Pedro Pizarro: Yes, I’ll give you a couple of reactions to that. That’s a good question, Michael. Clearly, we continue to monitor how the landscape is changing. We do that in partnership with fire agencies, with OEIS, so to the extent that additional areas are designated HFRA, high fire risk areas, in the future, then we would make sure that we’re using the same standards that we use for high-fire risk areas today. We do expect that as climate change continues to drive more extreme weather, if you go back to our adapting for tomorrow white paper, by 2050 we see something like a 20% increase in wildfire risk statewide. But that said, this is where we’re relying on the hardening, and so certainly if we see more areas coming to that high-risk fold, then we will apply the same sort of methodology to them.
The other thing I’d say is that as we progress in our normal investment, we’ve had this big push to do the rapid hardening in HFRA, but we’ve also upgraded our standards for just generic replacements. And so we’ll also see hardening take place more organically as we continue our bread and butter infrastructure replacement throughout the system.
Operator: Next, we will hear from Ryan Levine with Citi.
Ryan Levine: Hi, everybody. I’m hoping to ask on AI, you highlighted it in your prepared remarks. How material do you see the cost cutting opportunity to be for Edison and then more broadly, given some of your role in EDI, do you see a lot of shared information to address that commercial opportunity for the industry.
Pedro Pizarro: Yes, and I’d say I’m getting perspectives of that on that not only for my EDI colleagues, but as I engage with CEOs across the economy, right? The Business Roundtable, Business Council. It is a big topic for everybody, a big focus area. I think this is a long-term opportunity, Ryan, and we’re really excited about it. I feel proud that Edison, I think it’s one of the early movers, certainly in our sector. And so the kinds of examples you heard me describe where we had some pilots, we’ve moved from pilots to actually implementing permanent additions to things like what I mentioned in the Customer Call Center support. It’s a real long-term efficiency opportunity, but we’re still very early days, right? And so handicapping, I know it’s going to be significant.
How quickly can they really get deployed? How quickly does the technology mature? Pitting that in against more specific cost estimates. I think this is something we will continue to see in probably at least a next two or three rate cases over time at SCE. So there’s going to be a curve to that. And we’re moving quickly with the pieces we’re working on right now. We’re seeing impact from them, but it will take a while for that to mature into long-term savings where we can say, here’s X cents in EPS that’s coming from that, or here’s the millions of dollars that we’re able to save customers in a future rate case.
Ryan Levine: Great. I’m going to ask one follow-up on the transmission opportunity. Is there any disclosure you’re able to share around right aways or resources that you have to make an argument for winning the two outstanding bids that you highlighted?
Maria Rigatti: Ryan, I’m just going to say that the CAISO has all of our information, and we’ll let them go through it before we make a lot of detailed statements about our bid.
Pedro Pizarro: es. Sorry, we can’t go into more detail right now.
Operator: Our next question will come from Angie Storozynski with Seaport.
Angie Storozynski: Thank you. Hi. How are you? Okay. So can I just ask about what happened with the benefit from the cost of capital? Because I understand that there is reinvestment happening in ‘24. I get that. But why doesn’t it reappear then in ‘25? I mean, again, it should be just a one-time offset now. I mean, again, I mean, is it somehow the GRC truing up the cost here? Again, why am I not seeing the benefit in ‘25?
Maria Rigatti: Sure. So we did provide sort of a bridge between 2024 midpoint to 2025 midpoint. And I think the way that we’ve discussed the cost of capital mechanism before is that it is, it triggered because of the interest rate environment. And so we view it as, in part, a hedge against interest rate movement. We also view it as an opportunity to make investments. And those investments could be purely around creating longer-term affordability, which then provides more opportunity to invest in rate-based, but also around reliability, which we know is a top focus for our customers as well as for our regulator. If you think about what we’ve updated for 2025, we took the rate-based update that’s associated with the cost of capital mechanism.
We also took a look at where interest rates had moved, which is, again, the hedge, the other part of the cost of capital is on the expense side. And we updated our cost excluded from authorized. Those movements were largely related to wildfire claims debt. That’s stabilizing, of course, post-2024, but you can see that we’ve updated that. We looked at the operational variances again as well, and we’ve seen that those are pretty much flat year-over-year, a little bit of an increase year-over-year with 2024, so in line with historical levels. Obviously, as Pedro noted, we’re working on a lot of different operational excellence efforts. And so we’re going to continue to make those investments so that ultimately, we get more of those benefits out on the other side.
But those are the ways that we thought about the update to 2025 and really wanted to highlight that if you look at 2024 and then you look at 2025, it’s that rate-based growth that is driving earnings. And that is ultimately in the long term, the earnings growth trajectory for the company is always going to be tied to rate-based growth. And so I think that really clarifies sort of the stability and the foundation for our long-term earnings trajectory.
Angie Storozynski: I understand, but here’s my question. So if you recall the previous couple of calls, we’ve always had this discussion about, is this really incremental to the earnings range for 2025 versus some offsets to that number? And so I’m just wondering if the same is going to be true now with the $0.61 that you guys are showing on slide 14, which is the earnings drag associated with the wild fire claims. So, again, obviously the 10th on the recovery of those costs. But I’m just wondering if $0.61 is really the upside scenario here, or is there something that’s going to eat into this potential benefit, assuming that you get recovery of all of the wildfire costs?
