Edison International 2014 Form 10-K Summary
Business Context and Reporting Period
This combined Form 10-K covers Edison International and its wholly owned utility subsidiary, Southern California Edison Company (SCE), for the fiscal year ended December 31, 2014. SCE supplies and delivers electricity across approximately 50,000 square miles in Southern California and serves nearly 14 million people through approximately 5 million customer accounts. Competitive businesses, including Edison Energy and rooftop solar activities, were not material reportable segments.
The filing also provides unaudited fourth-quarter information. Edison International filed the report on February 24, 2015.
Key Financial Metrics
| Metric | 2014 | 2013 | Change |
|---|---|---|---|
| Edison International operating revenue | $13.413 billion | $12.581 billion | +$832 million |
| Income from continuing operations | $1.536 billion | $979 million | +$557 million |
| Net income attributable to Edison International common shareholders | $1.612 billion | $915 million | +$697 million |
| Diluted EPS | $4.89 | $2.78 | +$2.11 |
| Dividends declared per share | $1.4825 | $1.3675 | +$0.1150 |
| Net cash from operating activities | $3.248 billion | $2.967 billion | +$281 million |
| Capital expenditures | $3.906 billion | $3.599 billion | +$307 million |
| Total assets | $50.186 billion | $46.646 billion | +$3.540 billion |
| Total debt, including current maturities | $12.029 billion | $10.635 billion | +$1.394 billion |
SCE reported operating revenue of $13.380 billion, net income of $1.565 billion, and net income available for common stock of $1.453 billion, compared with $12.562 billion, $1.000 billion, and $900 million, respectively, in 2013.
SCE's 2014 operating income was $2.529 billion versus $1.751 billion in 2013. Based on total operating revenue, the reported operating margin was approximately 18.9% in 2014 versus 13.9% in 2013. These margins are affected by regulatory accounting, pass-through cost-recovery activities, and nonrecurring charges.
SCE generated $3.660 billion of operating cash flow, used $3.857 billion for investing activities, and generated $181 million from financing activities. Edison International ended the year with $132 million of cash and cash equivalents.
Fourth-Quarter Information
| Metric | Q4 2014 | Q4 2013 |
|---|---|---|
| Edison International operating revenue | $3.114 billion | $2.943 billion |
| Income from continuing operations | $406 million | $289 million |
| Net income attributable to common shareholders | $420 million | $301 million |
| Diluted EPS | $1.27 | $0.92 |
| SCE net income available for common stock | $380 million | $258 million |
Material Changes Versus the Prior Comparable Period
- Earnings increased substantially. SCE's core earnings rose to $1.525 billion from $1.265 billion, primarily due to authorized revenue growth from rate-base expansion, higher income-tax benefits, and lower severance costs.
- San Onofre effects declined but remained material. SCE recorded a $163 million pre-tax charge, or $72 million after tax, related to the San Onofre OII Settlement Agreement, compared with a $575 million pre-tax impairment charge, or $365 million after tax, in 2013 related to the permanent retirement of Units 2 and 3.
- Revenue and purchased-power costs increased. SCE operating revenue rose $818 million. Purchased power and fuel expense increased $702 million, driven primarily by warmer weather, higher power and gas prices, and higher load.
- Operating expenses were relatively stable at SCE. SCE total operating expenses increased from $10.811 billion to $10.851 billion despite higher purchased-power costs, reflecting lower operation and maintenance costs and the decline in San Onofre-related expenses.
- Capital investment accelerated. SCE capital expenditures increased to approximately $4.0 billion from $3.5 billion. Year-end SCE rate base, excluding San Onofre, rose to $23.3 billion from $21.1 billion.
- EME bankruptcy-related uncertainty was substantially resolved. The EME Settlement Agreement and amended reorganization plan were completed in 2014. Edison International recognized $185 million of discontinued-operations income, including $168 million related to the settlement and $39 million of tax benefits, partly offset by other tax impacts.
