Business Context and Reporting Period
Company: Southern California Edison Company (SCE)
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal year ended December 31, 2003
Business Overview: SCE is a public utility supplying electric energy to a 50,000-square-mile area in central, coastal, and southern California, serving over 12 million people across approximately 430 cities. The company operates under the regulation of the California Public Utilities Commission (CPUC) and the Federal Energy Regulatory Commission (FERC).
Ownership Structure: As of the reporting date, all 434,888,104 shares of SCE Common Stock are held by its parent holding company, Edison International. There is no public market for SCE's common stock.
Key Financial Metrics
Note: Specific revenue, profit, and cash flow figures for 2003 are incorporated by reference from the Annual Report to Shareholders and are not explicitly detailed in the provided text. The following metrics are available from the filing text:
- Consolidated Assets: $18.5 billion (as of December 31, 2003).
- Total Shareholder's Equity: $4.5 billion (as of December 31, 2003).
- Debt: Approximately $3.1 billion in principal amount of First and Refunding Mortgage Bonds outstanding as of March 10, 2004.
- Construction Expenditures: $1.2 billion in 2003 (up from $1.0 billion in 2002).
- Employees: 12,698 full-time employees at year-end 2003.
- Revenue Mix (2003): 33% Residential, 42% Commercial, 8% Industrial, 6% Public Authorities, 6% Agricultural/Other, 5% Other Electric Revenue.
- Power Sources (2003): 40.5% Purchased Power, 22.9% California Department of Water Resources (CDWR), 36.6% SCE-owned generation (19.8% Nuclear, 12.2% Coal, 4.6% Hydro).
Material Changes and Operational Highlights
- Construction Program: Capital spending increased to $1.2 billion in 2003, with a forecast of $1.9 billion for 2004.
- Hydroelectric Performance: Hydroelectric plants operated at a 39% capacity factor in 2003 due to a below-normal water year, though they were operationally available 92.1% of the year.
- Nuclear Operations: San Onofre Units 2 and 3 operated at a 97% capacity factor. Inspections of reactor vessel heads in 2002 and 2003 detected no leakage or degradation.
- Decommissioning Update: On February 3, 2004, SCE announced the discontinuation of plans to ship the San Onofre Unit 1 reactor pressure vessel to a disposal site immediately; it will remain stored on-site until permanent disposal arrangements are made.
Outlook, Risks, and Contingencies
Regulatory and Environmental Risks
- Mohave Plant Closure Risk: SCE does not have reasonable assurance of an adequate coal supply for the Mohave Generating Station after December 31, 2005. If a supply is not secured, the plant must shut down. Estimated compliance costs to operate beyond 2005 are approximately $605 million, though SCE has suspended efforts to seek CPUC approval for these controls.
- Environmental Regulations: Significant uncertainty exists regarding EPA regulations on mercury emissions (finalization expected late 2004) and New Source Review (NSR) requirements. Litigation regarding NSR enforcement remains active, creating uncertainty for future capital expenditures.
- Climate Change: While the U.S. has not ratified the Kyoto Protocol, potential federal or state legislation regarding greenhouse gas emissions could impact operations.
Legal Proceedings
- Navajo Nation Litigation: Ongoing disputes regarding coal supply contracts for the Four Corners plant.
- Enforcement Actions:
- DTSC: Draft enforcement order seeking $383,400 in penalties for hazardous waste financial assurance issues at San Onofre; settlement discussions ongoing.
- San Bernardino County: Potential misdemeanor and civil complaints regarding an unreported oil spill; penalties could range from $5,604 to $555,604. Settlement discussions ongoing.
- Orange County: Settled allegations regarding an underground storage tank violation for an immaterial amount.
Forward-Looking Statements
The filing contains forward-looking statements regarding future events, including regulatory outcomes, environmental compliance costs, and power procurement. Actual results may differ materially due to risks such as changes in laws, regulatory decisions, and market conditions.
Investor Verification Checklist
- Verify the specific revenue, net income, and cash flow figures in the "Selected Financial Data" and "Consolidated Statements of Income" incorporated by reference from the 2003 Annual Report to Shareholders.
- Monitor the status of the coal supply contract for the Mohave Generating Station to assess the risk of a 2005 shutdown.
- Review the final EPA regulations on mercury emissions and NSR enforcement to estimate potential future capital expenditures.
- Track the resolution of the Navajo Nation litigation and its impact on the Four Corners coal supply.
- Confirm the status of the CPUC investigation into SCE's electric line maintenance practices.