Edison International (EIX) Q4 2011 Earnings Report, Transcript and Summary

Good afternoon. My name is Sharon, and I will be your conference operator today. At this time, I would like to welcome everyone to the Edison International Fourth Quarter 2011 Financial Teleconference. [Operator Instructions] Today's call is being recorded. I would now like to turn the call over to Mr. Scott Cunningham, Vice President of Investor Relations. Thank you. Mr. Cunningham, you may begin your conference.

Thanks, Sharon, and good afternoon, 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. Ted's prepared remarks, presentation that accompanies Jim's comments, earnings press release and our Edison International 10-K are available on our website at www.edisoninvestor.com. Tomorrow, we will issue our regular quarterly business update presentation that will use these and other slides for ongoing investor discussions. During this call, we will make forward-looking statements about the financial outlook for Edison International and its subsidiaries and about other future events. Actual results could differ materially from current expectations. Important factors that could cause different results are set forth in our SEC filings. We encourage you to read them carefully. Presentation includes certain outlook assumptions, as well as reconciliation of non-GAAP measures to the nearest GAAP measure. With that, I'll turn the call over to Ted Craver.

Thank you, Scott, and good afternoon, everyone. Today, Edison International reported fourth quarter earnings of $0.75 per share and full year core earnings of $3.22 per share. We are pleased that our fourth quarter results have allowed us to deliver 2011 core earnings well above the high end of our guidance range. Southern California Edison, Edison Mission Group and the parent, all contributed to outperforming the earnings guidance. Of particular note, Southern California Edison's core earnings increased $0.20 in the quarter and $0.32 for the full year due to rate base growth and a favorable tax adjustment that Jim will discuss a little later. Typically, at this time of the year, we provide earnings guidance for the coming year. However, we will not be providing 2012 guidance until we receive a final decision in Southern California Edison's General Rate Case, which we hope will be in the first half of 2012. In the absence of specific earnings guidance, Jim will discuss some of the key drivers to our 2012 earnings in his remarks. On a reported basis, we showed a loss for the full year of $0.11 per share, due primarily to impairment charges at EMG. These impairment charges are largely the result of a sharp decline in power prices, combined with the need for substantial investment in retrofits for our coal fleet to comply with environmental regulations. I'll say more about those charges later during my remarks about EMG. Let me begin by covering some recent developments at Southern California Edison. First, let me provide a brief update on the timing of the Southern California Edison's 2012 General Rate Case. As of now, we don't have a timeline for when we will get a final decision, although we hope it'll be in the first half of the year. Commission is aware of the need for a timely GRC decision, and we expect a proposed decision will be forthcoming shortly. But it is also important to remember that the final decision will be retroactive to January 1. Our value proposition at Southern California Edison is driven by growth in capital investment, which is expected to result in average annual growth in rate base of 7% to 9% through 2014. This growth is largely driven by California policy mandates, as well as infrastructure replacement to ensure public safety and reliability. Over the last 5 years, Southern California Edison has delivered compound annual growth in rate base of 11%, and its core earnings have increased at a 12% compound annual growth rate. One large component of SCE's capital program is investment in transmission to connect renewable generators such as the Tehachapi and Devers-Colorado River projects. At these projects, we are seeing higher costs to mitigate various environmental impacts and from permitting delays. These additional costs are included in SCE's updated capital spending forecast. I would also like to provide an update on the outage work taking place at our San Onofre Nuclear Generating Station, or at we refer to as SONGS. Unit 2 is offline for a planned outage -- planned refueling outage and we took Unit 3 offline on January 31 to inspect a water leak in its steam generator. Steam generators in Unit 2 were replaced in 2010, and Unit 3's were replaced in 2011. Planned inspections of the steam generators in Unit 2 found isolated areas of wear in some of the heat transfer tubes. We are in the process of preventively removing tubes from service as prescribed by industry guidelines and well within design margins for this kind of repair activity. We are still conducting a battery of tests and performing a root cause evaluation on the Unit 3 tube water leak. SCE is committed to the safe operation of SONGS and of course, will not return the plant's generating units to service until we are entirely satisfied it is completely safe to do so. Final update I will provide on SCE is that this year, it will complete the installation of 5 million smart meters in a $1.2 billion infrastructure capital investment. There were 3.8 million meters installed by the end of last year, and the program is on schedule and on budget. As the system is rolled out, SCE is developing programs that provide customers with enhanced information and services on their energy usage, while providing us with new tools to better manage outages. We continue to see