愛迪生國際 (EIX) 2007 Q4 法說會逐字稿

Good morning, and welcome to the Edison International conference call. At this time, I would like to introduce your host, Scott Cunningham, Vice President of investor relations at Edison International. Thank you, and have a great conference. Go ahead, Mr. Cunningham.

Thanks very much, Lisa, and good morning, everyone. Our principle speakers today will be John Bryson, Chairman, CEO and President, and Tom McDaniel, Executive Vice President and Chief Financial Officer. We also have several other members of the senior management team with us here today, including Ted Craver, CEO of Edison Mission, and John Fielder, President of Southern California Edison. The presentation that accompanies Tom's financial review, together with the earnings press release and our 2007 10-K documents, which were filed this morning, are available on our website at edisoninvestor.com. During the call we will make forward-looking statements about 2008 and longer-term financial outlook for Edison International and its subsidiaries and about other future events. Actual results could differ materially from current expectations. Important factors that could cause different results are set forth in our Form 10-Ks and our other SEC filings ,which we encourage you to read carefully. The presentation on our website also includes further information, including certain guidance assumptions, as well as reconciliation of non-GAAP measures discussed in this call to the nearest GAAP measure.

With that, I'll turn the call over to John Bryson.

Thank you, Scott, and good morning to all of you. We appreciate your being with us. We're going to follow our usual format this morning. I'll take initial several minutes and provide a summary of the highlights of 2007 results and our progress, certainly among the most important parts of 2007 and yet -- in building a yet stronger foundation of growth for the next five years. Then Tom McDaniel will go into greater detail on the fourth-quarter and full-year earnings and will present the 2008 earnings guidance. Let's just talk about 2007 first. It was a very good year for the Company, very summery Southern California Edison completed what was a record level of infrastructure investment. It also advanced a number of important largeish initiatives that over the next five years will significantly strengthen the electric system, improve our customer service, and help meet key state environmental objectives. At the Edison Mission Group we achieved excellent earnings while continuing to build a foundation for future growth that by our plan will be stronger, more diversified and greener.

So first with the financial results for 2007 -- many of you will have seen the written materials -- our businesses operated well, produced solid financial results, for earnings, which inclu -- which exclude discontinued operations and non-core items you know and have followed our core earnings for many years -- core earnings were $3.69 per share. That is an increase of 20% over last year. The reported earnings -- the GAAP earnings were $3.33 per share. That difference between the core and the non-core are set out in detail in our materials, but the key thing was that it largely reflected the costs of our very-important second quarter Edison Mission Group debt refinancing. That $2.7 billion transaction strengthened considerably EMG's balance sheet. It locked in attractive interest rates at highly favorable terms and certainly with the benefit now of looking back, it's something that couldn't be achieved in today's credit markets, so a significant step forward for us.

So let me turn with a little greater focus now to accomplishments in Southern California Edison. Our team as Southern California Edison completed a record level of more than $2.2 billion in infrastructure investment. Just a few examples, in the space of 11 months, between the summer of 2006 and summer of 2007, we put in four new peaking generation plants starting from scratch. We significantly rehabilitated over the course of the year our worst-performing electricity distribution circuits on the SEC system. We constructed a large number of new circuit to say keep up with our customer growth and replaced miles of aging underground cable and thousands of utility poles. That's consistent with the plan we've described to you consistently over many years now, each year doing yet more to build the infrastructure base.

A few other things, in October our Southern California Edison engineers took what we think is a landmark advance in smart grid technology. They moved out of the laboratory and onto our customer circuits serving out in San Bernadino County the most advanced distribution circuit in the nation. This -- and the DOE name for it is circuit of the future -- will make power outages fewer and shorter as digital technology identifies, analyzes and isolates potential service disruptions in milliseconds before they can become significant power outages.

To turn to a particularly significant item, the growth item, Southern California Edison, the work completed during 2007 increased our earnings asset base in the utility to an all-time high of about $11.7 billion. If we execute our plan now moving forward -- so adding another year on our forward outlook -- if we execute our plan for approximately $19 billion in continued infrastructure investment for the years 2008 through 2012, and assuming we receive the necessary regulatory support, the Southern California Edison earnings base would nearly double by 2012 so it would go from $11.7 billion to approximately $23 billion. So we've projected in the past this 12% plus compounded annual growth rate into the future, and now we add another year and come off a higher base on that through 2012.

