Edison International (EIX) Q1 2014 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the Edison International First Quarter 2014 Financial Teleconference. My name is Brian and I'll be your operator today. (Operator Instructions). Today's call is being recorded and I would now like to turn call over to Mr. Scott Cunningham, Vice President of Investor Relations. Thank you, sir.

Thanks, Brian, and good afternoon everyone. Our principal speakers today will be Chairman and Chief Executive Officer, Ted Craver and Executive Vice President and Chief Financial Officer, Jim Scilacci. Also with us are other members of the management team. The presentation that accompanies Jim's comments, the earnings press release and our Form 10-Q are available on our website at www.edisoninvestor.com. During this call, we will make forward-looking statements about the financial outlook for Edison International and its subsidiaries and about other future events. Actual results could differ materially from current expectations. Important factors that could cause different results are set forth in our SEC filings. We encourage you to read these carefully. The presentation includes certain outlook assumptions, as well as reconciliation of non-GAAP measures to the nearest GAAP measure. When we get to Q&A, please limit yourself to one question and one follow-up. If you have further questions, please return to the queue. With that, I'll now turn the call over to Ted Craver.

Thank you, Scott, and good afternoon everyone. Today Edison International reported solid first quarter results. Core earnings were $0.90 per share, up 17% over last year. These results are consistent with our full year earnings guidance, which we also reaffirmed today. Jim Scilacci will cover this in more detail in his remarks. In the last few months, we made good strides in resolving the two major uncertainties for investors Edison Mission Energy and San Onofre. I'll touch on both starting with the San Onofre Nuclear Generating Station. On March 27, a settlement agreement was reached on all of the issues in the cost recovery proceeding before the California Public Utilities Commission related to the shutdown of SONGS. This comprehensive settlement was formerly submitted to the CPUC on April 3. The original signatories included the two principal's owners of SONGS; Southern California Edison and San Diego Gas and Electric and the two largest and most active consumer advocacy organizations in the State on utility matters. These are the California Public Utilities Commissions, Office of Ratepayer Advocates and the utility reform network. Since that announcement, two additional groups have joined the settlement. The first is; Friends of the Earth, a prominent environmental group and the most active advocate for closing SONGS in the Nuclear Regulatory Commission Proceedings. The second; is the Coalition of California Utility Employees. The only organized labor group intervenient in the SONGS OII. As a result, the settlement is supported by representatives from four key constituencies. The consumers, environmentalist, labor and the owners. All of the parties have agreed to work to obtain timely consideration and approval of the settlement by the CPUC. On April 14, the settling parties held a series of briefings on the settlement for CPUC representatives. On April 24, the Administrative Law Judge for the…

Thanks, Ted and good afternoon everyone. I'll cover the following topics; first quarter earnings, an update on the SONGS settlements and our fuel and purchased power inter-collection. Then I'll rate base in 2014 earnings guidance. Please turn to Page 2 of the presentation. As Ted just said first quarter core earnings are $0.90 per share. The higher earnings reflect rate base growth in lower O&M. there are also additional income tax benefits during the first quarter primarily from higher repair deductions. The overall impact of SONGS was a net $0.02 per share. For Q1, 2013 earnings for SONGS were lower than normal because of higher than authorized O&M cost and refunds recorded in our SONGS balancing accounts. At the holding company, first quarter cost of $0.03 per share consistent with our full year guidance. With the year-over-year comparison impacted by tax benefits in last year's first quarter. There are two non-core items in the first quarter of 2014. The first is the additional SONGS impairment, which is $0.29 per share. This is slightly lower than our original estimate of $0.31. I'll explain the reason for the difference in a moment. The second is $0.07 in cost related to the EME bankruptcy. Please note that, that since EME bankruptcy was concluded on April 1, the income from the settlement will be recorded as non-core in the second quarter. We also re-affirm our belief that the settlement will yield approximately $200 million of net benefits with a little more than $115 million expected in the second quarter. Please turn to Page 3, on our March 27, call announcing the settlement. We increased SONGS charges to $730 million pre-tax and the $465 million after tax. We have updated the charges that are included in our first quarter results with total pre-tax charge of…

