Edison International(EIX) - 2023 Q4 - Annual Report

Management's Discussion and Analysis of Financial Condition and Results of Operations Management Overview Edison International's 2023 net income increased to $1.20 billion, primarily due to reduced wildfire-related non-core losses at SCE and modest core earnings growth Edison International Earnings Summary (2021-2023) | (in millions) | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net Income (Loss) Attributable to Edison International | | | | | SCE | $1,474 | $847 | $829 | | Edison International Parent and Other | ($277) | ($235) | ($70) | | Edison International | $1,197 | $612 | $759 | | Core Earnings (Loss) | | | | | SCE | $2,135 | $2,029 | $1,943 | | Edison International Parent and Other | ($310) | ($264) | ($202) | | Edison International | $1,825 | $1,765 | $1,741 | - The increase in SCE's core earnings was primarily due to higher revenue from the 2021 GRC escalation mechanism and higher interest income on balancing account undercollections, partially offset by increased interest expense[32] - Non-core items in 2023 included charges of $634 million for 2017/2018 Wildfire/Mudslide Events claims, $213 million for Wildfire Insurance Fund amortization, and $34 million for other wildfire claims[32][37] - SCE filed its 2025 General Rate Case (GRC) requesting a revenue requirement of approximately $10.3 billion for 2025, a 23% increase over the 2024 authorized amount, to fund infrastructure replacement and grid modernization for electrification[49] SCE Capital Expenditure Forecast (2024-2028) | (in billions) | 2024 | 2025 | 2026 | 2027 | 2028 | Total 2024-2028 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total Capital Expenditures | $6.0 | $7.5 | $8.1 | $8.2 | $7.7 | $37.5 | | Range Case Total | $5.6 | $6.6 | $6.8 | $6.8 | $6.4 | $32.2 | - As of December 31, 2023, SCE has accrued estimated losses of $9.4 billion for the 2017/2018 Wildfire/Mudslide Events, with expected recoveries of $2.0 billion from insurance and $413 million from FERC rates, resulting in a net after-tax charge to earnings of $5.1 billion to date[70][72] - SCE plans to seek CPUC recovery of approximately $6.4 billion in uninsured claims for the 2017/2018 events, having filed the first application for $2.4 billion in August 2023. However, recovery is not considered probable at this time due to regulatory uncertainty[75] - In May 2023, the CPUC approved a customer-funded self-insurance program for SCE, effective July 1, 2023, to cover future wildfire claims up to $1.0 billion per policy year, funded through customer rates[87][89] Results of Operations For 2023, Southern California Edison's (SCE) net income available to common stock increased to $1.47 billion from $847 million in 2022, driven by lower wildfire-related claim charges and higher CPUC-authorized revenue SCE Results of Operations Summary (in millions) | Metric | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Operating Revenue | $16,275 | $17,172 | $14,874 | | Total Operating Expenses | $13,635 | $15,659 | $13,364 | | Wildfire related claims, net | $665 | $1,305 | $1,276 | | Operating Income | $2,640 | $1,513 | $1,510 | | Net Income Available for Common Stock | $1,474 | $847 | $829 | - SCE's Earning Activities revenue increased by $4 million, reflecting a $411 million increase from the 2021 GRC escalation mechanism, offset by a $358 million decrease in revenue related to prior-year wildfire expense recovery[94] - Wildfire-related claim charges decreased significantly to $665 million in 2023 from $1.3 billion in 2022, primarily related to the 2017/2018 Wildfire/Mudslide Events[98] - SCE's interest expense increased by $335 million in 2023 due to higher interest rates on debt and balancing account overcollections, as well as increased long-term borrowings[98] - Edison International Parent and Other's net loss attributable to common shareholders increased by $42 million in 2023, primarily due to higher interest expense, partially offset by $16 million in gains on preferred stock repurchases[106] Liquidity and Capital Resources SCE maintained adequate liquidity with $214 million in cash and $1.8 billion available under its credit facility, while Edison International Parent held $131 million in cash and $1.3 billion available Available Liquidity as of December 31, 2023 | Entity | Cash on Hand | Revolving Credit Facility | Available to Borrow | | :--- | :--- | :--- | :--- | | SCE | $214 million | $3.4 billion | $1.8 billion | | Edison