Good afternoon, and welcome to the Edison International second quarter 2022 financial teleconference. My name is Michelle and I will be your operator today. When we get to the question and answer session, if you have a question, press star one on your phone. 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, Michelle, 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 the call, we'll make forward-looking statements about the outlook for Edison International and its subsidiaries. Actual results could differ materially from current expectations.
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 a 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.
Oh, thanks a lot, Sam, and good afternoon, everyone. Edison International reported core earnings per share of $0.94 compared to $0.94 a year ago. Based on our year-to-date performance and outlook for the remainder of the year, we are reaffirming our 2022 core EPS guidance range of $4.40-$4.70. I also want to emphasize that we remain absolutely, fully confident in our long-term EPS growth target of 5%-7% through 2025.
Maria will discuss our financial performance in her remarks. I would like to begin with an update on the tremendous progress that SCE has made in wildfire mitigation. In preparing for this year's peak wildfire season, SCE has a higher level of confidence in its ability to mitigate wildfires associated with its equipment. During the quarter, SCE achieved a significant grid hardening milestone.
It has now replaced over 3,500 circuit miles of bare wire with covered conductor in just over three and a half years. SCE expects to have covered approximately 40% of its overhead distribution power lines in high fire risk areas, or HFRA, by the end of 2022. In many locations throughout SCE service area, covered conductor is the primary grid hardening tool since it balances risk reduction, cost, and timely execution.
SCE plans to continue its current pace of installing about 1,200 miles per year of covered conductor for the next couple of years. I am pleased with the utility's execution of this program, which has and will continue to substantially improve safety for customers. SCE has achieved the majority of wildfire risk reduction through covered conductor and other system hardening measures, vegetation management, and equipment inspections.
Public safety power shutoffs, or PSPS, provide additional risk reduction that is critical during extreme weather and field conditions. SCE also continues to implement cutting-edge technologies to mitigate against high impact wildfires. For example, the utility is leveraging machine learning to improve the accuracy of wind speed forecasts at around 500 SCE weather station locations, and this will help better predict which areas may reach or exceed PSPS thresholds.
The state of California continues to allocate substantial funding in support of forest resiliency and fire suppression, including CAL FIRE crews and aerial resources. SCE is also supporting the readiness and response efforts of our local fire agencies. For the fourth consecutive year, SCE is providing aerial suppression resources to local fire agencies to help quickly extinguish wildfires when they do start.
SCE is contributing $18 million to lease the quick reaction force of water and retardant dropping helitankers to Orange, Los Angeles, and Ventura County fire agencies. The QRF's most critical feature is that it can continue to hover, fill, and make retardant drops at night, making it the world's first fully nocturnal aerial task force.
In addition, SCE's fire camera network provides visibility to growing wildfires for fire agencies, and the utility continues to explore adding artificial intelligence technology and new data sources that can detect and confirm new ignitions. Before I leave this topic, I would like to remind investors that we are hosting an in-person meeting on August 18 at SCE's Emergency Operations Center and Energy Education Center. Our leadership team and I look forward to discussing ongoing wildfire mitigation activities and SCE's opportunities in California's clean energy transition. Folks, come on down. All right.
Last week, SCE received a final decision from the Office of Energy Infrastructure Safety, approving its 2022 wildfire mitigation plan update. This is a prerequisite to submit the annual safety certification request, which allows SCE to benefit from the presumption of prudency and the liability cap under AB 1054. This decision recognized the progress SCE has made in mitigating wildfire risk and in increasing the overall maturity of its wildfire mitigation portfolio and strategies.
Turning to wildfire-related settlements. We are pleased with SCE's progress in further resolving 2017 and 2018 wildfire and mudslide events claims. In the second quarter, SCE resolved approximately $400 million of claims. In total, the utility has resolved nearly 90% of its best estimate of expected losses and continues to make steady progress in resolving remaining claims.
SCE is well on its way to reaching substantial resolution of claims in the TKM matter and remains on track to file the first application for cost recovery by late 2023. I would like to be really 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 agreement with the Safety and Enforcement Division.
