愛迪生國際 (EIX) 2011 Q4 法說會逐字稿

Good afternoon. My name is Sharon and I will be your conference operator today. At this time I would like to welcome everyone to the Edison International fourth-quarter 2011 financial teleconference.

All lines have been placed on mute to prevent background noise. After the speakers' remarks there will be a question-and-answer session. (Operator Instructions). Today's call is being recorded.

I would now like to turn the call over to Mr. Scott Cunningham, Vice President of Investor Relations. Thank you. Mr. Cunningham, you may begin your conference.

Thanks, Sharon, and good afternoon everyone. Our principal speakers today will be Chairman and CEO Ted Craver; and Chief Financial Officer Jim Scilacci. Also with us are other members of the management team.

Ted's prepared remarks, the presentation that accompanies Jim's comments, the earnings press release and our Edison international 10-K are available on our website at www.edisoninvestor.com. Tomorrow we will issue our regular quarterly business update presentation that will use these and other slides for our ongoing investor discussions.

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 SEC filings. We encourage you to read them carefully.

The presentation includes uncertain outlook assumptions, as well as reconciliation of non-GAAP measures to the nearest GAAP measure. With that I will turn the call over to Ted Craver.

Thank you, Scott, and good afternoon everyone. Today Edison International reported fourth-quarter earnings of $0.75 per share and full-year core earnings of $3.22. We are pleased that our fourth-quarter results have allowed us to deliver 2011 core earnings well above the high end of our guidance range.

Southern California Edison, Edison Mission Group and the parent all contributed to outperforming the earnings guidance. Of particular note, Southern California Edison's core earnings increased $0.20 in the quarter and $0.32 for the full year due to rate base growth and a favorable tax adjustment that Jim will discuss a little later.

Typically at this time of the year we provide earnings guidance for the coming year. However, we will not be providing 2012 guidance until we receive a final decision in Southern California Edison's general rate case, which we hope will be in the first half of 2012. In the absence of specific earnings guidance, Jim will discuss some of the key drivers to our 2012 earnings in his remarks.

On a reported basis we showed a loss for the full year of $0.11 per share due primarily to impairment charges at EMG. These impairment charges are largely the result of a sharp decline in power prices combined with the need for substantial investment in retrofits to our coal fleet to comply with environmental regulations.

I will say more about those charges later during my remarks about EMG. Let me begin by covering some recent developments at Southern California Edison. First, let me provide a brief update on the timing of Southern California Edison's 2012 general rate case.

As of now we don't have a timeline for when we will get a final decision, although we hope it will be in the first half of the year. The commission is aware of the need for a timely GRC decision and we expect a proposed decision will be forthcoming shortly. But it is also important to remember that the final decision will be retroactive to January 1.

Our value proposition at Southern California Edison is driven by growth in capital investment, which is expected to result in average annual growth in rate base of 7% to 9% through 2014. This growth is largely driven by California policy mandates as well as infrastructure replacement to ensure public safety and reliability.

Over the last five years Southern California Edison has delivered compound annual growth in rate base of 11%. And its core earnings have increased at a 12% compound annual growth rate. One large component of SCE's capital program is investment in transmission to connect renewable generators, such as the Tehachapi and Devers Colorado River projects. At these projects we are seeing higher cost to mitigate various environmental impacts and from permitting delays. These additional costs are included in SCE's updated capital spending forecast.

I would also like to provide an update on the outage work taking place at our San Onofre Nuclear Generating Station, or what we refer to as SONGS. Unit 2 is off-line for a planned outage -- planned refueling outage, and we took Unit 3 off-line on January 31 to inspect a water leak in its steam generator. The steam generators in Unit 2 were replaced in 2010 and Unit 3's were replaced in 2011. Our planned inspections of the steam generators in Unit 2 found isolated areas of wear in some of the heat transfer tubes. We're in the process of preventively removing tubes from service, as prescribed by industry guidelines and well within design margins for this kind of repair activity.

We are still conducting a battery of tests and performing a root cause evaluation on the Unit 3 tube water leak. SCE is committed to the safe operation of SONGS and, of course, will not return the plant's generating units to service until we're entirely satisfied it is completely safe to do so.

A final update I will provide on SCE is that this year it will complete the installation of 5 million smart meters in a $1.2 billion infrastructure capital investment. There were 3.8 million meters installed by the end of last year, and the program is on schedule and on budget.

As the system is rolled out SCE is developing programs that provide customers with enhanced information and services on their energy usage, while providing us with new tools to better manage outages. We continue to see opportunities for this investment to enhance our customer service platform by facilitating energy efficiency and providing the ability to integrate customers' smart appliances and devices within the home.