Maria Rigatti: Right. So I think we’ve been really explicit. I think there’s even a chart that shows the progression, even from 2001 to 2025, in terms of what that earnings drag is related to the wildfire debt. Not trying to mask anything at this point. We’ve laid out the maturity schedule that we have related with wildfire debt. We’ve incorporated, we basically, as I noted earlier, we’ve assumed that we will be pretty much done with the wildfire claims payments by the end of this year. And so all of those amounts, plus the refinancings that we’ll do this year and next year, are baked into that number. So I don’t think that we’re talking about anything that is sort of an area where you would see something unexpected happen. We haven’t incorporated, we’re talking a little bit about offsets and the like.
We have not incorporated any benefit from the cost recovery application and recovery of those claims payments. So there is nothing that would eat into that $0.61 in a negative way. Cost recovery obviously creates a benefit because then that interest expense would be offset by authorized revenue. So it actually, I think, in terms of your question, would go the other way.
Angie Storozynski: Okay. And then separately on the transmission ROE, so I’m just, the assumption about a 10.3 transmission ROE, is there any concern that there’s any potential downsides to that ROE just if I’m looking at what happened with PG&E and the ISO ADR, et cetera, how comfortable are you with that level?
Maria Rigatti: Well, we are comfortable. We have a black box settlement. Our settlement doesn’t have references to the CAISO ADR or the like. So that 10.3 is the number that we have. Interveners can ask us at this point to go in and file another rate case or another FERC formula rate case. They haven’t done so to this point. Obviously, interest rate — the interest rate environment is significantly different than the last time that we settled the case. So I guess there’s potential risk on both sides, right?
Operator: Our next question comes from Jeremy Tonet with JPMorgan.
Jeremy Tonet: Hi, good afternoon. Hi, just wanted to come back to an earlier point. Apologies if I missed it here, but with regards to the ‘25 bridge and the prior spending true-ups of $0.37, is that a number that recurs going forward or should we expect in ‘26 to that to drop off?
Maria Rigatti: Oh, I see your question. Sorry, and I probably didn’t understand it clearly the first time. No, those are going to be rate-based earnings. So the dollars, the $0.78 is just the increase from rate-based earnings and the next year those things will still be in rate-based. So we’ll just be, if you look back at the chart that we have, that shows rate-based year by year, we were bridging from the midpoint, but it’s cumulative numbers you go forward. Each year the rate-based will just embed the change that happened in ‘25 and then whatever incremental CapEx we have on top of that in the current year.
Jeremy Tonet: Got it, that’s helpful. Thank you for that. And another smaller point, if you will, just turning to slide 26 and looking at the 2025 core earnings per share component ranges and the SCE costs excluded from authorized. It seems like that goes up by a quarter or so versus ‘23. And I was just wondering what would be some of the drivers there? It looks like the industry assumption was unchanged. So just wondering component feeding into that.
Maria Rigatti: Yes, so that is largely related to Wildfire Claims Set. And as we’ve been updating the amounts that we have to pay for claims, we need to update that. And there has been volatility as we’ve gone in and refinanced some of the claims. So it’s really the driver in the difference relative to the prior is really about Wildfire Claims Payment-Related Debt. Again, our view, and we talked about this on the last earnings call as well, is that the cost of capital mechanism, which is driven by the interest rate environment, has a corollary on the expense side. And so the CCM is really a hedge against the ongoing interest rate movements.
Jeremy Tonet: Sorry, just to clarify there, I didn’t mean versus ’23, versus the prior ‘25. I think that number changed.
Maria Rigatti: Right, it did. And it is still really, I understood your question, sorry. It is related to increases in wildfire claims related to that.
Operator: Our next question will come from Gregg Orrill with UBS.
Gregg Orrill: Yes, thank you. Hi. Sorry if this is sort of old ground, but with the deadline to file a claim for the Woolsey recovery, how does that impact, if at all, the best estimate of total losses that you have?
Maria Rigatti: So, Greg, we, as you know, every quarter take a look at all of the information that we have and then tie that back to what we think about our best estimate. The process that you just referred to ended yesterday, the team is in the process now of evaluating all of the responses that have been submitted. And so, over the course of the next quarter, we’ll be taking a look at that and we will update folks as we get through that onto the next earnings call.
Operator: Our next question will come from David Arcaro with Morgan Stanley.
David Arcaro: Oh, hey there. Thanks so much. Let me see. I want to get your perspective on the building electrification proposal. I guess, how are you positioning that type of an opportunity? Is that something that you could approach in a different way, refile in the future, look for maybe different strategy or funding or affordability considerations just as you look at maybe other strategies for investing in building electrification going forward?
Pedro Pizarro: Yes, thanks, David. That’s a great question. And first of all, let me just probably repeat myself a little bit here, but when we think about the building electrification application, I think SCE had done a really nice job of two things. One, identifying a big gap in deployment, and secondly, coming up with a solution that basically had a cost benefit of one, right? So that is actually pretty attractive when you have an emerging technology like heat pumps. And so the second thing that they were developing this application with that cost benefit of one, that would not only send it its own two feet, but it was going to create a demand signal that would be very powerful to then help manufacturers go off in scale and capture those economies of scale that you get as you increase the volumes that you’re producing.
We saw this phenomenon, right? Collectively in California and more broadly, we saw the phenomenon with solar. And the early RPS targets helped drive down solar manufacturing costs. We’d seen a phenomenon with battery cells, right, which have come down in costs dramatically. I think there were probably 10% of the costs that used to be a decade ago. And that hasn’t happened with heat pumps yet, hence the building electrification application. We appreciated that the commission created SCE for creativity, and I agree. But they felt these near-term pressures, affordability and passing the application. They also pointed though to some of the other funding that they thought was available and perhaps didn’t think that SCE had factored in sufficiently.
