愛迪生國際 (EIX) 2009 Q1 法說會逐字稿

Good morning. My name is Leslie and I will be your conference operator today. At this time I would like to welcome everyone to the Q1 2009 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator instructions).

Thank you, Mr. Cunningham, you may begin your conference.

Thanks very much and good morning, everyone. Our principal speakers today will be Ted Craver, our Chairman and CEO, and Jim Scilacci, our Chief Financial Officer. Also with us to participate in the Q&A session are other members of the management team. The presentation of the Company financial review together with the earnings press release and our first quarter 10-Q filings are available on our website at www.edisoninvestor.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. Actual results could differ materially from current expectations. Important factors that could cause different results are set forth in our 2008 10-K and our other SEC filings. We encourage you to read these carefully. The presentation also includes additional information including certain outlook assumptions as well as reconciliation measures to the nearest GAAP measure.

With that I'll turn the call over to Ted Craver.

Thank you, Scott. And good morning, everyone. This morning we reported first quarter earnings of $0.76 per share and core earnings of $0.79 per share. While our quarter earnings per share were 14% lower than last year's first quarter, the results for this quarter are consistent with the full-year core earnings outlook we provided in February.

We reached two significant milestones thus far this year that I want to comment on. First, the Southern California Edison general case, and secondly the global tax settlement we have now executed with the Internal Revenue Service. On March 12th, the California Public Utilities commission approved the 2009 general case effective back to January 1 of this year. Even with the backdrop of the current difficult economic conditions, the Commission demonstrated support for investment in California's electricity infrastructure.

The second important milestone reached was the completion of our global tax settlement with the Internal Revenue Service. This follows the joint committee on taxation's review of the settlement and our termination of all the remaining cross border leases. This is an important settlement resolving over 100 issues going back to 1986 including a final resolution of the Edison capital cross border leverage lease disputes with the IRS. Jim is going to go into more detail but getting this issue behind us and on a cash positive basis is an important milestone. We also know it resolves the risk that has been important concern for investors.

We are focused on three principal business priorities: Financial discipline, superior execution and developing innovative approaches to our toughest challenges. Let me elaborate on these three focus areas starting with financial discipline. We continue to maintain strong liquidity with over $3.5 billion of cash on hand and over $6.3 billion in total liquidity across the Company. SCE is able to access the debt capital markets as rates well within our authorized levels while adding $500 million in new bank credit lines. EMG is operating in the capital conservation mode we mentioned in earlier earnings calls which is providing important flexibility during the current downturn in the power markets. So our financial position remains strong. We see this as a competitive advantage and we want to protect and extend it through continued financial discipline.

Secondly, we continue to place great importance on superior execution for both our existing operations and our growth programs. We provide an essential public service through both our regulated utility and our competitive generation company and only through superior execution will we be reliable, successful and deserving of the public trust.

Looking forward, our ability to realize our growth potential rests principally on how we execute the two initiatives. First is our five-year, approximately $20 billion capital investment plan at Southern California Edison. This is the largest such program in our history and among the largest in the industry. Second is our ability to develop our pipeline of potential wind and solar energy projects at Edison Mission Group while meeting the environmental responsibilities of EMG's coal fleet. We continue to work on our 5,000 megawatt pipeline of potential wind projects and have early development activities underway at 30 potential solar sites in six different states. Accessing the nonrecourse bank market for renewable project financing remains a key challenge in moving our renewable development program forward and we are hopeful that the bank market will be accessible to us this year so we can continue building out our development pipeline.

Let me turn to our third business priority, innovative approaches. An area that has been an important focus for our investors and that needs innovative approaches is how our coal fleet meets its environmental responsibilities. EMG has now been engaged in an effort to identify less costly approaches to meeting the coal fleet environmental obligations within the framework of the 2006 compliance agreement with the state of Illinois. EMG is seeing some encouraging but still very preliminary results from its evaluation of alternative environmental compliance technologies for NOx and SO2 control. They are currently running field tests at several of the units. The technologies being tested include catalytic NOx removal, noncatalytic NOx removal by injecting urea and SO2 removal technologies using trona or sodium bicarbonate injection. Our engineers will need more time to validate the preliminary results but these are all efforts to develop less costly alternatives.

