愛迪生國際 (EIX) 2007 Q2 法說會逐字稿

Welcome to the Edison International's conference call. This call will be available for replay at the following numbers--877-693-4277, 402-220-0042. You will need to use the PIN code 11301 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 of this conference call. This will be on the Company's website in a listen-only mode for interested parties.

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When the conference begins, you will be on a listen-only and there will be a chance for questions and answers at the end. (OPERATOR INSTRUCTIONS) Thank you again for your patience. The conference will be beginning shortly and at this time, I would like to introduce your host, Scott Cunningham, Vice President of Investor Relations, with Edison International. Thank you, and go ahead, Mr. Cunningham.

Thanks very much, and good morning, everyone. Our principal speakers this morning will be Chairman, President, CEO, John Bryson; and Chief Financial Officer, Tom McDaniel. Also with us today are Ted Craver, CEO of Edison Mission Group; and John Fielder, President of Southern California Edison.

This morning, we introduced a new presentation to accompany our formal remarks. It includes certain information that was previously included in our earnings press release. This presentation, together with the press release, and our second quarter Form 10-Q filings are available on our website at www.Edison.com.

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, as well as reconciliation to GAAP of non-GAAP financial measures discussed in this call is also included in the presentation and available on our website. We believe this information to be reasonable and well founded. However, actual results could differ materially from current expectations. Important factors that could cause different results are set forth in our SEC filings. We encourage you to read these filings carefully. With that, please turn to page three of the presentation and I'll turn the call over to John Bryson.

Thank you, Scott, and good morning, everyone. Many of you will have seen our release earlier this morning. Edison International continues to have a solid year. Second quarter earnings as reported were $0.29 per share. Core earnings, $0.73 per share on a core earnings basis. That is up 33% from last year. I think all of you know core earnings excludes discontinued operations and significant noncore items, such as the second quarter refinancing, a very significant refinancing for us, a major positive step that was accomplished at EMG, but had an adverse after-tax impact on earnings reported of $0.45 per share in the quarter.

Southern California Edison had a solid quarter during the second quarter. The results on a comparison basis were masked somewhat by last year's second quarter comparison, where in the second quarter there was a special income recognition associated with a feature of the 2006 general rate case decision.

In the past quarter, Edison Mission Group continued the strong operational performance it had achieved in the first quarter, so that continues on. Putting all these results together, with our outlook for the balance of the year, we have today increased our 2007 earnings guidance. We now expect core earnings for 2007 of between $3.24 and $3.59. That is a range of $3.24 to $3.59 per share, as compared to our prior earnings guidance on core of $3.05 to $3.45 per share. So a meaningful increase in outlook.

Our financial position generally across Edison International continues to strengthen, with higher operating cash flow, significant liquidity, and limited exposure to higher interest rates. Significant in that respect was the EMG $2.7 billion refinancing that we completed last May. In that refinancing, we extended debt maturities, locked in what we believe and are certainly clearly today favorable long-term rates, terms, and conditions. Our Edison Mission Group now has both substantial business opportunities led by our wind power development program. I'll say a little more about that, and substantial cash on hand to support the meaningful growth plans for EMG that we have.

Tom McDaniel in a few minutes will provide greater detail on these financial results and our increased earnings guidance. Let me comment on a few benchmark steps or milestones that were achieved, or at least in one case not achieved in the second quarter, and I'll start with Southern California Edison. Overall, I think most of you on the call know that our large goal for Southern California Edison is implementing our $17 billion five-year capital investment plan. That's key, it's key to serve our customers well, it is key to strengthen the infrastructure and network. It's key to improving and strengthening what our customers receive in terms of value, meeting environmental goals and generally providing us something closer to the kind of 21st century technology and our infrastructure that our customers deserve. That remains on track. Each quarter we work hard on that. We are updated each quarter. It is on track and I remind you that we anticipate with this plan a 12% plus compound growth rate in regulated assets, that's the regulated side of the business over the next five years.

Now, I'll comment on just a few of the things that took place in the quarter in that Southern California Edison program. I think you'll recall that the key elements of the plan are above all, very large capital investments in the wires and transmission and distribution, also a significant new investment, very large one and installation of truly advanced meters, as part of our strengthened infrastructure and finally the development of some additional utility power generation, including peakers and steam generator replacements at our San Onofre nuclear plant.

