愛迪生國際 (EIX) 2012 Q4 法說會逐字稿

Good afternoon. My name is Melissa and I will be your conference operator today. At this time I would like to welcome everyone to the Edison International fourth-quarter 2012 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.

Thank you, Melissa, and good afternoon, everyone. Our principal speakers today will be Chairman and CEO Ted Craver and Executive Vice President and Chief Financial Officer Jim Scilacci. Also with us are other members of the management team.

The presentation that accompanies Jim's comments, the earnings press release and our SEC filings are available on our website at www.edisoninvestor.com. We will be using the slide materials and our regular quarterly business update presentation that will be posted tomorrow on our website to support 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 these carefully.

The presentation includes certain outlook assumptions as well as reconciliation of non-GAAP measures to the nearest GAAP measure.

When we get to Q&A please limit yourself to one question and one follow-up. If you have further questions, please return to the queue.

With that, I will turn the call over to Ted Craver.

Thank you, Scott, and good afternoon, everyone.

Today, Edison International reported full-year core earnings of $3.92 a share, an 18% increase over 2011. These strong results demonstrate Southern California Edison's ongoing ability to deliver rate base growth and cost management, even during an extended period of rate case uncertainty.

On a GAAP basis, we reported a loss of $0.56 per share. This loss reflects the previously announced write-down of our interest in Edison Mission Energy following its bankruptcy filing last December. Although EME will no longer be part of our business portfolio going forward, I want to commend the leadership and employees of EME for their contributions to Edison International over more than 25 years, and for their professionalism during some very difficult times. We wish them every success in the future.

Most of my remarks today will concentrate on how we have been and will be working to serve our customers and thereby produce long-term value for our shareholders at Edison International. We group this work into three strategic efforts. One, resolving uncertainties and reducing business risk. Two, creating sustainable growth in earnings and dividends. And, three, preparing the Company for transformative change in our industry.

We made notable progress in 2012 although this will be a multiyear effort.

Let me address how we have been resolving uncertainties and reducing business risks. We anticipated 2012 would be a year in which key decisions would be made. Perhaps most important was the need to find the best path for stabilizing EME and determining its future role in the EIX portfolio.

The direction for EME is now clear. We reached agreement in December with EME and a majority of the EME bondholders that set forth the terms and conditions under which Edison International will turn over its equity interest in EME to the creditors when EME emerges from bankruptcy. This agreement referred to as the Transaction Support Agreement is subject to the bankruptcy court's approval. EME is scheduled to bring the Agreement before the court for approval this summer.

For investors, our core business remains Southern California Edison which continues to have excellent growth prospects. We started last year with two major regulatory uncertainties, SCE's 2012 to 2014 General Rate Case and its 2013 cost of capital. The General Rate Case was decided late last year. Also the California Public Utilities Commission approved SCE's cost of capital for 2013. And early this year, a tentative agreement was reached among the major parties in the cost of capital proceeding to retain the existing adjustment mechanism through 2015 updated for recent interest rate. This agreement is consistent with what SCE had originally proposed. The proposed decision has now been issued and we expect a final decision by April if not before.

The remaining significant uncertainty we face involves our San Onofre Nuclear Generator Station or SONGS. It is worth reviewing what our objectives have been since the tube leak was discovered over a year ago.

First and foremost, nuclear safety is our paramount goal. We do not say this lightly. We mean it. This is why we bristle so when elected officials issue press releases suggesting that SCE was aware of design problems with the replacement steam generator when they were installed at San Onofre. This is just not accurate. And it injects politics into a process that should be free from it.

We would never and did not install steam generators that we thought were unsafe. Mitsubishi Heavy Industries, the vendor who does designed and fabricated the replacement steam generators, even warranted them to us for 20 years.

Our second objective has been to ensure reliability of electric service to our customers. Last summer, the co-owners of SONGS along with several California governmental agencies implemented temporary contingencies to avoid interruptions to electric service. We were fortunate to have a relatively cool summer. We are now taking other actions for this coming summer in the event SONGS unit two isn't yet approved to restart.

However, we will again need to rely on Mother Nature to be co-operative and the Western Electric grid to be trouble-free. Longer term, it would become increasingly difficult to meet reliability requirements without SONGS. Replacement generation and transmission would be necessary, expensive and take a long time to permit and build.

Our third objective is to receive fair recovery of our costs. We have a preceding beginning at the California Public Utilities Commission which will determine the rate making for the three buckets of costs. Replacement power, plant O&M expenses and the return of and on our investment in the plant. There are a few scattered precedents that we could look to for clues as to what fair recovery might look like including SONGS unit I but these situations are case-specific.