Thank you. (Operator Instructions) first question from Michael Weinstein, UBS. Your line is open. Julien Dumoulin-Smith – UBS Investment Bank: Hi, good afternoon. It's Julian here. First quick question, if you can just following up on the transmission side of the equation. I'd be curious to the extent to which the State is pursuing broader solicitations beyond just the Delaney one. Could you comment to the extent to which that, your CapEx budget is exposed to that, the near and long-term and also to the extent to which you're interested in pursuing other projects that are within the State?

Okay, let me start with that one and I'll have others to fill in. I don't really think it's going to affect our capital budgets that we've shown publically which goes out through 2017. Beyond 2017, there could be some implications and I will suggest that we having interest if not through Southern California Edison through the competitive side of the business to participate in transmission projects outside the Southern California Edison service territory, so there is potential if we lose at SCE, they may be able to pick it up through the competitive side of the business, but that's still very premature. Do you want to follow-up? Julien Dumoulin-Smith – UBS Investment Bank: Yes, on a separate topic, I don't know if anything left there. But just again going back to ERRA liquidity just from a high level here just to make sure I'm hearing you correctly. At the end of the day, despite some of the impacts that higher power prices might be having on your liquidity and ERRA balancing accounts. Ultimately, your rate base and CapEx plan is intact and obviously has been shifted but I just want to make sure I'm hearing you, with respect to your current spending versus plan two.

For us, it's has not changed.

Next question. Daniel Eggers, Credit Suisse. Your line is open. Daniel Eggers – Credit Suisse: Can you just updating investment talk about extending bonus depreciation and some talk recently about a permanent decision on bonus depreciation, what affect would that have A; on cash flow and B; on the agreement you have with the EME bankruptcy as with the estate as far as your ability to monetize those tax attributes?

You're probably seeing, Dan, it's Jim. You're probably seeing the same things we have from the Senate side proposal to extend bonus depreciation at 50% for two years. As it been here last several years, 50% bonus depreciation is a tremendous source of cash for the utility given the large amount of its capital budget running at $4 billion a year. I can't give you number off the top of my head, but its meaningful. So in effect what happens is, that cash would be available to Southern California Edison and since it would cover both 2014 potentially it's retroactive and looking forward prospectively 2015, that's a little hard to say what the impact would be on 2015 because right now it's not contemplated in our general rate case filing with the [tax] here is 2015. So we may have to update the filing, if that were the case. So it's harder to say what the impact would be on 2015 cash flow because it could be updated through the making process. Flipping over the other side of the equation, Edison International and the impact on the settlement. It would likely be that Southern California Edison had 50% bonus level would be in an NOL position or would be utilizing all the tax benefits available with the 50% bonus. Therefore, the NOLs that sit at EIX that our EIX loans or EME's would sit there and wait for future timeframe when we could actually monetize those and we're talking Federal Tax benefits here because as you recall, the State of California does not recognize bonus depreciation. So there are tax benefit that can be utilized for State Tax purposes that may not be able to being utilized for Federal Tax purposes. So I would suggest roughly if there's a 2-year extension of bonus. It could in effect backup the monetization probably 1.5 years to 2 years. Daniel Eggers – Credit Suisse: That means you have the fund the payments to the State via other means until the money is available to be procured from the EIX tax up, is that right?

Right, so we've got our revolvers shooting up EIX that we use to fund requirements and we would look to use our revolvers with some other type of similar facility for a 1 year to 2 year, if that's going to be delayed to 2 years.

Next question. Hugh Wynne, Sanford Bernstein. Your line is open. Hugh Wynne – Sanford Bernstein: So I was wondering, if I could I could trouble you though walk us through Chart 21 and comment a little bit about old residential rate design OIR, what is the discount that [indiscernible]?

