Edison International 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2023; filed July 27, 2023. The filing covers Edison International and its wholly owned utility subsidiary, Southern California Edison Company (SCE). SCE supplies and delivers electricity across approximately 50,000 square miles of Southern California. Edison Energy is not material as a separate reporting segment.
Financial performance
| Consolidated Edison International | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Operating revenue | $4.0 billion | $4.0 billion | $7.9 billion | $8.0 billion |
| Operating income | $724 million | $504 million | $1.34 billion | $763 million |
| Net income | $409 million | $292 million | $774 million | $428 million |
| Net income attributable to common shareholders | $354 million | $241 million | $664 million | $325 million |
| Diluted EPS | $0.92 | $0.63 | $1.73 | $0.85 |
| Operating margin | 18.3% | 12.6% | 17.0% | 9.6% |
Operating margin and earnings improved despite essentially flat revenue. The six-month increase primarily reflected lower wildfire-related charges and lower operating and maintenance costs, including the absence of 2022 impairment charges. These benefits were partly offset by higher depreciation, property taxes and interest expense.
| SCE | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Operating revenue | $3.95 billion | $4.00 billion | $7.90 billion | $7.96 billion |
| Net income available for common stock | $420 million | $302 million | $790 million | $449 million |
| Operating income | $718 million | $515 million | $1.33 billion | $790 million |
| Operating margin | 18.2% | 12.9% | 16.8% | 9.9% |
Core earnings and material changes
- Edison International core earnings increased to $388 million in Q2 2023 from $357 million; six-month core earnings increased to $804 million from $764 million.
- SCE core earnings increased $53 million in Q2 and $77 million for the six-month period, primarily from the 2021 General Rate Case escalation mechanism and higher interest income on balancing-account undercollections. Higher interest expense was a partial offset.
- Consolidated six-month non-core charges declined to $140 million from $439 million. The 2023 period included $105 million of Wildfire Insurance Fund expense, $102 million of 2017/2018 wildfire and mudslide claims, a $30 million probable San Onofre decommissioning disallowance, and a $17 million ECS data-services charge.
- 2022 included substantially higher wildfire claims, $64 million of impairments and a $14 million organizational realignment charge.
- Consolidated interest expense rose to $753 million for the first six months from $517 million, reflecting higher debt balances and interest rates.
- SCE's effective tax rate was 13.2% in Q2 and 10.3% for the first six months, compared with 6.3% and negative 3.7%, respectively, in the comparable 2022 periods.
Cash flow, debt and liquidity
- SCE generated $862 million of operating cash flow in the first six months, down from $1.32 billion, and used $2.65 billion for investing activities, including approximately $2.7 billion of capital expenditures.
- SCE received $1.09 billion from financing activities and ended the period with $68 million of cash. Operating cash flow did not cover capital expenditures, requiring debt financing and other liquidity sources.
- Edison International generated $712 million of operating cash flow, received $1.22 billion from financing activities and used $2.65 billion for investing activities; cash, cash equivalents and restricted cash ended at $198 million.
- At June 30, 2023, SCE had approximately $2.4 billion available under its $3.4 billion revolving credit facility. Edison International Parent had $1.1 billion available under its $1.5 billion facility. Both facilities mature in May 2027, subject to extension options.
- SCE's debt-to-total-capitalization ratio was 0.57 to 1, below its 0.65 covenant limit. Edison International's consolidated ratio was 0.63 to 1, below its 0.70 limit. Both companies were in compliance with applicable covenants.
- SCE issued $775 million of securitized recovery bonds in April 2023 and used the proceeds to repay a $730 million term loan. Edison International Parent issued $500 million of junior subordinated notes and $600 million of senior notes during the first half of 2023.
- Moody's upgraded SCE to Baa1 and Edison International to Baa2; Fitch upgraded both to BBB. All disclosed outlooks were stable.
Guidance, outlook and strategic developments
- SCE's 2025 General Rate Case application requests a 2025 revenue requirement of $10.3 billion, approximately $1.9 billion above the 2024 request, subject to CPUC approval. It also requests increases of approximately $600 million in 2026 and $700 million in each of 2027 and 2028.
- SCE forecasts a 2023–2028 capital program of $43.5 billion, or $37.8 billion under its range case. Forecast weighted-average rate base reaches $60.9 billion in 2028 under the primary case and $55.2 billion under the range case.
- Six-month capital expenditures were $2.6 billion, unchanged from 2022. SCE expects at least $2.3 billion of additional transmission investment beyond 2028 under the CAISO transmission plan.
- The CPUC approved an expanded customer-funded wildfire self-insurance program. SCE expects $150 million of collections in the second half of 2023 and, absent wildfire claims, $300 million in 2024. The framework could support a fund of up to $1.0 billion if continued in the 2025 GRC.
- SCE received authorization to recover $207 million of WEMA costs and implemented a $454 million ERRA revenue-requirement increase over 12 months beginning June 1, 2023.
- Damage to equipment at one utility-owned storage project delayed its availability for summer peak reliability needs; SCE expected the affected projects to enter service in August and September 2023.
Wildfire, regulatory and other risks
- For the 2017/2018 Wildfire/Mudslide Events, SCE had accrued $8.8 billion of estimated losses, collected $2.0 billion of insurance recoveries and $339 million of expected FERC recoveries, and paid $8.1 billion under executed settlements through June 30, 2023.
- Remaining estimated losses for alleged and potential 2017/2018 claims were $572 million, with $130 million payable under executed settlements. SCE expects to seek approximately $6 billion of CPUC rate recovery for uninsured claims, but stated that recovery is not currently probable because of uncertainty regarding the CPUC prudency standard.
- Post-2018 wildfire estimated losses were $672 million, offset by $466 million of insurance recoveries and $166 million of expected electric-rate recoveries. SCE stated that recovery of uninsured costs is currently probable under AB 1054, subject to continued regulatory evaluation.
- The Saddle Ridge Fire trial was scheduled for January 2024. SCE stated that a material loss was reasonably possible but had not accrued a charge. SCE had accrued charges for the Bobcat, Coastal and Fairview Fires, but could not estimate the upper end of reasonably possible losses.
- SCE's wildfire exposure remains sensitive to fire litigation, regulatory disallowances, insurance availability and cost, the effectiveness of AB 1054, safety certification, weather and climate conditions, and potential credit-rating impacts.
- Other significant risks include higher interest rates and inflation, supply-chain and labor constraints, cybersecurity, power and fuel price volatility, collateral requirements, San Onofre decommissioning costs, and the ability to recover regulatory assets through customer rates.
- Edison International expects to exceed the Inflation Reduction Act corporate alternative minimum tax threshold and anticipates becoming subject to CAMT beginning in 2025 under its current interpretation.
Investor verification checklist
- Track CPUC decisions on SCE's 2025 GRC, wildfire cost recovery and the treatment of self-insurance collections.
- Reconcile remaining wildfire liabilities, settlement payments, insurance recoveries and the approximately $6 billion of potential future CPUC recovery requests.
- Monitor wildfire litigation developments, including the Saddle Ridge, Bobcat, Coastal and Fairview matters, and compare accrued amounts with potential exposure.
- Assess whether operating cash flow can support SCE's $43.5 billion proposed capital program without materially increasing leverage or equity needs.
- Evaluate the effect of higher interest rates on financing costs, the CPUC cost-of-capital adjustment mechanism and future authorized returns.
- Verify execution timing, costs and regulatory recovery for utility-owned storage, major transmission projects and San Onofre decommissioning.