愛迪生國際 (EIX) 2003 Q4 法說會逐字稿

Hello, and welcome to the Edison International 2003 financial results conference call. This call will be available for replay at the following numbers: 877-693-4277 and also 402-220-0042. You will need to use the pin code 9701 to access today's call.

For your information, this call is being recorded. We want to advise you also that Edison International is holding a simultaneous webcast of this conference call. This will be on the company's website in a listen-only mode for interested parties. When the won conference begins you will be on a listen-only, and there will be a chance for questions and answers at the end.

If addition, if at any time during the conference you are in need of assistance, press star zero for a conference coordinator. Thank you, again, for your patience. The conference will be beginning shortly. Excuse me.

At this time, I would like to introduce your host, Mr. John Bryson, the CEO of Edison International. Thank you, and go ahead Mr. Bryson.

Thank you and good morning to all of you. We appreciate your participating in this call. As you would expect , we plan this morning to review our full year 2003 earnings, and we will provide also some updates on Edison International and our principal operating companies.

We will follow the usual format of providing opening comments and then responding to your questions. To start, let me ask Ken Stewart to read our rights.

During this call, we will make forward-looking statements about the financial outlook for Edison International and its subsidiaries, and about other future events. Additional forward-looking information also may be available on our website www.edisoninvestor.com.

We believe these statements and this information to be reasonable, and well founded; however, actual results could differ materially from current expectations. We set forth important factors that could cause different results in Edison International's 2002 Form 10-K and subsequent 10-Q and 8-K reports. We encourage you to read those reports carefully.

All right. Thank you, Ken. I'm pleased to report that Edison International performed well in 2003. First, our earnings performance was strong. This morning, we announced that Edison International recorded consolidated earnings of $821 million, or $2.52 in earnings per share. Those earnings for the year 2003 substantially exceeded our initial targets on a consolidated basis, and also at each of the operating companies.

Even more importantly than the earnings, a number of critical objectives for restoring the company's financial health were met. We started the year with several challenges; three of those were of paramount importance.

First, we had to validate and complete the recovery of the cost we incurred in buying wholesale power during the California power crisis. And that, has most of you know, has come to be known by the acronym PROACT, in the world of acronyms, in our world of regulation. PROACT recovery was number one.

Number two, we had to address the maturing debt at Edison Mission Energy. And third, we had to position the company to resume common stock dividends, which had not been provided since the power crisis. Good news. We accomplished all of those primary objectives and also many more.

The result was a very good year for the company, and also for our customers. And with the resumption of dividends and 85% increase in the stock price for the year and our benchmark bonds recovering above par, 2003 turned out to be an outstanding year for our investors. We are particularly pleased about that.

The efforts and the successes of 2003 have created in turn a solid platform for 2004. We are not yet in a position to provide specific earnings guidance for 2004, principally due to the pending general rate case decision at Southern California Edison. However, as a general statement, we expect 2004 to be the year in which we do two things: we complete the remaining financial recovery work. and at the same time, we begin making some important investments in growth.

First, regarding the financial recovery work at Edison Mission Energy, we need over the course of the year to execute the four point restructuring plan that we described in our call last November. That execution is well underway, but much remains to be done. And then at Edison International, the parent company, we need to continue to pay down the debt held there.

With respect to the growth opportunities, Southern California Edison is expecting to make important investments in electric reliability, and Edison Capital is planning to start making investments again in affordable housing and in electric infrastructure, ending a three-year hiatus there.

When we provide our 2004 earnings guidance, which hopefully we will be in a position to do within the next month or two, we will provide more specifics on the planned investments and on the expected impact on earnings, capital, and growth.

Now, let me turn to two current items. First, the Southern California Edison general rate case. Last week Southern California Edison received an administrative law judge's proposed decision in this 2003 general rate case. The proposed decision recommended that the commission adopt only $15 million of the $251 million revenue increase that we had requested. Southern California Edison and others are responding to the proposed decision during the current comment period; that is a 30-day period.

Yesterday, on a particularly important opportunity to address the commission, Al Fohrer, the Chief Executive Officer of Southern California Edison, presented our views to the California Public Utilities Commission in summary oral argument before the entire commission. The next step should be on March 16th. The full commission then is scheduled to vote on the proposed decision, which means they would either modify it at that time or accept the decision.

If an alternate decision is proposed by a commissioner, a final decision could be delayed into April. I'll say briefly that we are very disappointed with the proposed decision, and we are working hard and will work hard over the next weeks to make persuasively the case that important components in our revenue request are absolutely critical to serve our customers and to build and maintain reliable electric service.

In one other very important item --some of you will have seen announcements of it -- we have an auction at Southern California Edison to acquire the rights to build a very important new power project known as Mountainview. That is a project that had been begun by another company, but during the power crisis they were unable for financial reasons to complete the project and walked off it.

This is a special opportunity to build a new 1,000 megawatt --1,000 plus megawatt -- state of the art, natural gas fired power plant in the rapidly growing Inland Empire area of our Southern California Edison service territory.

