Edison International 2012 Form 10-K Summary
Business context and reporting period
Combined annual report for Edison International and wholly owned Southern California Edison Company (SCE), covering the fiscal year ended December 31, 2012. SCE is a regulated electric utility serving approximately 14 million people through about 5 million customer accounts across a roughly 50,000-square-mile Southern California service territory. Edison International’s competitive-generation subsidiary, Edison Mission Energy (EME), filed for Chapter 11 on December 17, 2012 and was deconsolidated effective that date.
Financial performance and key metrics
| Metric | 2012 | 2011 | Change |
|---|---|---|---|
| Edison International operating revenue | $11.862 billion | $10.588 billion | +12.0% |
| Operating income | $2.285 billion | $2.061 billion | +10.9% |
| Income from continuing operations | $1.594 billion | $1.100 billion | +44.9% |
| Net income attributable to common shareholders | $(183) million | $(37) million | Lower, primarily due to EME |
| Basic EPS from continuing operations | $4.61 | $3.20 | +44.1% |
| Basic total EPS | $(0.56) | $(0.11) | Declined |
| SCE operating revenue | $11.851 billion | $10.577 billion | +12.0% |
| SCE net income | $1.660 billion | $1.144 billion | +45.1% |
| SCE net income available for common stock | $1.569 billion | $1.085 billion | +44.6% |
Edison International’s 2012 operating margin was approximately 19.3%, compared with approximately 19.5% in 2011. SCE’s operating margin was approximately 19.2%, compared with approximately 20.1% in 2011. Consolidated income from continuing operations benefited from lower income taxes, including the $231 million after-tax benefit from regulatory treatment of prior-period repair deductions. Total results were overwhelmed by a $1.3 billion after-tax charge associated with EME’s bankruptcy, deconsolidation and impairment.
- SCE operating expenses increased to $9.572 billion from $8.454 billion, led by higher purchased power, depreciation, outage-related costs and severance.
- Consolidated cash provided by operating activities was $3.334 billion, compared with $3.906 billion in 2011. Continuing operations generated $3.971 billion of operating cash flow.
- SCE generated $4.086 billion of operating cash flow and spent $4.149 billion on capital expenditures. SCE’s net cash decrease was $12 million.
- At December 31, 2012, Edison International had $9.231 billion of long-term debt and $175 million of short-term debt. SCE had $8.828 billion of long-term debt and $175 million of short-term debt.
- SCE had a $2.75 billion revolving credit facility, with $2.413 billion available after borrowings and letters of credit. Edison International Parent had a separate $1.25 billion facility, fully available.
- Edison International total assets were $44.394 billion and common shareholders’ equity was $9.432 billion. SCE total assets were $44.034 billion and common shareholders’ equity was $9.948 billion.
- Common dividends declared increased to $1.3125 per share from $1.285 per share. SCE paid $469 million in dividends to Edison International.
Material changes versus the prior comparable period
- EME bankruptcy and deconsolidation: EME’s operations were reclassified as discontinued operations. Edison International recorded a $1.3 billion after-tax fourth-quarter charge and no longer consolidated EME’s operating results after December 17, 2012.
- SCE rate case: The CPUC approved a 2012 general rate case authorizing approximately $5.7 billion of base-rate revenue, about $470 million above previously authorized revenue excluding nuclear refueling costs. Estimated authorized revenue requirements were approximately $5.8 billion for 2013 and $6.2 billion for 2014.
- San Onofre outage: Units 2 and 3 remained offline following steam-generator tube wear and leakage. SCE incurred approximately $300 million of replacement-power costs through year-end and $102 million of incremental inspection and repair costs, net of $36 million of MHI payments.
- Capital investment: SCE capital expenditures were approximately $3.9 billion in 2012 and 2011. Utility property, plant and equipment increased to $30.2 billion from $27.6 billion.
- Financing mix: SCE issued $804 million of preference stock, issued approximately $395 million of long-term debt, and reduced commercial paper outstanding from $419 million to $175 million.
- Tax rate: SCE’s effective tax rate declined to 11.4% from 34.4%; Edison International’s continuing-operations rate declined to 14.3% from 34.1%.
Guidance, outlook, commentary and risks
- SCE forecast 2013–2014 capital expenditures of approximately $7.3 billion to $8.2 billion, with a base estimate of $8.161 billion. The program is focused on transmission, distribution, reliability, renewable integration and generation safety and compliance.
- SCE’s authorized 2013 cost of capital includes a 48% common-equity, 43% long-term-debt and 9% preferred-equity structure, a 10.45% return on common equity, a 5.49% cost of long-term debt and a 5.79% cost of preferred equity.
- San Onofre restart timing and ultimate operating status remained uncertain. Unit 2 restart plans contemplated operation at 70% power for approximately five months, subject to NRC approval. Unit 3 could require additional repairs, and significant costs may not be recoverable from MHI, insurance or regulators.
- San Onofre-related costs were tracked in a CPUC memorandum account subject to refund. The CPUC investigation was expected to extend at least into 2014 and could result in disallowances or customer refunds.
- EME’s proposed settlement and reorganization required Bankruptcy Court approval. Edison International could incur additional losses, including from jointly liable tax and retirement obligations, if the settlement is not approved or completed.
- Other significant risks include regulatory cost recovery, FERC formula-rate proceedings, wildfire liability and insurance availability, nuclear liability and spent-fuel storage, environmental compliance, transmission-project delays, commodity-price and collateral requirements, counterparty credit, cyber threats and access to capital markets.
- SCE had approximately $44.9 billion of contractual obligations, including debt, power-purchase agreements, fuel contracts, leases and employee benefit contributions. Environmental remediation liabilities were at least $103 million for 23 material sites, with possible additional costs disclosed by management.
Most important facts for an investor to verify
- Whether the CPUC and NRC ultimately allow recovery of San Onofre costs, approve refunds, impose penalties or permit either unit to restart.
- The final outcome of MHI claims, outage and property-damage insurance claims, and replacement-power recovery.
- The Bankruptcy Court’s treatment of EME and Edison International’s remaining tax, pension, indemnity and settlement obligations.
- Actual versus forecast SCE capital spending and whether major transmission projects encounter further permitting, community or cost delays.
- Availability of SCE’s regulatory assets for future recovery, particularly the approximately $7.0 billion balance, and the risk of regulatory disallowance.
- Future dividend capacity from SCE, which was limited by the 48% common-equity requirement; the filing stated that approximately $125 million of additional dividend capacity existed at year-end.
- Exposure to wildfire, nuclear, environmental and tax contingencies, including the $1.0 billion valuation allowance recorded against certain Edison International tax attributes.