Edison International · NYSE:EIX
Edison International — Investor Presentation (May 2016)
47 slides from Edison International's investor presentation, May 3, 2016
Slide 1: Business Update May 2016
May 3, 2016 Business Update May 2016
Slide 2: Forward-Looking Statements
May 3, 2016 1 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-
Slide 3: Table of Contents
May 3, 2016 2 Page New (N) or Updated (U) from February 2016 Business Update EIX Shareholder Value 3 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 13
Slide 4: EIX Strategy Should Produce Superior Value
May 3, 2016 3 EIX Strategy Should Produce Superior Value Sustainable Earnings and Dividend Growth Positioned for Transformative Change Rate Base and Core Earnings Growth • 7% average annual rate base growth through 2017 Constructive Regulatory Structure • Decoupling • Balancing accounts • Forward-lo
Slide 5: SCE Highlights
May 3, 2016 4 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 transmi
Slide 6: SCE Decoupled Regulatory Model
May 3, 2016 5 SCE Decoupled Regulatory Model Decoupling of Regulated Revenues from Sales Major Balancing Accounts • Fuel • Purchased power • Energy efficiency • Pension-related contributions Advanced Long-Term Procurement Planning Forward-looking Ratemaking • SCE earnings are not affected by changes
Slide 7: SCE Historical Rate Base and Core Earnings
May 3, 2016 6 SCE Historical Rate Base and Core Earnings Rate Base Core Earnings 8% 7% 2010 – 2015 CAGR ($ billions) Note: Recorded rate base, year-end basis. See Earnings Non-GAAP Reconciliations and Use of Non-GAAP Financial Measures in Appendix. 2013-2015 rate base excludes SONGS $16.8 $18.8 $21.
Slide 8: SCE Capital Expenditure Forecast Unchanged
May 3, 2016 7 • Reflects CPUC 2015 GRC decision • Includes up to 115% of capital spending for the pole loading and deteriorated poles program for 2016 and 20171 • Includes $12 million for Charge Ready pilot program in 2016 • Excludes future DRP and energy storage capital spending SCE Capital Expendi
Slide 9: SCE Distribution System Investments
May 3, 2016 8 SCE Distribution System Investments Distribution Trends • 2015 GRC includes 94% increase in infrastructure replacement, but power grid not yet reaching equilibrium replacement rate • Distribution power grid requires more automation and voltage management as customer use of distributed
Slide 10: SCE Large Transmission Projects
May 3, 2016 9 SCE Large Transmission Projects Large Transmission Projects Tehachapi 4-11 • $2.5 billion total project cost; remaining investment $250 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
Slide 11: SCE Rate Base Forecast Unchanged
May 3, 2016 10 SCE Rate Base Forecast Unchanged • Incorporates 2015 GRC final decision with bonus depreciation provision, except “rate base offset” excluded because of write off of regulatory asset related to 2012-2014 incremental tax repairs • Includes incremental rate base for the pole loading and
Slide 12: CPUC Cost of Capital
May 3, 2016 11 CPUC Cost of Capital 3 4 5 6 7 10/1/12 10/1/13 10/1/14 10/1/15 10/1/16 10/1/17 R a t e ( % ) CPUC Adjustment Mechanism Moody’s Baa Utility Index Spot Rate Moving Average (10/1/15 – 3/31/16) = 5.41% 100 basis point +/- Deadband Starting Value – 5.00% Return on Equity (ROE) adjustment m
Slide 13: 2016 Earnings Guidance
May 3, 2016 12 As of February 23, 2016 As of May 2, 2016 Low Mid High Low Mid High SCE $4.09 $4.09 EIX Parent & Other (0.18) (0.18) EIX Core EPS1 $3.81 $3.91 $4.01 $3.81 $3.91 $4.01 Non-Core Items2 - - - 0.01 0.01 0.01 EIX Basic EPS $3.81 $3.91 $4.01 $3.82 $3.92 $4.02 • Revenues based on GRC final d
Slide 14: SCE Growth Drivers Beyond 2017
May 3, 2016 13 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 Pla
Slide 15: Distribution Power Grid of the Future
May 3, 2016 14 Distribution Power Grid of the Future One-Way Electricity Flow • System designed to generate electricity from large central plant • Very few distributed energy resources • Voltage relatively simple to maintain • Limited situational awareness and visualization tools for power grid oper
Slide 16: Smart Grid Highlights
May 3, 2016 15 Computing intelligence inside electrical substations Future circuit designs integrate Distributed Energy Resources & increase flexibility The 21st century distribution system will require transformative technologies in planning, design, construction, and operation. Net benefits to cus
Slide 17: CPUC Distributed Energy Resources Proceedings
May 3, 2016 16 CPUC Distributed Energy Resources (DER) Proceedings Expanded scope • Competitive solicitation framework: product definition, rules, plans, standard contracts, “review groups,” and valuation methodology • Electric power company roles, business models, and financial interests • Consider
Slide 18: Smart Grid Modernization Road Map
May 3, 2016 17 2015 - 2017 2018 - 2020 2021 – 2023 + Implement foundational information technology, communication systems, and system planning tools Enhance automation and improve interoperability with Distributed Energy Resources Optimize operation of Distributed Energy Resources and distribution m
Slide 19: July 2015 SCE DRP Capital Expenditure Estimates
May 3, 2016 18 July 2015 SCE DRP Capital Expenditure Estimates Time Period Capital Expenditures CPUC Approval Mechanism 2016-2017 Distribution Automation $40-70 million • Proposed memorandum account to record associated revenue requirement until expenditures are authorized by CPUC Substation Automat
Slide 20: SCE Key Regulatory Proceedings
May 3, 2016 19 SCE Key Regulatory Proceedings Proceeding Description Next Steps Key SCE Proceedings Cost of Capital CPUC capital structure, cost of capital, and return on equity CPUC approved the Joint Petition for Modification to suspend adjustment mechanism through 2017 in February 2016 Distributi
Slide 21: SCE 2016 Bundled Revenue Requirement
May 3, 2016 20 SCE 2016 Bundled Revenue Requirement Note: Rates in effect as of January 1, 2016. Represents bundled service which excludes Direct Access customers that do not receive generation services SCE Systemwide Average Rate History (¢/kWh) 2010 2011 2012 2013 2014 2015 14.3 14.1 14.3 15.9 16.