We will keep you updated on our progress on this front. Shifting topics. I would like to briefly address a lawsuit brought by two former employees of Southern California Edison. As some of you may be aware, a jury awarded substantial damages to the plaintiffs. We do not believe that the jury's decision was consistent with the facts and the law, and it certainly does not reflect who we are or what we stand for.
Rather than engage in a protracted legal challenge, we reached a settlement in July for which we took a net after-tax charge of $16 million. Edison International and SCE did not admit liability or fault as part of the settlement. Okay, most of my comments so far covered a lot about wildfire risk mitigation, which is a core component in adapting to climate change.
I also want to emphasize our continuing focus on sustainability because this underlies our company strategy. We recently published our annual sustainability report, which details 2021 achievements. These are covered on pages five and six. Let me highlight especially that SCE has the lowest system average rate among the large California IOUs, and that's primarily due to more than a decade of committed focus on operational excellence and cost management.
Further, as you see on page seven, the total energy burden in 2021, that is the total cost of electricity, natural gas, and gasoline relative to median household income fo r customers in SCE service area was below the median for customers in other states across the country. We see the potential for that to continue to decline with increasing levels of electrification.
Our Pathway 2045 analysis shows that this greater use of electric motors and appliances will reduce customers' total costs across all energy commodities by one-third by 2045. Well, let me conclude by saying that Edison International is a nationally recognized leader in the clean energy transition.
In alignment with climate actions planned by the state of California, as we announced last year, our goal is to achieve net zero greenhouse gas emissions across scopes 1, 2, and 3 by 2045, and that'll cover the power that SCE delivers to customers as well as Edison International's enterprise-wide operations, including supply chain. With that, let me turn it over to Maria for her financial report.
Thanks, Pedro, and good afternoon, everyone. Edison International reported core earnings of $0.94 per share for the second quarter. Core EPS at SCE increased year-over-year, primarily due to the adoption of the 2021 GRC final decision in the third quarter of 2021, partially offset by higher O&M expenses. At EIX, Parent and Other, the core loss was $0.05 higher in the second quarter.
This was primarily due to higher preferred dividends and unrealized losses on investments in the second quarter of 2022 compared to unrealized gains recognized in the same period last year. On page eight, you can see SCE's key second quarter EPS drivers on the right-hand side, and I'll highlight a few. Authorized revenues in the 2021 GRC was higher by $0.34 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 second quarter of last year, it was recording revenue at 2020 levels. This timing difference contributed $0.16 to year-over-year Q2 revenue growth. Other CPUC revenue was $0.26 higher, primarily related to the approval of GRC Track 3. With this approval, SCE recognized revenue for costs previously deferred to memo accounts. Because the costs were also recognized, there was no net earnings impact from this revenue growth.
The remaining O&M variance for this quarter was primarily driven by the timing of wildfire mitigation activity expense recognition. Moving to page nine. SCE's capital forecast was unchanged from last quarter when we reflected the capital expenditures SCE requested in Track 4 of its GRC.
During the second quarter, SCE submitted its Track 4 request, which covers funding for 2024, 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 proposed deploying another 1,200 mi of covered conductor, which would bring the utility to a total of about 6,500 mi installed by the end of 2024, or about 2/3 of its overhead distribution miles in high fire risk areas.
Our capital forecast continues to result in projected rate base growth of 7%-9% from 2021 to 2025. This forecast incorporates SCE's current view of the requests we made in the 2025 GRC and other applications. We see strong potential for SCE to continue deploying capital and achieving 7%-9% rate base growth through 2025.
Before turning to guidance, I would like to share a couple of positive developments from the quarter. First, SCE recently completed its annual wildfire insurance negotiations for policies that run from July 2022 through June 2023. In view of the measures SCE has implemented to reduce wildfire risk, the company's insurance carriers have further reduced premiums this year.
Second, during the quarter, both Moody's and Fitch affirmed EIX and SCE's credit rating and raised their outlooks to positive from stable. Both of these positive outlook changes were driven by recognition of the utility's progress addressing wildfire risk, combined with the constructed AB 1054 framework. Turning to guidance, pages 11 and 22 guidance and the key assumptions for modeling purposes. We are reaffirming our 2022 core EPS guidance range of $4.40-$4.70.
