愛迪生國際 (EIX) 2017 Q4 法說會逐字稿

Good afternoon, and welcome to the Edison International Fourth Quarter 2017 Financial Teleconference. My name is Ash, and I'll be your operator today. (Operator Instructions) Today's call is being recorded.

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

Thank you, Ash, and welcome, everyone. Our speakers today are President and Chief Executive Officer, Pedro Pizarro; and Executive Vice President and Chief Financial Officer, Maria Rigatti. Also here are other members of the management team.

Materials supporting today's call are available at www.edisoninvestor.com. These include our Form 10-K, prepared remarks from Pedro and Maria and the teleconference presentation. Tomorrow, we will distribute our regular business update presentation.

During this call, we will make forward-looking statements about the outlook for Edison International and its subsidiaries. Actual results could differ materially from current expectations. Important factors that could cause different results are set forth in our SEC filings. Please read these carefully. The presentation includes certain outlook assumptions as well as reconciliation of non-GAAP measures to the nearest GAAP measure. (Operator Instructions)

I will now turn the call over to Pedro.

Thanks, Sam, and good afternoon, everyone.

Edison International delivered excellent fourth quarter and full year results, but we faced significant challenges in December and into January of this year due to wildfires and the related legal and regulatory framework in California. Governor Brown recently referred to a new normal with respect to wildfires and the fundamental risks this poses to our utility are top of mind at all levels of our company. I will discuss our strategy to address wildfire risk, but first, let me make a brief comment on our full year results.

2017 core earnings were $4.50 per share, which were $0.18 above the midpoint of our earnings guidance range and also well above consensus EPS. These results were driven by SCE's strong operating performance and additional tax benefits during the year. The EIX holding company also had better-than-expected cost performance in the fourth quarter and has contributed to our positive overall results. These results exclude the noncore impact of tax reform and the revised SONGS settlement.

Today, the Board of Directors of Edison International declared its first quarter common stock dividend of $0.605 per share. Prior to declaring the dividend, the Board evaluated the information available, including information pertaining to the wildfires in December 2017 and the mudslides in Montecito in January 2018 and determined that the California law requirements for the declaration were met.

Wildfires pose a risk statewide, impacting the entire economy. Communities across California have been tragically affected as climate change has increased its severity and the frequency of wildfires in recent years.

Long-term droughts in California and forest management policies have resulted in the buildup of unmanaged vegetation. The state has nearly 130 million dead trees on approximately 9 million acres due to prolonged drought conditions and bark beetle infestation. The combination of these conditions along with decades of more buildings being permitted and constructed in higher fire risk areas have contributed to catastrophic wildfires with 8 of the state's 20 most destructive wildfires having occurred in just the last 3 years.

This is a statewide crisis that needs a statewide solution. We are engaged with state leaders, including the governor's office, legislative leaders and stakeholders across the economy on the solutions we believe are needed.

First and foremost is the prevention and mitigation of catastrophic wildfires with sufficient fire suppression resources and effective policies around vegetation management, hazardous fuels reduction and zoning regulations for residential and commercial development in high fire risk areas. Second, our state's infrastructure must be hardened with stronger building codes in high fire risk areas. Utilities and other operators of critical infrastructure must also partner with state agencies on improved standards for climate-resilient infrastructure.

As we think about how we design and operate our system, we should consider that roughly a quarter of our service territory is in designated high fire risk areas. This should evaluate the safety impacts along with the reliability and cost tradeoffs of steps like undergrounding more of the distribution network in selected areas, installing steel or composite poles instead of wood ones in specific locations and using further preventive public safety shutoffs of power under high risk conditions such as red flag warnings, which we have done selectively in the past.

Third, when a catastrophic event occurs, in spite of all these efforts, we need thoughtful policies around how financial risks are allocated, including fire suppression costs and damages.

As a reminder, California's courts have held investor-owned utilities strictly liable regardless of fault, for property damages and attorney’s fees if utility equipment is found to be a substantial cause of a wildfire. This means that the utility can do everything right in the operation and maintenance of its equipment but still be on the hook for these costs. The California courts have held utilities liable regardless of fault by applying the principle of inverse condemnation, a principle typically applicable to government, not to private entities.

The assumption is that like a government entity that can pass along to its taxpayer’s costs and risks incurred for the public good, IOUs can socialize wildfire costs among their customers in rates. However, as many of you know, the CPUC recently denied San Diego Gas and Electric's application for cost recovery of about $380 million of costs above their insurance coverage.

We see legal, regulatory and legislative policy pathways to resolve these issues.

Starting with the legal front. We recently filed a motion in our Round fire case, a 2015 fire near Bishop, California, challenging the application of inverse condemnation. Yesterday, we filed a motion for leave to file an amicus in the PG&E Butte fire case, also challenging the application of inverse. In the regulatory arena, we filed a joint application with PG&E for rehearing of the CPU's decision in SDG&E's wildfire expense memorandum account or WEMA application. We also recently filed comments in PG&E's Butte fire WEMA.

