Edison International (NYSE:EIX), parent company of Southern California Edison (SCE), reported solid 3Q13 earnings performance that reflected continued cost management efforts and favorable tax benefits, despite continued uncertainty over financial matters related to the San Onofre Nuclear Generating Station (SONGS) and Edison Mission Energy (EME).
Resolving uncertainties, including those related to SONGS and EME, is one of the keys to creating long-term value, Ted Craver, chairman and CEO of Edison International, said during the company’s 3Q13 earnings call Oct. 29. To that end, he pledged to hold Mitsubishi Heavy Industries, the manufacturer of the steam generators that failed at SONGS, “accountable for its failure to provide properly functioning steam generators, and for the damage it has inflicted on our customers and our company.”
Craver referred to an NRC inspection report in which the NRC identified “flaws in the computer code in Mitsubishi Heavy Industries’ proprietary engineering models used to design the failed steam generators at SONGS,” he said. As a result, NRC issued a notice of non-conformance with NRC regulations to Mitsubishi Heavy Industries as the contractor, and preliminary “white finding” violation to SCE as the operator. A “white finding” means “having low to moderate safety significance.”
“It is not unusual for the NRC to cite the licensed operator, even when problems are created by a vendor or contractor,” Craver said, but added there were no penalties imposed on SCE by the NRC. SCE has submitted preliminary comments on the white finding to the NRC.
SCE has also submitted a request for arbitration of at least $4bn in claims against Mitsubishi for damages that the SONGS owners have suffered. In the meantime, an order instituting an investigation related to SONGS is continuing at the CPUC, and Craver said he was hopeful that the investigation will be resolved in 2014.
Craver also addressed the potential for financial exposure to issues related to Edison Mission Energy (EME), which has been in Chapter 11 bankruptcy since December 2012.
NRG Energy (NYSE:NRG) has worked out a deal to take over EME but Edison International is not a party to that transaction and has no details beyond what has been reported publicly, Craver said. Accordingly, the company is reserving its right to support the plan, oppose it, and/or seek modification to it.
“If the sale to NRG is completed, then a reorganized EME would be wound down, but would retain the right to pursue claims against Edison International,” Craver said. Likewise, EIX will retain the right to assert its claims against EME.
“Edison International does not know if a complaint will ever be filed against it but if it is, we will defend ourselves vigorously,” he said.
As a result of the bankruptcy process, EIX’s investment in EME was written off last year, Craver said, noting that EME is no longer included in the company’s operating results.
Rate case filing imminent
SCE plans to file the formal application for its 2015 general rate case with the CPUC in mid-November. The original notice of intent (NOI) demonstrated the need for long-term reliability investments, and Craver said the formal application should track the NOI closely.
EIX’s 3Q13 basic earnings were $438m, compared to $190m during 3Q12. Of that, $477m was attributable to SCE, a loss of $14m to EIX parent and others, and a $25m loss from discontinued operations, though Craver cautioned against reading too much into the year-over-year comparison.
“Keep in mind that year-over-year quarterly comparisons are somewhat skewed,” he said, noting that a delay in receiving a general rate case decision from the CPUC dampened earnings in 3Q12.