Feb 25, 2014
Executives
Scott Cunningham - VP, IR Theodore (Ted) Craver Jr. - Chairman, President and CEO William Scilacci - EVP, Treasurer and CFO Ronald Litzinger - President, Southern California Edison Linda Sullivan - SVP and CFO, Southern California Edison
Analysts
Dan Eggers - Credit Suisse Julien Dumoulin-Smith - UBS Michael Lapides - Goldman Sachs Gregg Orrill - Barclays Capital Stephen Byrd - Morgan Stanley Ali Agha - SunTrust Robinson Humphrey Jonathan Arnold - Deutsche Bank John Cohen - Morgan Stanley Travis Miller - Morningstar
Operator
Good afternoon, my name is Shirley [ph] and I will be your conference operator today. At this time, I would like to welcome everyone to the Edison International Fourth Quarter 2013 Financial Teleconference.
[Operator Instructions]. Today's call is being recorded and I would now like to turn call over to Mr.
Scott Cunningham, Vice President of Investor Relations. Thank you.
Mr. Cunningham, you may begin.
Scott Cunningham
Thanks, Shirley, and good afternoon everyone. We apologize for the short delay on the start of the call.
Our principal speakers today will be Chairman and Chief Executive Officer, Ted Craver; Executive Vice President 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 Form 10-K 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 its subsidiaries and about other future events.
Actual results could differ materially from current expectations. Important factors that could cause different results are set forth in our SEC filings.
We encourage you to read 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 one question and one follow-up. If you have further questions, please return to the queue.
With that, I'll now turn the call over to Ted Craver.
Theodore (Ted) Craver Jr.
Thank you, Scott, and good afternoon everyone. Today Edison International reported full year quarter earnings of $3.80, $0.10 above the high end of our earnings guidance range.
Core earnings for 2013 were down slightly from last year's $3.92 per share, reflecting in part, the impact of closing the San Onofre nuclear plant. We also introduced 2014 earnings guidance, core earnings guidance of $3.60 to $3.80 per share.
Jim will provide additional information on all of this shortly. In the last several investor calls, my remarks have centered on our three key strategic priorities; delivering long term growth in earnings and dividends, resolving the uncertainties of EME and SONGS and positioning our company to capitalize on transformative change in our industry.
Today, I will mostly touch on the subjects of our growth prospects and resolving uncertainties, where there have been several developments. For the last several years, at Southern California Edison, we have had the twin objectives of stepping up our infrastructure investments to maintain reliability and modernize the grid, and providing cost benefits to rate payers through operational efficiencies.
This continued focus on keeping rates affordable and fair for all of our customers, while investing in the grid, has also provided strong earnings power for our investors. This is demonstrated by our stronger than forecast core earnings in 2013, and by our decision last December to increase the common stock dividend for the 10th year in a row, to an annual rate of $1.42 per share.
SCE continues to target high levels of infrastructure replacement and reliability investments, while meeting public policy requirements. In our 2015 general rate case application pending before the CPUC, our testimony reflects a significant increase in infrastructure replacement activity for the 2015 to 2017 rate cycle.
This investment is primarily aimed at our distribution system. The rate case application, also forecast a need for sustained investment at these levels, out through 2020 and beyond.
Therefore, we continue to anticipate significant rate base growth for the foreseeable future. Our updated forecast has not changed materially, and SCE continues to forecast a rate base of between $27 billion and $29 billion by 2017, and a growth rate of 7% to 9% annually through this period.
Not yet knowing the outcome of the CPUC proceeding on SONGS, this forecast continues to exclude any rate base contribution from our investment, this forecast continues to exclude any rate base contribution from our investment in SONGS. As for the DRC proceeding itself, the CPUC is in the early procedural stages and we continue to respond to information requests from interveners.
We expect evidentiary hearings to be scheduled for the summer. But the CPUC has yet to set the exact schedule.
A key initiative in 2013 involved in the coal reform and customer rate design, which was meaningfully advanced with the passage of California's assembly bill 327. This law returned authority to the CPUC to adjust rate design, including a fixed charge and simplifying the tiered residential rate structure.
We are in the early stages, but this law provides an opportunity to reduce subsidies and costs shifting amongst residential rate payers, along with simplifying the rate structures. All of these actions help provide the regulatory underpinning to support long term earnings growth, while maintaining the impact of higher rates, while managing the impact of higher rates on our customers; and in turn, they help support our dividend policy, which is a targeted pay out ratio of 45% to 55% of FCE earnings.
We continue to see the opportunity and steps over time to return the dividend pay out back to this target ratio. While we are mindful of pending regulatory uncertainties, we believe the opportunity for meaningful dividend growth remains an important element of the Edison International investment pieces.
Let me now turn to our efforts to resolve uncertainties; last week of course, we announced a settlement agreement, which we believe will provide the resolution to a key uncertainty for investors, the EME bankruptcy. As you heard during last week's call, the agreement will settle all outstanding matters with EME and its creditors.
