Edison International · NYSE:EIX
Edison International — Corporate Update (July 2016)
48 slides from Edison International's corporate update, Jul 29, 2016
Slide 1: Business Update July 2016
Business Update July 2016 July 29, 2016
Slide 2: Forward-Looking Statements
Forward-Looking Statements Statements contained in this presentation about future performance, including, without limitation, operating results, capital expenditures, rate base growth, dividend policy, financial outlook, and other statements that are not purely historical, are forward-looking statem
Slide 3: Table of Contents
Table of Contents New (N) or Updated (U) from Page May 2016 Business Update EIX Shareholder Value 3 U SCE Highlights, Regulatory Model 4‐5 Capital Expenditures and Rate Base History and Outlook 6‐10 U CPUC Cost of Capital 11 U 2016 Guidance 12 U Growth Drivers Beyond 2017, Power Grid of the Future 1
Slide 4: EIX Strategy Should Produce Superior Value
EIX Strategy Should Produce Superior Value Sustainable Positioned for Earnings and Dividend Growth Transformative Change Rate Base and Core Earnings Growth SCE Focus on Lower-Risk Energy • 6-7% average annual rate base Delivery growth through 2017 • Wires assets represent over 90% of utility plant a
Slide 5: SCE Highlights
SCE Highlights One of the nation’s largest electric utilities • 15 million residents in service territory • 5 million customer accounts • 50,000 square-mile service area Significant infrastructure investments • 1.4 million power poles • 725,000 transformers • 103,000 miles of distribution and transm
Slide 6: SCE Decoupled Regulatory Model
SCE Decoupled Regulatory Model Regulatory Model Key Benefits Decoupling of Regulated • SCE earnings are not affected by changes in retail electricity Revenues from Sales sales • Differences between amounts collected and authorized levels are either billed or refunded to customers • Promotes energy c
Slide 7: SCE Historical Rate Base and Core Earnings
SCE Historical Rate Base and Core Earnings ($ billions) 2010 – 2015 CAGR Rate Base 8% Core Earnings 7% $24.6 $23.3 $21.0 $21.1 $18.8 $16.8 2010 2011 2012 2013 2014 2015 Core EPS $3.01 $3.33 $4.10 $3.88 $4.68 $4.20 Note: Recorded rate base, year-end basis. See Earnings Non-GAAP Reconciliations and Us
Slide 8: SCE Capital Expenditure Forecast
SCE Capital Expenditure Forecast ($ billions) $7.9 – $8.1 Billion Capital Program for 2016-2017 Distribution Transmission Generation • Reflects CPUC 2015 GRC decision; includes $4.3 up to 115% of capital spending for the pole $3.9 loading and deteriorated poles program for $3.8 2016 and 20171 • Incl
Slide 9: SCE Distribution System Investments
SCE Distribution System Investments Distribution Trends 2016 – 2017 CPUC • 2015 GRC includes 94% increase in Expenditures for Distribution Assets1 infrastructure replacement, but power grid $6.1 Billion not yet reaching equilibrium replacement rate Load • Distribution power grid requires more Growth
Slide 10: SCE Large Transmission Projects
SCE Large Transmission Projects Large Transmission Projects Tehachapi 4-11 • $2.5 billion total project cost; remaining investment $180 million • 2016-17 in-service date West of Devers • $1.1 billion total project cost; remaining investment $1.0 billion • 2021 in-service date; majority of capital sp
Slide 11: SCE Rate Base Forecast
SCE Rate Base Forecast ($ billions) 6-7% Average Annual Rate Base Growth for 2015-2017 Outlook • Incorporates 2015 GRC final decision with bonus depreciation provision, except “rate Range base offset” excluded because of write off $26.6 of regulatory asset related to 2012-2014 $25.0 incremental tax
Slide 12: CPUC Cost of Capital
CPUC Cost of Capital 7 CPUC Adjustment Mechanism Moody’s Baa Utility Index Spot Rate Moving Average (10/1/15 – 6/30/16) = 5.14% 100 basis point +/- Deadband 6 Rate (%) 5 4 Starting Value – 5.00% ROE set at 10.45%, independent of trigger mechanism 3 10/1/12 10/1/13 10/1/14 10/1/15 10/1/16 10/1/17 Ret
