Mar 1, 2010
Executives
Scott Cunningham – VP, IR Ted Craver – Chairman, President and CEO Jim Scilacci – EVP, CFO and Treasurer Ron Litzinger – Chairman, EMG Al Fohrer – Chairman and CEO, Southern California Edison
Analysts
Dan Eggers – Credit Suisse Ali Agha – SunTrust Robinson Humphrey Jonathan Arnold – Deutsche Bank Securities Hugh Wynne – Sanford Bernstein Michael Lapides – Goldman Sachs Greg Gordon – Morgan Stanley Andrew Weisel [ph] Steven Fleishman – Catapult Capital Management Terran Miller – Knight Libertas Lasan Johong – RBC Capital Markets Paul Patterson – Glenrock Associates Jay Dobson – Wunderlich Securities
Operator
Good morning. My name is Wendy.
And I will be your conference operator today. At this time, I would like to welcome everyone to the Edison International Fourth Quarter 2009 Financial Teleconference.
All lines have been place on mute to prevent background noise. After the speakers remarks there will be a question-and-answer session.
(Operator Instructions). Today's conference 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.
Scott Cunningham
Thanks very much, and good morning everyone. Our principal speakers today will be Chairman and CEO, Ted Craver and Chief Financial Officer, Jim Scilacci.
Also with us are other members of management team. The presentation that accompanies Jim's review together with the earnings press release and our 2009 10-K filings are available on our website at www.edisoninvestor.com.
During this call we will make forward-looking statements about the financial outlook for Edison International and the subsidiaries and about other future events. Actual results could differ materially from current expectations.
Important factors that could cause different results are set forth in our 10-K and other SEC filings. We encourage you to read these carefully.
The presentation also includes additional information including certain outlook assumptions as well as reconciliation of non-GAAP measures to the nearest GAAP measure. When we get to Q&A, please limit yourself to one question and one follow-up.
If you have further questions, please return to the queue. We would like to give you as many of you an opportunity to ask a question as possible.
With that, I'll turn the call over to Ted Craver.
Ted Craver
Thank you, Scott. Good morning, everyone.
All-in-all, Edison International performed well in 2009. We started the year with some significant uncertainties including a major one with the IRS.
We were successful in reaching a global tax settlement with the IRS covering over 100 disputed items, including Edison Capital's crossborder leases which were terminated. The global settlement generated significant cash benefits of 400 million over time.
It did, however produce net non-core charges totaling $0.78 per share resulting in reported earnings of $2.59 per share for the year, $1.10 below 2008 results. Core earnings which exclude these tax related charges and other non-core items were $3.25 per share, exceeding the high-end of our 2009 guidance range.
This morning, we also introduced guidance for our 2010 core earnings of $3.15 to $3.45 per share for Edison International. Our 2010 outlook for Southern California Edison is for modest growth over our stronger than expected 2009 core earnings.
We expect Edison Mission Group to be flat to slightly down from last year's core earnings. The reason for the $0.30 range is mostly due to the unpredictability of commodity prices and their effect on our competitive generation.
Jim Scilacci will review our financial results and 2010 guidance and detail in his remarks. The rest of my comments focus on a few highlights of the past year and are major areas of focus in 2010.
In addition to the global tax settlement already mentioned, another area of significant progress in 2009 was on the regulatory front for Southern California Edison. Key rate case decisions from the California Public Utilities Commission and the Federal Energy Regulatory Commission as well as the approval of our 250-megawatt rooftop solar program provide meaningful certainty about our growth prospects.
Moreover, regulatory decisions in the fourth quarter set the stage for additional growth. These included CPUC approval of both the remaining segments of Tehachapi renewable transmission project, segments 4/11 and the Devers, Colorado River transmission project.
These and the other elements of our investment program will be implemented under a CPUC approved extension through 2012 of the cost of capital mechanism. Lastly, the CPUC decision on our energy efficiency program yielded earnings of $0.05 per share in the fourth quarter and an additional $0.05 per share in 2010 subject to a CPUC final audit.
SCE's 2009 capital spending was a record $2.9 billion. Once the rate case was finalized last March, we ramped-up spending to improve the reliability of the distribution system.
By year-end, SCE had completed the first three segments of the Tehachapi renewable transmission project and had installed the first 150,000 of over 5 million advanced smart connect meters. Our investment efforts will accelerate in 2010 as we move more transmission projects into construction, accelerate the pace of smart connect installations, move the rooftop solar program into full gear and undertake the many reliability enhancing investments in the distribution system.
The 2010 capital program as well as SCE's five year, 21 plus billion investment program will require superior execution to manage this unprecedented growth. Equally, our basic daily operations require superior execution.
We have several goals for the year to accomplish this including focusing on improving our operations at the center offer to San Onofre Nuclear Station, strengthening the companies disaster recovery preparedness and overall industrial safety. 2010 will be an important year on the regulatory front.
We look for clarification from the CPUC on the longer term earnings opportunity and energy efficiency as well as filing in the fall our next three year general rate case covering years 2012/2014. We will be actively engaged in California's rule making efforts involving a 33% renewable energy requirement by 2020.
Our service territory includes areas rich with wind and solar energy potential. Significant new transmission investment will be required to access increased levels of renewals and integrating such substantial levels of intermittent resources requires additional capital investment.
All of this comes at a cost to rate payers. We remain committed to finding the right balance that helps achieve the states public policy objectives with rate payers needs for reliable, affordable electric power.
At our competitive generation subsidiary, Edison Mission Group, our strategy involves balancing twin objectives. First, to grow and expand our renewables platform and second, to meet our coal fleet environmental requirements in a way that is financially sound and durable, we're making progress on both fronts.
