Edison International 2021 Q3 Form 10-Q Summary
Business Context and Reporting Period
This combined Form 10-Q covers Edison International and its wholly owned utility subsidiary, Southern California Edison Company (SCE), for the quarter and nine months ended September 30, 2021. Edison International primarily owns SCE, which supplies and delivers electricity across approximately 50,000 square miles of Southern California. Edison Energy is not material as a separate reportable segment.
Financial Performance and Key Metrics
| Metric | Three months ended September 30 | Nine months ended September 30 | ||
|---|---|---|---|---|
| 2021 | 2020 | 2021 | 2020 | |
| Edison International revenue | $5.299 billion | $4.644 billion | $11.574 billion | $10.421 billion |
| Operating income (loss) | $(128) million | $(379) million | $856 million | $423 million |
| Net income (loss) | $(297) million | $(242) million | $354 million | $319 million |
| Net income (loss) attributable to common shareholders | $(341) million | $(288) million | $236 million | $213 million |
| Basic EPS | $(0.90) | $(0.76) | $0.62 | $0.57 |
Reported operating margins were approximately (2.4)% in the third quarter and 7.4% for the first nine months, compared with approximately (8.2)% and 4.1%, respectively, in the comparable 2020 periods. The quarterly loss remained heavily affected by wildfire-related charges.
- SCE revenue was $5.293 billion in the third quarter and $11.552 billion for the first nine months, compared with $4.635 billion and $10.395 billion in 2020.
- SCE net income available for common stock was $(284) million in the third quarter and $371 million for the first nine months, compared with $(264) million and $336 million in 2020.
- SCE core earnings, a non-GAAP measure, were $701 million in the third quarter and $1.436 billion for the first nine months, up $45 million and $106 million, respectively. Edison International consolidated core earnings were $644 million and $1.301 billion, up $12 million and $66 million.
- Consolidated operating expenses included $1.273 billion of wildfire-related claims, net of insurance recoveries, in the third quarter and $1.276 billion for the first nine months.
- SCE recognized $161 million of Wildfire Insurance Fund expense for the first nine months, down from $252 million in 2020, reflecting a longer estimated fund life.
Cash Flow, Capital Investment, Debt and Liquidity
- Edison International operating cash flow was an outflow of $416 million for the first nine months, compared with inflow of $1.071 billion in 2020. SCE operating cash flow was an outflow of $294 million, compared with inflow of $1.162 billion.
- Consolidated investing cash flow was an outflow of $3.654 billion, including $3.948 billion of capital expenditures. SCE capital expenditures were approximately $3.946 billion.
- Consolidated financing cash flow was $4.506 billion, including $4.798 billion of long-term debt issuance and $1.235 billion of Edison International preferred stock issuance.
- SCE issued $5.0 billion of first and refunding mortgage bonds during the first nine months and received $1.3 billion of equity contributions from Edison International.
- At September 30, 2021, Edison International had $524 million of cash and SCE had $484 million. SCE had approximately $3.1 billion available under its $3.4 billion revolving credit facility; Edison International Parent had $1.08 billion available under its $1.5 billion facility.
- Consolidated debt, including current and long-term debt, was approximately $27.2 billion, compared with $23.1 billion at December 31, 2020. SCE debt was approximately $23.6 billion, compared with $19.8 billion.
- SCE's debt-to-total-capitalization ratio was 0.55 to 1 against a covenant maximum of 0.65 to 1. Edison International's ratio was 0.62 to 1 against a covenant maximum of 0.70 to 1. Both companies were in compliance with applicable financial covenants.
- Credit ratings and outlooks were stable at quarter-end: SCE was Moody's Baa2, Fitch BBB-, and S&P BBB; Edison International Parent was Moody's Baa3, Fitch BBB-, and S&P BBB.
Material Changes Versus the Prior Comparable Period
- The August 2021 2021 General Rate Case final decision increased SCE's 2021 base-rate revenue requirement to $6.9 billion. The decision increased SCE's core earnings by $129 million for retroactive January-through-June effects recorded in the third quarter.