First, on the transmission, our $1.8 billion Tehachapi renewable transmission project is on track. This will be a long road, but each step we take moves us further down that road. That's going reasonably well. The first three segments should be under construction later this year. We have filed at the California Public Utilities Commission for approval of the remaining segments and expect regulatory action late next year. This project will connect to the power grid in California and the west up to 4500 megawatts on new generation, the bulk of which will be renewables.

Then turning briefly to distribution, I'll get back to transmission in a minute, but just to report distribution, and that is the largest single part of our program. Again, our ongoing work is on schedule. We will continue to make these large investments across our system for enhanced distribution infrastructure. Some of you may recall that in the heat storm last summer, in Southern California, the distribution system was the weakest element of our system. Not only are we on track now, but we will plan and be able to execute, we believe, the ramping up of that distribution level significantly over the next several years. Our general rate case 2009 will be key to our capacity to continue to do that.

Just one comment. A significant part of this investment has to do with infrastructure replacement. So we get some questions about what the potential housing downturn, assuming there is one and we're seeing some signs of slowing, certainly in the areas east of Los Angeles, what impact might that have on our program. And the answer is not very significant, because a large part of the program really goes to investing in the system, not just meeting new housing or business startup connections. All right.

Let me turn then to another part of the distribution, or the transmission program. We had a setback, significant one in May. We have the $600 million Devers-Palo Verde 2 transmission project as part of our overall plan. That project is to enhance transfer capacity between the Southwest Arizona in particular, and Southern California. It would strengthen Western U.S. grid reliability, reduce congestion in that Arizona/California transmission corridor. To our disappointment at the end of May, the Arizona Corporation Commission unanimously rejected that project. That was certainly something of a surprise. It is -- it happened notwithstanding all previous approvals, a whole series of them. I think seven was the number, of previous approvals from other agencies which had acted on this line, including that commission, the Arizona commission's own citing committee.

Now, we are taking a series of steps now to evaluate how best to proceed. We have in Arizona appealed the decision. We are working hard with particularly transmission affected entities around the Western United States. We will certainly go back to Arizona and work harder on this in the end to strengthen the importance of this project to reliability, as well as enhanced economics, and including some environmental benefits is very great, so we're hopeful and optimistic that in the end, a resolution will be found in working that out with the State of Arizona, but we can't outline that in detail for you now because we need to have a strengthened dialogue across the West and in Arizona. Ultimately, as you can imagine, if we don't proceed there, we will need to find and develop other means of securing about 1000-megawatts of generation capacity, which this project was designed to access. So all that will be intensely being focused and worked on over the next quarter.

All right. Let me turn to advanced metering at Southern California Edison, another major initiative. Last week, we filed our regulatory application to California Public Utilities Commission for approval of final phase of that project. We call it Edison Smart Connect. It follows -- that is, this filing followed -- the Commission's recent approval of Phase II of the program that was a testing phase. That testing phase involves 5000 meters that are being tested now on our program. Full program has a total capital cost of $1.3 billion and targets installation of 5.3 million meters to be completed approximately in 2012. So taking place with the heaviest investments beginning late next year, then all the way through 2012. That will bring, we believe, very substantial cost environmental and reliability benefits to our customers.

Then finally, a comment on utility generation, principal utility generation is development of peakers. You may recall that last summer -- following the heat storm we were asked by the state to put up new peakers, five new peakers. Four of those are in place today. They have been synchronized to the grid. Testing continues on them, but they are available for emergency response now. One of the five unit plan for the Oxnard area of Ventura County, over in the Coastal area, had local opposition and we'll continue to work to bring that to a resolution. It is not available now.

In other respects, we brought on additional capacity for this summer, all on short notice through contracted capacity. Good demand response initiatives, so we feel in a reasonably strong position to meet peak summer demand, which in our system, can unexpectedly sharpen greatly. It is not yet this summer.

All right. Then briefly on regulatory status of this entire plan, we've pointed to you in the past to our general rate cases. Those are the most important regulatory decisions. But a reminder, our largest individual capital projects involve individual PQC filings, so in this five-year plan, filings individually for the largest transmission generation and the advanced meter project represent about one-third of the total capital spending plan and the balance will be covered through the general rate case process.