The agreement provides the opportunity for a cash flow positive outcome, and honors our commitment to not put new capital into EME. On February 19, EME sought approval of the bankruptcy to amend its plan of reorganization to include the settlement and to give notice to the creditors regarding the plan change.
The court approved giving notice to the creditors and rescheduled its conformation hearing on the plan to March 11. Subject to approval of the bankruptcy court, implementation of the plan of reorganization will allow EME to proceed with the sale to substantiate all of its assets to NRG and close on our settlement agreement.
This leaves one major uncertainty to resolve, the recovery of our costs related to SONGS. We continue to express to the CPUC, our strong interest in having it complete its four phase regulatory review this year.
We are hopeful that our concerns with the phase one proposed decision, will be addressed such that the commission can complete action on this stage and move on to the remaining phases in the not too distant future. We anticipate in the first quarter, a proposed decision on the second phase, which addresses recovery of investment in SONGS.
We also anticipate a proposed schedule for the third phase, which will cover the broad questions of reasonableness and prudency around our actions, and those of the supplier of the faulty steam generators, Mitsubishi Heavy Industries. We continue to assert that the steam generator tube leak that occurred after only 11 months of operating time and the resulting damages, represent a total and fundamental failure of performance by Mitsubishi Heavy Industries.
We must insist that MHI be held accountable for its failure to provide properly functioning steam generators, and for the damage it has inflicted on our customers and our company. Simply put, they should stand behind their product.
Southern California Edison has filed for significant claims against MHI for damages in the International Chamber of Commerce Arbitration process. We will also continue to push aggressively to seek a federal will [ph] determination from NEIL, the nuclear industry insurer, for our outage related power purchase claims.
Recent conversations with NEIL lead us to expect their initial determination after their board meets in mid-June. Along with the resolution of the SONGS OII, we are planning for the replacement resources required to ensure grid's reliability without SONGS and for the safe and efficient decommissioning of SONGS.
With the assistance of third party experts, we are developing an updated site-specific decommissioning plan. This plan is expected to be completed by midyear.
Also, we are creating appropriate channels for public participation, to ensure an open and transparent decommissioning planning process. Although it wasn't one of our two critical uncertainties, we are pleased SCE was able to complete the sale of its interest in the Four Corners coal-fired generation facility in late December to Arizona Public Service for $181 million.
The transaction benefits our customers and meets an important California requirement to discontinue investments in generation not meeting stringent greenhouse gas emission performance standards. It has no earnings impact on Southern California Edison.
So with that, let me now turn the call over to Jim Scilacci.
William Scilacci
Thanks Ted and good afternoon everyone. My comments focus on the following topics; financial results, updates on capital spending, rate base on fuel and purchase power, and 2014 earnings guidance.
Please turn to page 2; for the fourth quarter of 2013, core earnings are $0.81 per share. The comparison to the fourth quarter last year is not particularly helpful, because SCE's 2012 CPUC general rate case decision was recorded in the fourth quarter of last year.
The quarter-over-quarter comparison is summarized at the right of the slide. The earnings drivers are the same things we have been discussing all year.
For SCE< the year-over-year comparison is more informative. Before I go there, I want to comment on fourth quarter results at the holding company.
EIX recorded $0.02 per share of earnings, $0.08 better than last year, largely due to $0.06 per share of higher earnings from Edison Capital. As we had previously mentioned, Edison Capital has a small investment portfolio, including affordable housing investments.
This portfolio con to wind down and periodically, we will record income from sales or distributions. It is difficult to predict the timing and amount of income from the remaining portfolio and we have not and will not include any income in our guidance numbers.
As a reminder, holding company costs generally run a bit more than $0.01 per month. In addition to the Edison Capital income, the holding company also had $0.02 per share of lower cost in taxes.
A non-core item of $0.11 per share in discontinued operations is from Edison Mission Energy, for ongoing adjustments to income taxes. As a result, we moved the accounting for EME to discontinued operations following its bankruptcy, filed in the fourth quarter of 2012.
For the end of 2013, we now have recorded $70 million from adjustments related to the outcome of the EME bankruptcy, including estimated retained tax benefits from the deconsolidation of EME for tax purposes. As we have reported last week in our EME Settlement conference call, we expect to record an additional $130 million during the first quarter of 2014, assuming the bankruptcy court approves EME's amended Plan of Reorganization.
Together, this adds up to the estimated $200 million of income EME settlement is expected to produce. I'd also like to note, that based on our updated disclosures, we have recorded $290 million of joint tax and $35 million of joint pension liabilities, for a total of $325 million as of December 31, 2013.
Under the settlement agreement, we would also assume certain executive retirement obligations. In total, we have estimated these liabilities would be approximately $315 million as of the closing.