In the past two months, EMG has placed a 130-megawatt project into construction backed by a long-term contract with Oklahoma gas and electric. It also recently signed a contract for an 80-megawatt project with the Nebraska Power Authority and anticipates construction to begin on this project in the second quarter.
EMG started last year with commitments to purchase 948 megawatts of wind turbine. To date, it has reduced its turbine commitments by more than 2/3, mostly by placing them into projects under construction.
EMG has good visibility on the placement of most of its remaining 302 megawatts of wind turbine commitments into contracted or advanced development projects. Over the course of last year, we were encouraged to see the financial markets re-open, allowing us to obtain project financing.
Equally, we saw utilities reenter the market and commit to long term contracts for renewable power. EMG continues to manage its renewable development pipeline with the near term focus on the best projects using current turbine commitments while managing its overall development spending as it moves forward with environmental control plans at Midwest Generation.
We've also made important progress evaluating our compliance options for Knox and SO2 emissions controls. We have finalized our plans now for Knox compliance.
We've decided on a 158 million investment program for Knox controls using selective non-catalytic reduction technology or SMCRs at Midwest Generation plants. We will be retrofitting roughly 80% of our capacity which will allow Midwest Gen to meet its compliance requirements beginning in 2012.
Importantly, on February 8, the Illinois EPA issued our first SMCR construction permit for one of our Joliet units. Construction will commence this spring.
For SO2 compliance, EMG's focus remains on Trona, dry-absorbent technology. Testing completed last year at several of our stations demonstrated this technology was capable of producing enough SO2 emissions reductions to meet EMG's obligations under Illinois' SO2 emission requirements; however the decision to install Trona technology has not yet been made.
We are still conducting technological, financial, regulatory and legal reviews of several unit compliance and shutdown combinations, including interim and ultimate alternative compliance solutions. Our final decisions may take some time and are subject to a variety of factors.
Last year, our leadership team and employees showed they know how to adapt to an uncertain environment and challenging circumstances. Our future success will be determined by our ability to grow and adapt and to consistently deliver results from our dual platform of regulated and competitive businesses.
Building long term value for our shareholders will continue to be driven by the three fundamentals I highlighted at this time last year, superior execution, financial discipline and innovative solutions. In fact, they're likely to become only more important.
With that I'll turn the call over to Jim Scilacci.
Jim Scilacci
Thanks Ted. Good morning, everyone.
Today, I will discuss the following items First, a financial and operating review. Second, our updated capital spending forecast.
Third, some specifics on the MG wind program that Ted just discussed and lastly, our 2010 earnings guidance. Before I get into the details, the appendix -- includes a detailed full year review for your reference.
In addition, this morning we filed our 10-K and all five are available on our website. I would like to draw your attention to a change in the presentation of SE's results of operation in the MD&A.
The 10-K now provides a breakout of SC's income statement between those activities that affect utility earnings and those cost recovery activities that don't impact profits, primarily fuel and purchase power costs. Because of the large number of regulatory balancing this change was made to improve the presentation of SE's operating results and the key factors that impact earnings.
Going to earnings, please turn to page 2 of the presentation. Our earnings story remains one of solid SE earnings growth consistent with its 2009 CPUC and FERC rate cases and continued impact of lower wholesale power prices on EMG's financial performance.
Edison International reported fourth quarter core earnings of $0.59 per share compared to $0.66 per share last year. Fourth quarter basic earnings were $0.65 for the quarter, $0.06 higher than core.
The difference is entirely due to revised interest estimate based on an updated information provided by the IRS in connection with the global tax settlement. In the appendix, you will find an updated chart showing the impact of the global tax settlement on earnings and cash.
Beginning with SE on page 3, fourth quarter core earnings were $0.51 per share, $0.08 above last year. Higher operating income from the 2009 CPUC and FERC rate cases were the principal drivers of the increase.
The key elements of SCE's operating income is the growth and race base. During 2009, SCE's cash position benefited from the global tax settlement and lower tax payments from the 2009 stimulus bill providing bonus depreciation and now in the fourth quarter of 2009 from the change in tax accounting for repair costs.
These cash benefits allowed SE to defer planned financing. As a result, actual interest costs were less than authorized in rates.
In the fourth quarter, the interest benefit was offset by higher operating and maintenance costs including higher costs at our San Onofre nuclear station. In the fourth quarter SCE was authorized to recover costs incurred in early 2009 for the utilities participation in the hydrogen energy California project.
This and a generator refund incentives provided $0.04 of positive benefit on a quarter-over-quarter basis. Lastly, higher income taxes, which included additional provisions for property related items were a principal offset to earnings.
Turning to page 4, EMG's fourth quarter core earnings were $0.13 per share down $0.12 from the prior year. The lower earnings arise from three primary areas.
Lower realized power prices for our merchant coal sales, lower proprietary trading results primarily because of less transmission congestion and lower earnings from our Edison Capital resulting from a roll off of its investment portfolio. EMG's comparative results also benefit from a $0.04 charge in the fourth quarter of 2008 from writing-off a gas turbine deposit for a development project.
Included in the coal fleet results are FAS-133 unrealized gains of $0.03 in the fourth quarter compared to unrealized gains of $0.04 per share last year, so a net penny negative quarter-over-quarter. Turning to page 5 summarizes our full year results of 3.25 per share as Ted has already mentioned.
As Ted mentioned the primary difference between the core and basic earnings are the impacts of our global tax settlement and cross border lease terminations and the transfer of Mountain View Power Plant to cost of service rate making. Now moving to page 6 provides SCE's full year highlights.
