Southern California Edison Company (SCE) — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2021. Filed November 2, 2021. The combined filing also reports Edison International, SCE’s parent; figures below are for SCE unless identified otherwise. SCE is a regulated electric utility serving Southern California.
Financial performance
Amounts in millions of dollars, except percentages and per-share data. Cost-recovery revenue largely offsets related expenses and does not earn a return.
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Operating revenue | $5,293 | $4,635 | $11,552 | $10,395 |
| Operating income (loss) | $(110) | $(364) | $896 | $500 |
| Net income (loss) available for common stock | $(284) | $(264) | $371 | $336 |
| Cash from operating activities | Not separately stated for the quarter | $(294) | $1,162 | |
| Cash used in investing activities | Not separately stated for the quarter | $(3,654) | $(3,686) | |
| Cash from financing activities | Not separately stated for the quarter | $4,377 | $2,530 |
- Q3 revenue increased 14% year over year; nine-month revenue increased 11%. The increases principally reflect the 2021 General Rate Case (GRC), balancing-account recoveries, and higher purchased-power and fuel costs.
- Reported common earnings include large wildfire-related charges. Management’s non-GAAP core earnings were $701 million in Q3 2021 versus $656 million, and $1.436 billion for the first nine months versus $1.330 billion. Core earnings exclude significant items and are not GAAP results.
- Q3 wildfire-related claims expense, net of expected FERC recovery, was approximately $1.198 billion pretax ($894 million after tax). Depreciation and interest expense also rose year over year.
Liquidity, debt and investment
- At September 30, SCE reported $484 million cash and approximately $3.1 billion available under its $3.4 billion revolving credit facility. It had $2.622 billion short-term debt, $376 million current long-term debt and $20.605 billion long-term debt.
- SCE’s debt-to-capitalization covenant ratio was 0.55, below its 0.65 limit; SCE reported compliance with financial covenants. Moody’s rated SCE Baa2, Fitch BBB− and S&P BBB, all with stable outlooks; S&P’s outlook had improved from negative during the quarter.
- Operating cash flow was negative $294 million for the nine months, versus positive $1.162 billion a year earlier. Wildfire settlement payments, working-capital needs and regulatory-account timing weighed on cash flow. Capital expenditures were $3.7 billion for the period.
- SCE issued $5.0 billion of first and refunding mortgage bonds during the first nine months and received $1.3 billion in parent equity contributions. A $1.2 billion variable-rate term loan matures in May 2022.
- Authorized 2021 GRC capital expenditures were $4.9 billion. The forecast for total capital expenditures is $5.3 billion in 2021, $6.2 billion in 2022 and $5.3 billion in 2023; the 2021–2023 total is $16.8 billion.
Material changes, outlook and risks
- GRC: The CPUC’s August 2021 decision authorized a 2021 base-rate revenue requirement of $6.9 billion, retroactive to January 1, and approved $7.3 billion for 2022 and $7.7 billion for 2023. SCE recorded the first-half retroactive impact in Q3. The increase in authorized January–September 2021 revenues is to be collected over 27 months beginning October 2021.
- Cost of capital: SCE requested a 10.53% return on equity for a proposed 2022–2024 term, versus its then-current 10.30%. The existing mechanism could instead lower the authorized ROE to 9.72% for 2022 and reduce revenue requirements by an estimated $179 million; the regulatory outcome was pending.
- Wildfire exposure: As of September 30, SCE had paid $5.2 billion under executed settlements and estimated $2.2 billion of remaining losses for the 2017–2018 fires and mudslides. Expected insurance recoveries for those events were exhausted; rate recovery of uninsured CPUC-jurisdictional costs remains uncertain. SCE and the regulator’s enforcement division signed a proposed agreement, subject to CPUC approval, involving $550 million of costs: a $110 million fine, $65 million in shareholder-funded safety measures and $375 million of claims payments SCE would not seek to recover in CPUC rates.
- SCE had approximately $1.0 billion of wildfire-specific insurance coverage for July 2021–June 2022, subject to retentions and co-insurance, for estimated net coverage of about $875 million. Multiple events or losses above policy limits could increase uninsured exposure.
- Regulatory recovery: SCE recorded substantial regulatory assets for wildfire mitigation, restoration, insurance and other costs, but recovery is subject to regulatory review and is not assured. Its energy-cost recovery account was undercollected by about $348 million at September 30; SCE expected the undercollection to reach about $700 million by year-end and sought a rate change for March 2022.
- COVID-19 and customer systems: SCE had recognized $310 million of incremental pandemic-related costs, with $86 million deferred to memorandum accounts and $224 million transferred to balancing accounts pending recovery. The customer-service system implemented in April experienced operational issues, including delayed billings. Forecast project costs through 2021 were approximately $540 million capital and $90 million operating expense; recovery applications were pending or planned.
- Subsequent event: In October 2021, SCE contracted for 537.5 MW of utility-owned storage expected to require $1.0 billion through summer 2022, subject to regulatory recovery approval. If terminated for convenience in January 2022, estimated costs could be approximately $500 million.
- Other important exposures include wildfire ignition and litigation, the adequacy and availability of insurance, public-safety power shutoffs and related regulation, climate-driven extreme weather, regulatory decisions, project execution and permitting, cyber and physical security, and the cost and availability of financing and materials.
Most important facts for investors to verify
- Whether the CPUC approves the wildfire enforcement agreement and how remaining wildfire claims and potential rate recoveries evolve.
- Whether the 2022 cost-of-capital mechanism is applied, and the resulting authorized return and revenue requirement.
- Whether SCE collects the GRC-related revenue increases and recovers deferred wildfire, COVID-19 and customer-system costs on the expected timing and terms.
- Whether the ERRA undercollection, wildfire payments and capital program affect liquidity, borrowing needs or credit ratings.
- Whether the storage projects receive recovery approval and proceed without material termination or cost-overrun exposure.