources and uses update and the full line by line items when we release our first quarter earnings sometime in late April, early May, but we just gave you all of these numbers a couple of months ago.

At SCE, John mentioned the Proact balance as of January 31st, that balance was down to 452 million. It is important to note that we've been waiting for a decision from the PUC, and on February 13th, that was received which gives approval to put the gas hedging costs for 2002 and 2003 of 209 million into the Proact balance. So the Proact balance is actually likely to grow in February before resuming the normal decline in balance and subsequent months. On liquidity, at year end, 2002, Southern California Edison had a cash balance of a billion, which grew to $1.1. At the end of January.

We've mentioned a few times previously that there are three significant debt maturities in 2003. The 300 million of term A notes due in march, 125 million of first mortgage bonds due in June and a billion of variable rate notes in November; there's fairly important changes to those outlooks now. We've actually at Southern California Edison paid off all of the term A notes that was done on February 13th. And we've had a variable rate note exchange in the market which actually closed yesterday. As a result, SCE has effect only extended the maturity of 966 million of the 1 billion out for four years. As a result, SCE will only have to absorb about 44 million in maturity in November.

Therefore, we need to make a change to the 2003 year end cash balance outlook. The last one we gave you was for a balance of 400 million. We now need to update that to an expectation of 1.1 billion year end cash balance for 2003.

On a capital structure side, we're heavily focused on leverage ratios at all of our companies, and at the consolidated EIX level. At Southern California Edison, the financial debt ratio declined from just a little bit short of 64% leverage to a little over 50% by year end 2002. That's the financial debt ratio. When we look at the ratemaking debt ratio, which excludes procurement financings and rate reduction bonds, we actually saw the leverage ratio drop to 34% from 44%. This said differently this leaves SCE with over 60% equity on a ratemaking basis far in excess of the CPUC required 48%.

On Edison Capital, due to some tax timing differences, Edison Capital had a year end 2002 cash balance of 484 million. About 50 million higher than our last outlook that we gave. This is mostly just an acceleration of what was expected to take place in 2003. As I mentioned a few minutes ago, no update for year end 2003 balance.

Regarding leverage, Edison capital's leverage ratio declined from 50% at year end 2002 to 36% at year end 2002. Edison mission energy on the cash side, the year end 2002 cash balance was 64 million, slightly higher than the 48 million we had last forecast. EME had additional borrowing capacity of 355 million from the corporate credit -- corporate revolving credit facilities bringing liquidity to about 419 million. This compares with total liquidity of 484 million at the end of the third quarter '02. That difference in liquidity really mostly represents cash collateral and LCs issued to support hedging activities.

Of course, these numbers I just mentioned don't include the cash that's trapped at Midwest Gen. And to update you on that, about 320 million in cash, about 50 million in the cash flow recapture fund and no usage against the working capital line as of year end 2002. And again, no update on the 2003 year end forecast.

Coverage ratios, at EME corporate, we have an interest coverage test referred to as the funds flow from operations to total interest. This test is in the EME bank credit agreements as a coverage test governing distributions from EME to Mission Energy Holding Company. And at year end 2002, that FFO to interest ratio improved to 2.36 times versus 1.64 times year end at 2001, and actually exceeded the test level of 2.2 times.

A couple of other coverage ratios that we've given you in the past that we want to update. At Homer City, we had a coverage ratio of 2.69 times. Distributions from Homer City up to Edison Mission Energy actually require that that ratio is above 1.7, so got comfortable margin there.

At Midwest Generation, of course, due to the cash trap, the coverage test is largely irrelevant, but to provide you the information in any event, we were at 4.04 times at the end of 2002. And finally, at First Hydro, we haven't -- this is still in the process of being audited but the unaudited results show 1.7 times at First Hydro and distributions require that we be above 1.2 times. And we have a default if we're below 1.85 so that one has also improved.