Please turn to page 3; as Ted has already mentioned, EIX's 2013 core earnings are $3.80 per share. On a year-over-year basis, this is slightly behind last year, SONGS accounts for most of the difference, because we stopped recording a full return on investment and related AFUDC earnings since the shutdown decision was made.
The other major reason for the decline, is a reduction in income tax benefits in 2013 compared to 2012. The increased earnings from rate base growth in 2013 were offset by the lower CPUC authorized return on common equity.
To make it helpful in comparing full year results with our updated guidance from the third quarter call, we have added a slide on page 4, to highlight the changes. On full year core results came in -- our full year core results came in $0.15 per share above the midpoint of the guidance that we last updated on October 29.
$0.08 per share improvement is largely cost savings at SCE. Holding Company results are better by $0.07 per share, largely from Edison Capital earnings, that were not included in our guidance and were booked in the fourth quarter.
One last point I'd like to emphasize is the track record of rate base and earnings growth that SCE has achieved over the last several years. Please turn to page 5 of the deck; since 2008, the compound annual growth rates of rate base and core earnings are 10% and 12% respectively.
This is a rather remarkable achievement for our industry. Looking forward, next I will provide updates on capital spending and rate base, please turn to page 6.
From our prior forecast, the 2014 through 2017 capital forecast increased $400 million. The increase reflects the catch-up of 2013 GRC capital expenditures into 2014, together with updated transmission cost estimates, including FAA requirements for the Tehachapi project.
During 2014, a major focus for us, is to ensure that we invest the capital dollars authorized by the CPUC for infrastructure replacement and reliability related projects. For 2013, SCE's actual capital spending was $3.5 billion or $300 million below our forecast.
This was largely due to transmission delays and lower cost on two completed renewable transmission projects in 2013, as well as a slower than planned ramp-up of an infrastructure replacement spending, even though we were able to increase reliability infrastructure investments, $300 million over 2012. Historical capital expenditures are shown in the appendix to this deck.
Please note, that our current capital forecast does not including spending for storage projects, preferred resources to replace San Onofre or transmission projects that are currently included in the Cal ISOs resource plan. Potential expenditures for projects like these are currently under consideration.
Please turn to page 7; as Ted mentioned, our rate base forecast reflects only minor changes, with a net $100 million decrease by 2017. The growth rate remains at 7% to 9% per year through 2017.
Once we get a phase two decision and a SONGS OII, which is considering if some portion of SONGS is still used and useful, we will then update our forecast accordingly. On page 8, we have updated the status of our fuel and purchase power, of what we refer to as ERRA.
We look to get a CPUC approval this spring of our 2014 forecast proceeding. You may recall from last year, that the CPUC had deferred consideration of a portion of the ERRA costs that relate to SONGS shutdown decision, until the overall SONGS regulatory review is completed.
We have provided an updated estimated of the 2013 net SONGS costs of $467 million, and have agreed to defer collection until consideration of the OII, if we receive a timely decision of our 2014 forecast proceeding. Overall, SCE has under collected -- was under collected by just over $1 billion in this account by year end 2013.
While the ERRA situation was important from a near term liquidity perspective, we believe that SONGS OII will be the key driver for recovering SONGS replacement power costs. I should also mention that, while we focused investor attention on the ERRA under collection, we have added to our disclosures and noted at the bottom of the slide, that for all regulatory balancing accounts, SCE had a net over collection of $554 million at year end 2013.
At the same time, SCE had availability of $2.46 billion under its $2.75 billion credit facility. On page 9, I have noted a couple of procedural updates on our 2015 general rate case.
First, the two assigned ALJs hosted a pre-hearing conference on February of 11, where the schedule for public participation meetings and details on the timeline for hearings and motions were discussed. We anticipate the ALJs will publish a schedule shortly.
We continue to press for a timely decision by the end of 2014. However, over the last few years, the investor on utilities in California have experienced delays in receiving their final GOC decisions.
Also with the sale of Four Corners, we are updating our GRC request to remove SCE share of cost related to this coal-fired plant. This will lower the requested revenue requirement modestly in each year.
The revenue requirement numbers on page 9 incorporate the sale of Four Corners. Next, I'd like to provide some perspective on key assumptions behind our 2014 earnings guidance, please turn to page 10.
You will recall that, when we first gave 2013 earnings guidance, [indiscernible] that we would expect both 2013 and 2014 earnings would exceed the simplified rate base earnings model that we have discussed for some time. This was because cost savings and income tax benefits were expected to be realized.
We also indicated that these benefits will be trued-up in the 2015 general rate case, and would not apply to earnings in 2015 and beyond. We still believe this to be the case.
For 2014, the simplified rate base model would yield earnings per share of $3.40 for SCE. To be clear, we are using a 2014 rate base forecast of $22.1 billion from page 6.
