NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Summary of Significant Accounting Policies
Organization and Basis of Presentation
Edison International is the parent holding company of Southern California Edison Company ("SCE") and Edison Energy Group, Inc. ("Edison Energy Group"). SCE is an investor-owned public utility primarily engaged in the business of supplying and delivering electricity to customers in an approximately 50,000 square mile area of southern California. Edison Energy Group is a holding company for Edison Energy, LLC ("Edison Energy") which is engaged in the competitive business of providing energy services to commercial and industrial customers. Edison Energy's business activities are currently not material to report as a separate business segment. These combined notes to the consolidated financial statements apply to both Edison International and SCE unless otherwise described. Edison International's consolidated financial statements include the accounts of Edison International, SCE, and other wholly owned and controlled subsidiaries. References to Edison International refer to the consolidated group of Edison International and its subsidiaries. References to "Edison International Parent and Other" refer to Edison International Parent and its competitive subsidiaries and "Edison International Parent" refer to Edison International on a stand-alone basis, not consolidated with its subsidiaries. SCE's consolidated financial statements include the accounts of SCE and its wholly owned and controlled subsidiaries. All intercompany transactions have been eliminated from the consolidated financial statements.
Edison International's and SCE's significant accounting policies were described in the "Notes to Consolidated Financial Statements" included in Edison International's and SCE's combined Annual Report on Form 10-K for the year ended December 31, 2019 (the "2019 Form 10-K"). This quarterly report should be read in conjunction with the financial statements and notes included in the 2019 Form 10-K.
In the opinion of management, all adjustments, consisting only of adjustments of a normal recurring nature, have been made that are necessary to fairly state the consolidated financial position, results of operations, and cash flows in accordance with accounting principles generally accepted in the United States ("GAAP") for the periods covered by this quarterly report on Form 10-Q. The results of operations for the three-month and six-month periods ended June 30, 2020 are not necessarily indicative of the operating results for the full year. Certain prior period amounts have been conformed to the current period's presentation.
The December 31, 2019 financial statement data was derived from audited financial statements but does not include all disclosures required by GAAP.
Cash, Cash Equivalents and Restricted Cash
Cash equivalents include investments in money market funds. Generally, the carrying value of cash equivalents equals the fair value, as these investments have original maturities of three months or less. The cash equivalents were as follows:
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Edison International
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SCE
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(in millions)
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June 30,
2020
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|
December 31, 2019
|
|
June 30,
2020
|
|
December 31, 2019
|
|
Money market funds
|
|
$
|
479
|
|
|
$
|
31
|
|
|
$
|
214
|
|
|
$
|
—
|
|
Cash is temporarily invested until required for check clearing. Checks issued, but not yet paid by the financial institution, are reclassified from cash to accounts payable at the end of each reporting period as follows:
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|
Edison International
|
|
|
|
SCE
|
|
|
|
(in millions)
|
|
June 30,
2020
|
|
December 31, 2019
|
|
June 30,
2020
|
|
December 31, 2019
|
|
Book balances reclassified to accounts payable
|
|
$
|
64
|
|
|
$
|
75
|
|
|
$
|
64
|
|
|
$
|
74
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|
The following table sets forth the cash, cash equivalents and restricted cash included in the consolidated statements of cash flows:
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(in millions)
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June 30, 2020
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December 31, 2019
|
|
Edison International:
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Cash and cash equivalents
|
|
$
|
524
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|
|
$
|
68
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|
Short-term restricted cash1
|
|
2
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|
|
2
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|
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|
Total cash, cash equivalents, and restricted cash
|
|
$
|
526
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|
$
|
70
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1 Reflected in "Other current assets" on Edison International's consolidated balance sheets.
Allowance for Uncollectible Accounts
The allowance for uncollectible accounts is recorded based on SCE's estimate of expected credit losses and adjusted over the life of the receivables as needed. Since the customer base of SCE is concentrated in Southern California and exposes SCE to a homogeneous set of economic conditions, the allowance is measured on a collective basis on the historical amounts written-off, assessment of customer collectibility and current economic trends, including unemployment rates and any likelihood of recession for the region. At June 30, 2020, this included the estimated impacts of the COVID-19 pandemic.
The following table sets forth the changes in allowance for uncollectible accounts for SCE:
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Three months ended June 30, 2020
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Six months ended June 30, 2020
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(in millions)
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Customers
|
All others
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Customers
|
All others
|
|
Beginning balance
|
$
|
47
|
|
$
|
13
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|
|
$
|
35
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|
$
|
14
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|
|
Plus: current period provision for uncollectible accounts
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|
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|
|
|
Included in operation and maintenance expenses
|
12
|
|
5
|
|
|
28
|
|
7
|
|
|
Deferred to regulatory assets
|
21
|
|
—
|
|
|
21
|
|
—
|
|
|
Less: write-offs, net of recoveries
|
5
|
|
3
|
|
|
9
|
|
6
|
|
|
Ending balance
|
$
|
75
|
|
$
|
15
|
|
|
$
|
75
|
|
$
|
15
|
|
Revenue Recognition
Regulatory Proceedings
2018 General Rate Case
In May 2019, the CPUC approved a decision in SCE's 2018 GRC.
The revenue requirements in the 2018 GRC final decision were retroactive to January 1, 2018. SCE recorded the prior period impact of the 2018 GRC decision in the second quarter of 2019, including:
•An increase to earnings of $131 million from the application of the decision to revenue, depreciation expense and income tax expense, of which $65 million was attributable to 2018 and $66 million was attributable to first quarter of 2019. Depreciation expense decreased as a result of lower authorized depreciation rates. An increase in the authorized revenue requirement for income tax expenses offsets income tax expenses recognized during 2018 and the first quarter of 2019. The reduction of revenue of $265 million reflects $289 million of lower authorized revenue related to 2018 and $24 million of higher authorized revenue in 2019.
•An impairment of utility property, plant and equipment of $170 million ($123 million after-tax) related to disallowed historical capital expenditures, primarily the write-off of specific pole replacements the CPUC determined were performed prematurely.
2019 FERC Formula Rate
In June 2020, SCE filed a settlement on its formula rates for the 2019 Formula Rate case ("2019 Formula Rate Settlement") that will establish SCE's FERC transmission revenue requirement for the settlement period. If approved by the FERC, the settlement period will extend through at least December 31, 2021, at which time SCE may seek to implement a new formula rate. The settlement provides for a total ROE of 10.30% inclusive of CAISO and transmission incentive adders. The settlement also provides that SCE’s capital structure for purposes of its formula rate will reflect the higher of SCE's actual equity ratio or 47.50%. The transmission revenue requirement and rates that have been billed to customers prior to the implementation of the 2019 Formula Rate Settlement utilized a base ROE of 11.97%. SCE expects to true-up the excess amounts billed to customers through the operation of the Formula Rate in 2021 and 2022. SCE had been recognizing revenue based on the expected outcome of this settlement and the impact of recording the settlement was not material.
Earnings Per Share
Edison International computes earnings per common share ("EPS") using the two-class method, which is an earnings allocation formula that determines EPS for each class of common stock and participating security. Edison International's participating securities are stock-based compensation awards, payable in common shares, which earn dividend equivalents on an equal basis with common shares once the awards are vested. See Note 13 for further information.
EPS attributable to Edison International common shareholders was computed as follows:
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Three months ended June 30,
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|
Six months ended June 30,
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(in millions, except per-share amounts)
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2020
|
|
2019
|
|
2020
|
|
2019
|
|
Basic earnings per share:
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|
|
|
|
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|
|
Net income attributable to common shareholders
|
|
$
|
318
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|
|
$
|
392
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|
|
$
|
501
|
|
|
$
|
670
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|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
318
|
|
|
$
|
392
|
|
|
$
|
501
|
|
|
$
|
670
|
|
|
Weighted average common shares outstanding
|
|
375
|
|
|
326
|
|
|
367
|
|
|
326
|
|
|
Basic earnings per share
|
|
$
|
0.85
|
|
|
$
|
1.20
|
|
|
$
|
1.37
|
|
|
$
|
2.05
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders
|
|
$
|
318
|
|
|
$
|
392
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|
|
$
|
501
|
|
|
$
|
670
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|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
318
|
|
|
$
|
392
|
|
|
$
|
501
|
|
|
$
|
670
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders and assumed conversions
|
|
$
|
318
|
|
|
$
|
392
|
|
|
$
|
501
|
|
|
$
|
670
|
|
|
Weighted average common shares outstanding
|
|
375
|
|
|
326
|
|
|
367
|
|
|
326
|
|
|
Incremental shares from assumed conversions
|
|
1
|
|
|
1
|
|
|
1
|
|
|
1
|
|
|
Adjusted weighted average shares – diluted
|
|
376
|
|
|
327
|
|
|
368
|
|
|
327
|
|
|
Diluted earnings per share
|
|
$
|
0.85
|
|
|
$
|
1.20
|
|
|
$
|
1.36
|
|
|
$
|
2.05
|
|
|
|
|
|
|
|
|
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|
|
In addition to the participating securities discussed above, Edison International also may award stock options, which are payable in common shares and are included in the diluted earnings per share calculation. Stock option awards to purchase 9,187,178 and 7,426,319 shares of common stock for the three months ended June 30, 2020 and 2019, respectively, and 8,587,661 and 7,435,580 shares for the six months ended June 30, 2020 and 2019, respectively, were outstanding, but were not included in the computation of diluted earnings per share because the effect would have been antidilutive.
New Accounting Guidance
Accounting Guidance Adopted
In June 2016, the Financial Accounting Standards Board ("FASB") issued an accounting standards update to require the use of the current expected credit loss model to measure impairment of financial assets measured at amortized cost, including trade and other receivables, and the use of an allowance to record estimated credit losses on available-for-sale debt securities. Edison International and SCE adopted this guidance on January 1, 2020 using the prospective adoption approach to available-for-sale debt securities and the modified retrospective approach to all other financial assets. Edison International and SCE hold available-for-sale debt securities in nuclear decommissioning trusts and due to regulatory mechanisms, investment earnings and realized gains and losses have no impact on earnings. Unrealized gains and losses on decommissioning trust funds, including impairments, increase or decrease the trust assets and the related regulatory asset or liability and have no impact on electric utility revenue or decommissioning expense. Upon adoption of this guidance, SCE reviews each fixed income security for impairment on the last day of each month. If the fair value on the last day of the month is less than the amortized cost for that security, SCE impairs the disclosed amortized cost. See Note 10 for further information. The adoption of this guidance did not have a material impact on Edison International's and SCE's other financial assets including receivables.
In August 2018, the FASB issued an accounting standards update which aligns the requirement for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing costs incurred to develop or obtain internal use software. The guidance also clarified presentation requirements for reporting implementation costs in the financial statements. Edison International and SCE adopted the standard on January 1, 2020 using the prospective adoption approach. The adoption of this guidance did not have a material impact on Edison International's and SCE's financial position or result of operations.
In March 2020, the FASB issued an accounting standards update to provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions that reference London Inter-Bank Offered Rate ("LIBOR") or another reference rate expected to be discontinued because of reference rate reform. Edison International and SCE have adopted the standard as of April 1, 2020 prospectively. SCE generally does not use hedge accounting for derivative transactions. SCE has a term loan with a variable interest rate based on LIBOR. In addition, both Edison International and SCE have revolving credit facilities with a variable interest rate based on LIBOR. These agreements contain provisions that require an amendment if LIBOR can no longer be used. SCE also has certain preference stocks, for which the distributions will be payable at a floating rate referenced to LIBOR from 2022. As of June 30, 2020, both Edison International and SCE have not utilized any of the expedients therefore there is no impact on adoption of the guidance, however, if contract amendments are made where LIBOR is no longer valid, both Edison International and SCE expect to utilize the expedients through the allowed period of December 31, 2022.
Accounting Guidance Not Yet Adopted
In August 2018, the FASB issued an accounting standards update to remove, modify and add certain disclosure requirements related to employer-sponsored defined benefit pension or other postretirement plans. The guidance is effective January 1, 2021 with early adoption permitted. The guidance removes disclosure requirements that are no longer considered cost beneficial, clarifies certain specific disclosure requirements and adds disclosure requirements identified as relevant. The modifications affect annual period disclosures and must be applied on a retrospective basis to all periods presented. Edison International and SCE are currently evaluating the impact of the guidance and do not expect the adoption of this standard will materially affect disclosures.
Note 2. Consolidated Statements of Changes in Equity
The following table provides Edison International's changes in equity for the six months ended June 30, 2020:
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|
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|
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|
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|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
Equity Attributable to Common Shareholders
|
|
|
|
|
|
|
|
|
|
Noncontrolling Interests
|
|
|
|
(in millions, except per share amounts)
|
Common
Stock
|
|
Accumulated
Other
Comprehensive Loss
|
|
Retained
Earnings
|
|
Subtotal
|
|
|
|
Preferred
and
Preference
Stock
|
|
Total
Equity
|
|
Balance at December 31, 2019
|
$
|
4,990
|
|
|
$
|
(69)
|
|
|
$
|
8,382
|
|
|
$
|
13,303
|
|
|
|
|
$
|
2,193
|
|
|
$
|
15,496
|
|
|
Net income
|
—
|
|
|
—
|
|
|
183
|
|
|
183
|
|
|
|
|
30
|
|
|
213
|
|
|
Other comprehensive income
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
|
|
|
—
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued, net of issuance cost
|
88
|
|
|
—
|
|
|
—
|
|
|
88
|
|
|
|
|
—
|
|
|
88
|
|
|
Common stock dividends declared ($0.6375 per share)
|
—
|
|
|
—
|
|
|
(232)
|
|
|
(232)
|
|
|
|
|
—
|
|
|
(232)
|
|
|
Dividends to noncontrolling interests ($0.255 - $0.299 per share for preferred stock; $15.625 - $35.936 per share for preference stock)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
(30)
|
|
|
(30)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash stock-based compensation
|
7
|
|
|
—
|
|
|
—
|
|
|
7
|
|
|
|
|
—
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2020
|
$
|
5,085
|
|
|
$
|
(67)
|
|
|
$
|
8,333
|
|
|
$
|
13,351
|
|
|
|
|
$
|
2,193
|
|
|
$
|
15,544
|
|
|
Net income
|
—
|
|
|
—
|
|
|
318
|
|
|
318
|
|
|
|
|
30
|
|
|
348
|
|
|
Other comprehensive income
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
|
|
|
—
|
|
|
2
|
|
|
Common stock issued, net of issuance cost (Note 13)
|
815
|
|
|
—
|
|
|
—
|
|
|
815
|
|
|
|
|
—
|
|
|
815
|
|
|
Common stock dividends declared ($0.6375 per share)
|
—
|
|
|
—
|
|
|
(241)
|
|
|
(241)
|
|
|
|
|
—
|
|
|
(241)
|
|
|
Dividends to noncontrolling interests ($0.255 - $0.299 per share for preferred stock; $15.625 - $35.936 per share for preference stock)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
(30)
|
|
|
(30)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash stock-based compensation
|
8
|
|
|
—
|
|
|
—
|
|
|
8
|
|
|
|
|
—
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2020
|
$
|
5,908
|
|
|
$
|
(65)
|
|
|
$
|
8,410
|
|
|
$
|
14,253
|
|
|
|
|
$
|
2,193
|
|
|
$
|
16,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides Edison International's changes in equity for the six months ended June 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Attributable to Common Shareholders
|
|
|
|
|
|
|
|
|
|
Noncontrolling Interests
|
|
|
|
(in millions, except per share amounts)
|
Common
Stock
|
|
Accumulated
Other
Comprehensive Loss
|
|
Retained
Earnings
|
|
Subtotal
|
|
|
|
Preferred
and
Preference
Stock
|
|
Total
Equity
|
|
Balance at December 31, 2018
|
$
|
2,545
|
|
|
$
|
(50)
|
|
|
$
|
7,964
|
|
|
$
|
10,459
|
|
|
|
|
$
|
2,193
|
|
|
$
|
12,652
|
|
|
Net income
|
—
|
|
|
—
|
|
|
278
|
|
|
278
|
|
|
|
|
30
|
|
|
308
|
|
|
Other comprehensive income
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
|
|
|
—
|
|
|
2
|
|
|
Cumulative effect of accounting changes1
|
—
|
|
|
(10)
|
|
|
10
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
Common stock dividends declared ($0.6125 per share)
|
—
|
|
|
—
|
|
|
(200)
|
|
|
(200)
|
|
|
|
|
—
|
|
|
(200)
|
|
|
Dividends to noncontrolling interests ($0.255 - $0.299 per share for preferred stock; $15.625 - $35.936 per share for preference stock)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
(30)
|
|
|
(30)
|
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
(18)
|
|
|
(18)
|
|
|
|
|
—
|
|
|
(18)
|
|
|
Noncash stock-based compensation
|
5
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|
|
|
—
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2019
|
$
|
2,550
|
|
|
$
|
(58)
|
|
|
$
|
8,034
|
|
|
$
|
10,526
|
|
|
|
|
$
|
2,193
|
|
|
$
|
12,719
|
|
|
Net income
|
—
|
|
|
—
|
|
|
392
|
|
|
392
|
|
|
|
|
30
|
|
|
422
|
|
|
Other comprehensive income
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|
|
|
—
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock dividends declared ($0.6125 per share)
|
—
|
|
|
—
|
|
|
(200)
|
|
|
(200)
|
|
|
|
|
—
|
|
|
(200)
|
|
|
Dividends to noncontrolling interests ($0.255 - $0.299 per share for preferred stock; $15.625 - $35.936 per share for preference stock)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
(30)
|
|
|
(30)
|
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
(4)
|
|
|
(4)
|
|
|
|
|
—
|
|
|
(4)
|
|
|
Noncash stock-based compensation
|
5
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|
|
|
—
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2019
|
$
|
2,555
|
|
|
$
|
(57)
|
|
|
$
|
8,222
|
|
|
$
|
10,720
|
|
|
|
|
$
|
2,193
|
|
|
$
|
12,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Edison International recognized a cumulative effect adjustment to the opening balance of retained earnings and accumulated other comprehensive loss on January 1, 2019 related to the adoption of the accounting standards update on the reclassification of stranded tax effects resulting from Tax Cuts and Jobs Act ("Tax Reform.")