So during 2007 Southern California Edison achieved the results you -- the financial results you see now. It also significantly moved forward major multi-year projects that make up about three quarters of that $19 billion infrastructure investment plan. Just a few of those, we received regulatory approval for the first phase of the Tehachapi renewable transmission project and began construction this January. As you may recall, that transmission line will connect the electric grid to one of the nation's richest areas for new renewable power generation.

Second, our Edison Smart Connect advanced meter initiative, which in 2006 was a highly-promising concept, it became during 2007 a demonstrated commercial reality. It is operating on our system now. The project team completed a successful field test, selected the principle technology and telecommunications vendors. With regulatory approval 5.3 million of these meters will be installed over the next five years. Then third, on this growth path replacement of steam generators at our San Onofre nuclear plant -- that is Southern California's largest power source -- that progress replacement team generators plan met all interim milestones and remains today on schedule and on budget. Then finally, Southern California Edison last year filed its 2009 to 2011 general case application with the PUC. The outcome of that case -- and we've underscored this in the past -- will largely determine the extent of our ability to continue the expansion and modernization that is under way and very important to our future of the Southern California Edison Electric grid. On that rate case the PUC's targeting a final decision before Thanksgiving of this year.

All right, in addition to progress in growing our future utility earnings base through capital investments, there are additional means by which those future earnings were strengthened. In 2007, first most of you know that the California Public Utilities Commission adopted an innovative and, I think, nationally significant energy efficiency incentive mechanism that will allow us to earn based on the achievements of our energy-efficiency programs. Those of you who know us know those programs have been the largest in the country for, I think, over several decades, continue to be that. Southern California Edison expects to deliver $1.2 billion in customer savings over the initial period under this energy efficiency incentive plan of 2006 to 2008, and Tom will describe further the earnings effects of that new incentive opportunity. Then second, the PUC authorized towards the end of the year for Southern California Edison an 11.5% return on equity that is lower, but only slightly lower than the 11.6% return on equity in 2007. We believe that is indicative of continued regulatory support for our very large capital investment program to strengthen the system.

Let me turn then to the Edison Mission Group. Our team there took steps in 2007 to grow our wind energy business, to capture increasing margins and values from our generation fleet, and to strengthen the balance sheet. You've seen the earnings. They were very good. A couple of other items. We ended the year with more than 1,000 megawatts of wind projects in service or under construction, and significantly our development pipeline nearly doubled during the year to more than 5,000 megawatts. I want to point out something that those of you who follow wind know and that is, wind energy business has its challenges, competition is increasing, project costs are escalating, and we're experiencing supply chain delivery and equipment issues that we are working with our suppliers to resolve. Other steps taken in 2007 at EMG increased future revenue and revenue predictability, reflecting tight projected power demand balance in eastern and midwest wholesale markets, EMG sold capacity forward from our Midwest Generation and Homer City power plants at substantially higher levels than in the recent past.

And finally our trading business, EMMT, earned during 2007 net trading margin before taxes of $143 million. EMMT has been a consistent performer, with trading margins now over the past three years exceeding $460 million with reasonable stability in those margins over these three years. At EMMT we undertake this business in a somewhat different way. Ours is a relatively narrowly-focused business, fundamentally it is grounded in our every day experience, in selling and hedging power generated by our own power plants.

So, just the briefest conclusion. It was a strong year at Edison International. It produced good results in 2007 and more importantly, I think, we further established a foundation for excellent growth over the next five years. Now I'll turn the call over to Tom.

Thank you, John, and good morning, everybody. Today I will review the 2007 fourth-quarter and full-year results and update you on Edison Mission Group's operations and hedging programs, and I'll discuss our 2008 earnings guidance. Throughout this presentation I'll refer to the teleconference presentation that accompanies our earnings press release, and if you could all turn to page two, that's where I will begin my comments. We'll start with the fourth quarter earnings summary. On the left we have portrayed our GAAP or reported earnings. On the right our core earnings. These are earnings that exclude non-core and discontinued operations and are more reflective of the operating performance of the Company. So to begin with, the reported earnings were $0.64 per share in the fourth quarter of 2007 compared to $0.87 per share in the same period last year. 2006 was benefited from positive contributions from the resolution of a tax issue -- non-core item -- and from discontinued operations. Excluding those non-core items, core earnings were flat quarter over quarter at $0.65 per share.