This rate base number is the midpoint between the request and range cases. We have excluded SONGS rate base pending the decision in phase two of the songs OII proceeding.
The authorized return on common equity for both CPUC and FERC is 10.45%. Our assumptions also include a 48% common equity ratio and a flat share count.
We then see a net upside of $0.45 per share at SCE. We deduct $0.07 per share to account for the remaining 52% of the capital structure related to SONGS, cost of debt, and preferred stock.
There are $0.52 of positive items primarily related to O&M, additional income tax benefits and energy efficiency. The 2014 guidance also assumes $0.15 per share in holding company costs.
We'd assume no non-core impacts in our guidance. We plan to update our non-core guidance based on the outcome of the EME bankruptcy.
The Bankruptcy Court, as Ted said, is scheduled to consider the EME Plan of Reorganization on March 11. This gets us to the midpoint of $3.70 per share for both core and basic EPS, with a range of $3.60 to $3.80 per share.
We have noted the major assumptions on the right side of the slide. In conclusion of my remarks, I will make a few additional points, please turn to page 11.
As Ted said, our main goal is about creating shareholder value. From a financial perspective, that means delivering on rate base and earnings growth objectives, while generating sufficient cash flow to support both our capital plans and common dividend growth objectives, without the need for additional common equity.
That concludes my comments. I'd like to turn the call over to the operator for Q&A now.
Operator
Thank you. (Operator Instructions).
Our first question comes from Mr. Dan Eggers.
Dan Eggers - Credit Suisse
Good afternoon guys.
Theodore (Ted) Craver Jr.
Hi Dan.
Dan Eggers - Credit Suisse
I guess question number one, just as it relates to the GRC with all the ERRA balance announcement over cost of [ph] revenues that you guys have put out there in projections for higher gas prices and renewables. What sort of bill inflation are you guys projecting for kind of 2014, 2015, 2016 for customers based on plan?
William Scilacci
Good question. Generally, when we talk with investors, its our goal to target somewhere between 3% and 5% annual increases in the total bill.
So you have to take -- you got different pieces, you got fuel and purchase power, base rates, transmission and the like. But 3% to 5% is the internal objective that we try to target.
Now, for 2014, I am not sure exactly where that comes in, maybe slightly higher, but we will be working that as we go through the regulatory process.
Dan Eggers - Credit Suisse
Okay, got it. And then I guess just on the OII process, with OII-3, kind of each 1 and 2 seeming to kind of try to long, are there still expectations that three can have some visibility in the second quarter, and so it can just kind of drift later into the summer, before there is kind of visibilities to where the commission's haven't?
William Scilacci
I think the key thing, Dan, is where do you put the scoping memo to come out, and based on Ted's comments, we anticipate that somewhere before the end of the first quarter, maybe slightly later, we should see something from the Commission and that will be really a good indicator of what's the timeframe for all this to be.
Dan Eggers - Credit Suisse
Okay. Thank you guys.
William Scilacci
Okay.
Operator
Our next question comes from Mr. Julien Smith.
Your line is now open.
Julien Dumoulin-Smith - UBS
Good afternoon.
Theodore (Ted) Craver Jr.
Hi Julien.
Julien Dumoulin-Smith - UBS
Hey, could you follow-up on the last question, just given balancing accounts and all that. From a cash flow perspective how do you think about this year, and the use of short term debt, just given prior comments on prior calls?
William Scilacci
It's a good question. Right now we have very limited amount that's been used on our lines, that was in my script, was about $175 million of commercial paper that was outstanding at the end of the year.
And that will ebb and flow, as we go through the course of the year, and it really sort of dictated -- that was dictated by our capital expenditures and the timeliness of decision making around the ERRA decision, and just normal fuel and purchase power fluctuations that occur at an important time. So its really hard to predict at the end of the year, where we will be, because you have so many unknowns that have to be decided here.
So I will pause here and let Linda or Ron to see if you want to add anything else to the answer?
Ronald Litzinger
Okay. As we go through the course of the year, we will watch that and slide.
The key things are, the decisions that need to come from the commission, which will affect in our liquidity.
Julien Dumoulin-Smith - UBS
Got you. Are there any chunky items outside of that, that affects cash flow that might not be otherwise intuitive?
William Scilacci
The only other thing I did mention, it could be one -- at the holding company, if you see the approval of the settlement, we could use commercial paper volumes or drawings on our bank lines at the holding company, to make the initial payment to the creditors, that's $225 million at the close. Then we have -- you monetize tax benefits during the course of the year.
September is when we typically file our tax return. So we will just have to look to see what happens, in terms of what we actually receive and what we are able to monetize, based on the tax positions of the utility and the consolidated entity.
And then at the utility, I think I covered this. There is nothing really that jumps out.
With these financings [indiscernible] thing that occurs at the utility. We typically build up some short term borrowings, and then go out and issue $300 million, $400 million, $500 million of long term debt, and then that will be used to repay commercial paper borrowings.
