Edison International 10-Q Summary
Business Context and Reporting Period
This combined Form 10-Q covers Edison International and its wholly owned utility subsidiary, Southern California Edison Company (SCE), for the three months ended March 31, 2022. SCE supplies and delivers electricity across approximately 50,000 square miles of Southern California. Edison Energy’s competitive energy-solutions activities were not material as a separate segment.
Financial Performance and Key Metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Edison International operating revenue | $4.0 billion | $3.0 billion | Up $1.0 billion |
| Net income attributable to Edison common shareholders | $84 million | $259 million | Down $175 million |
| Basic and diluted EPS | $0.22 | $0.68 | Down $0.46 |
| SCE operating revenue | $4.0 billion | $3.0 billion | Up $1.0 billion |
| SCE net income available for common stock | $147 million | $296 million | Down $149 million |
| SCE core earnings | $470 million | $338 million | Up $132 million |
| Edison International core earnings | $407 million | $301 million | Up $106 million |
| Edison International operating income | $259 million | $399 million | Down $140 million |
| Net cash provided by operating activities | $792 million | $72 million | Up $720 million |
| Capital expenditures | $1.2 billion | $1.4 billion | Down $151 million |
Reported earnings were materially reduced by non-core items. SCE recorded a $416 million increase in estimated 2017/2018 wildfire and mudslide losses, partially offset by $26 million of expected FERC customer recoveries, producing a $390 million pretax and $281 million after-tax charge. SCE also recorded a $53 million Wildfire Insurance Fund expense, or $38 million after tax. Core earnings, a non-GAAP measure, increased primarily because of the 2021 General Rate Case final decision, partly offset by higher interest expense.
Edison International’s consolidated effective tax rate was negative 67.9%, compared with negative 14.2% in the prior-year quarter, primarily reflecting property-related tax benefits and lower pretax income. SCE’s effective tax rate was negative 30.1%, compared with negative 8.0%.
At March 31, 2022, Edison International had total assets of $74.7 billion, total liabilities of $57.1 billion and total equity of $17.6 billion. SCE had total assets of $74.5 billion, total liabilities of $54.9 billion and total equity of $19.7 billion.
Liquidity, Debt and Capital Program
- SCE held $119 million of cash and had approximately $2.9 billion available under its $3.4 billion revolving credit facility.
- SCE had $295 million of commercial paper outstanding at a weighted-average interest rate of 0.82%. Its debt-to-total-capitalization ratio was 0.55 to 1, within its covenant limit of 0.65 to 1.
- Edison International Parent held $64 million of cash and had $1.5 billion available under its revolving credit facility, with no commercial paper outstanding at quarter-end. Its consolidated debt-to-total-capitalization ratio was 0.61 to 1, within its 0.70 to 1 covenant limit.
- SCE issued $1.2 billion of first and refunding mortgage bonds in January 2022 and $533 million of securitized recovery bonds in February 2022. The securitized bond proceeds were used partly to repay a $1.2 billion term loan due in May 2022.
- In April 2022, Edison International Parent borrowed $600 million under a term loan due in April 2023.
- Capital expenditures were $1.3 billion including accruals in Q1 2022, compared with $1.1 billion in Q1 2021. SCE forecasts approximately $11.8 billion of major capital expenditures for 2022–2023, including $2.2 billion for wildfire mitigation.
- SCE expects to issue $300 million to $400 million of securities containing equity content in 2022 to support SCE’s capital structure and investment needs.
Material Changes and Outlook
- The 2021 GRC final decision increased SCE’s authorized revenue and core earnings beginning in late 2021. SCE recognized approximately $401 million of revenue in Q1 2022 for wildfire-related and drought-restoration expenses deferred in 2021 and approved for recovery in GRC Track 2.
- SCE’s cost-of-capital proceeding remained unresolved. SCE continued recording revenue using pre-2022 cost-of-capital levels, subject to refund. If the CPUC determines that the adjustment mechanism should have applied from January 1, 2022, first-quarter revenue would be reduced by approximately $43 million.
- SCE filed a new three-year cost-of-capital application beginning in 2023, requesting a 10.53% return on common equity and a 7.60% weighted-average return on rate base for 2023, subject to CPUC approval.
- SCE contracted for 537.5 MW of utility-owned storage targeted for service by August 2022. The contractor asserted force majeure because of COVID-19-related manufacturing and shipping delays; up to 300 MW could be in service in August, subject to the continuing impact of those events.
- SCE expects to seek CPUC recovery of approximately $5.2 billion of wildfire-related losses through multiple future applications, the first anticipated in 2023. Recovery is uncertain because the CPUC has not determined SCE’s prudency for the applicable pre-2019 fires.
Risks, Contingencies and Unusual Items
- As of March 31, 2022, Edison International and SCE had recorded $7.9 billion of pretax charges related to the 2017/2018 Wildfire/Mudslide Events, with $2.0 billion of expected insurance recoveries and $326 million of expected FERC recoveries. Expected insurance recoveries had been exhausted.
- Remaining estimated losses for alleged and potential 2017/2018 wildfire claims and the SED Agreement were approximately $1.3 billion. Actual losses may differ materially as litigation, mediation and damage assessments continue.
- SCE had paid $6.4 billion under executed settlements and had $137 million remaining to pay under executed settlements at quarter-end. At least 229 lawsuits related to the Thomas and Koenigstein Fires and at least 353 lawsuits related to the Woolsey Fire were pending as of April 26, 2022.
- The SED Agreement involves $550 million of aggregate costs, including a $110 million fine, $65 million of shareholder-funded safety measures and $375 million of uninsured claims that SCE would not seek to recover in CPUC rates. The agreement was subject to final, non-appealable CPUC approval.
- SCE’s wildfire insurance coverage for July 2021 through June 2022 was approximately $1.0 billion gross, with a $50 million self-insured retention and up to approximately $75 million of co-insurance, resulting in approximately $875 million of net coverage. Future insurance availability and pricing remain uncertain.
- Other risks include regulatory disallowance of costs, extreme weather and wildfires, public safety power shutoffs, supply-chain inflation, interest rates, credit-rating downgrades, financing access, cybersecurity, nuclear decommissioning, environmental remediation and customer migration to community choice aggregators.
- SCE reported $252 million of posted and potential collateral requirements, including $29 million attributable to a potential below-investment-grade downgrade and $15 million from adverse commodity-price movements.
Important Facts for Investors to Verify
- Progress and ultimate cost of the remaining 2017/2018 wildfire litigation, settlements and SED Agreement obligations.
- Whether the CPUC permits recovery of uninsured wildfire costs and restoration expenditures, including the timing and outcome of anticipated applications.
- Resolution of SCE’s 2022 cost-of-capital proceeding and the potential $43 million revenue refund.
- Completion, cost and regulatory treatment of the 537.5 MW storage projects amid force majeure claims and supply-chain delays.
- SCE’s ability to finance its capital program, refinance maturities and maintain investment-grade credit ratings and required capital structure.
- Actual wildfire insurance availability, limits, self-insured retentions and co-insurance for policy periods beginning July 1, 2022.
- Growth in regulatory assets and balancing-account undercollections, including the recoverability of the $9.97 billion of total regulatory assets reported at March 31, 2022.