opportunities for this investment to enhance our customer service platform by facilitating energy efficiency and providing the ability to integrate customers' smart appliances and devices within the home. Let me now turn to Edison Mission Group. We continue to believe that a dual platform of regulated and competitive businesses best positions our company for the transformative change, we believe, will sweep across the electric power industry. The last 18 months, we have been focused on unlocking the option value at EMG by reducing and extending the timeline for required capital investments and creating new liquidity to provide additional time for our recovery in power and capacity prices. However, power prices have not recovered. Indeed, their deterioration accelerated late last year and early this year. Additionally, EMG's liquidity has been reduced in the near-term by losing its ability to monetize its tax losses until at least 2013, primarily because the federal stimulus program and especially the enactment of 50% and then 100% deductibility of bonus depreciation, has created net operating losses in the consolidated EIX tax group. These 2 factors have added to EMG's stressed condition. Efforts to stabilize EMG continue, focusing on cost effectively meeting its environmental requirements, reducing its unsecured debt and diversifying its generation portfolio with additional natural gas and renewable generation. Ultimately, the test will be the ability to generate sufficient cash flows such that it can refinance a sustainable portion of its unsecured debt. If current power market conditions persist, EMG expects to incur further reductions in cash flow and earnings losses in 2012 and beyond. Current conditions, coupled with pending debt maturities and retrofit investments, will strain EMG's liquidity such that it may need to divest assets and restructure or reorganize its capital structure to get through this period, to see if option value is indeed there. We have repeatedly said that EIX will be financially disciplined and not invest new funds into EMG unless we can see a clear and compelling path to obtaining both a return of and on any investment. In the face of deteriorating financial conditions at EMG, we reaffirm that pledge. EMG will likewise maintain its financial discipline, and the impairments being announced today demonstrate this, as they reflect the decision not to invest or the reduced likelihood of investing in retrofits at certain coal plants. $623 million after-tax impairment charge at Homer City reflects the assessment that EMG is not going to control this investment going forward. This conclusion was reached when Homer City was unable to attract outside capital for its environmental retrofits under its current financial structure and current market conditions. We are working with the owner-lessors to transition control of Homer City to them subject to their discussions with their bondholders. Today, we also announced a $386 million after-tax impairment charge on 3 of our Midwest Generation plants: Fisk, Crawford and Waukegan. We have also reached the conclusion that it is not economic to continue operating Fisk beyond 2012 or Crawford beyond 2014. We retain flexibility on the decision whether to retrofit Waukegan, since we don't have to make major capital commitments there for a while. With the challenging market environment facing EMG, primary focus is to preserve and enhance liquidity and seek a sustainable capital structure. While the impairments reflect deteriorating conditions, they also reflect this focus. Reductions in spending at Fisk and Crawford and potentially Waukegan will help liquidity. They also facilitate extending the timeline for deciding on retrofitting the remaining Midwest generation plants while maintaining full environmental compliance by burning ultra-low sulfur coal. While EME terminated it's largely undrawn revolver in February, termination of the revolver has the benefit of freeing up collateral for future debt financing. Actions in our wind business reflect the focus on preserving and enhancing liquidity as well. First, EMG reduced development spending on its existing wind pipeline and rationalized development and support staff. Second, it continues to project-finance its existing wind portfolio. This end, during December of last year, EMG closed a $242 million portfolio financing of 3 contracted wind projects representing 204 megawatts. Third and perhaps most significantly, a sizable equity financing was completed for EMG's wind developments. On February 13, EMG received a $460 million commitment to facilitate the development of wind projects. This unique structure involves the transfer of 3 operating EMG wind projects, totaling 291 megawatts, to a new venture with outside investors. Also, 2 projects in construction, totaling 120 megawatts, will be sold to the venture upon their completion. This transaction will net EMG approximately $235 million as the 5 projects are transferred. It also allows EMG to do additional development of wind projects without consuming its equity capital, while retaining project upside after the investors achieved their targeted return. Completing these strategic actions results in a more focused EMG, better positioned to weather it's challenges. Last summer, I began saying that the next 6 to 12 months would likely be determinative for EMG and that during that time frame, a number of important issues would need to get resolved. That remains the case. We have important steps that we will be addressing with investors in the coming months as we continue to focus on seeking shareholder value. Those are the major topics I wanted to cover. And now I'd like to turn the call over to Jim Scilacci.