So that's the normal trend. Ron?
Ronald Litzinger
The greenhouse gas revenues and costs, those can be chunky as well.
Julien Dumoulin-Smith - UBS
Got you. And just a quick clarifications on the slides, on the transmission spending, I know you guys revised that upwards.
Anything pending there again, just leftover? Is that all taken care of at this point?
William Scilacci
There is lot of things going on in that area in terms of what's pending. We still have some more work to do on Tehachapi, in terms of getting cost approvals.
We just recently got one -- Ron, why don't you go ahead and fill in the details around what the recent cost increases were approved for one of the projects, and for Tehachapi?
Ronald Litzinger
We submitted an advice letter on our Devers-Colorado project to raise the cost cap that was approved by the commission. We now appeal.
That project will come within that cost cap, and that positions us well for the ultimate cost recovery at FERC. Tehachapi, we will submit our revised costs by probably the end of this year, to reflect Chino Hills, the FAA and then cost increases that we have experienced over time; that's likely to be an application and a little lengthier process.
But again, ultimate cost recovery is at FERC. The other items that has come in on our transmission projects, is the commission did approve our petition to modify and put the voltage control equipment back into the project which they had previously taken out, which from a schedule perspective, was helpful for us.
Julien Dumoulin-Smith - UBS
Right. In aggregate, what is that in total dollars if you could kind of summarize what the pending is, if there is an event there?
Ronald Litzinger
On voltage control?
Julien Dumoulin-Smith - UBS
Or credit in aggregate, but specifically.
William Scilacci
It's shown in the chart, everything is in there.
Julien Dumoulin-Smith - UBS
Great. Thank you very much.
William Scilacci
Okay Julien.
Operator
Our next call comes from Mr. Michael Lapides from Goldman Sachs.
Your line is now open.
Michael Lapides - Goldman Sachs
Hey guys. Thank you for taking my questions today.
Quickly, in the prepared remarks, you talked about some of the incremental capital opportunities that actually weren't in the capital spending guidance levels, and one of the things you touched on, with the Cal-ISO potential incremental transmission. Can you give a little more color around that, both in terms of process for the uncertainty about what that could be, if anything, and just size and scale?
Theodore (Ted) Craver Jr.
Yeah, we wanted to give you a sense further -- some things that are on the, I'd say, the periphery of our capital expenditures forecast; because those are a little bit further out in time. And Ron is going to pick up the detail in what we are actually -- there is a particular project, an economic project that we are looking at right now.
Ronald Litzinger
Yeah, from a reliability perspective, I believe the plan does include our [indiscernible], but as Jim pointed out, that's down the track, way later in the decade. The Delaney-Colorado river line was also included in the plants, since that is a economic line, that would be subject to competition and determinates in our territory, we have every intention of participating.
Michael Lapides - Goldman Sachs
Meaning, that project is in your current CapEx guidance, or in the plan submitted by Cal-ISO but not necessarily, included in your outlook?
Ronald Litzinger
Its in the plan, just come out by the Cal-ISO, it was not incorporated into our capital spending plans yet.
William Scilacci
Michael, [indiscernible] go back, that was the old Devers DPV2 line, Arizona portion. So it has come back as an economic line.
Michael Lapides - Goldman Sachs
And how big of a -- what are we talking in terms of capital and in terms of years to build?
William Scilacci
We are still working on it, but that's still yet to be determined.
Michael Lapides - Goldman Sachs
Got it. Okay, thanks guys.
Much appreciated.
Operator
Our next question comes from Gregg Orrill. Your line is now open.
Gregg Orrill - Barclays Capital
Thank you.
Theodore (Ted) Craver Jr.
Hi Gregg.
Gregg Orrill - Barclays Capital
Just was wondering if there was an update on San Onofre settlement talks, that there is still a path for that regarding the OIIs?
Theodore (Ted) Craver Jr.
We really don't have anything that we can talk about on that one. Sorry.
Gregg Orrill - Barclays Capital
Thank you.
Operator
Our next question comes from Stephen Byrd from Morgan Stanley. Your line is now open.
Stephen Byrd - Morgan Stanley
Good afternoon.
Theodore (Ted) Craver Jr.
Hi Stephen.
Stephen Byrd - Morgan Stanley
I wanted to talk actually about the longer term point you raised about transformative sector change, and you mentioned legislative advocacy AB 327 implementation. I wondered if you could just talk broadly to -- as you see the [indiscernible] debate and the key change that needs to be made, to make sure that as renewables are brought on to the grid, they are done so in a thoughtful way.
Theodore (Ted) Craver Jr.
Well I kind of touched on it in my remarks. Basically AB 327 reinstated the California Public Utilities Authority to do rate design, and give them some general parameters around fixed charge, reducing the number of tiers, deciding what the grandfather in period would be to our existing distributed generation projects using that metering, that energy metering and what the new net energy metering tariff will be, few other things in there as well.