We are awaiting resolution of whether the cost of capital will remain unchanged for 2022. After receiving a CPUC final decision, we will provide an update on guidance to incorporate any changes and our outlook for the rest of the year. In the 2023 cost of capital proceeding, the administrative law judge recently issued a scoping ruling with two positive components that I'd like to point out.
First, the proceeding schedule calls for a proposed decision to be issued in mid-November, which could allow for a final decision to be made by year-end. Second, consistent with SCE's request and past proceedings, the schedule calls for updating the cost of debt and preferred in September, which will allow SCE to reflect more up-to-date interest rate forecasts.
SCE has made a strong case for its requested ROE of 10.53%, and we will incorporate the final decision in our 2023 earnings guidance, which we will introduce on our Q4 earnings call. At that time, we will also update you on our long-term EPS growth rate targets. We remain confident in our ability to achieve EPS growth of 5%-7% from 2021 to 2025, which results in a 2025 EPS range of $5.50-$5.90. I would now like to provide a brief update on our 2022 financing plan shown on page 13. Our overall plan remains consistent with what we shared with you previously. In April, the Parent borrowed $600 million under a term loan agreement which matures in 2023.
This transaction provides flexibility for issuing the previously disclosed debt and equity content securities later this year or in 2023. We will continue to monitor market conditions to optimize our capital structure, which, as we have said in the past, may include issuance of preferred equity or common equity through the use of internal and at-the-market programs.
Our prior three-year ATM program expired earlier this year, and we plan to establish a replacement program in the coming weeks. Let me conclude by building on Pedro's earlier comments on sustainability. I will emphasize the strong alignment between the strategy and drivers of the EIX business and the clean energy transition that is underway.
Since publishing the sustainable financing framework last June, SCE has issued $2.1 billion of sustainability bonds under that framework, with strong demand from investors recognizing the environmental and social benefits related to projects funded by these bonds.
Our large capital investment plan focused on the grid provides ample opportunity for continued issuance of securities under this framework, which is aligned with the company's sustainability-oriented strategy and vision. That concludes my remarks, so we can go to questions.
Michelle, please open the call for questions. As a reminder, we request you to limit yourself to one question and a follow-up, so everyone on the line has an opportunity to ask questions.
If you would like to ask a question, please press star one on your phone. One moment for the first question, please. Our first question comes from Shar Pourreza with Guggenheim Partners. Your line is open, sir.
Hey, guys. How you doing?
Hey, Shar.
Pedro, just in terms of the, you know, legacy liabilities and the settlement process, you guys have the end of 2023 as a target for recovery filing. I wanted to get a little bit more clarity on what exactly that threshold is to file. I mean, at the pace you're going, you're likely gonna have a sizable majority of the claims valued by year-end. You have 90% resolved already. If there's continued progress, could you potentially make the filing earlier? Can you hit 100% by year-end? I guess, why are we waiting to file?
Yeah. Hey, Shar, thanks for the question. A couple thoughts on that. First, we've talked notionally before about having at least, you know, 90% or 90%+. That's not a hard threshold, right? What we wanna see is, you know, substantial completion. Substantial i s not 100% necessarily, right?
We're not focused on that. But, you know, we want to see, you know, enough progress that we believe that we can then put an application in front of the commission that they will then say, you know, or they will agree, you know, have seen enough of the settlements in place so that there's clarity about the final exposure.
When you think about that 90% that we have in aggregate right no w, remember that is split across both the Thomas, Koenigstein, Mudslide matters as well as the Woolsey matter. We've mentioned in the past that, you know, those are different cases. What we pointed to toward the end or by the end of 2023 is confidence that, you know, we'll make our first application by then.
You know, Thomas, Koenigstein, Mudslide happened a year earlier, so you know, stands to reason that those be more likely the first to go into an application. You know, remember that the nearly 90% we have now is across all of the cases, and we haven't broken that out just for you know.