Okay, so Page 21, it's the residential rate design. OIR page in the deck for those who are on the phone. I'll start then hand it over to Ron. The chart here depicts what currently, we have in place is the four-tier structure and the price of each tier goes up, as you step up through the tiers. So the highest tier being approximately $0.32, a kilowatt hour as you're using those incremental kilowatts and we have proposed through the rate design proceeding to reduce the tier's down to two tier's ultimately and also increasing the fixed charge which is currently $0.94 a month to $10 and that's currently working its way through the PUC and I'll stop there and throw it over Ron, add detail here.

Right, what Jim was describing as what's referred as the phase one of the proceeding which will be ongoing throughout the year. We expect the decision either late in the year or early next to be implemented in time for summer 2015. We will step down the tiers overtime. We expect to get the two tiers by 2017. We will increase the fix charge over a 3-year period and what that will enable us to do is reduce the differential between our highest tier and our lowest tier to arrange that we're targeting. So that's really the long-term. In the short-term, for this summer which is referred to as Phase II, don't ask me why Phase II comes before Phase I but we've reached settlement with the consumer advocates there. The Commission had given us direction to stay within the four tier arrangement. So the way we are getting the upper tier rates down in relation to the lower tier's, is we are putting the majority of the rate increase into tiers I and II, that's the 12% and the 17%, we are showing on the slide, that keeps the rate increases in tier's III and IV much smaller, they'll be set residually that we are currently estimating about 2% to 5%. So that will help shrink the upper tier to lower tier differential, which is really our long-term, our overall goal to take that cross subsidy out between higher used customers and the lower used customers. Hugh Wynne – Sanford Bernstein: Okay and the fee you're phasing for the fixed charge. I assume you're talking I'm sorry, $15, $16, $17 is that right?

Yes, $15, $16, $17, $5, $7.50, $10. Hugh Wynne – Sanford Bernstein: And the reason for the $10 long-term target. I'm sure that's maturely below the sort of fixed cost of supply to the customer, is there are reason that you chose $10?

That's what the legislation dictated was $10. Hugh Wynne – Sanford Bernstein: That's the maximum that you can request?

That's correct.

I think we've said publically, that the process service is probably closer to nearly $30.

Nearly, $30 right. Hugh Wynne – Sanford Bernstein: The fixed portion of the cost of service, is that what you mean it?

Yes.

Next question. Gregg Orrill, Barclays. Your line is open. Gregg Orrill – Barclays Capital: Just two quick ones. First on quarterly drivers, if you could break out the tax impact of repair taxes versus other and then just back to Slide 20. The 33% reserve margin and how that impacts you thinking in ERRA or otherwise?

Okay, so maybe we can reverse the order and talk about the reserve margin. So this is the current situation state and now how are the effects. You can tell by the numbers that 33% reserve margin is a quite a bit capacity and energy within the state to meet the needs for this year. There are some local issues that we have; we have done a lot of work in South Orange County to relieve both of these issues. And there are some other related in pass up in the San Joaquin Valley where we have been working on a transmission project seems like forever and we are delayed right now and hopefully with the – we can get that resolved, but the drought is impacted some regional areas up that. So this is incorporated in our current forecast and I guess one other thing, I should point out Gregg, that when you think about the drought there in California. We've got about 1,000 megawatts of hydro in our system. Clearly, the capacity of hydro system will be down this year, but what this chart was trying to show that we are heavily dependent on the Pacific Northwest and they are much closer to normal there as opposed to what happened here in California. So if we looked to the Northwest that is the critical factor and of course, we've got the Pacific intertie set up lines quite a bit of power from a Pacific Northwest to the Southern California, well that's the point of this chart here. I'll pause for a second and let you follow-up on, if we cover the question on related to ERRA. Gregg Orrill – Barclays Capital: No, I think you did that's fine.

Okay, so on the earnings related to the pieces for taxes. Mark, do you have anything there?