If you then turn to page three, I'll go through the details on a company-by-company basis. First beginning with SCE, its core earnings were $0.37 per share compared to $0.32 per share last year. This increase reflects a $0.05 per share favorable settlement of a long-standing tariff dispute with the Los Angeles Department of water and Power. Otherwise the results for SCE for the quarter were consistent with our expectations. EMG's core earnings were $0.30 per share, $0.06 per share lower than the fourth quarter of last year.

In going through the piece parts to those changes, the items that were higher during the quarter included Midwest Generation, which was up $0.06 per share. This was driven largely by lower interest expense associated with the second quarter debt refinancing, that John had mentioned, together with higher realized energy margins for Midwest Generation. The partially offsetting these positive factors were higher maintenance costs and a $0.03 per share non-cash FAS 133 adjustments -- that's period to period -- associated with the mark-to-market of certain of our forward hedges. During the fourth quarter we also -- I should mention we had unplanned outages at our Powerton station, which affected our forced outage rate for the quarter generation levels and maintenance costs.

Now to Homer City. Operating performance was positive for the quarter, realized energy margins up on higher generation and realized prices. This good performance was largely offset again by a $0.03 per share downward adjustment from a period-to-period comparison associated with FAS 133 adjustments, and there was some slightly higher planned operating costs. All of this together netted to a favorable increase of $0.01 per share. EMMT had a good quarter, with pre-tax trading margin of $40 million compared to $21 million in 2006, an increase of about $0.03 per share. And as always, this comparison excludes G&A costs for trading operation, which are included as part of EME corporate expenses.

EMG item that reduced quarter-over-quarter earnings were twofold. First, corporate expenses were $0.05 per share higher, primarily from higher project development costs and G&A expense related to the step-up in our growth initiatives at EMG. And second, Edison Capital was done $0.11 per share. Edison Capital earned $0.14 per share in the fourth quarter of 2006. That was an unusually strong quarter for us, as we had a number of favorable exits from our global infrastructure fund portfolios and some additional lease income. The $0.03 per share that we recorded in the fourth quarter for Edison Capital is really more indicative of what we would consider to be a quarterly trend going forward. EIX parent company overhead added $0.01 per share positive benefit relative to last year due to lower taxes and expense.

Now just focusing on the non-core items for the fourth quarter of 2007, lowered earnings by $0.01 per share, so that was not much of an impact. In 2006, as I mentioned, it was more predominant. Non-core items contributed $0.22 per share to the reported 2006 fourth-quarter earnings, mainly due to the resolution of a state tax apportionment issue and gains from discontinued operations at EMG.

Now if we could next turn to chart four, I'll cover the full year earnings. Again our GAAP reported earnings on the left, our core or operating earnings on the right-hand side. Reported earnings for 2007 were $3.33 per share in 2007 compared to $3.58 per share last year; again both periods were impacted by non-core and discontinued operations items. 2007 largely associated with the cost of the EMG refinancing that we'd mentioned earlier, and 2006 due to the resolution of a number of regulatory and tax matters, all favorable to the bottom line. Core earnings increased 20% for the year. That's $3.69 per share, and that's $0.10 per share above the high-end of our 2000 guidance that we'd established towards the end of last year at $3.59 per share. Both SCE and EMG contributed very strong performance to these results.

Turning to chart five, SCE's -- focusing on SCE, SCE's 10% increase in core earnings to $2.07 per share reflects higher operating margins, the benefits of lower taxes, and again, the tariff settlement that I had mentioned that occurred in the fourth quarter. Partially offsetting these increases were higher net interest expense and the full-year results for Southern California Edison matched the high-end of our 2007 guidance. Now turning to EMG, a very strong year, reporting core earnings of $1.72 per share, above the high-end of our guidance ranges of $1.65 and 32% above 2006. We saw good earnings growth across our principle generation businesses, Midwest Generation and Homer City, with Midwest Generation up $0.39 per share on higher generation and realized prices, as well as lower interest costs. It was partially offset by $0.11 per share period to period in FAS 133 adjustments and higher O&M costs. Homer City was up $0.14 per share, also on higher generation and realized prices, partially offset by $0.08 per share in FAS 133 impacts and higher O&M. For Midwest Gen and Homer City combined we ended the year with $38 million pre-tax unrealized FAS 133 losses related to our hedge positions, and this represents earnings that will flow through the income statement in future periods.