Finally at Edison Mission Energy, let me talk about leverage. This is probably one of our greatest focuses that we have in the company. We're at the end of 2002 at Edison mission energy at a leverage ratio of 62.2%. This is down slightly from the 64.1% that we had at the end of 2001. This leverage ratio excludes our nonrecourse debt at the projects. It includes all of the recourse debt in the promissory note between Edison mission energy and Midwest Gen LLC.

Moving to Mission Energy Holding Company. Year end cash balance was as forecasted, 87 million. And no update for the 2003 balance there.

At EIX parent, the year end cash balance again was as we originally forecasted it, 254 million, and no update for the 2003 balance. As John mentioned, the leverage ratio of the consolidated EIX ratio declined nicely in 2001 to 60.7% at year end 2002. And really, most of the focus and continuing to drive that leverage ratio down will be at Edison Mission Energy Holding Company and EIX level.

I'd like to make just a few general comments regarding 2003 earnings. It's too early in the year to provide an update, but we would like to identify a few things that are on our radar screen. First, on the positive side, the cold weather in January and February have certainly helped power prices in Chicago and PJM where Edison Mission Energy has most of its exposure on the merchant side. And since most of our assets are coal assets there, the huge increase in gas prices doesn't squeeze Edison Mission Energy like it does some others. However, one month or a month and a half doesn't make a year. We're happy to have it, but we're not getting too excited at this point.

Over at SCE, Songs unit three is back online after having successfully completed a refueling outage three days earlier than scheduled. Importantly it passed all of the major inspections without incident. So this is certainly a positive event. We have some concerns as well at Edison capital. We have three aircraft leases to American Airlines as we talked to you about before in the past. And certainly that's a fluid situation that could result in some difficulties for us.

Final thing that I need to do is cover a couple of items that will be in our likely show up in our 10-K which we'll release in late March. Since this will be our only opportunity to talk to you about it before that comes out, I wanted to give you head's up on a few items.

Now, there are two new accounting standards that we will be adopting in 2003 that may have a P&L impact. FAS 143, which regards asset requirement obligations for long lived assets. That will affect or SCE nuclear facilities and probably some assets at Edison Mission Energy. And the second one is FAS interpretation number 46, which may be applicable to one or more of our partnership interests at Edison Mission Energy, perhaps even Edison Capital. EIX is evaluating the accounting guidance and estimating the impact if any to our 2003 earnings. Probably, the implementation of FAS 143 on SCE's nuclear facilities is not expected to affect earnings but may in the other cases. We'll be including an estimate of the earnings impact from the cumulative changes in accounting of these items in our 10-K.

Second, the 10-Ks will contain differences between the Edison Mission Energy segment reporting and EIX's 10-K versus the results shown in Edison Mission Energy's and MEH's 10-K'S. This is due to differences in classification of two line items. Those being discontinued operations and cumulative change in accounting. The differences between these various K's that will be releasing are really just due to materiality. Differences in materiality at the EME versus the EIX level.

Many of you will remember that in 2000, 2001, we had some -- we had a qualification to our opinion letter from our auditors at Southern California Edison, the so-called qualification relating to the going concern. We will have that same going concern qualification in the opinion letters this year for Midwest Generation, Edison Mission Energy and Mission Energy Holding Company due to the uncertainties around the 911 million maturity at Midwest Gen Asset and the implications of a personal potential to fault. I won't read the whole thing, but there are really three principal items in that opinion qualification.

First, that the financial statements are prepared assuming the company will continue as a going concern. Secondly, the ability of the company to refinance or redeem the 911 million obligation raises substantial doubt about its ability to continue as a going concern. And finally, the financial statements do not include any adjustments that might result from the resolution of this uncertainty.

And the final item to mention is at Edison Mission Energy and MEH and their 10-K's will be quite an expanded business segment disclosure which will show both revenues and pretax income for each of its regions as well as for some 12 consolidated and unconsolidated projects. Those are the kind of a head's up on some of the major changes for some of the 10-K's.

With all of that, we would like to go ahead, Stephanie, and open up the call to questions and answers, please.

