Edison International (EIX) Q2 2012 Earnings Call July 31, 2012 5:00 pm ET Executives Scott Cunningham - Interim Head of Corporate Communications and Vice President of Investor Relations Theodore F. Craver - Chairman, Chief Executive Officer and President W. James Scilacci - Chief Financial Officer, Executive Vice President and Treasurer Ronald L. Litzinger - President of Southern California Edison Company Analysts Dan Eggers - Crédit Suisse AG, Research Division Michael J. Lapides - Goldman Sachs Group Inc., Research Division Jonathan P. Arnold - Deutsche Bank AG, Research Division Paul B. Fremont - Jefferies & Company, Inc., Research Division Steven I. Fleishman - BofA Merrill Lynch, Research Division Ali Agha - SunTrust Robinson Humphrey, Inc., Research Division Greg Gordon - ISI Group Inc., Research Division Kit Konolige Hugh Wynne - Sanford C. Bernstein & Co., LLC., Research Division James L. Dobson - Wunderlich Securities Inc., Research Division Angie Storozynski - Macquarie Research Presentation Operator
The presentation that accompanies Jim's comments, the earnings press release and our 10-Q filings are available on our website at www.edisoninvestor.com. Tomorrow afternoon, we'll issue our regular quarterly business update presentation that will use these and other slides for ongoing investor discussions.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 turn the call over to Ted Craver. Theodore F. Craver Thank you, Scott, and good afternoon, everyone. Today, Edison International reported second quarter GAAP earnings of $0.23 per share and core earnings of $0.32 per share. As expected, this was below last year's $0.54 per share in GAAP earnings and $0.56 per share in core earnings. Second quarter results reflect unrecovered cost at Southern California Edison due to the delayed General Rate Case decision. In addition, we have continued inspection and repair costs related to the outage at the San Onofre Nuclear Generating Station. SCE will look to recover these costs in the future. We also saw additional losses at EMG this quarter, primarily reflecting low power prices. This further underscores the need to restructure and stabilize our competitive generation business, as I'll talk about in a few minutes. There are several important developments at Southern California Edison this quarter. I'll spend most of my time on the San Onofre Nuclear Generating Station or SONGS as we call it.
Both units at SONGS remained safely shut down for inspections, analysis and testing, following the January 31 Unit 3 steam generator tube link.SCE has retained several outside industry experts, consultants and steam generator manufacturers in addition to heavy -- Mitsubishi Heavy Industries, which designed and manufactured our steam generators, to analyze the causes of the unique tube-to-tube wear and potential remedial actions. On July 19, the NRC released its detailed findings from its augmented inspection team. It summarized its finding by saying that faulty computer modeling, inadequately predicted conditions in the steam generators and manufacturing issues contributed to excessive wear of the components. The report states that the excessive wear arose from tube-to-tube contact caused by vibration in the tubes in certain areas of the steam generators. The excessive vibration is due to a phenomenon called fluid elastic instability, which is discussed in detail in the report. The NRC has identified a number of outstanding issues that it still is reviewing. To date, the inspection and repair effort is focused on a substantial amount of technical analysis work and preventative plugging of tubes where appropriate based on indications of prior or potential future wear, both in areas where there was tube-to-tube contact and tube-to-support contact. Each of the 4 steam generators has over 9,700 heat-transfer tubes and is designed to include sufficient tubes to accommodate a need to remove some from service for a variety of reasons, and the tubes at SCE has preventively removed from service are all well within this margin. SONGS will not be restarted until SEC determines that it is safe to do so. And when startup has been approved by the NRC, pursuant to the terms of a Confirmatory Action Letter. Any remedial action that will permit restart of one or both of the units will need to ensure that the fluid elastic instability phenomenon does not reoccur.
Because Unit 2 experienced conservatively less tube-to-tube wear, it could restart months in advance of Unit 3. Any restart of Unit 2 would likely operate at reduced power levels and with mid-cycle scheduled outages to provide for additional inspection and testing to assure safe operation.It is much as Unit 3 had more tube-to-tube wear than Unit 2, it is not at this time whether Unit 3 will be able to restart without extensive additional repairs. SCE is also looking longer term at what repairs, if any, could allow the steam generators to operate safely at full power as originally specified. At this time, SCE has not determined what those repairs might be or whether the generators will need to be replaced for the units to operate at full output. In the interim, SCE is reviewing its O&M and capital expenditures at SONGS with a view to reducing expenditures to mitigate the added cost pressures from both units being out of service. Read the rest of this transcript for free on seekingalpha.com