Nov 1, 2012
Executives
Scott Cunningham - Interim Head of Corporate Communications and Vice President of Investor Relations Theodore F. Craver - Chairman, Chief Executive Officer and President W.
James Scilacci - Chief Financial Officer, Executive Vice President and Treasurer Ronald L. Litzinger - President of Southern California Edison Company Linda G.
Sullivan - Former Chief Financial Officer, Principal Accounting Officer, Senior Vice President and Acting Controller
Analysts
Dan Eggers - Crédit Suisse AG, Research Division Hugh Wynne - Sanford C. Bernstein & Co., LLC., Research Division Gregg Orrill - Barclays Capital, Research Division Steven I.
Fleishman - BofA Merrill Lynch, Research Division Jonathan P. Arnold - Deutsche Bank AG, Research Division Michael J.
Lapides - Goldman Sachs Group Inc., Research Division Brian Chin - Citigroup Inc, Research Division Kit Konolige - BGC Partners, Inc., Research Division Kit Konolige Ali Agha - SunTrust Robinson Humphrey, Inc., Research Division Angie Storozynski - Macquarie Research Leslie Rich - J.P. Morgan Asset Management, Inc.
Leslie Rich Travis Miller - Morningstar Inc., Research Division Ashar Khan
Operator
Good afternoon. My name is Gabrielle, and I will be your conference operator today.
At this time, I would like to welcome everyone to the Edison International Third Quarter 2012 Financial Teleconference. [Operator Instructions] After the speakers remarks, there will be a question-and-answer session.
[Operator Instructions] Today's call is being recorded. [Operator Instructions] And I would now like to turn the call over to Mr.
Scott Cunningham, Vice President of Investor Relations. Mr.
Cunningham, you may begin your conference.
Scott Cunningham
Thanks so much 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. The presentation that accompanies Jim's comments, the earnings press release and our SEC filings are available on our website at www.edisoninvestor.com.
We will be using these and other slides in our regular quarterly business update presentation that will be issued next week for our ongoing investor discussion. 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 urge you to read these carefully. The presentation includes 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 1 question and 1 follow-up. If you have further questions, please return to the queue.
With that, I'll turn the call over to Ted Craver.
Theodore F. Craver
Thank you, Scott, and good afternoon, everyone. Today, Edison International reported third quarter GAAP earnings of $0.58 per share compared with $1.31 per share 1 year ago.
Core earnings were $0.72 per share compared with $1.26 per share 1 year ago. The decrease in earnings was primarily due to 3 factors: Losses at Edison Mission Group, delay in the California Public Utilities Commission final decision on SCE's 2012 General Rate Case, and an increase in holding company costs due to state tax adjustments.
Jim Scilacci will provide additional details on the quarter in his remarks. There are 3 main areas on which I will focus my comments this afternoon: Our restructuring efforts at Edison Mission Energy, the recently received Proposed Decision on SCE's 2012 General Rate Case and an update on the San Onofre Nuclear Generating Station, or SONGS, as we call it.
Let me start with Edison Mission Energy. In past earnings calls, I have explained Edison International's overall strategy.
We believe the most effective way to participate in the growth opportunities arising from the substantial changes occurring in the electric power industry is through a dual platform of regulated and competitive businesses. However, we are acutely aware that the competitive generation sector has been deeply challenged for some time by cyclically low margins and capacity values.
For the last few years, EME has focused on developing innovative approaches to environmental compliance and careful capital stewardship, principally as a means to buy time for a recovery in power markets and energy margins, and stabilize the company. But despite great efforts and many successes by EME, the adverse power market trends have only deepened and EME's operating losses this year have increased significantly and are expected to continue.
At the same time, EME has a capital structure and financial leverage, created in better times, that is no longer workable under current and foreseeable conditions. Under current projections, EME will not be able to repay the June 2013 bond maturity of $500 million.
There is also no assurance that EME will pay the $97 million of interest due on its bonds on November 15 or within the 30-day grace period that follows. Failure to pay interest on the bonds will likely result in EME filing for bankruptcy protection under Chapter 11 of the Bankruptcy Code.
A bankruptcy filing by EME this year would result in its being deconsolidated from Edison International. This means that the assets and liabilities of EME would be removed from Edison International's consolidated balance sheet upon a bankruptcy filing.
The earnings of EME would be included in Edison International's earnings up to the time of a bankruptcy filing, together with any charges related to deconsolidation. After a bankruptcy filing, the results of EME would no longer be included as part of Edison International's earnings, and our results will largely be the earnings of Southern California Edison less our holding company costs.
