Business Overview and Strategy. Handout. March, 2005

Transcription

1 Business Overview and Strategy Handout March, 2005

2 Forward-Looking Statements This presentation contains forward-looking information. The words expect, forecast, potential, projected, anticipated, predict, targeted, and similar expressions identify forward-looking information that involves risks and uncertainties. Actual results or outcomes could differ materially because of important factors such as: actions of the California Public Utilities Commission, Federal Energy Regulatory Commission, and other regulatory bodies regarding market structure, customer rates, cost recovery, capital expenditures, and other matters; changes in prices of electricity, natural gas, coal, and other fuels and in other operating costs; the operation on a merchant basis of Mission Energy Holding Company s plants that do not have long-term contracts for the sale of their output; actions of securities rating agencies affecting the credit ratings of Edison International or its subsidiaries; the ability of Edison International and its subsidiaries to obtain financing on reasonable terms as needed; the continued operation of Edison International s tax allocation arrangements as contemplated; the possibility of future state or federal legislation changing the structure or operation of electricity markets or otherwise affecting Edison International s subsidiaries; the effects of environmental laws and regulations that may require capital expenditures, increased operating costs, or limitations on the operation of power generating facilities; the effects of increased competition in energy-related businesses; and the risks of constructing and operating nuclear-, coal-, and gas-fired generating plants and other large and complex energy facilities. Additional details and factors are set forth in this presentation and reports filed by Edison International, Southern California Edison, and Mission Energy Holding Company on Forms 10-K, 10-Q, and 8-K. Certain non-gaap information appears in this presentation. The reconciliations to GAAP that are required by SEC Regulation G are located in the appendix at the end of this presentation. 1

3 Edison International Balanced Business Mix Strong utility operating in a large and rapidly growing service territory Unregulated business platform with large base of low-cost coal assets Produces Stable and predictable earnings and cash flow Significant long-term earnings and cash flow growth from regulated investments Further upside earnings potential from power market recovery Business flexibility for future growth 2

4 Edison International Strategy Our strategy seeks to create a balance among Balance sheet strength Growth Dividends We expect to produce total returns above peer averages 3

5 Edison International 2004 EPS per October 2004 Outlook 2004 EPS 2005 EPS per October 2004 Outlook SCE MEHC EC EIX Holding Co. $ (a) 0.14 (0.23) $ (a) 0.18 (0.21) $ (0.03) Core EPS $ $1.79 $1.91 $2.14 Non-Core Items SCE MEHC Lease terminations/ impairments Gain on Sales of Assets EIX Debt Extinguishment $0.48 (b) 0 (c) (0.04) $1.01 (b) (1.86) 1.79 (0.04) $0.11 (d) (0.05) (e) Reported EPS $ $2.23 $2.81 $2.20 a) Includes earnings from EME s international assets including those sold and reported as discontinued operations in 2004 b) Includes non-core items primarily associated with the 2003 GRC decision and the resolution of other regulatory and tax items c) Includes a loss from the termination of the Collins lease, loss from the small peaker impairment, gain on sale of EME s interest in Four Star, and an expected net gain on sales of the international assets. The international asset sale gain was reported as Discontinued Operations d) Anticipated tax settlement e) Write-off of unamortized costs upon retirement of callable debt 4

6 Edison International Balance Sheet Strength SCE creditworthiness restored / dividends to EIX resumed Capital structure rebalanced to 48%¹ equity $1.7 billion of dividends and regular quarterly dividends Investment grade ratings by Moody's (Baa1) and S&P (BBB+) Edison Capital dividends to EIX / resumption of growth $300 million of dividends Year-end 2004 unrestricted cash balances were $180 million Mission Energy Holding Company stabilization Midwest Generation refinancing April 2004 BV sale December 2004 Recent credit rating upgrades by S&P and Moodys 1. See Appendix for GAAP reconciliation. 5

