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, 2002
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. 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 filing 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
Balance Sheet Position (as of Dec 31, 2002):
- Consolidated Assets: $18.2 billion
- Total Shareholder's Equity: $4.4 billion
- Debt: Approximately $3.7 billion in First and Refunding Mortgage Bonds outstanding as of March 1, 2003.
- Revenue Mix (2002): 45% Commercial, 33% Residential, 10% Industrial, 7% Public Authorities, 2% Agricultural/Other, 3% Other Electric Revenue.
- Power Generation Sources (2002): 45.3% SCE-owned (25.7% Nuclear, 14.4% Coal, 5.2% Hydro), 33.4% Purchased Power, 21.4% California Department of Water Resources (CDWR).
- Construction Expenditures: $1.0 billion in 2002 (compared to $688 million in 2001).
- Decommissioning Costs: $73 million expense in 2002. Total estimated decommissioning cost for nuclear facilities is $2.5 billion (2002 dollars).
The provided text incorporates the Consolidated Statements of Income and Cash Flows by reference to the Annual Report to Shareholders. Specific values for Net Revenue, Net Income, Operating Cash Flow, and Profit Margins are not explicitly stated in the text provided.
Material Changes and Operational Highlights
- Construction Spending: Capital expenditures increased significantly to $1.0 billion in 2002 from $688 million in 2001.
- Asset Sale Proposal: SCE filed an application to sell oil storage and pipeline facilities for approximately $158 million, with a proposed net gain of $47 million. The CPUC has not yet ruled on the allocation of this gain.
- Hydroelectric Performance: Hydroelectric plants operated at a 35% capacity factor in 2002 due to a below-normal water year, though they were operationally available 93.4% of the year.
- Nuclear Maintenance: Inspections at San Onofre and Palo Verde detected no leakage or degradation in reactor vessel heads. Steam generator tube degradation continues at San Onofre (9% of Unit 2 tubes and 7% of Unit 3 tubes removed from service).
Outlook, Risks, and Contingencies
Regulatory and Legal Risks:
- CPUC Investigation: The CPUC is investigating SCE's electric line maintenance practices (1998-2000), alleging 4,817 violations. The CPUC's Office of Ratepayer Advocates recommended a penalty of $97 million. A decision is expected in late 2003.
- Navajo Nation Litigation: The Navajo Nation sued SCE and others regarding coal royalties for the Mohave plant, seeking damages of at least $600 million plus treble damages and punitive damages of $1 billion. The Supreme Court recently ruled against the Navajo Nation in a related fiduciary duty case, but the civil action against SCE remains pending.
- Power Exchange Bond: A dispute exists regarding a $20 million performance bond related to the California Power Exchange. SCE has deposited $20.2 million in trust and is litigating to recover these funds.
- Mohave Plant Closure: SCE lacks reasonable assurance of an adequate coal supply for the Mohave plant after 2005. If not resolved, the plant must shut down. Estimated compliance costs to operate beyond 2005 are $605 million, though SCE has suspended efforts to seek CPUC approval for these controls.
- Environmental Regulations: Potential costs related to EPA mercury emissions rules (MACT), New Source Review (NSR) requirements, and greenhouse gas legislation remain uncertain and could impact coal-fired facilities.
- Nuclear Decommissioning: Decommissioning of San Onofre Unit 1 is underway, with Phase 1 expected through 2008. Total estimated costs are $2.5 billion, funded by customer trusts.
Construction expenditures for 2003 are forecasted at $1.0 billion. Management has not provided specific revenue or earnings guidance in the text provided.
Investor Verification Checklist
- Financial Statements: Verify specific Net Income, Revenue, and Cash Flow figures in the incorporated Annual Report to Shareholders (pages 31-63), as they are not detailed in this text.
- CPUC Penalty Outcome: Monitor the final ruling on the electric line maintenance investigation, which could result in a $97 million penalty.
- Mohave Plant Status: Confirm the status of coal supply contracts and the decision on whether to invest $605 million in environmental controls to keep the Mohave plant operating past 2005.
- Asset Sale Approval: Track the CPUC's decision on the $158 million oil facility sale and the allocation of the $47 million gain between shareholders and ratepayers.
- Legal Exposure: Review updates on the Navajo Nation litigation and the Power Exchange performance bond dispute, which involve potential liabilities exceeding $1 billion and $20 million respectively.