10-Q: Edison International Reports Mixed Q2 2024 Results Amid Wildfire Costs and Regulatory Updates

Edison International's Q2 2024 earnings reflect increased SCE earnings offset by higher parent company losses, with ongoing wildfire-related expenses and regulatory proceedings shaping financial performance.

Summary

• Edison International's Q2 2024 earnings increased by $85 million compared to Q2 2023, driven by a $103 million increase in SCE's earnings, partially offset by an $18 million increase in losses from Edison International Parent and Other.
• SCE's higher net income was due to $88 million of higher core earnings and $15 million of lower non-core losses.
• Edison International's earnings for the six months ended June 30, 2024, decreased $236 million from the same period in 2023, primarily due to a decrease in SCE's earnings of $202 million and an increase in Edison International Parent and Other's loss of $34 million.
• SCE's core earnings increased due to higher revenue authorized in Track 4, an increase in the authorized rate of return, and recognition of previously unrecognized return on rate base related to wildfire restoration efforts, partially offset by higher interest expense.
• SCE forecasts total capital expenditures ranging from $32.2 billion to $37.5 billion for 2024-2028.
• SCE has accrued estimated losses of $9.9 billion related to the 2017/2018 Wildfire/Mudslide Events claims.
• SCE 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 2025 GRC application with the CPUC in May 2023, requesting a test year 2025 revenue requirement of approximately $10.3 billion, later updated to $10.5 billion.
• SCE's 2025 transmission revenue requirement update proposes a $1.3 billion requirement, a 20% increase from 2024 annual rates.

Sentiment

Score: 5

Explanation: The document presents a mixed sentiment. While there are positive aspects such as increased Q2 earnings and core earnings growth for SCE, significant challenges remain, including wildfire-related liabilities, regulatory uncertainties, and potential cost recovery issues. The overall outlook is cautiously neutral.

Positives

• Edison International's Q2 2024 earnings increased compared to the previous year.
• SCE's core earnings increased due to higher authorized revenue and rate of return.
• 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.
• CPUC approved SCE's request for interim rate recovery of $210 million associated with 2022 operations and maintenance and capital expenditures above levels authorized in wildfire mitigation accounts and the vegetation management balancing account.
• CPUC issued a decision approving 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 Parent and Other experienced increased losses.
• SCE's earnings for the six months ended June 30, 2024, decreased $236 million from the same period in 2023.
• SCE faces substantial uncertainty regarding CPUC's prudency standard application to wildfire 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 wildfire liability and cost recovery.
• Regulatory and legislative restrictions could limit SCE's ability to mitigate wildfire risk.
• The Wildfire Insurance Fund's longevity and CPUC's interpretation of AB 1054 pose risks.
• Extreme weather events and natural disasters could cause operational issues and unanticipated costs.
• Delays in executive, regulatory, and legislative actions could impact SCE's operations.
• Credit rating downgrades could increase borrowing costs and impact contract terms.
• Risks associated with the decommissioning of San Onofre could lead to delays and cost overruns.

Future Outlook

SCE forecasts total capital expenditures ranging from $32.2 billion to $37.5 billion for 2024-2028 and expects to file an application to seek CPUC-jurisdictional rate recovery of prudently incurred losses related to the Woolsey Fire in the third quarter of 2024.

Industry Context

The report highlights the challenges faced by California utilities due to increasing wildfire risks and the evolving regulatory landscape, including the implementation of AB 1054 and the CPUC's prudency standard. The company's financial performance is significantly influenced by its ability to recover costs through regulated rates and manage wildfire-related liabilities.

Comparison to Industry Standards

• The document references SDG&E's (San Diego Gas & Electric) cost recovery case related to 2007 wildfires as a directly comparable precedent, highlighting the uncertainty in how the CPUC will interpret and apply its prudency standard.
• The document mentions SCE's participation in Nuclear Electric Insurance Limited (NEIL), a mutual insurance company owned by entities with nuclear facilities, which is a common practice in the nuclear industry to share risks and liabilities.

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 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.
• Cost allocation may result in higher rates for utility bundled service customers due to possible customer bypass or departure for other electricity providers.
• The outcome of regulatory proceedings and wildfire litigation will impact stakeholders, including shareholders, customers, and creditors.

Next Steps

• 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 prudently incurred losses related to the Woolsey Fire.
• The CPUC is expected to make a final decision for the total authorized revenue requirement for 2022 operations and maintenance and capital expenditures in the second quarter of 2025.
• A proposed decision for the WMCE Filing is expected in the third quarter of 2025.
• SCE expects the final CPUC decision for the Alberhill System Project in mid-2025.
• SCE expects the Eldorado-Lugo-Mohave Upgrade Project to be in service in 2025, subject to the completion of environmental agency review of the mitigation work.
• SCE expects to file its 2025 annual update with the FERC by December 1, 2024, with the proposed rates effective January 1, 2025.

Key Dates

Keywords

Edison International, Southern California Edison, Wildfires, Regulatory Proceedings, Earnings, Capital Expenditures, Rate Recovery, CPUC, FERC, Litigation