- Debt and preferred financing increased. Edison International issued $269 million of preference stock and increased short-term borrowings. SCE's long-term debt was $9.624 billion at year-end versus $9.422 billion in 2013.
Guidance, Outlook, Commentary, Risks, and Unusual Items
- 2015 General Rate Case: SCE's updated 2015 base-rate revenue request was $5.713 billion, an $80 million increase over currently authorized base-rate revenue. The CPUC decision was not expected until later in 2015, and the filing states that the ultimate authorized revenue and timing were uncertain.
- 2015 ERRA rates: The CPUC issued a proposed decision adopting a 2015 annual ERRA revenue requirement of $5.59 billion, approximately $437 million above 2014. At December 31, 2014, SCE had a $1.03 billion ERRA undercollection, creating liquidity and rate-recovery exposure until revised rates were implemented.
- Capital plan: SCE forecast 2015–2017 capital expenditures of $11.8 billion to $13.4 billion, principally for distribution and transmission infrastructure. Recovery remains subject to CPUC or FERC approval and project execution.
- Dividend policy: Edison International increased its annual dividend rate by 17.6%, from $1.42 to $1.67 per share, and intends to move toward a target payout ratio of approximately 45% to 55% of SCE earnings over time. SCE's ability to pay dividends is restricted by regulatory capital requirements.
- San Onofre decommissioning: The 2014-dollar estimate for total decommissioning costs was $4.4 billion, with SCE's share estimated at $3.3 billion. SCE's present value share was approximately $3.0 billion, compared with $3.4 billion of trust assets. SCE expected approximately $200 million of 2015 decommissioning costs and required CPUC approval to access trust funds.
- San Onofre recoveries: SCE is pursuing insurance claims against NEIL and arbitration claims against Mitsubishi Heavy Industries seeking at least $4 billion. No recoveries were recorded, and the filing states that timing, coverage, liability, and ultimate recovery amounts are uncertain. MHI asserted $41 million of counterclaims.
- EME settlement obligations: Edison International must pay $204 million in September 2015 and $214 million in September 2016. The company expected to fund these payments through tax-benefit realization, commercial paper, or other borrowings.
- Liquidity: At year-end, SCE had $2.274 billion available under its $2.75 billion credit facility, while Edison International had $631 million available under its $1.25 billion facility. Debt-to-total-capitalization ratios were 0.44 for SCE and 0.48 for Edison International, below the 0.65 covenant limit.
- Major risks: Key risks include regulatory cost recovery and rate decisions, capital-market access, nuclear decommissioning, wildfire liability and insurance availability, severe weather and natural disasters, environmental compliance, cyber and physical security, commodity prices, counterparty credit, labor negotiations, and transmission-project permitting and execution.
- Legal and environmental matters: SCE disclosed a potential $25 million civil penalty sought in the Shaver Lake dam proceeding, unresolved Four Corners environmental matters, a Dominguez Channel oil-spill misdemeanor complaint, and $108 million of recorded minimum environmental remediation liabilities at 20 material sites.
Most Important Facts for an Investor to Verify
- Whether the CPUC ultimately approved SCE's 2015 General Rate Case revenue request and how the decision affected rate base, earnings, and cash flow.
- Whether the $1.03 billion ERRA undercollection was recovered on schedule and whether actual power and fuel costs differed materially from forecast.
- Progress, costs, regulatory approvals, and trust-fund access associated with San Onofre decommissioning.
- Results and timing of NEIL insurance claims and MHI arbitration, including the allocation of any recoveries between customers and shareholders.
- Edison International's ability to fund the $418 million of remaining EME settlement payments while preserving liquidity and dividends.
- Actual spending and regulatory recovery for the $11.8 billion to $13.4 billion 2015–2017 capital program.
- Changes in wildfire insurance availability, coverage limits, deductibles, and potential uninsured liability.
- The sustainability of reported earnings after excluding San Onofre charges, EME-related discontinued-operations income, tax benefits, and other non-core items.