The state of California badly needs new generating facilities, and we viewed the project as an opportunity to acquire this partially built -- about 10% built -- facility on a very cost-effective basis to serve our customers. But we also made it clear at the outset that we would be able to make this acquisition; that is, exercise the option to purchase and build. We would be able to do that only with a very unusual approach, and that is regulatory approvals from both the California Public Utilities Commission, and also from the Federal Energy Regulatory Commission.

We received the approval from the California Public Utilities Commission last December after hearings and extensive proceedings there, and yesterday, we received the good news that additional approval was being granted by the Federal Regulatory Energy Commission.

I say conditional approval. We have read carefully the decision. I'll say something briefly about the conditions here this morning, but I will also say at the outset that we will need further work on these conditions. But let me address them, and then give you a conclusion.

The conditions involve the Federal Energy Regulatory Commission ordering that the power purchase agreement that is part of this project be modified to more explicitly reference the Federal Energy Regulatory Commission uniform system of accounts, and also to clarify for confirmed, certain future filing obligations under the PPA, the purchase power agreement.

In addition, Federal Energy Regulatory Commission has modified the proposed cost recovery for certain fixed and variable O and M cost categories. We are still in the process of reviewing the FERC order, and there will likely need to be some additional steps taken, including regulatory ones, before we can definitively proceed.

But it does appear that the FERC ruling, coupled with the earlier PUC decision, sets the stage for Southern California Edison to move forward on this vitally needed power facility. And that will certainly be a landmark event, both for our company and for meeting the needs of our customers.

Now, let me just say this. There may be questions that you have about further details on the conditions and the FERC order yesterday, and we just are not yet ready, having just received the order yesterday and having begun to work it through, to give further detail on that.

All right. Let's go back to summary, and then I'll turn this to Ted Craver for additional comments. But, we accomplished a great deal in the year 2003. We created a strong base on which to build in 2004.

As usual -- and those of you who have been with us for some years know this is always the case -- but as usual, we have a lot that needs to be delivered again during 2004, but we are encouraged. We see a great opportunity to maintain our momentum, and thereby to provide and continue to provide significant value to you, our investors. Let me, with that, complete my summary and turn this over to Ted Craver to provide additional information on 2003, before we open the call to your questions.

Thank you, John. Let me first pick up with 2003 earnings. My remarks are going to pretty much exclusively focus on full year 2003 results, rather than the fourth quarter. We did, by the way, have an excellent fourth quarter, but you will find all details in our press release. And after the earnings discussion, I'll provide an update on EME's cash and liquidity situation, as well as progress report on the EME restructuring plan.

We reported total consolidated earnings per share of $2.52 for 2003. Although this represented a decline of 79 cents a share versus last year, it really was the result of a one-time gain recorded in 2002 of $1.47, which related to the restoration of SCE utility retained generation assets written off during the energy crisis.

If we exclude this one-time 2002 benefit, as well as exclude discontinued operations at EME and Southern California Edison, and exclude a charge relating to change in accounting principles, the core -- or operating earnings -- increased at Edison International by 37 cents a share on a year-over-year basis.

There are a number of year-over-year variations at the parent and all three subsidiaries, which I'll cover in a few minutes here, but this 37 cents increase is virtually equivalent to the increase in Southern California Edison's operating earnings.

Let me turn first to Southern California Edison. As I said, operating earnings increased 38 cents year-over-year. Again, the core,or operating earnings, exclude the one-time gain in 2002 of the $1.47, and also exclude a gain in 2003 of 15 cents for the sale of Edison Terminal and Pipeline Company.

As we reported in previous quarters, all of this increase relates to the net favorable resolution in 2003 versus 2002 of several regulatory proceedings. There are three major ones that we have talked about in the past, and the first being the CPUC decision on cost allocation of certain overhead costs between state and federal regulatory jurisdictions. This is actually a proceeding that began in 1998, and amounted to 24 cents EPS. Secondly, the 1998 FERC rate case, which resolved several outstanding tax issues, that was worth 23 cents EPS. And the final disposition of the PROACT account, which amounted to 15 cents.

These three positive one-time items, which total 62 cents, plus 14 cents in other lesser one-time positives in 2003, minus 37 cents of 2002 one-time items not repeated in 2003, all nets to an increase of 39 cents a share and favorably resolved one-time regulatory items. Again, absent these one-time favorable items, earnings on a year-over-year basis at SCE were basically the same.

However, this still reflects strong operational performance since, really, both the company's general rate case -- while that's pending, the impact is unknown, but we expect it to be greater than zero -- and the recognition of our performance-based rate making awards, which is approximately 4 cents, have both been delayed into 2004, and therefore not part of the 2003 earnings picture.

At EME, reported earnings in 2003 were 6 cents a share, and core, or operating earnings, were 8 cents a share. Our operating earnings there exclude the impact of discontinued operations at the Lakeland project, and also exclude charges for changes in accounting related to the implementation of [FAS 143] on asset retirement obligations. The 8 cents in operating earnings in 2003 represents a decline of 18 cents on a year-over-year basis.

However, incorporated within that operating earnings number are various one-time write-offs in 2002 totaling 15 cents, such at turbine costs and resolution of Chicago in-city obligation, and one-time asset impairment charges in 2003 amounting to 57 cents, such as for the Illinois [Peakers] and for the Brooklyn Navy Yard. If we exclude these one-time items, EME operating earnings, year-over-year, increased 24 cents a share from 41 cents in 2002 to 65 cents in 2003.