Thank you, Ted, and good afternoon, everyone. Page 2 of the presentation summarizes the quarterly earnings comparison that Ted's already touched on. Starting with Edison International Holding Company results for 2011. As you can see, they are a positive $0.02 per share due to some consolidated income tax benefits and a true-up -- through tax true-ups. Turning to Page 3, SCE's fourth quarter core earnings increased to $0.76 per share, up $0.20 from last year. Higher earnings in the quarter were driven by rate-based growth and a cumulative adjustment to deferred income taxes related to nuclear fuel. Although not in our guidance, we did recognize $0.03 of energy efficiency earnings. Ted has already walked through -- talked about the 2012 GRC for SCE. Pending the final decision, Southern California Edison is managing its current O&M and capital spending at a run rate similar to 2011 levels. Turning to Page 4, EMG lost $0.03 per share on the core basis compared to a positive $0.10 per share last year. The merchant coal fleet has suffered from lower average realized energy and capacity prices and lower levels of generation. Improved results from our renewable energy projects were partially offset by higher net interest from an increase in total amount of project, finance debt and a reduction in capitalized interest. Detailed operating metrics for the coal fleet are included in the presentation appendix. Now I'd like to review the non-core charges at EMG on Page 5, starting with Homer City. As previously reported, during the second half of 2011, we conducted a bidding process to obtain capital funding for the Homer City scrubbers from third parties. The processes failed to obtain sufficient interest. As Ted mentioned, Homer City is now working cooperatively with the owner-lessors to resolve funding for the scrubbers and transition control of the station over to them. This process is moving on an accelerated basis in order to allow scrubber construction to begin. As a result of the expectation that EMG's interest will be substantially or entirely diluted through that process, EMG recorded a pretax impairment charge -- excuse me, an impairment charge of $1.91 per share for EIX share. In the event of a final decision to dispose of the interest, EMG will record an additional charge and likely classify Homer City as a discontinued operations. Homer City has a rent payment due on April 1 of this year. Homer City believes it will not meet the covenant requirements, and therefore, be unable to make the required equity rent payment, and there is no assurance that Homer City will be able to make other rent payments in the future. In order to pay equity rent, Homer City must meet historical and projected senior rent service coverage ratios of 1.7:1. At year end 2011, Homer City's historical ratio was 1.18:1. We have provided additional detail regarding Homer City in the EME and EIX 10-Ks. Homer City's failure to make the April 1 equity rent payment will not result in cross defaults or trigger other covenant trips for EME or EIX. Turning to Midwest Generation, the substantial downward movement of power prices since the third quarter of last year and the need to preserve liquidity in light of the pending decisions on environmental retrofits, EMG recorded $1.19 per share impairment charge related to Midwest Generation's Fisk, Crawford and Waukegan stations. EMG determined the fair value of these stations to be 0. Other non-core charges in the quarter related to the reduction in EME's wind development program, of $0.13; a write-down of Edison Capital investment and 3 aircraft leased to American Airlines, $0.05; and a final payment from the sale of the March Point project that occurred in 2010, a positive $0.02. As a result of the impairment-related non-core charges, Edison International parent company recorded a $0.06 per share charge related to adjustments in deferred taxes. I won't go into our full year results in the interest of time. These results are summarized on Pages 6 through 8 of the presentation, and they are consistent with our ongoing message that rate-based growth will increase SCE's earnings while lower gross margins for the merchant coal fleet, have and will adversely impact EME's earnings. To emphasize the utility's value proposition, Page 9 provides the historical compound annual growth rates for both rate base and core earnings since 2006. As the chart demonstrates, SCE has delivered 12% core earnings growth and 11% rate base growth over the last 5 years. Page 10 provides an updated capital expenditure forecast. The 3-year forecast yields $11.8 billion to $13.2 billion of capital expenditures through 2014. The major changes to the forecast include upward revisions to the expected cost of transmission projects, most notably the Tehachapi and Devers-Colorado River renewable transmission projects. These cost increases have been partially offset by other transmission reliability projects, which were deferred. On Page 11, is the resulting forecast of rate base through the end of 2014, which ties to SCE's 3-year rate case cycle. During this 3-year period, compound average rate base growth is forecasted to be 7% to 9%. The updated rate base growth reflects the expected gradual decline in forecast capital expenditures. Page 12 provides the current hedge positions for energy and coal for Homer City and Midwest Generation. Homer City is in a state of transition so we have purposely not entered into new hedges and have closed out other positions. The substantial reduction in power prices and some limited coal to gas switching in ComEd, we would expect that the historical generation and related coal consumption at Midwest Generation will not be indicative in the current environment. I'd also like to touch a little bit on the new rail contract with Union Pacific for the Midwest Generation fleet. Midwest Gen entered into a new multiyear rail contract in the fourth quarter effective January 1, 2012. Under this agreement, the estimated transportation cost is $386 million for 2012. The cost may also increase based on a number of factors provided under the terms of the contract. Under the new contract, Midwest Gen may reduce its minimum requirements in the event of a plant shutdown, under certain circumstances. Overall, we see roughly a 1/3 increase in Midwest Gen's delivered coal cost. EMG has decided to pursue an ultra-low sulfur strategy for its Midwest Gen fleet, which will permit deferral of environmental capital expenditures. Based on 2011 data, Midwest Generation's fleet was meeting the 2013 EPS requirements of 0.44 pounds per MMBtu for SO2 emissions through the use of low sulfur coal. On Page 13 is the revised capital expenditure forecast. This new forecast reflects changes in timing for environmental retrofits and the Midwest Gen stations, previously provided a cost estimate to install environmental upgrades of $1.2 billion for all Midwest Generation stations. The updated forecast of up to $628 million is to retrofit just the larger Midwest Gen units or Powerton 5 and 6, Joliet 7 and 8 and Will County 3 and 4. Although it is less likely that we will do so, the estimated cost to retrofit the smaller stations, Waukegan 7 and 8 and Joliet 6 is about $235 million. The remaining capital expenditures are mostly for the construction of the Walnut Creek natural gas-fired plant, and the Crofton Bluffs and Broken Bow wind projects. Page 14 is the updated wind development chart. We have updated this chart to reflect the February closing of our wind capital raise, which Ted has already discussed. In addition to this strategic value for remaining active in development markets, the liquidity benefits for EMG are significant. As a result of the Capistrano Wind Partners equity raise and the recent Tapestry debt raise in December, EME now has 1,406 megawatts of projects that are financed. Of the remaining 575 megawatts that are not financed, 387 megawatts are contracted. Lastly, as a result of capital resource constraints and limited market opportunities, the development pipeline of potential wind projects has been reduced to 1,300 megawatts from 3,800 megawatts. Turning to Page 15, EME's corporate cash position is mainly cash at EME and EMMT, improved in the fourth quarter to $951 million, a $217 million increase over last quarter. Overall in 2011, EME improved its liquidity to the receipt of $388 million of U.S. Treasury grants, $167 million from wind financings -- wind financing distributions and $213 million of tax sharing agreement payments from Edison International. Deferral of payments under the tax-sharing agreements impacts EMG's liquidity, although it does not have an impact on earnings. As of December 31, EMG recognized $520 million in future tax benefits related to net operating losses and PTC carryforwards under tax-sharing agreements. The right of EMG to receive in the amount of and timing of tax allocation payments are dependent upon EIX's consolidated tax position. Based on current tax law, EMG is not expected to monetize tax benefits until at least 2013. Also, EMG expects to return tax allocation payments to EIX during 2012 of approximately $185 million. Lastly, permanent closure of merchant coal plants would add to EMG's tax loss position. One important item to note, on February 27, EME terminated its $600 million revolving credit facility to save fees, primarily because Homer City was part of the collateral package, and the line therefore became effectively not usable. This termination will also release other collateral, as Ted said. EME facility was due to mature on June 15 of this year and the facility was largely unutilized. The Midwest Gen, credit facility still remains outstanding and expires on June 29 of this year. Page 16 replaces our usual guidance slide in an effort to provide our investors with some of the operating assumptions for 2012. That concludes my comments. Operator, let's move to Q&A.