Okay. Ladies and gentlemen, if would you like to ask a question, touch star followed by one. If you would like to remove that same question, touch star followed by 2. Our first question comes from Wayne Cooperman of Cobalt Capital. Go ahead, please.

Your situation's far too complicated for me to get a handle on, but I guess my question on Edison Mission is, how many megawatts do you have and how much of that is sold for and how much of it is subject to spot? And obviously with gas prices where they are, and you mentioned you are making a lot more money, could you kind of qualify, you know, how much benefit you are actually seeing from that?

Theodore Craver, Jr.: As we indicated, we're not really in a position this early in the year to update earnings forecasts for 2003, but let me tray to answer some of the questions that you posed. In rough terms, we have about half of our little less than 19,000 megawatts in capacity that are contracted and about half that are so-called merchant or uncontracted. Now, the principal uncontracted megawatts are at Midwest Generation. We've got about 9300 megawatts in total there again, as it turns out, roughly half of that is contracted and half is uncontracted. We have about 1800 megawatts at Homer City. All of which is uncontracted. And then we also have in the UK, our first hydrofacility, which in large part is uncontracted. There are some ancillary services contract components to it.

Could you give us a sense of what kind of spreads your earning, you know in January and February?

Theodore Craver, Jr.: I think probably the best way to do it so to give you some indication relative to the earnings guidance that we gave earlier.

Sure.

Theodore Craver, Jr.: Midwest Gen we indicated that an around the clock price of so-called 7 by 24 price was estimated for the year to be $22.15. And we've had prices on peak that have been over the course of January and into February many times in the 30s and occasionally even as high as $50 area. So that's up to this point, which again certainly in the year, the prices have been higher than what --

And your coal costs, are you hedged or unhedged?

Theodore Craver, Jr.: Coal costs are largely hedged with long-term contracts both for the coal as well as transportation.

Right. Because I'm hearing the hydro is pretty weak in the northwest again. And everybody's talking about a gas shortage that it's not unreasonable to think that you might have pretty high power prices in the summer as well.

Theodore Craver, Jr.: Well, these plans we've been talking about here are in Illinois and aren't going to be as really affected by conditions in the Northwest.

But gas prices certainly would help them.

Theodore Craver, Jr.: Yeah. Most of our plants are coal plants. Gas prices as we've indicated are considerably higher. As long as we don't have gas as an input it's not a problem.

It's good for you. Thanks a lot.

Your next question comes from Vladimir [Yalvonchek] of Long Anchor Management. Go ahead, please.

Good morning, Ted. Just a couple of quick questions primarily on the Mission side. Could you tell us how much cash is currently trap trapped at EMMH?

Theodore Craver, Jr.: Yeah. I actually gave that in that long-winded --

I'm sorry, I missed it.

Theodore Craver, Jr.: I'll try to repeat it. 320 million. Let me just grab my numbers to make sure I don't blow it. 320 million, this is all year end 2002.

Right.

Theodore Craver, Jr.: That's actually cash that can't be distributed. Separately, there's slightly over 50 million in the so-called cash flow recapture fund. And then there's 150 million working capital line, but that's really more to the borrowing capacity.

Right. Right. And could you just, you know, just describe in a little bit greater detail what you mentioned about the power and Cap Ex? I think you mentioned something about a charge that you took to pay for emissions equipment? equipment? Could you specify which units that related to?

Theodore Craver, Jr.: I think you're talking about SCR's?

Yeah.

Theodore Craver, Jr.: This was work that we had started in terms of putting in SCR's and discontinued that work. That required us to write off some of the expenses, some of the capitalized expenses that had been incurred to date.

To do you know which units the SCR's related to?

The power Powerton units.

Which?

Six and seven.

Six and seven? Okay. And could you just quickly go over the current state of your '03 maturities to summarize, please?

Theodore Craver, Jr.: For which entity?

For SCE.

Theodore Craver, Jr.: For SCE?

Yeah.

Theodore Craver, Jr.: Well, as I mentioned, the 300 million term A has already been paid off, so that's gone.

Mm-hmm.

