10-QPeriod: Q3 FY2012

EDISON INTERNATIONAL Quarterly Report for Q3 Ended Sep 30, 2012

Filed November 1, 2012For Securities:EIX

Summary

Edison International's third quarter 2012 filing reveals a mixed financial picture, marked by a significant year-over-year decline in net income attributable to common shareholders, primarily driven by challenges within its Competitive Power Generation segment (EMG). While the Electric Utility segment (SCE) demonstrated resilience, its performance was impacted by higher operating expenses and a delay in the General Rate Case decision, affecting revenue recovery. The most concerning aspect for investors is the substantial increase in losses within the EMG segment, largely due to lower energy prices, reduced generation, and higher fuel costs. Furthermore, EME (a key subsidiary within EMG) faces significant liquidity concerns and potential bankruptcy, with upcoming debt maturities that it may be unable to meet. This situation introduces considerable risk to Edison International's consolidated financial position and outlook. The ongoing issues at the San Onofre Nuclear Generating Station also continue to weigh on SCE's results, with extended outages leading to increased costs for replacement power and uncertainty regarding future recovery and operational status.

Financial Highlights

43 data points
Beta

Revenue

$3.73B

Net Income

$215.00M

5.8% Net Margin

EPS (Diluted)

$0.58

Total Assets

$50.55B

Cash & Equivalents

$1.14B

Free Cash Flow

$18.00M

Financial Statements
Beta
Revenue$3.73B
Operating Expenses$3.02B
Operating Income$713.00M
Interest Expense$131.00M
Net Income$215.00M
EPS (Basic)$0.58
EPS (Diluted)$0.58
Shares Outstanding (Basic)326.00M
Shares Outstanding (Diluted)329.00M

Key Highlights

  • 1Net income attributable to Edison International common shareholders decreased significantly to $190 million for the three months ended September 30, 2012, down from $426 million in the same period of 2011.
  • 2The Competitive Power Generation segment (EMG) reported a net loss of $137 million for the quarter, a substantial deterioration from a net income of $33 million in the prior year, driven by lower energy prices and higher operating costs.
  • 3EME, the parent of EMG, faces significant liquidity challenges and potential bankruptcy due to ongoing operating losses and upcoming debt maturities, posing a material risk to Edison International.
  • 4Southern California Edison (SCE) experienced higher operating expenses, including increased costs related to the San Onofre Nuclear Generating Station outages, which are under extensive inspection and repair.
  • 5The delay in the California Public Utilities Commission's (CPUC) 2012 General Rate Case decision for SCE is impacting revenue recovery, as higher costs are not yet being fully recovered through authorized rates.
  • 6Homer City, a former asset, has been classified as a discontinued operation, with EME recording a $113 million charge related to its expected divestiture.
  • 7Total operating revenue for Edison International increased to $4.07 billion from $3.82 billion year-over-year, primarily driven by higher revenue in the Electric Utility segment, but this was offset by increased expenses and segment losses.

Frequently Asked Questions

The primary driver of the decrease in net income is the significant deterioration in the performance of Edison International's Competitive Power Generation segment (EMG), which incurred substantial operating losses due to lower energy prices, reduced generation, and higher fuel costs. Additionally, ongoing issues at the San Onofre Nuclear Generating Station, including extended outages and associated repair costs, have negatively impacted the Electric Utility segment (SCE).

The most significant risk is the severe liquidity crisis facing EME, the parent of EMG. EME is experiencing ongoing operating losses and has upcoming debt maturities that it is unlikely to be able to meet, raising concerns about potential bankruptcy. This situation could lead to the deconsolidation of EME from Edison International's financial statements and significant financial write-downs.

The extended outages at San Onofre Units 2 and 3 due to steam generator issues have resulted in significant increases in costs for SCE. These include higher costs for purchasing replacement power in the market and expenses for inspections and repairs. There is also ongoing uncertainty regarding when, or if, the units will return to service and at what capacity, as well as potential disallowances of costs by the CPUC, which could impact SCE's financial recovery.

The delay in the CPUC's 2012 General Rate Case decision means that SCE is currently recognizing revenue based on the 2011 authorized revenue requirement. This has resulted in higher depreciation and net interest expenses not being fully recovered in current authorized rates, negatively impacting SCE's earnings. The ultimate revenue requirement will be effective retroactively to January 1, 2012, but the timing of this adjustment creates short-term pressure on earnings.