Scott S. Cunningham - Edison International Pedro J. Pizarro - Edison International Maria C. Rigatti - Edison International Kevin M. Payne - Edison International Adam S. Umanoff - Edison International Ronald L. Litzinger - Edison International.

Julien Dumoulin-Smith - UBS Securities LLC Ali Agha - SunTrust Robinson Humphrey, Inc. Angie Storozynski - Macquarie Capital (USA), Inc. Jonathan Philip Arnold - Deutsche Bank Securities, Inc. Praful Mehta - Citigroup Global Markets, Inc. Michael Lapides - Goldman Sachs & Co. Anthony C. Crowdell - Jefferies LLC Travis Miller - Morningstar, Inc. (Research).

Good afternoon and welcome to the Edison International Fourth Quarter 2016 Financial Teleconference. My name is Riya, and I will be your operator today. Today's call is being recorded. I would now like to turn the call over to Mr. Scott Cunningham, Vice President of Investor Relations. Mr. Cunningham, you may begin your conference..

Thanks, Riya, and good afternoon, everyone. Our speakers today are our 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, Pedro's and Maria's prepared remarks, and the teleconference presentation. Tomorrow afternoon, 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.

During Q&A, please limit yourself to one question and one follow-up. I'll now turn the call over to Pedro..

Thanks, Scott. Good afternoon, everyone. Edison International delivered excellent fourth quarter and full year results, led by SCE's strong operating performance. Core earnings were $3.97 per share, at the high end of our core earnings guidance range.

We have introduced 2017 earnings guidance with the midpoint of $4.14 per share, which is above consensus analyst estimates of $4.11 per share. We've been able to improve on our targeted 2017 EIX holding company costs compared to what I foreshadowed on our third quarter earnings call. Maria will provide further details in her comments.

Since this is our first year-end earnings call in our new roles, I want to take a few minutes on a couple of topics from my first few months as President and CEO and from reviewing our full year results against our company goals.

First is the helpful and candid feedback we received from many of you from the Investor Perception Study we launched in October and I want to say thank you. Your comments resonated well with much of what we've heard in person.

In particular, it reinforced some of the strategic thinking we've had underway on maintaining a strong focus on SCE as our core growth engine and on the best areas of focus for Edison Energy Group. I'd like to touch on a few of the key non-financial metrics the board uses in measuring our performance annually.

Though they may not be as critical to investors, they are critical to how we measure our performance in delivering safe, reliable, clean and affordable electricity to our customers.

A major priority across our company is being safe and though we've improved our performance in our journey to injury free, we have much more to do to meet the performance of our best-in-class peers. To that end, we have elevated safety to one of our company's core values and dedicated additional senior leadership in this area.

We're doing better in our customer service goals, with SCE ranking in the second quartile among peer utilities in the most recent J.D. Power survey. While we have continued to improve, our top quartile peers have continued to improve even more. We have done better in the past and first quartile is clearly achievable for SCE.

Kevin, his leadership team and our employees are hard at work to make it happen. SCE also improved its cost performance, as our 2016 earnings performance demonstrates. 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 meet our system average rate targets.

Regarding SONGS, SCE continues to move into the decommissioning phase. It is also implementing the meet and confer process with interested parties in the SONGS proceeding, as required in last December's CPUC assigned commissioner ruling. The second required meeting is scheduled for February 24.

We can't comment on the substance of the meetings or speculate what will come from these sessions. As part of that process, last month, we shared with the CPUC an update from the Arbitration Tribunal handling the MHI case that they expect a final decision by the end of next month.

Other important metrics we follow are purchases from minority business enterprises where we continue to exceed our targets, and building a diverse workforce more reflective of our broader Southern California community.

On a related note, I'm proud that Edison International has joined in supporting two national initiatives to advance gender parity, by joining the Paradigm for Parity coalition and signing the Equal Pay Pledge that was sponsored by the prior White House.

We take seriously our role in creating a diverse and engaged workforce, consistent with the larger corporate social responsibility policies that we similarly embrace. At the top of that list of social responsibility policies is climate change, reflecting California's ambitious policy goals.

Governor Brown, in his January 24 State of the State address, reaffirmed California's commitment to global leadership in encouraging renewable energy and combating climate change.

While President Trump has signaled policy shifts in Washington, we believe Governor Brown and the California Legislature will continue to move forward with broad support from the State's electorate.

As the only major all-electric investor-owned utility in California, we offer potentially unique insights in transitioning the California economy away from fossil fuels through a more robust and renewable rich electric grid.

We have seen considerable interest in SCE's grid modernization proposals included in its 2018 General Rate Case and had good engagement with CPUC staff and interveners through a series of well-attended workshops.

These grid modernization efforts will provide the ability to accommodate customer choices around solar, storage, electric vehicles, and energy conservation. At the same time, they will enable SCE to implement technologies and make investments in related infrastructure to enhance reliability for all customers and meet policy objectives.

