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 and six months ended June 30, 2021. Unless noted, figures below are SCE’s; amounts are in millions of dollars. The filing also reports Edison International results, which should not be conflated with SCE’s.
Financial results and key metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Operating revenue | $3,306 | $2,980 | $6,259 | $5,760 |
| Operating income | $595 | $548 | $1,006 | $864 |
| Net income | $385 | $411 | $708 | $660 |
| Net income available for common stock | $359 | $381 | $655 | $600 |
| Capital expenditures (cash-flow statement) | Not separately stated | Not separately stated | $2,591 | $2,512 |
| Operating cash flow | Not separately stated | Not separately stated | $(1,283) | $683 |
Second-quarter operating revenue rose 11% year over year, while operating income increased 9% and common-stock earnings declined 6%. For the first half, revenue rose 9%, operating income 16%, and common-stock earnings 9%. Revenue growth primarily reflected higher cost-recovery revenue, including higher purchased-power and fuel costs; SCE earns no return on these cost-recovery activities. Operating income and earnings comparisons also reflect lower wildfire mitigation, employee-benefit, and other expenses, offset in part by higher depreciation and taxes.
At June 30, SCE reported $51 million cash, $2,796 million short-term debt, $415 million current long-term debt, and $19,756 million long-term debt. Its $3.35 billion revolving facility had $175 million commercial paper borrowings and $120 million letters of credit outstanding, leaving $3.055 billion available. SCE’s debt-to-capitalization ratio was 0.53, within its 0.65 covenant limit. Ratings were Baa2/BBB-/BBB, with S&P outlook negative and Moody’s and Fitch stable.
Material changes versus the prior comparable period
- Q2 common-stock earnings fell $22 million; six-month earnings increased $55 million. SCE’s non-GAAP core earnings were $397 million versus $413 million in Q2, and $735 million versus $674 million for the first half.
- First-half operating cash flow swung to a $1.283 billion outflow from $683 million inflow, mainly due to $2.852 billion of wildfire-claim payments, partly offset by $708 million in insurance recoveries. Working-capital outflows and regulatory-account timing also affected cash flow.
- First-half purchased power and fuel costs increased $300 million to $2.296 billion, primarily reflecting higher power and gas prices and demand, including extreme winter weather, and higher capacity costs.
- First-half wildfire-related claim liabilities declined substantially as settlements were paid; SCE also issued debt and received $1.225 billion in parent equity contributions during the half.
Outlook, commentary, risks and unusual items
- Rate case: A July 2021 CPUC proposed decision, not yet final at filing, set a 2021 base-rate revenue requirement of $6.9 billion, $342 million above the adjusted 2020 authorization but $744 million below SCE’s request. SCE continued recognizing revenue using the 2020 authorized requirement pending a final decision. The proposal could produce a utility-plant impairment of up to $78 million before tax and includes limits and review requirements for certain vegetation-management and wildfire costs.
- Capital program: SCE forecast 2021 capital spending of $5.4–$5.5 billion and reported $2.3 billion spent in the first half. The proposed GRC decision indicated total company capital expenditures of approximately $14.0 billion for 2021–2023; actual spending and recovery depend on regulatory authorization and execution.
- Wildfire exposure: For 2017/2018 fires and mudslides, SCE reported $6.2 billion cumulative pre-tax charges, $2.0 billion expected insurance recoveries, and $233 million expected FERC recovery. It had paid $4.7 billion in settlements, with $141 million remaining under executed settlements; estimated losses for remaining claims were $1.4 billion. Potential fines and penalties were not included and could not be estimated. Recovery of uninsured costs through CPUC rates remains uncertain.
- Insurance and mitigation: SCE’s July 2021–June 2022 wildfire policy provided approximately $875 million net coverage after retention and coinsurance, subject to policy limitations. The company warned that multiple fires or losses above policy limits could create additional material uninsured costs. Regulators also called for changes to SCE’s wildfire mitigation plan and covered-conductor program.
- COVID-19 and customer arrears: SCE had recognized $250 million of incremental pandemic-related costs, including uncollectibles; portions were deferred to regulatory accounts or balancing accounts pending review and recovery. Recovery and possible securitization remain subject to regulatory action.
- Financing: SCE issued substantial mortgage debt, borrowed $1.2 billion under a term loan due May 2022, and issued $338 million of securitized recovery bonds. It applied to securitize up to $1.0 billion of wildfire mitigation and customer-uncollectible costs. SCE’s first-half operating cash deficit and continuing capital needs make access to financing and regulatory cost recovery important.
- Other contingencies: A proposed decision on certain 2017 wildfire restoration costs could deny recovery without prejudice; SCE had $189 million of related property assets potentially subject to impairment. The filing also describes unresolved wildfire litigation, environmental remediation obligations, nuclear matters, and a CPUC investigation of the Upstream Lighting Program.
Important facts for investors to verify
- Final CPUC decisions on the 2021 GRC, wildfire mitigation spending, wildfire insurance costs, and pending securitization requests.
- Updates to remaining 2017/2018 wildfire and mudslide claims, settlement payments, insurance coverage, regulatory recovery, and potential fines or penalties.
- Cash flow, debt maturities and borrowing costs, available credit capacity, and the extent of further parent equity contributions.
- Whether planned capital spending is authorized, completed on schedule, and recoverable in rates, including covered-conductor and customer-service-system costs.
- Any revisions to wildfire loss estimates, COVID-19 customer arrears, or other contingencies as litigation and regulatory proceedings progress.