SCE's 2009 core earnings of $2.68 per share reflects the higher operating income and rate base growth resulting from the 2009 CPUC and FERC rate cases. Additionally as I just explained, lower financing costs provided $0.14 for the full year.
Also during 2008, SCE had a depreciation adjustment and incurred costs related to a ballot initiative that did not occur in 2009. Finally on a comparative basis, higher -- excuse me -- income taxes were higher in 2009 mainly from property related items including additional tax provisions, tax returned true-ups.
In fact in 2008 the true-up was positive while the true-up was negative in 2009 and higher software deductions last year from implementation of SAP. EMG's 2009 core earnings were $0.68 per share when $1.04 per share below 2008's results and a majority of the variance was attributable to a $0.68 year-over-year decrease for the merchant coal earnings.
Lower wholesale power prices were a major factor with year-over-year average 24 hour PGM energy prices decreasing 41% at lineup and 44% at PGM West. Midwest Gen units were also impacted by higher care annual NOx requirements which began in 2009 and the cost of operating new mercury controls.
Embedded in the merchant coal results are FAS-133 gains for the year totaling $0.11 per share compared to $0.03 in 2008. These 2009 gains will likely turn around in 2010 as losses and are reflected in earnings guidance that I will discuss later.
Expected lower contract pricing impacted the gas fleet portfolio earnings resulting in a $0.06 per share decline. For the same reasons noted for the quarterly results, trading income was down $0.19 for the full year.
Renewable were flat as a new project contributions were offset by mild wind conditions. Edison Capital's core earnings reflect its much reduced scope of operations following the cross border lease terminations with core earnings $0.11 per share lower than 2008.
Moving on to page seven, summarizes the key operating statistics for Midwest Gen and Homer City. Midwest Gen's reliability and improvement efforts primarily a focus on oiler to failure reductions yielded positive results with 2009 forced outage rates decreasing to 5.8%.
The improvement equivalent availability helped maintain generation volumes at levels similar to 2008 despite lower load factors resulting from low price environment. At Homer City, reliability improvement efforts also reduced oiler two but forced outages in Opacity de-ratings prevented improvement in the plants annual forced outage rates.
Pennsylvania imposed more stringent opacity regulations in 2009 and this resulted in more opacity de-ratings. Homer City was able to reduce it by reducing ramp rates.
Please turn to page 8. During the fourth quarter Midwest Gen added to its head position and at December 31, our overall merchant coal fleet hedge position was generally in line with our target of hedging approximately 50% of our gross margin at risk for 2010.
Midwest Gen also made nominal additions to its 2011 hedge position. We did very well in the way of coal purchases in the fourth quarter but in January and February both Midwest Gen and Homer City added to their positions.
This information is provided in the footnote on this chart. Turning now to SCE's capital spending and rate base growth.
Beginning with SCE on page 9, SCE's updated five year capital spending forecast now for the periods 2010 through 2014, totals 21.5 billion in base to the base case and 18 billion in the low case. As with last year's forecast, our low case primarily reflects the potential for delays relative to our forecast schedules, especially for transmission projects.
In 2009, SCE's capital spending was 2.9 billion or 15% below our original forecast. The delays in receiving the solar rooftop decision and transmission project approvals were the principal contributors to the difference.
We have established a 16.5% difference between the base and low cases for the 2010 through 2014 forecast. This was determined by averaging the actual under spend for 2008 and 2009.
From our last public forecast, SCE's five year capital spending plan has increased from 19.8 billion to 21.5. The increased spending largely reflects the drop of 2009 and the addition of 2014 which has a higher spending profile.
As we have previously mentioned, SCE continues its strategic focus on transmission and distribution investments and innovative technology investments such as the 250-megawatt solar rooftop and Edison smart connect programs. Other than the solar rooftop program and capital spending for the existing fleet, SCE has not included any new generation investments in its capital forecast.
A key sign --excuse me -- a key sign for SC's capital spending is the 2012 CPUC rate case. Prior to year-end we will file our application with the CPUC.
With the heightened level of transmission capital spending, it is likely that SCE will file annual transmission rate cases. The 2010 rate cases are pending before the FERC now.
This capital forecast then is the basis for our updated rate base forecast shown on page 10. Authorized rate base for 2009 was 14.8 billion.
SCE's rate base came in 300 million higher than our original forecast due primarily to slightly higher investment balances for transmission and smart connect. Off this larger base, we now see five year compound annual growth rates of 11% in our base case and 8% in our low case.
SCE will continue to fund capital spending program, its capital spending program through periodic issuances of long term debt and preferred stock consistent with its authorized capital structure, together with operating cash flow and retained earnings. Turning to EME's capital outlook on page 11, the majority of three year capital spending plan is for construction of wind projects and payment for existing wind turbine commitments.
The majority of this build-out will occur during 2010. The capital plan also includes as Ted said 158 million for Knox compliance for Midwest Gen in 2010 and 2011 to address emission levels embodied in agreement with the Illinois EPA.
EME has not yet included expenditure for SO2 controls because its plan is still under development. On page 11, we provide additional detail on wind project development.
As of December 31, we had 390-megawatts of wind projects under construction and 512 megawatts of warrant wind turbine commitments available for projects. Subsequent to year-end, we began construction on the 130-megawatt Taloga project and designated turbines to the 80-megawatt Laredo Ridge project.
The capital and construction expenditures for 2010 have been updated for the balance of plant and turbine payments for the Taloga and Laredo Ridge projects. This leaves 302 megawatts of remaining turbines that have not been designated for projects.
The dollars owed for these turbines are reflected in the turbine commitment line. The paid capital program paid for its capital program EMA sources include turbine and project level financings, U.S.
