Allison Bahen - Senior Manager-Investor Relations Theodore F. Craver, Jr. - Chairman, President & Chief Executive Officer Jim Scilacci - Chief Financial Officer & Executive Vice President Pedro J. Pizarro - President & Director, Southern California Edison Co. Adam S. Umanoff - Executive Vice President & General Counsel Maria C.

Rigatti - Chief Financial Officer & Senior Vice President, Southern California Edison Co..

Julien Dumoulin-Smith - UBS Securities LLC Greg Gordon - Evercore Group LLC Jonathan Philip Arnold - Deutsche Bank Securities, Inc. Praful Mehta - Citigroup Global Markets, Inc. (Broker) Steve Fleishman - Wolfe Research LLC Michael Lapides - Goldman Sachs & Co. Brian J. Chin - Bank of America Merrill Lynch Ali Agha - SunTrust Robinson Humphrey, Inc..

Good afternoon and welcome to the Edison International First Quarter 2016 Financial Teleconference. My name is Maddie, and I will be your operator today. Today's call is being recorded. I would now like to turn the call over to Ms. Allison Bahen, Senior Manager of Investor Relations. Ms. Bahen, you may begin your conference..

Thanks, Maddie, and welcome, everyone. Our speakers today are Chairman and Chief Executive Officer, Ted Craver; and Executive Vice President and Chief Financial Officer, Jim Scilacci. Also here are other members of the management team. Scott Cunningham is not here today, as he is recovering from minor surgery and should be back in the office soon.

Materials supporting today's call are available at www.edisoninvestor.com. These include our Form 10-Q, Ted's and Jim's prepared remarks, and the presentation that accompanies Jim's comments. Tomorrow afternoon, we will distribute our regular business update presentation.

During this call, we will make forward-looking statements about the future outlook for Edison International and its subsidiaries. Actual results could differ materially from current expectation. 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 reconciliations of non-GAAP measures to the nearest GAAP measure. During Q&A, please limit yourself to one question and one follow-up. I will now turn the call over to Ted..

Thank you, Allie, and good afternoon, everyone. Our first quarter core earnings were $0.82 per share, $0.08 per share lower than last year's first quarter. Most of this decline was due to timing differences at SCE during 2015, which were caused by the delay in receiving the 2015 to 2017 General Rate Case.

The underlying earnings in the first quarter of 2016 are consistent with the profile we expect for the year. Therefore, today we are reaffirming our 2016 core earnings guidance of $3.81 to $4.01 per share. Jim will elaborate on all of this in his remarks. I will focus most of my comments today on SCE's long-term growth potential.

This is particularly relevant as we prepare for our 2018 to 2020 General Rate Case filing in September, and as the dialogue continues before the CPUC on the Distribution Resources Plan and related proceedings. We believe that there is good visibility to long-term sustained investment of at least $4 billion annually.

They should in turn yield rate base growth of approximately $2 billion a year. We have confidence in these levels of investment for several complementary reasons. First, our strategy is very much aligned with California's goals of creating a low carbon economy and providing customers with energy technology choices.

Second, we see several different infrastructure areas that require years of continued investment, all of which can be expanded further from today's levels and can be flexibly substituted for each other.

Third, we have been steadily improving our ability to control overheads and fuel and purchased power costs in order to keep customer rate increases low, even with higher capital expenditures.

And finally, as our rate base continues to grow, higher levels of investment can be more easily digested without stressing equity levels or our ability to execute the work. I will expand on each of these points further.

As we look at the potential investments on the horizon, they support, and are supported by, several critical public policy initiatives. The overarching policy support comes from California's desire to create a vibrant low carbon economy. This is not solely a goal of policymakers, but rooted in strong public support across income and ethnic divides.

It is well understood that the state's low carbon goals cannot be met without substantially greater electrification of stationary and mobile sources of energy use. Decarbonization is supported by California's existing carbon cap-and-trade system, which does not rely on U.S. EPA's new carbon rules to be implemented.

There is also strong support for clean energy technology development in the state, driven in part by the importance of Silicon Valley to the state's economy and its political influence.

Importantly, Edison supplies the critical electric infrastructure investment needed to meet the state's low carbon goals and facilitate customer choice of new clean energy technology. Let me discuss the areas of infrastructure investment needed to meet the goals of providing safe, reliable and low-emitting power to our customers.

Starting with the basics, reliability of the core electric infrastructure requires routine replacement of ageing poles, transformers, underground cable and so on. Our system grew rapidly after World War II through the 1970s. Therefore, many components are reaching their mean time to failure and must be replaced.

SCE's infrastructure replacement program alone represents more than half of our total distribution system capital expenditures. To give you an idea of the size of this task, each year we replace on average 24,000 distribution poles, 4,000 transmission poles, 500 miles of underground cable, and 225 substation circuit breakers.

