Business context and reporting period
Southern California Edison Company (SCE), a wholly owned subsidiary of Edison International, supplies and delivers electricity across approximately 50,000 square miles of Southern California. This combined Form 10-Q reports the quarter and nine months ended September 30, 2023; figures below are SCE figures unless identified otherwise.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Operating revenue | $4.687B | $5.217B | $12.586B | $13.174B |
| Operating income (loss) | $509M | $(43)M | $1.835B | $748M |
| Net income (loss) available for common stock | $239M | $(80)M | $1.029B | $369M |
| Operating cash flow | Not separately provided for the quarter | $2.733B | $2.158B | |
| Capital expenditures paid | Not separately provided for the quarter | $3.990B | $4.205B |
SCE’s non-GAAP core earnings were $613M for Q3 2023 versus $623M a year earlier, and $1.578B for the first nine months versus $1.511B. Core earnings exclude significant items and are not directly comparable across companies.
At September 30, 2023, SCE had $317M cash, approximately $2.5B available under its revolving credit facility, and $29.0B of short- and long-term debt, including current maturities. Its debt-to-capitalization ratio was 0.57, within the 0.65 covenant limit. SCE reported $298M of collateral posted; potential posted and incremental requirements shown in the filing total $463M under specified downgrade and market-price scenarios.
Material changes versus prior periods
- Q3 revenue fell $530M year over year, while operating income improved from a loss to $509M and common-stock income improved by $319M. The improvement largely reflected lower wildfire claim charges and operating costs; higher interest expense partly offset it.
- For the first nine months, revenue decreased $588M, while operating income increased $1.087B and common-stock income increased $660M. Lower wildfire-related claims and lower operating and purchased-power costs contributed; higher interest expense was a significant offset.
- Interest expense rose $100M in Q3 and $291M for the nine months, principally due to higher rates and increased borrowing. Other income rose, including higher interest income on balancing-account undercollections.
- Operating cash flow increased $575M year over year, while investing cash outflow was $3.894B. Financing provided $713M, compared with $1.757B in the prior-year period; SCE issued $3.589B of long-term debt and paid $1.050B in common dividends to Edison International.
Outlook, management commentary and key risks
- Rates and capital plan: SCE’s proposed 2025 General Rate Case requests a 2025 revenue requirement of approximately $10.3B, subject to CPUC approval. A Track 4 all-party settlement proposes $8.4B for 2024, about $200M below SCE’s initial request, also subject to approval. No specific earnings guidance is provided.
- Investment: SCE forecasts $43.3B of capital expenditures for 2023–2028, with a $37.8B range case reflecting potential variability. Corresponding 2028 weighted-average rate base forecasts are $60.9B and $55.4B. Actual spending and recovery depend on approvals, execution and project timing.
- Wildfire claims: SCE recorded a $448M pre-tax Q3 charge for the 2017/2018 Wildfire/Mudslide Events, net of expected FERC recovery. At September 30, estimated losses for remaining alleged and potential claims were $728M; SCE had paid $8.4B under executed settlements and had $209M remaining under executed settlements. SCE cannot estimate the upper end of possible additional losses and cannot currently conclude that uninsured costs from these pre-AB 1054 events are probable of recovery through CPUC rates.
- More recent wildfire claims: SCE reported $790M estimated losses for Post-2018 Wildfires, with $560M of recorded insurance and third-party recovery assets and $166M of rate-recovery assets. Certain fire cases, including Bobcat, Coastal and Fairview, have material accrued charges, but potential losses may exceed accruals. Saddle Ridge could result in a material loss; no charge was accrued and the possible range could not be estimated.
- Insurance and mitigation: A CPUC-approved customer-funded self-insurance program applies to qualifying fires ignited July 1, 2023 through December 31, 2024. It supports recovery through rates of accrued claims up to $1.0B per policy year, subject to a maximum annual shareholder contribution of $12.5M. Continuation through at least 2028 is proposed in the 2025 GRC, not yet established. OEIS approved SCE’s 2023–2025 wildfire mitigation plan in October, subject to CPUC ratification; SCE’s existing safety certification remains valid pending action on its renewal request.
- Projects and regulatory exposure: SCE cited significant delay risk for utility-owned storage projects under construction. A proposed CPUC decision would deny its Building Electrification Program application, potentially reducing requested 2025–2028 capital spending by approximately $270M. A cost-of-capital mechanism was triggered; absent CPUC action, authorized 2024 ROE would rise from 10.05% to 10.75%, increasing the 2024 GRC revenue requirement by an estimated $175M.
- Other risks: The filing highlights wildfire liability and rate-recovery uncertainty, extreme weather, regulatory decisions, project delays and cost overruns, inflation and supply constraints, interest rates, access to capital, and San Onofre decommissioning. Management expects SCE and Edison International to exceed the threshold for the federal corporate alternative minimum tax beginning in 2025.
Most important facts for investors to verify
- CPUС decisions on the 2024 Track 4 settlement and 2025 GRC, including requested revenue and capital recovery.
- Progress and outcomes of wildfire claims, particularly the unresolved 2017/2018 rate-recovery applications and the potential exposure beyond recorded accruals.
- Whether the customer-funded self-insurance framework continues, and its actual claims, rate collections and shareholder contributions.
- Capital spending, rate-base forecasts and delivery schedules for storage and transmission projects, including the impact of permitting, contractor and supply-chain delays.
- Debt issuance, borrowing costs, liquidity and collateral needs, alongside operating cash flow relative to capital requirements.