8-K: Edison International Reports Mixed Q1 2024 Results Amidst Wildfire Loss Estimate Increase

Edison International reported a first-quarter net loss of $11 million, or $0.03 per share, but affirmed its 2024 core EPS guidance despite a significant increase in estimated wildfire losses.

Summary

• Edison International reported a net loss of $11 million, or $0.03 per share, for the first quarter of 2024, compared to a net income of $310 million, or $0.81 per share, in the same quarter last year.
• Core earnings for the first quarter were $438 million, or $1.13 per share, up from $416 million, or $1.09 per share, in the first quarter of 2023.
• The company revised its best estimate of expected losses for the 2017/2018 Wildfire/Mudslide Events, resulting in a net after-tax charge of $333 million.
• This increase was primarily driven by information obtained during the quarter related to the Woolsey Fire mediation program and from settling claims.
• Despite the increased loss estimates, Edison International affirmed its 2024 core EPS guidance of $4.75-$5.05 and reiterated its long-term core EPS growth rate targets of 5%-7% for 2021-2025 and 5%-7% for 2025-2028.
• Southern California Edison's first-quarter core earnings per share increased year over year 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 expects to invest more than $6 billion over the next 5 years in wildfire mitigation.

Sentiment

Score: 6

Explanation: The sentiment is mixed. While the company affirms its guidance and highlights its wildfire mitigation efforts, the significant increase in wildfire loss estimates and the resulting net loss temper the positive aspects. The company's strong position in the clean energy transition and its cost leadership are positive, but the financial impact of the wildfire claims is a concern.

Positives

• Edison International affirmed its 2024 core EPS guidance despite increased wildfire loss estimates.
• The company is confident in delivering on its long-term EPS growth targets.
• SCE has made significant progress in wildfire mitigation, reducing the risk of losses by 85-88%.
• SCE is nearing completion of physical hardening of its distribution lines in high fire risk areas.
• The company is experiencing load growth driven by the adoption of EVs and electrification.
• SCE has demonstrated cost leadership with the lowest system average rate among major California IOUs.
• The company has a strong balance sheet and has limited equity needs.
• S&P affirmed the company's credit ratings and stable outlook, lowering the FFO-to-debt downgrade threshold.

Negatives

• Edison International reported a net loss of $11 million, or $0.03 per share, for the first quarter of 2024.
• The company recorded a $490 million increase in estimated losses for the 2017/2018 Wildfire/Mudslide Events, resulting in a net after-tax charge of $333 million.
• Settlement outcomes during the quarter exceeded previously estimated values.
• The company expects to issue additional debt, which will result in about 2 cents of incremental interest expense in 2024.
• The company is facing the fastest electricity demand growth in decades, requiring significant capital investment.

Risks

• The company faces risks related to the recovery of wildfire-related costs through regulated rates.
• There are risks associated with the operation of electrical facilities, including the risk of utility assets causing or contributing to wildfires.
• The company is exposed to extreme weather-related incidents and other natural disasters.
• There are risks associated with the decommissioning of San Onofre.
• The company faces risks related to cost allocation resulting in higher rates for utility bundled service customers.
• There are risks inherent in SCE's capital investment program, including permitting and construction risks.
• Actions by credit rating agencies could downgrade Edison International or SCE's credit ratings.

Future Outlook

Edison International is confident in achieving its 2024 core EPS guidance of $4.75-$5.05 and its long-term core EPS growth rate targets of 5%-7% for 2021-2025 and 5%-7% for 2025-2028. The company expects to see continued load growth and is focused on executing its capital plan and wildfire mitigation efforts.

Management Comments

• Pedro J. Pizarro, president and CEO of Edison International, stated, 'We are pleased with our start to the year and are confident in affirming our 2024 core EPS guidance range. We also remain confident in delivering on our long-term EPS growth targets.'
• Pizarro noted, 'With wildfires now a national issue, litigation outcomes outside of California are impacting the costs to resolve claims everywhere.'
• Pizarro reiterated, 'We strongly believe that cost recovery is warranted and in the public interest, and we conservatively have not reflected this significant potential in our financial projections.'
• Maria Rigatti, Executive Vice President and Chief Financial Officer, stated, 'We are pleased with our start to the year and are confident in affirming the range of $4.75 to $5.05.'
• Rigatti also stated, 'Our confidence in meeting our financial targets remains strong. Underpinning this confidence in the near term and long term is our focus on execution.'

Industry Context

This announcement comes as utilities across the nation are grappling with the increasing impacts of climate change, particularly wildfires. Edison International's focus on wildfire mitigation and grid hardening aligns with industry trends towards enhancing grid resilience and reliability. The company's leadership in these areas positions it well to navigate the challenges of the clean energy transition.

Comparison to Industry Standards

• SCE's wildfire mitigation efforts, including the installation of over 5,700 miles of covered conductor and the removal of over 2 million trees in high fire risk areas, are among the most extensive in the industry.
• The company's estimate of an 85-88% reduction in wildfire risk is based on a rigorous, data-driven approach using the Moody's RMS model, which is widely trusted by insurers, contrasting with simpler deterministic methods used by some other companies and regulators.
• SCE's investment of about $5 billion in wildfire mitigation-related capital over the past five years and expected investment of more than $6 billion over the next 5 years ranks among the highest levels in the utility sector.
• SCE's hardened distribution circuit miles surpass those of all other California IOUs combined, demonstrating a significant commitment to grid safety.
• The company's cost leadership, resulting in the lowest system average rate among the major California IOUs, is a key differentiator in the industry.

Stakeholder Impact

• Shareholders will be impacted by the net loss and increased wildfire loss estimates, but may be reassured by the affirmed guidance and long-term growth targets.
• Customers will benefit from SCE's cost leadership and wildfire mitigation efforts, but may face rate increases due to the recovery of wildfire-related costs.
• Employees will be impacted by the company's focus on execution and cost management.
• Suppliers and creditors will be impacted by the company's capital investment plans and financing activities.

Next Steps

• SCE will continue to advance the process of resolving legacy wildfire claims.
• SCE will file the Woolsey cost recovery application in Q3 2024.
• Intervenors testimony is due May 29 in the TKM cost recovery proceeding.
• SCE's rebuttal testimony is due June 28 in the TKM cost recovery proceeding.
• The proposed decision in the 2022 CEMA proceeding is scheduled to be voted on at the CPUC's May 30 meeting.
• SCE will continue to execute its capital plan and wildfire mitigation efforts.

Key Dates

Keywords

Edison International, Southern California Edison, Wildfire Mitigation, Core Earnings, EPS, Rate Base, General Rate Case, Grid Hardening, Electrification, Regulatory, Wildfire Claims, Cost Recovery