Edison International 2022 Q2 Form 10-Q Summary
Business context and reporting period
This combined Form 10-Q covers Edison International and its wholly owned utility subsidiary, Southern California Edison Company (SCE), for the quarter and six months ended June 30, 2022. Edison International is primarily the holding company for SCE, which supplies and delivers electricity across approximately 50,000 square miles of Southern California. Edison Energy provides competitive decarbonization and energy solutions but is not material as a separate segment.
Key financial metrics
| Metric | Three months ended June 30, 2022 | Three months ended June 30, 2021 | Six months ended June 30, 2022 | Six months ended June 30, 2021 |
|---|---|---|---|---|
| Edison International revenue | $4.008 billion | $3.315 billion | $7.976 billion | $6.275 billion |
| Net income attributable to common shareholders | $241 million | $318 million | $325 million | $577 million |
| Basic and diluted EPS | $0.63 | $0.84 | $0.85 | $1.52 |
| Operating income | $504 million | $585 million | $763 million | $984 million |
| Net cash from operating activities | Not provided for the quarter | Not provided for the quarter | $1.238 billion | $(1.374) billion |
| Total debt at June 30, 2022 | $29.303 billion, including short-term and long-term debt |
Consolidated operating margin was approximately 12.6% for the quarter and 9.6% for the six months, compared with approximately 17.6% and 15.7%, respectively, in the comparable 2021 periods. Edison International’s core earnings, a non-GAAP measure, were $357 million for the quarter and $764 million for the six months, compared with $356 million and $657 million, respectively.
SCE reported net income available for common stock of $302 million for the quarter and $449 million for the six months, versus $359 million and $655 million in 2021. SCE’s core earnings increased to $418 million for the quarter and $888 million for the six months, from $397 million and $735 million, primarily reflecting the 2021 general rate case decision, partly offset by higher operating and maintenance costs.
Material changes versus the prior comparable period
- Revenue increased primarily from implementation of the 2021 general rate case decision, higher authorized revenue, and recovery of previously deferred wildfire-related costs. The six-month increase was approximately $1.7 billion.
- GAAP earnings declined because of substantially higher wildfire-related charges and other non-core items. Six-month non-core after-tax charges were $439 million in 2022 versus $80 million in 2021.
- Six-month 2022 non-core items included $291 million after-tax for 2017/2018 wildfire and mudslide claims, $76 million for Wildfire Insurance Fund amortization, $34 million for the Customer Service Re-platform impairment, $16 million for employment litigation, $12 million for GRC track 3 disallowed expenditures, and $10 million for organizational realignment.
- Operation and maintenance expense increased by $1.253 billion for the six months, while depreciation and amortization increased by $126 million. Interest expense increased by $68 million, reflecting higher borrowings and interest rates.
- Capital expenditures were approximately $2.7 billion for the first six months, compared with $2.3 billion in the prior-year period. SCE’s forecast total capital expenditures for 2022–2024 is $17.5 billion, including $3.3 billion for wildfire mitigation.
- SCE’s cash flow from operations improved to $1.317 billion from cash used of $1.283 billion, largely because wildfire settlement payments were lower than in 2021 and regulatory account activity improved.
Liquidity, debt, and capital resources
- At June 30, 2022, SCE had $66 million of cash, approximately $3.1 billion available under its $3.35 billion revolving credit facility, and $102 million of commercial paper outstanding. The facility was extended to May 2026.
- Edison International Parent had $56 million of cash, $3 million of commercial paper outstanding, and approximately $1.497 billion available under its $1.5 billion revolving credit facility, also extended to May 2026.
- SCE’s debt-to-total-capitalization ratio was 0.55 to 1, compared with a covenant maximum of 0.65 to 1. Edison International’s consolidated ratio was 0.62 to 1, compared with a covenant maximum of 0.70 to 1. Both were in compliance.
- SCE issued $2.949 billion of long-term debt during the six months, including bonds used to fund wildfire claims, repay commercial paper, and finance eligible sustainable projects. Edison International Parent also borrowed $600 million under a term loan due in April 2023.
- SCE received a $700 million capital contribution from Edison International Parent during the first six months. Edison International plans to issue securities containing $300 million to $400 million of rating-agency equity content during 2022.
Guidance, outlook, commentary, and risks
- SCE expects to fund the next 12 months through operating cash flow, capital-market financing, debt refinancing, available credit facilities, and parent equity contributions as needed.
- SCE’s 2023–2024 cost-of-capital proceedings remain unresolved. Revenue recognized using pre-2022 cost-of-capital rates is subject to refund; an adverse decision could reduce first-half 2022 revenue by approximately $85 million.
- SCE requested an $8.6 billion 2024 revenue requirement in its GRC track 4 filing, approximately $972 million above the estimated 2023 attrition-year requirement. The request reflects inflation, vegetation management, wildfire mitigation, and completed capital projects.
- Three utility-owned storage projects totaling 537.5 MW were delayed by supply-chain, permitting, and engineering issues. SCE expects 200–300 MW to be in service in September 2022 and the remainder by year-end 2022. Potential liquidated damages are capped at $89 million, subject to contractual force-majeure provisions.
- For the 2017/2018 Wildfire/Mudslide Events, SCE and Edison International recorded $7.9 billion of pre-tax charges, recovered $2.0 billion from insurance and approximately $326 million through FERC rates, and had estimated remaining losses of approximately $0.9 billion as of June 30, 2022. Insurance recoveries for those events had been exhausted.
- SCE expects to seek CPUC rate recovery of more than $5 billion for eligible wildfire-related losses, beginning with anticipated applications in 2023. Recovery is uncertain because the CPUC has not determined SCE’s prudency and prior precedent creates substantial uncertainty for pre-2019 wildfire costs.
- The CPUC re-approved the $550 million SED wildfire settlement in July 2022, but the agreement does not become effective until approval is final and non-appealable. The settlement includes a $110 million fine, $65 million of shareholder-funded safety measures, and a waiver of recovery for $375 million of uninsured claims.
- SCE faces proposed penalties of $10 million related to 2020 Public Safety Power Shutoff notification requirements. Payment was stayed pending the hearing and rehearing process.
- Other material exposures include ongoing wildfire litigation, the 2019/2020 wildfires and 2022 Coastal Fire, employment litigation, the Upstream Lighting Program investigation, environmental remediation, nuclear decommissioning, commodity prices, collateral requirements, inflation, supply-chain constraints, regulatory disallowances, cybersecurity, and potential credit-rating downgrades.
- SCE had approximately $198 million of collateral posted at June 30, 2022. Potential additional collateral was approximately $96 million upon a downgrade below investment grade and $80 million from adverse commodity-price movements.
Important facts investors should verify
- Whether CPUC and FERC proceedings permit recovery of wildfire-related costs and whether the $85 million potential cost-of-capital refund is required.
- The final, non-appealable status and financial consequences of the SED Agreement.
- Actual settlement payments and changes in the approximately $0.9 billion remaining 2017/2018 wildfire and mudslide loss estimate.
- Progress, final cost, and cost recovery for the delayed 537.5 MW storage projects and the broader $17.5 billion 2022–2024 capital program.
- Resolution and potential penalties related to the Upstream Lighting Program, PSPS notification practices, employment litigation, the Coastal Fire, and other pending wildfire matters.
- Availability and cost of wildfire insurance, collateral requirements, credit ratings, and access to debt and equity markets.
- Whether Edison International can maintain its stated 45%–55% target common-dividend payout ratio based on SCE core earnings and regulatory capital requirements.