As we discussed on our last call, EME entered into nondisclosure agreements in June with the advisors to holders of the majority of its unsecured bonds. Discussions with the advisors have been ongoing.
As disclosed in our 10-Q filed today, certain of the advisors' clients executed nondisclosure agreements last month to facilitate further discussions. We remain in discussions and under nondisclosure agreements, and therefore, Jim and I will not be able to comment further during the Q&A session in this call or in subsequent discussions with investors until a public filing about the discussions occurs.
I recognize this may be frustrating to some of you, but we appreciate your understanding in this regard. Let me now turn to Southern California Edison.
Rate based growth at SCE, spurred by needed investment and California public policy mandates, has been the cornerstone of our stock's investment thesis for some time. SCE received its long-awaited proposed decision for its 2012 General Rate Case on October 19.
The Proposed Decision provides a level of base revenue through 2014. As is normal procedure, SCE intends to file comments with the commission on November 18 (sic) [November 8] that identify various technical and other procedural items in the proposed decision that need correction.
Oral arguments are scheduled for November 16, and a final decision could come at either the November 29 or the December 20 meetings. The Proposed Decision does significantly reduce SCE's requested operations and maintenance expense, overhead expenses and rate base in order to moderate customer rates.
Although challenging, we expect SCE will manage its costs over the rate case period, consistent with the final authorized revenue requirement, such that it can earn its allowed return on common equity. Moreover, during the 2012 to 2014 rate case period, capital spending continues to support infrastructure investment and results in rate base within our previously disclosed forecast range.
Turning to our San Onofre Nuclear Generating Station, SCE has filed plans with the Nuclear Regulatory Commission to restart Unit 2 at 70% load for an initial 5-month period. Unit 2 did not experience anything near the level of tube-to-tube wear found in Unit 3, even though it operated twice as long as Unit 3, and consequently, is in a condition that it can be restarted earlier.
A team of outside experts has confirmed that operating at reduced power will eliminate the physical conditions that caused fluid elastic instability, which is the phenomenon that caused the unusual tube-to-tube wear and tube failure in Unit 3. The shorter 5-month operating period we are proposing is designed to provide an additional margin of safety.
The NRC has made clear that they will not commit to any schedule for a return-to-service decision. Concurrently with their review, SCE continues to work with its outside experts and the steam generator designer and manufacturer, Mitsubishi Heavy Industries, on what it will take to restore both units to full load.
It's not clear at this time if the units can be repaired, and it appears complete replacement of the steam generators would take some years. We continue to place the highest priority on safety before a restart of any unit at SONGS.
And we will remain diligent in recovering costs incurred from the outage from warranties and insurance. A comprehensive review of the outage at San Onofre by the California Public Utilities Commission will take place under the Order Instituting Investigation adopted on October 25.
This will consolidate all proceedings and consider appropriate cost recovery for applicable SONGS costs after January 1, 2012, including steam generator project as well as the market power costs, capital and O&M costs, and seismic study costs. SCE will file a response to the order by November 26 and testimony by December 10, detailing costs subject to refund pursuant to the provisions of Public Utilities Code 455.5.
I would like to note that the EdisonConnect smart meter program is nearing completion. The program remains on schedule for completion this year and is on target at its authorized capital cost of $1.25 billion.
Close to all of the planned 5 million meters have been installed as of September 30. SCE is rolling out new products and services to its customers, providing monthly budgeting tools and incentives for managing electric use, which will be increasingly helpful when tight supply and demand conditions return next summer as a result of reduced output from San Onofre.
The other key regulatory decision coming up at the California Public Utilities Commission in December is the first phase of the cost of capital decision. This first phase includes SCE's allowed return on equity for 2013.
The proceeding remains on schedule for a proposed decision on November 19 and a final decision on December 20. The second phase of the proceeding, which would address terms of any trigger mechanism, is scheduled to conclude in April of next year.
SCE continues to make its case for a proposed 11.1% rate of return, a 40-basis-point reduction from the current 11.5%. As the General Rate Case Proposed Decision acknowledges, California wants strong public safety, and infrastructure and policy-related investments from its utilities.
We expect the commission will similarly consider California policy-specific facts that have traditionally resulted in an above-average, national-average rate of return. I would like to finish by reiterating what I mentioned on our last call regarding dividend policy.
As we gain clarity on the cash flow outlook for Southern California Edison with the final General Rate Case and cost of capital decisions, we will be in a better position to, over time, move back toward our target payout ratio of 45% to 55% of utility earnings. This will, of course, depend on successful execution of our capital spending program and earning our allowed return.