Project earnings increased $0.07 per share in 2007 with good contributions from both our expanding wind business and from our gas-fired fleet. EMMT was up $0.03 per share for the year and had a strong year, recording pre-tax trading margin of $143 million compared to $130 million in 2006, and again this comparison excludes overhead costs. EMG development and other expenses, plus other items, increased $0.15 per share for the full year, again reflecting the expansion of our business activity. And Edison Capital recorded earnings of $0.21 per share, which represented a decline of $0.06 per share relative to 2006. Again due to the significant level of infrastructure gains that we'd booked in 2006. You can see at the bottom of that chart that non-core items were significant factors in both years. In 2007 net non-core charges of $0.36 per share were mainly the result of the EMG debt restructuring. And non-core items in 2006 were a positive $0.51 per share, comprised of the resolution of the several regulatory and tax matters that I had mentioned previously.

Now let's turn to chart six and we'll cover the operational metrics for EMG. First, with regard to Midwest Generation, generation was up 3.7% for the year. That's to almost 30 terawatt hours. Capacity and load factors were both up for the year, but I should point out that availability and forced outage comparisons with 2006 performance levels did lag, mainly in part due to the fourth quarter outages that are powered in station. Turn to the right side of the chart. there we are covering where our all-in average realized prices were recorded for the fourth quarter and for the year, and as you can see that those prices were up significantly quarter over quarter and year over year, and at the same time our fuel and emission costs were relatively flat. So these two factors combined for an increase in our average realized margins of 31% for the fourth quarter and 18% for the full year.

Turning to chart seven and Homer City, also very, very good performance. Total generation was 13.6 terawatt hours with favorable operating metric comparisons really across the board. Over on the right side of the page, again the same story with regard to realized prices and our average fuel and emission costs, both contributing to expanding margins of 21% for the fourth quarter and 30% for the full year.

On chart eight, this is our regular update of our power hedg -- power and coal hedging disclosure, and our power hedges were essentially unchanged during the quarter, but we were active in the coal markets. We contracted for an additional 2.9 million-tons of coal for Midwest Generation for a total of 17.5 million tons under contract for 2008, and we also added 1.3 million tons of coal at Homer City for a total of 5.7 million tons under contract. This puts us essentially hedged for coal in 2008, and we're also at roughly the same position for 2009; thus the recent increases in coal prices are not expected to have any significant impact on our fuel expense in those periods. I should also mention that we're essentially hedged for emissions for the 2008 and '09 period also.

Page nine updates our capacity sales to include the recent 2010, 2011 PGM auction results, and I would like to point out that you will note that Midwest Generation increased its auction participation, as the previous Illinois auction contracts that we signed in 2006 had fully rolled off for this auction period. We've also reflected in the install generation a reduction there reflecting the planned closing of our Will County units 1 and 2, and at the bottom of the page you can see that we have been realizing progressively increasing capacity values for our fleet.

Now let's turn to the last chart, chart ten, and I'll cover our earnings guidance. You'll see the details on guidance, which are we are announcing today the bottom line range is from $3.61 to $4.01 per share. We've also provided ranges for SCE at $2.18 to $2.28 per share, and for EMG from $1.57 to $1.87 per share. We've also provided the estimate for EIX costs, which is our normal practice. I should mention this guidance is subject to a number of risks, all of which we disclosed in our SCE filings -- our SEC filings, and also on the right side of this chart we've identified some of the key assumptions that underly this guidance. So first of all, with respect to SCE, it does assume, as John mentioned, our sweat 2008 authorized return on common equities, 11.5%, together with our combined CPUC and FERC rate base of $12.7 billion for 2008. And we have also included in this guidance energy efficiency incentives of $0.08 per share. Of course this program is subject to PUC approval at the end of this year and here we have assumed a 9% earnings rate on our savings that we have generated in 2006 and 2007.