It is active litigation, so it's just, you know, best to provide that as a joint number. I think bottom line is we feel a sense of urgency, which I think is what's really underlying your question. We feel a sense of urgency to file for cost recovery, but we want to make sure we do it right.
You know, we haven't given you a precise number on it, you know, it's this X point Y percent that we need to hit. I don't think that number exists because, you know, it's as we're looking at not only the amount outstanding but also the number of plaintiffs, the types of cases that will all factor into our ultimate judgment call on when it's ready for prime time.
Got it. Thank you for that. Just given the progress being made on the undergrounding legislation, does that potentially give you some framework to address some areas that would benefit, I guess, from that approach? Since you stated that covered conductors are, I guess, a much more effective solution for your service territory, do you think there should be a legislative-enabled framework that covers more than just undergrounding as a physical risk reduction measure? Thanks.
Thanks, Shar. We have that framework. It's called AB 1054, and the Wildfire Mitigation Plan process. We feel very comfortable with that framework. Under that framework, we shared with you last quarter that, you know, we are looking at a number of areas where we'll do increased targeted undergrounding. We do have a very different geography from our friends at PG&E.
We've talked about this before. They have a lot more forest land where more of their incidents have come from trees falling into lines if outside of the vegetation management zone. We have more grasslands and chaparral where we get more blow-in making contact with the lines.
That's why from a risk-spend efficiency perspective, covered conductor, which is, you know, a fraction of the cost of undergrounding, and we can deploy much more quickly, has been the superior solution for most of our territory. But again, you know, under the Wildfire Mitigation Plan, we are looking at doing more undergrounding in targeted spots.
I think we said in the past that probably be hundreds of miles for us, not thousands of miles. You asked about the legislative package that's going through Sacramento right now. Our friends at PG&E I think are very focused on that because they have much larger scale of undergrounding. You know, certainly respect that.
Given the scale that we have on our hands and the strength of the Wildfire Mitigation Plan framework, for Southern California Edison, I think we have what we need at this point. Should legislation be passed, we will of course take a look at it and see if there's anything there that would be beneficial for our customers.
Got it. That's all. Just really one last quick one for you is just what's the ROEs that underpin the growth rate that you guys just reiterated? Thanks. That's all I have.
Sure. Shar, it's Maria. We have 10.3% embedded in our growth rate, and we have been looking at that and managing around all of that since we put the numbers out there last year.
Got it. Okay. Terrific. Thank you guys so much. Appreciate it.
You bet. Take care, Shar.
Our next question comes from Michael Lapides from Goldman Sachs. Your line is open, sir.
Hey, guys. Thank you for taking my question. Just curious, when you're looking out at potential things that could make material changes to your long-term rate base growth guidance, and I don't mean long-term 20 and 30 years, that's probably further out than I'm gonna be tracking you guys. Let's call it 2024, 2025, 2026. How do you think about things that could move the needle in those years, and what the process is to get more certainty on those items?
Yeah. Great question, and you know, like I do care a lot about what the growth rate in 2030 and 2040, but it's probably the other folks who are actually leading that at that point. Things that can move the needle. We've talked about this before too, but you know, first we start with the core growth rate that, you know, we have shared, you know, the expectation of the 5%-7% through 2025. There's plenty of stuff underpinning that, right? It starts with the investments needed to maintain our core grid.
It continues with the enhancements we see are needed to the grid that will outline our Reimagining the Grid white paper as we continue to make investments not only to have a safe and reliable grid, but one that's also resilient, right?
There's just a lot of good core bread-and-butter investment that goes into that. We have also talked about how we, you know, have expectation inside that 5%-7% of additional investments that the utility may be asked to make or should make in order to help support the clean energy transition. I think it's those particularly that category where we know there'll be some level of need.
We will need to see how the market materializes and to what extent, there are additional programs that, you know, will be beneficial not only for the clean energy transition, but also beneficial to our customers, and beneficial for our customers ultimately underwriting that investment on behalf of all customers and the rest of the economy, right?
I think a good example is when you see the approach we took with our building electrification application or SCE's application. That $677 million application, you know, is meant to really stimulate a part of the market that is moving pretty sluggishly right now. You know, when you look at the benefit to cost of the proposal, that's right around one.