7 Edison International Balance Sheet Strength (cont d) $4.3 billion of non-utility debt paid down over the past three years¹ $Billion YTD 2005 Total EIX Holding Co. $0 $0.1 $1.5 $0 MEHC $0.3 $0.6 $1.0 $0.4 Edison Capital $0.3 $0 $0.1 $0 $1.6 $2.3 $0.4 Total $0.6 $0.7 $2.6 $0.4 $4.3 EIX is now debt free and investment grade by Moody's (Baa3) and S&P (BBB) EIX consolidated debt-to-capital has declined from 69%¹ in 2002 to 56%¹ at year-end 2004 Over the long-term, EIX consolidated debt-to-capital is targeted to decline to 50% 1. See Appendix for GAAP reconciliation. 6

8 Edison International Growth Given the hybrid system of electricity regulation in the U.S., EIX benefits from having both a utility and a competitive generator Substantial growth in rate base anticipated at Southern California Edison through the remainder of the decade Earnings improvements from reduction of debt and G&A expense Opportunities in the unregulated businesses Renewables Contracting the output of merchant plants Possible contracted generation to help meet California needs Strong execution and continued constructive regulation are needed to produce healthy earnings and dividend growth through the next five years. 7

9 Edison International Sources of Growth MORE CERTAIN LESS CERTAIN Reduction in G&A and debt-service costs Utility rate base investments Investments in renewable energy Recovery of capacity values in MAIN and PJM later in the decade 8

10 Southern California Edison Regulatory Update 2005 Cost of Capital decision December % return on equity Recognized purchased power debt equivalence in capital structure Long-Term procurement decision December 2004 Approved 2005 procurement and resource plan Extension of 5% trigger timely recovery of procurement costs 2006 General Rate Case Decision expected by January

11 Southern California Edison Capital Investment $11.3 billion planned investments ( ) $7.6 billion distribution (67%) $1.6 billion transmission (14%) $2.1 billion generation (19%) $1.9¹ billion invested in 2004 (on target to plan) $1.6 billion forecasted expenditures in GRC decision supports cost recovery for 2004 and 2005 Project Update Devers-Palo Verde #2 Transmission Line Mountainview Generating Station SONGS Steam Generator Replacement 1. See Appendix for GAAP reconciliation. 10

12 Southern California Edison Capital Expenditures (Nominal $ in Billions) Rate Base (Nominal $ in Billions) $2.5 Actual¹ Forecast Actual Forecast $16 $2.0 $1.5 Generation Transmission Distribution $14 $12 $10 Generation Transmission Distribution $ $8 $6 $ $4 $2 $ $ Forecast = $11.3 Billion Generation: $2.1 Billion Transmission: $1.6 Billion Distribution: $7.6 Billion 5-year CAGR = 8% Projections subject to appropriate regulatory approvals and support 1. See Appendix for GAAP reconciliation. 2. Information Technology, CSBU, Carrier Solutions, and overheads are included in Distribution. 11

13 Mission Energy Holding Company Overview Asset Profile MWs Fuel Mix Coal Gas/Oil Hydro Other Percent Merchant Assets Recourse and Non-Recourse Debt Before Restructuring After Restructuring ¹ 18,833 8,834 9,035 MW / 48% 6,530 MW / 34% 2,950 MW / 16% 318 MW / 2% 72% 2 $12.1 billion $8.1 billion 7,545 MW / 85% 1,289 MW / 15% 88% $6.8 billion $4.8 billion Midwest Generation 5,876 MW s Homer City 1,884 MW s 964 MW s 1. After sales of international assets (6,452 MW), and decommissioning of the Collins Station (2,698 MW) and the Illinois peakers (644 MW). The international asset sale MWs excludes a 61 MW reduction from Valley Power due to the 9/30/04 sale of EME s interest in Contact Energy. The after restructuring MWs excludes 144 MW from Doga. 2. Pro forma with Exelon contracts expired. 12

