Edison International (EIX), the parent company of Southern California Edison (SCE), has a long and storied history of providing reliable electricity to millions of customers across Southern California. As the state continues to grapple with the challenges of climate change and the clean energy transition, Edison International has emerged as a leader, navigating the complex regulatory landscape and fortifying its operations to deliver sustainable growth.
Company History and Evolution
Founded in 1886 as the Pacific Light and Power Company, Edison International has evolved over the decades, weathering various industry shifts and emerging as a utility powerhouse. In 1909, the company was renamed Southern California Edison, reflecting its growing footprint and commitment to the region. The company's commitment to innovation and customer service has been a hallmark of its operations, as it has consistently adapted to meet the changing needs of its service area.
Throughout its history, Edison International has faced numerous challenges and opportunities. In the 1970s, the company was impacted by the energy crisis, which led to blackouts and supply shortages. In response, Edison International diversified its energy portfolio, investing in renewable sources such as solar and wind power. The 1990s and 2000s brought further challenges as the company navigated the deregulation of the California energy market, adapting to the new market structure while facing increased competition from independent power producers and community choice aggregators.
Recent Challenges and Responses
One of the most significant challenges Edison International has faced in recent years is the growing threat of wildfires in California. The company's equipment has been linked to several devastating wildfires, leading to costly legal battles and regulatory scrutiny. In response, Edison International has implemented a comprehensive wildfire mitigation plan, including the deployment of advanced grid technologies and the undergrounding of power lines in high-risk areas.
Financials
Edison International's financial performance remains robust, with total revenue reaching $16.34 billion in the fiscal year 2023, accompanied by a net income of $1.41 billion. The company's operating cash flow for 2023 stood at $3.40 billion, while free cash flow was negative at -$2.05 billion, reflecting significant capital investments.
In the most recent quarter (Q3 2024), Edison International reported revenue of $5.20 billion, representing a substantial year-over-year growth of 10.6%. This increase was primarily attributed to higher CPUC-related revenue from the 2021 GRC Track 4 decision and an increase in the authorized rate of return. Net income for the quarter reached $577 million, with operating cash flow at $2.47 billion and free cash flow at $961 million.
The company's strong balance sheet is evidenced by a current ratio of 0.88 and a quick ratio of 0.81, indicating a solid liquidity position. Edison International's long-term debt to capitalization ratio stands at 68.05%, providing ample flexibility to fund its ongoing capital investments. The debt-to-equity ratio as of December 31, 2023, was 2.17.
Liquidity
Edison International maintains a strong liquidity position with $200 million in cash as of September 30, 2023. The company has access to substantial credit facilities, including a $3.4 billion revolving credit facility for SCE and a $1.5 billion revolving credit facility for Edison International Parent. These facilities come with the potential to increase the aggregate amount by $1 billion and $0.5 billion, respectively, providing a total available credit line of $4.26 billion as of September 30, 2023.
One of the key strengths of Edison International is its diversified revenue streams. The company generates revenue through its two main business segments: Southern California Edison, which accounts for the vast majority of its operations, and Edison Energy, LLC, a global energy advisory firm providing integrated sustainability and energy solutions to commercial, industrial, and institutional customers.
SCE's operations are primarily divided into two main revenue sources:
1. Earning Activities: This represents revenue authorized by the California Public Utilities Commission (CPUC) and the Federal Energy Regulatory Commission (FERC). This revenue is intended to provide SCE with a reasonable opportunity to recover its costs and earn a return on its net investment in generation, transmission, and distribution assets.
2. Cost-Recovery Activities: This segment represents CPUC- and FERC-authorized balancing accounts, which allow for recovery of specific project or program costs, subject to reasonableness review or compliance with upfront standards.
Southern California Edison and Clean Energy Initiatives
Southern California Edison, the utility subsidiary, has been at the forefront of the state's clean energy initiatives. The company has made significant investments in grid modernization, wildfire mitigation, and renewable energy integration, positioning it as a leader in the industry. In the latest quarter, SCE reported a 10.6% year-over-year increase in operating revenue, driven by higher CPUC-related revenue and an increase in the authorized rate of return.
Edison International's commitment to sustainability is also evident in its recent white paper, "Reaching Net Zero," which outlines its plan to achieve net-zero greenhouse gas emissions by 2045. The plan focuses on delivering 100% carbon-free power to SCE's customers, reducing operational emissions, and neutralizing any remaining emissions through high-quality carbon removal solutions or offsets.
Growth Prospects and Capital Investment
The company's growth prospects are further bolstered by its robust capital investment program. SCE forecasts total capital expenditures ranging from $32.2 billion to $37.5 billion for 2024-2028, and weighted average annual rate base from $43.0 billion to $60.6 billion for the same period. These projections incorporate the amounts requested in SCE's 2025 General Rate Case application.
For the nine months ended September 30, 2024, capital expenditures reached $4.0 billion, up from $3.9 billion in the same period of 2023, demonstrating the company's commitment to enhancing its infrastructure and supporting California's clean energy goals.
Despite the challenges posed by the COVID-19 pandemic and the ongoing wildfires in California, Edison International has demonstrated its ability to adapt and navigate these obstacles. The company has implemented comprehensive safety protocols, streamlined operations, and maintained its focus on customer service and shareholder value.
Recent Financial Performance
In the face of these challenges, Edison International has continued to deliver solid financial results. In the third quarter of 2024, the company reported core earnings per share of $1.51, exceeding the Zacks Consensus Estimate of $1.39 and representing a 9.4% year-over-year increase. This strong performance was largely driven by efficient O&M execution, with year-to-date 2024 core EPS reaching $3.88.
Future Outlook and Guidance
Looking ahead, Edison International has narrowed its 2024 core EPS guidance to $4.80 to $5.00, up from the previous guidance range. The company remains confident in its ability to meet its 2025 earnings per share guidance of $5.50 to $5.90 and deliver a 5% to 7% earnings per share growth rate through 2028. This guidance is underpinned by the company's robust capital investment plan, prudent cost management, and constructive regulatory outcomes.
It's worth noting that the TKM settlement agreement, which authorizes 60% recovery of $1.6 billion in costs, is additive to EIX's core operational growth and not factored into the current earnings targets. Additionally, the potential benefits from the Woolsey cost recovery proceeding have not been incorporated into the company's forecasts yet, as that process is still in the early stages.
Edison International plans to update its capital plan, financing plan, 2025 EPS guidance, and long-term growth forecast once the final decision is received in SCE's 2025 General Rate Case, which is expected in the first half of 2025.
Despite the regulatory uncertainty and the ongoing risks associated with wildfires, Edison International's diversified business model, strong financial position, and commitment to sustainability position the company for continued success. As California navigates the clean energy transition, Edison International is poised to play a pivotal role in powering the state's future.