Business context and reporting period
Southern California Edison Company (SCE), a regulated electric utility serving Southern California, filed this combined Form 10-Q with its parent, Edison International, for the quarter ended March 31, 2018. Unless otherwise noted, financial figures below are for SCE; parent-company results are identified separately. Amounts are unaudited.
Key financial metrics
| Metric | Q1 2018 | Q1 2017 or prior date |
|---|---|---|
| SCE operating revenue | $2.554 billion | $2.456 billion |
| SCE operating income | $414 million | $498 million |
| SCE net income / income available to common stock | $316 million / $286 million | $380 million / $349 million |
| SCE operating margin (operating income / revenue) | 16.2% | 20.3% |
| SCE cash from operations | $801 million | $936 million |
| SCE cash capital expenditures | $1.124 billion | $934 million |
| SCE cash and cash equivalents, March 31 | $15 million | $515 million at December 31, 2017 |
| SCE debt, including short-term debt and current long-term portion | $12.178 billion | $12.145 billion at December 31, 2017 |
| SCE available credit-facility capacity | Approximately $2.58 billion | Not stated |
SCE’s debt-to-capitalization ratio was 0.45 to 1, within its credit-facility limit of 0.65 to 1. In March, SCE issued $1.25 billion of mortgage bonds, primarily to repay commercial paper and for general corporate purposes. Edison International reported Q1 net income attributable to common shareholders of $218 million and diluted EPS of $0.67, versus $362 million and $1.10 a year earlier; its $48 million after-tax SoCore Energy impairment was a non-core item.
Material changes versus the prior comparable period
- SCE common-stock earnings fell $63 million. Management cited lower revenue following the 2017 cost-of-capital decision and Tax Reform, higher operation and maintenance expense (including wildfire insurance and line clearing), and higher financing costs. Lower depreciation and income-tax expense partly offset these items.
- Revenue increased 4.0%, while operating income declined 16.9%. Higher purchased-power and fuel costs—up $142 million—were primarily attributed to higher power prices and volumes.
- Operating cash flow declined $135 million; cash invested in capital expenditures rose. SCE reported a $500 million decrease in cash, cash equivalents and restricted cash during the quarter.
- Retail billed and unbilled revenue was $2.4 billion versus $2.3 billion, mainly reflecting a 2018 Energy Resource Recovery Account rate increase. SCE’s authorized rates decouple revenue from electricity sales volumes.
Outlook, commentary and material risks
- SCE projected approximately $4.2 billion of 2018 capital expenditures. Management said first-quarter capital spending was consistent with its plan; project timing and costs remain subject to permitting, regulatory approvals and contractor bids.
- The pending 2018–2020 general rate case request was updated to $5.534 billion for 2018, with proposed post-test-year increases of $292 million in 2019 and $319 million in 2020. A final decision was not expected until later in 2018. Pending that decision, SCE recognized revenue using the 2017 authorized requirement, adjusted for the cost-of-capital decision and Tax Reform; the eventual authorized amount and timing were uncertain.
- Wildfire and Montecito mudslide claims could result in substantial liabilities. As of the filing, investigations and litigation were ongoing, and SCE and Edison International could not reasonably estimate potential losses. SCE had approximately $1 billion of wildfire-specific insurance, subject to a $10 million per-occurrence retention, plus approximately $300 million of additional coverage for specified periods. Coverage may be insufficient, and recovery of uninsured costs in rates is uncertain.
- A revised San Onofre settlement was signed in January 2018 but required CPUC approval. If approved, it would end recovery of San Onofre costs when specified conditions are met and require refunds of certain post-cessation collections. The agreement’s implementation and timing remained uncertain.
- Edison International agreed to sell SoCore Energy; the sale closed April 16, 2018. The parent recorded a $66 million pretax impairment in Q1. SCE’s Alberhill transmission project also faced a proposed CPUC denial; a final decision was pending.
- SCE expected to meet cash requirements over the next 12 months through operating cash flow, tax benefits, debt and preferred-equity financing as needed, and its credit facility. Significant uninsured wildfire or mudslide costs could pressure liquidity, capital-market access and dividend capacity.
- No full-year earnings guidance is provided in the supplied filing text. The filing describes forward-looking risks including regulatory cost recovery, wildfire exposure, financing access, project approvals, and commodity, credit and operational risks.
Important facts for investors to verify
- Updates on wildfire and mudslide investigations, litigation, insurance coverage and any potential loss estimates or regulatory treatment.
- CPUC decisions on the 2018 General Rate Case and revised San Onofre settlement, including rate recovery, refunds and capital-structure effects.
- Actual 2018 capital spending, project approvals and funding needs relative to the approximately $4.2 billion plan.
- SCE’s liquidity, debt maturities and covenant headroom, particularly if significant claims or additional borrowing arise.
- Whether Edison International’s SoCore sale proceeds and disposal accounting differ materially from the Q1 held-for-sale estimates.