But those are the main parts. So that's now going to be -- decide to give a number of proceedings before the California Public Utilities Commission.
I think our general point of view was, the legislator clearly made their intentions around this clear, both the Senate and the Assembly passed the legislation with super majorities, signed by the governor. So there is pretty clear indication of what the overall direction should be.
The details are going to unfold over the next few years here. I think we feel that broadly speaking, the value of that legislation in the upcoming activity by the PUS is that, it should meaningfully address what we see as subsidies, and more importantly cost shifting among sectors within the retail residential rates; and that should be, I think a net benefit for fairness for all customers.
The other part that we see that's beneficial is, it's a good move towards establishing some level of fixed charge. We have large fixed costs associated with maintaining the reliability of the grid, and this just recognizes some of that.
So those are kind of the broad policy points that we expect to see, implemented through AB 327 and the PUC actions related to that.
Stephen Byrd - Morgan Stanley
Understood. Is there any sense of the time table over which that deliberation process will take place?
Theodore (Ted) Craver Jr.
Well it will probably be over the course of some years. It won't be all this year, but there will be some important moves, even as early as here in 2014.
Stephen Byrd - Morgan Stanley
Great. Thank you very much.
Theodore (Ted) Craver Jr.
You're welcome.
Operator
Our next question comes from Mr. Ali Agha.
Your line is now open.
Ali Agha - SunTrust Robinson Humphrey
Thank you. Good afternoon.
Theodore (Ted) Craver Jr.
Hey Ali.
Ali Agha - SunTrust Robinson Humphrey
Hey. Jim, you mentioned in your remarks, that your rate base numbers obviously exclude SONGS, but once the phase two decision comes out, you will relook at those rate base numbers.
Would that also be a time for you to relook at your guidance for 2014, depending on what you do with that SONGS rate base?
William Scilacci
I think clearly if the commission came out and allowed some portion of SONGS to be considered useful and actually receive the return on common equity as the important piece, and for that matter, because we have excluded $0.07, you can see in the guidance for 2014 for debt and preferred stock, surely we would go ahead and adjust guidance for that purpose.
Ali Agha - SunTrust Robinson Humphrey
Okay. And second question, can you remind us at the end of the year, what was the equity ratio at Edison, that's used for rate making purposes?
William Scilacci
The weighted average, 30 month average was 49.2%, Linda? She is saying yes.
Ali Agha - SunTrust Robinson Humphrey
49.2%. Got it.
Thank you.
William Scilacci
You're welcome.
Operator
Our next question comes from Ashar Khan. Your line is now open.
Unidentified Analyst
Jim, I was just trying to understand, if I did my math right. Just that though we have a negative on the purchase power, but overall, if we take everything together, we have over collected by an amount, that's what you mentioned in the slides?
William Scilacci
I think I said it was approximately $500 million over collected in all our balancing accounts.
Unidentified Analyst
So that means if the commission came in and -- if they found some portion of it used or useful on all that, the over collection would be much higher, right, if we get credit from somewhere or the other, right? Am I correct or wrong?
William Scilacci
Its more complicated on that answer. So let's separate fuel and purchase power out from base rates and decommissioning.
That's why this thing has gotten so confusing. Its hard to track each piece.
So you may know, we are continuing to collect end rates at the whole authorized base rates for SONGS, as if we are continuing to operate, and we are not recognizing earnings, [indiscernible] the depreciation, and so, we are collecting all those dollars, waiting for an ultimate determination, as part of the rate making process through the investigation of the OII. So these are all separate buckets, and frankly, I think it was yesterday or the day before, we sent a letter to the commission to say, that you have all these different proceedings going on simultaneously.
Here is our roadmap, how we want all these things to come together, so you can determine what the rate adjustments need to be; because you are over collected in some areas, under collected in others. You also have decommissioning that's going on separately.
They haven't authorized us to tap into the decommissioning trust. But in theory, since June 6, we have been decommissioning San Onofre.
So the dollars that need to come in and in our disclosures, whenever we have a chance to look at them, there is at least a couple of hundred million dollars of decommissioning funds for 2013 alone, and then we are going to look to 2014 for additional dollars, that need to be taken into consideration. So the net-net-net of all this has to be worked out, and its going to take us some time to get there.
Unidentified Analyst
Okay. And if I can just end up with one thing, Ted mentioned that we should hear from NEIL after their June board meeting.
So is that the first time we can hear, how much money they would give us. Is that what we should expect to hear some kind of a figure from them, and that would assume that we would get something in the second half of the year?
Theodore (Ted) Craver Jr.
Well that's when we are going to hear from NEIL, that will be our first opportunity to hear from them, after our board meeting. So all they are really signaling there, is that's the timeframe for getting the first reaction from NEIL.
