Good afternoon, and welcome to the Edison International Q1 2022 Financial Teleconference. My name is Dexter and I will be your operator today. When we get to the question and answer session, if you have a question, please press star one on your phone. Today's call is being recorded. I would like to now turn the call over to Mr. Sam Ramraj, Vice President of Investor Relations. Mr. Ramraj, you may begin your conference.
Thank you, Dexter, 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 on the call are other members of the management team. Materials supporting today's call are available at www.edisoninvestor.com. These include a 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'll 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. Edison International reported core earnings per share of $1.07 compared to $0.79 a year ago. We are reiterating our 2022 core EPS guidance range of $4.40 to $4.70, and our longer-term EPS growth rate of 5% to 7% through 2025, resulting in core EPS of $5.50 to $5.90. Maria will discuss our financial performance in her remarks. Over the last year, I've been updating you on SCE's substantial reduction of wildfire risk. Relative to pre-2018 levels, SCE estimates it has reduced the probability of losses from catastrophic wildfire by 65% to 70%, and continued investments will further reduce this risk.
When we look across all 17,000 circuit miles of distribution lines in SCE's high fire risk area, the utility's grid hardening measures are focused on the roughly 10,000 miles that are above ground, with the other 7,000 already being underground. The cornerstone of SCE's grid hardening measures is the wildfire covered conductor program. A key benefit is how quickly it reduces wildfire risk. Through the end of the Q1 , SCE has over 3,200 miles of covered conductor. This is nearly double what was covered at the same time last year. SCE continues to drive this program forward and expects to have covered 40% of its overhead distribution lines, or 4,000 of its 10,000 miles, in its high fire risk areas by year-end.
The utility continues to adapt and update its wildfire mitigation plan to build on successes and learnings from the field. Most importantly, SCE's WMP is immediately actionable, and the execution results in real risk reduction today and each day that SCE hardens its grid. In addition, SCE is preparing for this wildfire season by prioritizing its inspections and vegetation management programs. SCE focuses its annual inspections on equipment that makes up 97% of total wildfire risk in 2022 and plans to accelerate completion of the vast majority of these inspections before September 1st. Today, 166 cameras provide visibility to about 90% of high fire risk areas. Planned installations in 2022 and beyond will increase coverage to nearly all of the utility's HFRA to enhance early fire detection.
SCE is increasing installed weather stations by over 10% and using machine learning to further advance forecasting and target PSPS events more precisely. Taken together, all of these efforts give SCE confidence in its ability to mitigate wildfires associated with its equipment. Turning to wildfire-related settlements. SCE made substantial progress resolving 2017 and 2018 wildfire and mudslide events claims. In the Q1 , SCE resolved over $700 million of claims. Driven by this progress, and given SCE's current assessment of claims, the utility revised the best estimate of total losses higher by $460 million to a total of $7.9 billion. I would like to share the two factors that contributed to this revision.
First, during the quarter, there were a handful of exceptionally large claims that were settled based on new information that became available during settlement negotiations. Second, as the statute of limitations for the Woolsey fire approaches, SCE saw a higher-than-expected increase in the number of plaintiffs making claims. SCE reviewed its estimate and determined it was appropriate to revise the best estimate, which includes new provisions for future potential exceptionally large claims. In total, the utility has resolved over 80% of its best estimate of expected losses and continues to make steady progress in resolving claims. I would like to be clear that SCE currently expects to seek full CPUC cost recovery of claims payments, excluding amounts recoverable from insurance or FERC or foregone under the agreements with the Safety and Enforcement Division.
A related question we've heard from the investment community is when does SCE expect to make that filing? Well, based on the current pace of settlements, SCE anticipates filing its first application for cost recovery by late 2023. I strongly believe that SCE operated its system prudently and will make a solid case in its filing. The considerations SCE will take into account in deciding the timing of its filings are described on page four. Another action I want to highlight is SCE's recent legal challenge to inverse condemnation in the Thomas and Koenigstein fire litigation. We have mentioned in past discussions that SCE will always seek opportunities to challenge the doctrine of inverse condemnation. To that end, in April, the utility filed a notice of appeal with the California Courts of Appeal challenging inverse condemnation.