14 Mission Energy Holding Company Restructuring Successful execution of the Restructuring Plan, without contributions from EIX, substantially addresses MEHC s survivability Significant milestones include: Refinanced Midwest Generation debt of $1.7 billion Collins lease termination approximately $370 million tax benefit Sale of 13 of the 14 international power generation projects sold for about $2.9 billion $1.2 billion of debt paid down from proceeds $2 billion MEHC consolidated cash balance as of Feb. 28, 2005 $1.8 billion EME corporate cash balance 13

15 Mission Energy Holding Company Strategy Reduce business and financial risk by improving financial strength, operating efficiency, and predictability of cash flow and earnings Continually reduce leverage using cash flow from operations Manage fuel supply, emissions, and environmental controls to protect operating margins Reduce overhead expenses in the aftermath of the asset sales Build a laddered, diversified portfolio of power and fuel supply contracts and hedges to lock in margins and reduce earnings and cash flow volatility MEHC can contribute meaningfully to EIX earnings and eventually dividends with reasonable confidence 14

16 Mission Energy Holding Company Value Drivers Even without the international projects, MEHC core earnings are expected to increase in 2005 over 2004, and show significant double-digit compound annual growth in the longer term COST REDUCTION Earnings Drivers Elimination of restructuring costs and overheads directly associated with international assets Further reductions in overhead costs DEBT REDUCTION Reduction of callable high-cost debt from net restructuring proceeds POWER MARKET METRICS¹ Energy prices: for every $1/MWh increase Capacity prices: for every $10/kWyr increase Estimates of Contribution (pre-tax earnings) $45 $50 million (annually) $30 million (annually) $105 $145 million (multi-year) $47 million $75 million 1. Long-term earnings drivers, excludes all hedges 15

17 Edison Capital Edison Capital Focus on growing the existing Renewables portfolio Resumed investment in 2004 closing $50 million of new projects $27 million of affordable housing $23¹ million of wind projects New investment in 2005 is targeted at $180 million building to $250 million annually 1. $14 million funded in 2004 net of return of capital 16

18 Edison International Dividend Policy Strong cash flow generation underpins ability to pay dividends Dividend philosophy is centered around: Maintaining a strong balance sheet Balancing dividends with the cash needed to fund growth Maintaining a competitive dividend Annual dividend recently increased to $1.00/share resulting in a 56%¹ payout on 2005 core earnings guidance (excluding MEHC earnings) of $1.80¹ per share Longer-term, targeting a payout ratio range of 45 55% excluding MEHC earnings 1. See Appendix for GAAP reconciliation. 17

19 Appendix Slide 5: The calculation for the equity ratio presented excludes non-recourse debt of $792 million. The comparable equity ratio, including non-recourse debt is 44%. Slide 6: Represents the pay-off of non-utility debt, not a change in total debt. Table does not include changes in SCE debt. Total consolidated debt at EIX including long-term debt, current portion of long-term debt, and short-term debt in billions is $16.6, $14.4, $11.4 and $10.6 in 2001, 2002, 2003 and 2004 respectively. Slide 6: The 2004 debt ratio includes common equity and preferred securities as reflected on the EIX balance sheet. Debt includes short- and long-term debt and other preferred securities subject to mandatory redemption. Debt excludes non-recourse debt from continuing operations totaling $793 million related to rate reduction bonds and variable interest entity debt. The comparable 2004 debt ratio, based on the same balance sheet classifications, including non-recourse debt is 63%. The 2002 ratio is calculated on the same basis as the 2004 debt ratio, reclassifying other preferred securities subject to mandatory redemption of $1.2 billion and as a component of debt. Non-recourse preferred securities of $131 million and non-recourse debt of $5.4 billion are excluded. The comparable 2002 debt ratio, including non-recourse amounts, based on the same balance sheet classifications and including debt from international assets in discontinued operations is 71%. 18