The following table provides SCE's changes in equity for the six months ended June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except per share amounts)
|
Preferred
and
Preference
Stock
|
|
Common
Stock
|
|
Additional
Paid-in
Capital
|
|
Accumulated
Other
Comprehensive
Loss
|
|
Retained
Earnings
|
|
Total
Equity
|
|
Balance at December 31, 2019
|
$
|
2,245
|
|
|
$
|
2,168
|
|
|
$
|
3,939
|
|
|
$
|
(39)
|
|
|
$
|
9,514
|
|
|
$
|
17,827
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
249
|
|
|
249
|
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital contribution from Edison International Parent
|
—
|
|
|
—
|
|
|
269
|
|
|
—
|
|
|
—
|
|
|
269
|
|
|
Dividends declared on common stock ($0.6185 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(269)
|
|
|
(269)
|
|
|
Dividends declared on preferred stock ($0.255 - $0.299 per share) and preference stock ($15.625 - $35.936 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(30)
|
|
|
(30)
|
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
(5)
|
|
|
—
|
|
|
—
|
|
|
(5)
|
|
|
Noncash stock-based compensation
|
—
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|
(1)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2020
|
$
|
2,245
|
|
|
$
|
2,168
|
|
|
$
|
4,207
|
|
|
$
|
(37)
|
|
|
$
|
9,463
|
|
|
$
|
18,046
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
411
|
|
|
411
|
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital contribution from Edison International Parent
|
—
|
|
|
—
|
|
|
619
|
|
|
—
|
|
|
—
|
|
|
619
|
|
|
Dividends declared on common stock ($0.6185 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(269)
|
|
|
(269)
|
|
|
Dividends declared on preferred stock ($0.255 - $0.299 per share) and preference stock ($15.625 - $35.936 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(30)
|
|
|
(30)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash stock-based compensation
|
—
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2020
|
$
|
2,245
|
|
|
$
|
2,168
|
|
|
$
|
4,829
|
|
|
$
|
(36)
|
|
|
$
|
9,575
|
|
|
$
|
18,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides SCE's changes in equity for the six months ended June 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except per share amounts)
|
Preferred
and
Preference
Stock
|
|
Common
Stock
|
|
Additional
Paid-in
Capital
|
|
Accumulated
Other
Comprehensive
Loss
|
|
Retained
Earnings
|
|
|
|
Total
Equity
|
|
Balance at December 31, 2018
|
$
|
2,245
|
|
|
$
|
2,168
|
|
|
$
|
680
|
|
|
$
|
(23)
|
|
|
$
|
8,715
|
|
|
|
|
$
|
13,785
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
323
|
|
|
|
|
323
|
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
|
|
1
|
|
|
Cumulative effect of accounting change1
|
|
|
|
|
|
|
(5)
|
|
|
5
|
|
|
|
|
—
|
|
|
Dividends declared on common stock ($0.4599 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(200)
|
|
|
|
|
(200)
|
|
|
Dividends declared on preferred stock ($0.255 - $0.299 per share) and preference stock (15.625 - $35.936 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(30)
|
|
|
|
|
(30)
|
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12)
|
|
|
|
|
(12)
|
|
|
Noncash stock-based compensation
|
—
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2019
|
$
|
2,245
|
|
|
$
|
2,168
|
|
|
$
|
683
|
|
|
$
|
(27)
|
|
|
$
|
8,801
|
|
|
|
|
$
|
13,870
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
449
|
|
|
|
|
449
|
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
|
|
1
|
|
|
Capital contribution from Edison International Parent
|
—
|
|
|
—
|
|
|
1,200
|
|
|
—
|
|
|
—
|
|
|
|
|
1,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared on preferred and preference stock ($0.255 - $0.299 per share for preferred stock; $15.625 - $35.936 per share for preference stock)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(30)
|
|
|
|
|
(30)
|
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1)
|
|
|
|
|
(1)
|
|
|
Noncash stock-based compensation
|
—
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2019
|
$
|
2,245
|
|
|
$
|
2,168
|
|
|
$
|
1,886
|
|
|
$
|
(26)
|
|
|
$
|
9,219
|
|
|
|
|
$
|
15,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 SCE recognized a cumulative effect adjustment to the opening balance of retained earnings and accumulated other comprehensive loss on January 1, 2019 related to the adoption of the accounting standards update on the reclassification of stranded tax effects resulting from Tax Reform.
Note 3. Variable Interest Entities
A VIE is defined as a legal entity that meets one of two conditions: (1) the equity owners do not have sufficient equity at risk, or (2) the holders of the equity investment at risk, as a group, lack any of the following three characteristics: decision-making rights, the obligation to absorb losses or the right to receive the expected residual returns of the entity. The primary beneficiary is identified as the variable interest holder that has both the power to direct the activities of the VIE that most significantly impact the entity's economic performance and the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the VIE. The primary beneficiary is required to consolidate the VIE. Commercial and operating activities are generally the factors that most significantly impact the economic performance of such VIEs. Commercial and operating activities include construction, operation and maintenance, fuel procurement, dispatch and compliance with regulatory and contractual requirements.
Variable Interest in VIEs that are not Consolidated
Power Purchase Agreements
SCE has PPAs that are classified as variable interests in VIEs, including tolling agreements through which SCE provides the natural gas to fuel the plants, contracts with qualifying facilities and combined heat and power facilities that contain variable pricing provisions based on the price of natural gas and fixed price contracts for renewable energy. SCE has concluded that it is not the primary beneficiary of these VIEs since it does not control the commercial and operating activities of these entities. Since payments for capacity are the primary source of income, the most significant economic activity for these VIEs is the operation and maintenance of the power plants.
As of the balance sheet date, the carrying amount of assets and liabilities in SCE's consolidated balance sheet that relate to involvement with VIEs result from amounts due under the PPAs. Under these contracts, SCE recovers the costs incurred through demonstration of compliance with its CPUC-approved long-term power procurement plans. SCE has no residual interest in the entities and has not provided or guaranteed any debt or equity support, liquidity arrangements, performance guarantees, or other commitments associated with these contracts other than the purchase commitments described in Note 12 of the 2019 Form 10-K. As a result, there is no significant potential exposure to loss to SCE from its variable interest in these VIEs. The aggregate contracted capacity dedicated to SCE from these VIE projects was 6,583 megawatts ("MW") and 4,874 MW at June 30, 2020 and 2019, respectively, and the amounts that SCE paid to these projects were $150 million and $122 million for the three months ended June 30, 2020 and 2019, respectively, and $301 million and $275 million for the six months ended June 30, 2020 and 2019, respectively. These amounts are recoverable in customer rates, subject to reasonableness review.
Unconsolidated Trusts of SCE
SCE Trust II, Trust III, Trust IV, Trust V, and Trust VI were formed in 2013, 2014, 2015, 2016, and 2017, respectively, for the exclusive purpose of issuing the 5.10%, 5.75%, 5.375%, 5.45%, and 5.00% trust preference securities, respectively ("trust securities"). The trusts are VIEs. SCE has concluded that it is not the primary beneficiary of these VIEs as it does not have the obligation to absorb the expected losses or the right to receive the expected residual returns of the trusts. SCE Trust II, Trust III, Trust IV, Trust V and Trust VI issued trust securities to the public in the face amounts of $400 million, $275 million, $325 million, $300 million, and $475 million (cumulative, liquidation amounts of $25 per share), respectively, and $10,000 of common stock each to SCE. The trusts invested the proceeds of these trust securities in Series G, Series H, Series J, Series K, and Series L Preference Stock issued by SCE in the principal amounts of $400 million, $275 million, $325 million, $300 million, and $475 million (cumulative, $2,500 per share liquidation values), respectively, which have substantially the same payment terms as the respective trust securities.
The Series G, Series H, Series J, Series K, and Series L Preference Stock and the corresponding trust securities do not have a maturity date. Upon any redemption of any shares of the Series G, Series H, Series J, Series K, or Series L Preference Stock, a corresponding dollar amount of trust securities will be redeemed by the applicable trust. The applicable trust will make distributions at the same rate and on the same dates on the applicable series of trust securities if and when the SCE Board of Directors declares and makes dividend payments on the related Preference Stock. The applicable trust will use any dividends it receives on the related Preference Stock to make its corresponding distributions on the applicable series of trust securities. If SCE does not make a dividend payment to any of these trusts, SCE would be prohibited from paying dividends on its common stock. SCE has fully and unconditionally guaranteed the payment of the trust securities and trust distributions, if and when SCE pays dividends on the related Preference Stock.
The Trust II, Trust III, Trust IV, Trust V and Trust VI balance sheets as of June 30, 2020 and June 30, 2019, consisted of investments of $400 million, $275 million, $325 million, $300 million, and $475 million in the Series G, Series H, Series J, Series K and Series L Preference Stock, respectively, $400 million, $275 million, $325 million, $300 million, and $475 million of trust securities, respectively, and $10,000 each of common stock.
The following table provides a summary of the trusts' income statements:
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Three months ended June 30,
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(in millions)
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|
|
|
Trust II
|
|
Trust III
|
|
Trust IV
|
|
Trust V
|
|
Trust VI
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend income
|
|
|
|
$
|
5
|
|
|
$
|
4
|
|
|
$
|
5
|
|
|
$
|
4
|
|
|
$
|
6
|
|
|
Dividend distributions
|
|
|
|
5
|
|
|
4
|
|
|
5
|
|
|
4
|
|
|
6
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend income
|
|
|
|
$
|
5
|
|
|
$
|
4
|
|
|
$
|
5
|
|
|
$
|
4
|
|
|
$
|
6
|
|
|
Dividend distributions
|
|
|
|
5
|
|
|
4
|
|
|
5
|
|
|
4
|
|
|
6
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|
|
Six months ended June 30,
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|
|
(in millions)
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|
|
Trust II
|
|
Trust III
|
|
Trust IV
|
|
Trust V
|
|
Trust VI
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend income
|
|
|
|
$
|
10
|
|
|
$
|
8
|
|
|
$
|
9
|
|
|
$
|
8
|
|
|
$
|
12
|
|
|
Dividend distributions
|
|
|
|
10
|
|
|
8
|
|
|
9
|
|
|
8
|
|
|
12
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend income
|
|
|
|
$
|
10
|
|
|
$
|
8
|
|
|
$
|
9
|
|
|
$
|
8
|
|
|
$
|
12
|
|
|
Dividend distributions
|
|
|
|
10
|
|
|
8
|
|
|
9
|
|
|
8
|
|
|
12
|
|
Note 4. Fair Value Measurements
Recurring Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (referred to as an "exit price"). Fair value of an asset or liability considers assumptions that market participants would use in pricing the asset or liability, including assumptions about nonperformance risk. As of June 30, 2020 and December 31, 2019, nonperformance risk was not material for Edison International and SCE.
Assets and liabilities are categorized into a three-level fair value hierarchy based on valuation inputs used to determine fair value.
Level 1 – The fair value of Edison International's and SCE's Level 1 assets and liabilities is determined using unadjusted quoted prices in active markets that are available at the measurement date for identical assets and liabilities. This level includes exchange-traded equity securities, U.S. treasury securities, mutual funds, and money market funds.
Level 2 – Edison International's and SCE's Level 2 assets and liabilities include fixed income securities, primarily consisting of U.S. government and agency bonds, municipal bonds and corporate bonds, and over-the-counter derivatives. The fair value of fixed income securities is determined using a market approach by obtaining quoted prices for similar assets and liabilities in active markets and inputs that are observable, either directly or indirectly, for substantially the full term of the instrument.
The fair value of SCE's over-the-counter derivative contracts is determined using an income approach. SCE uses standard pricing models to determine the net present value of estimated future cash flows. Inputs to the pricing models include forward published or posted clearing prices from an exchange (Intercontinental Exchange) for similar instruments and discount rates. A primary price source that best represents trade activity for each market is used to develop observable forward market prices in determining the fair value of these positions. Broker quotes, prices from exchanges, or comparison to executed trades are used to validate and corroborate the primary price source. These price quotations reflect mid-market prices (average of bid and ask) and are obtained from sources believed to provide the most liquid market for the commodity.
Level 3 – The fair value of SCE's Level 3 assets and liabilities is determined using an income approach through various models and techniques that require significant unobservable inputs. This level includes derivative contracts that trade infrequently such as congestion revenue rights ("CRRs"). Edison International Parent and Other does not have any Level 3 assets and liabilities.
Assumptions are made in order to value derivative contracts in which observable inputs are not available. In circumstances where fair value cannot be verified with observable market transactions, it is possible that a different valuation model could produce a materially different estimate of fair value. Modeling methodologies, inputs, and techniques are reviewed and assessed as markets continue to develop and more pricing information becomes available and the fair value is adjusted when it is concluded that a change in inputs or techniques would result in a new valuation that better reflects the fair value of those derivative contracts. See Note 6 for a discussion of derivative instruments.
SCE
The following table sets forth assets and liabilities of SCE that were accounted for at fair value by level within the fair value hierarchy:
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|
|
|
|
|
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|
|
June 30, 2020
|
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|
|
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|
|
|
|
|
(in millions)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Netting
and
Collateral1
|
|
Total
|
|
Assets at fair value
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts
|
$
|
—
|
|
|
$
|
4
|
|
|
$
|
36
|
|
|
$
|
(6)
|
|
|
$
|
34
|
|
|
Money market funds and other
|
219
|
|
|
14
|
|
|
—
|
|
|
—
|
|
|
233
|
|
|
Nuclear decommissioning trusts:
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|
|
|
|
|
|
|
|
|
|
Stocks2
|
1,710
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|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,710
|
|
|
Fixed Income3
|
520
|
|
|
2,162
|
|
|
—
|
|
|
—
|
|
|
2,682
|
|
|
Short-term investments, primarily cash equivalents
|
300
|
|
|
14
|
|
|
—
|
|
|
—
|
|
|
314
|
|
|
Subtotal of nuclear decommissioning trusts4
|
2,530
|
|
|
2,176
|
|
|
—
|
|
|
—
|
|
|
4,706
|
|
|
Total assets
|
2,749
|
|
|
2,194
|
|
|
36
|
|
|
(6)
|
|
|
4,973
|
|
|
Liabilities at fair value
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts
|
—
|
|
|
65
|
|
|
2
|
|
|
(34)
|
|
|
33
|
|
|
Total liabilities
|
—
|
|
|
65
|
|
|
2
|
|
|
(34)
|
|
|
33
|
|
|
Net assets
|
$
|
2,749
|
|
|
$
|
2,129
|
|
|
$
|
34
|
|
|
$
|
28
|
|
|
$
|
4,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Netting
and
Collateral1
|
|
Total
|
|
Assets at fair value
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts
|
$
|
—
|
|
|
$
|
19
|
|
|
$
|
83
|
|
|
$
|
(15)
|
|
|
$
|
87
|
|
|
Money market funds and other
|
4
|
|
|
14
|
|
|
—
|
|
|
—
|
|
|
18
|
|
|
Nuclear decommissioning trusts:
|
|
|
|
|
|
|
|
|
|
|
Stocks2
|
1,765
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,765
|
|
|
Fixed Income3
|
738
|
|
|
2,024
|
|
|
—
|
|
|
—
|
|
|
2,762
|
|
|
Short-term investments, primarily cash equivalents
|
98
|
|
|
48
|
|
|
—
|
|
|
—
|
|
|
146
|
|
|
Subtotal of nuclear decommissioning trusts4
|
2,601
|
|
|
2,072
|
|
|
—
|
|
|
—
|
|
|
4,673
|
|
|
Total assets
|
2,605
|
|
|
2,105
|
|
|
83
|
|
|
(15)
|
|
|
4,778
|
|
|
Liabilities at fair value
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts
|
—
|
|
|
11
|
|
|
5
|
|
|
(15)
|
|
|
1
|
|
|
Total liabilities
|
—
|
|
|
11
|
|
|
5
|
|
|
(15)
|
|
|
1
|
|
|
Net assets
|
$
|
2,605
|
|
|
$
|
2,094
|
|
|
$
|
78
|
|
|
$
|
—
|
|
|
$
|
4,777
|
|
1 Represents the netting of assets and liabilities under master netting agreements and cash collateral.
2 Approximately 71% and 72% of SCE's equity investments were in companies located in the United States at June 30, 2020 and December 31, 2019, respectively.
