Edison International 2013 Q1 Form 10-Q Summary
Business context and reporting period
Combined quarterly report for Edison International and its principal subsidiary, Southern California Edison Company (SCE), for the three months ended March 31, 2013. SCE is a regulated investor-owned electric utility serving approximately 50,000 square miles in Southern California. The financial statements are unaudited.
Key financial metrics
| Metric | Edison International | Prior comparable period | SCE | Prior comparable period |
|---|---|---|---|---|
| Operating revenue | $2.632 billion | $2.415 billion | $2.629 billion | $2.412 billion |
| Operating income | $492 million | $389 million | $498 million | $397 million |
| Income from continuing operations | $286 million | $196 million | $283 million | $201 million |
| Net income attributable to Edison common shareholders / SCE common stock | $271 million | $93 million | $256 million | $182 million |
| Diluted EPS | $0.82 | $0.28 | Not separately reported | Not separately reported |
| Operating cash flow | $506 million | $775 million | $561 million | $775 million |
| Capital expenditures | $979 million | $1.189 billion | $979 million | $1.189 billion |
Edison International's operating margin was approximately 18.7%, compared with 16.1% in the prior-year quarter. SCE's operating margin was approximately 18.9%, compared with 16.5%. Edison International's effective tax rate declined to 25.5% from 31.7%; SCE's declined to 28.4% from 33.0%.
Edison International reported $12 million of income from discontinued operations, compared with an $84 million loss in the prior-year quarter. This primarily reflected a tax benefit related to the expected separation of Edison Mission Energy (EME) following its Chapter 11 filing.
Balance sheet, debt and liquidity
- At March 31, 2013, Edison International had total assets of $45.155 billion, cash and cash equivalents of $115 million, total debt of approximately $10.049 billion, and total equity of $11.309 billion.
- SCE had total assets of $44.792 billion, cash of $27 million, total debt of approximately $9.631 billion, and total equity of $11.842 billion.
- SCE had a $2.75 billion revolving credit facility, with $2.225 billion available after commercial paper and letters of credit. Its debt-to-total-capitalization ratio was 0.43 to 1, below the 0.65 covenant limit.
- Edison International Parent had a $1.25 billion credit facility, with $1.234 billion available after $16 million of borrowings. Its debt-to-total-capitalization ratio was 0.48 to 1.
- SCE issued $400 million of 3.90% first and refunding mortgage bonds due 2043. SCE also issued $400 million of Series G preference stock and redeemed $400 million of Series B and C preference stock.
- SCE had $800 million of long-term debt due in the first quarter of 2014 and expected to use capital-market financing to refinance it.
Material changes versus the prior comparable period
- Revenue increased approximately 9% at both Edison International and SCE, primarily reflecting implementation of the 2012 CPUC general rate case retroactive to January 1, 2012 and rate-base growth.
- SCE earnings available for common stock increased $74 million, primarily from higher authorized revenue, lower operation and maintenance costs, and tax benefits from repair deductions. These benefits were partly offset by a lower CPUC-approved 2013 return on common equity and higher depreciation.
- Fuel and purchased-power expense increased $161 million at SCE, mainly because of replacement power costs associated with the San Onofre outage and higher power prices.
- Operating cash flow declined at Edison International by $171 million and at SCE by $214 million, primarily because of balancing-account undercollections, working-capital timing, and severance payments.
- Capital expenditures declined from $1.189 billion to $979 million for the quarter, while utility property, plant and equipment increased to $30.673 billion at Edison International from $30.200 billion at year-end 2012.
- Edison International's quarterly common dividend increased to $0.3375 per share from $0.325.
Guidance, outlook, management commentary and risks
- Management projected 2013 SCE capital expenditures of $3.8 billion to $4.2 billion and total 2013–2014 capital expenditures of $7.3 billion to $8.2 billion.
- Both San Onofre nuclear units remained offline. Restart required NRC approval under the Confirmatory Action Letter and satisfaction of safety requirements; no assurance was provided that either unit would restart.
- Through March 31, 2013, SCE had recorded approximately $109 million of incremental inspection and repair costs, $602 million of steam-generator replacement expenditures, and approximately $444 million of estimated market-power costs related to the outage. Approximately $728 million of San Onofre-related authorized revenue requirement was subject to potential refund under the CPUC investigation.
- The CPUC investigation could result in cost disallowances, rate removal, or customer refunds. MHI had paid $45 million of invoices totaling $139 million and disputed portions of the charges; SCE's recovery rights remained uncertain. SCE had also submitted outage-insurance claims totaling $234 million, but had recognized no insurance recovery.
- EME's Chapter 11 proceedings could affect Edison International's tax, retirement-plan and other obligations. Edison International recorded a $150 million estimated loss related to potential retirement liabilities and reduced recoveries; the Bankruptcy Court had not yet approved the contemplated settlement transaction.
- Other material exposures included CPUC investigations involving the San Gabriel Valley windstorm and Malibu fire, Four Corners environmental litigation, tax disputes, environmental remediation, nuclear and wildfire insurance limits, spent nuclear fuel claims, commodity-price exposure, counterparty credit risk, and regulatory cost-recovery risk.
- SCE's net derivative liability was $929 million at March 31, 2013, compared with $851 million at December 31, 2012. Commodity-related gains and losses were generally expected to be recovered through regulatory mechanisms, but could affect cash flows.
Important facts investors should verify
- Progress, timing and final cost of NRC and CPUC actions concerning San Onofre Units 2 and 3, including any disallowances or customer refunds.
- Actual replacement-power costs, insurance recoveries, and amounts recovered from MHI or other third parties.
- EME's bankruptcy outcome, approval and implementation of the settlement transaction, and Edison International's ultimate tax and retirement-liability exposure.
- Whether SCE generates sufficient operating cash flow and financing capacity to fund its capital program and refinance the $800 million debt maturity in early 2014.
- Changes in regulatory balancing accounts, derivative collateral requirements, interest rates, power prices, and counterparty credit exposure.
- Resolution of outstanding tax audits, CPUC safety investigations, environmental matters, wildfire claims, and Four Corners litigation.