I believe the resolution of several strategic uncertainties, combined with a strong rate base and dividend growth potential make Edison International an increasingly attractive company to investors. Now, I'll turn the call over to Jim Scilacci to provide his financial comments.
W. James Scilacci
Thanks, Ted, and good afternoon, everyone. Please turn your attention to the teleconference deck, and we're going to step through the various pages.
Page 2 of the presentation summarizes the quarterly earnings comparison that Ted has already touched on. The quarter has a number of moving parts and is complicated by the absence of SCE's General Rate Case decision and a couple of tax items that I will walk through.
Please note that the non-core items in the quarter relate to 2 things: First is the presentation of Homer City, which is now recorded in discontinued operations in both periods; second is a gain at Edison Capital, which is part of Edison Mission Group, related to the third quarter sale of its remaining lease interest in the Beaver Valley nuclear station. Before I talk about the business results, holding company costs in the third quarter included a $0.09 per share impact from the changes in state tax calculations.
The majority of this impact relates to a change in our consolidated state tax apportionment factor going forward, as we expect lower sales outside California from declining revenues from Homer City and Midwest Generation facilities. The balance of the change reflects an increase in income apportioned to California from prior periods due to a recent court case.
Even though these items are from prior periods, we have included them in core earnings, because changes in estimates are part of managing our ongoing tax positions. SCE's third quarter core earnings were $1.11 per share, $0.14 below last year.
The decline largely relates to the delay in the General Rate Case decision and SONGS outage-related costs. As we have said on prior calls that SCE's 2011 revenues -- authorized revenues, does not cover certain costs, mainly higher depreciation and financing costs.
These total $0.09 per share in the quarter. As Ted indicated, if the final GRC decision is received timely, revenues to offset these costs would be recorded in the fourth quarter.
SCE continued incur inspection and repair costs related to SONGS outage, which had a $0.09 per share impact during the third quarter. In addition, SCE's third quarter results included a $0.09 per share severance reserve, which reflects the previously announced staffing reductions at SONGS.
To be clear, we have included inspection and repair costs and the severance reserve in core earnings. During the third quarter, SCE continued to manage its costs carefully, given the rate case uncertainties, providing a benefit of $0.06 per share.
And finally, income taxes and other items contributed a net favorable $0.04 per share. The effective tax rate declined on lower pretax income and higher property related deductions, part of which resulted from finalizing our 2011 tax returns.
Next, I'd like to turn to the implications of the Proposed Decision in the General Rate Case on capital spending and rate base. Page 4 summarizes some of the specifics that Ted alluded to in his comments.
Importantly, the post-test year escalation for capital additions is commensurate with our projected range of capital expenditures. Turning to Page 5, we have added, at the lower left of the slide, capital spending incorporated in the Proposed Decision.
In all years, keeping all other factors constant, capital spending would remain within our request and range cases. As noted at the bottom of the slide, we now see actual capital expenditures are likely to fall below the range case during 2012, primarily from the delay in receiving the General Rate Case decision and from delays associated with the Tehachapi transmission project.
We would expect to make up this shortfall in CPUC jurisdictional capital spending by the end of 2014, consistent with the overall 3-year authorized spending levels. We will update SCE's capital spending forecast after we receive a final rate case decision, most likely as part of our full year financial reporting.
Page 6 shows the corresponding impact of the Proposed Decision on rate base, again, keeping all other factors constant with the prior forecast. You can see that the authorized rate base, which is on an average year basis, falls within our request and range cases, consistent with a 7% to 9% rate base growth.
Turning to Page 7, regarding SONGS. Ted has already spoken to many of these points, but I want to touch on a few financial elements.
We believe we have incurred the cost needed to return Unit 2 to service at partial load. We have no further estimates on any cost to return Unit 2 to full-service or to restart Unit 3, pending the technical evaluation that Ted discussed.
In September, SCE invoiced Mitsubishi for $45 million for inspection and repair costs paid through June 30 by SCE and its partners. We expect to issue additional invoices for recovery of inspection and repair costs.
In October, SCE submitted its initial claim to Nuclear Electric Insurance Limited, or NEIL, for loss recovery under its outage insurance. SCE will recover the maximum indemnity amounts for each unit under our outage policy, which is $3.5 million per unit, per week after a 12-week deductible.
For both the warranty and insurance, there is no assurance of any recoveries. SCE has not recorded any recoveries in its results, pending further actions by NEIL and MHI.
Please turn to Page 8. We provided information on EMG's results, and the appendix pages have the detailed operating information.