3 Includes corporate bonds, which were diversified by the inclusion of collateralized mortgage obligations and other asset backed securities, of $71 million and $46 million at June 30, 2020 and December 31, 2019, respectively.
4 Excludes net payables of $140 million and $111 million at June 30, 2020 and December 31, 2019, respectively, which consist of payables and receivables related to SCE's pending securities purchases and sales as well as interest and dividend receivables.
Edison International Parent and Other
Edison International Parent and Other assets measured at fair value and classified as Level 1 consisted of money market funds of $265 million and $31 million at June 30, 2020 and December 31, 2019, respectively.
SCE Fair Value of Level 3
The following table sets forth a summary of changes in SCE's fair value of Level 3 net derivative assets and liabilities:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
Six months ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of net assets at beginning of period
|
|
$
|
52
|
|
|
$
|
95
|
|
|
$
|
78
|
|
|
$
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total realized/unrealized losses1
|
|
(18)
|
|
|
(32)
|
|
|
(44)
|
|
|
(78)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of net assets at end of period2
|
|
34
|
|
|
63
|
|
|
34
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change during the period in unrealized gains and losses related to assets and liabilities held at the end of the period
|
|
$
|
(3)
|
|
|
$
|
(7)
|
|
|
$
|
(9)
|
|
|
$
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Due to regulatory mechanisms, SCE's realized and unrealized gains and losses are recorded as regulatory assets and liabilities.
2 There were no material transfers into or out of Level 3 during 2020 and 2019.
The following table sets forth SCE's valuation techniques and significant unobservable inputs used to determine fair value for significant Level 3 assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value (in millions)
|
|
|
Valuation
|
Significant
|
|
Weighted
|
|
|
Assets
|
|
Liabilities
|
Technique
|
Unobservable Input
|
Range
|
Average
|
|
Congestion revenue rights
|
|
|
|
|
|
|
|
|
June 30, 2020
|
$
|
36
|
|
|
$
|
2
|
|
Auction prices
|
CAISO CRR auction prices
|
$(3.62) - $23.24
|
$1.59
|
|
December 31, 2019
|
83
|
|
|
5
|
|
Auction prices
|
CAISO CRR auction prices
|
(3.59) - 25.32
|
1.97
|
Level 3 Fair Value Uncertainty
For CRRs, increases or decreases in CAISO auction prices would result in higher or lower fair value as of June 30, 2020, respectively.
Nuclear Decommissioning Trusts
SCE's nuclear decommissioning trust investments include equity securities, U.S. treasury securities, and other fixed income securities. Equity and treasury securities are classified as Level 1 as fair value is determined by observable market prices in active or highly liquid and transparent markets. The remaining fixed income securities are classified as Level 2. The fair value of these financial instruments is based on evaluated prices that reflect significant observable market information such as reported trades, actual trade information of similar securities, benchmark yields, broker/dealer quotes, issuer spreads, bids, offers, and relevant credit information. There are no securities classified as Level 3 in the nuclear decommissioning trusts.
Fair Value of Debt Recorded at Carrying Value
The carrying value and fair value of Edison International's and SCE's long-term debt (including current portion of long-term debt) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
December 31, 2019
|
|
|
|
(in millions)
|
|
Carrying
Value1
|
|
Fair
Value2
|
|
Carrying
Value1
|
|
Fair
Value2
|
|
Edison International
|
|
$
|
20,267
|
|
|
$
|
23,332
|
|
|
$
|
18,343
|
|
|
$
|
20,137
|
|
|
SCE
|
|
17,136
|
|
|
19,973
|
|
|
15,211
|
|
|
16,892
|
|
1 Carrying value is net of debt issuance costs.
2 The fair value of Edison International's and SCE's short-term and long-term debt is classified as Level 2.
Note 5. Debt and Credit Agreements
Long-Term Debt
During the first quarter of 2020, SCE issued $100 million of 2.85% first and refunding mortgage bonds due in 2029, $500 million of 3.65% first and refunding mortgage bonds due in 2050, $400 million of 2.25% first and refunding mortgage bonds due in 2030 and $700 million of 3.65% first and refunding mortgage bonds due in 2050. The proceeds were primarily used to repay SCE's commercial paper borrowings and for general corporate purposes, including the re-purchase of SCE tax exempt pollution control bonds.
In April 2020, SCE issued $600 million of 3.70% first and refunding mortgage bonds due in 2025. The proceeds were used to finance undercollections of revenues that SCE is authorized to recover from customers through regulatory balancing accounts.
In April 2020, SCE purchased $373 million of its tax-exempt pollution control bonds that were subject to mandatory redemption and also converted these bonds to a variable rate structure. SCE is the holder of these bonds and plans to re-market them subject to market conditions.
In April 2020, Edison International Parent issued $400 million of 4.95% senior notes due 2025. The proceeds were used to repay all $400 million of Edison International Parent's outstanding 2.125% Senior Notes due in 2020.
Credit Agreements and Short-Term Debt
In May 2020, SCE entered into a revolving credit facility in an amount not to exceed $1.5 billion with a variable interest rate linked to changes in SCE's credit rating, which is currently LIBOR plus 150 basis points on drawn funds. The credit facility is available for borrowing needs until May 2021. As of June 30, 2020, there were no amounts drawn against the revolving credit facility. SCE's revolving credit facility is available for general corporate purposes, including to support liquidity needs that may arise as a result of undercollections due to the COVID-19 pandemic and related consumer protection measures.
In March 2020, SCE borrowed $475 million under a term loan agreement due in March 2021, with a variable interest rate based on the LIBOR plus 60 basis points. The proceeds were used to repay commercial paper borrowings temporarily used to fund a portion of the approximately $1.6 billion in wildfire risk mitigation capital expenditures that SCE will exclude from the equity portion of SCE's rate base as required under AB 1054 ("AB 1054 Excluded Capital Expenditures"). Additionally, in March 2020, SCE entered into a revolving credit facility in an amount not to exceed $800 million with a variable interest rate linked to changes in SCE's credit rating, which is currently LIBOR plus 65 basis points on drawn funds. The credit facility is available for borrowing needs until March 2021, and may be extended for two, 364-day periods, at the lenders' discretion. The aggregate maximum principal amount under the revolving credit facility may be increased up to $1.1 billion, provided that additional lender commitments are obtained. As of June 30, 2020, there were no amounts drawn against the revolving credit facility. SCE plans to use the proceeds to finance future AB 1054 Excluded Capital Expenditures.
SCE and Edison International Parent have separate multi-year revolving credit facilities of $3.0 billion and $1.5 billion, respectively, both maturing in May 2024, with an option to extend for an additional year, which may be exercised upon agreement between SCE or Edison International Parent and their respective lenders. The aggregate maximum principal amount under the SCE and Edison International Parent revolving credit facilities may be increased up to $4.0 billion and $2.0 billion, respectively, provided that additional lender commitments are obtained. SCE's credit facility is generally used to support commercial paper borrowings and letters of credit issued for procurement-related collateral requirements, balancing account undercollections and for general corporate purposes, including working capital requirements to support operations and capital expenditures. Edison International Parent's credit facility is used to support commercial paper borrowings and for general corporate purposes. At June 30, 2020, SCE had no outstanding commercial paper. At December 31, 2019, SCE had $550 million outstanding commercial paper, net of discount, at a weighted-average interest rate of 2.24%. At June 30, 2020 and December 31, 2019, letters of credit issued under SCE's credit facility aggregated $75 million and $152 million, respectively, substantially all of which are scheduled to expire in 12 months or less. Edison International Parent had no outstanding commercial paper at both June 30, 2020 and December 31, 2019.
In March 2020, Edison International Parent borrowed $800 million under a term loan agreement due in March 2021 with a variable interest rate based on LIBOR plus 1.125%. The proceeds were used for general corporate purposes. In May 2020, Edison International repaid the outstanding balance of the term loan using the proceeds from issuance of common stock in a registered direct offering. Refer to Note 13 for details of the common stock issuance.
Note 6. Derivative Instruments
Derivative financial instruments are used to manage exposure to commodity price risk. These risks are managed in part by entering into forward commodity transactions, including options, swaps and futures. To mitigate credit risk from counterparties in the event of nonperformance, master netting agreements are used whenever possible and counterparties may be required to pledge collateral depending on the creditworthiness of each counterparty and the risk associated with the transaction.
Commodity Price Risk
Commodity price risk represents the potential impact that can be caused by a change in the market value of a particular commodity. SCE's electricity price exposure arises from energy purchased from and sold to wholesale markets as a result of differences between SCE's load requirements and the amount of energy delivered from its generating facilities and PPAs. SCE's natural gas price exposure arises from natural gas purchased for the Mountainview power plant and peaker plants, QF contracts where pricing is based on a monthly natural gas index and PPAs in which SCE has agreed to provide the natural gas needed for generation, referred to as tolling arrangements.
Credit and Default Risk
Credit and default risk represent the potential impact that can be caused if a counterparty were to default on its contractual obligations and SCE would be exposed to spot markets for buying replacement power or selling excess power. In addition, SCE would be exposed to the risk of non-payment of accounts receivable, primarily related to the sales of excess power and realized gains on derivative instruments.
Certain power and gas contracts contain master netting agreements or similar agreements, which generally allow counterparties subject to the agreement to offset amounts when certain criteria are met, such as in the event of default. The objective of netting is to reduce credit exposure. Additionally, to reduce SCE's risk exposures counterparties may be required to pledge collateral depending on the creditworthiness of each counterparty and the risk associated with the transaction.
Certain power and gas contracts contain a provision that requires SCE to maintain an investment grade rating from each of the major credit rating agencies, referred to as a credit-risk-related contingent feature. If SCE's credit rating were to fall below investment grade, SCE may be required to post additional collateral to cover derivative liabilities and the related outstanding payables. The net fair value of all derivative liabilities with these credit-risk-related contingent features was $32 million and $1 million as of June 30, 2020 and December 31, 2019, respectively, for which SCE posted no collateral to its counterparties for its derivative liabilities and related outstanding payables at both June 30, 2020 and December 31, 2019. If the credit-risk-related contingent features underlying these agreements were triggered on June 30, 2020, SCE would be required to post $32 million of collateral, of which of $1 million is related to outstanding payables.
Fair Value of Derivative Instruments
SCE presents its derivative assets and liabilities on a net basis on its consolidated balance sheets when subject to master netting agreements or similar agreements. Derivative positions are also offset against margin and cash collateral deposits. In addition, SCE has provided collateral in the form of letters of credit. Collateral requirements can vary depending upon the level of unsecured credit extended by counterparties, changes in market prices relative to contractual commitments and other factors. See Note 4 for a discussion of fair value of derivative instruments. The following table summarizes the gross and net fair values of SCE's commodity derivative instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Assets
|
|
|
|
|
|
Derivative Liabilities
|
|
|
|
|
|
Net
Assets
|
|
(in millions)
|
|
Short-Term1
|
|
Long-Term2
|
|
Subtotal
|
|
Short-Term3
|
|
Long-Term
|
|
Subtotal
|
|
|
|
Commodity derivative contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross amounts recognized
|
|
$
|
39
|
|
|
$
|
1
|
|
|
$
|
40
|
|
|
$
|
67
|
|
|
$
|
—
|
|
|
$
|
67
|
|
|
$
|
(27)
|
|
|
Gross amounts offset in the consolidated balance sheets
|
|
(6)
|
|
|
—
|
|
|
(6)
|
|
|
(6)
|
|
|
—
|
|
|
(6)
|
|
|
—
|
|
|
Cash collateral posted4
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(28)
|
|
|
—
|
|
|
(28)
|
|
|
28
|
|
|
Net amounts presented in the consolidated balance sheets
|
|
$
|
33
|
|
|
$
|
1
|
|
|
$
|
34
|
|
|
$
|
33
|
|
|
$
|
—
|
|
|
$
|
33
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Assets
|
|
|
|
|
|
Derivative Liabilities
|
|
|
|
|
|
Net
Assets
|
|
(in millions)
|
|
Short-Term1
|
|
Long-Term2
|
|
Subtotal
|
|
Short-Term3
|
|
Long-Term
|
|
Subtotal
|
|
|
|
Commodity derivative contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross amounts recognized
|
|
$
|
94
|
|
|
$
|
8
|
|
|
$
|
102
|
|
|
$
|
14
|
|
|
$
|
2
|
|
|
$
|
16
|
|
|
$
|
86
|
|
|
Gross amounts offset in the consolidated balance sheets
|
|
(13)
|
|
|
(2)
|
|
|
(15)
|
|
|
(13)
|
|
|
(2)
|
|
|
(15)
|
|
|
—
|
|
|
Cash collateral posted4
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net amounts presented in the consolidated balance sheets
|
|
$
|
81
|
|
|
$
|
6
|
|
|
$
|
87
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
86
|
|
1 Included in "Other current assets" on Edison International's and SCE's consolidated balance sheets.
2 Included in "Other long-term assets" on Edison International's and SCE's consolidated balance sheets.
3 Included in "Other current liabilities" on Edison International's and SCE's consolidated balance sheets.
4 At June 30, 2020, SCE posted $43 million of cash, of which $28 million was offset against net derivative liabilities and $15 million was reflected in "Other current assets" on the consolidated balance sheets. At December 31, 2019, SCE posted $24 million of cash, which was not offset against net derivative liabilities and was reflected in "Other current assets" on the consolidated balance sheets.
Income Statement Impact of Derivative Instruments
SCE recognizes realized gains and losses on derivative instruments as purchased power expense and expects that such gains or losses will be part of the purchased power costs recovered from customers. As a result, realized gains and losses do not affect earnings, but may temporarily affect cash flows. Due to expected future recovery from customers, unrealized gains and losses are recorded as regulatory assets and liabilities and therefore also do not affect earnings. The remaining effects of derivative activities and related regulatory offsets are reported in cash flows from operating activities in the consolidated statements of cash flows.
The following table summarizes the components of SCE's economic hedging activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
Six months ended June 30,
|
|
|
|
|
(in millions)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
Realized (losses) gains
|
|
$
|
(16)
|
|
|
$
|
(2)
|
|
|
$
|
(60)
|
|
|
$
|
30
|
|
|
|
Unrealized losses
|
|
(31)
|
|
|
(78)
|
|
|
(114)
|
|
|
(128)
|
|
|
Notional Volumes of Derivative Instruments
The following table summarizes the notional volumes of derivatives used for SCE's economic hedging activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Economic Hedges
|
|
|
|
Commodity
|
|
Unit of Measure
|
|
June 30, 2020
|
|
December 31, 2019
|
|
Electricity options, swaps and forwards
|
|
GWh
|
|
4,863
|
|
|
3,155
|
|
|
Natural gas options, swaps and forwards
|
|
Bcf
|
|
50
|
|
|
43
|
|
|
Congestion revenue rights
|
|
GWh
|
|
31,945
|
|
|
48,170
|
|
|
|
|
|
|
|
|
|
Note 7. Revenue
SCE's revenue is disaggregated by two revenue sources:
•Earning activities – representing revenue authorized by the CPUC and FERC, which is intended to provide SCE a reasonable opportunity to recover its costs and earn a return on its net investment in generation, transmission and distribution assets. The annual revenue requirements are comprised of authorized operation and maintenance costs, depreciation, taxes and a return consistent with the capital structure. Also, included in earnings activities are revenue or penalties related to incentive mechanisms, other operating revenue, and regulatory charges or disallowances.