[Operator Instructions] Our first question comes from Jonathan Arnold of Deutsche Bank.

I have one question and briefly, perusing the 10-K, you talked about in the event that you transfer the ownership of Homer -- if you cease to become the controller of Homer City, that there would potentially be both ongoing contingencies? Could you speak to what that might refer to?

Okay, just briefly, there's a lot of detail in the Ks that I think you can sort through once you have a little bit of time to look at it. So we impaired investment of Homer City at EME, and there are some additional assets that reside that have not been impaired yet. And so when you actually get to the completion, when we actually transfer the asset, there's approximately, I think the disclosure say, about $170 million of net remaining investments that we would need to write off. The timing from that is uncertain. We're still working through that. I can't give you an expected time frame right yet. It depends upon how it goes with the owner-lessors. There may be some additional items that come up during the course of the discussions and we're trying to define exactly what the liabilities are on either side. But the principle liabilities have been disclosed in our 10-K.

It's not some sort of ongoing exposure? It's more write off of an existing asset that just hasn't yet been written down?

We would take it to -- there would be no ongoing exposure. We'd take it 0.

And secondly, Ted talked about, it still being the case, that there are important issues that need to get resolved in the 6- to 12-month time frame contrary from the summer, was still valid. Can you just sort of give us some roadmap as to now that this -- with where you are here on Homer, presumably, final resolution of that is one of those items, but just talk us through some of the other points on the road, Ted?