On legislative policy changes. In addition to the priorities I mentioned on fire prevention and suppression and improved standards climate resiliency, we believe that the allocation of costs and financial risks must be addressed. That starts with exploring ways to reform the application of inverse condemnation with strict liability to utilities. It also includes addressing the high cost of fire suppression, which typically exceeds state budget levels each year. In addition, increasingly high premiums for wildfire insurance coverage should be a part of the discussion as they affect parties far beyond the utility sector.

I would like to note that despite our best efforts and great sense of urgency here, all of this will take time and creates uncertainty. However, we also believe that the state will ultimately address the risks and issues surrounding wildfires and other climate change impacts because California's ambitious environmental policies require strong, healthy utilities.

On that note, I would like to now touch on a few key trends that we continue to see providing a strong growth engine at the utility for the foreseeable future.

Last October, SCE released a white paper that outlines our blueprint for California to reduce greenhouse gas emissions and air pollution by its ambitious 2030 goal. The clean power and electrification pathway has received a great response and support from community organizations, customers, environmentalists and labor unions.

As you have seen in the white paper, we estimate that to meet the 2030 goals, California must have a robust modern electric grid supplied by 80% carbon-free energy. We believe California will need more than 7 million electric vehicles and the electrification of 1/3 of space and water heaters in increasingly energy efficient buildings. We continue to engage in significant outreach to key stakeholders and pursue initiatives to help the state meet California's 2030 goals.

A related initiative is the transportation electrification application that was filed in January 2017 that included $574 million of potential capital spending in 2 groupings: fast track projects and larger, longer-term projects, which will require more detailed consideration.

Last month, the commission approved 5 of the 6 fast-track priority projects we proposed but only $10 million in capital spend. The commission process continues with respect to the longer-term review projects, and we are still expecting a proposed decision in the second quarter.

Energy storage is a big component of the electric grid in our analysis. Legislation is beginning to reflect this as well and Assembly Bill 2868, signed in 2016, added opportunities for programs and investments of an additional 500 megawatts of distribution level energy storage systems distributed equally among the IOUs, so SCE share is 166 megawatts.

On March 1, we will file our energy storage procurement and investment plan application, which will include AB 2868 proposals for energy storage programs and investments in addition to the usual procurement of energy storage through other RFOs.

With respect to the 2018 General Rate Case, we filed updated testimony in February 16 to reflect the impacts of tax reform. We have a hearing date set for March 19 to discuss this updated testimony and any comments provided by intervenors. Once that hearing is completed, we will see if the administrative law judges require any other briefings before issuing a proposed decision. We cannot speculate on the timing for a proposed decision and a subsequent commission decision, but I'll say that given where we are today, we would expect the final decision before year-end.

Turning to SONGS. We announced our revised settlement that was a result of multiple mediation sessions in 2017 and January 2018 with that diverse set of parties. We weighed the reasonable range of potential outcomes and determined that this outcome is in the best interest of our customers and our shareholders.

If approved by the CPUC, this settlement will eliminate further uncertainty and it will bring closure to what otherwise could have turned into very lengthy litigation after factoring in likely appeals in the absence of settlement. The revised settlement will resolve all issues under consideration in the OII and will also result in the dismissal of a federal lawsuit currently pending in the Ninth Circuit Court of appeals, challenging the CPUC's authority to permit rate recovery of San Onofre costs. Maria will provide additional information in her remarks. But in summary, our 2017 financial statements reflect the impacts of the revised settlement in our company. We will work with the other parties to complete the steps in this proceeding, and we are hoping for a swift commission decision given that all the parties involved in the mediations are willing to settle.

I would like to now touch on a few of the key nonfinancial metrics our board uses in measuring our performance in delivering safe, reliable clean and affordable electricity to our customers.

While we had challenges in 2017 with some of our goals, we saw strong trends in the second half of the year and we will work hard to meet or exceed the 2018 goals approved by our board.

Operational and service excellence starts with safety for our workers and for our public. This has been a major priority across our company and is at the top of our core values.

Our 2017 performance did not meet our expectations. For example, our rate of injuries leading to days away, on restricted duty or transferred known as the DART rate remains worse than industry norms. We have dedicated additional senior leadership in this area and are focused, not just on tools and processes, but much more importantly, on growing the safety focus of our organization's culture.

We continue to improve in our customer service goals with residential customers, with SCE ranking in the upper second quartile among peer utilities in the most recent J.D. Power survey, we have narrowed the gap with our top quartile peers and first quartile appears achievable for SCE.

On the business customer side, our peers continue to raise their performance, and so we have dipped into the upper third quartile. Kevin, his leadership team and our employees will continue to target top quartile satisfaction for both our residential and business customers.