By focusing on these three priorities, financial discipline, superior execution and innovative approaches, I believe we will achieve Edison International's growth potential which is among the very best in the industry and realize superior value for our owners.

With that, let me turn the call over to Jim Scilacci.

Thanks, Ted. In my remarks I will be reviewing our first quarter financial performance, update you on EMG's operations, provide some more specifics on our global tax settlement with the IRS, and conclude with comments on guidance. In our last quarterly call we told you that SCE's earnings would be up during 2009 while EMG's earnings would be down. The primary drivers for these changes would be SCE's general case decision and lower results at our merchant coal plants. Our first quarter earnings are consistent with this guidance . If you turn to page 2 in the deck, I'll summarize our quarterly GAAP and core earnings. As Ted has already said, reported earnings per share were $0.76 for the first quarter of 2009 compared to $0.91 last year. EIX core earnings per share were $0.79 in the first quarter of 2009 compared to $0.92 in the first quarter of 2008. Please note that we have implemented FAS 160 this quarter which redefines net income to include earnings attributable to noncontrolling interests. The numbers included here are attributable to Edison International only.

Turning to page 3, the 2009 first quarter core earnings decrease of $0.13 per share is mainly due to a few key drivers, lower energy prices and lower generation along with higher emission costs at Midwest Generation of about $0.22 and Homer City of about $0.03, and lower EMMT revenues primarily from lower congestion revenues of approximately $0.05. Market energy prices were driven down by lower natural gas prices and lower demand. Included in Midwest Gen's first quarter results is a positive $0.03 per share from hedge contracts that did not qualify for hedge accounting.

Although EMG's results were down, SCE results partially offset this by about $0.18 primarily related to two items: Higher rate base of about $0.07 and deferred spending of about $0.06 associated with a delay in receiving our 2009 GRC decision. The difference in noncore items of $0.03 per share include a $0.04 charge from termination of two of our six LILO, SILO or cross border leases which I will talk more about in a few minutes.

Turning to page 4 provides an overview of the operation performance of Midwest Gen's coal fleet. Low terawatt hours, capacity factors and load factors were lower than the first quarter of 2008. The decline in natural gas prices combined with lower electrical demand in northern Illinois resulted in significantly lower energy prices compared to last year. Energy prices were also dethrust by transmission congestion affecting power exports from the northern Illinois hub control area. The average 24-hour PGM market price for energy at NI Hub declined to about $34 a megawatt hour during the first quarter of 2009 compared to $53 per megawatt hour during the same period in 2008.

Coupled other points regarding Midwest Gen, fuel and emission costs increased during the first quarter from higher annual NOx emission and mercury control costs consistent with our previous guidance and lower forced outage rates of 7% for the first quarter of 2009 compares favorably to 11.8% rate in the same period last year. As you may recall, Midwest Gen has focused considerable effort and funds in 2008 to reduce boiler tube leaks. They are now seeing tangible results from this effort.

As you can see on page 5 of the deck, Homer City experienced lower financial performance compared to last year. As with Midwest Gen, the decline in natural gas prices, together with lower electrical demand resulted in significantly lower market prices and lower generation, particularly in offpeak periods. As provided in our disclosures, the average 24-hour PGM market price at Homer City declined to about $45 a megawatt hour during the first quarter of 2009 as compared to about $60 during the first quarter of 2008. As shown on page 5, Homer City's average realized energy price was higher than the 24-hour PGM market price due to the higher hedge prices. Higher capacity revenue also helped offset the lower energy prices.

Low power prices also caused EME to shift to planned outage at Homer City into the first quarter of 2009. This resulted in an additional 20 days of plant outages as compared to the first quarter of 2008. This shift reduced availability and generation and increased plant O&M which will largely reverse next quarter. Homer City's first quarter forced outage rate increased substantially compared to last year. This increase, however was not a result of equipment failure but was largely due to deratings which were required to prevent exceeding unit opacity limits. The lower prices and dispatch of Homer City units resulted in increased unit ramping which then affected unit opacity. Recent efforts to optimize unit ramp rates and combustion parameters have reduced the deratings required to avoid opacity overages.

