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SOUTHERN CALIFORNIA EDISON Co (SCE-PG)·Q4 2023 Earnings Summary

Executive Summary

  • Q4 2023: GAAP EPS $0.99 and Core EPS $1.28; management cited higher GRC revenue and lower O&M offset by higher interest expense as the primary drivers (core up year over year) .
  • 2024 guidance introduced: Core EPS $4.75–$5.05; long-term core EPS growth targets of 5–7% reiterated for 2021–2025 and 2025–2028 .
  • Wildfire mitigation: SCE exceeded its 2023 covered‑conductor target (total 5,580+ miles) and estimates 85–88% reduction in catastrophic wildfire risk vs pre‑2018; plans 1,050 miles in 2024, approaching ~90% hardening of HFRA distribution lines by end‑2025 .
  • Regulatory catalysts: CPUC cost of capital mechanism lifts ROE to 10.75% for 2024–2025; TKM cost recovery proceeding schedule allows a final decision as soon as Q1 2025; Woolsey application targeted for Q3 2024 .

What Went Well and What Went Wrong

What Went Well

  • Core EPS rose to $1.28 (+$0.13 YoY), driven by higher GRC revenue and lower O&M; “Delivering core EPS above the midpoint of our guidance range demonstrates our ability to successfully manage variability” – CEO Pedro Pizarro .
  • Wildfire mitigation execution: SCE surpassed 1,100 miles of covered conductor in 2023; cumulative deployment 5,580+ miles, with estimated 85–88% wildfire risk reduction versus pre‑2018 levels .
  • Long-term investment visibility: Capital plan of ~$38–$43B (2023–2028) and projected ~6–8% rate base CAGR underpin confidence in 5–7% EPS growth through 2028 .

What Went Wrong

  • Interest expense headwind: Higher interest on wildfire claims debt remained a material drag; management quantified a $325M pre‑tax interest burden ($0.61/share) reducing 2021–2025 core EPS growth by ~250 bps .
  • Legacy wildfire liabilities: Best estimate of total losses increased by $65M in Q4 (majority from one settlement), highlighting claims complexity and tail risk until resolution .
  • Building electrification: CPUC denied SCE’s application amid near-term affordability concerns; management is evaluating alternative pathways to support state decarbonization goals .

Financial Results

MetricQ2 2023Q3 2023Q4 2023
EIX GAAP EPS ($)$0.92 $0.40 $0.99
EIX Core EPS ($)$1.01 $1.38 $1.28
EIX Net Income ($MM)$354 $155 $378
SCE Net Income ($MM)$420 $239 $445
FY MetricFY 2022FY 2023
Operating Revenue ($MM)$17,220 $16,338
Operating Income ($MM)$1,483 $2,627
Net Income ($MM)$824 $1,407

Segment/Contribution (per share) – Q4 2023:

Contribution to EIX Basic EPSQ4 2023
SCE EPS ($)$1.16
Parent & Other EPS ($)($0.17)
EIX Basic EPS ($)$0.99

KPIs:

KPIQ2 2023Q3 2023Q4 20232024 Plan
Covered Conductor Miles (cumulative)4,950+ 5,200+ 5,580+ +1,050 miles
Estimated Wildfire Risk Reduction vs pre-201885% 85% 85–88% ~90% HFRA hardening by end‑2025

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
EIX Core EPS2024N/A$4.75–$5.05 Introduced
CPUC ROE (CCM)2024–202510.05% 10.75% Raised
EIX Common Dividend (quarterly)Q1 2024N/A$0.78 declared; payable Apr 30, 2024 Declared
SCE Covered Conductor20241,100 miles target achieved 2023 1,050 miles planned Ramp-down begins