While SCE did not meet its 2017 reliability goals, the utility began implementing a 3-year improvement road map in 2017, and the benefits realized in the second half of the year exceeded our expectations. We expect reliability to continue to improve in 2018 with the goal of achieving top quartile performance over the next few years.

SCE achieve improved cost performance in 2017. One way we measure SCE cost efficiency is controllable O&M per customer. We also track system average rates. SCE continues to reduce O&M costs and maintain the lowest system average rate among California IOUs and is on track to achieve top quartile performance. We have plans that should help us achieve this objective over the next couple of years.

As we continue to pursue top quartile performance across all of these operational metrics, we know that the bar will continue to be raised as we and our peer utilities take advantage of technological and analytical advances to improve outcomes. So while we have plans to achieve top quartile performance based on current benchmarks, we know that we will need to work to push past those levels in order to keep pace.

As I look ahead to the changes that will take place in California, our utilities

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to operate a safe, reliable grid, achieve environmental policy outcomes and mitigate climate change impacts. Our customers, regulators, legislators and shareholders can rely on our employees to deliver solutions to the many challenges facing our community, and to do that from a strong foundation of operational and service excellence.

With that, let me turn it over to Maria.

Thank you, Pedro, and good afternoon, everyone.

My comments today will cover fourth quarter and full year results for 2017 compared to the same period a year ago, our updated capital expenditure and rate base forecasts, updates on SCE's FERC formula rate filing and other financial updates for SCE and EIX.

Our fourth quarter and full year 2017 results includes certain noncore charges related to the recent tax reform legislation as well as the revised SONGS settlement. I will walk through both of these in a minute, but let's begin with a look at our core earnings drivers.

For the fourth quarter 2017, Edison International reported core earnings of $1.10 per share, an increase of $0.13 from the same period last year.

On the right side of Slide 2, you will see that SCE had a positive $0.14 core variance for the quarter versus the prior year. This is mainly attributable to $0.11 per share of increased revenue related to the attrition mechanism in SCE's 2015 General Rate Case.

There were a number of changes on the expense side as well, although these were largely offsetting. SCE's operations and maintenance costs were slightly higher due to the timing of maintenance activities. Net financing costs increased $0.01 per share over last year and was mainly due to $0.04 of higher interest expense, partially offset by increased AFUDC earnings. Income tax benefits were $0.05 per share higher than last year and related to increased cost of removal benefits.

Finally, other costs related to property taxes and corporate expenses were $0.03 higher.

For the quarter, EIX parent and other had a negative $0.01 per share core earnings variance, arising from the lower tax benefits on stock-based compensation at the holding company, partially offset by improved results of $0.02 per share at our competitive businesses.

As I noted earlier, SCE and EIX results in the fourth quarter were impacted by 2 significant noncore items, the revised SONGS settlement and tax reform.

SCE had $1.48 per share of noncore charges in the fourth quarter. This relates to a $448 million after-tax charge or $1.38 per share associated with the revised SONGS settlement and a $33 million charge or $0.10 per share related to tax reform.

EIX parent and other had $1.29 per share of noncore charges in the fourth quarter, largely related to tax reform. Specifically, the remeasurement of deferred taxes resulted in a $433 million expense or $1.33 per share. We will continue to utilize our net operating losses and credits, and based on our current analysis, EIX expects to become a cash taxpayer in 2025.

Please turn to Page 3. Overall, for the full year, Edison International core earnings increased $0.53 per share over prior year. This includes $0.44 per share of increased revenue related to the attrition mechanism in SCE's 2015 General Rate Case.

Many of the earnings drivers for full year 2017 are similar to the quarter, so I will only highlight 2 items. At SCE, lower operation and maintenance costs contributed $0.07 per share to overall performance over the prior year. Also, as we have communicated in previous quarters, EIX parent and other realized significant tax benefits in 2017 and the $0.17 per share increase in core earnings over the prior year is largely a result of these.

For the year ended 2017, we have not recorded liability associated with the December wildfires. Given the preliminary stages of the investigations and the uncertainty as to the causes and potential damages associated with the fires, we cannot determine that a liability is probable or a reasonable range of possible losses that could be incurred. We will continue to update you as we have more information.

Overall, core earnings of $4.50 per share are $0.18 per share higher than the midpoint of guidance. SCE earnings are $0.15 per share higher due primarily to increased O&M savings and financing benefits and higher income tax benefits.

Edison International parent and other losses of $0.08 per share are $0.03 per share better than guidance, largely from better operating cost performance at the holding company and our competitive businesses.

Please turn to Page 4. While we continue to wait for a decision on SCE's 2018 General Rate Case, SCE has developed and is executing against a 2018 capital expenditure plan that will allow SCE to ramp up its capital spending program over the 3-year GRC period, that is 2018 through 2020, to meet what is ultimately authorized in the decision while minimizing the associated risk of unauthorized spending.