SCE awaits more specific CPUC guidance this fall on their views on the technology roadmap, which we expect will sync up with our GRC request. In the interim, SCE is proceeding with some modest critical path investments to ensure as much flexibility as possible so it can then ramp-up once a GRC decision is received, hopefully, by year-end.

Last month, SCE and the other investor-owned utilities collectively proposed roughly a $1 billion of investment in the area of transportation electrification to complement the passenger vehicle pilot programs now underway. SCE's proposals accounted for more than half the total, at $573 million.

These include some more immediate pilot projects such as electrification projects for cargo handling and other mobile equipment at the Port of Long Beach and for electric transit buses.

The largest proposal is for heavy duty vehicle charging infrastructure, which will support development of appropriate battery technologies for heavy duty vehicles, including creative tariff proposals to accelerate early adoption.

SCE's proposals also create an opportunity to improve the health and environment for many communities located near major transportation corridors and encourage investment in disadvantaged communities.

As I look ahead toward the next decade of significant investment by utilities and by customers to move the needle meaningfully on California's greenhouse gas emission reduction goals. The pace will always need to be balanced by affordability.

That's why operational excellence will remain a key element of SCE's business strategy, helping to improve both O&M costs as well as capital productivity. We are proud of having the lowest system average rate among the California investor-owned utilities and the lowest cost of capital.

We believe these are two good starting points for finding the right balance of investment and customer affordability.

In addition, we believe that the new types of electric loads resulting from electrification of current fossil fuel applications across the California economy in order to meet the State's greenhouse gas emission reduction goals could lead to better utilization of our grid and, therefore, help moderate rate impacts.

We still see a reasonable floor for SCE investments of at least $4 billion annually in SCE capital spending and at least $2 billion annually in rate base growth. We will continue to see some timing related movement in capital expenditures and rate base, especially on transmission project approvals.

We continue to see some shift to the right for projects included in our formal forecasts, which delay the rate base and earnings growth slightly. Keep in mind that, at the same time, we have more potential rate base than this in opportunities we have not yet included in our formal forecasts. Maria will cover more of the specifics in her comments.

Turning now to Edison Energy Group, since our last earnings call, we have continued our strategic review of these businesses and narrowed our focus to Edison Energy Group's energy advisory services and solutions.

We see great potential in integrating these into broader energy advisory services offerings for large commercial and industrial customers throughout the U.S. with a largely capital-light business model. We have scaled back business development at Edison Transmission. We see limited FERC Order 1000 opportunities in our target markets.

We will continue our role as a launch partner for the Grid Assurance initiative to support transmission system reliability nationally. We have also shut down the Edison Water Resources business development effort. We have moved key individuals from both businesses to other roles in the company.

And we still plan on a much more robust business plan discussion regarding the commercial and industrial energy advisory services business with all of you by this fall. In the meantime, we want investors to see these businesses as a long-term valuation upside, not a near-term valuation drag.

Looking ahead, some of the key macro topics driving our long-term growth opportunities and performance are broad topics like California's climate change targets and policy enablers such as transportation electrification, grid modernization, and new transmission investment.

These are all underpinnings of our growth strategy and warrant a deeper dive than what we can cover in an earnings call and in our quarterly investor materials. So in April, we're going to launch what we call the Edison Insights series of periodic conference calls and videos on topics such as these.

We look to have prepared remarks, as we do for our earnings calls, along with presentations and Q&A. The first of these will be the week of April 10 and we'll cover the California climate change policy arena and transportation electrification. We hope these will be helpful additions to our investor dialogue.

With that, Maria will provide her financial report..

Thanks, Pedro and good afternoon, everyone. My remarks cover our fourth quarter and full year results compared to last year and to our 2016 earnings guidance. I'll then cover the 2017 guidance that Pedro has already highlighted, update our capital spending and rate base forecasts and touch on a few other topics.

Please turn to page 2 of the presentation. Fourth quarter core earnings grew 16% on SCE's strong performance. As was the case in previous quarters, SCE earnings comparisons still have some timing issues related to the adoption of the General Rate Case decision in the fourth quarter of last year.

The principal earnings growth driver is lower operations and maintenance costs, which contributed $0.09 of the $0.15 per share in SCE core earnings growth. Revenues primarily reflect the normal GRC attrition year increases and modest additions to FERC revenues to reflect additional construction and operating costs.

We also had a positive $0.09 per share revenue variance, primarily due to recognition of the impact of the GRC decision in the fourth quarter last year. Roughly half of this is offset in taxes. Higher depreciation reflects SCE's ongoing capital spending program.

Net financing costs, which include allowance for funds used during construction, AFUDC, together with interest and preference stock dividend expense, are $0.05 per share higher in the quarter. This largely reflects $0.03 per share of lower AFUDC contribution due to less construction work in progress.

AFUDC rates of return, however, are still above average, given SCE's low short-term debt balances and the contributor to our earnings relative to rate base math, as I'll discuss in a few minutes.

Overall, there was not a variance within the income tax line for SCE, although there is $0.04 of tax benefits on stock options, largely offset by the GRC revenue item I mentioned earlier.