Complementing basic infrastructure replacement is the need to adapt our power grid to changing customer preferences and to new technologies. This evolution to a technologically advanced electric delivery system was outlined in the Distribution Resources Plan, or DRP, that SCE filed last summer.

Many of these potential investments are incremental to the investments that make up our current $4 billion annual CapEx. This vision for modernizing the grid will be an important principle as SCE develops its upcoming General Rate Case filing. The CPUC's regulatory proceedings on distributed energy resources are still in the early stages.

Initial insights from the proceeding appear to endorse some of the approaches we recommended in our DRP filing, while suggesting different approaches in other areas. SCE's General Rate Case filing will be made well before the CPUC has made its full recommendations in the DRP and related proceedings.

As a result, SCE will be making its best judgments on the scope and approach to grid modernization in its GRC filing. During the general rate case proceeding, SCE's views will be synchronized with those of other stakeholders, informed by the discussions taking place in the CPUC's broader Distribution Resources Plan proceedings.

The GRC will be the cornerstone proceeding for determining SCE's distribution system investment program. However, there are several complementary initiatives that represent additional investment in the power grid of the future, and that are not part of the current $4 billion annual CapEx. The first is electric vehicle charging.

Last month, the CPUC officially authorized SCE to commence spending under the Charge Ready pilot program they previously approved. The pilot covers the first 1,500 stations of an eventual plan for 30,000 charging systems.

The total program is estimated to provide roughly one-third of the charging infrastructure needed in SCE's service territory for autos and light-duty vehicles at multi-family dwellings and public locations.

While the rate base opportunity for the full program is approximately $225 million over several years, it is possible that the CPUC will consider higher levels of utility investment in charging infrastructure.

Longer term, we think it is likely that additional opportunities for vehicle charging and other infrastructure may result from the transportation electrification initiative included in Senate Bill 350, signed into law last year.

The bill is better known for establishing the mandate for electric utilities to deliver 50% of their customer load from renewable resources by 2030. But it also expanded the potential scope and scale of transportation electrification, which could support investments beyond SCE's current Charge Ready light-duty vehicle initiative.

The objective is to support California meeting its long-term carbon reduction targets and federal Clean Air Act standards. The electric sector in California, especially the three investor-owned utilities, have become very low carbon-emitting, while the transportation sector has not.

The result is that today nearly 40% of total carbon emissions in the state comes from the transportation sector, compared to less than 20% for the electric sector.

As part of the implementation of SB 350, this fall the CPUC is expected to order investor-owned electric power companies to submit proposals for investments and programs that will accelerate widespread adoption of transportation electrification.

This would include potentially higher levels of light-duty vehicle charging infrastructure than SCE's current target of providing 30,000 chargers.

It could also include charging infrastructure for medium-duty and heavy-duty vehicles such as electric buses, trucks and tractors, which are especially important in meeting increasingly stringent air quality requirements in the LA Basin.

These early concepts were part of the agenda at a CPUC workshop in San Francisco last Friday, hosted by assigned Commissioner Peterman. Another potential investment class not included in our $4 billion annual CapEx is the CPUC's energy storage initiative.

SCE has the opportunity to build half of its required 580 megawatts of energy storage and place it in its rate base by 2024. We have yet to attempt to estimate the potential capital spending, rate base or timing of this investment. However, storage is a mandated program and could be significant.

The DRP process may spell out a greater role for storage solutions located in the distribution systems as the economics improve and the carbon-reduction attributes of storage relative to gas-fired generation become more apparent.

Transmission investments remain an important complement to SCE's distribution system investment program, though the planning process and scale are quite different. SCE continues to implement three major California ISO-approved investments. These projects are needed for transmission reliability and support the State's renewable portfolio mandate.

On April 11, SCE received a proposed decision to approve the $1.1 billion West of Devers project recommended by SCE and the California ISO. You may recall that we informed you last November of delays in the regulatory approvals of this project due to consideration of an alternative, staged-project.

The proposed decision largely adopts the project as we originally proposed. It could be approved as early as May 12. Assuming the PD is adopted by the Commission, and once the required federal approvals are received, the project will be ready to begin construction.

The West of Devers project will help California meet its 50% renewables portfolio standard. California ISO is in the early stages of planning for the transmission infrastructure to meet the expanded renewables requirement.

This will be integrated with efforts underway to extend the span of the ISO to include adjacent electric power companies in other states.

There is likely to be a continuing debate about whether the future resource mix should favor more utility-scale renewables with expanded transmission capacity or distributed resources enabled by an advanced distribution system. I expect it will be a mix of the two models. SCE is positioned to participate in both models.

We expect either approach will expand the investment opportunity at SCE beyond the current $4 billion annual level. While it is difficult to predict the exact trajectory of investment levels required to support California's policy objectives, our general belief is that investment levels could potentially grow beyond current CapEx levels.

