EDISON INTERNATIONAL annual report, FY2021

Edison International 2021 Form 10-K Summary

Business context and reporting period

This combined Form 10-K covers Edison International and its wholly owned utility subsidiary, Southern California Edison Company (SCE), for the fiscal year ended December 31, 2021. SCE supplies and delivers electricity across approximately 50,000 square miles in Southern California and serves approximately 5.2 million customers. Edison Energy provides competitive decarbonization and energy solutions but is not material as a separate reporting segment.

Financial performance and key metrics

Metric	2021	2020	Change
Edison International operating revenue	$14.905 billion	$13.578 billion	+$1.327 billion
Net income attributable to Edison International common shareholders	$759 million	$739 million	+$20 million
Basic and diluted EPS	$2.00	$1.98 basic; $1.98 diluted	Higher
SCE operating revenue	$14.874 billion	$13.546 billion	+$1.328 billion
SCE net income available for common stock	$829 million	$810 million	+$19 million
SCE operating income	$1.510 billion	$1.178 billion	+$332 million
SCE net cash from operating activities	$158 million	$1.427 billion	-$1.269 billion
SCE capital expenditures	$5.5 billion	$5.5 billion	Approximately flat

Edison International’s reported earnings included significant non-core wildfire and other items. Management reported 2021 core earnings of $1.741 billion, compared with $1.686 billion in 2020. SCE core earnings were $1.943 billion, up from $1.825 billion, while Edison International Parent and Other core losses increased to $202 million from $139 million, primarily because of higher preferred dividends.

SCE’s 2021 effective tax rate was 1.8%, compared with negative 41.7% in 2020. Edison International reported a 2021 tax benefit of $136 million and a negative 17.2% effective tax rate, partly reflecting the settlement of California tax audits.

Liquidity, debt and capital structure

SCE had $279 million of cash and $2.6 billion available under its $3.4 billion revolving credit facility at December 31, 2021. SCE had $601 million of commercial paper outstanding at a weighted-average rate of 0.45%.
Edison International Parent had $52 million of cash and $1.5 billion available under its $1.5 billion revolving credit facility, with no commercial paper outstanding.
SCE’s debt-to-total-capitalization ratio was 0.55 to 1, below its 0.65 covenant limit. Edison International’s consolidated ratio was 0.61 to 1, below its 0.70 covenant limit. Both were in compliance with applicable financial covenants.
Edison International’s long-term debt carrying value was $24.170 billion, compared with $19.632 billion in 2020. SCE’s long-term debt carrying value was $21.733 billion, compared with $16.499 billion.
Edison International issued $2.0 billion of preferred securities in 2021, generating approximately $1.0 billion of rating-agency equity content and contributing $900 million of equity to SCE.
SCE’s year-end rate base increased to $37.9 billion from $34.7 billion, excluding AB 1054 excluded capital expenditures.

Material changes versus the prior comparable period

Revenue increased mainly because of the 2021 General Rate Case decision, higher FERC revenue and increased cost-recovery activity, including higher purchased power and fuel costs.
Reported net income increased modestly despite substantial wildfire charges. The 2021 GRC increased authorized SCE revenue requirements to $6.9 billion, $331 million above 2020 adjusted authorized revenue.
Wildfire Insurance Fund expense declined to $215 million from $336 million because the estimated amortization period was extended to 15 years.
Wildfire-related claims and expenses, net of expected recoveries, remained substantial at $1.276 billion in 2021 versus $1.328 billion in 2020.
SCE’s operating cash flow declined sharply because of approximately $3.9 billion of wildfire settlement payments, higher receivables and regulatory-account undercollections.
Customer receivables and accrued unbilled revenue increased, reflecting higher billings and undercollections. The ERRA account was undercollected by approximately $760 million at year-end due to higher gas and power prices.
COVID-19-related incremental costs reached $303 million, net of savings, by December 31, 2021. SCE received $185 million of California Arrearage Payment Program funds in January 2022.