The $0.04 benefit is related to the new accounting standard that requires recognition in earnings of the permanent tax benefit that arises when employees exercise stock options. Previously, this flowed to the balance sheet only. As we noted in the third quarter 10-Q, we adopted this standard early, in the fourth quarter.

We similarly anticipated this adoption in our November earnings guidance update, although the actual amount recorded in total for the company is higher than our guidance assumption. To finish up on the SCE earnings discussion, there is a $0.01 per share of other items, primarily from insurance programs.

This gets us to a 17% increase in core earnings or $0.15 per share for SCE. Let's look next at Edison International parent and other. This includes both core holding company operating costs as well as the Edison Energy Group businesses. The same adoption of the new accounting standard on share-based payments applies here.

The overall $0.02 per share positive benefits at the holding company are from tax benefits from stock options, partly offset by other tax items. Moving next to Edison Mission Group, comparisons reflect the continued absence of earnings from the affordable housing portfolio sold in the fourth quarter of last year.

To finish up, the only non-core items in the quarter relate to the EME bankruptcy. Last year's fourth quarter results include non-core charges for the final accounting for the GRC implementation and the NEIL insurance recoveries at SCE.

Also included are the sale of the EMG affordable housing portfolio and the non-core treatment of certain tax equity income at SoCore Energy, as well as results from discontinued operations. Turning to page 3, the full year core earnings story is much more straightforward since the GRC quarterly timing issues are not relevant on an annual basis.

Remember that last year's core results included a $0.31 per share benefit from a change in uncertain tax positions. This dampens the overall earnings comparisons. Excluding this item, SCE core earnings increased 8% in 2016. It's probably more helpful to compare our results to our earnings guidance. Please turn to page 4.

Overall, core earnings of $3.97 per share are $0.06 per share higher than the midpoint of guidance. SCE earnings are $0.04 per share higher, due primarily to increased O&M savings and financing benefits, partially offset by lower energy efficiency incentive award and higher income tax expense.

Edison International parent and other losses of $0.25 per share are $0.02 per share better than guidance, largely from the stock option accounting item. Edison Energy Group full year results are generally consistent with our guidance.

As Pedro touched on in his remarks, we've taken time since the third quarter call to assess the priorities and opportunities at Edison Energy Group and narrowed our strategic focus accordingly. The actions he summarized are reflected in our updated 2017 guidance. Please turn to page 5.

Our 2017 earnings guidance is built off the rate base model we have discussed with you in the past. We have used our updated 2017 weighted average rate base forecast of $26.2 billion, which is $200 million lower than our prior rate base guidance. This provides a SCE starting point of $4.05 per share.

As we saw in our 2016 financial results, we anticipate further O&M cost savings that will be returned to customers starting in 2018 under SCE's GRC filing. We also anticipate continued financing benefits related to long-term debt costs and above-trend AFUDC earnings relative to what are assumed in our rate base math.

Together, these total $0.31 per share. We also assume $0.03 per share in energy efficiency earnings. This gives us $4.39 per share as a midpoint for 2017 SCE GAAP and core earnings guidance. For EIX parent and other, our guidance is at a loss of $0.25 per share.

Costs for the holding company itself are estimated at $0.17 per share, which is consistent with our prior informal guidance of a little more than $0.01 per share a month. The lower Edison Energy Group losses make up the difference. This gets us to a midpoint of $4.14 per share. We are including a range of $4.04 to $4.24 per share.

Our key assumptions are as follows. One, a base CPUC ROE of 10.45% and FERC ROE of 10.5%. Two, no changes in Federal or state tax policy. Three, shares outstanding are kept flat at 325.8 million shares through share purchases to offset incentive plan share needs. Four, we assume the SONGS settlement continues to be implemented as approved.

Five, we exclude any decision on the MHI arbitration, which could include core earnings benefits from recovering legal costs and non-core earnings benefits from the balance of SCE's share of an award, if any. And six, we assume tax benefits from stock options of $0.02 per share recognized in January 2017. Please turn to page 6.

We have updated our SCE capital spending forecast largely to reflect revised estimates for the timing of major transmission projects. Overall, capital expenditures between 2016 and 2020 are approximately $450 million lower, with $350 million of the change related to transmission projects.

First, spending on the Tehachapi transmission project is essentially completed. Now that the line is in full service, we've removed roughly $90 million from our forecast to reflect lower final project costs. This benefits our customers, but reduces rate base for 2017 and beyond.

We were pleased to receive the final CPUC approval for our Mesa Substation Project earlier this month. SCE is now moving ahead on construction planning activities, with actual construction to start in the second quarter. This decision, as with the West of Devers project approval from the U.S.

Bureau of Land Management published in January, reaffirms our view that approval and construction of our key California ISO-driven projects are more a matter of timing rather than whether they will be built.

With increased clarity around the planning process, construction completion for some projects is now scheduled for 2021 and 2022 and a portion of the spending previously anticipated to occur through 2020 will now occur in that later time period.