Turning to pages 6 and 7, provide EME's hedge position for the coal fleet. We did not enter into new energy hedges during the first quarter of 2009. We have said previously we continue to believe coal prices will decline. We have also been reluctant in entering a forward hedge sales of energy given the depressed prices of power. Although we would like to limit our gross margin at risk, we are also mindful the liquidity requirements of locking in prices at these low levels.

I'd like to add a little color on the elements of our capital preservation mode at EME right now. At March 31st, 2009, EME had consolidated cash and short-term investments of just under $2 billion compared to $1.8 billion at December 31, 2008. The increasing cash is largely due to higher collateral deposits received from counter parties under our hedge program. EME and Midwest Gen have utilized about $1 billion dollars of their credit lines with about $100 million available at March 31st 2009. To make clear, the cash position shown on page 8 is for EMG or Edison Mission Group. The difference between EME cash position of $2 billion and the EMG cash position of $2.4 billion is primarily cash at Edison capital. Edison capital's cash increased during the first quarter from terminating the two cross border leases and receiving the collateral which now has been converted into cash.

We added details in our first quarter disclosures of EME's interest coverage ratio and recourse debt to recourse capital ratios as defined in EME's credit agreement. As of March 31, EME's interest coverage ratio was 1.59 as compared to a minimum threshold of 1.20 and recourse debt to recourse capital ratio was 0.59 compared to a maximum threshold of 0.75. EME deferred certain turbine payments scheduled during the first quarter by agreement with certain suppliers and is continuing discussions during the second quarter on scheduled future deliveries and payments. In the meantime, EME has continued to preserve capital by focusing on selective growth strategy, primarily on completion of projects under construction and development of future sites for future renewable projects deploying the current turbine commitments. EME is actively participating in competitive PPA solicitations but awards from these solicitations are slow presumably by the current economic environment.

Turning to the global tax settlement, as Ted mentioned on May 5th, Edison International and the IRS finalized a global tax settlement. This settlement resolves all federal tax issues related to Edison Capital's cross border leases as well as SCE's issues from 1986 to 2002 tax years. During our last quarterly call we indicated the global tax settlement was being reviewed by the joint committee on taxation. On April 1st we received word from the IRS that the joint committee had completed its review without adjustment. Pursuant to the settlement we then terminated the four remaining Edison Capital leases. As previously mentioned, two of the six leases were terminated during the first quarter of 2009. As a result of these lease terms, Edison Capital received collateral supporting the leases. These funds are the principal source of payment under our settlement with the IRS.

The financial reporting of the global tax settlement will not occur until the second quarter of 2009. Our second quarter 10-Q will be released in early August and included in our first quarter disclosures are the following key points: EIX expects a positive consolidating cash flow impact of approximately $325 million to $400 million. EIX will record a noncore earnings charge of approximately $225 million to $300 million through the second quarter of 2009. To be clear, a $0.04 first quarter charge associated with terminating the two Edison capital leases is included in this range. Also in the second quarter, Edison Capital recorded a substantial earnings charge associated with entering into the global tax settlement and terminating the cross border leases. Lastly, the global tax settlement will be have a favorable earnings impact on SCE.

One last comment about the global tax settlement. Clearly it resolves a major uncertainty for our Company and we are pleased that it's now behind us.

Turning to guidance, our outlook for 2009 is shown on page 9. Although our core earnings guidance remains the same, the global tax settlement changes our GAAP noncore numbers and they are provided in the chart. Additionally, assumptions were updated for forward prices as of March 31, 2009, and we have included the global tax settlement impact. All other assumptions remain the same.

With that, I will turn over the call to the Operator for

Thank you. (Operator instructions). Our first question comes from the line of Greg Gordon of Citi, your line is open.

Thanks, good morning. Can you take a step further in the discussion of the tax settlement and explain how much cash is going into SCE, how much cash is being paid out of Edison Capital and how that deals with the equity funding requirements at SCE because I know some investors have been concerned that -- it's a good news, bad news situation at SCE with so much growth that you might have to issue parent equity to finance that.