A critical objective that we and the CPUC share is to avoid causing customer rates from becoming unaffordable due to this expanded infrastructure investment. Our objective has been to keep customer rate increases at or below the rate of inflation in our service territory. To date, our record of accomplishing this goal is quite good.

The compound annual growth rate of SCE's System Average Rate has consistently stayed below that of the Consumer Price Index for our service territory. This is true, whether you look at the last five years, 10 years, 15 years or even the last 20 years.

It is especially notable that this has occurred when kilowatt hour usage since 2007 has been flat to declining. Indeed, our System Average Rate in 2016 has dropped 8% from 2015 levels. Importantly, customers react mostly to their monthly bill, not kilowatt hour rates.

And our average monthly residential electric bill last year was $94, meaningfully below the national average of $127 a month. We have accomplished this through a sharp focus on reducing overhead costs, creating efficiencies, and due to the benefits of the SONGS Settlement as well as declines in fuel costs.

A concluding thought on keeping rates affordable longer term; I believe the growing percentage of the renewables in our generation mix is creating an excellent hedge against the potential future spikes in natural gas prices.

Although I don't expect much upward pressure on natural gas prices in the near to intermediate term, it is difficult to imagine much room for prices to go lower. SCE's generation mix will move up from the current level of roughly 25% renewables to 50%.

The cost of renewables new-build is increasingly becoming equal to or better than natural gas new-build. Also, since renewables have no fuel cost, customer rates are increasingly less exposed to future natural gas price spikes.

All of this helps to keep our rate increases modest and electricity affordable, while we increase our investment in building an advanced electric delivery system. As I've discussed, SCE has several potential areas of incremental investment, which gives us flexibility to ramp up one program if another starts to lag.

This, along with the steadily expanding rate base, earnings and cash flow, allows us to maintain a reasonable and growing total investment program without creating pressure to issue equity or having customer rates rise beyond inflation rates.

A balanced program like this should also allow us to continue to provide higher-than-industry-average growth in earnings and dividends. I'd like to conclude with a brief discussion of power grid reliability this summer in the wake of the Aliso Canyon shutdown.

SCE is working closely with California regulators and Sempra's Southern California Gas Company on impacts from potential delays in returning the Aliso Canyon gas storage facility to use. Aliso Canyon provides pipeline pressure balancing to the Los Angeles Basin year-round.

It also provides additional supplies in the winter when heating needs increase demand beyond the capability of interstate pipeline deliveries. SCE is one of SoCal Gas' largest customers and very focused on this issue. Because of the shutdown, the risk to electric reliability has increased, which presents its own public safety implications.

As we see it, the best scenario for electric reliability is to expeditiously complete inspections of a few of the more important wells to determine if they could be safely returned to service in time for summer peak power use. SCE is also working on contingency plans to reduce demand and maximize generation flexibility.

At the CPUC's direction, SCE has requested a memorandum account to track any unusual costs related to Aliso Canyon. These include costs related to demand response, energy efficiency, power contracts, et cetera. These costs are not expected to be sizeable.

Any extra customer costs related to inefficient power plant dispatch will be captured as part of the ERRA balancing account mechanism. Although this situation shouldn't create financial risks for SCE, it is a potential reliability issue for our customers. Okay. That's it for me. I'll now turn it over to Jim for his financial report..

Okay. Thanks, Ted. Please turn to page two of the presentation. As Ted indicated, today we are reaffirming our core earnings guidance.

I want to emphasize the quarterly earnings profile will be difficult to model given two primary factors; SCE's delay in receiving its 2015 GRC decision and because revenues are generally weighted towards the third quarter of the year.

As discussed when we introduced our 2016 earnings guidance, the simplified rate base approach is the best way to think about SCE's earnings power on an annual basis. SCE's rate base is growing, and this implies increasing earnings.

However, anticipated revenue increases from both the CPUC and FERC were masked by the timing of revenues recognized in 2015. You will recall that until SCE received its 2015 GRC proposed decision, revenues were largely based on 2014 authorized levels.

SCE recorded a significant year-to-date revenue adjustment in the third quarter of 2015 and a large regulatory asset write-off in the fourth quarter in connection with the final decision. With that in mind, let's look at SCE's earnings drivers.

To simplify the earnings explanation, we removed the impact of San Onofre and tax repair and pole loading deductions. On a GAAP basis, as shown in the 10-Q, revenues are down $41 million, which is equivalent to $0.08 per share.

As explained in footnote four, the 2016 revenue reduction relates to incremental tax repair and cost of removal deductions for the pole loading program in excess of levels authorized in the 2015 GRC. As we have previously explained, the GRC decision established balancing accounts to track forecast differences compared to actuals.

Importantly, with these balancing accounts, there is no impact on earnings. Lastly, this is also the main driver for the low effective income tax rate for the quarter. After the adjustments, revenues are a net $0.04 per share positive contribution on a quarter-over-quarter basis.