Cases like this generally take one to two years to reach a conclusion, and we will keep you apprised of any meaningful developments. On the regulatory front, SCE recently filed its application for the 2023 CPUC cost of capital, requesting a return on equity of 10.53% while maintaining its authorized equity layer at 52%. As we have outlined since publishing the Pathway 2045 vision, economy-wide electrification is necessary to meet California's policy goals. SCE will be a key enabler of the clean energy transition and will invest significant amounts of capital in its infrastructure. We believe that SCE's requested ROE will support attracting this capital necessary to meet its obligations to provide safe, reliable, and resilient service and enable the state's climate change adaptation and decarbonization goals.
Separately, SCE is awaiting resolution of whether the cost of capital mechanism will operate for 2022. We have summarized SCE's outstanding cost of capital applications on page five. Let me conclude by saying that we strongly believe Edison International is the best investment vehicle to participate in California's clean energy transition. SCE's approach to wildfire mitigation has shown positive results over the last three wildfire seasons, and the utility is expeditiously hardening the grid every day to the benefit of both our customers and our investors. As an electric-only wires-focused utility, SCE's ongoing investment in the grid will enable an electric grid future by integrating clean resources while enhancing resilience and broader climate adaptation. Economy-wide electrification is the most affordable path to achieving California's climate goals. With that, Maria will provide her financial report.
Thank you, Pedro, and good afternoon. My comments today will cover Q1 2022 results, our capital, expenditure and rate base forecast, SCE's cost of capital application, and 2022 EPS guidance. Edison International reported core earnings of $1.07 per share for the Q1 , an increase of $0.28 per share from the same period last year. Core EPS increased year-over-year, primarily due to the adoption of the 2021 GRC final decision in the Q3 of 2021, partially offset by interest expense from increased borrowing. On page six, you can see SCE's key Q1 EPS drivers on the right-hand side. I'll highlight a few. Authorized revenue from the 2021 GRC was higher by $0.35 for two reasons. First, the escalation mechanism for 2022 contributed $0.18 to the variance.
Second, because SCE did not have a GRC final decision in the Q1 of last year, it was recording revenue at 2020 levels. This timing difference contributed $0.17 to year-over-year Q1 revenue growth. Other CPUC revenue was $0.51 higher, primarily related to the approval of GRC Track Two. With this approval, SCE recognized revenue for costs previously deferred to memo accounts. Note that this revenue increase was fully offset primarily by the recognition of $0.46 of O&M resulting from the Track Two decision. At EIX Parent and Other, the core loss was $0.06 higher in the Q1 . This was primarily due to dividends on the preferred equity issued last year. Now let's move to SCE's capital expenditure and rate base forecast.
Page seven shows SCE's updated capital forecast to reflect its upcoming GRC Track Four application, which will be filed on May 13th. Track Four covers funding for 2024, which is the third attrition year of SCE's 2021 GRC. In addition to requesting a revenue increase driven by the GRC attrition mechanism and inflation, SCE will propose continued deployment of covered conductor beyond the over 5,000 miles expected to be installed by the end of 2023. I would like to reiterate Pedro's earlier comment on SCE's wildfire mitigation plan. It is immediately actionable and the execution of the work results in real risk reduction today and each day that SCE hardens its grid. As shown on page eight, our capital forecast continues to result in projected rate base growth of 7% to 9% from 2021 to 2025.
The forecast reflects SCE's current view of the request to be made in GRC Track Four, the 2025 GRC, and other applications. We continue to see strong potential for SCE to continue deploying capital and achieving 7% to 9% rate base growth through 2025. Turning to guidance, pages nine and 10 show our 2022 guidance and the key assumptions for modeling purposes. We are affirming our 2022 core EPS guidance range of $4.40 to $4.70. SCE is recording revenue based on its currently authorized cost of capital and will reflect the final decision in the 2022 cost of capital proceeding in the quarter in which it is received. As Pedro mentioned, we are awaiting resolution of whether the cost of capital mechanism will operate for 2022.
After receiving a final decision from the CPUC, we will provide an update on guidance to incorporate any changes in the ROE and our outlook for the rest of the year. Also embedded in our guidance is EIX's 2022 financing plan, which we disclosed last quarter and remains unchanged. The revision to the best estimate of total expected losses does not change our plan. Also, I'll remind you that the claims payments themselves are funded with debt issued by SCE. I'd like to provide some additional insight into two of SCE's recent applications to the CPUC. First, SCE filed a request to extend its CPUC capital structure waiver with respect to the 2017 and 2018 wildfire and mudslide events. You may recall that the CPUC previously approved a waiver through the earlier of May 2022 or resolution of the 2017 and 2018 events.