•Cost-recovery activities – representing 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. Cost-recovery activities include rates which provide recovery, subject to reasonableness review of, among other things, fuel costs, purchased power costs, public purpose related-program costs (including energy efficiency and demand-side management programs) and certain operation and maintenance expenses. SCE earns no return on these activities.
The following table is a summary of SCE's revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2020
|
|
|
Three months ended June 30, 2019
|
|
|
|
(in millions)
|
Earning
Activities
|
Cost-
Recovery
Activities
|
Total
Consolidated
|
Earning Activities
|
Cost-Recovery Activities
|
Total Consolidated
|
|
Revenues from contracts with customers1,2
|
$
|
1,658
|
|
$
|
1,220
|
|
$
|
2,878
|
|
$
|
1,532
|
|
$
|
767
|
|
$
|
2,299
|
|
|
Alternative revenue programs and other operating revenue3
|
117
|
|
(15)
|
|
102
|
|
5
|
|
496
|
|
501
|
|
|
Total operating revenue
|
$
|
1,775
|
|
$
|
1,205
|
|
$
|
2,980
|
|
$
|
1,537
|
|
$
|
1,263
|
|
$
|
2,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2020
|
|
|
Six months ended June 30, 2019
|
|
|
|
(in millions)
|
Earning Activities
|
Cost- Recovery Activities
|
Total Consolidated
|
Earning Activities
|
Cost-Recovery Activities
|
Total Consolidated
|
|
Revenues from contracts with customers1,2
|
$
|
3,282
|
|
$
|
1,938
|
|
$
|
5,220
|
|
$
|
3,034
|
|
$
|
1,724
|
|
$
|
4,758
|
|
|
Alternative revenue programs and other operating revenue3
|
234
|
|
306
|
|
540
|
|
53
|
|
805
|
|
858
|
|
|
Total operating revenue
|
$
|
3,516
|
|
$
|
2,244
|
|
$
|
5,760
|
|
$
|
3,087
|
|
$
|
2,529
|
|
$
|
5,616
|
|
1 In the absence of a 2018 GRC decision, SCE recognized CPUC revenue in the first quarter of 2019 based on the 2017 authorized revenue requirement adjusted mainly for the July 2017 cost of capital decision and Tax Reform. SCE recorded the impact of the 2018 GRC decision in the second quarter of 2019.
2 At June 30, 2020 and December 31, 2019, SCE's receivables related to contracts from customers were $1.3 billion and $1.1 billion, respectively, which include accrued unbilled revenue of $629 million and $488 million, respectively.
3 Includes differences between amounts billed and authorized levels for both the CPUC and FERC.
Note 8. Income Taxes
Effective Tax Rate
The table below provides a reconciliation of income tax expense computed at the federal statutory income tax rate to the income tax provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
Six months ended June 30,
|
|
|
|
(in millions)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Edison International:
|
|
|
|
|
|
|
|
|
Income from operations before income taxes
|
$
|
352
|
|
|
$
|
344
|
|
|
$
|
481
|
|
|
$
|
540
|
|
|
Provision for income tax at federal statutory rate of 21%
|
74
|
|
|
72
|
|
|
101
|
|
|
113
|
|
|
Increase (decrease) in income tax from:
|
|
|
|
|
|
|
|
|
State tax, net of federal benefit
|
6
|
|
|
2
|
|
|
(7)
|
|
|
(5)
|
|
|
Property-related
|
(69)
|
|
|
(74)
|
|
|
(147)
|
|
|
(143)
|
|
|
Change related to uncertain tax position1
|
—
|
|
|
—
|
|
|
(15)
|
|
|
—
|
|
|
Deferred tax re-measurement2
|
—
|
|
|
—
|
|
|
—
|
|
|
(69)
|
|
|
2018 GRC Decision
|
—
|
|
|
(80)
|
|
|
—
|
|
|
(80)
|
|
|
Other
|
(7)
|
|
|
2
|
|
|
(12)
|
|
|
(6)
|
|
|
Total income tax expense (benefit)
|
$
|
4
|
|
|
$
|
(78)
|
|
|
$
|
(80)
|
|
|
$
|
(190)
|
|
|
Effective tax rate
|
1.1
|
%
|
|
(22.7)
|
%
|
|
(16.6)
|
%
|
|
(35.2)
|
%
|
|
SCE:
|
|
|
|
|
|
|
|
|
Income from operations before income taxes
|
$
|
437
|
|
|
$
|
381
|
|
|
$
|
611
|
|
|
$
|
599
|
|
|
Provision for income tax at federal statutory rate of 21%
|
92
|
|
|
80
|
|
|
129
|
|
|
126
|
|
|
Increase (decrease) in income tax from:
|
|
|
|
|
|
|
|
|
State tax, net of federal benefit
|
11
|
|
|
3
|
|
|
(1)
|
|
|
(2)
|
|
|
Property-related
|
(69)
|
|
|
(74)
|
|
|
(147)
|
|
|
(143)
|
|
|
Change related to uncertain tax positions1
|
(1)
|
|
|
—
|
|
|
(18)
|
|
|
—
|
|
|
Deferred tax re-measurement2
|
—
|
|
|
—
|
|
|
—
|
|
|
(69)
|
|
|
2018 GRC Decision
|
—
|
|
|
(80)
|
|
|
—
|
|
|
(80)
|
|
|
Other
|
(7)
|
|
|
3
|
|
|
(12)
|
|
|
(5)
|
|
|
Total income tax expense (benefit)
|
$
|
26
|
|
|
$
|
(68)
|
|
|
$
|
(49)
|
|
|
$
|
(173)
|
|
|
Effective tax rate
|
5.9
|
%
|
|
(17.8)
|
%
|
|
(8.0)
|
%
|
|
(28.9)
|
%
|
1 Primarily relates to the re-measurement of uncertain tax positions related to the 2010 – 2012 California state tax filings currently under audit.
2 Relates to changes in the allocation of deferred tax re-measurement between customers and shareholders as a result of a CPUC resolution issued in February 2019. The resolution determined that customers are only entitled to excess deferred taxes which were included when setting rates, while other deferred tax re-measurement belongs to the shareholders.
The CPUC requires flow-through ratemaking treatment for the current tax benefit arising from certain property-related and other temporary differences which reverse over time. Flow-through items reduce current authorized revenue requirements in SCE's rate cases and result in a regulatory asset for recovery of deferred income taxes in future periods. The difference between the authorized amounts as determined in SCE's rate cases, adjusted for balancing and memorandum account activities, and the recorded flow-through items also result in increases or decreases in regulatory assets with a corresponding impact on the effective tax rate to the extent that recorded deferred amounts are expected to be recovered in future rates. For further information, see Note 11.
Tax Disputes
Tax years that remain open for examination by the IRS and the California Franchise Tax Board are 2016 – 2018 and 2010 – 2018, respectively. Tax years 2007 – 2012 are currently subject to a settlement proceeding with the California Franchise Tax Board. Edison International does not expect to resolve these tax years within the next 12 months. Any impacts cannot be reasonably estimated until further progress is made.
Note 9. Compensation and Benefit Plans
Pension Plans
Net periodic pension expense components are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
Six months ended June 30,
|
|
|
|
|
|
|
|
(in millions)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
Edison International:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
31
|
|
|
$
|
32
|
|
|
$
|
62
|
|
|
$
|
64
|
|
|
|
|
|
|
Non-service cost (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost
|
30
|
|
39
|
|
61
|
|
|
78
|
|
|
|
|
|
|
Expected return on plan assets
|
(54)
|
|
|
(52)
|
|
|
(108)
|
|
|
(104)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost
|
1
|
|
1
|
|
1
|
|
|
1
|
|
|
|
|
|
|
Amortization of net loss1
|
3
|
|
|
2
|
|
|
6
|
|
|
4
|
|
|
|
|
|
|
Regulatory adjustment
|
2
|
|
|
(4)
|
|
|
4
|
|
|
(8)
|
|
|
|
|
|
|
Total non-service benefit2
|
$
|
(18)
|
|
|
$
|
(14)
|
|
|
$
|
(36)
|
|
|
$
|
(29)
|
|
|
|
|
|
|
Total expense recognized
|
$
|
13
|
|
|
$
|
18
|
|
|
$
|
26
|
|
|
$
|
35
|
|
|
|
|
|
|
SCE:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
30
|
|
|
$
|
31
|
|
|
$
|
60
|
|
|
$
|
62
|
|
|
|
|
|
|
Non-service cost (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost
|
28
|
|
|
36
|
|
|
56
|
|
|
71
|
|
|
|
|
|
|
Expected return on plan assets
|
(51)
|
|
|
(49)
|
|
|
(102)
|
|
|
(98)
|
|
|
|
|
|
|
Amortization of prior service cost
|
1
|
|
|
1
|
|
1
|
|
|
1
|
|
|
|
|
|
|
Amortization of net loss1
|
2
|
|
|
2
|
|
4
|
|
|
3
|
|
|
|
|
|
|
Regulatory adjustment
|
2
|
|
|
(4)
|
|
|
4
|
|
|
(8)
|
|
|
|
|
|
|
Total non-service benefit2
|
$
|
(18)
|
|
|
$
|
(14)
|
|
|
$
|
(37)
|
|
|
$
|
(31)
|
|
|
|
|
|
|
Total expense recognized
|
$
|
12
|
|
|
$
|
17
|
|
|
$
|
23
|
|
|
$
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Represents the amount of net loss reclassified from other comprehensive loss.
2 Included in "Other income" on Edison International's and SCE's consolidated statement of income.
Postretirement Benefits Other Than Pensions ("PBOP")
Net periodic PBOP expense components for Edison International and SCE are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
Six months ended June 30,
|
|
|
|
|
|
|
(in millions)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
Service cost
|
$
|
9
|
|
|
$
|
8
|
|
|
$
|
18
|
|
|
$
|
16
|
|
|
|
|
|
Non-service cost (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost
|
17
|
|
21
|
|
34
|
|
|
42
|
|
|
|
|
|
Expected return on plan assets
|
(30)
|
|
|
(28)
|
|
|
(60)
|
|
|
(56)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net gain
|
(4)
|
|
|
(1)
|
|
|
(8)
|
|
|
(2)
|
|
|
|
|
|
Regulatory adjustment
|
8
|
|
6
|
|
16
|
|
|
12
|
|
|
|
|
|
Total non-service benefit1
|
$
|
(9)
|
|
|
$
|
(2)
|
|
|
$
|
(18)
|
|
|
$
|
(4)
|
|
|
|
|
|
Total expense
|
$
|
—
|
|
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Included in "Other income" on Edison International's and SCE's consolidated statement of income.
Note 10. Investments
Nuclear Decommissioning Trusts
Future decommissioning costs related to SCE's nuclear assets are expected to be funded from independent decommissioning trusts.
The following table sets forth amortized cost and fair value of the trust investments (see Note 4 for a discussion of fair value of the trust investments):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Longest
Maturity
Dates
|
|
Amortized Cost
|
|
|
|
Fair Value
|
|
|
|
(in millions)
|
|
|
June 30,
2020
|
|
December 31,
2019
|
|
June 30,
2020
|
|
December 31, 2019
|
|
Stocks
|
—
|
|
N/A
|
|
N/A
|
|
$
|
1,710
|
|
|
$
|
1,765
|
|
|
Municipal bonds
|
2057
|
|
$
|
1,013
|
|
|
$
|
822
|
|
|
1,194
|
|
|
970
|
|
|
U.S. government and agency securities
|
2067
|
|
703
|
|
|
996
|
|
|
852
|
|
|
1,115
|
|
|
Corporate bonds
|
2070
|
|
542
|
|
|
597
|
|
|
636
|
|
|
679
|
|
|
Short-term investments and receivables/payables1
|
One-year
|
|
168
|
|
|
32
|
|
|
174
|
|
|
33
|
|
|
Total
|
|
|
$
|
2,426
|
|
|
$
|
2,447
|
|
|
$
|
4,566
|
|
|
$
|
4,562
|
|
1 Short-term investments include $90 million and $41 million of repurchase agreements payable by financial institutions which earn interest, are fully secured by U.S. Treasury securities and mature by July 1, 2020 and January 2, 2020 as of June 30, 2020 and December 31, 2019, respectively.
Trust fund earnings (based on specific identification) increase the trust fund balance and the asset retirement obligation ("ARO") regulatory liability. Unrealized holding gains, net of losses, were $1.8 billion at both June 30, 2020 and December 31, 2019.
Trust assets are used to pay income taxes arising from trust investing activity. Deferred tax liabilities related to net unrealized gains were $425 million and $449 million at June 30, 2020 and December 31, 2019, respectively. Accordingly, the fair value of trust assets available to pay future decommissioning costs, net of deferred income taxes, totaled $4.1 billion at both June 30, 2020 and December 31, 2019.
The following table summarizes the gains and losses for the trust investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
Six months ended June 30,
|
|
|
|
(in millions)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Gross realized gains
|
$
|
75
|
|
|
$
|
22
|
|
|
$
|
114
|
|
|
$
|
45
|
|
|
Gross realized loss
|
1
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
Net unrealized gains (losses) for equity securities
|
271
|
|
|
38
|
|
|
(105)
|
|
|
206
|
|
Due to regulatory mechanisms, changes in assets of the trusts from income or loss items have no impact on operating revenue or earnings.
Note 11. Regulatory Assets and Liabilities
Regulatory Assets
SCE's regulatory assets included on the consolidated balance sheets are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
June 30,
2020
|
|
December 31,
2019
|
|
Current:
|
|
|
|
|
Regulatory balancing and memorandum accounts
|
$
|
1,443
|
|
|
$
|
798
|
|
|
Power contracts
|
228
|
|
|
189
|
|
|
|
|
|
|
|
Other
|
21
|
|
|
22
|
|
|
Total current
|
1,692
|
|
|
1,009
|
|
|
Long-term:
|
|
|
|
|
Deferred income taxes, net of liabilities
|
4,231
|
|
|
4,026
|
|
|
Pensions and other postretirement benefits
|
83
|
|
|
87
|
|
|
Power contracts
|
361
|
|
|
434
|
|
|
Unamortized investments, net of accumulated amortization
|
117
|
|
|
119
|
|
|
|
|
|
|
|
Unamortized loss on reacquired debt
|
138
|
|
|
142
|
|
|
Regulatory balancing and memorandum accounts
|
1,331
|
|
|
981
|
|
|
Environmental remediation
|
233
|
|
|
237
|
|
|
|
|
|
|
|
Other
|
34
|
|
|
62
|
|
|
Total long-term
|
6,528
|
|
|
6,088
|
|
|
Total regulatory assets
|
$
|
8,220
|
|
|
$
|
7,097
|
|
Regulatory Liabilities
SCE's regulatory liabilities included on the consolidated balance sheets are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
June 30,
2020
|
|
December 31,
2019
|
|
Current:
|
|
|
|
|
Regulatory balancing and memorandum accounts
|
$
|
846
|
|
|
$
|
883
|
|
|
|
|
|
|
|
Energy derivatives
|
—
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
11
|
|
|
9
|
|
|
Total current
|
857
|
|
|
972
|
|
|
Long-term:
|
|
|
|
|
Cost of removal
|
2,649
|
|
|
2,674
|
|
|
Re-measurement of deferred taxes
|
2,352
|
|
|
2,424
|
|
|
Recoveries in excess of ARO liabilities1
|
1,600
|
|
|
1,569
|
|
|
Regulatory balancing and memorandum accounts
|
1,337
|
|
|
1,261
|
|
|
Other postretirement benefits
|
423
|
|
|
416
|
|
|
Other
|
34
|
|
|
41
|
|
|
Total long-term
|
8,395
|
|
|
8,385
|
|
|
Total regulatory liabilities
|
$
|
9,252
|
|
|
$
|
9,357
|
|
1 Represents the cumulative differences between ARO expenses and amounts collected in rates primarily for the decommissioning of SCE's nuclear generation facilities. Decommissioning costs recovered through rates are primarily placed in nuclear decommissioning trusts. This regulatory liability also represents the deferral of realized and unrealized gains and losses on the nuclear decommissioning trust investments. See Note 10 for further discussion.