On the operating side, some of our major projects in the Americas region, particularly Homer City, the Big Four plants, Four Star, and Sunrise showed significant increases compared to 2002 results, as did some of our more important Asia region projects, such as [Piton] and Contact.

At Edison Capital, our core -- or operating earnings -- were 17 cents a share in 2003. This represented an increase of 7 cents a share year-over-year with the primary reason for the increase being the absence in 2003 of a one-time charge taken in 2002 for the write-off of the United Airline leases.

And at the parent, the parent recorded a 24 cents share loss in 2003, primarily reflecting interest expense associated with parent company debt. And this represented a year-over-year improvement of 11 cents, primarily due to the absence in 2003 of one-time write-offs taken for businesses EIX exited in 2002.

Let me now turn to some additional information on Edison Mission Energy that we've been traditionally providing to you. I would like to start by providing some of the price and volume data for the major merchant plant operations at Midwest [Gen] and Homer City.

First, the merchant portion of Midwest [Gen]. I'm just going to refer to the coal plant merchant activities there since, really, [Collins] and the [Peakers] de minimus. EME has 2,952 merchant coal megawatts, which in 2003 produced 13.6 terawatt hours. The average realized price for merchant sales during the year was $26.57 per megawatt hour, which was higher than the average 24 hour around-the-clock, or flat price, of $25.13 observed in the [into Com Ed] market.

At Homer City, where really all of our coal capacity is uncontracted or merchant, EME sold a record amount of 14.4 terawatt hours, which represented a 19% increase over last year. The average realized energy price was just over $34 and compares with a $35 yearly average flat energy price observed in the PJM market.

We have also been giving you generalized updates on where we stand with our hedge programs at Midwest [Gen] and Homer City; emphasis being on generalized. As of mid-February, Midwest [Gen]was approaching the 50% hedged neutral position for 2004, with average hedge prices a couple of bucks megawatt hour above current flat energy prices.

And Homer City is in the neighborhood of two-thirds hedged for 2004, which is pretty close to what our hedge target is at Homer City. The average hedge price at Homer City is pretty close to the current flat energy prices in the market.

Turning to some of the cash and liquidity items at EME. Year end 2003, the cash balance at EME was $179 million. This is really pretty much right on the forecast we gave you last time. We also have available 145 million under the EME corporate revolver for total liquidity of 324 million.

At year-end, the cash at Midwest [Gen] was 37 million, and this is really because we applied about 500 million in cash there to paying down debt in December. The interest coverage ratio for EME corporate -- which is in a sense a version of a funds flow from operation type of measure and it's embedded in some of our covenants and corporate bylaws -- governs the dividend test for dividends between EME and Mission Energy Holding Company.

That ratio was 2.45 times at year-end; this compares with 2.36 times at year-end 2002, and is above the covenant threshold of 2.2 times. Another ratio that's incorporated in certain covenants is a recourse debt to recourse capital ratio, and at year-end 2003, that ratio was 59.8% versus 62.2% at year-end 2002, and well within the required 67.5%.

There also are some important ratios governing project distributions which we've been giving you. At Homer City, the senior rent coverage ratio at year-end was 4.68 times, versus the distribution test level of 1.7 times.

At EME Funding, which really is the so-called Big Four projects, the ratio was 2.55 times at year-end versus a 1.25 test. And although not yet finalized, it looks like First Hydro will be approximately 1.58 times at year-end versus a 1.2 times test level. So, really, all of these ratios are in good shape.

And finally, in an attempt to anticipate some questions, I'dlike to give you a little update on EME restructuring plan that we officially -- that we announced back in November. We have now officially launched the international sales process -- international asset sales process -- at the beginning of February, and we expect to take initial indication of interest bids at the end of March and then short-list the bidders that we would invite into the final round for detailed due diligence work, leading to the taking of final bids in the second quarter, and perhaps being in a position to announce the buyer or the buyers by the end of the second quarter. Obviously, the exact timing of each of these events is subject to change, but these are currently our target dates.

With regard to the Midwest [Gen] financing, part of the restructuring plan. All I can really say about the timing is what we said back in November, which was we intend to accomplish the refinancing well in advance of when the debt matures in December.

With that, Maggie, I think John and the rest of the crowd here are ready to take questions.

Okay. Sounds great. At this time we will be taking your questions. If you would like to ask a question, please press star followed by one on your phone. If you would like to remove that question, press star followed by 2. And at this time, we do have a question from Paul Fremont from Jefferies. Go ahead, please.

The first one is just a technical question. The first tax benefit in the fourth quarter was not quantified in the press release. Is it possible to get a quantification of that?

And then the second question is, although you're not giving guidance on next year, it looks if I sort of add in -- or add back the one-time items, that Mission Energy was sort of extremely profitable in 2003 versus, sort of, flat type of guidance. Can you discuss at all the drivers for year-over-year changes that we should expect in '04?

Let me take care of the first one, Tony. Do you --

Yes, 60 million or 18 cents is the tax adjustment.

