SCE-PG

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended September 30, 2024, for Edison International (the parent holding company) and its primary subsidiary, Southern California Edison Company (SCE). SCE is an investor-owned public utility supplying electricity to approximately 50,000 square miles in Southern, Central, and Coastal California. Edison International also owns Edison Energy, LLC (Trio), a global energy advisory firm, though its activities are not currently material as a separate segment.

Key Financial Metrics

Note: Core earnings exclude non-core items such as wildfire claims, severance costs, and regulatory disallowances.

Material Changes vs. Prior Period

• Earnings Growth: Edison International's net income increased by $125 million (15%) for the nine months ended September 30, 2024, compared to the prior year. This was driven primarily by a $161 million increase in SCE's net income.
• Revenue Drivers: Higher operating revenue was primarily due to increased CPUC-authorized revenue in Track 4 of the 2021 General Rate Case (GRC) and an increase in the authorized rate of return (ROE) triggered by the cost of capital adjustment mechanism.
• Expense Increases: Operation and maintenance expenses rose significantly due to higher wildfire mitigation costs, emergency restoration costs, and $47 million in severance costs related to workforce reductions. Interest expense increased by $176 million due to higher interest rates and additional long-term borrowings.
• Wildfire Claims: Charges for wildfire-related claims (net of recoveries) were $614 million in 2024 compared to $575 million in 2023. However, non-core wildfire charges decreased significantly in the third quarter of 2024 compared to the same period in 2023 due to the timing of settlements and accruals.
• Wildfire Insurance Fund: Amortization expense for the Wildfire Insurance Fund decreased by $50 million year-over-year due to a reassessment of the fund's life, extending the amortization period from 15 to 20 years.

Guidance, Outlook, Risks, and Contingencies

Regulatory Proceedings and Rate Cases

• 2025 General Rate Case (GRC): SCE filed an application requesting a 2025 revenue requirement of approximately $10.5 billion. The CPUC approved the extension of the customer-funded wildfire self-insurance program through the 2025 GRC period. A final decision on the revenue requirement is pending.
• Cost of Capital Trigger: In October 2024, the CPUC modified the cost of capital adjustment mechanism, reducing the adjustment ratio from 50% to 20% effective January 1, 2025. This adjustment will lower SCE's 2025 authorized ROE to 10.33% and reduce the revenue requirement by approximately $117 million.
• Wildfire Cost Recovery:
  • TKM Settlement: SCE and Cal Advocates filed a joint motion for a settlement agreement regarding the Thomas Fire, Koenigstein Fire, and Montecito Mudslides (TKM). If approved, SCE would recover 60% (approx. $1.6 billion) of losses.
  • Woolsey Fire: In October 2024, SCE filed an application seeking recovery of $5.4 billion in prudently incurred losses related to the Woolsey Fire. SCE does not currently expect to record a regulatory asset for these recoveries pending CPUC determination of prudency.

Capital Program

SCE forecasts total capital expenditures ranging from $32.2 billion to $37.5 billion for 2024–2028. Major projects include transmission upgrades and utility-owned energy storage. In May 2024, SCE was selected as the project sponsor for a 30-mile transmission line connecting San Diego and Orange Counties, expected to be in-service in 2032.

Risks and Contingencies

• Wildfire Liability: As of September 30, 2024, SCE had accrued estimated losses of $9.9 billion related to the 2017/2018 Wildfire/Mudslide Events, with $9.3 billion paid or obligated under settlements. Estimated losses for remaining alleged claims were $491 million. For "Other Wildfires" (post-2018 and other 2017/2018 fires), accrued estimated losses were $525 million.
• Regulatory Prudency: There is substantial uncertainty regarding the CPUC's application of the prudency standard for cost recovery of uninsured wildfire claims, particularly for fires ignited prior to the adoption of AB 1054 (July 2019).
• San Onofre Decommissioning: SCE updated its decommissioning cost estimate for San Onofre Units 2 and 3 to $3.0 billion (SCE share $2.3 billion) in 2024 dollars. A $30 million disallowance from the 2021 Nuclear Decommissioning Cost Triennial Proceeding (NDCTP) was recognized in 2023.
• Liquidity: SCE had $91 million in cash and $2.8 billion available under its revolving credit facility as of September 30, 2024. Credit ratings remain a critical factor; a downgrade below investment grade could trigger significant collateral requirements.

Key Facts for Investor Verification

• Wildfire Accruals vs. Recoveries: Verify the status of the TKM Settlement Agreement and the Woolsey Fire cost recovery application, as the ability to recover uninsured losses through rates is a primary driver of future earnings stability.
• Core Earnings vs. GAAP: Note the significant difference between GAAP net income and Core Earnings due to the treatment of wildfire claims as non-core items. Investors should monitor the trend in non-core wildfire charges.
• Capital Expenditure Execution: Confirm the progress of the $32.2–$37.5 billion capital program (2024–2028), particularly regarding transmission projects and wildfire mitigation infrastructure, as these drive future rate base growth.
• Interest Rate Sensitivity: Monitor the impact of rising interest rates on interest expense and the cost of capital, especially given the company's high debt load and the recent CPUC modification to the cost of capital adjustment mechanism.
• Self-Insurance Program: Track the implementation and funding of the customer-funded wildfire self-insurance program, which aims to reduce volatility in earnings from wildfire claims.