01—Abstract
Summary
Summary of the 10-K filed March 29, 2002. Cited figures are marked; the original filing is the authoritative source.
Edison International's 2001 Form 10-K reports a year dominated by the California energy crisis.
Consolidated 2001 net income was $1.035 billiona ($3.18 basic EPS), a sharp swing from a $1.943 billion loss in 2000, but the swing is driven by accounting rather than operations. SCE recorded a $3.6 billion PROACT regulatory asset (about $2.1 billion after tax) in Q4 2001 under the October 2001 CPUC settlement, offset by $1.15 billion after-tax losses on the sale of EME's UK Ferrybridge and Fiddler's Ferry plants and $1.4 billion of total discontinued-operations losses. Excluding the SCE procurement adjustments, core earnings were $1.30 per share versus $1.75 in 2000, reflecting lower SCE earnings, a Mission Energy Holding parent-level loss, and weaker Edison Capital results.
The balance sheet and credit profile remain the central investor concern. Edison International and SCE were downgraded to below investment grade in January 2001 and, although raised in March 2002, remain below investment grade. SCE repaid $3.2 billionb of past-due obligations and $1.65 billion of near-term maturities on March 1, 2002, using a $1.6 billion secured credit facility and cash.
Common dividends are suspended: SCE cannot pay common dividends until the PROACT balance is recovered (targeted by end-2003, with an outside date of 2005), and the parent does not expect to pay dividends until then. Long-term debt maturities are heavy, at $1.5 billionc in 2002 and $2.4 billion in 2003. Key uncertainties include a pending appeal of the CPUC settlement, the CPUC's first-priority-capital investigation, the URG and 2003 general rate case outcomes, and EME's concentrated exposure to Exelon contracts.
EME's Illinois plants and Homer City are funded largely through off-balance-sheet sale-leasebacks, and EME's recourse debt-to-capital ratio of 64.1%d sits close to its 67.5% covenant. EME retains investment-grade ratings under ring-fencing provisions. Investors should weigh the strong 2001 headline earnings against the non-recurring nature of the regulatory accounting gains, the still-restricted dividend capacity, and the dependence on regulators and the courts to validate the recovery mechanisms.
02—Key points
Key Highlights
- 2001 net income of $1.035 billion ($3.18 basic EPS) versus a $1.943 billion loss in 2000, driven mainly by a $3.6 billion ($2.1 billion after-tax) PROACT regulatory asset credit at SCE and offset by $1.4 billion of discontinued-operations losses
- Core EPS fell to $1.30 from $1.75 in 2000 as SCE core earnings declined to $1.25 from $1.42 and Edison Capital and parent-level results weakened
- Both Edison International and SCE remain below investment grade after a January 2001 downgrade; March 2002 upgrades did not restore investment-grade status
- SCE repaid $3.2 billion of past-due obligations and $1.65 billion of near-term debt on March 1, 2002, funded by a $1.6 billion secured credit facility and cash
- Common dividends suspended: SCE may not pay common dividends until the PROACT balance is recovered, and the parent does not expect to pay dividends until then
- Heavy debt maturities of $1.5 billion in 2002 and $2.4 billion in 2003; parent liquidity limited to $31 million of cash at year-end 2001
- EME sold its UK coal plants at a large loss, has recourse debt-to-capital of 64.1% against a 67.5% covenant, and remains investment grade under ring-fencing provisions; environmental capital needs total $1.7 billion for 2002-2006
03—Questions
Frequently Asked Questions
Why did Edison International swing from a 2000 loss to 2001 profit?
The swing is mainly accounting-driven. In Q4 2001, SCE recorded a $3.6 billion PROACT regulatory asset (about $2.1 billion after tax) under the October 2001 CPUC settlement, reversing part of the $4.2 billion pre-tax write-off taken at December 31, 2000. This was partly offset by $1.4 billion of after-tax losses from discontinued operations, chiefly the sale of EME's UK Ferrybridge and Fiddler's Ferry plants. Core earnings excluding these items declined to $1.30 per share from $1.75.
Will Edison International pay dividends to shareholders soon?
Not in the near term. The company does not expect to pay common dividends until SCE recovers its PROACT balance. SCE may not pay common dividends before the earlier of full PROACT recovery or January 1, 2005, though it may apply to the CPUC to resume dividends after December 31, 2003 if the balance is still outstanding. Dividends were last declared in 2000, and cash dividends from SCE to the parent were zero in 2001.
Are the credit ratings expected to return to investment grade?
The company is seeking investment-grade ratings, but timing is uncertain. Ratings were cut to below investment grade in 2001 and raised in March 2002 but remain below investment grade. The settlement with the CPUC is intended to restore creditworthiness, but SCE cannot give assurance of regaining investment grade by any particular date. EME retains investment-grade ratings, though a downgrade could require additional collateral and raise its cost of capital.
What are the main risks to the regulatory recovery plan?
The biggest risk is the pending appeal of the federal court stipulated judgment approving the CPUC settlement, argued March 4, 2002 and still under submission. Other risks include the CPUC's investigation into whether holding companies violated first-priority capital requirements, the outcome of the utility-retained generation and 2003 general rate case proceedings, and uncertainty about refunds from FERC proceedings. A reversal could impair SCE's ability to recover its procurement costs and restore its financial condition.
How exposed is EME to Exelon and other contracts?
EME is significantly concentrated. Power purchase agreements with Exelon Generation accounted for 36% of EME's 2001 electric revenues ($1.1 billion), with Exelon holding options to terminate certain agreements for 2003 and 2004. EME also faces market exposure at the UK First Hydro plant after the new trading arrangements reduced operating income by $106 million, and its California qualifying facility partnerships depend on SCE and PG&E payments.
04—Continue