Edison International
Q4 2010 Earnings Call Transcript

Published: 28 Feb 2011

[Operator:]

Good morning. My name is Holly, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Edison International Fourth Quarter 2010 Financial Teleconference. [Operator Instructions] I would now like to turn the call over to Mr. Scott Cunningham, Vice President of Investor Relations. You may begin.

[Scott Cunningham:]

Thanks, Holly. And good morning, everyone. Our principal speakers today will be Chairman and CEO, Ted Craver; and Chief Financial Officer, Jim Scilacci. Also with us are other members of the management team. The presentation that accompanies Jim's financial review, together with the earnings press release, our 2010 10-K filings and supplemental information on EMG's 2011 EBITDA outlook are available on our website at www.edisoninvestor.com. This afternoon, we will be posting a regular business update presentation. This will add our usual business strategy and key initiative information. 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 10-K and other SEC filings. We encourage you to read these carefully. The presentation and supplemental information on our website includes certain outlook assumptions, as well as a 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 that queue. With that, I'll turn the call over to Ted Craver.

[Theodore Craver:]

Thank you, Scott. And good morning, everyone. Jim Scilacci will cover the fourth quarter results in detail. So I will focus on full year 2010 results and the major events that impact our outlook for 2011. Full year core earnings were $3.48 per share, an increase of 7% from 2009. These results were above the earnings guidance range we established at the beginning of the year and consistent with guidance we updated last fall. Both Southern California Edison and Edison Mission Group delivered solid results. SCE is our primary engine of growth, and once again, increased rate base and earnings last year. When Jim reviews the investor slide deck during his comments, you will see that over the past five years, SCE's rate base has experienced a 10% compound annual growth rate and earnings that had an 11% compounded annual growth rate. This is consistent with our current investment thesis in which SCE is the near-term value driver for our stock, while EMG represents upside with the recovery in competitive power markets and additions to its Renewable Generation portfolio. Specifically to that point, EMG continues to grow its Wind portfolio, as demonstrated by a 40% increase in megawatts brought into operation over the course of last year and this month. Liquidity and cash flow improved in 2010, in part due to tax-related outcomes. Specifically, we completed the last steps in the global tax settlement by finalizing the arrangement with California tax authorities, and there were federal tax law changes that accelerated depreciation benefits. EMG's cash position also improved as a result of a 30% federal tax grant program for Renewable Energy projects, which provided needed cash to reinvest in the business. In December, we announced a seventh consecutive dividend increase to an annual rate of $1.28 per share. We continue to target modest annual dividend increases, reflecting the significant capital required to support SCE's growth. We announced earlier this morning that we are providing guidance for 2011 core earnings per share in the range of $2.60 to $2.90. The midpoint of this estimated range for consolidated Edison International is $2.75 per share, made up of $3.08 for SCE less $0.19 for EMG, less $0.14 for parent company expenses. SCE's earnings in 2011 are anticipated to be $0.07 higher than the strong performance last year in this final year of SCE's 2009 to 2011 rate case. Obviously, the big change is at EMG, which I will discuss shortly after I make a few comments about SCE. As I have indicated already, successfully executing SCE's capital investment program is a critical part of the value proposition for our customers, our communities and our shareholders. Overall, SCE's capital spending in 2010 was a record $3.8 billion, and I want to highlight three of the more important accomplishments. Number one, earlier this month, SCE completed the steam generator replacement program at the San Onofre nuclear power plant, as Unit 3 was synced to the grid. Together with the Unit 2 steam generator replacement completed in the spring of 2010, this $600 million investment program extends the life of our nuclear plant so that it can continue to provide low-cost, clean electric power to California. Number two, we have now installed over 2 million Edison SmartConnect advanced meters, and are well along in the development of the online tools to enable customers to receive enhanced usage and pricing information. And number three, we continue to make important progress in obtaining regulatory approvals required for our transmission projects. In December, the CPUC approved the $483 million Eldorado-Ivanpah transmission project. This is the third major transmission line accessing renewable resources for which we have received state approval. All are part of the infrastructure needed to support California's renewables mandates. We are targeting final federal site approvals by mid-2011 for this project and the Devers-Colorado River Project. We've received Federal Energy Regulatory