Though the projects are all scheduled to be in service by 2021, there can be some final remediation and closing out of final project costs following a project being placed in service. The details on our larger transmission projects are included in the presentation appendix.

Note that our updated forecast does not include approximately $1 billion of potential capital investments that we have outside of normal GRC and FERC spending that could be approved and implemented between 2017 and 2022.

This includes the significant transportation electrification proposals that Pedro discussed and the second phase of SCE's Charge Ready program for passenger vehicles, as well as any appropriate storage investments under existing and future CPUC guidelines. I'll come back to this shortly. Please turn to page 7.

The capital spending shifts have been incorporated into our estimate of rate base through 2020. Rate base at that point is lower than prior forecasts. However, we expect that to reverse in 2021 and 2022. The reason for the catch-up in 2021 and 2022 is the manner in which certain FERC projects are added to rate base.

Some are added to rate base during construction while for others, cumulative capital is added to rate base when the project is complete. Also, keep in mind that our rate base forecast is on a weighted average year basis, consistent with how SCE earns its return. So this also contributes to the time lag.

As those projects achieve completion in 2021 and 2022, rate base will adjust upward accordingly. On the chart, this is the $500 million increase offsetting the $500 million decrease in 2020. However, this does not change the fundamental above average growth opportunity we see at SCE.

Depending on our own recommendations on timing and on CPUC approvals, there may be additional rate base earnings potential in this period. Please turn to page 8.

We've talked about most of these opportunities previously, but thought it a good reminder, and so, we've revised this slide to include the significant transportation electrification proposals that SCE recently filed.

The first two elements, infrastructure reliability and grid modernization, are at the heart of our current and future General Rate Cases.

Our currently identified transmission projects will continue through 2021 and 2022 and in the interim, the California ISO will be planning for potential additional transmission requirements to meet the 50% renewables mandate for 2030.

Most of the potential for energy storage rate base investment is a future opportunity, as is transportation electrification. On page 9, we've identified several other topics I'll touch on more briefly. The first is the CPUC cost of capital settlement now pending before the CPUC. The details on the mechanism are included on page 10.

We believe the outcome is a fair balance between customers and shareholders. It continues what we see as a constructive mechanism that provides visibility and transparency on potential changes in allowed rates of return and authorized costs of debt and equity.

As we indicated in our 8-K filing, we have estimated the earnings impact in 2018 preliminarily at $66 million pre-tax or $0.12 per share. The true-up of long-term debt authorized rates to estimated actual rates is $41 million of the $66 million.

The true-up of preferred equity is actually a positive $4 million, as SCE's portfolio cost is slightly higher than what is authorized. And the new ROE of 10.3% could have a roughly $29 million impact. Ultimately, the impacts will depend on the final outlook for interest rates and preferred dividend rates, as well as the timing of SCE financings.

We will file those debt and preferred rates of return with the CPUC in the fourth quarter. Staying on page 9, our current FERC settlement runs through calendar year 2017. We plan to file our 2018 FERC formula rate filing in the fourth quarter.

Our current FERC settlement terms would remain in effect, but subject to adjustment, until a new formula rate is approved. SCE's balance sheet remains strong, with the weighted average common equity component of total capitalization at 50.4% compared to the required 48%.

SCE had commercial paper outstanding of $769 million compared to long-term debt of roughly $10.3 billion. SCE termed out $300 million in a separate bank credit facility early in 2017. SCE will continue to access the capital markets for first mortgage bonds and preferred equity, consistent with our capital spending forecast.

At the holding company, we maintain a modest amount of debt. We have $400 million of senior notes maturing this year, and we will look to refinance that at some point. We continue to see no need for equity issuance to support SCE's capital spending program at this time. Please turn to page 11.

Our growth opportunities remain intact even with potential tax reform. Let's consider the possible elements, interest deductibility, tax rate and capital expensing from a customer perspective. Most impactful to customers would be the negative effect of eliminating the deductibility of interest expense.

As a pass-through under the cost of service model, this would result in a permanent increase in customer rates. Lower tax rates are a positive to customers and would mitigate some of the interest deductibility impacts on customer rates. Full capital expensing will result in higher deferred taxes, although also mitigated by lower tax rates.

Over time, this will lower customer rates. The specific impact will depend on the relationship between these changes and the current rate making methodology of immediately passing certain accelerated property related deduction benefits to customers.

Edison International also benefits from the interest tax shield, although the modest amount of holding company debt mitigates the impact of eliminating interest deductibility. A lower tax rate also reduces the value of the tax shield created by holding company costs.

In addition, a lower tax rate would reduce the value of the EIX holding company tax assets, the net operating losses and tax credits, which largely relate to the EME bankruptcy settlement. A remeasurement of these assets would be triggered by a lowering of the tax rate.

There are still many unknowns regarding tax reform and implementation, but we have considered these key elements and overall, we believe that we can deliver long-term above-average rate base growth with associated earnings and dividend growth opportunities.