As part of this, we will focus initial grid mark spending on capital that provides safety and reliability benefits while deferring most spending is primarily focused on integration of distributed energy resources.

While we continue to present our 2019 and 2020 capital forecast at our current GRC request level, we adjusted CPUC capital expenditures in 2018 to $3.6 billion to reflect our latest planning for the year.

Additionally, we made updates throughout the forecast period for changes in FERC projects. Our total 2018 CPUC and FERC capital expenditure plan is $4.2 billion.

While we wait for the outcome related to the 2018 GRC, over the long term, we continue to see SCE investing at least $4 billion per year and adding at least $2 billion per year of rate base for the foreseeable future as SCE focuses on investments in the grid and continues to be a key enabler of California's ambitious climate change policy.

Page 5 of the deck provides our rate base forecast. The CPUC rate base forecast is based on the weighted average rate base that we requested in the GRC for the forward looking 3-year period. That is it reflects our 2018 through 2020 request level capital expenditure.

Once SCE receives a final decision in the 2018 GRC, our rate base forecast will be updated to reflect the authorized levels.

At that time, we will also update our capital expenditures for 2019 and 2020. We have, however, updated our rate case forecast to reflect the impact to tax reform, changes in the latest FERC capital forecast and additional incentive CWIP treatment with certain FERC projects.

Please turn to Slide 6 where we provide our current rate base forecast along with the impact of changes since our November update.

As you can see, tax reform has little impact on our 2018 rate base. But by 2020, it increases our rate base by $400 million. This increase is mainly related to the elimination of bonus depreciation.

During the fourth quarter of 2017, FERC approved incentive CWIP treatment for 3 additional transmission projects, Alberhill, Mesa and Eldorado-Lugo-Mohave. This incentive treatment means that we can add capital expenditures related to those projects to rate base in the year they are spent rather than waiting for the project to be placed in service.

As a result, rate base is approximately $500 million higher by 2020. However, this increase is offset by reduced capital spending as a result of improved cost efficiencies and revisions of projects, scope and schedule related to our FERC capital projects and program.

Cost efficiencies and reduced scope account for approximately 1/3 of the change in capital spending. The remaining 2/3 represents a timing shift that will be added to rate base outside the forecast window. The majority of these changes are captured in the major transmission project update on Slide 7.

On the subject of FERC, I would also like to provide a brief update on our current FERC formula rate proceeding. A key matter in that proceeding is the determination of our authorized ROE. In December 2017, the FERC ruled that the requested formula rate would go into effect January 1, 2018, subject to refund. This means that while we are collecting our requested ROE for the FERC related revenues during 2018, these dollars will be adjusted and refunded depending upon the final decision in our proceeding.

Our ROE request is comprised of a base return on equity of 10.3%, plus the 50 basis point CAISO participation adder for a total ROE of 10.8% before individual project incentives.

The weighted average of individual project incentives increases the requested ROE to the equivalent of about 11.5% based on our current capital expenditure plan.

In this December ruling, FERC also approved the 50 basis point CAISO participation adder, although I should note that the CPUC has intervened in our FERC rate proceeding and has requested an application for rehearing on the approval of this adder.

The FERC also directed the parties to commence settlement discussions, and the parties are scheduled to reconvene at FERC on May 15. Hearings will be held if the parties do not ultimately settle. We cannot speculate on the outcome of this proceeding or the time line, and we'll keep you updated as new information is presented.

Please turn to Page 8. As I noted on our third quarter earnings call, we will not be providing 2018 earnings guidance until we receive a final decision on the General Rate Case. However, we have laid out a few key items on this page that you should consider as you model 2018 and beyond.

I've already discussed the majority of information on this page. However, please note under other items, we list some key considerations outside the simplified rate base model.

First, as Pedro touched on briefly in his comments, the market for wildfire insurance for California IOUs is becoming more strained. Availability is declining while simultaneously premiums are going up.

In late December, we notified the commission that SCE secured $300 million of wildfire insurance for the 2018 calendar year and requested the commission approve recovery of the associated premiums of approximately $121 million.

Although we believe we have a strong case for recovery, until the CPUC addresses our request, you should assume an additional $0.29 per share drag on earnings in 2018.

There may also be additional insurance costs that are in excess of what we have requested in our GRC. We do not yet have information regarding the overall costs, however.

Second, while we are not providing guidance for SCE, we do expect EIX parent and others to be an earnings drag of $0.25 to $0.30 per share for 2018. The increase in EIX parent and other is related to a lower tax shield as a result of the lower corporate tax rate and higher interest expense. Also included is the EPS of Edison Energy, which is expected to improve in 2018 over prior year results as we continue to work towards our goal of a run rate breakeven level of earnings by year-end 2019.

Finally, we have not included any tax benefits related to share-based compensation, which was a significant factor in 2017 performance.

