Business context and reporting period
Southern California Edison Company (SCE), a wholly owned subsidiary of Edison International, supplies and delivers electricity to approximately 5.2 million customers in Southern California. This combined Form 10-K covers the fiscal year ended December 31, 2021; it does not provide standalone fourth-quarter results. Unless stated otherwise, figures below are for SCE and in U.S. dollars.
Key financial results
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Operating revenue | $14.874 billion | $13.546 billion | Up 9.8% |
| Operating income | $1.510 billion | $1.178 billion | Up 28.2% |
| Operating margin | 10.2% | 8.7% | Up 1.5 percentage points |
| Net income | $935 million | $942 million | Down $7 million |
| Net income available for common stock | $829 million | $810 million | Up $19 million |
| Operating cash flow | $158 million | $1.427 billion | Down $1.269 billion |
| Capital expenditures | $5.5 billion | $5.5 billion | Approximately flat |
Revenue growth reflected the 2021 general rate case (GRC) decision and higher cost-recovery revenues, including higher purchased-power and fuel costs. Cost-recovery activities generally pass authorized costs through to customers and earn no return. SCE’s authorized 2021 revenue requirement was $6.874 billion, $331 million above the adjusted 2020 amount.
Higher operating income benefited from increased authorized revenue and lower operating and maintenance costs in earning activities. Offsetting items included higher depreciation, interest expense, and property taxes. Net income was nearly flat; the lower 2021 income-tax benefit contributed to the difference between operating-income growth and net-income results. Wildfire claims and related charges remained a major expense.
Balance sheet, debt and liquidity
- At December 31, 2021, SCE reported total assets of $74.5 billion, total liabilities of $54.7 billion, and equity of $19.8 billion.
- Debt included $2.354 billion of short-term debt, $377 million of current long-term debt, and $21.733 billion of long-term debt. The reported debt-to-capitalization covenant ratio was 0.55, within the maximum of 0.65.
- SCE had $279 million of cash and $2.6 billion available under its $3.4 billion revolving credit facility. It also had $601 million of commercial paper outstanding at a 0.45% weighted-average interest rate.
- Operating cash flow fell sharply, principally reflecting wildfire settlement payments, working-capital outflows, and regulatory-account timing. Financing cash flow was $5.218 billion, including $5.411 billion of long-term debt issuance and $1.633 billion of parent capital contributions.
- Regulatory assets totaled $9.4 billion and regulatory liabilities $9.6 billion. Recovery of certain deferred costs depends on future regulatory review or approval.
Material changes and unusual items
- The CPUC’s 2021 GRC decision authorized a $6.9 billion base revenue requirement for 2021 and increased authorized revenue by $331 million over adjusted 2020 levels. It also resulted in a $79 million pre-tax impairment ($47 million after tax) for historical pole-replacement expenditures deemed premature.
- SCE recorded $1.276 billion of wildfire-related claims expense, net of insurance recoveries, in 2021. For the 2017/2018 wildfire and mudslide events, cumulative pre-tax charges were $7.5 billion; SCE reported $5.7 billion paid under settlements, $131 million payable under executed settlements, and $1.6 billion estimated for remaining claims and the SED agreement. Expected insurance recoveries for those events were exhausted; $165 million of FERC-rate recoveries remained recorded.
- The CPUC-approved SED agreement provides for $550 million in aggregate costs: a $110 million fine, $65 million of shareholder-funded safety measures, and a waiver of rate recovery for $375 million of uninsured third-party claims payments. Its obligations depend on the approval becoming final and non-appealable; the approval was legally challenged.
- Wildfire Insurance Fund expense declined to $215 million from $336 million, partly due to a revised estimated coverage period. The estimate is sensitive to wildfire frequency and severity.
- COVID-19-related incremental costs, net of savings, were $303 million through year-end 2021. Some amounts were deferred or transferred to regulatory accounts pending review or recovery. SCE received $185 million of California Arrearage Payment Program funds in January 2022.
- The new customer service system was implemented in April 2021. SCE reported operational issues, including delayed billing, and tracked approximately $546 million of capital expenditures and $63 million of operating costs through 2021; recovery requests remain subject to CPUC review.
Outlook, management commentary and principal risks
- SCE forecast capital expenditures of $6.2 billion in 2022 and $5.5 billion in 2023, with a range case of $6.0 billion and $5.2 billion, respectively. A separate $1.0 billion utility-owned storage investment was planned for in-service in summer 2022; project timing and costs face permitting, construction, labor, and supply-chain risks.
- SCE’s 2021 GRC authorized revenue requirements of $6.9 billion, $7.3 billion, and $7.7 billion for 2021–2023. These are regulatory authorizations, not earnings forecasts.
- SCE’s 2022 cost-of-capital proceeding could reduce 2022 revenue requirements by $179 million if the CPUC applies the mechanism adjustment. SCE sought to suspend that adjustment; the matter was unresolved in the filing.
- Key risks include future wildfires and potential liability, uncertainty over recovery of uninsured pre-AB 1054 wildfire losses, the financial durability of the Wildfire Insurance Fund, regulatory disallowances, insurance availability and cost, extreme weather, inflation and supply constraints, customer arrearages, and access to capital markets.
- Additional exposures include nuclear decommissioning costs and spent-fuel storage, regulatory review of wildfire mitigation spending, and competitive load departures to community choice aggregators and other providers. SCE cited cybersecurity and physical-security threats, as well as COVID-19-related workforce and supply-chain uncertainty.
- Auditors issued unqualified opinions on SCE’s financial statements. The filing identifies wildfire contingencies and recoverability of regulatory assets not yet reflected in rates as critical audit matters.
Investor verification priorities
- Track the status and ultimate cost of remaining 2017/2018 wildfire claims, the SED agreement, and any additional wildfire losses or settlements.
- Verify CPUC decisions on wildfire-cost recovery, deferred regulatory assets, the cost-of-capital proceeding, and the outstanding GRC and CEMA matters.
- Monitor operating cash flow, settlement funding, debt issuance and refinancing, liquidity, and compliance with capital-structure requirements.
- Assess execution, cost, and timing of the wildfire mitigation, grid investment, customer-system, and utility-owned storage programs.
- Review whether the Wildfire Insurance Fund remains adequately funded and whether insurance coverage can be maintained at reasonable cost.