I'll close with a comment on what we see as our above industry average dividend growth opportunity. Please turn to page 12. In December, we increased the dividend by $0.25 per share for the third year in a row, and are proud of our record now of 13 years of annual dividend increases.

We still have plenty of opportunity to grow our dividend toward the high end of our target payout range. Based on the midpoint of our 2017 SCE earnings guidance, we are at 49% of our payout target of 45 % to 55% of SCE earnings. The dividend will need to grow faster than earnings to move toward the high end of the range. That's it from me, Riya.

Would you please open the call for questions?.

One moment for the first question. The first question is from Julien Dumoulin-Smith with UBS..

Hi, good afternoon..

Hi, how are you?.

Hi, Julien..

Good. First quick question if you could.

You talked about the $0.08 with Edison Energy, Pedro more for you, can you discuss perhaps the line of sight on turning that around and how should we read anything into $0.08 relative to the north of minus $0.10 previously?.

Yeah. Let me just comment on it briefly and Maria or Ron Litzinger can add, as needed. In the last earnings call, we first focused on 2017 in total holding company guidance.

And we told you then that, while we were not ready to provide you all the details in Edison Energy, we wanted to make sure that folks understood that we were working at holding the total holding company expenses including Edison Energy, the $0.27 for 2017, and now, you see that we've updated that to be $0.25 for the year, of which $0.08 is the piece in Edison Energy.

Hopefully, it gives folks comfort that we are very focused on driving the work at Edison Energy in a disciplined way. We see a big opportunity there, Julien, but we also recognize that investors do want line of sight in terms of what the ongoing investment looks like. I'm glad that we've been able to affirm that $0.08 for 2017.

As I had shared in the third quarter call, we expect to provide you more detail on – the details behind the business plan for Edison Energy no later than the fall of this year. So until we get to there, I'm going to hold off and I don't have any new news to report other than that we continue that work. In the meantime, we're out in the market.

We continue to be encouraged by the activities across the piece parts of Edison Energy and are looking forward to sharing more with all our investors..

Got it. Excellent.

Perhaps to expand on that a little bit as a follow-up, which businesses are looking more attractive within the Edison Energy, within the $0.08, within your business plan, I know I'm pushing a little bit further, but can you give us a sense on what you see your primary focus has been or will be given kind of the different activities you're pursuing?.

Yeah. I think the easiest, and frankly, the shortest way to answer that is, we're focused on the advisory services across the large C&I customer space.

I don't think we're ready to provide a lot of detail on, this piece looks better than that piece, because quite frankly, part of the larger gear is that providing that broader set of advisory services across the full portfolio of needs is the core idea.

And so, we'll have more to share with you as we get into the details of the business planning exercise by the fall.

But nothing to report right now on this piece looks better than that piece or actually we're seeing value and having expertise across the gamut of on-site and off-site renewables, energy efficiency and building management and bringing that suite together is the value nugget here in terms of more customer needs..

Great. Thank you..

Thanks, Julien..

Thank you. The next question is from Ali Agha with SunTrust..

Thank you. Good afternoon.

First question, Pedro, a big picture, as you laid out your updated rate base CAGR 2016 through 2020 is 8.6%, but over the last – this rate case cycle, you've been benefiting significantly in your core earnings from the tax benefits and also the O&M savings, at a minimum the tax benefits go away, O&M probably get strewed up as well in the next GRC.

But then, the Edison Energy losses would move around as well.

So when I look at that mathematically of your 2016 actual earnings that you've booked here, how should I think about the EPS CAGR versus the rate base CAGR given that you're actually over-earning on the EPS front right now?.

Hey, Ali, it's Maria. So obviously, there are some things in the mix that I think you mentioned that aren't flowing through to the bottom lining, more primarily around the tax benefits in the early part of two years or three years or four years ago that we're seeing.

But we continue to find or look for opportunities where we can actually reduce our costs and put ourselves on a good trajectory. We have opportunities there. We talked a little bit about the opportunities that we're looking at relative to other capital investments, Pedro mentioned the transportation electrification proposal that we recently submitted.

So we think that there are opportunities across the board that we can be looking at and incorporating on a go forward basis around our earnings..

So what you would say, Maria, is given all the puts and takes EPS CAGR should be in line with the rate base CAGR?.

We certainly think that our earnings and our rate base are aligned..

Okay. And my second question, and I think you alluded to that up a little bit in your remarks as well, but on the dividend front, is the goal to eventually end up at the higher end of the range? As you mentioned, you're pretty much at the midpoint right now.

So we're not done yet in terms of ratcheting up the payout ratio, is that correct?.

Ali, yeah, that's been our payout ratio range for a long time, 45% to 55%. We'll continue to work it, as we move forward in time, but I think that that incepts over time, we want to be there..

The higher end, did I hear that right?.

We want to be in that range over the long-term, yeah..

Thank you..

Thank you. The next question is from Angie Storozynski with Macquarie..

Thank you. Just....

Hi, Angie..

Hey, Angie..