Slide 13: 2016 Earnings Guidance Reaffirmed
2016 Earnings Guidance Reaffirmed 2016 Earnings Guidance Key Assumptions As of May 2, 2016 As of July 28, 2016 • Revenues based on GRC final decision Low Mid High Low Mid High • Energy efficiency earnings of $0.05 per EIX Basic EPS $3.82 $3.92 $4.02 $3.82 $3.92 $4.02 share Less: Non-Core Items1 0.01
Slide 14: SCE Growth Drivers Beyond 2017
SCE Growth Drivers Beyond 2017 Infrastructure Reliability Investment • Sustained level of infrastructure investment required until equilibrium replacement rates are achieved and then maintained - includes underground cable, poles, switches, and transformers1 Distribution Resources Plan • Accelerate
Slide 15: Distribution Power Grid of the Future
Distribution Power Grid of the Future Current State Future State One-Way Electricity Flow Variable, Two-Way Electricity Flow • System designed to generate • Distribution system at the center of electricity from large central plant the power grid • Very few distributed energy • System designed to ser
Slide 16: Smart Grid Highlights
Smart Grid Highlights Devices that provide Devices that provide stable voltage and power quality more flexibility during outage events Future circuit designs integrate State of the art Distributed operating tools Energy Resources for utility & increase operators and flexibility engineers Smart meter
Slide 17: CPUC Distributed Energy Resources (DER) Proceedings
CPUC Distributed Energy Resources (DER) Proceedings Scope elements • Integration of DERs in planning and • Integration Hosting Capacity Distribution operations • Locational Net Benefits • Data Access Resource Plan • Identification of optimal locations and • Planning alignment value of DERs • Power G
Slide 18: Smart Grid Modernization Road Map
Smart Grid Modernization Road Map SCE is evolving its DRP timeline based on January 2016 scoping memo, July 2016 memorandum account request and finalization of the 2018 General Rate Case 2015 - 2017 2018 - 2020 2021 – 2023 + Cycle GRC Technology Implement foundational Optimize operation of Enhance a
Slide 19: July 2015 SCE DRP Capital Expenditure Estimates
July 2015 SCE DRP Capital Expenditure Estimates CPUC Approval Time Period Capital Expenditures Mechanism 2016-2017 Distribution Automation $40-70 million • Proposed memorandum account to record Substation Automation $30-60 million associated revenue Communications Systems $7-15 million requirement u
Slide 20: SCE Key Regulatory Proceedings
SCE Key Regulatory Proceedings Proceeding Description Next Steps Key SCE Proceedings Cost of Capital CPUC capital structure, cost of capital, and CPUC approved the Joint Petition for Modification return on equity to suspend adjustment mechanism through 2017; Filing of 2018 application in April 2017
Slide 21: SCE 2016 Bundled Revenue Requirement
SCE 2016 Bundled Revenue Requirement 2016 Bundled Revenue Requirement $millions ¢/kWh Fuel & Purchased Power – includes CDWR Bond Charge 4,928 6.7 Fuel & Purchased Power (43%) Distribution – poles, wires, substations, service centers; Edison 4,185 5.7 SmartConnect® Distribution Generation – owned ge
Slide 22: SCE Operational Excellence
SCE Operational Excellence Defining Excellence Measuring Excellence Top Quartile • Employee and public safety • Safety metrics • Cost efficiency • System reliability (SAIDI, • Reliability SAIFI, MAIFI) • Customer service • J.D. Power customer satisfaction Optimize • O&M cost per customer • Capital p
Slide 23: EIX is Responding to Industry Change
EIX is Responding to Industry Change Long-Term Industry Trends Strategy • Public policy and large commercial SCE Strategy customers prioritizing sustainability • Invest in, build, and operate the next objectives generation electric power grid • Innovation facilitating conservation and • Operational
Slide 24: Edison Energy Focus: Commercial & Industrial
