8-KOther Events

EDISON INTERNATIONAL 8-K Report, Corporate Update (Sep 25, 2013)

Filed September 25, 2013For Securities:EIX

Summary

Edison International (EIX) announced via an 8-K filing on September 25, 2013, a significant development regarding Southern California Edison's (SCE) Energy Resource Recovery Account (ERRA) proceeding. The California Public Utilities Commission (CPUC) issued a proposed decision that, if adopted, would allow SCE to increase rates by approximately $200 million annually. This decision addresses SCE's 2013 ERRA forecast but notably defers the recovery of specific San Onofre Nuclear Generating Station (San Onofre) replacement power costs. Under the proposed decision, these San Onofre-related costs will be tracked in a memorandum account and excluded from the ERRA trigger calculation for current rate adjustments. SCE will have to seek recovery for these deferred costs through a separate San Onofre Order Instituting Investigation (San Onofre OII). This means that the reasonableness and methodology of these San Onofre costs are not yet determined and will be addressed in the upcoming OII. The company is currently facing potential undercollection of fuel and power procurement costs, estimated at $970 million by the end of 2013, which may require financing through commercial paper.

Key Highlights

  • 1CPUC issued a proposed decision on SCE's 2013 ERRA forecast.
  • 2The decision proposes an annual rate increase of approximately $200 million for SCE.
  • 3Recovery of net San Onofre replacement power costs is deferred and will be tracked in a memorandum account.
  • 4San Onofre costs are excluded from the current ERRA trigger calculation.
  • 5Recovery of San Onofre costs will be pursued through a separate San Onofre Order Instituting Investigation (OII).
  • 6The proposed decision makes no determination on the accuracy or reasonableness of San Onofre costs.
  • 7SCE anticipates undercollecting approximately $970 million in fuel and power procurement costs by year-end 2013.

Frequently Asked Questions

The Energy Resource Recovery Account (ERRA) is a regulatory mechanism used by California utilities to reconcile differences between the costs of generating electricity and purchasing power, and the rates charged to customers. For EIX investors, it's crucial because it directly impacts SCE's ability to recover its operational costs and influences rate adjustments, affecting profitability and cash flow.

The proposed decision allows SCE to defer the recovery of San Onofre replacement power costs, meaning these costs will not be immediately reflected in customer rates. While an annual rate increase of $200 million is proposed, the significant San Onofre costs will be tracked separately and require future approval through a separate OII. This deferral could lead to an undercollection of power procurement costs, potentially impacting liquidity.

The San Onofre OII (Order Instituting Investigation) is a separate regulatory proceeding where the CPUC will investigate and make determinations regarding the reasonableness and accuracy of the methodology used to calculate the net San Onofre replacement power costs. The outcome of this OII will dictate whether and how SCE can recover these deferred costs, which is a key uncertainty for investors.

The projected undercollection of approximately $970 million in fuel and power procurement costs by December 31, 2013, indicates a gap between SCE's incurred costs and the revenue it can collect under current rates. Edison International may need to finance this shortfall, potentially through commercial paper, which could increase its short-term debt obligations and interest expenses.