Edison International 2017 Q2 SEC Filing Summary
Business Context and Reporting Period
This combined Form 10-Q covers Edison International and its principal subsidiary, Southern California Edison Company (SCE), for the three and six months ended June 30, 2017. SCE supplies and delivers electricity across approximately 50,000 square miles of Southern California. Edison International also owns competitive energy-services and distributed-solar businesses through Edison Energy Group, which are not material reportable segments.
Financial Performance and Key Metrics
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Edison International operating revenue | $2.965 billion | $2.777 billion | $5.428 billion | $5.218 billion |
| Operating income | $469 million | $381 million | $948 million | $829 million |
| Net income attributable to common shareholders | $278 million | $280 million | $640 million | $561 million |
| Diluted EPS from continuing operations | $0.85 | $0.86 | $1.95 | $1.70 |
| Dividends declared per common share | $0.5425 | $0.4800 | $1.0850 | $0.9600 |
- Six-month Edison International operating margin improved to approximately 17.5% from 15.9% in the prior-year period; Q2 operating margin was approximately 15.8% versus 13.7%.
- Six-month SCE operating revenue was $5.409 billion versus $5.204 billion, and net income available for common stock was $656 million versus $612 million. Q2 SCE net income available for common stock was $307 million versus $318 million.
- SCE’s six-month results benefited from the 2015 general rate case escalation mechanism and lower operation and maintenance expense, partly offset by customer refunds and higher financing costs.
- SCE’s six-month operating cash flow was $1.521 billion, compared with $1.516 billion in 2016. Edison International consolidated operating cash flow was $1.433 billion, compared with $1.432 billion.
- Capital expenditures were $1.4 billion for SCE and $1.749 billion for Edison International during the first six months, compared with $1.6 billion and $1.828 billion, respectively, in 2016.
- At June 30, Edison International had $98 million of cash and total debt of approximately $12.8 billion. SCE had $39 million of cash and total debt of approximately $11.2 billion.
- SCE had approximately $2.48 billion available under its $2.75 billion revolving credit facility; Edison International Parent had $906 million available under its $1.25 billion facility.
- SCE’s debt-to-total-capitalization ratio was 0.43 to 1, below its 0.65 covenant limit. Edison International Parent’s ratio was 0.46 to 1.
Material Changes Versus the Prior Comparable Period
- Second-quarter Edison International earnings decreased $2 million, primarily because SCE earnings declined $11 million as a result of a CPUC revenue reduction related to prior overcollections. Lower Edison International Parent and Other losses partly offset the decline.
- Six-month Edison International earnings increased $79 million. SCE contributed $44 million of the increase, while Edison International Parent and Other losses decreased by $34 million.
- SCE operating revenue increased primarily from the 2015 GRC escalation mechanism and tax-related customer billings. Purchased power and fuel costs increased $101 million for the six months because of higher power and gas prices.
- SCE operation and maintenance expense declined $51 million for the six months, mainly from operational-efficiency initiatives and lower storm activity.
- Interest expense increased $22 million at SCE for the six months because of increased borrowings and higher interest on balancing accounts.
- Edison Energy Group recorded a $16.5 million goodwill impairment at SoCore Energy, or $10 million after tax, in Q2 2017. Edison International is evaluating potential sale opportunities for SoCore Energy and plans to consolidate management across Edison Energy Group.
- Edison International settled IRS tax positions for 2007–2012 during Q1 2017, generating tax benefits and reducing unrecognized tax benefits to $411 million at the parent level and $316 million at SCE.
Guidance, Outlook, Commentary, Risks, and Unusual Items
- SCE’s revised 2017–2020 capital expenditure forecast totals $18.554 billion, including $3.780 billion in 2017 traditional capital expenditures and $1.795 billion of grid-modernization spending over the four-year period. Grid-modernization spending is forecast at zero as a separate category in 2017 because related expenditures are included in traditional distribution capital expenditures.
- SCE’s revised 2018 GRC request seeks a 2018 revenue requirement of $5.859 billion, a $196 million increase over projected 2017 authorized revenue. The CPUC’s final decision and the ultimate authorized amounts for 2018–2020 remain uncertain.
- The CPUC had not approved SCE’s requested grid-modernization memorandum account at the filing date. Recovery of related expenditures, particularly future grid-modernization capital, is uncertain.
- SCE recorded a $772 million regulatory asset for expected San Onofre settlement recoveries. Management considered recovery probable, but not certain, while the CPUC reviews issues relating to previously undisclosed ex parte communications and the settlement process.
- SCE recorded a $47 million regulatory liability for the net MHI arbitration recovery. The award resulted from claims concerning San Onofre replacement steam generators.
- Key risks include regulatory cost recovery and rate decisions, San Onofre proceedings and decommissioning, access to capital markets, wildfire liability and insurance availability, cybersecurity and physical security, environmental obligations, commodity prices, counterparty credit, weather and natural disasters, and potential customer departure through municipal procurement or distributed energy resources.
- SCE had approximately $1 billion of wildfire insurance coverage through May 31, 2018, with a $10 million self-insured retention per occurrence. Future losses could exceed insurance limits.
- SCE’s net commodity-derivative liability was $999 million at June 30, 2017, compared with $1.083 billion at December 31, 2016. Potential collateral posted or required under specified scenarios totaled $123 million.
- No formal consolidated earnings guidance is provided in the filing. Management expects to fund SCE’s obligations, capital expenditures and dividends through operating cash flow, tax benefits, capital-market financing and available credit facilities.
Important Facts for Investors to Verify
- Track the CPUC’s final 2018 GRC decision, including authorized revenue, capital spending and the treatment of grid modernization.
- Monitor the San Onofre OII settlement review and assess whether the $772 million regulatory asset remains probable of recovery.
- Review SCE’s debt refinancing needs, interest costs, credit-facility availability and compliance with debt and dividend restrictions.
- Assess the strategic review of Edison Energy Group, including any SoCore Energy sale, additional impairments or changes to competitive-business activities.
- Compare actual capital expenditures with the $18.554 billion 2017–2020 forecast and verify recovery mechanisms for CPUC- and FERC-jurisdictional projects.
- Evaluate wildfire, nuclear decommissioning, spent nuclear fuel, environmental-remediation and other contingent liabilities, including possible costs above recorded amounts.
- Consider that the filing reports unaudited interim results and that regulatory accounting and customer-balancing mechanisms can materially affect reported revenue, cash flow and earnings timing.