Suffice to say that business conditions for merchant generators remains challenging. The availability and forced outage rates at Midwest Generation for the quarter improved over last year, and Midwest Generation controlled its O&M costs in light of the market conditions.
However, Midwest Generation's results were adversely impacted by lower energy prices. This also resulted in lower generation levels, higher fuel costs driven by higher coal transportation costs and lower capacity prices.
Natural gas project earnings declined at the Sunrise project due to the expiration of its long-term power contract. Page 9 updates liquidity position for our companies, and the bottom half of the page provides EME's tax benefit position.
On the latter point, $185 million tax allocation payment made by EME in the quarter was as expected, and EME anticipates receiving a net $160 million in payments from EIX by next spring. Given the lateness in the year and a lack of a final GRC decision, we do not plan to provide 2012 earnings guidance.
On February 26, 2013, tentatively, we plan to report fourth quarter and full year results and to provide 2013 earnings guidance. Okay, thanks.
Now, I'd like to turn it over to the operator and move into the Q&A session.
Operator
[Operator Instructions] Our first question comes from Dan Eggers with Crédit Suisse.
Dan Eggers - Crédit Suisse AG, Research Division
Ted, when we think about Mission, I know you're not going to go to comment on where negotiations are. But a little over a year ago, you said that the resolution should be done in 12 months, and obviously, your negotiations, which has continued this on.
But are you thinking there is kind of a mental deadline where you need to be done with this process? Or is this something that could stay open ended, even beyond the interest payment timeline, if you're comfortable with negotiations going forward?
Theodore F. Craver
I think kind of the short answer is, the pending interest payments really pretty much bring this thing to a head. So I'd be hard-pressed to see how it could extend past the interest payment period.
Dan Eggers - Crédit Suisse AG, Research Division
So the November 15 plus 30 days is kind of the timeline within that, that band would be as far as it could go?
Theodore F. Craver
That's the way we've been thinking about it.
Dan Eggers - Crédit Suisse AG, Research Division
Okay. And I guess, just one other question on the 10-Q.
I guess On Page 43, you showed the book value for EME, as you guys have it right now. Should we assume that the -- effectively net, $1.1 billion, is that what we should think of as your book value that would be exposed to a tax loss carryforward if -- or exposed loss to get a tax benefit if it were to go bankrupt or you were to give up your interest in the business?
W. James Scilacci
Dan, this is Jim. I think it's really complicated to tell you that what kind of tax loss there might be associated with EME because there's a time element here.
And it depends on potential monetization of tax benefits. So I can't even begin to suggest what is appropriate to use for modeling purposes.
And I think, overall, you should consider it not material.
Operator
And our next question comes from Hugh Wynne with Sanford Bernstein.
Hugh Wynne - Sanford C. Bernstein & Co., LLC., Research Division
My question is around SONGS. I wonder, first, whether you could outline for us your expectations with respect to a determination or the date by which the CPUC would determine the amount of your revenue requirement that would be subject to refund?
What is the schedule of the proceeding?
Theodore F. Craver
Ron, you want to take that?
Ronald L. Litzinger
Yes, this is Ron. The commission really hasn't laid out a schedule.
It's very early on. President Peevey did comment that the review would be exhaustive.
So it would likely be some time.
Hugh Wynne - Sanford C. Bernstein & Co., LLC., Research Division
"Would likely be some time," is that the end of the sentence?
Ronald L. Litzinger
Yes. Period.
Hugh Wynne - Sanford C. Bernstein & Co., LLC., Research Division
Period, right. The second part of that question is are there precedents that we could use from, for example, the treatment of Unit 1 or other nuclear power plant outages or other plant outages in California, as to the range of possible outcomes in this proceeding?
What portion of the plant's revenue requirement is most at risk?
W. James Scilacci
Hugh, this is Jim. I can't even begin to speculate on something like that.
As we've said before, we believe our actions surrounding SONGS have been reasonable. And we will look to maximize our recoveries and insurance through our warranty from MHI.
And so we will do all we can to minimize the potential costs for all parties involved.
Operator
And our next question comes from Gregg Orrill with Barclays.
Gregg Orrill - Barclays Capital, Research Division
I was wondering if you could address the rate base on Slide 6 of the 2014 GRC PD of $23.4 billion. And then Footnote 1 breaks it into -- breaks the forecasted range into a number of components.
I wonder if you could maybe, at least, break it into -- the PD into jurisdictional rate base and then transmission?
W. James Scilacci
Just think of it this way. FERC jurisdictional rate base would be about approximately 20% of the number here that you see for the GRC PD at $23.4 billion.