Did you catch that, Paul?

60 million, or 18 cents, right?

Yeah. In terms of EME, yes, I think your conclusion is right. If you strip out the one-time asset impairment charges, which are principally around the Illinois [Peakers] and the Brooklyn Navy Yard sale, the underlying earnings at Edison Mission Energy -- the underlying operating earning at Edison Mission Energy -- really were significantly above the original expectations at the beginning of the year.

I listed off some of the key projects that contributed to that. In the Americas region in Homer City, the Big Four, Four Star, Sunrise, and then in the Asia region, [Piton] and Contact particularly stick out. Paul, we're going to really have to stay away from 2004 type comments at this point until we're really in a position to provide guidance,.

But, you know, it is a large portfolio at Edison Mission Energy. Any one year, there are projects that perform better than original expectations and others that perform less well. That really comes from the overall size of the portfolio we have there. I don't see any reason why it would be different on a go-forward basis.

Okay. And the 18 cents or the 60 million, that's just for the quarter, right, the fourth quarter. That's not for the year?

Correct.

Thank you.

Thanks, Paul.

At this time we have a question from Tom O'Neill from Lehman Brothers. Go ahead, please.

Good morning.

Good morning.

Just had a quick question on the capital spend schedule for Mountainview.

Yes.

What that might look like in terms of '04, '05, '06 spend.

Again, I think John outlined we're going to have to be ,really, pretty closeted at this point around those kinds of details for Mountainview. And we have a threshold issue as to whether this is -- we're going to be able to see our way through all the regulatory pieces.

We're optimistic about that, but I think let us take first steps first. When we know where we are on those points, we will be coming forward with all of the earnings and capital requirements around the project.

Okay. Is it possible to describe the regulatory pieces that you're specifically concerned with, or is that what you don't want to touch on?

I think, Tom, that we set out as much as we can at this point. We read the order with care. We've had the order for less than 24 hours now, and so that's the reason I tried to give the detail we could, and also to kind of give an overall sense on our part. And I think it's a well grounded sense; that not definitive that we can say we can proceed, but we feel that it is probable that we can get these items worked out.

It really goes primarily to small differences that could turn out to be important, but small differences, and all at reasonably technical approach in the FERC order and in the PUC order. And the larger picture here is that both agencies find that this is a needed and valuable project and one that both approve. And the approvals are -- I would say in the large picture here -- the important thing.

It is an unusual approach, of course, to ask -- in fact, I don't know of other cases in which power project has been based both on state and federal approvals. And as the FERC order read yesterday, correctly, it grows out of a sense on our part that we couldn't afford to have a possible difference between the California approach and the federal government approach; that had hurt us badly during the power crisis. And to see them come together in nearly every particular, and to work effectively together with the FERC building on the record done at the PUC, is a really positive development; a special development.

So, I would say Ed's words are right. We are optimistic, but we just can't go into further detail at this point. We'd be way ahead of what we can understand and work out now.

Okay. And then just a final question for Ted. Is it possible to break EME earnings into the BV assets that are for sale on the non-BV?

Yeah. We'll have a lot of that information when we release the K. Always, a little bit of the tension here is how many numbers can I can throw at all you guys and still have is being meaningful call. I think probably the best place is do that is when we go through the disclosures in the 10-K. We'll have quite a bit of information on a project-by-project basis.

Okay. Thanks.

Um-h'm.

At this time, we now have a question from Michael Goldenburg from Luminous Management. Go ahead, please.

Good morning, guys. Congrats on a good year.

Thank you.

I wanted to as you, you mentioned that you are planning to resume investments into affordable housing. Did I hear that right?

Yes.

I mean, what is the approximate amount we should be thinking of? I know you don't have exact numbers, but just ball park, what size of investments are we talking about here?

Yeah. Again, I'm sorry, but we're going to have to pull back from that. We're going to provide that kind of information when we give our 2004 earnings guidance. But it would be generally in line with the types of investments we've made in prior years before we had to turn off the investment engine there.

Okay. And 2004 guidance, when are you planning to release that? Do you have a target date?

It's really dependent on resolution of the general rate case that Southern California Edison is working on with the PUC. So it could be as early as the middle of March, or as John indicated in his remarks, it could well stretch into April.

So, should we say, like, a week after your general rate case is confirmed? Something like that?

Maybe roughly in-line with the time when we release our first quarter earnings; end of April, that type of time frame.

Okay. And just one more thing. I didn't hear the terawatt's hours out of mid Midwest [Gen] and Homer City. Could you please repeat those, and maybe say what those were in 2002?

Let me give you the 2003 for Midwest [Gen] again; 13.6 terawatt hours, and 14.4 in 2003 for Homer City. It's really not -- we didn't really have any merchant coal to speak of in 2002 at Midwest [Gen], and I gave the 19% increase at Homer City on a year-over-year basis. So the 14.4 is 19% above what it was in 2002.

13.6 is just out of the merchant portion?

Just the merchant coal.

Okay. I think that's it. Thanks a lot.

You're welcome.

At this time, we now have a question from Brian Chin from Smith Barney. Go ahead, please.