So on the pre-tax impact on for the quarter was $231 million. The tax component of that is $135 million, so the after tax was $96 million and then the 10-Q has some additional details in it, on what the amounts are in the effective tax rate [indiscernible]. Gregg Orrill – Barclays Capital: Okay, but the other outside of the pair. The other items were, are they general category that they were related to?

The flow through items for the quarter were all property related majority relates to repairs and so our effective tax rate, when you set aside the SONGS non-core item was very similar to first quarter of last year, which is around 25%, 26%. Gregg Orrill – Barclays Capital: Okay, thank you.

Next question. Michael Lapides, Goldman Sachs. Your line is open. Michael Lapides – Goldman Sachs: Ted, I want to just touch base on the comments you made about potential investment both looking for avenues or opportunities for growth within the utility but also outside of the utility? Can you talk about some of those in both categories, maybe starting with ones outside of the utility that you're likely to look at going forward and then some if there are non-traditional ones within the utility touch on those as well, please?

Yes, just probably at a high level at this point but we've mentioned before the acquisition that we made a while back of SoCore, the rooftop solar generation company and that's really the starting point for a platform focused on providing integrated energy services to commercial and industrial customers and that would be largely aimed outside of the SCE territory. We also are looking selectively at some projects that would involve electric transportation and potentially some water reclamation, water treatment activities. Where there is a strong nexus between electricity usage and water quality. Inside the utility, the pieces that we've mostly focused on are really things that further public policy initiatives within the State. So for instance, that California ISO along with some other State agencies have clearly identified a set of 'Preferred resources' that would be used for dealing with some of dislocations with San Onofre going out. So these are things like distributed generation, storage, energy efficiency, demand response. So we are looking at some pilot projects that would provide referred resources particularly in the areas most affected by San Onofre going out. And that would be additional growth opportunity within the utility. The State has a mandate on energy storage 1,300 megawatts across the State. Our share of that is a little less than 600 megawatts within SCE and half of that can be actually owned and put in rate based by the utility. So we are looking at those opportunities that would really ducktail with our modernizing the distribution system efforts. Community solars and other areas where that actually might be a combination of growth opportunities both within the utility and outside of the utility. So those are some of the high level areas. I think our approach is pretty well on this Michael. We prefer not to go out and ballyhoo all kind of nifty ideas before we really had a chance to kind of run them to ground and really have a more factual rendition of what those growth opportunities would be. So this point, we are looking at number of things. We think there are some good opportunities and as I said in my comments. It's important to have a strategic eye on, where some of these transformational changes might take place to both within California and outside and those can represent some decent growth opportunities. Michael Lapides – Goldman Sachs: How do you think about kind of [bogie] or the metric you would use between allocating capital to non-utility investments versus allocating more capital back to your shareholders including potentially revising upward the dividend payout ratio target that we are seeing a couple of other companies in the industry kind of go through the same thing, you have big CapEx periods, been a little of a slowing and a target payout ratio that keeps getting bumped up multiple times over a several year period.

Well I think very long-term, if in fact we have good growth opportunities that's really what will provide sustained earnings growth and sustained earnings growth ultimately circles back to providing sustained dividend growth. So it's the usual balancing acted every company has to go through. We see some very good opportunities both within California and potentially outside to operating solid sustained earnings growth rate. So we will look at each of those and it meets the hurdle requirement and we can see something that's really durable not just kind of one-off stuff or things that really are more distractions than sustained growth opportunities, we will look at those and invest accordingly. The reason I keep coming back to the statement, time and time again that we intend to return to our targeted payout ratio 45% to 55%, which I think is roughly correct for a company that has the level of growth that we have been experiencing for the last several years. So first step is to get ourselves back to that targeted payout ratio. Today, we're somewhere in the neighborhood of 35%, the payout ratio. Our target is 45% to 55%. So in order to get there, that suggests you have to have dividend increases that are a higher rate than what your earnings growth rate is and as we've said, we intend to do that in steps overtime. Michael Lapides – Goldman Sachs: Got it, thank you. Ted. Much appreciated.

You're welcome. Thanks for the good questions.