Please turn to Page 9. On February 16, we filed updated testimony on our GRC proceeding to include the impacts of tax reform legislation on our CPUC jurisdictional revenue requirement. We are now requesting a 2018 revenue requirement of $5.534 billion, a $106 million decrease from the 2017 revenue requirement.

Posttest year revenue requirements have also decreased from our prior request.

Overall, we estimate this latest update will result in approximately 3% CAGR in total rate between 2017 and 2020. We will remain focused on ways to mitigate customer rate impacts while continuing to invest in our electric grid infrastructure.

EIX and SCE continues to maintain a strong balance sheet and significant financial flexibility. At EIX, we issued a $500 million 1 year term loan in January to partially pay down our commercial paper program. At SCE, our average common equity component of total capitalization was 50% as of December 31, including the charge from the revised SONGS settlement.

If approved by the CPUC, the revised settlement allows SCE to exclude the $448 million after-tax charge from its equity capitalization ratio.

As we have already discussed, tax reform results in a lower revenue requirement and lower customer rates, although rate base will increase as a result of the elimination of bonus depreciation.

Considering these items and given the potential for a large capital program based on our GRC request as well as other potential investments in support of the state's clean energy objectives, we will likely see increased financing needs in the future as higher capital spending is followed by related growth in authorized rate base and earnings.

We will continually assess the most cost effective approach to financing and could consider optimizing the use of short and long-term debt at either EIX or SCE.

We are pleased that we are able to benefit from the prudently conservative balance sheets we have maintained at both SCE and the holding company as we continue to invest in SCE.

That concludes my remarks. Ash, please open the call for questions.

(Operator Instructions) Our first question comes from Julien Dumoulin-Smith, Bank of America Merrill Lynch.

I wanted to first follow up on the change in the parent drag. How are you thinking about mitigating this over time? I know you just are talking about kind of preliminary '18 guidance here and we're already asking you how you think about it into the future. But obviously, it's a pretty meaningful move. Can you give us any thoughts on the breakdown of what exactly is in that approximately quarter of drag and how that evolves?

Sure. So I think in the past, we've said a penny and a half per month. I think this looks more like $0.02 per month, plus whatever Edison Energy is doing. Obviously, over time, the Edison Energy number is one that we are working towards a breakeven run rate by the end of 2019, so that will be part of the approach to minimize that drag. And at the holding company, tax reform has had an impact on us. While we believe that from a deductibility perspective, we'll be able to allocate that expense, the fact that we just had less of a tax shield as a result of the lower tax rate is having an impact.

We always look at operating cost efficiencies from the conversation we just had, or the remarks that we just made that we actually benefit a little bit in the fourth quarter at the holding company from lower costs. That will be our approach, the same one we've used at the balance of the company.

Excellent. And I wanted to follow up on the dividend. Just in terms of the comfort level that the board obviously had in declaring the latest dividend, how do you think about that evolving as you learn more about the potential exposures here? Maybe said differently, with respect to the discrete test that you had to evaluate the latest dividend, how do you think about potential risks of reevaluating that in subsequent quarters here?

Julien, I'll take that. This is Pedro. I think like I said in my remarks, our board looked at a broad range of potential negative outcomes here. I know that we're not putting out a specific estimates that we may have or the like, and I also recognize that a number of analysts have put out their own sets of ranges out there. But suffice it to say, we took a look at a good broad range of potential outcomes here based on the information we have at hand and the board felt we're very comfortable making this quarterly dividend decision.

In the normal course, we always update you on dividend actions. We typically have talked about potential adjustments in annual dividend levels at the end of the year, but then we validate as a board and do actual board approval quarter-by-quarter. And that's again our normal course, and that remains our normal course. So a quarter from now, we'll be having the next discussion on that quarterly dividend.

Again, we did look at a broad range of potential outcomes here, so there would have to be some very new information that the changes that range of outcomes to affect the thinking further. I think that's about the best way that I can frame it at this point, Julian. Does that help?

Yes, absolutely. So you included the mudslides and the totality of the events that have occurred as best you understand it?

I've stayed purposefully vague here, but we did say that we looked at -- we did look at the potential impacts from all these things that happened. We're not commenting on causation and the like, but the board did take a look at that potential range of impacts from all these various events.

So I think we've taken a very diligent approach as directors at looking at a lot of ways in which under California regulations and law that could impact the company and felt very comfortable about the rigor behind the broad look that we took.

Our next question comes from Stephen Byrd, Morgan Stanley.

I wanted to talk about fire insurance. And I think you talked a bit about this in your prepared remarks. But just generally, as you think about the cost and availability of fire insurance, I guess, really both for you, but more broadly for your customers and for others in the region, we hear some concerns about areas becoming uninsurable or costs rising significantly. How do you see that evolving in California? And I guess relatedly, do you see a political awareness in the legislative body in terms of the need to be thinking about this holistically?

