Good afternoon, and welcome to the Edison International Third Quarter 2019 Financial Teleconference. My name is Ted and I will be your operator today. [Operator Instructions]. Today's call is being recorded. I would now like to turn the call over to Mr. Sam Ramraj, Vice President of Investor Relations. Mr. Ramraj, you may begin your conference.

Thank you, Ted. And welcome, everyone. Our speakers today are 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-Q, prepared remarks from Pedro and Maria and the teleconference presentation. Tomorrow, 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 the question-and-answer session, please limit yourself to one question and one follow-up. I will now turn the call over to Pedro.

Thank you, Sam, and good afternoon, everyone. Let me start with a sentiment that we are sadly feeling all too often here in California. Our hearts go out to our customers and community members, and our fellow Californians across the rest of our state, who have lost loved ones, homes, and property, have been evacuated, and have otherwise been impacted by devastating wildfires. I will once again dedicate a significant part of my comments to how we are managing wildfire risks after I touch on our financial performance. Today, Edison International reported third quarter core earnings of $1.50 per share, which was $0.06 below the same period last year. The decrease in core earnings was primarily due to higher O&M expense and share count dilution. These were partially offset by higher revenue from FERC as a result of the pending settlement of the 2018 formula rate case. As I have mentioned before, year-over-year comparisons are not particularly meaningful due to the timing of the adoption of the 2018 general rate case final decision. Maria will discuss our financial performance in more detail during her remarks. Since we last spoke to you on our second quarter earnings call, SCE filed its 2021 GRC application in late August, the 2019 California legislative session ended in September, and California's peak wildfire season has begun. Much of the State has experienced "red flag" conditions – high heat, very low humidity, and strong winds – requiring proactive de-energization using public safety power shutoffs, or PSPS. On state legislative matters, a number of wildfire-related bills were enacted into law in addition to AB 1054, that improve California's prevention, mitigation, and response efforts. These bills span a wide range of issues including vegetation management, community resiliency, and CPUC safety regulation, reflecting California's comprehensive approach to wildfire risk…

Thank you, Pedro. And good afternoon, everyone. My comments today will cover third quarter results for 2019 compared to the same period a year ago, plus comments on our 2021 general rate case and other financial updates for SCE and EIX. As we have said, year-over-year comparisons are less meaningful given the timing of the 2018 GRC decision. Please turn to page 3. For the third quarter 2019, Edison International reported core earnings of $1.50 per share, which was $0.06 lower than the same period last year. From the table on the right-hand side, you will see that SCE had a core EPS variance of negative $0.03 year-over-year. This was primarily due to a negative impact of $0.10 from dilution from the equity offering in July 2019. This was partially offset by $0.07 of higher EPS from SCE core activities. There are a few items that accounted for the majority of this impact. Higher revenues had a positive variance of $0.12. This was primarily driven by $0.10 of higher FERC revenues related to the settlement of SCE's 2018 formula rate proceeding. The settlement, which is pending approval, results in an all-in ROE of 11.2%. Other FERC revenues were $0.04 higher due to higher operating expenses under the FERC formula rate mechanism. CPUC revenues had a negative impact of $0.02 which was largely due to an increase in flow-through tax benefits, which were partially offset by higher GRC revenue. Higher O&M expenses impacted year-over-year EPS by negative $0.21 and were largely driven by higher wildfire mitigation expenses. O&M costs related to wildfire mitigation in high fire risk areas are being tracked in memo accounts and deferred, pending completion of various regulatory proceedings. We are also experiencing higher costs due to contractor scarcity and an increased inspection and preventative maintenance program in…

Ted, please open the call for questions. As a reminder, we request you to limit yourself to one question and one follow-up, so that everyone in line has the opportunity to ask questions.

[Operator Instructions]. The first question in the queue is from Greg Gordon with Evercore ISI. Your line is now open.

Hello, Greg.

Thanks. Good afternoon and best of luck to you and the communities you serve in getting through the fire season without any further hardship.

Thank you, Greg.

Thanks, Greg.

Can you remind us where we stand in terms of your position on the cause or causes or ignition points and disputes around ignition points as it relates to the Thomas Fire, please?