Slide 22: SCE Operational Excellence
May 3, 2016 21 SCE Operational Excellence Top Quartile • Safety • Cost efficiency • Reliability • Customer service Optimize • Capital productivity • Purchased power cost High performing, continuous improvement culture Defining Excellence Measuring Excellence • Employee and public safety metrics • Sy
Slide 23: EIX is Responding to Industry Change
May 3, 2016 22 EIX is Responding to Industry Change • Public policy and large commercial customers prioritizing sustainability objectives • Innovation facilitating conservation and self-generation • Regulation supporting new forms of competition • Flattening domestic demand for electricity • Power g
Slide 24: Edison Energy Focus: Commercial & Industrial
May 3, 2016 23 • Create energy services that help simplify and optimize energy needs for large commercial & industrial customers: – Help customers better assess and capture the value of energy optimization, paving the way for greater third-party energy services – Help customers manage through techno
Slide 25: Edison Energy: Acquired Businesses
May 3, 2016 24 Edison Energy: Acquired Businesses Summary • Provides comprehensive renewable energy advisory and procurement services to leading Fortune 1000 companies, universities and municipalities • Created a proprietary market access platform where it typically procures energy for its clients b
Slide 26: Grid Assurance
May 3, 2016 25 On June 10, 2015, certain electric power companies announced efforts to launch a new business focused on improving the resiliency of the transmission system. The company, Grid Assurance, LLC, will offer its subscribers a cost-effective way to enhance grid resiliency and protect their
Slide 27: EIX Annual Dividends Per Share
May 3, 2016 26 EIX Annual Dividends Per Share $0.80 $1.00 $1.08 $1.16 $1.22 $1.24 $1.26 $1.28 $1.30 $1.35 $1.42 $1.67 $1.92 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Note: See use of Non-GAAP Financial Measures in Appendix Twelve Years of Dividend Growth Target dividend growth
Slide 28: Appendix
May 3, 2016 27 Appendix
Slide 29: 2015 General Rate Case
May 3, 2016 28 Tax Repair Accounting • As a result of the rate base offset, SCE wrote down $382 million of regulatory assets associated with deferred income taxes related to 2012-2014 incremental tax repair deductions Because this rate base offset will be implemented at SCE through the regulatory
Slide 30: SCE Tax Memorandum Account
May 3, 2016 29 SCE Tax Memorandum Account • 2015 GRC decision established tax accounting memorandum account (TAMA), which tracks 2015 – 2017 tax benefits or costs associated with following events: - changes in tax accounting methods - changes in tax laws and regulations impacting depreciation or tax
Slide 31: SCE Historical Capital Expenditures
May 3, 2016 30 SCE Historical Capital Expenditures ($ billions) $3.8 $3.9 $3.9 $3.5 $4.0 $3.9 2010 2011 2012 2013 2014 2015
Slide 32: Energy Storage
May 3, 2016 31 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
Slide 33: SCE Charge Ready Program
May 3, 2016 32 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 ($12 million rate base) − Advice letter approval to spend fund
Slide 34: Residential Rate Design OIR Decision
May 3, 2016 33 Residential Rate Design OIR Decision • CPUC Order Instituting Ratemaking R.12-06-013 comprehensively reviewed residential rate structure including a future transition to time of use rates • July 2015 CPUC Decision D.15-07-001 includes: - Transition to 2 tiered rates by 2019 - “Super U
Slide 35: SCE Net Metering Rate Structure
May 3, 2016 34 SCE Net Metering Rate Structure 7¢ 24¢17¢ 0 5 10 15 20 25 30 ¢ / k W h Solar Subsidies (Illustrative) Avoided Generation (excludes RPS Premium) Subsidy Paid by Other Ratepayers Equivalent Solar Offset NEM Rate Developments: • NEM allows residential customers to receive full-retail cre
Slide 36: Residential Solar Installations in SCE Territory
