Edison International 2013 Q2 Form 10-Q Summary
Business context and reporting period
This combined Form 10-Q covers Edison International and its principal subsidiary, Southern California Edison Company (SCE), for the three and six months ended June 30, 2013. SCE is a regulated electric utility serving approximately 50,000 square miles in Southern California. The filing was signed August 1, 2013.
Key financial metrics
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Edison operating revenue | $3.046 billion | $2.653 billion | $5.678 billion | $5.068 billion |
| Edison operating income (loss) | $(71) million | $420 million | $422 million | $806 million |
| Net income (loss) attributable to Edison common shareholders | $(94) million | $74 million | $176 million | $167 million |
| Basic EPS | $(0.29) | $0.23 | $0.54 | $0.51 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $1.261 billion | $1.160 billion |
Calculated Edison operating margins were approximately (2.3)% in the second quarter and 7.4% for the first six months, compared with approximately 15.8% and 15.9%, respectively, in the comparable 2012 periods. The principal driver of the quarterly loss was a $575 million asset impairment charge related to the permanent retirement of San Onofre, or $365 million after tax.
SCE reported six-month operating cash flow of $1.325 billion, down from $1.511 billion. Capital expenditures were $1.834 billion for Edison and SCE, compared with $2.125 billion in the prior-year period. Edison ended June 30 with $148 million of cash; SCE had $49 million.
At June 30, Edison had $853 million of short-term debt, $800 million of current long-term debt and $8.830 billion of long-term debt. SCE had $828 million of short-term debt, $800 million of current long-term debt and $8.427 billion of long-term debt. SCE had $1.826 billion available under its $2.75 billion revolving credit facility after commercial paper and letters of credit. Edison Parent had $1.225 billion available under its $1.25 billion facility.
Material changes versus the prior comparable period
- Revenue increased primarily because of the implementation of the 2012 CPUC general rate case, higher rate-base-related revenue and warmer weather, partly offset by the absence of certain prior-year San Onofre-related revenue.
- Fuel and purchased-power expense increased $274 million in the second quarter and $434 million for the six months, driven by higher load and higher power and gas prices. These costs are generally subject to regulatory recovery.
- SCE’s core earnings increased to $274 million from $191 million in the second quarter and to $530 million from $373 million for the six months. Edison’s consolidated core earnings increased to $259 million from $183 million and to $510 million from $360 million, respectively. Core earnings are non-GAAP measures.
- San Onofre Units 2 and 3 were permanently retired on June 6, 2013 after extended outages and uncertainty regarding NRC restart approval. SCE reclassified $1.521 billion of San Onofre-related investment to a regulatory asset and increased the San Onofre asset retirement obligation by $455 million to approximately $2.7 billion.
- Edison’s 2013 six-month results include $24 million of income from discontinued operations, compared with a $193 million loss in 2012, primarily reflecting tax benefits related to the planned separation of Edison Mission Energy (EME).
- Operating cash flow improved for Edison because discontinued operations no longer generated a prior-year operating cash outflow, but SCE operating cash flow declined due largely to ERRA undercollections, working-capital timing and severance payments.
Guidance, outlook, commentary and risks
- SCE projected 2013 capital expenditures of $3.7 billion to $4.0 billion and 2013–2017 capital expenditures of $17.8 billion to $20.3 billion. The detailed base forecast totaled $20.252 billion before variability adjustments.
- SCE’s proposed 2015 general rate case, expected to be filed by year-end 2013, requested a 2015 base-rate revenue requirement of $6.279 billion, approximately $120 million above currently authorized base-rate revenue. Final approval and timing remain uncertain.
- SCE’s fuel and power procurement accounts were under-collected by $368 million at June 30, exceeding the $280 million trigger. SCE estimated the undercollection could reach approximately $825 million by December 31, 2013 if rates were not adjusted, potentially requiring additional credit-facility borrowings.
- The CPUC’s San Onofre investigation may disallow costs or require refunds. Approximately $860 million of authorized revenue collected since January 1, 2012 was subject to refund, and SCE’s $1.584 billion long-term San Onofre regulatory asset was considered probable, but not certain, of recovery.
- SCE incurred $115 million of its share of incremental San Onofre inspection and repair costs through June 30 and estimated market-power replacement costs at approximately $670 million as of May 31. Recovery from the CPUC, Mitsubishi Heavy Industries or insurance had not been established.
- SCE filed outage-insurance proofs of loss totaling $352 million, including approximately $276 million attributable to SCE, but recognized no insurance recovery pending a response from Nuclear Electric Insurance Limited. SCE also notified Mitsubishi Heavy Industries of a dispute and expected arbitration if the matter was not resolved.
- On July 25, 2013, EME noteholders notified Edison that the Transaction Support Agreement would terminate effective August 1. The related tax allocation agreement was due to expire December 31, 2013. Edison recorded a $150 million estimated loss related to the collectability of EME-related receivables; the ultimate bankruptcy outcome remained uncertain.
- Other risks include NRC and potential governmental investigations, environmental and wildfire liabilities, regulatory disallowances, nuclear decommissioning costs, commodity and counterparty exposure, access to capital markets, and tax disputes. The filing states that disclosure controls and internal control over financial reporting were effective.
Most important facts for investors to verify
- CPUC decisions regarding San Onofre cost recovery, refunds, rate-base treatment and the $1.584 billion regulatory asset.
- Actual replacement-power, decommissioning, severance and other San Onofre closure costs compared with regulatory and insurance recoveries.
- Resolution of SCE’s claims and potential arbitration against Mitsubishi Heavy Industries and the status of NEIL insurance claims.
- ERRA undercollection trends, interim or permanent rate adjustments and resulting borrowing requirements.
- EME bankruptcy developments, termination of the Support Agreement, tax allocation obligations and recovery of Edison’s recorded receivables.
- Progress and final authorization of the 2015 general rate case and the company’s large 2013–2017 capital program.