Jonathan, it's Ted. I think kind of the principle ones are EPA rules need to be finalized. I think we've got a pretty good sense of what those look like. But as you know, there are a couple of important elements still yet to be fully finalized. That in turn would give us a better read on timing and amount of expenditures for retrofits. Second, kind of key one is some of the additional liquidity activities. We still have some parts of our wind portfolio that have the ability for additional financing. So continuing to look at those things. We also talked a little bit about the new equity capital program that we have for the wind development. But in order to realize all of the cash from that, we've got work to get completed. And then I think another important milestone from our perspective is what happens in the capacity market auction in May. That certainly will speak to this kind of byplay between very depressed power prices, making many of the existing generation facilities uneconomic in the PJM marketplace. We're seeing a lot of announced retirements, not just stars, but others. So what impact will that have on the capacity market? I think those are some of the key milestones. There's other stuff that the folks at EMG keep working on to improve liquidity and pull some additional rabbits out of the hat. But the big ones are the ones I mentioned.

And can I just follow up on capacity auction on Homer City and the timing here during the previous auctions, EMMT has been placing that capacity into the auction, I guess. What should we anticipate would happen going into this coming auction with you -- assuming that, say, the ownership still sort of is somewhat in limbo?

Jonathan, it's Jim. I think you just should assume Homer City would fit in to auction. We anticipate the units being available in the future. We'll have to work that out between ourselves and the owner-lessors.

The next question comes from Dan Eggers of Crédit Suisse. Dan Eggers - Crédit Suisse AG, Research Division: I guess, just on the Midwestern impairments this quarter, what was the threshold, Jim, made you to decide that these assets will be impaired and other assets would not be impaired? And where would the next decision point be if other assets were to be impaired along the way?

I think every quarter, you have to go through the impairment analysis. It's a standard accounting approach. And what happened between last quarter and this quarter is really the drop in power prices changed the economics. I think the reality of that and given the problems that we've been facing, especially with the in-city, the Fisk and Crawford stations, I think the economics came through that it was clear that it was time to impair those stations. Now we also impaired the Waukegan station. But we haven't made a final determination yet in terms of what we're going to do there. But the reality was that the economics were clear that we needed to take an action. Now we'll continue to look at the other, what you're implying, the other smaller stations, but we haven't made any conclusions. And the current plan is then to retrofit the larger stations, and we're proceeding down that path. Dan Eggers - Crédit Suisse AG, Research Division: And I guess, Ted, if I could just read your script and maybe this is the hard part about putting out your script, but toward the end when you talk about the financially discipline, not invest new funds in EMG unless we can see a clear and compelling path, can you help us understand what a clear and compelling path would be relative to not putting capital into the business, as you guys have avoided that for so long?

Yes, I don't think you should expect any change in our viewpoint on it. In fact, that's why the next sentence is in this script, too. In the face of deteriorating financial conditions, which have clearly deteriorated, you can expect we will not be putting any funds in EMG. Dan Eggers - Crédit Suisse AG, Research Division: I guess, the primary season is coming out -- too many sound bites, I just want to make sure I had that right. And then I guess, the last question is Homer City will be taken out of recurring earnings going forward, so in '12, that will have no bearing on your results from an operating perspective?

Most likely. Yes. As We move it into discontinued operations, that would be the case, you'd have to pluck it out.

Our next question comes from Michael Lapides of Goldman Sachs.

One short-term question, one long-term question. On the shutdown of some of the Midwest Gen units, how should we think about the O&M savings that comes with that?

Okay. Michael, this is Jim. We'll incorporate that into our operating assumptions. The problem here, we haven't given you guidance in terms of what we expect EBITDA or earnings would be for the facilities. And we'll do that as we get the SCE's General Rate Case. But there will be operating savings, capital reductions, that go along with the shutdowns.

And thinking longer term, if there's a scenario where EME has to go through some kind of restructuring, not just asset sales but literally restructuring of the debt, how does the NOL at EME get treated in a situation like that? And is EIX -- I don't want to use the word -- I guess use the words on-the-hook for ensuring that EME in a restructured environment gets access to the cash flow it would have gotten had it stayed within the broader EIX umbrella?

Okay, that's a complicated question. I think just go back to the most simplest form. EIX, the way it works under the tax-sharing agreement, it uses a consolidated approach. So therefore, if the consolidated return has available capacity to monetize tax benefits, then the dollars flow either to SCE or EMG based on the actual situation. Now if an entity were deconsolidated from the parent, it could then no longer monetize tax losses that reside within that entity. And so I think that's the simplest way that you can think about it.

But could that entity, if deconsolidated, would be deconsolidated and would effectively be able to, over its own time and course, assuming financial conditions permit, be able to monetize that NOL on its own?