As we have previously stated, we are seeking cost recovery from MHI and the nuclear industry insurance provider, NEIL. We provided some updates on our efforts with both entities in our 10-K, but let me touch on one aspect related to MHI.

There are applicable exceptions both in the MHI contract and in law to the MHI warranty cap of $138 million. SCE has notified MHI that it believes one or more of these exceptions now apply and that MHI's liability is not limited to $138 million. MHI has advised SCE that it disagrees.

If the disagreement can't be resolved, it may ultimately become subject to dispute resolution procedures set forth in the contract, including international arbitration.

The fourth objective recognizes the importance of timing. Of course, we would like to have the uncertainty surrounding SONGS resolved as quickly as possible. However, given the importance of nuclear safety here, all of us directly involved must spend as much time as is necessary to ensure safety. This is why we spent as much time working with MHI and several other independent experts before coming to the conclusion that it is in fact safe to restart unit II under the operating parameters we submitted to the NRC.

We are convinced it is safe to run the unit. Now the Nuclear Regulatory Commission must make its decision.

One more comment about timing. The old adage of time is money certainly applies here. It is costly, both in dollars and in risk to reliability, to have unit II remain idle. Let's be clear. The antinuclear interest involved here know that the longer they can tie up SCE and the NRC in process, the more expensive and uncertain it is to restart SONGS.

San Onofre has been a crucial component of grid stability and electric service reliability for Southern California for many years. Furthermore, nuclear power is an ultralow carbon power generation source and helps California meet its ambitious clean energy goals. We would very much like to get the unit operational in time for the summer.

Our sincere hope is that the technical safety evaluation can occur and other necessary NRC procedures completed without unnecessary delay and in time to accommodate these reliability and clean energy goals.

The second prong of producing long-term shareholder value is creating sustainable growth in earnings and dividends. Since 2007, SCE has increased rate base by $8.5 billion or 11% annually. The main drivers of this growth have been implementing state policy mandates such as 33% renewables and advanced meter technology, along with replacing aging electrical infrastructure.

Looking ahead through the balance of the decade, we see solid growth in rate base continuing even without new policy mandates. SCE will continue to focus its investment in the wire side of the business and largely leave construction of conventional and renewable power generation to the competitive marketplace.

While we waited for our rate case decision that would be -- that would determine authorized capital spending, SCE managed 2012 capital investment at the existing 2011 authorized levels. Since the rate case uncertainty is now behind us, we are moving to increase capital spending in 2013 and 2014, such that we are investing at authorized levels over the three-year rate case cycle.

One of the ways we are ensuring reliable and affordable service for our customers is through operational excellence and cost control. It also is part of creating sustainable growth and grid reliability investments and, hence, rate base and earnings. We made decisions in 2012 to address SCE's organizational and cost structure to make it more efficient for the future while managing costs effectively during the extended General Rate Case review processes. This adds some positive impact on costs in 2012, largely through managed attrition, and will contribute to 2013 as Jim Scilacci will describe in more detail.

In the fourth quarter of 2012, SCE recorded severance charges for reductions in force. SCE is working on other ways to control rates and improve service. We are working with our regulators to address rate design issues, including the substantial cross subsidizations embedded in current rates. We are also optimizing power procurement which accounts for about 40% of our total electric rate to meet policy goals on the least costly basis.

During 2012, SCE also completed its installation of 5 million smart meters on schedule and ahead of budget. These smart meters provide cost efficiencies to ratepayers and enhanced reliability. And they allow customers to better manage their energy use and electric bills.

In December, we announced our ninth consecutive yearly dividend increase to an annual rate of $1.35 per share. We anticipate SCE's capital spending to peak this year, allowing its operating cash flow to expand. This will provide the basis to move our common stock dividend in steps over time to our target range of 45% to 55% of utility earnings. This is a payout we consider appropriate given SCE's potential rate base program. We believe this provides a significant total shareholder return opportunity for Edison International shareholders.

The third and final strategic element for creating long-term value is positioning the Company for transformative change in the electric power industry. We don't need to go much further than hydraulic fracking and the impact it has had on reordering the economics of electric generation and gas price-sensitive industries to understand the potential for transformative change in our industry.

There are also the clean tech startup companies that are so much a part of California's business culture and of which the state is so proud. While very few of these companies are actually profitable today, they continue to enjoy substantial public policy and venture capital support. We believe these trends require our careful attention, especially given the long-lived nature of our assets.