Guidance, outlook and management commentary

SCE expects 2022 capital expenditures of approximately $6.2 billion and 2023 expenditures of approximately $5.5 billion, including $1.1 billion of wildfire-mitigation capital spending in each year.
SCE expects approximately $1.0 billion of capital expenditures through the anticipated summer 2022 in-service date for 537.5 MW of utility-owned storage.
SCE’s 2021 GRC authorized revenue requirements for 2022 and 2023 were $7.3 billion and $7.7 billion, respectively.
SCE expects to issue additional debt and sustainable bonds and Edison International expects to issue securities containing $300 million to $400 million of equity content in 2022 to support SCE’s capital program and capital-structure requirements.
SCE filed a $677 million Building Electrification Program application for 2024–2027. The filing seeks to support heat-pump adoption and electrical infrastructure upgrades, but recovery remains subject to regulatory approval.
The CPUC cost-of-capital proceeding could reduce SCE’s 2022 revenue requirements by approximately $179 million if the adjustment mechanism is ultimately applied.

Risks, contingencies and unusual items

Wildfire liabilities: Through December 31, 2021, Edison International and SCE had recorded $7.5 billion of pre-tax wildfire-related charges, recovered $2.0 billion from insurance and expected $300 million through FERC rates. They had paid $5.7 billion in settlements, with $131 million remaining under executed settlements and approximately $1.6 billion of estimated remaining losses, including the SED Agreement.
SED Agreement: The agreement includes $550 million of aggregate costs: a $110 million fine, $65 million of shareholder-funded safety measures and $375 million of third-party uninsured claims that SCE agreed not to seek in CPUC rates. CPUC approval was legally challenged, and obligations commence only after approval becomes final and non-appealable.
Regulatory recovery: SCE carried $9.4 billion of regulatory assets and $9.6 billion of regulatory liabilities. Recovery of many wildfire, COVID-19, customer-service-system and other costs remains subject to CPUC or FERC review and reasonableness determinations.
Customer-service system: The CSRP project had incurred approximately $546 million of capital expenditures and $63 million of operating expenses through 2021, significantly above original projections. SCE experienced billing and operational issues following implementation and expects stabilization by the end of the third quarter of 2022.
San Onofre: SCE’s share of the updated Units 2 and 3 decommissioning estimate was $2.6 billion in 2021 dollars, with completion currently estimated for 2053. Nuclear decommissioning trust funds totaled $2.8 billion at year-end 2021; cost overruns, permitting delays, inflation and spent-fuel-storage issues could require additional contributions.
Insurance and market risks: SCE’s wildfire insurance coverage for July 2021 through June 2022 was approximately $1.0 billion gross, with up to $50 million of self-insured retention and approximately $75 million of co-insurance, resulting in approximately $875 million of net coverage. Interest rates, commodity prices, counterparty credit, collateral requirements and credit-rating changes may affect liquidity.
Other proceedings: SCE disclosed contingencies involving the Upstream Lighting Program, environmental remediation, additional wildfire claims and regulatory proceedings. The filing states that some potential losses cannot be estimated clearly.

Most important facts for investors to verify

Whether the approximately $1.6 billion wildfire loss estimate is sufficient as litigation, mediation and regulatory proceedings continue.
Whether CPUC approval of the SED Agreement becomes final and non-appealable and whether SCE can recover other uninsured wildfire-related costs.
The outcome of the 2022 cost-of-capital proceeding and its effect on SCE’s authorized revenue and cash flow.
The timing and cost recovery of SCE’s wildfire mitigation, utility-owned storage, transmission and electrification investments.
Whether CSRP costs and remaining COVID-19, wildfire and regulatory-account balances are approved for recovery.
SCE’s ability to maintain investment-grade ratings, refinance debt and continue dividends to Edison International while funding capital expenditures and wildfire obligations.
The adequacy of San Onofre decommissioning trusts relative to the current $2.6 billion SCE share estimate and the potential impact of delays or cost inflation.

The filing reports that Edison International’s and SCE’s financial statements were audited by PricewaterhouseCoopers LLP. The auditor issued unqualified opinions, and Edison International reported effective internal control over financial reporting as of December 31, 2021.