10-Q: Edison International and Southern California Edison Company Report Third Quarter 2024 Results

Edison International's third quarter 2024 earnings increased by $361 million compared to the same period in 2023, driven by improved performance at Southern California Edison.

Summary

• Edison International's third quarter 2024 net income was $516 million, a $361 million increase from the third quarter of 2023.
• Southern California Edison's (SCE) net income increased by $363 million, while Edison International Parent and Other's loss increased by $2 million.
• For the nine months ended September 30, 2024, Edison International's earnings increased by $125 million compared to the same period in 2023.
• SCE's core earnings increased due to higher revenue authorized in Track 4 and an increase in the authorized rate of return.
• Non-core items included charges for wildfire-related claims, Wildfire Insurance Fund expenses, and severance costs.
• SCE's 2025 General Rate Case (GRC) application requests a test year 2025 revenue requirement of approximately $10.5 billion, a 23% increase over the 2024 revenue requirement.
• The CPUC modified the cost of capital adjustment mechanism, reducing SCE's 2025 authorized ROE to 10.33%.
• SCE's total capital expenditures were $4.0 billion for the nine months ended September 30, 2024.
• SCE has accrued estimated losses of $9.9 billion related to the 2017/2018 Wildfire/Mudslide Events, with $9.3 billion paid under executed settlements.
• SCE is seeking CPUC-jurisdictional rate recovery of $1.6 billion related to the Thomas, Koenigstein, and Montecito Mudslides and $5.4 billion related to the Woolsey Fire.

Sentiment

Score: 6

Explanation: The document presents a mixed sentiment. While there are positive aspects such as increased earnings and progress on settlements, there are also significant challenges related to wildfire liabilities, regulatory uncertainty, and potential cost overruns. The overall tone is cautiously optimistic but acknowledges the ongoing risks.

Positives

• SCE's core earnings increased due to higher authorized revenue and an increased rate of return.
• The CPUC approved SCE's request for interim rate recovery of $210 million related to 2022 wildfire mitigation costs.
• SCE's credit facility was extended through May 2028, with $2.8 billion available to borrow as of September 30, 2024.
• SCE's debt to total capitalization ratio was 0.57 to 1 as of September 30, 2024.
• The CPUC approved the establishment of a memorandum account to track changes in the revenue requirement between January 1, 2025, and the implementation date of the final decision in the 2025 GRC.

Negatives

• Edison International Parent and Other's loss increased due to lower earnings in non-core items and a slight increase in core loss.
• SCE is facing substantial uncertainty regarding the CPUC's interpretation of the prudency standard for wildfire cost recovery.
• SCE may incur a material loss in excess of amounts accrued in connection with the remaining alleged and potential claims related to the 2017/2018 Wildfire/Mudslide Events.
• The cost of capital adjustment mechanism was modified by the CPUC, reducing SCE's 2025 authorized ROE to 10.33%.

Risks

• SCE faces risks related to the recovery of costs through regulated rates, including uninsured wildfire-related costs.
• There are risks associated with the implementation of operational measures to mitigate wildfire risk, including PSPS and fast curve settings.
• The ability of SCE to obtain safety certifications from OEIS is a risk.
• The longevity of the Wildfire Insurance Fund and the CPUC's interpretation of AB 1054 pose risks.
• Extreme weather-related incidents and natural disasters could cause operational issues and unanticipated costs.
• There are risks associated with the decommissioning of San Onofre, including cost overruns and delays.
• Changes in tax laws and regulations could affect recorded deferred tax assets and liabilities.
• Actions by credit rating agencies to downgrade Edison International or SCE's credit ratings pose a risk.

Future Outlook

SCE forecasts total capital expenditures ranging from $32.2 billion to $37.5 billion for 2024-2028 and weighted average annual rate base from $43.0 billion to $60.6 billion for 2024-2028. SCE expects to construct transmission projects requiring capital investment of at least $2.0 billion, most of which will be incurred beyond 2028.

Management Comments

• Management uses core earnings (loss) internally for financial planning and for analysis of performance.
• Management uses core earnings (loss) when communicating with investors and analysts regarding Edison International's earnings results to facilitate comparisons of the company's performance from period to period.

Industry Context

The report highlights the ongoing challenges faced by California utilities due to wildfires and the regulatory environment. The focus on cost recovery and capital investment is consistent with the industry's need to balance infrastructure upgrades with affordability for customers. The discussion of the cost of capital adjustment mechanism and the 2025 GRC reflects the regulatory scrutiny and financial pressures faced by utilities in California.

Comparison to Industry Standards

• The report references SDG&E's cost recovery proceedings as a comparable precedent, highlighting the uncertainty in the CPUC's application of the prudency standard.
• The discussion of the Wildfire Insurance Fund and AB 1054 is relevant to other California investor-owned utilities facing similar wildfire risks.
• The capital expenditure forecasts and rate base projections are consistent with the long-term investment needs of utilities in the region.
• The report's focus on transmission projects aligns with the broader industry trend of grid modernization and renewable energy integration.

Legal Proceedings

• Multiple lawsuits related to the 2017/2018 Wildfire/Mudslide Events have been initiated against SCE and Edison International.
• SCE is seeking CPUC-jurisdictional rate recovery of $1.6 billion related to the Thomas, Koenigstein, and Montecito Mudslides and $5.4 billion related to the Woolsey Fire.
• SCE is involved in litigation related to the 2019 Saddle Ridge Fire, the 2020 Bobcat Fire, the 2022 Coastal Fire, and the 2022 Fairview Fire.

Related Party Transactions

• SCE purchased wildfire liability insurance for premiums of $273 million from EIS, a wholly-owned subsidiary of Edison International, for the period to June 30, 2023.

Stakeholder Impact

• Shareholders are impacted by the financial performance and the potential for future earnings growth.
• Employees are affected by potential workforce reductions and changes in compensation.
• Customers are impacted by rate increases and the reliability of service.
• Suppliers and creditors are affected by SCE's financial stability and ability to meet its obligations.

Next Steps

• SCE expects a final decision on the 2022 wildfire mitigation costs in the second quarter of 2025.
• SCE expects a proposed decision on the Multi-year Wildfire Mitigation and Catastrophic Events Filing in the third quarter of 2025.
• SCE expects to file its 2025 annual transmission revenue requirement update with the FERC by December 1, 2024.
• SCE is expecting the final CPUC decision on the Alberhill System Project in mid-2025.
• SCE intends to file its updated decommissioning cost estimate with the CPUC before the end of 2024.

Key Dates

Keywords

Edison International, Southern California Edison, Wildfires, Rate Case, CPUC, Cost Recovery, Capital Expenditures, Regulatory Proceedings, Financial Results, Decommissioning, San Onofre, Wildfire Insurance Fund, Transmission Projects, Core Earnings, ROE