01—Abstract
Summary
Summary of the 8-K filed April 30, 2024. Cited figures are marked; the original filing is the authoritative source.
Edison International (EIX) reported a first-quarter 2024 GAAP net loss of $11 milliona, or $0.03 per share, compared with net income of $310 million, or $0.81 per share, a year earlier.
Core earnings rose to $438 millionb, or $1.13 per share, from $416 million, or $1.09 per share. The improvement was driven mainly by higher revenue authorized in Track 4 of SCE's 2021 General Rate Case and a higher authorized rate of return from the cost of capital mechanism, partly offset by higher interest expense. The GAAP loss reflects a $490 million increase in estimated losses for the 2017/2018 Wildfire/Mudslide Events, which produced a net pre-tax charge of $463 million ($333 million after tax) after $27 million of expected FERC recoveries.
Management attributed the increase to demands from Woolsey Fire mediation plaintiffs, who are seeking higher damages than expected and are less likely to drop litigation than TKM plaintiffs were, and to settlements that came in above prior estimates. Despite the charge, management affirmed 2024 core EPS guidance of $4.75 to $5.05c and reiterated its 5% to 7% core EPS growth targets for 2021 to 2025 and 2025 to 2028. Management said the increase will be included in the Woolsey cost recovery application, which is targeted for Q3 2024, and that SCE intends to seek full recovery of all eligible costs.
The company expects about 2 cents per share of incremental interest expense in 2024 from the additional debt needed to fund claims payments. Other developments included a favorable CPUC proposed decision on the 2022 CEMA request, which would authorize $191 milliond of revenue and $312 million of capital, with a vote scheduled for May 30, 2024. S&P affirmed the company's ratings and stable outlook but lowered its FFO-to-debt downgrade threshold to 14% from 15%.
For investors, the key questions are the size and timing of wildfire-related cost recovery and whether the 2025 GRC outcome supports the 6% to 8% rate base growth outlook. Management indicated that the 2025 GRC intervenor recommendations would imply rate base growth of about 6%. Management also emphasized that its 2024 guidance is affirmed even after the charge, and that the company has not reflected full cost recovery of the 2017/2018 events in its financial projections.
02—Key points
Key Highlights
- GAAP net loss of $11 million ($0.03 per share) versus net income of $310 million ($0.81 per share) in Q1 2023, driven by a $490 million increase in estimated 2017/2018 Wildfire/Mudslide Events losses
- Core EPS of $1.13 versus $1.09 a year earlier, supported by higher GRC Track 4 revenue and a higher authorized rate of return, partly offset by higher interest expense
- Net after-tax charge of $333 million ($463 million pre-tax, net of $27 million in expected FERC recoveries) tied to Woolsey Fire mediation demands and settlements above prior estimates
- 2024 core EPS guidance of $4.75 to $5.05 affirmed; basic EPS guidance lowered to $3.59 to $3.89 after $1.16 per share of Q1 non-core items
- Long-term core EPS growth targets of 5% to 7% reiterated for 2021 to 2025 and 2025 to 2028; 2025 core EPS midpoint of $5.70 implied by the 2025 guidance range of $5.50 to $5.90
- Woolsey cost recovery application targeted for Q3 2024; TKM cost recovery application seeks about $2.4 billion, with intervenor testimony due May 29, 2024
- S&P affirmed credit ratings with a stable outlook but lowered its FFO-to-debt downgrade threshold to 14% from 15%; management estimates each $1 billion of recovery improves FFO-to-debt by 40 to 50 basis points
03—Questions
Frequently Asked Questions
Why did Edison International report a GAAP loss in Q1 2024 when core earnings grew?
The GAAP loss was driven by a $490 million increase in estimated losses for the 2017/2018 Wildfire/Mudslide Events, which resulted in a $333 million after-tax charge. Core earnings exclude these non-core items, and core EPS rose to $1.13 from $1.09 on higher GRC Track 4 revenue and a higher authorized rate of return.
Did management change its 2024 earnings guidance?
Management affirmed its 2024 core EPS guidance of $4.75 to $5.05. Basic EPS guidance fell to $3.59 to $3.89 because it now includes $1.16 per share of Q1 non-core charges. Management said about 2 cents per share of the 2024 impact from higher interest expense from additional debt was already within its confidence in the guidance range.
Will investors eventually recover the higher wildfire-related costs?
Management said SCE intends to seek full recovery of all eligible costs, including the Q1 increase, through cost recovery applications. The TKM application seeks about $2.4 billion, and the Woolsey application is targeted for Q3 2024. Recovery is not assured, and management has not reflected the full potential recovery in its financial projections. The CPUC will decide these applications.
What are the near-term regulatory catalysts?
The CPUC is scheduled to vote on the 2022 CEMA proposed decision on May 30, 2024. If adopted, it would authorize $191 million of revenue and $312 million of capital. Other key items include TKM intervenor testimony due May 29, the 2025 GRC evidentiary hearings in May, and the WMCE application, where protests were due around May 6.
How does this quarter affect the company's balance sheet and financing?
SCE funds claims payments with debt that is excluded from its regulatory capital structure, so claims payments increase leverage until recovery is approved. S&P affirmed the ratings but lowered its FFO-to-debt downgrade threshold to 14% from 15%. Management said its 2024 parent financing plan is nearly complete, equity needs are addressed, and it expects about $100 million of equity per year through 2028.
04—Continue