Sure. Greg. If you recall, it's actually [indiscernible] CAL FIRE have issued a report on that fire. At one point, there's two ignition points they've identified as have we. The Koenigstein Road point is the ignition point that we had said in the third quarter. Our equipment was involved in that, and the report that came out from the fire authorities is consistent with that position. In the second report, which was a second ignition point, they've also identified or have alleged that our equipment was involved in that second ignition point. We do not agree with that. There is publicly available radar evidence that shows smoke at least 10 minutes or 12 minutes before there were any anomalies on our system, and so that's an ongoing point of – or discrepancy between our position and theirs.

And, Greg, and I might just add, and I think we pointed this out in the Q, no metal fragments were found in the investigation report. So, some of the evidence you would typically look for just seems to be absent. There is no appeals process or anything like that for CAL FIRE reports, and so really ultimate liability will be sorted out through the litigation process.

Right. And then, now that we're – I know you gave us the information that you're able to on the Woolsey Fire. Can you just update us on the process for going through settlement or – litigation and/or potential settlement, so that we can get a sense of whether the charge that you have taken will wind up being a reasonable estimate of potential liability. What's the sort of critical path to resolution of this?

So, let me give you a really broad-brush answer and our General Counsel could always fill in more details on process as needed, although there might be more detail than you want. But I think the headline on this, it's a very complex process. Many plaintiffs, many individual lawsuits, different classes of plaintiffs across subrogation, individual parties, governmental entities, et cetera. The cases have been consolidated under a judge, and there is a process for the formal court steps around discovery and the initial handling of what are called bellwether cases that start to lay out the facts of the case. In parallel, there is always the possibility for discussions among parties across all these different classes of plaintiffs for potentially settlement sort of approaches. We're not in a position today to comment on those, but that is certainly a pathway that you've seen happen in a number of other cases. As we proceed with the case, we'll continue to do checkpoints on what information are we getting, is there additional discovery, is there other information that changes our view on the low end of the estimable range and that could lead to adjustments to the reserve we've taken already. As I noted, with the redacted reports that we received that have been sealed on Woolsey in particular, after viewing what we could view – obviously, we couldn't view the redacted parts – but there was nothing that we saw there that led us to determine that we needed to make a change to the reserve at this point. Greg, is that enough or do you need more detail on process steps, that kind of thing?

Yeah. I think investors, if you could, would just like to know – like, remind us what the timing is if we go down the litigation path to getting a resolution in lieu of a settlement.

So, Adam, can give you some – Adam Umanoff, our General Counsel, can give you some dates in terms of dates set by the court for the litigation process. I don't think that we can give you anything concrete in terms of the possibility of what timing will be for settlement, but, Adam, let me turn it to you.

Thanks, Pedro. In Woolsey, the court has set a July 2020 date for what's known as a bellwether trial. And these are sample jury trials that are conducted to see how the jurors will respond to evidence and the arguments in the case. So, that obviously is months from now. Between now and then, we continue to be engaged in discovery, both us and the plaintiffs. As far as settlement is concerned, as Pedro noted, we really can't comment on prospects. But in complex litigation like this, it's not uncommon, of course, for parties to enter into settlement negotiations.

Got you. Thank you. A lot more questions, but other people I'm sure behind me. So, thank you. I'll hop off. Bye.

Okay. Thanks a lot, Greg.

Next question is from Steve Fleishman with Wolfe Research. Your line is now open.

Hello, Steve.

Hi. Just one other question on Woolsey. Were there any violations found in the report at least that's un-redacted?

We can't comment on what's in the report beyond what we said already because of the court seal on it. So, sorry, we just can't give any more insight. However, we continue to state, as I did in my script remarks, that we see no basis for felony liability.

Okay. And, I guess to the degree you found something in there, you just can't comment, in theory, you could have changed your reserve based on it?

Yeah. That's correct, Steve. Let me put it maybe more affirmatively. If we had seen something that we thought was a significant, compelling information that we didn't have before and that we thought changed the low end of the estimable range, we would have done that.

Okay. And then, just on managing your system through these difficult periods, you mentioned some of the things you've done to be able to more surgically deal with power shutoffs. The one question I have is that it appears, possibly in Saddleridge and also in Kincade up north, that the issue came from a transmission line, not a distribution line. So, could you maybe talk a little bit about just the difficulty of managing this process with transmission lines?