Theodore Craver, Jr.: We have 125 million in the first mortgage bonds maturing in June and due to the successful note exchange, it will boil down to about 44 million of the 895 variable rate note in November that will have to be redeemed.

That's excellent. Thanks a lot.

Theodore Craver, Jr.: Welcome.

Your next question comes from Michael Goldenburg of [Luminous] Management.

Good morning. Thanks very much for holding the call. I just wanted to get a handle -- it seems from the ratios from the ratios you read, they all kind of passed the test level. Is it reasonable to assume that EME might actually send any cash to Mission Energy Holdings or will tax refunds still continue to be the only source of cash for Mission Energy Holdings?

Theodore Craver, Jr.: It's highly unlikely any distributions would be made from Edison Mission Energy to mission energy holding company in the foreseeable future given the cash requirements at Edison Mission Energy. Secondly, in terms of, you know, cash flow, there's cash from operations, distributions from the various consolidated and unconsolidated projects. We've given that and the forecast that we provided a couple of months ago for 2003, and part of that, as you mentioned, also includes the monetization of tax benefits that are contributed to the consolidated EIX group.

And Homer City is expected to bring up cash to EME?

Theodore Craver, Jr.: Yes.

Secondly, I wanted to get a handle on Turn case. If you could quickly go over what could potentially happen if you win or if Turn wins in terms of steps of what could potentially happen in case of one decision versus another and what could potentially negative decision position -- what does it basically not force the commission to do, anything?

Theodore Craver, Jr.: Really not a lot of change from what we've said in the past on that point. Steve, let me have Steve Pickett, our General Counsel from Southern California Edison provide just a quick summary. But again this is something that we've talked a lot about in previous times.

There's little change from what we've reported in the past. The effect of the outright loss of the Supreme Court, if that should occur depends on what the public utilities commission would then do. I think it's important to emphasize that the rates do not change immediately. Any rate change requires subsequent PUC action. The Public Utilities Commission has indicated in a number of ways, since we did the settlement with them, that they intend to find a solution to the debt caused by the power crisis by this means or some other. And I would report that they have been very conscientious in living up to the letter and the spirit of the settlement in implementing it and the ratemaking that's gone with it. If we were to win the Supreme Court case outright, the matter is effectively over. Further appeal to the U.S. Supreme Court is a possibility, but I think the matter at that point would be essentially over.

Would district nine be the next step? Hello?

Procedural costs would be a win or lose certification at the California Supreme Court. Their decision would be returned to the ninth circuit for entry of judgment. A loss at the Supreme Court would probably result until a remand to the district court, at which time we could be back in the [ DIAL TONE ] [ PLEASE STAND BY ] On the filed right doctrine and are likely to prevail in that matter. Same thing would happen procedurally. If there is a win, it would be returned for entry of judgment and then Turn, the appealing party here would have to decide whether they wanted to go on and seek a writ at the U.S. Supreme Court.

Thank you very much.

Our next question comes from Jeff [Covalo] of Lumin -- I'm sorry of Duquesne. Go ahead, please.

Hi, how are you?

Theodore Craver, Jr.: Hi.

I just had a question about Southern California Edison. I was trying to figure out what the ongoing earnings power of the utility is. It's based on the rate-base that's currently allowed with the cap structure is on that and the ROE and what it's going to look like after the rate case?

Theodore Craver, Jr.: Yeah. I think largely reiterate what we said in the 2003 earnings guidance about a rate base of 9.3 billion is expected for 2003. When you apply the authorized equity level of 48% and the rate of return of about 11.6, you end up with about $1.60 earnings per share. On top of that, you need to add the operations under the so-called incentive pricing mechanism or I-chip at the nuclear generating station in San Onofre which adds a little less than $100 million. And when you put those pieces together, those are really the principal components of $1.93 that we provided as the estimate for 2003 earnings. There's some other smaller puts and takes, but those are really the two principal components. Let me have Jim Salatchi, our Chief Financial Officer at Southern California energy give you a general update on the rate case to have a spread on the current discussions there.