This is Pedro. And I'll start this one and Maria or others may want to comment from the management team.

First of all, you have to date up this insurance forms that we purchased, as Maria described in her comments. I think it's safe to say that's probably the most expensive premium we've paid for insurance ever. So that alone is a data point on -- there was availability, but at a much steeper cost than we've seen before. And as we continue to head into the market to secure different elements, different tranches of our towers, we are continuing to see a very tight market.

But to your point on awareness, that's frankly part of our job right now, to make sure that we are making policymakers aware and we're fully engaged on that. I mentioned in my remarks that we are engaged with the entire community of policymakers out there, from the governor's office, through to key legislators. We are doing a lot of that jointly with other utilities or other groups that are I think aware of the issues here across the state. And again, it's part of not just a utility issue, it's part of a statewide issue here that we think the severity and the frequency of these fires continues to go the way it's gone over the last 3 years. It's going to continue to put added pressure on the insurance market and other parts of the economy. So we've taken it on ourselves to make sure that we are knocking on a whole lot of doors in Sacramento right now, making sure folks are aware and bringing some of our ideas to the table of what reforms might be needed to solve this statewide issue.

Maria or Adam, anyone from General Counsel, anything you want to add?

I'd just say I think it's something that the regulators really need to pay attention to. When we filed our GRC, people were very appreciative of the $85 million in O&M costs that we had taken out of the system and this sort of insurance premium completely swamps that. And it does get recovered in our General Rate Cases, we applied for that, so customers will ultimately bear very high costs unless and until we can make people aware of the issue.

Okay. Just maybe one follow-up on physically as we think about your utility system. Is there a lot of co-location telecom equipment with your equipment? Or how do you broadly think about the degree to which there is that co-location of there of telecom equipment with yours?

I don't know that we have a fact or figure handy right now, but I'll turn it over to Kevin Payne. Short answer is there is certainly some level of co-location across the system. Kevin, anything you would add?

Yes. We've looked at the high fire areas in particular and usually about 70% of our facilities are -- have co-location with other utilities. Is there something specific about that you're interested in or...

No, that's really -- all I wanted to understand was the scope.

Our next question comes from Shahriar Pourreza from Guggenheim Partners.

My dividend question was answered.

The next question comes from Christopher Turnure, J.P. Morgan.

I wanted to make sure I had a clear understanding of the role of various agencies in the Thomas fire investigation. Is Cal Fire definitely the lead agency there? Are there any local fire departments involved? And is there any investigations pertaining directly to the mudslides that would be separate from that, that you're aware of?

Let me pass it over to Adam Umanoff, our General Counsel, Christopher.

Christopher, you're correct. Cal Fire is the lead fire investigation agency as they typically are in fires where they're actively involved in suppression. Separate from Cal Fire, we understand that the Ventura County Fire Department is conducting some level of investigation.

In addition, the safety and enforcement division of the California Public Utility Commission will be conducting an investigation. Those are the investigations that we know are ongoing.

Okay. And how we should think about cooperation and timing with the Ventura Fire Department along with Cal Fire for any kind of ultimate conclusion on cause here?

I wish we could give you some comfort on timing. We wish we had more comfort on timing, we don't. These investigations historically have taken anywhere between 12 and 18 months to complete. And I think we have to stick with that as a suggested time frame, but there's really no certainty with regard to the time element of these investigations.

Adam, these investigations are very much case-by-case based on the facts that investigators pursue.

Okay. And then in terms of your legal strategy out of the gate here in the court system, is there anything that you can tell us in this early stage that might make your strategy differ from some of your peers or differ from that engaged by PG&E in the Butte fire last year? I realize it's obviously still early there and you're probably limited in what you can say, but I'm curious to hear your thoughts.

Well, you're correct. It's very, very early. The investigation around cause has just commenced, so I think it really is premature to speculate as to what the ultimate strategy will be. You will see, as we've seen in other large fires like this, an effort to coordinate before a single judge, the numerous lawsuits that are brought. And in fact, there is a motion to coordinate the various lawsuits that have currently been brought in the Thomas fire. That's a procedural step to hopefully make the litigation more efficient, but that's really at the early stages as well. So not much more we can tell at this point.

Adam, maybe I would add and I totally agree with how you framed it and these things are really case-by-case, depending on the facts in any given case. If you move up, though, to the 10,000-foot level, I think you're seeing indications that from a policy perspective, not from an individual, legal strategy from an individual case, but from a policy perspective, there's a lot of good discussion and coordination with our other peer utilities in the state. And you've seen, as I mentioned in my comments, we joined with PG&E in filing the application for the hearing in the San Diego WEMA case. We filed an amicus in the PG&E Butte case. So I think there's a recognition that the broader themes around policy and moving beyond just inverse condemnation, that support for a number of actions across the economy, across fire prevention and hardening infrastructure and costs and risk allocation, those are ones where at that 10,000-foot level it's so important that we be aligned, and we are.

