EDISON INTERNATIONAL quarterly report, Q3 FY2020

Edison International 2020 Third-Quarter Form 10-Q Summary

Business context and reporting period

Edison International is the parent holding company of Southern California Edison Company (SCE), a regulated electric utility serving approximately 50,000 square miles in Southern California, and Edison Energy Group, whose competitive energy-services activities are not material as a reportable segment. This combined Form 10-Q covers the three and nine months ended September 30, 2020, compared with the corresponding 2019 periods. Amounts are unaudited and presented in millions unless otherwise noted.

Financial performance and key metrics

Metric	Three months ended September 30		Nine months ended September 30
	2020	2019	2020	2019
Edison International operating revenue	$4,644	$3,741	$10,421	$9,377
Net income attributable to common shareholders	$(288)	$471	$213	$1,141
Basic EPS	$(0.76)	$1.36	$0.57	$3.43
Operating income	$(379)	$636	$423	$1,488
Net cash provided by operating activities	Not separately provided	Not separately provided	$1,071	$(817)

SCE reported operating revenue of $4,635 million for the third quarter and $10,395 million for the first nine months. SCE net income available for common stock was $(264) million for the quarter and $336 million for the nine months, versus $503 million and $1,215 million, respectively, in 2019.

• Edison International core earnings, a non-GAAP measure, were $632 million for the third quarter and $1,235 million for the first nine months, compared with $519 million and $1,240 million in 2019. SCE core earnings were $656 million and $1,330 million, compared with $551 million and $1,314 million.
• The primary non-core item was a $1.3 billion pre-tax charge for 2017/2018 wildfire and mudslide claims, reduced by $84 million of expected FERC customer recoveries. The resulting after-tax earnings charge was $874 million.
• Other 2020 non-core items included $252 million of Wildfire Insurance Fund expense, an $80 million pre-tax gain from the sale of San Onofre nuclear fuel, and a $34 million pre-tax goodwill impairment charge related to Edison Energy.
• SCE recognized $166 million of net COVID-19-related costs through September 30, primarily for customer uncollectibles, employee sequestering and emergency-response activities. $107 million was recorded as a CPUC regulatory asset and $6 million was deferred for FERC recovery.
• SCE’s nine-month capital expenditures were $3.7 billion, compared with $3.3 billion in 2019. Management forecast 2020 capital expenditures of $4.9 billion to $5.1 billion.

Liquidity, debt and capital resources

• At September 30, 2020, SCE had $30 million of cash and approximately $2.2 billion available under its $3.0 billion revolving credit facility. It also had $146 million available under an $800 million 364-day facility and no borrowings under a separate $1.5 billion facility.
• SCE had $1.8 billion of short-term debt and current long-term debt, plus $15.8 billion of long-term debt. Its debt-to-total-capitalization ratio was 0.51 to 1, within the 0.65 covenant limit.
• Edison International Parent had $62 million of cash, no borrowings under its $1.5 billion revolving facility, and a consolidated debt-to-total-capitalization ratio of 0.58 to 1, within its 0.70 covenant limit.
• SCE provided $1.2 billion of operating cash flow during the first nine months, issued or borrowed approximately $3.5 billion through debt and credit facilities, and used $3.7 billion for investing activities, primarily capital expenditures.
• Edison International issued approximately $800 million of common stock in May 2020 and contributed $1.1 billion to SCE during the first nine months. Management anticipates issuing approximately $1.0 billion of additional equity to support SCE’s wildfire-related financing needs, subject to the timing of claim payments.
• SCE redeemed $120 million of cumulative preferred stock and $180 million of Series G Preference Stock during the third quarter. SCE’s preferred and preference equity declined to $1.9 billion at September 30, 2020.
• SCE’s credit ratings remained investment grade, but S&P revised its outlook to negative. Moody’s and Fitch maintained stable outlooks. A downgrade below investment grade could require at least $53 million of incremental collateral for power contracts, in addition to potential future requirements.