The question is what is actionable and practical. It starts with exploring the feasibility of developing businesses that capitalize on industry change and leverage our own knowledge and strengths. Edison International sees merit in the ownership and operation of competitive businesses as a matter of corporate strategy and is exploring areas related to the provision of electric power and infrastructure, including distributed generation, electrification of transportation, water purification and power management services to the commercial and industrial sector.

I don't expect these new initiatives will distract us nor should they distract investors from our SCE-focused value proposition. However, I believe it would be foolish to dismiss the potential for substantial change in our industry or in the utility business model. So we will continue to look for ways to build strategic flexibility and leadership at the right pace that could provide new avenues of growth in a rapidly changing world.

Let's come back to this year and finish by talking about our 2013 earnings outlook. Today we are introducing earnings guidance of $3.45 to $3.65 per share. This outlook largely reflects our operational excellence efforts and significant investment in our core wires business.

Let me now turn the call over to Jim Scilacci to provide additional material on our financial results and earnings guidance. Jim?

Okay. Thanks, Ted, and good afternoon, everyone.

I will start with a quick reminder on the basis of our financial presentations following Edison Mission Energy's December bankruptcy filing. Please see page 2 of the presentation. For all periods provided in our materials EME is now reported as discontinued operations and part of non-core results. Beginning with first-quarter 2013, we will no longer include EME's results as we are now accounting for our ownership on the cost method under GAAP.

Also the remaining investment that are part of Edison Mission Group but separate from EME which are immaterial are now reported as part of Edison International parent and other category. In the presentation appendix, we have provided two years of quarterly financial results on the new reporting basis to help you updating your financial models.

Given that Southern California Edison's General Rate Case was received during the fourth quarter and because the financial consequences are effective beginning January 1 of 2012, fourth-quarter comparisons are not all that helpful. However, full-year comparisons present a clearer picture of the underlying business performance. I will be using pages 3 and 4 of the presentation as I walk through the key earnings drivers.

Starting on page 3, you will see that for the quarter there is an $0.82 per share trueup for SCE's 2012 General Rate Case decision. Simply think of this as the incremental impact attributed to the first nine months of 2013.

This includes three primary items. First is higher revenue to cover both rate base growth and operating costs. You will recall in our financial results for the first -- excuse me, for the three prior quarters we reported higher depreciation and financing cost without corresponding revenues. Now we are recognizing the related revenue without the corresponding cost.

Second is a $0.10 per share disallowance on certain enterprise software costs. This is shown separately in our full-year summary on page 4.

The third is a tax benefit that is more complicated to explain and it requires a bit of background information. Back in 2009, EIX made a voluntary election to change its tax accounting method for certain repair costs incurred on SCE's transmission, distribution and generation assets. This proposed regulatory treatment was then incorporated in the 2012 GRC filing.

The 2012 GRC decision adopted the proposed flowthrough treatment for these tax deductions and, as such, SCE recorded in 2012 a non-core catchup benefit related to the 2009, 2010, and 2011 periods.

In 2011, IRS regulations allowed SCE to make a second voluntary election to change its tax accounting method for repairs which is expected to result in additional earnings benefit through 2012 through 2014 GRC period. In the 2015 GRC, the estimated tax benefits will be trued up again and SCE expects earnings benefit will be eliminated as the estimated tax benefits will be fully flow-through to customers. So now let's walk through the earnings impact.

The year-over-year change in repair deductions is $0.54 per share including $0.19 in the fourth quarter. Because a portion of the repair deductions is included in the 2012 GRC and flowthrough to the customer rates, the incremental tax benefit that impacted core earnings for 2012 is $0.35 per share. In the non-core section for both the quarter and full-year results, you will find a $0.71 per share earnings benefit related to the 2009 through 2011 periods. Tax benefits for repair deductions will continue in the current rate case cycle and are included in our 2013 earnings guidance which I will talk about later.

Operating revenue is $0.09 higher than the fourth quarter, reflecting -- in the fourth quarter, reflecting the impact of the GRC decision. This is partially offset by higher current period depreciation and financing costs.

For the full year, operating revenue is $0.63 higher, which is partially offset by higher depreciation and financing costs.

Staying with the quarterly story, earnings benefited favorably by $0.07 per share from lower O&M as SCE continued to optimize its cost structure. The fourth-quarter severance charge is $0.15 per share and $0.20 per share for the full year, including the $0.05 per share SONGS severance charge recorded in the third quarter. Severance cost in the fourth quarter represent planned employee productions in 2013 as SCE continues to drive operational efficiencies that will be included in its 2015 GRC, which is expected to be filed in the third quarter of this year.

