10-Q: Edison International Reports Q1 2024 Results, Impacted by Wildfire-Related Charges

Edison International's Q1 2024 earnings decreased due to higher wildfire-related charges, partially offset by increased core earnings at SCE.

Summary

• Edison International's Q1 2024 earnings decreased by $321 million compared to Q1 2023.
• SCE's earnings decreased by $305 million, while Edison International Parent and Other's loss increased by $16 million.
• SCE's lower net income was driven by $324 million of higher non-core loss, partially offset by $19 million of higher core earnings.
• Edison International Parent and Other's loss increased due to $19 million of lower non-core earnings, partially offset by $3 million of lower 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.
• Edison International Parent and Other's core loss decreased due to lower preferred dividends and lower operating expenses, partially offset by higher interest expense.
• Non-core items included charges for 2017/2018 Wildfire/Mudslide Events claims ($467 million) and Other Wildfires claims ($119 million).
• SCE filed its 2025 GRC application with the CPUC in May 2023, requesting a test year 2025 revenue requirement of approximately $10.3 billion.
• SCE updated its test year 2025 revenue requirement to approximately $10.1 billion in rebuttal testimony.
• Total capital expenditures were $1.2 billion for the first three months of 2024.
• SCE forecasts total capital expenditures ranging from $32.2 billion to $37.5 billion for 2024-2028.
• A $490 million increase in estimated losses for the 2017/2018 Wildfire/Mudslide Events as of March 31, 2024 was recorded.
• SCE has accrued estimated losses of $9.9 billion, recoveries from insurance of $2.0 billion, and expected recoveries through FERC electric rates of $440 million related to the 2017/2018 Wildfire/Mudslide Events claims through March 31, 2024.
• As of March 31, 2024, SCE had paid $8.8 billion under executed settlements and had $200 million to be paid under executed settlements related to the 2017/2018 Wildfire/Mudslide Events.
• Edison International and 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.
• SCE currently expects to seek CPUC-jurisdictional rate recovery of approximately $6.9 billion of uninsured claims related to the 2017/2018 Wildfire/Mudslide Events.
• SCE filed its WMCE filing, seeking to recover incremental operating and maintenance expenses of $320 million and incremental capital expenditures of $702 million.
• SCE issued $500 million of bonds due in 2027 and $900 million of bonds due in 2034 in January 2024.
• In March 2024, SCE issued $600 million of bonds due in 2026, $600 million of bonds due in 2029 and $400 million of bonds due in 2054.
• At March 31, 2024, SCE had cash on hand of $850 million and approximately $2.8 billion available to borrow on its $3.4 billion revolving credit facility.

Sentiment

Score: 4

Explanation: The document presents a mixed sentiment. While there are some positives, such as increased core earnings at SCE, the overall tone is negative due to the significant impact of wildfire-related charges and the uncertainty surrounding cost recovery.

Positives

• SCE's core earnings increased by $19 million year-over-year, driven by higher revenue authorized in Track 4 and an increase in the authorized rate of return.
• Edison International Parent and Other's core loss decreased by $3 million year-over-year due to lower preferred dividends and lower operating expenses.
• The CPUC issued a decision fully authorizing SCE's requested revenue requirement of approximately $327 million related to incremental costs incurred in 2021 related to non-WCCP wildfire mitigation and vegetation management activities.
• 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 restoration efforts related to multiple 2020 wildfires.

Negatives

• Edison International's Q1 2024 earnings decreased by $321 million compared to Q1 2023.
• SCE's earnings decreased by $305 million, driven by higher non-core losses related to wildfire claims.
• A $490 million increase in estimated losses for the 2017/2018 Wildfire/Mudslide Events was recorded in Q1 2024.
• Edison International and 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.
• SCE is unable to conclude, at this time, that uninsured CPUC-jurisdictional wildfire-related costs are probable of recovery through electric rates.

Risks

• The extent of legal liability for wildfire-related damages in actions against utilities depends on a number of factors.
• The CPUC and FERC may not allow SCE to recover uninsured losses through electric rates if it is determined that such losses were not prudently incurred.
• SCE's service territory remains susceptible to additional wildfire activity.
• Credit rating downgrades increase the cost and may impact the availability of short-term and long-term borrowings.
• Risks associated with the decommissioning of San Onofre, including those related to worker and public safety, public opposition, permitting, governmental approvals, on-site storage of spent nuclear fuel and other radioactive material, delays, contractual disputes, and cost overruns.

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.

Management Comments

• 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 related to wildfire liability and cost recovery, particularly in the context of evolving regulatory standards and increasing litigation risks.

Comparison to Industry Standards

• The document references SDG&E's cost recovery proceeding arising from the 2007 wildfires as the only directly comparable precedent available.
• The CPUC's decision in the SDG&E case is used as a benchmark to assess the uncertainty regarding how the CPUC will interpret and apply its prudency standard to an investor-owned utility in wildfire claims related cost-recovery proceedings.

Legal Proceedings

• Multiple lawsuits related to the 2017/2018 Wildfire/Mudslide Events naming SCE as a defendant have been filed by individual plaintiffs, subrogation plaintiffs and public entity plaintiffs.
• The Thomas and Koenigstein Fires and Montecito Mudslides lawsuits are being coordinated in the Los Angeles Superior Court.
• The Woolsey Fire lawsuits have also been coordinated in the Los Angeles Superior Court.

Related Party Transactions

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

Stakeholder Impact

• The affordability of customer rates impacts SCE's ability to execute its strategy, including the regulatory approval of operations and maintenance expenses, and proposed capital investment projects.
• SCE will seek CPUC-jurisdictional rate recovery of prudently incurred losses and related costs realized in connection with the 2017/2018 Wildfire/Mudslide Events in excess of available insurance and FERC-jurisdictional recoveries.

Next Steps

• SCE will seek CPUC-jurisdictional rate recovery of prudently incurred losses and related costs realized in connection with 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 requested an expedited schedule with a final decision in 2025 for its WMCE filing.
• SCE will continue to evaluate the probability of recovery of FERC-jurisdictional wildfire and mudslide related costs based on available evidence.

Key Dates

Keywords

Edison International, Southern California Edison, Wildfires, Earnings, Financial Results, Rate Recovery, CPUC, FERC, Litigation, Capital Expenditures