Breaking revenues down, there is an $0.08 per share GRC attrition mechanism increase. This mechanism provides for increases in revenues after the 2015 test year. Largely, offsetting this is a $0.06 per share timing issue on the GRC decision.

As I mentioned earlier, reductions in authorized revenues from the GRC decisions are not reflected in the first quarter or second quarter 2015 results and were adjusted in the third quarter with the proposed decision and then again in the fourth quarter with the final GRC decision.

Finish up on revenues, FERC revenues are $0.02 per share higher, largely for higher depreciation expense. This nets to a positive $0.04 per share earnings contribution from revenues. Moving to O&M, costs are $0.04 per share higher than last year.

A significant factor in this was planned El Niño preparation costs, where SCE staged equipment such as portable generators in areas that could be sensitive to storm-related outages, as well as costs associated with responses to storms.

While the Southern California El Niño phenomenon did not materialize at the level that had been predicted by many, we did see more significant storm activity than we experienced in 2015.

Other important items include planned higher costs for distribution system inspections as well as higher severance costs resulting from ongoing efforts to drive increased productivity and efficiency. Higher depreciation of $0.02 per share reflects the normal trend supporting SCE's wires-focused capital spending program.

Income taxes, excluding the tax balancing account related items I've already discussed, are $0.02 per share higher than last year. The effective tax rate in the quarter is 14% compared to 24% last year. As I said previously, the lower rate largely reflects the incremental tax benefits above authorized levels.

Excluding the $0.13 per share incremental tax benefits, the effective tax rate would have been 34%. Turning to Edison International earnings drivers, overall costs are higher by $0.03 per share. Holding company costs are comparable to last year.

We had no affordable housing earnings this year, since the portfolio was sold last December, while in Q1 of 2015 we recorded $0.01 per share of earnings. Edison Energy's net loss is $0.02 per share higher than last year.

This reflects expected development and operating costs of Edison Energy's businesses and timing of revenues from the newly acquired businesses. Revenues are $6 million in the first quarter of 2016. Our reported sales from last year were $3 million and only included SoCore Energy and not the recently acquired companies.

I'd also like to remind investors that our financing strategy for SoCore Energy's commercial solar program primarily uses third-party tax equity and project financing. As a result, a portion of project economics go to the tax equity investors.

Holding company results on a core basis exclude earnings related to the hypothetical liquidation at book value accounting method for SoCore Energy's tax equity financings. This is $0.01 per share this year versus $0.02 per share last year. So overall, Edison International core earnings are down $0.08 per share. Please turn to page three.

SCE's capital spending forecast is unchanged from our last call. First quarter and actual SCE's spending of $1 billion is consistent with 2016 authorized levels. Keep in mind that this forecast does not include any DRP-related spending. SCE will continue to evaluate whether to pursue any early stage work this year.

Page four shows SCE's rate base forecast, which is also unchanged. Please turn to page five. The West of Devers project Ted mentioned is one of the two large transmission projects where most of the investment will be on the current rate base guidance period. Some of you may have followed this proceeding, and there's one unique aspect to the project.

Some of the West of Devers route transits the Morongo Indian reservation in the Coachella Valley. As discussed in our 10-K, a Morongo transmission entity has an option to invest $400 million or up to one half of the $1.1 billion project at commercial operation, which SCE expects to be in 2021.

For internal planning purposes, SCE assumes that the option will be exercised. The 2018 GRC will include capital expenditures through 2020. With the option exercise date falling just outside of the period of time we will be providing more visibility on, we thought it was important to bring this option to the attention of investors and analysts.

Please turn to page six. We have reaffirmed our core earnings guidance for the full year at $3.81 per share to $4.01 per share and updated our GAAP guidance for first-quarter non-core items. Our key assumptions are also unchanged. That's it for me. Operator, let's get started with the Q&A..

Thank you. Our first question is coming from Michael Weinstein of UBS. Your line is now open..

Hey, it's Julien here..

Hi, Julien. It's Jim..

Hey, Jim. So, first question, you talked about SB 350 on the call just now.

Can you elaborate how the regulatory schedule would jibe with what you've already underway on the 30,000 EV deployment? And kind of when you think about the scale of deployment contemplated and the ability to own it, I mean what kind of opportunity is that relative to even just the $225 million (30:37) elaborated?.

So, Julien, I'm going to turn that over to Pedro Pizarro..

Hi, there. So, starting with the charge rating piece, I think Jim and Ted had mentioned already we now have approval for the pilot phase, that's the first 1,500 chargers' worth.

And as soon as we get to the pilot phase, we'll go back to the PUC with a report and have that proceeded and seek authorization to take on the balance of the up to 30,000 chargers covered by the Charge Ready program.

And I think we'll have visibility into that, and in terms of the regulatory timeline for that, I think it's envisioned that the pilot might take up to 12 months, we will go to the PUC as soon as we have enough data from the pilot.

