How much did Edison International earn in 1995, and how does that compare to prior years?

Net income was $739 million, or $1.66 per share, in 1995, compared with $681 million ($1.52) in 1994 and $639 million ($1.43) in 1993. Southern California Edison contributed $1.44 per share of the 1995 total, and Edison Mission Energy, Edison Capital and the holding company accounted for the remainder.

What is the biggest risk to the company from California's electric restructuring?

The CPUC's December 1995 decision creates competition from January 1998, and SCE estimates about $9.3 billion in transition costs recoverable through a non-bypassable charge. However, if the decision is revised so that SCE no longer meets criteria for regulatory accounting, SCE could write off roughly $1.4 billion of generation-related regulatory assets. SCE has also asked the CPUC to clarify that recovery of 1996-and-later fossil capital spending is allowed; if it is not, 1996 pretax earnings could fall by more than $50 million.

Will the early retirement program and rate decisions affect 1996 results?

The early retirement program will record about $65 million in pretax charges in the second quarter of 1996, with savings expected to offset those costs within a year. The GRC decision lowers 1996 operating revenue by an additional $9 million, and the cost-of-capital decision (11.6% ROE versus 12.1% in 1995) is estimated to reduce 1996 earnings by about 4 cents per share. The $237 million ECAC refund reduces 1996 cash flow but is expected not to affect earnings.

What is the status of Edison Mission Energy's large projects?

EME acquired First Hydro for about $1 billion in December 1995 and increased its Paiton stake to 40%. It also has a 49% interest in the $1 billion ISAB gasification project in Italy, with financing expected in early 1996. For the Brooklyn Navy Yard project, EME has funded $300 million of a $420 million commitment and guaranteed a $254 million tax-exempt financing, but it expects returns to be substantially lower than originally estimated because of disputes with Consolidated Edison over milestones and plant configuration.

What dividend and capital return policies does the company have?

The 1995 dividend was $1.00 per share, with a payout ratio of 60% (compared with about 75% for the utility industry) and cash flow coverage of 4.8 times. The dividend was cut 30% in June 1994. In January 1995 the board authorized repurchases of up to $150 million of stock, and $70 million had been repurchased by early February 1996. SCE's ability to pay dividends to the parent is limited by the CPUC, which allowed $528 million of additional dividends at year-end 1995 while maintaining its authorized capital structure.

EIX 10-K FY1995 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 27, 1996. Cited figures are marked; the original filing is the authoritative source.

Edison International (formerly SCEcorp), the holding company for Southern California Edison (SCE) and nonutility subsidiaries, reported 1995 net income of $739 million^a, or $1.66 per share, up from $1.52 in 1994 and $1.43 in 1993.

SCE generated 87% of net income and the nonutility companies 13%. Operating revenue was $8.4 billion^b. The company's central issue is the CPUC's December 20, 1995 electric industry restructuring decision, which would open generation to competition beginning January 1, 1998, with full customer participation by 2003.

SCE estimates potential transition costs (CTC) of about $9.3 billion^c (net present value), and it faces a risk that revisions to the decision could force write-offs of $1.4 billion in generation-related regulatory assets. SCE also filed voluntary divestiture plans proposing auction of 50% of its fossil units. Near-term earnings and cash items include a voluntary early retirement program that will cost about $65 million pretax in Q2 1996, a January 1996 General Rate Case decision that reduces revenue and sets a reduced return (7.34%) on San Onofre Units 2 and 3, and a $237 million ECAC overcollection refund in 1996 that will hit cash flow but not earnings.

Edison Mission Energy, the independent power arm, expanded aggressively, including the $1 billion^d acquisition of First Hydro in the U.K. and a $1 billion Paiton-related financing in Indonesia, but it also flagged the Brooklyn Navy Yard project as likely to earn substantially less than originally estimated. Contingent exposures include QF litigation (up to about $60 million in alleged contract payments), wind-producer suits (about $189 million claimed), environmental cleanup (a recorded liability of $114 million with a possible excess of up to $215 million), and several San Onofre personal injury suits. From an investor standpoint, the company is a dividend-reduced utility in transition.