The NOL would reside with that entity if it were deconsolidated. And then whatever happens going forward, it would depend upon the earnings and losses of that entity. It would not affect the consolidated entity of EIX.

Our next question comes from Jay Dobson of Wunderlich Securities.

Jim, just to follow up on the last question, and maybe I'm reading too much into your comments. Discontinued operations, is this going to happen, not going to happen? I just try and understand what would be the determining factors. Since you wrote it down, it appears you're transferring it to the owner-lessor. Would seem like that sort of a no-brainer, but maybe I'm misunderstanding that.

I think you got right. So once we've finalized this transition, and we don't know when it's going to be over, we would likely, at that point, move it to discontinued operations.

So there's no question, it's going there. It's just more your sort of hesitancy there was when it's going to happen, not if it's going to happen?

It's the likely outcome.

What would make it not the outcome?

It's going to go down a transition path. I guess, I don't want to go through every possible avenue here, but we expect it at some point in time to go to discontinued operations.

So you've written off your entire equity interest so the way it wouldn't go to discontinued operation is if you thought there was still some value there? Is that the fairest way to think or maybe not the fairest, the simplest way to think about it?

No, the way it is, just for clarification, we believe the fair value of Homer City is 0. The way have to go through it, the accounting is complicated and it's very clear, if I model it here in the disclosures in terms of how it's treated. So we take in the first step, it essentially wrote off the majority of the investment. There's a portion of the investment that's at fair value, and that's the remaining piece that will, once we transition it to discontinued operations, will have to be written off.

That's the $170 million you were speaking of earlier?

Yes.

And then, Ted, back to the 6 to 12 months, I think as you said in the script, there were certainly those of us who've been listening, have heard it since round about last summer. So roughly June or about the time we'll have results for the PGM capacity auction would be sort of that line in the sand. Should we continue to think about it? I mean, I guess, some of us still struggle with this at a firm 6 to 12 months or is it a rolling 6 to 12 months. And understand the variables continue to change, not all of which are helpful, but maybe just sort of reaffirm your sort of message on that, if you would?

Yes, I'll reaffirm it and clarify it to some degree. It was last summer that I started talking about 6 to 12 months, which is basically trying to suggest between the EPA rules that we knew were going to end up having to be promulgated by the end of the year, which would be the 6 months to all the way around to the auction, which would take place in May, which is getting pretty close to 12 months, we figured that by summer of 2012, we would have most of the factors that we needed to come to conclusions about which units would be retrofitted, therefore, what the capital cost would be. If we were to not retrofit certain units and close them down, what would be the savings that would come from that? And how would we kind of refocus EMG as a result of those decisions, which would fill in one of the big blanks, that is what's the capital requirement for retrofits of the coal fleet. The second part is we were going to start facing some retirements in the revolver, the maturity of the revolver. And then fairly soon after that, we'd be into the $500 million of the 2013s and so on. And our keen desire is to kind of take all those factors, as well as our outlook for where power prices would be, and conclude whether we could really stabilize EMG or not. And the stabilization is meeting the capital requirements, as well as trying to pay down a healthy chunk of debt, particularly the debt maturing in 2013, 2016, such that we would have sufficient credit metrics for EMG to be self-sustaining or that said differently, refinance its 2017 and beyond on the basis of its own credit metrics. That, to us, was the definition of stabilization. We felt we would have most of the information we would need, coupled with some outlooks on power prices to conclude whether we, in fact, could stabilize EMG. And we still are on that path, as I said in my prepared remarks. But still, our intention is some time in the summer of this year being able to have those discussions with investors. Obviously, main part of the plan that has not worked is power prices recovery. They have not recovered, they've only gotten worse. So that constrains cash, it constrains our liquidity, that makes the ability to stabilize EMG much more difficult.

And I guess, the last follow-up on that, and I'm sure you don't want to get into your proprietary view of power prices, but would it be fair to say if power prices remain on about the forward curve where they are right now, we need to pursue some sort of restructuring?

As we said in the script, we would need to -- if these conditions persist, we would need to consider divesting assets to raise liquidity and consider restructuring or reorganizing the capital structure. So we won't make any predictions as to where all of that goes at this point, but if we have a prolonged period of low power prices, it constrains the liquidity sufficiently that we'd have to consider those other actions.

Jay, I'll just add to that, too, I know you're listening, that I think we've had our view and we've heard -- you've heard it from us any number of times, as we've entered into the agreement with Illinois EPA, that we believe strongly that coal plants would be shutting down and we're seeing that now, and that would lead to an improvement in capacity values. I think the question that Ted was addressing, you were raising, had to do with energy values. But we still hold the view, capacity values re-rising in the PJM market.