We've just passed a milestone last week in that rate case process and filed, as we're required to do, the notice of intent at the California Public Utilities Commission. The actual formal application will be filed in November and we'll update you on that as appropriate and when we have -- when we have the final filing. So overall, we continue to see this targeted 12-plus compound annual Southern California Edison rate base growth is attainable, that is true notwithstanding the delay in the Devers-Palo Verde 2 project.

Let me turn then to the Edison Mission Group and here, the goal is optimizing the value of our generation portfolio existing within EMG, now upgrading the environmental performance there, and executing what we believe is a sound and valuably diversified growth plan. Beginning in 2007, earnings from Midwest Generation and Homer City, those are the large coal plants in our system, but beginning 2007, we see improvement in revenues, including from increased capacity values. Tom will cover that in more detail.

In brief I would simply say our outlook involves -- our outlook foresees continuing growth and the importance to customers and in the value of those units as supply/demand balance for power in the regions we serve tighten. Given environmental certainties and other factors, high costs, financing questions, new coal-fired power plants seem to us unlikely to significantly displace environmentally controlled existing plants of the sort that we have, our larger plants. But we don't see that happening in significant number and we do believe that smaller, older coal-fired power plants will likely find the cost of the environmental controls beyond their capacity to absorb, so we see some shutdowns there and as you may recall, that we are doing that ourselves as a result in part of the settlement we entered into with Illinois on coal plant performance in Illinois and environmental characteristics. So we're taking that step ourselves.

Then -- the EMG growth plan, a significant part of that in the near term is wind development. As an update during the second quarter, we placed three wind projects in service. Most significant of those was the 161-megawatt Wildorado project in Texas. In addition to bringing those plants into operation, we acquired over 700-megawatts of new development stage projects in the quarter. That brings our overall development pipeline to 3100-megawatts compared to the 2700-megawatts that we reported to you in our last earnings call.

This development pipeline is supported at EMG by over 1400-megawatts of wind turbines, which have been purchased and are expected to be placed in service through 2009. Keep in mind that our development stage projects, this is our definition of development stage projects, include only those where we have an exclusive right to develop the project. So that's an exclusive position. We also continue to manage an active prospect list of promising opportunities in a number of states, but those are not yet in our development stage category. And as all of you know, I think the recent state and federal legislative initiatives continue to strengthen prospects for wind power development.

Then in the longer-term, I'll briefly, only briefly comment on this, at both Edison Mission Group and at Southern California Edison, we are focused on development of new generating plants that employ advanced technologies, significantly in both of our subsidiaries. We see the opportunity, but only with support from federal funds, state form support, off-take contracts. We see potential for taking our business further in gasification projects that remove pollutants for power generation and adding to them carbon sequestration. And those of you on the call may recall that we are building this business in part on the substantial experience that we have in power generation, gasification projects, both from a major demonstration project we did on coal here in Southern California, supported by the DOE, a major demonstration project called cool water. That was in California. And the commercial project we did under a European common market tariff in Europe.

Let me simply briefly mention one other area of advanced technology that we're working hard on that we think has significant potential to somewhat longer term for our business and special application here in Southern California, and that is the development and widespread potential use of plug-in electric vehicles. You may have seen that in the past quarter we entered into an alliance with Ford Motor Company for the development of various features of plug-in hybrids as they interconnect with the power grid, so working, for example, on common standards for interconnection and other features. We also supported significantly a study just announced by the Electric Power Research Institute and Ford Motor that point -- that conclude, as we believe that plug in electric vehicles, not only can enhance customer benefits and the value of electric systems, but have very large potential environmental benefits including substantial greenhouse reduction, gas reduction effects as they come into use. So I'll conclude with that. I think we're performing reasonably well. There was certainly net progress in significant ways during the second quarter and we continue to believe that we can provide investors substantial above average growth in Edison International, as compared with industry norms. So with that, I'll turn the call over to Tom McDaniel.

Okay. Thank you, John. Good morning, everybody. Today I will cover our 2007 second quarter and year to date performance, update you on our operations and hedging programs at Midwest Generation in Homer City and wrap up with a discussion of our 2007 earnings guidance. As Scott mentioned earlier, I'll be referring to the new teleconference presentation that we've introduced this quarter, which is intended to help you follow our comments more easily and provide you with pertinent information you can refer to after the call.

