Edison International 2013 Q3 Form 10-Q Summary
Business context and reporting period
This combined unaudited Form 10-Q covers Edison International, the parent holding company, and Southern California Edison Company (SCE), its regulated electric utility subsidiary. SCE supplies electricity across approximately 50,000 square miles of Southern California. The reporting period ended September 30, 2013, and includes the three and nine months ended September 30, 2013 compared with the corresponding 2012 periods.
Key financial metrics
| Metric | Q3 2013 | Q3 2012 | 9M 2013 | 9M 2012 |
|---|---|---|---|---|
| Edison operating revenue | $3.960 billion | $3.734 billion | $9.638 billion | $8.802 billion |
| Edison operating income | $789 million | $713 million | $1.212 billion | $1.520 billion |
| Edison net income attributable to common shareholders | $438 million | $190 million | $614 million | $357 million |
| Edison diluted EPS | $1.34 | $0.58 | $1.87 | $1.09 |
| SCE operating revenue | $3.957 billion | $3.731 billion | $9.631 billion | $8.794 billion |
| SCE net income available for common stock | $477 million | $363 million | $642 million | $736 million |
Edison operating margin was approximately 19.9% in Q3 2013 versus 19.1% in Q3 2012, but approximately 12.6% for the first nine months versus 17.3% in the prior-year period. The nine-month decline primarily reflects the $575 million San Onofre impairment charge, partly offset by higher revenue and lower operating and maintenance expense. Edison’s continuing-operations effective tax rate was 26.6% in Q3 and 20.0% for the nine months, compared with 37.4% and 35.0%, respectively, in 2012.
- Cash flow: Edison generated $2.253 billion of operating cash flow from continuing operations in the first nine months, compared with $2.698 billion in 2012. Capital expenditures were $2.761 billion versus $3.105 billion. Ending cash was $610 million, compared with $170 million at December 31, 2012.
- Debt and liquidity: Edison had $1.528 billion of short-term debt, $401 million of current long-term debt and $9.232 billion of long-term debt at September 30, 2013. SCE had $1.354 billion of short-term debt and $8.828 billion of long-term debt. SCE’s $2.75 billion revolving facility had $1.256 billion available after commercial paper and letters of credit; Edison Parent’s $1.25 billion facility had $1.076 billion available.
- Leverage: SCE’s debt-to-total-capitalization ratio was 0.47 to 1, below its 0.65 covenant limit. Edison Parent’s ratio was 0.50 to 1.
- Dividends: Edison declared $0.3375 per common share for Q3 and $1.0125 per share year to date, versus $0.325 and $0.975 in 2012.
- Market exposure: SCE’s commodity derivative portfolio had a net liability of approximately $1.1 billion at September 30, 2013, compared with $851 million at year-end 2012. Regulatory mechanisms are expected to offset earnings effects, but cash flows can be affected.
Material changes versus the prior comparable period
- Revenue increased primarily because the 2012 CPUC general rate case was finalized and implemented retroactively, producing approximately $160 million of Q3 and $325 million of nine-month 2012-related revenue recognized in 2013 comparisons.
- SCE’s Q3 core earnings increased $114 million to $477 million, and nine-month core earnings increased $271 million to $1.007 billion. Management attributed the improvement primarily to rate-case timing and income-tax benefits.
- San Onofre Units 2 and 3 were permanently retired on June 6, 2013. SCE recorded a $575 million impairment charge, or $365 million after tax, and reclassified $1.521 billion of San Onofre investment to a regulatory asset. The San Onofre regulatory asset was $1.45 billion at September 30.
- Edison’s discontinued-operations loss fell to $25 million in Q3 and $1 million year to date, compared with $167 million and $360 million in 2012, following the deconsolidation of Edison Mission Energy (EME) after its December 2012 Chapter 11 filing.
- Operating cash flow declined because of fuel and purchased-power under-collections, working-capital timing, collateral requirements and severance payments. SCE’s ERRA account was under-collected by $719 million at September 30.
- SCE issued $400 million of 3.90% first and refunding mortgage bonds due 2043. In October 2013, after quarter-end, SCE issued an additional $1.6 billion of bonds and used proceeds to redeem $800 million of bonds, repay commercial paper and fund capital expenditures.
Guidance, outlook, risks and unusual items
- Regulatory recovery: The CPUC’s San Onofre investigation will determine cost recovery, potential disallowances and customer refunds. Approximately $1.1 billion of authorized revenue collected since January 1, 2012 was subject to refund review. SCE stated that recovery of the $1.45 billion regulatory asset is probable but not certain.
- ERRA: SCE forecast its fuel and purchased-power under-collection at approximately $1 billion by December 31, 2013. A proposed decision could permit an approximately $200 million rate increase, while excluding certain San Onofre replacement-power costs from the ERRA calculation. For 2014, SCE requested a revenue-requirement increase of approximately $1.96 billion, or 16.3%.
- Capital program: SCE expected 2013 capital expenditures at or below the lower end of its prior $3.7 billion to $4.0 billion range. Forecast 2013–2017 capital expenditures were $18.2 billion to $20.6 billion, primarily for distribution, transmission and reliability projects.
- San Onofre contingencies: SCE is pursuing recovery from Mitsubishi Heavy Industries and Nuclear Electric Insurance Limited. SCE had submitted approximately $390 million of outage-insurance claims, including approximately $306 million attributable to SCE, but had recognized no insurance recovery. SCE initiated binding arbitration against MHI in October 2013.
- EME bankruptcy: The Support Agreement terminated effective August 1, 2013. Edison International recorded a $150 million estimated loss related to EME receivables and potential liabilities. Creditors proposed claims that could include recovery of historical dividends, tax-allocation payments and other alleged damages; the ultimate exposure was uncertain.
- Other risks: Key risks include CPUC, FERC and NRC decisions; nuclear decommissioning; wildfire and environmental liabilities; power and fuel prices; counterparty credit; insurance availability; tax disputes; and access to capital markets.
Most important facts for an investor to verify
- CPUC decisions on San Onofre cost recovery, refunds, rate-base treatment and the $1.45 billion regulatory asset.
- Timing and amount of ERRA rate increases and the effect of continued purchased-power under-collections on liquidity.
- Actual San Onofre decommissioning costs, use of the $3.07 billion San Onofre decommissioning trust, and recovery from MHI or NEIL.
- Progress and ultimate resolution of the EME Chapter 11 plan and any claims against Edison International or SCE.
- Actual capital spending, financing needs and debt levels relative to the $18.2 billion–$20.6 billion 2013–2017 capital forecast.
- Final regulatory, tax, environmental, nuclear and wildfire liabilities, including matters for which the filing states that a loss cannot be reasonably estimated.