Net Regulatory Balancing and Memorandum Accounts
The following table summarizes the significant components of regulatory balancing and memorandum accounts included in the above tables of regulatory assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
June 30,
2020
|
|
December 31,
2019
|
|
Asset (liability)
|
|
|
|
|
Energy resource recovery account
|
$
|
(355)
|
|
|
$
|
(23)
|
|
|
Portfolio allocation balancing account
|
745
|
|
|
537
|
|
|
New system generation balancing account
|
31
|
|
|
85
|
|
|
Public purpose programs and energy efficiency programs
|
(1,322)
|
|
|
(1,244)
|
|
|
|
|
|
|
|
Base revenue requirement balancing account
|
239
|
|
|
(328)
|
|
|
|
|
|
|
|
Greenhouse gas auction revenue and low carbon fuel standard revenue
|
(23)
|
|
|
(196)
|
|
|
FERC balancing accounts
|
32
|
|
|
(127)
|
|
|
|
|
|
|
|
|
|
|
|
|
Wildfire-related memorandum accounts1
|
1,179
|
|
|
868
|
|
|
COVID-19-related memorandum accounts2
|
49
|
|
|
—
|
|
|
Other
|
16
|
|
|
63
|
|
|
Asset (liability)
|
$
|
591
|
|
|
$
|
(365)
|
|
1 The wildfire-related memorandum accounts regulatory assets represent wildfire-related costs that are probable of future recovery from customers, subject to a reasonableness review. The Fire Hazard Prevention Memorandum Account ("FHPMA") is used to track costs related to fire safety and to implement fire prevention corrective action measures in extreme and very high fire threat areas. A Catastrophic Event Memorandum Account ("CEMA") is used to track costs related to restoring service and damage repair, upon declaration of disasters by state or federal authorities. The Wildfire Expense Memorandum Account ("WEMA") is used to track incremental wildfire insurance costs and uninsured wildfire-related financing, legal and claims costs. During 2019, the CPUC approved a Wildfire Mitigation Plan memorandum account to track costs incurred to implement SCE's Wildfire Mitigation Plan that are not currently reflected in SCE's revenue requirements, a Grid Safety and Resiliency Program Memorandum Account ("GSRPMA") to track the costs of SCE's GS&RP that are incremental to costs approved for recovery in SCE's 2018 GRC and a fire risk mitigation memorandum account to track costs related to the reduction of fire risk that are incremental to the amount in SCE's any other revenue requirement.
2 In July 2020, the CPUC approved establishment of the COVID-19 Pandemic Protection Memorandum Account ("CPPMA"), to track incremental consumer protection costs for residential and small commercial customers. A CEMA is used to track other incremental COVID-19 costs, including costs of sequestering employees at essential work locations. Both memorandum accounts were effective beginning March 2020.
Note 12. Commitments and Contingencies
Indemnities
Edison International and SCE have various financial and performance guarantees and indemnity agreements which are issued in the normal course of business.
Edison International and SCE have agreed to provide indemnifications through contracts entered into in the normal course of business. These are primarily indemnifications against adverse litigation outcomes in connection with underwriting agreements, and indemnities for specified environmental liabilities and income taxes with respect to assets sold or other contractual arrangements. Edison International's and SCE's obligations under these agreements may or may not be limited in terms of time and/or amount, and in some instances Edison International and SCE may have recourse against third parties. Edison International and SCE have not recorded a liability related to these indemnities. The overall maximum amount of the obligations under these indemnifications cannot be reasonably estimated.
Contingencies
In addition to the matters disclosed in these Notes, Edison International and SCE are involved in other legal, tax, and regulatory proceedings before various courts and governmental agencies regarding matters arising in the ordinary course of business. Edison International and SCE believe the outcome of these other proceedings will not, individually or in the aggregate, materially affect its financial position, results of operations and cash flows.
Southern California Wildfires and Mudslides
Multiple factors have contributed to increased wildfire activity, and faster progression of and increased damage from wildfires across SCE's service territory and throughout California. These include the buildup of dry vegetation in areas severely impacted by years of historic drought, lack of adequate clearing of hazardous fuels by responsible parties, higher temperatures, lower humidity, and strong Santa Ana winds. At the same time that wildfire risk has been increasing in Southern California, residential and commercial development has occurred and is occurring in some of the highest-risk areas. Such factors can increase the likelihood and extent of wildfires. SCE has determined that approximately 27% of its service territory is in areas identified as high fire risk.
Over the past several years, wind-driven wildfires impacted portions of SCE's service territory, with wildfires in December 2017 and November 2018 causing loss of life, substantial damage to both residential and business properties, and service outages for SCE customers. The investigating government agencies, the Ventura County Fire Department ("VCFD") and California Department of Forestry and Fire Protection ("CAL FIRE"), have determined that the largest of the 2017 fires originated on December 4, 2017, in the Anlauf Canyon area of Ventura County (the investigating agencies refer to this fire as the "Thomas Fire"), followed shortly thereafter by a second fire that originated near Koenigstein Road in the City of Santa Paula (the "Koenigstein Fire"). While SCE continues to review the progression of these two fires, the December 4, 2017 fires eventually burned substantial acreage in both Ventura and Santa Barbara Counties. According to CAL FIRE, the Thomas and Koenigstein Fires, collectively, burned over 280,000 acres, destroyed or damaged an estimated 1,343 structures and resulted in two confirmed fatalities. The largest of the November 2018 fires, known as the "Woolsey Fire," originated in Ventura County and burned acreage in both Ventura and Los Angeles Counties. According to CAL FIRE, the Woolsey Fire burned almost 100,000 acres, destroyed an estimated 1,643 structures, damaged an estimated 364 structures and resulted in three confirmed fatalities. Two additional fatalities have been associated with the Woolsey Fire.
As described below, multiple lawsuits related to the Thomas and Koenigstein Fires and the Woolsey Fire have been initiated against SCE and Edison International. Some of the Thomas and Koenigstein Fires lawsuits claim that SCE and Edison International have responsibility for the damages caused by mudslides and flooding in Montecito and surrounding areas in January 2018 (the "Montecito Mudslides") based on a theory alleging that SCE has responsibility for the Thomas and/or Koenigstein Fires and that the Thomas and/or Koenigstein Fires proximately caused the Montecito Mudslides. According to Santa Barbara County initial reports, the Montecito Mudslides destroyed an estimated 135 structures, damaged an estimated 324 structures, and resulted in 21 confirmed fatalities, with two additional fatalities presumed.
In 2019, several wind-driven wildfires, including the "Saddle Ridge Fire," originated in Southern California (the "2019 Fires"). Based on currently available information and without considering insurance recoveries, it is reasonably possible that SCE will incur a material loss in connection with the Saddle Ridge Fire, but the range of possible losses that could be incurred cannot be estimated at this time. Edison International and SCE expect that any losses incurred will be covered by insurance, subject to a self-insured retention and co-insurance, and that the amount of any such loss after insurance recoveries will not be material. After expected insurance recoveries, SCE does not expect any of the 2019 Fires to have a material adverse effect on its financial condition, results of operations or cash flows. SCE has not recorded a charge for potential liabilities relating to the Saddle Ridge Fire because, based on currently available information, it has not determined that a loss is probable.
Liability Overview
The extent of liability for wildfire-related damages in actions against utilities depends on a number of factors, including whether the utility substantially caused or contributed to the damages and whether parties seeking recovery of damages will be required to show negligence in addition to causation. California courts have previously found utilities to be strictly liable for property damage along with associated interest and attorneys' fees, regardless of fault, by applying the theory of inverse condemnation when a utility's facilities were determined to be a substantial cause of a wildfire that caused the property damage. If inverse condemnation is held to be inapplicable to SCE in connection with a wildfire, SCE still could be held liable for property damages and associated interest if the property damages were found to have been proximately caused by SCE's negligence. If SCE were to be found negligent, SCE could also be held liable for, among other things, fire suppression costs, business interruption losses, evacuation costs, clean-up costs, medical expenses, and personal injury/wrongful death claims. Additionally, SCE could potentially be subject to fines for alleged violations of CPUC rules and state laws in connection with the ignition of a wildfire.
Final determinations of liability for the Thomas Fire, the Koenigstein Fire, the Montecito Mudslides and the Woolsey Fire (each a "2017/2018 Wildfire/Mudslide Event," and, collectively, the "2017/2018 Wildfire/Mudslide Events"), including determinations of whether SCE was negligent, would only be made during lengthy and complex litigation processes. Even when investigations are still pending or liability is disputed, an assessment of likely outcomes, including through future
settlement of disputed claims, may require a liability to be accrued under accounting standards. Based on information available to SCE and consideration of the risks associated with litigation, Edison International and SCE expect to incur a material loss in connection with the 2017/2018 Wildfire/Mudslide Events.
As of June 30, 2020, Edison International and SCE have estimated liabilities of $4.5 billion and remaining expected recoveries from insurance of $1.6 billion and through FERC electric rates of $77 million on their consolidated balance sheets related to the 2017/2018 Wildfire/Mudslide Events. The accrued liability corresponds to the lower end of the reasonably estimated range of expected potential losses that may be incurred in connection with the 2017/2018 Wildfire/Mudslide Events and is subject to change as additional information becomes available. Edison International and SCE will seek to offset any actual losses realized with recoveries from insurance policies in place at the time of the events and, to the extent actual losses exceed insurance, through electric rates. The CPUC and FERC may not allow SCE to recover uninsured losses through electric rates if it is determined that such losses were not reasonably or prudently incurred. See "Loss Estimates for Third Party Claims and Potential Recoveries from Insurance and through Electric Rates" below for additional information.
External Investigations and Internal Review
The VCFD and CAL FIRE have jointly issued reports concerning their findings regarding the causes of the Thomas Fire and the Koenigstein Fire. The reports did not address the causes of the Montecito Mudslides. SCE has also received a non-final redacted draft of a report from the VCFD regarding Woolsey Fire (the "Redacted Woolsey Report"). SCE received the Redacted Woolsey Report subject to a protective order in the litigation related to the Woolsey fire and, other than the information disclosed in this Form 10-Q, is not authorized to release the report or its contents to the public at this time. Based on information received at hearings in the Woolsey Fire litigation, SCE anticipates that the VCFD will release its final report regarding the Woolsey Fire in the fourth quarter of 2020. The VCFD and CAL FIRE findings do not determine legal causation of or assign legal liability for the Thomas, Koenigstein or Woolsey Fires; final determinations of legal causation and liability would only be made during lengthy and complex litigation.
The CPUC's Safety and Enforcement Division ("SED") is also conducting investigations to assess SCE's compliance with applicable rules and regulations in areas impacted by the Thomas, Koenigstein and Woolsey Fires. SCE cannot predict when the SED's investigations will be completed. Edison International and SCE understand that the California Attorney General's Office has completed its investigation of the Thomas Fire without pursuing criminal charges. Edison International and SCE are aware of an ongoing investigation by the California Attorney General's Office of the Woolsey Fire for the purpose of determining whether any criminal violations have occurred. SCE could be subject to material fines, penalties, or restitution if it is determined that it failed to comply with applicable laws and regulations. SCE is not aware of any basis for felony liability with regards to the Thomas Fire, the Koenigstein Fire or the Woolsey Fire.
SCE's internal review into the facts and circumstances of each of the 2017/2018 Wildfire/Mudslide Events is complex and time consuming. SCE expects to obtain and review additional information and materials in the possession of third parties during the course of its internal reviews and the litigation processes.
Thomas Fire
On March 13, 2019, the VCFD and CAL FIRE jointly issued a report concluding, after ruling out other possible causes, that the Thomas Fire was started by SCE power lines coming into contact during high winds, resulting in molten metal falling to the ground. However, the report does not state that their investigation found molten metal on the ground. At this time, based on available information, SCE has not determined whether its equipment caused the Thomas Fire. Based on publicly available radar data showing a smoke plume in the Anlauf Canyon area emerging in advance of the report's indicated start time, SCE believes that the Thomas Fire started at least 12 minutes prior to any issue involving SCE's system and at least 15 minutes prior to the start time indicated in the report. SCE is continuing to assess the progression of the Thomas Fire and the extent of damages that may be attributable to that fire.
Koenigstein Fire
On March 20, 2019, the VCFD and CAL FIRE jointly issued a report finding that the Koenigstein Fire was caused when an energized SCE electrical wire separated and fell to the ground along with molten metal particles and ignited the dry vegetation below. As previously disclosed, SCE believes that its equipment was associated with the ignition of the Koenigstein Fire. SCE is continuing to assess the progression of the Koenigstein Fire and the extent of damages that may be attributable to that fire.
Montecito Mudslides
SCE's internal review includes inquiry into whether the Thomas and/or Koenigstein Fires proximately caused or contributed to the Montecito Mudslides, whether, and to what extent, the Thomas and/or Koenigstein Fires were responsible for the damages in the Montecito area and other factors that potentially contributed to the losses that resulted from the Montecito Mudslides. Many other factors, including, but not limited to, weather conditions and insufficiently or improperly designed and maintained debris basins, roads, bridges and other channel crossings, could have proximately caused, contributed to or exacerbated the losses that resulted from the Montecito Mudslides.
At this time, based on available information, SCE has not been able to determine whether the Thomas Fire or the Koenigstein Fire, or both, were responsible for the damages in the Montecito area. In the event that SCE is determined to have caused the fire that spread to the Montecito area, SCE cannot predict whether, if fully litigated, the courts would conclude that the Montecito Mudslides were caused or contributed to by the Thomas and/or Koenigstein Fires or that SCE would be liable for some or all of the damages caused by the Montecito Mudslides.
Woolsey Fire
SCE's internal review into the facts and circumstances of the Woolsey Fire is ongoing. SCE has reported to the CPUC that there was an outage on SCE's electric system in the vicinity of where the Woolsey Fire reportedly began on November 8, 2018. SCE is aware of witnesses who saw fire in the vicinity of SCE's equipment at the time the fire was first reported. While SCE did not find evidence of downed electrical wires on the ground in the suspected area of origin, it observed a pole support wire in proximity to an electrical wire that was energized prior to the outage.
The Redacted Woolsey Report states that the VCFD investigation team determined that electrical equipment owned and operated by SCE was the cause of the Woolsey Fire. Absent additional evidence, SCE believes that it is likely that its equipment was associated with the ignition of the Woolsey Fire. SCE expects to obtain and review additional information and materials in the possession of CAL FIRE and others during the course of its internal review and the Woolsey Fire litigation process, including SCE equipment that has been retained by CAL FIRE.
Wildfire-related Litigation
Multiple lawsuits related to the 2017/2018 Wildfire/Mudslide Events naming SCE as a defendant have been filed by three categories of plaintiffs: individual plaintiffs, subrogation plaintiffs and public entity plaintiffs. A number of the lawsuits also name Edison International as a defendant and some of the lawsuits were filed as purported class actions. The lawsuits, which have been filed in the superior courts of Ventura, Santa Barbara and Los Angeles Counties in the case of the Thomas and Koenigstein Fires and the Montecito Mudslides, and in Ventura and Los Angeles Counties in the case of the Woolsey Fire, allege, among other things, negligence, inverse condemnation, trespass, private nuisance, personal injury, wrongful death, and violations of the California Public Utilities and Health and Safety Codes. SCE expects to be the subject of additional lawsuits related to the 2017/2018 Wildfire/Mudslide Events. The litigation could take a number of years to be resolved because of the complexity of the matters and number of plaintiffs.
The Thomas and Koenigstein Fires and Montecito Mudslides lawsuits are being coordinated in the Los Angeles Superior Court. The Woolsey Fire lawsuits have also been coordinated in the Los Angeles Superior Court. On October 4, 2018, the Superior Court denied Edison International's and SCE's challenge to the application of inverse condemnation to SCE with respect to the Thomas and Koenigstein Fires and, on February 26, 2019, the California Supreme Court denied SCE's petition to review the Superior Court's decision. In January 2019, SCE filed a cross-complaint against certain local public entities alleging that failures by these entities, such as failure to adequately plan for flood hazards and build and maintain adequate debris basins, roads, bridges and other channel crossings, among other things, caused, contributed to or exacerbated the losses that resulted from the Montecito Mudslides. These cross-claims in the Montecito Mudslides litigation were not released as part of the Local Public Entity Settlements (as defined below).