Material changes versus the prior comparable period

• Third-quarter net loss attributable to Edison International common shareholders was $288 million, compared with $471 million of net income in 2019. The nine-month result fell to $213 million from $1.1 billion.
• Revenue increased primarily because of the 2018 General Rate Case escalation mechanism, higher costs eligible for balancing-account recovery, wildfire-related FERC recoveries and authorization to recover previously deferred wildfire insurance costs.
• Core earnings were broadly stable to higher despite the pandemic, with SCE’s core earnings increasing 19% in the third quarter and 1% for the nine months. Higher authorized revenue and regulatory deferrals offset higher operating and maintenance expenses, customer uncollectibles and interest expense.
• Operating cash flow improved by $1.9 billion year over year, principally because 2019 included SCE’s $2.4 billion contribution to the Wildfire Insurance Fund. The improvement was partly offset by higher regulatory-asset undercollections and working-capital outflows.
• Balance-sheet wildfire-related claims increased materially, with total estimated liabilities rising to $5.8 billion at September 30, 2020 from approximately $4.5 billion at December 31, 2019.

Guidance, outlook, management commentary and risks

• SCE requested a $7.6 billion revenue requirement for the 2021-2023 General Rate Case, approximately $1.3 billion above the 2020 authorized requirement. CPUC intervenors proposed materially lower revenue requirements of approximately $6.9 billion and $6.7 billion. A final decision was expected in the first quarter of 2021; the filing does not establish a final authorized amount.
• SCE’s preliminary 2021 FERC transmission revenue requirement was $123 million, or 12.8%, above amounts included in 2020 rates. SCE expected to file its final update by December 1, 2020, with rates effective January 1, 2021.
• SCE had spent $1.1 billion of approximately $1.6 billion of AB 1054-excluded wildfire-mitigation capital expenditures. Management expected to finance these expenditures through securitized bonds, subject to CPUC orders.
• SCE obtained a wildfire safety certification on September 17, 2020, valid for 12 months. Its 2020-2022 Wildfire Mitigation Plan received conditional CPUC approval, and a draft resolution could require updates by February 5, 2021.
• At September 30, 2020, SCE had $5.8 billion of estimated wildfire and mudslide liabilities, $1.6 billion of remaining expected insurance recoveries and $125 million of expected FERC rate recoveries. Actual losses may differ materially, and the estimates exclude potential fines and penalties.
• The September 2020 subrogation settlement required a $1.2 billion payment made in October 2020 and future payments equal to $0.555 per dollar of certain claims paid to policyholders before July 15, 2023, subject to an agreed cap. Several thousand individual claims and other potential claims remain outstanding.
• COVID-19 may increase customer payment defaults, supply-chain and permitting disruptions, project delays, operating costs, financing costs and pressure on liquidity. Decoupling mechanisms generally insulate SCE earnings from changes in retail electricity usage.
• Other significant risks include wildfire ignition and liability, insurance availability and cost, regulatory disallowance of recovery, depletion of the Wildfire Insurance Fund, credit-rating downgrades, capital-market access, San Onofre decommissioning, environmental proceedings, cybersecurity and extreme weather.

Most important facts for investors to verify

• Final outcomes and cash requirements for the remaining 2017/2018 wildfire and mudslide litigation, including the future settlement-payment cap and potential fines or penalties.
• Whether the CPUC ultimately permits recovery of uninsured pre-AB 1054 wildfire costs through customer rates.
• Actual insurance recoveries, remaining coverage and any limitations affecting the estimated $1.6 billion of insurance receivables.
• Final CPUC decisions in the 2021 General Rate Case, including wildfire-mitigation cost recovery and authorized revenue requirements.
• Timing, terms and regulatory approval of securitized financing for AB 1054-excluded capital expenditures.
• Future equity contributions, debt issuance and the effect of wildfire claims on SCE’s capital structure, credit ratings, dividends and collateral requirements.
• The duration and financial effects of COVID-19, including customer uncollectibles, regulatory-asset recovery and access to capital markets.