EDISON INTERNATIONAL annual report, FY2022

Edison International 2022 Form 10-K Summary

Business context and reporting period

This combined Form 10-K covers Edison International and its wholly owned regulated utility subsidiary, Southern California Edison Company (SCE), for the fiscal year ended December 31, 2022. Edison International also owns Edison Energy, whose competitive energy-services activities were not material as a reportable segment. SCE supplies and delivers electricity across approximately 50,000 square miles in Southern California to approximately 5.2 million customers.

The filing is an annual report rather than a quarterly report; the requested “2022 Q4” period corresponds to the year-end filing and includes results for the full year ended December 31, 2022.

Key financial metrics

Metric	2022	2021	Change
Edison International operating revenue	$17.22 billion	$14.91 billion	+$2.32 billion
Operating income	$1.48 billion	$1.48 billion	Approximately flat
Net income attributable to common shareholders	$612 million	$759 million	-$147 million
Diluted EPS	$1.60	$2.00	-$0.40
SCE operating revenue	$17.17 billion	$14.87 billion	+$2.30 billion
SCE net income available for common stock	$847 million	$829 million	+$18 million
SCE operating cash flow	$3.32 billion	$158 million	+$3.16 billion
SCE capital expenditures	$5.78 billion	$5.50 billion	+$273 million

Consolidated operating margin was approximately 8.6% in 2022, compared with approximately 9.9% in 2021. The decline in attributable earnings and margin primarily reflects wildfire-related charges, higher operating costs, depreciation and interest expense.

Core earnings: Edison International core earnings increased to $1.765 billion from $1.741 billion. SCE core earnings increased to $2.029 billion from $1.943 billion, while Edison International Parent and Other core losses increased to $264 million from $202 million.
Non-core items: Consolidated non-core items were a net loss of $1.153 billion in 2022 versus $982 million in 2021. Major items included 2017/2018 wildfire and mudslide charges, Wildfire Insurance Fund expense, the Upstream Lighting Program decision, impairments, employment litigation and organizational realignment costs.
Cash flow: Edison International generated $3.216 billion of operating cash flow, issued $5.971 billion of long-term debt and used $5.778 billion for capital expenditures. SCE generated $3.319 billion of operating cash flow, received $2.724 billion from financing activities and used $5.557 billion in investing activities.
Liquidity: At December 31, 2022, SCE held $766 million of cash and had approximately $2.7 billion available under its $3.35 billion revolving credit facility. Edison International Parent held $148 million of cash and had $1.4 billion available under its $1.5 billion facility.
Debt: Edison International reported $29.64 billion of long-term debt including current maturities, compared with $25.25 billion in 2021. SCE reported $26.26 billion, compared with $22.11 billion. SCE’s debt-to-total-capitalization ratio was 0.56 to 1, and Edison International’s consolidated ratio was 0.64 to 1; both were within covenant limits.
Balance sheet: Edison International total assets were $78.04 billion and total liabilities were $60.52 billion at year-end. Regulatory assets totaled $10.7 billion and regulatory liabilities totaled $9.2 billion at SCE, making regulatory recovery assumptions material to reported financial position.

Material changes versus the prior comparable period

SCE’s earnings benefited from higher authorized revenue under the 2021 General Rate Case, increased return on rate base and capital-balancing-account activity. These benefits were substantially offset by higher operation and maintenance expense, depreciation and interest expense.
Purchased power and fuel costs increased by approximately $835 million at SCE, primarily because of higher power and natural-gas prices. These costs are generally recoverable through balancing accounts but increased working-capital and liquidity requirements.
Interest expense increased by approximately $244 million for Edison International and $214 million for SCE, reflecting higher borrowing levels and rising interest rates.
SCE’s year-end rate base increased to $40.6 billion from $37.9 billion, excluding capital expenditures excluded from rate base under AB 1054.
Capital expenditures increased to $5.7 billion in 2022. SCE forecasts total capital expenditures of approximately $6.0 billion in 2023 and $5.8 billion in 2024, including approximately $1.1 billion of wildfire-mitigation spending in each year.
SCE’s ERRA and PABA balancing accounts were undercollected by approximately $1.5 billion at December 31, 2022 because of elevated gas and power prices. Rate increases began in January 2023, with the possibility of additional adjustments if undercollections remain above trigger levels.
Cash flow from operations improved sharply from 2021, primarily because of working-capital changes, lower wildfire settlement payments than in 2021 and improved regulatory-account cash flows.

