Summary
Edison International (EIX), through its subsidiary Southern California Edison (SCE), announced on November 26, 2019, a proposed decision from the California Public Utilities Commission (CPUC) regarding SCE's 2020 Cost of Capital application. The proposed decision, if adopted, would maintain SCE's authorized return on common equity (ROE) at 10.3% for the period beginning January 1, 2020, and keep the cost of capital adjustment mechanism unchanged. This outcome is generally favorable as it provides regulatory stability and avoids a reduction in the key ROE metric.
Key Highlights
- 1Proposed decision from CPUC maintains SCE's authorized ROE at 10.3% for 2020-2022.
- 2Cost of capital adjustment mechanism is expected to remain unchanged.
- 3Common equity component of SCE's capital structure proposed to increase from 48% to 52% in 2020.
- 4Preferred equity component of SCE's capital structure proposed to decrease from 9% to 5% in 2020.
- 5SCE is currently reviewing the proposed decision.
- 6A final decision from the CPUC is anticipated in December 2019 or early 2020.
Frequently Asked Questions
The proposed decision maintains SCE's return on common equity (ROE) at 10.3%, which is a key driver of profitability for the company's utility operations. While the shift in capital structure (increasing equity, decreasing preferred equity) might have some marginal impact, the stability in the ROE is generally viewed as a positive for investor returns and predictability.
Edison International expects a final decision from the California Public Utilities Commission in December 2019 or early 2020.
The proposed decision suggests increasing the proportion of common equity in SCE's capital structure from 48% to 52%, while decreasing the proportion of preferred equity from 9% to 5%. This means SCE would rely more on equity financing and less on preferred equity financing going forward, which could affect its financial leverage and cost of capital calculation.
The proposed decision is largely seen as neutral to positive. Maintaining the ROE at 10.3% provides regulatory certainty, which is valuable for investors. The shift in capital structure is a common regulatory adjustment and is not expected to be detrimental, especially with the ROE remaining stable.