Let me now turn to Edison Mission Group. We continue to believe that a dual platform of regulated and competitive businesses best positions our Company for the transformative change we believe will sweep across the electric power industry.

For the last 18 months we have been focused on unlocking the option value at EMG by reducing and extending the timeline for required capital investments and creating new liquidity to provide additional time for a recovery in power and capacity prices; however, power prices have not recovered. Indeed, their deterioration accelerated late last year and early this year.

Additionally, EMG's liquidity has been reduced in the near term by losing its ability to monetize its tax losses until at least 2013, primarily because the federal stimulus program, and especially the enactment of 50% and then 100% deductibility of bonus depreciation, has created net operating losses in the consolidated EIX tax group. These two factors have added to EMGs stressed condition.

The efforts to stabilize EMG continue, focusing on cost effectively meeting its environmental requirements, reducing its unsecured debt, and diversifying its generation portfolio with additional natural gas and renewable generation. Ultimately the test will be the ability to generate sufficient cash flows such that it can refinance a sustainable portion of its unsecured debt.

If current power market conditions persist, EMG expects to incur further reductions in cash flow and earnings losses in 2012 and beyond. Current conditions, coupled with pending debt maturities and retrofit investments, will strain EMG's liquidity such that it may need to divest assets and restructure or reorganize its capital structure to get through this period to see if option value is indeed there.

We have repeatedly said that EIX will financially disciplined and not invest new funds into EMG unless we can see a clear and compelling path to obtaining both a return of and on any investment. In the face of deteriorating financial conditions at EMG, we reaffirm that pledge.

EMG will likewise maintain its financial discipline, and the impairments being announced today demonstrate this, as they reflect the decision not to invest or the reduced likelihood of investing in retrofits at certain coal plants.

The $623 million after-tax impairment charge at Homer City reflects the assessment that EMG is not going to control this investment going forward. This conclusion was reached when Homer City was unable to attract outside capital for its environmental retrofits under its current financial structure and current market conditions.

We are working with the owner lessors to transition control of Homer City to them, subject to their discussions with their bondholders. Today we also announced a $386 million after-tax impairment charge on three of our Midwest Generation plants -- Fisk, Crawford and Waukegan. We have also reached the conclusion that it is not economic to continue operating Fisk beyond 2012 or Crawford beyond 2014. We retain flexibility on the decision whether to retrofit Waukegan since we don't have to make major capital commitments there for a while.

With the challenging market environment facing EMG the primary focus is to preserve and enhance liquidity and seek a sustainable capital structure. While the impairments reflect deteriorating conditions, they also reflect this focus. Reductions in spending at Fisk and Crawford and potentially Waukegan will help liquidity.

They also facilitate extending the timeline for deciding on retrofitting the remaining Midwest Generation plants while maintaining full environmental compliance by burning ultra-low-sulfur coal. And while EME terminated its largely undrawn revolver in February, the termination of the revolver has the benefit of freeing up collateral for future debt financing.

Actions in our wind business reflect the focus on preserving and enhancing liquidity as well. First, EMG reduced development spending on its existing wind pipeline and rationalized development and support staff. Second, it continues to project finance its existing wind portfolio. To this end, during December of last year EMG closed a $242 million portfolio financing of three contracted wind projects representing 204 megawatts.

Third, and perhaps most notably, a sizable equity financing was completed for EMG's wind developments. On February 13, EMG received a $460 million commitment to facilitate the development of wind projects. This unique structure involves the transfer of three operating EMG wind projects totaling 291 megawatts to a new venture with outside investors. Also, two projects in construction totaling 120 megawatts will be sold to the venture upon their completion.

This transaction will net EMG approximately $235 million as the five projects are transferred. It also allows EMG to do additional development of wind projects without consuming its equity capital by retaining project upside after the investors achieve their targeted return.

Completing these strategic actions results in a more focused EMG, better positioned to weather its challenges. Last summer I began saying that the next six to twelve months would likely be determinative for EMG, and that during that time frame a number of important issues would need to get resolved. That remains the case.

We have important steps that we will be addressing with investors in the coming months as we continue to focus on seeking shareholder value.

Those are the major topics I wanted to cover and now I would like to turn the call over to Jim Scilacci.

Thank you, Ted, and good afternoon everyone. Page 2 of the presentation summarizes the quarterly earnings comparison that Ted has already touched on. Starting with Edison International holding company results for 2011, as you can see, they are a positive $0.02 per share due to some consolidated income tax benefits and a true-up -- true tax true-up.

