Edison International (EIX) Earnings Call Transcript & Summary

Welcome to the 2020 Annual Meeting for Southern California Edison and Edison International. Our host for today's call is Bill Sullivan, Independent Chair of Edison International. [Operator Instructions] I will now turn the call over to your host, Mr. Sullivan, you may begin.

Good morning. I'm Bill Sullivan, Independent Chair of Edison International. On behalf of the Board of Directors and the management team, welcome to the 2020 Annual Meeting of Shareholders of Edison International and Southern California Edison. Like many public companies, we are holding this year's meeting virtually to protect the health and safety of our shareholders, employees and communities during the COVID-19 pandemic. This is consistent with Governor Newsom's stay-at-home order here in California. As circumstances permit, we intend to return to an in-person meeting next year as we value this time with you, our shareholders. In the event of a technical failure today that prevents the items of business in being presented, this meeting will be adjourned and reconvened at a later date to be announced in a news release. I would like to take this opportunity to wish you and your families well during this challenging time. Without a doubt, the pandemic continues to impact the communities in which we live and operate. Around the world, in the state of California, many people and families are staying home to help prevent the spread of the virus. I am so proud of the way in which the company is responding to the crisis by taking precautions to reduce the risk of employees' exposure while also ensuring customers continue to have safe and reliable power, essential businesses remain open and our community's critical infrastructure, such as hospitals, continue to serve. I would like to introduce Alisa Do, our Vice President and Corporate Secretary, who will present an overview of the agenda and rules of conduct for the business portion of the meeting. Edison International President and Chief Executive Officer, Pedro Pizarro, will present remarks after we conclude the formal items of business. Alisa?

Thanks, Bill. American Election Services has been appointed as the inspector of election for this meeting. The representatives from American Election Services, James Alden and Cynthia Skoglund, have joined the meeting remotely. American Election Services is responsible for tabulating the votes cast on the matters before us today and has given us its oath of office to act fairly and impartially. The inspector of election has confirmed that a quorum is present for the transaction of both companies' business. The business of the meeting will follow the rules of conduct that are posted on the virtual meeting web portal. The only business to be conducted during the meeting are the matters set forth in the proxy statement. Only shareholders of record as of February 25, 2020, or their proxy holders who have entered the meeting with their control number, may submit questions and vote during the meeting. The polls are open now. You do not need to vote during the meeting if you have already voted by proxy. However, if you wish to change your vote or if you have not yet voted, you may do so while the polls are open by clicking the vote here button on the web portal. Next, Bill will introduce our director nominees and present the items of business to be voted on today. Then I will announce the preliminary vote results received from the Inspector of Election this morning. Afterwards, Pedro will present his remarks and conclude the meeting with a Q&A session. Questions or comments can be submitted during the meeting and the ask-a-question text box on the virtual meeting web portal. To allow us to answer as many questions as possible, please limit yourself to one question. In accordance with the rules of conduct, we will not respond to comments or questions that are not consistent with the purpose of this meeting. With that, I'll hand it back to Bill.