It's a good question and what I'd like to say right now, we are trying to limit the discussion overall at EIX level and it's obviously positive from an EIX level, and as we provide additional information in the second quarter, we will get into more specifics in terms of all the allocation of cash. But bear in mind since we have terminated the leases, the cash now resides at Edison Capital and we are moving around the entities at a later date once we clarify and get all the specifics in place.

Okay. Thanks. Second question is when will we be able to quantify and talk about the different cost benefit parameters of these different technologies? And once you get to a point where you understand them, what is the process of getting the relevant counter parties to buy into potentially changing the control technology that you want to deploy?

What I'd like to tell you right now is we are going through an extensive testing period currently, and that's going to take some time for us to work through both the SNCRs with urea injection and the trona-based testing. We have to go through the process we are doing at various plants and we are going to come back with that result and analyze it and that's going to take some time, and I think it's going to be later in the year. I don't want to tell you exactly when because it does take quite a bit of testing and we will be providing it typically later. I look to ron Litzinger, if you want to add anything further.

Yes. And with the alternate control technologies, what we are shooting for are meeting the rate, the emission rate portions of the CPS agreement and as such, all we need are the construction permits from the Illinois EPA, and thus far they have been cooperative and provided us with the permits for testing without any difficulty. In fact, they were expedited. So we really don't need anything other than construction permits for these technologies to comply with the rates.

Thank you, guys.

Thank you. Your next question comes from the line of Hugh Wynne of Sanford Bernstein.

Your comments on the opacity problem at Homer City were a little opaque to me. I was wondering if you could clear them up.

What I'll do is I'll have Ron Litzinger address that.

Yes, Hugh. As we began to get into more of a load following mode at Homer City with units ramping up and down, we started having opacity excedances. The regulations anticipate these type of excedances for transient conditions and for 2% of your operating hours you're allowed to exceed those levels. We started to get above that level. We have since then been optimizing our ramp rates, in essence slowing them down, and returning our combustion parameters in the boiler. We got them back underneath that 2% allowable level. On April 1st that allowable level got reduced to half a percent. The team has further tuned the boilers and we are now underneath that level. We have a small derating left, but we expect the team to have that sorted out and get rid of that small derating here shortly.

Great. Thank you. Just a quick follow-up. I notice on your liquidity profile that you've got $2.3 billion of cash and short-term investments at Edison Mission Group, which is looming very large relative to the outstanding debt of the unit. Is that transient as a result of the IRS settlement? Is this something that reflects an accumulation of cash or future CapEx or debt retirement? What is the purpose of the large balance?

Just to clarify, Hugh, this is Jim, the $2.3 billion that shows in our investor deck is the accumulated consolidated cash at Edison Mission Group and then you have to break it down into its component pieces. The principal entity that holds the cash is Edison Mission Energy, and Edison Mission Energy has as of March 31 about $2 billion of the $2.3 billion. The majority of the remaining cash resides at Edison Capital and it has a lot of cash from terminating the two leases and there's very, very little cash that resides at Homer City. In fact, we sweep out most of the cash from Homer City so there's just negligible amounts of cash there.

That's very helpful. And then the intent of the large cash balance at Edison Mission Energy?

Yes. There's a couple of drivers there. We drew down on our credit lines at both EME and Midwest Gen in the fourth quarter of 2008 and we have left that cash sitting on the balance sheet, and obviously we have a borrowing on the opposite side through the draw in the lines. And we have kept it there and we haven't decided whether to take it down. You may have noticed in the first quarter we did pay down some borrowings at Edison International and Southern California Edison as the bank situation started to stabilize.

Right. Thank you very much.

Thank you. Your next question comes from the line of Jonathan Arnold of Merrill Lynch. Your shrine open.

Good morning, guys. Could I just ask for a little extra color around the timing for realizing the net cash benefit of the IRS settlement and is that fairly clear to you at this point or is it potentially going to be drawn out over a longer period? What could change that.