So that's just a rule of thumb. And I'll pause there, because I'm now forgetting the first part of your question.
You need to reask it, Gregg.
Gregg Orrill - Barclays Capital, Research Division
That was really just to break the 2014 PD rate base for cash into its components. So maybe we could get a sense on our own of potential earnings impact?
W. James Scilacci
Yes. So I think if you take the $23.4 billion and you have 80-20 as a rough rule of thumb between CPUC jurisdictional and FERC jurisdictional.
Operator
And your next question comes from Steve Fleishman with Bank of America.
Steven I. Fleishman - BofA Merrill Lynch, Research Division
Just a question on the San Onofre review. To the degree that the commission, I think, potentially has to move the asset out of rate base into some other laws pending the review, are you still able to book the earnings from the asset during the review even if it's in a separate clause?
Or is there any kind of accounting issue with continuing to book the terms?
W. James Scilacci
Well, I think we can, and under 455.5, it specifies what the mechanism is. But I'll look over to Linda Sullivan, and she can provide some additional information.
Linda G. Sullivan
So, if the asset is taken out of rate base, what we would do is remove it from rate base, move it into a regulatory asset account. And then, we would have to continually assess the probability of recovery as we move forward.
Steven I. Fleishman - BofA Merrill Lynch, Research Division
Okay. But there would have to be some kind of issue in the process that would cause you to assess, and it's unlikely for it to be a problem to book it?
W. James Scilacci
So we're going to have to make a determination. And if you remember back during the...
Theodore F. Craver
It's quarter by quarter.
W. James Scilacci
It's going to be quarter-to-quarter. We have to assess -- it's under FAS 71.
As you assess the recoverability of the cost. And based on where we stand today and the facts that we know, our actions were reasonable, and we will look to recover those dollars.
Now, if the commission did something otherwise, the facts may change.
Operator
Our next question comes from Jonathan Arnold with Deutsche Bank.
Jonathan P. Arnold - Deutsche Bank AG, Research Division
First question is can you -- I know you don't want to go anywhere on these negotiations on Mission. But I'm just wondering if you could give us sort of, conceptually, some kind of an idea of what types of things would trigger a disclosure filing?
And how -- is that part of the process, or is that just something that may happen?
Theodore F. Craver
This is Ted. I think, essentially, the consideration there is, as I mentioned, originally, we were just discussing and negotiating with the advisors of some of the holders of the bonds.
More recently, that's moved to discussions with the advisors of a subset that are -- of clients. So we have nondisclosure agreements with those clients and so that means they are restricted.
So there are some spots here, and this is what we were alluding in the comments, there are some spots here where those holders, the direct holders, are not going to be -- or not going to want to be restricted. And there would be some disclosure that would give the history of the discussions, so-called cleansing disclosure.
But I think that's the next disclosure that would likely come forward. But while we're still in negotiations, all parties have decided that we would just simply state we're in negotiations, and that's where we are at this point.
Jonathan P. Arnold - Deutsche Bank AG, Research Division
So Ted, remembering back to the Homer City, that would be a kind of -- you're talking about some kind of a financial outlook disclosure that would be triggered by having disclosed it to them. It wouldn't necessarily be a sign you are agreeing on anything, is that -- are we thinking of that correct?
Theodore F. Craver
You can't really -- I mean, there are so many potential outcomes here. I think, what we are relating to is there's some spot here where there will be a so-called cleansing disclosure.
Whether that will be the result of an agreement or not, we really can't speculate. And there are different percentages of bondholders that end up getting involved in this thing over time.
But I think you just -- it's unfortunate, we'd like to be a lot clearer about some of these things, but really all we can say is we're in continuing discussions with the advisors and the bondholders. And that's really where we are for the time being.
Operator
Your next question comes from Michael Lapides with Goldman Sachs.
Michael J. Lapides - Goldman Sachs Group Inc., Research Division
Coming back to the proposed decision in the rate case, looking at Slide 4, that $15.09 billion rate base in 2012, is there any CPUC items, CPUC-regulated items, that you can earn on but are not included in that $15.09 billion?
W. James Scilacci
I'll pause here and look at Linda Sullivan for help.
Linda G. Sullivan
So, it does not include the solar rooftop program for the 125-megawatt reduction. It also does not include the SmartConnect program and the steam generator replacement program.
Michael J. Lapides - Goldman Sachs Group Inc., Research Division
Can you quantify, just put some numbers around those 3 items, please?
Linda G. Sullivan
We have not disclosed that.
Michael J. Lapides - Goldman Sachs Group Inc., Research Division
You've not disclosed...