Now, I'm going to pick up my comments on page four. So pages one and three cover our disclosures -- one and two cover our disclosures. Page three provides highlights of John's comments, and as I mentioned, I will start on page four. So first, we reported consolidated earnings of $93 million, or $0.29 per share in the second quarter of 2007, compared to $177 million, or $0.54 per share for the same period last year. The higher core earnings in the second quarter that John referred to earlier, were more than offset by noncore costs associated with Edison Mission Group's refinancing activities and Southern California Edison's positive resolution of a tax-related issue last year. Core earnings, which exclude income from discontinued operations and other noncore items were $239 million, or $0.73 per share for the second quarter of 2007, compared to $180 million, or $0.55 per share for the same quarter last year. That's an increase of 33%.

If you move to page five, we have broken down the quarter in more detail on a company by company basis. And so in summary, our SCE for the quarter was down $0.03. BMG was up $0.20 and the parent company was up $0.01. Now I'll cover each entity specifically.

SE's core earnings for the second quarter, core earnings per share for the second quarter of 2007 were $0.44 compared to $0.47 for the same period in 2006. This is $0.03 lower and this decrease is primarily due to the catch-up adjustment upon receipt of the 2006 general rate case decision received in May of last year and that decision reached back and was effective back into early January. This impact was partially offset by lower taxes.

EMG's core earnings per share were $0.30 for the second quarter of 2007 compared to $0.10 for the same period last year. That's a $0.20 increase. Midwest Generation contributed $0.12 of this increase, mainly due to higher generation and higher average realized energy prices. That was $0.11, as well as lower net interest expense, that's a positive $0.04, partially offset by higher planned maintenance costs. Let me comment on those last two items.

As you know, as you may know, during -- in connection with the $2.7 billion refinancing at EMG, all of the corporate debt at Midwest Gen. was redeemed. That debt now resides at the EME corporate level. In addition, you would -- you will see variations on a quarter to quarter basis around maintenance costs as a function of the number of outage days that we plan in a given period and those are not always equal.

Moving now to Homer City, Homer City's earnings were level for the quarter, as increased margins from higher generation and higher averaged realized energy prices of $0.05 were offset by higher planned maintenance and the benefit recorded during the second quarter of last year, from expected insurance recoveries associated with the Homer City Unit 3 outage. And in connection with that outage, we did move our maintenance schedules around and so we moved the Unit 2 outage into the second quarter of this year and that's the predominant reason for the higher maintenance costs.

As part of EMG, Edison Capital earned $26 million, or $0.08 per share, that's up $0.07 over last year, mainly due to investment gains from its global infrastructure funds and lower taxes. All other operating results at EMG contributed $0.01. It's mainly from higher trading and project-related income. It was partially offset by higher corporate expenses due to the higher development costs we are incurring associated with our wind development program. EMMT specifically had a good quarter, recording pretax trading income of $36 million compared to $26 million last year. Noncore items for the second quarter of 2007 represent a per share net loss of $0.44, this predominantly reflects the early debt extinguishment costs associated with EMG's refinancing in May that John referenced and there was $0.01 offset to that associated with the discontinued operations. So that's $0.45 plus $0.01 gets you to the $0.44 on the chart.

Several noncore items were recorded in 200 -- which were recorded in 2006 were largely offsetting, including the charge of $0.27 associated with EMG's $1 billion debt refinancing last year and the benefit of $0.25 at SCE from the resolution of a state tax related matter.

Over the last two years, and let me digress for a second, but over the last two years, we have refinanced $3.7 billion of corporate debt at EMG. Our decision to move early to lock in attractive rates, terms, and maturities, rather than wait until those issues came due, seemed fortuitous given the current state of the credit markets. Although not without substantial cost as reflected in our results both last year and this year, we now have a lower cost, as well as a much more simplified and flexible capital structure to support our operations and our growth initiatives. In addition, we have stretched our maturities out considerably from the 2013 to 2027 timeframe.

As part of the refinancing MEHC's debt was retired and MEHC will no longer file reports with the SEC. As a reminder, the principal difference between MEHC's and EME's financial results relates to the former interest expense incurred associated with the debt at the MEHC level. Also, at the bottom of page five, for those of you who use diluted earnings per share in your earnings comparisons, a slightly higher share count, which includes incentive stock options for diluted EPS calculation purposes, resulted in diluted earnings coming in $0.01 lower than the basic earnings per share. Keep in mind that the actual shares outstanding remained unchanged, as our normal practice is buying stock from the market, so there's no actual dilution associated with the exercise of stock options.