I think what's important to understand off the top that when we terminated the leases at Edison Capital, the cash is now in the house. And so it's sitting there pending how we are going to move the dollars up from Edison Capital and ultimately out to the IRS for payments and then to Southern California Edison. And we are going through that process right now sorting through many of the details, and as we get into the second quarter and we actually report on the settlement, we will have more information.

Just to be sure, you're at a maximum cash point on this already and now you'll do the flow back later, beyond the second quarter?

It will probably occur in the second quarter but it's going to be -- we just got the cash in and now we are working through all the details so it came in in the month of April and we will report on all of this in August as we get through the second quarter.

Okay. Thank you. And then could I ask just for a little more color on the timing around wind financing and then also the pipeline. When you say you have these turbines in the pipeline, are there any dates coming up where you're committed to take them and any need to have projects in hand or can you remind us how that works?

Well, let me start out and then I'll kick it over to Ron for further detail. On the project financing, we are currently working through that with a group of banks and I'll just say right now it's progressing. In terms of the dates and the commitments around our turbines, we are in active discussion with all three of our major turbine providers and that's active and we have got some milestones that are coming up. And I'll stop there and throw it over to Ron if there's any further detail.

Yes. We are in discussions with three of our suppliers. We are deferring deliveries of the turbines and deferring the payments that correspond with those as part of our cash preservation strategy. And then we are continuing to develop projects such that they will be ready when the new turbine delivery dates come to fruition.

Should we think of this you are paying some kind of penalty in order to defer or adjusting contract terms or something like that?

No. It's a very simple form of vendor financing pushing the payments down the road and then we are negotiating other issues with the turbine suppliers as we go through this exercise.

So there's no kind of one time cost for doing this?

Not at this point in time.

Okay. Thank you.

There are termination provisions in the contract but we are in a deferral mode, not a cancellation mode at the moment.

And just to maybe close that point, so do you have to then -- are we looking for some negotiations to be completed on this and are you announcing at some point that you've secured deferral? Or is it safe to assume that you can defer for certain period of time and how long is that?

We have been deferring all turbine deliveries and payments in the first quarter. With the exception of one tranche and one supplier, we are deferred -- have already been deferred. So as we get formal signed agreements with the suppliers, we will disclose them at that time.

Thank you very much.

Thank you. Our next question comes from the line of Leslie Rich of Columbia Management. Your line is open.

Hi. I wondered if you could take a look at your projected annual generation volumes for Homer City and Midwest Gen. Obviously during the first quarter volumes were down, and I wondered if you had any sort of projection for your total volumes produced during the year given the opacity issues that you are discussing, as well as demand. Or is it really just a factor of whatever the demand is you'll generate it and it will come or, I know what you're normalized run rate for generation volumes is on an annual basis and I just wondered if you've adjusted that.

At Homer City our planned outage moves are largely timing issues. We were just pushing our scheduled overhaul into a period of known low pricing, so we expect volumes to be roughly the same given the fact that we think we just about got this opacity problem corrected. Volumes will probably be down slightly at Midwest Generation. We did see lower dispatch because of the lower exports out of NI hub. That has largely gone away in the second quarter and things are starting to look more typical.

Leslie, we don't typically provide projections at Generation but historically Homer City generates somewhere between 13.5 and 14 terawatt hours a year.

Okay. Thank you.

Thank you. Our next question comes from the line of Lasan Johong of RBC Capital Markets. Your line is open.

Thank you. Congratulations on a very nice quarter. The Moody's Bond Index seems to be shifting down and Semper is looking to suspend the tie to the ROE number. Are you guys looking at similar moves? Are you concerned about your ROE position right now? Can you give me a little color around that?

This is Jim Scilacci. I'll just give you some color and then I'll kick it over to Al Fohrer. It's my understanding that Semper has, and SoCal Gas, has a different mechanism and we track the Moody's BAA Bond Index and that's the one you should be looking to in terms of how it might adjust going forward. And it's on an annual basis. And so let me stop there and look over to Al Fohrer to see if there's anything more he'd like to add.

The only thing I'll add is this takes a look at the interest rates over a period of time and that period extends through the end of September, so it's a little premature at this point to speculate on where exactly it's going to end up.

I see. Other $2.3 billion of cash at EMG, how much of that is due to collateral from third parties?

