10-QPeriod: Q3 FY2001

EDISON INTERNATIONAL Quarterly Report for Q3 Ended Sep 30, 2001

Filed November 14, 2001For Securities:EIX

Summary

Edison International reported a significant net loss of $1.132 billion for the nine months ended September 30, 2001, a substantial shift from the $607 million net income in the prior year period. This downturn is primarily attributed to a major liquidity crisis at its subsidiary, Southern California Edison (SCE), stemming from the California energy crisis. SCE faced substantial undercollections due to wholesale electricity prices significantly exceeding frozen retail rates, leading to defaults on debt and a severe liquidity crunch. A critical development during the quarter was the settlement agreement with the California Public Utilities Commission (CPUC), which aims to resolve SCE's procurement cost recovery issues and restore financial stability through a new regulatory account (PROACT). However, the resolution of the crisis and SCE's ability to avoid bankruptcy remain uncertain pending the successful implementation and appeal resolution of this settlement.

Key Highlights

  • 1Significant Net Loss: Edison International reported a net loss of $1.132 billion for the nine months ended September 30, 2001, a sharp contrast to the $607 million net income in the same period of 2000.
  • 2Liquidity Crisis at SCE: Southern California Edison (SCE) is experiencing a severe liquidity crisis due to sustained high wholesale electricity prices exceeding frozen retail rates, leading to defaults on debt obligations and over $3.3 billion in unpaid and overdue obligations.
  • 3CPUC Settlement Agreement: Edison International, through SCE, reached a settlement agreement with the CPUC to address procurement cost recovery issues and restore financial stability, establishing a new regulatory account (PROACT) expected to resolve outstanding obligations.
  • 4Disruption in Operations: SCE has suspended payments on certain debt and purchased power obligations, and has deferred interest payments on subordinated debentures, highlighting the severity of its financial distress.
  • 5Non-Utility Asset Sales: To manage its financial situation, Edison International is actively selling off non-core assets, including two UK coal-fired generating stations by Edison Mission Energy (EME), resulting in a significant write-down.
  • 6Dividend Suspension: Due to liquidity concerns and regulatory restrictions, both SCE and Edison International have suspended common stock dividends.
  • 7Ongoing Uncertainty: Despite the CPUC settlement, significant uncertainty remains regarding the successful implementation, resolution of appeals, and the ultimate impact on SCE's ability to avoid bankruptcy and regain creditworthiness.

Frequently Asked Questions

The primary driver is the severe liquidity crisis faced by its subsidiary, Southern California Edison (SCE), due to the California energy crisis. This crisis led to significant undercollections, defaults on debt, and a need for drastic cash conservation measures.

The settlement agreement is a crucial development aimed at resolving SCE's ability to recover its past electricity procurement costs and restore financial stability. It establishes a new regulatory account (PROACT) to manage these obligations and aims to allow SCE to pay its overdue amounts and avoid bankruptcy, although the process is still subject to appeals and regulatory implementation.

The crisis has led to SCE suspending payments on various obligations, deferring interest payments, and significant credit rating downgrades. Both SCE and Edison International have suspended common stock dividends, impacting shareholder returns. The company is also divesting non-core assets to improve its financial position.

The primary risks include the potential for appeals or challenges to the CPUC settlement agreement, uncertainty regarding SCE's ability to fully implement the settlement and recover its costs, the ongoing credit market's reaction to SCE's financial state, and the possibility of involuntary bankruptcy if resolution is not achieved. There is also the risk associated with the ongoing restructuring of the California energy market.