International Parent | $131 million | $1.5 billion | $1.3 billion | - SCE's debt to total capitalization ratio was 0.56 to 1, below the covenant requirement of 0.65 to 1. Edison International's consolidated ratio was 0.63 to 1, below its covenant of 0.70 to 1[114][163] - In January 2024, the CPUC denied SCE's $677 million Building Electrification Program Application, which aimed to incentivize the replacement of gas-fueled appliances with electric heat pumps[123] - Construction of three utility-owned energy storage projects (537.5 MW total) by Ameresco has been delayed, with an expected in-service date prior to June 2024. SCE is entitled to liquidated damages of up to $89 million due to the delays[135][138] - SCE's nuclear decommissioning trust funds for San Onofre Units 2 and 3 totaled $2.2 billion at year-end 2023. The CPUC approved disbursements of approximately $300 million for 2024 decommissioning costs[149][150] - In late 2023, Edison International repurchased shares of its Series A and Series B Preferred Stock for an aggregate amount of $288 million through a tender offer and open market purchases[159] Historical Cash Flow Summary (in millions) | Cash Flow | SCE 2023 | SCE 2022 | EIX Parent & Other 2023 | EIX Parent & Other 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Cash from Operating Activities | $3,681 | $3,319 | ($280) | ($103) | | Net Cash from Financing Activities | $1,182 | $2,724 | $265 | $157 | | Net Cash Used in Investing Activities | ($5,231) | ($5,557) | ($2) | ($17) | Market Risk Exposures Edison International and SCE are primarily exposed to market risks from fluctuations in interest rates, commodity prices, and counterparty credit, largely mitigated by regulatory mechanisms and hedging - The company's primary market risks include fluctuations in interest rates, commodity prices (natural gas, electric power), and counterparty credit[192] Interest Rate Risk Sensitivity on Long-Term Debt Fair Value | (in millions) | Carrying Value | Fair Value | 10% Rate Increase | 10% Rate Decrease | | :--- | :--- | :--- | :--- | :--- | | Edison International (12/31/23) | $33,013 | $31,315 | $30,060 | $32,684 | | SCE (12/31/23) | $28,494 | $26,712 | $25,593 | $27,930 | - Due to regulatory mechanisms, SCE's exposure to commodity price volatility is not expected to impact earnings but may affect the timing of cash flows. Hedging costs are expected to be recovered through the ERRA balancing account[194][196] - At December 31, 2023, SCE's power and gas trading counterparty credit risk exposure was $91 million, all of which was with entities rated A or higher[204] Critical Accounting Estimates and Policies The company's critical accounting estimates involve significant judgment in areas such as wildfire contingencies, rate-regulated accounting for regulatory assets, income taxes, nuclear decommissioning, and pension benefits - Accounting for wildfire contingencies requires significant judgment in estimating probable losses based on claims information, legal opinions, and settlement experience. Actual losses could differ materially from accrued estimates[206][212] - Under rate-regulated accounting, management must assess the probability of future recovery for regulatory assets. As of Dec 31, 2023, SCE had $11.4 billion in regulatory assets and $10.2 billion in regulatory liabilities[213][218] - For post-2018 wildfires, SCE has concluded that recovery of uninsured costs is probable under the AB 1054 prudency standard, as it has held a valid safety certificate. This differs from the 2017/2018 events, where recovery is not deemed probable[222][224] - The Asset Retirement Obligation (ARO) for nuclear decommissioning was $2.2 billion as of Dec 31, 2023. A uniform 1 percentage point increase in the cost escalation rate would increase this liability by $587 million[238][239] - Contributions to the Wildfire Insurance Fund are amortized over an estimated coverage period. In January 2024, management reassessed and increased the estimated life of the fund from 15 to 20 years, which will change the amortization expense prospectively[252][253] Risk Factors Risks Relating to Edison International Edison International's financial health and dividend capacity are dependent on SCE's earnings, cash flows, and upstream distributions, which are subject to regulatory and financial restrictions - Edison International is a holding company with no material operations of its own, making it dependent on earnings and cash flows from SCE to meet