W. James Scilacci
So what we're trying to do in the Page 6, it provides the full rack-up of the full rate base numbers. So we haven't provided the individual pieces here, Michael.
Michael J. Lapides - Goldman Sachs Group Inc., Research Division
Okay. So the GRC PD of $20.1 billion, if I subtract $15.09 billion from that, the rest of it is a combination of the other CPUC-regulated items, plus FERC-regulated transmission.
Linda G. Sullivan
That's correct.
W. James Scilacci
You got it.
Michael J. Lapides - Goldman Sachs Group Inc., Research Division
Okay. Just curious though, I don't know -- I think you've done it in a public filing.
What your latest FERC transmission rate base is?
W. James Scilacci
Well, what we said in 2014, it's going to be about 20% of the $23.4 billion number. So we'll have to back up.
So we're right in the midst of filing our update proceedings for this year. And I think it's less than 20%.
Why don't we just say we'll get you a number? It's approximately 15% of the total rate base, but we'll get you a more exact number because that's in the public domain.
Michael J. Lapides - Goldman Sachs Group Inc., Research Division
Okay. And then just real quick.
Were there dramatic changes to depreciation schedules as part of the PD?
Linda G. Sullivan
There were many different changes to the depreciation schedules that were in the request. And in some cases, the judge agreed with our recommendations.
In other cases, he agreed with the interveners. And overall, it was a reduction of about $100 million from our request.
And we're still working through the Proposed Decision and through all of the details.
W. James Scilacci
Just to follow up on that, we'll have -- we're filing comments on the Proposed Decision to the extent that there are things we will comment on and depreciation could be one of those.
Operator
Our next question comes from Brian Chin with Citigroup.
Brian Chin - Citigroup Inc, Research Division
I know you guys didn't touch on it in your prepared comments because it's a bit more California related in a broad sense, but we've seen a lot more color or chatter recently about resumption of resource adequacy and capacity market type commentary in California. And to my knowledge, I don't think you guys have really commented on that formally.
But can you just give me your sense of where you think that's headed? Particularly since Calpine-Sutter decision seems to have touched off a little bit of concern in the state?
Theodore F. Craver
Okay, Ron Litzinger will cover that.
Ronald L. Litzinger
There's nothing formally set-up or established any proceeding at this point. But certainly, as you stated, Sutter has got everyone thinking about capacity markets again.
And the people are starting to prepare to engage in discussions in an appropriate forum, if one develops.
W. James Scilacci
And Brian, just to follow-on, on that, because of the potentially need for capacity out past the end of the decade with once through cooling situation still ongoing and potentially SONGS. There's -- that's why I think you're seeing a little bit more chatter associated with capacity markets.
Brian Chin - Citigroup Inc, Research Division
Is there a particular structure or approach to that, at least in broad terms, you know that would be supportive of?
W. James Scilacci
I don't think we can have a company policy that we could tell you. We're obviously, given our experience at EME, we're very familiar with the capacity structure in PJM.
We've been heavily engaged since the capacity market was ultimately created. There are some very positive things associated with that, but there's also some challenges in terms of the way they've managed it.
So you have to weigh the pluses and minuses, and you have to ultimately think about the impact on the rate payer overall. So if there were a proceeding, what would it go through?
The long-term resource adequacy proceedings or would that create a separate proceeding?
Theodore F. Craver
I think it would be a separate rule making.
Operator
And our next question comes from Kit Konolige with BGC.
Kit Konolige - BGC Partners, Inc., Research Division
Just a couple of kind of follow-up questions. Jim, did I hear you correctly saying that any tax-related loss or tax advantage from a loss at EME would be not material at the EIX level?
W. James Scilacci
I did say that.
Kit Konolige
Okay. And then can I ask, generally, should we be assuming, I know this is kind of early in the central [ph] process, but can we be assuming that you would want to replace the steam generators at San Onofre again?
In other words, is -- should the base case assumption be that SONGS will run for a good number of years in the future?
Theodore F. Craver
Kit, this is Ted. I'm going to answer that with kind of largely a non-answer.
Fundamentally, we're focused on Unit 2, making sure that we can restart Unit 2 safely. We did a lot of work on that, came to the conclusion that we could.
That's why we applied for approval to the NRC to restart Unit 2. There's things that we are going to -- once we run Unit 2, assuming it's approved to restart, once we run it for the 5 month period, take it down, reinspect, that will certainly provide quite a bit of information.
As we said in the comments here, a lot of work continues around what are the possible options for Unit 3, what might be able to be done in a repair or a replace scenario. So there's a lot of work that's going on, but way too early at this point for conclusions or speculation around whether units would be replaced or repaired or run at partial power or for how long.
