Edison International — FY2011 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended December 31, 2011, including fourth-quarter results. Edison International operates primarily through Southern California Edison Company (SCE), a regulated electric utility serving nearly 14 million people in Southern California, and Edison Mission Group (EMG), a competitive power-generation business. SCE generated approximately $10.6 billion of 2011 revenue; EMG generated approximately $2.2 billion.
Financial performance and key metrics
| Metric | 2011 | 2010 | Change |
|---|---|---|---|
| Operating revenue | $12.760 billion | $12.409 billion | +2.8% |
| Operating income | $320 million | $2.126 billion | Down $1.806 billion |
| Income from continuing operations | $24 million | $1.303 billion | Down $1.279 billion |
| Net income attributable to common shareholders | $(37) million | $1.256 billion | Down $1.293 billion |
| Diluted EPS | $(0.11) | $3.82 | Down $3.93 |
| Net cash provided by operating activities | $3.906 billion | $3.477 billion | +12.3% |
| Capital expenditures | $4.808 billion | $4.543 billion | +5.8% |
| Long-term debt | $13.689 billion | $12.371 billion | +10.7% |
| Cash and cash equivalents | $1.469 billion | $1.389 billion | +5.8% |
Consolidated operating margin was approximately 2.5% in 2011, versus 17.1% in 2010. Net margin attributable to common shareholders was approximately negative 0.3%. The consolidated balance sheet showed total assets of $48.039 billion, total liabilities of $36.953 billion, and common shareholders’ equity of $10.055 billion.
- SCE: Net income available for common stock was $1.085 billion, up from $1.040 billion. SCE operating revenue was $10.577 billion, including $5.902 billion from utility earning activities and $4.675 billion from cost-recovery activities.
- EMG: Net loss available for common stock was $1.089 billion, compared with $224 million of income in 2010. Competitive power-generation revenue declined to $2.186 billion from $2.429 billion, while operating expenses rose substantially because of impairments and other charges.
- Fourth quarter: Revenue was $3.013 billion, operating loss was $1.319 billion, loss from continuing operations was $824 million, and net loss attributable to common shareholders was $839 million, or $(2.57) per diluted share.
- Liquidity: At year-end, SCE had $2.394 billion available under credit facilities, Edison International parent had $1.416 billion available, and EMG reported $995 million available under facilities scheduled to mature in June 2012. Subsequent to year-end, EME terminated its revolving credit facility.
Material changes versus the prior comparable period
- Results were heavily affected by a fourth-quarter after-tax charge of approximately $1.09 billion, corresponding to approximately $1.76 billion pre-tax, primarily from EMG asset impairments and related items.
- EMG recorded a $1.032 billion impairment of the Homer City plant after failing to secure funding for required environmental improvements and expecting to lose substantially all beneficial economic interest and material control of the facility.
- EMG recorded $640 million of impairment charges for the Fisk, Crawford, and Waukegan stations. In February 2012, Midwest Generation decided to shut Fisk by year-end 2012 and Crawford by year-end 2014 and considered Waukegan less likely to be retrofitted.
- Additional EMG charges included $30 million of wind-project impairments, $34 million related to reduced renewable development activities, and a $26 million pre-tax write-down of aircraft-lease investments connected with American Airlines.
- SCE earnings improved by $45 million, primarily from rate-base growth and higher authorized revenue, despite higher depreciation, interest expense, and income taxes.
- SCE capital expenditures increased to approximately $3.9 billion. The 2012–2014 forecast was $11.8 billion to $13.2 billion, subject to regulatory approvals and project execution.
Guidance, outlook, risks, contingencies, and unusual items
- Management expected EMG to incur further losses and cash-flow reductions in 2012 and later periods unless energy and capacity prices improved. Low natural-gas prices, weak power prices, lower coal-plant generation, higher rail transportation costs, environmental spending, and debt maturities were identified as liquidity pressures.
- EMG had approximately $3.7 billion of unsecured notes outstanding, including $500 million maturing in 2013. Consolidated EMG debt was approximately $4.9 billion, including $1.2 billion of nonrecourse project debt, plus approximately $2.6 billion of long-term power-plant lease obligations.
- Homer City expected to be unable to make its April 2012 equity-rent payment. Failure to resolve funding for required retrofits could lead to lease defaults, restrictions on distributions, termination of a $48 million senior-rent reserve letter of credit, or foreclosure remedies.
- Homer City environmental retrofit costs were preliminarily estimated at $700 million to $750 million. Midwest Generation retrofit costs for larger stations were estimated at up to approximately $628 million, excluding certain potentially affected units.
- CSAPR was stayed by a federal appeals court, with CAIR continuing during the review. MATS, greenhouse-gas rules, regional-haze requirements, water-quality rules, and coal-ash regulation could materially affect fossil-fuel operations and capital needs.
- SCE’s 2012 CPUC general rate case remained unresolved. SCE requested a $6.3 billion 2012 base-rate revenue requirement; intervenors proposed reductions totaling approximately $1.46 billion or more relative to the request. The final decision was expected in the first half of 2012.
- San Onofre Unit 3 was taken offline in January 2012 after a steam-generator tube leak, while Unit 2 inspections identified tube wear. The NRC initiated follow-up review. Replacement-power costs were subject to ERRA recovery and reasonableness review.
- SCE faced material regulatory and litigation exposure, including a proposed approximately $50 million allocation of Malibu wildfire-related penalties, windstorm safety investigations, Four Corners environmental litigation, Midwest Generation and Homer City New Source Review litigation, wildfire liability, nuclear insurance, and spent-fuel obligations. The filing states that potential losses for several matters could not be estimated.
- SCE’s regulatory assets were approximately $6.0 billion and regulatory liabilities approximately $5.3 billion at year-end. Recovery depends on continued favorable regulatory treatment.
Most important facts an investor should verify
- Whether EMG successfully refinanced or replaced the credit facilities maturing in June 2012 after EME’s facility termination.
- The outcome of Homer City’s lease, equity-rent obligations, retrofit funding, potential loss of control, and any resulting discontinued-operation accounting.
- The final CPUC decision in SCE’s 2012 general rate case and the treatment of capital spending, pension costs, and San Onofre costs.
- The resolution and implementation of CSAPR, MATS, regional-haze, water-quality, coal-ash, and greenhouse-gas requirements.
- The operational and financial impact of San Onofre steam-generator inspections, repairs, NRC review, and replacement-power costs.
- The sustainability of SCE dividends to Edison International, given SCE’s capital requirements and regulatory capital-structure restrictions.
- The sensitivity of EMG’s asset values, cash flow, and debt capacity to wholesale power prices, capacity prices, natural-gas prices, coal transportation costs, and environmental compliance spending.
- The scope and potential cost of unresolved environmental, wildfire, tax, and New Source Review contingencies.
The independent auditor reported that the consolidated financial statements were fairly presented in accordance with U.S. GAAP and that internal control over financial reporting was effective as of December 31, 2011.