Unidentified Analyst
Okay. But Ted, usually, once they come with a decision, when do they pay out?
Is it pretty soon, or is there some historic? I forgot it.
Theodore (Ted) Craver Jr.
I don't think we'd want to signal a speedy resolution here. It is just the nature of the beast that tends to be slow.
Unidentified Analyst
Okay. Thank you.
Operator
Our next question comes from Mr. Jonathan Arnold from Deutsche Bank.
Your line is now open.
Jonathan Arnold - Deutsche Bank
Good evening guys.
Theodore (Ted) Craver Jr.
Hey Jonathan.
Jonathan Arnold - Deutsche Bank
Quick one, just on the SONGS decommissioning, slide 24. I am not entirely sure if this is new, but you have a bullet that's saying estimated decommissioning period may be accelerated?
Could you just explain what would be the turbulence, as to whether that would happen, and what are you referring to?
William Scilacci
Yeah, remember the original plan, and I will throw it out to Linda and Ron to give some more details, whereas to [ph] decommission the plant after we shut it down in 2022. That's what plants had incorporated to begin with.
And so we are now looking at various things that we could do to accelerate the timeframe, and that really has to do with, getting the spend through a lot of the pools as quickly as possible and into dry gas storage. So I will pause there, and Linda or Ron, would you like to fill in some more details?
Linda Sullivan
I will just add to that, that we are going through a very detailed decommissioning cost estimate and part of that process, we are looking at optimizing the dollars around decommissioning.
William Scilacci
So Jonathan, I think you should take from us that, once we finish that detailed review, we will come out with a new time frame, a new dollar amount. We expect the contributions would be depleted going forward.
$423 million in total annual contributions right now are in rate recovery from the commission, and so we will be looking at that. But there is a lot of moving parts here, and the timeframe of the removal of the spent fuel, the rate of return, there is a whole bunch of issues we are looking, and there is probably eight or nine key assumptions here, escalation of costs going forward.
So this number is going to change, as we go forward here, and the last time we talked about it, we had over $3 billion interest for San Onofre currently, and the cost estimate was slightly over that amount. So we were nearly fully funded, and the final cost studies will give us a better picture of where we are.
Jonathan Arnold - Deutsche Bank
Okay. Then Jim, maybe on a higher level, but you took these extra potential capital spending items you talked about.
You talked about some of the transmission, I think they are no longer storage, that was part of that too?
William Scilacci
Yes.
Jonathan Arnold - Deutsche Bank
And when you -- can you talk maybe a little bit on that piece, and then, as you aggregate all of that together, is this something we should think of sort of sustaining you in the 7% to 9% rate base drag over the longer period? Is this something that could be incremental over the sort of latter part of the decade?
Just how should we think about how we mold that into everything else you're doing, if some of it goes ahead?
William Scilacci
It’s a good question. I think we need to back up and look at our capital spending in total.
What has been happening, and you can see it through the charts, the level of distribution spending is stepping up to meet the replacement rates that we need to be at. So that's just holes in wires, underground cables, holes, so that's why that's going up.
In transmission, it has been coming off, as we have been furnishing some of the large renewable lines, and we just have a little bit of legacy generation that's ongoing. So these other things we are looking at and considering, we haven't made any decisions.
So there is the potential to may be add a little bit to the total level of capital expenditures, but its going to take us a little while to work through these things, the preferred resources and the storage are the first ones on the horizon that we need to decide what we want to do. On some of the storage related items, they are in the distribution system, which we feel that we are well suited for, because that's really down to the basic wires of the business that we want to control, generally going forward.
So I can't give you a number, but we are certainly thinking hard about it, and we are launching that growth rate. We are trying to balance all the things here too, in terms of the ultimate level of growth, and we want to grow the dividends, so all this plays in together.
Jonathan Arnold - Deutsche Bank
Could I just ask one other, might be a third question, but just one the -- as you see the distributed solar movement gathering pace. And obviously still, relatively small versus the overall base.
But I know you have made some investments outside of California. Is there a structure or a sort of market design, destination, where you could see yourselves competing in that business?
Theodore (Ted) Craver Jr.
May be I will break it into two parts. One, whether its distributed solar, or let's call it more broadly, distributed energy resources, that would include solar, include efficiency programs, include storage, all of those things.
We see, actually, a significant investment that needs to be made in the distribution system here in California, to really prepare the system for integrating an increase in distributing energy resources. Jim alluded a little bit in his comments, we are clearly in the best position to do that, given our ownership of the distribution system.
So that's part one, we see a pretty significant investment opportunity on that side. Its very much in-sync with public policy here in California, and very much in-sync with our own strategy.
The second part is, whether we'd be able to participate in distributed energy resources, again, using a broader definition of that, might just -- things like we have rooftop solar, but broader distributed energy resources outside of the territory. At this point, we are certainly working on that.