- The GRC authorized revenue requirements of $7.3 billion for 2022 and $7.7 billion for 2023, subject to regulatory implementation and related mechanisms.
- The GRC also produced a $79 million pre-tax impairment charge, or $47 million after tax, for historical pole-replacement expenditures the CPUC determined were prematurely incurred.
- Wildfire-related claims estimates increased by approximately $1.3 billion in the third quarter. The resulting net pre-tax charge was approximately $1.2 billion, or $894 million after tax, after a $67 million expected FERC recovery.
- SCE had paid $5.2 billion under executed wildfire settlements by September 30, 2021 and had $2.2 billion of estimated losses for remaining alleged and potential claims. Expected insurance recoveries related to the 2017/2018 events had been exhausted.
- Revenue increased primarily from the 2021 GRC, higher FERC revenue, and higher cost-recovery activity. Core earnings also benefited from lower operation and maintenance costs, partly offset by higher depreciation, property taxes, interest expense, and lower insurance benefits.
- SCE's ERRA account was undercollected by approximately $348 million at September 30, 2021, and management expected the undercollection to reach approximately $700 million by December 31, 2021 because of higher gas and power prices.
Guidance, Outlook, Commentary and Risks
- SCE forecast total capital expenditures of approximately $5.3 billion in 2021, $6.2 billion in 2022, and $5.3 billion in 2023, or $16.8 billion over 2021-2023. The forecast includes approximately $2.9 billion of wildfire-mitigation capital expenditures.
- In October 2021, SCE contracted for 537.5 MW of utility-owned storage expected to require approximately $1.0 billion of capital spending through summer 2022. Recovery approval was pending; termination for convenience in January 2022 could have resulted in estimated costs of approximately $500 million.
- SCE requested a 10.53% CPUC return on common equity for 2022, compared with the current 10.30%. If the existing cost-of-capital mechanism were applied, the authorized ROE could decline to 9.72% and 2022 revenue requirements could decrease by approximately $179 million.
- COVID-19-related incremental costs totaled $310 million through September 30, 2021. Of this amount, $86 million was deferred to memorandum accounts and $224 million was transferred to balancing accounts pending recovery.
- SCE's new customer-service system experienced delayed billings and other stabilization issues. Forecast total CSRP costs were approximately $540 million of capital expenditures and $90 million of operations and maintenance expenses through 2021; recovery remained subject to CPUC proceedings.
- SCE had approximately $1.0 billion of wildfire-specific insurance coverage for July 1, 2021 through June 30, 2022, subject to a $50 million self-insured retention and up to approximately $75 million of co-insurance, producing estimated net coverage of approximately $875 million.
- Key risks include additional wildfire liabilities, uncertainty over CPUC recovery of uninsured pre-AB 1054 wildfire costs, regulatory fines or disallowances, the validity of SCE's safety certification, insurance availability and cost, extreme weather, PSPS-related claims and penalties, debt refinancing and ratings risk, San Onofre decommissioning costs, cybersecurity, commodity prices, and COVID-19 impacts.
Most Important Facts for Investors to Verify
- Whether the CPUC approves the October 2021 SED wildfire settlement, including the $110 million fine, $65 million of shareholder-funded safety measures, and $375 million of excluded third-party uninsured claims.
- Whether actual remaining 2017/2018 wildfire and mudslide losses differ materially from the $2.2 billion estimate and whether any additional recovery through CPUC or FERC rates is authorized.
- The timing and terms of recovery for wildfire mitigation, COVID-19 uncollectibles, CSRP costs, ERRA undercollections, and other regulatory assets.
- The CPUC outcome for the utility-owned storage advice letter and the potential approximately $500 million termination cost.
- Whether SCE maintains its safety certification and investment-grade ratings, and how any downgrade would affect collateral requirements and financing access.
- Progress on the 2021 GRC track 3 proceeding, including requested recovery of approximately $1.2 billion of prior wildfire mitigation costs.
- Actual cash generation relative to the company's substantial capital program, wildfire settlement obligations, debt maturities, and dividend requirements.