What is the main risk to SCEcorp's earnings from California's utility restructuring?

If the CPUC restructuring proceeds without full recovery of generation-related costs, Edison could have to write off about $1 billion of regulatory assets and possibly some of its $9.3 billion in estimated transition costs. The CPUC postponed its proposed policy decision on March 21, 1995, so the timing and final design remain uncertain. Management states it cannot predict the earnings effect until the CPUC sets valuation and recovery criteria.

Why did SCEcorp cut its dividend in 1994?

The company lowered its quarterly common dividend by 30% in June 1994 because of declining authorized rates of return for Edison and uncertainty about future earnings from the changing utility industry and proposed California regulatory changes. The cut reduced 1994 cash dividend payments by about $94 million.

How much does the CPUC-mandated power purchase program cost Edison customers?

The CPUC-mandated solicitation would require Edison to buy 686 MW of new power at fixed prices starting in 1997, which Edison estimates would cost customers $14 billion over the contract lives. Edison has negotiated alternative agreements covering 558 MW (or 627 MW in the earlier BRPU filing) at substantially lower cost. On February 23, 1995, FERC ruled that Edison cannot lawfully be compelled to enter into these contracts, and the CPUC stayed the proceeding until May 10, 1995.

What are the company's main pending legal and environmental exposures?

Key exposures include wind-generation contract lawsuits seeking about $189 million, geothermal qualifying facility suits alleging underpayments of at least $21 million (with possible total contract payments of about $60 million), several electromagnetic field cancer lawsuits, and San Onofre personal injury claims. Environmental cleanup liabilities are $114 million, with up to $215 million of reasonably possible additional costs. Management believes most cleanup costs will be recoverable through customer rates and that these matters will not have a material adverse effect, though the wind-contract ruling could be significant if not recoverable through the ECAC.

EIX 10-K FY1994 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 29, 1995. Cited figures are marked; the original filing is the authoritative source.

This is the fiscal 1994 Form 10-K for SCEcorp, the holding company for Southern California Edison (Edison) and the nonutility Mission Group.

The filing predates the 1997 name change to Edison International, so the EIX ticker in the request refers to this same registrant's successor. SCEcorp reported 1994 net income of $681 million^a, or $1.52 per share, up from $1.43 in 1993, on operating revenue of $8.345 billion. Edison contributed 88% of net income ($599 million, or $1.34 per share), and the Mission companies contributed 12% (about $0.19 per share).

Earnings improved despite a 30% cut to the common dividend in June 1994, which reduced dividend payments by about $94 million^b. The central investor issue is California's proposed electric industry restructuring. Edison has proposed a competition transition charge to recover about $9.3 billion (net present value) of costs through 2025, including $4.9 billion tied to qualifying facility contracts.

Roughly $1 billion^c of regulatory assets would become a non-cash write-off if rate recovery of generation costs becomes uncertain. The CPUC postponed its proposed policy decision on March 21, 1995, so the outcome remains open. Edison's authorized return on equity rose to 12.1% for 1995, and a 1995 general rate case settlement with the Division of Ratepayer Advocates is pending CPUC approval.

Other material items include a CPUC-mandated power purchase solicitation (686 MW, estimated at $14 billion^d over contract lives) that FERC ruled cannot be compelled under PURPA, environmental remediation liabilities of $114 million with a reasonably possible additional exposure of up to $215 million, and roughly $189 million of damages claimed in wind-generation contract lawsuits. Management also authorized a $150 million share repurchase in January 1995.

02—Key points

Key Highlights

1994 net income rose to $681 million ($1.52 per share) from $639 million ($1.43 per share) in 1993, with Edison providing $599 million (88%) and the Mission companies about 12%.
Operating revenue reached $8.345 billion, up 6% from $7.839 billion, driven by a 3.2% CPUC-authorized rate increase and 6% higher sales volume.
Edison estimates potential transition costs through 2025 at $9.3 billion (net present value); about $1 billion of regulatory assets could face a non-cash write-off if generation cost recovery fails under restructuring.
The quarterly common dividend was cut 30% in June 1994; dividends declared per share fell to $1.105 from $1.415 in 1993.
Mission Energy owns 2,048 MW of attributable generating capacity and reported 1994 net income of $55 million, with additional international projects including Loy Yang B in Australia and Paiton in Indonesia.
Environmental liabilities for 61 identified sites total $114 million, with reasonably possible additional costs of up to $215 million; the SCEcorp five-year environmental capital plan is $1.5 billion.
Operating cash flow was $2.05 billion in 1994, and construction expenditures are forecast at $4.9 billion for 1995-1999; the board authorized a $150 million share repurchase in January 1995.

03—Questions

Frequently Asked Questions

What is the main risk to SCEcorp's earnings from California's utility restructuring?
If the CPUC restructuring proceeds without full recovery of generation-related costs, Edison could have to write off about $1 billion of regulatory assets and possibly some of its $9.3 billion in estimated transition costs. The CPUC postponed its proposed policy decision on March 21, 1995, so the timing and final design remain uncertain. Management states it cannot predict the earnings effect until the CPUC sets valuation and recovery criteria.
Why did SCEcorp cut its dividend in 1994?
The company lowered its quarterly common dividend by 30% in June 1994 because of declining authorized rates of return for Edison and uncertainty about future earnings from the changing utility industry and proposed California regulatory changes. The cut reduced 1994 cash dividend payments by about $94 million.
How much does the CPUC-mandated power purchase program cost Edison customers?
The CPUC-mandated solicitation would require Edison to buy 686 MW of new power at fixed prices starting in 1997, which Edison estimates would cost customers $14 billion over the contract lives. Edison has negotiated alternative agreements covering 558 MW (or 627 MW in the earlier BRPU filing) at substantially lower cost. On February 23, 1995, FERC ruled that Edison cannot lawfully be compelled to enter into these contracts, and the CPUC stayed the proceeding until May 10, 1995.
What are the company's main pending legal and environmental exposures?
Key exposures include wind-generation contract lawsuits seeking about $189 million, geothermal qualifying facility suits alleging underpayments of at least $21 million (with possible total contract payments of about $60 million), several electromagnetic field cancer lawsuits, and San Onofre personal injury claims. Environmental cleanup liabilities are $114 million, with up to $215 million of reasonably possible additional costs. Management believes most cleanup costs will be recoverable through customer rates and that these matters will not have a material adverse effect, though the wind-contract ruling could be significant if not recoverable through the ECAC.

04—Continue

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