Additionally, in September 2018, a derivative lawsuit for breach of fiduciary duties and unjust enrichment was filed in the Los Angeles Superior Court against certain current and former members of the Boards of Directors of Edison International and SCE. Edison International and SCE are identified as nominal defendants in the action. The derivative lawsuit generally alleges that the individual defendants violated their fiduciary duties by causing or allowing SCE to operate in an unsafe manner in violation of relevant regulations, resulting in substantial liability and damage from the Thomas and Koenigstein Fires and the Montecito Mudslides. The lawsuit is currently stayed.
In November 2018, a purported class action lawsuit alleging securities fraud and related claims was filed in federal court against Edison International, SCE and certain current and former officers of Edison International and SCE. The plaintiff alleges that Edison International and SCE made false and/or misleading statements in filings with the Securities and
Exchange Commission by failing to disclose that SCE had allegedly failed to maintain its electric transmission and distribution networks in compliance with safety regulations, and that those alleged safety violations led to fires that occurred in 2017 and 2018, including the Thomas Fire and the Woolsey Fire.
In January 2019, two separate derivative lawsuits alleging breach of fiduciary duties, securities fraud, misleading proxy statements, unjust enrichment, and related claims were filed in federal court against certain current and former members of the Boards of Directors and certain current and former officers of Edison International and SCE. Edison International and SCE are named as nominal defendants in those actions. The derivative lawsuits generally allege that the individual defendants breached their fiduciary duties and made misleading statements or allowed misleading statements to be made (i) between March 21, 2014 and August 10, 2015, with respect to certain ex parte communications between SCE and CPUC decision-makers concerning the settlement of the San Onofre Order Instituting Investigation proceeding (the "San Onofre OII") and (ii) from February 23, 2016 to the present, concerning compliance with applicable laws and regulations concerning electric system maintenance and operations related to wildfire risks. The lawsuits generally allege that these breaches of duty and misstatements led to substantial liability and damage resulting from the disclosure of SCE's ex parte communications in connection with the San Onofre OII settlement, and from the 2017/2018 Wildfire/Mudslide Events. The lawsuits are currently stayed.
Loss Estimates for Third Party Claims and Potential Recoveries from Insurance and through Electric Rates
At both June 30, 2020 and December 31, 2019, Edison International's and SCE's balance sheets include accrued liabilities (established at the lower end of the reasonably estimated range of expected losses) of $4.5 billion for the 2017/2018 Wildfire/Mudslide Events. The following table presents changes in the accrued liabilities since December 31, 2019:
|
|
|
|
|
|
|
|
(in millions)
|
|
|
Balance at December 31, 2019
|
$
|
4,541
|
|
|
Accrued losses
|
—
|
|
|
Payments
|
(13)
|
|
|
|
|
|
Balance at June 30, 2020
|
$
|
4,528
|
|
In the fourth quarter of 2019, SCE paid $360 million to a number of local public entities to resolve those parties' collective claims arising from the 2017/2018 Wildfire/Mudslide Events (the "Local Public Entity Settlements"). In the second quarter of 2020, SCE entered into settlements with an immaterial number of individual plaintiffs in the 2017/2018 Wildfire/Mudslide Events litigation under which it agreed to pay an aggregate of approximately $16 million to those individual plaintiffs. SCE continues to explore settlement opportunities with other plaintiffs in the 2017/2018 Wildfire/Mudslide Events litigation. In total, SCE has accrued estimated losses of $4.9 billion, has paid or agreed to pay $376 million in settlements and has recovered $363 million from its insurance carriers through June 30, 2020 in relation to the 2017/2018 Wildfire/Mudslide Events.
Each reporting period, management reviews its loss estimates for remaining alleged and potential claims related to the 2017/2018 Wildfire/Mudslide Events. The process for estimating losses associated with wildfire litigation claims requires management to exercise significant judgment based on a number of assumptions and subjective factors, including, but not limited to: estimates of known and expected claims by third parties based on currently available information, opinions of counsel regarding litigation risk, the status of and developments in the course of litigation, and prior experience litigating and settling wildfire litigation claims. As additional information becomes available, management's estimates and assumptions regarding the causes and financial impact of the 2017/2018 Wildfire/Mudslide Events may change further. Such additional information is expected to become available from multiple external sources during the course of litigation and settlement discussions and from SCE's ongoing internal review, including, among other things, information regarding the extent of damages that may be attributable to any fire determined to have been substantially caused by SCE's equipment, information that may be obtained from the equipment in CAL FIRE's possession, and information pertaining to fire progression, suppression activities, damages alleged by plaintiffs and insurance claims made by third parties.
As described above, the accrued liability as of June 30, 2020, corresponds to the lower end of the reasonably estimated range of expected losses that may be incurred in connection with the 2017/2018 Wildfire/Mudslide Events and is subject to change as additional information becomes available. Edison International and SCE currently believe that it is reasonably possible that the amount of the actual loss will be greater than the amount accrued. However, Edison International and SCE are currently unable to reasonably estimate an upper end of the range of expected losses given the uncertainty as to the legal and factual determinations to be made during litigation, including uncertainty as to the contributing causes of the 2017/2018 Wildfire/
Mudslide Events, the complexities associated with fires that merge, whether inverse condemnation will be held applicable to SCE with respect to damages caused by the Montecito Mudslides, and the preliminary nature of the litigation processes.
For events that occurred in 2017 and early 2018, principally the Thomas and Koenigstein Fires and Montecito Mudslides, SCE had $1.0 billion of wildfire-specific insurance coverage, subject to a self-insured retention of $10 million per occurrence. For the Woolsey Fire, SCE had an additional $1.0 billion of wildfire-specific insurance coverage, subject to a self-insured retention of $10 million per occurrence. Edison International and SCE record a receivable for insurance recoveries when recovery of a recorded loss is determined to be probable. The following table presents changes in expected insurance recoveries associated with the estimated losses for the 2017/2018 Wildfire/Mudslide Events since December 31, 2019:
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|
|
|
|
|
|
|
(in millions)
|
|
|
Balance at December 31, 2019
|
$
|
1,710
|
|
|
Insurance recoveries
|
(73)
|
|
|
Balance at June 30, 2020
|
$
|
1,637
|
|
SCE will seek to recover uninsured costs resulting from the 2017/2018 Wildfire/Mudslide Events through electric rates. Recovery of these costs is subject to approval by regulators. Under accounting standards for rate-regulated enterprises, SCE defers costs as regulatory assets when it concludes that such costs are probable of future recovery in electric rates. SCE utilizes objectively determinable evidence to form its view on probability of future recovery. The only directly comparable precedent in which a California investor-owned utility has sought recovery for uninsured wildfire-related costs is SDG&E's requests for cost recovery related to 2007 wildfire activity, where the FERC allowed recovery of all FERC-jurisdictional wildfire-related costs while the CPUC rejected recovery of all CPUC-jurisdictional wildfire-related costs based on a determination that SDG&E did not meet the CPUC's prudency standard. As a result, while SCE does not agree with the CPUC's decision, it believes that the CPUC's interpretation and application of the prudency standard to SDG&E creates substantial uncertainty regarding how that standard will be applied to an investor-owned utility in future wildfire cost-recovery proceedings for fires ignited prior to July 12, 2019. SCE will continue to evaluate the probability of recovery based on available evidence, including judicial, legislative and regulatory decisions, including any CPUC decisions illustrating the interpretation and/or application of the prudency standard when making determinations regarding recovery of uninsured wildfire-related costs. While the CPUC has not made a determination regarding SCE's prudency relative to any of the 2017/2018 Wildfire/Mudslide Events, SCE is unable to conclude, at this time, that uninsured CPUC-jurisdictional wildfire-related costs are probable of recovery through electric rates. SCE would record a regulatory asset at the time it obtains sufficient information to support a conclusion that recovery is probable. SCE will seek recovery of the CPUC portion of any uninsured wildfire-related costs through its WEMA or its CEMA. In July 2019, SCE filed a CEMA application with the CPUC to seek recovery of, among other things, approximately $6 million in costs incurred to restore service to customers and to repair, replace and restore buildings and SCE's facilities damaged or destroyed as a result of the Thomas and Koenigstein Fires. SCE continues to incur costs for reconstructing its system and restoring service to structures that were damaged or destroyed by these two fires and plans to file additional applications with the CPUC to recover such costs. See "Recovery of Wildfire-Related Costs" below.
Through the operation of its FERC Formula Rate, and based upon the precedent established in SDG&E's recovery of FERC-jurisdictional wildfire-related costs, SCE believes it is probable it will recover its FERC-jurisdictional wildfire and mudslide related costs and recorded total regulatory assets of $149 million within the FERC balancing account. This was the FERC portion of the estimated losses accrued. As of June 30, 2020, collections have reduced the amount remaining in the FERC balancing account to $77 million.
Current Wildfire Insurance Coverage
SCE had approximately $1.2 billion of wildfire-specific insurance coverage for events that occurred during the period June 1, 2019 through June 30, 2020, subject to up to $115 million of co-insurance and $50 million of self-insured retention, which resulted in net coverage of approximately $1.0 billion. SCE has approximately $1.0 billion of wildfire-specific insurance coverage for events that may occur during the period July 1, 2020 through June 30, 2021, subject to up to $80 million of co-insurance and $50 million of self-insured retention, which results in net coverage of approximately $870 million. Various coverage limitations within the policies that make up SCE's wildfire insurance coverage could result in additional material self-insured costs in the event of multiple wildfire occurrences during a policy period or with a single wildfire with damages in excess of the policy limits. SCE believes that its insurance coverage for the July 1, 2020 through June 30, 2021 period meets its obligation to maintain reasonable insurance coverage under AB 1054.
Based on policies currently in effect, SCE anticipates that its wildfire insurance expense in 2020, prior to any regulatory deferrals, will total approximately $450 million. Wildfire insurance expense in 2019, prior to any regulatory deferrals, was approximately $400 million. Calendar year insurance expense reflects the portion of premiums attributable to policy coverage in that calendar year.
SCE tracks insurance premium, self-insured retention and co-insurance costs related to wildfire liability insurance policies as well as other wildfire-related costs in its WEMA. In July 2019, SCE filed a WEMA application with the CPUC to seek recovery of $478 million in wildfire insurance premium costs that have been incurred or will be incurred before July 1, 2020, in excess of premiums approved in the 2018 GRC. The application also seeks recovery of the corresponding financing costs. SCE expects a CPUC decision on the application in September 2020.
As of June 30, 2020, SCE had regulatory assets of approximately $484 million related to incremental wildfire insurance costs and believes that such amounts are probable of recovery. While SCE believes that amounts deferred are probable of recovery, there is no assurance that SCE will be allowed to recover costs that have been incurred, or costs incurred in the future for additional wildfire insurance, in electric rates.
SCE's cost of obtaining wildfire insurance coverage has increased significantly in recent years as a result of, among other things, the number of recent and significant wildfire events throughout California and the application of inverse condemnation to investor-owned utilities. As such, while SCE is required to maintain reasonable insurance coverage under AB 1054, SCE may not be able to obtain a reasonable amount of wildfire insurance, at a reasonable cost, for future policy periods.
Recovery of Wildfire-Related Costs
Pre-AB 1054 Cost Recovery
California courts have previously found investor-owned utilities to be strictly liable for property damage, regardless of fault, by applying the theory of inverse condemnation when a utility's facilities were determined to be a substantial cause of a wildfire that caused the property damage. The rationale stated by these courts for applying this theory to investor-owned utilities is that property damages resulting from a public improvement, such as the distribution of electricity, can be spread across the larger community that benefited from such improvement through recovery of uninsured wildfire-related costs in electric rates. However, in November 2017, the CPUC issued a decision denying SDG&E's request to include in its rates uninsured wildfire-related costs arising from several 2007 wildfires, finding that SDG&E did not meet the prudency standard because it did not prudently manage and operate its facilities prior to or at the outset of the 2007 wildfires. In July 2018, the CPUC denied both SDG&E's application for rehearing on its cost recovery request and a joint application for rehearing filed by SCE and PG&E limited to the applicability of inverse condemnation principles in the same proceeding. The California Court of Appeal, the California Supreme Court and the United States Supreme Court have denied SDG&E's petitions for review of the CPUC's denial of SDG&E's application.
Edison International and SCE continue to pursue regulatory and legal strategies, and anticipate pursuing legislative strategies in the longer term, to address the application of a strict liability standard to wildfire-related property damages without the guaranteed ability to recover resulting costs in electric rates.
2019 Wildfire Legislation
In July 2019, AB 1054 was signed by the governor of California and became effective immediately. The summary of the wildfire legislation below is based on SCE's interpretation of AB 1054. A lawsuit challenging the validity of AB 1054 was filed in federal court on July 19, 2019. Edison International and SCE are unable to predict the outcome of this lawsuit.
Wildfire Insurance Fund
AB 1054 provided for the Wildfire Insurance Fund to reimburse utilities for payment of third-party damage claims arising from certain wildfires that exceed, in aggregate in a calendar year, the greater of $1.0 billion or the utility's insurance coverage. The Wildfire Insurance Fund was established in September 2019 and is available for claims related to wildfires ignited after July 12, 2019 that are determined by the responsible government investigatory agency to have been caused by a utility.
SCE and SDG&E collectively made their initial contributions totaling approximately $2.7 billion to the Wildfire Insurance Fund in September 2019. Upon its emergence from bankruptcy, on July 1, 2020, PG&E made its initial contribution of approximately $4.8 billion to the Wildfire Insurance Fund. PG&E, SCE and SDG&E are also collectively expected to make aggregate contributions of approximately $3.0 billion to the Wildfire Insurance Fund through annual contributions to the fund over a 10-year period, of which they have made their initial annual contributions totaling approximately $300 million. In
addition to PG&E's, SCE's and SDG&E's contributions to the Wildfire Insurance Fund, PG&E, SCE and SDG&E are expected to collect $6.1 billion, $6.1 billion and $1.3 billion, respectively, from their customers over a 15-year period through a dedicated rate component. The amount collected from customers may be directly contributed to the Wildfire Insurance Fund or used to support the issuance of up to $10.5 billion in bonds by the California Department of Water Resources, the proceeds of which would be contributed to the fund. In addition to funding contributions to the Wildfire Insurance Fund, the amount collected from utility customers will pay for, among other things, any interest and financing costs related to any bonds that are issued by the California Department of Water Resources to support the contributions to the Wildfire Insurance Fund.
SCE made an initial contribution of approximately $2.4 billion to the Wildfire Insurance Fund in September 2019 and has committed to make ten annual contributions of approximately $95 million per year to the fund, by no later than January 1 of each year. SCE made its first annual contribution to the Wildfire Insurance Fund in December 2019. Edison International supported SCE's initial contribution to the Wildfire Insurance Fund by raising $1.2 billion from the issuance of Edison International equity. SCE raised the remaining $1.2 billion from the issuance of long-term debt. SCE's contributions to the Wildfire Insurance Fund will not be recoverable through electric rates and will be excluded from the measurement of SCE's CPUC-jurisdictional authorized capital structure. SCE will also not be entitled to cost recovery for any borrowing costs incurred in connection with its contributions to the Wildfire Insurance Fund.
Participating investor-owned utilities will be reimbursed from the Wildfire Insurance Fund for eligible claims, subject to the fund administrator's review. SCE will reimburse the fund for any withdrawn amounts if SCE receives payment of such amounts under an indemnification agreement or from an insurance provider or other third-party. SCE will also be required to reimburse the fund for withdrawn amounts that the CPUC disallows, subject, in some instances, to the AB 1054 Liability Cap (as defined below). If the utility has maintained a valid safety certification and its actions or inactions that resulted in the wildfire are not found to constitute conscious or willful disregard of the rights and safety of others, the aggregate requirement to reimburse the fund over a trailing three calendar year period is capped at 20% of the equity portion of the utility's transmission and distribution rate base in the year of the prudency determination ("AB 1054 Liability Cap"). Based on SCE's 2020 rate base and using the equity portion of SCE's CPUC authorized capital structure of 52%, SCE's requirement to reimburse the Wildfire Insurance Fund for eligible claims disallowed in 2020 would be capped at approximately $3.0 billion.
SCE will not be allowed to recover borrowing costs incurred to reimburse the fund for amounts that the CPUC disallows. The Wildfire Insurance Fund, and consequently the AB 1054 Liability Cap, will terminate when the administrator determines that the fund has been exhausted.