its financial obligations and pay dividends[257] - SCE's ability to make upstream distributions is subject to financial and regulatory obligations, including debt service, preference stock dividends, and California law requirements for dividend declarations[258] Risks Relating to Southern California Edison Company SCE faces significant risks from regulatory actions, particularly cost recovery for wildfire liabilities, operational hazards including catastrophic wildfires, climate change impacts, and competition from CCAs - SCE's financial results depend on its ability to recover costs and earn a reasonable return on capital investments through regulated rates, which can be hindered by regulatory lag or disallowances[261] - There is a risk that the Wildfire Insurance Fund and other provisions of AB 1054 may not effectively mitigate the significant liability faced by California utilities for catastrophic wildfires[268] - Damage claims against SCE for wildfire-related losses, potentially under the strict liability theory of inverse condemnation, may materially affect financial condition, especially if uninsured costs are not recoverable in rates[275] - SCE's insurance coverage for wildfires may be insufficient to cover all losses, and any uninsured amounts (including retentions and co-insurance) may not be recoverable from customers[278] - Climate change-exacerbated events like wildfires, flooding, and extreme heat can disrupt operations, damage infrastructure, and lead to significant unrecoverable costs and damage claims[284] - As a capital-intensive utility, SCE relies on access to capital markets. Increased financing costs or constrained access due to factors like wildfire risk could materially affect liquidity and operations[301] - Competition from Community Choice Aggregators (CCAs) and customer-owned generation (e.g., rooftop solar) reduces electricity sales, which can increase rates for remaining bundled service customers[306] Risks Relating to Edison International and Southern California Edison Company Both Edison International and SCE face enterprise-level risks from cybersecurity threats, catastrophic macroeconomic and geopolitical events, and business concentration in the California electric utility industry - Successful physical or cyber attacks on SCE's information and operational technology systems could lead to grid disruptions, data compromise, and material financial loss[307][308] - The company's security program cannot prevent all attacks, and risks are increasing due to a more network-connected grid, new technologies, and threats from third-party vendors and supply chains[309][314][315] - Catastrophic events like pandemics or geopolitical conflicts could disrupt workforces, supply chains, and economies, materially impacting financial condition and results of operations[318] - Business activities are concentrated in the California electric utility industry, exposing the company to regional economic factors and unique legal risks, such as the application of strict liability in wildfire cases[320] Financial Statements and Supplementary Data Consolidated Financial Statements The consolidated financial statements present Edison International's $1.20 billion net income and SCE's $1.47 billion net income for 2023, reflecting significant assets, liabilities, and wildfire impacts Edison International Consolidated Statement of Income Highlights (Year Ended Dec 31, 2023) | (in millions) | Amount | | :--- | :--- | | Operating Revenue | $16,338 | | Total Operating Expenses | $13,711 | | Operating Income | $2,627 | | Net Income Attributable to EIX Common Shareholders | $1,197 | | Diluted EPS | $3.11 | Edison International Consolidated Balance Sheet Highlights (As of Dec 31, 2023) | (in millions) | Amount | | :--- | :--- | | Total Current Assets | $6,811 | | Total Property, Plant and Equipment | $56,084 | | Total Assets | $81,758 | | Total Current Liabilities | $8,598 | | Long-Term Debt | $30,316 | | Total Liabilities | $63,814 | | Total Equity | $17,944 | SCE Consolidated Statement of Income Highlights (Year Ended Dec 31, 2023) | (in millions) | Amount | | :--- | :--- | | Operating Revenue | $16,275 | | Total Operating Expenses | $13,635 | | Operating Income | $2,640 | | Net Income Available for Common Stock | $1,474 | Notes to Consolidated Financial Statements The notes detail significant accounting policies, including rate-regulated accounting, wildfire contingencies with $9.4 billion accrued for 2017/2018 events, debt, pension