Its 1995 dividend was $1.00 per share, cut 30% in June 1994, with a payout ratio of 60%. Cash flow from operations was about $2.1 billion, and the company repurchased $70 million of stock. Investors should weigh solid reported earnings against significant regulatory uncertainty over stranded costs and the restructuring outcome, the pace of nonutility growth, and potential write-offs if the CPUC revises its decision.

02—Key points

Key Highlights

1995 net income of $739 million ($1.66 per share), up 9% from $681 million ($1.52) in 1994; SCE contributed 87% of net income and the nonutility companies 13%.
CPUC electric restructuring decision (Dec. 20, 1995): competition phases in from Jan. 1, 1998, with all customers by 2003; SCE estimates $9.3 billion in transition costs (NPV) through 2025, and $1.4 billion of generation-related regulatory assets are at risk of write-off if the decision is revised.
Voluntary early retirement program announced March 22, 1996, with a pretax charge of about $65 million in Q2 1996, expected to be offset by savings within a year.
January 1996 General Rate Case decision reduces 1996 revenue and sets a 7.34% return (versus 9.55%) on San Onofre Units 2 and 3 investment (about $2.7 billion), recovered over eight years; a $237 million ECAC overcollection will be refunded to customers in 1996, reducing cash flow but not earnings.
Edison Mission Energy expanded through the $1 billion acquisition of First Hydro Limited (U.K., 2,088 MW pumped storage) and a 40% stake in the 1,230 MW Paiton coal project in Indonesia; it warned that Brooklyn Navy Yard returns will likely be well below original estimates.
Dividends of $1.00 per share in 1995 (60% payout), following a 30% cut in June 1994; the company repurchased $70 million of common stock in 1995 and generated about $2.1 billion in operating cash flow.
Significant contingent liabilities include QF contract litigation (plaintiffs allege at least $21 million in past underpayments, with up to about $60 million more), wind-producer suits seeking about $189 million, and environmental cleanup at 62 sites with a recorded liability of $114 million (possible excess of up to $215 million).

03—Questions

Frequently Asked Questions

How much did Edison International earn in 1995, and how does that compare to prior years?
Net income was $739 million, or $1.66 per share, in 1995, compared with $681 million ($1.52) in 1994 and $639 million ($1.43) in 1993. Southern California Edison contributed $1.44 per share of the 1995 total, and Edison Mission Energy, Edison Capital and the holding company accounted for the remainder.
What is the biggest risk to the company from California's electric restructuring?
The CPUC's December 1995 decision creates competition from January 1998, and SCE estimates about $9.3 billion in transition costs recoverable through a non-bypassable charge. However, if the decision is revised so that SCE no longer meets criteria for regulatory accounting, SCE could write off roughly $1.4 billion of generation-related regulatory assets. SCE has also asked the CPUC to clarify that recovery of 1996-and-later fossil capital spending is allowed; if it is not, 1996 pretax earnings could fall by more than $50 million.
Will the early retirement program and rate decisions affect 1996 results?
The early retirement program will record about $65 million in pretax charges in the second quarter of 1996, with savings expected to offset those costs within a year. The GRC decision lowers 1996 operating revenue by an additional $9 million, and the cost-of-capital decision (11.6% ROE versus 12.1% in 1995) is estimated to reduce 1996 earnings by about 4 cents per share. The $237 million ECAC refund reduces 1996 cash flow but is expected not to affect earnings.
What is the status of Edison Mission Energy's large projects?
EME acquired First Hydro for about $1 billion in December 1995 and increased its Paiton stake to 40%. It also has a 49% interest in the $1 billion ISAB gasification project in Italy, with financing expected in early 1996. For the Brooklyn Navy Yard project, EME has funded $300 million of a $420 million commitment and guaranteed a $254 million tax-exempt financing, but it expects returns to be substantially lower than originally estimated because of disputes with Consolidated Edison over milestones and plant configuration.
What dividend and capital return policies does the company have?
The 1995 dividend was $1.00 per share, with a payout ratio of 60% (compared with about 75% for the utility industry) and cash flow coverage of 4.8 times. The dividend was cut 30% in June 1994. In January 1995 the board authorized repurchases of up to $150 million of stock, and $70 million had been repurchased by early February 1996. SCE's ability to pay dividends to the parent is limited by the CPUC, which allowed $528 million of additional dividends at year-end 1995 while maintaining its authorized capital structure.

04—Continue

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