You know, we love it when programs we propose have even stronger benefit cost ratios. In this case, that's for a part of the market that needs to be stimulated, just like, you know, solar was stimulated 15 years ago with various incentives and policies. You know, we're really thinking about what are those investments that we can make that move the needle, not first for our earnings, but move the needle first for our customers, for the economy.
I think if we do that right, that will then move the needle for investments, for our earnings as well. I mentioned electrification. That's both building and transportation. I would include storage as another item that, you know, we could see greater need for. We're excited about the prospects for the future.
Got it. One follow-up just on the cost recovery process right in filing. I mean, you talked about filing at the end of 2024, second half of 2023. Is there a framework for what that proceeding would actually look like? Like, how that would actually work process-wise at the CPUC?
Michael, we've actually gone through all of the pieces of the CPUC process, but for recovery. The one outstanding thing that happened recently was that we got our settlement with the SED reapproved, so approved a second time. Interveners are now taking a look at that, of course. We've gone through the CPUC process, but for the application.
That's what we would be doing. We'd be filing an application for recovery, which would lay out all of our requests as well as, you know, other information about, you know, the claims, et cetera. That's really the process. Once you file an application, then, you know, the commission would come back with a scoping memo and a procedural schedule.
Got it. Thank you, Maria. Much appreciated. Thanks, guys.
Hey, thanks, Michael.
Our next question comes from Jonathan Arnold with Vertical Research Partners. Your line is open.
Hello, Jonathan.
Hi. Maria, you mentioned that you'd had good news on insurance costs. Could you, and maybe that's in the queue, but could you perhaps share a little more detail?
Sure, Jonathan. Maybe I'll take a step back, too. We are really working hard on minimizing the cost of wildfire insurance for our customers. We've talked before about doing that in two ways. One is getting the commercial premiums down and then also using customer-funded self-insurance so we can fill the tower.
This year, we've actually filled pieces of the tower, about $100 million worth, with customer-funded self-insurance. That's a really great avenue for customer cost reduction and affordability because if you don't have losses, you just roll that forward to the next year. The other piece, which is sort of, I'll say, a third party indication, is what are the commercial insurance carriers charging us?
What we have found this year, and as I noted, you know, because of the ongoing risk reduction that we have going on at the company. If you lo ok at last policy year, which just ended, versus the current policy year, which has now just started, our rate online, the percentage that we're being charged, again, across the tower, up and down from the low levels all the way to the top.
Overall, the average has gone from 47% rate online to 43% rate online. We're finding that, you know, we're seeing a trend that people are starting to see the risk mitigation and acknowledging it. When we couple that with the use of customer-funded self-insurance, we're able to provide a better outcome for our customers.
Just to make sure I understand that. For $100 million of coverage, it would be, you know, 43% versus 47% and scaled up to the size of the program.
That's right.
Okay.
That's right. That's how you do it.
Just one other question on costs. Just curious, you called out O&M in the quarter. Curious as to what extent that was timing or more inflationary pressure. I also noticed you filed a Z-factor adjustment on labor costs, and maybe you could talk a little bit about that, too, just as well in the context around guidance.
Sure. Absolutely. The O&M that I mentioned in the quarter, you know, there's some of that Track 3 that's moving through both of those buckets, but it's really a timing issue on the wildfire mitigation expense recognition. That's what happened in the quarter. I think in terms of inflation and the like, we did file a Z-factor application a few weeks ago now, and that's in recognition of the fact that we have.
I'll say in terms of where we're seeing inflation, it's largely labor related because labor that does our veg management, you know, wildfire mitigation, outside contractors. That's where we're seeing it. We do have a number of areas that we use in order to mitigate the impacts of inflation.
We have the attrition mechanism that's in our GRC, and we use a basket of indices to escalate the revenue requirement every year. I think that's one really important inflationary risk mitigant. We have, interestingly, within the balancing accounts and the memo accounts, the amounts that get recorded there, ultimately, they do get trued up for reasonableness, but we can embed the costs there that we're seeing in the market now.
