Business context and reporting period
Southern California Edison Company (SCE), a regulated electric utility serving Southern California, filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2023. The filing is combined with parent Edison International’s report; figures below refer to SCE unless stated otherwise.
Financial performance and position
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Operating revenue | $3.949 billion | $3.996 billion | $7.899 billion | $7.957 billion |
| Operating income | $718 million | $515 million | $1.326 billion | $790 million |
| Net income | $449 million | $327 million | $848 million | $500 million |
| Net income available for common stock | $420 million | $302 million | $790 million | $449 million |
| Operating cash flow | Not provided separately | Not provided separately | $862 million | $1.317 billion |
Cash flow and liquidity: Six-month investing cash outflow was $2.650 billion, mainly reflecting capital expenditures; financing provided $1.090 billion. Cash declined to $68 million at June 30, 2023, from $766 million at year-end 2022. SCE had approximately $2.443 billion available under its revolving credit facility. Cash capital expenditures were $2.710 billion in the first half; total capital expenditures including accruals were reported as $2.6 billion.
Debt and credit: At June 30, SCE reported $25.358 billion of long-term debt and $2.889 billion current portion of long-term debt, plus $781 million of short-term debt. Its debt-to-capitalization ratio was 0.57 to 1, within the 0.65 covenant limit. Moody’s rated SCE Baa1, Fitch BBB and S&P BBB, all with stable outlooks; Moody’s and Fitch upgraded SCE during the first half.
Margins and earnings quality: The filing does not present a headline profit-margin measure. SCE’s core earnings, a non-GAAP measure, were $471 million for Q2 versus $418 million and $965 million for the first half versus $888 million. Management attributed the improvement mainly to the 2021 GRC escalation mechanism and higher interest income on balancing-account undercollections, partly offset by higher interest expense.
Material changes versus prior comparable periods
- Reported net income and operating income increased in both the quarter and first half, while revenue was modestly lower. Lower purchased-power and fuel costs and lower operating and maintenance expenses contributed to the quarterly operating-income improvement; higher depreciation, property taxes and interest expense were offsets.
- First-half operating cash flow fell $455 million year over year. SCE cited working-capital outflows, including lower payables and $237 million of cash outflow for margin and collateral deposits, as well as regulatory-account timing.
- Interest expense rose $94 million in Q2 and $181 million in the first half, primarily due to higher borrowing and interest rates. Higher interest income on balancing-account undercollections partly offset the increase.
- Six-month wildfire-related claims expense was lower than in 2022: SCE recorded $90 million of claims charges in 2023 versus $416 million in 2022, before FERC recovery offsets. The 2022 period also included impairments that did not recur in 2023.
Outlook, regulatory matters, risks and unusual items
- Rate case and investment: SCE filed its 2025 General Rate Case seeking a $10.3 billion test-year 2025 revenue requirement, 23% above the 2024 requirement it requested in Track 4. It proposed further increases of about $600 million in 2026 and $700 million in each of 2027 and 2028. Its 2023–2028 capital program forecast is $43.5 billion, or $37.8 billion in a range case reflecting potential reductions. These forecasts and requested rates remain subject to approval and execution risks.
- Wildfire self-insurance: In May 2023, the CPUC approved expanded customer-funded self-insurance. SCE expects $150 million of collections for the second half of 2023 and, absent claims, $300 million for 2024. Shareholders may bear 2.5% of annual self-insurance costs paid above $500 million, capped at $12.5 million per year.
- 2017/2018 wildfire and mudslide claims: SCE reported $8.8 billion of accrued estimated losses, $2.0 billion of insurance recoveries collected and $382 million of expected FERC rate recoveries, of which $339 million had been collected. Estimated remaining claims after settlements were $572 million; SCE said it may incur material losses beyond accrued amounts. It expects to seek about $6 billion of CPUC rate recovery for uninsured claims, but cannot conclude recovery is probable because the CPUC’s prudency standard for pre-AB 1054 fires is uncertain. SCE targeted a third-quarter 2023 application seeking about $2 billion related to TKM.
- Later wildfires: For post-2018 fires, SCE reported $672 million of estimated remaining claims, with $466 million of insurance assets and $166 million of expected rate recovery recorded. SCE has accrued charges for the Bobcat, Coastal and Fairview fires and cannot estimate the upper end of reasonably possible losses. It disclosed a reasonably possible material loss for the Saddle Ridge Fire but had not accrued a charge.
- Other unusual items: SCE recorded a $30 million probable disallowance for San Onofre decommissioning costs and a $17 million charge related to customer cancellations of certain Edison Carrier Solutions data services. It also recognized a $205 million previously deferred wildfire-insurance cost in cost-recovery activities after CPUC authorization.
- Other regulatory and project developments: An ERRA trigger decision led to a $454 million revenue-requirement increase over 12 months beginning June 1, 2023. SCE’s preliminary 2024 FERC transmission revenue requirement was $286 million lower than 2023 rates, subject to filing and approval. Damage to equipment at a 225 MW storage project will prevent it from meeting summer peak reliability needs; the contractor anticipated service dates in August and September 2023 for the affected projects.
- Other risks and guidance: SCE expects to fund the next 12 months through operating cash flow, financing and, as needed, parent equity contributions. The filing does not provide a corporate earnings guidance target. Key risks include wildfire liability and recovery uncertainty, extreme weather, regulatory decisions, capital-project execution, inflation and supply-chain constraints, interest rates, access to financing, and collateral needs.
Important facts for investors to verify
- Progress and outcomes of the 2025 GRC, including approved revenue requirements and capital spending.
- Whether SCE obtains CPUC recovery for uninsured 2017/2018 wildfire and mudslide costs, and whether remaining claims exceed accruals.
- Updated claim estimates, insurance recoveries and rate-recovery determinations for post-2018 wildfires.
- Cash generation, borrowing needs, interest costs and available liquidity as the capital program proceeds.
- Storage-project completion timing and cost or schedule changes in major transmission and other capital projects.