Treasury grants or investment tax credits for completed wind projects, cash on hand, cash flow from operations and potentially wind turbine payment deferrals. The project finance market is an important source of low cost capital for EME.
This market continues to improve and recently we've seen longer tenors, improving terms and more participants entering the market. Given the placement of turbines into construction and cost containment efforts with our joint development agreement partners, the wind development pipeline stands at approximately 4000-megawatts down from the approximately 5,000 megawatts reported last year.
Moving to guidance. Please turn to page 13.
I would like to provide a little bit it more color on some of the key assumptions around our 2010 earnings guidance, as with our practice last year, we introduced a range for EIFs overall and provided mid-point estimates for SCE, EMG and the Holding Company. For SCE, we assumed an average 2010 rate base of 16.2 billion, with this average rate base, SCE's authorized capital structure and return on common equity of 11.5% and a constant share count generate earnings of $2.75 per share, energy efficiency is expected to provide an additional $0.05; however the payment is under CPUC final review.
A decision is expected during the third quarter of 2010. For EMG, we have used forward prices as of January 31 of this year.
Last year, we deferred some Midwest generation maintenance outages into 2010 so we expect an increase in maintenance costs this year. We have assumed the range of EMMT pre-tax earnings of 60 to 110 million with a midpoint of 85 million and that's free tax too.
In the first quarter of 2010, we received 18 million cash contribution or $0.03 per share from our gas project which will be included in first quarter earnings; subsequent to the distribution we sold our interest to our partner. Finally, we continue to assume no significant earnings from the Edison Capital remaining investment portfolio.
As with our normal practice we assume normal operating conditions and no changes in GAAP accounting. We have not included any non-core items or discontinued operation in our guidance for both basic and core EPS guidance or the same of $3.15 to $3.45 per share.
Turning to page 4, I'll walk over 2009 actual core earnings to 2010 guidance. For SCE, expected rate base provides the primary driver for the utilities earnings growth.
Some of the 2009 cash flow benefits that we discussed earlier are not expected to occur in 2010 and as such, this partially offsets the earnings increase from rate base growth. For EMG, we anticipate lower results from the merchant coal generation fleet largely due to higher maintenance costs, higher priced hedges rolling off and FAS-133 losses.
We do not expect the renewable portfolio, we do -- excuse me -- we do expect the renewable portfolio to deliver higher results for the new projects placed in service, that were placed in service last year. The increase expected in EMMT and the decrease in Edison capital are consistent with my earlier comments.
We expect favorable comparison in corporate expenses due to further reductions in EMG's AMG. That concludes my comments.
Operator we'll turn it over for Q&A.
Operator
(Operator Instructions). Our first question is from Dan Eggers.
Your line is now open.
Dan Eggers – Credit Suisse
Good morning. I was wondering, if you could talk a little bit more to slide 25 where you show the timetable for required compliance in Illinois for the generation fleet, what timeframe do you guys need to make decisions on SOX compliance since you aren't quite there to make the decision today?
Jim Scilacci
Hi, Dan. It's Jim Scilacci.
We have decisions we're working on now. It's primarily associated with SO2.
Obviously that's the key factor and it's the more costly of the compliance requirements and what I'm going to do, I'm going to have Ron provide a little more detail on the timing.
Ron Litzinger
Yeah. Our first SO2 unit you'll see on the chart is Waukegan 7.
We will likely have to make our decisions early next year on which route we're going to take on Waukegan 7 and then you can see that it's almost year-by-year after that.
Dan Eggers – Credit Suisse
Would those units clear the threshold and the current commodity price environment to make the upgrades?
Ron Litzinger
We're still doing our financial analysis. A lot of that depends on which compliance approach we take.
Dan Eggers – Credit Suisse
And one last question on this. With the compliance agreement in Illinois, you guys are outside of the bounds of any sort of rewrite on care on the federal level through 2016; is that right?
Jim Scilacci
We will have to wait and see when the new care rules come out to determine if there are more stringent or Illinois CPS.
Dan Eggers – Credit Suisse
Okay. Thank you.
Operator
Thank you. Our next question is Ali Agha.
Your line is now open.
Ali Agha – SunTrust Robinson Humphrey
Thank you, good morning.
Jim Scilacci
Good morning.
Ali Agha – SunTrust Robinson Humphrey
Ted or Jim, you alluded to it briefly in the call but can you give us a little bit more color on what specifically caused the '09 results to come insignificantly above the high-end of your previous range?
Jim Scilacci
Okay. Most of these items that occurred in the fourth quarter, we're doing judgments in terms of when we think things are going to occur and we had a couple of surprises.
I'll just take off a few of these. First one was energy efficiency, we had been carrying $0.03 for some period of time and it came in at $0.05 for the full year, so plus $0.02.
Additionally, I mentioned it during the call in my prepared remarks. We were anticipating cost recovery for the HECA, that's the hydrogen energy project in the first quarter of 2010 and it actually occurred in December of 2009 and that was worth $0.03.
On O&M spending, the thing that the end of the year, you anticipate potential storm related spending can surge in the fourth quarter. Sometimes it's in the first quarter depending upon what actually occurs and we actually had fairly light storm activity in the November December timeframe and it seems that it saved up and that was moved into January and February with the El Nino storms and the range that's hitting us, so there was a benefit in O&M.
And a related point more on the weeds is our capital spending trend and first all of these that I'm going through our utility, our capital spending trends were ramping up during the course of the year and they ramped up substantially in November and December and so we had some higher AFUDC earnings that we weren't anticipating overall and so those are the bigger drivers at the utility. At EMG, those are hard to predict at times, typically has to do with what's happening with capital -- excuse me -- with commodity prices, a little better activity at the big four that wasn't anticipated.