Turning to page 3, SCE's fourth-quarter core earnings increased to $0.76 per share, up $0.20 from last year. Higher earnings in the quarter were driven by rate base growth and a cumulative adjustment to deferred income taxes related to nuclear fuel. Although not in our guidance, we did recognize $0.03 of energy efficiency earnings.

Ted has already walked through -- talked about the 2012 GRC for SCE. Pending a final decision, Southern California Edison is managing its current O&M and capital spending at a run rate similar to 2011 levels.

Turning to page 4, EMG lost $0.03 per share on the core basis compared to a positive $0.10 per share last year. The Merchant coal fleet has suffered from lower average realized energy and capacity prices and lower levels of generation.

Improved results from our renewable energy projects were partially offset by higher net interest from an increase in total amount of project finance debt and a reduction in capitalized interest. Detailed operating metrics for the coal fleet are included in the presentation appendix.

Now I would like to review the non-core charges at EMG on page 5, starting with Homer City. As previously reported, during the second half of 2011 we conducted a bidding process to obtain capital funding for the Homer City scrubbers from third parties. That process failed to obtain sufficient interest. As Ted mentioned, Homer City is now working cooperatively with the owner lessors to result funding for the scrubbers and transition control of the station over to them. This process is moving on an accelerated basis in order to allow scrubber construction to begin.

As a result of the expectation that EMG's interest will be substantially or entirely deluded through that process, EMG recorded a pretax impairment charge -- excuse me -- an impairment charge of $1.91 per share per EIX share. In the event of a final decision to dispose of the interest, EMG will record an additional charge and likely classify Homer City as a discontinued operations.

Homer City has a rent payment due on April 1 of this year. Homer City believes it will not meet the covenant requirements, and therefore will be unable to make the required equity rent payment. And there is no assurance that Homer City will be able to make other rent payments in the future.

In order to pay equity rent Homer City must meet historical and projected senior rent service coverage ratios of 1.7 to 1. At year-end 2011 Homer City's historical ratio was 1.18 to 1. We have provided additional detail regarding Homer City in the EME and EIX 10-Ks. Homer City's failure to make the April 1 equity rent payment will not result in cross defaults or a trigger other covenant trips for EME or EIX.

Turning to Midwest Generation, with a substantial downward movement of power prices since the third quarter of last year and a need to preserve liquidity in light of the pending decisions on environmental retrofits, EMG recorded $1.19 per-share impairment charge related to Midwest Generation's Fisk, Crawford and Waukegan stations. EMG determined the fair value of these stations to be zero.

Other non-core charges in the quarter related to the reduction in EME's wind development program where $0.13, a write-down of Edison capital investment and three aircraft leased to American Airlines, $0.05. And a final payment from the sale of the March Point project that occurred in 2010, a positive $0.02.

As a result of the impairment-related non-core charges Edison International's parent company recorded a $0.06 per-share charge related to adjustments and deferred taxes.

I won't go into our full-year results in the interest of time. These results are summarized on pages 6 through 8 of the presentation and they are consistent with our ongoing message that rate base growth will increase SCE's earnings, while lower gross margins for the Merchant coal fleet have and will adversely impact EME's earnings.

To emphasize the utility's value proposition, page 9 provides the historical compound annual growth rates for both rate base and core earnings since 2006. As the chart demonstrates, SCE has delivered 12% core earnings growth and 11% rate base growth over the last five years.

Page 10 provides an updated capital expenditure forecast. The three-year forecast yields $11.8 billion to $13.2 billion of capital expenditures through 2014. The major changes to the forecasts include upward revisions to the expected cost of transmission projects, most notably the Tehachapi and Devers Colorado River renewable transmission projects. These cost increases have been partially offset by other transmission [reliable] projects which were deferred.

On page 11 is the resulting forecast of rate base through the end of 2014, which ties to SCE's three-year rate case cycle. During this three-year period compound average rate base growth is forecast to be 7% to 9%. The updated rate base growth reflects the expected gradual decline in forecast capital expenditures.

Page 12 provides the current hedge positions for energy and coal for Homer City and Midwest Generation. Homer City is in a state of transition, so we have purposely not entered into new hedges and have closed out other positions. With the substantial reduction in power prices and some limited coal to gas switching in ComEd we would expect that the historical generation and related coal consumption at Midwest Generation will not be indicative in the current environment.