Hi. Can you comment on how much of your coal is hedged, and at what prices for Midwest [Gen] and Homer City? Thanks.

Yeah. I did actually give that in the opening remarks, and we only give generalized information, but we are approaching the 50% hedged position at Midwest [Gen], and we're in the neighborhood of two thirds hedged at Homer City for 2004. And the average hedge prices are a couple of bucks a megawatt hour above what the current flat energy prices are at Midwest [Gen], and pretty close to what the current prices are at PJM.

I was talking about the coal fuel prices actually, not the power prices.

Oh. The coal fuel prices, I'm sorry. Hang on just one second. Yeah. Actually, we don't disclose that information and we haven't previously done that in the past. And so, I think that's really where we have to stay at the moment.

Any general ballpark in terms of half, the majority?

I think we've generally given some indication that you can assume at Midwest [Gen] it's in the neighborhood of a dollar a megawatt hour. MMBTU, excuse me.

Okay. Thank you.

At this time, we now have a question from Craig Gilbert at Bank of America Securities. Go ahead, please.

Yes. Good morning. Just a couple of questions. I was wondering if you could give me the current book value of First Hydro?

And then, I was also looking at a presentation from November of this year, and specifically the overhead and other item for Edison Mission of a cash use of 152. I was wondering, how much of that is recurring and what kind of comprises that cost?

Go ahead, Mark.

The general and administrative cost represents the regional overhead that we have in our operations as well as in the corporate center, and includes the cost that we do to execute our trading and marketing strategy. And that is largely recurring.

There is some costs that we incurred in 2003 related to restructuring, which we will incur some in 2004 as we implement our plan.

Can you give me breakout of how much of those costs were for restructuring? I'm just trying to get like a run rate number.

That information should be in the 10-K when we file it in a couple weeks.

Okay. And the book value of First Hydro?

We don't -- we haven't been providing those kind of numbers.

Okay. Thank you.

Your welcome.

At this time, we now have a question from Michael Lucas from Appaloosa Management. Go ahead, please.

How's it going, guys. Great quarter. One question I have is I'm trying to understand when you say where the current market is, what's the reference price for that?

When you said Midwest [Gen] is $2 above the current flat energy, can you give me a reference point what the current flat energy you guys are saying is? The same for Homer City?

The current price for Midwest [Gen] is around -- hang on just one second. Around $25 at Midwest [Gen], and the current forward prices for balance of 2004 is around 36 and a half dollars at Homer City.

Okay. So it looks like Homer City is going to be flat pretty much year-over-year and Midwest [Gen], the same thing. Looks like 27 bucks; is that about right? You said $2 above that for 50% of the power.

We're not really drawing any conclusions here; we're just giving you what our current status is on the hedge --

Fair enough.

-- and there's also pieces that are unhedged that are a matter of what the actual market is when we go and sell that.

Good. What about the [put] on the MEH bank that you guys envision making this [put] coming up?

Well, that's not really our election. It's the bond holders election. So I think we have described in the past that for planning purposes, we assume people are going to put the full amount to us. That's what what we have to try to be prepared for from a liquidity standpoint.

Okay. And as a shareholder of EIX, I'm trying to think, do you guys have a different view now of the assets of EME than you did, let's say, 6 months ago? In terms of could it be accretive to the enterprise value of the parent?

I would say our views today are really just what they have been for some period of time. Edison Mission Energy has good assets, and a very, very capable team of people, but has had and continues to have too much debt.

So we will -- we plan to stay exactly with the plan we've had, including the four point recovery plan and to execute against the plan. And we do not intend to put further Edison International money into Edison Mission Energy.

The people at Edison Mission Energy are doing very nicely managing through this process. And you followed it closely, but there is no change in policy direction here at all.

Okay. And lastly, do you guys have a view on what the tax benefits might be in '04 for EMA?

Again, we're going to have to stay away from providing any kind of outlook on 2004 numbers.

Okay. Thanks, guys. Good quarter.

You're welcome.

At this time, we now have a question from Kit Konolige from Morgan Stanley. Go ahead, please.

Good morning.

Good morning, Kit.

I guess this would be for Ted. Could you just reconfirm from -- I think I heard you say that when you net the -- this is at the utility at [So Cal Ed]. When you net the one time items from '02 and the one-time items from '03, that '03 reported earnings for [So Cal Ed], the 268, had a net 39 cents of positive items in it; is that correct?

That's right. There have largely been positive resolutions of regulatory items, but we had those in 2002 as well as 2003. So, when you're looking at this as a year-over-year increase, that roughly 38 cent operating earnings increase on a year-over-year basis is pretty much fully explained by the 39-cent positive one-time regulatory items that were resolved.

So I think the numbers I gave you were 62 cents for those three items that I called out specifically in 2003.

Um-h'm.

Plus another 14 cents of other, kind of lesser one-time items that were resolved positively in 2003. And then minus the 37 cents of positive one-time items resolved in 2002 that are not repeated in 2003. That gives you the net 39 cents.

Okay. So if I subtract the 39 cents from the 268, then I get not necessarily an ongoing number, but some kind of operating earnings per share number for [So Cal Ed] for '03?