It's just premature at this point.
Operator
Our next question comes from Ali Agha with SunTrust.
Ali Agha - SunTrust Robinson Humphrey, Inc., Research Division
Ted, coming back to you, big picture question. In your opening remarks, you painted the picture on EME markets have not improved nor seeing any signs in the foreseeable future.
If you take your year-to-date results, at the EBIT level, you're reporting a loss. So even if all the deck was eliminated, you would still be booking losses at EME.
Am I missing something here? Or other than a bankruptcy filing, I mean, what is left here to be thinking about in this process?
Theodore F. Craver
Well, we did indicate that there's significant losses this year and also said that we would anticipate, under current market conditions, for there to be losses in future years. And that is part of our thinking around what's the best course.
I think we've been pretty clear on this and I won't spent a lot of time reiterating it. But -- that if we are continuing with EME, we've got to address the capital structure.
It's over-levered for the type of conditions that we see. And we have to be able -- we, Edison International, have to be able to see a stable path forward with EME.
We have to be able to turn to our equity investors and say, "It makes sense to retain ownership of EME because we see a stable capital structure that's appropriately fitted for the market conditions." Absent that, then we look at the other principal option, which is no longer having ownership.
So those are the areas that we've been talking about and looking at with all of you. And I think you've put your finger on the principal problem, and that is market conditions don't really support positive earnings for some period of time.
Ali Agha - SunTrust Robinson Humphrey, Inc., Research Division
Okay, fair enough. And then second question on SONGS.
Can you remind us, year-to-date, how much expenses have been incurred that you believe ultimately are eligible to be reimbursed to you? What's the total amount?
W. James Scilacci
$96 million.
Ali Agha - SunTrust Robinson Humphrey, Inc., Research Division
$96 million pretax?
W. James Scilacci
Correct.
Theodore F. Craver
Correct.
Operator
Our next question comes from Angie Storozynski with Macquarie.
Angie Storozynski - Macquarie Research
I have a question about the timeline for the next couple of months. So you mentioned that you need the cost of capital proceeding to be done to have a better visibility into SCE's earnings power, and that will determine the ability to increase dividends going forward.
Now, I'm worried because we've seen a number of cases being delayed in California. And how comfortable are you that there's going to be a decision in the cost of capital proceeding still this year?
W. James Scilacci
It's a great question, and the history with our PD hasn't been good in terms of the delay. And cost of capital, it's gone very efficiently thus far.
The hearings were on time. The ALJ that's involved in the cost of capital proceeding that's assigned, has had a history of doing this proceeding, and he's is knowledgeable of it.
And so I would anticipate a Proposed Decision on time in the latter part of November. Now, then it's up to the commissioners to make a decision before the end of the year.
I think an important thing here, why the commissioners are going to be interested in making a final decision by the end of the year, because there's a rate reduction that they want to put in place. And if you delay that decision, you can't effectively get that rate reduction.
So I think they'll be motivated to do it on time.
Angie Storozynski - Macquarie Research
Okay. And then say, I mean -- assuming that there is a resolution with EME and their potential lawsuits, we should assume that any lawsuits will not impact your ability to decide on the future dividends?
W. James Scilacci
Well, Angie, just so we're clear, the source of the dividend is solely and completely from Southern California Edison. And I can't speculate on what might or might not occur during that process.
But we rely solely and exclusively on SCE for the dividend.
Angie Storozynski - Macquarie Research
Okay, and last question. Can you give us at least a ballpark of the amount of costs that are going to be coming back to the parent?
I assume that Edison Mission currently absorbs some of the parent level costs. I mean, could you give us at least a sense of how big about number that is?
W. James Scilacci
It's pretty small, it's Angie, it's Jim again. I think we've put something in the disclosure.
It's maybe $0.02 or less, so it's a minor amount of cost.
Operator
Our next question comes from Leslie Rich with JPMC.
Leslie Rich - J.P. Morgan Asset Management, Inc.
I'm sure I've asked this question before, but your ROE on the FERC transmission, I think in the past, you said it basically earns the same ROE as the California-regulated business. Is that the case?
And in the cost of capital proceeding, the distribution ROE will be reset. Does the FERC ROE sort of automatically get reset or does that sort of happen gradually over time?
Do you have incentives on some of the larger lines? Just if you could just flesh out what the sort of average FERC rate base ROE would be.
W. James Scilacci
Okay, Leslie. This is Jim.
We're going to have Linda Sullivan, who is the CFO of the utility, answer that.
