Edison International Form 10-Q Summary
Business Context and Reporting Period
Combined quarterly report for Edison International and its wholly owned utility subsidiary, Southern California Edison Company (SCE), covering the three months ended March 31, 2020. SCE supplies and delivers electricity across approximately 50,000 square miles of Southern California; Edison Energy Group remains immaterial as a separate reporting segment.
Key Financial Metrics
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Edison International operating revenue | $2.790 billion | $2.824 billion | Down $34 million |
| Net income attributable to Edison International common shareholders | $183 million | $278 million | Down $95 million |
| Basic and diluted EPS | $0.50 | $0.85 | Down $0.35 |
| SCE operating revenue | $2.780 billion | $2.816 billion | Down $36 million |
| SCE net income available for common stock | $219 million | $293 million | Down $74 million |
| SCE core earnings | $261 million | $221 million | Up $40 million |
| Edison International core earnings | $228 million | $206 million | Up $22 million |
| Edison International operating income | $302 million | $352 million | Down $50 million |
| Net cash provided by operating activities | $315 million | $210 million | Up $105 million |
| Capital expenditures | $1.268 billion | $1.074 billion | Up $194 million |
Reported earnings included a $84 million pre-tax charge, or approximately $60 million after tax, for amortization of SCE’s contributions to the Wildfire Insurance Fund. Core earnings, a non-GAAP measure, exclude this and other non-core items. The filing does not present consolidated margin percentages; based on reported figures, Edison International’s operating margin was approximately 10.8% in Q1 2020 versus 12.5% in Q1 2019.
Liquidity, Debt and Capital Resources
- At March 31, 2020, Edison International had $1.337 billion of cash and cash equivalents; SCE had $451 million.
- SCE had approximately $2.8 billion available under its $3.0 billion revolving credit facility, plus an additional $800 million 364-day revolving facility with no borrowings at quarter-end.
- Edison International Parent had no borrowings under its $1.5 billion revolving credit facility and held $886 million of cash.
- Edison International’s total debt was approximately $21.3 billion, including current and long-term debt, compared with approximately $18.9 billion at December 31, 2019. SCE’s total debt was approximately $17.4 billion, compared with approximately $15.8 billion at year-end.
- SCE’s debt-to-total-capitalization ratio was 0.49 to 1, below its 0.65 covenant limit. Edison International Parent’s ratio was 0.58 to 1, below its 0.70 limit. Both were in compliance with applicable covenants.
- SCE issued $1.7 billion of first and refunding mortgage bonds and borrowed $475 million under a term loan during the quarter. Edison International Parent borrowed $800 million under a term loan.
- In April 2020, subsequent to quarter-end, SCE issued $600 million of mortgage bonds and Edison International Parent issued $400 million of senior notes.
Material Changes Versus the Prior Comparable Period
- Reported earnings declined primarily because of the new Wildfire Insurance Fund expense, higher interest expense, higher wildfire mitigation and vegetation management costs, and the absence of a $69 million 2019 tax benefit related to deferred-tax remeasurement.
- SCE core earnings increased $40 million, primarily due to the 2018 General Rate Case final decision and higher FERC revenue, partly offset by higher operating and maintenance expenses.
- COVID-19 increased SCE’s allowance for uncollectible accounts by an estimated $8 million in the quarter. SCE reported $17 million of uncollectible-account expense and expects elevated bad-debt expense in subsequent periods.
- Operating cash flow improved despite lower net income, mainly due to working-capital timing and lower wildfire-insurance premium payments than in Q1 2019.
- Capital expenditures increased to approximately $1.0 billion for SCE, from $856 million in Q1 2019. COVID-19-related restrictions delayed portions of the 2020 capital program.
- SCE’s regulatory assets increased to $7.519 billion from $7.097 billion at year-end, including $434 million related to incremental wildfire mitigation expenses and $375 million related to incremental wildfire insurance expenses.
Guidance, Outlook, Risks and Unusual Items
- Management did not provide a clear consolidated GAAP earnings forecast in the filing. Edison International stated its intention to maintain a target payout ratio of 45%–55% of SCE core earnings, subject to regulatory, liquidity and wildfire-related factors.
- COVID-19 may affect customer demand, collections, workforce availability, supply chains, permitting, capital projects, wildfire mitigation activities, liquidity and access to capital markets. SCE suspended disconnections for nonpayment and implemented flexible payment plans.
- SCE expects to seek regulatory recovery of COVID-19-related bad debt above authorized amounts and other incremental pandemic costs through memorandum accounts, but recovery is not assured.
- Edison International and SCE carried $4.5 billion of accrued liabilities for the 2017/2018 wildfire and mudslide events. Management stated that actual losses could exceed the accrued amount, but the upper end of the range could not be reasonably estimated.
- As of March 31, 2020, expected recoveries related to those events included $1.7 billion from insurance and $113 million through FERC rates. Recovery of uninsured CPUC-jurisdictional costs remains uncertain.
- Wildfire litigation remained material. As of April 27, 2020, SCE reported at least 330 lawsuits related to the Thomas and Koenigstein Fires and at least 226 lawsuits related to the Woolsey Fire.
- SCE had approximately $1.2 billion of wildfire-specific insurance coverage for the June 2019–June 2020 period, subject to co-insurance and self-insured retention. Future coverage may be less available or more expensive.
- SCE had spent $601 million of approximately $1.6 billion in AB 1054 Excluded Capital Expenditures as of March 31, 2020 and expects to finance these expenditures with securitized bonds.
- Major San Onofre decommissioning activities were delayed because of COVID-19 restrictions. SCE’s share of forecasted 2020 decommissioning costs was $406 million.
- SCE reported an environmental investigation involving unpermitted grading and discharges in Santa Barbara County. Potential fines were not known, although management did not expect them to be material.
Most Important Facts for Investors to Verify
- Progress and ultimate cost of the 2017/2018 wildfire and mudslide litigation, including whether liabilities exceed the $4.5 billion accrued estimate.
- Regulatory decisions on recovery of uninsured wildfire costs, wildfire mitigation spending, insurance premiums and COVID-19-related costs.
- Availability, pricing and adequacy of wildfire insurance and the status of the Wildfire Insurance Fund and AB 1054 protections.
- COVID-19 effects on customer collections, capital-project execution, operating costs, credit ratings and access to debt markets.
- Timing and terms of securitized financing for AB 1054 Excluded Capital Expenditures.
- SCE’s ability to maintain its authorized 52% common-equity capital structure and continue dividends to Edison International.
- Changes in SCE’s investment-grade credit ratings, collateral requirements and refinancing needs.