EIX

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). Edison International is a large accelerated filer, while SCE is a non-accelerated filer. SCE operates as 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 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

• Revenue Growth: Operating revenue increased by approximately $983 million (7.8%) for the nine months ended September 30, 2024, compared to the prior year. This was driven by higher revenue authorized in Track 4 of the 2021 General Rate Case (GRC) and an increase in the authorized rate of return due to the cost of capital adjustment mechanism.
• Profitability: Net income available to Edison International common shareholders increased by $125 million (15.3%) year-over-year. SCE's net income increased by $161 million, primarily due to higher core earnings and lower non-core wildfire-related losses.
• Wildfire Claims: Non-core charges for 2017/2018 Wildfire/Mudslide Events decreased significantly. For the nine months ended September 30, 2024, charges were $485 million compared to $560 million in 2023. Charges for "Other Wildfires" increased to $124 million in 2024 from $7 million in 2023.
• Interest Expense: Interest expense increased by $215 million (18.1%) to $1,401 million, attributed to higher interest rates and additional long-term borrowings.
• Severance Costs: SCE recorded $44 million in severance costs in the third quarter of 2024 due to workforce reductions, a non-core item not present in the prior year.

Guidance, Outlook, and Risks

Regulatory Proceedings and Rate Cases

• 2025 General Rate Case (GRC): SCE filed an application requesting a 2025 revenue requirement of approximately $10.5 billion. In October 2024, the CPUC modified the cost of capital adjustment mechanism, reducing SCE's 2025 authorized Return on Equity (ROE) to 10.33% and reducing the revenue requirement by approximately $117 million.
• Wildfire Cost Recovery:
  • TKM Settlement: SCE and Cal Advocates filed a joint motion for a settlement regarding the Thomas Fire, Koenigstein Fire, and Montecito Mudslides. If approved, SCE would recover 60% (approx. $1.6 billion) of $2.7 billion in losses.
  • Woolsey Fire: In October 2024, SCE filed an application to seek recovery of $5.4 billion in losses related to the Woolsey Fire. SCE does not currently expect to record a regulatory asset for these recoveries pending CPUC determination on prudency.

Capital Program

SCE forecasts total capital expenditures ranging from $32.2 billion to $37.5 billion for 2024–2028. In the first nine months of 2024, capital expenditures were $4.0 billion. Major projects include transmission upgrades and utility-owned storage projects, with two storage projects (200 MW and 112.5 MW) placed in service in Q3 2024.

Liquidity and Capital Resources

• Available Liquidity: As of September 30, 2024, SCE had $91 million in cash and approximately $2.8 billion available on its $3.4 billion revolving credit facility. Edison International Parent had $109 million in cash and $1.5 billion available on its credit facility.
• Debt Issuance: In the first nine months of 2024, SCE issued $4.3 billion in first and refunding mortgage bonds. Edison International Parent issued $500 million in senior notes in Q2 2024.

Key Risks and Contingencies

• Wildfire Liability: SCE faces significant uncertainty regarding the recovery of uninsured wildfire costs through rates. As of September 30, 2024, estimated losses for remaining alleged claims related to the 2017/2018 events were $491 million, and $521 million for Other Wildfires. Actual losses could exceed accrued amounts.
• Regulatory Prudency: The CPUC's interpretation of the "prudency" standard remains a critical risk. Precedent from SDG&E suggests potential disallowance of costs if the utility is found not to have acted prudently.
• San Onofre Decommissioning: SCE updated its decommissioning cost estimate to $3.0 billion (SCE share $2.3 billion) in 2024 dollars, with completion expected in 2056.
• Collateral Requirements: A downgrade of SCE's credit rating below investment grade could trigger incremental collateral requirements of approximately $101 million for purchased power contracts and $57 million for financial hedging activities.

Investor Verification Checklist

• Wildfire Recovery Status: Verify the CPUC's final decision on the TKM Settlement Agreement and the Woolsey Fire cost recovery application, as these directly impact future regulatory assets and earnings.
• 2025 GRC Outcome: Monitor the final CPUC decision on the 2025 GRC revenue requirement, specifically the approved ROE and capital investment allowances.
• Capital Expenditure Execution: Track progress on the $32.2–$37.5 billion capital program (2024–2028), particularly the in-service dates for transmission and storage projects.
• Interest Rate Sensitivity: Assess the impact of rising interest rates on future interest expense and the cost of capital adjustment mechanism.
• Remaining Wildfire Claims: Review updates on the $491 million (2017/2018 events) and $521 million (Other Wildfires) accrued liabilities for potential increases in estimated losses.