EDISON INTERNATIONAL quarterly report, Q2 FY2021

Edison International 10-Q Summary

Business context and reporting period

Combined quarterly report for Edison International and its wholly owned regulated utility subsidiary, Southern California Edison Company (SCE), for the quarter and six months ended June 30, 2021. SCE supplies and delivers electricity across approximately 50,000 square miles of Southern California. Edison Energy Group’s competitive activities were not material as a separate segment.

Financial performance and key metrics

Metric	Three months ended June 30, 2021	Three months ended June 30, 2020	Six months ended June 30, 2021	Six months ended June 30, 2020
Edison International revenue	$3.315 billion	$2.987 billion	$6.275 billion	$5.777 billion
Net income attributable to common shareholders	$318 million	$318 million	$577 million	$501 million
Basic EPS	$0.84	$0.85	$1.52	$1.37
Operating income	$585 million	$500 million	$984 million	$802 million
Net cash from operating activities	Not provided for quarterly period	$(1.374) billion	$625 million

SCE reported net income available for common stock of $359 million in the second quarter and $655 million for the first six months, compared with $381 million and $600 million, respectively, in the prior-year periods. Edison International’s core earnings, a non-GAAP measure, were $356 million for the quarter and $657 million for the six months, compared with $375 million and $603 million.

For the six months, Edison International’s consolidated operating margin was approximately 15.7%, compared with 13.9% in 2020. The improvement in operating income was more than offset at the common-shareholder level in the second quarter by higher taxes, depreciation and other items.

Material changes versus the prior comparable period

Second-quarter common earnings were unchanged because lower SCE earnings of $22 million were offset by a $22 million reduction in Edison International Parent and Other losses.
Six-month common earnings increased $76 million. SCE earnings rose $55 million, primarily from lower wildfire mitigation, employee benefit and customer uncollectible expenses and higher FERC revenue, partly offset by higher depreciation.
Revenue increased primarily because of higher cost-recovery revenue associated with purchased power and fuel. Six-month purchased power and fuel expense increased to $2.296 billion from $1.996 billion, driven by higher power and gas prices, demand and capacity costs.
Wildfire Insurance Fund expense declined to $107 million from $167 million for the six months because SCE extended the estimated amortization period of its contributions.
Depreciation and amortization increased to $1.058 billion from $973 million for the six months, reflecting higher plant balances.
Income tax expense increased to $32 million from a $80 million benefit in the prior-year six months. Edison International’s effective tax rate was 4.7% versus negative 16.6%.

Cash flow, debt and liquidity

Consolidated operating cash flow was negative $1.374 billion for the first six months, compared with positive $625 million in 2020. The decline primarily reflected $2.852 billion of wildfire claim payments, partially offset by $708 million of insurance recoveries.
Consolidated investing cash use was $2.412 billion, including $2.593 billion of capital expenditures. SCE capital expenditures were approximately $2.6 billion for the six months.
Consolidated financing cash flow was positive $3.782 billion, including $3.953 billion of long-term debt issuance and $1.235 billion of preferred stock issuance.
At June 30, 2021, Edison International had $84 million of cash and cash equivalents; SCE had $51 million. SCE had $3.055 billion of unused revolving credit capacity, while Edison International Parent had $1.475 billion available.
SCE had $175 million of commercial paper outstanding and a $1.2 billion term loan due May 2022. Edison International Parent had $25 million of commercial paper outstanding.
SCE’s debt-to-total-capitalization ratio was 0.53-to-1, below its 0.65-to-1 covenant limit. Edison International’s consolidated ratio was 0.60-to-1, below its 0.70-to-1 limit. Both were in compliance with applicable covenants.
SCE’s credit ratings were Moody’s Baa2, Fitch BBB- and S&P BBB, with S&P maintaining a negative outlook. Edison International Parent’s ratings were Moody’s Baa3, Fitch BBB- and S&P BBB, also with an S&P negative outlook.