And tough to forecast how long it might take the PUC to provide approval for the balance of the Charge Ready Program, but we will be going back as soon as we have pilot data.

Separate from that, in terms of additional opportunities, I think in Ted's remarks he commented how it is possible that the PUC might envision a further role for us; I think, a couple directions for that.

One could be that with the Charge Ready program, we've estimated those 30,000 chargers would cover about a third of the need for charging infrastructure to meet the state's objectives for electric vehicle deployment. So one potential thrust would be whether the PUC might support us going even further than the Charge Ready program.

They want to – don't have any forecast or anything like that there but that is one potential direction. The other one is SB 350, there is talk about support for a broader utility role in transportation electrification and that could go beyond light-duty vehicles, that could go to other forms of transportation.

Again tough to put our arms around what that could be, it will intersect with the integrated resource plan proceeding that's also called for by SB 350 that's just undergoing, scoping at the PUC now.

So while we can't point precisely to a specific program or specific number side of it, I think the theme is that there is a general recognition in the state that transportation electrification, whether light-duty vehicles or heavier transport, it's going to be a big part of achieving greenhouse gas targets and it's likely there's some possibility for further utility roles there..

Julien, this is Ted, maybe just one other thing to add in there is as I mentioned, this fall, the PUC is expected order the investor-owned utilities to submit proposals for investments and programs related to the transportation electrification initiative in SB 350.

So I think we'll have a little bit more visibility late this year as to at least what the initial thinking is from the PUC..

Hey, Julien, this is Jim. Just to finalize the point, when we file the General Rate Case later this year, we'll include in our forecast of capital expenditures an estimate of spending for electric vehicles and we are developing that now based on what we are seeing in the pilot.

We'll have to come up with an estimate that covers beyond – through all the way through 2020. And we will include that as part of our normal expenditures..

Including the 350 piece, the SB 350 piece?.

Yes..

Got it. And then, Jim, just actually a quick subsequent follow-up from our prior conversations, MHI arbitration, just timing expectations, if you can just give us the latest..

Well, we'll let Adam Umanoff, our General Counsel, have that fun one..

Thank you, Jim. As you know, we operate under a confidentiality order issued by the International Arbitration Tribunal. What we can tell you is that we've conducted a hearing, the hearing has ended at the end of last week, April 29, and we are expecting a ruling from the tribunal by the end of this year.

It's possible it could go over into early 2017, but our current expectation is by the end of this year..

Is there something beyond the current hearing that needs to happen and to get a ruling?.

There is the usual post-hearing exchange of briefs and then consideration by the tribunal. We're not expecting any further testimony or any further proceedings in the hearing itself..

Great. Thank you, guys..

Thanks, Julien..

Our next question is coming from Greg Gordon of Evercore ISI. Your line is now open..

Thanks, guys. Just a simple question. When you quote that $2 billion notional sort of rate base growth number, obviously that's before some of the other things you discussed.

Does that contemplate bonus depreciation, is that pre bonus deprecation? Is that sort of in the range of what you get with or without – can you be a little more specific?.

Greg, it's Jim. I think it's just meant to be a general guideline that, if you're going to spend $4 billion in capital, the way our depreciation works and roughly the way the closings work out that you get to a rough order of magnitude of the $2 billion in growth in rate base a year.

And if you look back in time, rate base, it bounces around from year to year, it could be – if you have a large transmission closing or something that can make that growth be somewhat different, but as we kind of look at the numbers and look at it over a period of time, it seems to work..

And you've had bonus depreciation in one form or another through most of that period, so....

We have, we have..

So, that would presume that it's kind of in there..

Yeah. And again, it may change a little bit as we go forward in time, because bonus will start ramping down as we get beyond the next couple of years..

Well, supposedly..

Yeah. Agreed..

Okay. Thank you, guys..

Okay..

Our next question is coming from Jonathan Arnold of Deutsche Bank. Your line is now open..

Well, good afternoon, guys..

Hi, Jonathan..

A quick question on the parent EIX level drag and the $0.06 in the quarter.

I think some of your description as to variance versus last year was helpful, so thanks for that but is $0.06 kind of the current run rate, and if so how do we bridge to the $0.18 for the full year? Is there other things going on or is that just kind of ramp up of the revenues in some of the acquired businesses that get you there and some front ending of costs, so just curious..

Yeah. So, John – and we've reaffirmed the annual guidance numbers.

And so we're going to stick with that, and you could see some variation quarter-to-quarter, it's really hard to predict especially when you buy some new businesses and costs that float into the first quarter, but we're going to hold on to what we've indicated the – in guidance, the full year impact's going to be..

Okay.

So, but those, you can't kind of talk us through how you – how the $0.06 in the first quarter kind of becomes $0.18 for the year, or is that just seasonality?.

I think that's our best plan right now from what we're seeing. And I don't have any further commentary in terms of how it's going to change quarter-to-quarter, but we think the level we indicated at the beginning of the year was appropriate..

