Southern California Edison Company (SCE) — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022; comparisons are with the corresponding 2021 periods. SCE is a regulated electric utility serving Southern California. Edison International is its parent. Dollar amounts are in millions unless stated otherwise.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Operating revenue | $3,996 | $3,306 | $7,957 | $6,259 |
| Operating income | $515 | $595 | $790 | $1,006 |
| Net income | $327 | $385 | $500 | $708 |
| Net income available for common stock | $302 | $359 | $449 | $655 |
| Management-defined core earnings | $418 | $397 | $888 | $735 |
| Net cash from operating activities | Not separately stated | Not separately stated | $1,317 | $(1,283) |
Core earnings are a non-GAAP measure. Revenue rose primarily from the 2021 General Rate Case (GRC) decision and recovery of previously deferred wildfire-mitigation costs. Much of the associated cost-recovery revenue is offset by expenses and does not provide SCE a return.
Common-stock income fell despite higher core earnings: Q2 results included larger non-core charges, while year-to-date results included a $416 million increase in estimated 2017/2018 wildfire-event losses. Other drivers included higher depreciation and interest expense, and impairments. Core earnings improved mainly following implementation of the 2021 GRC decision, partly offset by higher operating and maintenance costs. The filing does not provide a consolidated gross-margin measure.
Liquidity, debt and investment
- At June 30, SCE had $66 million cash and approximately $3.1 billion available under its $3.35 billion revolving credit facility, extended to May 2026. Commercial paper outstanding was $102 million.
- SCE reported a debt-to-total-capitalization ratio of 0.55, within its covenant limit of 0.65. Balance-sheet debt included $1.382 billion short-term debt, $1.075 billion current long-term debt and $23.103 billion long-term debt.
- Six-month capital expenditures were $2.6 billion including accruals; cash capital expenditures were $2.708 billion. SCE forecasts $17.5 billion of capital expenditures for 2022–2024, or $16.4 billion under its range case. Additional excluded spending forecast for 2024–2025 is approximately $5.2–$6.8 billion.
- Operating cash flow improved substantially year over year, aided by changes in regulatory assets and liabilities and lower wildfire-claim payments. Investing used $2.626 billion and financing provided $1.096 billion in the first half of 2022.
Material changes, outlook and key developments
- Rate recovery and cost of capital: The CPUC authorized recovery of certain deferred wildfire-mitigation costs in GRC tracks 2 and 3. SCE recognized $701 million of related revenue in the first half. A pending 2022 cost-of-capital proceeding creates potential refund exposure: if the CPUC applies the adjustment from January 1, 2022, first-half revenue would be reduced by approximately $85 million. For 2023, SCE requested a 10.53% ROE and estimated a $13 million increase in 2023 revenue requirements if its application is approved.
- GRC and capital plan: SCE requested an $8.6 billion 2024 revenue requirement, $972 million above its estimated 2023 requirement; a proposed decision was scheduled for Q4 2023. Forecast spending and recovery remain subject to approvals, permitting, construction, and labor and supply availability.
- Wildfire exposure: Through June 30, SCE had recorded $7.9 billion of cumulative pre-tax charges for the 2017/2018 wildfire and mudslide events, recovered $2.0 billion from insurance and collected approximately $192 million through FERC rates. Insurance recoveries for those events were exhausted. The estimated loss for remaining alleged and potential claims and the SED Agreement was about $0.9 billion; SCE warns losses could materially exceed accruals and cannot estimate the upper end of reasonably possible losses. SCE expects to seek more than $5 billion in future CPUC rate recovery for eligible uninsured losses, but says recovery is uncertain and cannot currently be considered probable for uninsured CPUC-jurisdictional costs.
- Other wildfire matters: The SED Agreement provides for $550 million of costs, including a $110 million state fine, $65 million in shareholder-funded safety measures and waiver of recovery for $375 million of uninsured third-party claims. CPUC reapproval occurred in July 2022, but the agreement was not final and non-appealable as of the filing. Separate 2019/2020 wildfire and 2022 Coastal Fire matters could also result in material losses; some amounts are unaccrued or not estimable.
- Operational and regulatory risks: A CPUC order proposed a $10 million penalty for 2020 PSPS customer-notification issues; SCE challenged it and payment was stayed pending proceedings. A separate GRC decision resulted in a $17 million impairment, and a CSRP settlement proposal led to a $47 million impairment. SCE’s 2020–2022 Wildfire Mitigation Plan updates were approved in July 2022.
- Storage delays: Supply-chain, permitting and engineering issues delayed three contracted storage projects totaling 537.5 MW. The contractor expected 200–300 MW in service in September 2022 and the balance by year-end; potential liquidated damages are capped at $89 million, subject to contractual relief, including force majeure provisions.
- Management outlook: No full-year earnings guidance is stated in the provided filing text. SCE expects to fund the next 12 months through operating cash flow, financing, refinancing, parent contributions as needed and credit-facility availability. It also expects further debt issuance, including to fund wildfire claims.
Most important facts for investors to verify
- CPUC decisions on SCE’s 2022 and 2023 cost of capital, GRC track 4 request and recovery of wildfire-related costs.
- Changes in wildfire claims, settlement payments, remaining accruals, and the final status and cost of the SED Agreement.
- Progress and cost implications of the delayed 537.5 MW storage projects and any liquidated-damages or force-majeure determinations.
- Funding needs, debt maturities and access to capital markets relative to the multi-year capital program.
- Developments in PSPS penalty proceedings and other wildfire, environmental and regulatory contingencies.