Edison Energy Focus: Commercial & Industrial Changing Customer Needs The Opportunity: Trusted Advisor and Solution Integrator • Create energy services that help simplify and optimize energy needs for large commercial & industrial customers: – Help customers better assess and capture the value of ene
Slide 25: Edison Energy: Acquired Businesses Summary
Edison Energy: Acquired Businesses Summary • Hundreds of solar solutions designed and installed across 16 states, SoCore offers multisite retailers, REITs and industrial companies portfolio-wide solar solutions that provide energy cost savings and carbon reduction opportunities • Provides comprehens
Slide 26: Grid Assurance Overview
Grid Assurance™ Overview On May 9, 2016, six electric power companies announced the official launch of Grid Assurance, LLC, an independent company providing transmission sparing solutions for critical electric transmission equipment. The company is offering its subscribers a cost-effective way to en
Slide 27: EIX Annual Dividends Per Share
EIX Annual Dividends Per Share Twelve Years of Dividend Growth $1.92 $1.67 $1.42 $1.30 $1.35 $1.24 $1.26 $1.28 $1.22 $1.16 $1.08 $1.00 $0.80 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Target dividend growth at a higher than industry growth rate within its target payout ratio of
Slide 28: Appendix
Appendix July 29, 2016 27
Slide 29: 2015 General Rate Case Final Decision
2015 General Rate Case Final Decision On November 5, 2015, the CPUC issued a final decision supportive of SCE strategy to increase infrastructure reliability and safety investment while mitigating customer rate impacts through productivity and operating efficiency ($ billions) GRC Final Decision 201
Slide 30: SCE Tax Memorandum Account
SCE Tax Memorandum Account • 2015 GRC decision established tax accounting memorandum account (TAMA), which tracks 2015 – 2017 tax benefits or costs associated with following events: - changes in tax accounting methods - changes in tax laws and regulations impacting depreciation or tax repair - chang
Slide 31: SCE Historical Capital Expenditures
SCE Historical Capital Expenditures ($ billions) $3.9 $3.9 $4.0 $3.9 $3.8 $3.5 2010 2011 2012 2013 2014 2015 July 29, 2016 30
Slide 32: Energy Storage
Energy Storage • CPUC Energy Storage Program: – Storage Rulemaking (R.10-12-007) established 1,325 MW target for IOUs by 2024 (580 MW SCE share; spread as biennial targets during 2014-20) – Ownership allowed up to 50% of total target (290 MW SCE share) – Flexibility to transfer across categories, re
Slide 33: SCE Charge Ready Program
SCE Charge Ready Program • Electric vehicle Charge Ready Program Phase 1 pilot approved by CPUC January 2016 − Authorizes spend of $22 million on pilot implementation for charger installations and Market Education Programs ($12 million rate base) − Advice letter approval to spend funds granted April
Slide 34: Residential Rate Design OIR Decision
Residential Rate Design OIR Decision • CPUC Order Instituting Ratemaking R.12-06-013 comprehensively reviewed residential rate structure including a future transition to time of use rates • July 2015 CPUC Decision D.15-07-001 includes: - Transition to 2 tiered rates by 2019 - “Super User Electric Su
Slide 35: SCE Net Metering Rate Structure
SCE Net Metering Rate Structure NEM Rate Developments: Solar Subsidies (Illustrative) • NEM allows residential customers to receive full-retail credit for exported generation and use these credits to offset energy 30 purchased from the electric power company, leading to a cost-shift to non-NEM custo
Slide 36: Residential Solar Installations in SCE Territory
Residential Solar Installations in SCE Territory 7,000 60 Key Dates 6,000 July 1, 2017 50 • NEM customers will be required to take service under Number of Residential Installations 5,000 mandatory Time-of-Use rate MW Installed 40 2019 4,000 • Commission to revisit NEM Successor Tariff 30 3,000 20 2,
Slide 37: 2016 System Average Rate
