Southern California Edison Company (SCE) — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022; filed November 1, 2022. SCE is a regulated electric utility serving approximately 50,000 square miles in Southern California. The filing is combined with Edison International’s report; figures below focus on SCE unless otherwise stated. Dollar amounts are in U.S. dollars.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Operating revenue | $5.217B | $5.293B | $13.174B | $11.552B |
| Operating income (loss) | $(43)M | $(110)M | $748M | $896M |
| Net income (loss) available for common stock | $(80)M | $(284)M | $369M | $371M |
| Net cash from operating activities | Not presented quarterly | Not presented quarterly | $2.158B | $(294)M |
| Capital expenditures | Not presented quarterly | Not presented quarterly | $4.205B | $3.946B |
- Calculated operating margin was approximately (0.8)% in Q3 2022 and 5.7% for the first nine months of 2022. These are calculations from reported operating income and revenue.
- Management’s non-GAAP SCE core earnings were $623M in Q3 2022 versus $701M in Q3 2021, and $1.511B for the first nine months versus $1.436B. Q3 core earnings fell mainly due to higher operating and maintenance costs and the prior-year benefit of retroactive recognition under the 2021 General Rate Case (GRC). Nine-month growth reflected GRC revenue escalation and CSRP-related return on rate base, partly offset by higher operating and maintenance and interest expense.
- Higher Q3 purchased power and fuel costs (up $397M) reflected higher power and gas prices, CAISO settlement costs and capacity costs. For the nine months, purchased power and fuel costs increased $442M.
Liquidity, debt and capital
- At September 30, SCE had $90M cash, approximately $1.8B available under its $3.35B revolving credit facility, and $1.1B of commercial paper outstanding at a weighted-average rate of 3.82%. The facility matures in May 2026.
- SCE reported a debt-to-total-capitalization ratio of 0.56, within its covenant limit of 0.65. Balance-sheet short-term debt, current long-term debt and long-term debt totaled approximately $26.6B.
- For the first nine months, operating cash flow was $2.158B, financing cash flow was $1.757B and investing cash outflow was $4.104B; cash and restricted cash decreased $189M.
- SCE forecasts $17.5B of major capital expenditures for 2022–2024 ($5.7B in 2022, $6.0B in 2023 and $5.8B in 2024); its range case is $16.2B. The forecast includes $3.4B of wildfire-mitigation capital spending. Capital spending is subject to execution and regulatory risks.
- At September 30, the ERRA and PABA fuel and power cost accounts were undercollected by approximately $950M, primarily due to higher energy prices. SCE expected to address rates through its 2023 forecast proceeding and finance procurement costs in the interim.
Material developments, outlook and risks
- 2017/2018 wildfire and mudslide claims: SCE recorded an $830M pretax Q3 charge ($598M after tax), primarily for higher estimated Woolsey Fire losses. Through September 30, total estimated losses were $8.8B; approximately $7.3B had been paid under settlements, and $2.0B recovered from insurance. SCE’s best estimate for remaining alleged and potential claims was $1.2B; expected insurance recoveries for these events were exhausted. SCE may incur material additional losses, and the upper end of the reasonably possible loss range could not be estimated. It expects to seek approximately $6B of CPUC-jurisdictional rate recovery through future applications, but cannot conclude that uninsured costs for these pre-AB 1054 fires are probable of recovery.
- Post-2018 wildfires: Estimated losses totaled $689M, with $467M of expected insurance recoveries and $166M of expected electric-rate recoveries recorded. SCE concluded that uninsured costs were probable of recovery under the AB 1054 framework, subject to regulatory review; the recorded after-tax net charge through September was $40M. Estimates may change, and material losses above accruals remain possible.
- Upstream Lighting Program: A September CPUC presiding officer’s decision required $82.9M in ratepayer refunds, $19.06M in fines and approximately $0.9M for investigation costs. SCE accrued $102M and appealed in October; the decision was not final pending CPUC action.
- Cost of capital and rates: A CPUC proceeding on 2022 cost of capital remained unresolved; SCE recorded revenue at pre-2022 levels subject to refund. In its 2023 application, SCE sought a 10.53% ROE and a 7.69% weighted-average return on rate base; approval was uncertain. SCE’s 2024 GRC request was $8.6B, $972M above its estimated 2023 requirement, with a proposed decision scheduled for Q4 2023.
- Energy storage projects: Supply-chain, permitting and engineering delays pushed three contracted projects totaling 537.5 MW beyond their planned August 2022 in-service date. SCE expected them to be in service before summer 2023, with approximately $1.0B of capital expenditures and $270M of Inflation Reduction Act tax credits expected to benefit customers. Contractual liquidated damages could reach $89M, subject to force-majeure provisions.
- Other risks include wildfire liability and insurance availability, regulatory recovery and prudency determinations, extreme weather and PSPS exposure, inflation and supply constraints, higher interest rates, and access to financing. SCE’s wildfire safety certification remained valid while its renewal request was pending. A separate PSPS notification matter was settled after quarter-end for $7M, subject to CPUC approval.
- No formal earnings guidance was provided. Management stated that SCE expects to fund the next 12 months’ cash needs through operating cash flow, capital-market and bank financing, debt refinancing, potential parent equity contributions and its credit facility.
Important facts for investors to verify
- Progress, settlement costs and any further reserve changes in the 2017/2018 wildfire litigation; whether and when regulators permit recovery of uninsured costs.
- CPUC outcomes on the Upstream Lighting appeal, cost-of-capital proceedings, wildfire-related recovery applications and the 2024 GRC request.
- Fuel and power undercollections, rate adjustments and the resulting financing and customer-bill impacts.
- Wildfire liability accruals, insurance renewals, safety certification status and any new fire-related claims or regulatory findings.
- Capital-spending execution, storage-project timing and costs, and SCE’s ability to maintain liquidity and covenant compliance as debt and funding needs evolve.