8-KOther Events

EDISON INTERNATIONAL 8-K Report, Corporate Update (Feb 7, 2017)

Filed February 7, 2017For Securities:EIX

Summary

This 8-K filing from Edison International (EIX) on February 7, 2017, announces a Memorandum of Understanding (MOU) between its subsidiary, Southern California Edison (SCE), and other investor-owned utilities with the California Public Utilities Commission's (CPUC) Office of Ratepayer Advocates (ORA) and The Utility Reform Network (TURN). The core of the agreement is to extend the next cost of capital application deadline to April 2019 for the year 2020, reset authorized costs for long-term debt and preferred stock in 2018, and notably, reduce the authorized Return on Equity (ROE) for SCE. This MOU, if approved by the CPUC via a Petition for Modification (PFM), will lead to an estimated annual revenue requirement reduction for SCE of approximately $66 million (around $39 million after-tax) starting in 2018. The authorized ROE for SCE will decrease from 10.45% to 10.30%, effective January 1, 2018. While these changes are intended to provide regulatory certainty and reflect current market conditions, investors should monitor the CPUC's final decision and the subsequent filing by SCE in September 2017 for precise revenue requirement impacts. The ratemaking capital structure is expected to remain unchanged.

Key Highlights

  • 1Southern California Edison (SCE), a subsidiary of EIX, entered into a Memorandum of Understanding (MOU) with regulatory bodies.
  • 2The MOU proposes extending the next cost of capital application filing deadline by two years to April 22, 2019, for the year 2020.
  • 3Key elements include resetting authorized costs of long-term debt and preferred stock in 2018.
  • 4The authorized Return on Equity (ROE) for SCE is set to be reduced from 10.45% to 10.30%, effective January 1, 2018.
  • 5SCE estimates an approximate annual revenue requirement reduction of $66 million ( $39 million after-tax) beginning in 2018 as a result of the MOU.
  • 6The investor-owned utilities and the CPUC's ORA and TURN jointly submitted a Petition for Modification (PFM) to implement the MOU.
  • 7SCE's current ratemaking capital structure (48% common equity, 43% long-term debt, 9% preferred equity) is expected to remain unchanged under the proposed terms.

Frequently Asked Questions

The primary financial impact is an estimated reduction in Southern California Edison's (SCE) annual revenue requirement by approximately $66 million (about $39 million after-tax), beginning in 2018. This is largely driven by a reduction in the authorized Return on Equity (ROE) from 10.45% to 10.30%.

The proposed changes, if approved by the CPUC, are expected to become effective starting January 1, 2018. SCE will file its updated cost of capital and revenue requirement impacts in September 2017 for implementation in 2018.

No, according to the filing, SCE's current ratemaking capital structure, which consists of 48% common equity, 43% long-term debt, and 9% preferred equity, is expected to remain unchanged under the terms of the MOU and the proposed Petition for Modification.

Extending the deadline for the next cost of capital application to April 2019 for the year 2020 provides a longer period of regulatory stability. It means that the authorized costs of capital, including the new ROE, are expected to remain in place through 2019, offering greater predictability for future earnings and cash flows.