And Michael just one additional thought just from a rate making perspective. We have a holding company decision that we must give first priority to the utility when allocating capital, but there is plenty of capital to go around that's hasn’t been a factor for sometime but we must live under that requirement. Michael Lapides – Goldman Sachs: Understood, thank you Jim. Much appreciated.

Next question. Angie Storozynski with Macquarie. Your line is open. Angie Storozynski – Macquarie Research: So I wanted to go back to this question about the statement about the 33% reserve margin despite the retirement of SONGS. So I know that this is on 2014, but does it mean that you think that you can meet the reliable needs of your service territory without actually signing PT's and your gas plans to replace to the [nuke] and purely throw some transformation upgrades and managing efficiency another non-generation methods?

Well, there's Angie, it's Jim. Ron and you jump over and then Ron can probably give you a full answer on this here, but the fact is we've got a lot of energy in this state of times, but may not be in the right place and we need to have voltage in the right places too and to in order need combination a lot of things. So we're going to need to meet the 33% renewable requirements. We have the storage requirements and we are going to have, the Commission has recently decided preferred resources to replace SONGS that includes Natural Gas powered generation and we have one through cooling plants going out at the end of the decade. A certain portion of that is going to need to be replaced with new generation. So there is a whole host of things that need to be done here and coordinated to get it right and I'll pause here and look to Ron or [Stu] to add detail.

I think it largely captured, Jim this is Ron. In the short-term, we've been focused on transmission upgrades to deal with local constraints in remediate term there is a long-term procurement decision out that identifies local generation resources that are required in the LA basin for both SONGS and eventually the ones through cooling units going away and you know at a very high level there are targets of what we are going to achieve with preferred resources that we've been talking about, the energy storage, distributed generation, energy efficiency but the balance or the bulk of it. And [Stu] probably has the precise number will be solicitations that we do for natural gas fired powered plants. Our desires within the basin to reduce the amount of transmission we need to do. Angie Storozynski – Macquarie Research: Thank you and separately about the SCE's rate base growth, the 7% to 9% key growth. How does it translate into earnings growth meaning, should I anticipate that there is a possibility for earnings to grow faster than the rate base? Thanks to for instance some efficiencies on the PAN side of another reasons.

So, Angie it's Jim. It should imply that if we are earning off for as return, that rate base growth should be coming pretty close to earnings growth and what can affect that upper-down is the level of short-term debt. You might have in the capital within -- you maybe carrying at any particular time because that's in effect at UDC earnings, but we typically don't carry a lot of short-term debt unless, we are bridge funding over a certain period. Now clearly tax benefits for our O&M savings have the capacity to enhance your earnings over and above your authorized return. We are not forecasting anything and what we have right now is being given up as part of the test year of the 2015 GRC and we would look to continue to seek efficiencies wherever we can and drive our cost down. So we are targeting to, want to get our cost metrics more in line with second to first quartile performance and we are not there yet. So there is the possibility for additional savings, we just have to fund it. So that, I'll pause. If you want to follow-up, how about that? Angie Storozynski – Macquarie Research: No, I'm all set. Thank you.

Next question. Jonathan Arnold, Deutsche Bank. Your line is open. Jonathan Arnold – Deutsche Bank: Just curious and you've talked about this before, you've said in the past on the topic of going to distributed generation in the speaking the residential sector, that you'll focus more on upgrading the grid in California to the level, what will be needed as you see that thing out and is there some kind of structural impediment to you considering participating in that business some point in the future? Maybe you need to sort of have the rate design issues sort it out, especially those you know to address. I guess, planned as to your satisfaction. Is there any side of business that we could ever see you sort of deciding to competing on your own territory?