We made further ENG reductions and we made cuts in our solar area and at the utility-- excuse me -- the Holding Company it was just a penny so all-in-all, it's hard to predict these things as they occur, the timing of regulatory decisions and but I think that's the gist.
Ali Agha – SunTrust Robinson Humphrey
That's very helpful. And one other question if I could…
Jim Scilacci
Sure.
Ali Agha – SunTrust Robinson Humphrey
With regards to your decision making on the compliance spending in Illinois, I understand that early next year is when you have to sort of move forward. Could you give us some sense of, if Trona is the way to go, what kind of cumulative CapEx we are talking about versus the more conventional source by the numbers we do have but what would be the Trona CapEx numbers to be thinking about?
Jim Scilacci
Well, we're still going through that process and deciding on our preferred approach and it's a tradeoff that you have to consider. Trona has lower capital costs but higher O&M, so it is a tradeoff between capital and O&M and so you have to think about how it could affect, if you go with the Trona, your dispatch overall.
We haven't come to the conclusions and there would be second order effects with Trona in terms of particulate matter, so we are going through those studies and it will probably take us some additional time and work it through the legal and regulatory process to come to a conclusion.
Ali Agha – SunTrust Robinson Humphrey
But Jim, fair to say or Ted for that matter, that you do expect to spend some money on SO2 compliance across the fleet that some of those units will certainly be running if not all of them at the end of the day?
Jim Scilacci
Yeah. We will definitely spend some capital dollars and we understand that those dollars will pick up and will be reflected in our commitments charts later but it will be above the level that we're indicating for Knox.
Ali Agha – SunTrust Robinson Humphrey
Okay. Thank you.
Operator
Thank you. Our next question is from Jonathan Arnold.
Your line is now open.
Jonathan Arnold – Deutsche Bank Securities
Good morning.
Jim Scilacci
Hi, Jon.
Jonathan Arnold – Deutsche Bank Securities
Hi. Just a quick question on the rate base assumptions.
What do you assume around extension or not of bonus depreciation in the rate base forecast and how would it change in that assumption could impact the outlook on rate base and then how rate base translates into earnings?
Jim Scilacci
That's a good question. It will be interesting to see if there's an expansion to bonus depreciation.
We have not included it in our guidance or our outlook and so we'll have to see what happens as it flows through so if there would be an adjustment to the rate base that was reflected in the 2012 period as we pick it up for the rate case.
Jonathan Arnold – Deutsche Bank Securities
So that's where you'd see it?
Jim Scilacci
Yeah, exactly. We'd pick it up then as part of our rate case filing, if there is an adjustment.
Just as a matter of information, it's in our disclosures too; the benefit of the bonus depreciation for 2009 was approximately $250 million.
Jonathan Arnold – Deutsche Bank Securities
In terms of cash?
Jim Scilacci
In terms of cash.
Jonathan Arnold – Deutsche Bank Securities
But then on an earnings basis I guess it would be…
Jim Scilacci
You would have higher deferred taxes and it would roll through. I can't tell you exactly what the impact would be so we will pick that up later.
Jonathan Arnold – Deutsche Bank Securities
Okay. Second one, just on hedging at Midwest Gen.
It seemed there was a small reduction in the amount of energy you had hedged in the average price for 2010. Can you shed some light on what happened there?
Jim Scilacci
It was just -- periodically we go through and make small adjustments based on, as we're looking at plant operation and generation so I don't think I have anymore further color on that, it's just typically that we periodically do this.
Jonathan Arnold – Deutsche Bank Securities
It wasn't a contract went bad or anything?
Jim Scilacci
Oh, no no no. Just minor adjustments.
Jonathan Arnold – Deutsche Bank Securities
Thank you very much.
Jim Scilacci
Thank you Jonathan.
Operator
Thank you. Our next question is from Hugh Wynne.
Your line is now open.
Hugh Wynne – Sanford Bernstein
Hi. I also had a question regarding environmental compliance at Midwest Generation.
I understand the Trona technology is your preferred approach to meet the Illinois EPA's emissions requirements. My question or my concern is that Trona may not be sufficient to get the Federal EPA off your back with their new source review court case and similarly Trona may not be sufficient to meet maximum achieve all control technology standards for mercury and asset gasses that are imposed in later years by the EPA.
Could you address that concern? Is it accurate and accurate and how does it feed into your thinking?
Jim Scilacci
This is Jim. I'm going to start it off and kick it over to Ron.
As part of our thinking as we go through and trying to analyze what's the preferred approach and why we're working through this carefully and part of Ted's prepared script talked about the process that we're going through and the things we need to touch base on and clearly, both State and Federal rules are key considerations here, but I'll stop there and kick it eve over to Ron to more specifically address the question.
Ron Litzinger
On the maximum achievable control technology, Trona is excellent for asset gasses. We don't anticipate an issue there and then the carbon injection that we're using for the mercury removal, that's the only really known technology at this time for removing mercury from powder River Basin coal and then the carbon injection just to tie up a loosened is also good for removing Dioxin, although that's not normally a component to worry about with coal fired generation.
We think we're addressed there as well.
Hugh Wynne – Sanford Bernstein
And will the EPA see Trona as an adequate compliance technology in light of their objectives under the new source review lawsuit or are they likely to Clammer for something different?
Jim Scilacci
Hugh, that's a tough question. I don't think we can begin to speculate on that and I think the timeframes in terms of the U.S.
EPS side versus Illinois are much different, so we're going to work down the path. I don't want to be vague but we're going to work down the path of complying with our CPS and then on the federal side we'll deal with it as we need to.
Hugh Wynne – Sanford Bernstein
Okay. Thank you very much.