For EMG the key assumptions include our forward hedge positions and power prices as of January 31, 2008. We've also reflected EMMT pre-tax trading margin of $75 million. We now have -- and this really represents the average contributions of our trading operations since we have owned them. We have also have indicated that two of our four -- big four projects rolled off of their contracts at the end of last year, and so this does reflect, as we have disclosed in our filings, lower pre-tax earnings estimated between $80 million and $90 million for the Watson and Sycamore gas-fired projects. At Edison Capital we've assumed, as I mentioned in the fourth quarter, a normalized run rate in the mid to low teens for Edison Capital, and we're also assuming there are no changes in GAAP accounting, and we do not include discontinued operations in this guidance. I also like to point out that our earnings through the year are normally weighted more into the third quarter reflecting rate design for SCE and the importance of the summer peaking season for EMG.

And with that I'll close my comments, and just wrap up. a very strong year for us in 2007 and we're quite positive about the start to 2008. I will now turn it over to the operator to moderate the Q&A.

Certainly. (OPERATOR INSTRUCTIONS) Our first question comes from the line of Paul Fremont. Please proceed.

Hi, Paul.

(inaudible) quarter, the volume output level at Homer City and at Midwest Gen, would they be roughly in line with the volume levels that you achieved in '07 or are you looking for --?

Paul, this is Scott. Can you speak up a little bit?

Yes. First question would be for 2008 what type of volumes are you expecting from Midwest Gen and from Homer City?

Well, Paul, we don't provide a forecast of volumes because they can fluctuate quite a bit. I think what we've taken a look at historic levels in the 30 terawatt hours for Midwest Gen and something close to what we produced last year at Homer City, which was a good year for us, as being rough indicators of where you might be through the course of a year.

And then I didn't quite hear you. On Sycamore and Watson you said something about $80 million or $90 million. Was that the '07 contribution?

It would be a reduction of $80 million to $90 million in our pre-tax earnings contribution from Watson and Sycamore, roughly relative to 2007.

Got it, and can you tell us what that was in 2007?

We really -- we really convey it in terms of the big four in general, and we've got that disclosed in our K. I believe it was something in the order of $145 million, but we'll give you a number on that.

Thank you.

Next question.

Our next question comes from the line of Michael Lapides. Please proceed.

Hey, guys, two questions for you. One, thinking about the environmental CapEx, not just at Midwest Gen but also homer City, can you talk a little bit about your views on longer term spending levels and whether there has been any changes at all to some of the guidance you've given about what specific environmental projects you're going to do and what the cost of those are?

Michael, it is Ted Craver. We haven't provided any specific outlook or guidance relative to additional environmental retrofits at the Homer City station, but we're continuing to look hard at that and we do have significant emissions reductions requirements to comply with by 2015, so we just haven't come up with any specific announcement around what we would be doing to meet that.

Okay. Can you also talk a little bit about the contract status for the work you're going to do at Midwest Gen, meaning is that work contracted to do the scrubber installations or is that still something you're going to contract for in the future?

This is Ted again. Mostly it's a matter of contracting for it in the future. We've been doing quite a bit of work relative to the mercury retrofitting since the ACI installations, and also quite a bit of work for the SCR installations to meet NOX requirements. A little further down the road are the scrubber, or FGD, installations. So it's really a three-stage process, mercury first and then NOX reductions through SCRs, and then SO2 reductions through FGDs, stretched out over what's basically a ten-year period. So, there'll be a constant set of contracting and work done with outside vendors in order to put all of that in. So I don't think there'll be one big crescendo contract. It's going to be a series of contracts that come out.

Got it. Last question, didn't see a lot of hedging on either the energy side or the coal side over the last few months. Can you just comment on that and talk about what you're seeing in the market and why you may be foregoing it, layering on additional hedges right now?

Yes, this is Ted again. Maybe I'll pick up on that one. We try to really look forward in a two to three, occasionally four-year timeframe for our coal requirements, which matches up pretty much with the type of hedging we do on the revenue side -- on the sale of electricity, so we try to keep those in balance. For all intents and purposes, we're fully hedged for 2008. We're largely hedged in 2009 for both Midwest Gen and Homer City, as well, so we feel for the next couple of years we're pretty much where where we want to be. We always do a little bit of spot purchases as our overall layering or portfolio laddering approach to buying coal, but basically we're where we need to be for 2008 and 2009.