We have, what we think are some interesting beginnings in that area. I have kind of taken pains in the past to say, we are doing this kind of one step at a time, its not bet the ranch type of deal.
But I think we do see some interesting opportunities there primarily be aimed at commercial and industrial customers, and would be not just in our territory, but outside.
Jonathan Arnold - Deutsche Bank
So you could be inside the territory; because initially, you sounded like you are talking outside territory?
Theodore (Ted) Craver Jr.
It could be either one, of course, our primary interest initially is, understanding what the opportunities are on a broader scale, outside of just our constraints of the 2000 square mile territory.
Jonathan Arnold - Deutsche Bank
Thank you.
Theodore (Ted) Craver Jr.
You're welcome.
Operator
Our next question comes from John Cohen. Your line is now open.
John Cohen - Morgan Stanley
Hey good afternoon. I was just wondering if you can give us an update as to what the process is for SONGS replacement capacity procurement?
Is there a level that's going to come from a nascent generation versus transmission. What's the timing around all that?
William Scilacci
Ron's going to handle that.
Ronald Litzinger
The commission has been approving through our long term procurement plan proceeding the amount of generation that we are going to go out to bid for, both ourselves and San Diego, those numbers are all public and available. I don't remember them quite off the top of my head.
They did fold into the Cal-ISOs transmission plan. So it is being coordinated in that fashion.
Our procurement teams are getting ready to do that, and then we have also taking on, as Ted alluded to, the preferred resources, pilot in South Orange County, where we will put together a package of replacement options with preferred resources, such as demand response, solar, storage, and the like, and pilot our team is aggressively putting together, to fold in and that will reduce the amount of generation that we ultimately will have to buy through the market.
John Cohen - Morgan Stanley
Okay great. Thanks very much.
Operator
Our last question comes from Travis Miller. Your line is now open.
Travis Miller - Morningstar
Good afternoon.
Theodore (Ted) Craver Jr.
Hey Travis.
Travis Miller - Morningstar
A follow-up on a couple of these questions on all distributed generation, etcetera, etcetera. What do you think is the timing element for that, and if you guys do move slowly as you characterized it.
Are we talking about five years before its material, 10 years before its material, when does this become an earnings, material earnings driver, all this other stuff?
Theodore (Ted) Craver Jr.
This is Ted. We are definitely interested in the answer of that question as well.
I think the honest answer is, its really hard to tell at this early stage. So we are -- we think it would be foolish to kind of turn a blind eye to it, and not focus on it.
This is one of those things that could potentially change how the industry is structured. So its something we are involved in.
We intend to remain involved in it. But the pace with which that could happen, whether really proves itself out, that's very much an open question.
That's why again, we are going to take pains to make the statement. The core value proposition of the company remains very much centered on the exceptionally strong growth story that we see within Southern California Edison, particularly ensuring that the distribution system is resilient and reliable, and we see a significant investment required there to do that, and we think there are ways to continue to address the cost side of the equation, so that we don't have a big impact on rates for customers.
That's the core value proposition. These other activities, they remain things that we are actively involved in, and we will continue to be actively involved in, but its really hard to predict at this early stage, what the pace will be and whether they will be meaningful, or when they will be meaningful.
Travis Miller - Morningstar
Got it. Okay.
Thanks so much.
Theodore (Ted) Craver Jr.
You're welcome.
Operator
Okay. Our last question comes from Mr.
Michael Lapides again. Your line is open.
Michael Lapides - Goldman Sachs
Hey. I was just curious what the resolution of [indiscernible], an opportunity to reduce the costs at the parent.
Kind of that $0.15 level, it is kind of in that range for a number of years. But now you don't have the non-regulated subsidiary?
Theodore (Ted) Craver Jr.
Actually we have been addressing that. I don't remember the exact numbers, but we had something in the neighborhood of 80 people within the Holding Company from senior officers to clerical folks.
So it has always been a very modest sized group. With the EME difficulties, we started addressing that, and have brought that down, actually basically about in line, percentage wise with the reduction in staff that we had occurred at Southern California Edison over the last couple of years.
So it has been something we have addressed. These just aren't particularly big numbers.
But most of the costs there relate to financing, and stuff other than what I will call overhead costs. It’s a great question, but its actually not a particularly meaningful number.
I think Jim actually mentioned, we are averaging somewhere, including financing and all the rest of the stuff, we are averaging somewhere around a penny a month, so $0.12 currently.
Michael Lapides - Goldman Sachs
Got it. Okay.
Thank you, Ted, much appreciated.
Theodore (Ted) Craver Jr.
You're welcome Michael.
Operator
With the last question, I would now like to turn the call back to Mr. Cunningham.
Scott Cunningham
Thanks very much for joining and please don't hesitate to call, if you any other questions.
Theodore (Ted) Craver Jr.
Thank you.
Operator
This now concludes today's conference. All lines may disconnect at this time.