Our share of SONGS inspection and repair cost is a positive $0.05 per share in the quarter and reflect SCE's share of an initial $45 million warranty payment from MHI received in December. The MHI payment is for costs incurred through the first half of 2012. Net of this payment, full-year SONGS inspection and repair costs are $0.12 per share.

The lone remaining piece is an SCE tax item which represents an increase in property-related tax deductions as well as tax true-ups. There are also several moving parts in a now combined EIX Parent Company and other category. I won't spend as much time here and will focus on the full-year impacts as shown on page 4.

Full-year EIX Parent Company costs increased $0.10 per share year over year of which $0.07 relates to higher consolidated income taxes. The remaining $0.03 is from higher overhead costs, including additional Parent Company costs related to EME. EMG's net performance is a negative $0.06 per share year over year, primarily because of swings in income taxes that were favorable last year and unfavorable this year.

Turning to non-core items, I previously mentioned the catchup prepared tax benefit. The only other item is an $0.08 per share charge, related to deconsolidation of EME as we adjusted our consolidated deferred tax liabilities from the expected transfer of ownership of EME to creditors. We had previously mentioned EMEA's results are now in discontinued operations.

For the quarter, the total non-cash charge was $4.07 per share and $5.17 for the full year. These charges reflect the losses incurred by EME prior to its bankruptcy filing on December 17 and the write-down of our entire investment in EME and related charges. There is additional information regarding EME deconsolidation accounting and tax treatment in the EIX 10-K.

As a reminder, under our settlement, EME will remain consolidated through 2014 so tax calculations as of the end of 2012 will not be the same as the end of 2014, when tax deconsolidation occurs.

I would like to turn next to SCE's updated rate base and capital spending profile. Growth in rate base earnings for the long-term drivers remains long-term drivers of SCE's earnings growth as Ted has already mentioned. The rate base figures shown on page 5 are presented on a year-end basis, not on a 13-month weighted average basis used for earnings purposes. The five-year compound annual growth rate is 11% per rate base and 15% for core earnings.

On page 6, we show the capital expenditures for the 2012 GRC period. Currently, we are finalizing a more detailed capital spending plan for the 2015 through 2017 period (technical difficulty) incorporated into SCE's 2015 initial GRC filing. We expect to make this filing, referred to as the Notice of Intent, in July or early August. After making the filing, we expect to update our forecast to include both five-year capital spending and rate base forecasts.

There are minor changes from the third-quarter capital expenditures forecast which had a base case using the GRC proposed decision of $12.5 billion from 2012 through 2014. Our updated base case forecast is $12.1 billion or a reduction of $400 million.

Most of the difference relates to reduction in the solar rooftop program and an extended spending plan for transmission projects. We continue to provide both a forecast of range cases, based on actual versus forecast construction experienced in the past several years. A slight reduction in capital expenditure only has a minor impact on the updated rate base forecast shown on page 7. The midpoint for 2013 of $21.6 billion is comparable to the forecast of $21.7 billion that was included in our third-quarter slide presentation.

And the 2014 midpoint at $23.2 billion is comparable to the prior GRC PD-based forecast. This forecast is on a 13-month average for CPUC authorized rate base which is consistent with how earnings should be modeled. For both years, the split between CPUC and FERC rate base is approximately 80/20.

Also please keep in mind that bonus depreciation for 2013 will not impact authorized CPUC rate base. The majority of the cash benefit of bonus depreciation will not occur during 2013 because of our consolidated NOL position.

On page 8, we have summarized the key regulatory and policy decisions involving SONGS. Ted has covered many of these points, but I do want to note a couple of items.

First is cost recovery. Under the California regulatory model, SCE continues to recognize revenue covering all relevant SONGS-related expenditures including O&M, return of and on investment, and replacement market power. These costs are now subject to the CPUC OII review which commenced as of November 1. The first phase of that four-phase review has now been scheduled for completion by this summer. The first phase financial review scope includes 2012 SONGS-related O&M and capital expenditures.

Page 9 updates the key costs and rate base data as we have been sharing with investors. As noted at the top of the slide, replacement power for 2012 for SONGS outage represents about 8% of SCE's purchased -- power purchases which totaled $3.8 billion last year. SONGS rate base is approximately $1.2 billion or 6% of total rate base.

As you are aware, construction work in progress earns an equity return or AFUDC. So, it is appropriate to think of rate base and CWIP as total earning asset base or approximately $1.4 billion.