Got it. Okay. Thank you.

You're welcome.

Thank you. Our next question comes from the line of Ashar Kahn. Please proceed.

Good morning. Tom, I just wanted to -- how much did Edison Capital earn in 2007?

Edison Capital earned $69 million.

Okay, so that's about nearly like $0.20 or so, right?

I indicated $0.21 a share.

And you're saying going forward we should use a $0.12 number. You said take the $0.03 and multiply it by four, is that what you're guiding towards?

We said mid to low teens, so within that range.

Okay. And then if I can --

We actually -- the results out of our global infrastructure funds were quite positive to us, and we had been -- as you know, we're want making any new investments in Edison Capital and really been looking to let that portfolio run its course. It's been doing quite nicely for us, but it will come down over time.

Okay. Then if I can go over the factors. You said the EMMT earned around $135 million in '07, and you're projecting $75 million, right, for '08, so that's like a differential of about $60 million pre-tax, correct?

Yes. We recorded $143 million pre-tax in '07 --

Okay.

-- and as we've -- historically it's difficult for us to forecast or project what EMMT's performance is, but we now have a longer period of time in grade, and we feel that really starting the year at guidance level of $75 million is appropriate.

Okay. So I have a -$70 million on a year-on-year basis, and then you said nearly like $90 million less for the Sycamore and Watson, so that's $160 million, and then if I'm right, you're picking up nearly like $110 million for capacity payments from '07 to '08. Is that a correct number based on your charts roughly?

I don't have that number in front of me, maybe you can do the math right off of our chart.

Okay. So would those be the major I'm looking at, and then, of course, you do expect based on the hedges that Midwest Gen and Homer City should perform better in '08 versus '07 on a realized margin basis. Is that a fair assumption?

Well, I think you have to take all of the factors into consideration. II don't want to build it right here. It is don't we provide a range, Ashar. But we provided our forward-hedging numbers and combined with what forward prices are, that's why we do provide a range there so we can accommodate changes that may impact us relative to factors that are beyond our control.

Okay. Okay. There are no other major variances apart from whats listed, right, on the key factors and assumptions for EMG?

Ashar, it's Jim Scilacci. I just want to add an additional piece to that to round it out. If you look at net interest --so that's interest income, interest expense -- those are two key factors. A you can see, we've been carrying large cash balances over the next couple years and now we're coupling the cash as we grow the business, especially in the wind area, so the interest income would logically come down. At the same time we've had refinancing that occurred last year, so the benefit that far will roll forward, but we'll also be adding wind financings in time, so you have to take into consideration all three of those factors.

Okay, I really appreciate it, sir.

Next question?

Thank you. Our next question comes from the line of John Kiani. Please proceed.

Morning.

Morning, John.

On slide 15 that describes your wind projects and pipeline, it looks like your pipeline increased pretty substantially. Am I looking at that correctly? Or had you already disclosed an increase that I just didn't see?

It is an increase. I think, as we started 2006 that pipeline was at around 2,6 megawatts, and here we increased that up to 3,000, and so this expands that up to around 5,000 megawatts.

Can you give a little bit more color, Tom, around some of the opportunities you're seeing and maybe the timeframe, at least generally speaking, around when the incremental pipeline projects might be realized?

Talking about the pipeline, really what we've been looking to do is get a -- really a platform in place that gave us good coverage across regions, and from a hub-and-spoke standpoint gave us good efficiencies in both the west, the south, the southwest, the midwest, and then the east and northeast. Most of the expansion with the pipeline has been directed towards the southwest, where we clearly want to expand our presence. And the development pipeline can run anywhere from one to three years depending upon what the stage of the project is, so we don't define any specific timeframe around this.

Sure.

What we're trying to do is work diligently to transform these from pipeline into active projects that are under construction and then into operation.

Great. That's helpful, Tom. And then another question. I was unclear on the Midwest Gen environmental spending that you all announced in -- I think it was back in December of '06, you gave some capital cost estimates at that time. I think Ted had mentioned that the contracts for portions of that spending will be signed in the future. Can you talk a little bit about what those capital cost estimates look like today versus when you originally provided them?