I would also like to touch a little bit on the new rail contract with Union Pacific for the Midwest Generation fleet. Midwest Gen entered into a new multi-year rail contract in the fourth quarter, effective January 1, 2012. Under this agreement the estimated transportation cost is $386 million for 2012. The cost may also increase based on a number of factors provided under the terms of the contract. Under the new contract Midwest Gen may reduce its minimum requirements in the event of a plant shut down under certain circumstances.

Overall we see roughly a one-third increase in Midwest Gen's delivered coal costs. EMG has decided to pursue an ultra-low-sulfur strategy for its Midwest Gen fleet, which will permit deferral of environmental capital expenditures. Based on 2011 data, Midwest Generation's fleet was meeting the 2013 CPS requirements of 0.44 pounds per MMbtu for SO2 emissions through the use of low-sulfur coal.

On page 13 is the revised capital expenditure forecast. This new forecast reflects changes in timing for environmental retrofits on the Midwest Gen stations. Previously we provided a cost estimate to install environmental upgrades of $1.2 billion for all Midwest Generation stations. The updated forecast of up to $628 million is to retrofit just the larger Midwest Gen units or Powerton 5 and 6, Joliet 7 and 8, and Will County 3 and 4.

Although it is less likely that we will do so, the estimated cost to retrofit the smaller stations, Waukegan 7 and 8 and Joliet 6, is about $235 million. The remaining capital expenditures are mostly for the construction of the Walnut Creek natural gas fired plant and the Crofton Bluffs and Broken Bow wind projects.

Page 14 is the updated wind development chart. We have updated this chart reflect the February closing of our wind capital raise, which Ted has already discussed. And in addition to the strategic value for remaining active in development markets, the liquidity benefits for EMG are significant.

As a result of the Capistrano Wind Partners equity raise and the recent Tapestry debt raise in December, EME now has 1,406 megawatts of projects that are financed. Of the remaining 575 megawatts that are not financed, 387 megawatts are contracted.

Lastly, as result of capital resource constraints and limited market opportunities for the development pipeline of potential wind projects has been reduced to 1,300 megawatts from 3,800 megawatts.

Turning to page 15, EME's corporate cash position is mainly cash at EME and EMMT improved in the fourth quarter to $951 million, $217 million increase over last quarter.

Overall in 2011 EME improved its liquidity through the receipt of $388 million of U.S. Treasury grants, a $167 million from wind financings, wind financing distributions, and $213 million of cash sharing agreement payments from Edison International.

The deferral of payments under the tax sharing agreements impacts EMG's liquidity, although it does not have an impact on earnings. As of December 31, EMG recognized $520 million in future tax benefits related to net operating losses and PTC carryforwards under tax sharing agreements.

The right of EMG to receive in the amount of and timing of tax allocation payments are dependent upon EIX' consolidated tax position. Based on current tax law EMG is not expected to monetize tax benefits until at least 2013. Also, EMG expects to return tax allocation payments to EIX during 2012 of approximately $185 million. Lastly, permanent closure of Merchant coal plants would add to EMG's tax loss position.

One important item to note, on February 27 EME terminated its $600 million revolving credit facility to save fees, primarily because Homer City was part of the collateral package and the line therefore became effectively not usable. This termination will also release other collateral, as Ted said.

The EME facility was due to mature on June 15 of this year and the facility was largely unutilized. The Midwest Gen credit facility still remains outstanding and expires on June 29 of this year.

Page 16 replaces our usual guidance slide in an effort to provide our investors with some of the operating assumptions for 2012. That concludes my comments. Operator, let's move to Q&A.

(Operator Instructions). Jonathan Arnold, Deutsche Bank.

I have one question. In briefly perusing the 10-K, you talk about in the event that you transfer the ownership of -- or if you cease to become a controller of Homer City there would potentially be quote ongoing contingencies. Could you speak to what that might refer to?

Just briefly, there is a lot of detail in the case that I think you can sort through it once you have a little bit of time to look at it. So we impaired investment of Homer City at EME, and there are some additional assets that reside that have not been impaired yet. And so when you actually get to the completion, when we actually transfer the asset there is approximately -- I think the disclosures say about $170 million of net remaining investments that we would need to write-off.

The timing from that is uncertain. We're still working through that. I can't give you an expected timeframe right yet. It depends upon how it goes with the owner lessors. There may be some additional items that come up during the course of the discussions and we are trying to define exactly what the liabilities are on either side. But the principle liabilities have been disclosed in our 10-K.

It is not some sort of ongoing exposure. It is more write-off of an existing asset that just hasn't yet been written down.

We would take it to -- there would be no ongoing exposure. We would take it to zero.