Commission approval of SCE's 2010 FERC rate case settlement. This case provides a total FERC retail base revenue requirement of $490 million. We continue to move forward with SCE's 2012 General Rate Case before the California Public Utilities Commission, which was filed on schedule in November. We look forward to working with assigned commissioner, Simon, and the various parties on a timely and balanced outcome by the end of the year. We have taken an important step with regard to SCE's large-scale, rooftop solar program. Earlier this month, SCE asked the California Public Utilities Commission to replace 125 megawatts of utility-owned generation, with additional third-party projects supported by SCE long-term power purchase agreements. SCE met its original objective to stimulate demand and cost improvement on large scale solar systems, and we now believe the competitive market can make up the other 125 megawatts at a lower cost for customers. Meeting public policy requirements at the lowest possible cost to customers is a key priority, and we think this is a constructive step towards that objective. Let me now turn to EMG. In our third quarter investor call, I mentioned the likelihood of declining earnings at EMG in large part due to the favorable hedges maturing, leaving energy margins exposed to depressed power prices. I also mentioned that even in the face of significant declines in power prices, EMG would still produce positive cash. EMG’s peers provide EBITDA estimates alongside their earnings, whereas we have only provided EBITDA on a historical basis. For 2011, to give investors a metric for the cash generation capability of EMG, we are providing what we call “adjusted EBITDA,” which is traditional EBITDA plus an adjustment for the production tax credits associated with our wind generation projects. The current outlook for negative $0.19 in earnings per share at EMG is equivalent to positive $465 million in adjusted EBITDA, as I just defined it. However, in addition to meeting annual earnings and EBITDA goals, EMG's larger objective is to create flexibility and optionality. From how it sequences and finances environmental retrofits on its coal fleet, to how it negotiates coal supplies and rail contracts, to how it manages its upcoming credit facility and debt maturities. EMG continues to make important progress in creating that flexibility. We believe the environmental compliance strategy, developed from Midwest Generation, provides the currently required emissions reductions in mercury, NOx and SO2, in a much more cost effective way than traditional approaches. As you know, we have already installed mercury controls, and the NOx compliance program is on schedule for completion at the end of this year. In fact, it looks as though our SNCR program for NOx removal will come in approximately $20 million under the original $158 million estimate. We continue to receive timely approvals from the Illinois EPA on construction permits for the Trona-based SO2 compliance program. Earlier this month, EMG received its second set of construction permits, covering Units 5 and 6 of Powerton, the largest Midwest Generation plant. We are encouraged by these developments. But because, amongst other things, we still need to see what the U.S. EPA rule makings will require, we have not made final decisions on individual unit retrofits to comply with our Illinois EPA agreement. As I mentioned earlier, EMG's renewables portfolio continues to expand. The 150 megawatts Cedro Hill project in Texas was placed in service in December. And this month, the 80-megawatt Laredo Ridge project in Nebraska, along with the 240-megawatt Big Sky project in Illinois, began operation. EMG is exploring third-party financing arrangements with several parties to allow the continued development of its 3,600-megawatt pipeline utilizing its project development expertise, while minimizing EMG's need to supply additional capital during the next years when capital is scarce. I'd like to conclude with a few general comments. We announced back in December several management changes. We announced that Ron Litzinger has been named President of SCE effective January 1, as Al Fohrer and John Fielder have retired. We also announced that Pedro Pizarro was being named President of EMG, replacing Ron. Both are with us on this call today, and as you have the chance to meet them and get to know them, you will learn why we have so much confidence in their ability to perform. Finally, 2011 is a special year for our company. Edison International is celebrating its 125th anniversary, which began in 1886 with three predecessor companies in Visalia, Santa Barbara and Redlands. While throughout the year, we will celebrate our company's rich heritage of many firsts in the electric industry and of inspiring innovations, our focus is squarely on the future. We continue to respond to changing customer and business requirements with new technologies and innovative solutions. While we are proud of what we have accomplished, we know we always need to do more. Our core operating principles of superior execution, financial discipline and innovative solutions are as relevant today in meeting our responsibilities and creating value for our shareholders as they were in the first days of the company's existence. I would now like to turn the call over to Jim Scilacci.

