Edison International 10-Q Summary
Business Context and Reporting Period
Combined quarterly report for Edison International and its wholly owned utility subsidiary, Southern California Edison Company (SCE), for the quarter and nine months ended September 30, 2022. SCE supplies and delivers electricity across approximately 50,000 square miles of Southern California. Edison Energy provides competitive decarbonization and energy solutions but is not a reportable segment.
Key Financial Metrics
| Metric | Three Months Ended September 30 | Nine Months Ended September 30 |
|---|---|---|
| Edison International operating revenue | $5.228 billion, versus $5.299 billion | $13.204 billion, versus $11.574 billion |
| Operating income | $(44) million, versus $(128) million | $719 million, versus $856 million |
| Net income attributable to common shareholders | $(128) million, or $(0.33) per diluted share, versus $(341) million, or $(0.90) | $197 million, or $0.52 per diluted share, versus $236 million, or $0.62 |
| SCE net income available for common stock | $(80) million, versus $(284) million | $369 million, versus $371 million |
| Edison International core earnings | $564 million, versus $644 million | $1.328 billion, versus $1.301 billion |
| SCE core earnings | $623 million, versus $701 million | $1.511 billion, versus $1.436 billion |
Consolidated operating margin was approximately negative 0.8% in the third quarter and 5.4% for the nine months, compared with approximately negative 2.4% and 7.4%, respectively, in the prior-year periods. Results were significantly affected by wildfire-related charges and other discrete items.
- Operating expenses for the nine months increased to $12.485 billion from $10.718 billion, including higher purchased power and fuel, operations and maintenance, depreciation, and wildfire-related costs.
- SCE recorded $1.307 billion of wildfire-related claims expense for the nine months, net of insurance recoveries, compared with $1.276 billion in 2021.
- Consolidated interest expense increased to $819 million from $694 million for the nine months, reflecting higher debt balances and interest rates.
- Consolidated income tax benefit was $235 million for the nine months, compared with $3 million of tax expense in 2021.
Cash Flow, Debt, and Liquidity
- Edison International generated $2.112 billion of operating cash flow in the first nine months, compared with cash used of $416 million in 2021. Capital expenditures were $4.206 billion, producing negative investing cash flow of $4.105 billion.
- SCE generated $2.158 billion of operating cash flow, compared with cash used of $294 million in 2021, and invested approximately $4.205 billion in capital expenditures.
- At September 30, 2022, SCE had $90 million of cash, approximately $1.8 billion available under its $3.35 billion revolving credit facility, and $1.1 billion of commercial paper outstanding at a weighted-average rate of 3.82%.
- SCE debt to total capitalization was 0.56 to 1, below its covenant maximum of 0.65 to 1. Edison International’s consolidated ratio was 0.63 to 1, below its 0.70 to 1 covenant maximum.
- Consolidated Edison International debt consisted of $3.011 billion of short-term debt, $2.175 billion of current long-term debt, and $25.145 billion of long-term debt at September 30, 2022.
- SCE expects to fund the next 12 months through operating cash flow, debt and bank financings, refinancing, equity contributions from Edison International, and available credit facilities.
Material Changes Versus the Prior Comparable Period
- Third-quarter consolidated loss narrowed by $213 million, primarily because the prior-year period included larger wildfire-related losses. Core earnings declined by $80 million, mainly from higher operations and maintenance expenses and the absence of the retroactive 2021 General Rate Case revenue benefit.
- Nine-month consolidated net income attributable to common shareholders declined $39 million despite a $27 million increase in core earnings, primarily because non-core losses increased.
- Nine-month SCE core earnings increased $75 million, supported by higher CPUC-related revenue, rate-base returns associated with the Customer Service Re-platform decision, and escalation mechanisms, partly offset by higher operations and maintenance and interest expense.
- Purchased power and fuel expense increased $442 million for SCE during the nine months, primarily because of higher gas and power prices, CAISO settlement costs, capacity costs, and greenhouse-gas costs.