Operator Thank you. Our next question is from Michael Lapides.
Your line is now open.
Michael Lapides – Goldman Sachs
Hey, guys. Embedded in your 2010 guidance, are there any cash flow items besides net income, depreciation and CapEx and dividends that we should be aware of, meaning significant differences between cash and GAAP taxes, significant working capital uses or sources?
Things like that.
Jim Scilacci
No, Michael. We don't anticipate anything.
Things could emerge as we go through the course of the year if we have any; like we talked earlier about the bonus depreciation but we aren't anticipating anything at this time.
Michael Lapides – Goldman Sachs
So at both the reg and non-reg subsidiaries cash and GAAP taxes are likely equal?
Jim Scilacci
We're not anticipating anything. Now some of the things that we go through and think about and this gets to the effective tax rate too is what happens in terms of the elections we make for PTC versus ITC or cash grant and we haven't come to conclusions on that yet and so that's part of our thinking that we'll go through this year and could affect ultimately what we see on the tax rate.
Michael Lapides – Goldman Sachs
Got it. Okay.
One other thing, Midwest Generation during 2010. You talked a little bit about increased maintenance.
How should we think about capacity or availability factors at Midwest Gen compared to 2009? How big of a step change?
Jim Scilacci
I'll turn that over to Ron for an answer.
Ron Litzinger
Yeah. We shouldn't really see a big difference in the number of plant out age days that we're taking.
We did defer some projects from '09 into '10 but I don't think you'll see an appreciable difference.
Michael Lapides – Goldman Sachs
Okay. And if -- help me out here, can you give me a little bit more detail in terms of if you're having more maintenance on the plants is it all being done in the same planned the outage and therefore cost goes up but output doesn't change?
Jim Scilacci
That's correct.
Michael Lapides – Goldman Sachs
Okay. Thanks guys.
Operator
Thank you. Our next question is from Greg Gordon.
Your line is now open.
Greg Gordon – Morgan Stanley
Thank you. Good morning.
Jim Scilacci
Hi, Greg.
Greg Gordon – Morgan Stanley
It looks to me like the rough math on the regulated side of the business is that over the 9 to 13 period CapEx is up in the base case by $300 million. Some was deferred into 10 and then there's increased spending in 11 and 12?
Jim Scilacci
That's correct.
Greg Gordon – Morgan Stanley
So when I look at the overall financing plan, understanding that the impact of the tax settlement, is it the plan, is the plan to sort of lean on the parent balance sheet over that period to the extent that you need equity at the utility and or at what point should we expect you to access the equity markets?
Ted Craver
I said in my remarks that the utility will rely on its typical forms of financing, issuing debt and preferred stock to keep its cap structure balanced and it's going to retain earnings at the utility to make sure we have a 48% equity ratio. It's going to put pressure on Edison International because there's a lack of dividends coming up from the utility so the holding company will draw upon its lines of credits to pay the dividend potentially going forward but all these things have a lot to do with the actual spend of capital and potentially what other things occur at the utility in terms of timing difference, I think Michael was getting at in terms of additional potential tax items and to the extent we use short-term debt to balance this out.
The thing we're trying to avoid is as you rise, you increase the level of capital spending and putting pressure on these ratios, we're going to keep it balanced but we want to avoid the situation of issuing equity and then reaching a plateau on capital spending growth and have to buy it back in, so we're trying to manage all these things and at this point in time we have no plans to issue any equity at Edison International.
Greg Gordon – Morgan Stanley
Okay, so I get it. So in the intervening period, the parent pays the dividend off its balance sheet and then when you get into your next planning cycle beyond let's say 12, you start looking at the cash flow and financing needs of the company, you may be able to then reverse the parent leverage situation based on wherever power markets go or the cash flows and the utilities go or you may not but you'll address it at that point?
Ted Craver
Yes.
Greg Gordon – Morgan Stanley
Thank you.
Ted Craver
Thank you.
Operator
Thank you. Our next question is from Andrew Weisel [ph].
Your line is now open.
Andrew Weisel
Thanks, good morning. Just a couple questions about the wind business.
You mentioned that the pipeline has dropped to 4000 from 5000 just as recently as last quarter. Can you give a little bit more color on that, where sort of geographically are these reductions coming from and what are some of the reasons why that number has come down?
Jim Scilacci
Hi, it's Jim Scilacci. I'll start it off and kick it over to Ron for further detail, but there's two principal reasons for the reduction in the pipeline.
One, you're taking projects and putting them into construction so they came out of the pipeline and now have gone into active construction and the other piece of it is just with the overall cash preservation efforts at EMG, we've been carefully managing that pipeline and so to reduce our overall level of spending and development costs associated with that pipeline so we're trying to go with higher potential projects and not so much focus on the lower potential projects so that's the key two things that are going on. I'll ask Ron if he has anything further to add.
Ron Litzinger
Yeah. It was a year-over-year comparison the 5000 to 4000, not a quarter-on-quarter.
We just update that figure annually and Jim hit the key points. I would describe our cost containment efforts as across the board.
Andrew Weisel
Any way to quantify the first point there, how much of that has come into construction?
Ron Litzinger
Andrew Weisel
Okay. Great.
And geographically your pipeline, where -- which regions is it concentrated in?
Jim Scilacci
There's probably the overall pipeline, we try to focus our wind projects in certain regions. If you look at it, it's the Oklahoma, Texas, upper part of Texas, Scott Cunningham is showing me the map as I'm looking at it and so up in the Minnesota, Iowa region, Illinois and to the Northeast too is another concentration area so there's three principal areas we're focusing our wind development.
Andrew Weisel
Okay. Great.