[W. Scilacci:]

Thanks, Ted. And good morning, everyone. Today, I will discuss the following items

[Operator:]

[Operator Instructions] Jonathan Arnold with Deutsche Bank, your line is open.

[Jonathan Arnold:]

The first one, if I understand you right, Jim, the change in the range on the CapEx, you had a 16.5% kind of cushion factor, I guess, before and now it's 10.5% and you've mentioned transmission. Does that explain all of the difference or have you changed your sort of confidence level on some of the other pieces, too?

[W. Scilacci:]

I think all along, most of our concern has been about the timing of transmission projects, Jonathan. And as Ted mentioned in his prepared script, a number of these projects are firming up. And I guess the only other piece I would mention is the solar rooftop program because that had been slipping out in time as we were somewhat struggling with the program. And now that's what we filed with the commission to alter it. We fully expect to spend our distribution dollars because that comes down to reliability of the system. So we didn't anticipate being much different from what we forecast versus what we actually spend.

[Jonathan Arnold:]

So most of the change is based in transmission and solar?

[W. Scilacci:]

Yes.

[Jonathan Arnold:]

And the 10.5%, is that sort of an across-the-board assumption now? Or is that still skewed one way or another?

[W. Scilacci:]

Yes, it's more or less prorated by year. And it's just simply taken as a simple average of what happened over the last two years supplied forward.

[Jonathan Arnold:]

Can you give us some sense of what the impact of the second quarter outages or I guess the first quarter outages for Homer City might be on the guidance?

[W. Scilacci:]

Yes, it's relatively small. And what we've done essentially is shifted outages. We had one planned and we shifted that planned outage forward. And we are anticipating that there will be some insurance proceeds and potentially, business interruption insurance. So the overall impact is fairly small and it's incorporated.

[Operator:]

The next question comes from Dan Eggers with Crédit Suisse.

[Dan Eggers:]

Just on the GRC, with the bonus depreciation adjustments to rate base. When do you anticipate filing an amendment to the filing? And is there any risk this could delay the commission’s timing on getting this done, given the fact they always seem to miss their deadlines, anyway?

[W. Scilacci:]

Yes, I wish we could tell you a firm date. And I'll start off here and give it to Linda Sullivan if there's more to add. We have to wait for the service to release final regulations. And I keep asking our tax guy, when is that going to occur? And I keep getting responses back as well, it could happen in March, it could happen in April, it could happen in May. But literally, we'll have to wait and then once we get that information and we've already been going through the process of trying to estimate it, then we'll update our GRC filing. And I think the core of your question, Dan, is, could it delay the GRC? And we're not expecting that to be the case. And the bulk of the adjustment is going to be for 2013 and 2014 as the amount of bonus depreciation catches up and flows into our rate base. So bottom line, I don't think there's going to be a delay and if the improvement or the reduction to run the requirement will build over the three-year period.

[Dan Eggers:]

And I guess just on kind of the Generation business. For the piece of your generation that is not hedged at this point in time, in the current forward environment, are the plants particularly economic to run, given where you're buying coal relative to where you're selling power? And how are you guys thinking about 2012 hedging given pretty depressed commodity prices?

[W. Scilacci:]

I think because you can see, we talked last quarter, how we opened up our hedge position to take advantage of any improvement there that might be in power markets. And I think we haven't come off that position. And the way we operate the plants is such that we'll look at adjusting things. There are certain things you can do in terms of minimum load levels and how you ramp the plants to take advantage of both price environments. And we have, if you recall, at Midwest Gen, put some up off-peak hedges on in order to guard against low prices especially in those shoulder months where prices can become fairly low. So it's a number of things we've done and we'll adjust our hedge position once we see some improvement in the market position.

