Approximately $16 billion of debt securities affected
New York, July 12, 2019 -- Moody's Investors Service ("Moody's") today affirmed
the ratings of Edison International (Edison), including its Baa3
senior unsecured rating, and the ratings of its principal subsidiary
Southern California Edison Company (SCE), including its Baa2 senior
unsecured rating. The outlook of both entities remains negative.
Please see below for a complete list of ratings affirmed.
Outlook Actions:
..Issuer: Edison International
....Outlook, Remains Negative
..Issuer: Southern California Edison Company
....Outlook, Remains Negative
..Issuer: SCE Trust II
....Outlook, Remains Negative
..Issuer: SCE Trust III
....Outlook, Remains Negative
..Issuer: SCE Trust IV
....Outlook, Remains Negative
..Issuer: SCE TRUST V
....Outlook, Remains Negative
..Issuer: SCE Trust VI
....Outlook, Remains Negative
Affirmations:
..Issuer: California Pollution Control Financing Auth.
....Senior Unsecured Revenue Bonds,
Affirmed Baa2
....Underlying Senior Unsecured Revenue Bonds,
Affirmed Baa2
..Issuer: California Statewide Communities Dev.
Auth.
....Senior Secured Revenue Bonds, Affirmed
A3
....Underlying Senior Secured Revenue Bonds,
Affirmed A3
..Issuer: CLARK (COUNTY OF) NV
....Senior Secured Revenue Bonds, Affirmed
A3
....Senior Unsecured Revenue Bonds,
Affirmed Baa2
..Issuer: Edison International
.... Issuer Rating, Affirmed Baa3
....Senior Unsecured Bank Credit Facility,
Affirmed Baa3
....Senior Unsecured Commercial Paper,
Affirmed P-3
....Senior Unsecured Regular Bond/Debenture,
Affirmed Baa3
....Senior Unsecured Shelf, Affirmed
(P)Baa3
..Issuer: Farmington (City of) NM
....Senior Secured Revenue Bonds, Affirmed
A3
....Senior Unsecured Revenue Bonds,
Affirmed Baa2
....Underlying Senior Unsecured Revenue Bonds,
Affirmed Baa2
..Issuer: Maricopa (County of) AZ, Poll.
Ctrl. Corp.
....Senior Secured Revenue Bonds, Affirmed
A3
..Issuer: SCE Trust II
....Pref. Stock, Affirmed Ba1
..Issuer: SCE Trust III
....Pref. Stock, Affirmed Ba1
..Issuer: SCE Trust IV
....Pref. Stock, Affirmed Ba1
..Issuer: SCE TRUST V
....Pref. Stock, Affirmed Ba1
..Issuer: SCE Trust VI
....Pref. Stock, Affirmed Ba1
..Issuer: Southern California Edison Company
.... Issuer Rating, Affirmed Baa2
....Senior Secured Shelf, Affirmed (P)A3
....Preferred Shelf, Affirmed (P)Ba1
....Senior Unsecured Shelf, Affirmed
(P)Baa2
....Pref. Stock, Affirmed Ba1
....Senior Secured First Mortgage Bonds,
Affirmed A3
....Underlying Senior Secured First Mortgage
Bonds, Affirmed A3
....Senior Unsecured Bank Credit Facility,
Affirmed Baa2
....Senior Unsecured Commercial Paper,
Affirmed P-2
....Senior Unsecured Regular Bond/Debenture,
Affirmed Baa2
RATINGS RATIONALE
The ratings affirmation follows the passage of legislation in California
(AB 1054 and other bills) establishing a wildfire fund to enhance liquidity
and other measures to mitigate wildfire risk for the state's electric
utilities. The legislation is credit positive because it helps
address the more contentious political and regulatory environment that
emerged in California over the past two years. The bill provides
the investor-owned utilities with two options to participate in
the wildfire fund -- the liquidity fund option or the insurance fund
option -- to reduce financial exposure to wildfires.
"The insurance fund option is more supportive of SCE's credit
profile than the liquidity fund option by a wide margin" said Toby
Shea VP -- Senior Credit Officer, "However, the
negative outlook reflects the existing uncertainty as to which option
will be chosen."
