10-Q: Edison International Reports First Quarter 2024 Results Amidst Increased Wildfire Costs

Edison International's first quarter 2024 earnings decreased significantly due to higher wildfire-related expenses, despite a slight increase in core earnings at Southern California Edison.

Summary

• Edison International's net loss for the first quarter of 2024 was $11 million, a significant decrease of $321 million compared to a net income of $310 million in the same period of 2023.
• Southern California Edison (SCE) experienced a net income decrease of $305 million, driven by a $324 million increase in non-core losses, partially offset by a $19 million increase in core earnings.
• Edison International Parent and Other saw an increased loss of $16 million, with a $19 million decrease in non-core earnings partially offset by a $3 million decrease in core loss.
• SCE's core earnings increased due to higher revenue authorized in Track 4 and an increase in the authorized rate of return, partially offset by higher interest expense.
• Non-core items included $467 million in charges for 2017/2018 Wildfire/Mudslide Events claims, $119 million for Other Wildfires claims, and $36 million for Wildfire Insurance Fund expenses.
• SCE's 2025 General Rate Case application requests a $10.3 billion revenue requirement, a 23% increase over the 2024 requirement, while intervenors have proposed lower increases.
• Total capital expenditures for the first three months of 2024 were $1.2 billion, compared to $1.3 billion in the same period of 2023.
• SCE has accrued estimated losses of $9.9 billion related to the 2017/2018 Wildfire/Mudslide Events, with $2.0 billion recovered from insurance and $440 million expected from FERC electric rates.
• SCE expects to seek CPUC-jurisdictional rate recovery of approximately $6.9 billion of uninsured claims related to the 2017/2018 Wildfire/Mudslide Events.

Sentiment

Score: 3

Explanation: The document presents a challenging financial picture with significant losses due to wildfire-related expenses and uncertainty regarding cost recovery. While there are some positive aspects, the overall tone is negative from an investment perspective.

Positives

• SCE's core earnings increased by $19 million year-over-year, driven by higher authorized revenue and an increased rate of return.
• The cost of capital adjustment mechanism resulted in a $201 million increase to SCE's 2024 revenue requirement.
• The CPUC issued a decision fully authorizing SCE's requested revenue requirement of approximately $327 million related to 2021 wildfire mitigation costs.
• The CPUC issued a proposed decision which, if adopted, would approve the recovery of SCE's capital request of $312 million and operation and maintenance expenses of $200 million related to 2020 emergency wildfire restoration.

Negatives

• Edison International reported a net loss of $11 million for the first quarter of 2024, a significant decrease from the $310 million net income in the same period of 2023.
• SCE's net income decreased by $305 million due to higher non-core losses, primarily related to wildfire claims.
• Edison International Parent and Other experienced an increased loss of $16 million.
• The company recorded $467 million in charges for 2017/2018 Wildfire/Mudslide Events claims and $119 million for Other Wildfires claims.
• There is substantial uncertainty regarding how the CPUC will apply its prudency standard to wildfire claims related cost-recovery proceedings.
• 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.

Risks

• SCE faces risks related to the recovery of costs through regulated rates, including uninsured wildfire-related costs.
• Regulatory or legislative restrictions could limit SCE's ability to implement wildfire mitigation measures.
• The Wildfire Insurance Fund's longevity and the CPUC's interpretation of AB 1054 pose risks to the company.
• SCE faces risks associated with the operation of electrical facilities, including the risk of wildfires.
• Extreme weather events and natural disasters could cause operational issues and unanticipated costs.
• The decommissioning of San Onofre carries risks related to worker safety, public opposition, and cost overruns.
• Credit rating downgrades could increase borrowing costs and impact the availability of funds.
• Changes in tax laws and interest rates could affect the company's financial position.
• There is uncertainty regarding the CPUC's prudency standard for wildfire cost recovery.

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 targets the third quarter of 2024 for the filing of its application to seek CPUC-jurisdictional rate recovery of approximately $5 billion of uninsured claims related to the Woolsey Fire.

Management Comments

• Management uses core earnings (loss) internally for financial planning and for analysis of performance.
• Management believes that adverse jury verdicts in wildfire litigation against utilities outside of California and increasingly negative jury sentiments in general litigation combined with the current procedural schedule in the underlying litigation proceedings have led to more plaintiffs continuing to pursue claims than expected and to plaintiffs demanding greater settlement values.

Industry Context

The document highlights the ongoing challenges faced by California utilities due to increased wildfire activity and the associated financial and regulatory complexities. The company's focus on wildfire mitigation and cost recovery reflects a broader trend in the industry to address these risks.

Comparison to Industry Standards

• The document references the SDG&E Decision as a directly comparable precedent for wildfire cost recovery, highlighting the uncertainty in the CPUC's application of the prudency standard.
• The company's self-insurance program and reliance on regulatory mechanisms for cost recovery are common practices among investor-owned utilities in California facing similar wildfire risks.
• The company's capital expenditure plans and rate base projections are consistent with the need for infrastructure upgrades and grid modernization in the utility sector.
• The company's use of non-GAAP core earnings is a common practice in the utility industry to provide a clearer picture of ongoing operational performance.

Legal Proceedings

• Multiple lawsuits related to the 2017/2018 Wildfire/Mudslide Events have been initiated against SCE and Edison International.
• SCE has entered into settlements with a number of local public entities, subrogation plaintiffs, and individual plaintiffs in the 2017/2018 Wildfire/Mudslide Events litigation.
• SCE is involved in litigation related to the Creek Fire, Bobcat Fire, Coastal Fire, and Fairview Fire.
• The CPUC's Safety and Enforcement Division (SED) conducted investigations to assess SCE's compliance with applicable rules and regulations in areas impacted by the Thomas, Koenigstein and Woolsey Fires.

Related Party Transactions

• SCE purchased wildfire liability insurance from Edison Insurance Services (EIS), a wholly-owned subsidiary of Edison International, for the period to June 30, 2023.

Stakeholder Impact

• Shareholders are impacted by the decreased earnings and increased wildfire-related expenses.
• Customers may face higher rates to cover wildfire-related costs.
• Employees are affected by the company's financial performance and potential changes in operations.
• Suppliers and creditors are impacted by the company's financial stability and ability to meet obligations.

Next Steps

• SCE will continue to pursue settlement opportunities with plaintiffs in the 2017/2018 Wildfire/Mudslide Events litigation.
• SCE will seek CPUC-jurisdictional rate recovery of approximately $6.9 billion of uninsured claims related to the 2017/2018 Wildfire/Mudslide Events.
• SCE targets the third quarter of 2024 for the filing of its application to seek CPUC-jurisdictional rate recovery of approximately $5 billion of uninsured claims related to the Woolsey Fire.
• SCE will continue to evaluate the probability of recovery of FERC-jurisdictional wildfire and mudslide related costs based on available evidence.

Key Dates

Keywords

wildfires, Southern California Edison, Edison International, rate recovery, CPUC, FERC, insurance, decommissioning, capital expenditures, regulatory proceedings