Edison International Benefits from Rate Cases in 2012, Still Faces Uncertainty on SONGS Problems

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Researched by Industrial Info Resources (Sugar Land, Texas)--Power generation and utility company Edison International (NYSE:EIX) (EIX) (Rosemead, California), which is the parent company of Southern California Edison (SCE), one of the largest U.S. electric utilities, incurred heavier operating expenses in fourth-quarter and full-year 2011, although a major rate case proved beneficial. EIX reported "core earnings" of $582 million for the quarter, compared with earnings of $256 million in the same period of 2011, and earnings of $1.28 billion for the year, an 18.77% increase from 2011.

Edison executives define "core earnings" as a measurement that excludes earnings and losses from discontinued operations; consolidated deferred taxes related to holding company Edison Mission Energy (EME), which filed for bankruptcy on December 17, 2012; write-downs of net investment in aircraft leases; gains on the sale of a lease interest in Beaver Valley; and an income tax repair deduction for SCE. Using regular income measurements, net losses were reported to be for the quarter $539 million, down from $839 million in losses in fourth-quarter 2011, and $183 million for the year, up from $37 million in losses in 2011.

Total operating revenues stood at $3.06 billion for the quarter, a 21.57% increase from fourth-quarter 2011, and $11.86 billion for the year, a 12.03% increase from 2011. SCE reported stronger core earnings due to a growth in the rate base and the California Public Utilities Commission''s approval of SCE''s General Rate Case in November 2012. This approval allowed SCE to recover its revenue requirement retroactive to January 1, 2012, and record certain tax benefits, according to EIX. SCE also benefited from improved operating results and lower income taxes. However, outages at the San Onofre Nuclear Generating Station (SONGS) following a tube leak last year resulted in heavy inspection and repair costs. EIX, the parent company, reported core losses due largely to income taxes and higher operating expenses.

Capital expenditures for the year totaled $4.15 billion, an increase of less than 1% from 2011.

Industrial Info is tracking more than $9.4 billion in active projects involving EIX, including the $700 million addition of units at EME Homer City Generation LP''s power station in Homer City, Pennsylvania. The project involves building two SO2 control units totaling 1,320 megawatts, and installing dry flue gas desulfurization scrubbers onto two coal Foster Wheeler supercritical opposed-fired dry bottom boilers to reduce SO2 emissions. It is expected to be completed in the second quarter of 2014.

"We anticipated 2012 would be a year in which key decisions would be made," said Ted Craver, the chairman and chief executive officer of EIX, in a conference call. "Perhaps most important was the need to find the best path for stabilizing EME and determining its future role in the EIX portfolio. The direction for EME is now clear. We reached agreement in December with EME and a majority of the EME bond holders that set forth the terms and conditions under which Edison International will turn over its equity interest in EME to the creditors when EME emerges from bankruptcy."

Losses from discontinued operations more than negated strong improvements in the Southern California subsidiary:

• Southern California Edison reported earnings of $833 million for the quarter, compared with $247 million in fourth-quarter 2011, and $1.57 billion for the year, a 44.61% increase from 2011.
• The Edison parent company and other segments reported a total loss of $46 million for the quarter, compared with a loss of $26 million in fourth-quarter 2011, and a loss of $66 million for the year, compared with a loss of $44 million in 2011.

Capital expenditures are expected to total between $3.8 billion and $4.2 billion in 2013, and between $3.6 billion and $4 billion in 2014. The rate base growth is expected to be between 7% and 8% for 2013-14. Craver acknowledged that EIX faces "significant uncertainty" with the situation at SONGS. San Diego Gas & Electric (SDG&E) (San Diego, California), a unit of Sempra Energy (NYSE:SRE) (San Diego, California), owns 20% of SONGS, while the City of Riverside, California, owns the remaining 2%. For more information, see November 26, 2012, article - California Plans for SONGS-Free Summer of 2013 as Majority Owner Struggles to Bring Nuclear Plant Back Online.

"Last summer, the co-owners of SONGS, along with several California governmental agencies, implemented several temporary contingencies to avoid interruptions to electric service," Craver said in the conference call. "We were fortunate to have a relatively cool summer. We are now taking other actions for this coming summer in the event SONGS Unit 2 isn''t yet approved to restart. However, we will again need to rely on Mother Nature to be cooperative and the western electric grid to be trouble-free. Longer term, it would become increasingly difficult to meet reliability requirements without SONGS. Replacement generation and transmission would be necessary, expensive, and take a long time to permit and build."

For more information, visit Industrial Info''s North American Power Project Database.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info''s quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what''s happening now, while constantly keeping track of future opportunities.