Guidance, outlook and management commentary

SCE continued to target 2021 capital spending of approximately $5.4 billion to $5.5 billion. The filing also presents proposed-decision capital expenditures of approximately $14.0 billion for 2021–2023.
The CPUC’s July 2021 proposed decision on SCE’s 2021 General Rate Case would authorize 2021 base-rate revenue of $6.9 billion, $342 million above 2020 authorized revenue. SCE continued recognizing revenue using the 2020 authorized requirement pending a final decision.
If adopted, the proposed GRC decision could produce an impairment of up to $78 million before tax, reduce certain wildfire mitigation capital authorization and subject excess costs to reasonableness review. SCE expected a final Track 1 decision in the third quarter of 2021.
SCE estimated 2021 wildfire insurance expense at approximately $425 million before regulatory deferrals. Proposed GRC authorization was $460 million, with additional amounts subject to review.
SCE expects to seek financing orders for up to $1.0 billion of wildfire mitigation and customer uncollectible costs through securitized bonds. It also expects to seek financing for remaining AB 1054-excluded capital expenditures.
SCE’s 2020–2022 Wildfire Mitigation Plan remained conditionally approved. The OEIS draft action statement would require reassessment of the covered-conductor program and additional risk-mitigation analysis.

Risks, contingencies and unusual items

2017/2018 wildfires and mudslides: Through June 30, 2021, Edison International and SCE had recorded $6.2 billion of pretax charges, paid or agreed to pay approximately $4.8 billion in settlements, and recovered $2.0 billion from insurance. Estimated remaining losses were approximately $1.4 billion, excluding potential fines and penalties.
Recovery of uninsured CPUC-jurisdictional wildfire costs remains uncertain because SCE cannot yet conclude that such costs are probable of recovery. SCE had $189 million of restoration-related property, plant and equipment that could be impaired if permanently disallowed.
SCE held approximately $1.0 billion of wildfire-specific insurance for July 1, 2021 through June 30, 2022, subject to a $50 million retention and up to approximately $75 million of co-insurance, for estimated net coverage of $875 million.
For 2019/2020 wildfires, accrued losses were $118 million with expected insurance recoveries of $75 million. The filing states that a material loss related to the Saddle Ridge Fire is reasonably possible, but the range cannot be estimated.
COVID-19-related incremental costs totaled $250 million through June 30, 2021, including $78 million deferred to memorandum accounts and $172 million transferred to balancing accounts. SCE also sought authorization to securitize certain uncollectible costs.
The Customer Service Re-platform was implemented in April 2021. Forecast project costs were approximately $540 million of capital expenditures and $90 million of operations and maintenance expenses through 2021. The implementation materially changed SCE’s internal controls.
The CPUC issued a proposed decision that could deny recovery of certain 2017 wildfire restoration costs. SCE also faces potential Upstream Lighting Program remedies, including proposed refunds and fines; the filing does not provide a final resolution.
Other significant risks include future wildfires, PSPS-related penalties and claims, regulatory disallowances, insurance availability and cost, credit-rating downgrades, commodity prices, nuclear decommissioning, environmental remediation, cybersecurity and customer departures to community choice aggregators.

Most important facts for investors to verify

Final CPUC decisions on the 2021 General Rate Case, wildfire mitigation cost recovery and the proposed CEMA decision.
Actual wildfire settlement payments, remaining claims, potential fines and the probability of recovering uninsured costs through rates or other mechanisms.
Progress and authorization of the proposed $1.0 billion securitization and financing of remaining AB 1054-excluded expenditures.
SCE’s liquidity after wildfire payments, capital spending, debt maturities and any required parent equity contributions.
Renewal of SCE’s wildfire safety certification and final action on its Wildfire Mitigation Plan updates.
Final remedies related to the Upstream Lighting Program, Saddle Ridge and other pending wildfire proceedings.