Sure. Let me start by saying that we managed this for both transmission and distribution lines. I think the history we've seen of ignitions in the past is that the vast majority of ignitions, connected to utility equipment, have been on the distribution system. In terms of the process we follow, the overall process, I think, is similar. We have a mapping of our high fire risk areas. We have risk models around the potential for impacts in those areas. We have a mapping of our distribution and transmission circuits and then we have criteria around things like wind speed and humidity and fuel content, right? How much vegetation is around the ground that could turn into fuel, for example. So, those all form baseline criteria. As we then apply those to distribution versus transmission equipment, the difference is that typically transmission towers and that equipment is just a lot more robust, typically has broader clearances around it, and so you will typically see, for example, higher wind speed thresholds applied to transmission lines than you will see to distribution line just because there is a lot more mass to move up there and it's just a lot more robust in that sense. Beyond that, obviously, if you take out a transmission section through PSPS, there is a likelihood that that will have a greater impact in terms of number of customers that are de-energized. Fortunately, I think with our system and with our topology, the area that we serve, we have seen much more PSPS activity on the distribution system than transmission, although we've seen some on transmission. And then, with the distribution system, as I mentioned in my earlier remarks, one of the benefits there is that because we had been investing for a few years now in…

Okay. Thank you very much. I'll let other people ask questions. Appreciate it.

Next question is from Praful Mehta. Your line is now open. From Citigroup.

Hi, Praful.

Hi, Pedro. Again, hope everybody is coming through this relatively well, given it's a tough season. But just wanted to touch first on the charge itself, the $1.8 billion charge. So, that is a combination to confirm both of the Woolsey and the Thomas, correct?

I think the words I used were 2017 and 2018 fires, which is Woolsey and Thomas as well as the mud slides.

I got you. Okay. So, now just stepping back to more big picture question, given what's happening right now in California and the fact that PSPS itself isn't working as well as people had hoped, at least some had hoped, do you think AB 1054 right now works? Is it sufficient? Is the wildfire fund sufficient? Or do you think more needs to be done on the legislative side or the operational side to kind of deal with all of this that's happening right now in California?

Yeah. That's a great question. I think my snap answer with a little more detail to come, as usual for me, is that the AB 1054 framework is a solid framework, right? I mentioned in a prior call, it probably doesn't have everything we would have desired, but it was a compromise and, on balance, we think it was a good workable compromise. So, our focus now is primarily on the implementation of AB 1054, a lot of pieces that have to fall into place. As I mentioned in my remarks, we've seen a number of those already take place that have activated the wildfire fund. But there's more work ahead, including fully staffing out the wildfire safety division and wildfire advisory board and some of the other bodies that were specified in AB 1054. In terms of the size of the fund, I think investors and analysts and we have all identified all along that one of the features of the fund or the legislation was it did not set up a replenishment mechanism. And I know that's been a big focus for everyone. Assuming the PG&E is able to successfully emerge from bankruptcy by June 30th of next year, the size of the fund will be $21 billion, which the analysis from some of the state entities involved with the legislation suggested that that had something like a 94% confidence of surviving for a 10-year period. And in kind of rough numbers, it would cover something like $45 billion worth of gross damages. So, that means that there is durability for some period which – but if you go by that analysis, then probabilistically speaking, the high confidence that would last for at least 10 years, and then that would provide time for all of us to continue to harden our systems. Clearly, if there were catastrophic fires that depleted the fund, then I think the state would need to do more work legislatively to figure out how to replenish the fund. Beyond that, I think we've acknowledged there might be additional modifications needed to AB 1054. We don't have any to point out at this point. Just going to leave that open as a possibility as we get deeper into implementation steps and how well the mechanics work.

That's super helpful. Thanks for that, Pedro. And then, just a quick follow-up on the answer, which is PG&E's exit in time and its participation in the fund, obviously, now is a little bit at risk given everything that's happening from a wildfire and the bankruptcy process perspective.

Right.

So, from your view, if PG&E wasn't able to exit in time and not able to participate in the fund, does that worry you in terms of the size of the fund or do you think it is still a sustainable solution?

I think the broad-brush answer is that if PG&E were not to participate, then, clearly, the fund would not have that portion of the contributions, but it also would not have the risk of a 70,000 square mile utility with a lot of high fire risk territory. So, I'm not sure I have enough of a crystal ball to tell you whether the math ends up being a little positive or a little negative on that, but I think it's important to acknowledge that with the lack of participation also comes decrease amount of risk being covered by the fund.