There's an avenue there as well on the capital side. In our Track 4 filing, we also included some additional inflation mitigation so that when we come to 2024, you know, we'll be able to recognize the actual inflation that's occurred. Again, just going back to that one instance of the Z-factor, where we noted that we were seeing some inflationary impact.
Now, as we go out farther in time and we get to the longer-term growth trajectory, obviously, 2025 is a new GRC, and we'll be able to embed the then current contracts that we have. That covers the waterfront, I think, in terms of inflation impact.
Okay, good enough. Thanks very much.
Thanks, Jonathan.
Our next question comes from Steve Fleishman with Wolfe Research. Your line is open.
Hi. Good afternoon. I know you kind of strongly resupported the 5%-7% earnings growth for 2025. Just curious, when you're doing that, are you including kind of the higher financing cost environment that, let's say we currently have, versus beginning of the year when you kind of, you know, do that?
Yeah, it's absolutely in the mix, Steve. I think, you know, underpinning that 5%-7% EPS trajectory, ultimately, we always keep going back to the rate base growth and that 7%-9% rate base growth that we've been talking about that still, you know, Pedro answered the earlier question, I think, pretty extensively, so I won't go into that again. That's really the fundamental for that EPS growth.
Those other items that we've shared with you, so whether it's operational variances or variances in the holdco or the SCE cost above authorized, those are there, I think, to create some context for folks so you can kind of see things as they move forward in time. We're always managing across all of those buckets, and each of those line items covers many, many subtopics as well.
When we came through into this quarter, we did update those SCE costs above authorized to reflect higher interest rates. I would say that we are definitely looking at that from, you know, from the perspective of what's the tenor that we would use, looking at interest rate forecasts, et cetera. We would expect that at that point in time, you know, we're probably gonna file two cost recovery applications, right?
Because Pedro mentioned that before, TKM and will be different time horizon. Based on filing the first application in late 2023 and then a subsequent application, there still could be applications still pending. We will be looking at the shorter end of the curve. We're probably, you know, in the 3.75% or so interest rate embedded in that forecast at this point.
Okay, great. I'll leave it there. Thank you.
Thank you, Steve.
Our next question comes from Paul Fremont with Mizuho. Your line is open.
I get the sort of the 2025 slide that talks about $0.20 of higher interest expense. Can you sort of discuss the $0.20 change in the operating variances and what's comprised in your assumptions there and the change in your assumptions?
Sure. Operational variances, you see us talk about that every year, and that's an area that we manage very closely. It's something that I think is core to sort of our overall operational excellence perspective and commitment. We have had the lowest, you know, customer rate in the state for a long time. I think that there's a lot of history behind that.
Included in that, though, there's, as I mentioned earlier, there are just so many different things. That line item can include, you know, AFUDC, it includes the timing of regulatory impacts, it includes operational efficiencies, it includes things like depreciation true-ups.
As we get closer and closer, and we continue to look at the mix that's involved there, we've just been able to make refinements and expectations about what we'll be able to deliver at that point in time. It's a natural thing for us to do because we do know that there have been some changes in terms of the interest rate environment that we're dealing with in the other categories. It's just part of our overall approach to managing the business.
Okay. Is there anything sort of specific or it's just sort of a confluence of all of the things that you talked about?
It is a lot of different things in that category. It's just running the business in what we would perceive to be and characterize as an operationally excellent manner.
Yeah. Maria, I would add to that, Paul, just to give you a little more color. It is a big business. There's a lot of moving parts. One of the things that's been really interesting in the work that we shared last quarter, right, where all the team at SCE are driving further operational improvement. There's some bigger ideas, some smaller ideas.
You know, this kind of bottom-up approach that we're focused on right now that has our employees, you know, our teammates very deeply engaged in this, there's not a one big bang thing in there. You see, to Maria's point, it's a lot of hard work and elbow grease across every part of the enterprise. That's another illustration of how you just get a lot of, you know, pieces that add up to the total. That we think is valuable because it gives us good diversity of approach, in terms of operations.
I think your disclosure talks about sort of the $3 billion of debt that has funded wildfires through the end of last year. Can you provide any update on that as to what issuance you might have done so far this year?