Guidance, outlook, management commentary and unusual items

SCE expects to file its 2025 General Rate Case application in May 2023 for the 2025–2028 period. The filing is expected to seek funding for grid modernization, electrification, reliability and wildfire mitigation.
For 2023–2025, SCE’s authorized capital structure is 52% common equity, 43% long-term debt and 5% preferred equity. The 2023 authorized ROE is 10.05%, the weighted average return on rate base is 7.44%, and the authorized long-term debt and preferred equity costs are 4.39% and 6.50%, respectively.
SCE expects approximately $5.3 billion to $6.8 billion of additional CPUC and FERC capital expenditures during 2024–2025 beyond portions of the base forecast. Future rate-base growth and cost recovery depend on regulatory approvals, project execution and permitting.
Utility-owned storage projects totaling 537.5 MW were delayed by supply-chain, permitting, engineering and weather-related issues. SCE expected completion before June 2023 but identified a risk of further delay. Potential liquidated damages could reach $89 million, subject to contractual force-majeure provisions.
San Onofre Units 2 and 3 decommissioning costs were estimated at $3.4 billion in 2021 dollars, of which SCE’s share was $2.6 billion, with completion currently estimated for 2053. SCE’s nuclear decommissioning trust funds were $2.2 billion at year-end 2022, down from $2.8 billion.
Edison International declared a 5% increase in its annual common dividend from $2.80 to $2.95 per share in December 2022 and stated an intention to maintain a payout ratio of 45%–55% of SCE core earnings. Future dividends depend on SCE distributions, regulatory requirements, liquidity and wildfire obligations.
The 2017/2018 Wildfire/Mudslide Events remain the most significant unusual item. In 2022, SCE recorded $1.3 billion of additional estimated losses, offset by $76 million of expected FERC recovery, resulting in a $1.2 billion pre-tax net charge and an $879 million after-tax charge.
At December 31, 2022, SCE had paid $7.6 billion under executed settlements and had $185 million remaining to pay under executed settlements. Remaining estimated losses for alleged and potential 2017/2018 claims were $934 million, with no remaining expected insurance recoveries. SCE expects to seek approximately $6 billion of CPUC recovery through multiple future applications, but stated that recovery of uninsured pre-AB 1054 costs is not currently probable.
For post-2018 wildfires, SCE recorded $572 million of estimated losses in 2022, offset by $399 million of expected insurance recoveries and $162 million of expected rate recovery, producing an $11 million pre-tax net charge. Remaining estimated losses were $682 million at year-end.
The CPUC’s final decision on the Upstream Lighting Program required $76.1 million of ratepayer refunds, $6.8 million of refunded incentive awards, $19.06 million of fines and approximately $900,000 of investigation costs.

Principal risks and contingencies

Wildfire liability, insurance availability, self-insured retentions, co-insurance and uncertainty over CPUC prudency determinations could materially affect earnings, liquidity, credit ratings and dividends.
Regulatory assets and balancing accounts depend on future recovery through customer rates. A change in the probability of recovery could result in material write-offs.
Higher interest rates, commodity prices, inflation, supply-chain constraints and labor costs could pressure cash flow and increase financing costs.
Debt maturities, collateral requirements and potential credit-rating downgrades could increase liquidity needs. SCE had $461 million of collateral posted and potential additional collateral exposure of approximately $325 million from a downgrade or adverse market movements.
San Onofre decommissioning, nuclear spent-fuel storage, permitting and cost overruns could require additional funding beyond existing trust assets.
Cybersecurity, physical security, operational reliability, PSPS-related penalties and customer claims remain significant operating risks.
Customer departures to community choice aggregators, direct-access providers, rooftop solar and storage may increase rates for bundled-service customers and create cost-allocation challenges, although SCE’s authorized earnings are generally decoupled from electricity sales volume.
The filing identifies no material weaknesses in internal control. Edison International’s financial statements and internal control over financial reporting received unqualified audit opinions from PricewaterhouseCoopers LLP; SCE received an unqualified financial-statement opinion, but its internal controls were not subject to auditor attestation.

Most important facts for an investor to verify

Progress, settlement costs and ultimate exposure related to the 2017/2018 Wildfire/Mudslide Events and post-2018 wildfires.
CPUC decisions on SCE’s future wildfire-cost recovery applications and the pending equity-ratio waiver.
Actual 2023–2024 capital spending, rate-base growth and approval of the 2025 General Rate Case.
Size and timing of ERRA/PABA undercollection recovery and any resulting customer-rate changes.
Availability and cost of wildfire insurance, including self-insured retention and co-insurance exposure.
Refinancing of Edison International Parent’s approximately $1.4 billion of debt maturities and SCE’s $730 million term loan due in 2023.
Completion and final cost of the 537.5 MW utility-owned storage projects.
Sufficiency of San Onofre decommissioning trusts relative to updated cost estimates and regulatory disallowance risk.