About $300 million.

Okay. So it's not a huge quantity. Do you think that your Midwest Generation fleet was impacted by coal to gas switching potentially, or more gas fired gen running and people buying from gas fired gen versus coal fired gen?

Let me start there and I'll kick it over to Ron. I think there are lower loads overall in Midwest Gen and we have speculated that it could have been that but we don't have all the information and so we are going to keep it there and say there may be something like that going on but we don't have the information to be able to confirm that.

Gas prices are certainly indicative of coal to gas switching. We don't have any hard evidence that that's occurring. It certainly can. Our volumes were down primarily in the off peak periods where with the limited amount of exports leading NI hub nuclear plants were clearing on the off peak hours most of the time.

I see. Thank you very much.

Thank you. Our next question comes from the line of Ryan Mooney of Duquesne Capital Management. Your line is open.

Good morning, guys. Congratulations on the quarter. I had a couple of questions on the Edison Capital global settlement and the $600 million of cash to be received by SCE. Just to clarify, first, did you say you have received that cash? And then secondly, does that serve to offset the customer bill or are you able to use that for a financing source of capital?

Just to clarify, what I said that we terminated the leases at Edison Capital and the part of the deal with the lessees, we give them back the asset, we got the collateral supporting the lease payments and that collateral was in the form of treasury strips which has now been converted into cash. So that resides now at the Edison Capital company. During the second quarter when we report on this, we will provide more information in how the funds are going to flow.

Secondly, on the P RB position in 2010, it seems you have about a 6 million, 7 million ton open position and steps down in 2011 from there. How are you thinking about recontracting that in today's market and when should we expect that might happen?

Well, let me have Ron Litzinger address that.

Yes. In the out year, in the future years, we try to keep our power and our coal positions roughly in sync and so we will be watching, we will be sticking to that philosophy. As we get later in the year for logistical reasons in the prompt year, we do have to fill out our coal position and we are constantly monitoring trends in PRB pricing. The 2010 coal has come down a little and so it's trending in the right direction. But we are monitoring it. But again, we generally lock that in with power hedges.

Thank you.

Thank you. Our next question comes from the line of Clark Orsky of State Street Global. Your line is open.

Hi. I had a question regarding the CapEx at EME. In the table in the queue, does the $803 million of CapEx for the rest of the year, does that include deferrals of turbines?

That's the full turbine commitment amount. With some suppliers, we at this point in time of the negotiations we have just pushed later in the year and as we finalize the arrangements, we will be revising the table.

Okay. And the project's financing that you discussed, is that expected to encompass all of the financing needs for wind or just the near term?

This is Jim Scilacci. The project financing is just a segment of our current portfolio of projects and so, again, it's a segment and so it doesn't cover the full portfolio. And as it stands now, the wind portfolio is completely equity financed and we designated a small group of turbines to finance at this point in time because they are the easiest to finance and we are in advanced discussions with the banks on that.

Okay. Okay. Any timetable that you guys might be able to say more about that?

I think we can just say that we will report more in the second quarter, but we are in advanced discussions.

Thank you.

Thank you. Our next question comes from the line of Kevin Fallon] of Blenheim Capital Management. Your line is open.

Good morning. I just wanted to clarify an earlier question. The funds that you receive at the SCE level from the global settlement, is that shareholder money or rate payer money or is that inconclusive right now?

The funds -- the way this works, to step back a little bit, the dollars here have to do with over 100 issues that have arisen as far back as 1986. And as the dollars flow into SCE, the big thing here, it's going to provide needed funds to help finance the utilities capital's structure and overall capital plans. And this will be beneficial to rate payers going forward because at SCE it's going to increase deferred taxes which is an offset to rate base and ultimately revenues.

But just to clarify there, sorry to cut you off. Is that your decision to make or do you need that approved by the CPUC?

The way this is going to work and let me just follow my last statement here because I think I was going to get to the core of what you were asking, the settlement cash at SCE is really in two major pieces. It's a refund of income taxes and then interest on the refund that SCE paid, not rate payers, associated with prior issues and these payments obviously were made to the IRS. And the second piece are refunds and associated interest from long ago periods that are close for rate making purposes and so I think we are getting -- hopefully you understand here that we believe these are our dollars.