SCE had one issuance earlier this year that was the use of which was to fund wildfire claims. The approach typically, Paul, is, you know, we'll make a number of wildfire claims payments, and over the course of the year, as it builds up to a particular amount, then SCE would go out and finance it in the capital markets. I don't think there's been anything that's been different. I think that was what occured in Q1 , I believe.
How much was that?
That was $1.25 billion, if I recall correctly, or $1.2 million Something. It's round numbers.
Last question. If I heard you correctly, you're looking to sort of, are you looking to finance variable rate, or are you looking to finance fixed rate? Because you were talking about sort of the short end of the curve.
Yep. We definitely have already utilized all of that, you know, some fixed rate notes as well as looking at some variable rates that the team actually has had term loans out there from time to time for it. We're just gonna look at what's the most efficient and effective way to do it as we get there.
I just would focus you on sort of the shorter end of the curve because we will still likely just given the timing for our applications for recovery will likely be, you know, in the middle of that, you know, potentially for the second application. I think it's really important because we need to minimize the cost, obviously, because minimizing cost is the efficient way to run the business.
when we apply for recovery of the claim payments, we'll also be applying for recovery of the interest expense associated with financing them over this period of time. It's really important for us to keep an eye on that from a customer perspective as well.
Great. Thank you very much.
Thank you, Paul.
Our next question comes from Julien Dumoulin-Smith. Your line is open from Bank of America.
Hey, how are you guys?
Hey, Julien. How are you?
Hey, good. Thanks for the time. If I may, maybe we can just pick up off of where these last couple guys left off here. On the puts and takes on the $0.20, the plus and the minus there, can you talk about timing of the recovery? Do you start to get some of that recovery in by 2025 or 2026 if you think about it? Or you still kind of think about the same notional amount being outstanding there, and you're just putting a different, you know, the 375 or what have you there for the $0.20 delta?
On the other side of that, if you think about it, the $0.20 uplift on operational excellence, that would probably shift in and out based on rate case cycle too, right?
Two pieces there. The first, maybe I'll just clarify. We don't actually embed recovery in the growth targets, the 5%-7%. We are absolutely gonna file an application. We're gonna have a great argument and a great set of testimony that we're gonna file with the commission, but that's not the embedded assumption in that 5%-7%. That's one thing. In terms of the operational efficiencies and going in and out over time, we definitely do this on behalf of our customers.
We wanna increase the efficiency of the company so that overall customer rates can be managed most effectively and, you know, we can make as much room as possible for all of the necessary capital because of course, that 79% rate base growth represents capital that we would be deploying. We're gonna continue. Whatever the year is, whether it's the first year of the rate case cycle or the last year of the rate case cycle, we're actually always pursuing efficiencies.
That's, you know, a piece of the puzzle for us every year in, year out, going after it. Then there are a bunch of other things in that overall bucket of operational variances as well. You know, there are places where, you know, we're gonna pull levers in order to ensure the most efficient outcome.
It's many things, but I think in terms of the operational efficiencies question specifically that you asked, we're just doing it year in and year out, regardless of what year the rate case cycle is in.
Yeah, Maria, that's great. You covered it well. Just to underscore your first point, you know, we have not included cost recovery in our the base case that goes into the 5%-7%. We're doing that to be consistent with the GAAP treatment, right? Since the only decision out there was the very flawed San Diego cost recovery decision from a decade ago.
We're very confident about the merits of the case and, you know, our ability to demonstrate to the commission that we merit, or SCE merits cost recovery at least at some level. That is something that beyond all the things that make us confident about the 5%-7%, that's an extra piece that we haven't even baked into the analysis. That gives you some sense of our level of confidence here.
Indeed. In fact, if I can talk about the cadence of these operational excellence, I think you guys took a charge here on organizational realignment in the quarter here. Can you talk about sort of what that is. Is this the start of a wider program? You know, how does that fit into that $0.20 benefit by 2025? Should we be expecting more of that? You know what I mean? To what extent could that feed in earlier in terms of that $0.20 uplift?
