Business context and reporting period
Southern California Edison Company (SCE), a wholly owned subsidiary of Edison International, is a regulated electric utility serving approximately 5.2 million customers across about 50,000 square miles in Southern California. This combined Form 10-K reports on the fiscal year ended December 31, 2020; SCE’s financial results are presented separately below. SCE earns regulated returns on approved investments, while many power procurement and other cost-recovery activities provide no return.
Financial performance and position
| Metric | 2020 | 2019 |
|---|---|---|
| Operating revenue | $13.546 billion | $12.306 billion |
| Operating income | $1.178 billion | $1.845 billion |
| Net income | $942 million | $1.530 billion |
| Net income available for common stock | $810 million | $1.409 billion |
| Core earnings, a non-GAAP measure | $1.825 billion | $1.702 billion |
| Cash provided by (used in) operating activities | $1.427 billion | $(91) million |
| Capital expenditures | $5.480 billion | $4.876 billion |
| Cash and cash equivalents at year-end | $55 million | $24 million |
Revenue rose about 10%, while operating income and common-stock income fell about 36% and 43%, respectively. Operating margin was approximately 8.7%, down from 15.0%; common-stock income as a share of revenue was approximately 6.0%, versus 11.4%. Core earnings increased about 7%, reflecting higher regulated revenue and wildfire-cost deferrals, partly offset by employee-benefit and COVID-related costs. These margins are calculated from reported figures; core earnings are non-GAAP and may not be comparable across companies.
At December 31, 2020, SCE reported $16.499 billion of long-term debt, $1.029 billion of current long-term debt and $2.268 billion of short-term debt. Its debt-to-total-capitalization ratio under its credit agreement was 0.51, below the 0.65 covenant limit. SCE had $3.921 billion available under credit facilities and $55 million cash. Regulatory assets totaled $8.434 billion and regulatory liabilities $9.158 billion; net undercollections in regulatory balancing and memorandum accounts were approximately $1.4 billion. The filing notes that recovery of certain deferred costs remains subject to regulatory review.
Fourth-quarter SCE revenue was $3.151 billion, operating income $678 million, net income $500 million and income available for common stock $474 million. In fourth-quarter 2019, the corresponding figures were $2.958 billion, $325 million, $224 million and $194 million.
Material changes and unusual items
- The 2020 results include $1.328 billion of wildfire-related claims expense, net of expected insurance recoveries, compared with $255 million in 2019. The 2020 charge included a $1.213 billion pretax charge for the 2017/2018 wildfire and mudslide events after expected FERC recovery, or $874 million after tax.
- SCE recorded $336 million of Wildfire Insurance Fund expense in 2020, versus $152 million in 2019. SCE’s contributions to the fund are not recoverable through electric rates.
- A $150 million pretax gain on the sale of San Onofre nuclear fuel reduced 2020 expenses; the filing says the gain will not be returned to customers. COVID-related costs included $191 million of net incremental costs recognized at year-end, of which $176 million was deferred to memorandum accounts for future CPUC review.
- Operating cash flow improved from an outflow of $91 million to an inflow of $1.427 billion. Cash flow remained affected by regulatory-account undercollections, customer receivables and wildfire settlement payments. Capital spending rose to $5.480 billion.
Outlook, management commentary and risks
- Wildfires and litigation: SCE reported $4.383 billion of accrued losses for the 2017/2018 events at year-end, including amounts tied to settlements subsequently entered into. Through February 18, 2021, later settlements reduced management’s estimate for remaining alleged and potential claims to $2.1 billion. The Woolsey subrogation settlement requires a $2.2 billion payment, with additional payments possible under settlement terms. Potential fines and penalties are not included in the loss estimate and could not be reasonably estimated. Recovery of uninsured costs through CPUC rates is uncertain.
- Wildfire protection: SCE identified about 27% of its service territory as high fire risk and initiated public safety power shutoffs 12 times in 2020, affecting approximately 140,000 unique customers. In January 2021, the CPUC president raised concerns about execution and directed SCE to develop an action plan to reduce customer impacts. SCE’s safety certification and wildfire mitigation plan are subject to ongoing regulatory requirements.
- Rate case and investment: SCE requested a $7.6 billion test-year revenue requirement in its 2021 GRC, about $1.3 billion above the updated 2020 authorized requirement. The final amount and timing are uncertain; intervenors proposed lower revenue requirements. SCE forecast $14.7 billion to $16.2 billion in capital expenditures for 2021–2023, much of it related to grid investment and wildfire mitigation.
- Funding and credit: Management expected to fund the next 12 months through operating cash flow, debt issuance, credit facilities and, as needed, parent equity contributions. Edison International anticipated issuing securities with up to $1.0 billion of equity content during 2021 to support SCE. SCE’s S&P outlook was negative, while Moody’s and Fitch outlooks were stable. Wildfire costs, regulatory outcomes, credit downgrades and restricted market access could raise financing costs or constrain liquidity.
- Other exposures: COVID-19 customer payment relief contributed to higher receivables and uncollectibles. The CPUC investigation of SCE’s Upstream Lighting Program could result in refunds, fines or other remedies; parties sought up to $265 million in total remedies. San Onofre decommissioning costs, regulatory cost recovery, extreme weather, system reliability and cybersecurity are also material risks.
Most important facts for investors to verify
- Progress and cash requirements for wildfire settlements, remaining claims, insurance recoveries and any regulatory fines; distinguish year-end accrued amounts from subsequent settlements.
- Whether and when the CPUC approves SCE’s 2021 GRC revenue requirement and recovery of deferred wildfire, restoration and COVID-19 costs.
- Liquidity, debt maturities, credit-rating outlooks and planned parent equity support, including financing of wildfire claims and AB 1054 excluded capital expenditures.
- Execution and cost of the 2021–2023 capital program, wildfire mitigation measures and public safety power shutoffs.
- Outcome of the Upstream Lighting Program proceeding and updated San Onofre decommissioning estimates and funding needs.