8-KMaterial AgreementsFinancial EventsRegulation FD+1

EDISON INTERNATIONAL 8-K Report, Material Agreement (Mar 27, 2014)

Filed March 27, 2014For Securities:EIX

Summary

Edison International (EIX) filed an 8-K on March 27, 2014, detailing a significant settlement agreement concerning the San Onofre Nuclear Generating Station (San Onofre). The proposed settlement, if approved by the California Public Utilities Commission (CPUC), would resolve disputes related to the Steam Generator Replacement Project (SGRP) and the subsequent permanent shutdown of the plant. Key financial implications include disallowances on recovery of certain SGRP capitalized costs and incremental inspection/repair costs, totaling approximately $597 million and $99 million respectively. However, the company is authorized to recover its remaining investment in San Onofre over a ten-year period, alongside certain operating expenses and power purchase costs related to the outage.

Key Highlights

  • 1Edison International's subsidiary, SCE, entered into a Settlement Agreement with TURN, ORA, and SDG&E to resolve CPUC proceedings regarding the San Onofre SGRP and subsequent shutdown.
  • 2The settlement is subject to CPUC approval, with no certainty on the timing or outcome.
  • 3SCE will not be allowed to recover approximately $597 million in SGRP capitalized costs (as of Feb 1, 2012) and $99 million in incremental inspection/repair costs.
  • 4SCE is authorized to recover its remaining San Onofre investment, operating expenses, and power purchase costs related to the outage over a ten-year period.
  • 5The company expects to record an additional pre-tax impairment charge of approximately $155 million in Q1 2014 related to the settlement.
  • 6Potential recoveries from third parties (NEIL and MHI) will be allocated between ratepayers and SCE, with significant ongoing litigation and uncertainty.
  • 7The present value of revenue requirement to be collected under the settlement is estimated to be over $1 billion lower than SCE's previous request.

Frequently Asked Questions

The main financial impact is the disallowance of recovery for approximately $597 million in SGRP capitalized costs and $99 million in incremental inspection and repair costs. This will result in an additional pre-tax impairment charge of approximately $155 million in the first quarter of 2014. While significant costs are disallowed, the company is authorized to recover its remaining investment in San Onofre and related operational costs over a ten-year period.

The primary risk is that the California Public Utilities Commission (CPUC) may not approve the settlement agreement, or may approve it with modifications that are not acceptable to all parties. There is also uncertainty surrounding potential recoveries from third parties like NEIL and MHI, as these claims are subject to ongoing litigation and potential disputes, with no guarantee of recovery exceeding legal costs.

If approved, the settlement is expected to result in a significant reduction in revenue requirements for ratepayers, estimated at over $1 billion in present value compared to SCE's original request. Ratepayers will also benefit from the allocation of any future recoveries from third parties and will receive credits to their energy cost balancing accounts, totaling an estimated $256 million in refunds related to the SGRP and other settlement provisions.

Edison International, through SCE, is pursuing significant claims against Mitsubishi Heavy Industries (MHI) for damages related to the steam generators, seeking at least $4 billion. MHI denies liability and has filed counterclaims. SCE has also submitted invoices for inspection and repair costs, of which MHI has paid a portion while reserving rights. The allocation of any recoveries from MHI between SCE and ratepayers is complex and tiered, with a significant portion going to SCE for the initial amounts recovered.