Our accounting of SONGS reflects SCE's belief that its actions taken in cost and incurred in connection with San Onofre replacement steam generators and outages have been prudent. Accordingly, SCE considers its operating capital, market power cost, recoverable through rate base and [era] balancing accounts as offset by third-party recoveries where applicable. SCE cannot provide insurance that either both units of San Onofre will be returned to service, that the CPUC will not disallow costs incurred or refund -- order refunds to customers of amounts collected in rates or that SCE will be successful in recovering amounts from third parties. Disallowances of cost and/or a refund of the amounts received from customers could be material and adversely affect SCE's financial conditions, results of operation, and cash flows.

Please turn to page 10. This page is an updated version of the cost of capital mechanism that many of you are familiar with. As Ted has indicated, the utilities in [DRA] reached an agreement to extend the cost of capital trigger mechanisms through 2015 and we hope to receive a final decision as early as March 21, at the March 21 Commission Conference Meeting.

The slide shows how the Moody's Baa bond index has moved over the years. The mechanism would continue to provide 100 basis point deadband above and below an index rate which is proposed to be reset at 5%. Movement above or below this deadband over the relevant 12-month period as triggers and increase or decrease in the ROE.

As of January 31, the moving average was 4.55%.

Please turn to page 11. Settlement discussions continue regarding SCE's 2012 formula -- FERC formula rate proceedings. One of the dispute issues is the appropriate return on common equity. In our filing, SEC has incorporated a 9.93% base ROE plus 50 basis points for California ISO participation plus other specific project incentives. After SCE resolves its 2012 case, the 2003 formula rate case will be addressed.

It is important to note that SCE is appealing to the DC Circuit Court a 2008 FERC decision which set SCE's return on common equity based on a methodology that utilizes the medium peer group ROE rather than the midpoint of the peer group. We disagree with FERC over this approach, the proceeding has been briefed and oral arguments are scheduled for March 25.

Please turn to page 12, which covers the 2013 guidance. I will focus on the key assumptions behind the guidance.

Our core earnings per share guidance of $3.45 to $3.65 per share is built off a 2013 starting point of the simplified SCE earnings model we have discussed previously. To remind you, the simplified approach takes average authorized rate base times the allowed return times the percentage of equity in the capital structure and divides this by the number of shares outstanding.

This approach assumes SCE manages its spending, thus allowing the utility to earn its authorized return. This approach also assumes that earnings from allowance for funds used for construction are used to offset certain costs that are either not recovered through the regulatory process or are shareholder-supported like corporate advertising or corporate contributions.

Based on our $21.8 billion average rate base forecast and the blend of CPUC and FERC returns and capital structure and flat share count as summarized to the right of the slide, we get a base case of $3.39 per share for SCE. Normally, we would arrive at the EIX consolidated core guidance by taking the SCE simplified earnings and then reducing it by EIX holding company costs of $0.15 per share.

For 2013, there are three positive items we need to add. First, there are O&M savings stemming from labor reductions and process efficiencies discussed previously. Second, as I previously mentioned, there are continuing benefits from repair deductions. Lastly, there are expected energy efficiency earnings from our 2011 program activities. Together, these total $0.31 per share. This gets us to the point -- gets us to a point estimate of $3.55 per share which we have ranged to actual guidance of $3.45 to $3.65 per share as Ted already mentioned.

For long-term modeling purposes, we continue to think the simplified approach is a good starting point for estimating SCE's future earnings power. Moreover, earnings benefit from repair deductions and operational efficiencies will flow through to customers in the 2015 General Rate Case.

Lastly, one key point, 2013 earnings guidance assumes full recoveries of SONGS-related costs and no further recoveries from MHI.

I will close by reiterating a few key messages on our investor value proposition summarized on page 13. Simply stated, we have a strong track record of utility earnings growth, good visibility on investment requirements and resulting rate base growth, and we are growing cash flow that will support over time a return to our targeted dividend payout ratio.

Okay, thanks, and I would like now to turn the call over for Q&A. Operator?

(Operator Instructions). Dan Eggers, Credit Suisse.

Good afternoon. I'm sure there will be lots of SONGS questions to come, so, Ted, I was wondering if you could maybe share some thoughts as you think about the next three years of CAPEX and the next year [sea] cycle. What without giving us the exact numbers what you see the major bucket of opportunity or need for investment as you look out over the next [planning efforts].

Yes, I think the primary one is the distribution system. There is a slide, I forget the page, that shows that over the next three years we will be over 60%. So coming close to 5/8 of the capital expenditures are really in the distribution area. We continue to believe there are substantial opportunities on that side.

In fact, historically we put in to our rate cases for more in the way of systematic infrastructure replacement. That usually becomes some discussion, particularly with some of the consumer groups and consumer intervenors, gets knocked back. So we tend to think there's a lot more that needs to be done on that side.

