Business context and reporting period
Southern California Edison Company (SCE), an investor-owned electric utility serving Southern California, filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2013. The filing is combined with Edison International’s; parent-company results and SCE utility results are distinct.
Financial performance and position
Amounts are in millions of dollars unless noted.
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Operating revenue | 3,045 | 2,651 | 5,674 | 5,063 |
| Operating income (loss) | (55) | 430 | 442 | 827 |
| Net income (loss) | (67) | 214 | 216 | 414 |
| Net income (loss) available to common stock | (91) | 191 | 165 | 373 |
| Operating cash flow | Not separately provided | Not separately provided | 1,325 | 1,511 |
| Capital expenditures, cash paid | Not separately provided | Not separately provided | 1,834 | 2,125 |
- Q2 revenue rose about 15%, but SCE recorded a $575 million San Onofre impairment charge ($365 million after tax), driving the quarterly operating and net losses. The six-month comparison also reflects the impairment.
- Management’s non-GAAP core earnings were $274 million for Q2 and $530 million for the first half, compared with $191 million and $373 million, respectively, in 2012. Management attributed the increases mainly to the timing of the 2012 General Rate Case (GRC), lower operating expenses, and tax benefits from repair deductions; these gains were partly offset by severance costs and higher depreciation. Core earnings exclude significant items and are not GAAP measures.
- Fuel and purchased-power expense was $1.157 billion in Q2 versus $883 million, and $2.009 billion in the first half versus $1.575 billion. SCE cited warmer weather, increased load, and higher power and gas prices.
- At June 30, SCE had $49 million cash, $44.650 billion total assets, $33.018 billion total liabilities, and $11.632 billion equity. Debt comprised $828 million short-term debt, $800 million current long-term debt, and $8.427 billion long-term debt. The credit-facility debt-to-capitalization covenant ratio was 0.47 against a maximum of 0.65.
- SCE’s $2.75 billion revolving facility had $1.826 billion available after commercial paper and letters of credit. SCE reported a $368 million undercollection in its fuel and power procurement balancing account at June 30; it expected the balance to grow absent rate relief.
- Cash flow from operations decreased $186 million year over year, which SCE primarily attributed to the shift from ERRA overcollections to undercollections. Cash capital expenditures were $1.834 billion; MD&A reported $1.6 billion of capital expenditures including accruals for the first half.
Material changes, outlook, and risks
- San Onofre: SCE decided on June 6 to permanently retire Units 2 and 3 after extended outages and uncertainty around regulatory approval to restart Unit 2. It recorded the $575 million impairment and reclassified $1.521 billion of investment to a regulatory asset based on management’s view that recovery through future rates is probable, but not certain. The regulatory asset balance was $1.584 billion at June 30.
- San Onofre-related costs remain subject to CPUC review and possible customer refunds. Approximately $860 million of authorized revenue collected since January 2012 was subject to refund. SCE estimated market replacement-power costs of about $670 million through May 31, 2013 under the CPUC proceeding’s methodology. Disallowances or refunds could materially affect SCE.
- SCE filed a dispute notice with steam-generator supplier Mitsubishi Heavy Industries in July and may pursue binding arbitration; the supplier disputes SCE’s position on liability limits. SCE also sought outage-insurance benefits, but no insurance recovery had been recognized; coverage remained uncertain.
- SCE forecast 2013 capital expenditures of $3.7–$4.0 billion and $17.8–$20.3 billion for 2013–2017. Its July notice for the 2015 GRC indicated a requested 2015 base-rate revenue requirement of $6.279 billion, a $120 million increase over then-authorized base rates; requested post-test-year increases were $368 million in 2016 and $331 million in 2017. CPUC approval and final amounts are uncertain.
- The CPUC had deferred a decision on SCE’s requested 2013 ERRA rate increase while considering San Onofre issues. SCE proposed an interim $210 million increase and warned that, without rate changes, the undercollection could reach about $825 million by year-end 2013.
- Other material uncertainties include NRC investigations and potential penalties relating to San Onofre, the proposed $37 million Malibu fire settlement awaiting CPUC approval, environmental remediation, wildfire and nuclear insurance exposure, and tax disputes. SCE also reported a July 2013 order requiring undergrounding of part of the Tehachapi transmission line, with potential cost and schedule effects.
- For Edison International, the EME bankruptcy support agreement was terminated effective August 1, 2013. The parent recorded an estimated $150 million loss related to EME bankruptcy receivables and liabilities; the bankruptcy outcome and potential disputes remain uncertain.
Most important facts to verify
- CPUC decisions on San Onofre cost recovery, customer refunds, rate-base treatment, and the $1.584 billion regulatory asset.
- Final market replacement-power costs, MHI recovery or arbitration outcome, and NEIL insurance coverage and timing.
- Resolution and timing of ERRA rate relief and resulting procurement-related cash needs.
- Whether SCE’s 2015 GRC and 2013–2017 capital plans are approved as requested, including effects on rates and financing needs.
- Developments in NRC investigations, the Malibu settlement, environmental and wildfire exposures, and Edison International’s EME bankruptcy claims and tax matters.