Then -- thank you, Jim. Secondly, Ted talked about still being the case that there are important issues that need to get resolved, and that the six- to twelve-month time frame [coming entirely from the funnel] was still valid. Can you just give us some roadmap as to now that the way you are here at Homer, presumably final resolution of that is one of those items, but just talk us through some of the other points on the road, Ted.

This is Ted. I think the principal ones are EPA rules need to be finalized. I think we have got a pretty good sense of what those look like, but as you know there are a couple of important elements still yet to be fully finalized. That in turn would give us a better read on timing and amount of expenditures for retrofit.

The second key one is some of the additional liquidity activities. We still have some parts of our wind portfolio that have the ability for additional financing, so we are continuing to look at those things.

We also talked a little bit about the new equity capital program that we have for the wind development. But in order to realize all of the cash from that we've got work to get completed.

And then I think another important milestone from our perspective is what happens in the capacity market auction in May. That certainly will speak to this kind of byplay between very depressed power prices making many of the existing generation facilities uneconomic in the PJM marketplace. We're seeing a lot of announced retirements, not just ours, but others. So what impact will that have on the capacity market.

I think those are some of the key milestones. There are other stuff that the folks at EMG keep working on to improve liquidity, and pull some additional rabbits out of the hat, but the big ones are the ones I mentioned.

Can I just follow up on capacity auction and Homer City and the timing here. So in the previous auctions EMMT has been placing that capacity into the auction, I guess. What should we anticipate would happen going into this coming auction with you assuming that say the ownership was still somewhat in limbo?

This is Jim. I think you should assume that Homer City will fit into the auction. We anticipate the units being available in the future and we will have to work that out between ourselves and the owner lessors.

Thank you.

Dan Eggers, Credit Suisse.

I guess on the Midwest Gen impairments this quarter what was the threshold, Jim, maybe to decide that these assets would be impaired and other assets would not be impaired? And where would the next decision point be if other assets were to be impaired along the way?

I think every quarter you have to go through the impairment analysis. It is a standard accounting approach. And what happened between last quarter and this quarter is really the drop in power prices changed the economics.

I think the reality of that, and given the problems we have been facing especially with the in-city, the Fisk and Crawford stations, I think the economics came through that it was clear that it was time to impair those stations.

Now we also impaired the Waukegan station, but we haven't made a final determination yet in terms of what we're going to do there. But the reality was that the economics are clear that we needed to take an action.

Now we will continue to look at the other -- what you are implying are the other smaller stations, but we haven't made any conclusions. And the current plan is than to retrofit the larger stations and we are proceeding down that path.

I guess, Ted, if I was just to read your script, and maybe this is the hard part about putting out your script, but toward the end when you talk about the financially disciplined, not invest new funds into EMG unless we can see a clear and compelling path. Can you help us understand what a clear and compelling path would be relative to not putting capital into the businesses -- you guys have avoided that for so long?

I don't think you should expect any change in our viewpoint on it. In fact, that is why the next sentence is in the script too. In the face of deteriorating financial conditions, which have clearly deteriorated, you can expect we will not be putting any funds into EMG.

I guess, the primary season has caught me on so many soundbites, I just wanted to make sure I had that right. And then I guess the last question is Homer City will be taken out of recurring earnings going forward. So in 2012 that will have no bearing on your results from an operating perspective.

Most likely. Yes, as we move it into discontinued operations that would be the case. You would have to pluck it out.

Okay, thank you.

Michael Lapides, Goldman Sachs.

One short-term question and one long-term question. On the shutdown of some of the Midwest Gen units how should we think about the O&M savings that comes with that?

This is Jim. We will incorporate that into our operating assumptions. And the problem here we haven't given you guidance in terms of what we expect EBITDA or earnings would be for the facilities, and we will do that as we get the SCE's general rate case. That there will be operating savings, capital reductions that go along with the shutdowns.

Got it. And thinking longer term if there is a scenario where EME has to go through some kind of restructuring, not just asset sales, but literally restructuring of the debt, how does the NOL at EME get treated in a situation like that? And is EIX -- I don't want to use the word -- I guess, use the words on the hook for ensuring that EME in a restructured environment gets access to the cash flow it would have gotten had it stayed within the broader EIX umbrella?

That is a complicated question. I think just go back to the most simplest form. EIX, the way it works under the tax sharing agreement, it uses a consolidated approach. So, therefore, if the consolidated return has available capacity to monetize tax benefits then the dollars flow either to SCE or EMG based on the actual situation.