Thank you. Two questions.

One is, so given the pending GRC and the fourth quarter filing on the true-up on the cost of debt, should I basically assume that you'll have no efficiencies in your earnings in 2018?.

Well, certainly, when we file a GRC, the tendency would be to give things back to the customer, that's the construct around which we try and find efficiencies whether it's around O&M or debt. So I think you'll see that as we move forward.

On the other hand, as we continue to work and we continue to probe the opportunities that we have, we will still work on finding and achieving additional efficiencies, which – then when we get back to the next rate case, we'll get back to customers once again.

So I think you'll see that as sort of our mantra and certainly the cycle that we go through here..

Okay. And the second question on the potential MHI arbitration award, you said the amount equivalent to the costs incurred would be reflected in core earnings.

Can you remind us what are those costs?.

Sure.

So that would be really just costs associated with legal expenses that we have previously incurred through core earnings and that would be if we were – we don't know what the award would be or if there would be an award at this point, but if we were to recover anything and we had sufficient amounts to cover prior legal expenses, that would be about $0.09 per share..

Very good. Thank you..

Thanks, Angie..

Thank you. The next question is from Jonathan Arnold with Deutsche Bank..

Yeah, good morning, guys – good afternoon, guys, excuse me. I just have quick question Pedro on the non-GRC capital spending that you referenced in the slide, but it's now between grid modernization and the mobile home program. It's $289 million and last quarter that was $100 million or so higher, I think, between the two.

What's driving the change there and what you're assuming you'll spend outside the GRC, is there some indication from staff, the things in grid mod that causes you to be more cautious there?.

Hi, Jonathan. It's Maria. No, it's nothing about grid mod is causing us to be more cautious, but I think the grid mod numbers for 2017 haven't changed at all since Q3. We are finding some efficiencies in some of the unit cost, if you will, on some of the programs outside of grid mod, so that's really all you're seeing roll through that..

And then, Jonathan, it's something that we'll continue to be very keen on. I know we mentioned in the comments, but obviously, while we present an important growth opportunity here for investors, we want to make sure that it's good capital and in our view, good capital is efficient capital.

So just like we're doing the O&M, we'll continue to look for capital productivity opportunities for customers..

Okay, great. Thank you. And then, just you talked about the reasons for the rate base decline in 2020 having to do with the way that – I think if I understood this right, the way that grade making rolls the projects into rate base.

So I'm just curious what change did something in the rate making change or is it more just the timing to let to the rate, because I'm presuming that would have been the case in November too..

So certainly, it all starts with the timing slipping to the rate. In the various projects that we have that are part of our FERC rate base, some of the projects are actually eligible for certain incentives, specifically where the capital enters rate base while it's still in construction. So CWIP incentives, others do not.

And when you have projects move around that aren't subject to that incentives, staggering it by a year can actually, in that first year or two, have an outsized impact, and then, you catch up when you get to the first full year..

Okay. So it's not that the methodology changed, it's more the timing changed..

Correct..

Okay. Great. And then, just finally on Edison Energy, you say you're narrowing the focus.

So does that embed it within that statement? Are there businesses that you acquired that you're not going to continue with? Or just how can you help us understand what's actually changing in that narrowing of focus?.

Sure, Jonathan. And I think I covered it in my comments that the two specific examples we wanted to highlight were with Edison Transmission where we have been pursuing opportunities in the various organized markets.

The reality is that we are just not seeing the same level of opportunity under FERC Order 1000, as I think the whole market thought there might be at one point.

And now, in particular, as we think about what the impacts maybe of the new administration of Washington, potentially moving away from the clean power plant implementation that is probably continued negative for the likely availability of FERC Order 1000 project.

So Edison Transmission was one of two businesses we wanted to highlight where we're decreasing the level of effort there, although still keeping our position in Grid Assurance. The second one that I highlighted was Edison Water Resources. I think I had mentioned that in the past as an exploratory activity.

We had a team that did a lot of great work there and there's clearly customer interest, but frankly, it's a market that it's still not mature in terms of the transparency of pricing and just the complexity of regulation across it.

And so, while we saw some real technical feasibility there, and frankly, I think water is something that's important to society over the long run, our judgment after doing some pilot work was that, the mass there wasn't a good fit for us at this time.

And I think as we look at potential opportunities broadly across the space, some of this is exploration on the radar screen and try some of these and we determine that they are not ripe or prime, then we move on. And so, we moved on Edison Water Resources. So those were the two.

We remain very focused on the central idea of the energy advisory services for large commercial and industrial customers, and so, I was not trying to telegraph anything about businesses inside that portfolio..

Okay. That's great. I hadn't realized that was sort of an expansion of that comment. So thank you, Pedro..

You bet..

And then, just finally on that, you talked about 2017 guidance factor, lower EEG losses, the $0.08, had you previously disclosed the bigger EEG number, I thought it was all kind of wrapped within the holding company?.

Yes..

That's right..

It was previously all in that $0.27..

Okay.