Our next question comes from Steve Fleishman of Bank of America Merrill Lynch.

Just to maybe follow-on with Jay's question. We still have pretty liquid or good debt markets and loan markets. And let's say, those allow you to deal with a lot of the near-term maturities, the 2013s, and that gives you, at this point, maybe another 3-year time line, is that enough? Or do you need to be able to prove that there's value out till 2016, '17 ? Because, as you know, there'll be a lot of assumptions that need to have made to deal with that?

Steve, this is Ted. It's going to be difficult to foresee all of the different possibilities here. But let me try to give you a general steer of the way we're thinking about it. If all we're doing is kind of limping from one quarter to the next, we don't really see how we reach a stabilization of EME. And that's not a very appealing prospect from our perspective. So we are, to some degree, seeking to force the question, will we be able to stabilize EMG? And as I said, I think that fundamentally means we have to be able to meet the capital requirements for the retrofits of the plants that we do believe are economic and should continue to run. Number two, we have to take out some debt. And we have to be able to see somewhere over this next 3 to 4 years that we'll be able to generate sufficient liquidity to meet those CapEx requirements and reduce debt such that by the time we get to the '17s, we can see that this is going to actually generate sufficient credit metrics for refinancing. If we can't see how that looks possible, then I don't think we have a stabilized entity and we'll just be lurching from quarter-to-quarter. So our goal here, and again, come back to the 6- to 12-month kind of concept is, by the summer, that we have a sharp idea of whether or not we'll be able to stabilize EMG.

And just to clarify, in the event that you determine that you won't be able to stabilize it, what exactly do you do? I mean, you're already not committing any new money to it. So what are the exact things you would actually then do if you make that determination?

I think at that point, you're looking at restructuring, reorganizing the capital structure. I don't think there's any other outcome.

I'm going to go so far as actually asking a utility question...

It's entirely acceptable.

Since it's probably more than 100% of the value of the company. The one thing you didn't mention that occurred, I think, since your last call, was these windstorms that you had and seem like you had a decent amount of reaction to that. Could you just give us some sense of kind of what happened there? And is there anything operationally you're changing in reaction to that and how you're thinking about that?

Steve, we'll have Ron Litzinger address that.

Yes, Steve, clearly, there's been the report by the consumer protection and safety division, the public participation hearing that occurred on the regulatory front. From our perspective, we have done a thorough root cause evaluation of our response in the windstorm. We will be coming out with that report shortly, and we've agreed to share that with the commission. And in addition to that, we have engaged an independent consulting firm to do an independent evaluation of our performance as well, which we will take note of and make our corrections to our practices and our procedures going forward.

The next question comes from Jon Cohen of ISI Group.

I just had a question about your interim environmental compliance strategy using ultra-low sulfur coal. How many years do you think that will allow you to sort of scape by under the CPS-mandated emissions limits? And will that get you out to the '15, '16 time frame or is that going to be earlier than that?

I think just -- we're not going to give you amounts or how much we're buying and what the price and whatnot. I think just bear in mind that we're going to do a combination of things. It's going to be low sulfur coal and we'll be installing removal technology. And we have very steep reductions that are required because low sulfur coal will only get you so far. And as you look at the CPS numbers out beyond '14, there are steep drop-offs. So that's where you really require capital expenditures for the dry sorbent injection systems to get you to those lower levels.

I think that answered the question. So 2014 is where the sort of threshold is.

I wouldn't stop there. You would continue using it and in combination of the equipment that's how much dry sorbent you need to inject. So there's a combination of things you do here to get to the numbers that are -- that's part of the agreement.

And then one other question on your coal contract. You mentioned that if you shutdown plants, the volumes under the contract reduce. Are there minimum volumes that are allocated to the plant level? In other words, are there minimum volumes for Powerton, Joliet and Will County?

I can't get into the specifics of the contract, but there's a mechanism we have in place that we can adjust accordingly based on the plant that's taken out of service.

The next question comes from Travis Miller of Morningstar.

I wanted to follow-up real quick on that last point on the transportation. That $386 million a year that you mentioned, does that already contemplate the potential closures, the Homer City withdrawal and then just kind of a mark-to-market dispatch at current market conditions? Or is there a downside potential for that $386 million?

I think based on the disclosures we had to go through and expected amounts reflects that. To the extent that we shutdown plants in the future, because we're looking at the plant shutdowns don't occur until '13 and beyond. So I wouldn't expect to affect the '12.

