Approximately $16 billion of debt securities affected
New York, July 29, 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 has been changed
to stable from negative. Please see below for a complete list of
ratings affirmed.
Outlook Actions:
..Issuer: Edison International
....Outlook, Changed To Stable From
Negative
..Issuer: SCE Trust II
....Outlook, Changed To Stable From
Negative
..Issuer: SCE Trust III
....Outlook, Changed To Stable From
Negative
..Issuer: SCE Trust IV
....Outlook, Changed To Stable From
Negative
..Issuer: SCE TRUST V
....Outlook, Changed To Stable From
Negative
..Issuer: SCE Trust VI
....Outlook, Changed To Stable From
Negative
..Issuer: Southern California Edison Company
....Outlook, Changed To Stable From
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
....Pref. Stock 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
"With the establishment of insurance-like fund as a part
of the recently enacted wildfire mitigation legislation AB 1054,
we expect SCE's future wildfire liabilities will be capped,"
said Toby Shea VP -- Senior Credit Officer, "we view
this liability cap, along with a more favorable prudency standard
put in place, to be sufficient to stabilize Edison and SCE's
credit profiles."
The liability cap on cost disallowance is the most credit supportive feature
of the insurance fund. The liability cap is calculated at 20%
of the equity portion of the company's rate base over any three
consecutive calendar years. The 20% applies to SCE's
transmission and distribution (T&D) system. The cap will not,
however, cover any gross negligence.
If and when the insurance fund's claims-paying capability
is exhausted, all of these benefits will disappear, though
the more favorable prudency standard, which is similar to the standard
applied by the Federal Energy Regulatory Commission (FERC), will
remain in place. Pending application of this revised standard by
the CPUC, its implementation would likely strengthen our view of
the credit supportiveness of the regulatory environment in California.
The size of the insurance fund is an important consideration for SCE's
credit quality. Even though the fund is capitalized with $21
billion of capital, assuming Pacific Gas & Electric Company
(ratings withdrawn) also participates, it should be able to address
over $40 billion of gross claims. The actual net usage of
the insurance fund should be considerably lower than the gross claim amount
because the utilities are expected to maintain $1 billion of wildfire
insurance each and the fund is designed to only pay subrogation claims
that are settled at 40 cents on a dollar or less.
It is notoriously difficult to model wildfire risk because it is hard
to quantify the effects of weather, climate change and the utilities'
risk mitigation measures. Nonetheless, we believe the insurance
fund will be large enough to cover all but the most extreme downside scenarios
over the next decade. 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 that 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 this falls steadily to 25% by 2030.
We forecast that the insurance fund option will result in a CFO pre-WC
to debt ratio averaging 15% over the five year forecast period
for SCE and 13% for EIX. These ratios are supportive of
their current respective senior unsecured ratings of Baa2 and Baa3.
These ratios incorporate a large $2.2 billion cash flow
from operations decline in 2019 as part of the contribution to the insurance
fund, as well as $1.8 billion of payments associated
with wildfire claims in 2017 and 2018.
Outlook
The passage of AB 1054 and the subsequent establishment of the insurance
fund has had a strong stabilizing effect on SCE and Edison's credit
profiles. However, SCE's credit profile could still
evolve, to a stronger position or a weaker position, depending
on the implementation of the wildfire legislation and the company's
success in containing and eventually reducing the underlying wildfire
risk.
Factors that could lead to an upgrade
We could upgrade Edison and SCE's ratings if SCE's wildfire
risk diminishes and the provisions under AB 1054 are implemented on a
timely basis and successfully tested. A higher rating would also
require a CFO pre-WC to debt ratio in the high teens for SCE and
mid-teens for Edison.
Factors that could lead to a downgrade
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 likely trigger negative action on the rating.
We could also take a negative rating action if SCE's underlying
wildfire risk worsens or if the insurance is exhausted well ahead of its
expected life. Downward pressure is also likely if SCE records
a ratio CFO pre-W/C to debt below 15% on a sustained basis
and Edison falls below 13%.
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 the 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