And then lastly on the similar topic, when we look at slide 11 the CapEx plans, if I understand it doesn't include future wind investments until they get to that construction level. How much of -- what are your thoughts on including these future wind projects within EMG versus a different subsidiary of Edison?
Jim Scilacci
I'll let Ted address that.
Ted Craver
Yeah. At this point, really we're just focusing on continuing to develop the existing pipeline and that would be in the EMG.
Andrew Weisel
Okay. Great.
Thank you very much.
Jim Scilacci
You're welcome. Just one additional piece on that too.
There's a footnote, an important footnote on page 12 that addresses the turbine commitments in terms of what the additional balance of plant would be if we were to put those into operation and that footnote tries to address that point.
Andrew Weisel
Great. Thanks.
Operator
Thank you. Our next question is from Steven Fleishman.
Your line is now open.
Steven Fleishman – Catapult Capital Management
Yeah. Hi, gentlemen.
Jim Scilacci
Hi, Steve.
Steven Fleishman – Catapult Capital Management
Just apologize for another question on Trona, but just to clarify, is there, what is the downside of using Trona versus building scrubbers? What do you lose?
Jim Scilacci
I think the key issue that we're working through is the higher operating cost and where that puts us in the supply stack, so that's the key consideration.
Steven Fleishman – Catapult Capital Management
Okay. And then from the standpoint you mentioned kind of legal reviews of this.
Is this mainly just making sure that the Illinois EPA is okay with this or are we still kind of needing to focus on making sure how the new care law comes out, new rules come out, how the new Mac comes out?
Jim Scilacci
All of the above, Steve.
Steven Fleishman – Catapult Capital Management
All of the above, okay. One other detailed question.
You mentioned this FAS-133 gain in 2009 that hurts in 2010.
Jim Scilacci
Yes.
Steven Fleishman – Catapult Capital Management
What is that related to and what's the size of that in 2010?
Jim Scilacci
Yeah. Those are the typical -- related to the hedging activities in a sense and it's provided, there's a section in our 10-K that goes through and provides all of the gains and losses that have occurred and what we expect are rolling into earnings in 2010.
Steve Fleishman – Catapult Capital Management
Okay. Thank you.
Jim Scilacci
All right.
Operator
Thank you. Our next question is from Terran Miller.
Your line is now open.
Terran Miller – Knight Libertas
Good morning. I was just trying to follow-up on a question from before about the 2010 CapEx.
If I've done the math correctly, since your last disclosure, it looks like it's up about $437 million and it looks like you underspent 2009, $416 million. So are we supposed to think about this only the actual CapEx went up $21 million and the other $416 million was a timing difference?
Or can you just bridge those two numbers?
Jim Scilacci
Terran, you're way ahead of me. I think what you need to -- I think the bigger picture.
And we can talk about the math offline, is that we deferred a lot of capital dollars from 2009 into 2010 from the turbine payments. That was our major effort that we had to focus on for 2009 and we were quite successful there.
Now, we've put additional projects in construction, so the balance of plant related costs have kicked up as a result. And the additional piece then is the NOx expenditures that picked up by about $160 million.
So I'll talk with you offline and we can reconcile back to you the way we did it. I don't have it off the top of my head here.
Terran Miller – Knight Libertas
No problem. And just to follow-up on that specific NOx issue, with the 158, are there specific plans that you're talking about spending that for and is there a list someplace in the disclosure?
Jim Scilacci
We have not provided the specific plants that we're going through on that. The one we actually mentioned was -- was it Joliet?
Scott Cunningham
Yes.
Jim Scilacci
And, Joliet, 6 is the first one on the list because it's all based on their outage schedules. And we will provide additional information as we go through and we get permits from the Illinois EPA.
Terran Miller – Knight Libertas
Okay. But are we supposed to look at that NOx spending as some indication of what you think the economics of those coal plants are going forward in the competitive market?
Because if you didn't think they were economic, you wouldn't even spend the NOx dollars before you got to the SO2 dollars?
Jim Scilacci
What we are managing to is a annual rate. And that is the consideration that we're focusing on.
Ted Craver
Maybe I can add one piece in here, this is Ted.
Terran Miller – Knight Libertas
Thank you, Ted.
Ted Craver
The fundamental decision point as it relates to the NOx is you're going to put $158 million in, can you get your $158 million out in a timeframe that we think is reasonable? And in this case, we had a rapid payback.
So the view was we should go forward, it's really somewhat independent of the SO2 discussion.
Terran Miller – Knight Libertas
Okay. Ted you set me up to ask you to define a timeframe.
Ted Craver
Well --
Terran Miller – Knight Libertas
Is that like 12, 18 or 24 months or something in that region or longer term than that?
Ted Craver
Yes. 12 to 18 months, 12 to 18 months period.
Terran Miller – Knight Libertas
Okay. Thank you very much.
Ted Craver
Thanks, Terran.
Operator
Thank you. Our next question is from Lasan Johong.
Your line is now open.
Lasan Johong – RBC Capital Markets
Thank you. Good morning.
I thought there might have been some potential for upside to your CapEx numbers, but given your restrictions on the financing side, it looks like you've got all you can handle. Is that and accurate portrayal?
Jim Scilacci
Lasan, just want to clarify, for Southern California Edison?
Lasan Johong – RBC Capital Markets
Yes, sorry.
Jim Scilacci
Okay. Just -- what happens here and how these numbers are developed, there's -- get into a general rate case, there's a full bottoms-up review of all capital spending because you have to go through and justify at a very granular level.
And so that's how the whole budget is designed. And it wasn't based on expected financing availability or cash flow or what not.