11 directors have been nominated for election to the Edison International Board and 12 Directors have been nominated for election to the SCE Board. I will now introduce the Director nominees, all of whom are attending today's meeting remotely. I'm a Director nominee for both Edison International and Southern California Edison. I am the retired President and Chief Executive Officer of Agilent Technologies. The nominees for both companies are: Jeanne Beliveau-Dunn, Chief Executive Officer and President of Claridad LLC, a digital and internet of things consulting company; Michael Camunez, President and Chief Executive Officer of Monarch Global Strategies, a binational strategic advisory firm to companies doing business in emerging economies with emphasis on Mexico; Vanessa Chang, retired director of EL & EL Investments, a private real estate investment business, and former partner in the accounting firm of KPMG Peat Marwick. She is Chair of our compensation and executive personnel committee; Jim Morris, Chairman, President and Chief Executive Officer of Pacific Life Insurance Company. Tim O'toole, retired Chief Executive Officer of First Group plc, a transportation company that provides rail and bus services in North America and the United Kingdom. He is Chair of our safety and operations committee. Pedro Pizarro, President and Chief Executive Officer of Edison International; Carey Smith, President and Chief Operating Officer of Parsons Corporation, a disruptive technology provider for global defense, intelligence and critical infrastructure markets. Carey joined the Board in October of 2019 and is nominated for election by the shareholders for the first time; Linda Stuntz, retired partner of the law firm, Stuntz, Davis & Staffier, and Chair of our nominating and corporate governance committee; Peter Taylor, President of the nonprofit Educational Credit Management Corporation Foundation and Chair of our audit and finance committee; and Keith Trent, retired Executive Vice President of Duke Energy. In addition, Kevin Payne, SCE President and Chief Executive Officer, is a nominee for the SCE Board only. At this time, I would like to add a brief comment about our Board of Directors. Our Board reflects the diversity of ethnicity, gender, skills, backgrounds and qualifications needed to effectively oversee the company's operations, risks and long-term strategy. 7 of our 11 Board members are diverse in terms of gender, race, ethnicity and/or LGBTQ status. We also have a range of tenures represented across our Board, providing valuable institutional knowledge and experience balance with refreshed perspectives. Our Board takes its responsibilities for governance and oversight very seriously, and I believe, performs them superbly. The Board has been particularly valuable as we address the challenges related to COVID-19, employee and health and safety, public health and safety, wildfire crisis mitigation and our clean energy future. We have 3 matters submitted for a vote by the shareholders of Edison International and SCE. Number one, the election of the directors; number two, the ratification of PricewaterhouseCoopers as the independent public accounting firm; and three, an advisory vote to approve the company's executive compensation. Sean Riley, managing partner of PwC, is participating in the meeting remotely. The boards have recommended a vote to approve these 3 items. Presentation of Item 4, shareholder proposal. We also have a shareholder proposal submitted by Mr. John Chevedden for a vote by the Edison International shareholders. I understand Mr. Chevedden, who is a long time involved shareholder is on the line. Mr. Chevedden, you may now present the proposal. Operator, please open Mr. Chevedden's line.

Hello, this is John Chevedden. Can you hear me okay?

Yes, we can.

Okay. Proposal 4, let shareholders vote on bylaw amendments. Shareholders requested that the Board of Directors amend the bylaws to require any amendments to bylaws that is approved by the Board, shall be subject to a nonbinding shareholder vote as soon as practical, unless such amendment is already subject to a binding shareholder vote. It is important that bylaw amendments take into consideration the impact such amendments can have on reducing accountability of directors and managers and/or on limiting the rights of shareholders. For example, directors could adopt a narrowly crafted exclusive forum bylaw to suit the unique circumstances of the directors. A proxy adviser recently adopted a policy to vote against directors who unilaterally adopt bylaw provisions or amendments to the articles of incorporation that materially diminish shareholder rights. Management seems to have an unfounded fear of shareholder proposals such as this because this year management formatted this shareholder proposal in a far less neutral manner than a shareholder proposal in the 2018 as an international proxy. It is contradictory for management to take credit for shareholder engagement at its annual meeting and meanwhile, create a new unleveled field for shareholder proposals. Management can take this -- management can make this meeting more meaningful for shareholders by announcing which directors received the least votes and which director received the most -- let me go over again. Management can make this meeting more meaningful for shareholders by announcing which director received the least negative votes and which director received the most negative votes. For instance, Miss Vanessa Chang received 26x as many negative votes from EIX shareholders as Keith Trent in 2019. Ms. Chang, who chairs the executive pay committee, had the most tenure on the Board, and Mr. Trent had almost the least tenure. It is important that directors avoid getting more negative votes as their length of service increases. It is important that executive pay not be too lucrative and that it have incentives consistent with the interest of shareholders. Please vote yes. Let shareholders vote on bylaw amendments proposal 4. Thank you.

Thank you, Mr. Chevedden. The Board thoroughly evaluates every shareholder proposal. For reasons we summarize in our proxy statement, the Board has recommended a vote against this proposal. As noted, shareholders will have an opportunity to comment on the proposal during the question-and-answer session. Now I'll ask Alisa announce the preliminary results.

I will now announce the preliminary votes received this morning from the inspector of election on each business item. The final vote results, including any votes cast today will be reported in an SEC filing within the next 4 business days. The preliminary votes are as follows: all Director nominees have received the affirmative vote of over 90% of the votes cast. The proposal to ratify the appointment of PwC as the company's independent accounting firm has received the affirmative vote of over 97% of the votes cast. The proposal for advisory approval of the company's executive compensation has received the affirmative vote of over 95% of the votes cast. The shareholder proposal regarding a shareholder vote on bylaw amendment has received less than 2% of the votes cast. Based on the preliminary vote results today, the shareholder proposal has not passed.