Now if the -- if an entity were deconsolidated from the parent, you could then no longer monetize the tax losses that reside within that entity. So I think that is the simplest way you can think about it.

Could that entity, if deconsolidated, would be deconsolidated and would effectively be able to, over its own time, and of course assuming financial conditions permit, be able to monetize that NOL on its own?

The NOL would reside with that entity if it were deconsolidated. And then whatever happens going forward, it would depend upon the earnings and losses of that entity. It would not affect the consolidation consolidated entity of EIX.

Got it. Thank you, Jim.

Jay Dobson, Wunderlich Securities.

Jim, just to follow-up on the last question, and maybe I'm reading too much into your comments. Discontinued operations, is this going to happen, not going to happen? I am just trying to understand what would be the determining factor. Since you wrote it down it appears you're transferring it to the owner lessor would seem like that is sort of a no-brainer, but maybe I'm misunderstanding that..

I think you got it right. So once we finalize this transition, and we don't know when it is going to be over, we would likely at that point move it to discontinued operations.

So there is no question it is going there, it is just more your hesitancy as to when it is going to happen, not if it is going to happen?

It is the likely outcome.

So what would make it not the outcome?

It is going to go down a transition path. I guess I don't want to go through every possible avenue here, but we expect it at some point in time to go to discontinued operations.

Got you. So you have written off your entire equity interest, so the way it wouldn't go to discontinued operations is if you thought there was still some value there. Is that the fairest way to think -- or maybe not the fairest, but simplest way to think about it?

Now the way it is, just for clarification, we believe the fair value of Homer City is zero. The way you have to go through it, there is -- the accounting is complicated, and it is very clear if I model it here in the disclosures in terms of how it is treated.

So we have taken the first step and essentially wrote-off the majority of the investment. There is a portion of the investment that is at fair value. And that is the remaining piece that will, once we transition it to discontinued operations, will have to be written-off.

That is the $170 million you were speaking of earlier?

Yes.

Okay, got you. And then, Ted, back to the six to twelve months. I think as you said in the script, certainly those of us who have been listening have heard it since roundabout last summer, so roughly June about the time we will have results from the PJM capacity auction would be that line in the sand. Should we just continue to think about it -- I guess, some of us still struggle with is that a firm six to twelve months or is it a rolling six to twelve months? And I understand that variables continue to change, not all of which are helpful, but maybe just reaffirm your message on that if you would.

I will reaffirm it and clarify it to some degree. It was last summer that I started talking about six to twelve months, which is basically trying to suggest between the EPA rules that we knew were going to end up having to be promulgated by the end of the year, which would be the six months, to all the way around to the auction, which would take place in May, which is getting pretty close to 12 months, we figured that by the summer of 2012 we would have most of the factors that we needed to come to conclusions about which units would be retrofitted, therefore, what the capital cost would be.

If we were to not retrofit certain units and close them down, what would be the savings that would come from that, and how would we refocus EMG as a result of those decisions? Which would fill in one of the big blanks, that is what is the capital requirement for retrofits of the coal fleet?

The second part is we were going to start facing some retirements in the revolver, the maturity of the revolver, and then fairly soon after that we would be into the $500 million of the 2013s and so on. And our keen desire is to take all of those factors, as well as our outlook for where power prices would be, and conclude whether we could really stabilize EMG or not.

The stabilization is meeting the capital requirements, as well as trying to pay down a healthy chunk of debt, particularly the debt maturing in 2013, 2016, such that we would have sufficient credit metrics for EMG to be self-sustaining, or that said differently, refinance its 2017 and beyond on the basis of its own credit metrics.

So that to us was the definition of stabilization. We felt we would have most of the information we would need, coupled with some outlooks on power prices to conclude whether we in fact could stabilize EMG. And we still are on that path, as I said in my prepared remarks. That is still our intention is sometime in the summer of this year being able to have those discussions with investors.

Obviously, the main part of the plan that has not worked is power prices recovering. They have not recovered; they have only gotten worse. So that constrains cash, it constrains our liquidity, and it makes the ability to stabilize EMG much more difficult.

That is great. I guess the last follow-up on that, and I am sure you don't want to get into your proprietary view of power prices, but would it be fair to say if power prices remain on about the forward curve where they are right now, we need to pursue some sort of restructuring?

As we said in the script, we would need to -- if these conditions persist, we would need to consider divesting assets to raise liquidity and consider restructuring or reorganizing the capital structure. So I won't make any predictions as to where all of that goes at this point, but if we have a prolonged period of low power prices it constrains the liquidity sufficiently that we would have to consider those other actions.