There's continuing need for electric grid reliability and strengthening. I think we will only see more of that as their discussion about trying to improve reliability overall across the nation. So I think it's really the wires piece and particularly in the small wires space that we see the greatest opportunities. There will be stuff around the fringes. We have pretty much signaled here we are not looking to do a huge amount in the generation side, that would really be more left for the competitive marketplace. But here and there there will be some kind of special circumstances like we have had in the past that will contribute a little bit.

And I guess maybe turning to dividend policy obviously with the increase in the fourth quarter. How can you just explain to me how you think about rating into that 45% to 55% payout ratio going forward and once you get past SONGS and this year is filed is there potential to to change the dividend before the fourth quarter? Is that going to be the standard time line you are going to look for?

It is a good question. I'm not sure I am going to be able to give you a great satisfactory answer here because there is a certain amount of we will have to see. And I think you know us pretty well. We tend to be fairly conservative on these things. We don't want to get ourselves committed to a higher dividend and then have to struggle.

So we are outlining and have been signaling to investors for some time now that we see the bulge in capital spending as probably being this year. And with that, we'll see a little bit of tapering off in the annual capital spending from what it has been. That actually creates kind of a bow wave of cash, which we think positions us well to move that dividend up, back up into that 45% to 55% of utility earnings targeted payout ratio.

We are really staying away from trying to predict we can get there in one year, we can get there in five years, we can get there in whatever. It really is a matter of what the pace of capital spending will be. That is a little hard to exactly predict and we will bounce off with opportunities for growth. But it is pretty clear to us we will be moving back into that targeted payout ratio.

Jonathan Arnold, Deutsche Bank.

Good afternoon. In the 10-K, Jim, you disclosed that the repair deduction is expected to be $50 million in 2013. Is that effectively an after-tax number? I.e., do we need to further tax-adjusted? And secondly is that a good number to assume for 2014 as well?

It is an after-tax number. It was larger in '12, declined in '13 and we expected it to decline slightly in '14. So we haven't put out '14 guidance. So there is a trend downward is all I am warning.

So you said slightly, right. The last decline didn't occur in '12 I guess, or in '13?

Sorry. It is going to be below '13. How about that?

Thank you. And if I might just on slide 7, on the right there's this 7% to 8% number in the green box. I was wondering if you can clarify exactly what that refers to? Is that a comment on what '14 is over '13 which I guess it could be if we rounded it or is it a comment on '15 to '17 off the '13 '14 base?

Yes. It meant if you take 2012 as the base year and show the growth for '13 and '14, you are going to get the 7% to 8% projected rate base growth for that period from '13 and ;14. And once we file the NOI we will do that same calculation for you for the full five-year period.

So, this is specific to '13 and '14?

Correct.

Stephen Byrd, Morgan Stanley.

Good afternoon. Wanted to -- Ted, you had mentioned the impacts to the California grid of SONGS being out. And you mentioned the need to have Mother Nature cooperate. I just wanted to better understand as you think about the situation in California if unit II is delayed in terms of restarting if it is a fairly hot summer can you just expand further as to scenarios and impacts particularly in reliability of SONGS being out?

Yes. I could do that, but I am going to actually let Ron Litzinger do that. He has got really got a little bit better grip on it and closer to it.

Yes, our plan for 2013 is going to be very similar to what we did in 2012, which are accelerate transmission upgrades that were out in the future forward and complete those in time for this summer to increase flows into South Orange County. And a big focus on demand response as well, which we were successful with last year and we will reinitiate those this year and even incorporate some lessons learned from last year.

Huntington Beach which was available last summer is not available as a generator this summer and we will be looking at additional transmission upgrades to provide that flowthrough support. So we are doing everything we can. We continue to plan for a one in 10 summer and we will just see how it goes.

But it is more of the same and it is primarily on the transmission side.

Okay. Understood. And then, just shifting more on the NRC side of things, I think everyone is following the dialogue there. But just if you can help us particularly with respect to the unit II dialogue to understand key upcoming timelines we should be thinking about and just general activity on unit II to make sure we are thinking about things correctly.

Yes, on the NRC we are continuing to answer questions that we received from the NRC on our submittal. We will continue to do so and participate in the public meetings as they go on. The latest indications from the NRC are that they expect a late April/May time frame to make the decision. The wild card remains the hearing with the Atomic Safety and Licensing Board on the Friends of the Earth petition.

Thanks very much.

Anthony Crowdell, Jefferies.