Thank you, Alisa. The formal business meeting is now adjourned, and the polls are now closed. I'll now ask Pedro to provide his comments on the company.

Well, thank you, Bill, and good morning, everyone. And thank you for joining us for this Annual Shareholders' Meeting. With us today, in addition to the Board of Directors is the Edison International Managing Committee. We have Maria Rigatti, EIX Executive Vice President and Chief Financial Officer. Adam Umanoff, EIX Executive Vice President and General Counsel; Kevin Payne, SCE President and Chief Executive Officer; Steve Powell, SCE Executive Vice President of Operations; Drew Murphy, EIX Senior Vice President of Strategy and Corporate Development; Jacqueline Trapp, EIX and SCE Senior Vice President of Human Resources; and Caroline Choi, EIX and SCE Senior Vice President of Corporate Affairs. These are uncommon times, and my remarks today will not be a typical year in review. For a detailed report on company performance in 2019 and execution of our strategy, I would direct you to our recently distributed annual report. Among other things, there, you'll find a review of several significant legislative and regulatory outcomes that, notwithstanding the current pandemic crisis, have provided much more stability than we had a year ago for managing our business and supporting our future operations and investments. Today, we are focused on the challenges that the COVID-19 pandemic is causing. One thing that has not changed in these unprecedented times is the resolute commitment of our company's leadership to the health and safety of the 13,000 women and men of Edison and the 15 million people in their communities who are served by Southern California Edison. These challenges highlight one of our core business competencies that we have been effectively investing in our infrastructure and building into our operations the ability to manage through significant and unexpected change like the crisis we're facing today. We were positioned to take swift action to limit exposure for our employees and our customers. We quickly transitioned 2/3 of the Edison workforce to teleworking even before Governor Newsom stay-at-home order. And we have provided enhanced leave and related policies for any team member who needs COVID-19-related leave for an illness or to take care of family members. As the governor's order recognized, it is critical that we keep frontline workers in the field with appropriate precautions. Teams are working in pods to keep the same crew members together and limit interactions and potential exposure. We also have essential workers who volunteered to sequester a designated critical SCE facilities away from their families. By implementing safety measures like these, we can continue to perform critical work related to public safety, wildfire mitigation and reliability while postponing noncritical outages. Throughout this period, I could not be prouder of our team for the way they have worked together to carry out our mission. For our customers, we implemented a moratorium on service disconnections and have offered flexible billing arrangements for those facing economic hardship. To further support our communities, Edison International contributed $1 million to local nonprofit organizations for COVID-19 relief, including $500,000 to groups working to support those with face food and security. Just as we were positioned to respond operationally, we are positioned to respond financially. We are able to continue to make significant investments in our business because of our strong financial discipline. The company also has strong liquidity and has been active in the bank and capital markets. SCE has a general purpose credit facility of $3 billion. Additionally, SCE entered into $1.3 billion total in an additional term loan and credit facilities to fund wildfire mitigation capital spending expected to be securitized over time, and it has issued $2.3 billion in mortgage bonds to date in 2020. Edison International has a credit facility of $1.5 billion. And last month, we put in an $800 million term loan to enhance our flexibility to react as markets evolve. Edison International has also issued $400 million of senior notes to date in 2020. In 2019, we increased our dividend for the 16th straight year. And our shares gained 33% and outperformed the broader market. Our share price this year has been subject to volatility that is consistent with what we are seeing among our peers and in markets more broadly. That volatility may continue for some time. But again, I would emphasize that we have a strong balance sheet and ample liquidity. The COVID-19 challenge has emerged as we are continuing to execute on our priority work in mitigating the risk of wildfires that have consumed our state in recent years. Day by day, we continue working to make our communities safe through grid hardening, situational awareness and enhanced operational practices, including proactive de-energization when necessary. We are also continuing to execute on accelerating the transition to clean energy. The foundation of our clean energy strategy now is found in Pathway 2045, SCE's blueprint for how California's broader economy and our company can combat the climate change, which catalyzes extreme weather events and exacerbates wildfires. It calls for the transformation of our industry through clean energy, electrification of the transportation sector, where our deployment of electric vehicle charging stations place a major role. And electrification of building space and water heating. I was honored to be named to Governor Newsom's recently formed task force on business and jobs recovery. Among our assigned tasks, we will work to develop actions to shape a fair, green and prosperous future. It will be an opportunity to demonstrate the vital role clean energy can play in a just and equitable economic recovery while also addressing the challenges of climate change and air quality. I want to close by reminding you of the essential nature of the service we provide. We help power the economy. We power both lifestyles and life-saving machines. We serve the public and we help protect the public. I want to thank our Board, the Edison leadership team and the 13,000 women and men who represent us every day for their commitment to meeting those challenges, especially now. I also want to thank our shareholders for your investments and your belief in us. There could hardly be a more fitting time to reiterate that we are all in this together, and I am very proud and very grateful to be in this together with this 1 Edison team. Well, with that, we will now open the meeting to questions. If you have not already done so, please feel free to submit a question through the virtual meeting web portal. As a reminder, only shareholders who have entered the meeting with their control number will be able to submit a question. And with that, let me turn to the website and look at the questions that we have.