plans, and power purchase commitments - Note 1: SCE applies rate-regulated accounting, capitalizing costs as regulatory assets if probable of future recovery. As of Dec 31, 2023, regulatory assets were $11.4 billion and liabilities were $10.2 billion[386][606][613] - Note 2: SCE's total utility property, plant, and equipment was $55.9 billion at year-end 2023, with distribution assets comprising the largest component at $34.6 billion[472] - Note 5: As of Dec 31, 2023, Edison International had total long-term debt of $30.3 billion, with SCE accounting for $26.3 billion of that total[510] - Note 9: At year-end 2023, SCE's pension plan was overfunded by $137 million, while its Postretirement Benefits Other Than Pensions (PBOP) plan was overfunded by $1.5 billion[550][561] - Note 12 (Wildfires): Through Dec 31, 2023, SCE accrued $9.4 billion in estimated losses for the 2017/2018 Wildfire/Mudslide Events and has paid or is obligated to pay ~$8.8 billion in settlements[674] - Note 12 (Wildfires): For Post-2018 Wildfires, SCE has recorded total estimated losses of $880 million, with expected recoveries of $622 million from insurance/third parties and $168 million through electric rates[684] - Note 12 (Commitments): As of Dec 31, 2023, SCE has undiscounted future minimum payment commitments of $30.4 billion under its Power Purchase Agreements (PPAs)[622] - Note 14: In late 2023, Edison International repurchased a total of 308,229 shares of its Series A and Series B Preferred Stock for an aggregate price of approximately $288 million[734][920] Business Corporate Structure, Industry and Other Information Edison International is a holding company with SCE as its primary utility subsidiary, serving 5.3 million customers in Southern California, and Edison Energy providing advisory services globally - Edison International is the parent holding company of Southern California Edison (SCE), a public utility, and Edison Energy, a global energy advisory firm[756] - SCE serves approximately 5.3 million customers in Southern California. In 2023, commercial customers accounted for 42.8% of operating revenue and residential customers for 37.4%[761] - As of December 31, 2023, Edison International had 14,375 employees, with approximately 4,200 of SCE's employees represented by the International Brotherhood of Electrical Workers (IBEW)[766][768] Edison International Employee Diversity (as of Dec 31, 2023) | Category | Employees | Leaders | Executives | | :--- | :--- | :--- | :--- | | Females | 32% | 27% | 39% | | Racially/ethnically diverse | 64% | 54% | 33% | Southern California Edison Company SCE's operations are extensively regulated by the CPUC, FERC, and CAISO, with revenue determined through GRCs, while facing increasing retail competition from CCAs and managing vast transmission and distribution infrastructure - SCE is regulated by multiple agencies, including the CPUC for retail rates and safety, FERC for wholesale rates and transmission, and OEIS for wildfire mitigation plan oversight[789][790][796] - SCE's revenue is determined through quadrennial GRCs. The 2021 GRC authorized revenue requirements through 2024, and the 2025 GRC application was filed in May 2023[802][803] - SCE's authorized ROE for 2024 is 10.75%, with a weighted average return on rate base of 7.87%[805] - SCE faces competition from CCAs, which represented ~21% of its total service load at year-end 2023, and this is anticipated to grow to ~37% by the end of 2024 when including Direct Access[833] - SCE's infrastructure includes approximately 13,000 circuit-miles of transmission lines and 69,000 circuit-miles of distribution lines[841] Southern California Wildfires Increased wildfire risk in SCE's service territory remains a primary challenge, with the company implementing WMPs and PSPS, while AB 1054 provides a cost recovery framework for post-2018 fires but not for 2017/2018 liabilities - Approximately 27% of SCE's service territory is in areas identified as high fire risk, with worsening weather conditions increasing the likelihood of wildfires where SCE equipment may be involved[847][848] - For wildfires ignited after July 12, 2019, AB 1054 established a revised prudency standard for cost recovery and created the Wildfire Insurance Fund to reimburse utilities for eligible claims exceeding $1 billion or their required insurance coverage[853][855] - Utilities with a valid safety certification, like SCE, are presumed to have acted prudently regarding a wildfire