Southern California Edison Company — Form 10-Q Summary
Reporting period: Three months ended March 31, 2015. SCE is a regulated electric utility serving southern California. The filing is a combined 10-Q with parent Edison International; figures below refer to SCE unless stated otherwise.
Financial results and position
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Operating revenue | $2.508 billion | $2.924 billion |
| Operating income | $550 million | $342 million |
| Net income | $333 million | $234 million |
| Net income available for common stock | $305 million | $208 million |
| Cash from operating activities | $966 million | $588 million |
| Capital expenditures | $1.266 billion | $939 million |
- Operating margin was approximately 21.9%, compared with 11.7% in Q1 2014; the comparison reflects the prior-year San Onofre charge and lower cost-recovery revenue and expenses in 2015.
- Cash from operations less capital expenditures was approximately negative $300 million. Cash used in investing activities was $1.288 billion, while financing activities provided $320 million.
- At March 31, 2015, cash was $36 million. Current assets were $3.332 billion and current liabilities $4.032 billion. SCE had $2.33 billion available under its $2.75 billion revolving credit facility.
- Total debt, including short-term debt and current maturities, was approximately $11.12 billion, versus $10.59 billion at year-end 2014. SCE’s debt-to-total-capitalization ratio was 0.45, below its 0.65 covenant limit.
- Regulatory assets totaled $8.889 billion. Nuclear decommissioning trusts totaled $4.896 billion; the San Onofre Units 2 and 3 trusts were reported at $3.5 billion.
Changes versus the prior comparable period
- Revenue declined $416 million, primarily reflecting lower purchased-power and fuel cost-recovery revenue. Retail billed and unbilled revenue, excluding wholesale sales and balancing-account effects, increased to $2.6 billion from $2.3 billion, largely following a 2014 ERRA rate increase.
- Purchased power and fuel expense fell $357 million, mainly due to lower power and gas prices and reduced customer sales amid warmer weather.
- Net income available for common stock rose $97 million. Q1 2014 included a $231 million pre-tax San Onofre-related charge; 2015 also benefited from higher FERC-related revenue and construction-related income. Core earnings were nearly unchanged at $305 million versus $304 million.
- Operating cash flow increased $378 million, notably reflecting a favorable year-over-year change in regulatory balancing-account cash flows. Capital expenditures increased from $939 million to $1.266 billion.
- SCE issued $1.3 billion of first and refunding mortgage bonds during the quarter and repaid or repurchased $419 million of long-term debt.
Outlook, management commentary, and risks
- Rates: SCE’s updated 2015 General Rate Case request was $5.713 billion, $80 million above currently authorized base revenue, with requested increases of $286 million in 2016 and $315 million in 2017. The CPUC decision was pending; the filing gives no clear timing or final authorized amount. A memorandum account makes the eventual 2015 requirement effective from January 1, 2015.
- Investment: SCE forecast 2015–2017 capital spending of $11.5–$13.1 billion, including $3.6–$4.1 billion in 2015. The forecast was reduced by about $325 million, principally because of uncertainty around the Coolwater-Lugo transmission project. Q1 capital expenditures were $825 million including accruals.
- San Onofre: SCE sought CPUC approval to access decommissioning trusts for approximately $340 million of 2013–2014 costs. It estimated about $183 million of additional 2015 decommissioning costs after Q1. Trust withdrawals require CPUC approval; recoveries, if approved, are subject to customer-refund provisions.
- Regulatory/legal exposure: Following disclosure of a 2013 ex parte communication, parties sought sanctions and a petition sought to reverse approval of the San Onofre settlement. ORA advocated a $648 million penalty; SCE said it could not predict the outcome. SCE also sought at least $4 billion from Mitsubishi Heavy Industries in arbitration; no recovery was assured. No NEIL insurance recovery had been recognized.
- Other contingencies: SCE recorded a $116 million minimum liability for 19 material environmental remediation sites and said costs could exceed the recorded liability by up to $158 million. Wildfire claims, nuclear insurance assessments, spent-fuel disputes, and other legal matters remain risks.
- Operations and financing: Labor agreements covering approximately 3,900 employees had expired and remained under negotiation. SCE expected to fund 2015 obligations, capital spending, and dividends through operating cash flow and debt or preferred-equity financing as needed. No earnings guidance was provided.
Important facts for investors to verify
- Track the CPUC’s final 2015 GRC decision, effective rates, and any resulting earnings or cash-flow adjustments.
- Monitor San Onofre settlement challenges, the potential $648 million penalty request, trust access, and the status and economics of MHI and NEIL claims.
- Check actual capital spending and project approvals, particularly Coolwater-Lugo, against the $11.5–$13.1 billion three-year forecast.
- Review debt issuance, liquidity, dividend capacity, and the impact of decommissioning cash costs before trust reimbursement.
- Assess developments in wildfire insurance coverage and environmental, nuclear, and spent-fuel contingencies.