Business Context and Reporting Period
Company: Edison International
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2004
Business Overview: Edison International is a holding company with principal operating subsidiaries including Southern California Edison Company (SCE), Edison Mission Energy (EME), and Edison Capital. The company operates in electric utility, nonutility power generation, and financial services segments.
Key Financial Metrics
| Metric (in millions) | Three Months Ended June 30, 2004 |
Three Months Ended June 30, 2003 |
Six Months Ended June 30, 2004 |
Six Months Ended June 30, 2003 |
|---|---|---|---|---|
| Total Operating Revenue | $2,919 | $3,125 | $5,429 | $5,647 |
| Operating Income (Loss) | $(280) | $224 | $76 | $535 |
| Net Income (Loss) | $(374) | $24 | $(276) | $80 |
| Diluted EPS (Loss) | $(1.15) | $0.07 | $(0.85) | $0.24 |
| Cash and Equivalents | $2,605 | $2,198 (Dec 31, 2003) | $2,605 | $2,381 (Dec 31, 2003) |
| Long-Term Debt | $14,230 | $11,787 (Dec 31, 2003) | $14,230 | $11,787 (Dec 31, 2003) |
| Operating Cash Flow | Not provided for Q2 | Not provided for Q2 | $(223) | $1,342 |
Material Changes vs. Prior Period
- Net Loss: The company reported a net loss of $374 million ($1.15 per share) for the three months ended June 30, 2004, compared to net income of $24 million in the same period in 2003. For the six months, the loss was $276 million versus income of $80 million in 2003.
- Collins Station Lease Termination: The primary driver of the loss was a pre-tax charge of approximately $954 million recorded in the second quarter of 2004 related to the termination of the Collins Station lease and planned decommissioning by EME's subsidiary, Midwest Generation.
- Regulatory Adjustments: SCE recorded a pre-tax net regulatory adjustment credit of $180 million in the second quarter of 2004 following the CPUC's final decision on the 2003 General Rate Case (GRC).
- Revenue Decline: Total operating revenue decreased by 6.6% in the three-month period and 3.9% in the six-month period compared to 2003, largely due to the expiration of the San Onofre Nuclear Generating Station incentive mechanism and lower sales volumes.
- Asset Impairment (2003 Comparison): The 2003 period included a $251 million asset impairment charge related to Midwest Generation's small peaking plants, which partially offset the 2004 lease termination impact in a year-over-year comparison.
Guidance, Outlook, and Risks
Management Commentary and Outlook
- International Portfolio Sale: Subsequent to the reporting period, EME announced agreements to sell its entire international power generation portfolio (including Contact Energy and MEC International BV) for an expected net purchase price of approximately $2.2 billion to $2.3 billion. The transactions are expected to close in the fourth quarter of 2004, generating an estimated after-tax gain of $550 million.
- Collins Station: Operations at the Collins Station are scheduled to cease permanently by December 31, 2004.
- Dividends: The Board declared a $0.20 per share common stock dividend for both the first and second quarters of 2004.
Risks and Contingencies
- Performance Incentive Rewards Investigation: SCE is investigating allegations that employees altered customer satisfaction survey data. SCE proposed refunding approximately $14 million in Performance-Based Ratemaking (PBR) rewards to ratepayers. Investigations into service reliability and employee safety data are also ongoing.
- Regulatory Proceedings: Significant uncertainty remains regarding the future operation of the Mohave Generating Station beyond 2005 due to unresolved coal and water supply issues. Additionally, the CPUC is reviewing the allocation of California Department of Water Resources (CDWR) power charges.
- Legal Proceedings: The Navajo Nation litigation regarding coal supply agreements for Mohave remains pending, with potential damages sought in excess of $1 billion. Edison International is also facing IRS audits regarding leveraged lease transactions (LILOs) with potential tax adjustments of over $550 million.
- Environmental Remediation: Recorded minimum liability is $90 million, but costs could exceed this by up to $131 million.
Investor Verification Checklist
- Collins Station Impact: Verify the final tax benefits realized from the $954 million lease termination charge and the timeline for decommissioning costs.
- International Sale Closing: Monitor the closing of the $2.5 billion international portfolio sale in Q4 2004 and the actual gain recognized versus the $550 million estimate.
- PBR Refunds: Track the CPUC's final decision on the $14 million proposed refund regarding customer satisfaction survey misconduct and potential additional penalties.
- Mohave Future: Assess the outcome of the CPUC proceeding regarding Mohave Generating Station's coal and water supply, which determines the plant's viability post-2005.
- IRS Audit Resolution: Review the status of the IRS examination regarding leveraged leases and the potential acceleration of $558 million in deferred taxes.
- Debt Maturities: Confirm refinancing plans for significant debt maturities, including $1.3 billion due in 2005 and $1.2 billion in 2006.