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3 2023)Current Period (Q4 2023)Trend
Wildfire mitigation~5,000 miles covered conductor; ~85% risk reduction; PSPS mitigation improving 5,580+ miles; 85–88% risk reduction; approaching ~90% HFRA hardening by end‑2025 Continued progress; program set to ramp down post‑2024
Regulatory/legal (TKM/Woolsey)TKM application filed ($2.4B); CCM likely to trigger; Track 4 settlement sought TKM scoping memo adopts SCE framing; decision possible Q1 2025; Woolsey cost recovery targeted Q3 2024 Visibility improving; key 2024–2025 catalysts
Rate base/capex$38–$43B capex 2023–2028; 6–8% rate base CAGR Reaffirmed trajectory; minimal 2024 parent financing; 2025 rate base step‑up detailed Strong underlying growth sustained
AI/technologyComputer vision and generative AI in inspections, customer ops Expanded AI adoption in inspections, sentiment analytics, grid planning Scaling operational excellence
Affordability/Building electrificationPrograms and funding pathways emphasized CPUC denial acknowledged; pursuing alternate strategies Recalibrating approach under affordability constraints

Management Commentary

  • “Delivering core EPS above the midpoint of our guidance range demonstrates our ability to successfully manage variability in the business.” – Pedro Pizarro, CEO .
  • “We are on track to achieve 5 to 7% core EPS growth for 2021 through 2025 despite the burden of about $325 million of pre‑tax interest.” – Maria Rigatti, CFO .
  • “SCE’s industry‑leading covered conductor program continues to make tremendous progress… more than 5,580 circuit miles… significantly reduced the need for Public Safety Power Shutoffs.” – Pedro Pizarro .
  • “The biggest contributor to 2025 earnings growth comes from an increase in rate base earnings… the 2025 GRC drives $0.63 of the change; non‑GRC and FERC add $0.15.” – Maria Rigatti .

Q&A Highlights

  • O&M reinvestment: Management expects a $0.15–$0.20 EPS headwind in 2024 from targeted reliability and operational excellence investments; framed as long‑term customer value creation .
  • Wildfire debt drag: Interest expense (~$0.61/share) is a key headwind, expected to stabilize as claims settlements substantially complete by end‑2024; only ~$300MM wildfire debt maturing in 2025 .
  • Rate base true‑ups: 2025 EPS bridge includes ~$0.37 from prior period rate base true‑ups and ~$0.26 from new capex; operational variances not a key driver into 2025 .
  • Transmission growth: SCE incumbent owner for 17 CAISO projects (> $2B), with competitive bids for two projects; most spending is post‑2028 .
  • Building electrification: CPUC denial acknowledged; Edison will explore alternate strategies/funding to support decarbonization goals .

Estimates Context

  • Comparison to Wall Street consensus: SPGI/Capital IQ quarterly consensus estimates were unavailable due to provider request‑limit error at time of analysis; therefore, we cannot assess Q4 EPS/revenue vs consensus or quantify a beat/miss. We will refresh when SPGI access is restored.

Key Takeaways for Investors

  • Near-term: 2024 Core EPS guidance $4.75–$5.05 with explicit drivers (rate base earnings up; lower SCE operational variance; higher wildfire interest); watch CCM implementation timing and TKM procedural milestones for sentiment shifts .
  • Regulatory catalysts: TKM scoping memo (final decision as soon as Q1 2025) and Woolsey filing (target Q3 2024) are potential de‑risking events; securitization could reduce interest burden and enhance FFO metrics .
  • Structural growth: Distribution‑led capex and rate base CAGR (6–8%) support 5–7% EPS growth through 2028; minimal parent equity needs ($100MM/year) and limited variable‑rate exposure underpin financing resilience .
  • Wildfire mitigation progress: 5,580+ miles covered conductor and 85–88% risk reduction; 2024 plan (1,050 miles) advances toward ~90% HFRA hardening by end‑2025 – supports risk profile improvement and may narrow financing spreads over time .
  • Operational excellence: O&M reinvestment tempers 2024 EPS but is aimed at long‑term reliability and efficiency gains (including AI deployments) – track execution against stated programs and savings .
  • Dividend continuity: Quarterly $0.78 declared (EIX) and preference stock dividends at SCE; dividend growth remains part of total return math given 5–7% EPS CAGR targets .
  • Monitoring list: SPGI consensus benchmarks (when available), wildfire cost recovery trajectory, CCM rate updates, 2025 GRC outcomes, and CAISO transmission awards for incremental upside .