[Dan Eggers:]

Without the ability to do the tax sharing back to EMG, how much cash reduction are you going to see the next couple of years relative what would have had in '09 and '10?

[W. Scilacci:]

We haven't put out a number in that. And you can see what the numbers have been historically. And it all goes back to what's happening overall. And I think we'll just have to track that on an ongoing basis until -- and I'm struggling here because we haven't put out a number in the public domain so I really can't give you a firm set. But it will be meaningful for EMG over this period because we are doing NOL position for the next couple of years. But again, as that NOL clears through, then the tax benefits will pull back into EMG.

[Operator:]

Michael Lapides with Goldman Sachs, your line is open.

[Kit Konolige:]

Hey Jim, if I look at Slide 14 on the capital spending, can you just talk about what specific projects are embedded in the environmental expenditures for '11 to '13 at EMG? I’ve read the footnote but if there's a way to discuss it at the plant level, just trying to understand what [ph] here. And also, when I read the footnote, it almost seems like this is still very much a tentative CapEx guidance on the environmental side because you could always make the decision to pull back and just not do the work.

[W. Scilacci:]

Exactly, you've got it on the nose. We put in all unit compliance assumption in here. And the basic breakdown is you've got NOx controls, the SNCR that Ted referred to, there's $109 million and that's going on at virtually all the units. And then you have the SO2 controls. For 2011, we've got $42 million that are planned and that would be in Waukegan 7 and potentially Powerton 5 and 6. Again, I just want to stress, we haven't made those decisions yet about making the SO2 controls. There's some different things you can do that we're looking at potentially, the way you burn, what coal you burn in the boiler and the timing of these capital expenditures. So we will make those decisions at the last possible time frame that we can do it.

[Michael Lapides:]

So I want to make sure I'm following. The SNCR is $109 million that's '11 only or spread out over the three years?

[W. Scilacci:]

No, '11 only. So that's the last of the SNCR expenditures. And so these plans will allow us to fully comply with the rates that are established in our requirement with Illinois EPA.

[Michael Lapides:]

So then the CapEx lines for '12 and '13, the $132 million and the $198 million, that's the Waukegan 7 and Powerton 5 and 6 only, assuming you do the work.

[W. Scilacci:]

Yes, that's correct.

[Kit Konolige:]

Does that complete the work on both of those plants required by the Illinois consent decree? Or would there be further spending on those into '14?

[W. Scilacci:]

I think that it will cover the initial costs for Powerton. There are more things that will go on there. What this is going to do, the amount of controls you put on that will ramp up over time. But the initial capital costs are pretty much set. So I'm going to stop there and say that's something will provide additional information on and let me look at Pedro Pizarro here, if there's anything further that we can add.

[Pedro Pizarro:]

Jim, I think you hit it right on the nose and probably leave it at that in terms of the expenditures that I talked about there for Powerton and Waukegan as part of all unit compliance, if you tie back to the CPS Illinois compact time lines.

[Michael Lapides:]

I'm just trying to make sure whether this gets you into compliance for kind of thinking about 2014 and beyond. Obviously, it steps down every year, compliance.

[W. Scilacci:]

Yes, I just want to re-emphasize, too, that those expenditures will allow us to comply with the SO2 rate as it steps down in each of those years.

[Operator:]

The next question comes from Ali Agha with SunTrust.

[Ali Agha:]

Wondering if I could get a read from you folks post elections in California, a couple of changes on the regulatory commission, I guess, one seat tends to be filled, new legislature, et cetera. Are you looking at the overall regulatory environment any different in California than you were pre-elections? Anything that has surprised you so far?

[Scott Cunningham:]

Yes, we're looking forward to working with the two new commissioners, Sandoval and Florio. Commissioner Florio has participated in our procurement review in the past. And so we have a previous working relationship with him, and we'll work to establish that with Commissioner Sandoval as well. We really don't speculate on any major policy or political changes. But I recognize a change in commission may or may not lead to changes in the environment.

