Edison International 2021 First-Quarter Form 10-Q Summary
Business context and reporting period
This combined Form 10-Q covers Edison International and its wholly owned utility subsidiary, Southern California Edison Company (SCE), for the three months ended March 31, 2021. Edison International primarily owns SCE, which supplies and delivers electricity across approximately 50,000 square miles of Southern California. Edison Energy Group provides competitive energy solutions but is not a material reportable segment.
Key financial metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Edison International operating revenue | $2.960 billion | $2.790 billion | +$170 million |
| Operating income | $399 million | $302 million | +$97 million |
| Net income attributable to common shareholders | $259 million | $183 million | +$76 million |
| Basic and diluted EPS | $0.68 | $0.50 | +$0.18 |
| Net cash from operating activities | $72 million | $315 million | -$243 million |
| Capital expenditures | $1.358 billion | $1.268 billion | +$90 million |
Edison International’s operating margin was approximately 13.5% in Q1 2021 versus 10.8% in Q1 2020; net margin attributable to common shareholders was approximately 8.8% versus 6.6%. SCE generated $2.953 billion of revenue, $411 million of operating income, $323 million of net income, and $296 million of net income available for common stock, compared with $2.780 billion, $316 million, $249 million, and $219 million, respectively, in Q1 2020.
Management reported non-GAAP core earnings of $301 million for Edison International and $338 million for SCE, compared with $228 million and $261 million, respectively, in the prior-year quarter. Core earnings increased primarily because of lower wildfire mitigation and employee-benefit expenses and higher equity allowance for funds used during construction. Core earnings are a non-GAAP measure and may not be comparable with other companies.
At March 31, 2021, Edison International reported total assets of $70.505 billion, total liabilities of $53.282 billion, total debt of approximately $23.594 billion, and equity of $17.223 billion. SCE reported $70.145 billion of assets, $50.623 billion of liabilities, total debt of approximately $20.460 billion, and equity of $19.522 billion.
SCE had $25 million of cash and $3.706 billion of available credit capacity at quarter-end, including $674 million of commercial paper outstanding and $120 million of letters of credit. Edison International Parent had $364 million of cash and no borrowings under its $1.5 billion revolving credit facility. SCE’s debt-to-total-capitalization ratio was 0.51 to 1, versus a covenant maximum of 0.65 to 1; Edison International’s consolidated ratio was 0.58 to 1, versus a 0.70 to 1 limit.
Material changes versus the prior comparable period
- SCE operating income increased $95 million, principally from lower operation and maintenance costs, including $36 million of lower wildfire-mitigation expenses, $20 million of lower employee-benefit expenses, and lower customer uncollectible and other costs.
- Wildfire Insurance Fund expense declined to $53 million from $84 million because SCE extended the estimated amortization period of its contributions to the fund.
- Purchased power and fuel costs increased $85 million, largely because of higher power and natural-gas prices during extreme February 2021 winter weather.
- Depreciation and amortization increased $41 million because of higher plant balances, while other income increased $20 million, primarily from higher AFUDC equity income.
- Operating cash flow declined substantially because of $620 million of wildfire claim payments and changes in other noncurrent assets and liabilities. SCE’s operating cash flow was $48 million versus $334 million in Q1 2020.
- Total capital expenditures increased to approximately $1.1 billion for SCE, from approximately $1.0 billion. Consolidated Edison International capital expenditures were $1.358 billion.
- Edison International issued $1.237 billion of Series A preferred stock and contributed $900 million of capital to SCE, including a $575 million contribution funded from the preferred-stock issuance.
Guidance, outlook, commentary, risks and unusual items
The filing does not provide clear consolidated earnings guidance. SCE expects to fund the next 12 months of requirements through operating cash flow, debt and other capital-market financings, available credit facilities, and additional equity contributions from Edison International as needed. Edison International expects to issue securities with up to approximately $375 million of additional equity content in 2021 to support SCE.
SCE requested a $7.6 billion 2021 General Rate Case test-year revenue requirement, approximately $1.3 billion above the 2020 authorized requirement. The CPUC had not issued a final decision, and SCE continued recognizing revenue using the 2020 authorized requirement. The ultimate authorized amount and timing remain uncertain.
Wildfire exposure remains the principal financial and operational risk. Through March 31, 2021, Edison International and SCE had recorded approximately $6.2 billion of pretax charges related to the 2017/2018 Wildfire/Mudslide Events, with approximately $2.0 billion of estimated remaining losses after settlements. SCE had paid $2.4 billion and had $1.8 billion payable under executed settlements. Remaining estimated losses exclude potentially material fines and penalties, which cannot currently be estimated.
SCE had $666 million of remaining expected insurance recoveries for the 2017/2018 events and $91 million of remaining FERC-related recovery assets. Recovery of uninsured CPUC-jurisdictional costs is not currently considered probable because of uncertainty regarding the CPUC’s prudency standard. The Woolsey Subrogation Settlement required aggregate payments of approximately $2.2 billion in March and April 2021.
SCE maintained approximately $1.0 billion of wildfire-specific insurance coverage for July 1, 2020 through June 30, 2021, subject to a $50 million self-insured retention and up to $80 million of co-insurance, producing approximately $870 million of net coverage. Future coverage availability and cost remain uncertain.
COVID-19-related costs totaled $231 million through March 31, 2021; $87 million was deferred to memorandum accounts and $144 million was transferred to balancing accounts pending recovery. SCE expects to seek securitization of $112 million of residential uncollectible expenses. Total CSRP costs are forecast at approximately $540 million of capital and $90 million of operating and maintenance expense through 2021.
SCE had approximately $1.5 billion of AB 1054-excluded wildfire mitigation capital expenditures at quarter-end and issued $338 million of securitized recovery bonds in February 2021. SCE planned to seek CPUC authorization to securitize up to $1.0 billion of wildfire, COVID-19, and excluded-capital costs.
Other material risks include additional wildfires and Public Safety Power Shutoffs, regulatory disallowances, depletion of the Wildfire Insurance Fund, credit-rating downgrades, collateral requirements, nuclear decommissioning and spent-fuel obligations, environmental remediation, commodity prices, and cybersecurity. S&P assigned a negative outlook to both SCE and Edison International Parent; Moody’s and Fitch assigned stable outlooks.
Most important facts for investors to verify
- Progress and final cost of the 2017/2018 wildfire settlements, including the remaining $2.0 billion estimated loss and the $666 million insurance receivable.
- Whether the CPUC authorizes recovery or securitization of wildfire, COVID-19, CSRP, and other regulatory-account balances.
- The final 2021 General Rate Case revenue requirement and its effect on earnings, cash flow, and rate base.
- Availability, pricing, and limits of wildfire insurance beginning July 1, 2021.
- Execution of the wildfire mitigation plan, safety certification, and any PSPS-related penalties or restrictions.
- Liquidity after the April 2021 debt issuances and settlement payments, including the effect of interest rates and potential credit-rating changes.
- Resolution and potential exposure from 2019/2020 wildfire claims, the Upstream Lighting Program proceeding, environmental matters, and pending regulatory or legal proceedings.