Now, I'll turn to page six of the presentation and discuss our year to date results. EIX reported consolidated earnings of $426 million, or $1.29 per share for the six months ending June 30, 2007, compared to $435 million, or $1.32 per share for the same period last year. The stronger core earnings were slightly more than offset by the net charge associated with non-core items, including the EMG refinancing, discontinued operations and the resolution of tax-related matters. Core earnings were $538 million, or $1.63 per share for the six months ended June 30, 2007, compared to $364 million, or $1.10 per share for the same period last year. Each of our operating companies have reported positive gains, with EMG the strongest contributor.

We move to page seven. We'll also cover those earnings in more detail. SCE's earnings -- year to date core earnings were $0.90 per share, $0.06 over the same period last year, primarily due to the higher revenue associated with the general rate case decision and lower income taxes.

Turning to EMG, core earnings were $0.78 per share during the first half of 2007 compared to $0.32 for the same period last year, an increase of $0.46 per share. Midwest Generation contributed $0.25 of this increase, primarily due to higher generation and higher average realized energy prices. Homer City contributed $0.13 from higher generation and realized energy prices. I should point out as I did in the first quarter report that generation was impacted significantly last year by the transformer outage at unit three and took that unit out of service into May of 2006. Together, higher generation and realized prices led to a $0.15 increase and this was partially offset, total of $0.02, by higher planned maintenance costs and by expected insurance recoveries related to unit, the Unit 3 outage that we recorded last year. Edison Capital earned $45 million, or $0.14 per share, up $0.08 over last year, again, predominantly due to gains from the global infrastructure funds. EMMT, a good year through the first six months, reporting $62 million of pretax income compared to $55 million last year. In summary, the first half of the year, core earnings increased $0.53 to $1.63 per share, largely driven by the operating performance at Midwest Generation, Homer City, and higher contributions from Edison Capital.

Noncore items through the first half of 2007 were a negative $0.34 per share, which includes the $0.44 largely related to EMG's refinancing, and partially offset by a $0.10 benefit at SCE related to the -- an income tax matter. For the same period last year, noncore items contributed a per share benefit of $0.22. SCE contributed $0.25 per share from the resolution of a state income tax issue and EMG had a net noncore charge of $0.03 from the refinancing costs offset by income from discontinued operations. EIX consolidated earnings per share were $1.29 for the first half of 2007 compared to $1.32, for the same period last year, a decrease of $0.03.

Now, we'll move to the operating performance review. We'll go to page eight, and we'll cover Midwest Generation first. So on this chart, we now detail some of the more important year to date operating comparisons, compared to 2007 versus 2006. The quarterly comparisons are included in the appendix, so we'll just focus on year to date, which provides a better indication of trend.

Generation at Midwest Generation was up 16% to 14.8 terawatt-hours with the growth largely during off peak hours. As you look to the left of that page, our capacity and load factors were both up significantly, again, reflecting the higher off peak generation. Both availability and forced outage rates were in line with plan and as noted in the earlier earnings discussion, if we move to the right side of that page, gross margin at Midwest Gen increased over last year for the quarter and year to date. The higher average realized prices that we received were fully captured essentially because of flat fuel and emission costs at Midwest Generation through the periods.

We turn to page nine for Homer City. Homer City's generation in 2007 is up 20% to 6.5 terawatt-hours year to date. Overall, Homer City has performed well this year. Again, the year to year comparisons are all affected by the impact of the Unit 3 transformer failure last year. And as with -- as we look to the right in terms of gross margin, as with Midwest Generation, gross margin for Homer City increased significantly for the quarter and year to date, relative to last year. The improved margins benefited from higher average realized prices and a decline in the average cost of fuel emissions, resulting predominantly from lower emission credit costs.

Move to page 10, this covers our hedging program, including our load requirements service contract and our coal contract status. Our energy hedge position is about the same as reported in our first quarter report earlier this year. We have lowered our estimate of load service requirement contract sales for the balance of their terms due to higher than expected load migration associated with that contract.

