Edison International 10-Q Summary
Business context and reporting period
This combined Form 10-Q covers Edison International and its wholly owned subsidiary, Southern California Edison Company (SCE), for the three months ended March 31, 2023. SCE supplies and delivers electricity across approximately 50,000 square miles of Southern California; Edison Energy provides competitive decarbonization and energy solutions but is not a material reportable segment. The interim financial statements are unaudited and should be read with the 2022 Form 10-K.
Key financial metrics
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Edison International operating revenue | $3.966 billion | $3.968 billion | Approximately flat |
| Operating income | $620 million | $259 million | +$361 million |
| Operating margin | 15.6% | 6.5% | +9.1 percentage points |
| Net income | $365 million | $136 million | +$229 million |
| Net income attributable to common shareholders | $310 million | $84 million | +$226 million |
| Basic and diluted EPS | $0.81 | $0.22 | +$0.59 |
| SCE operating revenue | $3.950 billion | $3.961 billion | -$11 million |
| SCE net income available for common stock | $370 million | $147 million | +$223 million |
| SCE operating margin | 15.4% | 6.9% | +8.5 percentage points |
| Edison International core earnings | $416 million | $407 million | +$9 million |
Reported earnings benefited substantially from lower wildfire-related charges. Edison International defines core earnings as a non-GAAP measure excluding significant non-core items; it may not be comparable with similarly named measures used by other companies.
- Revenue and expenses: SCE earning-activity revenue declined $34 million, primarily because 2022 included higher wildfire-related recovery revenue, partly offset by the 2021 general rate case escalation mechanism and customer-service re-platform revenue. Cost-recovery revenue was broadly stable, while purchased power and fuel expense increased $281 million due mainly to higher power and gas prices.
- Profit drivers: SCE operation and maintenance expense declined $385 million, largely because Q1 2022 included recognition of previously deferred wildfire and other costs. Wildfire-related claims declined to $96 million from $425 million, while depreciation and amortization increased $73 million and SCE interest expense increased $87 million.
- Cash flow: Edison International used $90 million in operating cash in Q1 2023 versus providing $792 million in Q1 2022. Capital expenditures were $1.324 billion, compared with $1.207 billion. Financing activities provided $1.316 billion, resulting in a $79 million decrease in cash, cash equivalents and restricted cash.
- SCE cash flow: SCE operating cash flow was negative $20 million versus positive $827 million in the prior-year quarter. SCE invested $1.305 billion, including $1.324 billion of capital expenditures, and received $1.249 billion from financing activities.
- Liquidity: At March 31, 2023, SCE had $690 million of cash and approximately $2.5 billion available under its $3.4 billion revolving credit facility. Edison International Parent and Other had $146 million of cash and $878 million available under its $1.5 billion facility.
- Debt: Edison International reported $33.3 billion of short-term and long-term debt, including current maturities; SCE reported approximately $28.8 billion. SCE’s debt-to-total-capitalization ratio was 0.57 to 1, versus a covenant maximum of 0.65 to 1. Edison International’s ratio was 0.64 to 1, versus a covenant maximum of 0.70 to 1.
- Capital program: Capital expenditures, including accruals, were approximately $1.3 billion in both Q1 2023 and Q1 2022. SCE expects to file its 2025 general rate case application in May 2023.
Material changes versus the prior comparable period
- Net income attributable to Edison International common shareholders increased 269% to $310 million, primarily because Q1 2022 included substantially higher wildfire-related charges.
- Core earnings increased modestly by $9 million. SCE core earnings increased $24 million, primarily from the 2021 GRC escalation mechanism, while Edison International Parent and Other core losses increased $15 million because of higher interest expense.
- Interest expense increased to $361 million from $246 million, reflecting higher borrowings and interest rates.
- Operating cash flow deteriorated by $882 million, driven by working-capital outflows, lower accounts payable, margin and collateral deposits, and regulatory-account timing.
- Total assets increased to $78.854 billion from $78.041 billion at December 31, 2022. Total liabilities increased to $61.305 billion from $60.519 billion.
- Credit ratings improved during the period: Moody’s upgraded SCE to Baa1 and Edison International to Baa2; Fitch upgraded both to BBB in April 2023. All disclosed outlooks were stable.
Guidance, outlook, risks and unusual items
- Wildfire and mudslide liabilities: SCE recorded a $90 million increase in estimated losses for the 2017/2018 Wildfire/Mudslide Events, partly offset by $6 million of expected FERC recovery, producing an $84 million pretax and $61 million after-tax charge. Estimated remaining losses were $988 million at March 31, 2023, and SCE had paid $7.8 billion under executed settlements, with $135 million remaining to be paid.
- SCE expects to seek approximately $6 billion of future CPUC rate recovery for 2017/2018 wildfire-related losses, with an initial application targeted for Q3 2023 and approximately $2 billion requested for TKM-related costs. Recovery of uninsured CPUC-jurisdictional costs is not currently considered probable because of uncertainty regarding the applicable prudency standard.
- Post-2018 wildfire estimated remaining losses were $681 million, supported by $473 million of expected insurance recoveries and $166 million of expected electric-rate recoveries. The Saddle Ridge Fire presents a reasonably possible material loss for which no charge has been accrued; the upper range cannot be estimated.
- Insurance: SCE expects approximately $450 million of wildfire insurance expense for the July 2022–June 2023 policy period. Coverage is approximately $1.0 billion, subject to self-insured retention and co-insurance, producing estimated net coverage of approximately $937 million. SCE plans to expand self-insurance, subject to CPUC approval.
- Self-insurance proposal: A proposed CPUC decision would allow customer-funded self-insurance collections of $150 million in the second half of 2023 and, absent wildfire claims, $300 million in 2024. Adoption and final terms remain uncertain.
- San Onofre: SCE recorded a $30 million estimated loss related to the reasonableness review of decommissioning costs in the 2021 NDCTP. Intervenors recommended approximately $115 million of disallowances from roughly $570 million of costs under review.
- Utility-owned storage: Damage was discovered at equipment supporting one 225 MW project. SCE believes there is significant risk that the project will not be in service for summer peak reliability needs; the contractor expects the other two projects to be in service before August 2023.
- Financing: SCE issued $1.2 billion of mortgage bonds in March 2023. In April 2023, SCE Recovery Funding LLC issued $775 million of securitized bonds, and SCE used the proceeds to repay a $730 million term loan. Edison International Parent issued $500 million of junior subordinated notes in March 2023.
- Other principal risks include regulatory disallowance, wildfire liability, insurance availability and cost, extreme weather, interest rates, inflation, commodity prices, capital-project execution, debt-market access, credit ratings, cybersecurity, environmental remediation and San Onofre decommissioning.
Important facts for investors to verify
- Whether the CPUC approves the proposed customer-funded self-insurance program and the related rate adjustments.
- The timing, amount and prudency determinations for SCE’s planned wildfire cost-recovery applications.
- Changes in remaining wildfire claims, settlements, insurance recoveries and potential liabilities exceeding accrued amounts.
- Progress, delays and potential cost overruns for the damaged 225 MW storage project and the Eldorado-Lugo-Mohave transmission project.
- Final outcomes of the 2021 San Onofre decommissioning cost review and any resulting disallowances.
- SCE’s operating cash flow, collateral requirements, debt maturities and access to capital markets while capital spending and wildfire payments remain elevated.
- Actual implementation of the April 2023 regulatory decisions, including the ERRA recovery authorization of up to $596 million over 12 months beginning June 1, 2023.