The waiver allows SCE to exclude certain charges and debt when calculating compliance with its 52% authorized CPUC equity ratio. SCE has requested an extension of the waiver period until the CPUC resolves the last of SCE's cost recovery applications for the 2017 and 2018 events. The current waiver remains in place until the CPUC rules on the recently filed application. This provides SCE with the flexibility to finance itself in a way that is efficient for customers and shareholders. Second, in SCE's 2023 cost of capital application, it requested an ROE of 10.53%, consistent with its recently filed off-cycle application. This ROE is at the upper end of the reasonable range estimated by SCE's expert witness.
We believe SCE makes strong arguments justifying its request and remind you that in SCE's last cost of capital decision, the CPUC concluded SCE's ROE should be at the upper end of the range. Under SCE's proposed schedule, the proceeding would conclude with a final decision by the end of the year. Turning to page 11, I want to reiterate our growth opportunities that drive strong core earnings growth from 2021 through 2025 and highlight EIX's potential to achieve double-digit total shareholder return during that period. A key component of our total return proposition is our common dividend, which currently yields approximately 4%. I'm proud of our track record of 18 consecutive years of dividend growth and look forward to building on that history.
Our EPS growth of 5% to 7% is driven by SCE's significant capital expenditure opportunities, including investments in the safety and reliability of the grid. Sustainable rate-based growth results from the investments necessary to reduce wildfire risk and investments to support infrastructure replacement and load growth. Affordability is also a key consideration, and I would like to emphasize that SCE has the lowest system average rate among California's large IOU. This is in large part driven by our strong culture of excellent cost management that has been a cornerstone of the utility for more than a decade. That concludes my remarks. Thank you.
Dexter, please open the call for questions. As a reminder, we request you to limit yourself to one question and one follow-up so everyone in line has the opportunity to ask questions.
If you'd like to ask a question, please press star one on your phone. One moment for the first question. Our first question comes from Shar Pourreza, Guggenheim Partners. Shar, your line is open.
Hey, guys.
Hey, Shar.
Hey, Shar.
Pedro, first, sort of in terms of the initial filings coming in 2023, it's obviously a great start to a resolution, and it obviously implies that you'd be filing multiple times for recovery. How do we plan to separate the tranches? Is it kind of based on a percentage of value settled? Just want to get some clarity on the process from your standpoint, you know, how long the recovery, regulatory recovery could take, and if you don't have 90% of the claim settled, are you still going to file in late 2023? Even why not file even sooner in 2022 if these are going to be in step functions?
Shar, all you know, good parts of the question. We've shared before that we expected the CPUC in turn expects to have us be substantially complete on any given case before we go file for cost recovery. We've also said in the past that we see the 2017 Thomas, Koenigstein mudslide cases as one bundle and the Woolsey case from 2018 as a separate bundle. I think it'd be natural to expect this to see those as you know, individual cost recovery packages. When we talked about being what we think will need to be at least 90% complete, it's for you know, any one of those packages before we then go file the application.
Just to make sure our intent came across clearly, based on the current track and pace with the litigation and settlements, we'd expect that, you know, the earliest bundle to be at that 90% plus level by the end of 2023. So that hence our expectation, we'll be making a filing in late 2023. But again, that is, you know, premised on continuing on the track that we've been on. If we don't expect this to be the case, we currently expect to be there, you know, by late 2023. But if something happened that significantly delayed us from being off of that track, I don't know what that would be. Another round of COVID that really led to shutdowns or something like that.
As you might recall that the early period of COVID really put a halt on the pace of discussions.
Don't expect it to happen, but it's that kind of thing that could then throw the timing off beyond late 2023. Don't currently expect that to be the case.
Got it. It's just, I guess, the impetus was we're getting questions on because you have 80% already almost resolved, it seems like it's quote-unquote substantial, so why not file sooner? I get. That makes sense, Pedro. Just maybe a question from Maria is, you know, as we're sort of thinking about potentially more cost increases as sort of the incremental 20% gets resolved, what's the trigger for more equity backing as we think about the balance sheet capacity? Sort of are the rating agencies comfortable with the current metrics and the approach you guys are taking? How's the dialogue going? I guess, what's their sense of patience in anticipation of multiple filings for recovery? Thanks.