And then on the potential legal challenges, do you think there's anything there for HAPs MACT like you guys went through with Casper? And how could some kind of legal developments that you're involved in relate to your decisions around what to do with Homer City or anything at the Midwest Gen?

We'll have Pedro Pizarro address that.

Yes. Just briefly, on HAPs MACT, I can't speculate on whether others may file legal challenges or how the courts will view that. I will say that we have been generally supportive of the final form of HAPs MACT or MATS as it's now called. So we're certainly, at this point, not contemplating a challenge. On Casper, we did file the challenge there or Homer City actually filed the legal challenge there. And those -- they're not of Homer City given the impacts on the Homer City project, we've disclosed that we don't foresee significant impacts from Casper as written the Midwest Gen fleet. So the Homer City will continue to pursue its legal path as the court now has granted the motion for stay and we'll be going into our hearings later this year.

And then one quick. Is the oil peaker at Fisk included in the shutdown?

No.

That will continue running?

It's not part of the shutdown.

Our next question comes from Paul Fremont of Jefferies. Paul B. Fremont - Jefferies & Company, Inc., Research Division: I guess, first question would be, it looks like -- or if I understood you correctly, the write-off of the 3 EMG units resulted in a $0.06 tax benefit to the -- on a consolidated basis to the holding company. What would -- are you able to quantify what the associated tax benefit would be if the rest of EMG were written-off?

Paul, I think you got the -- there's different things that are going on here, so let me step back for a second. If you look at Page 5 of our investor deck, the write-off, all the write-offs that occurred, the impairment charges that were taken in the fourth quarter, resulted in a non-core charge at the holding company of $0.06. There is also, in core earnings, a deferred tax adjustment that was a positive. So one's in non-core, one's in core. I just wanted to make sure I clarify what was going on there. And it is hard to keep track of both these things. But I can tell you, if we're to write-off the whole thing what the deferred tax adjustment would be for the holding company, the reason for the non-core $0.06 adjustment that occurred at the holding company in the fourth quarter has to do with how state income taxes, the apportioned state income taxes, that is a very complicated and detailed discussion, and I just don't have any information that I can get into you on any kind of relevant degree. But periodically, and I think you'll remember last year, every once in a while, based on the way income is a apportioned through our various companies, we will either take a benefit or take a loss depending upon how we foresee the apportionment changing. Paul B. Fremont - Jefferies & Company, Inc., Research Division: So I guess what I'm trying to get at is, is there a way to determine what the worthless tax deductions would be associated with an EMG write-down?

Unfortunately, we have not put that information in the public domain. You can see the book value of the remaining Midwest Gen assets, that is now clearly spelled out in the disclosures. We've previously showed that to you in a prior quarter. And you can see what's happening with Homer City. So a lot of the information, as far as the book value perspective, is in the public domain. We just don't have the tax basis in there. Paul B. Fremont - Jefferies & Company, Inc., Research Division: And then moving on to the utility. It seems every -- it seems if you basically just take the rate base, equity ratio and the ROE, the company keeps coming in sort of at levels that are above what would be implied. So is there something that we need to think about from a modeling perspective, either efficiency, adders or other incentives when we model SCE on a going-forward basis?

I think we're going to continue to provide information using what we'll call the simplified methodology, the one you started with. There are things that occur year-to-year, and I think we had some tax benefits that flowed through in the fourth quarter, that's why you're seeing some of the outperformance. At times, embedded cost of debt provides a benefit, but you can have other parts of the business where you're overspending. So that covers -- so we have outperformance in one area can cover underperformance in others. So we're going to keep coming back to that simplified approach. Paul B. Fremont - Jefferies & Company, Inc., Research Division: And then just following up on Steve's question on the OII. You have another OII that's outstanding, relating to the Santa Barbara fires and that seems to be taking forever in terms of getting through that proceeding? Is there anything in terms of the claims arising from Santa Barbara that would allow us to make an assessment on sort of the monetary exposure in the windstorms?

Yes. Let me just clarify on that and we'll turn it over to Ron to give you some additional details. So that's the Malibu fire situation, and there's additional disclosures that's updated in the 10-K when you have an opportunity to take a look at that. But I'll turn it over to Ron now.

Yes, the Malibu Fire OII is continuing. That proceeding continues. It has been a long one. Just to be clear, with regard to the OII from the San Gabriel Valley windstorm, there has not been an OII announced at this point.

This concludes the question-and-answer session. At this time, I will turn the call back to Mr. Cunningham.

Thanks very much, everyone. Please don't hesitate to follow-up this evening, I know for a lot of you, and certainly tomorrow for any follow-up questions. Thanks very much.

This concludes today's conference. Thank you for your participation. You may now disconnect.