Our next question comes from Praful Mehta, Citigroup.

Pedro, you made a point on the call to mention that all this fix around inverse condemnation is going to take some time. Just wanted to get a little bit more color on that, both from the legislative and legal side. What kind of timing are you thinking about in terms of solving inverse condemnation right now?

Well, again, this is one where, I think, we can give you a sense of that will take time, but it's very hard to pin down, here's the calendar or here's facing high ends at this very early stage. But let's take it in pieces. There are legal strategies, and so those play themselves out in individual cases. And I mentioned the Butte case with PG&E or the Round fire case where we made our filing, right? So there's a track around each of those cases. There's a PUC regulatory track, right? And I don't think that we have a clarity yet in terms of the timing for the PUC to consider the various applications for rehearing in that San Diego WEMA case or the PG&E WEMA case activity there. So typical and I'm looking around at Ron Nichols here, but typical CPUC time lines, certainly, it can be in the many months to a couple of years sort of time frame.

Then finally, to the extent that legislative policy changes attract something that we're also looking at, that happens in cycles of legislative sessions. And so we have a session that runs through later this year. It's a possibility of next year's session. So we -- I will tell you we are certainly advocating about the sense of urgency on this, and we would love to see traction in this legislative session on some of these key pieces, but it's still early days and that's not guaranteed. As I mentioned in my comments, the deadline for bills has passed, but you can still get changes in those vehicles. So there's always a possibility that as we continue to engage with legislators, we could see changes in the vehicles that are available already and bills that have been filed.

So that could be a this year thing or it might take longer to help build the momentum and build the case and it could extend into the next legislative session.

So I'm sorry, I think I took a lot of airtime there to say it's too early to tell. But hopefully, it gives you some color around some of the other pathways.

Yes. No, that's super helpful color. So I appreciate that. And just a quick follow-up on the legislative side. Is Senate Bill 819 still the right starting point? Is that what you're working towards in terms of improving or changing or tweaking? Or is there a completely different bill? What's the approach on the legislative side, I guess?

Ron, do you want to?

There are a number of bills out there. So there really isn't any one specific bill that's been selected at this point that might be modified. There's vehicles there that can be addressed over time as the session goes on.

And I think it's fair to say that, in general, the bills are addressing very specific issues. You're seeing, for example, a number of bills around dealing with residential insurance benefits and extending provisions for them and whatnot. What we are advocating for as you can tell from our comments here is a set of a more comprehensive solutions that deal with this statewide problem across all the different elements. Now that degree of difficulty then becomes harder because so you're looking for more comprehensive pieces of action. And that's why I'm saying it's so early days.

Our next question comes from Jonathan Arnold, Deutsche Bank.

Thank you for the comments on this Round fire case on inverse condemnation, I read that earlier in the week. I was curious if you have any sense of where that is in its process. I know you filed the brief, but are you -- is there a date on which the court is set to hear it or anything like that?

That's a great question for a lawyer. Adam?

Jonathan, it's Adam. The motion -- the court has set the hearing date to hear our motion for April 2. And that date can slip. It's always subject to change.

Okay. And is -- then you could see either a ruling or more process after that date, just we're made -- wait to be seen around April 2, is that the right way to think about that?

I think that's right. A lot depends on what the trial court does. If the trial court denies the motion, there's always the opportunity for us to appeal. These issues may very well require appellate court review, not be settled at the trial court level. And that would take some significant additional time.

Am I correct that in this particular case, the stage it's at, people have just asked for inverse condemnation to be applied to the utility, but the court has yet to rule on whether that should be allowed?

Yes, that's a good way -- Jonathan, that's a good way to describe it. In most of these cases, the plaintiffs alleged that the standard of care that we have to comply with is strict liability arising from the application of inverse condemnation. They simply plead it. And we have to defend that, or in this case, we challenge it.

So in the Butte fire case, the PG&E is trying to overturn a finding. And in your case, you're trying to sort of prevent one, effectively.

I can't speak to the procedural status of the Butte case. I don't believe that there's been a final determination. I know they are challenging the application of inverse condemnation.

Yes. So I guess my question was in this case has it also been applied or is it yet to be applied, I just wanted to be sure on that.

It has not yet been applied in the Round fire case.

Great. And then just, Maria, towards the end of your comments, you were talking about higher financing needs and how you could look at some holdco debt or incremental debt at the utilities. You didn't specifically mention equity, and obviously, equity hasn't been part of the story of EIX, certainly since I've been involved in covering the company. But it seems like you might have been at least floating that possibility, even though you didn't name it. Am I hearing that right or...