Moving to page 11, this is a new page that we've included, which summarizes our capacity. At the top, our total installed capacity, we net from that forced outage rates and as in the case, for the case of Midwest Generation, the capacity that is encompassed within the load requirements service contract that we have with ComEd. That gets to a net available capacity that we have for sale either through the RPM options or through bilateral arrangements. So we have laid out for you exactly for each period the '07, '08 and '08, and '09 periods, how that has been diversified in terms of sales into the RPM auction process and our specific bilateral contract arrangements.

At the bottom, we have summarized the average price per megawatt day associated with our contracts. I should highlight that we do have one contract with Midwest, or with Homer City that is variable in nature and so those prices will adjust in connection with capacity auctions in the New York region that occur on subsequent events. But overall, a very positive trend for us in terms of the direction and value of capacity of our fleet.

If you turn to page 12, I'll now cover guidance. Last quarter, you will recall that we indicated we saw 2007 core earnings at the high end of the 2007 earnings guidance range of $3.05 to $3.45, supported by our positive outlook for EMG based upon at that time, higher, higher forward power prices relative to the guidance we delivered in February. Good first quarter performance at EMMT and the benefit to core earnings from the refinancing and above expected results from the initial RPM capacity auction. Although forward power prices for the balance of the year have dropped substantially from our first quarter update, our strong operating performance through the first half of the year, combined with good results from EMMT and Edison Capital lead us to move our core EPS guidance range for the year up from $3.05 to $3.45, to a range of $3.24 to $3.59 per share. Underpinning this change is an increase in EMG core guidance, from a range of $1.40 to $1.65 per share.

We see no change for SCE or for the holding company. This brings our new total earnings guidance range up from $2.70, a range of $2.70 to $3.10 per share to a range of $2.90 to $3.25 per share. There are a few important factors to consider with respect to our updated earnings guidance. First, we are assuming normalized operations for the balance of the year. Second, we're using forward energy prices as of July 31. Third, with respect to Edison Capital, we have factored in core earnings of $0.20 per share for the year versus the $0.15 in our original guidance, and for EMMT, our core earnings guidance reflects year to date pretax income of $62 million and as with our previous guidance, we do not provide a forecast or include any future net earnings from EMMT as part of guidance.

Finally, the summer generating season is very important to us and our performance is subject to variability based on how well our plants perform through this period, the weather conditions and demand patterns and changes in wholesale power prices. So with that, I'll conclude my remarks and we'll turn it over to the operator to move into Q&A.

We will now have the question and answer session. (OPERATOR INSTRUCTIONS) Our first question comes from the line of Dan Eggers with Credit Suisse. Please proceed.

Hi, good morning.

Good morning, Dan.

First question, with the Arizona issue, the Palo Verde-Devers and California's rules about the amount of CO2 that can be imported from new power contracts, any updated thoughts on how you guys are going to procure power to meet SCE load obligations? Is this going to mean more incumbent generation into the state of California? Is that kind of the answer we're hearing?

Yes, let me kick it over to John Fielder, the President of Southern California Edison, to provide comment.

Yes, as you'll recall, we have a request for proposals out on the Street for somewhere between 1000 and 2000-megawatts of new generation, which we would expect to be primarily based in California and be natural gas generation. That's in addition to the renewables that we add to the portfolio every year. So I think your assumption is correct there.

Does that mean that with the Devers issues, does that mean the RFP goes toward 2000 versus 1000 just from a certainty perspective?

Well, it will depend upon what the Public Utilities Commission does towards the end of the year, but that, that is a very plausible scenario.

Okay. The plant performance at the merchant business in the quarter, was that mostly just a function of the fact that prices were good in the off-peak, or was it functional availability, the plants really helped, and then I guess just thoughts on how off-peak pricing was good enough to keep you dispatching more frequently.

Yes, if you look to the load factors for the units, that's really what tells the story, so a substantial increase at Midwest Generation in our load factors, which means that we were generating more around the clock than we've historically done and so that's a function of higher demand in the off-peak. And we had seen, strengthening in off peak prices through that period.

Was that just kind of the fact that you had some good weather in the Midwest that increased the demand, or is there something structural we can look forward to going into the future?

Well, we did have warmer weather and higher, and higher load through the second quarter, and so it looks like it's a function of both. So we had, we had warmer weather and any increased demand in the off-peak hours.