Sure. Thanks, Shar. I think, you know, generally, you know, our financing framework is 15% to 17% FFO to debt. I think we're, you know, approximately at those levels right now. I think as we go into next year, I would say we're generally gonna be sort of, you know, around the middle of that range. I think the rating agencies, first and foremost, are interested in our risk reduction, and that's the first order of any conversation we have with them. We've been able to emphasize with the rating agencies that 65% to 70% risk reduction because of the hardening of the grid. We continue to talk to them about the strong support we get from AB 1054. Those are all the things that really are part and parcel of our rating agency discussions.
You know from the comments we've already made today that the change in the best estimate, currently is not causing us to change our financing plan. We're still on track, with the financing plan we announced in Q4 for 2022. If we move forward, you know, subject to any further changes in the estimate, really it's gonna depend on sort of the timing, where we are, et cetera. Since we are in a good spot in our metrics, you know, I think that, you know, we'll continue to have constructive conversations with the rating agencies.
Got it. That's what I wanted to sort of get on, Maria. If there's incremental cost increases, you think you have enough cushion in your balance sheet or thresholds to not have to hit the equity markets. That's the impetus.
Yep. We've laid out our longer term equity plan as well, you know, that follows our growth in the company. As we move through and into that 15% to 17% range, that'll just give us more support from the balance sheet.
Okay, terrific. Thank you guys so much.
Okay. Thank you, Shar.
Our next question comes from Steve Fleishman, Wolfe Research. Steve, your line is open.
Yeah. Hi, good afternoon. Thank you.
Hi, Steve.
Just on the prudency cases, any sense, Pedro, Maria, how long those cases might take to adjudicate?
Yeah, you know, hard to predict in advance. I would say, first of all, it starts with having a strong showing. We expect that our team will have, you know, a very strong showing put together when we file. As you can imagine, the team's been working on that all along. Once you go into a CPUC proceeding, you know, hard to estimate what that would be. I would say, you know, typical time frames for CPUC proceedings can be on the short end, something very fast, might be 12 months, 18 months. Sometimes it can take a little longer. We'll just have to see, you know, we'll have a better gauge for how long it might take once we file and once we see what kind of initial set of intervener reactions are filed.
Okay.
Does that make sense, Steve?
That's helpful. Then just related, the estimate change this quarter, you mentioned the exceptionally large claims and also the statute of limitations hitting for Woolsey. Like, any reason why those things can't happen again, I guess? Is there another statute of limitations on any of the fires still to come?
For the 2017 and 2018 cases, the remaining statute of limitations status is just only that I pointed to. To your broader question, as we go along, that uncertainty cone continues to narrow, right? Because we have more settlements under our belt, and you heard the 80% number. As you'll see in our disclosures, you know, we acknowledge it is possible we may see further changes because the reality is every individual case is different. You know, frankly, there can be new insights and new kinds of cases, et cetera, that show up. You know, in this particular quarter, as we mentioned, we made great progress, Steve.
Frankly, there was a small number of outlier cases where the ultimate claims were significantly larger than what we had expected based on the neighborhoods these were in, what you would expect for, you know, an average case in those. One thing that you heard me say is that we have now made provisions not only, you know, increasing the reserve for what we have seen, but we also added a provision in the reserve now expecting some of that previously unexpected, right? Based on the experience we had, we've added provision for potential other exceedingly large individual claims exceeding what we had initially thought might be an average claim size. We tried to learn from, you know, the continuous information we've gotten, make a provision for that.
At the end of the day, under GAAP, we're providing you what we believe is our best estimate, you know, at this point in time.
Maybe I'll just add one other thing, Steve, because I think as we go through our best estimate exercise, it is important. We are looking at it every quarter, and it's gonna continue to be one of the big areas of management judgment. As I think about it, I also think about all the things we've accomplished that have brought us to this point. We started with the public entity settlements. We went to the TKM subrogation settlements. We went then to the Woolsey subrogation claim settlements. Over the course of that time, the attorney general has closed both of the inquiries into both Woolsey and into TKM. In just the last quarter, Q1 2022, we did $700 million in settlements.
That's what all brought us to this point where we made the revision, but it's also what brought us to this point in terms of being able to highlight, you know, by late 2023 going in for a prudency review and filing an application. I think all of that also factors into sort of how we thought about the quarter and how we're thinking about going forward.
