10-QPeriod: Q3 FY2018

EDISON INTERNATIONAL Quarterly Report for Q3 Ended Sep 30, 2018

Filed October 30, 2018For Securities:EIX

Summary

Edison International (EIX) reported its third-quarter and nine-month results for 2018, with a significant focus on the ongoing impact of the December 2017 wildfires and Montecito mudslides. While Southern California Edison (SCE) experienced an increase in net income for the quarter compared to the prior year, driven by lower operating and maintenance expenses and favorable tax impacts, the nine-month period saw a slight decrease, largely due to higher operational costs. The company is facing substantial potential liabilities from these natural disasters, for which it is currently unable to reasonably estimate a range of losses. Regulatory and legal strategies are being pursued to address these wildfire-related liabilities, including the recent passage of Senate Bill 901, which may influence future cost recovery. Financially, the company generated positive operating cash flows but also incurred significant capital expenditures related to infrastructure upgrades and wildfire mitigation efforts. The credit ratings of both Edison International and SCE were downgraded by Moody's and Fitch in the third quarter due to wildfire exposure, which could increase future borrowing costs. Investors should closely monitor the progress of wildfire litigation, regulatory decisions on cost recovery, and the company's ability to manage its substantial capital investment plans and maintain its investment-grade credit ratings.

Financial Highlights

46 data points
Beta

Revenue

$4.27B

Net Income

$544.00M

12.7% Net Margin

EPS (Diluted)

$1.57

Total Assets

$53.56B

Cash & Equivalents

$71.00M

Free Cash Flow

-$28.00M

Financial Statements
Beta
Revenue$4.27B
Operating Expenses$3.53B
Operating Income$739.00M
Interest Expense$188.00M
Net Income$544.00M
EPS (Basic)$1.57
EPS (Diluted)$1.57
Shares Outstanding (Basic)326.00M
Shares Outstanding (Diluted)327.00M

Key Highlights

  • 1EIX reported an increase in net income for the three months ended September 30, 2018, to $513 million, up from $470 million in the prior year period, primarily driven by SCE's improved performance.
  • 2For the nine months ended September 30, 2018, net income attributable to Edison International decreased to $1,007 million from $1,110 million in the prior year period, mainly due to increased losses in Edison International Parent and Other.
  • 3EIX and SCE acknowledge expecting to incur a material loss in connection with the Thomas Fire, but are currently unable to estimate a range of losses due to uncertainties regarding causes and multiple ignition points.
  • 4Moody's and Fitch downgraded EIX and SCE's credit ratings in the third quarter of 2018 due to wildfire exposure, placing the outlooks on stable or negative watch.
  • 5SCE's insurance coverage for the 2017 wildfires is approximately $1 billion, subject to a self-insured retention, and may not be sufficient to cover all damages.
  • 6The company is investing significantly in its capital program, with projected expenditures of approximately $4.2 billion for 2018, focusing on distribution, transmission, and grid modernization.
  • 7California Senate Bill 901 was signed into law in September 2018, introducing new considerations for wildfire cost recovery by investor-owned utilities, which EIX is actively monitoring.

Frequently Asked Questions

The most significant financial risk is the potential liability arising from the December 2017 wildfires, particularly the Thomas Fire, and the subsequent Montecito Mudslides. The company has acknowledged it expects to incur a material loss but cannot yet estimate the range of these losses due to ongoing investigations and litigation. The application of inverse condemnation and the sufficiency of insurance coverage are key concerns.

In the third quarter of 2018, both Moody's and Fitch downgraded the credit ratings of Edison International and its subsidiary SCE due to their exposure to wildfire liabilities. While SCE's credit facility remains available, credit rating downgrades can increase borrowing costs and potentially impact access to capital markets, especially for contracts requiring investment-grade ratings.

Edison International and SCE are actively pursuing legislative, regulatory, and legal strategies to address wildfire liabilities. The recent passage of Senate Bill 901 in California offers some potential for future cost recovery mechanisms, considering factors like utility actions and climate conditions. However, the company cannot predict the ultimate outcome or the timing of a comprehensive solution for mitigating these risks.

The company has a substantial capital program planned, projecting approximately $4.2 billion in capital expenditures for 2018, and over $13 billion for the period 2018-2020. These investments are focused on traditional utility infrastructure such as distribution and transmission, as well as grid modernization, transportation electrification, and wildfire safety measures like the proposed Grid Safety and Resiliency Program.