Any thoughts on how to separate those two out?

Very difficult, very difficult. I mean what we have to do is start looking for longer-term trends and so it's difficult to take a quarter, because of the significant variability that can happen relative to demand, outages of other units that might be on the system, but this does look to be the start of a trend that would be quite favorable for us.

Okay, and one last question. I know that we're not into the territory of '08 guidance, but you're looking at how strong capital's been, how strong trading has been this year. What should we be thinking about as normalized contributions from those businesses as we look out beyond this year?

Well, you're right, Dan. We haven't provided '08 guidance and we will do a couple of things. One, we want to get through the summer season and take a look at -- and get into our budgeting for next year, and second, take a look at the performance of EMMT through this full year. With Edison Capital, we've historically said that we're not putting any new investment in and that you could expect that the contributions from Edison Capital to trend down over the next five years or so. And so kind of the starting point that we had, around $0.15 which was in our initial guidance, is more in line with what our longer-term thinking would be there.

Should we think about the higher earnings contribution from capital this year being -- is that bringing forward future earnings, or was that just, you have good performance out of the investment to place?

Really good performance. We've had really a phenomenal run out of our infrastructure funds, in particular, our Eastern European fund.

Okay. Thank you.

Thank you, Mr. Eggers. Our next question comes from the line of Michael Lapides with Goldman Sachs. Please proceed.

Hi, guys. Congrats on a great start to the year. Question at Mission regarding capital spending over the next few years. As we kind of think about the wind development pipeline that you outline in the appendix of this, how should we think about the CapEx cycle for Mission over the next three to four years and how you finance that?

Well, what we have stated through -- if you take a look at the pipeline we put together, and what we have indicated, that over -- by the end of 2009, we would like to get another 2000-megawatts of wind into operation, and the capital costs associated with that based on a range of 1700 to $1900 a KW can get you to a total spending for that program. Generally, the way we thought about wind is as we have aggregated a portfolio, we would look to project finance around a portfolio of let's just say around 1000-megawatts, and we would look to project financing to support the program.

And the other CapEx at Mission, I know it doesn't really -- kind of the environmental CapEx doesn't really kick off until the next part of, early part of the next decade, but in terms of how you finance that.

It would be handled through operating cash flow.

Okay. Thank you.

Thank you, Mr. Lapides. Our next question comes from the line of Jonathan Arnold with Merrill Lynch. Please proceed.

Good morning. I just wanted to ask on the rate case, notice of intent. Do you have any updated indication of what kind of an overall rate increase we're likely to see you file for, or is that available out in the filings somewhere?

Well, this is John Fielder. The notice of intent that we filed earlier this month is a preliminary filing. The actual application, as John said, will be filed in November, and so the numbers could move around between what we filed in the NOI and what gets filed in the application. But if you just look at the NOI, it would look around a 6.2% overall revenue increase. Of course that's subject to the whole regulatory process that will go on through next year.

And how would that translate to an overall increase on customer bills?

That's what that means, about a 6.2% increase.

So in the bill rather than in the, in your -- just your piece? Okay. No, that's fine. Thank you.

Thanks, Jonathan.

Thank you, Mr. Arnold. Our next question comes from the line of Paul Fremont with Jefferies. Please proceed.

Thank you very much. It looks like the terawatt hour production levels are tracking close, are tracking better than 2005 levels, so if I just give you in the third and fourth quarter what you generated in 2005 would get me this year to about 31.5 million megawatt hours. And if I go back, I guess my question is, is that a reasonable assumption for me to use for 2007? That would be the first question.

Yes, with the caveat that many factors can impact generation through the balance of the year, but I, -- if you were to take the first half of the year and move it forward, that would be reasonable.

Then the second question would be if I go back to your 2004 presentation, you had initially thought that you were potentially going to generate in the range of 34 million megawatt hours, so should we look at sort of this 31.5 million level as a good base that could very well increase over time, or I guess how should we think about volumes going out into the future?

Well, Paul, we haven't provided any specific longer-term guidance around generation. One reason is the market has been changing and we're seeing different patterns in terms of demand on the system. This is a positive trend for us. As I said, we would like to get beyond more than just a single quarter or six months to see if this is a phenomenon that's going to last, but at this point, we certainly like the direction that it's going. Moving more to higher load factors is much better on our plants and our system because it reduces the need, kind of the stresses when you have to cycle up and down on your units.