No, I think well said, Maria. Basically we keep taking uncertainty off the table.
Thank you for all that added color. Thank you.
Yeah, thanks, Steve.
Our next question comes from Ryan Levine, Citi. Ryan, your line is open.
Hello, Ryan.
Good afternoon. Hi, everybody. Two questions. What's the status of the battery supply chain and execution, and do you still see the August first date as realistic? I guess more broadly, how do you view resource adequacy going into the remaining portion of the year?
Yeah, I mean, I'll kick off on that. Actually, I can also turn it over to Steven Powell in a minute here, so CEO of the utility. I think the headline on this is that, as you know, Ameresco is our contractor for the SCE 535 MW utility-scale storage project. You know, we are working with them under the contract. There have been constraints in terms of the development of the whole supply chain, as you can imagine, with conditions in, particularly in China. We do see the potential for a portion of the project being online by August first. Steve, let me turn it over to you to provide some more commentary on this.
Sure. Hey, Ryan, you know, like we talked about before, the increased risk of delivery, some of that's come through. At this point, based on the project delays, you know, we're trying to work with Ameresco to ensure we get as many megawatts online as possible. At this point, we expect that there could be up to 300 MW online in August, still subject to continued, you know, both COVID and shipping restrictions out of China. On the ground here, work is progressing.
With respect to the, you know, broader battery supply chain and really now to your other question around resource adequacy, you know, as we look at this summer, we feel that the state is in a slightly better position than it's been the last couple of summers with respect to capacity. We're definitely focused on bringing our batteries online and ensuring the other projects are getting online for the summer. Still, you know, there'll be a lot of caution going into the summer, and there's a lot of effort going into ensuring we get more resources available. As you project beyond this year, as we know, the state's focused on bringing, you know, more than 11,000 megawatts of resources online by 2026.
SCE's portion of that is about 4,000 MW, and so we continue to procure resources for 2023, 2024, and then we'll be focused on 2025 and 2026 next. We, you know, we're working on everything from interconnection to securing supplies and with all of our third parties to ensure that we can get enough resources in the state to ensure reliability. That's, you know, SCE's job as well as the other load serving entities within the state. This summer we, you know, we'll be in a better position than the last few summers.
Yeah. Steve, I'll give a lot of credit, you know, not only to other load serving entities like SCE, but the CPUC, the governor's office. I think everybody's very focused on continuing to reduce the risk in California.
Thanks. In fact, I guess one follow-up. In terms of the cost recovery, if you're gonna file that in late 2023, how are you currently looking at use of proceeds?
Hey, Ryan, it's Maria. I mean, obviously, you know, upon recovery, we have some de-levering to do. SCE has issued a bunch of debt to support the claim payments and EIX has as well issued, perhaps, to support the balance sheet. When we get through that, then we'll figure out what the next steps are with use of proceeds.
Appreciate the color. Thank you.
Thanks much, Ryan.
Our next question comes from Sophie Karp, KeyBanc. Sophie, your line is open.
Welcome, Sophie.
Hi, good afternoon. Thank you for taking my question. To follow up on this battery project, right? I think your equity needs for this year were a little higher to accommodate the cost of this project versus kind of like $250 run rate that you communicated for other periods. Should we expect that to sort of come down because of the potential delays with this project, or should we not expect that?
Sophie, we still plan to deploy the full capital plan this year, so it would have no impact on our financing plan.
Got it. Thank you. Could you talk a little bit more about the recent legal challenge to inverse condemnation that you discussed in your prepared remarks? I guess a question is, where could this go and, given the potential outcomes, what could be the implications for current legal proceedings or the framework in the state? Kind of how should we view this? Help us frame it.
Let me turn this over to Adam Umanoff, who's our general counsel, Sophie.
Hey, Sophie. Good afternoon. The utility had the opportunity to enter into a settlement with a particular plaintiff that we now are able to appeal to an appellate court here in California the issue of the application of inverse condemnation to investor-owned utilities. As we said before, we think that the existing law is misguided, that investor-owned utilities should not be strictly liable for damages arising from wildfires that are ignited by their equipment. There's an imbalance in the way the courts impose strict liability against investor-owned utilities versus the fact that we need to show prudence in cost recovery proceedings with our regulator. If we are successful in winning an appeal, we would no longer be subject to strict liability in a wildfire case.