Good afternoon. Hopefully two quick questions. One in the K when you mentioned the NRC process you say that the unit may -- before it is restarted, it may require one or more amendment. If you could just give some more color on that or what you think the amendments would be. And two, in your 2013 guidance I was curious, have you assumed the same revenue component necessary for SONGS that you received in '12 and 2013 guidance?

Now, I will take the guidance question. I think in the guidance chart we assume that we get full cost recovery so that is the full return of and on depreciation O&M and so forth. And to the extent that there is additional replacement power that is being booked in the era of balancing account. And obviously that is subject to future [resemblance] review as we go through the proceedings. And I think I also said in my prepared remarks we have assumed there will be no further recovery from MHI over and above the $45 million that we have already recovered, and our share is obviously less. That $45 million is 100%.

And so that is the current state of affairs as far as what is embodied in '13 guidance. And I will pause and look over to Ron as far as the first part of the question.

Yes, there are with regards to license amendments, clearly there is the Friends of the Earth petition which is in front of the Atomic Safety Licensing Board as to whether our Cal submittal is a de facto license amendment. That is out there. And then there are focuses in the questions we've received as to the process going forward.

Our review of past actions by the NRC on units that have derated a license amendment is not required. But we'll just have to see as we go through the process. It is hard to speculate what will happen.

All right. Great. Thanks for your time.

Michael Lapides, Goldman Sachs.

Two questions. Little one, related first on SONGS and picking up a little bit from where Anthony left off. Is there precedent that you are aware of that if you do have to get a license amendment whether you can operate while you are going through the following process to get that amendment?

Ron, you want to handle that?

Yes. I am just thinking for a second. I'm not sure that I could cite precedence. If we put in for a license amendment it can be handled one of two ways. The staff could find what is called a no significant hazards determination which is a -- potentially a shorter process and then there is the full-blown process and we'll just have to wait and see how it plays out. It would be tough to speculate at this point.

But on under either process there is a shot that the NRC would let you operate while going through the process?

To my knowledge only the no significant determination has that opportunity in it. It is not guaranteed there either.

Got it. Ted, Jim, unrelated topic. The filing of Edison Mission in December and the signing of the TSA I don't think included the extension of bonus depreciation which occurred after that. How should investors think about whether there is risk of the TSA unwinding. There is risk of debate over worthless stock deductions requiring cash payments from EIX to bondholders. How should investors who like SoCal Ed story think about that cash flow risk at the parent level?

We are going to have Bob Adler, our General Counsel, give you a comment on that because he was directly involved in negotiation and transaction. Bob.

Thanks, Jim, and good afternoon. As you know back in December the majority of the bondholders and EME and we, EIX, signed a Transaction Support Agreement which contemplated an extension of the tax sharing agreement in accordance with its terms. We are all bound to support that agreement and we continue to support that agreement. And believe that the other parties are as well. It is ultimately up to the court to assess whether the agreement is going to be upheld. So beyond that I don't think there's much I could add to the situation.

But if I -- I just want to make sure I understand this because the cash flows that would have happened through the end of 2014 are a different number than what pre bonus depreciation post bonus depreciation, so just curious in terms of is there any recourse by the EME bondholders to come back to you and say, what a second, we are not going to get as much cash because SoCal Ed is less of a cash taxpayer now.

Well, the agreement is quite specific in that there is no guarantee of tax payments or any particular level of tax payments under the agreement. And of course, changes in tax law are always a possibility as these were. So again, all of the parties signed an agreement, have agreed to support it and until we hear otherwise we are going to continue to support it.

Thank you.

Jon Cohen, ISI Group.

Good afternoon. I just had a couple of questions on your slide 12 of the deck. The light blue box where you show $0.31 of uplift versus your rate base implied earnings. So I think we said before that $50 million or about $0.15 of that in '13 is from the income tax repair deduction. Is it safe to assume that the rest, so, $0.15 to $0.16, is ongoing? That the O&M savings and energy efficiency should roughly offset the EIX Parent expenses?

Yes and when you say ongoing, we are saying and in my prepared remarks that these benefits will occur in '13 and '14. That -- but we would expect O&M savings in the tax deductions to be trued-up as part of the 2015 GRC. And I am not sure what is going to happen with energy efficiency. I think we'll have -- this is the 2011 program year benefit and so will have 2012 and then they will have a new plan after that. So I can't tell you beyond that what could happen in 2015.

Can you give us a rough breakdown of how much is O&M and how much is energy efficiency in '13?

Well, I think you have the component parts there to come pretty close and the energy efficiency earnings is $0.03. And then we have already talked about the benefit of the income tax deduction, repair deduction for 2013. The O&M savings is the difference between those two.