Great, thanks very much.

Jay, I will just add to that total too -- I know you're listening -- that I think we have had a view and we have heard -- you have heard it from us any number of times, since we have entered into the agreement with Illinois EPA that we believe strongly that coal plants would be shutting down, and we're seeing that now. And that would lead to an improvement in capacity values. I think the question that Ted was addressing and you are raising had to do with energy values, but we still hold the view that capacity values will be rising in the PJM market.

Operator, next question.

Steve Fleishman, Bank of America Merrill.

I will just maybe follow one with Jay's question. It is still a pretty liquid good debt markets and loan markets. And let's say those allow you to deal with a lot of the near-term maturities, the 2013s, and that gives you at this point maybe another three-year timeline. Is that enough or do you need to be able to prove that there is value out to 2016/17, because as you know, there will be a lot of assumptions that need to be made to deal with that?

This is Ted. It is going to be difficult to foresee all of the different possibilities here, but let me try to give you a general steer of the way we are thinking about it. If all we're doing is limping from one quarter to the next and we don't really see how we reach a stabilization of EME, that is not a very appealing prospect from our perspective.

So we are to some degree seeking to force the question -- will we be able to stabilize EMG. As I said, that fundamentally means you have to be able to meet the capital requirements for the retrofits of the plants that you believe are economic and should continue to run.

Number two, you have to take out some debt. And we have to be able to see somewhere over this next three to four years that we will be able to generate sufficient liquidity to meet those CapEx requirements and reduce debt such that by the time we get to the 17s we can see that this is going to actually generate sufficient credit metrics for refinancing.

If we can't see how that looks possible, then I don't think we have a stabilized entity and we will just be lurching from quarter to quarter. So our goal here -- again, come back to the six to twelve month kind of concept -- by this summer that we have a sharp idea of whether or not we will be able to stabilize EMG.

And just to clarify, in the event that you determine that you won't be able to stabilize it, what exactly do you do? You are already not committing any new money to it. So what are the exact things you would actually than do if you make that determination?

I think at that point you are looking at restructuring -- reorganizing the capital structure. I don't think there is any other outcome.

I am going to go so far as actually asking a utility question. On the --.

That is entirely acceptable (laughter).

It is probably more than 100% of the value of the Company. One thing you didn't mention that occurred, I think since your last call was these windstorms that you had. And it seemed like you had a decent amount of reaction to that. Could you give us some sense of what happened there, and is there anything operationally you're changing in reaction to that, and how you're thinking about that?

We will have Ron Litzinger address that.

Clearly there has been the report by the Consumer Protection and Safety Division, the public participation hearings that occurred on the regulatory front. From our perspective we have done a thorough root cause evaluation of our response in the windstorm. We will be coming out with that report shortly, and we have agreed to share that with the commission.

And in addition to that, we have engaged an independent consulting firm to do an independent evaluation of our performance as well, which we will take note of and make our corrections through our practices and our procedures going forward.

Jon Cohen, ISI Group.

I just had a question about your interim environmental compliance strategy using ultra-low-sulfur coal. How many years do you think that will allow you to skate by under the CPS mandated emissions limits? Will that get you out to the 2015, 2016 timeframe or is that going to be earlier than that?

We are not going to give you amounts or how much we are buying and what the price and whatnot. I think just bear in mind that we are going to do a combination of things. It is going to be low-sulfur coal, and we will be installing removal technology. And we have very steep reductions that are required, because low-sulfur coal will only get you so far. As you look at the CPS numbers out beyond 2014 there are steep drop offs. So as that is where you really require capital expenditures for the dry sorbent injection systems to get you to those lower levels.

I think that answered the question. So 2014 is where the threshold is.

I wouldn't stop there. You would continue using it, and then combination of the equipment, so it is how much dry sorbent you need to inject. So there is a combination of things you do here to get to the numbers that are -- as part of the agreement.

Then one other question on your coal contract. You mentioned that if you shut down plants the volumes under the contract reduce. Are there minimum volumes that are allocated to the plant level? So in other words are there minimum volumes for Powerton, Joliet and Will County?

I can't get into the specifics of the contract, but there is a mechanism we have in place that we can adjust accordingly based on the plant that is taken out of service.

Thank you.

Travis Miller, Morningstar.

I wanted to follow up real quick on that last point on the transportation. That $386 million figure that you mentioned, does that already contemplate the potential closures, the Homer City withdrawal, and then just kind of a mark-to-market dispatch at current market conditions, or is there a downside potential for that $386 million?