Rather, plaintiffs would need to show that we were negligent in the construction and operation of our equipment, to pursue damages. That would be a significant improvement in the liability, exposure that investor-owned utilities have in California.
Would that apply to only like prior cases of wildfire damages or prospectively as well?
It would only apply prospectively. As a practical matter, we live with the current law that we have for cases that have been settled. Those would not be reopened. For even current cases that have not yet been resolved, if we were to win an appeal, that would be new law, and that law would apply to pending cases. The appeal process is likely to take some time, so I wouldn't expect an immediate answer from an appellate court.
Right. If you won, would that sort of greatly diminish the need for the current, I guess, wildfire framework in the state?
Well, there's a question of what the utility's liability is on the one hand. A separate issue is recovering costs in a wildfire case under a prudence review, which would still happen under AB 1054.
Yeah. I think.
I think.
Said another way, inverse condemnation really is about, this is, you know, the non-lawyer speaking here, but that's another avenue for plaintiffs to make cases and, you know, surcharges against the utility. AB 1054 is really about defining the most important part in our view is, you know, redefining the prudency framework under which utilities can seek cost recovery for fire damages that have accrued to the utility. Doing away with inverse condemnation may reduce, potentially, the exposure for utilities, but once there's exposure for utility, AB 1054 is all about how the utility first pays for those damages in the first instance, right? In terms of accessing the fund, and then more importantly over time, how the utility makes the case for cost recovery and demonstrating that it's been prudent.
That is important, I think, in any scenario, and we're glad to have that strong piece of legislation. Maria, is there?
All right. Thank you for the color.
Yeah. Thanks very much, Sophie.
Thank you.
Our next question comes from Jonathan Arnold, Vertical Research Partners. Jonathan, your line is open.
Hi, good afternoon, guys.
Hi there.
Just a quick one on these larger claims, Pedro, you're talking about, and, you know, if I understood you correctly, you had some that you've already seen that were much bigger than you thought they would be, and then you've also made a provision for potentially others that might come in larger. Can you give us any more kinda color? Are these sort of claims you kind of know are coming and that you have the claimants identified? It's just a question of how big is it gonna be? Or is it more a case of, you know, new claims are just popping up that, you know, you might not have, you know, had on your radar? I'm not sure if you can share anything there.
Yeah. No. As you might imagine, Jonathan, I can't share anything about stuff that might be on the radar because that would be, you know, active litigation or settlement discussions. Maybe I can give you an illustration of one case without getting into any sort of details. These are personal property cases, right? And that's by and large where we've seen some of these, you know, larger than expected cases. As I mentioned earlier, you know, the way we develop the best estimate in the first instance was, you know, we understand what the neighborhood is, we understand what the average value of homes is, we make provisions for the average value of contents in that average home. You know, not all homes are average, and we know that, right?
There's nothing the average takes that into account. Some will be a little higher, some will be a little bit lower. In the case of this last quarter, we saw a handful, you know, number of cases that were exceedingly large, and one of them to illustrate it, one example is, you know, make sure that Adam Umanoff is okay with my sharing this as I speak, but there was a case of an individual homeowner who happened to have a very expensive automobile collection in the garage well above and beyond what the kinds of cars that people keep in very affluent neighborhoods. This was an exceptional case where you basically had a museum-quality collection with lots and lots of cars.
Mm.
Very hard to predict that up front. We did not build and provision for that kind of, you know, amazing car collection in anybody's garage when we built the best estimate. The reserve now includes provisions for what we paid, and it also has included now provisions for, you know, based on statistical analysis, some number, and I'm not going to be very specific about this obviously, because, you know, we're on active litigation. We now have included in the provision for some number of additional exceptionally large cases in the remaining tail that we're working through. Does that help illustrate it, Jonathan?
I think so. Yeah, thank you for that, Pedro. If I may, just on that tail, my follow-up, the new best estimate is 7.9. You've got 1.3 sort of unresolved, which is actually sort of closer to 85% really in round numbers. If you continue to, you obviously resolved $700 million in this quarter. Given what you're saying about timing, the 90% target, it feels like you must be anticipating a real, quite a slowdown in pace of resolution here. Or is that-
Actually, Jonathan, this is Maria. I think, I mean, you could see some slowdown because obviously as cases progress, you know, these people may decide to come in more slowly. But I think you have to think about a couple of things. It's 90% plus. We'll see what's in that last 10% or so, the complexity of those cases that might inform timing regardless of quantum. There are a couple of other things related to the litigation that we are also tracking. One of them includes where the intervener case around the Safety and Enforcement Division settlement stands. We took a few things related to litigation. It's the individual plaintiff claim settlement process for sure, but a few other things that are going to inform our timing.