AB 1054 Prudency Standard
As a result of the establishment of the Wildfire Insurance Fund, AB 1054 created a new standard that the CPUC must apply when assessing the prudency of a utility in connection with a request for recovery of wildfire costs for wildfires ignited after July 12, 2019. Under AB 1054, the CPUC is required to find a utility to be prudent if the utility's conduct related to the ignition was consistent with actions that a reasonable utility would have undertaken under similar circumstances, at the relevant point in time, and based on the information available at that time. Prudent conduct under the AB 1054 standard is not limited to the optimum practice, method, or act to the exclusion of others, but rather encompasses a spectrum of possible practices, methods, or acts consistent with utility system needs, the interest of the ratepayers, and the requirements of governmental agencies. AB 1054 also provides that the CPUC may determine that wildfire costs may be recoverable, in whole or in part, by taking into account factors within and outside the utility's control, including humidity, temperature, and winds. Further, utilities with a valid safety certification will be presumed to have acted prudently related to a wildfire ignition unless a party in the cost recovery proceeding creates serious doubt as to the reasonableness of the utility's conduct, at which time, the burden shifts back to the utility to prove its conduct was reasonable. If a utility does not have a valid safety certification, it will have the burden to prove, based on a preponderance of evidence, that its conduct was prudent. The new prudency standard will survive the termination of the Wildfire Insurance Fund.
Utilities participating in the Wildfire Insurance Fund are not required to reimburse the fund for amounts withdrawn from the fund that the CPUC finds were prudently incurred and can recover such prudently incurred wildfire costs through electric rates if the fund has been exhausted.
Safety Certification and Wildfire Mitigation Plan
Under AB 1054, SCE can obtain an annual safety certification upon the submission of certain required safety information, including an approved wildfire mitigation plan ("WMP"). On July 25, 2019, SCE obtained its initial safety certification that will be valid for 12 months. Notwithstanding its 12-month term, if SCE requests a new safety certification prior to the expiration of its initial safety certification, then its initial safety certification will remain valid until the CPUC acts on its
request for a new safety certification. SCE submitted its request for a new safety certification to the CPUC's Wildfire Safety Division ("WSD") in June 2020.
Under AB 1054, SCE is required to submit a WMP to the CPUC at least once every three years for review and approval. Beginning in 2020, each such plan is required to cover at least a three-year period. SCE filed its 2020 – 2022 WMP in February 2020. In June 2020 the CPUC ratified the WSD conditional approval of SCE's 2020 – 2022 WMP. The approval is conditioned on SCE providing requested information to the WSD, including additional descriptions of how SCE is implementing, and will implement, certain requirements imposed by the WSD. The CPUC's ratification of the WSD's conditional approval of SCE's 2020 – 2022 WMP satisfies the AB 1054 requirement that SCE must have an approved WMP to receive a safety certification.
Capital Expenditure Requirement
Under AB 1054, approximately $1.6 billion of spending by SCE on wildfire risk mitigation capital expenditures made after August 1, 2019, cannot be included in the equity portion of SCE's rate base ("AB 1054 Excluded Capital Expenditures"). SCE can apply for irrevocable orders from the CPUC to finance these AB 1054 Excluded Capital Expenditures, including through the issuance of securitized bonds, and can recover any prudently incurred financing costs. In July 2020, SCE applied for an irrevocable order from the CPUC to finance $337 million, comprised of AB 1054 Excluded Capital Expenditures incurred in connection with GSRP and prudently incurred financing costs, through the issuance of securitized bonds. As of June 30, 2020, SCE has spent $811 million on AB 1054 Excluded Capital Expenditures. SCE expects to seek additional irrevocable orders from the CPUC to finance the remaining AB 1054 Excluded Capital Expenditures.
Environmental Remediation
SCE records its environmental remediation and restoration liabilities when site assessments and/or remedial actions are probable and a range of reasonably likely cleanup costs can be estimated. SCE reviews its sites and measures the liability quarterly, by assessing a range of reasonably likely costs for each identified site using currently available information, including existing technology, presently enacted laws and regulations, experience gained at similar sites, and the probable level of involvement and financial condition of other potentially responsible parties. These estimates include costs for site investigations, remediation, operation and maintenance, monitoring, and site closure. Unless there is a single probable amount, SCE records the lower end of this reasonably likely range of costs (reflected in "Other long-term liabilities") at undiscounted amounts as timing of cash flows is uncertain.
At June 30, 2020, SCE's recorded estimated minimum liability to remediate its 23 identified material sites (sites with a liability balance at June 30, 2020, in which the upper end of the range of the costs is at least $1 million) was $242 million, including $175 million related to San Onofre. In addition to these sites, SCE also has 14 immaterial sites with a liability balance as of June 30, 2020, for which the total minimum recorded liability was $3 million. Of the $245 million total environmental remediation liability for SCE, $233 million has been recorded as a regulatory asset. SCE expects to recover $39 million through an incentive mechanism that allows SCE to recover 90% of its environmental remediation costs at certain sites (SCE may request to include additional sites) and $194 million through a mechanism that allows SCE to recover 100% of the costs incurred at certain sites through customer rates. SCE's identified sites include several sites for which there is a lack of currently available information, including the nature and magnitude of contamination, and the extent, if any, that SCE may be held responsible for contributing to any costs incurred for remediating these sites. Thus, no reasonable estimate of cleanup costs can be made for these sites.
The ultimate costs to clean up SCE's identified sites may vary from its recorded liability due to numerous uncertainties inherent in the estimation process, such as: the extent and nature of contamination; the scarcity of reliable data for identified sites; the varying costs of alternative cleanup methods; developments resulting from investigatory studies; the possibility of identifying additional sites; and the time periods over which site remediation is expected to occur. SCE believes that, due to these uncertainties, it is reasonably possible that cleanup costs at the identified material sites and immaterial sites could exceed its recorded liability by up to $117 million and $8 million, respectively. The upper limit of this range of costs was estimated using assumptions least favorable to SCE among a range of reasonably possible outcomes.
SCE expects to clean up and mitigate its identified sites over a period of up to 30 years. Remediation costs for each of the next five years are expected to range from $7 million to $19 million. Costs incurred for the six months ended June 30, 2020 and 2019 were $3 million and $2 million, respectively.
Based upon the CPUC's regulatory treatment of environmental remediation costs incurred at SCE, SCE believes that costs ultimately recorded will not materially affect its results of operations, financial position, or cash flows. There can be no
assurance, however, that future developments, including additional information about existing sites or the identification of new sites, will not require material revisions to estimates.
Nuclear Insurance
SCE is a member of Nuclear Electric Insurance Limited ("NEIL"), a mutual insurance company owned by entities with nuclear facilities. NEIL provides insurance for nuclear property damage, including damages caused by acts of terrorism up to specified limits, and for accidental outages for active facilities. The amount of nuclear property damage insurance purchased for San Onofre and Palo Verde exceeds the minimum federal requirement of $50 million and $1.1 billion, respectively. If NEIL losses at any nuclear facility covered by the arrangement were to exceed the accumulated funds for these insurance programs, SCE could be assessed retrospective premium adjustments of up to approximately $30 million per year.
Federal law limits public offsite liability claims for bodily injury and property damage from a nuclear incident to the amount of available financial protection, which is currently approximately $13.8 billion for Palo Verde and $560 million for San Onofre. SCE and other owners of San Onofre and Palo Verde have purchased the maximum private primary insurance available through a Facility Form issued by American Nuclear Insurers. SCE withdrew from participation in the secondary insurance pool for San Onofre for offsite liability insurance effective January 5, 2018. Based on its ownership interests in Palo Verde, SCE could be required to pay a maximum of approximately $65 million per nuclear incident for future incidents. However, it would have to pay no more than approximately $10 million per future incident in any one year. Based on its ownership interests in San Onofre and Palo Verde prior to January 5, 2018, SCE could be required to pay a maximum of approximately $255 million per nuclear incident and a maximum of $38 million per year per incident for liabilities arising from events prior to January 5, 2018, although SCE is not aware of any such events.
Spent Nuclear Fuel
Under federal law, the DOE is responsible for the selection and construction of a facility for the permanent disposal of spent nuclear fuel and high-level radioactive waste. The DOE has not met its contractual obligation to accept spent nuclear fuel. Extended delays by the DOE have led to the construction of costly alternatives and associated siting and environmental issues. Currently, both San Onofre and Palo Verde have interim storage for spent nuclear fuel on site sufficient for their current license period.
In June 2010, the United States Court of Federal Claims issued a decision granting SCE and the San Onofre co-owners damages of approximately $142 million (SCE's share $112 million) to recover costs incurred through December 31, 2005 for the DOE's failure to meet its obligation to begin accepting spent nuclear fuel from San Onofre. SCE received payment from the federal government in the amount of the damage award. In April 2016, SCE, as operating agent, settled a lawsuit on behalf of the San Onofre owners against the DOE for $162 million (SCE's share $124 million, which included reimbursement for approximately $2 million in legal and other costs), to compensate for damages caused by the DOE's failure to meet its obligation to begin accepting spent nuclear fuel for the period from January 1, 2006 to December 31, 2013. In August 2018, the CPUC approved SCE's proposal to return the SCE share of the award to customers based on the amount that customers actually contributed for fuel storage costs; resulting in approximately $106 million of the SCE share being returned to customers and the remaining $17 million being returned to shareholders. Of the $106 million, $72 million was applied against the remaining San Onofre Regulatory Asset in accordance with the Revised San Onofre Settlement Agreement.
The April 2016 settlement also provided for a claim submission/audit process for expenses incurred from 2014 – 2016, where SCE may submit a claim for damages caused by the DOE failure to accept spent nuclear fuel each year, followed by a government audit and payment of the claim. This process made additional legal action to recover damages incurred in 2014 –2016 unnecessary. The first such claim covering damages for 2014 – 2015 was filed on September 30, 2016 for approximately $56 million. In February 2017, the DOE reviewed the 2014 – 2015 claim submission and reduced the original request to approximately $43 million (SCE's share was approximately $34 million). SCE accepted the DOE's determination, and the government paid the 2014 – 2015 claim under the terms of the settlement. In October 2017, SCE filed a claim covering damages for 2016 for approximately $58 million. In May 2018, the DOE approved reimbursement of approximately $45 million (SCE's share was approximately $35 million) of SCE's 2016 damages, disallowing recovery of approximately $13 million. SCE accepted the DOE's determination, and the government paid the 2016 claim under the terms of the settlement. The damages awards are subject to CPUC review as to how the amounts will be refunded among customers, shareholders, or to offset other costs.
In November 2019, SCE filed a new complaint against the DOE to recover damages incurred from January 1, 2017 through July 31, 2018.
Tehachapi Transmission Project
The Tehachapi Transmission Project consists of new and upgraded electric transmission lines and substations between eastern Kern County and San Bernardino County and was undertaken to bring renewable resources in Kern County to energy consumers in the Los Angeles basin and the California energy grid. The project consists of eleven segments. Segments 1-3 were placed in service beginning in 2009 through 2013. Segments 4-11 were placed in service in December 2016.
In December 2019, the CPUC filed a protest alleging that $419 million of costs associated with the Tehachapi Transmission Project are imprudent and should be disallowed from SCE's FERC rate base because these costs exceeded the maximum reasonable cost identified by the CPUC when it granted the project's certificate of public convenience and necessity. As part of the 2019 Formula Rate Settlement, the CPUC withdrew its protest effective as of July 27, 2020. Refer to Note 1 for further details related to 2019 FERC Formula Rate.
Note 13. Equity
In May 2020, Edison International issued 14,181,882 shares of common stock in a registered direct offering and received approximately $800 million in proceeds, before deducting fees and offering expenses of $14 million. The proceeds were used to pay off debt outstanding under a term loan agreement and for general corporate purposes. Refer to Note 5 for details of the term loan.
In May 2019, Edison International filed a prospectus supplement and executed several distribution agreements with certain sales agents to establish an "at-the-market" ("ATM") program under which it may sell shares of its common stock having an aggregate sales price of up to $1.5 billion. During the three months ended June 30, 2020, Edison International did not issue any shares through the ATM program. During the six months ended June 30, 2020, Edison International issued 391,501 shares through the ATM program and received proceeds of $27 million, net of fees and offering expenses of $0.3 million. The proceeds from the sales were used for equity contributions to SCE and for general corporate and working capital purposes. As of June 30, 2020, shares of common stock having an aggregate offering price of $1.3 billion remained available to be sold under the ATM program. Edison International has no obligation to sell the remaining available shares.
Edison International continued to settle its ongoing common stock requirements of various internal programs through issuance of new common stock. During the three and six months ended June 30, 2020, 448,000 and 1,171,800 shares of common stock were purchased by employees through the 401(k) defined contribution savings plan for net cash receipts of $26 million and $72 million, 20,571 and 333,693 shares of common stock were issued as stock compensation awards for net cash receipts of $1 million and $14 million and 72,910 and 129,019 shares of new common stock were issued in lieu of distributing $5 million and $9 million to shareholders opting to receive dividend payments in the form of additional common stock, respectively.
In the three and six months ended June 30, 2020, SCE received a total of $619 million and $888 million in capital contributions, respectively, from Edison International Parent to support SCE's capital program, maintain the equity portion of SCE's capital structure at authorized levels and for general corporate purposes.
Note 14. Accumulated Other Comprehensive Loss
Edison International's accumulated other comprehensive loss, net of tax, consist of:
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|
|
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|
|
|
|
|
|
|
|
|
|
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|
|
Three months ended June 30,
|
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|
|
Six months ended June 30,
|
|
|
|
|
(in millions)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
Beginning balance
|
$
|
(67)
|
|
|
$
|
(58)
|
|
|
$
|
(69)
|
|
|
$
|
(50)
|
|
|
|
Pension and PBOP – net loss:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassified from accumulated other comprehensive loss1
|
2
|
|
|
1
|
|
|
4
|
|
|
3
|
|
|
|
Other2
|
—
|
|
|
—
|
|
|
—
|
|
|
(10)
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|
|
|
Change
|
2
|
|
|
1
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|
|
4
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|
|
(7)
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|
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|
Ending Balance
|
$
|
(65)
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|
|
$
|
(57)
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|
|
$
|
(65)
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|
|
$
|
(57)
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|
|
1 These items are included in the computation of net periodic pension and PBOP Plan expense. See Note 9 for additional information.
2 Edison International recognized cumulative effect adjustments to the opening balance of retained earnings and accumulated other comprehensive loss on January 1, 2019 related to the adoption of the accounting standards update on the reclassification of stranded tax effects resulting from Tax Reform.
SCE's accumulated other comprehensive loss, net of tax, consist of:
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|
|
|
|
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|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
Six months ended June 30,
|
|
|
|
|
(in millions)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
Beginning balance
|
$
|
(37)
|
|
|
$
|
(27)
|
|
|
$
|
(39)
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|
|
$
|
(23)
|
|
|
|
Pension and PBOP – net loss:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassified from accumulated other comprehensive loss1
|
1
|
|
|
1
|
|
|
3
|
|
|
2
|
|
|
|
Other2
|
—
|
|
|
—
|
|
|
—
|
|
|
(5)
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|
|
|
Change
|
1
|
|
|
1
|
|
|
3
|
|
|
(3)
|
|
|
|
Ending Balance
|
$
|
(36)
|
|
|
$
|
(26)
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|
|
$
|
(36)
|
|
|
$
|
(26)
|
|
|
1 These items are included in the computation of net periodic pension and PBOP Plan expense. See Note 9 for additional information.
2 SCE recognized cumulative effect adjustments to the opening balance of retained earnings and accumulated other comprehensive loss on January 1, 2019 related to the adoption of the accounting standards update on the reclassification of stranded tax effects resulting from Tax Reform.