John, I'll take another crack at it here with you. Basically we have not really refined the estimates from what we gave back in December of 2006. We'll be coming forward with several -- I think several contracts relating to some of the larger installations, particularly around Powerton, over the course of this year, so my anticipation is that later on in the year we'll be able to be a lot more specific with updated costs and those will be a matter of contractual arrangements. But at this point we're still really operating with the estimates that we gave back in December of '06.

Okay. Thanks, Ted.

Thank you. Our next question comes from the line of Dan Eggers. Please proceed.

Good morning. I thought I'd turn the tide and talk about the utility for a minute. With the 2012 CapEx at $3.6 billion, it's kind of below what we're seeing over the '09 to '11 period. Should we be thinking about '12 as a good long-term run rate or how should we think about that?

That is the current forecast which reflects what we call -- consider the ongoing requirements within the distribution infrastructure. What you see happening in 2012 is the roll off of some of our transmission projects -- the large scale transmission projects that were under construction, and also the generation work that is being done in San Onofre. We have not reflected -- and also ramping down of our Smart Connect meter program. So we have some very distinct project-oriented CapEx that is rolling off in the 2012 period. And of course, that's the latter stage of our forecast. It does not include any incremental new generation or any incremental new transmission that might be contemplated going forward. So it's our best forecast today based on what we know, and is likely -- as all forecasts are likely to change as we go forward.

Looking at the rate base growth and thinking about doubling rate base effectively over this planning period, can you talk a little bit about what happens to customer rates? I know you have the DWR contracts rolling off a lot of variables there, but if you were to assume generation costs were flat on core generation, what kind of bill increases customers would see?

Dan, this is John Bryson. I'll take it up and John Fielder will pitch in. We've talked about in the past we think that over this period, assuming all of these investments are made, there will be moderate increases in rates, but the huge variable is natural gas prices, so the extent of natural gas price increases or decreases are more significant driver than any one thing. You may remember the background here is that although we will have more of this investment to strengthen the infrastructure coming into rates over the long lifetime of recovery for that kind of investment, we also have some significant components of our current rate costs rolling off. The most important of those are the power contracts entered into by the state during the power crisis. So reasonably moderate increases are a baseline outlook and you can look to variables around those. The one I'd look to most, as I say, is natural gas prices. John?

It says it all.

Next question.

Our next question comes from the line of Steve Fleishman. Please proceed.

Hi, Steve.

Hi, Tom. Thanks. A couple questions. First, I'm wondering if John or others could elaborate a little bit more on the commentaries on the challenges in the wind business and just how you're dealing with some of these issues? And then secondly, could you just talk a little bit about what's going on with O&M costs at Edison Mission in 2008, both at the plants, but also this corporate cost that's continued to go up? The development costs?

Sure, Ted comment on the wind program.

Hi, Steve, it's Ted.

Hi, Ted.

In terms of the wind piece, really the main thing that we've been working on over the last few months here are supply chain constraints and pressures. The turbines, of course, are the largest component of these -- of the cost of these wind farms. We have about 1,160 turbines that are committed under contract that'll be rolling off here in -- coming forward in 2008, '9, and a little bit into '10. Those -- some of the blades that we've gotten from a couple of our vendors have experienced some blade cracking issues. We've disclosed this in our 10-K. We have warranties for the turbines, so we expect the manufacturers to meet all of their performance obligations and remediate these issues, but I think it's somewhat indicative of -- the kind of growth that we have in this business we're going to have some strains and pressures in that supply chain. So that's the thing that John was specifically referring to.

Did you say which vendor has had that problem or is it a couple of them?

In our disclosures, we site that it's -- we've had blade cracking issues with Suzlon and some blade-cracking issues with Clipper.

Okay. And on the O&M costs?

Yes, we had -- at the plant level, as I mentioned, we had the significant outage at Powerton. That was -- part of it was around the turbine and we advanced what had we plan to do do a major turbine overall into future years now into last year, so that increased our costs on that front. Of course, we also were running through the environmental settlement, so that's running through plant O&M also. We did a variety of other activities, so a lot of this is really designed towards strengthening the plant and their operations going forward. On the ANG side we're building the infrastructure that's required and you need to have in place to grow the business. So a lot of it is around the wind development and then the asset management activity surrounding that and the support that we need to be able to build the business.