So one part is outright shareholder money was spent to satisfy IRS claims and the other is, for lack of better term, like the statute of limitations has ended on the other part?

No. I think we just want to say that these are rate making periods that are very old, long ago and they have fully closed.

All right. Fair enough. Thank you.

Thank you. Our next question comes from the line of Ben Schuman of Pacific Crest., your line is open.

Can you give us an update on the Smart Connect program at SCE in terms of how many meters you expect to install this year and maybe next year.

Why don't I have Al Fohrer address that.

Yes, I don't have the exact number on the meters. We are looking at still a full scale deployment by the end of 2012. We have delayed -- or deferred some of the meter that we were going to do in 2009, more into the 2010 period, but I don't have the exact number that we are doing this year. We are still focused on an end of program at the original date of 2012.

Okay. Is it still undetermined when the full scale roll-out will begin, then?

The full scale deployment will begin later -- later towards the end of this year and it hasn't changed the end date.

Okay. Thank you very much.

Thank you. The next question comes from the line of Michael Goldenburg of Luminous Management, your line is open.

Good morning. Congratulations on a good quarter. I just wanted to follow up on the question as it relates to cash at SCE. I think you said something about deferred taxes. Are we basically to understand that this cash is positive in that it brings money into SCE but it reduces rate base through deferred taxes so basically is almost like a CapEx reduction in a way? Net CapEx.

The way it works, it ultimately -- there's a piece of it that reduces rate base through increase in deferred taxes.

Right. Okay. Yes. That's exactly what I thought. Okay. And then two more follow-ups. So all the cash benefits that you're talking about, the net $300 million cash benefit combined of SCE capital is basically coming in this year? It's already in your coffers at this point?

Yes.

And the six leases are all the leases that were outstanding at Edison Capital so at this point Edison Capital doesn't really have any leases at all?

Just to clarify, these are cross border leases. There are a few legacy leases, domestic leases that still exist at Edison Capital, but it's small in relationship to the overall cross border leases.

Oh, so the cross border ones were like Dutch entities were involved oftentimes? Is that the kind you are talking about?

There are foreign infrastructure investments and so those are all now the ones that are terminated.

Got it. Understood. Thank you very much.

Thank you. The next question comes from the line of Raymond Lund of Goldman Sachs. Your line is open.

Sorry. Hey, guys, question on the wind turbine commitment deferment. What kind of sense can you give us? It sounds like it's being deferred. Would that change the '09 spending and push it out to '10 and is the deferment just focused on the '09 deliveries or are you working also on your '10 deliveries also?

Let me have Ron Litzinger address that.

We are focused on the '09 deliveries. Only one supplier actually has 2010 deliveries.

Okay. And when can you -- is there any parameters around how much deferment that you could push out from '09 to '10 or we just have to wait a bit on that?

No. We have to complete and get to final agreement with the suppliers.

Okay. Thank you.

Thank you. The next question comes from the line of Raisa Hatafi of Decade. Your line is open.

Just had a question on the deferred tax balance but it was answered. Thanks.

Thank you. Our next question comes from the line of Paul Patterson of Glenrock Associates. Your line is open.

Good morning. Can you hear me?

Yes, Paul.

What I wanted to ask you was, and I apologize if you guys went over this, but on the hedge, it doesn't seem like there's been much of a change in the hedge in terms of power output. There does seem to be a slight decrease in hedge in terms of coal for 2010, 2011. Have you guys already gone over this?

We indirectly talked about it and I had it in my prepared remarks, Paul. But if I can just briefly say, we didn't change our hedge position during the first quarter. So power -- we didn't sell any power forward and we didn't buy any additional coal supplies. And I think the basic line that you have been hearing from us the last couple of quarters has been we believe that coal prices would come down and we would look to hedge at the appropriate time frame. And as far as selling power forward, we have been reluctant to want to extend our hedges out too far or at all because of these current low prices, and we are also mindful of the liquidity impacts to the extend if you lock in now and prices go up later, it would have a significant requirement for cash. So we are watching that market carefully and we are going through the process now of reviewing our hedge position, but we will make that decision later. We generally like to keep our hedge position equal. If we are going to sell power forward, we'd like to have our coal locked up and our transportation and our emission so it's a cleaner hedge rather than just getting what I would typically refer to as a dirty hedge by having certain elements hedged but not others.