For the insurance fund to be created, both SCE, and its neighboring
utility, San Diego Gas & Electric (SDG&E: Baa1 negative),
have to select this option, which will occur within the next two
weeks. Moody's notes that the two utilities are somewhat
tied together with respect to their decision making, although SCE's
decision will be more difficult because it has a much bigger contribution
requirement to the insurance fund than SDG&E. Upon receipt
of all necessary certifications, the insurance option is likely
to stabilize the credit profile for both utilities, all else being
equal.
Under both wildfire fund options, SDG&E and SCE would have access
to immediate liquidity in the event of a wildfire. However,
the insurance fund provides a much higher level of risk reduction for
SCE because it caps the amount of cost disallowance associated with catastrophic
wildfires and applies a more credit supportive prudency standard.
This option would also foster a more expedient subrogation claims settlement
process.
If and when the insurance fund's claims-paying capability
is exhausted, the majority of the credit friendly attributes,
including the disallowance cap, will terminate. However,
the more favorable prudency standard, which is similar to the standard
applied by the Federal Energy Regulatory Commission (FERC), will
remain in place.
The change in the prudency standard is important because, in the
case of SDG&E's 2007 wildfires, the FERC ruled that SDG&E
acted prudently and allowed the recovery of the wildfire costs whereas
the California Public Utility Commission (CPUC) disallowed the entire
request. . We would view California's regulatory environment
as materially improved if the prudency standard for wildfires is revised.
In contrast, the liquidity fund will have a smaller balance initially
compared to the insurance fund, and will not include a cap on disallowances
or a revised prudency standard, making it much less credit supportive.
It has one key advantage, however. Unlike the insurance fund,
the liquidity fund will be replenished, as either the utility or
ratepayer will reimburse the fund, depending on if the utility was
found to have acted prudently.
We believe the size of the insurance fund will account for all but the
most extreme downside scenarios. Assuming Pacific Gas & Electric
also participates, the fund will be capitalized with $21
billion of capital and a gross claim paying capability of more than $40
billion. According to Filsinger Energy Partners, a consultant
to California Governor Newsome's office, this funding level
has only a 0.9% chance of being exhausted by 2030.
The calculation assumes the wildfire experience of the past five years
continues, utilities maintain $1 billion of wildfire liability
insurance, and 75% of wildfire costs are disallowed in 2020
but falling steadily to 25% by 2030.
We project that SCE's CFO Pre-WC to debt is about 22%
on a run rate basis, and Edison's, 20%.
However, they could be lower due to wildfire mitigation expenditures
and wildfire damage claims. The large wildfire mitigation expenditures
will likely drag SCE's CFO pre-WC to debt to 15% and
Edison's to 11% for 2019, but these ratios quickly
recover as a result of collections through the balancing accounts.
For wildfire damage claims, with all else equal, hitting the
disallowance cap would result in a CFO pre-WC to debt of about
18% on average from 22% for SCE and for Edison, of
15% from 20%.
Outlook
The maintenance of the negative outlook reflects the uncertainty around
SCE and SDG&E's choice of an insurance fund or a liquidity fund.
Factors that could lead to an upgrade
We could consider a stable outlook if both SCE and SDG&E choose the
insurance fund. We could upgrade Edison and SCE's ratings
in the future if SCE's wildfire risk diminishes and the provisions
under AB 1054 are successfully implemented on a timely basis and seasoned.
Factors that could lead to a downgrade
We could consider a downgrade if either SCE or SDG&E chooses the liquidity
fund option. Failure by the regulators to successfully implement
the provisions of AB 1054 associated with the insurance fund in a consistent
and credit supportive manner would also likely trigger negative action
on the rating. Downward pressure is also likely if SCE records
a ratio CFO pre-W/C to debt below 15% on a sustained basis.
Company Profile
Headquartered in Rosemead, Edison is a California based electric
utility holding company with its principal subsidiary SCE supplying electric
energy to 5 million customers in central, coastal and southern California.
SCE is predominantly a transmission and distribution company. SCE's
earnings are regulated by California Public Utility Commission and the
Federal Energy Regulatory Commission.
The principal methodology used in these ratings was Regulated Electric
and Gas Utilities published in June 2017. Please see the Rating
Methodologies page on www.moodys.com for a copy of this
methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Toby Shea
VP - Senior Credit Officer
Infrastructure Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Michael G. Haggarty
Associate Managing Director
Infrastructure Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
