EDISON INTERNATIONAL quarterly report, Q3 FY2023

Edison International 10-Q Summary

Business context and reporting period

Edison International is the holding company of Southern California Edison Company (SCE), a regulated electric utility serving approximately 50,000 square miles in Southern California, and Edison Energy. This combined Form 10-Q covers the quarter and nine months ended September 30, 2023, with comparative periods ended September 30, 2022. Edison Energy is not material as a separate reporting segment.

Key financial metrics

Metric	Q3 2023	Q3 2022	Nine months 2023	Nine months 2022
Operating revenue	$4.702 billion	$5.228 billion	$12.632 billion	$13.204 billion
Net income attributable to common shareholders	$155 million	$(128) million	$819 million	$197 million
Basic EPS	$0.40	$(0.33)	$2.14	$0.52
Operating income	$492 million	$(44) million	$1.836 billion	$719 million
Operating margin	10.5%	(0.8)%	14.5%	5.4%
Net cash provided by operating activities	Not provided for the quarter	Not provided for the quarter	$2.546 billion	$2.112 billion
Capital expenditures	Not provided for the quarter	Not provided for the quarter	$3.991 billion	$4.206 billion

SCE generated substantially all of consolidated earnings: net income available for common stock was $239 million in Q3 2023 versus a loss of $80 million in Q3 2022, and $1.029 billion for the first nine months versus $369 million in the prior-year period. Edison International Parent and Other reported losses attributable to common stock of $84 million in Q3 and $210 million year to date.

Management reported consolidated core earnings of $531 million in Q3 2023 versus $564 million in Q3 2022, and $1.335 billion for the first nine months versus $1.328 billion. Core earnings are a non-GAAP measure and exclude significant non-core items.

Material changes versus the prior comparable period

Reported earnings improved primarily because wildfire-related non-core charges were lower than in 2022. Edison International recorded net income attributable to common shareholders of $155 million in Q3 2023 compared with a $128 million loss in Q3 2022.
Q3 SCE core earnings declined by $10 million, primarily because of higher interest expense and lower return on rate base related to the 2022 Customer Service Re-platform decision, partly offset by the 2021 GRC escalation mechanism.
Nine-month SCE core earnings increased by $67 million, primarily because of higher GRC escalation revenue and interest income on balancing-account undercollections, partly offset by higher interest expense.
Operating revenue declined 10% in Q3 and 4% year to date, largely reflecting lower cost-recovery revenue, purchased power and fuel costs, and lower wildfire-related amounts recovered through rates. These cost-recovery activities generally do not provide SCE with a return.
Consolidated interest expense increased to $433 million in Q3 from $302 million and to $1.186 billion year to date from $819 million, reflecting higher rates and increased borrowing.
Wildfire-related claims, net of recoveries, declined to $482 million in Q3 from $889 million and to $578 million year to date from $1.316 billion.

Balance sheet, debt, liquidity and cash flow

At September 30, 2023, Edison International had $446 million of cash and cash equivalents, total debt of approximately $33.5 billion including short-term and current maturities, and total assets of $80.2 billion.
SCE had $317 million of cash, approximately $28.4 billion of long-term debt including current maturities, and $3.4 billion of total revolving credit commitments, of which approximately $2.5 billion was available. SCE also entered into agreements in October 2023 for up to $625 million of uncommitted standby letters of credit.
Edison International Parent and Other had $129 million of cash and approximately $1.1 billion available under its $1.5 billion revolving credit facility.
SCE’s debt-to-total-capitalization ratio was 0.57 to 1 against a 0.65 covenant limit. Edison International’s consolidated ratio was 0.63 to 1 against a 0.70 limit. Both were in compliance with applicable covenants.
SCE’s nine-month operating cash flow increased to $2.733 billion from $2.158 billion. Financing provided $713 million, while investing used $3.894 billion, resulting in a $448 million decrease in cash.
SCE issued $3.589 billion of long-term debt and repaid $1.467 billion during the first nine months. It also issued $775 million of securitized bonds in April 2023 and used the proceeds to repay a $730 million term loan.
SCE’s credit ratings were Moody’s Baa1, Fitch BBB and S&P BBB, all with stable outlooks. Edison International Parent’s ratings were Moody’s Baa2, Fitch BBB and S&P BBB, also with stable outlooks.