- SCE’s allowance for uncollectible accounts increased to $426 million at September 30, 2022, from $338 million at September 30, 2021.
- Regulatory assets totaled $9.5 billion and regulatory liabilities totaled $9.1 billion at September 30, 2022, making regulatory recovery assumptions material to reported earnings and cash flow.
Guidance, Outlook, Commentary, Risks, and Unusual Items
- SCE forecasts 2022–2024 capital expenditures of $17.5 billion, including $3.4 billion for wildfire mitigation. A range-case forecast is $16.2 billion. Forecast rate base associated with expected capital expenditures is $38.6 billion in 2022, $41.9 billion in 2023, and $44.8 billion in 2024.
- SCE expects to seek approximately $6 billion of CPUC-jurisdictional rate recovery for 2017/2018 wildfire-related losses, with the first application anticipated in 2023. Recovery of uninsured costs remains uncertain, particularly for fires predating July 12, 2019.
- SCE recorded an $880 million increase in estimated 2017/2018 wildfire losses in the third quarter, reduced by $50 million of expected FERC recovery, resulting in an $830 million pretax and $598 million after-tax net charge. Remaining estimated losses for alleged and potential claims were approximately $1.2 billion after executed settlements.
- Through September 30, 2022, SCE had recorded $8.8 billion of estimated 2017/2018 wildfire losses, $2.0 billion of expected insurance recoveries, and $376 million of expected FERC rate recoveries. Insurance recoveries for those events were considered exhausted.
- For post-2018 wildfires, SCE recorded $565 million of additional estimated losses in the first nine months, offset by $392 million of expected insurance recoveries and $162 million of expected rate recovery. SCE accrued $683 million of post-2018 wildfire losses at September 30, 2022.
- The CPUC’s Upstream Lighting Program decision requires refunds of $82.9 million, fines of $19.06 million, and approximately $900,000 of investigation costs. SCE accrued $102 million and appealed the decision.
- SCE’s utility-owned storage projects, totaling 537.5 MW, were delayed by supply-chain, permitting, and engineering issues. SCE expects completion before summer 2023. Aggregate capital expenditures are expected to be approximately $1.0 billion, with potential liquidated damages of up to $89 million and expected Inflation Reduction Act tax credits of approximately $270 million.
- SCE’s ERRA and PABA accounts were undercollected by approximately $950 million at September 30, 2022 because of higher gas and power prices. SCE expects to address the undercollection in its 2023 ERRA forecast proceeding and finance procurement costs until rates are adjusted.
- SCE’s 2023 cost-of-capital application requests a 10.53% return on common equity, 4.39% long-term debt cost, 6.50% preferred equity cost, and a 52% common-equity capital structure. The requested parameters would imply a 7.69% weighted-average return on rate base and approximately $41 million of additional 2023 revenue requirement versus current rates, if approved.
- Key risks include wildfire liability and insurance availability, regulatory disallowance or delayed rate recovery, extreme weather, supply-chain constraints, inflation, higher interest rates, credit-rating downgrades, collateral requirements, cybersecurity, environmental remediation, and San Onofre decommissioning.
Most Important Facts for Investors to Verify
- Progress and ultimate cost of remaining 2017/2018 wildfire and mudslide claims, including the approximately $1.2 billion remaining estimate and the potential for losses above accrued amounts.
- CPUС decisions on wildfire cost recovery, the 2022 cost-of-capital proceeding, the 2023 ERRA forecast, and the pending Upstream Lighting Program appeal.
- Availability and cost of wildfire insurance, including approximately $1.0 billion of coverage for the July 2022–June 2023 policy period and up to $100 million of self-insured retention and co-insurance per fire.
- Funding requirements for the capital program, planned equity issuance, SCE dividends, debt maturities, and the $730 million SCE term loan due in May 2023.
- Whether higher energy prices and customer undercollections lead to further borrowing, collateral postings, or rate increases.
- Actual timing, cost, and regulatory recovery of wildfire mitigation, storage, transmission, and customer-service projects.