ignition unless a party creates "serious doubt" as to the reasonableness of the utility's conduct[853] - SCE's requirement to reimburse the Wildfire Insurance Fund for disallowed costs is capped at approximately $3.9 billion over a trailing three-year period, based on its 2024 rate base[859] - SCE uses Public Safety Power Shutoffs (PSPS) as a last resort to mitigate wildfire risk. In 2023, SCE initiated PSPS 8 times, a significant reduction from 12 events in 2020, reflecting investments in grid hardening and improved protocols[863][864] Environmental Considerations Edison International and SCE are committed to California's net-zero GHG emissions goal by 2045, with 49% of 2023 power from carbon-free resources, while addressing physical climate risks to infrastructure - Edison International is committed to achieving net-zero GHG emissions by 2045, in line with California's state policy[871] - In 2023, approximately 49% of SCE's customer deliveries came from carbon-free resources. The company is on track to meet California's Renewables Portfolio Standard (RPS) target of 60% by 2030[875][876] - Climate change presents physical risks to SCE's infrastructure from severe weather, drought, and wildfires. SCE is investing in grid resilience to mitigate these vulnerabilities[879] - In May 2022, SCE submitted a climate adaptability vulnerability assessment (CAVA) to the CPUC to inform future planning and investment to maintain grid resilience against climate change[880] Legal Proceedings 2017/2018 Wildfire/Mudslide Events SCE and Edison International face ongoing lawsuits from individual and public entity plaintiffs related to the 2017/2018 Wildfire/Mudslide Events, with approximately 1,500 individual claims still outstanding - As of February 15, 2024, claims from approximately 1,500 individual plaintiffs and certain public entities related to the 2017/2018 Wildfire/Mudslide Events remain outstanding[890] - Lawsuits allege negligence, inverse condemnation, trespass, and other violations. The cases for the Thomas, Koenigstein, and Montecito events, as well as the Woolsey Fire cases, are being coordinated in Los Angeles Superior Court[891][894][895] Part III Directors, Executive Officers and Corporate Governance This section provides information on Edison International's executive officers, with detailed director information and the Employee Code of Conduct incorporated by reference from the Proxy Statement - Information concerning executive officers, including Pedro J. Pizarro (President and CEO) and Maria Rigatti (EVP and CFO), is provided. Detailed director information is incorporated by reference from the 2024 Proxy Statement[900][901] - The Edison International Employee Code of Conduct applies to all officers and employees and is available on the company's website[904] Executive Compensation Detailed information regarding executive and director compensation, including the Compensation Discussion and Analysis, is incorporated by reference from Edison International's 2024 Proxy Statement - Information regarding executive compensation is incorporated by reference from the Edison International Proxy Statement[905] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section details equity compensation plans, with approximately 13.1 million shares remaining for future issuance under shareholder-approved plans, and security ownership information incorporated by reference Equity Compensation Plan Information (as of Dec 31, 2023) | Plan Category | Securities to be issued upon exercise | Weighted avg. exercise price | Securities remaining for future issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 13,144,141 | $64.30 | 13,146,662 | Certain Relationships and Related Transactions, and Director Independence Information regarding related party transactions and director independence is incorporated by reference from Edison International's 2024 Proxy Statement - Information on related party transactions and director independence is incorporated by reference from the Edison International Proxy Statement[911] Principal Accountant Fees and Services PricewaterhouseCoopers LLP (PwC) served as the principal accountant for Edison International and SCE in 2023, with SCE's total fees billed by PwC at $6.4 million, primarily for audit services SCE Fees Billed by PwC (in thousands) | Type of Fee | 2023 | 2022 | | :--- | :--- | :--- | | Audit Fees | $5,975 | $5,385 | | Tax Fees | $229 | $225 | | All Other Fees | $232 | $229 | | Total | $6,436 | $5,839 |