Linda G. Sullivan
Leslie, for the FERC ROE, currently for the 2012 General Rate Case, which is currently under settlement proceedings, we have a 9.93 base ROE. And then we add to that a 50-basis-point adder for participating in the Cal ISO and then we have specific project incentives on our major transmission projects, the Tehachapi project and the Devers-Colorado River project, which puts us at a weighted average ROE at 11.1 for FERC.
Now, in terms of how that works going forward, as I mentioned, we are currently in settlement proceedings.
Leslie Rich
For the FERC component of the ROE?
Linda G. Sullivan
Yes.
Leslie Rich
And so that, you file annually with FERC. So that could potentially impact the FERC ROE for 2013?
Linda G. Sullivan
We have filed for a 2012 FERC formula filing, and that formula filing is currently under settlement proceedings.
W. James Scilacci
So FERC return on common equity could go up or down depending upon the mechanism we use there, Leslie. So that's a good question.
And there's information in our disclosures that gets to a little bit more detail on that.
Operator
Our next question comes from Travis Miller with MorningStar Securities Research.
Travis Miller - Morningstar Inc., Research Division
A little bit of speculation here. But if the CPUC were to adopt the PD as is, on the final day of the year, what do you estimate that full year impact on EPS and possibly revenue would be?
W. James Scilacci
Yes, Travis, this is Jim. I'm sorry, we haven't put out guidance for 2012, and we'll just have to wait and see what the decision actually says.
I know you said assuming that they approve the Proposed Decision as is. So we will look to provide information regarding our earnings for 2012 when we report the full year financial information in February.
So I just can't be helpful there.
Travis Miller - Morningstar Inc., Research Division
Okay. One other follow-up, if -- what projects in that CapEx reduction -- are there any specific projects in that CapEx reduction?
Are they maintenance CapEx projects? What kind of projects were in that PD CapEx reduction?
W. James Scilacci
Okay. You're talking about the Proposed Decision.
There's a host of different things. I think the important part, from our perspective, that we received about 96% of our distribution capital.
So that goes to the core reliability issue. So the things they did not approve has to do with a host of different things, IT related.
There's solar rooftop program that we had a timing problem, where we went in at the full 250-megawatt, and we voluntarily reduced it by 125. So they had to pull that out of the decision.
There's some real properties. Linda, anything else you want to...
Linda G. Sullivan
Capitalized software project.
W. James Scilacci
Capital -- so we will have more detail on that as we file our comments on the Proposed Decision. We'll have some charts on that, but that will be later.
Travis Miller - Morningstar Inc., Research Division
Are you pretty okay with that? Is that going to be a key part of the rebuttal, whatever you -- for the [ph] file?
Or is that pretty well accepted?
W. James Scilacci
I think what Ted said is, is the fact that we will adjust our spending to what's authorized by the commission. And I think, importantly, we got the majority of our distribution capital expenditures.
Operator
Our next question comes from Ashar Khan with Visium Asset Management.
Ashar Khan
Can you just, Ted -- I haven't read the Q, can you just talk about, regarding what's happening with Mitsubishi in terms of when we hear back from them, whether they accept, and the negotiations going on? Is there any feedback that you can provide on timing of talks with Mitsubishi?
Theodore F. Craver
Yes. I seem to get the questions where I provide little to no information.
We really can't go into it at this point. And we've, of course, been very much involved with Mitsubishi all along the way on the whole root cause evaluation, all of the work that led to our response to the Confirmatory Action Letter to the NRC.
Mitsubishi was very much involved, working with ourselves and a number of other outside independent experts, on coming to those conclusions. So at the technical level, there's been quite a bit of interaction with Mitsubishi.
And they've been cooperative throughout all of that. In terms of the commercial elements, really, our focus has been so much on the safety requirements and on the technical issues, relatively less on the financial side.
Jim gave you some specifics about some of the early billing that we've done, or invoicing that we've given them around some of those costs. But it's what I would really characterize as fairly normal course kind of discussion at this point.
Ashar Khan
But Ted, have they said that they're not going to pay or anything like that, they've accepted the bills? What is the kind of the due date on that invoice?
W. James Scilacci
So we've billed them the $45 million, and the invoices are being reviewed.
Operator
And this does conclude the question-and-answer session. I will now turn the conference back to over Mr.
Cunningham.
Scott Cunningham
Thanks very much everyone for participating today, and, please, don't hesitate to give us a call if you have any follow-up questions. Thank you.
Operator
And that does conclude today's conference. Thank you very much for your participation.
You may disconnect at this time.