Q4 2023 Earnings Summary
- Edison International anticipates significant earnings growth in 2025 due to a $1.78 increase in rate base earnings, driven by the 2025 GRC and prior spending true-ups, which will continue to contribute to earnings beyond 2025.
- The company has a strong balance sheet with capacity to fund additional capital expenditures, targeting a 15% to 17% FFO-to-debt ratio, and requires only minimal equity funding of $100 million per year, indicating financial strength and ability to pursue growth opportunities without significant equity dilution.
- Edison International is poised to benefit from substantial potential value creation opportunities not factored into guidance, including over $2 billion of FERC transmission projects where SCE is the incumbent transmission owner, and potential cost recoveries for wildfire events.
- Earnings per share are significantly impacted by wildfire-related debt interest expenses, amounting to $0.61 per share, and the company is not assuming any recovery in their long-term EPS forecast, adding uncertainty to future earnings. [4], [14]
- Earnings growth in 2025 heavily relies on prior spending true-ups and non-recurring items, which may not continue in subsequent years, potentially leading to slower growth or declines in earnings beyond 2025. [9], [12]
- There is downside risk to the assumed transmission Return on Equity (ROE) of 10.3%, as regulatory decisions or changes in the interest rate environment could lead to lower ROEs, negatively impacting future earnings. [11]
-
Wildfire Claims Recovery
Q: How will wildfire claims affect earnings and recovery?
A: Edison expects wildfire claims debt to cause an earnings drag of $0.61 in both 2024 and 2025. They have not assumed any recovery in their long-term EPS forecast but have submitted a compelling case and are making progress. Wildfire claims payments should be substantially complete by the end of 2024, stabilizing related debt expenses. -
Cost of Capital Mechanism Impact
Q: How does the cost of capital mechanism affect earnings?
A: The cost of capital mechanism, triggered by higher interest rates, acts as a hedge against interest rate changes. Edison plans to reinvest these dollars into the business, focusing on long-term affordability and reliability. This reinvestment offsets potential earnings benefits from the mechanism in 2024 and 2025. -
2025 EPS Growth Drivers
Q: What drives EPS growth between 2024 and 2025?
A: The increase in earnings is driven by rate base growth, including prior spending true-ups and non-GRC applications. The $0.37 prior spending true-up in the 2025 EPS bridge is part of rate base earnings and will continue in future years. Operational variances and wildfire debt have minimal impact on year-over-year growth. -
Wildfire Mitigation Spending
Q: Will wildfire mitigation spend continue or change?
A: Edison plans to have 90% of distribution lines in high fire risk areas hardened by the end of 2025, with wildfire mitigation spending stabilizing. They will apply the same standards if additional areas are designated high-risk in the future. -
Balance Sheet and Equity Needs
Q: How will increased CapEx affect balance sheet and equity?
A: Edison is committed to its balance sheet strength and plans to fund capital expenditures within its authorized capital structure. They aim to maintain an FFO-to-debt ratio in the 15% to 17% range and will assess equity needs based on financial metrics. -
Transmission Projects Opportunity
Q: What is the potential impact of new transmission projects?
A: Edison is the incumbent transmission owner for 17 projects totaling over $2 billion, largely planned post-2028. They are awaiting decisions on two competitive bids expected in the spring. These projects represent significant long-term growth opportunities. -
Asset Sales of Tower Attachments
Q: What is the status of tower attachment asset sales?
A: Edison is awaiting the scoping memo from the commission and hopes to proceed soon. The sale could occur this year or extend into 2025, depending on the regulatory schedule. -
Building Electrification Efforts
Q: How will you pursue building electrification after proposal denial?
A: Despite the denial of their application, Edison views building electrification as essential for meeting state decarbonization goals. They are exploring other strategies, including different funding sources, to address this opportunity. -
AI Cost-Cutting Opportunities
Q: How significant are AI-driven cost-cutting opportunities?
A: Edison sees AI as a long-term opportunity with significant potential for efficiency gains. While early initiatives are showing impact, it will take time for these technologies to mature and materially contribute to cost savings. -
Future Earnings Outlook
Q: What is the expected earnings profile from 2025 to 2028?
A: Edison expects earnings growth driven by rate base growth, targeting an EPS growth rate of 5% to 7% through 2028. Wildfire claims debt expense is stabilizing, and O&M efficiencies are not significant drivers in this period. -
Interest Expense Stability
Q: Why is interest expense stable despite claims funding?
A: Interest expense remains at $0.61 in both 2024 and 2025 due to minimal refinancing needs and the stabilization of wildfire claims debt. Most claims payments will be completed by the end of 2024, limiting further debt increases. -
Transmission ROE Concerns
Q: Is there risk of a lower transmission ROE?
A: Edison is comfortable with the assumed 10.3% transmission ROE from a black-box settlement. While intervenors could request a new rate case, the current interest rate environment supports their position. -
Woolsey Claim Deadline Impact
Q: How does the Woolsey claim deadline affect losses?
A: The process for filing Woolsey fire claims has ended. Edison is evaluating the responses and will update on the impact to total losses in the next earnings call. -
Earnings Drag Clarification
Q: Will wildfire debt drag be offset by cost recovery?
A: Edison has not assumed any recovery from the cost recovery application in earnings forecasts, so the $0.61 earnings drag from wildfire debt is not offset. Potential recovery could provide a future benefit. -
Settling Claims Impact
Q: How did settling claims affect the reserve increase?
A: A recent $65 million reserve increase was largely due to one claim. Edison expects to complete wildfire claims payments by the end of 2024.
Research analysts covering EDISON INTERNATIONAL.