Business context and reporting period
Southern California Edison Company (SCE), a regulated electric utility serving Southern California, filed this combined Form 10-Q with parent Edison International for the quarter ended September 30, 2013. Results below focus on SCE unless identified otherwise; comparisons are with 2012. Amounts are in millions of dollars unless stated.
Financial results and position
| Metric | Three months ended Sept. 30, 2013 | Three months ended Sept. 30, 2012 | Nine months ended Sept. 30, 2013 | Nine months ended Sept. 30, 2012 |
|---|---|---|---|---|
| Operating revenue | $3,957 | $3,731 | $9,631 | $8,794 |
| Operating income | $804 | $659 | $1,246 | $1,487 |
| Net income | $502 | $388 | $717 | $802 |
| Net income available for common stock | $477 | $363 | $642 | $736 |
- Third-quarter revenue rose about 6% and net income about 29%. The nine-month revenue increase was about 10%, while net income declined about 11%.
- Nine-month results include a $575 million pretax ($365 million after-tax) San Onofre impairment. Excluding that impairment, SCE reported core earnings of $1.007 billion, versus $736 million in the prior-year period; core earnings are a non-GAAP measure.
- Revenue growth reflected implementation of the 2012 General Rate Case (GRC), including $325 million of estimated year-over-year revenue for the first nine months from the GRC’s retroactive effective date. Higher fuel and purchased-power expense partly offset the increase.
- Nine-month operating cash flow was $2.346 billion, down from $2.656 billion. Capital expenditures were $2.761 billion in the cash-flow statement; MD&A reports $2.4 billion including accruals. Cash and cash equivalents were $522 million at September 30, up from $45 million at year-end 2012.
- At September 30, total debt was approximately $10.582 billion, including $1.354 billion short-term debt, $400 million current long-term debt and $8.828 billion long-term debt. SCE had $1.256 billion available under its $2.75 billion revolving facility. Its debt-to-total-capitalization ratio was 0.47, below the 0.65 covenant limit.
- Total assets were $46.321 billion, total liabilities $34.330 billion, and equity $11.991 billion. The filing does not provide a clear standalone gross-margin measure.
Material changes, outlook and key risks
- San Onofre: SCE permanently retired Units 2 and 3 in June 2013 after prolonged outages and uncertainty over restart approval. The company recorded the impairment and a $1.45 billion net regulatory asset at September 30. Recovery of that asset and possible customer refunds remain subject to CPUC review; approximately $1.1 billion of authorized revenue collected since January 2012 is subject to refund. SCE estimated replacement-power costs of about $191 million from June 7 through September 30 under the OII methodology.
- Recovery and liquidity: Fuel and purchased-power costs were under-collected by $719 million at September 30; SCE forecast approximately $1 billion at year-end. A CPUC proposed decision could permit an approximately $200 million rate increase, but approval and timing were uncertain. SCE’s 2014 ERRA filing requested a $1.96 billion, or 16.3%, increase over the current 2012 ERRA requirement.
- Capital and rates: SCE forecast 2013 capital spending below the lower end of its previously projected $3.7–$4.0 billion range, citing lower project costs and delays. Its 2013–2017 capital forecast was $18.2–$20.6 billion. The anticipated 2015 GRC filing sought a 2015 base revenue requirement of $6.279 billion, $120 million above currently authorized base revenue after sales growth; later-year requests were also proposed. These are requests, not approved outcomes.
- San Onofre claims and oversight: SCE sought damages from steam-generator supplier Mitsubishi Heavy Industries through arbitration; the contract includes a disputed $138 million liability limitation. SCE reported approximately $306 million as its share of estimated outage-insurance claims but recognized no insurance recovery pending the insurer’s response. NRC findings and investigations could lead to further actions or penalties.
- Other risks: SCE faces regulatory, environmental, nuclear decommissioning, wildfire-insurance and cost-recovery risks. Parent Edison International also faces uncertainties from EME’s Chapter 11 proceedings, including potential claims; it recorded a $150 million estimated loss related to EME receivables and bankruptcy outcomes.
- Management’s view: SCE considers San Onofre costs prudent and believes recovery is probable, but explicitly states that recovery is not assured. Results for the interim periods are not necessarily indicative of full-year results.
Important facts for investors to verify
- CPUС decisions on San Onofre cost recovery, the $1.45 billion regulatory asset, and potential refunds of amounts collected.
- Whether and when ERRA under-collections are recovered through rates, and the resulting effect on cash flow and borrowing needs.
- Actual progress and spending against SCE’s capital plan, including the 2015 GRC outcome and transmission-project costs or delays.
- Results of the MHI arbitration and NEIL insurance claims, including any recoveries ultimately recognized.
- Developments in NRC investigations and, for Edison International, EME’s bankruptcy plan and potential litigation claims.