Guidance, outlook and management commentary

SCE filed a 2025 GRC requesting a 2025 revenue requirement of approximately $10.3 billion, 23% above the approximately $8.4 billion requested for 2024, plus proposed increases of approximately $600 million, $700 million and $700 million in 2026, 2027 and 2028.
An all-party Track 4 settlement, if approved, would authorize an $8.4 billion 2024 revenue requirement, approximately $200 million below SCE’s initial request, subject to cost-of-capital and self-insurance adjustments.
SCE forecasts a $43.3 billion capital program for 2023–2028 and weighted-average rate base of $60.9 billion by 2028 if requested capital expenditures are approved. Its range case assumes a $37.8 billion program and $55.4 billion of rate base by 2028.
SCE incurred approximately $3.9 billion of capital expenditures during the first nine months of 2023. Wildfire mitigation-related capital expenditures are forecast at approximately $8.0 billion for 2023–2028.
The CPUC-approved customer-funded wildfire self-insurance program applies to wildfires ignited from July 1, 2023 through December 31, 2024. It provides for up to $1.0 billion of recovery per policy year, subject to a maximum shareholder contribution of $12.5 million per policy year. Continuation through at least 2028 remains subject to the 2025 GRC.
The cost-of-capital mechanism was triggered in 2023. Absent CPUC action, SCE’s authorized 2024 ROE would increase from 10.05% to 10.75%, increasing the 2024 GRC revenue requirement by approximately $175 million.
Management targets an Edison International common dividend payout ratio of 45%–55% of SCE core earnings, subject to regulatory, liquidity and other restrictions.

Wildfire, regulatory and other risks

SCE recorded a $475 million increase in estimated losses for the 2017/2018 Wildfire/Mudslide Events in Q3, partially offset by $27 million of expected FERC recovery, producing a $448 million pretax and $323 million after-tax charge.
As of September 30, 2023, accrued losses for the 2017/2018 events were $937 million, with $728 million estimated for remaining alleged and potential claims. SCE had paid $8.4 billion under executed settlements and had $209 million remaining to pay under executed settlements.
SCE estimates it may seek CPUC recovery of approximately $6.4 billion of uninsured 2017/2018 wildfire-related claims and costs. In August 2023, it filed an initial application seeking $2.4 billion related to the Thomas Fire, Koenigstein Fire and Montecito Mudslides. Recovery is uncertain because SCE cannot currently conclude that the uninsured CPUC-jurisdictional costs are probable of recovery.
Post-2018 wildfire accrued losses were $790 million at September 30, 2023, with $560 million of insurance and third-party recovery assets and $166 million of expected rate recovery. Management expects post-2018 wildfire losses beyond recorded recoveries to be immaterial, but estimates remain subject to change.
Material unresolved wildfire matters include the Saddle Ridge, Bobcat, Coastal and Fairview fires. Trials were scheduled for 2024, and the filing states that potential losses for certain matters could materially exceed accrued amounts; the upper end of reasonably possible losses cannot be estimated.
Other risks include regulatory disallowance or delayed recovery, extreme weather and future wildfires, PSPS-related claims and penalties, supply-chain constraints, inflation, interest rates, credit downgrades, collateral requirements, cybersecurity, San Onofre decommissioning, and execution delays or cost overruns in major capital projects.
SCE reported damage to equipment at one utility-owned storage project and stated that significant delays beyond the contractor’s projected in-service dates were possible. The filing also identifies delays and cost increases for certain transmission projects.
SCE accrued approximately $30 million for a probable San Onofre decommissioning-cost disallowance. The company also estimates that the Inflation Reduction Act corporate alternative minimum tax may apply beginning in 2025.
In October 2023, Edison International commenced a tender offer to purchase up to $750 million of its outstanding Series A and Series B preferred stock, plus accrued dividends. The filing text does not provide the final amount accepted.

Important facts for investors to verify

CPUC outcomes and timing for SCE’s $2.4 billion initial wildfire recovery application and future applications for approximately $6.4 billion of uninsured costs.
Changes in the $728 million estimate for remaining 2017/2018 wildfire claims and the ultimate resolution of outstanding public-entity and individual claims.
Whether the Track 4 settlement and the proposed 2025 GRC are approved as filed or modified, including the impact on revenue requirements, ROE and rate base.
Continuation and actual claims experience under the customer-funded self-insurance program, including potential shareholder contributions.
Liquidity, borrowing costs, collateral requirements and credit ratings as wildfire payments and the capital program continue.
Potential losses and trial developments for the Saddle Ridge, Bobcat, Coastal and Fairview fires, for which the filing does not provide clear upper-bound loss estimates.
Completion timing and final costs of utility-owned storage and major transmission projects, as well as the effect of any CPUC denial of the Building Electrification Program.