Edison International 2015 First-Quarter Form 10-Q Summary
Reporting period: Three months ended March 31, 2015. This combined, unaudited filing covers Edison International and its principal subsidiary, Southern California Edison Company (SCE). SCE is a regulated electric utility serving approximately 50,000 square miles in Southern California.
Financial Results and Key Metrics
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Edison International operating revenue | $2.512 billion | $2.926 billion | $(414) million |
| Operating income | $538 million | $331 million | $207 million |
| Income from continuing operations | $318 million | $224 million | $94 million |
| Net income attributable to Edison International shareholders | $299 million | $176 million | $123 million |
| Diluted EPS | $0.91 | $0.54 | $0.37 |
| Operating margin | 21.4% | 11.3% | Improved |
| Net margin attributable to common shareholders | 11.9% | 6.0% | Improved |
| Net cash provided by operating activities | $964 million | $565 million | $399 million |
| Capital expenditures | $1.268 billion | $940 million | $328 million |
Revenue declined primarily because utility cost-recovery revenue and purchased power and fuel costs were lower, reflecting lower power and natural gas prices and reduced customer sales after warmer weather. The revenue decline did not translate into lower earnings because the related cost of purchased power and fuel is generally recovered through regulatory mechanisms.
SCE reported $2.508 billion of operating revenue, $550 million of operating income, $333 million of net income, and $305 million of net income available for common stock. SCE's operating margin was approximately 21.9% and its net income available for common stock margin was approximately 12.2%.
- Core earnings: Edison International core earnings were $294 million, essentially unchanged from $294 million in Q1 2014. SCE core earnings were $305 million versus $304 million.
- Non-core items: Q1 2015 included $5 million of income from HLBV allocations associated with tax-equity financing. Q1 2014 included a $96 million after-tax San Onofre settlement charge and a $22 million discontinued-operations loss.
- Cash flow: Edison International generated $964 million of operating cash flow and used $1.294 billion in investing activities, principally for capital expenditures and nuclear decommissioning trust activity. Net cash decreased by $17 million to $115 million.
- Debt and liquidity: At March 31, 2015, SCE had $2.33 billion available under its $2.75 billion revolving credit facility. Edison International Parent had $625 million available under its $1.25 billion facility. SCE's debt-to-total-capitalization ratio was 0.45 to 1, and Edison International Parent's was 0.49 to 1.
- Balance sheet: Edison International reported total assets of $50.578 billion, total liabilities of $37.477 billion, and total equity of $13.098 billion at March 31, 2015.
- Dividend: Edison International declared a quarterly common dividend of $0.4175 per share, compared with $0.3550 in Q1 2014.
Material Changes Versus the Prior Comparable Period
- Operating income increased by $207 million, principally because Q1 2014 included a $231 million pre-tax San Onofre impairment and other charge.
- Purchased power and fuel expense declined by $357 million to $786 million, while SCE utility cost-recovery revenue declined by $429 million.
- Depreciation, decommissioning, and amortization increased by $53 million to $463 million, driven by San Onofre regulatory-asset amortization and higher transmission and distribution investment.
- Income tax expense increased to $106 million from a $19 million benefit in Q1 2014. Edison International's effective tax rate was 25.0% versus negative 9.3%; SCE's rate was 24.3% versus negative 5.4%, primarily because Q1 2014 benefited from San Onofre-related tax effects.
- Operating cash flow increased substantially, helped by a $524 million favorable change in regulatory assets and liabilities. SCE's ERRA undercollection declined from $1.028 billion at December 31, 2014 to $683 million at March 31, 2015.
- SCE issued $1.3 billion of first and refunding mortgage bonds during the quarter and used proceeds for debt repayment and general corporate purposes, including financing of the San Onofre regulatory asset.
- SCE capital expenditures increased to approximately $1.3 billion from $939 million. The company reduced its 2015–2017 capital expenditure forecast by approximately $325 million to a range of $11.5 billion to $13.1 billion, including $3.6 billion to $4.1 billion in 2015.
Guidance, Outlook, Commentary, and Risks
- 2015 General Rate Case: SCE's updated request was $5.713 billion of 2015 base-rate revenue requirements, an $80 million increase over currently authorized base revenue. The CPUC had not issued a final decision, and SCE could not predict the timing or ultimate authorized amount. The memorandum account makes the final revenue requirement retroactive to January 1, 2015.
- San Onofre: SCE has permanently retired Units 2 and 3. Nuclear decommissioning trust funds were $3.5 billion as of March 31, 2015. SCE requested access to the trusts for approximately $340 million of 2013 and 2014 decommissioning costs; approximately $32 million of SCE's share of decommissioning costs was recorded in Q1 2015, with approximately $183 million estimated for the remainder of 2015.
- San Onofre regulatory proceedings: The CPUC-approved settlement remained subject to challenges relating to an ex parte communication. ORA recommended penalties of $648 million, and another intervenor petitioned to modify the CPUC decision and potentially reopen the proceeding. SCE could not predict the outcome.
- Potential recoveries: SCE is pursuing claims against Mitsubishi Heavy Industries and under Nuclear Electric Insurance Limited policies. SCE seeks at least $4 billion from MHI, while MHI has asserted $41 million of counterclaims. No amounts from the insurance claims were recognized, and recoveries are uncertain.
- Labor: Collective bargaining agreements covering approximately 3,900 full-time employees expired December 31, 2014 and remained under negotiation.
- Coolwater-Lugo project: CAISO questioned the project's need and requested suspension of the CPUC proceeding. Approximately $584 million of forecast 2015–2017 spending was removed from the capital plan; SCE had FERC approval for abandoned-plant cost recovery if the project is not completed.
- Other contingencies: SCE reported environmental remediation liabilities of $120 million, including $116 million for 19 material sites, with possible additional costs of up to $165 million based on the disclosed ranges. It also faces wildfire, nuclear insurance, spent nuclear fuel, tax, regulatory, and litigation risks.
- Market and liquidity risks: Key exposures include interest rates, commodity prices, counterparty credit, collateral requirements, access to capital markets, customer bypass, regulatory cost recovery, infrastructure construction, cybersecurity, natural disasters, and future wildfire liability.
- Parent obligations: Edison International expects to make payments of $204 million on September 30, 2015 and $214 million on September 30, 2016 under the amended EME Settlement Agreement, funded through tax benefits, commercial paper, or other borrowings.
Most Important Facts for Investors to Verify
- Final CPUC authorization and retroactive revenue treatment in SCE's 2015 General Rate Case.
- Whether the San Onofre settlement remains effective and whether penalties, reopening, or additional regulatory charges arise from the ex parte communication proceedings.
- Timing and approval of access to the $3.5 billion San Onofre decommissioning trusts and the resulting effect on ERRA balances and cash flow.
- Results and recoverability of SCE's MHI arbitration and NEIL insurance claims; no related insurance recoveries had been recognized at quarter-end.
- Actual 2015 capital spending and the final scope and timing of the Coolwater-Lugo project.
- Changes in wildfire exposure, insurance availability, self-insured retention, and potential liabilities beyond stated coverage limits.
- Availability of parent and SCE credit facilities, debt refinancing needs, collateral requirements, and compliance with debt and dividend restrictions.
- Progress on labor negotiations and the effect of any agreement or work stoppage on operating costs.