Yes. You have a number that does not include -- once you neat out -- that does not include the one-time items.

Right. And then how much was [I-Chip] in '03?

Let me give it to you in an EPS context here. 38 cents.

38 cents. Okay. So if I subtract that, then I get -- so does the subtraction of that would then give me $1.91. Does that $1.91 represent anything than more than just well, this is what we earned this year and we'll see what we earn next year?

Well, I'm going hop right over it and say I can't speculate with you at this point, Kit, about 2004.

All right. Okay. Thank you.

You're welcome.

At this time, we have a question from Vladimir [Yelosavchek] from [Longacre] Management.

Good morning, John and Ted. Very nice quarter. Great year. Congratulations.

You mentioned, Ted, at the beginning of your opening remarks, that Edison Capital would be making certain types of electric infrastructure investments. Can you elaborate on what you mean by that? Do you mean transmission? distribution? generation?

Hello? Hello? Hello?

I'm sorry here, Vladimir. We had a little problem here with our telephone. Actually, we are just trying at this point to give you the sense that one, really starting in late 2000 all the way through 2003 at Edison Capital, we have not been making any new investments.

We have really just been trying to husband cash and make sure that we are going to be able to meet all of the debt requirements -- debt service requirements -- both at Edison Capital and up above at EIX.

What we are signalling is we are going to start really looking at making new investments in 2004, and the two principal areas are going to be in affordable housing and electric infrastructure projects. We are really not, at this juncture, able to go a lot more into detail.

We will provide that when we provide our 2004 earnings guidance, when we give you some targets that we have on the amount of investment that we would hope to make here in 2004. But those are the general areas, and the real difference is we haven't been make any investments for the last few years at Edison Capital, and now we intend to restart that.

Understood. And can you give us an update of the potential timing of the refinancing -- Stage 2 of the refinancing -- with the Midwest [Gen] debt?

Not anymore than what we said back in November, which is we expect to do the refinancing "well in advance" of the December maturities.

Right. Would that include the Collins debt or just the December '04 maturity?

Well, all of that relates to Midwest [Gen], and our real goal here is to stabilize it. The [traunch B] at Edison Mission Midwest Holdings, or EMMH, that matures in December and 774 million of Collins lease debt, for all practical purposes, matures in December as well. So, we really need to stabilize all of those components and would expect to do so well in advance of those December maturities.

Understood. And with respect to planning for the MEHC put, what other types of actions need to take place in order to obtain amendments or board approvals at your subsidiary entities to enable cash to be dividended up to MEHC?

Well, we have dividend tests that are embedded in some of our credit facilities at the EME corporate level. We also have what are effectively some dividend restrictions or tests --distribution tests -- embedded in the bylaws as part of the [ring fencing] that was done a few years back at Edison Mission Energy, and those need to be addressed.

Also, of course, it is a matter of a Board decision at Edison Mission Energy, and they have to take into account more than just distribution tests and so on, as to whether it's appropriate to make a dividend up to a Mission Energy Holding Company with the fiduciary duties to the creditors at EME and [inaudible]. So all of those things have to be dealt with in order to get dividends up to Mission Energy Holding Company.

We've said previously that if all of the 100 million MEH put-right is exercised, that there would be insufficient cash at Mission Energy Holding Company to satisfy that, and it would require a dividend, certainly if the full 100 million came through, it would require a dividend of a little less than 90 million to come up from EME to Mission Energy Holding Company to meet that put.

Understood. Understood. Can you disclose the amount of cash dividends you received in '03 from unconsolidated subsidiaries?

If we have it readily here. I mean, it certainly will be in the 10-K.

Of course, yes.

I think rather than us fumbling around here, probably the better thing to do is either give us a call after this call or hold off until the 10-K comes out.

Understood. Just last question here. Can you update us on any developments in your international asset sales?

Not beyond really the ones that I mentioned. The process is launched and we have a targeted time frame for receiving initial indication interest bids at end of March, and perhaps would have the entire process wrapped up by the end of the second quarter.

Understood. Thanks a lot, Ted. Good luck in the rate case, and I think we're all looking forward to your outlook call.

Okay. Thanks.

At this time, we have a question from [Ed Mali] from Murray Capital Management. Go ahead, please.

Thank you. Just a point of clarification on the international asset sales that you made reference to. I guess in a previous presentation, you talked about selling some or all of the assets. Currently, are you in fact marketing all of those assets for sale?

Yes.

And in the 2003 results, have those been reclassified as discontinued operations or are they in the continued operations numbers?

You mean, are the international assets part of continuing operations?

Yeah. Are they classified as continuing operations or discontinued in the '03 results?

No, they're part of continuing operations.

So then, could you give us a sense of the revenue and/or operating income base of those assets that are earmarked for sale right now?

Again, I think it's really best for us to do a thorough job of that, which we will be doing in our 10-K disclosure as opposed to trying to sift through all the various pieces here on this call. But we will have that information available.

Okay. So that will be broken out in the K. And then for '04, since the sale is pending, would you anticipate then that you're going to reclassify these as discontinued operations if they don't get sold before the end of the first quarter?