And lastly are there any opportunities to further reduce the Parent G&A costs going forward?

It is a good question. What we have been doing is watching the staffing at the holding company based on the bankruptcy filing of EME. Obviously, there's some things that EME used to draw upon that we are not doing any longer. But we are incurring some cost at the holding company to support some of the new business activities that we are looking at now. And we haven't broken them -- broken those out or provided any additional color associated with them. Because they are pretty small. And the ongoing cost for the holding company historically has been approximately about $0.01 a month or $0.12 a year. It kind of gives you a rough order of magnitude.

But we are going to watch those, that number very carefully, as we know the holding company is at cost center. It doesn't provide any earnings and we are going to manage that as carefully as we can.

Great. Thank you very much.

Hugh Wynne, Sanford C. Bernstein.

First question regarding the income tax repair deduction. You mentioned that that would be trued up in the '15 GRC. The point you are trying to make just to be clear is that this is not going to be an ongoing benefit earnings because --

Correct.

-- it will be passed through, but there is no clawback. Is that correct?

That is correct.

The other question, what -- which utility would you be looking to as a successful example of diversification in the competitive enterprises such as the ones you mentioned?

I'll take that one. I think there are various people out there that are looking around but I don't think anybody has really done significantly into any of these areas. Most of the nonutility activity as you well know is what I'll call traditional central plant most often fossil or nuclear gen co's. We are not talking about that here. This is something different.

So it is really looking at some of the new business activities. As I indicated, most of those you look around the country nobody really is making money hand over fist in those. So it is something you have got to be mindful of, watch the trends, identify areas where you think there is the most potential opportunity and find a way to participate, but at a pace that isn't a distraction and allows you to get a little closer to what those trends look like without putting a significant financial risk around them.

So I think it is probably the better example would be in other industries where there's been substantial change transformative or disruptive change to ultimately to the core business. The companies that have been most successful in those industries have been ones that early on spent some time trying to understand where some of these longer term trends could take you, and get involved in relatively small activities in those start-up areas so that if the trends really develop or start to accelerate you have something of a platform, something of a basis for redirecting some of your capital and energies into those businesses so that you are not caught flat-footed. And that is the concept that we are working at.

So I think it is probably the examples are better identified in other industries than they are in our current industry.

Thank you very much.

Ali Agha, SunTrust.

Thank you. Good afternoon. When you look at all the different schedules going on for SONGS right now and particularly at the California Commission level et cetera, just looking at that process, when at the earliest do you think you would be in a position where you may need to re-look at your accounting or cost, et cetera?

Yes. That is a good question obviously here at fourth quarter. I think every time you file SEC reports you are going to need to look at your accounting. Or if there is some kind of triggering event that would cause you to reassess if some event has occurred. So we'll do that every single quarter, then we file our financials and look at the prudency of our actions if something new has appeared or the NRC does something. So we have got to do that constantly.

But just to be clear on the triggering event, is there anything in that process as it stands right now the future schedule that you could point us to to say, that may or may not be a contributing event?

Not that I could see right now because the four stages of the Commission's process it is going to take some time before we are to a proposed decision. So we are in the latter part of the year before we hear under the first stage. And it is important, too, and in terms of what is happening with the NRC process to hear about what is going to happen with unit II, and that informs our decision making around unit III, too.

So I think if anything, it is probably going to be in the latter part of the year before the next signpost might occur.

And one other question. Ted, given your commentary on future investment needs particularly the distribution business, et cetera, wires, etc., going forward, should we look at 2014 CAPEX as kind of a good proxy for how CAPEX should be trending point forward? In effect should CAPEX actually come down even from that level?

It is a good question. I am not sure we have a great answer at this point. But we will have to start showing some visibility to that as we get into our next rate case cycle.

So this summer we will have our first filing before the new rate case cycle and you will get a little bit better feel for it there.

But I think to be frank, generally what we have experienced as I indicated is we have more opportunities than probably really capacity with ratepayers and to advantage the affordability of electric rates on the capital investment side. So the real game here is to try to be very judicious in the prioritization of those investments and, as we have tried to signal here today, really look hard at how efficient we are on the operational side so that we can free up as much in the way of dollars to go towards the capital investment and reliability and -- instead of having it just go out in O&M.

So those are the ways we are trying to unleash as much potential investment in those areas as we can without putting too much pressure on the affordability of customer rates.

Thank you.

Now I will turn the call back to Mr. Cunningham.

Thanks very much. This concludes our call today and thank you all for participating. Good evening.

Thank you. This does conclude today's conference. All parties may disconnect.