10-QPeriod: Q2 FY2002

EDISON INTERNATIONAL Quarterly Report for Q2 Ended Jun 30, 2002

Filed August 14, 2002For Securities:EIX

Summary

Edison International reported a significant turnaround in the second quarter of 2002, with net income of $665 million, or $2.02 per diluted share, compared to a net loss of $102 million, or ($0.31) per diluted share, in the same period of 2001. This improvement was largely driven by Southern California Edison's (SCE) recovery of regulatory assets related to past electricity procurement costs, notably a $480 million gain recognized in the quarter due to the implementation of the Utility-Retained Generation (URG) decision by the California Public Utilities Commission (CPUC). While the electric utility segment, SCE, showed strong recovery, Edison Mission Energy (EME), the non-utility power generation segment, faced ongoing challenges including lower wholesale electricity prices and increasing merchant risk as key contracts expire. Liquidity remains a key focus, with SCE working to recover its procurement-related obligations (PROACT) and EME navigating credit rating concerns and covenant restrictions. Investors should monitor the resolution of regulatory proceedings, especially those impacting SCE's cost recovery mechanisms and EME's operational and financial stability.

Key Highlights

  • 1Edison International reported a strong net income of $665 million ($2.02/share) for Q2 2002, a significant improvement from a net loss of $102 million ($0.31/share) in Q2 2001.
  • 2Southern California Edison (SCE) recognized a $480 million after-tax gain in Q2 2002 related to the implementation of the Utility-Retained Generation (URG) decision, which allowed for the reestablishment of significant regulatory assets.
  • 3The company's electric utility segment (SCE) continues to work on recovering its procurement-related obligations (PROACT), with the balance reduced to $1.6 billion as of June 30, 2002.
  • 4Edison Mission Energy (EME), the non-utility power generation segment, faces ongoing challenges due to lower wholesale electricity prices and an increasing merchant risk profile as contracts with Exelon Generation expire.
  • 5EME's credit ratings are under review for possible downgrade below investment grade, posing potential risks to its cost of capital and ability to obtain financing.
  • 6SCE has repaid significant debt obligations in Q1 2002 using proceeds from new credit facilities and bond remarketing, improving its near-term liquidity.
  • 7Several significant regulatory and legal proceedings continue, including appeals related to SCE's settlement agreement with the CPUC and investigations into holding company structures.

Frequently Asked Questions

The primary driver was the significant turnaround in the electric utility segment (SCE), largely due to a $480 million after-tax gain recognized from the implementation of the Utility-Retained Generation (URG) decision by the CPUC. This decision allowed SCE to reestablish regulatory assets related to its nuclear facilities, purchased-power settlements, and flow-through taxes, which had a substantial positive impact on net income.

EME is facing challenges from declining wholesale electricity prices, which are impacting its merchant generation portfolio. Additionally, a significant portion of generation from its Illinois plants will shift to wholesale markets in 2003 as key contracts with Exelon Generation expire, increasing its merchant risk. The company's credit ratings are also under review for possible downgrade, which could increase its cost of capital and financing difficulties.

SCE has made progress in recovering its procurement-related obligations (PROACT). As of June 30, 2002, the PROACT balance stood at $1.6 billion. The company projects recovery by late 2003, influenced by ongoing regulatory proceedings, including the impact of a new historical procurement charge on direct access customers and the outcome of the CDWR revenue requirement proceeding. Several appeals and legal challenges to the CPUC settlement agreement that underpins PROACT recovery are still pending.

Yes, several significant matters are ongoing. These include an appeal of the stipulated judgment approving SCE's settlement agreement with the CPUC, a petition filed with the California Supreme Court challenging the CPUC's authority in approving the settlement, and a CPUC investigation into holding company structures. Additionally, EME faces potential credit rating downgrades and ongoing litigation related to its international projects. Investors should monitor these developments as they could impact the company's financial performance and regulatory standing.