Currently, we're in what they call the rebuttal phase hearings. The generate case takes 18 months to process, and we're winding down, I'd say, to the last third of the case. So we go through rebuttal hearings, and we'll go through briefing the case. All of the part parties will submit their briefs in April. And the next step in line will be a proposed decision from the administrative law judge hearing the case. And an expected decision in the August time frame. That's if we stay on schedule.

There are a number of issues being litigated in the case. Very large issues in particular and level of capital spending, level of o & m. There is a large bid out spread between our selves and the ORA, that's the public advocate staff here in California. We have been asking for a $286 million increase ORA is essentially asking for a reduction of about $180 million. So you can tell there is a large difference. And we'll just go through. There's many, many, many issues involved in the case and we'll work through those ones as we go through the hearing process. So it's hard to tell our handicap at this point in time where it's going to turn out. But we have a strong case file and we're hopeful that we'll resolve most of these things.

What is the 286 million increase? What sort of ROE does that equate to? Essentially the same, 11.6?

It does in California, the ROE is separate from the separate annual proceeding that will follow in May, generally, where you go through and set the return on the cap structure. But incorporated in the case now is 11.6.

And I guess one related question. When you do or the dividend from Southern California Edison, what are you anticipating that will be in '03? And if you could, take the time to remind us of the restrictions that are imbedded in some of your regulatory agreements and some agreements that relate to that.

Theodore Craver, Jr.: Let me have maybe John Bryson provide a few additional comments relating to the dividend piece.

Well, as I indicated, being in a position by year end to declare a dividend to our Edison international shareholders is a highest priority company goal. We've said that before. That's been a consistent focus. We intend to get that done. And I've always had to underscore that that is a goal not a forecast, but we're moving down the road to be able to do that. We think it's critical in the end to our consumers as well as our shareholders that we do that so that we have the kind of low cost access to capital markets we need.

With regard to restraints that you ask about, there is only one. And that is in the settlement with the public utilities commission that allows to us recover the power costs associated with the California power crisis, that is we bought power to allow electricity to continue to be provided our customers, and we bought it at rates from very high and broken wholesale markets. You know about that. Now we're recovering that.

So we indicated in the settlement, we agreed in the settlement not to pay out dividends from Southern California Edison until the recovery was complete. And the dividends from Southern California Edison in turn are the means for providing our common stock shareholder dividends at Edison International.

Now there is one other regulatory factor here. That is that we're obligated in general to man a capital structure in the utility consistent with the capital structure authorized by the California public utilities commission. So as Ted indicated earlier, slightly over-simplifying, we have to maintain a 48% level of equity in the utility capital structure. We are today way beyond that already. So as I recall, and Ted or others, you can check me on this, but by the regulatory requirements, we would be at something like 60% equity a day.

Theodore Craver, Jr.: That's right.

When we have equity in the utility beyond the amount authorized, we are not allowed to earn at the equity return at that level of equity. So it is inefficient and costly for us as a company to maintain that extra equity. That's simply part of the costs to us of the settlement. We honor that, but when we have the recovery complete is our intention to rebalance the capital structure in Southern California Edison as I indicate put a high priority on paying shareholder dividends. Shareholders make our business possible for us and we intend to honor our commitment to them.

Great. Thank you. I guess I have one last question, and that just relates to the absolute split-up of the debt of total debt between your subsidiaries. It's just trying to get, I guess, a ballpark feel for what at the end of the year Edison Mission -- Mission Edison holdings had.

Theodore Craver, Jr.: It's a little easier to start with Edison International. 750 million of notes that are due in September of '04 and above that, there's about 825 million of actual what we refer to as retail trust preferred stock. So technically, not debt. The next level down on the unregulated side at Mission Energy Holding Company, there's approximately $1.2 billion in debt that's made up of 800 million and bonds as they mature in '08. 100 million of Term A that matures in '05 and 285 million in Term B notes that mature in '06.