Jonathan, I think what I was really trying to say was that we have had a number of things that's affected other companies as well in terms of tax reform and the like. And we've also had some cash flow impacts from assuming the SONGS settlement is approved, we have some cash flow impacts there as well. And we are waiting for our rate case to come, and we have a number of other proceedings where we're also requesting capital. So there's a lot out there, and we're going to stay flexible in terms of how we finance that, either at EIX or SCE, either with short-term debt or long-term debt. I think that's really all I was really trying to say right now.

Okay. And then just to bring it up there. In the SONGS settlement, you've asked for this adjustment of the calculation of the equity ratio. Is the settlement contingent on the commission approving that aspect of it? Or what would happen if they decided there wasn't a case made for that particular element?

Well, certainly, the settlement on -- all of the parties have agreed to support all of the elements of the settlement. The CPUC is going through their process. At this point, I think it's too early to really speculate on that.

This is Ron. I just would add to that, that the settlement provides for any material modification to it has to be agreed to by the parties.

Okay. So it might be hard for the commission to modify that or not, we'll have to see.

Our next question comes from Ali Agha from SunTrust.

Maria, you had mentioned that the equity ratio at SCE was 50% at the end of the year. Can you remind us what that means in dollar terms in terms of the excess equity cushion you currently have there?

So it's a 13-month average that we have to maintain at 48%. I am going to say round number, it's about...

It's more than $500 million.

It's more than $500 million. I think it's around $600 million. Sorry, I was just looking at some of the math here as we answer your question, Ali. It's around there. It's a little bit -- you can't tie it down to any particular number like consistently just because it's a 13-month average rolling calculation that we do. So it's in that ballpark.

I see. Okay. And then, Pedro, as you mentioned, there are -- you have various forums and parts you're looking at trying to get some clarity closure, if you will, on inverse condemnation, et cetera. Is your sense that for full clarity to come, you need the Cal Fire investigation to first be complete, in their determination on causes? Is that sort of the critical part item? Or from the outside, how should we be looking at and keeping track of -- to say, okay, this is a key element in some clarity on this process?

Yes. That's a good question. And I think my answer is

[Audio gap]

I was thinking about pieces, separate tracks, right? So there's a track around the Cal Fire investigation, to the Thomas fire and causation per se and then what standards will be applied in terms of liability and all of that. There's this broader track around -- the state has an issue. It's a big issue. Part of the issue is this -- the concern about the application of inverse condemnation feasibility, so the issue is broader than that, as I mentioned earlier. And so we're really looking for a broader, statewide solution.

Now clearly, there's a connection between these, right? And so if we had a very speedy resolution, and I think that would be wishing for a lot because we do expect this will take time. But let's say that we have clarity up front in terms of there's a bill that gets passed next month that resolves the application of inverse, well then it clearly would have some impact on -- once the Cal Fire investigation concludes, that would have impact on the recourse it means we would have to get recoveries for damages.

But again, I don't think that there's a serial linkage where we have to wait for that Cal Fire investigation of the Thomas fire to conclude in order to work the various other paths, regulatory, legislative paths to try and resolve the broader statewide issue. I do see this as fairly decoupled. Does that make sense, Ali?

It does. To just on that to clarify your opening remarks as well, you talked about the California state goals, et cetera. Are you getting any conversations back to suggest that there is some recognition coming that, hey, to meet our ambitious climate change and other goals, this issue is directly linked and impacting that?

Without getting into specifics who said what, yes, I think there is that recognition. And a lot of it is driven by the goals and the math behind the goals. Let's just focus on the 40% greenhouse gas reduction by 2030. That goal alone, the state itself has looked at tools like electrification of transportation, and building efficiency and renewables, requiring a strong grid, being a part of the solution, a major part of the solution. I'm glad that we have completed our analysis that lead to our clean energy white paper in the fall because of that, quite frankly, sharpened our thinking in terms of what it will take for the states to get there. And so that said, with the state, if the state really wants to get us a 40% reduction and deliver the lowest possible cost for our customers, this is a whole lot of years from the smart, modern reliable grid that's needed to get 80% carbon-free resources and get 7 million electric vehicles and get a bunch of water heaters and space heaters that are electric and so on. And so I think folks recognize that, but it is helpful that we have voices like the Air Resources board who put out their plans. You have the governor upping state's objective to 5 million electric vehicles. We still stand by our math, which suggests that it's a cheaper path for the state. It's actually more like 7 million electric vehicles. And I think, Ali, we'll see that continue to surface in various venues. One that I will point to coming up here is the integrated resource planning process at the CPUC, which will use different scenarios and take a look at our long-term horizon for the resource mix in California. And that I think will, once again, provide more proof points for the importance of healthy utilities.

Thank you. That was your last question. I will now turn the call back to Mr. Sam Ramraj.

Thanks for joining us today. And please call us if you have any follow-up questions. That concludes the call, and thanks again.

That concludes today's conference, and thank you for your participation. You may disconnect at this time.