We think based on all of those different components that we will be filing for our first application by late 2023.
Great. Thank you for all that.
Yeah, thanks, Jonathan.
Our next question comes from Michael Lapides, Goldman Sachs. Michael, your line is open.
Hey, guys. Thank you for taking my question. Just curious, can you remind me, your EPS compound growth rate, that 5% to 7% annual growth rate, that doesn't incorporate any outcome as part of the $5.2 billion cost recovery. Is that right?
That's correct.
Okay.
It does, it assumes no recovery.
It assumes zero recovery. Your rate base growth is still faster than your EPS growth. This, I assume those proceeds, if there were any, regardless of how much, mostly would go to debt reduction and therefore would reduce interest expense.
Our rate-based growth exceeds our earnings growth, partly because of the investment to have that growth. The EIX financing plan, but also the debt associated with those wildfire claims payments is a drag on the growth rate. To the, you know, to the extent we get recovery and reduce those, and are able to reduce that, then we will certainly have lower interest expense.
Got it. Okay. That's super helpful. Just curious, when we think about if you were to get proceeds in, does it all go to kind of pay down debt that's at the utility? Or would you think about some being used to pay down, you know, any capitalization up top at the holding company level?
Sure. Well, I think, you know, we could do a mix of things, right? There's definitely the dollars of the utility. EIX elected to use PREF last year because it is more flexible. If you think about, you know, in five years, we'll have an opportunity to call it, reset it, what have you, so that we can do a mix of things to the extent we get the recovery.
Got it. Thanks, guys. Much appreciated, Maria.
Yeah, Michael.
Our next question comes from Gregg Orrill, UBS. Greg, your line is open.
Yeah, thank you. I'm sorry, you covered this. I was wondering if you could review the, you know, sort of recovery mechanism, how it gets into rate base, the incremental covered conductor miles above that 4,500 level.
Sure. In GRC Track One, we were authorized for covered conductor, including a balancing account that allows us to go up to the 4,500 mile level. For amounts up above that level, we would file an application, and the commission would review the reasonableness of that. We're already contemplating going beyond the 4,500. We have about 55,000+ by the end of 2023, so there will be an application associated with that. In Track Four, which is for 2024, we will be proposing additional covered conductor miles, and it would be approved as part of Track Four.
Okay, thank you.
Our next question comes from Richard Sunderland, JPMorgan Chase. Richard, your line is open.
Hi, good afternoon. Thank you for the time. Just wanted to circle back to the financing outlook now that there's the late 2023 target on the wildfire liability application, for cost recovery. You know, in that timeframe, meaning from now through late 2023, what is your capacity to carry incremental claims, without, you know, an associated incremental equity need?
I think I'll go back to sort of the perspective on our balance sheet. Right now, we're generally in that, you know, 15% to 17% FFO to debt range is our framework, generally around that 15% level. Going into next year, we would also generally see ourselves moving farther into that, you know, band or that range. You know that we've just announced that we had a revision to the estimate and have not had to change our financing plan. We're still committed to the financing plan we disclosed on the Q4 call. As we move into the next year and our balance sheet gets stronger, yet, you know, we'll have more room and more opportunity to absorb anything that might happen.
We absolutely, you know, are reiterating our financing plan for 2022, but given all of the fluctuations and volatility in the market, we actually took a term loan out at EIX to give ourselves more time and more flexibility to actually execute on that plan. We're really focused primarily, Richard, on flexibility and, you know, kind of executing in the best possible way.
Understood. Just mechanically, it's really that 13% to 17% range to keep in mind and I guess sort of movements within that range versus, say, the midpoint as an outlook for now?
That's right. I mean, that 15% to 17% range is the range, and we're gonna use the range.
Got it. Very clear. Simply just a cleanup question. Saw that 2024 rate base tick down a little bit, but 2025 is unchanged. Just any moving parts to call out behind that revision?