Great. Okay.

And then just on the Morongo issue that you highlighted, Jim, can you explain the numbers, it's a $1.1 billion project and you said that they could invest $400 million for up to half of it?.

Yes..

How does that make sense?.

Well, that's the way the agreement reads..

Okay..

So, I think it was – as over time the size of the project is going up, but that's the way the agreement reads and we've assumed that they would exercise for the 50%, but that's for planning purposes, that's an option on their side..

They would end up with 50% of the project and you would receive $400 million, is that....

No. No. So, if it's $1 billion, say if it's $1 billion and a 50% then they could take up to $0.5 billion. So if it's $1.1 billion then you've got the $550 million..

Okay.

So it's the amount would be dependent on what the cost actually is?.

Yeah. So, they have the option. So that's why we're trying to describe the full amount. They may only take $400 million for whatever reason. But if it's a good project, you would expect them to take more..

Okay. Great. Thank you..

All right..

Our next question is coming from Praful Mehta of Citigroup. Your line is now open..

Thank you. Hi, guys..

Hi..

Quick question on the vehicle charging.

As that program gets built out, how do you see that impacting load and do you have resources right now or what kind of generation mix do you think kind of supports that build-out, given it's going to be sizeable over time?.

On electric vehicle charging..

Okay, I missed the first part..

I can....

Pedro, go right ahead..

Sure. I think if you look at electric vehicle charging, to date, it has – we've been able to accommodate the number of vehicles that have come on the grid without any undue impact on the system. I think this is one of these items where we'd expect to have planning visibility into what the needs are as the market continues to grow.

So, I don't think it's one that lends itself to a dramatic spike. I'd also point out that from a system perspective, the Californian system overall still enjoys some pretty healthy resource margins. And then – so I'd expect that certainly over the next several years should be the ability to accommodate that.

And then the final point I'd make is that, as the load from electric vehicles increases, that is happening in the context still of the net load for the system, which we continue to see moving in a generally flat to even potential decline as we have other offsetting factors, increased energy efficiency, increased demand response.

So, we'll have to continue to watch this from a planning perspective, as the market develops. But today we're not seeing any undue impact that would be difficult to manage.

Maybe one last little coda on that is that as we get more vehicles on the system, we're going to be working with the regulators to have the right sort of signals and incentives to encourage charging when it helps from an overall system perspective.

So, you guys are all pretty familiar with the concept of the duck curve, the fact that we have a lot more solar on the system today, and the ISO expects that to grow so the extent to which we can accommodate electric vehicles with current resources will be assisted by having charging align better with time periods during the day when we have more energy flowing out of solar panels..

Okay. That's very helpful. Thank you.

And then finally just to link with that, the focus on keeping rates at inflation, going at inflation or below, how does this charging stations, where people are charging at homes, do you ever see that becoming a problem in terms of rate, especially if you say, bonus depreciation, reverses in stocks adding to rate base, start having these kind of charging stations at home as well.

Do you ever see rates becoming a challenge, going out in the future?.

That's always a – great question. There is a lot of factors that affect our rates and capital expenditures, we're watching any number of items, you're watching what's happening with fuel and purchase power.

I mean, we're watching our sales, obviously that's where you're getting at, I mean obviously electric vehicle charging helps others detract from it. That would be solar roof panel for potentially energy efficiency. So, we're trying to balance all those factors, and the goal is to try to keep that, the rates in or around the inflation level.

And so, I think Ted's points were real clear that over longer periods of time we've had acceleration in capital expenditures and we've had lower gas prices and all these different factors over quite a long period of time, and more importantly in the shorter term, the cost focus, the reduction in costs, because O&M obviously reduces rates dollar per dollar where capital is at a smaller percentage.

So we'll continue to monitor it; obviously from year to year you probably – we may exceed it or go underneath it, like this last year was 8% reduction. But over time, I think as the general trend we'd like to see it come in around that inflation level..

Got you. Thanks so much, guys..

Okay..

Our next question is coming from Steve Fleishman of Wolfe. Your line is now open..

Yeah, hi.

Ted, can you hear me?.

Yes, Steve..

All right. Just, I wanted to maybe just try and summarize your prepared remarks comments on the capital spending.

So, you talk about the $4 billion a year of CapEx, and $2 billion of rate base growth, but then when you go through the different segments, a lot of them including some of that the DRP, electric vehicle storage could be kind of upside to that $4 billion a year. And then at the end you talk about maybe some programs could lag over time and the like.

And so I'm just overall – are you kind of sending the message that we're likely to see higher capital spend over this future period than we've had in the past, given these variety of new programs?.

Yeah. Just, cutting right to the quick, the short answer is yes..

Okay..

So, the point we're really trying to make is there are many levers. There is also a balancing act. So, under the many levers part of the equation, if for some reason one or more of these potential capital spends lags or we need to pull it back, there are substitute capital spending that can be pushed into its place.

