8-K: Edison International Reports Strong Q3 2024 Results, Narrows Full-Year EPS Guidance

Edison International announced solid third-quarter results with core EPS of $1.51, leading to a narrowed full-year core EPS guidance of $4.80-$5.00 and reaffirming long-term growth targets.

Summary

• Edison International reported a third-quarter net income of $516 million, or $1.33 per share, compared to $155 million, or $0.40 per share, in the same quarter last year.
• Core earnings for the third quarter were $582 million, or $1.51 per share, up from $531 million, or $1.38 per share, in the third quarter of 2023.
• The increase in core EPS was primarily due to higher revenue authorized in Track 4 of SCE's 2021 General Rate Case and an increase in the authorized rate of return.
• The company has narrowed its 2024 core EPS guidance to a range of $4.80 to $5.00, from a previous range of $4.75 to $5.05.
• Edison International reaffirmed its long-term core EPS growth rate targets of 5%-7% for both the 2021-2025 and 2025-2028 periods.
• A settlement agreement was reached on the TKM cost recovery application, which would authorize recovery of 60% of the costs, or $1.6 billion.
• SCE has filed the Woolsey cost recovery application, seeking to recover approximately $5.4 billion.
• The company expects to securitize the $1.6 billion TKM recovery, targeting completion by year-end 2025.
• SCE has recovered approximately $4.5 billion since 2021 through various regulatory mechanisms.
• The company's capital expenditure forecast for 2023-2028 is approximately $38-43 billion.

Sentiment

Score: 8

Explanation: The document conveys a positive sentiment due to strong financial results, narrowed guidance, and progress in resolving legacy wildfire issues. The company's commitment to long-term growth and sustainability also contributes to the positive outlook. However, some regulatory challenges and risks are acknowledged.

Positives

• Edison International demonstrated strong year-to-date financial performance, leading to a narrowed core EPS guidance for 2024.
• The settlement agreement for the TKM cost recovery application is a positive step towards resolving legacy wildfire issues.
• SCE's ability to navigate the regulatory landscape and secure cost recovery is a significant strength.
• The company's commitment to achieving net-zero emissions by 2045 is a positive move towards sustainability.
• The deployment of covered conductor and other wildfire mitigation efforts have significantly reduced the acres burned from SCE ignitions.
• The company has a strong rate base growth driven by wildfire mitigation and grid modernization.
• The company has a strong cash flow from memo account recovery and securitization.
• The company has a strong capital plan with significant investment opportunities.

Negatives

• The CPUC's decision to change the cost of capital mechanism and the investor-owned utilities 2025 ROEs is considered unfortunate and disappointing.
• Higher interest expenses associated with debt for wildfire claims payments partially offset the increase in core EPS.
• The company is still facing potential disallowances for non-compliance with applicable laws and regulations.
• The company is exposed to risks associated with extreme weather-related incidents and other natural disasters.
• The company is exposed to risks associated with the decommissioning of San Onofre.
• The company is exposed to risks associated with cost allocation resulting in higher rates for utility bundled service customers.

Risks

• The ability of SCE to recover costs through regulated rates, including wildfire-related costs, is subject to regulatory approval.
• The impact of customer rate affordability on SCE's ability to execute its strategy is a potential risk.
• Regulatory or legislative restrictions could limit SCE's ability to implement operational measures to mitigate wildfire risk.
• The effectiveness of California Assembly Bill 1054 in mitigating wildfire liability is uncertain.
• The operation of electrical facilities carries risks, including worker and public safety issues and the risk of wildfires.
• Cybersecurity risks to critical information technology systems are a concern.
• The company faces risks related to attracting and retaining a skilled workforce.
• Decisions by regulatory bodies could impact the company's financial performance.
• Extreme weather events and natural disasters pose operational and financial risks.
• The cost and availability of labor, equipment, and materials are subject to market conditions.
• The company's ability to borrow funds and access capital markets on reasonable terms is a risk.
• The decommissioning of San Onofre carries various risks, including cost overruns and delays.
• Cost allocation risks could result in higher rates for utility bundled service customers.
• The company's capital investment program is subject to various risks, including permitting and construction delays.
• Actions by credit rating agencies could downgrade the company's credit ratings.

Future Outlook

Edison International is confident in delivering on its 2025 EPS guidance and long-term EPS growth targets, with minimal equity needs. The company plans to update its projections following a final decision in SCE's GRC. The company expects to see a CPUC decision on the GRC in the first half of next year.

Management Comments

• Pedro J. Pizarro, president and CEO of Edison International, stated that the company is confident in narrowing its 2024 core EPS guidance due to strong year-to-date performance.
• Pizarro added that SCE continues to demonstrate its ability to navigate the regulatory landscape and is in the final stages of two key proceedings, which will solidify the financial outlook through 2028.
• Maria Rigatti, Executive Vice President and Chief Financial Officer, emphasized the company's strong year-to-date financial performance and confidence in delivering on commitments for 2025 and beyond.
• Pizarro highlighted the company's success in managing unprecedented climate challenges and making operations more resilient.

Industry Context

This announcement comes as utilities in California face increasing pressure to manage wildfire risks and transition to clean energy. Edison International's focus on grid hardening, wildfire mitigation, and clean energy initiatives aligns with broader industry trends. The regulatory landscape in California is complex, and the company's ability to navigate it is crucial for its financial performance.

Comparison to Industry Standards

• Edison International's commitment to a 5-7% EPS growth rate is comparable to other large utility companies, such as NextEra Energy (NEE) and Duke Energy (DUK), which also target similar growth rates.
• The company's focus on wildfire mitigation is a response to the unique challenges faced by California utilities, similar to efforts by PG&E (PCG).
• The capital expenditure plan of $38-43 billion over 2023-2028 is significant and reflects the need for grid modernization and wildfire mitigation, which is a common theme among large utilities.
• The company's efforts to reach net-zero emissions by 2045 are in line with the broader trend of utilities setting ambitious climate goals, similar to initiatives by Xcel Energy (XEL) and Southern Company (SO).
• The TKM settlement and Woolsey cost recovery applications are specific to Edison International's situation but highlight the challenges of managing wildfire liabilities, which is a concern for other utilities in fire-prone areas.

Stakeholder Impact

• Shareholders will benefit from the company's strong financial performance and long-term growth prospects.
• Customers will benefit from a more reliable and resilient grid, as well as the company's commitment to clean energy.
• Employees will be impacted by the company's efforts to manage climate challenges and transition to a clean energy future.
• The company's actions will have an impact on suppliers and creditors through its capital investment program and financing activities.

Next Steps

• The company will respond to the ALJ request for more information on the TKM settlement by November 4, 2024.
• Protests for the Woolsey cost recovery application are due by November 12, 2024.
• The company is awaiting a proposed decision on the TKM settlement and the 2025 GRC, expected in the first half of 2025.
• SCE will file a separate application to securitize the $1.6 billion TKM recovery following final settlement approval.
• The company will update its capital plan, financing plan, 2025 EPS guidance, and EPS growth forecast after a final decision on the GRC.

Key Dates

Keywords

Edison International, Southern California Edison, Core EPS, Wildfire Mitigation, Regulatory Proceedings, Cost Recovery, General Rate Case, Net Zero Emissions, Capital Investment, Rate Base, TKM Settlement, Woolsey Fire, Securitization, Clean Energy Transition, Grid Hardening