Why did SCEcorp's earnings decline in 1993?

EPS fell to $1.43 from $1.66, largely due to about 18 cents per share of special charges, mostly at Mission Energy (geothermal write-downs and the Carbon II termination) and Mission Land (real estate). Excluding these, earnings declined about 13 cents, reflecting a lower authorized return on equity at Edison and higher administrative and development costs at the Mission companies.

How much of SCEcorp's earnings come from the utility versus nonutility businesses?

Southern California Edison accounted for 99.3% of 1993 net income, while the Mission Group contributed 0.7%. Edison's contribution was $1.42 per share, while the Mission companies contributed just 1 cent per share, down from 24 cents in 1992.

Is the dividend at risk?

Management said it remains committed to a strong dividend, but recent CPUC decisions may affect its ability to raise or retain the current level. The 1993 payout ratio was 98.6% of earnings, which leaves little margin if earnings fall further, so the dividend's coverage is a key investor watch point.

What regulatory risks could affect future earnings?

Key risks include the CPUC's reduction of the authorized ROE to 11.0%, a proposed disallowance of Mohave outage costs (about $90 million, with the CPUC expected to decide in 1994), the 1995 general rate case with the DRA recommending a $269 million reduction to expected 1994 base rate revenue, and Edison's proposed performance-based ratemaking. Environmental cleanup cost recovery is also under review.

What are the company's major capital needs and debt obligations?

Construction expenditures are projected at about $6.4 billion for 1994 to 1998, with environmental protection spending of about $1.2 billion over the same period. Debt maturities and sinking fund requirements add about $1.3 billion, and management expects most of these needs to be met from internally generated cash, which runs about $2.0 billion per year.

EIX 10-K FY1993 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 21, 1994. Cited figures are marked; the original filing is the authoritative source.

SCEcorp, the parent holding company of Southern California Edison (Edison), reported 1993 net income of $639 million^a, or $1.43 per share, down from $1.66 in 1992 and $1.61 in 1991.

The decline was driven primarily by special charges totaling about 18 cents per share, mainly at the nonutility Mission companies (geothermal project write-downs, the Carbon II termination, and Mission Land real estate charges). Excluding those charges, earnings fell about 13 cents, with Edison contributing $1.42^b per share, flat versus 1992. Edison is the economic core of the company, accounting for 99.3% of 1993 net income, while the Mission Group contributed only 0.7%.

Edison's Mission Group business continues to be a source of volatility, as Mission Energy will forgo recognizing earnings on certain geothermal contracts through their 10th year, which management said would significantly reduce 1994 and possibly later earnings even though cash flows are not affected. The regulatory backdrop is the central investor issue. The CPUC cut Edison's authorized return on common equity to 11.0%^c from 11.8% for 1994, a decision management estimated would reduce 1994 earnings by about 6 cents per share.

Several pending CPUC matters could weigh on results, including a proposed full disallowance of Mohave steam-pipe rupture costs (about $90 million^d), a 1995 general rate case that Edison's own filing and the DRA's preliminary review disagree on sharply, and a performance-based ratemaking proposal. Management also noted that CPUC decisions could affect its ability to maintain the current dividend, which was $1.415 per share for 1993 and represented a 98.6% payout ratio. The balance sheet is large, with total assets of $21.4 billion, and the company generated about $2.0 billion of operating cash flow annually.

Capital spending is heavy, with about $6.4 billion of construction expenditures planned for 1994 to 1998. The company also recorded a $2.0 billion income tax-related deferred charge following adoption of the balance sheet method for income taxes. Investors should weigh the stable utility franchise and cash generation against the regulatory pressure on returns, the dividend coverage concern, and the earnings drag from the nonutility businesses.

02—Key points

Key Highlights

1993 EPS of $1.43 versus $1.66 in 1992 (down 14%), with about 18 cents per share of special charges; excluding those, earnings declined about 13 cents.
Edison generated 99.3% of 1993 net income; Edison contributed $1.42 per share, unchanged from 1992.
CPUC cut Edison's authorized return on common equity to 11.0% for 1994 from 11.8% for 1993, reducing 1994 earnings by about 6 cents per share.
Dividends declared were $1.415 per share, representing a 98.6% payout ratio, and management flagged that recent CPUC decisions may affect its ability to maintain the dividend.
Mission Energy stopped recording earnings on certain geothermal projects in Q3 1993, which will significantly reduce its 1994 and possibly later earnings, though not expected cash flows.
Total assets were $21.4 billion, including a $2.0 billion income tax-related deferred charge from the 1993 accounting change.
Planned construction expenditures total $6.4 billion for 1994 to 1998, with $1.3 billion of debt maturities and sinking fund requirements over the same period.

03—Questions

Frequently Asked Questions

Why did SCEcorp's earnings decline in 1993?
EPS fell to $1.43 from $1.66, largely due to about 18 cents per share of special charges, mostly at Mission Energy (geothermal write-downs and the Carbon II termination) and Mission Land (real estate). Excluding these, earnings declined about 13 cents, reflecting a lower authorized return on equity at Edison and higher administrative and development costs at the Mission companies.
How much of SCEcorp's earnings come from the utility versus nonutility businesses?
Southern California Edison accounted for 99.3% of 1993 net income, while the Mission Group contributed 0.7%. Edison's contribution was $1.42 per share, while the Mission companies contributed just 1 cent per share, down from 24 cents in 1992.
Is the dividend at risk?
Management said it remains committed to a strong dividend, but recent CPUC decisions may affect its ability to raise or retain the current level. The 1993 payout ratio was 98.6% of earnings, which leaves little margin if earnings fall further, so the dividend's coverage is a key investor watch point.
What regulatory risks could affect future earnings?
Key risks include the CPUC's reduction of the authorized ROE to 11.0%, a proposed disallowance of Mohave outage costs (about $90 million, with the CPUC expected to decide in 1994), the 1995 general rate case with the DRA recommending a $269 million reduction to expected 1994 base rate revenue, and Edison's proposed performance-based ratemaking. Environmental cleanup cost recovery is also under review.
What are the company's major capital needs and debt obligations?
Construction expenditures are projected at about $6.4 billion for 1994 to 1998, with environmental protection spending of about $1.2 billion over the same period. Debt maturities and sinking fund requirements add about $1.3 billion, and management expects most of these needs to be met from internally generated cash, which runs about $2.0 billion per year.

04—Continue

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