10-QPeriod: Q1 FY2007

EDISON INTERNATIONAL Quarterly Report for Q1 Ended Mar 31, 2007

Filed May 9, 2007For Securities:EIX

Summary

Edison International's first quarter 2007 financial results show a significant increase in net income to $333 million, up from $258 million in the prior year period, translating to $1.01 per diluted share. This growth was primarily driven by improved performance in both the regulated utility (SCE) and non-utility power generation (EMG) segments. SCE's earnings benefited from effective regulatory cost recovery and a reduction in income tax reserves due to progress in an IRS administrative appeal. EMG's performance was bolstered by higher wholesale energy margins, driven by increased generation and favorable energy prices at its Midwest Generation and Homer City facilities, despite a prior year transformer outage impacting those results. The company's consolidated operating revenue rose to $2.91 billion from $2.75 billion year-over-year. While electric utility revenue saw a modest increase, nonutility power generation revenue experienced substantial growth, largely due to higher energy prices and generation volumes. However, significant unrealized losses on non-qualifying derivative hedges at EMG, primarily affecting the Illinois plants, partially offset the revenue gains. The company also reported a substantial increase in cash flow from operating activities, driven by higher customer collections and timing of working capital items.

Key Highlights

  • 1Net income increased to $333 million ($1.01 EPS) in Q1 2007 from $258 million ($0.78 EPS) in Q1 2006.
  • 2Consolidated operating revenue grew to $2.91 billion from $2.75 billion, with nonutility power generation revenue showing strong growth.
  • 3SCE's earnings improved due to regulatory rate adjustments and a tax reserve reduction related to an IRS appeal.
  • 4EMG's earnings increased significantly, driven by higher wholesale energy margins and prices at its power generation facilities.
  • 5Purchased-power expense decreased substantially due to net unrealized gains on economic hedging activities.
  • 6Capital expenditures remained robust, with SCE planning $17.3 billion over five years and EMG investing in wind projects.
  • 7Edison International adopted FIN 48 (Accounting for Uncertainty in Income Taxes), resulting in a $250 million increase in retained earnings.

Frequently Asked Questions

The primary driver for the increase in net income was improved performance across both the electric utility segment (SCE) and the non-utility power generation segment (EMG). SCE benefited from favorable regulatory outcomes and tax reserve adjustments, while EMG saw higher wholesale energy margins due to increased generation and favorable pricing.

The non-utility power generation segment (EMG) showed strong growth, with revenue increasing significantly due to higher energy prices and generation volumes at its Midwest Generation and Homer City facilities. However, this was partially offset by unrealized losses on derivative contracts that did not qualify for hedge accounting.

Edison International continues to invest significantly in its infrastructure. SCE has a five-year capital investment plan totaling up to $17.3 billion, primarily for transmission and distribution infrastructure. EMG is also making substantial investments in new wind projects, with significant expenditures planned over the next few years for turbine acquisitions and project development.

Edison International adopted FIN 48 (Accounting for Uncertainty in Income Taxes) effective January 1, 2007. This adoption resulted in a one-time cumulative-effect adjustment that increased retained earnings by $250 million, reflecting a clearer accounting standard for uncertain tax positions.