2016 System Average Rate (¢/kWh) 0.3¢ 16.2¢ 0.4¢ 0.3¢ (0.3¢) (0.5¢) 15.0¢ 14.9¢ (1.4¢) (0.1¢) Comparative System Average Rates1: EIX – 14.9¢ PG&E – 18.2¢ SDG&E – 20.4¢ 2 2015 SAR 2015 ERRA 2015 GRC Expiration of Other CPUC 2016 FERC 2016 ERRA January 2016 FERC June 2016 Settlement Prior Refunds Chan
Slide 38: System Average Rate Historical Growth
System Average Rate Historical Growth Rates reduced due to the implementation of 1) the SONGS ¢/kWh SCE System Average Rate Settlement, including NEIL insurance Los Angeles Area Inflation benefits, 2) lower fuel & purchased 24.0¢ power costs, and 3) a lower 2015 GRC revenue requirement that includes
Slide 39: SCE Rates and Bills Comparison
SCE Rates and Bills Comparison 2015 Average Residential Rates (¢/kWh) Key KeyFactors Factors 16.5 ¢ • SCE’s residential rates are above national average due, in part, to a cleaner fuel mix – 13.1¢ cost for renewables are higher than high 26% carbon sources Higher • Average monthly residential bills
Slide 40: SCE Customer Demand Trends
SCE Customer Demand Trends Kilowatt-Hour Sales (millions of kWh) YTD 2016 2015 2014 2013 2012 2011 Residential 12,960 29,959 30,115 29,889 30,563 29,631 Commercial 19,926 42,207 42,127 40,649 40,541 39,622 Industrial 3,618 7,589 8,417 8,472 8,504 8,490 Public authorities 2,230 4,774 4,990 5,012 5,19
Slide 41: California's Energy Policy
California’s Energy Policy • On October 7, 2015, Governor Brown signed SB 350, Actual 2015 Renewable Resources: which requires that 50 percent of energy sales to 24.3% of SCE’s portfolio customers come from renewable power and a doubling of energy efficiency in existing buildings for Small Hydro 2%
Slide 42: California Cap and Trade Program
California Cap and Trade Program • Assembly Bill 32 (2006) – reduces State AB32 Emissions greenhouse gas (GHG) emissions to 1990 levels Reduction Programs by 2020 (~16% reduction) • Cap and trade program basics: High GWP Gases – State-wide cap in 2013 – decreases over time 7% Cap & Trade – Complianc
Slide 43: Second Quarter Earnings Summary
Second Quarter Earnings Summary Q2 Q2 Variance Key SCE EPS Drivers 2016 2015 Revenue4,5,6 $0.10 Basic Earnings Per Share (EPS) - CPUC – Escalation 0.09 SCE $0.97 $1.18 $(0.21) - CPUC – Timing of GRC (0.06) EIX Parent & Other (0.11) (0.02) (0.09) - CPUC – GRC return on pole loading rate base 0.03 Dis
Slide 44: YTD 2016 Earnings Summary
YTD 2016 Earnings Summary YTD YTD Variance Key SCE EPS Drivers 2016 2015 Revenue3,4,5 $0.15 Basic Earnings Per Share (EPS) - CPUC – Escalation 0.17 SCE $1.85 $2.12 $(0.27) - CPUC – Timing of GRC (0.12) EIX Parent & Other (0.17) (0.04) (0.13) - CPUC – GRC return on pole loading rate base 0.05 Discont
Slide 45: SCE Results of Operations
SCE Results of Operations ($ millions) • Earning activities – revenue authorized by CPUC and FERC to provide reasonable cost recovery and return on investment • Cost-recovery activities – CPUC- and FERC-authorized balancing accounts to recover specific project or program costs, subject to reasonable
Slide 46: Earnings Non-GAAP Reconciliations
Earnings Non-GAAP Reconciliations ($ millions) Reconciliation of EIX GAAP Earnings to EIX Core Earnings Earnings Attributable to Edison International Q2 Q2 YTD YTD 2016 2015 2016 2015 SCE $315 $384 $601 $689 EIX Parent & Other (37) (5) (54) (11) Discontinued operations (2) – (1) – Basic Earnings $27
Slide 47: SCE Core EPS Non-GAAP Reconciliations
SCE Core EPS Non-GAAP Reconciliations Reconciliation of SCE Basic Earnings Per Share to SCE Core Earnings Per Share Earnings Per Share Attributable to SCE 2010 2011 2012 2013 2014 2015 CAGR Basic EPS $3.19 $3.33 $4.81 $2.76 $4.46 $3.06 (1%) Non-Core Items Tax settlement 0.30 — — — — — Health care le
Slide 48: Use of Non-GAAP Financial Measures
Use of Non-GAAP Financial Measures Edison International's earnings are prepared in accordance with generally accepted accounting principles used in the United States. Management uses core earnings internally for financial planning and for analysis of performance. Core earnings are also used when com