Yeah. Good question. It actually does not have to do with our capital execution. If you see our capital plan is very, very close to where it was when we did our Q4 call. The change in 2024 is related to, I'll say, two very broad buckets, mostly around timing, both timing of applications and timing of when we adjust or get authorization to adjust some working capital items that impact rate base. You'll see that there is a change in 2024, but 2025 hasn't changed.
Great. Thank you for the color.
Our next question comes from Julien Dumoulin-Smith from Bank of America. Julien, your line is open.
Thank you, operator. Good afternoon, everyone. Thanks for the time. Just coming back to where we started the Q&A here, can we talk a little bit more about the new information during settlement negotiations that led to your desire to settle? Just can you elaborate to the best extent possible on just what led to that twist here at this point?
Well, hey, Julien. I think I covered it pretty well with Jonathan's question, right? Because that question went a bit to what were some of the extraordinary cases, and I think that's related to your question, you know, what would have led us to settle cases that we thought were, you know, significantly larger than what we might have expected based on our prior analysis. I'm not sure I have a whole lot to add there, just maybe to reiterate the points. We said this in the past as well, Julien. We're nothing if not consistent on these calls. The reality is that each of these cases is an individual case, and it's, you know, case by case by case by case across thousands of cases. I give a lot of credit to our team.
They've done a good job, both the internal team and, you know, with outside support and trying to get our arms around this uncertainty count from the very beginning and, you know, do mappings of the areas that were impacted and have a sense of what kind of households are in each neighborhood that was impacted. You know, obviously, you know, thinking about the tragic toll on too many families. Developing a number of estimates that led to the best estimate. Initially, you might recall, we didn't provide you a best estimate. We were only able to provide you a low end of the estimate range because we were still at such a large part of the uncertainty count that we couldn't develop the best estimate.
As we got more experience under our belt, we progressed, and we were able to shift to the best estimate. You know, to be candid about it, there's been learnings and surprises along the way and, you know, well, not surprises. There are surprises, right? This kind of complex, very large case. You know, again, going back to what I shared with Jonathan or in response to Jonathan's question, we saw, and I think the biggest driver this quarter was seeing a small number of very large cases that were well beyond the scope of what we had, you know, anticipated. You know, taking a reserve for those cases that we've now settled, taking an additional reserve amount, anticipating that we might find more surprises in the rest of the tail that's remaining.
Of course, you know, the second big factor that I mentioned in my prepared remarks was also adjusting for the number of plaintiffs that we're seeing. That's about all the color we can give you at this point, Julien, but it's been a, I think, a very deliberate process on the part of our team around this, very methodical. It's just the reality of the statistics of and frankly, the probability curve across thousands and thousands of cases.
Hey, Pedro, if I can clarify actually, maybe to bifurcate or just distinguish from Jonathan's question. I hear you in addressing sort of the you know the different settling fact pattern in the quantum and maybe that driving a different estimate. Maybe the nuance here and what's interesting and what's intriguing is why settle, right? Why is that triggering a decision to settle? Is it simply just understanding what the market is and the bid-ask gets resolved? Or is there some new information that's driving settlements? If you can distinguish between the two.
Yeah. I think the best way to answer your question is, again, we go case by case. Let me paint an extreme here. We have not come across this one yet, but if we saw that there was a particular plaintiff who was making a demand that was so out of left field, that it, you know, baffled the logic of settling, I don't think we would settle at that point, right? That might be a case that we would decide to take through to jury trial at the end of the day. I don't think there's any systemic big news or change at saying we have changed our approach to settlements. These really have been, you know, bottom-up, case-by-case decisions around, okay, we understand the fact pattern in this case.
We understand what arguments we have in our favor. We understand what arguments might be less of in our favor. We have some sense of where a jury might end up. We have a sense of what the continuing costs are in pursuing all the way through to litigation, which, by the way, has its own set of costs, right? That's just the legal process, and further attorneys' fees and the like. We continue to make those judgments on a case-by-case basis there. If your question is asking is there something else that you're aware of or that we're aware of, or is there something more systemic or something that is influencing how we think about settlement differently from a quarter ago, the answer would be no. Does that help with your question, Julien?
Yeah. Absolutely. Thank you for the time and patience.
Thank you, Julien.
Cheers.
That was our last question. I will now turn the call back over to Mr. Sam Ramraj.
Well, thank you for joining us. This concludes the conference call. Have a good rest of the day and stay safe. You may now disconnect.