And then the other question is just a technical question. Can you break out the actual amount of the gain in the infrastructure fund and the tax benefit at Southern California Edison for the quarter?

We haven't done that, Paul, but we, we certainly can and maybe we can get back to you off line on that.

Okay. Thank you.

Thank you, Mr. Fremont. Our next question comes from the line of Ashar Khan with SAC Capital. Please proceed.

Good morning. I was just doing on an LTM basis, EMG is already running above your forecast range if I do my math right, and if I'm correct, we still have positive impacts from the capacity pricing from interest expense from the Illinois contract, so I'm just trying to understand what is, what are the negatives expected in the last half of the year to drive earnings down?

Well, that's why we provided a range, because we do have six months of the year is left. We do have an open position that is sensitive to price movements. So we feel that we have a positive outlook going forward, but we think that the range is the best way to capture that.

But if I do the LTM earnings, Tom, I'm higher than the range of $1.65. If I'm right, then your range is $1.65, if I'm right. $1.40 to $1.65 for Edison Mission Group, and it earned $1.30 last year, and we are up $0.42 year to date. So I am LTM running $1.72.

Yes, I think if you take a look at where the forward curve has moved, that's what we've taken into consideration.

Okay. And then you mentioned, if I heard right, how much has EMMT earned this year versus last year, six months?

Yes, it's $62 million versus $55 million.

Those are pretax or after-tax numbers?

Those are pre-tax numbers.

And if I'm right, they earned a total of $130 million, right, last year?

That's correct.

That was after tax or pre-tax?

That's pre-tax net income.

Net income, okay. Thank you very much, sir.

Okay.

Thank you, Mr. Khan. Our next question comes from the line of Greg Gordon with Citigroup. Please proceed.

Thanks. Actually Paul Fremont asked my question. Thank you.

Operator, we probably have time for one more question.

Certainly. Our next question comes from the line of John Kiani with Deutsche Bank. Please proceed.

Good morning.

Hi, John.

Two questions. Tom, on slide 10, the hedge program status slide, can you give us a little color or tell us if the average price for the energy-only hedge contracts is on peak or if it's around the clock or if it's more weighted toward on peak, just so we understand what to apply that to?

Yes, John, it's more weighted towards on peak, particularly the further out you go. It's our initial general strategy to hedge further out beginning on peak and then to fill out the program with more off peak.

Okay. Great. That's very helpful. Thank you. And then on one other question. You already touched on this a little bit in one of your earlier questions, but I think you said it looks like there's about $0.12 of earnings that's being counted in the new guidance range that's coming from Edison Mission marketing and trading that wasn't included in the old guidance provided earlier this year, is that correct?

No. We'll do a little bit of work on this, but in the initial guidance, we assumed -- yes, in the initial guidance we assumed $25 million of pretax income from EMMT for a full year.

Got it.

Essentially offsets the operating costs for that entity, which are picked up in another, in A&G.

Okay. So if I look at then, I think you said that for the new guidance, you're including then closer to $62 million or $63 million for the full year, is that correct, in the new guidance? Is that the right way to think about it?

Yes, yes, the $62 million.

So then that's maybe a pickup of about $0.08 then, from the original guidance, is my math correct?

It's $0.11.

Okay, and then I guess there was $0.05 or so increase in, in your assumptions, in the revised guidance for Edison Capital. Is that correct, going from $0.15 to $0.20?

That's correct.

So I know you touched on this a little bit earlier, but if I add those up, I basically get to the midpoint or a little bit more than the midpoint of the new guidance range. Is what you were saying earlier, that your assumption for lower spot prices on the unhedged portion of the portfolio what offset that?

Yes. In other words, we've seen a substantial drop-off in the forwards from our March update. And so that has been an offset to some of the gains that we had in the other areas.

Got it. Okay. Thanks a lot. That's helpful.

Thank you, Mr. Kiani. I will now turn the call back over to Mr. Scott Cunningham.

Thanks, everyone, for participating in today's call. If you have any follow-up questions, please do call either Donna Hebb or myself in Investor Relations. Media inquires should be directed to Charlie Coleman from Corporate Communications. Thanks again, and have a good day.