Southern California Edison Company (SCE) — Q1 2022 Form 10-Q
Business context and period. This combined filing covers the three months ended March 31, 2022, with separate financial statements for SCE and parent Edison International. SCE is a regulated electric utility serving Southern California. Amounts below are in U.S. dollars; financial figures are in millions unless stated otherwise.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| SCE operating revenue | $3,961 | $2,953 |
| Operating income | $275 | $411 |
| Net income | $173 | $323 |
| Net income available for common stock | $147 | $296 |
| Operating cash flow | $827 | $48 |
| Capital expenditures in cash flow statement | $1,207 | $1,357 |
- Revenue increased 34%, primarily reflecting 2021 General Rate Case (GRC) revenue and recovery of previously deferred wildfire and drought restoration costs. Operating income fell 33%; reported operating margin was approximately 6.9%, versus 13.9% a year earlier.
- Common-stock income declined 50%, principally due to a $390 million pretax wildfire-related charge, net of expected FERC recoveries. Higher interest expense and depreciation also weighed on results. Core earnings, a company-defined non-GAAP measure, rose to $470 million from $338 million, excluding non-core items.
- Operating cash flow improved to $827 million, including favorable working-capital and regulatory-account movements; wildfire settlement payments were $717 million. Investing activities used $1,159 million and financing activities provided $171 million. Cash, cash equivalents and restricted cash decreased $161 million during the quarter.
- At March 31, SCE reported $119 million cash, $2.049 billion short-term debt, $17 million current long-term debt and $22.928 billion long-term debt. It had $2.853 billion available under its revolving credit facility and $295 million commercial paper outstanding at a weighted-average rate of 0.82%. SCE reported a 0.55 debt-to-capitalization ratio and compliance with financial covenants.
- Total assets were $74.533 billion and total liabilities $54.881 billion, broadly unchanged from year-end 2021. SCE’s debt-to-capitalization covenant limit is 0.65.
Material changes, outlook and key risks
- Wildfire exposure: SCE recorded a $416 million increase in estimated losses for the 2017/2018 wildfire and mudslide events, offset by $26 million of expected FERC-rate recoveries; the net pretax charge was $390 million ($281 million after tax). Through March 31, total pretax charges were $7.9 billion, with $2.0 billion of insurance recoveries and $326 million of expected FERC recoveries. Insurance recoveries for these events are exhausted. Estimated losses for remaining claims and the SED Agreement were approximately $1.3 billion; recovery of uninsured costs through CPUC rates is uncertain.
- SCE had paid $6.4 billion under executed settlements and had $137 million remaining payable under executed settlements. Litigation and claims remain ongoing; actual losses may differ materially from estimates. SCE expects to seek approximately $5.2 billion of CPUC rate recovery through future applications, with the first anticipated in 2023, but says recovery is uncertain.
- Capital program: Q1 capital expenditures including accruals were $1.3 billion, versus $1.1 billion in Q1 2021. Forecast capital expenditures are $6.2 billion for 2022 and $5.6 billion for 2023 ($11.8 billion total; range case $11.2 billion). Further 2024–2025 spending is forecast at approximately $10.4–$12.5 billion, subject to future approvals and execution risks.
- Three utility-owned battery projects totaling 537.5 MW are expected to cost about $1.0 billion. In April, the contractor cited COVID-related manufacturing delays and Chinese shipping restrictions; it advised that up to 300 MW might be in service in August 2022. SCE was evaluating the force majeure notice.
- Regulatory uncertainty: Pending a CPUC cost-of-capital decision, SCE is recording revenue using pre-2022 terms, subject to refund; a decision applying the mechanism from January 1 could reduce Q1 revenue by about $43 million. SCE’s April 2022 cost-of-capital application for 2023–2025 seeks a 10.53% ROE and a 7.60% weighted-average return on rate base for 2023; these are proposals, not approved outcomes. A separate FERC transmission-rate update requested a $326 million annual revenue-requirement increase, subject to proceedings and refund.
- Other uncertainties include potential wildfire liability and insurance availability/cost, regulatory cost recovery, inflation and supply-chain constraints, credit-rating changes and related collateral needs, and permitting or construction delays. The filing also describes unresolved proceedings concerning the Upstream Lighting Program and other wildfire events; some possible losses cannot be estimated clearly.
- Management provided no specific earnings guidance in the supplied filing text. It said SCE expects to fund the next 12 months through operating cash flow, debt and capital-market access, refinancing, and parent contributions as needed. Edison International stated a target common-dividend payout ratio of 45%–55% of SCE core earnings, subject to constraints.
Important facts for investors to verify
- Progress and ultimate cost of the 2017/2018 wildfire and mudslide claims, including the remaining-loss estimate and settlement payments.
- Whether the CPUC permits recovery of uninsured wildfire costs, and the timing and outcome of SCE’s anticipated rate-recovery applications.
- CPU C and FERC decisions on cost of capital and transmission rates, including any refunds or revenue adjustments.
- Battery-project schedule, force majeure determination, and any resulting cost or recovery changes.
- Capital spending, financing needs, liquidity headroom and credit ratings as wildfire obligations and investment plans evolve.
Disclosure controls were reported effective at quarter-end. Q1 results are not necessarily indicative of full-year results.