Last week marked Pedro Pizarro’s first full year as chief executive of Rosemead-based Edison International, the parent of electric utility Southern California Edison. Edison International is the fifth-largest publicly traded company based in Los Angeles County, with a market cap of $25 billion, $12 billion in annual revenue, and 12,400 employees. Pizarro has so far overseen SCE’s request for rate hikes, taken steps to prepare the utility as Los Angeles County launches a public power utility to compete against SCE, put Edison’s solar panel installation business up for sale, and laid down financial parameters for the company’s new energy consulting business. Pizarro previously served as president of SCE, and before that, he was president of Edison Mission Energy, the Irvine-based private energy generating subsidiary that went into bankruptcy and sold off its assets to NRG Energy in 2014.

Southern California Edison is seeking permission from the California Public Utilities Commission to hike customer rates by 12 percent over the next three years. Why ask for this steep of an increase?

We’ve done a pretty good job over the past three decades at keeping annual rate increases generally on par with the inflation rate. In fact, from 2015 to 2016, we actually had a rate decrease. Now several things are coming together to drive this request for rate increases. The biggest is the need to invest more in our transmission grid, to provide safe, reliable and affordable service to our customers. Also, we now have 28 percent of our electrons come from renewable sources. Under state law, that will have to be stepped up to 50 percent over the next 12 years.

SCE plans to spend $2.3 billion over the next five years to modernize its grid. Where is all that
money going?

Much of our grid was built out in the years immediately following World War II. On average, we replace our power poles after 60 to 80 years, whereas their intended life cycle was only 40 to 50 years. We have some power poles that are over 100 years old. Also, nearly one-fourth of our 4,600 circuits are of lower voltage and do not have enough capacity to handle solar panels and all the new energy devices such as electric vehicles; those have to be replaced. And we need the capacity to handle two-way electron flows, to allow for energy storage and transmission of solar power from homes back onto the grid.

The Los Angeles County Board of Supervisors recently approved the formation of a “public power” or “community choice” utility that it says will offer cheaper rates than Edison. How concerned are you about the prospect of thousands of Edison customers flocking to this new utility?

Communities have the option to do this under state law, and we fully support that right. Our problem is the way it has been implemented. The exit fee – what customers leaving our utility now must pay as they continue to use our grid for the power they receive from these community choice utilities – does not fully compensate for the cost they incur. This is a problem for our remaining utility customers – they will end up bearing the burden of maintaining the grid for those who leave our utility. We are focused now on ensuring that the impact of any exiting customers is neutral on the remaining customers. And we will get another crack at this next year when the PUC again takes up this matter.

Where do things stand with the settlement agreement apportioning between ratepayers and Edison shareholders the shutdown costs for the San Onofre Nuclear Generating Station?

We reached an agreement on apportioning

the costs a few years ago. But as you know, after the ex-parte communication situation with that meeting in Warsaw (Poland), the PUC last year authorized mediation talks between the parties to see if a revised apportionment agreement could be reached.

Those talks ended in August, and while I can’t disclose details, I can say that agreement was not reached on a revised cost apportionment plan. There are several competing proposals – one from the Office of Ratepayer Advocates that has Edison investors paying an additional $400 million and one more extreme filing with a demand that Edison investors pay an additional $1 billion. … The PUC could make a decision to let the original settlement stand, or they could suggest revisions to the settlement, or they could decide to send the case back to litigation as if the original settlement never happened.

Does that amount to additional money that investors will have to fork over?

That’s not the case. What I’ve told investors is that Edison does have a strong balance sheet: 200 basis points in equity more than required. While we would like to use that extra amount for growth, if necessary, it can be used to handle any additional costs from this.

How is the new solar power net metering system – where solar customers put power back onto the grid – working out for Edison?

We support our customers being able to generate solar power through rooftop panels. But again, the issue for us is that the subsidy that our non-solar customers must pay to maintain the grid is too high. The new law that went into effect in July allows solar customers to get credited for the full retail rate of that power they put back on the grid. But that full retail rate includes grid operating costs and other things that are separate from just the electrons being delivered. Essentially, the solar customers are using the highway, but bypassing the toll booth. We think it’s fair that solar customers make a greater contribution to the fixed costs of maintaining the grid. The PUC will be reviewing this next year.

Why has Edison International put its solar panel installation unit, SoCore, up for sale?

It’s a nice small-scale business and we have been making good progress. But there may be a more natural owner for SoCore than us. The company bought SoCore in 2013; the hope was that we would use tax credits from these solar panel installations to offset taxable income elsewhere. But we’ve had extra tax credits from the sale of Edison Mission Energy that we’ve not been able to use as rapidly as we thought. So at this point, we don’t need the tax credits that SoCore is bringing in. There may be somebody out there who can use tax credits from SoCore. But this is not a fire sale; we will only sell it if we find the right offer for it.

You recently stressed that there must be a “proof of concept” on Edison Energy, the company’s new energy consulting business, between now and the end of 2019. What is it that you are trying to prove?

We believe that large commercial customers – I’m talking Fortune 100 companies – don’t have a good one-stop shop today that’s independent from someone trying to sell you a piece of hardware where they can get integrated advice on a variety of energy tools – commodity procurement, renewable energy procurement, building controls, energy efficiency, lighting and so on. The concept is pulling all that stuff together and having a strong data analytics platform to really crunch the numbers for these clients – and not just in one location or state, but for all the customers’ locations across the country.

And what happens if the concept does not prove out – would that mean $100 million in shareholder money would have been wasted?

We purchased three companies to help us launch this business. To date, we have as clients 17 of the Fortune 100 companies. What we don’t know yet is whether enough companies will pay for this to make this a self-sufficient business. The goal is that going into 2020, this unit will not be a drag on earnings but actually start to contribute positively toward earnings, and that is what I’ve told investors.

Editor’s Note: This story has been updated to correct the mandated timeframe to achieve 50 percent renewable energy sources.