Jonathan, it's Ted. I'll take a crack in answering that. I think generally, our sense is been the residential rooftop solar business models really largely requires subsidies and kind of cost shifting mechanisms to really be viable that is not been as appealing to us. As a result, we've really focused more on the commercials and industrial distributed generation activities. I think for the foreseeable future. We would not really look to try to put residential rooftop solar into owned that, put it into our rate base. Outside of the utility we do participate in couple of funds that really are companies that provide funds for doing both residential rooftop solar but that's a fairly indirect and small involvement in our part. So really the way we see it is, our primary strategy is provide the network, provide the backbone through a modern distribution system that really facilitates any and all of these distributed resources. Whether that's rooftop solar or whether its storage and anything else. That's the part that we are uniquely positioned to do well and that's really where our investment dollars are focused in the utility.

Next question. Brian Chin, Merrill Lynch. Your line is open. John Apgar – Merrill Lynch: I just had a follow-up question on the income tax repair deduction for the quarter.

John, can you speak up a little bit? John Apgar – Merrill Lynch: Yes, I have a follow-up question on the income tax repair deduction for the quarter. I don't think you quantify that but it's $0.14 for the entire year was that mostly recognized in 1Q or how should we think about the timing of that recognition?

We are scratching our head here. You mean along the guidance, right. Yes, I'm sorry that was included in our guidance. I think we will have to take a closer look at that, we will come back to you on that. John Apgar – Merrill Lynch: Okay because it looks based on the quarter it looks there was a decent amount of property related tax gains for the quarter and I didn't know how much of that was the associated with that $0.14 that you laid out in guidance because it was $0.16 according to quarter and I'm not sure if most of that was recognized during the quarter.

We are going to have to follow back. John Apgar – Merrill Lynch: Okay. Thank you.

Thanks for the question. You stumped us.

Next question. Ashar Khan. Begin, your line is open.

My question has been answered. Thank you.

Next question. Kit Konolige – BGC. Your line is open. Kit Konolige – BGC Partners, Inc: On Jim to follow-up on your comments that nothing new recovery from MHI or NEIL. I see on Slide 18, it seems to indicate that NEIL might have communication about recovery in the second quarter, but maybe not is that sometime around the second quarter?

That's our best estimate from what we've heard thus far. Kit Konolige – BGC Partners, Inc: Okay and – what's your thinking on when the arbitration with MHI might run its course?

It will take some time, Kit. We've said previously that we would expect the process to take up to three years. So we are just really getting into it now and unfortunately we can't give you a lot of details regarding the status of the arbitration. So its early on and we've got a lot of steps to go down the past. So I think you should probably just keeping asking us, but there is not a lot we can give you, given the confidentiality around it. Kit Konolige – BGC Partners, Inc: It doesn't sound like I have to ask every week though.

Please don't. Kit Konolige – BGC Partners, Inc: Right, I won't and one other area on energy storage. Ted, you addressed that as sort of overview. The first procurement is done in December, 2014 but it looks like most of that is already in existence. When would we start seeing significant amounts of energy storage that would indicate whether Edison is going to be the one investing in energy storage?

We are going to need to file an application in order to incorporate our plans for energy storage besides the ones that were shown on Page 22, at the investor deck. So it will be public and very obvious in terms of what our plans are and it's going to be wider. Now I wouldn't expect it to be until later this year and probably first starting next year. Ron, do you want to follow-up.

The only other opportunity for storage is within the preferred resource pilot storage is an option there, where you may see some movement as well.

Next question. Ali Agha – SunTrust. Your line is open. Ali Agha – SunTrust Robinson Humphrey, Inc: First question, what is – at the end of the quarter what was for regulatory purpose calculation, what was the equity ratio at the utility?

It's almost right on top of 48%, 48.9%. Ali Agha – SunTrust Robinson Humphrey, Inc: Sorry?

48.9%. Ali Agha – SunTrust Robinson Humphrey, Inc: 48.9%, okay and second question, Ted you know historically the company, the board has used December as the time period to make changes to the dividend. As we look forward, then your plans to catch up over the next several years or next few years. Should we continue to think of December as the time period for that? I mean is there any reason why it could not be during the course of the year. How should we be thinking about this going forward?