[Ali Agha:]

And a tougher question, Jim, as you look at your capital needs across the company, particularly at the parent level going forward, given the impact of bonus depreciation and annualized, et cetera, that you were laying out, as far as meeting the parent company obligations are concerned and perhaps, the need for new equity, has anything changed on your front -- your thinking on that front? And when do you think at the earliest you reach a decision point on whether to raise equity at the EIX level?

[W. Scilacci:]

I think bonus depreciation, that's a good question, provides additional liquidity. And we're not anticipating additional borrowings at the Holding Company to meet the dividend requirements for the company. And we again, just to get to the core of the point here, we don't expect or have any –- plan any needs for equity for the business.

[Ali Agha:]

For the foreseeable future?

[W. Scilacci:]

Yes, for the foreseeable future. Clearly, we wouldn't tell you if we thought. But we don't foresee anything at this time.

[Operator:]

Jay Dobson with Wunderlich Securities.

[James Dobson:]

A question for you on the rail contracts. You've mentioned that EPA was obviously going to be a decision point around what to do from a compliance perspective with EMG. But I'm just wondering how the rail contracts and the expiration of the same will play into that decision since they are a little later in '11?

[W. Scilacci:]

What I'll do, Jay, is start there and I'll take it over to Pedro if I missed something there. And clearly, we're taking into consideration in our rail contract negotiations, whatever we believe is going to happen with the units. And we'll adjust the tonnage accordingly. Since we won't -- historically, we have said that we won't talk about if we're in negotiations or not, I mean, just going to leave it at that. But we recognize that, that's a sensitivity in terms of how much we ultimately secure.

[James Dobson:]

And then separately on 2011 and 2012 hedging, Jim, I noticed that you brought it down as you've mentioned in your prepared comments for '11, up in '12. And I think you were trying to get at this but at least I didn't find it very clear. How should we think about your desire to roll through '11? Is it about in the hedged position as current unless power prices improve? And then same question for '12, how should we be thinking about this if we roll through '11 and don't see material improvements in the forward curve, should we anticipate this is about the hedging sort of amount you'd like to have in place?

[W. Scilacci:]

Well, let me go back and sometimes we're clear but vague on these issues. We opened up our position thinking that the risk was greater, that there was little risk at the downside, the opportunity was greater to the upside. And our view was, we'll wait and see and we'll actually put some hedges on if we're able to capture some opportunities that we think are attractive. And we'll continue to do that. We typically like to be in a hedged position going into a year, but you're 50% hedged on your gross margin at risk. And we lock down the gross margin at risk more on your on-peak hours than your off-peak hours. So expect us, if we see an improvement in prices, we will probably drop some additional hedges in to take some of the risk off the table. But if prices don't change appreciably, we probably won't change our position all that much.

[James Dobson:]

And just for clarity, the quarter didn't include any substantive benefit from taking off those hedges, the average price didn't appear to change very much, in fact, dropped. So I will assume...

[W. Scilacci:]

No, there wasn't any.

[Operator:]

John Collins with Morgan Stanley, your line is open.

[John Collins:]

I just had a question about the rate base forecast. And maybe I missed something earlier, but explain how the rate base for 2012 looks to have at least a midpoint looks to have gone up, given that CapEx for '10 and '11 and '12 is pretty much unchanged. And there's also, if I'm reading one of these slides correctly, $550 million of decrease from bonus depreciation?

[W. Scilacci:]

Yes, there's a number of things that are going on there. The bonus depreciation of solar rooftop programs are two things we've talked about, but that's more in '13 and '14. What I think is happening in '12, when I went back and looked at the numbers from last quarter, I think it's the change in the range had more to do with it than the other two items. And there are some other minor changes that occurred when we update for the GRC filing. But the bigger change and the most significant one was the change in the range. Last quarter, we were carrying I think was a 16% range and now we're at 10.5%. So that was the most significant change that occurred for '12.