You know, Steve, Julien, let's have Steven D. Powell come in here, the CEO of the utilities. He can give a little color on how he's thinking about the program.
Sure. Thanks, Pedro. The charge here you kind of noted is related to, you know, part of the changes that we're looking at in what we call our Catalyst program, but this bottom up set of ideas from employees. We had, you know, as we've talked about before, we identified thousands of ideas that our teams went through and identified, you know, 600+ ideas that are all contributing to, you know, improvements not just around affordability that are gonna help customers, but as well as things around safety, reliability, et cetera.
Our plan is to go and execute against those ideas over the next 24 months or so and kind of reap benefits all along the way. Some of them require investment in technologies to support. There's process changes.
That's what's gonna lead to some of the operational efficiencies that we'll get, as well as other improvements around our core operating metrics. We would expect that this, along with other efforts, are things that'll become more of a recurring effort, a recurring activity, that help drive continued operational improvements and efficiencies year-over-year.
As we get our legs underneath us with this program and look to the next one, we'll be able to better identify how much of that is gonna, you know, become a great benefit for customers and in interim periods could contribute to earnings.
Got it. It sounds like maybe it's still more ratable through the forecast period here.
Yes, sir.
Thanks, Powell. Thanks for the time. Be great.
Thank you, Julien.
Thanks.
Our next question comes from Ryan Levine with Citi. Your line is open.
Thank you for taking my question. Of the $5.2 billion of potential cost recovery, is there a ballpark portion that you would look to file in late 2023 that could be shared at this point? Or when would we learn, or we could gain more clarity around the scope of the initial filing?
Yeah, Ryan, it's a good question. You might recall that we really haven't split apart the TKM versus Woolsey claim amounts. We've been pretty candid that we do have active litigation going on, active settlements going on, and so I think it's been in our interest to present a combined picture of the two. Therefore, we really, you know, can't provide color at this time on what the split is between the two and, you know, therefore what you might see in an earlier filing versus in a later filing.
Just in terms of timeline, is there a period of time when you'd actually be able to provide that clarity, given your comments around it not necessarily needing to be 100% addressed or claimed?
Sure. Ryan, what we've done is that we've given you the outside mark. We expect to be making that first filing by the end of 2023. As I mentioned a little earlier, you know, we have a sense of urgency, so if we see that we've progressed enough with settlements where we can go earlier, we will do that. I would expect that we will give you that color as we're making the application, you know, as we're filing, as we're coincident with filing the application.
You can understand why, you know, just again, some sensitivity as we continue the negotiation process for settlements that we probably just wanna, you know, let the entire market know us at the same time that we let our regulators know that we're making that application.
Appreciate that. Regarding the $7.9 billion claim, it's unchanged from last quarter, which is good to see given the remaining expected loss number came in. Do you have greater confidence on this remaining $900 million expected loss versus previous quarters? Or is there any way to frame the confidence level versus history?
Yeah. Let me answer it this way. Maria, you might have something to add here. We continue to make sure that we are really being straight down the middle of the road, and using the GAAP definitions, right. We wanna make sure that we're providing you our best estimate at any given time. That best estimate, as you saw, did not change, quarter to quarter.
We disclosed that the actual number could be higher, could be lower. I think the one factor to consider is that while there is always uncertainty in that final number, the cone of uncertainty keeps getting narrower because now, you know, we have $400 million stuck in that expected, you know, estimate. Just the quantum, the amount remaining is smaller.
To the extent that we might have had an I know we haven't disclosed it this way, right? If you thought about an X% potential level of uncertainty over $1.3 billion and an X% level of uncertainty over $900 million, well, you're applying X% to a smaller number now this quarter. That's about all I can say. I do wanna reiterate, consistent with our disclosures, that there is uncertainty to that. That is our best estimate. The final number could be higher or lower.
Appreciate the color. Thank you.
You bet. Thanks. Thanks, Ryan.
That was the last question. I would now like to turn the call back over to Sam Ramraj. Thank you.
Thank you for joining us. This concludes the conference call. Have a fantastic rest of the day and stay safe out there. You may now disconnect.