So you're just commenting that there was a bigger number in that before, but it was kind of within the $0.27?.

Correct..

That's right..

Great. All right. Thank you very much..

Thanks, Jonathan..

Thank you. The next question is from Praful Mehta with Citigroup..

Hi, guys..

Hey, there..

Hey..

Hi.

So quickly on Edison Energy, I know you don't like to touch or dig deep into it, but just wanted to understand from a tax reform perspective, any implications on what that could mean from a growth strategy, I know it's more capital light, but wanted to just understand if it has any implications for you guys?.

So I think it's the same thing probably that lots of other companies have been telling you. We'll be obviously looking at any sorts of border taxes and how that affects costs for our company and others, and how it would impact our customers.

And also, in terms of tax rate, tax rate affects every company, and so as that changes, we'll be keeping an eye on that as well..

Yeah, I mean, and just to tag on to that, so I do think Maria has it right that it might be some impacts on what the overall cost position is, but that wouldn't be just for our offerings, it would be for the offerings of other folks in the space, other competitors as well.

And I think, importantly, as we look at the large C&I customers that the business is aiming to serve, they're being driven by a lot of things, they're being driven by economics, they're being driven by sustainability objectives, the tax changes could have some impact on some of the underlying costs, but at this point, we don't see a material change in the overall interest that large C&I customers have in the broad portfolio advisory services theme..

Got you. And that's very helpful color. And then, secondly, on community choice aggregation, the CCA, there is an expectation of meaningful amount of load being served through CCAs over time.

Any implications for you guys, how do you see that going forward in your service territory?.

Well, let me give a top-level answer, and then, perhaps Ron Nichols or Kevin Payne want to answer further.

I think the short answer is that while I think we've mentioned we could see low departures of as much as 40% to 50% by 2025 or so, under the rules set by the legislature, under the framework set by the legislature, there should be no impact to our investors, because it's just all really about who is serving the commodity energy needs, but those customers would still be relying on our grid investments for provision of electricity.

So done right, should be no impact, that we do spend time on making sure that the program is implemented appropriately so that there isn't that cross subsidization between folks – having the folks who are leaving being cross subsidized by some of the remaining customers, and so, we have a lot of focus on making sure that the rules are being implemented right.

Ron or Kevin, anything you'd like to add there?.

Praful, this is the issue that we're dealing with right now. And the Commission is tracking this. They've been having workshops on this matter as well to get more clarity about how they plan to implement the legislative rules on this. So we're just going to continue to track that carefully..

Okay.

And I'm assuming then cross subsidization is the core issue just to ensure that that is done fairly?.

Yes..

Got you. Thank you, guys..

Thanks..

Thank you. The next question is from Michael Lapides with Goldman Sachs..

Hey, guys. Congrats to a good end to 2016. Two questions, one on the dividend payout ratio.

And can you talk a little bit, Pedro or Maria, about why the 45% to 55%, why you and why the board still thinks that's the right metric? I mean if I think about what happened, you still have $4 billion-ish plus of CapEx, maybe even closer to $4.5 billion to $5 billion, but the overall size of the company is significantly bigger since you first set that as a payout ratio target, depreciation that's what covered in rates and cash flow is significantly bigger.

Just talk about how the board today versus five years ago comes to that level as the target, what are some of the metrics you look at in setting that target?.

Let me kick it off and Maria may have more here. I think at the end of the day, we're looking to provide a total shareholder return to our investors and we deliver that through both the dividend growth as well as the earnings growth.

And like you said, we have a very strong and, frankly, I'd say, a premium growth story relative to our peers across the industry, driven largely by the organic growth opportunity at SCE, and that rate base growth is driving earnings growth and we view that as being above industry average earnings growth, which I think coupled with above industry average dividend growth rates to deliver a very compelling package to our investors.

So we don't look at a dividend growth rate in isolation. We looked at married with the earnings growth rate. And so, as we look at what that earnings growth rate is, the board and we and management still feel that that 45% to 55% payout range present a compelling attractive opportunity when coupled with the earnings growth rate.

Maria, anything else you'd add there?.

No. Michael, I think it's all part of the package. The total value that we're delivering to shareholders is not just one piece or the other..

Got it. The other thing is and this is a rate base question. So 2016 CapEx came in a couple of hundred million dollars lower than I'd think your last business update or your last forecast had. 2017 is a couple of hundred million dollars lower than your last forecast.

If I add those up, I don't get to the same number that 2018 is down, and maybe my math is off, but 2018 rate base is actually down less than what the sum of the 2016 and 2017, if I just added up what the differences in old versus new CapEx was going to be any.

Can you help A, make sure help me understand what's going on there and it may just be a timing deal? And B, what drives such a big step-up in rate base in 2018 over 2017? I mean you talk about having $4 billion plus of CapEx, but $2 billion of rate base growth, and yet, rate base growth in that year is over $3 billion?.

Okay. So maybe let's take the piece parts of your question. So the first part of your question was, you see capital spending down in the first couple of years, but not a commensurate decline in rate base and some of that really is the timing issues that we've talked about before.