Then we have at Edison Mission Energy, the corporate level, $1.6 billion. And public debt made up in three different trenches that mature in '08, '10 and '11. And there's also a promissory note between Edison Mission Energy and one of the midwest generation entities. And then there's all kinds of different pieces of project debt, most of which are -- or a lot of which is nonrecourse at the individual project levels. We have corporate revolvers in that chain that I just mentioned, really just at the Edison Mission Energy level. 275 million maturing in September of this year and 212 million maturing in September of '04. At Edison Capital, since we have various maturities, are you primarily interested in the Edison Mission Energy side or --

I'm interested in all of the report for earnings guidance at least.

Theodore Craver, Jr.: This is going to be fairly lengthy to list all of these.

I mean, just a ballpark feel is fine as well for the rest of the subs as well. Or I can do it offline that's fine.

Theodore Craver, Jr.: I think it would probably be better to do it offline. But I will give you a couple of numbers here to fill roughly the debt that we have. A little over 400 million of which there are no maturities this year.

Okay.

Theodore Craver, Jr.: And then at Southern California Edison about 4.8 billion worth of debt throughout that.

Okay. And I just wanted to clarify one point on the dividend, and that's I just -- I think I inferred from your comments that you'd be using any dividend from primarily to pay dividend at the parent level. Is there a chance you could use some of the dividend for debt paydown at the parent level as well?

Theodore Craver, Jr.: We actually are very careful about how we look at this.

Mm-hmm.

Theodore Craver, Jr.: The dividends from Southern California Edison should any be paid to the holding company would really represent cash to the holding company and there are decisions that management and ultimately the board would have to make regarding restarting the dividend. John's provided quite, I think, a thorough explanation of what our goals are around that side.

In terms of using any of that cash that would then be sitting at the holding company for anything other than paying debt maturities and expenses at the holding company, would really represent an investment. So if we were to take that cash and put it into any of our other subsidiaries that is a separate investment decision that we would look at at the holding company level. As really what is the highest and best use f the cash and what provides really the best opportunity to increase shareholder value?

Okay. And I guess at this point moment, to go to that optimal cap structure, 48% what would that imply for the size of the dividend or the size of the equity to be removed?

Theodore Craver, Jr.: I think actually what you are referring to is there's the excess --

Excess equity.

Theodore Craver, Jr.: Of the equity above the authorized level.

Right.

Theodore Craver, Jr.: That really would depend on when Proact is fully recovered. But it's -- it would represent hundreds of millions of dollars.

Okay. Thank you very much for your time.

Theodore Craver, Jr.: Welcome.

Our next question is from Scott Pearl from Credit Suisse First Boston. Go ahead, please.

Good afternoon.

Theodore Craver, Jr.: Hey, Scott.

On your income statement, your fourth quarter income statement, there's a rather large tax benefit, and I'm just trying to understand how that works its way into the earnings of the subs that were broken up. The $91 million tax benefit?

Theodore Craver, Jr.: Hang on just a second here. Probably take us a little while to put all of those chunks together. I'll tell you what, Scott. Can we table that for a second?

Sure that's fine.

Theodore Craver, Jr.: All of our experts here are scrambling around getting pieces of paper.

Sure that's fine. I was wondering if you could provide any update on timing for Turn from, I guess, what Steve has given before, sort of April oral arguments and decision 60 to 90 days there after. Is it still that same type of time frame?

Yes, I guess so. Our briefs are now filed. The [Amicus - Amici] have an opportunity to file briefs on March 12th with replies on April 1st. We do not have an oral argument calendared yet. However, the court did give us calendar preference, so I would expect that we will see an oral argument calendar probably sometime late April, May time frame and then 60 to 90 days afterwards for a decision. Although, that's entirely in the discretion of the court. It could be sooner or later.

In the 60 to 90 days, that's consistent with practice for California Supreme Court?

Yes. The fact that they gave us calendar preference is an indication that they understand the magnitude and seriousness of the case. And I would expect that they will act expeditiously on a case, having given a calendar preference, a case of this importance. But you can't predict that really. It is entirely in their discretion.