20 Appendix Slide 10 and 11: The $1.9 billion for 2004 includes capital expenditures of $1.7 billion and $0.3 billion of acquisition costs related to nonutility generation plant. Excludes $0.1 of nuclear fuel expenditures. Slide 11: Transmission, Distribution & Generation, per presentation Nuclear fuel, one-time decommissioning items & other Additions to property and plant net, per Statements of Cash Flows Slide 17: The calculation of EIX s payout ratio is based on the 2005 core earnings outlook of $2.14, excluding MEHC s earnings of 34 cents per share. The payout ratio based on the 2005 Outlook for projected reported earnings of $2.20 is 45%. See slide 4 for a reconciliation from core to reported earnings for EIX s 2005 Outlook. Note: GAAP measurements that equal or fall into the non-gaap measurement range are not reconciled in the footnotes above. Non-core items are items that do not reflect ongoing operating performance, and therefore management believes it is useful to present comparative earnings information that omits these items. 19

21 Supplementary Materials to EIX 2004 Earnings The following presentation contains estimates, projections, and other forward-looking statements that involve risks and uncertainties. Actual results or outcomes could differ materially as a result of such important factors as the outcome of state and federal regulatory proceedings affecting the electric utility industry, the impacts of new laws and regulations relating to industry restructuring and other matters affecting the Company and its subsidiaries, changes in electricity prices and fuel costs, new or increased environmental liabilities, construction and operation risks, and increases in financing costs, and other matters discussed in the Company s filings pursuant to the Securities Exchange Act of 1934.

22 Edison International Earnings Per Share Year Ended 2004 Reconciliation of Core GAAP Presentation to Recorded EPS of Earnings Core Earnings, Excluding Non-Core Items: EPS SCE 1.80 MEHC 0.14 EC 0.18 EIX Parent & Other 0.21 Non-Core Items: Total Core 1.91 SCE Regulatory Items 1.01 MEHC (See Separate Slides) 0.07 EIX Parent Debt Extinguishment 0.04 Total Non-Core 0.90 EPS Continuing Operations: 0.69 All Domestic Operations International Operations from Doga SCE Regulatory Items Collins Lease Termination Peaker Impairment Gain on Sale of Four Star EIX Debt Extinguishment Costs Discontinued Operations Includes: 2.12 Gain on Sale of International Assets All International Operations, Except Doga Total Earnings 2.81 Total Earnings 2.81

23 Edison International Earnings Per Share 4th Quarter 2004 Reconciliation of Core GAAP Presentation to Recorded EPS of Earnings Core Earning s, Excluding Non-Core Items: EPS SCE 0.49 MEHC 0.09 EC 0.08 EIX Parent & Other 0.06 Non-Core Items: Total Core 0.42 SCE Regulatory Items 0.48 MEHC (See Separate Slides) 0.30 EIX Parent Debt Extinguishment 0.04 Total Non-Core 0.74 EPS Continuing Operations Includes: 0.79 All Domestic Operations International Operations from Doga SCE Regulatory Items EIX Debt Extinguishment Costs Discontinued Operations Includes: 0.37 Gain on Sale of International Assets All International Operations, Except Doga Doga Deferred Tax Adjustment Total Earnings 1.16 Total Earnings 1.16

24 MEHC Consolidated Earnings Per Share Year Ended 2004 Reconciliation of Core GAAP Presentation to Recorded EPS of Earnings EPS Core Earnings, Excluding Non-Core Items: 0.14 Domestic Operations International Operations Depreciation on International Assets Non-Core Items: Gain on Sale of International Assets 1.64 Depreciation Adjustment for International Assets 0.06 Gain on Sale of Four Star 0.09 Collins Lease Termination 1.81 Peaker Impairment 0.05 Non-Core Items 0.07 Total Earnings 0.07 EPS Continuing Operations Includes: 2.05 All Domestic Operations International Operations from Doga Gain on Sale of Four Star Collins Lease Termination Peaker Impairment Discontinued Operations Includes: 2.12 Gain on Sale of International Assets All International Operations, Except Doga Total Earnings 0.07