And let me start with a question on, will COVID-19 mean that a lot of customers will not be able to pay their bills? So we're monitoring that. We recognize that COVID-19 is having significant impacts, not only on our company and our employees, but on our neighbors, our friends, our customers and our whole economy across Southern California, California, the U.S. and the world. And so we recognize that there will be customers who are facing unemployment and may have difficulty. As I mentioned in my comments, we are doing things to help our customers through this. And again, we have taken steps like suspending any service disconnections for nonpayment for folks who are being impacted by COVID-19. We're helping customers with late payment arrangements. We are not charging late payment fees. And we have a number of communications activities that we have to help educate our customers on how to work through this crisis. To date, we have not seen a meaningful difference. We're seeing some uptick, but not a meaningful uptick yet in terms of nonpayment, although there could be a lag in that as the impacts of the crisis continue. This is an area that we will continue to monitor as the pandemic evolves. And we, fortunately, have seen flattening of the curve in California as the Governor's measures to have -- stay-at-home orders have had, I think, a real impact in slowing the spread of the disease. But we will certainly continue to monitor this. And we are already engaged in discussions with our regulators, the Public Utilities Commission on any sort of potential steps that might be needed to help mitigate the impact further of the crisis on our customers as well as watching if there's any steps that might be needed in terms of the company itself. So thank you for asking that question. Turn to other questions here. There's another question on, does COVID-19 create any new opportunities for EIX? And I think first and foremost, we're all focused right now on how we respond to the crisis and work our way through the challenges that it presents. It's hard to think about opportunities in a traditional business sense given that we're seeing such an impact not only to our immediate community but to the broader economy. But I will point to 2 areas that I think I would classify under the opportunity category. And one is, and I mentioned this briefly in my prepared remarks, but we have seen that the steps we have taken over the last number of years to continue to bolster our incident management capabilities really paid off. And quite frankly, when you go through this, we, for example, had a pandemic response plan already that we had developed and that we had exercised over the years. But the reality is that you don't recognize all the details that you need to manage until you're really in the middle of the crisis. And so I think that this experience, while showing that we were well prepared, and I think our team has been managing through the crisis well, we also continue to learn. And so I think this will make us even stronger for crisis in the future. And for example, living in Southern California, we know that we will have major earthquakes in the future, and going through an experience like this will help us to respond better. The other opportunity area that I would point out is that, as I mentioned in my remarks, we were able to very quickly transition 2/3 of our workforce to teleworking. And that was frankly, well done. It had its bumps, as you would expect. But I think our employees who are teleworking are doing so effectively. But the reality is we're all using tools like video conferencing and remote work in a way that we had never had to use before. So we're learning lessons or along the way. And we are seeing that it's -- there are things that are, frankly, working very well with this. There are things that we miss though from being in the office with our fellow colleagues. And so my expectation is that as we come out of the crisis, work, particularly for office workers, will probably not go back to exactly the way it was 3 months ago. We're learning through this, and I think the ability to adopt and adapt teleworking tools will be something that we will put to good use in the future even after the pandemic crisis. So thanks for the thoughtful question. The question here on how many shareholders have accessed this meeting. As of right now, we have 36 shareholders who are registered through the full website with their -- having entered their control numbers. And then we also have 68 participants through the public interface. Next question, do we have any plans to acquire other utilities? And whenever we get this question, I always start by noting that we don't comment, as you can imagine, on any details on potential mergers and acquisitions. However, I also -- you should give more general comments around the fact that the utility industry in the United States is very fragmented. If you look across the landscape, across the whole country, there are something like 3,000 utilities across, invest-owned utilities, rural cooperatives and municipal entities. Within the invest-owned utility space, we have seen consolidation of the industry over the last couple of decades from around -- in rough numbers here, so don't quote me precisely, but at one point I think there were something like 100 or so invest-owned utilities across the country. And today that number is probably more like in the 40s. The largest utilities in the country, and we're among the largest, but we're still small relative to the scale that you see in some of the global utilities, for