Business context and reporting period
Combined Form 10-Q for Southern California Edison Company (SCE) and parent Edison International for the quarter ended September 30, 2017. SCE is a regulated electric utility serving approximately 50,000 square miles in Southern California; Edison International also owns competitive energy businesses. Unless noted, financial amounts below are for SCE.
Financial performance and position
| Metric | Three months ended September 30, 2017 | Nine months ended September 30, 2017 |
|---|---|---|
| Operating revenue | $3.652 billion | $9.061 billion |
| Operating income | $578 million | $1.602 billion |
| Net income available for common stock | $465 million | $1.121 billion |
| Operating margin | 15.8% | 17.7% |
| Net margin on operating revenue | 12.7% | 12.4% |
| Operating cash flow | Not presented for the quarter | $2.793 billion |
| Capital expenditures, cash basis | Not presented for the quarter | $2.596 billion |
| Cash and cash equivalents at September 30 | $61 million | |
| Debt at September 30 | $11.334 billion, including short-term debt and current maturities |
SCE had $2.15 billion available under its $2.75 billion revolving credit facility. Its debt-to-total-capitalization ratio was 0.43, below the facility covenant ceiling of 0.65. SCE’s 13-month weighted-average common equity capitalization was 50.2%; the CPUC dividend restriction allows distributions only if it remains at or above 48%.
Changes versus the prior comparable period
- Third-quarter revenue declined $100 million (2.7%) year over year, while net income available for common stock increased $30 million (6.9%). The earnings increase primarily reflected the 2015 General Rate Case escalation mechanism.
- For the first nine months, revenue increased $105 million (1.2%) and common net income increased $73 million (7.0%). Higher GRC-related revenue and lower operating and maintenance costs helped earnings; prior overcollection refunds and higher financing costs partly offset those gains.
- Nine-month operating cash flow was $45 million lower than in 2016. Cash used in investing was $2.432 billion versus $2.443 billion; cash used in financing was $339 million versus $382 million.
- Debt increased from $11.102 billion at December 31, 2016 to $11.334 billion at September 30, 2017. SCE issued $1.0 billion of 4.00% first and refunding mortgage bonds due 2047, among other financing transactions.
Outlook, regulatory matters, and risks
- SCE requested a revised 2018 revenue requirement of $5.859 billion, a $196 million increase over its projected 2017 authorized requirement, and proposed further increases of $480 million in 2019 and $556 million in 2020. CPUC approval and timing remained uncertain; management considered a 2017 decision unlikely.
- The 2017–2020 capital plan totals $18.454 billion, including $1.795 billion requested for grid modernization in 2018–2020. The CPUC had not approved the requested grid-modernization recovery mechanism. SCE planned to prioritize safety and reliability spending and potentially defer much of the spending focused primarily on distributed-energy integration.
- The CPUC’s review of the San Onofre settlement remained unresolved. A new process was ordered in October 2017; hearings were tentatively scheduled through March 2018. SCE carried a $730 million regulatory asset for expected settlement recoveries and judged recovery probable, but not certain. SCE also recorded a $47 million regulatory liability for its net MHI arbitration recovery.
- Effective January 1, 2018, the CPUC set SCE’s authorized return on equity at 10.30% and reset authorized debt and preferred-stock costs. The next cost-of-capital application deadline was extended to April 2019.
- SCE reported approximately $1 billion of wildfire-liability insurance through May 31, 2018, with a $10 million self-insured retention per occurrence. Policy limits and exclusions, multiple fires, future insurance availability, or losses exceeding coverage could leave SCE with unrecovered costs.
- Other exposures include environmental remediation (a $129 million recorded liability; possible costs above the recorded amount), nuclear decommissioning and spent-fuel storage, and the potential need for collateral if SCE’s credit rating falls below investment grade. Posted and potential collateral requirements totaled $309 million.
- Edison International recorded a $16.5 million pretax ($10 million after-tax) SoCore Energy goodwill impairment and is evaluating strategic options, including a possible sale. This relates to the parent’s competitive businesses, not SCE’s utility operations.
Most important facts for investors to verify
- Outcome and timing of the San Onofre CPUC proceeding, including whether the $730 million regulatory asset remains recoverable and how the MHI award is allocated.
- Final 2018 GRC revenue authorization, timing of any effective-date adjustment, and treatment of grid-modernization capital spending.
- Whether capital investment, rate recovery, operating cash flow, and financing needs evolve as planned; monitor liquidity, debt levels, and covenant headroom.
- Wildfire insurance availability, policy terms, and potential liability beyond insured limits or the self-insured retention.
- Actual progress and costs for major transmission projects and the 2017–2020 capital plan, including permitting and construction changes.