I think it is highly unlike that that would be the case. We have announced that we are seeking to sell some or all, but, of course, you don't know whether that's going to take place, and as a result, it will stay in continuing operations until we have a resolution on that point.

Okay. Thanks very much.

Thank you.

At this time, we have a question from [Vick Kaiton] from Deutsche Management. Go ahead, please.

Yes, thank you. Could you clarify that this Mountainview -- is there a deadline, like, February 29, that you have to decide go/no go, or what's the status of that?

We have the option to purchase expires on February 29th, Vick. So, that's a crucial date here.

So you need to make up your mind in the next two days, or do you need to get an extension to clarify the regulatory issues you mentioned?

Well, Vick, at this point at the said at the outset, I think we can't answer further questions. I mean, we are working intensely to sort this through, and we thought the most helpful thing would give you this overall sense of reasonable confidence that we have that it can be sorted through. But we don't want to say definitively that it can.

The large concurrence between the federal and the state regulatory bodies is the key element here. And I guess it's our best judgment that they don't intend to let small -- call it fairly technical -- differences and rate making between the two stand in the way of that. And that's about as well as we can do. We don't hold the folks on the other side, [Interjin], that have sold us this option, control the question of whether the option could in any way be extended.

Okay. The other question was that these international assets for sale from EME, would they provide sufficient cash to make up for this cash need for the MEH, for other purposes, or is it too early to comment on that probably ?

It is too early. Heck, we're just starting the process.

Right.

These international assets, we believe, are very valuable, very strong assets. Most of them have power purchase contracts. They will be looked at very, very closely in the market and others will term determine what they see as the value.

Vick, in any event, it wouldn't be closed in time to meet the put. The put really has to be satisfied by July 2nd I believe the date is, and any of the sale of the international assets aren't going to be closed and cash-in-hand in that time frame.

Thanks. And finally on this question about -- you said that the administrative judges proposed decision was very disappointing, and where are the major issues which could be tackled in the further review by the commission or by another proposed decision. Could you comment a little bit about what are the important area where you could get some further clarification or relief?

Why don't we ask Al Fohrer to comment on that.

Vick, the biggest areas are depreciation, which is about $135 million of the difference, and there's about $59 million in operating costs. Those are the two principal differences.

When we discussed the decision with the commission yesterday, we pointed out some obvious errors that assuming they would be corrected, would change the PD, the proposed decision, from 15 million to about 50 million. So we are working intensely to present our case in written comments in the next week or so, in hopes of getting an alternate.

Al, maybe it's worth explaining when you say obvious errors, I mean, I think we are literally talking about calculation errors. Not policy errors.

The two errors were they changed an operating income number of a charge that would be levied on customers for delinquent payment, and that was an $8 million difference. And instead of putting it in as a reduction in other operating income, which is a credit to revenue, they put it in as an increase. So that was an $8 million -- just arithmetic error, minus to a plus sign -- that would account for 16 million. And the judges decision said that there would be no change in the depreciation rates. And in the model the staff -- inadvertently in our opinion -- used some incorrect appreciation rates. So when you correct the last commission approved appreciation rates, that would add about $20 million in revenue requirements. So we believe the appropriate proposed decision would be an increase of $50 million, not 15, and that would be the starting point for hopefully an alternate decision to come out.

But that still leaves you with a fairly big hole between what you are asking, so how do you bridge that hole?

I think we presented a very strong case yesterday on why they should adopt what we put in. We will file comments next week, and then reply comments will follow. And we had a very good opportunity yesterday with all five commissioners sitting for about two hours listening to, I think, a good case on our side.

Al says that modestly, because he presented the case.

Well, good luck.

Even the rest of us think he did a heck of a job. I mean this is critical, Vick. There's no doubt about it; you point correctly to a big hole there, and it's vital.

Good luck to you.

Thank you.

At this time, we now have a question from Terri Shoe from JP Morgan. Go ahead, please.

Hi, going back to the issue of earnings for Southern California Edison, the 229 and even taking out [ICHIP], the 191,

am I correct that it's well above what you earlier thought? And the big increase, or relative to "normalized earn power", if you look at 11.5% on your equity base, what was that due to? And how should we view the normalized earning power of SCE? I think we used to talk about that, Ted, during the year-ago or many quarters ago, and that hasn't changed, has it,

because your rate base, can you review that rate base, equity base. What should we view as normalized earn power given an 11-12% ROE?

I'm going to have to kind of thread the needle a little bit here, because I can't talk about 2004.

Right, right.

But, yes, it's increasingly -- particularly post 2003, when there is no longer [ICHIP], so as we look forward, it really is increasingly a calculation of rate base, the equity rate, and the return on equity.

Right. Can you review that with us? What's the rate base? What's the equity base? Because even the 190 is a very high number, and why was it so strong last year?

Yeah, well, we can talk about 2003; I'm sorry, I just need to stay away from talking about 2004.

All right. Okay.

And I think we've kind of described it in a few large pieces. The first is the one-time regulatory items, which have been fairly substantial. What makes it a little complicated is when you do year-over-year comparisons, you've got to sterilize the base year as well as the current year. But we have had a significant number of one-time items. I pretty much called those out ---.

Right.

-- the 62 cents and the 14 cents.