It's bottoms-up approach in terms of your overall needs. So I think that's the primary consideration, not financing.
Lasan Johong – RBC Capital Markets
I see. Why isn't it obvious that for the wind projects you would pursue ITC grants as opposed to a PTC if you have some potential for having to use short-term credit lines to bridge your CapEx spending?
Jim Scilacci
It’s -- there are different issues here. If you think about ITC, depending upon the productivity of the wind, it could make a big difference if you do not use the PTC.
And then there's a difference between ITC and cash grant. Cash grant may be taxable on a California basis and so you may not be as efficient of using an ITC but there's timing differences with an ITC versus cash grant.
So we look at these more as financing considerations, what's the best source of financing, all these things and you really have to look at it on a case-by-case basis.
Lasan Johong – RBC Capital Markets
I see. One last question.
Can you talk about M&A opportunities? Obviously, the First Energy Allegheny situation brings to light some interesting opportunities.
Are you chomping at the bits maybe, to get at something? Do you think the options are there for you to make that choice?
Ted Craver
This is Ted. I'm sure you expect this answer, but we don't really speculate on those types of things.
Lasan Johong – RBC Capital Markets
Very good. Thank you very much.
Ted Craver
Okay, Lasan.
Operator
Thank you. Our final question today is from Paul Patterson.
Your line is now open.
Paul Patterson – Glenrock Associates
Good morning guys. How are you?
Jim Scilacci
Very well.
Paul Patterson – Glenrock Associates
Just wanted to touch base with you on -- since most of my questions have been answered. On the 8% to 11% growth in CapEx at SCE, how should we think about the impact that you see on that CAGR growth on customers' rates?
How should we think about that, the type of CapEx you're doing and how that might impact customers' rates during that period of time?
Jim Scilacci
That's a good question. I'm going to have Al Fohrer answer that question.
Al?
Al Fohrer
Thanks, Paul, for that last question. If you take a look at our last rate case, it provided something like about a -- it was less than about 5% or 6% total increase in rates.
So much of what affects our customer rates is not only the capital, but more importantly, what's happening on the entire purchase power side. Because if you look at SCE, we have a total of about $7 billion in non-rate base revenue.
Part of it is in DWR, part of it flows through the fuel and purchase power and what happens in those areas has an almost bigger impact. So our focus is to have a program that is -- provides reliability to the customers, meets the states objectives and also focuses on overall affordability and we try to balance that by the positions we take in all of the proceedings, not just CapEx.
Paul Patterson – Glenrock Associates
Okay. So basically, we're thinking about a minimal impact on customer rates over that period of time with the fall off in the purchase power commitments?
Al Fohrer
I wouldn't call it minimal. We are still, as always -- natural gas prices have a very large impact as they have a positive impact on EMG.
They have a negative impact on our customers, so we look at that. It has to do with the cost of the new renewables and all of the things coming in.
So there's a lot of different moving parts there.
Paul Patterson – Glenrock Associates
Okay. So do we have -- that's what my question sort of was, is renewables and all these mandates that are happening there, are we -- how should we think about what customers' bill impacts might be in this current environment?
I guess, it segues into how we think about the general economic environment there and what have you.
Al Fohrer
I think you can expect real growth in electric rates, meaning they would go up faster than just regular inflation. Our goal is to make that as small as possible.
The implementation of any of these mandates has a very wide range of outcomes such as the 33% renewables, depending on how it's implemented, could be more costly than the same end number of 33, but implemented a different way that would provide greater opportunities to purchase from out of state. So all of the pieces have a lot of moving parts, even with M&M.
Paul Patterson – Glenrock Associates
Okay. Thanks a lot guys.
Jim Scilacci
And clearly Paul, it's a regulatory and political balancing act that we need to work through here on the rate issue and that's something that we'll focus on with our GRC in 2012.
Paul Patterson – Glenrock Associates
Thanks.
Jim Scilacci
Operator
Thank you. I do have a question from Jay Dobson.
Your line is now open.
Jay Dobson – Wunderlich Securities
Hey, thanks, Jim. Most of my questions have been answered, but I was wondering if you could summarize the financing plans for 2010.
I think you've got the debt maturities laid out in the appendix, but just new money financing needs?
Jim Scilacci
Yeah. And you're referring at the utility?
Jay Dobson – Wunderlich Securities
Yes, primarily.
Jim Scilacci
Well, I'll touch lightly on both. So at the utility, we'll be active well over $1 billion of debt and we're looking at preferred stock issuance too to keep the debt structure balanced and that should start either -- well, probably right after our call, we'll start looking at the financial markets since we’ll get our 10K out there and we'll be current on all of the information.
On the EMG side, they will be active in terms of project finance market. As we've said all along that as we do these projects, we want to have a long-term PPA and wrap it with a project financing to replenish the cash into our capital structure and provide cash for future growth.
So a little different financing markets from both sides of the businesses, that both will be active.
Jay Dobson – Wunderlich Securities
That's super and I'm sure it's in the K, but could you just let me know what the cash was in from the accounting change on -- tax accounting change on repair?
Jim Scilacci
$192 million. It is in the 10-K too.
Jay Dobson – Wunderlich Securities
It is and that's cash in already? That's not receivable?
Jim Scilacci
That was a deferral of tax payments, so that's -- effectively, it's cash in the door.
Jay Dobson – Wunderlich Securities
Dynamite. Thank you.
Jim Scilacci
Thank you, Jay.
Scott Cunningham
This is Scott. I'd like to thank everyone for participating in the call today and don't hesitate to call us if you have any follow-up questions.
Thanks very much.
Operator
Thank you. This does conclude today's conference.
Thank you for participating. You may disconnect at this time.