So I think we feel confident about the – certainly feel confident about the $4 billion and believe that there is upside.

I'd say the second part is the balancing act element where – you've heard me on this a lot of times before – that if you get this thing growing too fast, you end up putting pressure first on customer rates and secondly on the ability of the underlying business to support the equity requirement of the new investment.

So it's a matter of trying to get it in the sweet spot where you're getting kind of the maximum benefit from the growth but not so fast that it puts pressure on the need to issue equity or on customer rates. And that was the second kind of main point that I was trying to get across here is – as the rate base grows, earnings, cash grow along with it.

We feel comfortable about being able to support a greater than $4 billion number without having to issue equity, and secondly, as we tried to spend quite a bit of time on here in the remarks, we actually have a really good track record of keeping customer rates below the rate of inflation in our service territory.

And that coupled with the fact our average residential bill is considerably lower than the national average and that's what customers really see, we feel we've kind of got the cost side under control and that it will support the ability to have this expanded investment opportunity.

So those are kind of all the main points that I was really trying to make..

No, that's helpful. And just in terms of the visibility on these longer-term numbers, I know we should hopefully get a lot of that with the GRC filing. And we'll have the – the DRP spend will likely be within the GRC ....

Yeah..

... filing.

But things like the storage and the electric vehicles will kind of continue on their own pace separate from that?.

Likely yes. Just a word on the General Rate Case and some of these other proceedings that will be going on at the same time. I think this one is going to be a little different for us in that what we put into the General Rate Case will try to anticipate, at least our best thinking on how we see some of this grid modernization activity taking place.

Even though that will be in the process of being discussed coincident with the rate case filing, so that will be in the DRP proceedings. So this is going to be a little bit of – couple of things happening at the same time. We will do our best to articulate those in the General Rate Case.

And there are other things, kind of the third point, there are other things above and beyond strictly what's in the DRP or what you would find in the General Rate Case, and that's what we are alluding to with some of the transportation electrification initiatives embedded in SB 350 and things of that sort.

Storage and other pieces (48:54) would probably largely be outside of that.

And of course, as more things develop with the transmission spending, as we look towards moving to 50% renewables and an expanded ISO, California ISO scope, there may very well be other investment opportunities embedded in that that also are not going to be in the GRC or some of these other proceedings.

So, I think the general point here is there is, we feel, a robust opportunity, but of course, we want to make sure we're doing that in a good, balanced way, so, it doesn't put pressure on equity and doesn't put pressure on customer rates..

Great. Thank you very much..

You're welcome..

Our next question is coming from Michael Lapides of Goldman Sachs. Your line is now open..

Hey guys. I'll follow on to Steve's question a little bit, but maybe a slightly different angle. Ted, it seems like you're hinting that somewhere in the post 2017, you're going to have CapEx above the $4 billion range. The when and where and how is still to be determined, but you seem pretty confident in that.

I guess my question comes to the dividend, which is how are you thinking about the dividend growth trajectory, given the fact that kind of the risk reward to CapEx in the out years is higher rather than lower?.

Well, I think that's kind of embedded in our stated target, which is as you know, lower than what the industry average is. So, we have a 45% to 55% payout ratio target on SCE's earnings. If I remember it right, the average utility payout ratio is somewhere between 60% and 65%, probably closer to 65%.

So, and again, you've heard on me on this before, I believe given the growth prospects, the long-term growth prospects at SCE and Edison, that we probably should have a somewhat lower stated target. We're mindful of the fact that that is lower than the industry average.

I've probably used the phrase so many times, you guys are sick of hearing about it. But we still believe there is good room to come forward over the next few years here with dividend increases that are above the industry average, as we move up into this 45% to 55% payout ratio.

There could potentially be opportunities above that, but we'll worry about that when we get there..

Got it.

And one follow-up, unrelated, what's the latest process or procedure wise, at the CPUC, when it comes to the request for re-hearing on the SONGS decisions?.

This is Adam Umanoff. There really is no additional news we have to share, the challenges to the SONGS OII settlement remain pending at the CPUC and we are awaiting a decision..

And the CPUC can you just kind of rule any day TBD?.

Yeah, there is no fixed timeframe for them to rule. It could happen tomorrow, it could happen in six months. We don't have any guarantees of timing..

Got it. Thank you, Adam. Much appreciated..

Thanks, Michael..

Our next question is coming from Brian Chin of Bank of America. Your line is now open..

Hi. Good morning.

Can you hear me?.

Hi, Brian..

Hi. Just a general question about net metering policy in California. We've seen some interesting developments in New York and it seems like the tone in Arizona has marginally shifted towards a little bit more reconciliation, as opposed to outright conflict.

Is there any sort of read-through to the different parties in California in terms of what's going on in other states, as to how things might play out and might tip the scales in one direction or another in California, just more general thoughts there, if you would..