All right. Well, thank you so much. I'll go back in queue.

You bet, Praful.

Next question is from Julien Dumoulin-Smith with Bank of America. Your line is now open.

Hi, Julien.

Hey. Good afternoon. Hope everyone is hanging in there. Just wanted to follow-up a little bit on some of the questions or rather some of the commentary from the Governor's office around wildfire mitigation efforts. Obviously, you guys are doing a lot already. Sounds as if the state is really willing to kick it up in terms of efforts and commitment. How do you think about further acceleration in both OpEx and CapEx and infrastructure and especially some of the technology in undergrounding, specifically, that the Governor has mentioned off late?

Yeah. There's a lot there. But I'll start by saying that, as you heard from both Maria and my remarks, we're doing a lot. We're doing a lot right now in terms of our hardening. We've also proposed a lot, and that in part is driving the size of the general rate case request that SCE submitted. We also continue to learn all along here, right? And so, I would expect that, a year from now, two years from now, three years from now, there will be new ideas that arise that might allow us to either accelerate what tools we're using or, more importantly, accelerate the pace of risk reduction as we do both capital investment and operational measures. Picking one part of your question maybe a little more finely, on PSPS and the governor's comments, this is a tough thing for everybody, right? And you have particularly Northern California, such large swaths of customers being de-energized given the conditions up there and the ability of the system in PG&E's territory, that it's tough for customers to work through that. And I think government officials are sorting through the risk balance that would benefit versus – benefit versus costs and impacts of PSPS. For our part, one of the things we've really stressed is making sure that we have continued to work on our protocols and invest in training our incident management teams. So, we have a very consistent application of the process, point one. And as you heard in my detailed remarks, our ability to be more granular at how we assess the potential scope of PSPS, all the way through to, in real-time, who really needs to be de-energized and who doesn't, that's allowed us to be a bit more targeted with that. Again, make no mistake, if we think that we need to de-energize the circuit for public safety, we will. So, this is not about avoiding public backlash, but it's about only impacting customers who really need to be impacted. I do expect that, through our discussions with the Governor's office, with Cal OES, with the CPUC, with the new proceeding that the CPUC announced a day or two ago, we will continue to see continuous improvement in learning on how we apply PSPS and some of the other measures. Did I get everything in your question or did I miss some important part, Julien?

No, no, no. That's good enough. Thank you. And then separately, if I could quickly ask, and I just want to kind of broadly affirm this concept, right, now that we have a 20% criteria over three years in terms of eligibility to participate in this fund, I just want to be extra clear about dividend confidence here, right? Because we've had a few seasons already where there has been an open question when you affirm your dividend, there has been some pause in the investment community. I just want to be extra clear-cut with respect to knowing what the downside is today, if you will, in terms of what the deductible is into this fund that, at least as best you see it, to the extent which you were to trigger that threshold, certainly not thus far, but to the extent prospectively, just confidence in being able to continue to pay out the dividend at that point. And maybe that's too much of a statement, but I'm curious how you would take a stab at answering that?

Sure. Thanks, Julien. Let me answer this way. Maria may have more to add here. First, just to make sure everybody's level set. AB 1054 was very clear about limiting our liability over a three-year period to 20% of their T&D equity rate base. So, for us, it's around $2.6 billion or so. And so, we have high confidence that that – the law reads very clearly and they will be implemented by the state, so that's that. And by the way, just remind you that that is attaching above insurance levels. The wildfire fund attaches above our commercial insurance levels, and so we continue to use commercial insurance as the first layer in the event of having unfortunate wildfires. Beyond that, we continue to work hard to have a strong balance sheet. Frankly, the success of our equity raise earlier this year and our financing activities that Maria covered are all meant to continue to re-strengthen our balance sheet over time. I can't comment sitting here about future dividends. We always say we never get ahead of our ski tips, but I think we've communicated to investors our overall commitment over the long run to – we understand the role that dividends play for utility equity investors/shareholders, and I think maintaining a strengthened balance sheet is a way to give us the flexibility to weather any other issues that we may have with wildfires or other capital needs. Maria, would you add to that or…?

Julien, I'd just say, you know the dividends here in California, in addition to the retained earnings test, it's an ability – or likely to meet obligations as they come due after paying the dividend. And I think Pedro is exactly right. Our work…

She doesn't often say that, by the way. I love this one.