Okay. And then anything on the pricing of your call hedges over this period, '08, '09, in particular where you have a lot hedged? Is it much higher than your '07 pricing or just modestly higher?

Yes, we -- Steve, we never provide any indication of that. It's under contract. I think the best indicator is to take a look at the timeframe in which we incrementally put on hedges, which we gave you how much that was for the fourth quarter.

Okay. I thought I would give it a shot. Thanks.(LAUGHTER)

Next question?

Our next question comes from the line of Jonathan Arnold. Please proceed.

Good morning, guys.

Hi, Jonathan.

I just -- picking up a little more on the wind and pipeline, last year you had this explicit goal of wanting to get to 2,000 megawatts by 2009. With this big increase in the overall pipeline, is that -- and then some of the issues you're having on supply chain, is that still a reasonable goal from the current numbers in service and under construction or is that looking like more of a stretch here?

Hi, Jonathan, it's Ted Craver. I think probably the issues around the turbine supply and making sure that we have good turbines will probably be the largest issue for us to work on to make sure that we can get the projects out of the pipeline and actually in commercial operation, so the exact timing of that is probably a little bit under review at this point. In terms of where we ultimately try to get to is, as the turbines are delivered we want to make sure we have projects that ready to absorb them, so the pace of actually getting projects constructed and in commercial operation is really largely driven by the pace at which the turbines are delivered and ready to assemble. So that's really our primary determiner.

And are those two turbine model that is you site in the 10-K a significant portion of the 1,166?

Yes, they are. Mostly the Suzlon.

Okay. And then one other thing I had, this time last year you had a $0.40 range of earnings guidance and $0.30 of that at Mission, but you hadn't included any assumptions around trading, and you now have similar ranges, but you have put in some trading numbers and you're effectively hedged. What are the big things that are going to push that the potential range of EMG results by that -- still that $0.30 margin?

Really, Jonathan, we still have a significant unhedged piece of our business that is subject to changes in pricing, so this is -- we're in a similar situation to where we were last year and we think that the range is appropriate.

Okay, thank you.

Thank you. Our last question comes from the line of Raymond Leung.

Hey, guys, a couple of questions. Can you talk a little bit about financing plans at the utility, given the CapEx? And also any financing plans at EME? I think the Ted mentioned earlier some project financing for wind projects. Can you elaborate a little bit more on that?

First with regard to the utility, its financing program is really designed to maintain its authorized capital structure, and so we will be issuing debt to support that activity through the course of the year. And at EMG we are looking to do our first financing around a portfolio of wind projects, and we'd hope to have that completed this year.

Any concept of size at So Cal?

In terms of the finan -- I think we're looking at something like $1,5 billion for this year of debt -- debt and preferred,and we've already done $500 million of that.

Okay. Just another question on wind. I guess historically you guys indicated somewhere around 1,600 to 1,900 of KW to build. Given the problems you're seeing on the supply chain, should we be thinking the higher end of that range or something beyond that range? Or I guess where the industry's more or less around 2,000 KW, how should we think about that given your target of 2,000 megawatts or so, and your development backlog that now you --?

Yes, it really is very project and site specific, and so we think the range we've talked about in the past is still appropriate.

Okay. One last question. What is the run rate for EMG CapEx?

Hold on.

This is Jim Scilacci. In the disclosures it shows for 2008 the CapEx number is just under $900 million, $860 million, and it drops a little in 2009 to $730 million and drops further in 2010. What you see there -- the major component of the capital spending is for the wind projects and primarily the turbine commitments, and what you're seeing in the wind area, it's -- we will increase the amount of capital expenditures for wind once we identify and approve commitments for new wind projects. So you would expect as we roll forward in time, the 2009 number for projects under construction will increase.

Okay. Great. Thanks, guys.

Okay.

Next -- okay, one more question.

Our next question comes from the line of Clark Orsky. Please proceed.

Thanks. My question was answered.

Okay.

Okay, great. Lisa, thanks very much, and thanks, everyone, for participating on the call today. Please don't hesitate to call us if you have any follow-up questions. Have a great day. Bye-bye.