I think based on the disclosures that we had to go through in expected amounts it reflects that. To the extent that we shut down plants in the future -- because we are looking at the plant shutdowns don't occur until 2013 and beyond, so it wouldn't expect to affect the 2012.

And then on the potential legal challenges, do you think there is anything there for HAP MACT, like you guys went through with Casper? And how could some kind of legal developments that you are involved in relate to your decisions around what to do with Homer City or anything at Midwest Gen?

We will have Pedro Pizarro address that.

Just briefly, on HAP MACT I can't speculate on whether others may file legal challenges or how the courts will view that. I will say that we have been generally supportive of the final form of HAP MACT, or MACT as it is now called. So originally -- at this point not contemplating a challenge.

On Casper, we did file the challenge there -- or Homer City actually filed the legal challenge there. And those done out of Homer City, given the impacts in the Homer City project, (inaudible) we don't foresee a significant impact from Casper as written to the Midwest Gen sleep fleet. So I think Homer City will continue to pursue its legal path as the court now has granted a motion for stay and we will be going into a hearing late this year.

Then one quick. Is the oil peaker at Fisk included in the shutdown?

No.

That will continue running?

It is not part of the shutdown.

Thanks.

Paul Fremont, Jefferies.

I guess the first question would be -- it looks like -- well, if I understood you correctly, the write-off of the three EMG units resulted in a $0.06 tax benefit to the -- on a consolidated basis to the holding company. What would -- are you able to quantify what the associated tax benefit would be if the rest of the EMG were written off?

Well, I think you got the -- there are different things that are going on here, so let me step back for a second. If you look at page 5 our investor deck, the write-off -- all the write-offs that occurred, the impairment charges that were taken in the fourth quarter, resulted in a non-core charge at the holding company of $0.06.

There was also in core earnings a deferred tax adjustment that was a positive. So one is in non-core, one is in core. So I just wanted to make sure I clarify what was going on there. And it is hard to keep track of both those things.

But I can tell you if we were to write-off the whole thing what the deferred tax adjustment would be for the holding company. The reason for the non-core $0.06 adjustment that occurred at the holding company in the fourth quarter has to do with how state income taxes -- how you apportion state incomes taxes. That is a very complicated and detailed discussion and I just don't have any information that I can get into on any kind of relevant degree.

But periodically -- and I think you will remember last year every once in a while based on the way income is apportioned through our various companies, we will either take a benefit or take a loss depending upon how we foresee the apportionment changing.

So I guess what I'm trying to get at is, is there a way to determine what the worthless tax deduction would be associated with an EMG write-down?

Unfortunately, we have not put that information in the public domain. You can see the book value of the remaining Midwest Gen assets. That is now clearly spelled out in the disclosures. We previously showed that to you in a prior quarter. And you can see what is happening with Homer City, so a lot of the information as far as a book value perspective is in the public domain. We just don't have the tax basis in there.

Then moving onto the utility, it seems every -- it seems if you basically just take the rate base, equity ratio and the ROE, the company keeps coming in at levels that are above what would be implied. So is there something that we need to think about from a modeling perspective, either efficiency adders or other incentives when we model SCE on a going forward basis?

I think we're going to continue to provide information using what we will call the simplified methodology, the one you started with. There are things that occur year-to-year. I think we had some tax benefits that flow through in the fourth quarter. That is why you are seeing some of the outperformance. At times embedded cost of debt provides a benefit, but you can have other parts of the business where you are overspending, so that covers -- so you have outperformance in one area, it can cover underperformance in others. So we're going to keep coming back to that simplified approach.

Then just following up on Steve's question, on the OII, you have another OII is outstanding relating to the Santa Barbara fires, and that seems to be taking forever in terms of getting through that proceeding. Is there anything in terms of the claims arising from Santa Barbara that would allow us to make an assessment on the monetary exposure in the wind storms?

Let me just clarify on that, and we will turn it over to Ron to give you some additional detail. So that is the Malibu fire situation. And there is additional disclosures that is updated in the 10-K when you have an opportunity to take a look at that. But I will turn it over to Ron now.

The Malibu fire OII is continuing -- that proceeding continues. It has been a long one. Just to be clear, with regards to the OII from the San Gabriel Valley windstorm, there has not been an OII announced at this point.

This concludes the question-and-answer session. At this time I will turn the call back to Mr. Cunningham.

Thanks very much everyone. Please don't hesitate to follow up this evening, I know for a lot you, and certainly tomorrow for any follow-up questions. Thanks very much.

This concludes today's conference. Thank you for your participation. You may now disconnect.