example, in Europe and in Asia. So I wouldn't be surprised if consolidation continued over time. However, that is something where, particularly with the regulatory structure in the United States, where we have most of the regulation really being done on a state-by-state basis through individual state-level public utilities commissions that is a factor tough that makes mergers and acquisitions, I think, maybe a little bit more challenging. So hopefully that gives you some just general comments on the industry landscape and some of the factors at play. I would close by saying that our aspiration and our target is to continue to deliver value for our shareholders. To grow the company, we are fortunate that we have a significant growth opportunity today organically within Southern California Edison, and that has given us a growth rate over time that is very attractive compared to our peers across the country. If in the future, there are other opportunities that present themselves to add shareholder value and also benefit other stakeholders, by considering expansion, we will certainly be thoughtful about those and consider those. And our Board, as a matter of their routine work, always evaluates different strategic alternatives on a regular basis. And so we definitely have -- keep a number of opportunities on our radar screen. Next question. Will there be layoffs due to COVID-19? And that's a question that many of our employees have asked. By the way, we have done a lot over the -- since the COVID crisis began to increase our employee communications. We've had a practice for the last couple of years of having live streams available to the entire company with video remarks by myself and other leaders, the ability of our employees to ask questions via chatbox. And so we used to do those about quarterly, we've been doing those now weekly since the crisis began. And so we get the layoff question from time to time. And the answer is that at this point, we don't see any need for layoffs or a case for that. In fact, that remind our employees that we are unique in that we have -- we are critical infrastructure. We serve in one of the 16 sectors across the economy that the Department of Homeland Securities, Cybersecurity and Infrastructure Security Agency has designated as critical infrastructure. When you look at how Governor Newsom issued his stay-at-home order, he cited that DHS, CISA list the 16 critical industries as ones that are essential, and therefore, could not be restricted by the stay-at-home orders. So as I mentioned earlier, we have 1/3 of our employees out there in the field observing physical distancing, wearing personal protective equipment, et cetera, to try and keep them safe. But that's essential work that must be done in order to power hospitals, to power health care providers and to power every customer who's now trying to work or study from home. So if anything, our concern at Edison is that we end up with too few employees if they are -- as the crisis continues, and with a view that a vaccine might not be available for another 12 to 18 months. We worry about how we make sure that we staff appropriately, all the things that we need to be doing that are essential to our economy. And so at this point, really, our efforts have been focused on keeping our employees safe, developing resiliency plans. We -- like other utilities across the country, we're looking at -- hoping for the best, but planning for some fairly dire scenarios. In terms of rate of infection and absenteeism rates that we could experience as the pandemic evolves. And so in that kind of environment with the essential work that we do, we are not considering layoffs at this time. So thank you for that question. There's a question here on how many employees have gotten COVID-19? Our latest number is that -- and of course, I won't go into any details that would be private, personal information for any of our employees. But at a macro level, across our 13,000 employees, we now have 8 employees who have been confirmed via tests -- as having tested positive for COVID-19. We have a greater number of employees who have exhibited symptoms in all of those cases. They have been isolated. We have done essentially contact tracing inside the company to determine if we see an employee with symptoms. We try and determine with whom they might have been in contact and then look at the time frame over which it had happened and made decisions about whether we need to ask further employees to self-quarantine until we can determine that they have not exhibited symptoms. So hopefully, it gives you a sense of the progress so far. And the final question that I see is can I announce before the end of the meeting the number of questions that were submitted to this meeting. I didn't keep count, but I just finished reading every one of our questions. So it was probably on the order of 10 or 12 questions that I just read. So there are no further questions that I see on the chatbox. I'll give another minute in case anybody wants to put in a last-minute question. All right, we're seeing no further questions. Let me thank you for your questions and your comments. Thank you to all of our shareholders for your participation and for your support. I want to thank again our Board of Directors, our leadership team and every one of the 13,000 people, I'm so proud to call my team members our 1 Edison team. And with that, the meeting is now concluded. Please keep yourselves and your loved ones safe, well and healthy. Thank you.

This now concludes the meeting. Thank you for joining, and have a pleasant day.