It's timing that then rolls through, as you move out towards the end of the 2020 period, you can see that rate base more catches up with the reduction in capital spending, and then, you'll see that offset again through 2022. Part of that's related also to just how do projects enter rate base, do they have this incentive feature or not.

And then also, every time you change particular assets that are in rate base, you will get in different impact on accumulated deferred taxes. So there's a lot of things like that that roll through. But at the end of the day, CapEx and rate base, they catch up with each other.

In terms of your second question as to why there's a step-up in 2018, when we bought – so right now, we're deploying capital, et cetera, we filed our 2018 GRC. We actually have a true-up in the 2018 GRC to reflect the capital that we've been spending over the course of the last few years.

If you recall, in the 2015 GRC, the way that our revenue requirement is set in 2016 and 2017 is by looking at capital additions and capital additions and escalation on those capital additions.

Capital expenditures, ultimately, match the escalation in capital additions, but because of that, that methodology that the CPUC has adopted, which is frankly a simplified methodology, you'll see a catch-up in 2018 when we go into our next rate case..

Got it. Okay. Thank you, guys. Much appreciate it..

Thanks, Michael..

Thanks..

Thank you. The next question is from Anthony Crowdell with Jefferies..

Hey. Good afternoon. Just the company, and I guess the other utility down in the state were very – I guess, got a very balanced decision in cost of capital.

Can I use that the same parties involved to think about the discussions around SONGS or are there other parties involved?.

I'll turn it over to Adam Umanoff, but I think the broad message here is, we had a constructive outcome in terms of a cost of capital proceeding, where those parties involved, the SONGS matter, separate matter (52:56) we have, obviously, we want to make sure we have a constructive set of discussions with the parties involved there.

You saw the assigned commissioner ruling that from December that setup this whole meet and confer process and so we had our first meeting, we'll have our second meeting coming up at the end of February, and I know we'll certainly do our part to have constructive discussions with all the parties, but we cannot handicap at this point where that might lead.

Adam or Ron Nichols, anything to add to that?.

I wouldn't add anything, Pedro..

Okay. Thanks..

Just what other – are there like a very important party involved with the SONGS discussion that are not involved with cost of capital?.

This is Adam Umanoff. There are a number of parties involved in the SONGS proceeding who are also involved in the cost of capital negotiations. But the playlist of parties in the SONGS proceeding is wider. Anyone who intervened in that proceeding has a seat at the table..

Great. Thanks for taking my question..

Thank you..

Thank you. The next question is from Travis Miller with Morningstar..

Hi, Travis..

Good afternoon. Thank you.

Just one on the transmission side, if you think out the 5 years, 10 years, whatever, how close is the transmission system, especially where you guys are to getting to that 50% RPS to be able to transmit all that power that might be needed for the 50%, and then, I'll add on to that about the 100%?.

I think, a couple of comments on that, and again, Kevin Payne, Ron Nichols may have more to say here. Ultimately, we look to the California independent system operator to do the planning for that and they are still working on the planning to meet 50% renewables.

So that really return it to them, you mentioned 100% renewables, we did see a draft bill that was submitted by the pro Tem of the Senate, Kevin De León, last week, that would accelerate the State to 100%.

It calls for reaching the 50% mark by 2025, and then, reaching a 100% renewables by 2045, that is, as you can imagine, early days of the legislative session.

Last week was the deadline for submitting bills, often place holders gets submitted, so we'll be obviously ready to engage in discussions as that (55:35) and other proposed bills make their way through the process, but I don't think that the ISIL has included a 100% renewables that I know of in any of the scenarios so far.

Ron, Kevin anything to add?.

Yeah. Just to maybe clarify that the projects necessary, I mean 33% are already identified and underway planning in the upcoming cycle at the California, and so, we'll determine what projects are needed for 50%, and beyond that point, I don't believe that are going away (56:06)..

Okay. So the incremental you get 50% or even a 100% is not included in your forecast, right? Because (56:14)..

Yeah. Certainly, no..

2020, 2021. Okay..

That's right..

Okay.

And then, real quick, very generally speaking, what are you seeing in terms of corporate renewable energy purchases? I guess it gets somewhat into the Edison Energy, but even just more broadly, what you're seeing from corporations who want to buy renewable energy?.

Let me ask Ron Litzinger to comment on that..

Yeah. As we – Edison Energy corporate PPA is a significant portion of our business and it continues to grow strong and we see interest and growing year-over-year. So it continues to be an important part of the business..

Is there any way to quantify that in terms of percent of system or percent of renewables delivered anything like that, any numbers in that?.

No, not at this time, let's think that would be included in the business plan in the fall..

Okay. Great. Thanks a lot..

Thank you..

That was the last question. I will now turn the call back to Mr. Scott Cunningham..

Thanks very much, everyone, for participating today. If you have any follow-up questions, please do give us a call. Thanks and good evening..

And that concludes today's call. Thank you all for your participation. You may now disconnect..