25 MEHC Consolidated Earnings Per Share 4th Quarter 2004 Reconciliation of Core GAAP Presentation to Recorded EPS of Earnings EPS Core Earnings, Excluding Non-Core Items: 0.09 Domestic Operations International Operations Depreciation on International Assets EPS Continuing Operations Includes: 0.16 All Domestic Operations International Operations from Doga Non-Core Items: Gain on Sale of International Assets 0.20 Depreciation Adjustment for International Assets 0.04 Tax Benefits and Other 0.06 Non-Core Items 0.30 Discontinued Operations Includes: 0.37 Gain on Sale of International Assets All International Operations, Except Doga Tax Benefits and Other Total Earnings 0.21 Total Earnings 0.21

26 Mission Energy Holding Co 2005 Hedges and Earnings Variability Midwest Gen. Homer City TWh Energy Price ($/MW h) TWh Energy Price ($/MW h) 9/30 12/31 9/30 12/31 9/30 12/31 9/30 12/31 Hedged $34.29 ¹ $35.06 ¹ $44.26 ¹ $45.17 ¹ Unhedged $32.82 ² $33.05 ² $46.19 ² $44.41 ² Total Price Movement Earnings Impact ($M After-Tax) 9/30 12/31 Midwest Gen. $1/MWh $17.9 $13.3 Homer City $1/MWh $4.2 $ TWh, or or 23%, of of forecasted TWh for for 2005 were hedged as as of of 9/30/ TWh, or or 45%, of of forecasted TWh for for 2005 were hedged as as of of 12/31/ Adjustment Metrics Based on on hedge position at at 9/30/04 & 12/31/04 Additional hedges will reduce the sensitivity to to price movements 3 1. Flat price equivalent at Northern Illinois Hub and PJM West. 2. Cal strip 05 flat price forward at Northern Illinois Hub and PJM West. 3. As of 2/28/05, a $1/MWh price movement will impact the balance of year results (after tax) by $9.2 M at Midwest Gen and $2.3 M at Homer City.

27 MEHC Long-Term Forecast Assumptions As of October 13, Henry Hub Gas ($/MMBtu) $ 5.90 $ 6.89 $ 6.20 $ 4.73 $ 4.67 $ 4.64 Midwest Generation Coal Plants Flat Energy Price - NIHub ($/MWh) $ $ $ $ $ $ Merchant Capacity ($/KW-yr) $ - $ 7.70 $ 7.95 $ $ $ All-in Realized Energy and Capacity ($/MWh) $ $ $ $ $ $ Generation (TWh) Homer City Flat Energy Price - PJMWest ($/MWh) $ $ $ $ $ $ Merchant Capacity ($/KW-yr) $ $ $ 9.09 $ $ $ All-in Realized Energy and Capacity ($/MWh) $ $ $ $ $ $ Generation (TWh) Fuel Supply MWGen Coal Price (average including transportation ($/MMBtu)) $ 1.04 $ 1.05 $ 1.07 $ 1.05 $ 1.09 $ 1.10 MWGen Tons Burned (million tons) % Contracted (commodity portion) 99% 88% 68% 39% 15% 0% Homer City Coal Price (average including transportation ($/MMBtu)) $ 1.23 $ 1.25 $ 1.56 $ 1.50 $ 1.46 $ 1.59 Homer City Tons Burned (million tons) % Contracted 99% 100% 48% 46% 30% 0% Emissions NOX ($/ton) $ 2,185 $ 3,400 $ 2,656 $ 2,527 $ 2,730 $ 2,783 SO2 ($/ton) $ 376 $ 534 $ 530 $ 441 $ 499 $ 540 CAPEX ($ millions) $ 51 $ 74 $ 71 $ 164 $ 136 $ 62