But I thought after taking out everything, it was still a very high number. Am I not right? It's still $1.90?

Yeah. Again, if you are trying to understand 2003, it's the rate base component that we've talked about, --

Right.

-- it's the one-time regulatory items, and it's [songs]. I mean, those are really the biggies. There are some other lesser things that pretty much net each other out.

But can you tell us, like at year end, what was the rate base?

I think we can. Go ahead, Jim

Terry, Jim Scilacci. It's a little over 9 billion. And that's also going to come out real clear, as we get the general rate case decision it will establish a rate base level for two and 2004. So it will be clearer on that once the final decision comes out.

And I just want to clarify here, too, on the one-timers, when Kit was asking the question, he was talking about the 39 cents is the net change year-over-year.

Okay.

You have to look at the one-timers in the year alone. I think the math was getting a little bit sideways there.

It was rather confusing; that's why I asked.

62 cents plus 14 cents.

What is one back out.

62 cents, plus 14 cents gives you the 2003 number. If you're trying to understand a year-over-year increase, you also then have to subtract out the one time items that occurred in 2002.

Right.

So that's really how you get to the 39 cents.

But the relevant thing is, really, going forward, seeing what rate base is.

Right.

We know what the equity component is, and that is fairly straightforward. Can you ,again, remind me, when would be your next cost capital case?

Terry, we filed that in May for a decision at the end of this year for the end of 2005.

Okay. And when do you start hearings and getting recommendations, et cetera, et cetera, on that?

The application process -- we're already starting that now -- so, it goes in in May. And the hearings would follow a couple months afterward.

Okay.

You need to have intervener testimony.

Right.

Then you go into hearings. But the decision is, effectively, made at the end of the year.

Right. So we should get more news as we move into the summer?

That's correct.

All right. Thanks very much.

At this time, we have a Greg Schultz from SAB Capital. Go ahead, please.

Hi. I was wondering if you could tell me the cash in the hold co.?

At EIX parent?

That's right.

I don't have the exact number here in front of me, but it's about 950 million.

Thank you. And have you sort of come closer to a decision on what you view as the appropriate amount of leverage, if any, off the hold co. ?

Well, on a consolidated basis -- total consolidated EIX -- we've used the number before of in the neighborhood of 45-50% debt to total cap.

And what does that imply for EIX?

Well, I think it implies what we've said, which is that we intend to continue to reduce the debt at the holding company.

That includes preferreds?

We have a maturity in September, which we've stated we -- a five year note maturity --

Right.

-- which we intend to pay off in full.

And how do you sort of feel about the preferreds, and do you count those as debt?

We haven't said anything about the preferreds.

Do you look at those as equity in those ratios?

No, we really look at that as debt.

Okay. And on capital, which, you know, I thought had a pretty good year and you're going to invest further in that business,

one, do you sort of see those earnings growing? And two, in terms of the capitalization of that business, you know it's pretty heavily equity capitalized, so the ROEs are, I guess, sort of low. Do you see opportunities to recap that and maybe take some cash out? Or do you want to operate it at very, sort of, high equity cash ratio?

I think we've made the statement before, and it is still true, that Edison Capital is actually underlevered, even after the dividend that we made last year, the 225 million dividend to EIX.

Right.

We still were about two thirds equity and one third debt, which is underlevered, particularly for that type of business.

Right. And that's something you would like to remedy, hopefully next year.

Yeah.. It is not an efficient capital structure.

Okay, great. Thanks a lot.

I think we are at the point here, in which we should perhaps, one more question, and then call this conference call to an end. We usually do this about an hour. Is there one more?

Yes. We will take our final question from Paul Fremont from Jefferies. Go ahead, please.

Yeah. Just following up on Vick's question. The 135 million of depreciation would be offset, presumably, by you not taking that depreciation expense, so it would have no net income impact.

Which means that the difference between you and staff, in terms of net income, would be the 59 million and according to you, some of that represents an error in O and M calculation to the tune of like $20 million. Is that sort of a fair characterization?

Paul, this is Al. There would be no impact on earnings from the depreciation. It would actually very slightly increase rate base for an earnings impact, but there's no negative impact on that.

And in terms of difference between us and the PD, not the staff, 16 million of that would be the error in how they treated other operating income.

So then the -- so the potential net income difference is the 59 minus the 16, so that's like 43, and that's a pretax number so we need to tax effect that?

We'll wait until we see how everything works out.

Oh, I'm just talking about right now. Without any changes being made, that would be, sort of, the net income difference, right? Between what you're proposing and what the ALJ is proposing, or the proposed decision, that is out.

I guess, Paul, I'd just say this. You know, we don't do these cases exclusively at all with an eye at net income. We are looking for a healthy capital structure, healthy cost recovery structure, healthy cash flows. Because, among other things, our responsibility and in our view is we have to look to make investments in this system.

And the system needs those investments for reliability, so we'll leave it to you to extract the net income. But I wouldn't want there to be any implication at all that that depreciation isn't very important to us; it'sextremely important to us.

Okay. Understood. Thank you.

We thank you all very much and, of course, you can put questions -- if you have further questions -- to our Investor Relations group and we appreciate your attention.