Okay. Okay. And on the Southern California Edison cash balance, you mentioned that you just completed the exchange on the variable rate notes which I guess frees up $1 billion from your previous forecast for expenditures? I was trying to reconcile the --

Theodore Craver, Jr.: That's actually about 966.

Or the 966. Just sort of the pluses and minuses to the roughly 400 million to now 1.1 billion. There's a couple of billion that go for additional debt paydown or?

Theodore Craver, Jr.: Yeah, there's a lot of components here, too, because we're just giving you a year end cash balance.

Mm-hmm.

Theodore Craver, Jr.: And I think I mentioned when we did the third quarter earnings, we said 650 million. A few weeks later when we provided 2003 earnings, we modified that to 400 million. A lot of -- particularly Southern California Edison, these numbers do swing around a fair amount in large measure due to tax issues and tach tax timing differences. So there's always the certain amount of that undercurrent. But I think the principal points are really the ones that we outlined for you in terms of what's happening on the maturities and what the effect of the extension of a large portion of the notes coming through in November.

And I guess so I understand, when you are talking about the regulatory cap structure, you are just talking about debt exclusive of reproduction bonds of the Proact specific debt of which the variable rate notes have been a part of.

Theodore Craver, Jr.: There's roughly $2.3 billion. About $2.3 billion and hen the rate reduction bonds.

1.2.

Theodore Craver, Jr.: So those two components are excluded. That really represents the division between the financial ratio coming in around 50% leverage versus the regulatory ratio coming in around 34%.

And debt isn't included in that calculation, correct? I'm sorry, cash. The cash balances is separate. That isn't a net debt number, right?

Yeah.

Theodore Craver, Jr.: And Scott, I think we have an answer for you on this other thing.

Okay.

Scott, your question was with respect to the recorded tax benefits for 91 million dollars for the quarter ended?

That's right.

Okay. There's several things there. The principal factor is a favorable adjustment due to an IRS tax settlement that was brought into earnings benefit that reduced our overall accrued taxes. And then there was increased utilization of tax credits that provided benefits.

Do you know how those would break up? I'm just trying to understand as far as what you reported as core earnings for the quarter in each of the segments, utility, EMEs, capital, how those broke out to just, you know, get an understanding.

Theodore Craver, Jr.: What I'd like to do is be able to do that with you perhaps offline.

Sure no, problem.

Theodore Craver, Jr.: Just in the interest of time.

Okay.

Theodore Craver, Jr.: Thank you.

Stephanie, I think we'll probably take one more question and then we're going to be past our time.

Okay. Our last question comes from Patrick Collins of [Missoulo].

Thanks. You indicated that your first hydro-entity had 1.70. Based on my calculation that's an EBITDA of 63 million sterling. Did first hydro pay dividends.

Theodore Craver, Jr.: First of all, the 1.7, as I qualified, that's unaudited.

Right.

Theodore Craver, Jr.: In terms to answer your question, hang on one second.

If so, how much of a dividend was paid.

Go ahead.

Theodore Craver, Jr.: There was no dividend end paid in 2002.

Are you expecting to pay a dividend from that entity?

Theodore Craver, Jr.: Patrick, we do show a modest dividend first hydro.

Of how much, I'm sorry?

Theodore Craver, Jr.: I don't have those numbers, but it was in the 20 million to 30 million dollar range.

$20 million to $30 million range? Is that what you said?

Theodore Craver, Jr.: Yes.

And when would that be payable?

Theodore Craver, Jr.: The number, the coverage ratio of the audit should be completed sometime probably in March, and the after that is completed, and we obviously look at our liquidity throughout the year and we'll at that point make distributions at either probably later in the spring or potentially additional ones later in the year. Just to confirm it was 25 the number we projected last fall.

Okay. Thank you very much.

I'm sorry, we're just going to -- it's actually 47 for first hydro. The 25 was the other number. Okay. With that, I think we'd like to thank you for your participation. And if you have additional follow-up questions, please direct those to Jo Goddard and her staff at investor relations, and we'll be able to answer those questions for you. Thank you.