SOUTHERN CALIFORNIA EDISON Co annual report, FY2023

Business context and reporting period

Southern California Edison Company (SCE), a wholly owned subsidiary of Edison International, filed this combined Form 10-K for the fiscal year ended December 31, 2023. SCE is a regulated electric utility serving approximately 5.3 million customers across about 50,000 square miles of Southern California. Its earnings depend principally on CPUC- and FERC-authorized rates and returns on regulated investment; customer sales volumes do not directly determine authorized revenue.

Key financial metrics

Metric	FY 2023	FY 2022
Operating revenue	$16.275 billion	$17.172 billion
Operating income	$2.640 billion	$1.513 billion
Net income	$1.597 billion	$954 million
Net income available for common stock	$1.474 billion	$847 million
Net cash from operating activities	$3.681 billion	$3.319 billion
Capital expenditures	$5.446 billion	$5.776 billion

Operating margin was approximately 16.2% in 2023, versus 8.8% in 2022; net margin was approximately 9.8%, versus 5.6%. These are calculated from reported operating revenue and income.
Operating cash flow less capital expenditures was approximately negative $1.8 billion in 2023. Investing cash outflow was $5.231 billion; financing cash inflow was $1.182 billion.
At year-end, SCE reported $214 million cash, $1.763 billion available under its revolving credit facility, and $1.6 billion of commercial paper outstanding at a weighted-average 5.82% rate. Reported long-term debt, including its current portion, was $28.494 billion; including short-term debt, reported borrowings were approximately $29.3 billion.
SCE's debt-to-total-capitalization ratio was 0.56, below its 0.65 covenant limit. Credit ratings were Moody's Baa1, Fitch BBB and S&P BBB, all with stable outlooks. Current assets of $6.633 billion and current liabilities of $7.795 billion imply a current ratio of approximately 0.85.
Year-end rate base was $42.7 billion, excluding AB 1054 excluded capital expenditures. Regulatory assets were $11.4 billion and regulatory liabilities $10.2 billion.

Material changes versus the prior comparable period

Revenue declined about 5.2%, mainly reflecting lower cost-recovery revenue as purchased power and fuel costs fell. Earning-activity revenue was nearly unchanged.
Operating income rose about 74%, while net income rose about 67%. Lower wildfire claims charges and operating expenses contributed; 2022 also included certain wildfire-related cost recognition and other charges.
Wildfire-related claims expense, net of insurance recoveries, fell to $665 million from $1.305 billion. Interest expense increased to $1.356 billion from $1.005 billion, principally due to higher rates and increased borrowings.
Operating cash flow increased $362 million, but working-capital cash flow worsened, including lower accounts payable and higher customer receivables and unbilled revenue.
Capital expenditures fell to $5.446 billion from $5.776 billion; year-end rate base rose from $40.6 billion to $42.7 billion.

Guidance, outlook, commentary and risks

Rates and returns: The CPUC-approved Track 4 settlement authorized an $8.4 billion 2024 revenue requirement, subject to adjustments. A cost-of-capital trigger raised SCE's authorized ROE from 10.05% to 10.75% effective January 1, 2024; the resulting estimated $201 million increase to 2024 revenue requirements was to enter rates in the first quarter. Parties have sought review or suspension of the adjustment.
Pending rate request: SCE's 2025 GRC application seeks approximately $10.3 billion in 2025 revenue requirement, about 23% above the $8.4 billion 2024 adopted amount, plus proposed increases of approximately $600 million in 2026 and $700 million in each of 2027 and 2028. This request is not an approved outcome.
Investment plan: SCE forecasts $37.5 billion of capital expenditures for 2024–2028, or $32.2 billion in a management range case. It also expects at least $2 billion in additional CPUC capital investments, subject to future approval, and at least $2 billion for transmission projects, mostly beyond 2028. Delays, permitting, cost escalation and regulatory approval could affect execution and recovery.
Wildfire exposure: SCE recorded $593 million of 2023 pre-tax net charges for 2017/2018 wildfire and mudslide claims. It had accrued $9.4 billion of losses cumulatively for those events, collected $2.0 billion of insurance recoveries, paid $8.7 billion under executed settlements and estimated $637 million of remaining alleged or potential claims at year-end. SCE expects to seek approximately $6.4 billion of CPUC rate recovery, but says recovery of pre-AB 1054 uninsured CPUC-jurisdictional costs is not currently probable. Post-2018 wildfire claims had $676 million of estimated remaining losses, set at the low end of the reasonably possible range. The Creek Fire could result in a material loss, but SCE has not accrued a charge and cannot estimate the range.
Customer-funded self-insurance: The CPUC-approved program began July 1, 2023, with $150 million collected in the second half of 2023 and, absent claims, $300 million scheduled for 2024. It allows recovery through future rates of accrued losses up to $1 billion per policy year, subject to specified shareholder contributions. Continuation through at least 2028 depends on the 2025 GRC.
Other regulatory and operating items: In January 2024, the CPUC denied SCE's $677 million Building Electrification Program application. Utility-owned storage projects were delayed, with the contractor expecting all three projects in service before June 2024; force-majeure claims and equipment damage remain under review. San Onofre decommissioning costs and timing remain uncertain; SCE accrued a $30 million probable disallowance in the 2021 decommissioning proceeding.
Principal risks: Wildfires and liability, uncertain recovery of uninsured costs, customer affordability and regulatory decisions, rising financing costs, execution of a large capital program, extreme weather, supply-chain and labor constraints, nuclear decommissioning, and cybersecurity and physical security threats. SCE reported no material cybersecurity incident to its knowledge as of the filing.
The filing provides no consolidated earnings guidance for SCE. Management describes a long-term grid modernization and clean-energy strategy; 49% of 2023 customer deliveries came from carbon-free resources.

Important facts for investors to verify

Track the CPUC's decisions on SCE's 2025 GRC, the 2017/2018 wildfire recovery applications, and challenges to the 2024 cost-of-capital adjustment.
Monitor wildfire claim developments, settlement payments, insurance recoveries and any change in estimated losses—especially the unresolved Creek Fire and the remaining 2017/2018 claims.
Verify liquidity, refinancing needs, borrowing costs, covenant compliance and the effect of wildfire funding requirements on SCE's ability to pay dividends to Edison International.
Compare actual capital spending, project schedules and rate-base growth with the $37.5 billion forecast and the lower range case; confirm regulatory approval for additional investments.
Assess whether the self-insurance program continues beyond 2024 and how claims affect customer rates, shareholder contributions and reported earnings.