[John Collins:]

So you're using a higher point within the range? Or is it just the -- you're still using the midpoint of the range?

[W. Scilacci:]

So, well, the numbers you see on the page there, it tries to give -- the top number of the forecast range is what we filed for. And the bottom end of the range is just the mathematical derivation of taking 10.5% off that number or if you went to last quarter, 16.5% off the forecast range. So what we've done now is narrow that range a little bit so mathematically, that's all that's changed.

[John Collins:]

I just have a separate question on Midwest Gen. What is the practical sort of drop dead date for making some of these decisions, given the tensions between your obligations under the state CPS and also the potential federal regulations?

[W. Scilacci:]

We are getting closer to that timeframe. And as you are aware, we received some construction permits for Waukegan and Powerton and those permits have one-year timeframes. And then here, you could go in and ask for an extension if you had a good reason. So I can't give you a specific answer because we haven't identified one yet but it's getting closer and probably in 2012, we'll probably be getting right there.

[Operator:]

Michael Goldenberg with Luminus Management, your line is open.

[Michael Goldenberg:]

One is, what is your EMG guidance assumed for equity in earnings line?

[W. Scilacci:]

I don't think we specifically spelled that out, Michael. Well, you can see in the appendix, there'll be some additional information that starts at earnings and drops down to adjusted EBITDA. So that goes, ties back to the negative $0.19.

[Michael Goldenberg:]

I understand, but there is no mention of equity in earnings. I was wondering if you could provide some color? I think you made $100 million last year or $106 million even?

[W. Scilacci:]

We haven't provided that for 2011. Sorry, I just can't help you there.

[Michael Goldenberg:]

Maybe, you could just explain if there was -- are there any expected change for your plans there? If there's any contracts that are beneficial, contracts rolling off anything along those lines?

[W. Scilacci:]

No, we've provided -- I'm sorry, I'm struggling here because we're kind of limited to what we can tell you. We gave you the range within the changes that we're expecting from the Generation portfolio and there are a number of puts and takes. Ted mentioned, the roll-off of the hedged contracts that are affecting the Oakland positions so the gross margin is going to go down. Capacity values will decline in 2011, just like what happened with the RPM auction. And those are the principal drivers, really, that are affecting the merchant coal margins.

[Michael Goldenberg:]

And my other question is on bonus depreciation and overall taxable position. SCE makes so much in taxable income that you would still be able to utilize those tax credit. Could you just maybe help us explain why you won't be using tax at EME in 2011?

[W. Scilacci:]

Well, it really has to do with utility, given the large capital expenditure program at SCE and the sheer amount of things that can qualify for 100% depreciation. So when you think about the utility, there's not a lot of large projects that are going on there. There's many, many, many small projects that go on the distribution side that qualify for 100% depreciation. So that affects EIX on a consolidated basis because it's going to put us into an overall NOL position. And the way it works, too, as you know, that we do taxes on a stand-alone basis, really, SCE comes first and then you consolidate everything and given just the sheer size of the capital program, it throws us into a net operating loss position for the corporation.

[Michael Goldenberg:]

So you'd be able to utilize that probably in 2012?

[W. Scilacci:]

It's hard to say. We expect it will be there for '10 and '11. '12 is a little harder to say. Depends on how ultimately they put out the regulations on bonus depreciation. And also, it will be dependent upon what the capital levels will be, the capital expenditure levels that are set in the GRC. So I think it's too early to call 2012 yet, but it could be.

[Operator:]

Ashar Khan with Visium, your line is open.

[Ashar Khan:]

Jim, can I just understand this, on slide, SCE rate base forecast on Slide 10. So this has been adjusted, just want to check again for bonus depreciation in '13 and '14. Is that correct?

[W. Scilacci:]

Yes.

[Ashar Khan:]

And so now, if I'm right, you have this benefit, SCE has this benefit of like $500 million. If I'm right, it might go through a procedure and set up a contract out. Does this, in your view, allow you to get to, as you go to the rate case process because this will give some benefit to the rate payers over this time period, that it gives the commission the leeway to go towards the higher end in terms of your rate base numbers? Because the consumers will have this benefit of $500 million, am I thinking through this correctly or no?