Want to take that, Pedro?.

Yeah sure. Hey, Brian.

It's Pedro, how are you?.

Good, Pedro..

So yeah, we've seen with interest the agreement in New York among the utilities and some of the solar parties, and read about the Arizona piece as well. Just stay at a high level here and say that we've had constructive discussions with a number of the parties on all sides here in California as well.

Obviously we proceeded through the NEM portion, NEM 2.0 proceeding here earlier this year. We did file a limited application for re-hearing on the topic, don't have a timeline at this point in terms of when the PUC might consider that.

But I think at the core – certainly from the utility perspective, we have a strong interest in seeing the market for solar be supported, and we're doing our part, we want to make sure that our grid is getting continuously worked on to be a more and more of a two-way plug and play grid that can support solar resources.

And we've done things like work on our own internal processes to shorten the timeframe for customers who want to interconnect on to our system. Used to take us about a month to process applications; we've got that down to a day and a half now. So, we're doing a lot of things that we believe are constructive and supportive, bringing solar online.

I think the NEM debate in California and other states has been more about what's the cost responsibility and the level of subsidy. And so to the extent that parties can come together, and have creative approaches towards resolving some of those differences that's great.

I don't think we're there in California today, but we'll continue to engage constructively with parties, and listen to ideas..

Great. Thanks for the update, Pedro. That's all I got..

Our next question is coming from Ali Agha of SunTrust. Your line is now open..

Thank you. Ted or Jim, for the last several years now, you guys have done an excellent job of managing your costs and in fact that has allowed you to, in the off years, earn returns above your authorized levels as well.

Just wondering how much more is left on that cost reduction side and when you benchmark yourself to where you need to be, are you halfway there, almost there just in the first quartile, can you give us some sense of where you are on that cost reduction plan?.

Hi, Ali, it's Jim. I'll straight it out and let Maria and Pedro chime in if I miss anything. There is more work to be done. We started this journey probably four years ago, and we saw at that point in time that, especially in our staffing, our A&G areas that we were considerably above benchmarks.

And as you know, we benchmark our costs every single year and we break it down in significant detail in terms of some of the studies that we participate in, and there is more to be done.

And it gets harder over time, as you take care of the things that we had -as I said the overstaffing areas that we were able to reduce and we've taken care of lot of that but there is more to be done.

And for example, we revised our costs in our programs for our healthcare for the employees, and that takes it – over time, it builds up the advantage of that savings and it's really a cost avoidance for customers, that will then reap that benefit over time. And there is a number of other initiatives there going on.

I can't peg, what you're asking me, well, how far, you're halfway, you're a third of the way, you've got two-thirds to go, it's really hard to say, because it's really organization-by-organization that we're looking at theses and some organizations may be in the first quartile, others may be in the fourth quartile.

So, you really have to break it down and look at it that way. I'll pause here and look if Pedro and Maria to add anything..

Yeah, we're going to continue to look at also what our peer group does, because as they get better we'll find ways to also trying keep pace with what they are doing..

Okay. And then, second question, I wondered just kind of at your comments on the balancing act that you're looking at, keeping customer rates at or below inflation.

Within that context, equity issuance, just wanted to understand, are you adamant that you're going to fund all your CapEx going forward, without needing to issue equity, if those – some of those new plans come in and the CapEx goes above $4 billion, but that requires equity issuance.

Would you be open to that, or just wanted to understand, is no equity completely necessary for you, over the next several years?.

Yeah. It's – I mean it's fair question, but I think without trying to be wibble wobbly about it, the way we see it is we have a significant investment opportunity, we actually think it's an expanding investment opportunity. Because the rate base is expanding, which means cash production is expanding.

But this, as we see it, allows us to keep the growth rate in balance with our retained earnings and existing equity so that we would not need to issue additional equity.

Obviously, if the commission or somehow we're ordered to do something really dramatic, we're going to maintain our required equity ratio but I think that's such a remote risk that I feel comfortable saying it the way we've said it, that the key here is to keep the growth rate in balance with keeping customer rate increases at or below the rate of inflation.

And as we've evidenced here, we've done, I think, a really great job of that, and we intend to continue to do that. And such that we don't have to issue equity and I think we can keep that balance.

We've done it even when we had 12% annual rates of growth in CapEx and earnings; yet, we were able to – so pulling a lot of rabbits out of the hat, we were able to avoid any equity issuance and that was a very strong commitment that Jim and I had all through that period of time. So I feel comfortable making a statement, we'll keep it in balance..

And what is the regulatory equity ratio right now for you guys?.

I missed that.

What was the what?.

At the end of this quarter what is the equity ratio at the utility (1:00:15)?.

It's 50.2%..

Versus 48% authorized?.

Yes..

Okay. Thank you..

You're welcome..

That was the last question. I will now turn the call back to Ms. Bahen..

Thank you for joining us and please call if you have any follow-up questions. Thanks..

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