Note 15. Other Income
Other income net of expenses is as follows:
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|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
Six months ended June 30,
|
|
|
|
(in millions)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
SCE other income (expense):
|
|
|
|
|
|
|
|
|
|
Equity allowance for funds used during construction
|
|
$
|
30
|
|
|
$
|
32
|
|
|
$
|
51
|
|
|
$
|
49
|
|
|
Increase in cash surrender value of life insurance policies and life insurance benefits
|
|
23
|
|
|
9
|
|
|
33
|
|
|
18
|
|
|
Interest income
|
|
7
|
|
|
7
|
|
|
16
|
|
|
16
|
|
|
Net periodic benefit income – non-service components
|
|
27
|
|
|
16
|
|
|
55
|
|
|
35
|
|
|
Civic, political and related activities and donations
|
|
(4)
|
|
|
(8)
|
|
|
(15)
|
|
|
(21)
|
|
|
Other
|
|
(1)
|
|
|
—
|
|
|
(6)
|
|
|
(3)
|
|
|
Total SCE other income
|
|
82
|
|
|
56
|
|
|
134
|
|
|
94
|
|
|
Other income (expense) of Edison International Parent and Other:
|
|
|
|
|
|
|
|
|
|
Net periodic benefit costs – non-service components
|
|
—
|
|
|
—
|
|
|
(1)
|
|
|
(2)
|
|
|
Other
|
|
(1)
|
|
|
(1)
|
|
|
—
|
|
|
1
|
|
|
Total Edison International other income
|
|
$
|
81
|
|
|
$
|
55
|
|
|
$
|
133
|
|
|
$
|
93
|
|
Note 16. Supplemental Cash Flows Information
Supplemental cash flows information is:
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|
|
|
|
|
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|
|
|
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
Edison International
|
|
|
|
|
|
SCE
|
|
|
|
|
|
|
Six months ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
2020
|
|
2019
|
|
|
|
2020
|
|
2019
|
|
|
|
Cash payments (receipts):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net of amounts capitalized
|
$
|
369
|
|
|
$
|
301
|
|
|
|
|
$
|
312
|
|
|
$
|
268
|
|
|
|
|
Income taxes, net
|
—
|
|
|
(65)
|
|
|
|
|
—
|
|
|
(101)
|
|
|
|
|
Non-cash financing and investing activities:
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
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|
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|
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|
|
|
|
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|
|
|
|
|
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|
|
Dividends declared but not paid:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
241
|
|
|
200
|
|
|
|
|
—
|
|
|
—
|
|
|
|
|
Preferred and preference stock
|
12
|
|
|
12
|
|
|
|
|
12
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SCE's accrued capital expenditures at June 30, 2020 and 2019 were $450 million and $463 million, respectively. Accrued capital expenditures will be included as an investing activity in the consolidated statements of cash flow in the period paid.
Note 17. Related-Party Transactions
For the three and six months ended June 30, 2020, SCE purchased wildfire liability insurance with premiums of $176 million for wildfire liability insurance from Edison Insurance Services, Inc. ("EIS"), a wholly-owned subsidiary of Edison International. For the three and six months ended June 30, 2019, SCE purchased wildfire liability insurance with premiums of $74 million and $260 million from EIS. The related-party transactions included in SCE's consolidated balance sheets for wildfire-related insurance purchased from EIS were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
June 30,
2020
|
|
December 31, 2019
|
|
Long-term insurance receivable due from affiliate
|
|
$
|
803
|
|
|
$
|
803
|
|
|
Prepaid insurance1
|
|
1
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Reflected in "Prepaid expenses" on SCE's consolidated balance sheets.
The expense for wildfire-related insurance premiums paid to EIS was $50 million and $41 million for the three months ended June 30, 2020 and 2019, respectively, and $100 million and $72 million for the six months ended June 30, 2020 and 2019, respectively.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The management of Edison International and SCE, under the supervision and with the participation of Edison International's and SCE's respective Chief Executive Officers and Chief Financial Officers, have evaluated the effectiveness of Edison International's and SCE's disclosure controls and procedures (as that term is defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended), respectively, as of the end of the second quarter of 2020. Based on that evaluation, Edison International's and SCE's respective Chief Executive Officers and Chief Financial Officers have each concluded that, as of the end of the period, Edison International's and SCE's disclosure controls and procedures, respectively, were effective.
Changes in Internal Control Over Financial Reporting
There were no changes in Edison International's or SCE's internal control over financial reporting, respectively, during the second quarter of 2020 that have materially affected, or are reasonably likely to materially affect, Edison International's or SCE's internal control over financial reporting.
Jointly Owned Utility Plant
Edison International's and SCE's respective scope of evaluation of internal control over financial reporting includes their Jointly Owned Utility Projects as discussed in Notes to Consolidated Financial Statements—Note 2. Property, Plant and Equipment in the 2019 Form 10-K.
LEGAL PROCEEDINGS
Thomas Fire and Koenigstein Fire Litigation
In December 2017, wind-driven wildfires impacted portions of SCE's service territory, causing loss of life, substantial damage to both residential and business properties, and service outages for SCE customers. The VCFD and CAL FIRE have determined that the largest of the 2017 fires originated on December 4, 2017, in the Anlauf Canyon area of Ventura County (the investigating agencies refer to this fire as the "Thomas Fire"), followed shortly thereafter by the Koenigstein Fire. According to CAL FIRE, the Thomas and Koenigstein Fires burned over 280,000 acres, destroyed or damages an estimated 1,343 structures and resulted in two fatalities.
As of July 23, 2020, SCE was aware of at least 323 lawsuits, representing approximately 5,000 plaintiffs, related to the Thomas and Koenigstein Fires naming SCE as a defendant. One hundred and thirty-nine of the 323 lawsuits also name Edison International as a defendant based on its ownership and alleged control of SCE. At least four of the lawsuits were filed as purported class actions. The lawsuits, which have been filed in the superior courts of Ventura, Santa Barbara and Los Angeles Counties allege, among other things, negligence, inverse condemnation, trespass, private nuisance, and violations of the public utilities and health and safety codes. The lawsuits have been coordinated in the Los Angeles Superior Court. Three categories of plaintiffs have filed lawsuits against SCE and Edison International relating to the Thomas Fire, Koenigstein Fire and Montecito Mudslides: individual plaintiffs, subrogation plaintiffs and public entity plaintiffs. An initial jury trial for a limited number of plaintiffs, sometimes referred to as a bellwether jury trial, on certain fire only matters is currently scheduled for January 12, 2021 but may be delayed further due to the wide-spread disruption being caused by the COVID-19 pandemic.
In November 2019, SCE and Edison International reached a settlement with certain local public entity plaintiffs in the Thomas Fire, Koenigstein Fire and Montecito Mudslides litigation under which SCE paid those local public entity plaintiffs parties an aggregate of $150 million and, other than as set forth below, the plaintiffs released SCE and Edison International from all claims and potential claims in the Thomas Fire, Koenigstein Fire and Montecito Mudslides litigation and/or related to or arising from the Thomas Fire, Koenigstein Fire or Montecito Mudslides. Certain of the local public entity plaintiffs will retain the right to pursue certain indemnity claims against SCE and Edison International. Edison International and SCE did not admit liability as part of the settlement.
For further information, see "Notes to Consolidated Financial Statements—Note 12. Commitments and Contingencies—Contingencies—Southern California Wildfires and Mudslides."
Montecito Mudslides Litigation
In January 2018, torrential rains in Santa Barbara County produced mudslides and flooding in Montecito and surrounding areas. According to Santa Barbara County initial reports, the Montecito Mudslides destroyed an estimated 135 structures, damaged an estimated 324 structures, and resulted in at least 21 fatalities, with two additional fatalities presumed.
Seventy-six of the 323 lawsuits mentioned under "Thomas Fire and Koenigstein Fire Litigation" above allege that SCE has responsibility for the Thomas and/or Koenigstein Fires and that the Thomas and/or Koenigstein Fires proximately caused the Montecito Mudslides, resulting in the plaintiffs' claimed damages. Thirty-seven of the 76 Montecito Mudslides lawsuits also name Edison International as a defendant based on its ownership and alleged control of SCE. In addition to other causes of action, some of the Montecito Mudslides lawsuits also allege personal injury and wrongful death. The Thomas and Koenigstein Fires lawsuits and the Montecito Mudslides lawsuits have been coordinated in the Los Angeles Superior Court. Three categories of plaintiffs have filed lawsuits against SCE and Edison International relating to the Thomas Fire, Koenigstein Fire and Montecito Mudslides: individual plaintiffs, subrogation plaintiffs and public entity plaintiffs. An initial jury trial for a limited number of plaintiffs, sometimes referred to as a bellwether jury trial, previously scheduled for October 12, 2020 was vacated due to the wide-spread disruption being caused by the COVID-19 pandemic.
In November 2019, SCE and Edison International reached a settlement with certain local public entity plaintiffs in the Thomas Fire, Koenigstein Fire and Montecito Mudslides litigation under which SCE paid those local public entity plaintiffs parties an aggregate of $150 million and, other than as set forth below, the plaintiffs released SCE and Edison International from all claims and potential claims in the Thomas Fire, Koenigstein Fire and Montecito Mudslides litigation and/or related to or arising from the Thomas Fire, Koenigstein Fire or Montecito Mudslides. SCE and Edison International did not release their cross-claims against the public entity plaintiffs in the Montecito Mudslides litigation, and certain of the public entity plaintiffs will retain the right to pursue certain indemnity claims against SCE and Edison International. Edison International and SCE did not admit liability as part of the settlement.
For further information, see "Notes to Consolidated Financial Statements—Note 12. Commitments and Contingencies—Contingencies—Southern California Wildfires and Mudslides."
Woolsey Fire Litigation
In November 2018, wind-driven wildfires impacted portions of SCE's service territory and caused substantial damage to both residential and business properties and service outages for SCE customers. The largest of these fires, known as the Woolsey Fire, originated in Ventura County and burned acreage located in both Ventura and Los Angeles Counties. According to CAL FIRE, the Woolsey Fire burned almost 100,000 acres, destroyed an estimated 1,643 structures, damaged an estimated 364 structures and resulted in three fatalities. Two additional fatalities have also been associated with the Woolsey Fire.
As of July 23, 2020, SCE was aware of at least 247 lawsuits, representing approximately 4,826 plaintiffs, related to the Woolsey Fire naming SCE as a defendant. One hundred and sixty-seven of the 247 lawsuits also name Edison International as a defendant based on its ownership and alleged control of SCE. At least two of the lawsuits were filed as purported class actions. The lawsuits, which have been filed in the superior courts of Ventura and Los Angeles Counties allege, among other things, negligence, inverse condemnation, personal injury, wrongful death, trespass, private nuisance, and violations of the public utilities and health and safety codes. The Woolsey Fire lawsuits have been coordinated in the Los Angeles Superior Court. Three categories of plaintiffs have filed lawsuits against SCE and Edison International relating to the Woolsey Fire: individual plaintiffs, subrogation plaintiffs and public entity plaintiffs.
In November 2019, SCE and Edison International reached a settlement with certain local public entity plaintiffs in the Woolsey Fire litigation under which SCE paid the local public entity plaintiffs an aggregate of $210 million and those local public entity plaintiffs released SCE and Edison International from all claims and potential claims in the Woolsey Fire litigation and/or related to or arising from the Woolsey Fire. Edison International and SCE did not admit liability as part of the settlement.
For further information, see "Notes to Consolidated Financial Statements—Note 12. Commitments and Contingencies—Contingencies—Southern California Wildfires and Mudslides."
Environmental Proceedings
SCE performed 1.6 miles of access road grading and vegetation clearing in the Mission Canyon area of Santa Barbara County in December 2019, resulting in debris moving downslope into a creek bed and other impacts in the area. Several state and federal environmental agencies and the County and City of Santa Barbara are investigating the unpermitted grading and discharges to the creek, and SCE has received Notices of Violation from the Army Corps of Engineers, the County of Santa Barbara, the California Department of Fish & Wildlife and the Regional Water Quality Control Board. It is presently unknown whether any of these agencies will impose fines on SCE and, if so, in what amounts. SCE does not expect any fines that are imposed to be material.
RISK FACTORS
Edison International's and SCE's financial condition and results of operations could be materially impacted by events, like the COVID-19 pandemic, that cause significant disruption to economies, societies or workforces on a regional, statewide, national or global basis.
Edison International and SCE could be materially and adversely impacted by events, such as the widespread outbreak of a communicable disease, that result in, among other things, significant disruption to economies, societies or workforces on a regional, statewide, national or global basis. The global spread of COVID-19, which was declared a pandemic by the World Health Organization in March 2020, has created significant uncertainty, volatility and disruption globally and has impacted the operations of Edison International and SCE. The total impacts of the COVID-19 pandemic on Edison International and SCE are still emerging, and the extent to which the pandemic affects Edison International's and SCE's business, operations, cash flows, liquidity and financial results will depend on numerous evolving factors that Edison International and SCE are unable to accurately predict at this time, including, without limitation: the duration and scope of the pandemic; governmental, business and individual actions that have been and continue to be taken in response to the pandemic; the impact of the pandemic on economic activity; and the impact of the pandemic on Edison International's and SCE's employees, customers, contractors, insurers and service providers.
Many of the risks and uncertainties identified in the 2019 Form 10-K are, and will be, exacerbated by the impacts of the COVID-19 pandemic and the actions being taken by governmental entities, businesses, individuals and others in response to the pandemic. Some examples follow. Similar to other companies in California, a large portion of Edison International's and SCE's workforce, including employees of their contractors, may be unable to perform their job functions effectively due to illness, family illness, quarantine requirements, social-distancing, telework requirements and other impacts of the COVID-19 pandemic. In addition, as a result of actions being taken in response to the pandemic, SCE's supply chains are facing constraints and SCE is facing challenges from local permitting authorities. If a significant portion of SCE's workforce cannot effectively perform their job functions, SCE is unable to procure required materials, SCE does not timely obtain any required permits and/or local authorities prohibit SCE from conducting previously permitted work, SCE will likely be unable to effectively and timely complete planned work and projects, including its WMP and capital projects. Further, SCE may be unable to effectively execute its Public Safety Power Shut-Off program due to, among other things, requests from local and State authorities not to shut off the power during the pandemic, and thereby may increase the risk of SCE equipment causing wildfires.
In addition, impacts of the COVID-19 pandemic on SCE's customers and third parties could also result in SCE facing, among other things, significant reductions in demand for electricity and payment delays and/or defaults from customers which could result in significant under-collections. Edison International and SCE could also face payment delays and/or defaults from insurers and other counter-parties. Furthermore, capital markets have been impacted by the pandemic and this has increased Edison International's and SCE's costs of accessing those markets. Edison International's and SCE's access to the bank and capital markets could also be constrained and/or the costs of accessing those markets could increase further as a result of the pandemic, including if Edison International's and/or SCE's credit ratings are downgraded, or placed on negative watch due to concerns about Edison International and/or SCE's financial health as a result of the impacts of the pandemic. SCE may also incur significant incremental costs as a result of actions it is taking in response to the pandemic, including costs being incurred to maintain its operations and assist its employees who are required to telework or are otherwise impacted by the pandemic. SCE could also face delays in important legal and regulatory proceedings. These impacts, among others, could materially and adversely impact Edison International's and SCE's business, operations, cash flows, liquidity and financial results.
EXHIBITS
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Exhibit
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Description
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10.1
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364-Day Revolving Credit Agreement dated as of May 8, 2020 among Southern California Edison, the several banks and other financial institutions from time to time parties thereto, JPMorgan Chase Bank, N.A., as administrative agent, and Citibank, N.A., Mizuho Bank, Ltd., MUFG Bank, Ltd., Barclays Bank PLC, and Bank of America N.A. as co-syndication agents (File No. 1-2313, filed as Exhibit 10.1 to Southern California Edison's Form 8-K dated and filed May 8, 2020)*
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10.2
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31.1
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31.2
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32.1
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32.2
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101.1
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Financial statements from the quarterly report on Form 10-Q of Edison International for the quarter ended June 30, 2020, filed on July 28, 2020, formatted in XBRL: (i) the Consolidated Statements of Income; (ii) the Consolidated Statements of Comprehensive Income; (iii) the Consolidated Balance Sheets; (iv) the Consolidated Statements of Cash Flows; and (v) the Notes to Consolidated Financial Statements
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101.2
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Financial statements from the quarterly report on Form 10-Q of Southern California Edison Company for the quarter ended June 30, 2020, filed on July 28, 2020, formatted in XBRL: (i) the Consolidated Statements of Income; (ii) the Consolidated Statements of Comprehensive Income; (iii) the Consolidated Balance Sheets; (iv) the Consolidated Statements of Cash Flows; and (v) the Notes to Consolidated Financial Statements
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104
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The cover page of this report formatted in Inline XBRL (included as Exhibit 101)
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* Incorporated by reference pursuant to Rule 12b-32.
Edison International and SCE will furnish a copy of any exhibit listed in the accompanying Exhibit Index upon written request and upon payment to Edison International or SCE of their reasonable expenses of furnishing such exhibit, which shall be limited to photocopying charges and, if mailed to the requesting party, the cost of first-class postage.