10-QPeriod: Q2 FY2001

EDISON INTERNATIONAL Quarterly Report for Q2 Ended Jun 30, 2001

Filed August 14, 2001For Securities:EIX

Summary

Edison International reported a significant net loss for the first half of 2001, primarily driven by the ongoing California energy crisis and its severe impact on its utility subsidiary, Southern California Edison Company (SCE). SCE experienced substantial undercollections of power procurement costs due to a mismatch between frozen retail rates and volatile wholesale electricity prices. This liquidity crisis has led to SCE defaulting on some debt obligations and facing significant financial strain. The company is actively pursuing regulatory and legislative solutions, including a Memorandum of Understanding (MOU) with the California Department of Water Resources, aimed at recovering past costs and restoring financial stability. While non-utility operations showed some positive contributions, the overwhelming financial pressure from SCE's situation dominated the period. The company's ability to continue as a going concern is highly dependent on the successful implementation of regulatory and legislative reforms to address the energy crisis and SCE's recovery of undercollected costs. Investors should closely monitor developments related to the MOU, legislative actions, and potential restructuring of SCE's debt and operations.

Key Highlights

  • 1Net loss of $719 million for the six months ended June 30, 2001, a significant deterioration from a net income of $247 million in the prior year period.
  • 2Southern California Edison Company (SCE) is facing a severe liquidity crisis due to undercollections of power costs stemming from frozen retail rates and volatile wholesale electricity prices, leading to defaults on debt obligations.
  • 3The company recorded $724 million in unrecovered transition costs as expenses during the first six months of 2001, further impacting profitability.
  • 4A Memorandum of Understanding (MOU) with the California Department of Water Resources (CDWR) aims to resolve the energy crisis, involving potential sale of transmission assets and securitization of undercollected costs.
  • 5Edison International's retained earnings have moved into a deficit position, preventing dividend payments on common stock.
  • 6Short-term and long-term debt levels remain high, with SCE unable to obtain new financing due to its credit rating downgrade.
  • 7Non-utility power generation revenue increased, driven by EME's domestic projects and increased ownership in Contact Energy, partially offsetting some of the utility segment's losses.

Frequently Asked Questions

The primary reason is the severe liquidity crisis faced by its utility subsidiary, Southern California Edison Company (SCE). This crisis stems from SCE's inability to recover escalating wholesale electricity costs from customers due to frozen retail rates, leading to substantial undercollections and defaults on debt obligations. These undercollections are no longer being capitalized as regulatory assets but are expensed, significantly impacting net income.

Edison International and SCE are actively engaged in regulatory and legislative efforts to resolve the crisis. A key initiative is the Memorandum of Understanding (MOU) with the California Department of Water Resources (CDWR), which proposes a plan including the sale of SCE's transmission assets, securitization of undercollected power procurement costs, and other measures to restore SCE's creditworthiness. The success of these efforts depends on legislative and regulatory approvals.

SCE's failure to pay principal on certain senior unsecured notes constitutes a default. This could trigger cross-default provisions on other debt facilities, potentially leading to acceleration of borrowings and, in a worst-case scenario, forcing SCE into bankruptcy. As a result of these defaults, other senior unsecured notes and subordinated debentures have been classified as due within one year on the balance sheet.

No, dividend payments are not expected in the near future. Edison International's retained earnings have fallen into a deficit position. Furthermore, SCE has accumulated preferred stock dividends in arrears. California law prohibits dividend payments on common stock if retained earnings are in deficit or if preferred dividends are in arrears. Therefore, dividend payments are unlikely until these financial conditions are rectified.