Okay. It did look like there was a slight decrease in coal under contract, but it doesn't look all that great but for 2010, 2011, I'm just wondering why that might be. But also it did look like you guys were a winner, I believe. Maybe I've misread it but I thought you guys were a winner in the Com Ed RFP that was done recently, I know that was after the date that the slide is, but how should we think about that with respect to what you just said about power prices being low and what have you?

I'll have Ron Litzinger address that.

On the recent Com Ed RFP, we won a very small tranche of that, mindful as Jim pointed out, of our liquidity concerns.

Okay. Thank you very much.

Operator?

Our next question comes from the line of Jesse Lauden of Zim Lucas. Your line is open.

Good morning. Just a quick question in terms of the wind investments. Has the company finished evaluating the stimulus program and made a decision in terms of what types of tax credits make the most sense at this point?

This is Jim Scilacci. I think we are still looking at the various options. Clearly we have some appeal to the cash grant approach given our liquidity position, but we haven't made a decision yet in terms of what we will do.

Great. Thank you.

Thank you. Our next question comes from the line of [Ivana Ergovic], your line is open.

Good morning. Just a quick question on wind earnings. I see you have $0.04 contribution in the quarter and would it be reasonable to assume that you'll have a similar contribution in the following quarters?

There will be additional contributions. If you go back a couple quarters, you can see we have added a number of projects to commercial operation. So we are in that phase of our earnings on the wind side that should be increasing. And similarly, you should see an increase in the level of production tax credits the projects generate. And we have got two more projects that are late in construction phase and should go commercial soon, and we have got another project, a large project, that we haven't recommenced construction on. That's our Big Sky project. So you would natural see a lift in the level of earnings generated from the wind project.

Okay. Thank you.

Thank you. Our next question comes from the line of Dan Eggers of Credit Suisse. Your line is open.

I guess I'm just trying to digest something around the $600 million adjustment, reduction to rate base. Because the GRC is in place for the next three years, does that mean that there's really no way to adjust revenue requirements or look at earned ROEs in that transition period?

Just to clarify, the $600 million is cash, not an adjustment to rate base so I just wanted to clarify that off the start. And the normal process we will go through is that we will update information through the general case process to incorporate the changes in deferred taxes and we will go through the normal process with the Commission to do that.

Which would mean the next rate case?

That's the current schedule.

Okay. Thank you.

Thank you. Our next question comes from the line of Michael Lapides of Goldman Sachs. Your line is open.

Hey, guys, a little bit change of topic. Can you give an update on transmission development in Southern California, especially what you're seeing in terms of being able to site and permit some of the lines you're working to connect renewable? And also provide an update on Paloverde Devers.

That's a good question and topic so I'm going to have Al Fohrer address that.

Let's take the two lines you're talking about. The first one is the Tehachapi transmission project. That is moving forward. The first phase is phase one through three are under construction. The remaining phases are going through the licensing process with a decision expected later this year. We are seeing the normal pushing and shoving around location of the lines but this is something I think we and the PUC and the parties expected. We will try to work with all the parties to reach resolution, but ultimately a decision has got to be made on the lines going forward and I think we are in the process to do that.

Devers Paloverde remains a little muddier. We are working with the PUC and with all the parties on the status of the line. The PUC is considering whether to authorize the first portion for California and that's before them right now, and we are working with stakeholders to see if there's a resolution in Arizona or whether we pursue some other path. That yet remains to be seen and that needs to be worked out with the PUC and all the parties. So that one is a little more up in the air.

Got it. Okay. Thank you.

At this time I'll turn it back to Mr. Cunningham for any additional or closing remarks.

Thanks very much, everyone. If you have any follow-up questions please don't hesitate to give us a call. Thank you. Bye-bye.

Thank you. This concludes today's conference call. You may now disconnect.