Edison International 2024 Q1 Form 10-Q Summary
Business context and reporting period
Edison International, the parent company of Southern California Edison Company (SCE), filed a combined unaudited Form 10-Q for the quarter ended March 31, 2024. SCE supplies and delivers electricity across approximately 50,000 square miles in Southern, Central and Coastal California. Edison Energy, operating as Trio, is not material as a separate reporting segment.
Financial performance and key metrics
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Edison International operating revenue | $4.078 billion | $3.966 billion | +$112 million |
| Edison International net income | $52 million | $365 million | -$313 million |
| Net income available to common shareholders | $(11) million | $310 million | -$321 million |
| Basic and diluted EPS | $(0.03) | $0.81 | Down $0.84 |
| Operating income | $245 million | $620 million | -$375 million |
| Operating margin | 6.0% | 15.6% | Down 9.6 percentage points |
| Net cash from operating activities | $1.043 billion | $(90) million | +$1.133 billion |
| Capital expenditures | $1.279 billion | $1.324 billion | -$45 million |
SCE reported operating revenue of $4.064 billion, net income of $106 million and net income available to common stock of $65 million, compared with $3.950 billion, $399 million and $370 million, respectively, in Q1 2023. SCE's operating margin was approximately 6.4%, versus 15.4% in the prior-year quarter.
Edison International's management-defined core earnings increased to $438 million from $416 million. SCE core earnings increased to $513 million from $494 million, primarily from higher authorized revenue under Track 4 and a higher authorized return on equity. These non-GAAP measures exclude significant wildfire, insurance-fund and other unusual items.
Consolidated operating expenses increased to $3.833 billion from $3.346 billion. Wildfire-related claims, net of insurance recoveries, increased to $615 million from $96 million. Interest expense increased to $444 million from $361 million. The consolidated income tax benefit was $113 million, compared with $13 million of tax expense in Q1 2023, primarily because of the decline in pretax income and regulated utility tax accounting.
Liquidity, debt and cash flow
- At March 31, 2024, Edison International had $992 million of cash and cash equivalents; SCE had $850 million.
- SCE had approximately $2.8 billion available under its $3.4 billion revolving credit facility. SCE's debt-to-total-capitalization ratio was 0.58, below its 0.65 covenant limit.
- Edison International Parent and Other had $142 million of cash and approximately $1.2 billion available under its $1.5 billion revolving credit facility. Its consolidated debt-to-total-capitalization ratio was 0.64, below its 0.70 covenant limit.
- SCE issued $3.0 billion of first and refunding mortgage bonds during the quarter: $1.4 billion in January and $1.6 billion in March, with maturities from 2026 through 2054 and stated coupon rates of 4.875% to 5.75%.
- SCE generated $1.086 billion of operating cash flow, used $1.276 billion in investing activities and generated $934 million from financing activities, resulting in a $744 million increase in cash, cash equivalents and restricted cash.
- Edison International's consolidated debt, including current and long-term debt, totaled approximately $35.4 billion at March 31, 2024, compared with approximately $34.1 billion at December 31, 2023. SCE's comparable debt totaled approximately $30.7 billion, compared with approximately $29.3 billion.
- SCE posted $266 million of collateral. Potential incremental collateral requirements were $53 million for a downgrade below investment grade and $123 million for adverse commodity-price movements.
Material changes versus the prior comparable period
- Common-shareholder earnings fell to a loss of $11 million from income of $310 million, primarily because of substantially higher wildfire charges and higher interest expense.
- Q1 2024 included a $490 million increase in estimated 2017/2018 Wildfire/Mudslide losses, partially offset by $27 million of expected FERC recovery, producing a $463 million pretax and $333 million after-tax charge.
- Q1 2024 also included a $180 million increase in estimated Other Wildfires losses, offset by $56 million of expected insurance recoveries and $7 million of expected rate recovery, producing a $117 million pretax and $84 million after-tax charge.
- Purchased power and fuel expense declined by $310 million at SCE, primarily because of lower power and gas prices and lower purchased gas volumes.
- Interest expense rose by $65 million at SCE due to higher rates, higher long-term borrowings and balancing-account effects.
- SCE's capital expenditures declined modestly to approximately $1.2 billion for the quarter from approximately $1.3 billion.
- The estimated life of the Wildfire Insurance Fund increased from 15 to 20 years, reducing quarterly amortization expense to $36 million from $52 million.
Guidance, outlook, commentary and risks
SCE requested approximately $10.3 billion of 2025 test-year revenue requirements in its general rate case. In April 2024 rebuttal testimony, SCE updated the request to approximately $10.1 billion, or 21% above the adopted 2024 revenue requirement, and proposed increases of approximately $600 million, $650 million and $630 million for 2026, 2027 and 2028, respectively. Intervenors proposed materially lower levels, including approximately $9.3 billion from the CPUC Public Advocates Office.
SCE forecasts total capital expenditures of $32.2 billion to $37.5 billion for 2024 through 2028 and weighted-average annual rate base of $43.0 billion to $60.6 billion. These projections predate the updates in SCE's rebuttal testimony.
SCE expects to fund near-term requirements through operating cash flow, debt and bank financing, available credit facilities and, as necessary, parent-company equity contributions. Edison International intends to maintain a target payout ratio of 45% to 55% of SCE core earnings, subject to regulatory, liquidity and dividend restrictions.
The most significant risk remains wildfire liability and the ability to obtain recovery through insurance, FERC rates or CPUC rates. As of March 31, 2024, SCE had accrued $9.9 billion of losses related to the 2017/2018 Wildfire/Mudslide Events, recovered $2.0 billion from insurance and paid or was obligated to pay approximately $9.0 billion under settlements. Estimated remaining losses were $831 million, but management stated that actual losses could be materially higher and that the upper end of reasonably possible losses could not be estimated.
SCE expects to seek approximately $6.9 billion of CPUC rate recovery for uninsured 2017/2018 wildfire claims and related costs. The CPUC has not determined whether those costs were prudently incurred, and SCE cannot currently conclude that the uninsured CPUC-jurisdictional costs are probable of recovery.
Other risks include additional wildfire claims, regulatory disallowances, affordability-related limits on rate increases, higher interest rates, credit-rating downgrades, collateral requirements, extreme weather, cybersecurity, supply-chain and labor costs, San Onofre decommissioning, environmental remediation and execution of the capital program. Management reported no material changes in market-risk exposures and concluded that disclosure controls were effective.
Most important facts for investors to verify
- Progress, settlement demands and trial outcomes in the Woolsey, Thomas, Koenigstein and Montecito litigation, including the August 2024 Woolsey liability trial and other scheduled trials.
- Whether the CPUC approves SCE's requested recovery of uninsured wildfire claims and related financing, legal and restoration costs.
- The final CPUC decision in the 2025 general rate case and the effect on revenue, rate base, customer affordability and capital spending.
- Actual wildfire losses compared with the $831 million remaining estimate for the 2017/2018 events and the $780 million estimate for Other Wildfires.
- SCE's ability to maintain investment-grade credit ratings, access debt markets and manage collateral requirements while financing wildfire obligations and capital expenditures.
- Cash generation after capital expenditures, debt service, dividends and wildfire settlement payments.
- Completion and cost performance of the 537.5 MW utility-owned storage projects, which Ameresco expected to place in service before the end of July 2024.