Our ability to maintain a strong balance sheet has helped us in the past to maintain our dividend. We don't get ahead of the board on this, but certainly that strength is something that allows us to continue to say that our dividend payout policy and 45% to 55% payout ratio is one that we know is important to investors and we're keeping that front and center.

Excellent. Thank you, guys.

Thanks, Julien.

Next question is from Ali Agha with SunTrust. Your line is now open.

Hello, Ali.

Hey. Good afternoon. First question, Pedro, Maria, just again, bigger picture, just on the fire stuff, to be very clear, so far as we know, both for the Thomas, Woolsey fires, there's been no allegation of any violation by Edison. And as a result, is it fair to say that that does put you in a position for cost recovery whenever we reach that stage? Is that clear?

Yeah. Let me parse it very precisely because this stuff is important. As I recall, these fire investigation reports, the ones you've seen in public typically will have a list of potential section of code that could involve violations, that kind of thing, right? But I think it's fairly standard that they said less in the reports. We've also acknowledged that – our understanding that the Attorney General's Office [indiscernible] for the investigations in both of those fires, Thomas and Woolsey. But as we look at the facts, we continue to see no basis for criminal felony liability. And so, that's not a statement we take lightly and we just don't see a basis for that. The fine parsing I make is that there is a difference between – certainly, there is the space of criminal violations, the space of determining legal liability and the space of PUC's determination of prudency. They're related, but they're not the same. We continue to do our investigations on both of the fires. I don't think we've commented on prudency yet. We have commented on the fact that, prior to AB 1054, there is some question about the – or uncertainty about CPUC determination of prudency as we saw in the San Diego Gas & Electric case. And so, that's why when we took the $1.8 billion net charge, we did assume recovery from FERC for the FERC jurisdictional portion, but we did not assume recoveries from the CPUC. That's not to say that we have a basis to say we were imprudent or we were not, we haven't commented on that, we're still doing the homework on that, but it was more about the fact pattern that we saw in the San Diego case up until the point where AB 1054, importantly, reformed the cost recovery standard. And frankly, I know there's been a lot of focus on the wildfire fund and the liability cap, but, in our view, that redefinition of what prudency is and how the PUC needs to look at that in the context of cost recovery is a very important part of AB 1054.

Yeah. And in that context, given the kind of reaction your stock took when the recent fire season has started, again, are you confident given the prudency definition and other terms in AB 1054 that knowing what you know about the fire season so far that, on a going forward basis, certainly for the 19 fires, you're not seeing really any big financial implications for your company?

Again, let me answer it this way, be very thoughtful here. We have not put up on our own any estimates of what the damages might be for the 19 events. I think, as you look through at the overall scale of that and you compare it to our $1 billion net of commercial insurance, $1.2 billion minus around a couple of hundred million of deductibles and co-insurance, certainly, it seems that the scale of the insurance programs we have appears to be larger than the scale of the events we have seen in our area. And so, that's what we see at this point.

Got you. And one unrelated point, just to be clear. Maria, you talked about the need potentially for both equity and debt funding as you're looking at your 2021 through 2023 cycle of CapEx. Given that there should be some equity presumably there, the old notion that you would lay for us that, 'hey, rate base CAGR is a good proxy for EPS CAGR,' is that no longer to the case? We should assume some dilution between rate base CAGR and EPS CAGR going forward?

Maybe I'll focus on the first part of your question, first. We do see, in the near term, a need to make sure that our balance sheet is as resilient as possible. In the near term, as we work through some of these wildfire issues because, as you know, I think the rating agencies have responded well to AB 1054, but I'm sure they are still looking at implementation questions and speed and et cetera. So, it's not always going to be just purely a metrics issue for us. And so, that's why we have the philosophy that we put forward for everyone that we're going to take a balanced approach, which means the combination of debt and equity. I think we're always going to be trying to manage that, Ali, as we understand sort of the impacts of doing that. On the one hand, keeping the balance sheet strong; on the other hand, kind of maybe creating a little bit more of a disconnect for folks. But we're going to keep all that in mind as we make our decisions and we'll have more on the financing plan as we go into next year.

Thank you.

Okay. Thanks a lot, Ali.

That was the last question. I will now turn the call back over to Mr. Sam Ramraj.

Thank you, everyone, for joining us today and please call us if you have any follow-up questions. This concludes the conference call. You may now disconnect.