[W. Scilacci:]

Yes, I don't know if I could draw the same linkage as you are there. What I think what you need to understand that we've incorporated bonus depreciation based on our interpretation, which still hasn't been finalized. And the commission will go through the process and later on, we'll be updating our rate case filings based on the reduction and revenue requirement that flows from bonus depreciation. So that will happen later and then the commission separately when they have all that information, will make their determination to decide what's appropriate for you, for the enterprise. So it's really hard to put all those pieces together and say that they'll feel better about our rate case forecasts based on bonus depreciation.

[Ashar Khan:]

But am I correct, this is about $500 million of customer refunds, which are benefits, which would flow into the customers from bonus depreciation? Is that the correct way to look at it or no?

[W. Scilacci:]

Yes, so what we said in the script was there's cash flow benefit in 2011 of $550 million. That's not the rate base adjustment. What's going to happen here is that we file with the commission later this year, we will update for our rate base forecast, incorporating the normalization of these tax benefits. That's what's required under law and that's what we typically do. And all the other utilities will be doing the same thing. And so they'll incorporate that and look at the numbers and come up with an appropriate decision. So the $550 million is a different number than what's going to happen with the rate base.

[Ashar Khan:]

So is it close to what the customers get or no, or it's not?

[W. Scilacci:]

We haven't put that in the public domain in terms of -- you're trying to link back to what’s the reduction in the revenue requirement associated with bonus depreciation?

[Ashar Khan:]

That's correct. Is it close to that number overall?

[W. Scilacci:]

Well, under the rules, this is normalized, not flow-through. Flow-through, you give it all to them immediately. Normalization, you pass it back over time.

[Ashar Khan:]

But I see your rates here are great.

[W. Scilacci:]

No, we don't get that over a longer period of time. But the way the rules work is that we'll update it and you'll see a reduction in the revenue requirement and the benefit will flow to the rate payer over the remaining life of our assets. So it's just more like 20 years, they’ll see that benefit.

[Ashar Khan:]

And so how are you using that cash in your projections right now? Can I ask you?

[W. Scilacci:]

It's fungible here. It's going to help fund construction expenditures for SCE. So it may result in lower short-term debt balances at SCE. And then we anticipate that the holding company, as a result of bonus, won't either tap into the marketplace to fund potential dividends.

[Ashar Khan:]

And if I could just end up, why are you so uncertain about the energy efficiency program? What are you thinking, is what, it's going to just finish? And the next three years are not going to go through. I just want to get some thoughts on that.

[W. Scilacci:]

Well, I'll start off and I'll hand it off to Linda Sullivan to supplement the answer. We've been going through, it seems like years of proceedings to come up with the incentive mechanism that's going to be used for the energy efficiency program. And I think we finally got it nailed down for the 2006 to 2008 period. And they're going to adopt that for 2009 as an interim position and further study it going forward for '10 and beyond. And so we just wanted to allow the situation with the commission and the energy efficiency proceeding to get more certain before we include something there. Right now, we put in the disclosure so it's $27 million pretax, of potential earnings for 2011 dating back to the 2009 program. It's there, it's in our disclosures. We haven't included in guidance because it's still working its way through the rate making process. Do you want anything else to add?

[Linda Sullivan:]

With regard to the 2009 program, we currently do not have a schedule. We expect to file for those benefits but it’s uncertain whether we would get a final decision by the end of the year. And then we are also on the '10 through '12 program, we are waiting for commission action on that particular program.

[Operator:]

There are no further questions at this time. I'd now like to turn the call back over to Mr. Cunningham.

[Scott Cunningham:]

Thanks, everyone, for participating on the call. And please don't hesitate to follow up with any questions. Thank you. Bye-bye.

[Operator:]

Thank you. This does conclude today's conference. You may disconnect at this time. Have a great day.