Well, obviously you're right. December is typically one we've made dividend decision but that's just choice of ours that's not anything that's hardwired. So I think, I would basically say at any point in time based on what we see as the prospects for cash. We would have the ability to address the dividend and there is not in there, it has to be in December or annually, but I think at this point. I would just say, our primary focus right now is trying to make sure that we have complete the bits necessary to finish the EME settlement implementation and obviously I'll be focused on getting the San Onofre settlement approved, those are the key parts that we are focused on right at the moment. Ali Agha – SunTrust Robinson Humphrey, Inc: Understood, thank you.

Next question. Neel Mitra, Tudor, Pickering. Your line is open. Neel Mitra – Tudor, Pickering, Holt & Co: I just wanted to touch on the opportunities surrounding competitive transmission outside every service territory. Where do you see those opportunities and when you think about investing in those would you partner with an incumbent utility or do you see yourself positioned to win some of those projects by yourself?

This is Ted. It is one of those potential growth areas, it's a reality that the FERC Order 1000 there is going to be a change in the way many of the transmission projects both within the State and outside get billed. I would say, really at this point all the above is possible. What we have observed is that, most of the transmission projects that are being bid on competitively involves some level of partnership activity. There is some good reasons for that and I would suspect that would be certainly one of the strong options open to us, but it is an active area of enquiry and we are interested in pursuing additional projects on the competitive transmission side, if they make sense and clear the return, how it is. Neel Mitra – Tudor, Pickering, Holt & Co: Can you comment just geographically, where you see some of those opportunities within California?

I'd rather not get highly specific but the Cal ISO identified particular projects they're going to be looking at and so those are potential opportunities and some cases, it will make the most sense for us to do those as we've always done them with Southern California Edison participating directly. And in other cases, it might make more sense to do those through so-called competitive transmission vehicle. Neel Mitra – Tudor, Pickering, Holt & Co: Would you out of State or just within California?

I think we would look, it’s a core competency that we have and we would look at projects again, so long as we are confident, they can be done for the right kind of risk reward trade-offs and that would clear out return hurdles.

Travis Miller. Your line is now open. Travis Miller – Morningstar: Wanted to go back to the CapEx forecast. I heard correctly the 2018 and beyond you're looking at that same kind of run rate at that $4 billion, is that correct?

Again, Travis this is Jim. We haven't put any forecast out in the domain that we could give you a firm number but directionally, the distribution spending we don't expect will decline and we are trying to get our replacement rates for various components. We need to get them up higher than where we are today and that would imply that distribution spending could go up, somewhat. Expect with it, to try to put a number out there. What the transmission side of the equation would be because those are typically large and bulky investments. There is to be certain layer of maintenance CapEx for transmission investments that will be steady state and it will go up and down, if you have some new expenditures, you need to do it for lines or facilities, sub-stations. On the generation side, we just have some minimal legacy investments and the only, only thing we can't predict here today and I think Ted has already focused on those, is walking in the way of either of storage or preferred resources or related investments might due to the overall numbers. I don't think sitting here today, we can tell you what that's going to be because we are just looking at it now and it's something that we will have to evaluate and we won't put out a forecast beyond 2017 and so that's probably well over year from now or if not longer, so it's going to be awhile before we actually get into the public domain and what our thinking's are for that? Travis Miller – Morningstar: Okay and then at these levels, if you have the GRC accepted as you proposed similar level. How do you think about needs for new equity and timing on that?

Again, this is Jim. We have no plans for equity and what's helpful is the EME settlement provides earnings up to $200 million of additional income and things like bonus depreciation is a tremendous source of cash for the utility, should Congress decided to want to extend it and the President actually execute something here. Well there's just a tremendous amount of cash involved bonus depreciation, when you have a $4 billion of – around that level of capital expenditures. So we don't foresee any need for equity given our current plans.

That was the last question. I would now like to turn the call back to Mr. Cunningham.

Thanks very much everyone for participating and don't hesitate to call up, if you have any follow-up question. Thanks for hearing.