EDISON INTERNATIONAL quarterly report, Q1 FY2012

Edison International 2012 Q1 SEC Filing Summary

Business Context and Reporting Period

Edison International filed an unaudited Form 10-Q for the three months ended March 31, 2012. The company operates primarily through Southern California Edison Company (SCE), a regulated electric utility, and Edison Mission Group (EMG), a competitive power-generation business.

Financial Performance and Key Metrics

Metric	Q1 2012	Q1 2011	Change
Total operating revenue	$2.856 billion	$2.782 billion	+$74 million
Operating income	$304 million	$450 million	-$146 million
Income from continuing operations	$115 million	$216 million	-$101 million
Net income attributable to common shareholders	$93 million	$200 million	-$107 million
Diluted EPS	$0.28	$0.61	-$0.33
Operating cash flow	$677 million	$718 million	-$41 million
Capital expenditures	$1.276 billion	$1.133 billion	+$143 million

Consolidated operating margin declined to approximately 10.6% from 16.2%, and net margin attributable to common shareholders declined to approximately 3.3% from 7.2%. Revenue increased because of higher SCE electric-utility revenue, while competitive-generation revenue fell to $444 million from $552 million.

SCE common earnings were $182 million versus $222 million. The decline primarily reflected delayed recovery of higher depreciation and interest costs pending the 2012 CPUC general rate case, San Onofre inspection and repair costs, and a lower allowance for funds used during construction.
EMG reported a common-stock loss of $84 million versus a $20 million loss. Core loss increased to $60 million from $8 million, driven by lower energy and capacity prices, reduced Midwest Generation output, higher fuel costs and increased interest expense.
Consolidated net income included $24 million of non-core items, principally a $23 million Homer City loss and a $1 million discontinued-operations loss.
Income tax expense was zero at the consolidated level, compared with $65 million in Q1 2011, reflecting tax credits, property-related benefits and state tax benefits.

Liquidity, Debt and Balance Sheet

Cash and cash equivalents were $1.483 billion at March 31, 2012, compared with $1.469 billion at December 31, 2011.
Total assets were $49.384 billion and total equity was $11.607 billion. Total liabilities were $37.777 billion.
Debt comprised approximately $343 million of short-term debt, $61 million of current long-term debt and $14.131 billion of long-term debt.
Net cash used in investing activities was $1.444 billion, primarily reflecting capital expenditures and nuclear decommissioning trust activity. Financing activities provided $781 million, including $449 million of long-term debt issued, $345 million of preference stock issued and $238 million of contributions from noncontrolling interests.
SCE had approximately $2.403 billion available under its credit facilities after commercial paper and letters of credit. Its debt-to-total-capitalization ratio was 0.48 to 1, below its 0.65 covenant limit.
EMG reported total available liquidity of approximately $1.865 billion, including $1.365 billion of cash and $500 million of Midwest Generation borrowing capacity. EME had $3.7 billion of unsecured notes outstanding, including $500 million maturing in 2013.

Material Changes Versus the Prior Comparable Period

SCE revenue rose, but earnings declined because authorized revenue continued to reflect largely 2011 rate levels while depreciation, interest and San Onofre-related expenses increased.
Both San Onofre units remained offline for steam-generator inspections and repairs. Replacement power costs through March 31 were approximately $30 million, and SCE estimated incremental inspection and repair costs of $55 million to $65 million, subject to further developments.
EMG generation at Midwest Generation declined to 5,339 GWh from 7,470 GWh, while average market prices also fell. A favorable rail contract expired and was replaced by a higher-cost contract; EMG expected average fuel cost per MWh to increase by approximately one-third in 2012.
EMG's Fisk and Crawford stations were scheduled for shutdown in September 2012. The company estimated potential retrofit costs of up to approximately $628 million for certain large Midwest Generation stations, excluding other potential unit-specific retrofits.
Third-party investors contributed $238 million to Capistrano Wind Partners, and Edison continued consolidating the related projects.

Guidance, Outlook, Risks and Unusual Items

SCE projected 2012 capital expenditures of $4.4 billion to $5.0 billion and 2012–2014 capital expenditures of $11.8 billion to $13.2 billion.
SCE's 2012 general rate case decision was expected in Q2 2012, with the eventual revenue requirement to be effective retroactively from January 1, 2012. SCE requested a $6.3 billion 2012 base-rate revenue requirement, but intervenors recommended substantially less.
SCE filed a 2013 cost-of-capital application proposing a $128 million revenue-requirement reduction and lower authorized debt, preferred-equity and common-equity costs.
Homer City made its senior rent payment but did not make its equity-rent payment. Its senior rent service coverage ratio was 1.09 to 1 versus a 1.7 to 1 covenant requirement; a waiver was obtained. Management stated that Homer City might need a working-capital infusion or temporarily suspend operations and that a restructuring or Chapter 11 proceeding could become necessary if agreements were not approved.
Homer City environmental controls were estimated to cost $700 million to $750 million. A GECC-related implementation agreement contemplated a possible divestiture of the leasehold interest, but completion was not assured.
EMG's debt ratings were below investment grade and on negative outlook. Liquidity, refinancing, collateral requirements, low power prices, environmental compliance costs and 2013 maturities were identified as significant risks.
Material contingencies included San Onofre regulatory actions, wildfire-related proceedings, environmental litigation involving Midwest Generation and Homer City, Four Corners New Source Review litigation, tax disputes and environmental remediation. Recorded environmental remediation liabilities totaled at least $51 million, with possible additional costs of up to approximately $219 million based on disclosed ranges.

Investor Verification Checklist

Verify the final CPUC decision and retroactive revenue recovery from the 2012 general rate case.
Track NRC and CPUC findings, restart timing, repair costs, replacement-power costs and potential cost recovery for San Onofre.
Assess EMG's ability to refinance or repay the $500 million 2013 maturity and replace expiring credit facilities.
Monitor Homer City's liquidity, rent defaults, environmental funding, potential divestiture and any restructuring or bankruptcy developments.
Review the financial impact of Midwest Generation shutdowns, environmental retrofits and the MATS and other emissions regulations.
Evaluate exposure to power-price declines, collateral calls, derivative fair-value changes and counterparty credit risk.
Confirm the outcome and potential cash impact of outstanding tax disputes, environmental claims, wildfire matters and other regulatory proceedings.