May 3, 2016 35 Note: NEM solar installations in SCE service territory include projects with solar PV only less than 1 MW Residential Solar Installations in SCE Territory 10 20 30 40 50 60 1,000 2,000 3,000 4,000 5,000 6,000 7,000 2010 2011 2012 2013 2014 2015 2016 M W Installed N u m b e r o f R e s
Slide 37: 2016 System Average Rate
May 3, 2016 36 (0.3¢) (0.5¢) (1.4¢) 0.3¢ 0.4¢ 0.3¢ 4.00 2015 SAR 2015 ERRA Settlement 2015 GRC Expiration of Prior Refunds Other CPUC 2016 FERC 2016 ERRA Changes 2016 SAR 2016 System Average Rate SCE’s system average rate, the lowest amongst California IOUs, declined from 16.2¢/kWh to 15.0¢/kWh on J
Slide 38: SCE Rates and Bills Comparison
May 3, 2016 37 SCE Rates and Bills Comparison 13.1 16.5 US Average SCE 26% Higher 2015 Average Residential Rates (¢/kWh) 2015 Average Residential Bills ($ per Month) ¢ ¢ SCE’s average residential rates are above national average, but residential bills are below national average due to lower energy u
Slide 39: SCE Customer Demand Trends
May 3, 2016 38 SCE Customer Demand Trends Kilowatt-Hour Sales (millions of kWh) Residential Commercial Industrial Public authorities Agricultural and other Subtotal Resale Total Kilowatt-Hour Sales Customers Residential Commercial Industrial Public authorities Agricultural Railroads and railways Int
Slide 40: California's Energy Policy
May 3, 2016 39 California’s Energy Policy • On October 7, 2015, Governor Brown signed SB 350, which requires that 50 percent of energy sales to customers come from renewable power and a doubling of energy efficiency in existing buildings for California by 2030 - Also requires Transportation Electrif
Slide 41: AB32 Emissions Reduction Programs and Cap and Trade
May 3, 2016 40 • Assembly Bill 32 (2006) – reduces State greenhouse gas (GHG) emissions to 1990 levels by 2020 (~16% reduction) • Cap and trade program basics: – State-wide cap in 2013 – decreases over time – Compliance met through allowances, offsets, or emissions reductions – Excess allowances sol
Slide 42: First Quarter Earnings Summary
May 3, 2016 41 Q1 2016 Q1 2015 Variance Core Earnings Per Share (EPS)1 SCE $0.88 $0.93 $(0.05) EIX Parent & Other (0.06) (0.03) (0.03) Core EPS1 $0.82 $0.90 $(0.08) Non-Core Items SCE $ $ $ EIX Parent & Other2 0.01 0.02 (0.01) Discontinued Operations Total Non-Core $0.01 $0.02 $(0.01) Ba
Slide 43: SCE Results of Operations
May 3, 2016 42 $6,305 — 1,977 1,915 334 — 4,226 2,079 (525) 64 1,618 507 1,111 113 $998 $5,180 4,266 913 — — — 5,179 1 (1) — — — — — $— $11,485 4,266 2,890 1,915 334 — 9,405 2,080 (526) 64 1,618 507 1,111 113 $998 $1,368 (370) $998 SCE Results of Operations • Earning activities – revenue authorized
Slide 44: SCE Rate Base Forecast Reconciliations
May 3, 2016 43 2015 2016 2017 Prior Outlook – November 2015 $23.0 $24.8 $26.7 Bonus Depreciation CPUC (0.0) (0.2) (0.4) FERC (0.0) (0.1) (0.3) Subtotal Bonus Depreciation (0.0) (0.3) (0.7) Incremental Pole Loading Rate Base 0.3 0.6 0.7 FERC 0.0 0.0 0.1 Total Change 0.3 0.3 0.1 Updated Outlook as of
Slide 45: SCE Core EPS Non-GAAP Reconciliations
May 3, 2016 44 SCE Core EPS Non-GAAP Reconciliations Core EPS Non-Core Items Tax settlement Health care legislation Regulatory and tax items Write down, impairment and other charges Insurance recoveries Total Non-Core Items Basic EPS Reconciliation of SCE Core Earnings Per Share to SCE Basic Earning
Slide 46: Earnings Non-GAAP Reconciliations
May 3, 2016 45 Earnings Non-GAAP Reconciliations Note: See Use of Non-GAAP Financial Measures in Appendix ($ millions) Reconciliation of EIX Core Earnings to EIX GAAP Earnings Core Earnings SCE EIX Parent & Other Core Earnings Non-Core Items SCE EIX Parent & Other Discontinued operations Total Non-C
Slide 47: Use of Non-GAAP Financial Measures
May 3, 2016 46 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 als
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